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News and Information Article
ARLINGTON, Va., May 3 /-FirstCall/ -- Interstate Hotels &
Resorts (NYSE: IHR), the nations largest independent hotel management
company, today reported strong operating results for the first quarter
ended March 31, 2006. The company exceeded its earnings guidance for the
quarter and raised its 2006 full-year guidance. The companys performance
for the first quarter includes the following (in millions, except per share
amounts):
First Quarter
-----------------------
2006 2005
---- ----
Total revenue (1) $59.4 $46.1
Net income (loss) $0.7 $(1.4)
Diluted earnings (loss) per share $0.02 $(0.05)
Adjusted EBITDA (2) $14.1 $3.4
Adjusted net income (2) $5.8 $(0.8)
Adjusted diluted EPS (2) $0.19 $(0.03)
(1) Total revenue excludes other revenue from managed properties
(reimbursable costs).
(2) Adjusted EBITDA, Adjusted net income, and Adjusted diluted EPS are
non-GAAP financial measures and should not be considered as an
alternative to any measures of operating results under GAAP. See
further discussion of non-GAAP financial measures and reconciliation
to net income later in this press release.
Highlights for the first quarter include:
* Posted an 11.3 percent improvement in revenue per available room
(RevPAR), compared to an average industry gain of 9.7 percent.
* Added 10 management contracts.
* Exceeded forecasted operating income on two wholly-owned hotels by 20
percent, led by the Hilton Concord.
* Achieved strong gains within the companys corporate housing
subsidiary, led by operations in the London market.
* Reduced debt by over $5 million.
Included in the 2006 first quarter results are $3.2 million of proceeds
from business interruption insurance related to Hurricane Charley, as well
as one-time termination payments of $4.1 million from MeriStar Hospitality
related to their recent sale of 10 Florida-based properties. Also included
in the results is an $8.5 million impairment of intangible assets primarily
related to the termination of 18 management contracts as a result of
property dispositions by MeriStar Hospitality.
Hotel Operating Results
Same-store(3) RevPAR for all managed hotels in the first quarter of
2006 increased 11.3 percent to $79.49, which exceeded the upper end of the
companys guidance and the industry average of 9.7 percent, as reported by
Smith Travel Research. Average daily rate (ADR) advanced 8.3 percent to
$116.13, and occupancy increased 2.7 percent to 68.4 percent.
Same-store RevPAR for all full-service managed hotels rose 11.1 percent
to $83.11. ADR improved 8.3 percent to $121.09, with occupancy advancing
2.5 percent to 68.6 percent.
Same-store RevPAR for all select-service managed hotels increased 12.7
percent to $63.09, led by an 8.7 percent gain in ADR to $93.32 and a 3.7
percent improvement in occupancy to 67.6 percent.
"Our operating results for both managed and owned hotels continue to
exceed the industry average," said Thomas F. Hewitt, chief executive
officer. "We are taking full advantage of the favorable market conditions
across all key lodging segments as we focus on aggressive management of
room rate, while also holding costs in check.
"Our strategy of diversifying our earnings stream produced positive
results in the first quarter," he said. "Our two wholly-owned hotels
performed very well in the period, led by the 329-room Hilton Concord in
San Francisco, which exceeded our projections. The 195-room Hilton Durham
near Duke University, which we acquired in the 2005 fourth quarter,
performed in line with projections.
"At our Durham hotel, we will begin a $2.6 million renovation in the
second quarter, to be completed in phases to minimize guest disruptions.
The hotel underwent a $2.8 million renovation of the public areas,
restaurants, meeting facilities and some guest rooms, prior to our
acquisition, and the additional scheduled upgrades will complete this
refurbishment. The hotel will be well positioned to operate to its full
potential in this market.
"We also added 10 new management contracts to our portfolio in the
period, including a portfolio of six hotels in Cleveland, and the 444-room
Hilton Times Square in Manhattan.
"Acquisitions of properties, both in joint ventures and through whole-
ownership, are an important avenue of growth for us and a way for us to
further diversify our earnings stream,"
Hewitt added. "During the quarter, we continued to seek opportunities
for selective ownership. Our pipeline remains active, and we expect to
announce additional transactions in the second and third quarters,
including a whole- ownership acquisition and joint-venture acquisitions
consisting of properties we recently began managing."
(3) Please see footnote 6 to the financial tables within this press
release for a detailed explanation of "same-store" hotel operating
statistics.
BridgeStreet Growth Continues
"Our BridgeStreet corporate housing subsidiary also performed extremely
well during the period, above expectations and prior year. Results were led
by robust operations in London, where BridgeStreet is the leading and the
largest serviced apartment provider," Hewitt noted. "We expanded our
presence in London with the addition of 77 units early in the second
quarter and are on track to increase our inventory in both London and Paris
in 2006. We also are looking at opportunities to expand our worldwide
presence through our Global Partner program.
"We completed two important transactions in the first quarter that
increased BridgeStreets U.S. network of corporate apartments. We signed an
agreement with AMLI Residential, a large multi-family real estate company,
to operate all the units in their short-term furnished housing division,
which are located in nine major U.S. markets. We also acquired Twelve Oaks
Corporate Residences, Inc., which is based in Chicago, including the
assumption of all leases related to Twelve Oaks 13 furnished apartment
complexes. The transaction adds approximately 300 furnished apartment units
to BridgeStreets local inventory, nearly doubling its presence in the
Chicago area, one of its core strategic markets."
Balance Sheet Changes
On March 31, 2006, Interstate had:
* Total cash of $13.5 million.
* Total debt of $79.8 million, consisting of $60.8 million of senior
debt and $19.0 million of non-recourse mortgage debt.
"Using cash flows from operations, the company was able to pay down
over $5 million on its senior credit facility during the quarter, further
strengthening our balance sheet," said Bruce Riggins, chief financial
officer. "Our leverage is at a historical low, and we now have more than
$40 million available in cash and under our credit line to fund our
near-term acquisition opportunities."
Outlook and Guidance
"The lodging industry trends remain positive, with strong demand from
both business and leisure sectors," Hewitt noted. "Industry analysts
forecast favorable fundamentals for the hotel industry for at least the
next several years. We are well positioned to take advantage of the current
economic environment as both an operator and owner. Our size, financial
strength, and flexibility give us a competitive advantage."
The company provides the following guidance for the second-quarter and
full-year 2006:
* RevPAR, on a same-store basis, is expected to increase 9.0 to 10.0
percent in the second quarter and 7.5 to 9.5 percent for the full
year;
* Net income of $1.0 million to $1.6 million in the second quarter and
$11.2 million to $12.4 million for the full year;
* Earnings per diluted share of $0.03 to $0.05 for the second quarter
and $0.36 to $0.40 for the full year;
* Adjusted net income of $1.0 million to $1.6 million in the second
quarter and $16.3 million to $17.5 million for the full year;
* Adjusted earnings per diluted share of $0.03 to $0.05 for the second
quarter and $0.52 to $0.56 for the full year;
* Adjusted EBITDA of $6.5 million to $7.5 million for the second quarter
and $47 million to $49 million for the full year.
Interstate will hold a conference call to discuss its first-quarter
results today, May 3rd, at 11 a.m. Eastern Time. To hear the webcast,
interested parties may visit the companys Web site at http://www.ihrco.com
and click on Investor Relations and then First-Quarter Conference Call. A
replay of the conference call will be available until midnight on
Wednesday, May 10, 2006, by dialing (800) 405-2236, reference number
11058668, and an archived webcast of the conference call will be posted on
the companys Web site through June 3, 2006.
As of March 31, Interstate Hotels & Resorts operated 282 hospitality
properties with nearly 64,000 rooms in 41 states, the District of Columbia,
Canada, and Russia. BridgeStreet Worldwide, an Interstate Hotels & Resorts
subsidiary, is one of the worlds largest corporate housing providers.
BridgeStreet and its network of Global Partners offer more than 8,900
corporate apartments located in more than 95 MSAs throughout the United
States and internationally. For more information about Interstate Hotels &
Resorts, visit the companys Web site: http://www.ihrco.com .
Non-GAAP Financial Measures
Included in this press release are certain non-GAAP financial measures,
which are measures of our historical or estimated future performance that
are different from measures calculated and presented in accordance with
GAAP, within the meaning of applicable SEC rules, that we believe are
useful to investors. They are as follows: (i) Earnings before interest
expense, taxes, depreciation and amortization (or "EBITDA") and (ii)
Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted EPS. The
following discussion defines these terms and presents the reasons we
believe they are useful measures of our performance.
EBITDA
A significant portion of our non-current assets consists of intangible
and long lived assets, which includes the cost of our two owned hotels.
Intangible assets, excluding goodwill, are amortized over their expected
term. Property and equipment is depreciated over its useful life. Because
amortization and depreciation are non-cash items, management and many
industry investors believe the presentation of EBITDA is useful. EBITDA
represents consolidated earnings before interest expense, income taxes,
depreciation and amortization. We believe EBITDA provides useful
information to investors regarding our performance and our capacity to
incur and service debt, fund capital expenditures and expand our business.
Management uses EBITDA to evaluate property-level results and as one
measure in determining the value of acquisitions and dispositions. It is
also widely used by management in the annual budget process. We believe
that the rating agencies and a number of lenders use EBITDA for those
purposes and a number of restrictive covenants related to our indebtedness
use measures similar to EBITDA presented herein.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS
We define Adjusted EBITDA as 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. These charges include restructuring and severance
expenses, asset impairments and write-offs, equity in earnings (losses) of
affiliates, gains and losses on asset dispositions and other investments,
and other non-cash charges.
Similarly, we define Adjusted net income (loss) and Adjusted diluted
EPS as net income (loss) and diluted EPS, without the effects of those same
charges, transactions and expenses described earlier. We believe that
Adjusted EBITDA and Adjusted net income (loss) and Adjusted diluted EPS are
useful performance measures because including these expenses, transactions,
and special charges may either mask or exaggerate trends in our ongoing
operating performance. Furthermore, performance measures that include these
charges may not be indicative of the continuing performance of our
underlying business. Therefore, we present Adjusted EBITDA and Adjusted net
income (loss) and Adjusted diluted EPS because they may help investors to
compare our performance before the effect of various items that do not
directly affect our ongoing operating performance.
Limitations on the use of EBITDA, Adjusted EBITDA and Adjusted Net
Income
We calculate EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted
diluted EPS as we believe they are important measures for our management
and our investors understanding of our operations. These may not be
comparable to measures with similar titles as calculated by other
companies. This information should not be considered as an alternative to
net income, operating profit, cash from operations or any other operating
performance measure calculated in accordance with GAAP. Cash receipts and
expenditures from investments, interest expense and other non-cash items
have been and will be incurred and are not reflected in the EBITDA and
Adjusted EBITDA presentations. Adjusted net income and Adjusted diluted EPS
do not include cash receipts and expenditures related to those items and
charges. Management compensates for these limitations by separately
considering these excluded items, all of which should be considered when
evaluating our performance, as well as the usefulness of our non-GAAP
financial measures. Additionally, EBITDA, Adjusted EBITDA, Adjusted net
income, and Adjusted diluted EPS should not be considered a measure of our
liquidity. Adjusted net income and Adjusted diluted EPS should also not be
used as a measure of amounts that accrue directly to our stockholders
benefit.
This press release contains "forward-looking statements," within the
meaning of the Private Securities Litigation Reform Act of 1995, about
Interstate Hotels & Resorts, including those statements regarding future
operating results and the timing and composition of revenues, among others,
and statements containing words such as "expects," "believes" or "will,"
which indicate that those statements are forward-looking, although not all
forward- looking statements will contain such words. Except for historical
information, the matters discussed in this press release are
forward-looking statements that are subject to certain risks and
uncertainties that could cause the actual results to differ materially,
including the volatility of the national economy, changes in business and
leisure travel patterns or levels, fuel cost, economic conditions generally
and the hotel and real estate markets specifically, international and
geopolitical instability, health concerns, threatened or actual terrorist
attacks, governmental actions, legislative and regulatory changes,
availability of debt and equity capital, interest rates, competition,
weather conditions or natural disasters, changes in supply and demand for
lodging facilities in our current and proposed market areas, and the
Companys ability to manage integration and growth. Additional risks are
discussed in Interstate Hotels & Resorts filings with the Securities and
Exchange Commission, including Interstate Hotels & Resorts annual report
on Form 10-K for the year ended December 31, 2005.
Interstate Hotels & Resorts, Inc.
Historical Statements of Operations
(Unaudited, In thousands except per share amounts)
Three Months Ending March 31,
-------------------------------
2006 2005
-------------- -------------
Revenue:
Lodging $ 5,037 $ 1,758
Management fees 9,488 7,575
Management fees - related
parties (1) 13,375 6,619
Corporate housing 27,765 27,399
Other 3,711 2,757
-------------- -------------
59,376 46,108
Other revenue from managed
properties 224,949 191,887
-------------- -------------
Total revenue 284,325 237,995
Operating expenses by department:
Lodging 3,888 1,520
Corporate housing 22,990 23,409
Undistributed operating expenses:
Administrative and general 18,371 18,001
Depreciation and amortization 2,060 2,159
Restructuring and severance - 1,947
Asset impairments and write-offs (2) 8,550 1,062
-------------- -------------
55,859 48,098
Other expenses from managed
properties 224,949 191,887
-------------- -------------
Total operating expenses 280,808 239,985
-------------- -------------
OPERATING INCOME (LOSS) 3,517 (1,990)
Interest income 386 141
Interest expense (3) (2,063) (3,932)
Equity in earning (loss) of
affiliates (557) 2,842
Gain on sale of investments (8) - 385
-------------- -------------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES 1,283 (2,554)
Income tax (expense) benefit (519) 1,001
Minority interest (expense) benefit (18) 18
-------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 746 (1,535)
Income from discontinued operations,
net (4) - 111
-------------- -------------
NET INCOME (LOSS) $ 746 $(1,424)
============== =============
BASIC AND DILUTIVE EARNINGS (LOSS)
PER SHARE:
Continuing operations $ 0.02 $ (0.05)
Discontinued operations - 0.00
-------------- -------------
Basic and dilutive earnings
(loss) per share $ 0.02 $ (0.05)
============== =============
Weighted average shares outstanding
(in thousands):
Basic 30,685 30,455
Diluted (5) 30,920 30,455
Interstate Hotels & Resorts, Inc.
Hotel Level Operating Statistics
(Unaudited)
Same-store hotel operating statistics (6):
Three Months Ending March 31,
------------------------------------
2006 2005 % change
------------------------------------
Full-service hotels:
Occupancy 68.6% 66.9% 2.5%
ADR $121.09 $111.77 8.3%
RevPAR $ 83.11 $ 74.81 11.1%
Select-service hotels:
Occupancy 67.6% 65.2% 3.7%
ADR $ 93.32 $ 85.89 8.7%
RevPAR $ 63.09 $ 55.97 12.7%
Total:
Occupancy 68.4% 66.6% 2.7%
ADR $116.13 $107.20 8.3%
RevPAR $ 79.49 $ 71.41 11.3%
Interstate Hotels & Resorts, Inc.
Reconciliations of Non-GAAP Financial Measures (7)
(Unaudited, in thousands except per share amounts)
Three Months Ending March 31,
------------------------------
2006 2005
----------- ----------
Net income (loss) $ 746 $ (1,424)
Adjustments:
Depreciation and amortization 2,060 2,159
Interest expense, net 1,677 3,791
Discontinued operations, net (4) - 157
Income tax expense (benefit) 519 (1,001)
----------- ----------
EBITDA 5,002 3,682
Restructuring and severance - 1,947
Asset impairments and write-offs (2) 8,550 1,062
Gain on sale of investments (8) - (385)
Equity in (earnings) losses of
affiliates 557 (2,842)
Minority interest expense
(benefit) 18 (18)
----------- ----------
Adjusted EBITDA $14,127 $3,446
=========== ==========
Three Months Ending March 31,
------------------------------
2006 2005
----------- ------------
Net income (loss) $ 746 $ (1,424)
Adjustments:
Restructuring and severance - 1,947
Asset impairments and write-offs (2) 8,550 1,062
Gain on sale of investments (8) - (385)
Deferred financing costs write-off (3) - 1,847
Equity interest in the gain on
sale of a joint venture property (9) - (3,653)
Equity in the write-off of
deferred financing costs (10) - 295
Minority interest (60) (6)
Income tax rate adjustment (11) (3,481) (524)
----------- ------------
Adjusted net income (loss) $ 5,755 $ (841)
=========== ============
Adjusted diluted earnings (loss) per
share $ 0.19 $ (0.03)
=========== ============
Weighted average number of common
shares outstanding (in thousands):
Diluted (5) 30,920 30,455
Interstate Hotels & Resorts, Inc.
Outlook Reconciliation (7), (12)
(Unaudited)
Forecast
-----------------------------------
Three months Year ending
ending December 31,
June 30, 2006 2006
-----------------------------------
Net income $ 1,300 $ 11,800
Depreciation and amortization 2,700 10,300
Interest expense, net 1,850 7,800
Income tax expense 950 8,200
---------------- ---------------
EBITDA 6,800 38,100
Asset impairments and write-offs (2) - 8,600
(Gain) Loss on sale of
investments - -
Equity in losses of affiliates 200 1,100
Minority interest expense - 200
---------------- ---------------
Adjusted EBITDA $ 7,000 $ 48,000
================ ===============
Net income $ 1,300 $ 11,800
Adjustments to net income:
Asset impairments and
write-offs (2) - 8,600
Income tax rate adjustment (11) - (3,500)
Adjusted net income $ 1,300 $ 16,900
================ ===============
Adjusted diluted earnings
per share (5) $ 0.04 $ 0.54
================ ===============
Interstate Hotels & Resorts, Inc.
Notes to Financial Tables
(Unaudited)
(1) Related parties include MeriStar Hospitality, the hotels included
in our real estate joint ventures and a small number of our hotels
which are affiliated with certain of our directors.
(2) This amount represents losses recorded for intangible costs
associated with terminated management contracts and other asset
impairments.
(3) For the three months ended 2005, interest expense includes $1,847
of deferred financing fees expensed in connection with the
refinancing of our senior secured credit facility.
(4) In September 2005, we completed the sale of the Pittsburgh Airport
Residence Inn by Marriott. Accordingly, we have presented its
operations as discontinued operations for the periods presented. In
addition, the calculation of EBITDA reflects the add back of interest
expense, depreciation and amortization, and income taxes related to
those discontinued operations.
(5) Our diluted earnings (loss) per share assumes the issuance of
common stock for all potentially dilutive common stock equivalents
outstanding. Potentially dilutive shares include restricted stock
and stock options granted under our comprehensive stock plan and
operating partnership units held by minority partners. No effect is
shown for any securities that are anti-dilutive.
(6) We present certain operating statistics (i.e. occupancy, RevPAR
and ADR) for the periods included in this report on a same-store
hotel basis. We define our same-store hotels as those which (i) are
managed by us for the entirety of the reporting periods being
compared or have been managed by us for part of the reporting periods
compared and we have been able to obtain operating statistics for the
period of time in which we did not manage the hotel, and (ii) have
not sustained substantial property damage, business interruption or
undergone large-scale capital projects during the reporting periods
being reported. In addition, the operating results of hotels for
which we no longer managed as of March 31, 2006 are also not included
in same-store hotel results for the periods presented herein. Of the
282 properties that we managed as of March 31, 2006, 256 hotels have
been classified as same-store hotels. RevPar is defined as revenue
per available room. ADR is defined as average daily rate.
(7) See discussion of EBITDA, adjusted EBTIDA, adjusted net income
(loss) and adjusted diluted earnings (loss) per share, located in the
"Non-GAAP Financial Measures" section, described earlier in this
press release.
(8) In the first quarter of 2005, we recognized a gain of $385 from
the exercise of stock warrants for stock in an unaffiliated company.
(9) This amount is included in equity in earnings (losses) of affiliates
and represents our portion of the gain on the sale of the Hilton San
Diego Gaslamp hotel and related retail space, which was owned by one
of our joint ventures.
(10) This amount is included in equity in earnings (losses) of affiliates
and represents our portion of deferred financing costs written off
in connection with the refinancing of the MIP joint ventures senior
debt.
(11) This amount represents adjustments to recorded income tax expense
at an effective tax rate of 41% as of March 31, 2006 and 28% as of
March 31, 2005. In 2005, this effective tax rate differs from the
effective tax rate reported in our historical statements of
operations.
(12) Our outlook reconciliation uses the mid-point of our estimates.
Contact:
Carrie McIntyre
SVP, Treasurer
(703) 387-3320
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