Highland Hospitality Corporation (NYSE:HIH) , a lodging real estate investment trust, or REIT, today reported its financial results for the quarter ended December 31, 2005.
Consolidated Financial Results
For the fourth quarter 2005, the Company reported total revenue of $77.0 million and net income available to common stockholders of $3.1 million, or $.06 per diluted common share, compared to total revenue of $53.0 million and net income available to common stockholders of $0.9 million, or $.02 per diluted common share, for the fourth 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 $10.8 million, or $.21 per diluted common share, for the fourth quarter 2005 compared to $5.6 million, or $.14 per diluted common share, for the fourth quarter 2004. Earnings before interest, income taxes and depreciation and amortization (EBITDA) were $19.4 million, or $.38 per diluted common share, for the fourth quarter 2005 compared to $10.1 million, or $.26 per diluted common share, for the fourth quarter 2004.
"We are extremely pleased with our portfolio's fourth quarter performance," said James L. Francis, Highland's President and Chief Executive Officer. "Our stabilized hotel performance exceeded both industry and segment averages with a 15.6% RevPAR increase translating into a robust margin expansion of 500 basis points. More importantly, we are beginning to see the positive impact from our completed renovations as our group of renovated hotels (which includes three projects still under renovation) experienced an 8.7% increase in fourth quarter RevPAR over the same period last year. Furthermore, profitability growth at these hotels was very strong, with a margin expansion of 380 basis points."
For the year ended December 31, 2005, the Company reported total revenue of $251.2 million and net income available to common stockholders of $8.0 million, or $.18 per diluted common share, compared to total revenue of $133.0 million and net income available to common stockholders of $4.3 million, or $.10 per diluted common share, for the prior year period. FFO available to common stockholders was $32.1 million, or $.75 per diluted common share, for the year ended December 31, 2005, compared to $15.8 million, or $.40 per diluted common share, for the prior year period. EBITDA was $57.2 million, or $1.34 per diluted common share, for the year ended December 31, 2005, compared to $22.0 million, or $.56 per diluted common share, for the prior year period.
Both FFO available to common stockholders and EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. Management believes that FFO available to common stockholders 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 and net income available to common stockholders 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 revenue performance of its U.S. hotel properties, for the fourth quarter 2005 and 2004. The comparison does not include the operating results for the Barcelo Tucancun Beach resort, the Wyndham Palm Springs hotel, the Hilton Boston Back Bay hotel, the Westin Princeton hotel, and The Churchill hotel, which were all acquired in 2005.
Key Operating Metrics (1) Quarter Ended Quarter Ended
December 31, 2005 December 31, 2004
Occ % ADR RevPAR Occ % ADR RevPAR
Stabilized (11 hotels) 72.7% $115.49 $84.00 68.4% $106.20 $72.66
Rebranded/Renovated
(7 hotels) 61.5% $126.93 $78.03 60.7% $118.25 $71.77
Comparable (18 hotels) 67.2% $120.65 $81.06 64.6% $111.77 $72.22
For the fourth quarter 2005, RevPAR for the Company's stabilized hotels increased 15.6% to $84.00, versus the same period in 2004. Occupancy increased by 4.3 percentage points to 72.7%, while ADR increased by 8.8%. For the Company's rebranded/renovated hotels, RevPAR increased 8.7% to $78.03, versus the same period in 2004. Occupancy increased by 0.8 percentage points to 61.5%, while ADR increased by 7.3%. For the comparable 18 hotels, RevPAR increased by 12.2% to $81.06, versus the same period in 2004. Occupancy increased by 2.6 percentage points to 67.2%, while ADR increased by 7.9%.
For the fourth quarter 2005, the Company's hotel properties contributed $77.0 million of total revenue and $21.7 million of hotel operating income. Included in the following table is a comparison of hotel operating income and hotel operating income margins for the fourth quarter 2005 and 2004. The comparison does not include the operating results for the Barcelo Tucancun Beach resort, the Wyndham Palm Springs hotel, the Hilton Boston Back Bay hotel, the Westin Princeton hotel, and The Churchill hotel, which were all acquired in 2005.
Hotel Operating Income and Margins (1)
Quarter Ended Quarter Ended
December 31, 2005 December 31, 2004
$(2) %(3) $(2) %(3)
Stabilized (11 hotels) $10.1 30.4% $ 7.4 25.4%
Rebranded/Renovated (7 hotels) $ 8.5 27.1% $ 6.8 23.3%
Comparable (18 hotels) $18.6 28.8% $14.2 24.4%
For the fourth quarter 2005, hotel operating income for the Company's stabilized hotels increased 36.7% to $10.1 million versus the same period in 2004 and hotel operating income margins increased by 5.0 percentage points to 30.4%. For the Company's rebranded/renovated hotels, hotel operating income increased 24.9% to $8.5 million versus the same period in 2004 and hotel operating income margins increased by 3.8 percentage points to 27.1%. For the comparable 18 hotels, hotel operating income increased by 31.1% to $18.6 million versus the same period in 2004 and hotel operating income margins increased by 4.4 percentage points to 28.8%.
Acquisition Activity/Investment Outlook
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, plus customary closing costs. Hilton will continue to manage the property under a long-term management agreement.
On November 15, 2005, the Company acquired 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.
On December 9, 2005, the Company acquired the 144-room Churchill hotel in Washington, DC for approximately $48.8 million, plus customary closing costs. Crestline Hotels & Resorts, Inc. will manage the property under a long-term management agreement.
Mr. Francis stated, "The three assets acquired during the fourth quarter are well-located within high growth markets with significant barriers-to- entry. We believe these stabilized hotels will drive significant growth for our company as they benefit from the favorable economics that exist in the Boston, Washington, DC and Princeton, NJ markets and strong management from Hilton Hotels and Crestline Hotels & Resorts."
As previously announced, the Company has agreed to acquire the newly built 210-room Courtyard Gaithersburg Washingtonian Center in Gaithersburg, Maryland, expected to open for business at the beginning of the second quarter 2006. The purchase price of the acquisition is $29 million, of which $8 million was funded upon the signing of the definitive agreement.
Balance Sheet/Liquidity
On December 6, 2005, the Company closed on a $69.0 million fixed-rate mortgage loan secured by the 385-room Hilton Boston Back Bay hotel. The seven-year loan was provided by Connecticut General Life Insurance Company (CIGNA) and bears interest at an annual fixed rate of 5.96%.
As of December 31, 2005, the Company had $64.8 million of cash and cash equivalents and $21.5 million of restricted cash. Total assets were $1,056.8 million, including $910.5 million of net investment in hotel properties, long- term debt was $494.8 million, and stockholders' equity was $524.3 million.
During the fourth quarter 2005, the Company generated $14.6 million of cash flow from its operations, used $227.9 million in net investing activities, including $ 213.9 million in hotel acquisitions and $13.4 million in hotel capital expenditures, and obtained $72.6 million through net financing activities.
On January 6, 2006, the Company closed on a $35.0 million fixed-rate mortgage loan secured by the 294-room Westin Princeton at Forrestal Village hotel. The seven-year loan was provided by Connecticut General Life Insurance Company (CIGNA) and bears interest at an annual fixed rate of 5.97%.
As of January 31, 2006, the Company had approximately $91 million of cash and cash equivalents.
Dividend Update
During the fourth quarter 2005, the Company declared a dividend of $.14 per share payable to its common stockholders of record as of December 31, 2005. The dividend was paid on January 13, 2006. On November 15, 2005, the Company paid its previously announced initial quarterly cash dividend of $.18594 per share of Series A Cumulative Redeemable Preferred Stock, reflecting a partial dividend period. On January 18, 2006, the Company declared a quarterly cash dividend of $.49219 per share of Series A Cumulative Redeemable Preferred Stock. The dividend will be paid on February 15, 2006 to holders of record on February 1, 2006. 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, in October 2005, Hurricane Wilma caused substantial wind and water damage to the Company's Barcelo Tucancun Beach resort. The majority of damage affected the grounds of the resort and the first level of the hotel, including significant structural damage to the sea wall and damage to the lobby, restaurant and pool areas. Although significant progress has been made to restore the damaged areas, the resort is still closed.
The Company has comprehensive insurance coverage for both property damage and business interruption. The net book value of the property damage is currently estimated to be $6.5 million. During the fourth quarter 2005, the Company recorded a write-off of $6.5 million to its investment in hotel property for the property damage. In addition, the Company recorded an insurance claim receivable for $6.5 million because the Company believes that it is probable that the insurance recovery, net of a deductible, will exceed the net book value of the damaged property. To the extent that insurance proceeds ultimately exceed the net book value of the damaged property, a gain will be recorded in the period when all contingencies related to the insurance claim have been resolved.
2006 Outlook
Based on the Company's current hotel operating trends and the status of the Company's renovation and repositioning program, the Company estimates that for the first quarter 2006:
• Total revenues will range between $76 - $78 million;
• Earnings per diluted common share will range between $.02 - $.03(1);
• FFO per diluted common share will range between $.18 - $.19(1); and
• Corporate EBITDA will range between $16.9 - $17.4 million.
The Company also estimates that for the full year 2006:
• Total revenues will range between $369 - $377 million;
• Earnings per diluted common share will range between $.31 - $.36(1);
• FFO per diluted common share will range between $1.02 - $1.07(1); and
• Corporate EBITDA will range between $94.9 - $97.0 million.
Mr. Francis stated, "Our first quarter and full-year estimates for 2006 reflect our assumptions that portfolio RevPAR will increase by 9-11%, translating into an EBITDA margin expansion of 200-250 basis points, along with the timeliness of our renovations and acquisitions. These assumption ranges are based on our belief that our portfolio will continue to benefit from the continued industry growth in 2006 and be supplemented by the expected improvements in the performance of our renovated and rebranded hotels and the incremental growth from our newly acquired assets."
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