Total revenue decreased 0.1 percent over first quarter of 2008
MHI Hospitality Corporation (NASDAQ:MDH), a self-advised lodging real estate investment trust (REIT), today reported its consolidated results for the first quarter ended March 31, 2009.
HIGHLIGHTS:
- Funds from Operations ("FFO") increased 41.4 percent to approximately $0.10 per share over the first quarter 2008
- Total revenue decreased 0.1 percent over first quarter of 2008
- Total assets of approximately $220.9 million at March 31, 2009, versus approximately $170.4 million at the end of the first quarter 2008
- Renovations completed at the Tampa, Florida and Hampton, Virginia properties, which concludes near-term portfolio asset improvement plans
Andrew M. Sims, President and CEO of MHI Hospitality Corporation, commented, "Within an operating environment that remains challenging, we are focused on achieving an accelerated ramp-up at our newly repositioned hotels while maintaining market share at our core properties. I am pleased to report that during the quarter our 16-month repositioning of the Crowne Plaza Tampa Westshore and the 10-month renovation of the Crowne Plaza Hampton Marina were both completed. This effectively concludes our near term asset improvement plans. During the quarter, we also took measures to further enhance liquidity and strengthen the balance sheet."
Added Sims, "We expect and are prepared for a difficult business environment near term. However, in looking at the larger picture, with a portfolio of completely modernized hotels now in place, we believe the Company is positioned to perform soundly over the long term."
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Operating Results
The Company reported consolidated total revenue of approximately $15.5 million for the three-month period ended March 31, 2009, a decrease of $0.1 million or 0.1 percent over the three-month period ended March 31, 2008. For the first quarter, the Company also reported a consolidated net loss of approximately $0.6 million, or $0.09 per share, as compared to a consolidated net loss of approximately $0.5 million, or $0.07 per share, for the comparable 2008 period. The Company reported a net operating loss for the same period of approximately $0.2 million, as compared to net operating income of approximately $0.6 million for the first quarter of 2008. During the first quarter, FFO was approximately $1.1 million, or $0.10 per share, compared to approximately $0.8 million, or $0.07 per share, for the first quarter of 2008, representing an increase of 41.4 percent. During the quarter, the Company reported an unrealized gain on the value of its interest rate swap of approximately $0.2 million as compared to an unrealized loss on the value of its interest rate swap of approximately $0.8 million for the first quarter of 2008. The interest rate swap is required by the Company's lenders on its revolving credit facility.
FFO is a non-GAAP financial measure within the meaning of the rules of the Securities and Exchange Commission. The Company defines FFO as net income excluding extraordinary items, depreciation and minority interest. Management believes FFO is a key measure of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance. A reconciliation of this non-GAAP financial measure is included in the accompanying financial tables.
Portfolio Operating Performance
"Same-store" key operating statistics for six of the Company's properties for the quarters ended March 31, 2009 and 2008 are presented in the following table. These statistics do not include the Sheraton Louisville Riverside, which opened in May 2008, the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture in August 2007 and opened in September 2007, the Crowne Plaza Tampa Westshore, which opened in March 2009, or the Crowne Plaza Hampton Marina, which was acquired in April 2008.
Quarter Ended Quarter Ended
March 31, 2009 March 31, 2008 Variance
-------------- --------------- --------
Occupancy % 59.7% 64.7% -7.8%
Average Daily Rate ("ADR") $111.01 $118.80 -6.6%
Revenue per Available Room
("RevPAR") $66.24 $76.90 -13.9%
For the quarter ended March 31, 2009, the same-store portfolio realized a 13.9 percent decrease in RevPAR versus the same period in 2008. The RevPAR decrease was the result of a 7.8 percent decrease in occupancy compounded by a 6.6 percent decrease in ADR. For the same three-month period, the Company's six hotels included in continuing operations generated approximately $9.2 million of total room revenue in 2009 versus approximately $10.7 million in 2008.
Portfolio Update
As of March 31, 2009, total assets were approximately $220.9 million, including approximately $191.4 million of net investment in hotel properties plus approximately $10.3 million for the Company's joint venture investment in the Crowne Plaza Hollywood Beach Resort. The Company also reported the following portfolio developments:
- At the Company's newest asset in Hampton, Virginia, the Company completed an upbranding to the Crowne Plaza flag in the fourth quarter of 2008 and completed extensive renovations of the new Crowne Plaza Hampton Marina in February 2009. As of March 31, 2009, the Company incurred costs totaling approximately $4.5 million toward this renovation.
- At the Crowne Plaza Tampa Westshore, the 16-month deep turn renovation was completed and the hotel opened to the public in March 2009. The reconfigured 222-room hotel features a new 10,000 square foot ballroom and pre-function structure, 6,500 square foot semi-free standing restaurant tenant space, an outdoor pool and approximately 250 surface parking spaces. As of March 31, 2009, the Company incurred costs totaling approximately $23.5 million toward this renovation.
With the repositioning of the Tampa asset, as well as the Savannah and Hampton properties, which were announced earlier this year, the Company has successfully completed the near-term improvement plans to its portfolio. In addition, all repositioned properties have been relicensed for ten or more years with the Company's franchise partners: Crowne Plaza, Hilton and Starwood.
Balance Sheet/Liquidity
At March 31, 2009, the Company had approximately $6.4 million of available cash and cash equivalents, approximately $0.8 million of which is reserved for capital improvements and certain other expenses. The Company has approximately $78.8 million outstanding on its $80.0 million revolving line of credit, which had been deployed primarily to fund the acquisition and renovation of the Sheraton Louisville Riverside Hotel, the Company's equity contribution to its joint venture with The Carlyle Group for the purchase of the Crowne Plaza Hollywood Beach Resort, as well as the acquisitions of the Tampa, Florida and Hampton, Virginia hotel properties. The Company has no debt maturing before May 2011.
In order to enhance liquidity, on February 9, 2009, the indirect subsidiary of the Company, which is a member of the joint venture entity that owns the Hollywood asset, borrowed $4.75 million from an affiliate of The Carlyle Group, the other member of the joint venture. The interest rate and maturity date of the loan are tied to a note that is secured by a mortgage on the Hollywood property. As background, in 2008 the joint venture that owns the Hollywood property purchased a portion of the mortgage originally placed on the property from the initial lender. The amount of the loan from Carlyle is equal to the amount the Company contributed to the joint venture to enable that joint venture to purchase its interest in the mortgage loan. The Company expects that the mortgage will be refinanced in an amount equal to the original first mortgage loan and the proceeds of such refinancing will allow it to repay the Carlyle loan.
On February 19, 2009, the Company entered into a third amendment to its May 8, 2006 credit agreement with Branch Banking & Trust Company ("BB&T"), as administrative agent and lender, to address certain financial covenants including the Company's total leverage ratio. As previously announced, in addition to waiving potential technical financial covenant defaults for 2008, the amendment establishes a new valuation category and methodology for those Company assets under renovation. The amendment also increases the Company's interest rate spread for its variable LIBOR-based interest rate by 1.125 percent, establishing a new spread range from 2.75 percent to 3.25 percent based on the Company's total leverage ratio. The amendment also adds a new one hundred basis point spread for any prime rate loans under the facility and eases the Company's total leverage ratio test by increasing the Company's total maximum permitted leverage from 55 percent to 62.5 percent of the total value of the Company's assets. Finally, the amendment establishes new limitations on cash distributions that the Company may pay to stockholders to a level necessary to maintain the Company's REIT qualification until such time as the Company meets certain liquidity and other tests, mandates that the Company include the Company's hotel property in Laurel, Maryland in the credit agreement's borrowing base, and provides for fixed valuations of certain of the Company's hotel properties through April 2010.
Dividend
As previously announced, the Company declared a quarterly dividend of $0.01 per share of common stock payable to stockholders of record on the close of business Friday, June 19, 2009. The dividend will be paid on Tuesday, June 30, 2009.
As previously announced, the Company currently intends to maintain its annual dividend distribution level at 90 percent of taxable income, consistent with maintaining its REIT status. Any future changes to the Company's current dividend policy will need to be in compliance with restrictions on the payment of cash dividends as set forth in the referenced amendment to the credit agreement.
Outlook and Market Trends
The Company has decided to suspend guidance for the near term due to ongoing unpredictable macro-economic conditions and their potential impact on the Company's markets and customer base. Management remains confident in the underlying strength of its business and, with a substantially repositioned portfolio in place, expects to compete effectively over the longer term.
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Total revenue decreased 0.1 percent over first quarter of 2008
