CNL Hotels & Resorts, Inc.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
2005
2004
ASSETS
Hotel and resort properties, net
$3,998,822 $4,079,844
Investments in unconsolidated
entities
--
10,248
Assets held for sale
425,633
973,857
Cash and cash equivalents
83,307
99,135
Restricted cash
113,981
137,161
Receivables, net
88,625
76,893
Goodwill
513,132
491,791
Intangible assets, net
336,723
347,265
Prepaid expenses and other assets
99,169
55,783
Loan costs, less accumulated
amortization of $38,960 and
$17,205, respectively
29,390
45,068
Total assets
$5,688,782 $6,317,045
LIABILITIES
AND STOCKHOLDERS' EQUITY
Mortgages and other notes payable
2,599,454 2,878,583
Liabilities associated with assets
held for sale
418,957
663,832
Accounts payable and accrued expenses
175,026
166,880
Accrued litigation expense
34,151
--
Other liabilities
25,552
28,839
Distributions and losses in excess
of
investments in unconsolidated
entities 2,600
--
Due to related parties
27,000
5,885
Member deposits
229,809
214,246
Total liabilities
3,512,549 3,958,265
Commitments and contingencies
Minority interests
114,860
148,825
Stockholders' equity:
Preferred stock, without
par value.
Authorized
and unissued 1,500 shares
--
--
Excess shares, $.01 par
value per
share.
Authorized
and unissued 31,500 shares
--
--
Common stock, $.01 par
value per
share.
Authorized
225,000 shares; issued
158,417
and 156,167 shares,
respectively;
outstanding
152,882
and 152,913 shares,
respectively
1,530
1,531
Capital in excess of par
value 2,743,073
2,740,430
Accumulated distributions
in excess
of net income
(689,022) (527,790)
Accumulated other comprehensive
income (loss)
5,792
(4,216)
Total stockholders' equity
2,061,373 2,209,955
Total liabilities and
stockholders'
equity
$5,688,782 $6,317,045
CNL Hotels & Resorts, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
2005 2004
2003
Revenues:
Room
$795,447 $630,857 $301,593
Food and beverage
343,121 263,517 92,064
Other hotel and resort
operating departments
190,683 138,891 25,441
Rental income from
operating leases
16,741 24,650 25,024
Other income
2,522 3,598
3,975
1,348,514 1,061,513 448,097
Expenses:
Room
188,970 153,132 71,676
Food and beverage
234,588 191,203 70,801
Other hotel and resort
operating departments
116,026 88,091 16,429
Property operations
246,207 206,353 95,925
Repairs and maintenance
57,147 46,365 21,538
Hotel and resort
management fees
40,282 26,047 11,068
Sales and marketing
80,752 66,902 30,381
Credit enhancement funding
(2,057) (23,006) (18,840)
General operating and
administrative
26,130 23,668 7,937
Litigation settlement
34,151 --
--
State and local taxes
6,700 5,633
2,042
Asset management fees
to related party
27,868 26,505 12,782
Depreciation and
amortization
182,995 145,872 62,102
1,239,759 956,765 383,841
Operating profit
108,755 104,748 64,256
Interest income
4,077 2,512
1,781
Interest and loan cost
amortization
(192,355) (153,103) (59,056)
Gain on sale of common
stock
-- 9,268
--
Impairment of equity
method investment
-- (1,275)
--
(Loss) gain on hedge
termination
(1,139) 3,511
--
Transaction costs
(5,458) (11,521) (154)
Loss on extinguishment
of debt
(2,190) (17,877)
--
(Loss) income before
equity in losses of
unconsolidated entities,
minority interests and
(expense) benefit from
income taxes
(88,310) (63,737) 6,827
Equity in earnings
(losses) of unconsolidated
entities
32,775 (18,469) (23,970)
Minority interests
(5,517) (3,311) 960
Loss from continuing
operations before (expense)
benefit from income taxes
(61,052) (85,517) (16,183)
Benefit (expense) from
income taxes
2,965 (27,442) (262)
Loss from continuing
operations
(58,087) (112,959) (16,445)
Income from discontinued
operations
64,987 25,846 22,438
Net income (loss)
$6,900 $(87,113) $5,993
(Loss) earnings per share
of common stock (basic
and diluted):
Continuing operations
$(0.38) $(0.76) $(0.19)
Discontinued operations
0.43 0.17
0.26
$0.05 $(0.59) $0.07
Weighted average number of
shares of common stock
outstanding:
Basic and diluted
152,874 148,059 86,225
The following is a reconciliation of
net income (loss) to FFO and FFO per
share for the year ended December 31 (in thousands, except
share and per share
data):
Years Ended December 31,
2005(a)(b)(c) 2004(a)(d) 2003 2002
2001
Net (loss) income
$6,900 $(87,113) 5,993 $15,810
$19,328
Adjustments:
Effect of depreciation
of real estate assets
of unconsolidated
entities
12,682 14,223 14,117
6,496 1,499
Effect of depreciation
of real estate assets
of minority interests
(12,408) (12,263) (6,230) (2,624)
(774)
Depreciation of real
estate assets
197,043 174,214 76,714
36,217 21,818
Gain on sale of real
estate assets
(113,755) (645)
-- --
--
Effect of assumption
of liabilities
-- --
-- 3,576 --
FFO
$90,462 $88,416 $90,594 $59,475
$41,871
FFO per share - basic
and diluted (e)
$0.59 $0.60 $1.05
$1.22 $1.30
Basic (e)
152,874 148,059 86,225
48,937 32,229
Diluted (e)
152,874 148,059 86,225
48,937 32,229
(a) Results of operations and
therefore FFO for the years ended December
31,
2005 and 2004, do not include $15.6 million and $16.6 million,
respectively,
in net cash flows received for member deposits.
(b) FFO for the year ended December
31, 2005, does not exclude the
following
revenue and expenses:
(i) Litigation settlement of $34.2 million;
(ii) Loss of $23.6 million from the extinguishment of debt,
including our share of loss from the extinguishment of debt
related to unconsolidated entities of $7.9 million;
(iii)
Transaction costs of $5.4 million related primarily to the
expensing of costs related to the activities in connection
with the pursuit of a merger with CNL Hospitality Corp.
("CHC"); and
(iv) Loss of $1.1 million on the termination of hedges.
(c) Gain on sale of real estate
assets includes $46.4 million gain
recognized
in connection with the sale of the Waikiki Beach Marriott
Resorts
owned by a partnership in which we held a 49 percent
interest.
(d) FFO for the year ended December
31, 2004, does not exclude the
following
revenue and expenses:
(i) Gain of $9.3 million from the sale of common stock;
(ii) Loss of $17.9 million from the extinguishment of debt;
(iii)
Transaction costs of $11.5 million related to the write-off of
capitalized costs related to the postponed underwritten
offering of additional shares of common stock and
acquisitions that we are no longer pursuing; and
(iv) Gain of $3.5 million on the termination of hedges.
(e) All share and per share
amounts reflect the effect of the reverse
stock
split.
The following is a reconciliation of
income or (loss) from continuing
operations to EBITDA, for the year ended December 31
(in thousands):
Years Ended December 31,
2005(a)(b) 2004(a)(c)
2003 2002 2001
(Loss) income from
continuing
operations
$(58,087) $(112,959) $(16,445)
$4,046 $6,922
Adjustments:
Interest and
loan cost
amortization
192,355 153,103
59,056 21,867 16,098
Income tax
expense
(benefit)
(2,965) 27,442
262 --
--
Depreciation and
amortization
182,995 145,872
62,102 27,515 15,252
EBITDA
$314,298 $213,458
$104,975 $53,428 $38,272
(a) Results of operations
and therefore EBITDA for the years ended
December 31, 2005 and 2004 do not include $15.6 million and
$16.6 million, respectively, in net cash flows received for member
deposits.
(b) EBITDA for the year
ended December 31, 2005, does not exclude the
following revenues and expenses:
(i) Litigation settlement of $34.2 million;
(ii) Loss of $1.1 million on the termination of hedges;
(iii)
Transaction costs of $5.4 million related primarily to the
expensing of costs related to the activities in connection
with the pursuit of a merger with CHC;
(iv) Loss of $2.2 million from the extinguishment of debt; and
(v) Equity in earnings of unconsolidated entities of
$32.8 million and our interest in income of minority interests
of $5.5 million.
(c) EBITDA for the year
ended December 31, 2004, does not exclude the
following revenues and expenses:
(i) Gain of $9.3 million from the sale of common stock;
(ii) Loss of $17.9 million from the extinguishment of debt;
(iii)
Transaction costs of $11.5 million related to the write-off
of capitalized costs related to the postponed underwritten
offering of additional shares of common stock and acquisitions
that we are no longer pursuing;
(iv) Equity in losses of unconsolidated entities of $18.5 million
and our interest in income of minority interests of
$3.3 million; and
(v) Gain of $3.5 million on the termination of hedges.
The following is a reconciliation of
net income (loss) to Adjusted FFO and
Adjusted FFO per diluted share for the year ended December
31 (in thousands,
except per share data):
2005 2004
Net income
$6,900 $(87,113)
Depreciation and Amortization of
real estate assets
197,043 174,214
Effect of unconsolidated entities
12,682 14,223
Effect of minority interest
(12,408) (12,263)
Gain on sale of real estate assets
(113,755) (645)
Loss on extinguishment of debt of
unconsolidated entities
6,901
--
Loss on extinguishment of debt
(discontinued operations)
13,486
--
Income tax - Deferred tax asset
write off
-- 32,558
Gain on sale of common stock
-- (9,268)
Impairment of equity method
investment
-- 1,275
Gain (loss) on hedge termination
1,139 (3,511)
Transaction costs
5,458 11,521
Loss on extinguishment of debt
2,190 17,877
Litigation settlement
34,151
--
Net membership cash flows
15,600 16,600
Adjusted funds from operations
$169,387 $155,468
Weighted average shares
152,874 148,059
Adjusted FFO per share
$1.11 $1.05
The following is a reconciliation
of loss from continuing operations to
Adjusted EBITDA for the year ended December 31 (in thousands,
except per share
data):
2005 2004
Loss from continuing operations
$(58,087) $(112,959)
Minority interest adjustments
5,517 3,311
Equity method adjustments
(32,775) 18,469
Interest and loan cost
amortization
192,355 153,103
Depreciation and amortization
182,995 145,872
Income tax expense (benefit)
(2,965) (5,116)
Income tax - Deferred tax asset
write off
-- 32,558
Gain on sale of common stock
-- (9,268)
Impairment of equity method
investment
-- 1,275
Gain/loss on hedge termination
1,139 (3,511)
Transaction costs
5,458 11,521
Loss on extinguishment of debt
2,190 17,877
Litigation settlement
34,151
--
Net membership cash flows
15,600 16,600
Adjusted EBITDA
$345,578 $269,732
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA
Property Operating Data-Comparable
Properties
Continuing Operations (1)
For the Three Months Ended December
31, 2005
Hotel &
Var. Var.
Var. Resort Var.
(ppt.) (%)
(%) Operating (ppt.)
Properties to
to to
Profit to
Occupancy 2004 ADR 2004 RevPAR 2004
Margin(3) 2004
Consolidated
Luxury and
Upper
Upscale
30 69.0% 3.6 $164.17 5.8% $113.23 11.6%
24.0% 0.5
Upscale
27 75.5 2.1 100.07 7.6
75.54 10.7 34.1 0.6
Midscale
25 69.9 2.7 85.21 11.0
59.58 15.5 28.4 1.0
Total
Consolidated 82
70.8% 3.1 $133.58 7.0% $94.53 11.8%
25.7% 0.6
Unconsolidated 2 75.5
6.9 191.08 11.0 144.21 22.1
31.2 7.3
Subtotal
84 71.1% 3.3 $137.79 7.5% $97.96
12.8% 26.3% 1.4
Triple Net
Lease (2)
6 68.7 (3.7) 122.58 16.2 84.19
10.2 28.7 0.7
Total
90 71.0% 3.0 $137.03 8.0% $97.24
12.7% 26.4% 1.4
(1) Excludes one Property held for
sale. Properties previously leased to
third parties
which were converted to the TRS structure and are now
leased to
wholly-owned TRS entities are presented as consolidated.
(2) Our operating results include
only rental revenues received from
third-party
lessees of these properties, as we do 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 divided by total hotel and resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA
Property Operating Data-Comparable
Properties
Continuing Operations (1)
For the Twelve Months Ended December
31, 2005
Hotel &
Var. Var.
Var. Resort Var.
(ppt.) (%)
(%) Operating (ppt.)
Properties to
to to
Profit to
Occupancy 2004 ADR 2004 RevPAR 2004
Margin(3) 2004
Consolidated
Luxury Resort
& Upper
Upscale
24 73.2% 2.5 $136.47 6.9% $99.83
10.7% 25.6% 1.8
Upscale
24 76.2 1.7 98.67 8.3
75.17 10.8 34.0 0.3
Midscale
25 72.3 2.4 83.09 8.6
60.06 12.4 29.5 (0.1)
Total
Consolidated 73
73.7% 2.3 $114.73 7.5% $84.61 11.0%
27.7% 1.4
Unconsolidated 2
78.4 2.4 183.40 7.5 143.80
10.8 30.1 3.3
Subtotal
75 74.1% 2.3 $120.16 7.5% $89.03
11.8% 28.0% 1.7
Triple Net
Lease (2)
6 71.5 0.0 114.17 13.6
81.58 13.6 29.7 4.0
Total
81 73.9% 2.1 $119.80 7.9% $88.57
11.1% 28.1% 1.8
(1) Excludes one Property held for
sale. Properties previously leased to
third parties
which were converted to the TRS structure and are now
leased to
wholly-owned TRS entities are presented as consolidated.
(2) Our operating results include
only rental revenues received from
third-party
lessees of these properties, as we do 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 divided by total hotel and resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA
Property Operating Data-Adjusted Comparable
Properties
Continuing Operations (1)
For the Three Months Ended December
31, 2005
Hotel &
Var. Var.
Var. Resort Var.
(ppt.) (%)
(%) Operating (ppt.)
Properties to
to to
Profit to
Occupancy 2004 ADR 2004 RevPAR 2004
Margin(3) 2004
Consolidated
Luxury and
Upper
Upscale
28 69.3% 3.4 $166.34 6.4% $115.31 12.0%
26.1% 1.3
Upscale
24 74.6 2.0 99.18 7.1
74.03 10.0 33.4 (0.1)
Midscale
25 69.9 2.7 85.21 11.0
59.58 15.5 28.4 1.0
Total
Consolidated 77
70.7% 3.0 $134.00 7.3% $94.78 12.0%
27.2% 1.1
Unconsolidated 2
75.5 6.9 191.08 11.0 144.21 22.1
31.2 7.3
Subtotal
79 71.1% 3.2 $138.51 7.8% $98.46
13.0% 27.7% 1.9
Triple Net
Lease (2)
6 68.7 (3.7) 122.58 16.2 84.19
10.2 28.7 0.7
Total
85 71.0% 2.9 $137.65 8.3% $97.66
12.9% 27.8% 1.8
(1) Excludes one Property held for
sale. Properties previously leased to
third parties
which were converted to the TRS structure and are now
leased to
wholly-owned TRS entities are presented as consolidated.
(2) Our operating results include
only rental revenues received from
third-party
lessees of these properties, as we do 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 divided by total hotel and resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA
Property Operating Data-Adjusted Comparable
Properties
Continuing Operations (1)
For the Twelve Months Ended December
31, 2005
Hotel &
Var. Var.
Var. Resort Var.
(ppt.) (%)
(%) Operating (ppt.)
Properties to
to to
Profit to
Occupancy 2004 ADR 2004 RevPAR 2004
Margin(3) 2004
Consolidated
Luxury Resort
& Upper
Upscale
28 73.1% 2.8 $165.63 5.4% $121.14 9.5%
28.9% 1.1
Upscale
24 76.2 1.7 98.67 8.3
75.17 10.8 34.0 0.3
Midscale
25 72.3 2.4 83.09 8.6
60.06 12.4 29.5 (0.1)
Total
Consolidated 77
73.7% 2.5 $134.53 6.4% $99.09 10.0%
29.6% 1.0
Unconsolidated 2 78.4
2.4 183.40 7.5 143.80 10.8
30.1 3.3
Subtotal
79 74.0% 2.5 $137.92 6.5% $102.02 10.1%
29.6% 1.2
Triple Net
Lease (2)
6 71.5 0.0 114.17 13.6
81.58 13.6 29.7 4.0
Total
85 73.8% 2.3 $136.66 6.8% $100.89 10.3%
29.6% 1.3
(1) Excludes one Property held for
sale. Properties previously leased to
third parties
which were converted to the TRS structure and are now
leased to
wholly-owned TRS entities are presented as consolidated.
(2) Our operating results include
only rental revenues received from
third-party
lessees of these properties, as we do 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 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 SEC rules. The non-GAAP financial measures
include FFO, 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 FFO (and FFO
per 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, 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. The
Company adjusted FFO for the following items, which may
occur in any period,
when calculating Adjusted FFO:
* 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
unconsolidated entities - The Company
excludes the effects of loss on extinguishment of debt
of its unconsolidated
entities 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 common stock
- The Company excludes the effect of
the gain on the sale of common stock because it believes
that including it is
not consistent with reflecting the ongoing performance
of its properties.
* Income Tax DTA write-off - The Company
excludes the income tax DTA
write-off in 2004 because it believes that including
it is not consistent with
reflecting the ongoing performance of its properties.
* Impairment of equity method investment
- The Company excludes the
impairment of equity method investment 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.
* Litigation Settlement - The Company
excludes litigation settlement
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, (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
expenses 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 taxes
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. The Company adjusted EBITDA for the following
items, which may
occur in any period, when calculating Adjusted EBITDA:
* 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.
* Gain on the sale of common stock
- The Company excludes the effect of
the gain on the sale of common stock because it believes
that including it is
not consistent with reflecting 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.
* Income tax DTA write-off - The Company
excludes the income tax DTA
write-off in 2004 because it believes that including
it is not consistent with
reflecting the ongoing performance of its properties.
* Impairment of equity method investment
- The Company excludes the
impairment of equity method investment 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.
* Litigation Settlement - The Company
excludes litigation settlement
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, 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 90 properties for the three months
ending December 31, 2005
and 81 properties for the twelve months ended December
31, 2005 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 months and
twelve months ended
December 31, 2005, the Company considers 85 properties
to be "adjusted
comparable properties." |
