Interstate Hotels & Resorts, Inc.
Historical Statements of Operations
(Unaudited, in thousands except per share amounts)
Three Months Nine Months
Ended
Ended
September 30 September 30
-----------------------------------
2005 2004 2005
2004
-------- -------- -------- --------
Revenue:
Lodging revenues
$3,403 $- $8,511
$-
Management fees
15,513 12,113 45,865 40,759
Corporate housing
33,267 31,701 91,792 83,506
Other revenue
3,125 4,245 9,583 10,599
-------- -------- -------- --------
55,308 48,059 155,751 134,864
Other revenue from managed
properties (7)
247,745 190,865 681,449 564,739
-------- -------- -------- --------
Total revenue
303,053 238,924 837,200 699,603
Operating expenses by department:
Lodging expenses
2,487 - 6,491
-
Corporate housing
25,894 25,836 73,923 68,121
Undistributed operating expenses:
Administrative and general
19,317 16,593 56,961 51,699
Depreciation and amortization
2,474 2,127 6,830
6,640
Restructuring and severance
expenses
- 42 2,043
3,481
Asset impairments and write-
offs (4)
1,046 1,601 2,957
7,792
-------- -------- -------- --------
51,218 46,199 149,205 137,733
Other expenses from managed
properties (7)
247,745 190,865 681,449 564,739
-------- -------- -------- --------
Total operating
expenses
298,963 237,064 830,654 702,472
-------- -------- -------- --------
OPERATING INCOME (LOSS)
4,090 1,860 6,546 (2,869)
Interest expense, net (5)
(1,677) (2,002) (7,560) (5,292)
Equity in earnings (losses) of
affiliates
(381) (5) 2,811
(946)
Gain on sale of investments and
extinguishment of debt
4,326 - 4,711
-
-------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES
6,358 (147) 6,508 (9,107)
Income tax (expense) benefit
(2,585) (279) (2,647) 3,264
Minority interest (expense)
benefit
(38) (7) (49)
68
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS
3,735 (433) 3,812 (5,775)
Income (loss) from discontinued
operations, net of tax (11)
1,656 133 1,898
(920)
-------- -------- -------- --------
NET INCOME (LOSS)
$5,391 $(300) $5,710 $(6,695)
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
$0.12 $(0.01) $0.13 $(0.19)
Discontinued operations
0.06 0.00 0.06
(0.03)
-------- -------- -------- --------
Basic earnings (loss) per share
$0.18 $(0.01) $0.19 $(0.22)
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
$0.12 $(0.01) $0.12 $(0.19)
Discontinued operations
0.05 0.00 0.06
(0.03)
-------- -------- -------- --------
Diluted earnings (loss) per share $0.17
$(0.01) $0.18 $(0.22)
======== ======== ======== ========
Weighted average number of common
shares outstanding (in
thousands):
Basic
30,717 30,637 30,696 30,431
Diluted (1)
30,983 30,637 30,982 30,431
----------------------------------------------------------------------
Reconciliations of Non-GAAP
Three Months Nine Months
financial measures (2)
Ended
Ended
September 30 September 30
-----------------------------------
2005 2004 2005
2004
-------- ------- -------- ---------
Net Income (loss)
$5,391 $(300) $5,710 $(6,695)
Adjustments:
Depreciation and amortization
2,474 2,127 6,830
6,640
Interest expense, net
1,677 2,002 7,560
5,292
Discontinued operations, net
(11)
1,151 186 1,475
601
Income tax expense (benefit)
2,585 279 2,647
(3,264)
-------- ------- -------- --------
EBITDA
13,278 4,294 24,222 2,574
Restructuring expenses
- 42 2,043
3,481
Asset impairments and write-
offs (4)
1,046 1,601 2,957
7,792
Gain on sale of investments and
extinguishment of debt (12)
(6,931) - (7,316)
-
Equity in (earnings) losses of
affiliates
381 5 (2,811)
946
Minority interest expense
(benefit)
38 7
49 (68)
Other
- (55)
- (55)
-------- ------- -------- --------
Adjusted EBITDA
$7,812 $5,894 $19,144 $14,670
======== ======= ======== ========
Net Income (loss)
$5,391 $(300) $5,710 $(6,695)
Adjustments to net income (loss):
Restructuring expenses
- 42 2,043
3,481
Asset impairments and write-
offs (4)
1,046 1,601 2,957
7,792
Gain on sale of investments and
extinguishment of debt (12)
(6,931) - (7,316)
-
Deferred financing costs write-
offs (5)
- - 1,847
-
Equity interest in the gain on
sale of Hilton San Diego (8)
- - (4,202)
-
Equity interest in the loss on
sale of Wyndham Milwaukee (10)
- -
395 -
MIP deferred financing costs
write-off (9)
- -
295 -
Minority interest expense
(benefit)
33 (7)
24 (88)
Income tax rate adjustment (6)
2,819 (225) 2,365 (3,962)
-------- ------- -------- --------
Adjusted net income
$2,358 $1,111 $4,119 $528
======== ======= ======== ========
Adjusted basic earnings per share $0.08
$0.04 $0.13 $0.02
======== ======= ======== ========
Adjusted diluted earnings per
share
$0.08 $0.04 $0.13
$0.02
======== ======= ======== ========
Weighted average number of common
shares outstanding (in
thousands):
Basic
30,717 30,637 30,686 30,431
Diluted (1)
30,983 31,027 30,982 30,880
----------------------------------------------------------------------
----------------------------------------------------------------------
Same-store hotel operating
statistics
(excluding properties damaged in
2004 and 2005 hurricanes):
Full-service hotels:
Occupancy
75.6% 74.1% 72.6%
71.2%
ADR
$114.98 $105.63 $114.29 $105.19
RevPAR
$86.89 $78.22 $82.92 $74.94
Select-service hotels:
Occupancy
75.4% 74.1% 71.8%
69.9%
ADR
$88.80 $82.99 $87.68 $82.44
RevPAR
$66.99 $61.52 $62.91 $57.64
Total:
Occupancy
75.6% 74.1% 72.40% 71.0%
ADR
$110.34 $101.62 $109.62 $101.23
RevPAR
$83.37 $75.26 $79.38 $71.88
----------------------------------------------------------------------
----------------------------------------------------------------------
Outlook Reconciliation (2), (3) Forecast
------------------
Three
months Year
ending ending
December December
31, 2005 31, 2005
------------------
Net income
$8,400 $15,400
Depreciation and amortization
2,300 9,140
Interest expense, net (5)
1,950 9,400
Discontinued operations, net
(11)
- 1,475
Income tax expense (benefit)
3,300 4,635
--------- --------
EBITDA
15,950 40,050
Restructuring expenses
- 2,100
Asset impairments and write-
offs (4)
- 3,000
Gain on sale of investments
(12)
- (3,000)
Gain on extinguishment of debt
(12)
(4,300)
Equity in (earnings) losses of
affiliates
250 (2,500)
Minority interest expense
(benefit)
100 150
--------- --------
Adjusted EBITDA
$16,300 $35,500
========= ========
Net income
$8,400 $15,400
Adjustments to net income:
Restructuring expenses
- 2,100
Asset impairments and write-
offs (4)
- 3,000
Gain on sale of investments
(12)
- (3,000)
Gain on extinguishment of debt
(12)
- (4,300)
Deferred financing costs write-
offs (5)
- 1,850
Equity interest in the gain on
sale of Hilton San Diego (8)
- (4,200)
Equity interest in the loss on
sale of Wyndham Milwaukee
(10)
- 400
MIP deferred financing costs
write-off (9)
- 300
Income Tax rate adjustment (6)
- 1,050
--------- --------
Adjusted net income
$8,400 $12,600
========= ========
Adjusted diluted earnings per
share (1)
$0.27 $0.40
========= ========
(1) Our diluted earnings (loss) per share assumes the
issuance of
common stock for all potentially dilutive
common stock equivalents
outstanding. Potentially dilutive
shares include restricted stock
and stock options granted under our
comprehensive stock plan, and
operating partnership units held by
minority partners. No effect
is shown for any securities that are
anti-dilutive.
(2) See discussion of EBITDA, Adjusted EBTIDA, Adjusted
Net Income,
adjusted basic and adjusted diluted
earnings per share, located in
the "Non-GAAP Financial Measures"
section, described earlier in
this press release.
(3) Our outlook reconciliation uses the mid-point of our
estimates.
(4) This amount is included in undistributed operating
expenses and
primarily represents losses recorded
for intangible costs
associated with terminated management
contracts and other asset
impairments.
(5) For the first quarter of 2005, interest expense, net,
includes
$1,847 of deferred financing fees
written off in connection with
the refinancing of our senior secured
credit facility.
(6) This amount represents an adjustment to recorded income
tax
expense to bring our overall effective
tax rate to an estimated
normalized rate of 28% in 2005 and
40% in 2004. This effective tax
rate will differ from the effective
tax rate reported in our
historical statements of operations.
(7) Other revenue from managed properties and other expenses
from
managed properties have been revised
in the same amount for the
third quarter 2004 for certain amounts
previously included in
error. This revision has no impact
on EBITDA, net income or our
balance sheet and cash flows.
(8) This amount is included in equity in earnings (losses)
of
affiiates and represents our portion
of the gain on the sale of
the Hilton San Diego Gaslamp and retail
space which was owned by
one of our joint ventures.
(9) This amount is included in equity in earnings (losses)
of
affiliates and represents our portion
of deferred financing costs
written off in connection with the
refinancing of the MIP joint
venture's senior debt.
(10) This amount is included in equity in earnings (losses)
of
affiliates and represents our portion
of the loss on sale of the
Wyndham Milwaukee which was owned
by one of our joint ventures.
(11) In June 2004, we completed the disposal of BridgeStreet
Canada,
Inc., our corporate housing operation
in Toronto. In September
2005, we completed the sale of the
Pittsburgh Airport Residence
Inn by Marriott. Accordingly, we have
reclassified the operations
related to both transactions as discontinued
operations for the
three and nine months ended September
30, 2005 and 2004,
respectively. In addition, the calculation
of EBITDA reflects the
add back of interest expense, depreciation
and amortization, and
income taxes related to those discontinued
operations.
(12) In the first quarter of 2005, we recognized a gain
of $385 from
the exercise of stock warrants from
stock in an unaffiliated
company. In the third quarter of 2005,
we recognized a gain of
$4,326 on the extinguishment of the
remaining principle and
accrued interest on a non-recourse
promissory note and a gain of
$2,605 on the sale of the Pittsburgh
Residence Inn by Marriott
(this gain is recorded in discontinued
operations on our statement
of operations).
Interstate will hold a conference call to discuss its
third-quarter results today, November 2, at 11 a.m. Eastern time. To hear
the webcast, interested parties may visit the company's Web site at www.ihrco.com
and click on Investor Relations and then Third-Quarter Conference Call.
Interested parties also may listen to a replay of the conference call until
midnight on Wednesday, November 9, 2005, by dialing (800) 405-2236, reference
number 11041201. An archived webcast of the conference call will be posted
on Interstate Hotels & Resorts' Web site through December 2, 2005.
Interstate Hotels & Resorts operates nearly 300 hospitality
properties with more than 67,000 rooms in 41 states, the District of Columbia,
Canada, and Russia. BridgeStreet Worldwide, an Interstate Hotels &
Resorts' subsidiary, is one of the world's largest corporate housing providers.
BridgeStreet and its network of Global Partners offer more than 8,900 corporate
apartments located in more than 90 MSAs throughout the United States and
internationally. For more information about Interstate Hotels & Resorts,
visit the company's Web site: www.ihrco.com.
Non-GAAP Financial Measures
Included in this press release are certain "non-GAAP financial
measures," which are measures of our historical or estimated future performance
that are different from measures calculated and presented in accordance
with GAAP, within the meaning of applicable SEC rules, that we believe
are useful to investors. They are as follows: (i) EBITDA and (ii) Adjusted
EBITDA and adjusted net income (loss), adjusted basic EPS and adjusted
diluted EPS. The following discussion defines these terms and presents
the reasons we believe they are useful measures of our performance.
EBITDA
A significant portion of our non-current assets consists
of intangible assets. Of those intangible assets, the costs of our management
contracts are amortized over their expected terms. Because depreciation
and amortization are non-cash items, management and many industry investors
believe the presentation of EBITDA is useful. EBITDA represents consolidated
earnings before interest expense, income taxes, depreciation and amortization.
We believe EBITDA provides useful information to investors regarding our
financial condition and results of operations because EBITDA is useful
for evaluating our performance and our capacity to incur and service debt,
fund capital expenditures and expand our business. Management also uses
EBITDA as one measure in determining the value of acquisitions and dispositions,
and management uses EBITDA and Adjusted EBITDA as part of our annual budget
process. We also believe that the rating agencies and a number of lenders
use EBITDA for those purposes and a number of restrictive covenants related
to our indebtedness use measures similar to EBITDA presented herein.
Adjusted EBITDA and Adjusted Net Income
We define Adjusted EBITDA as excluding the effects of
certain charges, transactions and expenses incurred in connection with
events management believes are not reasonably likely to recur or have a
continuing effect on our ongoing operations. Non-recurring items and special
charges include restructuring and severance expenses, asset impairments
and write-offs, equity in earnings (losses) of affiliates, gains and losses
on asset dispositions and other investments, and other non-cash charges.
Similarly, we define Adjusted Net Income (loss), adjusted
basic EPS and adjusted diluted EPS as net income (loss), basic EPS and
diluted EPS, without the effects of those same charges, transactions and
expenses described earlier. We believe that Adjusted EBITDA and Adjusted
Net Income (loss), adjusted basic EPS and adjusted diluted EPS are useful
performance measures because including these non-recurring items and special
charges may either mask or exaggerate trends in our ongoing operating performance.
Furthermore, performance measures that include non-recurring items and
special charges may not be indicative of the continuing performance of
our underlying business. Therefore, we present Adjusted EBITDA and Adjusted
Net Income (loss), adjusted basic EPS and adjusted diluted EPS because
they may help investors to compare our performance before the effect of
various items that do not directly affect our ongoing operating performance.
Limitations on the use of EBITDA, Adjusted EBITDA and
Adjusted Net Income
We calculate EBITDA, Adjusted EBITDA, Adjusted Net Income,
and adjusted basic EPS and adjusted diluted EPS as we believe they are
important measures for our management and our investors understanding of
our operations. These may not be comparable to measures with similar titles
as calculated by other companies. This information should not be considered
as an alternative to net income, operating profit, cash from operations
or any other operating performance measure calculated in accordance with
GAAP. Cash expenditures for investments, interest expense and other items
have been and will be incurred and are not reflected in the EBITDA and
Adjusted EBITDA presentations. Adjusted Net Income and adjusted basic EPS
and adjusted diluted EPS does not include cash receipts and expenditures
related to those items and charges. Management compensates for these limitations
by separately considering these excluded items, all of which should be
considered when evaluating our performance, as well as the usefulness of
our non-GAAP financial measures. Additionally, EBITDA, Adjusted EBITDA,
Adjusted Net Income, and adjusted basic EPS and adjusted diluted EPS should
not be considered a measure of our liquidity. Adjusted Net Income and adjusted
basic EPS and adjusted diluted EPS should also not be used as a measure
of amounts that accrue directly to our stockholders' benefit.
This press release contains "forward-looking statements,"
within the meaning of the Private Securities Litigation Reform Act of 1995,
about Interstate Hotels & Resorts, including those statements regarding
future operating results and the timing and composition of revenues, among
others, and statements containing words such as "expects," "believes" or
"will," which indicate that those statements are forward-looking. Except
for historical information, the matters discussed in this press release
are forward-looking statements that are subject to certain risks and uncertainties
that could cause the actual results to differ materially, including the
volatility of the national economy, economic conditions generally and the
hotel and real estate markets specifically, the aftermath of the war with
Iraq, international and geopolitical difficulties or health concerns, governmental
actions, legislative and regulatory changes, availability of debt and equity
capital, interest rates, competition, weather conditions or natural disasters,
supply and demand for lodging facilities in our current and proposed market
areas, and the company's ability to manage integration and growth. Additional
risks are discussed in Interstate Hotels & Resorts' filings with the
Securities and Exchange Commission, including Interstate Hotels & Resorts'
annual report on Form 10-K as amended for the year ended December 31, 2004. |
