WILLIAMSBURG, Va., Feb. 23 /PRNewswire-FirstCall/ -- MHI
Hospitality Corporation (NASDAQ:MDH) ("the Company"), a
self-advised lodging real estate investment trust (REIT), today
reported its consolidated results for the fourth quarter and year
ended December 31, 2009. HIGHLIGHTS: -- Funds from Operations
("FFO") increased 155.9% over fourth quarter 2008, or approximately
$0.7 million to approximately $1.2 million, or $0.11 per share, for
fourth quarter 2009. -- FFO for the full year was approximately
$6.0 million, or $0.55 per share, versus approximately $6.3
million, or $0.59 per share, for the full year 2008. -- Total
revenue for the quarter decreased 0.6% over fourth quarter 2008, or
approximately $0.1 million, to approximately $17.5 million. --
Total room revenue for the quarter increased 1.1% over fourth
quarter 2008, or approximately $0.1 million, to approximately $11.5
million. -- Adjusted operating income for the quarter decreased
8.5% over fourth quarter 2008, or approximately $0.3 million, to
approximately $3.0 million. -- Total assets of approximately $214.0
million at December 31, 2009, versus approximately $211.2 million
at December 31, 2008. Andrew M. Sims, President and CEO of MHI
Hospitality Corporation, commented, "In 2009, we completed a
substantial transformation of our portfolio. This was a key
foundational step in the execution of our business strategy. Since
that time we have conducted an aggressive ramp-up of these fully
repositioned hotel assets. In spite of a challenging environment,
we are taking increasing share in each of our markets. In addition,
our cost-cutting efforts have paid off well. We have seen gains in
same-store portfolio operating margins for the fourth quarter and
the full year." Sims continued, "In the year ahead we are committed
to further strengthening our customer fair share in each market as
we continue on the path of maximizing the performance of properties
in our portfolio. We are very pleased with the progress made and
have great confidence in the resilience and long-term growth
potential of our real estate platform." Operating Results The
Company reported consolidated total revenue of approximately $17.5
million for the three-month period ended December 31, 2009. This
compares to consolidated total revenue of approximately $17.6
million for the three-month period ended December 31, 2008. The
Company had adjusted operating income for the same period of
approximately $3.0 million, a decrease of approximately $0.3
million, or 8.5%, as compared to adjusted operating income of
approximately $3.3 million for the fourth quarter of 2008. For the
fourth quarter, the Company also reported a consolidated net loss
of approximately $0.8 million, or $0.10 per share, as compared to a
consolidated net loss of approximately $0.9 million, or $0.13 per
share, for the comparable 2008 period. Net operating income for the
quarter decreased to approximately $0.3 million, as compared to
approximately $1.3 million for the fourth quarter 2008. For the
fourth quarter 2009, FFO was approximately $1.2 million, or $0.11
per share, compared to approximately $0.5 million, or $0.04 per
share, for the fourth quarter 2008. During the quarter, the Company
reported an unrealized gain of approximately $0.4 million on the
value of its interest rate swap as compared to an unrealized loss
of approximately $0.8 million for the comparable 2008 period. The
interest rate swap is required by the Company's lenders on its
revolving credit facility. For the year ended December 31, 2009,
the Company reported consolidated total revenue of approximately
$71.5 million and a consolidated net loss of approximately $2.0
million, or $0.28 per share. For the comparable period of 2008,
consolidated total revenue was approximately $70.8 million and the
consolidated net loss was approximately $0.6 million, or $0.09 per
share. The Company had adjusted operating income for the year ended
December 31, 2009 of approximately $14.8 million, an increase of
approximately $0.6 million, or 3.9%, as compared to adjusted
operating income of approximately $14.2 million for the full year
2008. FFO for the full year was approximately $6.0 million, or
$0.55 per share, as compared to approximately $6.3 million, or
$0.59 per share, for the full year 2008, representing a 4.7 percent
decrease over the prior year. FFO for the year ended December 31,
2009 reflects non-cash income of approximately $1.2 million as
compared to non-cash charges of approximately $0.7 million in 2008
related to the change in value of the interest rate swap. Adjusted
operating income and FFO are non-GAAP financial measures within the
meaning of the rules of the Securities and Exchange Commission. The
Company defines adjusted operating income as net operating income
excluding depreciation and amortization, corporate general and
administrative expenses, lease revenue and related expenses as well
as other fee income not related to the Company's wholly-owned hotel
properties. The Company defines FFO as net income excluding
extraordinary items, depreciation and minority interest. Management
believes FFO is a key measure of a REIT's performance and should be
considered along with, but not as an alternative to, net income and
cash flow as a measure of the Company's operating performance.
Reconciliation of these non-GAAP financial measures is included in
the accompanying financial tables. Portfolio Operating Performance
The following tables illustrate the key operating metrics for the
three months ended December 31, 2009 and 2008 for the Company's
wholly-owned properties during each respective reporting period
("consolidated" properties) as well as the eight wholly-owned
properties in the portfolio that were not under development and
were under the Company's control during both the three months ended
December 31, 2009 and the corresponding period in 2008
("same-store" properties). Accordingly, the same-store data does
not reflect the performance of the Crowne Plaza Tampa Westshore,
which opened in March 2009. The tables also exclude performance
data for the Crowne Plaza Hollywood Beach Resort, which was
acquired through a joint venture in August 2007 and in which the
Company has a 25.0% indirect interest. Consolidated (All Hotels)
Quarter Ended Quarter Ended December 31, December 31, ------------
------------ 2009 2008 Variance ---- ---- ------- Occupancy % 56.6%
55.9% 1.2% Average Daily Rate ("ADR") $105.03 $117.51 -10.6%
Revenue per Available Room ("RevPAR") $59.42 $65.68 -9.5%
Same-Store (8 Hotels) Quarter Ended Quarter Ended December 31,
December 31, ------------ ----------- 2009 2008 Variance ---- ----
-------- Occupancy % 57.7% 55.9% 3.2% ADR $106.67 $117.51 -9.2%
RevPAR $61.56 $65.58 -6.3% For the fourth quarter of 2009, adjusted
operating income decreased 8.5% over the fourth quarter of 2008 and
same-store adjusted operating margins continued to improve over the
fourth quarter of 2008. The following tables illustrate the key
operating metrics for the year ended December 31, 2009 and 2008 for
the Company's wholly-owned properties during each respective
reporting period ("consolidated" properties) as well as the six
wholly-owned properties in the portfolio that were not under
development and were under the Company's control during both the
year ended December 31, 2009 and the corresponding period in 2008
("same-store" properties). Accordingly, the same-store data does
not reflect the performance of the Sheraton Louisville Riverside,
which opened in May 2008, the Crowne Plaza Hampton Marina, which
the Company purchased in April 2008, or the Crowne Plaza Tampa
Westshore, which opened in March 2009. The tables also exclude
performance data for the Crowne Plaza Hollywood Beach Resort in
which the Company has a 25.0% indirect interest. Consolidated (All
Hotels) Year Ended Year ended December 31, December 31,
------------ ------------ 2009 2008 Variance ---- ---- --------
Occupancy % 60.4% 62.0% -2.5% ADR $107.21 $119.50 -10.3% RevPAR
$64.74 $74.04 -12.6% Same-Store (6 Hotels) Year Ended Year Ended
December 31, December 31, ------------ ----------- 2009 2008
Variance -------- Occupancy % 65.1% 66.6% -2.2% ADR $109.72 $120.06
-8.6% RevPAR $71.44 $79.93 -10.6% In response to the weakening
economy and declines in revenue and RevPAR, we initiated a series
of cost-cutting measures at all of our hotels. At many of our
properties, these cost-cutting measures mitigated much of the
effect of the declines in revenue and, in some cases, improved our
operating profitability. Despite these efforts, fourth quarter 2009
adjusted operating income fell approximately $0.3 million, or 8.5%,
to approximately $3.0 million from adjusted operating income of
approximately $3.3 million for the fourth quarter 2008. For the
year ended December 31, 2009, adjusted operating income increased
approximately $0.5 million, or 3.9%, over the year ended December
31, 2008. Portfolio Update As of December 31, 2009, total assets
were approximately $214.0 million, including approximately $188.6
million of net investment in hotel properties plus approximately
$9.7 million for the Company's joint venture investment in the
Crowne Plaza Hollywood Beach Resort. The Company also reported the
following portfolio developments: -- The Company substantially
completed the Holiday Inn brand relaunch program at its Raleigh,
North Carolina property. The program included a new guest room
bedding package, new exterior signage and lighting as well as lobby
enhancements. -- Aggressive ramp-up efforts that include a variety
of sales and marketing tactics are on track at the Company's most
recently repositioned assets including the Crowne Plaza Tampa
Westshore, the Sheraton Louisville Riverside, the Hilton Savannah
DeSoto and the Crowne Plaza Hampton Marina. These assets comprise
approximately one-third of the Company's total guest room count. --
After completing an extensive $20.0 million renovation in 2008, the
Crowne Plaza Tampa Westshore received a 2009 Renovation of the Year
Award from Intercontinental Hotels Group ("IHG"). This marks the
third consecutive year that the Company has received recognition
for its development efforts from IHG. Balance Sheet/Liquidity At
December 31, 2009, the Company had approximately $4.2 million of
available cash and cash equivalents, of which approximately $0.7
million is reserved for capital improvements and certain other
expenses. The Company has approximately $75.5 million outstanding
on its $80.0 million revolving line of credit, which had been
deployed primarily to fund the acquisition and renovation of the
Sheraton Louisville Riverside Hotel, the Company's equity
contribution to its joint venture with The Carlyle Group for the
purchase of the Crowne Plaza Hollywood Beach Resort, and the
acquisitions of the Tampa and Hampton, Virginia hotel properties.
The Company has no debt maturing before May 2011, other than the
mortgage on the Jacksonville property, which matures in July 2010
but may be extended for one year subject to certain conditions. The
loans coming due at that time are a combination of variable and
fixed rate debt carrying favorable terms. Pursuant to the terms of
the Company's credit facility, the methodology used to determine
the value of several hotel assets that were renovated over the last
two years and the percentage of the aggregate value of the
Company's hotel properties in the borrowing base used to determine
the level of borrowing available under the line will change
commencing April 1, 2010. The loan-to-value ratio under the credit
facility will be reduced from 70% to 65% and certain hotels will be
valued on the basis of their net operating income over a trailing
twelve-month period rather than on the basis of acquisition cost or
an appraised value. As a result of these changes, the aggregate
loan amount available to the Company likely will be reduced below
anticipated borrowing levels at April 1, 2010 and the Company may
be required to repay an amount between $20.0 and $25.5 million on
its line based upon current projections. The Company currently is
considering a number of alternatives to address this issue and has
commenced discussions with the lenders under its credit facility
with respect to amending the facility and is also evaluating
potential sources of additional capital. Rights Offering As
previously announced, the Company completed a rights offering
pursuant to which the Company issued 2,132,680 new shares of common
stock at $1.60 per share and received gross proceeds of
approximately $3.4 million. The proceeds from the rights offering,
after payment of fees and expenses incurred in connection
therewith, are being used for additional working capital, which may
be deployed for reducing or purchasing the Company's indebtedness
and other general corporate purposes. Dividend As previously
announced, the most recent amendment to the credit agreement
entered into in May 2009 permits the Company to pay in any given
fiscal year a dividend in an amount minimally necessary in order to
preserve cash while maintaining the Company's REIT status, provided
that no dividend may be paid during the first three quarters of
such fiscal year. The Company anticipates the amount of such a
dividend will remain at 90% of taxable income. If certain liquidity
thresholds and other conditions are met the Company may be able to
declare and pay additional cash dividends in any fiscal year. Any
future changes to the Company's current dividend policy will need
to be in compliance with restrictions on the payment of cash
dividends as set forth in the referenced amendment to the credit
agreement. Asset Management Group As previously announced, the
Company has formed a separate subsidiary, MHI Asset Recovery, LLC,
to pursue asset management assignments from special servicers and
other entities involved in distressed hotel loans and workouts. The
Company will provide asset management services including, but not
limited to, property management, receiver services support,
litigation and contract support, franchise selection, construction
management, value optimization, and project management on a
fee-for-service basis. Outlook and Market Trends In light of
ongoing unpredictable macro-economic and hospitality market
conditions and their potential impact on the Company's markets and
customer base, management has elected to continue to suspend
providing guidance regarding projected financial performance for
the near term. Earnings Call/Webcast The Company will conduct its
fourth quarter and year 2009 conference call for investors and
other interested parties at 10:00 a.m. Eastern Time (ET) on
Tuesday, February 23, 2010. The conference call will be accessible
by telephone and through the Internet. Interested individuals are
invited to listen to the call by telephone at 800-860-2442. To
participate on the webcast, log on to
http://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 two
hours after completion of the live call on February 23, 2010
through March 31, 2010 at 9 a.m. ET. To access the rebroadcast,
dial 877-344-7529 and enter passcode number 436912#. A replay of
the call will also be available on the Internet at
http://www.mhihospitality.com/ until March 31, 2010. About MHI
Hospitality Corporation MHI Hospitality Corporation is a
self-advised lodging REIT focused on the acquisition, redevelopment
and management of mid-scale, upscale and upper-upscale full-service
hotels in the Mid-Atlantic, Midwest and Southeastern United States.
Currently, the Company's portfolio consists of investments in
eleven hotel properties, nine of which are wholly-owned and
comprise 2,110 rooms. All of the Company's wholly-owned properties
operate under the Hilton, InterContinental Hotels Group and
Starwood Hotels and Resorts brands. The Company also has a 25
percent interest in the Crowne Plaza Hollywood Beach Resort and a
leasehold interest in the common area of Shell Island Resort, a
resort condominium property. MHI Hospitality Corporation was
organized in 2004 and is headquartered in Williamsburg, Virginia.
For more information please visit http://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 the
current economic downturn, that will 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
availability and terms of financing and capital and the general
volatility of the securities markets, specifically, the impact of
the current 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; management and performance of the Company's
hotels; 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; and legislative/regulatory changes, including changes
to laws governing taxation of real estate investment trusts. 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 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, December 31,
2009 2008 (unaudited) (audited) ----------- --------- ASSETS
Investment in hotel properties, net $188,587,507 $154,295,611
Properties under development - 33,101,773 Investment in joint
venture 9,685,844 10,253,732 Cash and cash equivalents 3,490,487
1,719,147 Restricted cash 701,730 2,573,444 Accounts receivable
1,625,161 1,352,203 Accounts receivable-affiliate 32,444 53,795
Prepaid expenses, inventory and other assets 2,046,082 1,611,618
Notes receivable, net 100,000 100,000 Shell Island lease purchase,
net 1,441,176 1,852,941 Deferred income taxes 4,920,973 2,991,500
Deferred financing costs, net 1,328,351 1,312,670 ---------
--------- TOTAL ASSETS $213,959,755 $211,218,434 ============
============ LIABILITIES Line of credit $75,522,858 $73,187,858
Mortgage loans 72,738,250 72,256,168 Loans payable 4,613,163 -
Accounts payable and accrued liabilities 6,696,605 11,451,976
Advance deposits 547,653 546,236 ------- ------- TOTAL LIABILITIES
160,118,529 157,442,238 ----------- ----------- Commitments and
contingencies EQUITY MHI Hospitality Corporation stockholders'
equity Preferred stock, par value $0.01; 1,000,000 shares
authorized; 0 shares issued and outstanding - - Common stock, par
value $0.01; 49,000,000 shares authorized; 9,096,943 shares and
6,939,613 shares issued and outstanding at December 31, 2009 and
90,969 69,396 2008, respectively Additional paid in capital
52,543,562 48,586,775 Distributions in excess of retained earnings
(14,454,238) (12,341,122) ----------- ----------- Total MHI
Hospitality Corporation stockholders' equity 38,180,293 36,315,049
---------- ---------- Noncontrolling interest 15,660,933 17,461,147
---------- ---------- TOTAL EQUITY 53,841,226 53,776,196 ----------
---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $213,959,755
$211,218,434 ============ ============ MHI HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS Three Three months months
Year Year ended ended ended ended December 31, December 31,
December 31, December 31, 2009 2008 2009 2008 ---- ---- ---- ----
REVENUE Rooms department $11,534,547 $11,408,458 $48,939,286
$48,088,703 Food and beverage department 4,804,583 5,097,779
17,992,536 18,417,430 Other operating departments 1,167,856
1,102,196 4,586,904 4,256,599 --------- --------- ---------
--------- Total revenue 17,506,986 17,608,433 71,518,726 70,762,732
EXPENSES Hotel operating expenses Rooms department 3,520,015
3,369,153 14,018,102 13,588,565 Food and beverage department
3,243,799 3,463,367 12,234,104 13,426,296 Other operating
departments 193,833 187,250 775,036 837,751 Indirect 7,349,384
7,120,528 29,026,538 28,016,410 --------- --------- ----------
---------- Total hotel operating expenses 14,307,031 14,140,298
56,053,780 55,869,022 Depreciation and amortization 2,271,676
1,568,541 8,420,085 6,346,222 Corporate general and administrative
673,351 622,151 3,170,627 2,940,979 ------- ------- ---------
--------- Total operating expenses 17,252,058 16,330,990 67,644,492
65,156,223 ---------- --------- ---------- ---------- NET OPERATING
INCOME 254,928 1,277,443 3,874,234 5,606,509 Other income (expense)
Interest expense (2,530,193) (2,001,229) (9,661,871) (6,811,460)
Interest income 4,309 15,406 41,999 72,547 Equity in earnings
(loss) of joint venture (79,401) (213,125) (249,367) 48,496 Loan
impairment charge - - - (300,000) Unrealized gain (loss) on hedging
activities 365,991 (778,010) 1,220,162 (691,268) Loss on disposal
of assets - (205,571) (42,870) (320,533) --- -------- -------
-------- Net loss before taxes (1,984,366) (1,905,086) (4,817,713)
(2,395,709) Income tax benefit 780,252 465,500 1,807,126 1,475,695
------- ------- --------- --------- Net loss (1,204,114)
(1,439,586) (3,010,587) (920,014) Adjust: Net loss attributable to
the noncontrolling interest 405,726 504,060 1,036,757 322,127
------- ------- --------- ------- Net loss attributable to the
Company $(798,388) $(935,526) $(1,973,830) $(597,887) =========
========= ----------- --------- Net loss per share attributable to
the Company Basic $(0.10) $(0.13) $(0.28) $(0.09) Diluted $(0.10)
$(0.13) $(0.28) $(0.09) Weighted average number of shares
outstanding Basic 7,682,883 6,936,613 7,143,829 6,937,234 Diluted
7,708,883 6,975,613 7,169,829 6,973,731 MHI HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended Year ended
December 31, December 31, 2009 2008 (unaudited) (audited) Cash
flows from operating activities: Net loss attributable to the
Company $(1,973,830) $(597,887) Adjustments to reconcile net loss
to net cash provided by operating activities: Depreciation and
amortization 8,420,085 6,346,222 Equity in joint venture 249,367
(48,496) Loss on disposal of assets 42,870 320,533 Loan impairment
charge - 300,000 Unrealized (gain) loss on hedging activities
(1,220,162) 691,268 Amortization of deferred financing costs
759,721 376,241 Charges related to equity-based compensation
134,510 265,696 Noncontrolling interest in operating partnership
(1,036,757) (322,127) Changes in assets and liabilities: Restricted
cash 404,879 (51,439) Accounts receivable (272,958) 314,214
Inventory, prepaid expenses and other assts (514,294) (1,097,746)
Deferred income taxes (1,929,473) (1,652,278) Accounts payable and
other accrued liabilities 95,879 2,275,022 Advance deposits 1,417
137,324 Due from affiliates 21,351 (41,981) ------ ------- Net cash
provided by operating activities 3,182,605 7,214,566 ---------
--------- Cash flows from investing activities: Acquisition of
hotel properties - (2,094,042) Improvements and additions to hotel
properties (12,792,570) (44,443,519) Contributions to joint venture
- (4,771,481) Distributions from joint venture 318,521 149,317
Funding of restricted cash reserves (1,205,775) (1,621,333)
Proceeds of restricted cash reserves 2,672,610 849,357 ---------
------- Net cash used in investing activities (11,007,214 )
(51,931,701) ------------ ----------- Cash flows from financing
activities: Proceeds of common stock 3,412,288 - Payment of
issuance costs related to the sale of common stock (257,144) -
Dividends and distributions paid (214,037) (7,246,021) Proceeds of
mortgage refinancing 743,832 11,996,168 Proceeds of credit facility
6,300,000 38,800,000 Payments on credit facility (3,965,000) -
Payment of deferred financing costs (775,402) (612,565) Proceeds of
loans 4,750,000 - Payment of mortgages and loans (398,588)
(490,000) -------- -------- Net cash provided by financing
activities 9,595,949 42,447,582 --------- ---------- Net increase
(decrease) in cash and cash equivalents 1,771,340 (2,269,553) Cash
and cash equivalents at the beginning of the period 1,719,147
3,988,700 --------- --------- Cash and cash equivalents at the end
of the period $3,490,487 $1,719,147 ========== ==========
Supplemental disclosures: Cash paid during the period for interest
$9,137,433 $7,714,781 ========== ========== Cash paid during the
period for income taxes $161,155 $158,240 ======== ========
Non-cash investing and financing activities: Assumption of existing
indebtedness on purchase of hotel properties $- $5,750,000 ===
========== Refinance of mortgage notes $- $5,260,000 === ==========
MHI HOSPITALITY CORPORATION RECONCILIATION OF NET INCOME (LOSS) TO
FUNDS FROM OPERATIONS (FFO) (unaudited) Three months Three months
Year Year ended ended ended ended December 31, December 31,
December 31, December 31, 2009 2008 2009 2008 ---- ---- ---- ----
Net loss $(798,388) $(935,526) $(1,973,830) $(597,887) Adjust
noncontrolling interest (405,726) (504,060) (1,036,757) (322,127)
Add depreciation and amortization 2,271,676 1,568,541 8,420,085
6,346,222 Add equity in depreciation and amortization of joint
venture 137,768 136,415 545,580 545,659 Adjust loss on disposal of
assets - 205,571 42,870 320,533 --- ------- ------ ------- FFO
$1,205,330 $470,941 $5,997,948 $6,292,400 ========== ========
========== ========== Weighted average shares outstanding 7,682,883
6,939,613 7,143,829 6,937,234 Weighted average units outstanding
3,737,607 3,737,607 3,737,607 3,737,607 --------- ---------
--------- --------- Weighted average shares and units 11,420,490
10,677,220 10,881,436 10,674,841 ========== ========== ==========
========== FFO per share and unit $0.11 $0.04 $0.55 $0.59 =====
===== ===== ===== 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
that was 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.
Thus, NAREIT created FFO as a supplemental measure of REIT
operating performance that excludes historical cost depreciation,
among other items, from GAAP net income. Management believes that
the use of FFO, combined with the required GAAP presentations, has
improved the understanding of the operating results of REITs among
the investing public and made comparisons of REIT operating results
more meaningful. Management 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. MHI HOSPITALITY
CORPORATION RECONCILIATION OF NET OPERATING INCOME TO ADJUSTED
OPERATING INCOME (unaudited) Three months Three months Year Year
ended ended ended ended December 31, December 31, December 31,
December 31, 2009 2008 2009 2008 ---- ---- ---- ---- Net operating
income $254,928 $1,277,443 $3,874,234 $5,606,509 Add corporate
general and administrative 673,351 622,151 3,170,627 2,940,979 Add
depreciation and amortization 2,271,676 1,568,541 8,420,085
6,346,222 Subtract net lease rental income (126,750) (117,965)
(445,000) (471,863) Subtract other fee income (51,618) (47,311)
(248,039) (197,789) ------- ------- -------- -------- Adjusted
operating income $3,021,587 $3,302,859 $14,771,907 $14,224,058
========== ========== =========== =========== We provide adjusted
operating income as supplemental information for investors. We
eliminate corporate-level costs and expenses to arrive at
property-level results because we believe property-level results
provide investors with supplemental information into the ongoing
operating performance of our hotels. We eliminate depreciation and
amortization because, even though depreciation and amortization are
property-level expenses, these non-cash expenses, which are based
on historical cost accounting for real estate assets, implicitly
assume that the value of real estate assets diminishes predictably
over time. As noted earlier, because real estate values have
historically risen or fallen with market conditions, many industry
investors have considered presentation of operating results for
real estate companies that use historical cost accounting to be
insufficient by themselves. As a result of the elimination of
corporate-level costs and expenses, depreciation and amortization,
net lease income as well as other fee income not related to our
wholly-owned hotel properties, the adjusted operating income we
present should not be used to evaluate our performance as a whole.
Management compensates for these limitations by separately
considering the impact of these excluded items to the extent they
are material to operating decisions or assessments or our operating
performance. Our consolidated statements of operations include such
amounts, all of which should be considered by investors when
evaluating our performance. We also believe that providing adjusted
operating income provides investors and management with useful
information for evaluating the period-to-period performance of our
hotels and facilitates comparisons with other hotels REITs and
hotel owners. DATASOURCE: MHI Hospitality Corporation CONTACT: Bill
Zaiser, Chief Financial Officer of MHI Hospitality Corporation,
+1-301-220-5400; or Vicki Baker, General Information of Financial
Relations Board, +1-703-796-1798, for MHI Hospitality Corporation
Web Site: http://www.mhihospitality.com/
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