WASHINGTON—May 8, 2003—MeriStar Hospitality Corporation (NYSE: MHX), the nation`s third largest hotel real estate investment trust (REIT), today announced results for the first quarter ended March 31, 2003.
For the 2003 first quarter, the company`s net loss was $(69.7) million, or $(1.53) per diluted share, compared to $(9.9) million, or $(0.22) per share in the 2002 first quarter. Total revenues decreased 2.3 percent to $243.2 million. Included in the company`s first-quarter net loss is an asset impairment charge of $56.7 million that pertains to 15 assets that the company was actively marketing for sale in the first quarter of 2003, as well as one asset that was sold in April 2003. Excluding the impairment charge (net of minority interests and income taxes of $1.0 million), net loss for the 2003 first quarter was $(15.9) million, or ($0.35) per share. See further discussion of the company`s asset sale program included in the “Asset Dispositions” section of this press release.
Funds from operations (FFO) were $10.7 million, or $0.22 per share, compared to $19.8 million, or $0.37 per share, in the 2002 first quarter. Earnings before interest expense, income taxes, depreciation and amortization (EBITDA) declined 22.9 percent to $46.9 million. EBITDA and FFO are non-GAAP financial measures that should not be considered as an alternative to any measure of operating results under GAAP (see further discussion in note (b) of this release).
Comparable revenue per available room (RevPAR) for the 2003 first quarter declined 3.8 percent to $64.48. Average daily rate (ADR) decreased 3.5 percent to $102.14, while occupancy declined 0.3 percent, to 63.1 percent. Comparable hotel level operating margins declined 370 basis points to 19.8 percent.
“We are pleased that our RevPAR and operating margin results compared favorably with the industry overall and that our results were within the range we provided at the beginning of the year,” said Paul W. Whetsell, chairman and chief executive officer. “However, the conflict with Iraq, the elevated terrorist alert level and the soft economy all continued to adversely impact the lodging industry in the first quarter. We are hopeful that the conclusion of the war with Iraq and the lowering of terrorist alert levels will release some pent-up lodging demand in the second quarter.
“We continue to focus on increasing group sales at our hotels to help offset the decline in business transient travel. While other hospitality companies have reported declines, we are pleased that our advance group bookings have held steady compared to last year. Cost controls remain a priority, and we adjusted expense levels as appropriate in certain markets as the war with Iraq commenced. Despite the difficult operating environment, we continued to upgrade our properties, investing $8.6 million in capital expenditures during the first quarter.”
“Our first quarter results were led by our Florida properties, reflecting strength in leisure travel in spite of a colder than normal winter in Florida,” Whetsell added. “Our hotels in the Mid-Atlantic market and Atlanta also did relatively well in a difficult operating environment, reporting RevPAR declines of 1 percent or less. We expect the strength in the Washington market to continue, buoyed by the opening of the new convention center this quarter. New Jersey continued to be our worst performing market, where cutbacks in the telecommunications and pharmaceutical industries have had a major impact. Houston and Dallas were negatively impacted by room supply increases as well as weakening regional economies.”
“We continued to actively market non-core assets during the quarter as part of our program to sell assets that do not fit our long-term strategy and plan to use the proceeds to further increase liquidity, to re-invest in our core assets and to de-lever our balance sheet,” Whetsell said. “We sold the 149-suite St. Tropez Hotel & Plaza in Las Vegas in January 2003, and in April, we completed the sale of the 163-room Holiday Inn Kansas City Sports Complex. We have been actively marketing 15 additional, non-core hotels for sale, from which we expect to generate proceeds of $95 million to $105 million. Subsequent to quarter end, we identified an additional 19 non-core assets that we plan to dispose of that we anticipate will generate expected proceeds of $180 million to $200 million. These asset sales will result in numerous benefits to the company, including reducing our leverage and future capital expenditure requirements, as well as improving growth prospects for the remaining portfolio. We expect to incur an impairment charge of $155 million to $175 million in the second quarter of 2003. While this charge is significant, it reflects the fact that the properties planned for disposition represent a large percentage of our hotels, but a much lower percentage of our EBITDA and net cash flow. For example, the 34 properties we are disposing of represent approximately one-third of our total properties, but only approximately 10 percent of our total EBITDA.”
“During the quarter, we focused on enhancing our liquidity in order to maximize our financial flexibility,” said Donald D. Olinger, chief financial officer. “As a result of our asset sales to date and the repayment of a note receivable from Interstate Hotels & Resorts for $42.1 million, we now have cash balances totaling more than $85 million. With significant cash on hand, we expect to significantly reduce or terminate our revolving credit facility as we do not expect to need to access it in the near term. We have good relationships with our bank group and if we need additional capacity, we believe that we could establish a modest revolving credit facility on a secured basis to meet occasional working capital needs.”
Olinger noted that the company is examining a number of refinancing options for the company`s convertible notes due in October 2004. “We have received proposals from a number of lenders to put mortgages in place on a limited number of assets that would allow us to take advantage of the currently favorable interest rate environment. The proceeds from the mortgages would be held to pre-fund a significant portion of the convertible notes outstanding. We expect to complete a transaction in the third quarter of 2003.”
While management is optimistic that we soon will begin to see strength return to the economy, in the near term it expects the operating environment to continue to be challenging due to the soft economy and geo-political uncertainty. Based on a RevPAR decline of 5 percent to 7 percent for the second quarter of 2003 and a decline of 1 percent to 3 percent for the 2003 full year, the company provides the following range of estimates (based on the current portfolio of assets):
Diluted net loss of $(154.6) million to $(176.4) million for the second quarter and $(267.1) million to $(295.4) million for the full year. Second-quarter net loss includes an impairment charge estimate of $155.0 million to $175.0 million. Full-year net loss includes an impairment charge estimate of $211.7 million to $231.7 million;
Diluted net loss per share of $(3.39) to $(3.87) for the second quarter and $(5.86) to $(6.49) for the full year;
EBITDA (a) of $54.0 million to $57.0 million for the second quarter and $175.0 million to $185.0 million for the full year; and
FFO per share (a) of $0.34 to $0.40 for the second quarter and $0.62 to $0.82 for the full year. Second-quarter and full-year FFO per share estimates include a $1.4 million charge in the second quarter related to the expected reduction or termination of the company`s revolving credit facility.