Comfort Inn 2014 Annual Report Download - page 28

Table of Contents
assurance that we will be able to recover any or all of such impaired or paid amounts, in which case we will experience losses which could be material.
Development activities that involve our investment in real estate to stimulate the development of new brands may result in exposure to losses.
The Company is engaged in a program to identify real estate for potential developers to acquire and be utilized for Cambria hotels and suites
development. The Company’s intent is to identify potential development sites so that developers may acquire the site and commence construction of a
Cambria hotels and suites. However, in certain circumstances, the Company has acquired, and continues to acquire, the real estate prior to identifying a
potential developer for the project. As a result, we are subject to the investment risk that we would not otherwise be exposed to as a franchisor. In particular,
we face specific risks stemming from (1) our ability to assess the fair market value of the real estate; (2) the location’s suitability for development as a
Cambria hotels and suites; (3) the availability of zoning or other local approvals needed for development; and (4) the availability and pricing of capital.
Although we actively seek to minimize these risks prior to acquiring real estate, there is no assurance that we will be able to recover the costs of our
investments in which case we will experience losses which could be material.
Investing through joint ventures decreases our ability to manage risk.
We have invested, and expect to continue to invest in real estate and other hospitality related joint ventures. Joint venturers often have shared control
over the operation of the joint venture assets and therefore these investments may involve risks such as the possibility that the co-venturer in an investment
might become bankrupt or not have the financial resources to meet its obligations, or have economic or business interests or goals that are inconsistent with
our business interests or goals. Consequently, actions by a co-venturer might subject us to additional risk or result in actions that are inconsistent with our
business interests or goals.
Under certain circumstances our franchisees may terminate our franchise contracts.
We franchise hotels to third parties pursuant to franchise agreements. These agreements may be terminated, renegotiated or expire but typically have an
initial term of either ten or twenty years. These agreements also typically contain provisions permitting either party to terminate the franchise agreement after
five, ten or fifteen years under certain circumstances and depending on the particular hotel brand that is licensed to the franchisee. While our franchise
agreements provide for liquidated damages to be paid to us by franchisees whose agreements have been terminated as the result of a violation of the
provisions of the agreement, these damage amounts are typically less than the fees we would have received if the terminated franchisee fulfilled its
contractual obligations. In addition, there can be no assurance that we will be able to replace expired or terminated franchise agreements, or that the
provisions of renegotiated or new agreements will be as favorable as the provisions that existed before such expiration, replacement or renegotiation. As a
result, our revenues could be negatively impacted.
Deterioration in the general financial condition of our franchisees may adversely affect our results.
Our operating results are impacted by the ability of our franchisees to generate revenues at properties they franchise from us. An extended period of
occupancy or room rate declines may adversely affect the operating results and financial condition of our franchisees. These negative operating conditions
could result in the financial failure of our owners and result in a termination of the franchisee for non-payment of franchise fees or require the transfer of
ownership of the franchise. In those instances where ownership is transferred, there can be no assurance that the new owners will choose to affiliate with our
brands.
The hotel industry is highly competitive. Competition for hotel guests is based primarily on the level of service, quality of accommodations,
convenience of locations and room rates. Our franchisees compete for guests with other hotel properties in their geographic markets. Some of their
competitors may have substantially greater marketing and financial resources than our franchisees, and they may construct new facilities or improve their
existing facilities, reduce their prices or expand and improve their marketing programs in ways that adversely affect our franchisees' operating results and
financial condition. In addition, the ability of our franchisees to compete for guests directly impacts the desirability of our brands to current and prospective
franchisees.
These factors, among others, could adversely affect the operating results and financial condition of our franchisees and result in declines in the number
of franchised properties and/or franchise fees and other revenues derived from our franchising business. In addition, at times, the Company provides financial
support to our franchisees via notes and guarantees. Factors that may adversely affect the operating results and financial condition of these franchisees may
result in the Company incurring losses related to this financial support.
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