Hotel Online  Special Report


.

advertisements
..
..
MeriStar Reports 1st Qtr 2004 Net Loss of $40.2 million, Improvement Over Prior Year Net Loss of $69.7 million;
Sold 11 Hotels During First Quarter

.

ARLINGTON, Va. - May 6, 2004 -- MeriStar Hospitality Corporation (NYSE: MHX), one of the nation's largest hotel real estate investment trusts (REIT), today announced financial results for the first quarter ended March 31, 2004.

First-quarter 2004 comparable revenue per available room (RevPAR) for the company's 73 core hotels rose 2.7 percent to $73.70. Occupancy increased 1.4 percent to 67.4 percent and average daily rate (ADR) increased 1.2 percent to $109.27.

"We gained solid momentum throughout the quarter, and we believe we are now in a period of sustained recovery," said Paul W. Whetsell, chairman and chief executive officer. "We were pleased with the RevPAR results we achieved in the quarter as we commenced a significant renovation program and completed brand conversions on three of our hotels. Although the conversions impacted our results in the first quarter, we expect to generate significant returns from these conversions and anticipate strong results from these hotels going forward. Excluding the converted hotels and two additional hotels planned for conversion, RevPAR increased 4.4 percent over the first quarter of 2003. Looking ahead, we see further operating improvements throughout our portfolio as the economic recovery gains a solid footing and the business transient traveler begins to return in force."

Whetsell noted that the company's hotel operating margins continued under pressure in the first quarter. "Margins were down due to unfavorable cost comparisons as a result of aggressive cost-cutting last year prior to the war in Iraq. Although operating margins will be somewhat affected by these difficult comparisons in the second quarter, we expect to see increases in margins in the second half of 2004 as RevPAR continues to improve."

Dispositions

In the 2004 first quarter, the company sold 11 hotels with 2,497 rooms for total gross proceeds of $74 million. Two additional hotels with 371 rooms were sold to date in the second quarter for gross proceeds of $18 million. Since the beginning of 2003, the company has sold 28 non-core assets aggregating 5,716 rooms for $220 million in total gross proceeds.

"Our asset disposition program has been very successful," Whetsell said. "Through it, we have been able to reposition our portfolio to a mix of higher yielding hotels and reduce our leverage. We have six assets remaining in our non-core disposition program with expected proceeds of $45 million to $50 million."

Acquisitions

"We are exceptionally pleased to be active in the acquisition arena, recently announcing the purchase of the Ritz-Carlton Pentagon City, which is on target to close in May. We have an active pipeline of acquisition opportunities, but we will continue to be highly selective," Whetsell said. "This high quality hotel is very much in line with the type of assets we will look to acquire--larger properties that will be accretive to earnings, located in major urban markets or high-end resort destinations with high barriers to entry, strong brand affiliations and significant meeting space."

Renovation Program

In the 2004 first quarter, the company invested approximately $24 million in capital expenditures. "Our plan to dramatically enhance the quality of our core properties is progressing smoothly," Whetsell noted. "Our new streamlined design and purchasing program is achieving expected savings of 10 to 15 percent for furniture, fixtures and equipment. The program is also dramatically reducing the time required to renovate hotels, allowing us to improve the quality of our hotels faster to take advantage of the rebound in the economy."

To date in 2004, the company has completed four of 10 planned brand conversions. "The new brand affiliations are better targeted to the customer profiles in their respective markets, and, we believe, will generate higher revenues or will produce a more beneficial cost structure."

Operating Performance in Significant Markets

The company reported positive year-over-year RevPAR gains in eight of its 12 major markets in the 2004 first quarter. RevPAR increases in key markets included a 12.7 percent gain in the Mid-Atlantic, a 10.5 percent gain in Southern California and a 6.9 percent gain in Northern California, markets which together account for 22 percent of total revenues. RevPAR in Houston increased 17.0 percent due to the company's hotels benefiting from Super Bowl activities. "We are seeing meaningful rebounds in key urban markets as the economic recovery gains momentum," Whetsell said.
Comparable RevPAR contributions in significant markets for the 2004 first quarter were:
                                   RevPAR           Percentage of
                                   Change           Total Revenue
                                  --------         ---------------
 Houston                            17.0%               5.0%
 Mid-Atlantic                       12.7%              11.7%
 Colorado                           10.7%               2.1%
 Southern California                10.5%               6.2%
 Northern California                 6.9%               4.3%
 Tampa/Clearwater                    3.8%               6.3%
 Atlanta                             1.4%               3.1%
 Southwest Florida                   1.1%              12.1%
 New Jersey                         -2.0%               5.4%
 Orlando                            -3.5%               6.0%
 Dallas                             -3.6%               2.1%
 Chicago                           -13.2%               2.8%

Capital Structure

The company completed the following capital markets transactions during the 2004 first quarter:

  • The company repurchased $72 million of senior notes, with an additional $14 million repurchased to date in the second quarter.
  • The company retired $38 million of senior subordinated notes and an additional $11 million to date in the second quarter. The company intends to retire the remaining senior subordinated notes by the end of the third quarter. 
"We continued to improve our capital structure in the first quarter, maintaining liquidity while reducing our leverage," said Donald D. Olinger, chief financial officer. "We have reduced our overall debt by $134 million since year end. We now have only minimal maturities before 2008. As of March 31, 2004, we had $240 million of cash and $50 million available on our secured revolving credit facility.

"We raised an additional $73 million in April through an offering of 12.0 million common shares, and we expect to use the proceeds to complete additional hotel acquisitions. We anticipate financing a portion of our acquisitions with mortgage debt, which will allow us to benefit from the current low interest rate environment."

Long-Term Debt

Long-term debt as of March 31, 2004 and December 31, 2003 consisted of the following:
 

                                        Interest
                              Maturity     Rate    3/31/04    12/31/03
Convertible Notes                2004      4.75%    $3,705      $3,705
Senior Subordinated Notes        2007      8.75%    45,038      82,768
Senior Unsecured Notes           2008      9.00%   281,520     299,459
Senior Unsecured Notes           2009     10.50%   230,768     248,848
CMBS                             2009      8.01%   307,566     309,035
Convertible Notes                2010      9.50%   170,000     170,000
Senior Unsecured Notes           2011      9.13%   361,738     396,437
Mortgage Debt                 Various      9.00%    26,546      27,011
CMBS                             2013      6.88%   100,397     100,765
---------------------------------------------------=======-----=======
                                                $1,527,278  $1,638,028

Average Maturity                 5.60
                                 years
Average Interest Rate                       8.9%

Outlook

"We remain very optimistic about 2004, and are gaining confidence with each passing month," Whetsell said. "For the second quarter, we expect solid RevPAR gains to result from continued strength in the economy."

The company provides the following range of estimates for the second quarter and full-year 2004, based on a projected second-quarter 2004 RevPAR increase of 4.0 percent to 5.0 percent and full-year 2004 RevPAR increase of 4.0 percent to 5.0 percent. This guidance includes the effect of the Ritz-Carlton Pentagon City acquisition, one additional acquisition from the proceeds of the recent $73 million equity offering, $50 million of additional senior note repurchases, and $100 million of new mortgage debt financing for hotel acquisitions.

    * Net loss of $(3) million to $(6) million for the second quarter and $(80) million to $(87) million for the full year;
    * Net loss per diluted share of $(0.04) to $(0.07) for the second quarter and $(0.98) to $(1.07) for the full year;
    * FFO per diluted share (a) of $0.20 to $0.23 for the second quarter and $0.16 to $0.25 for the full year;
    * Adjusted FFO per diluted share (a) of $0.24 to $0.27 for the second quarter and $0.38 to $0.47 for the full year;
    * Adjusted EBITDA (a) of $52 million to $55 million for the second quarter and $160 million to $168 million for the full year.
    * Adjusted EBITDA, Adjusted FFO and FFO are non-GAAP financial measures that should not be considered as alternatives to any measures of operating results under GAAP. See note (b) for further discussion of these non-GAAP financial measures.
 

MeriStar Hospitality Corporation
Statements of Operations
(Unaudited, in thousands, except per share amounts)

                                                  Three Months Ended
                                                       March 31,
                                                   2004        2003
 Revenue:
      Hotel operations:
         Rooms                                   $135,666    $131,567
         Food and beverage                         51,879      52,176
         Other hotel operations                    17,043      16,647
      Office rental, parking and other revenue      2,970       3,263
                                                 ---------   ---------
 Total revenue                                    207,558     203,653

 Hotel operating expenses:
     Rooms                                         33,224      31,209
     Food and beverage                             38,881      37,566
     Other hotel operating expenses                10,363       9,505
 Office rental, parking and other expenses            585         630
 Other operating expenses:
      General and administrative                   38,021      34,681
      Property operating costs                     31,488      29,505
      Depreciation and amortization                26,218      24,169
      Property taxes, insurance and other          17,061      17,193
      Loss on asset impairments                     1,238           -

                                                 ---------   ---------
 Operating expenses                               197,079     184,458
                                                 ---------   ---------

 Operating income                                  10,479      19,195

 Minority interest                                    946       3,677
 Interest expense, net                            (34,380)    (34,718)
 Loss on early extinguishments of debt             (5,923)          -
                                                 ---------   ---------

 Loss before income taxes and discontinued
  operations                                      (28,878)    (11,846)

 Income tax benefit                                   433         175
                                                 ---------   ---------

 Loss from continuing operations                  (28,445)    (11,671)

 Discontinued operations:
     Loss from discontinued operations before
      tax benefit                                 (11,980)    (58,096)
     Income tax  benefit                              180          21
                                                 ---------   ---------

  Loss from discontinued operations               (11,800)    (58,075)
                                                 ---------   ---------

 Net loss                                        $(40,245)   $(69,746)
                                                 =========   =========

 Weighted average number of diluted shares of
  common stock outstanding                         68,640      45,548
                                                 =========   =========

Loss per diluted common share                    $  (0.59)   $  (1.53)
                                                 =========   =========
 

Funds From Operations:
(in thousands, except per share amounts)
                                                  Three Months Ended
                                                       March 31,
                                                    2004        2003

     Net loss                                    $(40,245)   $(69,746)
     Depreciation and amortization of real
      estate assets                                24,502      27,613
     Loss on disposal of assets                     6,946           -
     Minority interest to common OP unit
      holders                                        (996)     (1,412)
                                                 ---------   ---------
Funds from operations as reported in SEC
 filings                                         $ (9,793)   $(43,545)
                                                 =========   =========

 Weighted average number of shares of common
  stock outstanding                                68,640      45,548
                                                 =========   =========

 Funds from operations per share                 $  (0.14)   $  (0.96)
                                                 =========   =========

 Funds From Operations, as adjusted:
     Funds from operations as reported in SEC
      filings                                    $ (9,793)   $(43,545)
     Loss on asset impairments                      5,011      56,677
     Loss on early extinguishments of debt          5,923           -
     Write off of deferred financing fees           1,266           -
     Minority interest to common OP unit
      holders, assuming conversion                    (91)     (2,406)
                                                 ---------   ---------

 Funds from operations, as adjusted              $  2,316    $ 10,726
                                                 =========   =========

 Weighted average number of shares of common
  stock and common OP units outstanding            71,820      49,033
                                                 =========   =========

 Funds from operations per diluted share, as
  adjusted                                       $   0.03    $   0.22
                                                 =========   =========
 
 

 EBITDA and Adjusted EBITDA are comprised of
  the following:
 (in thousands)                                   Three Months Ended
                                                       March 31,
                                                   2004        2003
                                                 ---------   ---------

 Loss from continuing operations                 $(28,445)   $(11,671)
 Loss from discontinued operations                (11,800)    (58,075)
                                                 ---------   ---------

 Net loss                                        $(40,245)   $(69,746)
                                                 =========   =========

 Loss from continuing operations                 $(28,445)   $(11,671)
 Interest expense, net                             34,380      34,718
 Income tax benefit                                  (433)       (175)
 Depreciation and amortization (a)                 26,218      24,169
                                                 ---------   ---------
 EBITDA from continuing operations                 31,720      47,041

 Loss on asset impairments                          1,238           -
 Minority interest                                   (946)     (3,677)
 Loss on early extinguishments of debt              5,923           -
                                                 ---------   ---------
 Adjusted EBITDA from continuing operations      $ 37,935    $ 43,364
                                                 =========   =========

 Loss from discontinued operations               $(11,800)   $(58,075)
 Interest expense, net                                 11         158
 Income tax benefit                                  (180)        (21)
 Depreciation and amortization                        943       4,825
                                                 ---------   ---------
 EBITDA from discontinued operations              (11,026)    (53,113)

 Loss on asset impairments                          3,773      56,677
 Loss on disposal of assets                         6,946           -
                                                 ---------   ---------
 Adjusted EBITDA from discontinued operations    $   (307)   $  3,564
                                                 =========   =========

 Adjusted EBITDA, total operations               $ 37,628    $ 46,928
                                                 =========   =========

(a) Depreciation and amortization included the write-off of unamortized deferred financing costs totaling $1.3 million for the three months ended March 31, 2004 related to our early extinguishments of debt during this period.
 

Operating Information for Core Assets (73 Properties) (b):
                                                   Three Months Ended
                                                        March 31,
                                                    2004        2003

      Occupancy                                      67.4%       66.5%
      ADR                                        $ 109.27    $ 107.97
      RevPAR                                     $  73.70    $  71.76
 

(b) As of March 31, 2004, we owned 81 hotels. We have 73 hotels we consider our core assets. Eight assets remained in our disposition program, five of which are classified as held for sale and included in discontinued operations.
 

Selected Balance Sheet Data:
(in thousands)
                                                March 31,    December
                                                                31,
                                                  2004         2003

     Common shares and operating partnership
      units outstanding                            76,200      69,908
     Property and equipment, net               $1,972,035  $2,035,720
     Restricted cash                               44,656      42,523
     Cash and cash equivalents                    194,977     230,884
     Total assets                               2,376,025   2,487,939
     Long-term debt                             1,527,278   1,638,028
     Total stockholders' equity                   653,640     653,613

-0-

MeriStar Hospitality Corporation
Reconciliation of 2004 forecasted net loss to funds from operations
 and funds from operations, as adjusted per diluted share and net
 loss to EBITDA and Adjusted EBITDA:
(in thousands, except per share amounts)
                                               Three Months Ending
                                                  June 30, 2004
                                                    Forecast
                                                Low-end   High-end
                                                of range  of range
 Forecasted funds from operations:
    Forecasted net loss (c)                    $ (5,883)  $ (3,033)
    Adjustments to forecasted net loss:
       Depreciation and amortization of real
        estate assets                            23,077     23,077
       Minority interest to common OP unit
        holders                                     (88)        20
                                               ---------  ---------
 Funds from operations                         $ 17,106   $ 20,064
                                               =========  =========

 Forecasted funds from operations,
  as adjusted:
    Funds from operations                      $ 17,106   $ 20,064
    Loss on early extinguishments of debt         2,878      2,878
    Write off of deferred financing fees            561        561
                                               ---------  ---------
 Funds from operations, as adjusted            $ 20,545   $ 23,503
                                               =========  =========

    Weighted average number of diluted shares
     of common stock outstanding                 82,935     82,935
    Common OP units outstanding                   3,099      3,099
                                               ---------  ---------
 Weighted average number of
  diluted shares of common stock outstanding
  and common OP units                            86,034     86,034
                                               =========  =========

 Funds from operations per diluted share       $   0.20   $  0.23
                                               =========  =========

 Funds from operations per diluted share, as
  adjusted                                     $   0.24   $  0.27
                                               =========  =========

 Forecasted EBITDA and Adjusted EBITDA:
    Forecasted net loss (c)                    $ (5,883)  $ (3,033)
    Interest expense, net                        30,251     30,249
    Write off of deferred financing fees            561        561
    Income tax benefit                              (46)        (2)
    Depreciation and amortization                24,327     24,327
                                               ---------  ---------

 EBITDA, total operations                        49,210     52,102

    Loss on early extinguishments of debt         2,878      2,878
    Minority interest to
     common OP unit holders                         (88)        20
                                               ---------  ---------

 Adjusted EBITDA, total operations             $ 52,000   $ 55,000
                                               =========  =========
 

                                                   Year Ending
                                                December 31, 2004
                                                     Forecast
                                                Low-end   High-end
                                                of range  of range
 Forecasted funds from operations:
    Forecasted net loss (c)                    $(87,329)  $(79,699)
    Adjustments to forecasted net loss:
       Depreciation and amortization of real
        estate assets                            96,173     96,173
       Minority interest to common OP unit
        holders                                  (2,554)    (2,272)
       Loss on disposal of assets                 6,946      6,946
                                               ---------  ---------
 Funds from operations                         $ 13,236   $ 21,148
                                               =========  =========

 Forecasted funds from operations, as adjusted:
    Funds from operations                      $ 13,236    $21,148
    Loss on early extinguishments of debt        11,403     11,403
    Loss on asset impairment                      5,011      5,011
    Write-off of deferred financing costs         2,332      2,332
                                               ---------  ---------
 Funds from operations, as adjusted            $ 31,982   $ 39,894
                                               =========  =========

    Weighted average number of diluted shares
     of common stock outstanding                 81,362     81,362
    Common OP units outstanding                   3,102      3,102
                                               ---------  ---------
 Weighted average number of diluted
  shares of common stock outstanding
    and common OP units                          84,464     84,464
                                               =========  =========

 Funds from operations per diluted share       $   0.16   $   0.25
                                               =========  =========

 Funds from operations per diluted share, as
  adjusted                                     $   0.38   $   0.47
                                               =========  =========

 Forecasted EBITDA and Adjusted EBITDA:
    Forecasted net loss (c)                    $(87,329)  $(79,699)
    Interest expense, net                       123,981    123,953
    Write off of deferred financing fees          2,332      2,332
    Income tax benefit                           (1,246)    (1,130)
    Depreciation and amortization               101,315    101,315
                                               ---------  ---------

 EBITDA, total operations                       139,053    146,771

    Loss on early extinguishments of debt        11,403     11,403
    Loss on asset impairment                      5,011      5,011
    Loss on disposal of assets                    6,946      6,946
    Minority interest to common OP unit holders  (2,413)    (2,131)
                                               ---------  ---------

 Adjusted EBITDA, total operations             $160,000   $168,000
                                               =========  =========
 

(c) Forecasted net loss does not include any possible future losses on asset impairments or gains or losses on the sale of assets.

    * (a) See reconciliations of net loss to FFO per diluted share and Adjusted FFO per diluted share and net loss to Adjusted EBITDA included in the tables of this press release. Forecasted net loss does not include any possible future losses on asset impairments or gains or losses on the sales of assets.
    * (b) This press release includes various references to FFO, Adjusted 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 for all historical presentations of FFO. 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.
Adjusted FFO represents FFO excluding the effects of losses on early extinguishments of debt, write-offs of deferred financing costs and, in accordance with the NAREIT definition of FFO, asset impairment charges. We exclude the effects of losses on early extinguishments of debt, write-offs of deferred financing costs and asset impairment charges because we believe that including them in Adjusted FFO does not fully reflect the operating performance of our remaining assets. We believe Adjusted FFO is useful for the same reasons we believe that FFO is useful, but we also believe that Adjusted FFO enables us and the investor to consider our operating performance without considering the items we exclude from our definition of Adjusted FFO, which have no cash effect in the periods considered. We also use Adjusted 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 79 principally upscale, full-service hotels in major markets and resort locations with 21,861 rooms in 23 states, the District of Columbia and Canada. 

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. 


 
Contact:
MeriStar Hospitality Corporation
Bruce Riggins
703-812-7223
www.meristar.com
Also See: MeriStar Hospitality Completes Sale of Five Hotels for Aggregate $29.5 Million / March 2004
MeriStar, Which Owns 89 Hotels, Reports Full-Year 2003 Net Loss of $388 million Compared with a Loss of $161 million a Year Earlier; Full-year RevPAR Declines 3% / Hotel Operating Statistics / February 2004
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


To search Hotel Online data base of News and Trends Go to Hotel.Online Search

Home | Welcome! | Hospitality News | Classifieds | Catalogs & Pricing | Viewpoint Forum | Ideas/Trends
Please contact Hotel.Online with your comments and suggestions.