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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 2000
------------------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-15291
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
-------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3312434
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 S. ARLINGTON HEIGHTS ROAD, SUITE 400, ARLINGTON HEIGHTS, ILLINOIS 60005
---------------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 228-5400
--------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
As of November 1, 2000, 4,979,244 shares of the Registrant's Common Stock were
outstanding.
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AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
INDEX
PART I: Financial Information Page
----------------------------- ----
Item 1 - Financial Statements -
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 4
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18
PART II: Other Information
--------------------------
Item 4 - Submission of Matters to a Vote of Securities Holders 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 19
Part I: Financial Information
Item 1: Financial Statements
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
======================================================================================================================
September 30, December 31,
2000 1999
-------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,773,806 $ 3,766,323
Accounts receivable (including $812,898 and
$213,911 from related parties) 3,590,792 2,480,039
Interest receivable 298,436 471,576
Notes receivable, current portion 518,485 518,485
Prepaid expenses and other current assets 907,461 971,836
Refundable income taxes - 56,876
Costs and estimated earnings in excess of billings on
uncompleted contracts with related parties 1,034,626 834,820
--------------- --------------
Total current assets 9,123,606 9,099,955
--------------- --------------
Investments in and advances to unconsolidated
hotel joint ventures 6,838,524 7,332,806
--------------- --------------
Property and equipment:
Land 10,142,466 8,786,189
Buildings 57,347,202 56,670,991
Furniture, fixtures and equipment 20,532,191 17,758,161
Construction in progress 226,030 1,062,888
Leasehold improvements 3,312,423 1,990,822
Assets held for sale 4,654,459 7,967,318
--------------- --------------
96,214,771 94,236,369
Less accumulated depreciation and amortization 18,039,258 15,466,013
--------------- --------------
78,175,513 78,770,356
--------------- --------------
Notes receivable, less current portion 714,188 692,662
Deferred income taxes 3,593,000 4,327,000
Other assets, net of accumulated amortization of
$831,470 and $755,547 2,645,817 2,885,388
--------------- --------------
6,953,005 7,905,050
$ 101,090,648 $ 103,108,167
=============== ==============
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
=====================================================================================================================
September 30, December 31,
2000 1999
--------------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,816,283 $ 2,623,390
Bank line-of-credit - 7,560,214
Accrued payroll and related expenses 850,721 777,725
Accrued real estate and other taxes 2,363,822 2,260,048
Other accrued expenses and current liabilities 640,634 1,127,504
Current portion of long-term debt 1,435,120 1,567,643
Income taxes payable 2,502,297 -
--------------- --------------
Total current liabilities 11,608,877 15,916,524
--------------- --------------
Long-term debt, net of current portion 57,425,947 58,781,609
--------------- --------------
Deferred income 12,665,665 14,001,231
--------------- --------------
Minority interests 238,667 228,235
--------------- --------------
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 4,979,244 shares at September 30, 2000
and 4,968,673 shares at December 31, 1999 24,896 24,843
Additional paid-in capital 13,077,324 13,050,069
Retained earnings 6,486,147 1,542,531
19,588,367 14,617,443
Less:
Stock subscriptions receivable (436,875) (436,875)
19,151,492 14,180,568
Commitments and contingencies
$ 101,090,648 $ 103,108,167
=============== ==============
See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
====================================================================================================================
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- --------------------------------------
2000 1999 2000 1999
-------------- -------------- ----------------- -------------
Revenue:
Hotel operations:
AmeriHost Inn hotels $14,533,022 $14,681,959 $38,291,146 $37,879,605
Other hotels 3,769,565 3,912,792 9,523,865 10,011,222
Development and construction 3,610,293 5,287,436 7,697,058 5,847,468
Management services 320,996 287,128 934,234 942,202
Employee leasing 1,434,228 1,532,218 4,506,679 4,749,234
Franchising 199,422 92,066 586,276 171,066
-------------- -------------- --------------- ---------------
23,867,526 25,793,599 61,539,258 59,600,797
-------------- -------------- --------------- ---------------
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels 9,090,650 9,175,390 26,117,093 25,924,588
Other hotels 2,630,603 2,851,594 7,462,832 7,931,951
Development and construction 3,591,327 4,493,261 7,365,708 5,064,816
Management services 208,447 206,080 616,705 717,255
Employee leasing 1,423,474 1,501,205 4,451,061 4,635,138
Franchising 82,859 295,420 480,854 488,036
-------------- -------------- --------------- ---------------
17,027,360 18,522,950 46,494,253 44,761,784
6,840,166 7,270,649 15,045,005 14,839,013
Depreciation and amortization 1,177,305 1,115,039 3,303,976 3,658,440
Leasehold rents - hotels 1,644,293 1,840,290 5,059,334 5,552,409
Corporate general and administrative 484,428 404,259 1,287,597 1,181,454
-------------- -------------- --------------- ----------------
Operating income 3,534,140 3,911,061 5,394,098 4,446,710
Other income (expense):
Interest expense (1,410,867) (1,630,309) (4,353,453) (4,801,889)
Interest income 153,666 167,711 587,406 783,704
Other income 160,173 36,046 272,130 542,013
Gain on sale of assets 5,506,883 283,187 6,518,719 283,187
Equity in net income and losses
of affiliates (54,410) (45,735) (42,799) (6,019)
-------------- -------------- --------------- ----------------
Income before minority
interests and income taxes 7,889,585 2,721,961 8,376,101 1,247,706
Minority interests in (income) loss of
consolidated subsidiaries and partnerships (88,667) (152,142) (90,485) (242,169)
-------------- -------------- --------------- ----------------
Income before income taxes 7,800,918 2,569,819 8,285,616 1,005,537
Income tax expense 3,159,000 1,028,000 3,342,000 431,000
-------------- -------------- --------------- ----------------
Net income $ 4,641,918 $ 1,541,819 $ 4,943,616 $ 574,537
============== ============== =============== ===============
Net income per share - Basic $ 0.93 $ 0.30 $ 0.99 $ 0.10
Net income per share - Diluted $ 0.87 $ 0.27 $ 0.92 $ 0.08
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
==================================================================================================================
2000 1999
------------------ -----------------
Cash flows from operating activities:
Cash received from customers $ 60,705,916 $ 64,800,453
Cash paid to suppliers and employees (57,539,209) (61,027,151)
Interest received 760,546 705,234
Interest paid (4,447,662) (4,824,844)
Income taxes paid (48,827) (192,973)
--------------- ---------------
Net cash used in operating activities (569,236) (539,281)
--------------- ---------------
Cash flows from investing activities:
Distributions, and collections on advances,
from affiliates 2,559,666 823,723
Purchase of property and equipment (4,311,623) (940,969)
Purchase of investments in, and advances
to, minority owned affiliates (2,122,000) (1,517,500)
Acquisitions of partnership interests,
net of cash acquired - (260,648)
Collections on notes receivable 78,474 133,183
Proceeds from sale of assets 12,473,537 15,445,757
--------------- ---------------
Net cash provided by investing activities 8,678,054 13,734,935
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,540,817 7,203,482
Principal payments on long-term debt (6,029,193) (17,068,698)
Net (repayments of ) proceeds from line of credit (7,560,214) 2,726,224
Decrease in minority interest (80,053) (100,546)
Common stock repurchases - (3,941,835)
Other 27,308 -
--------------- ---------------
Net cash used in financing activities (9,101,335) (11,181,373)
--------------- ---------------
Net (decrease) increase in cash (992,517) 1,962,892
Cash and cash equivalents, beginning of year 3,766,323 4,493,834
--------------- ---------------
Cash and cash equivalents, end of period $ 2,773,806 $ 6,456,726
=============== ===============
(continued)
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
==================================================================================================================
2000 1999
------------------- ------------------
Reconciliation of net income to net
cash used in operating activities:
Net income $ 4,943,616 $ 574,537
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 3,303,976 3,658,440
Equity in net (income) loss of affiliates and
amortization of deferred income 42,799 1,795
Minority interests in net income of subsidiaries 90,485 242,169
Amortization of deferred interest and loan discount - 34,045
Amortization of deferred gain (1,120,520) (1,081,169)
Deferred income taxes 734,000 (513,000)
Gain on sale of investments, property and equipment (6,518,719) (283,187)
Changes in assets and liabilities, net of effects
of acquisition:
(Increase) decrease in accounts receivable (1,110,753) 85,117
Decrease (increase) in prepaid expenses and
other current assets 237,513 (85,056)
Increase in reserve on note receivable - (75,000)
Decrease in refundable income taxes 2,559,173 751,027
(Increase) decrease in costs and estimated earnings
in excess of billings (199,806) 256,828
Decrease (increase) in other assets 39,617 (298,302)
Increase in assets held for sale (4,654,459) (934,003)
Increase (decrease) in accounts payable 1,192,893 (3,153,840)
(Decrease) increase in accrued payroll and other accrued
expenses and current liabilities (215,704) 220,168
Decrease in accrued interest (98,434) (57,000)
Increase in deferred income 205,087 117,150
Net cash used in operating activities $ (569,236) $ (539,281)
============== ===============
See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
================================================================================
1. BASIS OF PREPARATION:
---------------------
The financial statements included herein have been prepared by the Company,
without audit. In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments, which consist only of
recurring adjustments necessary to present fairly the financial position of
Amerihost Properties, Inc. (d/b/a Arlington Hospitality, Inc., see Note 10)
and subsidiaries as of September 30, 2000 and December 31, 1999 and the
results of its operations and cash flows for the three and nine months
ended September 30, 2000 and 1999. The results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year. It is suggested that the
accompanying financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1999 Annual
Report on Form 10-K. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the statements and reported amounts of revenue and expenses during the
reported periods. Actual results may differ from those estimates. Certain
reclassifications have been made to the 1999 financial statements in order
to conform with the 2000 presentation.
2. PRINCIPLES OF CONSOLIDATION:
----------------------------
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and partnerships in which the Company has a
majority ownership interest. Significant intercompany accounts and
transactions have been eliminated.
3. INCOME (LOSS) PER SHARE:
------------------------
The Company calculates earnings per share in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 128, "Earnings Per
Share" (FAS 128). Basic earnings per share ("EPS") is calculated by
dividing the income (loss) available to common shareholders by the
weighted average number of common shares outstanding for the period,
without consideration for common stock equivalents. The Company excluded
stock options which had an anti-dilution effect on the EPS computations.
Diluted EPS gives effect to all dilutive potential common shares
outstanding for the period. The following are the calculations of basic
and diluted earnings per share:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
------------------ ---------------- ---------------- ----------------
Net income $ 4,641,918 $ 1,541,819 $ 4,943,616 $ 574,537
Impact of convertible
partnership interests (31,171) (32,218) (80,396) (79,377)
-------------- --------------- --------------- --------------
Net income available to
common shareholders $ 4,610,747 $ 1,509,601 $ 4,863,220 $ 495,160
============== =============== =============== ==============
Weighted average common
shares outstanding 4,979,244 5,200,253 4,975,334 5,718,862
Dilutive effect of convertible
partnership interests and
common stock equivalents 316,432 307,426 298,698 292,408
Dilutive common shares outstanding 5,295,676 5,507,679 5,274,032 6,011,270
============== =============== =============== ==============
Net income per share - Basic $ 0.93 $ 0.30 $ 0.99 $ 0.10
============== ============== =============== ==============
Net income per share - Diluted $ 0.87 $ 0.27 $ 0.92 $ 0.08
============== ============== =============== ==============
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
================================================================================
4. INCOME TAXES:
-------------
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities determined for tax and financial reporting
purposes and relate principally to depreciation of property and equipment
and deferred income.
The income tax expense (benefit) for the nine months ended September 30,
2000 and 1999 was based on the Company's estimate of the effective tax rate
expected to be applicable for the full year. The Company expects the
effective tax rate to approximate the Federal and state statutory rates.
5. HOTEL LEASES:
-------------
The Company leases 33 hotels as of September 30, 2000 (including 29
sale/leaseback hotels - Note 8), the operations of which are included in
the Company's consolidated financial statements. All of these leases are
triple net and provide for monthly base rent payments ranging from $14,000
to $26,667. The Company leases or subleases two of these hotels from
partnerships in which the Company owns equity interests of up to 16.33%.
These two leases also provide for additional rent payments ranging from
approximately $37,000 to $74,000 per annum, plus percentage rents equal to
10% of room revenues in excess of stipulated amounts. The leases and
sub-leases expire through March 23, 2009, except for the two leases from
partnerships in which the Company owns an equity interest which expired
December 31, 1999. The Company is continuing to operate these hotels under
the same terms as provided in the original lease.
The four leases, other than the sale/leaseback hotels, provide for an
option to purchase the hotel at a specified price approximating market
value. At September 30, 2000, the aggregate purchase price for these
leased hotels was approximately $14,030,000.
6. LIMITED PARTNERSHIP GUARANTEED DISTRIBUTIONS:
---------------------------------------------
The Company is a general partner in three partnerships where the Company
has guaranteed minimum annual distributions to the limited partners in the
amount of 10% of their original capital contributions.
7. INVESTMENTS:
------------
Effective January 1, 1999, the Company acquired the remaining ownership
interest in one hotel joint venture. The following is a summary of this
acquisition:
Fair value of assets acquired $ 1,916,070
Cash acquired (260,648)
--------------
Liabilities assumed $ 1,655,422
==============
8. SALE/LEASEBACK OF HOTELS:
-------------------------
On June 30, 1998, the Company completed the sale of 26 AmeriHost Inn
hotels to a Real Estate Investment Trust ("REIT") for $62.2 million. The
company completed the sale of four additional AmeriHost Inn hotels to the
same REIT during March 1999 for $10.8 million. Upon the sales to the REIT,
the Company entered into agreements to lease back the hotels for an
initial term of ten years, with two five year renewal options. The lease
payments are fixed at 10% of the sale price for the first three years.
Thereafter, the lease payments are subject to a CPI increase with a 2%
annual maximum. The Company has deferred the gain on the sale of these
hotels pursuant to sale/leaseback accounting. This deferral will be
recognized over the initial term of the lease as a reduction of leasehold
rent expense.
On June 16, 2000, one hotel owned by the REIT was sold. Accordingly, the
lease with the REIT for this hotel was terminated. The remaining
unamortized gain of approximately $402,000 was recognized as a gain on
sale of property in the accompanying consolidated financial statements.
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
================================================================================
9. BUSINESS SEGMENTS:
------------------
The Company's business is primarily involved in five segments: (1) hotel
operations, consisting of the operations of all hotels in which the
Company has a 100% or majority ownership or leasehold interest, (2) hotel
development, consisting of development, construction and renovation
activities, as well as the sale of newly constructed hotels held for sale,
(3) hotel management, consisting of hotel management activities and (4)
employee leasing, consisting of the leasing of employees to various
hotels, and (5) AmeriHost Inn hotel franchising (see Note 10). Results of
operations of the Company's business segments are reported in the
consolidated statements of operations. The following represents revenues,
operating costs and expenses, operating income, identifiable assets,
capital expenditures and depreciation and amortization for the nine months
ended September 30, 2000 and 1999, for each business segment, which is the
information utilized by the Company's decision makers in managing the
business:
Revenues 2000 1999
-------- --------------- --------------
Hotel operations $ 47,815,011 $ 47,890,827
Hotel development 7,697,058 5,847,468
Hotel management 934,234 942,202
Employee leasing 4,506,679 4,749,234
Hotel franchising 586,276 171,066
-------------- -------------
$ 61,539,258 $ 59,600,797
============== =============
Operating costs and expenses
Hotel operations $ 33,579,925 $ 33,856,539
Hotel development 7,365,708 5,064,816
Hotel management 616,705 717,255
Employee leasing 4,451,061 4,635,138
Hotel franchising 480,854 488,036
-------------- -------------
$ 46,494,253 $ 44,761,784
============== =============
Operating income
Hotel operations $ 5,955,994 $ 4,945,547
Hotel development 317,080 760,491
Hotel management 282,009 188,843
Employee leasing 53,880 111,087
Hotel franchising 101,022 (317,357)
Corporate (1,315,887) (1,241,901)
---------------- --------------
$ 5,394,098 $ 4,446,710
============== =============
Identifiable assets
Hotel operations $ 93,273,734 $ 95,096,124
Hotel development 1,733,073 760,484
Hotel management 75,670 2,494,268
Employee leasing 887,649 195,530
Hotel franchising 57,001 143,042
Corporate 5,063,521 6,319,883
-------------- -------------
$ 101,090,648 $ 105,009,331
============== =============
Capital Expenditures
--------------------
Hotel operations $ 8,794,471 $ 6,048,973
Hotel development 7,942 2,091
Hotel management 29,403 62,534
Employee leasing 4,684 -
Hotel franchising 21,839 17,882
Corporate 107,743 17,040
-------------- -------------
$ 8,966,082 $ 6,148,520
============== =============
AMERIHOST PROPERTIES, INC. D/B/A ARLINGTON HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
================================================================================
9. BUSINESS SEGMENTS (CONTINUED):
------------------------------
Depreciation/Amortization 2000 1999
------------------------- --------------- --------------
Hotel operations $ 3,219,758 $ 3,536,333
Hotel development 14,270 22,161
Hotel management 35,520 36,103
Employee leasing 1,737 3,009
Hotel franchising 4,400 387
Corporate 28,291 60,447
-------------- -------------
$ 3,303,976 $ 3,658,440
============== =============
10. SALE OF AMERIHOST INN BRAND NAMES AND FRANCHISING RIGHTS:
---------------------------------------------------------
Effective September 30, 2000, the Company completed the sale of the
AmeriHost Inn and AmeriHost Inn & Suites brand names and franchising
rights to Cendant Corporation ("Cendant"). The Company simultaneously
entered into franchise agreements with Cendant for its AmeriHost Inn
hotels. The Company received an initial payment of approximately $5.5
million upon closing and recorded a gain from this payment, net of
closing costs of approximately $5.1 million. The agreement with Cendant
also provides for additional incentives to the Company as the AmeriHost
Inn and AmeriHost Inn & Suites brand names are expanded. In conjunction
with this transaction, the Company has begun doing business as
Arlington Hospitality, Inc. and intends to legally change the name of
the Company to this name, subject to shareholder approval at its next
regularly scheduled shareholder meeting.
11. NOTE RECEIVABLE:
----------------
In connection with the purchase of management contracts from
Diversified Innkeepers, Inc. in a prior year, the Company accepted
notes to provide financing to the shareholders of Diversified,
collateralized by 125,000 shares of the Company's common stock, a
limited partnership interest in a hotel, a second mortgage on another
hotel property, and personal guarantees by the shareholders. The notes
were due on September 30, 200, and the Company is currently negotiating
the extension of the due date for a portion of the note.
12. SUPPLEMENTAL CASH FLOW DATA:
----------------------------
The following represents the supplemental schedule of noncash and
financing activities for the period ended September 30, 2000:
Notes receivable from sale of hotel $ 100,000
=========
13. COMMITMENTS:
------------
On September 18, 2000, the Company entered into agreements to purchase
the remaining ownership interests from its partners in three existing
joint ventures for a total of $2,444,800. These acquisitions are to be
completed on or before December 31, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
The Company is engaged in the development of AmeriHost Inn hotels, and the
ownership, operation and management of AmeriHost Inn hotels and other mid-price
hotels. As of September 30, 2000, the Company had 70 AmeriHost Inn hotels open,
of which 59 were wholly-owned or leased, one was majority-owned, and 10 were
minority-owned. The Company intends to use the AmeriHost Inn brand when
expanding its hotel operations segment. As of September 30, 2000, two
minority-owned AmeriHost Inn hotels were under construction. Same room revenues
for all AmeriHost Inn hotels (including minority owned and franchised) increased
approximately 6.9% and 7.6% during the third quarter and first nine months of
2000, compared to the third quarter and first nine months of 1999, respectively,
attributable to an increase of $0.28 and $0.32 in average daily rate, and a 6.5%
and 6.8% increase in occupancy, respectively. These results relate to the
77AmeriHost Inn hotels that were operating for at least thirteen full months
during the three and nine months ended September 30, 2000.
Revenues from hotel operations consist of the revenues from all hotels in which
the Company has a 100% or majority ownership or leasehold interest
("Consolidated" hotels). Investments in other entities in which the Company has
a minority ownership interest are accounted for using the equity method.
Development and construction revenues consist of one-time fees for new
construction and renovation activities performed by the Company for
minority-owned hotels and unrelated third parties. The Company also receives
revenue from management and employee leasing services provided to minority-owned
hotels and unrelated third parties.
The Company recorded a net income of $4.6 million and $4.9 million for the third
quarter and first nine months of 2000, or $0.87 and $0.92 per diluted share,
compared to a net income of $1.5 million and $574,537 for the third quarter and
first nine months of 1999, or $0.27 and $0.08 per diluted share in 1999. Total
revenues decreased 7.5% to $23.9 million during the third quarter of 2000, from
$25.8 million during the third quarter of 1999. Total revenues increased 3.3% to
$61.5 million during the first nine months of 2000, from $59.6 million during
the first nine months of 1999. Revenues from Consolidated AmeriHost Inn hotels
during the third quarter and first nine months of 2000 were relatively flat, as
revenues from new hotels and the increase in same room revenues, was offset by
the sale of hotels. Combined revenues from the hotel management and employee
leasing segments decreased slightly during the third quarter and first nine
months of 2000 compared to the third quarter and first nine months of 1999, due
primarily to the sale of hotels under management contracts. Revenues from
Consolidated non-AmeriHost Inn hotels decreased 3.7% and 4.9% during the third
quarter and first nine months of 2000, compared to 1999, as a result of the sale
of two non-AmeriHost Inn hotels offset by the renovation of one Consolidated
non-AmeriHost Inn hotel and the increased occupancy therefrom. Revenues from the
hotel development segment decreased 31.7% and increased 31.6% during the three
and nine months ended September 30, 2000, compared to the same periods in 1999,
respectively, due to the timing of the construction projects and the sale of two
AmeriHost Inn hotels in the third quarter of 1999 which were included in the
hotel development segment.
After developing and operating the AmeriHost Inn brand name for approximately 10
years, the Company decided to begin franchising this brand in 1999. On September
30, 2000, after limited success in the franchising segment, the Company sold the
AmeriHost Inn and AmeriHost Inn & Suites brand names and franchising rights to
Cendant Corporation. Cendant is the world's largest franchising company with
hotel brand names such as Days Inn, Super 8 and Wingate. The Company received
$5.5 million upon closing and recorded a gain from this payment, net of closing
costs of approximately $5.1 million. The agreement with Cendant also provides
for additional incentives to the Company as the AmeriHost Inn brands are
expanded. In conjunction with this transaction, the Company has begun doing
business as Arlington Hospitality, Inc. and intends to legally adopt this name
pending shareholder approval at its next regularly scheduled shareholder
meeting.
The Company uses cash flow, defined as net income before extraordinary items
plus depreciation and amortization, as a supplemental performance measure, along
with net income, to report its operating results. Cash flow, as defined, should
not be considered as an alternative to operating income (as determined in
accordance with Generally Accepted Accounting Principles, "GAAP") as an
indicator of the Company's operating performance or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of liquidity.
Cash flow, as defined, increased 119% and 94.8% to $5.8 million and $8.2 million
during the third quarter and nine months ended September 30, 2000, respectively,
from $2.7 million and $4.2 million during the third quarter and nine months
ended September 30, 1999.
Amerihost had an ownership interest in 80 hotels at September 30, 2000 versus 85
hotels at September 30, 1999 (excluding hotels under construction). The
decreased ownership of AmeriHost Inn hotels for the Company's own account and
for minority-owned entities was due to the sale of AmeriHost Inn hotels and
non-AmeriHost Inn hotels to unrelated third parties. These figures include a net
decrease of three Consolidated hotels, from 70 at September 30, 1999 to 67 at
September 30, 2000.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues decreased 7.5% and increased 3.3% to $23.9 million and $61.5 million
during the three and nine months ended September 30, 2000, respectively, from
$25.8 million and $59.6 million during the three and nine months ended September
30, 1999. The fluctuation in revenue was primarily due to the timing of hotel
development revenues.
Hotel operations revenue decreased 1.6% and 0.2% to $18.3 million and $47.8
million during the three and nine months ended September 30, 2000 respectively,
from $18.6 million and $47.9 million during the three and nine months ended
September 30, 1999. Revenues from Consolidated AmeriHost Inn hotels decreased
1.0% and increased 1.1% to $14.5 million and $38.3 million during the three and
nine months ended September 30, 2000, respectively, from $14.7 million and $37.9
million during the three and nine months ended September 30, 1999. These changes
were attributable primarily to the addition of two Consolidated AmeriHost Inn
hotels which opened during the third quarter of 2000, and an increase in same
room revenues, offset by the sale of five Consolidated AmeriHost Inn hotels. The
change in Consolidated AmeriHost Inn hotel revenue was offset by a 3.7% and 4.9%
decrease in Consolidated non-AmeriHost Inn hotel revenue during the three and
six month periods, respectively. This decrease was primarily the result of the
sale of two Consolidated non-AmeriHost Inn hotels. The hotel operations segment
included the operations of 67 Consolidated hotels (including 60 AmeriHost Inn
hotels) comprising 4,748 rooms at September 30, 2000, compared to 70
Consolidated hotels (including 62 AmeriHost Inn hotels) comprising 4,922 rooms
at September 30, 1999. After considering the Company's ownership interest in the
majority-owned Consolidated hotels, this translates to 4,505 and 4,653
equivalent owned rooms as of September 30, 2000 and 1999, respectively, or a
decrease of 3.2%. Recently, the Company has experienced an increase in
competition in certain markets, primarily from newly constructed hotels. As a
result, there is increased downward pressure on occupancy levels and average
daily rates. The Company believes that as the number of AmeriHost Inn hotels
increases, the greater the benefits will be at all locations from marketplace
recognition and repeat business. In addition, the Company typically builds new
hotels in growing markets where it anticipates a certain level of additional
hotel development.
Hotel development revenue decreased 31.7% and increased 31.6% to $3.6 million
and $7.7 million during the three and nine months ended September 30, 2000,
respectively, from $5.3 million and $5.8 million during the three and nine
months ended September 30, 1999. The Company was constructing three hotels for
minority-owned entities during the third quarter of 2000, one of which opened in
September. The Company was not constructing any hotels for minority-owned
entities or unrelated third parties during the third quarter of 1999, however,
the Company sold two AmeriHost Inn hotels which had been open less than 12
months, whereby the sale price and cost basis were recognized as development
segment revenues and expenses. The Company also had several additional projects
in various stages of pre-construction development during both nine-month
periods.
Hotel management revenue increased 11.8% and decreased 0.9% to $320,996 and
$934,234 during the three and nine months ended September 30, 2000,
respectively, from $287,128 and $942,202 during the three and nine months ended
September 30, 1999. The number of hotels managed for third parties and
minority-owned entities decreased from 18 hotels, representing 1,696 rooms, at
September 30, 1999 to 16 hotels, representing 1,574 rooms, at September 30,
2000. The fluctuation in revenue is primarily due to a 7.2% reduction in rooms
under contract offset by increases in same room revenues of those hotels.
Employee leasing revenue decreased 6.4% and 5.1% to $1.4 million and $4.5
million during the three and nine months ended September 30, 2000, respectively,
from $1.5 million and $4.7 million during the three and nine months ended
September 30, 1999, due primarily to the reduction in hotels managed for
minority-owned entities and unrelated third parties as described above offset by
increases in payroll costs which is the basis for the employee leasing revenue.
Franchising revenue increased to $199,422 and $586,276 during the three and nine
months ended September 30, 2000, respectively, from $92,066 and $171,066 during
the three and nine months ended September 30, 1999. On September 30, 2000, the
Company sold the AmeriHost Inn franchising rights to Cendant Corporation. As a
result, the Company will no longer report revenue in the franchising segment.
Total operating costs and expenses decreased 8.1% and increased 3.9% to $17.0
million (71.3% of total revenues) and $46.5 million (75.6% of total revenues)
during the three and nine months ended September 30, 2000, respectively, from
$18.5 million (71.8% of total revenues) and $44.8 million (75.1% of total
revenues) during the three and nine months ended September 30, 1999 primarily
due to changes in operating costs and expenses from the development segment as
described below. Operating costs and expenses in the hotel operations segment
remained essentially flat as anticipated inflationary increases were offset by
the reduction in the number of Consolidated hotels. Hotel operations segment
operating costs and expenses as a percentage of segment revenue decreased to
64.0% during the three months ended September 30, 2000, from 64.7% during the
three months ended September 30, 1999, due primarily to increased operational
efficiencies. Hotel operations segment operating costs and expenses as a
percentage of segment revenue decreased to 70.2% during the nine months ended
September 30, 2000, from 70.7% during the nine months ended September 30, 1999.
Operating costs and expenses as a percentage of revenues for the Consolidated
AmeriHost Inn hotels changed only slightly during both the three- and nine-month
periods ended September 30, 2000.
Operating costs and expenses for the hotel development segment decreased 20.1%
to $3.6 million during the three months ended September 30, 2000, from $4.5
million during the three months ended September 30, 1999, consistent with the
31.7% decrease in hotel development revenues for the three months ended
September 30, 2000. Operating costs and expenses for the hotel development
segment increased 45.4% to $7.4 million during the nine months ended September
30, 2000, from $5.1 million during the nine months ended September 30, 1999,
consistent with the 31.6% increase in hotel development revenues for the nine
months ended September 30, 2000. Operating costs and expenses in the hotel
development segment as a percentage of segment revenue increased to 99.5% during
the three months ended September 30, 2000, from 85.0% during the three months
ended September 30, 1999. The third quarter of 1999 consisted primarily of the
sale of two AmeriHost Inn hotels which had been open less than 12 months
resulting in the recognition of hotel development costs equal to the Company's
basis in those assets. The third quarter of 2000 consisted of a greater amount
of construction activity, which resulted in higher operating costs in relation
to the revenue recognized. Operating costs and expenses in the hotel development
segment as a percentage of segment revenue increased to 95.7% during the nine
months ended September 30, 2000, from 86.6% during the nine months ended
September 30, 1999, as a result of the increased hotel development and
construction activity and the sale of the two AmeriHost Inn hotels in 1999 which
were open less than 12 months.
Hotel management segment operating costs and expenses increased 1.2% and
decreased 14.0% to $208,447 and $616,705 during the three and nine months ended
September 30, 2000, respectively, from $206,080 and $717,255 during the three
and nine months ended September 30, 1999. These fluctuations were primarily due
to the decrease in the number of hotels operated and managed for unrelated third
parties and minority-owned entities offset by increases in same room revenue.
Employee leasing operating costs and expenses decreased 5.2% and 4.0% to $1.4
million and $4.5 million during the three and nine months ended September 30,
2000, respectively, from $1.5 million and $4.6 million during the three and nine
months ended September 30, 1999, which is consistent with the 6.4% and 5.1%
decreases in segment revenue for the three and nine months ended September 30,
2000.
Franchising segment operating costs and expenses decreased 72.0% and 1.5% to
$82,859 and $480,854 during the three and nine months ended September 30, 2000,
respectively, from $295,420 and $488,036 during the three and nine months ended
September 30, 1999. On September 30, 2000, the Company sold the AmeriHost Inn
brand names and franchising rights to Cendant Corporation. As a result, the
Company will no longer report operating costs in the franchising segment.
Depreciation and amortization expense increased 5.6% and decreased 9.7% to $1.2
million and $3.3 million during the three and nine months ended September 30,
2000, respectively, from $1.1 million and $3.7 million during the three and nine
months ended September 30, 1999. These fluctuations were primarily attributable
to the sale of seven Consolidated hotels that closed in 1999 and the first nine
months of 2000, partially offset by the addition of two Consolidated hotels to
the hotel operations segment opened during the third quarter of 2000, and the
resulting depreciation and amortization therefrom.
Leasehold rents - hotels decreased 10.7% and 8.9% to $1.6 million and $5.1
million during the three and nine months ended September 30, 2000, respectively,
compared to $1.8 million and $5.6 million during the three and nine months ended
September 30, 1999. The decrease was primarily attributable to the termination
of two leased hotels as a result of the lessor selling these hotels during the
past fifteen months.
Corporate general and administrative expense increased 19.8% and 9.0% to
$484,428 and $1.3 million during the three and nine months ended September 30,
2000, respectively, from $404,259 and $1.2 million during the three and
nine months ended September 30, 1999, and can be attributed primarily to the
overall growth of the Company and the allocation of certain general and
administrative expenses.
The Company's operating income decreased 9.6% and increased 21.3% to $3.5
million and $5.4 million during the three and nine months ended September 30,
2000, respectively, from $3.9 million and $4.4 million during the three and nine
months ended September 30, 1999. The following discussion of operating income by
segment is exclusive of any corporate general and administrative expense.
Operating income from Consolidated AmeriHost Inn hotels increased 1.5% and 16.8%
to $3.2 million and $5.5 million during the three and nine months ended
September 30, 2000, respectively, from $3.2 million and $4.7 million during the
three and nine months ended September 30, 1999. These increases in operating
income were due to the increase in same room revenues as a significant number of
recently opened Consolidated AmeriHost Inn hotels were still operating in 1999
during their pre-stabilization period when revenues are typically lower, offset
by the sale of Consolidated AmeriHost Inn hotels during the past 12 months.
Operating income from the hotel development segment decreased to $14,210 during
the three months ended September 30, 2000, from $785,092 during the three months
ended September 30, 1999, and decreased to $317,080 during the first nine months
of 2000 from $760,491 during the first nine months of 1999. The fluctuations in
hotel development operating income were due to the sale of two AmeriHost Inn
hotels open less than 12 months during the third quarter 1999, the timing of
hotels developed and constructed for third parties and minority-owned entities
during the third quarter and first nine months of 2000, compared with the third
quarter and first nine months of 1999, and the overall increase in the number of
hotels developed and constructed for third parties and minority-owned entities
during 2000. The hotel management segment had operating income of $100,709 and
$282,009 during the three and nine months ended September 30, 2000, from
operating income of $67,025 and $188,844 during the three and nine months ended
September 30, 1999. This increase was due primarily to a reduction in general
and administrative costs for the management segment partially offset by fewer
hotels managed during the past twelve months for unrelated third parties and
minority-owned properties. Employee leasing operating income decreased to
$10,174 and $53,880 during the three and nine months ended September 30, 2000,
respectively, from $30,009 and $111,087 during the three and nine months ended
September 30, 1999, due primarily to the decrease in employee leasing agreements
with minority-owned entities and unrelated third parties.
Interest expense decreased 13.5% and 9.3% to $1.4 million and $4.4 million
during the three and nine months ended September 30, 2000, respectively, from
$1.6 million and $4.8 million during the three and nine months ended September
30, 1999. This decrease was primarily attributable to the aforementioned sales
of hotels whereby the Company does not incur any interest expense on the sold
hotels after the sale dates, partially offset by the mortgage financing of newly
constructed Consolidated hotels.
The Company's share of equity in income (loss) of affiliates was ($54,410)
during the three months ended September 30, 2000, compared to ($45,735) during
the three months ended September 30, 1999. The Company's share of equity in
income (loss) of affiliates was ($42,799) during the nine months ended September
30, 2000, compared to ($6,019) during the nine months ended September 30, 1999.
The fluctuation in equity of affiliates during the first nine months of 2000 was
primarily attributable to the sale of one minority-owned property in the second
quarter of 1999 at a significant gain. Distributions from affiliates were
$315,219 during the nine months ended September 30, 2000, compared to $246,754
during the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has four main sources of cash from operating activities: (i)
revenues from hotel operations; (ii) fees from development, construction and
renovation projects including the sale of hotel assets held for sale; (iii) fees
from management contracts; and (iv) fees from employee leasing services. Cash
from hotel operations is typically received at the time the guest checks out of
the hotel. Approximately 10% of the Company's hotel operations revenues is
generated through other businesses and contracts and is usually paid within 30
to 45 days from billing. Fees from development, construction and renovation
projects are typically received within 15 to 45 days from billing. Due to the
procedures in place for processing its construction draws, the Company typically
does not pay its contractors until the Company receives its draw from the equity
or lending source. Management fee revenues typically are received by the Company
within five working days from the end of each month. Cash from the Company's
employee leasing segment typically is received 24 to 48 hours prior to the pay
date.
During the first nine months of 2000, the Company used cash from operations of
$569,236, compared to cash used in operations of $539,281 during the first nine
months of 1999, or an increase in cash used in operations of $29,955. The
decrease in cash flow from operations during the first nine months of 2000, when
compared to 1999, can be attributed to the increased amount of newly constructed
assets held for sale partially offset by improved cash flow resulting from the
increasing stability of Consolidated hotels as a greater number began to emerge
from the pre-
stabilization period. The first nine months of 1999 had significantly less
revenue from the development and construction of hotels for minority-owned
entities.
The Company invests cash in three principal areas: (i) the purchase of property
and equipment through the construction and renovation of Consolidated hotels;
(ii) the purchase of equity interests in hotels; and (iii) the making of loans
to affiliated and non-affiliated hotels for the purpose of construction,
renovation and working capital. During the first nine months of 2000, the
Company received $8.7 million from investing activities compared to receiving
$13.7 million during the first nine months of 1999. During the first nine months
of 2000, the Company received $12.5 million from the sale of four hotels and the
AmeriHost brand names and franchising rights as previously described, used $4.3
million to purchase property and equipment for Consolidated AmeriHost Inn
hotels, and received $437,666 from distributions and collections from
affiliates, net of investments in and advances to affiliates. During the first
nine months of 1999, the Company received $15.4 million from the sale of hotels,
used $940,969 to purchase property and equipment for Consolidated AmeriHost Inn
hotels, used $693,777 for investments in and advances to affiliates, net of
distributions and collections, and used $260,648 for the acquisition of hotel
partnership interests, net of cash acquired. In addition, the Company has
entered into agreements to acquire the remaining ownership interests from its
partners in three existing joint ventures for a total of $2.4 million. These
acquisitions are to be completed on or before December 31, 2001.
Cash used in financing activities was $9.1 million during the first nine months
of 2000 compared to cash used by financing activities of $11.2 million during
the first nine months of 1999. In 2000, the primary factors were principal
repayments of $6.0 million, including the repayment of mortgages in connection
with the sale of hotels, offset by $4.5 million in proceeds from the mortgage
financing of Consolidated hotels, and net repayments of $7.6 on the Company's
operating line-of-credit. In 1999, the contributing factors were principal
repayments of $17.0 million on the mortgage financing of Consolidated hotels,
net of proceeds from the issuance of long-term debt, $7.2 million in net
proceeds from the Company's operating line-of-credit and common stock
repurchases of $1.2 million.
At September 30, 2000, the Company had repaid its operating line-of-credit. The
operating line-of-credit (i) has a limit of $8.5 million; (ii) is collateralized
by a security interest in certain of the Company's assets, including its
interest in various joint ventures; (iii) bears interest at an annual rate equal
to the lending bank's base rate plus 1/2% (with a minimum interest rate of
7.5%); and (iv) matures February 15, 2001.
The Company expects cash from operations to be sufficient to pay all operating
and interest expenses in 2000.
SEASONALITY
The lodging industry, in general, is seasonal by nature. The Company's hotel
revenues are generally greater in the second and third calendar quarters than in
the first and fourth quarters due to weather conditions in the markets in which
the Company's hotels are located, as well as general business and leisure travel
trends. This seasonality can be expected to continue to cause quarterly
fluctuations in the Company's revenues, and is expected to have a greater impact
as the number of Consolidated hotels increases. Quarterly earnings may also be
adversely affected by events beyond the Company's control, such as extreme
weather conditions, economic factors and other general factors affecting travel.
In addition, hotel construction is seasonal, depending upon the geographic
location of the construction projects. Construction activity in the Midwest may
be slower in the first and fourth calendar quarters due to weather conditions.
INFLATION
Management does not believe that inflation has had, or is expected to have, any
significant adverse impact on the Company's financial condition or results of
operations for the periods presented.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding the Company's hotels under construction and
the operation of AmeriHost Inn hotels are based on current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plan on
terms satisfactory to the Company; competitive factors, such as the introduction
of new hotels or renovation of existing hotels in the same markets; changes in
travel patterns which could affect demand for the Company's hotels; changes in
development and operating costs, including labor, construction, land, equipment,
and capital costs; general business and economic conditions; and other risk
factors described from time to time in the Company's reports filed with the
Securities and Exchange
Commission. The Company wishes to caution readers not to place undue reliance on
any such forward looking statements, which statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of
the date made.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt obligations. The Company has some cash
flow exposure on its long-term debt obligations to changes in market interest
rates. The Company primarily enters into long-term debt obligations in
connection with the development and financing of hotels. The Company maintains a
mix of fixed and floating debt to mitigate its exposure to interest rate
fluctuations. During the third quarter of 2000, the Company paid down its
operating line of credit to zero, thereby reducing its variable interest rate
risk.
The Company's management believes that fluctuations in interest rates in the
near term would not materially affect the Company's consolidated operating
results, financial position or cash flows as the Company has limited risks
related to interest rate fluctuations.
PART II: Other Information
Item 4. Submission of Matters to a Vote of Securities Holders:
- -------
There were no matters submitted to a vote of securities holders during the three
months ended September 30, 2000.
Item 6. Exhibits and Reports on Form 8-K:
- -------
(a) Exhibits:
Exhibit No.
-----------
10.10 Asset Purchase Agreement*
10.11 Royalty Sharing Agreement*
10.12 Development Agreement*
27.0 Financial Data Schedule
*CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT. PORTIONS FOR
WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE DENOTED BY [ECONOMIC TERMS
OMITTED]. MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
(b) Reports on Form 8-K:
The Company reported a change in accounting firms on a
Form 8-K dated October 10, 2000. There were no other
reports on Form 8-K filed during this period covered by
this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIHOST PROPERTIES, INC.
--------------------------
D/B/A ARLINGTON HOSPITALITY, INC.
---------------------------------
Registrant
Date: November 2, 2000
By: /s/ James B. Dale
--------------------------------
James B. Dale
Treasurer/Senior Vice President,
Finance
By: /s/ Michael E. Kirk
--------------------------------
Michael E. Kirk
Corporate Controller