Activities

CHE Hotel Group holds the master franchise to develop the four international hotel brands owned by US-based Choice Hotels International in the UK and 10 European countries. The name CHE stands for Choice Hotels Europe.

The company is the third-largest hotel operator in Europe. It owns, leases, manages and franchises hotels in the UK, France, Germany and Belgium. CHE also franchises hotels in Austria, Czech Republic, the Irish Republic, Italy, Portugal, Spain, and Switzerland.

In the UK, it additionally owns and operates the New Connaught Rooms, the 29-room conference and banqueting venue in London’s Covent Garden

(The master franchise for Scandinavia is owned by Choice Hotels Scandinavia, a separate company, which adds another 140 Choice-branded hotels to the European tally).

The four Choice brands cover the luxury, mid-market and budget sectors:

• Clarion Hotel is an international, four-star luxury brand launched in 1987. In 2003, the group introduced the Clarion Collection sub-brand for boutique and historic hotels that relaxed some of the brand requirements.
• Quality Hotel, which dates back to the 1940s, is a mid-market, three- to four-star brand offering restaurants, bars, meeting and banqueting facilities and, in some hotels, fitness centres.
• Comfort Inn was introduced in 1981 as a premium budget brand with mid-market features, including restaurants, bars and small meetings facilities.
• Sleep Inn was launched in the late 1980s as a second premium economy brand, offering superior bedrooms but not full hotel services. Sleep Inns have more fixed pricing and tend to be new-builds rather than conversions.

CHI started life as a small US chain of roadside hotels in the 1930s and has built itself into one of the world’s largest hotel franchisors on the back of its Quality brand. It now has more than 5,000 properties open or under development in 48 countries.

Timeline

• 1986: Friendly Hotels is set up and floated on the London Stock Exchange by Henry Edwards, who previously founded both Comfort Hotels and Crest Hotels before selling them to Ladbroke and Bass respectively. Friendly starts off with two hotels in Birmingham and adds another six hotels to the portfolio during the year.
• 1987: Friendly buys the New Connaught Rooms conference and banqueting centre in Covent Garden, London.
• 1994: The company becomes a franchisee of US-based Choice Hotels International and converts its 27 Friendly Hotels and Stop Inns to the Comfort and Quality brand names.
• 1996: Friendly Hotels buys the master franchise to develop the Choice brands in the UK and Ireland.
• 1998: Friendly gains the master franchise to develop the Comfort, Quality, Clarion and Sleep Inn brands across Continental Europe, excluding Scandinavia. It opens its first Clarion hotel in the UK and teams up with investors Kasterlee and Prem Group to set up a joint venture, Choice Hotels Ireland, in the Irish Republic.
• 1999: A slide in pre-tax profits in 1999 deepens into a series of pre-tax losses over the following years. Friendly does not return to profit until 2004.
• 2000: Friendly launches a multi-million pound refurbishment programme for more than half its UK hotels. By mid-2004, it has invested £28m in the project.
• 2001: The year opens with news of impending insolvency and a drastic rescue plan that includes the sale of more than a quarter of the company’s UK hotels. Over the next two years Friendly offloads 19 properties for a combined £36.1m. A capital reorganisation of the company, along with enhanced franchise agreements, effectively gives Choice Hotels International control over 70% of Friendly’s equity.
• June 2001: Choice Hotels International reveals that it is talking to several potential buyers for Friendly Hotels. Takeover rumours persist into early 2002.
• August 2001: Friendly Hotels changes its name to CHE Group.
• February 2002: Choice Hotels International reveals that talks with several potential buyers have been terminated. Having failed to find it buyer, it relinquishes its interest in CHE over the next three months.
• July 2002: CHE shareholders reject an offer by Choice Hotels International to acquire the group’s European master franchise and its assets in Continental Europe.
• 2002: CHE starts construction work on its first Sleep Inn in the UK, in Leeds.
• 2003: The group signs its first hotel management contracts and announces a new finance package and a new board. In April, it sells more than half its remaining stake in the 22-hotel Irish joint venture to Chiswick Property Partnerships (The balance of its interest is offloaded in 2005).
• 2004: CHE returns to profit after five years of losses and concludes its three-year programme of disposals to reduce debt. In August it raises £5.06m through a placing and open offer of shares to fund the refurbishment of bedrooms at Quality hotels, the opening of new Sleep Inns and the upgrading of conference facilities and public areas.
• January 2005: CHE raises more than £800,000 from shareholders from the placement of new shares.
• June 2005: The company changes its name to CHE Hotel Group PLC.
• January 2006: CHE raises £18.6m through a share placing. It plans to plough £8.6m into expanding the Sleep Inn brand to 60 UK locations within five years and to spend another £10m refurbishing its hotels. The five-year waiver on franchise fees to be paid to Choice Hotels International expires.
• Fourth-quarter 2006: CHI takes back the franchise for Austria, Belgium, France, Spain, Germany, Italy, the Czech Republic and Switzerland.
• July 2007: CHE, which reported a pre-tax loss of £7.9m for 2006, is renamed the Real Hotel Company (RHC).
• December 2007: RHC launches its first Purple-branded hotel - described as a no-frills chic budget concept - in Braintree, Essex. By February 2008, when it opens its first Purple  hotel in Scotland, it has 11 Purple hotels, coverted from former Sleep Inns.
• January 2008: CHI terminates RHC's master franchise for the UK, transferring  and transfers the operation of the 78 UK franchised properties to its European arm, London-based Choice Hotels Europe. RHC remains Choice's biggest UK franchisee. 
• April 2008: Whitbread agrees to buy RHC's three London hotels - the Quality Hotel in Westminster, the Comfort Inn in Kensington and the Purple hotel in the City - for £18.5m and is given first refusal on the remainin 12 Purple hotels if they are put up for sale. RHC says its exit from the City will be used to cut its debt by £14.5m and provide working capital of £3.5m.
• July 2008: RHC's share value crashes by 22% to close at 7.75p as a result of financial troubles at private equity group Dawnay Day, which has a 28% stake in RHC.
• January 2009: RHC goes into administration within a week of the suspension of its shares on the AIM market. CHI terminates its franchise agreement with the company while administrator BDO Stoy Hayward closes four hotels (the Comfort Inn in Thetford, Norfolk, the Newcastle upon Tyne Quality hotel, the Stop Inn Floatel in Northwich and the Newcastle under Lyme Stop Inn), leaving the group with 36 hotels trading. 
• February 2009: Focus Hotel Management safeguards 500 jobs by taking on the operation of 10 Quality and Clarion hotel leases in Altrincham, Wigan, Wolverhampton, Hull, Hatfield, Chester, Northampton, Stafford, Blackburn and Telford. Focus is head by Peter Cashman, a founder of Friendly Hotels and an executive director at CHE until January 2007.

Financial snapshot

Full Year

Turnover: £79.2m* (2004: £79.6m)
Pre-tax profit: -£400,000 (2004: -£200,000)
*Turnover includes income from franchising of £3.9m

Half Year

Turnover: £37.2m* (2004: £37.6m)
Pre-tax profit: -£1.8m (2004: -£1.5m)
*Turnover includes income from franchising of £1.8m (2004: £1.7m)

Financial year end: 31 December 2005
Half-year end: 30 June 2005

Operating data

Total number of hotels: 330 hotels (95 in the UK) 
Total number of bedrooms: nearly 27,000

Total number of company-operated hotels: 58 – most are owned or leased while 14 are managed for third parties
UK: 41, including 11 managed hotels
France: six, including one managed hotel
Germany: four, including two managed hotels
Belgium: one

Hotel numbers by brand
Sleep Inn: five, all in the UK
Comfort: 181 (34 in the UK)
Quality: 125 (51 in the UK)
Clarion: 27 (two in the UK)

Total number of CHE employees: 2,435

Operating figures for the  year to 31 December 2005

Turnover by region
UK: £65.3m (2004: £65m)
France and Belgium: £8.7m (2004: £9.2m)
Germany: £5.2m (2004: £5.4m)

Turnover at leased Continental hotels represented 12% of the group total.

Turnover by activity
Owned, leased, banqueting: £71.9m (2004: £72.3m)
Managed and other: £1.4m (2004: £1.6m)
Franchise operations: £5.9m (2004: £5.7m)

UK figures
Owned and leased properties in the UK accounted for 80% of total group turnover.  

Strategy

"The raising of funds allows us for the first time, after many years of restraint, to implement our growth and development strategy. Our transition commenced in 2005 and will continue throughout 2006 as we refurbish and remodel our properties, accelerate the development of our Sleep Inn premium limited service hotels, together with our mid market sector expansion plans".

Source: annual results statement, 12 April 2006

Chief executive

Michael Prager

Key directors

Non-executive chairman: Peter Catesby
Finance director: Paul Mitchell

Contact

Premier House
112 Station Road
Edgware
Middlesex
HA8 7BJ

Tel: 020 8233 2001
Fax: 020 8233 2000

E-mail: enquiries@realhotelcompany.com
Website: http://www.realhotelcompany.com/

Commentary

In April, CHE announced that it was assessing the financial viability of its master franchise agreements, particularly in Continental Europe. 

Options include keeping the agreements under new terms, relinquishing both to become a franchisee, or keeping just the UK and Ireland master franchise. However, no decision needs to be made before 2008.