Press Release: RFS Hotel Investors Inc.
August 2, 2002
MEMPHIS, TN -- RFS Hotel Investors, Inc. (NYSE:RFS) yesterday announced funds from operations (FFO) for the second
quarter 2002 of $11.4 million, or $0.38 per share, compared to $16.9 million, or $0.62 per share, for the same
quarter a year ago. FFO for the six months ended June 30, 2002, was $19.2 million, or $0.66 per share, compared
to 2001 FFO of $31.9 million or $1.16 per share. Operating results were in line with reduced guidance given by
the Company on June 27, 2002.
Second Quarter Highlights
Hotel revenue per available room (RevPAR) declined 10.6% for the second quarter. The following represents changes
in RevPAR as compared to the prior year comparable periods by market segment:
RevPAR Change
-------------
Quarter Year to Date
-------- ------------
Full Service (16.6%) (22.0%)
Extended Stay ( 6.5%) ( 6.9%)
Limited Service ( 5.9%) ( 7.5%)
-------- --------
Total (10.6%) (13.5%)
Operating Results
Randy Churchey, president and chief operating officer, said, "As expected, the industry has experienced a
significant downturn in business travel which began in the spring of 2001 and was exacerbated by the events of
September 11. During the quarter, we experienced some improvement in the San Francisco market due to an increase
in the number of leisure travelers. However, RevPAR at our four hotels in and around Silicon Valley was down 32.7%
compared to a decline of 36.6% during the first quarter.
RevPAR for the entire portfolio declined 10.6% indicating some sequential improvement from the first quarter results
which reflected a decrease of 16.6%. We began to experience quarterly declines in RevPAR during the third quarter
of 2001 and RevPAR for the second quarter of 2001 was unchanged from the prior year. Therefore, quarterly RevPAR
comparisons should improve over the balance of the year."
Capital
Despite the reduction in FFO and RevPAR, the Company:
Kevin Luebbers, RFS executive vice president and chief financial officer, stated, "The repurchase of $25
million in preferred stock with the proceeds of our recent common stock offering reduces our aggregate dividends
by $1.1 million and eliminates the required future redemption of the Series B Preferred Stock. This transaction,
together with our successful sales of $125 million in unsecured senior notes and 1.15 million shares of common
stock in the first quarter, positions us with in excess of $100 million of available capital to withstand this
difficult operating environment and to opportunistically acquire hotels which meet our strategic and financial
criteria."
Outlook and Dividends
The Company declared a dividend of $0.25 per share, payable September 16, 2002, to shareholders of record September
6, 2002. RFS expects to pay an annual dividend in 2002 of $1.00 per share. Based upon preliminary estimates, approximately
75% of the dividend is expected, for tax purposes, to be characterized as a return of capital, and; therefore,
not taxable as ordinary income for federal income tax purposes.
Robert Solmson, chairman and chief executive officer, stated, "It has been, and continues to be, extremely
difficult to predict lodging demand in the current economic environment. In recent months, the U.S. economy has
shown renewed growth following last year's recession. Recently, we have seen improving RevPAR trends for our hotels,
and we expect this trend to continue. Our best estimate is that RevPAR growth, year over year, during the second
half of 2002 will be consistent with industry forecasts of 2% to 6% and that FFO per share for 2002 will range
from $1.35 to $1.40.
Fortunately, the Company's balance sheet remains strong with total debt equal to only 36% of the costs of our assets,
no significant debt maturities until 2008, and operating cash flow (EBITDA less interest expense) for the trailing
12 months of $44.4 million. This combination of low leverage and strong cash flows enables the Company to pay meaningful
dividends to our shareholders during this difficult operating environment. Management will continue to do everything
in its power to: protect the dividend; maintain low levels of debt; and, maximize return on investment."
The Company also announced that, effective in 2003, it would include in compensation the expense associated with
the fair value of stock option grants made subsequent to January 1, 2003. The impact of this change in accounting
policy, if adopted in prior years, would have increased annual compensation costs by approximately $.01 per share
on an annual basis.
RFS Hotel Investors, Inc. (RFS) is a real estate investment trust (REIT) that owns 58 hotels with approximately
8,400 rooms located in 24 states. RFS's hotel portfolio is diversified by geography, brand and segment. Leading
brands under which RFS hotels are operated include Sheraton®, Residence Inn by Marriott®, Hilton®,
Doubletree®, Holiday Inn®, Hampton Inn®, and Homewood Suites by Hilton®. By segment, RFS receives
approximately 38% of its EBITDA from full service hotels, 35% from extended stay hotels, and 27% from limited service
hotels. Additional information can be found on the Company's web site at www.rfshotel.com.
RFS invites you to listen to the Company's second quarter 2002 conference call. A recording of the call also will
be archived and available at www.rfshotel.com.
Certain matters discussed in this press release are forward-looking statements within the meaning of federal securities
regulations. All forward-looking statements involve known and unknown risks, uncertainties and other factors which
may cause the actual transactions, results, performance or achievements to be materially different from any future
transactions, results, performance or achievements expressed or implied by such forward-looking statements. General
economic conditions, competition, and governmental actions will affect future transactions, results, performance,
and achievements. These risks are presented in detail in our filings with the Securities and Exchange Commission.
Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that our expectations will be attained or that any deviations will not be
material. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
RFS Hotel Investors, Inc.
Key Company Statistics
QUARTER ENDED JUNE 30, 2002
Operating Statistics
Total Revenues $53.6 million EBITDA $19.4 million
% Decrease
in Revenues 11.2% % Decrease in EBITDA 21.1%
FFO $11.4 million % of Hotel EBITDA(1)
Full Service Hotels 38%
% Decrease in FFO 32.9% Extended Stay Hotels 35%
Limited Service Hotels 27%
FFO per Share $0.38
% Decrease in FFO
per Share 38.7%
Capital Statistics
EBITDA/Interest(1) 2.8x Debt/EBITDA(1) 4.3x
EBITDA/Interest and 2.5x Percentage of fixed 97%
Preferred Dividends(1) interest rate debt
(1) EBITDA information is for the trailing twelve months ended
June 30, 2002.
RFS HOTEL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenue:
Rooms $ 46,374 $ 52,163 $ 87,066 $ 102,069
Food and beverage 4,674 4,580 8,877 9,337
Other operating departments 1,730 2,563 3,336 4,989
Lease revenue (1) 1,234 1,429 2,868 3,317
Deferred revenue (1) (491) (457) (1,503) (1,736)
Other 107 137 261 341
--------- --------- --------- ---------
Total hotel revenue 53,628 60,415 100,905 118,317
--------- --------- --------- ---------
Hotel operating expenses by
department:
Rooms 9,118 9,847 17,538 19,459
Food and beverage 3,346 3,553 6,507 7,061
Other operating departments 465 557 939 1,097
Undistributed operating
expenses:
Property operating costs 5,445 5,670 10,779 11,461
Property taxes, insurance
and other 3,174 2,896 6,533 6,141
Franchise costs 4,388 4,621 8,230 9,011
Maintenance and repair 2,500 2,616 4,815 5,198
Management fees 1,270 1,532 2,528 2,883
General and administrative 3,855 4,003 7,546 7,913
--------- --------- --------- ---------
Total hotel operating
expenses 33,561 35,295 65,415 70,224
--------- --------- --------- ---------
Net hotel operating income
(Hotel EBITDA) 20,067 25,120 35,490 48,093
Corporate expenses:
Depreciation 7,612 7,483 14,933 14,877
Amortization of deferred
expenses and unearned
compensation 739 707 1,415 1,410
Interest expense 6,511 6,216 12,555 12,772
General and administrative 1,177 1,006 2,262 2,179
Debt extinguishment and swap
termination costs -- -- 10,122 --
Hilton lease termination -- 600 -- 65,496
Loss (gain) on sale of assets 10 (1,200) (962) (1,200)
Minority interest in income
(loss) of Operating
Partnership 119 687 (676) (1,759)
--------- --------- --------- ---------
Income (loss) before income
taxes 3,899 9,621 (4,159) (45,682)
Provision for (benefit from)
income taxes 130 (20) (380) (24,499)
--------- --------- --------- ---------
Net income (loss) 3,769 9,641 (3,779) (21,183)
Preferred stock dividends (781) (782) (1,562) (1,562)
Gain (loss) on redemption of
preferred stock (1,890) -- (1,890) 5,141
--------- --------- --------- ---------
Net income (loss) applicable
to common shareholders $ 1,098 $ 8,859 $ (7,231) $ (17,604)
========= ========= ========= ==========
Income (loss) per share
- diluted $ 0.04 $ 0.35 $ (0.27) $ (0.71)
Weighted average common
shares outstanding - diluted 27,217 25,003 26,407 24,864
(1) Deferred revenue is recorded for the Company's hotels which are
leased to third parties in accordance with Staff Accounting
Bulletin 101 which requires deferral of certain revenue until the
third and fourth quarters. For the three and six months ended
June 30, 2002 and 2001, five hotels were leased to third-party
lessees, respectively. SAB 101 has no effect on rent payments
under the Company's third-party leases or the Company's cash flow
and no impact on full year revenue.
RFS HOTEL INVESTORS, INC.
CALCULATION OF FFO AND EBITDA
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Funds from operations:
Net income (loss) $ 3,769 $ 9,641 $ (3,779) $ (21,183)
Minority interest in income
(loss) of Operating
Partnership 119 687 (676) (1,759)
Hilton lease termination -- 600 -- 65,496
Deferred income tax provision
(benefit) 130 32 (380) (24,499)
Debt extinguishment and swap
termination costs -- -- 10,122 --
Deferred revenue 491 457 1,503 1,736
Loss (gain) on sale of assets 10 (1,200) (962) (1,200)
Preferred stock dividends (781) (782) (1,562) (1,562)
Depreciation 7,612 7,483 14,933 14,877
--------- --------- --------- ---------
Funds from operations $ 11,350 $ 16,918 $ 19,199 $ 31,906
========= ========= ========= =========
Weighted average common
shares, partnership units
and potential dilutive
shares outstanding 29,676 27,474 29,013 27,452
FFO per share $ 0.38 $ 0.62 $ 0.66 $ 1.16
Earnings before interest,
taxes, depreciation and
amortization (EBITDA):
FFO 11,350 16,918 19,199 31,906
Interest expense 6,511 6,216 12,555 12,772
Current income taxes -- (52) -- --
Amortization 739 707 1,415 1,410
Preferred stock dividends 781 782 1,562 1,562
--------- --------- --------- ---------
Corporate EBITDA $ 19,381 $ 24,571 $ 34,731 $ 47,650
========= ========= ========= =========
RFS HOTEL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, Dec. 31,
2002 2001
--------- ---------
ASSETS
Investment in hotel properties, net $605,326 $615,562
Cash and cash equivalents 10,473 5,735
Restricted cash 5,375 6,817
Accounts receivable 5,105 5,533
Deferred expenses, net 8,764 6,964
Other assets 3,674 3,517
Deferred income taxes 25,114 24,734
--------- ---------
Total assets $663,831 $668,862
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses
(including deferred rent) $24,918 $20,857
Borrowings on Line of Credit 9,250 81,188
Long-term obligations 285,530 219,947
Minority interest in Operating Partnership,
2,459 units issued and outstanding at
June 30, 2002 and December 31, 2001, respectively 29,244 31,059
--------- ---------
Total liabilities 348,942 353,051
--------- ---------
Preferred Stock, $.01 par value, 5,000 shares
authorized, 250 shares issued and outstanding at
December 31, 2001 25,000
---------
Commitments and contingencies
Shareholders' equity:
Common Stock, $.01 par value, 100,000 shares
authorized, 29,041 and 25,811 shares issued
at June 30, 2002 and December 31, 2001,
respectively 290 258
Additional paid-in capital 409,333 368,361
Other comprehensive income -- (3,220)
Treasury stock, at cost, 576 shares (8,100) (8,100)
Distributions in excess of earnings (86,634) (66,488)
--------- ---------
Total shareholders' equity 314,889 290,811
--------- ---------
Total liabilities,
preferred stock and
shareholders' equity $663,831 $668,862
========= =========
RFS Hotel Investors, Inc.
Market Segment Diversification
For the three months ended June 30, 2002
ADR Occupancy REVPAR
----------------- ---------------- -----------------
Variance Variance Variance
vs. vs. vs.
Segment 2002 2001 2002 2001 2002 2001
---------------- -------- ------- ------ --------- -------- --------
Full Service $ 101.98 (11.6%) 69.2% (4.1 pts) $ 70.52 (16.6%)
Extended Stay $ 95.58 (2.6%) 78.8% (3.2 pts) $ 75.28 (6.5%)
Limited Service $ 69.61 (2.0%) 71.2% (3.0 pts) $ 49.59 (5.9%)
-------- ------- ------ --------- -------- --------
Total $ 88.10 (6.3%) 72.5% (3.4 pts) $ 63.85 (10.6%)
======== ======= ====== ========= ======== ========
For the six months ended June 30, 2002
ADR Occupancy REVPAR
----------------- ---------------- -----------------
Variance Variance Variance
vs. vs. vs.
Segment 2002 2001 2002 2001 2002 2001
---------------- -------- ------- ----- --------- ------- --------
Full Service $101.47 (13.4%) 64.7% (7.1 pts) $ 65.60 (22.0%)
Extended Stay $ 95.99 (1.9%) 78.1% (4.2 pts) $ 75.00 (6.9%)
Limited Service $ 70.46 (1.6%) 66.1% (4.1 pts) $ 46.54 (7.5%)
-------- ------ ----- -------- ------- ------
Total $ 88.55 (6.9%) 68.7% (5.3 pts) $ 60.86 (13.5%)
======== ====== ===== ======== ======= ======
Includes all 58 hotels owned.
RFS Hotel Investors, Inc.
Brand Diversification
Second Year
Quarter to Date Percentage
Hotel RevPAR RevPAR Hotel of Total
Properties vs. 2001 vs. 2001 EBITDA (1) EBITDA (1)
---------- -------- -------- --------- -----------
Marriott
International, Inc.
Residence Inn 14 (6.1%) (6.5%) $ 23,196 32%
TownePlace
Suites 3 (6.9%) (9.1%) 2,162 3%
Courtyard 1 (14.5%) (20.2%) 1,020 1%
-----------
36%
-----------
Hilton Hotels
Corporation
Hampton Inn 17 (4.4%) (4.9%) 13,641 19%
Doubletree 1 (13.0%) (16.4%) 2,832 4%
Hilton 1 (13.8%) (20.7%) 1,599 2%
Homewood Suites 1 (15.6%) (11.9%) 494 1%
-----------
26%
-----------
Starwood Hotels
& Resorts
Sheraton 4 (15.5%) (24.0%) 8,382 12%
Four Points 2 (13.5%) (18.2%) 3,905 5%
-----------
17%
-----------
Six Continents PLC
Holiday Inn 5 (3.5%) (8.8%) 8,200 11%
Holiday Inn
Express 5 (12.8%) (17.5%) 3,794 5%
---------- -------- -------- --------- -----------
16%
-----------
Top Four
Frachisors 54 (8.6%) (11.8%) 69,225 95%
Other 4 (31.9%) (32.2%) 3,947 5%
---------- -------- -------- --------- -----------
Portfolio
Total 58 (10.6%) (13.5%) $ 73,172 100%
========== ======== ======== ========= ===========
(1) For the trailing twelve months ended June 30, 2002, in thousands.
RFS Hotel Investors, Inc.
Geographic Diversification
Second Year
Quarter to Date Percentage
Hotel RevPAR RevPAR Hotel of Total
Properties vs. 2001 vs. 2001 EBITDA (1) EBITDA (1)
---------- -------- -------- --------- -----------
California
(see below) 10 (21.5%) (25.0%) $ 23,347 32%
Florida 7 (15.2%) (14.1%) 7,018 10%
Texas 6 (1.4%) (2.7%) 5,890 8%
Michigan 3 (14.3%) (16.0%) 4,231 6%
Illinois 3 (10.5%) (15.4%) 3,981 5%
New York 1 15.6% 15.5% 3,592 5%
Minnesota 3 (15.4%) (16.9%) 2,684 4%
Missouri 2 1.7% (9.7%) 2,593 4%
Georgia 2 (5.6%) (4.4%) 1,983 3%
Rhode Island 1 (0.4%) (2.7%) 1,786 2%
Oklahoma 2 (4.9%) (4.3%) 1,762 2%
Louisiana 1 0.7% (7.2%) 1,637 2%
Delaware 1 3.5% 1.6% 1,528 2%
Others (2) 16 (0.6%) (3.3%) 11,140 15%
---------- -------- -------- --------- -----------
Portfolio Total 58 (10.6%) (13.5%) $ 73,172 100%
========== ======== ======== ========= ===========
California Diversification
Second Year
Quarter to Date Percentage
Hotel RevPAR RevPAR Hotel of Total
Properties vs. 2001 vs. 2001 EBITDA (1) EBITDA (1)
---------- -------- -------- --------- -----------
Silicon Valley 4 (32.7%) (35.5%) 10,489 14%
Los Angeles Area 2 (8.4%) (10.2%) 5,189 7%
San Francisco 2 (17.2%) (23.9%) 2,352 3%
San Diego 1 (13.0%) (16.4%) 2,717 4%
Sacramento 1 (6.9%) (4.9%) 2,600 4%
---------- -------- -------- --------- -----------
California Total 10 (21.5%) (25.0%) $ 23,347 32%
========== ======== ======== ========= ===========
(1) For the trailing twelve months ended June 30, 2002, in thousands.
(2) We own hotels in each of the following states which individually
represent less than 2% of total Hotel EBITDA: Alabama (1), Arizona
(3), Colorado (2), Indiana (1), Kentucky (1), Mississippi (1),
Nebraska (2), North Carolina (1), South Carolina (2), Tennessee
(1) and Wisconsin (1).
RFS Hotel Investors, Inc.
RETURN ON INVESTMENT ANALYSIS (1)
As of June 30, 2002
(Amounts in thousands)
Unleveraged Return on Investment
Total
Investment, EBITDA for the Unleveraged
Before TTM ended Return on
Depreciation (2) June 30, 2002 Investment
---------------- -------------- ------------
Full Service $ 377,090 $ 27,594 7.3%
Extended Stay $ 221,687 $ 25,852 11.7%
Limited Service $ 211,450 $ 19,726 9.3%
---------------- -------------- ------------
Total $ 810,227 $ 73,172 9.0%
================ ============== ===========
Leveraged Return on Investment
EBITDA for the TTM ended June 30, 2002 $ 73,172
Less: Interest expense (24,172)(3)
--------------
$ 49,000
==============
Equity investment after 36% leverage $ 515,447
==============
Leveraged Return on Investment 9.5%
==============
(1) Includes all 58 hotels owned at June 30, 2002.
(2) Total investment includes original cost and all capital
expenditures since acquisition. Also includes the costs associated
with the Hilton lease termination of approximately $60 million.
These costs were required to be written-off as a cancellation of
executory contracts and therefore are not included on the balance
sheet. However, for return on investment analysis, this amount is
included in the total investment.
(3) $294.8 million at an average annual rate of 8.2% (weighted average
cost of debt at June 30, 2002).
RFS HOTEL INVESTORS, INC.
OUTSTANDING DEBT
June 30, 2002
Balance Interest Rate Maturity
------------ ------------- --------
(in thousands)
Line of Credit $ 9,250 LIBOR + 200bp Variable July 2004
Senior Notes 125,000 9.75% Fixed March 2012
Mortgage 91,348 7.83% Fixed December 2008
Mortgage 18,117 8.22% Fixed November 2007
Mortgage 51,065 8.00% Fixed August 2010
-----------
$ 294,780
===========
Debt Maturities
(in millions)
2002 $ 1.3
2003 2.7
2004 12.1
2005 3.2
2006 3.4
Thereafter 272.1
--------------
$ 294.8
==============
Weighted average maturity of fixed rate debt is 8.1- years.
----------------------------------------
Contact:
RFS Hotel Investors Inc., Memphis
Cheryl Stewart, 901/767-7005