Interstate Hotels & Resorts Reports First-Quarter Results
WASHINGTON--Interstate Hotels & Resorts IHR, the nation's largest independent hotel management company, today reported historical results for the first quarter ended March 31, 2003. Interstate Hotels & Resorts was formed July 31, 2002, following the merger of MeriStar Hotels & Resorts and Interstate Hotels Corporation. For 2002, both historical financial data and combined pro forma financial data (assuming the merger was completed on January 1,...
First-Quarter Results
For the 2003 first quarter, net income was $4.4 million, or $0.21 per diluted share. Net operating loss was $(3.4) million in the 2003 first quarter. On a historical basis, net loss available to common shareholders was $(0.3) million, or $(0.05) per share, in the 2002 first quarter.
The statement of operations for the 2003 first quarter includes the following non-recurring items and special charges:
$13.6 million gain on the early repayment of a $56.1 million loan from MeriStar Hospitality Corporation
$1.9 million of merger and integration expenses, including professional fees, travel, and other transition costs.
Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding non-recurring items and special charges, was $3.1 million for the 2003 first quarter. First-quarter 2003 revenues were $257.2 million. Net loss, excluding non-recurring items and special charges, for the 2003 first quarter was $(2.6) million, or $(0.13) per share. The results are in line with consensus analysts' estimates. For the first quarter of 2002, pro forma EBITDA, excluding non-recurring items and special charges, was $5.3 million and pro forma net loss, excluding non-recurring items and special charges, was $(2.0) million or $(0.10) per share. Reconciliations of EBITDA and net income (loss), excluding non-recurring items and special charges, are provided in the table of this press release.
On July 1, 2002, MeriStar Hotels & Resorts assigned the leases of 47 hotels for $17 million to a subsidiary of Winston Hotels
Same-store revenue per available room (RevPAR) for all full-service managed hotels in the 2003 first quarter decreased 2.2 percent to $66.26. Occupancy rose 0.3 percent to 62.6 percent, and average daily rate (ADR) declined 2.5 percent to $105.87. Same-store RevPAR for all limited-service managed hotels in the 2003 first quarter decreased 2.1 percent to $47.85. Occupancy decreased 0.5 percent to 62.4 percent, and ADR decreased 1.5 percent to $76.75.
"The industry continues to be battered by the poor economy, which was further impacted by the war with Iraq and concerns regarding severe acute respiratory syndrome (SARS)," said Paul W. Whetsell, chairman and chief executive officer. "With the conclusion of the combative phase of the war, we are hopeful that the economy will regain its footing and begin the long-anticipated turnaround."
"While demand has been significantly impacted by current economic conditions, Interstate produced a 1.3 percent market share gain in RevPAR for our hotels' owners during the first quarter," said John Emery, president and chief operating officer. "We continue to respond proactively to individual economic conditions at each of our managed hotels. With our proprietary systems and technology, we are able to aggressively manage staffing and other variable costs, based on real-time occupancy projections. We are aggressively marketing our properties through customized e-commerce and traditional marketing and revenue management programs."
"BridgeStreet Corporate Housing Worldwide's European and Canadian markets have been negatively impacted by the war in Iraq and SARS," said Emery. "U.S. markets, however, are performing in line with or above original forecasts, and Bridgestreet's Licensed Global Partner Program has been positively received. We signed our first three partnership license agreements during the quarter and expect to sign additional agreements in the upcoming quarters. In Europe and Canada we expect the softness in demand to continue, based on current events. The timing of a recovery in those markets is uncertain."
"In our real estate operations, we continue to look for attractive acquisition opportunities with our joint venture partners," he commented. "We originally anticipated beginning joint venture acquisition activity in the second quarter of 2003, but due to current events, the timing of this activity has been delayed. However, based on the availability and pricing we are seeing for our target properties, we expect to see increased activity in the second half of 2003."
Capital Structure
"The early repayment of our note payable to MeriStar in the 2003 first quarter significantly strengthens our balance sheet," said James A. Calder, chief financial officer. "We have a strong and flexible financial structure with $24 million of availability on our line of credit as of March 31. We are well-positioned to take advantage of management and real estate investment opportunities that occur as the economy begins to improve."
Key Financial Information
As of March 31, 2003: Total debt of $132.8 million, consisting of $88.6 million senior debt, $40.0 million subordinated debt and a $4.2 million promissory noteWASHINGTON--(BUSINESS WIRE)--May 7, 2003--Interstate Hotels & Resorts
Interstate Hotels & Resorts was formed July 31, 2002, following the merger of MeriStar Hotels & Resorts and Interstate Hotels Corporation. For 2002, both historical financial data and combined pro forma financial data (assuming the merger was completed on January 1, 2002) are included in the table of this press release. Historical financial data represents results for Interstate Hotels Corporation through July 31, 2002, and results for Interstate Hotels & Resorts subsequent to July 31, 2002.
First-Quarter Results
For the 2003 first quarter, net income was $4.4 million, or $0.21 per diluted share. Net operating loss was $(3.4) million in the 2003 first quarter. On a historical basis, net loss available to common shareholders was $(0.3) million, or $(0.05) per share, in the 2002 first quarter.
The statement of operations for the 2003 first quarter includes the following non-recurring items and special charges:
$13.6 million gain on the early repayment of a $56.1 million loan from MeriStar Hospitality Corporation
$1.9 million of merger and integration expenses, including professional fees, travel, and other transition costs.
Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding non-recurring items and special charges, was $3.1 million for the 2003 first quarter. First-quarter 2003 revenues were $257.2 million. Net loss, excluding non-recurring items and special charges, for the 2003 first quarter was $(2.6) million, or $(0.13) per share. The results are in line with consensus analysts' estimates. For the first quarter of 2002, pro forma EBITDA, excluding non-recurring items and special charges, was $5.3 million and pro forma net loss, excluding non-recurring items and special charges, was $(2.0) million or $(0.10) per share. Reconciliations of EBITDA and net income (loss), excluding non-recurring items and special charges, are provided in the table of this press release.
On July 1, 2002, MeriStar Hotels & Resorts assigned the leases of 47 hotels for $17 million to a subsidiary of Winston Hotels
Same-store revenue per available room (RevPAR) for all full-service managed hotels in the 2003 first quarter decreased 2.2 percent to $66.26. Occupancy rose 0.3 percent to 62.6 percent, and average daily rate (ADR) declined 2.5 percent to $105.87. Same-store RevPAR for all limited-service managed hotels in the 2003 first quarter decreased 2.1 percent to $47.85. Occupancy decreased 0.5 percent to 62.4 percent, and ADR decreased 1.5 percent to $76.75.
"The industry continues to be battered by the poor economy, which was further impacted by the war with Iraq and concerns regarding severe acute respiratory syndrome (SARS)," said Paul W. Whetsell, chairman and chief executive officer. "With the conclusion of the combative phase of the war, we are hopeful that the economy will regain its footing and begin the long-anticipated turnaround."
"While demand has been significantly impacted by current economic conditions, Interstate produced a 1.3 percent market share gain in RevPAR for our hotels' owners during the first quarter," said John Emery, president and chief operating officer. "We continue to respond proactively to individual economic conditions at each of our managed hotels. With our proprietary systems and technology, we are able to aggressively manage staffing and other variable costs, based on real-time occupancy projections. We are aggressively marketing our properties through customized e-commerce and traditional marketing and revenue management programs."
"BridgeStreet Corporate Housing Worldwide's European and Canadian markets have been negatively impacted by the war in Iraq and SARS," said Emery. "U.S. markets, however, are performing in line with or above original forecasts, and Bridgestreet's Licensed Global Partner Program has been positively received. We signed our first three partnership license agreements during the quarter and expect to sign additional agreements in the upcoming quarters. In Europe and Canada we expect the softness in demand to continue, based on current events. The timing of a recovery in those markets is uncertain."
"In our real estate operations, we continue to look for attractive acquisition opportunities with our joint venture partners," he commented. "We originally anticipated beginning joint venture acquisition activity in the second quarter of 2003, but due to current events, the timing of this activity has been delayed. However, based on the availability and pricing we are seeing for our target properties, we expect to see increased activity in the second half of 2003."
Capital Structure
"The early repayment of our note payable to MeriStar in the 2003 first quarter significantly strengthens our balance sheet," said James A. Calder, chief financial officer. "We have a strong and flexible financial structure with $24 million of availability on our line of credit as of March 31. We are well-positioned to take advantage of management and real estate investment opportunities that occur as the economy begins to improve."
Key Financial Information
As of March 31, 2003:
Total debt of $132.8 million, consisting of $88.6 million senior debt, $40.0 million subordinated debt and a $4.2 million promissory note
- Total debt to trailing 12-month EBITDA (as defined in our senior credit agreement) of 4.2x
- Senior debt to trailing 12-month EBITDA (as defined in our senior credit agreement) of 2.9x
- Annual interest coverage ratio (as defined in our senior credit agreement) of 2.8x
- Average cost of debt of 6.9 percent Outlook and Guidance
"We were able to meet our earnings expectations for the first quarter of 2003 despite the geopolitical events, the high-profile SARS issue and the unstable economy," said Emery. "While these events have not impacted our first-quarter results significantly, we are uncertain of the effect on our full-year results, specifically on our fourth-quarter incentive fees, the timing of joint venture investments and Bridgestreet Corporate Housing Worldwide's European and Canadian operations. While earnings visibility remains difficult, we are only slightly revising our EBITDA guidance for the full year."
For the full year 2003, Interstate estimates net operating income of $9.7 million to $13.7 million. Interstate has lowered its guidance for EBITDA, excluding non-recurring items and special charges, by 8 percent to $31 million to $35 million. Projected net income per share, excluding non-recurring and special charges, for 2003 is estimated at $0.14 to $0.26. For the 2003 second quarter, Interstate forecasts net operating income (loss) of $(0.3) million to $0.7 million, EBITDA, excluding non-recurring items and special charges, of $6.5 million to $7.5 million and net income (loss) per share, excluding non-recurring items and special charges, of $(0.02) to $0.01. Reconciliations of forecasted EBITDA and net income, excluding non-recurring items and special charges, for the year ending December 31, 2003, and the three months ending June 30, 2003, are included in the table of this press release.
Interstate will hold a conference call to discuss its first-quarter results today, May 7, at 10 a.m. Eastern time. Interested parties may visit the company's Web site at
Interested parties also may listen to an archived webcast of the conference call on the Web site, or may dial (800) 405-2236, pass code 533096, to hear a telephone replay. The telephone replay will be available through Monday, May 12, 2003.
Interstate Hotels & Resorts operates 384 hospitality properties with more than 81,000 rooms in 44 states, the District of Columbia, Canada and Russia, including 55 properties managed by Flagstone Hospitality Management, a subsidiary of Interstate Hotels & Resorts. BridgeStreet Corporate Housing Worldwide, an Interstate Hotels & Resorts subsidiary, is one of the world's largest corporate housing providers, offering upscale, fully furnished corporate housing throughout the United States, Canada, the United Kingdom, France and 39 additional countries through its network partners.
For more information about Interstate Hotels & Resorts, visit the company's Web site:
Interstate Hotels & Resorts, Inc.
Statements of Operations
(Unaudited, in thousands except per share amounts)
Historical Pro-Forma (1)
Three Months Ended Three Months
March 31, Ended
2003 2002 March 31, 2002
---------- ----------
Revenue
Lodging revenues $ 836 $ 676 $ 32,284
Net management fees 14,195 5,658 14,160
Other fees 3,881 4,013 4,771
Corporate housing 25,819 - 24,246
---------- ----------
44,731 10,347 75,461
Other revenue from managed
properties 212,497 62,441 174,840
---------- ----------
Total revenue 257,228 72,788 250,301
Operating expenses by
department:
Lodging expenses 620 481 9,094
Corporate housing 22,122 - 20,212
Undistributed operating
expenses:
Administrative and general 18,865 6,186 22,832
Lease expense - - 18,036
Depreciation and
amortization 4,682 2,528 4,917
Merger and integration
costs 1,865 - 260
Tender offer costs - 119 119
---------- ----------
48,154 9,314 75,470
Other expenses from managed
properties 212,497 62,441 174,840
---------- ----------
Total operating expenses 260,651 71,755 250,310
---------- ----------
Net operating income (loss) (3,423) 1,033 (9)
Interest expense, net 2,309 975 2,910
Equity in loss of affiliates 348 180 414
Gain on refinancing (13,629) -
---------- ----------
Income (loss) before minority
interests and income taxes 7,549 (122) (3,333)
Minority interests 168 64 (18)
Income tax expense (benefit) 2,952 (71) (1,101)
---------- ----------
Net income (loss) 4,429 (115) (2,214)
Mandatorily redeemable
preferred stock:
Dividends - 159
Accretion - 15
---------- ----------
Net income (loss) available to
common shareholders $ 4,429 $ (289) $ (2,214)
========== ========== ===============
Weighted average shares
outstanding:
Basic (2) 20,577 5,272 20,127
Diluted (2) 20,846 5,272 20,127
Basic earnings (loss) per
share $ 0.22 $ (0.05) $ (0.11)
========== ========== ===============
Diluted earnings per share $ 0.21 (0.05) (0.11)
========== ========== ===============
Net operating income (loss) $ (3,423) $ 1,033 (9)
Depreciation and
amortization 4,682 2,528 4,917
---------- ----------
EBITDA (3) 1,259 3,561 4,908
Merger and integration
costs 1,865 - 260
Tender offer costs - 119 119
---------- ----------
EBITDA, excluding non-recurring
items and special charges (4) $ 3,124 $ 3,680 $ 5,287
========== ========== ===============
Net income (loss) $ 4,429 $ (115) $ (2,214)
Adjustments to net income
(loss), net of income taxes:
Merger and integration costs 1,119 - 156
Tender offer costs - 71 71
Gain on refinancing (8,177) -
---------- ----------
Net loss, excluding non
recurring items and special
charges (4) $ (2,629) $ (44) $ (1,987)
========== ========== ===============
Basic and diluted loss per
share, excluding non
recurring items and special
charges $ (0.13) $ (0.01) $ (0.10)
========== ========== ===============
Outlook Reconciliation (5) Forecast
Twelve Months Three Months
Ending Ending
December 31, June 30,
2003 2003
--------------
Net operating income $ 11,700 $ 200
Depreciation and amortization 14,200 4,200
--------------
EBITDA (3) 25,900 4,400
Merger and integration costs 6,000 1,500
Winston contract termination costs 900 900
Write-off of other management
contract assets 200 200
--------------
EBITDA, excluding non-recurring items
and special charges (4) $ 33,000 $ 7,000
============== ==============
Net loss $ (60) $ (1,560)
Adjustments to net loss, net of income
taxes:
Merger and integration costs 3,600 900
Winston contract termination costs 540 540
Write-off of other management
contract assets 120 120
--------------
Net income, excluding non-recurring
items and special charges (4) $ 4,200 $
============== ==============
Income per share,
excluding non-recurring items and
special charges $ 0.20 $
============== ==============
Pro-forma hotel operating statistics: 1st Qtr 2003 1st Qtr 2002
-------------
Full-service hotels:
Occupancy 62.6% 62.4%
ADR $ 105.87 $ 108.53
RevPAR $ 66.26 $ 67.77
Limited-service hotels:
Occupancy 62.4% 62.7%
ADR $ 76.75 $ 77.90
RevPAR $ 47.85 $ 48.88
(1) Assumes the merger transaction between Interstate Hotels
Corporation and MeriStar Hotels & Resorts, Inc. was completed on
January 1, 2002.
(2) Presented giving effect to the 4.6 shares of common stock issued
to Interstate shareholders, and the one-for-five reverse stock
split associated with the merger on July 31, 2002.
(3) This press release includes various references to EBITDA. A
significant portion of our non-current assets consist of
intangible assets. Of those intangible assets, our management
contracts are amortized over their remaining terms, and, in
accordance with generally accepted accounting principles (GAAP),
those assets are subject to straight-line amortization. Because
depreciation and amortization are non-cash items, management and
many industry investors believe that presentation of EBITDA is
more 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 operating performance and our
cýacity to incur and service debt, fund capital expenditures and
expand our business. Management also uses EBITDA as one measure in
determining the value of other acquisitions and dispositions. We
also believe that the rating agencies and a number of our lenders
also use EBITDA for those purposes, and a number of restrictive
covenants in our endebtedness measure EBITDA, so disclosing EBITDA
may be useful to those investors. EBITDA is also widely used in
our annual budget process.
(4) We define EBITDA, excluding non-recurring items and special
charges as EBITDA 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. Similarly, we define
net income (loss) excluding non- recurring items and special
charges as net income (loss) without the effects of those same
charges, transactions and expenses. We believe that EBITDA and net
income (loss) excluding non-recurring items and special charges
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
EBITDA and net income (loss) excluding non-recurring items and
special charges because they may help investors to compare our
performance before the effect of various items that do not
directly affect our ongoing operation performance.
(5) Our outlook reconciliation uses the mid-point of our estimates of
net operating income and net loss.