The total number of hotel properties open or in development as of Jan. 22, 1999 was 944, nearly double the number just one year ago.  In addition, the Company achieved record franchise sales for the fourth quarter of 1998.  The 94 executed agreements were 15 percent higher than the Company's previous quarterly record and contributed to the largest backlog of hotels in development since USFS began.  U.S. Franchise Systems franchises Microtel Inn & Suites, the chain of all newly-constructed, budget hotels, Hawthorn Suites, the upscale extended-stay chain, and Best Inns & Suites, the economy/mid-priced chain. 

Commented Mike Leven, president and chief executive officer, "Coming off the heels of achieving profitability ahead of plan during the third quarter of 1998, the fourth quarter produced more solid numbers.  We are very pleased with the fourth quarter results, which were in line with expectations, especially considering that it was our seasonally-adjusted slowest quarter.  The key indicators that translate into future earnings growth continue to remain positive for us, including the fact that according to Lodging Econometrics, USFS' Hawthorn and Microtel brands have both become leaders in their respective segments for numbers of hotels in the planning and permitting stages."

Neal Aronson, executive vice president and chief financial officer, stated, "The operating leverage in our business is becoming much more apparent.  In the fourth quarter of 1998, more than 90 percent of our incremental revenues fell directly to our bottom line compared to the fourth quarter of 1997.  And royalty and fee income, a key determinant of our growth, increased more than 15-fold in the quarter, as compared to last year." 

More About the Fourth Quarter 

The largest component of revenue growth came from royalty and fee income, which increased from $0.1 million in the fourth quarter of 1997 to $2.2 million in the fourth quarter of 1998.  This growth reflects the increase in the number of hotels paying royalties to the Company from 43 at December 31, 1997, to 197 at year-end 1998. 

For Microtel properties open one year or more, average daily rate during the fourth quarter of 1998 increased from $40.93 to $41.77 or 2.1 percent; occupancy rate increased from 55.1 percent to 58.5 percent or 6.2 percent; and revenue per available room (RevPar) increased from $22.56 to $24.45 or 8.4 percent, compared to the fourth quarter of 1997.

For Hawthorn, average daily rate for properties open one year or more increased from $81.87 to $83.76 or 2.3 percent for fourth quarter 1998 over the same period in 1997; occupancy declined slightly from 64.2 percent to 63.9 percent; and RevPar rose from $52.60 to $53.51 or 1.7 percent.  During 1998, the Spirit Reservation System (which operates Hyatt's Worldwide Reservations) contributed 25 percent of room nights for hotels open more than one year.

Best, the brand acquired by U.S. Franchise Systems in April 1998, reported an average daily rate of $48.33, occupancy of 63.4 percent, and RevPar of $30.65 for the fourth quarter of 1998.  The acquisition continues to exceed the Company's expectations with the number of properties open or in development increasing from 38 at the time of the acquisition to 205 at January 22, 1999.

Highlights of 1998

According to Aronson, "1998 was a busy year for us.  We acquired full ownership of the Hawthorn Suites brand, purchased the Best Inn & Suites brand, acquired a hotel management company, formed a $100 million Development Fund, and completed a stock offering that will give us financial flexibility in the future." 

Revenues for the year increased more than five-fold from $1.9 million in 1997 to $10.6 million in 1998.  In 1998, the Company's full-year net loss was reduced significantly to $2.9 million, or 16 cents per share, compared with a net loss of $8.9 million, or 71 cents per share, last year. 
 

About U.S. Franchise Systems

Atlanta-based U.S. Franchise Systems was formed in 1995 by Mike Leven, a 38-year veteran of the lodging industry, and Neal Aronson, a former principal of Odyssey Partners, a New York investment firm.  USFS' three brands include Microtel Inn & Suites, Hawthorn Suites and Best Inns & Suites.  USFS also offers hotel management services to its franchisees. The Company trades under the symbol USFS on the Nasdaq National Market. 

Certain of the above statements are forward looking statements that involve risks and uncertainties. Actual results could differ materially as a result of a variety of factors, including competitive developments,  and risk factors listed from time to time in the Company's SEC reports.