FelCor Reports 2002 Results; Plans to Dispose of Non-Strategic Hotels
IRVING, Texas, FelCor Lodging Trust Incorporated
Fourth Quarter Results:
Total revenues were $309.8 million or 2.3 percent over the fourth quarter in 2001. The increase was primarily related to a 3.1 percent improvement in the portfolio's revenue per available room ("RevPAR"). RevPAR increased 5.2 percent in October, and 1.7 percent in November and December. For the quarter, occupancy increased 4.4 percent, to 57.8 percent, and average daily rate ("ADR") decreased 1.3 percent, to $95.61, compared to the same quarter of 2001.
The operating margin for FelCor's hotels during the fourth quarter 2002 was 27.8 percent, which reflected a 210 basis point decrease, compared to the same period in 2001. The deterioration in margins principally resulted from increased occupancy with decreases in ADR, and increased employee related costs.
FelCor's fourth quarter 2002 recurring Funds From Operations ("FFO") was $6.9 million, or $0.11 per share. FFO for the same period last year totaled $13.8 million, or $0.21 per share. FFO prior to convertible preferred (Series A) dividends was $0.15 per share and unit for the three months ended December 31, 2002. Fourth quarter 2002 recurring Earnings Before Interest, Taxes, Depreciation, Amortization, and other non-cash charges ("EBITDA") totaled $57.7 million, compared to $60.8 million for fourth quarter of 2001. For the quarter, FelCor reported a net loss of $185.1 million, or a loss of $3.17 per share, compared to a fourth quarter 2001 net loss of $35.4 million, or $0.67 per share.
Included in the 2002 net loss is an impairment charge of $157.5 million related to certain of FelCor's hotels and investments in unconsolidated entities. The impairment charge resulted primarily from FelCor's decision to dispose of 33 non-strategic hotels over the next 36 months. Non-strategic hotels include smaller properties in secondary and tertiary locations and certain hotels in Texas and specifically Dallas, areas where FelCor plans to reduce its concentration. The fourth quarter of 2001 included $7 million of impairment charges relating to hotels that were held for sale.
"Our plan is to dispose of our smaller hotels in low growth markets and reinvest most of the proceeds in newer, larger and higher quality assets, primarily in urban and resort locations that have higher growth rates and barriers to competition. Using this asset allocation strategy, we expect to improve the overall quality and growth potential of our hotel portfolio while preserving our strategic brand relationships," said Thomas J. Corcoran, Jr., FelCor's President and CEO.
The 33 sale candidates represent 14 percent of the rooms in FelCor's hotel portfolio, but less than seven percent of FelCor's consolidated hotel EBITDA. The average number of rooms in the hotels identified for sale is 196, while the average number of rooms for the remainder of FelCor's portfolio is 294.
Full Year 2002 Results:
Total revenues for 2002 were $1.3 billion, or 8.7 percent below 2001 pro forma revenues, principally related to weak lodging demand and the decrease in RevPAR for FelCor's hotel portfolio. Pro forma 2001 operating results assume the 88 leases acquired on July 1, 2001, had been acquired on January 1, 2001. FelCor's total hotel portfolio RevPAR decreased 8.1 percent for 2002, resulting from a decline of 2.8 percent in occupancy and a 5.5 percent drop in ADR. The operating margin for FelCor's hotels was 32.2 percent, a decrease of 220 basis points, compared to pro forma 2001. The reduction in operating margins is attributed principally to the decrease in ADR between the periods.
For the full year 2002, recurring FFO totaled $102.4 million, or $1.65 per share, compared to 2001 FFO of $183.7 million, or $2.75 per share. FFO prior to convertible preferred (Series A) dividends was $1.71 per share and unit for the year ended December 31, 2002. EBITDA for 2002 totaled $306.6 million, compared to $369.6 million in 2001. For 2002, FelCor reported a net loss of $204.9 million, or a loss of $3.78 per share, compared to a 2001 net loss of $63.9 million, or $1.21 per share.
During 2002, the Company recorded a $157.5 million impairment charge, as previously described. During 2001, FelCor recorded $78 million of non- recurring expenses, consisting principally of lease termination charges of $37 million and $25 million of expenses associated with its proposed acquisition of MeriStar Hospitality, which was terminated following the events of September 11, 2001.
Capital Structure:
At December 31, 2002, FelCor had $1.9 billion of debt outstanding, and had no outstanding borrowings under its $300 million line of credit. The weighted average life of FelCor's debt is six years. During 2003, debt maturities total $35 million, including $14 million of recurring principal payments. At December 31, 2002, FelCor had $66.5 million in cash and cash equivalents.
"FelCor continues to have access to diversified capital sources. These sources, together with the potential to refinance a portion of its 2003 maturities and to sell $50 to $75 million in non-strategic hotels that are unencumbered, will be used for additional working capital," said Richard J. O'Brien, FelCor's Executive Vice President and Chief Financial Officer.
2003 Guidance:
For the first quarter of 2003, FelCor currently anticipates its portfolio RevPAR will be down three-to-five percent below the comparable period of the prior year. FFO per share is expected to be within the range of $0.14 to $0.18 per share for the first quarter of 2003, and EBITDA is expected to be within the range of $59 million to $62 million for the same period. FelCor's RevPAR for the month of January was down approximately four percent, compared to January of 2002.
FelCor currently anticipates that full year 2003 hotel portfolio RevPAR will be approximately the same as 2002, plus or minus one percent.
FFO per share for 2003 is currently expected to be within the range of $1.20 to $1.40 per share and EBITDA is expected to be within the range of $277 to $289 million. FelCor is currently anticipating 2003 maintenance capital expenditures to be between $60 and $70 million.
"Today's uncertain political environment and soft business climate, together with the risk of further margin deterioration should our portfolio's ADR continue to decline, makes it difficult to forecast earnings with any degree of certainty," added O'Brien.
For 2002, FelCor declared common dividends of $0.60 per share. "We expect the Board of Directors to defer further common dividends until there is a two to four percent positive RevPAR environment," added Mr. Corcoran.
FelCor has published its Fourth Quarter 2002 Supplemental Information, which provides additional corporate data, financial highlights and portfolio statistical data for the fourth quarter and year ended December 31, 2002. Investors are encouraged to access the Supplemental Information on the Company's website at
FelCor is the nation's second largest lodging REIT and the largest owner of full service, all-suite hotels. FelCor's consolidated portfolio is comprised of 169 hotels, located in 35 states and Canada. FelCor owns 77 upscale, all-suite hotels, and is the largest owner of Embassy Suites® and Doubletree Guest Suites® hotels. FelCor's portfolio also includes hotels in the upscale and full service segments. FelCor has a current market capitalization of approximately $2.8 billion. Additional information can be found on the Company's website at
FelCor invites you to listen to its fourth quarter 2002 conference call on Wednesday, February 5, 2003, at 9:00 a.m. (Central Standard Time). The conference call will be webcast simultaneously via FelCor's website at
Results of Operations - Three Months Ended
(in thousands, except per share data)
Three Months Ended
December 31,
2002 2001
Revenues:
Hotel operating revenue:
Room $236,198 $229,339
Food and beverage 57,372 57,154
Other operating departments 16,076 15,882
Retail space rental and other revenue 195 535
Total revenue 309,841 302,910
Expenses:
Hotel operating expenses:
Room 63,916 58,621
Food and beverage 44,287 43,133
Other operating departments 7,929 7,519
Other property related costs 91,670 86,248
Management and franchise fees 16,036 16,823
Taxes, insurance and lease expense 30,696 32,886
Corporate expenses 3,463 3,369
Depreciation 38,225 38,906
Abandoned project costs --- 837
Total operating expenses 296,222 288,342
Operating income 13,619 14,568
Interest expense, net:
Recurring financing 40,749 40,005
Merger related financing --- 274
Impairment loss 157,505 7,000
Charge-off of capitalized costs on
reduced line commitments 3,222
Swap termination expense --- 2,225
Loss before equity in income from
unconsolidated entities and
minority interests (187,857) (34,936)
Equity in income from
unconsolidated entities (523) 296
Minority interests 10,024 5,373
Net loss (178,356) (29,267)
Preferred dividends (6,727) (6,150)
Net loss applicable to common shareholders $(185,083) $(35,417)
Diluted per common share data:
Net loss applicable to
common shareholders $(3.17) $(0.67)
Weighted average common shares outstanding 58,450 52,639
Results of Operations - Full Year
(in thousands, except per share data)
Years Ended December 31,
Pro Forma
2002 2001 (A) 2001
Revenues:
Hotel operating revenue:
Room $1,036,547 $1,136,615 $866,101
Food and beverage 212,076 228,593 157,812
Other operating departments 67,690 74,776 58,931
Percentage lease revenue --- --- 115,137
Retail space rental and other revenue 1,646 2,990 2,990
Total revenue 1,317,959 1,442,974 1,200,971
Expenses:
Hotel operating expenses:
Room 264,480 276,670 212,857
Food and beverage 166,147 179,267 122,999
Other operating departments 31,666 33,296 26,789
Other property related costs 363,931 380,299 290,247
Management and franchise fees 66,897 77,678 57,739
Taxes, insurance and lease expense 132,138 141,712 140,784
Corporate expenses 13,756 13,696 12,678
Depreciation 152,817 157,708 157,692
Abandoned project costs 1,663 837 837
Lease termination costs --- --- 36,604
Merger termination costs --- 19,919 19,919
Total operating expenses 1,193,495 1,281,082 1,079,145
Operating income 124,464 161,892 121,826
Interest expense, net:
Recurring financing 164,294 158,343 158,343
Merger related financing --- 5,486 5,486
Impairment loss 157,505 7,000 7,000
Swap termination expense --- 7,049 7,049
Charge-off of capitalized costs
on reduced line commitments 3,222 1,270 1,270
Loss before equity in income from
unconsolidated entities, minority
interests, and gain on sale of assets (200,557) (17,256) (57,322)
Equity in income from
unconsolidated entities 3,293 7,346 7,346
Minority interests 12,622 1,457 7,283
Gain on sale of assets 6,061 3,417 3,417
Net loss (178,581) (5,036) (39,276)
Preferred dividends (26,292) (24,600) (24,600)
Net loss applicable to
common shareholders $(204,873) $(29,636) $(63,876)
Diluted per common share data:
Net loss applicable to
common shareholders $(3.78) $(0.56) $(1.21)
Weighted average common
shares outstanding 54,173 52,622 52,622
(A) Information for the pro forma year ended December 31, 2001, is
presented assuming the 88 hotel leases acquired on July 1, 2001, were
acquired on January 1, 2001, and $36.6 million of non-recurring lease
termination costs have been eliminated. When these hotel 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 and unit data)
Three Months Ended
December 31,
2002 2001
Funds From Operations (FFO) (A) (B)
Net loss $(178,356) $(29,267)
Depreciation 38,225 38,906
Depreciation from unconsolidated entities 3,377 3,104
Preferred dividends:
Series A preferred dividends (2,915)
Series B preferred dividends (3,812) (3,234)
Minority interest in FelCor Lodging LP (10,358) (6,026)
Significant non-recurring items:
Impairment loss 157,505 7,000
Abandoned project costs --- 837
Charge-off of capitalized costs on
reduced line commitments 3,222
Merger related financing costs --- 274
Swap termination costs --- 2,225
FFO $6,888 $13,819
Diluted FFO per common share and unit $0.11 $0.21
Weighted average common shares
and units outstanding 62,056 66,641
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) (A)
FFO $6,888 $13,819
Interest expense 41,130 40,635
Interest expense from unconsolidated entities 2,380 2,413
Amortization expense 526 654
Preferred dividends:
Series A preferred dividends 2,915
Series B preferred dividends 3,812 3,234
EBITDA $57,651 $60,755
(A) FFO and EBITDA are adjusted for significant non-recurring items.
(B) FFO prior to convertible preferred (Series A) dividends was $0.15 per
share and unit for the three months ended December 31, 2002.
Reconciliation of FFO and EBITDA
(in thousands, except per share and unit data)
Years Ended December 31,
Pro Forma
2002 2001(A) 2001
Funds From Operations (FFO) (B) (C)
Net loss $(178,581) $(5,036) $(39,276)
Gains or losses from sales
of property:
Gain on sale of hotel assets (5,861) ---
Depreciation 152,817 157,692 157,692
Depreciation from unconsolidated
entities 11,616 10,881 10,881
Preferred dividends:
Series A preferred dividends (11,662) ---
Series B preferred dividends (14,630) (12,937) (12,937)
Minority interest in FelCor Lodging LP (13,717) (5,041) (10,868)
Significant non-recurring items:
Impairment loss 157,505 7,000 7,000
Abandoned project costs 1,663 837 837
Charge-off of capitalized costs
on reduced line commitments 3,222 1,270 1,270
Merger termination costs --- 19,919 19,919
Merger related financing costs --- 5,486 5,486
Lease termination costs --- --- 36,604
Swap termination costs --- 7,049 7,049
FFO $102,372 $187,120 $183,657
Diluted FFO per common share and unit $1.65 $2.81 $2.75
Weighted average common shares
and units outstanding 62,061 66,675 66,675
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA)
FFO $102,372 $187,120 $183,657
Interest expense 166,427 161,226 161,226
Interest expense from unconsolidated
entities 9,375 9,678 9,678
Amortization expense 2,087 2,093 2,093
Preferred dividends:
Series A preferred dividends 11,662 ---
Series B preferred dividends 14,630 12,937 12,937
EBITDA $306,553 $373,054 $369,591
(A) Information for the pro forma year ended December 31, 2001, is
presented assuming the 88 hotel leases acquired on July 1, 2001, were
acquired on January 1, 2001, and $36.6 million of non-recurring lease
termination costs have been eliminated. When these hotel 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.
(C) FFO prior to convertible preferred (Series A) dividends was $1.71 per
share and unit for the year ended December 31, 2002.
Selected Balance Sheet Data
(in thousands)
December 31,
2002 2001
Investment in hotels at cost $4,595,566 $4,523,469
Total cash and cash equivalents 66,542 128,742
Total assets 3,780,363 4,088,929
Total debt 1,877,134 1,938,408
Total stockholders' equity 1,616,817 1,683,194