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News for the Hospitality Executive |
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Interstate Hotels
& Resorts Reports Third-Quarter 2009
Net Loss of $10.3 million Adds 10 properties to third-party management portfolio Hotel Operating Statistics
Third Quarter Year-to-Date (YTD) Highlights for the third quarter and through today include:
"The hotel business climate continued to be among the most challenging the industry has ever experienced," said Thomas F. Hewitt, chairman and chief executive officer. "Shrinking corporate travel budgets continue to impact hotel performance, despite some offset from price-motivated leisure travel this summer." "Throughout this downturn, we have continued to focus on growth in third party management contracts, cost containment, preservation of capital and maintaining liquidity. We have made significant progress with our capital structure by extending the maturity of our debt and taking the necessary steps to meet our first amortization payment hurdle ahead of schedule." Hotel Management Results Same-store(4) RevPAR for all managed hotels in the third quarter of 2009 decreased 20.8 percent to $78.97. Average daily rate (ADR) declined 15.1 percent to $115.29, and occupancy was off 6.7 percent to 68.5 percent. Same-store RevPAR for all full-service managed hotels dropped 22.2 percent to $87.75, based on a 17.1 percent fall in ADR to $125.35, and a 6.3 percent decline in occupancy to 70.0 percent. Same-store RevPAR for all select-service managed hotels fell 16.6 percent to $62.09, reflecting a 9.7 percent decrease in ADR to $94.63, and a 7.6 percent decline in occupancy to 65.6 percent. "Lodging fundamentals continued in a similar pattern during the quarter, as our overall RevPAR declined nearly 21 percent led by an ADR decrease of over 15 percent," Hewitt said. "However, occupancy declines seem to be lessening across the portfolio, with only a 6.7 percent decrease this quarter. "Despite the difficult economy, we added six contracts to our managed portfolio in the quarter and four in October as owners and investors continue to seek operators with the resources and expertise to effectively manage hotels through this economic downturn. With these additions, today we have a total of 228 hotels in our managed portfolio. "Our management contract pipeline remains quite active. We are beginning to see distressed hotel opportunities and believe this will be an important source of new contracts in the coming year," Hewitt added. "We have also opened four newly built properties this year and currently have signed contracts to manage another 13 to be built hotels." (4) Please see footnote 9 to the financial tables within this press International During the quarter, the company continued to advance its management/development initiative in India. "In October, our joint venture management company, JHM Interstate Hotels India, opened its first property in India, a Four Points by Sheraton in Jaipur. It is the first project developed by Duet India Hotels Limited, a real estate development group devoted exclusively to hotel development in India, in which our management partnership has an equity interest. We are on schedule to open our second Four Points by Sheraton, in Visag, in the next few months and have been selected to manage three hotels that are expected to open from late summer 2010 through spring 2011. "The expansion of our international portfolio continues to be an important priority for us," Hewitt said. "India is a dynamic, high-growth market and our India-based management platform and local partners provide the infrastructure we need to successfully expand our presence there." Wholly Owned Hotel Results EBITDA from the company's seven owned hotels was $4.2 million in the 2009 third quarter and $14.7 million for the first nine months, as outlined below (in millions): Owned Hotels Third Quarter Year-to-Date The decrease in third quarter operating results as compared to last year was primarily the result of persistent weakness in the Houston, Texas and Concord, Calif. markets. These results were partially offset by the strong relative performance of the company's newly renovated Westin Atlanta Airport and Sheraton Columbia hotels. "RevPAR at our owned hotels decreased 14.7 percent, which compares favorably with the average industry RevPAR decline of 16.9 percent for the third quarter," Hewitt said. "The majority of our RevPAR decline was attributable to a 13 percent decrease in ADR, but we were able to offset over 60 percent of this revenue decline with expense savings resulting from our cost containment efforts. Balance Sheet On September 30, 2009, Interstate had:
Early in the quarter, the company extended the maturity of its senior credit facility to March 2012 by converting the facility's then outstanding balance of $161.2 million to a new term loan. The agreement also provides the company with an $8 million revolving line of credit. With that extension, the company is required to make a $20 million amortization payment by March 2010 and another $20 million amortization payment by March 2011. "As of today, we have made $25 million of our required $40 million amortization payments on our senior secured credit facility," said Bruce Riggins, chief financial officer. "On October 28, we successfully completed mortgage financing for our Westin Atlanta Airport hotel with a five-year, $22 million mortgage from PB Capital Corporation, carrying an interest rate of LIBOR plus 500 basis points and a LIBOR floor of 200 basis points, with interest only payable for the first two years. We used the net proceeds to pay down our senior credit facility, which satisfies the initial amortization requirement well ahead of schedule. "We also executed a purchase and sale agreement for the sale of our wholly owned Hilton Garden Inn Baton Rouge to a fund managed by Fairwood Capital LLC and expect the transaction to close in November. We will continue to manage the hotel and proceeds from the sale will be used to pay down the senior credit facility. By the close of the fourth quarter, we expect to have paid down approximately $35 million of the $40 million required by March 2011." Guidance The company has updated its 2009 guidance based on a current projected RevPAR decline of 20 percent for all hotels and 16 percent for owned hotels:
Interstate will hold a conference call to discuss its third-quarter results today, November 4, at 9 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. A replay of the conference call will be available until midnight on Wednesday, November 11, 2009, by dialing 1-800-406-7325, reference number 4170333, and an archived webcast of the conference call will be posted on the company's Web site through December 4, 2009. As of today, Interstate Hotels & Resorts, Inc. has ownership interests in 56 hotels and resorts, including seven wholly owned assets. Including those properties, the company and its affiliates manage a total of 228 hospitality properties with more than 46,000 rooms in 37 states, the District of Columbia, Russia, India, Mexico, Belgium, Canada and Ireland. Interstate Hotels & Resorts also has contracts to manage 13 to be built hospitality properties with approximately 3,000 rooms. 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 generally accepted accounting principles in the United States of America (or GAAP), within the meaning of applicable Securities and Exchange Commission rules, that we believe are useful to investors. They are as follows: (i) Earnings before interest, taxes, depreciation and amortization (or "EBITDA") and (ii) Adjusted EBITDA, Adjusted net income, 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, related to some of our management contracts, and long lived assets, which includes the cost of our owned hotels. Intangible assets, excluding goodwill, are amortized over their expected term. Property and equipment is depreciated over its useful life. Because amortization and depreciation are non-cash items, management and many industry investors believe the presentation of EBITDA is useful. We also exclude depreciation and amortization and interest expense from our unconsolidated joint ventures. We believe EBITDA provides useful information to investors regarding our performance and our capacity to incur and service debt, fund capital expenditures and expand our business. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions. It is also widely used by management in the annual budget process. We 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, Adjusted Net Income and Adjusted Diluted EPS We define Adjusted EBITDA as, EBITDA, excluding the effects of certain recurring and non-recurring charges, transactions and expenses incurred in connection with events management believes do not provide the best indication of our ongoing operating performance. These charges include restructuring and severance expenses, asset impairments and write-offs, gains and losses on asset dispositions for both consolidated and unconsolidated investments, and other non-cash charges. We believe that the presentation of Adjusted EBITDA will provide useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income, is beneficial to an investor's complete understanding of our operating performance. We also use Adjusted EBITDA in determining our incentive compensation for management. Similarly, we define Adjusted net income (loss) and Adjusted diluted earnings (loss) per share ("EPS") as net income and diluted EPS, without the effects of those same charges, transactions and expenses described earlier. We believe that Adjusted EBITDA, Adjusted net income and Adjusted diluted EPS are useful performance measures because including these expenses, transactions, and special charges may either mask or exaggerate trends in our ongoing operating performance. Furthermore, performance measures that include these charges may not be indicative of the continuing performance of our underlying business. Therefore, we present Adjusted EBITDA, Adjusted net income 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 diluted EPS as we believe they are important measures for our management's 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 receipts and expenditures from investments, interest expense and other non-cash items have been and will be incurred and are not reflected in the EBITDA and Adjusted EBITDA presentations. Adjusted net income and Adjusted diluted EPS do not include cash receipts and expenditures related to those same items and charges discussed above. 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 diluted EPS should not be considered a measure of our liquidity. Adjusted net income 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 war in Iraq, international and geopolitical difficulties or health concerns, governmental actions, legislative and regulatory changes, the company's ability to maximize available federal tax deductions and utilize net tax attributes in future periods, 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 for the year ended December 31, 2008. Contact: Interstate Hotels & Resorts, Inc. |
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Interstate Hotels & Resorts www.ihrco.com
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