CNL Hotels & Resorts, Inc.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE
SHEETS - UNAUDITED
(in thousands, except per share
data)
June 30, December 31,
2006 2005
ASSETS
Hotel and resort
properties, net
$5,077,825 $3,960,611
Assets held
for sale
- 463,844
Cash and cash
equivalents
117,973 83,307
Restricted cash
91,804 113,981
Receivables,
less allowance for doubtful
accounts
of $1,988 and $1,806, respectively
171,841 88,625
Goodwill
510,730 509,174
Intangibles,
less accumulated amortization
of $22,367
and $17,549, respectively
331,905 336,723
Prepaid expenses
and other assets
70,099 103,127
Loan costs,
less accumulated amortization
of $28,206
and $38,960, respectively
22,552 29,390
$6,394,729 $5,688,782
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and
other notes payable
$3,595,922 $2,599,454
Liabilities
associated with assets held for
sale
-- 418,957
Accounts payable
and accrued expenses
251,207 175,026
Accrued litigation
settlement
35,413 34,151
Other liabilities
25,279 25,552
Distributions
and losses in excess of
investments
in unconsolidated entities
408 2,600
Due to related
parties
12,306 27,000
Membership deposits
238,282 229,809
Total liabilities
4,158,817 3,512,549
Commitments
and contingencies
Minority interests
127,606 114,860
Stockholders'
equity:
Preferred
stock, without par value.
Authorized and unissued 75,000 shares
-- --
Excess shares,
$.01 par value per share.
Authorized
and unissued 600,000 shares
-- --
Common stock,
$.01 par value per share.
Authorized
3,000,000 shares; issued
163,004
and 158,417 shares,
respectively;
outstanding 156,475 and
152,882
shares, respectively
1,566 1,530
Capital in excess
of par value
2,814,225 2,743,073
Accumulated
distributions in excess of net
income
(718,492) (689,022)
Accumulated
other comprehensive income
11,007 5,792
Total stockholders'
equity
2,108,306 2,061,373
$6,394,729 $5,688,782
CNL Hotels & Resorts, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
(in thousands, except per share data)
Three Months Ended Six Months
Ended
June 30,
June 30,
2006 2005
2006 2005
Revenues:
Room
$242,028 $197,899 $476,196
$403,414
Food and
beverage 126,511
89,871 235,015
186,004
Other
hotel and
resort operating
departments
63,858 48,845
123,533 105,535
Rental
income from
operating leases 2,388
2,576 4,524
4,625
Other income
1,499 335
1,788 586
436,284 339,526
841,056 700,164
Expenses:
Room
56,212 46,110
106,499 92,496
Food and
beverage 79,479
59,068 148,583
121,048
Other
hotel and
resort operating
departments
33,925 29,034
67,133 60,158
Property
operations 72,249
58,110 139,573
115,734
Repairs
and
maintenance
17,692 13,862
32,790 27,062
Hotel
and resort
management fees 16,512
9,276 30,778
19,786
Sales
and marketing 27,356
20,064 49,391
39,903
Credit
enhancement
funding
- (731)
- (731)
General
operating
and administrative 9,382
7,211 15,577
11,701
State
and local taxes 1,961
1,924 4,045
3,951
Asset
management fees
to related party 7,212
7,352 13,728
14,718
Depreciation
and
amortization 53,338
44,162 103,519
88,631
375,318 295,442
711,616 594,457
Operating profit
60,966 44,084
129,440 105,707
Interest income
812 767
2,534 1,283
Interest and
loan
cost amortization
(57,184) (48,265) (106,390)
(92,573)
Loss on termination
of hedges
- (1,344)
- (1,344)
Advisor acquisition
expense
(80,569) -
(82,854) -
Transaction
costs (94)
(960) (190)
(960)
Loss on extinguishment
of debt
(183) -
(29,315) -
(Loss) income
before
equity
in earnings
(losses)
of
unconsolidated
entities,
minority
interests,
and
(expense)
benefit
from income
taxes (76,252) (5,718)
(86,775) 12,113
Equity in earnings
(losses)
of
unconsolidated
entities
1,222 (8,729)
2,468 (9,221)
Minority interests
(2,275) (2,370)
(5,007) (4,793)
Loss from continuing
operations
before
(expense)
benefit
from income
taxes (77,305) (16,817)
(89,314) (1,901)
(Expense) benefit
from income
taxes (663)
3,256 (259)
2,046
(Loss) income
from
continuing
operations
(77,968) (13,561) (89,573)
1,451
Discontinued
operations,
net of
income
taxes
5,198 46,435
136,567 41,694
Net (loss) income
$(72,770) $32,874
$46,994 $41,839
(Loss) earnings
per
share
of common stock
Basic:
Continuing
operations $ (0.51)
$ (0.08) $ (0.58)
$-
Discontinued
operations
0.04 0.30
0.89 0.27
$ (0.47) $0.22
$0.31 $0.27
Diluted:
Continuing
operations $ (0.51)
$ (0.08) $ (0.58)
$-
Discontinued
operations
0.04 0.30
0.89 0.27
$ (0.47) $0.22
$0.31 $0.27
Weighted average
number
of shares of
common
stock
outstanding:
Basic
153,278 152,830 153,083
152,871
Diluted
153,278 152,830 153,084
152,871
The following
is a reconciliation of net (loss) income to FFO, as defined
in the attached Notes to Financial
and Portfolio Information, and FFO per
share for the three and six months
ended June 30 (in thousands, except per
share data):
Three Months
Six Months
Ended June 30,
Ended June 30,
2006 (1) 2005 (2) 2006
(1) 2005 (2)
Net (loss) income
$(72,770) $32,874
$46,994 $41,839
Adjustments:
Effect of depreciation
of real estate assets
of unconsolidated
entities
1,292 3,456
3,430 7,004
Effect
of depreciation
of real estate assets
of minority
interests
(2,557) (3,417)
(5,113) (6,570)
Depreciation and
amortization of real
estate assets 51,236
47,454 99,380
98,099
Gain on sale of real
estate assets (4,887)
(49,391) (138,606) (49,861)
Advisor acquisition
expense
80,569 --
82,854 --
Funds from operations
$52,883 $30,976
$88,939 $90,511
Weighted average
shares
(basic
and diluted)
Basic
153,278 152,830
153,083 152,871
Diluted
153,279 152,830
153,084 152,871
FFO per share
(basic
and diluted)
Basic
$0.35 $0.20
$0.58 $0.59
Diluted
$0.35 $0.20
$0.58 $0.59
(1) Funds from
operations for the three and six months ended June 30,
2006 do not include $3.9 million and $7.4 million, respectively,
in net membership cash flows and include $0.2 million and $29.3
million, respectively, of loss on extinguishment of debt and
approximately $94,000 and $0.2 million, respectively, of
transaction costs.
(2) Funds from
operations for the three and six months ended June 30,
2005 do not include $3.0 million and $6.9 million, respectively,
in net membership cash flows and include $1.0 million of
transaction costs.
The following
is a reconciliation of (loss) income from continuing
operations to EBITDA, as defined
in the attached Notes to Financial and
Portfolio Information, for the
three and six months ended June 30 (in
thousands):
Three Months
Six Months
Ended June 30,
Ended June 30,
2006 (1) 2005 (2) 2006
(1) 2005 (2)
(Loss) income
from
continuing
operations
$(77,968) $(13,561) $(89,573)
$145
Adjustments:
Interest and loan
cost amortization 57,184
48,265 106,390
92,573
Income tax expense
(benefit)
663 (3,256)
259 (2,046)
Depreciation and
amortization 53,338
44,162 103,519
88,631
EBITDA
$33,717 $75,610 $120,595
$179,303
(1) Results
of operations for the three and six months ended June 30,
2006 do not include $3.9 million and $7.4 million, respectively, in
net membership cash flows and include $0.2 million and $29.3 million,
respectively, of loss on extinguishment of debt, approximately
$94,000 and $0.2 million, respectively, of transaction costs and
$80.6 million and $82.9 million, respectively, of advisor acquisition
expense.
(2) Results
of operations for the three and six months ended June 30,
2005 do not include $3.0 million and $6.9 million, respectively, in
net membership cash flows and include $1.0 million of transaction
costs.
The following
is a reconciliation of net (loss) income to Adjusted FFO,
as defined in the attached Notes
to Financial and Portfolio Information,
and Adjusted FFO per share for
the three and six months ended June 30 (in
thousands, except per share data):
Three Months
Six Months
Ended June 30,
Ended June 30,
2006 2005
2006 2005
Net (loss) income
$(72,770) $32,874
$46,994 $41,839
Adjustments:
Effect of deprecia-
tion of real estate
assets of
unconsolidated
entities
1,292 3,456
3,430 7,004
Effect of deprecia-
tion of real estate
assets of minority
interests
(2,557) (3,417)
(5,113) (6,570)
Depreciation and
amortization of
real estate assets 51,236
47,454 99,380
98,099
Gain on sale of
real estate assets (4,887) (49,391)
(138,606) (49,861)
Loss on extinguish-
ment of debt
(discontinued
operations)
- -
4,296 4,206
Loss on extinguish-
ment of debt
(unconsolidated
entities)
- 6,901
- 6,901
Gain on hedge
termination
(discontinued
operations)
- -
(945) -
Loss on hedge
termination
- 1,344
- 1,344
Transaction costs 94
960 190
960
Advisor acquisition
expense
80,569
- 82,854
-
Loss on extinguish-
ment of debt
183 -
29,315
-
Net membership cash
flows
3,938 3,047
7,409 6,897
Adjusted funds
from
operations
$57,098 $43,228 $129,204
$110,819
Weighted average
shares:
Basic
153,278 152,830
153,083 152,871
Diluted
153,279 152,830
153,084 152,871
Adjusted FFO
per share:
Basic
$0.37 $0.28
$0.84 $0.72
Diluted
$0.37 $0.28
$0.84 $0.72
The following
is a reconciliation of (loss) income from continuing
operations to Adjusted EBITDA,
as defined in the attached Notes to
Financial and Portfolio Information,
for the three and six months ended
June 30 (in thousands):
Three Months
Six Months
Ended June 30,
Ended June 30,
2006 2005
2006 2005
(Loss) income
from
continuing
operations
$(77,968) $(13,561) $(89,573)
$145
Adjustments:
Interest and loan
cost amortization 57,184
48,265 106,390
92,573
Income tax expense
(benefit)
663 (3,256)
259 (2,046)
Depreciation and
amortization 53,338
44,162 103,519
88,631
Minority interest
adjustments
2,275 2,370
5,007 4,793
Equity method
adjustments (1,222)
8,729 (2,468)
9,221
Loss on hedge
termination
- 1,344
- 1,344
Transaction costs 94
960 190
960
Advisor acquisition
expense
80,569
- 82,854
-
Loss on extinguish-
ment of debt
183 -
29,315
-
Net membership cash
flows
3,938 3,047
7,409 6,897
Adjusted
EBITDA $119,054
$92,060 $242,902 $202,518
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating
Data-Comparable Properties
Continuing Operations
For the Three
Months Ended June 30, 2006
Hotel &
Resort
Var. Var.
Var. Operating Var.
(ppt.) (%)
(%) Profit (ppt.)
Proper- Occupan- to
to to
Margin to
ties cy 2005 ADR
2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury and
Upper
Upscale 31 76.8%
1.5 $181.60 9.1% $139.39 11.3% 31.7% 1.5
Upscale 28 79.4
- 114.34 10.7 90.78 10.7 36.3
1.7
Midscale 25 74.5
0.8 91.10 10.1 67.91 11.3 32.8
2.3
Total TRS
Consolidated
84 77.0% 1.0 $150.82 9.7% $116.09
11.2% 32.3% 1.6
Triple Net
Lease
(2) 4 78.8
(4.3) 131.11 6.9 103.37 1.4 39.3
0.8
Total
88 77.0% 0.9 $150.11 9.6% $115.65
10.9% 32.5% 1.5
(1) The operating
results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's
operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and
resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating
Data-Comparable Properties
Continuing Operations
For the Six
Months Ended June 30, 2006
Hotel &
Resort
Var. Var.
Var. Operating Var.
(ppt.) (%)
(%) Profit (ppt.)
Proper- Occupan- to
to to
Margin to
ties cy 2005 ADR
2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury
and Upper
Upscale 31 75.7%
1.1 $192.33 8.5% $145.65 10.1% 33.1% 0.7
Upscale 28 77.4
0.7 116.02 11.0 89.83 12.0 36.7
2.4
Midscale 25 73.2
1.9 90.11 9.0 65.95 11.9
32.1 2.4
Total TRS
Consolidated
84 75.7% 1.1 $157.63 8.9% $119.29
10.6% 33.4% 1.0
Triple Net
Lease
(2) 4 75.9
(4.2) 131.96 8.2 100.13 2.5 36.4
0.4
Total
88 75.7% 1.0 $156.73 9.0% $118.62
10.3% 33.5% 0.9
(1) The operating
results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's
operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and
resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating
Data - Adjusted Comparable Properties
Continuing Operations
For the Three
Months Ended June 30, 2006
Hotel &
Resort
Var. Var.
Var. Operating Var.
(ppt.) (%)
(%) Profit (ppt.)
Proper- Occupan- to
to to
Margin to
ties cy 2005 ADR
2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury
and
Upper
Upscale 33 76.8%
1.7 $186.78 8.3% $143.53 10.7% 31.9% 1.3
Upscale
28 79.4 -
114.34 10.7 90.78 10.7 36.3 1.7
Midscale
25 74.5 0.8
91.10 10.1 67.91 11.3 32.8 2.3
Total TRS
Consolidated
86 77.0% 1.2 $156.03 9.1%
$120.17 10.8% 32.4% 1.4
Triple Net
Lease
(2) 4 78.8 (4.3)
131.11 6.9 103.37 1.4 39.3
0.8
Total
90 77.1% 1.0 $155.19 9.1%
$119.62 10.5% 32.5% 1.4
(1) The operating
results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's
operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and
resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating
Data - Adjusted Comparable Properties
Continuing Operations
For the Six
Months Ended June 30, 2006
Hotel &
Resort
Var. Var.
Var. Operating Var.
(ppt.) (%)
(%) Profit (ppt.)
Proper- Occupan- to
to to
Margin to
ties cy 2005 ADR
2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury
and
Upper
Upscale 33 75.2%
0.4 $198.31 7.7% $149.16 8.3% 33.2%
0.3
Upscale
28 77.4 1.7 116.02 11.0
89.83 12.0 36.7 2.4
Midscale
25 73.2 1.9 90.11
9.0 65.95 11.9 32.1
2.4
Total TRS
Consolidated
86 75.4% 0.7 $163.45 8.1% $123.18
9.2% 33.5% 0.6
Triple Net
Lease
(2) 4 75.9
(4.2) 131.96 8.2 100.13 2.5 36.4
0.4
Total
90 75.4% 0.6 $162.41 8.1% $122.42
9.0% 33.5% 0.6
(1) The operating
results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's
operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and
resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
NOTES TO FINANCIAL AND PORTFOLIO INFORMATION
Non-GAAP Financial
Measures and Operating Measures
Included in
this news release are certain non-GAAP financial measures
which are not calculated and presented
in accordance with Generally
Accepted Accounting Principles
("GAAP"), and operating measures, within the
meaning of applicable Securities
and Exchange Commission rules. The
non-GAAP financial measures include
FFO, FFO per share, Adjusted FFO,
Adjusted FFO per diluted share,
EBITDA, and Adjusted EBITDA. The operating
measures include RevPAR, ADR, occupancy,
and hotel and resort operating
profit margin. The following discussion
defines these terms and why the
Company feels they are helpful
in understanding performance.
Funds From Operations
The Company
considers Funds From Operations ("FFO") (and FFO per basic
and diluted share) to be an indicative
measure of operating performance due
to the significant effect of depreciation
of real estate assets on net
income or loss. The Company calculates
FFO in accordance with standards
established by the National Association
of Real Estate Investment Trusts,
or NAREIT, except for the add back
of the advisor acquisition expense of
$80.0 million and $82.3 million
during the three and six months ended June
30, 2006 respectively, which defines
FFO as net income or loss determined
in accordance with GAAP, excluding
gains or losses from sales of property
plus depreciation and amortization
(excluding amortization of deferred
financing costs) of real estate
assets, and after adjustments for the
portion of these items related
to unconsolidated partnerships and joint
ventures.
In calculating
FFO, net income is determined in accordance with GAAP
and includes the noncash effect
of scheduled rent increases throughout the
lease terms. This is a GAAP convention
requiring real estate companies to
report rental revenue based on
the average rent per year over the life of
the leases. The Company believes
that by excluding the effect of
depreciation, amortization and
gains or losses from sales of real estate,
all of which are based on historical
costs and which may be of limited
relevance in evaluating current
performance, FFO can facilitate comparisons
of operating performance between
periods and between other equity REITs.
The Company also believes FFO captures
trends in occupancy rates, rental
rates and operating costs. FFO
was developed by NAREIT as a relative
measure of performance and liquidity
of an equity REIT in order to
recognize that income-producing
real estate historically has not
depreciated on the basis determined
under GAAP, which assumes that the
value of real estate diminishes
predictably over time. In addition, the
Company believes FFO is frequently
used by securities analysts, investors
and other interested parties in
the evaluation of equity REITs,
particularly in the lodging industry.
However, FFO (i) does not represent
cash generated from operating activities
determined in accordance with GAAP
(which, unlike FFO, generally reflects
all cash effects of transactions and
other events that enter into the
determination of net income or loss), (ii)
is not necessarily indicative of
cash flow available to fund cash needs and
(iii) should not be considered
as an alternative to net income determined
in accordance with GAAP as an indication
of the Company's operating
performance. FFO, as presented,
may not be comparable to similarly titled
measures reported by other equity
REITs. Accordingly, the Company believes
that in order to facilitate a clear
understanding of its consolidated
historical operating results, FFO
should be considered only as supplemental
information and only in conjunction
with net income as reported in the
accompanying unaudited consolidated
financial statements and notes thereto.
Adjusted FFO
The Company
defines Adjusted FFO as FFO (defined from above) plus
adjustments to include or exclude
certain additional recurring and non-
recurring items which are described
below. The Company believes Adjusted
FFO is useful to the Company and
to its investors as a supplemental measure
in evaluating our financial performance
because it helps evaluate the
ongoing performance of its properties
and facilitates comparisons between
the Company and other lodging REITs
and non-REIT lodging companies.
Adjusted FFO should be considered
only as a supplement to net income or
loss (computed in accordance with
GAAP) as a measure of the Company's
operating performance. Other REITs
and lodging companies may calculate
Adjusted FFO differently than the
Company does and, accordingly, the
Company's calculation of Adjusted
FFO may not be comparable to such other
companies' Adjusted FFO measures.
When calculating Adjusted FFO, the
Company also adjusted FFO for the
following items, which may occur in any
period:
* Net
membership cash flows - The Company includes net membership cash
flows because they significantly contribute to its cash flows from
operating activities and are considered an integral part of its ongoing
liquidity position.
* Loss
on extinguishment of debt of discontinued operations - The Company
excludes the effects of loss on extinguishment of debt of its
discontinued operations because it believes that including them in FFO
is not consistent with reflecting the Company's ongoing capital
structure or the ongoing performance of its consolidated and
unconsolidated properties.
* Loss
on extinguishment of debt - The Company excludes the effects of
loss on extinguishment of debt because it believes that including them
in FFO is not consistent with reflecting the Company's ongoing capital
structure or its ongoing performance of its properties.
* Gain
on the sale of real estate assets - The Company excludes the
effect of the gain on the sale of real estate assets because it
believes that including it is not consistent with reflecting the
ongoing performance of its properties.
* Gain
(loss) on hedge termination - The Company excludes the gain/(loss)
on hedge terminations because it believes that including it is not
consistent with reflecting the ongoing performance of its properties.
* Transaction
costs - The Company excludes transaction costs because it
believes that including it is not consistent with reflecting the
ongoing performance of its properties.
* Advisor
acquisition expense - The Company excludes transaction costs
because it believes that including it is not consistent with reflecting
the ongoing performance of its properties.
EBITDA
Earnings before
interest expense, income taxes, depreciation and
amortization, EBITDA, is defined
as income (losses) from continuing
operations excluding: (i) interest
expense, including loan cost
amortization; (ii) income tax benefit
or expense; and (iii) depreciation
and amortization. The Company believes
EBITDA is useful to the Company and
to an investor as a supplemental
corporate level measure in evaluating the
Company's financial performance
because EBITDA excludes certain items that
the Company believes may not be
indicative of its corporate operating
performance. By excluding interest
expense, EBITDA measures the Company's
financial performance regardless
of how it finances its operations and its
capital structure. By excluding
depreciation and amortization expense,
which can vary by property based
on factors unrelated to hotel and resort
performance, the Company and its
investors can more accurately assess the
financial performance of the Company's
portfolio. The Company's management
also uses EBITDA as one measure
in determining the value of acquisitions
and dispositions. In addition,
it believes EBITDA is frequently used by
securities analysts, investors
and other interested parties in the
evaluation of equity REITs, particularly
in the lodging industry. However,
because EBITDA is calculated before
recurring cash charges such as interest
expense and depreciation and amortization,
and is not adjusted for capital
expenditures or other recurring
cash requirements of our business, it does
not reflect the amount of capital
needed to maintain its properties nor
does it reflect trends in interest
costs due to interest rate changes or
increased borrowings. EBITDA should
be considered only as a supplement to
net income or loss (computed in
accordance with GAAP), as a measure of the
Company's operating performance.
Other equity REITs may calculate EBITDA
differently than does the Company
and, accordingly, its calculation of
EBITDA may not be comparable to
such other REITs' EBITDA.
Adjusted EBITDA
The Company
defines Adjusted EBITDA as EBITDA (defined from above) plus
adjustments to include or exclude
certain additional recurring and non-
recurring items which are described
below. The Company believes Adjusted
EBITDA is useful to the Company
and to its investors as a supplemental
measure in evaluating its financial
performance because it helps evaluate
the ongoing performance of the
Company's properties and facilitates
comparisons between the Company
and other lodging REITs and non-REIT
lodging companies. Adjusted EBITDA
should be considered only as a
supplement to net income or loss
(computed in accordance with GAAP) as a
measure of the Company's operating
performance. Other REITs and lodging
companies may calculate Adjusted
EBITDA differently than the Company does
and, accordingly, its calculation
of Adjusted EBITDA may not be comparable
to such other companies' Adjusted
EBITDA measures. When calculating
Adjusted EBITDA, the Company also
adjusted EBITDA for the following items,
which may occur in any period:
* Loss
on extinguishment of debt - The Company excludes the effects of
loss on extinguishment of debt because it believes that including them
in EBITDA is not consistent with reflecting its ongoing capital
structure or the ongoing performance of its properties.
* Net
membership cash flows - The Company includes net membership cash
flows because they significantly contribute to its cash flows from
operating activities and are considered an integral part of its ongoing
liquidity position.
* Transaction
costs - The Company excludes transaction costs because it
believes that including them in EBITDA is not consistent with
reflecting the ongoing performance of its properties.
* Minority
interest adjustments - The Company excludes the minority
interest in the income or loss of its consolidated partnerships as
presented in its unaudited condensed consolidated statement of
operations because the Company believes that including these amounts in
EBITDA does not reflect the effect of the minority interest position on
its performance since these amounts include its minority partners' pro-
rata portion of depreciation, amortization and interest expense.
* Equity
method adjustments - The Company excludes the effect of equity
in earnings (losses) from unconsolidated entities as presented in its
unaudited condensed consolidated statements of operations because its
interest in the earnings (losses) of these entities does not reflect
the impact of its minority interest position on the Company's
performance and these amounts include its pro-rata portion of
depreciation, amortization and interest expense.
* Advisor
acquisition expense - The Company excludes transaction costs
because it believes that including it is not consistent with reflecting
the ongoing performance of its properties.
Limitations on
the Use of Non-GAAP Financial Measures
FFO, FFO per
share, Adjusted FFO, Adjusted FFO per diluted share,
EBITDA, and Adjusted EBITDA (i)
do not represent cash generated from
operating activities determined
in accordance with GAAP (which, unlike
these measures, generally reflects
all cash effects of transactions and
other events that enter into the
determination of net income), (ii) are not
necessarily indicative of cash
flow available to fund cash needs and (iii)
should not be considered as an
alternative to net income determined in
accordance with GAAP as an indication
of operating performance. These
measures, as presented, may not
be comparable to similarly titled measures
reported by other companies. Accordingly,
the Company believes that in
order to facilitate a clear understanding
of our consolidated historical
operating results, these measures
should be considered only as supplemental
information and only in conjunction
with its net income as reported in the
accompanying unaudited consolidated
financial statements and notes thereto.
Property Operating
Data
The Company's
results of operations are highly dependent upon the
operations of its hotel and resort
properties. To evaluate the financial
condition and operating performance
of the Company's properties, management
regularly reviews operating statistics
such as revenue per available room
("RevPAR"), average daily room
rate ("ADR"), occupancy, and hotel and
resort operating profit margin.
RevPAR is a commonly used measure within
the lodging industry to evaluate
hotel and resort operations. The Company
defines RevPAR as (i) the average
daily room rate, or ADR, charged,
multiplied by (ii) the average
daily occupancy achieved. The Company
defines ADR by dividing room revenue
by the total number of rooms occupied
by hotel and resort guests on a
paid basis during the applicable period.
The Company defines occupancy by
dividing the total number of rooms
occupied by the hotel and resort
guests on a paid basis during the
applicable period by the total
number of available rooms at the property.
The Company defines hotel and resort
operating profit margin as operating
profit at the hotel and resort
level, excluding unallocated expenses and
certain other expenses which are
not captured at the property level,
divided by total hotel and resort
operating revenues. RevPAR does not
include revenue from food and beverage,
telephone services or other guest
services generated by the property.
Although RevPAR does not include these
ancillary revenues, the Company
considers this measure to be the leading
indicator of core revenues for
many hotels and resorts. The Company closely
monitors what causes changes in
RevPAR because changes that result from
occupancy as compared to those
that result from room rate have different
implications on overall revenue
levels, as well as incremental operating
profit. For example, increases
in occupancy at a hotel or resort may lead
to increases in ancillary revenues,
such as food and beverage and other
hotel and resort amenities, as
well as additional incremental costs
(including housekeeping services,
utilities and room amenity costs). RevPAR
increases due to higher room rates
would not result in these additional
room-related costs. For this reason,
while operating profit would typically
increase when occupancy rises,
RevPAR increases due to higher room rates
would have a greater impact on
the Company's profitability. The data
available to make comparisons is
limited by the amount, timing and extent
of recent acquisitions made by
the Company. The Company uses hotel and
resort operating profit margins
to evaluate how efficiently expenses are
managed at a property in relation
to total revenue generated. The Company's
management uses hotel and resort
operating profit and the resulting
operating profit margin as one
measure in determining the value of
acquisitions and dispositions and
believes this operating measure is used
by securities analysts, investors,
and other interested parties in the
evaluation of equity REITs or other
companies in the lodging industry.
Hotel and resort operating profit
margin should be considered only as a
supplement to net income or loss
(computed in accordance with GAAP), as a
measure of the Company's operating
performance. Other companies in the
lodging industry may calculate
hotel and resort operating profit margin
differently than does the Company
and, accordingly, its calculation of
hotel and resort operating profit
margin may not be comparable to such
other companies.
Comparable Properties
The Company
defines "comparable properties" as properties owned at the
beginning of and during the entirety
of both periods being compared. The
Company considers 88 properties
for the three and six months ended June 30,
2006 to be "comparable properties."
Adjusted Comparable
Properties
The Company
defines "adjusted comparable properties" as properties
owned as of the last day of the
reporting periods, including properties
acquired during the period (for
which historical data is available) as if
the Company owned the properties
since the beginning of the period and
excluding properties that were
opened during the reporting periods being
compared, changed reporting periods
during the periods being compared, or
are located outside of the United
States. For the three and six months
ended June 30, 2006, the Company
considers 90 properties to be "adjusted
comparable properties." |