Net Loss of $388 million Compared with a Loss of $161
million a Year Earlier; Full-year RevPAR Declines 3%
Hotel Operating Statistics
|ARLINGTON, Va., February 12, 2004--MeriStar
Hospitality Corporation (NYSE: MHX), one of the nation’s largest hotel
real estate investment trusts (REIT), today announced financial results
for the fourth quarter and year ended December 31, 2003:
Whetsell noted that the company’s hotel operating margins continued to face pressure in the fourth quarter. "We are closely monitoring all hotel costs, but maintaining margins is very difficult when RevPAR declines. We expect to see operating margins stabilize or increase slightly in the second half of 2004 if RevPAR improves as anticipated."
Acquisitions and Dispositions
The company sold nine hotels during the 2003 fourth quarter and 15 for the full year, for total gross proceeds of $128 million. "Since the close of the year, we have sold three additional assets for aggregate proceeds of $28 million," Whetsell said. "In addition, we withdrew eight assets from our planned disposition list because our liquidity has greatly improved and we expect to realize greater value by holding them as we move into an economic recovery. These hotels generate stronger cash flow than the average of hotels on our disposition list, and we believe we will benefit more from holding these hotels than by selling them." The company currently has 16 hotels with 4,131 rooms remaining in its disposition program and expects to complete the majority of the sales during the 2004 first quarter. The 16 properties are expected to generate gross proceeds of $110 million to $130 million.
"We are monitoring the acquisition market and have an active pipeline of opportunities," Whetsell said. "We have created substantial liquidity with $273 million of cash on hand and now have the flexibility to make accretive acquisitions. We are focusing mainly on larger properties located in major urban markets or high-end resort destinations with strong brand affiliations and significant meeting space."
During 2003, the company invested approximately $36 million in hotel renovations and upgrades. "We will dramatically ramp up our renovation program in the next two years, investing an estimated additional total of $225 million by the end of 2005, including approximately $125 million in 2004," Whetsell noted. "We have implemented a unique, streamlined design and purchasing program that we believe will reduce our renovation costs by at least 15 percent, speed up the renovation process by approximately 20 weeks and minimize the time rooms are out of service."
Operating Performance in Significant Markets
The company reported positive RevPAR in six of its 12 major markets in the 2003 fourth quarter, led by a 3.4 percent gain in the Mid-Atlantic, which accounts for nearly 13 percent of total revenues. "We are seeing continued strength in leisure travel and stabilization and improvements in certain markets, but markets such as New Jersey and Chicago have not yet fully recovered," Whetsell said.
Comparable RevPAR contributions in significant markets for the fourth
quarter and full year 2003 were:
The company completed the following capital markets transactions during the 2003 fourth quarter:
The company closed on a new $50 million senior credit facility, secured by six of the company’s hotels, and concurrently terminated an existing $50 million credit facility, which had no borrowings outstanding. The new three-year facility will carry an annual interest rate of LIBOR plus 450 basis points.
The company provides the following range of estimates for the 2004 first quarter and full year based on first-quarter projected 2004 RevPAR of flat to an increase of 2 percent and full-year 2004 RevPAR increase of 3 percent to 4 percent (includes the effect of anticipated asset sales but excludes any acquisition or future debt repurchase assumptions):
(b) This press release includes various references to FFO and Adjusted EBITDA. Substantially all of our non-current assets consist of real estate, and in accordance with GAAP, those assets are subject to straight-line depreciation, which reflects the assumption that the value of real estate assets, other than land, will decline ratably over time. That assumption is often not true with respect to the actual market values of real estate assets (and, in particular, hotels), which fluctuate based on economic, market and other conditions. As a result, management and many industry investors believe the presentation of GAAP operating measures for real estate companies to be more informative and useful when other measures, adjusted for depreciation and amortization, are also presented.
In an effort to address these concerns, NAREIT adopted a definition of Funds From Operations, or FFO. NAREIT defines FFO as net income (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate, real estate-related depreciation and amortization, and after comparable adjustments for our portion of these items related to unconsolidated partnerships and joint ventures. Extraordinary items and cumulative effect of changes in accounting principles as defined by GAAP are also excluded from the calculation of FFO. As defined by NAREIT, FFO also does not include reductions from asset impairment charges. The SEC, however, recommends that FFO include the effect of asset impairment charges, which presentation we have adopted. We believe FFO is an indicative measure of our operating performance due to the significance of our hotel real estate assets, and that it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. We also use FFO in our annual budget process.
EBITDA represents consolidated earnings before interest, income taxes, depreciation and amortization and includes operations from the assets included in discontinued operations. We further adjust EBITDA for the effect of capital market transactions that would result in a gain or loss on early extinguishments of debt, as well as the earnings effect of asset dispositions and any impairment assessments, resulting in the measure that we refer to as "Adjusted EBITDA." We exclude the effect of gains or losses on early extinguishments of debt as well as the earnings effect of asset dispositions and impairment assessments because we believe that including them in Adjusted EBITDA does not fully reflect the operating performance of our remaining assets.
We also believe Adjusted EBITDA provides useful information to investors
regarding our financial condition and results of operations because Adjusted
EBITDA is useful in evaluating our operating performance and our capacity
to incur and service debt, fund capital expenditures and expand our business.
Furthermore, we use Adjusted EBITDA to provide a measure of unleveraged
cash flow that can be isolated on an asset by asset basis, to determine
overall property performance and to measure our ability to service debt.
We believe that the rating agencies and a number of our lenders also use
Adjusted EBITDA for those purposes. We also use Adjusted EBITDA as one
measure in determining the value of acquisitions and dispositions and,
like FFO, it is also widely used in our annual budget process.
Arlington, Va.-based MeriStar Hospitality Corporation owns 89 principally upscale, full-service hotels in major markets and resort locations with 24,169 rooms in 23 states, the District of Columbia and Canada. The company owns hotels under such internationally known brands as Hilton, Sheraton, Marriott, Westin, Doubletree, Holiday Inn and Radisson. For more information about MeriStar Hospitality Corporation, visit the company’s Web site: www.meristar.com.
This press release contains forward-looking statements about MeriStar Hospitality Corporation, including those statements regarding future operating results, the timing and composition of revenues and expected proceeds from asset sales, among others.
MeriStar Hospitality Corporation
VP, Strategic Planning & Analysis
|Also See:||MeriStar to Spend Approximately $225 million On Renovations At Its Core 73 Hotel Properties Over the Next Two Years; Taking Advantage of Size and Scale to Accelerate Renovations and Reduce Costs / February 2004|
|Meristar Reports RevPAR for the 2001 Fourth Quarter Declined 24.1%; Occupancy fell 15.6% to 55.8% / Jan 2002|