of $2.7 million Compared with a Loss of $0.5 million
a Year Earlier; Terminates Intercompany
Agreement with MeriStar
|ARLINGTON, Va. - Aug. 4, 2004 -- Interstate Hotels & Resorts (NYSE:
IHR), the nation's largest independent hotel management company, today
reported results for the second quarter ended June 30, 2004.
For the 2004 second quarter, net loss was $(2.7) million, or $(0.09) per diluted share, compared to a net loss of $(0.5) million, or $(0.02) per diluted share, in the same period a year earlier. Included in the 2004 second quarter results are losses on discontinued operations of $(1.0) million related to the sale of BridgeStreet Corporate Housing Worldwide's Toronto operations, which is made up of operating losses of $(0.3) million and asset write offs and restructuring charges of $(0.7) million.
Adjusted EBITDA in the 2004 second quarter, excluding non-recurring items, special charges and discontinued operations, was $6.4 million, compared to $7.4 million in the 2003 second quarter. Net income, excluding non-recurring items, special charges and discontinued operations, was $1.3 million, or $0.04 per share, for the 2004 second quarter, compared to $0.8 million, or $0.04 per share, for the like period in 2003. Had Interstate presented the losses of $(0.3) million from its Toronto operations in its operating results, the company's Adjusted EBITDA, excluding non-recurring items and special charges, and net income, excluding non-recurring items and special charges, still would have exceeded consensus analysts' estimates for the 2004 second quarter.
Total revenue, excluding other revenue from managed properties (reimbursable costs), was $46.5 million in the 2004 second quarter, compared to $45.6 million in the 2003 second quarter.
Same-store revenue per available room (RevPAR) for all managed hotels improved 7.4 percent to $74.37 from the prior year's second quarter. Occupancy rose 2.3 percent to 70.8 percent, and average daily rate (ADR) increased 4.9 percent to $105.03.
Same-store RevPAR for all full-service managed hotels improved 7.7 percent to $79.77 in the 2004 second quarter. Occupancy increased 2.0 percent to 70.8 percent, and ADR rose 5.6 percent to $112.71.
Same-store RevPAR for all select-service managed hotels improved 5.6 percent to $57.76, with occupancy increasing 3.3 percent to 70.9 percent and ADR rising 2.2 percent to $81.45.
During the second quarter, Interstate was selected to manage the 350-suite Residence Inn in New York, N.Y. and the 149-room Marriott in Ghent, Belgium.
The statement of operations for the 2004 second quarter includes the following non-recurring items and special charges:
* $3.3 million of severance payments in the form
of stock and cash to the company's former chief executive officer, Paul
Interstate's BridgeStreet subsidiary had a strong second quarter, especially in such major markets as New York, Chicago and Washington, D.C. "We continue to focus on major markets where we have our largest presence, as well as on expanding our Licensed Global Partners Program," Steve Jorns said. "During the quarter, we achieved significant improvements in our average daily rate. The pace of recovery in the corporate housing market is picking up, reflecting increased activity in relocations and extended assignments, which are primary sources of business."
On June 1, BridgeStreet sold its Toronto operations, including 257 leased units, to MSB Furnished Suites, a newly formed company that combined three leading corporate apartment operators into the largest corporate housing provider in Canada. The Toronto operations had incurred significant operating losses since 2003 primarily due to long-term lease commitments which could not be adjusted to fit demand.
In exchange for these operations, the buyer assumed Interstate's obligations, including the long-term lease commitments. MSB Furnished Suites signed a Licensed Global Partner agreement with BridgeStreet, and its 900 units in Toronto and Ottawa will come into the program. "The sale is consistent with our goal of focusing on larger markets and reduces our exposure to long-term lease commitments," Jorns said.
Termination of Intercompany Agreement with MeriStar Hospitality
Following the close of the second quarter, Interstate and MeriStar Hospitality Corporation agreed to terminate the intercompany agreement that had been in place between the two companies since 1998. Under the agreement, Interstate had the right of first refusal to manage certain hotels acquired by MeriStar, and MeriStar had the right of first refusal to acquire any hotels to be acquired by Interstate.
"The termination of the intercompany agreement allows us to acquire real estate without limitations and is one more positive step toward the pursuit of our strategic growth initiatives," Jorns noted. "The companies no longer share common executives, and Paul Whetsell, chairman and chief executive officer of MeriStar, is our only remaining common director and chairman. MeriStar and Interstate will continue to maintain a strong contractual relationship going forward."
Interstate will continue to manage more than 70 hotels for MeriStar under long-term agreements. In connection with the termination of the intercompany agreement, Interstate has agreed to grant MeriStar certain termination rights with respect to hotels that compete with hotels in which Interstate invests, as well as approximately one to two other hotels annually, with the payment of a reduced termination fee. In addition, termination fees owed by MeriStar to Interstate will now be paid over 48 months, rather than the previously contracted 30 months.
Interstate Hotel Investors Fund
"After examining several strategic alternatives, we are moving forward with the formation of a proprietary investment fund to acquire hotels," Jorns said. "We believe the timing is right to acquire hotel real estate, which is an integral part of our strategy to diversify our earnings base. We envision a fund that will acquire approximately $500 million to $600 million in hotel real estate over the next 12 to 18 months."
Shelf Registration Statement
Interstate expects to file a Form S-3 shelf registration statement registering up to $150 million of debt securities, preferred stock, common stock and warrants. The registration statement will include the 6,313,324 shares of the company's common stock held by CGLH Partners I, LP and CGLH Partners II, LP, which are beneficially owned by certain Interstate directors. The CGLH partnerships have the right to include their shares in the registration statement pursuant to a registration rights agreement they executed with the company at the time of its July 2002 merger with Interstate Hotels Corporation.
These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or a solicitation of an offer to buy any securities nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws or any such state.
The company is in negotiations to refinance its senior secured credit facility and subordinated term loan into a new senior secured credit facility in order to lower Interstate's average cost of debt and provide the capital and flexibility to acquire hotels through joint ventures. The new credit facility is expected to provide Interstate with approximately $50 million of un-drawn debt capacity.
This transaction was originally expected to close during the first quarter of 2004. However, Interstate delayed its completion for approximately six months to pursue other strategic alternatives. The transaction is expected to be completed by the end of the 2004 third quarter.
Key Financial Information
On June 30, 2004, Interstate had:
* Total cash of $2.5 million
Outlook and Guidance
"We are becoming more confident in the strength of the hotel recovery every day," Jorns said. "Excluding MeriStar Hospitality assets held for sale, Interstate forecasts a 7.0 to 8.0 percent increase in RevPAR for the 2004 third quarter, with higher improvements in ADR than in occupancy. For the year, excluding MeriStar Hospitality assets held for sale, Interstate forecasts a 6.0 to 7.0 percent increase in RevPAR."
For the 2004 third quarter, Interstate expects to incur non-recurring charges and special items of $2.8 million related to management contract costs the company expects to be written off in conjunction with the sale of seven properties owned by MeriStar Hospitality Corporation. These charges are expected to be the primary reason for a projected net loss in the range of $(0.7) million to $(0.0) million, or $(0.02) to $(0.00) per share, for the 2004 third quarter reporting period. Forecasted net income for the 2004 third quarter, excluding anticipated non-recurring items and special charges, is between $1.1 million and $1.8 million, or $0.04 to $0.06 per share. Interstate's third quarter 2004 Adjusted EBITDA estimate, excluding anticipated non-recurring items and special charges, is in the range of $6.2 million to $7.2 million.
For full-year 2004, Interstate expects net losses in the range of $(2.8)
million to $0.0 million, or $(0.09) to $0.00 per share. Interstate expects
net income, excluding non-recurring items, special charges and discontinued
operations, in the range of $6.1 million and $8.7 million, or $0.20 to
$0.28 per share. Interstate continues to expect Adjusted EBITDA, excluding
anticipated non-recurring items, special charges and discontinued operations,
of $27.0 million to $31.0 million for the full year.
Interstate Hotels & Resorts operates approximately 270 hospitality properties with more than 60,000 rooms in 40 states, the District of Columbia, Canada, Russia, Portugal and Belgium. BridgeStreet Corporate Housing Worldwide, an Interstate Hotels & Resorts' subsidiary, is one of the world's largest corporate housing providers, offering approximately 3,100 upscale, fully furnished corporate housing units throughout the United States, 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.
Interstate Hotels & Resorts
|Also See:||Interstate Hotels & Resorts Names Steve Jorns Chief Executive Officer / October 2003|
|Interstate Hotels & Resorts Reports 2004 1st Qtr Net Loss of $3.7 million Compared to Net Income of $4.4 million in the 2003 1st Qtr; RevPAR Improved 7.2% and Occupancy Up 4.6% to 66.3% / May 2004|
|JER Partners Acquires the Hilton Ontario Airport Hotel for $30 million; Signs Long Term Management Contract with Interstate Hotels & Resorts / March 2004|