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Prime reported net income for the second quarter of 2004 of $3.6 million, or $.08 per share, compared to a loss of $17.8 million, or $.40 per share, for the second quarter of 2003. The second quarter of 2003 included a loss of $.48 per share from the termination of our lease with Hospitality Properties Trust ("HPT") and gains of $.03 per share from asset sales and debt retirements.
"Our second quarter results reflect our objective of emphasizing the quality of our brand offerings and increasing our room rates," said A.F. Petrocelli, chairman and CEO of Prime. "For the quarter, we achieved an 8.1% increase in average daily rate. While this resulted in lower occupancy levels, it improved operating margins by 160 basis points. We believe that as more markets recover, we will see occupancy improvements."
"During the quarter, we converted the 12 full-service hotels which we added through our new management agreement with HPT to the Prime Hotels and Resorts brand. We now have 15 Prime Hotels open in 10 states and we look forward to the opportunities this presents for all of our brands."
For the six months ended June 30, 2004, net income was $0.7 million, or $.02 per share, compared to a loss of $24.5 million, or $.55 per share, for the comparable period in 2003. The 2003 amounts reflect a loss of $.48 per share related to the HPT lease.
Operating Results
For the quarter, total revenues increased by $12.8 million to $124.1 million due to the addition of twelve full-service hotels in January 2004.
Operating income plus depreciation increased by $2.8 million to $20.8 million in the second quarter of 2004. This was due to the elimination of deficits incurred in the second quarter of 2003 on our lease with HPT which was converted to a management agreement in December 2003, and operating improvements at existing hotels. Interest expense declined by 11.0% to $4.8 million for the quarter ended June 30, 2004, due to debt reductions.
In addition, through June 30, 2004, we have earned approximately $2.5 million in management and franchise fees as calculated under our agreement with HPT. This amount has been recorded as deferred income in accordance with generally accepted accounting principles and may not be recognized as income until the fourth quarter when the annual calculation is finalized.
For the second quarter of 2004, revenue per available room ("REVPAR") at our comparable hotels decreased by 0.2% compared to the second quarter of 2003. Average daily rate ("ADR") increased by 8.1% to $70.41 and occupancy decreased by 5.3 percentage points to 64.5%. Gross operating profit margins at comparable hotels increased by 1.6 percentage points due to higher ADR and operating efficiencies.
System-Wide Performance
For the second quarter of 2004, we reported a 1.4% REVPAR increase at our comparable AmeriSuites hotels. ADR increased by 6.5% to $71.33 and occupancy decreased by 3.4 percentage points to 67.6%. Increases were reported in Miami, Nashville, Orlando and Richmond while decreases were posted in Albuquerque, Austin, Chicago and Detroit.
For the second quarter of 2004, we reported a 0.4% REVPAR decrease at our comparable Wellesley Inns & Suites hotels, ADR increased by 6.2% to $57.91 and occupancy decreased by 4.2 percentage points to 62.2%. The Austin, Orlando and South Florida markets reported increases while revenues decreased in Atlanta, Dallas, Houston and the Northeast.
For the second quarter of 2004, we reported a 2.0% REVPAR decrease at our three owned Prime Hotels. ADR increased by 3.4% to $116.45 while occupancy decreased by 3.9 percentage points to 69.7%. The Saratoga Springs Prime Hotel reported an increase due to strong group business while the Secaucus and Fairfield Prime Hotels' revenues decreased.
Our non-proprietary brand full-service hotels, reported a 1.0% REVPAR decrease for the second quarter of 2004. ADR increased by 3.3% to $110.93 and occupancy decreased by 2.7 percentage points to 64.3%. The full-service hotels were impacted by a decrease in group business in Northern New Jersey partially offset by a recovery in tourism at the Quebec City Holiday Inn.
Hotel Developments
As of June 30, 2004, we had 148 AmeriSuites, 81 Wellesley Inns & Suites and 15 Prime Hotels in operation.
Under our new management agreement with HPT, in the second quarter of 2004 we converted twelve full-service Wyndham hotels to the Prime Hotels and Resorts brand. We now have 15 Prime Hotels open in 10 states encompassing almost 3,000 guestrooms.
Currently, we have four AmeriSuites under construction and another four in the planning stage.
During the quarter, we completed our installation of high speed internet access in all of our owned and all HPT-owned AmeriSuites, Wellesley Inns & Suites and Prime Hotels and Resorts properties. This new amenity is available on both a wired and wireless basis in all guest and meeting rooms and via wireless access in all common areas, including hotel lobbies, fitness centers, pool areas and restaurants.
Financial Condition
As of June 30, 2004, we had $222.6 million in debt and $12.2 million in cash and cash equivalents. Our debt to book capitalization percentage is 24.7%. Our debt to last twelve months EBITDA ratio is 3.59 times, and our EBITDA to interest is 3.39 times, as defined under our revolving credit facility. The covenants in this facility require us to maintain a debt to EBITDA ratio of 4.25 times and an EBITDA to interest ratio of 2.50 times.
2004 Outlook
Our current estimate for 2004 is for operating income plus depreciation to be in the range of $65 - $70 million and earnings per share before asset transactions to be in the $.05 - $.10 range. We estimate earnings per share for the third quarter of 2004 to be $0.07 per share.
We currently expect capital expenditures to be approximately $15 million in 2004 with the majority to be spent on maintenance capital. We expect to generate approximately $30 million in free cash flow in 2004 before asset sales.
Prime Hospitality Corp., one of the nation's premiere lodging companies, owns, manages and franchises 256 hotels throughout North America. The Company owns and operates three proprietary brands that compete in different segments: AmeriSuites® (all-suites), Wellesley Inns & Suites® (limited-service) and Prime Hotels & Resorts (full-service). Also within our portfolio are owned and/or managed hotels operated under franchise agreements with national hotel chains including Hilton, Sheraton, Holiday Inn and Ramada.
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