Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30,
June 30,
2005 2004
2005 2004
Revenues:
Hotel operating revenue:
Room
$262,294 $241,784 $500,837
$466,622
Food and beverage
47,154 45,021
88,810 85,194
Other operating
departments 16,105 15,640
30,834 30,624
Retail space rental and
other revenue
120 180
276 425
Total revenues
325,673 302,625 620,757
582,865
Expenses:
Hotel departmental expenses:
Room
67,105 63,661 128,721
123,352
Food and beverage
35,856 35,275
68,748 67,676
Other operating
departments 8,142
7,869 15,367 15,231
Other property related
costs 89,903 84,240
177,841 167,230
Management and franchise
fees 16,887 15,863
31,687 30,179
Taxes, insurance and lease
expense
32,524 29,628
63,341 59,543
Corporate expenses
4,728 4,380
9,269 7,742
Depreciation
30,485 28,027
60,093 56,503
Asset disposition costs
--- ---
650 ---
Total operating expenses 285,630 268,943
555,717 527,456
Operating income
40,043 33,682
65,040 55,409
Interest expense, net
(33,471) (39,203) (66,170)
(79,797)
Charge-off of deferred
financing costs
--- (3,944)
--- (4,174)
Impairment
(732) ---
(732) ---
Loss on early extinguishment
of debt
--- (28,246)
--- (28,246)
Gain on swap termination
--- 1,005
--- 1,005
Income (loss) before equity in
income from unconsolidated
entities, minority interests
and gain on sale of assets
5,840 (36,706) (1,862)
(55,803)
Equity in income from
unconsolidated entities
3,837 2,691
4,968 3,673
Minority interests
111 1,617
975 2,764
Gain on sale of assets
389 ---
389 ---
Income (loss) from continuing
operations
10,177 (32,398) 4,470
(49,366)
Discontinued operations
174 725
(2,133) (3,006)
Net income (loss)
10,351 (31,673) 2,337
(52,372)
Preferred dividends
(9,809) (8,970) (19,900)
(15,696)
Issuance costs of redeemed
preferred stock (5,198) --- (5,198)
---
Net loss applicable to common stockholders
$(4,656) $(40,643) $(22,761) $(68,068)
Basic and diluted per common
share data:
Net loss from continuing
operations
$(0.08) $(0.70) $(0.35)
$(1.10)
Net loss
$(0.08) $(0.69) $(0.38)
$(1.15)
Weighted average common
shares outstanding
59,404 58,950
59,363 58,952
Discontinued Operations
(in thousands)
Included in discontinued operations
are the results of operations of the 18 hotels disposed of in 2004, two
hotels designated as held for sale at June 30, 2005, and nine hotels disposed
of in the first two quarters of 2005. Condensed financial information
for the hotels included in discontinued operations is as follows:
Three Months Ended Six Months Ended
June 30,
June 30,
2005 2004
2005 2004
Operating revenue
$6,166 $32,811 $14,240
$68,186
Operating expenses
5,710 31,114
15,118 70,154
Operating
income (loss) 456
1,697 (878) (1,968)
Direct interest costs,
net (40)
(534) (581) (1,060)
Impairment loss
--- ---
(559) ---
Loss on sale of assets
(234) (1,214)
(214) (941)
Minority interests
(8) 776
99 963
Income (loss) from discontinued
operations
174 725
(2,133) (3,006)
Depreciation
300 2,144
1,189 4,562
Minority interest in FelCor
LP 8
37 (99)
(154)
Interest expense
40 536
583 1,064
EBITDA from discontinued
operations
522 3,442
(460) 2,466
Loss on sale of assets
234 1,214
214 941
Impairment loss
--- ---
559 ---
Asset disposition costs
--- ---
650 4,900
Adjusted EBITDA from
discontinued operations
$756 $4,656
$963 $8,307
Selected Balance Sheet Data
(in thousands)
June 30, December 31,
2005
2004
Investment in hotels
$3,887,365 $3,904,397
Accumulated depreciation
(994,414) (948,631)
Investments in hotels, net of
accumulated depreciation
$2,892,951 $2,955,766
Total cash and cash equivalents
$ 124,945 $ 119,310
Total assets
$3,294,836 $3,317,658
Total debt
$1,743,420 $1,767,122
Total stockholders' equity
$1,309,272 $1,330,323
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 and unit data)
Three Months Ended June 30,
2005
2004
Per Share
Per Share
Dollars Shares Amount Dollars
Shares Amount
Net income (loss) $10,351
$(31,673)
Preferred
dividends
(9,809)
(8,970)
Issuance costs of
redeemed preferred
stock
(5,198)
---
Net loss applicable
to common
stockholders
(4,656) 59,404 $(0.08) (40,643) 58,950
$(0.69)
Depreciation from
continuing
operations
30,485
0.51 28,027
0.47
Depreciation from
unconsolidated
entities and
discontinued
operations
2,604
0.04 3,991
0.07 Loss (gain) on sale of assets
(155) (0.00)
1,214
0.02 Minority interest in FelCor LP
(216) 2,788 (0.02) (2,078)
3,033 (0.02)
Conversion of options
and unvested
restricted stock
--- 339 ---
---
---
FFO
28,062 62,531 $0.45 (9,489)
61,983 (0.15)
Charge-off of
deferred debt costs
---
--- 3,944
0.06
Early extinguishment
of debt
---
28,246
0.46
Impairment
732
0.01 ---
---
Issuance costs of
redeemed preferred
stock
5,198
0.08 ---
---
Asset disposition costs
---
--- ---
---
Gain on swap
termination
---
--- (1,005)
(0.02)
Adjusted FFO
$33,992 62,531 $ 0.54 $ 21,696
61,983 $0.35
Reconciliation of Net Loss to FFO and Adjusted FFO
(in thousands, except per share and unit data)
Six Months Ended June 30,
2005
2004
Per Share
Per Share
Dollars Shares Amount Dollars
Shares Amount
Net income (loss)
$2,337
$(52,372)
Preferred
dividends
(19,900)
(15,696)
Issuance costs of
redeemed
preferred stock
(5,198)
---
Net loss applicable
to common
stockholders
(22,761) 59,363 $(0.38) (68,068) 58,952
$(1.15)
Depreciation from
continuing
operations
60,093
1.01 56,503
0.96
Depreciation from
unconsolidated
entities and
discontinued
operations
5,758
0.10 8,182
0.14 Loss (gain) on sale of assets
(175)
0.00 941
0.02 Minority interest in FelCor LP (1,059)
2,788 (0.06) (3,485) 3,033
(0.07)
Conversion of
options and
unvested restricted
stock
--- 319
---
FFO
41,856 62,470 0.67
(5,927) 61,985 (0.10)
Charge-off of
deferred debt
costs
---
4,174
0.07
Early extinguishment
of debt
---
28,246
0.46
Issuance costs of
redeemed preferred
stock
5,198
0.08 ---
---
Asset disposition
costs
1,300
0.02 4,900
0.08
Gain on swap
termination
---
--- (1,005)
(0.02)
Impairment
1,291
0.02 ---
---
Adjusted FFO
$ 49,645 62,470 $ 0.79 $ 30,388
61,985 $ 0.49
Reconciliation of Net Loss to
EBITDA, Adjusted EBITDA and Same-Store
EBITDA (in thousands)
Three Months Ended Six Months Ended
June 30,
June 30,
2005 2004
2005 2004
Net income (loss)
$10,351 $(31,673) $2,337
$(52,372)
Depreciation from continuing
operations
30,485 28,027
60,093 56,503
Depreciation from
unconsolidated entities
and discontinued
operations 2,604
3,991 5,758
8,182
Minority interest in
FelCor Lodging LP
(216) (2,078) (1,059)
(3,485)
Interest expense
34,273 39,798
67,614 81,114
Interest expense from
unconsolidated entities
and discontinued
operations 1,687
1,943 4,007
3,791
Amortization expense
755 519
1,352 1,022
EBITDA
79,939 40,527 140,102
94,755
Charge off of deferred
debt costs
--- 3,944
--- 4,174
Early extinguishment of
debt --- 28,246
--- 28,246
Asset disposition costs
--- ---
1,300 4,900
Loss (gain) on sale of
assets (155) 1,214
(175) 941
Gain on swap termination
--- (1,005)
--- (1,005)
Impairment
732 ---
1,291 ---
Adjusted EBITDA
80,516 72,926 142,518
132,011
Adjusted EBITDA from
discontinued operations
(756) (4,656)
(963) (8,307)
Same-Store EBITDA
$79,760 $68,270 $141,555
$123,704
Reconciliation of
Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per share and unit data)
Third Quarter 2005 Guidance
Low Guidance High
Guidance
Per Share
Per Share
Dollars Amount (A) Dollars
Amount (A)
Net income
$1
$2
Preferred dividends
(10)
(10)
Issuance costs of redeemed
preferred stock
---
---
Net loss applicable to
common stockholders
(9) $(0.15)
(8) $(0.13)
Depreciation
33
33
Minority interest in
FelCor LP
---
---
Issuance costs of redeemed
preferred stock
---
---
FFO
24 0.38
25 0.40
Asset disposition costs
---
---
Impairment
---
---
Adjusted FFO
$24 $0.38
$25 $ 0.40
Net income
$1
$2
Depreciation
33
33
Minority interest in
FelCor LP
---
---
Interest expense
34
34
Interest expense from
unconsolidated entities
2
2
Amortization expense
1
1
EBITDA
71
72
Asset disposition costs
---
---
Impairment
---
---
Adjusted EBITDA
$71
$72
Reconciliation of
Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per share and unit data)
Full Year 2005 Guidance
Low Guidance High
Guidance
Per Share
Per Share
Dollars Amount (A) Dollars
Amount (A)
Net loss
$ (13)
$ (11)
Preferred dividends
(39)
(39)
Issuance costs of redeemed
preferred stock
(5)
(5)
Net loss applicable to
common stockholders
(57) $(.96)
(55) $(.93)
Depreciation
133
133
Minority interest in
FelCor LP
(2)
(2)
Issuance costs of redeemed
preferred stock
5
5
FFO
79 1.26
81 1.29
Asset disposition costs
1
1
Impairment
1
1
Adjusted FFO
$81 $1.29
$83 $1.33
Net loss
$ (13)
$ (11)
Depreciation
133
133
Minority interest in
FelCor LP
(2)
(2)
Interest expense
137
137
Interest expense from
unconsolidated entities
8
8
Amortization expense
3
3
EBITDA
266
268
Asset disposition costs
1
1
Impairment
1
1
Adjusted EBITDA
$ 268
$ 270
(A) Weighted average shares are
59.4 million. Adding minority interest
and
unvested restricted stock of 3.3 million shares to weighted average shares,
provides the weighted average shares and units of 62.7 million used to
compute FFO per share.
Hotel Operating Profit and Hotel Operating Margin
(dollars in thousands)
Three Months Ended Six Months Ended
June 30,
June 30,
2005 2004
2005 2004
Total revenue
$325,673 $302,625 $620,757 $582,865
Retail space rental and
other revenue
(120) (180)
(276) (425)
Hotel revenue
325,553 302,445 620,481
582,440
Hotel operating expenses
(250,417) (236,536) (485,705) (463,211)
Hotel operating profit
$ 75,136 $ 65,909 $134,776 $119,229
Hotel operating margin
23.1% 21.8%
21.7% 20.5%
Hotel Operating Expense Composition
(dollars in thousands)
Three Months Ended Six Months Ended
June 30,
June 30,
2005 2004
2005 2004
Hotel departmental expenses:
Room
$ 67,105 $ 63,661 $128,721
$123,352
Food and beverage
35,856 35,275
68,748 67,676
Other operating departments
8,142 7,869
15,367 15,231
Other property related costs:
Administrative and general
29,406 27,874
57,893 54,982
Marketing and advertising
27,553 25,946
53,859 50,874
Repairs and maintenance
17,518 16,314
34,495 32,666
Energy
15,426 14,106
31,594 28,708
Taxes, insurance and
lease expense
32,524 29,628
63,341 59,543
Total other
property
related
costs
122,427 113,868 241,182
226,773
Management and franchise fees
16,887 15,863
31,687 30,179
Hotel operating expenses
$250,417 $236,536 $485,705
$463,211
Reconciliation of total
operating expense to
hotel operating expense:
Total operating expenses
$285,630 $268,943 $555,717
$527,456
Corporate expenses
(4,728) (4,380) (9,269)
(7,742)
Depreciation
(30,485) (28,027) (60,093)
(56,503)
Asset disposition costs
--- ---
(650) ---
Hotel operating expenses
$250,417 $236,536 $485,705
$463,211
Supplemental information:
Compensation and benefits
expense (included in hotel
operating expenses)
$100,618 $97,084 $196,571
$189,629
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, 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 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 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 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 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, 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
with respect to the ongoing operating performance of our hotels and the
effectiveness of management in running our business 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.
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 any single
financial measure. |