Interstate Hotels & Resorts (NYSE: IHR), the nation's largest
independent hotel management company, today reported results of
operations for the third quarter ended September 30, 2005. The
company exceeded its earnings guidance of August 9 and raised its
2005 full-year earnings guidance for the third time this year. For
the 2005 third quarter, net income was $5.4 million, or $0.17 per
diluted share, compared to a net loss of $(0.3) million, or $(0.01)
per diluted share, in the third quarter 2004. The statement of
operations includes the following non-recurring items and special
charges: $4.3 million gain related to the extinguishment of a
non-recourse promissory note; $2.6 million gain on the sale of the
Pittsburgh Airport Residence Inn by Marriott; and $(1.0) million
loss from asset impairments and other write-offs, primarily related
to the termination of three management contracts as a result of the
hotels being sold by MeriStar Hospitality. Adjusted earnings before
interest, taxes, depreciation and amortization (Adjusted EBITDA),
for the third quarter 2005 was $7.8 million, up 32.5 percent from
$5.9 million in the 2004 third quarter. Adjusted Net Income for the
third quarter 2005 was $2.4 million, or $0.08 per diluted share,
compared to $1.1 million, or $0.04 per diluted share, for the same
period a year earlier. Third-quarter 2005 results for Adjusted
EBITDA exceeded the company's upwardly revised guidance of $6.1
million to $7.1 million. Adjusted Net Income and adjusted earnings
per diluted share (EPS) exceeded the high end of the company's
guidance by $0.4 million and $0.01, respectively. Both hotel
management and corporate housing operations contributed to the
strong third-quarter results. Total revenue in the 2005 third
quarter, excluding other revenue from managed properties
(reimbursable costs), was $55.3 million, compared to $48.1 million
in the 2004 third quarter. The increase in revenue over the prior
year can be attributed to: higher management fee revenue resulting
from a greater number of managed properties compared to the same
period last year, as well as favorable operating results across the
company's portfolio; ownership of the Hilton Concord, acquired in
the first quarter of 2005; and the strong performance of the
BridgeStreet Worldwide corporate housing subsidiary. Hotel
Operating Results Same-store revenue per available room (RevPAR)
for all managed hotels, excluding hotels in New Orleans that were
closed as a result of Hurricane Katrina as well as the hotels
affected by the hurricanes that struck Florida in the fall of 2004,
improved 10.8 percent to $83.37, which is 2.3 percentage points
above the high end of the company's guidance and 2.5 percentage
points above the industry average of 8.3 percent, as reported by
Smith Travel Research for the 2005 third quarter. Average daily
rate (ADR) rose 8.6 percent to $110.34, while occupancy increased
2.0 percent to 75.6 percent. Same-store RevPAR for all full-service
managed hotels, excluding those hotels affected by the hurricanes,
improved 11.1 percent to $86.89. ADR increased 8.8 percent to
$114.98, while occupancy advanced 2.1 percent to 75.6 percent.
Same-store RevPAR for all select-service managed hotels, excluding
those hotels affected by the hurricanes, increased 8.9 percent to
$66.99, led by a 7.0 percent improvement in ADR to $88.80 and a 1.8
percent increase in occupancy to 75.4 percent. "Hotel operating
results outpaced the industry in the third quarter, and we exceeded
our guidance for the third quarter in a row," said Thomas F.
Hewitt, chief executive officer. "RevPAR was above the high end of
our guidance range, up 10.8 percent, as we were able to move rate
higher during the quarter due to a continued strong economy and
increasing business travel demand. "In addition, we continue to add
impressive hotels to our management portfolio, such as the 279-room
Claremont Resort & Spa in Berkeley, California, and the
402-room Radisson Plaza Hotel Myrtle Beach Convention Center in
South Carolina, which was immediately converted to a Sheraton brand
- both added during the quarter." BridgeStreet Posts Positive
Quarter Strong results were reported by the company's corporate
housing division, with London and Chicago leading the way. "We
continued to focus on yield management, which positively impacted
rate and occupancy and translated into higher margins and profits
on a lower unit count compared to the same period last year. Rate
rose 4.1 percent and occupancy increased 3.3 percent for the third
quarter," Hewitt said. Acquisitions and Divestments The company
completed the sale of one hotel during the third quarter, the
Pittsburgh Airport Residence Inn by Marriott, for $11 million and
used a portion of the proceeds to pay down its senior credit
facility. Additionally, the company signed a definitive agreement
to acquire the 195-room Hilton in Durham, N.C. for a net purchase
price of $13.3 million. The acquisition will be funded with cash on
hand as well as availability under its senior credit facility.
"With the upcoming purchase of the Hilton Durham we are continuing
to execute on our growth strategy," Hewitt commented. "Hotel
acquisitions, either wholly-owned or through joint ventures, will
remain a key component of our future growth as we seek to further
diversify and strengthen our core hotel management earnings stream.
"Furthermore, to support our acquisition focus, we named Leslie Ng
as our chief investment officer in September. We currently have an
active pipeline, and Leslie will play a pivotal role in sourcing
and negotiating additional investment and management
opportunities." Key Financial Information On September 30, 2005,
Interstate had: -- Total cash of $17.8 million -- Total debt of
$86.3 million, consisting of $65.3 million of senior debt, $19
million of mortgage debt, $2 million of other debt "The company
paid down more than $10 million on its senior credit facility
during the quarter with cash flow from operations and proceeds from
the sale of the Pittsburgh Airport Residence Inn," said J. William
Richardson, chief financial officer. "We will continue to focus on
strengthening our balance sheet by efficiently managing our cash
flows. We currently have more than $35 million of availability on
our senior credit facility to fund our growth initiatives." Outlook
and Guidance "We believe the outlook for the hotel and corporate
housing industries is strong for the remainder of 2005 and into
2006, bolstered by a strong economy, the return of the business
traveler and the measured pace of hotel supply growth," Hewitt
said. "We are confident that industry conditions will remain
favorable for at least the next two to three years and that we will
continue to benefit from these positive fundamentals." The company
is raising guidance for the third time this year and provides the
following range of estimates for the fourth quarter and full year
2005: -- RevPAR is expected to improve 8.0 to 9.0 percent in the
fourth quarter and 9.5 to 10.5 percent for the full year; -- Net
income of $7.7 million to $9.1 million for the fourth quarter and
net income of $14.7 million to $16.1 million for the full year; --
Earnings per diluted share of $0.25 to $0.29 for the fourth quarter
and net income per diluted share of $0.47 to $0.52 for the full
year; -- Adjusted Net Income of $7.7 million to $9.1 million for
the fourth quarter and $11.9 million to $13.3 million for the full
year; -- Adjusted earnings per diluted share of $0.25 to $0.29 for
the fourth quarter and $0.38 to $0.43 for the full year; --
Adjusted EBITDA of $15.3 million to $17.3 million for the fourth
quarter and $34.5 million to $36.5 million for the full year.
Interstate will hold a conference call to discuss its third-quarter
results today, November 2, at 11 a.m. Eastern time. To hear the
webcast, interested parties may visit the company's Web site at
www.ihrco.com and click on Investor Relations and then
Third-Quarter Conference Call. Interested parties also may listen
to a replay of the conference call until midnight on Wednesday,
November 9, 2005, by dialing (800) 405-2236, reference number
11041201. An archived webcast of the conference call will be posted
on Interstate Hotels & Resorts' Web site through December 2,
2005. Interstate Hotels & Resorts operates nearly 300
hospitality properties with more than 67,000 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 8,900 corporate
apartments located in more than 90 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) EBITDA and (ii) Adjusted EBITDA
and adjusted net income (loss), adjusted basic EPS 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 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
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 financial condition and results of operations because 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 EBITDA as one measure in determining the value
of acquisitions and dispositions, and management uses EBITDA and
Adjusted EBITDA as part of our annual budget process. We also
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 and Adjusted Net Income 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. Non-recurring items and special 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),
adjusted basic EPS and adjusted diluted EPS as net income (loss),
basic EPS 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), adjusted basic
EPS and adjusted diluted EPS are useful performance measures
because including these non-recurring items and special charges may
either mask or exaggerate trends in our ongoing operating
performance. Furthermore, performance measures that include
non-recurring items and special charges may not be indicative of
the continuing performance of our underlying business. Therefore,
we present Adjusted EBITDA and Adjusted Net Income (loss), adjusted
basic EPS 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 basic EPS 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 expenditures for investments, interest expense and other items
have been and will be incurred and are not reflected in the EBITDA
and Adjusted EBITDA presentations. Adjusted Net Income and adjusted
basic EPS and adjusted diluted EPS does 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 basic EPS and adjusted diluted EPS should
not be considered a measure of our liquidity. Adjusted Net Income
and adjusted basic EPS 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.
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 as
amended 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
Nine Months Ended Ended September 30 September 30
----------------------------------- 2005 2004 2005 2004 --------
-------- -------- -------- Revenue: Lodging revenues $3,403 $-
$8,511 $- Management fees 15,513 12,113 45,865 40,759 Corporate
housing 33,267 31,701 91,792 83,506 Other revenue 3,125 4,245 9,583
10,599 -------- -------- -------- -------- 55,308 48,059 155,751
134,864 Other revenue from managed properties (7) 247,745 190,865
681,449 564,739 -------- -------- -------- -------- Total revenue
303,053 238,924 837,200 699,603 Operating expenses by department:
Lodging expenses 2,487 - 6,491 - Corporate housing 25,894 25,836
73,923 68,121 Undistributed operating expenses: Administrative and
general 19,317 16,593 56,961 51,699 Depreciation and amortization
2,474 2,127 6,830 6,640 Restructuring and severance expenses - 42
2,043 3,481 Asset impairments and write- offs (4) 1,046 1,601 2,957
7,792 -------- -------- -------- -------- 51,218 46,199 149,205
137,733 Other expenses from managed properties (7) 247,745 190,865
681,449 564,739 -------- -------- -------- -------- Total operating
expenses 298,963 237,064 830,654 702,472 -------- -------- --------
-------- OPERATING INCOME (LOSS) 4,090 1,860 6,546 (2,869) Interest
expense, net (5) (1,677) (2,002) (7,560) (5,292) Equity in earnings
(losses) of affiliates (381) (5) 2,811 (946) Gain on sale of
investments and extinguishment of debt 4,326 - 4,711 - --------
-------- -------- -------- INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES 6,358 (147) 6,508 (9,107) Income tax (expense)
benefit (2,585) (279) (2,647) 3,264 Minority interest (expense)
benefit (38) (7) (49) 68 -------- -------- -------- -------- INCOME
(LOSS) FROM CONTINUING OPERATIONS 3,735 (433) 3,812 (5,775) Income
(loss) from discontinued operations, net of tax (11) 1,656 133
1,898 (920) -------- -------- -------- -------- NET INCOME (LOSS)
$5,391 $(300) $5,710 $(6,695) ======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE: Continuing operations $0.12
$(0.01) $0.13 $(0.19) Discontinued operations 0.06 0.00 0.06 (0.03)
-------- -------- -------- -------- Basic earnings (loss) per share
$0.18 $(0.01) $0.19 $(0.22) ======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE: Continuing operations $0.12
$(0.01) $0.12 $(0.19) Discontinued operations 0.05 0.00 0.06 (0.03)
-------- -------- -------- -------- Diluted earnings (loss) per
share $0.17 $(0.01) $0.18 $(0.22) ======== ======== ========
======== Weighted average number of common shares outstanding (in
thousands): Basic 30,717 30,637 30,696 30,431 Diluted (1) 30,983
30,637 30,982 30,431
----------------------------------------------------------------------
Reconciliations of Non-GAAP Three Months Nine Months financial
measures (2) Ended Ended September 30 September 30
----------------------------------- 2005 2004 2005 2004 --------
------- -------- --------- Net Income (loss) $5,391 $(300) $5,710
$(6,695) Adjustments: Depreciation and amortization 2,474 2,127
6,830 6,640 Interest expense, net 1,677 2,002 7,560 5,292
Discontinued operations, net (11) 1,151 186 1,475 601 Income tax
expense (benefit) 2,585 279 2,647 (3,264) -------- ------- --------
-------- EBITDA 13,278 4,294 24,222 2,574 Restructuring expenses -
42 2,043 3,481 Asset impairments and write- offs (4) 1,046 1,601
2,957 7,792 Gain on sale of investments and extinguishment of debt
(12) (6,931) - (7,316) - Equity in (earnings) losses of affiliates
381 5 (2,811) 946 Minority interest expense (benefit) 38 7 49 (68)
Other - (55) - (55) -------- ------- -------- -------- Adjusted
EBITDA $7,812 $5,894 $19,144 $14,670 ======== ======= ========
======== Net Income (loss) $5,391 $(300) $5,710 $(6,695)
Adjustments to net income (loss): Restructuring expenses - 42 2,043
3,481 Asset impairments and write- offs (4) 1,046 1,601 2,957 7,792
Gain on sale of investments and extinguishment of debt (12) (6,931)
- (7,316) - Deferred financing costs write- offs (5) - - 1,847 -
Equity interest in the gain on sale of Hilton San Diego (8) - -
(4,202) - Equity interest in the loss on sale of Wyndham Milwaukee
(10) - - 395 - MIP deferred financing costs write-off (9) - - 295 -
Minority interest expense (benefit) 33 (7) 24 (88) Income tax rate
adjustment (6) 2,819 (225) 2,365 (3,962) -------- ------- --------
-------- Adjusted net income $2,358 $1,111 $4,119 $528 ========
======= ======== ======== Adjusted basic earnings per share $0.08
$0.04 $0.13 $0.02 ======== ======= ======== ======== Adjusted
diluted earnings per share $0.08 $0.04 $0.13 $0.02 ======== =======
======== ======== Weighted average number of common shares
outstanding (in thousands): Basic 30,717 30,637 30,686 30,431
Diluted (1) 30,983 31,027 30,982 30,880
----------------------------------------------------------------------
----------------------------------------------------------------------
Same-store hotel operating statistics (excluding properties damaged
in 2004 and 2005 hurricanes): Full-service hotels: Occupancy 75.6%
74.1% 72.6% 71.2% ADR $114.98 $105.63 $114.29 $105.19 RevPAR $86.89
$78.22 $82.92 $74.94 Select-service hotels: Occupancy 75.4% 74.1%
71.8% 69.9% ADR $88.80 $82.99 $87.68 $82.44 RevPAR $66.99 $61.52
$62.91 $57.64 Total: Occupancy 75.6% 74.1% 72.40% 71.0% ADR $110.34
$101.62 $109.62 $101.23 RevPAR $83.37 $75.26 $79.38 $71.88
----------------------------------------------------------------------
----------------------------------------------------------------------
Outlook Reconciliation (2), (3) Forecast ------------------ Three
months Year ending ending December December 31, 2005 31, 2005
------------------ Net income $8,400 $15,400 Depreciation and
amortization 2,300 9,140 Interest expense, net (5) 1,950 9,400
Discontinued operations, net (11) - 1,475 Income tax expense
(benefit) 3,300 4,635 --------- -------- EBITDA 15,950 40,050
Restructuring expenses - 2,100 Asset impairments and write- offs
(4) - 3,000 Gain on sale of investments (12) - (3,000) Gain on
extinguishment of debt (12) (4,300) Equity in (earnings) losses of
affiliates 250 (2,500) Minority interest expense (benefit) 100 150
--------- -------- Adjusted EBITDA $16,300 $35,500 =========
======== Net income $8,400 $15,400 Adjustments to net income:
Restructuring expenses - 2,100 Asset impairments and write- offs
(4) - 3,000 Gain on sale of investments (12) - (3,000) Gain on
extinguishment of debt (12) - (4,300) Deferred financing costs
write- offs (5) - 1,850 Equity interest in the gain on sale of
Hilton San Diego (8) - (4,200) Equity interest in the loss on sale
of Wyndham Milwaukee (10) - 400 MIP deferred financing costs
write-off (9) - 300 Income Tax rate adjustment (6) - 1,050
--------- -------- Adjusted net income $8,400 $12,600 =========
======== Adjusted diluted earnings per share (1) $0.27 $0.40
========= ======== (1) 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. (2) See discussion of EBITDA, Adjusted EBTIDA,
Adjusted Net Income, adjusted basic and adjusted diluted earnings
per share, 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. (4) This amount
is included in undistributed operating expenses and primarily
represents losses recorded for intangible costs associated with
terminated management contracts 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 third quarter 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 affiiates and
represents our portion of the gain on the sale of the Hilton San
Diego Gaslamp and retail space 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. (10) This amount is included
in equity in earnings (losses) of affiliates and represents our
portion of the loss on sale of the Wyndham Milwaukee which was
owned by one of our joint ventures. (11) In June 2004, we completed
the disposal of BridgeStreet Canada, Inc., our corporate housing
operation in Toronto. In September 2005, we completed the sale of
the Pittsburgh Airport Residence Inn by Marriott. Accordingly, we
have reclassified the operations related to both transactions as
discontinued operations for the three and nine months ended
September 30, 2005 and 2004, respectively. In addition, the
calculation of EBITDA reflects the add back of interest expense,
depreciation and amortization, and income taxes related to those
discontinued operations. (12) In the first quarter of 2005, we
recognized a gain of $385 from the exercise of stock warrants from
stock in an unaffiliated company. In the third quarter of 2005, we
recognized a gain of $4,326 on the extinguishment of the remaining
principle and accrued interest on a non-recourse promissory note
and a gain of $2,605 on the sale of the Pittsburgh Residence Inn by
Marriott (this gain is recorded in discontinued operations on our
statement of operations). *T
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