FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the third quarter ended September 30, 2009.
'We continue to accomplish the goals we set at the beginning of the year: extend debt maturities; ensure adequate liquidity; and operate our hotels as efficiently as possible. We refinanced our senior corporate debt with new senior notes, thereby pushing the maturity to 2014 and substantially removing the Company's refinancing risk,' said Richard A. Smith, FelCor's President and Chief Executive Officer. 'I am pleased with our market share gains and flow-through, despite lower than expected RevPAR. We continue to lead other lodging companies in these three areas. Our high-quality and well-located portfolio improved market share by approximately two percent during the quarter and intense cost containment limited the flow-through of reduced revenue to the bottom line to only 51 percent, which was better than expected,' continued Mr. Smith.
Summary:
Completed the sale of $636 million of senior notes due 2014 that allowed us to refinance our existing senior notes that mature in 2011.
RevPAR decreased 17.8 percent for the third quarter at our 85 consolidated hotels.
Market share increased approximately two percent for the third quarter at our 85 consolidated hotels.
RevPAR increased 53 percent in the third quarter at the San Francisco Marriott Union Square (following the completion of the redevelopment in June).
Hotel expenses declined 11.6 percent during the third quarter. Our strict expense controls limited the effect of reduced revenue on flow-through to Hotel EBITDA to 51 percent, compared to the prior year, which was better than our expectations. Hotel EBITDA margin decreased 490 basis points.
Adjusted FFO per share was $0.14 for the third quarter. Adjusted EBITDA was $45.3 million for the quarter. This met the low end of our expectations.
Net loss for the third quarter was $25.5 million.
Third Quarter Operating Results:
Revenue per available room ('RevPAR') for our 85 consolidated hotels decreased by 17.8 percent to $80.39, driven by decreases in both average daily rate ('ADR') (a 12.5 percent decrease to $116.51) and occupancy (a 6.0 percent decrease to 69.0 percent), compared to the same period in 2008.
'Once the economy begins to improve, we expect the lodging industry will lag behind the broader recovery. As such, there has not yet been a widespread improvement in demand trends and the shift of the customer mix continues to pressure rates. However, some markets are showing signs of improvement. Approximately 40 percent of our hotels grew occupancy in September compared to prior year, and that trend is accelerating each month,' added Mr. Smith.
Adjusted Funds from Operations ('FFO') for the third quarter of 2009 was $9.0 million, or $0.14 per share, compared to $28.7 million, or $0.45 per share, for the same period in 2008.
Hotel EBITDA for the third quarter of 2009 decreased to $50.9 million, compared to $75.0 million in the same period in 2008. Hotel EBITDA margin was 22.2 percent, a 490 basis point decrease compared to the same period in 2008. Hotel operating expenses decreased 11.6 percent compared to prior year. The decline in expenses reflects various factors including: decreased labor costs, including permanent hotel staffing reductions; decreased other room expenses, such as guest transportation and in-room amenities; decreased incentive management fees; and improved food and beverage efficiencies. Prior to accounting for taxes, insurance and land leases, Hotel EBITDA margins declined only 397 basis points. Hotel EBITDA represents EBITDA generated by our hotels before corporate expenses and joint venture adjustments.
Adjusted EBITDA for the third quarter of 2009 was $45.3 million, compared to $65.1 million for the same period in 2008.
Net loss applicable to common stockholders for the third quarter of 2009 was $34.8 million, or $0.55 per share, compared to a net loss of $51.3 million, or $0.83 per share, for the same period in 2008.
EBITDA, Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO and Adjusted FFO are all non-GAAP financial measures. See our discussion of 'Non-GAAP Financial Measures' beginning on page 13 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.
Balance Sheet:
At September 30, 2009, we had $1.6 billion of consolidated debt outstanding with a weighted average interest rate of 5.5 percent, and our cash and cash equivalents totaled $128 million.
In October, we completed the sale and issuance of $636 million in aggregate principal amount of senior notes. The new notes bear an annual interest rate of 10 percent and mature in 2014. The net proceeds of the offering were approximately $558 million after original issue discount and other fees and expenses related to the offering. The proceeds were used to fund our purchase of $427 million of our floating-rate notes and 8½ percent notes, both of which mature in 2011, with the remainder available for general corporate purposes. There are $87 million of 8½ percent notes that were not tendered and remain outstanding. We have called for redemption of the remaining $1 million of floating-rate notes that were not tendered.
We have received term sheets from the special servicer to extend the maturity dates on two loans, totaling $14 million, secured by the Embassy Suites - Boca Raton and Doubletree - Wilmington that matured in June 2009. We are also in various stages of discussions regarding all of our mortgage loans that mature during 2010. Several of these loans have been transferred to the special servicers so that we may begin negotiations to refinance and/or extend their maturity.
'I am pleased with our progress to extend and refinance our maturing debt and ensure we have adequate liquidity. Most importantly, we refinanced our only corporate-level debt, the senior notes that were to mature in 2011, with new senior notes that mature in 2014. While the interest rate for the new notes is higher than the existing notes, we have substantially eliminated our debt maturity risk. We have also strengthened our liquidity position, which provides us the capacity and flexibility to address the additional interest expense on the new notes and the economic conditions that continue to affect travel demand. We have made good progress toward extending the mortgage debt that matures in 2010 and continue to work with lenders,' said Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer.
Capital Expenditures and Development:
For the quarter and nine months ended September 30, 2009, we spent $17.2 million and $65.4 million, respectively, on capital expenditures at our hotels (including our pro rata share of joint ventures). Included in the capital expenditures for the nine months is $34 million to complete our renovation and redevelopment projects.
In June, we completed the final phase of the comprehensive redevelopment at the San Francisco Marriott Union Square. Third quarter RevPAR increased 53 percent at this hotel (which operated as Hotel 480 prior to April), compared to the prior year, and its market share increased by 98 percent, exceeding expectations. The market share index for this hotel was 107 percent in the quarter compared to 80 percent for calendar year 2007 (before its renovation and rebranding).
Outlook:
We are revising our 2009 outlook in light of the additional interest expense associated with our recent notes offering. In addition, we assume all of the untendered 8½ percent notes ($87 million) remain outstanding for the duration of the year, and we hold significant excess cash on our balance sheet. We are evaluating our options with regard to the future use of our excess cash.
We also are revising our 2009 outlook to reflect updated revenue expectations, which include actual RevPAR results for October. Occupancy declined only 2.4 percent and RevPAR declined approximately 12.6 percent for October at our 85 consolidated hotels. The volatile economic conditions continue to hinder our ability to predict demand patterns and its effect on RevPAR. We continue to be aggressive in mixing the customer segments to optimize revenue and work with our operators to achieve the most efficient cost structure to correspond with demand trends. While the occupancy decline in all segments has continued to moderate throughout the year, the premium corporate and group segments remain weak. As a result, we expect fewer room nights for the premium corporate and group segments during the fourth quarter, compared to our previous expectations. This shift in the customer mix will result in lower ADR and food & beverage revenue. However, due to strict expense controls, we still expect flow-through to remain strong, relative to current market conditions.
We will continue to benefit from our high-quality portfolio, the renovations we completed in 2008 and the redevelopment of the San Francisco Marriott Union Square. As a result, we expect our hotels will continue to gain market share from their competitive sets and RevPAR at our portfolio to outperform our peer group and the upper-upscale segment.
Assuming full-year 2009 RevPAR for our 85 consolidated hotels decreases between 18 and 18.5 percent, we anticipate:
Adjusted EBITDA to be between $174 million and $176 million;
Adjusted FFO per share to be between $0.31 and $0.34;
Net loss to be between $113 million and $111 million; and
Interest expense to be approximately $110 million.
FelCor, a real estate investment trust, is the nation's largest owner of upper-upscale, all-suite hotels. FelCor owns interests in 87 hotels and resorts, located in 23 states and Canada. FelCor's portfolio consists primarily of upper-upscale hotels, which are flagged under global brands - Embassy Suites Hotels(R), Doubletree (R), Hilton(R), Marriott(R), Renaissance(R), Sheraton(R), Westin(R) and Holiday Inn(R).
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