News Column

FelCor Reports Second Quarter Earnings

July 31, 2014

Same-store Adjusted EBITDA increased 17%

Raising 2014 Operating Outlook

IRVING, Texas--(BUSINESS WIRE)-- FelCor Lodging Trust Incorporated (NYSE: FCH) reported operating results for the second quarter ended June 30, 2014.

Highlights

  • RevPAR for comparable hotels increased 9.2%.
  • Adjusted FFO per share improved to $0.26 up from $0.21.
  • Adjusted EBITDA increased $4.6 million to $69.2 million, and Same-store Adjusted EBITDA increased $9.9 million, or 17.3%, to $67.0 million.
  • Net income per share improved $0.35 to $0.12.
  • Two non-strategic hotels were sold during the quarter for gross proceeds of $54 million. Agreed to sell five other hotels (four with non-refundable deposits) for gross proceeds of $115 million.
  • The exchange of interests in 10 non-strategic hotels that were owned in joint ventures was completed in July. We now wholly-own five of these non-strategic hotels and will begin marketing them in early September.
  • A $140 million term loan, bearing interest at LIBOR plus 2.5%, and maturing in 2017, closed in July. Proceeds, along with cash and our line of credit, will be used to redeem our remaining $234 million of 10% senior secured notes in August.
  • Redevelopment of the Knickerbocker hotel remains on track to open in early fall.

    “I am very pleased with our performance in the second quarter. We exceeded our expectations, as Same-store Adjusted EBITDA increased 17%, and RevPAR growth for our portfolio once again outperformed the industry,” said Richard A. Smith, President and Chief Executive Officer of FelCor. “Our success in executing our strategic plan continues to drive positive results, and we have positioned FelCor to deliver sustainable growth by assembling a high-quality and diverse portfolio. We will continue to leverage our strengths to outperform the industry to create long-term shareholder value.”

    Mr. Smith added, “We continue to make very good progress on our portfolio positioning and balance sheet restructuring programs. After unwinding some of our joint ventures, we now have 12 remaining non-strategic hotels. We have agreed to sell five of these hotels. In addition, we obtained a flexible and low-cost term loan that will be used to redeem our 10% senior notes. After that redemption, our cost of borrowing and maturity profile will be greatly improved. We will use proceeds from future asset sales to repay the term loan and our line of credit, thereby completing the final phase of our balance sheet restructuring.”

    Hotel Results

     

     
    Second Quarter
      2014       2013     Change
    Comparable hotels (46)
    RevPAR $ 132.17 $ 121.06 9.2 %
    Total hotel revenue, in millions $ 212.9 $ 196.6 8.3 %
    Hotel EBITDA, in millions $ 63.6 $ 55.3 15.0 %
    Hotel EBITDA margin 29.9 % 28.1 % 175 bps
     
    Wyndham Hotels (8)
    RevPAR $ 127.59 $ 105.95 20.4 %
    Total hotel revenue, in millions $ 35.3 $ 28.9 21.9 %
    Hotel EBITDA, in millions $ 13.9 $ 11.2 24.3 %
    Hotel EBITDA margin 39.5 % 38.7 % 74 bps
     
    Same-store hotels (54)
    RevPAR $ 131.45 $ 118.69 10.8 %
    Total hotel revenue, in millions $ 248.2 $ 225.5 10.1 %
    Hotel EBITDA, in millions $ 77.5 $ 66.5 16.6 %
    Hotel EBITDA margin 31.3 % 29.5 % 175 bps


    RevPAR for our 46 comparable hotels (31 comparable core hotels plus 15 non-strategic hotels) was $132.17, a 9.2% increase compared to the same period in 2013. The increase reflects a 6.3% increase in ADR to $164.79 and a 2.7% increase in occupancy to 80.2%. Hotel EBITDA for our 46 comparable hotels was $63.6 million, a 15.0% increase, and Hotel EBITDA margin was 29.9% during the quarter, a 175 basis point increase.

    RevPAR for our 31 comparable core hotels (39 core hotels that exclude Wyndham hotels converted from Holiday Inn on March 1, 2013) increased 9.7% compared to the same period in 2013, while RevPAR for our 15 non-strategic hotels increased 7.5%.

    Hotel EBITDA for our acquired and recently redeveloped hotels increased 23%, compared to the same period in 2013.

    RevPAR for the eight hotels converted to Wyndham in 2013 increased 20.4% for the second quarter, compared to the same period in 2013. We expect revenues at these hotels will continue to grow meaningfully during 2014 and beyond, as transitional disruption subsides. Wyndham Worldwide Corporation has guaranteed minimum annual NOI for the eight hotels over the ten-year term of the management agreement. We do not expect any amount funded for 2014 by Wyndham under the guaranty to be significant.

    RevPAR for our 54 Same-store hotels (46 comparable hotels plus the recently-converted Wyndham hotels) was $131.45, a 10.8% increase compared to the same period in 2013. The increase reflects a 7.0% increase in ADR to $164.81 and a 3.5% increase in occupancy to 79.8%.

    See page 14 for hotel portfolio composition and pages 15-17 and 21-22 for more detailed hotel portfolio operating data.

    Second Quarter Operating Results

     
    Second Quarter
    $ in millions, except for per share information   2014     2013     Change
    Same-store Adjusted EBITDA $ 67.0 $ 57.1 17.3 %
    Adjusted EBITDA $ 69.2 $ 64.6 7.2 %
    Adjusted FFO per share $ 0.26 $ 0.21 $ 0.05
    Net income (loss) per share $ 0.12 $ (0.23 ) $ 0.35
     


    Same-store Adjusted EBITDA was $67.0 million, compared to $57.1 million for the same period in 2013, a 17.3% increase. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $69.2 million compared to $64.6 million for the same period in 2013.

    Adjusted FFO was $32.9 million, or $0.26 per share, compared to $26.1 million, or $0.21 per share in 2013. Net income attributable to common stockholders was $14.6 million, or $0.12 per share in 2014, compared to a net loss of $28.4 million, or $0.23 per share, in 2013. Net income in 2014 included a $15.6 million net gain on asset sales. Net loss in 2013 included a $24.4 million impairment loss partially offset by a $7.3 million gain.

    Year-to-Date Operating Results

    RevPAR for 46 comparable hotels was $123.57, an 8.3% increase compared to the same period in 2013. The increase reflects a 5.9% increase in ADR to $162.12 and a 2.3% increase in occupancy to 76.2%. Total revenue for the 46 comparable hotels increased 7.7% from the same period in 2013. RevPAR for our 31 comparable core hotels increased 8.9%, while RevPAR for our 15 non-strategic hotels increased 6.5%.

    Same-store Adjusted EBITDA was $106.1 million, compared to $90.0 million for the same period in 2013, a 17.9% increase. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $110.3 million compared to $102.2 million for the same period in 2013.

    Adjusted FFO was $37.0 million, or $0.29 per share, compared to $25.3 million, or $0.20 per share, in 2013. Net loss attributable to common stockholders was $9.9 million, or $0.08 per share, in 2014, compared to a net loss of $64.2 million, or $0.52 per share, in 2013. Net loss in 2014 included a $21.5 million net gain on asset sales, and net loss in 2013 included a $24.4 million impairment loss partially offset by a $7.3 million gain.

    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 17 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.

    Portfolio Repositioning

    During the first six months of 2014, we sold four hotels for total gross proceeds of $95.2 million. At June 30, 2014, we had 17 non-strategic hotels to be sold (two of which had contracts with non-refundable deposits and were excluded from our same-store metrics).

    In July, we unwound joint ventures that owned 10 non-strategic hotels. Through an exchange of interests, we now own five of those hotels outright (comprising 1,224 rooms), and our joint venture partner owns the other five (comprising 1,215 rooms). The five retained hotels will be marketed for sale in early September. In addition, we received our joint ventures partner’s 10% interest in the DoubleTree Suites hotel located in downtown Austin and now wholly-own that property.

    Following the exchange of interests in our joint venture hotels, we now have 12 non-strategic hotels remaining to sell. Of the twelve, we have agreed to sell five hotels for total gross proceeds of approximately $115 million. Of the five, we have contracts, with non-refundable deposits, to sell four - the DoubleTree Suites-Charlotte, the Embassy Suites-Indianapolis, the Holiday Inn-Toronto Airport and the Sheraton-Atlanta Gateway.

    Since December 2010, we have sold 28 non-strategic hotels, for total gross proceeds of $627 million, and exchanged interests in 10 non-strategic hotels with our joint venture partner.

    Capital Expenditures

    During the quarter, we invested $20.0 million in capital expenditures at our hotels (excluding the Knickerbocker), including approximately $7.8 million for redevelopment projects and repositioning for our Wyndham hotels.

    During 2014, we plan to invest approximately $60 million in capital improvements and renovations, concentrated at seven core hotels, as part of our long-term capital plan. In addition, we are investing approximately $25 million to complete the repositioning of our Wyndham portfolio. Please see page 12 of this release for more detail on renovations.

    We have invested $105.5 million (excluding initial acquisition costs and capitalized interest) through June 30, 2014 to redevelop the 4+ star Knickerbocker Hotel. Our net expected project cost remains $240 million, and we expect the hotel to open in early fall.

    Balance Sheet

    As of June 30, 2014, we had $1.6 billion of consolidated debt bearing a 6.3% weighted-average interest rate and a six-year weighted-average maturity. We had $61.3 million of cash and cash equivalents and $66.0 million of restricted cash, of which $51.9 million secured our Knickerbocker construction loan.

    During the quarter, we repaid three loans that would have matured between July and August 2014, totaling $35 million. Those loans, each secured by a different hotel, bore interest at a weighted average rate of 6.6%.

    During July, we obtained a $140 million term loan secured by three hotels. Borrowings under the facility bear interest at LIBOR (no floor) plus 2.5%. The loan matures in 2017 (may be extended for up to two years, subject to satisfaction of certain conditions) and is freely pre-payable. On August 15, 2014, we expect to use borrowings from the term loan, cash on hand and borrowings under our line of credit to redeem the remaining $234 million of our 10% senior secured notes. We will use proceeds from pending and future asset sales to repay the term loan and our line of credit. After redeeming the 10% notes, we will have no significant debt maturities, other than our line of credit, until 2019 and will have lowered our weighted average borrowing rate to below 6.0%.

    Common Dividend

    During the second quarter, we declared a $0.02 per share common stock dividend, which was paid in July. Future quarterly dividends will be based on funds available for distribution, reinvestment opportunities within our portfolio and taxable income, among other things.

    Outlook

    We have increased our RevPAR and EBITDA outlook primarily to reflect better than expected second quarter results. Our 2014 outlook reflects continued strong lodging industry fundamentals. Our expected RevPAR growth reflects a premium to the industry because of our high-quality diverse portfolio and continued strong growth at our acquired and recently redeveloped hotels.

    Our outlook reflects selling all 12 remaining non-strategic hotels. The low end of our outlook assumes that five hotels are sold during the third quarter and seven are sold in the fourth quarter. The high end of our outlook assumes four hotels are sold in the third quarter and eight hotels are sold during the fourth quarter. Our outlook assumes EBITDA for the Wyndham hotels equates to the amount of Wyndham’s annual NOI guaranty.

    During 2014, we expect:

  • RevPAR for same-store hotels will increase 8.75% - 9.25%; and RevPAR for comparable hotels (excludes Wyndham) will increase 7.5% - 8.0%;
  • Adjusted EBITDA will be $211.5 million to $217.5 million;
  • Adjusted FFO per share will be $0.56 to $0.60;
  • Net income attributable to FelCor will be $1.0 million to $5.0 million; and
  • Interest expense, including our pro rata share from joint ventures, will be $96.0 million to $96.5 million.

    The following table reconciles our 2014 Adjusted EBITDA to core Adjusted EBITDA outlook (in millions):

      Low   High
    Previous Adjusted EBITDA$206.0$217.0
    Operations 2.5 1.0
    Updated timing of asset sales   3.0     (0.5 )
    Current Adjusted EBITDA$211.5$217.5
    Hotel dispositions(a)   (25.0 )   (28.5 )
    Core Adjusted EBITDA (40 hotels)(b)$186.5   $189.0  


    (a) EBITDA that is forecasted to be generated by 21 hotels that we assume will be sold from January 1, 2014 through the dates of sale.

    (b) Includes the Knickerbocker, which is scheduled to open in early fall.

    About FelCor

    FelCor, a real estate investment trust, owns a diversified portfolio of primarily upper-upscale and luxury hotels that are located in major and resort markets. FelCor partners with leading hotel companies to operate its hotels, which are flagged under globally renowned brands and premier independent hotels. Additional information can be found on the Company’s website at www.felcor.com.

    We invite you to listen to our second quarter earnings Conference Call on Thursday, July 31, 2014 at 10:00 a.m. (Central Time). 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 the “Investor Relations” page. The conference call replay will also 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 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 and six months ended June 30, 2014.

    TABLE OF CONTENTS

      Page
    Consolidated Statements of Operations(a)

    8

    Consolidated Balance Sheets(a)

    9

    Consolidated Debt Summary

    10

    Schedule of Encumbered Hotels

    11

    Capital Expenditures

    12

    Hotels Under Renovation During 2014

    12

    Supplemental Financial Data

    13

    Hotel Portfolio Composition

    14

    Hotel Operating Statistics by Brand

    15

    Hotel Operating Statistics by Market

    16

    Historical Quarterly Operating Statistics

    17

    Non-GAAP Financial Measures

    17



    (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 EndedSix Months Ended
    June 30,June 30,
      2014       2013     2014       2013  
    Revenues:
    Hotel operating revenue:
    Room $ 200,238 $ 184,327 $ 370,067 $ 344,834
    Food and beverage 45,471 42,162 85,256 79,105
    Other operating departments 12,570 12,317 23,978 23,405
    Other revenue   1,236     1,050     1,563     1,449  
    Total revenues   259,515     239,856     480,864     448,793  
    Expenses:
    Hotel departmental expenses:
    Room 50,585 47,322 97,318 92,192
    Food and beverage 33,066 31,747 64,253 61,993
    Other operating departments 5,977 5,902 11,580 11,191
    Other property-related costs 62,912 60,030 124,490 119,458
    Management and franchise fees 10,160 8,914 19,173 18,077
    Taxes, insurance and lease expense 26,992 24,853 50,625 47,017
    Corporate expenses 7,647 6,694 15,472 14,526
    Depreciation and amortization 29,082 29,898 58,683 59,653
    Impairment loss 24,441 24,441
    Conversion expenses 587 1,215
    Other expenses   2,114     3,915     4,128     4,736  
    Total operating expenses   228,535     244,303     445,722     454,499  
    Operating income (loss) 30,980 (4,447 ) 35,142 (5,706 )
    Interest expense, net (24,495 ) (26,376 ) (49,722 ) (52,661 )
    Debt extinguishment (27 ) (33 )
    Gain on sale of other assets, net   100         100      
    Income (loss) before equity in income from unconsolidated entities 6,558 (30,823 ) (14,513 ) (58,367 )
    Equity in income from unconsolidated entities   2,766     1,905     3,409     1,994  
    Income (loss) from continuing operations 9,324 (28,918 ) (11,104 ) (56,373 )
    Income from discontinued operations   5     6,123     140     6,973  
    Income (loss) before gain on sale of property 9,329 (22,795 )

     

    (10,964 ) (49,400 )
    Gain on sale of property, net   15,626         21,083      
    Net income (loss) 24,955 (22,795 ) 10,119 (49,400 )
    Net loss (income) attributable to noncontrolling interests in other partnerships (262 ) 3,972 (184 ) 4,212
    Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP (71 ) 140 50 320
    Preferred distributions - consolidated joint venture   (341 )       (522 )    
    Net income (loss) attributable to FelCor 24,281 (18,683 ) 9,463 (44,868 )
    Preferred dividends   (9,678 )   (9,678 )   (19,356 )   (19,356 )
    Net income (loss) attributable to FelCor common stockholders $ 14,603   $ (28,361 ) $ (9,893 ) $ (64,224 )
    Basic and diluted per common share data:
    Income (loss) from continuing operations $ 0.12   $ (0.28 ) $ (0.08 ) $ (0.57 )
    Net income (loss) $ 0.12   $ (0.23 ) $ (0.08 ) $ (0.52 )
    Basic weighted average common shares outstanding   124,169     123,814     124,158     123,814  
    Diluted weighted average common shares outstanding   125,386     123,814     124,158     123,814  
       
    Consolidated Balance Sheets
    (in thousands)
     
    June 30,December 31,
      2014     2013  
    Assets
    Investment in hotels, net of accumulated depreciation of $882,585 and $929,801 at June 30, 2014 and December 31, 2013, respectively $ 1,552,172 $ 1,653,267
    Hotel development 261,181 216,747
    Investment in unconsolidated entities 44,126 46,943
    Hotels held for sale 33,148 16,319
    Cash and cash equivalents 61,344 45,645
    Restricted cash 66,046 77,227
    Accounts receivable, net of allowance for doubtful accounts of $231 and $262 at June 30, 2014 and December 31, 2013, respectively 35,889 35,747
    Deferred expenses, net of accumulated amortization of $22,095 and $20,362 at June 30, 2014 and December 31, 2013, respectively 25,962 29,325
    Other assets   26,796     23,060  
    Total assets $ 2,106,664   $ 2,144,280  
    Liabilities and Equity
    Debt, net of discount of $1,615 and $4,714 at June 30, 2014 and December 31, 2013, respectively $ 1,601,166 $ 1,663,226
    Distributions payable 11,228 11,047
    Accrued expenses and other liabilities   149,799     150,738  
    Total liabilities   1,762,193     1,825,011  
    Commitments and contingencies
    Redeemable noncontrolling interests in FelCor LP, 613 and 618 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively   6,440     5,039  
    Equity:
    Preferred stock, $0.01 par value, 20,000 shares authorized:
    Series A Cumulative Convertible Preferred Stock, 12,880 shares, liquidation value of $322,004 and $322,011, issued and outstanding at June 30, 2014 and December 31, 2013, respectively 309,354 309,362
    Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at June 30, 2014 and December 31, 2013 169,412 169,412
    Common stock, $0.01 par value, 200,000 shares authorized; 124,290 and 124,051 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively 1,243 1,240
    Additional paid-in capital 2,354,847 2,354,328
    Accumulated other comprehensive income 24,892 24,937
    Accumulated deficit   (2,584,211 )   (2,568,350 )
    Total FelCor stockholders’ equity 275,537 290,929
    Noncontrolling interests in other partnerships 21,500 23,301
    Preferred equity in consolidated joint venture, liquidation value of $41,590   40,994      
    Total equity   338,031     314,230  
    Total liabilities and equity $ 2,106,664   $ 2,144,280  
             
    Consolidated Debt Summary
    (dollars in thousands)
     
    Encumbered HotelsInterest

    Rate (%)

    Maturity Date

    June 30,

    2014
    December 31,

    2013
    Line of credit 8 LIBOR + 3.375 June 2016(a) $ 87,500 $ 88,000
    Hotel mortgage debt
    Mortgage debt 1 5.81 July 2016 9,641 9,904
    Mortgage debt(b) 4 4.95 October 2022 125,404 126,220
    Mortgage debt 1 4.94 October 2022 31,471 31,714
    Senior notes

    Senior secured notes(c)

    11 10.00 October 2014 232,289 229,190
    Senior secured notes 6 6.75 June 2019 525,000 525,000
    Senior secured notes 9 5.625 March 2023 525,000 525,000

    Knickerbocker loan(d)

    Construction tranche LIBOR + 4.00 May 2016 12,994
    Cash collateralized tranche LIBOR + 1.25 May 2016 51,867 64,861
    Retired debt   63,337
    Total 40 $ 1,601,166   $ 1,663,226


    (a) Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.

    (b) This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a single hotel.

    (c) We originally issued $636 million (face amount) of these notes. After redemptions in 2011 and 2012, $234 million (face amount) of these notes were outstanding at June 30, 2014 and December 31, 2013.

    (d) In November 2012, we obtained an $85.0 million construction loan to finance the redevelopment of the Knickerbocker Hotel. This loan can be extended for one year subject to satisfying certain conditions. In 2014, we drew $13.0 million of the cash collateral to fund construction costs, leaving $51.9 million of cash collateral to be drawn before drawing on the remaining $20.1 million available under the construction loan.

       
    Schedule of Encumbered Hotels
    (dollars in millions)
     
    ConsolidatedJune 30, 2014
    DebtBalanceEncumbered Hotels
    Line of credit $ 88 Charleston Mills House - WYN, Charlotte SouthPark - DT, Houston Medical Center - WYN, Mandalay Beach - ES, Miami International Airport - ES, Philadelphia Historic District - WYN, Pittsburgh University Center - WYN and Santa Monica at the Pier - WYN
    CMBS debt $ 10 Indianapolis North - ES
    CMBS debt(a) $ 125 Birmingham - ES, Ft. Lauderdale - ES, Minneapolis Airport - ES and Napa Valley - ES
    CMBS debt $ 31 Deerfield Beach - ES
    Senior secured notes (10.00%) $ 232 Atlanta Airport - SH, Boston Beacon Hill - WYN, Myrtle Beach Resort - ES, Nashville Opryland-Airport - HI, New Orleans French Quarter - WYN, Orlando Walt Disney World® - DT, San Diego Bayside - WYN, San Francisco Waterfront - ES, San Francisco Fisherman’s Wharf - HI, San Francisco Union Square - MAR and Toronto Airport - HI
    Senior secured notes (6.75%) $ 525 Boston Copley - FMT, Indian Wells Esmeralda Resort & Spa - REN, LAX South - ES, Morgans, Royalton and St. Petersburg Vinoy Resort& Golf Club - REN
    Senior secured notes (5.625%) $ 525 Atlanta Buckhead - ES, Boston Marlboro - ES, Burlington - SH, Dallas Love Field - ES, Milpitas - ES, Myrtle Beach Resort - HIL, Orlando South - ES, Philadelphia Society Hill - SH and SF South San Francisco - ES


    (a) This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.

       
    Capital Expenditures
    (in thousands)
     
    Three Months EndedSix Months Ended
    June 30,June 30,
      2014       2013     2014       2013  
    Improvements and additions to majority-owned hotels $ 19,415 $ 23,681 $ 48,032 $ 47,023
    Partners’ pro rata share of additions to consolidated joint venture hotels (166 ) (151 ) (260 ) (308 )
    Pro rata share of additions to unconsolidated hotels   781     465     1,404     802  
    Total additions to hotels(a) $ 20,030   $ 23,995   $ 49,176   $ 47,517  


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

         

    Hotels Under Renovation During 2014

     

    Primary Areas

    Start DateEnd Date
    Burlington - SH guestrooms, exterior Nov-2013 May-2014
    San Francisco Fisherman’s Wharf - HI guestrooms, public areas, F&B Nov-2013 Mar-2014
    San Diego - WYN(a) guestrooms, public areas Nov-2013 May-2014
    San Francisco Waterfront-ES(b) guestrooms, F&B Dec-2013 Jul-2014
    LAX- ES(c) public areas, F&B Feb-2014 May-2014
    New Orleans - WYN(a) guestrooms, public areas May-2014 Oct-2014
    Dallas Love Field - ES guestrooms, F&B Jun-2014 Sep-2014
    Nashville - HI public areas, F&B Jul-2014 Oct-2014
    Ft. Lauderdale - ES(d) guestrooms Aug-2014

    Oct-2014



    (a) Repositioning from Holiday Inn to Wyndham.

    (b) Public areas renovation completed in May 2013.

    (c) Guestrooms renovation completed in February 2013.

    (d) Public areas renovation completed in November 2013.

       
    Supplemental Financial Data
    (in thousands, except per share data)
     
    June 30,December 31,

    Total Enterprise Value

      2014     2013  
    Common shares outstanding 124,290 124,051
    Units outstanding   613     618  
    Combined shares and units outstanding 124,903 124,669
    Common stock price $ 10.51   $ 8.16  
    Market capitalization $ 1,312,731 $ 1,017,299
    Series A preferred stock(a) 309,354 309,362
    Series C preferred stock(a) 169,412 169,412
    Preferred equity - Knickerbocker joint venture, net(b) 38,944
    Consolidated debt(b) 1,601,166 1,663,226
    Noncontrolling interests of consolidated debt (2,719 )
    Pro rata share of unconsolidated debt 73,361 73,179
    Hotel development (261,181 ) (216,747 )
    Cash, cash equivalents and restricted cash(c)   (127,390 )   (122,872 )
    Total enterprise value (TEV) $ 3,116,397   $ 2,890,140  


    (a) Book value based on issue price.

    (b) Book value based on issue price, net of noncontrolling interest.

    (c) Restricted cash includes $51.9 million of cash fully securing $51.9 million of outstanding debt assumed when we purchased the Knickerbocker Hotel.

           
    Hotel Portfolio Composition
     
    The following table illustrates the distribution of same-store hotels.
     

    Brand

    HotelsRooms

    2013 Hotel

    Operating Revenue

    (in thousands)

    2013 Hotel

    EBITDA

    (in thousands)(a)

    Embassy Suites Hotels 18 4,982 $ 255,744 $ 81,051
    Wyndham and Wyndham Grand(b) 8 2,528 103,932 35,042
    Renaissance and Marriott 3 1,321 119,839 21,338
    DoubleTree by Hilton and Hilton 3 802 41,106 12,619
    Sheraton and Westin 2 673 37,996 10,173
    Fairmont 1 383 49,104 7,844
    Holiday Inn 2 968 46,403 6,405
    Morgans and Royalton 2 285   34,340   3,513
    Core hotels3911,942688,464177,985
    Non-strategic hotels(c) 15 4,153   152,039   40,348
    Same-store hotels5416,095$840,503$218,333
     

    Market

    San Francisco area 5 1,903 $ 124,825 $ 31,583
    Boston 3 916 76,510 17,791
    South Florida 3 923 50,011 14,303
    Los Angeles area 2 481 23,760 10,450
    Myrtle Beach 2 640 37,956 10,118
    Philadelphia 2 728 34,271 7,567
    Tampa 1 361 46,423 7,434
    New York area 3 546 48,045 6,760
    Austin 1 188 13,126 5,679
    Atlanta 1 316 14,016 5,490
    Other markets 16 4,940   219,521   60,810
    Core hotels3911,942688,464177,985
    Non-strategic hotels(c) 15 4,153   152,039   40,348
    Same-store hotels5416,095$840,503$218,333
     

    Location

    Urban 17 5,310 $ 323,305 $ 81,341
    Resort 9 2,733 185,264 41,288
    Airport 8 2,621 122,735 37,359
    Suburban 5 1,278   57,160   17,997
    Core hotels3911,942688,464177,985
    Non-strategic hotels(c) 15 4,153   152,039   40,348
    Same-store hotels5416,095$840,503$218,333


    (a) Hotel EBITDA is more fully described on page 25.

    (b) These hotels were converted to Wyndham on March 1, 2013.

    (c) Excludes two hotels held for sale as of June 30, 2014.

    The following tables set forth occupancy, ADR and RevPAR for the three and six months ended June 30, 2014 and 2013, and the percentage changes therein for the periods presented, for our same-store hotels.

       

    Hotel Operating Statistics by Brand

     
    Occupancy (%)
    Three Months Ended   Six Months Ended  
    June 30,   June 30,
    2014  

    2013

    %Variance

    2014   2013%Variance
    Embassy Suites Hotels 81.7 78.7 3.7 79.3 76.4 3.7
    Renaissance and Marriott 76.3 73.2 4.2 76.0 74.0 2.6
    DoubleTree by Hilton and Hilton 82.8 77.9 6.3 73.7 68.9 7.0
    Sheraton and Westin 75.5 75.5 0.1 66.0 66.9 (1.2 )
    Fairmont 83.9 80.3 4.5 71.3 70.4 1.3
    Holiday Inn 85.1 88.3 (3.7 ) 74.8 78.4 (4.5 )
    Morgans and Royalton 91.0 89.4 1.7 85.2 85.3
    Comparable core hotels (31)81.379.02.976.875.02.4
    Non-strategic hotels (15)(a) 77.7 76.1 2.2 75.0 73.4 2.2
    Comparable hotels (46)80.278.12.776.274.52.3
    Wyndham and Wyndham Grand(b) 77.4 71.2 8.7 70.2 67.4 4.2
    Same-store hotels (54)79.877.03.575.373.42.6
    ADR ($)
    Three Months EndedSix Months Ended
    June 30,   June 30,
    2014

    2013

    %Variance

    20142013%Variance
    Embassy Suites Hotels 162.07 150.55 7.7 164.31 153.80 6.8
    Renaissance and Marriott 227.30 214.91 5.8 231.96 218.02 6.4
    DoubleTree by Hilton and Hilton 160.29 152.07 5.4 158.52 153.54 3.2
    Sheraton and Westin 153.06 159.32 (3.9 ) 142.37 144.64 (1.6 )
    Fairmont 330.56 313.17 5.6 292.78 273.98 6.9
    Holiday Inn 160.13 138.09 16.0 147.99 126.97 16.6
    Morgans and Royalton 331.94 336.33 (1.3 ) 297.97 300.28 (0.8 )
    Comparable core hotels (31)182.53171.236.6179.59168.906.3
    Non-strategic hotels (15)(a) 122.74 166.70 5.2 121.57 116.58 4.3
    Comparable hotels (46)164.79154.986.3162.12153.155.9
    Wyndham and Wyndham Grand(b) 164.91 148.81 10.8 155.86 144.36 8.0
    Same-store hotels (54)164.81154.087.0161.21151.886.1
    RevPAR ($)
    Three Months EndedSix Months Ended
    June 30,   June 30,
    2014

    2013

    %Variance

    20142013%Variance
    Embassy Suites Hotels 132.35 118.53 11.7 130.22 117.55 10.8
    Renaissance and Marriott 173.47 157.39 10.2 176.20 161.40 9.2
    DoubleTree by Hilton and Hilton 132.72 118.41 12.1 116.77 105.76 10.4
    Sheraton and Westin 115.62 120.21 (3.8 ) 94.03 96.70 (2.8 )
    Fairmont 227.30 251.44 10.3 208.76 192.81 8.3
    Holiday Inn 136.21 121.92 11.7 110.75 99.53 11.3
    Morgans and Royalton 301.98 300.74 0.4 253.93 256.00 (0.8 )
    Comparable core hotels (31)148.39135.309.7137.88126.648.9
    Non-strategic hotels (15)(a) 95.40 88.76 7.5 91.12 85.53 6.5
    Comparable hotels (46)132.17121.069.2123.57114.088.3
    Wyndham and Wyndham Grand(b) 127.59 105.95 20.4 109.40 97.27 12.5
    Same-store hotels (54)131.45118.6910.8121.34111.438.9


    (a) Excludes two hotels held for sale as of June 30, 2014.

    (b) These hotels were converted to Wyndham on March 1, 2013.

     

    Hotel Operating Statistics by Market

     
    Occupancy (%)
    Three Months Ended     Six Months Ended  
    June 30,June 30,
    2014   2013%Variance2014   2013%Variance
    San Francisco area 85.1 86.3 (1.4 ) 78.6 80.3 (2.2 )
    Boston 83.1 79.9 4.0 72.0 71.5 0.8
    South Florida 84.9 79.3 6.9 88.0 85.0 3.5
    Los Angeles area 84.9 87.0 (2.4 ) 83.8 82.0 2.2
    Myrtle Beach 78.4 75.7 3.6 62.0 56.5 9.7
    Philadelphia 78.4 79.0 (0.8 ) 69.1 66.1 4.6
    Tampa 84.8 81.8 3.6 85.5 82.8 3.2
    New York area 88.0 87.8 0.2 79.9 80.6 (0.9 )
    Austin 82.1 87.1 (5.7 ) 80.3 83.7 (4.1 )
    Atlanta 76.9 74.4 3.4 76.2 73.3 3.9
    Other markets 77.0 72.4 6.4 74.8 71.3 4.8
    Comparable core hotels (31)81.379.02.9   76.875.02.4  
    ADR ($)
    Three Months EndedSix Months Ended
    June 30,June 30,
    20142013%Variance20142013%Variance
    San Francisco area 203.56 179.54 13.4 196.51 171.62 14.5
    Boston 267.04 251.75 6.1 240.43 224.95 6.9
    South Florida 148.46 134.39 10.5 177.73 164.33 8.2
    Los Angeles area 146.14 138.07 5.8 141.77 137.16 3.4
    Myrtle Beach 170.84 162.69 5.0 148.21 145.28 2.0
    Philadelphia 172.66 182.05 (5.2 ) 162.40 170.15 (4.6 )
    Tampa 194.20 182.67 6.3 210.17 199.34 5.4
    New York area 265.24 260.37 1.9 249.10 241.31 3.2
    Austin 209.58 192.74 8.7 220.94 206.60 6.9
    Atlanta 141.54 144.32 (1.9 ) 143.98 143.56 0.3
    Other markets 154.90 146.29 5.9 154.54 147.69 4.6
    Comparable core hotels (31)182.53171.236.6   179.59168.906.3  
    RevPAR ($)
    Three Months EndedSix Months Ended
    June 30,June 30,
    20142013%Variance20142013%Variance
    San Francisco area 173.22 154.94 11.8 154.42 137.87 12.0
    Boston 221.88 201.17 10.3 173.16 160.81 7.7
    South Florida 125.98 106.63 18.1 156.41 139.74 11.9
    Los Angeles area 124.13 120.18 3.3 118.82 112.49 5.6
    Myrtle Beach 133.98 123.19 8.8 91.94 82.16 11.9
    Philadelphia 135.35 143.82 (5.9 ) 112.22 112.41 (0.2 )
    Tampa 164.67 149.46 10.2 179.62 165.02 8.8
    New York area 233.33 228.66 2.0 198.94 194.52 2.3
    Austin 172.12 167.82 2.6 177.37 172.96 2.6
    Atlanta 108.84 107.37 1.4 109.73 105.28 4.2
    Other markets 119.32 105.93 12.6 115.54 105.34 9.7
    Comparable core hotels (31)148.39135.309.7   137.88126.648.9  
     

    Historical Quarterly Operating Statistics

     
    Occupancy (%)
    Q3 2013   Q4 2013   Q1 2014   Q2 2014
    Comparable core hotels (31) 78.9 70.4 72.2 81.3
    Non-strategic hotels (15)(a) 74.2 68.7 72.2 77.7
    Comparable hotels (46)77.469.972.280.2
    Wyndham and Wyndham Grand (8)(b) 68.7 59.1 62.9 77.4
    Same-store hotels (54)76.168.270.779.8
     
    ADR ($)
    Q3 2013Q4 2013Q1 2014Q2 2014
    Comparable core hotels (31) 171.37 170.40 176.24 182.53
    Non-strategic hotels (15)(a) 117.84 115.80 120.30 122.74
    Comparable hotels (46)155.66153.98159.13164.79
    Wyndham and Wyndham Grand (8)(b) 140.19 149.34 144.62 164.91
    Same-store hotels (54)153.47153.35157.10164.81
     
    RevPAR ($)
    Q3 2013Q4 2013Q1 2014Q2 2014
    Comparable core hotels (31) 135.17 120.03 127.25 148.39
    Non-strategic hotels (15)(a) 87.43 79.54 86.80 95.40
    Comparable hotels (46)120.55107.64114.87132.17
    Wyndham and Wyndham Grand (8)(b) 96.31 88.30 90.99 127.59
    Same-store hotels (54)116.74104.63111.12131.45


    (a) Excludes two hotels held for sale as of June 30, 2014.

    (b) These hotels were converted to Wyndham on March 1, 2013.

    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 Income (Loss) to FFO and Adjusted FFO
    (in thousands, except per share data)
     
    Three Months Ended June 30,
    2014     2013  
    Dollars   Shares   Per Share AmountDollars   Shares   Per Share Amount
    Net income (loss) $ 24,955 $ (22,795 )
    Noncontrolling interests (333 ) 4,112
    Preferred dividends (9,678 ) (9,678 )
    Preferred distributions - consolidated joint venture   (341 )    
    Net income (loss) attributable to FelCor common stockholders 14,603 (28,361 )
    Less: Dividends declared on unvested restricted stock (2 )
    Less: Undistributed earnings allocated to unvested restricted stock   (6 )    
    Basic earnings per share data 14,595 124,169 $ 0.12 (28,361 ) 123,814 $ (0.23 )
    Restricted stock units     1,217          
    Diluted earnings per share data 14,595 125,386 0.12 (28,361 ) 123,814 (0.23 )
    Depreciation and amortization 29,082 0.23 29,898 0.24
    Depreciation, discontinued operations and unconsolidated entities 2,700 0.02 4,448 0.04
    Gain on sale of other assets (100 )
    Impairment loss, net of non-controlling interests in other partnerships 20,382 0.16
    Impairment loss, discontinued operations 3,265 0.03
    Gain on sale of hotels, net of noncontrolling interests in other partnerships (15,541 ) (0.12 ) (7,259 ) (0.06 )
    Noncontrolling interests in FelCor LP 71 614 (0.01 ) (140 ) 621
    Dividends declared on unvested restricted stock 2
    Undistributed earnings allocated to unvested restricted stock 6
    Conversion of unvested restricted stock and units     11         792  
    FFO 30,815 126,011 0.24 22,233 125,227 0.18
    Debt extinguishment 25
    Severance costs 3 2,791 0.02
    Conversion expenses 587 0.01
    Variable stock compensation 854 0.01 121
    Pre-opening costs, net of noncontrolling interests   1,206     0.01     322    
    Adjusted FFO $ 32,903   126,011 $ 0.26   $ 26,054   125,227 $ 0.21  
       
    Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
    (in thousands, except per share data)
     
    Six Months Ended June 30,
    2014   2013  
    Dollars   Shares   Per Share AmountDollars   Shares   Per Share Amount
    Net income (loss) $ 10,119 $ (49,400 )
    Noncontrolling interests (134 ) 4,532
    Preferred distributions - consolidated joint venture (522 )
    Preferred dividends   (19,356 )   (19,356 )
    Net loss attributable to FelCor common stockholders (9,893 ) (64,224 )

    Less: Dividends declared on unvested restricted stock

      (3 )    
    Basic and diluted earnings per share data (9,896 ) 124,158 $ (0.08 ) (64,224 ) 123,814 $ (0.52 )
    Depreciation and amortization 58,683 0.47 59,653 0.48
    Depreciation, discontinued operations and unconsolidated entities 5,374 0.04 8,971 0.07
    Gain on sale of other assets (100 )
    Impairment loss, net of non-controlling interests in other partnerships 20,382 0.16
    Impairment loss, discontinued operations 3,265 0.03
    Gain on sale of hotels, net of noncontrolling interests in other partnerships (21,361 ) (0.17 ) (7,259 ) (0.06 )
    Noncontrolling interests in FelCor LP (50 ) 616 (320 ) 621
    Dividends declared on unvested restricted stock 3
    Conversion of unvested restricted stock and units     1,029         565    
    FFO 32,653 125,803 0.26 20,468 125,000 0.16
    Acquisition costs 23
    Debt extinguishment, including discontinued operations 276
    Severance costs 403 2,791 0.02
    Conversion expenses 1,215 0.01
    Variable stock compensation 1,419 0.01 223
    Pre-opening costs, net of noncontrolling interests   2,259     0.02     563     0.01  
    Adjusted FFO $ 37,010   125,803 $ 0.29   $ 25,283   125,000 $ 0.20  
       
    Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-Store Adjusted
    EBITDA
    (in thousands)
     
    Three Months EndedSix Months Ended
    June 30,June 30,
      2014       2013     2014       2013  
    Net income (loss) $ 24,955 $ (22,795 ) $ 10,119 $ (49,400 )
    Depreciation and amortization 29,082 29,898 58,683 59,653
    Depreciation, discontinued operations and unconsolidated entities 2,700 4,448 5,374 8,971
    Interest expense 24,509 26,398 49,751 52,705
    Interest expense, discontinued operations and unconsolidated entities 647 879 1,390 1,749
    Noncontrolling interests in other partnerships   (262 )   3,972     (184 )   4,212  
    EBITDA 81,631 42,800 125,133 77,890
    Impairment loss, net of noncontrolling interests in other partnerships 20,382 20,382
    Impairment loss, discontinued operations 3,265 3,265
    Debt extinguishment, including discontinued operations 25 276
    Acquisition costs 23
    Gain on sale of hotels, net of noncontrolling interests in other partnerships (15,541 ) (7,259 ) (21,361 ) (7,259 )
    Gain on sale of other assets (100 ) (100 )
    Amortization of fixed stock and directors’ compensation 1,171 1,572 2,292 3,150
    Severance costs 3 2,791 403 2,791
    Conversion expenses 587 1,215
    Variable stock compensation 854 121 1,419 223
    Pre-opening costs, net of noncontrolling interests   1,206     322     2,259     563  
    Adjusted EBITDA 69,249 64,581 110,321 102,243
    Adjusted EBITDA from hotels, disposed and held for sale   (2,293 )   (7,507 )   (4,210 )   (12,224 )
    Same-store Adjusted EBITDA $ 66,956   $ 57,074   $ 106,111   $ 90,019  
       
    Hotel EBITDA and Hotel EBITDA Margin
    (dollars in thousands)
     
    Three Months EndedSix Months Ended
    June 30,June 30,
      2014       2013     2014       2013  
    Same-store operating revenue:
    Room $ 192,523 $ 173,831 $ 353,480 $ 325,313
    Food and beverage 43,389 39,823 81,196 74,700
    Other operating departments   12,222     11,891     23,239     22,575  
    Same-store operating revenue 248,134 225,545 457,915 422,588
    Same-store operating expense:
    Room 48,335 44,465 92,368 86,578
    Food and beverage 31,473 30,044 61,074 58,697
    Other operating departments 5,823 5,690 11,246 10,772
    Other property related costs 60,108 56,259 118,095 112,078
    Management and franchise fees 9,732 8,305 18,234 16,939
    Taxes, insurance and lease expense   15,120     14,251     29,584     27,924  
    Same-store operating expense   170,591     159,014     330,601     312,988  
    Hotel EBITDA $ 77,543   $ 66,531   $ 127,314   $ 109,600  
    Hotel EBITDA Margin 31.3 % 29.5 % 27.8 % 25.9 %
     
    Three Months EndedSix Months Ended
    June 30,June 30,
      2014     2013     2014     2013  
    Hotel EBITDA - Comparable core (31) $ 51,241 $ 43,979 $ 84,650 $ 72,552
    Hotel EBITDA - Non-strategic (15)(a)   12,382     11,351     22,706     20,762  
    Hotel EBITDA - Comparable (46)63,62355,330107,35693,314
    Hotel EBITDA - Wyndham (8)   13,920     11,201     19,958     16,286  
    Hotel EBITDA (54)$77,543   $66,531   $127,314   $109,600  
     
    Hotel EBITDA Margin - Comparable core (31) 30.1 % 28.0 % 26.8 % 24.8 %
    Hotel EBITDA Margin - Non-strategic (15)(a) 29.3 % 28.6 % 27.8 % 27.0 %
    Hotel EBITDA Margin - Comparable (46)29.9%28.1%27.0%25.2%
    Hotel EBITDA Margin - Wyndham (8) 39.5 % 38.7 % 33.3 % 30.8 %
    Hotel EBITDA Margin (54)31.3%29.5%27.8%25.9%


    (a) Excludes two hotels held for sale as of June 30, 2014.

       
    Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to
    Total Revenue, Total Operating Expense and Operating Income (Loss)
    (in thousands)
     
    Three Months EndedSix Months Ended
    June 30,June 30,
      2014       2013     2014       2013  
    Same-store operating revenue $ 248,134 $ 225,545 $ 457,915 $ 422,588
    Other revenue 1,236 1,050 1,563 1,449
    Revenue from hotels, disposed and held for sale(a)   10,145     13,261     21,386     24,756  
    Total revenue 259,515 239,856 480,864 448,793
    Same-store operating expense 170,591 159,014 330,601 312,988
    Consolidated hotel lease expense(b) 13,296 12,166 23,687 21,723
    Unconsolidated taxes, insurance and lease expense (1,985 ) (2,040 ) (3,951 ) (3,938 )
    Corporate expenses 7,647 6,694 15,472 14,526
    Depreciation and amortization 29,082 29,898 58,683 59,653
    Impairment loss 24,441 24,441
    Conversion expenses 587 1,215
    Expenses from hotels, disposed and held for sale(a) 7,790 9,628 17,102 19,155
    Other expenses   2,114     3,915     4,128     4,736  
    Total operating expense   228,535     244,303     445,722     454,499  
    Operating income (loss) $ 30,980   $ (4,447 ) $ 35,142   $ (5,706 )


    (a) During the six months ended June 30, 2014, we sold three hotels, which were not held for sale at December 31, 2013, for $78.1 million. In addition, we have agreed to sell two hotels for $52 million. These hotels are considered held for sale on our June 30, 2014 balance sheet, as the purchasers each paid a non-refundable deposit toward the purchase price. Under recently issued GAAP accounting guidance, we included the operating performance for these hotels in continuing operations in our Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013. However, for purposes of our Non-GAAP reporting metrics, we have excluded the results of these hotels to provide a meaningful same-store comparison.

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

     
    Reconciliation of Forecasted Net Income attributable to FelCor to Forecasted FFO
    and EBITDA
    (in millions, except per share data)
     
    Full Year 2014 Guidance
    Low   High
    Dollars   Per Share Amount(a)Dollars   Per Share Amount(a)
    Net income attributable to FelCor(b) $ 1.0 $ 5.0
    Preferred dividends   (39.0 )   (39.0 )
    Net loss attributable to FelCor common stockholders (38.0 ) $ (0.31 ) (34.0 ) $ (0.28 )
    Gain on sale of hotels, net (21.0 ) (21.0 )
    Depreciation(c)   125.0     126.5  
    FFO $ 66.0 $ 0.53 $ 71.5 $ 0.57
    Pre-opening costs 2.0 2.0
    Variable stock compensation 1.5 1.5
    Severance costs   0.5     0.5  
    Adjusted FFO $ 70.0   $ 0.56 $ 75.5   $ 0.60
     
    Net income attributable to FelCor(b) $ 1.0 $ 5.0
    Depreciation(c) 125.0 126.5
    Interest expense(c) 96.0 96.5
    Amortization expense   1.0     1.0  
    EBITDA $ 223.0 $ 229.0
    Gain on sale of hotels, net (21.0 ) (21.0 )
    Amortization of stock compensation 5.5 5.5
    Pre-opening costs 2.0 2.0
    Variable stock compensation 1.5 1.5
    Severance costs   0.5     0.5  
    Adjusted EBITDA $ 211.5   $ 217.5  


    (a) Weighted average shares are 125.7 million.

    (b) Excludes any gains or losses on future asset sales.

    (c) 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 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.
  • Other transaction costs - From time to time, we periodically incur costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversion costs, acquisition costs, pre-opening costs and severance costs. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.
  • Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.

    In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting 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. We also exclude the amortization of our fixed stock and directors’ compensation. While this amortization is included in corporate expenses and is not separately stated on our statement of operations, excluding this amortization is consistent with the EBITDA definition.

    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 in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level expenses. We eliminate these additional items 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 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.

    Use and Limitations of Non-GAAP Measures

    Our management and Board of Directors use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store 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.



    FelCor Lodging Trust Incorporated

    Stephen A. Schafer, 972-444-4912

    Vice President Strategic Planning & Investor Relations

    sschafer@felcor.com


    Source: FelCor Lodging Trust Incorporated


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