Interstate Hotels & Resorts (NYSE: IHR), the nation's largest
independent hotel management company, today reported results for
the first quarter ended March 31, 2005. In addition, the company
has raised earnings guidance for the full year. For the 2005 first
quarter, net loss was $(1.4) million, or $(0.05) per diluted share,
compared to $(3.7) million, or $(0.12) per diluted share, in the
same period a year earlier. Adjusted EBITDA, excluding
non-recurring items, special charges and discontinued operations,
in the 2005 first quarter was $3.5 million, equal to the 2004 first
quarter. Net loss, excluding non-recurring items, special charges
and discontinued operations, was $(0.8) million, or $(0.03) per
share, for the 2005 first quarter, compared to a net loss of $(0.9)
million, or $(0.03) per share, for the 2004 first quarter.
First-quarter 2005 results were within the company's previously
announced guidance range for Adjusted EBITDA and EPS, both
excluding non-recurring items, special charges and discontinued
operations. Total revenue, excluding other revenue from managed
properties (reimbursable costs), was $46.9 million in the 2005
first quarter, compared to $41.9 million in the 2004 first quarter.
The increase in revenue over the prior year is primarily due to the
acquisition of the Hilton Concord hotel and higher apartment rental
rates at the company's BridgeStreet Corporate Housing Worldwide
subsidiary. Same-store revenue per available room (RevPAR) for all
managed hotels, excluding those hotels affected by the hurricanes
that struck Florida in 2004, improved 9.3 percent to $71.49.
Average daily rate (ADR) improved 7.3 percent to $106.33, while
occupancy rose 1.8 percent to 67.2 percent in the 2005 first
quarter. Same-store RevPAR for all full-service managed hotels,
excluding those hotels affected by the hurricanes, improved 9.5
percent to $75.87. ADR rose 7.7 percent to $111.63, and occupancy
improved 1.8 percent to 68.0 percent. Same-store RevPAR for all
select-service managed hotels, excluding those hotels affected by
the hurricanes, increased 8.2 percent to $54.56, led by a 5.5
percent improvement in ADR to $84.70 and a 2.6 percent increase in
occupancy to 64.4 percent. "Our operating strategy was to
aggressively raise rates in the first quarter, which had a positive
impact on margins and profitability for our owners," said Thomas F.
Hewitt, chief executive officer. "We expect to continue to
capitalize on improved market conditions throughout the year." The
statement of operations for the 2005 first quarter includes the
following non-recurring items and special charges: -- $3.7 million
of earnings of affiliates, representing the company's portion of
the gain on the sale of the Hilton San Diego Gaslamp hotel, which
was owned by one of Interstate's joint ventures; -- $2.0 million of
severance costs primarily for the company's former chief executive
officer; -- $1.8 million of deferred financing costs that were
written off in conjunction with the refinancing of our senior
credit facility; -- $1.1 million of asset impairments and other
write-offs; -- $0.4 million gain on the sale of investments,
representing the company's gain on the sale of stock of an
unaffiliated company held for investment; -- $0.3 million of equity
in losses of affiliates, representing the company's portion of
deferred financing costs written off by one of the company's equity
investments in connection with the refinancing of the joint
venture's senior note debt. Hilton Concord Hotel Acquisition In
February 2005, Interstate acquired the 329-room Hilton Concord in
the East Bay area of San Francisco, California for $29.2 million.
The acquisition was financed with a $19.0 million mortgage loan and
borrowings under the company's senior secured credit facility.
"This is our second wholly owned hotel," said J. William
Richardson, chief financial officer. "As part of our strategy to
diversify our earnings stream, we expect hotel ownership to become
an increasingly important factor in our future growth, whether it
is for our own account, in joint ventures or as part of an
investment fund." New Management Contracts During the quarter,
Interstate obtained management contracts for 22 upscale hotels
recently acquired by a partnership consisting of a private
investment fund managed by Goldman Sachs and affiliates of Highgate
Holdings. In the past two quarters, the company has added a net of
61 hotels to its management portfolio. "Our size and geographic
diversity allow us to seamlessly add large portfolios like this
22-hotel portfolio," Hewitt said. "We also aggressively seek to
manage individual hotel assets and smaller portfolios, both for
their immediate profit potential and the opportunity they give us
to add additional managed properties from their owners," Hewitt
said. "We continue to seek to add properties from both existing and
potential new clients." Capital Structure The company refinanced
its existing senior secured credit facility during the first
quarter of 2005. The facility's capacity was increased to $108
million, from $65 million, and the maturity was extended to 2008.
The new loan is expected to result in annual interest savings in
excess of $1 million. Outlook and Guidance "Interstate and the
hotel industry as a whole reported very positive results for the
first quarter, and we expect these trends to continue for the
balance of the year," Richardson said. "We see nothing on the
immediate horizon that will impede the continued recovery of the
industry. Our focus remains on improving rate and flow-through for
our owners." Interstate has raised its guidance for 2005 due to the
transactions announced in the first quarter and the strong
performance of the existing portfolio. The company provides the
following range of estimates for the second quarter and full year
2005: -- RevPAR is expected to increase 9.5 to 10.5 percent in the
2005 second quarter and 7.5 to 8.5 percent for 2005; -- Net income
of $1.2 million to $1.8 million for the second quarter and net
income of $7.9 million to $9.1 million for the full year; -- Net
income per diluted share of $0.04 to $0.06 for the second quarter
and net income per diluted share of $0.25 to $0.29 for the full
year; -- Excluding non-recurring charges, special items and
discontinued operations, net income of $1.4 million to $2.2 million
for the second quarter and net income of $10.2 million to $11.6
million for the full year; -- Excluding non-recurring charges,
special items and discontinued operations, net income per diluted
share of $0.05 to $0.07 for the second quarter and net income per
diluted share of $0.33 to $0.37 for the full year; -- Excluding
non-recurring charges, special items and discontinued operations,
Adjusted EBITDA of $6.5 million to $7.5 million for the second
quarter and $31 million to $33 million for the full year.
Interstate will hold a conference call to discuss its first-quarter
results today, May 5, at 11 a.m. Eastern time. Interested parties
may visit the company's Web site at www.ihrco.com and click on
Investor Relations and then First-Quarter Conference Call.
Interested parties also may listen to an archived webcast of the
conference call on the Web site, or via telephone, until midnight
on Thursday, May 12, 2005, by dialing (800) 405-2236, reference
number 11029054. A replay of the conference call will be posted on
Interstate Hotels & Resorts' Web site through June 5, 2005.
Interstate Hotels & Resorts operates more than 300 hospitality
properties with nearly 72,000 rooms in 41 states, the District of
Columbia, Canada, and Russia. BridgeStreet Worldwide, an Interstate
Hotels & Resorts' subsidiary, is one of the world's largest
corporate housing providers. BridgeStreet and its network of Global
Partners offer more than 8,700 corporate apartments located in 91
MSAs throughout the United States and internationally. For more
information about Interstate Hotels & Resorts, visit the
company's Web site: 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) Adjusted EBITDA and (ii) Adjusted EBITDA and net
income, basic EPS and diluted EPS, excluding non-recurring items,
special charges and discontinued operations. The following
discussion defines these terms and presents the reasons we believe
they are useful measures of our performance. Adjusted EBITDA A
significant portion of our non-current assets consists of
intangible assets. Of those intangible assets, the costs of our
management contracts are amortized over their expected terms.
Because depreciation and amortization are non-cash items,
management and many industry investors believe the presentation of
Adjusted EBITDA is useful to management and to investors. Adjusted
EBITDA represents consolidated earnings before interest expense,
income taxes, depreciation and amortization, equity in earnings of
affiliates, minority interests, gain on refinancing and
discontinued operations. We believe Adjusted EBITDA provides useful
information to investors regarding our financial condition and
results of operations because Adjusted EBITDA is useful for
evaluating our performance and our capacity to incur and service
debt, fund capital expenditures and expand our business. Management
also uses Adjusted EBITDA as one measure in determining the value
of acquisitions and dispositions. We also believe that the rating
agencies and a number of lenders use Adjusted EBITDA for those
purposes and a number of restrictive covenants related to our
indebtedness use Adjusted EBITDA as a measure. Adjusted EBITDA and
Net Income, Excluding Non-recurring Items, Special Charges and
Discontinued Operations We define Adjusted EBITDA, excluding
non-recurring items, special charges and discontinued operations,
as Adjusted 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. Non-recurring items,
special charges and discontinued operations include restructuring
expenses, severance payments, asset impairments and other
write-offs, other non-cash charges, gains and losses on asset
dispositions and the operating results of our discontinued
operating units. Similarly, we define net income (loss), basic EPS
and diluted EPS, excluding non-recurring items, special charges and
discontinued operations as net income (loss), basic EPS and diluted
EPS, without the effects of those same charges, transactions and
expenses. We believe that Adjusted EBITDA and net income (loss),
basic EPS and diluted EPS, excluding non-recurring items, special
charges and discontinued operations, are useful performance
measures because including these non-recurring items, special
charges and discontinued operations may either mask or exaggerate
trends in our ongoing operating performance. Furthermore,
performance measures that include non-recurring items, special
charges and discontinued operations may not be indicative of the
continuing performance of our underlying business. Therefore, we
present Adjusted EBITDA and net income (loss), basic EPS and
diluted EPS, excluding non-recurring items, special charges and
discontinued operations because they may help investors to compare
our performance before the effect of various items that do not
directly affect our ongoing operating performance. 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. 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, economic conditions generally
and the hotel and real estate markets specifically, the aftermath
of the war with Iraq, international and geopolitical difficulties
or health concerns, governmental actions, legislative and
regulatory changes, availability of debt and equity capital,
interest rates, competition, weather conditions or natural
disasters, supply and demand for lodging facilities in our current
and proposed market areas, and the company's 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, 2004.
-0- *T Interstate Hotels & Resorts, Inc. Historical Statements
of Operations (Unaudited, in thousands except per share amounts)
Three Months Ending March 31, -------------------- 2005 2004
--------- ---------- Revenue: Lodging revenue $2,562 $723
Management fees 13,999 13,678 Corporate housing 27,399 24,250 Other
revenue 2,955 3,252 --------- ---------- 46,915 41,903 Other
revenue from managed properties (7) 204,297 179,540 ---------
---------- Total revenue 251,212 221,443 Operating expenses by
department: Lodging expenses 1,950 518 Corporate housing 23,409
20,382 Undistributed operating expenses: Administrative and general
18,031 17,464 Depreciation and amortization 2,239 2,395
Restructuring expenses 2,023 127 Asset impairments and write-offs
(4) 1,062 4,493 --------- ---------- 48,714 45,379 Other expenses
from managed properties (7) 204,297 179,540 --------- ----------
Total operating expenses 253,011 224,919 --------- ----------
OPERATING LOSS (1,799) (3,476) Interest expense, net (5) (3,794)
(1,722) Equity in earnings (losses) of affiliates 2,842 (776) Gain
on sale of investments 385 - --------- ---------- LOSS BEFORE
MINORITY INTEREST AND INCOME TAXES (2,366) (5,974) Income tax
benefit 924 2,554 Minority interest benefit 18 46 ---------
---------- LOSS FROM CONTINUING OPERATIONS (1,424) (3,374) Loss
from discontinued operations, net - (370) --------- ---------- NET
LOSS $(1,424) $(3,744) ========= ========== Basic loss per share
Basic loss per share from continuing operations $(0.05) $(0.11)
Basic loss per share from discontinued operations - (0.01)
--------- ---------- Basic loss per share $(0.05) $(0.12) =========
========== Diluted loss per share Diluted loss per share from
continuing operations $(0.05) $(0.11) Diluted loss per share from
discontinued operations - (0.01) --------- ---------- Diluted loss
per share $(0.05) $(0.12) ========= ========== Weighted average
number of common shares outstanding (in thousands): Basic 30,656
30,070 Diluted (1) 30,656 30,070
----------------------------------------------------------------------
Reconciliations of Non-GAAP financial measures Three Months Ending
March 31, -------------------- 2005 2004 --------- ---------- Net
loss $(1,424) $(3,744) Adjustments: Depreciation and amortization
2,239 2,395 Interest expense, net 3,794 1,722 Equity in (earnings)
losses of affiliates (2,842) 776 Discontinued operations - 370
Income tax benefit (924) (2,554) Minority interest benefit (18)
(46) --------- ---------- Adjusted EBITDA (2) 825 (1,081)
Restructuring expenses 2,023 127 Asset impairments and write-offs
(4) 1,062 4,493 Gain on sale of investments (385) - ---------
---------- Adjusted EBITDA, excluding non-recurring items,special
charges and discontinued operations (2) $3,525 $3,539 =========
========== Net loss $(1,424) $(3,744) Adjustments to net loss:
Restructuring expenses 2,023 127 Asset impairments and write-offs
(4) 1,062 4,493 Gain on sale of investments (385) - Deferred
financing costs write-offs (5) 1,847 - Equity interest in the gain
on sale of Hilton San Diego (8) (3,653) - MIP deferred financing
costs write-off (9) 295 - Discontinued operations - 264 Minority
interest expense (benefit) (9) (12) Income tax rate adjustment (6)
(597) (2,043) --------- ---------- Net loss, excluding
non-recurring items, special charges and discontinued operations
(2) $(841) $(915) ========= ========== Basic loss per share,
excluding non-recurring items, special charges and discontinued
operations (2) $(0.03) $(0.03) ========= ========== Diluted loss
per share, excluding non-recurring items, special charges and
discontinued operations (2) $(0.03) $(0.03) ========= ==========
Weighted average number of common shares outstanding (in
thousands): Basic 30,656 30,070 Diluted (1) 30,656 30,070
----------------------------------------------------------------------
----------------------------------------------------------------------
Same-store hotel operating statistics (excluding 10 properties
damaged in 2004 hurricanes): Full-service hotels: Occupancy 68.0%
66.8% ADR $111.63 $103.67 RevPAR $75.87 $69.30 Select-service
hotels: Occupancy 64.4% 62.8% ADR $84.70 $80.29 RevPAR $54.56
$50.42 Total: Occupancy 67.2% 66.0% ADR $106.33 $99.10 RevPAR
$71.49 $65.42
----------------------------------------------------------------------
----------------------------------------------------------------------
Outlook Reconciliation (3) Forecast -------------------- Three
months Year ending ending June December 30, 2005 31, 2005
-------------------- Net income (loss) $1,500 $8,500 Depreciation
and amortization 2,450 9,200 Interest expense, net (5) 1,800 8,150
Equity in losses of affiliates 250 (2,100) Minority interest
expense (benefit) - 150 Income tax expense (benefit) 1,000 5,500
--------- ---------- Adjusted EBITDA (2) 7,000 29,400 Restructuring
expenses - 2,000 Asset impairments and write-offs (4) 1,000 Gain on
sale of investments (400) --------- ---------- Adjusted EBITDA,
excluding non-recurring items and special charges (2) $7,000
$32,000 ========= ========== Net income (loss) $1,500 $8,500
Adjustments to net income (loss), net of income taxes:
Restructuring expenses - 2,000 Asset impairments and write-offs (4)
- 1,000 Gain on sale of investments (400) Deferred financing costs
write-offs (5) - 1,850 Equity interest in the gain on sale of
Hilton San Diego (8) - (3,650) MIP deferred financing costs
write-off (9) - 300 Income Tax rate adjustment (6) 300 1,300
--------- ---------- Net income, excluding non-recurring items and
special charges (2) $1,800 $10,900 ========= ========== Income per
diluted share, excluding non-recurring items and special charges
$0.06 $0.35 ========= ==========
----------------------------------------------------------------------
(1) Diluted shares outstanding are calculated as the weighted
average number of shares of common stock outstanding plus other
potentially dilutive securities. Dilutive securities may include
shares granted under our stock incentive plans and operating
partnership units held by minority partners. No effect is shown for
any securities that are anti-dilutive. (2) See discussion of
Adjusted EBITDA and net income and Adjusted EBITDA and net income,
excluding non-recurring items, special charges and discontinued
operations located in the "Non-GAAP Financial Measures" section,
described earlier in this press release. (3) Our outlook
reconciliation uses the mid-point of our estimates of Adjusted
EBITDA, net income, and diluted EPS, all excluding non- recurring
items, special charges and discontinued operations. (4) This amount
is included in undistributed operating expenses and primarily
represents write-offs of intangible costs associated with
terminated management contracts and other terminated activities and
other asset impairments. (5) For the first quarter of 2005,
Interest expense, net, includes $1,847 of deferred financing fees
written off in connection with the refinancing of our senior
secured credit facility. (6) This amount represents an adjustment
to recorded income tax expense to bring our overall effective tax
rate to an estimated normalized rate of 28% in 2005 and 40% in
2004. This effective tax rate will differ from the effective tax
rate reported in our historical statements of operations. (7) Other
revenue from managed properties and other expenses from managed
properties have been revised in the same amount for the first
quarter of 2004 for certain amounts previously included in error.
This revision has no impact on EBITDA, net income or our balance
sheet and cash flows. (8) 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, which was owned
by one of our joint ventures. (9) 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 venture's senior debt. *T
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