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 second quarter ended June 30, 2012. The Company’s
results include the following*:
Three months ended Six months
ended June 30, 2012 June 30, 2011
June 30, 2012 June 30, 2011 ($ in
thousands except per share data) Total Revenue $ 25,113 $
23,130 $ 45,138 $ 41,665 Net loss attributable to the Company
(1,654 ) (183 ) (3,948 ) (1,172 ) EBITDA 5,580 5,655 8,416
9,313 Adjusted EBITDA 7,124 6,135 11,138 9,719 Hotel EBITDA 7,714
6,597 12,161 10,453 FFO 232 2,038 (430 ) 2,955 Adjusted FFO
4,237 3,300 5,442 4,129 Net loss per diluted share
attributable to the Company $ (0.17 ) $ (0.02 ) $ (0.40 ) $ (0.12 )
FFO per share and unit 0.02 0.16 (0.03 ) 0.23 Adjusted FFO per
share and unit 0.33 0.25 0.42 0.32
(*) 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 July 24, 2012, the Company announced a 50% increase in
the quarterly dividend on its common stock and declared a dividend
(distribution) of $0.03 per share (and unit), payable on October
11, 2012 to stockholders (and unitholders) of record as of
September 14, 2012.
- RevPAR. Room revenue per
available room (“RevPAR”) for the Company’s wholly-owned properties
during the second quarter 2012 increased 9.7 percent over the
second quarter 2011 to $92.35 as a result of a 4.8 percent increase
in occupancy and a 4.7 percent increase in average daily rate
(“ADR”).
- Hotel EBITDA. The Company
generated hotel EBITDA of approximately $7.7 million during the
second quarter 2012, an increase of 16.9 percent or approximately
$1.1 million over the second quarter 2011. Hotel EBITDA margin
increased 210 basis points to 30.9 percent compared to the same
period in 2011.
- Adjusted EBITDA. The Company
generated adjusted EBITDA of approximately $7.1 million during the
second quarter 2012, an increase of 16.1 percent or approximately
$1.0 million over the second quarter 2011.
- Adjusted FFO. The Company
generated adjusted FFO of approximately $4.2 million during the
second quarter 2012, an increase of 28.4 percent or approximately
$0.9 million over the second quarter 2011.
Andrew M. Sims, Chairman and Chief Executive Officer of MHI
Hospitality Corporation, commented, “Our hotel portfolio
experienced the strongest quarter since going public in 2004.
Operating results were solid, with above market year-over-year
increases in RevPAR and Hotel EBITDA. The Company continued the
process of restructuring its balance sheet by mortgaging the Crowne
Plaza Tampa Westshore hotel, enabling MHI to redeem approximately
45.0% of its outstanding preferred stock. Overall, MHI’s second
quarter 2012 was extremely strong.”
Financing Transactions
- On June 15, 2012, MHI entered into an
agreement with the holders of the Company’s Series A Cumulative
Redeemable Preferred Stock (the “Preferred Stock”) to redeem
approximately 11,514 shares of Preferred Stock for an aggregate
redemption price of approximately $12.3 million plus the payment of
related accrued and unpaid cash and stock dividends.
- On June 15, 2012, MHI also entered into
an amendment of its existing Note Agreement with Essex Equity High
Income Joint Investment Vehicle, LLC whereby the Company made a
$1.5 million prepayment under the Note Agreement. In addition, the
amount of the undrawn term loan commitments under the Note
Agreement increased to $7.0 million, of which $2.0 million is
reserved with certain use restrictions.
- On June 18, 2012, the Company obtained
a $14.0 million mortgage with C1 Bank on the Crowne Plaza Tampa
Westshore hotel property in Tampa, Florida. The loan carries a
fixed interest rate of 5.60% and amortizes on a 25-year schedule.
The maturity date is June 18, 2017. As described above, proceeds
from the loan were used to redeem a portion of the outstanding
shares of the Preferred Stock and to prepay the Company’s
indebtedness under the Note Agreement.
- On June 22, 2011, the Company obtained
a one-year extension of the maturity date of the approximate $8.1
million mortgage on the Crowne Plaza Hampton Marina hotel property
to June 30, 2013. Under the terms of the extension, the borrower
will make monthly principal payments of $16,000 plus interest as
well as quarterly principal payments of $200,000 each on July 1,
2012, October 1, 2012, January 1, 2013 and April 1, 2013.
Subsequent Events
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 June 30, 2012, the Company had approximately $9.3 million of
available cash and cash equivalents, of which approximately $2.3
million is reserved for real estate taxes, insurance, capital
improvements and certain other expenses or otherwise restricted.
The Company had approximately $155.5 million in outstanding debt at
a weighted average interest rate of approximately 6.07%. The
Company also had $7.0 million of availability under the Note
Agreement at June 30, 2012.
2012 Outlook
The Company is updating its previous guidance for 2012,
accounting for the effect of extinguishing its syndicated line of
credit, redemption of approximately 45.0% of the outstanding shares
of Preferred Stock as well as current and expected performance
within its portfolio. The guidance is predicated on continued
strengthening of the economy and expected improvements in hotel
lodging industry fundamentals and is based on estimates of
occupancy and average daily rates that are consistent with calendar
year 2012 forecasts by Smith Travel Research for the market
segments in which the Company operates.
The table below reflects the Company’s updated projections,
within a range, of various financial measures for 2012:
Low Range High Range Y/E
Dec 31, 2012 Y/E Dec 31, 2012 ($ in thousands except per share
data) Total Revenue $ 83,000 $ 88,000 Net loss (7,627 ) (6,642 )
EBITDA 15,403 16,738 Adjusted EBITDA 18,743 19,758 Hotel
EBITDA 20,860 21,985 FFO 1,668 2,653 Adjusted FFO 7,745
9,080 Net loss per share attributable to the Company $ (0.59
) $ (0.51 ) FFO per share and unit 0.13 0.20 Adjusted FFO per share
and unit 0.60 0.70
Earnings Call/Webcast
The Company will conduct its second quarter 2012 conference call
for investors and other interested parties at 10:00 a.m. Eastern
Time on Tuesday, August 7, 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 August 7, 2012 through June
30, 2013. To access the rebroadcast, dial 877-344-7529 and enter
conference number 10015730. A replay of the call also will be
available on the Internet at www.mhihospitality.com until June 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 June 30, 2012
December 31, 2011 (unaudited) (audited)
ASSETS Investment in hotel properties, net
$
178,864,147
$ 181,469,432 Investment in joint venture 8,894,509 8,966,795 Cash
and cash equivalents 6,965,540 4,409,959 Restricted cash 2,335,904
2,690,391 Accounts receivable, net 3,385,230 1,702,616 Accounts
receivable-affiliate 16,623 24,880 Prepaid expenses, inventory and
other assets 2,164,384 1,877,456 Notes receivable, net 100,000
100,000 Shell Island sublease, net 600,490 720,588 Deferred income
taxes 2,958,170 4,061,749 Deferred financing costs, net
2,471,556 3,275,580
TOTAL ASSETS
$ 208,756,553 $ 209,299,446
LIABILITIES Line of credit $ — $ 25,537,290
Mortgage debt 137,254,076 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, 14,086 and 25,354 shares issued
and outstanding at June 30, 2012 and December 31, 2011,
respectively 14,085,669 25,353,698 Accounts payable and accrued
liabilities 8,146,331 7,437,246 Advance deposits 899,626 453,077
Dividends and distributions payable 259,573 258,772 Warrant
derivative liability 5,627,975 2,943,075
TOTAL LIABILITIES 170,423,470
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 June 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
June 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 (26,422,738 ) (22,074,739
) Total MHI Hospitality Corporation stockholders’ equity 30,698,239
34,935,838 Noncontrolling interest 7,634,844
8,947,405
TOTAL EQUITY 38,333,083
43,883,243
TOTAL LIABILITIES AND EQUITY
$ 208,756,553 $ 209,299,446
MHI HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended June 30,
Six months ended June 30, 2012
2011 2012 2011
REVENUE Rooms department $ 17,756,867 $ 16,164,522 $
31,700,572 $ 29,068,955 Food and beverage department 6,181,542
5,767,415 11,176,007 10,335,073 Other operating departments
1,174,113 1,197,783 2,261,088
2,261,265
Total revenue
25,112,522 23,129,720 45,137,667
41,665,293 EXPENSES Hotel operating expenses
Rooms department 4,470,159 4,277,194 8,420,645 7,970,100 Food and
beverage department 3,958,150 3,710,403 7,355,536 6,836,831 Other
operating departments 117,445 141,748 240,938 262,741 Indirect
8,706,610 8,223,272 16,642,698
15,789,158
Total hotel operating
expenses 17,252,364 16,352,617 32,659,817
30,858,830 Depreciation and amortization 2,195,591
2,149,910 4,375,554 4,273,387 Corporate general and administrative
962,948 848,527 2,094,534
1,805,621
Total operating expenses
20,410,903 19,351,054 39,129,905
36,937,838
NET OPERATING INCOME
4,701,619 3,778,666 6,000,762 4,727,455
Other income (expense) Interest expense (4,283,732 )
(2,720,121 ) (7,572,362 ) (5,305,548 ) Interest income 3,169 4,602
7,852 7,538 Equity income (loss) in joint venture (88,080 )
(166,981 ) 177,714 122,456 Unrealized loss on warrant derivative
(1,521,142 ) (380,000 ) (2,684,900 ) (380,000 ) Unrealized gain on
hedging activities — 22,612 — 72,649 Gain on disposal of assets
— 6,055 — 12,255
Net income (loss) before taxes
(1,188,166 ) 544,833 (4,063,934
) (743,195 ) Income tax provision
(958,146 ) (788,334 ) (1,062,721 ) (836,776 )
Net loss (2,146,312 ) (243,501 ) (5,126,655 )
(1,579,971 ) Add: Net loss attributable to the noncontrolling
interest 492,658 60,939
1,178,647 408,090
Net loss
attributable to the Company $ (1,653,654 )
$ (182,562 ) $ (3,948,008
) $ (1,171,881 )
Net loss per share attributable to the
Company
Basic $ (0.17 ) $ (0.02 ) $ (0.40 ) $ (0.12 ) Diluted $ (0.16 ) $
(0.02 ) $ (0.38 ) $ (0.12 ) Weighted average number of shares
outstanding Basic 9,999,786 9,617,116 9,991,445 9,588,996 Diluted
10,623,642 9,976,328 10,442,799 9,769,097
MHI HOSPITALITY CORPORATION
KEY OPERATING METRICS
(unaudited)
The following tables illustrate the key operating
metrics for the three months and six months ended June 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 June 30,
2012 2011 Variance Occupancy 76.4 % 72.9 % 4.8
% ADR $ 120.88 $ 115.46 4.7 % RevPAR $ 92.35 $ 84.19 9.7 %
Consolidated Properties
Six Months Ended June 30,
2012 2011 Variance Occupancy 71.2 % 68.0 % 4.7
% ADR $ 115.70 $ 111.89 3.4 % RevPAR $ 82.43 $ 76.11 8.3 %
MHI HOSPITALITY CORPORATION RECONCILIATION OF NET
INCOME (LOSS) TO FFO, Adjusted FFO, EBITDA, Adjusted EBITDA
and Hotel EBITDA (unaudited)
Three months ended June
30, Six months ended June 30, 2012 2011
2012 2011 Net loss attributable to the Company
$ (1,653,654 ) $ (182,562 ) $ (3,948,008 ) $ (1,171,881 )
Noncontrolling interest (492,658 ) (60,939 ) (1,178,647 ) (408,090
) Depreciation and amortization 2,195,591 2,149,910 4,375,554
4,273,387 Equity in depreciation and amortization of joint venture
182,930 137,399 320,742 274,027 Loss on disposal of assets —
(6,055 ) — (12,255 ) FFO
$ 232,209 $ 2,037,753 $ (430,359 ) $ 2,955,188 Unrealized loss on
hedging activities(1) 22,446 99,946 37,127 26,170 Unrealized loss
on warrant derivative 1,521,142 380,000 2,684,900 380,000 Decrease
in deferred income taxes 950,037 782,058 1,168,311 767,174 Loss on
early extinguishment of debt(2) 1,510,788 —
1,982,184 — Adjusted FFO
$ 4,236,622 $ 3,299,757 $ 5,442,163 $
4,128,532 Weighted average shares outstanding
9,999,786 9,617,116 9,991,445 9,588,996 Weighted average units
outstanding 2,980,883 3,324,109
2,982,861 3,339,190 Weighted average
shares and units 12,980,669 12,941,225
12,974,306 12,928,186 FFO per
share and unit $ 0.02 $ 0.16 $ (0.03 ) $ 0.23
Adjusted FFO per share and unit $ 0.33 $ 0.25
$ 0.42 $ 0.32
Three months ended
June 30, Six months ended June 30, 2012
2011 2012 2011 Net loss attributable to
the Company $ (1,653,654 ) $ (182,562 ) $ (3,948,008 ) $ (1,171,881
) Noncontrolling interest (492,658 ) (60,939 ) (1,178,647 )
(408,090 ) Interest expense 4,283,732 2,720,121 7,572,362 5,305,548
Interest income (3,169 ) (4,602 ) (7,852 ) (7,538 ) Income tax
provision 958,146 788,334 1,062,721 836,776 Depreciation and
amortization 2,195,591 2,149,910 4,375,554 4,273,387 Equity in
interest expense and depreciation and amortization of joint venture
292,123 250,772 539,638 497,363 Loss on disposal of assets —
(6,055 ) — (12,255 )
EBITDA 5,580,111 5,654,979 8,415,768 9,313,310 Unrealized loss on
hedging activities(1) 22,446 99,946 37,127 26,170 Unrealized loss
on warrant derivative 1,521,142 380,000
2,684,900 380,000 Adjusted
EBITDA 7,123,699 6,134,925 11,137,795 9,719,480 Corporate general
and administrative 962,948 848,527 2,094,534 1,805,620 Equity in
adjusted EBITDA of joint venture (226,490 ) (206,349 ) (754,480 )
(718,638 ) Net lease rental income (87,500 ) (121,250 ) (175,000 )
(222,500 ) Other fee income (58,908 ) (58,375 )
(141,524 ) (130,463 ) Hotel EBITDA $ 7,713,749
$ 6,597,478 $ 12,161,325 $ 10,453,499
(1) Includes equity in unrealized (gain)/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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