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Highland Hospitality Corporation (NYSE:HIH) , a lodging real estate investment trust, or REIT, today reported its financial results for the quarter ended September 30, 2005.
Consolidated Financial Results
For the third quarter 2005, the Company reported total revenue of $60.8 million and net income available to common stockholders of $0.8 million, or $.02 per diluted common share, compared to total revenue of $36.0 million and net income available to common stockholders of $0.6 million, or $.01 per diluted common share, for the third quarter 2004. Funds from operations (FFO) available to common stockholders, which is defined as net income available to common stockholders plus depreciation and amortization, were $7.1 million, or $.18 per diluted common share, for the third quarter 2005 compared to $3.8 million, or $.10 per diluted common share, for the third quarter 2004. Earnings before interest, income taxes and depreciation and amortization (EBITDA) were $13.0 million, or $.32 per diluted common share, for the third quarter 2005 compared to $6.0 million, or $.15 per diluted common share, for the third quarter 2004.
"We are pleased with our portfolio's third quarter performance," said James L. Francis, Highland's President and Chief Executive Officer. "RevPAR growth for our stabilized hotels in the quarter exceeded the industry average, and our stabilized hotel profitability growth remains strong. Our completed renovations are showing early successes and indications of solid growth into 2006, while our hotels currently under renovation remain on time and within budget. The third quarter was also an active quarter for Highland. During the quarter, we acquired the Wyndham Palm Springs hotel, successfully completed concurrent offerings of common and preferred equity, and progressed closer towards completion on a majority of our hotel renovation and repositioning projects."
For the nine months ended September 30, 2005, the Company reported total revenue of $174.2 million and net income available to common stockholders of $5.0 million, or $.12 per diluted common share, compared to total revenue of $80.0 million and net income available to common stockholders of $3.3 million, or $.08 per diluted common share, for the prior year period. FFO available to common stockholders was $21.3 million, or $.53 per diluted common share, for the nine months ended September 30, 2005 compared to $10.2 million, or $.26 per diluted common share, for the prior year period. EBITDA was $37.8 million, or $.95 per diluted common share, for the nine months ended September 30, 2005 compared to $11.9 million, or $.30 per diluted common share, for the prior year period.
Both FFO and EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. Management believes that FFO and EBITDA are key measures of a REIT's financial performance and should be considered along with, but not as an alternative to, net income as a measure of the Company's operating performance. A reconciliation of these non-GAAP financial measures is included in the accompanying financial tables.
Hotel Operating Performance
Included in the following table is a comparison of occupancy, average daily rate (ADR) and revenue per available room (RevPAR), the key operating metrics that the Company uses to assess the performance of its U.S. hotel properties, for the third quarter 2005 and 2004. The comparison does not include the operating results for the Wyndham Palm Springs hotel, which was acquired on July 14, 2005, and the Barcelo Tucancun Beach resort. Since 10 of the Company's hotels owned as of September 30, 2005 were acquired at various times in the third quarter 2004 and in 2005, the key operating metrics for those 10 hotels reflect the operating results of the hotels under previous ownership for either a portion of, or the entire, third quarter 2004.
Key Operating Quarter Ended Quarter Ended
Metrics (1) September 30, 2005 September 30, 2004
Occ % ADR RevPAR Occ % ADR RevPAR
Stabilized 75.7% $113.18 $85.67 73.1% $106.83 $78.05
(11 hotels)
Rebranded/Renovated
(7 hotels) 67.3% $120.56 $81.19 73.0% $111.48 $81.37
Total (18 hotels) 71.5% $116.68 $83.41 73.0% $109.17 $79.72
For the third quarter 2005, RevPAR for the Company's stabilized hotels increased 9.8% to $85.67, versus the same period in 2004. Occupancy increased by 2.6 percentage points to 75.7%, while ADR increased by 5.9%. For the Company's hotels that are being renovated and/or rebranded, RevPAR decreased 0.2% to $81.19, versus the same period in 2004. Occupancy decreased by 5.7 percentage points to 67.3%, while ADR increased by 8.1%. For the total 18 hotels, RevPAR increased by 4.6% to $83.41, versus the same period in 2004. Occupancy decreased by 1.5 percentage points to 71.5%, while ADR increased by 6.9%.
For the third quarter 2005, the Company's hotel properties contributed $60.8 million of total revenue and $15.2 million of hotel operating income. Included in the following table is a comparison of hotel operating income and hotel operating income margins for the third quarter 2005 and 2004. The comparison does not include the operating results for the Wyndham Palm Springs hotel and Barcelo Tucancun Beach resort. Since 10 of the Company's hotels owned as of September 30, 2005 were acquired at various times in the third quarter 2004 and in 2005, the hotel operating income and hotel operating income margins for those 10 hotels reflect the operating results of the hotels under previous ownership for either a portion of, or the entire, third quarter 2004.
Hotel Operating Income
and Margins (1) Quarter Ended Quarter Ended
September 30, 2005 September 30, 2004
$(2) % $(2) %
Stabilized (11 hotels) $ 8.0 28.7% $ 6.5 25.3%
Rebranded/Renovated
(7 hotels) $ 6.7 24.0% $ 6.6 23.4%
Total (18 hotels) $14.7 26.4% $13.1 24.3%
For the third quarter 2005, hotel operating income for the Company's stabilized hotels increased 23.6% to $8.0 million versus the same period in 2004 and hotel operating income margins increased by 3.4 percentage points to 28.7%. For the Company's hotels that are being renovated and/or rebranded, hotel operating income increased 1.2% to $6.7 million versus the same period in 2004 and hotel operating income margins increased by 0.6 percentage points to 24.0%. For the total 18 hotels, hotel operating income increased by 12.3% to $14.7 million versus the same period in 2004 and hotel operating income margins increased by 2.1 percentage points to 26.4%.
Acquisition Activity/Investment Outlook
On July 14, 2005, the Company acquired the 410-room Wyndham Palm Springs hotel in Palm Springs, California for approximately $57.1 million. The Company financed the acquisition with approximately $37.1 million of first mortgage debt from CIGNA Investments with a fixed rate of interest of 5.35%, along with proceeds from its term loan facility. The Company has selected Crestline Hotels & Resorts, Inc. to manage the property under a Wyndham license agreement.
On October 24, 2005, the Company acquired the 385-room Hilton Boston Back Bay hotel in Boston, Massachusetts from Hilton Hotels Corporation for $110 million in an all-cash transaction. Hilton will continue to manage the property under a long-term management agreement.
On October 31, 2005, the Company entered into a definitive agreement to acquire the 294-room Westin Princeton at Forrestal Village in Princeton, New Jersey from Starwood Hotels & Resorts for $53.5 million, plus customary closing costs. Crestline Hotels & Resorts, Inc. will manage the property under a Westin license agreement.
Mr. Francis stated, "These investments represent senior management's focus on driving current yields, creating value and providing growth over time for our shareholders. These assets are well positioned within strong markets and should benefit from strong management and market growth in the future. Going forward, we will continue to prudently invest in similar assets that meet our stated objectives."
Balance Sheet/Liquidity
On September 28, 2005, the Company completed an underwritten public offering of 11,500,000 shares of common stock and 3,000,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock. On October 5, 2005, the Company sold an additional 200,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock upon exercise of the underwriters' over-allotment option. After deducting underwriting fees and offering expenses, the Company generated net proceeds of approximately $188 million.
As of September 30, 2005, the Company had $205.5 million of cash and cash equivalents and $20.8 million of restricted cash. Total assets were $975.5 million, including $705.0 million of net investment in hotel properties, long- term debt was $417.0 million, and stockholders' equity was $520.3 million.
During the third quarter 2005, the Company generated $8.6 million of cash flow from its operations, used $57.2 million in net investing activities, including $9.3 million in hotel capital expenditures, and obtained $238.3 million through net financing activities.
As of November 4, 2005, the Company had approximately $96 million of cash and cash equivalents, which balance reflects the payment of cash related to the acquisition of the Hilton Boston Back Bay hotel.
"We are pleased with the execution and overall success of our recent concurrent common and preferred equity offerings," stated Douglas W. Vicari, Highland's Executive Vice President, Chief Financial Officer and Treasurer. "We raised approximately $188 million of new equity capital, of which approximately $164 million has been utilized for the Boston and Princeton hotel acquisitions. Our common equity offering allowed us to expand and diversify our shareholder base, while our preferred equity offering allowed us to target another level of our capital structure at an attractive price."
Dividend Update
During the third quarter 2005, the Company declared a dividend of $.14 per share payable to its common stockholders of record as of September 30, 2005. The dividend was paid on October 14, 2005. On October 19, 2005, the Company declared a quarterly cash dividend of $0.18594 per share of Series A Cumulative Redeemable Preferred Stock. This initial dividend, reflecting a partial dividend period, will be paid on November 15, 2005 to holders of record on November 1, 2005. The level of future dividends payable to stockholders will continue to be determined by the Company's quarterly operating results, general economic conditions, capital requirements and other operating trends.
Barcelo Tucancun Beach Resort
As previously reported, the Barcelo Tucancun Beach resort located in Cancun, Mexico sustained wind and flood damage from Hurricane Wilma. The damage was concentrated on the grounds of the hotel, as well as the first level of the hotel, including significant structural damage to the sea wall and flood damage to the lobby, restaurant and pool areas. The resort is currently closed, and based on the initial assessment of the damage, we do not expect it to open for business before the end of 2005. We are currently working with Barcelo and our insurance carrier to assess the extent of the property damage and loss of business. Our insurance coverage for the property entitles us to receive payments for business interruption, as well as recoveries for damage to the property as a result of the hurricane. Income resulting from business interruption insurance will not be recognized until all contingencies are resolved. We expect that insurance proceeds will be sufficient to cover the property damage to the hotel and the near-term loss of business.
2005 Outlook
Based on the Company's current hotel operating trends, the impact of the recent equity offerings and subsequent timing of acquisitions, the impact of Hurricane Wilma on the Barcelo Tucancun Beach resort, and the status of the Company's renovation and repositioning program, the Company estimates that for the fourth quarter 2005:
-- Total revenues will range between $70.0 - $74.0 million;
-- Earnings per diluted common share will range between $.02 - $.04(1);
-- FFO per diluted common share will range between $.16 - $.18(1); and
-- Corporate EBITDA will range between $16.1 - $17.0 million.
In addition, based on the financial results for the first nine months of 2005 and estimated fourth quarter 2005 financial results described above, the Company now estimates that for the full year 2005:
-- Total revenues will range between $244.2 - $248.2 million;
-- Earnings per diluted common share will range between $.14 - $.17(1);
-- FFO per diluted common share will range between $.69 - $.72(1); and
-- Corporate EBITDA will range between $53.9 - $54.8 million.
(1) The weighted average number of common shares outstanding used to determine earnings per diluted share and FFO per diluted share was 51,300,000 and 42,580,000 for the fourth quarter 2005 and full year 2005, respectively.
Mr. Francis stated, "Our fourth quarter and full-year estimates reflect an adjustment due primarily to the impact of our recent equity offerings, the timing of our acquisitions, and the impact of Hurricane Wilma on our resort in Cancun. However, based on our current acquisition pace, we believe that this short-term impact will be outweighed by the returns generated by our newly acquired assets in 2006 and beyond. We remain optimistic in our growth potential beyond 2005, as our stabilized hotels continue to produce solid results and our renovated and repositioned hotels continue to show expected improvements."
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