MHI Hospitality Corporation (NASDAQ: MDH) (“MHI” or the
“Company”), a self-managed and self-administered lodging real
estate investment trust (a “REIT”), today reported its consolidated
results for the third quarter ended September 30, 2011. The
Company’s results include the following*:
Three months ended Nine months ended
September 30, 2011 September 30, 2010
September 30, 2011 September 30, 2010 ($ in
thousands except per share data) Total Revenue $ 20,015 $
19,538 $ 61,680 $ 58,563 Net loss attributable to the Company
(1,117
)
(1,004
)
(2,289
)
(1,529 ) EBITDA 3,641
3,663
12,951
12,689 Adjusted EBITDA 3,685
3,667
13,401
12,046 Hotel EBITDA 4,206
4,220
14,659
13,639 FFO 859
974
3,814
4,782 Adjusted FFO 827
983
4,955
4,467 Net loss per diluted share attributable to the Company
$
(0.11
)
$
(0.11
)
$
(0.23
)
$
(0.16
)
FFO per diluted share and unit 0.07
0.08
0.29
0.37 Adjusted FFO per diluted share and unit 0.06
0.08
0.38
0.35
(*) Earnings before interest, taxes, depreciation and
amortization (“EBITDA”), adjusted EBITDA, hotel EBITDA, funds from
operations (“FFO”), adjusted FFO, FFO per share and adjusted FFO
per share are non-GAAP financial measures. See further discussion
of these non-GAAP measures, including definitions related thereto,
and reconciliations to net income (loss) later in this press
release.
HIGHLIGHTS:
- Common Dividends. The Company
announced a reinstatement of its common dividend in July and paid a
dividend (distribution) of $0.02 per common share (and unit) on
October 11, 2011. On October 17, 2011, the Company declared another
quarterly dividend (distribution) of $0.02 per common share (and
unit), payable on January 11, 2012 to stockholders (and
unitholders) of record as of December 15, 2011.
- RevPAR. Room revenue per
available room (“RevPAR”) for the Company’s wholly-owned properties
increased 3.0 percent over the third quarter 2010 to $72.88 driven
by a 4.0 percent increase in average daily rate (“ADR”). For the
first nine months of 2011, RevPAR increased 6.0 percent over the
comparable period in 2010.
- Hotel EBITDA. The Company
generated hotel EBITDA of approximately $4.2 million during the
third quarter 2011, bringing its year-to-date total to $14.7
million, an increase of $1.1 million over the comparable nine-month
period in 2010.
- Adjusted EBITDA. The Company
generated adjusted EBITDA of approximately $3.7 million during the
third quarter 2011, bringing its year-to-date total to $13.4
million, an increase of $1.4 million over the comparable nine-month
period in 2010.
- Adjusted FFO. The Company
generated adjusted FFO of approximately $0.8 million during the
third quarter 2011 and $5.0 million for the first nine months of
2011. This represents an increase of $0.5 million over the
comparable nine-month period in 2010.
- Capital Expenditures. So far
this fiscal year, the Company has invested approximately $4.2
million of capital throughout its portfolio, including
approximately $1.9 million at the Holiday Inn Brownstone, located
in Raleigh, North Carolina, in anticipation of its conversion to
the Doubletree by Hilton Brownstone-University during the fourth
quarter 2011.
- Hurricane Irene. The Company
estimates the impact of Hurricane Irene on its wholly-owned
portfolio was approximately $500,000 in lost revenue during the
third quarter 2011, including an approximately $1.90 negative
effect on RevPAR for such period. If the Company had realized the
revenues from such lost business, the Company estimates its RevPAR
for the third quarter 2011 would have increased 5.6% over the
comparable period in 2010. The Company estimates that the overall
effect of Hurricane Irene on its net income was approximately
$350,000 for the third quarter 2011.
Andrew M. Sims, Chairman and CEO of MHI Hospitality Corporation,
commented, “Hurricane Irene created a speed bump in our quarterly
earnings, causing cancellations over a ten-day period from Fort
Lauderdale north to Philadelphia. Since then, September and October
2011 results resumed the progress MHI experienced earlier in the
year.”
Financing Transactions
- On August 1, 2011, the Company obtained
an 18-month extension of the maturity date of the $18.0 million
original mortgage on the Crowne Plaza Jacksonville Riverfront hotel
property to January 22, 2013. Under the terms of the extension, the
Company prepaid $4.0 million of the outstanding mortgage balance,
which the Company obtained by drawing on its bridge loan agreement,
so as to reduce the outstanding principal amount to $14.0 million,
and the lender waived certain covenants requiring the Company to
further pay down principal under certain circumstances.
- On August 5, 2011, the Company obtained
a 10-year, $7.5 million mortgage with Bank of Georgetown on the
Holiday Inn Laurel West hotel property. The mortgage will bear
interest at a rate of 5.25% per annum for the first five years.
After five years, the rate of interest will adjust to a rate of
3.00% per annum plus the then-current 5-year U.S. Treasury bill
rate of interest, with a floor of 5.25%. Proceeds of the mortgage
were used to pay down a related portion of Company indebtedness
under its credit facility.
Subsequent Events
- On October 17, 2011, the Company
obtained a 5-year, $8.0 million mortgage with Premier Bank, Inc. on
the Holiday Inn Brownstone hotel property. The mortgage will bear
interest at a rate of 5.25% per annum for the first five years and
may be extended for an additional five years, at the Company’s
option if certain conditions precedent have been satisfied, during
which it will bear interest at a rate of 3.00% per annum plus the
then-current 5-year U.S. Treasury bill rate of interest. Proceeds
of the mortgage were used to pay down a related portion of Company
indebtedness under its credit facility.
Balance Sheet/Liquidity
At September 30, 2011, the Company had approximately $9.0
million of available cash and cash equivalents, of which
approximately $3.6 million is reserved for real estate taxes,
insurance, capital improvements and certain other expenses or
otherwise restricted. The Company had approximately $153.8 million
in outstanding debt at a weighted average interest rate of
approximately 6.45%. The Company also had $6.0 million of
availability on its bridge loan agreement at September 30,
2011.
2011 Outlook
The Company is updating and revising its forecast for fiscal
year 2011 financial performance to reflect additional interest
expense related to the Company’s recent financings as well as
current expectations on the likely effect of various non-cash
charges including unrealized holding period gains and losses
related to the Company’s interest rate swap on its credit facility,
the interest-rate swap held by the Company’s joint venture with
respect to which the Company recognizes its pro rata share of
unrealized holding period gains and losses, holding period gains
and losses related to the warrant issued in its recent preferred
equity financing, as well as the write-off of the costs of the
Company’s aborted stock offering. The forecast is predicated on
expected ongoing improvement in hotel lodging industry fundamentals
and continued strengthening of the economy. The Company’s occupancy
and rate estimates are consistent with recently updated calendar
year 2011 trend forecasts by Smith Travel Research for the market
segments in which the Company operates.
The table below reflects the Company’s projection, within a
range, of various financial measures for 2011:
Low Range High Range Y/E Dec 31, 2011
Y/E Dec 31, 2011 ($ in thousands except per share data) Total
Revenue $ 80,182 $ 83,420 Net loss
(5,573
)
(3,790
)
EBITDA 16,181 17,972 Adjusted EBITDA 17,081 18,777 Hotel
EBITDA 18,631 20,333 FFO 3,740 5,523 Adjusted FFO 5,740
7,428 Net loss per diluted share attributable to the Company
$
(0.43
)
$
(0.29
)
FFO per diluted share and unit 0.29 0.43 Adjusted FFO per diluted
share and unit 0.44 0.57
Earnings Call/Webcast
The Company will conduct its third quarter 2011 conference call
for investors and other interested parties at 10:00 a.m. Eastern
Time on Tuesday, November 8, 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 866-605-3852 (Canada) or +1
412-317-6789 (International). 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 November 8, 2011 through
September 30, 2012. To access the rebroadcast, dial 877-344-7529
and enter conference number 10004772. A replay of the call also
will be available on the Internet at www.mhihospitality.com until
September 30, 2012.
About MHI Hospitality Corporation
MHI Hospitality Corporation is a self-managed and
self-administered lodging REIT focused on the acquisition,
renovation, upbranding and repositioning of upscale to upper
upscale full-service hotels in the Mid-Atlantic and Southern United
States. Currently, the Company’s portfolio consists of investments
in ten hotel properties, nine of which are wholly-owned and
comprise 2,111 rooms. All of the Company’s wholly-owned properties
operate under the Hilton Worldwide, InterContinental Hotels Group
and Starwood Hotels and Resorts brands. The Company has a 25.0
percent interest in the Crowne Plaza Hollywood Beach Resort. The
Company also has 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 recent 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 magnitude, sustainability and timing of the economic
recovery in the hospitality industry and in the markets in which
the Company operates; the availability and terms of financing and
capital and the general volatility of the securities markets,
specifically, the impact of the recent 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 the
conflicts of interest of the Company’s officers and directors;
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; the Company’s ability to successfully expand into new
markets; legislative/regulatory changes, including changes to laws
governing taxation of REITs; the Company’s ability to maintain its
qualification as a REIT; and the Company’s ability to maintain
adequate insurance coverage. 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.
MHI HOSPITALITY CORPORATION CONSOLIDATED
BALANCE SHEETS September 30, 2011 December 31,
2010 (unaudited) (audited) ASSETS
Investment in hotel properties, net
$
182,002,524
$ 183,898,660 Investment in joint venture 9,115,806 9,464,389 Cash
and cash equivalents 5,399,225 2,992,888 Restricted cash 3,554,450
2,205,721
Accounts receivable
2,528,793 1,868,380 Accounts receivable-affiliate — 17,375 Prepaid
expenses, inventory and other assets 1,923,747 2,335,783 Notes
receivable, net 100,000 100,000 Shell Island lease purchase, net
810,662 1,080,882 Deferred income taxes 4,055,457 4,742,695
Deferred financing costs, net 3,106,362
872,415
TOTAL ASSETS $
212,597,026 $ 209,583,431
LIABILITIES Line of credit $ 45,133,013 $ 75,197,858
Mortgage debt 75,029,937 72,192,253 Loans payable 8,400,220
4,493,970 Series A Cumulative Redeemable Preferred Stock, par value
$0.01, 27,650 shares authorized, 25,227 and 0 shares issued and
outstanding at September 30, 2011 and December 31, 2010,
respectively 25,226,530 — Accounts payable and accrued liabilities
8,901,659 6,335,145 Advance deposits 725,955 555,902 Dividends and
distributions payable 258,825 — Accounts payable-affiliate 3,351 —
Warrant derivative liability 1,368,000 —
TOTAL LIABILITIES 165,047,490
158,775,128 Commitments and contingencies
EQUITY MHI Hospitality Corporation stockholders’
equity
Preferred stock, par value $0.01; 972,350
shares authorized, 0 shares issued and outstanding at September 30,
2011 and December 31, 2010, respectively
— — Common stock, par value $0.01; 49,000,000 shares authorized;
9,701,786 shares and 9,541,286 shares issued and outstanding at
September 30, 2011 and December 31, 2010, respectively 97,018
95,413 Additional paid in capital 56,195,576 55,682,976
Distributions in excess of retained earnings (19,320,142 )
(16,837,182 ) Total MHI Hospitality Corporation
stockholders’ equity 36,972,452 38,941,207 Noncontrolling interest
10,577,084 11,867,096
TOTAL
EQUITY 47,549,536 50,808,303
TOTAL LIABILITIES AND EQUITY $ 212,597,026
$ 209,583,431 MHI
HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited) Three months ended
September 30, Nine months ended September 30,
2011 2010
2011 2010 REVENUE
Rooms department $ 14,154,271 $ 13,736,101 $ 43,223,226 $
40,784,193 Food and beverage department 4,656,014 4,657,257
14,991,087 14,395,240 Other operating departments 1,204,901
1,144,373 3,466,164
3,383,410
Total revenue
20,015,186
19,537,731 61,680,477
58,562,843 EXPENSES Hotel operating expenses
Rooms department 4,078,235 3,972,346 12,048,335 11,495,313 Food and
beverage department 3,266,031 3,227,304 10,102,863 9,756,741 Other
operating departments 157,839 196,410 420,580 540,248 Indirect
8,152,905 7,770,926 23,942,063
22,610,861
Total hotel operating
expenses 15,655,010
15,166,986 46,513,841
44,403,163 Depreciation and amortization 2,187,541
2,123,761
6,460,928 6,381,378 Corporate general and administrative
1,348,792 725,909
3,154,412 2,687,719
Total
operating expenses 19,191,343
18,016,656 56,129,181
53,472,260 NET OPERATING
INCOME 823,843 1,521,075
5,551,296 5,090,583 Other income (expense)
Interest expense (2,747,284 ) (2,608,276 ) (8,052,832 ) (7,385,350
) Interest income 4,281 4,843 11,819 15,779 Equity in earnings of
joint venture (283,539 ) (184,237 ) (161,083 ) 5,089 Unrealized
gain (loss) on warrant derivative 646,000 — 266,000 — Unrealized
gain (loss) on hedging activities — (16,566 ) 72,649 630,828 Gain
(loss) on disposal of assets (9,894 ) (84,128 )
2,361 (84,128 )
Net loss before
taxes (1,566,593 ) (1,367,289 )
(2,309,790 ) (1,727,199 ) Income tax
benefit (provision) 71,692 (3,461 )
(765,083 ) (365,861 )
Net loss
(1,494,901 ) (1,370,750 )
(3,074,873 ) (2,093,060 ) Add: Net loss
attributable to the noncontrolling interest 377,859
366,400
785,948 564,435
Net loss
attributable to the Company $ (1,117,042 )
$ (1,004,350 )
$ (2,288,925 ) $ (1,528,625
) Net loss per share attributable to the Company
Basic $ (0.12 ) $ (0.11 ) $ (0.24 ) $ (0.16 ) Diluted $ (0.11 ) $
(0.11 ) $ (0.23 ) $ (0.16 ) Weighted average number of shares
outstanding Basic 9,701,786 9,541,286 9,627,006 9,415,593 Diluted
9,802,378 9,557,286 9,792,440 9,431,593
MHI HOSPITALITY CORPORATION
KEY OPERATING METRICS
(unaudited)
The following tables illustrate the key
operating metrics for the three months and nine months ended
September 30, 2011 and 2010, respectively, for the Company’s
wholly-owned properties during each respective reporting period
(“consolidated” properties). The table excludes 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)
Three Months Ended September
30,
2011 2010 Variance Occupancy 68.6%
69.2% -0.9% ADR $ 106.23 $ 102.19 4.0% RevPAR $ 72.88 $ 70.76 3.0%
Consolidated (All Hotels)
Nine months Ended September 30,
2011 2010 Variance Occupancy 68.2% 68.1% 0.2%
ADR $ 109.97 $ 104.03 5.7% RevPAR $ 75.02 $ 70.80 6.0%
MHI HOSPITALITY CORPORATION RECONCILIATION OF NET INCOME
(LOSS) TO FFO, Adjusted FFO, EBITDA, Adjusted EBITDA and
Hotel EBITDA (unaudited) Three
months ended September 30, Nine months ended September
30, 2011 2010
2011 2010 Net loss
attributable to the Company $ (1,117,042 ) $ (1,004,350 ) $
(2,288,925 ) $ (1,528,625 ) Noncontrolling interest (377,859 )
(366,400 ) (785,948 ) (564,435 ) Depreciation and amortization
2,187,541 2,123,761 6,460,928 6,381,378 Equity in depreciation and
amortization of joint venture 156,123 136,695 430,150 409,660
(Gain)/loss on disposal of assets 9,894 84,128
(2,361 ) 84,128 FFO $ 858,657 $
973,834 $ 3,813,844 $ 4,782,106 Unrealized (gain)/loss on hedging
activities(1) 106,885 4,146 133,055 (643,248 ) Unrealized (gain)
loss on warrant derivative (646,000 ) — (266,000 ) — (Increase)
decrease in deferred income taxes (75,693 ) 5,258 691,481 327,919
Aborted offering costs 582,850 —
582,850 — Adjusted FFO $ 826,699
$ 983,238 $ 4,955,230 $ 4,466,777
Weighted average shares outstanding 9,701,786 9,541,286 9,627,006
9,415,593 Weighted average units outstanding 3,239,439
3,366,656 3,305,574
3,476,389 Weighted average shares and units
12,941,225 12,907,942 12,932,580
12,891,982 FFO per share and unit $ 0.07
$ 0.08 $ 0.29 $ 0.37 Adjusted
FFO per share and unit $ 0.06 $ 0.08 $ 0.38 $
0.35
Three months ended September 30,
Nine months ended September 30, 2011
2010 2011
2010 Net loss attributable to the Company $
(1,117,042 ) $ (1,004,350 ) $ (2,288,925 ) $ (1,528,625 )
Noncontrolling interest (377,859 ) (366,400 ) (785,948 ) (564,435 )
Interest expense 2,747,284 2,608,276 8,052,832 7,385,350 Interest
income (4,281 ) (4,843 ) (11,819 ) (15,779 ) Income tax provision
(benefit) (71,692 ) 3,461 765,083 365,861 Depreciation and
amortization 2,187,541 2,123,761 6,460,928 6,381,378 Equity in
interest expense and depreciation and amortization of joint venture
267,058 218,785 761,383 581,055 (Gain)/loss on disposal of assets
9,894 84,128 (2,361 )
84,128 EBITDA 3,640,903 3,662,818 12,951,173
12,688,933 Unrealized (gain)/loss on hedging activities(1) 106,885
4,146 133,055 (643,248 ) Unrealized loss on warrant derivative
(646,000 ) —
(266,000
)
—
Aborted offering costs 582,850 —
582,850 — Adjusted EBITDA 3,684,638
3,666,964 13,401,078 12,045,685 Corporate general and
administrative(2) 765,942 725,909 2,571,562 2,687,719 Equity in
EBITDA of joint venture (90,404 ) (22,128 ) (806,004 ) (573,724 )
Net lease rental income (111,250 ) (111,250 ) (333,750 ) (333,750 )
Other fee income (43,108 ) (39,051 ) (173,571
) (186,554 ) Hotel EBITDA $ 4,205,818 $
4,220,444 $ 14,659,315 $ 13,639,376
(1) Includes equity in unrealized
(gain)/loss on hedging activities of joint venture. (2) Excludes
aborted offering costs.
Non-GAAP Financial Measures
The Company considers the non-GAAP measures of FFO (including
FFO per share), EBITDA and hotel EBITDA to be key supplemental
measures of the Company’s performance and should be considered
along with, not alternatives to, net income (loss) as a measure of
the Company’s performance. These measures do not represent cash
generated from operating activities determined by GAAP or amounts
available for the Company’s discretionary use and should not be
considered alternative measures of net income, cash flows from
operations or any other operating performance measure prescribed by
GAAP.
FFO
Industry analysts and investors use Funds from Operations, FFO,
as a supplemental operating performance measure of an equity REIT.
FFO is calculated in accordance with the definition that was
adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts (“NAREIT”). FFO, as defined by
NAREIT, represents net income or loss determined in accordance with
GAAP, excluding extraordinary items as defined under GAAP and gains
or losses from sales of previously depreciated operating real
estate assets, plus certain non-cash items such as real estate
asset depreciation and amortization, and after adjustment for any
noncontrolling interest from unconsolidated partnerships and joint
ventures. Historical cost accounting for real estate assets in
accordance with GAAP implicitly assumes that the value of real
estate assets diminishes predictably over time. Since real estate
values instead have historically risen or fallen with market
conditions, many investors and analysts have considered the
presentation of operating results for real estate companies that
use historical cost accounting to be insufficient by itself.
The Company considers FFO to be a useful measure of adjusted net
income (loss) for reviewing comparative operating and financial
performance because we believe FFO is most directly comparable to
net income (loss), which remains the primary measure of
performance, because by excluding gains or losses related to sales
of previously depreciated operating real estate assets and
excluding real estate asset depreciation and amortization, FFO
assists in comparing the operating performance of a company’s real
estate between periods or as compared to different companies.
Although FFO is intended to be a REIT industry standard, other
companies may not calculate FFO in the same manner as we do, and
investors should not assume that FFO as reported by us is
comparable to FFO as reported by other REITs.
EBITDA
The Company believes that excluding the effect of non-operating
expenses and non-cash charges, and the portion of those items
related to unconsolidated entities, all of which are also based on
historical cost accounting and may be of limited significance in
evaluating current performance, can help eliminate the accounting
effects of depreciation and financing decisions and facilitate
comparisons of core operating profitability between periods and
between REITs, even though EBITDA also does not represent an amount
that accrued directly to shareholders.
Hotel EBITDA
The Company believes that excluding the effect of
corporate-level expenses and non-cash items, and the portion of
these items that relate to unconsolidated entities, provides a more
complete understanding of the operating results over which
individual hotels and operators have direct control. We believe
property-level results provide investors with supplemental
information on the on-going operational performance of our hotels
and the effectiveness of third-party management companies operating
our business on a property-level basis. The Company previously
reported Hotel EBITDA as Adjusted Operating Income.
Adjusted FFO and Adjusted
EBITDA
The Company presents adjusted FFO, including adjusted FFO per
share and unit, and adjusted EBITDA, which adjusts for certain
additional items including any unrealized gain (loss) on its
hedging instruments or warrant derivative, impairment losses,
losses on early extinguishment of debt, aborted offering costs,
costs associated with the departure of executive officers and
acquisition transaction costs. The Company excludes these items as
it believes it allows for meaningful comparisons between periods
and among other REITs and is more indicative of the on-going
performance of its business and assets. The Company’s calculation
of adjusted FFO and adjusted EBITDA may be different from similar
measures calculated by other REITs.
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