EXHIBIT 99.1
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[LOGO - INTERSTATE HOTELS & RESORTS]
FOR IMMEDIATE RELEASE
Contact:
Bruce Riggins Melissa Thompson Jerry Daly or Carol McCune
Director of Finance Director of Corporate Daly Gray Public Relations (Media)
(202) 295-2276 Communications (703) 435-6293
(202) 295-2228
INTERSTATE HOTELS & RESORTS REPORTS THIRD-QUARTER RESULTS
WASHINGTON, D.C., November 4, 2002--Interstate Hotels & Resorts (NYSE:
IHR), the nation's largest independent hotel management company, today reported
historical and pro forma results for the third quarter ended September 30, 2002.
The company was formed July 31, 2002, following the merger of MeriStar Hotels &
Resorts and Interstate Hotels Corporation. Both combined pro forma financial
data (assuming the merger was completed on January 1, 2001) and historical
financial data for the 2002 third quarter 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.
"The merger integration has proceeded smoothly. Our experienced
management team stayed focused on operations throughout the transition and our
financial results came in as forecasted," said Paul W. Whetsell, chairman and
chief executive officer. "We remain on track to realize $8 million to $10
million of annualized savings due to corporate synergies. Our development team
continues to source new growth opportunities, adding five new management
contracts since the closing of the merger."
On a historical basis, net loss available to common shareholders was
$(22.4) million, or $(1.30) per share, in the 2002 third quarter, compared to
net loss of $(4.4) million, or $(0.72) per share, in the third quarter of 2001.
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Recurring pro forma earnings before interest, taxes, depreciation and
amortization (EBITDA) increased 128.2 percent to $7.3 million. Third-quarter pro
forma revenues for 2002 decreased 3.0 percent to $274.9 million. Excluding
non-recurring items, pro forma net loss for the quarter was $(0.5) million, or
$(0.03) per share on a diluted basis, compared to pro forma net loss of $(4.1)
million, or $(0.20) per share, in the 2001 third quarter.
The pro forma statement of operations for the 2002 third quarter
includes the following non-recurring charges:
o $12.8 million of restructuring costs related to the merger of
MeriStar Hotels & Resorts and Interstate Hotels Corporation,
including estimates of severance and vacant office space.
o $3.3 million of merger and integration costs, including
professional fees, travel, and other transition costs.
The net loss for the 2002 third quarter on a historical basis includes
the impact of a $3.1 million cumulative effect of a change in accounting
principle recorded to reflect the change in the company's method of accounting
for incentive management fees. The company changed its method from recording
incentive management fees as earned based on current profitability of the hotel
to recording incentive fees in the period it is certain they are earned, which,
for annual incentive fee measurements, is typically in the last month of the
annual contract period. The company also recorded $9.4 million of income tax
expense as a valuation allowance on certain deferred tax assets that are not
anticipated to be realized in future periods.
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Same-store revenue per available room (RevPAR) for all full-service
managed hotels in the 2002 third quarter declined 2.7 percent to $65.96. Average
daily rate (ADR) dropped 3.6 percent to $98.94 while occupancy increased 0.9
percent to 66.7 percent.
Same-store RevPAR for all limited-service managed hotels in the 2002
third quarter fell 2.3 percent to $59.35. ADR was off 3.5 percent to $85.05, and
occupancy increased 1.2 percent to 69.8 percent.
"We were one of the few companies in the industry to meet earnings
guidance, due primarily to the stability of our base management fees, the
improved performance of our domestic corporate housing operations, and our
ability to realize immediate synergies following the merger. Nonetheless, it was
a difficult quarter for the industry as the economic slowdown continued with a
direct impact on business travel," said Whetsell. "Occupancy increased in the
third quarter over last year for both our full-service and limited-service
portfolios; average daily rate, however, continues to be impacted by the shift
in customer mix to more group and leisure business.
"EBITDA within BridgeStreet Corporate Housing Worldwide's North
American markets were up significantly over the third quarter of 2001. This was
partially offset by a decline in EBITDA from Europe due to a reduction of units
in London as a result of slowing demand and costs incurred in Paris to ramp up
operations as part of our effort to expand our operations in Europe."
CAPITAL STRUCTURE
"Our capital structure is in excellent shape following the merger,"
said John Emery,
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president and chief operating officer. "Our total debt to EBITDA is 3.8 times,
our interest coverage is 2.7 times, and our average cost of debt is 7.0 percent.
With $50 million of cash and availability on our line of credit and a joint
venture in place to acquire $300 million to $500 million of hotel assets, we are
well positioned to take advantage of growth opportunities as they arise."
During the third quarter, Interstate's board of directors authorized
the purchase of up to $5 million of common shares of stock on the open market.
"To date, we have purchased a modest amount under this program and based on the
current stock price, we expect to continue buying back shares," said Emery. "We
believe our stock is attractively valued as we are trading at only 5.5 to 6.0
times 2003 EBITDA."
OUTLOOK
"The exact timing of the elusive rebound remains difficult to predict
with any real confidence, although we continue to see steady and gradual
improvement in operating performance at the property level on a comparative
basis," Emery said. "The key to any meaningful recovery will be the return of
the transient business traveler. In the meantime, we will continue to focus on
driving occupancy and profit margins."
Interstate updated its guidance for the 2002 fourth quarter and full
year 2003. For the 2002 fourth quarter, the company expects EBITDA of $10
million to $12 million and net income per share of $0.04 to $0.10. For the full
year 2002, the company expects pro forma EBITDA of $30 million to $32 million
and net loss per share of $(0.08) to $(0.02). For 2003, the company projects
EBITDA of $36 million to $40 million and net income per share of $0.30 to $0.40.
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KEY FINANCIAL INFORMATION
As of September 30, 2002:
o Total debt of $137.2 million
o Cash balance of $12.9 million
o Total debt to annual EBITDA of 3.8x
o Senior debt to annual EBITDA of 2.1x
o Annual interest coverage ratio of 2.7x
o Average cost of debt of 7.0 percent
Interstate will hold a conference call to discuss its third-quarter
results today, November 4, 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 503878, to hear a telephone replay. The telephone replay will be available
through Thursday, November 7, 2002.
Interstate Hotels & Resorts operates more than 400 hospitality
properties with approximately 86,000 rooms in 45 states, the District of
Columbia, Canada and Russia, including 55 properties managed by Flagstone
Hospitality Management, a subsidiary of Interstate Hotels & Resorts.
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.
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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 MERISTAR
HOTELS & RESORTS' AND INTERSTATE HOTELS CORPORATION'S ANNUAL REPORTS ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 2001 AND JOINT PROXY STATEMENT AND
PROSPECTUS, FILED ON JULY 2, 2002.
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INTERSTATE HOTELS & RESORTS, INC.
PRO FORMA STATEMENTS OF OPERATIONS (1) (2)
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND OPERATING STATISTICS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
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Revenue
Lodging revenues $ 832 $ 40,778 $ 70,262 $ 129,989
Net mangement fees 14,305 13,142 44,214 46,519
Corporate housing 29,971 28,255 81,641 79,192
Other fees 4,838 3,840 16,101 13,661
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49,946 86,015 212,218 269,361
Other revenue from managed properties $ 224,936 $ 197,260 $ 629,730 $ 612,486
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Total revenue 274,882 283,275 841,948 881,847
Operating expenses by department:
Lodging expenses 225 11,723 18,989 36,471
Corporate housing 21,500 20,611 60,736 57,416
Property operating costs 2,041 9,305 16,893 42,889
Administrative and general 18,893 25,589 67,710 80,998
Lease expense -- 15,594 27,569 34,025
Depreciation and amortization 4,765 5,064 14,524 15,721
Charges to investments in and advances to
affiliates, accounts and notes receivable,
and other -- 800 -- 16,098
Gain on Winston lease conversion -- -- (7,229) --
Merger costs 3,295 (146) 4,296 4,239
Restructuring expenses 12,820 918 13,502 1,830
Tender offer costs -- -- 1,000 --
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63,539 89,458 217,990 289,687
Other expenses from managed properties 224,936 197,260 629,730 612,486
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Total operating expenses 288,475 286,718 847,720 902,173
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Net operating loss (13,593) (3,443) (5,772) (20,326)
Interest expense, net 2,306 2,629 7,704 7,591
Equity in (income) loss of affiliates 1,019 2,182 1,731 1,424
Loss on impairment of investment in hotel real estate -- 3,025 -- 3,025
Loss before minority interests
and income taxes (16,918) (11,279) (15,207) (32,366)
Minority interests (241) (187) (207) (172)
Income tax benefit (6,537) (4,212) (8,308) (12,203)
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Net loss $ (10,140) $ (6,880) $ (6,692) $ (19,991)
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Weighted average number of:
Basic and diluted shares of common
stock outstanding (3) 20,228 20,198 20,208 20,198
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Net loss per basic and diluted common share $ (0.50) $ (0.34) $ (0.33) $ (0.99)
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Net operating loss $ (13,593) $ (3,443) $ (5,772) $ (20,326)
Depreciation and amortization 4,765 5,064 14,524 15,721
Gain on Winston lease conversion -- -- (7,229) --
Charges to investments in and advances to affiliates,
accounts and notes receivable, and other -- 800 -- 16,098
Merger costs 3,295 (146) 4,296 4,239
Restructuring costs 12,820 918 13,502 1,830
Tender offer costs -- -- 1,000 --
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Recurring EBITDA $ 7,287 $ 3,193 $ 20,321 $ 17,562
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Net loss $ (10,140) $ (6,880) $ (6,692) $ (19,991)
Adjustments to net loss, net of income taxes:
Gain on Winston lease conversion -- -- (7,229) --
Charges to investments in and advances to
affiliates, accounts and notes receivable,
and other -- 496 -- 9,981
Merger costs 2,010 (91) 2,741 2,628
Restructuring expenses 7,764 569 8,228 1,134
Tender offer costs -- -- 630 --
Minority interests (150) (31) (172) (257)
Loss on impairment of investment in hotel
real estate -- 1,876 -- 1,876
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Net loss, excluding non-recurring items $ (516) $ (4,061) $ (2,494) $ (4,629)
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Net loss per basic and diluted common share,
excluding non-recurring items $ (0.03) $ (0.20) $ (0.12) $ (0.23)
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(1) Excludes the effect of EITF 98-9.
(2) Assumes merger transaction between Interstate Hotels Corporation and
MeriStar Hotels & Resorts, Inc. was completed on January 1, 2001.
(3) On August 1, 2002 Interstate Hotels and Resorts effected a one-for-five
reverse stock split. The weighted average number of basic and diluted
common shares outstanding is presented assuming the reverse stock split
occurred on January 1, 2001
Pro forma hotel operating statistics:
Full-service hotels:
Occupancy 66.7% 66.1% 67.0% 69.7%
ADR $ 98.94 $ 102.67 $ 104.61 $ 112.58
RevPAR $ 65.96 $ 67.82 $ 70.04 $ 78.51
Limited-service hotels:
Occupancy 69.8% 69.0% 67.5% 68.7%
ADR $ 85.05 $ 88.10 $ 85.21 $ 89.39
RevPAR $ 59.35 $ 60.77 $ 57.52 $ 61.43
INTERSTATE HOTELS & RESORTS, INC.
HISTORICAL STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND OPERATING STATISTICS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
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Revenue
Rooms $ 832 $ 1,182 $ 2,287 $ 3,633
Other operating departments -- 41 -- 114
Corporate housing 19,779 -- 19,779 --
Management and other fees 15,688 8,837 37,145 29,662
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36,299 10,060 59,211 33,409
Other revenue from managed properties 163,347 67,816 297,662 207,674
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Total revenue 199,646 77,876 356,873 241,083
Operating expenses by department:
Rooms 225 295 621 865
Other operating departments expenses -- 21 -- 66
Corporate housing 14,198 -- 14,198 --
Undistributed operating expenses:
Administrative and general 14,803 7,261 30,010 23,827
Property operating costs 1,479 410 2,114 1,231
Participating lease expense -- 192 -- 474
Depreciation and amortization 4,024 2,685 9,133 8,085
Merger costs 3,430 -- 5,653 --
Restructuring expenses 12,820 -- 12,820 --
Tender offer costs -- -- 1,000 --
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50,979 10,864 75,549 34,548
Other expenses from managed properties 163,347 67,816 297,662 207,674
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Total operating expenses 214,326 78,680 373,211 242,222
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Net operating income (loss) (14,680) (804) (16,338) (1,139)
Interest expense, net 1,562 560 3,474 792
Equity in (income) loss of affiliates 1,074 2,556 1,670 2,222
Loss on impairment of investment in hotel real estate -- 3,026 -- 3,026
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Loss before minority interests and income taxes (17,316) (6,946) (21,482) (7,179)
Minority interests 243 39 295 130
Income tax (benefit) expense 1,818 (2,794) 641 (2,924)
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Net income (loss) before cumulative effect
of accounting change (19,377) (4,191) (22,418) (4,385)
Cumulative effect of a change in accounting principle 3,050 -- 3,050 --
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Net loss (22,427) (4,191) (25,468) (4,385)
Mandatorily redeemable preferred stock:
Dividends -- 158 307 476
Accretion -- 16 356 46
Conversion incentive payments -- -- 9,250 --
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Net loss available to common shareholders $ (22,427) $ (4,365) $ (35,381) $ (4,907)
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Weighted average number of:
Basic and diluted shares of common stock outstanding 17,270 6,060 11,277 6,358
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Net income (loss) per basic and diluted common share $ (1.30) $ (0.72) $ (3.14) $ (0.77)
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