Comfort Inn 2014 Annual Report Download - page 46

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Table of Contents
revenue recognition related to agreements containing incentives. Revenues associated with agreements including incentives are deferred and recognized
when the incentive criteria are met or the agreement is terminated, whichever comes first. At December 31, 2014, the Company had approximately $7.1
million and $3.5 million of deferred initial franchise fees and sales commissions, respectively, outstanding related to domestic franchise agreements executed
with developer incentives which represents an increase from the $4.5 million and $2.3 million outstanding at December 31, 2013.
During 2014, the Company received 848 applications for new franchise agreements (not including relicensing of existing agreements) compared to 756
in 2013. These applications resulted in 566 new domestic franchise agreements executed during 2014 representing 44,467 rooms compared to 530
agreements representing 41,390 rooms executed in the same period of 2013. An application received does not always result in an executed franchise
agreement during the year received or at all due to various factors, such as financing and agreement on all contractual terms. During 2014, 159 of the
executed agreements were for new construction hotel franchises, representing 12,145 rooms, compared to 89 contracts, representing 6,330 rooms for 2013.
The increase in new construction franchise agreements primarily reflects a gradual improvement of the lending environment for hotel construction and
improving lodging fundamentals including an increasing RevPAR environment and low industry supply growth which are typically a catalyst for increased
construction of new hotels. In addition, the termination of under performing Comfort hotels has opened up additional markets for the Comfort brand which
resulted in 36 additional new construction franchise agreements in 2014 compared to 2013.
Conversion hotel franchise executed contracts totaled 407 representing 32,322 rooms for the year ended December 31, 2014 compared to 441
agreements representing 35,060 rooms for the year ended December 31, 2013. The decline in conversion hotel franchise agreements primarily reflects the
impact of a strategic marketing alliance with a timeshare company in 2013, which resulted in the execution of 24 new franchise agreements for our Ascend
Hotel Collection brand during the twelve months ended December 31, 2013 and a decline in Comfort conversion deals as the Company has emphasized
adding new units through new construction franchise agreements rather than conversions of existing product.
The number of franchise applications received and the number of franchise agreements executed are dependent on the availability of hotel financing,
cost of capital and the presence of an active real estate market. Improvements in these areas should serve as a positive catalyst in the number of franchise
applications received and ultimately the number of franchise agreements executed.
A summary of executed domestic franchise agreements by brand for the years ended December 31, 2014 and 2013 is as follows:















Comfort Inn
18
54
72
72 %
(56)%
(24)%
Comfort Suites
16
9
25
144 %
(89)%
60 %
Sleep
20
5
25
80 %
(60)%
52 %
Quality


1
137
138
200 %
21 %
22 %
Clarion
1
21
22
— %
33 %
32 %
Econo Lodge
2
87
89
50 %
(9)%
(8)%
Rodeway
1
70
71
200 %
9 %
11 %
MainStay
11
2
13
82 %
50 %
77 %
Suburban
9
5
14
(56)%
— %
(36)%
Ascend Hotel Collection 
5
51
56
120 %
(55)%
(39)%
Cambria
5
—
5
60 %
NM
60 %
 


89
441
530
79 %
(8)%
7 %
Relicensing fees include fees charged to the new owners of a franchised property whenever an ownership change occurs and the property remains in the
franchise system as well as fees required to renew expiring franchise contracts. Domestic relicensing contracts increased 21% from 258 during 2013 to 311 for
the year ended December 31, 2014. Renewals of expired contracts decreased 19% from 31 for the year ended December 31, 2013 to 25 during the current
year. As a result of the 16% increase in relicensing and renewal contracts and an increase in average fees per deal, domestic relicensing and renewal revenues
increased 25% from $6.4 million in 2013 to $8.0 million for 2014.
As of December 31, 2014, the Company had 510 franchised hotels with 39,243 rooms under construction, awaiting conversion or approved for
development in its domestic system compared to 422 hotels and 31,786 rooms at December 31, 2013. The number of new construction franchised hotels in
the Company’s domestic pipeline increased 39% to 326 at
46