Innkeepers USA Trust Announces Fourth Quarter and Year 2004 Earnings; RevPAR Increases 9.5 Percent in Fourth Quarter
PALM BEACH, Fla. | Innkeepers USA Trust (NYSE: KPA), a hotel real estate investment trust (REIT) and a leading owner of upscale extended-stay hotel properties throughout the United States, today announced results for the fourth quarter and the year 2004.
PALM BEACH, Fla. | Innkeepers USA Trust (NYSE: KPA), a hotel real estate investment trust (REIT) and a leading owner of upscale extended-stay hotel properties throughout the United States, today announced results for the fourth quarter and the year 2004.
% Year Year %
4Q 2004* 4Q 2003* Change* 2004* 2003* Change*
----------------------------------------------------------------------
Net loss
applicable to
common
shareholders $(2,340) $(7,359) 68% $(1,138) $(18,144) 94%
----------------------------------------------------------------------
Diluted loss per
share $(0.06) $(0.20) 70% $(0.03) $(0.49) 94%
----------------------------------------------------------------------
Funds from
operations
(FFO) $5,796 $1,464 296% $31,418 $15,893 98%
----------------------------------------------------------------------
Adjusted FFO $5,867 $5,243 12% $34,631 $27,553 26%
----------------------------------------------------------------------
FFO per share $0.15 $0.04 275% $0.81 $0.41 98%
----------------------------------------------------------------------
Adjusted FFO per
share $0.15 $0.14 7% $0.89 $0.71 25%
----------------------------------------------------------------------
Earnings before
interest,
taxes,
depreciation
and
amortization
(EBITDA) $15,353 $10,078 52% $74,276 $50,152 48%
----------------------------------------------------------------------
Adjusted EBITDA $15,428 $13,857 11% $72,458 $61,869 17%
----------------------------------------------------------------------
*In thousands, except per share and percentage change data
FFO, Adjusted FFO, FFO per share, Adjusted FFO per share, EBITDA
and Adjusted EBITDA are not generally accepted accounting
principles (GAAP) financial measures and are discussed in further
detail on pages 6-7.
FFO and FFO per share for the year 2004 include $4,249,000 in
issuance costs pertaining to the Series A Cumulative Convertible
preferred shares that were redeemed in January 2004. The Series A
preferred share issuance costs have been excluded from Adjusted
FFO, Adjusted FFO per share, EBITDA and Adjusted EBITDA.
FFO, FFO per share and EBITDA for the fourth quarter 2003 includes
$10,249,000 in percentage lease revenue that was deferred for the
first, second and third quarters 2003. The deferred percentage
lease revenue is not recognized as revenue for the fourth quarter
2003 for Adjusted FFO, Adjusted FFO per share and Adjusted EBITDA.
Adjusted FFO, Adjusted FFO per share and Adjusted EBITDA exclude
other charges and discontinued operations.
Highlights
In 2004, the company achieved a number of significant milestones:
- Reported the first year of positive revenue per available room (RevPAR) growth since the year 2000.
- Completed the acquisition by its wholly owned taxable REIT subsidiaries (TRS) of all its leases from its former lessees.
- Doubled the amount of its quarterly common share dividend in the third quarter 2004. The company paid $0.18 in common share dividends for 2004, which included a $0.03 common share dividend for the first and second quarters and $0.06 for the third and fourth quarters 2004.
- Completed an offering of new 8.0% Series C Cumulative Preferred shares and used proceeds to redeem its Series A 8.625% Cumulative Convertible Preferred shares.
- Continued to shed non-strategic assets with the sale of a Residence Inn in Eden Prairie, Minn., and a Hampton Inn in Norcross, Ga.
- Completed the purchase of three hotel properties representing 544 rooms: the Homewood Suites-Riverwalk/Downtown San Antonio, the Four Points by Sheraton, Ft. Walton Beach, Fla., and a hotel property in downtown Louisville, Ky., to be converted to a Hampton Inn.
- Acquired a site in Valencia, Calif., for $3.7 million, with plans to build a 157-suite Embassy Suites, which is projected to open in 2006.
- Announced in December the pending acquisition of three hotel properties, which closed in late December and January 2005, comprising 387 rooms in downtown Washington, D.C. (Doubletree Guest Suites), Columbia, Md. (Hampton Inn) and Montvale, N.J. (to be converted to a Courtyard).
- In January sold Residence Inns in Portland, Ore. and Vancouver, Wash.
- Spent $25 million on selected capital projects at its hotel properties.
- Completed a new $135 million revolving unsecured line of credit.
- Maintained a low-levered balance sheet. Debt to investment in hotels at cost ratio is 30 percent at December 31, 2004.
- The nearest term maturity on the company's outstanding debt is in 2007.
1Q 2Q 3Q 4Q Year
2005 2005 2005 2005 2005
----------------------------------------------------------------------
RevPAR % increase 6.0% 6.0% 6.0% 6.0% 6.0%
----------------------------------------------------------------------
Net income applicable to
common shareholders $0 $6 $6 $0 $12
----------------------------------------------------------------------
Diluted income per share $0.00 $0.15 $0.15 $0.00 $0.30
----------------------------------------------------------------------
FFO $7 $14 $15 $8 $44
----------------------------------------------------------------------
Adjusted FFO $8 $14 $15 $8 $45
----------------------------------------------------------------------
FFO per share $0.17 $0.32 $0.34 $0.20 $1.03
----------------------------------------------------------------------
Adjusted FFO per share $0.20 $0.32 $0.34 $0.20 $1.06
----------------------------------------------------------------------
EBITDA $17 $24 $25 $18 $84
----------------------------------------------------------------------
Adjusted EBITDA $17 $24 $25 $18 $84
----------------------------------------------------------------------
The TRS is projected to be breakeven in year 2005, which includes $1.1 million for the amortization of deferred franchise conversion costs and $0.5 million for the amortization of lease acquisition cost, compared to the TRS net loss of $(4.6) million for the year 2004. The TRS on a comparable basis with the year 2004 has a projected year 2005 hotel gross margin of 77 percent and hotel gross operating profit percentage of 43 percent, as compared to 76 and 42 percent, respectively, for the year 2004.
The company has budgeted $17 million for selected capital projects at its hotel properties (excludes year 2005 acquisitions, developments and in-progress rebranding projects).
The company's assumptions for its year 2005 guidance includes the recently completed 4.4 million common share offering on February 16, with the use of proceeds from the offering paying down a portion of the outstanding balance on the unsecured line of credit, and does not include the effects of any additional sales, acquisitions or developments of new hotels or other capital transactions, except as previously noted. The 4.4 million common share offering, which is expected to close today, is $0.06 dilutive to the year 2005 Adjusted FFO per share, assuming the use of proceeds from the offering are not reinvested into acquisitions.
The company intends to pay the regular quarterly dividend on the Series C Cumulative Preferred shares. The common share dividend will be evaluated on a quarterly basis for the year 2005, with the first quarter 2005 common share dividend approved at $0.06.
The National Association of Real Estate Investment Trusts (NAREIT) adopted the definition of FFO in order to promote an industry standard measure of REIT financial and operating performance. Management believes that the presentation of FFO and Adjusted FFO (defined below) provides useful supplemental information to investors regarding the company's financial condition and results of operations, particularly in reference to the company's ability to service debt, fund capital expenditures and pay cash dividends. Many other real estate companies use FFO as a measure of their financial and operating performance, which provides another basis of comparison for management. FFO, as defined, adds back historical cost depreciation. Historical cost depreciation assumes the value of real estate assets diminishes predictably over a certain period of time. In fact, real estate asset values historically have increased or decreased with market conditions. Consequently, FFO and Adjusted FFO may be useful supplemental measures in evaluating financial and operating performance by disregarding, or adding back, historical cost depreciation in the calculation of FFO and Adjusted FFO. Additionally, FFO per share and Adjusted FFO per share targets have historically been used to determine a significant portion of the incentive compensation of the company's senior management.
INNKEEPERS USA TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
----------------------- -----------------------
Revenue:
----------------------- -----------------------
Hotel Operating
--------------- ----------------------- -----------------------
Rooms $48,513 $4,907 $192,260 $6,588
----------------------- -----------------------
Food and beverage 269 0 1,061 0
----------------------- -----------------------
Telephone 414 69 1,769 75
----------------------- -----------------------
Other 1,243 124 4,544 176
----------------------- -----------------------
Corporate
--------- ----------------------- -----------------------
Percentage lease(1) 0 26,746 5,010 76,624
----------------------- -----------------------
Other 80 98 385 366
----------------------- -----------------------
Total revenue $50,519 $31,944 $205,029 $83,829
----------------------- -----------------------
Expenses:
----------------------- -----------------------
Hotel Operating
--------------- ----------------------- -----------------------
Rooms $11,681 $1,360 $43,253 $1,729
----------------------- -----------------------
Food and beverage 218 0 1,020 0
----------------------- -----------------------
Telephone 777 70 2,571 86
----------------------- -----------------------
Other 602 53 2,036 68
----------------------- -----------------------
General and
administrative 5,171 614 18,509 792
----------------------- -----------------------
Franchise and
marketing fees 3,322 378 13,305 507
----------------------- -----------------------
Amortization of
deferred franchise
conversion 274 34 1,047 34
----------------------- -----------------------
Advertising and
promotions 1,759 233 6,618 286
----------------------- -----------------------
Utilities 2,405 337 9,290 426
----------------------- -----------------------
Repairs and
maintenance 3,013 316 10,771 382
----------------------- -----------------------
Management fees 1,618 210 6,382 343
----------------------- -----------------------
Amortization of
deferred lease
acquisition 131 32 512 32
----------------------- -----------------------
Insurance 398 44 1,543 53
----------------------- -----------------------
Corporate
--------- ----------------------- -----------------------
Depreciation 8,202 8,285 31,806 31,907
----------------------- -----------------------
Amortization of
franchise fees 15 14 53 54
----------------------- -----------------------
Ground rent 130 128 505 504
----------------------- -----------------------
Interest 4,744 4,329 18,553 17,422
----------------------- -----------------------
Amortization of
loan origination
fees 235 269 953 1,076
----------------------- -----------------------
Property taxes and
insurance 2,695 2,805 11,355 11,623
----------------------- -----------------------
General and
administrative 1,302 1,290 5,413 5,161
----------------------- -----------------------
Amortization of
unearned
compensation(2) 194 373 948 1,443
----------------------- -----------------------
Other charges(3) 0 (332) 875 1,224
----------------------- -----------------------
Total expenses $48,886 $20,842 $187,318 $75,152
----------------------- -----------------------
----------------------- -----------------------
Income before
minority interest $1,633 $11,102 $17,711 $8,677
----------------------- -----------------------
Minority interest,
common 70 228 32 563
----------------------- -----------------------
Minority interest,
preferred (1,068) (1,068) (4,272) (4,272)
----------------------- -----------------------
Income from
continuing
operations $635 $10,262 $13,471 $4,968
----------------------- -----------------------
-----------------------------------------------
Discontinued
operations(4) (75) (15,126) 1,129 (13,129)
-----------------------------------------------
Net income (loss) $560 ($4,864) $14,600 ($8,161)
----------------------- -----------------------
----------------------- -----------------------
Series A preferred
share issuance
costs(5) 0 0 (4,249) 0
----------------------- -----------------------
Preferred share
dividends (2,900) (2,495) (11,489) (9,983)
-----------------------------------------------
Net loss applicable
to common
shareholders ($2,340) ($7,359) ($1,138) ($18,144)
----------------------- -----------------------
----------------------- -----------------------
Diluted loss per
share ($0.06) ($0.20) ($0.03) ($0.49)
----------------------- -----------------------
Weighted average
number of common -----------------------------------------------
shares 37,774,527 37,268,311 37,576,641 37,357,033
-----------------------------------------------
(1) Percentage lease revenue was recognized on leases with entities
other than the TRSs
(2) Amortization of unearned compensation for the year 2004 includes
$101,000 of restricted common share grants that vested on an
accelerated basis upon separation of employment of a former officer.
(3) Other charges for the year 2004 include $392,000 in severance
costs to a former officer, a $250,000 reimbursement to Innkeepers
Hospitality Management, Inc. (IHM) for expenses incurred for the
transition of 17 hotel properties managed by affiliates of Marriott
International, Inc. to IHM management and $233,000 of TRS transaction
costs. Other charges in 2003 include TRS transaction costs and a
litigation settlement.
(4) Discontinued operations for the year 2004 includes two hotel
properties sold in January 2004 and July 2004, respectively, and
three hotel properties that were held for sale at December 31, 2004.
The operations of the five hotel properties have been recognized and
categorized as discontinued operations. Discontinued operations for
the year 2004 also includes a $626,000 impairment loss relating to
two of the three hotel properties held for sale at December 31, 2004.
Discontinued operations for the year 2003, in addition to the five
hotel properties noted above, also include another hotel property
that was sold in September 2003. The operations of the six hotel
properties have been recognized and categorized as discontinued
operations. Discontinued operations for the year 2003 also includes
a $15,243,000 impairment loss relating to the hotel property sold in
July 2004 and two of the three hotel properties held for sale at
December 31, 2004.
(5) Issuance costs pertaining to the Series A Cumulative Convertible
Preferred shares that were redeemed in January 2004.
INNKEEPERS USA TRUST
CALCULATION OF FFO, EBITDA AND RECONCILIATION TO NET LOSS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
----------------------- -----------------------
CALCULATION OF FFO
----------------------- -----------------------
Net loss applicable
to common
shareholders ($2,340) ($7,359) ($1,138) ($18,144)
----------------------- -----------------------
Depreciation 8,202 8,285 31,806 31,907
----------------------- -----------------------
Depreciation included
in discontinued
operations 0 766 1,564 2,636
----------------------- -----------------------
Loss (Gain) on sale
of hotels included
in discontinued
operations 4 0 (782) 57
----------------------- -----------------------
Minority interest,
common (70) (228) (32) (563)
----------------------- -----------------------
Minority interest,
preferred
----------------------- -----------------------
FFO $5,796 $1,464 $31,418 $15,893
----------------------- -----------------------
Weighted average number
of common shares and ----------------------- -----------------------
common share
equivalents 39,196,016 38,632,431 39,013,311 38,630,167
-----------------------------------------------
FFO per share $0.15 $0.04 $0.81 $0.41
-----------------------------------------------
----------------------- -----------------------
FFO $5,796 $1,464 $31,418 $15,893
----------------------- -----------------------
Series A preferred
share issuance costs 0 0 4,249 0
----------------------- -----------------------
Other charges 0 (332) 875 1,224
----------------------- -----------------------
Discontinued
operations (555) (883) (2,537) (4,807)
----------------------- -----------------------
Loss on hotels
classified as held -----------------------------------------------
for sale included in
discontinued
operations 626 15,243 626 15,243
-----------------------------------------------
Deferred percentage
lease revenue 0 (10,249) 0 0
----------------------- -----------------------
Adjusted FFO $5,867 $5,243 $34,631 $27,553
----------------------- -----------------------
Adjusted FFO per share $0.15 $0.14 $0.89 $0.71
----------------------- -----------------------
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
----------------------- -----------------------
CALCULATION OF EBITDA
----------------------- -----------------------
Net loss applicable
to common
shareholders ($2,340) ($7,359) ($1,138) ($18,144)
----------------------- -----------------------
Interest 4,744 4,329 18,553 17,422
----------------------- -----------------------
Depreciation and
amortization 9,051 9,007 35,319 34,546
----------------------- -----------------------
Depreciation
included in
discontinued
operations 0 766 1,564 2,636
-----------------------------------------------
Minority interest,
common (70) (228) (32) (563)
-----------------------------------------------
Minority interest,
preferred 1,068 1,068 4,272 4,272
-----------------------------------------------
Series A preferred
share issuance
costs 0 0 4,249 0
-----------------------------------------------
Preferred share
dividends 2,900 2,495 11,489 9,983
----------------------- -----------------------
EBITDA $15,353 $10,078 $74,276 $50,152
----------------------- -----------------------
Other charges 0 (332) 875 1,224
----------------------- -----------------------
Discontinued
operations (555) (883) (2,537) (4,807)
----------------------- -----------------------
Loss (Gain) on sale
of hotels included
in discontinued
operations 4 0 (782) 57
----------------------- -----------------------
Loss on hotels
classified as held ----------------------- -----------------------
for sale included
in discontinued
operations 626 15,243 626 15,243
----------------------- -----------------------
Deferred percentage
lease revenue 0 (10,249) 0 0
----------------------- -----------------------
Adjusted EBITDA $15,428 $13,857 $72,458 $61,869
----------------------- -----------------------