ARLINGTON, Va., May 3 /PRNewswire-FirstCall/ -- Interstate Hotels
& Resorts (NYSE:IHR), the nation's 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 company's 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 company's 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 company's 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 BridgeStreet's 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 BridgeStreet's 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 company's 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 company's 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 world's 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
company's 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 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, 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 venture's 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 DATASOURCE:
Interstate Hotels & Resorts CONTACT: Carrie McIntyre of
Interstate Hotels & Resorts, SVP, Treasurer, +1-703-387-3320
Web Site: http://www.ihrco.com/
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