Interstate Hotels & Resorts Reports Second-Quarter 2007 Results
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Interstate Hotels & Resorts Reports Second-Quarter 2007 Results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2007-08-09
Interstate Hotels & Resorts (NYSE: IHR), one of the nation's largest independent hotel management companies, today reported operating results for the second quarter ended June 30, 2007. The company's performance for the second quarter includes the following (in millions, except per share amounts):
Second Quarter Year-to-Date
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2007 2006 2007 2006
----- ----- ----- -----
Total revenue (1) $35.4 $26.5 $63.8 $58.1
Net income $1.6 $3.0 $18.8 $3.8
Diluted earnings per share $0.05 $0.10 $0.59 $0.12
Adjusted EBITDA (2) (3) $9.5 $7.6 $16.4 $22.2
Adjusted net income (2) $1.5 $1.6 $2.3 $8.1
Adjusted diluted EPS (2) $0.05 $0.05 $0.07 $0.26
(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.
(3) Includes the company's share of EBITDA from unconsolidated Joint
Venture investments in the amounts of $1.0 million in the second
quarters of 2007 and 2006, and $1.9 million and $1.5 million for the
first six months of 2007 and 2006, respectively.
The second quarter 2007 statement of operations includes the following non-recurring items and special charges:
* $1.0 million of asset impairments and write-offs associated with terminated management contracts;
* $0.4 million of severance costs related to a reduction in corporate headcount associated with the reduction in the number of third party managed properties throughout the year;
* $0.6 million gain related to the sale of a joint venture interest, recorded in equity in earnings of affiliates.
These items have been excluded from the calculation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS.
Hotel Management Results
Same-store(4) RevPAR for all managed hotels in the second quarter of 2007 rose 8.0 percent to $104.61. Average daily rate (ADR) improved 7.5 percent to $135.43, and occupancy increased 0.4 percent to 77.2 percent.
Same-store RevPAR for all full-service managed hotels advanced 8.1 percent to $113.21. ADR increased 7.0 percent to $145.38, while occupancy rose 1.0 percent to 77.9 percent.
Same-store RevPAR for all select-service managed hotels improved 7.7 percent to $77.23, on a 9.2 percent gain in ADR to $102.69 and a 1.3 percent decline in occupancy to 75.2 percent.
"We had an excellent second quarter, with RevPAR increasing 8.0 percent, which compared favorably to the industry average of 5.7 percent, according to Smith Travel Research data," said Thomas F. Hewitt, chief executive officer. "Yielding rate and controlling costs enabled us to deliver strong bottom line growth to our owners."
The company ended the quarter with 187 hotels in its portfolio, a decrease of 20 hotels from the beginning of the quarter. This decrease was driven by the sale of properties by two major owners, The Blackstone Group, which sold 11 Interstate-managed hotels during the quarter, and Sunstone Hotel Investors, Inc. (NYSE: SHO), which sold a portfolio of six hotels. These losses were somewhat offset by adding four new third-party managed properties to the portfolio during the quarter: the 148-room Marriott Ashbourne in Ireland, the 484-room Marriott Oakland City Center and the 162-room Courtyard Oakland Downtown, both in California; and the 143-room Hampton Inn Pittsburgh, a newly built hotel which opened at the end of the quarter.
"The expected reduction in our hotel count during the quarter is a reflection of the favorable real estate market conditions the industry has been experiencing over the past two years," Hewitt noted. "As we work through this transitional year, we are encouraged by the activity generated by our business development team, which continues to focus on adding new properties to our portfolio of third-party managed hotels, while also seeking opportunities to grow our real estate ownership, both wholly-owned and through joint venture investments."
(4) Please see footnote 6 to the financial tables within this press
release for a detailed explanation of "same-store" hotel operating
statistics.
Wholly-owned Hotel Results
"RevPAR increased 3.8 percent at our six wholly-owned properties. These results were impacted by tough comparisons for our Baton Rouge hotel, which benefited from unusual demand last year as a result of Hurricane Katrina. The hotel continues to perform well, with occupancies in the mid-80s," Hewitt said.
"From a bottom-line perspective, the portfolio continues to generate strong results," Hewitt noted. EBITDA from the company's owned hotels was $5.9 million for the second quarter and $9.6 million for the first six months as illustrated below (in millions):
Owned Hotels Second Quarter Year-to-Date
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2007 2006 2007 2006
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Net Income $1.2 $0.8 $1.5 $1.1
Interest Expense 2.9 0.5 4.9 1.0
Depreciation and Amortization 1.8 0.5 3.2 0.9
------ ------ ------ ------
EBITDA $5.9 $1.8 $9.6 $3.0
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"We completed the purchase of the Westin Atlanta Airport in the second quarter, for $74 million, our largest asset acquisition to date," Hewitt added. "The Westin's favorable location provides for easy access to the nearby convention center, downtown Atlanta and other area attractions. We expect to benefit from the addition of 3.2 million square feet of office construction across the Atlanta metro area. Our planned $18 million renovation, just underway at this hotel, will position us to take full advantage of the growth in the area."
With the addition of this hotel, the company's 2007 projected annualized EBITDA from its wholly-owned assets is $25 million, which is more than 50 percent of its total Adjusted EBITDA.
"We continue to look for hotels to which we can add value, both through our management expertise and through targeted capital spending," Hewitt said. "We remain disciplined in our approach to the properties we acquire in order to maintain a conservative balance sheet, well positioned to handle any phase of the lodging cycle."
Joint Venture Investments
The company ended the second quarter with minority ownership in 17 properties through 11 joint venture partnerships. The company's share of EBITDA from joint venture investments was $1 million in both the second quarter of 2007 and 2006. The company's share of non-recourse mortgage debt from joint ventures is $20.1 million.
Leslie Ng, chief investment officer, pointed out that joint ventures remain a major growth platform for Interstate. "Joint venture investments provide us with solid returns on our investment through the combination of our share of the real estate returns, the management fee from the hotel, as well as the participation in the potential asset value accretion upon sale, while aligning our interests with our majority partner."
Last week, the company announced that it had entered the Mexican market by making a $5.7 million investment in a three-property portfolio of Tesoro Resorts in Mexico, which includes:
Property Location # of Rooms
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Tesoro Los Cabos Cabo San Lucas, Mexico 286
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Tesoro Manzanillo Manzanillo, Mexico 331
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Tesoro Ixtapa Ixtapa, Mexico 203
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Interstate expects to convert this investment to a 15 percent joint venture equity interest in the near term. In conjunction with this investment, Interstate acquired a 50 percent interest in the resorts' operating company through a separate joint venture, operating as Interstate de Mexico.
"This investment establishes a solid platform for our entry into Mexico and Latin America, areas where we see significant opportunities for growth over the next decade," Ng said. "We continue to seek joint venture investment opportunities both internationally and domestically that are consistent with our targeted property profile," he added.
Balance Sheet
On June 30, 2007, Interstate had:
* Total cash of $27.4 million
* Total debt of $172.2 million, consisting of $114.7 million of senior debt and $57.5 million of non-recourse mortgage debt
In May, the company amended its senior secured credit facility to significantly expand the facility's capacity and provide greater flexibility in certain of its financial covenants. The total facility increased by $75 million to $200 million, consisting of a $115 million term loan and a $85 million revolver. The interest rate of the expanded facility remained at LIBOR plus 275 basis points. The company used the additional $50 million term loan and cash on hand to finance the acquisition of the Westin Atlanta Airport hotel.
"By increasing the capacity of our senior secured facility, we have the flexibility to continue to execute our strategic business plans, including the selective acquisition of wholly-owned and joint venture real estate investments," said Bruce Riggins, chief financial officer. "We currently have the entire $85 million available on our revolving credit facility to fund our growth strategy and our operating needs."
Outlook and Guidance
The company provides the following guidance for full-year 2007:
* RevPAR, on a same-store basis, is expected to increase 7.0 to 9.0 percent;
* Net income of $23.5 million to $24.7 million;
* Diluted earnings per share of $0.74 to $0.78;
* Adjusted net income of $7.0 million to $8.2 million;
* Adjusted diluted earnings per share of $0.22 to $0.26;
* Adjusted EBITDA of $41.5 million to $43.5 million, which includes the following:
* $4.0 to $4.5 million from the company's share of EBITDA from unconsolidated joint ventures;
* EBITDA from wholly-owned hotels of $20 million to $22 million.
* Termination fees of approximately $6.0 million;
* Incentive fees of $17.5 million to $19.5 million;
* Total capex of approximately $14.0 million, including $4.0 million to be funded out of mortgage-related escrows.
Interstate will hold a conference call to discuss its second-quarter results today, August 8, at 10 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 Second-Quarter Conference Call. A replay of the conference call will be available until midnight on Wednesday, August 15, 2007, by dialing (800) 405-2236, reference number 11093055, and an archived webcast of the conference call will be posted on the company's Web site through September 8, 2007.
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