Equity Inns (NYSE:ENN)
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From Jul 2019 to Jul 2024
Equity Inns, Inc. (NYSE: ENN):
AFFO Per Diluted Share Increases 8.8% to $0.37
Average Daily Rate Increases 8.1%, Versus 6.8% for Industry
Occupancy Remains Strong at 74.2% Versus 68.5% for Industry
Company Commits to Convert 18 AmeriSuites to Hyatt Place Hotels
Updates 2006 Guidance
Equity Inns, Inc. (NYSE: ENN), the third largest hotel real estate
investment trust (REIT), today announced its results for the three and
the nine months ended September 30, 2006.
Adjusted funds from operations (AFFO) per diluted share for the three
months ended September 30, 2006 increased 8.8% to $0.37 as compared to
$0.34 per diluted share in the same period last year. Adjusted EBITDA
rose 17.2% to $34.5 million in the third quarter 2006 as compared to
$29.4 million in the third quarter 2005. Net income applicable to common
shareholders for the third quarter 2006 was $7.3 million, or $0.13 per
diluted share, as compared to net income of $6.7 million, or $0.12 per
diluted share in the prior year period. There was no difference between
funds from operations (FFO) and AFFO for the third quarter 2006. For the
nine months ended September 30, 2006, Equity Inns reported a 16.3%
increase in AFFO per diluted share to $1.07, as compared to $0.92 per
diluted share in the same period a year ago. Adjusted EBITDA increased
22.8% to $99.1 million for the nine months ended September 30, 2006. Net
income applicable to common shareholders for the nine months ended
September 30, 2006 was $12.5 million, or $0.23 per diluted share, as
compared to net income of $11.7 million, or $0.22 per diluted share in
the prior year period.
Financial Highlights for the Third Quarter and Nine Months of 2006:
Total hotel revenue increased 17.0% to $101.3 million for the third
quarter 2006 as compared to $86.6 million for the third quarter 2005. Of
the Company’s total hotel revenue increase of
$14.7 million, $11.0 million was due to net incremental revenue from
hotel acquisitions completed during 2005 and 2006 and $3.7 million was
due to improved same-store results. The Company’s
all comparable RevPAR growth of 4.8% was driven by an 8.1% increase in
average daily rate (ADR) to $96.59, partially offset by a 240 basis
point decline in occupancy to 74.2%. Equity Inns’
third quarter 2006 occupancy of 74.2% compares to an overall industry
occupancy of 68.5%. The decline in occupancy for the Company this
quarter was primarily due to the impact of reduced hurricane-related
demand at the Company’s 25 Florida hotels, as
compared to the third quarter 2005. The Company’s
total hotel revenue for the nine months ended September 30, 2006 was
$292.9 million, an increase of 22.4% from $239.2 million for the nine
months ended September 30, 2005. RevPAR increased 7.2% on a year-to-date
basis versus the same period in the prior year for all comparable
hotels, driven by 8.1% growth in ADR, offset slightly by a 60 basis
point decline in occupancy.
Howard A. Silver, President and Chief Executive Officer, stated, “We
produced another solid quarter of profitable growth, with our results
being within the range of our previously issued guidance. The impact
from our 25 Florida hotels notwithstanding, our business was actually
stronger than we had anticipated, which was driven by the continued
pricing power of our brands and markets. Specifically, our 25 Florida
hotels performed lower than our initial expectations due to the
difficulty of estimating how much of the hurricane-supplemented demand
of 2004 and 2005 could be replaced in a non-hurricane aided year.
However, we are encouraged that demand at these hotels remains strong
and that we continue to possess the ability to increase average daily
rate. Excluding the Florida hotels, our RevPAR performance for the
remaining portfolio was up a robust 7.5%.”
The Company’s gross operating profit margin
(GOP margin) increased 10 basis points to 43.9% in the third quarter
2006 as compared to the third quarter 2005. GOP margin expansion was
impacted by increased expenses at the Company’s
18 AmeriSuites, as Hyatt began investing in the operating infrastructure
of these hotels in preparation for the conversion to Hyatt Place hotels
in 2007. Due to minimum income guarantees that the Company receives from
Hyatt, the additional costs had a nominal impact to Equity Inns' net
operating income. Excluding the impact of the AmeriSuites, GOP margin
would have increased 80 basis points to 44.5%. GOP margin for the nine
months ended September 30, 2006 improved 90 basis points to 44.8% as
compared to the same period last year.
Non-financial Third Quarter 2006 Highlights:
The Company purchased three Marriott-branded hotels for an aggregate
of $26.3 million, which equates to a capitalization rate of
approximately 10%, or $69,000 per key. The average age of these hotels
is eight years.
Equity Inns signed a definitive agreement to purchase the Hilton
Garden Inn in Albuquerque, New Mexico for $11.5 million, or $89,000
per key. The transaction is expected to be completed by the end of
2006.
The Company sold four older hotels including three Hampton Inns and a
Holiday Inn. The average age of these hotels was 24 years and the
hotels were sold on a blended capitalization rate of approximately
5.1%. In addition, the Company sold a land tract in Salt Lake City
(Sandy), Utah for its estimated carrying value of $2.0 million.
Subsequent Events:
The Company signed an agreement to purchase four Marriott-branded
hotels located in Kentucky with an average age of four years for an
aggregate of approximately $53.8 million, equating to a capitalization
rate of approximately 10%. This transaction was a result of a newly
formed relationship with a management/development group.
Equity Inns executed an agreement with Global Hyatt Corporation to
convert all 18 of the Company’s AmeriSuites
hotels to the Hyatt Place brand. The conversion of the hotels is
expected to be completed by the end of 2007. The cost of the
conversion is estimated to be between $50 and $60 million.
Capital Structure:
At September 30, 2006, Equity Inns had $573.3 million of long-term debt
outstanding. The Company had $86.1 million of capacity under its $150.0
million unsecured line of credit. The weighted average interest rate of
the Company's debt at the end of the third quarter 2006 was 6.5% versus
6.9% at the end of the third quarter 2005. Total debt represented 42.2%
of the historical cost of the Company’s
hotels and represented 36% of the Company’s
total market capitalization at the end of the third quarter 2006. Equity
Inns’ leverage ratio was 4.4 times at the end
of the third quarter 2006, which is near a five-year low for the
Company. Fixed rate debt, including variable rate debt hedged by
interest rate swaps, amounted to approximately 96.3% of total debt. At
September 30, 2006, the Company’s outstanding
common stock and partnership units were a combined 55.6 million.
During the third quarter, Equity Inns received an increase in its line
of credit and closed a mortgage debt offering. The line of credit
increased to $150 million from $125 million and went from a secured line
to an unsecured line. The Company expects to save approximately $600,000
annually in interest expense due to the lower interest rate on the new
line. The Company also refinanced a new 10-year, $50 million mortgage
loan bearing interest of 5.65%, which is expected to save approximately
$975,000 in annual interest expense. Equity Inns now has 37 unencumbered
hotels as compared to none at the end of 2003.
Dividend:
During the third quarter 2006, the Company increased its common stock
dividend by 35%, as compared to the third quarter 2005, to $0.23 per
share. Equity Inns’ trailing twelve months’
cash available for distribution (CAD) payout ratio was 68.9%.
Mr. Silver concluded, “We have continued
confidence in the ability of our portfolio to produce strong cash flows,
as evidenced by our decision to increase the dividend, which remains in
a solid position based upon our low payout ratio. We continue to
reposition our portfolio, having announced or completed the acquisition
of 14 hotels during 2006 amounting to approximately $170 million, at an
average capitalization rate of approximately 9.6% and having sold seven
older hotels with limited remaining franchise life for an aggregate of
$36.5 million. Our acquisition pipeline remains robust with
opportunities in excess of $150 million. While we currently anticipate
that our RevPAR comparisons will be negatively impacted for the
remainder of this year by the unusually strong hurricane-related results
of 2004 and 2005, we believe that we are well-positioned for 2007 based
upon our projection of minimal new supply, sustained strong demand and
fewer ENN hotels under renovation. Due to our minimum income guarantees,
we expect an immaterial impact to ENN from renovation activity at our
AmeriSuites hotels undergoing rebranding in 2007.”
Updated 2006 Guidance:
Based upon the Company’s expectations for
continued improvement of the U.S. economy, moderate supply growth,
further improvement in the upscale and mid-scale lodging sectors, recent
acquisitions and divestitures, additional planned expense increases,
room renovations, and given the results of the third quarter 2006,
Equity Inns is updating the Company’s RevPAR,
Adjusted EBITDA, AFFO and net income per diluted share guidance, which
is as follows:
RevPAR growth for 2006 is now expected to range from 5.5% to 6%, with
nearly all of the increase being attributed to ADR. The fourth quarter
RevPAR change is expected to be in the range of 0% to an increase of
2% due to an expected lower occupancy as compared to the high
occupancies of the Company’s Florida hotels
in 2005.
Adjusted EBITDA for 2006 is now expected to range from approximately
$126 million to $127 million.
AFFO for 2006 is now expected to be in the range of $1.28 to $1.30 per
diluted share. The fourth quarter 2006 AFFO is expected to range from
$0.20 to $0.22 per diluted share.
Net income applicable to common shareholders for 2006 is now expected
to be in the range of $0.19 to $0.20 per diluted share. For the fourth
quarter 2006, net loss applicable to common shareholders is expected
to be ($0.04) to ($0.06) per diluted share.
Additionally, capital expenditures for the full year 2006 are now
expected to be approximately $45 million to $50 million.
Conference Call:
Equity Inns will hold a conference call and webcast to discuss the
Company's third quarter results after the market close on November 2,
2006, at 4:30 p.m. (Eastern Time). Interested investors and other
parties may listen to the conference call by dialing 800-811-8845 or
913-981-4905 for international participants. A simultaneous webcast of
the conference call may be accessed by logging onto the Company's
website at http://www.equityinns.com/
and selecting the microphone icon.
A replay of the conference call will be available on the Internet at
www.streetevents.com and the Company's website, http://www.equityinns.com,
for seven days following the call. A recording of the call will also be
available by telephone November 2, 2006 through November 9, 2006 by
dialing 888-203-1112 or 719-457-0820 for international participants. The
pass code is 6512548.
Forward Looking Statements
Certain matters discussed in this press release which are not historical
facts are “forward-looking statements”
within the meaning of the federal securities laws and involve risks and
uncertainties. The words “may,”
“plan,” “project,”
“anticipate,” “believe,”
“estimate,” “forecast,
“expect,” “intend,”
“will,” and
similar terms are intended to identify forward-looking statements, which
include, without limitation, statements concerning our outlook for the
hotel industry, acquisition and disposition plans for our hotels and
assumptions and forecasts of future results for fiscal year 2006.
Forward-looking statements are not guarantees of future performance and
involve numerous risks and uncertainties which may cause our actual
financial condition, results of operations and performance to be
materially different from the results of expectations expressed or
implied by such statements. General economic conditions, future acts of
terrorism or war, risks associated with the hotel and hospitality
business, the availability of capital, risks associated with our debt
financing, hotel operating risks and numerous other factors, may affect
our future results and performance and achievements. These risks and
uncertainties are described in greater detail in our 2005 Annual Report
on Form 10-K filed on March 15, 2006, and our other periodic filings
with the United States Securities and Exchange Commission (SEC). We
undertake no obligation and do not intend to publicly update or revise
any forward-looking statement, whether as a result of new information,
future events or otherwise. Although we believe our current expectations
to be based upon reasonable assumptions, we can give no assurance that
our expectations will be attained or that actual results will not differ
materially.
Notes to Financial Information
The Company operates as a self-managed and self-administered real estate
investment trust, or REIT. Readers are encouraged to find further detail
regarding Equity Inns’ organizational
structure in its annual report on Form 10-K for the year ended December
31, 2005 as filed with the SEC.
Non-GAAP Financial Measures
Included in this press release are certain "non-GAAP financial
measures," which are measures of the Company's historical or future
financial performance that are different from measures calculated and
presented in accordance with generally accepted accounting principles,
or GAAP, within the meaning of applicable SEC rules. These include: (i)
Gross Operating Profit Margin, (ii) Funds From Operations, (iii)
Adjusted Funds From Operations, (iv) Adjusted EBITDA, (v) Cash Available
for Distribution (CAD), (vi) CAD Payout Ratio, (vii) Capitalization Rate
(viii) Leverage Ratio, (ix) Total Shareholder Return and (x) Hotel
Operating Statistics. The following discussion defines these terms,
which the Company believes can be useful measures of its performance.
Gross Operating Profit Margin
The Company uses a measure common in the hotel industry to evaluate its
operating results. Gross operating profit margin (GOP margin) is defined
as hotel revenues minus hotel operating costs before property taxes,
insurance and management fees, divided by hotel revenues.
Funds from Operations
The National Association of Real Estate Investment Trusts, or NAREIT,
defines funds from operations, or FFO, as net income (loss) applicable
to common shareholders, excluding gains (or losses) from sales of real
estate, the cumulative effect of changes in accounting principles, real
estate-related depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not include the
cost of capital improvements or any related capitalized interest.
Equity Inns uses FFO per diluted share as a measure of performance to
adjust for certain non-cash expenses such as depreciation and
amortization because historical cost accounting for real estate assets
implicitly assumes that the value of real estate assets diminishes
predictably 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 less informative. NAREIT
adopted the definition of FFO in order to promote an industry-wide
standard measure of REIT operating performance. Accordingly, as a member
of NAREIT, Equity Inns adopted FFO as a measure to evaluate performance
and facilitate comparisons between the Company and other REITs, although
FFO and FFO per diluted share may not be comparable to those measures,
or similarly titled measures, as reported by other companies.
Additionally, FFO is used by management in the annual budget process.
Adjusted Funds From Operations
Equity Inns further adjusts FFO for losses on impairment of hotels,
prepayment penalties on extinguishment of debt and other non-cash or
unusual items. We refer to this as adjusted funds from operations, or
AFFO. The Company’s computation of AFFO and
AFFO per diluted share is not comparable to the NAREIT definition of FFO
or to similar measures reported by other REITs, but the Company believes
it is an appropriate measure for this Company. The Company uses AFFO
because it believes that this measure provides investors a useful
indicator of the operating performance of the Company’s
hotels by adjusting for the effects of certain non-cash or non-recurring
items arising from the Company’s financing
activities, impairment charges on hotels held for sale and other areas.
In addition to being used by management in the annual budget process,
AFFO per diluted share is also used by the Compensation Committee of the
Board of Directors as one of the criteria for performance-based
executive compensation.
Adjusted EBITDA
Earnings before Interest Expense, Income Taxes, Depreciation and
Amortization, or EBITDA, is a commonly used measure of performance in
many industries, which the Company believes provides useful information
to investors regarding its results of operations. The Company believes
that EBITDA helps investors evaluate the ongoing operating performance
of its properties and facilitates comparisons with other lodging REITs,
hotel owners who are not REITs, and other capital-intensive companies.
The Company uses EBITDA to provide a baseline when evaluating hotel
results.
The Company also uses EBITDA as one measure in determining the value of
acquisitions and dispositions and, like FFO and AFFO; it is also used by
management in the annual budget process.
The Company further adjusts EBITDA to exclude preferred stock dividends,
income or losses from discontinued operations, minority interests and
losses on impairment of hotels because it believes that including such
items in EBITDA is not consistent with reflecting the ongoing operating
performance of the remaining assets.
The Company has historically adjusted EBITDA when evaluating its
performance because management believes that the exclusion of certain
non-cash and non-recurring items described above assists the Company in
measuring the performance of its hotels and reflects the ongoing value
of the Company as a whole. Therefore, the Company modifies EBITDA and
refers to this measure as Adjusted EBITDA.
Cash available for distribution (CAD) and CAD Payout Ratio
Cash available for distribution (CAD) is defined as AFFO, adjusted for
certain non-cash amortization and an allowance for recurring capital
expenditures equal to four percent of hotel room revenue from continuing
operations. The Company computes the CAD Payout Ratio by dividing common
dividends per share and unit paid over the last twelve months by
trailing twelve-month CAD per share for the same period. The Company
believes the CAD Payout Ratio also helps improve equity holders' ability
to understand the Company’s ability to make
distributions to its shareholders.
Capitalization Rate
The Company uses a measure common in the hotel industry to discuss its
underwriting of acquired or disposed hotel assets. Capitalization rate,
for this discussion, is defined as the percentage derived by dividing
the net operating income of the hotel asset(s), less a management fee
and an allowance for recurring capital expenditures, by the purchase
price paid or received for the hotel asset(s).
Leverage Ratio
The Company uses a measure common in the hotel industry to evaluate its
financial leverage. Leverage ratio is defined as the Company’s
long-term debt divided by EBITDA as defined in the financial covenants
of its Line of Credit.
Total Shareholder Return
The Company uses a measure common in the hotel industry to discuss its
return to common shareholders. Total shareholder return is defined as
reinvested stock dividend income plus the percentage of stock price
appreciation or minus the percentage of stock price reduction over the
respective period. Total shareholder return is also used by the
Compensation Committee of the Board of Directors as one of the criteria
for performance-based executive compensation.
Hotel Operating Statistics
The Company uses a measure common in the hotel industry to evaluate the
operations of its hotel room revenue per available room, or RevPAR.
RevPAR is the product of the average daily rate, or ADR, charged and the
average daily occupancy achieved. RevPAR does not include food and
beverage or other ancillary revenues such as parking, telephone, or
other guest services generated by the property. Similar to the reporting
periods for the Company's statement of operations, hotel operating
statistics (i.e., RevPAR, ADR and average occupancy) are reported based
on a quarter end. This facilitates year-to-year comparisons of hotel
results, as each reporting period will be comprised of the same number
of days of operations as in the prior year.
GOP Margin, FFO, AFFO, FFO per share, AFFO per share, Adjusted EBITDA,
CAD, CAD Payout Ratio, Capitalization Rate, Leverage Ratio, Total
Shareholder Return and Hotel Operating Statistics presented, may not be
comparable to the same or similarly titled measures calculated by other
companies and may not be helpful to investors when comparing Equity Inns
to other companies. This information should not be considered as an
alternative to net income, income from operations, cash from operations,
or any other operating performance measure prescribed by GAAP. Cash
expenditures for various long-term assets (such as renewal and
replacement capital expenditures), interest expense (for Adjusted EBITDA
purposes) and other items have been and will be incurred and are not
reflected in the Adjusted EBITDA, FFO and AFFO per share presentations.
Equity Inns' statement of operations and cash flows include disclosure
of its interest expense, capital expenditures, and other excluded items,
all of which should be considered when evaluating the Company's
performance, as well as the usefulness of its non-GAAP financial
measures. Additionally, FFO, AFFO, FFO per share, AFFO per share,
Adjusted EBITDA and CAD should not be considered as a measure of the
Company's liquidity or indicative of funds available to fund its cash
needs, including the Company's ability to make cash distributions. In
addition, FFO per share, AFFO per share and CAD do not measure, and
should not be used as measures of, amounts that accrue directly to
shareholders' benefit.
About Equity Inns
Equity Inns, Inc. is a self-advised REIT that focuses on the upscale
extended stay, all-suite and midscale limited-service segments of the
hotel industry. The Company, which ranks as the third largest hotel REIT
based on number of hotels, currently owns 125 hotels with 14,924 rooms
located in 35 states. For more information about Equity Inns, visit the
Company's Web site at www.equityinns.com.
EQUITY INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30,
2006
December 31,
2005
(unaudited)
ASSETS
Investment in hotel properties, at cost
$
1,347,983
$
1,276,966
Accumulated depreciation
(310,268)
(298,733)
Investment in hotel properties, net
1,037,715
978,233
Assets held for sale
-
-
Cash and cash equivalents
7,652
6,556
Accounts receivable, net of doubtful accounts of $200 and $175,
respectively
9,416
8,960
Interest rate swaps
592
877
Notes receivable, net
1,905
1,688
Deferred expenses, net
13,812
11,927
Deposits and other assets, net
17,854
17,595
Total Assets
$
1,088,946
$
1,025,836
LIABILITIES AND SHAREHOLDERS’ EQUITY
Long-term debt
$
573,260
$
557,475
Accounts payable and accrued expenses
42,367
39,204
Distributions payable
14,854
10,674
Minority interests in Partnership
5,177
8,363
Total Liabilities
635,658
615,716
Commitments and Contingencies
Shareholders’ Equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized
Series B, 8.75%, $.01 par value, 3,450,000 and 3,450,000 shares
issued and outstanding
83,524
83,524
Series C, 8.00%, $.01 par value, 2,400,000 and 0 shares issued and
outstanding
57,861
-
Common stock, $.01 par value, 100,000,000 shares authorized,
55,464,961 and 54,749,308 shares issued and outstanding
555
547
Additional paid-in capital
577,049
570,658
Treasury stock, at cost, 747,600 shares
(5,173)
(5,173)
Distributions in excess of net earnings
(261,120)
(240,313)
Unrealized gain (loss) on interest rate swaps
592
877
Total Shareholders’ Equity
453,288
410,120
Total Liabilities and Shareholders’ Equity
$
1,088,946
$
1,025,836
EQUITY INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2006
2005
2006
2005
Revenue:
Room revenue
$
97,389
$
83,106
$
281,856
$
229,508
Other hotel revenue
3,901
3,479
11,013
9,715
Total hotel revenue
101,290
86,585
292,869
239,223
Operating expenses:
Direct hotel expenses
55,261
47,597
159,482
130,546
Other hotel expenses
3,169
2,582
8,461
7,177
Depreciation
13,591
11,721
39,220
33,498
Property taxes, rental expense and insurance
6,490
5,138
18,645
15,308
General and administrative expenses:
Non-cash stock-based compensation
910
290
2,952
1,053
Other general and administrative expenses
1,995
1,941
7,480
5,765
Loss on impairment of hotels
-
-
5,210
-
Total operating expenses
81,416
69,269
241,450
193,347
Operating income
19,874
17,316
51,419
45,876
Interest expense, net
10,338
9,100
29,737
25,515
Income (loss) from continuing operations before
minority interests and income taxes
9,536
8,216
21,682
20,361
Minority interest income (expense)
(131)
(192)
(241)
(311)
Deferred income tax benefit (expense)
-
-
-
-
Income (loss) from continuing operations
9,405
8,024
21,441
20,050
Discontinued operations:
Gain (loss) on sale of hotel properties
582
625
5,117
625
Loss on impairment of hotels held for sale
-
-
(6,690)
(3,500)
Income (loss) from operations of discontinued operations
355
(38)
1,296
190
Income (loss) from discontinued operations
937
587
(277)
(2,685)
Net income (loss)
10,342
8,611
21,164
17,365
Preferred stock dividends
(3,087)
(1,887)
(8,647)
(5,660)
Net income (loss) applicable to common shareholders
$
7,255
$
6,724
$
12,517
$
11,705
Net income (loss) per share data:
Basic and diluted income (loss) per share:
Continuing operations
$
0.11
$
0.11
$
0.23
$
0.27
Discontinued operations
0.02
0.01
0.00
(0.05)
Net income (loss) per common shares
$
0.13
$
0.12
$
0.23
$
0.22
Weighted average number of common shares outstanding, basic and
diluted
54,727
54,005
54,557
53,360
EQUITY INNS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS,
ADJUSTED FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION
(unaudited)
The following is a reconciliation of net income (loss) to FFO and
AFFO, both applicable to common shareholders, and cash available
for distribution and illustrates the difference in these measures
of operating performance (in thousands, except per share and unit
data):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2006
2005
2006
2005
Net income (loss) applicable to common shareholders
$
7,255
$
6,724
$
12,517
$
11,705
Add (subtract):
(Gain) loss on sale of hotel properties
(582)
(625)
(5,117)
(625)
Minority interests (income) expense
131
192
241
311
Depreciation
13,591
11,721
39,220
33,498
Depreciation from discontinued operations
30
614
783
1,984
Funds From Operations (FFO)
20,425
18,626
47,644
46,873
Loss on impairment of hotels
-
-
11,900
3,500
Fees incurred on indefinitely postponed unsecured offering
-
-
-
245
Adjusted Funds From Operations (AFFO)
20,425
18,626
59,544
50,618
Add:
Amortization of debt issuance costs
574
482
1,551
1,443
Amortization of deferred expenses and non-cash stock-based
compensation
999
379
3,226
1,311
Capital reserves
(4,052)
(3,463)
(11,715)
(9,569)
Cash Available for Distribution
$
17,946
$
16,024
$
52,606
$
43,803
Weighted average number of diluted common shares and Partnership
units outstanding
55,641
55,393
55,608
54,774
FFO per Share and Unit
$
0.37
$
0.34
$
0.86
$
0.86
AFFO per Share and Unit
$
0.37
$
0.34
$
1.07
$
0.92
Cash Available for Distribution per Share and Unit
$
0.32
$
0.29
$
0.95
$
0.80
EQUITY INNS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(unaudited)
The following is a reconciliation of net income (loss) applicable
to common shareholders to Adjusted EBITDA and illustrates the
difference in these measures of operating performance (in
thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2006
2005
2006
2005
Net income (loss) applicable to common shareholders
$
7,255
$
6,724
$
12,517
$
11,705
Add (subtract):
Preferred stock dividends
3,087
1,887
8,647
5,660
(Income) loss from discontinued operations
(937)
(587)
277
2,685
Minority interests (income) expense
131
192
241
311
Interest expense, net
10,338
9,100
29,737
25,515
Loss on impairment of hotels
-
-
5,210
-
Depreciation
13,591
11,721
39,220
33,498
Amortization of deferred expenses and non-cash stock-based
compensation
999
379
3,226
1,311
Adjusted EBITDA
$
34,464
$
29,416
$
99,075
$
80,685
EQUITY INNS, INC.
2006 GUIDANCE RECONCILIATION
(unaudited)
The following is a reconciliation of the Company’s
2006 forecast of net income (loss) to FFO and AFFO, both
applicable to common shareholders, and Adjusted EBITDA, and
illustrates the difference in these measures of operating
performance (in thousands, except per share and unit data):
Three Months Ended December 31, 2006
Twelve Months Ended December 31, 2006
Low End Range
High End Range
Low End Range
High End Range
FFO AND AFFO RECONCILIATION:
Net income (loss) applicable to common shareholders
$
(3,085)
$
(2,110)
$
10,392
$
10,642
Add (subtract):
(Gain) loss on sale of hotel properties
-
-
(5,117)
(5,117)
Minority interests (income) expense
(15)
(15)
225
225
Depreciation
14,000
14,500
53,220
53,720
Depreciation from discontinued operations
-
-
780
780
Funds From Operations (FFO)
10,900
12,375
59,500
60,250
Loss on impairment of hotels
-
-
11,900
11,900
Other
Adjusted Funds From Operations (AFFO)
$
10,900
$
12,375
$
71,400
$
72,150
Weighted average number of diluted common shares and Partnership
units outstanding
55,643
55,643
55,609
55,609
FFO per Share and Unit
$
0.20
$
0.22
$
1.07
$
1.08
AFFO per Share and Unit
$
0.20
$
0.22
$
1.28
$
1.30
ADJUSTED EBITDA RECONCILIATION:
Net income (loss) applicable to common shareholders
$
(3,085)
$
(2,110)
$
10,392
$
10,642
Add (subtract):
Preferred stock dividends
3,087
3,087
11,733
11,733
(Income) loss from discontinued operations
300
300
577
577
Minority interests (income) expense
(15)
(15)
225
225
Interest expense, net
10,750
11,200
40,400
40,850
Loss on impairment of hotels
-
-
5,210
5,210
Depreciation
14,000
14,500
53,220
53,720
Amortization of deferred expenses and non-cash stock-based
compensation
975
975
4,200
4,200
Adjusted EBITDA
$
26,012
$
27,937
$
125,957
$
127,157
Equity Inns, Inc.
Hotel Performance
For the Three Months Ended September 30, 2006 and 2005
All Comparable (1)
RevPAR (2)
Occupancy
ADR
# of
Hotels
2006
Variance
to 2005
2006
Variance
to 2005
2006
Variance
to 2005
Portfolio
125
$
71.65
4.8%
74.2%
-2.4 pts.
$
96.59
8.1%
Franchise
AmeriSuites
18
$
57.83
-0.4%
69.8%
-3.2 pts.
$
82.90
4.2%
Comfort Inn
2
$
65.32
-8.0%
65.1%
-8.3 pts.
$
100.31
3.7%
Courtyard
13
$
82.48
4.7%
76.0%
-4.0 pts.
$
108.58
10.2%
Embassy Suites
1
$
69.92
-7.7%
63.6%
-5.3 pts.
$
109.99
0.0%
Fairfield Inn & Suites
1
$
56.82
17.8%
69.5%
-2.6 pts.
$
81.72
22.2%
Hampton Inn
45
$
66.66
7.8%
74.5%
0.0 pts.
$
89.47
7.8%
Hampton Inn & Suites
2
$
68.95
0.4%
69.4%
-4.3 pts.
$
99.41
6.6%
Hilton Garden Inn
2
$
60.09
-11.1%
58.0%
-11.5 pts.
$
103.54
6.4%
Holiday Inn
3
$
59.05
5.9%
70.6%
-7.9 pts.
$
83.60
17.8%
Homewood Suites
10
$
95.01
6.9%
80.2%
-3.6 pts.
$
118.47
11.7%
Residence Inn
22
$
85.41
5.2%
79.0%
-1.9 pts.
$
108.14
7.6%
SpringHill Suites
5
$
67.36
6.7%
73.8%
-4.6 pts.
$
91.27
13.3%
TownePlace Suites
1
$
48.71
-2.4 %
71.9%
-1.9 pts.
$
67.75
0.2%
Region
East North Central
18
$
73.22
9.5%
73.3%
-0.8 pts.
$
99.92
10.7%
East South Central
18
$
64.39
3.0%
73.6%
-3.8 pts.
$
87.47
8.3%
Middle Atlantic
6
$
89.60
7.5%
80.1%
3.6 pts.
$
111.86
2.7%
Mountain
8
$
67.39
-4.4%
77.5%
-6.0 pts.
$
86.90
3.0%
New England
7
$
75.21
13.6%
79.8%
7.2 pts.
$
94.30
3.3%
Pacific
3
$
114.54
7.1%
85.9%
-2.1 pts.
$
133.37
9.6%
South Atlantic
48
$
67.70
-0.3%
70.8%
-5.4 pts.
$
95.58
7.3%
West North Central
7
$
72.88
11.0%
75.8%
1.2 pts.
$
96.17
9.3%
West South Central
10
$
69.47
15.6%
75.2%
0.3 pts.
$
92.39
15.1%
Type
All Suite
19
$
59.00
-1.3%
69.2%
-3.4 pts.
$
85.31
3.6%
Extended Stay
33
$
88.06
5.8%
79.3%
-2.5 pts.
$
111.11
9.1%
Full Service
4
$
62.16
-3.7%
66.1%
-11.5 pts.
$
93.99
13.1%
Limited Service
69
$
68.84
6.6%
74.0%
-1.3 pts.
$
93.00
8.5%
(1) All Comparable is defined as our system-wide gross lodging
revenues for hotels that the Company owned at period end.
(2) RevPAR is calculated by multiplying the Company’s
average daily rate (ADR) by occupancy.
Equity Inns, Inc.
Hotel Performance
For the Nine Months Ended September 30, 2006 and 2005
All Comparable (1)
RevPAR (2)
Occupancy
ADR
# of
Hotels
2006
Variance
to 2005
2006
Variance
to 2005
2006
Variance
to 2005
Portfolio
125
$
72.02
7.2%
73.9%
-0.6 pts.
$
97.52
8.1%
Franchise
AmeriSuites
18
$
59.22
8.1%
70.2%
0.8 pts.
$
84.30
6.8%
Comfort Inn
2
$
63.98
-6.5%
63.5%
-5.5 pts.
$
100.69
1.7%
Courtyard
13
$
85.06
7.3%
79.9%
-0.7 pts.
$
106.50
8.2%
Embassy Suites
1
$
92.73
2.4%
73.6%
-1.3 pts.
$
126.00
4.2%
Fairfield Inn & Suites
1
$
56.82
17.9%
73.2%
0.9 pts.
$
77.66
16.4%
Hampton Inn
45
$
65.71
9.4%
72.5%
0.7 pts.
$
90.68
8.4%
Hampton Inn & Suites
2
$
91.93
9.0%
76.7%
-1.8 pts.
$
119.87
11.6%
Hilton Garden Inn
2
$
78.71
-3.3%
65.0%
-8.5 pts.
$
121.04
9.4%
Holiday Inn
3
$
53.41
9.5%
66.6%
-4.1 pts.
$
80.19
16.2%
Homewood Suites
10
$
92.77
8.2%
79.7%
-0.8 pts.
$
116.41
9.3%
Residence Inn
22
$
81.67
3.0%
76.6%
-2.8 pts.
$
106.59
6.8%
SpringHill Suites
5
$
69.66
14.7%
76.1%
0.2 pts.
$
91.50
14.4%
TownePlace Suites
1
$
52.24
-6.9%
75.0%
-6.4 pts.
$
69.62
1.0%
Region
East North Central
18
$
65.60
10.6%
68.5%
0.5 pts.
$
95.77
9.9%
East South Central
18
$
64.35
6.3%
73.9%
-1.2 pts.
$
87.08
8.0%
Middle Atlantic
6
$
72.76
-0.3%
68.7%
-2.7 pts.
$
105.96
3.7%
Mountain
8
$
70.56
1.6%
77.0%
-3.3 pts.
$
91.70
5.9%
New England
7
$
64.77
10.1%
71.7%
5.0 pts.
$
90.35
2.3%
Pacific
3
$
101.87
11.4%
82.1%
1.8 pts.
$
124.04
9.0%
South Atlantic
48
$
77.30
4.8%
75.3%
-2.5 pts.
$
102.62
8.2%
West North Central
7
$
66.75
13.4%
72.5%
3.6 pts.
$
92.02
7.7%
West South Central
10
$
70.51
17.4%
76.8%
2.4 pts.
$
19.75
13.8%
Type
All Suite
19
$
62.47
7.2%
70.6%
0.6 pts.
$
88.52
6.3%
Extended Stay
33
$
85.06
4.9%
77.7%
-2.1 pts.
$
109.44
7.8%
Full Service
4
$
59.47
0.5%
64.9%
-6.5 pts.
$
91.61
10.5%
Limited Service
69
$
69.97
9.0%
73.8%
0.1 pts.
$
94.88
8.8%
(1) All Comparable is defined as our system-wide gross lodging
revenues for hotels that the Company owned at period end.
(2) RevPAR is calculated by multiplying the Company’s
average daily rate (ADR) by occupancy.
Equity Inns, Inc. (NYSE: ENN):
-- AFFO Per Diluted Share Increases 8.8% to $0.37
-- Average Daily Rate Increases 8.1%, Versus 6.8% for Industry
-- Occupancy Remains Strong at 74.2% Versus 68.5% for Industry
-- Company Commits to Convert 18 AmeriSuites to Hyatt Place
Hotels
-- Updates 2006 Guidance
Equity Inns, Inc. (NYSE: ENN), the third largest hotel real estate
investment trust (REIT), today announced its results for the three and
the nine months ended September 30, 2006.
Adjusted funds from operations (AFFO) per diluted share for the
three months ended September 30, 2006 increased 8.8% to $0.37 as
compared to $0.34 per diluted share in the same period last year.
Adjusted EBITDA rose 17.2% to $34.5 million in the third quarter 2006
as compared to $29.4 million in the third quarter 2005. Net income
applicable to common shareholders for the third quarter 2006 was $7.3
million, or $0.13 per diluted share, as compared to net income of $6.7
million, or $0.12 per diluted share in the prior year period. There
was no difference between funds from operations (FFO) and AFFO for the
third quarter 2006. For the nine months ended September 30, 2006,
Equity Inns reported a 16.3% increase in AFFO per diluted share to
$1.07, as compared to $0.92 per diluted share in the same period a
year ago. Adjusted EBITDA increased 22.8% to $99.1 million for the
nine months ended September 30, 2006. Net income applicable to common
shareholders for the nine months ended September 30, 2006 was $12.5
million, or $0.23 per diluted share, as compared to net income of
$11.7 million, or $0.22 per diluted share in the prior year period.
Financial Highlights for the Third Quarter and Nine Months of
2006:
Total hotel revenue increased 17.0% to $101.3 million for the
third quarter 2006 as compared to $86.6 million for the third quarter
2005. Of the Company's total hotel revenue increase of $14.7 million,
$11.0 million was due to net incremental revenue from hotel
acquisitions completed during 2005 and 2006 and $3.7 million was due
to improved same-store results. The Company's all comparable RevPAR
growth of 4.8% was driven by an 8.1% increase in average daily rate
(ADR) to $96.59, partially offset by a 240 basis point decline in
occupancy to 74.2%. Equity Inns' third quarter 2006 occupancy of 74.2%
compares to an overall industry occupancy of 68.5%. The decline in
occupancy for the Company this quarter was primarily due to the impact
of reduced hurricane-related demand at the Company's 25 Florida
hotels, as compared to the third quarter 2005. The Company's total
hotel revenue for the nine months ended September 30, 2006 was $292.9
million, an increase of 22.4% from $239.2 million for the nine months
ended September 30, 2005. RevPAR increased 7.2% on a year-to-date
basis versus the same period in the prior year for all comparable
hotels, driven by 8.1% growth in ADR, offset slightly by a 60 basis
point decline in occupancy.
Howard A. Silver, President and Chief Executive Officer, stated,
"We produced another solid quarter of profitable growth, with our
results being within the range of our previously issued guidance. The
impact from our 25 Florida hotels notwithstanding, our business was
actually stronger than we had anticipated, which was driven by the
continued pricing power of our brands and markets. Specifically, our
25 Florida hotels performed lower than our initial expectations due to
the difficulty of estimating how much of the hurricane-supplemented
demand of 2004 and 2005 could be replaced in a non-hurricane aided
year. However, we are encouraged that demand at these hotels remains
strong and that we continue to possess the ability to increase average
daily rate. Excluding the Florida hotels, our RevPAR performance for
the remaining portfolio was up a robust 7.5%."
The Company's gross operating profit margin (GOP margin) increased
10 basis points to 43.9% in the third quarter 2006 as compared to the
third quarter 2005. GOP margin expansion was impacted by increased
expenses at the Company's 18 AmeriSuites, as Hyatt began investing in
the operating infrastructure of these hotels in preparation for the
conversion to Hyatt Place hotels in 2007. Due to minimum income
guarantees that the Company receives from Hyatt, the additional costs
had a nominal impact to Equity Inns' net operating income. Excluding
the impact of the AmeriSuites, GOP margin would have increased 80
basis points to 44.5%. GOP margin for the nine months ended September
30, 2006 improved 90 basis points to 44.8% as compared to the same
period last year.
Non-financial Third Quarter 2006 Highlights:
-- The Company purchased three Marriott-branded hotels for an
aggregate of $26.3 million, which equates to a capitalization
rate of approximately 10%, or $69,000 per key. The average age
of these hotels is eight years.
-- Equity Inns signed a definitive agreement to purchase the
Hilton Garden Inn in Albuquerque, New Mexico for $11.5
million, or $89,000 per key. The transaction is expected to be
completed by the end of 2006.
-- The Company sold four older hotels including three Hampton
Inns and a Holiday Inn. The average age of these hotels was 24
years and the hotels were sold on a blended capitalization
rate of approximately 5.1%. In addition, the Company sold a
land tract in Salt Lake City (Sandy), Utah for its estimated
carrying value of $2.0 million.
Subsequent Events:
-- The Company signed an agreement to purchase four
Marriott-branded hotels located in Kentucky with an average
age of four years for an aggregate of approximately $53.8
million, equating to a capitalization rate of approximately
10%. This transaction was a result of a newly formed
relationship with a management/development group.
-- Equity Inns executed an agreement with Global Hyatt
Corporation to convert all 18 of the Company's AmeriSuites
hotels to the Hyatt Place brand. The conversion of the hotels
is expected to be completed by the end of 2007. The cost of
the conversion is estimated to be between $50 and $60 million.
Capital Structure:
At September 30, 2006, Equity Inns had $573.3 million of long-term
debt outstanding. The Company had $86.1 million of capacity under its
$150.0 million unsecured line of credit. The weighted average interest
rate of the Company's debt at the end of the third quarter 2006 was
6.5% versus 6.9% at the end of the third quarter 2005. Total debt
represented 42.2% of the historical cost of the Company's hotels and
represented 36% of the Company's total market capitalization at the
end of the third quarter 2006. Equity Inns' leverage ratio was 4.4
times at the end of the third quarter 2006, which is near a five-year
low for the Company. Fixed rate debt, including variable rate debt
hedged by interest rate swaps, amounted to approximately 96.3% of
total debt. At September 30, 2006, the Company's outstanding common
stock and partnership units were a combined 55.6 million.
During the third quarter, Equity Inns received an increase in its
line of credit and closed a mortgage debt offering. The line of credit
increased to $150 million from $125 million and went from a secured
line to an unsecured line. The Company expects to save approximately
$600,000 annually in interest expense due to the lower interest rate
on the new line. The Company also refinanced a new 10-year, $50
million mortgage loan bearing interest of 5.65%, which is expected to
save approximately $975,000 in annual interest expense. Equity Inns
now has 37 unencumbered hotels as compared to none at the end of 2003.
Dividend:
During the third quarter 2006, the Company increased its common
stock dividend by 35%, as compared to the third quarter 2005, to $0.23
per share. Equity Inns' trailing twelve months' cash available for
distribution (CAD) payout ratio was 68.9%.
Mr. Silver concluded, "We have continued confidence in the ability
of our portfolio to produce strong cash flows, as evidenced by our
decision to increase the dividend, which remains in a solid position
based upon our low payout ratio. We continue to reposition our
portfolio, having announced or completed the acquisition of 14 hotels
during 2006 amounting to approximately $170 million, at an average
capitalization rate of approximately 9.6% and having sold seven older
hotels with limited remaining franchise life for an aggregate of $36.5
million. Our acquisition pipeline remains robust with opportunities in
excess of $150 million. While we currently anticipate that our RevPAR
comparisons will be negatively impacted for the remainder of this year
by the unusually strong hurricane-related results of 2004 and 2005, we
believe that we are well-positioned for 2007 based upon our projection
of minimal new supply, sustained strong demand and fewer ENN hotels
under renovation. Due to our minimum income guarantees, we expect an
immaterial impact to ENN from renovation activity at our AmeriSuites
hotels undergoing rebranding in 2007."
Updated 2006 Guidance:
Based upon the Company's expectations for continued improvement of
the U.S. economy, moderate supply growth, further improvement in the
upscale and mid-scale lodging sectors, recent acquisitions and
divestitures, additional planned expense increases, room renovations,
and given the results of the third quarter 2006, Equity Inns is
updating the Company's RevPAR, Adjusted EBITDA, AFFO and net income
per diluted share guidance, which is as follows:
-- RevPAR growth for 2006 is now expected to range from 5.5% to
6%, with nearly all of the increase being attributed to ADR.
The fourth quarter RevPAR change is expected to be in the
range of 0% to an increase of 2% due to an expected lower
occupancy as compared to the high occupancies of the Company's
Florida hotels in 2005.
-- Adjusted EBITDA for 2006 is now expected to range from
approximately $126 million to $127 million.
-- AFFO for 2006 is now expected to be in the range of $1.28 to
$1.30 per diluted share. The fourth quarter 2006 AFFO is
expected to range from $0.20 to $0.22 per diluted share.
-- Net income applicable to common shareholders for 2006 is now
expected to be in the range of $0.19 to $0.20 per diluted
share. For the fourth quarter 2006, net loss applicable to
common shareholders is expected to be ($0.04) to ($0.06) per
diluted share.
Additionally, capital expenditures for the full year 2006 are now
expected to be approximately $45 million to $50 million.
Conference Call:
Equity Inns will hold a conference call and webcast to discuss the
Company's third quarter results after the market close on November 2,
2006, at 4:30 p.m. (Eastern Time). Interested investors and other
parties may listen to the conference call by dialing 800-811-8845 or
913-981-4905 for international participants. A simultaneous webcast of
the conference call may be accessed by logging onto the Company's
website at http://www.equityinns.com/ and selecting the microphone
icon.
A replay of the conference call will be available on the Internet
at www.streetevents.com and the Company's website,
http://www.equityinns.com, for seven days following the call. A
recording of the call will also be available by telephone November 2,
2006 through November 9, 2006 by dialing 888-203-1112 or 719-457-0820
for international participants. The pass code is 6512548.
Forward Looking Statements
Certain matters discussed in this press release which are not
historical facts are "forward-looking statements" within the meaning
of the federal securities laws and involve risks and uncertainties.
The words "may," "plan," "project," "anticipate," "believe,"
"estimate," "forecast, "expect," "intend," "will," and similar terms
are intended to identify forward-looking statements, which include,
without limitation, statements concerning our outlook for the hotel
industry, acquisition and disposition plans for our hotels and
assumptions and forecasts of future results for fiscal year 2006.
Forward-looking statements are not guarantees of future performance
and involve numerous risks and uncertainties which may cause our
actual financial condition, results of operations and performance to
be materially different from the results of expectations expressed or
implied by such statements. General economic conditions, future acts
of terrorism or war, risks associated with the hotel and hospitality
business, the availability of capital, risks associated with our debt
financing, hotel operating risks and numerous other factors, may
affect our future results and performance and achievements. These
risks and uncertainties are described in greater detail in our 2005
Annual Report on Form 10-K filed on March 15, 2006, and our other
periodic filings with the United States Securities and Exchange
Commission (SEC). We undertake no obligation and do not intend to
publicly update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise. Although we
believe our current expectations to be based upon reasonable
assumptions, we can give no assurance that our expectations will be
attained or that actual results will not differ materially.
Notes to Financial Information
The Company operates as a self-managed and self-administered real
estate investment trust, or REIT. Readers are encouraged to find
further detail regarding Equity Inns' organizational structure in its
annual report on Form 10-K for the year ended December 31, 2005 as
filed with the SEC.
Non-GAAP Financial Measures
Included in this press release are certain "non-GAAP financial
measures," which are measures of the Company's historical or future
financial performance that are different from measures calculated and
presented in accordance with generally accepted accounting principles,
or GAAP, within the meaning of applicable SEC rules. These include:
(i) Gross Operating Profit Margin, (ii) Funds From Operations, (iii)
Adjusted Funds From Operations, (iv) Adjusted EBITDA, (v) Cash
Available for Distribution (CAD), (vi) CAD Payout Ratio, (vii)
Capitalization Rate (viii) Leverage Ratio, (ix) Total Shareholder
Return and (x) Hotel Operating Statistics. The following discussion
defines these terms, which the Company believes can be useful measures
of its performance.
Gross Operating Profit Margin
The Company uses a measure common in the hotel industry to
evaluate its operating results. Gross operating profit margin (GOP
margin) is defined as hotel revenues minus hotel operating costs
before property taxes, insurance and management fees, divided by hotel
revenues.
Funds from Operations
The National Association of Real Estate Investment Trusts, or
NAREIT, defines funds from operations, or FFO, as net income (loss)
applicable to common shareholders, excluding gains (or losses) from
sales of real estate, the cumulative effect of changes in accounting
principles, real estate-related depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
FFO does not include the cost of capital improvements or any related
capitalized interest.
Equity Inns uses FFO per diluted share as a measure of performance
to adjust for certain non-cash expenses such as depreciation and
amortization because historical cost accounting for real estate assets
implicitly assumes that the value of real estate assets diminishes
predictably 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 less informative. NAREIT
adopted the definition of FFO in order to promote an industry-wide
standard measure of REIT operating performance. Accordingly, as a
member of NAREIT, Equity Inns adopted FFO as a measure to evaluate
performance and facilitate comparisons between the Company and other
REITs, although FFO and FFO per diluted share may not be comparable to
those measures, or similarly titled measures, as reported by other
companies. Additionally, FFO is used by management in the annual
budget process.
Adjusted Funds From Operations
Equity Inns further adjusts FFO for losses on impairment of
hotels, prepayment penalties on extinguishment of debt and other
non-cash or unusual items. We refer to this as adjusted funds from
operations, or AFFO. The Company's computation of AFFO and AFFO per
diluted share is not comparable to the NAREIT definition of FFO or to
similar measures reported by other REITs, but the Company believes it
is an appropriate measure for this Company. The Company uses AFFO
because it believes that this measure provides investors a useful
indicator of the operating performance of the Company's hotels by
adjusting for the effects of certain non-cash or non-recurring items
arising from the Company's financing activities, impairment charges on
hotels held for sale and other areas. In addition to being used by
management in the annual budget process, AFFO per diluted share is
also used by the Compensation Committee of the Board of Directors as
one of the criteria for performance-based executive compensation.
Adjusted EBITDA
Earnings before Interest Expense, Income Taxes, Depreciation and
Amortization, or EBITDA, is a commonly used measure of performance in
many industries, which the Company believes provides useful
information to investors regarding its results of operations. The
Company believes that EBITDA helps investors evaluate the ongoing
operating performance of its properties and facilitates comparisons
with other lodging REITs, hotel owners who are not REITs, and other
capital-intensive companies. The Company uses EBITDA to provide a
baseline when evaluating hotel results.
The Company also uses EBITDA as one measure in determining the
value of acquisitions and dispositions and, like FFO and AFFO; it is
also used by management in the annual budget process.
The Company further adjusts EBITDA to exclude preferred stock
dividends, income or losses from discontinued operations, minority
interests and losses on impairment of hotels because it believes that
including such items in EBITDA is not consistent with reflecting the
ongoing operating performance of the remaining assets.
The Company has historically adjusted EBITDA when evaluating its
performance because management believes that the exclusion of certain
non-cash and non-recurring items described above assists the Company
in measuring the performance of its hotels and reflects the ongoing
value of the Company as a whole. Therefore, the Company modifies
EBITDA and refers to this measure as Adjusted EBITDA.
Cash available for distribution (CAD) and CAD Payout Ratio
Cash available for distribution (CAD) is defined as AFFO, adjusted
for certain non-cash amortization and an allowance for recurring
capital expenditures equal to four percent of hotel room revenue from
continuing operations. The Company computes the CAD Payout Ratio by
dividing common dividends per share and unit paid over the last twelve
months by trailing twelve-month CAD per share for the same period. The
Company believes the CAD Payout Ratio also helps improve equity
holders' ability to understand the Company's ability to make
distributions to its shareholders.
Capitalization Rate
The Company uses a measure common in the hotel industry to discuss
its underwriting of acquired or disposed hotel assets. Capitalization
rate, for this discussion, is defined as the percentage derived by
dividing the net operating income of the hotel asset(s), less a
management fee and an allowance for recurring capital expenditures, by
the purchase price paid or received for the hotel asset(s).
Leverage Ratio
The Company uses a measure common in the hotel industry to
evaluate its financial leverage. Leverage ratio is defined as the
Company's long-term debt divided by EBITDA as defined in the financial
covenants of its Line of Credit.
Total Shareholder Return
The Company uses a measure common in the hotel industry to discuss
its return to common shareholders. Total shareholder return is defined
as reinvested stock dividend income plus the percentage of stock price
appreciation or minus the percentage of stock price reduction over the
respective period. Total shareholder return is also used by the
Compensation Committee of the Board of Directors as one of the
criteria for performance-based executive compensation.
Hotel Operating Statistics
The Company uses a measure common in the hotel industry to
evaluate the operations of its hotel room revenue per available room,
or RevPAR. RevPAR is the product of the average daily rate, or ADR,
charged and the average daily occupancy achieved. RevPAR does not
include food and beverage or other ancillary revenues such as parking,
telephone, or other guest services generated by the property. Similar
to the reporting periods for the Company's statement of operations,
hotel operating statistics (i.e., RevPAR, ADR and average occupancy)
are reported based on a quarter end. This facilitates year-to-year
comparisons of hotel results, as each reporting period will be
comprised of the same number of days of operations as in the prior
year.
GOP Margin, FFO, AFFO, FFO per share, AFFO per share, Adjusted
EBITDA, CAD, CAD Payout Ratio, Capitalization Rate, Leverage Ratio,
Total Shareholder Return and Hotel Operating Statistics presented, may
not be comparable to the same or similarly titled measures calculated
by other companies and may not be helpful to investors when comparing
Equity Inns to other companies. This information should not be
considered as an alternative to net income, income from operations,
cash from operations, or any other operating performance measure
prescribed by GAAP. Cash expenditures for various long-term assets
(such as renewal and replacement capital expenditures), interest
expense (for Adjusted EBITDA purposes) and other items have been and
will be incurred and are not reflected in the Adjusted EBITDA, FFO and
AFFO per share presentations. Equity Inns' statement of operations and
cash flows include disclosure of its interest expense, capital
expenditures, and other excluded items, all of which should be
considered when evaluating the Company's performance, as well as the
usefulness of its non-GAAP financial measures. Additionally, FFO,
AFFO, FFO per share, AFFO per share, Adjusted EBITDA and CAD should
not be considered as a measure of the Company's liquidity or
indicative of funds available to fund its cash needs, including the
Company's ability to make cash distributions. In addition, FFO per
share, AFFO per share and CAD do not measure, and should not be used
as measures of, amounts that accrue directly to shareholders' benefit.
About Equity Inns
Equity Inns, Inc. is a self-advised REIT that focuses on the
upscale extended stay, all-suite and midscale limited-service segments
of the hotel industry. The Company, which ranks as the third largest
hotel REIT based on number of hotels, currently owns 125 hotels with
14,924 rooms located in 35 states. For more information about Equity
Inns, visit the Company's Web site at www.equityinns.com.
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EQUITY INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2006 2005
------------- -------------
(unaudited)
ASSETS
Investment in hotel properties, at cost $1,347,983 $1,276,966
Accumulated depreciation (310,268) (298,733)
------------- -------------
Investment in hotel properties, net 1,037,715 978,233
Assets held for sale - -
Cash and cash equivalents 7,652 6,556
Accounts receivable, net of doubtful
accounts of $200 and $175, respectively 9,416 8,960
Interest rate swaps 592 877
Notes receivable, net 1,905 1,688
Deferred expenses, net 13,812 11,927
Deposits and other assets, net 17,854 17,595
------------- -------------
Total Assets $1,088,946 $1,025,836
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 573,260 $ 557,475
Accounts payable and accrued expenses 42,367 39,204
Distributions payable 14,854 10,674
Minority interests in Partnership 5,177 8,363
------------- -------------
Total Liabilities 635,658 615,716
------------- -------------
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock, $.01 par value,
10,000,000 shares authorized
Series B, 8.75%, $.01 par value,
3,450,000 and 3,450,000 shares issued
and outstanding 83,524 83,524
Series C, 8.00%, $.01 par value,
2,400,000 and 0 shares issued and
outstanding 57,861 -
Common stock, $.01 par value, 100,000,000
shares authorized, 55,464,961 and
54,749,308 shares issued and outstanding 555 547
Additional paid-in capital 577,049 570,658
Treasury stock, at cost, 747,600 shares (5,173) (5,173)
Distributions in excess of net earnings (261,120) (240,313)
Unrealized gain (loss) on interest rate
swaps 592 877
------------- -------------
Total Shareholders' Equity 453,288 410,120
------------- -------------
Total Liabilities and Shareholders'
Equity $1,088,946 $1,025,836
============= =============
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EQUITY INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
For the Three For the Nine Months
Months Ended Ended September
September 30, 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
Revenue:
Room revenue $ 97,389 $83,106 $281,856 $229,508
Other hotel revenue 3,901 3,479 11,013 9,715
--------- -------- --------- ---------
Total hotel revenue 101,290 86,585 292,869 239,223
Operating expenses:
Direct hotel expenses 55,261 47,597 159,482 130,546
Other hotel expenses 3,169 2,582 8,461 7,177
Depreciation 13,591 11,721 39,220 33,498
Property taxes, rental expense
and insurance 6,490 5,138 18,645 15,308
General and administrative
expenses:
Non-cash stock-based
compensation 910 290 2,952 1,053
Other general and
administrative expenses 1,995 1,941 7,480 5,765
Loss on impairment of hotels - - 5,210 -
--------- -------- --------- ---------
Total operating expenses 81,416 69,269 241,450 193,347
--------- -------- --------- ---------
Operating income 19,874 17,316 51,419 45,876
Interest expense, net 10,338 9,100 29,737 25,515
--------- -------- --------- ---------
Income (loss) from continuing
operations before
minority interests and income
taxes 9,536 8,216 21,682 20,361
Minority interest income
(expense) (131) (192) (241) (311)
Deferred income tax benefit
(expense) - - - -
--------- -------- --------- ---------
Income (loss) from continuing
operations 9,405 8,024 21,441 20,050
Discontinued operations:
Gain (loss) on sale of hotel
properties 582 625 5,117 625
Loss on impairment of hotels
held for sale - - (6,690) (3,500)
Income (loss) from operations
of discontinued operations 355 (38) 1,296 190
--------- -------- --------- ---------
Income (loss) from discontinued
operations 937 587 (277) (2,685)
--------- -------- --------- ---------
Net income (loss) 10,342 8,611 21,164 17,365
Preferred stock dividends (3,087) (1,887) (8,647) (5,660)
--------- -------- --------- ---------
Net income (loss) applicable to
common shareholders $ 7,255 $ 6,724 $ 12,517 $ 11,705
========= ======== ========= =========
Net income (loss) per share
data:
Basic and diluted income (loss)
per share:
Continuing operations $ 0.11 $ 0.11 $ 0.23 $ 0.27
Discontinued operations 0.02 0.01 0.00 (0.05)
--------- -------- --------- ---------
Net income (loss) per common
shares $ 0.13 $ 0.12 $ 0.23 $ 0.22
========= ======== ========= =========
Weighted average number of
common shares outstanding,
basic and diluted 54,727 54,005 54,557 53,360
========= ======== ========= =========
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EQUITY INNS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS,
ADJUSTED FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION
(unaudited)
The following is a reconciliation of net income (loss) to FFO and
AFFO, both applicable to common shareholders, and cash available for
distribution and illustrates the difference in these measures of
operating performance (in thousands, except per share and unit data):
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
----------------- ------------------
2006 2005 2006 2005
-------- -------- --------- --------
Net income (loss) applicable to
common shareholders $ 7,255 $ 6,724 $ 12,517 $11,705
Add (subtract):
(Gain) loss on sale of hotel
properties (582) (625) (5,117) (625)
Minority interests (income)
expense 131 192 241 311
Depreciation 13,591 11,721 39,220 33,498
Depreciation from discontinued
operations 30 614 783 1,984
-------- -------- --------- --------
Funds From Operations (FFO) 20,425 18,626 47,644 46,873
Loss on impairment of hotels - - 11,900 3,500
Fees incurred on indefinitely
postponed unsecured offering - - - 245
-------- -------- --------- --------
Adjusted Funds From Operations
(AFFO) 20,425 18,626 59,544 50,618
Add:
Amortization of debt issuance
costs 574 482 1,551 1,443
Amortization of deferred expenses
and non-cash stock-based
compensation 999 379 3,226 1,311
Capital reserves (4,052) (3,463) (11,715) (9,569)
-------- -------- --------- --------
Cash Available for Distribution $17,946 $16,024 $ 52,606 $43,803
======== ======== ========= ========
Weighted average number of diluted
common shares and Partnership
units outstanding 55,641 55,393 55,608 54,774
======== ======== ========= ========
FFO per Share and Unit $ 0.37 $ 0.34 $ 0.86 $ 0.86
======== ======== ========= ========
AFFO per Share and Unit $ 0.37 $ 0.34 $ 1.07 $ 0.92
======== ======== ========= ========
Cash Available for Distribution
per Share and Unit $ 0.32 $ 0.29 $ 0.95 $ 0.80
======== ======== ========= ========
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EQUITY INNS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(unaudited)
The following is a reconciliation of net income (loss) applicable to
common shareholders to Adjusted EBITDA and illustrates the difference
in these measures of operating performance (in thousands):
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income (loss) applicable to
common shareholders $ 7,255 $ 6,724 $12,517 $11,705
Add (subtract):
Preferred stock dividends 3,087 1,887 8,647 5,660
(Income) loss from discontinued
operations (937) (587) 277 2,685
Minority interests (income)
expense 131 192 241 311
Interest expense, net 10,338 9,100 29,737 25,515
Loss on impairment of hotels - - 5,210 -
Depreciation 13,591 11,721 39,220 33,498
Amortization of deferred expenses
and non-cash stock-based
compensation 999 379 3,226 1,311
-------- -------- -------- --------
Adjusted EBITDA $34,464 $29,416 $99,075 $80,685
======== ======== ======== ========
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EQUITY INNS, INC.
2006 GUIDANCE RECONCILIATION
(unaudited)
The following is a reconciliation of the Company's 2006 forecast of
net income (loss) to FFO and AFFO, both applicable to common
shareholders, and Adjusted EBITDA, and illustrates the difference in
these measures of operating performance (in thousands, except per
share and unit data):
Three Months Ended Twelve Months Ended
December 31, 2006 December 31, 2006
------------------ -------------------
Low End High End Low End High End
Range Range Range Range
--------- -------- --------- ---------
FFO AND AFFO RECONCILIATION:
Net income (loss) applicable to
common shareholders $(3,085) $(2,110) $ 10,392 $ 10,642
Add (subtract):
(Gain) loss on sale of hotel
properties - - (5,117) (5,117)
Minority interests (income)
expense (15) (15) 225 225
Depreciation 14,000 14,500 53,220 53,720
Depreciation from discontinued
operations - - 780 780
--------- -------- --------- ---------
Funds From Operations (FFO) 10,900 12,375 59,500 60,250
Loss on impairment of hotels - - 11,900 11,900
Other
--------- -------- --------- ---------
Adjusted Funds From Operations
(AFFO) $10,900 $12,375 $ 71,400 $ 72,150
========= ======== ========= =========
Weighted average number of
diluted common shares and
Partnership units outstanding 55,643 55,643 55,609 55,609
========= ======== ========= =========
FFO per Share and Unit $ 0.20 $ 0.22 $ 1.07 $ 1.08
========= ======== ========= =========
AFFO per Share and Unit $ 0.20 $ 0.22 $ 1.28 $ 1.30
========= ======== ========= =========
ADJUSTED EBITDA RECONCILIATION:
Net income (loss) applicable to
common shareholders $(3,085) $(2,110) $ 10,392 $ 10,642
Add (subtract):
Preferred stock dividends 3,087 3,087 11,733 11,733
(Income) loss from discontinued
operations 300 300 577 577
Minority interests (income)
expense (15) (15) 225 225
Interest expense, net 10,750 11,200 40,400 40,850
Loss on impairment of hotels - - 5,210 5,210
Depreciation 14,000 14,500 53,220 53,720
Amortization of deferred
expenses and non-cash stock-
based compensation 975 975 4,200 4,200
--------- -------- --------- ---------
Adjusted EBITDA $26,012 $27,937 $125,957 $127,157
========= ======== ========= =========
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Equity Inns, Inc.
Hotel Performance
For the Three Months Ended September 30, 2006 and 2005
All Comparable (1)
RevPAR (2) Occupancy ADR
----------------- -------------- -----------------
# of Variance Variance Variance
Hotels 2006 to 2005 2006 to 2005 2006 to 2005
------ -------- -------- ----- -------- -------- --------
Portfolio -2.4
125 $ 71.65 4.8% 74.2% pts. $ 96.59 8.1%
Franchise
AmeriSuites -3.2
18 $ 57.83 -0.4% 69.8% pts. $ 82.90 4.2%
Comfort Inn -8.3
2 $ 65.32 -8.0% 65.1% pts. $100.31 3.7%
Courtyard -4.0
13 $ 82.48 4.7% 76.0% pts. $108.58 10.2%
Embassy -5.3
Suites 1 $ 69.92 -7.7% 63.6% pts. $109.99 0.0%
Fairfield
Inn & -2.6
Suites 1 $ 56.82 17.8% 69.5% pts. $ 81.72 22.2%
Hampton Inn 45 $ 66.66 7.8% 74.5% 0.0 pts. $ 89.47 7.8%
Hampton Inn -4.3
& Suites 2 $ 68.95 0.4% 69.4% pts. $ 99.41 6.6%
Hilton -11.5
Garden Inn 2 $ 60.09 -11.1% 58.0% pts. $103.54 6.4%
Holiday Inn -7.9
3 $ 59.05 5.9% 70.6% pts. $ 83.60 17.8%
Homewood -3.6
Suites 10 $ 95.01 6.9% 80.2% pts. $118.47 11.7%
Residence -1.9
Inn 22 $ 85.41 5.2% 79.0% pts. $108.14 7.6%
SpringHill -4.6
Suites 5 $ 67.36 6.7% 73.8% pts. $ 91.27 13.3%
TownePlace -1.9
Suites 1 $ 48.71 -2.4 % 71.9% pts. $ 67.75 0.2%
Region
East North -0.8
Central 18 $ 73.22 9.5% 73.3% pts. $ 99.92 10.7%
East South -3.8
Central 18 $ 64.39 3.0% 73.6% pts. $ 87.47 8.3%
Middle
Atlantic 6 $ 89.60 7.5% 80.1% 3.6 pts. $111.86 2.7%
Mountain -6.0
8 $ 67.39 -4.4% 77.5% pts. $ 86.90 3.0%
New England 7 $ 75.21 13.6% 79.8% 7.2 pts. $ 94.30 3.3%
Pacific -2.1
3 $114.54 7.1% 85.9% pts. $133.37 9.6%
South -5.4
Atlantic 48 $ 67.70 -0.3% 70.8% pts. $ 95.58 7.3%
West North
Central 7 $ 72.88 11.0% 75.8% 1.2 pts. $ 96.17 9.3%
West South
Central 10 $ 69.47 15.6% 75.2% 0.3 pts. $ 92.39 15.1%
Type
All Suite -3.4
19 $ 59.00 -1.3% 69.2% pts. $ 85.31 3.6%
Extended -2.5
Stay 33 $ 88.06 5.8% 79.3% pts. $111.11 9.1%
Full Service -11.5
4 $ 62.16 -3.7% 66.1% pts. $ 93.99 13.1%
Limited -1.3
Service 69 $ 68.84 6.6% 74.0% pts. $ 93.00 8.5%
(1) All Comparable is defined as our system-wide gross lodging
revenues for hotels that the Company owned at period end.
(2) RevPAR is calculated by multiplying the Company's average daily
rate (ADR) by occupancy.
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Equity Inns, Inc.
Hotel Performance
For the Nine Months Ended September 30, 2006 and 2005
All Comparable (1)
RevPAR (2) Occupancy ADR
----------------- -------------- -----------------
# of Variance Variance Variance
Hotels 2006 to 2005 2006 to 2005 2006 to 2005
------ -------- -------- ----- -------- -------- --------
Portfolio -0.6
125 $ 72.02 7.2% 73.9% pts. $ 97.52 8.1%
Franchise
AmeriSuites 18 $ 59.22 8.1% 70.2% 0.8 pts. $ 84.30 6.8%
Comfort Inn -5.5
2 $ 63.98 -6.5% 63.5% pts. $100.69 1.7%
Courtyard -0.7
13 $ 85.06 7.3% 79.9% pts. $106.50 8.2%
Embassy -1.3
Suites 1 $ 92.73 2.4% 73.6% pts. $126.00 4.2%
Fairfield
Inn &
Suites 1 $ 56.82 17.9% 73.2% 0.9 pts. $ 77.66 16.4%
Hampton Inn 45 $ 65.71 9.4% 72.5% 0.7 pts. $ 90.68 8.4%
Hampton Inn -1.8
& Suites 2 $ 91.93 9.0% 76.7% pts. $119.87 11.6%
Hilton -8.5
Garden Inn 2 $ 78.71 -3.3% 65.0% pts. $121.04 9.4%
Holiday Inn -4.1
3 $ 53.41 9.5% 66.6% pts. $ 80.19 16.2%
Homewood -0.8
Suites 10 $ 92.77 8.2% 79.7% pts. $116.41 9.3%
Residence -2.8
Inn 22 $ 81.67 3.0% 76.6% pts. $106.59 6.8%
SpringHill
Suites 5 $ 69.66 14.7% 76.1% 0.2 pts. $ 91.50 14.4%
TownePlace -6.4
Suites 1 $ 52.24 -6.9% 75.0% pts. $ 69.62 1.0%
Region
East North
Central 18 $ 65.60 10.6% 68.5% 0.5 pts. $ 95.77 9.9%
East South -1.2
Central 18 $ 64.35 6.3% 73.9% pts. $ 87.08 8.0%
Middle -2.7
Atlantic 6 $ 72.76 -0.3% 68.7% pts. $105.96 3.7%
Mountain -3.3
8 $ 70.56 1.6% 77.0% pts. $ 91.70 5.9%
New England 7 $ 64.77 10.1% 71.7% 5.0 pts. $ 90.35 2.3%
Pacific 3 $101.87 11.4% 82.1% 1.8 pts. $124.04 9.0%
South -2.5
Atlantic 48 $ 77.30 4.8% 75.3% pts. $102.62 8.2%
West North
Central 7 $ 66.75 13.4% 72.5% 3.6 pts. $ 92.02 7.7%
West South
Central 10 $ 70.51 17.4% 76.8% 2.4 pts. $ 19.75 13.8%
Type
All Suite 19 $ 62.47 7.2% 70.6% 0.6 pts. $ 88.52 6.3%
Extended -2.1
Stay 33 $ 85.06 4.9% 77.7% pts. $109.44 7.8%
Full Service -6.5
4 $ 59.47 0.5% 64.9% pts. $ 91.61 10.5%
Limited
Service 69 $ 69.97 9.0% 73.8% 0.1 pts. $ 94.88 8.8%
(1) All Comparable is defined as our system-wide gross lodging
revenues for hotels that the Company owned at period end.
(2) RevPAR is calculated by multiplying the Company's average daily
rate (ADR) by occupancy.
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