Boykin Lodging Company (NYSE: BOY), a hotel real estate investment trust, today reported funds from operations (FFO) of 76 cents per share for its second quarter, in line with the consensus estimate, but indicated that it expected lower than projected results in the second half of the year. The company also announced that it intends to revise its future quarterly cash dividend to $0.365 per share from $0.47 per share, which would mean an annual dividend rate of $1.46 per share.
“We were pleased to meet the consensus estimates in the second quarter and with the closing of our recent $208 million refinancing,” said Robert W. Boykin, chairman, president and chief executive officer. “As we have mentioned in the past, however, new hotel construction has concerned us in certain of our markets. In the second quarter, room revenues per available room (REVPAR) in a number of our hotels in North Carolina, Colorado Springs and Portland, representing about 14% of our portfolio, declined 12.8%, largely due to new hotel competition. The positive performance of the company`s other properties offset this decline, but not enough for us to reach our expectations. Because of these factors, we now expect REVPAR growth for 2000 of one to two percent.”
“Within the last two weeks we announced that we negotiated new credit facilities to lengthen the average maturity of our debt, limit our variable-rate debt exposure, strengthen our balance sheet, and increase our operational flexibility,” Mr. Boykin said. “We are pleased with the terms even though they had to be negotiated in a time of higher interest rates and our interest expense going forward will be higher.”
“As a result of higher interest costs and lower percentage lease revenues resulting from lower REVPAR expectations, we now expect FFO for the year to be within a range of $2.41 to $2.46 per share, which falls short of our original expectations by six to eight percent,” Mr. Boykin added.
“This naturally raises a question about our dividend,” Mr. Boykin said. “In the current capital-constrained real estate environment, we believe it is critical to retain sufficient capital to keep our properties in excellent competitive condition. While we continue to view ourselves as an income-oriented lodging company, we think it unwise to borrow money to maintain the current dividend level. Management therefore recommended that the Board adjust the next quarterly dividend payment downward to a level of approximately 85% of Funds Available for Distribution, which is consistent with the payout ratios of other companies in our peer group. The Board approved this approach and stated its intention to declare dividends at an initial annual rate of $1.46 per share. This payout level should allow us to reinvest enough into our business to grow appropriately and maintain a consistent dividend payment until earnings again support a higher level.”
“While we are not pleased in taking this step, we believe it is prudent,” added Mr. Boykin. “We need to manage interest rate and REVPAR fluctuations while we continue our repositioning and renovation growth strategy and take advantage of expansion and other internal growth opportunities that will create significant long-term value.”
For the three months that ended June 30, 2000, FFO reached $14.1 million versus $14.0 million reported for the same period last year. The second-quarter FFO per share was $0.76 for both years.
Percentage lease revenue for the second quarter of 2000 decreased 1.7 percent to $23.5 million from $23.9 million for the second quarter of 1999.
On a same-unit basis, total hotel revenues increased 0.7 percent to $85.9 million from $85.3 million a year ago. REVPAR increased 0.6 percent to $68.99 from $68.58 last year. Occupancy during the second quarter of 2000 was down 2.6 percent to 71.4 percent from 73.3 percent, while the average daily rate increased to $96.65 from $93.61.
Net income for the 2000 second quarter was $6.2 million, or $0.36 per diluted share, compared to $6.5 million, or $0.38 per share, for the same period in 1999.
Through the first six months of 2000, FFO was up 0.6 percent to $24.3 million from $24.1 million, or $1.31 per diluted share/unit for both years. Percentage lease revenues for the six-month period were $43.5 million for 2000 and $43.2 million for 1999.
On a same-unit basis, REVPAR for the first half of 2000 was $64.22 compared with $63.14 for the first half of last year. Occupancy through the six-month period was 67.3 percent for 2000, compared with 67.8 percent for 1999. Average daily rate increased to $95.49 from $93.19.
The first-half net income was $8.8 million, or $0.51 per diluted share, for 2000 and $9.4 million, or $0.55 per share, for 1999.
Boykin Lodging Company is a real estate investment trust that currently owns interests in 32 full-service, upscale commercial and resort hotels containing a total of 9,110 rooms located in California, Colorado, Florida, Idaho, Illinois, Indiana, Maryland, Minnesota, Missouri, Nebraska, New York, New Jersey, North Carolina, Ohio, Oregon, Tennessee, and Washington.