Press Release: RFS Hotel Investors Inc.
February 1, 2002
MEMPHIS, TN -- RFS Hotel Investors, Inc. (NYSE:RFS) yesterday announced funds from operations (FFO) for the fourth
quarter ended December 31, 2001, of $6.9 million, or $0.25 per share, compared to $13.5 million, or $0.50 per share,
for the same quarter a year ago, a decline of 50% in FFO per share. Following the events of September 11, 2001,
the Company announced on November 1, 2001, that it expected its fourth quarter FFO to range from $0.10 to $0.25
per share. FFO results were $0.06 higher than the consensus analysts' estimate of $0.19. FFO for the year ended
December 31, 2001, was $51.2 million, or $1.85 per share, compared to 2000 FFO of $64.2 million, or $2.37 per share,
a decline of 22% in FFO per share.
Fourth Quarter Highlights
-- Comparable hotels revenue per available room (RevPAR) declined
15.9% for the quarter. The following represents changes in
RevPAR as compared to the prior year comparable periods by
market segment:
RevPAR Change
-------------
Quarter Year to Date
------- ------------
Comparable Hotels 58 56
Full Service (26.6%) (10.4%)
Extended Stay ( 8.4%) ( 1.3%)
Limited Service ( 6.0%) ( 0.3%)
Total (15.9%) ( 4.6%)
-- The Company's 10 California hotels experienced an average
decline in quarterly RevPAR of 29.7%. The California hotels
represented 33% of the Company's quarterly room revenue. The
six hotels in northern California, consisting of two in San
Francisco and four in Silicon Valley, experienced an average
decline in quarterly RevPAR of 42.7%. Exclusive of these six
northern California hotels, RevPAR declined 6.9% for the
quarter.
-- Hotel operating margins (pro forma hotel EBITDA as a
percentage of total revenue) declined 6.6 percentage points in
the quarter. For the year, hotel operating margins declined
3.2 percentage points.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) decreased 28.7% to $14.3 million for the quarter and
declined 9.4% for the year.
-- The Company realized an unleveraged FFO return on investment
of 11.3% in its 56 comparable hotels for the year ended
December 31, 2001. Based upon the Company's approximate 38%
leverage and average borrowing costs of 7.9%, the Company
realized a leveraged return on investment of 13.4%.
-- EBITDA for the year ended December 31, 2001, was 3.3 times the
Company's interest costs.
-- Total debt was reduced by $1.6 million during the quarter.
Randy Churchey, president and chief operating officer, said, ``Operating results for the quarter were somewhat
better than we anticipated for two reasons. First, the RevPAR decline of 15.9% was at the low end of the 15% to
25% range we expected. Second, Flagstone Hospitality, which operates 52 of our 58 properties, did an outstanding
job of controlling costs. Although revenue declined by $9.9 million during the quarter, hotel EBITDA declined by
only $7.3 million.
Our RevPAR results were adversely impacted by the six northern California hotels which continue to experience a
dramatic fall off in business. Although we have increased our market share at these hotels, the combination of
the dot-com debacle, well-publicized energy problems, a light convention calendar, the Japanese recession, and
the terrorist acts of September 11, have resulted in an inordinately difficult operating environment in that market.``
Based upon studies performed by Smith Travel Research, an independent firm which provides information on the hospitality
industry, RFS's hotels, for the year outperformed their competitors in most markets. Mr. Churchey stated, ``45
of our 58 hotels increased their market share in 2001 as measured by changes in RevPAR versus their competitive
set of hotels. On average, our hotels increased market share by 4.6% during the year; and in northern California,
one of the more difficult and competitive markets, our market share increased 12.2%.''
Capital
Despite the fact that FFO per share declined 50% during the quarter and 22% for the year ended December 31, 2001,
the Company:
Kevin Luebbers, RFS executive vice president and chief financial officer, stated ``Since inception of RFS as
a public company in 1993, we have adhered to three simple principles in managing our business: (1) minimize debt
and maintain a strong, liquid balance sheet; (2) invest in assets where we are likely to receive a cash return
which is greater than our cost of capital; and (3) maintain reasonable diversification in terms of geography, brand,
and market segment. The benefits of this strategy are very apparent in difficult times such as the present. Our
balance sheet continues to be strong, our debt coverage ratios are among the best in the hotel industry, our return
on investment compares favorably to any other hotel company, and the Company's diversification strategy minimizes
risks. We believe our results since our 1993 IPO prove that this strategy is the best way to get the highest risk-adjusted
return over time.''
Outlook and Dividends
Robert Solmson, RFS chairman and chief executive officer, indicated, ``We stated on November 1 that it is extremely
difficult, given the uncertainty of political events, to make accurate projections in this environment. However,
we did indicate that we felt it was reasonable for our shareholders to expect FFO per share ranging from $1.55
to $1.75 per share in 2002 and, based upon this range of FFO per share, an annual dividend of $1.00 to $1.20 per
share. This range assumes a mild economic recovery in the second half of 2002, resulting in flat to a 4% decline
in RevPAR for 2002. We are still comfortable with these estimates and, therefore, are declaring a first quarter
dividend of $0.25 per share payable on February 15, 2002, to shareholders of record on February 5, 2002.''
``Fortunately, our balance sheet is strong and we have no significant debt maturities prior to June 30, 2004. Additionally,
the Company has spent over $80 million in the last four years on capital improvements which will permit us to reduce
capital expenditures to approximately $9 million in 2002. Obviously, this is very beneficial and will enhance our
ability to continue paying meaningful dividends to our shareholders during this difficult operating period.''
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 42% of its EBITDA from full service hotels, 33% from extended stay hotels and 25% from limited service
hotels. Additional information can be found on the Company's website at www.rfshotel.com.
Certain matters within this press release are discussed using forward-looking language as specified in the 1995
Private Securities Litigation Reform Law, and, as such, may involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance to differ from those projected in the forward-looking
statement. From time to time, these risks are discussed in the Company's filings with the Securities and Exchange
Commission.
RFS Hotel Investors, Inc.
KEY COMPANY STATISTICS
QUARTER ENDED DECEMBER 31, 2001
Operating Statistics
Total Revenues $48.6 million EBITDA $14.3 million
% Decrease in Revenues(1) 16.9% % Decrease in EBITDA 28.7%
FFO $ 6.9 million % of Hotel EBITDA(2)
Full Service Hotels 42%
% Decrease in FFO 48.7% Extended Stay Hotels 33%
Limited Service Hotels 25%
FFO per Share $ 0.25
% Decrease in FFO per Share 49.7%
Capital Statistics
EBITDA/Interest(2) 3.3x Debt/EBITDA(2) 3.7x
EBITDA/Interest and 2.9x Percentage of fixed 96%
Preferred Dividends(2) interest rate debt
(1) As compared to pro forma three months ended December 31, 2000,
as if the Hilton lease termination occurred on January 1, 2000.
(2) EBITDA information is for the year ended December 31, 2001.
RFS HOTEL INVESTORS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 2001 AND 2000
(in thousands, except per share data)
Quarter Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2001 2000 2001 2000
-------- --------- -------- --------
Revenue:
Rooms $ 39,232 $ 188,725
Food and beverage 4,490 17,695
Other operating
departments 1,872 9,103
Lease revenue (1) 1,197 $ 23,838 5,782 $ 106,574
Deferred revenue (1) 1,697 18,715
Other 156 132 573 785
-------- ---------- ------- ----------
Total hotel revenue 48,644 42,685 221,878 107,359
-------- ----------- ------- ----------
Hotel operating expenses by department:
Rooms 8,249 37,000
Food and beverage 3,286 13,533
Other operating
departments 607 2,201
Undistributed operating expenses:
Property operating
costs 4,877 22,550
Property taxes,
insurance and other 3,330 2,379 12,848 10,747
Franchise costs 3,724 17,007
Maintenance and repair 2,193 9,741
Management fees 1,810 5,762
General and
administrative 3,502 15,228
-------- --------- ---------- ----------
Total hotel
operating expenses 31,578 2,379 135,870 10,747
-------- --------- ---------- ----------
Net hotel operating
income (Hotel EBITDA) 17,066 40,306 86,008 96,612
Corporate expenses:
Depreciation 7,352 6,898 29,605 27,198
Amortization of
deferred expenses
and unearned
compensation 606 477 2,738 1,710
Interest expense 5,961 5,720 24,688 23,016
General and
administrative 1,085 1,554 4,208 6,304
Hilton lease
termination 65,496
(Gain) loss on sale
of hotel properties 73 (651) (1,127) 4,376
Minority interest in
income (loss) of
Operating Partnership 8 2,351 (1,157) 3,218
----------- ---------- --------- ---------
Income (loss) before
income taxes 1,981 23,957 (38,443) 30,790
Provision for (benefit
from) income taxes 493 (24,714)
----------- ---------- --------- ---------
Net income (loss) 1,488 23,957 (13,729) 30,790
Preferred stock
dividends (782) (356) (3,125) (1,412)
Gain on redemption of
Series A Preferred Stock 5,141
----------- ---------- --------- ---------
Net income (loss)
applicable to common
shareholders $ 706 $ 23,601 $ (11,713) $ 29,378
========== ========== ========= =========
Diluted earnings
(loss) per share $ 0.03 $ 0.98 $ (0.47) $ 1.20
Weighted average
common shares and
equivalents outstanding 25,235 24,565 25,045 24,580
(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
months ended December 31, 2001 and 2000, five and fifty-nine
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 QUARTER AND YEAR ENDED DECEMBER 31, 2001 AND 2000
(in thousands, except per share data)
Quarter Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2001 2000 2001 2000
--------- -------- -------- --------
Funds from operations:
Net income (loss) $ 1,488 $ 23,957 $ (13,729) $ 30,790
Minority interest in
income (loss) of
Operating Partnership 8 2,351 (1,157) 3,218
Hilton lease termination 65,496
Deferred revenue (1,697) (18,715)
Deferred income taxes
related to Hilton
lease termination 473 (24,734)
(Gain) loss on sale of
hotel properties 73 (651) (1,127) 4,376
Preferred stock dividends (782) (356) (3,125) (1,412)
Depreciation 7,352 6,898 29,605 27,198
--------- ----------- ----------- ----------
Funds from operations $ 6,915 $ 13,484 $ 51,229 $ 64,170
========= =========== =========== ==========
Weighted average common
shares, partnership
units and potential
dilutive shares
outstanding 27,694 27,126 27,655 27,120
FFO per share $ 0.25 $ 0.50 $ 1.85 $ 2.37
Earnings before interest, taxes, depreciation and amortization
(EBITDA):
FFO $ 6,915 $ 13,484 $ 51,229 $ 64,170
Interest expense 5,961 5,720 24,688 23,016
Current income taxes 20 20
Amortization 606 477 2,738 1,710
Preferred stock dividends 782 356 3,125 1,412
--------- ----------- ----------- -----------
Corporate EBITDA $ 14,284 $ 20,037 $ 81,800 $ 90,308
========= =========== =========== ===========
RFS HOTEL INVESTORS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 2001 AND 2000
(in thousands, except per share data)
Quarter Ended Year Ended
Actual Pro Forma(2) Actual Pro Forma(2)
Dec. 31, Dec. 31, Dec. 31 Dec. 31
2001 2000 2001 2000
---------- ----------- ----------- -----------
Revenue:
Rooms $ 39,232 $ 47,179 $ 188,725 $ 199,934
Food and beverage 4,490 5,366 17,695 19,693
Other operating
departments 1,872 2,398 9,103 9,804
Lease revenue (1) 1,197 1,470 5,782 5,877
Deferred revenue (1) 1,697 1,946
Other 156 175 573 939
----------- ---------- ----------- ----------
Total hotel revenue 48,644 58,534 221,878 236,247
----------- ---------- ----------- ----------
Hotel operating expenses by department:
Rooms 8,249 9,479 37,000 38,195
Food and beverage 3,286 3,796 13,533 14,489
Other operating
departments 607 575 2,201 2,287
Undistributed operating expenses:
Property operating
costs 4,877 6,026 22,550 23,047
Property taxes,
insurance and other 3,330 2,674 12,848 11,763
Franchise costs 3,724 3,872 17,007 16,161
Maintenance and repair 2,193 2,480 9,741 9,760
Management fees 1,810 1,374 5,762 5,735
General and
administrative 3,502 3,845 15,228 15,651
-------------------------------------------
Total hotel
operating expenses 31,578 34,121 135,870 137,088
-------------------------------------------
Net hotel operating
income (Hotel EBITDA) 17,066 24,413 86,008 99,159
Corporate expenses:
Depreciation 7,352 6,742 29,605 26,575
Amortization of
deferred expenses
and unearned
compensation 606 480 2,738 1,710
Interest expense 5,961 6,073 24,688 24,427
General and
administrative 1,085 1,556 4,208 6,304
Hilton lease
termination 65,496
(Gain) Loss on sale
of hotel properties 73 376 (1,127) 4,376
Minority interest in
income (loss) of
Operating Partnership 8 652 (1,157) 3,218
----------- ----------- ----------- -----------
Income before income taxes 1,981 8,534 (38,443) 32,549
Provision for (benefit
from) income taxes 493 542 (24,714) 2,679
-------- ----------- ----------- -----------
Net income (loss) 1,488 7,992 (13,729) 29,870
Preferred stock dividends (782) (782) (3,125) (3,125)
Gain on redemption of
Series A Preferred Stock 5,141
----------- ----------- ----------- -----------
Net income (loss)
applicable to common
shareholders $ 706 $ 7,210 $ (11,713) $ 26,745
=========== =========== =========== ===========
Diluted earnings per
share $ 0.03 $ 0.29 $ (0.47) $ 1.09
Weighted average
common shares and
equivalents outstanding 25,235 24,565 25,045 24,580
(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
months ended December 31, 2001 and 2000, five and fifty-nine
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.
(2) Assumes that the Hilton lease termination transaction, the
sales of three hotels in 2000 and early 2001, the redemption
of the Company's Series A Preferred Stock and the issuance of
the Company's Series B Preferred Stock occurred on January 1,
2000. It includes the results of the Farmington Hills hotel
which was sold on May 31, 2001.
RFS HOTEL INVESTORS, INC.
CALCULATION OF PRO FORMA FFO AND EBITDA (2)
FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 2001 AND 2000
(in thousands, except per share data)
Quarter Ended Year Ended
Actual Pro Forma(2) Actual Pro Forma(2)
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Funds from operations:
Net income (loss) $ 1,488 $ 7,992 $ (13,729) $ 29,870
Minority interest in
income (loss) of
Operating Partnership 8 652 (1,157) 3,218
Hilton lease termination 65,496
Deferred revenue (1,697) (1,946)
Deferred income taxes
related to Hilton
lease termination 473 542 (24,734) 2,679
(Gain) loss on sale of
hotel properties 73 376 (1,127) 4,376
Preferred stock dividends (782) (782) (3,125) (3,125)
Depreciation 7,352 6,742 29,605 26,575
---------- ----------- ---------- ----------
Funds from operations $ 6,915 $ 13,576 $ 51,229 $ 63,593
========== =========== ========== ==========
Weighted average common
shares, partnership
units and potential
dilutive shares
outstanding 27,694 27,126 27,655 27,120
FFO per share $ 0.25 $ 0.50 $ 1.85 $ 2.34
Earnings before interest,
taxes, depreciation
and amortization
(EBITDA):
FFO $ 6,915 $ 13,576 $ 51,229 $ 63,593
Interest expense 5,961 6,073 24,688 24,427
Current income taxes 20 20
Amortization 606 480 2,738 1,710
Preferred stock dividends 782 782 3,125 3,125
--------- ----------- ---------- -----------
Corporate EBITDA $ 14,284 $ 20,911 $ 81,800 $ 92,855
========= =========== ========== ===========
RFS HOTEL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Dec. 31, Dec. 31,
2001 2000
--------- ---------
ASSETS
Investment in hotel properties, net $615,562 $635,997
Cash and cash equivalents 5,735 3,681
Restricted cash 6,817 4,929
Accounts receivable 5,533 13,041
Notes receivable 626
Deferred expenses, net 6,964 6,814
Other assets 3,517 8,379
Deferred income taxes 24,734
----------- ----------
Total assets $668,862 $673,467
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $20,857 $12,734
Borrowings on Line of Credit 81,188 50,273
Long-term obligations 219,947 227,158
Minority interest in Operating Partnership,
2,458 and 2,562 units issued and outstanding
at December 31, 2001 and 2000, respectively 31,059 34,848
---------- ----------
Total liabilities 353,051 325,013
---------- ----------
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:
Preferred Stock, $.01 par value, 5,000 shares
authorized, 974 shares issued and outstanding
at December 31, 2000 10
Common Stock, $.01 par value, 100,000 shares
authorized, 25,811 and 25,088 shares issued
at December 31, 2001 and 2000, respectively 258 251
Additional paid-in capital 368,361 374,910
Other comprehensive income (3,220)
Treasury stock, at cost, 576 shares (8,100) (8,100)
Distributions in excess of earnings (66,488) (18,617)
---------- --------
Total shareholders' equity 290,811 348,454
---------- --------
Total liabilities, preferred stock
and shareholders' equity $668,862 $673,467
========== ========
RFS Hotel Investors, Inc.
COMPARABLE HOTEL OPERATING STATISTICS (1)
For the three months ended December 31, 2001
ADR Occupancy REVPAR
--------------- ------------------ -----------------
Variance Variance Variance
vs. vs. vs.
Segment 2001 2000 2001 2000 2001 2000
--------------- -------- -------- -------- -------- -------- --------
Full Service $ 100.65 (13.2%) 57.6% (10.6 pts) $ 57.99 (26.6%)
Extended Stay $ 94.47 0.4% 71.4% (6.9 pts) $ 67.43 (8.4%)
Limited Service $ 68.62 (0.9%) 58.9% (3.2 pts) $ 40.45 (6.0%)
-------- -------- ------- -------- ------- -------
Total $ 87.19 (6.6%) 61.7% (6.8 pts) $ 53.83 (15.9%)
======== ======== ======= ======== ======= =======
For the year ended December 31, 2001
ADR Occupancy REVPAR
----------------- ------------------ -----------------
Variance Variance Variance
vs. vs. vs.
Segment 2001 2000 2001 2000 2001 2000
--------------- ------ ------- ------- --------- ------- --------
Full Service $ 108.52 (2.0%) 67.9% (6.4 pts) $ 73.73 (10.4%)
Extended Stay $ 96.55 2.0% 78.5% (2.7 pts) $ 75.83 (1.3%)
Limited Service $ 70.91 1.8% 67.4% (1.4 pts) $ 47.79 (0.3%)
--------- ------- ------ -------- ------- ------
Total $ 90.50 (0.1%) 70.7% (3.3 pts) $ 63.95 (4.6%)
========= ======= ====== ======== ======= ======
(1) For the three months ended December 31, 2001, includes all 58
hotels owned. For the year ended December 31, 2001, includes 56
of the 58 hotels owned. Excludes the Hilton San Francisco
Fisherman's Wharf hotel, which underwent renovation and was
converted from a Ramada Plaza in 2000, and the Sheraton Hotel in
Birmingham, Alabama, which was undergoing renovation in 2000.
RFS Hotel Investors, Inc.
RETURN ON INVESTMENT ANALYSIS (1)
As of December 31, 2001
(Amounts in thousands)
Total
Investment, EBITDA for the
Before Year Ended Return on
Depreciation (2) December 31, 2001 Investment
--------------- --------------- ----------------
Full Service $ 300,029 $ 32,853 10.9%
Extended Stay $ 220,754 $ 28,240 12.8%
Limited Service $ 209,654 $ 21,328 10.2%
--------------- --------------- ----------------
Total $ 730,437 $ 82,421 11.3%
--------------- --------------- ----------------
(1) Includes 56 of the 58 hotels owned at December 31, 2001.
Excludes two hotels undergoing major renovations (Hilton San
Francisco Fisherman's Wharf which was converted from a Ramada
Plaza in 2000 and the Sheraton Hotel in Birmingham which was
undergoing renovation in 2000).
(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.
RFS HOTEL INVESTORS, INC.
OUTSTANDING DEBT
December 31, 2001
Balance Interest Rate Maturity
------- ------------- --------
(in thousands)
Line of Credit $ 81,188 LIBOR + 200bp Fixed/Variable(1) July 2004
Mortgage 33,181 6.83% Fixed August 2008
Mortgage 25,000 7.30% Fixed November 2011
Mortgage 92,087 7.83% Fixed December 2008
Mortgage 18,271 8.22% Fixed November 2007
Mortgage 51,408 8.00% Fixed August 2010
-----------
$ 301,135
===========
(1) $40.0 million carries a fixed interest rate of 6.535% plus 200
basis points at December 31, 2001 through an interest rate swap
maturing in July 2003. In addition, $30.0 million carries a
fixed interest rate of 4.775% plus 200 basis points at December
31, 2001 through a second interest rate swap maturing in July
2003.
Debt Maturities
(in millions)
2002 $ 6.5
2003 7.0
2004 88.7
2005 8.2
2006 8.8
Thereafter 181.9
-------------
$ 301.1
=============
Weighted average maturity of fixed rate debt is 7.3 years.
(Excludes $70.0 million of the Line of Credit that carries
fixed interest rates through interest rate swaps)
---------------------------------------------------
Contact:
RFS Hotel Investors Inc., Memphis
Cheryl Stewart, 901/767-7005
www.rfshotel.com