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Compared to Net Loss of $31.7 million in the Year-ago Quarter;
RevPAR for its 69 Hotels Increased 3.6% for the Quarter Hotel Operating Statistics
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IRVING, Texas--May 1, 2012--FelCor Lodging Trust Incorporated (NYSE: FCH), today reported operating results for the first quarter ended March 31, 2012. First Quarter Summary:
First Quarter Operating Results: RevPAR (for 69 same-store hotels) was $95.31, a 3.6% increase compared to the same period in 2011. The increase was driven by a 3.5% increase in average daily rate ("ADR") to $137.02 and a 10 basis point increase in occupancy to 69.6%. RevPAR for hotels not under renovation increased 7.1%. Commenting on the first quarter, Richard A. Smith, President and Chief Executive Officer of FelCor, said, “We continue to execute our long-term strategic plan. We have six hotels under contract and expect to sell a majority of the remaining non-strategic hotels on the market this year. As part of our previously announced balance restructuring plan, we are using the proceeds to repay debt and pay accrued preferred dividends as we work to substantially reduce leverage, stagger debt maturities and lower our cost of borrowing. The redevelopment projects and value creation plans at our newly acquired hotels are also progressing as expected. These hotels will provide the company with substantial RevPAR and EBITDA growth in the future. For the quarter, RevPAR at our hotels not under renovation was very strong and FFO per share was at the high end of our expectations. These results reflect our high-quality and diversified portfolio as well as strong lodging fundamentals. Corporate transient demand is strong, and group pace continues to slowly improve. Coupled with historically low supply growth, our confidence in a sustained lodging recovery is growing, and we are raising our 2012 outlook. Last quarter, the lodging industry experienced the highest quarterly ADR growth since the first quarter of 2008. As hotels approach prior peak occupancy levels, ADR growth should continue to accelerate." Hotel EBITDA was $48.2 million, 3.5% higher than $46.6 million for the same period in 2011. Hotel EBITDA and other same-store metrics reflect 69 consolidated hotels (45 core hotels plus 24 non-strategic hotels). Same-store metrics include Royalton and Morgans, which were acquired in May 2011, and exclude six hotels held for sale at March 31, 2012, which are included in discontinued operations. Hotel EBITDA for the hotels not under renovation and redevelopment increased 12.6% compared to the prior year period. Displacement from renovations and redevelopments during the quarter negatively impacted Hotel EBITDA by $3 million. Adjusted FFO was a loss of $2.1 million, or $0.02 per share, which is the same as the prior year and met the high end of our expectations. Adjusted EBITDA (which includes our pro rata share from joint ventures) was $41.4 million, 6.3% lower than the same period in 2011. Same-store Adjusted EBITDA was $37.2 million, 7.2% higher than the $34.7 million for the same period in 2011. Net loss attributable to common stockholders was $38.1 million, or $0.31 per share for the quarter, compared to a net loss of $41.3 million, or $0.43 per share, for the same period in 2011. EBITDA, Adjusted EBITDA, same-store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Adjusted FFO per share are all non-GAAP financial measures. See our discussion of “Non-GAAP Financial Measures” beginning on page 16 for a reconciliation of each of these measures to the most comparable GAAP financial measure and for information regarding the use, limitations and importance of these non-GAAP financial measures. Portfolio Repositioning: We have agreed to sell six non-strategic hotels for $103.0 million, in aggregate, which represents a 6.8% cap rate based on 2011 net operating income. The purchaser has made a $3.9 million hard money deposit toward the purchase price, and the transaction is expected to close late in the second quarter. After repaying $73 million of secured debt and other costs at closing, we will use the remaining $30 million of proceeds to pay a portion of the accrued preferred dividends (almost half of the $67.8 million arrearage) in conjunction with paying regular quarterly preferred dividends on July 31, 2012. We expect that the remaining accrued dividends will be paid in 2012 using proceeds from future asset sales. As part of our long-term portfolio repositioning strategy, we are selling 39 non-strategic hotels, including nine sold to date. We are currently marketing 10 hotels, and have six additional hotels currently under contract. We expect to generate approximately $350 million in gross proceeds from selling these 16 hotels. We will be using these funds to pay all accrued preferred dividends, reduce debt and strengthen our balance sheet. We expect to bring the 14 remaining hotels to market in late 2012 or in early 2013. The proceeds from selling these hotels will allow us to continue to reduce debt, build a sound and flexible balance sheet, and improve long-term FFO and stockholder value. Capital Expenditures: In the quarter, we spent $41.6 million on capital improvements at our hotels (including our pro rata share of joint venture expenditures). During 2012, the company anticipates spending approximately $85 million on improvements and renovations, a majority of which is focused on 11 hotels, including four of our largest properties. Please see page 11 of this release for more detail on renovations. We expect to spend an additional $35 million on value-enhancing redevelopment projects at three hotels: Morgans, Myrtle Beach Oceanfront Resort-Embassy Suites, and the Boston Copley Plaza-Fairmont. During the quarter, we were renovating or redeveloping 10 hotels. As of April, we had substantially completed renovations or redevelopments at seven of these hotels. RevPAR for the 10 hotels under renovation decreased 19.6% during the quarter. These hotels are expected to generate above market growth for the remainder of 2012. Balance Sheet: At March 31, 2012, we had $1.6 billion of consolidated debt, with an average interest rate of 7.5% and weighted average maturity of 4.4 years. We had $98.2 million of cash and cash equivalents and $189 million available under our line of credit. Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer, said, "We have made solid strides laying the foundation for building a strong and flexible balance sheet, and expect that the remainder of the year will continue to see substantial progress. Selling non-strategic hotels and paying accrued preferred dividends this year are important steps toward that goal. Also, as we sell hotels this year, we expect to repay our only loan that matures in 2013 with sale proceeds and to refinance a $108 million mortgage loan that would otherwise mature in 2014. By the end of 2014, our balance sheet will reflect substantially improved financing costs, well-staggered debt maturities and a significant number of unencumbered hotels." Outlook: We are increasing our 2012 operating outlook to reflect strong first quarter results that were at the high end of our expectations and higher RevPAR for the remainder of the year. Additionally, we are adjusting our outlook to reflect anticipated asset sales. Our previous outlook did not contemplate any asset sales. However, given the solid progress of the asset sale program and the strong interest from potential buyers, we now assume (for guidance purposes) that 18 hotels are sold during 2012 (all of the 16 hotels currently on the market plus two additional hotels for which we have received unsolicited offers). The previously announced sale of the six-hotel portfolio for $103 million is expected to occur May 31. The revised low end of our outlook reflects the sale of the 12 remaining hotels during the middle of the third quarter. The high end of our outlook reflects the sale of the 12 remaining hotels during the middle of the fourth quarter. The following table reconciles our 2012 Adjusted EBITDA outlook (in millions):
For purposes of calculating 2012 same-store EBITDA, we are providing the following table:
(a) EBITDA for assets sold/expected to sell from January 1, 2012, through the date of sale/expected sale. Based on the above assumptions for 2012, we anticipate:
About FelCor: FelCor, a real estate investment trust, is the nation's largest owner of upper-upscale, all-suite hotels. FelCor owns interests in 76 properties located in major markets throughout 22 states. FelCor's diversified portfolio of hotels and resorts are flagged under global brands such as: Doubletree®, Embassy Suites Hotels®, Hilton®, Fairmont®, Marriott®, 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 first quarter earnings Conference Call on Tuesday, May 1, 2012, at 10:00 a.m. (Central Time). The conference call will be Webcast simultaneously on FelCor's Web site at www.felcor.com. Interested investors and other parties who wish to access the call can go to FelCor's Web site and click on the conference call microphone icon on either the “Investor Relations” or “News Releases” page. The conference call replay also 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 an 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, dispositions and debt refinancing, the availability of capital, the impact on the travel industry from 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 FelCor's financial position as of and for the three month period ended March 31, 2012.
(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 Quarterly Report on Form 10-Q.
(a) We currently have $189 million available under our $225 million line of credit. (b) The line of credit can be extended for one year (to 2015), subject to satisfying certain conditions. (c) LIBOR (for this loan) is subject to a 3% floor. We purchased an interest rate cap ($212 million notional amount) that caps LIBOR at 5.0% and expires May 2012. (d) This loan can be extended for six months, subject to satisfying certain conditions. (e) The hotels securing this debt are subject to separate loan agreements and are not cross-collateralized. (f) These notes have $492 million in aggregate principal outstanding ($144 million and $96,000 in aggregate principal amount was redeemed in June 2011 and January 2012, respectively) and were initially sold at a discount that provided an effective yield of 12.875% before transaction costs. (g) This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. When that loan is transferred to a new lender and made part of our construction loan, we expect to only pay such tax to the extent of the incremental principal amount of the construction loan.
(a) The hotels securing this debt are subject to separate loan agreements and are not cross-collateralized.
(a) Includes capitalized interest, property taxes, ground leases and certain employee costs.
(a) The public area redevelopment will begin in the fourth quarter 2012. (b) The food and beverage redevelopment will be completed in June 2012.
Discontinued Operations (in thousands) Discontinued operations include the results of operations of six hotels designated as held for sale at March 31, 2012 and eight hotels sold in 2011. Condensed financial information for the hotels included in discontinued operations is as follows:
(a) Hotel EBITDA is more fully described on page 21. The following tables set forth occupancy, ADR and RevPAR for the three months ended March 31, 2012 and 2011, and the percentage changes therein for the periods presented, for our same-store Consolidated Hotels included in continuing operations.
Non-GAAP Financial Measures
(a) For same-store metrics, we have included the two hotels acquired in May 2011 for all periods presented.
(a) For same-store metrics, we have included the two hotels acquired in May 2011 for all periods presented. (b) Consolidated hotel lease expense represents the percentage lease expense of our 51% owned operating lessees. The offsetting percentage lease revenue is included in equity in income from unconsolidated entities.
(a) Weighted average shares and units are 124.8 million. (b) For guidance, we have assumed no gains or losses on future asset sales. (c) Includes pro rata portion of unconsolidated entities. 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 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 (loss) attributable to FelCor as a measure of our operating performance. FFO and EBITDA The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income or loss attributable to parent (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation, amortization and impairment losses. FFO for unconsolidated partnerships and joint ventures are calculated 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 attributable to parent (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 items, including but not limited to those 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 attributable to FelCor, 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 depreciable assets and impairment losses 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 and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. Hotel EBITDA and Hotel EBITDA Margin Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/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 that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating all revenues and expenses from continuing operations not directly associated with hotel operations, including corporate-level expenses, depreciation and amortization, 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 into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, 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 diminishes 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 noncontrolling interests 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 Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis. Use and Limitations of Non-GAAP Measures Our management and Board of Directors use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. 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. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and 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 most comparable 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. These non-GAAP financial measures 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 a single financial measure. |
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