EXHIBIT 99.1
[ARLINGTON HOSPITALITY INC LOGO]
[ARLINGTON HOSPITALITY 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 LEASE MODIFICATION ON 20 AMERIHOST INN
HOTELS
ARLINGTON HEIGHTS, Ill., October 7, 2004--Arlington Hospitality,
Inc. (Nasdaq/NM: HOST), a hotel development and management company, today
announced the execution of a lease modification with PMC Commercial Trust
("PMC") (AMEX: PCC), the owner and landlord of 20 AmeriHost Inn hotels operated
by Arlington. The lease modification provides for reduced lease payments and an
accelerated exit strategy for these smaller hotels located in tertiary markets,
consistent with the company's strategic business plan to divest many of its
existing hotels and increase focus on developing larger hotels in secondary
markets. The modification is effective as of October 1, 2004, and provides for:
(i) an immediate 19 percent reduction, or approximately $1.0
million on an annual basis, in the lease payments for the 20 hotels, from a pay
rate of 10.51 percent (escalating with inflation) of the original hotel assigned
values to a fixed rate of 8.5 percent of the assigned values; and
(ii) the early termination of the leases upon the anticipated
sale of all 20 leased hotels as AmeriHost Inns to third parties over the next
four years, compared to the original (including PMC's extension option) 2013 and
2014 lease termination dates.
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These two modifications are anticipated to reduce the former
aggregate lease payment obligation through 2014 of approximately $47.2 million
to an estimated aggregate new obligation of $10.0 to $12.0 million, depending
upon the timing of the hotel sales, plus a promissory note payable by Arlington
Hospitality, Inc. to PMC (the "Proceeds Deficit Note"). The Proceeds Deficit
Note will increase (or decrease), on a cumulative basis as the hotels are sold,
for a shortfall (or excess) computed as the difference between a leased hotel's
net sale price and its original assigned value. A portion of the Proceeds
Deficit Note is to be repaid to PMC within 45 days of each hotel sale, based on
the hotel's most recent annual revenues, with the remaining amount to be repaid
to PMC over a term of up to seven years. Based on the company's current
estimates of fair market value of the 20 leased hotels, Arlington estimates the
aggregate net shortfall payable to PMC will be in the range of $8.0 to $9.5
million.
As these hotels are sold to buyers who maintain their AmeriHost
Inn franchise affiliation, as required under the modification, Arlington expects
to receive the one-time development incentive fees from Cendant Corp. (NYSE:
CD), pursuant to its 2000 agreement with Cendant. Total development incentive
fees from the sale of the 20 leased hotels is estimated to be approximately $3.0
to $4.0 million. The company anticipates that these fees will be utilized to
fund the required cash payment due PMC under the Proceeds Deficit Note within 45
days of the sale of the hotels. As a result, the Proceeds Deficit Note balance
through the sale of all 20 leased hotels and the application of these payments,
is anticipated to be approximately $4.0 to $6.5 million, subject to mandatory
principal payments as discussed below. In addition to the
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development incentive fees, the sale of these hotels would be expected to
generate future annual royalty fee sharing payments to Arlington from Cendant.
The Deficit Proceeds Note will bear interest at the rate of 8.5
percent per annum, payable on a monthly basis, with a maximum outstanding
principal balance of $4.0 million. If at any time the principal balance exceeds
$4.0 million, such excess is payable immediately to PMC. In addition, if
Arlington's quarterly net worth exceeds a certain stipulated amount, as
adjusted, Arlington may be obligated to make a principal payment on the Proceeds
Deficit Note, or be subject to a greater interest rate on the outstanding
principal balance. Otherwise, scheduled principal payments on the promissory
note begin the earlier of the date the last hotel is sold or October 1, 2008,
with the total principal balance outstanding at that time to be repaid ratably
over the following three years. The lease modification amendment and terms of
the Proceeds Deficit Note are exhibits attached to a Form 8-K filed with the
Securities and Exchange Commission on October 7, 2004.
Jerry H. Herman, President and CEO, commented, "We are extremely
pleased to bring the PMC lease modification discussions to a positive
conclusion. The amendment significantly reduces our total obligation under the
leases, and will have an immediate, positive impact on our cash flow from
operations. The advantages of the modification are an immediate lease rate
reduction and the ability to exit the operations of these hotels and related
lease obligation over the next four years. In addition, the sale of these hotels
as AmeriHost Inns enables us to collect development incentive payments from
Cendant that will assist in significantly reducing Arlington's anticipated
Proceeds Deficit Note obligation."
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LEASE RATE REDUCTION
Prior to this modification, the annual rent payable to PMC for
the 20 leased hotels was approximately $5.1 million, subject to annual CPI
adjustments. As a result of this amendment, the annual rent payment was fixed at
approximately $4.1 million for the 20 hotels, subject to the hotel sale
provisions discussed below, or a reduction of approximately $1.0 million
annually.
James B. Dale, Chief Financial Officer commented, "Even with the
reduced lease rate, it is important to note that the historical operational cash
flow from many of the leased hotels is insufficient to cover their respective
reduced lease payments. However, by terminating these leases early, through the
sale of the hotels over the next four years, the company will be able to limit
the anticipated net negative cash flow from these hotels."
HOTEL SALE PROCESS
Pursuant to terms of the modification agreement, Arlington must
facilitate the sale of the hotels generally at a pace of five hotels per year
measured on a cumulative basis, and at prices approved by PMC. If the sales
schedule is not met, the lease rate will revert to the original lease
contractual rate, or a higher lease default rate in certain circumstances, until
the number of hotels sold becomes compliant with the sale schedule.
As owner of the leased hotels, PMC will receive the net cash
proceeds from the sale of each hotel. If the net cash proceeds from a hotel sale
are less than its original assigned value, such shortfall will increase the
aforementioned Proceeds Deficit Note. If the net cash proceeds from a hotel sale
are greater than its original assigned value, such excess will be utilized to
reduce any outstanding amounts on the Proceeds Deficit Note from previous hotel
sales
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shortfalls, if any. If there is no outstanding balance, any excess net sale
proceeds, plus the amount payable to PMC within 45 days of the sale closing,
will be utilized to reduce the original assigned values of the remaining leased
hotels and thus reduce the basis for the monthly rent payments and the
calculation of any future shortfall obligation.
ACCOUNTING TREATMENT
Due to the terms of the lease modification, 17 of the 20 leased
hotels will be accounted for as capital leases in accordance with Financial
Accounting Standards Board Statement Number 13, "Accounting for Leases,"
effective October 1, 2004. The remaining three hotels will continue to be
accounted for as operating leases. Rather than the off-balance sheet reporting
required by operating lease treatment, capital lease accounting requires that
the company report on its balance sheet, the hotel assets and a capital lease
obligation. The company expects to record approximately $31.0 to $34.0 million
in capitalized lease assets, net of the existing unamortized deferred gain
remaining from the original 1998 and 1999 sales of the hotels to PMC, and in a
capital lease obligation of approximately $36.5 to $39.5 million. The
capitalized hotel assets will be depreciated in accordance with the company's
existing depreciation policy, with consideration for the new lease term.
However, for those capitalized hotels which are actively marketed to be sold,
and are expected to be sold within the next 12 months, depreciation will not be
taken since they will be classified as "held for sale" in accordance with
Statement of Financial Accounting Standard No. 144, "Accounting for Long Lived
Assets." The capital lease obligation will be amortized, as the monthly lease
payment is made, in order to produce a constant periodic rate of interest on the
lease obligation.
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As indicated above, the lease payment rate increases when the
company is not in compliance with the required hotel sale schedule. Accordingly,
while the company will pay at the lease rate of 8.5 percent of assigned values
as long as the sales schedule is met and there are no other defaults, the
company will continue to accrue on a monthly basis at the higher contractual
lease rate, currently 10.51 percent. This accrued difference between the
contractual rate and the 8.5 percent lease payment rate will be adjusted as the
individual hotels are sold.
There are certain other obligations and covenants of Arlington
Hospitality pursuant to the lease amendment. Please see the Form 8-K filed with
the SEC for further details.
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 106-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 53 properties in 15 states, including 49
AmeriHost Inn hotels, for a total of 3,836 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,
report on Form 10-Q for the three months ended March 31, 2004, and report on
Form 10-Q for the three and six months ended June 30, 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.
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