MHX Meristar Hosp Cp

MeriStar Hospitality Corporation (NYSE: MHX), one of the nation's largest hotel real estate investment trusts (REIT), today announced financial results for the third quarter ended September 30, 2005. Highlights of the company's strong quarterly performance include(1): -- Net loss of $(117) million or $(1.34) per diluted share compared to a net loss of $(27) million or $(0.31) per diluted share for the 2004 third quarter. The 2005 third quarter net loss includes the previously announced $(92) million or $(1.02) per diluted share impact of the defeasance cost, impairment and interest rate swap termination fee related to debt refinancing; -- Adjusted funds from operations (FFO) per diluted share of $0.09 increased 350 percent compared to $0.02 per diluted share for the 2004 third quarter; -- Adjusted EBITDA of $39.6 million increased nearly 17 percent compared to $33.9 million in the 2004 third quarter; -- Revenue per available room (RevPAR) increased 11.5 percent for the comparable hotels, as average daily rate (ADR) rose 11.1 percent and occupancy improved 0.3 percent; and -- Comparable hotel gross operating profit margins improved 137 basis points, and comparable hotel EBITDA margins improved 166 basis points. (1)FFO, Adjusted FFO, Adjusted EBITDA, and comparable hotel EBITDA margins are non-GAAP financial measures. See the notes to financial information for further discussion of these non-GAAP financial measures. "We are pleased with the excellent results generated by our properties during the quarter," said Paul W. Whetsell, chairman and chief executive officer. "Our strategy of reshaping our portfolio to one able to drive rate and improve margins is continuing to produce superior results and increase shareholder value. RevPAR exceeded the upper end of our guidance for the period and was driven almost entirely by rate." The Marriott Irvine in southern California and The Ritz-Carlton, Pentagon City in Arlington, Va., which were acquired mid-2004 and excluded from the comparable hotel RevPAR and margin results, achieved RevPAR gains of 26.4 percent and 15.7 percent, respectively, in the third quarter. The company experienced operating strength in several key markets, including southern California and Washington, D.C., where RevPAR grew 18.6 percent and 11.7 percent, respectively. Additionally, the company's New Jersey properties experienced a 17.1 percent growth in RevPAR as several renovated properties were able to take advantage of a strong market and drive both occupancy and ADR. The Radisson Lexington Avenue in Midtown Manhattan continued to perform well resulting in $561,000 in distributable cash in the quarter on the company's equity interest, in addition to the $1.4 million return on the $40 million mezzanine loan. Renovation Update In the third quarter, the company invested $19.3 million in non-hurricane related capital improvements at its properties. "As part of our overall capital improvement program, we have invested $78.4 million in renovations and upgrades to our properties over the past nine months, and we are on track to reach our target of $115 million in 2005," Whetsell said. "Property results are reflecting the positive impacts of this program. For example, the Radisson Chicago, which recently completed improvements to both the guest rooms and public space, including a reconcepting of the street-front restaurant, experienced a 22.1 percent increase in RevPAR for the quarter driven primarily by a 17.1 percent increase in ADR," Whetsell continued. "We expect our 2006 capital investment program to be well below 2005 levels as we near completion of our multi-year investment initiative and begin to approach more traditional levels of capital spending," he added. Asset Sales The company sold three hotels, the Marina Hotel San Pedro, the Wyndham Garden Marietta and the DoubleTree Albuquerque, during the third quarter for total gross proceeds of $25.3 million. On a combined basis, these properties sold for nearly 16 times their trailing twelve-month EBITDA. "Including the sale of the Hilton Monterey in May, we have generated total gross proceeds of $45.8 million year to date," Whetsell said. "As we indicated last quarter, we have expanded our asset disposition activity to take advantage of the favorable market conditions. Based on our current outlook, we now expect to sell an additional $150 million to $200 million in assets by year-end, with the balance of the dispositions completed in the first quarter of 2006." Capital Structure The company completed several key capital market transactions during the quarter. "We made significant progress toward our objective of strengthening our balance sheet and improving our credit statistics," said Donald D. Olinger, chief financial officer. "Most significantly, we refinanced our $300 million CMBS loan and repurchased an additional $28.7 million of senior unsecured notes, bringing our total senior unsecured note repurchase for the year to more than $50 million. We also redeemed the remaining $33 million of our 8.75 percent senior subordinated notes at par and expanded our bank facility by $100 million. These transactions resulted in a substantial lowering of our weighted average cost of debt and annual interest expense, greater cash flow, and significant improvement in our overall credit statistics. In addition, the new CMBS structure provides the company greater flexibility with respect to substituting or selling assets in the collateral pool. As demonstrated by the recent sale of the DoubleTree Albuquerque, we now have the ability to sell those collateral assets that do not fit with our long-term strategy, thus reducing future capital requirements and generating proceeds to further reduce our debt." The company expects to use asset sale proceeds to continue to reduce its outstanding debt, with particular focus on the company's $206 million of 10.5 percent senior unsecured notes, which become callable in December 2005. Pending the timing of asset sales, the company currently expects to call between $100 million and $150 million in 2005 with the balance being redeemed in the first quarter of 2006. Hurricane Update Damage associated with Hurricane Katrina resulted in the temporary closure of the company's two New Orleans properties, the 303-room Holiday Inn Select New Orleans Airport and the 23-room boutique Hotel Maison de Ville. The potential financial impact of the closure of these properties on company operations is not expected to be significant. Three of MeriStar's Florida properties that suffered damage from the hurricanes last fall remain closed. The Best Western Sanibel Island is expected to open in November, the South Seas Island Resort on Captiva is expected to open in December and the Holiday Inn Walt Disney World re-opening is scheduled for 2006. Guidance The company is maintaining its full year adjusted EBITDA guidance of $185 million to $190 million and projects a net loss of $(138) million to $(143) million. The guidance includes $4 million of additional business interruption (BI) insurance gain in the fourth quarter. This BI gain amount reflects the minimum cumulative amount of lost profit expected in the year from the properties impacted by the hurricanes last fall. Recognition of BI gain is subject to numerous requirements, and timing of the recognition of BI gain cannot be certain. RevPAR for the fourth quarter is estimated to increase 9 to 11 percent and 8.5 to 9.5 percent for the full year. Additionally, the company provided the following range of estimates for the fourth quarter and full year: -- Net loss of $(9) million to $(14) million in the fourth quarter; -- Adjusted EBITDA of $40 million to $45 million in the fourth quarter; -- Net loss per diluted share of $(0.10) to $(0.16) in the fourth quarter and $(1.57) to $(1.63) for the full year; -- FFO per diluted share of $0.10 to $0.16 in the fourth quarter and $(0.50) to $(0.56) for the full year; and -- Adjusted FFO per diluted share of $0.10 to $0.16 in the fourth quarter and $0.64 to $0.70 for the full year. See reconciliations of net loss to FFO per diluted share and Adjusted FFO per diluted share and net loss to Adjusted EBITDA included in the tables of this press release. FFO, Adjusted FFO, and Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization and other items) are non-GAAP financial measures and should not be considered as alternatives to any measures of operating results under GAAP. See the notes to financial information for further discussion of these non-GAAP financial measures. Conference Call MeriStar will hold a conference call to discuss its third-quarter results today, November 1, 2005, at 11 a.m. Eastern time. Interested parties may visit the company's Web site at www.meristar.com and click on Investor Relations and then the webcast link. Interested parties also may listen to an archived webcast of the conference call on the Web site, or may dial (800) 405-2236, reference number 11041610, to hear a telephone replay. The telephone replay will be available through midnight on Tuesday, November 8, 2005. Arlington, Va.-based MeriStar Hospitality Corporation owns 69 principally upscale, full-service hotels in major markets and resort locations with 19,376 rooms in 22 states and the District of Columbia. The company owns hotels under such internationally known brands as Hilton, Sheraton, Marriott, Ritz-Carlton, Westin, Doubletree and Radisson. For more information about MeriStar Hospitality, visit the company's Web site: www.meristar.com. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words such as "intend," "plan," "may," "should," "will," "project," "estimate," "anticipate," "believe," "expect," "continue," "potential," "opportunity," and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. All statements regarding our expected financial position, business and financing plans are forward-looking statements. Except for historical information, matters discussed in this press release are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to: economic conditions generally and the real estate market specifically; supply and demand for hotel rooms in our current and proposed market areas; other factors that may influence the travel industry, including health, safety and economic factors; competition; the level of proceeds from asset sales; cash flow generally, including the availability of capital generally, cash available for capital expenditures, and our ability to refinance debt; the effects of threats of terrorism and increased security precautions on travel patterns and demand for hotels; the threatened or actual outbreak of hostilities and international political instability; governmental actions, including new laws and regulations and particularly changes to laws governing the taxation of real estate investment trusts; weather conditions generally and natural disasters; rising insurance premiums; rising interest rates; and changes in U.S. generally accepted accounting principles, policies and guidelines applicable to real estate investment trusts. These risks and uncertainties should be considered in evaluating any forward-looking statements contained in this press release or incorporated by reference herein. All forward-looking statements speak only as of the date of this press release or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section. We undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this press release. -0- *T CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Revenue: Hotel operations: Rooms $130,674 $121,053 $389,870 $378,807 Food and beverage 48,035 44,483 158,322 147,936 Other hotel operations 12,036 12,518 34,787 43,100 Office rental, parking and other revenue 1,908 1,426 4,941 4,021 --------- --------- --------- --------- Total revenue 192,653 179,480 587,920 573,864 --------- --------- --------- --------- Hotel operating expenses: Rooms 33,041 32,000 95,766 94,565 Food and beverage 36,323 34,762 112,613 109,284 Other hotel operating expenses 7,708 8,182 22,124 27,290 Office rental, parking and other expenses 945 682 2,381 1,938 Other operating expenses: General and administrative, hotel 32,328 28,770 93,643 88,950 General and administrative, corporate 4,000 2,547 10,361 9,653 Property operating costs 30,947 28,292 89,622 85,796 Depreciation and amortization 25,728 24,599 73,021 73,058 Property taxes, insurance and other 11,092 12,567 33,439 43,337 Loss on asset impairments 40,343 - 40,343 - Contract termination costs 1,081 - 1,081 - --------- --------- --------- --------- Operating expenses 223,536 172,401 574,394 533,871 --------- --------- --------- --------- Equity in income/loss of and interest earned from unconsolidated affiliates 2,682 1,600 7,257 4,800 Hurricane business interruption gain - - 4,290 - --------- --------- --------- --------- Operating (loss) income (28,201) 8,679 25,073 44,793 Minority interest income 3,062 775 3,370 2,392 Interest expense, net (30,152) (30,994) (91,563) (95,586) Loss on early extinguishments of debt (56,151) - (57,158) (7,903) --------- --------- --------- --------- Loss before income taxes and discontinued operations (111,442) (21,540) (120,278) (56,304) Income tax (expense) benefit (33) 289 (867) 796 --------- --------- --------- --------- Loss from continuing operations (111,475) (21,251) (121,145) (55,508) --------- --------- --------- --------- Discontinued operations: Loss from discontinued operations before income tax (5,832) (5,557) (8,672) (23,223) Income tax benefit - 36 - 159 --------- --------- --------- --------- Loss from discontinued operations (5,832) (5,521) (8,672) (23,064) --------- --------- --------- --------- Net loss $(117,307) $(26,772) $(129,817) $(78,572) ========= ========= ========= ========= Basic loss per share: Loss from continuing operations $(1.27) $(0.24) $(1.39) $(0.70) Loss from discontinued operations (0.07) (0.07) (0.09) (0.29) --------- --------- --------- --------- Loss per basic share $(1.34) $(0.31) $(1.48) $(0.99) ========= ========= ========= ========= Diluted loss per share: Loss from continuing operations $(1.28) $(0.25) $(1.39) $(0.71) Loss from discontinued operations (0.06) (0.06) (0.09) (0.28) --------- --------- --------- --------- Loss per diluted share $(1.34) $(0.31) $(1.48) $(0.99) ========= ========= ========= ========= CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) September 30, December 31, 2005 2004 ---- ---- ASSETS Property and equipment $ 2,569,041 $ 2,581,720 Accumulated depreciation (513,559) (506,632) ------------- ------------- 2,055,482 2,075,088 Assets held for sale 23,058 - Investment in and advances to unconsolidated affiliates 71,465 84,796 Prepaid expenses and other assets 35,969 34,533 Insurance claim receivable 37,070 76,056 Accounts receivable, net of allowance for doubtful accounts of $528 and $691 41,922 32,979 Restricted cash 18,839 58,413 Cash and cash equivalents 35,296 60,540 ------------- ------------- $ 2,319,101 $ 2,422,405 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Long-term debt $ 1,613,982 $ 1,573,276 Accounts payable and accrued expenses 81,638 75,527 Accrued interest 31,719 41,165 Due to Interstate Hotels and Resorts 16,881 21,799 Other liabilities 7,618 11,553 ------------- ------------- Total liabilities 1,751,838 1,723,320 ------------- ------------- Minority interests 10,050 14,053 Stockholders' equity: Preferred stock, par value $0.01 per share Authorized - 100,000 shares Issued - none - - Common stock, par value $0.01 per share Authorized - 100,000 shares Issued - 89,982 and 89,739 shares 900 897 Additional paid-in capital 1,468,504 1,465,658 Accumulated deficit (868,210) (738,393) Common stock held in treasury - 2,491 and 2,372 shares (43,981) (43,130) ------------- ------------- Total stockholders' equity 557,213 685,032 ------------- ------------- $ 2,319,101 $ 2,422,405 ============= ============= RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS (a) (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Funds From Operations: Net loss $(117,307) $(26,772) $(129,817) $(78,572) Depreciation and amortization of real estate assets 22,149 24,614 68,146 72,734 Loss on disposal of assets 1,490 2,232 2,527 13,762 Unconsolidated affiliate adjustments 990 - 3,407 - Minority interest to common OP unit holders (3,028) (735) (1,882) (2,469) ---------- --------- ---------- --------- Funds from operations $(95,706) $(661) $(57,619) $5,455 ========== ========= ========== ========= Weighted average number of shares of common stock outstanding 89,750 89,662 87,452 82,060 ========== ========= ========== ========= Funds from operations per diluted share $(1.07) $(0.01) $(0.66) $0.07 ========== ========= ========== ========= Funds From Operations, as adjusted: Funds from operations $(95,706) $(661) $(57,619) $5,455 Loss on asset impairments 44,153 2,581 46,989 10,022 Loss on early extinguishments of debt 56,151 - 57,158 7,903 Write off of deferred financing fees 2,321 - 2,531 1,719 Contract termination costs 1,081 - 1,081 - Minority interest to common OP unit holders (201) - (2,737) - ---------- --------- ---------- --------- Funds from operations, as adjusted $7,799 $1,920 $47,403 $25,099 ========== ========= ========== ========= Weighted average number of shares of common stock and common stock equivalents outstanding 87,668 89,713 87,579 82,060 ========== ========= ========== ========= Funds from operations per diluted share, as adjusted $0.09 $0.02 $0.54 $0.31 ========== ========= ========== ========= (a) See the notes to the financial information for discussion of non-GAAP measures. RECONCILIATION OF NET LOSS TO EBITDA (a) (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- EBITDA and Adjusted EBITDA: Net loss $(117,307) $(26,772) $(129,817) $(78,572) Loss from discontinued operations (5,832) (5,521) (8,672) (23,064) ---------- --------- ---------- --------- Loss from continuing operations (111,475) (21,251) (121,145) (55,508) Interest expense, net 30,152 30,994 91,563 95,586 Income tax expense (benefit) 33 (289) 867 (796) Depreciation and amortization (b) 25,728 24,599 73,021 73,058 ---------- --------- ---------- --------- EBITDA from continuing operations (55,562) 34,053 44,306 112,340 Loss on asset impairments 40,343 - 40,343 - Contract termination costs 1,081 - 1,081 - Minority interest income (3,062) (775) (3,370) (2,392) Loss on early extinguishments of debt 56,151 - 57,158 7,903 Equity investment adjustments: Equity in loss of affiliates 178 - 1,342 - Distributions from equity investments 561 - 1,352 - ---------- --------- ---------- --------- Adjusted EBITDA from continuing operations $39,690 $33,278 $142,212 $117,851 ========== ========= ========== ========= Loss from discontinued operations $(5,832) $(5,521) $(8,672) $(23,064) Interest expense, net - - - (478) Income tax benefit - (36) - (159) Depreciation and amortization 443 1,375 2,111 5,510 ---------- --------- ---------- --------- EBITDA from discontinued operations (5,389) (4,182) (6,561) (18,191) Loss on asset impairments 3,810 2,581 6,646 10,022 Loss on disposal of assets 1,490 2,231 2,527 13,762 ---------- --------- ---------- --------- Adjusted EBITDA from discontinued operations $(89) $630 $2,612 $5,593 ========== ========= ========== ========= Adjusted EBITDA, total operations $39,601 $33,908 $144,824 $123,444 ========== ========= ========== ========= (a) See the notes to the financial information for discussion of non-GAAP measures. (b) Depreciation and amortization includes the write-off of deferred financing costs totaling $2.3 million for the three months ended September 30, 2005 and $2.5 million and $1.7 million for the nine months ended September 30, 2005 and 2004, respectively, related to our early extinguishments of debt during these periods. HOTEL OPERATIONAL DATA SCHEDULE OF COMPARABLE HOTEL RESULTS (a) (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Number of hotels 57 57 57 57 Number of rooms 16,619 16,619 16,619 16,619 Comparable hotel revenues: Rooms $116,864 $104,312 $348,342 $320,493 Food and beverage 42,632 38,017 139,134 129,126 Other hotel operations 8,638 8,278 25,076 24,485 -------- -------- -------- -------- Comparable hotel revenues (b) 168,134 150,607 512,552 474,104 -------- -------- -------- -------- Comparable hotel expenses: Room 29,914 27,504 86,697 81,685 Food and beverage 32,202 29,459 98,875 94,489 Other 5,747 5,691 17,094 16,989 General and administrative 28,547 25,964 83,264 78,677 Property operating costs, less management fees 24,458 21,712 69,494 64,697 -------- -------- -------- -------- Comparable hotel expenses (c) 120,868 110,330 355,424 336,537 -------- -------- -------- -------- -------- -------- -------- -------- Comparable Hotel Gross Operating Profit 47,266 40,277 157,128 137,567 -------- -------- -------- -------- Margin 28.1% 26.7% 30.7% 29.0% Management Fees (c) 4,196 3,754 12,800 11,828 Property taxes, insurance and other (c) 8,891 8,402 26,664 25,854 -------- -------- -------- -------- Comparable Hotel EBITDA, excluding BI (d) $ 34,179 $ 28,121 $117,664 $ 99,885 -------- -------- -------- -------- Margin 20.3% 18.7% 23.0% 21.1% Hurricane business interruption gain - - 969 - -------- -------- -------- -------- Comparable Hotel EBITDA, including BI (d) $ 34,179 $ 28,121 $118,633 $ 99,885 ======== ======== ======== ======== Margin 20.3% 18.7% 23.1% 21.1% (a) See the notes to the financial information for discussion of non-GAAP measures, and comparable hotel results and statistics. (b) The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel revenues is as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Revenues per the consolidated statements of operations $192,653 $179,480 $587,920 $573,864 Non-comparable hotel revenues (22,611) (27,447) (70,427) (95,739) Office rental, parking and other revenue (1,908) (1,426) (4,941) (4,021) --------- --------- --------- --------- Comparable hotel revenues $168,134 $150,607 $512,552 $474,104 ========= ========= ========= ========= (c) The reconciliation of operating costs per the consolidated statements of operations to the comparable hotel expenses, management fees, property taxes, insurance and other is as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Operating expenses per the consolidated statements of operations $223,536 $172,401 $574,394 $533,871 Non-comparable hotel expenses (18,429) (22,769) (54,700) (76,941) General and administrative, corporate (4,000) (2,547) (10,361) (9,653) Depreciation and amortization (25,728) (24,599) (73,021) (73,058) Loss on asset impairments (40,343) - (40,343) - Contract termination costs (1,081) - (1,081) - --------- --------- --------- --------- Comparable hotel expenses, management fees, property taxes, insurance and other $133,955 $122,486 $394,888 $374,219 ========= ========= ========= ========= (d) The reconciliation of comparable hotel EBITDA to operating income per the consolidated statements of operations is as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Comparable hotel EBITDA, including BI $34,179 $28,121 $118,633 $99,885 Non-comparable results, net (e) 4,182 4,678 15,727 18,798 Office rental, parking and other revenue 1,908 1,426 4,941 4,021 General and administrative, corporate (4,000) (2,547) (10,361) (9,653) Depreciation and amortization (25,728) (24,599) (73,021) (73,058) Loss on asset impairments (40,343) - (40,343) - Contract termination costs (1,081) - (1,081) - Equity in income/loss of and interest earned from unconsolidated affiliates 2,682 1,600 7,257 4,800 Hurricane business interruption gain at non- comparable hotels - - 3,321 - --------- --------- -------- ---------- Operating Income $(28,201) $8,679 $25,073 $44,793 ========= ========= ========= ========= (e) Non-comparable results, net represent all revenues and expenses, other than those of our comparable hotels, and specific revenues and expenses identified above: office rental, parking and other revenue; general and administrative, corporate; depreciation and amortization; loss on asset impairments; contract termination costs and equity in income/loss of and interest earned from unconsolidated affiliates. FORECASTED RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS (In millions, except per share amounts) Three Months Ending December 31, 2005 ------------------------------------- Low-end of range High-end of range ---------------- ----------------- Forecasted Funds from Operations: Net loss (a) $ (14) $ (9) Adjustments to forecasted net loss: Depreciation and amortization of real estate assets 22 22 Unconsolidated affiliate adjustments 1 1 Minority interest to common OP unit holders - - ------------------ ------------------ Funds from operations $ 9 $ 14 Weighted average diluted shares of common stock and common OP units outstanding 90 90 ------------------ ------------------ Funds from operations per diluted share $ 0.10 $ 0.16 ================== ================== Funds From Operations, as adjusted: Funds from operations $ 9 $ 14 Loss on asset impairments - - Loss on early extinguishments of debt - - ------------------ ------------------ Funds from operations, as adjusted $ 9 $ 14 Weighted average number of shares of common stock and common stock equivalents outstanding 90 90 ------------------ ------------------ Funds from operations per diluted share, as adjusted $ 0.10 $ 0.16 ================== ================== Year Ending December 31, 2005 ----------------------------- Low-end of range High-end of range ---------------- ----------------- Forecasted Funds from Operations: Net loss (a) $ (143) $ (138) Adjustments to forecasted net loss: Depreciation and amortization of real estate assets 90 90 Unconsolidated affiliate adjustments 4 4 Minority interest to common OP unit holders (4) (4) Loss on disposal of assets 3 3 ---------------- ----------------- Funds from operations $ (50) $ (45) Weighted average number of shares of common stock and common OP units outstanding 90 90 ---------------- ----------------- Funds from operations per diluted share $ (0.56) $ (0.50) ================ ================= Funds From Operations, as adjusted: Funds from operations $ (50) $ (45) Loss on asset impairments 47 47 Contract termination fees 1 1 Loss on early extinguishments of debt 57 57 Write-off of deferred financing costs 3 3 ---------------- ----------------- Funds from operations, as adjusted $ 58 $ 63 Weighted average number of shares of common stock and common stock equivalents outstanding 90 90 ---------------- ----------------- Funds from operations per diluted share, as adjusted $ 0.64 $ 0.70 ================ ================= (a) Forecasted net loss does not include any possible future losses on asset impairments, gains or losses on the sale of assets, gains or losses on early extinguishment of debt, or gains or losses on property damage insurance recoveries. FORECASTED RECONCILIATION OF NET LOSS TO EBITDA (In millions) Three Months Ending December 31, 2005 ------------------------------------- Low-end of range High-end of range ---------------- ----------------- EBITDA and Adjusted EBITDA: Net loss (a) $ (14) $ (9) Interest expense, net 30 30 Depreciation and amortization 24 24 ------------------- ----------------- EBITDA 40 45 Equity investment adjustments: Equity in income of affiliates (1) (1) Distributions from equity investments 1 1 Minority interest to common OP unit holders - - ------------------- ----------------- Adjusted EBITDA $ 40 45 =================== ================= Year Ending December 31, 2005 ----------------------------- Low-end of range High-end of range ---------------- ----------------- EBITDA and Adjusted EBITDA: Net loss (a) $ (143) $ (138) Interest expense, net 122 122 Depreciation and amortization 96 96 Write-off of deferred financing costs 3 3 ---------------- ----------------- EBITDA 78 83 Loss on asset impairments 47 47 Contract termination fees 1 1 Loss on early extinguishments of debt 57 57 Equity investment adjustments: Equity in income of affiliates - - Distributions from equity investments 3 3 Minority interest to common OP unit holders (4) (4) Loss on disposal of assets 3 3 ---------------- ----------------- Adjusted EBITDA $ 185 190 ================ ================= (a) Forecasted net loss does not include any possible future losses on asset impairments, gains or losses on the sale of assets, gains or losses on early extinguishment of debt, or gains or losses on property damage insurance recoveries. *T NOTES TO FINANCIAL INFORMATION Funds From Operations Substantially all of our non-current assets consist of real estate, and, in accordance with accounting principles generally accepted in the United States, or GAAP, those assets are subject to straight-line depreciation, which reflects the assumption that the value of real estate assets, other than land, will decline ratably over time. That assumption is often not true with respect to the actual market values of real estate assets (and, in particular, hotels), which fluctuate based on economic, market and other conditions. As a result, management and many industry investors believe the presentation of GAAP operating measures for real estate companies to be more informative and useful when other measures, adjusted for depreciation and amortization, are also presented. In an effort to address these concerns, the National Association of Real Estate Investment Trusts, or NAREIT, adopted a definition of Funds From Operations, or FFO. NAREIT defines FFO as net income (computed in accordance with GAAP) excluding gains or losses from sales of real estate, real estate-related depreciation and amortization, and after comparable adjustments for our portion of these items related to unconsolidated partnerships and joint ventures. Extraordinary items and cumulative effect of changes in accounting principles as defined by GAAP are also excluded from the calculation of FFO. As defined by NAREIT, FFO also does not include reductions from asset impairment charges. The SEC, however, recommends that FFO includes the effect of asset impairment charges, which is the presentation we have adopted for all historical presentations of FFO. We believe FFO is an indicative measure of our operating performance due to the significance of our hotel real estate assets and provides beneficial information to investors. Adjusted FFO represents FFO excluding the effects of gains or losses on early extinguishments of debt, write-offs of deferred financing costs, contract termination costs and, in accordance with the NAREIT definition of FFO, asset impairment charges. We exclude the effects of gains or losses on early extinguishments of debt, write-offs of deferred financing costs, contract termination costs and asset impairment charges because we believe that including them in Adjusted FFO does not fully reflect the operating performance of our remaining assets. We believe Adjusted FFO is useful for the same reasons we believe that FFO is useful, but we also believe that Adjusted FFO enables us and the investor to consider our operating performance without considering the items we exclude from our definition of Adjusted FFO. Consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization EBITDA represents consolidated earnings before interest, income taxes, depreciation and amortization and includes operations from the assets included in discontinued operations. We further adjust EBITDA for the effect of capital market transactions that would result in a gain or loss on early extinguishments of debt, contract termination costs, the earnings effect and distributions related to equity method investments, as well as the earnings effect of asset dispositions and any impairment assessments, resulting in the measure that we refer to as "Adjusted EBITDA." We exclude the effect of gains or losses on early extinguishments of debt, contract termination costs, the earnings effect and distributions related to equity method investments, as well as the earnings effect of asset dispositions and impairment assessments because we believe that including them in Adjusted EBITDA does not fully reflect the operating performance of our remaining assets. We also believe Adjusted EBITDA provides useful information to investors regarding our financial condition and results of operations because Adjusted EBITDA is useful in evaluating our operating performance. Furthermore, we use Adjusted EBITDA to provide a measure of performance that can be isolated on an asset-by-asset basis to determine overall property performance. We believe that the rating agencies and a number of our lenders also use Adjusted EBITDA for those purposes. We also use Adjusted EBITDA as one measure in determining the value of acquisitions and dispositions. Comparable Hotel Operating Results and Statistics We present certain operating statistics (i.e., RevPAR, ADR and average occupancy) and operating results (revenues, expenses and operating profit) for the periods included in this report on a comparable hotel basis as supplemental information for investors. We define our comparable hotels as properties (i) that are owned by us and the operations of which are included in our consolidated results for the entirety of the reporting periods being compared, (ii) that have not sustained substantial property damage during the reporting periods being compared, and (iii) that are not planned for disposition as of the end of the period. Of the 69 hotels that we owned as of September 30, 2005, 57 have been classified as comparable hotels. The operating results of one hotel classified as held-for-sale and reflected in discontinued operations, nine hotels significantly affected by the hurricanes, and the two hotels acquired in 2004 that we owned as of September 30, 2005, are excluded from comparable hotel results for these periods. Additionally, changes in estimates to property tax expense, which are recorded when known, have been allocated to the period to which they relate, in order to maintain comparability between periods. We present these comparable hotel operating results by eliminating corporate-level revenues and expenses, as well as depreciation and amortization and loss on asset impairments. We eliminate corporate-level revenues and expenses to arrive at property-level results because we believe property-level results provide investors with supplemental information into the ongoing operating performance of our hotels and the effectiveness of management in running our business on a property-level basis. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes over time. Because real estate values have historically risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. We eliminate loss on asset impairments because these non-cash expenses are primarily related to our non-comparable properties, and do not reflect the operating performance of our comparable assets. As a result of the elimination of corporate-level costs and expenses and depreciation and amortization, the comparable hotel operating results we present do not represent our total revenues, expenses or operating profit and should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent that they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance. We present these hotel operating results on a comparable hotel basis because we believe that doing so provides investors and management with useful information for evaluating the period-to-period performance of our hotels and facilitates comparisons with other hotel REITs and hotel owners. In particular, these measures assist management and investors in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations at comparable hotels (which represent the vast majority of our portfolio) or from other factors, such as the effect of acquisitions or dispositions. While management believes that presentation of comparable hotel results is a "same store" supplemental measure that provides useful information in evaluating the ongoing performance of the Company, this measure is not used to allocate resources or to assess the operating performance of each of these hotels, as these decisions are based on data for individual hotels and are not based on comparable hotel results. For these reasons, we believe that comparable hotel operating results, when combined with the presentation of GAAP operating profit, revenues and expenses, provide useful information to management and investors.