Innkeepers USA Trust Announces Third Quarter Earnings; RevPAR Increases 7.7 Percent in Third Quarter

Business Wire, Nov 2, 2004

PALM BEACH, Fla. -- Innkeepers USA Trust (NYSE: KPA), a hotel real estate investment trust (REIT) and a leading owner of upscale, extended-stay hotel properties throughout the United States, today announced results for the three months and nine months ended September 30, 2004.

3Q      %     Nine Mos. Nine Mos.   %
                 3Q 2004*   2003*  Change*   2004*     2003*   Change*
----------------------------------------------------------------------
Net income (loss)
 applicable to
 common
 shareholders      $3,753 $(1,132)    232%    $1,201 $(10,785)    111%
----------------------------------------------------------------------
Diluted income
 (loss) per share   $0.10  $(0.03)    433%     $0.03   $(0.29)    110%
----------------------------------------------------------------------
Funds from
 operations (FFO) $13,572  $7,413      83%   $25,621  $14,428      78%
----------------------------------------------------------------------
Adjusted FFO      $13,172  $8,906      48%   $28,762  $22,309      29%
----------------------------------------------------------------------
FFO per share       $0.32   $0.19      68%     $0.66    $0.37      78%
----------------------------------------------------------------------
Adjusted FFO per
 share              $0.31   $0.23      35%     $0.74    $0.58      28%
----------------------------------------------------------------------
Earnings before
 interest, taxes,
 depreciation and
 amortization
 (EBITDA)         $21,915 $15,940      37%   $58,923  $40,074      47%
----------------------------------------------------------------------
Adjusted EBITDA   $21,713 $17,490      24%   $57,029  $48,012      19%
----------------------------------------------------------------------

*In thousands, except per share and percentage change data

FFO, Adjusted FFO, FFO per share, Adjusted FFO per share, EBITDA and Adjusted EBITDA are not generally accepted accounting principles (GAAP) financial measures and are discussed in further detail on pages 8-9.

FFO and FFO per share for the nine months ended September 30, 2004 include $4,249,000 in issuance costs pertaining to the Series A Cumulative Convertible preferred shares that were redeemed in January 2004. The Series A preferred share issuance costs have been excluded from Adjusted FFO, Adjusted FFO per share, EBITDA and Adjusted EBITDA.

FFO, FFO per share and EBITDA for the third quarter 2004 and nine months ended September 30, 2004 exclude $2,357,000 and $10,249,000, respectively, in percentage lease revenue that was deferred. The deferred percentage lease revenue has been recognized as revenue for Adjusted FFO, Adjusted FFO per share and Adjusted EBITDA.

Adjusted FFO, Adjusted FFO per share and Adjusted EBITDA exclude other charges and discontinued operations for the third quarters 2004 and 2003 and the nine months ended September 30, 2004 and 2003.

Results

Revenue per available room (RevPAR) for the company's 66 comparable hotels rose 7.7 percent for the third quarter 2004 to $76.71. Occupancy increased 3.3 percent to 78.5 percent, and average daily rate (ADR) rose 4.3 percent to $97.68 for the third quarter 2004.

The RevPAR improvement for the third quarter 2004 includes a 21.4 percent increase in RevPAR at the company's eight Silicon Valley, California hotel properties. The eight Silicon Valley hotel properties accounted for 16 percent of the company's room revenues for the third quarter 2004. Excluding Silicon Valley, the remainder of Innkeepers' portfolio reported a RevPAR increase of 4.8 percent for the third quarter 2004.

"There was further tangible evidence during the third quarter that the lodging industry is recovering, as gains in business travel demand accelerated," said Jeffrey H. Fisher, Innkeepers chief executive officer and president. "We had a solid third quarter, with strong RevPAR increases in most markets. Growing business travel demand and the continued shift in our customer mix toward the business guest translated into higher ADR."

Fisher noted that third quarter 2004 results for the Silicon Valley properties compared very favorably with results for third quarter 2003, when management of four of the eight Silicon Valley properties was transitioned to Innkeepers Hospitality. "Third quarter 2004 operating results reflect substantial market share gains at certain Silicon Valley hotel properties. The 21.4 percent RevPAR increase for Silicon Valley for the third quarter 2004 was partially magnified due to third quarter 2003 operating results being depressed as a result of certain management transition issues."

Adjusted FFO per share and Adjusted EBITDA for the third quarter 2004 rose to $0.31 and $21.7 million, respectively, from $0.23 and $17.5 million for the third quarter 2003 (see pages 8-9 for a further discussion regarding these financial measures). The increases were due primarily to the 7.7 percent RevPAR increase. The Adjusted FFO per share of $0.31 was, effectively, in line with our guidance for the third quarter of $0.32. The guidance included $0.02 of FFO per share from three hotel properties that the company decided to market for sale in the third quarter 2004. The hotel properties have been classified as discontinued operations. The adjusted FFO per share guidance would have been $0.30 rather than $0.32, if the three hotel properties had been classified as discontinued operations at the time the earnings guidance was provided. The company's taxable REIT subsidiary (TRS) net loss for the third quarter 2004 and nine months ended September 30, 2004 was $(200,000) and $(1.9) million, respectively.