<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549



                            _______________________


                                   FORM 10-Q


     [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
               For the Quarterly Period Ended September 30, 1997

                                      OR


     [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the Transition Period from ____ to ____
                        Commission File Number 0-24794


                            _______________________


                            CHARTWELL LEISURE INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


         DELAWARE                                                22-3326054
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)


                               605 Third Avenue
                                  23rd Floor
                           New York, New York 10158
         (Address of principal executive offices, including zip code)

                                (212) 692-1400
                    (Telephone number, including area code)


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  [X]                           No


As of September 30, 1997, there were 13,482,249 shares of the Registrant's
common stock, par value $.01 per share ("Common Stock"), issued and outstanding.
<PAGE>
 
                            CHARTWELL LEISURE INC.



THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS HISTORICAL INFORMATION AND FORWARD-
LOOKING STATEMENTS.  STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS
FORM 10-Q PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.  THEY INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES THAT MAY CAUSE THE COMPANY'S ACTUAL RESULTS IN FUTURE PERIODS TO
BE MATERIALLY DIFFERENT FROM ANY FUTURE PERFORMANCE SUGGESTED HEREIN.  IN THE
CONTEXT OF FORWARD-LOOKING INFORMATION PROVIDED IN THIS FORM 10-Q AND IN OTHER
REPORTS, PLEASE REFER TO THE DISCUSSION OF RISK FACTORS DETAILED IN, AS WELL AS
THE OTHER INFORMATION CONTAINED IN, THE COMPANY'S FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION.


<TABLE> 
<CAPTION> 
                       INDEX                                           PAGE NO.
                       -----                                           --------
<S>                                                                    <C> 
PART I.        FINANCIAL INFORMATION

 Item 1.       Condensed Consolidated Balance Sheets                       1   
                                                                               
               Condensed Consolidated Statements of                        2   
               Operations                                                      
                                                                               
               Condensed Consolidated Statements of Cash                   3   
               Flows                                                           
                                                                               
               Notes to Condensed Consolidated Financial                   4   
               Statements                                                      
                                                                               
 Item 2.       Management's Discussion and Analysis of                         
               Financial Condition and Results of Operations               6   
                                                                               
 Item 3.       Quantitative and Qualitative Disclosure About                   
               Market Risk                                                 14  
                                                                               
PART II.       OTHER INFORMATION                                               
                                                                               
 Item 1.       Legal Proceedings                                           15  
                                                                               
 Item 2.       Changes in Securities and Use of Proceeds                   15  
                                                                               
 Item 3.       Defaults Upon Senior Securities                             15  
                                                                               
 Item 4.       Submission of Matters to a Vote of                          15  
               Security Holders                                                
                                                                               
 Item 5.       Other Information                                           15  
                                                                               
 Item 6.       Exhibits and Reports on Form 8-K                            15   
</TABLE> 

                                      ii
<PAGE>
 
CHARTWELL LEISURE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                             SEPTEMBER 30,    DECEMBER 31,
ASSETS:                                                          1997             1996     
<S>                                                           <C>             <C>          
CURRENT ASSETS:                                                                            
  Cash and cash equivalents                                   $ 55,893        $ 17,590     
  Accounts receivable - Net                                      7,899           7,356     
  Loans receivable                                               1,515           2,687     
  Prepaid and other current assets                               5,330           3,010     
                                                              --------        --------     
          Total current assets                                  70,637          30,643     
INVESTMENTS                                                        500             500     
LOANS RECEIVABLE                                                 2,683           9,767     
JOINT VENTURE INTERESTS                                         21,111          19,328     
PROPERTY AND EQUIPMENT - Net                                   172,083         157,766     
MANAGEMENT CONTRACTS - Net                                       2,822           2,961     
DEFERRED TAX  ASSET                                              4,168           1,200     
OTHER ASSETS                                                     8,634           9,873     
                                                              --------        --------     
TOTAL ASSETS                                                  $282,638        $232,038     
                                                              ========        ========     
LIABILITIES AND STOCKHOLDERS' EQUITY:                                                      
CURRENT LIABILITIES:                                                                       
  Accounts payable                                               4,675        $  3,594     
  Accrued expenses                                              13,752          12,139     
  Current portion of long-term debt and capital lease              913           7,442     
                                                              --------        --------     
          Total current liabilities                             19,340          23,175     
LONG-TERM DEBT                                                  77,109          85,028     
CAPITALIZED LEASE OBLIGATION                                     4,926           5,090     
OTHER LIABILITIES                                                  592           4,068     
                                                              --------        --------     
            Total liabilities                                  101,967         117,361     
MINORITY INTEREST                                                4,759           3,459     
STOCKHOLDERS' EQUITY:                                                                      
  Common stock                                                     135              95     
  Paid-in capital                                              215,306         161,480     
  Accumulated deficit                                          (39,625)        (50,386)    
  Foreign currency translation adjustment                           96              29     
                                                              --------        --------     
          Total stockholders' equity                           175,912         111,218     
                                                              --------        --------     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $282,638        $232,038     
                                                              ========        ========      
</TABLE> 
 
See notes to condensed consolidated financial statements.

                                       1

<PAGE>
 
CHARTWELL LEISURE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED       NINE MONTHS ENDED
                                                               SEPTEMBER  30,           SEPTEMBER 30,
                                                           ---------------------   ---------------------
                                                               1997       1996       1997        1996
<S>                                                        <C>            <C>      <C>          <C> 
REVENUE:                                                                
  Hotel revenue                                               $36,411     $22,614   $ 91,881    $ 54,111
  Other income                                                  1,548       1,309      4,036       2,942
  Equity in earnings of unconsolidated joint ventures           2,291       2,594      4,411       5,104
                                                              -------     -------   --------    --------
         Total revenue                                         40,250      26,517    100,328      62,157
                                                              -------     -------   --------    --------
OPERATING EXPENSES:                                                     
  Hotel  operating expense                                     12,911       9,045     34,898      22,451
  General and administrative                                    6,918       6,086     19,549      14,155
  Marketing, franchise and reservation fees                     4,021       2,330      9,494       5,619
  Maintenance and property taxes                                3,005       1,730      9,214       4,296
  Rent                                                          1,348       1,510      3,881       3,842
  Depreciation and amortization                                 2,520       2,365      7,267       6,615
  Minority interest                                               761         531      1,503         978
  Office restructuring charge                                     (34)          -        746           -
  General and administrative, related party                         -         375          -       1,147
  Provision for (recovery of) losses on gaming assets            (250)      4,793       (250)     14,240
                                                              -------     -------   --------    --------
         Total operating expenses                              31,200      28,765     86,302      73,343
                                                              -------     -------   --------    --------
                                                                        
OPERATING INCOME (LOSS)                                         9,050      (2,248)    14,026     (11,186)
INTEREST INCOME (EXPENSE) - NET                                  (840)       (786)    (2,553)     (2,719)
GAIN ON SALE OF FIXED ASSETS                                      305           -        309           -
                                                              -------     -------   --------    --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE                                 
AND EXTRAORDINARY ITEM                                          8,515      (3,034)    11,782     (13,905)
                                                                        
INCOME TAX EXPENSE                                                484         213      1,023         213
                                                              -------     -------   --------    --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                       $ 8,031     $(3,247)  $ 10,759    $(14,118)
EXTRAORDINARY LOSS ON EARLY                                             
EXTINGUISHMENT OF DEBT                                             -       (1,477)         -      (1,477)
                                                              -------     -------   --------    --------
                                                                        
NET INCOME (LOSS)                                             $ 8,031     $(4,724)  $ 10,759    $(15,595)
                                                              =======     =======   ========    ========
PER SHARE INFORMATION:                                                  
  Income (Loss) before extraordinary item                     $   .57        (.40)  $    .82    $  (2.12)
                                                              -------     -------   --------    --------
  Extraordinary item                                                -        (.18)         -        (.22)
                                                              -------     -------   --------    --------
  Net Income (Loss)                                           $   .57     $  (.58)  $    .82    $  (2.34)
                                                              =======     =======   ========    ========
  Weighted average common shares outstanding                   14,058       8,198     13,046       6,651
                                                              =======     =======   ========    ========
</TABLE> 

See notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
CHARTWELL LEISURE INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION>  
                                                                              1997                 1996    
<S>                                                                         <C>                  <C>      
NET CASH PROVIDED BY OPERATING ACTIVITIES                                   $ 15,473             $  1,553 
                                                                            --------             -------- 
                                                                                                          
                                                                                                          
INVESTING ACTIVITIES:                                                                                     
    Issuance of notes receivable                                                 (20)                (263)
    Travelodge acquisition, net of cash acquired                                   -              (99,175)
    Principal payments received on loans                                       7,605                6,276 
    Other acquisitions and additions to property and equipment               (20,225)              (2,781)
    Proceeds from hotel disposals                                              2,098                    - 
    Investment in Chartwell de Mexico                                         (2,525)                   - 
    Other assets and investments                                              (1,050)                   - 
                                                                            --------             -------- 
                                                                                                          
                  Net cash (used in) investing activities                    (14,117)             (95,943)
                                                                            --------             -------- 
                                                                                                          
                                                                                                          
FINANCING ACTIVITIES:                                                                                     
    Proceeds of borrowing                                                      1,442               70,000 
    Loan closing costs                                                             -               (1,622)
    Repayment on borrowings                                                  (18,263)             (10,986)
    Proceeds from sale of common stock (net of expenses of $1.2 million)      53,868                    - 
    Other financing costs                                                       (100)                   - 
                                                                            --------             -------- 
                                                                                                          
                   Net cash provided by financing activities                  36,947               57,392 
                                                                            --------             -------- 
                                                                                                          
NET INCREASE/ (DECREASE)  IN CASH AND CASH EQUIVALENTS                        38,303              (36,998)
                                                                            --------             -------- 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                17,590               51,470 
                                                                            --------             -------- 
CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $ 55,893             $ 14,472 
                                                                            ========             ========  
</TABLE>

See notes to condensed consolidated financial statements

                                       3
<PAGE>
 
CHARTWELL LEISURE INC.  AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   BASIS OF PRESENTATION


     The condensed consolidated balance sheet of Chartwell Leisure Inc. and its
     subsidiaries (the "Company" or "Chartwell") as of September 30, 1997 and
     the related condensed consolidated statements of operations and cash flows
     for the nine-month period ended September 30, 1997 and 1996 are unaudited.
     In the opinion of management, all adjustments necessary for a fair
     presentation of such financial statements have been included. Such
     adjustments consist only of normal recurring items. Interim results are not
     necessarily indicative of results for a full year.

     The condensed consolidated financial statements and notes are presented as
     required by Form 10-Q and do not contain certain information included in
     the Company's annual consolidated financial statements. This Quarterly
     Report on Form 10-Q should be read in conjunction with the Company's
     consolidated financial statements and notes incorporated by reference in
     the 1996 Annual Report on Form 10-K.


2.   ACQUISITIONS AND SALE OF STOCK


     TRAVELODGE ACQUISITION - On January 23, 1996, the Company acquired the
     outstanding common stock of Forte Hotels, Inc. ("FHI") for $98.8 million
     plus expenses (the "Travelodge Acquisition"). In related transactions on
     January 23, 1996, prior to consummation of the Travelodge Acquisition, HFS
     Incorporated ("HFS") and Motels of America, Inc. acquired from FHI the
     Travelodge franchise system and 19 hotel properties, respectively, for an
     aggregate purchase price of $71.6 million. The principal assets of FHI
     acquired by the Company included 18 wholly-owned hotels, and joint venture
     interests in 97 other lodging facilities (twelve of which were subsequently
     disposed). The Company financed approximately $60.4 million of the purchase
     price with proceeds from a bank revolving credit facility and $38.4 million
     with existing cash.

     The Travelodge Acquisition was accounted for by the purchase method. The
     operating results of the acquired company are included in the consolidated
     statements of operations from its acquisition date, January 23, 1996.

     CANADIAN ACQUISITION - On October 1, 1996, the Company acquired (the
     "Canadian Acquisition") from Capital Properties Limited Partnership
     ("CPLP") 20 hotels and a one-half interest in an additional hotel,
     consisting of approximately 3,500 guest rooms, which hotels are located
     throughout Canada and franchised under the "Travelodge" brand name. The
     Company paid approximately $70.0 million to purchase substantially all of
     CPLP's existing bank debt and to pay certain specified closing costs
     (including real estate taxes and transfer taxes), as well as its assumption
     of liability for identified trade payables and property specific bank debt,
     aggregating approximately $7.0 million. Also, the Company may be required
     to make certain contingent payments to CPLP's constituent partners
     following a preferred return to the Company. In connection with the
     Canadian Acquisition on October 1, 1996, the Company borrowed $65.9 million
     under its credit facility.

     The Canadian Acquisition was accounted for by the purchase method. The
     operating results of the acquired company are included in the consolidated
     statements of operations from its acquisition date, October 1, 1996.

     SALE OF STOCK - On August 8, 1996, the Company sold 4 million shares of the
     Company's Common Stock to an investment group ("CL Associates") primarily
     consisting of members of the Fisher Brothers family and a trust for the
     benefit of Gordon Getty and members of his family and a limited liability
     company ("FSNL") owned principally by a trust for the benefit of Charles de
     Gunzberg for an aggregate purchase price of $57.0 million.

                                       4
<PAGE>
 
     The following presents the unaudited pro forma consolidated results of
     operations for the nine months ended September 30, 1996 as if all of the
     transactions described above occurred on January 1, 1996, giving effect to
     the sale of stock and financing costs associated with the Travelodge
     Acquisition and Canadian Acquisition.

<TABLE>
<CAPTION>
                                Nine Months Ended                       
                                September 30, 1996                      
                    -----------------------------------------           
                     (In Thousands Except per Share Amounts)            
                    <S>                               <C>                     
                    Revenue                           $92,283           
                                                                        
                    Net loss                          $(8,927)          
                                                                        
                    Net loss per share                $  (.90)          
</TABLE>                                             

     The pro forma results are not necessarily indicative of the actual results
     of operations that would have occurred had the transactions been
     consummated as indicated nor are they intended to indicate results that may
     occur in the future.

3.   INCOME TAXES

     As of September 30, 1997, the Company had approximately $9.4 million of tax
     loss carryforwards. The amount of $9.4 million includes net operating loss
     carryforwards of approximately $4.6 million of which $1.1 million expire in
     2010 and $3.5 million expire in 2011. Also included in the $9.4 million of
     tax loss carryforwards are capital loss carryforwards of approximately $4.8
     million which expire at December 31, 2001. The use of the loss
     carryforwards will be restricted over several years pursuant to Section 382
     of the Internal Revenue Code of 1986. Due to the Company's recurring
     operating losses prior to the second quarter of 1997, the Company has not
     recorded any tax benefit for net operating loss carryforwards. The Company
     has recorded a net deferred tax asset after valuation allowance in the
     amount of $4.2 million at September 30, 1997. Income tax expense of $1.0
     million for the nine months ended September 30, 1997 primarily consists of
     Canadian capital tax and state income tax.

4.   PRESENTATION

     Certain items have been reclassified from the prior year to conform with
     the current period's presentation.

5.   PREPAYMENT OF LOAN RECEIVABLES

     In August 1997, the Company collected in full its loan receivables from
     Rainbow Casino Corporation. The balance of the receivables at June 30, 1997
     was $6.2 million. In connection with this receipt, the Company incurred a
     charge of $.2 million for the write-off of the deferred loan origination
     costs associated with the loan receivable which was included in general and
     administrative expense.

6.   SUBSEQUENT EVENT

     On November 13, 1997, the Company entered into an agreement and plan of
     merger with Whitehall Street Real Estate Limited Partnership IX
     ("Whitehall") and CLI Properties Acquisition Corp., which provides for
     holders of the Company's common stock to receive $17.25 per share in cash
     in exchange for their shares and for the Company to become an indirect,
     wholly-owned subsidiary of Whitehall. The merger is subject to the sale by
     the Company of its interest in its Mexican joint venture, shareholder
     approval and other closing conditions, including the expiration of the
     waiting period 

                                       5

<PAGE>
 
     under the Hart-Scott-Rodino Antitrust Improvements Act. The Company expects
     that the merger will close in the first quarter of 1998.

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS

     GENERAL OVERVIEW

     Chartwell owns, directly or with joint venture partners, 121 hotel
     properties (plus three sub-leased properties) in both the full-service and
     limited-service segments, with an aggregate of 11,051 guest rooms, located
     in 25 states and six Canadian provinces.  In the full-service segment,
     Chartwell operates 30 hotels aggregating 5,952 guest rooms (of which 5,765
     rooms represent Chartwell's ownership interest) that contributed
     approximately 74% of Chartwell's hotel revenues during the nine-month
     period ended September 30, 1997, and approximately 72% of the Company's
     property level hotel earnings before interest expense, income tax expense,
     and depreciation and amortization expenses ("EBITDA") during the nine-month
     period ended September 30, 1997.  Chartwell's remaining 91 hotels,
     consisting of 5,099 rooms (of which 2,927 rooms represent Chartwell's
     ownership interest), operate in the limited-service segment, principally
     under the Travelodge brand.  Chartwell's strategy is to be an opportunistic
     acquirer and developer of diversified hotel properties that it believes
     provide the potential for cash flow and earnings growth, principally
     through rebranding, repositioning, reimaging and remarketing.  As an owner
     of hotels, the Company's goal is to capitalize on positive industry
     fundamentals, and to produce strong earnings growth due to the operating
     leverage inherent in hotel ownership.

     PENDING MERGER

     On November 13, 1997, the Company entered into an Agreement and Plan of
     Merger (the "Merger Agreement") with Whitehall Street Real Estate Limited
     Partnership IX ("Whitehall") and CLI Properties Acquisition Corp. ("CLI"),
     a wholly-owned subsidiary of Whitehall, pursuant to which CLI will be
     merged with and into the Company (the "Merger"), and the separate existence
     of the Company shall cease.  The following description of the terms of the
     Merger Agreement is qualified by the Merger Agreement, which is filed as an
     exhibit to this Form 10-Q and is incorporated herein by reference.

     In the Merger, each share of the Company's Common Stock, outstanding
     immediately prior to the Merger (other than any shares of Common Stock
     owned by Whitehall, CLI or any subsidiary thereof, and other than shares of
     Common Stock held by any stockholder who has not voted for the Merger and
     who has the right to demand, and who properly demands an appraisal of such
     shares in accordance with Delaware law) will be converted into the right to
     receive $17.25 per share in cash.

     The Merger is subject to the sale by the Company of its interest in
     Chartwell de Mexico and other closing conditions, including, without
     limitation, the receipt of shareholder approval and the expiration or early
     termination of the applicable waiting period under the Hart-Scott-Rodino
     Antitrust Improvements Act of 1976, as amended.  The Company expects that
     the Merger will close in the first quarter of 1998.

     THIRD QUARTER HIGHLIGHTS

          .    Net income of $8.0 million and earnings per share of $.57 in the
               three months ended September 30, 1997 were record results for the
               Company.

          .    Revenue per available room ("REVPAR") on a pro forma basis for
               those hotels operating for at least 12 consecutive months
               increased approximately 7.2% for the three months ended September
               30, 1997 compared to the three months ended September 30, 1996.

                                       6

<PAGE>
 
     .    Chartwell currently has four hotel projects either under construction
          or for which construction is expected to commence shortly. A summary
          of construction in progress is as follows:

<TABLE>
<CAPTION>
          ------------------------------------------------------------------------------------------------  
                                                   EXPECTED       EXPECTED       EXPECTED                        
                                                   --------       --------       --------
          LOCATION                                 FRANCHISE    NO. OF ROOMS     OPENING         OWNERS             
          --------                                -----------   ------------     --------        -------             
          ------------------------------------------------------------------------------------------------  
          <S>                                    <C>            <C>              <C>             <C>                
          1)  Dallas, Texas                        Wingate                 114     1/st/ Qtr 1998  (A)                
          ------------------------------------------------------------------------------------------------  
          2)  Mexico City, Mexico                   Hilton                 129     1/st/ Qtr 1998  (B)                
          ------------------------------------------------------------------------------------------------  
          3)  Juarez, Mexico **                  Hilton Garden             159     4/th/ Qtr 1998  (B)                
                                                    Inn                                                                
          ------------------------------------------------------------------------------------------------  
          4)  Coatzacolocos, Mexico**            Travelodge                120     4/th/ Qtr 1998  (C)                 
          ------------------------------------------------------------------------------------------------    
</TABLE> 

          ** Construction expected to commence during November 1997.

     .    Chartwell also has six hotel projects in various stages of development
          for which it owns or has the right to acquire the land and is seeking
          required permits and approvals for construction:

<TABLE>
<CAPTION>
          -----------------------------------------------------------------------------
                                            EXPECTED            EXPECTED               
                                            --------            --------
             LOCATION                      FRANCHISE          NO. OF ROOMS    OWNERS   
             --------                      ---------          ------------    ------   
          -----------------------------------------------------------------------------
          <S>                             <C>                 <C>           <C>        
          1 Santa Fe, New Mexico          Hilton Garden Inn       123           (A)    
          -----------------------------------------------------------------------------
          2 Albuquerque, New Mexico       Hilton Garden Inn       123           (A)    
          -----------------------------------------------------------------------------
          3 San Diego, California         Hilton Garden Inn       189           (A)    
          -----------------------------------------------------------------------------
          4 Indianapolis, Indiana         Hilton Garden Inn       159           (A)    
          -----------------------------------------------------------------------------
          5 Syracuse, New York            Hilton Garden Inn       156           (D)    
          -----------------------------------------------------------------------------
          6 Willow Grove, Pennsylvania    Hilton Garden Inn       159           (D)    
          ----------------------------------------------------------------------------- 
</TABLE> 

          (A)  Wholly Owned
          (B)  Owned by Chartwell de Mexico in which Chartwell is a 50% partner.
          (C)  86.5% owned by Chartwell de Mexico.
          (D)  Joint Venture with Pioneer Development Corp.

     .    Dispositions:
          ------------

          The Company continues to dispose of non-core assets which do not meet
          the Company's long-term ownership criteria. During the third quarter,
          the Company disposed of its investment in a leased casino and barge in
          Biloxi, Mississippi realizing a gain of $250,000. Also during the
          third quarter, the company disposed of two wholly-owned limited-
          service hotel assets in Reno, Nevada and Omak, Washington at an
          aggregate gain of approximately $180,000. Since January 1, 1997, the
          Company has disposed of its interests in 10 hotel assets. Set forth
          below is a summary of the Company's full and limited service
          properties and rooms as of October 31, 1997.

<TABLE>
<CAPTION>
     ---------------------------------------------------------------------  
                       Full Service            Limited Service   Total (1)  
     ---------------------------------------------------------------------  
               Properties  Rooms  Properties  Rooms  Properties    Rooms    
     <S>       <C>         <C>    <C>         <C>    <C>         <C>        
     U.S.              10  2,441      87      4,771       97       7,212    
     Canada            20  3,511       4        328       24       3,839    
                       --  -----      --      -----      ---      ------    
     Total             30  5,952      91      5,099      121      11,051    
                       ==  =====      ==      =====      ===      ======     
</TABLE>

     (1)  Excludes three hotels leased out to third party operators.

          The Company has entered into a lease termination agreement and a
          subsequent license arrangement on its Las Vegas South Strip Property
          pursuant to which upon 90 days notice the Company or the landlord may
          terminate the license. Upon termination the Company will receive
          quarterly payments of $150,000 for ten years.

                                       7
<PAGE>
 
          RESULTS OF OPERATIONS

          SEPTEMBER 30, 1997 COMPARED TO PRO FORMA SEPTEMBER 30, 1996

          The pro forma financial data includes the operations of Forte Hotels,
          Inc. and Capital Properties Limited Partnership for the nine months
          ended September 30, 1996, as if the Travelodge Acquisition and the
          Canadian Acquisition (together, the "Acquisitions") had occurred on
          January 1, 1996, giving effect to financing costs associated with the
          Acquisitions, depreciation and amortization associated with the
          acquired properties and the sale of 4 million shares of newly issued
          common stock on August 8, 1996. The pro forma financial data also
          includes revenues and expenses associated with the Company's gaming
          business which include a provision for losses on gaming assets of
          $14.2 million for the nine-month period ended September 30, 1996.

          Through September 30, 1997, the Company has spent $12.0 million on its
          U.S. properties and $4.0 million on its Canadian properties for
          capital improvements. The Company also implemented a hotel-wide policy
          called "Prideful Maintenance" which stresses the importance of making
          necessary and preventative maintenance and repairs. As a result of the
          upgrade program, maintenance and repairs increased approximately $0.9
          million in the first nine months of 1997 compared to the same period
          in 1996. Chartwell believes the rebranding and renovation program has
          increased, and will continue to increase Chartwell's REVPAR. The
          average daily room rate ("ADR") from properties operating for at least
          twelve consecutive months rose 4.6% from $53.79 in 1996 to $56.26 in
          1997. As a result of the increase in ADR, REVPAR grew 5.9% to $38.84,
          and hotel revenues increased by $8.0 million or 8.7% from $92.3
          million in 1996 to $100.3 million in 1997. Rooms out of service as a
          result of the renovation work are not excluded when computing the
          REVPAR numbers shown above. EBITDA for the nine months ended September
          30, 1997 was $23.3 million before giving effect to a $0.7 million
          charge for the costs associated with closing the Company's El Cajon,
          California office and to $.3 million recovery of gaming loss
          provisions. Pro forma EBITDA for the comparable 1996 period was $18.8
          million before non-cash provision for loss on gaming assets.

          HOTEL OPERATING PERFORMANCE (U.S. AND CANADA)

          Chartwell's REVPAR increased in the three months and nine months ended
          September 30, 1997 compared to REVPAR during the same periods in 1996.
          Results are as follows:

<TABLE>
<CAPTION>
 
                                              THREE MONTHS ENDED                    
                            -------------------------------------------------------  
                            September 30, 1997   September 30, 1996 (1)   Increase  
                            -------------------  -----------------------  --------- 
          <S>               <C>                  <C>                      <C>       
          Occupancy                78.5%                  77.7%            1.0% 
          ADR                    $59.26                 $55.84             6.1% 
          REVPAR                 $46.54                 $43.40             7.2% 
                                                 NINE MONTHS ENDED                                       
                            -------------------------------------------------------  
                            September 30, 1997   September 30, 1996 (1)   Increase  
                            ------------------   ----------------------   ---------  
          Occupancy                69.0%                  68.2%             1.2%                
          ADR                    $56.26                 $53.79              4.6%                
          REVPAR                 $38.84                 $36.66              5.9%                 
(1)  Pro forma
</TABLE>

     U.S. HOTEL OPERATING PERFORMANCE

     In the U.S., Chartwell's REVPAR increased in the three months and nine
     months ended September 30, 1997 compared to REVPAR during the same periods
     in 1996.  The REVPAR growth was fueled by increases in ADR.  Results for
     Chartwell's U.S. Hotels are as follows:

                                       8
<PAGE>
 
<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED                                             
                                          ------------------------------------------------------------------
                                          September 30, 1997     September 30, 1996     Increase (Decrease)                        
                                          -------------------  -----------------------  --------------------                       
          <S>                             <C>                  <C>                      <C>                                        
          Occupancy                                 77.2%                    78.0%                (1.0%)                           
          ADR                                     $69.75                   $65.34                  6.7%                            
          REVPAR                                  $53.84                   $50.98                  5.6%                            
                                                                    NINE MONTHS ENDED                                              
                                          ------------------------------------------------------------------
                                          September 30, 1997   September 30, 1996 (1)   Increase (Decrease)                        
                                          ------------------   ----------------------   --------------------
          Occupancy                                 69.7%                    70.8%                (1.6%)                           
          ADR                                     $65.42                   $61.68                  6.1%                            
          REVPAR                                  $45.62                   $43.67                  4.5%                             

(1) Pro-forma for the Travelodge Acquisition.
</TABLE>

          Chartwell's nine full service U.S. Hotels in operation since January
          23, 1996 experienced a growth in REVPAR of 7.2% for the third quarter
          of 1997 compared to the same period in 1996.  The increase in growth
          was led by a 17.7% REVPAR increase experienced by the Company's Ramada
          hotel located in Portland, Oregon compared to the hotel's REVPAR in
          the third quarter of 1996 when the property was a Travelodge.

          During the first nine months of 1997, approximately $12.0 million was
          spent on capital improvements at the Company's U.S. hotels including
          major renovations to its Walt Disney World Travelodge, Brunswick,
          Georgia Ramada and Mount Laurel, New Jersey Travelodge hotels.

          CANADIAN HOTEL OPERATING PERFORMANCE

          Chartwell's REVPAR for its Canadian hotels increased to $36.60 for the
          third quarter of 1997 as compared to $33.10 during the third quarter
          of 1996 (pro forma), an increase of 10.6%.  Chartwell has recently
          completed a $4.0 million capital improvement and renovation program of
          its Canadian Hotels.

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                                        
                                       ---------------------------------------------------------                      
                                         September 30, 1997   September 30, 1996 (1)   Increase                      
                                       ---------------------  -----------------------  ---------                     
          <S>                            <C>                  <C>                      <C>                           
          Occupancy                                    80.4%                    77.3%       4.0%                     
          ADR                                        $45.55                   $42.81        6.4%                     
          REVPAR                                     $36.60                   $33.10       10.6%                     
                                                            NINE MONTHS ENDED
                                       ---------------------------------------------------------                      
                                         September 30, 1997   September 30, 1996 (1)   Increase                      
                                       --------------------   ----------------------   ---------                      
          Occupancy                                    68.1%                    64.4%       5.7%                     
          ADR                                        $43.43                   $41.74        4.0%                     
          REVPAR                                     $29.56                   $26.91        9.8%                      
          (1)  Pro forma for the Acquisitions.
</TABLE>

          HISTORICAL NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO THE
          COMPARABLE 1996 PERIOD

                                       9
<PAGE>
 
     RESULTS OF OPERATIONS -- REVENUE OVERVIEW

          Hotel revenue increased by $37.8 million, from $54.1 million in 1996
          to $91.9 million in 1997. Approximately $29.7 million of the increase
          represented hotel revenue generated from the Canadian Acquisition and
          approximately $4.0 million of  the increase represents an additional
          22 days of operations in the September 30, 1997 results versus the
          September 30, 1996 results due to the fact that the Travelodge
          Acquisition was consummated on January 23, 1996.

          RESULTS OF OPERATIONS - EXPENSE OVERVIEW

          Hotel operating expense increased $12.4 million, from $22.5 million in
          1996 to $34.9 million in 1997. Approximately $9.4 million of the
          increase represents hotel operating expense from the Canadian
          Acquisition in October 1996 and approximately $1.8 million represents
          the additional 22 days of operations in the September 30, 1997 results
          due to the Travelodge Acquisition.

          General and administrative expense increased $5.3 million, from $14.2
          million in 1996 to $19.5 million in 1997.  Approximately $3.9 million
          of the increase resulted from the Canadian Acquisition and
          approximately $0.8 million represents the additional 22 days of
          operations in the September 30, 1997 results due to the Travelodge
          Acquisition.  Included in general and administrative expense for the
          nine-month period ended September 30, 1997 are professional fees of
          $0.4 million relating to the termination of a proposed notes offering
          and $0.4 million relating to due diligence costs associated with an
          acquisition which was never consummated.

          Marketing, franchise and reservation fees expense increased $3.9
          million, from $5.6 million in 1996 to $9.5 million in 1997.
          Approximately $2.6 million of the increase results from the Canadian
          Acquisition and approximately $0.6 million represents the additional
          22 days of operations in the September 30, 1997 results due to the
          Travelodge Acquisition.

          Maintenance and property tax expense increased $4.9 million, from $4.3
          million in 1996 to $9.2 million in 1997.  Approximately $3.9 million
          of the increase results from the Canadian Acquisition and
          approximately $0.4 million represents the additional 22 days of
          operations in the September 30, 1997 results due to the Travelodge
          Acquisition. The Company also implemented a hotel-wide policy called
          "Prideful Maintenance" which stresses the importance of making
          necessary and preventative maintenance and repairs.  As a result of
          the upgrade program, maintenance and repairs increased approximately
          $1.0 million in the first nine months of 1997 compared to the same
          period in 1996.

          Depreciation and amortization expense for the first nine months of
          1997 increased $0.7 million as compared to the same period in 1996,
          primarily due to increased depreciation and amortization as a result
          of the Canadian Acquisition and the additional 22 days of operations
          in the September 30, 1997 results due to the Travelodge Acquisition
          offset by a reduction of depreciation in the 1997 period for the
          properties purchased in the Travelodge Acquisition as a result of the
          finalization of the purchase price allocation.

          LIQUIDITY AND CAPITAL RESOURCES

          As of September 30, 1997, Chartwell has approximately $82.0 million of
          outstanding long-term debt and approximately $55.9 million of cash.
          In addition, Chartwell has approximately $71.6 million available under
          its credit facility with the Chase Manhattan Bank, $3.6 million
          available under its Bank of America Credit Facility and $4.0 million
          available under a construction loan to finance the completion of the
          Dallas-Fort Worth Wingate.

          The biggest component of long-term debt is approximately $66.0 million
          drawn under the Chase credit facility.  The money has been borrowed in
          Canadian funds C $91.0 million) and currently bears interest at a rate
          of 4.1%, (exclusive of a $1,500,000 per annum guarantee fee payable to
          HFS. Borrowing in Canadian dollars has the additional advantage of
          providing a foreign currency hedge against the Canadian denominated
          revenues received from the Company's Canadian hotels.

                                       10
<PAGE>
 
          The total weighted average interest rate on the long-term debt is
          approximately 6.4% as of September 30, 1997 (inclusive of a $1.5
          million annual guarantee fee payable to HFS for its guarantee of a
          portion of the Chase credit facility).

          The Company's ratio of current assets to current liabilities at
          September 30, 1997 was 3.7:1.

          In connection with the Canadian Acquisition on October 1, 1996, the
          Company entered into a development agreement (the "Development
          Agreement") with NRG Management Services Ltd. ("NRG"), an affiliate of
          Royco Hotels and Resorts, Ltd. ("Royco") which manages the Company's
          Canadian hotels and any future hotels acquired by the Company in
          Canada, pursuant to which NRG has agreed to identify new hotel
          properties for acquisition and development in Canada on behalf of the
          Company.  The Development Agreement was terminated as of September 30,
          1997.

          CHARTWELL DE MEXICO

          Chartwell de Mexico, a joint venture in which the Company owns a 50%
          interest, intends to develop hotel facilities throughout Mexico.
          Chartwell de Mexico is to be funded initially with up to $20.0 million
          in capital contributions, of which half are to be contributed by the
          Company.  On September 18, 1996, the joint venture purchased a 30-year
          exclusive master franchise agreement (the "Mexican Master License")
          from HFS, pursuant to which the joint venture is entitled to franchise
          others to develop and operate, lodging facilities in Mexico under the
          Travelodge and Thriftlodge brand names. Chartwell de Mexico is
          obligated under the Mexican Master License to develop in various
          stages up to 1,140 hotel rooms by December 31, 2006. Under certain
          circumstances, including where the Company does not satisfy its
          development obligations in accordance with a prescribed schedule, the
          Mexican Master License may be terminated by HFS.  Currently, Chartwell
          de Mexico, has gained control of four sites, begun development on two
          sites and construction on one site (a Hilton, at the Mexico City
          Airport).  The Company invested $2.5 million in Chartwell de Mexico
          during the first nine months of 1997 and has invested an aggregate of
          $2.9 million since the inception of the joint venture.

          CAPITAL IMPROVEMENT PROGRAM
 
          The Company has launched a major capital improvement program to
          increase room and occupancy rates by  improving the quality of its
          properties.  During 1997, the Company intends to invest approximately
          $20.0 million in capital improvements (of which approximately $16.0
          million has been spent through September 30, 1997).  Once this capital
          initiative is completed, the Company intends to maintain a regular
          program of capital improvements, including the renovation and
          refurbishment of certain of its existing hotels.  The program is
          expected to enhance the competitiveness of its hotels and increase
          profitability.

          RESTRUCTURING PROGRAM

          The Company is in the process of consolidating certain corporate
          functions from its office in El Cajon, California to Calgary, Canada
          with the intention of achieving cost savings and improving operating
          efficiencies.  Exit and severance costs of $0.7 million were incurred
          during the nine months ended September 30, 1997.  Additional costs may
          be incurred during 1997 in relation to closing facilities and
          additional severance costs as positions are consolidated and plans are
          finalized.

          LEASE TERMINATION

          The Company expects to terminate its New York office lease with an
          affiliate of CL Associates and an unaffiliated third party as of
          December 31, 1997.  The Company was obligated to pay approximately
          $542,000 per year for each of the first five years, and approximately
          $600,000 per year for each of the last five years of the term of the
          lease.  The Company will incur no penalty for the termination of the
          lease.  The Company intends to enter into a short-term lease in the
          amount of $20,000 per month.

                                       11
<PAGE>
 
          INVESTMENTS

          The Company continues to evaluate its investment in Funtricity
          amusement park in Vicksburg, Mississippi.  The amusement park is
          currently listed for sale, but it is uncertain whether or not any net
          proceeds will be available if the sale is consummated.

          RECENT DEVELOPMENTS

          On August 4, 1997, the Company sold its interest in a barge and other
          related assets to Boomtown, Inc. for net proceeds of $0.3 million.
          Since the book value of this asset had been written down to zero, the
          Company recognized a gain on sale of $0.3 million.

          CREDIT FACILITIES:

          REVOLVING CREDIT FACILITY

          The Company is a party to a credit facility (the "Credit Facility")
          with the Chase Manhattan Bank and other banks named therein. The
          Credit Facility provides that the Company may borrow up to $150.0
          million under a revolving credit commitment (the "Commitment"), which
          may be utilized for the incurrence of revolving credit loans or the
          issuance of letters of credit. An amount of up to C$95.0 million of
          the Commitment is available to be borrowed in Canadian dollars as a
          subfacility. As of September 30, 1997, $77.9 million was drawn on the
          Credit Facility, inclusive of $12.0 million of letters of credit.
          Pursuant to this agreement, HFS has guaranteed $75.0 million of the
          Company's borrowings under the Credit Facility, for which the Company
          pays HFS an annual fee of $1.5 million. All outstanding obligations
          under the Credit Facility mature in August, 2002.

          The aggregate revolving credit commitment is scheduled to be reduced
          by $7.5 million in 1998, $17.5 million in 1999, $20.0 million in 2000
          and 2001, and $85.0 million in 2002. To the extent outstanding
          borrowings exceed the resulting commitment amount, principal will be
          required to be repaid. The revolving credit commitment amount also
          will be reduced and, to the extent outstanding borrowings exceed the
          resulting commitment amount, principal will be repaid upon the
          occurrence of certain events.

          The Credit Facility contains covenants restricting, with certain
          exceptions, the Company and its subsidiaries and joint ventures from:
          (i) creating, incurring or assuming any liens; (ii) merging or
          consolidating or disposing of its assets, or acquiring assets from any
          other person; (iii) changing the nature of their respective
          businesses; (iv) incurring indebtedness other than existing
          indebtedness, subordinated indebtedness not to exceed $50.0 million to
          finance permitted acquisitions and other permitted indebtedness
          specified in the Credit Facility; (v) modifying the agreements
          relating to the Company's indebtedness and preferred stock or its
          corporate charter documents; and (vi) prohibiting the payment of
          dividends.

          In addition, the Credit Facility requires that the Company, in certain
          cases on a stand alone basis and in other cases on a consolidated
          basis with its subsidiaries and joint ventures, satisfy certain
          financial ratio coverage tests, including maintenance of net worth,
          minimum interest coverage, and maximum leverage coverages. The Credit
          Facility contains a restrictive covenant based on the ratio of pro-
          forma earnings to debt as defined in the credit facility document.

                                       12
<PAGE>
 
          BANK OF AMERICA LOAN AGREEMENT

          The Company has a loan agreement with Bank of America National Trust
          and Savings Association ("B of A"). That loan agreement (the "B of A
          Loan Agreement") permits the Company and certain of the joint ventures
          through which it owns hotels to make revolving credit borrowings in an
          aggregate amount of up to $10.0 million and provides for an
          uncommitted credit facility, which is available at the sole discretion
          of B of A, in an aggregate amount of up to $2.0 million. The B of A
          Loan Agreement is scheduled to expire on December 31, 1997 at which
          time the Company's outstanding obligations under the agreement will
          become due. Revolving credit borrowings under the B of A Loan
          Agreement may be made, at the option of the Company, as short term
          borrowings, which have a maximum maturity of nine months, or medium
          term borrowings, which have a maximum maturity of five years. Short
          term borrowings bear interest, at the option of the Company, at the B
          of A prime rate, 1/2 of 1% in excess of the B of A offshore rate or
          3/4 of 1% in excess of the B of A CD rate. Medium term borrowings bear
          interest at the B of A prime rate. All borrowings fully amortize
          during their term. The borrowings under the B of A Loan Agreement are
          secured by a $12.0 million standby letter of credit issued under the
          Credit Facility. The Company is obligated to pay a commitment fee at
          an annual rate of .1875% on the unutilized portion of the B of A Loan
          Agreement. The Company primarily utilizes B of A loans to finance
          capital improvements for the U.S. joint venture hotels. Borrowings
          under the B of A Loan Agreement were approximately $6.4 million at
          September 30, 1997 of which approximately $3.4 million is allocable to
          the Company.

          CASH FLOWS

          Cash provided by operating activities was $15.5 million for the nine
          months ended September 30, 1997 compared to $1.6 million for the nine
          months ended September 30, 1996. The increase relates primarily to the
          Canadian Acquisition and an increase in earnings in 1997 compared to
          1996.

          Cash used in investing activities was $14.1 million for the nine
          months ended September 30, 1997 compared to $95.9 million for the nine
          months ended September 30, 1996. This change relates primarily to the
          Travelodge Acquisition, with no similar acquisition occurring in 1997.

          Cash provided by financing activities was $36.9 million for the nine
          months ended September 30, 1997 compared to $57.4 million for the nine
          months ended September 30, 1996. In 1997, financing activities related
          to the sale of stock through a rights offering, and two private
          placements. In 1996, finance activities related to borrowings to
          finance the Travelodge Acquisition.

          SEASONALITY

          Room occupancy and rates at its hotels are affected by normally
          recurring seasonal patterns and, in most locations in the United
          States and Canada, are higher in the late spring through early fall
          months than during the balance of the year, with the lowest occupancy
          rates occurring in the first quarter of the year. As a result, the
          Company experiences seasonal lodging revenue patterns similar to the
          hotel industry with the summer months, due to the increase in leisure
          travel, producing a higher revenue than other periods during the year.

          IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

          Recent pronouncements of the Financial Accounting Standards Board
          ("FASB"), which are not required to be adopted at this date, include
          Statement of Financial Accounting Standards ("SFAS") No. 131,
          "Disclosure about Segments of an Enterprise and Related
          Information"("SFAS No. 131"). SFAS No 130. "Reporting Comprehensive
          Income" (SFAS No. 130") and SFAS No. 128, "Earnings Per Share:" ("SFAS
          128"). SFAS No. 131 requires that a public business enterprise report
          financial and descriptive information about its reportable 

                                       13
<PAGE>
 
          segments on the same basis that it uses internally for evaluating
          segment performance and deciding how to allocate resources to
          segments. SFAS No. 130 establishes standards for reporting and display
          of comprehensive income and its components in a full set of general-
          purpose financial statements. SFAS No. 128 specifies guidelines as to
          the method of computation as well as presentation and disclosure
          requirements for earnings per share ("EPS"). The objective of SFAS No.
          128 is to simplify the calculation and to make the U.S. standard for
          computing EPS more compatible with the EPS standards of other
          countries and with that of the International Accounting Standards
          Committee. SFAS No. 131 and SFAS No. 130 are effective for fiscal year
          ending December 31, 1998. SFAS No. 128 effective for fiscal year
          ending December 31, 1997. The adoption of these statements will not
          have a material effect on the Company's consolidated financial
          statements.

          ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

                    None.

                                       14
<PAGE>
 
          PART II.  OTHER INFORMATION

          ITEM 1.   LEGAL PROCEEDINGS

                    The Company is not party to any litigation which it believes
                    will have a material impact on the financial condition of
                    the Company.

          ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

                    None.

          ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

                    None.

          ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                    None

          ITEM 5.   OTHER INFORMATION

                    Not Applicable.

          ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

                    (A)  EXHIBITS

                    2.1       Agreement and Plan of Merger, dated as of November
                              13, 1997, by and between the Company, Whitehall
                              Street Real Estate Limited Partnership IX and CLI
                              Properties Acquisition Corp.

                    27.1      Financial Data Schedule

                    (B)  REPORTS ON FORM 8-K

                    None.

                                       15
<PAGE>
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                             CHARTWELL LEISURE INC.

Date: November 14, 1997                      /s/ Kenneth J. Weber
---------------------------                  ------------------------------  
                                             Kenneth  J. Weber

                                             Chief Financial Officer (Duly
                                             Authorized Officer of the
                                             Registrant) (Principal Financial
                                             Officer and Principal Accounting
                                             Officer)

                                       16