FelCor Lodging Trust Incorporated (NYSE:FCH) today reported
operating results for the second quarter and six months ended
June�30, 2007. Second Quarter Summary: Exceeded operating
expectations for our 25 hotels where renovations were completed by
the end of the first quarter 2007. Hotel EBITDA (Hotel Earnings
Before Interest, Taxes, Depreciation and Amortization) for these
hotels exceeded our second quarter budget by $0.4�million, or
1.4�percent. This is greater than our goal of a 12 percent return
on capital. Completed renovations at 12 hotels during the second
quarter and an additional five hotels in July. Through the date of
this release, we have completed renovations at 42 hotels, or 51
percent of our portfolio. We expect to complete renovations at an
additional 28 hotels in the second half of 2007, or 70 hotels by
the end of 2007. Increased Revenue Per Available Room (�RevPAR�) by
9.9 percent at our hotels not under renovation or in New Orleans
(47 hotels). RevPAR increased 2.6�percent for our 83 consolidated
hotels. Our operating results were impacted by major renovation
projects. During the second quarter, 34 hotels were undergoing
renovation. Renovation delays at six hotels and weakness in the New
Orleans market negatively affected our EBITDA by $3.5 million more
than expected during the second quarter. For the remainder of the
year we expect our EBITDA to be negatively affected by an
additional $4.1 million driven primarily by these renovation hotels
and New Orleans. Completed our disposition plan to sell 45 hotels
with gross proceeds of $720 million. In 2007, we sold 11 hotels for
gross proceeds of $191 million. Agreed with Marriott International,
Inc. to rebrand our San Francisco Union Square hotel to a Marriott
by the end of 2008, following a redevelopment and repositioning of
the hotel expected to cost approximately $30 million. Closed on the
sale of 177 of the 184 units at our Royal Palms condominium
project, through June 30, 2007. We recognized a second quarter gain
of $14.9 million and a year-to-date gain of $18.1 million on these
sales, which exceeded our original expectations. Increased our
quarterly common dividend by $0.05 to $0.30 per share. Second
Quarter Operating Results: RevPAR for our 83 consolidated hotels
increased 2.6�percent and Average Daily Rate (�ADR�) increased
5.8�percent for the quarter compared to the same period in 2006.
RevPAR for our 34 hotels undergoing renovation during the second
quarter decreased 5.8 percent. Renovation-related displacement at
these 34 hotels resulted in a decline in occupancy of 11.3 percent.
For our 47 hotels not under renovation and excluding New Orleans,
RevPAR increased 9.9 percent. Business continues to be strong in
most of our major markets. The additional renovation disruption
during the second quarter was related principally to product
delivery delays and changes in project scope at six hotels. The
hotels experiencing delays are located in Boston, Indianapolis,
Philadelphia, Raleigh, Santa Barbara, and Wilmington (Delaware).
Our two hotels in New Orleans have increased their market share,
but continue to be negatively impacted by the effects of hurricane
Katrina, resulting in a RevPAR decline of 19.5 percent for the
quarter. We expect EBITDA for the year to be negatively impacted by
a total of $7.6 million, due largely to the renovation process,
which represents approximately $4.5 million and New Orleans, which
represents approximately $2.1 million. Net income was $55.2�million
for second quarter 2007, a $45.0�million increase over the same
period in 2006. Net income applicable to common stockholders was
$45.5�million, or $0.73 per share, compared to net income
applicable to common stockholders of $467,000, or $0.01 per share,
for the same period in 2006. Net income was $84.3�million for the
six months, a $64.3�million increase over the same period in 2006.
Net income applicable to common stockholders for the six months was
$65.0�million, or $1.05 per share, compared to net income
applicable to common stockholders of $641,000, or $0.01 per share,
for the same period in 2006. Adjusted Funds From Operations (�FFO�)
was $54.7�million for the second quarter, a $12.6�million increase
from the same period in 2006. Adjusted FFO per share increased to
$0.83, for the second quarter compared to $0.67 for the same period
in 2006, an increase of 24 percent. For the six months, Adjusted
FFO was $86.1�million, a $12.0�million increase from the same
period in 2006. Adjusted FFO per share increased to $1.35 for the
six months, compared to $1.18 in the prior year, an increase of
14�percent. FFO per share for the second quarter and six months
ended June 30, 2007 assumes the conversion of our Series A
Preferred Stock because it is more dilutive when our Adjusted FFO
per share exceeds $0.63 for the quarter and $1.26 for the six
months. The assumed conversion of our Series A Preferred Stock
increases fully diluted shares outstanding to approximately
73�million. Adjusted EBITDA (including sold hotels) increased to
$91.7�million in the second quarter, compared to $83.8 million for
the same period in 2006. Same-Store EBITDA increased to
$72.3�million for the second quarter, compared to $71.5�million for
the same period in 2006. For the six month period, Adjusted EBITDA
(including sold hotels) increased $228,000, to $159.9�million
compared to the same period in 2006. Same-Store EBITDA decreased by
$4.2�million for the six months, to $133.9�million, or three
percent to prior year. Hotel EBITDA increased to $81.4�million for
the second quarter, compared to $81.0�million in the same period in
2006. Hotel EBITDA margin was 30.7 percent for the second quarter,
representing a 60 basis point decrease compared to the same period
in 2006. For the six months, Hotel EBITDA decreased to
$153.3�million, compared to $156.8�million in the same period in
2006, a decrease of two�percent. Hotel EBITDA margin was 29.8
percent for the six months, representing an 88�basis point decrease
to the same period in 2006. Current quarter Adjusted FFO, Adjusted
EBITDA and net income include a $14.9�million gain from the sale of
condominium units of $14.9�million for the quarter and $18.1
million for the year. Current year net income includes gains from
the sale of hotels of $22.5�million for the quarter and $28.5
million for the six months. Prior year net income includes losses
from the sale of hotels and impairment losses aggregating
$11.1�million for the quarter and $12.1 million for the six-month
period. EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA,
Hotel EBITDA margin, FFO and Adjusted FFO are all non-GAAP
financial measures. See our discussion of �Non-GAAP Financial
Measures� beginning on page nine for a reconciliation of each of
these measures to our net income and for information regarding the
use, limitations and importance of these non-GAAP financial
measures. Renovation Program Update: We completed major renovations
at 12 hotels during the second quarter, and an additional five
hotels in July. Through the date of this release, we have completed
major renovations at 42 hotels, representing 51 percent of our
portfolio, since we started our renovation program last year. We
expect to complete an additional 28 hotels during the second half
of 2007, or 70 hotels by the end of 2007. Improvements and
additions to our hotels for the first six months of 2007 totaled
$145.9�million, including our pro rata share of joint ventures. The
renovations at our 37 hotels that were completed through the end of
the second quarter were completed within one percent of budget. Our
hotels with completed renovations are exceeding our expected
returns of 12 percent on the guest impact portion of the
renovations. During the second quarter, RevPAR growth, Hotel EBITDA
and Hotel EBITDA margins exceeded budget for these hotels. For our
eight hotels where renovations were completed in 2006 and our 17
hotels completed in the first quarter 2007, RevPAR growth was 24.1
percent and 9.7 percent, respectively. We conducted pre-budget
meetings with our brand managers to review our return on capital
model and 2008 targets for each hotel, to ensure that we remain on
track to earn our expected return on the guest impact capital. �I
am pleased to see the hotels that have completed renovations are
performing even better than expected. Despite the delays in a few
hotels, we remain on track to complete renovations at 70 hotels in
2007 and to meet our 2008 targets,� said Richard A. Smith, FelCor�s
President and Chief Executive Officer. �We remain confident in our
strategic plan and look forward to superior growth in 2008 and
beyond from the renovation and redevelopment programs.�
Development: We have agreed with Marriott International, Inc. to
rebrand our San Francisco Union Square hotel to a Marriott by the
end of 2008, following a redevelopment and repositioning of the
hotel expected to cost approximately $30 million. This is the
fourth redevelopment project that we have announced. We are
currently in the planning and permitting stages for ten additional
major redevelopment projects, which should continue to provide our
portfolio with ongoing above-market growth beyond 2008. For the six
months, we recognized a gain of $18.1 million on the sale of 177
condominium units at our Royale Palms project in Myrtle Beach,
South Carolina. The remaining seven units will be sold on a
selective basis to maximize the selling price, and we anticipate
recognizing additional profit of approximately $1 million on these
sales. The total anticipated gain of $19.1 million is greater than
previously expected. To date, 65 percent of the condominium units
have entered our rental program, which will result in additional
continuing income. Disposition Program: In the second quarter we
sold eight hotels for gross proceeds of $126 million. This
concludes our disposition program in which we have sold 45 hotels
for aggregate gross proceeds of $720 million since announcing the
program at the beginning of 2006. The total gross proceeds from
these dispositions are approximately $75�million higher than we
originally expected. Capital Structure: At June�30, 2007, we had
$1.3�billion of consolidated debt outstanding with a weighted
average life of five years. Our cash and cash equivalents totaled
approximately $188.6�million at June�30, 2007. �We have
successfully executed the first phases of our strategic plan,
including the disposition program, and are focused on completing
the renovation and redevelopment phases of our plan,� said Andrew
J. Welch, FelCor�s Executive Vice President and Chief Financial
Officer. �We recently conducted pre-budget meetings with our brand
operators to review our 2008 targets and the meetings were very
productive. We look forward to a very strong 2008, as substantially
all the hotels will be renovated.� 2007 Guidance: We are updating
our full-year guidance as a result of second quarter results,
additional anticipated displacement in the third quarter and
continued weakness in the New Orleans market. For 2007, we
currently anticipate: RevPAR to increase between 4.0 and 5.0
percent for the full year and between 3.5�and 5.0 percent for the
third quarter; Adjusted EBITDA to be between $290 and $294�million
for the full year and between $67 and $69�million for the third
quarter; Adjusted FFO per share to be between $2.23 and $2.29 for
the full year and between $0.47 and $0.51 for the third quarter;
Net Income to be between $103 and $107 million for the full year
and between $11 and $13 million for the third quarter; Hotel EBITDA
margins to be flat for the full year; and Capital expenditures of
approximately $225�million. Third quarter and full-year guidance
for FFO per share does not exceed the annual conversion threshold;
therefore, fully diluted shares outstanding for the full year are
assumed to be 63.2�million (i.e. our series A preferred stock is
not deemed converted) for purposes of computing full-year FFO per
share. FelCor, a real estate investment trust, is the nation�s
largest owner of upper-upscale, all-suite hotels. FelCor�s
portfolio is comprised of 83 consolidated hotels, located in 23
states and Canada. FelCor�s portfolio includes 65 upper-upscale
hotels, and FelCor is the largest owner of Embassy Suites Hotels�
and Doubletree Guest Suites� hotels. FelCor�s hotels are flagged
under global brands such as Embassy Suites Hotels, Doubletree�,
Hilton�, Sheraton�, Westin� and Holiday Inn�. (The foregoing
registered trademarks are the exclusive property of their
respective owners. None of the owners of these trademarks has any
responsibility or liability for any information contained in this
press release.) FelCor has a current enterprise value of
approximately $3.2 billion. Additional information can be found on
the Company�s Web site at www.felcor.com. We invite you to listen
to our second quarter earnings Conference Call on Wednesday,
August�1, 2007, at 10:00�a.m. (Central Time). The conference call
will be Web cast simultaneously via the Internet on FelCor�s Web
site at www.felcor.com. Interested investors and other parties who
wish to access the call should go to FelCor�s Web site and click on
the conference call microphone icon on either the �Investor
Relations� or �FelCor News� pages. A telephonic replay will be
available from Wednesday, August�1, 2007, at 12:00�p.m. (Central
Time), through Friday, August 3, at 11:00�p.m. (Central Time), by
dialing 800-642-1687 (conference ID#11239031). A recording of the
call will also be archived and available at www.felcor.com. 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,� �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. General economic conditions,
operating risks associated with the hotel business, the impact of
U.S. military involvement in the Middle East and elsewhere, future
acts of terrorism, the impact on the travel industry of increased
fuel prices and security precautions, the impact that the
bankruptcy of additional major air carriers may have on our
revenues and receivables, the availability of capital, the ability
to execute our renovation program on budget in a timely manner, the
cyclical nature of the real estate markets, 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.
Consolidated Statements of Operations (in thousands, except per
share data) � � Three Months Ended Six Months Ended June 30, June
30, 2007 2006 2007 2006 Revenues: Hotel operating revenue: Room $
216,813 $ 210,980 $ 421,135 $ 418,966 Food and beverage 35,212
34,689 66,985 65,103 Other operating departments 13,504 13,568
25,948 26,549 Other revenue � 322 � 27 � 452 � 56 Total revenues �
265,851 � 259,264 � 514,520 � 510,674 � Expenses: Hotel
departmental expenses: Room 53,058 51,562 101,841 100,977 Food and
beverage 26,655 25,541 51,190 49,201 Other operating departments
5,835 6,010 10,782 11,954 Other property related costs 68,584
66,846 137,142 135,704 Management and franchise fees 13,943 14,214
27,066 27,437 Taxes, insurance and lease expense 31,422 28,868
60,651 55,400 Abandoned projects - - 22 - Corporate expenses 5,255
5,562 12,041 11,366 Depreciation � 27,155 � 23,742 � 52,205 �
46,179 Total operating expenses � 231,907 � 222,345 � 452,940 �
438,218 � Operating income 33,944 36,919 61,580 72,456 Interest
expense, net (23,207 ) (28,308 ) (46,079 ) (58,816 ) Charge-off of
deferred financing costs - (295 ) - (962 ) Early extinguishment of
debt, net � - � (438 ) � - � (438 ) Income before equity in income
from unconsolidated entities, minority interests and gain on sale
of assets � 10,737 � 7,878 � 15,501 � 12,240 Equity in income from
unconsolidated entities 3,710 3,812 16,480 5,760 Minority interests
79 844 116 1,285 Gain on sale of condominiums � 14,858 � - � 18,139
� - Income from continuing operations 29,384 12,534 50,236 19,285
Discontinued operations � 25,792 � (2,389 ) � 34,099 � 712 Net
income 55,176 10,145 84,335 19,997 Preferred dividends � (9,678 ) �
(9,678 ) � (19,356 ) � (19,356 ) Net income applicable to common
stockholders $ 45,498 $ 467 $ 64,979 $ 641 � Basic per common share
data: Net income from continuing operations $ 0.32 $ 0.05 $ 0.50 $
- Net income $ 0.74 $ 0.01 $ 1.06 $ 0.01 Basic weighted average
common shares outstanding � 61,587 � 60,355 � 61,511 � 60,066
Diluted per common share data: Net income from continuing
operations $ 0.32 $ 0.05 $ 0.50 $ - Net income $ 0.73 $ 0.01 $ 1.05
$ 0.01 Diluted weighted average common shares outstanding � �
62,032 � 60,626 � 61,899 � 60,066 Cash dividends declared on common
stock $ 0.30 $ 0.20 $ 0.55 $ 0.35 Discontinued Operations (in
thousands) � � Discontinued operations include the results of
operations of 11 hotels sold in 2007 and 31 hotels sold in 2006.
Condensed financial information for the hotels included in
discontinued operations is as follows: � Three Months Ended Six
Months Ended June 30, June 30, 2007 2006 2007 2006 Operating
revenue $ 10,949 $ 58,088 $ 26,447 $ 122,089 Operating expenses �
(6,215 ) � (59,032 ) � (18,094 ) � (118,278 ) Operating income
(loss) 4,734 (944 ) 8,353 3,811 Interest income (expense), net 6
(317 ) (19 ) (643 ) Gain (loss) on sale of hotels, net of income
tax 22,457 (1,785 ) 28,488 (2,862 ) Debt extinguishment - - (901 )
- Minority interests � (1,405 ) � 657 � (1,822 ) � 406 Income
(loss) from discontinued operations 25,792 (2,389 ) 34,099 712
Depreciation and amortization, net of minority interest 14 4,280 14
9,118 Minority interest in FelCor LP 559 (23 ) 740 (63 ) Interest
expense, net of minority interests � - � 314 � 27 � 629 EBITDA from
discontinued operations 26,365 2,182 34,880 10,396 Loss (gain) on
sale of hotels, net of income tax and minority interests (21,799 )
1,785 (27,830 ) 2,862 Impairment loss, net of minority interests -
8,341 - 8,341 Charges related to early extinguishment of debt, net
of minority interests � - � - � 811 � - Adjusted EBITDA from
discontinued operations $ 4,566 $ 12,308 $ 7,861 $ 21,599 Selected
Balance Sheet Data (in thousands) � June 30, December 31, 2007 2006
Investment in hotels $ 2,793,929 $ 2,656,571 Accumulated
depreciation � (654,557 ) � (612,286 ) Investments in hotels, net
of accumulated depreciation $ 2,139,372 $ 2,044,285 � Total cash
and cash equivalents $ 188,626 $ 124,179 Total assets $ 2,556,234 $
2,583,249 Total debt $ 1,297,699 $ 1,369,153 Total stockholders�
equity $ 1,056,124 $ 1,010,931 At June�30, 2007, we had an
aggregate of 62,471,098 shares of FelCor common stock and 1,353,771
limited partnership units of FelCor Lodging Limited Partnership
outstanding. Debt Summary (dollars in thousands) � � Encumbered
Hotels Interest Rate at June 30, 2007 Maturity Date Consolidated
Debt Line of credit(a) none L + 1.75 January 2009 $ - Senior term
notes none 8.50 June 2011 299,037 Senior term notes none L + 1.875
December 2011 � 215,000 Total line of credit and senior debt(b)
7.98 � 514,037 � Mortgage debt(c) 12 hotels L + 0.93 November 2008
250,000 Mortgage debt 7 hotels 6.57 July 2009 - 2014 90,010
Mortgage debt 7 hotels 7.32 March 2009 122,576 Mortgage debt 8
hotels 8.70 May 2010 167,727 Mortgage debt 6 hotels 8.73 May 2010
121,106 Mortgage debt 1 hotel L + 2.85 August 2008 15,500 Mortgage
debt 1 hotel 5.81 July 2016 12,687 Other 1 hotel 9.17 August 2011 �
4,056 Total mortgage debt(b) 43 hotels 7.41 � 783,662 $ 1,297,699
(a) We have a borrowing capacity of $125�million on our line of
credit. The interest on this line can range from 175 to 225 basis
points over LIBOR based on our leverage ratio as defined in our
line of credit agreement. (b) Interest rates are calculated based
on the average outstanding debt at June 30, 2007. (c) This debt has
three one-year extension options. Weighted average interest at June
30, 2007 7.64 % Fixed interest rate debt to total debt at June 30,
2007 63.0 % Weighted average maturity of debt at June 30, 2007 5
years Mortgage debt to total assets at June 30, 2007 30.7 %
Non-GAAP Financial Measures We refer in this release to certain
�non-GAAP financial measures.� These measures, including FFO,
Adjusted FFO, Adjusted FFO per share, EBITDA, Adjusted EBITDA,
Same-Store 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 to FFO and Adjusted FFO (in thousands,
except per share and unit data) � Three Months Ended June 30, 2007
2006 Dollars Shares Per Share Amount Dollars Shares Per Share
Amount Net income $ 55,176 $ 10,145 Preferred dividends � (9,678 )
� (9,678 ) Net income applicable to common stockholders 45,498
62,032 $ 0.73 467 60,626 $ 0.01 Depreciation, continuing operations
27,155 - 0.44 23,742 - 0.39 Depreciation, unconsolidated entities
and discontinued operations 2,848 - 0.05 6,964 - 0.11 Loss (gain)
on sale of hotels, net of income tax, and minority interests
(21,799 ) - (0.35 ) 1,785 - 0.03 Minority interest in FelCor LP �
985 1,355 (0.01 ) � 16 2,102 (0.01 ) FFO 54,687 32,974 Impairment
loss, net of minority interests - - - 8,341 - 0.13 Charges related
to early extinguishment of debt, net of minority interests � - - -
� 803 - 0.01 Adjusted FFO 54,687 42,118 Preferred dividends on
Series A Preferred Stock � 6,279 9,985 � (0.03 ) � 6,279 9,985 � -
Adjusted FFO for per share calculation assuming Series A Preferred
Stock conversion(a) $ 60,966 73,372 $ 0.83 $ 48,397 72,713 $ 0.67
(a) For calculation of Adjusted FFO per share it is more dilutive
to assume the conversion of our Series A Preferred Stock into
common stock when our quarterly adjusted FFO per share calculation
exceeds 63 cents per share. Reconciliation of Net Income to FFO and
Adjusted FFO (in thousands, except per share and unit data) � Six
Months Ended June 30, 2007 2006 Dollars Shares Per Share Amount
Dollars Shares Per Share Amount Net income $ 84,335 $ 19,997
Preferred dividends � (19,356 ) � (19,356 ) Net income applicable
to common stockholders 64,979 61,899 $ 1.05 641 60,066 $ 0.01
Depreciation, continuing operations 52,205 - 0.84 46,179 - 0.77
Depreciation, unconsolidated entities and discontinued operations
5,711 - 0.09 14,601 - 0.24 Loss (gain) on sale of hotels, net of
income tax and minority interests (27,830 ) - (0.45 ) 2,862 - 0.05
Gain on sale of hotels in unconsolidated entities (11,182 ) - (0.18
) - - - Minority interest in FelCor LP 1,412 1,355 (0.01 ) 24 2,381
(0.04 ) Conversion of options and unvested restricted stock � - - -
� - 260 - FFO 85,295 64,307 Impairment loss, net of minority
interest - - - 8,341 - 0.13 Abandoned projects 22 - - - - - Charges
related to debt extinguishment, net of minority interest � 811 -
0.01 � 1,470 - � 0.02 Adjusted FFO 86,128 $ 74,118 62,707 $ 1.18
Preferred dividends on Series A Preferred Stock � 12,558 9,985 � -
Adjusted FFO for per share calculation assuming Series A Preferred
Stock conversion(a) $ 98,686 73,239 $ 1.35 (a) For calculation of
Adjusted FFO per share it is more dilutive to assume the conversion
of our Series A Preferred Stock into common stock when our adjusted
FFO per share for six months exceeds $1.26 per share.
Reconciliation of Net Income to EBITDA, Adjusted EBITDA and
Same-Store EBITDA (in thousands) � Three Months EndedJune 30, Six
Months EndedJune 30, 2007 2006 2007 2006 Net income $ 55,176 $
10,145 $ 84,335 $ 19,997 Depreciation, continuing operations 27,155
23,742 52,205 46,179 Depreciation, unconsolidated entities and
discontinued operations 2,848 6,964 5,711 14,601 Minority interest
in FelCor Lodging LP 985 16 1,412 24 Interest expense 24,627 29,155
48,746 60,452 Interest expense, unconsolidated entities and
discontinued operations 1,489 1,928 3,063 3,856 Amortization
expense � 1,207 � 908 � 2,614 � 1,897 EBITDA 113,487 72,858 198,086
147,006 Gain on sale of hotels, net of income tax and minority
interests (21,799 ) 1,785 (27,830 ) 2,862 Gain on sale of hotels in
unconsolidated entities - - (11,182 ) - Impairment loss,
discontinued operations - 8,341 - 8,341 Abandoned projects - - 22 -
Charges related to debt extinguishment, net of minority interests �
- � 803 � 811 � 1,470 Adjusted EBITDA 91,688 83,787 159,907 159,679
Adjusted EBITDA from discontinued operations (4,566 ) (12,308 )
(7,861 ) (21,599 ) Gain on sale of condominiums � (14,858 ) � - �
(18,139 ) � - Same-Store EBITDA $ 72,264 $ 71,479 $ 133,907 $
138,080 Reconciliation of Adjusted EBITDA to Hotel EBITDA (in
thousands) � Three Months EndedJune 30, Six Months EndedJune 30,
2007 2006 2007 2006 Adjusted EBITDA $ 91,688 $ 83,787 $ 159,907 $
159,679 Other revenue (322 ) (27 ) (452 ) (56 ) Adjusted EBITDA
from discontinued operations (4,566 ) (12,308 ) (7,861 ) (21,599 )
Equity in income from unconsolidated subsidiaries(excluding
interest and depreciation expense) (8,439 ) (8,667 ) (14,847 )
(15,365 ) Minority interest in other partnerships(excluding
interest and depreciation expense) (98 ) (396 ) 28 (547 )
Consolidated hotel lease expense 17,267 16,404 31,525 30,003
Unconsolidated taxes, insurance and lease expense (1,896 ) (1,567 )
(3,599 ) (3,149 ) Interest income (1,421 ) (847 ) (2,667 ) (1,636 )
Corporate expenses (excluding amortization expense) 4,048 4,654
9,427 9,469 Gain on sale of other condominiums � (14,858 ) � - �
(18,139 ) � - Hotel EBITDA $ 81,403 $ 81,033 $ 153,322 $ 156,799
Reconciliation of Net Income to Hotel EBITDA (in thousands) � Three
Months EndedJune 30, Six Months EndedJune 30, 2007 2006 2007 2006
Net income $ 55,176 $ 10,145 $ 84,335 $ 19,997 Discontinued
operations (25,792 ) 2,389 (34,099 ) (712 ) Equity in income from
unconsolidated entities (3,710 ) (3,812 ) (16,480 ) (5,760 )
Minority interests (79 ) (844 ) (116 ) (1,285 ) Consolidated hotel
lease expense 17,267 16,404 31,525 30,003 Unconsolidated taxes,
insurance and lease expense (1,896 ) (1,567 ) (3,599 ) (3,149 )
Interest expense, net 23,207 28,308 46,079 58,816 Charge-off of
deferred financing costs - 295 - 962 Early extinguishment of debt -
438 - 438 Corporate expenses 5,255 5,562 12,041 11,366 Depreciation
27,155 23,742 52,205 46,179 Abandoned projects - - 22 - Gain on
sale of condominiums (14,858 ) - (18,139 ) - Other revenue � (322 )
� (27 ) � (452 ) � (56 ) Hotel EBITDA $ 81,403 $ 81,033 $ 153,322 $
156,799 Hotel EBITDA and Hotel EBITDA Margin (dollars in thousands)
� Three Months EndedJune 30, � Six Months EndedJune 30, 2007 2006 �
2007 2006 Total revenue $ 265,851 $ 259,264 $ 514,520 $ 510,674
Other revenue � (322 ) � (27 ) � (452 ) � (56 ) Hotel operating
revenue 265,529 259,237 514,068 510,618 Hotel operating expenses �
(184,126 ) � (178,204 ) � (360,746 ) � (353,819 ) Hotel EBITDA $
81,403 $ 81,033 $ 153,322 � $ 156,799 Hotel EBITDA margin 30.7%
31.3% 29.8% 30.7% Reconciliation of Ratio of Operating Income to
Total Revenue to Hotel EBITDA Margin � Three Months Ended June 30,
Six Months Ended June 30, 2007 2006 2007 2006 Ratio of operating
income to total revenue 12.8 % 14.2 % 12.0 % 14.2 % Other revenue
(0.1 ) - (0.1 ) - Unconsolidated taxes, insurance and lease expense
(0.7 ) (0.5 ) (0.7 ) (0.6 ) Consolidated hotel lease expense 6.5
6.3 6.1 5.9 Corporate expenses 2.0 2.1 2.3 2.2 Depreciation 10.2 �
9.2 � 10.2 � 9.0 � Hotel EBITDA margin 30.7 % 31.3 % 29.8 % 30.7 %
Reconciliation of Total Operating Expense to Hotel Operating
Expense (dollars in thousands) � Three Months EndedJune 30, Six
Months EndedJune 30, 2007 2006 2007 2006 � Total operating expenses
$ 231,907 $ 222,345 $ 452,940 $ 438,218 Unconsolidated taxes,
insurance and lease expense 1,896 1,567 3,599 3,149 Consolidated
hotel lease expense (17,267 ) (16,404 ) (31,525 ) (30,003 )
Corporate expenses (5,255 ) (5,562 ) (12,041 ) (11,366 ) Abandoned
projects - - (22 ) - Depreciation � (27,155 ) � (23,742 ) � (52,205
) � (46,179 ) Hotel operating expenses $ 184,126 $ 178,204 $
360,746 $ 353,819 Reconciliation of Forecasted Net Income to
Forecasted FFO, Adjusted FFO, EBITDA and Adjusted EBITDA (in
millions, except per share and unit data) � Third Quarter 2007
Guidance Low Guidance High Guidance Dollars Per Share Amount(a)
Dollars Per Share Amount(a) Net income $ 11 $ 13 Preferred
dividends � (10 ) � (10 ) Net income applicable to common
stockholders 1 $ 0.02 3 $ 0.06 Depreciation � 29 � 29 FFO and
Adjusted FFO $ 30 $ 0.47 $ 32 $ 0.51 � Net income $ 11 $ 13
Depreciation 29 29 Interest expense 26 26 Amortization expense � 1
� 1 EBITDA and Adjusted EBITDA $ 67 $ 69 Full Year 2007 Guidance
Low Guidance High Guidance Dollars Per Share Amount(a) Dollars Per
Share Amount(a) Net income $ 103 $ 107 Preferred dividends � (39 )
� (39 ) Net income applicable to common stockholders 64 $ 1.03 68 $
1.09 Gain on sale of assets (39 ) (39 ) Depreciation 114 114
Minority interest in FelCor LP � 1 � 1 FFO 140 $ 2.22 144 $ 2.28
Early extinguishment of debt � 1 � 1 Adjusted FFO $ 141 $ 2.23 $
145 $ 2.29 � Net income $ 103 $ 107 Depreciation 114 114 Interest
expense 105 105 Minority interest in FelCor LP 1 1 Amortization
expense � 5 � 5 EBITDA 328 332 Gain on sale of assets (39 ) (39 )
Early extinguishment of debt � 1 � 1 Adjusted EBITDA $ 290 $ 294
(a) Weighted average shares and units are 63.2�million.
Substantially all of our non-current assets consist of real estate.
Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes predictably
over time. Since real estate values instead have historically risen
or fallen with market conditions, most industry investors consider
supplemental measures of performance, which are not measures of
operating performance under GAAP, to be helpful in evaluating a
real estate company�s operations. These supplemental measures,
including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store
EBITDA, Hotel EBITDA and Hotel EBITDA margin, are not measures of
operating performance under GAAP. However, we consider these
non-GAAP measures to be supplemental measures of a hotel REIT�s
performance and should be considered along with, but not as an
alternative to, net income as a measure of our operating
performance. FFO and EBITDA The White Paper on Funds From
Operations approved by the Board of Governors of the National
Association of Real Estate Investment Trusts (�NAREIT�), defines
FFO as net income or loss (computed in accordance with GAAP),
excluding gains or losses from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect FFO on
the same basis. We compute FFO in accordance with standards
established by NAREIT. This may not be comparable to FFO reported
by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT
definition differently than we do. EBITDA is a commonly used
measure of performance in many industries. We define EBITDA as net
income or loss (computed in accordance with GAAP) plus interest
expenses, income taxes, depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect EBITDA on the same basis. Adjustments to FFO
and EBITDA We adjust FFO and EBITDA when evaluating our performance
because management believes that the exclusion of certain
additional recurring and non-recurring items described below
provides useful supplemental information to investors regarding our
ongoing operating performance and that the presentation of Adjusted
FFO, Adjusted EBITDA and Same-Store EBITDA, when combined with GAAP
net income, EBITDA and FFO, is beneficial to an investor�s better
understanding of our operating performance. Gains and losses
related to early extinguishment of debt and interest rate swaps �
We exclude gains and losses related to early extinguishment of debt
and interest rate swaps from FFO and EBITDA because we believe that
it is not indicative of ongoing operating performance of our hotel
assets. This also represents an acceleration of interest expense or
a reduction of interest expense, and interest expense is excluded
from EBITDA. Impairment losses � We exclude the effect of
impairment losses and gains or losses on disposition of assets in
computing Adjusted FFO and Adjusted EBITDA because we believe that
including these is not consistent with reflecting the ongoing
performance of our remaining assets. Additionally, we believe that
impairment charges and gains or losses on disposition of assets
represent accelerated depreciation, or excess depreciation, and
depreciation is excluded from FFO by the NAREIT definition and from
EBITDA. Cumulative effect of a change in accounting principle �
Infrequently, the Financial Accounting Standards Board promulgates
new accounting standards that require the consolidated statements
of operations to reflect the cumulative effect of a change in
accounting principle. We exclude these one-time adjustments in
computing Adjusted FFO and Adjusted EBITDA because they do not
reflect our actual performance for that period. In addition, to
derive Adjusted EBITDA, we exclude gains or losses on the sale of
assets because we believe that including them in EBITDA is not
consistent with reflecting the ongoing performance of our remaining
assets. Additionally, the gain or loss on sale of depreciable
assets represents either accelerated depreciation or excess
depreciation in previous periods, and depreciation is excluded from
EBITDA. To derive Same-Store EBITDA, we make the same adjustments
to EBITDA as for Adjusted EBITDA and, additionally, exclude EBITDA
from discontinued operations and gains and losses from the
disposition of non-hotel related assets. Hotel EBITDA and Hotel
EBITDA Margin Hotel EBITDA and Hotel EBITDA margin are commonly
used measures of performance in the industry and give investors a
more complete understanding of the operating results over which our
individual hotels and operating managers have direct control. We
believe that Hotel EBITDA and Hotel EBITDA margin are useful to
investors by providing greater transparency with respect to two
significant measures used by us in our financial and operational
decision-making. Additionally, these measures facilitate
comparisons with other hotel REITs and hotel owners. We present
Hotel EBITDA and Hotel EBITDA margin by eliminating corporate-level
expenses, depreciation and expenses related to our capital
structure. We eliminate corporate-level costs and expenses because
we believe property-level results provide investors with
supplemental information with respect to the ongoing operating
performance of our hotels and the effectiveness of management on a
property-level basis. We eliminate depreciation and amortization,
even though they are property-level expenses, because we do not
believe that these non-cash expenses, which are based on historical
cost accounting for real estate assets and implicitly assume that
the value of real estate assets diminish predictably over time,
accurately reflect an adjustment in the value of our assets. We
also eliminate consolidated percentage rent paid to unconsolidated
entities, which is effectively eliminated by minority interest
expense and equity in income from unconsolidated subsidiaries, and
include the cost of unconsolidated taxes, insurance and lease
expense, to reflect the entire operating costs applicable to our
hotels. Limitations of Non-GAAP Measures The use of these non-GAAP
financial measures has certain limitations. FFO, Adjusted FFO,
EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA and Hotel
EBITDA margin, as presented by us, may not be comparable to FFO,
Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel
EBITDA and Hotel EBITDA margin as calculated by other real estate
companies. These measures do not reflect certain expenses that we
incurred and will incur, such as depreciation and interest or
capital expenditures. Management compensates for these limitations
by separately considering the impact of these excluded items to the
extent they are material to operating decisions or assessments of
our operating performance. Our reconciliations to the GAAP
financial measures, and our consolidated statements of operations
and cash flows, include interest expense, capital expenditures, and
other excluded items, all of which should be considered when
evaluating our performance, as well as the usefulness of our
non-GAAP financial measures. These non-GAAP financial measures are
used in addition to and in conjunction with results presented in
accordance with GAAP. They should not be considered as alternatives
to operating profit, cash flow from operations, or any other
operating performance measure prescribed by GAAP. Neither should
FFO, Adjusted FFO, Adjusted FFO per share, EBITDA, Adjusted EBITDA
or Same-Store EBITDA be considered as measures of our liquidity or
indicative of funds available for our cash needs, including our
ability to make cash distributions. Adjusted FFO per share does not
measure, and should not be used as a measure of, amounts that
accrue directly to the benefit of stockholders. FFO, Adjusted FFO,
EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA and Hotel
EBITDA margin reflect additional ways of viewing our operations
that we believe when viewed with our GAAP results and the
reconciliations to the corresponding GAAP financial measures
provide a more complete understanding of factors and trends
affecting our business than could be obtained absent this
disclosure. Management strongly encourages investors to review our
financial information in its entirety and not to rely on any single
financial measure.
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