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FelCor Posts 3rd Quarter Net loss of $133 million Compared
with a Loss of $14 million a Year Ago;
RevPAR Down 2.4%
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IRVING, Texas, Oct. 29, 2003 - FelCor Lodging Trust Incorporated (NYSE: FCH - News), the nation's second largest hotel real estate investment trust (REIT), today reported operating results for the third quarter and nine months ended September 30, 2003.

Third Quarter Results:

The third quarter results reflect a sluggish economy and soft corporate transient demand, which continues to adversely affect the lodging industry.

FelCor's third quarter hotel portfolio revenue per available room ("RevPAR") declined 2.4 percent, compared to third quarter 2002. For the quarter, occupancy increased 0.3 percent, to 65.3 percent, and average daily rate ("ADR") decreased 2.7 percent, to $92.64, compared to the same quarter of 2002.

The operating margin for FelCor's hotels during the third quarter 2003 was 28.7 percent, which represents a 290 basis point decrease, compared to the same period of 2002. The decrease in margins for the third quarter was lower than the 390 basis point decrease in second quarter margins, compared to the same period in 2002. The deterioration in third quarter margins principally resulted from the 2.7 percent decline in ADR, coupled with increases in employee wage and benefit, marketing, and energy costs for the quarter, compared to the third quarter of 2002.

FelCor's net loss for the third quarter, which included an impairment charge of $113 million, or $1.92 per share, was $133 million, or a loss of $2.26 per share, compared to a third quarter 2002 net loss of $14 million, or a loss of $0.26 per share. Third quarter Funds From Operations ("FFO") and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), in accordance with the Securities and Exchange Commission's (SEC) recently clarified guidance, have not been adjusted to add back the $113 million impairment charge. Including the impairment charge for the quarter, FFO was a loss of $101 million and EBITDA was a loss of $50 million. FFO and EBITDA for the third quarter of 2002, computed on a consistent basis, were $25 million and $75 million, respectively. FFO per share for the third quarter of 2003 was a loss of $1.63 per share (including $1.81 in impairment charges), as compared to a positive $0.40 per share during the same period of 2002, computed on a consistent basis. Excluding the impairment charge for the third quarter, operating results met the low end of the Company's previously provided guidance of $0.18 per share for FFO and $63 million for EBITDA.

The impairment charge primarily related to the third quarter decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels, and an additional impairment charge on certain of the 19 remaining non-strategic hotels identified for sale in December 2002. The 30 non-strategic hotels are under-performing and generally in markets that no longer meet FelCor's long-term investment strategy. Although the Company expects to sell these hotels over the next 36 months, the impaired assets were written down to FelCor's estimate of today's fair market value.

The 30 non-strategic hotels represent 16 percent of FelCor's rooms, while only comprising five percent of the Company's hotel-level EBITDA. Of the non- strategic hotels, there are six that are estimated to have a negative EBITDA of $0.05 per share for 2003.

Year to Date Results:

For the nine months ended September 30, 2003, the Company's RevPAR declined 4.9 percent, compared to the same period in 2002. The decline in RevPAR principally resulted from a 4.0 percent decline in FelCor's ADR during the period.

The operating margin for FelCor's hotels during the nine months ended September 30, 2003, was 29.9 percent, which reflects a 400 basis point decrease, compared to the same period in 2002. The deterioration in margin principally resulted from a 4.0 percent decline in ADR, coupled with increases in employee wage and benefit, marketing, and energy costs, compared to the same period in 2002.

FelCor's net loss for the nine months, which included an impairment charge of $121 million, or $2.06 per share, was $187 million, or a loss of $3.20 per share, compared to the nine month 2002 net loss of $20 million, or a loss of $0.38 per share. FFO and EBITDA for the nine months, in accordance with the SEC's recently clarified guidance, have not been adjusted to add back the $121 million impairment charge. Including the impairment charge for the nine months, FFO was a loss of $80 million and EBITDA was $73 million. FFO and EBITDA for the nine months of 2002 were $94 million and $247 million, respectively. FFO per share for the nine months of 2003 was a loss of $1.28 per share, including $1.81 in third quarter impairment charges, as compared to a positive $1.51 per share during the same period of 2002. The following items are included in net loss for the 2003 nine month period and have not been added to or deducted from net loss in the computation of FFO or EBITDA: a $121 million impairment charge; a $2.8 million charge-off of deferred debt costs; and a $1.6 million gain on early extinguishment of debt. For the nine months in 2002, a $1.6 million charge for the third quarter abandoned projects was included in net loss and not added back to net loss in the computation of FFO or EBITDA.

"We have achieved the three strategic objectives that we set out at the beginning of this year. While we are disappointed with the operating results of the second half of 2003 and anticipated fourth quarter results, we are positioned for a recovery and believe we're near the end of what has been a difficult lodging cycle," said Thomas J. Corcoran, Jr., FelCor's President and CEO. "We have given a great deal of thought to our investment strategy and the need to improve our return on investment (ROI) over the long-term. The sale of non-strategic hotels, which is progressing better than expected, is the first phase of our strategy to improve our ROI and long-term shareholder value."

Capital Structure:

At September 30, 2003, FelCor had $2.0 billion of debt outstanding, with a weighted average life of five years, and $176 million in cash and cash equivalents. The Company's next significant debt maturity is its $175 million in senior notes that will mature in October 2004. FelCor expects to meet this obligation from excess cash on hand and the $176 million currently available under its recently closed $200 million secured debt facility.

"We have achieved our strategic objective to improve the Company's liquidity. FelCor is carrying excess cash, has covered its 2004 maturity through its secured debt facility, has amended the IHG management agreements to allow for greater flexibility to sell non-strategic assets, and has exceeded its asset sales targets. We're very pleased with the completion of these steps in strengthening our balance sheet," said Richard J. O'Brien, FelCor's Executive Vice President and Chief Financial Officer.

Non-strategic asset sales were previously targeted to be between $50 and $75 million. Taking into consideration $89 million of October closings, FelCor now anticipates 2003 asset sales to be in the range of $125 to $140 million. The Company has cash and cash equivalents of approximately $260 million, following the closing of the October property sales.

Other Highlights:

In early October, the Company closed on the sale of nine non-strategic hotels. FelCor sold four Holiday Inn®-branded hotels in Ontario, Canada, for $32 million (U.S. dollars). The Company intends to reinvest the proceeds to achieve a tax-free exchange. In addition, FelCor closed on the sale of five non-strategic hotels for $50 million. This portfolio had 894 rooms and included three Embassy Suites Hotels® and two Doubletree Guest Suites® hotels. A parking facility also was sold for $7 million in October. FelCor has 19 hotels remaining of the previously announced 33 non-strategic hotels identified for sale in December 2002. A listing of the non-strategic hotels actively being marketed for sale can be found on the Company's Web site at www.felcor.com on the "Hotels" page.

FelCor has declared and will pay regular third quarter dividends on its $1.95 Series A Cumulative Convertible Preferred Stock and its 9% Series B Cumulative Redeemable Preferred Stock.

2003 Guidance:

Current estimates of operating results for the fourth quarter and full year 2003 are as follows:

                                    Fourth                       Full Year
                                    Quarter                      2003
    FFO per share          $(0.07) to $0.01       $(1.36) to $(1.28)
    EBITDA                 $47 to $52 million    $120 to $125 million
    Net loss per share       $0.70 to $0.62         $3.89 to $3.82
    RevPAR                  (2.5)% to flat         (4.6)% to (4.0)%
    Operating margin     decrease 2.0% to 0.5%   decrease 3.3% to 2.9%
 
 

Consistent with recently clarified SEC guidance, full year 2003 FFO and EBITDA estimates have not been adjusted for the following non-cash charges included in the estimated net loss (in thousands):

                                                       Amount       Per Share
    Impairment Loss                           $(120,526)      $(1.94)
    Charge-off of deferred debt costs            (2,834)       (0.05)
    Gain on early extinguishment of debt          1,611         0.03
                                                         $(121,749)      $(1.96)
 
 

The Company's estimate for the fourth quarter was lowered to reflect a lower RevPAR forecast and the accelerated sale of hotels compared to FelCor's previous target ($0.04 per share impact).

For the first 28 days of October, total portfolio RevPAR declined 2.7 percent, occupancy increased 1.1 percent and ADR declined 3.7 percent, compared to the same period in 2002.

"We believe that 2004 will be a stronger year, with improving rates and increasing revenue, both for the industry and FelCor. We are confident that the initiatives taken over the last three years with our strategic brand managers will provide the framework for opportunistically recapturing rate and improving EBITDA as the economy regains its momentum," added Mr. Corcoran.

The Company currently anticipates its 2003 total capital expenditures to be approximately $70 million.
 

               Results of Operations - Three and Nine Months Ended 
September 30, 2003 and 2002 
(in thousands, except per share data)

                                    Three Months             Nine Months
                                  Ended September 30,     Ended September 30,
                                   2003        2002        2003        2002
    Revenues:
       Hotel operating revenue:
         Room                    $251,243    $253,717    $731,205    $765,538
         Food and beverage         44,570      45,030     140,042     146,792
         Other operating
          departments              16,517      17,291      48,673      49,865
       Retail space rental and
        other revenue                 256         353         875       1,451
         Total revenues           312,586     316,391     920,795     963,646

    Expenses:
       Hotel departmental expenses:
         Room                      68,462      66,106     192,776     191,368
         Food and beverage         37,265      37,523     112,384     115,167
         Other operating
          departments               8,149       8,161      23,039      22,731
       Other property related
        costs                      92,106      87,877     267,998     258,220
       Management and franchise
        fees                       16,752      16,421      48,476      48,860
       Taxes, insurance and
        lease expense              33,231      32,044      97,369      98,325
       Abandoned projects             ---       1,663         ---       1,663
       Corporate expenses           3,299       2,577      10,459      10,293
       Depreciation                34,725      36,044     104,898     109,491
          Total operating
           expenses               293,989     288,416     857,399     856,118

    Operating income               18,597      27,975      63,396     107,528
       Interest expense, net      (42,285)    (40,528)   (123,359)   (122,736)
       Charge off of debt
        related costs                 ---         ---      (2,834)        ---
       Gain on early extinguishment
        of debt                       ---         ---       1,260         ---
       Impairment loss           (107,720)        ---    (107,720)        ---

    Loss before equity in income
     from unconsolidated entities,
     minority interests and gain
     (loss) on sale of assets    (131,408)    (12,553)   (169,257)    (15,208)
       Equity in income from
        unconsolidated entities     1,674       1,230       2,252       3,816
       Gain (loss) on sale
        of assets                     (47)        ---         106       5,861
       Minority interests           7,388       3,285       9,945       2,991
    Loss from continuing
     operations                  (122,393)     (8,038)   (156,954)     (2,540)
       Discontinued operations     (3,524)        957     (10,257)      2,315
    Net loss                     (125,917)     (7,081)   (167,211)       (225)
       Preferred dividends         (6,727)     (6,727)    (20,181)    (19,565)
    Net loss applicable to
     common stockholders        $(132,644)   $(13,808)  $(187,392)   $(19,790)

    Basic per common share data:
       Net loss from continuing
        operations                 $(2.20)     $(0.28)     $(3.02)     $(0.42)
       Net loss                    $(2.26)     $(0.26)     $(3.20)     $(0.38)
       Weighted average common
        shares outstanding         58,690      52,729      58,609      52,724
    Diluted per common share data:
       Net loss from continuing
        operations                 $(2.20)     $(0.28)     $(3.02)     $(0.42)
       Net loss                    $(2.26)     $(0.26)     $(3.20)     $(0.38)
       Weighted average common
        shares outstanding         58,690      52,729      58,609      52,724
 

                             Discontinued Operations
                                  (in thousands)

     Condensed financial information for the 15 hotels classified in
     discontinued operations is as follows:

                                      Three Months Ended    Nine Months Ended
                                        September 30,         September 30,
                                       2003       2002       2003       2002

    Hotel operating revenue          $13,002    $15,192    $40,677    $44,472
    Hotel operating expenses          11,683     13,807     37,693     40,955
    Operating income                   1,319      1,385      2,984      3,517
    Direct interest costs                ---       (266)      (445)      (809)
    Impairment loss                   (4,982)       ---    (12,806)       ---
    Gain on the early extinguishment
     of debt                             351        ---        351        ---
    Loss on disposition                 (399)       ---       (882)       ---
    Minority interest                    187       (162)       541       (393)
    Income (loss) from discontinued
     operations                      $(3,524)      $957   $(10,257)    $2,315
 

                        Reconciliation of Net Loss to FFO
                  (in thousands, except per share and unit data)

                                     Three Months Ended September 30,
                                     2003                       2002
                                            Per Share                Per Share
                           Dollars  Shares   Amount   Dollars  Shares  Amount
    Net loss             $(125,917) 58,690  $(2.15)  $(7,081)  52,729 $(0.13)
     Depreciation from
      continuing
      operations            34,725     ---    0.59    36,044      ---   0.68
     Depreciation from
      unconsolidated
      entities and
      discontinued
      operations             3,228     ---    0.06     4,709      ---   0.09
     Gain on sale of assets    446     ---    0.01       ---      ---    ---
     Preferred dividends    (6,727)    ---   (0.11)   (6,727)     ---  (0.13)
     Minority interest
      in FelCor LP          (7,015)  3,161   (0.03)   (2,344)   9,003  (0.11)
     Conversion of options
      and unvested
      restricted stock         ---     303     ---       ---      324    ---
    FFO                  $(101,260) 62,154  $(1.63)  $24,601   62,056  $0.40
 

                                   Nine Months Ended September 30,
                                     2003                       2002
                                            Per Share                Per Share
                           Dollars  Shares   Amount  Dollars   Shares  Amount
    Net loss             $(167,211) 58,609  $(2.85)    $(225)  52,724    ---
    Depreciation from
      continuing
      operations           104,898     ---    1.79   109,491      ---   2.08
     Depreciation from
      unconsolidated
      entities and
      discounted
      operations            11,947     ---    0.20    13,341      ---   0.25
     Gain (loss) on
      sale of assets           776     ---    0.01    (5,861)     ---  (0.11)
     Preferred dividends   (20,181)    ---   (0.34)  (19,565)     ---  (0.37)
     Minority interest
      in FelCor LP         (10,065)  3,234   (0.09)   (3,359)   9,004  (0.34)
     Conversion of options
      and unvested
      restricted stock         ---     303     ---       ---      349    ---
    FFO                   $(79,836) 62,146  $(1.28)  $93,822   62,077  $1.51
 

     Consistent with recently clarified SEC guidance, FFO has not been
     adjusted for the following amounts included in net loss (in thousands):
 

                                    Three Months Ended     Nine Months Ended
                                       September 30,           September 30,
                                     2003        2002        2003        2002
    Impairment loss               $(112,702)     $---     $(120,526)     $---
    Charge off of deferred
     debt costs                         ---       ---        (2,834)      ---
    Gain on early extinguishment
     of debt                            351       ---         1,611       ---
    Abandoned projects                  ---    (1,663)          ---    (1,663)
                                  $(112,351)  $(1,663)    $(121,749)  $(1,663)

    Per share amounts             $   (1.81)  $ (0.03)    $   (1.96)  $ (0.03)
 

                       Reconciliation of Net Loss to EBITDA
                                  (in thousands)

                                    Three Months Ended      Nine Months Ended
                                       September 30,           September 30,
                                      2003      2002          2003       2002
    Net loss                      $(125,917)  $(7,081)    $(167,211)    $(225)
    Depreciation from continuing
     operations                      34,725    36,044       104,898   109,491
    Depreciation from unconsolidated
     entities and discontinued
     operations                       3,228     4,709        11,947    13,341
    Loss (gain) on sale of assets       446       ---           776    (5,861)
    Minority interest in FelCor
     Lodging LP                      (7,015)   (2,344)      (10,065)   (3,359)
    Interest expense                 42,777    41,073       124,780   124,488
    Interest expense from
     unconsolidated entities and
     discontinued operations          1,378     2,529         6,199     7,804
    Amortization expense                565       526         1,645     1,561
    EBITDA                         $(49,813)  $75,456       $72,969  $247,240
 

     Consistent with recently clarified SEC guidance, EBITDA has not been
     adjusted for the following amounts included in net loss (in thousands):
 

                                    Three Months Ended      Nine Months Ended
                                       September 30,          September 30,
                                     2003        2002        2003        2002
    Impairment loss               $(112,702)     $---     $(120,526)     $---
    Charge off of deferred debt
     costs                              ---       ---        (2,834)      ---
    Gain on early extinguishment
     of debt                            351       ---         1,611       ---
    Abandoned projects                  ---    (1,663)          ---    (1,663)
                                  $(112,351)  $(1,663)    $(121,749)  $(1,663)
 
 

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measurements of performance to be helpful in evaluating a real estate company's operations. We consider Funds From Operations, or FFO, and Earnings Before Interest, Taxes, Depreciation, and Amortization, or EBITDA, to be supplemental measures of a REIT's performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.

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 generally accepted accounting principles), 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 funds from operations on the same basis. We believe that FFO and EBITDA are helpful to investors as a supplemental measure of the performance of an equity REIT. 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.

FFO and EBITDA should not be considered as an alternative to net income, operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, FFO per share and EBITDA be considered as a measure of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. FFO per share does not measure, and should not be used as a measure of amounts that accrue directly to stockholders' benefit.

  Reconciliation of Estimated Net Income (Loss) to Estimated FFO and EBITDA
                (in millions, except per share and unit data)

                                             Fourth Quarter 2003 Guidance
                                          Low Guidance        High Guidance
                                                 Per Share           Per Share
                                       Dollars   Amount(A)  Dollars  Amount(A)
    Net loss applicable to
     common stockholders               $(41)     $(0.70)     $(36)    $(0.62)
       Depreciation                      38                    38
       Minority interest in FelCor LP    (2)                   (2)
    FFO                                 $(5)     $(0.07)       $0      $0.01

    Net loss applicable to common
     stockholders                      $(41)                 $(36)
       Depreciation                      38                    38
       Minority interest in FelCor LP    (2)                   (2)
       Interest expense                  44                    44
       Amortization expense               1                     1
       Preferred dividends                7                     7
    EBITDA                              $47                   $52
 

                                            Full Year 2003 Guidance (B)
                                          Low Guidance       High Guidance
                                                 Per Share          Per Share
                                      Dollars    Amount(A) Dollars   Amount(A)
    Net loss applicable to
     common stockholders              $(228)     $(3.89)    $(223)    $(3.82)
       Depreciation                     155                   155
       Gain from sales of assets          1                     1
       Minority interest in FelCor LP   (12)                  (12)
    FFO                                $(84)     $(1.36)     $(79)    $(1.28)

    Net loss applicable to common
     stockholders                     $(228)                $(223)
       Depreciation                     155                   155
       Gains from sales of assets         1                     1
       Minority interest in FelCor LP   (12)                  (12)
       Interest expense                 175                   175
       Amortization expense               2                     2
       Preferred dividends               27                    27
    EBITDA                             $120                  $125
 

     (A)  Weighted average shares are 58.6 million.  Adding minority interest
          and unvested restricted stock of 3.6 million shares to weighted
          average shares, provides the weighted average shares and units of
          62.2 million used to compute FFO per share.

     (B)  Consistent with recently clarified SEC guidance, full year FFO and
          EBITDA guidance has not been adjusted for the following non-cash
          charges included in estimated net loss (in thousands):

                                                 Amount        Per Share
    Impairment Loss                            $(120,526)       $(1.94)
    Charge-off of deferred debt costs             (2,834)        (0.05)
    Gain on early extinguishment of debt           1,611          0.03
                                               $(121,749)       $(1.96)
 

                         Selected Balance Sheet Data
                                (in thousands)

                                             September 30,  December 31,
                                                 2003          2002
    Investment in hotels                      $4,147,516    $4,255,618
    Accumulated depreciation                    (871,685)     (782,166)
    Investments in hotels, net of accumulated
     depreciation                             $3,275,831    $3,473,452

    Total cash and cash equivalents           $  175,983    $   66,542
    Total assets                               3,760,625     3,780,363
    Total debt                                 2,041,284     1,877,134
    Total stockholders' equity                $1,446,192    $1,616,817

FelCor is the nation's second largest lodging REIT and the owner of the largest number of full service, all-suite hotels in the nation. FelCor's consolidated portfolio is comprised of 163 hotels, located in 34 states and Canada. FelCor owns 71 full service, all-suite hotels, and is the owner of the greatest number of Embassy Suites Hotels and Doubletree Guest Suites hotels. FelCor's portfolio also includes 79 hotels in the upscale and full service segments. FelCor has a current market capitalization of approximately $3.0 billion. 

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. 

Contact:

FelCor Lodging Trust Incorporated
www.felcor.com


 
Also See FelCor Reports 2nd Qtr Net loss of $27 million, Compared with Net Income of $6 million a Year Ago; Offers Received on 15 Hotels with Estimated Proceeds of $110 million / July 2003
FelCor Reports 2002 Net Loss of $178.5 million; Plans to Sell 33 Smaller Hotels from Portfolio of 169, Expects to Defer Further Common Dividends / February 2003


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