FelCor Reports Third Quarter Earnings And Reinstates Common Dividend

FelCor Lodging Trust Incorporated (NYSE: FCH), today reported operating results for the quarter ended September 30, 2013.

Highlights
  • Adjusted FFO per share improved 75% to $0.14.
  • Total hotel revenue for 52 comparable hotels (Same-store hotels excluding eight recently rebranded Wyndham hotels) increased 7.5% to $204.6 million.
  • RevPAR for 52 comparable hotels increased 7.1%.
  • Adjusted EBITDA increased by $1.6 million to $54.8 million, and Same-store Adjusted EBITDA increased by $4.4 million to $53.9 million.
  • Net loss per share improved by $0.18 to $0.05.
  • Sold five hotels in 2013, including three hotels since our second quarter earnings release, for a total of $102.7 million. Currently have executed contracts to sell three additional hotels this year.
  • Reinstating quarterly common stock dividend; declares $0.02 per share fourth quarter dividend.

Commenting on operating results, Richard A. Smith, President and Chief Executive Officer of FelCor, said, “Our portfolio continues to produce solid results. Third quarter comparable Hotel EBITDA increased by almost 13%, led by a 53% increase for our newly acquired and recently redeveloped hotels. We are proud that RevPAR for our comparable portfolio once again outperformed the industry. Based on the outstanding condition of our portfolio and favorable industry fundamentals, our outlook for continued RevPAR growth remains optimistic.”

Mr. Smith added, “We continue to make substantial progress repositioning our portfolio. We have sold five hotels this year, for a total of 24 hotels since we began the current phase of dispositions, and have three hotels under contract. Through the combination of asset sales and EBITDA growth, we continue to strengthen our balance sheet, reduce leverage and grow stockholder value. As a result, we are pleased to announce that we have reinstated our common dividend.”

Common Dividend:

Our board has declared a $0.02 per share quarterly common stock dividend for the fourth quarter. The board has reinstated our common dividend recognizing the ongoing success of our portfolio repositioning and restructured balance sheet, as well as our positive funds available for distribution (“FAD”) this year. The dividend will be paid in January 2014. Future quarterly dividends will be based on estimates of FAD, reinvestment opportunities within our portfolio and taxable net income, among other things.
 

Summary of Third Quarter Hotel Results:
       
Third Quarter
2013     2012     Change
Comparable hotels (52)    
RevPAR $ 117.18 $ 109.42 7.1 %
Total hotel revenue, in millions $ 204.6 $ 190.3 7.5 %
Hotel EBITDA, in millions $ 52.0 $ 46.2 12.7 %
Hotel EBITDA margin 25.4 % 24.3 % 119 bps
 
Wyndham Hotels (8)
RevPAR $ 96.31 $ 120.90 (20.3 )%
Total hotel revenue, in millions $ 26.4 $ 32.7 (19.1 )%
Hotel EBITDA, in millions $ 10.0 $ 10.9 (8.4 )%
Hotel EBITDA margin 37.8 % 33.4 % 444 bps
 
Same-store hotels (60)
RevPAR $ 114.19 $ 111.08 2.8 %
Total hotel revenue, in millions $ 231.0 $ 223.0 3.6 %
Hotel EBITDA, in millions $ 62.0 $ 57.1 8.7 %
Hotel EBITDA margin 26.9 % 25.6 % 126 bps
 

RevPAR for our 37 comparable core hotels (45 core hotels that exclude the eight Wyndham hotels) increased 7.4% compared to the same period in 2012, while RevPAR for our 15 non-strategic hotels increased 5.5% compared to the same period in 2012.

RevPAR for our 52 comparable hotels (37 comparable core hotels plus 15 non-strategic hotels) was $117.18, a 7.1% increase compared to the same period in 2012. The increase reflects a 4.0% increase in ADR to $151.66 and a 3.0% increase in occupancy to 77.3%.

We believe comparable hotels (which excludes the Wyndham hotels) is the most appropriate measure to assess the ongoing operating performance of our portfolio. The eight Wyndham hotels were rebranded from Holiday Inn to Wyndham on March 1, 2013. RevPAR for those eight hotels declined 20.3% for the third quarter compared to the same period in 2012. This decline reflects the impact of transitioning brands and management companies, including related renovations. Wyndham Worldwide Corporation has guaranteed minimum annual NOI for the eight hotels. We have recorded a $5.2 million pro rata portion of the projected 2013 guaranty through September 30, 2013 (of which $2.4 million is for the third quarter 2013) as a reduction of Wyndham’s contractual management and other fees, which is reflected in Hotel EBITDA and Hotel EBITDA margin. In addition, our outlook assumes EBITDA for our Wyndham hotels that equates to the annual NOI guaranty level. We expect revenues at these hotels to show meaningful improvement as the transitional disruption subsides.

For our 52 comparable hotels, total hotel revenue increased 7.5% compared to the same period in 2012. Hotel EBITDA was $52.0 million, 12.7% higher than in the same period in 2012. Hotel EBITDA margin was 25.4% during the quarter, a 119 basis point increase from the same period in 2012.

RevPAR for our 60 Same-store hotels (52 comparable hotels plus the Wyndham hotels) was $114.19, a 2.8% increase compared to the same period in 2012. The increase reflects a 2.6% increase in ADR to $150.18 and a 0.2% increase in occupancy to 76.0%.

See page 15 for hotel portfolio composition and pages 16 and 22 for more detail on hotel portfolio operating data.
       

Summary of Third Quarter Operating Results:
 
Third Quarter
$ in millions, except for per share information 2013     2012     Change
Same-store Adjusted EBITDA $ 53.9 $ 49.5 9.0 %
Adjusted EBITDA $ 54.8 $ 53.2 3.0 %
Adjusted FFO per share $ 0.14 $ 0.08 $ 0.06
Net loss per share $ (0.05 ) $ (0.23 ) $ 0.18
 

Same-store Adjusted EBITDA was $53.9 million compared to $49.5 million for the same period in 2012. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $54.8 million compared to $53.2 million for the same period in 2012.

Adjusted FFO was $17.1 million, or $0.14 per share, compared to $0.08 per share in 2012. Net loss attributable to common stockholders was $6.4 million, or $0.05 per share, for the quarter, compared to net loss of $28.7 million, or $0.23 per share, for the same period in 2012. The third quarter included $11.8 million and $9.9 million in net gains on asset sales in 2013 and 2012, respectively. The third quarter of 2012 also included $11.8 million in debt extinguishment charges.

Year-to-Date Operating Results:

RevPAR for 52 comparable hotels was $112.94, a 6.9% increase compared to the same period in 2012. The increase reflects a 4.3% increase in ADR to $150.15 and a 2.4% increase in occupancy to 75.2%. Total hotel revenue for the 52 comparable hotels increased 7.3% from the same period in 2012. RevPAR for our 37 comparable core hotels increased 7.5%, while RevPAR for our 15 non-strategic hotels increased 4.1%.

Same-store Adjusted EBITDA was $150.5 million compared to $138.9 million, for the same period in 2012. Hotel EBITDA margin was 26.1%, a 67 basis point increase from the same period in 2012. Adjusted EBITDA was $157.1 million compared to $160.8 million for the same period in 2012.

Adjusted FFO was $42.3 million, or $0.34 per share, for the nine months ended September 30, 2013, compared to $0.24 per share for the same period in 2012. Net loss attributable to common stockholders was $70.7 million, or $0.57 per share, for the nine months ended September 30, 2013, compared to a net loss of $64.7 million, or $0.52 per share, for the same period in 2012. Net loss for the nine months ended September 30, 2013 included a $19.1 million net gain on asset sales and a $27.7 million impairment charge. Net loss for the same period in 2012 included a $26.6 million net gain on asset sales, a $1.3 million impairment charge and $12.6 million in debt extinguishment charges.

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

Portfolio Repositioning:

To date, we have sold 24 (five during 2013) of 39 non-strategic hotels as part of our portfolio repositioning plan. During the third quarter, we sold the 278-room Sheraton Suites Galleria - Atlanta for $21.0 million, the 223-room Embassy Suites - Baton Rouge for $20.0 million and the 244-room DoubleTree - Wilmington for $27.7 million. On October 10, we sold the 277-room Embassy Suites - Jacksonville for $10.0 million. These hotels’ operating performance is included in discontinued operations for the third quarter and year-to-date.

We are currently marketing six non-strategic hotels, of which we have agreed to sell three. We will continue using the sale proceeds to repay debt and reduce leverage. The remaining nine non-strategic hotels are owned by joint ventures, and we continue to advance toward agreements with our partners, and expect to begin marketing those properties in early 2014.

Capital Expenditures:

Capital expenditures at our operating hotels were $27.6 million during the quarter, including approximately $13.1 million for redevelopment projects and repositioning our Wyndham hotels.

During 2013, we are investing approximately $65 million on capital improvements and renovations, concentrated mostly at seven hotels, as part of our long-term capital plan. In addition, we are investing approximately $40 million on redevelopment projects (excluding the Knickerbocker) and repositioning our Wyndham hotels. Please see page 12 of this release for more detail on renovations.

In addition to the initial acquisition cost, we have spent $55.1 million (excluding capitalized interest) through September 30, 2013, to redevelop the 4+ star Knickerbocker Hotel. The project remains on budget, and all contracts for hard cost construction have been secured. We now expect the opening of the hotel to be summer of 2014. The hotel’s executive team is now in place and fully engaged in the sales and marketing efforts to ensure a successful and strong opening.

Balance Sheet:

As of September 30, 2013, we had $1.6 billion of consolidated debt bearing a 6.3% weighted-average interest rate (113 basis points below last year) and a seven-year weighted-average maturity. We had $68.6 million of cash and cash equivalents as of September 30, 2013. In addition, we had $78.1 million of restricted cash, of which $64.9 million secures our Knickerbocker construction loan.

Outlook:

We have tightened our 2013 outlook to reflect third quarter operating results and updated timing of asset sales. Our previous outlook assumed selling nine hotels during 2013. As of today, we have sold three of those hotels. Our revised outlook assumes the sale of the six remaining hotels (three currently under contract to close during the fourth quarter and three to close at the end of the year). Our outlook continues to assume EBITDA for the Wyndham hotels equates to Wyndham’s annual NOI guaranty.

During 2013, we project:
  • Comparable RevPAR will increase between 6.5%-7.0%;
  • Adjusted EBITDA will be between $199.0 million and $200.5 million;
  • Adjusted FFO per share will be between $0.37 and $0.38;
  • Net loss attributable to FelCor will be between $63.5 million and $62.0 million; and
  • Interest expense, including pro rata share from joint ventures, will be $107.5 million.

The following table reconciles our 2013 Adjusted EBITDA to Same-store Adjusted EBITDA outlook (in millions):
             
Low High
Previous Adjusted EBITDA $ 197.0 $ 203.5
Third Quarter Operations

(2.0
)
Updated timing of asset sales(a) 2.0   (1.0 )
Current Adjusted EBITDA $ 199.0 $

200.5
Discontinued Operations(b) (21.0 ) (21.0 )
Same-store Adjusted EBITDA (54 hotels) $ 178.0 $

179.5
 
a)   The increase of the low-end reflects the additional EBITDA generated for six hotels that are now assumed to be sold in the fourth quarter.
b) EBITDA from five hotels sold to-date in 2013 from January 1, 2013 through the dates of sale and EBITDA that is forecasted to be generated by six additional hotels assumed to be sold from January 1, 2013 through the dates of sale.
 

About FelCor:

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

We invite you to listen to our third quarter earnings Conference Call on Thursday, October 31, 2013 at 11:00 a.m. (Central Time). The conference call will be webcast simultaneously on FelCor’s website at www.felcor.com. Interested investors and other parties who wish to access the call can go to FelCor’s website and click on the conference call microphone icon on the “Investor Relations” page. The conference call replay will also be archived on the Company’s website.

With the exception of historical information, the matters discussed in this news release include “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “continue” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties, and the occurrence of future events, may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Current economic circumstances or an economic slowdown and the impact on the lodging industry, operating risks associated with the hotel business, relationships with our property managers, risks associated with our level of indebtedness and our ability to meet debt covenants in our debt agreements, our ability to complete acquisitions, dispositions and debt refinancing, the availability of capital, the impact on the travel industry from security precautions, our ability to continue to qualify as a Real Estate Investment Trust for federal income tax purposes and numerous other factors may affect future results, performance and achievements. Certain of these risks and uncertainties are described in greater detail in our filings with the Securities and Exchange Commission. Although we believe our current expectations to be based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that actual results will not differ materially. We undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in our expectations.

SUPPLEMENTAL INFORMATION

INTRODUCTION

The following information is presented in order to help our investors understand FelCor’s financial position as of and for the three and nine months ended September 30, 2013.
 

TABLE OF CONTENTS
       
Page
Consolidated Statements of Operations(a) 8
Consolidated Balance Sheets(a) 9
Consolidated Debt Summary 10
Schedule of Encumbered Hotels 11
Capital Expenditures 12
Hotels Under Renovation or Redevelopment During 2013 12
Supplemental Financial Data 13
Discontinued Operations 14
Hotel Portfolio Composition 15
Hotel Operating Statistics by Brand 16
Hotel Operating Statistics by Market 17
Historical Quarterly Operating Statistics 18
Non-GAAP Financial Measures 18
 
(a)   Our consolidated statements of operations and balance sheets have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. The consolidated statements of operations and balance sheets should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent Annual Report on Form 10-K.
 
           
Consolidated Statements of Operations

(in thousands, except per share data)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Revenues:
Hotel operating revenue:
Room $ 185,281 $ 179,085 $ 533,618 $ 514,029
Food and beverage 33,460 31,968 113,380 103,578
Other operating departments 12,238 11,947 35,929 37,246
Other revenue 1,584   1,441   3,034   2,672  
Total revenues 232,563   224,441   685,961   657,525  
Expenses:
Hotel departmental expenses:
Room 48,436 47,095 141,701 136,221
Food and beverage 28,513 27,609 91,061 84,250
Other operating departments 5,660 5,440 16,990 16,515
Other property-related costs 61,153 59,766 181,942 176,050
Management and franchise fees 9,272 10,425 27,568 30,787
Taxes, insurance and lease expense 25,957 24,771 73,209 70,257
Corporate expenses 5,817 5,695 20,343 20,074
Depreciation and amortization 30,124 30,050 90,407 87,305
Impairment loss 24,441
Conversion expenses (81 ) 1,134
Other expenses 2,102   1,959   6,838   3,722  
Total operating expenses 216,953   212,810   675,634   625,181  
Operating income 15,610 11,631 10,327 32,344
Interest expense, net (25,996 ) (30,568 ) (79,053 ) (91,013 )
Debt extinguishment (10,377 ) (10,498 )
Gain on involuntary conversion, net 21     21    
Loss before equity in income from unconsolidated entities (10,365 ) (29,314 ) (68,705 ) (69,167 )
Equity in income from unconsolidated entities 2,100   1,536   4,095   2,674  
Loss from continuing operations (8,265 ) (27,778 ) (64,610 ) (66,493 )
Income from discontinued operations 12,054   8,223   18,999   30,105  
Net income (loss) 3,789 (19,555 ) (45,611 ) (36,388 )
Net loss (income) attributable to noncontrolling interests in other partnerships (591 ) 386 3,621 440
Net loss attributable to redeemable noncontrolling interests in FelCor LP 32   144   352   329  
Net income (loss) attributable to FelCor 3,230 (19,025 ) (41,638 ) (35,619 )
Preferred dividends (9,678 ) (9,678 ) (29,034 ) (29,034 )
Net loss attributable to FelCor common stockholders $ (6,448 ) $ (28,703 ) $ (70,672 ) $ (64,653 )
Basic and diluted per common share data:
Loss from continuing operations $ (0.14 ) $ (0.30 ) $ (0.72 ) $ (0.76 )
Net loss $ (0.05 ) $ (0.23 ) $ (0.57 ) $ (0.52 )
Basic and diluted weighted average common shares outstanding 123,817   123,640   123,815   123,648  
 
         
Consolidated Balance Sheets

(in thousands)
 

September 30,
December 31,
2013 2012
Assets
Investment in hotels, net of accumulated depreciation of $931,375 and $929,298 at September 30, 2013 and December 31, 2012, respectively $ 1,672,413 $ 1,794,564
Hotel development 195,919 146,079
Investment in unconsolidated entities 51,069 55,082
Hotel held for sale 9,684
Cash and cash equivalents 68,589 45,745
Restricted cash 78,134 77,927
Accounts receivable, net of allowance for doubtful accounts of $221 and $469 at September 30, 2013 and December 31, 2012, respectively 38,892 25,383
Deferred expenses, net of accumulated amortization of $18,690 and $13,820 at September 30, 2013 and December 31, 2012, respectively 30,921 34,262
Other assets 26,741   23,391  
Total assets $ 2,172,362   $ 2,202,433  
Liabilities and Equity
Debt, net of discount of $6,181 and $10,318 at September 30, 2013 and December 31, 2012, respectively $ 1,648,165 $ 1,630,525
Distributions payable 8,545 8,545
Accrued expenses and other liabilities 163,464   138,442  
Total liabilities 1,820,174   1,777,512  
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP, 618 and 621 units issued and outstanding at September 30, 2013 and December 31, 2012, respectively 3,804   2,902  
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, 2013 and December 31, 2012 309,362 309,362
Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at September 30, 2013 and December 31, 2012 169,412 169,412
Common stock, $0.01 par value, 200,000 shares authorized; 124,126 and 124,117 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 1,241 1,241
Additional paid-in capital 2,355,086 2,353,581
Accumulated other comprehensive income 25,447 26,039
Accumulated deficit (2,535,640 ) (2,464,968 )
Total FelCor stockholders’ equity 324,908 394,667
Noncontrolling interests in other partnerships 23,476   27,352  
Total equity 348,384   422,019  
Total liabilities and equity $ 2,172,362   $ 2,202,433  
 
                             
Consolidated Debt Summary

(dollars in thousands)
 

EncumberedHotels

Interest Rate (%)

Maturity Date
September 30, 2013 December 31, 2012
Line of credit 9   LIBOR + 3.375 June 2016(a) $ 73,000 $ 56,000
Hotel mortgage debt
Mortgage debt(b) 5 6.66 June - August 2014 63,877 65,431
Mortgage debt 1 5.81 July 2016 10,032 10,405
Mortgage debt(b) 4 4.95 October 2022 126,839 128,066
Mortgage debt 1 4.94 October 2022 31,832 32,176
Senior notes
Senior secured notes 11 10.00 October 2014 227,724 223,586
Senior secured notes 6 6.75 June 2019 525,000 525,000
Senior secured notes 9 5.625 March 2023 525,000 525,000
Other(c)   LIBOR + 1.25 May 2016 64,861   64,861
Total 46   $ 1,648,165   $ 1,630,525
 
(a)   Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.
(b) This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a single hotel.
(c) This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. This loan, which allows us to borrow up to $85 million, can be extended for one year subject to satisfying certain conditions.
 
       
Schedule of Encumbered Hotels

(dollars in millions)
 
Consolidated September 30, 2013
Debt Balance Encumbered Hotels
Line of credit   $ 73   Charleston Mills House - WYN, Charlotte SouthPark - DT, Dana Point - DT, Houston Medical Center - WYN, Mandalay Beach - ES, Miami International Airport - ES, Philadelphia Historic District - WYN, Pittsburgh University Center - WYN and Santa Monica at the Pier - WYN
CMBS debt(a) $ 64 Atlanta Airport - ES, Austin - DTGS, BWI Airport - ES, Orlando Airport - HI and Phoenix Biltmore - ES
CMBS debt $ 10 Indianapolis North - ES
CMBS debt(a) $ 127 Birmingham - ES, Ft. Lauderdale - ES, Minneapolis Airport - ES and Napa Valley - ES
CMBS debt $ 32 Deerfield Beach - ES
Senior secured notes (10.00%) $ 228 Atlanta Airport - SH, Boston Beacon Hill - WYN, Myrtle Beach Resort - ES, Nashville Opryland - Airport - HI, New Orleans French Quarter - WYN, Orlando Walt Disney World® - DT, San Diego Bayside - WYN, San Francisco Waterfront - ES, San Francisco Fisherman’s Wharf - HI, San Francisco Union Square - MAR and Toronto Airport - HI
Senior secured notes (6.75%) $ 525 Boston Copley - FMT, Indian Wells Esmeralda Resort & Spa - REN, LAX South - ES, Morgans, Royalton and St. Petersburg Vinoy Resort & Golf Club - REN
Senior secured notes (5.625%) $ 525 Atlanta Buckhead - ES, Boston Marlboro - ES, Burlington - SH, Dallas Love Field - ES, Milpitas - ES, Myrtle Beach Resort - HIL, Orlando South - ES, Philadelphia Society Hill - SH and SF South San Francisco - ES
 
(a)   This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.
 
 
Capital Expenditures

(in thousands)
           
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Improvements and additions to majority-owned hotels $ 27,433 $ 26,636 $ 74,456 $ 99,985
Partners’ pro rata share of additions to consolidated joint venture hotels (126 ) (190 ) (434 ) (819 )
Pro rata share of additions to unconsolidated hotels 299   440   1,101   1,804  

Total additions to hotels(a)
$ 27,606   $ 26,886   $ 75,123   $ 100,970  
 
(a)  

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

Hotels Under Renovation or Redevelopment During 2013
             

Renovations

Primary Areas

Start Date

End Date
LAX South - ES guestrooms Sep-2012 Feb-2013
Myrtle Beach Resort-HIL guestrooms Oct-2012 Mar-2013
Napa Valley-ES public areas(a) Nov-2012 Mar-2013
Mandalay Beach-ES public areas, meeting rooms, F&B(b) Jan-2013 May-2013
San Francisco Waterfront-ES public areas Feb-2013 May-2013
Santa Monica Beach - at the Pier-WYN guestrooms, corridors, public areas May-2013 Sep-2013
Ft. Lauderdale-ES public areas Aug-2013 Nov-2013
Orlando - Walt Disney World Resort-DT guestrooms, corridors(c) May-2013 Nov-2013
Houston Medical Center-WYN guestrooms, corridors, public areas Jul-2013 Dec-2013
Philadelphia - Historic District-WYN guestrooms, corridors, public areas Aug-2013 Jan-2014
Charleston Mills House-WYN guestrooms, corridors, public areas Aug-2013 Jan-2014

Redevelopments
Morgans guestroom addition, public areas, fitness center, re-concept F&B Feb-2012 Aug-2013
 

 
   

(a)
  Guestroom renovations were completed in April 2012.

 

(b)
Guestroom renovations were completed in May 2012.

 

(c)
Public area renovations were completed in June 2012.
           
Supplemental Financial Data

(in thousands, except per share data)
 
September 30, December 31,

Total Enterprise Value
2013 2012
Common shares outstanding 124,126 124,117
Units outstanding 618   621  
Combined shares and units outstanding 124,744 124,738
Common stock price $ 6.16   $ 4.67  
Market capitalization $ 768,423 $ 582,526
Series A preferred stock(a) 309,362 309,362
Series C preferred stock(a) 169,412 169,412

Consolidated debt(b)
1,648,165 1,630,525
Noncontrolling interests of consolidated debt (2,742 ) (2,810 )
Pro rata share of unconsolidated debt 73,436 74,198
Hotel development (195,919 ) (146,079 )
Cash, cash equivalents and restricted cash(b) (146,723 ) (123,672 )
Total enterprise value (TEV) $ 2,623,414   $ 2,493,462  
 
(a)   Book value based on issue price.
(b) Restricted cash includes $64.9 million of cash fully securing $64.9 million of debt that was assumed when we purchased the Knickerbocker.
 

Discontinued Operations(in thousands)

Discontinued operations primarily include the results of operations for one hotel designated as held for sale at September 30, 2013, four hotels sold in 2013 and ten hotels sold in 2012. Condensed financial information for the hotels included in discontinued operations is as follows:
         
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Operating revenue $ 5,038 $ 19,353 $ 25,045 $ 86,968
Operating expenses (4,859 ) (18,612 ) (25,180 ) (76,877 )
Operating income (loss) 179 741 (135 ) 10,091
Interest expense, net (1,031 ) (4,527 )
Debt extinguishment (1,409 ) (2,100 )
Gain on involuntary conversion, net 66 66
Gain on sale of hotels, net 11,809   9,922   19,068   26,641  
Income from discontinued operations 12,054 8,223 18,999 30,105
Depreciation and amortization, net of noncontrolling interests in other partnerships 747 2,609 3,586 10,055
Interest expense 1,031 4,527
Noncontrolling interests in other partnerships (878 ) (10 ) (966 ) (59 )
EBITDA from discontinued operations 11,923 11,853 21,619 44,628
Impairment loss 3,265 1,335
Hurricane loss 433 433
Debt extinguishment 1,409 2,100
Gain on involuntary conversion, net of noncontrolling interests in other partnerships (57 ) (57 )
Gain on sale, net of noncontrolling interests in other partnerships (10,958 ) (9,922 ) (18,217 ) (26,641 )
Adjusted EBITDA from discontinued operations $ 908   $ 3,773   $ 6,610   $ 21,855  
 
 
Hotel Portfolio Composition
 

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

Brand
Hotels Rooms

2012 Hotel OperatingRevenue(in thousands)

2012 HotelEBITDA (in thousands)(a)
Embassy Suites Hotels 20 5,434 $ 256,201 $ 78,370
Wyndham and Wyndham Grand(b) 8 2,526 120,355 37,951
Renaissance and Marriott 3 1,321 111,976 17,908
DoubleTree by Hilton and Hilton 5 1,206 56,071 16,702
Sheraton and Westin 4 1,604 68,369 14,536
Fairmont 1 383 41,255 4,285
Holiday Inn 2 968 40,512 4,217
Morgans and Royalton 2 285 32,129 3,457
Core hotels 45 13,727 726,868 177,426
Non-strategic hotels 15 3,917 140,475 37,367
Same-store hotels 60 17,644 $ 867,343 $ 214,793
 

Market
San Francisco area 4 1,637 $ 99,659 $ 21,030
Los Angeles area 3 677 33,287 13,757
South Florida 3 923 47,298 13,253
Boston 3 916 68,121 12,123
New York area 4 820 57,052 9,731
Myrtle Beach 2 640 36,974 9,427
Atlanta 3 952 35,410 9,228
Philadelphia 2 728 36,122 8,880
Tampa 1 361 45,152 7,955
San Diego 1 600 26,445 6,687
Other markets 19 5,473 241,348 65,355
Core hotels 45 13,727 726,868 177,426
Non-strategic hotels 15 3,917 140,475 37,367
Same-store hotels 60 17,644 $ 867,343 $ 214,793
 

Location
Urban 17 5,308 $ 316,355 $ 74,428
Resort 10 2,929 183,808 41,465
Airport 9 2,957 126,906 33,734
Suburban 9 2,533 99,799 27,799
Core hotels 45 13,727 726,868 177,426
Non-strategic hotels 15 3,917 140,475 37,367
Same-store hotels 60 17,644 $ 867,343 $ 214,793
 

 
     

(a)
  Hotel EBITDA is more fully described on page 26.

 

(b)
These hotels converted from Holiday Inn on March 1, 2013.
 

The following tables set forth occupancy, ADR and RevPAR for the three and nine months ended September 30, 2013 and 2012, and the percentage changes therein for the periods presented, for our same-store Consolidated Hotels included in continuing operations.
     

Hotel Operating Statistics by Brand
 
Occupancy (%)
Three Months Ended     Nine Months Ended  
September 30,   September 30,  
2013   2012 %Variance 2013   2012 %Variance
Embassy Suites Hotels 79.3 76.4 3.8 77.0 76.4 0.8
Renaissance and Marriott 66.9 68.3 (2.1 ) 71.6 71.3 0.5
DoubleTree by Hilton and Hilton 76.1 78.1 (2.6 ) 71.5 71.9 (0.6 )
Sheraton and Westin 70.0 69.0 1.5 67.7 65.8 2.9
Fairmont 85.5 81.7 4.6 75.5 62.0 21.7
Holiday Inn 85.3 80.9 5.5 80.7 74.1 8.9
Morgans and Royalton 88.8 85.6 3.7 86.4 83.2 3.9
Comparable core hotels (37) 77.1 75.5 2.2 74.9 73.3 2.3
Non-strategic hotels (15) 77.6 73.7 5.3 76.0 73.8 2.9
Comparable hotels (52) 77.3 75.0 3.0 75.2 73.4 2.4
Wyndham and Wyndham Grand(a) 68.7 81.1 (15.3 ) 67.8 78.3 (13.4 )
Same-store hotels (60) 76.0 75.9 0.2 74.2 74.1
ADR ($)
Three Months Ended Nine Months Ended
September 30,   September 30,  
2013 2012 %Variance 2013 2012 %Variance
Embassy Suites Hotels 151.02 146.40 3.2 150.30 145.40 3.4
Renaissance and Marriott 191.81 171.56 11.8 209.87 194.01 8.2
DoubleTree by Hilton and Hilton 147.65 142.08 3.9 147.72 139.02 6.3
Sheraton and Westin 116.63 114.61 1.8 115.95 112.28 3.3
Fairmont 290.21 275.15 5.5 280.17 281.34 (0.4 )
Holiday Inn 176.59 159.36 10.8 144.64 134.56 7.5
Morgans and Royalton 299.78 295.74 1.4 300.11 289.76 3.6
Comparable core hotels (37) 162.42 154.53 5.1 160.67 152.78 5.2
Non-strategic hotels (15) 121.13 120.87 0.2 120.47 119.15 1.1
Comparable hotels (52) 151.66 145.89 4.0 150.15 143.95 4.3
Wyndham and Wyndham Grand(a) 140.19 149.07 (6.0 ) 142.94 146.51 (2.4 )
Same-store hotels (60) 150.18 146.38 2.6 149.20 144.34 3.4
RevPAR ($)
Three Months Ended Nine Months Ended
September 30,   September 30,  
2013 2012 %Variance 2013 2012 %Variance
Embassy Suites Hotels 119.77 111.89 7.0 115.71 111.03 4.2
Renaissance and Marriott 128.29 117.18 9.5 150.36 138.32 8.7
DoubleTree by Hilton and Hilton 112.41 111.00 1.3 105.65 99.99 5.7
Sheraton and Westin 81.65 79.09 3.2 78.53 73.91 6.3
Fairmont 248.05 224.93 10.3 211.43 174.41 21.2
Holiday Inn 150.64 128.85 16.9 116.76 99.75 17.0
Morgans and Royalton 266.15 253.11 5.2 259.43 241.05 7.6
Comparable core hotels (37) 125.28 116.60 7.4 120.41 111.96 7.5
Non-strategic hotels (15) 94.04 89.10 5.5 91.55 87.96 4.1
Comparable hotels (52) 117.18 109.42 7.1 112.94 105.70 6.9
Wyndham and Wyndham Grand(a) 96.31 120.90 (20.3 ) 96.95 114.69 (15.5 )
Same-store hotels (60) 114.19 111.08 2.8 110.65 107.00 3.4
 

(a) These hotels converted from Holiday Inn on March 1, 2013.
 
   

Hotel Operating Statistics by Market
 
Occupancy (%)
Three Months Ended     Nine Months Ended    
September 30, September 30,    
2013   2012 %Variance 2013   2012 %Variance
San Francisco area 90.7 89.7   1.2 84.4 82.4 2.5
Los Angeles area 82.2 78.9 4.2 77.1 80.3 (4.0 )
South Florida 77.1 72.7 6.0 82.4 78.5 4.9
Boston 82.1 77.6 5.8 75.1 65.7 14.2
New York area 82.5 78.5 5.1 79.4 76.8 3.3
Myrtle Beach 88.6 82.1 8.0 67.3 66.5 1.2
Atlanta 76.4 75.6 1.1 74.7 75.0 (0.4 )
Philadelphia 70.4 68.3 3.2 67.5 62.6 7.9
Tampa 77.6 80.7 (3.8 ) 81.0 83.7 (3.1 )
Other markets 68.7 68.6 0.1 70.0 69.0 1.4
Comparable core hotels (37)     77.1       75.5       2.2       74.9       73.3       2.3  
ADR ($)
Three Months Ended Nine Months Ended
September 30, September 30,    
2013 2012 %Variance 2013 2012 %Variance
San Francisco area 219.88 190.07 15.7 190.42 171.84 10.8
Los Angeles area 149.50 149.88 (0.3 ) 142.91 137.77 3.7
South Florida 114.98 115.28 (0.3 ) 148.76 147.52 0.8
Boston 241.44 230.59 4.7 231.03 225.32 2.5
New York area 211.12 205.13 2.9 210.47 202.24 4.1
Myrtle Beach 174.58 174.37 0.1 158.18 153.84 2.8
Atlanta 112.49 107.82 4.3 113.12 108.54 4.2
Philadelphia 155.73 157.43 (1.1 ) 165.08 163.95 0.7
Tampa 155.99 151.48 3.0 185.51 178.36 4.0
Other markets 133.83 131.46 1.8 140.01 134.74 3.9
Comparable core hotels (37)     162.42       154.53       5.1       160.67       152.78       5.2  
RevPAR ($)
Three Months Ended Nine Months Ended
September 30, September 30,    
2013 2012 %Variance 2013 2012 %Variance
San Francisco area 199.50 170.41 17.1 160.76 141.59 13.5
Los Angeles area 122.88 118.23 3.9 110.14 110.57 (0.4 )
South Florida 88.66 83.83 5.8 122.53 115.85 5.8
Boston 198.14 178.94 10.7 173.39 148.06 17.1
New York area 174.14 160.99 8.2 167.08 155.35 7.6
Myrtle Beach 154.70 143.13 8.1 106.39 102.26 4.0
Atlanta 85.93 81.46 5.5 84.52 81.43 3.8
Philadelphia 109.65 107.45 2.0 111.48 102.59 8.7
Tampa 121.02 122.21 (1.0 ) 150.35 149.25 0.7
Other markets 91.94 90.24 1.9 97.98 92.99 5.4
Comparable core hotels (37)     125.28       116.60       7.4       120.41       111.96       7.5  
 
 
Historical Quarterly Operating Statistics
     
Occupancy (%)
  Q4 2012   Q1 2013   Q2 2013   Q3 2013
Comparable core hotels (37) 66.2 70.0 77.6 77.1
Non-strategic hotels (15) 68.2 72.2 78.1 77.6
Comparable hotels (52) 66.7 70.6 77.7 77.3
Wyndham and Wyndham Grand (8)(a) 69.7 63.6 71.2 68.7
Same-store hotels (60) 67.1 69.6 76.8 76.0
 
ADR ($)
Q4 2012 Q1 2013 Q2 2013 Q3 2013
Comparable core hotels (37) 154.64 157.30 161.92 162.42
Non-strategic hotels (15) 117.72 119.54 120.66 121.13
Comparable hotels (52) 145.04 147.32 151.18 151.66
Wyndham and Wyndham Grand (8)(a) 143.45 139.38 148.81 140.19
Same-store hotels (60) 144.81 146.27 150.87 150.18
 
RevPAR ($)
Q4 2012 Q1 2013 Q2 2013 Q3 2013
Comparable core hotels (37) 102.36 110.15 125.68 125.28
Non-strategic hotels (15) 80.30 86.34 94.20 94.04
Comparable hotels (52) 96.75 104.00 117.53 117.18
Wyndham and Wyndham Grand (8)(a) 99.92 88.60 105.95 96.31
Same-store hotels (60) 97.20 101.78 115.87 114.19
 

(a) These hotels converted from Holiday Inn on March 1, 2013.
 

Non-GAAP Financial Measures

We refer in this release to certain “non-GAAP financial measures.” These measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with generally accepted accounting principles (“GAAP”). The following tables reconcile each of these non-GAAP measures to the most comparable GAAP financial measure. Immediately following the reconciliations, we include a discussion of why we believe these measures are useful supplemental measures of our performance and the limitations of such measures.
     
Reconciliation of Net Income (Loss) to FFO and Adjusted FFO

(in thousands, except per share data)
 
Three Months Ended September 30,
2013   2012
Dollars   Shares  

PerShareAmount
Dollars Shares  

PerShareAmount
Net income (loss) $ 3,789 $ (19,555 )  
Noncontrolling interests (559 ) 530
Preferred dividends (9,678 ) (9,678 )
Net loss attributable to FelCor common stockholders (6,448 ) 123,817 $ (0.05 ) (28,703 ) 123,640 $ (0.23 )
Depreciation and amortization 30,124 0.24 30,050 0.25
Depreciation, discontinued operations and unconsolidated entities 3,461 0.03 5,363 0.04
Gain on sale of hotels, net of noncontrolling interests in other partnerships (10,958 ) (0.09 ) (9,922 ) (0.08 )
Gain on involuntary conversion (21 )
Gain on involuntary conversion, discontinued operations, net of noncontrolling interests in other partnerships (57 )
Noncontrolling interests in FelCor LP (32 ) 618 (144 ) 626 (0.01 )
Conversion of unvested restricted stock   983          
FFO 16,069 125,418 0.13 (3,356 ) 124,266 (0.03 )

Acquisition costs
16
Hurricane loss 646 0.01
Hurricane loss, discontinued operations and unconsolidated entities 436
Debt extinguishment, including discontinued operations 11,786 0.09
Severance costs 106 71
Abandoned projects 219
Conversion expenses (81 )
Variable stock compensation 151
Pre-opening costs, net of noncontrolling interests 814 0.01 202
Conversion of unvested restricted stock         358   0.01  
Adjusted FFO $ 17,059   125,418   $ 0.14   $ 10,020   124,624   $ 0.08  
 
     
Reconciliation of Net Loss to FFO and Adjusted FFO

(in thousands, except per share data)
 
Nine Months Ended September 30,
2013 2012
Dollars     Shares    

Per ShareAmount
  Dollars     Shares    

Per ShareAmount
Net loss $ (45,611 ) $ (36,388 )
Noncontrolling interests 3,973 769
Preferred dividends (29,034 ) (29,034 )
Net loss attributable to FelCor common stockholders (70,672 ) 123,815 $ (0.57 )

(64,653
) 123,648 $ (0.52 )
Depreciation and amortization 90,407 0.73 87,305 0.71
Depreciation, discontinued operations and unconsolidated entities 11,800 0.10 18,554 0.15
Gain on involuntary conversion (21 )
Gain on involuntary conversion, discontinued operations, net of noncontrolling interests in other partnerships (57 )
Impairment loss, net of non-controlling interests in other partnerships 20,382 0.16
Impairment loss, discontinued operations 3,265 0.03 1,335 0.01
Gain on sale of hotels, net of noncontrolling interests in other partnerships (18,217 ) (0.15 ) (26,641 ) (0.22 )
Noncontrolling interests in FelCor LP (352 ) 620 (0.01 ) (329 ) 630
Conversion of unvested restricted stock   672       280    
FFO 36,535 125,107 0.29 15,571 124,558 0.13
Acquisition costs 23 114
Hurricane loss 646 0.01
Hurricane loss, discontinued operations and unconsolidated entities 436
Debt extinguishment, including discontinued operations 12,598 0.10
Severance costs 2,896 0.02 451
Abandoned projects 219
Conversion expenses 1,134 0.01
Variable stock compensation 374
Pre-opening costs, net of noncontrolling interests 1,376     0.02   245      
Adjusted FFO $ 42,338   125,107   $ 0.34   $ 30,280   124,558   $ 0.24  
 
         

Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-Store Adjusted EBITDA

(in thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Net income (loss) $ 3,789 $ (19,555 ) $ (45,611 ) $ (36,388 )
Depreciation and amortization 30,124 30,050 90,407 87,305
Depreciation, discontinued operations and unconsolidated entities 3,461 5,363 11,800 18,554
Interest expense 26,011 30,602 79,113 91,129
Interest expense, discontinued operations and unconsolidated entities 681 1,725 2,032 6,595
Noncontrolling interests in other partnerships (591 ) 386   3,621   440  
EBITDA 63,475 48,571 141,362 167,635
Impairment loss, net of noncontrolling interests in other partnerships 20,382
Impairment loss, discontinued operations 3,265 1,335
Hurricane loss 646 646
Hurricane loss, discontinued operations and unconsolidated entities 436 436
Debt extinguishment, including discontinued operations 11,786 12,598
Acquisition costs 16 23 114
Gain on sale of hotels, net of noncontrolling interests in other partnerships (10,958 ) (9,922 ) (18,217 ) (26,641 )
Gain on involuntary conversion (21 ) (21 )
Gain on involuntary conversion, discontinued operations, net of noncontrolling interests in other partnerships (57 ) (57 )
Amortization of fixed stock and directors’ compensation 1,397 1,210 4,547 3,748
Severance costs 106 71 2,896 451
Abandoned projects 219 219
Conversion expenses (81 ) 1,134
Variable stock compensation 151 374
Pre-opening costs, net of noncontrolling interests 814   202   1,376   245  
Adjusted EBITDA 54,826 53,235 157,064 160,786
Adjusted EBITDA from discontinued operations (908 ) (3,773 ) (6,610 ) (21,855 )
Same-store Adjusted EBITDA $ 53,918   $ 49,462   $ 150,454   $ 138,931  
 
 
Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)
         
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Same-store operating revenue:
Room $ 185,281 $ 179,085 $ 533,618 $ 514,029
Food and beverage 33,460 31,968 113,380 103,578
Other operating departments 12,238   11,947   35,929   37,246  
Same-store operating revenue 230,979 223,000 682,927 654,853
Same-store operating expense:
Room 48,436 47,095 141,701 136,221
Food and beverage 28,513 27,609 91,061 84,250
Other operating departments 5,660 5,440 16,990 16,515
Other property related costs 61,153 59,766 181,942 176,050
Management and franchise fees 9,272 10,425 27,568 30,787
Taxes, insurance and lease expense 15,907   15,588   45,374   44,410  
Same-store operating expense 168,941   165,923   504,636   488,233  
Hotel EBITDA $ 62,038   $ 57,077   $ 178,291   $ 166,620  
Hotel EBITDA Margin 26.9 % 25.6 % 26.1 % 25.4 %
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
Hotel EBITDA - Comparable core (37) $ 41,659 $ 36,549 $ 121,495 $ 107,689
Hotel EBITDA - Non-strategic (15) 10,377   9,613   30,507   28,838  
Hotel EBITDA - Comparable (52) 52,036 46,162 152,002 136,527
Hotel EBITDA - Wyndham (8) 10,002   10,915   26,289   30,093  
Hotel EBITDA (60) $ 62,038   $ 57,077   $ 178,291   $ 166,620  
 
Hotel EBITDA Margin - Comparable core (37) 25.0 % 23.7 % 24.7 % 23.7 %
Hotel EBITDA Margin - Non-strategic (15) 27.3 % 26.7 % 27.5 % 27.0 %
Hotel EBITDA Margin - Comparable (52) 25.4 % 24.3 % 25.2 % 24.3 %
Hotel EBITDA Margin - Wyndham (8) 37.8 % 33.4 % 33.1 % 32.5 %
Hotel EBITDA Margin (60) 26.9 % 25.6 % 26.1 % 25.4 %
 

Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income

(in thousands)
       
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Same-store operating revenue $ 230,979 $ 223,000 $ 682,927 $ 654,853
Other revenue 1,584   1,441   3,034   2,672  
Total revenue 232,563 224,441 685,961 657,525
Same-store operating expense 168,941 165,923 504,636 488,233
Consolidated hotel lease expense(a) 11,849 10,910 33,572 31,339
Unconsolidated taxes, insurance and lease expense (1,799 ) (1,727 ) (5,737 ) (5,492 )
Corporate expenses 5,817 5,695 20,343 20,074
Depreciation and amortization 30,124 30,050 90,407 87,305
Impairment loss 24,441
Conversion expenses (81 ) 1,134
Other expenses 2,102   1,959   6,838   3,722  
Total operating expense 216,953   212,810   675,634   625,181  
Operating income $ 15,610   $ 11,631   $ 10,327   $ 32,344  
 
(a)   Consolidated hotel lease expense represents the percentage lease expense of our 51% owned operating lessees. The offsetting percentage lease revenue is included in equity in income from unconsolidated entities.
     
 

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

(in millions, except per share data)
 
Full Year 2013 Guidance
Low     High
Dollars    

Per ShareAmount(a)
Dollars    

Per ShareAmount(a)
Net loss attributable to FelCor(b) $

(63.5
) $ (62.0 )
Preferred dividends (39.0 )

(39.0
)
Net loss attributable to FelCor common stockholders

(102.5
) $ (0.83 ) (101.0 ) $ (0.81 )
Depreciation(c) 138.0 138.0
Gain on sale of hotels (18.0 ) (18.0 )
Impairment, net of noncontrolling interests in other partnerships 24.0 24.0
Noncontrolling interests in FelCor LP (1.0 ) (1.0 )
FFO $

40.5
$ 0.32 $ 42.0 $ 0.34
Pre-opening and conversion costs 3.0 3.0
Severance costs 3.0   3.0  
Adjusted FFO $

46.5
  $

0.37
$ 48.0   $ 0.38
 
Net loss $

(67.5
) $ (66.0 )
Depreciation(c) 138.0 138.0
Interest expense(c)

107.5

107.5
Amortization expense 6.0 6.0
Noncontrolling interests in other partnerships 3.0   3.0  
EBITDA 187.0

188.5
Gain on sale of hotels (18.0 ) (18.0 )
Impairment, net of noncontrolling interests in other partnerships 24.0 24.0
Pre-opening and conversion costs 3.0 3.0
Severance costs 3.0   3.0  
Adjusted EBITDA $ 199.0   $

200.5
 
 
(a)   Weighted average shares are 125.1 million.
(b) For guidance, we have assumed no gains or losses on future asset sales.
(c)

Includes pro rata portion of unconsolidated entities.
 

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

FFO and EBITDA

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income or loss attributable to parent (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation, amortization and impairment losses. FFO for unconsolidated partnerships and joint ventures are calculated on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss attributable to parent (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

Adjustments to FFO and EBITDA

We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional items provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income attributable to FelCor, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.
  • Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to extinguishment of debt and interest rate swaps from FFO and EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.
  • Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.
  • Other transaction costs - From time to time, we periodically incur costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversion costs, acquisition costs, pre-opening costs and severance costs. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.
  • Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.

In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. We also exclude the amortization of our fixed stock and directors’ compensation. While this amortization is included in corporate expenses and is not separately stated on our statement of operations, excluding this amortization is consistent with the EBITDA definition.

Hotel EBITDA and Hotel EBITDA Margin

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level expenses. We eliminate these additional items because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.

Use and Limitations of Non-GAAP Measures

Our management and Board of Directors use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers.

The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on a single financial measure.

Copyright Business Wire 2010

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