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MHI Hospitality Corporation (AMEX:MDH), a self-advised lodging real estate investment trust (REIT), today reported its consolidated results for the fourth quarter and year ended December 31, 2007. The Company also provided its business outlook for 2008.
PERFORMANCE HIGHLIGHTS:
• 1.9 percent increase in consolidated room revenue over fourth quarter 2006
• 2.5 percent increase in net operating income over fourth quarter 2006
• Funds from Operations ("FFO") of approximately $0.16 per share for the quarter
• 12th consecutive quarter-over-quarter increases in core properties' Revenue per Available Room ("RevPAR") and Average Daily Rate ("ADR")
• Total assets of approximately $160.0 million, versus approximately $127.6 million at year-end 2006
Andrew M. Sims, President and CEO of MHI Hospitality Corporation, commented, "2007 marked a productive period for the Company in terms of enhancing the real estate platform and executing strategies for continued growth and stability. We established a joint venture with The Carlyle Group to invest in substantial hotel assets. During the year we acquired two prime Florida properties, one through this joint venture and one directly, increasing our total assets to $160.0 million. We strengthened our credit capacity with financings totaling approximately $103.0 million. And within the core portfolio we implemented approximately $27.0 million in effective repositioning efforts."
Continued Sims, "Although we experienced a decrease in FFO for the quarter, due to expenses connected to the opening of a Florida asset and the change in fair market value of the interest rate swap on the Company's credit line, we are pleased with the year-over-year growth in total revenue. And we believe the resilience of our core portfolio is reflected in the 12th consecutive quarterly increases achieved in both RevPAR and ADR."
Operating Results
The Company reported continued growth in its core portfolio during the fourth quarter. For the three-month period ended December 31, 2007, both ADR and RevPAR increased quarter over quarter, with RevPAR increasing 1.9 percent over the same period in 2006. RevPAR growth was negatively affected by the Company's renovation of two of its core Hilton hotels located in Wilmington, NC and Savannah, GA. For the fourth quarter, the Company reported consolidated total revenue of approximately $16.8 million, a decrease of 1.2 percent from the approximately $17.0 million of total revenue in the fourth quarter of 2006. Consolidated net income was approximately $7,000, or $0.00 per share, as compared to approximately $1.1 million, or $0.17 per share, for the comparable 2006 period. Operating income for the quarter decreased 26.2 percent to approximately $2.1 million, as compared to approximately $2.9 million for the fourth quarter of 2006. This decrease is primarily due to higher legal fees and food costs, as well as a non-recurring consulting fee earned in the fourth quarter 2006 from the developer of the Crowne Plaza Resort Hollywood Beach. During the fourth quarter FFO was approximately $1.7 million, or $0.16 per share, compared to approximately $3.2 million, or $0.30 per share, for the fourth quarter of 2006. The FFO decrease during the quarter was due to the Company's share of the operating results following the third quarter opening of the Hollywood Beach asset of approximately $0.4 million, as well as a change in fair market value of approximately $0.7 million of the interest rate swap required by our lenders on the Company's revolving credit facility.
For the year ended December 31, 2007, the company reported consolidated total revenue of approximately $69.8 million and consolidated net income of approximately $2.5 million, or $0.36 per share. For the comparable period of 2006, total revenues were approximately $67.2 million, and consolidated net income was approximately $3.2 million, or $0.48 per share. FFO for the full year was approximately $9.3 million, or $0.87 per share, as compared to approximately $10.0 million, or $0.95 per share, for the full year in 2006, representing a 7.8 percent decrease in FFO over the prior year. This decrease reflects a non-cash charge of approximately $0.8 million due to the interest rate swap required by our lenders on the Company's revolving line of credit and the Company's share of a loss of approximately $1.0 million relating to start-up costs associated with the opening of the Hollywood property in September 2007, as well as operating results subsequent to the property's opening.
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 key operating statistics for the Company's six properties included in continuing operations for the quarter and years ended December 31, 2007 and 2006. These statistics do not include the Holiday Inn Williamsburg, which was sold in August 2006, the Sheraton Louisville Riverside, which was acquired in September 2006 and is temporarily closed for renovations, the Crowne Plaza Resort Hollywood Beach, which was acquired August 8, 2007 and opened September 18, 2007, and the Crowne Plaza Tampa Westshore, which was acquired in October 2007 and is temporarily closed for renovations.
Quarter Ended Quarter Ended Dec. 31, 2007 Dec. 31, 2006 Variance
Occupancy % 63.5% 65.7% -3.3%
Average Daily Rate ("ADR") $118.28 $112.28 5.3%
Revenue per Available Room
("RevPAR") $75.14 $73.75 1.9%
For the quarter ended December 31, 2007, the Company realized a 1.9 percent increase in RevPAR versus the same period in 2006. The RevPAR increase was achieved through a 5.3 percent increase in ADR offset by a 3.3 percent decrease in occupancy. For the same three-month period, the Company's six hotels included in continuing operations generated approximately $10.6 million of total room revenue in 2007 versus approximately $10.4 million in 2006. This marks the 12th consecutive quarter-over-quarter increases in both RevPAR and ADR.
Year-Ended Year-Ended Dec. 31, 2007 Dec. 31, 2006 Variance
Occupancy % 69.8% 69.7% 0.1%
Average Daily Rate ("ADR") $118.86 $112.22 5.9%
Revenue per Available Room
("RevPAR") $82.97 $78.26 6.0%
For the year ended December 31, 2007, the company generated a 5.9 percent increase in ADR versus the comparable period in 2006. For the year ended December 31, 2007, the company's six hotels included in continuing operations generated approximately $69.0 million of total revenue, versus approximately $65.8 million in fiscal year 2006, a 4.8 percent increase in revenue.
Balance Sheet/Liquidity
At December 31, 2007, the Company had approximately $5.7 million of available cash and cash equivalents, approximately $1.7 million of which is reserved for capital improvements and certain other expenses. The Company has approximately $34.4 million outstanding on its $60.0 million revolving line of credit, which has been deployed to fund the acquisition and renovation of the Sheraton Louisville Riverside Hotel, the Company's equity contribution to its joint venture with The Carlyle Group for the purchase of the Crowne Plaza Resort Hollywood Beach, and the acquisition of the Tampa hotel property.
Dividend
As previously announced, the Company declared a quarterly dividend of $0.17 per share of common stock payable to shareholders and unitholders of record on the close of business Friday, March 14, 2008. The dividend will be paid on Friday, April 11, 2008. This will be the Company's 13th consecutive quarterly dividend paid to shareholders.
Portfolio Update
As of December 31, 2007, total assets were approximately $160.0 million, including approximately $109.4 million of net investment in hotel properties, approximately $31.2 million of properties under development plus approximately $5.6 million for the Company's joint venture investment in the Crowne Plaza Resort Hollywood Beach.
The Company also reported the following portfolio developments:
• On October 29, 2007, the Company purchased a 250-room hotel in Tampa, Florida, formerly known as the Tampa Clarion Hotel, for the aggregate purchase price of approximately $13.5 million, or approximately $54,000 per room. The asset features 10,000 square feet of meeting space, a full service restaurant, outdoor pool and approximately 250 surface parking spaces. To facilitate acquisition closing, the company accessed the purchase price of approximately $13.5 million from its line of credit. The Company has entered into a 10-year franchise agreement with InterContinental Hotels Group (IHG) [LON: IHG, NYSE: IHG (ADRs)] through its franchising entity, Holiday Hospitality Franchising, Inc., to brand the hotel as the Crowne Plaza Tampa Westshore. In conjunction with the branding the Company will extensively renovate the hotel. Major physical renovations are expected to be completed within 18 months, with the Crowne Plaza Tampa Westshore scheduled to open in the first quarter of 2009.
• The Company continues a $15.9 million renovation and repositioning of its Louisville property, a 186-unit riverfront hotel in Jeffersonville, Indiana acquired in September 2006. As of December 31, 2007, the Company has incurred costs totaling approximately $12.6 million toward this renovation. The asset is expected to re-open as the Sheraton Louisville Riverside in April 2008.
• At the Hilton Wilmington Riverside Hotel in Wilmington, North Carolina, the Company continues an extensive $10.4 million renovation, which commenced in the first quarter of 2007 and is scheduled to be completed in the first quarter of 2008. As of December 31, 2007, the Company has incurred costs totaling approximately $8.4 million toward this renovation.
• At the Hilton Savannah DeSoto, an $11.0 million renovation and product improvement plan is underway. As of December 31, 2007, the Company has incurred costs totaling approximately $3.2 million toward this renovation, which is scheduled to be completed by the end of February 2009.
Outlook and Market Trends
With regard to guidance for 2008 management expects RevPAR growth to be in the range of three to five percent, and FFO per share to be in the range of $1.02 to $1.12 for the year. These projections are based on occupancy and rate estimates that are consistent with Year 2008 trend forecasts by Smith Travel Research for the market segments in which the Company operates. The FFO forecast reflects management's expectation that the Sheraton Louisville Riverside will open in April 2008, the Crowne Plaza Resort Hollywood Beach will continue to demonstrate increased operations and that there will be continued, albeit slowed, expansion in the lodging industry through 2008. Given the current volatility in the fixed income markets, management has elected not to include the impact of the interest rate swap in our estimates of FFO for 2008. Substantial changes in interest rates could have an adverse impact on our financial results and FFO in 2008 as mark to market non-cash interest rate swap adjustments may be required on the Company's credit line.
The table below reconciles projected 2008 net income to projected FFO.
Reconciliation Table:
Low Range High Range
Y/E 2008 Y/E 2008
Net Income $2,415,000 $3,039,000
Depreciation 7,210,000 7,210,000
Minority Interest 1,279,000 1,680,000
FFO $10,904,000 $11,929,000
FFO per share & unit $1.02 $1.12
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