MeriStar Hospitality Corporation Reports First Quarter 2005
biz.yahoo.com
Wednesday May 4, 8:01 am ET
Results Hotel Profitability Shows Strong Growth
ARLINGTON, Va.--(BUSINESS WIRE)--May 4, 2005--MeriStar Hospitality Corporation one of the nation's largest hotel real estate investment trusts (REIT), today announced financial results for the first quarter ended March 31, 2005. Highlights of the company's strong quarterly performance include(1):
Net loss narrowed to $(13.4) million or $(0.15) per diluted share compared to a net loss of $(40.2) million or $(0.58) per diluted share for the 2004 first quarter;
Adjusted EBITDA of $43.3 million increased 15.0 percent compared to $37.6 million in the 2004 first quarter;
Adjusted funds from operations (FFO) per share of $0.12 increased 300 percent compared to $0.03 per share for the 2004 first quarter;
A 140 basis point improvement in comparable hotel gross operating profit margins and a 220 basis point improvement in comparable hotel EBITDA margins;
Revenue per available room (RevPAR) increased 5.1 percent for the comparable hotels, adjusted for rooms out-of-service;
Estimated RevPAR growth of 7.5 percent assuming all Florida properties were fully open and realized market RevPAR growth rates and were included in the comparable hotels; and
Business interruption ("BI") insurance income of $2.3 million included in net loss, adjusted EBITDA and adjusted FFO.
(1) See the notes to financial information for further discussion on certain of these non-GAAP financial measures.
"We had a great first quarter, as evidenced by the improvements in net income, adjusted EBITDA, and adjusted FFO per share. All of these measures exceeded our prior year amounts by a wide margin," said Paul W. Whetsell, chairman and chief executive officer. "Our ability to increase room rates has lead to strong flow through, generating an increase in comparable hotel gross operating profit margins of 140 basis points along with comparable EBITDA margins of 220 basis points, well ahead of the 50 to 100 basis point EBITDA margin increase we targeted in our first quarter guidance. Our efforts to strengthen the portfolio through well executed capital expenditures, planned asset sales and new property investments are positioning us well for revenue growth and margin expansion.
"A number of our markets reported strong increases in RevPAR. Washington, D.C., where we own 11 properties (2,478 rooms), continues as one of the nation's leading markets. Our comparable hotels in and around the nation's capital enjoyed adjusted RevPAR gains of 11.8 percent," Whetsell stated.
Strong rate increases drove the average daily rate (ADR) for the company's comparable hotels up 8.1 percent to $108.69 in the first quarter. Following the company's strategy to increase room rates and displace lower-rated contract business, occupancy decreased slightly by 1.9 percentage points to 67.8 percent after adjusting for rooms out-of-service for the company's extensive renovation program.
The comparable properties' adjusted RevPAR increase of 5.1 percent exceeded the company's guidance of 4 to 5 percent for the first quarter and was realized despite the continued closure during the quarter of seven properties in the strong Florida market where RevPAR gains have been exceptionally strong. The company estimates that the adjusted RevPAR would have increased 7.5 percent had all of its Florida properties been fully open with market type RevPAR performance.
The company acquired two properties during 2004, The Ritz-Carlton, Pentagon City and the Marriott Irvine, which had a combined adjusted RevPAR increase of 12 percent for the quarter. "The Marriott Irvine property completed its major room renovation program during the quarter," Whetsell stated. These two properties are not currently included in the company's comparable results as they were not owned in both years. During 2004 the company also acquired a 49.99 percent interest in the landmark Radisson Lexington in Midtown Manhattan, which recorded a RevPAR increase of 14 percent in the first quarter. "All three of our 2004 investment properties are performing exceptionally well and are out-performing our original expectations," Whetsell added.
Renovation Program
In the first quarter, the company invested approximately $35.8 million in capital improvements at its properties as part of its $100 million renovation program for 2005. "We are clearly experiencing the benefits of our property investment program that began in 2004. The upgrading we are doing allows us to position properties for higher-rated and more profitable business."
Examples of the program's impact include the Hilton hotel in Durham, N.C. During 2004, the company renovated the guest rooms, meeting space, sports bar and restaurant. In the first quarter 2005, the property reported a 16 percent improvement in adjusted RevPAR and significantly outperformed its competitive set. Another property, the company's Courtyard in Marina del Ray, Calif., also completed a renovation in 2004 and reported RevPAR growth of 17 percent for the 2005 first quarter. "This hotel's RevPAR index in the quarter of over 115 demonstrates the property's strength and its ability to grow share in its market," Whetsell added. "We expect to see similar examples across our portfolio as we continue to complete projects throughout the year."
Florida Hotels Update
Florida continued to see outstanding growth as evidenced by reports of double-digit RevPAR gains across the state. The company's two open Orlando hotels both produced nearly 30 percent RevPAR gains in the first quarter. Also, the company's two hotels in the Tampa/Clearwater market achieved nearly 25 percent RevPAR growth, adjusted for rooms out-of-service.
Whetsell noted that, of the seven properties substantially closed in the first quarter due to hurricane damage last fall, five will be reopening in the second quarter. "We expect to have all but our South Seas Resort on Captiva open by summer. South Seas, which suffered the most damage, is expected to re-open this fall in time for the high season."
Total company adjusted EBITDA of $43.3 million in the first quarter included $2.3 million of BI insurance income recognition related to the ongoing claim for the Florida properties affected by last year's hurricanes. Including BI insurance income, the company's seven Florida hotels substantially closed during the first quarter and the Dunes Golf and Tennis Club on Sanibel Island contributed $2.5 million of EBITDA ($0.9 million of net income) in the first quarter 2005, compared to $6.4 million of EBITDA ($3.8 million of net income) in the first quarter 2004. In addition, total revenue reported by these properties was $4.0 million in the 2005 first quarter compared to $28.9 million in the quarter a year ago.
"The operating results from our comparable hotels provided for a strong first quarter, despite recognizing a very conservative BI insurance gain in the quarter," said Donald D. Olinger, chief financial officer. "The $2.3 million of BI recognized in the quarter represents minimum profit recognition independent from the claim payment process and is below both what we ultimately expect to recognize and the $6 to $8 million originally contemplated in our guidance for the quarter. The claim negotiation process was not sufficiently advanced on several of our more complex properties to enable us to recognize profit in the first quarter, and we did not believe that forcing the issue was in the best interest of the overall claim resolution. We are very confident that we ultimately will be compensated for lost profits at a level well in excess of what we recognized in this quarter, however the timing of the recognition between this year's quarters will continue to be challenging to predict."
To date, the company has received approximately $70 million of hurricane recovery insurance payments. "We have been receiving regular cash payments from our insurance carriers and expect these payments to continue as we work through our claim," Olinger added. "However, in order to recognize gains resulting from BI insurance for lost income, all contingencies related to the recoveries must be resolved, which is difficult to achieve with the insurance companies until the claim is more advanced."
Capital Structure
"We continued to improve our capital structure in the first quarter, taking advantage of lower interest rate debt opportunities, and lengthening our maturities," Olinger said. In January 2005, the company placed a 5.8 percent fixed-rate, 10-year, $38 million mortgage on the Hilton Crystal City hotel in Arlington, Virginia. In the short-term, proceeds will be used to temporarily fund capital projects at properties damaged by last year's hurricanes. "We ultimately plan to reduce debt carrying higher rates or use the proceeds to fund selected investments. We will continue to look for opportunities to reduce our borrowing costs and to improve our credit statistics in 2005," he added.
Guidance
Following the strength of the first quarter results, the company has increased full year 2005 guidance for adjusted EBITDA, FFO per share, RevPAR growth and comparable hotel EBITDA margin growth. RevPAR increase has been raised to 8 to 9 percent for the full year 2005 with RevPAR growth of 9 to 10 percent anticipated in the second quarter 2005. Comparable hotel EBITDA margins are expected to increase 125 to 175 basis points in the second quarter and for the full year. Additionally, the company provides the following range of estimates for the second quarter and full year:
Net income (loss) of break-even to $3 million for the second quarter and $(38) million to $(43) million for the full year;
Net income (loss) per diluted share of $0.00 to $0.03 for the second quarter and $(0.43) to $(0.49) for the full year;
FFO per diluted share of $0.28 to $0.31 for the second quarter and $0.59 to $0.64 for the full year;
Adjusted FFO per diluted share of $0.28 to $0.31 for the second quarter and $0.59 to $0.64 for the full year;
Adjusted EBITDA of $60 million to $63 million for the second quarter and $190 million to $195 million for the full year; and
BI insurance profit of $2.5 million to $5 million is included in the second quarter adjusted EBITDA guidance of $60 to $63 million. |
