COLUMBIA, MD - (BUSINESS WIRE) - August, 2002 - Humphrey Hospitality Trust, Inc. (NASDAQ: HUMP), a real estate investment trust, today announced its results for the second quarter ended June 30, 2002.
Funds from operations (“FFO”) were $3.2 million, or $.26 per diluted share for the second quarter ended June 30, 2002, down 23% from FFO of $4.1 million, or $.34 per diluted share, during the same quarter in 2001. Earnings per share represented a net loss of ($.05) per diluted share, or ($555,00) for the second quarter of 2002, compared to earnings of $.06 per diluted share, or $733,000, for the same quarter last year.
The 23% decline in FFO has been attributed primarily to a change in the Company’s principal source of revenue. With its creation of a taxable REIT subsidiary (the current lessee of the Company’s hotels) at the start of 2002, the Company terminated the revenue stream of fixed and variable rent from its former lessee, and has since assumed control of a potentially more lucrative but somewhat volatile hotel operating business. “While many of our properties have shown positive growth trends during this prolonged economic downturn, such results have not allowed the reversal of an overall 2.6% decline in comparable occupancy (off 1.8 points), a 1.5% (or $.77) decline in comparable average daily rate (“ADR”), and a 4% (or $1.42) reduction in comparable revenue per available room (“RevPar”) during the second quarter ended June 30, 2002” said Randy Whittemore, President and CEO.
“While our operating margins have fallen 130 basis points (from 35.5% to 34.2%), primarily as a result of the 1.5% decline in ADR during the second quarter of 2002, cost management programs including a company-wide wage freeze in effect since last fall, and an incentive-based labor management program implemented at the start of this year, have contributed substantially to the improved control of hotel operating costs during this challenging period. Our asset disposition and cash retention strategies have also helped to mitigate the effects of a weak economy, with a more than $12 million year-to-date reduction in outstanding debt, and lower interest rates on our revolving credit facilities, contributing to net interest savings of $128,000 (including $338,000 of debt prepayment penalties) during the quarter” added Mr. Whittemore.
The Company’s early termination of an Administrative Services agreement (the “Agreement”) with Humphrey Hospitality Management (“HHM”) also contributed to the decline in FFO during the second quarter of 2002. “In exchange for the negotiated settlement of a $211,000 deferred payment to HHM, the Company will no longer be required to pay HHM construction fees representing 9% of the Company’s capital spending, and cost reimbursements of up to $150,000 annually. While the cancellation of the Agreement will require additional staffing to facilitate ongoing renovation and maintenance activities at the Company’s hotels, this change is ultimately expected to result in lower costs and an increased capacity for capital spending” stated Mr. Whittemore.
“The administrative services component of the Agreement, which called for monthly fees of $71,000, was also cancelled (at no cost). The Company’s recent recruitment of accounting and finance personnel represented the final step in its strategy to operate independently as a self-administered REIT” noted Mr. Whittemore.
In addition to the factors discussed above, the net loss of $.05 per diluted share for the quarter ended June 30, 2002 also reflects a $1.2 million provision for asset impairment losses (including realized gains from hotel dispositions), and an increase in depreciation expense ($388,000), which represents the cumulative effect of recording depreciation on hotels reclassified from ‘hotel properties held for sale’ to ‘investments in hotel properties’, net of suspended depreciation on assets reclassified to ‘hotel properties held for sale’.
“While it is disappointing that certain of our hotels are expected to be sold at a loss, the overall prospects for our hotel portfolio are much better. Asset sales completed or planned for the remainder of 2002 are expected to generate gross disposition proceeds in excess of $24 million for the year, and net gains (including previously discussed provisions for impairment losses) of approximately $150,000 for the year” stated Mr. Whittemore.
“The impairment charges recorded to date were primarily related to hotel properties held for sale in Texas, which, as a result of intensive new competition, have suffered a marked downturn in occupancy and ADR. With a recovery in the Texas market expected to trail other markets over the extended future, and an immediate need to enhance the Company’s credit relationship with its key lenders, we have elected to reduce our investment exposure in Texas through selective hotel dispositions. Through the final sale of seven hotel properties (including six hotels located in Texas) over the past 11 months, the Company has successfully returned to a position of full compliance under the original loan covenants of several key lenders” added Mr. Whittemore.
Humphrey Hospitality Trust, Inc. specializes in limited-service lodging. The Company owns 85 hotels in 19 mid-western and eastern states.
Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. These risks are discussed in the Company`s filings with the Securities and Exchange Commission.