For Immediate Release
Contact:
Melissa Thompson Jerry Daly or Carol McCune
Director of Corporate Communications Daly Gray Public Relations (Media)
(703) 387-3377 (703) 435-6293
Interstate Hotels & Resorts Reports Third-Quarter Results
ARLINGTON, Va., October 29, 2003--Interstate Hotels & Resorts (NYSE:
IHR), the nation's largest independent hotel management company, today reported
historical results for the third quarter ended September 30, 2003. Interstate
Hotels & Resorts was formed July 31, 2002, following the merger of MeriStar
Hotels & Resorts and Interstate Hotels Corporation. For 2002, both historical
financial data and combined pro forma financial data (assuming the merger was
completed on January 1, 2002) are included in the tables of this press release.
Historical financial data represents results for Interstate Hotels Corporation
through July 31, 2002, and results for Interstate Hotels & Resorts subsequent to
July 31, 2002.
Third-Quarter Results
For the 2003 third quarter, net loss was $(0.4) million or $(0.02) per
share. On a historical basis, net loss available to common shareholders was
$(19.4) million, or $(1.12) per share, in the 2002 third quarter.
The statement of operations for the 2003 third quarter includes the
following non-recurring items and special charges:
o $0.9 million of merger and integration expenses, including professional
fees, travel and other transition costs.
o $2.0 million of asset impairments and write-offs of assets related to
the termination of management contracts.
In the 2003 third quarter, earnings before interest, taxes,
depreciation and amortization
(EBITDA), excluding non-recurring items and special charges, was $7.5 million.
Net income, excluding non-recurring items and special charges for the 2003
third-quarter reporting period was $1.3 million, or $0.06 per share. These
results were in line with consensus analysts' estimates.
Third-quarter 2002 pro forma net loss was $(10.1) million, or a loss of
$(0.50) per share. Third-quarter 2002 pro forma EBITDA, excluding non-recurring
items and special charges, was $7.3 million, and pro forma net loss, excluding
non-recurring items and special charges, was $(0.5) million, or $(0.03) per
share.
EBITDA and net income, excluding non-recurring items and special
charges, are non-GAAP financial measures within the meaning of the Securities
and Exchange Commission (SEC) regulations. See the discussion below in the
"Non-GAAP Financial Measures" section of this press release. Reconciliations of
EBITDA and EBITDA and net income, excluding non-recurring items and special
charges, are provided in the tables of this press release.
Same-store revenue per available room (RevPAR) for all full-service
managed hotels in the 2003 third quarter decreased 1.4 percent from the prior
year's third quarter to $67.95. Occupancy increased 2.0 percent to 68.2 percent,
and average daily rate (ADR) decreased 3.4 percent to $99.65. Same-store RevPAR
for all limited-service managed hotels in the 2003 third quarter decreased 1.1
percent to $55.60. Occupancy increased 0.6 percent to 70.0 percent, and ADR
declined 1.6 percent to $79.40.
"Leisure travel improved throughout the summer vacation months," said
Paul W. Whetsell, chairman. "Group business also was quite active during the
period, as we aggressively marketed to this segment. However, increased business
travel did not materialize as expected in late August and September. Business
travel typically lags an economic rebound by six months,
and this historic pattern is holding true. Advanced business travel bookings in
the fourth quarter remain soft, but we are seeing some improvements for the
first quarter of 2004."
During the quarter, Interstate signed 26 management contracts, led by
22 properties owned by CNL Hospitality Properties, Inc. In addition, the company
completed the acquisition of the first hotel in its $400 million acquisition
fund, Northridge Interstate Hospitality Fund, a joint venture with Northridge
Capital, Inc.
"The 209-room Sheraton Long Island in Smithtown, N.Y., is typical of
the type of asset we seek to acquire: first-class, full-service, stabilized
hotels in strong markets with high barriers to new competition," said Steve
Jorns, chief executive officer. "We expect to benefit from both our management
fees and our participation in the underlying real estate investment. We have an
active pipeline of potential additional acquisitions as we head into 2004."
The company's BridgeStreet Corporate Housing Worldwide operations
continued to have relatively better performance in domestic markets as compared
to international markets. Results in Canada were negatively impacted by the
aftereffects of the SARS outbreak, and some European markets were impacted by
sluggish economies. "We continue to adjust our rooms inventory in those markets
that remain soft," Jorns said.
BridgeStreet added three Licensed Global Partners during the quarter,
bringing the total to nine. In addition, BridgeStreet expanded its BridgeStreet
Concierge service, a comprehensive service that provides the company's guests
with 24/7 coverage.
Capital Structure
Interstate had $24.5 million of availability on its revolving credit
facility as of September 30, according to James A. Calder, chief financial
officer. "We continue to have excellent flexibility to respond to management
contract options that require sliver investments, as well as
real estate investment opportunities through joint ventures," he said.
Key Financial Information
As of September 30, 2003, Interstate had:
o Total cash of $20.7 million
o Total debt of $131 million, consisting of $87.3 million of senior debt,
$40.0 million of subordinated debt and a $3.7 million promissory note
o Average cost of debt of 6.7 percent
Board of Directors
Interstate also announced the resignation of John Emery and J. Taylor
Crandall from the company's board of directors, effective October 22, 2003. Last
week, Emery announced that he would resign as president and chief operating
officer of the company at the end of 2003. Crandall previously served on the
boards of MeriStar Hospitality and Interstate. His resignation from Interstate's
board eliminates the shared board positions between the two companies, with the
exception of the chairman.
Outlook and Guidance
"The exact timing of a meaningful rebound in business travel is still
unclear," Jorns said. "Based on historical patterns and early booking trends,
business travel will not likely pick up until 2004. We are buoyed by the
continued strength in the leisure market and look forward to similar patterns in
business travel in the future. Based on this lack of clarity and the current
short-term outlook, we are providing more conservative guidance for the
remainder of the year."
For the full year 2003, Interstate expects net income of $4.2 million
to $5.4 million ($0.20 to $0.25 per share) and net income excluding
non-recurring items and special charges of $1.0 million to $2.2 million ($0.05
to $0.10 per share). The company estimates that EBITDA, excluding non-recurring
items and special charges, will be $27 million to $29 million.
Interstate expects 2003 fourth quarter net income of $0.6 million to
$1.8 million ($0.03 to
$0.08 per share); net income excluding non-recurring items and special charges
of between $1.9 million and $3.1 million ($0.09 to $0.15 per share); and EBITDA
excluding non-recurring items and special charges of $9.3 million to $11.3
million. Reconciliations of forecasted EBITDA and net income, excluding
non-recurring items and special charges to net income, for the year ending
December 31, 2003, and the three months ending December 31, 2003, are included
in the tables of this press release.
Interstate will hold a conference call to discuss its third-quarter
results today, October 29, at 10 a.m. Eastern time. Interested parties may visit
the company's Web site at www.ihrco.com and click on Investor Relations and then
Third-Quarter Conference Call. Interested parties also may listen to an archived
webcast of the conference call on the Web site, or may dial (800) 405-2236, pass
code 555321, to hear a telephone replay. The telephone replay will be available
through Friday, November 28, 2003.
Interstate Hotels & Resorts operates more than 300 hospitality
properties with nearly 67,000 rooms in 42 states, the District of Columbia,
Canada and Russia. BridgeStreet Corporate Housing Worldwide, an Interstate
Hotels & Resorts subsidiary, is one of the world's largest corporate housing
providers, offering upscale, fully furnished corporate housing throughout the
United States, Canada, the United Kingdom, France and 39 additional countries
through its network partners. 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 future performance that are
different from measures calculated and presented in accordance with GAAP, within
the meaning of applicable SEC rules that we believe
are useful to investors. They are as follows: (i) EBITDA and (ii) EBITDA and net
income, excluding non recurring and special charges. The following discussion
defines these terms and presents why we believe they are useful measures of our
performance.
EBITDA
A significant portion of our non-current assets consist of intangible
assets. Of those intangible assets, our management contracts are amortized over
their remaining terms. Because depreciation and amortization are non-cash items,
management and many industry investors believe the presentation of EBITDA is
more useful. EBITDA represents consolidated earnings before interest expense,
income taxes, depreciation and amortization. We believe EBITDA provides useful
information to investors regarding our financial condition and results of
operations because EBITDA is useful for evaluating our performance and our
capacity to incur and service debt, fund capital expenditures and expand our
business. Management also uses EBITDA as one measure in determining the value of
other acquisitions and dispositions. We also believe that the rating agencies
and a number of lenders also use EBITDA for those purposes and a number of
restrictive covenants in our indebtedness measure EBITDA. Therefore, disclosing
EBITDA may be useful to those investors.
EBITDA and net income, excluding non-recurring items and special charges
We define EBITDA, excluding non-recurring items and special charges as
EBITDA 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. Similarly, we
define net income (loss) excluding non-recurring items and special charges as
net income (loss) without the effects of those same charges, transactions and
expenses. We believe that EBITDA and net income (loss) excluding non-recurring
items and
special charges are useful performance measures because including these
non-recurring items and special charges may either mask or exaggerate trends in
our ongoing operating performance. Furthermore, performance measures that
include non-recurring items and special charges may not be indicative of
the continuing performance of our underlying business. Therefore, we present
EBITDA and net income (loss) excluding non-recurring items and special charges
because they may help investors to compare our performance before the effect of
various items that do not directly affect our ongoing operating performance.
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 current slowdown of the
national economy, economic conditions generally and the real estate market
specifically, the impact of the events of September 11, 2001, governmental
actions, legislative and regulatory changes, availability of debt and equity
capital, interest rates, competition, 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, 2002.
INTERSTATE HOTELS & RESORTS, INC.
HISTORICAL STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Revenue:
Lodging revenues $ 929 $ 832 $ 2,697 $ 2,287
Management fees 15,762 11,068 45,218 18,069
Corporate housing 29,245 19,779 83,456 19,779
Other revenue 3,778 4,620 10,607 16,026
-------------- -------------- -------------- --------------
49,714 36,299 141,978 56,161
Other revenue from managed properties 217,654 163,347 642,256 297,662
-------------- -------------- -------------- --------------
Total revenue 267,368 199,646 784,234 353,823
Operating expenses by department:
Lodging expenses 585 575 1,869 1,606
Corporate housing 24,171 15,327 69,804 15,327
Undistributed operating expenses:
Administrative and general 19,082 14,803 55,117 30,010
Depreciation and amortization 2,646 4,024 10,994 9,133
Merger and integration costs 874 3,430 3,344 5,653
Restructuring expenses -- 12,820 -- 12,820
Tender offer costs -- -- -- 1,000
Asset impairment and write offs 312 -- 312 --
-------------- -------------- -------------- --------------
47,670 50,979 141,440 75,549
Other expenses from managed properties 217,654 163,347 642,256 297,662
-------------- -------------- -------------- --------------
Total operating expenses 265,324 214,326 783,696 373,211
-------------- -------------- -------------- --------------
Net operating income (loss) 2,044 (14,680) 538 (19,388)
Interest expense, net 2,359 1,562 7,187 3,474
Equity in losses of affiliates 292 1,074 858 1,670
Conversion incentive payment - convertible notes -- -- -- 7,307
Gain on refinancing -- -- (13,629)
-------------- -------------- -------------- --------------
Income (loss) before minority interests and income taxes (607) (17,316) 6,122 (31,839)
Minority interests expense (benefit) 23 243 184 295
Income tax expense (benefit) (252) 1,818 2,375 641
-------------- -------------- -------------- --------------
Net income (loss) (378) (19,377) 3,563 (32,775)
Mandatorily redeemable preferred stock:
Dividends -- -- -- 307
Accretion -- -- -- 356
Conversion incentive payment- preferred stock -- -- -- 1,943
-------------- -------------- -------------- --------------
Net income (loss) available to common shareholders $ (378) $ (19,377) $ 3,563 $ (35,381)
============== ============== ============== ==============
Weighted average shares outstanding:
Basic (1) 20,649 17,270 20,612 11,277
Diluted (1) 20,649 17,270 20,891 11,277
Basic earnings (loss) per share $ (0.02) $ (1.12) $ 0.17 $ (3.14)
============== ============== ============== ==============
Diluted earnings (loss) per share $ (0.02) $ (1.12) $ 0.17 $ (3.14)
============== ============== ============== ==============
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
Net income (loss) $ (378) $ (19,377) $ 3,563 $ (32,775)
Depreciation and amortization 2,646 4,024 10,994 9,133
Interest expense, net 2,359 1,562 7,187 3,474
Equity in losses of affiliates 292 1,074 858 1,670
Gain on refinancing -- -- (13,629) --
Conversion incentive payment - convertible notes -- -- -- 7,307
Minority interests expense (benefit) 23 243 184 295
Income tax expense (benefit) (252) 1,818 2,375 641
-------------- -------------- -------------- --------------
EBITDA (2) 4,690 (10,656) 11,532 (10,255)
Merger and integration costs 874 3,430 3,344 5,653
Restructuring expenses -- 12,820 -- 12,820
Tender offer costs -- -- -- 1,000
Asset impairment and write-offs (4) 1,979 -- 2,780 --
-------------- -------------- -------------- --------------
EBITDA, excluding non-recurring items and special
charges (2) $ 7,543 $ 5,594 $ 17,656 $ 9,218
============== ============== ============== ==============
Net income (loss) $ (378) $ (19,377) $ 3,563 $ (32,775)
Adjustments to net income (loss), net of income taxes:
Merger and integration costs 524 2,092 2,006 3,561
Restructuring expenses -- 7,820 -- 8,077
Tender offer costs -- -- -- 630
Asset impairment and write-offs 1,187 -- 1,668 --
Conversion incentive payment - convertible notes -- -- -- 7,307
Gain on refinancing -- -- (8,177) --
Minority interest (16) (208) 102 (354)
-------------- -------------- -------------- --------------
Net income (loss), excluding non-recurring items and
special charges (2) $ 1,317 $ (9,673) $ (838) $ (13,554)
============== ============== ============== ==============
Basic earnings (loss) per share,
excluding non-recurring items and special charges $ 0.06 $ (0.56) $ (0.04) $ (1.20)
============== ============== ============== ==============
Diluted earnings (loss) per share,
excluding non-recurring items and special charges $ 0.06 $ (0.56) $ (0.04) $ (1.20)
============== ============== ============== ==============
Outlook Reconciliation (3) FORECAST
------------------------------------------------------------------------------
THREE MONTHS ENDING DECEMBER 31, 2003 TWELVE MONTHS ENDING DECEMBER 31, 2003
------------------------------------- --------------------------------------
Net income $ 1,200 $ 4,763
Depreciation and amortization 2,600 13,594
Interest expense, net 2,600 9,787
Gain on refinancing (13,629)
Equity in losses of affiliates 950 1,808
Minority interests expense 100 284
Income tax expense 750 3,125
--------------------- ---------------------
EBITDA (2) 8,200 19,732
Merger and integration costs 500 3,844
Asset impairments and write-offs 1,600 4,380
--------------------- ---------------------
EBITDA, excluding non-recurring items and
special charges (2) $ 10,300 $ 27,956
===================== =====================
Net income $ 1,200 $ 4,763
Adjustments to net loss, net of income taxes:
Gain on refinancing -- (8,177)
Merger and integration costs 300 2,306
Asset impairments and write-offs 960 2,628
Minority Interest (20) 82
--------------------- ---------------------
Net income, excluding non-recurring items and
special charges (2) $ 2,440 $ 1,602
===================== =====================
Income per share, excluding non-recurring items
and special charges $ 0.12 $ 0.08
===================== =====================
(1) Presented giving effect to the 4.6 shares of common stock issued to
Interstate Shareholders, and the one-for-five reverse stock split
associated with the merger on July 31, 2002.
(2) See discussion of EBITDA and EBITDA and net income, excluding
non-recurring items and special charges located in the in the "Non-GAAP
Financial Measures section, described earlier in this press release.
(3) Our outlook reconciliation uses the mid-point of our estimates of net
income
(4) A portion of the asset impairments and write-offs are included with
administrative and general expenses
Interstate Hotels & Resorts, Inc.
Statement of Operations
(Unaudited, in thousands except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
(historical) (pro forma)(1) (historical) (pro forma)(1)
Revenue:
Lodging revenues $ 929 $ 832 $ 2,697 $ 70,262
Management fees 15,762 14,305 45,218 44,214
Corporate housing 29,245 29,971 83,456 81,641
Other revenue 3,778 4,838 10,607 16,101
--------- --------- --------- ---------
49,714 49,946 141,978 212,218
Other revenue from managed properties 217,654 224,936 642,256 629,730
--------- --------- --------- ---------
Total revenue 267,368 274,882 784,234 841,948
Operating expenses by department:
Lodging expenses 585 575 1,869 31,121
Corporate housing 24,171 23,191 69,804 65,313
Undistributed operating expenses:
Administrative and general 19,082 18,893 55,117 67,891
Depreciation and amortization 2,646 4,765 10,994 14,527
Lease expense -- -- -- 27,569
Merger and integration costs 874 3,295 3,344 4,296
Restructuring expenses -- 12,820 -- 13,502
Tender offer costs -- -- -- 1,000
Gain on Winston lease conversion -- -- -- (7,229)
Asset impairment and write offs 312 -- 312 --
--------- --------- --------- ---------
47,670 63,539 141,440 217,990
Other expenses from managed properties 217,654 224,936 642,256 629,730
--------- --------- --------- ---------
Total operating expenses 265,324 288,475 783,696 847,720
--------- --------- --------- ---------
Net operating income (loss) 2,044 (13,593) 538 (5,772)
Interest expense, net 2,359 2,306 7,187 7,704
Equity in losses of affiliates 292 1,019 858 1,731
Gain on refinancing -- -- (13,629) --
--------- --------- --------- ---------
Income (loss) before minority interests and
income taxes (607) (16,918) 6,122 (15,207)
Minority interests expense (benefit) 23 (241) 184 (207)
Income tax expense (benefit) (252) (6,537) 2,375 (8,308)
--------- --------- --------- ---------
Net income (loss) $ (378) $ (10,140) $ 3,563 $ (6,692)
========= ========= ========= =========
Weighted average shares outstanding:
Basic (2) 20,649 20,228 20,612 20,208
Diluted (2) 20,649 20,228 20,891 20,208
Basic earnings (loss) per share $ (0.02) $ (0.50) $ 0.17 $ (0.33)
========= ========= ========= =========
Diluted earnings (loss) per share $ (0.02) $ (0.50) $ 0.17 $ (0.33)
========= ========= ========= =========
Reconciliations of Non-GAAP financial measures
Net income (loss) $ (378) $ (10,140) $ 3,563 $ (6,692)
Depreciation and amortization 2,646 4,765 10,994 14,527
Interest expense, net 2,359 2,306 7,187 7,704
Equity in loss of affiliates 292 1,019 858 1,731
Gain on refinancing -- -- (13,629) --
Minority interests expense (benefit) 23 (241) 184 (207)
Income tax expense (benefit) (252) (6,537) 2,375 (8,308)
--------- --------- --------- ---------
EBITDA (3) 4,690 (8,828) 11,532 8,755
Merger and integration costs 874 3,295 3,344 4,296
Gain on Winston Lease Conversion (7,229)
Restructuring expenses -- 12,820 -- 13,502
Tender offer costs -- -- -- 1,000
Asset impairment and write-offs (4) 1,979 -- 2,780 --
--------- --------- --------- ---------
EBITDA, excluding non-recurring items and special
charges (3) $ 7,543 $ 7,287 $ 17,656 $ 20,324
========= ========= ========= =========
Net income (loss) $ (378) $ (10,140) $ 3,563 $ (6,692)
Adjustments to net income (loss), net of income taxes:
Gain on Winston Lease Conversion (7,229)
Merger and integration costs 524 2,010 2,006 2,741
Restructuring expenses -- 7,764 -- 8,228
Tender offer costs -- -- -- 630
Asset impairment and write-offs 1,187 -- 1,668 --
Gain on refinancing -- -- (8,177) --
Minority interest (16) (150) 102 (172)
--------- --------- --------- ---------
Net income (loss), excluding non-recurring items and
special charges (3) $ 1,317 $ (516) $ (838) $ (2,494)
========= ========= ========= =========
Basic earnings (loss) per share,
excluding non-recurring items and special charges $ 0.06 $ (0.03) $ (0.04) $ (0.12)
========= ========= ========= =========
Diluted earnings (loss) per share,
excluding non-recurring items and special charges $ 0.06 $ (0.03) $ (0.04) $ (0.12)
========= ========= ========= =========
Pro-forma hotel operating statistics:
Full-service hotels:
Occupancy 68.2% 66.8% 66.5% 66.5%
ADR $ 99.65 $ 103.15 $ 103.63 $ 107.26
RevPAR $ 67.95 $ 68.95 $ 68.91 $ 71.34
Limited-service hotels:
Occupancy 70.0% 69.6% 67.0% 67.7%
ADR $ 79.40 $ 80.73 $ 79.23 $ 79.69
RevPAR $ 55.60 $ 56.22 $ 53.10 $ 53.97
(1) Assumes the merger transaction between Interstate Hotels Corporation and
MeriStar Hotels & Resorts, Inc. was completed on January 1, 2002
(2) Presented giving effect to the 4.6 shares of common stock issued to
Interstate Shareholders, and the one-for-five reverse stock split
associated with the merger on July 31, 2002.
(3) See discussion of EBITDA and EBITDA and net income, excluding
non-recurring items and special charges located in the in the "Non-GAAP
Financial Measures section, described earlier in this press release.
(4) A portion of the asset impairments and write-offs are included with
administrative and general expenses