FelCor Reports Third Quarter Operating Results
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FelCor Reports Third Quarter Operating Results
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2008-11-05
FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the third quarter and nine months ended September 30, 2008.
Third Quarter Highlights:
-- Adjusted FFO per share of $0.45 and Adjusted EBITDA of $65.1
million met our third quarter guidance.
-- RevPAR increased by 5.4 percent at our 70 hotels where
renovations were completed during 2007 and 2008. RevPAR
increased 2.6 percent for our 85 consolidated hotels, compared
to the United States average decline of 1.1 percent.
-- Hotel EBITDA margin increased 45 basis points compared to
prior year.
-- Market share increased more than six percent for our 70 hotels
where renovations were completed during 2007 and 2008, which
is consistent with our expectations. Market share increased
almost four percent for our 85 consolidated hotels.
-- Net loss applicable to common stockholders was $51.3 million
and included impairment charges of $40.4 million and hurricane
losses of $1.7 million.
Third Quarter Operating Results:
Revenue per available room ("RevPAR") for our 85 consolidated hotels increased 2.6 percent to $97.80, which was driven by increases in both average daily rate ("ADR") of 0.3 percent and occupancy of 2.3 percent, compared to the same period in 2007. At our 70 hotels where we completed renovations during 2007 and 2008, RevPAR increased 5.4 percent.
"The US economy is experiencing an accelerated downturn, leading to weaker consumer spending and tightened restrictions on corporate travel, which has affected lodging demand. A major priority is to reduce spending to mitigate the current trends by limiting capital and development spending, and restructuring hotel-level costs and general and administrative expenses. This, coupled with the fact that our newly renovated portfolio continues to gain market share, puts us in the best position to manage the downturn," said Richard A. Smith, FelCor's President and Chief Executive Officer. "Despite the weakening economic trends, we are pleased that third quarter earnings met our expectations."
Our Adjusted Funds from Operations ("FFO") was $28.7 million, or $0.45 per share, compared to Same-Store Adjusted FFO of $25.9 million, or $0.41 per share, and Adjusted FFO (including sold hotels) of $29.9 million, or $0.47 per share, for the same period in 2007. Our Adjusted FFO for the quarter was consistent with our expectations.
Our Hotel EBITDA increased to $75.0 million, compared to $72.4 million in the same period in 2007, a 3.6 percent increase. Hotel EBITDA margin was 27.1 percent, a 45 basis point increase compared to the same period in 2007, which exceeded our expectations.
Our Adjusted EBITDA was $65.1 million compared to Same-Store Adjusted EBITDA of $65.6 million, and Adjusted EBITDA (including sold hotels) of $66.5 million, for the same period in 2007.
Net loss applicable to common stockholders was $51.3 million, or $0.83 per share, compared to a net loss applicable to common stockholders of $1.7 million, or $0.03 per share, for the same period in 2007. Net loss applicable to common stockholders in the third quarter of 2008 included impairment charges of $40.4 million, hurricane losses of $1.7 million and conversion costs of $0.1 million. Net loss in the third quarter of 2007 included $0.4 million gain on sale of condominiums.
EBITDA, Adjusted EBITDA, Same-Store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Same-Store Adjusted FFO are all non-GAAP financial measures. See our discussion of "Non-GAAP Financial Measures" beginning on page 15 for a reconciliation of each of these measures to our net income and for information regarding the use, limitations and importance of these non-GAAP financial measures.
Renovations and Development:
Overall, our renovated hotels continue to perform consistent with our expectations. For the 70 hotels where we completed renovations during 2007 and 2008, market share increased more than six percent relative to their competitive sets. RevPAR at these hotels increased more than five percent and Hotel EBITDA increased approximately eight percent for the third quarter of 2008, compared to the same period in prior year.
We spent $37.1 million on renovations and redevelopment projects at our hotels, including our pro rata share of joint venture expenditures, during the three months ended September 30, 2008. The redevelopment of our hotel in San Francisco's Union Square as a Marriott remains on schedule to be completed in early 2009.
Portfolio Recycling:
As part of our long-term strategic plan, we are focused on growing shareholder value by actively managing our portfolio of hotels. We continually examine each hotel in our portfolio to address issues of market supply, demand patterns, ongoing capital needs and concentration of risk.
We have identified the following eight hotels as candidates for sale:
Embassy Suites Dallas (DFW International Airport South), Texas
Embassy Suites Jacksonville (Baymeadows), Florida
Doubletree Guest Suites Raleigh/Durham, North Carolina
Holiday Inn Orlando (International Drive), Florida
Holiday Inn Cocoa Beach (Oceanfront), Florida
Three unconsolidated Holiday Inn hotels in Kansas
The two Holiday Inn hotels in Florida were originally designated for redevelopment with condominiums. Market conditions in Florida no longer make condominium projects feasible. As a result, we recorded a $40.4 million impairment charge, primarily related to those two hotels, in the third quarter 2008.
Balance Sheet/Debt Maturities:
At September 30, 2008, we had $1.5 billion of consolidated debt outstanding with a weighted average interest rate of 6.8 percent and our cash and cash equivalents totaled $59.1 million. At September 30, 2008, we had $172 million available under our $250 million line of credit. We have no scheduled debt maturities for the remainder of 2008.
We have only one significant debt maturity in 2009 - a $118 million non-recourse mortgage loan, secured by seven hotels. We are in discussions with multiple lenders and expect to complete the refinancing prior to the maturity date of April 2009. We currently anticipate that proceeds from the new loan will be higher than the current balance (the current loan is approximately 35% loan-to-value), which will provide the company with additional liquidity.
Operating Focus:
As a result of the continued deterioration of travel demand, which is expected to continue through 2009, we are very focused on the following to ensure that we mitigate declining revenue until lodging fundamentals stabilize:
-- Continue to gain market share as a result of achieving the
returns from our renovation program and recapture
displacement;
-- Work closely with the hotels to retool hotel-level cost
structures (including staffing models) to ensure that expenses
are being managed as effectively as possible;
-- Limit capital expenditures to critical items and postpone new
construction of any further redevelopment projects; and
-- Reduce corporate general and administrative expenses.
"We have been proactive in taking steps to strengthen our liquidity and balance sheet capacity, including reducing expenses, limiting capital expenditures beyond our current renovation program and reducing our common dividend," said Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer. "In addition, we are comfortable with refinancing our only near-term debt maturity. We also continue to create shareholder value by recycling our portfolio and expect to use asset sale proceeds to reduce our debt and further enhance our liquidity."
Outlook:
RevPAR at our 85 consolidated hotels is expected to increase approximately two percent in 2008 and to decline between 3.5 and 5.0 percent in the fourth quarter, compared to the prior year. We continue to expect that RevPAR for our portfolio will increase significantly more than our markets and the industry. Our successful renovation program, which has achieved our expected returns from the capital investments, is driving our comparatively high increase in RevPAR. Our guidance assumes no asset sales.
For full year 2008 we currently anticipate:
-- Adjusted EBITDA to be between $273 million and $275 million;
-- Adjusted FFO per share to be between $1.93 and $1.96;
-- Net Loss to be between $45 million and $47 million;
-- Hotel EBITDA margins to increase approximately 20 basis
points; and
-- Capital expenditures, including redevelopment projects, of
approximately $150 million.
FelCor, a real estate investment trust, is the nation's largest owner of upper-upscale, all-suite hotels. FelCor's portfolio is comprised of 85 consolidated hotels and resorts, located in 23 states and Canada. FelCor's portfolio consists primarily of upper-upscale hotels, which are flagged under global brands such as Embassy Suites Hotels(R), Doubletree (R), Hilton(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 5, 2008, at 11:00 a.m. (Central Time). The conference call will be Web cast simultaneously via the Internet on FelCor's Web site at www.felcor.com. Interested investors and other parties who wish to access the call should go to FelCor's Web site and click on the conference call microphone icon on either the "Investor Relations" or "News" pages. The conference call replay will be archived on the Company's Web site. A telephonic replay will be available from 1:00 p.m. (Central Time), Wednesday, November 5, 2008 through 5:00 p.m. (Central Time), Friday, November 7, 2008, by dialing (800) 642-1687 (conference ID #70128101).
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 and dispositions, 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, 2008.
(a) Weighted average shares and units are 63.3 million.
Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company's operations. These supplemental measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT's performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.
FFO and EBITDA
The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.
EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.
Adjustments to FFO and EBITDA
We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional recurring and non-recurring items, 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, EBITDA and FFO, is beneficial to an investor's better understanding of our operating performance.
-- Gains and losses related to early extinguishment of debt and interest rate swaps - We exclude gains and losses related to early extinguishment of debt and interest rate swaps from FFO and EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.
-- Impairment losses - We exclude the effect of impairment losses and gains or losses on disposition of assets in computing Adjusted FFO and Adjusted EBITDA because we believe that including these is not consistent with reflecting the ongoing performance of our remaining assets. Additionally, we believe that impairment charges and gains or losses on disposition of assets represent accelerated depreciation, or excess depreciation, and depreciation is excluded from FFO by the NAREIT definition and from EBITDA.
-- Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.
In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of assets because we believe that including them in EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.
To derive same-store comparisons, we have adjusted Adjusted FFO and Adjusted EBITDA to remove discontinued operations and gains on sales of condominium units; and have added the historical results of operations from the two hotels acquired in December 2007.
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 minority interest expense and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis including the historical results of operations from the two hotels acquired in December 2007.
Limitations of Non-GAAP Measures
Our management and Board of Directors use FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and lodging REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers.
The use of these non-GAAP financial measures has certain limitations. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, as presented by us, may not be comparable to FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin as calculated by other real estate companies. These measures do not reflect certain expenses that we incurred and will incur, such as depreciation and interest or capital expenditures. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, Adjusted FFO, Adjusted FFO per share, EBITDA or Adjusted EBITDA be considered as measures of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. Adjusted FFO per share should not be used as a measure of amounts that accrue directly to the benefit of stockholders. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin reflect additional ways of viewing our operations that we believe when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on any single financial measure.
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