Doubletree Corporation

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Doubletree Corporation

410 North 44th Street, Suite 700
Phoenix, Arizona 85008
U.S.A.
(602) 220-6666
Fax: (602) 220-6602
Web site: http://www.doubletreehotels.com

Public Company
Incorporated: 1969
Employees: 29,000
Sales: $670.80 million (1996)
Stock Exchanges: NASDAQ
SICs: 7011 Hotels and Motels

Doubletree Corporation owns, manages, and franchises hotels in the United States and abroad. One of the largest hotel managers in the United States, the company offers a full range of management services for individual and institutional owners of Doubletree full-service hotels, Doubletree Guest Suites all-suite hotels, Doubletree Club limited-service hotels, and Candlewood extended-stay hotels. Doubletree also manages hotels under independent or franchised names. The sure sign of a Doubletree establishment, however, is the presence of the hotel manager’s signature chocolate chip cookies.

Leader in Hotel Management

Ranked third among large hotel managers after Marriott International and Hilton Hotel Corporation, Doubletree manages hotels for pension funds, real estate investment trusts, and other passive investors. In return, the corporation usually receives 2 to 4 percent of each property’s revenues, plus incentive bonuses.

Doubletree manages 70 to 80 percent of its own branded hotels, including the notable Doubletree Guest Suites in New York. Other prestigious, independent hotels administered by Doubletree include the Boston Harbor Hotel, the Carolina Inn, and Fess Parker’s Red Lion in Santa Barbara, California. Doubletree also is the exclusive franchiser of Doubletree and Doubletree Guest Suites hotel brands.

As of 1997, Doubletree leased, managed, or franchised a total of 57,345 hotel rooms in more than 240 properties. Initially, its hotels were concentrated in the western United States. Then the company expanded into eastern cities as well as abroad. Approximately one hundred of the company’s hotels were situated in the 50 leading markets. In total, Doubletree hotels were located in 39 states and Washington, D.C., Mexico, and the Caribbean in 1997. Located near airports, downtowns, business centers, tourist attractions, and resort areas, Doubletree hotels appeared in such gateway cities as Miami, Florida; Pittsburgh, Pennsylvania; Washington, D.C.; and Atlanta, Georgia.

On Being Bought and Sold

Doubletree was founded in 1969. Headquartered in Phoenix, Arizona, the present company formed in 1993 when General Electric Investment Management, Inc.—the pension management branch of General Electric—purchased Doubletree from Canadian Pacific. General Electric then combined Doubletree with another hotel operator that it owned—Boston-based Guest Quarters Suites Hotels—and hired a proven management team that included former baseball commissioner Peter Ueberroth and Richard Ferres, former chief executive of United Airlines. “We both provide some overview and leadership for Doubletree,” Ueberroth said, explaining his and Ferres’s roles in Forbes magazine, “but the team of individuals under [Richard] Kelleher is the real story.”

Richard Kelleher was named president and chief executive officer of Doubletree in 1996. A 1973 graduate of the University of Massachusetts School of Hotel, Restaurant, and Motel Administration, Kelleher cofounded Beacon Hotel Corporation in 1983. He worked in the hotel business for 25 years and served as chief executive of Guest Quarters at the time of its merger with Doubletree in 1993. Under Kelleher’s leadership, Doubletree’s stock grew dramatically. With the extra revenue, Kelleher acquired additional hotel management opportunities and negotiated some remarkable business ventures through aggressive acquisitions and teamwork. “We’ve built one thing here: a team of people that is committed to making Doubletree the brand of the next century,” Kelleher told the Arizona Republic.

Three Markets for Doubletree

During Kelleher’s tenure as leader, Doubletree Corporation became active in three market segments. First, it served the upscale, first-class full-service market with Doubletree brand hotels. These hotels typically included management and convention facilities, banquet halls, recreation and fitness rooms, restaurants, and often courtesy transportation. In 1997, there were 63 Doubletree brand hotels.

Secondly, the corporation became a player in the all-suite hotel market with Doubletree Guest Suites, first-class, full-service hotels. Each hotel featured one- and two-bedroom suites with living rooms and baths. Standard features at Doubletree Guest Suites hotels included remote-control televisions and in-room telephones, coffee makers, mini-bars, and refrigerators. Like Doubletree brand hotels, Doubletree Guest Suites offered patrons restaurants, lounges, meeting and banquet facilities, recreation and fitness rooms, and often courtesy transportation. In 1997, 42 Guest Suites hotels were located in major destination cities such as Atlanta, Georgia; Washington, D.C.; Chicago, Illinois; Dallas, Texas; and Fort Lauderdale, Florida.

Club Hotels

Club Hotels by Doubletree/Doubletree Club Hotels became the third market for the corporation. These mid-market hotels were designed to serve frequent business travelers and featured a multipurpose room similar to an airline club room with the conveniences of a residential den. Club Hotels were targeted as offices on the road for 25- to 45-year-old middle managers and consultants who generally traveled two or three business days each week.

Doubletree considered Club Hotels a re-creation of the business hotel; that is, upscale accommodations with business services for the increased productivity of professionals while traveling. As Thomas Storey, president of Club Hotels by Doubletree, noted in a press release: “We have set out to re-invent the three-star business hotel. Our research indicates that today’s road warrior doesn’t want to eat, sleep, and work in the same room. By co-branding with nationally recognized business service providers, Club Hotels by Doubletree has delivered the first hotel brand anywhere to offer industry leading brands in food service, business services, and residential work environments.”

Each Club Hotel offered business travelers convenient late check-ins, office and work space, office technology—including e-mail and voice mail—self-service business centers, meeting facilities for small groups, and cafes. Doubletree created the Club Hotel concept through partnerships with industry leaders that regularly provide services to businesses. Kinko’s, for example, provided a combination copier/laser printer/fax machine for use in Club Hotels on a 24-hour-a-day basis. Doubletree commissioned Steelcase, Inc., for personal harbor work spaces that afford guests the luxury of individual office space within the hotels. Au Bon Pain Bakery Cafes provided food service in Club Hotels, supplying fresh fast food for guests at extended hours (6:00 a.m. to 11:00 p.m.)—long beyond a typical hotel restaurant’s hours of operation. Doubletree also enlisted USA Today to provide Club Hotel guests with daily news.

Partners in the Club Hotels were each enthusiastic. As Steel-case on the Road’s vice president and general manager Christine Albertini observed: “Our business is about supporting work and workers. We commend [Doubletree executives] for their vision.” Karen Sophiea, Kinko’s vice president of marketing, agreed: “We live in a twenty-four-hour work society. It’s an excellent concept.”

Doubletree targeted existing three-star hotels for conversion as Club Hotels. The corporation identified 5,000 possible sites in the United States alone for renovation as Club Hotels. Doubletree looked for hotels about 20 years old and in need of refurbishment, with a minimum of 3,000 square feet of restaurant space off the hotel lobby for conversion into the club room.

The first Club Hotel opened in Jacksonville, Florida, in August 1996. After extensive renovating—including an upgrade of all soft goods in the hotel—the Jacksonville property offered 167 guest rooms, two private mini offices, two small conference rooms, and a completely redone 5,000-square-foot club room.

In October 1996, Doubletree announced the first new construction for the Club Hotels brand, developed in conjunction with the Liddy Company of San Antonio. The new hotel, located in San Antonio, was scheduled to open in August 1997, with 152 guest rooms and a 6,000-square-foot club room. Doubletree expected to spend more than $10 million on construction. “This is Doubletree’s first Club Hotel to be built from the ground up,” Storey revealed in a 1996 press release. “While we expect the majority of the brand’s growth to come from hotel conversions, we are pleased to create our first blueprint for construction.”

Company Perspectives:

Doubletree’s business philosophy is simple and direct: the organization focuses on delivering superior operating profits to its customer —the hotel owners. In return for its management and franchise services, Doubletree is paid a percentage of revenues as a base fee. In addition, Doubletree often receives an incentive fee tied to improvements in hotel operating performance. By consistently creating value for the hotel owner, Doubletree increases its fees and creates value for its stockholders as well.

Conversions of existing properties followed rapidly. In October 1996, Doubletree and the Atlanta-based Impac Hotel Group signed a franchise agreement for the conversion of a hotel in Kentucky. After $4.5 million in renovations, the Club Hotel Louisville opened in March 1997 with a 16,800-square-foot Tropidome, pool, arcade, Jacuzzi, dry sauna, Healthplex, 399 guest rooms, 52 suites—plus five deluxe Jacuzzi suites—37 executive suites, and 10 hospitality parlors. According to Storey, “As a growing city, Louisville is an ideal market to locate a business-oriented hotel designed to meet the needs of today’s technology comfortable traveler.”

In April 1997 the former Holiday Inn O’Hare Airport became the Club Hotel by Doubletree Chicago O’Hare. When Doubletree negotiated a management contract for the property in September 1996, the company initiated $5 million in renovations to convert the 246-room establishment into a Club Hotel. Similarly, Doubletree renovated the Holiday Inn Miami International Airport Lakes Hotel after signing a management contract in the latter part of 1996. The property opened as the Club Hotel by Doubletree Miami in April 1997. By May 1997, the company converted its sixth property in less than a year to a Club Hotel—the Philadelphia Doubletree Club Hotel.

The company expected to have one hundred Club Hotels in operation by the year 2000, so much of the company’s future growth may depend on the Club Hotel concept. As Kelleher explained to Hotel & Motel Management: “Doubletree is a company on the move. We see the Club Hotel brand as a product that will take us well into the twenty-first century.” In the first half of 1997, there were 16 Club Hotels throughout the United States.

The Acquisitions

The year 1995 marked the beginning of growth through acquisitions for Doubletree. The company embarked on its first international business deal that year by entering into a joint venture with Grupo Propulsa of Mexico. Doubletree converted properties in Mazatlan and Ixtapa to establish its first non-U.S. hotels. The company also began a partnership in 1995 with Jack DeBoer, developer of the extended-stay concept and founder of Residence Inns, to create Candlewood Hotels. The mid-priced, extended-stay hotels provided Doubletree with additional revenue and a foothold in an expanding and highly demanded segment of the hotel market. The first Candlewood Hotel began operation in May 1996.

Doubletree continued to pursue additional properties in 1996. The company announced the development of new hotels as part of an industry construction boom unparalleled since the 1980s. In addition, Doubletree paid $75 million for a management contract covering 50 hotels—about 7,000 rooms—owned by RFS, Inc. This gave the hotel manager opportunities to expand its non-Doubletree brand hotels, management contracts, and lease agreements.

In August 1996 Doubletree formed a strategic alliance with Patriot American Hospitality, Inc., to acquire properties for full-service hotels to be re-branded, leased, and managed by Doubletree. Patriot American Hospitality committed $200 million to the venture, and Doubletree co-invested 10 percent ownership interest in the properties. “We like the idea of partnering with companies that have high visibility and the respect of the marketplace,” explained Tom Lattin, chief operating officer and president of Patriot American Hospitality. Doubletree considered the venture an additional source of management and lease opportunities. By November 1996, four Doubletree hotels had been acquired through the agreement.

Red Lion

Doubletree began negotiations with Red Lion Hotels, a chain based in Vancouver, Washington, in September 1996 to assume Red Lion as a wholly owned subsidiary. Analysts valued the cash and stock merger at $1.2 billion, including Doubletree’s assumption of two hundred million dollars in debt. Red Lion’s 55 hotels—about 14,540 rooms—were located mostly in the western United States, hence Doubletree benefited from a lack of overlap between its existing lodgings and Red Lion hotels. “These properties exemplify the reasons why the Red Lion acquisition was a perfect match with Doubletree,” Kelleher explained in a 1997 press release. “Both Red Lion and Doubletree are first-class, full-service hotels that cater to the frequent business traveler as well as the leisure guest. The recently acquired Red Lion properties are well located and in excellent physical condition, offering substantial meeting space, excellent food and beverage facilities, and a number of upscale amenities. The acquisitions also expand our growing portfolio, primarily into new markets in the west and, more specifically, in the Pacific Northwest.”

Moreover, the Red Lion acquisition made Doubletree a significant national brand and one of the largest hotel management companies in the United States—a presence in 39 states, the District of Columbia, Mexico, and the Caribbean—with more than 56,000 guest rooms in 240 locations. Doubletree converted the first four Red Lion Hotels in 1997 and expected to do the same with 40 more by the end of the year. “Obviously,” Kelleher told Hotel and Motel Management, “when you become more of a recognized brand, you are able to compete on a more national basis.”

In 1997 Doubletree acquired Renaissance Hotels for $890 million. Based in Hong Kong, Renaissance Hotels established the company’s presence in Asia and further expanded its international scope.

The Cookie Icon

Doubletree strives for high-quality, first-class service in all its hotels, achieving guest satisfaction through well-trained, empowered employees. The symbol of the company’s friendly service and high quality standards is a chocolate chip cookie. Beginning in 1987, Doubletree presented guests with milk and cookies as a “welcome home” gesture. Since then each registered guest received a package of two freshly baked chocolate chip cookies upon his or her arrival at a Doubletree hotel as a welcome gift.

Hotel guests frequently thanked Doubletree for the cookies on guest comment cards, and consumer focus groups routinely identified the chocolate chip cookies as a unique feature to Doubletree hotels. Because of this show of support, Kelleher commented to the Arizona Republic that “we think we have a non-duplicable icon—that being the cookie. The cookie hasn’t differentiated our product, but it has helped people to remember Doubletree as a brand.”

The cookie became the hallmark of Doubletree’s $31 million advertising campaign in 1995. The company featured the cookie in ads as “our version of the sleeping pill.” “To you, it’s a cookie,” one ad explained. “To us, it’s a mission statement.”

In 1995, the corporation distributed about 10 million cookies, nearly a six million increase from the previous year. “This cookie is a standard, an icon, one of the things people recognize about our company,” explained Doubletree’s executive vice president for operations James Evans in the Arizona Republic.

The recipe for the chocolate chip cookies originated at a small bakery in Atlanta, Georgia. Eventually each Doubletree location baked fresh cookies daily from the now-famous recipe. The two-ounce cookies became so popular that Doubletree offered them for sale at hotel front desks and restaurants beginning in 1990. Cookie enthusiasts also place orders through the Internet.

Future Plans

“The past five years—and particularly 1996—have been a time of tremendous growth for Doubletree in terms of revenues, earnings, market capitalization, and shareholder value,” wrote Ferris and Ueberroth in the company’s 1996 annual report. “For all of our success to date, however, we and our colleagues throughout the company are even more optimistic and enthusiastic about our future prospects. Backed by an outstanding ‘Dream Team’ of people throughout the Doubletree organization, we remain confident that we can continue to maximize our potential and create additional value for our guests, hotel owners, and fellow shareholders.”

As the leader of the Dream Team, Kelleher planned to enhance the Doubletree brand and management in the future. With an eye to new opportunities, Kelleher expected a 25 percent per share earnings growth in coming years. As he told Forbes magazine in 1997, “We’re going to be the guys that will grow our brand faster, with more distribution than our competition.”