RevPAR Improves 11.1% versus Industry RevPAR Increase of 7.2% - Gross Operating Profit Increases 500 Basis Points to 42.2%
-- First Quarter 2005 Highlights:
-- Produces Record Funds From Operations Increase of 92% to $0.25 Per Diluted Share -
-- Funds From Operations Per Share Exceed Analyst Consensus Estimates By $0.05 -
-- RevPAR Improves 11.1% versus Industry RevPAR Increase of 7.2% -
-- Gross Operating Profit Increases 500 Basis Points to 42.2%-
-- Company Raises 2005 FFO Per Share Guidance Range to $0.98 to $1.06 -
Equity Inns, Inc. (NYSE: ENN), a hotel real estate investment trust (REIT), today announced its results for the first quarter ended March 31, 2005.
Funds From Operations (FFO) for the first quarter 2005 increased 136% to $13.2 million versus FFO of $5.6 million for the first quarter 2004. FFO per share for the first quarter increased 92% to $0.25 versus $0.13 for the first quarter 2004. Net income applicable to common shareholders for the first quarter 2005 was $1.8 million, compared to a net loss of $4.1 million in the first quarter 2004. Net income per diluted share was $0.03, versus a loss of $0.10 in the first quarter 2004. The Company reported income from continuing operations for the first quarter 2005 of $3.7 million, versus a loss from continuing operations of $1.8 million in the prior year quarter. Adjusted EBITDA climbed 65% to $23.8 million in the first quarter 2005 versus $14.4 million in the same period last year.
Financial Highlights for the First Quarter:
Howard A. Silver, President and Chief Executive Officer, stated, "We are extremely pleased with our record first quarter performance, which follows record fourth quarter 2004 results. Our performance demonstrates the success of both our internal and external growth strategies and our ability to execute on them. These strategies enable us to outperform the industry during difficult times, as we did from 2001 to 2003, as well as during periods of industry growth. We believe that our strategy of driving average daily rate (ADR), which we are in a position to do since we minimized our occupancy declines during the industry downturn, coupled with our accretive acquisitions, results in superior bottom-line improvement as evidenced by a 92% improvement in our FFO per share."
In the first quarter of 2005, the FFO improvement stems primarily from the $6.6 million net accretive effect of the Company's acquisitions and same-store hotel net operating income of $1.5 million. The Company produced a record revenue per available room (RevPAR) increase of 11.1%, which was driven by a 7.4% increase in ADR to $88.81 and a 220 basis point gain in occupancy to 67.6%. The Company's first quarter 2005 gross operating profit margin (GOP Margin) increased 500 basis points to 42.2% from 37.2% in the first quarter of 2004.
First quarter 2005 hotel revenue was $75.0 million, an increase of 39% from $54.1 million in the first quarter 2004. The improvement was driven by net incremental revenue of $16.5 million from acquisitions completed in 2004 and 2005 and an increase of $4.4 million from same-store hotel revenue. RevPAR growth was strong throughout the first quarter of 2005 - RevPAR increased 14.4% in January, 9.9% in February and 9.3% in March, as compared to the same periods in the prior year. Moreover, the strength has continued into early second quarter 2005, with preliminary numbers indicating April RevPAR improved 13.8%.
Additional First Quarter Events:
-- On January 26, 2005, the Company announced that it sold a 123-room exterior corridor Hampton Inn in Birmingham, Alabama for $3.95 million. This amount reflects approximately a 10% capitalization rate on trailing 12 months' net operating income.
-- On February 24, 2005, Equity Inns announced that it had agreed to purchase a 126-room Hilton Garden Inn located in Ft. Myers, Florida for a cost of $14.5 million. The purchase was completed at a 10.2% capitalization rate on trailing 12 months' net operating income. The hotel is located in the center of Ft. Myers' key office market, which includes more than one million square feet of office space within one mile. The purchase was finalized on March 1, 2005.
-- On February 28, 2005, Equity Inns announced that it had agreed to acquire a 93-room Courtyard by Marriott in Bowling Green, Kentucky. The purchase price was $6.9 million and represents a 10.2% capitalization rate on trailing 12 months' net operating income. The acquisition was completed on April 29, 2005.
-- On March 4, 2005, Equity Inns completed an offering of approximately 2.7 million shares of its common stock. The offering resulted in net proceeds to the Company of $28.5 million. The proceeds will be used for identified acquisitions and to repay indebtedness under the Company's line of credit.
Recent Events:
-- On May 2, 2005, Equity Inns completed the purchase of two Marriott hotels in Jacksonville, Florida, including an 81-room Courtyard and a 78-suite Residence Inn for approximately $12.5 million, which represents a 10.2% capitalization rate on trailing 12 months' net operating income. As previously disclosed, the properties will be managed by MMI Hotel Group.
Capital Structure:
At March 31, 2005, Equity Inns had $429.0 million of long-term debt outstanding, which included $64.5 million drawn under its $110 million line of credit. The weighted average interest rate and remaining life of the Company's debt was 7.0% and 4.4 years, respectively. The total debt represented 37.8% of the historical cost of the Company's hotels, remaining low in comparison to prior years. Equity Inns' leverage ratio was 4.43, which is a five-year low for the Company. Fixed rate debt, including variable rate debt hedged by interest rate swaps, amounted to 94.1% of total debt. At March 31, 2005, the Company's outstanding common stock and partnership units were a combined 55,401,373.
Dividend:
The level of Equity Inns' common dividend will continue to be determined by the operating results of each quarter, economic conditions, capital requirements, and other operating trends. For the first quarter 2005, Equity Inns paid a $0.15 common dividend per share and a $0.546875 preferred dividend per share. The cash available for distribution (CAD) payout ratio was approximately 66% for the trailing twelve-month period ended March 31, 2005.
Mr. Silver concluded, "We are optimistic about the balance of this year. In addition to generating strong RevPAR and FFO growth and making accretive acquisitions, we are delivering on our commitment to maintain a solid balance sheet. In fact, we have actually decreased our leverage in the first quarter 2005 despite completing additional acquisitions. We are in a position to continue to upgrade our portfolio as part of our strategy in order to augment our growth and create long-term shareholder value. As a result of our recent strength, we were able to raise our dividend 15% in the first quarter 2005."
Second Quarter Guidance:
Based upon expectations for continued improvement in the upscale and mid-scale lodging sectors, recent acquisitions and divestitures, along with planned expense increases, the Company now expects 2005 RevPAR increases will be in the range of 4% to 6%, resulting in an Adjusted EBITDA range of $93.0 million to $97.5 million, FFO per diluted share range of $0.98 to $1.06 and net income per diluted share range of $0.17 to $0.25. The Company also anticipates 2005 capital expenditures will be approximately $25.0 million.
As a result of these assumptions, management now expects second quarter FFO between $0.29 and $0.31 per diluted share and net income per diluted share to be in the range of $0.05 to $0.07, with a RevPAR increase between 4% and 8%.
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