for 3rd Qtr 2006; Will Sell 27 More of its Hotels
ATLANTA, Ga., November 2, 2006—Lodgian, Inc. (AMEX: LGN), one of the nation’s largest independent owners and operators of full-service hotels, today reported results for the third quarter ended September 30, 2006, and provided details of a major strategic initiative to reconfigure the company’s hotel portfolio.
Overview of Strategic Initiative
As a result of a detailed review, Lodgian has redefined its core portfolio, which will contain 43 hotels with 7,924 rooms, compared with its current portfolio of 71 hotels with 12,943 rooms.For the nine months ended September 30, 2006, net operating income for these 43 hotels was $19.0 million and Adjusted EBITDA was $42.4 million.The company spent approximately $120 million in capital expenditures on these properties since 2004.
The core portfolio is comprised of 32 full service hotels, averaging 213 rooms and more than 10,500 square feet of meeting space, and 11 select service hotels, of which 10 are Marriott branded properties.Approximately 9 percent of the properties are in the Upper Upscale segment as defined by Smith Travel Research, 47 percent in Upscale, and 37 percent in Midscale with food & beverage.Of the 7,710 rooms located in the United States, approximately 59 percent of rooms are located in the top 25 Metropolitan Statistical Areas (MSAs); those not in the top 25 MSAs include three Atlantic Coast beach hotels, one in a popular Colorado ski area, one in Pinehurst, N.C., and five Courtyards by Marriott, each in a strong tertiary market.
As a result of the strategic reconfiguration of
its portfolio, the company will sell a total of 27 hotels (including 14
hotels currently held for sale), transferring an additional 13 hotels to
discontinued operations after September 30, 2006.
Concurrent with the reconfiguration of the portfolio, Lodgian restructured its operating team to focus on the different needs of the core and held-for-sale hotels.Management of the core hotels will concentrate on the creation of long-term results and value.The held-for-sale management team will have incentives to maximize hotel performance until the properties are sold.
Third Quarter 2006 Operating Result
*Dollars in thousands except for RevPAR and per share data
Continuing operations data in the table above includes
the financial effects of the closure of two hotels in
The increase in “Rooms revenue – Continuing operations”, presented above, exceeds the increase in “RevPAR – Continuing operations” due to differing numbers of rooms being available in 2006 vs. 2005 third quarter (965,540 in 2006 vs. 956,402 in 2005 third quarter).
In this press release, Lodgian uses the term “Adjusted EBITDA” to mean earnings before interest, taxes, depreciation and amortization (“EBITDA”), but excluding the effects of the following charges: post-emergence Chapter 11 expenses; impairment losses; casualty (gains)/losses, net, for properties damaged by hurricane, fire or flood; and charges related to the surrender of two hotels to a bond trustee and one hotel, in which we owned a non-controlling equity interest and whose results were accounted for under the equity method of accounting, to a lender.
EBITDA for the third quarters of 2006 and 2005, as shown above, also excludes
the results of the two
Total revenues in the
2006 third quarter, at $78.0 million, improved 6.3 percent compared to
the same period a year earlier.Net income attributable
to common shares was $162,000, or $0.01 income per diluted share, in the
2006 third quarter, compared to $9.7 million, or $0.39 per diluted share,
in the 2005 third quarter.The net income decline
in the 2006 third quarter was primarily due to the following items:
EBITDA from continuing operations was $18.2 million, a 7.4 percent improvement from $17.0 million in the prior year’s third quarter. Adjusted EBITDA for the 56 continuing operations hotels open during both periods’ third quarter declined to $12.5 million, compared to $13.1 million in the 2005 third quarter, due to the items mentioned above. Adjusted EBITDA margins for the 56 continuing operations hotels open in both periods’ third quarters declined 130 basis points to 17.0 percent.
The company recorded $3.0 million in business interruption
proceeds in the 2006 third quarter which related primarily to the 2006
first quarter, compared to $6.1 million in the prior year’s third quarter. The
company has begun filing casualty and business interruption claims, subject
to a $100,000 deductible, for the 193-room Holiday Inn hotel in
“We experienced a number of expense increases during the quarter, led by a significant increase in property insurance premiums, energy and interest expense,” said Ed Rohling, Lodgian president and chief executive officer.“We have taken steps to respond to these changes by emphasizing even more strongly our focus on those costs that we can control.Our insurance and energy costs rose substantially during the quarter, increasing 230 basis points as a percentage of revenue in the 2006 third quarter over the same period a year ago.
“Candidly, we failed to adequately manage property-level payroll during the quarter.Total payroll costs, as a percentage of revenues, increased 38 basis points.This increase was partially mitigated by a decline in workers’ compensation costs of 24 basis points.Payroll represents roughly 30 percent of our total revenues and is the single largest expense we have to manage.We have since taken important steps to improve our controllable costs and have initiated an enhanced labor management program which is more proactive than our previous practice.”
RevPAR at the company’s 25 renovated hotels that
completed substantial renovations in 2004 and 2005, excluding the two newly-renovated
As part of the company’s
portfolio improvement program, discussed above, Lodgian placed six hotels
into discontinued operations in the 2006 third quarter (bringing the total
to 11), an additional three since September 30, 2006, and plans to reclassify
an additional 13 hotels into discontinued operations by year-end.Excluding
“We conducted a thorough analysis of our entire portfolio to determine the most strategic allocation of our capital,” Rohling said.“The review was performed using stringent criteria that we believe will translate into the greatest long-term growth potential and that match up with our unique strengths as an owner/operator, including brand, location, market, renovation requirements, safety issues, and upgrade and repositioning potential.We have nearly completed our disposition analysis, and have identified the hotels that will become the core portfolio.Going forward, we will be more focused to ensure that future investments in upgrades and other capital items will generate returns consistent with our internal objectives.
“The sale of these non-strategic properties will allow us to concentrate operationally on those hotels that will generate the highest returns and produce long-term growth for the company,” he added. “The proceeds we receive from these sales will give us increasingly greater flexibility to respond to current and expected industry trends.”
The company estimates the aggregate sales price of the 27 hotels identified to be held for sale by year-end will be $115 million to $122 million, based upon sales contracts, letters of intent, broker opinions of value or management estimates.Eight of these hotels currently are part of the collateral for fixed rate credit facilities, which the company will partially defease in conjunction with those sales.Thirteen of the hotels to be sold currently are part of the collateral for a floating rate credit facility that the company intends to pay off early in the 2007 first quarter, simultaneously with a refinancing of two hotels.
The sale of the 27 properties is expected to result in net positive cash flow of $60 million to $70 million after debt reduction, the refinancing referred to above, selling expenses, applicable liquidated damages payable to franchisors, and defeasance costs. As required by GAAP, the company recorded a $2.0 million impairment charge in the 2006 third quarter, associated with its reclassification of six hotels during the quarter, and expects to incur a $13 million to $19 million impairment charge in the 2006 fourth quarter associated with the planned reclassification and subsequent sale of the portfolio of hotels.
“In the near term, we intend to use the proceeds to build our cash reserves to fund future capital projects or renovations at our core hotels, and/or acquire additional shares of stock under our previously announced stock repurchase program. Longer term, we will consider acquiring additional hotels once prices return to more reasonable levels,” Rohling said.
Following the close of the third quarter, Lodgian
sold two hotels.Located in
The company has nearly finished the demolition
of the 198-room
New Core Structure
On a pro forma basis, during the nine months ended September 30, 2006, the 43 hotels in what the company considers its core portfolio generated $198.8 million of total revenue, net income of $2.4 million, Adjusted EBITDA of $42.4 million and an Adjusted EBITDA to revenue margin of 21.3 percent.Conversely, the non-core portfolio of 29 hotels (including the 2 hotels sold in the 2006 fourth quarter) generated $70.4 million of total revenue, net income of $3.4 million (including a $12.4 million gain on sale of assets), Adjusted EBITDA of $11.3 million, and an Adjusted EBITDA margin of 16.1 percent during the same time period.
*Dollars in thousands except for RevPAR and per room data
Balance Sheet Update
During the 2006 third quarter, Lodgian acquired approximately 130,000 shares of common stock at an average price of $12.07 per share, for a total of approximately $1.6 million, as part of its previously announced plan to repurchase up to $15 million of its common shares over a period ending no later than May 26, 2007.Through September 30, 2006, the company had acquired a cumulative total of 179,000 shares for approximately $2.2 million.
“We have begun efforts to refinance two hotels, one of which is currently part of the collateral for a floating rate credit facility,” said James MacLennan, executive vice president and chief financial officer. “The second hotel to be financed is currently unencumbered.”
The proceeds from this fixed rate financing will be used to pay off a substantial majority of the outstanding balance of the existing floating rate facility secured by 15 hotels. The remaining balance will be retired by company funds. This refinancing will unencumber 13 of the 27 assets in the company’s non-core portfolio.
“Concurrently, we are in the early stages of exploring a line of credit facility to give us greater flexibility and speed in executing growth initiatives, adding to our potential resources. We have just under $66 million in cash and restricted cash on the balance sheet as of September 30, 2006, an increase of more than $31 million year to date.”
Non-GAAP Financial Measures
The historical non-GAAP financial measures included in this press release are reconciled to the comparable GAAP measures in the schedules attached to this press release.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP measures and should not be used as a substitute for measures such as net income (loss), cash flows from operating activities, or other measures computed in accordance with GAAP. The company uses EBITDA and Adjusted EBITDA to measure its performance and to assist in the assessment of hotel property values.
EBITDA is also a widely used industry measure which Lodgian believes provides pertinent information to investors and is an additional indicator of the company’s operating performance.
The company defines Adjusted EBITDA as EBITDA excluding the effects of certain charges such as post-emergence Chapter 11 expenses included in corporate and other on the company’s consolidated statement of operations, impairment losses, casualty losses or gains related to damage to and insurance recoveries for properties damaged by hurricane, fire or flood, and charges related to the surrender of two wholly-owned hotels to the bond trustee and the disposition or surrender of one minority interest hotel to the lender. Adjusted EBITDA also excludes the results of two storm-damaged Florida hotels that were closed for repairs during the 2004 fourth quarter and essentially all of 2005, thus eliminating both the adverse effect of their closure and the positive effect of the settlement of their property damage and business interruption insurance claims in the fourth quarter and full year 2005. Also excluded are the results in both periods for a hotel damaged by fire in January 2006, which remains closed.
Lodgian is one of the
largest independent owners and operators of full-service hotels in the
This press release includes forward-looking statements related to Lodgian’s operations that are based on management’s current expectations, estimates and projections. These statements are not guarantees of future performance and actual results could differ materially. The words “guidance,” “may,” “should,” “expect,” “believe,” “anticipate,” “project,” “estimate,” “plan,” and similar expressions are intended to identify forward-looking statements.
Certain factors are not within the company’s control and readers are cautioned not to put undue reliance on forward-looking statements. These statements involve risks and uncertainties including, but not limited to, the company’s ability to generate sufficient working capital from operations and other risks detailed from time to time in the company’s SEC reports. The company undertakes no obligations to update events to reflect changed assumptions, the occurrence of unanticipated events or changes to future results over time.
|Also See:||Lodgian Initiates Acquisition Program / January 2005|
|Edward J. Rohling Appointed President, Lodgian, Inc. / July 2005|