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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 June 30, 2006.
Consolidated Financial Results
For the second quarter 2006, the Company reported total revenue of $115.3 million and net income available to common stockholders of $16.6 million, or $.28 per diluted common share, compared to total revenue of $61.2 million and net income available to common stockholders of $4.2 million, or $.10 per diluted common share, for the second quarter 2005. Included in net income available to common stockholders for the second quarter 2006 is a gain of $7.4 million from the sale of the Marriott Mount Laurel hotel. Funds from operations (FFO) available to common stockholders, which is defined as net income available to common stockholders, excluding depreciation and amortization and discontinued operations, were $20.3 million, or $.34 per diluted common share, for the second quarter 2006, compared to $9.2 million, or $.23 per diluted common share, for the second quarter 2005. Adjusted EBITDA, which is defined as earnings before interest, income taxes and depreciation and amortization (EBITDA) and excludes gains (or losses) on sales of hotel properties and gains (or losses) on early extinguishments of debt, was $32.7 million, or $.55 per diluted common share, for the second quarter 2006, compared to $16.4 million, or $.41 per diluted common share, for the second quarter 2005.
"Our hotel portfolio continues to produce strong results and exceed industry averages in both RevPAR growth and margin expansion," said James L. Francis, Highland's President and Chief Executive Officer. "Our comparable hotels exhibited above-market growth with almost 75% of their RevPAR increase coming from increases in ADR, while our properties acquired within the last year performed exceptionally well this quarter with a RevPAR increase of 11.1%, of which over 90% came from rate improvement."
For the six months ended June 30, 2006, the Company reported total revenue of $200.8 million and net income available to common stockholders of $20.3 million, or $.36 per diluted common share, compared to total revenue of $110.0 million and net income available to common stockholders of $4.2 million, or $.10 per diluted common share, for the prior year period. Included in net income available to common stockholders for the six months ended June 30, 2006 is a gain of $7.4 million from the sale of the Marriott Mount Laurel hotel. FFO available to common stockholders was $33.2 million, or $.59 per diluted common share, for the six months ended June 30, 2006, compared to $14.0 million, or $.35 per diluted common share, for the prior year period. Included in net income available to common stockholders and FFO available to common stockholders for the six months ended June 30, 2006 is a charge of $1.1 million, or $.02 per diluted common share, for the write-off of deferred financing costs related to the extinguishment of the Company's term loan facility. Adjusted EBITDA was $54.5 million, or $.97 per diluted common share, for the six months ended June 30, 2006, compared to $24.8 million, or $.63 per diluted common share, for the prior year period.
Both FFO available to common stockholders and adjusted 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 adjusted 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 are comparisons 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 second quarter 2006 and 2005. The comparisons do not include the operating results for the Barcelo Tucancun Beach resort, the recently sold Marriott Mount Laurel hotel or the newly developed Courtyard Gaithersburg Washingtonian Center hotel. Since seven of the Company's hotels owned as of June 30, 2006 were acquired in the second half of 2005 and first quarter 2006, the key operating metrics for the U.S. hotel portfolio reflect the operating results of those seven hotels under previous ownership for the second quarter 2005.
Key Operating Metrics Quarter Ended Quarter Ended
June 30, 2006 June 30, 2005
Occ % ADR RevPAR Occ % ADR RevPAR
U.S. Hotel Portfolio
(24 hotels) 75.0% $145.70 $109.28 73.6% $134.04 $98.62
Comparable Hotel Portfolio
(17 hotels) (1) 73.3% $134.38 $98.46 71.4% $124.65 $89.02
(1) Includes hotel properties owned on January 1, 2005, as well as the
Sheraton Annapolis hotel acquired on February 4, 2005.
For the second quarter 2006, RevPAR for the Company's U.S. hotel portfolio increased 10.8% to $109.28, versus the same period in 2005. Occupancy increased by 1.4 percentage points to 75.0%, while ADR increased by 8.7% to $145.70. For the Company's comparable hotel portfolio, RevPAR increased 10.6% to $98.46, versus the same period in 2005. Occupancy increased by 1.9 percentage points to 73.3%, while ADR increased by 7.8% to $134.38.
For the second quarter 2006, the Company's hotel properties contributed $115.3 million of total revenue and $36.7 million of hotel operating income. Included in the following table are comparisons of hotel operating income and hotel operating income margins for the second quarter 2006 and 2005. The comparisons do not include the operating results for the Barcelo Tucancun Beach resort, the recently sold Marriott Mount Laurel hotel or the newly developed Courtyard Gaithersburg Washingtonian Center hotel. Since seven of the Company's hotels owned as of June 30, 2006 were acquired in the second half of 2005 and first quarter 2006, the hotel operating income and hotel operating income margins for the U.S. hotel portfolio reflect the operating results of those seven hotels under previous ownership for the second quarter 2005.
Hotel Operating Income and Margins
Quarter Ended Quarter Ended
June 30, 2006 June 30, 2005
$(1) %(2) $(1) %(2)
U.S. Hotel Portfolio (24 hotels) $36.2 32.0% $29.7 28.7%
Comparable Hotel Portfolio
(17 hotels) (3) $20.6 32.1% $17.6 29.9%
(1) In millions
(2) Percentage of hotel revenue
(3) Includes hotel properties owned on January 1, 2005, as well as the
Sheraton Annapolis hotel acquired on February 4, 2005.
For the second quarter 2006, hotel operating income for the Company's U.S. hotel portfolio increased 21.9% to $36.2 million versus the same period in 2005 and hotel operating income margins increased by 3.3 percentage points to 32.0%. For the Company's comparable hotel portfolio, hotel operating income increased 17.2% to $20.6 million versus the same period in 2005 and hotel operating income margins increased by 2.2 percentage points to 32.1%.
Recent Investment Activity
On June 1, 2006, the Company acquired the newly developed 210-room Courtyard Gaithersburg Washingtonian Center hotel in Gaithersburg, Maryland for $29 million, plus customary closing costs, pursuant to a definitive agreement entered into in June 2004. Marriott International, Inc. is managing the property under a long-term management agreement.
On June 29, 2006, the Company completed the sale of the 283-room Marriott Mount Laurel hotel for $31.6 million, plus customary closing costs, and recognized a gain of $7.4 million. Operating results for the Marriott Mount Laurel hotel for the current and prior periods have been reclassified as discontinued operations in the statements of operations.
Balance Sheet/Liquidity
As of June 30, 2006, the Company had $70.6 million of cash and cash equivalents and $18.1 million of restricted cash. Total assets were $1,310.4 million, including $1,164.1 million of net investment in hotel properties, long-term debt was $635.0 million, and stockholders' equity was $618.9 million.
During the second quarter 2006, the Company generated $30.6 million of cash flow from operations and generated $1.2 million through net investing activities, including $33.1 million from the sale of assets, offset by $21.8 million to acquire the Courtyard Gaithersburg Washingtonian Center hotel and $12.1 million in hotel capital expenditures. The Company also generated $5.9 million through net financing activities, including a $20.0 million borrowing under the Company's revolving credit facility, offset by $11.1 million in dividend payments to common and preferred stockholders.
On July 3, 2006, the Company used the proceeds from the sale of the Marriott Mount Laurel hotel to pay down $25 million on its revolving credit facility. As of July 24, 2006, the Company had approximately $30 million of cash and cash equivalents and $29 million of remaining borrowing capacity under its $150 million revolving credit facility.
Dividend Update
During the second quarter 2006, the Company increased its quarterly common dividend to $.18 per share. The dividend, payable to the Company's common stockholders of record as of June 30, 2006, was paid on July 14, 2006. On May 15, 2006, the Company paid its previously announced quarterly cash dividend of $.4921875 per share of Series A Cumulative Redeemable Preferred Stock. On June 19, 2006, the Company declared a quarterly cash dividend of $.4921875 per share of Series A Cumulative Redeemable Preferred Stock. The dividend will be paid on August 15, 2006 to holders of record on August 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
The Barcelo Tucancun Beach resort successfully completed its renovation and re-opened on April 22, 2006. The renovation project included repairs to the sea wall, lower levels of the building, including the lobby and restaurants, and resort pool and other exterior common areas, all of which were significantly damaged by Hurricane Wilma in October 2005. The Company continues to work with the insurance companies on the settlement of the property and business interruption claims, which it now expects to receive during the third quarter 2006.
2006 Outlook
Based on the Company's current hotel operating trends, recent investment and financing activity, the status of the Company's renovation and repositioning program, and the timing of the Barcelo Tucancun Beach resort insurance claim, the Company now estimates that for the third quarter 2006:
• Total revenues will range between $98 - $103 million;
• Net income per diluted common share will range between $(.02) - $.00(1);
• FFO per diluted common share will range between $.18 - $.20(1); and
• Corporate EBITDA will range between $22.2 - $23.4 million.
The Company also estimates that for the full year 2006:
• Total revenues will range between $413 - $422 million;
• Net income per diluted common share will range between $.41 - $.45(1);
• Adjusted FFO per diluted common share(2) will range between $1.05 - $1.09(1); and
• Corporate adjusted EBITDA will range between $103.6 - $106.0 million.
Mr. Francis stated, "Given the portfolio's historical trends over the first half of the year and the positive outlook we have for the remainder of the year, we feel comfortable raising our guidance range for 2006 by two cents."
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