RevPAR Increases 11.2 Percent; Raises Full-Year Earnings Guidance
ARLINGTON, Va., Aug. 8 /PRNewswire-FirstCall/ -- Interstate Hotels
& Resorts (NYSE:IHR), the nation's largest independent hotel
management company, today reported operating results for the second
quarter ended June 30, 2006 and raised its 2006 full-year earnings
guidance. The company's performance for the second quarter and
first half 2006 includes the following (in millions, except per
share amounts): Second Quarter Year-to-Date ------------------
------------------ 2006 2005 2006 2005 ---- ---- ---- ---- Total
revenue (1) $59.8 $54.2 $119.2 $100.3 Net income 3.0 1.7 3.8 0.3
Diluted earnings per share 0.10 0.06 0.12 0.01 Adjusted EBITDA (2)
8.5 7.8 22.6 11.2 Adjusted net income (2) 3.1 2.6 8.8 1.7 Adjusted
diluted EPS (2) 0.10 0.09 0.28 0.06 (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 second quarter include: * Achieved an 11.2
percent increase in revenue per available room (RevPAR) for the
company's same-store(3) hotel portfolio; * Acquired ownership
interests in three joint ventures, owning eight hotels; * Acquired
an additional wholly-owned hotel; * Achieved strong operating
results at the company's two other wholly- owned hotels; * Attained
positive results at the company's BridgeStreet Worldwide Inc.
corporate housing subsidiary, led by the London, Chicago and New
York markets. (3) Please see footnote 6 to the financial tables
within this press release for a detailed explanation of
"same-store" operating statistics. Hotel Operating Results
Same-store RevPAR for all managed hotels in the second quarter of
2006 increased 11.2 percent to $92.77, which exceeded the upper end
of the company's guidance. Average daily rate (ADR) advanced 8.1
percent to $121.43, and occupancy increased 3.0 percent to 76.4
percent. Same-store RevPAR for all full-service managed hotels
increased 11.6 percent to $97.52, ADR rose 8.0 percent to $127.36,
with occupancy improving 3.4 percent to 76.6 percent. Same-store
RevPAR for all select-service managed hotels increased 9.2 percent
to $73.75, led by a 8.0 percent gain in ADR to $97.41 and a 1.2
percent improvement in occupancy to 75.7 percent. "Our robust
results during the second quarter were led by significant operating
gains at our managed properties, the continued strong performance
of our BridgeStreet corporate housing division, and outstanding
results at our owned hotels," said Thomas F. Hewitt, chief
executive officer. "The Hilton Concord Hotel near San Francisco and
the Hilton Durham near Duke University in North Carolina, two of
our wholly-owned hotels, continue to exceed our expectations. Both
hotels delivered impressive RevPAR growth in excess of 20 percent
in the second quarter," Hewitt noted. "Our third wholly-owned
hotel, the Hilton Garden Inn Baton Rouge, was acquired in late June
and is on track to meet our expectations." Execution of Growth
Strategy The company continued to execute on its growth strategy in
the second quarter, acquiring ownership interests in a total of
nine hotels, primarily in joint ventures. "We continued to pursue
our acquisition growth strategy with select partners and were able
to source and execute transactions that offered attractive
operating fundamentals in a very competitive real estate market. We
have an active pipeline of acquisition opportunies with new and
existing joint venture partners, as well as investments for our own
account," Hewitt noted. During the quarter, the company completed
four transactions to acquire interests in nine hotels outlined
below:
-------------------------------------------------------------------------
# of % Inv. $ Property Location Rooms Interest Investment
-------------------------------------------------------------------------
Hilton Garden Inn Baton Rouge, La. 131 100% $14.5 million
-------------------------------------------------------------------------
Residence Inn portfolio (6 hotels) Cleveland, Ohio 825 15% $3.9
million
-------------------------------------------------------------------------
Doral Tesoro Hotel Dallas/Ft. Worth, & Golf Club Texas 286 21%
$2.0 million
-------------------------------------------------------------------------
The Statehouse Inn Boise, Idaho 112 10.9% $0.5 million
-------------------------------------------------------------------------
"We also announced during the quarter that Interstate has been
selected to manage an $850 million premier condo/resort project in
Las Vegas," he said. "The 1,100-unit Pinnacle Condominium Resort is
scheduled to break ground this fall and open in mid-2009. The
resort will offer its condominium owners the opportunity to place
their units in a rental arrangement, an area where Interstate has
proven expertise." BridgeStreet Division Hewitt noted that the
company's BridgeStreet corporate housing division reported another
quarter of solid results. "We continue to achieve smart growth
through the careful management of inventory levels, both locally
and internationally," he said. "Our second quarter revenue was up
6.9 percent on 1.3 percent fewer units, as we continue to focus on
tight inventory control. Occupancy was nearly 93 percent."
BridgeStreet benefited from a strong Chicago market including the
recent acquisition of Twelve Oaks Corporate Housing. The company
continued to expand in London, where it is the market leader and
expects to add more units by year-end. "We also achieved
outstanding results in the New York market which we expect to
continue into the second half of the year," Hewitt added. Balance
Sheet On June 30, 2006, Interstate had: * Total cash of $3.3
million. * Total debt of $81.6 million, consisting of $62.6 million
of senior debt and $19 million of non-recourse mortgage debt. "Our
debt balance is $3.5 million lower than at December 31, 2005, and
is up only modestly from the first quarter of this year, despite
investing over $20 million in joint venture and wholly-owned hotel
acquisitions during the second quarter of 2006," said Bruce
Riggins, chief financial officer. "We have approximately $35
million available under our credit line to fund additional
acquisition opportunities." Outlook and Guidance "The hotel
industry continues its upward trend, with business and leisure
travel demand remaining very positive and supply growing at a
constrained rate," Hewitt said. "Based on solid fundamentals and
the diversification of our revenue sources, we are very confident
in our ability to execute our growth strategy, strengthen our core
business, and drive value for our shareholders." The company
provides the following guidance for the third-quarter and full-year
2006: * RevPAR, on a same-store basis, is expected to increase 7.0
to 8.0 percent in the third quarter and 8.5 to 10.5 percent for the
full year; * Net income of $3.2 million to $3.8 million in the
third quarter and $15.4 million to $16.6 million for the full year;
* Diluted earnings per share of $0.10 to $0.12 for the third
quarter and $0.49 to $0.53 for the full year; * Adjusted net income
of $3.2 million to $3.8 million in the third quarter and $20.5
million to $21.7 million for the full year; * Adjusted diluted
earnings per share of $0.10 to $0.12 for the third quarter and
$0.65 to $0.69 for the full year; * Adjusted EBITDA of $9.0 million
to $10.0 million for the third quarter and $50.5 million to $52.5
million for the full year. Interstate will hold a conference call
to discuss its second-quarter results today, August 8th, at 10 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 Second-Quarter Conference Call. A replay of the
conference call will be available until midnight on Tuesday, August
15, 2006, by dialing (800) 405-2236, reference number 11065823, and
an archived webcast of the conference call will be posted on the
company's Web site through September 8, 2006. As of June 30th,
Interstate Hotels & Resorts operated 262 hospitality properties
with more than 59,000 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 9,500 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 generally accepted
accounting principles in the United States of America, within the
meaning of applicable Securities and Exchange Commission rules,
that we believe are useful to investors. They are as follows: (i)
Earnings before interest, taxes, depreciation and amortization (or
"EBITDA") and (ii) Adjusted EBITDA, Adjusted net income, 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 three 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. 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 and
Adjusted diluted EPS as net income and diluted EPS, without the
effects of those same charges, transactions and expenses described
earlier. We believe that Adjusted EBITDA and Adjusted net income
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 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's 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 same items and charges discussed
above. 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.
Contact: Carrie McIntyre SVP, Treasurer (703) 387-3320 Interstate
Hotels & Resorts, Inc. Historical Statements of Operations
(Unaudited, In thousands except per share amounts) Three Months Six
Months Ending June 30, Ending June 30, -----------------
----------------- 2006 2005 2006 2005 -------- -------- --------
-------- Revenue: Lodging $ 6,418 $ 3,348 $11,455 $ 5,106
Management fees 17,383 16,750 40,246 30,944 Corporate housing
33,287 31,126 61,052 58,525 Other 2,718 2,978 6,429 5,735 --------
-------- -------- -------- 59,806 54,202 119,182 100,310 Other
revenue from managed properties 217,824 231,853 442,773 423,740
-------- -------- -------- -------- Total revenue 277,630 286,055
561,955 524,050 Operating expenses by department: Lodging 4,572
2,486 8,460 4,006 Corporate housing 26,193 24,620 49,183 48,029
Undistributed operating expenses: Administrative and general 20,588
19,644 38,959 37,645 Depreciation and amortization 1,926 2,196
3,986 4,355 Restructuring and severance - 96 - 2,043 Asset
impairments and write-offs (1) 92 849 8,642 1,911 -------- --------
-------- -------- 53,371 49,891 109,230 97,989 Other expenses from
managed properties 217,824 231,853 442,773 423,740 --------
-------- -------- -------- Total operating expenses 271,195 281,744
552,003 521,729 -------- -------- -------- -------- OPERATING
INCOME 6,435 4,311 9,952 2,321 Interest income 545 362 931 503
Interest expense (2) (1,978) (2,321) (4,041) (6,253) Equity in
earnings (losses) of affiliates 123 350 (434) 3,192 Gain on sale of
investments (3) - - - 385 -------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 5,125 2,702 6,408
148 Income tax expense (2,085) (1,062) (2,604) (61) Minority
interest expense (31) (29) (49) (11) -------- -------- --------
-------- INCOME FROM CONTINUING OPERATIONS 3,009 1,611 3,755 76
Income from discontinued operations, net of tax (4) - 132 - 243
-------- -------- -------- -------- NET INCOME $ 3,009 $ 1,743 $
3,755 $319 ======== ======== ======== ======== BASIC AND DILUTIVE
EARNINGS PER SHARE: Continuing operations $ 0.10 $ 0.06 $ 0.12 $ -
Discontinued operations - - - 0.01 -------- -------- --------
-------- Basic and dilutive earnings per share $ 0.10 $ 0.06 $ 0.12
$ 0.01 ======== ======== ======== ======== Weighted average shares
outstanding (in thousands): Basic 30,890 30,515 30,788 30,485
Diluted (5) 31,276 30,791 31,089 30,779 Interstate Hotels &
Resorts, Inc. Hotel Level Operating Statistics (Unaudited)
Same-store hotel operating statistics (6): Three Months Ending Six
Months Ending June 30, June 30, ------------------------
------------------------ 2006 2005 % change 2006 2005 % change
------- ------- ------- ------- ------- ------- Full-service
hotels: Occupancy 76.6% 74.1% 3.4% 73.2% 70.5% 3.8% ADR $127.36
$117.92 8.0% $125.58 $115.91 8.3% RevPAR $ 97.52 $ 87.37 11.6% $
91.96 $ 81.68 12.6% Select-service hotels: Occupancy 75.7% 74.8%
1.2% 72.1% 70.6% 2.1% ADR $ 97.41 $ 90.22 8.0% $ 95.62 $ 88.44 8.1%
RevPAR $ 73.75 $ 67.52 9.2% $ 68.95 $ 62.43 10.4% Total: Occupancy
76.4% 74.2% 3.0% 73.0% 70.5% 3.5% ADR $121.43 $112.34 8.1% $119.67
$110.42 8.4% RevPAR $ 92.77 $ 83.40 11.2% $ 87.36 $ 77.83 12.2%
Interstate Hotels & Resorts, Inc. Reconciliations of Non-GAAP
Financial Measures (7) (Unaudited, in thousands except per share
amounts) Three Months Six Months Ending June 30, Ending June 30,
----------------- ------------------ 2006 2005 2006 2005 --------
-------- -------- --------- Net income $3,009 $1,743 $3,755 $319
Adjustments: Depreciation and amortization 1,926 2,196 3,986 4,355
Interest expense, net 1,433 1,959 3,110 5,750 Discontinued
operations, net (4) - 167 - 325 Income tax expense 2,085 1,062
2,604 61 -------- -------- -------- --------- EBITDA 8,453 7,127
13,455 10,810 Restructuring and severance - 96 - 2,043 Asset
impairments and write-offs (1) 92 849 8,642 1,911 Gain on sale of
investments (3) - - - (385) Equity in (earnings) losses of
affiliates (123) (350) 434 (3,192) Minority interest expense 31 29
49 11 -------- -------- -------- --------- Adjusted EBITDA $8,453
$7,751 $22,580 $11,198 ======== ======== ======== ========= Three
Months Six Months Ending June 30, Ending June 30, -----------------
------------------ 2006 2005 2006 2005 -------- -------- --------
--------- Net income $ 3,009 $ 1,743 $ 3,755 $ 319 Adjustments:
Restructuring and severance - 96 - 2,043 Asset impairments and
write-offs (1) 92 849 8,642 1,911 Gain on sale of investments (3) -
- - (385) Deferred financing costs write-off (2) - - - 1,847 Equity
interest in the gain on sale of joint venture properties (8) -
(169) - (3,822) Equity in the write-off of deferred financing costs
(9) - - - 295 Minority interest (11) (2) (71) (12) Income tax rate
adjustment (10) (37) 126 (3,517) (449) -------- -------- --------
--------- Adjusted net income $ 3,053 $ 2,643 $ 8,809 $ 1,747
======== ======== ======== ========= Adjusted diluted earnings per
share $ 0.10 $ 0.09 $ 0.28 $ 0.06 ======== ======== ========
========= Weighted average number of diluted shares outstanding (in
thousands) (5): 31,276 30,791 31,089 30,779 Interstate Hotels &
Resorts, Inc. Outlook Reconciliation (7), (11) (Unaudited) Forecast
---------------------------- Three months ending Year ending
September 30, December 31, 2006 2006 ------------- ------------ Net
income $ 3,500 $ 16,000 Depreciation and amortization 2,000 8,200
Interest expense, net 1,700 6,900 Income tax expense 2,400 11,100
------------- ------------ EBITDA 9,600 42,200 Asset impairments
and write-offs (1) - 8,700 Equity in (earnings) losses of
affiliates (12) (100) 400 Minority interest expense - 200
------------- ------------ Adjusted EBITDA $ 9,500 $ 51,500
============= ============ Net income $ 3,500 $ 16,000 Adjustments
to net income: Asset impairments and write-offs (1) - 8,700 Income
tax rate adjustment (10) - (3,600) ------------- ------------
Adjusted net income $ 3,500 $ 21,100 ============= ============
Adjusted diluted earnings per share (5) $ 0.11 $ 0.67 =============
============ Interstate Hotels & Resorts, Inc. Notes to
Financial Tables (Unaudited) (1) This amount represents losses
recorded for intangible costs associated with terminated management
contracts and other asset impairments. (2) For the six months ended
June 30, 2005, interest expense includes $1,847 of deferred
financing fees expensed in connection with the refinancing of our
senior secured credit facility. (3) In the first quarter of 2005,
we recognized a gain of $385 from the exercise of stock warrants
for stock in an unaffiliated company. (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 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 June 30, 2006 are also not included in same-store hotel results
for the periods presented herein. Of the 262 properties that we
managed as of June 30, 2006, 242 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 and adjusted diluted earnings
per share, located in the "Non-GAAP Financial Measures" section,
described earlier in this press release. (8) In the first quarter
of 2005, one of our joint ventures sold the Hilton San Diego
Gaslamp hotel and in the second quarter it sold the related retail
space. We recognized $4,202 that represents our portion of the gain
on the sale. In the second quarter, one of our joint ventures sold
the Wyndham Milwaukee, of which our portion of the loss was $380.
These amounts have been included in our equity in earnings of
affiliates. (9) This amout 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 represents
adjustments to recorded income tax expense at an effective tax rate
of 41% as of June 30, 2006 and 28% as of June 30, 2005. In 2005,
this effective tax rate differs from the effective tax rate
reported in our historical statements of operations. (11) Our
outlook reconciliation uses the mid-point of our estimates. (12) As
previously disclosed in a company press release, on July 7, 2006,
we sold our joint venture ownership in Marriott Sawgrass Resort
& Spa. We are evaluating the timing and amounts of gain we will
recognize under GAAP at this time, and are therefore excluding any
gain recognition in our forecast. We also participated in the
purchase by the new owner as a minority preferred equity partner
and will continue to manage the property. DATASOURCE: Interstate
Hotels & Resorts CONTACT: Carrie McIntyre, SVP, Treasurer of
Interstate Hotels & Resorts, +1-703-387-3320 Web site:
http://www.ihrco.com/
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