MDH Mhi Hospitality Corp. (MM)

WILLIAMSBURG, Va., May 5 /PRNewswire-FirstCall/ -- MHI Hospitality Corporation (Nasdaq: MDH) ("the Company"), a self-advised lodging real estate investment trust (REIT), today reported consolidated results for the first quarter ended March 31, 2010.

HIGHLIGHTS:

• Total revenue for the first quarter 2010 increased 13.0% over first quarter 2009, or approximately $2.0 million, to approximately $17.5 million.
• Total room revenue for the first quarter 2010 increased 15.7% over first quarter 2009, or approximately $1.6 million, to approximately $12.1 million.
• Consolidated portfolio Revenue per Available Room ("RevPAR") increased 7.1% over first quarter 2009.
• Adjusted operating income for the first quarter 2010 increased 44.7% over first quarter 2009, or approximately $1.1 million, to approximately $3.4 million.
• Funds from Operations ("FFO") increased 7.2% over first quarter 2009, or approximately $0.1 million, to approximately $1.2 million, or $0.09 per share, for first quarter 2010.

Andrew M. Sims, President and CEO of MHI Hospitality Corporation, commented, "We are pleased to report strengthened performance in the first quarter, including gains in Funds From Operations, total revenue and RevPAR, as well as a nearly 45 percent increase in adjusted operating income. We believe this progress is a direct result of our repositioned hotel assets gaining traction within each of their markets. We remain committed to increasing customer share across the portfolio and are cautiously optimistic about stabilizing industry fundamentals."  

Operating Results

The Company reported consolidated total revenue of approximately $17.5 million for the three-month period ended March 31, 2010.  This compares to consolidated total revenue of approximately $15.5 million for the three-month period ended March 31, 2009.  The Company reported a 44.7% increase in adjusted operating income for the first quarter 2010, or an increase of approximately $1.1 million to approximately $3.4 million from approximately $2.3 million for the first quarter 2009.  Net operating income for the quarter increased to approximately $0.4 million, as compared to a net operating loss of approximately $0.2 million for the first quarter 2009.  The Company reported an income tax benefit of approximately $0.2 million for the first quarter 2010 compared to an income tax benefit of approximately $0.9 million for the first quarter 2009.  For the first quarter 2010, the Company also reported a consolidated net loss of approximately $0.8 million, or $0.08 per share, as compared to a consolidated net loss of approximately $0.6 million, or $0.09 per share, for the comparable 2009 period.  For the first quarter of 2010, FFO was approximately $1.2 million, or $0.09 per share, compared to approximately $1.1 million, or $0.10 per share, for the first quarter 2009.  During the first quarter 2010, the Company reported an unrealized gain of approximately $0.4 million on the value of its interest rate swap as compared to an unrealized gain of approximately $0.2 million for the comparable 2009 period.  The interest rate swap is required by the Company's lenders on its credit facility.

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.  Reconciliation of these non-GAAP financial measures is included in the accompanying financial tables.

Portfolio Operating Performance

The following tables illustrate the key operating metrics for the three months ended March 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 were under the Company's control during both the three months ended March 31, 2010 and the corresponding period in 2009 ("same-store" properties).  Accordingly, the same-store data does not reflect the performance of 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.

For the quarter ended March 31, 2010, the Company's properties realized a 7.1% increase in RevPAR versus the same period in 2009.  The RevPAR increase was the result of a 15.9% increase in occupancy offset by a 7.6% decrease in ADR.  For the quarter ended March 31, 2010, the same-store portfolio realized a 3.7% increase in RevPAR versus the same period in 2009.  The RevPAR decrease was the result of an 11.7% increase in occupancy, offset by a 7.2% decrease in ADR.

Portfolio Update

As of March 31, 2010, total assets were approximately $212.6 million versus approximately $214.0 million, for the comparable period in 2009.  This includes approximately $187.0 million of net investment in hotel properties plus approximately $9.9 million for the Company's joint venture investment in the Crowne Plaza Hollywood Beach Resort.  The Company also reported the following portfolio developments:

• Increases in market share were achieved at all assets in the portfolio, with the exception of the Hampton asset; the Company believes this positive performance trend is the result of aggressive sales and marketing efforts performed in anticipation of an improving economy and rebound within the lodging industry.
• The Sheraton Louisville Riverside Hotel received the 2009 Tiffany Crystal Trophy from Sheraton.  This award is given to the hotel that achieves the highest overall guest satisfaction of all Northern American Sheraton Hotels for the year 2009.

Balance Sheet/Liquidity

At March 31, 2010, the Company had approximately $3.4 million of available cash and cash equivalents, of which approximately $1.0 million is reserved for capital improvements and certain other expenses.  The Company has approximately $75.2 million outstanding on its $80.0 million revolving line of credit, which had been deployed primarily to fund the acquisition and renovation of the Sheraton Louisville Riverside Hotel, the Company's equity contribution to its joint venture with The Carlyle Group for the purchase of the Crowne Plaza Hollywood Beach Resort, and the acquisitions of the Tampa, Florida and Hampton, Virginia hotel properties.  

The Company has no debt maturing before May 2011, other than the mortgage on the Jacksonville property, which matures in July 2010 but may be extended for one year subject to certain conditions, including, but not limited to, a principal payment reducing the loan-to-value ratio to a maximum of 75.0% which the Company estimates at no more than $3.0 million.  The loans coming due in 2011 are a combination of variable and fixed rate debt carrying favorable terms.

Pursuant to the terms of the Company's credit facility, the methodology used to determine the value of several hotel assets that were renovated over the last two years and the percentage of the aggregate value of the Company's hotel properties in the borrowing base used to determine the level of borrowing available under the line changed commencing April 1, 2010.  The loan-to-value ratio under the credit facility was reduced from 70% to 65% and certain hotels are now valued quarterly on the basis of their net operating income over a trailing twelve month period rather than on the basis of acquisition cost or an appraised value.  As a result of these changes, the aggregate loan amount available to the Company will be reduced below our borrowing levels at April 1, 2010 and the Company may be required to make a principal payment ranging from $20.0 million to $25.5 million on its line based upon current projections.  The Company is currently considering a number of alternatives to address this issue and is in discussions with the lenders under its credit facility with respect to a potential amendment to the facility which would not oblige the Company to immediately reduce its borrowings under the facility.

Dividend

As previously announced, the fourth amendment to the credit agreement entered into in May 2009 permits the Company to pay in any given fiscal year a dividend in an amount minimally necessary in order to preserve cash while maintaining the Company's REIT status, provided that no dividend may be paid during the first three quarters of such fiscal year.  The Company anticipates the amount of such a dividend will remain at 90% of taxable income.  If certain liquidity thresholds and other conditions are met the Company may be able to declare and pay additional cash dividends in any 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.  

Asset Management Group

As previously announced, the Company has formed a separate subsidiary, MHI Asset Recovery, LLC, to pursue asset management assignments from special servicers and other entities involved in distressed hotel loans and workouts.  The Company will provide asset management services including, but not limited to, property management, receiver services support, litigation and contract support, franchise selection, construction management, value optimization and project management on a fee-for-service basis.

Outlook and Market Trends

In light of ongoing unpredictable macro-economic and hospitality market conditions and their potential impact on the Company's markets and customer base, management has elected to continue to suspend providing guidance regarding projected financial performance for the near term.

Earnings Call/Webcast

The Company will conduct its first quarter 2010 conference call for investors and other interested parties at 10:00 a.m. Eastern Time (ET) on Wednesday, May 5, 2010.  The conference call will be accessible by telephone and through the Internet.  Interested individuals are invited to listen to the call by telephone at 800-860-2442.  To participate on the webcast, log on to 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 May 5, 2010 through June 30, 2010 at 9 a.m. ET.  To access the rebroadcast, dial 877-344-7529 and enter passcode number 439722#.  A replay of the call will also be available on the Internet at www.mhihospitality.com until June 30, 2010.

About MHI Hospitality Corporation

MHI Hospitality Corporation is a self-advised lodging REIT focused on the acquisition, redevelopment and management of mid-scale, upscale and upper-upscale full-service hotels in the Mid-Atlantic, Midwest and Southeastern United States.  Currently, the Company's portfolio consists of investments in eleven hotel properties, nine of which are wholly-owned and comprise 2,110 rooms.  All of the Company's wholly-owned properties operate under the Hilton, InterContinental Hotels Group and Starwood Hotels and Resorts brands.  The Company also has a 25 percent interest in the Crowne Plaza Hollywood Beach Resort and a leasehold interest in the common area of Shell Island Resort, a resort condominium property.  MHI Hospitality Corporation was organized in 2004 and is headquartered in Williamsburg, Virginia.  For more information please visit www.mhihospitality.com.

Forward-Looking Statements

This news release includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933.  Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, these statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond the Company's control.  Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements.  Factors which could have a material adverse effect on the Company's future results, performance and achievements, include, but are not limited to: national and local economic and business conditions, including the current economic downturn, that will affect occupancy rates at the Company's hotels and the demand for hotel products and services; risks associated with the hotel industry, including competition, increases in wages, energy costs and other operating costs; the availability and terms of financing and capital and the general volatility of the securities markets, specifically, the impact of the current credit crisis which has severely constrained the availability of debt financing; risks associated with the level of the Company's indebtedness and its ability to meet covenants in its debt agreements; management and performance of the Company's hotels; risks associated with redevelopment and repositioning projects, including delays and cost overruns; supply and demand for hotel rooms in the Company's current and proposed market areas; the Company's ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations; and legislative/regulatory changes, including changes to laws governing taxation of real estate investment trusts. These risks and uncertainties are described in greater detail under "Risk Factors" in the Company's Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission.  The Company undertakes no obligation and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.  Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially.

SOURCE MHI Hospitality Corporation