FCH Felcor Lodging Trust Incorporated (delisted)

FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the fourth quarter and year ended December 31, 2011.

Summary:

• Revenue per available room ("RevPAR") at 43 same-store core hotels increased 4.8% for the quarter and 5.4% for the year.
• Hotel EBITDA margin increased 83 basis points for the quarter and 116 basis points for the year.
• Adjusted EBITDA was $202.7 million and adjusted funds from operations ("FFO") per share was $0.14 for the year. Net loss was $130.9 million for the year. Fourth quarter results were negatively impacted by four cents, resulting from accelerated renovations at four hotels and softness in Atlanta and Ft. Lauderdale.
• Sold eight non-strategic hotels for gross proceeds of $138 million in 2011. Brought additional non-strategic hotels to market in January and currently marketing 16 non-strategic hotels. Net proceeds from asset sales will be used to repay debt and pay accrued preferred dividends.
• Completed acquisition and commenced redevelopment of the four-plus star Knickerbocker Hotel in New York's Times Square during the fourth quarter (projecting a late 2013 opening).
• Began renovation or redevelopment at 10 hotels during 2011, including four of our largest hotels. We accelerated renovation start dates at four hotels to accommodate seasonal demand.

Commenting on the fourth quarter and full year, Richard A. Smith, President and Chief Executive Officer of FelCor, said, "In the past year, we made significant progress advancing our long-term value creation strategy to strengthen our balance sheet, reposition our portfolio and invest in the future of our business. Of note, we began marketing a significant number of non-strategic hotels and sold nine hotels quicker than anticipated, using a majority of the proceeds to repay debt. We also eliminated all of our near-term debt maturities. Our top priority is to sell non-strategic hotels and reduce debt to reach our long-term goal of 4.5 times leverage. Industry fundamentals are strong. Occupancy is approaching stabilized levels, and ADR growth is accelerating. Looking ahead, we continue to position our portfolio to benefit from the lodging recovery to generate above-average growth in our core markets. This month, we also announced the acquisition of the iconic Knickerbocker Hotel in the heart of Manhattan. This is a rare opportunity, and we are confident this strategic investment will enhance future stockholder value. We expect the Knickerbocker to be our last acquisition in this cycle."

Fourth Quarter Operating Results:

RevPAR for our 43 same-store core hotels was $92.88, a 4.8% increase compared to the same period in 2010. Average daily rate ("ADR") increased 4.5% to $139.11, and occupancy increased 0.4% to 66.8%. RevPAR and ADR for the company's 73 same-store consolidated hotels increased 4.4% (to $85.69) and 3.7% (to $128.00), respectively, compared to the same period in 2010.

The quarter was negatively impacted by accelerated timing of renovations (ongoing renovations impacted RevPAR by 1% more than anticipated) and softness in Atlanta (lower than expected group and transient business) and Fort Lauderdale (lower than expected group business due to weather). Consequently, our results were four cents lower than anticipated.

Hotel EBITDA increased 7.5% to $48.1 million, compared to $44.8 million for the same period in 2010. Hotel EBITDA represents EBITDA for 73 same-store consolidated hotels prior to corporate expenses and joint venture adjustments. Hotel EBITDA margin was 21.6%, an 83 basis point increase compared to the same period in 2010.

Same-store Adjusted EBITDA increased 10.6% to $39.3 million. Same-store Adjusted EBITDA excludes EBITDA from hotels sold or acquired during the year. Adjusted EBITDA (which includes our pro rata share of joint ventures) decreased 6.1% to $42.2 million, compared to $45.0 million for the same period in 2010, due to asset sales.

Adjusted FFO reflects a $3.5 million, or $0.03 per share, loss compared to a $3.6 million, or $0.04 per share, loss for the same period in 2010.

Net loss attributable to common stockholders was $42.8 million, or $0.35 per share, compared to a $103.1 million, or $1.08 per share, loss for the same period in 2010. Our 2010 net loss includes $86.8 million of impairment charges reflecting the reduced book values on ten non-strategic hotels (three hotels comprise the majority of the impairment), as well as a $7.0 million gain on extinguishment of debt related to the disposition of one hotel, a $1.7 million charge related to the repurchase of $40 million of our senior notes maturing 2011 and a $20.5 million gain related to the sale of our interest in a joint venture.

Full Year Operating Results:

RevPAR for our 43 same-store core hotels was $101.29, a 5.4% increase compared to 2010. ADR increased 4.5% to $139.34, compared to 2010 and occupancy increased 0.9% to 72.7%. RevPAR for our 73 same-store consolidated hotels increased 5.2% (to $92.68) compared to 2010.

Hotel EBITDA increased 9.7% to $225.5 million, compared to $205.5 million in 2010. Hotel EBITDA represents EBITDA for 73 same-store consolidated hotels prior to corporate expenses and joint venture adjustments. Hotel EBITDA margin was 24.4%, a 116 basis point increase compared to 2010.

Same-store Adjusted EBITDA increased 12.2% to $187.8 million. Same-store Adjusted EBITDA excludes EBITDA from hotels sold or acquired during the year. Adjusted EBITDA (which includes our pro rata share of joint ventures) increased 7.7% to $202.7 million, compared to $188.1 million in 2010.

Adjusted FFO increased to $16.2 million, or $0.14 per share, compared to a loss of $7.6 million, or $0.09 per share, in 2010.

Net loss attributable to common stockholders was $168.6 million, or $1.44 per share, compared to a $261.8 million, or $3.25 per share, loss in 2010. Our 2011 loss included $13.2 million of impairment charges and $24.4 million of losses from extinguishment of debt, partially offset by $4.7 million of gains from hotel dispositions. Our 2010 loss included $173.7 million of impairment charges, $59.5 million of gains from extinguishment of debt and a $20.5 million gain related to the sale of our interest in an unconsolidated joint venture.

EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Adjusted FFO per share are all non-GAAP financial measures. See our discussion of "Non-GAAP Financial Measures" beginning on page 18 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:

At December 31, 2011, the company had $1.6 billion of consolidated debt, $93.8 million of cash and cash equivalents and full availability on its $225 million line of credit. The weighted average maturity date for our debt was 4.4 years at December 31, 2011, compared to 3.3 years for the same period in 2010. We lowered our weighted average interest rate to 7.59%, and total interest expense was $8.4 million lower in 2011 than in 2010.

During the fourth quarter, we modified a CMBS loan to extend the loan up to two years beyond the original November 2011 maturity date. The loan balance at December 31, 2011 was $156 million, after we repaid $20 million of principal. The interest rate changed from LIBOR plus 93 basis points to LIBOR plus 220 basis points. This non-recourse loan is pre-payable at any time without penalty or premium and is cross-collateralized by nine mortgaged hotels. The company is currently marketing five of those properties for sale and will repay the mortgage loan securing any sold hotel using sale proceeds without penalty.

In early 2012, we amended and extended the maturity date of a $130 million loan, secured by eight joint venture hotels that would have matured in January 2013 (assuming extension options). The interest rate was reduced from LIBOR plus 375 basis points to LIBOR plus 325 basis points, and the maturity date was extended to 2014. Annual loan amortization also decreased from $5.0 million to $1.3 million.

Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer, said, "We made very good first steps this year toward restructuring our balance sheet to lower our leverage, reduce our cost of capital and stagger and extend debt maturities. We issued new senior notes due 2019 at very favorable terms to repay high-cost debt and acquire three hotels, and issued equity to repay $144 million of our 10% notes due 2014. As we execute our hotel sale program, we will embark on the next steps to completely restructure our balance sheet including paying accrued preferred dividends and repaying and refinancing remaining debt to achieve our long-term goal of 4.5 times leverage and lower our cost of borrowing."

Capital Expenditures:

For the quarter and year ended December 31, 2011, we spent $32.2 million and $91.2 million, respectively, on capital improvements at properties (including our pro rata share of joint venture expenditures). Included in the expenditures is $19 million on ROI-redevelopment projects. As part of our long-term capital plan, we anticipate renovating between six and eight hotels each year. In 2011, the company began renovating eight hotels and redeveloping two hotels, including four of our largest properties. Although accelerating this work caused more displacement in the fourth quarter 2011 than originally anticipated, the core portfolio will be better positioned to benefit from current industry growth trends.

During 2012, the company anticipates spending approximately $85 million on improvements and renovations. A majority of that capital will be focused on 11 hotels, including four of our largest properties. Please see page 17 of this release for more detail on renovations. We also expect to spend approximately $35 million on value-enhancing redevelopment projects at three hotels: Morgans (re-concept food and beverage, relocate lounge and fitness center and add three guest rooms); Embassy Suites Kingston Plantation (transform lobby, food and beverage outlet and entrance); and the Fairmont Copley Plaza.

In 2011, we began redeveloping the historic Fairmont Copley Plaza. All 383 guest rooms will be renovated by mid-2012, including 12 rooms that will be upgraded to Fairmont Gold (for a total of 71 Fairmont Gold rooms). In addition, the project includes a new 3,000-square-foot state-of-the-art rooftop fitness facility and day spa overlooking the Back Bay, as well as extensive redevelopment of the public areas and food and beverage facilities.

Portfolio Repositioning:

With a focus on creating a high-value portfolio of superior hotels, the company intends to sell up to 40 non-strategic hotels, representing 72 percent of our suburban hotels and 44 percent of our airport hotels, as part of the portfolio repositioning plan. Core hotels are located in key high-growth markets, primarily in major urban markets and resort destinations. Our remaining suburban and airport hotels are generally located in gateway cities and benefit from relatively high barriers-to-entry. We have brought 25 non-strategic hotels to market since December 2010 and sold nine for gross proceeds of $222 million, representing approximately 12 times prior year hotel EBITDA. During the fourth quarter, we sold two hotels (Holiday Inn Toronto-Yorkdale and Embassy Suites Dallas-Market Center) for combined gross proceeds of $37 million.

The company is currently marketing 16 non-strategic hotels. We expect to generate approximately $350 million in gross proceeds from selling these hotels. We are committed to using these funds to pay all accrued preferred dividends, reduce debt and strengthen our balance sheet. Nine of the 16 hotels secure approximately $130 million of hotel mortgage debt. We have received strong interest from potential buyers and expect to sell the majority of these hotels in 2012. We will bring the remaining non-strategic hotels to market at the appropriate time in order to maximize proceeds. The proceeds from the sale of these hotels will allow the company to continue to reduce debt, contribute to a sound and flexible balance sheet, and improve long-term FFO and stockholder value.

During the fourth quarter, we acquired the landmark Knickerbocker Hotel in midtown Manhattan for $115 million. Located at Broadway and 42nd Street, the Knickerbocker Hotel boasts one of the world's premier addresses for both business and leisure travelers and will serve as FelCor's flagship upon opening in late 2013. The four-plus star hotel will feature approximately 330 large guest rooms (averaging in excess of 420 square feet), several food and beverage outlets, including a large rooftop sky bar and lounge directly overlooking Times Square, state-of-the-art meeting space and a full-service fitness facility. We own 95% of the joint venture that owns the hotel. Highgate Holdings, Inc., which will manage the hotel upon opening, owns the other 5%. Our joint venture will leverage the development expertise of both companies to realize the full value of this iconic New York building, which was acquired at a significant discount to replacement cost. The design phase is currently in process, and the redevelopment will commence during the third quarter.

Outlook:

Lodging industry fundamentals remain strong, as lodging demand growth continues to improve and new hotel supply growth remains low. Economic indicators that correlate to future lodging demand are strengthening. Additionally, group business pace is currently the strongest since prior to the recession, and group room nights are expected to increase in 2012, after declining in 2011. FelCor's hotels are taking advantage of the growth in corporate and premium segments to remix their customer base and replace the lower rated business with those premium customers. Our hotels are opportunistically increasing rates where appropriate. We expect ADR to increase in every customer segment, including strong rate growth for corporate transient customers, which comprise almost half of our occupancy.

During 2012, the company will be renovating 11 of its hotels, plus ongoing redevelopment of three hotels. A significant portion of the renovations will take place in the first four months of the year, given the seasonally low demand. Therefore, first quarter RevPAR will be impacted by approximately 2%. The displacement from the renovations will impact full year RevPAR growth by approximately 1%, compared to 2011, or $6 million of room revenue.

For 2012, we anticipate:

• Same-store RevPAR for 75 hotels (including Morgans and Royalton for both years) to increase from 4% to 6%;
• Adjusted EBITDA to be between $205 million and $214 million;
• Adjusted FFO per share to be between $0.23 and $0.30;
• Hotel operating margins to increase approximately 40 basis points (excluding prior year tax and insurance credits, margins are expected to increase approximately 110 basis points);
• Net loss attributable to FelCor to be between $85 million and $76 million; and
• Interest expense to be approximately $133 million.

The following table reconciles 2011 Adjusted EBITDA to the mid-point of our 2012 anticipated EBITDA (in millions):

2011 Adjusted EBITDA   $

202.7

EBITDA from sold hotels (11.2 ) EBITDA from acquired hotels (prior to ownership)  

0.1

  2011 same-store Adjusted EBITDA(a) 191.6 Same store growth   17.9   2012 Adjusted EBITDA $ 209.5   2012 RevPAR Growth 5.0 % Same-store EBITDA growth 9.3 %

(a) Represents EBITDA for 75 consolidated hotels, including Morgans and Royalton, for the full year prior to our May 2011 acquisition.

The company's 2012 projections are based on 75 consolidated hotels and do not reflect any future hotel sales, acquisitions or other capital transactions. 2012 guidance assumes same-store Adjusted EBITDA growth of 7% to 12%, compared to 2011 (including Morgans and Royalton full year EBITDA for both periods).

FelCor, a real estate investment trust, owns 76 primarily upper-upscale, full-service hotels that are located in major and resort markets throughout 22 states. FelCor partners with leading hotel companies to operate its diversified portfolio of hotels, which are flagged under globally recognized names such as, Doubletree®, Embassy Suites®, Fairmont®, Hilton®, Marriott®, Renaissance®, Sheraton®, Westin® and Holiday Inn®, and premier independent hotels in New York. Additional information can be found on the company's website at www.felcor.com.

We invite you to listen to our fourth quarter earnings Conference Call on Wednesday, February 29, 2012, at 10:00 a.m. (CST). The conference call will be Webcast simultaneously on FelCor's website at www.felcor.com. Interested investors and other parties who wish to access the call can go to FelCor's website and click on the conference call microphone icon on either the "Investor Relations" or "News Releases" page. The conference call replay also will be archived on the company's website.

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 an economic slowdown and the resultant 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 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 FelCor's financial position as of and for the three months and year ended December 31, 2011.

TABLE OF CONTENTS

      PAGE Consolidated Statements of Operations(a) 9 Consolidated Balance Sheets(a) 10 Hotel Portfolio Composition 11 Detailed Operating Statistics by Brand 12 Operating Statistics for FelCor's Top Markets 13 Consolidated Debt Summary 14 Schedule of Encumbered Hotels 15 Total Enterprise Value 16 Discontinued Operations 16 Capital Expenditures 17 Hotels Under Renovation 17 Non-GAAP Financial Measures 18

(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 Ended Year Ended December 31, December 31, 2011 2010 2011 2010 Revenues: Hotel operating revenue: Room $ 177,983 $ 162,919 $ 737,298 $ 670,939 Food and beverage 41,382 39,305 151,799 134,893 Other operating departments 13,010 13,375 53,946 54,003 Other revenue   319     381     2,949     3,174   Total revenues   232,694     215,980     945,992     863,009   Expenses: Hotel departmental expenses: Room 50,015 46,397 199,464 180,644 Food and beverage 33,172 30,835 121,151 106,653 Other operating departments 6,277 6,439 25,092 24,488 Other property-related costs 66,993 63,627 265,794 244,060 Management and franchise fees 10,391 9,569 43,155 40,154 Taxes, insurance and lease expense 22,732 20,844 91,012 88,327 Corporate expenses 6,375 7,826 29,080 30,747 Depreciation and amortization 33,664 33,340 133,119 133,393 Impairment loss — 82,294 7,003 106,421 Other expenses   562     587     4,017     3,280   Total operating expenses   230,181     301,758     918,887     958,167   Operating income (loss) 2,513 (85,778 ) 27,105 (95,158 ) Interest expense, net (32,997 ) (34,458 ) (134,901 ) (139,493 ) Debt extinguishment (64 ) (1,659 ) (24,182 ) 44,313 Gain on involuntary conversion, net   —     —     280     —  

Loss before equity in income (loss) from unconsolidated entities

(30,548 ) (121,895 ) (131,698 ) (190,338 ) Equity in income (loss) from unconsolidated entities   (765 )   17,802     (2,068 )   16,916   Loss from continuing operations (31,313 ) (104,093 ) (133,766 ) (173,422 ) Discontinued operations   (2,083 )   8,488     2,871     (52,415 ) Net loss (33,396 ) (95,605 ) (130,895 ) (225,837 )

Net loss attributable to noncontrolling interests in other partnerships

83 1,838 352 1,915

Net loss attributable to redeemable noncontrolling interests in FelCor LP

  220     310     689     881   Net loss attributable to FelCor (33,093 ) (93,457 ) (129,854 ) (223,041 ) Preferred dividends   (9,679 )   (9,679 )   (38,713 )   (38,713 ) Net loss attributable to FelCor common stockholders $ (42,772 ) $ (103,136 ) $ (168,567 ) $ (261,754 ) Basic and diluted per common share data: Loss from continuing operations $ (0.33 ) $ (1.18 ) $ (1.46 ) $ (2.61 ) Net loss $ (0.35 ) $ (1.08 ) $ (1.44 ) $ (3.25 )

Basic and diluted weighted average common shares outstanding

  123,906     95,490     117,068     80,611       Consolidated Balance Sheets

(in thousands)

    December 31, 2011 2010 Assets

Investment in hotels, net of accumulated depreciation of $987,895 and $982,564 at December 31, 2011 and 2010, respectively

$ 1,953,795 $ 1,985,779 Hotel development 120,163 — Investment in unconsolidated entities 70,002 75,920 Cash and cash equivalents 93,758 200,972 Restricted cash 84,240 16,702

Accounts receivable, net of allowance for doubtful accounts of $333 and $696 at December 31, 2011 and 2010, respectively

27,135 27,851

Deferred expenses, net of accumulated amortization of $13,119 and $17,892 at December 31, 2011 and 2010, respectively

29,772 19,940 Other assets   24,363     32,271   Total assets $ 2,403,228   $ 2,359,435   Liabilities and Equity

Debt, net of discount of $32,069 and $53,193 at December 31, 2011 and 2010, respectively

$ 1,596,466 $ 1,548,309 Distributions payable 76,293 76,293 Accrued expenses and other liabilities   140,548     144,451   Total liabilities   1,813,307     1,769,053   Commitments and contingencies

Redeemable noncontrolling interests in FelCor LP, 636 and 285 units issued and outstanding at December 31, 2011 and 2010, respectively

  3,026     2,004   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, 2011 and 2010

309,362 309,362

Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at December 31, 2011 and 2010

169,412 169,412

Common stock, $0.01 par value, 200,000 shares authorized and 124,281 shares issued and outstanding at December 31, 2011, and 101,038 shares issued and outstanding, including shares in treasury, at December 31, 2010

1,243 1,010 Additional paid-in capital 2,353,251 2,190,308 Accumulated other comprehensive income 25,738 26,457 Accumulated deficit (2,297,468 ) (2,054,625 )

Less: Common stock in treasury, at cost, of 4,156 shares at December 31, 2010

  —     (73,341 ) Total FelCor stockholders’ equity 561,538 568,583 Noncontrolling interests in other partnerships   25,357     19,795   Total equity   586,895     588,378   Total liabilities and equity $ 2,403,228   $ 2,359,435      

Hotel Portfolio Composition

The following table illustrates the distribution of 75 consolidated hotels by brand, market and location at December 31, 2011.

      % of   2011 Brand Hotels Rooms Total Rooms

Hotel EBITDA(a)

Embassy Suites Hotels 21 5,742 27 $ 79,965 Holiday Inn 9 3,119 14 32,530 Doubletree and Hilton 5 1,206 6 15,345 Sheraton and Westin 4 1,605 7 15,196 Renaissance and Marriott 3 1,321 6 11,352 Fairmont 1 383 2 5,698 Morgans and Royalton 2 282 1   — Total core hotels 45 13,658 63 160,086 Non-strategic hotels 30 7,920 37   65,406 Total 75 21,578 100 $ 225,492   Market San Francisco area 4 1,637 8 $ 16,806 Boston 3 915 4 14,025 Los Angeles area 3 677 3 13,725 South Florida 3 923 4 13,111 Philadelphia 2 729 3 8,804 Atlanta 3 952 4 8,417 Myrtle Beach 2 640 3 7,859 Dallas 2 784 4 7,150 San Diego 1 600 3 6,141 Orlando 2 473 2 5,808 Other markets 20 5,328 25   58,240 Total core hotels 45 13,658 63 160,086 Non-strategic hotels 30 7,920 37   65,406 Total 75 21,578 100 $ 225,492   Location Urban 16 4,931 23 $ 60,988 Airport 10 3,267 15 35,564 Resort 10 2,927 14 35,189 Suburban 9 2,533 11   28,345 Total core hotels 45 13,658 63 160,086 Non-strategic hotels 30 7,920 37   65,406 Total 75 21,578 100 $ 225,492

(a) Hotel EBITDA is more fully described on page 25. We consider Hotel EBITDA as a same-store metric and current year acquisitions (Morgans and Royalton) are excluded from this metric.

The following tables set forth occupancy, ADR and RevPAR for the three months and years ended December 31, 2011 and 2010, and the percentage changes thereto between the periods presented, for 73 same-store consolidated hotels (excludes Morgans and Royalton, which were acquired in May 2011).

Detailed Operating Statistics by Brand

  Occupancy (%) Three Months Ended     Year Ended   December 31, December 31, 2011   2010 %Variance 2011   2010 %Variance Embassy Suites Hotels 69.8 70.2 (0.6 ) 75.8 75.0 1.1 Holiday Inn 70.3 67.1 4.8 75.0 73.9 1.5 Doubletree and Hilton 59.0 59.0 (0.1 ) 67.9 69.8 (2.7 ) Sheraton and Westin 59.5 62.9 (5.5 ) 65.7 66.4 (1.1 ) Renaissance and Marriott 63.6 60.7 4.8 67.3 63.9 5.3 Fairmont 60.5 69.2 (12.6 ) 70.2 72.3 (2.9 ) Same-store core hotels (43) 66.8 66.5 0.4 72.7 72.1 0.9 Non-strategic hotels (30) 67.3 66.4 1.3 70.9 69.0 2.7 Total same-store hotels (73) 66.9 66.5 0.7 72.0 70.9 1.5   ADR ($) Three Months Ended Year Ended December 31, December 31, 2011 2010 %Variance 2011 2010 %Variance Embassy Suites Hotels 136.46 130.46 4.6 137.61 134.33 2.4 Holiday Inn 131.83 126.06 4.6 131.27 123.38 6.4 Doubletree and Hilton 120.42 119.32 0.9 130.20 123.31 5.6 Sheraton and Westin 111.41 104.74 6.4 111.81 106.62 4.9 Renaissance and Marriott 175.94 167.59 5.0 177.04 165.95 6.7 Fairmont 262.93 249.18 5.5 248.97 233.32 6.7 Same-store core hotels (43) 139.11 133.16 4.5 139.34 133.29 4.5 Non-strategic hotels (30) 108.97 106.56 2.3 110.23 108.26 1.8 Total same-store hotels (73) 128.00 123.41 3.7 128.68 124.23 3.6   RevPAR ($) Three Months Ended Year Ended December 31, December 31, 2011 2010 %Variance 2011 2010 %Variance Embassy Suites Hotels 95.25 91.64 3.9 104.35 100.77 3.6 Holiday Inn 92.73 84.59 9.6 98.39 91.15 7.9 Doubletree and Hilton 71.02 70.43 0.8 88.42 86.05 2.8 Sheraton and Westin 66.29 65.93 0.5 73.47 70.82 3.7 Renaissance and Marriott 111.90 101.73 10.0 119.12 106.00 12.4 Fairmont 158.98 172.43 (7.8 ) 174.85 168.73 3.6 Same-store core hotels (43) 92.88 88.59 4.8 101.29 96.07 5.4 Non-strategic hotels (30) 73.28 70.76 3.6 78.13 74.71 4.6 Total same-store hotels (73) 85.69 82.05 4.4 92.68 88.12 5.2     Operating Statistics for FelCor's Top Markets   Occupancy (%) Three Months Ended     Year Ended   December 31, December 31, 2011   2010 %Variance 2011   2010 %Variance San Francisco area 76.8 72.2 6.3 79.9 77.1 3.7 Boston 70.9 74.3 (4.5 ) 77.1 77.5 (0.5 ) Los Angeles area 68.2 64.7 5.3 77.3 74.1 4.2 South Florida 74.4 71.4 4.1 78.0 77.7 0.4 Philadelphia 61.6 63.5 (3.0 ) 69.4 70.9 (2.2 ) Atlanta 63.1 70.8 (10.9 ) 73.3 75.0 (2.2 ) Myrtle Beach 44.7 43.5 2.8 59.7 61.0 (2.0 ) Dallas 61.0 58.2 4.8 64.1 61.5 4.1 San Diego 72.9 70.4 3.6 78.5 75.8 3.6 Orlando 79.9 83.0 (3.7 ) 83.5 82.9 0.7 Other markets 64.3 64.4 (0.2 ) 69.6 69.4 0.4 Same-store core hotels (43) 66.8 66.5 0.4 72.7 72.1 0.9 Non-strategic hotels (30) 67.3 66.4 1.3 70.9 69.0 2.7 Total same-store hotels (73)   66.9   66.5   0.7     72.0   70.9   1.5   ADR ($) Three Months Ended Year Ended December 31, December 31, 2011 2010 %Variance 2011 2010 %Variance San Francisco area 164.26 144.16 13.9 152.75 136.30 12.1 Boston 192.84 183.81 4.9 187.14 175.59 6.6 Los Angeles area 141.31 141.07 0.2 149.47 144.93 3.1 South Florida 137.20 137.45 (0.2 ) 141.29 141.81 (0.4 ) Philadelphia 145.45 127.71 13.9 135.80 125.56 8.2 Atlanta 104.68 105.17 (0.5 ) 104.83 104.55 0.3 Myrtle Beach 103.53 103.29 0.2 140.62 135.78 3.6 Dallas 102.97 101.54 1.4 108.32 107.11 1.1 San Diego 115.01 122.89 (6.4 ) 119.70 120.13 (0.4 ) Orlando 129.10 133.38 (3.2 ) 127.53 124.23 2.7 Other markets 136.67 131.39 4.0 138.46 133.28 3.9 Same-store core hotels (43) 139.11 133.16 4.5 139.34 133.29 4.5 Non-strategic hotels (30) 108.97 106.56 2.3 110.23 108.26 1.8 Total same-store hotels (73)   128.00   123.41   3.7     128.68   124.23   3.6   RevPAR ($) Three Months Ended Year Ended December 31, December 31, 2011 2010 %Variance 2011 2010 %Variance San Francisco area 126.11 104.12 21.1 122.05 105.04 16.2 Boston 136.76 136.48 0.2 144.25 136.06 6.0 Los Angeles area 96.31 91.29 5.5 115.49 107.43 7.5 South Florida 102.03 98.17 3.9 110.20 110.21 — Philadelphia 89.63 81.13 10.5 94.21 89.03 5.8 Atlanta 66.03 74.44 (11.3 ) 76.83 78.38 (2.0 ) Myrtle Beach 46.27 44.90 3.0 84.01 82.81 1.4 Dallas 62.83 59.14 6.3 69.38 65.92 5.3 San Diego 83.89 86.54 (3.1 ) 94.00 91.10 3.2 Orlando 103.16 110.73 (6.8 ) 106.46 102.93 3.4 Other markets 87.86 84.67 3.8 96.40 92.46 4.3 Same-store core hotels (43) 92.88 88.59 4.8 101.29 96.07 5.4 Non-strategic hotels (30) 73.28 70.76 3.6 78.13 74.71 4.6 Total same-store hotels (73)   85.69   82.05   4.4     92.68   88.12   5.2      

Consolidated Debt Summary

(dollars in thousands)

          Encumbered

Hotels

Interest Rate

(%)

December 31, Maturity Date 2011 2010 Line of credit (a) 11 L + 4.50 August 2014(b) $ — $ — Hotel mortgage debt Mortgage debt 8 L + 5.10(c) April 2015 202,982 212,000 Mortgage debt 9 L + 2.20 May 2013(d) 156,398 250,000 Mortgage debt 7 9.02 April 2014 109,044 113,220 Mortgage debt

5 (e)

6.66 June - August 2014 67,375 69,206 Mortgage debt 1 5.81 July 2016 10,876 11,321 Senior notes Senior secured notes 6 6.75 June 2019 525,000 — Senior secured notes(f) 11 10.00 October 2014 459,931 582,821 Other(g) — L + 1.50 December 2012 64,860 — Retired debt — — —   —   309,741 Total 58 $ 1,596,466 $ 1,548,309

(a) We currently have full availability under our $225 million line of credit.

(b) The line of credit can be extended for one year (to 2015), subject to satisfying certain conditions.

(c) LIBOR (for this loan) is subject to a 3% floor. We purchased an interest rate cap ($212 million notional amount) that caps LIBOR at 5.0% and expires May 2012.

(d) This loan can be extended for six months, subject to satisfying certain conditions.

(e) The hotels securing this debt are subject to separate loan agreements and are not cross-collateralized.

(f) These notes have $492 million in aggregate principal outstanding ($144 million in aggregate principal amount was redeemed in June 2011) and were initially sold at a discount that provided an effective yield of 12.875% before transaction costs.

(g) This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. When that loan is transferred to a new lender and made part of our construction loan, we expect to only pay such tax to the extent of the incremental principal amount of the construction loan.

      Schedule of Encumbered Hotels

(dollars in millions)

 

December 31, 2011

Consolidated Debt Balance Encumbered Hotels Line of credit     $ —   Boca Raton - ES, Charlotte SouthPark - DT, Dana Point - DTGS, Houston Medical Center - HI, Myrtle Beach - HLT, Mandalay Beach - ES, Nashville Airport - ES, Philadelphia Independence Mall - HI, Pittsburgh University Center - HI, Santa Barbara Goleta - HI and Santa Monica at the Pier - HI Mortgage debt $ 203 Atlanta Buckhead - ES, Atlanta Galleria - SS, Boston Marlboro - ES, Burlington - SH, Ft. Lauderdale Cypress Creek - SS, Orlando South - ES, Philadelphia Society Hill - SH and South San Francisco - ES CMBS debt $ 156 Anaheim - ES, Bloomington - ES, Charleston Mills House - HI, Deerfield Beach - ES, Jacksonville - ES, Dallas Love Field - ES, Raleigh/Durham - DTGS, San Antonio Airport - HI and Tampa Rocky Point - DTGS Mortgage debt $ 109 Baton Rouge - ES, Birmingham - ES, Ft. Lauderdale - ES, Miami Airport - ES, Milpitas - ES, Minneapolis Airport - ES and Napa Valley - ES CMBS debt(a) $ 67 Atlanta Airport - ES, Austin - DTGS, BWI Airport - ES, Orlando Airport - HI and Phoenix Biltmore - ES CMBS debt $ 11 Indianapolis North - ES

Senior secured notes

$ 525 Boston Copley - FMT, Los Angeles International Airport - ES, Indian Wells Esmeralda Resort & Spa - REN, St. Petersburg Vinoy Resort & Golf Club - REN, Morgans and Royalton

Senior secured notes

$ 460 Atlanta Airport - SH, Boston Beacon Hill - HI, Myrtle Beach Resort - ES, Nashville Opryland - Airport - HI, New Orleans French Quarter - HI, Orlando Walt Disney World® - DTGS, San Diego on the Bay - HI, San Francisco Waterfront - ES, San Francisco Fisherman's Wharf - HI, San Francisco Union Square - MAR and Toronto Airport - HI

(a) The hotels under this debt are subject to separate loan agreements and are not cross-collateralized.

      Total Enterprise Value

(in thousands, except per share information)

  December 31, 2011 2010 Common shares outstanding 124,281 96,882 Units outstanding   636     285   Combined shares and units outstanding 124,917 97,167 Common stock price $ 3.05   $ 7.04   Market capitalization $ 380,997 $ 684,056 Series A preferred stock 309,362 309,362 Series C preferred stock 169,412 169,412 Consolidated debt 1,596,466 1,548,309 Noncontrolling interests of consolidated debt (2,894 ) (3,754 ) Pro rata share of unconsolidated debt 75,178 77,295 Cash and cash equivalents   (93,758 )   (200,972 ) Total enterprise value (TEV) $ 2,434,763   $ 2,583,708      

Discontinued Operations(in thousands)

Discontinued operations include the results of operations of eight hotels sold in 2011 and three hotels disposed in 2010. Condensed financial information for the hotels included in discontinued operations is as follows:

  Three Months Ended   Year Ended December 31, December 31, 2011   2010 2011   2010 Operating revenue $ 3,191 $ 23,379 $ 42,148 $ 98,008 Operating expenses(a)   (2,626 )   (21,236 )   (42,975 )   (160,978 ) Operating income (loss) 565 2,143 (827 ) (62,970 ) Interest expense, net — (682 ) (817 ) (4,596 ) Debt extinguishment — 7,027 (199 ) 15,151 Gain (loss) on sale, net of tax   (2,648 )   —     4,714     —   Income (loss) from discontinued operations (2,083 ) 8,488 2,871 (52,415 ) Depreciation and amortization 169 2,903 5,771 14,270 Interest expense — 682 819 4,599 Noncontrolling interest in other partnerships — 917 13 917 Pro rata EBITDA from sold unconsolidated joint ventures   —     (995 )   —     1,559   EBITDA from discontinued operations (1,914 ) 11,995 9,474 (31,070 ) Impairment loss — 4,510 6,247 67,292 Debt extinguishment — (7,027 ) 199 (15,151 ) Loss (gain) on sale, net of tax   2,648     —     (4,714 )   —   Adjusted EBITDA from discontinued operations $ 734   $ 9,478   $ 11,206   $ 21,071  

(a) Includes impairment charges of $6.2 million and $67.3 million for the years ended December 31, 2011 and 2010, respectively, and $4.5 million for the three months ended December 31, 2010.

          Capital Expenditures

(in thousands)

  Three Months Ended Year Ended December 31, December 31, 2011 2010 2011 2010 Improvements and additions to majority-owned hotels $ 31,572 $ 11,095 $ 89,042 $ 38,936

Partners' pro rata share of additions to consolidated joint venture hotels

(156 ) (55 ) (882 ) (258 ) Pro rata share of additions to unconsolidated hotels   801     521     3,051     1,741   Total additions to hotels(a) $ 32,217   $ 11,561   $ 91,211   $ 40,419  

(a) Includes capitalized interest, property taxes, ground leases and certain employee costs.

          Hotels Under Renovation

(dollars in millions)

  Project

Affected Areas

Rooms

Start Date

Amount

Renovations-Started in 2011

 

Philadelphia Society Hill-SH guest rooms, corridors, public areas, meeting space; re-concept F&B 365 Q4-2011 $ 12 Mandalay Beach-ES guestrooms, corridors, public areas, exterior 249 Q4-2011 $ 10 Napa Valley-ES guestrooms, corridors, public areas 205 Q4-2011 $ 8 Austin-DTGS guestrooms corridors, public areas, entrance 189 Q4-2011 $ 6 Boston Beacon Hill-HI guestrooms, lobby, F&B 303 Q4-2011 $ 5 Charlotte SouthPark-DT guestrooms, corridors, exterior, lobby; upgrade F&B 208 Q4-2011 $ 5 Pittsburgh University Center-HI guestrooms, public areas 251 Q4-2011 $ 4 St Petersburg Vinoy Resort & Golf Club-REN lobby, lounge area, F&B areas, new bar 361 Q3-2011 $ 2

Renovations-Scheduled in 2012

Los Angeles International Airport-ES guestrooms, corridors, pool area 350 Q3-2012 $ 7 Orlando Walt Disney World-DTGS meeting space, public areas, pool upgrades, new pool bar 229 Q2-2012 $ 2 San Francisco Burlingame-ES public space, meeting rooms, lobby, F&B 340 Q3-2012 $ 2    

Non-GAAP Financial Measures

We refer in this release to certain "non-GAAP financial measures." These measures, including FFO, 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 Loss to FFO and Adjusted FFO

(in thousands, except per share data)

Three Months Ended December 31, 2011 2010 Per Per Share Share Dollars Shares Amount Dollars Shares Amount Net loss $ (33,396 ) $ (95,605 ) Noncontrolling interests 303 2,148 Preferred dividends   (9,679 )   (9,679 )

Net loss attributable to FelCor common stockholders

(42,772 ) 123,906 $ (0.35 ) (103,136 ) 95,490 $ (1.08 ) Depreciation and amortization 33,664 — 0.27 33,340 — 0.35

Depreciation, discontinued operations and unconsolidated entities

2,994 — 0.02 6,371 — 0.07 Impairment loss — — — 82,294 — 0.86

Impairment loss, discontinued operations and unconsolidated entities

— — — 3,772 — 0.04 Loss on sale of hotels 2,648 — 0.02 — — — Gain on sale of unconsolidated entities — — — (20,544 ) — (0.22 ) Noncontrolling interests in FelCor LP (220 ) 636 0.01 (310 ) 290 — Unvested restricted stock   —   —   —     —   654     —   FFO (3,686 ) 124,542 (0.03 ) 1,787 96,434 0.02 Acquisition costs 121 — — 31 — — Extinguishment of debt 64 — — (5,369 ) — (0.06 ) Unvested restricted stock   —   —   —     —   (654 )   —   Adjusted FFO $ (3,501 ) 124,542 $ (0.03 ) $ (3,551 ) 95,780   $ (0.04 )    

Reconciliation of Net Loss to FFO and Adjusted FFO

(in thousands, except per share data)

  Year Ended December 31, 2011   2010     Per Share     Per Share Dollars Shares Amount Dollars Shares Amount Net loss $ (130,895 ) $ (225,837 ) Noncontrolling interests 1,041 2,796 Preferred dividends   (38,713 )   (38,713 )

Net loss attributable to FelCor common stockholders

(168,567 ) 117,068 $ (1.44 ) (261,754 ) 80,611 $ (3.25 ) Depreciation and amortization 133,119 — 1.14 133,393 — 1.65

Depreciation, discontinued operations and unconsolidated entities

18,249 — 0.16 28,833 — 0.35 Gain on involuntary conversion (280 ) — — — — — Impairment loss 7,003 — 0.06 106,421 — 1.32

Impairment loss, discontinued operations and unconsolidated entities

6,247 — 0.05 66,555 — 0.83 Gain on sale of hotels, net (4,714 ) — (0.04 ) — — —

Gain on sale of unconsolidated entities

— — — (21,103 ) — (0.26 )

Noncontrolling interests in FelCor LP

(689 ) 499 (0.01 ) (881 ) 294 (0.01 ) Unvested restricted stock   —   —   —     —   505     —   FFO (9,632 ) 117,567 (0.08 ) 51,464 81,410 0.63 Acquisition costs 1,479 — 0.01 449 — 0.01 Extinguishment of debt 24,381 — 0.21 (59,465 ) — (0.73 ) Unvested restricted stock   —   175   —     —   (505 )   —   Adjusted FFO $ 16,228   117,742 $ 0.14   $ (7,552 ) 80,905   $ (0.09 )     Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA

(in thousands)

        Three Months Ended Year Ended December 31, December 31, 2011 2010 2011 2010 Net loss $ (33,396 ) $ (95,605 ) $ (130,895 ) $ (225,837 )

Depreciation and amortization

33,664 33,340 133,119 133,393

Depreciation, discontinued operations and unconsolidated entities

2,994 6,371 18,249 28,833 Interest expense 33,084 34,514 135,141 139,853

Interest expense, discontinued operations and unconsolidated entities

1,126 1,791 5,409 9,656 Amortization of stock compensation 1,828 2,544 7,170 7,445 Noncontrolling interests in other partnerships   83     1,838     352     1,915   EBITDA 39,383 (15,207 ) 168,545 95,258 Impairment loss — 82,294 7,003 106,421

Impairment loss, discontinued operations and unconsolidated entities

— 3,772 6,247 66,555

Debt extinguishment, including discontinued operations

64 (5,369 ) 24,381 (59,465 ) Acquisition costs 121 31 1,479 449 Lease termination costs — — — — Loss (gain) on sale of hotels, net 2,648 — (4,714 ) — Gain on involuntary conversion — — (280 ) — Gain on sale of unconsolidated subsidiary   —     (20,544 )   —     (21,103 ) Adjusted EBITDA 42,216 44,977 202,661 188,115 Adjusted EBITDA from discontinued operations (734 ) (9,478 ) (11,206 ) (21,071 ) Adjusted EBITDA from acquired hotels   (2,207 )   —     (3,655 )   319   Same-store Adjusted EBITDA $ 39,275   $ 35,499   $ 187,800   $ 167,363       Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)

        Three Months Ended Year Ended December 31, December 31, 2011 2010 2011 2010 Same-store operating revenue: Room $ 170,152 $ 162,919 $ 720,251 $ 684,852 Food and beverage 39,949 39,305 149,150 143,428 Other operating departments   12,731     13,375     53,239     54,664   Same-store operating revenue 222,832 215,599 922,640 882,944 Same-store operating expense: Room 41,903 41,008 170,060 163,150 Food and beverage 37,085 36,224 141,111 136,340 Other operating departments 6,192 6,438 24,876 25,044 Other property related costs 64,776 63,629 260,550 251,275 Management and franchise fees 10,366 9,569 43,154 40,787 Taxes, insurance and lease expense   14,382     13,957     57,397     60,823   Same-store operating expense   174,704     170,825     697,148     677,419   Hotel EBITDA $ 48,128   $ 44,774   $ 225,492   $ 205,525   Hotel EBITDA Margin 21.6 % 20.8 % 24.4 % 23.3 %     Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income (Loss)

(dollars in thousands)

    Three Months Ended   Year Ended December 31, December 31,   2011       2010     2011       2010   Same-store operating revenue(a) $ 222,832 $ 215,599 $ 922,640 $ 882,944 Other revenue 319 381 2,949 3,174 Revenue from acquired hotels   9,543     —     20,403     (23,109 ) Total revenue 232,694 215,980 945,992 863,009 Same-store operating expense(a) 174,704 170,825 697,148 677,419 Consolidated hotel lease expense(b) 9,375 8,501 38,759 36,327 Unconsolidated taxes, insurance and lease expense (1,835 ) (1,615 ) (6,987 ) (6,630 ) Corporate expenses 6,375 7,826 29,080 30,747 Depreciation and amortization 33,664 33,340 133,119 133,393 Impairment loss — 82,294 7,003 106,421 Acquired hotel expenses 7,336 — 16,748 (22,790 ) Other expenses   562     587     4,017     3,280   Total operating expenses   230,181     301,758     918,887     958,167   Operating income (loss) $ 2,513   $ (85,778 ) $ 27,105   $ (95,158 )

(a) For same-store metrics, we have included the hotel acquired in August 2010 and excluded the two hotels acquired in May 2011 for all periods presented.

(b) Consolidated hotel lease expense represents 100% of the percentage lease expense for our 51% owned operating lessees. The offsetting percentage lease revenue (approximately 51% of the expense) is included in equity in income from unconsolidated entities.

    Reconciliation of Forecasted Net Loss Attributable to FelCor to Forecasted FFO and EBITDA

(in millions, except per share and unit data)

    Full Year 2012 Guidance Low Guidance   High Guidance Dollars   Per Share

Amount

Dollars   Per Share

Amount

Net loss attributable to FelCor $ (85 ) $

(76

) Preferred dividends   (39 )   (39 ) Net loss attributable to FelCor common stockholders (124 ) $ (1.00 )

(115

) $ (0.92 ) Depreciation(b) 153 153 Noncontrolling interests in FelCor LP   (1 )   (1 ) FFO $ 28   $ 0.23 (a) $

37

  $ 0.30 (a)   Net loss attributable to FelCor $ (85 ) $

(76

) Depreciation(b) 153 153 Interest expense(b) 133

133

Amortization expense 5 5 Noncontrolling interests in FelCor LP   (1 )   (1 ) EBITDA $ 205   $ 214  

(a) Weighted average shares and units are 124.9 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 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 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, amortization, and impairment losses. FFO for unconsolidated partnerships and joint ventures are calculated 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 items, including but not limited to those 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 extinguishment of debt and interest rate swaps - We exclude gains and losses related to 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.
• 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 depreciable 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 and impairment losses 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 hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/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 that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating all revenues and expenses from continuing operations not directly associated with hotel operations, including corporate-level expenses, depreciation and amortization, 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 into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, 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 diminishes 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 Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis and exclude the historical results of operations from the Fairmont Copley Plaza acquired in August 2010.

Use and 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 other 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. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and 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 most comparable 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. These non-GAAP financial measures 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 a single financial measure.