FelCor Reports Third Quarter Operating Results
IRVING, Texas -- FelCor Lodging Trust Incorporated (NYSE: FCH) today reported operating results for the third quarter and nine months ended September 30, 2008.
- Adjusted FFO per share of $0.45 and Adjusted EBITDA of $65.1 million met our third quarter guidance.
- RevPAR increased by 5.4 percent at our 70 hotels where renovations were completed during 2007 and 2008. RevPAR increased 2.6 percent for our 85 consolidated hotels, compared to the United States average decline of 1.1 percent.
- Hotel EBITDA margin increased 45 basis points compared to prior year.
- Market share increased more than six percent for our 70 hotels where renovations were completed during 2007 and 2008, which is consistent with our expectations. Market share increased almost four percent for our 85 consolidated hotels.
- Net loss applicable to common stockholders was $51.3 million and included impairment charges of $40.4 million and hurricane losses of $1.7 million.
Third Quarter Operating Results
Revenue per available room (“RevPAR”) for our 85 consolidated hotels increased 2.6 percent to $97.80, which was driven by increases in both average daily rate (“ADR”) of 0.3 percent and occupancy of 2.3 percent, compared to the same period in 2007. At our 70 hotels where we completed renovations during 2007 and 2008, RevPAR increased 5.4 percent.
“The US economy is experiencing an accelerated downturn, leading to weaker consumer spending and tightened restrictions on corporate travel, which has affected lodging demand. A major priority is to reduce spending to mitigate the current trends by limiting capital and development spending, and restructuring hotel-level costs and general and administrative expenses. This, coupled with the fact that our newly renovated portfolio continues to gain market share, puts us in the best position to manage the downturn,” said Richard A. Smith, FelCor’s President and Chief Executive Officer. “Despite the weakening economic trends, we are pleased that third quarter earnings met our expectations.”
Our Adjusted Funds from Operations (“FFO”) was $28.7 million, or $0.45 per share, compared to Same-Store Adjusted FFO of $25.9 million, or $0.41 per share, and Adjusted FFO (including sold hotels) of $29.9 million, or $0.47 per share, for the same period in 2007. Our Adjusted FFO for the quarter was consistent with our expectations.
Our Hotel EBITDA increased to $75.0 million, compared to $72.4 million in the same period in 2007, a 3.6 percent increase. Hotel EBITDA margin was 27.1 percent, a 45 basis point increase compared to the same period in 2007, which exceeded our expectations.
Our Adjusted EBITDA was $65.1 million compared to Same-Store Adjusted EBITDA of $65.6 million, and Adjusted EBITDA (including sold hotels) of $66.5 million, for the same period in 2007.
Net loss applicable to common stockholders was $51.3 million, or $0.83 per share, compared to a net loss applicable to common stockholders of $1.7 million, or $0.03 per share, for the same period in 2007. Net loss applicable to common stockholders in the third quarter of 2008 included impairment charges of $40.4 million, hurricane losses of $1.7 million and conversion costs of $0.1 million. Net loss in the third quarter of 2007 included $0.4 million gain on sale of condominiums.
EBITDA, Adjusted EBITDA, Same-Store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Same-Store Adjusted FFO are all non-GAAP financial measures. See our discussion of “Non-GAAP Financial Measures” beginning on page 15 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.
Renovations and Development
Overall, our renovated hotels continue to perform consistent with our expectations. For the 70 hotels where we completed renovations during 2007 and 2008, market share increased more than six percent relative to their competitive sets. RevPAR at these hotels increased more than five percent and Hotel EBITDA increased approximately eight percent for the third quarter of 2008, compared to the same period in prior year.
We spent $37.1 million on renovations and redevelopment projects at our hotels, including our pro rata share of joint venture expenditures, during the three months ended September 30, 2008. The redevelopment of our hotel in San Francisco’s Union Square as a Marriott remains on schedule to be completed in early 2009.
As part of our long-term strategic plan, we are focused on growing shareholder value by actively managing our portfolio of hotels. We continually examine each hotel in our portfolio to address issues of market supply, demand patterns, ongoing capital needs and concentration of risk.
We have identified the following eight hotels as candidates for sale:
- Embassy Suites Dallas (DFW International Airport South), Texas
- Embassy Suites Jacksonville (Baymeadows), Florida
- Doubletree Guest Suites Raleigh/Durham, North Carolina
- Holiday Inn Orlando (International Drive), Florida
- Holiday Inn Cocoa Beach (Oceanfront), Florida
- Three unconsolidated Holiday Inn hotels in Kansas
The two Holiday Inn hotels in Florida were originally designated for redevelopment with condominiums. Market conditions in Florida no longer make condominium projects feasible. As a result, we recorded a $40.4 million impairment charge, primarily related to those two hotels, in the third quarter 2008.
Balance Sheet/Debt Maturities
At September 30, 2008, we had $1.5 billion of consolidated debt outstanding with a weighted average interest rate of 6.8 percent and our cash and cash equivalents totaled $59.1 million. At September 30, 2008, we had $172 million available under our $250 million line of credit. We have no scheduled debt maturities for the remainder of 2008.
We have only one significant debt maturity in 2009 – a $118 million non-recourse mortgage loan, secured by seven hotels. We are in discussions with multiple lenders and expect to complete the refinancing prior to the maturity date of April 2009. We currently anticipate that proceeds from the new loan will be higher than the current balance (the current loan is approximately 35% loan-to-value), which will provide the company with additional liquidity.
As a result of the continued deterioration of travel demand, which is expected to continue through 2009, we are very focused on the following to ensure that we mitigate declining revenue until lodging fundamentals stabilize:
- Continue to gain market share as a result of achieving the returns from our renovation program and recapture displacement;
- Work closely with the hotels to retool hotel-level cost structures (including staffing models) to ensure that expenses are being managed as effectively as possible;
- Limit capital expenditures to critical items and postpone new construction of any further redevelopment projects; and
- Reduce corporate general and administrative expenses.
“We have been proactive in taking steps to strengthen our liquidity and balance sheet capacity, including reducing expenses, limiting capital expenditures beyond our current renovation program and reducing our common dividend,” said Andrew J. Welch, FelCor’s Executive Vice President and Chief Financial Officer. “In addition, we are comfortable with refinancing our only near-term debt maturity. We also continue to create shareholder value by recycling our portfolio and expect to use asset sale proceeds to reduce our debt and further enhance our liquidity.”
RevPAR at our 85 consolidated hotels is expected to increase approximately two percent in 2008 and to decline between 3.5 and 5.0 percent in the fourth quarter, compared to the prior year. We continue to expect that RevPAR for our portfolio will increase significantly more than our markets and the industry. Our successful renovation program, which has achieved our expected returns from the capital investments, is driving our comparatively high increase in RevPAR. Our guidance assumes no asset sales.
For full year 2008 we currently anticipate:
- Adjusted EBITDA to be between $273 million and $275 million;
- Adjusted FFO per share to be between $1.93 and $1.96;
- Net Loss to be between $45 million and $47 million;
- Hotel EBITDA margins to increase approximately 20 basis points; and
- Capital expenditures, including redevelopment projects, of approximately $150 million.
FelCor, a real estate investment trust, is the nation’s largest owner of upper-upscale, all-suite hotels. FelCor’s portfolio is comprised of 85 consolidated hotels and resorts, located in 23 states and Canada. FelCor’s portfolio consists primarily of upper-upscale hotels, which are flagged under global brands such as Embassy Suites Hotels®, Doubletree ®, Hilton®, Renaissance®, Sheraton®, Westin® and Holiday Inn®. Additional information can be found on the Company’s Web site at .
We invite you to listen to our third quarter earnings Conference Call on Wednesday, November 5, 2008, at 11:00 a.m. (Central Time). The conference call will be Web cast simultaneously via the Internet on 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 “News” pages. The conference call replay will be archived on the Company’s Web site. A telephonic replay will be available from 1:00 p.m. (Central Time), Wednesday, November 5, 2008 through 5:00 p.m. (Central Time), Friday, November 7, 2008, by dialing (800) 642-1687 (conference ID #70128101).
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,” “should” “will,” “continue” and other similar terms and phrases, including references to assumptions 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. Current economic circumstances or a further economic slowdown and the impact on the lodging industry, operating risks associated with the hotel business, relationships with our property managers, risks associated with our level of indebtedness and our ability to meet debt covenants in our debt agreements, our ability to complete acquisitions and dispositions, the availability of capital, the impact on the travel industry from increased fuel prices and security precautions, 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 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.
Stephen A. Schafer
Vice President of Investor Relations
Phone: (972) 444-4912