FelCor Results

FelCor Second Quarter 2015 Same-store RevPAR Increased 7.3%

Adjusted EBITDA was $69.7 million and same-store Adjusted EBITDA increased by $7.2 million, or 11.9%, to $67.7 million compared to the same period in 2014.

FelCor

FelCor Lodging Trust Incorporated (NYSE: FCH) today reported results for the second quarter ended June 30, 2015.

Second Quarter Highlights

  • Same-store RevPAR increased 7.3% over the same period in 2014. RevPAR increased 9.4% in June.
  • Adjusted FFO per share increased to $0.28.
  • Adjusted EBITDA was $69.7 million and same-store Adjusted EBITDA increased by $7.2 million, or 11.9%, to $67.7 million compared to the same period in 2014.
  • Net loss per share was $0.12.
  • Issued 18.4 million shares of common stock at $11.25 per share for aggregate net proceeds of $198.7 million.
  • Redeemed all $170 million of our 8.0% Series C Cumulative Preferred Stock.
  • Issued $475 million of 6.0% senior unsecured notes due 2025, and redeemed all $525 million of 6.75% senior secured notes due 2019.
  • Repaid $189 million of mortgage debt and increased unencumbered hotels to 19.
  • Sold three hotels for aggregate gross proceeds of $90 million in the quarter and another hotel for $14 million in July. Agreed to sell the remaining non-strategic hotel, which is expected to close in the third quarter.
  • Amended the line of credit to expand its borrowing capacity from $225 million to $400 million, extended the final maturity to 2020 and lowered the effective interest rate by 62.5 basis points.

“We continue to deliver on our commitments to stockholders. We have essentially completed our portfolio repositioning program, with our sole remaining non-strategic hotel under contract to be sold this quarter. I am very pleased with the results, which are producing exceptional returns, as illustrated by our strong second quarter. We have built a high-quality and well-positioned portfolio that continually outperforms the industry and gains market share,” said Richard A. Smith, President and Chief Executive Officer of FelCor.

Mr. Smith added, “We also completed several important balance sheet initiatives during the quarter that lowered our cost of debt, progressed toward an unsecured corporate debt environment, extended debt maturities and created capacity to fund high return-on-investment projects and other growth opportunities. Those efforts have set us up for continued success.”

Second Quarter Hotel Results

RevPAR for our 39 same-store hotels increased 7.3% (to $154.48) from the same period in 2014. The change reflects a 6.4% increase in ADR (to $190.42) and an 0.8% increase in occupancy (to 81.1%). Hotel EBITDA for our 39 same-store hotels increased by 10.3% to $71.8 million and Hotel EBITDA margin was 32.7% during the quarter, a 105 basis point increase.

RevPAR for the eight Wyndham hotels (which we converted from Holiday Inn on March 1, 2013) increased 18.9% (to $151.76) from the same period in 2014. We expect revenue and EBITDA at these properties will continue to grow meaningfully during 2015, supported by the recent renovations and repositioning to upper-upscale. Wyndham Worldwide Corporation has guaranteed the minimum annual NOI for these hotels through 2023. We recorded $584,000 of the guaranteed amount in the quarter.

See page 14 for hotel portfolio composition and pages 15-17 and 21-22 for more detailed hotel portfolio operating data.

Second Quarter Operating Results

Same-store Adjusted EBITDA increased 11.9% to $67.7 million from the same period in 2014. Adjusted EBITDA (which includes Adjusted EBITDA from sold hotels) was $69.7 million.

Adjusted FFO was $39.3 million ($0.28 per share), compared to $32.9 million ($0.26 per share) for the same period in 2014. Net loss attributable to common stockholders was $17.3 million ($0.12 per share) in 2015, compared to net income of $14.6 million ($0.12 per share) for the same period in 2014. Net loss for the second quarter 2015 included $30.8 million in debt extinguishment charges, offset by a $7.1 million gain on sale of an unconsolidated joint venture. Net income in 2014 included $15.6 million of net gain on the sale of consolidated hotels.

Year-to-Date Operating Results

RevPAR for our 39 same-store hotels increased 10.1% (to $145.18) from the same period in 2014. The change reflects a 6.5% increase in ADR (to $186.24) and a 3.4% increase in occupancy (to 78.0%). Hotel EBITDA for our 39 same-store hotels increased 18.9% to $124.1 million, and Hotel EBITDA margin for these properties increased 222 basis points to 30.0%.

Same-store Adjusted EBITDA increased 22.0% to $114.3 million from the same period in 2014. Adjusted EBITDA (which includes Adjusted EBITDA from sold hotels) increased 8.4% to $119.6 million from the same period in 2014.

Adjusted FFO was $57.6 million ($0.43 per share), compared to $37.0 million ($0.29 per share) for the same period in 2014. Net loss attributable to common stockholders was $20.2 million ($0.15 per share) in 2015, compared to a net loss of $9.9 million ($0.08 per share) for the same period in 2014. Net loss in 2015 included $30.9 million in debt extinguishment charges offset by a $16.3 million net gain on the sale of consolidated hotels and a $7.1 million gain on sale of an unconsolidated joint venture. Net loss in 2014 included $21.5 million of net gain on the sale of consolidated hotels.

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.

Portfolio Repositioning

As part of our portfolio repositioning program, we have sold 39 non-strategic hotels for total gross proceeds of $816 million (reflects our pro rata share) since December 2010. We have one remaining hotel to sell.

During the second quarter, we sold three hotels - the 274-room Embassy Suites Charlotte (of which we owned 50%), the 216-room Embassy Suites San Antonio - NW I-10 and the 260-room Embassy Suites Austin - Central for total gross proceeds of $90 million in separate transactions.

In July, we sold the Holiday Inn Orlando - Airport for gross proceeds of $14 million. We have entered into a contract to sell our last remaining non-strategic hotel, the 262-room Embassy Suites Chicago - Lombard, and expect to close the sale in the third quarter.

Capital Expenditures

During the quarter, we invested $13.2 million in capital improvements at our hotels (excluding The Knickerbocker, in which we invested $11.5 million during the quarter). During 2015, we plan to invest approximately $45 million in capital improvements and renovations, concentrated at five hotels, as part of our long-term capital plan. Please see page 12 of this release for more detail on renovations.

Balance Sheet

As of June 30, 2015, we had $1.5 billion of consolidated debt bearing a 5.0% weighted-average interest rate and an eight-year weighted-average maturity. We had $106.1 million of cash and cash equivalents and $23.6 million of restricted cash, of which $6.3 million secured our Knickerbocker construction loan. We received an additional $16.8 million in proceeds on July 1, 2015 for a hotel sold on June 30, 2015.

During the quarter, we significantly reduced our cost of debt, mitigated future market risk and further staggered our maturity profile. We now have no material debt maturing until 2020 and a weighted average debt maturity of 2023. Our weighted average cost of debt is more than 125 basis points lower than at December 31, 2013. In addition, we now have 19 unencumbered properties, ten more than at March 31, 2015. The following second quarter transactions helped us achieve this improvement:

  • On April 14, 2015, we issued 18.4 million shares of our common stock for net proceeds of approximately $199 million. On May 14, 2015, we redeemed all $170 million of our 8.0% Series C Cumulative Preferred Stock.
  • On May 21, 2015, we issued $475 million in aggregate principal amount of our 6.0% senior notes due 2025. We used the net proceeds from the new senior notes, together with cash on hand and funds drawn under our line of credit, to purchase and redeem our $525 million of 6.75% senior secured notes due 2019.
  • On June 9, 2015, we amended and restated our secured line of credit to expand our borrowing capacity from $225 million to $400 million. The amended facility matures in June 2020 (extended from June 2017), including an optional one-year extension that is subject to certain conditions. Funds drawn under the line of credit bear interest at LIBOR (no floor) plus an applicable margin ranging from 225 to 275 basis points (reduced from 337.5 basis points), depending on our leverage. The facility is secured by mortgages on seven hotels.
  • During the quarter, we repaid a $140 million loan and a $49 million loan (both would have otherwise matured in 2017) using asset sale proceeds and funds drawn under our line of credit.

Common Dividend

During the second quarter, we declared a $0.04 per share common stock dividend, which was paid in July. Future quarterly common stock dividends will be determined by our Board of Directors based on funds available for distribution, reinvestment opportunities within our portfolio and taxable income, among other things.

Outlook

We increased the mid-point of our RevPAR, Adjusted EBITDA and Adjusted FFO per share outlook to account for second quarter results, updated timing of asset sales and recent balance sheet accomplishments. Demand growth reflects strength in both the leisure and corporate segments, which we expect will continue. Occupancy should increase as demand growth continues to outpace new supply. Average occupancy for the U.S. is at record levels, allowing for accelerating ADR growth. Our projected RevPAR growth exceeds projected overall industry RevPAR growth because of our high-quality and diverse portfolio, which is over-weighted to higher-growth markets with favorable fundamentals.

Our outlook assumes we sell our sole remaining non-strategic hotel during the third quarter. Our outlook also assumes EBITDA for the Wyndham hotels equals the aggregate amounts guaranteed by Wyndham for the year.

For the year 2015, we expect:

  • RevPAR for same-store hotels will increase 8.75 - 9.5%;
  • Adjusted EBITDA will be $242.0 million - 247.5 million;
  • Adjusted FFO per share will be $0.86 - 0.90;
  • Net income attributable to FelCor will be $18.6 million - 24.0 million; and
  • Interest expense, including our pro rata share from joint ventures, will be approximately $83.5 million.

The following table reconciles our Adjusted EBITDA outlook (in millions):

(a) Includes The Knickerbocker, which opened in February 2015.

(b) Forecasted EBITDA for eight non-strategic hotels from January 1, 2015 through the actual or assumed sale dates.

About FelCor

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. 

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 and six months ended June 30, 2015.

 

TABLE OF CONTENTS

 
Page
Consolidated Statements of Operations(a)

8

Consolidated Balance Sheets(a) 9
Consolidated Debt Summary 10
Schedule of Encumbered Hotels 11
Capital Expenditures 12
Hotels Under Renovation During 2015 12
Supplemental Financial Data 13
Hotel Portfolio Composition 14
Hotel Operating Statistics by Brand 15
Hotel Operating Statistics by Market 16
Historical Quarterly Operating Statistics 17
Non-GAAP Financial Measures 17

 

   

Consolidated Statements of Operations

(in thousands, except per share data)

 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Revenues:
Hotel operating revenue:
Room $ 182,066 $ 200,238 $ 344,372 $ 370,067
Food and beverage 42,151 45,471 81,995 85,256
Other operating departments 11,832 12,570 22,967 23,978
Other revenue 5,054   1,236   5,464   1,563  
Total revenues 241,103   259,515   454,798   480,864  
Expenses:
Hotel departmental expenses:
Room 44,423 50,585 86,934 97,318
Food and beverage 31,278 33,066 61,974 64,253
Other operating departments 4,331 5,977 8,780 11,580
Other property related costs 57,791 62,912 114,686 124,490
Management and franchise fees 9,202 10,160 18,287 19,173
Taxes, insurance and lease expense 16,579 26,992 31,555 50,625
Corporate expenses 6,530 7,647 15,103 15,472
Depreciation and amortization 28,750 29,082 56,522 58,683
Other expenses 1,411   2,114   5,639   4,128  
Total operating expenses 200,295   228,535   399,480   445,722  
Operating income 40,808 30,980 55,318 35,142
Interest expense, net (20,278 ) (24,495 ) (39,759 ) (49,722 )
Debt extinguishment (30,823 ) (27 ) (30,896 ) (33 )
Other gains, net 166   100   166   100  
Income (loss) before equity in income from unconsolidated entities (10,127 ) 6,558 (15,171 ) (14,513 )
Equity in income from unconsolidated entities 7,513   2,766   7,662   3,409  
Income (loss) from continuing operations (2,614 ) 9,324 (7,509 ) (11,104 )
Income (loss) from discontinued operations (83 ) 5   (79 ) 140  
Income (loss) before gain (loss) on sale of property (2,697 ) 9,329 (7,588 ) (10,964 )
Gain (loss) on sale of property, net (550 ) 15,626   16,337   21,083  
Net income (loss) (3,247 ) 24,955 8,749 10,119
Net loss (income) attributable to noncontrolling interests in other partnerships 247 (262 ) (4,632 ) (184 )
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP 75 (71 ) 89 50
Preferred distributions - consolidated joint venture (359 ) (341 ) (707 ) (522 )
Net income (loss) attributable to FelCor (3,284 ) 24,281 3,499 9,463
Preferred dividends (7,903 ) (9,678 ) (17,581 ) (19,356 )
Redemption of preferred stock (6,096 )   (6,096 )  
Net income (loss) attributable to FelCor common stockholders $ (17,283 ) $ 14,603   $ (20,178 ) $ (9,893 )
Basic and diluted per common share data:
Income (loss) from continuing operations $ (0.12 ) $ 0.12   $ (0.15 ) $ (0.08 )
Net income (loss) $ (0.12 ) $ 0.12   $ (0.15 ) $ (0.08 )
Basic weighted average common shares outstanding 140,322   124,169   132,465   124,158  
Diluted weighted average common shares outstanding 140,322   125,386   132,465   124,158  
 
   

Consolidated Balance Sheets

(in thousands)

 
June 30, December 31,
2015 2014
Assets
Investment in hotels, net of accumulated depreciation of $865,502 and $850,687 at June 30, 2015 and December 31, 2014, respectively $ 1,724,543 $ 1,599,791
Hotel development 51,191 297,466
Investment in unconsolidated entities 11,343 15,095
Hotels held for sale 36,173 47,145
Cash and cash equivalents 106,107 47,147
Restricted cash 23,560 20,496
Accounts receivable, net of allowance for doubtful accounts of $189 and $241 at June 30, 2015 and December 31, 2014, respectively 53,427 27,805
Deferred expenses, net of accumulated amortization of $5,692 and $17,111 at June 30, 2015 and December 31, 2014, respectively 26,308 25,827
Other assets 19,308   23,886  
Total assets $ 2,051,960   $ 2,104,658  
Liabilities and Equity
Debt $ 1,535,256 $ 1,585,867
Distributions payable 12,406 13,827
Accrued expenses and other liabilities 135,912   135,481  
Total liabilities 1,683,574   1,735,175  
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP, 611 units issued and outstanding at June 30, 2015 and December 31, 2014 6,041   6,616  
Equity:
Preferred stock, $0.01 par value, 20,000 shares authorized:
Series A Cumulative Convertible Preferred Stock, 12,879 shares, liquidation value of $321,987, issued and outstanding at June 30, 2015 and December 31, 2014 309,337 309,337
Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at December 31, 2014 169,412
Common stock, $0.01 par value, 200,000 shares authorized; 143,328 and 124,605 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively 1,433 1,246
Additional paid-in capital 2,561,854 2,353,666
Accumulated deficit (2,562,464 ) (2,530,671 )
Total FelCor stockholders’ equity 310,160 302,990
Noncontrolling interests in other partnerships 8,997 18,435
Preferred equity in consolidated joint venture, liquidation value of $43,898 and $42,094 at June 30, 2015 and December 31, 2014, respectively 43,188   41,442  
Total equity 362,345   362,867  
Total liabilities and equity $ 2,051,960   $ 2,104,658  
 
         

Consolidated Debt Summary

(dollars in thousands)

 

Encumbered

Hotels

Interest

Rate (%)

Maturity

Date

June 30,

2015

December 31,

2014

Senior unsecured notes   6.00 June 2025 $ 475,000 $
Senior secured notes 9 5.625 March 2023 $ 525,000 $ 525,000
Mortgage debt(a) 4 4.95 October 2022 $ 123,422 $ 124,278
Mortgage debt 1 4.94 October 2022 $ 30,973 $ 31,228
Line of credit 7 LIBOR + 2.75 June 2019(b) $ 316,000 $
The Knickerbocker loan:(c)  
Construction tranche 1 LIBOR + 4.00 May 2016 58,562 58,562
Cash collateralized tranche LIBOR + 1.25 May 2016 6,299 6,299
Retired debt     840,500
Total 22   $ 1,535,256   $ 1,585,867
 
 
(a) This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a single hotel.
(b) Our $400 million line of credit can be extended for one year (to 2020), subject to satisfying certain conditions.

(c)

This construction loan (total capacity of $85.0 million) was obtained to finance the redevelopment of The Knickerbocker, and can be extended for one year subject to satisfying certain conditions.

 
   

Schedule of Encumbered Hotels

(dollars in millions)

 
Consolidated June 30, 2015
Debt Balance Encumbered Hotels
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
Mortgage debt $ 27 Napa Valley - ES
Mortgage debt $ 35 Ft. Lauderdale - ES
Mortgage debt $ 23 Birmingham - ES
Mortgage debt $ 38 Minneapolis Airport - ES
Mortgage debt $ 31 Deerfield Beach - ES
Line of credit $ 316 Austin - DTG, Boston Copley - FM, Charleston Mills House - WYN, LA LAX S - ES, Santa Monica at the Pier - WYN, SF Union Square - MAR and St. Petersburg Vinoy - REN
Construction loan $ 65 The Knickerbocker
 
   

Capital Expenditures

(in thousands)

 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Improvements and additions to majority-owned hotels $ 12,274 $ 19,415 $ 25,757 $ 48,032
Partners’ pro rata share of additions to consolidated joint venture hotels (1 ) (166 ) (25 ) (260 )
Pro rata share of additions to unconsolidated hotels 969   781   1,273   1,404  
Total additions to hotels(a) $ 13,242   $ 20,030   $ 27,005   $ 49,176  
     

Hotels Under Renovation During 2015

 
Primary Areas Start Date End Date
Myrtle Beach - HLT meeting space, new F&B outlet Dec-2014 Feb-2015
LAX- ES(a) public areas, F&B, meeting space Feb-2014 May-2015
Nashville - HI guestrooms, public areas, F&B Aug-2014 July-2015
New Orleans - French Quarter Chateau Lemoyne - HI guestrooms, public areas, exterior May-2015 Dec-2015
Vinoy Resort & Golf Club - REN meeting space, F&B, golf shop Nov-2015 Jan-2016
   

Supplemental Financial Data

(in thousands, except per share data)

 
June 30, December 31,
Total Enterprise Value 2015 2014
Common shares outstanding 143,328 124,605
Units outstanding 611   611  
Combined shares and units outstanding 143,939 125,216
Common stock price $ 9.88   $ 10.82  
Market capitalization $ 1,422,117 $ 1,354,837
Series A preferred stock(a) 309,337 309,337
Series C preferred stock(a) 169,412
Preferred equity - Knickerbocker joint venture, net(b) 41,029 39,370
Consolidated debt(b) 1,535,256 1,585,867
Noncontrolling interests of consolidated debt (2,928 ) (2,928 )
Pro rata share of unconsolidated debt 11,560 17,096
Hotel development(c) (51,191 ) (297,466 )
Outstanding proceeds from sale of hotel(d) (16,783 )
Cash, cash equivalents and restricted cash(e) (129,667 ) (67,643 )
Total enterprise value (TEV) $ 3,118,730   $ 3,107,882  
 
(a) Book value based on issue price.
(b) Book value based on issue price, net of noncontrolling interest.
(c)

A portion of the Knickerbocker investment was placed in service during the first six months of 2015.

(d) Hotel was sold June 30, 2015 and proceeds were received July 1, 2015.
(e)

Restricted cash includes $6.3 million of cash fully securing $6.3 million of outstanding debt assumed when we purchased The Knickerbocker.

     

 

Hotel Portfolio Composition

 
Brand Hotels Rooms

2014 Hotel

Operating Revenue

(in thousands)

2014 Hotel

EBITDA

(in thousands)(a)

Embassy Suites Hotels 18   4,982   $ 282,866   $ 94,990
Wyndham and Wyndham Grand 8 2,528 125,354 43,122
Renaissance and Marriott 3 1,321 128,770 26,086
DoubleTree by Hilton and Hilton 3 802 45,383 15,483
Sheraton 2 673 39,639 10,622
Fairmont 1 383 53,451 10,010
Holiday Inn 2 968 51,511 8,966
Morgans and Royalton 2   285   33,895   3,314
Same-store hotels(b) 39   11,942   $ 760,869   $ 212,593
 
Market
San Francisco area 5 1,903 $ 139,692 $ 39,466
Boston 3 916 85,670 21,832
South Florida 3 923 55,561 17,007
Los Angeles 2 481 28,696 12,404
Myrtle Beach 2 640 41,149 12,218
Philadelphia 2 728 38,680 9,630
Tampa 1 361 49,358 9,301
New York area 3 546 48,456 7,259
Other markets 18   5,444   273,607   83,476
Same-store hotels(b) 39   11,942   $ 760,869   $ 212,593
 
Location
Urban 17 5,310 $ 360,177 $ 97,584
Resort 9 2,733 203,370 51,679
Airport 8 2,621 136,144 43,204
Suburban 5   1,278   61,178   20,126
Same-store hotels(b) 39   11,942   $ 760,869   $ 212,593
 

Hotel Operating Statistics by Brand

 
Occupancy (%)
Three Months Ended     Six Months Ended  
June 30, June 30,
2015   2014 %Variance 2015   2014 %Variance
Embassy Suites Hotels 83.1 81.7 1.7 82.1 79.3 3.6
Wyndham and Wyndham Grand 81.1 77.4 4.9 75.1 70.2 7.0
Renaissance and Marriott 71.9 76.3 (5.8 ) 76.3 76.0 0.5
DoubleTree by Hilton and Hilton 82.4 82.8 (0.5 ) 75.8 73.7 2.9
Sheraton 77.5 75.5 2.5 68.2 66.0 3.2
Fairmont 84.3 83.9 0.5 73.0 71.3 2.4
Holiday Inn 82.0 85.1 (3.6 ) 76.1 74.8 1.6
Morgans and Royalton 87.9 91.0 (3.3 ) 80.9 85.2 (5.1 )
Same-store hotels (39)(a) 81.1 80.5 0.8 78.0 75.4 3.4
ADR ($)
Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 %Variance 2015 2014 %Variance
Embassy Suites Hotels 172.23 162.07 6.3 175.57 164.31 6.9
Wyndham and Wyndham Grand 187.05 164.91 13.4 173.83 155.86 11.5
Renaissance and Marriott 233.86 227.30 2.9 243.39 231.96 4.9
DoubleTree by Hilton and Hilton 164.09 160.29 2.4 163.36 158.52 3.1
Sheraton 160.27 153.06 4.7 145.45 142.37 2.2
Fairmont 361.24 330.56 9.3 314.81 292.78 7.5
Holiday Inn 176.23 160.13 10.1 166.54 147.99 12.5
Morgans and Royalton 310.72 331.94 (6.4 ) 276.31 297.97 (7.3 )
Same-store hotels (39)(a) 190.42 178.94 6.4 186.24 174.91 6.5
RevPAR ($)
Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 %Variance 2015 2014 %Variance
Embassy Suites Hotels 143.05 132.35 8.1 144.14 130.22 10.7
Wyndham and Wyndham Grand 151.76 127.59 18.9 130.51 109.40 19.3
Renaissance and Marriott 168.13 173.47 (3.1 ) 185.73 176.20 5.4
DoubleTree by Hilton and Hilton 135.23 132.72 1.9 123.81 116.77 6.0
Sheraton 124.15 115.62 7.4 99.16 94.03 5.4
Fairmont 304.48 277.30 9.8 229.76 208.76 10.1
Holiday Inn 144.48 136.21 6.1 126.68 110.75 14.4
Morgans and Royalton 273.23 301.98 (9.5 ) 223.50 253.93 (12.0 )
Same-store hotels (39)(a) 154.48 143.98 7.3 145.18 131.85 10.1
 
 

Hotel Operating Statistics by Market

 
Occupancy (%)
Three Months Ended     Six Months Ended
June 30, June 30,
2015   2014 %Variance 2015   2014 %Variance
San Francisco area 88.5 85.1   4.0 85.5 78.6 8.9
Boston 83.3 85.3 (2.4 ) 74.9 73.4 2.1
South Florida 83.8 84.9 (1.2 ) 88.5 88.0 0.6
Los Angeles 83.7 85.0 (1.5 ) 82.6 83.9 (1.6 )
Myrtle Beach 77.7 78.4 (0.9 ) 65.9 62.0 6.2
Philadelphia 77.8 77.8 63.6 66.2 (4.0 )
Tampa 84.3 84.8 (0.6 ) 86.5 85.5 1.2
New York area 84.8 88.0 (3.6 ) 77.6 79.9 (2.9 )
Other markets 77.8 76.4 1.7 76.4 73.4 4.1
Same-store hotels (39)(a) 81.1       80.5       0.8       78.0     75.4     3.4  
ADR ($)
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 %Variance 2015 2014 %Variance
San Francisco area 218.46 203.56 7.3 212.78 196.51 8.3
Boston 282.79 251.50 12.4 245.23 223.48 9.7
South Florida 153.74 148.46 3.6 189.14 177.73 6.4
Los Angeles 187.53 172.22 8.9 179.09 165.81 8.0
Myrtle Beach 171.84 170.84 0.6 147.79 148.21 (0.3 )
Philadelphia 184.47 152.10 21.3 167.29 143.46 16.6
Tampa 210.15 194.20 8.2 231.41 210.17 10.1
New York area 256.29 265.24 (3.4 ) 234.96 249.10 (5.7 )
Other markets 163.95 155.69 5.3 163.88 154.63 6.0
Same-store hotels (39)(a) 190.42       178.94       6.4       186.24     174.91     6.5  
RevPAR ($)
Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 %Variance 2015 2014 %Variance
San Francisco area 193.39 173.22 11.6 182.02 154.42 17.9
Boston 235.54 214.52 9.8 183.76 163.97 12.1
South Florida 128.91 125.98 2.3 167.44 156.41 7.1
Los Angeles 156.94 146.34 7.2 148.01 139.19 6.3
Myrtle Beach 133.53 133.98 (0.3 ) 97.38 91.94 5.9
Philadelphia 143.44 118.32 21.2 106.31 94.98 11.9
Tampa 177.09 164.67 7.5 200.18 179.62 11.4
New York area 217.42 233.33 (6.8 ) 182.29 198.94 (8.4 )
Other markets 127.48 119.01 7.1 125.24 113.46 10.4
Same-store hotels (39)(a) 154.48       143.98       7.3       145.18     131.85     10.1  

 

 

Historical Quarterly Operating Statistics

 
Occupancy (%)
Q2 2014   Q3 2014   Q4 2014   Q1 2015   Q2 2015
Same-store hotels (39)(a) 80.5 80.3 72.0 74.7 81.1
 
ADR ($)
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Same-store hotels (39)(a) 178.94 179.06 175.83 181.65 190.42
 
RevPAR ($)
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Same-store hotels (39)(a) 143.98 143.71 126.57 135.78 154.48
 

 

Non-GAAP Financial Measures

We refer in this release to certain “non-GAAP financial measures.” These measures, including FFO, 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.

 

Reconciliation of Net Income (Loss) to FFO and Adjusted FFO

(in thousands, except per share data)

 
Three Months Ended June 30,
2015   2014
Dollars   Shares  

Per Share

Amount

Dollars   Shares  

Per Share

Amount

Net income (loss) $ (3,247 ) $ 24,955
Noncontrolling interests 322 (333 )
Preferred dividends (7,903 ) (9,678 )
Redemption of preferred stock (6,096 )
Preferred distributions - consolidated joint venture (359 ) (341 )
Net income (loss) attributable to FelCor common stockholders (17,283 ) 14,603
Less: Dividends declared on unvested restricted stock (13 ) (2 )
Less: Undistributed earnings allocated to unvested restricted stock   (6 )
Basic earnings per share data (17,296 ) 140,322 $ (0.12 ) 14,595 124,169 $ 0.12
Restricted stock units         1,217    
Diluted earnings per share data (17,296 ) 140,322 (0.12 ) 14,595 125,386 0.12
Depreciation and amortization 28,750 0.21 29,082 0.23
Depreciation, unconsolidated entities and other partnerships 546 2,700 0.02
Gain on sale of hotel in unconsolidated entity (7,113 ) (0.05 )
Loss (gain) on sale of hotels, net of noncontrolling interests in other partnerships 631 (15,541 ) (0.12 )
Other gains, net (100 ) (100 )
Noncontrolling interests in FelCor LP (75 ) 611 71 614 (0.01 )
Dividends declared on unvested restricted stock 13 2
Undistributed earnings allocated to unvested restricted stock 6
Conversion of unvested restricted stock and units   1,535       11    
FFO 5,356 142,468 0.04 30,815 126,011 0.24
Debt extinguishment 30,823 0.22 25
Debt extinguishment, unconsolidated entities 330
Severance costs 3
Variable stock compensation (72 ) 854 0.01
Redemption of preferred stock 6,096 0.04
Contract dispute recovery (3,717 ) (0.03 )
Pre-opening costs, net of noncontrolling interests 523     0.01   1,206     0.01  
Adjusted FFO $ 39,339   142,468   $ 0.28   $ 32,903   126,011   $ 0.26  
 

Reconciliation of Net Income to FFO and Adjusted FFO

(in thousands, except per share data)

 
Six Months Ended June 30,
2015 2014
Dollars   Shares  

Per

Share

Amount

Dollars   Shares  

Per

Share

Amount

Net income $ 8,749 $ 10,119
Noncontrolling interests (4,543 ) (134 )
Preferred distributions - consolidated joint venture (707 ) (522 )
Redemption of preferred stock (6,096 )
Preferred dividends (17,581 ) (19,356 )
Net loss attributable to FelCor common stockholders (20,178 ) (9,893 )
Less: Dividends declared on unvested restricted stock (26 ) (3 )
Basic and diluted earnings per share data (20,204 ) 132,465 $ (0.15 ) (9,896 ) 124,158 $ (0.08 )
Depreciation and amortization 56,522 0.42 58,683 0.47
Depreciation, discontinued operations and unconsolidated entities 1,258 0.01 5,374 0.04
Other gains, net (100 ) (100 )
Gain on sale of hotel in unconsolidated entity (7,113 ) (0.05 )
Gain on sale of hotels, net of noncontrolling interests in other partnerships (11,249 ) (0.09 ) (21,361 ) (0.17 )
Noncontrolling interests in FelCor LP (89 ) 611 (50 ) 616
Dividends declared on unvested restricted stock 26 3
Conversion of unvested restricted stock and units   1,366       1,029    
FFO 19,051 134,442 0.14 32,653 125,803 0.26
Debt extinguishment, including discontinued operations, net of noncontrolling interests 30,895 0.23 276
Debt extinguishment, unconsolidated entities 330
Severance costs 403
Variable stock compensation 925 0.01 1,419 0.01
Redemption of preferred stock 6,096 0.05
Contract dispute recovery (3,717 ) (0.03 )
Pre-opening costs, net of noncontrolling interests 4,047     0.03   2,259     0.02  
Adjusted FFO $ 57,627   134,442   $ 0.43   $ 37,010   125,803   $ 0.29  
 
   

Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA

(in thousands)

 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Net income (loss) $ (3,247 ) $ 24,955 $ 8,749 $ 10,119
Depreciation and amortization 28,750 29,082 56,522 58,683
Depreciation, unconsolidated entities and other partnerships 546 2,700 1,258 5,374
Interest expense 20,284 24,509 39,770 49,751
Interest expense, discontinued operations and unconsolidated entities 141 647 343 1,390
Noncontrolling interests in other partnerships 247   (262 ) (4,632 ) (184 )
EBITDA 46,721 81,631 102,010 125,133
Debt extinguishment, including discontinued operations, net of noncontrolling interests 30,823 25 30,895 276
Debt extinguishment, unconsolidated entities 330 330
Gain on sale of hotel in unconsolidated entity (7,113 ) (7,113 )
Loss (gain) on sale of hotels, net of noncontrolling interests in other partnerships 631 (15,541 ) (11,249 ) (21,361 )
Other gains, net (100 ) (100 ) (100 ) (100 )
Amortization of fixed stock and directors’ compensation 1,701 1,171 3,563 2,292
Severance costs 3 403
Variable stock compensation (72 ) 854 925 1,419
Contract dispute recovery (3,717 ) (3,717 )
Pre-opening costs, net of noncontrolling interests 523   1,206   4,047   2,259  
Adjusted EBITDA 69,727 69,249 119,591 110,321
Adjusted EBITDA from hotels disposed, held for sale and recently opened (2,063 ) (8,798 ) (5,264 ) (16,609 )
Same-store Adjusted EBITDA $ 67,664   $ 60,451   $ 114,327   $ 93,712  
   

Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)

 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Same-store operating revenue:
Room $ 167,875 $ 156,470 $ 313,808 $ 284,983
Food and beverage 40,146 38,294 78,253 70,547
Other operating departments 11,571   11,017   22,220   20,805  
Same-store operating revenue(a) 219,592 205,781 414,281 376,335
Same-store operating expense:
Room 40,251 39,059 78,210 74,539
Food and beverage 29,222 27,767 58,098 53,496
Other operating departments 4,226 5,164 8,468 9,969
Other property related costs 51,865 48,070 102,574 94,351
Management and franchise fees 8,447 7,707 16,540 14,386
Taxes, insurance and lease expense 13,821   12,926   26,251   25,175  
Same-store operating expense(a) 147,832   140,693   290,141   271,916  
Hotel EBITDA $ 71,760   $ 65,088   $ 124,140   $ 104,419  
Hotel EBITDA Margin 32.7 % 31.6 % 30.0 % 27.7 %
 

 

   

Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income

(in thousands)

 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Same-store operating revenue $ 219,592 $ 205,781 $ 414,281 $ 376,335
Other revenue 5,054 1,236 5,464 1,563
Revenue from hotels disposed, held for sale and recently opened(a) 16,457   52,498   35,053   102,966  
Total revenue 241,103 259,515 454,798 480,864
Same-store operating expense 147,832 140,693 290,141 271,916
Consolidated hotel lease expense(b) 2,134 13,296 4,238 23,687
Unconsolidated taxes, insurance and lease expense (604 ) (1,985 ) (1,176 ) (3,951 )
Corporate expenses 6,530 7,647 15,103 15,472
Depreciation and amortization 28,750 29,082 56,522 58,683
Expenses from hotels disposed, held for sale and recently opened(a) 14,242 37,688 29,013 75,787
Other expenses 1,411   2,114   5,639   4,128  
Total operating expense 200,295   228,535   399,480   445,722  
Operating income $ 40,808   $ 30,980   $ 55,318   $ 35,142  
 
 

Reconciliation of Forecasted Net Income attributable to FelCor to Forecasted Adjusted FFO

and Adjusted EBITDA

(in millions, except per share data)

 
Full Year 2015 Guidance
Low   High
Dollars  

Per Share

Amount(a)

Dollars  

Per Share

Amount(a)

Net income attributable to FelCor(b) $ 18.6 $ 24.0
Redemption of preferred stock (6.1 ) (6.1 )
Preferred dividends (30.1 ) (30.1 )
Net income loss attributable to FelCor common stockholders (17.6 ) $ (0.12 ) (12.2 ) $ (0.09 )
Gains on hotel sales, net(b) (18.4 ) (18.4 )
Depreciation(c) 117.4   117.4  
FFO $ 81.4 $ 0.58 $ 86.8 $ 0.62
Pre-opening costs 4.0 4.0
Redemption of preferred stock 6.1 6.1
Contract dispute recovery (3.7 ) (3.7 )
Variable stock compensation 0.9 0.9
Early extinguishment of debt 31.3   31.3  
Adjusted FFO $ 120.0   $ 0.86 $ 125.4   $ 0.90
 
Net income attributable to FelCor(b) $ 18.6 $ 24.0
Depreciation(c) 117.4 117.4
Interest expense(c) 83.5 83.5
Preferred distributions - consolidated joint venture 1.4   1.5  
EBITDA $ 220.9 $ 226.4
Amortization of stock compensation 7.0 7.0
Gains on hotel sales, net(b) (18.4 ) (18.4 )
Pre-opening costs 4.0 4.0
Contract dispute recovery (3.7 ) (3.7 )
Variable stock compensation 0.9 0.9
Early extinguishment of debt 31.3   31.3  
Adjusted EBITDA $ 242.0   $ 247.5  

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 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.

  • Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to 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.
  • 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.
  • Other transaction costs - From time to time, we periodically incur costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversion costs, acquisition costs, pre-opening costs and severance costs. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.
  • Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.

In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting 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. We also exclude the amortization of our fixed stock and directors’ compensation, which is included in corporate expenses and is not separately stated on our statements of operations. Excluding amortization of our fixed stock and directors’ compensation maintains consistency with the EBITDA definition.

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 in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level expenses. We eliminate these additional items 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 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

We 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. As we present them, these non-GAAP financial measures may not be comparable to similar non-GAAP financial measures as presented 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. We compensate 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. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.



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