Hotel Online  Special Report

Highland Hospitality Corporation Reports Third Quarter
2004 Net Income of $0.6 million; Added Nine
Hotels During the Quarter


MCLEAN, Va., Oct. 28, 2004 - Highland Hospitality Corporation (NYSE: HIH), a lodging real estate investment trust, or REIT, today reported its consolidated financial results for the quarter ended September 30, 2004.

Consolidated Financial Results

For the quarter ended September 30, 2004, the Company reported consolidated total revenue of $36.0 million and consolidated net income of $0.6 million, or $.01 per diluted share.  Funds from operations, or FFO, which is defined as consolidated net income plus depreciation and amortization, were $3.8 million, or $.10 per diluted share, for the quarter. Earnings before interest, income taxes and depreciation and amortization, or EBITDA, were $6.0 million, or $.15 per diluted share, for the quarter.

For the nine months ended September 30, 2004, the Company reported consolidated total revenue of $80.0 million and consolidated net income of $3.3 million, or $.08 per diluted share.  FFO was $10.2 million, or $.26 per diluted share, for the nine-month period.  EBITDA was $11.9 million, or $.30 per diluted share, for the nine-month period.

During the quarter, the Company acquired nine hotels consisting of 2,736 rooms for approximately $329.7 million, including the assumption of mortgage debt of $11.6 million.  The financial results for the third quarter 2004 include the results of operations for each hotel from their respective acquisition dates.

"We are pleased with our overall performance for the third quarter given that our portfolio is growing rapidly and is under significant transition in terms of renovations and repositioning," said James L. Francis, Highland's Chief Executive Officer and President.  "Due to our acquisition efforts, we added nine hotels during the quarter that significantly grow our portfolio and diversify our holdings consistent with our targeted strategy.  As we enter the fourth quarter and into next year, we expect to see continued improvement in performance, driven by overall hotel industry improvements, coupled with our renovation, repositioning, and asset management efforts."

Both FFO and EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission.  Management believes both FFO and EBITDA to be key measures of a REIT's financial performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance.  A reconciliation of these non-GAAP financial measures is included in the accompanying financial tables.

Hotel Operating Performance

For the quarter ended September 30, 2004, the Company's 17 hotels contributed $36.0 million of total revenue and $8.2 million of hotel operating profit.  Included in the following table are the key hotel operating statistics for the Company's 17 hotel properties for the third quarter 2004.  Also included is a comparison of the hotel operating statistics for the third quarter 2004 and 2003 for the Company's 15 hotel properties that were open and operating during both periods.  This latter comparison does not include, for either period, hotel operating statistics for the Sugar Land Marriott hotel and Hilton Garden Inn Virginia Beach hotel, as these two hotels did not open for business until October 2003 and November 2003, respectively.  The hotel operating statistics for the 15 hotels for the third quarter 2003 reflect the results of operations of the hotels under previous ownership.
                                      Quarter Ended         Quarter Ended
                                    September 30, 2004    September 30, 2003

                                   Total     Comparable       Comparable

    Occupancy %                    70.7%       71.2%             70.5%
    Average Daily Rate ("ADR")   $ 113.55    $ 114.69          $ 112.41
    Revenue per Available
     Room ("RevPAR")             $  80.30    $  81.62          $  79.29

Balance Sheet/Liquidity

During the third quarter 2004, the Company completed the following financing transactions:

  • $67.0 million mortgage financing with Column Financial, Inc., an affiliate of Credit Suisse First Boston.  The loan matures in July 2011, bears interest at a fixed rate of 6.47% annually, and is secured by the Portsmouth Renaissance hotel and conference center, the Hyatt Regency Savannah hotel and the Hilton Garden Inn BWI Airport hotel;
  • $160.0 million financing with JP Morgan Chase Bank, comprised of a $135 million mortgage loan and a $25 million mezzanine loan.  The proceeds were used to acquire a four-hotel portfolio from Wyndham International, Inc, which provided the collateral for the mortgage loan.  The financing bears interest at a fixed, blended rate of 6.65% annually and matures in August 2011;
  • $38.0 million mortgage financing with Connecticut General Life Insurance Company (CIGNA) secured by the Dallas/Fort Worth Airport Marriott hotel.  The loan matures in September 2011 and carries a fixed rate of interest of 5.80% annually; and
  • Assumed $11.6 million of mortgage financing in conjunction with the acquisition of the Courtyard Denver Airport hotel.  The loan matures in November 2008 and carries a floating rate of interest at LIBOR, plus 175 basis points, which has been swapped for a fixed interest rate of 7.4% annually.
As of September 30, 2004, the Company had $30.7 million of cash and cash equivalents.  Total assets were $678.4 million, including $579.9 million of net investment in hotel properties, total debt was $293.7 million, and stockholders' equity was $352.2 million.

During the third quarter 2004, the Company generated $10.5 million of cash flow from its operations and used $348.5 million in investing activities, primarily to acquire the nine hotels previously discussed.  Funds for these acquisitions were provided through $276.6 million of issued or assumed debt and remaining proceeds from the Company's initial public offering.

The Company is currently in the process of completing a corporate term loan credit facility.  The corporate term loan credit facility will provide additional capacity and flexibility for the Company to meet its stated investment objectives, while maintaining its targeted leverage objectives of approximately 50% debt-to-capitalization.  The Company anticipates that this facility will be completed during the fourth quarter 2004.

Douglas W. Vicari, Highland's Executive Vice-President and Chief Financial Officer, stated, "Our financing activities during the quarter enabled us to close on our acquisition targets and further explore financing options as we develop our overall capital structure.  To-date this year, we have raised approximately $265.0 million of fixed rate debt with a blended interest rate below 6.5%, which we believe leaves us well positioned for the future."

Acquisition Activity/Investment Outlook and Pipeline

During the third quarter 2004, the Company acquired nine hotels consisting of 2,736 rooms for an aggregate purchase price of $329.7 million, including the assumption of mortgage debt of $11.6 million.  Included below is a list of the properties acquired:

                                                # of                                               Consideration
                  Property                Rooms      Location      Acquired          in millions)

Residence Inn Tampa Downtown         109    Tampa, FL   8/2/2004   $13.5
Courtyard Savannah Historic District   156    Savannah, GA   8/2/2004   $25.0
Hyatt Regency Wind Watch Long Island  360   Hauppauge, NY  8/19/2004   $50.1
Courtyard Tremont Boston                  322   Boston, MA  8/19/2004   $38.8
Crowne Plaza Atlanta-Ravinia             495    Atlanta, GA  8/19/2004   $61.8
Hilton Parsippany                             510   Parsippany, NJ  8/19/2004   $78.2
Radisson Mount Laurel                      283    Mount Laurel, NJ   9/1/2004   $14.5
Omaha Marriott                                 299    Omaha, NE  9/15/2004   $29.1
Courtyard Denver Airport                   202    Denver, CO  9/17/2004   $18.7
             total                                    2,736                                     $329.7

The Company continues to actively pursue investment opportunities that fit its strategic objectives.  Since its initial public offering on December 19, 2003, the Company has committed approximately $670 million of capital towards the completion of its acquisition pipeline.  A significant number of the hotels acquired to-date are under transition in terms of renovation, rebranding, management company transition, or stabilization.  The breakdown of the transition is as follows:

                                              # of       # of         % of
                                             Hotels     Rooms      Total Rooms
    Renovation                           3        779             16 %
    Renovation and Management Transition*       4      1,460             30 %
    Management Transition            2        809             16 %
    Stabilization                            2        476             10 %
       Total Under Transition         11      3,524             72 %

       Total Hotel Portfolio            17      4,952            100 %

    * 3 of the 4 hotels are also being rebranded

James L. Francis stated, "Our current hotel portfolio is an excellent representation of our investment strategy.  We continue to focus on hotels that will immediately produce solid and consistent current returns, as well as hotels that we believe will provide us with upside through renovation and franchise repositioning efforts.  We see a strong and competitive acquisition market with many opportunities available to us, but we will continue to carefully allocate our capital to investments that will maximize our returns and increase shareholders' value over the long-term."

Dividend Update and Outlook

During the third quarter 2004, the Company declared a dividend of $.09 per share payable to its common shareholders of record as of September 30, 2004.  The dividend was paid on October 15, 2004.  As previously announced, the Company currently anticipates that it will declare a dividend for the fourth quarter 2004 ranging from $.14 - $.16 per share to its common shareholders of record as of December 31, 2004.  The dividend is expected to be paid in mid-January 2005.

2004 Outlook

"We continue to be encouraged by the performance of our industry during the first nine months of 2004," advised Mr. Francis.  "With key business travel and overall demand indicators pointing positive, we expect our portfolio will benefit from these strong fundamentals, as well as our efforts to renovate and reposition a significant number of our hotels."

Subsequent Event

On October 27, 2004, the Company announced the signing of a definitive agreement to acquire the 197-room Sheraton Annapolis hotel for $18.0 million, or approximately $91,400 per room.

(in thousands, except share data)

                                         September 30, 2004  December 31, 2003
    Investment in hotel properties, net        $   579,887       $   147,562
    Asset held for sale                              3,000                 -
    Deposit on hotel property acquisition            8,000                 -
    Cash and cash equivalents                       30,686           225,630
    Restricted cash                                 37,659                 -
    Accounts receivable, net                        10,203             2,917
    Prepaid expenses and other assets                5,944             3,379
    Deferred financing costs, net                    3,036                 -
      Total assets                             $   678,415       $   379,488

    Long-term debt                             $   293,674       $         -
    Accounts payable and accrued expenses           17,203             6,936
    Payable to affiliates                                -             8,832
    Dividends/distributions payable                  3,687                 -
    Other liabilities                                3,261                 -
      Total liabilities                            317,825            15,768

    Minority interest in operating
     partnership                                     8,419             8,457
    Commitments and contingencies
    Preferred stock, $.01 par value;
     100,000,000 shares authorized; no
     shares issued and outstanding at
     September 30, 2004 and December 31, 2003                                            -                 - Common stock, $.01 par value;
     500,000,000 shares authorized;
     40,002,011 shares and 39,882,500
     shares issued and outstanding at
     September 30, 2004 and December 31,
     2003, respectively                                400               399
    Additional paid-in capital                     366,871           365,454
    Unearned compensation                           (6,956)           (7,917)
    Accumulated deficit                             (8,144)           (2,673)
      Total stockholders' equity                   352,171           355,263

      Total liabilities and stockholders'
       equity                                  $   678,415       $   379,488

(in thousands, except share and per share data)

                                      Three Months Ended     Nine Months Ended
                                      September 30, 2004    September 30, 2004

    Rooms                                    $  24,722             $  53,265
    Food and beverage                            9,698                23,482
    Other                                        1,594                 3,255
      Total revenue                             36,014                80,002

    Hotel operating expenses:
      Rooms                                      5,879                11,969
      Food and beverage                          7,546                18,034
      Other direct                                 910                 1,987
      Indirect                                  13,444                29,270
        Total hotel operating expenses          27,779                61,260
    Depreciation and amortization                3,192                 6,918
    Corporate general and
      Stock-based compensation                     758                 2,348
      Other                                      1,494                 4,457
    Total operating expenses                    33,223                74,983

    Operating income                             2,791                 5,019

    Interest income                                252                   927
    Interest expense                             2,852                 3,498

    Income before minority interest in
     operating partnership and income
      taxes                                        191                 2,448

    Minority interest in operating
     partnership                                   (14)                  (80)
    Income tax benefit                             392                   959

    Net income                               $     569             $   3,327

    Earnings per share:
      Net income                             $     569             $   3,327 
Less: dividends on unvested restricted common stock     (82)                 (198)
      Net income after dividends on
       unvested restricted common stock      $     487             $   3,129
      Weighted average number of common
       shares outstanding - basic           39,092,011            39,085,659
      Weighted average number of common
       shares outstanding - diluted         39,425,278            39,393,270
     Earnings per share:
      Basic                                  $    0.01             $    0.08
      Diluted                                $    0.01             $    0.08

     RECONCILIATION OF NET INCOME TO FFO AND EBITDA (in thousands, except per share data)
     The following table reconciles net income to FFO for the three and nine months ended September 30, 2004:
                                     Three Months Ended     Nine Months Ended
                                     September 30, 2004    September 30, 2004

     Net income                         $    569              $  3,327
     Add: Depreciation and
      amortization                         3,192                 6,918
     FFO                                $  3,761              $ 10,245

     FFO per share:
        Basic                           $   0.10              $   0.26
        Diluted                         $   0.10              $   0.26

    The following table reconciles net income to EBITDA for the three and nine months ended September 30, 2004:
                                     Three Months Ended     Nine Months Ended
                                     September 30, 2004    September 30, 2004

    Net income                          $    569              $  3,327
    Add:  Depreciation and
     amortization                          3,192                 6,918
          Interest expense                 2,852                 3,498
    Less: Interest income                   (252)                 (927)
          Income tax benefit                (392)                 (959)
    EBITDA                              $  5,969              $ 11,857

    EBITDA per share:
      Basic                             $   0.15              $   0.30
      Diluted                           $   0.15              $   0.30

Highland Hospitality Corporation is a self-advised lodging real estate investment trust, or REIT, focused on hotel investment primarily in the United States.  The Company currently owns 17 hotel properties in ten states with an aggregate of 4,952 rooms. 

Certain statements and assumptions in this press release contain or are based upon "forward-looking" information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 


Highland Hospitality Corporation
Also See: Newly Formed REIT, Highland Hospitality Corporation, Acquires First Three Properties for $71 million / December 2003
Highland Hospitality Corporation (HIH), a REIT, Expects IPO Proceeds of $342.3 million; Organized to Take Advantage of Lodging Investment Opportunities / December 2003

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.