Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Years
Ended
December 31,
December 31,
2004 2003
2004 2003
Revenues:
Rooms
$54,883 $85,020 $270,820
$317,978
Food and beverage
34,445 47,301
144,593 164,358
Other hotel operating
revenue
14,070 15,126
51,064 55,580
103,398 147,447
466,477 537,916
Lease revenue
3,314 6,266
24,233 27,638
Total revenues
106,712 153,713
490,710 565,554
Operating Costs and Expenses:
Rooms
12,839 22,550
67,761 82,245
Food and beverage
25,613 36,069
110,768 127,751
Other departmental
expenses
31,769 40,311
135,323 148,595
Management fees
3,860 5,434
17,145 19,295
Other property level
expenses
6,417 10,157
30,344 36,903
Lease expense
3,257
- 6,446
-
Depreciation and
amortization
10,653 20,217
61,463 82,661
Impairment losses on
goodwill and hotel
property
12,675
- 12,675
-
Corporate expenses
4,352 5,640
28,845 21,912
Total operating
costs
and
expenses
111,435 140,378
470,770 519,362
Operating (loss)
income (4,723)
13,335 19,940
46,192
Interest expense
(7,481) (25,007) (64,578)
(107,391)
Interest income
257 311
1,270 2,643
Gain (loss) on early extinguishment
of debt 29
767 (21,934) (13,761)
Other income (expenses), net 3,816
(2,549) 3,132
(7,581)
Loss before income
taxes, minority
interests And
discontinued
operations
(8,102) (13,143)
(62,170) (79,898)
Income tax (expense)
benefit
(4,230) (992)
(4,990) 552
Minority interests
2,914 (61)
4,831 (2,895)
Loss from continuing operations
(9,418) (14,196)
(62,329) (82,241)
Income from
discontinued
operations
- 363
75,662 26,047
Net (Loss) Income
$(9,418) $(13,833) $13,333
$(56,194)
Basic and Diluted
(Loss) Income Per
Share:
Loss from
continuing
operations
per
share
$(0.31) $(0.74)
$(2.55) $(4.84)
Income from
discontinued
operations
per
share
- 0.02
3.10 1.53
Net (loss) income per share
$(0.31) $(0.72)
$0.55 $(3.31)
Weighted-average
common shares
outstanding
30,204 19,090
24,390 17,002
Our consolidated statements of operations
for the three months and year ended December 31, 2004 include the following:
the results of the 15 hotel interests currently owned or leased by the
company, referred to as the REIT Hotels; and before June 29, 2004, the
date of the IPO, the results of seven other hotels, which were distributed
out of the company and in which the company no longer has an ownership
interest.
Consolidated Balance Sheets (in thousands, except share data)
Years Ended
December 31,
2004 2003
Assets
Property and equipment
$952,717 $1,881,840
Less accumulated
depreciation
(222,150) (472,645)
Net property
and equipment
730,567 1,409,195
Goodwill
66,438 259,150
Intangible assets (net
of accumulated
amortization of
$87 and $0,
respectively)
1,613
-
Assets held for sale
- 80,519
Investment in hotel joint
ventures
12,060 23,392
Cash and cash equivalents
40,071 107,437
Restricted cash and cash
equivalents
26,979 85,697
Accounts receivable (net
of allowance for
doubtful accounts
of $361 and $772,
respectively)
21,056 31,030
Deferred financing costs
(net of accumulated
amortization of
$1,420 and $8,609,
respectively)
11,178 29,247
Other assets
80,388 53,854
Total assets
$990,350 $2,079,521
Liabilities and Owners' Equity
Liabilities:
Mortgages and other debt
payable
$489,140 $1,505,984
Bank credit facility
54,000
-
Convertible debt
- 122,030
Accounts payable and accrued
expenses
58,946 124,422
Distributions payable
8,709
-
Liabilities of assets
held for sale
- 68,153
Deferred fees on management
contracts
2,333 12,256
Deferred gain on sale
of hotels
119,616
-
Total liabilities
732,744 1,832,845
Minority interests
61,053 107,608
Owners' equity:
Members' capital
- 875,767
Distributions to members
- (439,377)
Common shares ($0.01 par value;
150,000,000
common shares authorized;
30,035,701 common
shares issued and outstanding)
300
-
Additional paid-in capital
483,691
-
Deferred compensation
(1,731)
-
Accumulated deficit
(271,873) (285,206)
Accumulated distributions to
owners
(13,447)
-
Accumulated other comprehensive
loss
(387) (12,116)
Total owners' equity
196,553 139,068
Total liabilities
and owners' equity
$990,350 $2,079,521
REIT Hotel Statements of Operations (a)
(in thousands, except per share data)
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003
2004 2003
REIT Hotel Revenues:
Rooms
$54,883 $42,037 $192,750
$169,780
Food and beverage
34,445 26,518
108,747 93,659
Other hotel operating
revenue
14,070 10,477
42,370 37,459
103,398 79,032
343,867 300,898
Lease revenue (b)
3,314 4,839
20,698 20,150
REIT hotel revenues
106,712 83,871
364,565 321,048
REIT Hotel Expenses:
Rooms
12,839 9,664
43,848 36,936
Food and beverage
25,613 19,331
80,903 69,431
Other departmental
expenses
31,769 24,276
104,033 89,459
Management fees
3,860 3,801
14,224 13,651
Other property level
expenses
6,417 4,166
20,575 15,955
Lease expense
3,257
- 6,446
-
REIT hotel expenses
83,755 61,238
270,029 225,432
REIT Hotel Adjusted
Operating Income
22,957 22,633
94,536 95,616
Interest expense,
net (7,224) (13,647)
(41,070) (60,498)
Gain (loss) on early
extinguishment of debt 29
767 (9,271)
(7,794) Other income (expenses), net (c)
3,816 (2,549)
3,132 (7,581)
Income before income
taxes and minority
interests
19,578 7,204
47,327 19,743
Income tax (expense)
benefit
(4,230) (992)
(4,990) 552
Minority interests
2,914 (61)
4,831 (2,895)
REIT Hotel Net Income
18,262 6,151
47,168 17,400
REIT depreciation and amortization
(10,653) (9,828)
(41,778) (39,090)
Impairment losses on
goodwill and hotel
property
(12,675) -
(12,675) -
Corporate expenses
(4,352) (5,640)
(28,845) (21,912)
Non-REIT hotel results, net
- (4,879)
(26,199) (38,639)
Income from discontinued
operations
- 363
75,662 26,047
Net (Loss) Income
$(9,418) $(13,833) $ 13,333
$(56,194)
(a) REIT hotel operating data above
excludes the results of operations of the distributed assets that are required
to be included in GAAP financial statement presentations prior to the date
of the IPO because we are deemed to have continuing involvement as a result
of our agreement to asset manage those assets. As a result, we have
presented only REIT hotel operating results and a reconciliation of REIT
hotel income to net income (loss), the most directly comparable GAAP measure.
REIT hotel operating results are presented
because we believe that it most fairly represents comparable period-to-period
performance of our hotels and facilitates comparisons with other hotel
REITs and hotel owners. Because of the elimination of the non-REIT
hotel operations, the REIT hotel operating results do not represent our
total revenues, expenses or operating profit in accordance with GAAP.
These results should be considered in combination with our GAAP financial
statements by investors when evaluating our performance.
(b) Until March 1, 2004, the Hamburg
Marriott was accounted for under the equity method. After March 1,
2004 when we acquired our joint venture partner's 65% leasehold interest
in the property, we record lease revenue for the Hamburg Marriott.
Lease revenue for the three months and years ended December 31, 2004 and
2003 includes revenues from the Hyatt Regency New Orleans until June 29,
2004 when we converted the Hyatt Regency New Orleans lease to a management
agreement. Prior to June 29, 2004, the Paris Marriott Champs Elysees
was accounted for as a finance obligation and we consolidated its results
because of a continuing involvement in supporting the financing of the
property through a collateralized guarantee. On June 29, 2004, we
recorded a sale and leaseback related to the Paris Marriott Champs Elysees.
Subsequent to June 29, 2004, we only earn lease revenue from the Hamburg
Marriott and the Paris Marriott Champs Elysees.
(c) Other income (expenses), net includes
our equity in earnings or losses of our investments in the Prague hotel
joint venture for the three months and years ended December 31, 2004 and
2003. Earnings or losses from our investment in the Hamburg Marriott
hotel joint venture are included in the three months and year ended December
31, 2003 and are included in the year ended December 31, 2004 until the
acquisition of our joint venture partner's interest in the property on
March 1, 2004.
Non-GAAP Financial Measures
Two non-GAAP financial measures are
presented for the Company that we believe are useful to investors as key
measures of our operating performance:
Funds from Operations, or FFO; and Earnings Before Interest
Expense, Taxes, Depreciation and Amortization, or EBITDA. Reconciliation
of these measures to net (loss) income, the most directly comparable GAAP
measure, is set forth in the following tables.
We compute FFO in accordance with
standards established by the National Association of Real Estate Investment
Trusts, or NAREIT, which adopted a definition of FFO in order to promote
an industry-wide standard measure of REIT operating performance that would
not have certain drawbacks associated with net income under GAAP. NAREIT
defines FFO as net income (or loss) (computed in accordance with GAAP)
excluding gains (or losses) from sales of property plus real estate-related
depreciation and amortization, and after adjustments for our portion of
these items related to unconsolidated partnerships and joint ventures.
We also present Fully Converted FFO, which is FFO plus convertible debt
interest expense and minority interest expense on convertible minority
interests. We believe that the presentation of FFO and Fully Converted
FFO provides useful information to investors regarding our results of operations
because they are measures of our ability to fund capital expenditures and
expand our business. In addition, FFO is widely used in the real estate
industry to measure operating performance without regard to items such
as depreciation and amortization.
EBITDA represents net income (loss)
excluding: (i) interest expense, (ii) income tax expense, including deferred
income tax benefits and expenses applicable to our foreign subsidiaries
and income taxes applicable to sale of assets; and (iii) depreciation and
amortization. EBITDA also excludes interest expense, income tax expense
and depreciation and amortization of our equity method investments. EBITDA
for 2004 and 2003 is presented on a full participation basis, which means
we have assumed conversion of all minority interests into the Company's
common shares. We believe this treatment of minority interest provides
more useful information for management and our investors and appropriately
considers our current capital structure. We also present Adjusted
EBITDA, which eliminates the effect of realizing deferred gains on our
sale leasebacks. We believe EBITDA and Adjusted EBITDA are useful
to an investor in evaluating our operating performance because they provide
investors with an indication of our ability to incur and service debt,
to satisfy general operating expenses, to make capital expenditures and
to fund other cash needs or reinvest cash into our business. We also believe
they help investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of our asset base
(primarily depreciation and amortization) from our operating results. Our
management also uses EBITDA and Adjusted EBITDA as measures in determining
the value of acquisitions and dispositions.
We caution investors that amounts
presented in accordance with our definitions of FFO, Fully Converted FFO,
EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed
by other companies, since not all companies calculate these non-GAAP measures
in the same manner. FFO, Fully Converted FFO, EBITDA and Adjusted EBITDA
should not be considered as an alternative measure of our net income (loss)
or operating performance. FFO, Fully Converted FFO, EBITDA and Adjusted
EBITDA may include funds that may not be available for our discretionary
use due to functional requirements to conserve funds for capital expenditures
and property acquisitions and other commitments and uncertainties. Although
we believe that FFO, Fully Converted FFO, EBITDA and Adjusted EBITDA can
enhance your understanding of our financial condition and results of operations,
these non-GAAP financial measures, when viewed individually, are not necessarily
a better indicator of any trend as compared to comparable GAAP measures
such as net income (loss). In addition, you should be aware that
adverse economic and market conditions might negatively impact our cash
flow. Below, we have provided a quantitative reconciliation of FFO, Fully
Converted FFO, EBITDA and Adjusted EBITDA to the most directly comparable
GAAP financial performance measure, which is net income (loss), and provide
an explanatory description by footnote of the items excluded from FFO,
Fully Converted FFO, EBITDA and Adjusted EBITDA.
Reconciliation of Net (Loss)
Income to EBITDA and Adjusted EBITDA
(in thousands)
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003
2004 2003
Net (loss) income
$(9,418) $(13,833) $13,333
$(56,194)
Depreciation and
amortization -
continuing
operations
10,653 20,217
61,463 82,661
Depreciation and
amortization -
discontinued
operations
- 1,005
- 5,513
Interest expense -
continuing
operations
7,481 25,007
64,578 107,391
Interest expense -
discontinued
operations
- 1,461
577 6,352
Income taxes
4,152 1,184
5,135 247
Mexican asset tax
refund
(2,427) -
(2,427) -
Minority interests
(2,914) 61
(4,831) 2,895
Adjustments from
unconsolidated
affiliates
1,065 (453)
5,672 3,165
EBITDA (a)
8,592 34,649
143,500 152,030
Realized portion of
deferred gain on
sale leasebacks
(1,058) -
(2,180) -
Adjusted EBITDA (a)
$7,534 $ 34,649 $141,320
$152,030
(a) EBITDA and Adjusted EBITDA have
not been adjusted for the following amounts included in net (loss) income
because these losses have either occurred during the prior two years or
are reasonably likely to occur within two years (in thousands).
-- Impairment losses from
continuing operations amounted to $12,675 for the three months and year
ended December 31, 2004.
-- Gain (loss) on early
extinguishment of debt from continuing operations amounted to $29, $767,
$(21,934) and $(13,761) for the three months and years ended December 31,
2004 and 2003, respectively.
-- Loss on extinguishment
of debt from discontinued operations amounted to $1,086 for the year ended
December 31, 2003.
-- Gain on sale of assets
from discontinued operations amounted to $75,982 and $21,072 for the years
ended December 31, 2004 and 2003, respectively.
Reconciliation of Net (Loss)
Income to Funds From Operations (FFO)
(in thousands)
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003
2004 2003
Net (loss) income
$(9,418) $(13,833) $13,333
$(56,194)
Depreciation and
amortization -
continuing
operations
10,653 20,217
61,463 82,661
Depreciation and
amortization -
discontinued
operations
- 1,005
- 5,513
Gain on sale of
assets - continuing
operations
- -
- -
Gain on sale of
assets - discontinued
operations
- -
(75,982) (21,072)
Realized portion of
deferred gain on
sale leasebacks
(1,058) -
(2,180) -
Deferred tax expense
on realized portion
of deferred gain on
sale leasebacks
335 -
657 -
Minority interests adjustments
(2,642) (103)
(5,573) (466)
Adjustments from
unconsolidated
affiliates
494 830
3,174 3,320
FFO
(1,636) 8,116
(5,108) 13,762
Convertible debt
interest expense
- 2,068
4,105 14,902
Convertible minority
interests
(271) 164
743 3,361
FFO - Fully
Converted (a)
$(1,907) $ 10,348
$(260) $32,025
(a) FFO has not been adjusted for the
following amounts included in net (loss) income because these losses have
either occurred during the prior two years or are reasonably likely to
occur within two years (in thousands).
-- Impairment losses from continuing
operations amounted to $12,675 for the three months and year ended December
31, 2004.
-- Gain (loss) on early extinguishment
of debt from continuing operations amounted to $29, $767, $(21,934) and
$(13,761) for the three months and years ended December 31, 2004 and 2003,
respectively.
-- Loss on extinguishment of
debt from discontinued operations amounted to $1,086 for the year ended
December 31, 2003.
Operating Statistics by Geographic
Region
Operating results have been adjusted to show hotel performance
on a comparable year-over-year basis. Adjustments include (i) exclusion
of Ritz-Carlton Half Moon Bay's partial year results; (ii) presentation
of Hyatt Regency New Orleans without the effect of the operating lease
that was in place prior to June 2004; and (iii) presentation of the European
hotels without regard to either ownership structure or leaseholds.
United States
Hotels (as of December 31, 2004)
9 Properties
4,710 Rooms
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003 Change
2004 2003 Change
Average Daily
Rate
$142.36 $136.08 4.6% $140.85
$139.59 0.9%
Average Occupancy 63.6%
63.0% 0.6 pts 67.6%
65.6% 2.0 pts
RevPAR
$90.52 $85.74 5.6%
$95.28 $91.63 4.0%
Property EBITDA
Margin
21.9% 21.3% 0.6 pts
22.8% 24.1% (1.3)pts
Mexican Hotels
(as of December 31, 2004)
2 Properties
380 Rooms
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003 Change
2004 2003 Change
Average Daily
Rate
$360.35 $349.24 3.2% $349.71
$337.28 3.7%
Average Occupancy 68.7%
66.2% 2.5 pts 67.7%
65.0% 2.7 pts
RevPAR
$247.40 $231.17 7.0% $236.68
$219.12 8.0%
Property EBITDA
Margin
32.5% 30.9% 1.6 pts
31.1% 29.3% 1.8 pts
Total North
American Hotels (as of December 31, 2004)
11 Properties
5,090 Rooms
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003 Change
2004 2003 Change
Average Daily
Rate
$158.98 $151.90 4.7% $156.47
$154.21 1.5%
Average Occupancy 63.9%
63.2% 0.7 pts 67.7%
65.6% 2.1 pts
RevPAR
$101.66 $96.06 5.8%
$105.86 $101.15 4.7%
Property EBITDA
Margin
23.6% 22.8% 0.8 pts
24.1% 24.9% (0.8)pts
European Hotels
(as of December 31, 2004)
3 Properties
841 Rooms
Three Months Ended
Years Ended
December 31,
December 31,
2004 2003 Change
2004 2003 Change
Average Daily
Rate
$224.13 $204.44 9.6% $229.37
$214.50 6.9%
Average Occupancy 79.1%
78.0% 1.1 pts 80.6%
77.2% 3.4 pts
RevPAR
$177.23 $159.53 11.1% $184.86
$165.54 11.7%
Property EBITDA
Margin
35.6% 37.9% (2.3)pts 39.9%
42.3% (2.4)pts
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