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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-24794
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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CHARTWELL LEISURE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3326054
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10 ROCKEFELLER PLAZA
SUITE 1250
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(212) 867-7787
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 6, 1997, based on the last reported sale price per share
of these shares of $14 1/4 on that date, was $88,646,015.
As of March 6, 1997, there were 11,160,779 shares of the Registrant's Common
Stock, par value $.01 per share ("Common Stock"), issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW
Chartwell Leisure Inc. ("Chartwell" or the "Company"), is a hotel and motel
owner, operator, developer and acquiror. Chartwell owns, directly or with
joint venture partners, 130 hotel properties in both the full-service and
limited-service segments, including approximately 11,410 guest rooms, located
in 25 states and six Canadian provinces. In the full-service segment,
Chartwell operates 27 hotels aggregating approximately 5,430 guest rooms that
contributed approximately 63% of Chartwell's gross room revenues (including
gross room revenues of unconsolidated joint ventures) during the twelve-month
period ended December 31, 1996 on a pro forma basis. Chartwell's remaining 103
hotels, consisting of approximately 5,980 rooms, operate in the limited-
service segment, principally under the Travelodge(R) brand.
Chartwell was spun-off from HFS Incorporated ("HFS") in 1994 and until late
1995 was engaged in the business of investing in casino gaming facilities. In
December 1995, an investment group ("CL Associates") primarily consisting of
members of the Fisher Brothers family and a trust for the benefit of Gordon
Getty and members of his family acquired a 16.6% equity interest in Chartwell
by purchasing 904,930 newly issued shares of Common Stock. In connection with
that purchase, Richard L. Fisher, a member of the Fisher Brothers family, was
elected to Chartwell's Board of Directors and to the chairmanship of
Chartwell's executive committee. At the same time, Chartwell's Board of
Directors decided to redirect the focus of Chartwell's business from gaming to
lodging and Chartwell agreed to acquire full and partial interests in 115
Travelodge hotels, consisting of approximately 8,000 guest rooms, from Forte
Hotels, Inc. ("Forte Hotels") for approximately $99 million (the "Travelodge
Acquisition").
In connection with the closing of the Travelodge Acquisition in January
1996, Chartwell agreed in principle to issue four million shares of Common
Stock for an aggregate purchase price of $57 million (the "CL Associates/FSNL
Investment") to an expanded investment group consisting of CL Associates and a
limited liability company owned principally by a trust for the benefit of
Charles de Gunzburg ("FSNL"), Mr. Fisher was elected Chairman and Chief
Executive Officer of Chartwell, a new senior management team was assembled,
and Mr. Fisher and that new management team began to implement Chartwell's
current strategy. Since that time, Chartwell has (i) acquired 21 Travelodge
hotels in Canada (including a one-half interest in a joint venture) totalling
approximately 3,500 guest rooms, for approximately $77 million (a cost of
approximately $22,000 per guest room) (the "Canadian Acquisition"), (ii)
obtained the 30-year exclusive master franchise licenses for the Travelodge
brand in Canada and Mexico, (iii) formed a joint venture ("Chartwell de
Mexico") with Grupo Piasa, S.A. de C.V., a diversified Mexican real estate and
development company ("Grupo Piasa"), for the purpose of developing and
operating Travelodge hotels throughout Mexico and (iv) formed a strategic
alliance with Hilton Inns, Inc. ("Hilton") pursuant to which Chartwell expects
to develop, own, manage and operate up to 20 Hilton Garden Inn(R) hotels in
target markets nationwide under a franchise license. Chartwell has curtailed
future activities in the gaming industry and, during the twelve-month period
ended December 31, 1996, derived no revenues from gaming.
Chartwell's original gaming business was conducted as a division of HFS from
August 1993 until September 1994, when the Company was formed as National
Gaming Corp., a Delaware corporation and a wholly owned subsidiary of HFS
created for the purpose of carrying on that business. In November 1994, the
Company became an independent public company when HFS distributed all of the
outstanding shares of the Company's Common Stock to the stockholders of HFS
(the "Distribution"). In January 1996, the Company's name was changed to
National Lodging Corp., and on August 8, 1996, the Company's name became
Chartwell Leisure Inc. Chartwell's principal executive offices are located at
605 Third Avenue, New York, New York 10158, and its telephone number is (212)
692-1400. Unless the context otherwise requires, all references in this annual
report to the Company include Chartwell, its subsidiaries and their respective
predecessors, and references to "hotels" include both hotels and motels.
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RECENT DEVELOPMENTS
Strategic Alliance with Hilton: On January 20, 1997, Chartwell announced
that it had formed a strategic alliance with Hilton in which Chartwell expects
to develop, own, manage and operate at least 20 Hilton Garden Inn hotels in
target markets nationwide under a franchise license. The initial term of the
alliance is three years and will require a total investment of up to $200
million by Chartwell, of which approximately $40 million is required to be
funded by Chartwell as equity. Hilton is in negotiations with NationsBank
Corp. ("NationsBank") and Nomura Asset Capital Corporation ("Nomura") to
arrange for construction financing and permanent mortgage financing for the
Hilton Garden Inn development program. There can be no assurance that such
financing will be obtained. Of the total construction costs, NationsBank is
expected to provide up to 80% of the financing, with Hilton expected to
guarantee up to 25% of the NationsBank loan. Chartwell is required to fund the
remaining 20% of the capital as equity. The financing terms are expected to
provide that upon obtaining a certificate of occupancy for each Hilton Garden
Inn, the construction loan allocated for such hotel is expected to convert to
a 15-year permanent mortgage through an arrangement with Nomura. Chartwell
expects to commence construction of its first Hilton Garden Inn shortly at
Albuquerque International Airport and this spring expects to commence
construction of its second Hilton Garden Inn site in Santa Fe, New Mexico at
its Anasazi Plaza site. Chartwell expects to break ground on other Hilton
Garden Inns as additional sites are secured. In addition to the Hilton Garden
Inn franchise license, Hilton has formally approved the conversion of the 207
room, Chartwell-owned San Diego Travelodge to a full-service Hilton hotel. The
property, on Harbor Island Drive, is scheduled to undergo a $3.3 million
renovation, expected to be completed by this summer.
Sale of Common Stock to Brahman Funds: On January 31, 1997, Chartwell sold
1,000,000 shares of Common Stock to funds managed by affiliates of Brahman
Management, LLC (collectively, "Brahman") at $14 per share, for a total
investment of $14 million by Brahman (the "Brahman Private Placement").
Brahman manages investment funds, including one affiliated with George Soros.
As a result of the Brahman Private Placement, the Brahman-Soros group owns
approximately 1,300,000 shares of Common Stock, or approximately 9.7% of the
Company's outstanding Common Stock, after giving effect to the issuance of
2,228,977 shares of Common Stock pursuant to the Rights Offering (discussed
below).
Sale of Common Stock to Baron Fund: On March 6, 1997, Chartwell sold 658,929
shares of Common Stock to Baron Asset Fund ("Baron") at $14.00 per share, for
a total investment of approximately $9.2 million by Baron (the "Baron Private
Placement"). Baron is one of a family of funds managed by Ronald Baron. As a
result of the Baron Private Placement, Baron owns 658,929 shares of Common
Stock, or approximately 4.9% of the Company's outstanding Common Stock, after
giving effect to the issuance of 2,228,977 shares of Common Stock pursuant to
the Rights Offering.
Rights Offering: On March 13, 1997, Chartwell completed an offering (the
"Rights Offering") of 2,228,977 shares of Common Stock pursuant to the
exercise of transferable subscription rights ("Rights") that were distributed
to holders of record ("Record Holders") at the close of business on February
13, 1997 of Chartwell's Common Stock and to holders of certain options
("Participating Option Holders") to purchase shares of Common Stock. The
Rights, which were distributed to the Record Holders and the Participating
Option Holders at no cost, were exercisable at a cash price of $14.00 per
share. After deducting expenses of approximately $1.2 million, the net
proceeds of the Rights Offering to Chartwell were approximately $30.0 million.
Notes Offering: Chartwell is in the process of pursuing a $100 million
offering of senior notes (the "Notes") due 2007 (the "Notes Offering"). In
connection with the Notes Offering, it is expected that Chartwell's existing
$150.0 million credit facility will be terminated and replaced with a new
secured facility of approximately $60.0 million and that HFS' $75 million
guarantee of Chartwell's existing credit facility and a related $1.5 annual
million fee will be eliminated. There can be no assurance that the Company
will be able to successfully complete the Notes Offering or enter into a new
credit facility and consummate the related refinancing of its existing credit
facility. The Company intends to use the net proceeds from the Notes Offering,
together with the net proceeds from the Brahman Private Placement, the Baron
Private Placement and the Rights
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Offering, to repay existing indebtedness under its existing credit facility
and for working capital and general corporate purposes, including to fund
current and future development projects. In addition, as Chartwell evaluates
from time to time potential acquisition opportunities, a portion of such net
proceeds may be used to acquire additional hotels. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Equity Offerings" and "--Notes Offering."
GROWTH STRATEGY
Chartwell's new senior management team has implemented multiple strategies
to increase cash flow, earnings and shareholder value by (i) internal growth
through an extensive capital investments program, of rebranding and
repositioning of its existing hotels and of reimaging and remarketing of the
Travelodge brand name, while controlling costs and (ii) external growth
through increasing and diversifying Chartwell's hotel portfolio by selectively
acquiring and developing hotels in different market segments and geographic
regions.
Internal Growth Opportunities: Chartwell believes that the hotels it
acquired in the Travelodge Acquisition and the Canadian Acquisition, and the
Travelodge brand as a whole, were allowed to significantly underperform their
potential. Chartwell believes that capital investments and operational changes
designed to bring the performance of these hotels up to or in excess of
industry averages offer the potential for significant improvements in cash
flow at these hotels.
. Capital Investments: The Company believes that the hotels it acquired in
the Travelodge Acquisition and the Canadian Acquisition offer the
opportunity for significant increases in revenue per available room
("REVPAR") through a capital expenditures program. The Company has
launched an extensive capital improvement program to increase room and
occupancy rates by improving the quality of its properties. As part of
this program, the Company expects to upgrade the interior and exterior
of all properties that do not meet corporate standards. In addition, the
Company intends to redesign the architectural layout of its Travelodge
hotels to provide them with a "curb appeal" necessary to compete in the
limited-service market. During 1997, the Company intends to spend
approximately $20 million in capital improvements at its U.S. and
Canadian hotel properties. These investments are in addition to amounts
budgeted for regular capital maintenance. As of December 31, 1996, the
Company had invested approximately $5.8 million in capital expenditures.
Once this capital initiative is completed, the Company intends to
maintain a regular program of capital improvements, including the
renovation and refurbishment of certain of its existing hotels. The
Company believes that this program will enhance the competitiveness of
its Travelodge hotels.
. Strategic Repositioning and Redevelopment of Current Hotels: Chartwell
believes there is significant potential to increase REVPAR at selected
hotels by repositioning those hotels through renovation and
refurbishment as well as rebranding to more appropriate franchise
affiliations. The Company believes that some of its Travelodge hotels
would satisfy market demand through expanding the size of the hotel. For
example, Chartwell intends to add approximately 100 guest rooms at the
Fisherman's Wharf Travelodge, subject to local zoning approval. See
"Business--Growth Strategy--External Growth Opportunities--Travelodge
Acquisition." The Company believes that in conjunction with its capital
improvements program, a number of its current hotels will become more
competitive and increase revenues by brand repositioning through
conversion to another leading national franchise affiliation and/or
expanding the size of the hotel. Since the Travelodge Acquisition,
Chartwell has converted both the 476-room Travelodge hotel at Kennedy
Airport in New York and the 236-room Travelodge hotel in Portland,
Oregon to Ramada Plaza(R) hotels and is in the process of converting the
207-room Travelodge hotel in San Diego, California to a Hilton hotel.
The Company continues to evaluate and assess the strategic advantages of
brand repositioning of all of its hotels in order to enhance the
performance of its hotels.
. Reimaging and Remarketing the Travelodge Brand Name: HFS has implemented
a program in cooperation with Chartwell to revitalize the Travelodge
brand name, which includes (i) the proposed expenditure of approximately
$5.5 million budgeted by HFS through December 31, 1997 for marketing
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the Travelodge brand name, (ii) the reintroduction of the Sleepy Bear
mascot and (iii) the introduction of a program that will reward guests
with "Travel Miles," exchangeable for gifts. In addition, Chartwell has
budgeted approximately $3 million during 1997 for marketing individual
hotels, generally in their local markets.
External Growth Opportunities:
. Acquisition of Hotels: Chartwell seeks to continue the acquisition of
underperforming hotels or portfolios of hotels throughout North America
that are candidates for improved operating performance by implementing
Chartwell's growth strategy of refurbishing, rebranding, repositioning,
and reimaging underperforming hotels.
Travelodge Acquisition: On January 23, 1996, the Company completed the
acquisition of all of the outstanding shares of Common Stock of Forte Hotels
from Forte USA, Inc. for approximately $99 million. The principal assets of
Forte Hotels consisted of fee and leasehold interests in 115 hotel properties,
including sole ownership of 18 hotels and joint venture interests in 97
additional hotels (the "Acquired Forte Properties") constituting in the
aggregate approximately 8,000 guest rooms. Substantially all of the Acquired
Forte Properties operate under the names "Travelodge" and "Thriftlodge"
pursuant to franchise agreements acquired by HFS or entered into with HFS in
connection with the Travelodge Acquisition. See "Business--Franchise
Agreements." In connection with the Travelodge Acquisition, the Company also
acquired the lease on Forte Hotels' corporate headquarters in El Cajon,
California, and a 50% profits interest in the hotel management operations of
Royco, a hotel management company based in Calgary, Canada which manages
Canadian hotel properties. See "Business--Growth Strategy--External Growth
Opportunities--Canadian Acquisition." In a related transaction prior to
consummation of the Travelodge Acquisition, HFS and Motels of America, Inc.
acquired directly from Forte Hotels the Travelodge franchise system and 19
hotel properties, respectively, for an aggregate purchase price of $71.6
million. HFS also provided advisory services to the Company in connection with
the Travelodge Acquisition for which the Company paid a $2.0 million fee.
In connection with the Travelodge Acquisition, the Company also acquired a
retail arcade that adjoins its 250-room Travelodge hotel located at
Fisherman's Wharf, San Francisco and a 255-car parking garage. The hotel and
retail complex, which occupies an entire city block, overlooks the San
Francisco Bay. The retail arcade consists of approximately 20,000 square feet
of ground floor frontage located on San Francisco's Jefferson Street.
Currently, the arcade is fully-leased to 14 shops and restaurants. In
connection with the Company's development plan, the Company, subject to local
zoning approval, intends to expand the retail space by an additional 30,000
square feet. The Company occupies the premises under a 74-year master land
lease expiring in February 2035 with an annual rent fixed until termination of
$80,000. In the twelve-month period ended December 31, 1996, the arcade
generated approximately $2.0 million in net operating income.
Canadian Acquisition: On October 1, 1996, the Company purchased from Capital
Properties Limited Partnership ("CPLP") 20 hotels and a one-half interest in
an additional hotel (the "Acquired CPLP Properties"), which represent in the
aggregate approximately 3,500 guest rooms, located throughout Canada. These
hotels operate under the Travelodge brand name and are managed by Royco Hotels
and Resorts, Ltd. ("Royco"). The Company accomplished the Canadian Acquisition
by paying approximately $70 million to purchase substantially all of CPLP's
existing bank debt and to pay certain specified closing costs (including real
estate taxes of $1.8 million), and by assuming the liability for identified
trade payables and property specific bank debt, aggregating approximately
another $7.4 million. In addition, the Company will be obligated to make
certain contingent payments to CPLP following a preferred return to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." The Canadian
Acquisition contributed approximately 29% of the Company's total revenues on a
pro forma basis during the twelve-month period ended December 31, 1996. Of the
$70 million payment, substantially all was financed by bank borrowings under
the credit facility among the Company, Chartwell Canada Corp., which is a
subsidiary of the Company, The Chase Manhattan Bank, as Administrative Agent,
The Bank of Nova Scotia, as Syndication Agent, and the Banks (as defined
therein) from time to time parties thereto (the "Credit Facility").
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In connection with the Canadian Acquisition, the Company was granted the 30-
year master license under an agreement with HFS pursuant to which the Company
is entitled to develop and operate, or to franchise others to develop and
operate, lodging facilities in Canada under the Travelodge and Thriftlodge
brand names. Also in connection with the Canadian Acquisition, the Company
entered into a management services and franchise development agreement (the
"MSFDA") with Royco. Royco manages the Company's Canadian hotels and will
manage any future hotels acquired by the Company in Canada. Subject to the
Company's review, Royco may manage hotels on its own account. Under the MSFDA,
Royco is also responsible for assisting the Company in developing new
Travelodge and Thriftlodge lodging facilities in Canada under the Canadian
Master License. As compensation for its services under the MSFDA, Royco
receives 50% of the profits generated from these management and franchise
development operations. The MSFDA also provides for the payment to Royco of
additional fees under certain circumstances, including, upon the satisfaction
of fixed performance goals and the termination of the agreement. The term of
the MSFDA commenced on December 31, 1996 and expires on December 31, 2006. The
Company has the option to renew the MSFDA for three additional terms of ten
years each. Upon the expiration of the MSFDA, or in the event the agreement is
terminated, Royco has the option to acquire the Company's interest under the
Canadian Master License. Under its terms, the Canadian Master License is
assignable by the Company to Royco.
Other Acquisitions: In addition to the Travelodge Acquisition and Canadian
Acquisition, in May 1996 the Company acquired a 112-room Ramada and a 101-room
Shoney's Inn in Brunswick, Georgia, which the Company intends to reposition,
refurbish and convert into a 213-room Ramada. Acquisitions entail risks that
acquired hotels will fail to perform in accordance with expectations and that
estimates of the cost of improvements necessary to reposition hotels will
prove inaccurate, as well as general investment risks associated with any new
real estate investment. In addition, future trends in the hotel industry may
make future acquisitions economically impractical. Moreover, there can be no
assurance that the Company will be able to acquire hotels that meet its
investment criteria or that any such hotels' operations can be successfully
improved. See "Risk Factors--Expansion Risks."
. Selected Development of Hotels: Selected development of new hotels is a
key part of Chartwell's external growth program. Management believes
that attractive opportunities exist for the development of new full-
service and limited-service hotels in certain markets of the United
States, Canada and Mexico. Consistent with its development strategy of
diversifying and expanding its hotel portfolio, since the Travelodge
Acquisition, the Company has purchased development sites in Albuquerque
and Santa Fe, New Mexico, Phoenix, Arizona and Irving, Texas. In
conjunction with its strategic alliance with Hilton, the Company is
currently developing 120-room Hilton Garden Inn(R) hotels at its
Albuquerque and Santa Fe development sites. The Santa Fe project, which
is located adjacent to the historic district of Santa Fe, is scheduled
for completion in late 1997 and will also include the construction of
two free-standing casual-style restaurants and is expected to include
the development of an additional hotel. The development site in Irving,
Texas will consist of a 112-room Wingate Inn(R) located at the north
entrance of the Dallas/Fort Worth International Airport. The hotel is
scheduled for completion in the fourth quarter of 1997. The Company
anticipates that most of its newly-developed hotels will be franchised
under major franchise brands such as Hilton Garden Inn and Wingate Inn.
Like acquisitions, new project development is also subject to numerous
risks, including risks of construction delays or cost overruns that may
increase project costs. Accordingly, there can be no assurance that the
Company will be able to develop hotels that meet its investment
criteria, site selection process or that any hotels can be successfully
developed. See "Risk Factors--Expansion Risks."
. Chartwell de Mexico: On July 12, 1996, the Company entered into a joint
venture with a wholly owned subsidiary of Grupo Piasa for the purpose of
developing and operating, or franchising others to operate, lodging
facilities in Mexico under the Travelodge and Thriftlodge brand names.
Through Chartwell de Mexico, the Company intends to develop up to 30
Travelodge and other branded lodging facilities throughout Mexico and to
establish Travelodge as the dominant limited service brand in Mexico's
emerging market. The Company's joint venture with Grupo Piasa represents
a significant step
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by the Company in pursuing its development strategy. Chartwell de Mexico
is to be funded with up to $20 million in capital contributions, of
which half are to be contributed by the Company. Chartwell de Mexico's
development strategy is to seek development locations near major
metropolitan markets, airports and commercial centers and to construct
hotels to attract the economy-conscious business and leisure traveler.
The Company believes that there is a significant demand in the Mexican
market for an American franchise hotel brand. The Company will provide
the joint venture with access to such an established brand through the
Travelodge franchise. Chartwell de Mexico, in association with Wings, a
Mexican casual dining restaurant chain, intends to permit Wings to
construct and lease from the Company restaurant facilities in close
proximity to its hotels in order to afford its guests convenient dining
facilities. On September 18, 1996, the joint venture was granted the 30-
year exclusive master license under an agreement with HFS, pursuant to
which the joint venture is entitled to franchise others to develop and
operate, lodging facilities in Mexico under the Travelodge and
Thriftlodge brand names. Chartwell de Mexico is obligated under the
Mexican Master License to develop in various stages up to 1,140 hotel
suites or resort lodging guest rooms by December 31 of each year through
2006. Under certain circumstances, including where the Company does not
satisfy its development obligations in accordance with a prescribed
schedule, the Mexican Master License may be terminated by HFS.
HOTEL PROPERTIES
The Company owns fee and leasehold interests in 130 hotel properties,
including sole ownership of 39 hotel properties (totaling approximately 6,000
rooms) and joint venture interests in 91 additional hotel properties (totaling
approximately 5,400 rooms). Where the properties are operated as a joint
venture or partnership, the Company is, in most instances, the 50% general
partner. The Company's hotels are located in 25 states and six Canadian
provinces, with a particular concentration in the states of California,
Washington, Oregon, Nevada, Arizona and Florida, as well as the Province of
Ontario. As of March 15, 1997, the states and provinces in which those hotels
are located, the number of rooms and brand affiliation of each hotel and the
nature of the Company's ownership interest and percentage of the Company's
joint venture interest, if applicable, are set forth in the following table:
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THE COMPANY'S HOTELS
(AS OF MARCH 15, 1997)
<TABLE>
<CAPTION>
OWNED/JOINT
HOTEL LOCATION # OF ROOMS FRANCHISE BRAND VENTURE ("JV")
----- ----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Full-Service:
San Francisco Wharf Ho-
tel(1)................. CA 250 Travelodge JV/78%
San Diego Harbor Is-
land(2)................ CA 207 Travelodge Owned
Walt Disney World....... FL 325 Travelodge Owned
Brunswick(3)............ GA 213 Ramada Owned
Mt. Laurel.............. NJ 229 Travelodge Owned
J.F.K. ................. NY 476 Ramada Plaza Owned
Portland................ OR 236 Ramada Plaza Owned
Houston................. TX 205 Travelodge Owned
Edmonton West........... Alberta 226 Travelodge Owned
Edmonton South.......... Alberta 222 Travelodge JV/50%
Calgary Macleod Trail... Alberta 220 Travelodge Owned
Calgary Int'l Airport... Alberta 203 Travelodge Owned
Vancouver Airport....... B. Columbia 160 Travelodge Owned
Winnipeg................ Manitoba 156 Travelodge Owned
Toronto East............ Ontario 228 Travelodge Owned
Mississauga............. Ontario 225 Travelodge Owned
Toronto North........... Ontario 184 Travelodge Owned
Ottawa/Parliament Hill.. Ontario 175 Travelodge Owned
Kitchener............... Ontario 172 Travelodge Owned
Windsor Downtown........ Ontario 160 Travelodge Owned
Scarborough............. Ontario 158 Travelodge Owned
London.................. Ontario 144 Travelodge Owned
Sudbury................. Ontario 140 Travelodge Owned
Ottawa East............. Ontario 129 Travelodge Owned
Burlington.............. Ontario 116 Travelodge Owned
Ingersoll............... Ontario 98 Travelodge Owned
Laval................... Quebec 175 Travelodge Owned
----------- -----
Total Full-Service.... 27 hotels 5,432
Limited-Service:
Athens.................. AL 60 Travelodge Owned
Flagstaff............... AZ 49 Travelodge JV/50%
Yuma.................... AZ 48 Travelodge JV/50%
Williams................ AZ 41 Travelodge JV/45%
Mesa.................... AZ 39 Travelodge JV/50%
San Francisco Airport
North.................. CA 197 Travelodge Owned
Palm Springs............ CA 158 Travelodge JV/50%
Monterey
Fairgrounds/Carmel..... CA 103 Travelodge JV/80%
Mission Valley.......... CA 101 Travelodge JV/25%
San Francisco Central... CA 84 Travelodge V/58.3%
San Francisco Downtown.. CA 80 Travelodge JV/50%
</TABLE>
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(1) The Company, subject to local zoning approval, intends to expand the
retail space at the Travelodge Fisherman's Wharf hotel by 30,000 square
feet to 50,000 total square feet of retail space and to add approximately
100 guest rooms to the 250-room hotel.
(2) Conversion to Hilton pending.
(3) Conversion to Ramada pending.
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<TABLE>
<CAPTION>
OWNED/JOINT
HOTEL LOCATION # OF ROOMS FRANCHISE BRAND VENTURE ("JV")
----- -------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Visalia Thriftlodge........ CA 77 Thriftlodge JV/50%
San Diego Airport.......... CA 72 Travelodge JV/62.5%
Sacramento Downtown........ CA 71 Travelodge Owned
Long Beach Downtown........ CA 63 Travelodge JV/50%
Lake Tahoe South........... CA 59 Travelodge JV/50%
San Francisco Airport
South..................... CA 58 Travelodge JV/50%
Anaheim.................... CA 57 Travelodge Owned
Santa Cruz................. CA 55 Travelodge JV/50%
Monterey Downtown.......... CA 49 Travelodge JV/50%
Rancho Bernardo............ CA 49 Travelodge JV/50%
Lake Tahoe City............ CA 47 Travelodge JV/50%
Eureka..................... CA 46 Travelodge JV/25%
San Diego Airport/Pt.
Loma...................... CA 45 Travelodge JV/53.3%
La Jolla Beach............. CA 44 Travelodge JV/50%
Santa Rosa Downtown........ CA 43 Travelodge JV/50%
Hollywood Inn.............. CA 39 Travelodge JV/50%
Milpitas................... CA 39 Independent JV/50%
San Luis Obispo............ CA 39 Travelodge JV/50%
El Cajon Valley
Thriftlodge............... CA 38 Thriftlodge Owned
Ontario.................... CA 33 Travelodge JV/50%
Paso Robles................ CA 31 Travelodge JV/50%
Santa Rosa................. CA 31 Travelodge JV/50%
Berkeley................... CA 30 Travelodge JV/50%
Cabrillo Central........... CA 30 Independent JV/50%
La Jolla Cove.............. CA 30 Travelodge JV/50%
San Diego Thriftlodge Down-
town...................... CA 30 Thriftlodge JV/25%
Bayview Thriftlodge........ CA 29 Thriftlodge JV/57.8%
Golden Gate................ CA 29 Travelodge JV/25%
Mojave..................... CA 29 Independent JV/10%
Palo Alto.................. CA 29 Travelodge JV/50%
Santa Monica............... CA 29 Travelodge JV/25%
Balboa Park................ CA 28 Travelodge JV/25%
Burbank.................... CA 28 Travelodge JV/50%
Oceanside.................. CA 28 Travelodge JV/50%
Presidio................... CA 27 Travelodge JV/58.3%
Ghirardelli Square......... CA 25 Travelodge JV/62.5%
Eagle Rock (Eagle Rock
Inn)...................... CA 24 Independent JV/50%
San Diego Harborside....... CA 24 Independent Owned
San Diego Uptown/Welcome
Inn....................... CA 24 Independent JV/25%
Santa Barbara City Center.. CA 23 Travelodge JV/25%
Santa Barbara Beach........ CA 19 Travelodge JV/50%
Embarcadero--Harbor........ CA 18 Travelodge JV/50%
Durango Lodge.............. CO 39 Independent JV/50%
Ocala...................... FL 68 Travelodge JV/50%
Tallahassee................ FL 58 Travelodge Owned
Gainesville (Gainesville
Lodge).................... FL 38 Independent JV/50%
Lake Park.................. GA 78 Travelodge JV/49%
Atlanta Downtown........... GA 71 Travelodge JV/50%
Mason City................. IA 47 Thriftlodge JV/50%
Boise...................... ID 48 Travelodge JV/50%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
OWNED/JOINT
HOTEL LOCATION # OF ROOMS FRANCHISE BRAND VENTURE ("JV")
----- ------------ ---------- --------------- --------------
<S> <C> <C> <C> <C>
Chicago O'Hare.......... IL 95 Travelodge JV/37.5%
Quincy.................. IL 68 Travelodge JV/75%
Lawrence................ KS 68 Travelodge JV/87.5%
Louisville.............. KY 96 Travelodge JV/50%
Alexandria.............. LA 70 Travelodge Owned
Lafayette Center........ LA 61 Travelodge JV/50%
Natick.................. MA 68 Travelodge JV/50%
Bedford................. MA 42 Travelodge JV/50%
Missoula................ MT 60 Travelodge JV/50%
South Sioux City........ NE 61 Travelodge JV/50%
Santa Fe................ NM 48 Travelodge JV/50%
Las Vegas South Strip... NV 128 Travelodge Owned
Las Vegas Strip......... NV 100 Travelodge JV/48.8%
Reno.................... NV 98 Travelodge Owned
Las Vegas Downtown...... NV 58 Travelodge JV/50%
Cincinnati.............. OH 71 Travelodge JV/62.5%
Zanesville Thriftlodge.. OH 54 Thriftlodge JV/50%
Ashtabula............... OH 48 Travelodge JV/37.5%
Portland Thriftlodge.... OR 77 Thriftlodge JV/50%
Roseburg................ OR 40 Travelodge JV/25%
Lancaster............... PA 58 Travelodge JV/50%
Chambersburg............ PA 51 Travelodge JV/50%
El Paso City Central.... TX 108 Travelodge JV/50%
San Antonio Alamo....... TX 81 Travelodge JV/93.3%
Ogden................... UT 78 Travelodge JV/37.5%
Salt Lake City Center... UT 60 Travelodge JV/50%
Salt Lake City Temple
Square................. UT 55 Travelodge JV/37.5%
Seattle Space Needle.... WA 88 Travelodge JV/50%
University (Seattle).... WA 74 Travelodge JV/50%
Seattle City Center..... WA 73 Travelodge JV/75%
Omak Thriftlodge........ WA 59 Thriftlodge Owned
Bellevue................ WA 54 Travelodge JV/37.5%
Yakima.................. WA 48 Travelodge JV/50%
Moses Lake.............. WA 40 Travelodge JV/50%
Walla Walla............. WA 39 Travelodge JV/50%
Mercer Island........... WA 35 Travelodge JV/87.5%
Ephrata................. WA 28 Travelodge JV/50%
Kamloops................ B. Columbia 68 Travelodge JV/50%
Revelstoke Lodge........ B. Columbia 42 Independent JV/50%
Oshawa/Whitby........... Ontario 120 Travelodge Owned
North Bay............... Ontario 100 Travelodge Owned
Regina East............. Saskatchewan 183 Travelodge Owned
------------ ------
Total Limited-Serv-
ice.................. 103 hotels 5,978
------
Total Company......... 130 hotels 11,410
======
</TABLE>
All but 20 of the Company's hotels are Travelodge properties. Virtually all
of the Company's hotel properties operate under the "Travelodge" brand name,
although eight operate under the affiliated "Thriftlodge(R)" brand name. The
Company's hotels operated under the Travelodge brand name are generally of
higher quality and provide a higher level of service than the Company's hotels
operated under the Thriftlodge
9
<PAGE>
brand name. The Travelodge branded properties generally contain between 50 and
150 rooms and provide laundry services, complimentary newspapers, cable
television with a premium movie channel, and in-room coffee service. The price
per room for the limited-service Travelodge branded properties generally
ranges from $40 to $60 per night. The Thriftlodge branded properties generally
contain up to 75 rooms and provide fewer services than the Travelodge branded
properties. The price per room for the Thriftlodge branded properties
generally ranges from $25 to $45 per night. References herein to "Travelodge"
properties include both Travelodge and Thriftlodge unless the context
otherwise requires. The hotels currently owned by the Company that are not
operated as Travelodges or Thriftlodges are operated under the franchise
brands Ramada Plaza or Ramada or as independent hotels.
The Company's limited-service Travelodge hotels are designed to attract the
economy-conscious business and leisure traveler seeking room quality and hotel
locations that are generally comparable to those of mid-price hotels, but at
lower average room rates. The Travelodge limited-service branded properties
generally do not provide full-service management-intensive facilities and
services, such as in-house restaurants or cocktail lounges, banquet centers,
conference rooms, room service, recreational facilities or other services and
facilities that the Company believes its targeted customers do not typically
value. By omitting these facilities and services, the Company believes that
its limited-service Travelodge properties are able to deliver a product that
addresses both its customers' needs and price expectations.
OPERATIONS AND MANAGEMENT
Chartwell pursues a strategy of centralized control over its operations.
Management believes that this strategy reduces operating costs and allows the
Company to implement its business strategy more effectively.
U.S. Operations: The Company or one of its joint venture partners directly
manages each of the hotels in the United States and does not utilize outside
hotel managers who do not have an ownership interest in the hotel. Currently,
each of the Company's hotels has its own on-site management and staff. On-site
employees are supervised by regional managers at the Company's limited-service
hotels and by a general manager at the Company's full-service hotels. Those
regional and general managers, in turn, are supervised by the Company's senior
management. The on-site management teams at each of the Company's hotels also
receive direct support from the Company's centralized corporate department
with accounting and finance, payroll, data processing and management
information services, interior design, purchasing, hotel operations, human
resources, recruiting and training, legal, advertising, insurance and
telecommunications.
Canadian Operations: In Canada, 21 (including a one-half interest in a joint
venture) of the Company's 24 hotels are managed by Royco. Royco's management
team consists of a president of operations, a vice president of operations,
two regional managers and support staff. See "Business--Growth Strategy--
External Growth Opportunities--Canadian Acquisition."
Hotel Development Staff: The Company's development staff consists of a
director of development and three support staff members. The development team,
in accordance with the Company's development strategy, is responsible for
finding new sites suitable for hotel development, negotiating with franchisors
in flagging new properties and finding hotels suitable for acquisition. See
"Business--Growth Strategy--External Growth Opportunities--Selected
Development of Hotels."
10
<PAGE>
The following table sets forth each hotel owned and operated by the Company,
as well as the number of guest rooms, the year built, when it was acquired, the
average occupancy rate, the average daily rate and the revenue per average
room:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996
NUMBER OF YEAR -------------------------------
PROPERTY NAME STATE/PROVINCE FRANCHISE ROOMS BUILT ACQUIRED ADR OCCUPANCY REVPAR
------------- -------------- ----------- --------- ----- --------- --------- ---------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. WHOLLY OWNED HOTELS:
1 ATHENS.................. Alabama Travelodge 60 1990 Jan 1996 $35.23 56.5% $19.91
2 ANAHEIM................. California Travelodge 57 1964 Jan 1996 $37.50 75.0% $28.12
3 EL CAJON VALLEY......... California Thriftlodge 38 1967 Jan 1996 $37.08 64.6% $23.94
4 SACRAMENTO DOWNTOWN..... California Travelodge 71 1959 Jan 1996 $32.42 52.1% $16.90
5 SAN DIEGO HARBOR
ISLAND................. California Travelodge 207 1969 Jan 1996 $70.84 81.7% $57.90
6 SAN FRANCISCO AIRPORT
NORTH.................. California Travelodge 197 1976 Jan 1996 $56.82 89.7% $50.96
7 TALLAHASSEE............. Florida Travelodge 58 1961 Jan 1996 $40.43 65.4% $26.44
8 WALT DISNEY WORLD....... Florida Travelodge 325 1971 Jan 1996 $79.66 85.4% $68.03
9 BRUNSWICK............... Georgia Ramada 213 1981 July 1996 $32.12 66.5% $21.36
10 ALEXANDRIA.............. Louisiana Travelodge 70 1964 Jan 1996 $35.84 56.3% $20.17
11 LAS VEGAS SOUTH STRIP... Nevada Travelodge 128 1957 Jan 1996 $51.14 75.0% $38.36
12 RENO.................... Nevada Travelodge 98 1960 Jan 1996 $39.18 35.1% $13.75
13 MT. LAUREL.............. New Jersey Travelodge 229 1974 Jan 1996 $54.87 67.2% $36.85
14 J.F.K. ................. New York Ramada 476 1958 Jan 1996 $97.47 75.0% $73.06
15 PORTLAND................ Oregon Ramada 236 1971 Jan 1996 $46.51 82.4% $38.32
16 HOUSTON................. Texas Travelodge 205 1971 Jan 1996 $44.65 42.2% $18.85
17 OMAK.................... Washington Thriftlodge 59 1965 Jan 1996 $31.76 31.3% $ 9.95
-----
2,727
-----
U.S. JOINT VENTURE
HOTELS:
1 FLAGSTAFF............... Arizona Travelodge 49 1959 Jan 1996 $43.63 67.4% $29.43
2 MESA.................... Arizona Travelodge 39 1964 Jan 1996 $51.55 58.6% $30.23
3 WILLIAMS................ Arizona Travelodge 41 1956 Jan 1996 $43.09 71.1% $30.63
4 YUMA.................... Arizona Travelodge 48 1959 Jan 1996 $34.90 57.0% $19.89
5 BERKELEY................ California Travelodge 30 1955 Jan 1996 $65.78 70.6% $46.44
6 BURBANK................. California Travelodge 28 1961 Jan 1996 $46.12 67.0% $30.91
7 CABRILLO CENTRAL........ California Independent 30 1953 Jan 1996 $42.08 19.8% $ 8.33
8 EAGLE ROCK.............. California Independent 24 1949 Jan 1996 $31.00 14.9% $ 4.62
9 EMBARCADERO-HARBOR...... California Travelodge 18 1950 Jan 1996 $37.46 69.2% $25.91
10 EUREKA.................. California Travelodge 46 1960 Jan 1996 $41.30 46.2% $19.10
11 GHIRARDELLI SQUARE...... California Travelodge 25 1955 Jan 1996 $85.02 90.0% $76.52
12 GOLDEN GATE............. California Travelodge 29 1954 Jan 1996 $85.29 84.0% $54.87
13 HOLLYWOOD INN........... California Independent 39 1955 Jan 1996 $39.15 50.0% $19.57
14 LA JOLLA BEACH.......... California Travelodge 44 1964 Jan 1996 $66.48 81.9% $54.45
15 LA JOLLA COVE........... California Travelodge 30 1953 Jan 1996 $66.83 82.7% $55.23
16 LAKE TAHOE CITY......... California Travelodge 47 1961 Jan 1996 $71.22 71.3% $50.80
17 LAKE TAHOE SOUTH........ California Travelodge 59 1962 Jan 1996 $65.94 48.6% $32.03
18 LONG BEACH DOWNTOWN..... California Travelodge 63 1963 Jan 1996 $50.09 54.2% $27.16
19 MILPITAS................ California Travelodge 39 1967 Jan 1996 $55.23 86.4% $47.70
20 MISSION VALLEY.......... California Travelodge 101 1952 Jan 1996 $49.24 65.4% $32.23
21 MONTEREY DOWNTOWN....... California Travelodge 49 1962 Jan 1996 $75.26 78.2% $58.85
22 MONTEREY FAIR-
GROUNDS/CARMEL......... California Travelodge 103 1980 Jan 1996 $54.04 65.4% $35.35
23 OCEANSIDE............... California Travelodge 28 1953 Jan 1996 $42.29 69.9% $29.54
24 ONTARIO................. California Travelodge 33 1957 Jan 1996 $30.09 51.2% $15.39
25 PALM SPRINGS............ California Travelodge 158 1963 Jan 1996 $43.19 41.5% $17.92
26 PALO ALTO............... California Travelodge 29 1953 Jan 1996 $58.51 76.7% $44.85
27 PASO ROBLES............. California Travelodge 31 1979 Jan 1996 $44.51 64.9% $28.89
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996
NUMBER OF YEAR -----------------------------
PROPERTY NAME STATE/PROVINCE FRANCHISE ROOMS BUILT ACQUIRED ADR OCCUPANCY REVPAR
------------- -------------- ----------- --------- ----- -------- -----------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
28 PRESIDIO................ California Travelodge 27 1955 Jan 1996 $ 71.38 79.2% $56.53
29 RANCHO BERNARDO......... California Travelodge 49 1970 Jan 1996 $ 49.63 45.2% $22.45
30 SAN DIEGO AIRPORT....... California Travelodge 72 1961 Jan 1996 $ 39.14 59.4% $23.27
31 SAN DIEGO AIRPORT/PT.
LOMA................... California Travelodge 45 1953 Jan 1996 $ 42.18 60.6% $25.55
32 SAN DIEGO BALBOA PARK... California Travelodge 28 1952 Jan 1996 $ 42.35 35.9% $15.20
33 SAN DIEGO BAYVIEW....... California Thriftlodge 29 1953 Jan 1996 $ 33.62 74.3% $24.99
34 SAN DIEGO UPTOWN WELCOME
INN.................... California Independent 24 1953 Jan 1996 $ 31.69 44.5% $14.11
35 SAN FRANCISCO AIRPORT
SOUTH.................. California Travelodge 58 1961 Jan 1996 $ 66.18 90.7% $60.04
36 SAN FRANCISCO CENTRAL... California Travelodge 84 1955 Jan 1996 $ 64.12 84.1% $53.89
37 SAN FRANCISCO DOWNTOWN.. California Travelodge 80 1956 Jan 1996 $ 59.41 80.8% $48.02
38 SAN FRANCISCO WHARF..... California Travelodge 250 1964 Jan 1996 $102.35 85.4% $87.39
39 SAN LUIS OBISPO......... California Travelodge 39 1961 Jan 1996 $ 46.64 68.7% $32.06
40 SANTA BARBARA BEACH..... California Travelodge 19 1951 Jan 1996 $ 81.96 75.9% $62.19
41 SANTA BARBARA CITY
CENTER................. California Travelodge 23 1953 Jan 1996 $ 60.51 71.1% $43.01
42 SANTA CRUZ.............. California Travelodge 55 1966 Jan 1996 $ 71.24 48.7% $34.69
43 SANTA MONICA............ California Travelodge 29 1956 Jan 1996 $ 98.97 93.8% $92.88
44 SANTA ROSA.............. California Travelodge 31 1954 Jan 1996 $ 43.28 46.5% $20.13
45 SANTA ROSA DOWNTOWN..... California Travelodge 43 1954 Jan 1996 $ 42.87 49.6% $21.26
46 VISALIA THRIFTLODGE..... California Thriftlodge 77 1959 Jan 1996 $ 31.77 52.9% $16.81
47 DURANGO LODGE........... Colorado Independent 39 1965 Jan 1996 $ 63.66 64.7% $41.18
48 GAINESVILLE (GAINESVILLE
LODGE)................. Florida Independent 38 1961 Jan 1996 $ 32.80 56.8% $18.61
49 OCALA SOUTH............. Florida Travelodge 68 1963 Jan 1996 $ 37.57 52.7% $19.81
50 ATLANTA DOWNTOWN........ Georgia Travelodge 71 1963 Jan 1996 $ 70.53 66.4% $46.83
51 LAKE PARK............... Georgia Travelodge 78 1990 Jan 1996 $ 33.66 47.7% $16.04
52 BOISE................... Idaho Travelodge 48 1961 Jan 1996 $ 32.28 62.6% $20.21
53 CHICAGO O'HARE.......... Illinois Travelodge 95 1961 Jan 1996 $ 48.38 80.9% $39.12
54 QUINCY.................. Illinois Travelodge 68 1961 Jan 1996 $ 36.52 62.6% $22.86
55 MASON CITY.............. Iowa Thriftlodge 47 1964 Jan 1996 $ 34.50 55.7% $19.22
56 LAWRENCE................ Kansas Travelodge 68 1969 Jan 1996 $ 40.83 60.9% $24.85
57 LOUISVILLE.............. Kentucky Travelodge 96 1962 Jan 1996 $ 46.33 48.5% $22.49
58 LAFAYETTE CENTER........ Louisiana Travelodge 61 1963 Jan 1996 $ 37.83 71.8% $27.17
59 BEDFORD................. Massachusetts Travelodge 42 1984 Jan 1996 $ 52.43 47.1% $24.71
60 NATICK.................. Massachusetts Travelodge 68 1982 Jan 1996 $ 36.04 61.1% $58.97
61 MISSOULA................ Montana Travelodge 60 1968 Jan 1996 $ 43.64 54.4% $23.75
62 SOUTH SIOUX CITY........ Nebraska Travelodge 61 1964 Jan 1996 $ 32.79 53.0% $17.39
63 LAS VEGAS DOWNTOWN...... Nevada Travelodge 58 1961 Jan 1996 $ 43.68 45.4% $19.80
64 LAS VEGAS STRIP......... Nevada Travelodge 100 1966 Jan 1996 $ 58.29 87.3% $50.87
65 SANTA FE................ New Mexico Travelodge 48 1963 Jan 1996 $ 54.92 76.3% $41.88
66 ASHTABULA............... Ohio Travelodge 48 1963 Jan 1996 $ 48.62 78.7% $38.28
67 CINCINNATI.............. Ohio Travelodge 71 1960 Jan 1996 $ 42.36 59.9% $25.39
68 ZANESVILLE THRIFTLODGE.. Ohio Travelodge 54 1962 Jan 1996 $ 42.71 43.6% $18.63
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996
NUMBER OF YEAR -------------------------------
PROPERTY NAME STATE/PROVINCE FRANCHISE ROOMS BUILT ACQUIRED ADR OCCUPANCY REVPAR
------------- ---------------- ----------- --------- ----- -------- --------- ---------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
69 PORTLAND THRIFTLODGE.... Oregon Thriftlodge 77 1958 Jan 1996 $32.68 73.8% $24.11
70 ROSEBURG................ Oregon Travelodge 40 1963 Jan 1996 $48.75 53.3% $25.96
71 CHAMBERSBURG............ Pennsylvania Travelodge 51 1964 Jan 1996 $43.64 47.7% $20.81
72 LANCASTER............... Pennsylvania Travelodge 58 1967 Jan 1996 $48.94 50.4% $24.68
73 EL PASO CITY CENTRAL.... Texas Travelodge 108 1950 Jan 1996 $31.26 54.3% $16.96
74 SAN ANTONIO ALAMO....... Texas Travelodge 81 1968 Jan 1996 $56.42 70.2% $39.59
75 OGDEN................... Utah Travelodge 78 1960 Jan 1996 $33.32 52.7% $17.56
76 SALT LAKE CITY CENTER... Utah Travelodge 60 1961 Jan 1996 $49.78 76.6% $38.15
77 SALT LAKE CITY TEMPLE
SQUARE................. Utah Travelodge 55 1958 Jan 1996 $46.92 81.5% $38.23
78 BELLEVUE................ Washington Travelodge 54 1962 Jan 1996 $56.22 68.2% $38.34
79 EPHRATA................. Washington Travelodge 28 1962 Jan 1996 $38.63 56.9% $21.99
80 MERCER ISLAND........... Washington Travelodge 35 1957 Jan 1996 $53.90 65.2% $35.16
81 MOSES LAKE.............. Washington Travelodge 40 1958 Jan 1996 $39.02 59.9% $23.39
82 SEATTLE CITY CENTER..... Washington Travelodge 73 1956 Jan 1996 $66.93 69.3% $46.36
83 SPACE NEEDLE............ Washington Travelodge 88 1959 Jan 1996 $79.52 72.1% $57.34
84 UNIVERSITY (SEATTLE).... Washington Travelodge 74 1962 Jan 1996 $61.71 68.9% $42.53
85 WALLA WALLA............. Washington Travelodge 39 1962 Jan 1996 $41.81 45.9% $19.18
86 YAKIMA.................. Washington Travelodge 48 1959 Jan 1996 $41.92 16.7% $ 7.01
-----
4,796
-----
CANADIAN WHOLLY OWNED HOTELS:
1 CALGARY INT'L AIRPORT... Alberta Travelodge 203 1982 Oct 1996 $40.17 69.1% $27.77
2 CALGARY MACLEOD TRAIL... Alberta Travelodge 220 1980 Oct 1996 $38.69 52.5% $20.32
3 EDMONTON WEST........... Alberta Travelodge 226 1980 Oct 1996 $36.56 48.4% $17.87
4 VANCOUVER AIRPORT....... British Columbia Travelodge 160 1988 Oct 1996 $55.51 87.4% $48.50
5 WINNIPEG................ Manitoba Travelodge 156 1986 Oct 1996 $38.57 56.3% $21.72
6 BURLINGTON.............. Ontario Travelodge 118 1985 Oct 1996 $41.25 64.7% $26.67
7 INGERSOLL............... Ontario Travelodge 98 1990 Oct 1996 $40.19 42.9% $17.24
8 KITCHENER............... Ontario Travelodge 172 1991 Oct 1996 $50.10 57.5% $28.83
9 LONDON.................. Ontario Travelodge 144 1989 Oct 1996 $47.66 68.4% $32.59
10 MISSISSAUGA............. Ontario Travelodge 225 1982 Oct 1996 $31.50 72.2% $22.73
11 NORTH BAY............... Ontario Travelodge 100 1989 Oct 1996 $46.12 84.5% $39.00
12 OSHAWA/WHITBY........... Ontario Travelodge 120 1989 Oct 1996 $43.07 68.6% $29.55
13 OTTAWA EAST............. Ontario Travelodge 129 1984 Oct 1996 $40.41 63.3% $25.59
14 OTTAWA/PARLIAMENT HILL.. Ontario Travelodge 175 1988 Oct 1996 $43.00 58.2% $25.02
15 SCARBOROUGH............. Ontario Travelodge 158 1984 Oct 1996 $35.07 68.2% $23.92
16 SUDBURY................. Ontario Travelodge 140 1990 Oct 1996 $45.79 67.6% $30.97
17 TORONTO EAST............ Ontario Travelodge 228 1974 Jan 1996 $45.98 62.8% $28.86
18 TORONTO NORTH........... Ontario Travelodge 184 1988 Oct 1996 $40.06 72.4% $29.02
19 WINDSOR DOWNTOWN........ Ontario Travelodge 160 1985 Oct 1996 $48.91 48.9% $23.90
20 LAVAL................... Quebec Travelodge 175 1984 Oct 1996 $46.21 58.7% $27.11
21 REGINA EAST............. Saskatchewan Travelodge 183 1979 Oct 1996 $30.67 62.3% $19.12
-----
3,472
-----
</TABLE>
13
<PAGE>
MARKETING AND PROMOTIONS
The Company does not market its hotel properties on a company-wide level.
Instead, it relies on HFS, as the franchisor of the Travelodge chain, and the
franchisors of its other brands, to market the franchise brands under which
the Company operates its hotels. Through the Travelodge brand franchise
association, to which the Company appoints two members of the 12-member board,
and the Company's close relationship with HFS, the Company is able to make
recommendations to HFS' Travelodge sales and marketing department. For 1997,
the Company has been informed by HFS that it has budgeted approximately $5.5
million for marketing the Travelodge brand.
HFS intends to implement a program in cooperation with the Company to
revitalize the Travelodge brand name. Through promotional expenditures that
highlight the affordable price, convenient location and consistent quality
identified with the Travelodge brand, HFS intends to expand Travelodge's share
of the leisure travel market. A core aspect of this strategy is HFS'
reintroduction of the Sleepy Bear mascot for the Travelodge brand--at one
time, a well-recognized symbol of the Travelodge chain. In 1997, HFS expects
to introduce a "Travel Miles" program that will reward guests with "Travel
Miles," exchangeable for gifts that include Sleepy Bear merchandise and free
overnight guest rooms. The Company has also introduced "Sleepy Bear Rooms" at
its Travelodge hotel in Walt Disney World Village. These family-targeted rooms
are also available at 19 other Travelodge properties located in the United
States and four Travelodge properties located in Canada.
On a local level, the Company's hotels generally advertise in their
individual markets and some of the Company's larger hotels employ marketing
staffs to carry on their local advertising and marketing programs. In
addition, each on-site general manager typically makes regular calls to local
companies and organizations in an effort to promote the good will associated
with that particular hotel in the community. The Company's two regional sales
and marketing directors also provide sales and marketing consultation to both
the regional managers and directly to the on-site general managers. In
cooperation with the regional sales and marketing staff, each on-site general
manager is encouraged to develop and implement an individualized short and
intermediate-term marketing plan. For 1997, the Company has budgeted
approximately $3 million for marketing individual hotels generally in their
local markets.
GROUND LEASES
Approximately 69% of the Company's hotels are located on property covered by
ground leases with unaffiliated third parties. All of these leases are net
leases. Generally, the leases have fixed base rents of between $300 and $1,000
per month. In addition, the Company or the joint venture, as the case may be,
is obligated to pay as rent a percentage, typically 7 1/2%, of its gross
receipts that are in excess of an annual threshold amount, typically between
$48,000 and $150,000. Gross receipts are typically defined as total revenue
received by the joint venture, excluding sales from vending machines,
newspapers, soda and telephone calls.
The ground leases have varying expiration dates, but most are scheduled to
expire between 1998 and 2015. Upon termination of a ground lease, the hotel
located on the leased property will become the property of the lessor. The
Company intends to attempt to negotiate renewals of the ground leases or the
purchase of the real property from the lessor where it considers it to be
advantageous to do so, but there can be no assurance that the Company will be
able to do so. See "Risk Factors--Risk of Expiration of Ground Leases."
JOINT VENTURE AGREEMENTS
Ninety-one of the Company's hotels are operated as joint ventures. The
Company's percentage interests in these joint ventures vary, but the Company
holds a 50% interest in 60 hotels and holds a joint venture interest greater
than 50% in 14 hotels.
For approximately one-third of these hotel properties, the Company acts as
the day-to-day business manager of the property. For the balance of these
hotel properties, the day-to-day business decisions of joint ventures are
generally made by the Company's partner. Significant business decisions that
fall outside the scope of day-to-day decisions are made jointly by the Company
and the Company's joint venture partner. See "Business--Operations and
Management." In addition to profits and losses under the joint venture, the
day-to-day managerial partner typically receives a management fee equal to a
percentage of the gross room revenues received from the operation of the
hotel.
14
<PAGE>
FRANCHISE AGREEMENTS
All but nine of the Company's hotels are operated under franchise licenses
with HFS and other nationally recognized hotel companies. The Company
anticipates that most of the additional hotels in which it invests will be
operated under franchise licenses. The Company believes that the public's
perception of quality associated with a franchisor is an important feature in
the operation of a hotel. Franchisors provide a variety of benefits for
franchisees, which include national advertising, publicity, and other
marketing programs designed to increase brand awareness, training of
personnel, continuous review of quality standards, and centralized reservation
systems.
The Travelodge Franchise: The Company's Travelodge properties operate under
franchise agreements with an affiliate of HFS as the owner of the Travelodge
franchise systems. HFS acquired those franchise systems in connection with the
Travelodge Acquisition.
The franchise agreements covering the Travelodge properties which are
wholly-owned by the Company require monthly payment by the Company of a
royalty fee of 4% of the property's gross room revenues plus a marketing fee
also currently set at 4% of gross room revenues. The marketing fee may be
changed from time to time by the franchisor. These franchise agreements have
scheduled terms of 20 years but may be terminated by the Company prior to
their scheduled expiration upon the payment of liquidated damages by the
Company. The Company entered into a license agreement (the "Omnibus License
Agreement") with an affiliate of HFS as licensor covering the Company's
Travelodge properties that are owned by joint ventures. Under the Omnibus
License Agreement, the Company is required to pay a license fee equal to 4% of
gross room revenues multiplied by the Company's percentage interest in each of
the hotel properties owned by joint ventures in which the Company acquired an
interest, plus an additional amount, generally equal to 4.5% of gross room
revenues, for national marketing and reservation services provided by HFS. The
Omnibus License Agreement has a term of 20 years but may be terminated by the
Company with respect to any particular joint venture prior to the scheduled
expiration. Also, if any particular joint venture is terminated, then the
franchisor may terminate the Omnibus License Agreement with respect to that
particular property. In either case, the Company is required to pay liquidated
damages upon the early termination of the Omnibus License Agreement with
respect to any individual joint venture. No liquidated damages are due if a
joint venture is terminated under the Omnibus License Agreement and becomes a
licensee or franchisee of another HFS hotel brand.
The amount of liquidated damages payable by the Company upon termination of
the franchise agreements covering any property equals five times the amount of
the royalty fees payable in respect of that property during the twelve months
most recently preceding the termination if the termination occurs before the
end of the fourth year of the franchise agreement. If the termination occurs
thereafter, the amount of liquidated damages scales down annually, reaching
two times the amount of the royalty fees payable in respect of that property
during the twelve months most recently preceding the termination if the
termination occurs after the sixth year of the franchise agreement. The
franchise agreements are subject to cancellation in the event of a default,
including the failure to operate the hotel in accordance with the quality
standards of the franchisor.
The Company's franchise agreements authorize the operation of a hotel under
the "Travelodge" or "Thriftlodge" name at the specific location where the
hotel is located and require that the hotel be operated in accordance with
standards specified by the franchisor. The franchise agreements grant the
franchisor a right of first refusal, exercisable for 30 days, if the Company
proposes to sell, lease or sublease the franchised hotel and require the
franchisor's consent to the transfer of the franchised hotel or of any
interest in the subsidiary or joint venture that is a direct party to the
franchise agreement. The Company's franchise agreements do not contain any
territorial protection and, therefore, do not prohibit the franchisor from
franchising competing properties in close proximity to the Company's property.
Other Franchises: The Company's other franchise agreements also generally
specify certain management, operating, recordkeeping, accounting, reporting,
and marketing standards and procedures with which the Company must comply. The
franchise agreements obligate the Company to comply with each franchisor's
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standards and requirements with respect to training of operational personnel,
safety, maintaining specified insurance, and the types of services and
products ancillary to guest room services that may be provided by the Company.
The loss of a license for a hotel would, in most instances, result in the
rebranding of the hotel, which might cause a loss of established customer good
will and reduced revenues. The Company believes that the loss of a license for
any individual hotel would not have a material adverse effect on the Company's
financial condition and results of operations. The Company believes it will be
able to renew its current licenses or obtain replacements of a comparable
quality.
COMPETITION
The hotel industry is highly competitive. The Company's hotels compete with
numerous other hotels, motels and other lodging establishments in their market
areas. Chains such as Days Inn and Howard Johnson, both of which are
franchised by HFS, Comfort Inns, Fairfield Inns, Hampton Inns, La Quinta,
Motel 6 and Red Roof Inns are direct competitors of the Company's limited-
service Travelodge brand hotels and Ramada, Holiday Inn and Quality Inns are
direct competitors of the Company's full-service hotels. There is no single
competitor or group of competitors of the Company's hotels that is dominant in
the lodging industry. Competitive factors in the industry include
reasonableness of room rates, quality of accommodations, degree of service,
name recognition and convenience of locations.
Demographic, economic and geographic changes in any of the Company's markets
could impact the convenience or desirability of the sites of certain hotels in
that market, which would adversely affect the operations of the Company's
hotels in that market. There can be no assurance that new or existing
competitors will not significantly lower rates or offer greater convenience,
services or amenities or significantly expand or improve facilities in a
market in which the Company's hotels compete, thereby adversely affecting the
Company's operations. Competition may generally reduce the number of suitable
hotel acquisition opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell, which could adversely
affect the Company's financial performance.
The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk that the Company can
prudently manage. Competition may generally reduce the number of suitable
investment opportunities offered to the Company and increase the bargaining
power of property owners seeking to sell.
SEASONALITY
The hotel industry is seasonal in nature. Room occupancy rates at the
Company's hotels are affected by normally recurring seasonal patterns and, in
most locations in the United States and Canada, are higher in the late spring
through early fall months (May through October) than during the balance of the
year, with the lowest occupancy rates occurring in the first quarter of the
year. As a result, the Company expects to experience seasonal lodging revenue
patterns similar to the hotel industry as a whole with the summer months, due
to the increase in leisure travel, producing a higher revenue than other
periods during the year.
REGULATION
The lodging industry is subject to numerous federal, state, local and
foreign government regulations, including building and zoning requirements.
Also, the Company is subject to laws governing its relationship with
employees, including minimum wage requirements, overtime, working conditions
and work permit requirements. An increase in the minimum wage rate, employee
benefit costs or other costs associated with employees could adversely affect
the Company. The Company does not expect that the recently enacted increases
in the federal minimum wage rate to significantly affect its operations. Under
the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use
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by disabled persons. Although the Company believes that it is substantially in
compliance with the ADA, no assurance can be given that a material ADA claim
will not be asserted against the Company. These and other initiatives could
adversely affect the Company, as well as the lodging industry in general. The
Company is also subject to dramshop statutes or equivalent common law in some
jurisdictions that give an injured person the right to recover damages from
any establishment that wrongfully served alcoholic beverages to an intoxicated
person who causes the injury. The Company believes that its insurance coverage
with respect to any such liquor liability is adequate. The Company has hotels
that are subject to alcohol sales regulations and/or dramshop statutes in
Canada and the following states: California, Florida, Georgia, New Jersey, New
York, Oregon, Pennsylvania and Texas.
ENVIRONMENTAL CONSIDERATIONS
The Company's hotels are subject to United States Federal, state and local,
and Canadian and Mexican environmental laws and regulations. Certain of these
laws may require a current or previous owner or operator of real estate to
clean up designated hazardous or toxic substances affecting the property. In
addition, the owner or operator may be held liable to a government entity or
to third parties for damages or costs incurred by such parties in connection
with such contamination. Some of the Company's hotels are located on or near
properties, such as gasoline stations, on which activities have been conducted
which have or may have released petroleum products or other hazardous
substances into the soil or groundwater. The Company is aware of soil
contamination, which the Company believes was caused by unrelated third
parties, at several of its hotel sites in the United States and Canada. The
Company has not received any notices of liability in connection with such
contamination. Based on its present knowledge, the Company does not believe
that environmental matters are likely to have a material adverse effect on the
Company's business, assets, financial condition or results of operations.
However, due to the absence of complete information, possible future changes
in laws and regulations, possible future changes in the condition of the
Company's properties and other factors, no assurance can be given that
environmental matters will not ultimately have a material adverse impact on
the Company's business, assets, financial condition or results of operations.
GAMING OPERATIONS
The Company continues to hold investments in casinos located in Mississippi
and Arizona, and in various gaming-related businesses, but is not engaged in
the business of operating casinos. As a result of reserves taken as of
December 31, 1996, book value totalled approximately $500,000. These
investments represented less than one percent of the Company's total assets on
December 31, 1996. The Company does not intend to make any further investments
in the gaming industry. During the twelve-month period ended December 31,
1996, the Company derived no revenues from gaming operations.
The Company is subject to regulation by each state in which it holds
investments that conduct activities in the gaming business, and to a certain
extent under Federal law. Generally, the Company is required to obtain a
gaming license for each location where it will conduct gaming operations, and
each of the Company's officers, directors, managers and principal shareholders
are subject to strict scrutiny and approval by the gaming commission or other
regulatory body of each state or jurisdiction in which the Company may conduct
gaming operations. The Company believes that, because it now holds only a
limited number of gaming-related assets, gaming regulations do not have a
significant effect on its business.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 1,950 persons,
of whom approximately 90% were compensated on an hourly basis. Management
considers its employee relations to be good.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to its hotels, with policy
specifications, insured limits and deductibles customarily carried for similar
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hotels. The Company will carry similar insurance with respect to any other
hotels developed or acquired in the future. There are, however, certain types
of losses (such as losses arising from wars and losses arising from certain
acts of nature) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss
in excess of insured limits occur, the Company could lose its capital invested
in the affected hotel, as well as the anticipated future revenues from such
hotel, and would continue to be obligated on any mortgage indebtedness or
other obligations related to the hotel. Any such loss could adversely affect
the business of the Company. Management of the Company believes that its
hotels are adequately insured in accordance with industry practices.
YEAR 2000 COMPLIANCE
The Company has not begun to assess the required changes that might need to
be made to make its information systems satisfactorily process data after
December 31, 1999. The Company expects to begin the assessment during the
quarter ended March 31, 1998.
RISK FACTORS
Expansion Risks
The Company's strategy includes increasing the number of its hotels through
the acquisition and the redevelopment of existing hotels and development of
new hotels. The Company's ability to expand depends on a number of factors,
including the selection and availability of suitable locations at acceptable
prices, the hiring and training of sufficiently skilled management and
personnel and the availability of financing. There can be no assurance that
financing, or desirable locations for acquisitions or new development, will be
available or, if available, will be on terms acceptable to the Company.
Acquisition Risks: Expansion by acquisition of hotels entails risks that
investments will fail to perform in accordance with expectations and that the
anticipated costs of renovation or conversion will prove inaccurate, as well
as general investment risks associated with any new real estate investment. In
connection with acquired properties, the Company will incur additional costs
relating to renovation and, if applicable, rebranding activities and operating
expenses, which could adversely affect the Company's financial performance.
Development Risks: Expansion by development of new hotels is subject to a
number of risks, including site acquisition cost and availability, risks of
construction delay, inclement weather and labor or material shortages or cost
overruns, risks that properties will not achieve anticipated occupancy levels
or sustain expected room rate levels and commencement risks such as receipt of
zoning, occupancy and other required governmental permits and authorizations,
which in each case could adversely affect the Company's financial performance.
Newly opened hotels generally begin with lower occupancy and room rates and
improve those rates over time.
Redevelopment Risks: The redevelopment of hotels involves risks associated
with construction and renovation of real property, including the possibility
of construction cost overruns and delays due to various factors (including
receipt of regulatory approvals, inclement weather and labor or material
shortages) and market or site determination after acquisition or renovation.
The operations at the hotels under redevelopment can be substantially
curtailed during portions of the redevelopment activity.
There can be no assurance that the Company's expansion strategy will be
implemented successfully. The Company's inability to successfully implement
its expansion plans would limit the Company's ability to grow its revenue base
or contain its expenditures. Furthermore, there can be no assurance that
suitable hotel acquisition candidates or development sites will be located,
that hotel acquisitions can be consummated successfully or that acquired or
developed hotels can be operated profitably or integrated successfully into
the Company's operations.
Lodging Industry Risks
The lodging industry in general may be adversely affected by such factors as
changes in national and regional economic conditions (particularly in
geographic areas in which the Company has a high concentration of hotels),
changes in local market conditions, oversupply of hotel space or a reduction
in local demand for rooms and related services, competition in the hotel
industry, changes in interest rates, the availability of financing and other
factors relating to the operation of hotels.
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Operating Risks: Operating factors affecting the Company and the lodging
industry generally include (i) competition from other hotels, motels and
recreational properties, (ii) demographic changes, (iii) the recurring need
for renovations, refurbishment and improvements of hotels and increased
expenses related to hotel security, (iv) restrictive changes in zoning and
similar land use laws and regulations, or in health, safety, disability and
environmental laws, rules and regulations, (v) changes in government
regulations that influence or determine wages, prices or construction costs,
(vi) changes in the characteristics of hotel locations, (vii) the inability to
secure property and liability insurance to fully protect against all losses or
to obtain such insurance at reasonable costs, (viii) changes in real estate
tax rates and other operating costs, (ix) changes or cancellations in local
tourist, athletic or cultural events, (x) changes in travel patterns that may
be affected by increases in transportation costs or gasoline prices, changes
in airline schedules and fares, strikes, weather patterns or relocation or
construction of highways, (xi) increases in operating expenses and litigation
as a result of injuries to guests, and (xii) changes in brand identity and
reputation. Unexpected or adverse changes in any of the foregoing factors
could have a material adverse effect on the Company's business, assets,
financial condition or results of operations.
Cyclicality: The hotel industry is subject to periods of cyclical growth and
downturn. In the past, the hotel industry has experienced cyclical downturns
resulting from, among other things, overbuilding in the industry and sluggish
general economic conditions in the United States. There can be no assurance
that downturns or prolonged adverse conditions in the hotel industry, in real
estate or capital markets or in national or local economics will not have a
material adverse impact on the Company. In addition, the Company's hotels are
located throughout the United States and Canada, but the Company has a
geographic concentration of hotels in the State of California. As a result,
the Company's cash flow may be affected by economic conditions and demand for
hotel rooms within the State of California.
Seasonality: The hotel industry is seasonal in nature. Room occupancy rates
at the Company's hotels are affected by normally recurring seasonal patterns
and, in most locations in the United States and Canada, are higher in the late
spring through early fall months (May through October) than during the balance
of the year, with the lowest occupancy rates occurring in the first quarter of
the year. As a result, the Company expects to experience seasonal lodging
revenue patterns similar to the hotel industry with the summer months, due to
the increase in leisure travel, producing a higher revenue than in other
periods during the year.
Importance of Franchisor Relationships
Substantially all of the Company's hotels are operated under the Travelodge
brand name pursuant to franchise agreements with affiliates of HFS. The
Company expects that substantially all of the hotels that it acquires or
develops in the future will be operated under hotel brands franchised by major
hotel franchisors. While the Company believes that franchise arrangements
offer the Company competitive advantages over nonfranchised lodging
properties, the value of a brand name under which the Company's hotels operate
and, as a result, the Company's business as a whole, could be adversely
affected by a number of factors relating to the franchisor of that brand over
which the Company has no control. These risks include the general reputation
of the brand and the success of the franchisor's marketing efforts. In
addition, pursuant to the terms of an applicable franchise agreement, a
franchisor can terminate the agreement if, among other things, its quality
standards are not maintained or if payments due are not made in a timely
fashion. If any of the franchise agreements were terminated by the franchisor,
the Company could explore entering into a franchise agreement with another
franchisor. There can be no assurance, however, that a desirable replacement
relationship would be available. In addition, under the franchise agreements
covering the Company's Travelodge hotels, the franchisor controls the
marketing and promotional aspects of the Travelodge brand. The Company's
program to revitalize the Travelodge brand name through increased promotional
expenditures is dependent upon the cooperation of HFS as franchisor of the
Travelodge name.
Risks Associated with International Operations
The Company has begun to expand its hotel operations in Mexico and Canada.
As a result, the Company's operations may be affected adversely as a result of
political changes or instability, general economic conditions,
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the imposition of regulations relating to the ownership of hotel properties or
real estate or the franchising of hotel properties, the imposition of taxes,
and other charges on international business activities, in Mexico or Canada,
and the fluctuations in the value of the U.S. dollar against the Canadian
dollar or the Mexican peso, as the case may be, or restrictions on
international currency transactions.
Reliance on Current Management
Although the Company's management team includes individuals with substantial
experience in operating, managing, developing and acquiring hotels and real
estate properties, the Company relies upon the services and expertise of
Richard L. Fisher, the Company's Chairman and Chief Executive Officer, and
Martin L. Edelman, a Director and the Company's President. The occurrence of
any event which would cause the Company to lose the services of either of
Messrs. Fisher or Edelman could have a material adverse effect on the Company.
The Company has purchased $5 million key-man life insurance policies covering
each of Messrs. Fisher and Edelman. There is no assurance, however, that the
Company will continue to maintain such insurance policies in effect or that
any proceeds thereof would be sufficient to compensate the Company for the
loss of services of either of Messrs. Fisher or Edelman. In addition to the
substantial amounts of time that Messrs. Fisher and Edelman devote to the
Company's business activities, both Messrs. Fisher and Edelman engage in other
business activities. Neither Mr. Fisher nor Mr. Edelman has an employment
agreement with the Company.
Relationship with HFS
In addition to the Company's relationship with HFS as the franchisor of the
Travelodge brand name under which substantially all of the Company's hotels
operate, $75 million of the Company's borrowings under its Credit Facility are
currently guaranteed by HFS. The amount and availability of the Credit
Facility could be adversely affected by adverse changes in the financial
condition of HFS.
Risk of Expiration of Ground Leases
Approximately 69% of the Company's hotels are located on property covered by
ground leases with unaffiliated third parties. Although the Company intends to
attempt to obtain renewals of the ground leases or the purchase of the real
property from the lessor when it considers renewal or purchase to be
advantageous, there can be no assurance that the Company will be able to do
so. The Company's failure to renew these ground leases or purchase the real
property from the lessor could adversely affect the Company's financial
performance. In addition, there can be no assurance that, should the Company
decide to renew, it will be able to do so.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Chartwell Leisure Inc.
/s/ Martin L. Edelman
By: _________________________________
MARTIN L. EDELMAN
PRESIDENT
Date: January 21, 1998
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