Hotel Online .Special Report Interstate Hotels & Resorts Posts a Third Qtr Net Loss of $378,000 Compared with a Loss of $19.4 million a Year Earlier; Adds 26 Management Contracts ARLINGTON, Va – Oct. 29, 2003 – Interstate Hotels & Resorts (NYSE: IHR), the nation’s largest independent hotel management company, today reported historical results for the third quarter ended September 30, 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 tables 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.
Third-Quarter Results
For the 2003 third quarter, net loss was $(0.4) million, or $(0.02) per share. On a historical basis, net loss available to common shareholders was $(19.4) million, or $(1.12) per share, in the 2002 third quarter.
The statement of operations for the 2003 third quarter includes the following non-recurring items and special charges:
- $0.9 million of merger and integration expenses, including professional fees, travel and other transition costs.
- $2.0 million of asset impairments and write-offs of assets related to the termination of management contracts.
In the 2003 third quarter, earnings before interest, taxes, depreciation and amortization (EBITDA), excluding non-recurring items and special charges, was $7.5 million. Net income, excluding non-recurring items and special charges for the 2003 third-quarter reporting period was $1.3 million, or $0.06 per share. These results were in line with consensus analysts’ estimates.
Third-quarter 2002 pro forma net loss was $(10.1) million, or a loss of $(0.50) per share. Third-quarter 2002 pro forma EBITDA, excluding non-recurring items and special charges, was $7.3 million, and pro forma net loss, excluding non-recurring items and special charges, was $(0.5) million, or $(0.03) per share.
EBITDA and net income, excluding non-recurring items and special charges, are non-GAAP financial measures within the meaning of the Securities and Exchange Commission (SEC) regulations. See the discussion below in the “Non-GAAP Financial Measures” section of this press release. Reconciliations of EBITDA and EBITDA and net income, excluding non-recurring items and special charges, are provided in the tables of this press release.
Same-store revenue per available room (RevPAR) for all full-service managed hotels in the 2003 third quarter decreased 1.4 percent from the prior year’s third quarter to $67.95. Occupancy increased 2.0 percent to 68.2 percent, and average daily rate (ADR) decreased 3.4 percent to $99.65. Same-store RevPAR for all limited-service managed hotels in the 2003 third quarter decreased 1.1 percent to $55.60. Occupancy increased 0.6 percent to 70.0 percent, and ADR declined 1.6 percent to $79.40.
“Leisure travel improved throughout the summer vacation months,” said Paul W. Whetsell, chairman. “Group business also was quite active during the period, as we aggressively marketed to this segment. However, increased business travel did not materialize as expected in late August and September. Business travel typically lags an economic rebound by six months, and this historic pattern is holding true. Advanced business travel bookings in the fourth quarter remain soft, but we are seeing some improvements for the first quarter of 2004.”
During the quarter, Interstate signed 26 management contracts, led by 22 properties owned by CNL Hospitality Properties, Inc. In addition, the company completed the acquisition of the first hotel in its $400 million acquisition fund, Northridge Interstate Hospitality Fund, a joint venture with Northridge Capital, Inc.
“The 209-room Sheraton Long Island in Smithtown, N.Y., is typical of the type of asset we seek to acquire: first-class, full-service, stabilized hotels in strong markets with high barriers to new competition,” said Steve Jorns, chief executive officer. “We expect to benefit from both our management fees and our participation in the underlying real estate investment. We have an active pipeline of potential additional acquisitions as we head into 2004.”
The company’s BridgeStreet Corporate Housing Worldwide operations continued to have relatively better performance in domestic markets as compared to international markets. Results in Canada were negatively impacted by the aftereffects of the SARS outbreak, and some European markets were impacted by sluggish economies. “We continue to adjust our rooms inventory in those markets that remain soft,” Jorns said.
BridgeStreet added three Licensed Global Partners during the quarter, bringing the total to nine. In addition, BridgeStreet expanded its BridgeStreet Concierge service, a comprehensive service that provides BridgeStreet guests with 24/7 coverage.
Capital Structure
Interstate had $24.5 million of availability on its revolving credit facility as of September 30, according to James A. Calder, chief financial officer. “We continue to have excellent flexibility to respond to management contract options that require sliver investments, as well as to real estate investment opportunities through joint ventures,” he said.
Key Financial Information As of September 30, 2003, Interstate had:
- Total cash of $20.7 million
- Total debt of $131 million, consisting of $87.3 million of senior debt, $40.0 million of subordinated debt and a $3.7 million promissory note
- Average cost of debt of 6.7 percent
Board of Directors
Interstate also announced the resignation of John Emery and J. Taylor Crandall from the company’s board of directors, effective October 22, 2003. Last week, Emery announced that he would resign as president and chief operating officer of the company at the end of 2003. Crandall previously served on the boards of MeriStar Hospitality and Interstate. His resignation from Interstate’s board eliminates the shared board positions between the two companies, with the exception of the chairman.
Outlook and Guidance
“The exact timing of a meaningful rebound in business travel is still unclear,” Jorns said. “Based on historical patterns and early booking trends, business travel will not likely pick up until 2004. We are buoyed by the continued strength in the leisure market and look forward to similar patterns in business travel in the future. Based on this lack of clarity and the current short-term outlook, we are providing more conservative guidance for the remainder of the year.”
For the full year 2003, Interstate expects net income of $4.2 million to $5.4 million ($0.20 to $0.25 per share) and net income, excluding non-recurring items and special charges, of $1.0 million to $2.2 million ($0.05 to $0.10 per share). The company estimates that EBITDA, excluding non-recurring items and special charges, will be $27 million to $29 million.
Interstate expects 2003 fourth quarter net income of $0.6 million to $1.8 million ($0.03 to $0.08 per share); net income, excluding non-recurring items and special charges, of between $1.9 million and $3.1 million ($0.09 to $0.15 per share); and EBITDA, excluding non-recurring items and special charges, of $9.3 million to $11.3 million. Reconciliations of forecasted EBITDA and net income, excluding non-recurring items and special charges to net income, for the year ending December 31, 2003, and the three months ending December 31, 2003, are included in the tables of this press release.
Interstate Hotels & Resorts, Inc. Historical Statements of Operations (Unaudited, in thousands except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ——— ——— ——– ——— Revenue: Lodging revenues $929 $832 $2,697 $2,287 Management fees 15,762 11,068 45,218 18,069 Corporate housing 29,245 19,779 83,456 19,779 Other revenue 3,778 4,620 10,607 16,026 ——— ——— ——– ——— 49,714 36,299 141,978 56,161 Other revenue from managed properties 217,654 163,347 642,256 297,662 ——— ——— ——– ——— Total revenue 267,368 199,646 784,234 353,823 Operating expenses by department: Lodging expenses 585 575 1,869 1,606 Corporate housing 24,171 15,327 69,804 15,327 Undistributed operating expenses: Administrative and general 19,082 14,803 55,117 30,010 Depreciation and amortization 2,646 4,024 10,994 9,133 Merger and integration costs 874 3,430 3,344 5,653 Restructuring expenses – 12,820 – 12,820 Tender offer costs – – – 1,000 Asset impairment and write offs 312 – 312 – ——— ——— ——– ——— 47,670 50,979 141,440 75,549 Other expenses from managed properties 217,654 163,347 642,256 297,662 ——— ——— ——– ——— Total operating expenses 265,324 214,326 783,696 373,211
——— ——— ——– ——— Net operating income (loss) 2,044 (14,680) 538 (19,388)
Interest expense, net 2,359 1,562 7,187 3,474 Equity in losses of affiliates 292 1,074 858 1,670 Conversion incentive payment – convertible notes – – – 7,307 Gain on refinancing – – (13,629) ——— ——— ——– ———
Income (loss) before minority interests and income taxes (607) (17,316) 6,122 (31,839) Minority interests expense (benefit) 23 243 184 295 Income tax expense (benefit) (252) 1,818 2,375 641 ——— ——— ——– ———
Net income (loss) (378) (19,377) 3,563 (32,775) Mandatorily redeemable preferred stock: Dividends – – – 307 Accretion – – – 356 Conversion incentive payment- preferred stock – – – 1,943 ——— ——— ——– ———
Net income (loss) available to common shareholders $(378) $(19,377) $3,563 $(35,381) ========= ============================
Weighted average shares outstanding: Basic (1) 20,649 17,270 20,612 11,277 Diluted (1) 20,649 17,270 20,891 11,277
Basic earnings (loss) per share $(0.02) $(1.12) $0.17 $(3.14) ========= ========= ======== ========= Diluted earnings (loss) per share $(0.02) $(1.12) $0.17 $(3.14) ========= ========= ======== =========
Reconciliations of Non-GAAP financial measures Net income (loss) $(378) $(19,377) $3,563 $(32,775) Depreciation and amortization 2,646 4,024 10,994 9,133 Interest expense, net 2,359 1,562 7,187 3,474 Equity in losses of affiliates 292 1,074 858 1,670 Gain on refinancing – – (13,629) – Conversion incentive payment – convertible notes – – – 7,307 Minority interests expense (benefit) 23 243 184 295 Income tax expense (benefit) (252) 1,818 2,375 641 ——— ——— ——– ———
EBITDA (2) 4,690 (10,656) 11,532 (10,255) Merger and integration costs 874 3,430 3,344 5,653 Restructuring expenses – 12,820 – 12,820 Tender offer costs – – – 1,000 Asset impairment and write- offs (4) 1,979 – 2,780 – ——— ——— ——– ———
EBITDA, excluding non-recurring items and special charges (2) $7,543 $5,594 $17,656 $9,218 ========= ========= ======== =========
Net income (loss) $(378) $(19,377) $3,563 $(32,775) Adjustments to net income (loss), net of income taxes: Merger and integration costs 524 2,092 2,006 3,561 Restructuring expenses – 7,820 – 8,077 Tender offer costs – – – 630 Asset impairment and write- offs 1,187 – 1,668 – Conversion incentive payment – convertible notes – – – 7,307 Gain on refinancing – – (8,177) – Minority interest (16) (208) 102 (354) ——— ——— ——– ———
Net income (loss), excluding non-recurring items and special charges (2) $1,317 $(9,673) $(838) $(13,554) ========= ========= ======== =========
Basic earnings (loss) per share, excluding non-recurring items and special charges $0.06 $(0.56) $(0.04) $(1.20) ========= ========= ======== ========= Diluted earnings (loss) per share, excluding non-recurring items and special charges $0.06 $(0.56) $(0.04) $(1.20) ========= ========= ======== =========
Outlook Reconciliation (3) Forecast Three months Twelve months ending ending December 31, 2003 December 31, 2003
Net income $1,200 $4,763 Depreciation and amortization 2,600 13,594 Interest expense, net 2,600 9,787 Gain on refinancing (13,629) Equity in losses of affiliates 950 1,808 Minority interests expense 100 284 Income tax expense 750 3,125 ——— ——–
EBITDA (2) 8,200 19,732 Merger and integration costs 500 3,844 Asset impairments and write-offs 1,600 4,380 ——— ——–
EBITDA, excluding non-recurring items and special charges (2) $10,300 $27,956 ========= ========
Net income $1,200 $4,763 Adjustments to net loss, net of income taxes: Gain on refinancing – (8,177) Merger and integration costs 300 2,306 Asset impairments and write-offs 960 2,628 Minority Interest (20) 82 ——— ——–
Net income, excluding non- recurring items and special charges (2) $2,440 $1,602 ========= ========
Income per share, excluding non-recurring items and special charges $0.12 $0.08 ========= ========
(1) 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. (2) See discussion of EBITDA and EBITDA and net income, excluding non-recurring items and special charges located in the in the “Non-GAAP Financial Measures section, described earlier in this press release. (3) Our outlook reconciliation uses the mid-point of our estimates of net income (4) A portion of the asset impairments and write-offs are included with administrative and general expenses
Interstate Hotels & Resorts, Inc. Statement of Operations (Unaudited, in thousands except per share amounts)
Three Months Ended September 30, 2003 2002 ————— —————– (historical) (pro forma) (1) Revenue: Lodging revenues $929 $832 Management fees 15,762 14,305 Corporate housing 29,245 29,971 Other revenue 3,778 4,838 ————— —————– 49,714 49,946 Other revenue from managed properties 217,654 224,936 ————— —————– Total revenue 267,368 274,882 Operating expenses by department: Lodging expenses 585 575 Corporate housing 24,171 23,191 Undistributed operating expenses: Administrative and general 19,082 18,893 Depreciation and amortization 2,646 4,765 Lease expense – Merger and integration costs 874 3,295 Restructuring expenses – 12,820 Tender offer costs – – Gain on Winston lease conversion – – Asset impairment and write offs 312 – ————— —————– 47,670 63,539 Other expenses from managed properties 217,654 224,936 ————— —————– Total operating expenses 265,324 288,475
————— —————– Net operating income (loss) 2,044 (13,593)
Interest expense, net 2,359 2,306 Equity in losses of affiliates 292 1,019 Gain on refinancing – – ————— —————–
Income (loss) before minority interests and income taxes (607) (16,918) Minority interests expense (benefit) 23 (241) Income tax expense (benefit) (252) (6,537) ————— —————–
Net income (loss) $(378) $(10,140) =============== =================
Weighted average shares outstanding: Basic (2) 20,649 20,228 Diluted (2) 20,649 20,228
Basic earnings (loss) per share $(0.02) $(0.50) =============== ================= Diluted earnings (loss) per share $(0.02) $(0.50) =============== =================
Reconciliations of Non-GAAP financial measures Net income (loss) $(378) $(10,140) Depreciation and amortization 2,646 4,765 Interest expense, net 2,359 2,306 Equity in loss of affiliates 292 1,019 Gain on refinancing – – Minority interests expense (benefit) 23 (241) Income tax expense (benefit) (252) (6,537) ————— —————–
EBITDA (3) 4,690 (8,828) Merger and integration costs 874 3,295 Gain on Winston Lease Conversion Restructuring expenses – 12,820 Tender offer costs – – Asset impairment and write-offs (4) 1,979 – ————— —————–
EBITDA, excluding non-recurring items and special charges (3) $7,543 $7,287 =============== =================
Net income (loss) $(378) $(10,140) Adjustments to net income (loss), net of income taxes: Gain on Winston Lease Conversion Merger and integration costs 524 2,010 Restructuring expenses – 7,764 Tender offer costs – – Asset impairment and write-offs 1,187 – Gain on refinancing – – Minority interest (16) (150) ————— —————–
Net income (loss), excluding non- recurring items and special charges (3) $1,317 $(516) =============== =================
Basic earnings (loss) per share, excluding non-re