ARLINGTON, Va.—July 28, 2003—MeriStar Hospitality Corporation (NYSE: MHX - News), the nation`s third largest hotel real estate investment trust (REIT), today announced financial results for the second quarter and six months ended June 30, 2003:
The company`s net loss, which includes an asset impairment charge of $208 million, was $(206) million, or $(4.48) per diluted share, for the 2003 second quarter, compared to net income of $3 million, or $0.06 per share in the 2002 second quarter. As part of the company`s asset disposition program, offers were received on a number of properties in addition to the 34 properties previously disclosed as planned for disposition. As a result, the impairment charge included $35 million for six additional assets.
The company`s net loss for the six months ended June 30, 2003 (year-to-date 2003) was $(276) million, or $(6.03) per share, compared to net loss of $(7) million, or $(0.16) per share, for the same period in 2002.
Total revenues from continuing operations were $258 million and $497 million for the second quarter and year-to-date 2003, respectively, compared to $270 million and $514 million for the same periods in 2002.
Funds from operations (FFO) was $21 million, or $0.39 per diluted share, for the 2003 second quarter, compared to $35 million, or $0.65 per diluted share in the 2002 second quarter. Year-to-date 2003 FFO was $30 million, or $0.60 per share, compared to $54 million, or $1.02 per diluted share, for the same period in 2002.
Earnings before interest, income taxes, depreciation and amortization (EBITDA) was $56 million and $103 million for the second quarter and year-to-date 2003, respectively, compared to $69 million and $125 million for the same periods in 2002. EBITDA and FFO are non-GAAP financial measures that should not be considered as alternatives to any measures of operating results under GAAP (see further discussion in note (b) of this release).
Comparable revenue per available room (RevPAR) for the 2003 second quarter declined 5.9 percent to $67.18. Average daily rate (ADR) decreased 4.2 percent to $98.36, while occupancy fell 1.8 percent to 68.3 percent. Comparable hotel level operating margins declined 300 basis points to 22.2 percent. The 2002 second quarter included a $2.4 million (90 basis points impact) tax refund recognized for one property.
Year-to-date 2003 RevPAR decreased 4.9 percent to $65.94. ADR declined 3.8 percent to $100.25 and occupancy fell 1.1 percent to 65.8 percent. Year-to-date 2003 comparable hotel level operating margins declined 340 basis points (50 basis points impact for tax refund mentioned above) to 21.0 percent.
“The war in Iraq that began in late March had a definite impact on our second quarter results, particularly in April,” said Paul W. Whetsell, chairman and chief executive officer. “With the end of the war in early May, conditions started to improve, as advance bookings rose and demand increased. With corporate profits beginning to rebound, we are cautiously optimistic that we will see further improvement in these positive trends in the second half of the year and going into 2004, with year-over-year RevPAR improvements by the fourth quarter. Leisure travel continues to hold up fairly well and should lead the way for the remainder of the year. The key is whether business travel will pick up this fall. In the meantime, our sales and marketing focus on group business has helped to partially offset lower levels of transient business travel.”
Whetsell noted that the company continues to focus on reshaping its portfolio and building liquidity. “Since the second quarter of 2002, we have sold eight non-core properties including the recently announced sale of the Holiday Inn, Madeira Beach, Fla. We currently have 39 additional assets planned for disposition. Overall, we have received a lot of interest in these properties, and we expect a significant number of transactions to close during the second half of the year. Going forward, our remaining core portfolio will consist of higher quality assets with better long-term growth prospects and relatively lower future capital expenditure requirements.”
Whetsell added, “We will continue to invest in our core assets to maximize their earnings potential and to maintain these properties in top competitive condition. Year to date, even in this challenging lodging environment, we have spent $14 million on capital expenditures, and we expect to increase spending in the second half of the year using some proceeds from asset sales.”
RevPAR declined in most major markets in the second quarter, with the exception of Southwest Florida and Tampa/Clearwater. These two Florida markets continued to benefit from the relative strength of the leisure segment. The New Jersey market showed significant improvement, reporting a 4.8 percent RevPAR decline in the second quarter compared to double-digit declines in recent prior quarters. Orlando and Dallas reported the largest declines. Orlando was heavily impacted by the lack of travel to its theme-park destinations during the peak of the war in the month of April. Dallas continues to be negatively impacted by room supply increases.
“In early July, we completed an offering of $170 million of 9.5% convertible subordinated notes due 2010,” said Donald D. Olinger, chief financial officer. “The proceeds were mainly used to redeem substantially all of our outstanding 4.75% convertible subordinated notes due 2004 and $20 million of our 8.75% senior subordinated notes due 2007. We currently have less than $4 million of the 2004 convertible notes outstanding and no significant maturities until 2007.
“This transaction considerably strengthened our balance sheet and eliminated any concerns regarding near-term debt maturities,” Olinger noted. “Our average maturity is now six years. We plan to take advantage of the current, favorable low interest-rate environment with the expected closing of a new CMBS facility in the third quarter. Total proceeds should approximate $100 million and will be used primarily to selectively redeem more expensive debt.”
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