A tax-free spinoff to shareholders expected to be completed in
the fall of 1997 will separate the Company's franchising and real estate operations,
creating two separate publicly traded companies.
After the spinoff, the franchising company will retain the name Choice Hotels
lnternational. It will focus exclusively on franchising and intends to pursue potential
acquisition opportunities both inside and outside of the lodging industry.
A critical criterion for any acquisition opportunity is that it be a "good
fit" with Choice, either by complementing the Company's existing businesses or by
leveraging its core competencies in franchising.
The new real estate company will be named Sunburst Hospitality Corporation. Following
the spinoff, it will pursue a four-part strategy:
- Optimize the operating performance and value of its existing portfolio through the
consistent application of high-quality sales, marketing and operating programs;
- Capitalize on the underserved, high-growth, mid-priced, extended-stay all-suite segment
with the development of MainStay Suites hotels;
- Develop other high-quality, consumer-focused products such as the Sleep Inn brand;
- Pursue the opportunistic acquisition of existing hotels where substantial value can be
created.
Through a strategic alliance, Sunburst also will continue to help Choice create and
test new products and success systems for the benefit of its franchisees.
A Cinderella Story
The Company's real estate business truly is a Cinderella story.
It began in 1992 with just 12 hotels and $39.8 million in revenue and, by capitalizing
on the soft real estate market, grew to 71 hotels in the United States with 10,330 rooms
that generated $168 million in revenue this year.
The majority of the hotels were acquired by the Company since 1992 at prices below
their replacement cost. All have benefitted from the Company's investment of capital that
has been used to substantially renovate and upgrade the properties.
Since 1993, real estate division revenues have grown at a compound annual rate of 43.4
percent. At the same time, gross margins improved from 27.6 percent in 1993 to 36.5
percent four years later.
The division this year constructed and opened four Sleep Inn hotels in North Carolina
and Texas as well as Choice's first MainStay Suites hotel in Plano, Texas. In addition,
the division acquired two hotels with a total of 324 rooms in Florida and North Carolina.
The division this year improved the RevPAR performance of its portfolio by 9.9 percent
to an average $40.96 based on an average daily rate of $59.62.
All of the division's hotels are part of the Choice brand family. They operate in one
of the three principal segments of the lodging industry: all-suite, full service and
limited service.
