MHI Hospitality Corporation Reports Financial Results for Fourth Quarter and Year 2012

  MHI Hospitality Corporation Reports Financial Results for Fourth Quarter and
  Year 2012

Business Wire

WILLIAMSBURG, Va. -- February 19, 2013

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    December 31,    December 31,    December 31,
                    31, 2012     2011            2012            2011
                    ($ in thousands except per share data)
                                                                 
Total Revenue       $  20,434    $  19,492       $  87,343       $  81,173
Net income (loss)
attributable to        1,458        (2,556  )       (4,105  )       (4,844  )
the Company
                                                                 
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   $  0.14      $  (0.26   )    $  (0.39   )    $  (0.50   )
attributable to
the Company
FFO per share and      0.32         (0.07   )       0.30            0.23
unit
Adjusted FFO per       0.17         0.05            0.73            0.43
share and 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 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             $     (0.16      )     $     0.01
attributable to the Company
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 Kucinski
Director - Investor Relations
MHI Hospitality Corporation
410 West Francis Street
Williamsburg, Virginia 23185
757.229.5648

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       1,684,951           1,877,456
assets
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        14,227,650          25,353,698
25,354 shares issued and outstanding
at December 31, 2012 and December 31,
2011, respectively
Accounts payable and accrued                6,786,684           7,437,246
liabilities
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       99,998              99,538
issued and outstanding at December 31,
2012 and December 31, 2011,
respectively
Additional paid in capital                  57,020,979          56,911,039
Distributions in excess of retained        (27,179,392  )     (22,074,739  )
earnings
Total MHI Hospitality Corporation           29,941,585          34,935,838
stockholders’ equity
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            $ 13,542,843     $ 12,964,006     $ 60,824,016      $ 56,187,231
department
Food and
beverage           5,713,500        5,491,370        21,961,328        20,482,457
department
Other
operating         1,177,995      1,036,651      4,557,876       4,502,816   
departments
                                                                     
Total revenue      20,434,338       19,492,027       87,343,220        81,172,504
                                                                     
EXPENSES
Hotel
operating
expenses
Rooms              3,809,974        3,793,650        16,613,769        15,841,985
department
Food and
beverage           3,471,822        3,514,984        14,284,057        13,617,847
department
Other
operating          114,346          117,388          480,307           537,969
departments
Indirect          7,792,530      7,842,129      32,919,610      31,784,191  
                                                                     
Total hotel
operating          15,188,672       15,268,151       64,297,743        61,781,992
expenses
                                                                     
Depreciation
and                2,136,208        2,241,952        8,661,769         8,702,880
amortization
Corporate
general and       1,005,818      871,382        4,078,826       4,025,794   
administrative
                                                                     
Total
operating          18,330,698       18,381,485       77,038,338        74,510,666
expenses
                                                                  
NET OPERATING      2,103,640        1,110,542        10,304,882        6,661,838
INCOME
                                                                     
Other income
(expense)
Interest           (2,367,164 )     (2,768,983 )     (12,382,146 )     (10,821,815 )
expense
Interest           4,173            2,989            16,158            14,808
income
Equity income
(loss) in          156,921          100,989          172,172           (60,094     )
joint venture
Unrealized
gain (loss) on     2,317,973        (1,575,075 )     (2,026,677  )     (1,309,075  )
warrant
derivative
Unrealized
gain on            —                —                —                 72,649
hedging
activities
Impairment of
note               (110,871   )     —                (110,871    )     —
receivable
Gain (loss) on
disposal of       —              (130,460   )    —               (128,099    )
assets
                                                                     
Net income
(loss) before      2,104,672        (3,259,998 )     (4,026,482  )     (5,569,788  )
taxes
Income tax        (210,529   )    (140,372   )    (1,301,229  )    (905,455    )
provision
                                                                     
Net income         1,894,143        (3,400,370 )     (5,327,711  )     (6,475,243  )
(loss)
Add: Net
(income) loss
attributable      (435,789   )    844,849        1,223,036       1,630,797   
to the
noncontrolling
interest
                                                                     
Net income
(loss)           $ 1,458,354     $ (2,555,521 )   $ (4,104,675  )   $ (4,844,446  )
attributable
to the Company
                                                                     
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 CORPORATION
                            KEY 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   $ 1,458,354      $ (2,555,521 )   $ (4,104,675 )   $ (4,844,446 )
Company
Noncontrolling          435,789          (844,849   )     (1,223,036 )     (1,630,797 )
interest
Depreciation and        2,136,208        2,241,952        8,661,769        8,702,880
amortization
Equity in
depreciation and        134,262          137,653          590,675          567,803
amortization of
joint venture
(Gain)/loss on         —              130,460        —              128,099    
disposal of assets
                                                                         
FFO                   $ 4,164,613      $ (890,305   )   $ 3,924,733      $ 2,923,539
Unrealized
(gain)/loss on          (28,683    )     (53,790    )     13,752           77,152
hedging
activities^(1)
Unrealized
(gain)/loss on          (2,317,973 )     1,575,075        2,026,677        1,309,075
warrant derivative
(Increase)/decrease
in deferred income      217,616          (6,292     )     1,412,467        685,189
taxes
Impairment of note      110,871          —                110,871          —
receivable
Aborted offering        —                —                —                582,850
costs
Loss on early
extinguishment of      —              —              1,982,184      —          
debt^(2)
                                                                         
Adjusted FFO          $ 2,146,444     $ 624,688       $ 9,470,684     $ 5,577,805  
                                                                         
Weighted average        9,999,786        9,824,743        9,995,638        9,676,846
shares outstanding
Weighted average       2,972,839      3,114,758      2,978,315      3,257,479  
units outstanding
                                                                         
Weighted average       12,972,625     12,939,501     12,973,953     12,934,325 
shares and units
                                                                         
FFO per share and     $ 0.32          $ (0.07      )   $ 0.30          $ 0.23       
unit
                                                                         
Adjusted FFO per      $ 0.17          $ 0.05          $ 0.73          $ 0.43       
share and unit
                                                                         
                      Three months ended December 31,   Year ended December 31,
                       2012           2011           2012           2011       
                                                                         
Net income( loss)
attributable to the   $ 1,458,354      $ (2,555,521 )   $ (4,104,675 )   $ (4,844,446 )
Company
Noncontrolling          435,789          (844,849   )     (1,223,036 )     (1,630,797 )
interest
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              210,529          140,372          1,301,229        905,455
provision
Depreciation and        2,136,208        2,241,952        8,661,769        8,702,880
amortization
Equity in interest
expense and
depreciation and        244,885          248,452          1,030,234        1,012,874
amortization of
joint venture
(Gain)/loss on         —              130,460        —              128,099    
disposal of assets
                                                                         
EBITDA                  6,848,756        2,126,860        18,031,509       15,081,072
Unrealized
(gain)/loss on          (28,683    )     (53,790    )     13,752           79,265
hedging
activities^(1)
Unrealized
(gain)/loss on          (2,317,973 )     1,575,075        2,026,677        1,309,075
warrant derivative
Impairment of note      110,871          —                110,871          —
receivable
Aborted offering       —              —              —              582,850    
costs
                                                                         
Adjusted EBITDA         4,612,971        3,648,145        20,182,809       17,052,262
Corporate general
and                     1,005,818        871,372          4,078,826        3,442,944
administrative^(3)
Equity in adjusted
EBITDA of joint         (373,125   )     (295,652   )     (1,216,158 )     (1,104,694 )
venture
Net lease rental        (87,500    )     (113,250   )     (350,000   )     (447,000   )
income
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.

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, 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.

Contact:

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