Hotel Online  Special Report

advertisements
..
..
 FelCor Identifies 38 Hotels for Sale, Expects Proceeds of Between $500 million
and $550 million; The New FelCor Will Own 90 Hotels
.
 
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 tcorcoran@felcor.com Richard A. Smith, Executive Vice President and CFO (972) 444-4932 rsmith@felcor.com Monica L. Hildebrand, Vice President of Communications (972) 444-4917 mhildebrand@felcor.com Stephen A. Schafer, Vice President of Investor Relations (972) 444-4912 sschafer@felcor.com 

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.

.
 
.
Monica L. Hildebrand
Vice President of Marketing & Communications
FelCor Lodging Trust
545 E. John Carpenter Frwy., Suite 1300, Irving, TX, 75062
P: 972.444.4917
www.felcor.com
.
Also See: FelCor Lodging Trust Reports a Net Loss of $4.7 million Applicable to Common Stockholders for 2nd Qtr 2005; Surrenders Five Limited Service Hotels to their Mortgage Holders / August 2005
Pinnacle Entertainment, Inc. Acquires the 297-suite Embassy Suites Hotel - St. Louis-Downtown from FelCor for $38 million / September 5, 2005

To search Hotel Online data base of News and Trends Go to Hotel.Online Search

Home | Welcome! | Hospitality News | Classifieds | Catalogs & Pricing | Viewpoint Forum | Ideas/Trends
Please contact Hotel.Online with your comments and suggestions.