RevPAR Increases 7.1 Percent; Raises 2005 Guidance for RevPAR, Adjusted EBITDA and Adjusted FFO Per Share
Innkeepers USA Trust (NYSE: KPA), a hotel real estate investment trust (REIT) and a leading owner of upscale extended-stay hotel properties throughout the United States, today announced results for the three and six months ended June 30, 2005.
2Q 2Q % Six Mos. Six Mos. %
2005* 2004* Change* 2005* 2004* Change*
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Total revenue $64,070 $54,258 18% $119,169 $95,012 25%
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Net income (loss)
applicable to
common
shareholders $5,176 $2,653 95% $4,348 ($2,552) 270%
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Diluted income
(loss) per share $0.12 $0.07 71% $0.10 ($0.07) 243%
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Funds from
operations (FFO) $15,108 $12,165 24% $22,340 $13,117 70%
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Adjusted FFO $15,536 $11,539 35% $25,520 $16,704 53%
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FFO per share $0.32 $0.29 10% $0.48 $0.34 41%
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Adjusted FFO per
share $0.33 $0.27 22% $0.55 $0.43 28%
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Earnings before
interest, taxes,
depreciation and
amortization
(EBITDA) $23,074 $20,511 12% $40,422 $37,015 9%
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Adjusted EBITDA $23,502 $19,885 18% $42,112 $35,324 19%
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Operating Results
Revenue per available room (RevPAR) for the company's 65 hotel properties (excludes four hotels closed for renovation and/or conversion during part or all of the periods presented) increased 7.1 percent for the second quarter 2005 to $81.99, compared to the same period in 2004. The increase was led by average daily rate (ADR), which improved 6.5 percent to $104.01. Occupancy rose 0.5 percent to 78.8 percent.
The RevPAR improvement of 7.1 percent for the second quarter 2005 reflects a 3.2 percent increase in RevPAR at the company's eight Silicon Valley, Calif. hotel properties. Excluding Silicon Valley, the remainder of the company's portfolio achieved RevPAR improvement of 7.8 percent for the second quarter 2005. The company's Four Points by Sheraton hotel in Ft. Walton Beach, Fla. had a RevPAR decline of 22 percent for the quarter due to rooms out of service as a result of hurricane damage in the third quarter of 2004. Excluding only this hotel would have resulted in a RevPAR increase of 8.3 percent for the second quarter 2005. Gross operating margins for the company's 61 comparable hotels improved 200 basispoints to 45.7 percent. The company's 61 comparable hotels exclude the seven hotels acquired in 2004 and 2005 and the Atlantic City hotel that is closed for renovation and conversion.
"We had a very solid second quarter, as the positive trends in average rates we saw in the first quarter, particularly among business travelers, our primary customer, continued in the second quarter," said Jeffrey H. Fisher, Innkeepers chief executive officer and president. "We continued to flow a significant portion of the revenue increase to gross operating profit as evidenced by our 200 basis point margin improvement over last year's second quarter."
Acquisitions
During the second quarter, the company continued to execute its external growth strategy through accretive acquisitions, closing on one property during the period. "We acquired the newly renovated 224-room Westin Governor Morris hotel, in Morristown, N.J. for $35.1 million, well below replacement cost," he said. "This is a stunning property in top physical condition following a recent, multi-million dollar renovation and represents our first entry in the upper upscale full-service segment. The combination of its location in a high-barrier market with strong corporate demand and little supply of comparable quality, together with its attractive price, made it a very compelling investment.
"Morristown was our third acquisition in 2005," he said. "We continue to seek growth opportunities both through acquisitions and selective new construction. We are targeting premium brands in the upscale extended-stay sectors as well as select-service and full-service upscale hotels that have the potential to be rebranded and repositioned and are located in major markets with strong demand generators and have high barriers to new competition."
Repositionings/Development Update
"Our downtown Louisville property that we acquired last year and repositioned as a Hampton Inn, opened last week following completion of a $4.5 million renovation. The city has enjoyed a strong economic resurgence, and we expect this property to assume a leadership position following a relatively short ramp-up period. Hampton Inn was our strongest brand during the quarter, with RevPAR gains of 17.1 percent for our 12 Hampton Inn properties."
Fisher added that the 190-room property acquired earlier this year in Montvale, N.J., is scheduled to open as a Courtyard by Marriott in mid-2006. Located on the New Jersey/New York border, 20 miles from New York City, the hotel has been closed pending a $5 million renovation. "The rebranding of the hotel as a Courtyard should attract a diverse customer base of both business and leisure travelers. More than 300 business and corporate offices surround the hotel including Mercedes Benz of North America, BMW of North America and KPMG, LLC.
"Our 203-room Atlantic City hotel also is converting to a Courtyard and is expected to open in mid-2006 following a $7 million renovation. With the addition in Atlantic City of the Borgata, expansions at a number of other casinos and scheduled opening of a $76 million upscale retail outlet, entertainment and dining district, the area has experienced a mini-renaissance, and we expect this property, when it opens, to ramp up quickly.
"We also are proceeding on schedule with the development of a 157-suite Embassy Suites in Valencia, Calif., 30 miles north of Los Angeles in the Santa Clarita Valley. This will be our first Embassy Suites hotel, and we expect to break ground in late 2005 and to open the property in the fourth quarter of 2006.
Dividend
"One of the highlights of the quarter was the increase in our quarterly dividend on our common shares from $0.06 to $0.10, a rise of 67 percent," Fisher said. "The move reflects our continued confidence in the well-entrenched recovery and its expected sustainability into 2006 and beyond. We will continue to evaluate the dividend with our Board of Trustees on a quarterly basis."
New CFO
After the end of the quarter, Bruce Riggins joined Innkeepers as chief financial officer. He previously was senior vice president and treasurer of Interstate Hotel & Resorts (NYSE: IHR), the nation's largest independent hotel management company.
"With Bruce's wealth of public and corporate accounting, and finance experience, he is getting up to speed very quickly," Fisher said. "He has a strong treasury background and has been involved in more than $1 billion in debt and equity transactions in the hotel industry."
Capital Structure
Riggins pointed out that the company continues to maintain one of the industry's strongest capital structures and lowest-levered balance sheets. "Our debt to investment in hotels at cost ratio was 26 percent at June 30, 2005, with no maturities until 2007 and beyond. Our weighted average interest rate on our total debt is 7.3 percent, and 75 percent of our total debt is at fixed rates. We have $56 million outstanding on our $135 million revolving unsecured line of credit, which matures in July 2007."
Revised Guidance
Riggins said that the company has raised its guidance for RevPAR, Adjusted EBITDA and Adjusted FFO per share for the remainder of the year. Forecasted financial results are as follows and do not include any assumptions for future acquisitions, dispositions or capital markets transactions:
-- RevPAR for 65 hotels of 6.0 percent to 7.0 percent for the third quarter and 7.0 percent to 7.5 percent for the full year (including RevPAR increases for the company's eight Silicon Valley hotels of approximately 4.0 percent for the third quarter and 4.5 percent for the full year);
-- Net income applicable to common shareholders of $6.1 million to $7.1 million for the third quarter and $11.2 million to $12.7 million for the full year;
-- Diluted income per share of $0.14 to $0.16 for the third quarter and $0.26 to $0.30 for the full year;
-- FFO per share of $0.34 to $0.36 for the third quarter and $1.04 to $1.07 for the full year;
-- Adjusted FFO per share of $0.34 to $0.36 for the third quarter and $1.11 to $1.14 for the full year;
-- Adjusted EBITDA of $25.0 million to $26.0 million for the third quarter and $86.0 million to $87.5 million for the full year;
-- Gross operating profit margin increase of approximately 200 basis points for the third quarter and full year for our comparable 61 hotels; and
-- Capital expenditures of $17 million for the full year.
See reconciliations of net income applicable to common shareholders to FFO per share and Adjusted FFO per share and net income applicable to common shareholders to Adjusted EBITDA included in the tables of this press release. FFO per share, Adjusted FFO per share, and Adjusted EBITDA are not generally accepted accounting principles (GAAP) financial measures and are discussed in further detail in this press release.
Innkeepers USA Trust is a hotel real estate investment trust (REIT) and a leading owner of upscale extended-stay hotel properties throughout the United States. The company owns 69 hotels with a total of 8,745 suites or rooms in 20 states and Washington, D.C., and focuses on acquiring and/or developing premium branded upscale extended-stay, select-service, and full-service hotels and the rebranding and repositioning of other hotel properties.
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