Interstate Hotels & Resorts (NYSE: IHR), the nation`s largest independent hotel management company, today reported pro forma results for the second quarter ended June 30, 2002.
The company was formed July 31, 2002, following the merger of MeriStar Hotels & Resorts (NYSE: MMH) and Interstate Hotels Corporation (Nasdaq: IHCO). Both combined pro forma financial data (assuming the merger was completed on January 1, 2001) and historical financial data for the two former companies for the 2002 second quarter are included in the tables of this press release.
Second-quarter pro forma revenues for 2002 declined 0.7 percent to $316.8 million. Excluding non-recurring items, pro forma net income for the quarter was $0.1 million, or $0.01 per share on a diluted basis, compared to pro forma net loss of $(0.7) million, or $(0.03) per share, in the 2001 second quarter. Recurring pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) rose 14.6 percent to $7.7 million.
The pro forma statement of operations for the 2002 second quarter includes the following non-recurring charges:
$7.2 million gain related to the assignment of 47 leases to a subsidiary of Winston Hotels (NYSE: WXH).
$0.7 million charge related to the closing of corporate housing operations in Sunnyvale, Calif.
$1.6 million of costs related to the merger of MeriStar Hotels & Resorts and Interstate Hotels Corporation and a tender offer made by an unrelated third party.
Same-store revenue per available room (RevPAR) for all full-service managed hotels in the 2002 second quarter decreased 10.4 percent to $74.69. The decline was driven by a 6.9 percent fall-off in average daily rate (ADR) to $106.40 and a 3.7 percent drop in occupancy to 70.2 percent.
Same-store RevPAR for all limited-service managed hotels in the 2002 second quarter fell 5.7 percent to $60.67. ADR decreased 5.2 percent to $85.33, and occupancy declined 0.4 percent to 71.1 percent.
On a historical basis, net income for MeriStar Hotels & Resorts was $6.9 million, or $0.18 per diluted share, in the 2002 second quarter, compared to net loss of $(1.4) million, or $(0.03) per diluted share, in the second quarter of 2001. Net loss available to common stockholders for Interstate Hotels Corporation was $(12.7) million, or $(2.08) per diluted share, in the 2002 second quarter, compared to net loss of $(0.1) million, or $(0.01) per diluted share, in the second quarter of 2001.
“The merger creates a stronger company with an excellent balance sheet, great geographic dispersion and a solid platform for growth,” said Paul W. Whetsell, chairman and chief executive officer. “We have been working hard for the past three months to ensure that this merger would be as smooth and transparent as possible, especially at the property level. We are fortunate that our operating philosophies and cultures are quite similar, and we already are operating as a unified company.”
Whetsell said that both MeriStar Hotels & Resorts and Interstate Hotels Corporation`s results exceeded their internal plans for the first half of the year. In addition, he noted that the assignment of the remaining 47 leases for $17 million to a subsidiary of Winston Hotels during the second quarter was a significant de-leveraging event and would benefit both companies. “The conversion of the leases to management contracts provides for a more stable and predictable earnings stream and reflects a much better business model for both Winston Hotels and Interstate Hotels & Resorts going forward.”
The company`s corporate housing division, BridgeStreet Corporate Housing Worldwide, achieved improved results within its U.S. markets. “The improvement domestically can be attributed to an inventory adjustment in the second half of 2001 when we reduced our number of leased apartments and a restructuring of our operations within the division. European operations experienced a decline in demand due to a decrease in business travel both to and within Europe.”
Following the end of the second quarter, MeriStar Hotels & Resorts and Interstate Hotels Corporation completed their merger. The combined company, Interstate Hotels & Resorts, Inc. (NYSE: IHR), began trading on August 1. In conjunction with the merger, Interstate Hotels & Resorts will evaluate and consolidate its operating activities, including personnel and offices. The company will record a restructuring charge in the third quarter for the costs associated with the consolidation of these functions. Outlook
“The anticipated economic recovery has been delayed, and nationwide travel, particularly among business transient travelers, has remained sluggish,” Emery said. “We are working diligently to improve our transient business traveler base for our managed properties. The struggling economy and the heightened security measures at airports, however, continue to negatively impact this sector, especially for shorter trips. This lingering slowdown is expected to make it more difficult to achieve significant incentive fees in the second half of the year.”
With regard to growth opportunities available to the company, Emery commented, “We have a joint venture in place to acquire $300 million to $500 million of hotel assets, and we are beginning to see more attractively priced properties that represent significant turnaround opportunities.”
For the third quarter of 2002, the company expects pro forma EBITDA of $6 million to $8 million and net income per share of $(0.05) to $0.01. For the full year 2002, the company expects pro forma EBITDA of $30 million to $34 million and net income per share of $(0.07) to $0.05.