WASHINGTON—Nov. 4, 2002—Interstate Hotels & Resorts (NYSE: IHR), the nation`s largest independent hotel management company, today reported historical and pro forma results for the third quarter ended September 30, 2002.
The company was formed July 31, 2002, following the merger of MeriStar Hotels & Resorts and Interstate Hotels Corporation. Both combined pro forma financial data (assuming the merger was completed on January 1, 2001) and historical financial data for the 2002 third quarter are included in the tables of this press release. Historical financial data represents results for Interstate Hotels Corporation through July 31, 2002 and results for Interstate Hotels & Resorts subsequent to July 31, 2002.
“The merger integration has proceeded smoothly. Our experienced management team stayed focused on operations throughout the transition and our financial results came in as forecasted,” said Paul W. Whetsell, chairman and chief executive officer. “We remain on track to realize $8 million to $10 million of annualized savings due to corporate synergies. Our development team continues to source new growth opportunities, adding five new management contracts since the closing of the merger.”
On a historical basis, net loss available to common shareholders was $(22.4) million, or $(1.30) per share, in the 2002 third quarter, compared to net loss of $(4.4) million, or $(0.72) per share, in the third quarter of 2001.
Recurring pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) increased 128.2 percent to $7.3 million. Third-quarter pro forma revenues for 2002 decreased 3.0 percent to $274.9 million. Excluding non-recurring items, pro forma net loss for the quarter was $(0.5) million, or $(0.03) per share on a diluted basis, compared to pro forma net loss of $(4.1) million, or $(0.20) per share, in the 2001 third quarter.
The pro forma statement of operations for the 2002 third quarter includes the following non-recurring charges:
$12.8 million of restructuring costs related to the merger of MeriStar Hotels & Resorts and Interstate Hotels Corporation, including estimates of severance and vacant office space.
$3.3 million of merger and integration costs, including professional fees, travel, and other transition costs.
The net loss for the 2002 third quarter on a historical basis includes the impact of a $3.1 million cumulative effect of a change in accounting principle recorded to reflect the change in the company`s method of accounting for incentive management fees. The company changed its method from recording incentive management fees as earned based on current profitability of the hotel to recording incentive fees in the period it is certain they are earned, which, for annual incentive fee measurements, is typically in the last month of the annual contract period. The company also recorded $9.4 million of income tax expense as a valuation allowance on certain deferred tax assets that are not anticipated to be realized in future periods.
Same-store revenue per available room (RevPAR) for all full-service managed hotels in the 2002 third quarter declined 2.7 percent to $65.96. Average daily rate (ADR) dropped 3.6 percent to $98.94 while occupancy increased 0.9 percent to 66.7 percent.
Same-store RevPAR for all limited-service managed hotels in the 2002 third quarter fell 2.3 percent to $59.35. ADR was off 3.5 percent to $85.05, and occupancy increased 1.2 percent to 69.8 percent.
“We were one of the few companies in the industry to meet earnings guidance, due primarily to the stability of our base management fees, the improved performance of our domestic corporate housing operations, and our ability to realize immediate synergies following the merger. Nonetheless, it was a difficult quarter for the industry as the economic slowdown continued with a direct impact on business travel,” said Whetsell. “Occupancy increased in the third quarter over last year for both our full-service and limited-service portfolios; average daily rate, however, continues to be impacted by the shift in customer mix to more group and leisure business.
“EBITDA within BridgeStreet Corporate Housing Worldwide`s North American markets were up significantly over the third quarter of 2001. This was partially offset by a decline in EBITDA from Europe due to a reduction of units in London as a result of slowing demand and costs incurred in Paris to ramp up operations as part of our effort to expand our operations in Europe.”
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