Boykin Lodging Company (NYSE: BOY), a multitenant hotel real estate investment trust, today reported financial results for the second quarter and six-month period ending June 30, 1998. The company posted record revenues and funds from operations for those periods.
“The second quarter of 1998 was a busy one,” said Robert W. Boykin, chairman, president and chief executive officer. “We completed the acquisition of 12 hotels, which established significant strategic alliances and broadened our geographic base into ten new markets in six new states. We put $380 million of favorable-rate debt financing in place. We also strengthened our management team with the addition of a new chief operating officer and chief financial officer.”
“Over the past twelve months, our portfolio has grown from 13 hotels comprising 3,392 rooms to 31 hotels comprising 8,689 rooms,” Mr. Boykin said. “We also have added five third-party tenants managing 26 of the 28 hotels acquired during that twelve-month period.”
For the three months that ended June 30, 1998, funds from operations (FFO) were $11.3 million, up 53 percent from $7.4 million for the same period in 1997. Percentage lease revenues for the second quarter of 1998 increased 79 percent to $17.4 million from $9.7 million for the second quarter of 1997. On a per-share basis, second-quarter FFO for both years was $0.68 per share/unit (basic and diluted) because of a 53 percent increase in the number of shares outstanding and because of the major renovation and repositioning of 15 percent of the company’s portfolio, which should result in long-term internal growth.
On a same-unit basis, total hotel revenues were $74.0 million, compared with $74.4 million a year ago. REVPAR, or room revenues per available room, were $64.89, compared with $64.80 last year. Occupancy during the second quarter of 1998 was 70.1 percent compared with 73.6 percent last year. The average daily rate was $92.60 compared with $88.03.
“We believe it is important to keep our hotels in excellent condition in order to assure their ability to outperform the competition and to deliver superior REVPAR gains,” said Mr. Boykin. “We also believe the long-term demand for rooms in our markets will grow each year, therefore we will continue to implement our renovation plans aggressively. Over 15 percent of the hotel rooms in our portfolio were undergoing significant renovation, refurbishing, or repositioning in the second quarter. We are positioning the assets for future growth, and this positioning has had some impact on today’s results.”
“The major renovations will be completed at our Berkeley Marina Radisson by September and at the Cleveland Airport Marriott by November and should result in internal growth, based upon our experience at the properties where renovation/repositioning has been completed,” Mr. Boykin said. “For example, the 197-room San Diego property we bought last December for $8.8 million, or $45,400 per room, was reflagged and repositioned in January. As a result, its REVPAR increased by $22, or 67 percent, in the second quarter. In Minneapolis, which will benefit from a $1.5 million renovation, we expect 1998 REVPAR to increase over 20 percent.”
“Our acquisition program continues to move forward,” Mr. Boykin said. “However, we have become more selective about our acquisitions, because we have raised our criteria in terms of yield and earnings. We do anticipate a pause in acquisition activity in the marketplace while sellers’ expectations are allowed to adjust downward, and we expect purchase prices to decline.”
“Looking at the remainder of the year and beyond, we are very optimistic about our portfolio’s ability to meet the growing needs of both commercial and private customers of full-service upscale hotels,” Mr. Boykin said. “Given the slowing in our acquisition program and the continuation of renovations, our growth rate for the second half of 1998 will be less than originally anticipated.”
“We continue to be optimistic about 1999,” Mr. Boykin said. “In spite of any anticipated slowing in the growth rate over the next four quarters, our cash dividend coverage remains strong-with an improving payout ratio-and our goal is to increase the annual cash dividend during the next twelve months.”
Through the first six months of 1998, FFO was $18.6 million, or $1.26 per share/unit (basic and diluted), compared with $13.2 million, or $1.20 per share/unit (diluted), for the same period in 1997. Percentage lease revenues for the six-month period were $28.2 million for 1998 and $16.9 million for 1997.
On a same-unit basis, REVPAR for the first half of 1998 was $60.40 compared with $60.20 for the first half of last year. Occupancy through the six-month period was 65.9 percent for 1998, compared with 68.5 percent for 1997. Average daily rate increased to $91.60 from $87.95.
The first-half net income was $8.5 million, or $0.72 per share, for 1998 and $7.8 million, or $0.81 per share, for 1997. An extraordinary item of $1.1 million, or $0.07 per share, resulted from the write-off of deferred financing costs associated with the replacement of the company’s revolving credit facility in the quarter.
Boykin Lodging Company is a multitenant real estate investment trust which focuses on the acquisition of full-service, upscale commercial and resort hotels. The company currently owns 31 full-service commercial and resort hotels containing a total of 8,689 rooms located in California, Colorado, Florida, Idaho, Indiana, Maryland, Minnesota, Missouri, Nebraska, New York, New Jersey, North Carolina, Tennessee, Ohio, Oregon, and Washington. Since January 1998, Boykin has increased its portfolio by 13 hotels and a total of 3,838 rooms.