Hotel Online Special Report Equity Inns Now Forecasting 1999 RevPAR Growth of Zero to Negative 1% Agreement Reached With Patriot, Crossroads and Interstate MEMPHIS, Tenn., March 31, 1999 – Equity Inns, Inc. (NYSE: ENN), a real estate investment trust (REIT) focused on the upscale extended stay, all-suite and midscale limited-service segments of the hotel industry, today announced that the Company has entered into an agreement with affiliates of Crossroads Hospitality Company, LLC and Interstate Hotels Management, Inc., wholly-owned subsidiaries of Patriot American Hospitality, Inc. (NYSE: PAH), which amends the lease under which the Crossroads affiliates are lessees and Patriot and Interstate serve as guarantors of leases for 80 Equity Inns hotels. This agreement is subject to third party consents.
Under the terms of this agreement, Crossroads relinquishes the right of first refusal to lease Equity Inns hotels, with the exception of two new Homewood Suites hotels in Chicago and Orlando, which the Company expects to acquire this summer. Also, Equity Inns relinquishes the right of first refusal to purchase Interstate assets in the future. In the event Crossroads desires to sell its current Equity Inns leases, Equity Inns has the right of first offer for their purchase.
In addition, performance standards will be included in all leases based on revenues of the hotels and expenditures for marketing and maintenance of the hotels, and Equity Inns will receive $2 million of additional 1999 incentive rent. As a condition of the agreement, Equity Inns and Patriot will release each other from any claims or threatened litigation related to these matters.
Subsequent to the proposed spin-off of the third-party hotel management business Patriot acquired from Interstate Hotels Company (which includes the Crossroads leases) into a separate public company, Equity Inns will receive a seat on the Board of Directors of such company, which will replace Patriot as the guarantor of the Company’s leases.
“This new agreement clarifies the role and responsibilities of Interstate as a lessee and manager of Equity Inns hotels,” said Phillip H. McNeill, Chairman and Chief Executive Officer. “Coupled with the infusion of new top management, we believe the agreement will allow Interstate to better focus on the quality management and improved operations of the properties, which will lead to more consistent and acceptable levels of performance.”
Commenting on the outlook for the year, the Company noted that in a number of highly competitive markets, supply additions have outpaced demand growth, and its revised revenue per available room (RevPAR) growth expectations for 1999 have been lowered from 2% for all hotels open throughout 1998 and 1999 (same store sales) to zero to negative 1% growth for 1999. Accordingly, funds from operations (FFO) for 1999 could be as much as $0.10 per share below analysts’ consensus estimates of $1.75 per share for the year, and first quarter (FFO) results are expected to be slightly below the analysts’ consensus of $0.34 per share. The Company expects to report actual first quarter financial results the week of April 26.
“We view 1999 and early 2000 as the bottom of the current business cycle in our industry. Supply growth is subsiding in the industry as a whole, including the upscale extended stay, all-suite and midscale limited-service market segments. We will continue to reposition our portfolio into the upscale extended stay and all-suite segments with excellent brands in markets with high barriers to entry, while selectively pruning our portfolio of midscale limited-service hotels in tertiary markets. Additionally, our aggressive capital refurbishment program has continued in 1999 and enhances our competitive position in the respective markets,” Mr. McNeill concluded.
The Company emphasized that it has no current plans to reduce its current quarterly dividend of $0.31 per share, or an annual yield of 13.5% based on yesterday’s closing stock price.
“Our experience with the cyclical nature of our industry has conservatively influenced our dividend policy in the past,” said Donald H. Dempsey, Chief Financial Officer of Equity Inns. “Despite a less optimistic 1999 outlook, the revised FFO dividend payout rate is estimated to be in the 75% range, which is within our targeted parameters.”
“The Company expects to close shortly on a $100 million secured financing, which is expected to fund during the second quarter and be used to finance three previously announced acquisitions — 235-suite Homewood Suites in downtown Chicago, Illinois; 300-room/suite Hawthorn Suite Hotel near O’Hare Airport in Chicago, Illinois, and 252-suite Homewood Suites in Orlando, Florida,” said Howard A. Silver, President and Chief Operating Officer.
“At the conclusion of this transaction, approximately two-thirds of Equity Inns debt will be fixed for an average of eight years. The Company is also in the final stages of closing on a $25 million parallel bank facility.” Memphis-based Equity Inns, Inc. is a self-advised REIT that focuses on the upscale extended stay, all-suite and midscale limited-service segments of the hotel industry. With the settlement of previously announced acquisitions, the Company will own 105 hotels with over 13,400 rooms located in 37 states.
Certain matters within this press release are discussed using forward-looking language as specified in the 1995 Private Securities Litigation Reform Law, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. From time to time, these risks are discussed in the Company’s filings with the Securities and Exchange Commission.
Contact: Howard Silver, President and Chief Operating Officer of Equity Inns 901-754-7774 Also See: Equity Inns Reports Year End Results: Occupancy Rate Lower by 2.7%, ADR Increase of 5.6% / Jan 1999 Equity Inns and RFS Hotel Investors Cancel Merger Plans / Sept 1998