FelCor Lodging Trust Incorporated (NYSE: FCH) today reported
operating results for the fourth quarter and year ended
December�31, 2008.
�Our fourth quarter results were better than expected, despite a
very challenging operating environment. Our results reflect
extensive cost cutting measures that were implemented to protect
our operating margins. In addition, our renovation program has been
a resounding success, with our portfolio RevPAR increasing more
than any of our peers� during 2008,� said Richard A. Smith,
FelCor�s President and Chief Executive Officer.
Highlights:
- Agreed in principle on the
material terms for a $120�million secured loan with one of the
current lenders to refinance our only significant 2009 debt
maturity.
- Agreed in principle on the
material terms with the lead lender for a $200�million secured loan
with a term of up to four years, which will allow us to repay and
cancel our line of credit, accumulate cash and eliminate all of our
corporate financial covenants.
- Adjusted FFO per share was $0.25
and Adjusted EBITDA was $52.3�million for the fourth quarter. This
exceeded the high end of our guidance.
- Market share increased more than
five percent in the fourth quarter for our 70 hotels where
renovations were completed in 2007 and 2008, which is consistent
with our expectations. Market share increased almost three�percent
for our 85 consolidated hotels.
- Hotel EBITDA margin increased 36
basis points for the full year, reflecting successful and ongoing
cost cutting measures.
- RevPAR increased one percent for
the full year at our 85 consolidated hotels. RevPAR declined by 8.5
percent in the fourth quarter at our 85 consolidated hotels,
compared to the United States average decline of 9.8 percent.
RevPAR decreased 6.6�percent in the fourth quarter at the 70 hotels
where we completed renovations during 2007 and 2008.
- Net loss applicable to common
stockholders for the fourth quarter was $98.1�million and included
impairment charges of $63.1�million and liquidated damages of
$11.1�million.
Fourth Quarter Operating Results:
Our hotels continue to outperform the industry average and their
competitive sets. Revenue per available room (�RevPAR�) for our 85
consolidated hotels decreased by 8.5�percent to $82.01, driven by
decreases in both average daily rate (�ADR�) (3.9�percent) and
occupancy (4.8�percent), compared to the same period in 2007.
RevPAR decreased 6.6 percent at the 70 hotels where we completed
renovations during 2007 and 2008. By contrast, RevPAR for the
United States and the upper upscale segment decreased by 9.8 and
11.1 percent, respectively, according to Smith Travel Research.
�I am pleased with our many accomplishments during 2008, which
include increasing operating margins, successfully completing our
renovation program and our renovated hotels achieving their
expected market share growth. As the economic headwinds continue
into 2009, our team is focused on finding ways to further reduce
expenses to mitigate the decline in revenue while continuing to be
creative in developing new sources of revenue. We started working
with our operators last May to improve operating efficiencies and
reduce headcount at our hotels. This process continued through the
2009 budget process and will result in additional savings for 2009.
We also remain focused on ensuring adequate liquidity and
strengthening our balance sheet. With a recently renovated
portfolio that is diversified among major markets and is flagged
under brands that outperform their competitors, we should continue
to outperform the industry,� continued Mr. Smith.
Adjusted Funds from Operations (�FFO�) was $15.6�million, or
$0.25 per share, compared to Same-Store Adjusted FFO of
$21.8�million, or $0.34 per share, and Adjusted FFO of
$21.2�million, or $0.34 per share, for the same period in 2007.
Same-Store Adjusted FFO includes results from acquired hotels for
the entire quarter, regardless of when acquired, and excludes sold
hotels and gains from condominiums.
Hotel EBITDA decreased to $61.5�million, compared to
$70.5�million in the same period in 2007, a 13 percent decrease.
Hotel EBITDA margin was 24.2 percent, a 156 basis point decrease
compared to the same period in 2007. Hotel EBITDA represents 100
percent of the EBITDA generated by our hotels regardless of when
acquired and is before corporate expenses and joint venture
adjustments.
Adjusted EBITDA was $52.3�million compared to Same-Store
Adjusted EBITDA of $61.9�million, and Adjusted EBITDA of
$58.8�million, for the same period in 2007. Same-Store Adjusted
EBITDA includes results from acquired hotels for the entire quarter
regardless of when acquired and excludes sold hotels and gains from
condominiums.
Net loss applicable to common stockholders was $98.1�million, or
$1.57 per share, compared to $13.0�million, or $0.21 per share, for
the same period in 2007. Net loss applicable to common stockholders
in the fourth quarter of 2008 includes impairment charges of
$63.1�million ($54.1�million related to consolidated hotels and
$9.0�million related to unconsolidated entities) and liquidated
damages of $11.1�million. Because of the unprecedented conditions
in the financial markets, we reviewed our entire portfolio for
impairment in the fourth quarter of 2008. As a result of this
review, we recorded fourth quarter non-cash impairment charges
aggregating $63.1�million. Approximately $45�million of the
impairment charge relates to two hotels that we do not intend to
sell (one of which has a short-term ground lease and the other is
owned by an unconsolidated entity and experienced an
other-than-temporary decline in market value) and the remainder of
the impairment is related to three hotels that remain on the market
to be sold.
Full Year Operating Results:
Adjusted FFO was $125.9�million, or $1.99 per share, compared to
Same-Store Adjusted FFO of $113.5�million, or $1.79 per share, and
Adjusted FFO of $137.2�million, or $2.17 per share, for 2007.
Hotel EBITDA increased to $316.0�million, compared to
$308.1�million in 2007, a 3�percent increase. Hotel EBITDA margin
was 28.0 percent, a 36 basis point increase compared to 2007.
Adjusted EBITDA was $275.8�million compared to Same-Store
Adjusted EBITDA of $273.3�million, and Adjusted EBITDA of
$285.1�million, for 2007.
Net loss applicable to common stockholders was $158.0�million,
or $2.55 per share, compared to a net income applicable to common
stockholders of $50.3�million, or $0.81 per share, for 2007. Net
loss applicable to common stockholders in 2008 included impairment
charges of $120.6�million ($108.0�million related to consolidated
hotels and $12.6�million related to unconsolidated entities) and
liquidated damages of $11.1�million. Net income in 2007 included
$18.6�million gain on sale of condominiums.
EBITDA, Adjusted EBITDA, Same-Store Adjusted EBITDA, Hotel
EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Same-Store
Adjusted FFO are all non-GAAP financial measures. See our
discussion of �Non-GAAP Financial Measures� beginning on page�15
for a reconciliation of each of these measures to our net income
and for information regarding the use, limitations and importance
of these non-GAAP financial measures.
Balance Sheet/Liquidity:
At December 31, 2008, we had $1.6�billion of consolidated debt
outstanding with a weighted average interest rate of 5.2 percent,
and our cash and cash equivalents totaled $50.2�million. As of
today, we have approximately $100�million of cash and cash
equivalents, and we intend to retain excess cash for working
capital because of the uncertain economic environment. We currently
have drawn $188�million on our $250�million line of credit and
remain in compliance with our financial covenants.
We have agreed in principle on the material terms of a new
$200�million term loan, which would be secured by first mortgages
on eight currently unencumbered hotels and, assuming all extension
options are exercised, will not mature until 2013. This loan would
not be subject to any corporate financial covenants. The material
terms of this loan have been approved by JPMorgan Securities Inc.
as lead arranger, and JPMorgan Chase Bank, N.A., as administrative
agent, which will provide a portion of the loan. Proceeds from this
loan will be used for general working capital purposes and to repay
the outstanding balance on our line of credit (which will be
cancelled upon repayment). We expect to close this new loan,
subject to other lenders� approval, documentation, due diligence
and customary conditions, by the end of April.
We have one significant debt maturity in 2009 � a $117�million
non-recourse mortgage loan secured by seven hotels. We have agreed
in principle on the material terms to refinance this loan for five
years with Prudential Mortgage Capital, one of the current lenders,
(with respect to which we have paid a non-refundable $300,000
portion of the origination fee) and are negotiating final
documentation. We expect to close the refinancing upon or prior to
maturity, subject to documentation, due diligence and customary
conditions. Our next significant debt maturity is May�2010. We have
already begun discussions with potential lenders to refinance our
debt that matures in 2010 and 2011.
Our Board of Directors suspended our common dividend in the
fourth quarter. We do not anticipate that we will be required to
pay any further dividends in 2009 to maintain our REIT status. The
suspension of our common dividend will preserve approximately
$38�million of liquidity in 2009. We paid the 2008 fourth quarter
dividends on our preferred stock in January 2009.
�We are taking steps to ensure adequate liquidity and extend our
debt maturities. We have agreed on the principle terms with
Prudential to refinance our upcoming 2009 maturity and have also
agreed on the principle terms of a secured loan that removes all of
our corporate financial covenants. We are pleased that we will have
eliminated our near-term maturity risk and are already working on a
plan to refinance the debt that matures in 2010 and 2011.
Additionally, we have suspended our common dividend, postponed any
further redevelopment spending and improved our cost structure
through expense reductions. After completion of our planned 2009
financing transactions, our balance sheet will remain flexible with
23 hotels unencumbered by mortgage debt,� said Andrew J. Welch,
FelCor�s Executive Vice President and Chief Financial Officer.
Capital Expenditures and Development:
Overall, our renovated hotels continue to perform consistent
with our expectations. While RevPAR at the 70 hotels where we
completed renovations during 2007 and 2008 decreased by 6.6�percent
for�the quarter, compared to the same period in the prior year,
market share at these hotels increased by more than five percent
relative to their competitive sets. RevPAR for our five hotels
under renovation during the�fourth quarter, including Hotel 480
Union Square in San Francisco, decreased by 22�percent.
We spent $156�million on renovations and redevelopment projects
at our hotels, including our pro rata share of joint venture
expenditures, during 2008. The redevelopment of Hotel 480 Union
Square is expected to be completed in the second quarter. On
April�1, 2009, this hotel will be reflagged as a Marriott.
During 2009, we expect to spend $39�million on ordinary course
improvements to our hotels. Additionally, we expect to spend
$25�million to finalize the redevelopment of Hotel 480 Union Square
and $20�million of carryover to complete the final portion of our
renovation program. In the interest of building long-term value, we
are moving forward with the approval and entitlement process of
additional redevelopment projects. However, we are committed to a
disciplined approach toward capital allocation and will not commit
capital to new projects until that is prudent.
Portfolio Recycling:
Subsequent to year end, we sold the Ramada Hotel in Hays, Kansas
for $3�million. This hotel was part of an unconsolidated joint
venture with two other hotels. The proceeds from the sale of the
hotel were used to partially repay the joint venture�s mortgage
loan. The remaining hotels we previously identified as
non-strategic are currently being marketed for sale, but under
current credit market conditions, we do not expect to sell any
additional hotels during 2009.
Outlook:
Our business plan reflects a prolonged recession and continued
deterioration of lodging demand through 2009, based on shrinking
manufacturing output, rising unemployment and low consumer
confidence. These economic factors result in an unpredictable
economy and makes visibility into future demand trends very limited
and impacts our ability to accurately forecast RevPAR. Therefore,
we are providing a wider than normal range of guidance. While we
expect RevPAR to decline sharply in 2009, our portfolio will
benefit from the renovations we completed in 2008 and the
conversion of our Hotel 480 Union Square to a Marriott. Therefore,
we expect our portfolio to grow market share by an average of more
than 100 basis points. Our guidance assumes no asset sales, other
than the one unconsolidated hotel already sold.
Assuming full year 2009 RevPAR for our 85 consolidated hotels
decreases between ten and 13 percent, we anticipate:
- Adjusted EBITDA to be between
$200�million and $213�million;
- Adjusted FFO per share to be
between $0.76 and $1.00;
- Net Loss to be between
$77�million and $62�million; and
- Interest expense to be between
$105�million and $107�million.
As of February 13, our senior notes were rated B1 and B+ by
Moody�s Investor Service and Standard & Poor�s Rating Services,
respectively. As a result, the interest rate on $300�million of our
Senior Notes due 2011 increased by 50 basis points to 9.0 percent,
which increased our annual interest expense by $1.5 million.
FelCor, a real estate investment trust, is the nation�s largest
owner of upper-upscale, all-suite hotels. FelCor owns interests in
88 hotels and resorts, located in 23 states and Canada. FelCor�s
portfolio consists primarily of upper-upscale hotels, which are
flagged under global brands such as Embassy Suites Hotels�,
Doubletree �, Hilton�, Renaissance�, Sheraton�, Westin� and Holiday
Inn�. Additional information can be found on the Company�s Web site
at www.felcor.com.
We invite you to listen to our fourth quarter earnings
Conference Call on Friday, February�27, 2009, at 11:00�a.m.
(Central Time). The conference call will be Web cast simultaneously
via the Internet on FelCor�s Web site at www.felcor.com. Interested
investors and other parties who wish to access the call should go
to FelCor�s Web site and click on the conference call microphone
icon on either the �Investor Relations� or �News� pages. The
conference call replay will be archived on the Company�s Web
site.
With the exception of historical information, the matters
discussed in this news release include �forward-looking statements�
within the meaning of the federal securities laws. These
forward-looking statements are identified by their use of terms and
phrases such as �anticipate,� �believe,� �could,� �estimate,�
�expect,� �intend,� �may,� �plan,� �predict,� �project,� �should�
�will,� �continue� and other similar terms and phrases, including
references to assumptions and forecasts of future results.
Forward-looking statements are not guarantees of future
performance. Numerous risks and uncertainties, and the occurrence
of future events, may cause actual results to differ materially
from those anticipated at the time the forward-looking statements
are made. Current economic circumstances or a further economic
slowdown and the impact on the lodging industry, operating risks
associated with the hotel business, relationships with our property
managers, risks associated with our level of indebtedness and our
ability to meet debt covenants in our debt agreements, our ability
to complete acquisitions and dispositions, the availability of
capital, the impact on the travel industry from increased fuel
prices and security precautions, our ability to continue to qualify
as a Real Estate Investment Trust for federal income tax purposes
and numerous other factors may affect future results, performance
and achievements. Certain of these risks and uncertainties are
described in greater detail in our filings with the Securities and
Exchange Commission. Although we believe our current expectations
to be based upon reasonable assumptions, we can give no assurance
that our expectations will be attained or that actual results will
not differ materially. We undertake no obligation to update any
forward-looking statement to conform the statement to actual
results or changes in our expectations.
SUPPLEMENTAL INFORMATION
INTRODUCTION
The following information is
presented in order to help our investors understand the financial
position of the Company as of and for the three months and year
ended December�31, 2008.
�
TABLE OF CONTENTS
�
PAGE Consolidated Statements of Operations(a)
7 Consolidated Balance Sheets(a) 8 Discontinued Operations 9
Capital Expenditures 9 Supplemental Financial Data 10 Debt Summary
11 Hotel Portfolio Composition 12 Detailed Operating Statistics by
Brand 13 Detailed Operating Statistics for FelCor�s Top Markets 14
Non-GAAP Financial Measures 15
(a) Our consolidated statements of operations and balance sheets
have been prepared without audit. Certain information and footnote
disclosures normally included in financial statements presented in
accordance with GAAP have been omitted. The consolidated statements
of operations and balance sheets should be read in conjunction with
the consolidated financial statements and notes thereto included in
our most recent Annual Report on Form 10-K.
� �
Consolidated Statements of Operations
(in thousands, except per share
data)
�
Three Months
EndedDecember 31,
Year EndedDecember
31,
�
2008 � � �
2007 � �
2008 � � �
2007 �
Revenues: Hotel operating revenue: Room $ 191,615 $ 197,495 $
885,404 $ 830,978 Food and beverage 47,181 37,647 179,056 136,793
Other operating departments 14,880 12,887 62,333 51,024 Other
revenue � 328 � � 477 � � 2,983 � � 3,089 � Total revenues �
254,004 � � 248,506 � � 1,129,776 � � 1,021,884 � � Expenses: Hotel
departmental expenses: Room 50,349 50,032 217,434 204,426 Food and
beverage 34,954 27,873 137,243 104,086 Other operating departments
6,757 5,397 28,148 20,924 Other property related costs 72,332
67,957 302,978 275,217 Management and franchise fees 11,830 12,790
57,278 53,508 Taxes, insurance and lease expense 25,925 28,872
113,809 121,259 Corporate expenses 3,619 4,986 20,698 20,718
Depreciation and amortization 36,759 30,022 141,668 110,751
Impairment loss 54,140 - 107,963 - Liquidated damages 11,060 -
11,060 - Other expenses � 1,990 � � 1,112 � � 6,538 � � 2,825 �
Total operating expenses � 309,715 � � 229,041 � � 1,144,817 � �
913,714 � � Operating income (loss) (55,711 ) 19,465 (15,041 )
108,170 Interest expense, net � (23,903 ) � (23,755 ) � (98,789 ) �
(92,489 )
Income (loss) before equity in
income from unconsolidated entities, minority interests and gain on
sale of assets
�
(79,614
�
)
�
(4,290
�
)
�
(113,830
�
)
�
15,681
Equity in income (loss) from
unconsolidated entities
(9,868 ) 846 (10,932 ) 20,357 Minority interests 1,088 570 1,268
1,033 Gain on involuntary conversion - - 3,095 - Gain on sale of
condominiums � - � � 129 � � - � � 18,622 � Income (loss) from
continuing operations (88,394 ) (2,745 ) (120,399 ) 55,693
Discontinued operations � - � � (547 ) � 1,154 � � 33,346 � Net
income (loss) (88,394 ) (3,292 ) (119,245 ) 89,039 Preferred
dividends � (9,679 ) � (9,679 ) � (38,713 ) � (38,713 ) Net income
(loss) applicable to common stockholders $ (98,073 ) $ (12,971 ) $
(157,958 ) $ 50,326 � � Basic per common share data: Net income
(loss) from continuing operations $ (1.57 ) $ (0.20 ) $ (2.57 ) $
0.28 � Net income (loss) $ (1.57 ) $ (0.21 ) $ (2.55 ) $ 0.82 �
Basic weighted average common shares outstanding � 62,429 � �
61,649 � � 61,979 � � 61,600 � Diluted per common share data: Net
income (loss) from continuing operations $ (1.57 ) $ (0.20 ) $
(2.57 ) $ 0.27 � Net income (loss) $ (1.57 ) $ (0.21 ) $ (2.55 ) $
0.81 �
Diluted weighted average common
shares outstanding
� 62,429 � � 61,649 � � 61,979 � � 61,897 � Cash dividends declared
on common stock $ - � $ 0.35 � $ 0.85 � $ 1.20 � � �
Consolidated Balance Sheets
(unaudited, in thousands)
�
December 31,
2008
December 31,
2007
Assets
Investment in hotels, net of
accumulated depreciation of $816,271 at December 31, 2008 and
$694,464 at December 31, 2007
$
2,279,026
$
2,400,057
Investment in unconsolidated entities 94,506 127,273 Cash and cash
equivalents 50,187 57,609 Restricted cash 13,213 14,846 Accounts
receivable, net of allowance for doubtful accounts of $521
at December 31, 2008 and $307 at
December 31, 2007
35,240
37,871
Deferred expenses, net of accumulated amortization of $13,087 at
December 31, 2008 and $10,820 at
December 31, 2007
5,556
8,149
Other assets � 34,541 � � 38,030 � Total assets $ 2,512,269 � $
2,683,835 � �
Liabilities and Stockholders� Equity
Debt, net of discount of $1,544 at
December 31, 2008 and $2,082 at December 31, 2007
$
1,551,686
$
1,475,607
Distributions payable 8,545 30,493 Accrued expenses and other
liabilities � 132,604 � � 134,159 � Total liabilities � 1,692,835 �
� 1,640,259 � � Commitments and contingencies �
Minority interest in FelCor LP,
296 and 1,354 units issued and outstanding at December 31, 2008 and
December 31, 2007, respectively
�
1,458
� �
11,398
� Minority interest in other partnerships � 23,784 � � 25,264 � �
Stockholders� equity: Preferred stock, $0.01 par value, 20,000
shares authorized:
Series A Cumulative Convertible
Preferred Stock, 12,880 shares, liquidation value of $322,011,
issued and outstanding at December 31, 2008 and December 31,
2007
�
309,362
�
309,362
Series C Cumulative Redeemable
Preferred Stock, 68 shares, liquidation value of $169,950, issued
and outstanding at December 31, 2008 and December 31, 2007
�
169,412
�
169,412
Common stock, $.01 par value,
200,000 shares authorized and 69,413 shares issued, including
shares in treasury, at December 31, 2008 and December 31, 2007
�
694
�
694
Additional paid-in capital 2,044,498 2,062,893 Accumulated other
comprehensive income 15,418 27,450 Accumulated deficit (1,645,947 )
(1,434,393 )
Less: Common stock in treasury, at
cost, of 5,189 and 6,705 shares at December 31, 2008 and December
31, 2007, respectively
�
(99,245
)
�
(128,504
)
� Total stockholders� equity � 794,192 � � 1,006,914 � � Total
liabilities and stockholders� equity $ 2,512,269 � $ 2,683,835 � �
�
Discontinued Operations
(in thousands)
�
Discontinued operations include
the results of operations of 11 hotels sold in 2007. Condensed
financial information for the hotels included in discontinued
operations is as follows:
�
Three Months Ended Year Ended December 31,
December 31, 2008 �
2007 2008 �
2007 Operating revenue $ - $ - $ - $ 26,522 Operating
expenses � - � � (59 ) � (13 ) � (18,430 )
Operating income (loss)
- (59 ) (13 ) 8,092 Interest expense, net - - - (14 ) Gain (loss)
on sale of hotels, net of income tax - (500 ) 1,193 27,988 Loss on
early extinguishment of debt - - - (902 ) Minority interests � - �
� 12 � � (26 ) � (1,818 )
Income (loss) from discontinued
operations - (547 ) 1,154 33,346
Depreciation and amortization, net
of minority interests
-
-
-
14
Minority interest in FelCor LP - (12 ) 26 724 Interest expense, net
of minority interests � - � � - � � - � � 27 �
EBITDA from
discontinued operations - (559 ) 1,180 34,111
Loss (gain) on sale of hotels, net
of income tax and minority interests in other partnerships
-
500
(1,193
)
(27,330
)
Charges related to early
extinguishment of debt, net of minority interests
�
-
� �
-
� �
-
� �
811
�
Adjusted EBITDA from discontinued operations $ - � $ (59 )
$ (13 ) $ 7,592 � � �
Capital Expenditures
(in thousands)
�
Three Months Ended
December 31,
Year EndedDecember
31,
�
2008 � � �
2007 � �
2008 � � �
2007 �
Improvements and additions to consolidated hotels $ 33,998 $ 39,724
$ 142,897 $ 227,518 Consolidated joint venture partners� prorata
share of additions to hotels (251 ) (862 )
(3,257
)
(3,420 ) Prorata share of unconsolidated additions to hotels �
2,651 � � 7,740 � � 16,549 � �
26,816
� Total additions to hotels(a) $ 36,398 � $ 46,602 � $ 156,189 � $
250,914 �
(a) Includes capitalized interest, property taxes, ground leases
and certain employee costs.
�
Supplemental Financial Data
(in thousands, except per share
information)
�
December 31, Total Enterprise Value �
2008 �
� �
2007 � Common shares outstanding 64,224 62,707 Units
outstanding � 296 � � 1,354 � Combined shares and units outstanding
64,520 64,061 Common stock price at end of period $ 1.84 � $ 15.59
� Equity capitalization $ 118,717 $ 998,711 Series A preferred
stock 309,362 309,362 Series C preferred stock 169,412 169,412
Consolidated debt 1,551,686 1,475,607 Minority interest of
consolidated debt (4,078 ) (7,305 ) Pro rata share of
unconsolidated debt 112,220 94,181 Cash and cash equivalents �
(50,187 ) � (57,609 ) Total enterprise value (TEV) $ 2,207,132 � $
2,982,359 � �
Dividends Per Share Dividends declared: Common
stock $ 0.85 $ 1.20 Series A preferred stock $ 1.95 $ 1.95 Series C
preferred stock (depositary shares) $ 2.00 $ 2.00 � � � �
Debt
Summary
(dollars in thousands)
�
Encumbered Hotels
Interest Rate atDecember
31, 2008
Maturity
Date
Consolidated Debt
Senior term notes none 8.50 %(a) June 2011 $ 299,414 Senior term
notes none L + 1.875 December 2011 215,000 Line of credit(b) none L
+ 0.80 � August 2011 � 113,000 Total line of credit and senior
debt(c) 5.53 � � 627,414 � Mortgage debt 12 hotels
L + 0.93
(d)
November 2011(e) 250,000 Mortgage debt 2 hotels
L + 1.55
(f)
May 2012(g) 176,267 Mortgage debt 8 hotels 8.70 May 2010 162,250
Mortgage debt 7 hotels 7.32 April 2009 117,131 Mortgage debt 6
hotels 8.73 May 2010 116,285 Mortgage debt 5 hotels 6.66
June-August 2014 72,517 Mortgage debt 2 hotels 6.15 June 2009
14,641 Mortgage debt 1 hotel 5.81 July 2016 12,137 Other 1 hotel
various � various � 3,044 Total mortgage debt(c) 44 hotels 5.03 � �
924,272
Total
5.23 % $ 1,551,686
(a) Effective February 13, our senior notes were rated B1 and B+
by Moody�s Investor Service and Standard & Poor�s Rating
Services, respectively. As a result, the interest rate on
$300�million of our Senior Notes due 2011 was increased by 50 basis
points to 9.0%. When either Moody�s or Standard & Poor�s
increases our senior note ratings, the interest rate will decrease
to 8.5%.
(b) We have a $250�million line of credit, of which $113�million
is drawn. The interest rate can range from 80 to 150 basis points
over LIBOR, based on our leverage ratio as defined in our line of
credit agreement.
(c) Interest rates are calculated based on the weighted average
debt outstanding at December�31, 2008.
(d) We have purchased an interest rate cap that expires in
November�2009 at 7.8% for this notional amount.
(e) The maturity date assumes that we will exercise three
successive one-year extension options that permit, at our sole
discretion, the original November 2008 maturity to be extended to
2011. In July 2008, we exercised our first one-year option to
extend the maturity to November 2009, and we expect to exercise the
remaining options when timely.
(f) We have purchased interest rate caps that expire in May 2009
of 6.25% for $177�million aggregate notional amounts.
(g) The maturity date assumes that we will exercise three
successive one-year extension options that permit, at our sole
discretion, the original May 2009 maturity to be extended to 2012,
and we expect to exercise the options when timely.
� Weighted average interest 5.23 % Fixed interest rate debt to
total debt 51.4 % Mortgage debt to total assets
36.8
%
Hotel Portfolio
Composition
The following tables set forth, as of December 31, 2008, for 85
Consolidated Hotels distribution by brand, top markets and location
type.
� � � �
Brand
Hotels
Rooms
% of
Total Rooms
% of 2008
Hotel EBITDA(a)
Embassy Suites Hotels 47 12,132 49 55 Holiday Inn 17 6,306 25 19
Sheraton and Westin 9 3,217 13 12 Doubletree 7 1,471 6 7
Renaissance and Hotel 480 3 1,324 5 5 Hilton 2 559 2 2 �
Top Markets
South Florida 5 1,439 6 7 San Francisco area 6 2,141 9 6 Atlanta 5
1,462 6 6 Los Angeles area 4 899 4 6 Orlando 5 1,690 7 5 Dallas 4
1,333 5 4 Philadelphia 2 729 3 4 Northern New Jersey 3 756 3 4
Minneapolis 3 736 3 4 San Diego 1 600 2 4 Phoenix 3 798 3 3 San
Antonio 3 874 3 3 Chicago 3 795 3 3 Boston 2 532 2 3 Washington,
D.C. 1 443 2 2 �
Location
Suburban 35 8,781 35 34 Urban 20 6,361 25 26 Airport 18 5,788 24 24
Resort 12 4,079 16 16
(a) Hotel EBITDA is more fully described on page 22.
�
Detailed Operating Statistics by Brand (85 consolidated
hotels) �
Occupancy (%) Three Months Ended December
31, �
Year Ended December 31, 2008 �
2007
�
%Variance 2008 �
2007 �
%Variance
Embassy Suites Hotels 65.8 68.0 (3.3 ) 72.9 71.7 1.7 Holiday Inn
63.1 65.3 (3.4 ) 71.8 69.1 4.0 Sheraton and Westin 59.1 63.2 (6.5 )
65.8 68.1 (3.3 ) Doubletree 64.9 68.2 (4.9 ) 73.5 71.7 2.5
Renaissance and Hotel 480(a) 53.7 65.7 (18.3 ) 62.7 71.6 (12.3 )
Hilton 48.1 49.9 (3.7 ) 60.6 60.2 0.7 � Total hotels 63.0 66.2 (4.8
) 70.9 70.3 0.9 �
ADR ($) Three Months Ended December
31, Year Ended December 31, 2008 2007
%Variance 2008 2007 %Variance Embassy
Suites Hotels 136.24 141.69 (3.8 ) 143.54 143.10 0.3 Holiday Inn
115.05 119.89 (4.0 ) 120.18 117.59 2.2 Sheraton and Westin 122.64
127.62 (3.9 ) 124.61 126.77 (1.7 ) Doubletree 131.92 139.38 (5.4 )
141.62 143.11 (1.0 ) Renaissance and Hotel 480(a) 162.70 166.62
(2.4 ) 173.98 175.21 (0.7 ) Hilton 105.22 108.57 (3.1 ) 126.12
127.75 (1.3 ) � Total hotels 130.10 135.38 (3.9 ) 136.32 136.17
0.1
�
�
RevPAR ($) Three Months Ended December 31, Year
Ended December 31, 2008 2007 %Variance
2008 2007 %Variance Embassy Suites Hotels
89.66 96.39 (7.0 ) 104.57 102.54 2.0 Holiday Inn 72.63 78.31 (7.3 )
86.34 81.22 6.3 Sheraton and Westin 72.43 80.63 (10.2 ) 82.05 86.33
(5.0 ) Doubletree 85.64 95.11 (10.0 ) 104.03 102.55 1.4 Renaissance
and Hotel 480(a) 87.41 109.55 (20.2 ) 109.17 125.37 (12.9 ) Hilton
50.58 54.20 (6.7 ) 76.38 76.86 (0.6 ) � Total hotels 82.01 89.63
(8.5 ) 96.67 95.71 1.0
(a) Decreases in occupancy, ADR and RevPAR are principally
related to renovation-related disruption at Hotel 480 Union Square.
We have included historical room statistics for two hotels acquired
in December 2007 for periods, prior to our ownership of these
hotels, for comparison purposes.
�
Detailed Operating Statistics for FelCor�s Top Markets
(85 consolidated hotels) �
Occupancy (%) Three
Months Ended December 31, �
Year Ended December 31,
2008 �
2007 �
%Variance 2008 �
2007 �
%Variance South Florida 71.4 72.3 (1.4 ) 76.9
73.2 5.1 San Francisco area 64.7 74.8 (13.5 ) 74.5 76.6 (2.6 )
Atlanta 63.6 66.2 (3.8 ) 72.4 73.2 (1.1 ) Los Angeles area 65.1
61.8 5.2 74.5 74.5 - Orlando 69.7 74.3 (6.2 ) 76.2 76.8 (0.7 )
Dallas 57.6 64.8 (11.1 ) 65.9 65.0 1.3 Philadelphia 67.6 69.5 (2.7
) 72.9 68.9 5.8 Northern New Jersey 66.9 73.6 (9.1 ) 71.1 72.0 (1.2
) Minneapolis 60.7 67.5 (10.1 ) 70.6 74.8 (5.7 ) San Diego 70.2
69.2 1.5 78.5 74.5 5.4 Phoenix 52.4 63.6 (17.5 ) 62.6 67.3 (7.1 )
San Antonio 66.4 61.1 8.8 78.1 73.7 6.0 Chicago 64.5 70.1 (8.0 )
71.9 71.5 0.5 Boston 77.3 72.3 6.8 79.2 68.6 15.4 Washington, D.C.
54.6 59.6 (8.3 ) 57.8 65.7 (11.9 ) �
ADR ($) Three Months
Ended December 31, Year Ended December 31, 2008
2007 %Variance 2008 2007
%Variance South Florida 135.70 145.04 (6.4 ) 148.82 151.23
(1.6 ) San Francisco area 138.71 144.51 (4.0 ) 143.36 141.59 1.2
Atlanta 115.13 124.73 (7.7 ) 120.93 122.66 (1.4 ) Los Angeles area
142.73 153.95 (7.3 ) 157.20 158.71 (1.0 ) Orlando 103.26 104.96
(1.6 ) 106.46 105.62 0.8 Dallas 123.53 122.10 1.2 124.48 123.83 0.5
Philadelphia 160.70 146.02 10.1 151.60 138.88 9.2 Northern New
Jersey 157.47 160.24 (1.7 ) 162.37 157.02 3.4 Minneapolis 135.72
146.38 (7.3 ) 144.82 144.24 0.4 San Diego 145.89 153.18 (4.8 )
157.47 154.92 1.6 Phoenix 142.55 145.37 (1.9 ) 147.42 146.03 1.0
San Antonio 108.70 106.48 2.1 112.90 109.66 3.0 Chicago 122.89
132.18 (7.0 ) 126.75 131.68 (3.7 ) Boston 148.69 165.15 (10.0 )
154.30 158.52 (2.7 ) Washington, D.C. 152.00 160.14 (5.1 ) 154.37
164.66 (6.2 ) �
RevPAR ($) Three Months Ended December
31, Year Ended December 31, 2008 2007
%Variance 2008 2007 %Variance South
Florida 96.84 104.93 (7.7 ) 114.42 110.67 3.4 San Francisco area
89.78 108.10 (16.9 ) 106.87 108.42 (1.4 ) Atlanta 73.26 82.54 (11.2
) 87.60 89.85 (2.5 ) Los Angeles area 92.85 95.21 (2.5 ) 117.10
118.26 (1.0 ) Orlando 71.97 78.04 (7.8 ) 81.16 81.11 0.1 Dallas
71.12 79.07 (10.1 ) 81.99 80.47 1.9 Philadelphia 108.64 101.42 7.1
110.55 95.68 15.5 Northern New Jersey 105.37 117.93 (10.6 ) 115.49
113.07 2.1 Minneapolis 82.40 98.86 (16.7 ) 102.21 107.91 (5.3 ) San
Diego 102.48 106.05 (3.4 ) 123.64 115.36 7.2 Phoenix 74.75 92.45
(19.1 ) 92.23 98.32 (6.2 ) San Antonio 72.22 65.05 11.0 88.21 80.84
9.1 Chicago 79.22 92.66 (14.5 ) 91.11 94.18 (3.3 ) Boston 114.90
119.47 (3.8 ) 122.15 108.72 12.4 Washington, D.C. 82.98 95.39 (13.0
) 89.24 108.10 (17.4 )
Non-GAAP Financial
Measures
We refer in this release to certain �non-GAAP financial
measures.� These measures, including FFO, Adjusted FFO, Same-Store
Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store Adjusted EBITDA,
Hotel EBITDA and Hotel EBITDA margin, are measures of our financial
performance that are not calculated and presented in accordance
with generally accepted accounting principles (�GAAP�). The
following tables reconcile each of these non-GAAP measures to the
most comparable GAAP financial measure. Immediately following the
reconciliations, we include a discussion of why we believe these
measures are useful supplemental measures of our performance and
the limitations of such measures.
�
Reconciliation of Net Income (Loss) to FFO, Adjusted FFO and
Same-Store Adjusted FFO
(in thousands, except per share
and unit data)
�
Three Months Ended December 31, 2008 �
2007
Dollars �
Shares �
Per Share Amount
Dollars �
Shares �
Per Share Amount Net
loss $ (88,394 ) $ (3,292 ) Preferred dividends � (9,679 ) �
(9,679 )
Net loss applicable to
common stockholders
(98,073 ) 62,429 $ (1.57 ) (12,971 ) 61,649 $ (0.21 ) Depreciation
and amortization 36,759 - 0.59 30,022 - 0.49 Depreciation,
unconsolidated entities and discontinued operations 3,035 - 0.05
3,465 - 0.06 Loss on sale of hotels in unconsolidated entities - -
- 500 - 0.01 Minority interest in FelCor LP (1,153 ) 745 (0.01 )
(281 ) 1,354 (0.02 ) Conversion of options and unvested restricted
stock � - � - � - � � - � 341 � - �
FFO (59,432 ) 63,174
(0.94 ) 20,735 63,344 0.33 Impairment loss 54,140 - 0.86 - - -
Impairment loss, unconsolidated subsidiaries 8,946 - 0.14 - - -
Liquidated damages 11,060 - 0.18 - - - Conversion costs(a) 26 - -
491 - 0.01 Severance costs, net of minority interests 850 - 0.01 -
- - Conversion of options and unvested restricted stock � - � 22 �
- � � - � - � - �
Adjusted FFO 15,590 63,196 0.25 21,226
63,344 0.34 FFO from discontinued operations - - - 60 - - FFO from
acquired hotels(b) - - - 627 - - Gain on sale of condominiums � - �
- � - � � (129 ) - � - �
Same-Store Adjusted FFO $ 15,590 �
63,196 $ 0.25 � $ 21,784 � 63,344 $ 0.34 �
(a) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott. The conversion is expected
to be completed by early 2009.
(b) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
�
Reconciliation of Net Income (Loss) to FFO, Adjusted FFO and
Same-Store Adjusted FFO
(in thousands, except per share
and unit data)
�
Year Ended December 31, 2008 �
2007
Dollars �
Shares �
Per Share Amount
Dollars �
Shares �
Per Share Amount Net
income (loss) $ (119,245 ) $ 89,039 Preferred dividends �
(38,713 ) � (38,713 )
Net income (loss) applicable to common
stockholders (157,958 ) 61,979 $ (2.55 ) 50,326 61,897 $ 0.81
Depreciation and amortization 141,668 - 2.29 110,751 - 1.79
Depreciation, unconsolidated entities and discontinued operations
14,163 - 0.23 12,071 - 0.20 Gain on involuntary conversion (3,095 )
- (0.05 ) - - - Gain on sale of hotels (1,193 ) - (0.02 ) (27,330 )
- (0.44 ) Gain on sale of hotels in unconsolidated entities - - -
(10,993 ) - (0.18 ) Minority interest in FelCor LP � (2,433 ) 1,199
� (0.04 ) � 1,094 � 1,354 � (0.03 )
FFO (8,848 ) 63,178
(0.14 ) 135,919 63,251 2.15 Abandoned projects - - - 22 - - Charges
related to early extinguishment of debt, net of minority interests
- - - 811 - 0.01 Impairment loss 107,963 - 1.71 - - - Impairment
loss, unconsolidated subsidiaries 12,696 - 0.20 - - - Hurricane
loss(a) 1,669 - 0.03 - - - Hurricane loss, unconsolidated
subsidiaries 50 - - - - - Liquidated damages 11,060 - 0.17 - - -
Conversion costs(b) 507 - 0.01 491 - 0.01 Severance costs, net of
minority interests 850 - 0.01 - - - Conversion of options and
unvested restricted stock � - � 98 � - � � - � - � - �
Adjusted
FFO 125,947 63,276 1.99 137,243 63,251 2.17 FFO from
discontinued operations 13 - - (7,565 ) - (0.12 ) FFO from acquired
hotels(c) - - - 2,453 - 0.03 Gain on sale of condominiums � - � - �
- � � (18,622 ) - � (0.29 )
Same-Store Adjusted FFO $
125,960 � 63,276 $ 1.99 � $ 113,509 � 63,251 $ 1.79 �
(a) This represents clean up costs and insurance deductible.
(b) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott. The conversion is expected
to be completed by early 2009.
(c) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
� �
Reconciliation of Net Income (Loss) to EBITDA, Adjusted
EBITDA and Same-Store Adjusted EBITDA
(in thousands)
�
Three Months
EndedDecember 31,
Year EndedDecember
31,
�
2008 � � �
2007 � �
2008 � � �
2007 �
Net income (loss) $ (88,394 ) $ (3,292 ) $ (119,245 ) $
89,039 Depreciation and amortization 36,759 30,022 141,668 110,751
Depreciation, unconsolidated entities and discontinued operations
3,035
3,465
14,163
12,071
Interest expense 24,299 25,318 100,411 98,929 Interest expense,
unconsolidated entities and discontinued operations
2,032
1,417
6,237
5,987
Amortization of stock compensation 656 1,127 4,451 4,255 Minority
interest in FelCor Lodging LP � (1,153 ) � (281 ) � (2,433 ) �
1,094 �
EBITDA (22,766 ) 57,776 145,252 322,126 Gain on sale
of hotels - 500 (1,193 ) (27,330 ) Gain on sale of hotels in
unconsolidated entities - - - (10,993 ) Gain on involuntary
conversion - - (3,095 ) - Abandoned projects - - - 22 Charges
related to early extinguishment of debt, net of minority interests
-
-
-
811
Impairment loss 54,140 - 107,963 - Impairment loss, unconsolidated
entities 8,946 - 12,696 - Hurricane loss(a) - - 1,669 - Hurricane
loss, unconsolidated entities - - 50 - Liquidated damages 11,060 -
11,060 - Conversion costs (b) 26 491 507 491 Severance costs, net
of minority interests � 850 � � - � � 850 � � - �
Adjusted
EBITDA 52,256 58,767 275,759 285,127 Adjusted EBITDA from
discontinued operations - 59 13 (7,592 ) EBITDA from acquired
hotels(c) - 3,213 - 14,400 Gain on sale of condominiums � - � �
(129 ) � - � � (18,622 )
Same-Store Adjusted EBITDA $ 52,256
� $ 61,910 � $ 275,772 � $ 273,313 �
(a) This represents clean up costs and insurance deductible.
(b) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott. The conversion is expected
to be completed by early 2009.
(c) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
� �
Reconciliation of Same-Store Adjusted EBITDA to Hotel
EBITDA
(in thousands)
�
Three Months EndedDecember 31,
Year EndedDecember
31,
�
2008 � � �
2007 � �
2008 � � �
2007 �
Same-Store Adjusted EBITDA $ 52,256 $ 61,910 $ 275,772 $
273,313 Other revenue (328 ) (477 ) (2,983 ) (3,089 )
Equity in income from
unconsolidated subsidiaries (excluding interest, depreciation,
impairment and hurricane expense)
(4,800 ) (6,233 ) (24,576 ) (29,095 )
Minority interest in other
partnerships (excluding interest, depreciation and severance
expense)
814 203 3,648 311 Consolidated hotel lease expense 11,822 13,923
54,266 61,652
Unconsolidated taxes, insurance
and lease expense
(1,884 ) (1,726 ) (8,212 ) (7,314 ) Interest income (395 ) (1,563 )
(1,622 ) (6,440 )
Other expenses (excluding
hurricane loss, abandoned projects, conversion costs and severance
expense)
1,019 622 3,417 2,312
Corporate expenses (excluding
amortization expense of stock compensation)
� 2,963 � � 3,859 � � 16,247 � � 16,463 �
Hotel EBITDA $
61,467 � $ 70,518 � $ 315,957 � $ 308,113 � � �
Reconciliation
of Net Income (Loss) to Hotel EBITDA
(in thousands)
�
Three Months EndedDecember 31, Year
EndedDecember 31, �
2008 � � �
2007 � �
2008 � � �
2007 �
Net income (loss) $
(88,394 ) $ (3,292 ) $ (119,245 ) $ 89,039 Discontinued operations
- 547 (1,154 ) (33,346 ) EBITDA from acquired hotels(a) - 3,213 -
14,400 Equity in loss (income) from unconsolidated entities 9,868
(846 ) 10,932 (20,357 ) Minority interests (1,088 ) (570 ) (1,268 )
(1,033 ) Consolidated hotel lease expense 11,822 13,923 54,266
61,652 Unconsolidated taxes, insurance and lease expense (1,884 )
(1,726 ) (8,212 ) (7,314 ) Interest expense, net 23,903 23,755
98,789 92,489 Corporate expenses 3,619 4,986 20,698 20,718
Depreciation and amortization 36,759 30,022 141,668 110,751
Impairment loss 54,140 - 107,963 - Liquidated damages 11,060 -
11,060 - Other expenses 1,990 1,112 6,538 2,825 Gain on involuntary
conversion - - (3,095 ) - Gain on sale of condominiums - (129 ) -
(18,622 ) Other revenue � (328 ) � (477 ) � (2,983 ) � (3,089 )
Hotel EBITDA $ 61,467 � $ 70,518 � $ 315,957 � $ 308,113 �
(a) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
� �
Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
�
Three Months
EndedDecember 31,
Year EndedDecember
31,
�
2008 � � �
2007 � �
2008 � � �
2007 �
Total revenues $ 254,004 $ 248,506 $ 1,129,776 $ 1,021,884 Other
revenue (328 ) (477 ) (2,983 ) (3,089 ) Revenue from acquired
hotels(a) � - � � 25,352 � � - � � 94,164 � Same-Store hotel
operating revenue 253,676 273,381 1,126,793 1,112,959 Same-Store
hotel operating expenses(a) � (192,209 ) � (202,863 ) � (810,836 )
� (804,846 ) Hotel EBITDA $ 61,467 � $ 70,518 � $ 315,957 � $
308,113 � Hotel EBITDA margin(b) 24.2 % 25.8 % 28.0 % 27.7 %
(a) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
(b) Hotel EBITDA as a percentage of hotel operating revenue.
� �
Reconciliation of Total Operating Expenses to Same-Store
Hotel Operating Expenses
(dollars in thousands)
�
Three Months Ended
December 31,
Year Ended
December 31,
�
2008 � � �
2007 � �
2008 � � �
2007 �
Total operating expenses $ 309,715 $ 229,041 $ 1,144,817 $ 913,714
Unconsolidated taxes, insurance and lease expense 1,884 1,726 8,212
7,314 Consolidated hotel lease expense (11,822 ) (13,923 ) (54,266
) (61,652 ) Corporate expenses (3,619 ) (4,986 ) (20,698 ) (20,718
) Depreciation and amortization (36,759 ) (30,022 ) (141,668 )
(110,751 ) Impairment loss (54,140 ) - (107,963 ) - Liquidated
damages (11,060 ) - (11,060 ) - Other expenses (1,990 ) (1,112 )
(6,538 ) (2,825 ) Expenses from acquired hotels(a) � - � � 22,139 �
� - � � 79,764 � Same-Store Hotel operating expenses $ 192,209 � $
202,863 � $ 810,836 � $ 804,846 �
(a) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
� �
Reconciliation of Ratio of
Operating Income (Loss) to Total Revenues to Hotel EBITDA
Margin
�
Three Months
EndedDecember 31,
Year EndedDecember
31,
2008 �
2007 2008 �
2007 Ratio of
operating income (loss) to total revenues (21.9 )% 7.1 % (1.3 )%
9.7 % Other revenue (0.1 ) (0.2 ) (0.3 ) (0.3 ) Revenue from
acquired hotels(a) - 9.3 - 8.5 Unconsolidated taxes, insurance and
lease expense (0.8 ) (0.6 ) (0.7 ) (0.7 ) Consolidated hotel lease
expense 4.7 5.1 4.8 5.5 Other expenses 0.8 0.4 0.6 0.3 Corporate
expenses 1.4 1.8 1.8 1.9 Depreciation and amortization 14.4 11.0
12.5 9.9 Impairment loss 21.3 - 9.6 - Liquidated damages 4.4 - 1.0
- Expenses from acquired hotels(a) - � (8.1 ) - � (7.1 ) Hotel
EBITDA margin 24.2 % 25.8 % 28.0 % 27.7 %
(a) We have included amounts for two hotels acquired in December
2007, prior to our ownership of these hotels, for comparison
purposes.
�
Reconciliation of Forecasted Net Loss to Forecasted FFO,
Adjusted FFO, EBITDA and Adjusted EBITDA
(in millions, except per share and
unit data)
�
Full Year 2009 Guidance Low Guidance �
High
Guidance Dollars �
Per Share Amount
Dollars �
Per Share Amount Net loss $ (77 ) $
(62 ) Preferred dividends � (39 ) � (39 )
Net loss applicable to
common stockholders (116 ) $ (1.84 ) (101 ) $ (1.60 )
Depreciation 165 165 Minority interest in FelCor LP � (1 ) � (1 )
Adjusted FFO $ 48 � $ 0.76 (a) $ 63 � $ 1.00 (a) �
Net
loss $ (77 ) $ (62 ) Depreciation 165 165 Interest expense 107
105 Amortization expense 6 6 Minority interest in FelCor LP � (1 )
� (1 )
Adjusted EBITDA $ 200 � $ 213 �
(a) Weighted average shares and units are 63.5�million.
Substantially all of our non-current assets consist of real
estate. Historical cost accounting for real estate assets
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, most industry
investors consider supplemental measures of performance, which are
not measures of operating performance under GAAP, to be helpful in
evaluating a real estate company�s operations. These supplemental
measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA,
Hotel EBITDA and Hotel EBITDA margin, are not measures of operating
performance under GAAP. However, we consider these non-GAAP
measures to be supplemental measures of a hotel REIT�s performance
and should be considered along with, but not as an alternative to,
net income as a measure of our operating performance.
FFO and EBITDA
The White Paper on Funds From Operations approved by the Board
of Governors of the National Association of Real Estate Investment
Trusts (�NAREIT�), defines FFO as net income or loss (computed in
accordance with GAAP), excluding gains or losses from sales of
property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis. We compute FFO in accordance with
standards established by NAREIT. This may not be comparable to FFO
reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do.
EBITDA is a commonly used measure of performance in many
industries. We define EBITDA as net income or loss (computed in
accordance with GAAP) plus interest expenses, income taxes,
depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to
reflect EBITDA on the same basis.
Adjustments to FFO and EBITDA
We adjust FFO and EBITDA when evaluating our performance because
management believes that the exclusion of certain additional
recurring and non-recurring items, including but not limited to
these described below, provides useful supplemental information to
investors regarding our ongoing operating performance and that the
presentation of Adjusted FFO and Adjusted EBITDA when combined with
GAAP net income, EBITDA and FFO, is beneficial to an investor�s
better understanding of our operating performance.
- Gains and losses related to
early extinguishment of debt and interest rate swaps � We exclude
gains and losses related to early extinguishment of debt and
interest rate swaps from FFO and EBITDA because we believe that it
is not indicative of ongoing operating performance of our hotel
assets. This also represents an acceleration of interest expense or
a reduction of interest expense, and interest expense is excluded
from EBITDA.
- Impairment losses � We exclude
the effect of impairment losses and gains or losses on disposition
of assets in computing Adjusted FFO and Adjusted EBITDA because we
believe that including these is not consistent with reflecting the
ongoing performance of our remaining assets. Additionally, we
believe that impairment charges and gains or losses on disposition
of assets represent accelerated depreciation, or excess
depreciation, and depreciation is excluded from FFO by the NAREIT
definition and from EBITDA.
- Cumulative effect of a change in
accounting principle � Infrequently, the Financial Accounting
Standards Board promulgates new accounting standards that require
the consolidated statements of operations to reflect the cumulative
effect of a change in accounting principle. We exclude these
one-time adjustments in computing Adjusted FFO and Adjusted EBITDA
because they do not reflect our actual performance for that
period.
In addition, to derive Adjusted EBITDA, we exclude gains or
losses on the sale of assets because we believe that including them
in EBITDA is not consistent with reflecting the ongoing performance
of our remaining assets. Additionally, the gain or loss on sale of
depreciable assets represents either accelerated depreciation or
excess depreciation in previous periods, and depreciation is
excluded from EBITDA.
To derive same-store comparisons, we have adjusted Adjusted FFO
and Adjusted EBITDA to remove discontinued operations and gains on
sales of condominium units; and have added the historical results
of operations from the two hotels acquired in December 2007.
Hotel EBITDA and Hotel EBITDA Margin
Hotel EBITDA and Hotel EBITDA margin are commonly used measures
of performance in the industry and give investors a more complete
understanding of the operating results over which our individual
hotels and operating managers have direct control. We believe that
Hotel EBITDA and Hotel EBITDA margin are useful to investors by
providing greater transparency with respect to two significant
measures used by us in our financial and operational
decision-making. Additionally, these measures facilitate
comparisons with other hotel REITs and hotel owners. We present
Hotel EBITDA and Hotel EBITDA margin by eliminating from continuing
operations all revenues and expenses not directly associated with
hotel operations including corporate-level expenses, depreciation
and expenses related to our capital structure. We eliminate
corporate-level costs and expenses because we believe
property-level results provide investors with supplemental
information with respect to the ongoing operating performance of
our hotels and the effectiveness of management on a property-level
basis. We eliminate depreciation and amortization, even though they
are property-level expenses, because we do not believe that these
non-cash expenses, which are based on historical cost accounting
for real estate assets and implicitly assume that the value of real
estate assets diminish predictably over time, accurately reflect an
adjustment in the value of our assets. We also eliminate
consolidated percentage rent paid to unconsolidated entities, which
is effectively eliminated by minority interest expense and equity
in income from unconsolidated subsidiaries, and include the cost of
unconsolidated taxes, insurance and lease expense, to reflect the
entire operating costs applicable to our hotels. Hotel EBITDA and
Hotel EBITDA margins are presented on a same-store basis including
the historical results of operations from the two hotels acquired
in December�2007.
Limitations of Non-GAAP Measures
Our management and Board of Directors use FFO, EBITDA, Hotel
EBITDA and Hotel EBITDA margin to evaluate the performance of our
hotels and to facilitate comparisons between us and lodging REITs,
hotel owners who are not REITs and other capital intensive
companies. We use Hotel EBITDA and Hotel EBITDA margin in
evaluating hotel-level performance and the operating efficiency of
our hotel managers.
The use of these non-GAAP financial measures has certain
limitations. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel
EBITDA and Hotel EBITDA margin, as presented by us, may not be
comparable to FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel
EBITDA and Hotel EBITDA margin as calculated by other real estate
companies. These measures do not reflect certain expenses that we
incurred and will incur, such as depreciation and interest or
capital expenditures. 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 of
our operating performance. Our reconciliations to the GAAP
financial measures, and our consolidated statements of operations
and cash flows, include interest expense, capital expenditures, and
other excluded items, all of which should be considered when
evaluating our performance, as well as the usefulness of our
non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in
conjunction with results presented in accordance with GAAP. They
should not be considered as alternatives to operating profit, cash
flow from operations, or any other operating performance measure
prescribed by GAAP. Neither should FFO, Adjusted FFO, Adjusted FFO
per share, EBITDA or Adjusted EBITDA be considered as measures of
our liquidity or indicative of funds available for our cash needs,
including our ability to make cash distributions. Adjusted FFO per
share should not be used as a measure of amounts that accrue
directly to the benefit of stockholders. FFO, Adjusted FFO, EBITDA,
Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin reflect
additional ways of viewing our operations that we believe when
viewed with our GAAP results and the reconciliations to the
corresponding GAAP financial measures provide a more complete
understanding of factors and trends affecting our business than
could be obtained absent this disclosure. Management strongly
encourages investors to review our financial information in its
entirety and not to rely on any single financial measure.
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