| WASHINGTON - May 7, 2003 -- Interstate Hotels & Resorts (NYSE:
IHR), the nation's largest independent hotel management company, today
reported historical results for the first quarter ended March 31, 2003.
Interstate Hotels & Resorts was formed July 31, 2002, following
the merger of MeriStar Hotels & Resorts and Interstate Hotels Corporation.
For 2002, both historical financial data and combined pro forma financial
data (assuming the merger was completed on January 1, 2002) are included
in the table of this press release. Historical financial data represents
results for Interstate Hotels Corporation through July 31, 2002, and results
for Interstate Hotels & Resorts subsequent to July 31, 2002.
First-Quarter Results
For the 2003 first quarter, net income was $4.4 million, or $0.21 per
diluted share. Net operating loss was $(3.4) million in the 2003 first
quarter. On a historical basis, net loss available to common shareholders
was $(0.3) million, or $(0.05) per share, in the 2002 first quarter.
The statement of operations for the 2003 first quarter includes the
following non-recurring items and special charges:
-
$13.6 million gain on the early repayment of a $56.1 million loan from
MeriStar Hospitality Corporation (NYSE: MHX).
-
$1.9 million of merger and integration expenses, including professional
fees, travel, and other transition costs.
Earnings before interest, taxes, depreciation and amortization (EBITDA),
excluding non-recurring items and special charges, was $3.1 million for
the 2003 first quarter. First-quarter 2003 revenues were $257.2 million.
Net loss, excluding non-recurring items and special charges, for the 2003
first quarter was $(2.6) million, or $(0.13) per share. The results are
in line with consensus analysts' estimates. For the first quarter of 2002,
pro forma EBITDA, excluding non-recurring items and special charges, was
$5.3 million and pro forma net loss, excluding non-recurring items and
special charges, was $(2.0) million or $(0.10) per share. Reconciliations
of EBITDA and net income (loss), excluding non-recurring items and special
charges, are provided in the table of this press release.
On July 1, 2002, MeriStar Hotels & Resorts assigned the leases of
47 hotels for $17 million to a subsidiary of Winston Hotels (NYSE: WXH)
under a provision of the REIT Modernization Act that allows REITs to own
their hotels' leases. As part of that transaction, Interstate currently
operates 33 of Winston's properties. After one year, Winston has the option
to terminate the management contracts and has notified Interstate of its
intention to do so. Interstate expects to incur one-time cash charges of
approximately $0.2 million for lease and personnel-related costs, and approximately
$0.7 million of non-cash charges for the write-off of related tangible
and intangible assets. Substantially all of these costs will be recorded
in the 2003 second quarter. The cancellation of the contracts is expected
to have minimal impact on Interstate's continuing net income, reducing
the company's continuing net income by approximately $0.1 million annually,
and will not impact Interstate's earnings per share 2003 guidance.
Same-store revenue per available room (RevPAR) for all full-service
managed hotels in the 2003 first quarter decreased 2.2 percent to $66.26.
Occupancy rose 0.3 percent to 62.6 percent, and average daily rate (ADR)
declined 2.5 percent to $105.87. Same-store RevPAR for all limited-service
managed hotels in the 2003 first quarter decreased 2.1 percent to $47.85.
Occupancy decreased 0.5 percent to 62.4 percent, and ADR decreased 1.5
percent to $76.75.
"The industry continues to be battered by the poor economy, which was
further impacted by the war with Iraq and concerns regarding severe acute
respiratory syndrome (SARS)," said Paul W. Whetsell, chairman and chief
executive officer. "With the conclusion of the combative phase of the war,
we are hopeful that the economy will regain its footing and begin the long-anticipated
turnaround."
"While demand has been significantly impacted by current economic conditions,
Interstate produced a 1.3 percent market share gain in RevPAR for our hotels'
owners during the first quarter," said John Emery, president and chief
operating officer. "We continue to respond proactively to individual economic
conditions at each of our managed hotels. With our proprietary systems
and technology, we are able to aggressively manage staffing and other variable
costs, based on real-time occupancy projections. We are aggressively marketing
our properties through customized e-commerce and traditional marketing
and revenue management programs."
"BridgeStreet Corporate Housing Worldwide's European and Canadian markets
have been negatively impacted by the war in Iraq and SARS," said Emery.
"U.S. markets, however, are performing in line with or above original forecasts,
and Bridgestreet's Licensed Global Partner Program has been positively
received. We signed our first three partnership license agreements during
the quarter and expect to sign additional agreements in the upcoming quarters.
In Europe and Canada we expect the softness in demand to continue, based
on current events. The timing of a recovery in those markets is uncertain."
"In our real estate operations, we continue to look for attractive acquisition
opportunities with our joint venture partners," he commented. "We originally
anticipated beginning joint venture acquisition activity in the second
quarter of 2003, but due to current events, the timing of this activity
has been delayed. However, based on the availability and pricing we are
seeing for our target properties, we expect to see increased activity in
the second half of 2003."
Capital Structure
"The early repayment of our note payable to MeriStar in the 2003 first
quarter significantly strengthens our balance sheet," said James A. Calder,
chief financial officer. "We have a strong and flexible financial structure
with $24 million of availability on our line of credit as of March 31.
We are well-positioned to take advantage of management and real estate
investment opportunities that occur as the economy begins to improve."
Key Financial Information As of March 31, 2003:
-
Total debt of $132.8 million, consisting of $88.6 million senior debt,
$40.0 million subordinated debt and a $4.2 million promissory note
-
Total debt to trailing 12-month EBITDA (as defined in our senior credit
agreement) of 4.2x
-
Senior debt to trailing 12-month EBITDA (as defined in our senior credit
agreement) of 2.9x
-
Annual interest coverage ratio (as defined in our senior credit agreement)
of 2.8x
-
Average cost of debt of 6.9 percent
Outlook and Guidance
"We were able to meet our earnings expectations for the first quarter
of 2003 despite the geopolitical events, the high-profile SARS issue and
the unstable economy," said Emery. "While these events have not impacted
our first-quarter results significantly, we are uncertain of the effect
on our full-year results, specifically on our fourth-quarter incentive
fees, the timing of joint venture investments and Bridgestreet Corporate
Housing Worldwide's European and Canadian operations. While earnings visibility
remains difficult, we are only slightly revising our EBITDA guidance for
the full year."
For the full year 2003, Interstate estimates net operating income of
$9.7 million to $13.7 million. Interstate has lowered its guidance for
EBITDA, excluding non-recurring items and special charges, by 8 percent
to $31 million to $35 million. Projected net income per share, excluding
non-recurring and special charges, for 2003 is estimated at $0.14 to $0.26.
For the 2003 second quarter, Interstate forecasts net operating income
(loss) of $(0.3) million to $0.7 million, EBITDA, excluding non-recurring
items and special charges, of $6.5 million to $7.5 million and net income
(loss) per share, excluding non-recurring items and special charges, of
$(0.02) to $0.01.
Reconciliations of forecasted EBITDA and net income, excluding non-recurring
items and special charges, for the year ending December 31, 2003, and the
three months ending June 30, 2003, are included in the table of this press
release.
Interstate Hotels & Resorts, Inc.
Statements of Operations
(Unaudited, in thousands except per share amounts)
Historical Pro-Forma (1)
Three Months Ended Three Months
March 31,
Ended
2003 2002
March 31, 2002
---------- ---------- ---------------
Revenue
Lodging revenues
$ 836 $ 676
$ 32,284
Net management fees
14,195 5,658
14,160
Other fees
3,881 4,013
4,771
Corporate housing
25,819 -
24,246
---------- ---------- ---------------
44,731 10,347
75,461
Other revenue from managed
properties
212,497 62,441
174,840
---------- ---------- ---------------
Total revenue
257,228 72,788
250,301
Operating expenses by
department:
Lodging expenses
620 481
9,094
Corporate housing
22,122 -
20,212
Undistributed operating
expenses:
Administrative and general
18,865 6,186
22,832
Lease expense
- -
18,036
Depreciation and
amortization
4,682 2,528
4,917
Merger and integration
costs
1,865 -
260
Tender offer costs
- 119
119
---------- ---------- ---------------
48,154 9,314
75,470
Other expenses from managed
properties
212,497 62,441
174,840
---------- ---------- ---------------
Total operating expenses
260,651 71,755
250,310
---------- ---------- ---------------
Net operating income (loss)
(3,423) 1,033
(9)
Interest expense, net
2,309 975
2,910
Equity in loss of affiliates
348 180
414
Gain on refinancing
(13,629) -
-
---------- ---------- ---------------
Income (loss) before minority
interests and income taxes
7,549 (122)
(3,333)
Minority interests
168 64
(18)
Income tax expense (benefit)
2,952 (71)
(1,101)
---------- ---------- ---------------
Net income (loss)
4,429 (115)
(2,214)
Mandatorily redeemable
preferred stock:
Dividends
- 159
-
Accretion
- 15
-
---------- ---------- ---------------
Net income (loss) available to
common shareholders
$ 4,429 $ (289) $
(2,214)
========== ========== ===============
Weighted average shares
outstanding:
Basic (2)
20,577 5,272
20,127
Diluted (2)
20,846 5,272
20,127
Basic earnings (loss) per
share
$ 0.22 $ (0.05) $
(0.11)
========== ========== ===============
Diluted earnings per share
$ 0.21 (0.05)
(0.11)
========== ========== ===============
Net operating income (loss) $
(3,423) $ 1,033
(9)
Depreciation and
amortization
4,682 2,528
4,917
---------- ---------- ---------------
EBITDA (3)
1,259 3,561
4,908
Merger and integration
costs
1,865 -
260
Tender offer costs
- 119
119
---------- ---------- ---------------
EBITDA, excluding non-recurring
items and special charges (4) $
3,124 $ 3,680 $
5,287
========== ========== ===============
Net income (loss)
$ 4,429 $ (115) $
(2,214)
Adjustments to net income
(loss), net of income taxes:
Merger and integration costs
1,119 -
156
Tender offer costs
- 71
71
Gain on refinancing
(8,177) -
-
---------- ---------- ---------------
Net loss, excluding non-
recurring items and special
charges (4)
$ (2,629) $ (44) $
(1,987)
========== ========== ===============
Basic and diluted loss per
share, excluding non-
recurring items and special
charges
$ (0.13) $ (0.01) $
(0.10)
========== ========== ===============
Outlook Reconciliation (5)
Forecast
Twelve Months Three Months
Ending Ending
December 31, June 30,
2003 2003
-------------- --------------
Net operating income
$ 11,700 $
200
Depreciation and
amortization
14,200 4,200
-------------- --------------
EBITDA (3)
25,900 4,400
Merger and integration
costs
6,000 1,500
Winston contract termination
costs
900 900
Write-off of other management
contract assets
200 200
-------------- --------------
EBITDA, excluding non-recurring items
and special charges (4)
$ 33,000 $
7,000
============== ==============
Net loss
$ (60) $
(1,560)
Adjustments to net loss, net of income
taxes:
Merger and integration
costs
3,600
900
Winston contract termination
costs
540 540
Write-off of other management
contract assets
120 120
-------------- --------------
Net income, excluding non-recurring
items and special charges (4)
$ 4,200 $
-
============== ==============
Income per share,
excluding non-recurring items
and
special charges
$ 0.20 $
-
============== ==============
Pro-forma hotel operating statistics:
1st Qtr 2003 1st Qtr 2002
------------- -------------
Full-service hotels:
Occupancy
62.6% 62.4%
ADR
$ 105.87 $ 108.53
RevPAR
$ 66.26 $
67.77
Limited-service hotels:
Occupancy
62.4% 62.7%
ADR
$ 76.75 $
77.90
RevPAR
$ 47.85 $
48.88
(1) Assumes the merger transaction between Interstate
Hotels
Corporation and MeriStar Hotels
& Resorts, Inc. was completed on
January 1, 2002.
(2) Presented giving effect to the 4.6 shares of
common stock issued
to Interstate shareholders,
and the one-for-five reverse stock
split associated with the merger
on July 31, 2002.
(3) This press release includes various references
to EBITDA. A
significant portion of our non-current
assets consist of
intangible assets. Of those
intangible assets, our management
contracts are amortized over
their remaining terms, and, in
accordance with generally accepted
accounting principles (GAAP),
those assets are subject to
straight-line amortization. Because
depreciation and amortization
are non-cash items, management and
many industry investors believe
that presentation of EBITDA is
more 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
operating 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 other
acquisitions and dispositions. We
also believe that the rating
agencies and a number of our lenders
also use EBITDA for those purposes,
and a number of restrictive
covenants in our endebtedness
measure EBITDA, so disclosing EBITDA
may be useful to those investors.
EBITDA is also widely used in
our annual budget process.
(4) We define EBITDA, excluding non-recurring items
and special
charges as EBITDA 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. Similarly, we define
net income (loss) excluding
non- recurring items and special
charges as net income (loss)
without the effects of those same
charges, transactions and expenses.
We believe that EBITDA and net
income (loss) excluding non-recurring
items and special charges
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
EBITDA and net income (loss)
excluding non-recurring items and
special charges because they
may help investors to compare our
performance before the effect
of various items that do not
directly affect our ongoing
operation performance.
(5) Our outlook reconciliation uses the mid-point
of our estimates of
net operating income and net
loss. |
Interstate Hotels & Resorts operates 384 hospitality properties
with more than 81,000 rooms in 44 states, the District of Columbia, Canada
and Russia, including 55 properties managed by Flagstone Hospitality Management,
a subsidiary of Interstate Hotels & Resorts. BridgeStreet Corporate
Housing Worldwide, an Interstate Hotels & Resorts subsidiary, is one
of the world's largest corporate housing providers, offering upscale, fully
furnished corporate housing throughout the United States, Canada, the United
Kingdom, France and 39 additional countries through its network partners.
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.
|
