FelCor Lodging Trust Incorporated (NYSE: FCH) today reported
operating results for the second quarter and six months ended
June 30, 2009.
“We continue to make progress on our goals this year: reduce
operating expenses; improve market share; develop new sources of
revenues within our hotels; and ensure that we have adequate
liquidity. These measures are reflected in our second quarter
results – portfolio market share increased two percent, operating
margins were better than expected, Adjusted FFO met the low-end of
our expectations, and we successfully closed a $200 million
secured term loan,” said Richard A. Smith, FelCor’s President and
Chief Executive Officer.
Summary:
- Closed a $200 million
secured term loan.
- Repaid and terminated our line
of credit facility, eliminating restrictive corporate financial
covenants.
- Adjusted FFO per share was $0.33
for the second quarter, which met our low-end of expectations.
Adjusted EBITDA was $55.9 million.
- Increased market share two
percent for the second quarter at our 85 consolidated hotels.
- RevPAR decreased 20.6 percent
for the second quarter at our 85 consolidated hotels and 20.1
percent year-to-date through June.
- Hotel expenses declined 14.6
percent during the second quarter. Due to strict expense controls
at our hotels, we were able to limit the effect of reduced revenue
on flow-through to Hotel EBITDA to 53 percent compared to the prior
year, and only 27 percent compared to budget. Hotel EBITDA margin
decreased 534 basis points, which was better than expected.
- Completed the redevelopment at
our San Francisco Marriott Union Square hotel in June. RevPAR and
market share have been exceeding expectations.
- Net loss applicable to common
stockholders for the second quarter was $20.9 million.
Second Quarter Operating Results:
Revenue per available room (“RevPAR”) for our 85 consolidated
hotels decreased by 20.6 percent to $84.01, driven by
decreases in both average daily rate (“ADR”) (an 11.6 percent
decrease to $122.14) and occupancy (a 10.1 percent decrease to
68.8 percent), compared to the same period in 2008.
“We expected year-over-year RevPAR comparisons to ease somewhat
beginning in May 2009, but that did not occur until July. As a
result, Adjusted EBITDA was lower than anticipated during the
second quarter. However, our portfolio continued to gain market
share and our margins were better than expected. We are encouraged
by the recent improvement in the economic indicators, including
consumer confidence, unemployment claims, home prices and
industrial manufacturing, which should lead to higher demand.
Furthermore, supply growth for the industry has peaked. As a
result, our RevPAR in July decreased only 15 percent to prior year,
compared to 20 percent in June and 22 percent in May. However, we
remain cautious, as the timing of the recovery is difficult to
predict, and visibility into future demand trends remains low. We
will continue to focus on our goals to improve market share, which
include maintaining rate integrity and working with our operators
to achieve the most efficient cost structure in the face of
deteriorating lodging demand,” continued Mr. Smith.
Adjusted Funds from Operations (“FFO”) was $20.9 million,
or $0.33 per share, compared to Adjusted FFO of $49.5 million,
or $0.76 per share, for the same period in 2008.
Hotel EBITDA decreased to $64.1 million, compared to
$97.4 million in the same period in 2008. Hotel EBITDA margin
was 26.6 percent, a 534 basis point decrease compared to the same
period in 2008. Hotel operating expenses decreased 14.6 percent
compared to prior year. This decline reflects various factors,
including: decreased labor costs, including permanent hotel
staffing reductions; decreased other room expenses, such as guest
transportation and in-room amenities; decreased incentive
management fees; and improved efficiencies in the food and beverage
outlets. Prior to accounting for taxes, insurance and land leases,
Hotel EBITDA margins declined only 359 basis points. Hotel EBITDA
represents EBITDA generated by our hotels before corporate expenses
and joint venture adjustments.
Adjusted EBITDA was $55.9 million, compared to
$87.2 million for the same period in 2008.
Net loss applicable to common stockholders was
$20.9 million, or $0.33 per share, compared to net income of
$13.6 million, or $0.21 per share, for the same period in
2008.
EBITDA, Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO
and Adjusted FFO are all non-GAAP financial measures. See our
discussion of “Non-GAAP Financial Measures” beginning on
page 13 for a reconciliation of each of these measures to the
most comparable GAAP financial measure and for information
regarding the use, limitations and importance of these non-GAAP
financial measures.
Balance Sheet/Liquidity:
At June 30, 2009, we had $1.6 billion of consolidated debt
outstanding with a weighted average interest rate of 5.6 percent,
and our cash and cash equivalents totaled $118.5 million.
In June, we closed a $200 million secured term loan.
Proceeds of the new loan will be used for general corporate
purposes. The new loan is non-recourse and secured by nine hotels.
The loan bears interest at LIBOR plus 350 basis points, has a 65
percent loan to appraised value ratio and matures in 2013,
including two one-year extension options. We also repaid all of our
outstanding obligations (totaling $128 million) under our line
of credit, which we then terminated.
“We are pleased to have closed this loan in a very challenging
environment. This new loan extends our maturity profile and
provides additional cash on hand. We also were able to eliminate
restrictive covenants by terminating our line of credit. Our
attention now turns to the debt that matures in 2010 and 2011. We
have engaged in discussions with various lenders and bankers to
modify and/or extend, or refinance this debt,” said Andrew J.
Welch, FelCor’s Executive Vice President and Chief Financial
Officer.
Capital Expenditures and Development:
For the quarter and six months ended June 30, 2009, we
spent $22 million and $48 million, respectively, on
capital expenditures at our hotels (including our pro rata share of
joint ventures). Included in the capital expenditures are
$11 million and $25 million, respectively, to complete
our renovation and redevelopment projects.
In June, we completed the final phase of the comprehensive
redevelopment at our San Francisco Marriott Union Square hotel.
Second quarter RevPAR (under the Marriott flag) increased
21 percent at this hotel, compared to the prior year, and its
market share increased by 82 percent, exceeding expectations. The
market share index at this hotel was 109 percent in the second
quarter compared to 79 percent in 2006 (prior to its
renovation).
Outlook:
As a result of the continued deterioration of lodging demand, we
now expect our RevPAR to decline more than our previous guidance.
However, our revised FFO outlook reflects the positive impact of
our strict expense controls and lower interest expense, which
offsets the decline in RevPAR. While we expect RevPAR to decline
sharply in 2009, our portfolio will benefit from the renovations we
completed in 2008 and the redevelopment of our San Francisco
Marriott Union Square hotel.
Assuming full-year 2009 RevPAR for our 85 consolidated hotels
decreases between 17 and 15 percent, we anticipate:
- Adjusted EBITDA to be between
$188 million and $196 million;
- Adjusted FFO per share to be
between $0.74 and $0.86;
- Net loss to be between
$82 million and $74 million; and
- Interest expense to be
approximately $97 million.
FelCor, a real estate investment trust, is the nation’s largest
owner of upper-upscale, all-suite hotels. FelCor owns interests in
87 hotels and resorts, located in 23 states and Canada. FelCor’s
portfolio consists primarily of upper-upscale hotels, which are
flagged under global brands - Embassy Suites Hotels®, Doubletree®,
Hilton®, Marriott®, 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 second quarter earnings
Conference Call on Thursday, August 6, 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, dispositions and debt refinancing, 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 and six month
periods ended June 30, 2009.
TABLE OF CONTENTS
PAGE
Consolidated Statements of Operations(a) 6 Consolidated Balance
Sheets(a) 7 Capital Expenditures 8 Supplemental Financial Data 8
Debt Summary 9 Hotel Portfolio Composition 10 Detailed Operating
Statistics by Brand 11 Detailed Operating Statistics for FelCor’s
Top Markets 12 Non-GAAP Financial Measures 13
(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 Quarterly Report on Form 10-Q.
Consolidated Statements of Operations
(in thousands, except per share
data)
Three Months Ended Six Months
Ended June 30, June 30, 2009
2008 2009 2008 Revenues: Hotel
operating revenue: Room $ 190,388 $ 239,689 $ 373,388 $ 469,821
Food and beverage 36,303 49,010 73,416 95,518 Other operating
departments 14,889 16,538 28,778 31,445 Other revenue 988
931 1,274 1,259 Total revenues 242,568
306,168 476,856 598,043 Expenses: Hotel
departmental expenses: Room 49,039 56,871 95,539 111,522 Food and
beverage 28,534 36,096 57,405 71,542 Other operating departments
6,285 7,170 12,492 14,199 Other property related costs 65,912
76,574 133,219 153,699 Management and franchise fees 11,410 15,973
22,917 31,875 Taxes, insurance and lease expense 25,025 28,862
50,056 58,166 Corporate expenses 5,236 4,864 11,358 11,691
Depreciation and amortization 36,657 35,072 74,042 68,840
Impairment loss - - 1,368 17,131 Other expenses 1,801
900 2,497 1,833 Total operating expenses
229,899 262,382 460,893 540,498 Operating
income 12,669 43,786 15,963 57,545 Interest expense, net (22,782 )
(24,769 ) (44,074 ) (50,772 ) Charges related to debt
extinguishment (594 ) - (594 ) - Income
(loss) before equity in income (loss) from unconsolidated entities
(10,707
)
19,017
(28,705
)
6,773
Equity in income (loss) from unconsolidated entities (261 ) 2,331
(3,685 ) 1,709 Gain on involuntary conversion - 3,095
- 3,095 Income (loss) from continuing operations
(10,968 ) 24,443 (32,390 ) 11,577 Discontinued operations -
- - (13 ) Net income (loss) (10,968 ) 24,443
(32,390 ) 11,564 Net loss (income) attributable to noncontrolling
interests in other
partnerships
(324
)
(890
)
(108
)
(961
)
Net loss (income) attributable to redeemable
noncontrolling interests in FelCor
LP
97
(291
)
239
186
Net income (loss) attributable to FelCor (11,195 ) 23,262 (32,259 )
10,789 Preferred dividends (9,678 ) (9,678 )
(19,356 ) (19,356 ) Net income (loss) applicable to FelCor
common stockholders $ (20,873 ) $ 13,584 $ (51,615 ) $ (8,567 )
Basic and diluted per common share data: Net income (loss) from
continuing operations attributable to FelCor common stockholders
$
(0.33
)
$
0.21
$
(0.82
)
$
(0.15
)
Net income (loss) attributable to FelCor common stockholders
$
(0.33
)
$
0.21
$
(0.82
)
$
(0.15 ) Basic and diluted weighted average common shares
outstanding
63,101
61,822
63,132 61,819 Cash dividends declared on common stock
$ - $ 0.35 $ - $ 0.70
Consolidated Balance Sheets
(unaudited, in thousands)
June 30, December 31,
2009 2008 ASSETS
Investment in hotels, net of
accumulated depreciation of $885,794 at June 30, 2009 and $816,271
at December 31, 2008
$
2,249,297
$
2,279,026
Investment in unconsolidated entities 87,536 94,506 Cash and cash
equivalents 118,508 50,187 Restricted cash 17,610 13,213
Accounts receivable, net of
allowance for doubtful accounts of $296 at June 30, 2009 and $521
at December 31, 2008
33,022
35,240
Deferred expenses, net of
accumulated amortization of $11,443 at June 30, 2009 and $13,087 at
December 31, 2008
11,006
5,556
Other assets 40,356 34,541 Total assets $ 2,557,335 $
2,512,269
LIABILITIES AND EQUITY Debt, net of discount of
$1,274 at June 30, 2009 and $1,544 at
December 31, 2008
$
1,636,561
$
1,551,686
Preferred distributions payable 18,223 8,545 Accrued expenses and
other liabilities 130,220 132,604 Total liabilities
1,785,004 1,692,835 Commitments and contingencies
Redeemable noncontrolling
interests in FelCor LP at redemption value, 296 units issued and
outstanding at June 30, 2009 and December 31, 2008
728 545 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 June 30, 2009 and December 31, 2008
309,362
309,362
Series C Cumulative Redeemable
Preferred Stock, 68 shares, liquidation value of $169,950, issued
and outstanding at June 30, 2009 and December 31, 2008
169,412
169,412
Common stock, $.01 par value,
200,000 shares authorized and 69,413 shares issued and outstanding,
including shares in treasury, at June 30, 2009 and December 31,
2008
694
694
Additional paid-in capital 2,036,615 2,045,482 Accumulated other
comprehensive income 17,786 15,347 Accumulated deficit (1,697,602 )
(1,645,947 )
Less: Common stock in treasury, at
cost, of 4,723 shares at June 30, 2009 and 5,189 shares at December
31, 2008
(88,361
)
(99,245
)
Total FelCor stockholders’ equity 747,906 795,105 Noncontrolling
interests in other partnerships 23,697 23,784 Total
equity 771,603 818,889 Total liabilities and equity $
2,557,335 $ 2,512,269
Capital Expenditures
(in thousands)
Three Months Ended Six Months
Ended June 30, June 30, 2009
2008 2009 2008
Improvements and additions to
consolidated hotels
$
20,265
$
31,251
$
45,539
$ 73,625
Consolidated joint venture
partners’ pro rata share of additions to hotels
(122
)
(962
)
(376 ) (2,218 ) Pro rata share of unconsolidated additions to
hotels 1,491 4,335 2,953 11,306 Total
additions to hotels(a) $ 21,634 $ 34,624 $ 48,116 $ 82,713
(a) Includes capitalized interest, property taxes, ground leases
and certain employee costs.
Supplemental Financial Data
(in thousands, except per share
information)
June 30, December 31, Total
Enterprise Value 2009 2008 Common shares
outstanding 64,689 64,224 Units outstanding 296 296
Combined shares and units outstanding 64,985 64,520 Common stock
price $ 2.46 $ 1.84 Equity capitalization $ 159,863 $ 118,717
Series A preferred stock 309,362 309,362 Series C preferred stock
169,412 169,412 Consolidated debt 1,636,561 1,551,686
Noncontrolling interests of consolidated debt (4,025 ) (4,078 ) Pro
rata share of unconsolidated debt 108,704 112,220 Cash and cash
equivalents (118,508 ) (50,187 ) Total enterprise
value (TEV) $ 2,261,369 $ 2,207,132
Dividends Per
Share Dividends declared: Common stock $ - $ 0.85 Series A
preferred stock $ - $ 1.95 Series C preferred stock (depositary
shares) $ - $ 2.00
Debt Summary
(dollars in thousands)
Interest Rate
at Maturity Consolidated Encumbered Hotels
June 30, 2009 Date Debt Senior term notes none
9.00 %(a) June 2011 $ 299,539 Senior term notes none L + 1.875
December 2011 215,000 Total senior debt 6.50 (b)
514,539 CMBS debt 12 hotels(c) L + 0.93 (d) November 2011(e)
250,000 Mortgage debt 9 hotels(f) L + 3.50 (g) August 2011(h)
200,800 Mortgage debt(i) Esmeralda-REN,
Vinoy-REN
L + 1.55 (j) May 2012(k) 176,411 CMBS debt(i) 8 hotels(l) 8.70 May
2010 160,217 Mortgage debt 7 hotels(m) 9.02 April 2014 119,374
Mortgage debt 6 hotels(n) 8.73 May 2010 114,533 CMBS debt(i) 5
hotels(o) 6.66 June-August 2014 71,724 CMBS debt(i) Boca Raton-ES,
Wilmington-DT
6.15 June 2009(p) 14,399 CMBS debt Indianapolis North-ES 5.81 July
2016 11,941 Capital lease and other St. Paul-ES and other 9.70
various 2,623 Total mortgage debt 53 hotels 5.23 (b)
1,122,022 Total 5.63 %(b) $ 1,636,561
(a) When either Moody’s Investor Service or Standard &
Poor’s Rating Services increases our senior note ratings to Ba3 or
BB-, respectively, this interest rate will decrease to 8.5%.
(b) Interest rates are calculated based on the weighted average
debt outstanding at June 30, 2009.
(c) The hotels that secure this debt are: Anaheim-ES,
Bloomington-ES, Charleston Mills House-HI, Dallas DFW South-ES,
Deerfield Beach-ES, Jacksonville-ES, Lexington-HS, Dallas Love
Field-ES, Raleigh/Durham-DTGS, San Antonio Airport-HI, Tampa Rocky
Point-DTGS, and Phoenix Tempe-ES.
(d) We have purchased an interest rate cap that caps LIBOR at
7.8% and expires in November 2009 for this notional
amount.
(e) The maturity date assumes that we will exercise the
remaining two one-year extension options that permit, at our sole
discretion, the current November 2009 maturity to be extended to
2011.
(f) The hotels that secure this debt are: Charlotte
SouthPark-DT, Houston Medical Center-HI, Myrtle Beach-HLT, Mandalay
Beach-ES, Nashville Airport-ES, Philadelphia Independence Mall-HI,
Pittsburgh University Center-HI, Santa Barbara-HI, and Santa
Monica-HI.
(g) LIBOR for this loan is subject to a 2% floor.
(h) This loan can be extended for as many as two years, subject
to satisfying certain conditions that we expect to satisfy.
(i) The hotels under this debt are subject to separate loan
agreements and are not cross collateralized.
(j) We have purchased interest rate caps that cap LIBOR at 6.5%
and expire in May 2010 for aggregate notional amounts of
$177 million.
(k) We have exercised the first of three successive one-year
extension options that permit, at our sole discretion, the original
May 2009 maturity to be extended to 2012.
(l) The hotels that secure this debt are: South San
Francisco-ES, Orlando South-ES, Atlanta Buckhead-ES, Chicago
Deerfield-ES, New Orleans-ES, Boston Marlboro-ES, Piscataway-ES,
and Corpus Christi-ES.
(m) The hotels that secure this debt are: Milpitas-ES, Napa
Valley-ES, Minneapolis Airport-ES, Birmingham-ES, Baton Rouge-ES,
Miami Airport-ES, and Ft. Lauderdale-ES.
(n) The hotels that secure this debt are: Phoenix Crescent-SH,
Ft. Lauderdale Cypress Creek-SS, Atlanta Galleria-SS, Chicago
O’Hare-SS, Philadelphia Society Hill-SH, and Burlington-SH.
(o) The hotels that secure this debt are: Atlanta Airport-ES,
Austin-DTGS, BWI Airport-ES, Orlando Airport-HI, and Phoenix
Biltmore-ES.
(p) These loans matured in June 2009 but remain unpaid and are
in default. We withheld payment in order to cause the special
servicer to engage in discussions regarding modifications,
including potentially extending the maturity date.
Debt Summary –
(continued)
Weighted average interest 5.63 % Fixed interest rate debt to
total debt 48.5 % Mortgage debt to total assets 43.9 %
Hotel Portfolio
Composition
The following tables set forth, as
of June 30, 2009, for 85 Consolidated Hotels distribution by brand,
top markets and location type.
% of % of 2008 Brand Hotels
Rooms Total Rooms
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 Marriott 3 1,321 5 5 Hilton 2 559 2 2
Top Markets
South Florida 5 1,439 6 7 San Francisco area 6 2,138 8 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 4 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 6,358 25 26 Airport 18 5,788 24 24
Resort 12 4,079 16 16
(a) Hotel EBITDA is more fully described on page 20.
Detailed Operating Statistics by Brand
(85 consolidated
hotels)
Occupancy (%)
Three Months EndedJune
30,
Six Months EndedJune
30,
2009 2008 %Variance 2009
2008 %Variance Embassy Suites Hotels 70.1 78.2
(10.4 ) 68.3 75.6 (9.6 ) Holiday Inn 70.1 78.0 (10.1 ) 66.0 74.0
(10.8 ) Sheraton and Westin 64.2 70.1 (8.4 ) 59.6 68.1 (12.4 )
Doubletree 67.5 79.9 (15.5 ) 65.5 77.7 (15.7 ) Renaissance and
Marriott 62.0 68.2 (9.0 ) 59.2 69.4 (14.8 ) Hilton 70.6 70.4 0.3
59.0 61.3 (3.8 ) Total hotels 68.8 76.5 (10.1 ) 65.8 73.7
(10.8 )
ADR ($)
Three Months EndedJune
30,
Six Months EndedJune
30,
2009 2008 %Variance 2009 2008
%Variance Embassy Suites Hotels 127.79 142.90 (10.6 ) 133.05
147.40 (9.7 ) Holiday Inn 108.31 123.67 (12.4 ) 106.84 120.94 (11.7
) Sheraton and Westin 110.54 128.04 (13.7 ) 114.01 129.06 (11.7 )
Doubletree 125.47 145.53 (13.8 ) 132.08 149.64 (11.7 ) Renaissance
and Marriott 168.11 187.30 (10.2 ) 184.08 199.33 (7.6 ) Hilton
119.80 139.77 (14.3 ) 110.95 125.53 (11.6 ) Total hotels
122.14 138.22 (11.6 ) 125.92 140.62 (10.4 )
RevPAR ($)
Three Months EndedJune
30,
Six Months EndedJune
30,
2009 2008 %Variance 2009 2008
%Variance Embassy Suites Hotels 89.52 111.71 (19.9 ) 90.86
111.40 (18.4 ) Holiday Inn 75.93 96.44 (21.3 ) 70.46 89.47 (21.2 )
Sheraton and Westin 70.98 89.76 (20.9 ) 68.01 87.91 (22.6 )
Doubletree 84.66 116.21 (27.2 ) 86.55 116.32 (25.6 ) Renaissance
and Marriott 104.23 127.67 (18.4 ) 108.89 138.36 (21.3 ) Hilton
84.62 98.38 (14.0 ) 65.48 77.00 (15.0 ) Total hotels 84.01
105.76 (20.6 ) 82.81 103.66 (20.1 )
Detailed Operating
Statistics for FelCor’s Top Markets (85 consolidated
hotels) Occupancy (%) Three Months Ended June
30, Six Months Ended June 30,
2009 2008
%Variance
2009 2008 %Variance South Florida 73.5
78.3 (6.2 ) 76.4 82.7 (7.7 ) San Francisco area 70.8 79.7 (11.2 )
63.4 75.3 (15.9 ) Atlanta 73.7 75.9 (2.9 ) 69.7 76.1 (8.4 ) Los
Angeles area 74.2 78.1 (5.1 ) 71.4 75.8 (5.8 ) Orlando 70.7 80.8
(12.5 ) 69.4 81.4 (14.7 ) Dallas 60.8 68.6 (11.4 ) 60.1 69.2 (13.2
) Philadelphia 74.5 82.0 (9.2 ) 62.0 72.3 (14.1 ) Northern New
Jersey 62.7 75.6 (17.1 ) 61.2 71.0 (13.8 ) Minneapolis 65.6 76.1
(13.7 ) 63.2 71.5 (11.6 ) San Diego 74.1 83.0 (10.8 ) 69.1 81.8
(15.5 ) Phoenix 52.6 66.8 (21.3 ) 58.3 71.4 (18.3 ) San Antonio
73.9 83.1 (11.0 ) 71.8 80.1 (10.4 ) Chicago 69.6 81.7 (14.8 ) 61.1
73.3 (16.8 ) Boston 80.0 85.3 (6.2 ) 75.3 77.2 (2.4 ) Washington,
D.C. 64.6 70.6 (8.4 ) 54.9 57.2 (4.1 )
ADR ($)
Three Months Ended June 30, Six Months Ended June 30,
2009 2008
%Variance
2009 2008 %Variance South Florida
121.55 137.88 (11.8 ) 146.86 170.13 (13.7 ) San Francisco area
126.45 142.68 (11.4 ) 123.90 139.64 (11.3 ) Atlanta 105.19 120.70
(12.8 ) 108.01 123.89 (12.8 ) Los Angeles area 133.85 158.73 (15.7
) 136.06 157.87 (13.8 ) Orlando 97.52 104.66 (6.8 ) 105.02 114.67
(8.4 ) Dallas 115.04 124.23 (7.4 ) 120.89 127.23 (5.0 )
Philadelphia 143.10 158.99 (10.0 ) 137.76 149.20 (7.7 ) Northern
New Jersey 144.27 165.94 (13.1 ) 147.86 164.09 (9.9 ) Minneapolis
127.91 141.76 (9.8 ) 129.45 143.28 (9.7 ) San Diego 127.62 169.35
(24.6 ) 129.78 161.20 (19.5 ) Phoenix 115.53 134.74 (14.3 ) 138.37
162.11 (14.6 ) San Antonio 106.08 115.80 (8.4 ) 105.87 114.83 (7.8
) Chicago 107.42 132.15 (18.7 ) 109.49 127.09 (13.9 ) Boston 137.63
167.10 (17.6 ) 132.21 153.37 (13.8 ) Washington, D.C. 136.98 162.52
(15.7 ) 144.22 162.57 (11.3 )
RevPAR ($)
Three Months Ended June 30, Six Months Ended June 30,
2009 2008
%Variance
2009 2008 %Variance South Florida 89.30 107.99
(17.3 ) 112.15 140.68 (20.3 ) San Francisco area 89.51 113.71 (21.3
) 78.52 105.19 (25.4 ) Atlanta 77.55 91.61 (15.3 ) 75.28 94.25
(20.1 ) Los Angeles area 99.26 123.99 (19.9 ) 97.16 119.72 (18.8 )
Orlando 68.92 84.56 (18.5 ) 72.93 93.31 (21.8 ) Dallas 69.89 85.22
(18.0 ) 72.65 88.09 (17.5 ) Philadelphia 106.65 130.44 (18.2 )
85.47 107.80 (20.7 ) Northern New Jersey 90.50 125.50 (27.9 ) 90.43
116.49 (22.4 ) Minneapolis 83.93 107.82 (22.2 ) 81.88 102.48 (20.1
) San Diego 94.51 140.60 (32.8 ) 89.65 131.81 (32.0 ) Phoenix 60.73
90.01 (32.5 ) 80.70 115.68 (30.2 ) San Antonio 78.43 96.25 (18.5 )
75.97 92.00 (17.4 ) Chicago 74.72 107.90 (30.8 ) 66.85 93.22 (28.3
) Boston 110.15 142.60 (22.8 ) 99.61 118.35 (15.8 ) Washington,
D.C. 88.51 114.67 (22.8 ) 79.21 93.06 (14.9 )
Non-GAAP Financial
Measures
We refer in this release to certain “non-GAAP financial
measures.” These measures, including FFO, Adjusted FFO, EBITDA,
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) Attributable to FelCor to
FFO
(in thousands, except per share
and unit data)
Three Months Ended June 30, 2009
2008 Dollars Shares
Per ShareAmount
Dollars Shares
Per ShareAmount
Net income (loss) attributable to FelCor $ (11,195 ) $
23,262 Preferred dividends(a) (9,678 ) (9,678 )
Net income (loss) attributable
to FelCor common stockholders
(20,873 ) 63,101 $ (0.33 ) 13,584 61,822 $ 0.22 Depreciation and
amortization 36,657 - 0.58 35,072 - 0.57 Depreciation,
unconsolidated entities 3,601 - 0.06 3,583 - 0.06 Gain on
involuntary conversion - - - (3,095 ) - (0.05 ) Noncontrolling
interests in FelCor LP (97 ) 296 (0.01 ) 291 1,354 (0.02 )
Conversion of options and unvested
restricted stock
- 342 - - 146 -
FFO
19,288 63,739 0.30 49,435 63,322 0.78 Charges related to debt
extinguishment 594 - 0.01 - - - Conversion costs(b) 292 - - 103 - -
Severance costs, net of noncontrolling interests 374 - 0.01 - - -
Lease termination costs 352 - 0.01 - -
-
Adjusted FFO $ 20,900 63,739 $ 0.33 49,538 63,322
0.78 Preferred dividends on Series A Preferred Stock 6,279
9,985 (0.02 ) Adjusted FFO assuming conversion of Series A
Preferred Stock for per share computation(c) $ 55,817 73,307 $ 0.76
(a) We suspended our preferred dividends in March 2009 and
unpaid preferred dividends continue to accrue until paid.
(b) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott.
(c) For calculation of Adjusted FFO per share it is more
dilutive to assume the conversion of our Series A Convertible
Preferred Stock into common stock when our quarterly Adjusted FFO
per share calculation exceeds $0.63.
Reconciliation of Net Income
(Loss) Attributable to FelCor to FFO
Six Months Ended June 30, 2009
2008 Dollars Shares
Per ShareAmount
Dollars Shares
Per ShareAmount
Net income (loss) attributable to FelCor $ (32,259 ) $
10,789 Preferred dividends(a) (19,356 ) (19,356 )
Net loss attributable to FelCor
common stockholders
(51,615 ) 63,132 $ (0.82 ) (8,567 ) 61,819 $ (0.14 ) Depreciation
and amortization 74,042 - 1.17 68,840 - 1.11 Depreciation,
unconsolidated entities 7,288 - 0.12 7,133 - 0.12 Gain on
involuntary conversion - - - (3,095 ) - (0.05 ) Noncontrolling
interests in FelCor LP (239 ) 296 (0.01 ) (186 ) 1,354 (0.03 )
Conversion of options and unvested
restricted stock
- 202 - - 120 -
FFO 29,476
63,630 0.46 64,125 63,293 1.01 Impairment loss 1,368 - 0.02 17,131
- 0.27 Impairment loss, unconsolidated subsidiaries 2,068 - 0.03 -
- - Charges related to debt extinguishment 594 - 0.01 - - -
Conversion costs(b) 330 - 0.01 362 - 0.01 Severance costs, net of
noncontrolling interests 509 - 0.01 - - - Lease termination costs
352 - 0.01 - - -
Adjusted FFO $
34,697 63,630 $ 0.55 81,618 63,293 1.29 Preferred dividends on
Series A Preferred Stock 12,558 9,985 - Adjusted FFO
assuming conversion of Series A Preferred Stock for per share
computation(c) $ 94,176 73,278 $ 1.29
(a) We suspended our preferred dividends in March 2009 and
unpaid preferred dividends continue to accrue until paid.
(b) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott.
(c) For calculation of Adjusted FFO per share it is more
dilutive to assume the conversion of our Series A Convertible
Preferred Stock into common stock when our Adjusted FFO per share
calculation for the six months exceeds $1.26.
Reconciliation of Net Income (Loss) Attributable to FelCor to
EBITDA
(in thousands)
Three Months Ended Six Months
Ended June 30, June 30, 2009
2008 2009 2008 Net income (loss)
attributable to FelCor $ (11,195 ) $ 23,262 $ (32,259 ) $
10,789 Depreciation and amortization 36,657 35,072 74,042 68,840
Depreciation, unconsolidated entities 3,601 3,583 7,288 7,133
Interest expense 22,949 25,196 44,418 51,745 Interest expense,
unconsolidated entities 951 1,327 1,970 2,923 Amortization of stock
compensation 1,404 1,457 2,802 2,722 Noncontrolling interests in
FelCor LP (97 ) 291 (239 ) (186 )
EBITDA 54,270 90,188 98,022 143,966 Impairment loss - -
1,368 17,131 Impairment loss on unconsolidated hotels - - 2,068 -
Charges related to debt extinguishment 594 - 594 - Gain on
involuntary conversion - (3,095 ) - (3,095 ) Conversion costs(a)
292 103 330 362 Severance costs, net of noncontrolling interests
374 - 509 - Lease termination costs 352 - 352
-
Adjusted EBITDA $ 55,882 $ 87,196 $ 103,243 $
158,364
(a) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott.
Reconciliation of Adjusted EBITDA to Hotel EBITDA
(in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30, 2009
2008 2009 2008 Adjusted EBITDA $
55,882 $ 87,196 $ 103,243 $ 158,364 Other revenue (988 ) (931 )
(1,274 ) (1,259 )
Equity in income from
unconsolidated subsidiaries (excluding interest, depreciation and
impairment expense)
(4,963 ) (7,831 ) (8,961 ) (12,854 )
Noncontrolling interests in other
partnerships (excluding interest, depreciation and severance
expense)
1,002 1,481 1,445 2,050 Consolidated hotel lease expense 10,853
15,737 20,913 27,933 Unconsolidated taxes, insurance and lease
expense (2,084 ) (2,075 ) (4,018 ) (4,197 ) Interest income (167 )
(428 ) (344 ) (973 ) Other expenses (excluding conversion costs,
severance costs and lease termination costs) 777 797 1,289 1,471
Corporate expenses (excluding
amortization expense of stock compensation)
3,832 3,407 8,556 8,969 Adjusted EBITDA from discontinued
operations - - - 13
Hotel EBITDA
$ 64,144 $ 97,353 $ 120,849 $ 179,517
Reconciliation of
Net Income (Loss) Attributable to FelCor to Hotel EBITDA
(in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30, 2009
2008 2009 2008 Net income
(loss) attributable to FelCor $ (11,195 ) $ 23,262 $ (32,259 )
$ 10,789 Discontinued operations - - - 13 Equity in loss (income)
from unconsolidated entities 261 (2,331 ) 3,685 (1,709 )
Net income (loss) attributable to
noncontrolling interests in other partnerships
324
890
108 961 Net income (loss) attributable to redeemable noncontrolling
interests in FelCor LP
(97
)
291
(239 ) (186 ) Consolidated hotel lease expense 10,853 15,737 20,913
27,933 Unconsolidated taxes, insurance and lease expense (2,084 )
(2,075 ) (4,018 ) (4,197 ) Interest expense, net 22,782 24,769
44,074 50,772 Charges related to debt extinguishment 594 - 594 -
Corporate expenses 5,236 4,864 11,358 11,691 Depreciation and
amortization 36,657 35,072 74,042 68,840 Impairment loss - - 1,368
17,131 Gain on involuntary conversion - (3,095 ) - (3,095 ) Other
expenses 1,801 900 2,497 1,833 Other revenue (988 )
(931 ) (1,274 ) (1,259 )
Hotel EBITDA $ 64,144
$ 97,353 $ 120,849 $ 179,517
Hotel EBITDA and Hotel
EBITDA Margin
(dollars in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30, 2009
2008 2009 2008 Total revenues $ 242,568
$ 306,168 $ 476,856 $ 598,043 Other revenue (988 )
(931 ) (1,274 ) (1,259 ) Hotel operating revenue
241,580 305,237 475,582 596,784 Hotel operating expenses
177,436 207,884 354,733 417,267 Hotel EBITDA $
64,144 $ 97,353 $ 120,849 $ 179,517 Hotel EBITDA margin(a) 26.6%
31.9% 25.4% 30.1%
(a) Hotel EBITDA as a percentage of hotel operating revenue.
Reconciliation of Total Operating Expenses to Hotel Operating
Expenses
(dollars in thousands)
Three Months EndedJune
30,
Six Months EndedJune
30,
2009 2008 2009 2008 Total
operating expenses $ 229,899 $ 262,382 $ 460,893 $ 540,498
Unconsolidated taxes, insurance and lease expense 2,084 2,075 4,018
4,197 Consolidated hotel lease expense (10,853 ) (15,737 ) (20,913
) (27,933 ) Corporate expenses (5,236 ) (4,864 ) (11,358 ) (11,691
) Depreciation and amortization (36,657 ) (35,072 ) (74,042 )
(68,840 ) Impairment loss - - (1,368 ) (17,131 ) Other expenses
(1,801 ) (900 ) (2,497 ) (1,833 ) Hotel
operating expenses $ 177,436 $ 207,884 $ 354,733 $ 417,267
Reconciliation of Ratio of
Operating Income to Total Revenues to Hotel EBITDA Margin
Three Months EndedJune
30,
Six Months EndedJune
30,
2009 2008 2009 2008 Ratio
of operating income to total revenues 5.2 % 14.3 % 3.4 % 9.6 %
Other revenue (0.4 ) (0.3 ) (0.3 ) (0.2 ) Unconsolidated taxes,
insurance and lease expense (0.8 ) (0.7 ) (0.8 ) (0.7 )
Consolidated hotel lease expense 4.5 5.2 4.4 4.7 Other expenses 0.8
0.3 0.5 0.3 Corporate expenses 2.2 1.6 2.4 2.0 Depreciation and
amortization 15.1 11.5 15.5 11.5 Impairment loss - -
0.3 2.9 Hotel EBITDA margin 26.6 % 31.9 % 25.4 % 30.1
%
Reconciliation of Forecasted
Net Loss Attributable to FelCor 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 attributable to FelCor $ (82 ) $ (74 ) Preferred dividends
(39 ) (39 )
Net loss applicable to FelCor common
stockholders (121 ) $ (1.92 ) (113 ) $ (1.79 ) Depreciation(b)
164 164 Noncontrolling interests in FelCor LP (1 ) (1 ) Severance
costs 1 1 Charges related to debt extinguishment 1 1 Impairment
loss (first quarter 2009)(b) 3 3
Adjusted FFO
$ 47 $ 0.74
(a)
$ 55 $ 0.86 (a)
Net loss attributable to FelCor $ (82
) $ (74 ) Depreciation(b) 164 164 Interest expense(b) 97 97
Amortization expense 5 5 Noncontrolling interests in FelCor LP (1 )
(1 ) Severance costs 1 1 Charges related to debt extinguishment 1 1
Impairment loss (first quarter 2009)(b) 3 3
Adjusted EBITDA $ 188 $ 196
(a) Weighted average shares and units are 63.6 million.
(b) Includes pro rata portion of unconsolidated entities.
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 (loss) attributable to FelCor 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 attributable
to Parent (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 attributable to
Parent (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 attributable to FelCor, 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.
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
noncontrolling interests 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.
Limitations of Non-GAAP Measures
Our management and Board of Directors use FFO, Adjusted FFO,
EBITDA, Adjusted 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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