Innkeepers USA Franchise Revenue Up 6.3 percent
Posted on: 19/12/2006
Innkeepers USA Trust announces third-quarter 2006 earnings.
Innkeepers USA Trust, a hotel real estate investment trust (REIT) and a leading owner of upscale properties throughout the United States, today announced results for the three months and nine months ended September 30, 2006.
Revenue per available room (RevPAR) at the company's 66 comparable hotels rose 6.3 percent to $88.36 for the 2006 third quarter, reflecting an 8.2 percent increase in average daily rate (ADR) to $114.80 and a 140 basis points decline in occupancy to 77.0 percent. The comparable hotels for the 2006 third quarter exclude the Boston Bulfinch, which was acquired in 2005, and three hotels that were not open for all of the 2005 and 2006 third quarters, including the Hampton Inn Louisville, Ky., and the two hotels in Montvale and Atlantic City, N.J. being converted to the Courtyard by Marriott brand.
For the 2006 nine months, at the company's 65 comparable hotels (also excludes the Westin Morristown, N.J.), the company reported a 7.1 percent increase in RevPAR to $85.34, with ADR up 7.6 percent to $111.84, partially offset by a decrease in occupancy of approximately 60 basis points to 76.3 percent.
"We had a disappointing quarter from an FFO growth standpoint, as FFO remained flat year over year despite a 6.3 percent increase in RevPAR," said Jeffrey H. Fisher, chief executive officer and president. "Industry RevPAR growth was not as robust and grew at a rate of 6.0 percent in the third quarter versus 9.7 percent in the first quarter and 8.3 percent in the second quarter. We were not able to generate positive flow through to FFO on our RevPAR growth due to significant increases in utilities costs, insurance and taxes.
Combined, these items impacted FFO by $0.03 in the quarter. Although FFO did not meet both our own and consensus estimates, there were a number of positive developments in the third quarter: our RevPAR growth and ADR growth outperformed the industry, we increased our dividend 33 percent and we acquired or are in the process of acquiring nearly $250 million in high- quality assets, an increase of 25 percent to our investment in hotels."
The 2006 third quarter RevPAR improvement reflects a 14.7 percent increase in RevPAR at the company's eight Silicon Valley, Calif. hotel properties, comprising a 4.7 percentage point rise in occupancy to 84.3 percent and a 9.5 percent advance in ADR to $120.68. Year to date, the Silicon Valley properties experienced a 20.4 percent increase in RevPAR, with a 10.2 percentage point increase in occupancy to 82.5 percent and a 9.2 percent rise in ADR. Excluding Silicon Valley, RevPAR for the company's comparable hotels increased 4.7 percent in the 2006 third quarter and 4.6 percent year to date.
Gross operating profit (GOP) margins (hotel revenue less hotel expenses, before property taxes and insurance) for the company's comparable hotels declined 70 basis points in the quarter to 43.5 percent. For the quarter, GOP flow through (increase in GOP compared to the increase in revenue) was 32 percent; however, after adjusting for the increase in utilities and an insurance claim in 2005, the company generated a GOP flow through of 52 percent.
"The significant increase in utilities, insurance and property taxes hampered our ability to meet the consensus estimate," Fisher said. "We are, therefore, revising our fourth quarter and full-year guidance to reflect these rising costs. We had a tough quarter from a GOP standpoint, but GOP margins are still strong at 43.5 percent for the quarter and 45.6 percent year to date, and we should see continued margin growth in 2007."
As previously announced, the company expects to open the renovated and converted Montvale, N.J. Courtyard by Marriott in early 2007 and the Atlantic City Courtyard by Marriott in May 2007, while the Valencia Embassy Suites development is expected to open in June 2007.
Fisher noted that the company closed in early October on four previously announced southern California hotel acquisitions, which includes two Residence Inns, a Hilton and Hilton Suites. The company expects to close in the fourth quarter on its acquisition of the new prototype Sheraton in Rockville, Md., which will be acquired in a directly negotiated transaction with Starwood Hotels. Innkeepers expects to acquire the hotel concurrent with the property's opening. Combined, the five properties will add 1,086 total rooms to Innkeepers' portfolio, an increase of 12.3 percent.
"With the acquisition of these five first-class properties in very strong markets, we are continuing our push to enhance our portfolio with high-quality assets in 'A' locations with high barriers to new competition," he said. "We are setting ourselves up for sustainable FFO growth and executing our strategy of building long-term shareholder value with our acquisitions, conversions and developments."
Fisher said that the company has an active acquisition and development pipeline and continues to target premium-branded, upscale extended-stay and select-service hotels, the core of the company's portfolio; selected full- service hotels; and turn-around opportunities for hotels that operate under or can be converted to the industry's leading brands.
All acquisition candidates are located in major markets with multiple demand generators and high barriers to new competition. "These activities are part of our long-term strategy to transform the overall quality of our portfolio by deploying our capital into newer, more profitable assets that will position us for strong future growth and improve the overall operating margins of our portfolio."
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