| IRVING, Texas, | FelCor Lodging Trust Incorporated (NYSE: FCH), one
of the nation's largest hotel real estate investment trusts (REITs), today
announced that it has executed an agreement modifying the current management
agreements covering all FelCor-owned hotels managed by InterContinental
Hotels Group ("IHG"). This agreement will enable the Company to complete
its repositioning program and create the "New FelCor."
Agreement Highlights:
-
FelCor will retain 17 IHG-managed Holiday Inn hotels located in highly
desirable markets that are primarily in urban locations and mostly located
in the Northeast, East Coast and California.
-
Non-strategic IHG-managed hotels identified for sale encompass all of FelCor's
Holiday Inn® hotels that are located in secondary and tertiary markets,
as well as 10 hotels in Texas.
-
Elimination of any potential liquidated damages and any reinvestment requirement
with respect to hotels previously sold, 31 IHG-managed hotels now identified
for sale, and one Crowne Plaza® hotel to be converted to another brand.
-
FelCor will complete special capital plans totaling approximately $50 million
at 11 of the 17 retained hotels, designed to maximize the value of these
hotels.
-
Management agreements on the 17 retained hotels will be extended to 2025,
and include a new management performance standard and restructured incentive
fees.
-
Hospitality Properties Trust ("HPT") purchased seven of the 31 IHG- managed
hotels identified for sale for $160 million effective January 20.
"We are pleased that we found a solution with IHG that meets both of our
strategic objectives," said Thomas J. Corcoran, Jr., FelCor's President
and CEO. "We have now accomplished our two primary strategic objectives
outlined at the beginning of 2005: to amend the IHG management agreement
and reinstate a common dividend."
The completion of the agreement with IHG enables FelCor to sell its
non- strategic hotels and use the proceeds to reduce debt and invest in
high return-on-investment capital projects at FelCor's remaining core hotels.
The New FelCor will become a lower-levered company with a much stronger
and fully renovated portfolio. FelCor's repositioned portfolio will provide
a solid platform for future growth in today's strong Revenue Per Available
Room ("RevPAR") environment.
The New FelCor:
-
New FelCor will own 90 consolidated hotels, with 81 percent of its Hotel
Earnings Before Interest, Taxes, Depreciation and Amortization ("Hotel
EBITDA") from hotels in the upper upscale segment, that are located primarily
in Top 25 and resort markets.
-
The average Hotel EBITDA per room for the 90 core hotels is almost three
times higher than the Company's non-strategic hotels for the Trailing Twelve
Months ("TTM") ended September 30, 2005.
-
Hotel EBITDA growth for the TTM ended September 30, 2005, for the 90 core
hotels was 15 percent, as compared to only one percent for the non-strategic
hotels.
-
Hotel EBITDA margins were 27 percent for the 90 core hotels compared to
only 15 percent for the non-strategic hotels. The pro forma TTM ended September
30, 2005, leverage ratio is reduced from 6.5 times to 5.8 times.
-
High return capital projects should provide a boost to FelCor's future
Hotel EBITDA growth.
Repositioning:
FelCor has now identified 38 non-strategic hotels for sale. These 38
hotels are located primarily in secondary and tertiary markets, including
Texas and Atlanta, Georgia, where the Company has an excess concentration
of hotels. Certain elements of FelCor's strategy include:
-
The sale of 11 hotels previously identified as non-strategic, including
seven IHG-managed hotels.
-
The sale of 24 additional IHG-managed hotels, including the seven hotels
sold to HPT.
-
The sale of three additional hotels not managed by IHG.
-
Total proceeds from hotel sales are expected to be between $500 and $550
million representing an EBITDA multiple of between 13 and 14 times TTM
Hotel EBITDA.
-
The Crowne Plaza in San Francisco at Union Square will be converted to
another brand by the end of 2006.
-
In connection with FelCor's agreement with IHG, seven hotels were sold
to HPT. These high-quality hotels, which will continue to be managed by
IHG, consist of five Crowne Plaza hotels, one Holiday Inn hotel and one
Staybridge Suites® hotel. Six of these hotels are located in markets
where FelCor has an excess concentration of hotels.
-
In connection with this repositioning, FelCor will record an impairment
charge of approximately $260 million in the fourth quarter of 2005, associated
with the amendment of the IHG agreements and the decision to sell additional
non-strategic hotels.
Although the Company is selling 31 percent of its rooms, it is only
selling 15 percent of its Hotel EBITDA. The hotels to be sold have significantly
lower RevPAR and Hotel EBITDA margins than FelCor's 90 core hotels. Following
the sale of the 38 hotels, New FelCor will have significantly lower exposure
to markets with low barriers to entry, such as Atlanta, Dallas, Houston
and Omaha and will be more geographically diverse with no market contributing
more than six percent of EBITDA. The hotels will be marketed through exclusive
broker arrangements that are listed on the Company's Web site at www.felcor.com
.
FelCor�s Consolidated
Portfolio Summary
|
Existing FelCor
|
Non-Strategic Hotels
|
New FelCor
|
| Hotel Count |
128 |
38 |
90 |
| Room Count |
36,875 |
11,338 |
25,537 |
| Brands (Hotel Count): |
| Embassy Suites Hotels® |
55 |
2 |
53 |
| Doubletree® |
10 |
3 |
7 |
| Hilton® |
2 |
0 |
2 |
| Sheraton®/Westin® |
11 |
1 |
10 |
| Holiday Inn |
34 |
17 |
17 |
| Crowne Plaza (1) |
12 |
11 |
0 |
| Other(1) |
4 |
4 |
1 |
| Total |
128 |
38 |
90 |
(1) Assumes the conversion of one Crowne Plaza to
another brand
| Operating Statistics (TTM ended September 30, 2005): |
| RevPAR |
$ 71 |
$ 48 |
$ 82 |
| Hotel EBITDA (in millions) |
$294 |
$39 |
$255 |
| Hotel EBITDA per room |
$8,000 |
$3,400 |
$10,000 |
| Hotel EBITDA margin |
24.6% |
14.8% |
27.4% |
| Hotel EBITDA growth |
12.6% |
0.6% |
14.7% |
.
"After selling the hotels and funding our capital improvement program,
we will have a much stronger portfolio made up of high quality real estate
that is more geographically diversified," added Mr. Corcoran. "We are focused
on maximizing our internal growth and this is an important step in accomplishing
this goal. We expect strong future EBITDA growth with a higher return on
invested capital which should enhance shareholder value."
Use of Proceeds/Capitalization:
Total proceeds from the 38 non-strategic hotels identified for sale
are expected to be between $500 and $550 million, which represents a TTM
net operating income capitalization rate of 4.7 to 5.1 percent. The asset
sales are expected to occur over the next 18 months. The proceeds from
asset sales will be used primarily to invest in capital improvement projects
at FelCor's core hotels and to pay down debt.
FelCor will use a majority of the proceeds from hotel sales to pay
down debt of approximately $400 million. FelCor's leverage, as measured
by Consolidated Debt to Adjusted EBITDA, will improve on a pro forma basis
for the TTM from 6.5 times to 5.8 times from the anticipated reduction
of debt. Leverage will be further reduced by Hotel EBITDA growth in the
Company's core portfolio going forward.
The Company will use the remaining estimated sales proceeds of $100
to $150 million to fund capital improvement projects to be completed over
the next 18 months. These projects are in addition to maintenance capital
expenditures of approximately five percent of annual hotel revenues. These
capital projects consist of adding meeting space and completing major renovations
to hotels where additional rate and occupancy can be captured.
For the 10 hotels where major renovations, totaling $30 million, were
completed in 2004, Hotel EBITDA increased approximately 30 percent in 2005.
During 2005, the Company completed major renovations at eight hotels, totaling
$26 million, and expects Hotel EBITDA growth in 2006 to be significantly
better than the average of the remaining hotels.
Additionally, FelCor has re-established an unsecured line of credit,
that will allow the Company to use the approximately $100 million of its
excess cash to fund additional high-return capital projects. This credit
facility, in the amount of $125 million, was placed by J.P. Morgan Securities
Inc. and Citigroup Global Markets Inc. and will become effective upon certain
conditions.
FelCor expects cash flow from operations to be sufficient to cover the
payment of a dividend on its common stock, its full preferred stock dividends
as well as the funding of maintenance capital expenditures of five percent
of annual hotel revenues.
Use of Proceeds (in millions):
Estimated proceeds from hotel
sales (A): $ 525
Less capital improvement
projects
(125)
Total available for debt
reduction
$ 400
(A) Represents the midpoint of expected sales proceeds
Pro Forma Capital Structure (dollars in millions):
| . |
Actual
|
Non Strategic
Hotels
|
New FelCor
Pro Forma
|
| Consolidated Debt at September 30, 2005 |
$1,709 |
$400 (A) |
$1,309 |
| Adjusted EBITDA TTM ended September 30, 2005 |
$ 265 |
$ 39 |
$ 226 |
| Consolidated Debt to Adjusted EBITDA |
6.5x |
|
5.8x |
(A) Assuming the midpoint of expected sales
proceeds
"With the meaningful debt reduction, our balance sheet will be much
stronger," said Richard A. Smith, FelCor's Executive Vice President and
Chief Financial Officer. "This will position us for future external growth
where and when the opportunities fit our strategic objectives to own upscale
hotels in markets with high barriers to entry that improve our return on
invested capital, overall portfolio quality and long term EBITDA growth
rates at returns in excess of our long-term weighted average cost of capital."
FelCor's IHG-Branded Portfolio:
The 17 core Holiday Inn branded hotels being retained by FelCor (including
six Holiday Inn Select-branded hotels) are comprised of high quality hotels
located on very desirable real estate. FelCor also will retain its unconsolidated
interest in the Chateau LeMoyne hotel located in New Orleans that is managed
by IHG. These hotels have higher average Hotel EBITDA margins than the
average of FelCor's current upper upscale, full service hotels. In addition,
these hotels earn more than twice the EBITDA per room generated by the
non-strategic hotels to be sold.
FelCor's
IHG-Branded Portfolio Summary (A)
Core Holiday Non-Strategic
Inn Hotels Hotels
Hotel count
17 31
Rooms count
6,300 9,372
Operating
Statistics (TTM ended September 30, 2005):
RevPAR
$70 $49
Hotel EBITDA per room
$7,300 $3,600
Hotel EBITDA margin
22.6% 15.1%
(A) Excludes one Crowne Plaza that is to be converted
to another brand
The 17 core Holiday
Inn hotels are as follows:
Boston, MA -- Beacon Hill Holiday Inn Select
Charleston, SC -- Mills House Holiday Inn
Cocoa Beach, FL -- Oceanfront Holiday Inn
Houston, TX -- Medical Center Holiday Inn
Nashville, TN -- Opryland Holiday Inn Select
New Orleans, LA -- French Quarter Holiday
Inn
Orlando, FL -- Airport Holiday Inn Select
Orlando, FL -- International Drive Holiday
Inn
Philadelphia, PA -- Historic District Holiday
Inn
Pittsburgh, PA -- University Center Holiday
Inn Select
San Diego, CA -- On the Bay Holiday Inn
San Francisco, CA -- Fisherman's Wharf Holiday
Inn
Santa Barbara, CA -- Holiday Inn
Santa Monica Beach, CA -- At the Pier Holiday
Inn
San Antonio, TX -- Airport Holiday Inn Select
Toronto, Ontario, Canada -- Airport Holiday
Inn Select
Toronto, Ontario, Canada -- Yorkdale Holiday
Inn
A PowerPoint presentation, that provides additional detail regarding
the agreement with IHG and the "New FelCor," can be found on FelCor's Web
site under the Presentations tab on the Investor Relations page.
Fourth Quarter 2005 Operating Statistics:
RevPAR at FelCor�s consolidated hotels owned at December 31, 2005,
increased 16.2 percent during the fourth quarter and 10.8 percent year-to-date,
compared to prior year. RevPAR continues to be robust throughout the country
and was especially strong in Atlanta and Texas, following last year�s hurricanes.
FelCor is one of the nation�s largest hotel REITs and the nation�s largest
owner of full service, all-suite hotels. FelCor�s portfolio is comprised
of 117 consolidated hotels, located in 28 states and Canada. FelCor�s portfolio
includes 65 upper upscale, all-suite hotels, and FelCor is the largest
owner of Embassy Suites Hotels and Doubletree Guest Suites® hotels.
FelCor�s hotels are flagged under global brands such as Embassy Suites
Hotels, Doubletree, Hilton, Sheraton, Westin, Crowne Plaza and Holiday
Inn. FelCor has a current market capitalization of approximately $3.3 billion.
Additional information can be found on the Company�s Web site at www.felcor.com.
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. 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
currently anticipated. General economic conditions, including the anticipated
continuation of the current economic recovery, the impact of U.S. military
involvement in the Middle East and elsewhere, future acts of terrorism,
the impact on the travel industry of increased fuel prices and security
precautions, the impact that the bankruptcy of additional major air carriers
may have on our revenues and receivables, the availability of capital,
the ability to effect sales of non-strategic hotels at anticipated prices,
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.
Contacts:
Thomas J. Corcoran, Jr., President and CEO (972) 444-4901 [email protected]
Richard A. Smith, Executive Vice President and CFO (972) 444-4932 [email protected]
Monica L. Hildebrand, Vice President of Communications (972) 444-4917 [email protected]
Stephen A. Schafer, Vice President of Investor Relations (972) 444-4912
[email protected]
Non-GAAP Financial Measures
We refer in this release to certain �non-GAAP financial measures.�
These measures, including EBITDA, 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, based upon the TTM ended
September 30, 2005 and 2004. Immediately following the reconciliations,
we include a discussion of why we believe these non-GAAP measures are useful
supplemental measures of our performance and of the limitations upon such
measures.
.
Reconciliation of Net Income (Loss) to EBITDA and Adjusted
EBITDA
(in thousands)
Nine Months Ended Three Months Ended
TTM Ended
September 30, 2005 December 31, 2004 September 30, 2005
Net income (loss)
$13,595 $(10,770)
$2,825
Depreciation expense
98,896
33,069
131,965
Minority interest in
FelCor Lodging LP
(1,055)
(974)
(2,029)
Interest expense
107,661
36,095
143,756
Amortization expense
2,171
1,330
3,501
EBITDA
$221,268
$58,750
$280,018
Charge-off of
deferred financing
costs
---
866
866
Loss (gain) on early
extinguishment
of debt
(2,538)
4,983
2,445
Asset disposition
costs
1,300
---
1,300
Gain on sale of
depreciable assets
(9,624) (17,306)
(26,930)
Impairment loss
1,860
5,262
7,122
Adjusted EBITDA
$212,266
$52,555
$264,821
Nine Months Ended Three Months Ended
TTM Ended
September 30, 2004 December 31, 2003 September 30, 2004
Net loss
$(89,357) $(142,933)
$(232,290)
Depreciation expense
97,683
33,190
130,873
Minority interest in
FelCor Lodging LP
(5,707)
(7,712)
(13,419)
Interest expense
121,968
44,165
166,133
Amortization expense
1,615
565
2,180
EBITDA
$126,202 $(72,725)
$53,477
Charge-off of
deferred financing
costs
6,094
---
6,094
Loss (gain) on early
extinguishment
of debt
39,233
---
39,233
Asset disposition
costs
4,900
---
4,900
Gain on sale of
depreciable assets
(2,116)
(3,444)
(5,560)
Gain on swap
termination
(1,005)
---
(1,005)
Impairment loss
33,027
124,983
158,010
Minority interest
share of impairment
loss
---
(1,770)
(1,770)
Adjusted EBITDA
$206,335
$47,044
$253,379
Hotel EBITDA, Hotel EBITDA Margins and Hotel Operating
Expenses TTM Ended
September 30, 2005
(in thousands)
Nine Months Three Months
TTM
Ended Ended
Ended
September 30, December 31, September 30,
2005 2004
2005
Hotel EBITDA and Hotel
EBITDA Margin:
Total revenue (A)
$ 924,867 $ 271,632
$ 1,196,499
Retail space rental
and other revenue
(1,908) (130)
(2,038)
Hotel operating revenue
922,959 271,502
1,194,461
Hotel operating expenses
(688,830) (211,359)
(900,189)
Hotel EBITDA
$ 234,129 $ 60,143
$ 294,272
Hotel EBITDA margin
25.4% 22.2%
24.6%
Hotel Operating Expenses:
Total operating expenses (A)
$ 830,524 $ 256,483
$ 1,087,007
Unconsolidated taxes,
insurance and lease
expense 4,709
1,577
6,286
Consolidated hotel lease
expense
(42,761) (12,256)
(55,017)
Corporate expenses
(14,108) (5,506)
(19,614)
Depreciation
(89,534) (28,939)
(118,473)
Hotel operating expenses
$ 688,830 $ 211,359
$ 900,189
Hotel EBITDA, Hotel EBITDA Margins
and Hotel Operating Expenses TTM Ended
September 30, 2004
(in thousands)
Nine Months Three Months
TTM
Ended Ended
Ended
September 30, December 31, September 30,
2004 2003
2004
Hotel EBITDA and Hotel
EBITDA Margins:
Total revenue (A)
$ 860,083 $ 257,129
$ 1,117,212
Retail space rental
and other revenue
(2,590) (184)
(2,774)
Hotel operating revenue
857,493 256,945
1,114,438
Hotel operating expenses
(648,408) (204,694)
(853,102)
Hotel EBITDA
$ 209,085 $ 52,251
$ 261,336
Hotel EBITDA margin
24.4% 20.3%
23.5%
Hotel Operating Expenses:
Total operating expenses (A)
$ 778,725 $ 245,228
$ 1,023,953
Unconsolidated taxes,
insurance and lease
expense 4,160
2,168
6,328
Consolidated hotel lease
expense
(39,005) (11,527)
(50,532)
Corporate expenses
(11,529) (3,776)
(15,305)
Depreciation
(83,943) (27,399)
(111,342)
Hotel operating expenses
$ 648,408 $ 204,694
$ 853,102
(A) Total revenue and total
operating expenses for the three months
ended December 31, 2004 and 2003 have been adjusted from previously
issued financial statements to reclassify the operating activity of
disposed hotels from continuing operations to discontinued
operations consistent with the nine months ended September 30, 2005
and 2004 presentation.
Reconciliation of Adjusted EBITDA to Hotel EBITDA
(in thousands)
TTM Ended September 30,
2005 2004
Adjusted EBITDA
$264,821 $253,379
Retail space rental
and other revenue
(2,038) (2,774)
Adjusted EBITDA
from discontinued operations (4,623)
(15,805)
Equity in income
from unconsolidated subsidiaries
(excluding
interest and depreciation expense) (28,698)
(34,122)
Minority interest
in other partnerships
(excluding
interest and depreciation expense) 1,621
4,996
Consolidated hotel
lease expense
55,017 50,532
Unconsolidated taxes,
insurance and
lease expense
(6,286) (6,328)
Interest income
(3,547) (2,706)
Hurricane loss
2,309 2,125
Corporate expenses
(excluding
amortization
expense)
16,113 13,125
Gain on sale of
land
(417) (1,086)
Hotel EBITDA
$294,272 $261,336
Reconciliation of Net Income (Loss) to Hotel EBITDA
(in thousands)
TTM Ended September 30,
2005 2004
Net income (loss)
$2,825 $(232,290)
Discontinued operations
(24,378) 112,720
Equity in income
from unconsolidated entities (9,658)
(15,810)
Minority interests
(3,946) (8,362)
Consolidated hotel
lease expense
55,017 50,532
Unconsolidated taxes,
insurance and
lease expense
(6,286) (6,328)
Interest expense,
net
131,466 154,096
Charge-off of deferred
financing costs
866 6,094
Impairment loss
5,831 37,730
Hurricane loss
2,309 2,125
Loss on early extinguishment
of debt
4,983 39,233
Gain on swap termination
--- (1,005)
Corporate expenses
19,614 15,305
Depreciation
118,473 111,342
Retail space rental
and other revenue
(2,038) (2,774)
Gain on sale of
assets
(806) (1,272)
Hotel EBITDA
$294,272 $261,336
Reconciliation of Ratio of Operating Income to Total
Revenue to Hotel EBITDA
Margin
TTM Ended September 30,
2005 2004
Ratio of operating income to total
revenue
9.2% 8.3%
Retail space and
rental and other revenue
(0.2) (0.2)
Unconsolidated taxes,
insurance and lease expense (0.5)
(0.6)
Consolidated hotel
lease expense
4.6 4.6
Corporate expenses
1.6 1.4
Depreciation
9.9 10.0
Hotel EBITDA margin
24.6% 23.5%
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 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
company's performance or the performance of individual
hotels and should be
considered along with, but not as an alternative to,
net income as a measure
of our operating performance.
EBITDA
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 EBITDA
We adjust 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 EBITDA and Hotel EBITDA when combined with GAAP
net income and
EBITDA, 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 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 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 the definition of
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 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.
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 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 EBITDA and Hotel EBITDA
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. To enhance the comparability of our hotel-level
operating results
with other hotel REITs and hotel owners, we are now disclosing
Hotel EBITDA
and Hotel EBITDA Margin rather than the Hotel Operating
Profit and Hotel
Operating Margin previously disclosed. The purpose
of the change is to remove
any distortion created by unconsolidated entities and
to reflect hotel-level
operations as they were fully consolidated. To
reflect this, we 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.
Use and Limitations of Non-GAAP Measures
Our management and Board of Directors
use EBITDA, 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.
The use of these non-GAAP financial
measures has certain limitations.
EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA
margin, as presented by
us, may not be comparable to 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, 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
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. 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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