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MeriStar Hospitality Corporation (NYSE: MHX), one of the nation's largest hotel real estate investment trusts (REIT), today announced financial results for the third quarter ended September 30, 2005. Highlights of the company's strong quarterly performance include(1):
-- Net loss of $(117) million or $(1.34) per diluted share compared to a net loss of $(27) million or $(0.31) per diluted share for the 2004 third quarter. The 2005 third quarter net loss includes the previously announced $(92) million or $(1.02) per diluted share impact of the defeasance cost, impairment and interest rate swap termination fee related to debt refinancing;
-- Adjusted funds from operations (FFO) per diluted share of $0.09 increased 350 percent compared to $0.02 per diluted share for the 2004 third quarter;
-- Adjusted EBITDA of $39.6 million increased nearly 17 percent compared to $33.9 million in the 2004 third quarter;
-- Revenue per available room (RevPAR) increased 11.5 percent for the comparable hotels, as average daily rate (ADR) rose 11.1 percent and occupancy improved 0.3 percent; and
-- Comparable hotel gross operating profit margins improved 137 basis points, and comparable hotel EBITDA margins improved 166 basis points.
(1)FFO, Adjusted FFO, Adjusted EBITDA, and comparable hotel EBITDA margins are non-GAAP financial measures. See the notes to financial information for further discussion of these non-GAAP financial measures.
"We are pleased with the excellent results generated by our properties during the quarter," said Paul W. Whetsell, chairman and chief executive officer. "Our strategy of reshaping our portfolio to one able to drive rate and improve margins is continuing to produce superior results and increase shareholder value. RevPAR exceeded the upper end of our guidance for the period and was driven almost entirely by rate." The Marriott Irvine in southern California and The Ritz-Carlton, Pentagon City in Arlington, Va., which were acquired mid-2004 and excluded from the comparable hotel RevPAR and margin results, achieved RevPAR gains of 26.4 percent and 15.7 percent, respectively, in the third quarter.
The company experienced operating strength in several key markets, including southern California and Washington, D.C., where RevPAR grew 18.6 percent and 11.7 percent, respectively. Additionally, the company's New Jersey properties experienced a 17.1 percent growth in RevPAR as several renovated properties were able to take advantage of a strong market and drive both occupancy and ADR. The Radisson Lexington Avenue in Midtown Manhattan continued to perform well resulting in $561,000 in distributable cash in the quarter on the company's equity interest, in addition to the $1.4 million return on the $40 million mezzanine loan.
Renovation Update
In the third quarter, the company invested $19.3 million in non-hurricane related capital improvements at its properties. "As part of our overall capital improvement program, we have invested $78.4 million in renovations and upgrades to our properties over the past nine months, and we are on track to reach our target of $115 million in 2005," Whetsell said. "Property results are reflecting the positive impacts of this program. For example, the Radisson Chicago, which recently completed improvements to both the guest rooms and public space, including a reconcepting of the street-front restaurant, experienced a 22.1 percent increase in RevPAR for the quarter driven primarily by a 17.1 percent increase in ADR," Whetsell continued.
"We expect our 2006 capital investment program to be well below 2005 levels as we near completion of our multi-year investment initiative and begin to approach more traditional levels of capital spending," he added.
Asset Sales
The company sold three hotels, the Marina Hotel San Pedro, the Wyndham Garden Marietta and the DoubleTree Albuquerque, during the third quarter for total gross proceeds of $25.3 million. On a combined basis, these properties sold for nearly 16 times their trailing twelve-month EBITDA. "Including the sale of the Hilton Monterey in May, we have generated total gross proceeds of $45.8 million year to date," Whetsell said. "As we indicated last quarter, we have expanded our asset disposition activity to take advantage of the favorable market conditions. Based on our current outlook, we now expect to sell an additional $150 million to $200 million in assets by year-end, with the balance of the dispositions completed in the first quarter of 2006."
Capital Structure
The company completed several key capital market transactions during the quarter. "We made significant progress toward our objective of strengthening our balance sheet and improving our credit statistics," said Donald D. Olinger, chief financial officer. "Most significantly, we refinanced our $300 million CMBS loan and repurchased an additional $28.7 million of senior unsecured notes, bringing our total senior unsecured note repurchase for the year to more than $50 million. We also redeemed the remaining $33 million of our 8.75 percent senior subordinated notes at par and expanded our bank facility by $100 million. These transactions resulted in a substantial lowering of our weighted average cost of debt and annual interest expense, greater cash flow, and significant improvement in our overall credit statistics. In addition, the new CMBS structure provides the company greater flexibility with respect to substituting or selling assets in the collateral pool. As demonstrated by the recent sale of the DoubleTree Albuquerque, we now have the ability to sell those collateral assets that do not fit with our long-term strategy, thus reducing future capital requirements and generating proceeds to further reduce our debt."
The company expects to use asset sale proceeds to continue to reduce its outstanding debt, with particular focus on the company's $206 million of 10.5 percent senior unsecured notes, which become callable in December 2005. Pending the timing of asset sales, the company currently expects to call between $100 million and $150 million in 2005 with the balance being redeemed in the first quarter of 2006.
Hurricane Update
Damage associated with Hurricane Katrina resulted in the temporary closure of the company's two New Orleans properties, the 303-room Holiday Inn Select New Orleans Airport and the 23-room boutique Hotel Maison de Ville. The potential financial impact of the closure of these properties on company operations is not expected to be significant.
Three of MeriStar's Florida properties that suffered damage from the hurricanes last fall remain closed. The Best Western Sanibel Island is expected to open in November, the South Seas Island Resort on Captiva is expected to open in December and the Holiday Inn Walt Disney World re-opening is scheduled for 2006.
Guidance
The company is maintaining its full year adjusted EBITDA guidance of $185 million to $190 million and projects a net loss of $(138) million to $(143) million. The guidance includes $4 million of additional business interruption (BI) insurance gain in the fourth quarter. This BI gain amount reflects the minimum cumulative amount of lost profit expected in the year from the properties impacted by the hurricanes last fall. Recognition of BI gain is subject to numerous requirements, and timing of the recognition of BI gain cannot be certain. RevPAR for the fourth quarter is estimated to increase 9 to 11 percent and 8.5 to 9.5 percent for the full year. Additionally, the company provided the following range of estimates for the fourth quarter and full year:
-- Net loss of $(9) million to $(14) million in the fourth quarter;
-- Adjusted EBITDA of $40 million to $45 million in the fourth quarter;
-- Net loss per diluted share of $(0.10) to $(0.16) in the fourth quarter and $(1.57) to $(1.63) for the full year;
-- FFO per diluted share of $0.10 to $0.16 in the fourth quarter and $(0.50) to $(0.56) for the full year; and
-- Adjusted FFO per diluted share of $0.10 to $0.16 in the fourth quarter and $0.64 to $0.70 for the full year.
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