MHI Hospitality Corporation Reports Financial Results for Third Quarter 2012

  MHI Hospitality Corporation Reports Financial Results for Third Quarter 2012

Business Wire

WILLIAMSBURG, Va. -- November 06, 2012

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 third quarter ended
September 30, 2012. The Company’s results include the following^*:

                                                              
                Three months ended                  Nine months ended
                September 30,   September 30,     September       September
                2012              2011              30, 2012        30, 2011
                ($ in thousands except per share data)
                                                                    
Total Revenue   $  21,771         $  20,015         $  66,909       $ 61,680
Net loss
attributable       (1,615  )         (1,117  )         (5,563 )       (2,289 )
to the
Company
                                                                    
EBITDA             2,767             3,641             11,183         12,951
Adjusted           4,432             3,685             15,570         13,401
EBITDA
Hotel EBITDA       5,187             4,206             17,349         14,659
                                                                    
FFO                190               859               (240   )       3,814
Adjusted FFO       1,882             827               7,324          4,955
                                                                    
Net loss per
diluted share
attributable    $  (0.15   )      $  (0.11   )      $  (0.53  )     $ (0.23  )
to the
Company
FFO per share      0.01              0.07              (0.02  )       0.29
and unit
Adjusted FFO
per share and      0.15              0.06              0.56           0.38
unit
                                                                             

^(*) 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 October 23, 2012, the Company
    announced a quarterly dividend (distribution) on its common stock of $0.03
    per share (and unit), payable on January 11, 2013 to stockholders (and
    unitholders) of record as of December 14, 2012.
  *RevPAR. Room revenue per available room (“RevPAR”) for the Company’s
    wholly-owned properties during the third quarter 2012 increased 10.0
    percent over the third quarter 2011 to $80.15 as a result of a 3.6 percent
    increase in occupancy and a 6.2 percent increase in average daily rate
    (“ADR”).
  *Hotel EBITDA. The Company generated hotel EBITDA of approximately $5.2
    million during the third quarter 2012, an increase of 23.3 percent or
    approximately $1.0 million over the third quarter 2011. Hotel EBITDA
    margin increased 275 basis points to 24.0 percent compared to the same
    period in 2011.
  *Adjusted EBITDA. The Company generated adjusted EBITDA of approximately
    $4.4 million during the third quarter 2012, an increase of 20.3 percent or
    approximately $0.7 million over the third quarter 2011.
  *Adjusted FFO. The Company generated adjusted FFO of approximately $1.9
    million during the third quarter 2012, an increase of 127.7 percent or
    approximately $1.1 million over the third quarter 2011.

Andrew M. Sims, Chairman and Chief Executive Officer of MHI Hospitality
Corporation, commented, “Our strong operating performance continued in the
third quarter with robust year-over-year increases in RevPAR, Hotel EBITDA and
Adjusted EBITDA. We more than doubled Adjusted FFO from the prior year’s third
quarter, representing a 127.7% increase. We continued the process of
restructuring our balance sheet by securing a new loan on our Jacksonville
property with favorable terms. Overall, we had a very strong quarter.”

Financing Transactions

On July 10, 2012, the Company obtained a $14.3 million mortgage with Fifth
Third Bank on the Crowne Plaza Jacksonville Riverfront hotel property. The
mortgage carries an interest rate of LIBOR plus additional interest of 3.00%
and amortizes on a 25-year schedule. The maturity date is July 10, 2015, but
may be extended for an additional year pursuant to certain terms and
conditions. The mortgage also contains an “earn-out” feature which allows for
an additional $3.0 million in proceeds to be funded during its term,
contingent upon satisfaction of certain debt service coverage and
loan-to-value covenants. Proceeds of the mortgage were used to repay the
existing mortgage indebtedness and to pay closing costs.

Balance Sheet/Liquidity

At September 30, 2012, the Company had approximately $11.2 million of
available cash and cash equivalents, of which approximately $2.8 million is
reserved for real estate taxes, capital improvements and certain other
expenses or otherwise restricted. The Company had approximately $154.9 million
in outstanding debt at a weighted average interest rate of approximately
5.62%. At September 30, 2012, the Company also had $7.0 million of
availability under its existing Note Agreement with Essex Equity High Income
Joint Investment Vehicle, LLC.

2012 Outlook

The Company is updating its previous guidance for 2012 accounting for current
and expected performance within its portfolio as well as holding period gains
and losses related to the warrant issued in its preferred equity financing.
The guidance is predicated on continued strengthening of the economy and
expected improvements in hotel lodging industry fundamentals and is based on
estimates of occupancy and average daily rates that are consistent with most
recent calendar year 2012 forecasts by Smith Travel Research for the market
segments in which the Company operates.

The table below reflects the Company’s updated projections, within a range, of
various financial measures for 2012:

                                                          
                                        Low Range             High Range
                                        Y/E Dec 31, 2012      Y/E Dec 31, 2012
                                        ($ in thousands except per share data)
Total Revenue                           $    84,500           $   86,700
Net loss                                     (8,495   )           (8,220   )
                                                              
EBITDA                                       14,925               15,345
Adjusted EBITDA                              19,475               20,095
Hotel EBITDA                                 21,635               22,245
                                                              
FFO                                          800                  1,075
Adjusted FFO                                 8,467                9,137
                                                              
Net loss per share attributable to      $    (0.65    )       $   (0.63    )
the Company
FFO per share and unit                       0.06                 0.08
Adjusted FFO per share and unit              0.65                 0.70
                                                              

Earnings Call/Webcast

The Company will conduct its third quarter 2012 conference call for investors
and other interested parties at 10:00 a.m. Eastern Time on Tuesday, November
6, 2012. The conference call will be accessible by telephone and through the
Internet. Interested individuals are invited to listen to the call by
telephone at 877-317-6789 (United States) or 866-605-3852 (Canada) or +1
412-317-6789 (International). To participate on the webcast, log on to
www.mhihospitality.com at least 15 minutes before the call to download the
necessary software. For those unable to listen to the call live, a taped
rebroadcast will be available beginning one hour after completion of the live
call on November 6, 2012 through September 30, 2013. To access the
rebroadcast, dial 877-344-7529 and enter conference number 10019632. A replay
of the call also will be available on the Internet at www.mhihospitality.com
until September 30, 2013.

About MHI Hospitality Corporation

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

Forward-Looking Statements

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


MHI HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
                                                        
                                      September 30, 2012     December 31, 2011
                                      (unaudited)            (audited)
ASSETS
Investment in hotel properties, net   $  177,393,787         $  181,469,432
Investment in joint venture              8,732,046             8,966,795
Cash and cash equivalents                8,475,187              4,409,959
Restricted cash                          2,751,035              2,690,391
Accounts receivable, net                 2,454,879              1,702,616
Accounts receivable-affiliate            7,345                  24,880
Prepaid expenses, inventory and          2,141,685              1,877,456
other assets
Notes receivable, net                    100,000                100,000
Shell Island sublease, net               540,441                720,588
Deferred income taxes                    2,866,898              4,061,749
Deferred financing costs, net           2,573,758            3,275,580    
                                                             
TOTAL ASSETS                          $  208,037,061        $  209,299,446  
                                                             
LIABILITIES
Line of credit                        $  —                   $  25,537,290
Mortgage debt                            136,634,050            94,157,825
Loans payable                            4,150,220              9,275,220
Series A Cumulative Redeemable
Preferred Stock, par value $0.01,
27,650 shares authorized, 14,156         14,156,482             25,353,698
and 25,354 shares issued and
outstanding at September 30, 2012
and December 31, 2011, respectively
Accounts payable and accrued             8,537,009              7,437,246
liabilities
Advance deposits                         1,055,231              453,077
Dividends and distributions payable      389,179                258,772
Warrant derivative liability            7,287,725            2,943,075    
                                                             
TOTAL LIABILITIES                       172,209,896          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 September      —                      —
30, 2012 and December 31, 2011,
respectively
Common stock, par value $0.01;
49,000,000 shares authorized;
9,999,786 shares and 9,953,786           99,998                 99,538
shares issued and outstanding at
September 30, 2012 and December 31,
2011, respectively
Additional paid in capital               57,020,979             56,911,039
Distributions in excess of retained     (28,337,753  )        (22,074,739  )
earnings
Total MHI Hospitality Corporation        28,783,224             34,935,838
stockholders’ equity
Noncontrolling interest                 7,043,941            8,947,405    
TOTAL EQUITY                            35,827,165           43,883,243   
                                                             
TOTAL LIABILITIES AND EQUITY          $  208,037,061        $  209,299,446  
                                                                             

               
MHI HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
                                                 
                 Three months ended September 30,      Nine months ended September 30,
                 2012             2011               2012              2011
REVENUE
Rooms            $ 15,580,600       $ 14,154,271       $ 47,281,173        $ 43,223,226
department
Food and
beverage           5,071,821          4,656,014          16,247,828          14,991,087
department
Other
operating         1,118,792        1,204,901        3,379,880         3,466,164  
departments
                                                                           
Total revenue      21,771,213         20,015,186         66,908,881          61,680,477
                                                                           
EXPENSES
Hotel
operating
expenses
Rooms              4,383,150          4,078,235          12,803,795          12,048,335
department
Food and
beverage           3,456,698          3,266,031          10,812,234          10,102,863
department
Other
operating          125,023            157,839            365,961             420,580
departments
Indirect          8,484,381        8,152,905        25,127,080        23,942,063 
                                                                           
Total hotel
operating          16,449,252         15,655,010         49,109,070          46,513,841
expenses
                                                                           
Depreciation
and                2,150,007          2,187,541          6,525,561           6,460,928
amortization
Corporate
general and       978,473          1,348,792        3,073,008         3,154,412  
administrative
                                                                           
Total
operating          19,577,732         19,191,343         58,707,639          56,129,181
expenses
                                                                        
NET OPERATING      2,193,481          823,843            8,201,242           5,551,296
INCOME
                                                                           
Other income
(expense)
Interest           (2,442,620 )       (2,747,284 )       (10,014,982 )       (8,052,832 )
expense
Interest           4,133              4,281              11,985              11,819
income
Equity income
(loss) in          (162,463   )       (283,539   )       15,251              (161,083   )
joint venture
Unrealized
gain (loss) on     (1,659,750 )       646,000            (4,344,650  )       266,000
warrant
derivative
Unrealized
gain on            —                  —                  —                   72,649
hedging
activities
Gain (loss) on
disposal of       —                (9,894     )      —                 2,361      
assets
                                                                           
Net income
(loss) before      (2,067,219 )       (1,566,593 )       (6,131,154  )       (2,309,790 )
taxes
Income tax
benefit           (27,979    )      71,692           (1,090,700  )      (765,083   )
(provision)
                                                                           
Net loss           (2,095,198 )       (1,494,901 )       (7,221,854  )       (3,074,873 )
Add: Net loss
attributable
to the            480,178          377,859          1,658,825         785,948    
noncontrolling
interest
                                                                           
Net loss
attributable     $ (1,615,020 )     $ (1,117,042 )     $ (5,563,029  )     $ (2,288,925 )
to the Company
                                                                           
Net loss per
share
attributable
to the Company
Basic            $ (0.16      )     $ (0.12      )     $ (0.56       )     $ (0.24      )
Diluted          $ (0.15      )     $ (0.11      )     $ (0.53       )     $ (0.23      )
Weighted
average number
of shares
outstanding
Basic              9,999,786          9,701,786          9,994,246           9,627,006
Diluted            10,801,390         9,802,378          10,603,240          9,792,440
                                                                           

                         MHI HOSPITALITY CORPORATION
                            KEY OPERATING METRICS
                                 (unaudited)

The following tables illustrate the key operating metrics for the three months
and nine months ended September 30, 2012 and 2011, respectively, for the
Company’s wholly-owned properties during each respective reporting period
(“consolidated” properties). The tables exclude performance data for the
Crowne Plaza Hollywood Beach Resort hotel property, which was acquired through
a joint venture in August 2007 and in which the Company has a 25.0% indirect
interest.

                                                   
Consolidated Properties   Three Months Ended September 30,
                          2012         2011          Variance
Occupancy                   71.0   %       68.6   %     3.6   %
ADR                       $ 112.81       $ 106.23       6.2   %
RevPAR                    $ 80.15        $ 72.88        10.0  %
                                                        

                        
Consolidated Properties   Nine Months Ended September 30,
                          2012        2011       Variance
Occupancy                   71.2   %     68.2   %   4.3   %
ADR                       $ 114.73     $ 109.97     4.3   %
RevPAR                    $ 81.67      $ 75.02      8.9   %
                                                    


MHI HOSPITALITY CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO
FFO, Adjusted FFO, EBITDA, Adjusted EBITDA and Hotel EBITDA
(unaudited)
                                                                      
                      Three months ended September 30,   Nine months ended September 30,
                      2012             2011              2012              2011
                                                                             
Net loss
attributable to       $ (1,615,020 )    $ (1,117,042 )    $ (5,563,029 )     $ (2,288,925 )
the Company
Noncontrolling          (480,178   )      (377,859   )      (1,658,825 )       (785,948   )
interest
Depreciation and        2,150,007         2,187,541         6,525,561          6,460,928
amortization
Equity in
depreciation and        135,671           156,123           456,413            430,150
amortization of
joint venture
(Gain)/loss on         —               9,894           —                (2,361     )
disposal of assets
                                                                             
FFO                   $ 190,480         $ 858,657         $ (239,880   )     $ 3,813,844
Unrealized loss on
hedging                 5,308             106,885           42,435             133,055
activities^(1)
Unrealized
(gain)/loss on          1,659,750         (646,000   )      4,344,650          (266,000   )
warrant derivative
(Increase)/decrease
in deferred income      26,540            (75,693    )      1,194,851          691,481
taxes
Aborted offering        —                 582,850           —                  582,850
costs
Loss on early
extinguishment of      —               —               1,982,184        —          
debt^(2)
                                                                             
Adjusted FFO          $ 1,882,078      $ 826,699        $ 7,324,240       $ 4,955,230  
                                                                             
Weighted average        9,999,786         9,701,786         9,994,246          9,627,006
shares outstanding
Weighted average       2,974,861       3,239,439       2,980,153        3,305,574  
units outstanding
                                                                             
Weighted average       12,974,647      12,941,225      12,974,399       12,932,580 
shares and units
                                                                             
FFO per share and     $ 0.01           $ 0.07           $ (0.02      )     $ 0.29       
unit
                                                                             
Adjusted FFO per      $ 0.15           $ 0.06           $ 0.56            $ 0.38       
share and unit
                                                                             
                                                          
                      Three months ended September 30,    Nine months ended September 30,
                      2012              2011              2012               2011
                                                                             
Net loss                                                    (5,563,
attributable to       $ (1,615,020 )    $ (1,117,042 )    $ 029        )     $ (2,288,925 )
the Company
Noncontrolling          (480,178   )      (377,859   )      (1,658,825 )       (785,948   )
interest
Interest expense        2,442,620         2,747,284         10,014,982         8,052,832
Interest income         (4,133     )      (4,281     )      (11,985    )       (11,819    )
Income tax              27,979            (71,692    )      1,090,700          765,083
provision
Depreciation and        2,150,007         2,187,541         6,525,561          6,460,928
amortization
Equity in interest
expense and
depreciation and        245,711           267,058           785,349            761,383
amortization of
joint venture
(Gain)/loss on         —               9,894           —                (2,361     )
disposal of assets
                                                                             
EBITDA                  2,766,986         3,640,903         11,182,753         12,951,173
Unrealized loss on
hedging                 5,308             106,885           42,435             133,055
activities^(1)
Unrealized
(gain)/loss on          1,659,750         (646,000   )      4,344,650          (266,000   )
warrant derivative
Aborted offering       —               582,850         —                582,850    
costs
                                                                             
Adjusted EBITDA         4,432,044         3,684,638         15,569,838         13,401,078
Corporate general       978,473           765,942           3,073,008          2,571,562
and administrative
Equity in adjusted
EBITDA of joint         (88,557    )      (90,404    )      (843,036   )       (806,004   )
venture
Net lease rental        (87,500    )      (111,250   )      (262,500   )       (333,750   )
income
Other fee income       (46,977    )     (43,108    )     (188,501   )      (173,571   )
                                                                             
Hotel EBITDA          $ 5,187,483      $ 4,205,818      $ 17,348,809      $ 14,659,315 
                                                                             

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


Non-GAAP Financial Measures

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

FFO

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

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

EBITDA

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

Hotel EBITDA

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

Adjusted FFO and Adjusted EBITDA

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

Contact:

MHI Hospitality Corporation
Scott Kucinski, 757-229-5648
Director - Investor Relations
 
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