FelCor Lodging Trust Incorporated (NYSE: FCH) reported operating results for the second quarter ended June 30, 2014.
- RevPAR for comparable hotels increased 9.2%.
- Adjusted FFO per share improved to $0.26 up from $0.21.
- Adjusted EBITDA increased $4.6 million to $69.2 million, and Same-store Adjusted EBITDA increased $9.9 million, or 17.3%, to $67.0 million.
- Net income per share improved $0.35 to $0.12.
- Two non-strategic hotels were sold during the quarter for gross proceeds of $54 million. Agreed to sell five other hotels (four with non-refundable deposits) for gross proceeds of $115 million.
- The exchange of interests in 10 non-strategic hotels that were owned in joint ventures was completed in July. We now wholly-own five of these non-strategic hotels and will begin marketing them in early September.
- A $140 million term loan, bearing interest at LIBOR plus 2.5%, and maturing in 2017, closed in July. Proceeds, along with cash and our line of credit, will be used to redeem our remaining $234 million of 10% senior secured notes in August.
- Redevelopment of the Knickerbocker hotel remains on track to open in early fall.
“I am very pleased with our performance in the second quarter. We exceeded our expectations, as Same-store Adjusted EBITDA increased 17%, and RevPAR growth for our portfolio once again outperformed the industry,” said Richard A. Smith, President and Chief Executive Officer of FelCor. “Our success in executing our strategic plan continues to drive positive results, and we have positioned FelCor to deliver sustainable growth by assembling a high-quality and diverse portfolio. We will continue to leverage our strengths to outperform the industry to create long-term shareholder value.”
Mr. Smith added, “We continue to make very good progress on our portfolio positioning and balance sheet restructuring programs. After unwinding some of our joint ventures, we now have 12 remaining non-strategic hotels. We have agreed to sell five of these hotels. In addition, we obtained a flexible and low-cost term loan that will be used to redeem our 10% senior notes. After that redemption, our cost of borrowing and maturity profile will be greatly improved. We will use proceeds from future asset sales to repay the term loan and our line of credit, thereby completing the final phase of our balance sheet restructuring.”
|Comparable hotels (46)|
|Total hotel revenue, in millions||$||212.9||$||196.6||8.3||%|
|Hotel EBITDA, in millions||$||63.6||$||55.3||15.0||%|
|Hotel EBITDA margin||29.9||%||28.1||%||175 bps|
|Wyndham Hotels (8)|
|Total hotel revenue, in millions||$||35.3||$||28.9||21.9||%|
|Hotel EBITDA, in millions||$||13.9||$||11.2||24.3||%|
|Hotel EBITDA margin||39.5||%||38.7||%||74 bps|
|Same-store hotels (54)|
|Total hotel revenue, in millions||$||248.2||$||225.5||10.1||%|
|Hotel EBITDA, in millions||$||77.5||$||66.5||16.6||%|
|Hotel EBITDA margin||31.3||%||29.5||%||175 bps|
RevPAR for our 46 comparable hotels (31 comparable core hotels plus 15 non-strategic hotels) was $132.17, a 9.2% increase compared to the same period in 2013. The increase reflects a 6.3% increase in ADR to $164.79 and a 2.7% increase in occupancy to 80.2%. Hotel EBITDA for our 46 comparable hotels was $63.6 million, a 15.0% increase, and Hotel EBITDA margin was 29.9% during the quarter, a 175 basis point increase.
RevPAR for our 31 comparable core hotels (39 core hotels that exclude Wyndham hotels converted from Holiday Inn on March 1, 2013) increased 9.7% compared to the same period in 2013, while RevPAR for our 15 non-strategic hotels increased 7.5%.
Hotel EBITDA for our acquired and recently redeveloped hotels increased 23%, compared to the same period in 2013.
RevPAR for the eight hotels converted to Wyndham in 2013 increased 20.4% for the second quarter, compared to the same period in 2013. We expect revenues at these hotels will continue to grow meaningfully during 2014 and beyond, as transitional disruption subsides. Wyndham Worldwide Corporation has guaranteed minimum annual NOI for the eight hotels over the ten-year term of the management agreement. We do not expect any amount funded for 2014 by Wyndham under the guaranty to be significant.
RevPAR for our 54 Same-store hotels (46 comparable hotels plus the recently-converted Wyndham hotels) was $131.45, a 10.8% increase compared to the same period in 2013. The increase reflects a 7.0% increase in ADR to $164.81 and a 3.5% increase in occupancy to 79.8%.
Second Quarter Operating Results
Same-store Adjusted EBITDA was $67.0 million, compared to $57.1 million for the same period in 2013, a 17.3% increase. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $69.2 million compared to $64.6 million for the same period in 2013.
Adjusted FFO was $32.9 million, or $0.26 per share, compared to $26.1 million, or $0.21 per share in 2013. Net income attributable to common stockholders was $14.6 million, or $0.12 per share in 2014, compared to a net loss of $28.4 million, or $0.23 per share, in 2013. Net income in 2014 included a $15.6 million net gain on asset sales. Net loss in 2013 included a $24.4 million impairment loss partially offset by a $7.3 million gain.
Year-to-Date Operating Results
RevPAR for 46 comparable hotels was $123.57, an 8.3% increase compared to the same period in 2013. The increase reflects a 5.9% increase in ADR to $162.12 and a 2.3% increase in occupancy to 76.2%. Total revenue for the 46 comparable hotels increased 7.7% from the same period in 2013. RevPAR for our 31 comparable core hotels increased 8.9%, while RevPAR for our 15 non-strategic hotels increased 6.5%.
Same-store Adjusted EBITDA was $106.1 million, compared to $90.0 million for the same period in 2013, a 17.9% increase. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $110.3 million compared to $102.2 million for the same period in 2013.
Adjusted FFO was $37.0 million, or $0.29 per share, compared to $25.3 million, or $0.20 per share, in 2013. Net loss attributable to common stockholders was $9.9 million, or $0.08 per share, in 2014, compared to a net loss of $64.2 million, or $0.52 per share, in 2013. Net loss in 2014 included a $21.5 million net gain on asset sales, and net loss in 2013 included a $24.4 million impairment loss partially offset by a $7.3 million gain.
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 17 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.
During the first six months of 2014, we sold four hotels for total gross proceeds of $95.2 million. At June 30, 2014, we had 17 non-strategic hotels to be sold (two of which had contracts with non-refundable deposits and were excluded from our same-store metrics).
In July, we unwound joint ventures that owned 10 non-strategic hotels. Through an exchange of interests, we now own five of those hotels outright (comprising 1,224 rooms), and our joint venture partner owns the other five (comprising 1,215 rooms). The five retained hotels will be marketed for sale in early September. In addition, we received our joint ventures partner’s 10% interest in the DoubleTree Suites hotel located in downtown Austin and now wholly-own that property.
Following the exchange of interests in our joint venture hotels, we now have 12 non-strategic hotels remaining to sell. Of the twelve, we have agreed to sell five hotels for total gross proceeds of approximately $115 million. Of the five, we have contracts, with non-refundable deposits, to sell four - the DoubleTree Suites-Charlotte, the Embassy Suites-Indianapolis, the Holiday Inn-Toronto Airport and the Sheraton-Atlanta Gateway.
Since December 2010, we have sold 28 non-strategic hotels, for total gross proceeds of $627 million, and exchanged interests in 10 non-strategic hotels with our joint venture partner.
During the quarter, we invested $20.0 million in capital expenditures at our hotels (excluding the Knickerbocker), including approximately $7.8 million for redevelopment projects and repositioning for our Wyndham hotels.
During 2014, we plan to invest approximately $60 million in capital improvements and renovations, concentrated at seven core hotels, as part of our long-term capital plan. In addition, we are investing approximately $25 million to complete the repositioning of our Wyndham portfolio. Please see page 12 of this release for more detail on renovations.
We have invested $105.5 million (excluding initial acquisition costs and capitalized interest) through June 30, 2014 to redevelop the 4+ star Knickerbocker Hotel. Our net expected project cost remains $240 million, and we expect the hotel to open in early fall.
As of June 30, 2014, we had $1.6 billion of consolidated debt bearing a 6.3% weighted-average interest rate and a six-year weighted-average maturity. We had $61.3 million of cash and cash equivalents and $66.0 million of restricted cash, of which $51.9 million secured our Knickerbocker construction loan.
During the quarter, we repaid three loans that would have matured between July and August 2014, totaling $35 million. Those loans, each secured by a different hotel, bore interest at a weighted average rate of 6.6%.
During July, we obtained a $140 million term loan secured by three hotels. Borrowings under the facility bear interest at LIBOR (no floor) plus 2.5%. The loan matures in 2017 (may be extended for up to two years, subject to satisfaction of certain conditions) and is freely pre-payable. On August 15, 2014, we expect to use borrowings from the term loan, cash on hand and borrowings under our line of credit to redeem the remaining $234 million of our 10% senior secured notes. We will use proceeds from pending and future asset sales to repay the term loan and our line of credit. After redeeming the 10% notes, we will have no significant debt maturities, other than our line of credit, until 2019 and will have lowered our weighted average borrowing rate to below 6.0%.
During the second quarter, we declared a $0.02 per share common stock dividend, which was paid in July. Future quarterly dividends will be based on funds available for distribution, reinvestment opportunities within our portfolio and taxable income, among other things.
We have increased our RevPAR and EBITDA outlook primarily to reflect better than expected second quarter results. Our 2014 outlook reflects continued strong lodging industry fundamentals. Our expected RevPAR growth reflects a premium to the industry because of our high-quality diverse portfolio and continued strong growth at our acquired and recently redeveloped hotels.
Our outlook reflects selling all 12 remaining non-strategic hotels. The low end of our outlook assumes that five hotels are sold during the third quarter and seven are sold in the fourth quarter. The high end of our outlook assumes four hotels are sold in the third quarter and eight hotels are sold during the fourth quarter. Our outlook assumes EBITDA for the Wyndham hotels equates to the amount of Wyndham’s annual NOI guaranty.
During 2014, we expect:
- RevPAR for same-store hotels will increase 8.75% - 9.25%; and RevPAR for comparable hotels (excludes Wyndham) will increase 7.5% - 8.0%;
- Adjusted EBITDA will be $211.5 million to $217.5 million;
- Adjusted FFO per share will be $0.56 to $0.60;
- Net income attributable to FelCor will be $1.0 million to $5.0 million; and
- Interest expense, including our pro rata share from joint ventures, will be $96.0 million to $96.5 million.
The following table reconciles our 2014 Adjusted EBITDA to core Adjusted EBITDA outlook (in millions):
(a) EBITDA that is forecasted to be generated by 21 hotels that we assume will be sold from January 1, 2014 through the dates of sale.
(b) Includes the Knickerbocker, which is scheduled to open in early fall.
FelCor, a real estate investment trust, owns a diversified portfolio of primarily upper-upscale and luxury hotels that are located in major and resort markets. FelCor partners with leading hotel companies to operate its hotels, which are flagged under globally renowned brands and premier independent hotels.
The following information is presented in order to help our investors understand FelCor’s financial position as of and for the three and six months ended June 30, 2014.
TABLE OF CONTENTS
|Consolidated Statements of Operations(a)||
|Consolidated Balance Sheets(a)||
|Consolidated Debt Summary||
|Schedule of Encumbered Hotels||
|Hotels Under Renovation During 2014||
|Supplemental Financial Data||
|Hotel Portfolio Composition||
|Hotel Operating Statistics by Brand||
|Hotel Operating Statistics by Market||
|Historical Quarterly Operating Statistics||
|Non-GAAP Financial Measures||
(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.
|Consolidated Statements of Operations|
|(in thousands, except per share data)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Hotel operating revenue:|
|Food and beverage||45,471||42,162||85,256||79,105|
|Other operating departments||12,570||12,317||23,978||23,405|
|Hotel departmental expenses:|
|Food and beverage||33,066||31,747||64,253||61,993|
|Other operating departments||5,977||5,902||11,580||11,191|
|Other property-related costs||62,912||60,030||124,490||119,458|
|Management and franchise fees||10,160||8,914||19,173||18,077|
|Taxes, insurance and lease expense||26,992||24,853||50,625||47,017|
|Depreciation and amortization||29,082||29,898||58,683||59,653|
|Total operating expenses||228,535||244,303||445,722||454,499|
|Operating income (loss)||30,980||(4,447||)||35,142||(5,706||)|
|Interest expense, net||(24,495||)||(26,376||)||(49,722||)||(52,661||)|
|Gain on sale of other assets, net||100||—||100||—|
|Income (loss) before equity in income from unconsolidated entities||6,558||(30,823||)||(14,513||)||(58,367||)|
|Equity in income from unconsolidated entities||2,766||1,905||3,409||1,994|
|Income (loss) from continuing operations||9,324||(28,918||)||(11,104||)||(56,373||)|
|Income from discontinued operations||5||6,123||140||6,973|
|Income (loss) before gain on sale of property||9,329||(22,795||)||
|Gain on sale of property, net||15,626||—||21,083||—|
|Net income (loss)||24,955||(22,795||)||10,119||(49,400||)|
|Net loss (income) attributable to noncontrolling interests in other partnerships||(262||)||3,972||(184||)||4,212|
|Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP||(71||)||140||50||320|
|Preferred distributions - consolidated joint venture||(341||)||—||(522||)||—|
|Net income (loss) attributable to FelCor||24,281||(18,683||)||9,463||(44,868||)|
|Net income (loss) attributable to FelCor common stockholders||$||14,603||$||(28,361||)||$||(9,893||)||$||(64,224||)|
|Basic and diluted per common share data:|
|Income (loss) from continuing operations||$||0.12||$||(0.28||)||$||(0.08||)||$||(0.57||)|
|Net income (loss)||$||0.12||$||(0.23||)||$||(0.08||)||$||(0.52||)|
|Basic weighted average common shares outstanding||124,169||123,814||124,158||123,814|
|Diluted weighted average common shares outstanding||125,386||123,814||124,158||123,814|
|Consolidated Balance Sheets|
|June 30,||December 31,|
|Investment in hotels, net of accumulated depreciation of $882,585 and $929,801 at June 30, 2014 and December 31, 2013, respectively||$||1,552,172||$||1,653,267|
|Investment in unconsolidated entities||44,126||46,943|
|Hotels held for sale||33,148||16,319|
|Cash and cash equivalents||61,344||45,645|
|Accounts receivable, net of allowance for doubtful accounts of $231 and $262 at June 30, 2014 and December 31, 2013, respectively||35,889||35,747|
|Deferred expenses, net of accumulated amortization of $22,095 and $20,362 at June 30, 2014 and December 31, 2013, respectively||25,962||29,325|
|Liabilities and Equity|
|Debt, net of discount of $1,615 and $4,714 at June 30, 2014 and December 31, 2013, respectively||$||1,601,166||$||1,663,226|
|Accrued expenses and other liabilities||149,799||150,738|
|Commitments and contingencies|
|Redeemable noncontrolling interests in FelCor LP, 613 and 618 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively||6,440||5,039|
|Preferred stock, $0.01 par value, 20,000 shares authorized:|
|Series A Cumulative Convertible Preferred Stock, 12,880 shares, liquidation value of $322,004 and $322,011, issued and outstanding at June 30, 2014 and December 31, 2013, respectively||309,354||309,362|
|Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at June 30, 2014 and December 31, 2013||169,412||169,412|
|Common stock, $0.01 par value, 200,000 shares authorized; 124,290 and 124,051 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively||1,243||1,240|
|Additional paid-in capital||2,354,847||2,354,328|
|Accumulated other comprehensive income||24,892||24,937|
|Total FelCor stockholders’ equity||275,537||290,929|
|Noncontrolling interests in other partnerships||21,500||23,301|
|Preferred equity in consolidated joint venture, liquidation value of $41,590||40,994||—|
|Total liabilities and equity||$||2,106,664||$||2,144,280|
|Consolidated Debt Summary|
|(dollars in thousands)|
|Line of credit||8||LIBOR + 3.375||June 2016(a)||$||87,500||$||88,000|
|Hotel mortgage debt|
|Mortgage debt||1||5.81||July 2016||9,641||9,904|
|Mortgage debt(b)||4||4.95||October 2022||125,404||126,220|
|Mortgage debt||1||4.94||October 2022||31,471||31,714|
Senior secured notes(c)
|Senior secured notes||6||6.75||June 2019||525,000||525,000|
|Senior secured notes||9||5.625||March 2023||525,000||525,000|
|Construction tranche||—||LIBOR + 4.00||May 2016||12,994||—|
|Cash collateralized tranche||—||LIBOR + 1.25||May 2016||51,867||64,861|
(a) Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.
(b) This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a single hotel.
(c) We originally issued $636 million (face amount) of these notes. After redemptions in 2011 and 2012, $234 million (face amount) of these notes were outstanding at June 30, 2014 and December 31, 2013.
(d) In November 2012, we obtained an $85.0 million construction loan to finance the redevelopment of the Knickerbocker Hotel. This loan can be extended for one year subject to satisfying certain conditions. In 2014, we drew $13.0 million of the cash collateral to fund construction costs, leaving $51.9 million of cash collateral to be drawn before drawing on the remaining $20.1 million available under the construction loan.
|Schedule of Encumbered Hotels|
|(dollars in millions)|
|Consolidated||June 30, 2014|
|Line of credit||$||88||Charleston Mills House - WYN, Charlotte SouthPark - DT, Houston Medical Center - WYN, Mandalay Beach - ES, Miami International Airport - ES, Philadelphia Historic District - WYN, Pittsburgh University Center - WYN and Santa Monica at the Pier - WYN|
|CMBS debt||$||10||Indianapolis North - ES|
|CMBS debt(a)||$||125||Birmingham - ES, Ft. Lauderdale - ES, Minneapolis Airport - ES and Napa Valley - ES|
|CMBS debt||$||31||Deerfield Beach - ES|
|Senior secured notes (10.00%)||$||232||Atlanta Airport - SH, Boston Beacon Hill - WYN, Myrtle Beach Resort - ES, Nashville Opryland-Airport - HI, New Orleans French Quarter - WYN, Orlando Walt Disney World® - DT, San Diego Bayside - WYN, San Francisco Waterfront - ES, San Francisco Fisherman’s Wharf - HI, San Francisco Union Square - MAR and Toronto Airport - HI|
|Senior secured notes (6.75%)||$||525||Boston Copley - FMT, Indian Wells Esmeralda Resort & Spa - REN, LAX South - ES, Morgans, Royalton and St. Petersburg Vinoy Resort & Golf Club - REN|
|Senior secured notes (5.625%)||$||525||Atlanta Buckhead - ES, Boston Marlboro - ES, Burlington - SH, Dallas Love Field - ES, Milpitas - ES, Myrtle Beach Resort - HIL, Orlando South - ES, Philadelphia Society Hill - SH and SF South San Francisco - ES|
(a) This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Improvements and additions to majority-owned hotels||$||19,415||$||23,681||$||48,032||$||47,023|
|Partners’ pro rata share of additions to consolidated joint venture hotels||(166||)||(151||)||(260||)||(308||)|
|Pro rata share of additions to unconsolidated hotels||781||465||1,404||802|
|Total additions to hotels(a)||$||20,030||$||23,995||$||49,176||$||47,517|
(a) Includes capitalized interest, property taxes, property insurance, ground leases and certain employee costs.
Hotels Under Renovation During 2014
|Start Date||End Date|
|Burlington - SH||guestrooms, exterior||Nov-2013||May-2014|
|San Francisco Fisherman’s Wharf - HI||guestrooms, public areas, F&B||Nov-2013||Mar-2014|
|San Diego - WYN(a)||guestrooms, public areas||Nov-2013||May-2014|
|San Francisco Waterfront-ES(b)||guestrooms, F&B||Dec-2013||Jul-2014|
|LAX- ES(c)||public areas, F&B||Feb-2014||May-2014|
|New Orleans - WYN(a)||guestrooms, public areas||May-2014||Oct-2014|
|Dallas Love Field - ES||guestrooms, F&B||Jun-2014||Sep-2014|
|Nashville - HI||public areas, F&B||Jul-2014||Oct-2014|
|Ft. Lauderdale - ES(d)||guestrooms||Aug-2014||
(a) Repositioning from Holiday Inn to Wyndham.
(b) Public areas renovation completed in May 2013.
(c) Guestrooms renovation completed in February 2013.
(d) Public areas renovation completed in November 2013.
|Supplemental Financial Data|
|(in thousands, except per share data)|
|June 30,||December 31,|
Total Enterprise Value
|Common shares outstanding||124,290||124,051|
|Combined shares and units outstanding||124,903||124,669|
|Common stock price||$||10.51||$||8.16|
|Series A preferred stock(a)||309,354||309,362|
|Series C preferred stock(a)||169,412||169,412|
|Preferred equity - Knickerbocker joint venture, net(b)||38,944||—|
|Noncontrolling interests of consolidated debt||—||(2,719||)|
|Pro rata share of unconsolidated debt||73,361||73,179|
|Cash, cash equivalents and restricted cash(c)||(127,390||)||(122,872||)|
|Total enterprise value (TEV)||$||3,116,397||$||2,890,140|
(a) Book value based on issue price.
(b) Book value based on issue price, net of noncontrolling interest.
(c) Restricted cash includes $51.9 million of cash fully securing $51.9 million of outstanding debt assumed when we purchased the Knickerbocker Hotel.
|Hotel Portfolio Composition|
|The following table illustrates the distribution of same-store hotels.|
|Embassy Suites Hotels||18||4,982||$||255,744||$||81,051|
|Wyndham and Wyndham Grand(b)||8||2,528||103,932||35,042|
|Renaissance and Marriott||3||1,321||119,839||21,338|
|DoubleTree by Hilton and Hilton||3||802||41,106||12,619|
|Sheraton and Westin||2||673||37,996||10,173|
|Morgans and Royalton||2||285||34,340||3,513|
|San Francisco area||5||1,903||$||124,825||$||31,583|
|Los Angeles area||2||481||23,760||10,450|
|New York area||3||546||48,045||6,760|
(a) Hotel EBITDA is more fully described on page 25.
(b) These hotels were converted to Wyndham on March 1, 2013.
(c) Excludes two hotels held for sale as of June 30, 2014.
The following tables set forth occupancy, ADR and RevPAR for the three and six months ended June 30, 2014 and 2013, and the percentage changes therein for the periods presented, for our same-store hotels.
Hotel Operating Statistics by Brand
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Embassy Suites Hotels||81.7||78.7||3.7||79.3||76.4||3.7|
|Renaissance and Marriott||76.3||73.2||4.2||76.0||74.0||2.6|
|DoubleTree by Hilton and Hilton||82.8||77.9||6.3||73.7||68.9||7.0|
|Sheraton and Westin||75.5||75.5||0.1||66.0||66.9||(1.2||)|
|Morgans and Royalton||91.0||89.4||1.7||85.2||85.3||—|
|Comparable core hotels (31)||81.3||79.0|
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