Third Quarter and Year to Date 2003 Results
Revenues increased 49.7 percent and 14.2 percent to $23.8 million and $57.4 million, respectively, during the three and nine months ended September 30, 2003, compared to $15.9 million and $50.3 million during the same periods a year earlier, due primarily to increases in hotel sales and commissions and incentive and royalty-sharing fees. Revenues from consolidated AmeriHost Inn hotels decreased during the three and nine months ended September 30, 2003, due primarily to the sale of hotels and a 1.5 percent and 1.2 percent decrease in same room revenue for these hotels for the three and nine months ended September 30, 2003, respectively.
Net income for the third quarter was $1.1 million, compared to net income of $746,000 during the third quarter of 2002. Net loss for the nine months ended September 30, 2003, was ($3.8) million, compared to net income of approximately $222,000 for the same period in 2002. These results include non-cash hotel impairment provisions in 2003 and discontinued operations related to non-AmeriHost Inn hotels, which have been recorded in connection with the company's previously announced plan for hotel disposition and hotel development/repositioning.
Net income (loss), and its components, is summarized as follows for the three and nine months ended September 30, 2003, compared to September 30, 2002:
Arlington Hospitality's AmeriHost Inn Third Quarter 2003 Results*
Three Months Nine months Twelve Months
Ended Ended Ended
September 30 September 30 September 30
------------ ------------
Occupancy - 2003 64.3% 58.3% 57.0%
Occupancy - 2002 64.3% 58.5% 57.3%
Increase (decrease) 0.0% (0.3%) (0.5%)
Average Daily Rate - 2003 $58.91 $57.34 $57.12
Average Daily Rate - 2002 $58.89 $57.56 $57.21
Increase (decrease) 0.0% (0.4%) (0.2%)
RevPAR - 2003 $37.91 $33.46 $32.56
RevPAR - 2002 $37.86 $33.67 $32.78
Increase (decrease) 0.0% (0.7%) (0.8%)
*Results are presented on a "same-room" basis, and include the
company's AmeriHost Inn hotels, which have been open for at least 13
months during the period, presented.
Following the July 2003 announcement of a plan to dispose of 25 to 30 hotels over the next two years, the company recorded hotel impairment charges based on the difference between the carrying value of the hotels identified for sale and their anticipated net realizable values. Discontinued operations relates to the operations of the non-AmeriHost Inn hotels sold, or expected to be sold within the next 12 months, which have been reclassified from continuing operations and includes a non-cash impairment charge related to these hotels taken during the three and nine months ended September 30, 2003.
"The third quarter marks the beginning of a significant shift in the company's strategy," said Jerry Herman, president and chief executive officer. "We now are focusing our attention on both development, primarily through joint ventures, which we refer to as Operation Growth, and our hotel disposition plan, which we refer to as Operation Sell. The sale of 25 to 30 hotels will allow us to pay down more than 50 percent of our debt, increase our operating cash flow, accelerate the benefits of sales and royalty-sharing fees related to our agreements with Cendant and provide capital for future hotel development or other strategic alternatives."
Herman noted that the company concurrently implemented a restructuring plan, reducing corporate and regional operations staff by approximately 20 percent, resulting in an expected annual savings of approximately $580,000. Some of these savings will be partially offset by the addition of key personnel, primarily in the development and finance areas.
Assets Held for Sale and Discontinued Operations
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 September 30, 2003.
The operations of the non-AmeriHost Inn hotels that have been determined to be discontinued operations have been reclassified from the company's continuing operations and presented as "discontinued operations" on the consolidated statements of operations. In addition, the "discontinued operations" include $517,000 of after tax, non-cash impairment charges related to these hotels recorded in the second quarter of 2003, plus $19,000, after tax, recorded in the third 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.
AmeriHost Inn Room Revenues
Third quarter 2003 same-room revenue per available room (RevPAR) for the company's AmeriHost Inn hotels was essentially flat at $37.91, compared to the 2002 third quarter, and compared to a 2.2 percent estimated increase in 2003 third quarter RevPAR for the midscale without food and beverage segment of the hotel industry, according to Smith Travel Research. Occupancy and average daily rate (ADR) at the company's AmeriHost Inn hotels were unchanged at 64.3 percent and $58.91, respectively.
For the first nine months of 2003, same-room RevPAR for the company's AmeriHost Inn hotels decreased 0.7 percent to $33.46, compared to the same period in 2002, and compared to a 0.5 percent estimated RevPAR decrease for the midscale without food and beverage segment of the hotel industry for the first nine months of 2003, according to Smith Travel Research. Occupancy at the company's AmeriHost Inn hotels declined 0.3 percent to 58.3 percent, while ADR decreased 0.4 percent to $57.34.
On a trailing 12-month basis, RevPAR decreased 0.8 percent, based on a 0.5 percent decrease in occupancy and a 0.2 percent decrease in ADR, compared to an estimated 0.2 percent RevPAR increase for the midscale without food and beverage segment for the trailing 12 months, according to Smith Travel Research.
ARLINGTON HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
-------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,079,236 $ 3,969,515
Accounts receivable, less allowance of
$150,000 at September 30, 2003 and
December 31, 2002 (including
approximately $273,000 and $166,000
from related parties) 2,390,547 2,064,463
Notes receivable, current portion - 100,000
Prepaid expenses and other current
assets 475,852 975,432
Refundable income taxes 1,009,480 1,574,776
Costs and estimated earnings in excess
of billings on uncompleted contracts 898,367 1,479,101
Assets held for sale - non-AmeriHost
Inn hotels 11,921,652
Assets held for sale - AmeriHost Inn
hotels 23,832,212
-------------
Total current assets 44,607,346 10,163,287
-------------
Investments in and advances to
unconsolidated hotel joint ventures 3,335,741 4,291,504
-------------
Property and equipment:
Land 7,002,362 13,418,378
Buildings 39,277,983 76,849,071
Furniture, fixtures and equipment 15,232,786 26,553,701
Construction in progress 320,246 6,447,039
Leasehold improvements 2,396,309 2,760,906
-------------
64,229,686 126,029,095
Less accumulated depreciation and
amortization 16,313,014 26,417,755
-------------
47,916,672 99,611,340
-------------
Notes receivable, less current portion 1,017,875 782,083
Deferred income taxes 5,088,000 2,427,000
Other assets, net of accumulated
amortization of approximately $928,000
and $1,259,000
2,776,863 2,658,500
-------------
8,882,738 5,867,583
-------------
$104,742,497 $119,933,714
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,295,234 $ 3,965,028
Bank line-of-credit 2,250,000 6,384,287
Accrued payroll and related expenses 497,942 827,353
Accrued real estate and other taxes 2,363,238 1,969,297
Other accrued expenses and current
liabilities 1,174,735 1,974,350
Current portion of long-term debt 2,997,471 4,038,301
Liabilities of assets held for sale
non-AmeriHost Inn hotels 10,974,939
Long-term debt of assets held for sale
- AmeriHost Inn hotels 23,105,654
-------------
Total current liabilities 45,659,213 19,158,616
-------------
Long-term debt, net of current portion 33,657,471 72,203,688
-------------
Deferred income 11,407,184 10,867,418
-------------
Commitments and contingencies
Minority interests 296,449 333,888
-------------
Shareholders' equity:
Preferred stock, no par value;
authorized 100,000 shares;
none issued -
Common stock, $.005 par value;
authorized 25,000,000 shares;
issued and outstanding 5,012,788
shares at September 30,
2003, and 4,962,817 shares at
December 31, 2002 25,064 24,814
Additional paid-in capital 13,294,458 13,184,564
Retained earnings 839,533 4,597,601
-------------
14,159,055 17,806,979
Less:
Stock subscriptions receivable (436,875) (436,875)
-------------
13,722,180 17,370,104
-------------
$104,742,497 $119,933,714
============= =============
ARLINGTON HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------
2003 2002 2003 2002
----------- ----------- -----------
Revenue:
Hotel operations:
AmeriHost Inn
hotels $11,718,099 $12,737,246 $31,254,120 $33,582,408
Other hotels 489,724 753,804 1,335,904 1,759,114
Development and
construction 380,834 929,983 2,478,095 5,740,954
Hotel sales and
commissions 10,040,670 - 19,074,417 4,900,317
Management
services 124,542 266,931 352,997 763,640
Employee leasing 605,993 929,164 1,664,675 2,649,339
Incentive and
royalty sharing 264,945 130,623 694,594 386,992
Office building
rental 180,941 153,254 537,164 471,242
----------- ----------- -----------
23,805,748 15,901,005 57,391,966 50,254,006
----------- ----------- -----------
Operating costs and
expenses:
Hotel operations:
AmeriHost Inn
hotels 8,027,206 8,271,494 23,424,628 23,675,045
Other hotels 644,396 521,634 1,531,884 1,606,078
Development and
construction 591,467 944,824 2,727,944 5,568,717
Hotel sales and
commissions 8,444,575 - 15,779,006 3,528,680
Management
services 65,918 165,628 205,677 504,455
Employee leasing 585,582 916,318 1,612,296 2,593,120
Office building
rental 45,966 71,297 142,383 116,918
----------- ----------- -----------
18,405,110 10,891,195 45,423,818 37,593,013
----------- ----------- -----------
5,400,638 5,009,810 11,968,148 12,660,993
Depreciation and
amortization 701,352 1,088,454 2,767,485 3,221,828
Leasehold rents
hotels 1,262,727 1,240,536 3,802,981 3,860,025
Corporate general
and
administrative 526,848 755,036 1,489,686 1,528,630
Impairment
provision 143,496 - 4,808,008
----------- ----------- -----------
Operating income
(loss) 2,766,215 1,925,784 (900,012) 4,050,510
Other income
(expense):
Interest expense (1,026,406) (1,234,343) (3,266,509) (3,761,282)
Interest income 109,565 151,538 350,446 409,760
Other income (170,171) 53,107 (128,150) 92,344
Gain on sale of
assets 400,000 400,000 400,000 727,076
Equity in net
income and
(losses)
of affiliates (138,020) 61,697 (412,282) (59,886)
----------- ----------- -----------
Income (loss)
before minority
interests and
income taxes 1,941,183 1,357,783 (3,956,507) 1,458,522
Minority interests
in (income) loss
of consolidated
partnerships (47,241) (44,383) (128,933) (90,984)
----------- ----------- -----------
Income (loss)
before income
taxes 1,893,942 1,313,400 (4,085,440) 1,367,538
Income tax expense
(benefit) 777,000 539,000 (1,615,000) 564,000
----------- ----------- -----------
Net income (loss)
from continuing
Operations 1,116,942 774,400 (2,470,440) 803,538
Discontinued
operations, net of
tax (34,704) (28,713) (1,287,628) (581,535)
----------- ----------- -----------
Net income (loss) $ 1,082,238 $ 745,687 $(3,758,068) $ 222,003
=========== =========== =========== ===========
Net income (loss)
per share
Basic $ 0.22 $ 0.15 $ (0.74) $ 0.04
Diluted $ 0.22 $ 0.14 $ (0.74) $ 0.04
