FCH Felcor Lodging Trust Incorporated (delisted)

FelCor Lodging Trust Incorporated (NYSE: FCH), owner of 78 primarily upper-upscale hotels and resorts, today reported operating results for the second quarter ended June 30, 2011.

Summary:

• Revenue per available room ("RevPAR") for 67 comparable hotels increased 6.2% for the quarter.
• Same-store Hotel EBITDA margin increased 144 basis points for the quarter. Hotel EBITDA increased 11% during the quarter, representing more than two times hotel revenue growth.
• Adjusted FFO per share was $0.13 and Adjusted EBITDA was $64.3 million for the quarter. Before asset sales and debt transactions, Adjusted FFO per share would have been $0.16.
• Sold six hotels during 2011, including three in July, for gross proceeds of $100 million.
• Repaid almost $450 million of debt this year, with proceeds from asset sales and the senior notes and equity offerings, reducing average interest rate by 50 basis points during the quarter.
• Purchased the Royalton and Morgans hotels in midtown Manhattan for $140 million.
• Net loss was $42.3 million for the quarter.

Second Quarter Operating Results:

RevPAR (for 67 comparable hotels) was $102.28, a 6.2% increase compared to the same period in 2010. The increase was driven by a 3.7% increase in average daily rate ("ADR") to $131.86 and a 2.4% increase in occupancy to 77.6%. Comparable hotels exclude the eight hotels marketed for sale, three hotels in discontinued operations and two hotels acquired in 2011.

“We continue to successfully execute our strategy to improve our portfolio quality and long-term growth and to restructure our balance sheet. We issued senior notes at a very favorable rate and used the proceeds to acquire two strategic hotels in Manhattan and retire higher cost debt. We also sold six non-strategic hotels this year and used the net proceeds to repay debt. We are mid-way through the first group of asset sales, which have progressed faster than anticipated, and expect to complete the sale of these remaining hotels this year,” said Richard A. Smith, FelCor's President and Chief Executive Officer.

“RevPAR growth continues to accelerate, but slower than expected. The U.S. economy is expanding, but headwinds lingered in the second quarter. Our transient RevPAR was strong, increasing 8% compared to prior year, although group RevPAR increased only 1%. We expect stronger RevPAR in the second half of the year, reflecting improved group booking pace and continued improvement in transient rates. Our aggressive asset management philosophy continues to show positive results. We remain the best performing hotel REIT by RevPAR growth, since we completed the renovation program in 2008 and implemented significant operational changes. We remain focused on limiting cost increases as occupancy recovers. This produced better hotel EBITDA margins than expected during the second quarter, which allowed us to meet the low-end of our expectations, and our cost per occupied room remains more than $3 below 2008,” added Mr. Smith.

Hotel EBITDA was $70.9 million, compared to $63.7 million for the same period in 2010, an 11% increase. Hotel EBITDA and other same-store metrics reflect 75 consolidated hotels at the end of the quarter (67 comparable hotels plus eight hotels marketed for sale). The same-store metrics include the Fairmont Boston, which was acquired in August 2010, and exclude five hotels owned at June 30 (three Embassy Suites Hotels sold in July, which were classified as discontinued operations, and Royalton and Morgans, which were acquired in May 2011). Hotel EBITDA margin was 28.0%, a 144 basis point increase compared to the same period in 2010.

Adjusted EBITDA (which includes our pro rata share of joint ventures) was $64.3 million compared to $56.5 million for the same period in 2010, a 14% increase. Same-store Adjusted EBITDA was $61.6 million for the quarter, a 12.6% increase, compared to the same period in 2010.

Adjusted funds from operations (“FFO”) was $16.4 million, or $0.13 per share, compared to $6.7 million, or $0.10 per share, for the same period in 2010, a $0.03 per share improvement.

Net loss attributable to common stockholders was $51.9 million, or $0.42 per share for the quarter, compared to net income of $11.9 million, or $0.17 per share, for the same period in 2010. Our 2011 net loss included $23.7 million of net losses from debt extinguishment and $12.3 million of impairment charges, which were partially offset by $6.7 million of net gains on asset sales. Our 2010 net income included a $46.1 million gain from debt extinguishment.

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 15 for a reconciliation of each of these measures to the most comparable GAAP financial measure and for information regarding the use, limitations and importance of these non-GAAP financial measures.

Balance Sheet:

In May, we completed the sale of $525 million of 6.75% senior secured notes maturing in 2019. Combined with the $158 million in net proceeds from the April equity offering, we raised $669 million in net proceeds, after fees and expenses, which were used to fund the $140 million acquisition of the Royalton and Morgans hotels in New York, redeem $144 million of 10% senior secured notes due 2014 (for total consideration of $158 million), retire the remaining $46 million of 9% senior notes that matured in June 2011, retire a $7.3 million CMBS loan that matured in June 2011 and repay the balance under our line of credit ($145 million at March 31).

In June, we refinanced $24.0 million of a $27.8 million CMBS loan that bore interest at 8.77% and was scheduled to mature in 2013. The remaining $3.8 million principal was forgiven as part of a prior agreement with the special servicer.

At June 30, 2011, we had $1.6 billion of consolidated debt, with an average interest rate of 7.4% and weighted average maturity of five years. We had $231.0 million of cash and cash equivalents and full availability under our $225 million line of credit, providing the company with over $400 million of liquidity.

We have one remaining debt maturity in 2011: a $178.2 million CMBS principal amount that is secured by nine hotels. We repaid $45.3 million of the original $250 million principal balance in the second quarter, and an additional $26.5 million in July, using proceeds from the sales of three hotels that secured the loan. We expect to refinance the remaining balance prior to maturity.

“We are very pleased with our recent senior note offering. The interest rate and eight-year term are very attractive and fit our strategy to lower financing costs and stagger maturities. Proceeds from our recent equity and bond offerings were used to repay higher-cost debt, and we reduced our average interest rate by 50 basis points this quarter. The full availability under our line of credit, combined with over $200 million of cash, provides tremendous financial flexibility. As we sell additional hotels, we will continue to look for accretive ways to refinance or repay existing debt to lower our average interest rate and stagger maturities. We expect our leverage to continue to decline from improved operations and from asset sales,” stated Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer.

Portfolio Management:

For the quarter, we spent $36.3 million on capital improvements at our hotels (including our pro rata share of joint venture expenditures). During 2011, we intend to spend approximately $85 million on capital improvement and ROI projects. Approximately $60 million, or 6% of our annual revenue, will be focused on renovating seven hotels, as part of our long-term capital program to maintain our portfolio quality and competitive positioning. In May, we completed the construction of a new $5 million, stand-alone, high-efficiency laundry facility at Kingston Plantation in Myrtle Beach that services approximately 700 condominiums and our two hotels. We expect our return on investment to be greater than our original projection (less than a five-year payback). Next year, we intend to further increase our return by providing services to other hotels. Moving this facility also frees valuable first-floor space at the Embassy Suites, which allows us to pursue further revenue generation opportunity. Our remaining 2011 capital expenditures will include the first phase of the redevelopment at the Fairmont Boston Copley Plaza (including renovation of the guest rooms and corridors, and the development of a new state-of-the-art fitness center and day spa).

In May, we acquired two midtown Manhattan hotels, Royalton and Morgans, for $140.0 million. The hotels are in excellent condition and are recently renovated. The purchase price, $496,000 per key, is approximately 60% of estimated replacement cost and represents a 10% stabilized yield on EBITDA. We expect the hotels to generate approximately $6 million of EBITDA during 2011, and increasing to nearly $8 million in 2012. We have begun redevelopment projects at the Morgans to add guest rooms, improve the fitness center and guest lounge, as well as re-concepting the food and beverage offerings, all of which will further enhance our return on investment.

During the second quarter, we sold three non-strategic hotels (Embassy Suites – Phoenix - Tempe, Sheraton Suites – Chicago - O’Hare and Hilton Suites – Lexington) for combined gross proceeds of $54 million. After the end of the quarter, we sold three hotels (Embassy Suites Hotels in Orlando - North, DFW – South and Corpus Christi) for combined gross proceeds of $46 million. We currently have agreements to sell, or are negotiating contracts to sell, five additional hotels.

Outlook:

We are maintaining our second half 2011 guidance, which assumes lodging demand continues to recover and low supply growth. We have updated our outlook for the completed sale of six non-strategic hotels during the first half of the year (representing approximately $6 million of EBITDA) and for second quarter actual results (which met the low-end of our expectations). Our prior guidance assumed the sale of only one hotel. In addition, we have updated our interest expense to account for our recent senior notes offering and recently repaid debt. Our guidance includes only dispositions of those hotels that have been sold or hotels that we have contracts to sell with hard deposits. Our updated guidance assumes no acquisitions, dispositions or debt repayment beyond what has already occurred. We will update our guidance as we sell additional hotels.

For 2011, we anticipate:

• RevPAR: increasing between 6% and 7.5%;
• Adjusted EBITDA: between $207 million and $213 million;
• Adjusted FFO per share: between $0.17 and $0.22;
• Net loss attributable to FelCor: between $121 million and $115 million;
• Interest expense: approximately $141 million;
• Capital expenditures: approximately $85 million; and
• Weighted average shares and units outstanding: 117.4 million.

FelCor, a real estate investment trust, is the nation's largest owner of upper-upscale, all-suite hotels. FelCor owns interests in 78 properties located in major markets throughout 22 states. FelCor's diversified portfolio of hotels and resorts are flagged under global brands such as: Doubletree ®, Embassy Suites Hotels®, Hilton®, Fairmont®, Marriott®, Renaissance®, Sheraton®, Westin® and Holiday Inn®. Additional information can be found on the Company's Web site at www.felcor.com.

We invite you to listen to our second quarter earnings Conference Call on Tuesday, August 2, 2011, at 11:00 a.m. (Central Time). The conference call will be Webcast simultaneously on FelCor's Web site at www.felcor.com. Interested investors and other parties who wish to access the call can go to FelCor's Web site and click on the conference call microphone icon on either the “Investor Relations” or “News Releases” page. The conference call replay also will be archived on the Company's 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 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 month periods ended June 30, 2011.

 

TABLE OF CONTENTS

    Page Consolidated Statements of Operations(a) 7 Consolidated Balance Sheets(a) 8 Consolidated Debt Summary 9 Schedule of Encumbered Hotels 10 Capital Expenditures 11 Supplemental Financial Data 11 Portfolio Summary 11 Hotel Portfolio Composition 12 Detailed Operating Statistics by Brand 13 Comparable Hotels Operating Statistics for FelCor's Top Markets 14 Non-GAAP Financial Measures 15

(a) Our consolidated statements of operations and balance sheets have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. The consolidated statements of operations and balance sheets should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent Quarterly Report on Form 10-Q.

    Consolidated Statements of Operations

(in thousands, except per share data)

      Three Months Ended     Six Months Ended June 30, June 30,   2011       2010     2011       2010   Revenues: Hotel operating revenue: Room $ 199,188 $ 179,004 $ 375,168 $ 341,835 Food and beverage 42,576 34,756 79,711 67,411 Other operating departments 14,591 13,944 26,969 26,518 Other revenue   1,011     1,007     1,236     1,372   Total revenues   257,366     228,711     483,084     437,136   Expenses: Hotel departmental expenses: Room 52,433 46,308 99,633 89,689 Food and beverage 31,534 26,488 60,692 52,013 Other operating departments 6,651 6,191 12,549 11,996 Other property related costs 67,646 61,222 133,946 120,862 Management and franchise fees 11,849 10,970 22,332 20,699 Taxes, insurance and lease expense 23,563 23,595 43,621 45,245 Corporate expenses 6,910 6,510 16,447 16,357 Depreciation and amortization 34,011 34,158 67,861 68,639 Impairment loss 11,706 — 11,706 — Other expenses   1,616     801     2,247     1,362   Total operating expenses   247,919     216,243     471,034     426,862   Operating income 9,447 12,468 12,050 10,274 Interest expense, net (34,875 ) (35,856 ) (68,348 ) (70,582 ) Debt extinguishment (23,660 ) 46,186 (23,905 ) 46,186 Gain on involuntary conversion, net   21     —     171     —  

Income (loss) before equity in loss from unconsolidated entities

(49,067 ) 22,798 (80,032 ) (14,122 ) Equity in income (loss) from unconsolidated entities   31     286     (1,552 )   (1,188 ) Income (loss) from continuing operations (49,036 ) 23,084 (81,584 ) (15,310 ) Discontinued operations   6,639     (1,094 )   7,461     (25,642 ) Net income (loss) (42,397 ) 21,990 (74,123 ) (40,952 )

Net income attributable to noncontrolling interests in other partnerships

(51 ) (325 ) (109 ) (96 )

Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP

  183     (51 )   303     274   Net income (loss) attributable to FelCor (42,265 ) 21,614 (73,929 ) (40,774 ) Preferred dividends   (9,678 )   (9,678 )   (19,356 )   (19,356 )

Net income (loss) attributable to FelCor common stockholders

$ (51,943 ) $ 11,936   $ (93,285 ) $ (60,130 ) Basic and diluted per common share data: Income (loss) from continuing operations $ (0.48 ) $ 0.19   $ (0.92 ) $ (0.53 ) Net income (loss) $ (0.42 ) $ 0.17   $ (0.85 ) $ (0.92 )

Basic and diluted weighted average common shares outstanding

  122,992     66,531     109,249     65,014       Consolidated Balance Sheets

(in thousands)

      June 30,   December 31,   2011     2010   Assets

Investment in hotels, net of accumulated depreciation of $964,606 and $982,564 at June 30, 2011 and December 31, 2010, respectively

$ 1,998,232 $ 1,985,779 Investment in unconsolidated entities 72,733 75,920 Hotels held for sale 43,846 — Cash and cash equivalents 231,049 200,972 Restricted cash 41,609 16,702

Accounts receivable, net of allowance for doubtful accounts of $344 and $696 at June 30, 2011 and December 31, 2010, respectively

39,266 27,851

Deferred expenses, net of accumulated amortization of $11,850 and $17,892 at June 30, 2011 and December 31, 2010, respectively

31,811 19,940 Other assets   34,281     32,271   Total assets $ 2,492,827   $ 2,359,435   Liabilities and Equity

Debt, net of discount of $36,740 and $53,193 at June 30, 2011 and December 31, 2010, respectively

$ 1,612,106 $ 1,548,309 Distributions payable 76,293 76,293 Accrued expenses and other liabilities   142,967     144,451   Total liabilities   1,831,366     1,769,053   Commitments and contingencies

Redeemable noncontrolling interests in FelCor LP, 640 and 285 units issued and outstanding at June 30, 2011 and December 31, 2010, respectively

  3,887     2,004   Equity: Preferred stock, $0.01 par value, 20,000 shares authorized:

Series A Cumulative Convertible Preferred Stock, 12,880 shares, liquidation value of $322,011, issued and outstanding at June 30, 2011 and December 31, 2010

309,362 309,362

Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at June 30, 2011 and December 31, 2010

169,412 169,412

Common stock, $0.01 par value, 200,000 shares authorized and 124,569 shares issued at June 30, 2011, and 101,038 shares issued, including shares in treasury, at December 31, 2010

1,246 1,010 Additional paid-in capital 2,350,883 2,190,308 Accumulated other comprehensive income 27,931 26,457 Accumulated deficit (2,221,290 ) (2,054,625 )

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

 

—

   

(73,341

)

Total FelCor stockholders’ equity 637,544 568,583 Noncontrolling interests in other partnerships   20,030     19,795   Total equity   657,574     588,378   Total liabilities and equity $ 2,492,827   $ 2,359,435       Consolidated Debt Summary

(dollars in thousands)

     

EncumberedHotels

  Interest Rate

(%)

  Maturity Date  

June 30,2011

 

December 31,2010

Line of credit(a) 11 hotels L + 4.50 August 2014(b) $ — $ — Mortgage debt Mortgage debt(c) 10 hotels L + 0.93(d) November 2011 204,714 250,000 Mortgage debt(e) 9 hotels L + 5.10(f) April 2015 211,968 212,000 Mortgage debt 7 hotels 9.02 April 2014 110,973 113,220 Mortgage debt 5 hotels(g) 6.66 June - August 2014 68,300 69,206 Mortgage debt(h) 1 hotel L + 1.50 June 2012 24,000 27,770 Mortgage debt 1 hotel 5.81 July 2016 11,100 11,321

Other

—   4.25 August 2011 791 524 Senior notes Senior secured notes 6 hotels 6.75 June 2019 525,000 — Senior secured notes(i) 14 hotels 10.00 October 2014 455,260 582,821 Retired debt

—

— —   —   281,447 Total 64 hotels $ 1,612,106 $ 1,548,309

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

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

(c) $26.5 million was repaid on this note after June 30, 2011 from proceeds of a hotel sale.

(d) We purchased an interest rate cap ($250 million notional amount) that caps LIBOR at 7.8% and expires November 2011.

(e) $8.6 million was repaid on this note after June 30, 2011 from proceeds of a hotel sale.

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

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

(h) This note was repaid after June 30, 2011.

(i) $492 million in aggregate principal outstanding (after redemption of $144 million in aggregate principal in June 2011) and were initially sold at a discount that provided an effective yield of 12.875% before transaction costs.

    Schedule of Encumbered Hotels

(dollars in millions)

    June 30, 2011   Consolidated Debt Balance Encumbered Hotels Line of credit $ —

Boca Raton - ES, Charlotte SouthPark - DT, Dana Point - DTGS, Houston Medical Center - HI, Myrtle Beach - HLT, Mandalay Beach - ES, Nashville Airport - ES, Philadelphia Independence Mall - HI, Pittsburgh University Center - HI, Santa Barbara Goleta - HI and Santa Monica at the Pier - HI

CMBS debt $ 205

Anaheim - ES, Bloomington - ES, Charleston Mills House - HI, Dallas DFW South - ES, Deerfield Beach - ES, Jacksonville - ES, Dallas Love Field - ES, Raleigh/Durham - DTGS, San Antonio Airport - HI and Tampa Rocky Point - DTGS

Mortgage debt $ 212

Atlanta Buckhead - ES, Atlanta Galleria - SS, Boston Marlboro - ES, Burlington - SH, Corpus Christi - ES, Ft. Lauderdale Cypress Creek - SS, Orlando South - ES, Philadelphia Society Hill - SH and South San Francisco - ES

Mortgage debt $ 111 Baton Rouge - ES, Birmingham - ES, Ft. Lauderdale - ES, Miami Airport - ES, Milpitas - ES, Minneapolis Airport - ES and Napa Valley - ES CMBS debt(a) $ 68 Atlanta Airport - ES, Austin - DTGS, BWI Airport - ES, Orlando Airport - HI and Phoenix Biltmore - ES CMBS debt $ 24 New Orleans Convention Center - ES CMBS debt $ 11 Indianapolis North - ES Senior secured notes $ 525 Boston Copley - FMT, Los Angeles International Airport - ES, Indian Wells Esmeralda Resort & Spa - REN, St. Petersburg Vinoy Resort & Golf Club - REN, Morgans and Royalton Senior secured notes $ 455

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

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

    Capital Expenditures

(in thousands)

      Three Months Ended     Six Months Ended June 30, June 30,   2011       2010     2011       2010   Improvements and additions to majority-owned hotels $ 20,206 $ 10,194 $ 35,244 $ 18,393

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

(251 ) (87 ) (440 ) (122 ) Pro rata share of additions to unconsolidated hotels   339     543     1,472     970   Total additions to hotels(a)

$

20,294

  $ 10,650   $ 36,276   $ 19,241  

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

    Supplemental Financial Data

(in thousands, except per share information)

      June 30,   December 31, Total Enterprise Value   2011     2010   Common shares outstanding 124,569 96,882 Units outstanding   640     285   Combined shares and units outstanding 125,209 97,167 Common stock price $ 5.33   $ 7.04   Market capitalization $ 667,364 $ 684,056 Series A preferred stock 309,362 309,362 Series C preferred stock 169,412 169,412 Consolidated debt 1,612,106 1,548,309 Noncontrolling interests of consolidated debt (2,934 ) (3,754 ) Pro rata share of unconsolidated debt 76,447 77,295 Cash and cash equivalents   (231,049 )   (200,972 ) Total enterprise value $ 2,600,708   $ 2,583,708      

Portfolio Summary

  Description     Hotels   Rooms

Comparable hotels at June 30, 2011

67 19,513 Hotels marketed for sale 8   2,397   Same-store hotels 75 21,910

Hotels acquired in 2011 (Royalton, Morgans)

2 282 Discontinued operations (sold in July) 3   732   Consolidated hotels 80 22,924 Unconsolidated hotels 1   171  

Total hotels at June 30, 2011

81 23,095 Hotels sold July (3 ) (732 )

Hotels owned at August 1, 2011

78   22,363  

Hotel Portfolio Composition

The following table illustrates the distribution of comparable hotels (excludes eight hotels in continuing operations that are currently being marketed for sale, and Royalton and Morgans, which were acquired in May 2011).

Brand   Hotels   Rooms  

% of TotalRooms

 

% of 2010Hotel EBITDA(a)

Embassy Suites Hotels 37 9,757 50   58 Holiday Inn 13 4,338 22 19 Doubletree and Hilton 8 1,856 10 10 Sheraton and Westin 5 1,858 9 8 Renaissance and Marriott 3 1,321 7 3 Fairmont 1 383 2 2 (b)   Market South Florida 5 1,439 7 8 Los Angeles area 4 899 5 7 San Francisco area 6 2,138 11 7 Boston 3 915 5 5 Atlanta 3 952 5 5 Philadelphia 2 729 4 4 Central California Coast 2 408 2 4 Myrtle Beach 2 640 3 4 New Orleans 2 744 4 4 San Antonio 3 874 5 4 Orlando 3 761 4 4 Minneapolis 2 528 3 4 San Diego 1 600 3 3 Dallas 2 784 4 3 Other 27 7,102 35 34   Location Urban 18 5,919 30 33 Suburban 25 6,158 32 28 Airport 14 4,509 23 22 Resort 10 2,927 15 17

(a) Hotel EBITDA is more fully described on page 22.

(b) Represents Hotel EBITDA from date of acquisition (August 2010).

The following tables set forth occupancy, ADR and RevPAR for the three and six months ended June 30, 2011 and 2010, and the percentage changes therein for the periods presented, for our same-store Consolidated Hotels (excluding Morgans and Royalton, which were acquired in May 2011) included in continuing operations.

   

Detailed Operating Statistics by Brand

      Occupancy (%) Three Months Ended       Six Months Ended   June 30, June 30, 2011   2010 %Variance 2011   2010 %Variance Embassy Suites Hotels 78.7 76.6 2.8 75.5 73.9 2.2 Holiday Inn 79.2 78.1 1.4 74.0 73.8 0.3 Doubletree and Hilton 75.9 75.5 0.5 69.7 69.5 0.3 Sheraton and Westin 71.2 70.0 1.7 69.1 67.3 2.7 Renaissance and Marriott 72.8 67.8 7.4 71.9 66.6 8.0 Fairmont 84.1 84.6 (0.6 ) 68.6 68.2 0.6 Comparable hotels 77.6 75.8 2.4 73.6 72.2 2.0 Hotels marketed for sale 66.0 67.8 (2.7 ) 67.2 66.4 1.1 Total same-store hotels 76.3 74.9 1.9 72.9 71.6 1.9   ADR ($) Three Months Ended Six Months Ended June 30, June 30, 2011 2010 %Variance 2011 2010 %Variance Embassy Suites Hotels 129.86 127.12 2.2 131.46 129.48 1.5 Holiday Inn 122.69 116.33 5.5 116.89 110.29 6.0 Doubletree and Hilton 126.28 118.61 6.5 126.72 116.83 8.5 Sheraton and Westin 109.05 106.79 2.1 109.94 105.45 4.3 Renaissance and Marriott 177.78 168.37 5.6 187.10 175.96 6.3 Fairmont 268.90 253.54 6.1 242.34 223.61 8.4 Comparable hotels 131.86 127.13 3.7 131.29 126.25 4.0 Hotels marketed for sale 108.91 110.28 (1.2 ) 111.62 110.79 0.7 Total same-store hotels 129.68 125.45 3.4 129.30 124.68 3.7   RevPAR ($) Three Months Ended Six Months Ended June 30, June 30, 2011 2010 %Variance 2011 2010 %Variance Embassy Suites Hotels 102.22 97.32 5.0 99.25 95.63 3.8 Holiday Inn 97.16 90.86 6.9 86.51 81.39 6.3 Doubletree and Hilton 95.82 89.51 7.1 88.29 81.16 8.8 Sheraton and Westin 77.64 74.75 3.9 75.98 70.99 7.0 Renaissance and Marriott 129.46 114.15 13.4 134.50 117.12 14.8 Fairmont 226.12 214.52 5.4 166.30 152.56 9.0 Comparable hotels 102.28 96.34 6.2 96.68 91.19 6.0 Hotels marketed for sale 71.87 74.76 (3.9 ) 74.96 73.57 1.9 Total same-store hotels 98.94 93.97 5.3 94.29 89.25 5.7    

Comparable Hotels(a) Operating Statistics for Our Top Markets

      Occupancy (%) Three Months Ended       Six Months Ended   June 30, June 30, 2011   2010 %Variance 2011   2010 %Variance South Florida 76.5 75.6 1.2 79.8 80.3 (0.6 ) Los Angeles area 83.0 77.7 6.9 78.4 74.1 5.8 San Francisco area 80.7 78.8 2.4 74.5 72.1 3.4 Boston 84.2 84.9 (0.8 ) 76.4 75.7 0.9 Atlanta 79.4 76.8 3.4 77.1 76.3 1.2 Philadelphia 82.4 80.4 2.5 70.2 70.5 (0.4 ) Central California Coast 76.3 80.4 (5.1 ) 72.5 75.1 (3.5 ) Myrtle Beach 72.8 73.4 (0.9 ) 56.9 58.9 (3.4 ) New Orleans 79.0 73.7 7.2 74.5 71.2 4.6 San Antonio 75.6 76.7 (1.5 ) 74.8 75.7 (1.3 ) Orlando 82.5 77.9 5.9 84.2 82.7 1.7 Minneapolis 78.9 77.6 1.7 77.1 73.7 4.6 San Diego 79.3 78.8 0.7 76.6 75.2 1.9 Dallas     64.4   64.7   (0.5 )     67.0   63.1   6.2   ADR ($) Three Months Ended Six Months Ended June 30, June 30, 2011 2010 %Variance 2011 2010 %Variance South Florida 120.27 114.69 4.9 139.85 140.49 (0.5 ) Los Angeles area 139.67 136.03 2.7 139.01 134.27 3.5 San Francisco area 139.78 129.18 8.2 137.18 126.28 8.6 Boston 204.13 188.61 8.2 178.61 166.41 7.3 Atlanta 103.22 102.77 0.4 104.98 103.81 1.1 Philadelphia 140.67 131.80 6.7 133.90 123.10 8.8 Central California Coast 152.74 157.51 (3.0 ) 143.86 148.58 (3.2 ) Myrtle Beach 154.56 144.16 7.2 134.64 126.35 6.6 New Orleans 140.19 128.85 8.8 141.64 130.57 8.5 San Antonio 94.20 98.55 (4.4 ) 94.70 98.44 (3.8 ) Orlando 110.99 107.63 3.1 116.33 111.12 4.7 Minneapolis 131.30 125.63 4.5 125.85 124.06 1.4 San Diego 113.59 118.10 (3.8 ) 117.64 116.68 0.8 Dallas     106.50   110.58   (3.7 )     114.77   111.42   3.0   RevPAR ($) Three Months Ended Six Months Ended June 30, June 30, 2011 2010 %Variance 2011 2010 %Variance South Florida 92.00 86.68 6.1 111.65 112.86 (1.1 ) Los Angeles area 115.90 105.64 9.7 108.99 99.47 9.6 San Francisco area 112.77 101.79 10.8 102.20 91.00 12.3 Boston 171.97 160.18 7.4 136.54 126.04 8.3 Atlanta 81.95 78.94 3.8 80.99 79.16 2.3 Philadelphia 115.84 105.94 9.3 93.93 86.74 8.3 Central California Coast 116.55 126.61 (7.9 ) 104.25 111.55 (6.5 ) Myrtle Beach 112.44 105.87 6.2 76.58 74.38 3.0 New Orleans 110.77 94.97 16.6 105.57 93.01 13.5 San Antonio 71.21 75.62 (5.8 ) 70.80 74.55 (5.0 ) Orlando 91.61 83.87 9.2 97.89 91.94 6.5 Minneapolis 103.56 97.47 6.2 97.01 91.39 6.1 San Diego 90.14 93.04 (3.1 ) 90.11 87.71 2.7 Dallas     68.55   71.55   (4.2 )     76.96   70.36   9.4  

(a) Excludes eight hotels in continuing operations that are currently being marketed for sale, as well as Royalton and Morgans, which were acquired in May 2011.

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, 2011     2010 Dollars   Shares  

Per ShareAmount

Dollars   Shares  

Per ShareAmount

Net income (loss) $ (42,397 ) $ 21,990 Noncontrolling interests 132 (376 ) Preferred dividends   (9,678 )   (9,678 )

Net income (loss) attributable to FelCor common stockholders

(51,943 ) 11,936

Less: undistributed earnings allocated to unvested restricted stock

  —     (352 )

Numerator for basic and diluted income (loss) attributable to common stockholders

(51,943 ) 122,992 (0.42 ) 11,584 66,531 0.17 Depreciation and amortization 34,011 — 0.26 34,158 — 0.50

Depreciation, discontinued operations and unconsolidated entities

4,402 — 0.04 6,566 — 0.10 Gain on sale of hotels, net (6,660 ) — (0.05 ) — — — Gain on involuntary conversion, net (21 ) — — — — — Noncontrolling interests in FelCor LP (183 ) 433 — 51 295 —

Undistributed earnings allocated to restricted stock

— — — 352 — 0.01

Conversion of options and unvested restricted stock

  —   —   —     —   828   —   FFO (20,394 ) 123,425 (0.17 ) 52,711 67,654 0.78 Impairment loss 11,706 — 0.09 — — — Impairment loss, discontinued operations 598 — — — — — Acquisition costs 827 — 0.01 — — —

Debt extinguishment, including discontinued operations

23,710 — 0.19 (46,060 ) — (0.68 )

Conversion of options and unvested restricted stock

  —   855   0.01     —   —   —   Adjusted FFO $ 16,447   124,280 $ 0.13   $ 6,651   67,654 $ 0.10       Reconciliation of Net Loss to FFO and Adjusted FFO

(in thousands, except per share data)

      Six Months Ended June 30, 2011     2010 Dollars   Shares  

Per ShareAmount

Dollars   Shares  

Per ShareAmount

Net loss $ (74,123 ) $ (40,952 ) Noncontrolling interests 194 178 Preferred dividends   (19,356 )   (19,356 )

Net loss attributable to FelCor common stockholders

(93,285 ) 109,249 $ (0.85 ) (60,130 ) 65,014 $ (0.92 ) Depreciation and amortization 67,861 — 0.61 68,639 — 1.04

Depreciation, discontinued operations and unconsolidated entities

9,448 — 0.09 13,346 — 0.21 Noncontrolling interests in FelCor LP (303 ) 359 — (274 ) 295 — Gain on sale of hotels, net (6,660 ) — (0.06 ) — — — Gain on involuntary conversion, net (171 ) — — — — — Gain on sale of unconsolidated entities — — — (559 ) — (0.01 )

Conversion of options and unvested restricted stock

  —   —   —     —   651     —   FFO (23,110 ) 109,608 (0.21 ) 21,022 65,960 0.32 Impairment loss 11,706 — 0.11 — — — Impairment loss, discontinued operations 598 — 0.01 21,060 — 0.32 Acquisition costs 946 — 0.01 — — —

Debt extinguishment, including discontinued operations

23,961 — 0.22 (46,060 ) — (0.70 )

Conversion of options and unvested restricted stock

  —   860   (0.01 )   —   (651 )   —   Adjusted FFO $ 14,101   110,468 $ 0.13   $ (3,978 ) 65,309   $ (0.06 )     Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA and Hotel EBITDA

(in thousands)

      Three Months Ended     Six Months Ended June 30, June 30,   2011       2010     2011       2010   Net income (loss) $ (42,397 ) $ 21,990 $ (74,123 ) $ (40,952 ) Depreciation and amortization 34,011 34,158 67,861 68,639

Depreciation, discontinued operations and unconsolidated entities

4,402 6,566 9,448 13,346 Interest expense 34,928 35,952 68,442 70,782

Interest expense, discontinued operations and unconsolidated entities

1,462 2,529 2,964 5,543 Amortization of stock compensation 1,774 1,642 3,577 3,257 Noncontrolling interests in other partnerships   (51 )   (325 )   (109 )   (96 ) EBITDA 34,129 102,512 78,060 120,519 Impairment loss 11,706 — 11,706 — Impairment loss, discontinued operations 598 — 598 21,060

Debt extinguishment, including discontinued operations

23,710 (46,060 ) 23,961 (46,060 ) Acquisition costs 827 — 946 — Gain on sale of hotels, net (6,660 ) — (6,660 ) — Gain on involuntary conversion, net (21 ) — (171 ) — Gain on sale of unconsolidated subsidiary   —     —     —     (559 ) Adjusted EBITDA 64,289 56,452 108,440 94,960 Adjusted EBITDA from discontinued operations (2,134 ) (4,149 ) (5,156 ) (6,060 ) Adjusted EBITDA from acquired hotels(a)   (567 )   2,394     (567 )   315   Same-store Adjusted EBITDA 61,588 54,697 102,717 89,215 Other revenue (1,011 ) (1,007 ) (1,236 ) (1,372 )

Equity in income from unconsolidated entities (excluding interest and depreciation expense)

(4,947 ) (4,874 ) (8,287 ) (7,857 )

Noncontrolling interests in other partnerships (excluding interest and depreciation expense)

610 935 1,237 1,327 Consolidated hotel lease expense 10,497 10,015 18,801 17,773 Unconsolidated taxes, insurance and lease expense (1,753 ) (1,671 ) (3,436 ) (3,363 ) Interest income (53 ) (96 ) (94 ) (200 ) Other expenses (excluding acquisition costs) 789 801 1,301 1,362

Corporate expenses (excluding amortization expense of stock compensation)

  5,136     4,868     12,870     13,100   Hotel EBITDA $ 70,856   $ 63,668   $ 123,873   $ 109,985  

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

    Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)

      Three Months Ended     Six Months Ended June 30, June 30,   2011       2010     2011       2010   Total revenues $ 257,366 $ 228,711 $ 483,084 $ 437,136 Other revenue   (1,011 )   (1,007 )   (1,236 )   (1,372 ) Hotel operating revenue 256,355 227,704 481,848 435,764 Revenue from acquired hotels(a)   (3,343 )   12,034     (3,343 )   17,889   Same-store hotel operating revenue 253,012 239,738 478,505 453,653 Same-store hotel operating expenses   (182,156 )   (176,070 )   (354,632 )   (343,668 ) Hotel EBITDA $ 70,856   $ 63,668   $ 123,873   $ 109,985   Hotel EBITDA margin(b) 28.0 % 26.6 % 25.9 % 24.2 %

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

(b) Hotel EBITDA as a percentage of same-store hotel operating revenue.

    Reconciliation of Total Operating Expenses to Same-store Hotel Operating Expenses

(in thousands)

    Three Months Ended     Six Months Ended June 30, June 30,   2011       2010     2011       2010   Total operating expenses $ 247,919 $ 216,243 $ 471,034 $ 426,862 Unconsolidated taxes, insurance and lease expense 1,753 1,671 3,436 3,363 Consolidated hotel lease expense (10,497 ) (10,015 ) (18,801 ) (17,773 ) Corporate expenses (6,910 ) (6,510 ) (16,447 ) (16,357 ) Depreciation and amortization (34,011 ) (34,158 ) (67,861 ) (68,639 ) Impairment loss (11,706 ) — (11,706 ) — Other expenses (1,616 ) (801 ) (2,247 ) (1,362 ) Expenses from acquired hotels(a)   (2,776 )   9,640     (2,776 )   17,574   Same-store hotel operating expenses $ 182,156   $ 176,070   $ 354,632   $ 343,668  

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

   

Reconciliation of Ratio of Operating Income to Total Revenues to Hotel EBITDA Margin

      Three Months Ended     Six Months Ended June 30, June 30, 2011   2010 2011   2010 Ratio of operating income to total revenues 3.7 % 5.5 % 2.5 % 2.4 % Other revenue (0.4 ) (0.4 ) (0.3 ) (0.3 ) Revenue from acquired hotels(a) (1.1 ) 4.8 (0.5 ) 3.8

Unconsolidated taxes, insurance and lease expense

(0.7 ) (0.7 ) (0.7 ) (0.7 ) Consolidated hotel lease expense 4.1 4.2 3.9 3.9 Other expenses 0.6 0.3 0.5 0.3 Corporate expenses 2.7 2.7 3.4 3.6 Depreciation and amortization 13.4 14.2 14.1 15.1 Impairment loss 4.6 — 2.4 — Expenses from acquired hotels(a) 1.1   (4.0 ) 0.6   (3.9 ) Hotel EBITDA margin 28.0 % 26.6 % 25.9 % 24.2 %

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

    Reconciliation of Forecasted Net Loss to Forecasted Adjusted FFO and Adjusted EBITDA

(in millions, except per share and unit data)

      Full Year 2011 Guidance Low Guidance     High Guidance Dollars  

Per ShareAmount(a)

Dollars  

Per ShareAmount(a)

Net loss $ (121 ) $ (115 ) Preferred dividends   (39 )   (39 )

Net loss attributable to FelCor common stockholders

(160 ) $ (1.38 ) (154 ) $ (1.33 ) Depreciation(b) 154 154 Gain on sale of hotels, net (8 ) (8 ) Noncontrolling interests in FelCor LP   (1 )   (1 ) FFO (15 ) $ (0.13 ) (9 ) $ (0.08 ) Debt extinguishment 22 22 Impairment 12 12 Acquisition costs   1     1   Adjusted FFO $ 20   $ 0.17 $ 26   $ 0.22   Net loss $ (121 ) $ (115 ) Depreciation(b) 154 154 Interest expense(b) 141 141 Amortization expense 7 7 Noncontrolling interests in FelCor LP   (1 )   (1 ) EBITDA 180 186 Debt extinguishment 22 22 Impairment 12 12 Gain on sale of hotels, net (8 ) (8 ) Acquisition costs   1     1   Adjusted EBITDA $ 207   $ 213  

(a) Weighted average shares and units are 117.4 million.

(b) Includes pro rata portion of unconsolidated entities.

Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company's operations. These supplemental measures are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT's performance and should be considered along with, but not as an alternative to, net income (loss) attributable to FelCor as a measure of our operating performance.

FFO and EBITDA

The 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 items, including but not limited to those described below, provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income attributable to FelCor, EBITDA and FFO, is beneficial to an investor's better understanding of our operating performance.

• Gains and losses related to debt extinguishment and interest rate swaps - We exclude gains and losses related to debt extinguishment 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 depreciable assets because we believe that including them in EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

Hotel EBITDA and Hotel EBITDA Margin

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating all revenues and expenses from continuing operations not directly associated with hotel operations, including corporate-level expenses, depreciation and amortization, and expenses related to our capital structure. We eliminate corporate-level costs and expenses because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, we do not believe that these non-cash expenses, which are based on historical cost accounting for real estate assets, and implicitly assume that the value of real estate assets diminishes predictably over time, accurately reflect an adjustment in the value of our assets. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.

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.