MeriStar Hospitality Corporation Reports Second Quarter 2005 Results, Increases Adjusted FFO per Share Guidance
biz.yahoo.com
Wednesday August 3, 8:30 am ET
ARLINGTON, Va.--(BUSINESS WIRE)--Aug. 3, 2005--MeriStar Hospitality Corporation (NYSE: MHX), one of the nation's largest hotel real estate investment trusts (REIT), today announced financial results for the second quarter ended June 30, 2005. Highlights of the company's strong quarterly performance include(1):
Net income increased to $0.9 million or $0.01 per diluted share compared to a net loss of $(11.6) million or $(0.14) per diluted share for the 2004 second quarter;
Adjusted funds from operations (FFO) per share of $0.32 increased 33 percent compared to $0.24 per share for the 2004 second quarter;
Adjusted EBITDA of $62.0 million increased over 19 percent compared to $51.9 million in the 2004 second quarter;
Revenue per available room (RevPAR) increased 9.9 percent for the comparable hotels, as the average daily rate (ADR) rose 9.6 percent and occupancy improved 0.3 percent;
Comparable hotel gross operating profit margins improved 196 basis points and comparable hotel EBITDA margins improved 209 basis points; and
Business interruption (BI) insurance gain of $2.0 million (based on insurer recognition to date from losses resulting from the 2004 Florida hurricanes) included in net income, adjusted FFO and adjusted EBITDA.
(1)FFO, Adjusted FFO, Adjusted EBITDA, and comparable hotel EBITDA margins are non-GAAP financial measures. See the notes to financial information for further discussion of these non-GAAP financial measures.
"The positive operating trends produced by our portfolio in recent quarters carried over into the second quarter, and our hotels continue to gain operating momentum," said Paul W. Whetsell, chairman and chief executive officer. "We continue to realize returns from our ongoing renovation program, reflected in higher rate levels achieved at those properties. Our ability to raise rate was the primary contributor to the 209 basis point expansion in our comparable hotel EBITDA margins. With the improved asset quality of our portfolio, we plan to continue aggressively driving rate to take advantage of the additional upside potential we see in this area," he added.
"We realized double-digit RevPAR gains in several of our key markets, including a 19.8 percent increase in Southern California and a 12.0 percent increase in Washington D.C. Significantly, our 49.99 percent equity investment in the Radisson Lexington in Midtown Manhattan, although not included in our comparable hotel results, achieved a RevPAR gain of 30 percent in the second quarter. The strong performance of the property resulted in distributable cash on our equity interest of nearly $800,000 in the quarter in addition to the $1.4 million preferred return on the $40 million mezzanine loan."
Renovation Program
In the second quarter, the company invested $24.3 million in non-hurricane related capital improvements at its properties as part of its $100 million strategic renovation program for 2005. "Year to date, we have invested more than $60 million in non-hurricane related capital projects at our properties that have enhanced the quality of our product. The positive impact of these upgrades will continue to allow us to drive strong rate increases and generate better bottom lines at the property level," Whetsell stated.
The Embassy Suites in Center City Philadelphia, which underwent a complete guestroom renovation, lobby remodeling and an exterior facade repair in the past year, achieved a RevPAR increase in the second quarter of 15.8 percent, led by a 11.5 percent increase in ADR. Also, the Marriott in Somerset, N.J., which recently renovated its guestrooms, fitness center and other public areas, saw RevPAR increase 25.9 percent and operating profits more than double in the quarter.
Asset Sales
In May, the company sold its Hilton Monterey, Calif. property for $20.5 million. In July, the company completed the sale of its Marina Hotel - San Pedro property for $5.8 million.
The company expects to expand its asset disposition activity for the year in response to strong market conditions for dispositions and expressed interest. The company intends to use the proceeds to repay more expensive debt, particularly its 10 1/2 percent senior notes which are callable in December. "Last quarter we announced we were exploring additional asset sales given the current favorable environment for asset dispositions and the opportunity to improve our capital structure. We now expect to generate approximately $250 to $300 million of asset sales in total for the year. The sale of these assets is more opportunistic in nature and dispositions will be completed only if pricing levels are met," Whetsell added.
The company recently announced the addition of John Plunket as Senior Vice President - Real Estate who will be responsible for overseeing the company's disposition and acquisition program.
Capital Structure
"We completed a number of financial transactions since the first quarter aimed at improving our capital structure," said Donald D. Olinger, chief financial officer. In June, the company completed the placement of a 5.68 percent fixed-rate, 10-year, $44.0 million mortgage on the Hilton Clearwater hotel in Florida. During the second quarter, the company repurchased $21.5 million of its senior notes bearing interest between 9 and 10 1/2 percent. In the third quarter, the company has repurchased an additional $12.8 million of senior notes. Also, the company sent notice to call the remaining $32.7 million of 8 3/4 percent senior subordinated notes at par on August 15, 2005. "We have taken advantage of the current rate environment to replace high interest rate debt with long-term, lower-cost debt. In addition, retiring our senior subordinated debt will lower our overall interest expense and remove the company's most restrictive debt covenants."
In August, the company restructured its secured revolver, expanding the credit line from $50 million to $150 million. "This transaction will create additional liquidity and flexibility as we proceed with our renovation program, work toward resolution of our hurricane insurance claim, and allow us to reduce debt ahead of receiving proceeds from our expanded asset sales program," Olinger stated.
The company also expects to close on the refinancing of its $300 million CMBS portfolio in August by defeasing the current loan and replacing it with approximately $335 million of new CMBS debt using the same collateral package at a rate over 300 basis points lower. "Not only will this transaction produce run-rate interest savings of approximately $9 million per year, it will also provide us with much greater flexibility in the management of our cash as well as the assets in this portfolio. This refinancing will free up nearly $50 million currently held in restricted cash," Olinger added. "The results are net present value positive, even with the defeasance cost, and will produce a number of operating benefits.
"Through these transactions, we are making considerable progress in improving our credit statistics, strengthening our balance sheet, and creating shareholder value."
Florida Hotels Update
Strong growth in the Florida travel market was reflected in the performance of the company's hotels that were open in the second quarter. The two open Orlando and two Tampa Bay/Clearwater properties reported combined RevPAR gains of 15 percent for the period.
The company continues to make significant progress on repairing its hotels affected by the hurricanes that hit Florida last year. "Four of the five inns on Sanibel Island reopened in the second quarter," Whetsell remarked. "These properties are restored to exceptional physical condition and their performance since re-opening has been promising. The overall restoration of the quality of the product following our rebuilding efforts is being reflected in the results." The Best Western Sanibel Island, the fifth Sanibel property, is expected to open in August. The Holiday Inn Walt Disney World is scheduled to reopen in the fourth quarter. South Seas Island Resort on Captiva Island is gradually reopening as condominium units are already being returned for rental and many of the facilities will be fully operating by year-end.
Including the BI insurance gain recognized by the insurers to date, the company's seven Florida hotels that were substantially closed at the start of the quarter (four of which reopened during the quarter), together with the Dunes Golf and Tennis Club on Sanibel Island, contributed a total of $1.2 million of EBITDA ($0.4 million net loss) in the second quarter 2005, compared to $3.2 million of EBITDA ($0.6 million net income) in the second quarter 2004. In total, these properties contributed $3.8 million of EBITDA ($0.4 million net income) in the first half of 2005, compared to $9.7 million ($4.4 million net income) in the first half of 2004. Additionally, total revenue reported by these properties in the second quarter was $4.4 million in 2005 compared to $26.5 million in 2004.
Total adjusted EBITDA of $62.0 million in the second quarter included $2.0 million of BI insurance gain. "The operating results from our comparable hotels provided for another strong quarter, despite the fact that the insurers have thus far allowed recognition of only a very conservative BI insurance gain in the quarter," Olinger said. "The $2.0 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 $2.5 to $5.0 million included in our guidance for the quarter. We remain quite confident that we will be compensated for lost profits at a level in excess of what we have recognized so far this year, however the timing of the recognition between this year's quarters will continue to be challenging to predict."
To date, the company has received over $100 million of hurricane recovery insurance payments. "We have been receiving regular cash payments from our insurers 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 insurers until the claim is more advanced."
Guidance
The company is revising its 2005 guidance to reflect the strong performance of its portfolio, the additional asset sales, and capital markets activity. "Our revised assumptions on the timing and quantity of asset sales, debt reductions, including calling between $175 and $200 million of our 10 1/2 percent senior notes in December, and refinancings result in an increase in our estimated adjusted FFO per share," Olinger remarked. RevPAR is projected to increase 9 to 10 percent in the third quarter, and the full year RevPAR is estimated to increase 8.5 to 9.5 percent. Comparable hotel EBITDA margins are expected to increase 150 to 200 basis points in the third quarter and for the full year. Additionally, the company provides the following range of estimates for the third quarter and full year:
Net loss of $18 million to $21 million for the third quarter and $42 million to $46 million for the full year;
Net loss per diluted share of $(0.20) to $(0.24) for the third quarter and $(0.48) to $(0.52) for the full year;
FFO per diluted share of $0.04 to $0.08 for the third quarter and $0.59 to $0.63 for the full year;
Adjusted FFO per diluted share of $0.04 to $0.08 for the third quarter and $0.63 to $0.68 for the full year; and
Adjusted EBITDA of $37 million to $40 million for the third quarter and $185 million to $190 million for the full year.
See reconciliations of net loss to FFO per diluted share and Adjusted FFO per diluted share and net loss to Adjusted EBITDA included in the tables of this press release. FFO, Adjusted FFO, and Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization and other items) are non-GAAP financial measures and should not be considered as alternatives to any measures of operating results under GAAP. See the notes to financial information for further discussion of these non-GAAP financial measures.
MeriStar will hold a conference call to discuss its second-quarter results today, August 3, 2005, at 10 a.m. Eastern time. Interested parties may visit the company's Web site at meristar.com and click on Investor Relations and then the webcast link. |
