Equity Inns, Inc. (NYSE: ENN), the third largest hotel real estate investment trust (REIT), announced its results for the three months ended March 31, 2007.
Adjusted funds from operations (AFFO) for the three-months ended March 31, 2007 was $0.38 per diluted share, an increase of 12% as compared to the three-month period ended March 31, 2006. Adjusted EBITDA rose 16% to $36.1 million for the first quarter of 2007 as compared to $31.1 million for the first quarter of 2006. Net income applicable to common shareholders for the first quarter of 2007 was $5.6 million, or $0.10 per diluted share, as compared to a net loss of ($3.3) million, or ($0.06) per diluted share in the prior year. There was no difference between funds from operations (FFO) and AFFO for the first quarter of 2007.
Mr. Howard A. Silver, President and Chief Executive Officer, commented, 'Equity Inns continues to generate strong growth in revenues, EBITDA and AFFO by garnering higher average daily rate (ADR) across our well-positioned portfolio. All of our geographic regions contributed to help our overall revenue per available room (RevPAR) growth, including our 25 Florida hotels, which had difficult comparisons given the strength of hurricane-related demand in 2006. We were especially pleased with the results of our renovated Gen 1 Residence Inns, which experienced RevPAR growth of almost 17% and our non-Florida Hampton Inns which experienced RevPAR growth of over 10%. We also believe we have significant growth potential in the coming years due to the conversion of our AmeriSuites to Hyatt Place hotels by the end of 2007.'
Financial Highlights for the First Quarter 2007:
Total hotel revenue increased 15% to $105.8 million for the first quarter of 2007 as compared to $92.1 million for the first quarter of 2006. Of the Company's total hotel revenue increase of $13.7 million, $10.3 million was due to net incremental revenue from hotel acquisitions while $3.4 million was due to improved same-store results. The Company's all comparable RevPAR growth for the first quarter of 2007 was 4.9%. This growth was driven by a 6.4% increase in ADR to $107.32, slightly offset by a 98 basis point decline in occupancy to 70.4%. As expected, the majority of the occupancy decline was in the Company's Florida hotels. This excludes the negative impact of the repositioning of 18 AmeriSuites hotels owned by the Company which will be converted to Hyatt Place hotels on an ongoing basis throughout 2007. Management believes that excluding these hotels is a more accurate measure of the normalized performance of the Company's hotel portfolio. During the first quarter of 2007, there was negligible AFFO impact from positioning these 18 hotels for conversion due to minimum income guarantees received from the Global Hyatt Corporation.
The Company's ongoing ability to increase ADR due to the strong occupancy position of its hotels coupled with tight controls of hotel expenses resulted in a solid increase in profitability. The Company's gross operating profit margin (GOP margin) increased 140 basis points to 46.2% in the first quarter of 2007 as compared to the first quarter of 2006, excluding the Company's 18 AmeriSuites hotels. Including the AmeriSuites, the Company's GOP margin improved 60 basis points to 45.5%.
Non-financial First Quarter of 2007 Highlights:
During the quarter, the Company completed the purchase of three hotels with a total of 366 rooms and suites for a total of $30.5 million. The three hotels include a SpringHill Suites by Marriott, a Hilton Garden Inn hotel and a Courtyard by Marriott hotel.
Capital Structure:
At March 31, 2007, Equity Inns had $678.7 million of long-term debt outstanding. Total debt represented 46.2% of the historical cost of the Company's hotels and represented approximately 39% of the Company's total enterprise value at the end of the first quarter 2007. Equity Inns' leverage ratio of 4.8 times at the end of the first quarter 2007 is near a five-year low for the Company. Fixed rate debt, together with variable rate debt hedged by an interest rate swap, amounted to approximately 92% of total debt. At March 31, 2007, the Company's outstanding common stock and partnership units were a combined 55.9 million.
Dividend:
During the first quarter of 2007, the Company paid a cash dividend on its common stock of $0.25 per share. The $0.25 per share common dividend represents a 32% and a 9% increase over the prior year quarter and previous quarter, respectively. Equity Inns' trailing twelve months' cash available for distribution (CAD) payout ratio for the period ended March 31, 2007 was approximately 76%.
Mr. Silver concluded, 'Our combination of strong financial performance and financial flexibility continues to provide us with the ability to execute on our strategy of driving earnings growth and providing value to our shareholders through a strong and secure dividend payout.'
2007 Guidance:
The statements below are the Company's outlook or forecast for the Company's business for the fiscal year ending December 31, 2007. Based upon the Company's expectations for continued improvement of the U.S. economy, moderate hotel supply growth in its markets, further improvement in the upscale and mid-scale without food and beverage lodging sectors, recent acquisitions and divestitures, along with planned hotel renovations and other expenses, the Company is issuing the following revised guidance for the full year 2007:
* Net Income Per Diluted Share: $0.35 to $0.42
* FFO Per Diluted Share: $1.50 to $1.56
* RevPAR Growth: 4.5% to 5.5% (5.5% to 6.5% without the AmeriSuites)
* Adjusted EBITDA: $147 to $152 million
Equity Inns now expects that its 2007 results will contribute to full year FFO as follows: second quarter: 29%, third quarter: 28% and fourth quarter: 18%.
Additionally, capital expenditures for the full year 2007 are expected to be approximately $90 million to $100 million. Approximately $55 million to $65 million of the Company's total capital expenditures represents the Company's estimate for the conversion of its AmeriSuites hotels to Hyatt Place hotels. Global Hyatt Corporation will be performing the conversion for the Company pursuant to a project management agreement, and Equity Inns currently expects the conversion to be completed by the end of 2007. Given the Company's minimum income guarantees from Hyatt, the majority of the displaced revenue from the AmeriSuites conversion is not expected to have a material impact to the Company's 2007 FFO. Equity Inns currently expects the conversion to Hyatt Place hotels will negatively impact its FFO by approximately $0.01 per diluted share in 2007 as compared to 2006.
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