UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 30, 2003
WESTCOAST HOSPITALITY CORPORATION
Exact Name of Registrant as Specified in Charter)
Washington 001-13957 91-1032187
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification No.)
201 W. North River Drive
Suite 100
Spokane, Washington 99201
(Address of Principal (Zip Code)
Executive Offices)
(509) 459-6100
(Registrant's telephone number, including area code)
ITEM 7. Financial Statements and Exhibits
(c) Exhibits.
The following exhibit is furnished pursuant to Item 12 hereof:
Exhibit No. Exhibit
- ------------- -----------------------------------------------------------------
99.1 Press release dated October 30, 2003 reporting third quarter 2003
financial results
ITEM 12. Results of Operations and Financial Condition
On October 30, 2003, the registrant issued a press release setting forth its
third quarter 2003 financial results. A copy of the press release is furnished
as Exhibit 99.1 to this Form 8-K.
The information furnished in this report on Form 8-K shall not be deemed "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933
or the Exchange Act, except as expressly set forth by specific reference in such
a filing.
By filing this report on Form 8-K, WestCoast Hospitality Corporation makes no
admission as to the materiality of any information in this report. WestCoast
Hospitality Corporation reserves the right to discontinue the availability of
the information in the attached exhibit from its website at any time.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTCOAST HOSPITALITY CORPORATION
(Registrant)
Date: October 30, 2003 /s/ Peter P. Hausback
Vice President, Chief Financial Officer
(Signature)
EXHIBIT INDEX
Exhibit No. Exhibit
- ------------ -----------------------------------------------------------------
99.1 Press release dated October 30, 2003 reporting third quarter 2003
financial results
Exhibit 99.1
WestCoast Hospitality Corporation Announces Third Quarter Results; Reports
Positive RevPAR Comparisons
October 30, 2003 SPOKANE, Wash. - WestCoast Hospitality Corporation (NYSE:WEH)
today reported financial results for the three and nine months ended September
30, 2003. The Company returned to positive RevPAR (Revenue Per Available Room)
comparisons during the 2003 quarter with RevPAR increasing slightly, from $49.98
to $50.08, or 0.2%. The Company reported third quarter 2003 revenue of $54.5
million, compared to $55.7 million in the third quarter of 2002. Net income to
common shareholders was $2.6 million in the third quarter of 2003, compared to
$3.9 million in the third quarter of 2002. Adjusted EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization and other items. See "Adjusted
EBITDA" in attachment) was $11.4 million in the third quarter of 2003, versus
$12.0 million in the comparable period of 2002. Diluted earnings per share in
the third quarter of 2003 was $0.20, compared to $0.29 in the prior year
comparable period. Net income and earnings per share were negatively impacted by
a $1.6 million pre-tax non-cash depreciation expense associated with assets
previously held for sale on the balance sheet, negatively impacting earnings per
share by $0.09. The depreciation was recaptured in accordance with generally
accepted accounting principles because the Company has not entered into purchase
and sales agreements on the assets and does not expect to do so in the allotted
timeframe. The Company continues to market these non-core assets and intends to
sell these Washington assets in the next year. Proceeds from the sales are
intended to be used to reduce debt, enhance the hotel division growth, and
general corporate purposes.
Arthur Coffey, President and Chief Executive Officer of WestCoast Hospitality
Corporation, stated, "Revenue in our hotel division began to stabilize during
the third quarter, and our brand repositioning efforts that took place in the
first quarter already appear to be having a positive effect. We are pleased with
our operating margins, which reflect the execution of our cost containment
measures. We have also started to see positive results from our ADS (Alternate
Distribution System) channel management initiatives which were launched in
select hotels during the third quarter. We are still cautious about predicting
the strength of the economic recovery and will continue to be focused on efforts
to gain market share and operating our properties with the efficiencies and cost
containment measures that have been put in place during the past year. We
continue to hone our yield management practices with the technology that we put
in place in our central reservations office earlier in the year. This technology
continues to provide us with opportunities for improvement in yield and
electronic distribution channel management and we will work towards realizing
those benefits. Lastly, in addition to our ongoing efforts to gain market share
and maintain cost control, we are excited about the added depth to our
management team."
RECENT EVENTS
The Company recently added depth to its management team by naming John Taffin as
Executive Vice President of Hotel Operations. Mr. Taffin has 21 years of
hospitality industry experience including various management roles with Red Lion
Hotels, from 1982 to 1995, and WestCoast Hospitality Corporation, from 1995 to
2002, most recently as Senior Vice President of Hotel Operations. Mr. Taffin's
proven track record in hotel operations, both at the property level and in
overseeing large groups of hotels, is an asset to the Company. WestCoast also
recently added Tom McKeirnan as Vice President and Assistant General Counsel.
Mr. McKeirnan previously represented WestCoast as outside counsel. He has a
strong background in hospitality, acquisitions, real estate and entertainment
law and provides leadership as an excellent strategic planner.
The Company also recently appointed Jon Eliassen to its Board of Directors. Mr.
Eliassen recently retired as Chief Financial Officer for Avista Corporation,
where his career spanned 33 years. As Avista's CFO, Mr. Eliassen presided over
all accounting, treasury, audit and information services for the diversified
utility. Mr. Eliassen's financial background will be extremely valuable on the
WestCoast Board of Director's Audit Committee. With the addition of Mr.
Eliassen, the Company has seven Directors, four of which are independent from
the Company.
The Company has recently exercised the option to acquire the Red Lion Hotel
Yakima Gateway, located adjacent to the Yakima Convention Center. The Company
has leased the 172-room property since 1997.
During the month of October the Company replaced its existing credit facility
with a new credit facility provided by Wells Fargo Bank, National Association,
which will provide revolving lines of credit totaling $10 million and a $4
million term loan for acquisition of the Red Lion Yakima Gateway Hotel.
OPERATING RESULTS
The Company reported hotel and restaurant revenue of $49.2 million at owned and
leased hotels for the third quarter of 2003, compared to $50.5 million in the
third quarter of 2002. Combined hotel RevPAR (owned, managed and franchised)
increased 0.2% during the quarter. Combined average daily rate declined 1.4% and
occupancy increased 1.1 percentage points. Operating margins in the division
remained approximately flat at 21% despite increased medical and insurance
costs. The Company launched a new ADS channel management program in select
hotels on August 1 and has realized positive revenue trends in those properties
during the trial period. The Company has now expanded the program throughout its
system of hotels. ADS channels are third party internet sites and WestCoast has
corporate agreements with all of the leading ADS providers.
Franchise, central services and development revenue was $1.0 million in the
third quarter of 2003, versus $1.4 million in the comparable period of 2002. The
revenue decline was primarily due to a net decline in the number of hotels
franchised by the company and the associated royalty fees. The decline in
franchised properties included a group of hotels whose license agreements
expired at the end of the first quarter.
Entertainment division revenue was $2.0 million in the third quarter of 2003,
compared to $1.5 million in the third quarter of 2002. The revenue increase was
primarily a result of the presentation of a six performance Broadway production
during the period, as compared to no presentations during the third quarter of
2002. Expenses increased from $1.2 million in the third quarter of 2002, to $1.8
million in the comparable period of 2003, primarily due to expenses associated
with the Broadway production. During the quarter, TicketsWest continued to add
venues and announced an agreement to provide ticketing services to Montana State
University.
Real estate division revenue remained stable during the third quarter of 2003 at
$2.2 million. Expenses in the division declined 7.9%, from $1.3 million to $1.2
million. The Company plans to expand its development, management and leasing for
third parties. It also continues to market certain Washington commercial real
estate assets it owns and intends to sell properties having $21.7 million of
book value in the coming year.
WestCoast Hospitality Corporation owns, manages, franchises and develops hotels
under its Red Lion and WestCoast brands focusing on serving business, convention
and leisure travelers in first, second and third tier markets. WestCoast
provides entertainment services through TicketsWest, including event ticketing
for venues in the United States and Canada, and aggregates content for travel
and entertainment that is sold in real time at its www.ticketswest.com website.
The Entertainment division also includes WestCoast Entertainment, a Broadway and
special event presenting company. G&B Real Estate Services, the real estate
division of WestCoast Hospitality Corporation, develops, owns, manages and
leases commercial and residential properties. Registered trademarks of WestCoast
Hospitality Corporation and its affiliates protect the use of "WestCoast", "Red
Lion", "TicketsWest" and "G&B" and various derivatives of those usages.
This press release contains forward-looking statements within the meaning of
federal securities law, including statements concerning plans, objectives,
goals, strategies, projections of future events or performance and underlying
assumptions (many of which are based, in turn upon further assumptions). The
forward-looking statements in this press release are inherently subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those expressed. Such risks and uncertainties include, among
others, economic cycles; international conflicts; changes in future demand and
supply for hotel rooms; competitive conditions in the lodging industry;
relationships with franchisees and properties; impact of government regulations;
ability to obtain financing; changes in energy, healthcare, insurance and other
operating expenses; ability to sell non-core assets; ability to locate lessees
for rental property and managing and leasing properties owned by third parties;
dependency upon the ability and experience of executive officers and ability to
retain or replace such officers as well as other matters discussed in the
Company's annual report on Form 10-K for the 2002 fiscal year and in other
documents filed by the Company with the Securities and Exchange Commission.
WestCoast Hospitality Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands)
Three months ended September 30,
2003 2002 $ Change % Change
----------------------------------------------------
Revenues:
Hotels and restaurants $ 49,230 $ 50,518 $ (1,288) -2.5%
Franchise, central services and development 973 1,406 (433) -30.8%
Entertainment 2,023 1,508 515 34.2%
Real estate 2,177 2,186 (9) -0.4%
Corporate services 81 67 14 20.9%
-----------------------------------------
Total revenues 54,484 55,685 (1,201) -2.2%
=========================================
Operating expenses:
Hotels and restaurants 38,848 39,824 (976) -2.5%
Franchise, central services and development 376 535 (159) -29.7%
Entertainment 1,845 1,245 600 48.2%
Real estate 1,191 1,293 (102) -7.9%
Corporate services 83 61 22 36.1%
Depreciation and amortization 4,284 2,561 1,723 67.3%
Gain on asset dispositions including recoveries (117) (69) (48) -69.6%
Conversion expenses 24 1 23 2300.0%
-----------------------------------------
Total direct expenses 46,534 45,451 1,083 2.4%
Undistributed corporate expenses 712 747 (35) -4.7%
-----------------------------------------
Total expenses 47,246 46,198 1,048 2.3%
-----------------------------------------
Operating income 7,238 9,487 (2,249) -23.7%
Other income (expense):
Interest expense (2,886) (2,613) (273) -10.4%
Interest income 96 96 0 0.0%
Other income, net 87 1 86 8600.0%
Equity income in investments 20 42 (22) -52.4%
Minority interest in partnerships 14 (42) 56 133.3%
-----------------------------------------
Income before income taxes 4,569 6,971 (2,402) -34.5%
Income tax expense 1,337 2,461 (1,124) -45.7%
-----------------------------------------
Net income 3,232 4,510 (1,278) -28.3%
Preferred stock dividend (634) (646) 12 1.9%
-----------------------------------------
Income applicable to common shareholders $ 2,598 $ 3,864 $ (1,266) -32.8%
=========================================
Adjusted EBITDA(1) $ 11,405 $ 11,979 (574) -4.8%
Adjusted EBITDA as a percentage of revenues 20.9% 21.5%
(1) The definition of "Adjusted EBITDA" and how that measure relates to net
income before interest expense, taxes on income, depreciation, and amortization
("EBITDA") and how Adjusted EBITDA relates to net income is discussed on the
attached page. These measures are not intended to represent net income as
defined by generally accepted accounting principles and such information should
not be considered as an alternative to net income, cash flow from operations or
any other measure of performance prescribed by generally accepted accounting
principles. Adjusted EBITDA is included herein because management believes that
certain investors find it to be a useful tool for measuring the Company's
operating performance and its ability to service debt and invest in property and
equipment. Adjusted EBITDA is not necessarily available for management's
discretionary use due to restrictions included in the Company's various
borrowing agreements and other considerations.
WestCoast Hospitality Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
(shares in thousands)
Three months ended September 30,
2003 2002 $ Change % Change
----------------------------------------------------
Earnings per share:
Basic $ 0.20 $ 0.30
Diluted $ 0.20 $ 0.29
Weighted average shares - basic 13,003 12,982
Weighted Average shares - diluted (1) 13,289 13,268
Hotel Statistics:
Combined (owned, managed and franchised) (2)
Average Occupancy(3) (6) 68.6% 67.5%
ADR(4) $ 73.05 $ 74.08 $ (1.03) -1.4%
RevPAR(5) (6) $ 50.08 $ 49.98 $ 0.10 0.2%
(1)September 30, 2003 balance reflects dilution from operating partnership units
outstanding. Options to purchase common stock for that period were
anti-dilutive.
(2)Includes hotels owned, managed and franchised for greater than one year by
WestCoast Hospitality Corporation.
(3)Average occupancy represents total paid rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms available
multiplied by the number of days in the reported period.
(4)Average daily rate ("ADR") represents total room revenues divided by the
total number of paid rooms occupied by hotel guests.
(5)Revenue per available room ("RevPAR") represents total room and related
revenues divided by total available rooms, net of rooms out of service due to
significant renovations.
(6)Rooms under renovation were excluded from RevPAR and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPAR and
average occupancy.
WestCoast Hospitality Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands)
Nine months ended September 30,
2003 2002 $ Change % Change
----------------------------------------------------
Revenues:
Hotels and restaurants $ 126,671 $ 134,459 $ (7,788) -5.8%
Franchise, central services and development 2,950 3,340 (390) -11.7%
Entertainment 6,008 4,980 1,028 20.6%
Real estate 6,843 6,797 46 0.7%
Corporate services 256 201 55 27.4%
-----------------------------------------
Total revenues 142,728 149,777 (7,049) -4.7%
-----------------------------------------
Operating expenses:
Hotels and restaurants 106,603 111,517 (4,914) -4.4%
Franchise, central services and development 1,268 1,554 (286) -18.4%
Entertainment 5,327 4,156 1,171 28.2%
Real estate 3,624 3,535 89 2.5%
Corporate services 242 162 80 49.4%
Depreciation and amortization 10,047 7,938 2,109 26.6%
(Gain) loss on asset dispositions including recoveries 579 (3,165) 3,744 118.3%
Conversion expenses 392 8 384 4800.0%
-----------------------------------------
Total direct expenses 128,082 125,705 2,377 1.9%
Undistributed corporate expenses 2,040 1,650 390 23.6%
-----------------------------------------
Total expenses 130,122 127,355 2,767 2.2%
-----------------------------------------
Operating income 12,606 22,422 (9,816) -43.8%
Other income (expense):
Interest expense (8,241) (8,135) (106) -1.3%
Interest income 303 254 49 19.3%
Other income (expense), net (205) 4 (209) -5225.0%
Equity income in investments 99 30 69 230.0%
Minority interest in partnerships 144 (108) 252 233.3%
-----------------------------------------
Income before income taxes 4,706 14,467 (9,761) -67.5%
Income tax expense 1,449 5,107 (3,658) -71.6%
-----------------------------------------
Net income 3,257 9,360 (6,103) -65.2%
Preferred stock dividend (1,915) (1,937) 22 1.1%
-----------------------------------------
Income applicable to common shareholders $ 1,342 $ 7,423 $ (6,081) -81.9%
=========================================
Adjusted EBITDA(1) $ 23,232 $ 27,195 (3,963) -14.6%
Adjusted EBITDA as a percentage of revenues 16.3% 18.2%
(1) The definition of "Adjusted EBITDA" and how that measure relates to net
income before interest expense, taxes on income, depreciation, and amortization
("EBITDA") and how Adjusted EBITDA relates to net income is discussed on the
attached page. These measures are not intended to represent net income as
defined by generally accepted accounting principles and such information should
not be considered as an alternative to net income, cash flow from operations or
any other measure of performance prescribed by generally accepted accounting
principles. Adjusted EBITDA is included herein because management believes that
certain investors find it to be a useful tool for measuring the Company's
operating performance and its ability to service debt and invest in property and
equipment. Adjusted EBITDA is not necessarily available for management's
discretionary use due to restrictions included in the Company's various
borrowing agreements and other considerations.
WestCoast Hospitality Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
Nine months ended September 30,
2003 2002 $ Change % Change
----------------------------------------------------
Earnings per share:
Basic $ 0.10 $ 0.57
Diluted $ 0.10 $ 0.56
Weighted average shares - basic 12,997 12,974
Weighted Average shares - diluted (1) (2) 13,283 13,301
Hotel Statistics:
Combined (owned, managed and franchised) (3)
Average Occupancy(4) (7) 59.4% 59.6%
ADR(5) $ 70.80 $ 73.09 $ (2.29) -3.1%
RevPAR(6) (7) $ 42.04 $ 43.53 $ (1.49) -3.4%
(1)September 30, 2003 balance reflects dilution from operating partnership units
outstanding. Options to purchase common stock for that period were
anti-dilutive.
(2)September 30, 2002 balance reflects dilution from both outstanding options to
purchase common stock and operating partnership units outstanding.
(3)Includes hotels owned, managed and franchised for greater than one year by
WestCoast Hospitality Corporation.
(4)Average occupancy represents total paid rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms available
multiplied by the number of days in the reported period.
(5)Average daily rate ("ADR") represents total room revenues divided by the
total number of paid rooms occupied by hotel guests.
(6)Revenue per available room ("RevPAR") represents total room and related
revenues divided by total available rooms, net of rooms out of service due to
significant renovations.
(7)Rooms under renovation were excluded from RevPAR and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPAR and
average occupancy.
WestCoast Hospitality Corporation
Consolidated Balance Sheets
(unaudited)
($ in thousands, except share data)
September 30, December 31,
2003 2002
---------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 10,068 $ 752
Restricted cash 4,089 1,949
Accounts receivable, net 9,846 9,559
Inventories 1,960 2,040
Assets held for sale - 34,408
Prepaid expenses and other 2,593 2,693
---------------------------------
Total current assets 28,556 51,401
Property and equipment, net 268,050 241,255
Goodwill 28,042 28,042
Intangible assets, net 14,601 15,188
Other assets, net 20,138 20,824
---------------------------------
Total assets $ 359,387 $ 356,710
=================================
Liabilities:
Current liabilities:
Accounts payable $ 6,690 $ 6,773
Accrued payroll and related benefits 6,291 6,173
Accrued interest payable 780 695
Advance deposits 267 198
Other accrued expenses 10,064 8,494
Long-term debt, due within one year 5,947 4,889
Notes payable to bank - 52,100
Capital lease obligations, due within one year - 268
---------------------------------
Total current liabilities 30,039 79,590
Long-term debt, due after one year 152,542 101,206
Deferred revenue 2,411 2,626
Deferred income taxes 16,761 16,261
Minority interest in partnerships 2,767 2,911
---------------------------------
Total liabilities 204,520 202,594
---------------------------------
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value
588,724 and 602,630 shares issued and outstanding 6 6
Additional paid-in capital, preferred stock 29,430 30,125
Common stock - 50,000,000 shares authorized; $0.01 par value;
13,004,573 and 12,981,878 shares issued and outstanding 130 130
Additional paid-in capital, common stock 84,187 84,083
Retained earnings 41,114 39,772
---------------------------------
Total stockholders' equity 154,867 154,116
---------------------------------
Total liabilities and stockholders' equity $ 359,387 $ 356,710
=================================
WestCoast Hospitality Corporation
Consolidated Statement of Cash Flows
(unaudited)
($ in thousands)
Nine months ended September 30,
2003 2002
----------------------------------
Operating activities:
Net income $ 3,256 $ 9,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,047 7,938
(Gain)/loss on disposition of property and equipment
and other assets 579 (3,165)
Non-cash reduction of preferred stock resulting in gain (522) -
Write-off of deferred loan fees 790 -
Deferred income tax provision 500 300
Minority interest in partnerships (144) 108
Equity in investments (99) (30)
Compensation expense related to stock issuance 5 15
Provision for doubtful accounts 337 184
Change in current assets and liabilities:
Restricted cash (2,140) (987)
Accounts receivable (314) (1,086)
Inventories 80 216
Prepaid expenses and other 114 (901)
Accounts payable and income taxes payable 476 3,775
Accrued payroll and related benefits 118 593
Accrued interest payable 85 (97)
Other accrued expenses and advance deposits 998 3,874
--------------------------------
Net cash provided by operating activities 14,166 20,097
--------------------------------
Investing activities:
Additions to property and equipment (5,141) (6,201)
Proceeds from disposition of property and equipment 398 1,839
Proceeds from dispositon of investment 441 165
Other, net 62 44
--------------------------------
Net cash used in investing activities (4,240) (4,153)
--------------------------------
Financing activities:
Proceeds from note payable to bank 47,700 -
Repayment of note payable to bank (99,800) (10,050)
Proceeds from long-term debt 55,200 -
Proceeds from short-term debt 2,658 -
Repayment of long-term debt (2,806) (2,842)
Proceeds from issuance of common stock under
employee stock purchase plan 99 103
Preferred stock dividend payments (1,927) (1,291)
Principal payments on capital lease obligations (268) (284)
Additions to deferred financing costs (1,466) (710)
Distribution to stockholders and partners - (23)
--------------------------------
Net cash used in financing activities (610) (15,097)
--------------------------------
Change in cash and cash equivalents:
Net increase in cash and cash equivalents 9,316 847
Cash and cash equivalents at beginning of period 752 4,613
--------------------------------
Cash and cash equivalents at end of period $ 10,068 $ 5,460
================================
WestCoast Hospitality Corporation
Reconciliation of Adjusted EBITDA to EBITDA and Net Income
(unaudited)
($ in thousands)
The following is a reconciliation of Adjusted EBITDA to EBITDA and net income,
which is considered by management to be the comparable measurement that is in
accordance with generally accepted accounting principles for each of the periods
presented:
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
-----------------------------------------------------------
Adjusted EBITDA $ 11,405 $ 11,979 $ 23,232 $ 27,195
(Gain) loss on asset dispositions 117 69 (579) 3,165
Interest income 96 96 303 254
Other income (loss), net 87 1 (205) 4
Equity in investments 20 42 99 30
Minority interest in partnerships 14 (42) 144 (108)
-----------------------------------------------------------
EBITDA 11,739 12,145 22,994 30,540
Income tax expense (1,337) (2,461) (1,449) (5,107)
Interest expense (2,886) (2,613) (8,241) (8,135)
Depreciation and amortization (4,284) (2,561) (10,047) (7,938)
-----------------------------------------------------------
Net income $ 3,232 $ 4,510 $ 3,257 $ 9,360
===========================================================
NON-GAAP FINANCIAL MEASURES
Regulation G, "Conditions for Use of Non-GAAP Financial Measures," prescribes
the conditions for use of non-GAAP financial information in public disclosures.
We believe that our presentation of EBITDA and Adjusted EBITDA, which are
non-GAAP financial measures, are important supplemental measures of operating
performance to investors. The following discussion defines these terms and why
we believe they are useful measures of our performance.
EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a
commonly used measure of performance in our industry which, when considered with
GAAP measures, we believe gives investors a more complete understanding of
operating results before the impact of investing and financing transactions and
income taxes and facilitates comparisons between us and our competitors.
Management has historically adjusted EBITDA when evaluating operating
performance because we believe that the inclusion or exclusion of certain
recurring and non-recurring items described below is necessary to provide the
most accurate measure of our core operating results and as a means to evaluate
period-to-period results.
We have chosen to provide this information to investors to enable them to
perform more meaningful comparisons of past, present and future operating
results and as a means to evaluate the results of core on-going operations. Due
to recent guidance from the Securities and Exchange Commission, we now do not
reflect certain items when calculating EBITDA, however, we continue to adjust
for these items and refer to this measure as Adjusted EBITDA. We have
historically reported this measure to our investors and believe that the
continued inclusion of Adjusted EBITDA provides consistency in our financial
reporting. We use Adjusted EBITDA in this press release because we believe it is
useful to investors in allowing greater transparency related to a significant
measure used by management in its financial and operational decision-making.
Adjusted EBITDA is among the more significant factors in management's internal
evaluation of total company and individual property performance and in the
evaluation of incentive compensation related to property management. Management
also uses Adjusted EBITDA as a measure in determining the value of acquisitions
and dispositions. Adjusted EBITDA is also widely used by management in the
annual budget process. Externally, we believe these measures continue to be used
by investors in their assessment of our operating performance and the valuation
of our company. Adjusted EBITDA reflects EBITDA adjusted for the following
items:
Gains or losses on asset dispositions
- -------------------------------------
We exclude the effect of gains and losses on asset dispositions and
non-recurring items, such as asset write-downs and impairment losses, from
Adjusted EBITDA. We believe the inclusion of these items is not consistent with
reflecting the on-going performance of our assets. Management believes it is
useful to exclude gains and losses on asset dispositions as these amounts are
not reflective of our operating performance or the performance of our assets and
the amount of such items can vary dramatically from period to period. The timing
of, and selection of, an asset for disposition is subject to a number of
variables that are generally unrelated to our on-going operations.
Interest income
- ---------------
Interest and income from investments and other sources related to operating
activities is included in our calculation of Adjusted EBITDA. We do not consider
this income to be a part of our core operating results.
Other non-operating income or losses
- ------------------------------------
We exclude other non-operating income or losses from Adjusted EBITDA to provide
a more accurate measure of our proportionate share of core operating results
before such activities.
Equity in investments
- ---------------------
Our consolidated results include the equity earnings or loss from our
unconsolidated affiliates. We exclude our proportionate share earnings or loss
unconsolidated affiliates from Adjusted EBITDA to provide a more accurate
measure of our proportionate share of core operating results before investing
activities.
Minority interest in partnerships
- ---------------------------------
We exclude the minority interest in the income or loss of our consolidated
partnership because these amounts effectively include our minority partners'
proportionate share of depreciation, amortization, interest and taxes, which are
excluded from EBITDA.
Limitations on the Use of Non-GAAP Measures
The use of EBITDA and Adjusted EBITDA has certain limitations. Our presentation
of EBITDA and Adjusted EBITDA may be different from the presentation used by
other companies and therefore comparability may be limited. Depreciation expense
for various long-term assets, interest expense, income taxes and other items
have been and will be incurred and are not reflected in the presentation of
EBITDA or Adjusted EBITDA. Each of these items should also be considered in the
overall evaluation of our results. Additionally, EBITDA and Adjusted EBITDA do
not consider capital expenditures and other investing activities and should not
be considered as a measure of our liquidity. We compensate for these limitations
by providing the relevant disclosure of our depreciation, interest and income
tax expense, capital expenditures and other items both in our reconciliations to
the GAAP financial measures and in our consolidated financial statements, all of
which should be considered when evaluating our performance.
EBITDA and Adjusted EBITDA are used in addition to and in conjunction with
results presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not
be considered as an alternative to net income, operating income, or any other
operating performance measure prescribed by GAAP, nor should these measures be
relied upon to the exclusion of GAAP financial measures. EBITDA and Adjusted
EBITDA reflect additional ways of viewing our operations that, when viewed with
our GAAP results and the reconciliations to the corresponding GAAP financial
measures, we believe provide a more complete understanding of factors and trends
affecting our business than could be obtained absent this disclosure. Management
strongly encourages investors to review our financial information in its
entirety and not to rely on a single financial measure.