EX-99.3 4 c87617exv99w3.txt PRESS RELEASE EXHIBIT 99.3 [ARLINGTON HOSPITALITY, INC. LETTERHEAD] For Immediate Release CONTACT: MEDIA CONTACT: James B. Dale, Chief Financial Officer Jerry Daly or Carol McCune 847-228-5401 x 361 703-435-6293 jimdale@arlingtonhospitality.com jerry@dalygray.com ARLINGTON HOSPITALITY, INC. ANNOUNCES 2004 SECOND QUARTER RESULTS ARLINGTON HEIGHTS, Ill., August 13, 2004--Arlington Hospitality, Inc. (Nasdaq/NM: HOST), a hotel development and management company, today announced results for the second quarter ended June 30, 2004. 10-Q FILING AND RESULTS CONFERENCE CALL The company expects to file its form 10-Q with the Securities and Exchange Commission later today. The document is accessible through the SEC's electronic filings database at www.sec.gov, and will be available shortly on the company's Web site, www.arlingtonhospitality.com. At 11 a.m. ET today, the company's senior management team will conduct a conference call to review second quarter 2004 financial results, followed by a question-and-answer period. Stockholders and other interested parties may participate in the conference call by calling (800) 240-2430, reference number 11005111. - more - Arlington Hospitality Page 2 SECOND QUARTER RESULTS Revenues in the 2004 second quarter improved 21 percent to $18.6 million, compared to $15.3 million in the year-earlier period. The increase was the result of the sale of four AmeriHost Inn hotels during the second quarter of 2004, versus one in the prior year second quarter, and an increase in incentive and royalty-sharing fees, partially offset by a decrease in hotel operating revenue as a result of the decrease in hotels owned and operated by the company. Net income for the 2004 second quarter was approximately $55,000, or $0.01 per share, compared to a net loss of approximately $(3.4), million or $(0.67) per share in the 2003 second quarter. These results include non-cash hotel impairment charges of $125,000 pre-tax ($75,000 after tax) and $4.6 million pre-tax ($2.7 million after tax) in the second quarter of 2004 and 2003, respectively. The results also include net losses from discontinued operations of $(395,000) and $(826,000), in the second quarter of 2004 and 2003, respectively, including additional impairment charges of $531,000 pre-tax ($319,000 after tax) in the 2004 second quarter, and $862,000 pre-tax ($517,000 after tax) in the second quarter of 2003, related to the non-AmeriHost hotels classified as discontinued operations. The non-cash hotel impairment charges have been recorded primarily in connection with the company's previously announced plan to dispose of 25 to 35 hotels over a two-year period. The additional impairment charges recorded subsequent to the initial adoption of this plan in 2003 are the result of the continuous evaluation of current market conditions and other hotel-specific factors. Discontinued operations relates to the operations of the non-AmeriHost Inn hotels disposed of, or expected to be disposed of within the next 12 months, which have been - more - Arlington Hospitality Page 3 reclassified from continuing operations, and includes the non-cash impairment charges related to those hotels. Discontinued operations also includes incremental accelerated depreciation of approximately $229,000 and $457,000 in the second quarter and first six months of 2004, respectively, which was recorded in connection with a lease modification on one non-AmeriHost Inn hotel executed in 2004 that accelerated the termination date to November 2005, or earlier under certain conditions. Exclusive of the impairment charges and the accelerated depreciation, the company's results from discontinued operations improved from a pretax loss of approximately $(1.5) million in the first six months of 2003, to a pretax loss of approximately $(330,000) in the first six months of 2004. "The approximate $1.1 million improvement in discontinued operations for the six-month period underscores the initial success of our divestment strategy for our non-AmeriHost Inn hotels, which is a critical part of our overall disposition program," said Jerry H. Herman, president and chief executive officer. We sold one additional non-AmeriHost Inn hotel thus far in the third quarter of 2004, and there is another under contract for sale." Corporate general and administrative expense increased to approximately $713,000 in the second quarter of 2004, from approximately $515,000 during the three months ended June 30, 2003. This increase was due primarily to professional fees incurred in connection with several special corporate strategic projects, including the addition of depth in the senior accounting and finance area, and the engagement of an investment banking firm to review the company's business plan and related strategies. - more - Arlington Hospitality Page 4 Net income (loss), and its components, is summarized below for the quarters ended June 30, 2004 and 2003:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Net income (loss) from continuing operations, before impairment $ 525,313 $ 206,597 $ (215,347) $ (646,409) Impairment provision, net of tax (75,183) (2,738,707) (267,263) (2,798,707) ----------- ----------- ----------- ----------- Net income (loss) from continuing operations 450,130 (2,532,110) (482,610) (3,445,116) Discontinued operations (395,285) (825,676) (1,037,951) (1,395,190) ----------- ----------- ----------- ----------- Net income (loss) $ 54,845 $(3,357,786) $(1,520,561) $(4,840,306) =========== =========== =========== =========== Net income (loss) per share - Diluted: From continuing operations $ 0.09 $ (0.51) $ (0.10) $ (0.69) From discontinued operations (0.08) (0.16) (0.20) (0.28) ----------- ----------- ----------- ----------- $ 0.01 $ (0.67) $ (0.30) $ (0.97) =========== =========== =========== ===========
During the 2004 second quarter, Arlington paid off $6.7 million and $10.5 million of mortgage debt in connection with the sale of hotels for the second quarter and six months ended June 30, 2004, respectively. Total hotel mortgage debt was $48.5 million as of June 30, 2004, compared to $60.1 million as of December 31, 2003. The company has mortgage debt of approximately $29.2 million related to hotels held for sale. The company expects to pay off this debt as the hotels are sold. Second quarter 2004 incentive and royalty-sharing revenues improved 42 percent to approximately $317,000, compared to the like period a year earlier. This improvement was a result of the amortization of a greater number of development incentive fees received from Cendant Corporation ("Cendant") (NYSE: CD) in connection with the sale of AmeriHost hotels, - more - Arlington Hospitality Page 5 and the growing stream of royalty-sharing fees received from Cendant as the AmeriHost Inn brand expands. AMERIHOST INN ROOM REVENUE In the 2004 second quarter, same-room revenue per available room (RevPAR) for the company's 55 AmeriHost Inn hotels improved 5.0 percent to $35.56, compared to the same period in 2003. The comparable midscale without food and beverage segment, according to Smith Travel Research, rose 6.7 percent for the 2004 second quarter. Three Months Six Months Twelve Months Ended Ended Ended June 30 June 30 June 30 ------- ------- ------- Occupancy - 2004 62.0% 55.2% 56.7% Occupancy - 2003 59.1% 54.0% 56.0% Increase (decrease) 4.9% 2.2% 1.3% Average Daily Rate - 2004 $57.34 $56.57 $57.25 Average Daily Rate - 2003 $57.31 $56.03 $56.92 Increase (decrease) 0.1% 1.0% 0.6% RevPAR - 2004 $35.56 $31.23 $32.44 RevPAR - 2003 $33.88 $30.26 $31.87 Increase (decrease) 5.0% 3.8% 2.0% "The Midwest, where most of our hotels are located, continues to recover at a slower pace than the nation as a whole," Herman noted. "Despite this slow recovery, we are gaining market share over our competitors. Our AmeriHost Inn hotels finished 2003 with a RevPAR market share index of 97.3, according to Smith Travel Research. Our AmeriHost Inn - more - Arlington Hospitality Page 6 hotel RevPAR index improved to 99.2 in the first quarter, and reached 100.0 for the six months ended June 30, 2004." PMC LEASE RESTRUCTURING UPDATE A subsidiary of the company extended its temporary letter agreement with PMC Commercial Trust ("PMC") (AMEX: PCC) through August 31, 2004, as part of its on-going discussions to restructure its leases with PMC and to allow for the sale of the hotels to third parties. The temporary letter agreement deferred a portion of the base rent from March through July, which reduced the monthly payments from approximately $445,000 to approximately $360,000. In addition, the company was able to use $200,000 of its security deposit held with PMC to partially fund the payments. The company paid the full base rent of approximately $445,000 for the month of August 2004. Upon the expiration of the temporary letter agreement on August 31, 2004, the deferred portion of the base rent (approximately $434,000) plus the $200,000 needed to restore the security deposit to its March 12, 2004 balance will be payable to PMC in four equal monthly installments beginning September 1, 2004. Herman continued, "Our goal remains to restructure these leases and thereby reduce our monthly base rent payments and improve cash flow. In addition, our objective is to terminate the 21 hotel leases through the sale of all of the leased hotels over a period of a few years." While the objective of the current discussions is to reach an agreement prior to the expiration of the temporary letter agreement, as extended, there can be no assurances that the leases will be restructured on terms and conditions acceptable to the company and its subsidiary, - more - Arlington Hospitality Page 7 if at all, or that a restructuring will improve operations and cash flow, or allow for the sale of the hotels to third-party operators. STRATEGIC ADVISOR ENGAGED In July, Arlington announced that Houlihan Lokey Howard & Zukin is providing investment banking services, including a review of Arlington's business plan and related strategies, for the purpose of assisting the company in optimally structuring and obtaining new debt or equity financing, as needed. However, there can be no assurance as to the availability and form of such financing, and whether this financing will be on terms acceptable to the company. DISPOSITION PROGRAM In the 2004 second quarter, Arlington sold four wholly owned AmeriHost Inn hotels for total gross proceeds to the company of $7.6 million. The company paid down approximately $6.7 million in debt from the proceeds. Additionally, the company facilitated the sale of one unconsolidated non-AmeriHost Inn owned by a joint venture in which the company is a partner. In July, the company sold one wholly owned non-AmeriHost Inn hotel. Since the company announced its plan to dispose of 25 to 30 hotels in July 2003, the company has sold 14 hotels. "We currently have five additional hotels under sale contracts, and the pipeline remains active," Herman said. "We remain on schedule with the pace of our Operation Sell program, and we hope that a recovering economy and improving lodging industry fundamentals will further assist us in achieving our Operation Sell goals." - more - Arlington Hospitality Page 8 Since the beginning of 2003, the company has disposed of five of its 10 non-AmeriHost Inn hotels to date, including the hotel sold in July, which have been classified as discontinued operations. The company's hotel assets designated for sale within the next 12 months have been classified as "held for sale" on the accompanying balance sheet as of June 30, 2004. The operations of the non-AmeriHost Inn hotels to be sold have been reclassified from the company's continuing operations and presented as "discontinued operations" in the consolidated statements of operations. It should be noted that when the company has hotels under contract for sale, even with nonrefundable cash deposits in certain cases, certain conditions to closing remain, and there can be no assurance that these sales will be consummated as anticipated. Any forecasted amounts from closed or pending sales could differ from the final amounts included in the company's applicable quarterly and annual financial statements when issued. Furthermore, such forecasted amounts do not represent guidance on, or forecasts of, the results of the company's entire consolidated operations, which are reported on a quarterly basis. Information on Arlington's hotels being brokered for sale can be obtained by calling Steve Miller, senior vice-president of real estate and business development, at 847-228-5401, extension 312, or e-mailing stevem@arlingtonhospitality.com. DEVELOPMENT PROGRAM UPDATE Arlington opened a new, 79-room hotel in Weirton, W. Va., during the second quarter for a joint venture in which the company holds a minority ownership interest position. The company - more - Arlington Hospitality Page 9 has secured a land parcel in Lansing, Mich. and is finalizing its arrangements with a joint venture to build an 82-room AmeriHost Inn on this site. The company expects to break ground on this site within 60 days, pending final permitting approvals. The company also has four additional sites in California and Virginia under agreement, pending completion of due diligence and the arrangement of both debt and equity financing. The company anticipates that all of the future development projects will feature the new 80- to 90-room hotel prototype design, which was created for larger markets. However, there can be no assurances that any of these transactions will be completed as contemplated. INDUSTRY GOVERNANCE RECOGNITION During the quarter, Arlington was honored as having the lodging industry's top performing board of directors for the year 2003 by HVS Executive Search, a division of HVS International. The award is presented each year to the board of directors that is most effective in leading a public lodging company. The ranking is based on a corporate governance model that compares board makeup, independence, committee structure, conflicts of interest and a commitment to pay-for-performance. "Our board has a firm commitment to good governance and will continue to have open communications with our shareholders and the investment community," commented Kenneth M. Fell, chairman of the board of directors. ABOUT ARLINGTON HOSPITALITY Arlington Hospitality, Inc. is a hotel development and management company that builds, operates and sells mid-market hotels. Arlington is the nation's largest owner and franchisee of AmeriHost Inn hotels, a 105-property, mid-market, limited-service hotel brand owned and - more - Arlington Hospitality Page 10 presently franchised in 20 states and Canada by Cendant Corporation (NYSE: CD). Currently, Arlington Hospitality, Inc. owns or manages 57 properties in 15 states, including 52 AmeriHost Inn hotels, for a total of 4,157 rooms, with additional AmeriHost Inn & Suites hotels under development. This press release may contain forward-looking statements. Forward-looking statements are statements that are not historical, including statements regarding management's intentions, beliefs, expectations, representations, plans or predictions of the future, and are typically identified by words such as "believe," "expect," "anticipate," "intend," "estimate," "may," "will," "should," and "could." There are numerous risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a discussion of these factors, see the Company's report on Form 10-K for the year ended December 31, 2003 and report on Form 10-Q for the three months ended March 31, 2004 under the section headed "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" as they may be updated in the company's subsequent SEC filings. - 30 - ARLINGTON HOSPITALITY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ================================================================================
June 30, December 31, 2004 2003 (Unaudited) ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 3,998,318 $ 3,623,550 Accounts receivable, less an allowance of $76,500 at June 30, 2004 and December 31, 2003 (including approximately $371,000 and $382,000 from related parties) 2,011,205 1,289,492 Notes receivable, current portion 116,042 146,000 Prepaid expenses and other current assets 568,755 1,142,032 Refundable income taxes 226,792 975,316 Costs and estimated earnings in excess of billings on uncompleted contracts 327,349 1,232,481 Assets held for sale - other brands 11,442,589 10,603,160 Assets held for sale - AmeriHost Inn hotels 21,651,810 28,162,442 ----------- ----------- Total current assets 40,342,860 47,174,473 ----------- ----------- Investments in and advances to unconsolidated hotel joint ventures 2,953,165 3,309,344 ----------- ----------- Property and equipment: Land 5,972,227 5,735,489 Buildings 28,694,754 31,174,776 Furniture, fixtures and equipment 10,516,445 13,176,842 Construction in progress 320,701 312,925 Leasehold improvements 115,239 2,396,689 ----------- ----------- 45,619,366 52,796,721 Less accumulated depreciation and amortization 11,602,986 13,242,842 ----------- ----------- 34,016,380 39,553,879 ----------- ----------- Notes receivable, less current portion 800,000 867,500 Deferred income taxes 7,085,644 6,071,000 Other assets, net of accumulated amortization of approximately $580,000 and $633,000 2,263,670 2,737,217 ----------- ----------- 10,149,314 9,675,717 ----------- ----------- $87,461,719 $99,713,413 =========== ===========
ARLINGTON HOSPITALITY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ================================================================================
June 30, December 31, 2004 2003 (Unaudited) ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,336,694 $ 2,768,402 Bank line-of-credit 3,250,000 3,850,000 Accrued payroll and related expenses 64,743 393,815 Accrued real estate and other taxes 2,161,198 1,980,015 Other accrued expenses and current liabilities 915,088 1,407,511 Current portion of long-term debt 1,089,350 1,195,050 Liabilities of assets held for sale - other brands 9,430,953 9,585,492 Liabilities of assets held for sale - AmeriHost Inns 23,040,649 28,540,561 ------------ ------------ Total current liabilities 42,288,675 49,720,846 ------------ ------------ Long-term debt, net of current portion 23,183,922 26,513,398 ------------ ------------ Deferred income 11,313,699 11,361,927 ------------ ------------ Commitments and contingencies (Note 13) Minority interests 237,320 329,819 ------------ ------------ Shareholders' equity: Preferred stock, no par value; authorized 100,000 shares; none issued - - Common stock, $.005 par value; authorized at 25,000,000 shares; issued and outstanding 5,038,174 shares at June 30, 2004, and 4,994,956 shares at December 31, 2003 25,191 24,975 Additional paid-in capital 13,391,327 13,220,302 Retained earnings (deficit) (2,541,540) (1,020,979) ------------ ------------ 10,874,978 12,224,298 Less: Stock subscriptions receivable (436,875) (436,875) ------------ ------------ Total shareholders' equity 10,438,103 11,787,423 ------------ ------------ $ 87,461,719 $ 99,713,413 ============ ============
ARLINGTON HOSPITALITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ================================================================================
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Revenue: AmeriHost Inn hotel operations $ 9,592,000 $ 11,044,545 $ 17,411,524 $ 19,567,054 Development and construction 390,031 617,283 1,590,686 2,097,261 Hotel sales 7,437,957 2,590,457 14,277,205 9,033,747 Management services 102,204 117,301 202,826 228,455 Employee leasing 560,884 541,275 1,123,159 1,058,682 Incentive and royalty sharing 317,006 223,994 600,414 429,649 Office building rental 175,387 178,995 349,294 356,223 ------------ ------------ ------------ ------------ 18,575,469 15,313,850 35,555,108 32,771,071 ------------ ------------ ------------ ------------ Operating costs and expenses: AmeriHost Inn hotel operations 7,101,402 7,761,903 14,130,129 15,485,921 Development and construction 641,592 544,350 2,121,984 2,136,477 Hotel sales 6,080,327 2,093,614 11,623,928 7,334,431 Management services 25,330 74,826 115,712 139,759 Employee leasing 524,785 524,792 1,069,915 1,026,714 Office building rental 34,849 46,865 75,960 96,417 ------------ ------------ ------------ ------------ 14,408,285 11,046,350 29,137,628 26,219,719 ------------ ------------ ------------ ------------ 4,167,184 4,267,500 6,417,480 6,551,352 Depreciation and amortization 514,325 956,387 1,066,656 1,914,710 Leasehold rents - hotels 1,196,545 1,219,127 2,393,090 2,438,254 Corporate general and administrative 712,582 515,006 1,579,809 962,837 Impairment provision 125,305 4,564,512 445,439 4,664,512 ------------ ------------ ------------ ------------ Operating income (loss) 1,618,427 (2,987,532) 932,486 (3,428,961) Other income (expense): Interest expense (841,381) (1,144,709) (1,816,255) (2,240,103) Interest income 104,028 120,922 229,966 240,881 Other income (expense) (94,470) 43,353 (74,335) 42,021 Equity in net income and (losses) of unconsolidated joint ventures 17,026 (199,815) 10,861 (274,262) ------------ ------------ ------------ ------------ Income (loss) before minority interests and income taxes 803,630 (4,167,781) (717,277) (5,660,424) Minority interests in operations of consolidated joint ventures (54,198) (53,329) (88,010) (81,692) ------------ ------------ ------------ ------------ Income (loss) before income taxes 749,432 (4,221,110) (805,287) (5,742,116) Income tax (expense) benefit (299,302) 1,689,000 322,677 2,297,000 ------------ ------------ ------------ ------------ Net income (loss) from continuing operations 450,130 (2,532,110) (482,610) (3,445,116) Discontinued operations, net of tax (395,285) (825,676) (1,037,951) (1,395,190) ------------ ------------ ------------ ------------ Net income (loss) $ 54,845 $ (3,357,786) $ (1,520,561) $ (4,840,306) ============ ============ ============ ============ Net income (loss) from continuing operations per share: Basic $ 0.09 $ (0.51) $ (0.10) $ (0.69) Diluted $ 0.09 $ (0.51) $ (0.10) $ (0.69) Net income (loss) per share: Basic $ 0.01 $ (0.67) $ (0.30) $ (0.97) Diluted $ 0.01 $ (0.67) $ (0.30) $ (0.97)