Arlington Hospitality, Inc. (Nasdaq/SmallCap: HOST), a hotel development and management company, today announced financial and operating results for the first quarter ended March 31, 2005.
First Quarter 2005 Results
In the 2005 first quarter, revenues were $12.5 million, a decrease of $4.5 million from $17.0 million in the same period a year earlier. The lower revenues were due primarily to a $1.5 million decrease in hotel operating revenue, as the company had divested 13 consolidated AmeriHost Inn hotels over the last 15 months, and a $2.7 million decrease in aggregate sale prices of the particular consolidated AmeriHost Inn hotels sold during the first quarter of 2005, compared to the aggregate sale prices of those sold in the first quarter of 2004. The revenue decrease was partially offset by a 28.7 percent increase in incentive and royalty-sharing fees during the 2005 first quarter, to approximately $325,000. The improvement is due to the amortization of a larger number of development incentive fees received from Cendant Corporation (NYSE: CD) and an increase in royalty-sharing fees received from Cendant.
Net loss in the 2005 first quarter was approximately $(1.5) million, or ($0.30) per share, compared to net loss of approximately $(1.6) million, or ($0.31) per share, in the 2004 first quarter. The 2004 first quarter results include impairment charges of $320,000 pre-tax ($192,000 after tax). No impairment charges were recorded in the 2005 first quarter. Net loss from continuing operations was $(1.5) million, or ($0.31) per share, during the first quarter of 2005, compared to ($933,000), or ($0.18) per share, during the first quarter of 2004.
The decrease in operating loss to ($542,000) during the first quarter of 2005, from ($686,000) during the first quarter of 2004, was due primarily to the capital lease accounting treatment for 17 of the PMC leased hotels pursuant to a fourth quarter 2004 lease modification whereby the leasehold rent expense decreased, at the same time depreciation, interest and leasehold termination expense increased. In addition, there were no impairment charges in the first quarter of 2005 and corporate general and administrative expense decreased approximately $274,000, or 32 percent. These reductions in operating loss were partially offset by lower operating income realized from the sale of hotels in the first quarter of 2005, compared to 2004, the reduction in the number of consolidated hotels and increased due diligence and entitlement costs for new hotel development sites.
The results also include net income from discontinued operations of $36,000 in the 2005 first quarter, compared to a net loss of ($643,000) in the first quarter of 2004. Discontinued operations relates to the operations of all the company's consolidated non-AmeriHost Inn hotels. Discontinued operations for the 2005 first quarter include the results of three hotels, two of which were disposed of during the first quarter, compared to the results of five hotels in the same period a year earlier.
"With the pending sale of our last non-AmeriHost Inn hotel, expected to be consummated within the next three months, we will wrap up this important component of our formal hotel disposition program implemented nearly two years ago," said Kenneth M. Fell, Arlington's chairman of the board. "We continue to work towards the sale of certain AmeriHost Inn hotels and obtaining the necessary financing to achieve our development plans."
During the quarter, Arlington paid down $4.0 million in long-term mortgage debt, primarily in conjunction with the sale of two consolidated hotels in the 2005 first quarter. The company has reduced its debt by $42.6 million since it announced its Operation Sell program in the summer of 2003.
AmeriHost Inn Operations
Same-room revenue per available room (RevPAR) in the 2005 first quarter, for the company's 46 AmeriHost Inn hotels was basically flat compared to the 2004 first quarter, at $27.40.
Trailing
Three Months Twelve Months
Ended Ended
March 31 March 31
-------------------------------------
Occupancy - 2005 47.8% 56.6%
Occupancy - 2004 48.9% 56.3%
Increase (decrease) (2.2)% (0.5%)
Average Daily Rate - 2005 $ 57.35 $ 58.15
Average Daily Rate - 2004 $ 56.11 $ 57.53
Increase (decrease) 2.2% 1.1%
RevPAR - 2005 $ 27.40 $ 32.91
RevPAR - 2004 $ 27.46 $ 32.40
Increase (decrease) (0.2)% 1.6%
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 4.1 percent in the first quarter of 2005. "The negative variance in RevPAR growth between our AmeriHost Inn hotels and the results reported by Smith Travel Research is due primarily to the company's smaller hotels located in smaller, rural markets, which are lagging behind the hotels located in and around urban and secondary markets," Fell said. "Many of our hotels with RevPAR growth below the Smith Travel Research industry segment average are included in our hotel disposition plan."
Development
On May 5, 2005, the company opened a newly constructed hotel in Lansing, Mich. The new 82-room AmeriHost Inns & Suites hotel, in which Arlington is a joint-venture partner and manager, is approximately one-third larger than the average size of most of the hotels in the company's existing portfolio. The three-story building features an attractive two-story lobby, a meeting room, a breakfast room, guest laundry, and a large, indoor swimming pool, spa and fitness center.
The company also broke ground in May on an 87-room AmeriHost Inn and Suites at the Columbus, Ohio airport, in which it is a joint-venture partner. The hotel utilizes the company's first new "T" shaped design, which contains more public space and includes many of the same features as the Lansing, Mich. hotel, plus a business center, a sundries shop, and an expanded lobby and breakfast area with fireplace. This design is expected to be used frequently in the company's future development projects.
The company has five additional sites under purchase contracts in California and along the Eastern seaboard, pending arrangement of both debt and equity financing. The company is negotiating with a number of potential joint-venture partners and mortgage lenders to provide the funding for these projects.
Need for Further Restructuring of Leased Hotel Portfolio
The company has been in discussions with PMC Commercial Trust (AMEX: PCC) ("PMC"), the landlord for 18 AmeriHost Inn hotels Arlington currently operates, with the goal of further modifying the existing leases. The leases were modified in October 2004. The October modifications included partially reduced rent payments and a plan to terminate the leases over a four-year period upon the sale of the hotels, with a significant termination fee payable to PMC, and subject to substantial, above-market hotel value guarantees by Arlington in favor of PMC. However, through the first quarter of 2005, the 18 hotels continue to operate at a significant negative cash flow, even after the reduced lease payment.
Over the past five years, the cash flow from the leased properties has been insufficient to cover the lease payments to PMC, yet throughout this period Arlington continued to fund these significant operating deficiencies using other sources, primarily proceeds from the sale of owned hotels. Arlington's board of directors has decided that it is in the best interest of the company to no longer fund the lease payments at the present rate. As such, the company did not pay PMC the May 2005 lease payment, and as of May 13, 2005, upon expiration of the stated cure period, Arlington is in default of the lease agreements.
PMC is entitled to pursue all remedies under the leases, including terminating the leases, taking possession of the hotels, and seeking recovery against the company, as guarantor of the leases, for payments due under the leases. Arlington is hopeful that future discussions with PMC will lead to an amicable settlement of the lease defaults wherein the PMC leases will be amended to provide for restructured lease payments and the elimination of above-market hotel value guarantees. In the event an amicable settlement of the default cannot be reached, the company will consider all of its alternatives, as more fully described in the company's report on form 10-Q for the three months ended March 31, 2005 as filed with the Securities and Exchange Commission.
Hotel Sales
In the 2005 first quarter, Arlington completed the disposition of six properties as follows. The company sold one wholly owned AmeriHost Inn, one AmeriHost Inn held in an unconsolidated joint venture, one non-AmeriHost Inn held in a consolidated joint venture and one vacant land parcel. In addition, the lease for a non-AmeriHost Inn hotel was terminated pursuant to the sale of the hotel by the landlord, and the PMC lease was terminated for an AmeriHost Inn hotel upon its sale pursuant to the October 2004 PMC lease modification.
The company currently has eight properties under contract for sale, including two PMC leased hotels and the company's last remaining non-AmeriHost Inn hotel.
President and Chief Executive Officer
The company continues to review candidates for its president and CEO position, which became vacant December 31, 2004. Stephen Miller, the company's senior development officer, currently serves as interim president and chief executive officer.
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 presently franchised in 20 states and Canada by Cendant Corporation (NYSE: CD). Currently, Arlington Hospitality, Inc. owns or manages 45 properties in 12 states, including 44 AmeriHost Inn hotels, for a total of 3,098 rooms, with one additional AmeriHost Inn & Suites hotel under construction.
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