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Fourth Quarter 2004 Results
For the 2004 fourth quarter, revenues decreased approximately $1.9 million to $13.0 million, compared to the fourth quarter of 2003. The decrease was due primarily to fewer hotels in the company's portfolio and the timing of hotel sales. The decrease was partially offset by an increase in incentive and royalty-sharing fees, and an increase in comparable hotel operating revenues.
Net loss for the 2004 fourth quarter was approximately $3.6 million, or ($0.72) per share, compared to net loss of approximately $1.9 million, or ($0.37) per share, in the 2003 fourth quarter. These results include non-cash hotel impairment charges of $411,000 pre-tax ($287,000 after tax) in the 2004 fourth quarter, compared to $262,000 pre-tax ($177,000 after tax) in the 2003 fourth quarter.
The increase in operating loss for the fourth quarter was due primarily to the decrease in hotel development activity, the decrease in the number of hotels in the company's portfolio, and the operating income generated by the sale of the specific hotels sold in each quarter. The company sold two hotels during the fourth quarter of 2003, generating operating income of $207,000, compared to the sale of two hotels during the fourth quarter of 2004, generating an operating loss of $(174,000).
The results also include net losses from discontinued operations of ($1.0 million) in the 2004 fourth quarter, compared to ($321,000) in the fourth quarter of 2003. Discontinued operations relates to the net results of operations of all the company's non-AmeriHost Inn hotels, which the company has determined no longer fit its strategic plan and have been sold or are being marketed for sale. The discontinued operations include non-cash impairment and accelerated depreciation charges related to these hotels of approximately $819,000 and $10,000, net of tax, during the fourth quarter of 2004 and 2003, respectively. The accelerated depreciation charge relates to the early termination of a hotel lease, pursuant to a 2004 lease modification that provided for the sale of the hotel by the landlord in February 2005.
Full Year 2004 Results
Revenues for the year 2004 declined 10.5 percent to $63.4 million, compared to $70.9 million in the prior year. The decrease was due primarily to lower revenues as a result of fewer hotels in the company's portfolio and lower revenues from the sale of Consolidated AmeriHost Inn hotels, partially offset by an increase in incentive and royalty-sharing fees, which rose 39.2 percent in 2004 to $1.4 million, compared to $1.0 million in 2003. The increase in incentive and royalty-sharing fees was a result of the amortization of a greater number of development incentive fees received from Cendant Corporation (NYSE: CD) in connection with the sale of AmeriHost hotels and the growing stream of royalty-sharing fees received from Cendant as the number of non-Arlington-owned AmeriHost Inn franchisees expands.
Substantial professional fees, approximately $889,000, reported as corporate general and administrative expenses, were incurred in 2004 as a result of extensive legal and financial advisory services involving several strategic alternatives, particularly relating to the company's previously announced PMC lease modification consummated in October 2004. The vast majority of these fees are considered to be nonrecurring.
Net loss for 2004 was ($5.6 million), compared to a net loss of ($5.6 million) for 2003. These results include non-cash hotel impairment provisions of approximately $1.3 million pre-tax ($880,000 after tax) and $5.1 million pre-tax ($3.2 million after tax) in 2004 and 2003, respectively.
The results also include a loss from discontinued operations of approximately ($2.2 million) in 2004, compared to ($1.9 million) in 2003, net of tax, related to the non-AmeriHost hotels classified as discontinued operations. Discontinued operations includes approximately $3.0 million pre-tax ($1.8 million after tax), and $910,000, pre-tax ($546,000 after tax) in 2004 and 2003, respectively, of additional impairment charges and accelerated depreciation related to the terminated non-AmeriHost Inn hotel lease, as discussed above.
Net loss, and its components, are summarized below for the 12 months ended December 31, 2004, 2003, and 2002:
(In thousands)
2004 2003 2002
-------- -------- --------
Net loss from continuing
operations, before impairment $ (2,574) $ (501) $ (7)
Impairment provision, net of tax (880) (3,209) (369)
-------- -------- --------
Net loss from continuing
operations (3,454) (3,710) (376)
Discontinued operations,
net of tax (2,183) (1,909) (1,334)
-------- -------- --------
Net loss $ (5,637) $ (5,619) $ (1,710)
======== ======== ========
Net loss per share - Diluted:
From continuing operations $ (0.69) $ (0.74) $ (0.08)
From discontinued operations (0.43) (0.38) $ (0.26)
-------- -------- --------
$ (1.12) $ (1.12) $ (0.34)
======== ======== ========
Sale of Non-AmeriHost Hotels Nearly Complete
The company continued to make significant progress in reducing losses from discontinued operations throughout the year. Exclusive of impairment charges, incremental depreciation, and a franchise termination fee accrual, the company's losses from discontinued operations decreased significantly from a pretax loss of approximately ($2.3 million) in 2003, to a pretax loss of approximately ($546,000) in 2004. "We continued to dispose of our non-strategic, non-AmeriHost Inns, resulting in a significant reduction of the losses associated with those properties," said James B. Dale, chief financial officer. "We sold two wholly owned non-AmeriHost Inn hotels and our joint-venture ownership interest in one additional non-AmeriHost Inn hotel during 2004. In the first quarter of 2005, a joint venture in which we have a majority ownership interest sold its non-AmeriHost Inn hotel, and the lease for another non-AmeriHost Inn hotel was terminated. We have only one remaining non-AmeriHost Inn property and it is currently under contract for sale."
AmeriHost Inn Operations
Same-room revenue per available room (RevPAR) in the 2004 fourth quarter, for the company's 47 AmeriHost Inn hotels improved 0.2 percent to $29.71, compared to the same period in 2003. Same-room RevPAR for the full year 2004 for the company's AmeriHost Inn hotels improved 1.8 percent to $32.56, compared to 2003. According to Smith Travel Research, the comparable mid-scale hotel without food and beverage segment in the East North Central region of the United States (defined by Smith Travel Research as Illinois, Indiana, Michigan, Ohio and Wisconsin) rose 3.9 percent in 2004. The company's AmeriHost Inn same room RevPAR increase was lower than the results reported by Smith Travel Research for the East North Central region of the U.S. due primarily to the company's hotel locations in smaller, rural markets, which are lagging behind the hotels located in and around urban and secondary markets.
During 2004, the company continued to improve its RevPAR market share index. The company began the year with a 97.3 RevPAR index, which improved to an index of 101.0 as of December 31, 2004, according to Smith Travel Research.
Three Twelve
Months Months
Ended Ended
Dec. 31 Dec. 31
------------ -----------
Occupancy - 2004 51.5% 56.4%
Occupancy - 2003 52.1% 56.0%
Increase (decrease) (1.2)% 0.7%
Average Daily Rate - 2004 $57.70 $57.72
Average Daily Rate - 2003 $56.86 $57.11
Increase (decrease) 1.5% 1.1%
RevPAR - 2004 $29.71 $32.56
RevPAR - 2003 $29.65 $32.00
Increase (decrease) 0.2% 1.8%
"We made significant progress in 2004 towards achieving the company's transition plan," said Kenneth M. Fell, Arlington's chairman of the board. "A critical achievement was the restructuring of our lease agreement with PMC, which resulted in a significant reduction in our rent payments and allows us to accelerate our exit strategy for those properties as AmeriHost Inns. The prolonged negotiation with PMC contributed much higher than expected legal and financial advisory fees and delayed our new hotel development program, which remains a top priority for 2005."
Fell continued, "We believe there is significant new hotel development opportunity as the industry is entering the earliest stage of recovery. In order to attain our goal of accelerating our hotel development program, we will need to obtain additional capital. We are in discussions and negotiations with potential partners and lenders to obtain such capital, however we have not received any firm commitments."
2004 and 2005 YTD Significant Events
The company made significant progress on a number of fronts in the past 15 months, including:
-- Real Estate Sales - During the 2004 fourth quarter, the company sold one wholly owned AmeriHost Inn hotel. In addition, the company sold its ownership interest in one non-AmeriHost Inn hotel held in a joint venture, and facilitated the sale of an AmeriHost Inn leased from PMC Commercial Trust.
In 2004, Arlington Hospitality divested 15 hotels plus one vacant land parcel. The hotel sales include 11 wholly owned hotels, two hotels in which Arlington was a joint-venture partner, and two hotels leased from PMC. During 2004, Arlington paid off approximately $18.5 million of mortgage debt in connection with the sale of hotels. Total hotel mortgage debt was approximately $42.2 million at year-end 2004, compared to $60.1 million on December 31, 2003.
Year to date in 2005, the company has divested five hotels including one wholly owned hotel, three hotels held by joint ventures, and one hotel which was leased from PMC. In addition, a vacant land parcel, next to the company's headquarters, was sold. The company currently has nine hotels under contract for sale, including three leased hotels, which are expected to be consummated within the next six months. Since the company announced its plans to sell 25 to 30 hotels in July 2003, the company has sold 21 hotels, exclusive of the sale of the PMC hotels and sale of the company's ownership interest in a non-AmeriHost Inn joint venture.
-- Development--The company is on schedule to open within the next 60 days an 82-room AmeriHost Inn & Suites in Lansing, Mich. for a joint venture in which the company is an equity partner. In addition, the company expects to begin construction on a new 87-room AmeriHost Inn & Suites at the Columbus, Ohio airport. This development, for the first time, will utilize the company's new and larger prototype design (80 - 100 rooms). The funding for this project has been fully committed, and the company expects to break ground on the project in the near future, as weather permits.
The company has five additional development sites in California and North Carolina under purchase agreement, pending completion of due diligence and the arrangement of both debt and equity financing. These developments expect to utilize AmeriHost's new, larger prototype design. Arlington is in the process of identifying and negotiating with a number of joint venture partners and mortgage lenders to provide the funding for the company's development plan.
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