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MHI Hospitality Corporation Reports Financial Results for Second Quarter 2008
WILLIAMSBURG, Va.
(Map)
-
PERFORMANCE & OPERATIONS HIGHLIGHTS:
* Funds from Operations ("FFO") of approximately $0.37 per share for
the quarter
* Consolidated total revenue of $20.5 million
* Total assets of approximately $194.1 million, versus approximately
$130.7 million at second quarter 2007
* Company increases capacity on credit facility to $80.0 million
* Company acquires hotel in Hampton, Virginia and refinances mortgage
* Sheraton Louisville Riverside opens
* Hilton Wilmington Riverside renovation complete and Ruth's Chris
opens
Sims continued, "Operationally, our quarterly results continue to be hampered by the large percentage of our hotels under renovation. We also expect a weakened economy to continue to impact consumer travel and, as a result, near term room demand in most U.S. markets is softening. Consistent with these expectations, we are revising guidance downward for 2008. Looking beyond 2008, however, we believe the major renovations that are affecting our performance this year will pave the way for significant improvements in operating results next year and for the longer term."
Operating Results
The Company reported consolidated total revenue of approximately
FFO is a non-GAAP financial measure within the meaning of the rules of the Securities and Exchange Commission. 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. A reconciliation of this non-GAAP financial measure is included in the accompanying financial tables.
Portfolio Operating Performance
The following tables present "same-store" key operating statistics for six
of the Company's properties for the quarters ended
Quarter Ended Quarter Ended
June 30, 2008 June 30, 2007 Variance
Occupancy % 73.9% 75.6% -2.3%
Average Daily Rate ("ADR") $125.24 $122.81 2.0%
Revenue per Available Room
("RevPAR") $92.51 $92.83 -0.3%
For the quarter ended
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007 Variance
Occupancy % 69.3% 73.2% -5.4%
ADR $122.23 $118.94 2.8%
RevPAR $84.71 $87.12 -2.8%
For the first six months of 2008, this same-store portfolio generated a
2.8 percent increase in ADR from the comparable period in 2007. For the same
six-month period, same-store room revenue decreased to approximately
Balance Sheet/Liquidity
At
On
The Company has approximately
Dividend
As previously announced, the Company declared a quarterly dividend of
Portfolio Update
As of
> On April 24, 2008, the Company acquired the 172-room former Radisson
Hotel in Hampton, Virginia for approximately $7.8 million, including
transfer costs, or $45,000 per room. The waterfront property is
located on 3.5 acres in downtown Hampton, which is part of the
greater Norfolk metropolitan area along with Virginia Beach, Newport
News and historic Williamsburg, Virginia. The hotel features 21,000
square feet of retail space, 7,600 square feet of flexible meeting
space, a roof-top pool and a four-story, 300-car parking garage. To
facilitate closing, the Company assumed the property's existing
$5.75 million first mortgage and utilized funds from the Company's
credit facility. The Company has also entered into a 10-year
franchise agreement with InterContinental Hotels Group through its
franchising entity, Holiday Hospitality Franchising, Inc., to brand
the hotel as the Crowne Plaza(R) Hampton Harborside. The Company
has commenced renovations of the hotel in conjunction with the
branding, with repositioning expected to be completed in the first
quarter 2009.
On June 30, 2008, the Company closed a $9.0 million refinancing of
the existing indebtedness on the property. At closing the Company
paid approximately $0.5 million and accessed approximately $5.5
million of the proceeds in order to retire the existing indebtedness
and pay closing costs. The remainder of the proceeds, totaling
approximately $3.5 million, will fund the product improvement plan
contemplated for the hotel in connection with the Crowne Plaza
licensing. The new mortgage matures June 30, 2011 and bears a rate
of LIBOR plus 2.75 percent during the construction period and LIBOR
plus 2.50 percent thereafter payable monthly during the term. The
loan can be extended for one 12-month period.
> On June 13, 2008, the Company, through its joint venture with The
Carlyle Group, closed on a restructuring of the mortgage on the
Crowne Plaza Hollywood Beach Resort, whereby the joint venture, in
which the Company maintains a 25.0 percent equity interest,
purchased a $22.0 million junior participation at a $3.0 million
discount, as well as achieved a reduced rate of interest on the
first $35.6 million of debt of LIBOR plus 0.98 percent.
> The Sheraton Louisville Riverside, a 186-unit riverfront hotel in
Jeffersonville, Indiana, opened on May 1, 2008 after completion of a
$16.1 million renovation.
> At the Hilton Wilmington Riverside Hotel in Wilmington, North
Carolina, the $11.2 million renovation was completed. Additionally,
a lessee of the Company opened a Ruth's Chris Steakhouse in June
2008, the first location of this fine dining restaurant franchise on
the Carolina seaboard.
> At the Hilton Savannah DeSoto, an $11.0 million renovation and
product improvement plan is currently underway. As of June 30,
2008, the Company has incurred costs totaling approximately
$4.4 million toward this renovation, which is scheduled to be
completed during the first quarter of 2009.
> At the Crowne Plaza Tampa Westshore, extensive renovations are
underway and are expected to be completed in the first quarter of
2009. Currently closed for renovations, the 250-room hotel will
feature 10,000 square feet of meeting space, a full service
restaurant, outdoor pool and approximately 250 surface parking
spaces. As of June 30, 2008, the Company has incurred costs
totaling approximately $2.9 million toward the repositioning of this
asset.
Outlook and Market Trends
With regard to guidance for 2008, management expects RevPAR growth to be
stagnant to slightly negative and FFO per share to be in the range of
The following table reconciles projected 2008 net income to projected FFO (excluding the effect of the interest rate swap).
Reconciliation Table:
Low Range High Range
Y/E 2008 Y/E 2008
Net Income $1,790,000 $2,380,000
Depreciation 7,210,000 7,210,000
Minority Interest 559,000 1,251,000
FFO $9,559,000 $10,841,000
FFO per share & unit $0.89 $1.01
Earnings Call/Webcast
The Company will conduct its second quarter 2008 conference call for
investors and other interested parties at
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
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: economic conditions generally and the real estate market specifically; management and performance of the Company's hotels; plans for hotel renovations; financing plans; 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; legislative/regulatory changes, including changes to laws governing taxation of real estate investment trusts; and competition. 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 we believe our current expectations to be based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that actual results will not differ materially.
Financial Tables Follow ...
MHI HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2008 2007
(unaudited)
ASSETS
Investment in hotel properties, net $147,659,060 $109,430,559
Property under development 16,768,851 31,237,237
Investment in joint venture 10,949,363 5,583,072
Cash and cash equivalents 6,034,679 3,988,700
Restricted cash 2,783,455 1,750,029
Accounts receivable 2,381,663 1,666,417
Accounts receivable-affiliate 22,058 11,814
Prepaid expenses, inventory and other assets 3,775,860 2,550,112
Notes receivable 200,000 400,000
Shell Island lease purchase, net 2,058,824 2,264,705
Deferred financing costs, net 1,423.431 1,076,345
TOTAL ASSETS $194,057,244 $159,958,990
LIABILITIES
Line of credit $62,187,858 $34,387,858
Mortgage loans 63,884,788 55,000,000
Accounts payable and accrued liabilities 7,455,230 8,478,441
Dividends and distributions payable 1,815,127 1,807,883
Advance deposits 934,222 408,912
TOTAL LIABILITIES 136,277,225 100,083,094
Minority Interest in Operating Partnership 18,882,936 19,689,453
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01, 1,000,000
shares authorized, 0 shares issued and
outstanding - -
Common stock, par value $0.01, 49,000,000 shares
authorized, 6,939,613 shares and 6,897,000
shares issued and outstanding at June 30, 2008
and December 31, 2007 69,396 68,970
Additional paid in capital 48,529,775 48,321,505
Distributions in excess of retained earnings (9,702,088) (8,204,032)
TOTAL SHAREHOLDERS' EQUITY 38,897,083 40,186,443
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $194,057,244 $159,958,990
MHI HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three Six Six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUE
Rooms department $13,882,421 $12,983,880 $24,624,523 $24,236,764
Food and beverage
department 5,464,637 5,435,614 9,278,695 10,195,697
Other operating
departments 1,107,870 954,688 2,069,172 1,860,647
Total revenue 20,454,928 19,374,182 35,972,390 36,293,108
EXPENSES
Hotel operating
expenses
Rooms department 3,610,400 3,288,155 6,746,290 6,314,514
Food and beverage
department 3,748,067 3,752,202 6,742,574 7,034,216
Other operating
departments 229,716 232,495 424,019 442,170
Indirect 7,635,084 6,625,176 13,894,225 12,947,331
Total hotel
operating
expenses 15,223,267 13,898,028 27,807,108 26,738,231
Depreciation and
amortization 1,589,683 1,225,859 2,980,606 2,450,320
Corporate general and
administrative 709,894 883,039 1,672,262 1,762,973
Total operating
expenses 17,522,844 16,006,926 32,459,976 30,951,524
OPERATING INCOME 2,932,084 3,367,256 3,512,414 5,341,584
Other income
(expense)
Interest expense (1,719,758) (1,027,688) (2,877,179) (2,070,040)
Interest income 18,808 29,449 34,822 66,834
Equity in joint
venture 525,298 - 594,810 -
Impairment of note
receivable (200,000) - (200,000) -
Unrealized gain
(loss) on hedging
activities 737,335 375,074 (29,273) 273,859
Loss on disposal of
assets (125,450) (14,267) (116,972) (14,267)
Income before minority
interest in operating
partnership and income
taxes 2,168,317 2,729,824 918,622 3,597,970
Minority interest in
operating partnership (724,992) (805,742) (464,269) (1,150,211)
Benefit from (provision
for) income tax (98,496) (481,275) 407,059 (402,450)
NET INCOME $1,344,829 $1,442,807 $861,412 $2,045,309
Net income per share
Basic $0.19 $0.21 $0.12 $0.30
Diluted $0.19 $0.21 $0.12 $0.30
Weighted average number
of shares outstanding
Basic 6,939,613 6,846,571 6,934,829 6,805,887
Diluted 6,975,613 6,906,571 6,971,829 6,865,887
MHI HOSPITALITY CORPORATION
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS (FFO)
(unaudited)
Three Three Six Six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Net income $1,344,829 $1,442,807 $861,412 $2,045,309
Add minority
interest 724,992 805,742 464,269 1,150,211
Add depreciation
and amortization 1,589,683 1,225,859 2,980,606 2,450,320
Add equity in
depreciation of
joint venture 137,044 - 272,812 -
Add loss on disposal
of assets 125,450 14,267 116,972 14,267
FFO $3,921,998 $3,488,675 $4,696,071 $5,660,107
Weighted average
shares outstanding 6,939,613 6,846,571 6,934,829 6,805,887
Weighted average
units outstanding 3,737,607 3,787,607 3,737,607 3,827,386
Weighted average
shares and units 10,677,220 10,634,178 10,672,436 10,633,273
FFO per share and unit $0.37 $0.33 $0.44 $0.53
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 minority 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. Thus, NAREIT created FFO as a supplemental measure of REIT
operating performance that excludes historical cost depreciation, among
other items, from GAAP net income. Management believes that the use of
FFO, combined with the required GAAP presentations, has improved the
understanding of the operating results of REITs among the investing public
and made comparisons of REIT operating results more meaningful.
Management 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.
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