Fourth-Quarter RevPAR Increases 8.8 Percent ARLINGTON, Va., March 5
/PRNewswire-FirstCall/ -- Interstate Hotels & Resorts
(NYSE:IHR), one of the nation's largest independent hotel
management companies, today reported strong operating results for
the fourth quarter and year ended December 31, 2006. The company's
performance for the fourth quarter and full year include the
following (in millions, except per share amounts): Fourth Quarter
Full Year -------------- --------- 2006 2005 2006 2005 ---- ----
---- ---- Total revenue (1) $41.6 $37.9 $140.7 $101.7 Net income
10.8 7.2 29.8 12.9 Diluted earnings per share 0.34 0.23 0.94 0.42
Adjusted EBITDA (2) (3) 20.2 18.4 71.0 39.3 Adjusted net income (2)
9.1 9.7 31.8 13.8 Adjusted diluted EPS (2) 0.28 0.31 1.01 0.45 (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 reconciliations to net income later in this press
release. (3) Includes the company's share of EBITDA from
unconsolidated Joint Venture investments, excluded from our
previously issued guidance, in the amounts of $1.2 million and $0.5
million in the fourth quarter of 2006 and 2005 respectively, and
$4.3 million and $2.5 million for the full year of 2006 and 2005,
respectively. Highlights for the fourth quarter include: --
Incentive management fees of $16.7 million, an increase of 16.5
percent, compared to 2005. -- Same-store RevPAR increase of 8.8
percent. -- The purchase in October of the Arlington Hilton in
Texas for $37.0 million, or $120,000 per key. -- The acquisition in
December of a 15.7 percent joint venture interest in the Courtyard
by Marriott in Boise, Idaho, for $1.1 million. -- A gain of $5.4
million from the sale of seven hotels out of the Meristar
Investment Partners joint venture. Hotel Management Results
Same-store RevPAR for all managed hotels in the fourth quarter of
2006 rose 8.8 percent to $82.84. Average daily rate (ADR) advanced
8.3 percent to $122.58, and occupancy increased 0.4 percent to 67.6
percent. Same-store RevPAR for all full-service managed hotels
increased 9.6 percent in the fourth quarter to $88.53, ADR rose 8.2
percent to $130.04, and occupancy improved 1.3 percent to 68.1
percent. Same-store RevPAR for all select-service managed hotels
improved 4.9 percent to $62.89, reflecting a 7.8 percent gain in
ADR to $95.55 and a 2.7 percent decline in occupancy to 65.8
percent. "Operationally, we had an outstanding fourth quarter, as
our RevPAR growth exceeded our guidance and surpassed the industry
average," said Thomas F. Hewitt, chief executive officer. "We saw
above average growth in the Chicago, Seattle, San Francisco, and
New York markets. "On the development front, we expanded our
international portfolio, signing several contracts in Europe for
properties that are under development, including the first Hilton
in Russia. We now have management agreements to operate seven
properties overseas," Hewitt noted. Wholly-owned Hotel Results
Interstate continued to successfully execute its strategy to
diversify and stabilize its income streams through the increase of
wholly-owned hotel real estate. "In mid-October, we acquired the
Hilton in Arlington, Texas, and have been pleased with the hotel's
operations to date," Hewitt said. "Our wholly- owned hotels
continue to outpace our expectations, which is a testament to the
strength of our business development and hotel operating teams."
RevPAR increased 3.8 percent in the fourth quarter for the four
wholly- owned hotels. However, RevPAR increased 11.0 percent
excluding the Hilton Garden Inn Baton Rouge, which experienced
tremendous demand in late 2005 as a result of hurricane Katrina.
EBITDA from the company's owned hotels was $2.2 million for the
fourth quarter and $7.2 million for the year ended December 31,
2006, as illustrated below (in millions): Owned Hotels Fourth
Quarter Full Year ---------------- ----------------- 2006 2005 2006
2005 Net Income $0.1 $(0.2) $1.9 $0.9 Interest Expense 1.1 0.4 2.9
1.1 Depreciation and Amortization 1.0 0.4 2.4 1.4 ---- ---- ----
---- EBITDA $2.2 $0.6 $7.2 $3.4 ==== ==== ==== ==== The EBITDA
contribution from the company's wholly-owned hotels was 10 percent
in 2006. "We expect this percentage to increase significantly in
2007," Hewitt said. "In early February we completed the acquisition
of the 297-room Hilton Houston Westchase, the fifth wholly-owned
property in the portfolio, for $50.5 million. The hotel was
financed by a $32.8 million mortgage as well as cash on hand. With
the purchase of this hotel we have increased our real estate
holdings by over $100 million in 2006 and early 2007. "We continue
to seek opportunities to acquire highly regarded, branded
properties in major markets with strong demand generators," he
added. "Demand for hotel real estate remains at record levels, but
we have been able to source attractive off-market opportunities and
avoid competitive bidding situations. Perhaps more important, we
have proven we have the expertise to judge the merits of the real
estate investments we see and the discipline to walk away if
necessary. Our pipeline remains very active, with our current
owners remaining one of our best resources." Joint Venture
Investments The company ended the quarter with minority ownership
in 17 properties through 11 joint venture partnerships. The
company's share of EBITDA from joint venture investments was $1.2
million in the fourth quarter and $4.3 million for the full year
2006, as compared to $0.5 million and $2.5 million for the same
periods last year. The company's share of non-recourse mortgage
debt from joint ventures is $16.0 million. Hewitt noted that the
company has been active during the quarter expanding its earnings
diversification through joint-venture transactions. "In December we
acquired a 15.7 percent interest in the Courtyard Boise for $1.1
million. This hotel was valued at an attractive price, and we are
optimistic about its long-term potential." Also in December, the
Meristar Investment Partners joint venture, in which the company
holds a 10 percent interest, sold seven hotels. The company
received proceeds of $6.4 million and recorded a gain of $5.4
million. Interstate continues to manage two of the properties.
"This completes the life cycle of this investment and allows us to
recognize its value and redeploy the capital into our core
businesses," Hewitt said. "In mid-January, we announced the
formation of a JV partnership with The John Buck Company (TJBC) to
build five to 10 new aloft hotels over the next several years.
aloft is an exciting new Starwood brand and an outstanding growth
vehicle that will allow us to combine our extensive experience
operating more than 30 hotel brands with TJBC's 25 years of
experience developing office, residential and hotel projects. Both
companies will be equity participants in the hotels." The joint
venture will build the first two properties in Rancho Cucamonga,
Calif. and Cool Springs, Tenn., a suburb of Nashville. Construction
of the California hotel is expected to begin in the first quarter
of 2007, with an opening scheduled for early 2008; Cool Springs is
slated to start construction in late spring 2007, with an opening
expected in late spring 2008. "We expect to close on several
additional joint ventures in the first half of 2007 and continue to
see this type of investment as a key growth strategy for acquiring
long term management contracts and building strategic relationships
with owners," Hewitt pointed out. BridgeStreet Sale In January
2007, Interstate sold its BridgeStreet Worldwide corporate housing
subsidiary to an affiliate of Sorrento Asset Management, a Dublin,
Ireland-based company for net proceeds of approximately $40.5
million. "Over the past two years, BridgeStreet underwent a
remarkable turnaround and compiled an impressive record of earnings
growth," Hewitt said. "However, corporate housing is no longer part
of our core growth strategy. With the turnaround achieved, we
believed the timing was right for us to exit this business and
monetize the value we had created." The company plans to reinvest
the proceeds into its core business. Balance Sheet On December 31,
2006, Interstate had: -- Total cash of $25.3 million. -- Total debt
of $84.2 million, consisting of $40.5 million of senior debt and
$43.7 million of non-recourse mortgage debt. "Throughout the year,
we were able to acquire a partial ownership interest in 10 hotels
for $16.3 million and whole ownership in two hotels for $51.6
million, primarily funded by operating cash flow, acceleration of
future termination fees, and proceeds from the sales of the
Sawgrass and MIP joint ventures," said Bruce Riggins, chief
financial officer. "We were able to reduce our net debt by $13
million despite investing $67.9 million in the 12 hotels." In early
2007, the company used approximately $25 million from the proceeds
of the sale of BridgeStreet to pay down the senior credit facility
to $15.5 million. The balance of the proceeds from the BridgeStreet
sale were used to acquire the Hilton Houston Westchase. After both
of these transactions, the company has $92 million of total debt
outstanding, consisting of $15.5 million of senior debt and $76.5
of mortgage debt, along with $55 million available on the line of
credit. The company expects to refinance its $70.5 million senior
credit facility in March, replacing it with a new facility
comprised of a $65 million term loan and a $60 million revolver,
both holding an interest rate of approximately LIBOR plus 275 basis
points. "The anticipated new credit facility will both lower our
cost of borrowing, and provide us with greater flexibility to
purchase hotels and continue executing on our three-pronged growth
strategy. We continue to maintain a prudently leveraged balance
sheet, and post-closing, we will have more than $80 million in
available funds to respond to future business opportunities."
Outlook and Guidance "We remain very positive about the industry
outlook and our growth prospects, especially considering that
supply at this stage remains constrained by historical standards
and demand remains in a solid uptrend," Hewitt said. "Despite our
optimism, we expect EBITDA to be substantially lower in 2007 as a
result of the decrease in termination fees of approximately $22
million compared to 2006, the sale of our BridgeStreet division,
which contributed $6.1 million in 2006, coupled with a reduction of
hotels under management. While we expect the real estate market to
remain quite active in 2007, we will continue to selectively pursue
our earnings diversification strategy, opportunistically acquiring
real estate through JVs and for our own account, along with adding
management contracts, both internationally and domestically." The
company provides the following guidance for the first-quarter and
full-year 2007: -- RevPAR, on a same-store basis, is expected to
increase 7 to 8 percent in the first quarter and 6 to 8 percent for
the full year; -- Net income (loss) and adjusted net income (loss)
of $(1.1) million to $(0.5) million in the first quarter and $7.0
million to $8.2 million for the full year, which excludes the gain
on sale of the BridgeStreet corporate housing business, and
includes a $4 million, or $0.08 per share, impact of accelerating
amortization of capitalized management contracts with Blackstone
from 25 years to approximately four years;(4) -- Diluted earnings
(loss) per share and adjusted diluted earnings (loss) per share of
$(0.04) to $(0.02) for the first quarter and $0.22 to $0.26 for the
full year;(4) -- Adjusted EBITDA of $3.8 million to $4.8 million
for the first quarter and $40.0 million to $42.0 million for the
full year, which includes the following: * Approximately $0.7
million and $5 million from the company's share of EBITDA from
unconsolidated joint ventures for the first quarter and full year
respectively. * EBITDA from wholly-owned hotels of $3 million to $4
million for the first quarter and $18 million to $19 million for
the full year. -- Termination fees of approximately $4.0 million
for the full year; -- Incentive fees of $17.5 million to $19.5
million for the full year. -- Full-year total capex of
approximately $8 million, primarily for the current portfolio of
five wholly-owned hotels, including $4 million to be funded out of
mortgage related escrows. (4) Management is currently evaluating
the impact of FIN 48 Accounting for Uncertainty in Income Taxes,
which is effective for the 1st quarter of 2007. Therefore, our
guidance does not consider the effect of this new accounting
pronouncement. Interstate will hold a conference call to discuss
its fourth-quarter results today, March 5, 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 Fourth-Quarter Conference Call. A replay of the conference
call will be available until midnight on Monday, March 12, 2007, by
dialing (800) 405-2236, reference number 11084405, and an archived
webcast of the conference call will be posted on the company's Web
site through April 5, 2007. As of February 28, Interstate Hotels
& Resorts operated 204 hospitality properties with more than
46,000 rooms in 36 states, the District of Columbia, Canada, and
Russia. 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 (or GAAP),
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 assets, related to some
of our management contracts, and long lived assets, which includes
the cost of our 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 also
exclude depreciation and amortization and interest expense from our
unconsolidated joint ventures. 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, EBITDA,
excluding the effects of certain recurring and non-recurring
charges, transactions and expenses incurred in connection with
events management believes do not provide the best indication of
our ongoing operating performance. These charges include
restructuring and severance expenses, asset impairments and
write-offs, gains and losses on asset dispositions for both
consolidated and unconsolidated investments, and other non-cash
charges. We believe that the presentation of Adjusted EBITDA will
provide useful supplemental information to investors regarding our
ongoing operating performance and that the presentation of Adjusted
EBITDA, when combined with the primary GAAP presentation of net
income, is beneficial to an investor's complete understanding of
our operating performance. We also use Adjusted EBITDA in
determining our incentive compensation for management. 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, 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, 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.
Interstate Hotels & Resorts, Inc. Statements of Operations
(Unaudited, in thousands except per share amounts) Quarter Ended
December 31, Year Ended December 31, -------------------------
---------------------- 2006 2005 2006 2005 ------- ------- -------
------- Revenue: Lodging $9,318 $4,156 $27,927 $12,638 Management
fees 28,889 28,104 75,305 70,674 Termination fees (1) 990 3,038
25,881 7,199 Other 2,451 2,599 11,568 11,140 ------- -------
------- ------- 41,648 37,897 140,681 101,651 Other revenue from
managed properties 188,931 228,310 834,484 893,760 ------- -------
------- ------- Total revenue 230,579 266,207 975,165 995,411
Expenses: Lodging 7,098 3,518 20,768 10,009 Administrative and
general 16,098 17,622 59,327 59,972 Depreciation and amortization
2,006 2,061 6,721 8,040 Restructuring and severance - - - 1,952
Asset impairments and write-offs (2) 2,548 2,626 13,214 5,583
------- ------- ------- ------- 27,750 25,827 100,030 85,556 Other
expenses from managed properties 188,931 228,310 834,484 893,760
------- ------- ------- ------- Total operating expenses 216,681
254,137 934,514 979,316 ------- ------- ------- ------- OPERATING
INCOME 13,898 12,070 40,651 16,095 Interest income 575 429 2,020
1,292 Interest expense (3) (2,259) (2,045) (8,481) (10,263) Equity
in earnings (losses) of affiliates 5,547 681 9,858 3,492 Gain on
sale of investments and extinguishment of debt (4) 162 (53) 162
4,658 ------- ------- ------- ------- INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES 17,923 11,082 44,210 15,274 Income tax
expense (7,058) (4,398) (17,271) (6,315) Minority interest expense
(52) (124) (223) (173) ------- ------- ------- ------- INCOME FROM
CONTINUING OPERATIONS 10,813 6,560 26,716 8,786 Income from
discontinued operations, net of tax (5) 13 607 3,063 4,091 -------
------- ------- ------- NET INCOME $10,826 $7,167 $29,779 $12,877
======= ======= ======= ======= BASIC EARNINGS PER SHARE:
Continuing operations $0.34 $0.21 $0.86 $0.29 Discontinued
operations 0.00 0.02 0.10 0.13 ------- ------- ------- -------
Basic earnings per share $0.34 $0.23 $0.96 $0.42 ======= =======
======= ======= DILUTIVE EARNINGS PER SHARE: Continuing operations
$0.34 $0.21 $0.85 $0.29 Discontinued operations 0.00 0.02 0.09 0.13
------- ------- ------- ------- Dilutive earnings per share $0.34
$0.23 $0.94 $0.42 ======= ======= ======= ======= Weighted average
shares outstanding (in thousands): Basic 31,533 30,579 31,122
30,522 Diluted (6) 31,846 30,935 31,559 30,825 Interstate Hotels
& Resorts, Inc. Hotel Level Operating Statistics (Unaudited)
Quarter Ended December 31, Year Ended December 31,
------------------------ ---------------------- % % 2006 2005
change 2006 2005 change -------- ------- ------ ------- -------
------ Managed Hotels - Hotel Level Operating Statistics: (7)
Full-service hotels: Occupancy 68.1% 67.2% 1.3% 72.5% 70.9% 2.3%
ADR $130.04 $120.24 8.2% $126.38 $117.52 7.5% RevPAR $88.53 $80.76
9.6% $91.63 $83.37 9.9% Select-service hotels: Occupancy 65.8%
67.6% -2.7% 71.7% 71.5% 0.3% ADR $95.55 $88.67 7.8% $94.61 $87.82
7.7% RevPAR $62.89 $59.93 4.9% $67.83 $62.76 8.1% Total: Occupancy
67.6% 67.3% 0.4% 72.3% 71.1% 1.7% ADR $122.58 $113.20 8.3% $119.37
$110.87 7.7% RevPAR $82.84 $76.14 8.8% $86.33 $78.79 9.6% Owned
Hotels - Hotel Level Operating Statistics: (8) Occupancy 62.7%
63.3% -0.9% 69.5% 64.0% 8.6% ADR $109.19 $104.31 4.7% $110.49
$100.32 10.1% RevPAR $68.48 $66.00 3.8% $76.75 $64.22 19.5%
Interstate Hotels & Resorts, Inc. Reconciliations of Non-GAAP
Financial Measures (9) (Unaudited, in thousands except per share
amounts) Quarter Ended December 31, Year Ended December 31,
------------------------- ---------------------- 2006 2005 2006
2005 ------- ------- ------- ------- Net income $10,826 $7,167
$29,779 $12,877 Adjustments: Depreciation and amortization 2,006
2,061 6,721 8,040 Interest expense, net 1,684 1,616 6,461 8,971
Depreciation and amortization from unconsolidated joint ventures
389 21 1,549 1,406 Interest expense, net from unconsolidated joint
ventures 677 886 2,575 2,488 Discontinued operations, net (5) 455
474 3,068 3,530 Income tax expense 7,058 4,398 17,271 6,315 -------
------- ------- ------- EBITDA 23,095 16,623 67,424 43,627
Restructuring and severance (10) - - - 2,043 Asset impairments and
write-offs (2) 2,548 2,626 13,214 5,583 Gain on sale of investments
and extinguishment of debt (4) (162) 113 (162) (7,203) Equity
interest in the gain on sale of unconsolidated joint ventures (11)
(5,383) (1,107) (9,706) (4,914) Minority interest expense 52 124
223 173 ------- ------- ------- ------- Adjusted EBITDA $20,150
$18,379 $70,993 $39,309 ======= ======= ======= ======= Quarter
Ended December 31, Year Ended December 31,
------------------------- ---------------------- 2006 2005 2006
2005 ------- ------- ------- ------- Net income $10,826 $7,167
$29,779 $12,877 Adjustments: Restructuring and severance (10) - - -
2,043 Asset impairments and write-offs (2) 2,548 2,626 13,214 5,583
Gain on sale of investments and extinguishment of debt (4) (162)
113 (162) (7,203) Deferred financing costs write-off (3) - - -
1,847 Equity interest in the gain on sale of unconsolidated joint
ventures (11) (5,383) (1,107) (9,706) (4,914) Equity in the
write-off of deferred financing costs (12) - - - 295 Minority
interest 7 16 (15) 39 Income tax rate adjustment (13) 1,216 899
(1,306) 3,265 ------- ------- ------- ------- Adjusted net income
$9,052 $9,714 $31,804 $13,832 ======= ======= ======= =======
Adjusted diluted earnings per share $0.28 $0.31 $1.01 $0.45 =======
======= ======= ======= Weighted average number of diluted shares
outstanding (in thousands) (6): 31,846 30,935 31,559 30,825
Interstate Hotels & Resorts, Inc. Outlook Reconciliation (9),
(14) (Unaudited, in thousands) Forecast
--------------------------------- Quarter Ending Year Ending March
31, 2007 December 31, 2007 -------------- ----------------- Net
income $(800) $7,600 Adjustments: Depreciation and amortization
3,400 15,300 Interest expense, net 1,800 9,400 Depreciation and
amortization from unconsolidated joint ventures 300 1,400 Interest
expense, net from unconsolidated joint ventures 200 2,100 Income
tax expense (600) 5,100 -------------- ----------------- EBITDA
4,300 40,900 Minority interest expense - 100 --------------
----------------- Adjusted EBITDA $4,300 $41,000 ==============
================= Interstate Hotels & Resorts, Inc. Notes to
Financial Tables (Unaudited) (1) We record termination fees as
revenue when all contingencies related to the termination fees have
been removed. In September 2006, we recognized $15.1 million of
one-time termination fees through an agreement removing all
remaining contingencies related to the unpaid termination fees for
hotels where Blackstone terminated its management agreement with
the company on or before October 1, 2006. (2) This amount
represents losses recorded for intangible costs associated with
terminated management contracts and other asset impairments. (3)
For 2005, interest expense includes $1.8 million of deferred
financing fees expensed in the first quarter in connection with the
refinancing of our senior secured credit facility. (4) In the
fourth quarter of 2006, we recognized a gain of $0.2 million
related to the sale of stock warrants for stock in an unaffiliated
company. In the first quarter of 2005, we recognized a gain of $0.3
million from the exercise of stock warrants for stock in an
unaffiliated company. In the third quarter of 2005, we recognized a
gain of $4.3 million on the extinguishment of the remaining
principal and accrued interest on a non-recourse promissory note
and a gain of $2.6 million on the sale of the Pittsburgh Residence
Inn by Marriott (this gain is recorded in discontinued operations
on our statement of operations). (5) In September 2005, we
completed the sale of the Pittsburgh Airport Residence Inn by
Marriott. In January 2007, we completed the sale of our subsidiary,
BridgeStreet Corporate Housing which was classified as held for
sale on December 31, 2006. Accordingly, we have presented these
operations as discontinued operations for the periods presented. In
addition, the calculation of EBITDA reflects the elimination of
interest expense, depreciation and amortization and income taxes
related to those discontinued operations, which is shown in the
following tables. Quarter Ended Year Ended December 31, December
31, ------------- ---------------- 2006 2005 2006 2005 ---- ----
---- ---- BridgeStreet: Depreciation & Amortization $340 $250
$1,533 $1,101 Interest Expense 1 - 19 - Tax expense (benefit) 114
282 1,516 1,012 Residence Inn Pittsburgh: Depreciation &
Amortization - - - 156 Tax expense (benefit) - (58) - 1,261 ----
---- ------ ------ Total Discontinued Operations $455 $474 $3,068
$3,530 ==== ==== ====== ====== (6) 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. (7) 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 presented. In addition,
the operating results of hotels for which we no longer managed as
of December 31, 2006 are also not included in same-store hotel
results for the periods presented herein. Of the 223 properties
that we managed as of December 31, 2006, 208 hotels have been
classified as same-store hotels. RevPAR is defined as revenue per
available room. ADR is defined as average daily rate. (8) Owned
Hotels - Hotel Level Operating Statistics include periods prior to
our ownership. Hilton Concord was purchased in February 2005,
Hilton Durham was purchased in November 2005, Hilton Garden Inn in
Baton Rouge was purchased in June 2006 and Hilton Arlington was
purchased in October 2006. Statistics for these properties are also
included in the Managed Hotels - Hotel Level Operating Statistics.
(9) See discussion of EBITDA, adjusted EBITDA, adjusted net income
and adjusted diluted earnings per share, located in the "Non-GAAP
Financial Measures" section, described earlier in this press
release. (10) Restructuring and severance includes $0.1 million of
restructuring expenses incurred in the first six months of 2005
which are related to BridgeStreet Corporate Housing. These expenses
are classified as part of discontinued operations on the
consolidated statement of operations. (11) In the third quarter of
2006, we sold our joint venture ownership in Marriott Sawgrass
Resort & Spa. We received proceeds of $15.3 million and
recognized a gain of $4.5 million. Using the proceeds from the
sale, we reinvested $9.3 million in RQB Resort Investors LLC and
RQB Development Investors LLC (together, RQB, and the buyer of the
Marriott Sawgrass Resort & Spa) for a 10% preferred equity
investment. In the fourth quarter of 2006, the MIP joint venture
was sold. We recognized a gain of $5.4 million related to our
portion of the sale. We incurred losses of $0.2 million from
another joint venture for write -offs of contributions. 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 a gain of $4.2 million, which
represents our portion of the gain on the sale. In the second
quarter of 2005, one of our joint ventures sold the Wyndham
Milwaukee, of which our portion of the loss on sale was $0.4
million. In the fourth quarter of 2005, one of our joint ventures
sold the Marriott Residence Inn Houston, of which our portion of
the gain on sale was $1.1 million. These amounts have been included
in our equity in earnings (losses) of affiliates. (12) 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. (13) This amount represents the effect on income tax expense
for the adjustments made to net income at an effective tax rate of
39% as of December 31, 2006 and 28% as of December 31, 2005. The
2005 effective tax rate differs from the effective tax rate
reported in our statements of operations by 13%. (14) 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, SVP, Treasurer,
+1-703-387-3320 Web site: http://www.ihrco.com/
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Interstate Hotels (NYSE:IHR)
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