MEMPHIS, Tenn.--(BUSINESS WIRE)--Oct. 29, 2002--RFS Hotel Investors, Inc. (NYSE:RFS) today announced funds from operations (FFO) for the third quarter 2002 of $10.4 million, or $0.34 per share, compared to $12.4 million, or $0.45 per share, for the same quarter a year ago. FFO for the nine months ended September 30, 2002, was $29.7 million, or $1.00 per share, compared to 2001 FFO of $44.3 million or $1.61 per share. Operating results were in line with reduced guidance given by the Company on September 19, 2002.
Third Quarter Highlights
-- Hotel revenue per available room (RevPAR) declined 4.1% for
the third quarter. The following represents changes in RevPAR
as compared to the prior year comparable periods by market
segment:
RevPAR Change
Quarter Year to Date
Full Service (5.9%) ( 17.1%)
Extended Stay (3.8%) ( 5.9%)
Limited Service (2.1%) ( 5.7%)
------ --------
Total (4.1%) ( 10.5%)
-- The Company's six hotels in northern California, consisting of two in San Francisco and four in Silicon Valley, experienced an average decline in quarterly RevPAR of 11.6%. These six northern California hotels represented 15% of RFS's earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter as compared to 23% for all of 2001.
-- Exclusive of the six northern California hotels, RevPAR declined 2.3% for the quarter and 6.0% year to date.
-- Hotel operating margins (hotel EBITDA as a percentage of total revenue, excluding deferred revenue) declined 2.3 percentage points to 35.6% in the third quarter. For the nine months, hotel operating margins declined 4.4 percentage points to 36.0%.
-- EBITDA declined 11.1% from $19.9 million to $17.7 million for the third quarter and decreased from $67.5 million to $52.4 million year to date..
-- The Company realized an unleveraged FFO return on investment of 8.7% on its hotel portfolio for the trailing twelve months ended September 30, 2002. Based upon the Company's approximate 36% leverage and average borrowing costs of 8.4%, the Company realized a leveraged return on investment of 8.9%.
-- EBITDA for the trailing twelve months ended September 30, 2002, was 2.7 times the Company's interest costs.
-- Total debt and preferred stock, net of cash, was reduced by $34.1 million during the first nine months of the year.
Operating Results
Randy Churchey, president and chief operating officer, said, Operating conditions in travel-related businesses continue to be very difficult. The third quarter represented the sixth consecutive quarter of declining RevPAR in the hotel business. The good news is that, despite a 4.1% decline in RevPAR for the third quarter, occupancy actually increased from 71.1% to 72.0%. However, the continuing softness in business-related travel has resulted in a decline in average daily rate of 5.4% from the prior year. This decline in RevPAR is primarily attributable to continuing weakness in the Silicon Valley area of northern California. Although we see indications of recovery in San Francisco, due primarily to increases in leisure-related travel, the Silicon Valley area continues to suffer from weak demand for technology products and an over-capacity in the telecommunications industry.
Mr. Churchey further stated, Our managers continue to focus on four things: increasing market penetration; exercising control of variable costs; satisfying our guests; and maintaining our properties in superb physical condition.
RevPAR has improved sequentially for three consecutive quarters with a decline of 16.6% in the first quarter, 10.6% in the second quarter and 4.1% in the third quarter. Excluding the six northern California hotels, RevPAR performance is generally consistent with industry trends.
Capital
Despite the reduction in FFO and RevPAR, the Company:
-- Continued to maintain one of the least leveraged balance
sheets in the industry with total debt equal to only 4.4
times trailing twelve months EBITDA;
-- Generated operating cash flow (EBITDA less interest) of
$41.7 million for the trailing twelve months ended
September 30, 2002. This represents funds available for
capital expenditures, debt reduction, and dividends.
Kevin Luebbers, RFS executive vice president and chief financial officer, stated, While 2002 has been the most difficult operating environment the hotel industry has experienced in several decades, RFS has continued to use the capital markets to aggressively position itself to be an opportunistic buyer of hotels when market conditions stabilize. During the first nine months of the year, we have reduced outstanding debt and preferred stock by $34.1 million primarily through the sale of 3.15 million shares of common stock. Our credit statistics compare very favorably with other major public hotel companies, and we feel we are in a position to spend approximately $100 million to acquire hotels which meet our financial and strategic criteria.
Outlook and Dividends
The Company declared a dividend of $0.25 per share, payable December 30, 2002, to shareholders of record December 19, 2002. As previously indicated, approximately 75% of the annual dividend paid in 2002 is expected, for tax purposes, to be characterized as a return of capital, and; therefore, not taxable as ordinary income for federal income tax purposes.
Robert Solmson, chairman and chief executive officer, stated, Accurately forecasting, even the immediate future, remains extremely difficult. No one knows what the future course of the economy may be and geo-political events almost certainly will dramatically affect these underlying economic trends. However, our focus remains very clear. We will maintain a strong balance sheet with very favorable credit statistics and expect to continue to pay our shareholders a meaningful dividend. Although operating results are down materially from the prior year, our operating profit margins remain very strong. I expect that business travel will eventually recover, although not to 1999 or 2000 levels. However, when there is some increase in demand for rooms, we should be in a very good position to resume the internal growth that we enjoyed up until the middle of last year. Our best estimate is that FFO for the year will range from $1.20 to $1.25 per share.
RFS Hotel Investors, Inc. (RFS) is a real estate investment trust (REIT) that owns 58 hotels with approximately 8,400 rooms located in 24 states. RFS's hotel portfolio is diversified by geography, brand and segment. Leading brands under which RFS hotels are operated include Sheraton(R), Residence Inn by Marriott(R), Hilton(R), Doubletree(R), Holiday Inn(R), Hampton Inn(R), and Homewood Suites by Hilton(R). By segment, RFS receives approximately 37% of its EBITDA from full service hotels, 36% from extended stay hotels, and 27% from limited service hotels.
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