CNL Hotels & Resorts Reports Results for Second Quarter 2006
Achieves Double Digit RevPAR Growth and 32.5% Operating Profit Margin
ORLANDO, Fla., CNL Hotels & Resorts, Inc., the nation's second largest hotel real estate investment trust, today announced results for the second quarter ended June 30, 2006. The following results are compared to the second quarter ended June 30, 2005 or year-to-date period ended June 30, 2005, and where applicable, defined terms are included in the Notes to Financial and Portfolio Information section of this news release.
Second Quarter Performance Highlights
- Total revenue increased 28.5% to $436.3 million, and 20.1% to $841.1 million year-to-date.
- RevPAR for adjusted comparable properties increased 10.5% and RevPAR for comparable properties increased 10.9%. Year-to-date, RevPAR for adjusted comparable properties increased 9.0% and RevPAR for comparable properties increased 10.3%.
- Hotel and resort operating profit margin for adjusted comparable properties was 32.5%, representing a 1.4 percentage point increase.
- Net income increased $5.2 million to $47.0 million year-to-date.
- Adjusted EBITDA increased 29.3% to $119.1 million, and 19.9% to $242.9 million year-to-date.
- Adjusted FFO per diluted share increased 32.1% to $0.37, and 16.7% to $0.84 year-to-date.
Thomas J. Hutchison III, chief executive officer, stated, "We are aggressively pursuing opportunities to build on our distinctive portfolio of high-end assets and are continuing to deliver consistent operating performance. Employing our disciplined ownership strategy, we maximized inherent growth in the portfolio as evidenced by another strong quarter of RevPAR growth and operating profit margin. We acquired the remaining interests in the JW Marriott Desert Ridge Resort & Spa and the Courtyard San Francisco Downtown – two extraordinary assets with significant revenue growth potential – and capitalized on healthy fundamentals with the sale of two non-core properties. Our management will build on this momentum to further our position as a leading lodging company, continuing to execute a focused business plan, prudent ownership initiatives and superior portfolio performance."
Operating Performance
RevPAR for the Company's 90 adjusted comparable properties increased 10.5% to $119.62 in the second quarter compared to the same period in 2005, driven by a 9.1% gain in ADR to $155.19, representing 86.7% of RevPAR growth. This strong rate component of RevPAR growth positively impacted hotel and resort operating profit margin, which increased 140 basis points to 32.5% despite escalating insurance and energy costs. Year-to-date, RevPAR for these adjusted comparable properties increased 9.0% and hotel and resort operating profit margin improved by 0.6 percentage points.
RevPAR for the Company's 88 comparable properties increased 10.9% to $115.65 in the second quarter compared to the same period in 2005, resulting from a 0.9 percentage point increase in occupancy to 77.0% and a 9.6% gain in ADR to $150.11. For the 88 comparable properties, hotel and resort operating profit margin increased in the second quarter by 1.5 percentage points to 32.5%. For the six months ended June 30, 2006, RevPAR for the Company's comparable properties increased by 10.3% to $118.62, resulting from a 9.0% gain in ADR to $156.73 and a 1.0 percentage point increase in occupancy to 75.7%. In addition to strong rooms performance, food and beverage revenue for the Company's 88 comparable properties experienced double-digit growth for the quarter.
"Strong demand growth relative to the muted supply growth continues to lift rates, positively impacting margins and reinforcing our position in the upside of the lodging cycle. Our results benefited by the solid performance this quarter in our relative markets, particularly Dallas, Seattle and Hawaii," stated John A. Griswold, president and chief operating officer. "Overall, the group booking pace has strengthened and we expect our new ballroom developments at Doral Golf Resort & Spa, JW Marriott Desert Ridge Resort & Spa and The Ritz-Carlton Orlando to further enhance performance once completed."
Balance Sheet & Financing Activities
During the second quarter, the Company continued to take advantage of favorable capital markets. In April 2006, one of the Company's consolidated partnerships obtained a new $120 million loan at a fixed rate of 5.47% for five years. The Company used the new loan proceeds to refinance $96.5 million in existing debt, both decreasing the partnership's cost of capital and providing a return of capital to the Company. In June 2006, the Company increased its senior secured revolving credit facility from $200 million to $240 million.
"We were pleased with our continued ability this past quarter to enhance liquidity, lock in favorable interest rates and extend maturity dates," stated C. Brian Strickland, executive vice president and chief financial officer.
Acquisitions
On May 19, 2006, the Company acquired the remaining interests in the JW Marriott Desert Ridge Resort & Spa in Phoenix, Arizona. The remaining 56% venture-interests were purchased from Desert Ridge Resort, Ltd. and Marriott Hotel Services, Inc. for an aggregate purchase price of approximately $65 million. The 950-room resort is surrounded by the McDowell Mountains and features nine distinctive dining experiences, a luxurious 28,000-square-foot European spa, magnificent swimming pools, an eight-court tennis pavilion and world-class golf on two 18-hole championship courses. The property features 200,000 square feet of indoor and outdoor meeting space, with an additional 10,000 square feet of meeting space in the early stages of development.
On June 16, 2006, the Company acquired the remaining 51.85% interest in the Courtyard San Francisco Downtown hotel from Marriott International, Inc. for approximately $10 million, representing an implied valuation of approximately $79.5 million for the property. The 405-room hotel includes 31 suites, meeting rooms, two on-site restaurants, a fitness center and indoor pool. The 18-story hotel is conveniently located minutes away from the Moscone Convention Center, AT&T Park, Union Square and the San Francisco Museum of Modern Art.
Dispositions
On April 28, 2006, the Company sold two non-core Wyndham hotels to an affiliate of The Blackstone Group for $42.5 million with an estimated net gain of approximately $5.2 million. Subsequent to the second quarter, on July 17, 2006, the Company entered into an agreement with Hersha Hospitality Trust to sell its 66.7% interest in the partnership that owns the 144-room Hampton Inn Chelsea in New York. The sales price was based on a valuation of $54.0 million for the property, resulting in an estimated net gain of approximately $17 million. The transaction is expected to close in the third quarter of 2006 subject to closing conditions, although there can be no assurance that the sale will be completed.
Capital Projects
Total capital expenditures were approximately $61.4 million as of June 30, 2006, with an additional $100.4 million planned for the remainder of 2006. Notable projects underway at core properties include a spa expansion at Arizona Biltmore Resort & Spa, a new signature pool at La Quinta Resort & Club and ballroom expansions at Doral Golf Resort & Spa, The Ritz-Carlton Orlando and JW Marriott Desert Ridge Resort & Spa.
About CNL Hotels & Resorts, Inc. | CNL Hotels & Resorts, Inc. is a leading real estate investment trust and owner of one of the most distinctive portfolios in the lodging industry. With a focus on luxury and upper-upscale properties, the company currently has approximately $6 billion in total assets with 92 hotels and resorts across North America that operate under premium brands such as The Waldorf=Astoria Collection, Hilton, The Ritz-Carlton, JW Marriott, Marriott and Hyatt. For more information, please visit / .
The Company references non-GAAP financial measures and operating measures within the meaning of the rules of the Securities and Exchange Commission, such as FFO, FFO per share, Adjusted FFO, Adjusted FFO per share, EBITDA, and Adjusted EBITDA; and RevPAR, ADR, occupancy, and hotel and resort operating profit margin. For further information regarding these measures and why the Company believes these non-GAAP financial measures and operating measures are helpful in understanding the Company's performance, refer to the accompanying "Financial and Portfolio Information" section.
Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding the capital improvements, annual interest savings, momentum from the second quarter, enhancing financial flexibility, future performance, change of management companies, planned use of sales proceeds, future acquisitions and investments, lodging demand and group travel, momentum, enhanced liquidity position, closings of pending transactions, amount of proceeds and gain, and other statements that are not historical facts, and/or statements containing words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "could", "target(s)," "project(s)," "will," "believe(s)," "seek(s)," "estimate(s)" and similar expressions. These statements are based on management's current expectations, beliefs and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors, including those outside of our control that could lead to actual results materially different from those described in the forward-looking statements. CNL Hotels & Resorts, Inc. (the "Company") can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations and those described in the forward-looking statements include, but are not limited to: change in the management approach of the management companies; the failure or adverse change in the branding strategies of the management companies; changes in the planned use of proceeds; the inability to acquire properties that meet the Company's investment objectives; changes in market conditions for hotels and resorts; continued ability to finance acquired properties in the asset backed securities markets; changes in interest rates and financial and capital markets; changes in generally accepted accounting principles and tax laws and the application thereof; the occurrence of terrorist activities or other disruptions to the travel and leisure industries; availability of attractive acquisition opportunities; and such other risk factors as may be discussed in our Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. Such forward- looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
CNL Hotels & Resorts, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except per share data)
June 30, December 31,
2006 2005
ASSETS
Hotel and resort properties, net $5,077,825 $3,960,611
Assets held for sale - 463,844
Cash and cash equivalents 117,973 83,307
Restricted cash 91,804 113,981
Receivables, less allowance for doubtful
accounts of $1,988 and $1,806, respectively 171,841 88,625
Goodwill 510,730 509,174
Intangibles, less accumulated amortization
of $22,367 and $17,549, respectively 331,905 336,723
Prepaid expenses and other assets 70,099 103,127
Loan costs, less accumulated amortization
of $28,206 and $38,960, respectively 22,552 29,390
$6,394,729 $5,688,782
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and other notes payable $3,595,922 $2,599,454
Liabilities associated with assets held for
sale – 418,957
Accounts payable and accrued expenses 251,207 175,026
Accrued litigation settlement 35,413 34,151
Other liabilities 25,279 25,552
Distributions and losses in excess of
investments in unconsolidated entities 408 2,600
Due to related parties 12,306 27,000
Membership deposits 238,282 229,809
Total liabilities 4,158,817 3,512,549
Commitments and contingencies
Minority interests 127,606 114,860
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 75,000 shares – --
Excess shares, $.01 par value per share.
Authorized and unissued 600,000 shares – --
Common stock, $.01 par value per share.
Authorized 3,000,000 shares; issued
163,004 and 158,417 shares,
respectively; outstanding 156,475 and
152,882 shares, respectively 1,566 1,530
Capital in excess of par value 2,814,225 2,743,073
Accumulated distributions in excess of net
income (718,492) (689,022)
Accumulated other comprehensive income 11,007 5,792
Total stockholders' equity 2,108,306 2,061,373
$6,394,729 $5,688,782
CNL Hotels & Resorts, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Revenues:
Room $242,028 $197,899 $476,196 $403,414
Food and beverage 126,511 89,871 235,015 186,004
Other hotel and
resort operating
departments 63,858 48,845 123,533 105,535
Rental income from
operating leases 2,388 2,576 4,524 4,625
Other income 1,499 335 1,788 586
436,284 339,526 841,056 700,164
Expenses:
Room 56,212 46,110 106,499 92,496
Food and beverage 79,479 59,068 148,583 121,048
Other hotel and
resort operating
departments 33,925 29,034 67,133 60,158
Property operations 72,249 58,110 139,573 115,734
Repairs and
maintenance 17,692 13,862 32,790 27,062
Hotel and resort
management fees 16,512 9,276 30,778 19,786
Sales and marketing 27,356 20,064 49,391 39,903
Credit enhancement
funding - (731) - (731)
General operating
and administrative 9,382 7,211 15,577 11,701
State and local taxes 1,961 1,924 4,045 3,951
Asset management fees
to related party 7,212 7,352 13,728 14,718
Depreciation and
amortization 53,338 44,162 103,519 88,631
375,318 295,442 711,616 594,457
Operating profit 60,966 44,084 129,440 105,707
Interest income 812 767 2,534 1,283
Interest and loan
cost amortization (57,184) (48,265) (106,390) (92,573)
Loss on termination
of hedges - (1,344) - (1,344)
Advisor acquisition
expense (80,569) - (82,854) -
Transaction costs (94) (960) (190) (960)
Loss on extinguishment
of debt (183) - (29,315) -
(Loss) income before
equity in earnings
(losses) of
unconsolidated
entities, minority
interests, and
(expense) benefit
from income taxes (76,252) (5,718) (86,775) 12,113
Equity in earnings
(losses) of
unconsolidated
entities 1,222 (8,729) 2,468 (9,221)
Minority interests (2,275) (2,370) (5,007) (4,793)
Loss from continuing
operations before
(expense) benefit
from income taxes (77,305) (16,817) (89,314) (1,901)
(Expense) benefit
from income taxes (663) 3,256 (259) 2,046
(Loss) income from
continuing
operations (77,968) (13,561) (89,573) 1,451
Discontinued
operations, net of
income taxes 5,198 46,435 136,567 41,694
Net (loss) income $(72,770) $32,874 $46,994 $41,839
(Loss) earnings per
share of common stock
Basic:
Continuing
operations $ (0.51) $ (0.08) $ (0.58) $-
Discontinued
operations 0.04 0.30 0.89 0.27
$ (0.47) $0.22 $0.31 $0.27
Diluted:
Continuing
operations $ (0.51) $ (0.08) $ (0.58) $-
Discontinued
operations 0.04 0.30 0.89 0.27
$ (0.47) $0.22 $0.31 $0.27
Weighted average
number of shares of
common stock
outstanding:
Basic 153,278 152,830 153,083 152,871
Diluted 153,278 152,830 153,084 152,871
The following is a reconciliation of net (loss) income to FFO, as defined in the attached Notes to Financial and Portfolio Information, and FFO per share for the three and six months ended June 30 (in thousands, except per share data):
Three Months Six Months
Ended June 30, Ended June 30,
2006 (1) 2005 (2) 2006 (1) 2005 (2)
Net (loss) income $(72,770) $32,874 $46,994 $41,839
Adjustments:
Effect of depreciation
of real estate assets
of unconsolidated
entities 1,292 3,456 3,430 7,004
Effect of depreciation
of real estate assets
of minority
interests (2,557) (3,417) (5,113) (6,570)
Depreciation and
amortization of real
estate assets 51,236 47,454 99,380 98,099
Gain on sale of real
estate assets (4,887) (49,391) (138,606) (49,861)
Advisor acquisition
expense 80,569 – 82,854 –
Funds from operations $52,883 $30,976 $88,939 $90,511
Weighted average shares
(basic and diluted)
Basic 153,278 152,830 153,083 152,871
Diluted 153,279 152,830 153,084 152,871
FFO per share
(basic and diluted)
Basic $0.35 $0.20 $0.58 $0.59
Diluted $0.35 $0.20 $0.58 $0.59
(1) Funds from operations for the three and six months ended June 30,
2006 do not include $3.9 million and $7.4 million, respectively,
in net membership cash flows and include $0.2 million and $29.3
million, respectively, of loss on extinguishment of debt and
approximately $94,000 and $0.2 million, respectively, of
transaction costs.
(2) Funds from operations for the three and six months ended June 30,
2005 do not include $3.0 million and $6.9 million, respectively,
in net membership cash flows and include $1.0 million of
transaction costs.
The following is a reconciliation of (loss) income from continuing operations to EBITDA, as defined in the attached Notes to Financial and Portfolio Information, for the three and six months ended June 30 (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2006 (1) 2005 (2) 2006 (1) 2005 (2)
(Loss) income from
continuing
operations $(77,968) $(13,561) $(89,573) $145
Adjustments:
Interest and loan
cost amortization 57,184 48,265 106,390 92,573
Income tax expense
(benefit) 663 (3,256) 259 (2,046)
Depreciation and
amortization 53,338 44,162 103,519 88,631
EBITDA $33,717 $75,610 $120,595 $179,303
(1) Results of operations for the three and six months ended June 30,
2006 do not include $3.9 million and $7.4 million, respectively, in
net membership cash flows and include $0.2 million and $29.3 million,
respectively, of loss on extinguishment of debt, approximately
$94,000 and $0.2 million, respectively, of transaction costs and
$80.6 million and $82.9 million, respectively, of advisor acquisition
expense.
(2) Results of operations for the three and six months ended June 30,
2005 do not include $3.0 million and $6.9 million, respectively, in
net membership cash flows and include $1.0 million of transaction
costs.
The following is a reconciliation of net (loss) income to Adjusted FFO, as defined in the attached Notes to Financial and Portfolio Information, and Adjusted FFO per share for the three and six months ended June 30 (in thousands, except per share data):
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
Net (loss) income $(72,770) $32,874 $46,994 $41,839
Adjustments:
Effect of deprecia-
tion of real estate
assets of
unconsolidated
entities 1,292 3,456 3,430 7,004
Effect of deprecia-
tion of real estate
assets of minority
interests (2,557) (3,417) (5,113) (6,570)
Depreciation and
amortization of
real estate assets 51,236 47,454 99,380 98,099
Gain on sale of
real estate assets (4,887) (49,391) (138,606) (49,861)
Loss on extinguish-
ment of debt
(discontinued
operations) - - 4,296 4,206
Loss on extinguish-
ment of debt
(unconsolidated
entities) - 6,901 - 6,901
Gain on hedge
termination
(discontinued
operations) - - (945) -
Loss on hedge
termination - 1,344 - 1,344
Transaction costs 94 960 190 960
Advisor acquisition
expense 80,569 - 82,854 -
Loss on extinguish-
ment of debt 183 - 29,315 -
Net membership cash
flows 3,938 3,047 7,409 6,897
Adjusted funds from
operations $57,098 $43,228 $129,204 $110,819
Weighted average shares:
Basic 153,278 152,830 153,083 152,871
Diluted 153,279 152,830 153,084 152,871
Adjusted FFO per share:
Basic $0.37 $0.28 $0.84 $0.72
Diluted $0.37 $0.28 $0.84 $0.72
The following is a reconciliation of (loss) income from continuing operations to Adjusted EBITDA, as defined in the attached Notes to Financial and Portfolio Information, for the three and six months ended June 30 (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
(Loss) income from
continuing
operations $(77,968) $(13,561) $(89,573) $145
Adjustments:
Interest and loan
cost amortization 57,184 48,265 106,390 92,573
Income tax expense
(benefit) 663 (3,256) 259 (2,046)
Depreciation and
amortization 53,338 44,162 103,519 88,631
Minority interest
adjustments 2,275 2,370 5,007 4,793
Equity method
adjustments (1,222) 8,729 (2,468) 9,221
Loss on hedge
termination - 1,344 - 1,344
Transaction costs 94 960 190 960
Advisor acquisition
expense 80,569 - 82,854 -
Loss on extinguish-
ment of debt 183 - 29,315 -
Net membership cash
flows 3,938 3,047 7,409 6,897
Adjusted EBITDA $119,054 $92,060 $242,902 $202,518
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating Data-Comparable Properties
Continuing Operations
For the Three Months Ended June 30, 2006
Hotel &
Resort
Var. Var. Var. Operating Var.
(ppt.) (%) (%) Profit (ppt.)
Proper- Occupan- to to to Margin to
ties cy 2005 ADR 2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury and
Upper
Upscale 31 76.8% 1.5 $181.60 9.1% $139.39 11.3% 31.7% 1.5
Upscale 28 79.4 - 114.34 10.7 90.78 10.7 36.3 1.7
Midscale 25 74.5 0.8 91.10 10.1 67.91 11.3 32.8 2.3
Total TRS
Consolidated 84 77.0% 1.0 $150.82 9.7% $116.09 11.2% 32.3% 1.6
Triple Net
Lease (2) 4 78.8 (4.3) 131.11 6.9 103.37 1.4 39.3 0.8
Total 88 77.0% 0.9 $150.11 9.6% $115.65 10.9% 32.5% 1.5
(1) The operating results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating Data-Comparable Properties
Continuing Operations
For the Six Months Ended June 30, 2006
Hotel &
Resort
Var. Var. Var. Operating Var.
(ppt.) (%) (%) Profit (ppt.)
Proper- Occupan- to to to Margin to
ties cy 2005 ADR 2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury
and Upper
Upscale 31 75.7% 1.1 $192.33 8.5% $145.65 10.1% 33.1% 0.7
Upscale 28 77.4 0.7 116.02 11.0 89.83 12.0 36.7 2.4
Midscale 25 73.2 1.9 90.11 9.0 65.95 11.9 32.1 2.4
Total TRS
Consolidated 84 75.7% 1.1 $157.63 8.9% $119.29 10.6% 33.4% 1.0
Triple Net
Lease (2) 4 75.9 (4.2) 131.96 8.2 100.13 2.5 36.4 0.4
Total 88 75.7% 1.0 $156.73 9.0% $118.62 10.3% 33.5% 0.9
(1) The operating results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating Data - Adjusted Comparable Properties
Continuing Operations
For the Three Months Ended June 30, 2006
Hotel &
Resort
Var. Var. Var. Operating Var.
(ppt.) (%) (%) Profit (ppt.)
Proper- Occupan- to to to Margin to
ties cy 2005 ADR 2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury and
Upper
Upscale 33 76.8% 1.7 $186.78 8.3% $143.53 10.7% 31.9% 1.3
Upscale 28 79.4 - 114.34 10.7 90.78 10.7 36.3 1.7
Midscale 25 74.5 0.8 91.10 10.1 67.91 11.3 32.8 2.3
Total TRS
Consolidated 86 77.0% 1.2 $156.03 9.1% $120.17 10.8% 32.4% 1.4
Triple Net
Lease (2) 4 78.8 (4.3) 131.11 6.9 103.37 1.4 39.3 0.8
Total 90 77.1% 1.0 $155.19 9.1% $119.62 10.5% 32.5% 1.4
(1) The operating results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
CNL Hotels & Resorts, Inc. and Subsidiaries
PROPERTY OPERATING DATA - UNAUDITED
Property Operating Data - Adjusted Comparable Properties
Continuing Operations
For the Six Months Ended June 30, 2006
Hotel &
Resort
Var. Var. Var. Operating Var.
(ppt.) (%) (%) Profit (ppt.)
Proper- Occupan- to to to Margin to
ties cy 2005 ADR 2005 RevPAR 2005 (3) 2005
Consolidated
TRS (1)
Luxury and
Upper
Upscale 33 75.2% 0.4 $198.31 7.7% $149.16 8.3% 33.2% 0.3
Upscale 28 77.4 1.7 116.02 11.0 89.83 12.0 36.7 2.4
Midscale 25 73.2 1.9 90.11 9.0 65.95 11.9 32.1 2.4
Total TRS
Consolidated 86 75.4% 0.7 $163.45 8.1% $123.18 9.2% 33.5% 0.6
Triple Net
Lease (2) 4 75.9 (4.2) 131.96 8.2 100.13 2.5 36.4 0.4
Total 90 75.4% 0.6 $162.41 8.1% $122.42 9.0% 33.5% 0.6
(1) The operating results of JW Marriott Desert Ridge Resort and Courtyard
San Francisco are reflected in Consolidated TRS as if they were both
consolidated for the entirety of the periods presented. In
addition, the operating results for three of the Consolidated TRS
properties are now reported in the Hilton format as a result of the
change in management and brand to The Waldorf=Astoria Collection, and
there may be slight variances in reporting formats.
(2) The Company's operating results include only rental revenues received
from third-party lessees of these properties, as the Company does not
directly participate in their hotel operating revenues and expenses.
(3) Hotel and resort operating profit margin is calculated as hotel and
resort operating profit (before incentive management fees and
unallocated hotel and resort expenses) divided by total hotel and
resort revenues.
NOTES TO FINANCIAL AND PORTFOLIO INFORMATION
Non-GAAP Financial Measures and Operating Measures
Included in this news release are certain non-GAAP financial measures which are not calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP"), and operating measures, within the meaning of applicable Securities and Exchange Commission rules. The non-GAAP financial measures include FFO, FFO per share, Adjusted FFO, Adjusted FFO per diluted share, EBITDA, and Adjusted EBITDA. The operating measures include RevPAR, ADR, occupancy, and hotel and resort operating profit margin. The following discussion defines these terms and why the Company feels they are helpful in understanding performance.
Funds From Operations
The Company considers Funds From Operations ("FFO") (and FFO per basic and diluted share) to be an indicative measure of operating performance due to the significant effect of depreciation of real estate assets on net income or loss. The Company calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, except for the add back of the advisor acquisition expense of $80.0 million and $82.3 million during the three and six months ended June 30, 2006 respectively, which defines FFO as net income or loss determined in accordance with GAAP, excluding gains or losses from sales of property plus depreciation and amortization (excluding amortization of deferred financing costs) of real estate assets, and after adjustments for the portion of these items related to unconsolidated partnerships and joint ventures.
In calculating FFO, net income is determined in accordance with GAAP and includes the noncash effect of scheduled rent increases throughout the lease terms. This is a GAAP convention requiring real estate companies to report rental revenue based on the average rent per year over the life of the leases. The Company believes that by excluding the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and between other equity REITs. The Company also believes FFO captures trends in occupancy rates, rental rates and operating costs. FFO was developed by NAREIT as a relative measure of performance and liquidity of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP, which assumes that the value of real estate diminishes predictably over time. In addition, the Company believes FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs, particularly in the lodging industry. However, FFO (i) does not represent cash generated from operating activities determined in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events that enter into the determination of net income or loss), (ii) is not necessarily indicative of cash flow available to fund cash needs and (iii) should not be considered as an alternative to net income determined in accordance with GAAP as an indication of the Company's operating performance. FFO, as presented, may not be comparable to similarly titled measures reported by other equity REITs. Accordingly, the Company believes that in order to facilitate a clear understanding of its consolidated historical operating results, FFO should be considered only as supplemental information and only in conjunction with net income as reported in the accompanying unaudited consolidated financial statements and notes thereto.
Adjusted FFO
The Company defines Adjusted FFO as FFO (defined from above) plus adjustments to include or exclude certain additional recurring and non- recurring items which are described below. The Company believes Adjusted FFO is useful to the Company and to its investors as a supplemental measure in evaluating our financial performance because it helps evaluate the ongoing performance of its properties and facilitates comparisons between the Company and other lodging REITs and non-REIT lodging companies. Adjusted FFO should be considered only as a supplement to net income or loss (computed in accordance with GAAP) as a measure of the Company's operating performance. Other REITs and lodging companies may calculate Adjusted FFO differently than the Company does and, accordingly, the Company's calculation of Adjusted FFO may not be comparable to such other companies' Adjusted FFO measures. When calculating Adjusted FFO, the Company also adjusted FFO for the following items, which may occur in any period:
EBITDA
Earnings before interest expense, income taxes, depreciation and amortization, EBITDA, is defined as income (losses) from continuing operations excluding: (i) interest expense, including loan cost amortization; (ii) income tax benefit or expense; and (iii) depreciation and amortization. The Company believes EBITDA is useful to the Company and to an investor as a supplemental corporate level measure in evaluating the Company's financial performance because EBITDA excludes certain items that the Company believes may not be indicative of its corporate operating performance. By excluding interest expense, EBITDA measures the Company's financial performance regardless of how it finances its operations and its capital structure. By excluding depreciation and amortization expense, which can vary by property based on factors unrelated to hotel and resort performance, the Company and its investors can more accurately assess the financial performance of the Company's portfolio. The Company's management also uses EBITDA as one measure in determining the value of acquisitions and dispositions. In addition, it believes EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs, particularly in the lodging industry. However, because EBITDA is calculated before recurring cash charges such as interest expense and depreciation and amortization, and is not adjusted for capital expenditures or other recurring cash requirements of our business, it does not reflect the amount of capital needed to maintain its properties nor does it reflect trends in interest costs due to interest rate changes or increased borrowings. EBITDA should be considered only as a supplement to net income or loss (computed in accordance with GAAP), as a measure of the Company's operating performance. Other equity REITs may calculate EBITDA differently than does the Company and, accordingly, its calculation of EBITDA may not be comparable to such other REITs' EBITDA.
Adjusted EBITDA
The Company defines Adjusted EBITDA as EBITDA (defined from above) plus adjustments to include or exclude certain additional recurring and non- recurring items which are described below. The Company believes Adjusted EBITDA is useful to the Company and to its investors as a supplemental measure in evaluating its financial performance because it helps evaluate the ongoing performance of the Company's properties and facilitates comparisons between the Company and other lodging REITs and non-REIT lodging companies. Adjusted EBITDA should be considered only as a supplement to net income or loss (computed in accordance with GAAP) as a measure of the Company's operating performance. Other REITs and lodging companies may calculate Adjusted EBITDA differently than the Company does and, accordingly, its calculation of Adjusted EBITDA may not be comparable to such other companies' Adjusted EBITDA measures. When calculating Adjusted EBITDA, the Company also adjusted EBITDA for the following items, which may occur in any period:
Limitations on the Use of Non-GAAP Financial Measures
FFO, FFO per share, Adjusted FFO, Adjusted FFO per diluted share, EBITDA, and Adjusted EBITDA (i) do not represent cash generated from operating activities determined in accordance with GAAP (which, unlike these measures, generally reflects all cash effects of transactions and other events that enter into the determination of net income), (ii) are not necessarily indicative of cash flow available to fund cash needs and (iii) should not be considered as an alternative to net income determined in accordance with GAAP as an indication of operating performance. These measures, as presented, may not be comparable to similarly titled measures reported by other companies. Accordingly, the Company believes that in order to facilitate a clear understanding of our consolidated historical operating results, these measures should be considered only as supplemental information and only in conjunction with its net income as reported in the accompanying unaudited consolidated financial statements and notes thereto.
Property Operating Data
The Company's results of operations are highly dependent upon the operations of its hotel and resort properties. To evaluate the financial condition and operating performance of the Company's properties, management regularly reviews operating statistics such as revenue per available room ("RevPAR"), average daily room rate ("ADR"), occupancy, and hotel and resort operating profit margin. RevPAR is a commonly used measure within the lodging industry to evaluate hotel and resort operations. The Company defines RevPAR as (i) the average daily room rate, or ADR, charged, multiplied by (ii) the average daily occupancy achieved. The Company defines ADR by dividing room revenue by the total number of rooms occupied by hotel and resort guests on a paid basis during the applicable period. The Company defines occupancy by dividing the total number of rooms occupied by the hotel and resort guests on a paid basis during the applicable period by the total number of available rooms at the property. The Company defines hotel and resort operating profit margin as operating profit at the hotel and resort level, excluding unallocated expenses and certain other expenses which are not captured at the property level, divided by total hotel and resort operating revenues. RevPAR does not include revenue from food and beverage, telephone services or other guest services generated by the property. Although RevPAR does not include these ancillary revenues, the Company considers this measure to be the leading indicator of core revenues for many hotels and resorts. The Company closely monitors what causes changes in RevPAR because changes that result from occupancy as compared to those that result from room rate have different implications on overall revenue levels, as well as incremental operating profit. For example, increases in occupancy at a hotel or resort may lead to increases in ancillary revenues, such as food and beverage and other hotel and resort amenities, as well as additional incremental costs (including housekeeping services, utilities and room amenity costs). RevPAR increases due to higher room rates would not result in these additional room-related costs. For this reason, while operating profit would typically increase when occupancy rises, RevPAR increases due to higher room rates would have a greater impact on the Company's profitability. The data available to make comparisons is limited by the amount, timing and extent of recent acquisitions made by the Company. The Company uses hotel and resort operating profit margins to evaluate how efficiently expenses are managed at a property in relation to total revenue generated. The Company's management uses hotel and resort operating profit and the resulting operating profit margin as one measure in determining the value of acquisitions and dispositions and believes this operating measure is used by securities analysts, investors, and other interested parties in the evaluation of equity REITs or other companies in the lodging industry. Hotel and resort operating profit margin should be considered only as a supplement to net income or loss (computed in accordance with GAAP), as a measure of the Company's operating performance. Other companies in the lodging industry may calculate hotel and resort operating profit margin differently than does the Company and, accordingly, its calculation of hotel and resort operating profit margin may not be comparable to such other companies.
Comparable Properties
The Company defines "comparable properties" as properties owned at the beginning of and during the entirety of both periods being compared. The Company considers 88 properties for the three and six months ended June 30, 2006 to be "comparable properties."
Adjusted Comparable Properties
The Company defines "adjusted comparable properties" as properties owned as of the last day of the reporting periods, including properties acquired during the period (for which historical data is available) as if the Company owned the properties since the beginning of the period and excluding properties that were opened during the reporting periods being compared, changed reporting periods during the periods being compared, or are located outside of the United States. For the three and six months ended June 30, 2006, the Company considers 90 properties to be "adjusted comparable properties."
