MDH Mhi Hospitality Corp. (MM)

MHI Hospitality Corporation (NASDAQ: MDH) (“MHI” or the “Company”), a self-managed and self-administered lodging real estate investment trust (a “REIT”), today reported its consolidated results for the fourth quarter and the year ended December 31, 2012. The Company’s results include the following*:

      Three months ended Year ended December 31, 2012   December 31, 2011 December 31, 2012 December 31, 2011 ($ in thousands except per share data)   Total Revenue $ 20,434 $ 19,492 $ 87,343 $ 81,173 Net income (loss) attributable to the Company 1,458 (2,556 ) (4,105 ) (4,844 )   EBITDA 6,849 2,127 18,032 15,081 Adjusted EBITDA 4,613 3,648 20,183 17,052 Hotel EBITDA 5,091 4,049 22,440 18,708   FFO 4,165 (890 )

3,925

2,924 Adjusted FFO 2,146 625 9,471 5,578   Net income (loss) per diluted share attributable to the Company $ 0.14 $ (0.26 ) $ (0.39 ) $ (0.50 ) FFO per share and unit 0.32 (0.07 ) 0.30 0.23 Adjusted FFO per share and unit 0.17 0.05 0.73 0.43

(*) Earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, hotel EBITDA, funds from operations (“FFO”), adjusted FFO, FFO per share and unit and adjusted FFO per share and unit are non-GAAP financial measures. See further discussion of these non-GAAP measures, including definitions related thereto, and reconciliations to net income (loss) later in this press release. All references in this release to the “Company”, “MHI”, “we”, “us” and “our” refer to MHI Hospitality Corporation, its operating partnership and its subsidiaries and predecessors, unless the context otherwise requires or where otherwise indicated.

HIGHLIGHTS:

• Common Dividends. As previously reported on January 22, 2013, the Company announced an increase of $0.005 or 16.7 percent in the quarterly dividend (distribution) on its common stock to $0.035 per share (and unit), payable on April 11, 2013 to stockholders (and unitholders) of record as of March 15, 2013.
• RevPAR. Room revenue per available room (“RevPAR”) for the Company’s wholly-owned properties during the fourth quarter 2012 increased 4.4 percent to $69.67 over the comparable period in 2011 as a result of a 3.1 percent increase in occupancy and a 1.2 percent increase in average daily rate (“ADR”). For the year 2012, REVPAR increased 7.8 percent over 2011 to $78.65 as a result of a 4.1 percent increase in occupancy and a 3.6 percent increase in ADR.
• Hotel EBITDA. The Company generated hotel EBITDA of approximately $5.1 million during the fourth quarter 2012, an increase of 25.7 percent or approximately $1.1 million over the comparable period in 2011. In the fourth quarter 2012, hotel EBITDA margin increased 409 basis points over the comparable period in 2011 to 25.1 percent. For the year 2012, the Company generated hotel EBITDA of approximately $22.4 million, an increase of 19.9 percent or approximately $3.7 million over the prior year. For the year 2012, hotel EBITDA margin increased 257 basis points over the prior year to 25.9 percent.
• Adjusted EBITDA. The Company generated adjusted EBITDA of approximately $4.6 million during the fourth quarter 2012, an increase of 26.4 percent or approximately $1.0 million over the comparable period in 2011. For the year 2012, the Company generated adjusted EBITDA of approximately $20.2 million, an increase of 18.4 percent or approximately $3.1 million over the prior year.
• Adjusted FFO. The Company generated adjusted FFO of approximately $2.1 million during the fourth quarter 2012, an increase of 243.6 percent or approximately $1.5 million over the comparable period in 2011. For the year 2012, the Company generated adjusted FFO of approximately $9.5 million, an increase of 69.8 percent or approximately $3.9 million over the prior year.

Andrew M. Sims, Chairman and Chief Executive Officer of MHI Hospitality Corporation, commented, “We posted a strong fourth quarter that rounded out excellent results for calendar 2012. Our portfolio results exceeded industry averages. We generated record hotel EBITDA and expanded EBITDA margins. We are proud of the improvements in portfolio profitability and the year’s accomplishments: an improved balance sheet, increased liquidity and a reduction in our cost of capital. All in all, a very fine performance in 2012.”

Balance Sheet/Liquidity

At December 31, 2012, the Company had approximately $10.3 million of available cash and cash equivalents, of which approximately $3.1 million is reserved for real estate taxes, capital improvements and certain other expenses or otherwise restricted. At December 31, 2012, the Company had approximately $153.9 million in outstanding debt at a weighted average interest rate of approximately 5.63%. At December 31, 2012, the Company also had $7.0 million of availability under its existing Note Agreement with Essex Equity High Income Joint Investment Vehicle, LLC.

2013 Outlook

Set forth below is guidance for 2013, which is predicated on continued strengthening of the economy and expected improvements in hotel lodging industry fundamentals. The outlook is based on estimates of occupancy and average daily rates that are consistent with most recent calendar year 2013 forecasts by Smith Travel Research for the market segments in which the Company operates.

The table below reflects the Company’s projections, within a range, of various financial measures for 2013:

    Low Range High Range Y/E Dec 31, 2013 Y/E Dec 31, 2013 ($ in thousands except per share data) Total Revenue $ 87,425 $ 91,170 Net income (loss) (2,131 ) 90   EBITDA 18,165 20,485 Adjusted EBITDA 20,065 22,285 Hotel EBITDA 22,465 24,435   FFO 7,164 9,384 Adjusted FFO 10,164 12,384   Net income (loss) per share attributable to the Company $ (0.16 ) $ 0.01 FFO per share and unit 0.55 0.72 Adjusted FFO per share and unit 0.78 0.95  

Earnings Call/Webcast

The Company will conduct its fourth quarter 2012 conference call for investors and other interested parties at 10:00 a.m. Eastern Time on Tuesday, February 19, 2013. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 888.317.6016 (United States), 855.669.9657 (Canada) or +1 412.317.6016 (International). To participate on the webcast, log on to www.mhihospitality.com at least 15 minutes before the call to download the necessary software. For those unable to listen to the call live, a taped rebroadcast will be available beginning one hour after completion of the live call on February 19, 2013 through December 31, 2013. To access the rebroadcast, dial 877.344.7529 and enter conference number 10023435. A replay of the call also will be available on the Internet at www.mhihospitality.com until December 31, 2013.

About MHI Hospitality Corporation

MHI Hospitality Corporation is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding and repositioning of upscale to upper upscale full-service hotels in the Mid-Atlantic and Southern United States. Currently, the Company’s portfolio consists of investments in ten hotel properties, nine of which are wholly-owned and comprise 2,113 rooms. All of the Company’s wholly-owned properties operate under the Hilton Worldwide, InterContinental Hotels Group and Starwood Hotels and Resorts brands. The Company has a 25.0 percent interest in the Crowne Plaza Hollywood Beach Resort. MHI Hospitality Corporation was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information please visit www.mhihospitality.com.

Contact at the Company:

Scott KucinskiDirector - Investor RelationsMHI Hospitality Corporation410 West Francis StreetWilliamsburg, Virginia 23185757.229.5648

Forward-Looking Statements

This news release includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, these statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and many of which are beyond the Company’s control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. Factors which could have a material adverse effect on the Company’s future results, performance and achievements, include, but are not limited to: national and local economic and business conditions, including recessionary economic conditions existing over the last several years, that affect occupancy rates at the Company’s hotels and the demand for hotel products and services; risks associated with the hotel industry, including competition, increases in wages, energy costs and other operating costs; the magnitude, sustainability and timing of the economic recovery in the hospitality industry and in the markets in which the Company operates; the availability and terms of financing and capital and the general volatility of the securities markets; risks associated with the level of the Company’s indebtedness and its ability to meet covenants in its debt agreements and, if necessary, to refinance the maturity of such indebtedness or modify such debt agreements; management and performance of the Company’s hotels; risks associated with the conflicts of interest of the Company’s officers and directors; risks associated with redevelopment and repositioning projects, including delays and cost overruns; supply and demand for hotel rooms in the Company’s current and proposed market areas; the Company’s ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations; the Company’s ability to successfully expand into new markets; legislative/regulatory changes, including changes to laws governing taxation of REITs; the Company’s ability to maintain its qualification as a REIT; and the Company’s ability to maintain adequate insurance coverage. These risks and uncertainties are described in greater detail under “Risk Factors” in the Company’s Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially.

Financial Tables Follow…

  MHI HOSPITALITY CORPORATION CONSOLIDATED BALANCE SHEETS    

December 31, 2012

 

December 31, 2011

(unaudited) (audited) ASSETS Investment in hotel properties, net

$

176,427,904

$ 181,469,432 Investment in joint venture 8,638,967 8,966,795 Cash and cash equivalents 7,175,716 4,409,959 Restricted cash 3,079,894 2,690,391 Accounts receivable, net 1,478,923 1,702,616 Accounts receivable-affiliate 8,657 24,880 Prepaid expenses, inventory and other assets 1,684,951 1,877,456 Notes receivable, net — 100,000 Shell Island sublease, net 480,392 720,588 Deferred income taxes 2,649,282 4,061,749 Deferred financing costs, net   2,406,183     3,275,580     TOTAL ASSETS $ 204,030,869   $ 209,299,446     LIABILITIES Line of credit $ — $ 25,537,290 Mortgage debt 135,674,432 94,157,825 Loans payable 4,025,220 9,275,220 Series A Cumulative Redeemable Preferred Stock, par value $0.01, 27,650 shares authorized, 14,228 and 25,354 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively 14,227,650 25,353,698 Accounts payable and accrued liabilities 6,786,684 7,437,246 Advance deposits 625,822 453,077 Dividends and distributions payable 389,179 258,772 Warrant derivative liability   4,969,752     2,943,075     TOTAL LIABILITIES   166,698,739     165,416,203     Commitments and contingencies   EQUITY MHI Hospitality Corporation stockholders’ equity

Preferred stock, par value $0.01; 972,350 shares authorized, 0 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively

— — Common stock, par value $0.01; 49,000,000 shares authorized; 9,999,786 shares and 9,953,786 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively 99,998 99,538 Additional paid in capital 57,020,979 56,911,039 Distributions in excess of retained earnings   (27,179,392 )   (22,074,739 ) Total MHI Hospitality Corporation stockholders’ equity 29,941,585 34,935,838 Noncontrolling interest   7,390,545     8,947,405   TOTAL EQUITY   37,332,130     43,883,243     TOTAL LIABILITIES AND EQUITY $ 204,030,869   $ 209,299,446       MHI HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)   Three months ended December 31,   Year ended December 31,   2012       2011     2012       2011   REVENUE Rooms department $ 13,542,843 $ 12,964,006 $ 60,824,016 $ 56,187,231 Food and beverage department 5,713,500 5,491,370 21,961,328 20,482,457 Other operating departments   1,177,995     1,036,651     4,557,876     4,502,816     Total revenue 20,434,338 19,492,027 87,343,220 81,172,504   EXPENSES Hotel operating expenses Rooms department 3,809,974 3,793,650 16,613,769 15,841,985 Food and beverage department 3,471,822 3,514,984 14,284,057 13,617,847 Other operating departments 114,346 117,388 480,307 537,969 Indirect   7,792,530     7,842,129     32,919,610     31,784,191     Total hotel operating expenses 15,188,672 15,268,151 64,297,743 61,781,992   Depreciation and amortization 2,136,208 2,241,952 8,661,769 8,702,880 Corporate general and administrative   1,005,818     871,382     4,078,826     4,025,794     Total operating expenses 18,330,698 18,381,485 77,038,338 74,510,666         NET OPERATING INCOME 2,103,640 1,110,542 10,304,882 6,661,838   Other income (expense) Interest expense (2,367,164 ) (2,768,983 ) (12,382,146 ) (10,821,815 ) Interest income 4,173 2,989 16,158 14,808 Equity income (loss) in joint venture 156,921 100,989 172,172 (60,094 ) Unrealized gain (loss) on warrant derivative 2,317,973 (1,575,075 ) (2,026,677 ) (1,309,075 ) Unrealized gain on hedging activities — — — 72,649 Impairment of note receivable (110,871 ) — (110,871 ) — Gain (loss) on disposal of assets   —     (130,460 )   —     (128,099 )   Net income (loss) before taxes 2,104,672 (3,259,998 ) (4,026,482 ) (5,569,788 ) Income tax provision   (210,529 )   (140,372 )   (1,301,229 )   (905,455 )   Net income (loss) 1,894,143 (3,400,370 ) (5,327,711 ) (6,475,243 ) Add: Net (income) loss attributable to the noncontrolling interest   (435,789 )   844,849     1,223,036     1,630,797     Net income (loss) attributable to the Company $ 1,458,354   $ (2,555,521 ) $ (4,104,675 ) $ (4,844,446 )   Net income (loss) per share attributable to the Company Basic $ 0.15 $ (0.26 ) $ (0.41 ) $ (0.50 ) Diluted $ 0.14 $ (0.26 ) $ (0.39 ) $ (0.50 ) Weighted average number of shares outstanding Basic 9,999,786 9,824,743 9,995,638 9,676,846 Diluted 10,722,219 9,813,508 10,647,246 9,806,512  

MHI HOSPITALITY CORPORATIONKEY OPERATING METRICS(unaudited)

The following tables illustrate the key operating metrics for the three months and years ended December 31, 2012 and 2011, respectively, for the Company’s wholly-owned properties during each respective reporting period (“consolidated” properties). The tables exclude performance data for the Crowne Plaza Hollywood Beach Resort hotel property, which was acquired through a joint venture in August 2007 and in which the Company has a 25.0% indirect interest.

   

Consolidated Properties

 

Three Months Ended December 31,

 

 

  2012       2011   Variance Occupancy 61.9 % 60.1 % 3.1 % ADR $ 112.46 $ 111.14 1.2 % RevPAR $ 69.67 $ 66.75 4.4 %    

Consolidated Properties

Year Ended December 31,

  2012     2011  

Variance

Occupancy 68.9 % 66.2 %

4.1

%

ADR $ 114.22 $ 110.24

3.6

%

RevPAR $ 78.65 $ 72.94

7.8

%

    MHI HOSPITALITY CORPORATION RECONCILIATION OF NET INCOME (LOSS) TO FFO, Adjusted FFO, EBITDA, Adjusted EBITDA and Hotel EBITDA (unaudited)     Three months ended December 31,   Year ended December 31,   2012       2011     2012       2011     Net income (loss) attributable to the Company $ 1,458,354 $ (2,555,521 ) $ (4,104,675 ) $ (4,844,446 ) Noncontrolling interest 435,789 (844,849 ) (1,223,036 ) (1,630,797 ) Depreciation and amortization 2,136,208 2,241,952 8,661,769 8,702,880 Equity in depreciation and amortization of joint venture 134,262 137,653 590,675 567,803 (Gain)/loss on disposal of assets   —     130,460     —     128,099     FFO $ 4,164,613 $ (890,305 ) $

3,924,733

$ 2,923,539 Unrealized (gain)/loss on hedging activities(1) (28,683 ) (53,790 ) 13,752 77,152 Unrealized (gain)/loss on warrant derivative (2,317,973 ) 1,575,075 2,026,677 1,309,075 (Increase)/decrease in deferred income taxes 217,616 (6,292 ) 1,412,467 685,189 Impairment of note receivable 110,871 — 110,871 — Aborted offering costs — — — 582,850 Loss on early extinguishment of debt(2)   —     —     1,982,184     —     Adjusted FFO $ 2,146,444   $ 624,688   $ 9,470,684   $ 5,577,805     Weighted average shares outstanding 9,999,786 9,824,743 9,995,638 9,676,846 Weighted average units outstanding   2,972,839     3,114,758     2,978,315     3,257,479     Weighted average shares and units   12,972,625     12,939,501     12,973,953     12,934,325     FFO per share and unit $ 0.32   $ (0.07 ) $ 0.30   $ 0.23     Adjusted FFO per share and unit $ 0.17   $ 0.05   $ 0.73   $ 0.43     Three months ended December 31, Year ended December 31,   2012     2011     2012     2011     Net income( loss) attributable to the Company $ 1,458,354 $ (2,555,521 ) $ (4,104,675 ) $ (4,844,446 ) Noncontrolling interest 435,789 (844,849 ) (1,223,036 ) (1,630,797 ) Interest expense 2,367,164 2,768,983 12,382,146 10,821,815 Interest income (4,173 ) (2,989 ) (16,158 ) (14,808 ) Income tax provision 210,529 140,372 1,301,229 905,455 Depreciation and amortization 2,136,208 2,241,952 8,661,769 8,702,880 Equity in interest expense and depreciation and amortization of joint venture 244,885 248,452 1,030,234 1,012,874 (Gain)/loss on disposal of assets   —     130,460     —     128,099     EBITDA 6,848,756 2,126,860 18,031,509 15,081,072 Unrealized (gain)/loss on hedging activities(1) (28,683 ) (53,790 ) 13,752 79,265 Unrealized (gain)/loss on warrant derivative (2,317,973 ) 1,575,075 2,026,677 1,309,075 Impairment of note receivable 110,871 — 110,871 — Aborted offering costs   —     —     —     582,850     Adjusted EBITDA 4,612,971 3,648,145 20,182,809 17,052,262 Corporate general and administrative(3) 1,005,818 871,372 4,078,826 3,442,944 Equity in adjusted EBITDA of joint venture (373,125 ) (295,652 ) (1,216,158 ) (1,104,694 ) Net lease rental income (87,500 ) (113,250 ) (350,000 ) (447,000 ) Other fee income   (67,206 )   (61,922 )   (255,707 )   (235,493 )   Hotel EBITDA $ 5,090,958   $ 4,048,693   $ 22,439,770   $ 18,708,019  

(1) Includes equity in unrealized loss on hedging activities of joint venture.(2) Reflected in interest expense for the periods presented above.(3) Excludes aborted offering costs.

Non-GAAP Financial Measures

The Company considers the non-GAAP measures of (including FFO per share), EBITDA and hotel EBITDA to be key supplemental measures of the Company’s performance and should be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance. These measures do not represent cash generated from operating activities determined by GAAP or amounts available for the Company’s discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by GAAP.

FFOIndustry analysts and investors use Funds from Operations, FFO, as a supplemental operating performance measure of an equity REIT. FFO is calculated in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by itself.

The Company considers FFO to be a useful measure of adjusted net income (loss) for reviewing comparative operating and financial performance because we believe FFO is most directly comparable to net income (loss), which remains the primary measure of performance, because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies. Although FFO is intended to be a REIT industry standard, other companies may not calculate FFO in the same manner as we do, and investors should not assume that FFO as reported by us is comparable to FFO as reported by other REITs.

EBITDAThe Company believes that excluding the effect of non-operating expenses and non-cash charges, and the portion of those items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrued directly to shareholders.

Hotel EBITDAThe Company believes that excluding the effect of corporate-level expenses and non-cash items, and the portion of these items that relate to unconsolidated entities, provides a more complete understanding of the operating results over which individual hotels and operators have direct control. We believe property-level results provide investors with supplemental information on the on-going operational performance of our hotels and the effectiveness of third-party management companies operating our business on a property-level basis. The Company previously reported hotel EBITDA as Adjusted Operating Income.

Adjusted FFO and Adjusted EBITDAThe Company presents adjusted FFO, including adjusted FFO per share and unit, and adjusted EBITDA, which adjusts for certain additional items including any unrealized gain (loss) on its hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, aborted offering costs, costs associated with the departure of executive officers and acquisition transaction costs. The Company excludes these items as it believes it allows for meaningful comparisons between periods and among other REITs and is more indicative of the on-going performance of its business and assets. The Company’s calculation of adjusted FFO and adjusted EBITDA may be different from similar measures calculated by other REITs.