RFS Reports First Quarter Results
MEMPHIS, Tenn.--RFS Hotel Investors, Inc. RFS today announced its operating results for the quarter ended March 31, 2003. Net loss to common shareholders for the first quarter 2003 was $1.7 million, or $0.06 per diluted share, compared to a net loss of $8.3 million, or $0.32 per diluted share, for the first quarter 2002. Funds from operations (FFO) for the first quarter 2003 was $5.7 million, or $0.19 per share, compared to $(2.
Beginning January 1, 2003, for all periods presented, the Company calculates FFO in accordance with the definition of FFO per the National Association of Real Estate Investment Trusts (NAREIT). Previously, the Company adjusted FFO, as defined by NAREIT, for deferred revenue, deferred income taxes and other unusual and non-recurring transactions. As previously reported in the Company's first quarter 2002 earnings press release, FFO and FFO per share, using the Company's previous definition, were $7.8 million or $0.28 per share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) declined 15.1% from $15.4 million for the first quarter 2002 to $13.0 million for the first quarter 2003. Approximately $0.8 million of the $2.4 million decline in EBITDA was attributable to three hotels that were undergoing substantial renovations. Exclusive of these three hotels, EBITDA declined 11.0% from $13.8 million in the first quarter of 2002, to $12.2 million in the quarter ended March 31, 2003.
Highlights
- Total hotel revenue declined 5.0% to $44.6 million for the quarter.
- Comparable hotel revenue per available room (RevPAR) declined 2.5% for the quarter.
- The following represents changes in RevPAR as compared to the prior year comparable period by market segment: Full Service (2.5)% - Extended Stay (2.7)% - Limited Service (2.2)% - Total (2.5)%
- The hotels excluded in the comparable statistics above are the Residence Inns in Fishkill, NY and Sacramento, CA and the Hotel Rex in San Francisco, CA. Aggregate capital expenditures for these three hotel projects are approximately $5.8 million.
- The Company's five comparable hotels in northern California (excludes the Hotel Rex in San Francisco) consisting of one in San Francisco and four in Silicon Valley, experienced an average decline in quarterly RevPAR of 9.0%. These five northern California hotels represented 14.4% of RFS's EBITDA for the quarter.
- Exclusive of the five northern California hotels, comparable hotel RevPAR declined 1.0% for the quarter.
- Hotel operating margins (hotel EBITDA as a percentage of total revenue, excluding deferred revenue), declined 3.1 percentage points to 30.9% for the quarter.
- The Company realized an unleveraged return on investment of 8.1% on its hotel portfolio for the twelve months ending March 31, 2003. Based upon the Company's approximate 37% leverage and average borrowing costs of 8.7%, the Company realized a leveraged return on investment of 7.8%.
Operating Results
Randy Churchey, president and chief operating officer, said, "The first quarter was very unusual in two respects. First, the war in Iraq started on March 19 following several weeks of military build up. Obviously, this served to reduce the level of economic activity generally and exacerbated already weak demand in the travel/hospitality sector. Second, we made a conscious decision to undertake a substantial portion of our 2003 capital expenditures in the first quarter. This impacted, in the short term, the operations of 10 hotels. For the past three quarters, occupancy has matched or slightly exceeded the prior year while average daily rates (ADR) have declined, resulting in small decreases in RevPAR and reduced operating margins. EBITDA at the three hotels which had a substantial number of rooms out of service declined by $0.8 million or 48.3% from the first quarter of 2002."
Churchey went on to say, "As we have stated previously, our managers continue to focus on four things: increasing market penetration; controlling costs; satisfying our guests; and maintaining our hotels in superb physical condition. This is the best way to position the Company for the expected economic recovery."
Capital
Kevin Luebbers, executive vice president and chief financial officer, stated, "Our credit statistics and balance sheet continue to be strong and compare favorably with other public hotel companies. This is evidenced by the following statistics:
- Operating cash flow (EBITDA less interest expense) of $37.5 million for the trailing twelve months ended March 31, 2003. This represents funds available for capital expenditures, debt reduction, and dividends.
- Total debt equal to 4.8 times trailing twelve months EBITDA, one of the least leveraged balance sheets in the industry.
- EBITDA for the trailing twelve months ended March 31, 2002, was 2.4 times the Company's interest costs.
- No significant debt maturities until 2008.
Outlook and Dividends
Robert Solmson, chairman and chief executive officer, stated, "As we have stated previously, the Company's earnings continue to be depressed well below historical levels. Despite the fact that our dividend payout (total dividends as a percentage of FFO) is above historical norms, our balance sheet continues to be strong and industry experts continue to forecast a near-term recovery. The fact that we have been very conservative in managing our balance sheet and circumspect in using shareholder capital for acquisitions or share repurchases has permitted RFS to continue paying a quarterly dividend."
Solmson continued, "Our approach to the dividend has not changed. It is obviously difficult to project future earnings and cash flows. Booking cycles within the industry have shortened and geo-political events have created a cloud of uncertainty overhanging the United States and world economies. However, we continue to believe that the lodging industry, as well as the Company's earnings, are at or near the bottom of a cyclical trough. Furthermore, we are heartened by the short war in Iraq. We are in the process of reforecasting the second quarter and the balance of the year. We will review these projections, and, as appropriate, will provide further guidance in the ensuing months."
RFS Hotel Investors, Inc. (RFS) is a real estate investment trust (REIT) that owns 57 hotels with 8,271 rooms located in 24 states. RFS's hotel portfolio is diversified by geography, brand and segment. Leading brands under which RFS hotels are operated include Sheraton®, Residence Inn by Marriott®, Hilton®, Doubletree®, Holiday Inn®, Hampton Inn®, and Homewood Suites by Hilton®. By segment, RFS receives approximately 36% of its EBITDA from full service hotels, 37% from extended stay hotels, and 27% from limited service hotels. Additional information can be found on the Company's web site at
RFS invites you to listen to the Company's first quarter 2003 conference call on May 1, 2003, at 9:00 a.m. Central Time. The dial-in number is 312-470-7040 (15 minutes prior to the start of the call); the passcode is RFS; and the leader is Bob Solmson. The conference call will be webcast simultaneously via the Company's website at
RFS HOTEL INVESTORS, INC.
KEY COMPANY STATISTICS
QUARTER ENDED MARCH 31, 2003
Operating Statistics
Total Revenues $ 44.6 million EBITDA $ 13.0
million
% Decrease in
Revenues 5.0% % Decrease in EBITDA 15.1%
FFO $ 5.7 million % of Hotel EBITDA(1)
Full Service Hotels 36%
% Decrease in FFO 27.1% Extended Stay Hotels 37%
Limited Service Hotels 27%
FFO per Share $ 0.19
0
Capital Statistics
EBITDA/Interest(1) 2.4x Debt/EBITDA(1) 4.8x
EBITDA/Interest and 2.4x Percentage of fixed
Preferred Dividends(1) interest rate debt 92%
(1) EBITDA information is for the twelve months ended March 31,
2003.
RFS HOTEL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2003 AND 2002
(in thousands, except per share data)
Quarter Ended
March 31, March 31,
2003 2002
-------------
Revenue:
Rooms $38,363 $40,409
Food and beverage 4,171 4,203
Other operating departments 1,409 1,593
Lease revenue (1) 1,615 1,634
Deferred revenue (1) (987) (1,012)
Other 39 154
-------------
Total hotel revenue 44,610 46,981
-------------
Hotel operating expenses by department:
Rooms 8,252 8,337
Food and beverage 3,001 3,161
Other operating departments 426 466
Undistributed operating expenses:
Property operating costs 5,720 5,260
Property taxes, insurance and other 2,928 3,335
Franchise costs 3,721 3,813
Maintenance and repair 2,520 2,281
Management fees 1,344 1,251
General and administrative 3,603 3,654
-------------
Total hotel operating expenses 31,515 31,558
-------------
Net hotel operating income (Hotel EBITDA) 13,095 15,423
Corporate expenses:
Depreciation 7,521 7,246
Amortization of deferred expenses and
unearned compensation 649 676
Interest expense 6,658 6,044
General and administrative 1,050 1,085
Debt extinguishment and swap
termination costs - 10,122
Minority interest in loss of Operating
Partnership (140) (795)
-------------
Loss before income taxes (2,643) (8,955)
Benefit from income taxes (997) (510)
-------------
Loss from continuing operations (1,646) (8,445)
Discontinued operations:
Loss from discontinued operations,
net (2) - (75)
Loss (gain) on sale of assets 9 (972)
-------------
Net loss (1,655) (7,548)
Preferred stock dividends - (781)
-------------
Net loss applicable to common
shareholders $(1,655) $(8,329)
============= ==============
Loss per diluted share $(0.06) $(0.32)
Weighted average common dilutive
shares outstanding 28,516 25,761
(1) Deferred revenue is recorded for the Company's hotels which
are leased to third parties in accordance with Staff
Accounting Bulletin 101 which requires deferral of certain
revenue until the third and fourth quarters. For the quarter
ended March 31, 2003 and 2002, five hotels were leased to
third-party lessees, respectively. SAB 101 has no effect on
rent payments under the Company's third-party leases or the
Company's cash flow and no impact on full year revenue.
(2) Represents the earnings (loss) on the Comfort Inn in Fort
Mill, South Carolina which was sold on November 22, 2002.
Statement of Financial Accounting Standard No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, requires
the results of operations of sold hotels to be reported as
discontinued operations.
0
RFS HOTEL INVESTORS, INC.
CALCULATION OF FFO AND EBITDA
FOR THE QUARTER ENDED MARCH 31, 2003 AND 2002
(in thousands, except per share data)
Quarter Ended
March 31, March 31,
2003 2002
------------
Funds from operations:
Net loss $(1,655) $(7,548)
Minority interest in loss of Operating
Partnership (140) (795)
Loss (gain) on sale of assets 9 (972)
Depreciation (including depreciation on
discontinued operations) 7,521 7,321
------------
Funds from operations (1) $5,735 $(1,994)
============ ==========
Weighted average common shares, partnership
units
and potential dilutive shares outstanding 30,939 28,353
FFO per share (1) $0.19 $(0.07)
============ ==========
Earnings before interest, taxes, depreciation and
amortization (EBITDA):
FFO, as defined by NAREIT 5,735 (1,994)
Interest expense 6,658 6,044
Amortization 649 676
Benefit from income taxes (997) (510)
Debt extinguishment and swap termination
costs - 10,122
Deferred revenue 987 1,012
------------
EBITDA (2) $13,032 $15,350
============ ==========
(1) Funds from operations ("FFO") is defined by The National
Association of Real Estate Investment Trusts (NAREIT) as net
income (computed in accordance with generally accepted
accounting principles or GAAP), excluding extraordinary items
as defined by GAAP, and gains (or losses) from sales of
depreciable operating property, plus real estate related
depreciation and amortization and after comparable adjustments
for the Company's portion of these items related to
unconsolidated partnerships and joint ventures. The Company
recently adopted Regulation G, Disclosure of Non-GAAP
Financial Measures, and beginning with this release, will
report FFO in accordance with the NAREIT definition for all
periods presented. Prior to adopting Regulation G, the Company
made adjustments to FFO, as defined by NAREIT, for deferred
revenue, deferred income taxes and other unusual and
non-recurring transactions. Had the Company continued to
report FFO as in prior years, FFO and FFO per share would have
been $7,849 or $0.28 per share for the quarter ended March 31,
2002. FFO should not be considered as an alternative to net
income or loss, determined in accordance with GAAP, as an
indication of the Company's financial performance or to cash
flow from operating activities, determined in accordance with
GAAP, as a measure of the company's liquidity or is it
indicative of funds available to fund the Company's cash
needs, including the Company's ability to make cash
distributions. The Company's method of calculating FFO may be
different from the method used by other companies and
therefore, comparability may be limited.
(2) EBITDA is computed by adding FFO, interest expense,
amortization expense, benefit from income taxes, debt
extinguishment and swap termination costs and deferred
revenue. The Company uses EBITDA as a supplemental measure of
performance because the Company believes it gives the reader a
more complete understanding of the Company's operating results
before the impact of investing and financing transactions.
EBITDA should not be considered as an alternative measure of
operating results or cash flow from operations, as determined
in accordance with GAAP. Additionally, the Company's method of
calculating EBITDA may be different from the method used by
other companies and therefore, comparability may be limited.
0
RFS HOTEL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December
31,
2003 2002
---------
ASSETS
Investment in hotel properties, net $592,233 $593,289
Cash and cash equivalents 3,048 1,938
Restricted cash 5,363 4,383
Accounts receivable 5,519 4,698
Deferred expenses, net 8,328 8,805
Other assets 4,069 3,712
Deferred income taxes 26,827 25,830
---------
Total assets $645,387 $642,655
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $20,181 $22,160
Borrowings on Line of Credit 24,800 6,950
Long-term obligations 279,802 284,279
Minority interest in Operating Partnership, 2,422
and 2,459 units issued and outstanding at
March 31, 2003 and December 31, 2002, respectively 27,473 28,047
---------
Total liabilities 352,256 341,436
---------
Commitments and contingencies
Shareholders' equity:
Common Stock, $.01 par value, 100,000 shares
authorized, 29,093 and 29,043 shares issued
at March 31, 2003 and December 31, 2002,
respectively 291 290
Additional paid-in capital 408,712 408,017
Treasury stock, at cost, 576 shares (8,100) (8,100)
Distributions in excess of earnings (107,772) (98,988)
---------
Total shareholders' equity 293,131 301,219
---------
Total liabilities, preferred stock and
shareholders' equity $645,387 $642,655
========= =========
0
RFS Hotel Investors, Inc.
Market Segment Diversification
Comparable Hotels (1)
For the quarter ended March 31, 2003
ADR Occupancy REVPAR
--------------- -------------
Variance Variance Variance
vs. vs vs
Segment 2003 2002 2003 2002 2003 2002
------- ------- ----- ------- -------
Full Service $92.63 (7.5%) 63.6% 3.2 pts $58.92 (2.5%)
Extended Stay $89.32 (3.4%) 76.7% 0.6 pts $68.53 (2.7%)
Limited Service (1.5
$72.40 0.3% 60.3% pts) $43.63 (2.2%)
------- ------- ----- ------- -------
Total $84.51 (3.6%) 65.5% 0.8 pts $55.35 (2.5%)
======= ======= ===== ======= ======= ========
(1) Includes 54 of the 57 hotels owned. Excludes the Hotel Rex in
San Francisco, which closed in November 2002 and reopened in
late March 2003 after undergoing an earthquake retrofit and
renovation, and the Residence Inns in Fishkill, NY and
Sacramento, CA, which were undergoing substantial renovations
resulting in meaningful rooms out of service.
0
RFS Hotel Investors, Inc.
Brand Diversification
Comparable Hotels (1)
First
Quarter Percentage
Hotel RevPAR Hotel of Total
Properties vs. 2002 EBITDA(1) EBITDA(1)
---------- -------- --------
Residence Inn 12 (3.1%) $16,662 27%
TownePlace Suites 3 (3.6%) 2,378 4%
Courtyard 1 5.3% 907 1%
32%
Hampton Inn 17 (1.2%) 12,905 21%
Hilton 2 1.0% 2,268 4%
Doubletree 1 2.8% 2,171 3%
Homewood Suites 1 6.6% 574 1%
29%
Sheraton 3 (4.8%) 7,337 12%
Four Points 2 3.8% 3,614 6%
18%
Holiday Inn 5 (1.0%) 7,516 12%
Holiday Inn Express 5 (2.2%) 3,618 6%
---------- -------- --------
18%
52 (1.2%) 59,950 97%
Other 2 (26.1%) 1,809 3%
---------- -------- --------
Portfolio Total 54 (2.5%) $61,759 100%
========== ======== ======== ==========
(1) For the trailing twelve months ended March 31, 2003. Includes
54 of the 57 hotels owned. Excludes the Hotel Rex in San
Francisco, which closed in November and reopened in late March
2003 after undergoing an earthquake retrofit and renovation,
and the Residence Inns in Fishkill, NY and Sacramento, CA,
which were undergoing substantial renovations resulting in
meaningful rooms out of service.
0
RFS Hotel Investors, Inc.
Geographic Diversification
Comparable Hotels (1)
First
Quarter Percentage
Hotel RevPAR Hotel of Total
Properties vs. 2002 EBITDA(1) EBITDA(1)
---------- -------- --------
California (see below) 8 (4.4%) $17,251 28%
Florida 7 (3.3%) 6,748 11%
Texas 6 4.5% 6,014 10%
Michigan 3 (6.2%) 3,614 6%
Illinois 3 (2.4%) 3,392 5%
Missouri 2 7.0% 3,139 5%
Minnesota 3 (17.4%) 2,523 4%
Rhode Island 1 (4.7%) 1,666 3%
Louisiana 1 5.8% 1,662 3%
Delaware 1 9.6% 1,652 3%
Georgia 2 (13.7%) 1,631 3%
Oklahoma 2 (5.6%) 1,602 2%
Arizona 3 5.2% 1,489 2%
Nebraska 2 (3.7%) 1,449 2%
Others (2) 10 (0.8%) 7,927 13%
---------- -------- --------
Portfolio Total 54 (2.5%) $61,759 100%
========== ======== ======== ==========
California Diversification
First
Quarter Percentage
Hotel RevPAR Hotel of Total
Properties vs. 2002 EBITDA(1) EBITDA(1)
---------- -------- --------
Silicon Valley 4 (11.8%) 8,242 13%
Los Angeles Area 2 3.9% 5,390 9%
San Diego 1 2.8% 2,171 4%
San Francisco 1 2.2% 1,448 2%
---------- -------- --------
California Total 8 (4.4%) $17,251 28%
========== ======== ======== ==========
(1) For the trailing twelve months ended March 31, 2003. Includes
54 of the 57 hotels owned. Excludes the Hotel Rex in San
Francisco, which closed in November and reopened in late March
2003 after undergoing an earthquake retrofit and renovation,
and the Residence Inns in Fishkill, NY and Sacramento, CA,
which were undergoing substantial renovations resulting in
meaningful rooms out of service.
(2) We own hotels in each of the following states which
individually represent less than 2% of total Hotel EBITDA:
Alabama (1), Colorado (2), Indiana (1), Kentucky (1),
Mississippi (1), North Carolina (1), South Carolina (1),
Tennessee (1) and Wisconsin (1).
0
RFS Hotel Investors, Inc.
RETURN ON INVESTMENT ANALYSIS (1)
As of March 31, 2003
(Amounts in thousands)
Unleveraged Return on Investment
Total
Investment, EBITDA for the Unleveraged
Before TTM ended Return on
Depreciation (2) March 31, 2003 Investment
-------------------- ----------------
Full Service $364,352 $24,034 6.6%
Extended Stay $184,594 $19,614 10.6%
Limited Service $210,034 $18,111 8.6%
-------------------- ----------------
Total $758,980 $61,759 8.1%
==================== ================ =============
Leveraged Return on Investment
EBITDA for the TTM ended March 31, 2003 $61,759
Less: Interest expense (24,734)(3)
$37,025
================
Equity investment after 37% leverage $475,984
================
Leveraged Return on Investment 7.8%
================
(1) For the trailing twelve months ended March 31, 2003. Includes
54 of the 57 hotels owned. Excludes the Hotel Rex in San
Francisco, which closed in November and reopened in late March
2003 after undergoing an earthquake retrofit and renovation,
and the Residence Inns in Fishkill, NY and Sacramento, CA,
which were undergoing substantial renovations resulting in
meaningful rooms out of service.
(2) Total investment includes original cost and all capital
expenditures since acquisition. Also includes the costs
associated with the Hilton lease termination of approximately
$60 million. These costs were required to be written-off as a
cancellation of executory contracts and therefore are not
included on the balance sheet. However, for return on
investment analysis, this amount is included in the total
investment.
(3) $304.6 million at an average annual rate of 8.7% (weighted
average cost of debt at March 31, 2003).
0
RFS HOTEL INVESTORS, INC.
OUTSTANDING DEBT
March 31, 2003
Balance Interest Rate Maturity
------- -------------
(in thousands)
Line of Credit $24,800 LIBOR + 250bp Variable July 2005
Senior Notes 121,220 9.75% Fixed March 2012
Mortgage 90,185 7.83% Fixed December 2008
Mortgage 17,873 8.22% Fixed November 2007
Mortgage 50,524 8.00% Fixed August 2010
$304,602
=================
Debt Maturities
(in millions)
2003 $2.0
2004 2.9
2005 28.0
2006 3.4
2007 19.7
Thereafter 248.7
$304.6
===========
Weighted average maturity of fixed rate debt is 7.3 years.