MDH Mhi Hospitality Corp. (MM)

Reports Gains in Overall and Same-Store Portfolio Operating Margins WILLIAMSBURG, Va., Oct. 27 /PRNewswire-FirstCall/ -- MHI Hospitality Corporation (NASDAQ:MDH) ("the Company"), a self-advised lodging real estate investment trust (REIT), today reported its consolidated results for the third quarter ended September 30, 2009. HIGHLIGHTS: -- Total revenue increased approximately $0.8 million or 4.6% over third quarter 2008 to approximately $18.0 million. -- Total room revenue increased approximately $0.7 million or 6.0 % over third quarter 2008 to approximately $12.8 million. -- Adjusted operating income increased approximately $0.6 million or 17.7% over third quarter 2008 to approximately $3.7 million. -- Funds from Operations ("FFO") increased approximately $0.1 million or 13.3% over third quarter 2008 to approximately $1.3 million or $0.12 per share for third quarter 2009. -- Total assets of approximately $217.9 million at September 30, 2009, versus approximately $203.2 million at September 30, 2008. Andrew M. Sims, President and CEO of MHI Hospitality Corporation, commented, "Our principal focus right now is the aggressive ramp-up of our repositioned portfolio. We are capturing market share with these efforts, as demonstrated by this quarter's results. We are also working to strengthen our financial position. We recently completed the formation of an asset management group specializing in nonperforming hotel properties. We believe this aligned new business initiative will create a valuable fee income stream and position us favorably in terms of market knowledge and future opportunities." Sims continued, "Although market conditions remain challenging, the asset turnaround strategy that we have successfully implemented since 2005 is now delivering meaningful results that distinguish us from our peer group." Operating Results The Company reported consolidated total revenue of approximately $18.0 million for the three-month period ended September 30, 2009, an increase of 4.6% over the three-month period ended September 30, 2008. The Company had adjusted operating income for the same period of approximately $3.7 million, an increase of approximately $0.6 million or 17.7% as compared to adjusted operating income of approximately $3.1 million for the third quarter of 2008. For the third quarter, the Company also reported a consolidated net loss of approximately $0.7 million, or $0.10 per share, as compared to a consolidated net loss of approximately $0.5 million, or $0.08 per share, for the comparable 2008 period. During the third quarter, FFO was approximately $1.3 million, or $0.12 per share, compared to approximately $1.1 million, or $0.11 per share, for the third quarter of 2008, an increase of 13.3%. During the quarter, the Company reported an unrealized gain on the value of its interest rate swap of approximately $0.3 million as compared to an unrealized gain on the value of its interest rate swap of approximately $0.1 million for the third quarter of 2008. The interest rate swap is required by the Company's lenders on its revolving credit facility. Adjusted operating income (and the related margin) and FFO are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. The Company defines adjusted operating income as net operating income excluding depreciation and amortization, corporate general and administrative expenses, lease revenue and related expenses as well as other fee income not related to the Company's wholly-owned hotel properties. The Company defines FFO as net income excluding extraordinary items, depreciation and minority interest. Management believes FFO is a key measure of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance. Reconciliation of these non-GAAP financial measures are included in the accompanying financial tables. Portfolio Operating Performance The following tables illustrate the key operating metrics for the three months ended September 30, 2009 and 2008 for the Company's wholly-owned properties during each respective reporting period ("consolidated" properties) as well as the eight wholly-owned properties in the portfolio that were not under development and were under the Company's control during the three months ended September 30, 2009 and the corresponding period in 2008 ("same-store" properties). Accordingly, the same-store data does not reflect the performance of the Crowne Plaza Tampa Westshore, which opened in March 2009. The tables also exclude performance data for the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture in August 2007 and in which the Company has a 25.0% indirect interest. Consolidated (All Hotels) Quarter Ended Quarter Ended September 30, September 30, 2009 2008 Variance ------------- ------------- -------- Occupancy % 63.5% 59.6% 6.6% Average Daily Rate ("ADR") $103.63 $116.43 -11.0% Revenue per Available Room ("RevPAR") $65.85 $69.41 -5.1% Same-Store (8 Hotels) Quarter Ended Quarter Ended September 30, September 30, 2009 2008 Variance ------------- ------------- -------- Occupancy % 65.7% 59.6% 10.2% ADR $106.04 $116.43 -8.9% RevPAR $69.65 $69.41 0.4% For the third quarter of 2009, adjusted operating income increased 17.7% over the third quarter of 2008 and same-store adjusted operating margins improved 471 basis points over the third quarter of 2008 The following tables illustrate the key operating metrics for the nine months ended September 30, 2009 and 2008 for the Company's wholly-owned properties during each respective reporting period ("consolidated" properties) as well as the six wholly-owned properties in the portfolio that were not under development and were under the Company's control during the nine months ended September 30, 2009 and the corresponding period in 2008 ("same-store" properties). Accordingly, the same-store data does not reflect the performance of the Sheraton Louisville Riverside, which opened in May 2008; the Crowne Plaza Hampton Marina, which the Company purchased in April 2008, or the Crowne Plaza Tampa Westshore, which opened in March 2009. The tables also exclude performance data for the Crowne Plaza Hollywood Beach Resort in which the Company has a 25.0% indirect interest. Consolidated (All Hotels) Nine Months Nine Months Ended Ended September 30, September 30, 2009 2008 Variance ------------- ------------- -------- Occupancy % 61.7% 64.2% -3.8% ADR $107.90 $120.13 -10.2% RevPAR $66.58 $77.09 -13.6% Same-Store (6 Hotels) Nine Months Nine Months Ended Ended September 30, September 30, 2009 2008 Variance ------------- ------------- -------- Occupancy % 66.2% 68.0% -2.7% ADR $110.32 $120.25 -8.3% RevPAR $72.99 $81.80 -10.8% For the nine-month period ended September 30, 2009, adjusted operating income increased 7.6% over the nine-month period ended September 30, 2008 and same-store adjusted operating margins improved 423 basis points over the comparable period in 2008. Portfolio Update As of September 30, 2009, total assets were approximately $217.9 million, including approximately $189.8 million of net investment in hotel properties plus approximately $9.8 million for the Company's joint venture investment in the Crowne Plaza Hollywood Beach Resort. -- The Company is executing a relaunch with the Holiday Inn franchise at its Raleigh, North Carolina property, which it expects to substantially complete by year-end 2009. -- Ramp-up efforts including a variety of sales and marketing tactics are on track at almost half of the Company's wholly-owned hotel properties, including the Crowne Plaza Tampa Westshore, the Sheraton Louisville Riverside, the Hilton Savannah DeSoto and the Company's newest property, the Crowne Plaza Hampton Marina. Balance Sheet/Liquidity At September 30, 2009, the Company had approximately $5.3 million of available cash and cash equivalents, of which approximately $0.8 million is reserved for capital improvements and certain other expenses. The Company has approximately $78.7 million outstanding on its $80.0 million revolving line of credit, which had been deployed primarily to fund the acquisition and renovation of the Sheraton Louisville Riverside Hotel, the Company's equity contribution to its joint venture with The Carlyle Group for the purchase of the Crowne Plaza Hollywood Beach Resort, as well as the acquisitions of the Tampa, Florida and Hampton, Virginia hotel properties. The Company has no debt maturing before May 2011. The loans coming due at that time are a combination of variable and fixed rate debt carrying favorable terms. Dividend As previously announced, the most recent amendment to the credit agreement entered into in May 2009 permits the Company to pay in any given fiscal year a dividend in an amount minimally necessary in order to preserve cash while maintaining the Company's REIT status, provided that no dividend may be paid during the first three quarters of such fiscal year. The Company anticipates the amount of such a dividend will remain at 90% of taxable income. If certain liquidity thresholds and other conditions are met the Company may be able to declare and pay additional cash dividends in any fiscal year. Any future changes to the Company's current dividend policy will need to be in compliance with restrictions on the payment of cash dividends as set forth in the referenced amendment to the credit agreement. Asset Management Group During the third quarter 2009, the Company formed a separate subsidiary, MHI Asset Recovery, LLC, to pursue asset management assignments from special servicers and other entities involved in distressed hotel loans and workouts. As asset manager, the Company will provide asset management services including, but not limited to, property management, receiver services, litigation and contract support, franchise selection, construction management, value optimization, and project management on a fee-for-service basis. Outlook and Market Trends In light of ongoing unpredictable macro-economic and hospitality market conditions and their potential impact on the Company's markets and customer base, management has elected to suspend providing guidance regarding projected financial performance for the near term. Earnings Call/Webcast The Company will conduct its third quarter conference call for investors and other interested parties at 10:00 a.m. Eastern Time (ET) on Wednesday, October 28, 2009. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 800-860-2442. To participate on the webcast, log on to http://www.mhihospitality.com/ at least 15 minutes before the call to download the necessary software. About MHI Hospitality Corporation MHI Hospitality Corporation is a self-advised lodging REIT focused on the acquisition, redevelopment and management of mid-scale, upscale and upper-upscale full-service hotels in the Mid-Atlantic, Midwest and Southeastern United States. Currently, the Company's portfolio consists of investments in eleven hotel properties, nine of which are wholly-owned and comprise 2,110 rooms. All of the Company's wholly-owned properties operate under the Hilton, InterContinental Hotels Group and Starwood Hotels and Resorts brands. The Company also has a 25 percent interest in the Crowne Plaza Hollywood Beach Resort and a leasehold interest in the common area of Shell Island Resort, a resort condominium property. MHI Hospitality Corporation was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information please visit http://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 the current economic downturn, that will 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 availability and terms of financing and capital and the general volatility of the securities markets, specifically, the impact of the current 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; management and performance of the Company's hotels; 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; and legislative/regulatory changes, including changes to laws governing taxation of real estate investment trusts. 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 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 our expectations will be attained or that actual results will not differ materially. Financial Tables Follow ... MHI HOSPITALITY CORPORATION CONSOLIDATED BALANCE SHEETS September 30, December 31, 2009 2008 (unaudited) (audited) ---------- -------- ASSETS Investment in hotel properties, net $189,827,578 $154,295,611 Properties under development - 33,101,773 Investment in joint venture 9,816,963 10,253,732 Cash and cash equivalents 4,497,311 1,719,147 Restricted cash 759,704 2,573,444 Accounts receivable 3,310,079 1,352,203 Accounts receivable-affiliate 80,122 53,795 Prepaid expenses, inventory and other assets 6,393,281 4,603,118 Notes receivable, net 100,000 100,000 Shell Island lease purchase, net 1,544,117 1,852,941 Deferred financing costs, net 1,529,706 1,312,670 --------- --------- TOTAL ASSETS $217,858,861 $211,218,434 ============ ============ LIABILITIES Line of credit $78,737,858 $73,187,858 Mortgage loans 72,837,675 72,256,168 Loans payable 4,639,022 - Accounts payable and accrued liabilities 8,990,136 11,451,976 Advance deposits 792,474 546,236 ------- ------- TOTAL LIABILITIES 165,997,165 157,442,238 ----------- ----------- Commitments and contingencies EQUITY MHI Hospitality Corporation stockholders' equity Preferred stock, par value $0.01; 1,000,000 shares authorized; 0 shares issued and outstanding - - Common stock, par value $0.01; 49,000,000 shares authorized; 6,964,263 shares and 6,939,613 shares issued and outstanding at September 30, 2009 and 69,643 69,396 December 31, 2008, respectively Additional paid in capital 48,692,539 48,586,775 Distributions in excess of retained earnings (13,655,850) (12,341,122) ------------ ------------ Total MHI Hospitality Corporation stockholders' equity 35,106,332 36,315,049 ---------- ---------- Noncontrolling interest 16,755,364 17,461,147 ---------- ---------- TOTAL EQUITY 51,861,696 53,776,196 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $217,858,861 $211,218,434 ============ ============ MHI HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three months Three months Nine months Nine months ended ended ended ended September September September September 30, 2009 30, 2008 30, 2009 30, 2008 --------- --------- --------- --------- REVENUE Rooms Department $12,781,958 $12,055,723 $37,404,739 $36,680,246 Food and beverage department 4,124,670 4,040,957 13,187,953 13,319,651 Other operating departments 1,073,404 1,085,229 3,419,049 3,154,402 --------- --------- --------- --------- Total Revenue 17,980,032 17,181,909 54,011,741 53,154,299 EXPENSES Hotel operating expenses Rooms Department 3,765,650 3,473,123 10,498,088 10,219,413 Food and beverage department 2,957,662 3,220,355 8,990,305 9,962,929 Other operating departments 206,865 226,483 581,202 650,502 Indirect 7,290,182 7,001,655 21,677,157 20,895,881 --------- --------- ---------- ---------- Total hotel operating expenses 14,220,359 13,921,616 41,746,752 41,728,725 Depreciation and amortization 2,152,350 1,797,075 6,148,408 4,777,680 Corporate general and administrative 744,171 646,566 2,497,275 2,318,829 ------- ------- --------- --------- Total operating expenses 17,116,880 16,365,257 50,392,435 48,825,234 ---------- ---------- ---------- ---------- NET OPERATING INCOME 863,152 816,652 3,619,306 4,329,065 Other income (expense) Interest Expense (2,546,971) (1,933,052) (7,131,677) (4,810,231) Interest Income 9,861 22,318 37,689 57,141 Equity in earnings (loss) of joint venture (157,942) (333,188) (169,966) 261,622 Loan impairment charge - (100,000) - (300,000) Unrealized gain on hedging activities 316,914 116,016 854,171 86,743 Gain (Loss) on disposal of assets (51,740) 2,010 (42,870) (114,962) -------- ----- -------- --------- Net loss before taxes (1,566,726) (1,409,244) (2,833,347) (490,622) Income tax benefit 502,019 603,135 1,026,874 1,010,194 ------- ------- --------- --------- Net income (loss) (1,064,707) (806,109) (1,806,473) 519,572 Adjust: Net (income) loss attributable to the noncontrolling interest 371,894 282,336 631,031 (181,933) ------- ------- ------- --------- Net income (loss) attributable to the Company $(692,813) $(523,773) $(1,175,442) $337,639 ========== =========== =========== ======== Net income (loss) per share attributable to the Company Basic $(0.10) $(0.08) $(0.17) $0.05 Diluted $(0.10) $(0.08) $(0.17) $0.05 Weighted average number of shares outstanding Basic 6,964,263 6,939,613 6,962,170 6,936,435 Diluted 6,990,263 6,975,613 6,988,170 6,973,100 MHI HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS September 30, September 30, 2009 2008 (unaudited) (audited) Cash flows from operating activities: Net income (loss) attributable to the Company $(1,175,442) $337,639 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation And Amortization 6,148,408 4,777,680 Equity in joint venture 169,966 (261,622) Loss on disposal of assets 42,870 114,962 Loan impairment charge - 300,000 Unrealized loss on hedging activities (854,171) (86,743) Amortization of deferred financing costs 554,241 256,002 Charges related to equity- based compensation 106,010 237,196 Noncontrolling interest in operating partnership (631,031) 181,933 Changes in assets and liabilities: Restricted cash 234,179 (216,844) Accounts Receivable (1,957,876) 47,573 Inventory, prepaid expenses and other assts (1,849,110) (2,399,976) Accounts payable and other accrued liabilities (1,607,668) (1,009,373) Advance deposits 246,237 279,138 Due from affiliates (26,327) (20,680) -------- -------- Net cash provided by (used in) operating activities (599,714) 2,536,885 --------- --------- Cash flows from investing activities: Acquisition of hotel properties - (2,063,794) Improvements and additions to hotel properties (8,253,701) (29,793,040) Contributions to joint venture - (4,743,207) Distributions from joint venture 266,803 27,362 Funding of restricted cash reserves (887,733) (1,262,108) Proceeds of restricted cash reserves 2,467,295 765,402 --------- ------- Net cash used in investing activities (6,407,336) (37,069,385) ----------- ------------ Cash flows from financing activities: Dividends and distributions paid (214,037) (5,438,138) Proceeds of mortgage refinancing 743,832 10,707,127 Net proceeds of credit facility 5,550,000 32,800,000 Payment of deferred financing costs (771,278) (508,019) Proceeds of Loans 4,750,000 - Payment of mortgages and loans (273,303) (490,000) --------- --------- Net cash provided by financing activities 9,785,214 37,070,970 --------- ---------- Net increase in cash and cash equivalents 2,778,164 2,538,470 Cash and cash equivalents at the beginning of the period 1,719,147 3,988,700 --------- --------- Cash and cash equivalents at the end of the period Supplemental disclosures: $4,497,311 $6,527,170 ========== ========== Cash paid during the period for interest $6,842,607 $5,487,558 ========== ========== Cash paid during the period for income $107,087 $158,240 taxes ======== ======== Non-cash investing and financing activities: Assumption of existing indebtedness on purchase of hotel properties $- $5,750,000 == ========== Refinance of mortgage notes $- $5,260,000 == ========== MHI HOSPITALITY CORPORATION RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS (FFO) (unaudited) Three months Three months Nine months Nine months ended ended ended ended September September September September 30, 2009 30, 2008 30, 2009 30, 2008 ---------- ---------- ----------- -------- Net income (loss) $(692,813) $(523,773) $(1,175,442) $337,639 Adjust Noncontrolling Interest (371,894) (282,336) (631,031) 181,933 Add depreciation and amortization 2,152,350 1,797,075 6,148,408 4,777,680 Add equity in depreciation and amortization of joint venture 135,935 136,432 407,814 409,244 Adjust gain (loss) on disposal of assets 51,740 (2,010) 42,870 114,962 ------ ------- ------ ------- FFO $1,275,318 $1,125,388 $4,792,619 $5,821,458 ========== ========== ========== ========== Weighted average Shares Outstanding 6,964,263 6,939,613 6,962,170 6,936,435 Weighted average Units outstanding 3,737,607 3,737,607 3,737,607 3,737,607 --------- --------- --------- --------- Weighted average Shares and units 10,701,870 10,677,220 10,699,777 10,674,042 ========== ========== ========== ========== FFO per share and unit $0.12 $0.11 $0.45 $0.55 ===== ===== ===== ===== 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 that was 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. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes that the use of FFO, combined with the required GAAP presentations, has improved the understanding of the operating results of REITs among the investing public and made comparisons of REIT operating results more meaningful. Management 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. MHI HOSPITALITY CORPORATION RECONCILIATION OF NET OPERATING INCOME TO ADJUSTED OPERATING INCOME (unaudited) Three months Three months Nine months Nine months ended ended ended ended September September September September 30, 2009 30, 2008 30, 2009 30, 2008 --------- --------- --------- --------- Net operating income $863,152 $816,652 $3,619,306 $4,329,065 Add corporate general and administrative 744,171 646,566 2,497,275 2,318,828 Add depreciation and amortization 2,152,350 1,797,075 6,148,408 4,777,680 Subtract net lease rental income (95,750) (117,966) (318,250) (353,897) Subtract other fee (5,283) (35,184) (196,420) (150,478) income ------- -------- --------- --------- Adjusted operating income $3,658,640 $3,107,143 $11,750,319 $10,921,198 ========== ========== =========== =========== We provide adjusted operating income as supplemental information for investors. We eliminate corporate-level costs 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. 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 predictably over time. As noted earlier, 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. As a result of the elimination of corporate-level costs and expenses, depreciation and amortization, net lease income as well as other fee income not related to our wholly-owned hotel properties, the adjusted operating income we present 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 they are material to operating decisions or assessments or our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance. We also believe that providing adjusted operating income provides investors and management with useful information for evaluating the period-to-period performance of our hotels and facilitates comparisons with other hotels REITS and hotel owners. DATASOURCE: MHI Hospitality Corporation CONTACT: Bill Zaiser, Chief Financial Officer of MHI Hospitality Corporation, +1-301-220-5405; or General Information, Vicki Baker of Financial Relations Board, +1-703-796-1798, for MHI Hospitality Corporation Web Site: http://www.mhihospitality.com/

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