UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

Commission File Number: 001-13957

WestCoast Hospitality Corporation

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, Including Area Code:

(509) 459-6100

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

      The aggregate market value of the registrant’s common stock as of June 30, 2004 was $69.8 million, of which 69.3% or $48.4 million was held by non-affiliates as of that date. There were 13,083,051 shares of the Registrant’s common stock outstanding as of March 15, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s Proxy Statement for its 2005 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the end of the Registrant’s 2004 fiscal year, are incorporated by reference herein in Part III.

TABLE OF CONTENTS

PART I

      This annual report on Form 10-K includes forward-looking statements. We have based these statements on our current expectations and projections about future events. When words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will” and similar expressions or their negatives are used in this annual report, these are forward-looking statements. Many possible events or factors, including those discussed in “Risk Factors Relating to Our Business” beginning on page 12 of this annual report, could affect our future financial results and performance, and could cause actual results or performance to differ materially from those expressed. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report.

      In this report, “we,” “us,” “our,” “our company” and “the company” refer to WestCoast Hospitality Corporation and, as the context requires, its wholly and partially owned subsidiaries, and “WestCoast” refers to WestCoast Hospitality Corporation. The term “the system” or “system of hotels” refers to our entire group of owned, leased, managed and franchised hotels.

Introduction

      We are a NYSE-listed hospitality and leisure company primarily engaged in the ownership, management, development and franchising of mid-scale and upper mid-scale, full service hotels under our Red Lion and WestCoast brands. In addition to our hotel operations, we are engaged in entertainment and real estate operations. As of December 31, 2004, our hotel system contained 67 hotels located in 12 states and one Canadian province, with more than 11,500 rooms and 532,000 square feet of meeting space. We own and operate 42 hotels, of which 29 are wholly owned and 13 are leased. We manage 3 hotels owned by third parties and franchise 22 hotels.

      Our hotels are known for their meeting facilities and superior food and beverage operations. Our mix of business is well balanced between group business, business travelers, and the leisure traveler with the mix varying by location. We maintain and manage our own Central Reservation Call Center with links to the various travel agent global distribution systems (“GDS”) and the electronic distribution channels on the internet including our branded websites www.redlion.com and www.westcoasthotels.com. To support our owned, managed and franchised hotels we provide all the services typical in our industry: marketing, sales, advertising, frequency program, revenue management, procurement, quality assurance, education and training and design and construction. In 2004, our sales and marketing efforts and our reservation channels delivered approximately 34% of a system hotel’s room revenue.

      In November 2004 we announced our plan to invest $40.0 million to improve comfort, freshen décor and upgrade technology. At the same time, we announced our plan to divest 11 of our non-strategic owned hotels, one of our real estate office buildings and certain other non-core properties (collectively referred to as “the divestment properties”). The activities of those 11 hotels and the real estate property are considered discontinued operations under generally accepted accounting principles. Unless otherwise identified using phrases such as “from continuing operations”, all references to system hotels, owned or leased hotels, hotel statistics, and measurements of financial performance such as net income and EBITDA include the activities of those discontinued operations.

      For the year ended December 31, 2004, we reported a net loss of approximately $6.3 million, compared to net income of approximately $1.2 million in 2003. This decrease of $7.5 million between years includes a net of tax non-cash impairment charge of approximately $5.8 million related to four of the divestment properties. It also includes an increase of $4.4 million in interest expense between years primarily related to the issuance of $47.4 million of interest bearing debentures to WestCoast Hospitality Capital Trust. The net proceeds from the issuance of the debentures of $43.7 million were used to retire in full our then outstanding Series A and Series B cumulative preferred shares totaling $29.8 million including accrued dividends. Operating income (which results only from continuing operations) was $11.2 million for the year ended December 31, 2004, up 2.6% as compared to 2003.

      EBITDA represents net income (or loss) before interest expense, income tax benefit or expense, depreciation, and amortization. We utilize EBITDA as a financial measure because management believes that investors find it to be a useful tool to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core on-going operations. EBITDA from continuing operations is calculated in the same manner, but excludes the operating activities of business units identified as discontinued. As discussed further in Item 6 of this Form 10-K, EBITDA is not intended to represent net income or loss as defined by generally accepted accounting principles in the United States and such information should not be considered as an alternative to net income, cash flows from operations or any other measure of performance prescribed by generally accepted accounting principles in the United States.

      Our EBITDA from continuing operations for the year ended December 31, 2004 was $22.6 million, up 4.5% from 2003 EBITDA of $21.6 million. However, due primarily to the non-cash impairment charge of approximately $8.9 million related to four of the divestment properties, total EBITDA, including that from discontinued operations, was $18.3 million for the year ended December 31, 2004 as compared to $25.3 million in 2003.

      For the year ended December 31, 2004, we recorded a loss applicable to common shareholders of $6.7 million or $0.51 per common share. For the years ended December 31, 2003 and 2002 we recorded income or (loss) applicable to common shareholders of ($1.3) million and $5.4 million, respectively, or ($0.10) and $0.42 per share, respectively.

      A comprehensive discussion of net income or loss for the years ended December 31, 2004, 2003 and 2002, individual operating unit performances, general corporate expenses and other significant items can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as the Consolidated Financial Statements and Notes thereto included elsewhere in this annual report.

Overview and Company Strategy

      As discussed above, we are a hospitality and leisure company. We intend to grow our hotel operations primarily by expanding the number of hotels franchised under the Red Lion brand. We are initially focusing our growth in the Western United States and Canada by pursuing a “hub and spoke” pattern of establishing brand penetration in key cities, followed by expansion into adjoining markets. We intend to increase the number of management agreements of third-party owned hotels by marketing our management and reservation services and we will also seek opportunities to grow through acquisitions of whole or partial interests in hotels.

      Through our entertainment division, which includes our TicketsWest.com, Inc. subsidiary (“TicketsWest”), we engage in activities complementary to the operation of the hotels in our system. TicketsWest provides event ticket distribution services and promotes and presents a variety of entertainment productions in communities in which we have a hotel presence. TicketsWest offers ticketing inventory management systems, call center services and outlet and electronic channel distribution. We have also developed an electronic ticketing platform that is integrated with our electronic hotel distribution system, allowing us to cross-sell leisure and entertainment packages to promote occupancy in system hotels.

      Our real estate division engages in the traditional real estate related services that we have pursued since we were originally founded, including developing, managing and acting as a broker for sales and leases of commercial and multi-unit residential properties. Our real estate division derives a substantial part of its revenues from fees it generates from services it provides to third parties. This division also provides services that we utilize for our hotels and other real estate that we own and lease.

      We trace our history back to 1937, with the founding of our predecessor as a general commercial real estate development and management business. In the 1970s, our predecessor began focusing on the development and management of hotels. Our company was incorporated in the State of Washington on April 25, 1978 as its successor. We continued to grow our hotel business under the brand name Cavanaugh’s throughout the 1980s and 1990s, and in 1998 we completed the initial public offering of our common stock. We acquired WestCoast Hotels, Inc. on December 31, 1999, which added more than 4,800 rooms in 20 cities

to our system of hotels, enhanced our presence in certain key western “hub” markets, including Seattle, Portland, San Francisco and Southern California, and launched our company into the franchise business. Following this acquisition, we rebranded our Cavanaughs hotels to the WestCoast brand and changed our name to WestCoast Hospitality Corporation. On December 31, 2001 we acquired Red Lion Hotels, Inc., which added more than 7,400 rooms in 40 cities to our system of hotels, further enhanced our presence in a number of “hub” markets and afforded us the opportunity to expand our franchise business to include the Red Lion brand.

      Our senior management team, led by our President and Chief Executive Officer, Arthur M. Coffey, brings an experienced and innovative approach to the management of our operations. Our senior management team has extensive business experience, and five members of the team have been with our company for more than 20 years. Our senior management team’s strengths include hotel development, ownership and management; e-commerce; franchising, sales and marketing; food and beverage management; entertainment production and real estate services. Their extensive expertise, along with their diverse working backgrounds provides our company with a broad perspective from which we can make strategic management and operational decisions.

      A substantial portion of our assets are held by three of our subsidiaries: Red Lion Hotels, Inc., WestCoast Hotels, Inc. and WestCoast Hospitality Limited Partnership, which we refer to as WHLP. We are the sole general partner and approximately 98% owner of WHLP. We own 100% of the outstanding capital stock of both Red Lion Hotels, Inc. and WestCoast Hotels, Inc.

Hospitality Industry Performance Measures

      We believe that the following performance measures, which are widely used in the hospitality industry and appear throughout this annual report, are important to our discussion of operating performance:

      Comparable hotels are hotels that have been owned, leased, managed or franchised by us for more than one year. Throughout this annual report, unless otherwise stated, RevPAR, ADR and average occupancy statistics are calculated using statistics for comparable hotels. When presented in this annual report, the above performance measures will be identified as belonging to a particular market segment, system wide, or for continuing operations versus discontinued operations or total combined operations.

Business Segments

      For financial accounting purposes, we divide our operations into four business segments: hotels and restaurants; franchise, central service and development; entertainment; and real estate. In addition, corporate services consist primarily of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables and certain property and equipment that are not specifically associated with an operating segment. Management reviews and evaluates the operating segments exclusive of interest expense, income tax expense and other income and expense items. Therefore, these items are not allocated to the segments.

      The following table illustrates, for the periods indicated, revenue per reportable business segment and the percentage of total revenue generated by each segment, excluding the activities of business units identified as discontinued operations in the consolidated financial statements. For additional information regarding segments, please refer to “Business Segments” in the notes to our consolidated financial statements that are part of this annual report (in thousands).

Hotel Operations

      Hotel operations include our hotels and restaurants business segment, as well as our franchise, central services and development segment.

      We owned and operated 29 hotels with a total of 5,303 rooms and more than 257,000 square feet of meeting space as of December 31, 2004. The number of owned properties includes three hotels for which the underlying land is leased. The lease expiration dates range from 2014 to 2062. For additional information, refer to “Operating Lease Commitments” in the notes to the consolidated financial statements. We operate restaurants in 24 of our owned hotels. Two of these 24 hotels also contain a restaurant space under lease to a third party.

      As of December 31, 2004 we leased 13 hotels with a total of 2,184 rooms and more than 99,000 square feet of meeting space. Under these leases, we are responsible for hotel operations and management. We recognize revenues and associated expenses with leased hotel operations. Lease terms typically require us to pay fixed monthly rent and variable rent based on a percentage of revenue if certain sales thresholds are reached. In addition, we are responsible for repairs and maintenance, operating expenses and management of operations. Refer to “Operating Lease Commitments” in the notes to the consolidated financial statements for additional information. We operate restaurants in 11 of our leased hotels. Each of the remaining two leased hotels has a restaurant under lease to a third party.

      Of these 42 hotels, 11 have been identified as assets held for sale and are classified as discontinued operations on the consolidated balance sheets and for the consolidated statements of operations. Those 11 hotels aggregate 1,694 rooms and approximately 58,000 square feet of meeting space.

      As of December 31, 2004, we managed three third-party owned hotels with a total of 476 rooms and more than 43,000 square feet of meeting space. We refer to these hotels as managed hotels. Under the typical management agreement, we manage virtually all aspects of the hotel’s operations, while the hotel owner is responsible for operating and other expenses. Our management fee is normally based on a percentage of the hotel’s gross revenue plus an incentive fee based on operating performance. The duration of our management agreements varies, and hotel owners in some cases have renewal options.

      As of December 31, 2004, we had franchise arrangements with 22 hotels that were owned and operated by third parties under our licensed brand names. These hotels, which we refer to as franchised hotels, had at that date a total of 3,560 rooms and more than 132,000 square feet of meeting space. We do not have management or operational responsibility for franchised hotels. However, we do provide certain services to those hotels, including reservation systems, advertising and national sales, a guest loyalty program, revenue management tools, quality inspections and brand standards. We receive payments for use of the brand names and for the central services programs we administer for our franchisees.

      The hotels in our system primarily operate under the Red Lion brand. Our Red Lion brand is nationally recognized and is typically associated with three-and four-star full-service hotels. As discussed below, we plan to focus our growth strategy on conversion of new hotels to our Red Lion brand. Our WestCoast brand is associated with distinctive and independently recognized hotels that are known apart from their WestCoast affiliation and are located in the western region of the United States.

      The following tables provide certain information about our system of hotels as of December 31, 2004.

Hotel System Growth Strategy

      We intend to grow our hotel operations primarily by increasing the number of hotels franchised and managed under our Red Lion brand, with an initial focus on the western region of the United States and Canada. We anticipate that most of our growth will come through conversion of three-and four-star hotels to the nationally recognized Red Lion brand. Our expansion of the Red Lion brand will follow our “hub and spoke” expansion model. Initially, we will seek to achieve market penetration in a hub. Then we will seek to expand into surrounding areas to increase brand penetration in the market.

      Key to this growth strategy is the planned $40.0 million reinvestment in our existing owned and leased Red Lion hotels, one of the most significant facility improvement programs in company history. This investment accelerates our ongoing program to improve hotel quality by increasing customer comfort, freshening decor and modernizing with new technology. We believe that by improving the quality of our existing product in areas where customers’ quality expectations are continuing to grow, we both position our continuing operations to take advantage of the growth potential in our existing markets, and make the Red Lion brand more attractive for franchise opportunities.

      We intend to increase the number of management agreements we have with third-party hotel owners by marketing our management services. We believe that our experience in managing our own hotels and those of third parties gives us a competitive advantage to obtain such agreements. We also intend to seek opportunities to sell reservation and distribution management services to hotels that want to remain independent.

      Our strategy has been to increase occupancy through strategic marketing and investment in our properties, and then to increase rate as demand increases for our rooms. Our occupancy has now increased year on year for each of the past thirteen consecutive calendar months and the resulting demand allowed us to increase the average daily rate during 2004. The combined effect of this strategy is that our RevPAR has increased at a faster rate than many of our direct competitors over the past year.

      We continue to receive a higher percentage of our reservations through electronic distribution systems that include our own branded website and third-party Internet channels (alternative distribution systems or ADS). Our central reservations and distribution management technology allows us to manage the yield on these ADS channels on a real-time, hotel-by-hotel basis. We have fixed-charge markup merchant model agreements with nine ADS providers, which typically entitle the provider to keep a fixed percentage of the price paid by the customer for each room booked. This allows us to maximize the yield of a typically lower rated market segment. Our focus on our branded website has made it our single largest source of online reservations, allowing us to further maximize our yield on those types of bookings.

      In addition, through 2004, we continued to increase bookings as a result of our focus on direct sales, our “Stay Comfortable” advertising campaign and the “We Promise or We Pay” branded website booking initiative. The “We Promise or We Pay” initiative is designed to encourage guests to book on redlion.com or westcoasthotels.com. Through this initiative, we guarantee to our guests that our branded websites will provide the lowest rate available compared to non-opaque ADS channels. We have also begun to see the positive effects of our launch of “Net4Guests,” our privately-labeled wireless internet service. Net4Guests provides hotel guests and GuestAwards frequency program members access to free high speed wireless internet.

      In 2004 we initiated our additional capital improvement program focused on guest contact areas which significantly improves room amenities with new pillow-top beds and an upgraded pillows and linens package. We also launched a marketing campaign geared specifically to increasing awareness of the Net4Guests and room amenity upgrade programs known as “Stay Comfortable”. During 2004, we spent a total of $10.9 million on capital improvements projects for the hotel and restaurants segment. During the year ended December 31, 2003, we spent $5.6 million on capital improvement programs for our hotels and restaurants. Our previously announced re-investment plan for $40.0 million in capital improvement projects, began in 2005 and is expected to be concluded in 2006.

Guest Loyalty Program

      In 2003, we integrated the best features of our Red Lion Club and WestAwards guest loyalty programs in order to enhance guest services with a single expanded guest loyalty program called “GuestAwards.” We continue to promote guest loyalty by providing our guests the flexibility to earn air miles with each qualifying hotel stay or points for every eligible dollar charged to the guest room. GuestAward points are redeemable for complimentary hotel stays, air miles or travel, car rental, merchandise, entertainment and other incentives. We continue to actively pursue cooperative redemption arrangements with marketing partners to expand the appeal and flexibility of our loyalty plan.

E-Commerce

      In February 2003, we launched a new hotel reservation system that allows us to manage single image inventory through our distribution channels and execute rate management strategies through channels of distribution including voice, global distribution systems and Internet sites. In addition, we provide effective and efficient guest service including online hotel reservations, GuestAwards enrollment and ticketing of TicketsWest events, through our various websites, www.redlion.com, www.westcoasthotels.com, www.guestawards.com and www.ticketswest.com.

      We are continuing to see positive results from our strategy of managing the ADS channels to drive incremental revenue and increase brand exposure. At the same time, revenue growth on our branded websites has exceeded our expectations. In the fourth quarter of 2004, we selected Zentropy Partners, a leading Internet consultancy, to redevelop our branded websites. With four of five phases complete, the new websites are scheduled to launch in the second quarter of 2005. With a focus on ease of use and comprehensiveness of content, both conversion and unique visitor traffic are expected to increase. To help drive traffic to the new sites, we joined Sidestep, the leading meta-search referral site, with participation scheduled to begin concurrent with the launch of the new sites.

Team Red

      We encourage our associates and their families to volunteer for “Team Red”, our innovative community outreach program designed to benefit local communities. We continue to build on our long-term commitment to assist and support our local communities through Team Red and other civic initiatives.

Marketing

      Our marketing strategy provides quality and value to the hotels in our system. Through consistent national and regional messaging in high visibility markets, we reach the majority of our target segments. In

addition, we offer intelligence tools such as rate management strategies, competitive set benchmarking and market demand reports to the hotels.

Competition

      The lodging industry is comprised of numerous national, regional and local hotel companies. We compete against these companies in the mid-scale and upper mid-scale full-service hotel segment of the industry, primarily in downtown and waterfront locations. Competition for occupancy is focused on three major segments of traveler: the business traveler, which is a significant occupancy driver for our hotel system; the convention and group business traveler, which utilizes room nights, meeting space and food and beverage operations; and the leisure traveler. Leisure travelers occupy approximately the same number of rooms as the convention and group business travelers, however, their travel is seasonal in nature. Marketing efforts throughout the year are geared towards these three major segments.

      We also compete with other hotel operators and management companies for hotels to add to our system. Our competitors include management companies as well as large hotel chains that own and operate their own hotels and franchise their brands.

Trademarks

      We have registered the following trademarks with the U.S. Patent and Trademark Office: Red Lion, WestCoast, WestAwards, TicketsWest, GuestAwards, Net4Guests, Stay Comfortable and G&B (G&B Real Estate Services is the name used by our real estate division). We have also registered some of these trademarks in Canada and Mexico. We also own various derivatives of these trademarks, each of which is registered with or has a registration application pending with the U.S. Patent and Trademark Office. Our trademarks and the associated name recognition are valuable to our business.

Employees

      As of December 31, 2004, we employed approximately 3,650 persons on a full-time and part-time basis, with 3,240 in hotel operations and the remainder in our administrative office and our entertainment and real estate divisions. Approximately 270 persons working in hotel operations were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and organized settlement of labor disputes. We believe our employee relations are satisfactory.

Seasonality

      Our business is subject to seasonal fluctuations. Significant portions of our revenues and profits are realized from May through October. Our results for any quarter may not be indicative of the results that may be achieved for the full fiscal year. In addition, results are affected by national and regional economic conditions, including the magnitude and duration of economic slowdowns and rebounds in the United States; actual and threatened terrorist attacks and international conflicts and their impact on travel; and weather conditions.

Non-core Asset Sales

      We continue to focus on our hotel operations and, as a result, may from time to time seek to opportunistically divest our interests in non-core assets to reinvest in our hotel business. On November 23, 2004, the Board of Directors approved a plan for the sale over the next twelve months to third party buyers of the following 11 hotels and other real estate owned by us:

      The activities of the hotels and the Crescent Building are considered discontinued operations under generally accepted accounting principles. The net impact of the operations of these business units is segregated and separately disclosed on our consolidated statement of operations, comparative for all periods presented. Likewise, the assets and liabilities of the business are segregated and separately stated on the consolidated balance sheet for all periods presented. The remaining other real estate is considered held for sale under generally accepted accounting principles, but does not meet the definition of a discontinued operation. These assets held for sale are separately disclosed on the consolidated balance sheet as of December 31, 2004. Seven of the properties being sold are in markets where we currently have more than one hotel. We consider our other hotels in these markets to be best positioned for growth potential and for future returns on our reinvestment strategy.

Risk Factors Relating to Our Business

      Our revenues and our operating results are subject to conditions affecting the lodging industry. These include:

      Changes in any of these conditions could adversely impact hotel room demand and pricing and result in reduced occupancy, ADR and RevPAR or could otherwise adversely affect our results of operations and financial condition. We have a limited ability to pass through increased operating costs in the form of higher room rates, so that such increased costs could result in lower operating margins.

      The lodging industry is highly competitive. Competition in the industry is primarily based on service quality, range of services, brand name recognition, convenience of location, room rates, guest amenities and quality of accommodations. We compete with other national limited and full service hotel companies as well as various regional and local hotels. Many of our competitors have a larger network of locations and greater financial resources than our company. Additionally, new and existing competitors may offer significantly lower rates, greater convenience, services or amenities or superior facilities, which could attract customers away from our hotels, resulting in a decrease in occupancy, ADR and RevPAR for our hotels. Changes in demographics and other changes in our markets may also adversely impact the convenience or desirability of our hotel locations thereby reducing occupancy, ADR and RevPAR and otherwise adversely impacting our results of operations and financial condition.

      Of the hotels in our system at December 31, 2004, 51 are located in Oregon, Washington, Idaho or Montana. Therefore, our results of operations and financial condition may be significantly affected by the economy of the Pacific Northwest, which is dependent in large part on a limited number of major industries, including agriculture, tourism, technology, timber and aerospace. These industries may be affected by:

       — changes in governmental regulations and economic conditions;

       — the relative strength of national and local economies; and

       — the rate of national and local unemployment.

      In addition, companies in these industries may decide to relocate all or part of their businesses outside the Pacific Northwest. Any of these factors could materially affect the local economies in which these industries operate and where we have a presence. Other adverse events affecting the Pacific Northwest, such as economic recessions or natural disasters, could cause a loss of revenues for our hotels in this region, which may be greater as a result of our concentration of assets in these areas. In addition, we operate or market multiple hotels within several cities including Portland, Oregon; Seattle, Spokane and Yakima, Washington; Kalispell, Montana and Boise, Idaho. A downturn in general economic or other relevant conditions in these specific markets or in any other market in which we operate could lead to a decline in demand in these markets and cause a loss of revenues from these hotels.

      The expenses of owning property are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from a hotel. Accordingly, a decrease in our revenues could result in a disproportionately higher decrease in our earnings because our expenses are unlikely to decrease proportionately. In such instances, our financial condition and ability to service debt could be adversely affected by:

       — interest rate levels;

       — the availability of financing;

       — the cost of compliance with government regulations, including zoning and tax laws; and

       — changes in government regulations, including those governing usage, zoning and taxes.

      Real estate assets generally cannot be sold quickly. In general, we may not be able to vary our portfolio of hotels or other real estate promptly in response to economic or other conditions. This inability to respond promptly to changes in the performance of our assets could adversely affect our financial condition and ability to service debt, including the debentures. In addition, sales of appreciated real property could generate material adverse tax consequences, which may make it disadvantageous for us to sell certain of our hotels. We are currently attempting to sell 11 hotels, one office building, and several other real estate investment properties. If unsuccessful in our efforts, our financial condition and earnings could be adversely impacted.

      We intend to grow our hotel operations partly by acquiring whole or partial interests in hotels. However, we cannot assure you that:

      Based on our experience, newly acquired, developed or converted hotels typically begin with lower occupancy and room rates, thereby resulting in lower revenue. Our expansion within our existing markets could adversely affect the financial performance of our existing hotels in those markets and thus negatively impact our overall results of operations. Expansion into new markets may also present operating and marketing challenges that are different from those we currently encounter in our existing markets. Our inability to anticipate all of the changing demands that expanding operations will impose on our management and management information and reservation systems, or our failure to quickly adapt our systems and procedures to the new markets could result in lost revenue and increased expenses and otherwise have an adverse effect on our results of operations and financial condition.

      As of December 31, 2004, there were 22 hotels in our system that were owned by others and operated under franchise agreements with us. Although these agreements generally specify a fixed term, they typically contain various early termination provisions, such as the right to terminate upon notice by paying us a termination fee, or the right to terminate if we fail to contribute a negotiated level of revenue to the franchisee through our reservation systems. We cannot assure you that these agreements will be renewed, or that they will not be terminated prior to the end of their respective terms. If these franchise agreements are not renewed, or are terminated prior to the expiration of their respective terms, the resulting decrease in revenue and loss of market penetration could have an adverse effect on our results of operations and financial condition.

      We intend to pursue a full range of growth opportunities, including identifying hotels for acquisition, development, management, rebranding and franchising. We compete for growth opportunities with national and regional hospitality companies, some of which have greater name recognition, marketing support, reservation system capacity and financial resources than we do. Our ability to make acquisitions is dependent upon, among other things, our relationships with owners of existing hotels and certain major hotel investors, financing acquisitions and renovations and successfully integrating new hotels into our operations. We may be unable to find suitable hotels for acquisition, development, management, rebranding or franchising on acceptable terms, or at all. Competition with other hotel companies may increase the cost of acquiring hotels. Even if suitable hotels are identified for acquisition, we may not be able to find financing to acquire the hotels

on acceptable terms. Further, we may not have adequate cash from operations to pursue such growth opportunities. Our failure to compete successfully for acquisitions, to obtain suitable financing for acquisitions we have identified or to attract and maintain relationships with hotel owners and major hotel investors could adversely affect our ability to expand our system of hotels. An inability to implement our growth strategy could limit our ability to grow our revenue base and otherwise adversely affect our results of operations.

      We intend to acquire additional hotels and we may acquire additional ticket and entertainment operations in the future. We also intend to continue the redevelopment and re-branding of other acquired hotels into “Red Lion” hotels. In addition, we expect to develop new hotels in the future, depending on market conditions. Hotel redevelopment, renovation and new project development are subject to a number of risks, including:

      As a result of these risks, we could incur substantial costs for a project that is never completed. Further, financing for these projects may not be available or, even if available, may not be on acceptable terms. Any unanticipated delays or expenses incurred in connection with the acquisition, development, redevelopment or renovation of the hotels in our system could impact expected revenues, negatively affect our reputation among hotel customers, owners and franchisees and otherwise adversely impact our results of operations and financial condition.

      As of December 31, 2004, our hotel system contained 67 hotels located in 12 states and one Canadian province, with more than 11,500 rooms and 532,000 square feet of meeting space. We managed 45 of these hotels, including 29 owned hotels, 13 leased hotels and t