MHI Hospitality Corporation Reports Financial Results for the Fourth Quarter and Year 2010
WILLIAMSBURG, Va., Feb. 22, 2011- MHI Hospitality Corporation (Nasdaq: MDH) (“MHI” or the “Company”), a self-managed and self-administered lodging real estate investment trust (“REIT”), today reported consolidated results for the fourth quarter and the year ended December 31, 2010.
HIGHLIGHTS:
— Net operating income (“NOI”) increased 423.1%, or approximately $1.1
million over the fourth quarter 2009, to approximately $1.3 million and
increased 65.8%, or approximately $2.5 million over the year ended
December 31, 2009, to approximately $6.4 million;
— Occupancy increased to 60.0% in the fourth quarter 2010, an increase of
6.0% over the same period for the prior year, and increased to 66.0% for
the year ended December 31, 2010, an increase of 9.3% over the year
ended December 31, 2009;
— Total room revenue increased approximately $0.8 million, or 6.7% over
the fourth quarter 2009, to approximately $12.3 million and increased
approximately $4.2 million, or 8.5% over the year ended December 31,
2009, to approximately $53.1 million;
— Net loss before taxes improved 33.9%, or approximately $0.7 million over
the fourth quarter 2009, to approximately $1.3 million compared to a net
loss before taxes for the comparable 2009 period of approximately $2.0
million, and improved 36.9%, or approximately $1.8 million over the year
ended December 31, 2009, to approximately $3.0 million, compared to a
net loss before taxes for the year ended December 31, 2009 of
approximately $4.8 million;
— Adjusted operating income increased approximately $1.0 million, or 32.4%
over the fourth quarter 2009, to approximately $4.0 million and
increased approximately $2.8 million, or 19.4% over the year ended
December 31, 2009, to approximately $17.6 million; and
— Funds from Operations (“FFO”) remained constant at approximately $1..2
million for the fourth quarter 2010 compared to the fourth quarter 2009
and remained constant at approximately $6.0 million for the year ended
December 31, 2010 compared to the year ended December 31, 2009.
Andrew M. Sims, Chairman and Chief Executive Officer of MHI Hospitality Corporation, commented, “We continue to make substantial progress as our repositioned hotels take market share and the industry is in recovery. We have delivered improved year-over-year operating performance. Funds from Operations, when adjusted for non-cash accruals, trended positively in the quarter and for the year. Additionally, we are pleased with other meaningful gains in performance, which include increases of more than 66% and 423% in net operating income for the full year and quarter, respectively.”
Mr. Sims continued, “In the year ahead we are committed to further increasing our customer fair share in each market as we continue to maximize the performance of our properties. We are very pleased with the progress made and have great confidence in the long-term growth potential of our real estate platform.”
Operating Results
For the quarter ended December 31, 2010, the Company reported consolidated total revenue of approximately $18.8 million, an increase of 7.5% over the quarter ended December 31, 2009. The Company reported NOI of approximately $1.3 million for the quarter ended December 31, 2010, an increase of approximately $1.1 million or 423.1% over the quarter ended December 31, 2009. The Company reported interest expense of approximately $2.6 million for the quarter ended December 31, 2010, an increase of 4.5% or approximately $0.1 million. During the quarter, the Company incurred increased interest expense of approximately $0.4 million related to the June 2010 amendment to the Company’s credit agreement. Such additional interest expense equated to a $0.03 reduction of FFO per share for the fourth quarter 2010. The Company reported an income tax benefit of approximately $0.2 million for the quarter ended December 31, 2010 compared to an income tax benefit of approximately $0.8 million for the quarter ended December 31, 2009, due to increased profitability in its TRS Lessee. For the fourth quarter 2010, MHI also reported a consolidated net loss attributable to the Company of approximately $0..9 million, or $0.09 per share, as compared to a consolidated net loss attributable to the Company of approximately $0.8 million, or $0.10 per share, for the quarter ended December 31, 2009. For the fourth quarter 2010, FFO was approximately $1.2 million, or $0.09 per share, compared to FFO of approximately $1.2 million, or $0.11 per share, for the fourth quarter 2009, the difference in per share amounts due principally to an increase in the number of shares and units outstanding pursuant to the Company’s rights offering in December 2009.
For the year ended December 31, 2010, the Company reported consolidated total revenue of approximately $77.4 million, an increase of 8.2% or approximately $5.9 million over the year ended December 31, 2009. The Company reported NOI of $6.4 million for the year ended December 31, 2010, an increase of approximately $2.5 million or 65.8% over the year ended December 31, 2009.. The Company reported an income tax provision of approximately $0.2 million for the year ended December 31, 2010 compared to an income tax benefit of approximately $1.8 million for the year ended December 31, 2009, due to profitability in its TRS Lessee in 2010 compared to net operating losses in 2009. For the year ended December 31, 2010, the Company also reported a consolidated net loss attributable to the Company of approximately $2.4 million, or $0.25 per share, as compared to a consolidated net loss attributable to the Company of approximately $2.0 million, or $0.28 per share, for the year ended December 31, 2009. FFO for the year ended December 31, 2010 remained constant at approximately $6.0 million compared to the year ended December 31, 2009. FFO per share for the year ended December 31, 2010 decreased to approximately $0.46 compared to FFO per share of approximately $0.55 for the year ended December 31, 2009 due principally to an increase in the number of shares and units outstanding pursuant to the Company’s rights offering in December 2009.
Adjusted operating income and FFO are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. The Company defines adjusted operating income as net operating income excluding depreciation and amortization, corporate general and administrative expenses, lease revenue and related expenses as well as other fee income not related to the Company’s wholly-owned hotel properties. The Company defines FFO as net income excluding extraordinary items, depreciation and minority interest. Management believes FFO is a key measure of a REIT’s performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company’s operating performance. Reconciliations of these non-GAAP financial measures are included in the accompanying financial tables.
Portfolio Operating Performance
The following tables illustrate the key operating metrics for the quarters and the years ended December 31, 2010 and 2009 for the Company’s wholly-owned properties during each respective reporting period (“consolidated” properties) as well as the eight wholly-owned properties in the portfolio that were not under development and under the Company’s control during all of 2009 and 2010 (“same-store” properties). Accordingly, the same store data does not reflect the Crowne Plaza Tampa Westshore, which opened in March 2009. The tables also exclude performance data for the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture in August 2007 and in which the Company has a 25.0% indirect interest.
Consolidated (All Hotels) Quarter ended Quarter ended
December 31, December 31,
2010 2009
------ ------ Variance
-
Occupancy 60.0% 56.6% 6.0%
Average Daily Rate ("ADR") $105.72 $105.03 0.7%
Revenue per Available Room
("RevPAR") $63.39 $59.42 6.7%
For the quarter ended December 31, 2010, the Company’s consolidated properties realized a 6.7% increase in RevPAR versus the same period in 2009. The RevPAR increase was the result of a 6.0% increase in occupancy and a 0.7% increase in ADR.
Consolidated (All Hotels) Year ended Year ended
December 31, December 31,
2010 2009
------ ------ Variance
-
Occupancy 66.0% 60.4% 9.3%
ADR $104.42 $107.21 -2.6%
RevPAR $68.93 $64.74 6.5%
Same Store (8 Hotels) Year ended Year ended
December 31, December 31,
2010 2009
------ ------ Variance
-
Occupancy 66.6% 62.3% 7.0%
ADR $106.08 $108.81 -2.5%
RevPAR $70.69 $67.78 4.3%
For the year ended December 31, 2010, the Company’s consolidated properties realized a 6.5% increase in RevPAR versus the same period in 2009. The consolidated properties’ RevPAR increase was the result of a 9.3% increase in occupancy offset by a 2.6% decrease in ADR. For the year ended December 31, 2010, the same-store portfolio generated a 4.3% increase in RevPAR compared to the year ended December 31, 2009. The same-store properties’ RevPAR increase was the result of a 7.0% increase in occupancy offset by a 2.5% decrease in ADR.
Portfolio Update
As of December 31, 2010, total assets were approximately $209.6 million, including approximately $183.9 million of net investment in hotel properties plus approximately $9.5 million for the Company’s joint venture investment in the Crowne Plaza Hollywood Beach Resort.
On July 26, 2010, the Company executed a Doubletree Franchise License Agreement (the “License Agreement”) with Hilton Worldwide for its Raleigh, North Carolina, property in order to upbrand the hotel from its current Holiday Inn affiliation. In conjunction with the License Agreement, the Company is executing a Product Improvement Plan and expects to rebrand the hotel no later than November 30, 2011. The License Agreement will remain in effect for a period of 10 years from the conversion date.
Balance Sheet/Liquidity
At December 31, 2010, the Company had approximately $5.2 million of available cash and cash equivalents, of which approximately $2.2 million was reserved for real estate taxes, insurance, capital improvements and certain other expenses. The Company has approximately $75.2 million outstanding on its line of credit, which had been deployed primarily to fund the acquisitions and renovations of the Sheraton Louisville Riverside and the Crowne Plaza Tampa Westshore, the Company’s equity contribution to its joint venture with The Carlyle Group for the purchase of the Crowne Plaza Hollywood Beach Resort, as well as the acquisition of the Crowne Plaza Hampton Marina.
Our indebtedness under our credit facility matures in May 2011. However, the June 2010 amendment to our credit agreement provides us the option to extend the maturity date for one year to May 2012 provided we meet certain loan-to-value requirements and satisfy certain additional conditions. The loan-to-value requirements of the extension provision of our credit agreement contemplate valuations of our encumbered properties at a multiple of their net operating income, as defined by our credit agreement. The maximum amount that we can borrow under the credit facility during the extension period is 70.0% of the value of the encumbered properties. We do not believe our encumbered properties will realize sufficient operating performance to allow the properties in our collateral pool to meet the loan-to-value requirements of the extension provision. We estimate that in order to exercise the extension option we will be required to reduce the outstanding balance on the facility by making a payment ranging between $17.5 million and $22.5 million during the second quarter 2011.
The mortgage on our Hampton, Virginia property matures in June 2011 but may be extended for one additional 12-month period subject to certain terms and conditions. The mortgage on our Jacksonville, Florida property matures in July 2011.
The Company currently is considering a number of alternatives to address these maturities including refinancings of the existing indebtedness as well as amendments to agreements with existing lenders. The Company is also evaluating potential sources of additional capital.
Dividend
As previously announced, the fifth amendment to the credit agreement entered into in June 2010 permits the Company to pay in any given fiscal year a dividend in an amount minimally necessary in order to maintain its status as a REIT provided that no default or event of default exists at the time of, or after giving effect to, the distribution and the Company does not incur indebtedness to make the distribution. The Company anticipates the amount of such a dividend will remain at 90.0% of taxable income excluding net capital gains, which does not necessarily equal net income as calculated in accordance with GAAP. The credit agreement also provides that the Company may make additional dividend distributions so long as no event of default exists at the time, or after giving effect to, such additional distributions if the Company maintains a minimum liquidity position of $10.0 million and satisfies a debt yield ratio of EBITDA to total liabilities of at least 10.0% before and after giving effect to such distribution, provided the aggregate amount of such distributions in a given year cannot exceed 90.0% of FFO for the prior fiscal year. Any future changes to the Company’s current dividend policy will need to be in compliance with restrictions on the payment of cash dividends as set forth in the referenced amendment to the credit agreement.
Outlook and Market Trends
Set forth below is guidance for 2011, which is predicated on continued strengthening of the economy and expected improvements in hotel lodging industry fundamentals. These projections are based on occupancy and rate estimates that are consistent with calendar year 2011 trend forecasts by Smith Travel Research for the market segments in which the Company operates. The FFO forecast reflects management’s expectation that recently renovated and opened properties, including the Hilton Savannah DeSoto and the Crowne Plaza Tampa Westshore, will continue to experience increased demand and improved operations and that there will be continued, albeit slowed, expansion in the lodging industry through 2011.
The table below reconciles projected 2011 net loss to projected FFO and provides projected key operating metrics and supplemental information:
Low Range High Range
Y/E Dec 31, 2011 Y/E Dec 31, 2011
-- --
Net loss $(1,935,000) $(977,500)
Noncontrolling interest (677,500) (342,500)
Depreciation and amortization 8,525,000 8,525,000
Equity in depreciation and
amortization of joint venture 550,000 550,000
FFO $6,462,500 $7,755,000
========== ==========
Weighted average shares and units 12,925,000 12,925,000
========== ==========
FFO per share and unit $0.50 $0.60
===== =====
Earnings Call/Webcast
The Company will conduct its fourth quarter 2010 conference call for investors and other interested parties at 10:00 a.m. Eastern Time (ET) on Tuesday, February 22, 2011. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 877-317-6789 (United States) or 8666053852 (Canada).. To participate on the webcast, log on to http://www.mhihospitality.com at least 15 minutes before the call to download the necessary software. For those unable to listen to the call live, a taped rebroadcast will be available beginning one hour after completion of the live call on February 22, 2011 through December 31, 2011. To access the rebroadcast, dial 877-344-7529 and enter passcode number 447557. A replay of the call also will be available on the Internet at http://www.mhihospitality.com until February 22, 2012.
SOURCE MHI Hospitality Corporation
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