Incentive Management Fees Up 40.2%
Hotel Operating Statistics
|ARLINGTON, Va., Feb. 22, 2006 - Interstate Hotels & Resorts (NYSE:
IHR), the nation's largest independent hotel management company, today
reported strong operating results for the fourth quarter and year ended
December 31, 2005. The company's quarterly results exceeded its earnings
guidance for the fourth consecutive quarter. A summary of the company's
robust performance for the fourth quarter and full year include the following
(in millions, except per share amounts):
Same-store(1) revenue per available room (RevPAR) for all managed hotels in the 2005 fourth quarter increased 11.2 percent to $74.97, which was 2.2 percentage points above the high end of the company's guidance and 2.8 percentage points above the industry average of 8.4 percent, as reported by Smith Travel Research. Average daily rate (ADR) advanced 8.4 percent to $112.73, and occupancy increased 2.6 percent to 66.5 percent.
Same-store RevPAR for all full-service managed hotels rose 11.2 percent to $78.36. ADR improved 8.6 percent to $117.82, with occupancy advancing 2.3 percent to 66.5 percent.
Same-store RevPAR for all select-service managed hotels increased 11.3 percent to $59.09, led by a 7.5 percent gain in ADR to $88.88 and a 3.6 percent improvement in occupancy to 66.5 percent.
"We continued to deliver exceptional hotel operating results for our owners, significantly exceeding the industry average for both the quarter and full year," said Thomas F. Hewitt, chief executive officer. "Our operating efficiencies and economies of scale allowed us to enhance owner profits by increasing room rates during the quarter and full year while continuing to carefully control costs. As a result, we earned record-level incentive fees, which are reported in the fourth quarter, of $14.3 million, up 40.2 percent from $10.2 million in the prior year.
"In addition to achieving outstanding results for our shareholders and our owners in our hotel management business, we have continued to execute and remain focused on our growth strategy of selective whole ownership, joint venture and sliver investments in hotels. We acquired the 195-room Hilton Durham near Duke University, our second wholly-owned property, during the fourth quarter," he noted. "While we owned the hotel for only slightly more than a month in the historically slowest quarter of the year, the property was modestly accretive to fourth-quarter earnings. We will invest $2.9 million to upgrade the hotel and look forward to strong returns on an annualized basis.
"This property is an excellent example of our ability to capitalize on strategic investments in whole ownership. Because of our knowledge of this property and the market in which it operates, we believe we can maximize returns on this hotel by making a smart, limited-capital investment to reposition it within the market. We will continue to invest in properties where we believe we can realize significant value for our shareholders."
BridgeStreet Continues Positive Growth
BridgeStreet, the company's corporate housing division, posted solid results in the 2005 fourth quarter, led by healthy growth in London and continued robust results in Chicago, Washington, D.C. and New York. "We have aggressively managed our inventory this past year with an intense focus on yield management," Hewitt said. "We continue to effectively manage rate, up 5.4 percent in the 2005 fourth quarter, balanced against maximizing occupancy, which rose 6.6 percent, with slightly lower inventory levels."
Following the close of the fourth quarter, BridgeStreet expanded its operations by becoming the exclusive provider of short-term furnished housing and related services for the entire portfolio of AMLI Residential, a leading provider of multi-family housing that operates in nine major markets. In addition, BridgeStreet acquired Chicago-based Twelve Oaks Corporate Housing, which has approximately 300 units in Chicago. With this acquisition, BridgeStreet nearly doubled its presence in this core market.
"We continue to look for ways to prudently expand BridgeStreet's brand through its Global Partners licensing program and the addition of units in select markets, such as the recent acquisition in Chicago. This spring, we will add more capacity in London, where we already have a significant leadership position. BridgeStreet has continued to gain market share within the corporate housing industry, and we believe BridgeStreet will have additional strong growth opportunities in 2006," Hewitt noted.
Balance Sheet Strengthened
"We were able to make significant improvements in the strength of our balance sheet this year," said J. William Richardson, chief financial officer. "Early in 2005, we successfully refinanced our senior secured credit facility and increased our capacity to $108 million. During the year, we acquired two hotels for a net purchase price of $42.5 million and reduced our senior debt by securing $19.0 million in non-recourse debt. We currently have more than $30 million available under our credit facility to fund future growth initiatives. Our balance sheet is the strongest that it has been in recent years and we are well positioned to take on new opportunities. During 2006, we will continue to maintain focus on managing our balance sheet by lowering our overall leverage while increasing our asset base with selective, high- quality investments.
"I also would like to take this opportunity to welcome Bruce Riggins as the incoming chief financial officer as I will be stepping down as CFO and entering retirement from Interstate on April 17, 2006. I believe he will be a tremendous addition to the company and will help drive the company to new heights in the years to come."
Outlook and Guidance
"We achieved excellent operating results in 2005 and have a positive
outlook for the hotel and corporate housing industry in 2006," Hewitt noted.
"The economy remains buoyant, business travel has returned to more historical
levels, and leisure travel remains high. Although development activity
is increasing, new supply additions are expected to remain low through
The company provides the following guidance for the first-quarter and full-year 2006:
-- RevPAR, on a same-store basis, is expected
to increase 10.0 to 11.0
Included in the first-quarter and full-year guidance are $3.2 million of proceeds from business interruption insurance related to Hurricane Charley, as well as one-time termination payments of $4.0 million from MeriStar Hospitality, related to their recently announced sale of 10 properties. Included in the first-quarter and full-year net income guidance are $7.6 million of write-offs of intangible assets due to the expected termination of 16 properties by MeriStar Hospitality in the 2006 first quarter.
Yesterday MeriStar announced that it signed a merger agreement to be
acquired by an affiliate of The Blackstone Group. "We expect our contracts
to remain in place with Blackstone," Hewitt noted. "Interstate has had
a great relationship with Blackstone over the years and we are looking
forward to the opportunity to work with them again."
(1) Please see footnote 6 to the financial
tables within this press
Interstate will hold a conference call to discuss its fourth-quarter and year-end results today, February 22, at 9 a.m. Eastern Standard Time. To hear the webcast, interested parties may visit the company's Web site at http://www.ihrco.com and click on Investor Relations and then Fourth-Quarter Conference Call. A replay of the conference call will be available until midnight on Wednesday, March 22, 2006, by dialing (800) 405-2236, reference number 11051318 and an archived webcast of the conference call will be posted on the company's Web site through March 22, 2006.
As of January 31, Interstate Hotels & Resorts operated 279 hospitality properties with more than 63,000 rooms in 41 states, the District of Columbia, Canada, and Russia. BridgeStreet Worldwide, an Interstate Hotels & Resorts' subsidiary, is one of the world's largest corporate housing providers. BridgeStreet and its network of Global Partners offer more than 8,900 corporate apartments located in more than 90 MSAs throughout the United States and internationally. For more information about Interstate Hotels & Resorts, visit the company's Web site: http://www.ihrco.com.
Non-GAAP Financial Measures
Included in this press release are certain non-GAAP financial measures, which are measures of our historical or estimated future performance that are different from measures calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules, that we believe are useful to investors. They are as follows: (i) Earnings before interest expense, taxes, depreciation and amortization (or "EBITDA") and (ii) Adjusted EBITDA and Adjusted net income (loss), and Adjusted diluted EPS. The following discussion defines these terms and presents the reasons we believe they are useful measures of our performance.
A significant portion of our non-current assets consists
of intangible assets. Of those intangible assets, the costs of our management
contracts are amortized over their expected terms. Because depreciation
and amortization are non-cash items, management and many industry investors
believe the presentation of EBITDA is useful. EBITDA represents consolidated
earnings before interest expense, income taxes, depreciation and amortization.
We believe EBITDA provides useful information to investors regarding our
financial condition and results of operations because EBITDA is useful
for evaluating our performance and our capacity to incur and service debt,
fund capital expenditures and expand our business. Management also uses
EBITDA as one measure in determining the value of acquisitions and dispositions,
and management uses EBITDA and Adjusted EBITDA as part of our annual budget
process. We also believe that the rating agencies and a number of lenders
use EBITDA for those purposes and a number of restrictive covenants related
to our indebtedness use measures similar to EBITDA presented herein.
We define Adjusted EBITDA as excluding the effects of certain charges, transactions and expenses incurred in connection with events management believes are not reasonably likely to recur or have a continuing effect on our ongoing operations. Non-recurring items and special charges include restructuring and severance expenses, asset impairments and write-offs, equity in earnings (losses) of affiliates, gains and losses on asset dispositions and other investments, and other non-cash charges.
Similarly, we define Adjusted net income (loss) and Adjusted diluted EPS as net income (loss) and diluted EPS, without the effects of those same charges, transactions and expenses described earlier. We believe that Adjusted EBITDA and Adjusted net income (loss) and Adjusted diluted EPS are useful performance measures because including these non-recurring items and special charges may either mask or exaggerate trends in our ongoing operating performance. Furthermore, performance measures that include non-recurring items and special charges may not be indicative of the continuing performance of our underlying business. Therefore, we present Adjusted EBITDA and Adjusted net income (loss) and Adjusted diluted EPS because they may help investors to compare our performance before the effect of various items that do not directly affect our ongoing operating performance.
Limitations on the use of EBITDA, Adjusted EBITDA and Adjusted Net Income
We calculate EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted diluted EPS as we believe they are important measures for our management and our investors understanding of our operations. These may not be comparable to measures with similar titles as calculated by other companies. This information should not be considered as an alternative to net income, operating profit, cash from operations or any other operating performance measure calculated in accordance with GAAP. Cash expenditures for investments, interest expense and other items have been and will be incurred and are not reflected in the EBITDA and Adjusted EBITDA presentations. Adjusted net income and Adjusted diluted EPS do not include cash receipts and expenditures related to those items and charges. Management compensates for these limitations by separately considering these excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures. Additionally, EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted diluted EPS should not be considered a measure of our liquidity. Adjusted net income and Adjusted diluted EPS should also not be used as a measure of amounts that accrue directly to our stockholders' benefit.
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, although not all forward- looking statements will contain such words. Except for historical information, the matters discussed in this press release are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially, including the volatility of the national economy, changes in business and leisure travel patterns or levels, fuel cost, economic conditions generally and the hotel and real estate markets specifically, international and geopolitical instability, health concerns, threatened or actual terrorist attacks, governmental actions, legislative and regulatory changes, availability of debt and equity capital, interest rates, competition, weather conditions or natural disasters, changes in supply and demand for lodging facilities in our current and proposed market areas, and the Company's ability to manage integration and growth. Additional risks are discussed in Interstate Hotels & Resorts' filings with the Securities and Exchange Commission, including Interstate Hotels & Resorts' annual report on Form 10-K as amended for the year ended December 31, 2004.
Interstate Hotels & Resorts
|Also See:||Interstate Hotels & Resorts Reports 3rd Qtr Net Income of $5.4 million Compared to a Net Loss of $300,000 a Year Earlier; ADR Up 8.6%, Occupancy Up 2.0% to 75.6% / Hotel Operating Statistics / November 2005|
|Interstate Hotels & Resorts Reports 2nd Qtr 2005 Net Income of $1.7 million Compared to net loss of $(2.7) million in 2nd Qtr 2004 / August 2005|