Interstate Hotels & Resorts Reports Fourth-Quarter, Full-Year 2007 Results
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Interstate Hotels & Resorts Reports Fourth-Quarter, Full-Year 2007 Results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2008-02-28
Interstate Hotels & Resorts (NYSE: IHR), a leading hotel real estate investor and the nation's largest independent operator of full- and select-service hotels, today reported strong operating results for the fourth quarter and year ended December 31, 2007. The company's performance for the fourth quarter and full year include the following (in millions, except per share amounts):
Fourth Quarter Full Year
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2007(4) 2006(5) 2007(4) 2006(5)
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Total revenue (1) $58.6 $41.6 $156.0 $140.7
Net income $6.8 $10.8 $22.8 $29.8
Diluted earnings per share $0.21 $0.34 $0.71 $0.94
Adjusted EBITDA (2) (3) $22.7 $19.7 $45.9 $65.0
Adjusted net income (2) $10.5 $9.0 $14.6 $28.8
Adjusted diluted EPS (2) $0.33 $0.28 $0.46 $0.91
(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 in the amounts of $1.3 million and $1.2 million in the fourth quarters of 2007 and 2006, respectively, and $4.4 million and $4.3 million for the full years of 2007 and 2006, respectively.
(4) The fourth quarter and full year 2007 results include (i) $2.4 million and $11.1 million of write-offs of intangible assets related to the sale of certain hotels during the fourth quarter and full year, respectively, (ii) a $2.9 million allowance for bad debts related to a note receivable the company holds with an owner of one its hotels, included in administrative and general expenses on the company's statement of operations for both the fourth quarter and full year; and (iii) a $20.4 million gain related to the sale of BridgeStreet Corporate Housing (completed in the first quarter 2007), which is included in Income from Discontinued Operations on the company's statement of operations for the full year 2007. Each of these items has been excluded from the calculation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS.
(5) Fourth quarter and year-to-date 2006 results include $0.8 million and $19.2 million, respectively, in lump-sum termination fees, from affiliates of the Blackstone Group.
Fourth quarter 2007 highlights include:
* Incentive management fees of $21.1 million, a 26 percent increase compared to 2006.
* Same-store RevPAR improvement of 9.1 percent, compared to 5.7 percent for the industry.
* Adjusted EBITDA of $22.7 million, $3.0 million more than the same quarter of 2006.
* Acquired the 288-room Sheraton Columbia, Md. for $46.5 million, or $161,500 per key.
* Completed joint venture acquisition with Investcorp International of two hotels for $71.5 million from The Blackstone Group.
* Added 10 new management contracts, bringing the year-end 2007 total to 191 managed properties.
Wholly-owned Hotel Results
EBITDA from the company's owned hotels was $6.1 million for the 2007
fourth quarter and $21.7 million for the full year 2007, as outlined below (in
millions):
Owned Hotels Fourth Quarter Full Year
2007 2006 2007 2006
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Net Income $0.0 $0.1 $1.9 $1.9
Interest Expense $3.4 $1.1 $11.6 $2.9
Depreciation and Amortization $2.7 $1.0 $8.2 $2.4
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EBITDA $6.1 $2.2 $21.7 $7.2
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Interstate acquired the 288-room Sheraton Columbia, Md. for $46.5 million in the 2007 fourth quarter, its third wholly-owned acquisition for the year, bringing the number of wholly-owned hotels in its portfolio to seven.
"During the fourth quarter, we not only achieved impressive operating results, as evidenced by the 7.9 percent RevPAR increase on our six wholly- owned assets, we continued to execute on our growth strategy to selectively acquire wholly-owned hotels by purchasing the Sheraton Columbia Hotel in Maryland," said Thomas F. Hewitt, chief executive officer.
"In early 2005, we set out to diversify and stabilize our income streams," he said. "With the acquisition of the Sheraton Columbia, we have now reached our near-term target of generating 50 percent of our Adjusted EBITDA from whole ownership. Although we will remain opportunistic in seeking additional wholly-owned assets, we expect the majority of our dollars invested in owned assets in 2008 to come through value-added capital improvements at our existing hotels."
Hewitt said that the company will invest approximately $35 million to upgrade its owned hotels in 2008, including $27 million related to completion of the comprehensive $30 million renovation of the Westin Atlanta Airport and Sheraton Columbia hotels. Room renovations are underway at both hotels.
The Westin Atlanta Airport renovation represents approximately $15 million of the company's total capital budget for 2008. In total, the company will have invested $18 million for this comprehensive renovation project. The room renovations at the property are expected to be completed by July 2008. The remainder of the renovation project, including all meeting rooms and public spaces, will be completed by the end of the year.
The Sheraton Columbia property, representing $12 million of the total capital budget for 2008, will undergo two phases of room renovations. The first phase, covering half of the guest rooms, is expected to be completed in mid spring, with phase two, including the other half of the guest rooms and meeting rooms, by the end of the third quarter. The entire renovation, including all remaining public spaces, will be substantially completed by the end of 2008.
"Not only do these capital expenditures give our hotels a competitive edge in their respective markets, they translate into significant embedded growth," Hewitt said. "We expect a $3 million to $4 million increase in EBITDA from these hotels in 2009, post-renovation."
Joint Venture Investments
During the quarter, the company's joint venture with Investcorp International completed the acquisition of two hotels for $71.5 million from The Blackstone Group. The company closed the year with minority interests in 22 properties, and its share of EBITDA from joint venture investments for the 2007 fourth quarter and full year was $1.3 million and $4.4 million, respectively. In addition, during the fourth quarter, the company entered into two new joint venture partnerships, which acquired interests in a total of 26 properties in early 2008. As of today, the company has minority ownership interests in 47 properties.
"We have been extremely successful in sourcing capital through joint venture partnerships during the year," Hewitt said. "We not only added six new joint venture properties during 2007, we have added 26 more since the beginning of 2008 and have five joint venture properties under development or construction. We expect EBITDA from our joint ventures to more than double in 2008."
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