Eagle Hospitality Properties Trust, Inc. (NYSE:EHP) announced that 2005 net income available to common shareholders increased 12.1% to $3.0 million from $2.6 million for the 2004 combined financial statements of the Company and the Predecessor.
Fourth quarter 2005 net income available to common shareholders increased to $0.3 million from $0.1 million in fourth quarter 2004.
2005 Highlights:
-- Net income to common shareholders of $3.0 million
-- FFO of $0.76 per diluted share
-- EBITDA of $30.6 million
-- RevPAR increases 6.5% over prior year
-- $173.0 million of acquisitions completed in 2005
-- Company outlines 2006 Acquisition and Disposition Strategy
-- Successfully completed $110 million unsecured credit facility
-- $123 million of debt refinanced in 2005
-- Conference call scheduled for March 7, 2006 at 10:00 am Eastern Time to discuss results & 2006 Outlook.
Eagle Hospitality Properties Trust, Inc. (NYSE:EHP) today announced that 2005 net income available to common shareholders increased 12.1% to $3.0 million from $2.6 million for the 2004 combined financial statements of the Company and the Predecessor. Fourth quarter 2005 net income available to common shareholders increased to $0.3 million from $0.1 million in fourth quarter 2004.
2005 Funds from operations ("FFO") increased 52.4% to $17.5 million, or $0.76 per diluted share, compared with $11.5 million for the 2004 combined financial statements of the Company and the Predecessor. Fourth quarter 2005 FFO increased 44.9% to $4.2 million, or $0.18 per diluted share, compared with $2.9 million or $0.13 per diluted share in the fourth quarter 2004.
2005 Earnings before interest, income taxes, depreciation and amortization ("EBITDA") increased 34.0% to $30.6 million from $22.8 million for the 2004 combined financial statements of the Company and the Predecessor. Fourth quarter 2005 EBITDA increased 80.2% to $9.0 million from $5.0 million in fourth quarter 2004.
FFO and EBITDA are non-GAAP operating measures. Please see the disclosure at the end of this release regarding these non-GAAP measures.
"Our Midwest hotels led the portfolio in RevPAR growth during the fourth quarter, reversing a disappointing third quarter to finish the year on a positive trend. Additionally, we implemented a number of initiatives to improve the operating performance and profitability of our hotels including adding both internal and external asset management functions, commencing energy audits, filing tax appeals, and substantially completing property investment programs at several hotels during the seasonally weak fourth quarter. We are confident that these strategies will benefit our shareholders in 2006," stated Bill Blackham, Eagle Hospitality's President and Chief Executive Officer.
"We are very pleased with the operating performance of the hotels that the Company acquired during 2005," remarked Mr. Blackham. "The annualized EBITDA generated by these acquisitions represents a more than 9.0% yield on the approximate $173 million we invested during the year. This is an extremely satisfactory result given the highly competitive acquisitions market that exists. In addition, these acquisitions increased the market and geographic diversification of our portfolio, providing entry into high RevPAR-growth markets. For 2006, we expect that non-Midwest hotels will generate approximately 60% of our EBITDA, which is up significantly from approximately 32% in 2004.
Hotel Operating Performance: Midwest hotels exhibit recovery in 4Q 2005; 2006 starts off strong for portfolio.
2005 Portfolio room revenue per available room ("RevPAR") increased 6.5% to $88.25 from $82.86 for 2004. Average daily rate ("ADR") rose to $125.55, a 5.2% improvement over 2004, while occupancy increased 1.2% to 70.3%. Please see the RevPAR table disclosure at the end of this release regarding the hotels included in current year and prior year results.
Fourth quarter 2005 RevPAR increased 3.0% to $80.43 from $78.07 in 2004. ADR rose to $124.80, a 4.6% improvement over 2004, while occupancy declined 1.5% to 64.4%.
The Embassy Suites Tampa and Embassy Suites San Juan Hotel & Casino hotels experienced a decline in RevPAR during the fourth quarter, attributable to a 10% and 15% decline in occupancy, respectively. This was due to a number of factors including reduced transient demand as a result of the record number of hurricane threats in the region and renovations displacement. Excluding these two hotels, fourth quarter 2005 RevPAR increased 7.5% over the prior year.
The Company's Midwest hotels generated an 11.4% RevPAR increase during the quarter, due to an 8.0% increase in occupancy and a 3.2% increase in ADR. The recovery in hotel demand in the Midwest was driven by the Burr Ridge Marriott, as the hotel continues a steady ramp-up in a strengthening Chicago market following its August 2004 opening. Additionally, the recently renovated Hilton Cincinnati Airport continues to enjoy significant RevPAR improvements, increasing more than 23% in the fourth quarter 2005 versus the prior year.
"The fourth quarter performance by our hotels located in the Midwest was encouraging," noted Mr. Blackham. "The Burr Ridge Marriott continues to improve market share and occupancy, which we expect will continue in 2006. The renovations to our Hilton Cincinnati Airport are well received by our corporate and group customers, as evidenced by the increased occupancy and the outstanding guest satisfaction scores provided to us by Hilton. Although the overall Midwest hotel market exhibited moderate demand improvements, we are cautiously optimistic that hotel demand growth from this region of the country will become more pronounced in 2006."
The Burr Ridge Marriott, which opened in August 2004, experienced continued increases in business transient and group demand during 2005. The property's ramp-up has been slower than originally anticipated due to the limited increase in hotel demand experienced in the suburban Chicago market that now appears to be improving. The Company is aggressively asset managing the Burr Ridge Marriott to help drive the hotel's awareness in the market and improve occupancy levels.
The Hilton Cincinnati Airport completed a $3.7 million property renovation program during the second quarter of 2005 and EBITDA increased in excess of 26% in 2005 over the prior year. The Company expects the incremental returns on the recent property renovation program to be in the 12% to 15% range.
The Embassy Suites Cincinnati and the Cincinnati Marriott generated improved fourth quarter results compared with the third quarter. Group demand was strong at both of these properties fueled by a healthy booking calendar at the Northern Kentucky Convention Center. At the Embassy Suites hotel, the strength in group business was largely offset by continued weakness in leisure transient demand. The Company is closely monitoring marketing and rate strategies to improve this hotel's performance relative to its competitive set.
The Company's hotels generated $43.1 million of EBITDA for 2005 compared with $38.6 million for 2004. EBITDA margins across the Company's portfolio increased 148 basis points ("bps") from the prior year. The margin increase was tempered by the above-inflationary increases in energy costs, property taxes, insurance, and wages and benefits. Please see the EBITDA table disclosure at the end of this release regarding the hotels included in current year and prior year results.
Hotels that generated the largest EBITDA increases in 2005 over full year 2004 include two of the hotels acquired during the year -- Embassy Suites Phoenix/Scottsdale (increasing more than 54%) and Hilton Glendale (increasing more than 29%) -- and the newly refurbished Hilton Cincinnati Airport (increasing more than 26%).
Hotels that generated the weakest EBITDA change in 2005 over full year 2004 include Embassy Suites Cleveland (declining more than 3%), Embassy Suites San Juan Hotel & Casino (declining more than 4%) and Embassy Suites Cincinnati (increasing just over 1%). The third party lease structure for the Embassy Suites San Juan Hotel & Casino mitigated the effect to the Company.
During the fourth quarter 2005, the Company's hotel EBITDA margins decreased 18 bps to 26.8% from fourth quarter 2004. The EBITDA margin decrease was largely due to a significant increase in property taxes at Burr Ridge Marriott, Hilton Glendale, Embassy Suites Cleveland and Embassy Suites Columbus, which combined increased more than 200 bps, or $0.8 million, versus prior year. The Company is aggressively appealing the property tax increases at Burr Ridge and Glendale, which were received during the fourth quarter. In addition, rising energy costs also hampered margin growth in the quarter, reducing margins by 74 bps, or $0.3 million, versus prior year.
The Company's portfolio RevPAR growth for January 2006 increased more than 12.0% over prior year and first quarter 2006 RevPAR is expected to increase 9.0% to 11.0% over first quarter 2005.
"Our portfolio has started the year slightly ahead of projections, led by Hilton Glendale, Burr Ridge Marriott, Embassy Suites Cincinnati and Hilton Cincinnati Airport," advised Mr. Blackham. "Corporate transient demand growth through the first quarter is healthy and we are cautiously optimistic that this will continue for the year."
Acquisitions & Disposition Strategy: Company will continue acquiring upper-upscale hotels in high barrier-to-entry urban and select resort markets. Disposition strategy to redeploy capital from the sale of existing stabilized assets into higher growth markets is expected to increase shareholder value and geographic diversification.
During 2005, the Company successfully executed on its investment strategy:
On February 24, 2005, the Company acquired the 270-room Embassy Suites Hotel Phoenix/Scottsdale in Paradise Valley, Arizona, for $33.1 million ($122,000 per suite). The resort is situated on Stonecreek Golf Club, home of the annual LPGA Mitsubishi Pro Am. The property opened in March 2000 and is in close proximity to 13 other golf courses. The six-story property also features 14,000 square feet of meeting space, including a 6,100-square-foot ballroom, a fitness center, an outdoor heated pool, a 100-seat restaurant, a 50-seat lounge and a business center.
On June 23, 2005, the Company acquired the AAA Four-Diamond 351-room Hilton Glendale in Glendale, California, for $80.0 million ($227,000 per room). The hotel features 15,000 square feet of indoor meeting space, including an 8,000-square-foot ballroom and a 3,100-square-foot executive conference area. In addition, the property has two restaurants, a business center, fitness center, an outdoor pool and a five-story underground parking structure with a capacity for over 500 cars.
On June 28, 2005, the Company acquired the upscale 299-suite Embassy Suites San Juan Hotel & Casino in Isla Verde, Carolina, Puerto Rico, for $60.2 million ($201,000 per suite). The all-suite hotel features approximately 9,300 square feet of meeting space including a 4,400-square foot ballroom as well as a fitness center, a 200-seat Outback Steakhouse Restaurant, two lounges and an outdoor pool complex. The property benefits from strong brand recognition in one of the Caribbean's fastest growing resort markets and competitive positioning as one of only two all-suite hotels in the San Juan market.
"Embassy Suites Phoenix/Scottsdale increased EBITDA more than 54% versus prior year, while Hilton Glendale increased EBITDA more than 29% versus prior year. We attribute this to pricing power at both of these hotels, as well as market mix changes we initiated through our asset management efforts. In addition, at our Phoenix/Scottsdale hotel we implemented a stringent cost containment program which yielded significant cash flow improvements throughout the year," advised Mr. Blackham.
Embassy Suites San Juan Hotel & Casino faced challenges during September through December, which was traceable to a record number of hurricane threats, which reduced transient activity throughout the region combined with property renovations displacement. The Company believes property enhancements made during the seasonally weak fourth quarter 2005 should result in an increase of cash flow in 2006 and beyond.
To maximize our return on investment and enhance shareholder value, the Company intends sell stabilized asset in its portfolio and redeploy capital into the highest yielding available uses. As a result, the Company anticipates disposing existing assets when better yielding investments become available.
Mr. Blackham noted "We will continue to execute our disciplined investment strategy of acquiring upper-upscale hotels in high barrier-to-entry urban and select resort markets with favorable long-term demand fundamentals. We anticipate that these acquisitions will be funded from the borrowing capacity available on our balance sheet and also from the sale of existing assets in our portfolio. This redeployment of capital into higher growth markets will also serve to increase our geographic diversification outside the Midwest.
Capital Reinvestment Program: Acceleration of several property enhancement programs expected to yield positive results in 2006.
During 2005, the Company invested approximately $14.1 million throughout its portfolio with approximately $2.7 million of the total in the fourth quarter. Major investments during the year included $3.7 million at Hilton Cincinnati Airport for guestroom and public area refurbishment, $2.1 million at Embassy Suites Tampa for guestroom and brand related enhancements, $2.1 million at Hyatt Rochester for guestroom and health club enhancements, $1.9 million at Embassy Suites Cincinnati for guestroom and brand related enhancements and $1.6 million at Embassy Suites San Juan Hotel & Casino for atrium and public area refurbishment.
Capital Structure & Capacity: Balance sheet flexibility and capacity allows opportunities for new acquisitions.
In 2005, the Company refinanced approximately $123.0 million of debt, which is expected to generate annualized interest expense savings of more than $1.1 million. In addition, the Company increased its overall percentage of fixed-rate debt while extending its debt maturities. The following are highlights of key financing transactions completed during 2005:
-- Completed an $81.8 million five year, non-recourse loan secured by the Cincinnati Marriott, Embassy Suites Tampa and Embassy Suites Cleveland. The financing included a fixed-rate component consisting of $58.0 million at 5.4% and a floating-rate component consisting of $23.8 million at 1.75% over LIBOR. Proceeds from the financing were used to retire existing debt of 2.85% over LIBOR;
-- Raised net proceeds of $96.5 million from the sale of 4.0 million shares of 8.25% Series A Cumulative Redeemable Preferred Stock;
-- Closed a $53.1 million secured loan at a fixed rate of 5.2%. The term of the interest-only loan is seven years and is collateralized by the Company's 351-room Hilton Glendale;
-- Completed a $38.2 million loan secured by the 299-room Embassy Suites San Juan Hotel & Casino. This seven-year loan bears interest at a fixed rate of 5.1% and is interest only for the first 30 months. Proceeds from the San Juan financing were used to prepay $32.6 million of debt with a 6.3% average interest cost;
-- December 2005, completed a $110.0 million senior unsecured credit facility. The facility can be increased to $200.0 million and has a three-year term with a one-year extension option.
As of December 31, 2005, the Company had $211.4 million of debt outstanding, which included $165.0 million (78%) of fixed-rate debt with a weighted average interest rate of 5.5%. The remaining $46.4 million (22%) was floating-rate debt with a weighted average interest rate of 6.4%. The combined mortgage debt of the Company had a weighted average interest rate of 5.7%.
Interest expense for the twelve month period was $10.8 million, resulting in a corporate EBITDA to interest coverage ratio of 2.8 times with a debt to EBITDA ratio of approximately 5.2 times. At the end of the year, the Company had $8.6 million of unrestricted cash and cash equalivalents on its balance sheet and $7.1 million of restricted cash.
Raymond Martz, Eagle Hospitality's Chief Financial Officer noted, ""We are pleased by the strong support and confidence that our lenders have shown in our company and investment strategy. The financing transactions we completed this year allowed us to reduce our floating-rate interest exposure and provided us with capital to make several important hotel acquisitions in high growth markets. We continue to have a conservatively managed balance sheet that provides us with the capacity and flexibility to take advantage of future acquisition opportunities as they may arise."
Dividends
On December 9, 2005 Eagle Hospitality's Board of Directors declared its fourth quarter dividend of $0.175 per share, which was paid to its common shareholders on record on December 30, 2005. This represents a 8% annualized yield based on the Company's closing share price of $8.72 on March 6, 2006.
The Company's Board of Directors also declared a quarterly dividend of $0.515625 per share of the Company's 8.25% Series A Cumulative Redeemable Preferred Stock for the fourth quarter to stockholders on record on December 20, 2005.
During 2005, Eagle Hospitality paid $0.70 in common dividends per share, which represents 100.0% return of capital for tax purposes.
2006 Outlook: Portfolio starts off the year with strength.
"Demand growth should continue to outpace supply increases in the major urban markets," commented Mr. Blackham. "Our recently acquired Hilton Glendale and Embassy Suites Phoenix-Scottsdale hotels are expected to continue to benefit from these positive trends and lead our portfolio in RevPAR and EBITDA growth for 2006. We expect that our Midwest hotels will experience modest improvements in business transient demand during the year, with limited opportunities for pricing power, depending on the hotel and the market. On the operating expense side, we expect only moderate hotel EBITDA margin improvements due to above-inflationary increases in energy, property taxes, insurance and employee wages. We will continue to work closely with our hotel managers to aggressively asset manage each of our properties in order to maximize cash flow."
The Company's 2006 outlook is as follows:
et income $1.0 million to $3.0 million
($0.04 to $0.13 per diluted share)
FFO (before tax expense) $17.5 million to $20.4 million
($0.75 to $0.87 per diluted share)
FFO (after tax expense) $17.1 million to $19.4 million
($0.73 to $0.83 per diluted share)
EBITDA $40.6 million to $42.6 million
($1.73 to $1.81 per diluted share)
