MHI Hospitality Corporation (NASDAQ: MDH) (“MHI” or the
“Company”), a self-managed and self-administered lodging real
estate investment trust (a “REIT”), today reported its consolidated
results for the third quarter ended September 30, 2012. The
Company’s results include the following*:
Three months ended
Nine months ended September 30, 2012
September 30, 2011 September 30, 2012 September
30, 2011 ($ in thousands except per share data) Total
Revenue $ 21,771 $ 20,015 $ 66,909 $ 61,680 Net loss attributable
to the Company (1,615 ) (1,117 ) (5,563 ) (2,289 ) EBITDA
2,767 3,641 11,183 12,951 Adjusted EBITDA 4,432 3,685 15,570 13,401
Hotel EBITDA 5,187 4,206 17,349 14,659 FFO 190 859 (240 )
3,814 Adjusted FFO 1,882 827 7,324 4,955 Net loss per
diluted share attributable to the Company $ (0.15 ) $ (0.11 ) $
(0.53 ) $ (0.23 ) FFO per share and unit 0.01 0.07 (0.02 ) 0.29
Adjusted FFO per share and unit 0.15 0.06 0.56 0.38
(*) Earnings before interest, taxes, depreciation and
amortization (“EBITDA”), adjusted EBITDA, hotel EBITDA, funds from
operations (“FFO”), adjusted FFO, FFO per share and unit and
adjusted FFO per share and unit are non-GAAP financial measures.
See further discussion of these non-GAAP measures, including
definitions related thereto, and reconciliations to net income
(loss) later in this press release. All references in this release
to the “Company”, “MHI”, “we”, “us” and “our” refer to MHI
Hospitality Corporation, its operating partnership and its
subsidiaries and predecessors, unless the context otherwise
requires or where otherwise indicated.
HIGHLIGHTS:
- Common Dividends. As previously
reported on October 23, 2012, the Company announced a quarterly
dividend (distribution) on its common stock of $0.03 per share (and
unit), payable on January 11, 2013 to stockholders (and
unitholders) of record as of December 14, 2012.
- RevPAR. Room revenue per
available room (“RevPAR”) for the Company’s wholly-owned properties
during the third quarter 2012 increased 10.0 percent over the third
quarter 2011 to $80.15 as a result of a 3.6 percent increase in
occupancy and a 6.2 percent increase in average daily rate
(“ADR”).
- Hotel EBITDA. The Company
generated hotel EBITDA of approximately $5.2 million during the
third quarter 2012, an increase of 23.3 percent or approximately
$1.0 million over the third quarter 2011. Hotel EBITDA margin
increased 275 basis points to 24.0 percent compared to the same
period in 2011.
- Adjusted EBITDA. The Company
generated adjusted EBITDA of approximately $4.4 million during the
third quarter 2012, an increase of 20.3 percent or approximately
$0.7 million over the third quarter 2011.
- Adjusted FFO. The Company
generated adjusted FFO of approximately $1.9 million during the
third quarter 2012, an increase of 127.7 percent or approximately
$1.1 million over the third quarter 2011.
Andrew M. Sims, Chairman and Chief Executive Officer of MHI
Hospitality Corporation, commented, “Our strong operating
performance continued in the third quarter with robust
year-over-year increases in RevPAR, Hotel EBITDA and Adjusted
EBITDA. We more than doubled Adjusted FFO from the prior year’s
third quarter, representing a 127.7% increase. We continued the
process of restructuring our balance sheet by securing a new loan
on our Jacksonville property with favorable terms. Overall, we had
a very strong quarter.”
Financing Transactions
On July 10, 2012, the Company obtained a $14.3 million mortgage
with Fifth Third Bank on the Crowne Plaza Jacksonville Riverfront
hotel property. The mortgage carries an interest rate of LIBOR plus
additional interest of 3.00% and amortizes on a 25-year schedule.
The maturity date is July 10, 2015, but may be extended for an
additional year pursuant to certain terms and conditions. The
mortgage also contains an “earn-out” feature which allows for an
additional $3.0 million in proceeds to be funded during its term,
contingent upon satisfaction of certain debt service coverage and
loan-to-value covenants. Proceeds of the mortgage were used to
repay the existing mortgage indebtedness and to pay closing
costs.
Balance Sheet/Liquidity
At September 30, 2012, the Company had approximately $11.2
million of available cash and cash equivalents, of which
approximately $2.8 million is reserved for real estate taxes,
capital improvements and certain other expenses or otherwise
restricted. The Company had approximately $154.9 million in
outstanding debt at a weighted average interest rate of
approximately 5.62%. At September 30, 2012, the Company also had
$7.0 million of availability under its existing Note Agreement with
Essex Equity High Income Joint Investment Vehicle, LLC.
2012 Outlook
The Company is updating its previous guidance for 2012
accounting for current and expected performance within its
portfolio as well as holding period gains and losses related to the
warrant issued in its preferred equity financing. The guidance is
predicated on continued strengthening of the economy and expected
improvements in hotel lodging industry fundamentals and is based on
estimates of occupancy and average daily rates that are consistent
with most recent calendar year 2012 forecasts by Smith Travel
Research for the market segments in which the Company operates.
The table below reflects the Company’s updated projections,
within a range, of various financial measures for 2012:
Low Range High Range Y/E Dec 31,
2012 Y/E Dec 31, 2012 ($ in thousands except per share data) Total
Revenue $ 84,500 $ 86,700 Net loss (8,495 ) (8,220 ) EBITDA
14,925 15,345 Adjusted EBITDA 19,475 20,095 Hotel EBITDA 21,635
22,245 FFO 800 1,075 Adjusted FFO 8,467 9,137 Net
loss per share attributable to the Company $ (0.65 ) $ (0.63 ) FFO
per share and unit 0.06 0.08 Adjusted FFO per share and unit 0.65
0.70
Earnings Call/Webcast
The Company will conduct its third quarter 2012 conference call
for investors and other interested parties at 10:00 a.m. Eastern
Time on Tuesday, November 6, 2012. The conference call will be
accessible by telephone and through the Internet. Interested
individuals are invited to listen to the call by telephone at
877-317-6789 (United States) or 866-605-3852 (Canada) or +1
412-317-6789 (International). To participate on the webcast, log on
to www.mhihospitality.com at least 15 minutes before the call to
download the necessary software. For those unable to listen to the
call live, a taped rebroadcast will be available beginning one hour
after completion of the live call on November 6, 2012 through
September 30, 2013. To access the rebroadcast, dial 877-344-7529
and enter conference number 10019632. A replay of the call also
will be available on the Internet at www.mhihospitality.com until
September 30, 2013.
About MHI Hospitality Corporation
MHI Hospitality Corporation is a self-managed and
self-administered lodging REIT focused on the acquisition,
renovation, upbranding and repositioning of upscale to upper
upscale full-service hotels in the Mid-Atlantic and Southern United
States. Currently, the Company’s portfolio consists of investments
in ten hotel properties, nine of which are wholly-owned and
comprise 2,113 rooms. All of the Company’s wholly-owned properties
operate under the Hilton Worldwide, InterContinental Hotels Group
and Starwood Hotels and Resorts brands. The Company has a 25.0
percent interest in the Crowne Plaza Hollywood Beach Resort. MHI
Hospitality Corporation was organized in 2004 and is headquartered
in Williamsburg, Virginia. For more information please visit
www.mhihospitality.com.
Forward-Looking Statements
This news release includes “forward-looking statements” within
the meaning of Section 21E of the Securities Exchange Act of 1934
and Section 27A of the Securities Act of 1933. Although the Company
believes that the expectations and assumptions reflected in the
forward-looking statements are reasonable, these statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict and
many of which are beyond the Company’s control. Therefore, actual
outcomes and results may differ materially from what is expressed,
forecasted or implied in such forward-looking statements. Factors
which could have a material adverse effect on the Company’s future
results, performance and achievements, include, but are not limited
to: national and local economic and business conditions, including
recessionary economic conditions existing over the last several
years, that affect occupancy rates at the Company’s hotels and the
demand for hotel products and services; risks associated with the
hotel industry, including competition, increases in wages, energy
costs and other operating costs; the magnitude, sustainability and
timing of the economic recovery in the hospitality industry and in
the markets in which the Company operates; the availability and
terms of financing and capital and the general volatility of the
securities markets, specifically, the impact of the recent credit
crisis which has severely constrained the availability of debt
financing; risks associated with the level of the Company’s
indebtedness and its ability to meet covenants in its debt
agreements and, if necessary, to refinance the maturity of such
indebtedness or modify such debt agreements; management and
performance of the Company’s hotels; risks associated with the
conflicts of interest of the Company’s officers and directors;
risks associated with redevelopment and repositioning projects,
including delays and cost overruns; supply and demand for hotel
rooms in the Company’s current and proposed market areas; the
Company’s ability to acquire additional properties and the risk
that potential acquisitions may not perform in accordance with
expectations; the Company’s ability to successfully expand into new
markets; legislative/regulatory changes, including changes to laws
governing taxation of REITs; the Company’s ability to maintain its
qualification as a REIT; and the Company’s ability to maintain
adequate insurance coverage. These risks and uncertainties are
described in greater detail under “Risk Factors” in the Company’s
Annual Report on Form 10-K and subsequent reports filed with the
Securities and Exchange Commission. The Company undertakes no
obligation to and does not intend to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise. Although the Company believes its
current expectations to be based upon reasonable assumptions, it
can give no assurance that its expectations will be attained or
that actual results will not differ materially.
MHI HOSPITALITY CORPORATION CONSOLIDATED BALANCE
SHEETS September 30, 2012
December 31, 2011 (unaudited) (audited)
ASSETS
Investment in hotel properties, net
$
177,393,787
$ 181,469,432 Investment in joint venture 8,732,046
8,966,795 Cash and cash equivalents 8,475,187 4,409,959 Restricted
cash 2,751,035 2,690,391 Accounts receivable, net 2,454,879
1,702,616 Accounts receivable-affiliate 7,345 24,880 Prepaid
expenses, inventory and other assets 2,141,685 1,877,456 Notes
receivable, net 100,000 100,000 Shell Island sublease, net 540,441
720,588 Deferred income taxes 2,866,898 4,061,749 Deferred
financing costs, net 2,573,758 3,275,580
TOTAL ASSETS $ 208,037,061
$ 209,299,446 LIABILITIES
Line of credit $ — $ 25,537,290 Mortgage debt 136,634,050
94,157,825 Loans payable 4,150,220 9,275,220 Series A Cumulative
Redeemable Preferred Stock, par value $0.01, 27,650 shares
authorized, 14,156 and 25,354 shares issued and outstanding at
September 30, 2012 and December 31, 2011, respectively 14,156,482
25,353,698 Accounts payable and accrued liabilities 8,537,009
7,437,246 Advance deposits 1,055,231 453,077 Dividends and
distributions payable 389,179 258,772 Warrant derivative liability
7,287,725 2,943,075
TOTAL
LIABILITIES 172,209,896 165,416,203
Commitments and contingencies
EQUITY MHI
Hospitality Corporation stockholders’ equity
Preferred stock, par value $0.01; 972,350
shares authorized, 0 shares issued and outstanding at September 30,
2012 and December 31, 2011, respectively
— — Common stock, par value $0.01; 49,000,000 shares authorized;
9,999,786 shares and 9,953,786 shares issued and outstanding at
September 30, 2012 and December 31, 2011, respectively 99,998
99,538 Additional paid in capital 57,020,979 56,911,039
Distributions in excess of retained earnings (28,337,753 )
(22,074,739 ) Total MHI Hospitality Corporation
stockholders’ equity 28,783,224 34,935,838 Noncontrolling interest
7,043,941 8,947,405
TOTAL EQUITY
35,827,165 43,883,243
TOTAL
LIABILITIES AND EQUITY $ 208,037,061
$ 209,299,446 MHI HOSPITALITY
CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Three
months ended September 30, Nine months ended September
30, 2012 2011 2012
2011 REVENUE Rooms department $ 15,580,600 $
14,154,271 $ 47,281,173 $ 43,223,226 Food and beverage department
5,071,821 4,656,014 16,247,828 14,991,087 Other operating
departments 1,118,792 1,204,901
3,379,880 3,466,164
Total
revenue 21,771,213 20,015,186 66,908,881
61,680,477 EXPENSES Hotel operating expenses
Rooms department 4,383,150 4,078,235 12,803,795 12,048,335 Food and
beverage department 3,456,698 3,266,031 10,812,234 10,102,863 Other
operating departments 125,023 157,839 365,961 420,580 Indirect
8,484,381 8,152,905 25,127,080
23,942,063
Total hotel operating
expenses 16,449,252 15,655,010 49,109,070
46,513,841 Depreciation and amortization 2,150,007
2,187,541 6,525,561 6,460,928 Corporate general and administrative
978,473 1,348,792 3,073,008
3,154,412
Total operating
expenses 19,577,732 19,191,343 58,707,639
56,129,181 NET OPERATING
INCOME 2,193,481 823,843 8,201,242
5,551,296 Other income (expense) Interest expense
(2,442,620 ) (2,747,284 ) (10,014,982 ) (8,052,832 ) Interest
income 4,133 4,281 11,985 11,819 Equity income (loss) in joint
venture (162,463 ) (283,539 ) 15,251 (161,083 ) Unrealized gain
(loss) on warrant derivative (1,659,750 ) 646,000 (4,344,650 )
266,000 Unrealized gain on hedging activities — — — 72,649 Gain
(loss) on disposal of assets — (9,894 )
— 2,361
Net income (loss) before
taxes (2,067,219 ) (1,566,593 )
(6,131,154 ) (2,309,790 ) Income tax
benefit (provision) (27,979 ) 71,692
(1,090,700 ) (765,083 )
Net loss
(2,095,198 ) (1,494,901 )
(7,221,854 ) (3,074,873 ) Add: Net loss
attributable to the noncontrolling interest 480,178
377,859 1,658,825 785,948
Net loss attributable to the Company $
(1,615,020 ) $ (1,117,042 )
$ (5,563,029 ) $ (2,288,925
) Net loss per share attributable to the Company
Basic $ (0.16 ) $ (0.12 ) $ (0.56 ) $ (0.24 ) Diluted $ (0.15 ) $
(0.11 ) $ (0.53 ) $ (0.23 ) Weighted average number of shares
outstanding
Basic
9,999,786 9,701,786 9,994,246 9,627,006 Diluted 10,801,390
9,802,378 10,603,240 9,792,440
MHI HOSPITALITY CORPORATIONKEY
OPERATING METRICS(unaudited)
The following tables illustrate the key operating metrics for
the three months and nine months ended September 30, 2012 and 2011,
respectively, for the Company’s wholly-owned properties during each
respective reporting period (“consolidated” properties). The tables
exclude performance data for the Crowne Plaza Hollywood Beach
Resort hotel property, which was acquired through a joint venture
in August 2007 and in which the Company has a 25.0% indirect
interest.
Consolidated Properties
Three Months Ended September 30, 2012
2011 Variance Occupancy 71.0 % 68.6 % 3.6 %
ADR $ 112.81 $ 106.23 6.2 % RevPAR $ 80.15 $ 72.88 10.0 %
Consolidated Properties
Nine Months Ended September 30, 2012
2011 Variance Occupancy 71.2 % 68.2 %
4.3 % ADR $ 114.73 $ 109.97 4.3 % RevPAR $ 81.67 $ 75.02 8.9 %
MHI HOSPITALITY CORPORATION RECONCILIATION
OF NET INCOME (LOSS) TO FFO, Adjusted FFO, EBITDA, Adjusted
EBITDA and Hotel EBITDA (unaudited)
Three months ended September 30,
Nine months ended September 30, 2012
2011
2012
2011 Net loss attributable to the Company $
(1,615,020 ) $ (1,117,042 ) $ (5,563,029 ) $ (2,288,925 )
Noncontrolling interest (480,178 ) (377,859 ) (1,658,825 ) (785,948
) Depreciation and amortization 2,150,007 2,187,541 6,525,561
6,460,928 Equity in depreciation and amortization of joint venture
135,671 156,123 456,413 430,150 (Gain)/loss on disposal of assets
— 9,894 — (2,361 )
FFO $ 190,480 $ 858,657 $ (239,880 ) $ 3,813,844 Unrealized
loss on hedging activities(1) 5,308 106,885 42,435 133,055
Unrealized (gain)/loss on warrant derivative 1,659,750 (646,000 )
4,344,650 (266,000 ) (Increase)/decrease in deferred income taxes
26,540 (75,693 ) 1,194,851 691,481 Aborted offering costs — 582,850
— 582,850 Loss on early extinguishment of debt(2) —
— 1,982,184 —
Adjusted FFO $ 1,882,078 $ 826,699 $ 7,324,240
$ 4,955,230 Weighted average shares outstanding
9,999,786 9,701,786 9,994,246 9,627,006 Weighted average units
outstanding 2,974,861 3,239,439
2,980,153 3,305,574 Weighted average
shares and units 12,974,647 12,941,225
12,974,399 12,932,580 FFO per
share and unit $ 0.01 $ 0.07 $ (0.02 ) $ 0.29
Adjusted FFO per share and unit $ 0.15 $ 0.06
$ 0.56 $ 0.38
Three months ended
September 30, Nine months ended September 30,
2012 2011 2012 2011 Net loss
attributable to the Company $ (1,615,020 ) $ (1,117,042 ) $ (5,563,
029 ) $ (2,288,925 ) Noncontrolling interest (480,178 ) (377,859 )
(1,658,825 ) (785,948 ) Interest expense 2,442,620 2,747,284
10,014,982 8,052,832 Interest income (4,133 ) (4,281 ) (11,985 )
(11,819 ) Income tax provision 27,979 (71,692 ) 1,090,700 765,083
Depreciation and amortization 2,150,007 2,187,541 6,525,561
6,460,928 Equity in interest expense and depreciation and
amortization of joint venture 245,711 267,058 785,349 761,383
(Gain)/loss on disposal of assets — 9,894
— (2,361 ) EBITDA 2,766,986
3,640,903 11,182,753 12,951,173 Unrealized loss on hedging
activities(1) 5,308 106,885 42,435 133,055 Unrealized (gain)/loss
on warrant derivative 1,659,750 (646,000 ) 4,344,650 (266,000 )
Aborted offering costs — 582,850
— 582,850 Adjusted EBITDA 4,432,044
3,684,638 15,569,838 13,401,078 Corporate general and
administrative 978,473 765,942 3,073,008 2,571,562 Equity in
adjusted EBITDA of joint venture (88,557 ) (90,404 ) (843,036 )
(806,004 ) Net lease rental income (87,500 ) (111,250 ) (262,500 )
(333,750 ) Other fee income (46,977 ) (43,108 )
(188,501 ) (173,571 ) Hotel EBITDA $ 5,187,483
$ 4,205,818 $ 17,348,809 $ 14,659,315
(1) Includes equity in unrealized loss on
hedging activities of joint venture.
(2) Reflected in interest expense for the
periods presented above.
Non-GAAP Financial Measures
The Company considers the non-GAAP measures of FFO (including
FFO per share), EBITDA and hotel EBITDA to be key supplemental
measures of the Company’s performance and should be considered
along with, not alternatives to, net income (loss) as a measure of
the Company’s performance. These measures do not represent cash
generated from operating activities determined by GAAP or amounts
available for the Company’s discretionary use and should not be
considered alternative measures of net income, cash flows from
operations or any other operating performance measure prescribed by
GAAP.
FFO
Industry analysts and investors use Funds from Operations, FFO,
as a supplemental operating performance measure of an equity REIT.
FFO is calculated in accordance with the definition adopted by the
Board of Governors of the National Association of Real Estate
Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents
net income or loss determined in accordance with GAAP, excluding
extraordinary items as defined under GAAP and gains or losses from
sales of previously depreciated operating real estate assets, plus
certain non-cash items such as real estate asset depreciation and
amortization, and after adjustment for any noncontrolling interest
from unconsolidated partnerships and joint ventures. Historical
cost accounting for real estate assets in accordance with GAAP
implicitly assumes that the value of real estate assets diminishes
predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, many investors
and analysts have considered the presentation of operating results
for real estate companies that use historical cost accounting to be
insufficient by itself.
The Company considers FFO to be a useful measure of adjusted net
income (loss) for reviewing comparative operating and financial
performance because we believe FFO is most directly comparable to
net income (loss), which remains the primary measure of
performance, because by excluding gains or losses related to sales
of previously depreciated operating real estate assets and
excluding real estate asset depreciation and amortization, FFO
assists in comparing the operating performance of a company’s real
estate between periods or as compared to different companies.
Although FFO is intended to be a REIT industry standard, other
companies may not calculate FFO in the same manner as we do, and
investors should not assume that FFO as reported by us is
comparable to FFO as reported by other REITs.
EBITDA
The Company believes that excluding the effect of non-operating
expenses and non-cash charges, and the portion of those items
related to unconsolidated entities, all of which are also based on
historical cost accounting and may be of limited significance in
evaluating current performance, can help eliminate the accounting
effects of depreciation and financing decisions and facilitate
comparisons of core operating profitability between periods and
between REITs, even though EBITDA also does not represent an amount
that accrued directly to shareholders.
Hotel EBITDA
The Company believes that excluding the effect of
corporate-level expenses and non-cash items, and the portion of
these items that relate to unconsolidated entities, provides a more
complete understanding of the operating results over which
individual hotels and operators have direct control. We believe
property-level results provide investors with supplemental
information on the on-going operational performance of our hotels
and the effectiveness of third-party management companies operating
our business on a property-level basis. The Company previously
reported Hotel EBITDA as Adjusted Operating Income.
Adjusted FFO and Adjusted
EBITDA
The Company presents adjusted FFO, including adjusted FFO per
share and unit, and adjusted EBITDA, which adjusts for certain
additional items including any unrealized gain (loss) on its
hedging instruments or warrant derivative, impairment losses,
losses on early extinguishment of debt, aborted offering costs,
costs associated with the departure of executive officers and
acquisition transaction costs. The Company excludes these items as
it believes it allows for meaningful comparisons between periods
and among other REITs and is more indicative of the on-going
performance of its business and assets. The Company’s calculation
of adjusted FFO and adjusted EBITDA may be different from similar
measures calculated by other REITs.
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