News for the Hospitality Executive |
FelCor
Lodging Trust Reports 4th Qtr Net Loss of
$98.1 million Compared to Prior Year Net Loss
of $13.0 million; Suspends
Common Dividend, Postpones Any Further Redevelopment Spending .
FelCor Reports Fourth Quarter
Results – Exceeds High Guidance
IRVING, Texas-- February 26, 2009 - --FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the fourth quarter and year ended December 31, 2008. “Our fourth quarter results were better than expected, despite a very challenging operating environment. Our results reflect extensive cost cutting measures that were implemented to protect our operating margins. In addition, our renovation program has been a resounding success, with our portfolio RevPAR increasing more than any of our peers’ during 2008,” said Richard A. Smith, FelCor’s President and Chief Executive Officer. Highlights:
Fourth Quarter Operating Results: Our hotels continue to outperform the industry average and their competitive sets. Revenue per available room (“RevPAR”) for our 85 consolidated hotels decreased by 8.5 percent to $82.01, driven by decreases in both average daily rate (“ADR”) (3.9 percent) and occupancy (4.8 percent), compared to the same period in 2007. RevPAR decreased 6.6 percent at the 70 hotels where we completed renovations during 2007 and 2008. By contrast, RevPAR for the United States and the upper upscale segment decreased by 9.8 and 11.1 percent, respectively, according to Smith Travel Research. “I am pleased with our many accomplishments during 2008, which include increasing operating margins, successfully completing our renovation program and our renovated hotels achieving their expected market share growth. As the economic headwinds continue into 2009, our team is focused on finding ways to further reduce expenses to mitigate the decline in revenue while continuing to be creative in developing new sources of revenue. We started working with our operators last May to improve operating efficiencies and reduce headcount at our hotels. This process continued through the 2009 budget process and will result in additional savings for 2009. We also remain focused on ensuring adequate liquidity and strengthening our balance sheet. With a recently renovated portfolio that is diversified among major markets and is flagged under brands that outperform their competitors, we should continue to outperform the industry,” continued Mr. Smith. Adjusted Funds from Operations (“FFO”) was $15.6 million, or $0.25 per share, compared to Same-Store Adjusted FFO of $21.8 million, or $0.34 per share, and Adjusted FFO of $21.2 million, or $0.34 per share, for the same period in 2007. Same-Store Adjusted FFO includes results from acquired hotels for the entire quarter, regardless of when acquired, and excludes sold hotels and gains from condominiums. Hotel EBITDA decreased to $61.5 million, compared to $70.5 million in the same period in 2007, a 13 percent decrease. Hotel EBITDA margin was 24.2 percent, a 156 basis point decrease compared to the same period in 2007. Hotel EBITDA represents 100 percent of the EBITDA generated by our hotels regardless of when acquired and is before corporate expenses and joint venture adjustments. Adjusted EBITDA was $52.3 million compared to Same-Store Adjusted EBITDA of $61.9 million, and Adjusted EBITDA of $58.8 million, for the same period in 2007. Same-Store Adjusted EBITDA includes results from acquired hotels for the entire quarter regardless of when acquired and excludes sold hotels and gains from condominiums. Net loss applicable to common stockholders was $98.1 million, or $1.57 per share, compared to $13.0 million, or $0.21 per share, for the same period in 2007. Net loss applicable to common stockholders in the fourth quarter of 2008 includes impairment charges of $63.1 million ($54.1 million related to consolidated hotels and $9.0 million related to unconsolidated entities) and liquidated damages of $11.1 million. Because of the unprecedented conditions in the financial markets, we reviewed our entire portfolio for impairment in the fourth quarter of 2008. As a result of this review, we recorded fourth quarter non-cash impairment charges aggregating $63.1 million. Approximately $45 million of the impairment charge relates to two hotels that we do not intend to sell (one of which has a short-term ground lease and the other is owned by an unconsolidated entity and experienced an other-than-temporary decline in market value) and the remainder of the impairment is related to three hotels that remain on the market to be sold. Full Year Operating Results: Adjusted FFO was $125.9 million, or $1.99 per share, compared to Same-Store Adjusted FFO of $113.5 million, or $1.79 per share, and Adjusted FFO of $137.2 million, or $2.17 per share, for 2007. Hotel EBITDA increased to $316.0 million, compared to $308.1 million in 2007, a 3 percent increase. Hotel EBITDA margin was 28.0 percent, a 36 basis point increase compared to 2007. Adjusted EBITDA was $275.8 million compared to Same-Store Adjusted EBITDA of $273.3 million, and Adjusted EBITDA of $285.1 million, for 2007. Net loss applicable to common stockholders was $158.0 million, or $2.55 per share, compared to a net income applicable to common stockholders of $50.3 million, or $0.81 per share, for 2007. Net loss applicable to common stockholders in 2008 included impairment charges of $120.6 million ($108.0 million related to consolidated hotels and $12.6 million related to unconsolidated entities) and liquidated damages of $11.1 million. Net income in 2007 included $18.6 million gain on sale of condominiums. EBITDA, Adjusted EBITDA, Same-Store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Same-Store Adjusted FFO are all non-GAAP financial measures. See our discussion of “Non-GAAP Financial Measures” beginning on page 15 for a reconciliation of each of these measures to our net income and for information regarding the use, limitations and importance of these non-GAAP financial measures. Balance Sheet/Liquidity: At December 31, 2008, we had $1.6 billion of consolidated debt outstanding with a weighted average interest rate of 5.2 percent, and our cash and cash equivalents totaled $50.2 million. As of today, we have approximately $100 million of cash and cash equivalents, and we intend to retain excess cash for working capital because of the uncertain economic environment. We currently have drawn $188 million on our $250 million line of credit and remain in compliance with our financial covenants. We have agreed in principle on the material terms of a new $200 million term loan, which would be secured by first mortgages on eight currently unencumbered hotels and, assuming all extension options are exercised, will not mature until 2013. This loan would not be subject to any corporate financial covenants. The material terms of this loan have been approved by JPMorgan Securities Inc. as lead arranger, and JPMorgan Chase Bank, N.A., as administrative agent, which will provide a portion of the loan. Proceeds from this loan will be used for general working capital purposes and to repay the outstanding balance on our line of credit (which will be cancelled upon repayment). We expect to close this new loan, subject to other lenders’ approval, documentation, due diligence and customary conditions, by the end of April. We have one significant debt maturity in 2009 – a $117 million non-recourse mortgage loan secured by seven hotels. We have agreed in principle on the material terms to refinance this loan for five years with Prudential Mortgage Capital, one of the current lenders, (with respect to which we have paid a non-refundable $300,000 portion of the origination fee) and are negotiating final documentation. We expect to close the refinancing upon or prior to maturity, subject to documentation, due diligence and customary conditions. Our next significant debt maturity is May 2010. We have already begun discussions with potential lenders to refinance our debt that matures in 2010 and 2011. Our Board of Directors suspended our common dividend in the fourth quarter. We do not anticipate that we will be required to pay any further dividends in 2009 to maintain our REIT status. The suspension of our common dividend will preserve approximately $38 million of liquidity in 2009. We paid the 2008 fourth quarter dividends on our preferred stock in January 2009. “We are taking steps to ensure adequate liquidity and extend our debt maturities. We have agreed on the principle terms with Prudential to refinance our upcoming 2009 maturity and have also agreed on the principle terms of a secured loan that removes all of our corporate financial covenants. We are pleased that we will have eliminated our near-term maturity risk and are already working on a plan to refinance the debt that matures in 2010 and 2011. Additionally, we have suspended our common dividend, postponed any further redevelopment spending and improved our cost structure through expense reductions. After completion of our planned 2009 financing transactions, our balance sheet will remain flexible with 23 hotels unencumbered by mortgage debt,” said Andrew J. Welch, FelCor’s Executive Vice President and Chief Financial Officer. Capital Expenditures and Development: Overall, our renovated hotels continue to perform consistent with our expectations. While RevPAR at the 70 hotels where we completed renovations during 2007 and 2008 decreased by 6.6 percent for the quarter, compared to the same period in the prior year, market share at these hotels increased by more than five percent relative to their competitive sets. RevPAR for our five hotels under renovation during the fourth quarter, including Hotel 480 Union Square in San Francisco, decreased by 22 percent. We spent $156 million on renovations and redevelopment projects at our hotels, including our pro rata share of joint venture expenditures, during 2008. The redevelopment of Hotel 480 Union Square is expected to be completed in the second quarter. On April 1, 2009, this hotel will be reflagged as a Marriott. During 2009, we expect to spend $39 million on ordinary course improvements to our hotels. Additionally, we expect to spend $25 million to finalize the redevelopment of Hotel 480 Union Square and $20 million of carryover to complete the final portion of our renovation program. In the interest of building long-term value, we are moving forward with the approval and entitlement process of additional redevelopment projects. However, we are committed to a disciplined approach toward capital allocation and will not commit capital to new projects until that is prudent. Portfolio Recycling: Subsequent to year end, we sold the Ramada Hotel in Hays, Kansas for $3 million. This hotel was part of an unconsolidated joint venture with two other hotels. The proceeds from the sale of the hotel were used to partially repay the joint venture’s mortgage loan. The remaining hotels we previously identified as non-strategic are currently being marketed for sale, but under current credit market conditions, we do not expect to sell any additional hotels during 2009. Outlook: Our business plan reflects a prolonged recession and continued deterioration of lodging demand through 2009, based on shrinking manufacturing output, rising unemployment and low consumer confidence. These economic factors result in an unpredictable economy and makes visibility into future demand trends very limited and impacts our ability to accurately forecast RevPAR. Therefore, we are providing a wider than normal range of guidance. While we expect RevPAR to decline sharply in 2009, our portfolio will benefit from the renovations we completed in 2008 and the conversion of our Hotel 480 Union Square to a Marriott. Therefore, we expect our portfolio to grow market share by an average of more than 100 basis points. Our guidance assumes no asset sales, other than the one unconsolidated hotel already sold. Assuming full year 2009 RevPAR for our 85 consolidated hotels decreases between ten and 13 percent, we anticipate:
As of February 13, our senior notes were rated B1 and B+ by Moody’s Investor Service and Standard & Poor’s Rating Services, respectively. As a result, the interest rate on $300 million of our Senior Notes due 2011 increased by 50 basis points to 9.0 percent, which increased our annual interest expense by $1.5 million. FelCor, a real estate investment trust, is the nation’s largest owner of upper-upscale, all-suite hotels. FelCor owns interests in 88 hotels and resorts, located in 23 states and Canada. FelCor’s portfolio consists primarily of upper-upscale hotels, which are flagged under global brands such as Embassy Suites Hotels®, Doubletree ®, Hilton®, Renaissance®, Sheraton®, Westin® and Holiday Inn®. Additional information can be found on the Company’s Web site at www.felcor.com. We invite you to listen to our fourth quarter earnings Conference Call on Friday, February 27, 2009, at 11:00 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 “News” pages. The conference call replay will be archived on the Company’s Web site. With the exception of historical information, the matters discussed in this news release include “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should” “will,” “continue” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties, and the occurrence of future events, may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Current economic circumstances or a further economic slowdown and the impact on the lodging industry, operating risks associated with the hotel business, relationships with our property managers, risks associated with our level of indebtedness and our ability to meet debt covenants in our debt agreements, our ability to complete acquisitions and dispositions, the availability of capital, the impact on the travel industry from increased fuel prices and security precautions, our ability to continue to qualify as a Real Estate Investment Trust for federal income tax purposes and numerous other factors may affect future results, performance and achievements. Certain of these risks and uncertainties are described in greater detail in our filings with the Securities and Exchange Commission. Although we believe our current expectations to be based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that actual results will not differ materially. We undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in our expectations. SUPPLEMENTAL INFORMATION INTRODUCTION The following information is presented in order to help our investors understand the financial position of the Company as of and for the three months and year ended December 31, 2008.
(a) Our consolidated statements of operations and balance sheets have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. The consolidated statements of operations and balance sheets should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent Annual Report on Form 10-K.
(a) Includes capitalized interest, property taxes, ground leases and certain employee costs.
(a) Effective February 13, our senior notes were rated B1 and B+ by Moody’s Investor Service and Standard & Poor’s Rating Services, respectively. As a result, the interest rate on $300 million of our Senior Notes due 2011 was increased by 50 basis points to 9.0%. When either Moody’s or Standard & Poor’s increases our senior note ratings, the interest rate will decrease to 8.5%. (b) We have a $250 million line of credit, of which $113 million is drawn. The interest rate can range from 80 to 150 basis points over LIBOR, based on our leverage ratio as defined in our line of credit agreement. (c) Interest rates are calculated based on the weighted average debt outstanding at December 31, 2008. (d) We have purchased an interest rate cap that expires in November 2009 at 7.8% for this notional amount. (e) The maturity date assumes that we will exercise three successive one-year extension options that permit, at our sole discretion, the original November 2008 maturity to be extended to 2011. In July 2008, we exercised our first one-year option to extend the maturity to November 2009, and we expect to exercise the remaining options when timely. (f) We have purchased interest rate caps that expire in May 2009 of 6.25% for $177 million aggregate notional amounts. (g) The maturity date assumes that we will exercise three successive one-year extension options that permit, at our sole discretion, the original May 2009 maturity to be extended to 2012, and we expect to exercise the options when timely.
Hotel Portfolio Composition The following tables set forth, as of December 31, 2008, for 85 Consolidated Hotels distribution by brand, top markets and location type.
(a) Hotel EBITDA is more fully described on page 22.
(a) Decreases in occupancy, ADR and RevPAR are principally related to renovation-related disruption at Hotel 480 Union Square. We have included historical room statistics for two hotels acquired in December 2007 for periods, prior to our ownership of these hotels, for comparison purposes.
Non-GAAP Financial Measures We refer in this release to certain “non-GAAP financial measures.” These measures, including FFO, Adjusted FFO, Same-Store Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with generally accepted accounting principles (“GAAP”). The following tables reconcile each of these non-GAAP measures to the most comparable GAAP financial measure. 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.
(a) These costs relate to the conversion of our Hotel 480 Union Square in San Francisco to a Marriott. The conversion is expected to be completed by early 2009. (b) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes.
(a) This represents clean up costs and insurance deductible. (b) These costs relate to the conversion of our Hotel 480 Union Square in San Francisco to a Marriott. The conversion is expected to be completed by early 2009. (c) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes.
(a) This represents clean up costs and insurance deductible. (b) These costs relate to the conversion of our Hotel 480 Union Square in San Francisco to a Marriott. The conversion is expected to be completed by early 2009. (c) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes.
(a) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes.
(a) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes. (b) Hotel EBITDA as a percentage of hotel operating revenue.
(a) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes.
(a) We have included amounts for two hotels acquired in December 2007, prior to our ownership of these hotels, for comparison purposes.
(a) Weighted average shares and units are 63.5 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, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel 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, including but not limited to these described below, provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO and Adjusted EBITDA when combined with GAAP net income, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.
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 comparisons, we have adjusted Adjusted FFO and Adjusted EBITDA to remove discontinued operations and gains on sales of condominium units; and have added the historical results of operations from the two hotels acquired in December 2007. 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 from continuing operations all revenues and expenses not directly associated with hotel operations including 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. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis including the historical results of operations from the two hotels acquired in December 2007. Limitations of Non-GAAP Measures Our management and Board of Directors use FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and lodging REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers. The use of these non-GAAP financial measures has certain limitations. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, as presented by us, may not be comparable to FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin as calculated by other real estate companies. These measures do not reflect certain expenses that we incurred and will incur, such as depreciation 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, EBITDA or Adjusted EBITDA be considered as measures of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. Adjusted FFO per share should not be used as a measure of amounts that accrue directly to the benefit of stockholders. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin reflect additional ways of viewing our operations that we believe when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on any single financial measure. |
Contact:
FelCor Lodging Trust Incorporated
|