Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended
March 31,
2006 2005
Revenues:
Hotel operating revenue
$311,876 $268,985
Retail space rental and
other revenue
134 156
Total revenues
312,010 269,141
Expenses:
Hotel departmental expenses
102,410 92,146
Other property operating
costs
89,085 79,999
Management and franchise
fees
16,569 13,321
Taxes, insurance and lease
expense
30,631 29,224
Corporate expenses
5,804 4,540
Depreciation
27,351 26,922
Total operating expenses
271,850 246,152
Operating income
40,160 22,989
Interest expense, net
(30,834) (31,869)
Charge-off of deferred financing costs
(667) ---
Income (loss) from continuing operations
before equity in income of unconsolidated
entities and minority interests
8,659 (8,880)
Equity in income from
unconsolidated
entities
1,948 1,131
Minority interests
150 917
Income (loss) from continuing operations
10,757 (6,832)
Discontinued operations
(905) (1,182)
Net income (loss)
9,852 (8,014)
Preferred dividends
(9,678) (10,091)
Net income (loss) applicable to common
stockholders
$174 $(18,105)
Basic and diluted earnings (loss) per
common share data:
Net earnings
(loss) from continuing
operations
$0.02 $(0.28)
Net earnings
(loss)
$--- $(0.30)
Basic weighted
average common shares
outstanding
59,660 59,416
Diluted weighted
average common shares
outstanding
59,976 59,416
Discontinued Operations
(in thousands)
Included in discontinued operations
are the results of operations
through the date of disposition, of eight hotels sold
in the first quarter
of 2006 and 19 hotels sold or otherwise disposed of in
2005. Condensed
financial information for the hotels included in discontinued
operations is
as follows:
Three Months Ended
March 31,
2006 2005
Operating revenue
$3,398 $34,016
Operating expenses
3,267 33,343
Operating income
131 673
Direct interest costs,
net
1 (1,371)
Impairment loss
--- (559)
Gain (loss) on sale of
depreciable assets (1,077)
20
Minority interests
40
55
Loss from discontinued operations
(905) (1,182)
Depreciation
--- 3,574
Minority interest in FelCor
LP
(40) (55)
Interest expense
(1) 1,374
EBITDA from discontinued operations
(946) 3,711
Gain (loss) on sale of
assets
1,077
(20)
Impairment loss
--- 559
Asset disposition costs
--- 1,300
Adjusted EBITDA from discontinued
operations $131
$5,550
Selected Balance Sheet Data
(in thousands)
March 31 December 31
2006 2005
Investment in hotels
$3,161,468 $3,341,881
Accumulated depreciation
(731,277) (754,502)
Investments in hotels, net of
accumulated depreciation
$2,430,191 $2,587,379
Total cash and cash equivalents
$75,796 $94,564
Total assets
$2,757,537 $2,919,093
Total debt
$1,500,266 $1,675,280
Total stockholders' equity
$1,028,462 $1,031,793
At March 31, 2006, we had an aggregate
of 60,922,271 shares of FelCor
common stock and 2,355,016 units of FelCor LP limited
partnership interest
outstanding.
Debt Summary
(dollars in thousands)
Interest
Rate at
Encumbered March 31, Maturity
Consolidated
Hotels 2006
Date Debt
Promissory note
none LIBOR(L) + 2.00 June 2016
$650
Senior unsecured
term notes
none 7.63
October 2007 123,591
Senior unsecured
term notes
none 9.00
June 2011 298,723
Line of credit (A)
none L + 2.00 January 2009
45,000
Senior unsecured
term notes
none L + 4.25
June 2011 190,000
Senior unsecured
term notes (B)
none 7.80
June 2011 100,000
Total unsecured
debt
757,964
Mortgage debt
9 hotels 6.52
July 2009 - 2014 103,629
Mortgage debt (C)
8 hotels L + 2.50
May 2007 116,996
Mortgage debt
7 hotels 7.32
March 2009 126,678
Mortgage debt
4 hotels 7.55
June 2009 41,370
Mortgage debt
8 hotels 8.70
May 2010 171,788
Mortgage debt
7 hotels 8.73
May 2010 132,485
Mortgage debt
1 hotel L + 2.85
August 2008 15,500
Mortgage debt
1 hotel 7.91
December 2007 10,388
Other
1 hotel 9.17
August 2011 5,031
Construction loan (D)
--- L + 2.25 August
2007 18,437
Total secured
debt
46 hotels
742,302
$1,500,266
April 2006
debt reduction from asset sale proceeds
$(72,301)
(A) Our line of credit
has a borrowing capacity of $125 million. The
$45 million outstanding at March 31, 2006 was repaid in April 2006
from asset sale proceeds.
(B) We have swapped $100
million of floating rate debt, at L + 4.25
percent, for a fixed rate of 7.80 percent. This interest rate swap
expires in December 2007.
(C) This debt has a one-year
extension option, subject to certain
contingencies. In April 2006, we repaid $27.3 million of this debt
from asset sale proceeds. The interest rate on the remaining $89.7
million is L + 1.25 percent.
(D) We have a $69.8 million
recourse construction loan facility for the
development of a 184-unit condominium project in Myrtle Beach, South
Carolina. The interest on this facility is currently based on L +
225 basis points and is being capitalized as part of the cost of the
project. The interest rate may be reduced to L + 200 basis points
when the project is 55 percent complete and upon satisfaction of
certain other requirements.
Weighted average interest rate at March 31, 2006
8.12%
Fixed interest rate debt to total debt
77.7%
Weighted average maturity of debt
5 years
Secured debt to total assets
26.9%
Preferred Stock
(dollars in thousands)
Liquidation Value at
March 31, 2006
Series A Cumulative Convertible Preferred
Stock
$322,011
Series C Cumulative Redeemable Preferred
Stock
$169,950
Non-GAAP Financial Measures
We refer in this release to certain
"non-GAAP financial measures."
These measures, including FFO, Adjusted FFO, EBITDA,
Adjusted EBITDA,
Same-Store 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. 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 Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share and unit data)
Three Months Ended March 31,
2006
2005
Per Share
Per Share
Dollars Shares Amount Dollars Shares
Amount
Net income (loss)
$9,852
$(8,014)
Preferred dividends
(9,678)
(10,091)
Net income (loss)
applicable to common
stockholders
174 59,976 $--- (18,105)
59,416 $(0.30)
Depreciation from
continuing
operations
27,351 --- 0.46
26,922 --- 0.45
Depreciation from
unconsolidated
entities and
discontinued
operations
2,723 --- 0.05
5,839 --- 0.10
Loss (gain) on sale
of depreciable
assets
1,077 --- 0.02
(20) --- ---
Minority interest
in FelCor LP
8 2,663 (0.03)
(843) 2,788 (0.03)
Conversion of options
and unvested
restricted stock
--- --- ---
--- 421 ---
FFO
31,333 62,639 0.50
13,793 62,625 $0.22
Charge-off of
deferred financing
costs
667 --- 0.01
--- --- ---
Abandoned projects
--- --- ---
1,300 --- 0.02
Impairment loss on
discontinued
operations
--- --- ---
559 --- 0.01
Adjusted FFO
$32,000 62,639 $0.51 $15,652
62,625 $0.25
Reconciliation of Net Income (Loss)
to EBITDA, Adjusted EBITDA and
Same-Store
EBITDA
(in thousands)
Three Months Ended
March 31,
2006 2005
Net income (loss)
$9,852 $(8,014)
Depreciation from continuing
operations 27,351
26,922
Depreciation from unconsolidated
entities
and discontinued
operations
2,723 5,839
Minority interest in FelCor
Lodging LP
8 (843)
Interest expense
31,629 32,510
Interest expense from
unconsolidated
entities and discontinued
operations
1,596 3,152
Amortization expense
990 597
EBITDA
74,149 60,163
Charge-off of deferred
financing costs
667
--
Impairment loss on discontinued
operations ---
559
Asset disposition costs
--- 1,300
Gain (loss) on sale of
depreciable assets 1,077
(20)
Adjusted EBITDA
75,893 62,002
Adjusted EBITDA from discontinued
operations (131)
(5,550)
Same-Store EBITDA
$75,762 $56,452
Reconciliation of Adjusted EBITDA to Hotel EBITDA
(in thousands)
Three Months Ended
March 31,
2006 2005
Adjusted EBITDA
$75,893 $62,002
Retail space rental and
other revenue
(134) (156)
Adjusted EBITDA from discontinued
operations (131)
(5,550)
Equity in income from
unconsolidated entities
(excluding interest
and depreciation expense) (6,699)
(5,793)
Minority interest in other
partnerships
(excluding interest and
depreciation expense) 233
490
Consolidated hotel lease
expense
14,333 12,665
Unconsolidated taxes,
insurance and lease
expense
(1,553) (1,455)
Interest income
(794) (641)
Corporate expenses (excluding
amortization
expense)
4,813 3,943
Hotel EBITDA
$85,961 $65,505
Reconciliation of Net Income (Loss) to Hotel EBITDA
(in thousands)
Three Months Ended
March 31,
2006 2005
Net income (loss)
$9,852 $(8,014)
Discontinued operations
905 1,182
Equity in income from
unconsolidated
entities
(1,948) (1,131)
Minority interest
(150) (917)
Consolidated hotel lease
expense
14,333 12,665
Unconsolidated taxes,
insurance and lease
expense
(1,553) (1,455)
Interest expense, net
30,834 31,869
Charge-off of deferred
financing costs
667 ---
Corporate expenses
5,804 4,540
Depreciation
27,351 26,922
Retail space rental and
other revenue
(134) (156)
Hotel EBITDA
$85,961 $65,505
Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
Three Months Ended
March 31,
2006 2005
Total revenue
$312,010 $269,141
Retail space rental and other revenue
(134) (156)
Hotel operating revenue
311,876 268,985
Hotel operating expenses
(225,915) (203,480)
Hotel EBITDA
$85,961 $65,505
Hotel EBITDA margin
27.6% 24.4%
Reconciliation of Ratio of Operating Income to
Total Revenue to Hotel EBITDA
Margin
Three Months Ended
March 31,
2006 2005
Ratio of operating income to total
revenue 12.9%
8.5%
Retail space rental and
other revenue
--- ---
Unconsolidated taxes,
insurance and lease
expense
(0.6) (0.5)
Consolidated hotel lease
expense
4.6 4.7
Corporate expenses
1.9 1.7
Depreciation
8.8 10.0
Hotel EBITDA margin
27.6% 24.4%
Hotel Operating Expense Composition
(dollars in thousands)
Three Months Ended
March 31,
2006 2005
Reconciliation of total operating
expense to
hotel operating expense:
Total operating expenses
$271,850 $246,152
Unconsolidated taxes,
insurance and lease
expense
1,553 1,455
Consolidated hotel lease
expense
(14,333) (12,665)
Corporate expenses
(5,804) (4,540)
Depreciation
(27,351) (26,922)
Hotel operating expenses
$225,915 $203,480
Supplemental information:
Compensation and benefits
expense
(included in hotel operating
expenses) $93,036
$86,955
Reconciliation of Forecasted Net Income to
Forecasted FFO, Adjusted FFO,
EBITDA and Adjusted EBITDA
(in millions, except per share and unit data)
2nd Quarter 2006 Guidance Full Year 2006
Guidance
Low Guidance High Guidance Low Guidance
High Guidance
Per Share Per Share
Per Share Per Share
Amount Amount
Amount Amount
Dollars (A) Dollars (A) Dollars
(A) Dollars (A)
Net income (B) $17
$19 $27
$32
Preferred
dividends
(10) (10)
(39) (39)
Net income
(loss)
applicable to
common
stockholders (B) 7
$0.12 9 $0.15 (12)
$(0.20) (7) $(0.12)
Loss on sale
of assets
--- ---
1
1
Depreciation
33
33 131
131
Minority
interest
in FelCor LP
--- ---
(1) (1)
Preferred A
dividends
---
6 ---
---
FFO
40 $0.63 48 $0.66
119 $1.89 124 $1.97
Write off
loan costs
--- ---
1
1
Adjusted FFO
$40 $0.63 $48 $0.66
$120 $1.90 $125 $1.98
Net income (B) $17
$19 $27
$32
Depreciation
33
33 131
131
Minority
interest
in FelCor LP
--- ---
(1) (1)
Interest
expense
30
30 124
124
Amortization
expense
1
1
4
4
EBITDA
81
83 285
290
Loss on sale
of assets
--- ---
1
1
Write off
loan costs
--- ---
1
1
Adjusted EBITDA $81
$83 $287
$292
(A) Weighted average shares
are 59.7 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
63.1 million used to compute FFO per share. We have assumed the
conversion of our Preferred A stock to common stock on the high end
of our second quarter 2006 guidance because it is dilutive. This
increases our weighted average shares from 63.1 million to 73.1
million.
(B) Excludes future gains
or losses from asset sales and debt
extinguishment.
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 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
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 from the disposition
of non-hotel related
assets.
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 are 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. We also 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 FFO, Adjusted FFO, 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. 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 EBITDA
and Hotel EBITDA margin, as presented by us, may not
be comparable to FFO,
Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store 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 and interest or 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 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. |
