Arlington Hospitality Modifies 20 AmeriHost Leases

ARLINGTON HEIGHTS, IL— Arlington Hospitality, Inc. has executed a lease modification with PMC Commercial Trust, 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 became effective Oct. 1, and provides for: an immediate 19% reduction, or approximately $1 million on an annual basis, in the lease payments for the 20 hotels, from a pay rate of 10.51% (escalating with inflation) of the original hotel assigned values to a fixed rate of 8.5% of the assigned values; and 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. 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 million to $12 million, depending upon the timing of the hotel sales, plus a promissory note payable by Arlington Hospitality, Inc. to PMC. 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 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 million 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., 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 million to $4 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 million to $6.5 million, subject to mandatory principal payments. In addition to the development incentive fees, the sale of these hotels would be expected to generate future annual royalty fee sharing payments to Arlington from Cendant.