Press Release: Interstate Hotels & Resorts
August 9, 2002
WASHINGTON, DC -- Interstate Hotels & Resorts (NYSE: IHR), the nation's largest independent hotel management
company, yesterday reported pro forma results for the second quarter ended June 30, 2002.
The company was formed July 31, 2002, following the merger of MeriStar Hotels & Resorts (NYSE: MMH) and Interstate
Hotels Corporation (Nasdaq: IHCO). Both combined pro forma financial data (assuming the merger was completed on
January 1, 2001) and historical financial data for the two former companies for the 2002 second quarter are included
in the tables of this press release.
Second-quarter pro forma revenues for 2002 declined 0.7 percent to $316.8 million. Excluding non-recurring items,
pro forma net income for the quarter was $0.1 million, or $0.01 per share on a diluted basis, compared to pro forma
net loss of $(0.7) million, or $(0.03) per share, in the 2001 second quarter. Recurring pro forma earnings before
interest, taxes, depreciation and amortization (EBITDA) rose 14.6 percent to $7.7 million.
The pro forma statement of operations for the 2002 second quarter includes the following non-recurring charges:
Same-store revenue per available room (RevPAR) for all full-service managed hotels in the 2002 second quarter
decreased 10.4 percent to $74.69. The decline was driven by a 6.9 percent fall-off in average daily rate (ADR)
to $106.40 and a 3.7 percent drop in occupancy to 70.2 percent.
Same-store RevPAR for all limited-service managed hotels in the 2002 second quarter fell 5.7 percent to $60.67.
ADR decreased 5.2 percent to $85.33, and occupancy declined 0.4 percent to 71.1 percent.
On a historical basis, net income for MeriStar Hotels & Resorts was $6.9 million, or $0.18 per diluted share,
in the 2002 second quarter, compared to net loss of $(1.4) million, or $(0.03) per diluted share, in the second
quarter of 2001. Net loss available to common stockholders for Interstate Hotels Corporation was $(12.7) million,
or $(2.08) per diluted share, in the 2002 second quarter, compared to net loss of $(0.1) million, or $(0.01) per
diluted share, in the second quarter of 2001.
"The merger creates a stronger company with an excellent balance sheet, great geographic dispersion and a
solid platform for growth," said Paul W. Whetsell, chairman and chief executive officer. "We have been
working hard for the past three months to ensure that this merger would be as smooth and transparent as possible,
especially at the property level. We are fortunate that our operating philosophies and cultures are quite similar,
and we already are operating as a unified company."
Whetsell said that both MeriStar Hotels & Resorts and Interstate Hotels Corporation's results exceeded their
internal plans for the first half of the year. In addition, he noted that the assignment of the remaining 47 leases
for $17 million to a subsidiary of Winston Hotels during the second quarter was a significant de-leveraging event
and would benefit both companies. "The conversion of the leases to management contracts provides for a more
stable and predictable earnings stream and reflects a much better business model for both Winston Hotels and Interstate
Hotels & Resorts going forward."
The company's corporate housing division, BridgeStreet Corporate Housing Worldwide, achieved improved results within
its U.S. markets. "The improvement domestically can be attributed to an inventory adjustment in the second
half of 2001 when we reduced our number of leased apartments and a restructuring of our operations within the division.
European operations experienced a decline in demand due to a decrease in business travel both to and within Europe."
Merger Completed
Following the end of the second quarter, MeriStar Hotels & Resorts and Interstate Hotels Corporation completed
their merger. The combined company, Interstate Hotels & Resorts, Inc. (NYSE: IHR - News), began trading on
August 1. In conjunction with the merger, Interstate Hotels & Resorts will evaluate and consolidate its operating
activities, including personnel and offices. The company will record a restructuring charge in the third quarter
for the costs associated with the consolidation of these functions.
"With over 400 hotels and approximately 86,000 rooms under management, our size allows us to achieve significant
economies of scale," said John Emery, president and chief operating officer. "We are on target to realize
annualized synergistic corporate savings of approximately $8 million to $10 million."
Outlook
"The anticipated economic recovery has been delayed, and nationwide travel, particularly among business transient
travelers, has remained sluggish," Emery said. "We are working diligently to improve our transient business
traveler base for our managed properties. The struggling economy and the heightened security measures at airports,
however, continue to negatively impact this sector, especially for shorter trips. This lingering slowdown is expected
to make it more difficult to achieve significant incentive fees in the second half of the year."
With regard to growth opportunities available to the company, Emery commented, "We have a joint venture in
place to acquire $300 million to $500 million of hotel assets, and we are beginning to see more attractively priced
properties that represent significant turnaround opportunities."
For the third quarter of 2002, the company expects pro forma EBITDA of $6 million to $8 million and net income
per share of $(0.05) to $0.01. For the full year 2002, the company expects pro forma EBITDA of $30 million to $34
million and net income per share of $(0.07) to $0.05.
Key Financial Information
Pro forma as of June 30, 2002:
To listen to a webcast of the company's second-quarter conference call, interested parties may visit the company's
Web site at www.ihrco.com and click on Investor Relations and then Second-Quarter
Conference Call. Interested parties also may listen to an archived webcast of the conference call on the Web site,
or may dial (800) 405-2236, pass code 489283, to hear a telephone replay. The telephone replay will be available
through Monday, August 12, 2002. The archived webcast will be available on Interstate Hotels & Resorts' Web
site.
Interstate Hotels & Resorts operates more than 400 hospitality properties with approximately 86,000 rooms in
45 states, the District of Columbia, Canada and Russia, including 55 properties managed by Flagstone Hospitality
Management, a subsidiary of Interstate Hotels & Resorts. BridgeStreet Corporate Housing Worldwide, an Interstate
Hotels & Resorts subsidiary, is one of the world's largest corporate housing providers, offering upscale, fully
furnished corporate housing throughout the United States, Canada, the United Kingdom, France and 39 additional
countries through its network partners.
For more information about Interstate Hotels & Resorts, visit the company's Web site: www.ihrco.com.
This press release contains "forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995, about Interstate Hotels & Resorts, including those statements regarding future
operating results and the timing and composition of revenues, among others, and statements containing words such
as "expects," "believes" or "will," which indicate that those statements are forward-looking.
Except for historical information, the matters discussed in this press release are forward-looking statements that
are subject to certain risks and uncertainties that could cause the actual results to differ materially, including
the current slowdown of the national economy, economic conditions generally and the real estate market specifically,
the impact of the events of September 11, 2001, legislative and regulatory changes, availability of debt and equity
capital, interest rates, competition, supply and demand for lodging facilities in our current and proposed market
areas, and the company's ability to manage integration and growth. Additional risks are discussed in Interstate
Hotels & Resorts' filings with the Securities and Exchange Commission, including Interstate Hotels & Resorts'
annual report on Form 10-K for the year ended December 31, 2001 and joint proxy statement and prospectus, filed
on July 2, 2002.
Interstate Hotels & Resorts, Inc.
Pro Forma Statements of Operations (1)(2)
(Unaudited, in thousands except per share amounts and
operating statistics)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Revenue
Lodging revenues $ 37,146 $ 45,492 $ 69,430 $ 89,211
Net management fees 15,749 17,700 29,909 33,377
Corporate housing 27,424 26,488 51,670 50,937
Other fees 6,492 4,437 11,263 9,821
---------- --------- --------- ---------
86,811 94,117 162,272 183,346
Other revenue from
managed properties 229,954 224,981 404,794 415,226
---------- --------- --------- ---------
Total revenue 316,765 319,098 567,066 598,572
Operating expenses by
department:
Lodging expenses 9,960 12,566 18,764 24,748
Corporate housing 20,415 19,464 39,236 36,805
Property operating
costs 7,787 9,616 14,852 33,584
Administrative and
general 25,985 28,431 48,817 55,409
Lease expense 14,917 17,277 27,569 18,431
Depreciation and
amortization 4,842 5,455 9,759 10,657
Charges to
investments in and
advances to
affiliates, accounts
and notes
receivable,
and other - - - 15,298
Gain on Winston lease
conversion (7,229) - (7,229) -
Merger costs 1,622 614 2,001 4,385
Restructuring expenses 682 912 682 912
---------- --------- --------- ---------
78,981 94,335 154,451 200,229
Other expenses from
managed properties 229,954 224,981 404,794 415,226
---------- --------- --------- ---------
Total operating expenses 308,935 319,316 559,245 615,455
---------- --------- --------- ---------
Net operating income
(loss) 7,830 (218) 7,821 (16,883)
Interest expense, net 2,488 2,559 5,398 4,962
Equity in (income) loss
of affiliates 298 (468) 712 (758)
---------- --------- --------- ---------
Loss before minority
interests and income
taxes 5,044 (2,309) 1,711 (21,087)
Minority interests 52 166 34 15
Income tax benefit (670) (765) (1,771) (7,991)
---------- --------- --------- ---------
Net income (loss) $ 5,662 $ (1,710) $ 3,448 $ (13,111)
========== ========= ========= =========
Weighted average
number of:
Basic shares of
common stock
outstanding (3) 20,179 20,179 20,179 20,179
========== ========= ========= =========
Diluted shares of
common stock
outstanding (3) 20,718 20,179 20,688 20,179
========== ========= ========= =========
Net income (loss)
per basic common
share $ 0.28 $ (0.08) $ 0.17 $ (0.65)
========== ========= ========= =========
Net income (loss)
per diluted common
share $0.27 $ (0.08) $ 0.17 $ (0.65)
========== ========= ========= =========
Net operating income
(loss) $ 7,830 $ (218) $ 7,821 $ (16,883)
Depreciation and
amortization 4,842 5,455 9,759 10,657
Gain on Winston lease
conversion (7,229) (7,229) -
Charges to investments
in and advances to
affiliates, accounts
and notes receivable,
and other - - - 15,298
Merger costs 1,622 614 2,001 4,385
Restructuring expenses 682 912 682 912
---------- --------- --------- --------
Recurring EBITDA $ 7,747 $ 6,763 $ 13,034 $ 14,369
========== ========= ========= =========
Net income (loss ) $ 5,662 $ (1,710) $ 3,448 $ (13,111)
Adjustments to net
loss, net of income
taxes:
Gain on Winston lease
conversion (7,229) - (7,229) -
Charges to investments
in and advances to
affiliates, accounts
and notes receivable,
and other - - - 9,485
Merger costs 1,135 424 1,361 2,719
Restructuring expenses 477 629 464 565
Minority interests 60 (19) (22) (226)
---------- --------- --------- ---------
Net income (loss),
excluding non-recurring
items $ 105 $ (676) $ (1,978) $ (568)
========== ========= ========= =========
(1) Excludes the effect of EITF 98-9.
(2) Assumes merger transaction between Interstate Hotels
Corporation and MeriStar Hotels & Resorts, Inc. was
completed on January 1, 2001.
(3) On August 1, 2002 Interstate Hotels and Resorts effected a
one-for-five reverse stock split. The weighted average
number of basic and diluted common shares outstanding is
presented assuming the reverse stock split occurred on
January 1, 2001.
Pro forma hotel
operating statistics:
Full-service hotels:
Occupancy 70.2% 72.9% 66.8% 71.4%
ADR $ 106.40 $ 114.33 $ 106.11 $ 115.23
RevPAR $ 74.69 $ 83.33 $ 70.91 $ 82.29
Limited-service hotels:
Occupancy 71.1% 71.4% 68.2% 69.8%
ADR $ 85.33 $ 90.06 $ 84.44 $ 89.05
RevPAR $ 60.67 $ 64.34 $ 57.60 $ 62.20
MeriStar Hotels & Resorts, Inc.
Statements of Operations (1)
(Unaudited, in thousands except per
share amounts and operating statistics)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Revenue
Rooms $ 32,827 $ 39,121 $ 61,418 $ 76,661
Food and beverage 2,037 3,107 3,806 6,241
Other operating
departments 1,502 1,841 2,751 3,785
Corporate housing 27,424 26,488 51,670 50,937
Management and
other fees 11,925 12,960 22,580 25,643
--------- ---------- --------- ----------
75,715 83,517 142,225 163,267
Other revenue from
managed properties 158,080 154,527 270,479 275,367
--------- ---------- --------- ----------
Total revenue 233,795 238,044 412,704 438,634
Operating expenses by
department:
Rooms 7,275 8,771 13,781 17,276
Food and beverage 1,508 2,304 2,826 4,644
Other operating
departments
expenses 973 1,171 1,762 2,213
Corporate housing 20,415 19,464 39,236 36,805
Undistributed operating
expenses:
Administrative and
general 17,402 20,383 34,599 39,545
Property operating
costs 7,442 9,185 14,217 18,149
Participating lease
expense 14,926 17,089 27,569 33,034
Depreciation and
amortization 2,230 3,411 4,459 6,546
Gain on Winston
lease conversion (7,229) - (7,229) -
Charges to
investments in and
advances to
affiliates,
accounts
and notes
receivable,
and other - - - 15,298
Merger costs 741 614 1,001 4,385
Restructuring
expenses 682 912 682 912
--------- ---------- --------- ----------
66,365 83,304 132,903 178,807
Other expenses from
managed properties 158,080 154,527 270,479 275,367
--------- ---------- --------- ----------
Total operating expenses 224,445 237,831 403,382 454,174
--------- ---------- --------- ----------
Net operating income
(loss) 9,350 213 9,322 (15,540)
Interest expense, net 2,427 2,777 5,263 5,662
Equity in (income)
loss of affiliates (118) (327) 116 (440)
--------- ---------- --------- ----------
Income (loss) before
minority interests
and income taxes 7,041 (2,237) 3,943 (20,762)
Minority interests 325 69 190 (594)
Income tax benefit (206) (922) (1,391) (8,067)
--------- ---------- --------- ----------
Net income (loss) $ 6,922 $ (1,384) $ 5,144 $ (12,101)
========= ========== ========= ==========
Weighted average
number of:
Basic shares of
common stock
outstanding 37,188 37,172 37,188 36,787
========= ========== ========= ==========
Diluted shares of
common stock
outstanding 39,684 37,172 39,610 36,787
========= ========== ========= ==========
Net income (loss) per
basic common share $ 0.19 $ (0.03) $ 0.14 $ (0.32)
========= ========== ========= ==========
Net income (loss) per
diluted common share $ 0.18 $ (0.03) $ 0.13 $ (0.32)
========= ========== ========= ==========
Net operating income
(loss) $ 9,350 $ 213 $ 9,322 $ (15,540)
Depreciation and
amortization 2,230 3,411 4,459 6,546
Charges to investments
in and advances to
affiliates, accounts
and notes receivable,
and other - - - 15,298
Gain on Winston lease
conversion (7,229) - (7,229) -
Merger costs 741 614 1,001 4,385
Restructuring expenses 682 912 682 912
--------- ---------- --------- ----------
Recurring EBITDA $ 5,774 $ 5,150 $ 8,235 $ 11,601
========= ========== ========= ==========
Net income (loss) $ 6,922 $ (1,384) $ 5,144 $ (12,101)
Adjustments to net
loss, net of income
taxes:
Gain on Winston
lease conversion (7,229) - (7,229) -
Charges to investments
in and advances to
affiliates,
accounts and
notes receivable,
and other - - - 9,179
Merger costs 445 368 601 2,631
Restructuring expenses 409 547 409 547
Minority interests 160 (42) 153 (553)
--------- ---------- --------- ----------
Net income (loss), excluding
non-recurring items $ 707 $ (511) $ (922) $ (297)
========= ========== ========= ==========
(1)Excludes the effect of EITF 98-9.
Interstate Hotels Corporation
Statements of Operations
(Unaudited, in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Lodging revenues $ 779 $ 1,423 $ 1,455 $ 2,524
Net management
fees 6,336 6,404 11,994 12,880
Other fees 5,451 4,437 9,464 7,945
--------- --------- --------- ---------
12,566 12,264 22,913 23,349
Other revenue
from managed
properties 71,874 70,454 134,315 139,859
--------- --------- --------- ---------
Total revenue 84,440 82,718 157,228 163,208
Lodging expenses 549 939 1,030 1,718
Administrative
and general 3,742 2,911 5,685 5,748
Payroll and related
benefits 5,279 5,461 9,522 10,818
Depreciation and
amortization 2,582 2,694 5,110 5,400
Accelerated vesting
of preferred
stock held by
executives 1,000 - 1,000 -
Tender offer costs 881 - 1,000 -
--------- --------- --------- ---------
14,033 12,005 23,347 23,684
Other expenses from
managed properties 71,874 70,454 134,315 139,859
--------- --------- --------- ---------
Total operating
expenses 85,907 82,459 157,662 163,543
--------- --------- --------- ---------
Net operating income
(loss) (1,467) 259 (434) (335)
Interest expense, net 937 165 1,912 232
Accelerated amortization
of financing fees from
conversion of debt 1,223 - 1,223 -
Other, net (16) (16)
Equity in (income)
loss of affiliates 416 (141) 596 (318)
--------- --------- --------- ---------
Income (loss) before
minority interests
and income taxes (4,043) 251 (4,165) (233)
Minority interests (12) 54 52 90
Income tax expense
(benefit) (1,105) 79 (1,176) (129)
--------- --------- --------- ---------
Net income (loss) (2,926) 118 (3,041) (194)
Mandatorily redeemable
preferred stock:
Dividends 148 159 307 318
Accretion 340 15 355 30
Conversion incentive
payments 9,250 - 9,250 -
--------- --------- --------- ---------
Net loss available to
common stockholders $(12,664) $ (56) $(12,953) $ (542)
========= ========= ========= =========
Weighted average number
of basic and diluted
shares of common stock
outstanding 6,094 6,539 5,913 6,510
========= ========= ========= =========
Net loss per basic and
diluted common share $ (2.08) $ (0.01) (2.19) $ (0.08)
========= ========= ========= =========
Net operating income
(loss) $ (1,467) $ 259 $ (434) $ (335)
Depreciation and
amortization 2,582 2,694 5,110 5,400
Accelerated vesting of
preferred stock held by
executives 1,000 - 1,000 -
Tender offer costs 881 - 1,000 -
--------- --------- --------- ---------
Recurring EBITDA $ 2,996 $ 2,953 $ 6,676 $ 5,065
========= ========= ========= =========
---------------------------------------
Contact:
Interstate Hotels & Resorts
Finance:
Bruce Riggins, 202/295-2276
Corporate Communications:
Melissa Thompson, 202/295-2228
or
Daly Gray Public Relations
Media:
Jerry Daly or Carol McCune, 703/435-6293