Interstate Hotels & Resorts Reports First-Quarter 2009 Results
May 6, 2009 8:00:00 AM
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View Additional ProfilesARLINGTON, Va., May 6 /PRNewswire-FirstCall/ -- Interstate Hotels & Resorts (OTC Bulletin Board: IHRI), a leading hotel real estate investor and the nation's largest independent hotel management company, today reported operating results for the first quarter ended March 31, 2009. The company's performance for the first quarter includes the following (in millions, except per share amounts):
First Quarter
2009(4) 2008(5)
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Total revenue(1) $30.5 $38.9
Net loss $(12.5) $(0.3)
Diluted loss per share $(0.39) $(0.01)
Adjusted EBITDA(2)(3) $5.9 $7.7
Adjusted net loss (2) $(2.0) $(1.1)
Adjusted diluted EPS (2) $(0.06) $(0.03)
(1) Total revenue excludes other revenue from managed properties
(reimbursable costs).
(2) Adjusted EBITDA, Adjusted net loss 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 the definition
and further discussion of non-GAAP financial measures and
reconciliation to net loss later in this press release.
(3) Includes the company's share of adjusted EBITDA from investments in
unconsolidated entities in the amounts of $1.2 million and $1.6
million in the first quarter of 2009 and 2008, respectively.
(4) The first quarter 2009 results include a $0.8 million charge for
restructuring primarily related to severance costs as a part of the
company's 2009 cost reduction program, and $8.9 million of tax expense
relating to the company's global tax planning strategy. These charges
are excluded from the calculation of Adjusted EBITDA, Adjusted net
loss and Adjusted diluted EPS.
(5) The first quarter 2008 results include (i) a $2.4 million gain on the
sale of the Doral Tesoro Hotel & Golf Club, and (ii) $1.1 million of
write-offs of intangible assets related to the sale of certain hotels
in 2008. Each of these items has been excluded from the calculation
of Adjusted EBITDA, Adjusted net loss and Adjusted diluted EPS.
"The first quarter was an extremely difficult operating period, a trend that we anticipate will continue through most of 2009, and possibly into 2010," said Thomas F. Hewitt, chief executive officer. "While our visibility remains limited, we expect to see the decline in RevPAR begin to moderate in the second half of the year."
Hotel Management
Same-store(6) RevPAR for all managed hotels in the first quarter declined 19.1 percent to $74.25. Average daily rate (ADR) was $123.01, down 9.8 percent, and occupancy fell 10.3 percent to 60.4 percent.
Same-store RevPAR for all full-service managed hotels declined 19.7 percent to $84.94. ADR was off 9.9 percent to $134.57, while occupancy decreased 10.9 percent to 63.1 percent.
Same-store RevPAR for all select-service managed hotels declined 17.2 percent to $54.01, led by a 9.2 percent decline in occupancy to 55.1 percent and an 8.9 percent drop in ADR to $97.98.
"The severe condition of the economy continues to present challenges to the hotel industry," Hewitt said. "However, we remain focused on optimizing returns for our owners and shareholders. As lodging demand weakened in the first quarter, we adapted our cost reduction programs to make every effort to optimize our owners' and shareholders' returns.
"In addition to the cost reduction plans at the property level, we implemented an extensive corporate cost savings program in January, which resulted in a decrease of $4.6 million in corporate G&A expense in the first quarter, a reduction of 29 percent from last year.
"Our portfolio count remained steady in the 2009 first quarter," Hewitt added. "We continue to focus on growing our managed portfolio and have several properties scheduled to come on line in the second quarter. We also have reached out to lenders and loan servicers to offer our expertise in taking over distressed assets. There has not been much movement in this area to date, but we expect activity to pick up later this year and next year, and we are well positioned to respond quickly when opportunities arise."
Wholly Owned Hotel Results
EBITDA from the company's seven owned hotels was $4.5 million in the 2009 first quarter as outlined below (in millions):
Owned Hotels First Quarter
2009 2008
---- ----
Net income (loss) $(1.3) $0.1
Interest expense, net $2.9 $3.6
Depreciation and amortization. $2.9 $3.2
---- ----
EBITDA $4.5 $6.9
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"RevPAR for the owned portfolio decreased 16.0 percent, stemming from an 8.7 percent slide in occupancy and an 8.1 percent decrease in rate," Hewitt said. "Our newly renovated Sheraton Columbia (Md.) hotel performed exceptionally well during the quarter with a 5.2 percent RevPAR increase over last year.
"Our newly renovated Westin Atlanta Airport hotel performed well compared to its competitive set and the overall industry with a RevPAR decline of 13.1 percent. Both of these properties have received an overwhelmingly positive response from customers that are now returning to the hotels following their comprehensive renovations.
"We saw significant weakness in Arlington, Texas, and Concord, Calif., as our hotels in those markets suffered RevPAR declines in excess of our portfolio average due to local market conditions. While total revenue for our owned hotels decreased $4.9 million, we were able to control expenses, leading to an overall expense reduction of $2.4 million."
Balance Sheet
On March 31, 2009, Interstate had:
-- Total unrestricted cash of $13.0 million.
-- Total debt of $244.0 million, consisting of $161.5 million of senior
debt and $82.5 million of non-recourse mortgage debt.
"We have engaged Bank of America to be the lead arranger for the extension of our credit facility, which has a March 2010 maturity," said Bruce Riggins, chief financial officer. "We continue to have productive discussions with our bank group regarding this extension, and our goal is to have this extension in place by June 30.
"In late March, we received a waiver from our bank group related to our potential NYSE delisting, pending an appeal process with the Exchange," said Riggins. "As part of the waiver agreement, the facility size was permanently reduced to $173.3 million from $198.0 million and the interest rate was increased to LIBOR plus 350 basis points from LIBOR plus 275 basis points. The new facility size provides for $10 million of borrowing capacity, of which $6 million is available through June 30. We do not expect that we will need to draw on our revolving facility during the waiver period."
Outlook and Guidance
The company has updated its 2009 guidance to reflect a RevPAR decline scenario of 17 percent for all managed properties and 14 percent for owned hotels:
-- Total Adjusted EBITDA of $37 million which includes the following:
-- EBITDA from wholly owned hotels of $19 million;
-- The company's share of EBITDA from unconsolidated joint ventures of
$6 million; and
-- EBITDA from the hotel management business of $12 million.
-- Adjusted net loss of $(1.9) million or $(0.06) per share.
Earnings Conference Call
Interstate will hold a conference call to discuss its first-quarter results today, May 6, 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 First-Quarter Conference Call. A replay of the conference call will be available until midnight on Wednesday, May 13, 2009, by dialing (800) 405-2236, reference number 11130289, and an archived webcast of the conference call will be posted on the company's Web site through June 6, 2009.
Interstate Hotels & Resorts has ownership interests in 56 hotels and resorts, including seven wholly owned assets. Together with these properties, the company and its affiliates manage a total of 224 hospitality properties with more than 45,000 rooms in 37 states, the District of Columbia, Russia, Mexico, Belgium, Canada and Ireland. Interstate Hotels & Resorts also has contracts to manage 16 to be built hospitality properties with approximately 4,000 rooms. For more information about Interstate Hotels & Resorts, visit the company's Web site: 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 loss and Adjusted diluted loss per share. 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 include 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 Loss 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 when combined with the primary GAAP presentation of net loss, 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 loss and Adjusted diluted loss per share ("EPS") as net loss and diluted EPS, without the effects of those same charges, transactions and expenses described earlier. We believe that Adjusted EBITDA, Adjusted net 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, Adjusted net 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 Use of EBITDA, Adjusted EBITDA, Adjusted Net Loss and Adjusted Diluted EPS
We calculate EBITDA, Adjusted EBITDA, Adjusted net loss 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 loss 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 loss 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. 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, economic conditions generally and the hotel and real estate markets specifically, the war in Iraq, international and geopolitical difficulties or health concerns, governmental actions, legislative and regulatory changes, availability of debt and equity capital, interest rates, competition, weather conditions or natural disasters, 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, 2008.
(6) Please see footnote 9 to the financial tables within this press release for a detailed explanation of "same-store" hotel operating statistics.
Contact:
Carrie McIntyre
SVP, Treasurer
(703) 387-3320
SOURCE Interstate Hotels & Resorts
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Carrie McIntyre
SVP
Treasurer
+1-703-387-3320
