Arlington Announces Second Quarter

ARLINGTON HEIGHTS, Ill.—Aug. 14, 2003—Arlington Hospitality, Inc. (Nasdaq/NM: HOST), a hotel development and management company, today announced results for the second quarter and six months ended June 30, 2003. Arlington is the nation`s largest owner and operator of AmeriHost Inn hotels, a mid-market, limited service hotel brand with approximately 100 properties located in 20 states. Arlington Hospitality owns and operates 61 AmeriHost Inn hotels. Cendant Corporation (NYSE: CD) is the franchisor of the AmeriHost Inn brand.
Second Quarter and Year to Date 2003 Results:
Revenues fell 13.8 percent and 2.2 percent to $15.8 million and $33.6 million during the three and six months ended June 30, 2003, compared to $18.3 million and $34.4 million during the same periods a year earlier, due primarily to decreases in hotel development revenue and revenues related to hotel operations as a result of owning fewer hotels, partially offset by an increase in hotel real estate sales and commissions and incentive and royalty-sharing fees.
The hotel impairment charges were recorded in connection with the company`s previously disclosed implementation of a plan for the disposition of certain hotels over the next two years, based on the difference between the carrying value of the hotels and their anticipated net realizable values. Discontinued operations relates to the operations of the non-AmeriHost Inn hotels sold, or to be sold within the next 12 months, which have been reclassified as such for all periods discussed herein, including a non-cash impairment charge related to these hotels during the three and six months ended June 30, 2003.
“Although the implementation of our hotel disposition program resulted in the significant non-cash impairment charge for the second quarter of 2003, this strategic initiative will allow us to unlock capital to pay down debt and to accelerate our hotel development growth plan as part of our new business plan,” said Jerry Herman, president and chief executive officer. “Furthermore, we expect such steps taken with regard to our disposition program and the other elements of our business plan will lead to an enhancement of the company`s core strengths and profitability.”
In accordance with SFAS No. 144, “Accounting for Long-Lived Assets,” the company`s hotel assets earmarked for sale within the next 12 months have been classified as “held for sale” on the accompanying balance sheet as of June 30, 2003.
The operations of the non-AmeriHost Inn hotels that have been determined to be discontinued operations have been eliminated from the company`s continuing operations and presented as “discontinued operations” on the consolidated statements of operation. In addition, the “discontinued operations” includes $517,000, after tax, of non-cash impairment charges related to these hotels recorded in the second quarter of 2003. These hotels are considered to be “discontinued operations” since they have been sold, or are expected to be sold within the next 12 months, and the company will have no continuing involvement after their disposition.
Although certain AmeriHost Inn hotels have been classified as “held for sale” on the accompanying consolidated balance sheet, the operations of these hotels has not been treated as “discontinued operations” in the consolidated statement of operations due to the company`s long-term royalty-sharing agreement with Cendant for all AmeriHost Inn hotels, which provides for a revenue stream to the company after the properties are sold to a new or existing AmeriHost Inn franchisee.
Same-room revenue per available room (RevPAR) for the company`s AmeriHost Inn hotels decreased 1.1 percent to $35.11 for the 2003 second quarter, compared to the 2002 second quarter, and compared to a 2.1 percent estimated decrease for the midscale without food and beverage segment of the hotel industry for the 2003 second quarter, according to Smith Travel Research. Occupancy decreased 0.7 percent to 60.9 percent, while average daily rate (ADR) decreased 0.4 percent to $57.65. On a trailing 12-month basis, RevPAR increased 0.9 percent, based on a 2.1 percent increase in occupancy and a 1.1 percent decrease in ADR.
Same-room RevPAR for the company`s AmeriHost Inn hotels decreased 1.2 percent to $31.23 for the first six months of 2003, compared to the same period in 2002, and compared to a 1.9 percent estimated decrease for the midscale without food and beverage segment of the hotel industry for the first six months of 2003 according to Smith Travel Research. Occupancy declined 0.4 percent to 55.4 percent, while ADR fell 0.7 percent to $56.42.
“Our second quarter results reflect the difficult industry fundamentals resulting from a persistently sluggish economy, which has dampened business travel, and the war in Iraq,” Herman commented. “Following a weak April, which was directly impacted by the war, May rebounded strongly although those gains did not continue in June. However, we aggressively contained costs during the quarter, which helped alleviate pressure on our margins, and we are in the process of implementing significant enhancements to our hotels sales and marketing efforts, which we expect will produce positive revenue growth at many of our hotels.
“Business travel demand remains well below historical levels, although we are beginning to see some encouraging signs in this area. We are cautiously optimistic about the remainder of the year. Furthermore, per Smith Travel Research statistics in terms of RevPAR changes during the second quarter and first six months of 2003, as well as the trailing 12 months, we continue to outperform our competitors in the mid scale without food and beverage segment.”
Herman said that during the second quarter Arlington had begun to implement its previously announced growth-oriented business plan. The plan, when fully executed, will focus the company on building and selling hotels, primarily AmeriHost Inns through joint venture arrangements, and reducing the amount of capital invested in hotel ownership. As part of the plan, the company plans to sell approximately 25 to 30 of its existing hotel properties over the next two years. The sale of these hotels is expected to:
—reduce outstanding debt
—increase operating cash flow
—accelerate the generation and realization of sales and royalty-sharing fees related to the company`s agreements with Cendant Corporation
—provide capital for future hotel development
—provide capital to repurchase and retire common stock at attractive prices.
“The asset disposition program is a key to our business plan for the future, and is designed to provide the means to accelerate our development program and expand the AmeriHost Inn brand, which, in turn, we expect will allow us to realize the full value of our relationship with Cendant,” Herman said.