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 MeriStar Hospitality Corporation Reports 2nd Qtr
2005 Net Income Increased to $0.9 million from
a Net Loss of $11.6 million for the 2004 2nd Qtr
-
RevPAR increased 9.9%, Occupancy
Up 0.3% / Hotel Operating Statistics

.

Increases Adjusted FFO per Share Guidance

ARLINGTON, Va., August 3, 2005 — MeriStar Hospitality Corporation (NYSE: MHX), one of the nation’s largest hotel real estate investment trusts (REIT), today announced financial results for the second quarter ended June 30, 2005. Highlights of the company’s strong quarterly performance include1:

  • Net income increased to $0.9 million or $0.01 per diluted share compared to a net loss of $(11.6) million or $(0.14) per diluted share for the 2004 second quarter;
  • Adjusted funds from operations (FFO) per share of $0.32 increased 33 percent compared to $0.24 per share for the 2004 second quarter;
  • Adjusted EBITDA of $62.0 million increased over 19 percent compared to $51.9 million in the 2004 second quarter; 
  • Revenue per available room (RevPAR) increased 9.9 percent for the comparable hotels, as the average daily rate (ADR) rose 9.6 percent and occupancy improved 0.3 percent; 
  • Comparable hotel gross operating profit margins improved 196 basis points and comparable hotel EBITDA margins improved 209 basis points; and
  • Business interruption (BI) insurance gain of $2.0 million (based on insurer recognition to date from losses resulting from the 2004 Florida hurricanes) included in net income, adjusted FFO and adjusted EBITDA. 
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. 

"The positive operating trends produced by our portfolio in recent quarters carried over into the second quarter, and our hotels continue to gain operating momentum," said Paul W. Whetsell, chairman and chief executive officer. "We continue to realize returns from our ongoing renovation program, reflected in higher rate levels achieved at those properties. Our ability to raise rate was the primary contributor to the 209 basis point expansion in our comparable hotel EBITDA margins. With the improved asset quality of our portfolio, we plan to continue aggressively driving rate to take advantage of the additional upside potential we see in this area," he added. 

"We realized double-digit RevPAR gains in several of our key markets, including a 19.8 percent increase in Southern California and a 12.0 percent increase in Washington D.C. Significantly, our 49.99 percent equity investment in the Radisson Lexington in Midtown Manhattan, although not included in our comparable hotel results, achieved a RevPAR gain of 30 percent in the second quarter. The strong performance of the property resulted in distributable cash on our equity interest of nearly $800,000 in the quarter in addition to the $1.4 million preferred return on the $40 million mezzanine loan."

Renovation Program

In the second quarter, the company invested $24.3 million in non-hurricane related capital improvements at its properties as part of its $100 million strategic renovation program for 2005. "Year to date, we have invested more than $60 million in non-hurricane related capital projects at our properties that have enhanced the quality of our product. The positive impact of these upgrades will continue to allow us to drive strong rate increases and generate better bottom lines at the property level," Whetsell stated. 

The Embassy Suites in Center City Philadelphia, which underwent a complete guestroom renovation, lobby remodeling and an exterior façade repair in the past year, achieved a RevPAR increase in the second quarter of 15.8 percent, led by a 11.5 percent increase in ADR. Also, the Marriott in Somerset, N.J., which recently renovated its guestrooms, fitness center and other public areas, saw RevPAR increase 25.9 percent and operating profits more than double in the quarter.

Asset Sales

In May, the company sold its Hilton Monterey, Calif. property for $20.5 million. In July, the company completed the sale of its Marina Hotel – San Pedro property for $5.8 million.

The company expects to expand its asset disposition activity for the year in response to strong market conditions for dispositions and expressed interest. The company intends to use the proceeds to repay more expensive debt, particularly its 10 ½ percent senior notes which are callable in December. "Last quarter we announced we were exploring additional asset sales given the current favorable environment for asset dispositions and the opportunity to improve our capital structure. We now expect to generate approximately $250 to $300 million of asset sales in total for the year. The sale of these assets is more opportunistic in nature and dispositions will be completed only if pricing levels are met," Whetsell added.

The company recently announced the addition of John Plunket as Senior Vice President – Real Estate who will be responsible for overseeing the company’s disposition and acquisition program. 

Capital Structure

"We completed a number of financial transactions since the first quarter aimed at improving our capital structure," said Donald D. Olinger, chief financial officer. In June, the company completed the placement of a 5.68 percent fixed-rate, 10-year, $44.0 million mortgage on the Hilton Clearwater hotel in Florida. During the second quarter, the company repurchased $21.5 million of its senior notes bearing interest between 9 and 10 ½ percent. In the third quarter, the company has repurchased an additional $12.8 million of senior notes. Also, the company sent notice to call the remaining $32.7 million of 8 ¾ percent senior subordinated notes at par on August 15, 2005. "We have taken advantage of the current rate environment to replace high interest rate debt with long-term, lower-cost debt. In addition, retiring our senior subordinated debt will lower our overall interest expense and remove the company’s most restrictive debt covenants." 

In August, the company restructured its secured revolver, expanding the credit line from $50 million to $150 million. "This transaction will create additional liquidity and flexibility as we proceed with our renovation program, work toward resolution of our hurricane insurance claim, and allow us to reduce debt ahead of receiving proceeds from our expanded asset sales program," Olinger stated. 

The company also expects to close on the refinancing of its $300 million CMBS portfolio in August by defeasing the current loan and replacing it with approximately $335 million of new CMBS debt using the same collateral package at a rate over 300 basis points lower. "Not only will this transaction produce run-rate interest savings of approximately $9 million per year, it will also provide us with much greater flexibility in the management of our cash as well as the assets in this portfolio. This refinancing will free up nearly $50 million currently held in restricted cash," Olinger added. "The results are net present value positive, even with the defeasance cost, and will produce a number of operating benefits. 

"Through these transactions, we are making considerable progress in improving our credit statistics, strengthening our balance sheet, and creating shareholder value." 

Florida Hotels Update

Strong growth in the Florida travel market was reflected in the performance of the company’s hotels that were open in the second quarter. The two open Orlando and two Tampa Bay/Clearwater properties reported combined RevPAR gains of 15 percent for the period.

The company continues to make significant progress on repairing its hotels affected by the hurricanes that hit Florida last year. "Four of the five inns on Sanibel Island reopened in the second quarter," Whetsell remarked. "These properties are restored to exceptional physical condition and their performance since re-opening has been promising. The overall restoration of the quality of the product following our rebuilding efforts is being reflected in the results." The Best Western Sanibel Island, the fifth Sanibel property, is expected to open in August. The Holiday Inn Walt Disney World is scheduled to reopen in the fourth quarter. South Seas Island Resort on Captiva Island is gradually reopening as condominium units are already being returned for rental and many of the facilities will be fully operating by year-end. 

Including the BI insurance gain recognized by the insurers to date, the company’s seven Florida hotels that were substantially closed at the start of the quarter (four of which reopened during the quarter), together with the Dunes Golf and Tennis Club on Sanibel Island, contributed a total of $1.2 million of EBITDA ($0.4 million net loss) in the second quarter 2005, compared to $3.2 million of EBITDA ($0.6 million net income) in the second quarter 2004. In total, these properties contributed $3.8 million of EBITDA ($0.4 million net income) in the first half of 2005, compared to $9.7 million ($4.4 million net income) in the first half of 2004. Additionally, total revenue reported by these properties in the second quarter was $4.4 million in 2005 compared to $26.5 million in 2004.

Total adjusted EBITDA of $62.0 million in the second quarter included $2.0 million of BI insurance gain. "The operating results from our comparable hotels provided for another strong quarter, despite the fact that the insurers have thus far allowed recognition of only a very conservative BI insurance gain in the quarter," Olinger said. "The $2.0 million of BI recognized in the quarter represents minimum profit recognition independent from the claim payment process and is below both what we ultimately expect to recognize and the $2.5 to $5.0 million included in our guidance for the quarter. We remain quite confident that we will be compensated for lost profits at a level in excess of what we have recognized so far this year, however the timing of the recognition between this year’s quarters will continue to be challenging to predict." 

To date, the company has received over $100 million of hurricane recovery insurance payments. "We have been receiving regular cash payments from our insurers and expect these payments to continue as we work through our claim," Olinger added. "However, in order to recognize gains resulting from BI insurance for lost income, all contingencies related to the recoveries must be resolved, which is difficult to achieve with the insurers until the claim is more advanced."

Guidance

The company is revising its 2005 guidance to reflect the strong performance of its portfolio, the additional asset sales, and capital markets activity. "Our revised assumptions on the timing and quantity of asset sales, debt reductions, including calling between $175 and $200 million of our 10 1/2 percent senior notes in December, and refinancings result in an increase in our estimated adjusted FFO per share," Olinger remarked. RevPAR is projected to increase 9 to 10 percent in the third quarter, and the full year RevPAR is estimated to increase 8.5 to 9.5 percent. Comparable hotel EBITDA margins are expected to increase 150 to 200 basis points in the third quarter and for the full year. Additionally, the company provides the following range of estimates for the third quarter and full year:

  • Net loss of $18 million to $21 million for the third quarter and $42 million to $46 million for the full year; 
  • Net loss per diluted share of $(0.20) to $(0.24) for the third quarter and $(0.48) to $(0.52) for the full year; 
  • FFO per diluted share of $0.04 to $0.08 for the third quarter and $0.59 to $0.63 for the full year; 
  • Adjusted FFO per diluted share of $0.04 to $0.08 for the third quarter and $0.63 to $0.68 for the full year; and 
  • Adjusted EBITDA of $37 million to $40 million for the third quarter and $185 million to $190 million 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.

Arlington, Va.-based MeriStar Hospitality Corporation owns 71 principally upscale, full-service hotels in major markets and resort locations with 19,889 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.
 
 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


Three Months Ended

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
Revenue:
Hotel operations:
Rooms
$
142,908
$
137,230
$
266,669
$
265,197
Food and beverage
61,006
57,028
112,187
105,572
Other hotel operations
11,815
15,694
23,039
30,945
Office rental, parking and other revenue
1,212
1,328
3,069
2,625
Total revenue
216,941
211,280
404,964
404,339
Hotel operating expenses:
Rooms
33,785
33,208
64,409
64,153
Food and beverage
40,903
39,877
77,752
76,141
Other hotel operating expenses
7,623
9,943
14,626
19,323
Office rental, parking and other expenses
612
670
1,436
1,255
Other operating expenses:
General and administrative, hotel
31,771
30,152
63,095
61,946
General and administrative, corporate
2,828
3,473
6,361
7,106
Property operating costs
31,294
30,048
60,452
59,300
Depreciation and amortization
23,837
24,356
48,256
49,464
Property taxes, insurance and other
12,098
15,232
22,882
31,345
Loss on asset impairments
-
310
-
310
Operating expenses
184,751
187,269
359,269
370,343
Equity in income/loss of and interest earned from

unconsolidated affiliates

2,940
1,600
4,575
3,200
Hurricane business interruption gain
2,009
-
4,290
-
Operating income
37,139
25,611
54,560
37,196
Minority interest (expense) income
(39
)
671
308
1,617
Interest expense, net
(30,698
)
(30,090
)
(61,411
)
(64,592
)
Loss on early extinguishments of debt
(947
)
(1,980
)
(1,007
)
(7,903
)
Income (loss) before income taxes and discontinued operations
5,455
(5,788
)
(7,550
)
(33,682
)
Income tax (expense) benefit
(812
)
(38
)
(834
)
455
Income (loss) from continuing operations
4,643
(5,826
)
(8,384
)
(33,227
)
Discontinued operations:
Loss from discontinued operations before income tax
(3,709
)
(5,784
)
(4,126
)
(18,747
)
Income tax benefit
-
55
-
175
Loss from discontinued operations
(3,709
)
(5,729
)
(4,126
)
(18,572
)
Net income (loss)
$
934
$
(11,555
)
$
(12,510
)
$
(51,799
)
Basic earnings (loss) per share:
Earnings (loss) from continuing operations
$
0.05
$
(0.07
)
$
(0.10
)
$
(0.44
)
Loss from discontinued operations
(0.04
)
(0.07
)
(0.04
)
(0.24
)
Earnings (loss) per basic share
$
0.01
$
(0.14
)
$
(0.14
)
$
(0.68
)
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations
$
0.05
$
(0.08
)
$
(0.10
)
$
(0.45
)
Loss from discontinued operations
(0.04
)
(0.06
)
(0.04
)
(0.23
)
Earnings (loss) per diluted share
$
0.01
$
(0.14
)
$
(0.14
)
$
(0.68
)

RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS (a)

(In thousands, except per share amounts)


Three Months Ended

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
Funds From Operations:
Net income (loss)
$
934
$
(11,555
)
$
(12,510
)
$
(51,799
)
Depreciation and amortization of real estate assets
22,503
23,617
45,997
48,120
Loss on disposal of assets
1,037
4,584
1,037
11,530
Unconsolidated affiliate adjustments
1,163
-
2,417
-
Minority interest to common OP unit holders
(628
)
(671
)
(1,215
)
(1,759
)
Interest on convertible debt
4,038
-
-
-
Funds from operations
$
29,047
$
15,975
$
35,726
$
6,092
Weighted average number of shares of common stock 

outstanding

104,263
(b)
85,333
87,529
78,234
Funds from operations per diluted share
$
0.28
$
0.19
$
0.41
$
0.08
Funds From Operations, as adjusted:
Funds from operations
$
29,047
$
15,975
$
35,726
$
6,092
Loss on asset impairments
2,836
2,430
2,836
7,441
Loss on early extinguishments of debt
947
1,980
1,007
7,903
Write off of deferred financing fees
199
453
210
1,719
Minority interest to common OP unit holders
(101
)
-
(98
)
-
Funds from operations, as adjusted
$
32,928
$
20,838
$
39,681
$
23,155
Weighted average number of shares of common stock

and common stock equivalents outstanding

104,263
(b)
85,333
87,529
78,234
Funds from operations per diluted share, as adjusted
$
0.32
$
0.24
$
0.45
$
0.30
  1. See the notes to the financial information for discussion of non-GAAP measures.
(b) The 104,263 weighted average shares of common stock outstanding for diluted FFO and diluted Adjusted FFO for the three months ended June 30, 2005, includes 16,700 incremental shares that are not issued or outstanding, but that are dilutive in calculating FFO per diluted share and adjusted FFO per diluted share, and would be issued upon conversion of our convertible subordinated notes. These $170.0 million notes are convertible into common stock at a ratio of $10.18 per share.

RECONCILIATION OF NET LOSS TO EBITDA (a)

(In thousands)


Three Months Ended

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
EBITDA and Adjusted EBITDA:
Net income (loss)
$
934
$
(11,555
)
$
(12,510
)
$
(51,799
)
Loss from discontinued operations
(3,709
)
(5,729
)
(4,126
)
(18,572
)
Income (loss) from continuing operations
4,643
(5,826
)
(8,384
)
(33,227
)
Interest expense, net
30,698
30,090
61,411
64,592
Income tax expense (benefit)
812
38
834
(455
)
Depreciation and amortization (b)
23,837
24,356
48,256
49,464
EBITDA from continuing operations
59,990
48,658
102,117
80,374
Loss on asset impairments
-
310
-
310
Minority interest expense (income)
39
(671
)
(308
)
(1,617
)
Loss on early extinguishments of debt
947
1,980
1,007
7,903
Equity investment adjustments:
Equity in (income) loss of affiliates
(206
)
-
1,164
-
Distributions accrued from equity investments
791
-
791
-
Adjusted EBITDA from continuing operations
$
61,561
$
50,277
$
104,771
$
86,970
Loss from discontinued operations
$
(3,709
)
$
(5,729
)
$
(4,126
)
$
(18,572
)
Interest expense, net
-
(367
)
-
(478
)
Income tax benefit
-
(55
)
-
(175
)
Depreciation and amortization
237
1,077
704
3,130
EBITDA from discontinued operations
(3,472
)
(5,074
)
(3,422
)
(16,095
)
Loss on asset impairments
2,836
2,120
2,836
7,131
Loss on disposal of assets
1,037
4,584
1,037
11,530
Adjusted EBITDA from discontinued operations
$
401
$
1,630
$
451
$
2,566
Adjusted EBITDA, total operations
$
61,962
$
51,907
$
105,222
$
89,536
  1. See the notes to the financial information for discussion of non-GAAP measures.
  2. Depreciation and amortization includes the write-off of deferred financing costs totaling $0.2 million and $0.5 million for the three months ended June 30, 2005 and 2004, respectively, and $0.2 million and $1.7 million for the six months ended June 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

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
Number of hotels
61
61
61
61
Number of rooms
17,480
17,480
17,480
17,480
Comparable hotel revenues:
Rooms
$
129,140
$
117,441
$
241,827
$
226,288
Food and beverage
53,865
50,087
99,045
93,847
Other hotel operations
8,771
8,452
16,833
16,666
Comparable hotel revenues (b)
191,776
175,980
357,705
336,801
Comparable hotel expenses:
Room
30,811
28,780
59,178
56,453
Food and beverage
36,088
34,495
68,684
67,169
Other
5,970
5,846
11,622
11,614
General and administrative
28,751
27,206
57,115
54,990
Property operating costs, less management fees
24,074
22,467
46,958
44,888
Comparable hotel expenses (c)
125,694
118,794
243,557
235,114
Comparable Hotel Gross Operating Profit
66,082
57,186
114,148
101,687
Margin
34.5
%
32.5
%
31.9
%
30.2
%
Management Fees (c)
(4,791
)
(4,390
)
(8,936
)
(8,407
)
Property taxes, insurance and other (c)
(9,547
)
(8,986
)
(18,685
)
(18,175
)
Comparable Hotel EBITDA, excluding BI (d)
$
51,744
$
43,810
$
86,527
$
75,105
Margin
27.0
%
24.9
%
24.2
%
22.3
%
Hurricane business interruption gain
692
-
970
-
Comparable Hotel EBITDA, including BI (d)
$
52,436
$
43,810
$
87,497
$
75,105
Margin
27.3
%
24.9
%
24.5
%
22.3
%

(a) See the notes to the financial information for discussion of non-GAAP measures, and comparable hotel results and statistics.
  1. The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel revenues is as follows (in thousands):
Three Months Ended

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
Revenues per the consolidated statements of operations
$
216,941
$
211,280
$
404,964
$
404,339
Non-comparable hotel revenues
(23,953
)
(33,972
)
(44,190
)
(64,913
)
Office rental, parking and other revenue
(1,212
)
(1,328
)
(3,069
)
(2,625
)
Comparable hotel revenues
$
191,776
$
175,980
$
357,705
$
336,801

 

(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

June 30,


 
 

Six Months Ended

June 30,

2005
2004
2005
2004
Operating expenses per the consolidated statements of 

operations

$
184,751
$
187,269
$
359,269
$
370,343
Non-comparable hotel expenses
(18,054
)
(26,960
)
(33,474
)
(51,767
)
General and administrative, corporate
(2,828
)
(3,473
)
(6,361
)
(7,106
)
Depreciation and amortization
(23,837
)
(24,356
)
(48,256
)
(49,464
)
Loss on asset impairments
-
(310
)
-
(310
)
Comparable hotel expenses, management fees,

property taxes, insurance and other

$
140,032
$
132,170
$
271,178
$
261,696
(d) The reconciliation of comparable hotel EBITDA to operating income per the consolidated statements of operations is as follows (in thousands):
Three Months Ended

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
Comparable hotel EBITDA, including BI
$
52,436
$
43,810
$
87,497
$
75,105
Non-comparable results, net (e)
5,899
7,012
10,716
13,146
Office rental, parking and other revenue
1,212
1,328
3,069
2,625
General and administrative, corporate
(2,828
)
(3,473
)
(6,361
)
(7,106
)
Depreciation and amortization
(23,837
)
(24,356
)
(48,256
)
(49,464
)
Loss on asset impairments
-
(310
)
-
(310
)
Equity in income/loss of and interest earned from

unconsolidated affiliates

2,940
1,600
4,575
3,200
Hurricane business interruption gain at

non-comparable hotels

1,317
-
3,320
-
Operating Income
$
37,139
$
25,611
$
54,560
$
37,196
(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 and equity in income/loss of and interest earned from unconsolidated affiliates.
 
RECONCILIATION OF NET INCOME TO EBITDA (Hurricane Properties)

(In thousands)





In August and September 2004, hurricanes caused substantial damage to a number of our hotels located in Florida. The hurricane damage and local evacuation orders also caused significant business interruption at many of our Florida properties, including the complete closure of certain hotels. As a result, seven of our hotels were substantially closed for the first quarter of 2005.

During the second quarter, Sanibel Inn, Seaside Inn, Song of the Sea, and Sundial Beach Resort reopened but were not fully operational for the entire quarter. Best Western Sanibel Island is expected to open in August and Holiday Inn Walt Disney World is expected to open in the fourth quarter. South Seas Island Resort on Captiva Island is gradually reopening as condominium units are already being returned for rental and many of the facilities will be fully operating by year-end.

The following is a reconciliation of Net Income to EBITDA for those seven hotels and Dunes Golf and Tennis Club on Sanibel Island:
 

Three Months Ended

June 30,

Six Months Ended

June 30,

2005
2004
2005
2004
EBITDA:
Net income (loss) (a)
$
(410
)
$
586
$
474
$
4,387
Depreciation and amortization
1,645
2,642
3,289
5,288
EBITDA (a)
$
1,235
$
3,228
$
3,763
$
9,675
(a) Includes $1.3 million and $3.3 million of business interruption insurance gain at these seven hotels and Dunes Golf and Tennis Club in the three and six months ended June 30, 2005, respectively. We received an additional $0.7 million and $1.0 million of business interruption gain included in the 61 comparable hotels in the three and six months ended June 30, 2005, respectively.
DETAILED OPERATING STATISTICS BY MARKET, REGION AND LOCATION

Comparable hotels, same store basis (a)


2nd Quarter 2005
2nd Quarter 2004
Percent Change in RevPAR
Market/Region/Location
Hotels
Rooms
 
ADR
Occ%
 
RevPAR
 
ADR
Occ%
 
RevPAR
Washington DC Metro (b)
10
2,112
$
144.80
84.6%
$
122.45
$
133.46
81.9%
$
109.33
12.0%
New Jersey
4
1,120
$
132.44
66.7%
$
88.35
$
131.79
60.7%
$
79.96
10.5%
Southern California (b)
3
1,034
$
125.58
76.2%
$
95.72
$
105.94
75.4%
$
79.90
19.8%
Northern California
2
764
$
127.74
74.7%
$
95.45
$
118.97
78.7%
$
93.61
2.0%
Orlando (c)
2
1,231
$
90.80
72.3%
$
65.11
$
74.84
75.7%
$
56.62
15.0%
Chicago
2
857
$
123.26
71.2%
$
87.71
$
101.37
76.3%
$
77.33
13.4%
Colorado
2
736
$
91.05
60.9%
$
55.44
$
83.33
64.4%
$
53.65
3.3%
Atlanta
2
650
$
94.18
75.6%
$
71.19
$
81.37
80.3%
$
65.37
8.9%
Dallas
2
598
$
93.18
64.1%
$
59.68
$
89.75
57.2%
$
51.30
16.3%
Houston
2
597
$
113.49
68.8%
$
78.05
$
106.26
69.0%
$
73.36
6.4%
All other markets (c)
30
7,781
$
102.88
70.6%
$
72.63
$
96.02
70.2%
$
67.37
7.8%
All Markets
61
17,480
$
112.48
72.2%
$
81.19
$
102.60
72.0%
$
73.87
9.9%
Middle Atlantic (b)
16
3,718
$
140.56
79.1%
$
111.17
$
131.84
75.3%
$
99.34
11.9%
South Central
11
3,281
$
105.09
69.1%
$
72.63
$
99.66
66.9%
$
66.69
8.9%
South Atlantic (c)
12
4,101
$
100.48
71.8%
$
72.15
$
89.19
73.9%
$
65.88
9.5%
Pacific (b) 
8
2,593
$
123.27
70.1%
$
86.45
$
110.05
71.0%
$
78.16
10.6%
North Central
7
1,789
$
103.69
70.0%
$
72.56
$
92.11
72.3%
$
66.63
8.9%
Mountain
6
1,798
$
83.63
69.3%
$
57.93
$
78.12
70.2%
$
54.80
5.7%
New England
1
200
$
91.07
74.7%
$
68.02
$
77.14
81.4%
$
62.80
8.3%
All Regions
61
17,480
$
112.48
72.2%
$
81.19
$
102.60
72.0%
$
73.87
9.9%
Urban (b)
19
4,933
$
134.63
78.0%
$
104.97
$
120.84
78.6%
$
94.96
10.5%
Resort (c)
7
2,678
$
107.58
69.8%
$
75.13
$
95.47
74.3%
$
70.90
6.0%
Airport (b)
12
3,751
$
93.21
73.2%
$
68.25
$
83.51
73.3%
$
61.20
11.5%
Suburban
23
6,118
$
106.88
67.9%
$
72.59
$
101.55
64.9%
$
65.91
10.1%
All Locations
61
17,480
$
112.48
72.2%
$
81.19
$
102.60
72.0%
$
73.87
9.9%

(a) See notes to financial information for discussion of comparable hotel operating results and statistics.

(b) Excludes hotels acquired during the second quarter.

(c) Excludes hotels significantly affected by the hurricanes in Florida.

DETAILED OPERATING STATISTICS BY MARKET, REGION AND LOCATION

Comparable hotels, same store basis (a)


Six Months Ended June 30, 2005
Six Months Ended June 30, 2004
Percent Change in RevPAR
Market/Region/Location
Hotels
Rooms
 
ADR
Occ%
 
RevPAR
 
ADR
Occ%
 
RevPAR
Washington DC Metro (b)
10
2,112
$
142.14
74.6%
$
106.07
$
126.50
75.3%
$
95.21
11.4%
New Jersey
4
1,120
$
130.42
59.0%
$
76.92
$
129.19
55.7%
$
71.99
6.8%
Southern California (b)
3
1,034
$
123.32
76.3%
$
94.12
$
110.15
76.1%
$
83.87
12.2%
Northern California
2
764
$
120.31
71.7%
$
86.31
$
113.30
76.3%
$
86.47
-0.2%
Orlando (c)
2
1,231
$
95.68
76.6%
$
73.32
$
79.83
75.3%
$
60.09
22.0%
Chicago
2
857
$
113.54
60.6%
$
68.80
$
95.39
65.6%
$
62.58
9.9%
Colorado
2
736
$
87.67
54.0%
$
47.36
$
81.40
61.1%
$
49.76
-4.8%
Atlanta
2
650
$
93.96
76.9%
$
72.27
$
81.95
82.5%
$
67.59
6.9%
Dallas
2
598
$
91.66
61.9%
$
56.78
$
88.48
58.1%
$
51.43
10.4%
Houston
2
597
$
110.84
68.5%
$
75.93
$
113.47
72.9%
$
82.70
-8.2%
All other markets (c)
30
7,781
$
103.01
68.9%
$
70.99
$
96.54
69.4%
$
66.96
6.0%
All Markets
61
17,480
$
110.65
69.1%
$
76.44
$
101.63
70.0%
$
71.16
7.4%
Middle Atlantic (b)
16
3,718
$
137.66
69.9%
$
96.24
$
126.64
69.1%
$
87.48
10.0%
South Central
11
3,281
$
100.94
66.5%
$
67.09
$
98.55
66.2%
$
65.25
2.8%
South Atlantic (c)
12
4,101
$
105.26
73.5%
$
77.36
$
93.05
74.8%
$
69.61
11.1%
Pacific (b)
8
2,593
$
119.90
70.4%
$
84.36
$
110.84
71.9%
$
79.71
5.8%
North Central
7
1,789
$
97.72
62.8%
$
61.35
$
87.97
65.4%
$
57.53
6.6%
Mountain
6
1,798
$
83.82
66.3%
$
55.61
$
78.88
68.7%
$
54.16
2.7%
New England
1
200
$
88.40
71.1%
$
62.81
$
74.65
80.7%
$
60.22
4.3%
All Regions
61
17,480
$
110.65
69.1%
$
76.44
$
101.63
70.0%
$
71.16
7.4%
Urban (b)
19
4,933
$
127.35
72.2%
$
92.00
$
115.31
74.1%
$
85.42
7.7%
Resort (c)
7
2,678
$
114.84
72.5%
$
83.26
$
101.94
74.9%
$
76.31
9.1%
Airport (b)
12
3,751
$
93.99
71.3%
$
67.01
$
83.75
73.0%
$
61.10
9.7%
Suburban
23
6,118
$
104.69
63.7%
$
66.68
$
101.15
62.8%
$
63.57
4.9%
All Locations
61
17,480
$
110.65
69.1%
$
76.44
$
101.63
70.0%
$
71.16
7.4%

(a) See notes to financial information for discussion of comparable hotel operating results and statistics.

(b) Excludes hotels acquired during the second quarter.

(c) Excludes hotels significantly affected by the hurricanes in Florida.

FORECASTED RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS

(In millions, except per share amounts)


Three Months Ending September 30, 2005
Low-end of range
High-end of range
Forecasted Funds from Operations:
Net loss (a) $
(21
)
$
(18
)
Adjustments to forecasted net loss:
Depreciation and amortization of real estate assets
25
25
Unconsolidated affiliate adjustments 
1
1
Minority interest to common OP unit holders
(1
)
(1
)
Loss on disposal of assets
-
-
Funds from operations  $
4
$
7
Weighted average diluted shares of common stock and common OP units 

outstanding

90
90
Funds from operations per diluted share $
0.04
$
0.08
Funds From Operations, as adjusted:
Funds from operations
$
4
$
7
Loss on asset impairments
-
-
Loss on early extinguishments of debt
-
-
Funds from operations, as adjusted
$
4
$
7
Weighted average number of shares of common stock

and common stock equivalents outstanding

90
90
Funds from operations per diluted share, as adjusted
$
0.04
$
0.08
Year Ending December 31, 2005
Low-end of range
High-end of range
Forecasted Funds from Operations:
Net loss (a) $
(46
)
$
(42
)
Adjustments to forecasted net loss:
Depreciation and amortization of real estate assets
95
95
Unconsolidated affiliate adjustments 
4
4
Minority interest to common OP unit holders
(1
)
(1
)
Loss on disposal of assets
1
1
Funds from operations  $
53
$
57
Weighted average number of shares of common stock and common

OP units outstanding

90
90
Funds from operations per diluted share $
0.59
$
0.63
Funds From Operations, as adjusted:
Funds from operations
$
53
$
57
Loss on asset impairments
3
3
Loss on early extinguishments of debt
1
1
Funds from operations, as adjusted
$
57
$
61
Weighted average number of shares of common stock

and common stock equivalents outstanding

90
90
Funds from operations per diluted share, as adjusted
$
0.63
$
0.68
(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 September 30, 2005
Low-end of range
High-end of range
EBITDA and Adjusted EBITDA:
Net loss (a) $
(21
)
$
(18
)
Interest expense, net
32
32
Depreciation and amortization 
26
26
EBITDA
37
40
Loss on asset impairments
-
-
Loss on early extinguishments of debt
-
-
Equity investment adjustments:
Equity in (income) loss of affiliates
-
-
Distributions accrued from equity investments
1
1
Minority interest to common OP unit holders
(1
)
(1
)
Adjusted EBITDA
$
37
40
Year Ending December 31, 2005
Low-end of range
High-end of range
EBITDA and Adjusted EBITDA:
Net loss (a) $
(46
)
$
(42
)
Interest expense, net
123
124
Depreciation and amortization 
100
100
EBITDA
177
182
Loss on asset impairments
3
3
Loss on early extinguishments of debt
1
1
Equity investment adjustments:
Equity in (income) loss of affiliates
1
1
Distributions accrued from equity investments
3
3
Minority interest to common OP unit holders
(1
)
(1
)
Loss on disposal of assets
1
1
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. 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 include 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 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 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, which have no cash effect in the periods considered. 

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, the earnings effect and distributions accrued 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, the earnings effect and distributions accrued 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 72 hotels that we owned as of June 30, 2005, 61 have been classified as comparable hotels. The operating results of seven hotels significantly affected by the hurricanes in Florida in August and September 2004, one sold in July, one which we intend to dispose of, and the two hotels acquired in 2004 that we owned as of June 30, 2005, are excluded from comparable hotel results for these 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 investors and management.

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. 

.
Contact:

MeriStar Hospitality
Mike Bauer
Sr. Director, Finance and Investor Relations
(703) 812-7202
www.meristar.com

.
Also See: John E. Plunket Joins MeriStar Hospitality as Senior Vice President – Real Estate / July 2005
Hotel REIT MeriStar Hospitality Reports a First Quarter 2005 Net Loss of $13.4 million Compared with a Loss of $40.2 million a Year Earlier; RevPAR Up 5.1% / Hotel Operating Statistics / May 2005


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