USFS franchises Microtel Inn Suites, the chain of all newly-constructed, budget/economy hotels, Hawthorn Suites, the extended-stay chain, and Best Inns Suites, the economy / mid-market chain.

�We are pleased to have met our internal goals and to have achieved our fourth consecutive quarter of record revenues and profits,� said Neal Aronson, chief financial officer. Aronson pointed out that the largest component of the Company�s revenue growth came from royalty and other fee income, which increased 79 percent to $3.4 million in the second quarter of 1999 from $1.9 million in the second quarter of 1998. This reflects a 98 percent increase in the number of hotels paying royalties to USFS from 138 at June 30, 1998, to 273 at June 30, 1999.  According to Mike Leven, president and chief executive officer, �This was also the fourth consecutive quarter that U.S. Franchise Systems achieved record quarterly franchise sales with 101 executed agreements, far exceeding our goal of 80 agreements per quarter.� The total number of hotel properties open or in development as of June 30, 1999 was 1,101, compared to 27 when USFS began operations in October 1995.  �Our rate of progress continues to accelerate as we opened 50 hotels and broke ground or began the conversion process on 45 during the second quarter,� said Leven. �We continue to be very encouraged as record quarterly franchise sales complement increased revenues and earnings.�
 

The Company does not receive royalties from 28 open Microtel hotels and one Hawthorn Suites property.

Six Month Results

For the six months ended June 30, 1999, total revenue was $7.9 million, a 93 percent increase from the $4.1 million generated in the comparable period of 1998.  The Company reported a net profit of $2.1 million, or $0.10 profit per share, for the six months ended June 30, 1999, compared to a net loss of $3.1 million, or $0.20 loss per share, for the six months ended June 30, 1998.

Second Quarter 1999 Brand Highlights

Microtel

• Thirty-six new franchise agreements were executed during the quarter.
• Twenty-five Microtels opened and 13 broke ground during the quarter.

Hawthorn

• A record 33 franchise agreements were executed during the quarter.
• Nine properties opened and 10 broke ground or began conversion during the quarter. 

Average daily rate for all properties open one year or more decreased from $85.38 to $84.61 or 0.9 percent for second quarter 1999 over the same period in 1998; occupancy declined from 70.1 percent to 67.5 percent or 3.8 percent, and RevPAR declined from $59.86 to $57.09 or 4.6 percent.  However, excluding the original 17 hotels which USFS inherited when it purchased the Hawthorn brand, RevPAR increased 6.3 percent.

Best

• A record 32 franchise agreements were executed during the quarter.
• Sixteen properties opened and 22 began the conversion process.

U.S. Franchise Systems Continues to Gain Momentum

The past few months have been very active for USFS.  For example:

• On July 1, 1999, USFS was added to the small capitalization Russell 2000® Index, the benchmark small stock index compiled annually by the Frank Russell Company. Membership is determined by market capitalization rankings and style attributes.
• According to the May 31, 1999 issue of Business Travel News, U.S. Franchise Systems is now the 17th largest hotel company in terms of number of hotels. 
• The July 1999 issue of Hotels magazine cited USFS as the world�s 10th largest hotel franchising company.
• USFS received the American Hotel  Motel Association�s (AHMA) �Cutting Edge� award for its contributions to the hospitality industry and to AHMA.