FelCor Lodging Trust Incorporated (NYSE: FCH) today reported
operating results for the first quarter and year ended March 31,
2009.
�Our first quarter results reflect extensive cost-cutting
measures that were implemented to protect our operating margins in
the face of continued deterioration of lodging demand. We continue
to work with our operators to create the most efficient cost
structure and expect this to result in continued future operational
efficiencies. These measures have been extremely successful and
have led to better than expected operating margins during the first
quarter,� said Richard A. Smith, FelCor�s President and Chief
Executive Officer.
Summary:
- Closed a secured loan that
refinanced an existing $116�million secured loan that would have
matured on April 1, 2009.
- Adjusted FFO per share was $0.22
and Adjusted EBITDA was $47.4�million for the first quarter, which
was at the high end of our expectations.
- Market share increased
approximately two percent for the first quarter at our 70 hotels
where renovations were completed in 2007 and 2008, which is
consistent with our expectations. Market share increased
approximately one percent in the first quarter and approximately
five percent in April for our 85 consolidated hotels.
- RevPAR decreased 19.6 percent
for the first quarter at our 85 consolidated hotels.
- Hotel expenses declined 15.3
percent. Due to strict expense controls at our hotels, we were able
to limit revenue reduction flow through to Hotel EBITDA to only 44
percent, compared to the prior year. Hotel EBITDA margins decreased
only 395 basis points, which was better than expected.
- Net loss applicable to common
stockholders for the first quarter was $30.7�million.
First Quarter Operating Results:
Revenue per available room (�RevPAR�) for our 85 consolidated
hotels decreased by 19.6�percent to $81.60, driven by decreases in
both average daily rate (�ADR�) (a 9.1�percent decrease to $130.11)
and occupancy (an 11.6�percent decrease to 62.7 percent), compared
to the same period in 2008.
�We continue to make progress on our initiatives: to reduce
operating expenses; improve market share; develop new sources of
revenues within our hotels; and ensure that we have adequate
liquidity during the downturn. These initiatives produced positive
results during the first quarter � portfolio market share increased
approximately two percent year-to-date through April, operating
margins were better than expected, and we successfully refinanced
our only significant 2009 debt maturity. We are also starting to
see encouraging demand trends, such as fewer group cancellations
and solid leisure demand, with almost 70 percent occupancy on the
weekends,� continued Mr. Smith.
Adjusted Funds from Operations (�FFO�) was $13.8�million, or
$0.22 per share, compared to Adjusted FFO of $32.1�million, or
$0.51 per share, for the same period in 2008.
Hotel EBITDA decreased to $56.7�million, compared to
$82.2�million in the same period in 2008. Hotel EBITDA margin was
24.2 percent, a 395 basis point decrease compared to the same
period in 2008. Hotel operating expenses decreased 15.3 percent
compared to prior year. This decline reflects various factors,
including: decreases in labor costs, which includes permanent
reductions related to a decrease in hotel departmental employees;
decreases in other room expenses, such as guest transportation and
in-room amenities; decreases in incentive management fees; and
greater efficiencies in the food and beverage outlets. Prior to
accounting for property taxes, insurance and land leases, Hotel
EBITDA margins declined only 294 basis points. Hotel EBITDA
represents 100 percent of the EBITDA generated by our hotels before
corporate expenses and joint venture adjustments.
Adjusted EBITDA was $47.4�million, compared to $71.2�million for
the same period in 2008.
Net loss applicable to common stockholders was $30.7�million, or
$0.49 per share, compared to $22.2�million, or $0.36 per share, for
the same period in 2008. Net loss applicable to common stockholders
in the first quarter of 2009 included impairment charges of
$3.5�million ($1.4�million related to a consolidated hotel and
$2.1�million related to an unconsolidated entity), and the first
quarter of 2008 included a $17.1�million impairment charge.
EBITDA, Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO
and Adjusted FFO are all non-GAAP financial measures. See our
discussion of �Non-GAAP Financial Measures� beginning on page�14
for a reconciliation of each of these measures to our net income
and for information regarding the use, limitations and importance
of these non-GAAP financial measures.
Balance Sheet/Liquidity:
At March 31, 2009, we had $1.6�billion of consolidated debt
outstanding with a weighted average interest rate of 5.5 percent,
our cash and cash equivalents totaled $53.0�million, and we had
$128�million drawn on our $250�million line of credit. We remain in
compliance with the financial covenants on our line of credit.
We have agreed in principle on the material terms with the lead
lender for a new $200�million term loan, which will be secured by
mortgages on nine currently unencumbered hotels and, assuming all
extension options are exercised, will not mature until 2013. This
loan would not be subject to any corporate financial covenants. We
expect to use the proceeds from this loan for general working
capital purposes and to repay the outstanding balance on our line
of credit (which will be cancelled upon repayment). We expect to
close this new loan, subject to final documentation, due diligence
and customary conditions, by the end of May.
During the first quarter, we closed a non-recourse, secured loan
with Prudential Mortgage Capital Company. The new loan replaces an
existing $116�million mortgage loan that would have matured
April�1, 2009. The loan is secured by mortgages on seven hotels,
matures in 2014 and bears annual interest of 9.02 percent. We are
in preliminary discussions with potential lenders regarding our
debt that matures in 2010 and 2011.
We suspended dividend payments on our Series A Cumulative
Convertible Preferred Stock and our Series C Cumulative Redeemable
Preferred Stock in March 2009. Our unpaid preferred dividends
continue to accrue, and accrued preferred dividends must be paid in
full prior to paying any common dividends. Suspending our dividend
payments reflects our continued focus on preserving liquidity. By
suspending preferred dividends, we will preserve approximately
$10�million of liquidity per quarter. We do not anticipate that we
will be required to pay any further dividends in 2009 to maintain
our REIT status.
�We are taking steps to ensure adequate liquidity and extend our
debt maturities. We refinanced our maturing loan with Prudential
and have reached agreement on the principle terms to obtain a new
secured loan with no corporate financial covenants. We are pleased
that we will have eliminated our near-term maturity and are
currently working on a plan to address our debt that matures in
2010 and 2011. Additionally, we have suspended dividend payments,
postponed further redevelopment spending, improved our cost
structure through hotel expense reductions and reduced corporate
expenses, all of which we expect will result in positive cash flow
during 2009 prior to debt repayments,� said Andrew J. Welch,
FelCor�s Executive Vice President and Chief Financial Officer.
Capital Expenditures and Development:
We spent $26�million on renovations and redevelopment projects
at our hotels, including our pro rata share of joint venture
expenditures, during first quarter 2009.
Overall, our renovated hotels continue to perform consistent
with our expectations. Market share at our 70 hotels where we
completed renovations during 2007 and 2008 increased by
approximately two�percent for�the quarter, compared to the same
period in the prior year. Market share increased approximately one
percent in the first quarter and approximately five percent in
April for our 85 consolidated hotels.
RevPAR at our San Francisco Marriott Union Square hotel
decreased by 44�percent during the first quarter. On April 1, 2009,
this property was reflagged as a Marriott following a comprehensive
redevelopment of the hotel. We will complete the remaining portion
of the public area renovation by the end of June 2009. RevPAR
increased more than 40 percent in April, compared to prior year,
and we expect that level of RevPAR improvement to continue.
Portfolio Recycling:
During the first quarter, we sold the Ramada Hotel in Hays,
Kansas for $3.0�million. Subsequent to the end of the quarter, we
sold the Holiday Inn in Salina, Kansas for $2.5�million. These
hotels were part of an unconsolidated joint venture with one other
hotel that is currently being marketed for sale. Combined Hotel
EBITDA for the two sold hotels totaled less than $400,000 during
2008. The proceeds from the sale of the hotels were used to repay a
portion of the joint venture�s mortgage loan. The remaining hotels
we previously identified as non-strategic are currently being
marketed for sale.
Outlook:
As a result of the continued deterioration of lodging demand, we
now expect RevPAR to decline more than our previous guidance.
However, our FFO and EBITDA outlook remains unchanged as a result
of our strict expense controls, which offset the decline in RevPAR.
While we expect RevPAR to decline sharply in 2009, our portfolio
will benefit from the renovations we completed in 2008 and the
redevelopment of our San Francisco Marriott Union Square hotel.
Therefore, we expect our portfolio to grow market share by an
average of more than one percent relative to its competitive
sets.
Assuming full year 2009 RevPAR for our 85 consolidated hotels
decreases between 12 and 14�percent, we anticipate:
- Adjusted EBITDA to be between
$200�million and $213�million;
- Adjusted FFO per share to be
between $0.76 and $1.00;
- Net Loss to be between
$62�million and $77�million; and
- Interest expense to be between
$105�million and $107�million.
FelCor, a real estate investment trust, is the nation�s largest
owner of upper-upscale, all-suite hotels. FelCor owns interests in
87 hotels and resorts, located in 23 states and Canada. FelCor�s
portfolio consists primarily of upper-upscale hotels, which are
flagged under global brands such as Embassy Suites Hotels�,
Doubletree�, Hilton�, Marriott�, Renaissance�, Sheraton�, Westin�
and Holiday Inn�. Additional information can be found on the
Company�s Web site at www.felcor.com.
We invite you to listen to our first quarter earnings Conference
Call on Friday, May 8, 2009, at 11:00�a.m. (Central Time). The
conference call will be Web cast simultaneously via the Internet on
FelCor�s Web site at www.felcor.com. Interested investors and other
parties who wish to access the call should go to FelCor�s Web site
and click on the conference call microphone icon on either the
�Investor Relations� or �News� pages. The conference call replay
will be archived on the Company�s Web site.
With the exception of historical information, the matters
discussed in this news release include �forward-looking statements�
within the meaning of the federal securities laws. These
forward-looking statements are identified by their use of terms and
phrases such as �anticipate,� �believe,� �could,� �estimate,�
�expect,� �intend,� �may,� �plan,� �predict,� �project,� �should�
�will,� �continue� and other similar terms and phrases, including
references to assumptions and forecasts of future results.
Forward-looking statements are not guarantees of future
performance. Numerous risks and uncertainties, and the occurrence
of future events, may cause actual results to differ materially
from those anticipated at the time the forward-looking statements
are made. Current economic circumstances or a further economic
slowdown and the impact on the lodging industry, operating risks
associated with the hotel business, relationships with our property
managers, risks associated with our level of indebtedness and our
ability to meet debt covenants in our debt agreements, our ability
to complete acquisitions, dispositions and debt refinancing, the
availability of capital, the impact on the travel industry from
increased fuel prices and security precautions, our ability to
continue to qualify as a Real Estate Investment Trust for federal
income tax purposes and numerous other factors may affect future
results, performance and achievements. Certain of these risks and
uncertainties are described in greater detail in our filings with
the Securities and Exchange Commission. Although we believe our
current expectations to be based upon reasonable assumptions, we
can give no assurance that our expectations will be attained or
that actual results will not differ materially. We undertake no
obligation to update any forward-looking statement to conform the
statement to actual results or changes in our expectations.
SUPPLEMENTAL INFORMATION
INTRODUCTION
The following information is
presented in order to help our investors understand the financial
position of the Company as of and for the three months ended
March�31, 2009.
TABLE OF CONTENTS
�
PAGE
Consolidated Statements of Operations(a) 7 Consolidated Balance
Sheets(a) 8 Capital Expenditures 9 Supplemental Financial Data 9
Debt Summary 10 Hotel Portfolio Composition 11 Detailed Operating
Statistics by Brand 12 Detailed Operating Statistics for FelCor�s
Top Markets 13 Non-GAAP Financial Measures 14
(a) Our consolidated statements of operations and balance sheets
have been prepared without audit. Certain information and footnote
disclosures normally included in financial statements presented in
accordance with GAAP have been omitted. The consolidated statements
of operations and balance sheets should be read in conjunction with
the consolidated financial statements and notes thereto included in
our most recent Quarterly Report on Form 10-Q.
Consolidated Statements of
Operations
(in thousands, except per share
data)
�
Three Months Ended
March 31,
2009 �
2008 Revenues: Hotel operating revenue: Room $
183,000 $ 230,132 Food and beverage 37,113 46,508 Other operating
departments 13,889 14,907 Other revenue � 286 � 328 Total revenues
� 234,288 � 291,875 � Expenses: Hotel departmental expenses: Room
46,500 54,651 Food and beverage 28,871 35,446 Other operating
departments 6,207 7,029 Other property related costs 67,307 77,125
Management and franchise fees 11,507 15,902 Taxes, insurance and
lease expense 25,031 29,304 Corporate expenses 6,122 6,827
Depreciation and amortization 37,385 33,768 Impairment loss 1,368
17,131 Other expenses � 696 � 933 Total operating expenses �
230,994 � 278,116 � Operating income 3,294 13,759 Interest expense,
net � (21,292 ) � (26,003 ) Loss before equity in loss from
unconsolidated entities (17,998 ) (12,244 ) Equity in loss from
unconsolidated entities � (3,424 ) � (622 ) Loss from continuing
operations (21,422 ) (12,866 ) Discontinued operations � - � (13 )
Net loss (21,422 ) (12,879 ) Net loss (income) attributable to
noncontrolling interests in other partnerships 216 (71 ) Net loss
attributable to redeemable noncontrolling interests in FelCor LP �
142 � 477 Net loss attributable to FelCor (21,064 ) (12,473 )
Preferred dividends � (9,678 ) � (9,678 ) Net loss applicable to
FelCor common stockholders $ (30,742 ) $ (22,151 ) � Basic and
diluted per common share data: Net loss from continuing operations
attributable to FelCor $ (0.49 ) $ (0.36 ) Net loss attributable to
FelCor $ (0.49 ) $ (0.36 ) Basic and diluted weighted average
common shares outstanding � 62,989 � 61,714 Cash dividends declared
on common stock $ - $ 0.35 �
Consolidated Balance
Sheets
(unaudited, in thousands)
� �
March 31,
2009
December 31, 2008 Assets
Investment in hotels, net of
accumulated depreciation of $849,380 at March 31, 2009 and $816,271
at December 31, 2008
$
2,261,572
$
2,279,026
Investment in unconsolidated entities 88,298 94,506 Cash and cash
equivalents 52,956 50,187 Restricted cash 12,372 13,213
Accounts receivable, net of
allowance for doubtful accounts of $389 at March 31, 2009 and $521
at December 31, 2008
37,749
35,240
Deferred expenses, net of
accumulated amortization of $11,550 at March 31, 2009 and $13,087
at December 31, 2008
7,017
5,556
Other assets
� 31,192 � 34,541 Total assets $ 2,491,156 $ 2,512,269 �
Liabilities and Equity
Debt, net of discount of $1,409 at
March 31, 2009 and $1,544 at December 31, 2008
$
1,565,159
$
1,551,686
Distributions payable 8,545 8,545 Accrued expenses and other
liabilities � 129,826 � 132,604 � Total liabilities � 1,703,530 �
1,692,835 � Commitments and contingencies
Redeemable noncontrolling interest
in FelCor LP at redemption value, 296 units issued and outstanding
at March 31, 2009 and December 31, 2008
�
402
�
545
� Equity: Preferred stock, $0.01 par value, 20,000 shares
authorized:
Series A Cumulative Convertible
Preferred Stock, 12,880 shares, liquidation value of $322,011,
issued and outstanding at March 31, 2009 and December 31, 2008
�
309,362
�
309,362
Series C Cumulative Redeemable
Preferred Stock, 68 shares, liquidation value of $169,950, issued
and outstanding at March 31, 2009 and December 31, 2008
�
169,412
�
169,412
Common stock, $.01 par value,
200,000 shares authorized and 69,413 shares issued and outstanding,
including shares in treasury, at March 31, 2009 and December 31,
2008
�
694
�
694
Additional paid-in capital 2,035,773 2,045,482 Accumulated other
comprehensive income 13,646 15,347 Accumulated deficit (1,676,695 )
(1,645,947 )
Less: Common stock in treasury, at
cost, of 4,648 shares at March 31, 2009 and 5,189 shares at
December 31, 2008
�
(88,224
)
�
(99,245
)
� Total FelCor stockholders� equity 763,968 795,105 Noncontrolling
interests in other partnerships � 23,256 � 23,784 Total equity �
787,224 � 818,889 � Total liabilities and equity $ 2,491,156 $
2,512,269 �
Capital Expenditures
(in thousands)
�
Three Months Ended
March 31,
2009 �
2008 Improvements and additions to
consolidated hotels $ 25,274 $ 42,374 Consolidated joint venture
partners� prorata share of additions to hotels (254 ) (1,257 )
Prorata share of unconsolidated additions to hotels � 1,462 � 6,971
Total additions to hotels(a) $ 26,482 $ 48,088
(a) Includes capitalized interest, property taxes, ground leases
and certain employee costs.
Supplemental Financial
Data
(in thousands, except per share
information)
� �
Total Enterprise Value
March 31, 2009 December 31, 2008 Common shares
outstanding 64,764 64,224 Units outstanding � 296 � 296 Combined
shares and units outstanding 65,060 64,520 Common stock price at
end of period $ 1.36 $ 1.84 Equity capitalization $ 88,482 $
118,717 Series A preferred stock 309,362 309,362 Series C preferred
stock 169,412 169,412 Consolidated debt 1,565,159 1,551,686
Noncontrolling interests of consolidated debt (4,051 ) (4,078 ) Pro
rata share of unconsolidated debt 110,320 112,220 Cash and cash
equivalents � (52,956 ) � (50,187 ) Total enterprise value (TEV) $
2,185,728 $ 2,207,132 �
Dividends Per Share Dividends
declared: Common stock $ - $ 0.85 Series A preferred stock $ - $
1.95 Series C preferred stock (depositary shares) $ - $ 2.00 �
Debt Summary
(dollars in thousands)
� � � �
EncumberedHotels
Interest Rate atMarch
31, 2009
Maturity
Date
ConsolidatedDebt
Senior term notes none 9.00 %(a) June 2011 $ 299,477 Senior term
notes none L + 1.875 December 2011 215,000 Line of credit(b) none L
+ 1.00 August 2011(c) � 128,000 Total line of credit and senior
debt(d) 5.71 � 642,477 � Mortgage debt 12 hotels L + 0.93 (e)
November 2011(f) 250,000 Mortgage debt 2 hotels L + 1.55 (g) May
2012(h) 176,339 Mortgage debt 8 hotels 8.70 May 2010 161,206
Mortgage debt 7 hotels 9.02 April 2014 118,293 Mortgage debt 6
hotels 8.73 May 2010 115,418 Mortgage debt 5 hotels 6.66
June-August 2014 72,111 Mortgage debt 2 hotels 6.15 June 2009
14,518 Mortgage debt 1 hotel 5.81 July 2016 12,038 Other 1 hotel
various various � 2,759 Total mortgage debt(d) 44 hotels 5.27 �
922,682 Total 5.45 % $ 1,565,159 �
(a) Our senior notes are currently rated B2 and B by Moody�s
Investor Service and Standard & Poor�s Rating Services,
respectively. As a result of rating downgrades of our senior notes,
the interest rate on $300�million of our senior notes due 2011 was
increased by 50 basis points to 9.0%, effective February�13, 2009.
When either Moody�s or Standard & Poor�s increases our senior
note ratings to Ba3 or BB-, respectively, the interest rate will
decrease to 8.5%.
(b) We have a $250�million line of credit, of which $128�million
was outstanding at March�31, 2009. The interest rate can range from
80 to 150 basis points over LIBOR, based on our leverage ratio as
defined in our line of credit agreement.
(c) This can be extended to 2012 under certain conditions.
(d) Interest rates are calculated based on the weighted average
debt outstanding at March�31, 2009.
(e) We have purchased an interest rate cap that caps LIBOR at
7.8% and expires in November�2009 for this notional amount.
(f) The maturity date assumes that we will exercise the
remaining two one-year extension options that permit, at our sole
discretion, the current November 2009 maturity to be extended to
2011.
(g) We have purchased interest rate caps that cap LIBOR at 6.5%
and expire in May 2010 for aggregate notional amounts of
$177�million.
(h) We have exercised the first of three successive one-year
extension options that permit, at our sole discretion, the original
May 2009 maturity to be extended to 2012.
Weighted average interest � 5.45 % Fixed interest rate debt to
total debt 50.8 % Mortgage debt to total assets 37.0 % � � � �
Hotel Portfolio
Composition
�
The following tables set forth, as
of March 31, 2009, for 85 Consolidated Hotels distribution by
brand, top markets and location type.
�
Brand
Hotels
Rooms
% of
Total Rooms
% of 2008
Hotel EBITDA(a)
Embassy Suites Hotels 47 12,132 49 55 Holiday Inn 17 6,306 25 19
Sheraton and Westin 9 3,217 13 12 Doubletree 7 1,471 6 7
Renaissance and Marriott 3 1,321 5 5 Hilton 2 559 2 2 �
Top Markets
South Florida 5 1,439 6 7 San Francisco area 6 2,138 8 6 Atlanta 5
1,462 6 6 Los Angeles area 4 899 4 6 Orlando 5 1,690 7 5 Dallas 4
1,333 5 4 Philadelphia 2 729 3 4 Northern New Jersey 3 756 3 4
Minneapolis 3 736 3 4 San Diego 1 600 2 4 Phoenix 3 798 3 3 San
Antonio 3 874 4 3 Chicago 3 795 3 3 Boston 2 532 2 3 Washington,
D.C. 1 443 2 2 �
Location
Suburban 35 8,781 35 34 Urban 20 6,358 25 26 Airport 18 5,788 24 24
Resort 12 4,079 16 16
(a) Hotel EBITDA is more fully described on page 19.
�
Detailed Operating Statistics
by Brand
(85 consolidated
hotels)
�
Occupancy (%) Three Months Ended March 31, �
2009 �
2008 %Variance Embassy Suites Hotels
66.5 73.0 (8.9 ) Holiday Inn 61.7 70.0 (11.8 ) Sheraton and Westin
55.0 66.1 (16.8 ) Doubletree 63.6 75.6 (15.9 ) Renaissance and
Marriott 56.3 70.7 (20.3 ) Hilton 47.3 52.3 (9.6 ) � Total hotels
62.7 70.9 (11.6 ) � � �
ADR ($) Three Months Ended March
31, 2009 2008 %Variance Embassy Suites
Hotels 138.64 152.21 (8.9 ) Holiday Inn 105.16 117.89 (10.8 )
Sheraton and Westin 118.11 130.15 (9.2 ) Doubletree 139.17 153.99
(9.6 ) Renaissance and Marriott 201.68 210.93 (4.4 ) Hilton 97.59
106.35 (8.2 ) � Total hotels 130.11 143.20 (9.1 ) � � �
RevPAR
($) Three Months Ended March 31, 2009 2008
%Variance Embassy Suites Hotels 92.22 111.09 (17.0 ) Holiday
Inn 64.93 82.50 (21.3 ) Sheraton and Westin 65.01 86.06 (24.5 )
Doubletree 88.47 116.42 (24.0 ) Renaissance and Marriott 113.55
149.06 (23.8 ) Hilton 46.13 55.62 (17.1 ) � Total hotels 81.60
101.55 (19.6 ) �
Detailed Operating Statistics
for FelCor�s Top Markets
(85 consolidated
hotels)
�
Occupancy (%) Three Months Ended March 31, �
2009 �
2008 %Variance South Florida 79.3 87.1
(8.9 ) San Francisco area 55.9 71.0 (21.2 ) Atlanta 65.6 76.3 (14.0
) Los Angeles area 68.6 73.6 (6.7 ) Orlando 68.2 81.9 (16.8 )
Dallas 59.4 69.9 (15.0 ) Philadelphia 49.4 62.5 (20.9 ) Northern
New Jersey 59.6 66.4 (10.2 ) Minneapolis 60.9 67.0 (9.1 ) San Diego
64.0 80.5 (20.5 ) Phoenix 64.1 75.9 (15.5 ) San Antonio 69.6 77.1
(9.8 ) Chicago 52.5 65.0 (19.3 ) Boston 70.6 69.0 2.3 Washington,
D.C. 45.1 43.9 2.7
ADR ($) Three Months Ended March
31, 2009 2008 %Variance South Florida
170.57 199.14 (14.3 ) San Francisco area 120.64 136.22 (11.4 )
Atlanta 111.22 127.06 (12.5 ) Los Angeles area 138.48 156.95 (11.8
) Orlando 112.89 124.53 (9.3 ) Dallas 126.94 130.17 (2.5 )
Philadelphia 129.62 136.34 (4.9 ) Northern New Jersey 151.68 161.98
(6.4 ) Minneapolis 131.14 145.02 (9.6 ) San Diego 132.31 152.80
(13.4 ) Phoenix 157.30 186.19 (15.5 ) San Antonio 105.65 113.77
(7.1 ) Chicago 112.26 120.74 (7.0 ) Boston 126.00 136.39 (7.6 )
Washington, D.C. 154.72 162.65 (4.9 )
RevPAR ($) Three
Months Ended March 31, 2009 2008 %Variance
South Florida 135.25 173.37 (22.0 ) San Francisco area 67.43 96.67
(30.2 ) Atlanta 72.99 96.90 (24.7 ) Los Angeles area 95.04 115.45
(17.7 ) Orlando 76.97 102.05 (24.6 ) Dallas 75.44 90.96 (17.1 )
Philadelphia 64.05 85.16 (24.8 ) Northern New Jersey 90.37 107.47
(15.9 ) Minneapolis 79.80 97.14 (17.8 ) San Diego 84.72 123.01
(31.1 ) Phoenix 100.90 141.34 (28.6 ) San Antonio 73.48 87.75 (16.3
) Chicago 58.89 78.53 (25.0 ) Boston 88.95 94.10 (5.5 ) Washington,
D.C. 69.80 71.44 (2.3 )
Non-GAAP Financial
Measures
We refer in this release to certain �non-GAAP financial
measures.� These measures, including FFO, Adjusted FFO, EBITDA,
Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, are measures
of our financial performance that are not calculated and presented
in accordance with generally accepted accounting principles
(�GAAP�). The following tables reconcile each of these non-GAAP
measures to the most comparable GAAP financial measure. Immediately
following the reconciliations, we include a discussion of why we
believe these measures are useful supplemental measures of our
performance and the limitations of such measures.
�
Reconciliation of Net Loss
Attributable to FelCor to FFO and Adjusted FFO
(in thousands, except per share
and unit data)
�
Three Months Ended March 31, 2009 �
2008
Dollars �
Shares �
Per Share Amount
Dollars �
Shares �
Per Share Amount Net
loss attributable to FelCor $ (21,064 ) $ (12,473 ) Preferred
dividends(a) � (9,678 ) � (9,678 )
Net loss applicable to FelCor
common stockholders (30,742 ) 62,989 $ (0.49 ) (22,151 )
61,714 $ (0.36 ) Depreciation and amortization 37,385 - 0.59 33,768
- 0.55 Depreciation, unconsolidated entities 3,687 - 0.06 3,549 -
0.06 Noncontrolling interests in FelCor LP (142 ) 296 - (477 )
1,354 (0.02 )
Conversion of options and unvested
stock
� - 128 � - � - 126 � -
FFO 10,188 63,413 0.16 14,689 63,194
0.23 Impairment loss 1,368 - 0.02 17,131 - 0.27 Impairment loss,
unconsolidated subsidiaries 2,068 - 0.04 - - - Conversion costs(b)
38 - - 259 - 0.01
Severance costs, net of
noncontrolling interests
� 135 - � - � - - � -
Adjusted FFO $ 13,797 63,413 $ 0.22 $
32,079 63,194 $ 0.51
(a) We suspended our preferred dividends in March 2009 and
unpaid preferred dividends continue to accrue until paid.
(b) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott.
�
Reconciliation of Net Loss
Attributable to FelCor to Adjusted EBITDA
(in thousands)
�
Three Months EndedMarch
31,
2009 �
2008 Net loss attributable to FelCor $
(21,064 ) $ (12,473 ) Depreciation and amortization 37,385 33,768
Depreciation, unconsolidated entities 3,687 3,549 Interest expense
21,469 26,549 Interest expense, unconsolidated entities 1,019 1,596
Amortization of stock compensation 1,398 1,265 Noncontrolling
interests in FelCor Lodging LP � (142 ) � (477 )
EBITDA
43,752 53,777 Impairment loss 1,368 17,131 Impairment loss,
unconsolidated entities 2,068 - Conversion costs(a) 38 259
Severance costs, net of noncontrolling interests � 135 � -
Adjusted EBITDA $ 47,361 $ 71,167
(a) These costs relate to the conversion of our Hotel 480 Union
Square in San Francisco to a Marriott.
�
Reconciliation of Adjusted
EBITDA to Hotel EBITDA
(in thousands)
�
Three Months EndedMarch 31, 2009 �
2008 Adjusted EBITDA $ 47,361 $ 71,167 Other revenue
(286 ) (328 )
Equity in income from
unconsolidated subsidiaries (excluding interest, depreciation and
impairment expense)
(3,998 ) (5,022 )
Noncontrolling interests in other
partnerships (excluding interest, depreciation and severance
expense)
443 570 Consolidated hotel lease expense 10,060 12,197
Unconsolidated taxes, insurance and lease expense (1,934 ) (2,122 )
Interest income (177 ) (545 ) Other expenses (excluding conversion
costs and severance expense) 512 673 Corporate expenses (excluding
amortization expense of stock compensation) 4,724 5,562 Adjusted
EBITDA from discontinued operations � - � 13
Hotel EBITDA $
56,705 $ 82,165 �
Reconciliation of Net Loss
Attributable to FelCor to Hotel EBITDA
(in thousands)
�
Three Months EndedMarch 31, 2009 �
2008 Net loss attributable to FelCor $ (21,064
) $ (12,473 ) Discontinued operations - 13 Equity in loss from
unconsolidated entities 3,424 622 Net income (loss) attributable to
noncontrolling interests in other partnerships (216 ) 71 Net loss
attributable to redeemable noncontrolling interests in FelCor LP
(142 ) (477 ) Consolidated hotel lease expense 10,060 12,197
Unconsolidated taxes, insurance and lease expense (1,934 ) (2,122 )
Interest expense, net 21,292 26,003 Corporate expenses 6,122 6,827
Depreciation and amortization 37,385 33,768 Impairment loss 1,368
17,131 Other expenses 696 933 Other revenue � (286 ) � (328 )
Hotel EBITDA $ 56,705 $ 82,165 �
Hotel EBITDA and Hotel EBITDA
Margin
(dollars in thousands)
�
Three Months EndedMarch 31, 2009 �
2008 Total revenues $ 234,288 $ 291,875 Other revenue � (286
)
�
� (328
)
�
Hotel operating revenue 234,002 291,547 Hotel operating expenses �
(177,297
)
�
� (209,382
)
�
Hotel EBITDA $ 56,705 � $ 82,165 � Hotel EBITDA margin(a) 24.2 %
28.2 %
(a) Hotel EBITDA as a percentage of hotel operating revenue.
�
Reconciliation of Total
Operating Expenses to Hotel Operating Expenses
(dollars in thousands)
�
Three Months EndedMarch
31,
2009 �
2008 Total operating expenses $ 230,994 $
278,116 Unconsolidated taxes, insurance and lease expense 1,934
2,122 Consolidated hotel lease expense (10,060 ) (12,197 )
Corporate expenses (6,122 ) (6,827 ) Depreciation and amortization
(37,385 ) (33,768 ) Impairment loss (1,368 ) (17,131 ) Other
expenses � (696 ) � (933 ) Hotel operating expenses $ 177,297 $
209,382 �
Reconciliation of Ratio of
Operating Income to Total Revenues to Hotel EBITDA Margin
�
Three Months EndedMarch
31,
2009 �
2008 Ratio of operating income to total
revenues 1.4 % 4.7 % Other revenue (0.1 ) (0.1 ) Unconsolidated
taxes, insurance and lease expense (0.8 ) (0.7 ) Consolidated hotel
lease expense 4.3 4.2 Other expenses 0.3 0.3 Corporate expenses 2.6
2.3 Depreciation and amortization 15.9 11.6 Impairment loss 0.6 �
5.9 � Hotel EBITDA margin 24.2 % 28.2 % �
Reconciliation of Forecasted
Net Loss Attributable to FelCor to Forecasted FFO, Adjusted FFO,
EBITDA and Adjusted EBITDA
(in millions, except per share and
unit data)
�
Full Year 2009 Guidance Low Guidance �
High
Guidance Dollars �
Per Share Amount
Dollars �
Per Share Amount Net loss attributable
to FelCor $ (77 ) $ (62 ) Preferred dividends � (39 ) � (39 )
Net loss applicable to FelCor common stockholders (116 ) $
(1.84 ) (101 ) $ (1.60 ) Depreciation 162 162 Noncontrolling
interests in FelCor LP (1 ) (1 ) Impairment loss � 3 � 3
Adjusted FFO $ 48 $ 0.76 (a) $ 63 $ 1.00 (a) �
Net loss
attributable to FelCor $ (77 ) $ (62 ) Depreciation 162 162
Interest expense 107 105 Amortization expense 6 6 Noncontrolling
interests in FelCor LP (1 ) (1 ) Impairment loss � 3 � 3
Adjusted EBITDA $ 200 $ 213
(a) Weighted average shares and units are 63.6�million.
Substantially all of our non-current assets consist of real
estate. Historical cost accounting for real estate assets
implicitly assumes that the value of real estate assets diminishes
predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, most industry
investors consider supplemental measures of performance, which are
not measures of operating performance under GAAP, to be helpful in
evaluating a real estate company�s operations. These supplemental
measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA,
Hotel EBITDA and Hotel EBITDA margin, are not measures of operating
performance under GAAP. However, we consider these non-GAAP
measures to be supplemental measures of a hotel REIT�s performance
and should be considered along with, but not as an alternative to,
net income (loss) attributable to FelCor as a measure of our
operating performance.
FFO and EBITDA
The White Paper on Funds From Operations approved by the Board
of Governors of the National Association of Real Estate Investment
Trusts (�NAREIT�), defines FFO as net income or loss attributable
to Parent (computed in accordance with GAAP), excluding gains or
losses from sales of property, plus depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect FFO on the same basis. We
compute FFO in accordance with standards established by NAREIT.
This may not be comparable to FFO reported by other REITs that do
not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition
differently than we do.
EBITDA is a commonly used measure of performance in many
industries. We define EBITDA as net income or loss attributable to
Parent (computed in accordance with GAAP) plus interest expenses,
income taxes, depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to
reflect EBITDA on the same basis.
Adjustments to FFO and EBITDA
We adjust FFO and EBITDA when evaluating our performance because
management believes that the exclusion of certain additional
recurring and non-recurring items, including but not limited to
these described below, provides useful supplemental information to
investors regarding our ongoing operating performance and that the
presentation of Adjusted FFO and Adjusted EBITDA when combined with
GAAP net income attributable to FelCor, EBITDA and FFO, is
beneficial to an investor�s better understanding of our operating
performance.
- Gains and losses related to
early extinguishment of debt and interest rate swaps � We exclude
gains and losses related to early extinguishment of debt and
interest rate swaps from FFO and EBITDA because we believe that it
is not indicative of ongoing operating performance of our hotel
assets. This also represents an acceleration of interest expense or
a reduction of interest expense, and interest expense is excluded
from EBITDA.
- Impairment losses � We exclude
the effect of impairment losses and gains or losses on disposition
of assets in computing Adjusted FFO and Adjusted EBITDA because we
believe that including these is not consistent with reflecting the
ongoing performance of our remaining assets. Additionally, we
believe that impairment charges and gains or losses on disposition
of assets represent accelerated depreciation, or excess
depreciation, and depreciation is excluded from FFO by the NAREIT
definition and from EBITDA.
- Cumulative effect of a change in
accounting principle � Infrequently, the Financial Accounting
Standards Board promulgates new accounting standards that require
the consolidated statements of operations to reflect the cumulative
effect of a change in accounting principle. We exclude these
one-time adjustments in computing Adjusted FFO and Adjusted EBITDA
because they do not reflect our actual performance for that
period.
In addition, to derive Adjusted EBITDA, we exclude gains or
losses on the sale of assets because we believe that including them
in EBITDA is not consistent with reflecting the ongoing performance
of our remaining assets. Additionally, the gain or loss on sale of
depreciable assets represents either accelerated depreciation or
excess depreciation in previous periods, and depreciation is
excluded from EBITDA.
Hotel EBITDA and Hotel EBITDA Margin
Hotel EBITDA and Hotel EBITDA margin are commonly used measures
of performance in the industry and give investors a more complete
understanding of the operating results over which our individual
hotels and operating managers have direct control. We believe that
Hotel EBITDA and Hotel EBITDA margin are useful to investors by
providing greater transparency with respect to two significant
measures used by us in our financial and operational decision
making. Additionally, these measures facilitate comparisons with
other hotel REITs and hotel owners. We present Hotel EBITDA and
Hotel EBITDA margin by eliminating from continuing operations all
revenues and expenses not directly associated with hotel operations
including corporate-level expenses, depreciation and expenses
related to our capital structure. We eliminate corporate-level
costs and expenses because we believe property-level results
provide investors with supplemental information with respect to the
ongoing operating performance of our hotels and the effectiveness
of management on a property-level basis. We eliminate depreciation
and amortization, even though they are property-level expenses,
because we do not believe that these non-cash expenses, which are
based on historical cost accounting for real estate assets and
implicitly assume that the value of real estate assets diminish
predictably over time, accurately reflect an adjustment in the
value of our assets. We also eliminate consolidated percentage rent
paid to unconsolidated entities, which is effectively eliminated by
noncontrolling interests and equity in income from unconsolidated
subsidiaries, and include the cost of unconsolidated taxes,
insurance and lease expense, to reflect the entire operating costs
applicable to our hotels. Hotel EBITDA and Hotel EBITDA margins are
presented on a same-store basis.
Limitations of Non-GAAP Measures
Our management and Board of Directors use FFO, Adjusted FFO,
EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to
evaluate the performance of our hotels and to facilitate
comparisons between us and lodging REITs, hotel owners who are not
REITs and other capital intensive companies. We use Hotel EBITDA
and Hotel EBITDA margin in evaluating hotel-level performance and
the operating efficiency of our hotel managers.
The use of these non-GAAP financial measures has certain
limitations. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel
EBITDA and Hotel EBITDA margin, as presented by us, may not be
comparable to FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel
EBITDA and Hotel EBITDA margin as calculated by other real estate
companies. These measures do not reflect certain expenses that we
incurred and will incur, such as depreciation and interest or
capital expenditures. Management compensates for these limitations
by separately considering the impact of these excluded items to the
extent they are material to operating decisions or assessments of
our operating performance. Our reconciliations to the GAAP
financial measures, and our consolidated statements of operations
and cash flows, include interest expense, capital expenditures, and
other excluded items, all of which should be considered when
evaluating our performance, as well as, the usefulness of our
non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in
conjunction with results presented in accordance with GAAP. They
should not be considered as alternatives to operating profit, cash
flow from operations, or any other operating performance measure
prescribed by GAAP. Neither should FFO, Adjusted FFO, Adjusted FFO
per share, EBITDA or Adjusted EBITDA be considered as measures of
our liquidity or indicative of funds available for our cash needs,
including our ability to make cash distributions. Adjusted FFO per
share should not be used as a measure of amounts that accrue
directly to the benefit of stockholders. FFO, Adjusted FFO, EBITDA,
Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin reflect
additional ways of viewing our operations that we believe when
viewed with our GAAP results and the reconciliations to the
corresponding GAAP financial measures provide a more complete
understanding of factors and trends affecting our business than
could be obtained absent this disclosure. Management strongly
encourages investors to review our financial information in its
entirety and not to rely on any single financial measure.
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