FelCor Reports Third Quarter Results - Continues to Accomplish 2009 Goals
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IRVING, Texas--(BUSINESS WIRE)-- FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the third quarter ended September 30, 2009.
"We continue to accomplish the goals we set at the beginning of the year: extend debt maturities; ensure adequate liquidity; and operate our hotels as efficiently as possible. We refinanced our senior corporate debt with new senior notes, thereby pushing the maturity to 2014 and substantially removing the Company's refinancing risk," said Richard A. Smith, FelCor's President and Chief Executive Officer. "I am pleased with our market share gains and flow-through, despite lower than expected RevPAR. We continue to lead other lodging companies in these three areas. Our high-quality and well-located portfolio improved market share by approximately two percent during the quarter and intense cost containment limited the flow-through of reduced revenue to the bottom line to only 51 percent, which was better than expected," continued Mr. Smith.
Summary:
- Completed the sale of $636 million of senior notes due 2014 that allowed us to refinance our existing senior notes that mature in 2011.
- RevPAR decreased 17.8 percent for the third quarter at our 85 consolidated hotels.
- Market share increased approximately two percent for the third quarter at our 85 consolidated hotels.
- RevPAR increased 53 percent in the third quarter at the San Francisco Marriott Union Square (following the completion of the redevelopment in June).
- Hotel expenses declined 11.6 percent during the third quarter. Our strict expense controls limited the effect of reduced revenue on flow-through to Hotel EBITDA to 51 percent, compared to the prior year, which was better than our expectations. Hotel EBITDA margin decreased 490 basis points.
- Adjusted FFO per share was $0.14 for the third quarter. Adjusted EBITDA was $45.3 million for the quarter. This met the low end of our expectations.
- Net loss for the third quarter was $25.5 million.
Third Quarter Operating Results:
Revenue per available room ("RevPAR") for our 85 consolidated hotels decreased by 17.8 percent to $80.39, driven by decreases in both average daily rate ("ADR") (a 12.5 percent decrease to $116.51) and occupancy (a 6.0 percent decrease to 69.0 percent), compared to the same period in 2008.
"Once the economy begins to improve, we expect the lodging industry will lag behind the broader recovery. As such, there has not yet been a widespread improvement in demand trends and the shift of the customer mix continues to pressure rates. However, some markets are showing signs of improvement. Approximately 40 percent of our hotels grew occupancy in September compared to prior year, and that trend is accelerating each month," added Mr. Smith.
Adjusted Funds from Operations ("FFO") for the third quarter of 2009 was $9.0 million, or $0.14 per share, compared to $28.7 million, or $0.45 per share, for the same period in 2008.
Hotel EBITDA for the third quarter of 2009 decreased to $50.9 million, compared to $75.0 million in the same period in 2008. Hotel EBITDA margin was 22.2 percent, a 490 basis point decrease compared to the same period in 2008. Hotel operating expenses decreased 11.6 percent compared to prior year. The decline in expenses reflects various factors including: decreased labor costs, including permanent hotel staffing reductions; decreased other room expenses, such as guest transportation and in-room amenities; decreased incentive management fees; and improved food and beverage efficiencies. Prior to accounting for taxes, insurance and land leases, Hotel EBITDA margins declined only 397 basis points. Hotel EBITDA represents EBITDA generated by our hotels before corporate expenses and joint venture adjustments.
Adjusted EBITDA for the third quarter of 2009 was $45.3 million, compared to $65.1 million for the same period in 2008.
Net loss applicable to common stockholders for the third quarter of 2009 was $34.8 million, or $0.55 per share, compared to a net loss of $51.3 million, or $0.83 per share, for the same period in 2008.
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 13 for a reconciliation of each of these measures to the most comparable GAAP financial measure and for information regarding the use, limitations and importance of these non-GAAP financial measures.
Balance Sheet:
At September 30, 2009, we had $1.6 billion of consolidated debt outstanding with a weighted average interest rate of 5.5 percent, and our cash and cash equivalents totaled $128 million.
In October, we completed the sale and issuance of $636 million in aggregate principal amount of senior notes. The new notes bear an annual interest rate of 10 percent and mature in 2014. The net proceeds of the offering were approximately $558 million after original issue discount and other fees and expenses related to the offering. The proceeds were used to fund our purchase of $427 million of our floating-rate notes and 81/2 percent notes, both of which mature in 2011, with the remainder available for general corporate purposes. There are $87 million of 81/2 percent notes that were not tendered and remain outstanding. We have called for redemption of the remaining $1 million of floating-rate notes that were not tendered.
We have received term sheets from the special servicer to extend the maturity dates on two loans, totaling $14 million, secured by the Embassy Suites - Boca Raton and Doubletree - Wilmington that matured in June 2009. We are also in various stages of discussions regarding all of our mortgage loans that mature during 2010. Several of these loans have been transferred to the special servicers so that we may begin negotiations to refinance and/or extend their maturity.
"I am pleased with our progress to extend and refinance our maturing debt and ensure we have adequate liquidity. Most importantly, we refinanced our only corporate-level debt, the senior notes that were to mature in 2011, with new senior notes that mature in 2014. While the interest rate for the new notes is higher than the existing notes, we have substantially eliminated our debt maturity risk. We have also strengthened our liquidity position, which provides us the capacity and flexibility to address the additional interest expense on the new notes and the economic conditions that continue to affect travel demand. We have made good progress toward extending the mortgage debt that matures in 2010 and continue to work with lenders," said Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer.
Capital Expenditures and Development:
For the quarter and nine months ended September 30, 2009, we spent $17.2 million and $65.4 million, respectively, on capital expenditures at our hotels (including our pro rata share of joint ventures). Included in the capital expenditures for the nine months is $34 million to complete our renovation and redevelopment projects.
In June, we completed the final phase of the comprehensive redevelopment at the San Francisco Marriott Union Square. Third quarter RevPAR increased 53 percent at this hotel (which operated as Hotel 480 prior to April), compared to the prior year, and its market share increased by 98 percent, exceeding expectations. The market share index for this hotel was 107 percent in the quarter compared to 80 percent for calendar year 2007 (before its renovation and rebranding).
Outlook:
We are revising our 2009 outlook in light of the additional interest expense associated with our recent notes offering. In addition, we assume all of the untendered 81/2 percent notes ($87 million) remain outstanding for the duration of the year, and we hold significant excess cash on our balance sheet. We are evaluating our options with regard to the future use of our excess cash.
We also are revising our 2009 outlook to reflect updated revenue expectations, which include actual RevPAR results for October. Occupancy declined only 2.4 percent and RevPAR declined approximately 12.6 percent for October at our 85 consolidated hotels. The volatile economic conditions continue to hinder our ability to predict demand patterns and its effect on RevPAR. We continue to be aggressive in mixing the customer segments to optimize revenue and work with our operators to achieve the most efficient cost structure to correspond with demand trends. While the occupancy decline in all segments has continued to moderate throughout the year, the premium corporate and group segments remain weak. As a result, we expect fewer room nights for the premium corporate and group segments during the fourth quarter, compared to our previous expectations. This shift in the customer mix will result in lower ADR and food & beverage revenue. However, due to strict expense controls, we still expect flow-through to remain strong, relative to current market conditions.
We will continue to benefit from our high-quality portfolio, the renovations we completed in 2008 and the redevelopment of the San Francisco Marriott Union Square. As a result, we expect our hotels will continue to gain market share from their competitive sets and RevPAR at our portfolio to outperform our peer group and the upper-upscale segment.
Assuming full-year 2009 RevPAR for our 85 consolidated hotels decreases between 18 and 18.5 percent, we anticipate:
- Adjusted EBITDA to be between $174 million and $176 million;
- Adjusted FFO per share to be between $0.31 and $0.34;
- Net loss to be between $113 million and $111 million; and
- Interest expense to be approximately $110 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 - Embassy Suites Hotels(R), Doubletree (R), Hilton(R), Marriott(R), Renaissance(R), Sheraton(R), Westin(R) and Holiday Inn(R). Additional information can be found on the Company's Web site at www.felcor.com.
We invite you to listen to our third quarter earnings Conference Call on Wednesday, November 4, 2009, 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 "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 and nine month periods ended September 30, 2009.
TABLE OF CONTENTS
PAGE
Consolidated Statements of Operations(a) 6
Consolidated Balance Sheets(a) 7
Capital Expenditures 8
Supplemental Financial Data 8
Debt Summary 9
Hotel Portfolio Composition 10
Detailed Operating Statistics by Brand 11
Detailed Operating Statistics for FelCor's Top Markets 12
Non-GAAP Financial Measures 13
(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 Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues:
Hotel operating revenue:
Room $ 184,103 $ 223,968 $ 557,491 $ 693,789
Food and beverage 30,370 36,357 103,786 131,875
Other operating departments 14,456 16,008 43,234 47,453
Other revenue 1,280 1,396 2,554 2,655
Total revenues 230,209 277,729 707,065 875,772
Expenses:
Hotel departmental expenses:
Room 50,202 55,563 145,741 167,085
Food and beverage 26,728 30,747 84,133 102,289
Other operating departments 6,765 7,192 19,257 21,391
Other property related costs 66,492 76,947 199,711 230,646
Management and franchise 11,361 13,573 34,278 45,448
fees
Taxes, insurance and lease 25,355 29,718 75,411 87,884
expense
Corporate expenses 4,471 5,388 15,829 17,079
Depreciation and 37,982 36,069 112,024 104,909
amortization
Impairment loss 2,080 36,692 3,448 53,823
Hurricane loss - 1,669 - 1,669
Other expenses 1,031 1,046 3,528 2,879
Total operating expenses 232,467 294,604 693,360 835,102
Operating income (loss) (2,258 ) (16,875 ) 13,705 40,670
Interest expense, net (24,427 ) (24,114 ) (68,501 ) (74,886 )
Charges related to debt - - (594 ) -
extinguishment
Loss before equity in income
(loss) from unconsolidated (26,685 ) (40,989 ) (55,390 ) (34,216 )
entities
Equity in income (loss) from 488 (2,773 ) (3,197 ) (1,064 )
unconsolidated entities
Gain on sale of assets 723 - 723 -
Gain on involuntary - - - 3,095
conversion
Loss from continuing (25,474 ) (43,762 ) (57,864 ) (32,185 )
operations
Discontinued operations - 1,193 - 1,180
Net loss (25,474 ) (42,569 ) (57,864 ) (31,005 )
Net loss (income)
attributable to
noncontrolling 174 (165 ) 66 (1,126 )
interests in other
partnerships
Net loss attributable to
redeemable noncontrolling 160 1,094 399 1,280
interests in FelCor LP
Net loss attributable to (25,140 ) (41,640 ) (57,399 ) (30,851 )
FelCor
Preferred dividends (9,678 ) (9,678 ) (29,034 ) (29,034 )
Net loss attributable to $ (34,818 ) $ (51,318 ) $ (86,433 ) $ (59,885 )
FelCor common stockholders
Basic and diluted per common
share data:
Loss from continuing $ (0.55 ) $ (0.85 ) $ (1.37 ) $ (1.00 )
operations
Net loss $ (0.55 ) $ (0.83 ) $ (1.37 ) $ (0.99 )
Basic and diluted weighted
average common shares 63,086 61,828 63,121 61,827
outstanding
Cash dividends declared on $ - $ 0.15 $ - $ 0.85
common stock
Consolidated Balance Sheets
(unaudited, in thousands)
September 30, December 31,
2009 2008
ASSETS
Investment in hotels, net of accumulated
depreciation of $921,197 at
September 30, 2009 and $816,271 at December 31, $ 2,228,839 $ 2,279,026
2008
Investment in unconsolidated entities 86,690 94,506
Cash and cash equivalents 128,063 50,187
Restricted cash 19,774 13,213
Accounts receivable, net of allowance for
doubtful accounts of $274 at
September 30, 2009 and $521 at December 31, 2008 30,894 35,240
Deferred expenses, net of accumulated
amortization of $12,676 at
September 30, 2009 and $13,087 at December 31, 9,957 5,556
2008
Other assets 36,805 34,541
Total assets $ 2,541,022 $ 2,512,269
LIABILITIES AND EQUITY
Debt, net of discount of $1,140 at September 30,
2009 and $1,544 at
December 31, 2008 $ 1,632,910 $ 1,551,686
Preferred distributions payable 27,902 8,545
Accrued expenses and other liabilities 137,419 132,604
Total liabilities 1,798,231 1,692,835
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP
at redemption value, 296
units issued and outstanding at September 30, 1,340 545
2009 and December 31, 2008
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
September 30, 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
September 30, 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
September 30, 2009 and December 31, 2008 694 694
Additional paid-in capital 2,037,084 2,045,482
Accumulated other comprehensive income 22,471 15,347
Accumulated deficit (1,732,420 ) (1,645,947 )
Less: Common stock in treasury, at cost, of
4,725 shares at
September 30, 2009 and 5,189 shares at December (88,366 ) (99,245 )
31, 2008
Total FelCor stockholders' equity 718,237 795,105
Noncontrolling interests in other partnerships 23,214 23,784
Total equity 741,451 818,889
Total liabilities and equity $ 2,541,022 $ 2,512,269
Capital Expenditures
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Improvements and additions to
consolidated
hotels $ 16,926 $ 35,274 $ 62,465 $ 108,899
Consolidated joint venture
partners' pro rata share
of additions to hotels (381 ) (787 ) (758 ) (3,005 )
Pro rata share of
unconsolidated additions to 693 2,592 3,646 13,898
hotels
Total additions to hotels(a) $ 17,238 $ 37,079 $ 65,353 $ 119,792
(a) Includes capitalized interest, property taxes, ground leases and certain employee costs.
Supplemental Financial Data
(in thousands, except per share information)
September 30, December 31,
Total Enterprise Value 2009 2008
Common shares outstanding 64,687 64,224
Units outstanding 296 296
Combined shares and units outstanding 64,983 64,520
Common stock price $ 4.53 $ 1.84
Equity capitalization $ 294,373 $ 118,717
Series A preferred stock 309,362 309,362
Series C preferred stock 169,412 169,412
Consolidated debt 1,632,910 1,551,686
Noncontrolling interests of consolidated debt (3,999 ) (4,078 )
Pro rata share of unconsolidated debt 108,103 112,220
Cash and cash equivalents (128,063 ) (50,187 )
Total enterprise value (TEV) $ 2,382,098 $ 2,207,132
Debt Summary
(dollars in thousands)
Interest Rate Maturity Consolidated
at
Encumbered September 30, Date Debt
Hotels 2009
Senior term none 9.00%(b) June 2011 $299,602
notes(a)
Senior term none L +1.875 December 2011 215,000
notes(a)
Total senior 6.29(c) 514,602
debt
CMBS debt 12 hotels(d) L +0.93(e) November 2011(f) 250,000
Mortgage debt 9 hotels(g) L +3.50(h) August 2011(i) 200,800
Mortgage debt Esmeralda-REN,
(j) L +1.55(k) May 2012(l) 176,483
Vinoy-REN
CMBS debt(j) 8 hotels(m) 8.70 May 2010 159,205
Mortgage debt 7 hotels(n) 9.02 April 2014 118,415
Mortgage debt 6 hotels(o) 8.73 May 2010 113,628
CMBS debt(j) 5 hotels(p) 6.66 June-August 2014 71,331
Boca Raton-ES,
CMBS debt(j) 6.15 June 2009(q) 14,277
Wilmington-DT
CMBS debt Indianapolis 5.81 July 2016 11,843
North-ES
Capital lease St. Paul-ES and 9.58 various 2,326
and other other
Total mortgage 53 hotels 5.20(c) 1,118,308
debt
Total 5.54%(c) $1,632,910
(a) In October 2009, we issued $636 million in aggregate principal amount of our 10% senior notes due 2014. The new notes are secured by mortgages and related security interests on up to 14 hotels. A portion of the net proceeds from the sale of these notes was used to repurchase $214 million of our floating-rate notes and $213 million of our 81/2% notes.
(b) As a result of a rating down-grade in February 2009, the interest rate on our 81/2% notes due 2011 increased by 50 basis points to 9.0%.
(c) Interest rates are calculated based on the weighted average debt outstanding at September 30, 2009.
(d) The hotels that secure this debt are: Anaheim-ES, Bloomington-ES, Charleston Mills House-HI, Dallas DFW South-ES, Deerfield Beach-ES, Jacksonville-ES, Lexington-HS, Dallas Love Field-ES, Raleigh/Durham-DTGS, San Antonio Airport-HI, Tampa Rocky Point-DTGS, and Phoenix Tempe-ES.
(e) We have purchased an interest rate cap that caps LIBOR at 7.8% and expires in November 2010 for this notional amount.
(f) The maturity date assumes that we will exercise the remaining one-year extension option that is exercisable, at our sole discretion, and would extend the current November 2010 maturity to 2011.
(g) The hotels that secure this debt are: Charlotte SouthPark-DT, Houston Medical Center-HI, Myrtle Beach-HLT, Mandalay Beach-ES, Nashville Airport-ES, Philadelphia Independence Mall-HI, Pittsburgh University Center-HI, Santa Barbara-HI, and Santa Monica-HI.
(h) LIBOR for this loan is subject to a 2% floor.
(i) This loan can be extended for as many as two years, subject to satisfying certain conditions that we expect to satisfy.
(j) The hotels under this debt are subject to separate loan agreements and are not cross collateralized.
(k) We have purchased interest rate caps that cap LIBOR at 6.5% and expire in May 2010 for aggregate notional amounts of $177 million.
(l) 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.
(m) The hotels that secure this debt are: South San Francisco-ES, Orlando South-ES, Atlanta Buckhead-ES, Chicago Deerfield-ES, New Orleans-ES, Boston Marlboro-ES, Piscataway-ES, and Corpus Christi-ES.
(n) The hotels that secure this debt are: Milpitas-ES, Napa Valley-ES, Minneapolis Airport-ES, Birmingham-ES, Baton Rouge-ES, Miami Airport-ES, and Ft. Lauderdale-ES.
(o) The hotels that secure this debt are: Phoenix Crescent-SH, Ft. Lauderdale Cypress Creek-SS, Atlanta Galleria-SS, Chicago O'Hare-SS, Philadelphia Society Hill-SH, and Burlington-SH.
(p) The hotels that secure this debt are: Atlanta Airport-ES, Austin-DTGS, BWI Airport-ES, Orlando Airport-HI, and Phoenix Biltmore-ES.
(q) We have received term sheets from the special servicer to extend the maturity of these loans for two years, which we are currently evaluating.
Debt Summary - (continued) Weighted average interest 5.54% Fixed interest rate debt to total debt 48.4% Mortgage debt to total assets 44.0%
Hotel Portfolio Composition
The following tables set forth, as of September 30, 2009, for 85 Consolidated Hotels distribution by brand, top markets and location type.
% of % of 2008
Brand Hotels Rooms Total Rooms 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 20.
Detailed Operating Statistics by Brand
(85 consolidated hotels)
Occupancy (%)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 %Variance 2009 2008 %Variance
Embassy Suites 69.8 74.5 (6.4 ) 68.8 75.2 (8.5 )
Hotels
Holiday Inn 70.4 76.3 (7.8 ) 67.4 74.8 (9.8 )
Sheraton and Westin 63.6 68.1 (6.7 ) 61.0 68.1 (10.5 )
Doubletree 67.5 73.5 (8.2 ) 66.2 76.3 (13.3 )
Renaissance and 66.9 62.2 7.5 61.7 67.0 (7.9 )
Marriott
Hilton 77.1 71.5 7.8 65.1 64.8 0.5
Total hotels 69.0 73.4 (6.0 ) 66.9 73.6 (9.2 )
ADR ($)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 %Variance 2009 2008 %Variance
Embassy Suites 123.51 142.26 (13.2 ) 129.79 145.69 (10.9 )
Hotels
Holiday Inn 107.10 122.98 (12.9 ) 106.93 121.64 (12.1 )
Sheraton and Westin 100.86 117.54 (14.2 ) 109.39 125.19 (12.6 )
Doubletree 114.00 133.42 (14.5 ) 125.87 144.39 (12.8 )
Renaissance and 130.99 131.20 (0.2 ) 164.91 178.25 (7.5 )
Marriott
Hilton 128.93 141.20 (8.7 ) 118.12 131.33 (10.1 )
Total hotels 116.51 133.21 (12.5 ) 122.65 138.14 (11.2 )
RevPAR ($)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 %Variance 2009 2008 %Variance
Embassy Suites 86.16 105.98 (18.7 ) 89.28 109.58 (18.5 )
Hotels
Holiday Inn 75.36 93.86 (19.7 ) 72.11 90.94 (20.7 )
Sheraton and Westin 64.11 80.08 (19.9 ) 66.70 85.28 (21.8 )
Doubletree 76.95 98.12 (21.6 ) 83.32 110.21 (24.4 )
Renaissance and 87.58 81.60 7.3 101.79 119.44 (14.8 )
Marriott
Hilton 99.34 100.95 (1.6 ) 76.89 85.04 (9.6 )
Total hotels 80.39 97.80 (17.8 ) 82.00 101.69 (19.4 )
Detailed Operating Statistics for FelCor's Top Markets
(85 consolidated hotels)
Occupancy (%)
Three Months Nine Months Ended
Ended
September 30, September 30,
2009 2008 % Variance 2009 2008 %Variance
South 67.2 70.9 (5.3 ) 73.3 78.7 (6.9 )
Florida
San
Francisco 81.6 83.5 (2.3 ) 69.5 78.1 (11.0 )
area
Atlanta 72.9 74.0 (1.6 ) 70.8 75.4 (6.1 )
Los Angeles 75.7 81.3 (6.8 ) 72.9 77.7 (6.2 )
area
Orlando 65.4 72.6 (10.0 ) 68.1 78.4 (13.2 )
Dallas 58.2 67.5 (13.7 ) 59.5 68.6 (13.4 )
Philadelphia 72.5 79.6 (8.9 ) 65.6 74.7 (12.2 )
Northern New 64.7 75.6 (14.4 ) 62.4 72.5 (14.0 )
Jersey
Minneapolis 77.8 78.6 (0.9 ) 68.2 73.9 (7.7 )
San Diego 76.9 80.4 (4.3 ) 71.7 81.3 (11.8 )
Phoenix 45.8 55.3 (17.1 ) 54.1 66.0 (18.0 )
San Antonio 74.7 85.9 (13.0 ) 72.8 82.1 (11.3 )
Chicago 72.7 76.4 (4.8 ) 65.0 74.4 (12.6 )
Boston 84.4 85.0 (0.8 ) 78.4 79.8 (1.8 )
Washington, 67.5 62.1 8.6 59.1 58.9 0.4
D.C.
ADR ($)
Three Months Nine Months Ended
Ended
September 30, September 30,
2009 2008 % Variance 2009 2008 %Variance
South 100.94 112.91 (10.6 ) 132.67 152.82 (13.2 )
Florida
San
Francisco 132.57 153.86 (13.8 ) 127.32 144.74 (12.0 )
area
Atlanta 102.90 119.91 (14.2 ) 106.24 122.57 (13.3 )
Los Angeles 141.69 167.55 (15.4 ) 138.03 161.27 (14.4 )
area
Orlando 81.21 91.33 (11.1 ) 97.31 107.41 (9.4 )
Dallas 108.58 119.72 (9.3 ) 116.83 124.75 (6.4 )
Philadelphia 127.29 148.20 (14.1 ) 133.86 148.84 (10.1 )
Northern New 132.09 163.52 (19.2 ) 142.35 163.89 (13.1 )
Jersey
Minneapolis 128.35 154.63 (17.0 ) 129.03 147.34 (12.4 )
San Diego 123.11 160.07 (23.1 ) 127.37 160.83 (20.8 )
Phoenix 95.82 114.52 (16.3 ) 126.23 148.71 (15.1 )
San Antonio 102.64 112.59 (8.8 ) 104.75 114.04 (8.1 )
Chicago 107.30 129.37 (17.1 ) 108.66 127.88 (15.0 )
Boston 138.86 161.05 (13.8 ) 134.62 156.12 (13.8 )
Washington, 114.73 141.53 (18.9 ) 132.89 155.11 (14.3 )
D.C.
RevPAR ($)
Three Months Nine Months Ended
Ended
September 30, September 30,
2009 2008 % Variance 2009 2008 %Variance
South 67.82 80.07 (15.3 ) 97.21 120.33 (19.2 )
Florida
San
Francisco 108.24 128.52 (15.8 ) 88.52 113.02 (21.7 )
area
Atlanta 74.98 88.77 (15.5 ) 75.18 92.41 (18.6 )
Los Angeles 107.26 136.15 (21.2 ) 100.57 125.24 (19.7 )
area
Orlando 53.12 66.34 (19.9 ) 66.25 84.25 (21.4 )
Dallas 63.25 80.79 (21.7 ) 69.48 85.64 (18.9 )
Philadelphia 92.26 117.90 (21.7 ) 87.76 111.19 (21.1 )
Northern New 85.48 123.62 (30.9 ) 88.77 118.88 (25.3 )
Jersey
Minneapolis 99.92 121.49 (17.8 ) 87.96 108.87 (19.2 )
San Diego 94.72 128.66 (26.4 ) 91.36 130.75 (30.1 )
Phoenix 43.93 63.31 (30.6 ) 68.31 98.09 (30.4 )
San Antonio 76.70 96.71 (20.7 ) 76.22 93.58 (18.6 )
Chicago 78.01 98.81 (21.1 ) 70.61 95.10 (25.7 )
Boston 117.14 136.92 (14.4 ) 105.51 124.59 (15.3 )
Washington, 77.41 87.95 (12.0 ) 78.60 91.34 (13.9 )
D.C.
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 to FFO
(in thousands, except per share data)
Three Months Ended September 30,
2009 2008
Dollars Shares Per Share Dollars Shares Per Share
Amount Amount
Net loss $ (25,474 ) $ (42,569 )
Noncontrolling 334 929
interests
Preferred (9,678 ) (9,678 )
dividends(a)
Net loss
attributable
to FelCor
common (34,818 ) (51,318 )
stockholders
Less:
Dividends
declared on
unvested
restricted
stock - (98 )
compensation
Numerator for
basic and
diluted loss
attributable
to common (34,818 ) 63,086 $ (0.55 ) (51,416 ) 61,828 $ (0.83 )
stockholders
Depreciation
and 37,982 - 0.60 36,069 - 0.59
amortization
Depreciation,
unconsolidated 3,610 - 0.06 3,998 - 0.06
entities
Gain on sale - - - (1,193 ) - (0.02 )
of hotels
Noncontrolling
interests in (160 ) 296 (0.01 ) (1,094 ) 1,346 (0.01 )
FelCor LP
Conversion of
options and
unvested
restricted - 445 - 98 - -
stock
FFO 6,614 63,827 0.10 (13,538 ) 63,174 (0.21 )
Impairment 2,080 - 0.04 36,692 - 0.58
loss
Impairment
loss, - - - 3,750 - 0.06
unconsolidated
subsidiaries
Hurricane loss - - - 1,669 - 0.02
(b)
Hurricane
loss, - - - 50 - -
unconsolidated
subsidiaries
Conversion 117 - - 118 - -
costs(c)
Severance
costs, net of
noncontrolling
interests 41 - - - - -
Lease
termination 117 - - - - -
costs
Conversion of
options and
unvested - - - - 121 -
restricted
stock
Adjusted FFO $ 8,969 63,827 $ 0.14 $ 28,741 63,295 $ 0.45
(a) We suspended our preferred dividends in March 2009 and unpaid preferred dividends continue to accrue until paid.
(b) Represents hurricane-related expenses.
(c) Costs related to the conversion of our San Francisco Union Square hotel to a Marriott.
Reconciliation of Net Loss to FFO
(in thousands, except per share data)
Nine Months Ended September 30,
2009 2008
Dollars Shares Per Share Dollars Shares Per Share
Amount Amount
Net loss $ (57,864 ) $ (31,005 )
Noncontrolling 465 154
interests
Preferred (29,034 ) (29,034 )
dividends(a)
Net loss
attributable
to FelCor
common (86,433 ) (59,885 )
stockholders
Less:
Dividends
declared on
unvested
restricted
stock - (1,041 )
compensation
Numerator for
basic and
diluted loss
attributable
to common (86,433 ) 63,121 $ (1.37 ) (60,926 ) 61,827 $ (0.99 )
stockholders
Depreciation
and 112,024 - 1.77 104,909 - 1.70
amortization
Depreciation,
unconsolidated 10,898 - 0.17 11,128 - 0.18
entities
Gain on
involuntary - - - (3,095 ) - (0.05 )
conversion
Gain on sale - - - (1,193 ) - (0.02 )
of hotels
Noncontrolling
interests in (399 ) 296 - (1,280 ) 1,351 (0.04 )
FelCor LP
Conversion of
options and
unvested
restricted - 284 - 1,041 114 0.02
stock
FFO 36,090 63,701 0.57 50,584 63,292 0.80
Impairment 3,448 - 0.05 53,823 - 0.85
loss
Impairment
loss, 2,068 - 0.03 3,750 - 0.06
unconsolidated
subsidiaries
Charges
related to 594 - 0.01 - - -
debt
extinguishment
Hurricane loss - - - 1,669 - 0.03
(b)
Hurricane
loss, - - - 50 - -
unconsolidated
subsidiaries
Conversion 447 - 0.01 481 - -
costs(c)
Severance
costs, net of
noncontrolling
interests 550 - 0.01 - - -
Lease
termination 469 - 0.01 - - -
costs
Adjusted FFO $ 43,666 63,701 $ 0.69 $ 110,357 63,292 $ 1.74
(a) We suspended our preferred dividends in March 2009 and unpaid preferred dividends continue to accrue until paid.
(b) Represents hurricane-related expenses.
(c) Costs related to the conversion of our San Francisco Union Square hotel to a Marriott.
Reconciliation of Net Loss to EBITDA
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net loss $ (25,474 ) $ (42,569 ) $ (57,864 ) $ (31,005 )
Depreciation and 37,982 36,069 112,024 104,909
amortization
Depreciation, unconsolidated 3,610 3,998 10,898 11,128
entities
Interest expense 24,656 24,368 69,074 76,112
Interest expense, 837 1,282 2,807 4,205
unconsolidated entities
Amortization of stock 1,122 1,072 3,924 3,795
compensation
Noncontrolling interests in 174 (165 ) 66 (1,126 )
other partnerships
EBITDA 42,907 24,055 140,929 168,018
Gain on sale of hotels - (1,193 ) - (1,193 )
Gain on involuntary - - - (3,095 )
conversion
Charges related to debt - - 594 -
extinguishment
Impairment loss 2,080 36,692 3,448 53,823
Impairment loss on - 3,750 2,068 3,750
unconsolidated hotels
Hurricane loss(a) - 1,669 - 1,669
Hurricane loss, - 50 - 50
unconsolidated entities
Conversion costs(b) 117 118 447 481
Severance costs, net of 41 - 550 -
noncontrolling interests
Lease termination costs 117 - 469 -
Adjusted EBITDA $ 45,262 $ 65,141 $ 148,505 $ 223,503
(a) Represents hurricane-related expenses.
(b) Costs related to the conversion of our San Francisco Union Square hotel to a Marriott.
Reconciliation of Adjusted EBITDA to Hotel EBITDA
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Adjusted EBITDA $ 45,262 $ 65,141 $ 148,505 $ 223,503
Other revenue (1,280 ) (1,396 ) (2,554 ) (2,655 )
Equity in income from
unconsolidated subsidiaries
(excluding interest,
depreciation and impairment
expense) (5,558 ) (6,926 ) (14,519 ) (19,776 )
Noncontrolling interests in
other partnerships
(excluding interest,
depreciation and severance
expense) 454 784 1,899 2,834
Consolidated hotel lease 10,892 14,511 31,805 42,444
expense
Unconsolidated taxes, (2,023 ) (2,132 ) (6,041 ) (6,328 )
insurance and lease expense
Interest income (229 ) (254 ) (573 ) (1,227 )
Other expenses (excluding
conversion costs, severance
costs and lease termination 751 928 2,040 2,398
costs)
Corporate expenses (excluding
amortization expense
of stock compensation) 3,349 4,316 11,905 13,284
Gain on sale of assets (723 ) - (723 ) -
Adjusted EBITDA from - - - 13
discontinued operations
Hotel EBITDA $ 50,895 $ 74,972 $ 171,744 $ 254,490
Reconciliation of Net Loss to Hotel EBITDA
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net loss $ (25,474 ) $ (42,569 ) $ (57,864 ) $ (31,005 )
Discontinued operations - (1,193 ) - (1,180 )
Equity in loss (income) from (488 ) 2,773 3,197 1,064
unconsolidated entities
Consolidated hotel lease 10,892 14,511 31,805 42,444
expense
Unconsolidated taxes, (2,023 ) (2,132 ) (6,041 ) (6,328 )
insurance and lease expense
Interest expense, net 24,427 24,114 68,501 74,886
Charges related to debt - - 594 -
extinguishment
Corporate expenses 4,471 5,388 15,829 17,079
Depreciation and 37,982 36,069 112,024 104,909
amortization
Impairment loss 2,080 36,692 3,448 53,823
Hurricane loss - 1,669 - 1,669
Gain on sale of assets (723 ) - (723 ) -
Gain on involuntary - - - (3,095 )
conversion
Other expenses 1,031 1,046 3,528 2,879
Other revenue (1,280 ) (1,396 ) (2,554 ) (2,655 )
Hotel EBITDA $ 50,895 $ 74,972 $ 171,744 $ 254,490
Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Total revenues $ 230,209 $ 277,729 $ 707,065 $ 875,772
Other revenue (1,280 ) (1,396 ) (2,554 ) (2,655 )
Hotel operating revenue 228,929 276,333 704,511 873,117
Hotel operating expenses (178,034 ) (201,361 ) (532,767 ) (618,627 )
Hotel EBITDA $ 50,895 $ 74,972 $ 171,744 $ 254,490
Hotel EBITDA margin(a) 22.2 % 27.1 % 24.4 % 29.1 %
(a) Hotel EBITDA as a percentage of hotel operating revenue.
Reconciliation of Total Operating Expenses to Hotel Operating Expenses
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Total operating expenses $ 232,467 $ 294,604 $ 693,360 $ 835,102
Unconsolidated taxes,
insurance and lease 2,023 2,132 6,041 6,328
expense
Consolidated hotel lease (10,892 ) (14,511 ) (31,805 ) (42,444 )
expense
Corporate expenses (4,471 ) (5,388 ) (15,829 ) (17,079 )
Depreciation and (37,982 ) (36,069 ) (112,024 ) (104,909 )
amortization
Impairment loss (2,080 ) (36,692 ) (3,448 ) (53,823 )
Hurricane loss - (1,669 ) - (1,669 )
Other expenses (1,031 ) (1,046 ) (3,528 ) (2,879 )
Hotel operating expenses $ 178,034 $ 201,361 $ 532,767 $ 618,627
Reconciliation of Ratio of Operating Income (Loss) to Total Revenues to Hotel
EBITDA Margin
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Ratio of operating income (loss) to total (1.0 )% (6.1 )% 1.9 % 4.6 %
revenues
Other revenue (0.6 ) (0.5 ) (0.4 ) (0.3 )
Unconsolidated taxes, insurance and lease (0.9 ) (0.7 ) (0.8 ) (0.7 )
expense
Consolidated hotel lease expense 4.8 5.2 4.5 4.9
Other expenses 0.4 0.4 0.5 0.3
Corporate expenses 2.0 2.0 2.3 2.0
Depreciation and amortization 16.6 13.0 15.9 12.0
Impairment loss 0.9 13.2 0.5 6.1
Hurricane loss - 0.6 - 0.2
Hotel EBITDA margin 22.2 % 27.1 % 24.4 % 29.1 %
Reconciliation of Forecasted Net Loss Attributable to FelCor to Forecasted
Adjusted FFO 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 $ (113 ) $ (111 )
FelCor
Preferred dividends (39 ) (39 )
Net loss applicable to
FelCor common (152 ) $ (2.42 ) (150 ) $ (2.39 )
stockholders
Depreciation(b) 164 164
Noncontrolling interests (1 ) (1 )
in FelCor LP
Severance costs 1 1
Charges related to debt 2 2
extinguishment
Impairment loss(b) 6 6
Adjusted FFO $ 20 $ 0.31(a) $ 22 $ 0.34(a)
Net loss attributable to $ (113 ) $ (111 )
FelCor
Depreciation(b) 164 164
Interest expense(b) 110 110
Amortization expense 5 5
Noncontrolling interests (1 ) (1 )
in FelCor LP
Severance costs 1 1
Charges related to debt 2 2
extinguishment
Impairment loss(b) 6 6
Adjusted EBITDA $ 174 $ 176
(a) Weighted average shares and units are 63.6 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, 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 the same measures 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
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