ATLANTA, May 12, 1999 - Homestead Village Incorporated (NYSE:
HSD), a leading owner and operator of moderately priced, extended stay
lodging facilities, today reported an increase of 70.6% in EBITDA (earnings
before interest, taxes, depreciation and amortization) per diluted share
to $0.29 in the first quarter of 1999, compared with $0.17 per share for
the same period one year ago. Aggregate EBITDA for the first quarter 1999
was $16.4 million, a 52.7% increase over the $10.8 million EBITDA in the
first quarter 1998. The company had 125 operating properties as of March
31, 1999, and eleven properties under development.
In its press release issued March 15, 1999, the company stated that
it anticipated first quarter EBITDA of between $17 million and $18 million.
Subsequent to the March 15 release, management determined that it would
be necessary to reduce the amount of costs that were capitalized because
of the rapid decline in development activity resulting from the shortage
of capital affecting the extended stay industry. The shortfall in first
quarter reported EBITDA is attributable primarily to expensing approximately
$1.5 million more in development-related costs than had been anticipated.
Homestead also reported EBDADT (earnings before depreciation, amortization
and deferred taxes) for the first quarter of $0.13 per diluted share, compared
with $0.17 per diluted share for the prior year period. Interest costs
increased to $11.3 million in the first quarter of 1999 from $520,000 in
first quarter 1998; this increase was a significant factor in the decline
in EBDADT per diluted share.
Homestead's financial statements reflect the company's adoption of "Reporting
on the Costs of Start-Up Activities" Statement of Position 98-5 (SOP 98-5)
at the beginning of fiscal year 1999. As a result, the company's first
quarter results include, as a cumulative effect of an accounting change,
a $14.2 million write-off of unamortized organizational, pre-opening and
start-up costs. On a pro forma basis, Homestead would have expensed $3.6
million under SOP 98-5 in the first quarter of 1998.
Portfolio Weekly RevPAR Increased 10%
Homestead's first quarter 1999 property-level performance compared to
first quarter 1998 can be characterized by an increase in weekly rate combined
with a decline in occupancy (whether considering comparable or "same store"
properties, stabilized, pre-stabilized or the entire portfolio).
Weekly revenue per available room (RevPAR) for the company's entire portfolio
increased 10% to $221 from $201; the number of operating properties increased
to 125 as of March 31, 1999, from 82 at March 31, 1998. The weekly
rate for the company's portfolio increased 24.8% to $352 in first quarter
1999 from $282 in the prior year period, while occupancy declined to 62.8%
in first quarter 1999 from 71.1% one year ago.
RevPAR for the company's same-store or comparable universe of 49 properties
was $209 in the first quarter 1999, a 4.1% decline from the $218 RevPAR
in the first quarter 1998. The average same-store weekly rate increased
11.2% (to $307 from $276), while occupancy declined to 68.0% from 79.1%.
Management noted that many of the same-store properties are in weaker Southwestern
markets and include Homestead's oldest and least competitive properties.
Management believes that the normal first quarter seasonal downturn
was more pronounced in 1999 for Homestead than in previous years, as the
company now has 30.8% of its investment in operating properties in Northeastern
and Midwestern markets. These markets typically are more negatively impacted
by winter weather than the Southwestern and Southeastern markets. Nevertheless,
while those properties that reached stabilization during the first quarter
of 1999 took longer to achieve stabilization (an average of 20.2 weeks)
than historic experience, five new properties opened in the first quarter
1999 had an average occupancy rate of 73.9% for April 1999.
Management Objectives
Homestead's management has established three near-term objectives.
First, management will focus
on expeditiously generating cash proceeds from its land held for sale,
which will be used to retire debt and fund working capital needs.
Second, overhead levels will be adjusted downward to reflect a company
with stabilized operations involving 136 properties. Third, management
intends to reemphasize delivery of a high-quality, value-oriented product
with occupancy levels greater than currently being experienced by the company.
As a result of implementing these objectives, the company will have a one-time
charge in the second quarter for severance costs of at least $8 million.
The Rights Offering
The company is currently conducting a $225 million rights offering.
The rights expire on May 21, 1999, with funding anticipated on May 28,
1999. A portion of the proceeds from the rights offering will be
used to repay a $200 million bridge line of credit. Remaining proceeds
from the rights offering will be used to fund cash needs, including completion
of the properties currently under construction. Security Capital
Group Incorporated (NYSE: SCZ), Homestead's largest shareholder, has committed
to purchase all rights not exercised by others.
Extending Debt Maturities
During the first quarter, the company focused on extending its near-term
debt maturities. At the beginning of the quarter, Homestead had $700.4
million of debt, of which $479.1 million was due to mature prior to June
30, 1999. During the quarter, Homestead completed a $145 million
sale and leaseback transaction on 18 properties, proceeds of which were
used to repay $122 million of debt scheduled to mature in June 1999.
The company has also extended $200 million working capital lines of credit
through December 2000; the original maturity of the lines was April 23,
1999. As of March 31, 1999, the working capital lines of credit were
fully drawn.
Upon completion of the pending rights offering and repayment of the
$200 million bridge line of credit, Homestead will have no debt maturing
until December 2000.
Land Held for Sale and Related Second Quarter
1999 Write-Offs
Homestead has made substantial investments in ownership of land held
for development as well as in pursuit costs for additional development
sites. During the second quarter, Homestead determined, based on its inability
to obtain financing for development of sites beyond those already under
construction, to further curtail its development program including its
Urban initiative. All land previously held for development will be held
for sale. Homestead will record a special charge in the second quarter
1999 allowing for write-down of the carrying cost of land held for sale,
to its estimated fair value less estimated costs to dispose.
The company has also discontinued the pursuit of 14 additional land
sites, which will result in a write-off of approximately $7.1 million,
consisting of pursuit costs and loss of non-refundable earnest money deposits.
The land-related special charges to earnings are currently estimated to
exceed $52 million. All of the land-related write-offs will be recorded
in the second quarter 1999 and will have a material adverse affect on the
reported earnings of the company for the second quarter. All of the land
and pursuit costs being written-off have been previously funded and, therefore,
the write-offs related to the land do not require additional cash expenditures.
Carrying costs on the land sites, such as interest and property taxes,
will be expensed until the sites are disposed of and will negatively affect
earnings until disposal. The majority of the land sites are encumbered
by the working capital lines of credit and, upon sale, the proceeds must
be used to pay down the working capital lines. In addition, Homestead will
immediately begin to expense previously capitalized costs of its internal
development personnel, except for construction in progress.
Michael D. Cryan Resigns;
C. Ronald Blankenship Named Interim Chairman and Chief Executive Officer
Michael D. Cryan, co-chairman and chief operating officer of Homestead,
has announced his resignation as of May 11, 1999. Mr. Cryan joined Homestead
December 18, 1996, and has been instrumental in developing the company's
marketing program and overseeing operations of the properties. C. Ronald
Blankenship, vice chairman and chief operating officer of Security Capital
Group, has been elected to the Homestead board of directors to fill the
vacancy created by Mr. Cryan's resignation and selected interim chairman
and chief executive officer of Homestead. Mr. Blankenship will continue
to serve as vice chairman of Security Capital. David C. Dressler, Jr.,
who had been co-chairman and chief investment officer of Homestead, will
become president of the company, focusing his attention on maximizing the
value in Homestead's asset portfolio, including the land held for sale.
Mr. Dressler remains a member of the Homestead board of directors. James
C. Potts will become Homestead's executive vice president, with responsibility
for optimizing Homestead's property-level performance.
Homestead Village Incorporated is a leading owner and operator of moderately
priced, extended stay lodging properties throughout the United States.
Homestead is focused on the corporate business traveler, and has developed
a proprietary operating system to ensure its customers a consistent, high-quality,
uniform lodging experience. The company seeks to build a national brand
recognized and valued by its major corporate customers by concentrating
on delivering high-quality service and product in strategic locations.
As of March 31, 1999, Homestead had 125 properties operating in 37 markets,
including 24 of the top 25 travel destination markets, and 11 properties
under construction, all of which are expected to open by the third quarter
of 1999.
First Quarter 1999
Operating Property Performance
Total Properties
Unaudited Financial Results
|
Three Months Ended March 31,
|
|
|
|
1999
|
1998
|
Change
|
Number of properties |
125 |
82 |
52.4% |
REVPAR |
$221 |
$201 |
10% |
Average Weekly Rate |
$352 |
$282 |
24.8% |
Occupancy % |
62.8% |
71.1% |
-8.3% |
Property Operating
Income Margin |
52.8% |
55.9% |
-3.1% |
Investment in
Operating Properties
(000's) |
$969,410 |
$580,434 |
67.0% |
Homestead's press releases, SEC filings, financial data and corporate
information are available on the company's web site at http://www.stayhsd.com
The web site also includes an interactive studio room tour and on-line
property directory.
In addition to historical information, this press release
contains forward-looking statements under the federal securities laws.
These statements are based on current expectations, estimates and projections
about the industry and markets in which Homestead operates, management's
beliefs and assumptions made by management. Forward-looking statements
are not guarantees of future performance and involve certain risks and
uncertainties, which are difficult to predict. Actual operating results
may be affected by changes in national and local economic conditions, competitive
market conditions, changes in financial markets or interest rates that
could adversely affect Homestead's cost of capital and its ability to meet
its financing needs and obligations, weather, obtaining governmental approvals
and meeting development schedules, and therefore, may differ materially
from what is expressed or forecasted in this press release. |