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News for the Hospitality Executive |
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FelCor Reports Year End 2007 Net income of $50.3 million Up from $12.3 million in Prior Year;
Expecting its 85 Hotels to Grow RevPAR from 6.5 - 8.5% for 2008
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FELCOR REPORTS 2007 OPERATING RESULTS
Fourth Quarter
Summary:
Fourth
Quarter and Year Ended Operating Results: In
the fourth quarter, RevPAR at our 83 consolidated hotels owned the
entire
quarter, increased 6.2 percent and Average Daily Rate (�ADR�)
increased 6.4 percent,
compared to the same period in 2006.
RevPAR at our 49 hotels where renovations had been
completed for at
least a full quarter, increased 13.9 percent and ADR increased
6.2 percent, compared to the prior year period. At
our 34 hotels where renovations were not
complete at September 30, 2007, RevPAR decreased 3.7 percent. This decrease in RevPAR resulted from a 10.0
percent decrease in occupancy and is attributed principally to
renovation-related disruptions. For
the full year 2007, RevPAR at our 83 consolidated hotels owned the
entire period,
increased 3.3 percent and ADR increased 6.5 percent, compared to the
same
period in 2006. �We
have nearly completed our renovation program and will soon be back to
normal
renovation schedules. Overall, the
renovation
program has been a tremendous success.
Based on the performance of the renovated hotels, we are
achieving our
expected return on capital investment,� said Richard A. Smith, FelCor�s
President and Chief Executive Officer. �As
a result of our renovation program, our RevPAR growth is expected to be
significantly above the industry average in 2008. We
expect this trend to continue into 2009
from our hotels where we are completing renovations in late 2007 and
2008 and
from our redevelopment projects, despite the anticipated softening in
travel
demand. Given the uncertain economic
environment, our focus will continue to be on the prudent allocation of
capital.� In
the fourth quarter our loss from continuing operations was
$2.7 million, an
improvement of $12.3 million from the same period in 2006. Net loss applicable to common stockholders was
$13.0 million, or $0.21 per share, compared to net income
applicable to
common stockholders of $1.3 million, or $0.02 per share, for the
same
period in 2006. For
the year, our income from continuing operations was $55.7 million,
a $47.1 million
increase from the same period in 2006.
Net income applicable to common stockholders was
$50.3 million, or
$0.81 per share, compared to $12.3 million, or $0.20 per share. In
the fourth quarter, Same-Store Funds from Operations (�FFO�) increased
to $22.3 million,
or $0.35 per share, compared to $15.2 million, or $0.24 per share,
for the
same period in 2006. Our Adjusted FFO was
$21.2 million, a $274,000 increase from the same period in 2006. Adjusted FFO per share was $0.34, an increase
of $0.01. For
the year, Same-Store FFO increased to $112.2 million, or $1.77 per
share, compared
to $89.8 million, or $1.42 per share, for the same period in 2006. Adjusted FFO was $137.2 million, a
$12.4 million
increase from 2006. Adjusted FFO per share increased to $2.17 for the
year,
compared to $1.98 in the prior year, an increase of 9.6 percent. In
the fourth quarter, Same-Store EBITDA increased to $59.2 million,
compared
to $53.1 million for the same period in 2006. Our
Adjusted EBITDA (including sold hotels) decreased
to $58.8 million in the fourth quarter, compared to
$59.0 million for
the same period in 2006. For
the year, Same-Store EBITDA increased by $4.4 million, to
$259.4 million,
or 1.7 percent. Adjusted EBITDA
(including sold hotels) decreased $6.1 million, to
$285.1 million
compared to the same period in 2006. In
the fourth quarter, our Hotel EBITDA increased to $67.3 million,
compared
to $62.3 million in the same period in 2006. Hotel
EBITDA margin was 27.1 percent,
representing a 39 basis point increase compared to the same period
in 2006. For
the year ended December 31, 2007, Hotel EBITDA increased to
$293.7 million,
compared to $292.4 million in the same period in 2006, an increase
of $1.3 million. Hotel EBITDA margin
was 28.8 percent,
representing a 68 basis point decrease. Adjusted
FFO, Adjusted EBITDA and net income were impacted by significant
disruption
related to the renovation of 68 hotels during the year.
Adjusted FFO, Adjusted EBITDA and net income (loss)
include a gain from the sale of condominium units of $129,000 for the
fourth
quarter and $18.6 million for the year.
Net income includes gains from the sale of hotels of
$28.0 million
for the year. Prior year net income for
the quarter includes gains from the sale of hotels of
$25.9 million and
impairment losses of $1.3 million, and gains from sale of hotels
of $41.2 million
and impairment losses of $16.5 million for the full year. EBITDA,
Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA, Hotel EBITDA margin,
FFO,
Same-Store FFO and Adjusted FFO are all non-GAAP financial measures.
See our
discussion of �Non-GAAP Financial Measures� beginning on page 11 for a
reconciliation of each of these measures to our net income (loss) and
for Renovation
Program Update:
During the fourth quarter, 27 of our
hotels were undergoing some form of renovation.
We completed major renovations at 12 of our hotels during
the quarter,
and through February 2008, we completed renovations at an additional
five
hotels. Since we started our renovation
program, we have completed renovations at 66 hotels, which comprise 80
percent of
the hotels in our portfolio. We expect
to complete renovations at 75 hotels by March 31, 2008 and our
remaining
hotels by the end of 2008. We had
approximately 85,000 room nights out of service in the fourth quarter
of 2007
and 450,000 for the full year, which impacted our 2007 EBITDA by
approximately
$18 million. We
spent $265.9 million on renovations and redevelopment projects
at our hotels during 2007, including our pro rata share of joint
venture
expenditures. Overall,
our hotels where we have completed renovations are exceeding
our targeted 12 percent return on the guest impact portion of total
capital
expenditures. Similarly, during the
fourth quarter, RevPAR, Hotel EBITDA and Hotel EBITDA margin exceeded
budget
for these hotels. For our 49 hotels
where renovations had been completed for at least a full quarter,
RevPAR
increased 13.9 percent for the fourth quarter, compared to the
prior year
period. For these same hotels, Hotel
EBITDA grew 31 percent compared to prior year, which was
approximately two
percent greater than budget, and Hotel EBTIDA margin grew approximately
400
basis points, compared to prior year, which was approximately 50 basis
points
greater than budget. Development: We
continue to progress with the redevelopment and rebranding of our Our asset
management approach
includes seeking additional value-added enhancements to our hotels,
such as new
restaurant concepts and maximizing the use of public area space, which
will
provide additional EBITDA growth. Two of
these recent projects include opening a Ruth�s Chris Steak House at our
Atlanta-Buckhead property and converting unused space to meeting rooms
at our In
the fourth quarter, we recognized a gain of $129,000 on the sale of
one unit at our Royale Palms condominium project in Capital
Structure:
At
December 31, 2007, we had $1.5 billion of consolidated
debt outstanding with a weighted average life of four years and a
weighted
average interest rate of 7.2 percent.
However, LIBOR has since decreased, resulting in
reductions to our
weighted average interest expense of nearly 75 basis points. Our cash and cash equivalents totaled
approximately $58 million at December 31, 2007. We
refinanced a CMBS loan secured by eight joint-venture hotels that
matured in January 2008. The loan amount
of $140 million was used principally to repay the existing
$87 million
loan and a $12 million loan secured by one additional
joint-venture
hotel. Our pro rata share of the
remaining proceeds was used for general corporate purposes. The new loan bears interest of LIBOR plus 175
basis points. We also have a
$250 million
mortgage loan secured by 12 hotels scheduled to mature in November
2008, on
which we have three one-year extension options that we currently expect
to
exercise. We have no other material debt maturities in 2008.
We increased our quarterly common
dividend from $0.30 to $0.35 per share, effective the fourth quarter of
2007. Acquisitions: In
December 2007, we purchased two upper-upscale destination resorts,
the Renaissance� Esmeralda
Resort & Spa located in Indian Wells, �We
are very pleased with the progress we made in completing our
initiatives in 2007 including the renovation and disposition programs
and the
debt reduction plan. We continue to
strengthen our balance sheet capacity and flexibility in a very tough
credit
market, as evidenced by the amendment to our line of credit, which
increased
capacity and lowered the interest rate, and the recent successful
refinancing
of the maturing CMBS loan,� said Andrew J. Welch, FelCor�s Executive
Vice
President and Chief Financial Officer. �Looking
into 2008, we will continue to seek opportunities to improve our
portfolio
quality through further asset sales and improve our operating margins
through
our active asset management approach. Our
brand-operators are also prepared to implement contingency plans at our
hotels,
if necessary, to combat a softening in demand.�
Our
2008 guidance assumes that our portfolio will increase RevPAR at a
significantly
higher rate than the industry average. RevPAR at our 85
consolidated
hotels increased 7.4 percent in January 2008, compared to the same
period
in 2007. The benefits of our renovation
program, including achieving the expected returns from our capital
investment,
are driving the relatively high increase in RevPAR. Due to
slowing
economic growth and its potential impact on the hotel industry, we are
assuming
demand growth will further moderate beyond current levels, resulting in
low
single-digit RevPAR growth for our markets. This assumption also
accounts
for the potential impact on travel demand due to weaknesses in the
financial
and housing sectors as well as the general economy. As we
complete our remaining
renovations, primarily occurring during the first part of the year, and
the redevelopment
of our
Guidance for
2008 assumes the
following:
The
following table reconciles 2007 Same-Store EBITDA to the mid-point of
our anticipated
2008 EBITDA (in millions):
The
following table reconciles 2007 Same-Store FFO to the mid-point of our
anticipated
2008 FFO (in millions):
FelCor, a real estate investment trust, is
the
nation�s largest owner of upper-upscale, all-suite hotels.
FelCor�s portfolio is comprised of 85
consolidated hotels and resorts, located in 23 states and We
invite you to listen to our fourth quarter earnings Conference Call on
Friday, February 29,
2008, at 10:00 a.m. (Central Time). The conference call will be
Web cast
simultaneously via the internet on FelCor�s Web site at www.felcor.com.
Interested investors and other parties who wish to access the call
should go to
FelCor�s Web site and click on the conference call microphone icon on
either the
�Investor Relations� or �FelCor News� pages. A telephonic replay will
be
available from Friday, February 29, 2008, at 1:00 p.m.
(Central
Time), through Tuesday, March 4, at 1:00 p.m. (Central Time),
by
dialing 800-642-1687 (conference ID 35492875). A recording of the call
will
also be archived and available at www.felcor.com. With
the exception of historical Consolidated
Statements of Operations (in thousands, except per
share data)
Discontinued
Operations
(in thousands) Discontinued
operations include the results
of operations of 11 hotels sold in 2007 and 31 hotels sold in 2006.
Condensed
financial information for the hotels included in discontinued
operations is as
follows:
Selected Balance Sheet Data (in thousands)
At December 31,
2007, we had an aggregate of 62,707,499 shares of FelCor common stock
and 1,353,771
limited partnership units of FelCor Lodging Limited Partnership
outstanding. Debt
Summary
(dollars in
thousands)
(a)
We have a borrowing capacity of
$250 million on
our line of credit. The interest on this
line can range from 80 to 150 basis points over LIBOR, based on our
leverage
ratio as defined in our line of credit agreement. (b)
The interest rate on these senior notes
will increase
to 9.0% if the credit rating on our senior debt is downgraded by
Moody�s to B1
and Standard & Poor�s rating remains below BB-. (c)
Interest rates are calculated based on the
weighted
average debt outstanding at December 31, 2007. (d)
We have purchased an interest rate cap for
this
notional amount with a cap rate of 7.8% that expires in
November 2008. (e)
This loan has three one-year extension
options that
permit the maturity to be extended to 2011, at our option. (f)
We have purchased interest rate caps for
$177 million aggregate notional amounts with cap rates of 6.25%
which
expire in May 2009. (g)
These loans have three one-year extension
options that
permit the maturity to be extended to 2012, at our option.
Non-GAAP Financial Measures
We refer in this release to
certain �non-GAAP
financial measures.� These measures,
including FFO, Adjusted FFO, Adjusted FFO per share, Same-Store 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 the limitations of such
measures. Reconciliation of Net Income
(Loss) to FFO, Adjusted FFO and Same-Store
FFO (in thousands, except per
share and unit data)
(a) These costs
relate to the conversion of our Hotel 480 Union Square in Reconciliation of Net Income
to FFO, Adjusted FFO and Same-Store FFO (in thousands, except per share and unit data)
(a) These costs
relate to the conversion of our Hotel 480 Union Square in Reconciliation of Net Income
(Loss) to EBITDA, Adjusted EBITDA and Same-Store EBITDA (in thousands)
(a) These costs
relate to the conversion of our Hotel 480 Union Square in Reconciliation
of Adjusted EBITDA to Hotel EBITDA (in thousands)
Reconciliation of Net Income
(Loss) to Hotel EBITDA (in thousands)
Hotel Operating Revenue and Hotel EBITDA
Margin
(dollars
in thousands)
Reconciliation of Ratio of Operating Income
to Total Revenue to Hotel EBITDA Margin
Hotel Operating Expense Composition
Reconciliation of Forecasted Net Income to
Forecasted
FFO, Adjusted FFO, EBITDA and Adjusted EBITDA (in millions, except per share and unit data)
(a)
Weighted
average
shares and units are 63.4 million.
(a)
Weighted
average
shares and units are 63.4 million.
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,
Same-Store 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 such as those described
below
provides useful supplemental information to investors regarding our
ongoing
operating performance and that the presentation of Adjusted FFO,
Same-Store
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 FFO, we make the same adjustments to FFO as for Adjusted FFO and additionally, exclude FFO from discontinued operations, FFO from hotels acquired during the most recent year, and gains and losses from the disposition of non-depreciable assets. To derive Same-Store EBITDA, we make the same adjustments to EBITDA as for Adjusted EBITDA and, additionally, exclude EBITDA from discontinued operations, EBITDA from hotels acquired during the most recent year, and gains and losses from the disposition of non-depreciable 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
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. Limitations
of Non-GAAP Measures The use of
these non-GAAP financial measures has certain limitations. FFO,
Adjusted FFO, Same-Store 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,
Same-Store 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, Adjusted FFO, Adjusted
FFO per
share, Same-Store FFO, 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. Adjusted 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, Same-Store 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 |
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