Perhaps 1981 was not the best time to open an independent hotel in Dallas, but Pete Kline did it anyway. Going against conventional wisdom, Kline, joined by John Beckert - now company president and COO, but general manager of the property at the time - not only survived but turned that one, independent hotel into one of the largest independent operators of hotels in North America.

"When we opened that first hotel it was a single real estate deal, and we were working our tails off to try to make it work," says Kline, who is chairman and CEO of the Addison, Texas-based company now known as Bristol Hotels & Resorts. "We assumed if we could make it work we'd probably stay together and do some other things and be successful. But the first hotel was a real estate deal. It was not 'Let's start a new hotel business.' What evolved out of that was a very strong operating business that had its roots in real estate."

In 18 years, that real estate deal has evolved into Bristol Hotels & Resorts (NYSE:BH), which now employs 15,000 people, has 31,685 rooms under management in 27 states, the District of Columbia and Canada and operates the largest number of Bass Hotels & Resorts-branded hotels in the world.

How does an independent hotel operator compete in - much less dominate - the dog-eat-dog world of mega-REITs and paperclipped management companies? In a word: focus.

"It's amazing how much focus you have when you're personally liable on $100 million worth of debt," quips Kline. "All of our key operating partners were personally liable when we were a private company. When you are on the line you have a lot more focus on things that make a difference to the financial bottom line - your ability to pay debt service - than if you're just a fee-based manager taking it off the top.

"We started out in an era when the industry had been bifurcated between ownership and management," Kline continues. "Only the managers were making money in the '80s. We figured out how to make money as owners as well as operators, and now we're offering that to the greater ownership community."

In particular, Bristol seems to have a knack for repositioning properties, having overseen more than $161 million in renovation and/or re-branding activity since late 1997.

"By taking broken-down hotels and spending capital strategically and judiciously they're providing an exceptional product and value for the customer," says Jacques Brand, managing director with BT Alex. Brown who advised on the sale of Bristol's real estate assets to FelCor last summer. "In the materials they use, some of the artwork - which looks expensive but really isn't - gives the customer a certain feel that is more akin to a higher-end hotel. But at the same time, because they have less of a capital investment they're able to provide more value for their customers.

"In the hotels they have taken over, they've been able to ramp up the cash flows dramatically through an understanding of how to use a strong reservation system, but, more importantly, how to combine a direct selling effort and figure out an effective yield management system," Brand says.

Calling itself a contrarian, Bristol has made its name by focusing on the segments where its competitors aren't. Instead of the limited-service or luxury sectors, Bristol gravitates toward mid-market, full-service hotels. Instead of pouring money into glitzy "ego" restaurants, Bristol differentiates itself through its banquet and catering services. Instead of targeting "feeder" cities, Bristol looks for new business in its own back yard. And whereas many had written off the Holiday Inn chain as a "has-been," Bristol has become the company's largest franchisee.

Bristol's executives are quick to point out that the relationship with United Kingdom-based Bass PLC, parent of the former Holiday Inn Worldwide and Crowne Plazas & Resorts, evolved "to some degree, out of luck and circumstance."

Going back to 1995, Bristol and its predecessors were operators of a collection of independent hotels, which all happened to be called Harvey but which really weren't operating as a chain. When Bristol purchased Memphis-based United Inns, though, the portfolio included some Holiday Inns with long-term contracts.

"The way we bought those assets, there was no way we could justify paying termination fees to stop using the brand," recalls Kline, "so we found ourselves as a Holiday Inn franchisee/operator. Our mindset in the past had been that we didn't need a brand, that it didn't pay for itself, etc. When we actually became a franchisee by accident - through acquisition - we discovered that if you apply the operating philosophies we'd had as an independent operator and lay that on top of the advantages that a brand relationship can give you, it can be a win-win relationship."

Spurred by Bristol's desire to grow geographically and Bass PLC's decision to sell some of its owned portfolio, Bristol acquired 60 company-owned and -managed Holiday Inn hotels from Bass for $665 million in 1997. Today, Bristol operates nearly 100 Bass Hotels & Resorts-branded properties. By the year 2000, it will have overseen $400 million in the redevelopment of Crowne Plaza and Holiday Inn hotels.

"Pete Kline and his management team have an extraordinary reputation and track record in managing hotels and have demonstrated a particular excellence in maximizing the value of the Holiday Inn hotels that they have repositioned and managed," says Brand of BT Alex. Brown. "Bristol is clearly a model for Bass in the way that Holiday Inn hotels should be managed and repositioned."

Tom Arasi, president, development and asset management, with Bass Hotels & Resorts, Atlanta, sees "every reason" for continuing the relationship with Bristol: "Bristol is one of the very best independent hotel management companies. They are very large. They manage loads of hotels and ... they are a very fully developed hotel management company. They have a powerful corporate sales force. They have a fully integrated construction, design and renovation division. They have a regional operations system set up so they do good cluster management across the country. They have strong and well-developed internal marketing and advertising resources."

Although Bristol has maintained the same senior management team since January 1981, the company itself has been anything but static, undergoing several incarnations. Making big news last summer was the deal that relieved Bristol of ownership of most of its real estate assets.

"We were paying $30 million or so in federal income tax as a C-Corp. and getting no credit for that on Wall Street with our earnings. You put that money inside a REIT and it gets credit for having those earnings," Beckert says. "We looked at how we were being valued as a C-Corp. and said, 'If we split our income stream into two pieces and value each piece, we think we'll come up with a better valuation overall for the shareholders.'"

So, in July 1998, Bristol spun off its management business and sold its real estate assets for $1.7 billion to FelCor Suite Hotels, which subsequently became FelCor Lodging Trust, the largest nonpaired share hotel REIT.

"I had known Pete for many years and seen what they had done with the Bass relationship," recounts Tom Corcoran, president and CEO of FelCor. "We had a lot of similarities that made sense."

Although FelCor and Bristol had the opportunity to go through the paperclip process, they rejected the structure, citing possible conflicts of interest between the two companies' shareholders. So, while Bristol Hotels & Resorts continues to operate, under long-term lease agreements, all of the hotels acquired by FelCor in the merger, "Our relationship is more like month-to-month or day-to-day," Corcoran says.

According to Beckert, the arrangement with FelCor has been beneficial: "One of best ways to measure a transaction like that - a shareholder-based, capital-based transaction - is to look at stock prices. On a relative basis, we pretty well held our own. Obviously we're not pleased with our stock price, but we're down about 24%, C-Corps. are down about 36%, REITs are down about 44%, and the industry as a whole is down about 40%. So, relative to the industry, we've been pretty successful. Things could be a lot worse."

"It's a strategy that, from an economic perspective, has resulted in superior financial performance," agrees Brand. "Bristol's relationship with both Bass and FelCor position it favorably for future growth potential."

While both Corcoran and Arasi mention Bristol as part of their long-range strategies, Bristol is keeping its options open for growth.

"There are very few companies out there that are really vertically integrated - real estate owners, operators, franchisers - everybody else doing a few segments of the industry then has to have relationships," says Senior Vice President and CFO Jeffrey Mayer. "We have two very valuable relationships, but we've established them as being completely non-exclusive. Both want us to expand our relationships with other brands and other owners so we can fulfill our goal of being independent and flexible in growing our company."

Already another relationship has been brewing with Beverly Hills, Calif.-based Hilton Hotels, which has been steering some franchisers of Hilton-brand properties to Bristol. Many of these will be under the Hilton Garden Inn brand. As of early February, Bristol had signed letters of intent on six of the 15 deals that the Hilton relationship had brought into its pipeline.

No one is ruling out additional major transactions, either, as the industry sorts itself out.

Regardless of exactly how Bristol grows, however, the company's operating philosophy ensures that it won't be found following the pack. "You don't have to do it like everybody else in the industry does," Kline says, "you just have to do the important things better than everybody else does."