Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Year
Ended
December 31,
December 31,
2004 2003
2004 2003
Revenues:
Hotel operating revenue:
Room
$220,964 $209,291 $945,938
$883,834
Food and beverage 48,888
46,535 180,398 167,883
Other operating
departments
14,638 13,949
62,527 59,011
Retail space rental and
other revenue
131 184
2,721 1,022
Total revenues 284,621
269,959 1,191,584 1,111,750
Expenses:
Hotel departmental
expenses:
Room
62,537 59,454 257,016
234,242
Food and beverage 37,624
36,675 143,079 133,412
Other operating
departments
7,842 6,608
31,887 27,024
Other property related
costs
87,638 82,463 349,274
324,202
Management and franchise
fees
14,090 14,224
61,579 58,711
Taxes, insurance and
lease expense
24,898 26,870 114,648
117,662
Corporate expenses
5,525 3,807
17,094 14,266
Depreciation
30,410 28,959 118,855
123,968
Total operating
expenses
270,564 259,060 1,093,432
1,033,487
Operating income
14,057 10,899
98,152 78,263
Interest expense, net (33,413)
(42,025) (149,623) (165,175)
Impairment loss
(5,262) (54,205) (33,760)
(107,409)
Hurricane loss
--- ---
(2,125) ---
Charge-off of deferred financing costs (866)
--- (6,960) (2,834)
Loss on early extinguishment
of debt
(4,983) ---
(44,216) ---
Gain on swap termination ---
--- 1,005
---
Loss before equity
in income
from unconsolidated
entities,
minority
interests and
gain on sale
of assets (30,467)
(85,331) (137,527) (197,155)
Equity in income from
unconsolidated entities 1,429
118 17,121
2,370
Gain on sale of assets
73 178
1,167 284
Minority interests
2,098 6,769
7,928 13,912
Loss from continuing
operations
(26,867) (78,266) (111,311) (180,589)
Discontinued operations 16,097
(64,667) 11,184 (129,555)
Net loss
(10,770) (142,933) (100,127) (310,144)
Preferred dividends (10,091)
(6,727) (35,130) (26,908)
Net loss applicable to common stockholders
$(20,861) $(149,660) $(135,257) $(337,052)
Basic and diluted
per
common share
data:
Net loss from continuing
operations
$(0.62) $(1.45) $(2.48)
$(3.54)
Net loss
$(0.35) $(2.55) $(2.29)
$(5.75)
Weighted average common
shares outstanding 59,192
58,801 59,045
58,657
Discontinued Operations
(in thousands)
Included in discontinued
operations are the results of operations of the 18 hotels disposed of in
2004, one hotel designated as held for sale at December 31, 2004, and 16
hotels sold in 2003. Condensed financial information for the hotels
included in discontinued operations is as follows:
Three Months Ended
Year Ended
December 31,
December 31,
2004 2003
2004 2003
Hotel
operating revenue $5,677
$26,617 $69,298 $146,317
Hotel
operating expenses 6,135
27,096 67,566 147,798
Operating income (loss) (458)
(479) 1,732
(1,481)
Direct
interest costs, net ---
--- 12
(636)
Gain
on the early
extinguishment of debt
--- ---
--- 1,611
Impairment
loss
--- (70,778) (4,529)
(138,100)
Lease
termination expense
from asset disposition
--- ---
(4,900) ---
Gain
on sale of assets 17,306
3,258 19,422
2,376
Minority
interest in
FelCor LP
(751) 3,332
(553) 6,675
Gain (loss) from
discontinued
operations
16,097 (64,667) 11,184
(129,555)
Depreciation
--- 2,153
3,797 16,258
Minority
interest
751 (3,332)
553 (6,675)
Interest
expense
--- ---
--- 665
EBITDA from discontinued
operations
16,848 (65,846) 15,534
(119,307)
Gain
on sale of assets (17,306)
(3,258) (19,422) (2,376)
Impairment
loss
--- 70,778
4,529 138,100
Loss
on early extinguishment
of debt
--- ---
(1,611)
Lease
termination expense
from asset disposition
--- ---
4,900 ---
Adjusted EBITDA
from
discontinued
operations $(458)
$1,674 $5,541 $14,806
Selected Balance Sheet Data
(in thousands)
December 31,
2004
2003
Investment in hotels
$3,909,021 $3,989,964
Accumulated depreciation
(948,631) (886,168)
Investment in hotels,
net of
accumulated
depreciation
$2,960,390 $3,103,796
Total cash and cash
equivalents
$ 119,310 $ 231,885
Total assets
$3,317,658 $3,590,893
Total debt
$1,767,122 $2,037,355
Total stockholders'
equity
$1,330,323 $1,296,272
Non-GAAP Financial
Measures
We refer in this
press release to certain "non-GAAP financial measures."
These measures, including FFO, Adjusted
FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit
and hotel operating margin, are measures of our financial performance that
are not calculated and presented in accordance with generally accepted
accounting principles ("GAAP"). The following tables set forth the
adjustments made and 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 of the limitations upon such measures.
Reconciliation of Net Loss to FFO and Adjusted FFO
(in thousands, except per share data)
Three Months Ended December 31,
2004
2003
Per Share
Per Share
Dollars Shares Amount Dollars
Shares Amount
Net loss
$(10,770)
$(142,933)
Preferred
dividends (10,091)
(6,727)
Net loss applicable
to common
stockholders
(20,861) 59,192 $(0.35) (149,660) 58,801
$(2.55)
Depreciation
from
continuing
operations 30,410
--- 0.51 28,959
--- 0.49
Depreciation
from
unconsolidated
entities and
discontinued
operations 2,659
--- 0.04 4,231
--- 0.07
Gain
on sale
of assets (17,306)
--- (0.29) (3,444)
--- (0.06)
Minority
interest
in FelCor LP (974)
2,789 (0.01) (7,712) 3,050
(0.01)
FFO
(6,072) 61,981 (0.10) (127,626) 61,851
(2.06)
Charge-off
of
deferred debt costs 866 ---
0.01 ---
--- ---
Loss
on early
extinguishment of
debt
4,983 --- 0.08
--- --- ---
Impairment
5,262 --- 0.08
124,983 --- 2.02
Minority
interest
share of impairment --- ---
--- (1,770) ---
(0.03)
Dilutive
effect of
unvested stock
grants
--- 438 0.01
--- --- ---
Adjusted FFO
$5,039 62,419 $0.08 $(4,413)
61,851 $(0.07)
Year Ended December 31,
2004
2003
Per Share
Per Share
Dollars Shares Amount Dollars
Shares Amount
Net loss
$(100,127)
$(310,144)
Preferred
dividends (35,130)
(26,908)
Net loss applicable
to common
stockholders
(135,257) 59,045 $(2.29) (337,052) 58,657
$(5.75)
Depreciation
from
continuing
operations 118,855
--- 2.01 123,968
--- 2.11
Depreciation
from
unconsolidated
entities and
discontinued
operations 11,897
--- 0.20 26,067
--- 0.44
Gain
on sale
of assets (19,422)
--- (0.33) (2,668)
--- (0.05)
Minority
interest
in FelCor LP (6,681) 2,939
(0.08) (17,777) 3,188 (0.10)
FFO
(30,608) 61,984 (0.49) (207,462) 61,845
(3.35)
Charge-off
of
deferred debt
costs
6,960 --- 0.11
2,834 --- 0.04
Loss
(gain) on
early
extinguishment
of debt
44,216 --- 0.71
(1,611) --- (0.03)
Gain
on swap
termination (1,005)
--- (0.02) ---
--- ---
Lease
termination
expense from asset
disposition 4,900
--- 0.08 ---
--- ---
Impairment
38,289 --- 0.62
245,509 --- 3.97
Minority
interest
share of impairment --- ---
--- (1,770) ---
(0.03)
Dilutive
effect of
unvested stock
grants
--- 359 ---
--- 303 ---
Adjusted FFO
$62,752 62,343 $1.01 $37,500
62,148 $0.60
Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and Same-Store
EBITDA (in thousands)
Three Months Ended
Year Ended
December 31,
December 31,
2004 2003
2004 2003
Net loss
$(10,770) $(142,933) $(100,127) $(310,144)
Depreciation from
continuing operations 30,410
28,959 118,855
123,968
Depreciation from
unconsolidated entities
and discontinued
operations
2,659 4,231
11,897 26,067
Minority interest in
FelCor Lodging LP (974)
(7,712) (6,681) (17,777)
Interest expense 34,322
42,871 152,394
167,431
Interest expense from
unconsolidated entities
and discontinued
operations
1,773 1,294
5,667 7,713
Amortization expense 1,330
565 2,945
2,210
EBITDA
58,750 (72,725) 184,950
(532)
Charge-off of deferred
debt costs
866 ---
6,960 2,834
Loss (gain) on early
extinguishment of debt 4,983
--- 44,216
(1,611)
Gain on swap termination ---
--- (1,005)
---
Lease termination expense
from asset disposition ---
--- 4,900
---
Gain on sale of assets (17,306) (3,444)
(19,422) (2,668)
Impairment
5,262 124,983
38,289 245,509
Minority interest share
of impairment loss ---
(1,770) ---
(1,770)
Adjusted EBITDA
52,555 47,044
258,888 241,762
Adjusted EBITDA from discontinued operations 458
(1,674) (5,541) (14,806)
Gain on development and
sale of Margate
Condominiums
(808) ---
(11,664) ---
Same-Store EBITDA
$52,205 $45,370 $241,683
$226,956
Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per share and unit data)
First Quarter 2005 Guidance
Low Guidance
High Guidance
Per Share
Per Share
Dollars Amount(A) Dollars
Amount(A)
Net loss
$(13) $(0.22)
$(11) $(0.19)
Depreciation
36
36
Preferred Dividends (10)
(10)
Minority interest in
FelCor LP
(1)
(1)
FFO
$ 12 $ 0.19
$ 14 $ 0.22
Net loss
$(13)
$(11)
Depreciation
36
36
Minority interest in
FelCor LP
(1)
(1)
Interest expense
34
34
Interest expense from
unconsolidated entities 2
2
Amortization expense 1
1
EBITDA
$ 59
$ 61
Full Year 2005 Guidance
Low Guidance
High Guidance
Per Share
Per Share
Dollars Amount(A) Dollars
Amount(A)
Net loss
$ (35) $(0.59) $
(29) $(0.49)
Depreciation
147
147
Preferred Dividends (40)
(40)
Minority interest in
FelCor LP
(2)
(2)
FFO
$ 70 $ 1.11
$ 76 $ 1.21
Net loss
$ (35)
$ (29)
Depreciation
147
147
Minority interest in
FelCor LP
(2)
(2)
Interest expense
139
139
Interest expense from
unconsolidated entities 7
7
Amortization expense 3
3
EBITDA
$259
$265
(A)
Weighted average shares are 59.4 million. Adding minority interest
and unvested restricted stock of 3.4 million shares to weighted average
shares, provides the weighted average shares and units of 62.8 million
used to compute FFO per share.
Hotel Operating Profit
(dollars in thousands)
Three Months
Year Ended
Ended December 31,
December 31,
2004 2003
2004 2003
Total revenue
$284,621 $269,959 $1,191,584
$1,111,750
Retail space rental
and other
revenue (131)
(184) (2,721)
(1,022)
Hotel revenue
284,490 269,775 1,188,863
1,110,728
Hotel operating
expenses (234,629) (226,294) (957,483)
(895,253)
Hotel operating
profit $49,861 $43,481
$231,380 $215,475
Hotel operating
margin 17.5%
16.1% 19.5%
19.4%
Hotel Operating Expense Composition
(dollars in thousands)
Three Months Ended
Year Ended
December 31,
December 31,
2004 2003
2004 2003
Hotel departmental
expenses:
Room
$62,537 $59,454 $257,016
$234,242
Food and beverage 37,624
36,675 143,079
133,412
Other operating
departments
7,842 6,608
31,887 27,024
Other property
related
costs:
Administrative and
general
29,860 26,948
115,422 106,466
Marketing and
advertising
25,042 24,506
102,897 96,400
Repairs and maintenance 17,111 16,953
67,827 63,696
Energy
15,625 14,056
63,128 57,640
Taxes, insurance and
lease expense 24,898
26,870 114,648
117,662
Total other property
related costs 220,539
212,070 895,904
836,542
Management and
franchise
fees
14,090 14,224
61,579 58,711
Hotel operating
expenses $234,629 $226,294
$957,483 $895,253
Reconciliation of
total
operating
expense to
hotel operating
expense:
Total operating
expenses $270,564 $259,060 $1,093,432
$1,033,487
Corporate expenses (5,525)
(3,807) (17,094)
(14,266)
Depreciation
(30,410) (28,959) (118,855)
(123,968)
Hotel operating
expenses $234,629 $226,294
$957,483 $895,253
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 diminish 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, Same-Store
EBITDA, hotel operating profit and hotel operating margin, are not measures
of operating performance under GAAP. However, we consider these non-GAAP
measures 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.
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 described below
provides useful supplemental information to investors regarding our ongoing
operating performance and that the presentation of Adjusted FFO, Adjusted
EBITDA and Same-Store 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 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 represent accelerated
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 adjust EBITDA for gains or losses on the disposition
of assets because we believe that including them in EBITDA is not consistent
with reflecting 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
EBITDA, we make the same adjustments to EBITDA as for Adjusted EBITDA and,
additionally, exclude EBITDA from discontinued operations and gains and
losses on the disposition of non-hotel related assets.
Hotel Operating
Profit and Operating Margin
Hotel operating
profit and operating 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 operating profit and operating margin is useful to
investors by providing greater transparency with respect to two significant
measures used by us in our financial and operational decision-making.
Additionally, using these measures facilitate comparisons with other hotel
REITs and hotel owners. We present hotel operating profit and hotel
operating margin by eliminating 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 into the ongoing operation performance of
our hotels and the effectiveness of management in running our business
on a property-level basis. We eliminate depreciation and amortization
because, even though depreciation and amortization are property-level expenses,
these non-cash expenses, which are based on historical cost accounting
for real estate assets, implicitly assumes that the value of real estate
assets diminishes predictably over time.
Use and Limitations
of Non-GAAP Measures
Our management
and Board of Directors use FFO, Adjusted FFO, EBITDA and
Adjusted EBITDA 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.
Same-Store EBITDA is used to provide investors with supplemental information
as to the ongoing operating performance of our hotels without regard to
those hotels sold or held for sale at the date of presentation.
The use of these
non-GAAP financial measures has certain limitations. FFO, Adjusted
FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit
and hotel operating margin, as presented by us, may not be comparable to
FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating
profit and hotel operating margin as calculated by other real estate companies.
These measures do not reflect certain expenses 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 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, FFO per share, Adjusted FFO, Adjusted FFO per share, EBITDA, Adjusted
EBITDA or Same-Store EBITDA be considered as measures 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 the benefit
of stockholders. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store
EBITDA, hotel operating profit and hotel operating 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 a single financial measure.
We have published our Supplemental
Information for the Three Months and Year Ended December 31, 2004, which
provides additional corporate data, financial highlights and portfolio
statistical data. Investors are encouraged to access the Supplemental
Information on our Web site at http://www.felcor.com , on the Investor
Relations page in the "Financial Reports" section. The Supplemental
Information also will be furnished upon request. Requests may be
made by e-mail to [email protected] or by writing to the Vice President
of Investor Relations, FelCor Lodging Trust Incorporated, 545 E. John Carpenter
Freeway, Suite 1300, Irving, Texas, 75062.
FelCor is the nation's second largest
public hotel real estate investment trust and the largest owner of full
service, all-suite hotels. FelCor's consolidated portfolio is comprised
of 143 hotels, located in 31 states and Canada. FelCor owns 69 upscale,
all-suite hotels, and is the owner of the largest number of Embassy Suites
Hotels and Doubletree Guest Suites(R) hotels in the U.S. FelCor's
portfolio also includes 65 hotels in the upscale and full service segments.
FelCor has a current market capitalization of approximately $3.2 billion.
Additional information can be found on our Web site at http://www.felcor.com
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