FelCor's Third Quarter FFO $0.44 Per Share - Group Achieved 65 Percent Occupancy For The Third Quarter
IRVING, Texas, FelCor Lodging Trust Incorporated
FelCor's third quarter 2002 recurring Funds From Operations ("FFO") was $29.2 million, or $0.44 per share. FFO for the same period last year totaled $33.1 million, or $0.50 per share. Third quarter 2002 recurring Earnings Before Interest, Taxes, Depreciation, Amortization, and other non-cash charges ("EBITDA"), totaled $77.1 million, compared to $80.1 million in the third quarter of 2001. The Company reported a net loss applicable to common stockholders of $13.8 million, or a loss per share of $0.26, compared to the third quarter 2001 net loss of $31.9 million, or a loss per share of $0.60. Included in the prior year loss was $24 million of costs associated with the terminated merger with MeriStar Hospitality Corporation. The reported FFO and EBITDA for the quarter are consistent with the low end of the Company's previously provided guidance.
For the nine months ended September 30, 2002, FFO was $104.2 million, or $1.56 per share, compared to the same period last year of $169.8 million, or $2.55 per share. Assuming the 88 leases acquired on July 1, 2001, had been acquired on January 1, 2001, pro forma FFO would have been $174.3 million. EBITDA for the nine months was $248.9 million, compared to $308.8 million for the same period last year, and $313.3 million for the same period last year on a pro forma basis. Net loss applicable to common stockholders for the nine months was $19.8 million, compared to a prior year net loss of $28.5 million and pro forma prior year net income of $6.7 million. The prior year nine months net loss reflected $36.6 million of lease termination expense associated with the acquisition of its hotel leases and $25 million of costs related to the terminated MeriStar merger.
Total revenues were $331.6 million and $1.0 billion for the third quarter and nine months ended September 30, 2002, respectively, compared to $337.8 million and $898.1 million for the same periods in 2001. Pro forma revenues for the nine months ended September 30, 2001, were $1.1 billion.
Revenue per available room ("RevPAR") for July decreased 7.3 percent, August decreased 7.4 percent and September increased 10.7 percent, compared to the same months in the prior year. The positive RevPAR for September was FelCor's first month of increased hotel portfolio RevPAR, compared to the corresponding prior year period, since February 2001. FelCor's total hotel portfolio RevPAR for the third quarter was 2.5 percent below that of the same period in 2001. For the quarter, occupied rooms increased 2.2 percent over the same period of the prior year, but average daily rate ("ADR") decreased by 4.6 percent.
For the nine months ended September 30, 2002, RevPAR decreased 10.9 percent compared to the same period of 2001. For the first nine months of 2002, occupied rooms decreased 4.9 percent and ADR decreased 6.3 percent, compared to the same period in 2001.
"The weak economy and existing political uncertainties continue to adversely affect the lodging industry. In spite of these negative factors, our hotel portfolio achieved 65 percent occupancy for the third quarter," said Thomas J. Corcoran, Jr., FelCor's President and CEO. "Looking ahead, as the economy recovers and lodging demand improves, FelCor is well positioned to benefit from an improvement in industry fundamentals."
The operating margin for FelCor's consolidated portfolio was 31.5 percent during the third quarter of 2002, and represented a decline of 20 basis points compared to the same period last year. For the nine months ended September 30, 2002, the portfolio operating margin was 33.6 percent, and represented a decline of 190 basis points compared to the same pro forma period in 2001. The reduction in operating margin is principally attributed to the decrease in ADR between the periods. However, FelCor continues to work closely with its brand managers to control hotel operating costs. The Company has been successful in reducing hotel operating costs to partially offset the effect of the decline in ADR.
Included in the net loss for the quarter was a $1.7 million expense for abandoned deal costs related to the Company's pursuit of a large portfolio acquisition. FelCor was unable to reach mutually acceptable pricing and terms with the seller as a result of the uncertain operating environment and softening capital markets.
Capital Structure
At September 30, 2002, FelCor had $93 million in cash and cash equivalents, and had no borrowings outstanding under its $615 million unsecured line of credit. At quarter end, FelCor had $1.9 billion of debt outstanding with a weighted average life of six years and a weighted average interest cost of 8.26 percent. The Company's debt maturities for the remainder of 2002 are $3.6 million and 2003 maturities are $35 million. Since December 31, 2001, FelCor has reduced its outstanding debt by $58 million.
"During these challenging times, we are focused on maintaining liquidity and optimizing the performance of our existing portfolio," said Richard J. O'Brien, FelCor's Executive Vice President and Chief Financial Officer. "We plan to approach 2003 with an emphasis on the preservation of capital."
In the third quarter of 2002, the Company sold six non-strategic assets for aggregate net cash proceeds of approximately $6.1 million. FelCor sold its 71-room Holiday Inn® in Colby, Kansas, for net cash proceeds of $1.7 million. Also in the third quarter, FelCor sold four Holiday Inn®- branded hotels and one Hampton Inn® hotel in Kansas to a new joint venture, and received as consideration $4.4 million in cash, a preferred right to receive $6 million, and a 50 percent common equity interest in the venture.
In July 2002, FelCor acquired the 208-suite SouthPark Suite Hotel in Charlotte, North Carolina, for $14.5 million, and the 385-room Wyndham® Myrtle Beach Resort and Arcadian Shores Golf Club in Myrtle Beach, South Carolina, for $35.3 million. FelCor has converted the SouthPark Suite Hotel to a Doubletree Guest Suites® hotel, and the Wyndham Myrtle Beach will be renovated and converted to a Hilton® hotel. Both hotel acquisitions were funded from excess cash held on FelCor's balance sheet.
2002 Estimates
The uncertain operating environment, including recent geopolitical and consumer confidence concerns, continue to challenge the lodging industry's ability to forecast financial results. FelCor's RevPAR for the month of October is estimated to be approximately four to five percent above October 2001, which is below previous expectations. RevPAR is currently expected to increase during the fourth quarter of 2002, as compared to 2001, within a range of four to six percent. For the fourth quarter, the Company estimates FFO to be in the range of $0.22 to $0.27 per share and EBITDA to be in the range of $62 to $66 million. For the full year 2002, the Company estimates FFO per share to be between $1.78 and $1.83 and EBITDA is expected to be in the range of $311 to $315 million. FelCor's full year 2002 earnings expectations are based on an estimated RevPAR decline of approximately 7.5 to 8.5 percent.
The Company is currently expecting 2002 capital expenditures to range from $55 to $60 million. For the nine months ended September 30, 2002, capital expenditures totaled $35 million.
FelCor's common dividend will continue to be determined each quarter based upon the operating results of that quarter, economic conditions and other operating trends. FelCor declared a $0.15 common dividend per share for each of the first, second and third quarters of 2002.
"A decision regarding the declaration of a fourth quarter dividend will be made in December and will depend upon operating results for the quarter, the political environment and expectations regarding the economy," said Corcoran.
Beginning in the first quarter of 2003, FelCor plans to implement the expense recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," that is considered the preferable accounting method for stock- based compensation. The Company currently complies with SFAS No. 123 and discloses in its financial statement footnotes what the effect would have been of expensing the fair market value of stock option grants. In 2001, the pro forma additional compensation expense associated with stock option grants was about $272,000, or less than one cent per share.
FelCor has published its Third Quarter 2002 Supplemental Information, which provides additional corporate data, financial highlights and portfolio statistical data for the three and nine months ended September 30, 2002. Investors are encouraged to access the Supplemental Information on the Company's website at
FelCor is the only lodging REIT that owns a diversified portfolio of nationally-branded, upscale and full-service hotels managed by strategic brand managers such as Hilton Hotels, Six Continents Hotels, and Starwood Hotels & Resorts. FelCor is competitively positioned to deliver superior shareholder returns through its strong management team, strategic brand manager alliances, diversified upscale and full-service hotels, value creation expertise, and financial strength. FelCor is the owner of the largest number of Embassy Suites®, Crowne Plaza®, Holiday Inn and independently owned Doubletree®- branded hotels. FelCor's portfolio is comprised of 183 hotels with nearly 50,000 rooms and it has a current market capitalization of approximately $2.9 billion. Additional information can be found on the Company's website at
The Company invites you to listen to FelCor's third quarter 2002 conference call on October 31, 2002, at 9:00 a.m. (Central Time). The conference call will be webcast simultaneously via the Company's website at
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months
Ended September 30,
2002 2001
Revenues:
Hotel operating revenue:
Room $265,758 $271,419
Food and beverage 47,624 47,508
Other operating departments 17,847 18,259
Retail space rental and other revenue 353 573
Total revenues 331,582 337,759
Expenses:
Hotel operating expenses:
Room 69,217 70,832
Food and beverage 39,731 40,725
Other operating departments 8,505 8,348
Other property operating costs 92,553 92,989
Management and franchise fees 17,125 17,672
Taxes, insurance and lease expense 33,082 31,438
Corporate expenses 2,577 2,937
Depreciation 37,770 39,273
Abandoned project costs 1,663
Lease termination costs --- 378
Merger termination costs --- 19,919
Total operating expenses 302,223 324,511
Operating income 29,359 13,248
Interest expense, net:
Recurring financing 40,794 39,803
Merger related financing --- 4,126
Loss on early extinguishment of debt --- 1,045
Loss before equity in income from
unconsolidated entities, minority
interests and gain on sale of assets (11,435) (31,726)
Equity in income from unconsolidated
entities 1,230 722
Minority interests 3,124 4,780
Gain on sale of assets --- 462
Net loss (7,081) (25,762)
Preferred dividends (6,727) (6,150)
Net loss applicable to common stockholders $(13,808) $(31,912)
Diluted per common share data:
Net loss applicable to common stockholders $(0.26) $(0.60)
Weighted average common shares outstanding 52,729 52,982
Consolidated Statements of Operations
(in thousands, except per share data)
Nine Months Ended September 30,
Pro Forma Actual
2002 2001 (A) 2001
Revenues:
Hotel operating revenue:
Room $800,349 $907,276 $ 636,762
Food and beverage 154,704 171,438 100,658
Other operating departments 51,614 58,894 43,049
Percentage lease revenue --- --- 115,137
Retail space rental and other
revenue 1,451 2,455 2,455
Total revenues 1,008,118 1,140,063 898,061
Expenses:
Hotel operating expenses:
Room 200,564 218,048 154,236
Food and beverage 121,860 136,134 79,866
Other operating departments 23,737 25,777 19,270
Other property operating costs 272,261 294,050 203,998
Management and franchise fees 50,861 60,853 40,917
Taxes, insurance and lease
expense 101,442 108,836 107,898
Corporate expenses 10,293 9,309 9,309
Depreciation 114,592 118,786 118,786
Abandoned project costs 1,663 ---
Lease termination costs --- --- 36,604
Merger termination costs --- 19,919 19,919
Total operating expenses 897,273 991,712 790,803
Operating income 110,845 148,351 107,258
Interest expense, net:
Recurring financing 123,545 118,338 118,338
Merger related financing --- 5,212 5,212
Swap termination expense --- 4,824 4,824
Loss on early extinguishment
of debt --- 1,270 1,270
Income (loss) before equity in
income from unconsolidated
entities, minority interests
and gain on sale of assets (12,700) 18,707 (22,386)
Equity in income from
unconsolidated entities 3,816 7,050 7,050
Minority interests 2,598 (4,064) 1,910
Gain on sale of assets 6,061 3,417 3,417
Net income (loss) (225) 25,110 (10,009)
Preferred dividends (19,565) (18,450) (18,450)
Net income (loss) applicable to
common stockholders $(19,790) $6,660 $(28,459)
Diluted per common share data:
Net income (loss) applicable
to common stockholders $(0.38) $0.13 $(0.54)
Weighted average common shares
outstanding 52,724 52,991 52,991
(A) Information for the pro forma nine months ended September 30, 2001,
is presented assuming the 88 hotel leases acquired on July 1, 2001,
were acquired on January 1, 2001. In addition, $36.6 million of non
recurring lease termination costs were eliminated. When the leases
were acquired, the Company began receiving and recording hotel
revenues and expenses, rather than percentage lease revenues.
Reconciliation of FFO and EBITDA
(in thousands, except per share data)
Three Months Ended
September 30,
2002 2001
Funds From Operations (FFO) (A)
Net loss $(7,081) $(25,762)
Abandoned projects 1,663
Series B preferred dividends (3,811) (3,235)
Loss on early extinguishment of debt --- 1,045
Lease termination costs --- 378
Merger costs:
Termination costs --- 19,919
Non-recurring financing costs --- 4,126
Depreciation 37,770 39,273
Depreciation from unconsolidated entities 2,983 2,755
Minority interest in FelCor LP (2,344) (5,430)
FFO $29,180 $33,069
Diluted FFO per common share and unit $0.44 $0.50
Weighted average common shares and units
outstanding 66,692 66,632
Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA) (A)
FFO $29,180 $33,069
Interest expense 41,339 40,695
Interest expense from unconsolidated entities 2,263 2,523
Amortization expense 526 555
Series B preferred dividends 3,811 3,235
EBITDA $77,119 $80,077
(A) FFO and EBITDA are adjusted to exclude significant non-recurring
items.
Reconciliation of FFO and EBITDA
(in thousands, except per share data)
Nine Months Ended September 30,
Pro Forma Actual
2002 2001 (A) 2001
Funds From Operations (FFO) (B)
Net income (loss) $(225) $25,110 $(10,009)
Gain on sale of hotel and related
assets (5,861) ---
Abandoned projects 1,663 ---
Lease termination costs --- --- 36,604
Merger costs:
Termination --- 19,919 19,919
Financing --- 5,212 5,212
Loss on early extinguishment of debt --- 1,270 1,270
Swap termination expense --- 4,824 4,824
Series B preferred dividends (10,818) (9,703) (9,703)
Depreciation 114,592 118,786 118,786
Depreciation from unconsolidated
entities 8,239 7,777 7,777
Minority interest in FelCor LP (3,359) 1,133 (4,842)
FFO $104,231 $174,328 $169,838
Diluted FFO per common share and
unit $1.56 $2.62 $2.55
Weighted average common shares
and units outstanding 66,717 66,641 66,641
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA) (B)
FFO $104,231 $174,328 $169,838
Interest expense 125,297 120,591 120,591
Interest expense from
unconsolidated entities 6,995 7,265 7,265
Amortization expense 1,561 1,439 1,439
Series B preferred dividends 10,818 9,703 9,703
EBITDA $248,902 $313,326 $308,836
(A) Information for the pro forma nine months ended September 30, 2001,
is presented assuming the 88 hotel leases acquired on July 1, 2001,
were acquired on January 1, 2001. In addition, $36.6 million of
non-recurring lease termination costs were eliminated. When the
leases were acquired, the Company began receiving and recording
hotel revenues and expenses, rather than percentage lease revenues.
(B) FFO and EBITDA are adjusted to exclude significant non-recurring
items.
Selected Balance Sheet Data
(in thousands, except book value per share)
September 30, 2002 December 31, 2001
Investment in hotels at cost $4,574,766 $4,523,469
Total cash and cash equivalents 93,364 128,742
Total assets 4,004,554 4,088,929
Total debt 1,880,240 1,938,408
Total stockholders' equity 1,665,127 1,683,194