EX-99 2 earnings8-k4q2006exh99_1.htm EXHIBIT 99.1 EARNINGS RELEASE

 


Exhibit 99.1

 

For Immediate Release:

 

FELCOR EXCEEDS ITS 2006 GOALS - GROWTH PLANS ON TRACK

 

IRVING, Texas...February 21, 2007 - FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the fourth quarter and year ended December 31, 2006.

 

Fourth Quarter Results:

 

•

Adjusted Funds From Operations (“FFO”) was $21.0 million, a $7.6 million increase from the prior year period. Adjusted FFO per share increased to $0.33, compared to $0.21 in the prior year quarter, an increase of 57 percent.

•

Hotel Earnings Before Interest, Taxes, Depreciation and Amortization (“Hotel EBITDA”) increased to $62.3 million, compared to $58.6 million in the prior year quarter, an increase of 6.3 percent. Hotel EBITDA margin was 26.7 percent, representing a 41 basis point improvement to the prior year.

•

Revenue Per Available Room (“RevPAR”) increased 3.4 percent, compared to the same period in 2005. Average Daily Rate (“ADR”) increased 7.7 percent, in line with prior expectations.

•

Displacement as a result of major renovations caused reductions to RevPAR (approximately 3 percent) and Adjusted EBITDA (approximately $3.5 million), which negatively affected Hotel EBITDA margin by approximately 85 basis points.

•

Same-Store EBITDA increased by $7.2 million, to $53.1 million, or 15.7 percent to prior year. Adjusted EBITDA (including sold hotels) remained essentially flat at $59.0 million.

•

Net income was $11.0 million for fourth quarter 2006, a $276.2 million increase over the same period in 2005. Net income applicable to common stockholders was $1.3 million, or $0.02 per share, compared to a net loss applicable to common stockholders of $274.9 million, or $4.62 per share, in the fourth quarter of 2005. Included in the current year net income was a net gain from the sale of hotels of $25.9 million. Included in the prior year net loss was $264.9 million of impairment charges.

 

Full Year Results:

 

•

Adjusted FFO was $124.9 million, a $38.9 million increase from the prior year. Adjusted FFO per share increased to $1.98, compared to $1.37 in the prior year, an increase of 45 percent.

•

Hotel EBITDA increased to $292.4 million, compared to $252.8 million in the prior year, an increase of 15.7 percent. Hotel EBITDA margin was 29.5 percent, representing a 182 basis point improvement to the prior year.

•

RevPAR increased 7.8 percent, compared to the same period in 2005. ADR increased 8.5 percent.

•

Displacement as a result of major renovations caused reductions to RevPAR (approximately 1 percent) and Adjusted EBITDA (approximately $8.7 million), which negatively affected Hotel EBITDA margin by approximately 51 basis points.

•

Same-Store EBITDA increased by $39.4 million, to $255.0 million, or 18.3 percent to prior year. Adjusted EBITDA (including sold hotels) increased $20.2 million, to $291.2 million, or 7.5 percent to prior year.

 

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 2

 

•

Net income was $51.0 million for the year, a $302.7 million increase over 2005. Net income applicable to common stockholders was $12.3 million, or $0.20 per share, compared to a net loss applicable to common stockholders of $297.5 million, or $5.01 per share, in 2005. A $40.7 million net gain from the sale of hotels was included in current year net income. A $266.8 million impairment charge was included in the prior year net loss.

 

Operating statistics and Same Store EBITDA are presented for our 83 core hotels. We consider our 11 non-strategic hotels owned at December 31, 2006 to be held for sale and presented in discontinued operations.

 

Fourth Quarter Highlights:

RevPAR growth remains strong across the portfolio with the exception of those hotels undergoing renovation and our New Orleans hotels. RevPAR increased 8.1 percent excluding displacement from renovations and New Orleans. RevPAR declined 38.3 percent in New Orleans, which impacted our portfolio RevPAR by 210 basis points. Occupancy declined primarily as a result of renovations; however, ADR grew 7.7 percent with double digit increases in a majority of our largest markets. ADR growth in our key markets is accelerating as hotels complete renovation and as we focus on our customer mix and take advantage of industry trends.

 

We paid a common dividend of $0.25 per share for the fourth quarter of 2006, which represented a $0.05 increase from our third quarter dividend of $0.20.

 

“Our goal at the beginning of 2006 was to continue the transformation to the New FelCor, and we accomplished all of our objectives for the year. We are ahead of schedule on asset sales, completed our debt reduction plan and increased the dividend twice during 2006. 2006 was a great year for FelCor as the benefits of the portfolio repositioning were evident in the strong operating results. We surpassed our original operating expectations in every category,” said Richard A. Smith, FelCor’s President and Chief Executive Officer. “We are embarking on the next phase of our strategic plan. We believe we have a unique opportunity for significant growth relative to our peers as we execute our internal growth plans including the renovation and redevelopment programs.”

 

Capital Structure:

At December 31, 2006, we had $1.37 billion of consolidated debt outstanding with a weighted average life of five years, including construction debt on our Royale Palms condominium development of $58.6 million, which we anticipate repaying in the second quarter 2007. At September 30, 2005, when we began our disposition program, we had $1.71 billion of consolidated debt outstanding. Our cash and cash equivalents totaled approximately $124.2 million at December 31, 2006.

 

In October 2006, we sold $215 million of senior floating rate notes. These notes bear interest at LIBOR plus 1.875 percent and mature in 2011 including extension options. We also finalized a $250 million mortgage facility bearing interest at LIBOR plus 0.93 percent, which we closed in November 2006. Proceeds from these two financings along with cash from hotel sales were used in the fourth quarter to: (i) redeem our $290 million senior floating rate notes due 2011 paying LIBOR plus 4.25 percent interest and $125 million senior notes due 2007 paying 7.625 percent interest; and (ii) repay $129 million of mortgage indebtedness.

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 3

 

               “We have completed the $400 million debt reduction plan and taken advantage of the strong capital market environment by refinancing $465 million in debt, which lowered our weighted average cost of funds by more than 50 basis points. We now have a stronger and more flexible balance sheet,” said Andrew J. Welch, FelCor’s Executive Vice President and Chief Financial Officer. “This allows us to focus our attention on the remainder of our strategic plan.”

 

Hotel Disposition Update:

During the year ended December 31, 2006, we sold 31 non-strategic hotels for gross proceeds of $514 million, and in 2007 through the date of this release, we have sold two additional hotels for gross proceeds of $42.7 million. We have now sold 36 of the 45 hotels for total proceeds of approximately $572 million. We currently have nine non-strategic hotels remaining to sell, of which we have three hotels under hard contract, and are in negotiations on the remaining six hotels. We are on target to substantially complete our disposition program in the first part of 2007.

 

Renovation Program Update:

Improvements and additions to hotels for the fourth quarter, including our pro rata share of joint ventures, totaled $62.1 million for the quarter, and $178.9 million for the year. We completed major renovations at eight of our hotels in 2006. We expect revenue growth in these renovated hotels to substantially exceed the growth in their respective markets in 2007. The budgeted RevPAR growth for these eight hotels is more than double that of the remainder of our core portfolio, and the EBITDA growth is nearly triple that of the remainder of the core portfolio. While displacement is included in these numbers, the budgeted growth, in excess of market gains, represents a 12 percent cash on cash return on the funds spent on customer impact areas, as expected. Customer impact areas represent approximately 75 percent of the renovation dollars spent. We also started renovations at 20 hotels during 2006 that we expect to complete in the first quarter of 2007.

 

Our Royale Palms condominium project in Myrtle Beach, South Carolina, is scheduled to be completed in the second quarter 2007. At December 31, 2006, the balance on the construction loan was $58.6 million. We have pre sold approximately 98 percent of these condominiums. We currently expect to earn net income of approximately $18 million at the completion of the project, and we expect that between 50 and 60 percent of the condominium units will enter our rental program, which will result in additional continuing income.

 

2007 Guidance:

Our 2007 guidance assumes that we sell the remaining 11 non-strategic hotels owned at December 31, 2006 in the first part of 2007. Therefore, our operating statistics are shown for our 83 core hotels, and our non-strategic hotels were included in discontinued operations at December 31, 2006. In the past, we have not typically included projections of asset sales in our guidance, but rather have adjusted our guidance as sales occurred. Given the success of our disposition program and the status of the sale negotiations on the remaining nine non-strategic hotels, we have included these sales in our guidance. Consequently, the earnings from these hotels reflect only the earnings through the projected date of sale.

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 4

 

 

For 2007, we currently anticipate:

 

•

RevPAR to increase between 6.5 to 7.5 percent for the full year and approximately 2 percent for the first quarter;

•

Adjusted EBITDA to be between $293 and $300 million for the full year and between $63 and $64 million for the first quarter;

•

Adjusted FFO per share to be between $2.30 and $2.40 for the full year and between $0.42 and $0.44 for the first quarter;

•

Hotel EBITDA margins to increase approximately 30 basis points for the full year; and

•

Capital expenditures of approximately $225 million.

 

 

FFO and EBITDA for 2007 are being impacted by the following:

 

•

The asset sale program is being completed sooner than anticipated, and these proceeds are being redeployed throughout 2007 to complete our renovation program. The opportunity cost of redeployment of asset sale proceeds over the course of 2007 will negatively impact our 2007 EBITDA and FFO. Assuming the renovations at the 64 hotels being completed in 2007, were completed on January 1, 2007, EBITDA and FFO would be higher by an estimated $17.5 million or $0.28 per share. This opportunity cost is based on factoring in returns to be realized on projects that will come back on line throughout the course of 2007, and interest income earned in 2007 on the cash prior to reinvestment.

•

Disruption from renovations is expected to negatively impact EBITDA and FFO by approximately $12.2 million or $0.19 per share, RevPAR by 2 percent, and Hotel EBITDA margin growth by 70 basis points, as we complete renovations at 64 hotels.

•

Included in our FFO and EBITDA guidance is a gain of approximately $18 million or $0.28 per share from the Royale Palms condominium development that will be completed during the second quarter.

 

“The completion of the Royale Palms project creates an effective bridge for our earnings in a year where displacement and opportunity cost will negatively impact our results,” said Richard A. Smith. “We are pleased with the initial results of the renovation program. Our primary focus this year is to mitigate disruption caused by renovations and assist our hotels in pre-sales efforts so that we can maximize returns on renovations as quickly as possible. We are excited to see the eight hotels that completed renovations in the fourth quarter of 2006 hitting our return expectations. We expect to see significant growth in the latter part of this year and in 2008 as the bulk of our portfolio will be fully renovated.”

 

EBITDA, Adjusted EBITDA, Same-Store 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 10 for a reconciliation of each of these measures to our net income and for information regarding the use, limitations and importance of these non-GAAP financial measures.

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 5

 

We have published our Fourth Quarter and Year End Supplemental Information, which provides additional corporate data, financial highlights and portfolio statistical data for the quarter and year ended December 31, 2006. Investors are encouraged to access the Supplemental Information on our Web site at www.felcor.com, on the Investor Relations page in the “Financial Reports” section. The Supplemental Information also will be furnished upon request. Requests may be made by e-mail to information@felcor.com or by writing to the Vice President of Investor Relations, FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas, 75062.

 

FelCor, a real estate investment trust, is the nation’s largest owner of upscale, all-suite hotels. FelCor’s portfolio is comprised of 92 consolidated hotels, located in 26 states and Canada. FelCor’s portfolio includes 71 upper upscale hotels, and FelCor is the largest owner of Embassy Suites Hotels® and Doubletree Guest Suites hotels. FelCor’s hotels are flagged under global brands such as Embassy Suites Hotels, Doubletree®, Hilton®, Sheraton®, Westin® and Holiday Inn®. FelCor has a current market capitalization of approximately $3.3 billion. Additional information can be found on the Company’s Web site at www.felcor.com.

 

This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release.

 

We invite you to listen to our 2006 Conference Call on Thursday, February 22, 2007, at 10:00 a.m. (Central Time). The conference call will be webcast simultaneously via FelCor’s Web site at www.felcor.com. Interested investors and other parties who wish to access the call should go to FelCor’s Web site and click on the conference call microphone icon on either the “Investor Relations” or “FelCor News” pages. A phone replay will be available from Thursday, February 22, 2007, at 12:00 p.m. (Central Time), through Thursday, March 22, at 7:00 p.m. (Central Time), by dialing 800-642-1687 (conference ID# 6432871). A recording of the call also will be archived and available at www.felcor.com.

 

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,” “will,” “continue” and other similar terms and phrases, including references to assumption 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. General economic conditions, operating risks associated with the hotel business, the impact of U.S. military involvement in the Middle East and elsewhere, future acts of terrorism, the impact on the travel industry of increased fuel prices and security precautions, the impact that the bankruptcy of additional major air carriers may have on our revenues and receivables, the availability of capital, the ability to effect sales of non-strategic hotels at anticipated prices, the cyclical nature of the real estate markets, 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

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 6

 

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.

 

Contact:

 

Stephen A. Schafer, Vice President of Investor Relations

(972) 444-4912

sschafer@felcor.com

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 7

 

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

 

2006

 

2005

 

2006

 

2005

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel operating revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Room

$

185,491

 

 

$

177,340

 

 

$

809,466

 

 

$

742,882

 

Food and beverage

 

34,928

 

 

 

33,710

 

 

 

129,200

 

 

 

121,836

 

Other operating departments

 

12,473

 

 

 

11,582

 

 

 

52,293

 

 

 

48,431

 

Retail space rental and other revenue

 

10

 

 

 

23

 

 

 

79

 

 

 

1,506

 

Total revenues

 

232,902

 

 

 

222,655

 

 

 

991,038

 

 

 

914,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel departmental expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Room

 

47,690

 

 

 

46,575

 

 

 

199,283

 

 

 

187,872

 

Food and beverage

 

25,249

 

 

 

25,376

 

 

 

97,012

 

 

 

93,136

 

Other operating departments

 

5,602

 

 

 

5,503

 

 

 

23,436

 

 

 

22,446

 

Other property related costs

 

66,168

 

 

 

63,492

 

 

 

270,301

 

 

 

255,626

 

Management and franchise fees

 

11,775

 

 

 

10,801

 

 

 

51,237

 

 

 

45,215

 

Taxes, insurance and lease expense

 

27,926

 

 

 

24,928

 

 

 

112,052

 

 

 

104,852

 

Abandoned projects

 

33

 

 

 

265

 

 

 

33

 

 

 

265

 

Corporate expenses

 

4,778

 

 

 

4,917

 

 

 

23,308

 

 

 

19,025

 

Depreciation

 

24,483

 

 

 

21,733

 

 

 

94,579

 

 

 

84,448

 

Total operating expenses

 

213,704

 

 

 

203,590

 

 

 

871,241

 

 

 

812,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

19,198

 

 

 

19,065

 

 

 

119,797

 

 

 

101,770

 

Interest expense, net

 

(24,021

)

 

 

(31,191

)

 

 

(110,867

)

 

 

(121,668

)

Hurricane loss

 

-   

 

 

 

(4,172

)

 

 

-   

 

 

 

(6,481

)

Charge-off of deferred financing costs

 

(2,599

)

 

 

(1,448

)

 

 

(3,562

)

 

 

(1,448

)

Early extinguishment of debt, net

 

(12,033

)

 

 

(4,037

)

 

 

(12,471

)

 

 

(4,037

)

Gain on swap terminations

 

1,715

 

 

 

-   

 

 

 

1,715

 

 

 

-   

 

Loss before equity in income from

unconsolidated entities, minority interests

and gain (loss) on sale of assets

 

 

 

(17,740

 

 

)

 

 

 

 

(21,783

 

 

)

 

 

 

 

(5,388

 

 

)

 

 

 

 

(31,864

 

 

)

Equity in income from unconsolidated entities

 

1,829

 

 

 

1,941

 

 

 

11,537

 

 

 

10,169

 

Minority interests

 

867

 

 

 

1,799

 

 

 

2,508

 

 

 

4,310

 

Gain (loss) on sale of assets

 

-   

 

 

 

-   

 

 

 

(92

)

 

 

469

 

Income (loss) from continuing operations

 

(15,044

)

 

 

(18,043

)

 

 

8,565

 

 

 

(16,916

)

Discontinued operations

 

26,030

 

 

 

(247,167

)

 

 

42,480

 

 

 

(234,699

)

Net income (loss)

 

10,986

 

 

 

(265,210

)

 

 

51,045

 

 

 

(251,615

)

Preferred dividends

 

(9,691

)

 

 

(9,679

)

 

 

(38,713

)

 

 

(39,408

)

Issuance costs of redeemed preferred stock

 

-   

 

 

 

-   

 

 

 

-   

 

 

 

(6,522

)

Net income (loss) applicable to common

stockholders

 

$

 

1,295

 

 

 

$

 

(274,889

 

)

 

 

$

 

12,332

 

 

 

$

 

(297,545

 

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted per common share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

$

(0.40

)

 

$

(0.47

)

 

$

(0.50

)

 

$

(1.06

)

Net income (loss)

$

0.02

 

 

$

(4.62

)

 

$

0.20

 

 

$

(5.01

)

Basic and diluted weighted average common

shares outstanding

 

 

 

61,268

 

 

 

59,453

 

 

 

 

60,734

 

 

 

 

59,436

 

 

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 8

 

Discontinued Operations

(in thousands)

 

Discontinued operations include the results of operations of 11 hotels held for sale at December 31, 2006, 11 hotels disposed of in the fourth quarter, eight hotels disposed of in the third quarter of 2006, four hotels disposed of in the second quarter of 2006, eight hotels disposed of in the first quarter of 2006 and 19 hotels disposed of in 2005. Condensed financial information for the hotels included in discontinued operations is as follows:

 

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

 

2006

 

2005

 

2006

 

2005

Operating revenue

$

32,268

 

 

$

81,019

 

 

$

204,494

 

$

343,492

 

Operating expenses

 

31,891

 

 

 

341,604

 

 

 

200,958

 

 

593,211

 

Operating income (loss)

 

377

 

 

 

(260,585

)

 

 

3,536

 

 

(249,719

)

Direct interest costs, net

 

(259

)

 

 

(757

)

 

 

(1,206

)

 

(10,203

)

Gain on sale of hotels, net of income tax

 

25,902

 

 

 

2,501

 

 

 

41,222

 

 

11,736

 

Gain on sale of land

 

1,958

 

 

 

-   

 

 

 

1,958

 

 

317

 

Debt extinguishment

 

(1,071

)

 

 

(8,353

)

 

 

(1,311

)

 

(5,815

)

Minority interests

 

(877

)

 

 

20,027

 

 

 

(1,719

)

 

18,985

 

Income (loss) from discontinued operations

 

26,030

 

 

 

(247,167

)

 

 

42,480

 

 

(234,699

)

Depreciation, net of minority interest

 

2,548

 

 

 

8,869

 

 

 

15,451

 

 

37,501

 

Minority interest in FelCor LP

 

569

 

 

 

(11,349

)

 

 

903

 

 

(10,776

)

Interest expense, net of minority interest

 

241

 

 

 

748

 

 

 

1,168

 

 

10,191

 

EBITDA from discontinued operations

 

29,388

 

 

 

(248,899

)

 

 

60,002

 

 

(197,783

)

Gain on sale of hotels, net of income tax and

minority interests

 

 

(25,902

 

)

 

 

 

(2,501

 

)

 

 

 

(40,650

 

)

 

 

(11,736

 

)

Impairment loss, net of minority interests

 

1,332

 

 

 

255,915

 

 

 

15,547

 

 

257,7755

 

Debt extinguishment, net of minority interests

 

1,069

 

 

 

8,353

 

 

 

1,285

 

 

5,815

 

Abandoned projects

 

79

 

 

 

-   

 

 

 

79

 

 

-   

 

Asset disposition costs

 

-   

 

 

 

-   

 

 

 

-   

 

 

1,300

 

Adjusted EBITDA from discontinued

operations

 

$

 

5,966

 

 

 

$

 

12,868

 

 

 

$

 

36,263

 

 

$

 

55,371

 

 

Selected Balance Sheet Data

(in thousands)

 

 

 

December 31,

 

December 31,

 

2006

 

2005

Investment in hotels

$

2,656,571

 

 

$

3,338,881

 

Accumulated depreciation

 

(612,286

)

 

 

(754,502

)

Investments in hotels, net of accumulated depreciation

$

2,044,285

 

 

$

2,584,379

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

$

124,179

 

 

$

94,564

 

Total assets

$

2,583,249

 

 

$

2,920,263

 

Total debt

$

1,369,153

 

 

$

1,675,280

 

Total stockholders’ equity

$

1,010,931

 

 

$

1,031,793

 

 

At December 31 2006, we had an aggregate of 62,052,183 shares of FelCor common stock and 1,355,016 limited partnership units of FelCor Lodging Limited Partnership outstanding.

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 9

 

Debt Summary

(dollars in thousands)

 

 

 

Encumbered Hotels

 

 

Interest Rate at  

December 31, 2006

 

 

Final

Maturity

 

Consolidated

Debt       

Line of credit(a)

none

L + 1.75

January 2009

$

-   

 

Senior term notes

none

8.50

June 2011

 

298,911

 

Senior term notes

none

L + 1.875

December 2011

 

215,000

 

Total line of credit and

senior debt

 

 

 

 

 

513,911

 

 

 

 

 

 

 

 

Mortgage debt

12 hotels

L + 0.93

November 2011(b)

 

250,000

 

Mortgage debt

8 hotels

6.56

July 2009 - 2014

 

97,553

 

Mortgage debt

7 hotels

7.32

March 2009

 

124,263

 

Mortgage debt

8 hotels

8.70

May 2010

 

169,438

 

Mortgage debt

7 hotels

8.73

May 2010

 

122,578

 

Mortgage debt

1 hotel

L + 2.85

August 2008

 

15,500

 

Mortgage debt

1 hotel

5.81

July 2016

 

12,861

 

Other

1 hotel  

9.17

August 2011

 

4,452

 

Construction loan(c)

 

-

 

L + 2.00

October 2007

 

58,597

 

Total mortgage debt

 

45 hotels

 

 

 

 

855,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,369,153

 

 

 

(a)

We have a borrowing capacity of $125 million on our line of credit. The interest on this line can range from 175 to 225 basis points over LIBOR based on our leverage ratio as defined in our line of credit agreement.

 

(b)

This maturity date assumes three, one-year extension options extending the maturity of this debt from 2008 to 2011, are exercised by us.

 

(c)

We have a recourse construction loan facility for the development of a 184-unit condominium project in Myrtle Beach, South Carolina. The interest on this facility is being capitalized as part of the cost of the project. We have pre sold approximately 98 percent of these condominiums and expect to start repaying the construction loan as the units sales are finalized, beginning in the second quarter of 2007.

 

Weighted average interest at December 31, 2006

7.62%

Fixed interest rate debt to total debt at December 31, 2006

60.6%

Weighted average maturity of debt at December 31, 2006

5 years

Mortgage debt to total assets at December 31, 2006

33.1%

 

 

-more-

FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 10

 

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 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 and unit data)

 

 

 

Three Months Ended December 31,

 

2006

 

2005

 

Dollars

 

Shares

 

Per Share Amount

 

Dollars

 

Shares

 

Per Share Amount

Net income (loss)

$

10,986

 

 

 

 

 

 

 

 

$

(265,210

)

 

 

 

 

 

 

Preferred dividends

 

(9,691

)

 

 

 

 

 

 

 

 

(9,679

)

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

1,295

 

 

61,268

 

$

0.02

 

 

 

(274,889

)

 

59,453

 

$

(4.62

)

Depreciation, continuing operations

 

24,483

 

 

-   

 

 

0.40

 

 

 

21,733

 

 

-   

 

 

0.37

 

Depreciation, unconsolidated entities and discontinued operations

 

5,533

 

 

-   

 

 

0.09

 

 

 

11,579

 

 

-   

 

 

0.19

 

Gain on sale of hotels, net of income tax

 

(25,902

)

 

-   

 

 

(0.43

)

 

 

(2,501

)

 

-   

 

 

(0.04

)

Minority interest in FelCor LP

 

28

 

 

1,355

 

 

0.01

 

 

 

(12,623

)

 

2,763

 

 

(0.03

)

Conversion of options and unvested
restricted stock

 

-   

 

 

371

 

 

-   

 

 

 

-   

 

 

-   

 

 

-   

 

FFO

 

5,437

 

 

62,994

 

 

0.09

 

 

 

(256,701

)

 

62,216

 

 

(4.13

)

Impairment loss, discontinued operations

 

1,332

 

 

-   

 

 

0.02

 

 

 

255,915

 

 

-   

 

 

4.11

 

Abandoned projects

 

112

 

 

-   

 

 

-   

 

 

 

265

 

 

-   

 

 

0.01

 

Debt extinguishment loss

 

15,786

 

 

-   

 

 

0.25

 

 

 

13,839

 

 

-   

 

 

0.22

 

Gain on swap termination

 

(1,715

)

 

-   

 

 

(0.03

)

 

 

-   

 

 

-   

 

 

-   

 

Unvested restricted stock

 

-   

 

 

-   

 

 

-   

 

 

 

-   

 

 

787

 

 

-   

 

Adjusted FFO

$

20,952

 

 

62,994

 

$

0.33

 

 

$

13,318

 

 

63,003

 

$

0.21

 

 

 

-more-

FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 11

 

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

(in thousands, except per share and unit data)

 

 

Year Ended December 31,

 

2006

 

2005

 

Dollars

 

Shares

 

Per Share Amount

 

Dollars

 

Shares

 

Per Share Amount

Net income (loss)

$

51,045

 

 

 

 

 

 

 

 

$

(251,615

)

 

 

 

 

 

 

Preferred dividends

 

(38,713

)

 

 

 

 

 

 

 

 

(39,408

)

 

 

 

 

 

 

Issuance costs of redeemed preferred stock

 

-   

 

 

 

 

 

 

 

 

 

(6,522

)

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

12,332

 

 

60,734

 

$

0.20

 

 

 

(297,545

)

 

59,436

 

$

(5.01

)

Depreciation, continuing operations

 

94,579

 

 

-   

 

 

1.56

 

 

 

84,448

 

 

-   

 

 

1.42

 

Depreciation, unconsolidated entities and discontinued operations

 

26,911

 

 

-   

 

 

 

0.44

 

 

 

47,759

 

 

-   

 

 

0.80

 

Gain on sale of hotels, net of income tax

 

(40,650

)

 

-   

 

 

(0.67

)

 

 

(12,124

)

 

-   

 

 

(0.20

)

Minority interest in FelCor LP

 

279

 

 

1,864

 

 

(0.04

)

 

 

(13,677

)

 

2,778

 

 

(0.08

)

Conversion of options and unvested
restricted stock

 

-   

 

 

327

 

 

 

-   

 

 

 

-   

 

 

-   

 

 

-   

 

FFO

 

93,451

 

 

62,925

 

 

1.49

 

 

 

(191,139

)

 

62,214

 

 

(3.07

)

Issuance costs of redeemed preferred stock

 

-   

 

 

-   

 

 

-   

 

 

 

6,522

 

 

-   

 

 

0.10

 

Impairment loss, discontinued operations

 

15,547

 

 

-   

 

 

0.24

 

 

 

257,775

 

 

-   

 

 

4.14

 

Abandoned projects

 

112

 

 

-   

 

 

-   

 

 

 

265

 

 

-   

 

 

0.01

 

Asset disposition

 

-   

 

 

-   

 

 

-   

 

 

 

1,300

 

 

-   

 

 

0.01

 

Debt extinguishment loss

 

17,472

 

 

-   

 

 

0.28

 

 

 

11,300

 

 

-   

 

 

0.18

 

Gain on swap termination

 

(1,715

)

 

-   

 

 

(0.03

)

 

 

-   

 

 

-   

 

 

-   

 

Unvested restricted stock

 

-   

 

 

-   

 

 

-   

 

 

 

-   

 

 

647

 

 

-   

 

Adjusted FFO

$

124,867

 

 

62,925

 

$

1.98

 

 

$

86,023

 

 

62,861

 

$

1.37

 

 

 

-more-

FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 12

 

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

(in thousands)

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2006

 

 

2005

 

 

2006

 

2005

Net income (loss)

$

10,986

 

 

$

(265,210

)

 

$

51,045

 

 

$

(251,615

)

Depreciation, continuing operations

 

24,483

 

 

 

21,733

 

 

 

94,579

 

 

 

84,448

 

Depreciation, unconsolidated entities and
discontinued operations

 

5,533

 

 

 

11,579

 

 

 

26,911

 

 

 

47,759

 

Minority interest in FelCor Lodging LP

 

28

 

 

 

(12,623

)

 

 

279

 

 

 

(13,677

)

Interest expense

 

25,538

 

 

 

32,646

 

 

 

114,909

 

 

 

125,707

 

Interest expense, unconsolidated entities
and discontinued operations

 

2,104

 

 

 

2,349

 

 

 

7,657

 

 

 

16,949

 

Amortization expense

 

741

 

 

 

733

 

 

 

5,080

 

 

 

2,904

 

EBITDA

 

69,413

 

 

 

(208,793

)

 

 

300,460

 

 

 

12,475

 

Gain on sale of hotels, net of income tax

 

(25,902

)

 

 

(2,501

)

 

 

(40,650

)

 

 

(12,124

)

Impairment loss, discontinued operations

 

1,332

 

 

 

255,915

 

 

 

15,547

 

 

 

257,775

 

Abandoned projects

 

112

 

 

 

265

 

 

 

112

 

 

 

265

 

Asset disposition costs

 

-   

 

 

 

-   

 

 

 

-   

 

 

 

1,300

 

Debt extinguishment loss

 

15,786

 

 

 

13,839

 

 

 

17,472

 

 

 

11,300

 

Gain on swap termination

 

(1,715

)

 

 

-   

 

 

 

(1,715

)

 

 

-   

 

Adjusted EBITDA

 

59,026

 

 

 

58,725

 

 

 

291,226

 

 

 

270,991

 

Adjusted EBITDA from discontinued operations

 

(5,966

)

 

 

(12,868

)

 

 

(36,263

)

 

 

(55,371

)

Same-Store EBITDA

$

53,060

 

 

$

45,857

 

 

$

254,963

 

 

$

215,620

 

 

 

-more-

FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 13

 

Reconciliation of Adjusted EBITDA to Hotel EBITDA

(in thousands)

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2006

 

2005

 

2006

 

2005

Adjusted EBITDA

$

59,026

 

 

$

58,725

 

 

$

291,226

 

 

$

270,991

 

Retail space rental and other revenue

 

(10

)

 

 

(23

)

 

 

(79

)

 

 

(1,506

)

Adjusted EBITDA from discontinued operations

 

(5,966

)

 

 

(12,868

)

 

 

(36,263

)

 

 

(55,371

)

Equity in income from unconsolidated subsidiaries
(excluding interest and depreciation expense)

 

(7,139

)

 

 

(6,637

)

 

 

(31,309

)

 

 

(28,859

)

Minority interest in other partnerships
(excluding interest and depreciation expense)

 

51

 

 

 

(141

)

 

 

(215

)

 

 

264

 

Consolidated hotel lease expense

 

15,190

 

 

 

13,695

 

 

 

61,054

 

 

 

54,689

 

Unconsolidated taxes, insurance and lease expense

 

(1,377

)

 

 

(1,019

)

 

 

(6,273

)

 

 

(5,881

)

Interest income

 

(1,517

)

 

 

(1,455

)

 

 

(4,042

)

 

 

(4,039

)

Corporate expenses (excluding amortization expense)

 

4,037

 

 

 

4,184

 

 

 

18,228

 

 

 

16,121

 

Hurricane loss

 

-   

 

 

 

4,172

 

 

 

-   

 

 

 

6,481

 

Loss (gain) on sale of other assets

 

-   

 

 

 

-   

 

 

 

92

 

 

 

(80

)

Hotel EBITDA

$

62,295

 

 

$

58,633

 

 

$

292,419

 

 

$

252,810

 

 

Reconciliation of Net Income (Loss) to Hotel EBITDA

(in thousands)

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2006

 

2005

 

2006

 

2005

Net income (loss)

$

10,986

 

 

$

(265,210

)

 

$

51,045

 

 

$

(251,615

)

Discontinued operations

 

(26,030

)

 

 

247,167

 

 

 

(42,480

)

 

 

234,699

 

Equity in income from unconsolidated entities

 

(1,829

)

 

 

(1,941

)

 

 

(11,537

)

 

 

(10,169

)

Minority interests

 

(867

)

 

 

(1,799

)

 

 

(2,508

)

 

 

(4,310

)

Consolidated hotel lease expense

 

15,190

 

 

 

13,695

 

 

 

61,054

 

 

 

54,689

 

Unconsolidated taxes, insurance and lease expense

 

(1,377

)

 

 

(1,019

)

 

 

(6,273

)

 

 

(5,881

)

Interest expense, net

 

24,021

 

 

 

31,191

 

 

 

110,867

 

 

 

121,668

 

Charge-off of deferred financing costs

 

2,599

 

 

 

1,448

 

 

 

3,562

 

 

 

1,448

 

Early extinguishment of debt

 

12,033

 

 

 

4,037

 

 

 

12,471

 

 

 

4,037

 

Gain on swap termination

 

(1,715

)

 

 

-   

 

 

 

(1,715

)

 

 

-   

 

Corporate expenses

 

4,778

 

 

 

4,917

 

 

 

23,308

 

 

 

19,025

 

Hurricane loss

 

-   

 

 

 

4,172

 

 

 

-   

 

 

 

6,481

 

Depreciation

 

24,483

 

 

 

21,733

 

 

 

94,579

 

 

 

84,448

 

Abandoned projects

 

33

 

 

 

265

 

 

 

33

 

 

 

265

 

Loss (gain) on sale of assets

 

-   

 

 

 

-   

 

 

 

92

 

 

 

(469

)

Retail space rental and other revenue

 

(10

)

 

 

(23

)

 

 

(79

)

 

 

(1,506

)

Hotel EBITDA

$

62,295

 

 

$

58,633

 

 

$

292,419

 

 

$

252,810

 

 

 

-more-

FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 14

 

Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)

 

 

Three Months Ended
December 31,

 

 

Year Ended
December 31,

 

2006

 

2005

 

 

2006

 

2005

Total revenue

$

232,902

 

 

$

222,655

 

 

$

991,038

 

 

$

914,655

 

Retail space rental and other revenue

 

(10

)

 

 

(23

)

 

 

(79

)

 

 

(1,506

)

Hotel operating revenue

 

232,892

 

 

 

222,632

 

 

 

990,959

 

 

 

913,149

 

Hotel operating expenses

 

(170,597

)

 

 

(163,999

)

 

 

(698,540

)

 

 

(660,339

)

Hotel EBITDA

$

62,295

 

 

$

58,633

 

 

$

292,419

 

 

$

252,810

 

Hotel EBITDA margin

 

26.7%

 

 

 

26.3%

 

 

 

29.5%

 

 

 

27.7%

 

 

 

Reconciliation of Ratio of Operating Income to Total Revenue to Hotel EBITDA Margin

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

2006

 

2005

 

2006

 

2005

Ratio of operating income to total revenue

8.2

%

 

8.6

%

 

12.1

%

 

11.1

%

Retail space rental and other revenue

-   

 

 

-   

 

 

-   

 

 

(0.1

)

Unconsolidated taxes, insurance and lease expense

(0.6

)

 

(0.5

)

 

(0.6

)

 

(0.6

)

Consolidated hotel lease expense

6.5

 

 

6.2

 

 

6.2

 

 

6.0

 

Corporate expenses

2.1

 

 

2.2

 

 

2.3

 

 

2.1

 

Depreciation

10.5

 

 

9.8

 

 

9.5

 

 

9.2

 

Hotel EBITDA margin

26.7

%

 

26.3

%

 

29.5

%

 

27.7

%

 

Hotel Operating Expense Composition

(dollars in thousands)

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2006

 

2005

 

2006

 

2005

 

Reconciliation of total operating expense to hotel

operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

$

213,704

 

 

$

203,590

 

 

$

871,241

 

 

$

812,885

 

Unconsolidated taxes, insurance and lease expense

 

1,377

 

 

 

1,019

 

 

 

6,273

 

 

 

5,881

 

Consolidated hotel lease expense

 

(15,190

)

 

 

(13,695

)

 

 

(61,054

)

 

 

(54,689

)

Corporate expenses

 

(4,778

)

 

 

(4,917

)

 

 

(23,308

)

 

 

(19,025

)

Abandoned projects

 

(33

)

 

 

(265

)

 

 

(33

)

 

 

(265

)

Depreciation

 

(24,483

)

 

 

(21,733

)

 

 

(94,579

)

 

 

(84,448

)

Hotel operating expenses

$

170,597

 

 

$

163,999

 

 

$

698,540

 

 

$

660,339

 

 

 

69,713

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits expense

(included in hotel operating expenses)

$

69,713

 

 

$

68,629

 

 

$

281,711

 

 

$

273,478

 

 

 

-more-

FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 15

 

Reconciliation of Forecasted Net Income to Forecasted FFO, Adjusted FFO, EBITDA

and Adjusted EBITDA

(in millions, except per share and unit data)

 

 

First Quarter 2007 Guidance

 

Low Guidance

 

High Guidance

 

Dollars

 

Per Share Amount(a)

 

Dollars

 

Per Share Amount(a)

Net income

$

13

 

 

 

 

 

 

$

14

 

 

 

 

 

Preferred dividends

 

(10

)

 

 

 

 

 

 

(10

)

 

 

 

 

Net income applicable to common stockholders

 

3

 

 

$

0.05

 

 

 

4

 

 

$

0.07

 

Gain on sale of assets

 

(6

)

 

 

 

 

 

 

(6

)

 

 

 

 

Depreciation

 

30

 

 

 

 

 

 

 

30

 

 

 

 

 

FFO and Adjusted FFO

$

27

 

 

$

0.42

 

 

$

28

 

 

$

0.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

13

 

 

 

 

 

 

$

14

 

 

 

 

 

Depreciation

 

30

 

 

 

 

 

 

 

30

 

 

 

 

 

Interest expense

 

25

 

 

 

 

 

 

 

25

 

 

 

 

 

Amortization expense

 

1

 

 

 

 

 

 

 

1

 

 

 

 

 

EBITDA

 

69

 

 

 

 

 

 

 

70

 

 

 

 

 

Gain on sale of hotels

 

(6

)

 

 

 

 

 

 

(6

)

 

 

 

 

Adjusted EBITDA

$

63

 

 

 

 

 

 

$

64

 

 

 

 

 

 

 

 

Full Year 2007 Guidance

 

Low Guidance

 

High Guidance

 

Dollars

 

Per Share Amount(a)

 

Dollars

 

Per Share Amount(a)

Net income

$

96

 

 

 

 

 

 

$

103

 

 

 

 

 

Preferred dividends

 

(39

)

 

 

 

 

 

 

(39

)

 

 

 

 

Net income applicable to common stockholders

 

57

 

 

$

0.94

 

 

 

64

 

 

$

1.04

 

Gain on sale of assets

 

(31

)

 

 

 

 

 

 

(31

)

 

 

 

 

Depreciation

 

117

 

 

 

 

 

 

 

117

 

 

 

 

 

Minority interest in FelCor LP

 

2

 

 

 

 

 

 

 

2

 

 

 

 

 

FFO and Adjusted FFO

$

145

 

 

$

2.30

 

 

$

152

 

 

$

2.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

96

 

 

 

 

 

 

$

103

 

 

 

 

 

Depreciation

 

117

 

 

 

 

 

 

 

117

 

 

 

 

 

Interest expense

 

105

 

 

 

 

 

 

 

105

 

 

 

 

 

Minority interest in FelCor LP

 

2

 

 

 

 

 

 

 

2

 

 

 

 

 

Amortization expense

 

4

 

 

 

 

 

 

 

4

 

 

 

 

 

EBITDA

 

324

 

 

 

 

 

 

 

331

 

 

 

 

 

Gain on sale of assets

 

(31

)

 

 

 

 

 

 

(31

)

 

 

 

 

Adjusted EBITDA

$

293

 

 

 

 

 

 

$

300

 

 

 

 

 

 

 

(a)

Weighted average shares and units are 63.1 million.

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 16

 

                Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA and Hotel EBITDA margin, are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT’s performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.

 

FFO and EBITDA

 

The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

 

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

 

Adjustments to FFO and EBITDA

 

We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, Adjusted EBITDA and Same-Store EBITDA, when combined with GAAP net income, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.

 

 

•

Gains and losses related to early extinguishment of debt and interest rate swaps – We exclude gains and losses related to early 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.

 

•

Impairment losses – We exclude the effect of impairment losses and gains or losses on disposition of assets in computing Adjusted FFO and Adjusted EBITDA because we believe that including these is not consistent with reflecting the ongoing performance of our remaining assets. Additionally, we believe that impairment charges and gains or losses on disposition of assets represent accelerated depreciation, or excess depreciation, and depreciation is excluded from FFO by the NAREIT definition and from EBITDA.

 

•

Cumulative effect of a change in accounting principle – Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 17

 

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.

 

In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of assets because we believe that including them in EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

 

To derive Same-Store EBITDA, we make the same adjustments to EBITDA as for Adjusted EBITDA and, additionally, exclude EBITDA from discontinued operations and gains and losses from the disposition of non-hotel related assets.

 

Hotel EBITDA and Hotel EBITDA Margin

 

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the industry and give investors a more complete understanding of the operating results over which our individual hotels and operating managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures used by us in our financial and operational decision-making. Additionally, these measures facilitate comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating corporate-level expenses, depreciation and expenses related to our capital structure. We eliminate corporate-level costs and expenses because we believe property-level results provide investors with supplemental information with respect to the ongoing operating performance of our hotels and the effectiveness of management on a property-level basis. We eliminate depreciation and amortization, even though they are property-level expenses, because we do not believe that these non-cash expenses, which are based on historical cost accounting for real estate assets and implicitly assume that the value of real estate assets diminish predictably over time, accurately reflect an adjustment in the value of our assets. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by minority interest expense and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our hotels.

 

Limitations of Non-GAAP Measures

 

The use of these non-GAAP financial measures has certain limitations. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA and Hotel EBITDA margin, as presented by us, may not be comparable to FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA and Hotel EBITDA margin as calculated by other real estate companies. These measures do not reflect certain expenses that we incurred and will incur, such as depreciation and interest or capital expenditures. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

 

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FelCor Lodging Trust 2006 Operating Results

February 21, 2007

Page 18

 

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, FFO per share, Adjusted FFO, Adjusted FFO per share, EBITDA, Adjusted EBITDA or Same-Store EBITDA be considered as measures of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. FFO per share does not measure, and should not be used as a measure of, amounts that accrue directly to the benefit of stockholders. FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, Hotel EBITDA and Hotel EBITDA margin reflect additional ways of viewing our operations that we believe when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on any single financial measure.

 

 

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