During the third quarter, Candlewood�s growth was slowed by the weak economy.  The effects of the softer market were offset by Candlewood�s strength in the extended-stay business, and a stronger, focused direct sales force.  As a result, the Company reported revenue per available room (RevPAR) down just 2.7 percent from the year-ago third quarter compared with the lodging industry�s RevPAR decline of 11.2 percent as reported by Smith Travel Research.

�We are saddened by the tragic events of September 11, 2001.  Our thoughts and prayers are with those so deeply affected,� said Jack P. DeBoer, chairman and chief executive officer.  �At Candlewood, excluding the summer holidays, we saw weekly occupancy rates of over 80 percent on average during the first two months of the quarter.  Comparatively, our occupancy has averaged 75 percent since the tragedy.  However, we are encouraged by our strong base of extended-stay business, which has held up very well post-September 11.  Our focus on relationship selling has become a significant competitive advantage, now more than ever. We�ve allocated greater resources to our sales efforts.  And, in the third quarter, we benefited from a successful marketing promotion with Amazon.com.  Simply put, we believe we increased market share versus our competitors in a difficult market through increased sales efforts and new marketing initiatives.  Our distinct operating strategy served us well going into September and should give us an advantage as we continue to navigate in this challenging economic environment.�

DeBoer continued, �Our brand achieved a significant milestone recently, as we opened our 100th hotel, located in Rogers, Arkansas, near the headquarters of JB Hunt, Tyson Foods, and Wal Mart.  This hotel represents much of what Candlewood�s growth will be about in the near future, as it was built by an existing, multi-unit value partner.  The hotel has 78 rooms to accommodate a smaller market, and to-date has achieved strong results.�

Third Quarter 2001 Results

The revenue results of the Candlewood hotels owned, leased and managed by the Company for the third quarter of 2001 were: RevPAR of $45.01, average daily rate (ADR) of $58.94 and average occupancy of 76.4 percent.  For the third quarter of 2000: RevPAR was $46.24, ADR was $59.92 and average occupancy was 77.2 percent.

Total hotel-operating revenues for the latest three-month period were $34.6 million, essentially unchanged from a year ago.  Due to significant investment in sales efforts, the loss before preferred dividends was $525,000, and the net loss after preferred stock dividends was $2.5 million, or $0.28 per share.  For the 2000 third quarter, income before preferred dividends was $3.1 million, and net income after preferred stock dividends was $1.1 million, or $0.12 per share.

The reduced income in the 2001 third quarter from the prior year primarily was attributable to three factors: a same store decrease in total hotel revenue of 5.9 percent; the costs of the promotional campaign with Amazon.com; and the increased expense of the Company�s enhanced sales organization.  Candlewood also reported higher employee insurance costs during the latest quarter.
For the 2001 third quarter, the Company opened five franchise hotels� two Cambridge Suites and three Candlewood Suites.  The Company had 104 hotels open at September 30, 2001, including 26 franchised and 78 owned, leased or managed by the Company.  At September 30, 2000, the Company had 88 hotels open; including 15 franchised and 73 owned, leased or managed by the Company.

Nine Month Results

The revenue results of the Candlewood hotels owned, leased and managed by the Company for the first nine months of 2001 were: RevPAR of $44.86, ADR of $60.83 and average occupancy of 73.8 percent.   For the first nine months of 2000: RevPAR was $44.93, ADR was $57.99 and average occupancy was 77.5 percent.

Total hotel-operating revenues for the latest nine-month period were up slightly to $100.9 million from $100.0 million the prior year.  The loss before preferred dividends for the year-to-date period was $319,000, and the net loss after preferred stock dividends was $6.3 million, or $0.70 per share.  For the 2000 nine months, income before preferred dividends was $6.4 million, and net income after preferred stock dividends was $344,000, or $0.04 per share.

Financial Position

Commenting on the financial position of the Company, Warren D. Fix, chief financial officer, said, �We ended the quarter with a cash balance of $23.9 million. This change from the June 30, 2001, cash balance of $16.6 million is primarily due to the sale and leaseback of two hotels to Hospitality Properties Trust.  Cash proceeds of approximately $29 million from the transaction were used to pay down debt and increase our corporate cash position.  In the third quarter we saw the continuing benefits of interest rate reductions on our floating rate debt.  Since this time last year, 30-day LIBOR has decreased over 400 basis points, to approximately 2.3 percent today.  This benefit will be realized in future months.  We now have approximately $193 million of debt, of which 90 percent is floating rate tied to 30-day LIBOR.  We intend to continue to conserve cash and, as discussed in our SEC filings, continue to discuss with our lenders the extension or modification of our short-term debt.�

Outlook

The fourth quarter is typically the weakest quarter for the Company as business travel slows during the holidays.  This, coupled with the uncertain economy and reduced consumer and business travel following the September 11 attacks makes it difficult to predict performance levels for the balance of 2001.

While the Company�s backlog of franchise applications is stronger than last year, potential partners are having difficulty in obtaining construction financing.

�This is a difficult operating climate, but we are staying the course.  We will continue to focus on franchising over development.  We will continue to target suburban office market locations versus urban locations or central business districts.  We will pursue national accounts such as government agencies and the ancillary business they bring.  We will renew our outreach to the senior citizen demographic, who finds our quality and value very attractive.  We will continue allocating additional resources for our marketing and sales efforts to gain market share and new customers.  And, we will continue to review opportunities to raise efficiencies and reduce costs,� said DeBoer.

Early in the fourth quarter, Candlewood implemented a more efficient operating structure by eliminating a middle management layer, providing a direct line of communication between senior management and hotel staff.  After separation payments, the new structure is expected to reduce overhead costs and provide for faster communication to and from the hotels.
 

Candlewood Hotel Company, headquartered in Wichita, Kansas, owns, operates and franchises Candlewood Suites and Cambridge Suites. 

The financial results reported in this press release are unaudited.  The results may not be indicative of results for future periods.  The matters in this press release include �forward looking statements� within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are qualified by cautionary statements contained herein and in Candlewood Hotel Corporation filings with the Securities and Exchange Commission.