Interstate Hotels & Resorts Reports Strong First-Quarter 2006 Results
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Interstate Hotels & Resorts Reports Strong First-Quarter 2006 Results
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Category: Worldwide -
This is a press release selected by our editorial committee and published online for free on 2006-05-03
Interstate Hotels & Resorts (NYSE: IHR), the nation's largest independent hotel management company, today reported strong operating results for the first quarter ended March 31, 2006. The company exceeded its earnings guidance for the quarter and raised its 2006 full-year guidance. The company's performance for the first quarter includes the following (in millions, except per share amounts):
First Quarter
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2006 2005
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Total revenue (1) $59.4 $46.1
Net income (loss) $0.7 $(1.4)
Diluted earnings (loss) per share $0.02 $(0.05)
Adjusted EBITDA (2) $14.1 $3.4
Adjusted net income (2) $5.8 $(0.8)
Adjusted diluted EPS (2) $0.19 $(0.03)
(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.
Highlights for the first quarter include:
* Posted an 11.3 percent improvement in revenue per available room
(RevPAR), compared to an average industry gain of 9.7 percent.
* Added 10 management contracts.
* Exceeded forecasted operating income on two wholly-owned hotels by 20
percent, led by the Hilton Concord.
* Achieved strong gains within the company's corporate housing
subsidiary, led by operations in the London market.
* Reduced debt by over $5 million.
Included in the 2006 first quarter results are $3.2 million of proceeds from business interruption insurance related to Hurricane Charley, as well as one-time termination payments of $4.1 million from MeriStar Hospitality related to their recent sale of 10 Florida-based properties. Also included in the results is an $8.5 million impairment of intangible assets primarily related to the termination of 18 management contracts as a result of property dispositions by MeriStar Hospitality.
Hotel Operating Results
Same-store(3) RevPAR for all managed hotels in the first quarter of 2006 increased 11.3 percent to $79.49, which exceeded the upper end of the company's guidance and the industry average of 9.7 percent, as reported by Smith Travel Research. Average daily rate (ADR) advanced 8.3 percent to $116.13, and occupancy increased 2.7 percent to 68.4 percent.
Same-store RevPAR for all full-service managed hotels rose 11.1 percent to $83.11. ADR improved 8.3 percent to $121.09, with occupancy advancing 2.5 percent to 68.6 percent.
Same-store RevPAR for all select-service managed hotels increased 12.7 percent to $63.09, led by an 8.7 percent gain in ADR to $93.32 and a 3.7 percent improvement in occupancy to 67.6 percent.
"Our operating results for both managed and owned hotels continue to exceed the industry average," said Thomas F. Hewitt, chief executive officer. "We are taking full advantage of the favorable market conditions across all key lodging segments as we focus on aggressive management of room rate, while also holding costs in check.
"Our strategy of diversifying our earnings stream produced positive results in the first quarter," he said. "Our two wholly-owned hotels performed very well in the period, led by the 329-room Hilton Concord in San Francisco, which exceeded our projections. The 195-room Hilton Durham near Duke University, which we acquired in the 2005 fourth quarter, performed in line with projections.
"At our Durham hotel, we will begin a $2.6 million renovation in the second quarter, to be completed in phases to minimize guest disruptions. The hotel underwent a $2.8 million renovation of the public areas, restaurants, meeting facilities and some guest rooms, prior to our acquisition, and the additional scheduled upgrades will complete this refurbishment. The hotel will be well positioned to operate to its full potential in this market.
"We also added 10 new management contracts to our portfolio in the period, including a portfolio of six hotels in Cleveland, and the 444-room Hilton Times Square in Manhattan.
"Acquisitions of properties, both in joint ventures and through whole- ownership, are an important avenue of growth for us and a way for us to further diversify our earnings stream,"
Hewitt added. "During the quarter, we continued to seek opportunities for selective ownership. Our pipeline remains active, and we expect to announce additional transactions in the second and third quarters, including a whole- ownership acquisition and joint-venture acquisitions consisting of properties we recently began managing."
(3) Please see footnote 6 to the financial tables within this press release for a detailed explanation of "same-store" hotel operating statistics.
BridgeStreet Growth Continues
"Our BridgeStreet corporate housing subsidiary also performed extremely well during the period, above expectations and prior year. Results were led by robust operations in London, where BridgeStreet is the leading and the largest serviced apartment provider," Hewitt noted. "We expanded our presence in London with the addition of 77 units early in the second quarter and are on track to increase our inventory in both London and Paris in 2006. We also are looking at opportunities to expand our worldwide presence through our Global Partner program.
"We completed two important transactions in the first quarter that increased BridgeStreet's U.S. network of corporate apartments. We signed an agreement with AMLI Residential, a large multi-family real estate company, to operate all the units in their short-term furnished housing division, which are located in nine major U.S. markets. We also acquired Twelve Oaks Corporate Residences, Inc., which is based in Chicago, including the assumption of all leases related to Twelve Oaks' 13 furnished apartment complexes. The transaction adds approximately 300 furnished apartment units to BridgeStreet's local inventory, nearly doubling its presence in the Chicago area, one of its core strategic markets."
Balance Sheet Changes
On March 31, 2006, Interstate had:
* Total cash of $13.5 million.
* Total debt of $79.8 million, consisting of $60.8 million of senior
debt and $19.0 million of non-recourse mortgage debt.
"Using cash flows from operations, the company was able to pay down over $5 million on its senior credit facility during the quarter, further strengthening our balance sheet," said Bruce Riggins, chief financial officer. "Our leverage is at a historical low, and we now have more than $40 million available in cash and under our credit line to fund our near-term acquisition opportunities."
Outlook and Guidance
"The lodging industry trends remain positive, with strong demand from both business and leisure sectors," Hewitt noted. "Industry analysts forecast favorable fundamentals for the hotel industry for at least the next several years. We are well positioned to take advantage of the current economic environment as both an operator and owner. Our size, financial strength, and flexibility give us a competitive advantage."
The company provides the following guidance for the second-quarter and full-year 2006:
* RevPAR, on a same-store basis, is expected to increase 9.0 to 10.0
percent in the second quarter and 7.5 to 9.5 percent for the full
year;
* Net income of $1.0 million to $1.6 million in the second quarter and
$11.2 million to $12.4 million for the full year;
* Earnings per diluted share of $0.03 to $0.05 for the second quarter
and $0.36 to $0.40 for the full year;
* Adjusted net income of $1.0 million to $1.6 million in the second
quarter and $16.3 million to $17.5 million for the full year;
* Adjusted earnings per diluted share of $0.03 to $0.05 for the second
quarter and $0.52 to $0.56 for the full year;
* Adjusted EBITDA of $6.5 million to $7.5 million for the second quarter
and $47 million to $49 million for the full year.
Interstate will hold a conference call to discuss its first-quarter results today, May 3rd, at 11 a.m. Eastern Time. To hear the webcast, interested parties may visit the company's Web site at http://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 10, 2006, by dialing (800) 405-2236, reference number 11058668, and an archived webcast of the conference call will be posted on the company's Web site through June 3, 2006.
As of March 31, Interstate Hotels & Resorts operated 282 hospitality properties with nearly 64,000 rooms in 41 states, the District of Columbia, Canada, and Russia. BridgeStreet Worldwide, an Interstate Hotels & Resorts subsidiary, is one of the world's largest corporate housing providers. BridgeStreet and its network of Global Partners offer more than 8,900 corporate apartments located in more than 95 MSAs throughout the United States and internationally
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