Hotel Online Special Report 
Canadian Franchiser AFM Hospitality Corporation Activates 4 Franchises During Second Quarter; 124 Franchises Now Operating Expects revenue from license fees to increase in Q3 as properties come on line
Toronto, ON August 30, 2002 AFM Hospitality Corporation (TSX:AFM) one of North America¹s leading hospitality companies announced a revenue increase of 7.9 per cent from $3.7 million in Q2, 2001 to $4.0 million in Q2 results released today. The jump in revenue was primarily a result of the success of AFM¹s Management Division, which experienced a year over year revenue increase of $331,000 (98 per cent) to $668,000, which amount was 17 per cent of AFM¹s total revenue.
“We are very pleased with the continued growth of our Management business,” said Stephen Phillips, Vice-Chairman & CEO, AFM Hospitality Corporation. “We have succeeded despite a cautious economy and our revenue achievements demonstrate our continued commitment to pursuing the Management side of our business.”
The increase over the second quarter 2001 was the result of additional management contracts acquired from RTM Hospitality Management & Development Company Ltd., Heyde Hospitality Inc., and Traveller¹s Inn (Canada) Ltd. The Management Division currently has 53 fully executed and/ or operating management agreements for a total of 5,267 rooms. The growth in both franchise and management agreements was fueled subsequent to the end of Q1 with the completion of two multi-property agreements.
Revenues of AFM¹s Franchise division of $3.2 million contributed 79 per cent of total revenue, a decline of $32,000 from the same quarter last year, as many newly expected franchise agreements still required property adherence to brand quality assurance standards. However, these deferred license fees are expected to be realized in the third quarter. There were 4 franchise activations during the quarter resulting in 124 franchises open and providing revenue to AFM as at June 30, 2002. AFM¹s Franchise Division currently has 175 firm applications, fully executed and/or operating franchise agreements (16,969 rooms) as well as over 60 proposals being considered by prospective applicants. Hotel revenues during the second quarter of 2002 indicate that a recovery is continuing from the declines experienced in the last half of 2001.
“Many of our new franchise agreements will be coming on line in the next quarter and we look forward to realizing their revenue as our Franchising division continues to generate a significant portion of our overall business,” said Lawrence Horwitz, Chairman, AFM Hospitality Corporation.
“We believe that AFM is well positioned for growth in all facets of our operation as we head into the next quarter.”
System-wide sales at franchised and managed locations increased 11 per cent year over year to $109 million. Purchasing revenues represent approximately 5 per cent of AFM¹s total revenue and only 1 per cent of Income before Other Expenses. A decrease of $2,000 (1 per cent) was experienced from the same quarter last year as many customers continued to defer the purchases that would normally be made during a lower volume period, so as not to disrupt business when volumes are higher. AFM believes that these purchases will resume with the recovery of the economy and business volumes and enable the Purchasing group to recover this variance over the balance of the year.
Q2, 2002 Operating Results
During the quarter, AFM increased total revenue by $297,000 while income before other expenses declined by $5,000. This decrease in income is primarily the result of increasing the sales and operating personnel for both the franchise and management divisions and increasing services of management to include accounting services. Both of these increased burdens are included in management¹s plan and budget for 2002. Although these additions resulted in reduced contributions in the first six months, projections over the balance of the year anticipate higher yields which will provide improved overall annual results for AFM.
Other Expenses And Income During the quarter other expenses declined $53,000 (7 per cent) over the same period last year. Depreciation and amortization increased during Q2, 2002 by 22 per cent over Q2, 2001 as a result of the amortization of the costs of the master franchise licenses for the Hawthorn, Best Inns, Park Plaza and Park Inn brand rights for Canada acquired during the latter part of the first and second quarters of 2001. A foreign exchange gain of $61,000 was recognized during the quarter. Interest expense decreased 11 per cent from the same quarter last year as a result of the reduction in long-term debt realized from the sale of Kelloryn Hotels (Hamilton) Inc. in December 2001.
Analysis Of Financial Position The company¹s cash and short-term investments decreased from December 31, 2001 primarily as a result of the capitalized legal and acquisition costs of the Heyde Hospitality Inc. and Traveller¹s Inn (Canada) Ltd. transactions and the reduction of the bank loan.
Working Capital The working capital position at the quarter end decreased to a working capital deficit of $4,042,000 compared to a working capital deficit of $3,509,000 at December 31, 2001.
Management anticipates that the working capital position will improve over the balance of the year as improved business levels increase cash flow from operations. In addition, management continues to actively seek the refinancing of the current portion of the long-term debt. Management has received approval from the lender to defer the payment due July 31, 2002 to November 7, 2002. As such, $1,917,000 is due November 7, 2002. Management is confident that this debt will be successfully refinanced.
Through its subsidiaries, AFM Hospitality Corporation owns AFM Preferred Alliance Group Inc., AFM Asset Management Inc., Northwest Lodging International (USA) Inc. and Northwest Lodging International (Canada) Inc. It is the exclusive Canadian Master Franchisor for ASTON, Best Inns, Hawthorn Suites, Howard Johnson, Knights Inn, Park Plaza, Park Inn, Ramada, Traveller¹s Inn, Villager Lodge and La Quinta Inns. AFM Hospitality Corporation operates or has open and/or executed franchise and management agreements with more than 220 hotels in North America, representing an inventory of over 22,000 hotel rooms.
This Press Release contains certain forward-looking statements and information from AFM Hospitality Corporation relating, but not limited to the company¹s operations, anticipated financial performance and business prospects and strategies.
Contact: Stephen Phillips Vice-Chairman, CEO AFM Hospitality Corporation (416) 202-6763 [email protected] Also See: AFM Targets 35,000 Managed and Franchised Rooms By the End of 2004 / June 2001 AFM Hospitality Corporation Completes Acquisition Of Ten Management Contracts From Heyde Hospitality / June 2002