Comfort Inn 2014 Annual Report Download - page 27

Table of Contents
numerous risks, many of which are beyond the control of our franchisees or us. Among other risks, the following factors affect our ability to achieve growth in
the number of franchised hotels:
• the ability of our franchisees to open and operate additional hotels profitably. Factors affecting the opening of new hotels, or the conversion of
existing hotels to a Choice brand, include, among others:
• the availability of hotel management, staff and other personnel;
• the cost and availability of suitable hotel locations;
• the availability and cost of capital to allow hotel owners and developers to fund investments;
• cost effective and timely construction of hotels (which construction can be delayed due to, among other reasons, availability of financing,
labor and materials availability, labor disputes, local zoning and licensing matters, and weather conditions); and
• securing required governmental permits.
• our ability to continue to enhance our reservation, operational and service delivery systems to support additional franchisees in a timely, cost-
effective manner;
• our formal impact policy, which offers franchisees protection from the opening of a same-brand property within a specified distance;
• the effectiveness and efficiency of our development organization;
• our failure to introduce new brands that gain market acceptance;
• our dependence on our independent franchisees’ skills and access to financial resources necessary to open the desired number of hotels; and
• our ability to attract and retain qualified domestic and international franchisees.
In addition, we are currently planning to expand our international operations in many of the markets where we currently operate, as well as in selected
new markets. This may require considerable management time as well as start-up expenses for market development before any significant revenues and
earnings are generated. Operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be
affected by local economic and market conditions. Therefore, as we expand internationally, we may not experience the operating margins we expect, our
results of operations may be negatively impacted and our stock price may decline.
Instability in the credit markets may impact the ability of our franchisees to expand or construct new locations.
Our growth strategy relies on the ability of our franchisees to expand or open new franchises and to operate those franchises on a profitable basis.
Delays or failures in opening new locations could materially and adversely affect our planned growth. During periods of credit market instability or when real
estate values decline, credit and liquidity concerns increase as well as loan default rates. As a result, lenders will reduce their willingness to make new loans
and tighten their credit requirements. Many of our franchisees depend on the availability of financing to refinance existing indebtedness, to expand and or
renovate existing locations or construct and open new hotels. If our franchisees experience difficulty in obtaining adequate financing for these purposes, our
growth strategy and franchise revenues may be adversely affected during these periods.
Development activities that involve our co-investment or financing and guaranty support for third parties may result in exposure to losses.
As a result of our program to make financial support available to developers in the form of loans, credit support, such as guarantees, and equity
investments, we are subject to investment and credit risks that we would not otherwise be exposed to as a franchisor. In particular, when we make loans to
franchisees, agree to provide loan guarantees for the benefit of franchisees, or make equity investments in franchisees, we are subject to all generally
applicable credit and investment risks, such as (1) construction delays, cost overruns, or acts of God such as earthquakes, hurricanes, floods or fires that may
increase overall project costs or result in project cancellations; (2) the possibility that the parties with which we have entered into a co-investment, financing
or guaranty relations could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests,
policies or objectives that are inconsistent with ours; and (3) that the conditions within credit or capital markets may limit the ability of franchisees to raise
additional debt or equity that may be required for completion of projects. In addition to general credit and capital markets risks, we face specific risks
stemming from our ability to assess the existing and future financial strength of the franchisee and its principals, the development/construction abilities of
the franchisee, the expected performance of the hotel in light of the forecasted general, regional and market-specific economic climate, and the ability to
negotiate for, value, and if necessary collect security for our loans or obligations. If we do not accurately assess these risks, our assumptions used to make
these estimates prove inaccurate, or situations in the credit market or hospitality industry change in a manner we did not anticipate, our loans and
investments may become impaired and/or we may be required to make payment under guarantees we have issued. In such instances, there is no
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