FelCor Reports First Quarter Results
- Closed a secured loan that refinanced an existing $116 million secured loan that would have matured on April 1, 2009.
- Adjusted FFO per share was $0.22 and Adjusted EBITDA was $47.4 million for the first quarter, which was at the high end of our expectations.
- Market share increased approximately two percent for the first quarter at our 70 hotels where renovations were completed in 2007 and 2008, which is consistent with our expectations. Market share increased approximately one percent in the first quarter and approximately five percent in April for our 85 consolidated hotels.
- RevPAR decreased 19.6 percent for the first quarter at our 85 consolidated hotels.
- Hotel expenses declined 15.3 percent. Due to strict expense controls at our hotels, we were able to limit revenue reduction flow through to Hotel EBITDA to only 44 percent, compared to the prior year. Hotel EBITDA margins decreased only 395 basis points, which was better than expected.
- Net loss applicable to common stockholders for the first quarter was $30.7 million.
First Quarter Operating Results:
Revenue per available room (“RevPAR”) for our 85 consolidated hotels decreased by 19.6 percent to $81.60, driven by decreases in both average daily rate (“ADR”) (a 9.1 percent decrease to $130.11) and occupancy (an 11.6 percent decrease to 62.7 percent), compared to the same period in 2008.
“We continue to make progress on our initiatives: to reduce operating expenses; improve market share; develop new sources of revenues within our hotels; and ensure that we have adequate liquidity during the downturn. These initiatives produced positive results during the first quarter – portfolio market share increased approximately two percent year-to-date through April, operating margins were better than expected, and we successfully refinanced our only significant 2009 debt maturity. We are also starting to see encouraging demand trends, such as fewer group cancellations and solid leisure demand, with almost 70 percent occupancy on the weekends,” continued Mr. Smith.
Adjusted Funds from Operations (“FFO”) was $13.8 million, or $0.22 per share, compared to Adjusted FFO of $32.1 million, or $0.51 per share, for the same period in 2008.
Hotel EBITDA decreased to $56.7 million, compared to $82.2 million in the same period in 2008. Hotel EBITDA margin was 24.2 percent, a 395 basis point decrease compared to the same period in 2008. Hotel operating expenses decreased 15.3 percent compared to prior year. This decline reflects various factors, including: decreases in labor costs, which includes permanent reductions related to a decrease in hotel departmental employees; decreases in other room expenses, such as guest transportation and in-room amenities; decreases in incentive management fees; and greater efficiencies in the food and beverage outlets. Prior to accounting for property taxes, insurance and land leases, Hotel EBITDA margins declined only 294 basis points. Hotel EBITDA represents 100 percent of the EBITDA generated by our hotels before corporate expenses and joint venture adjustments.
Adjusted EBITDA was $47.4 million, compared to $71.2 million for the same period in 2008.
Net loss applicable to common stockholders was $30.7 million, or $0.49 per share, compared to $22.2 million, or $0.36 per share, for the same period in 2008. Net loss applicable to common stockholders in the first quarter of 2009 included impairment charges of $3.5 million ($1.4 million related to a consolidated hotel and $2.1 million related to an unconsolidated entity), and the first quarter of 2008 included a $17.1 million impairment charge.
EBITDA, Adjusted 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 14 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.
At March 31, 2009, we had $1.6 billion of consolidated debt outstanding with a weighted average interest rate of 5.5 percent, our cash and cash equivalents totaled $53.0 million, and we had $128 million drawn on our $250 million line of credit. We remain in compliance with the financial covenants on our line of credit.
We have agreed in principle on the material terms with the lead lender for a new $200 million term loan, which will be secured by mortgages on nine currently unencumbered hotels and, assuming all extension options are exercised, will not mature until 2013. This loan would not be subject to any corporate financial covenants. We expect to use the proceeds from this loan for general working capital purposes and to repay the outstanding balance on our line of credit (which will be cancelled upon repayment). We expect to close this new loan, subject to final documentation, due diligence and customary conditions, by the end of May.
During the first quarter, we closed a non-recourse, secured loan with Prudential Mortgage Capital Company. The new loan replaces an existing $116 million mortgage loan that would have matured April 1, 2009. The loan is secured by mortgages on seven hotels, matures in 2014 and bears annual interest of 9.02 percent. We are in preliminary discussions with potential lenders regarding our debt that matures in 2010 and 2011.
We suspended dividend payments on our Series A Cumulative Convertible Preferred Stock and our Series C Cumulative Redeemable Preferred Stock in March 2009. Our unpaid preferred dividends continue to accrue, and accrued preferred dividends must be paid in full prior to paying any common dividends. Suspending our dividend payments reflects our continued focus on preserving liquidity. By suspending preferred dividends, we will preserve approximately $10 million of liquidity per quarter. We do not anticipate that we will be required to pay any further dividends in 2009 to maintain our REIT status.
“We are taking steps to ensure adequate liquidity and extend our debt maturities. We refinanced our maturing loan with Prudential and have reached agreement on the principle terms to obtain a new secured loan with no corporate financial covenants. We are pleased that we will have eliminated our near-term maturity and are currently working on a plan to address our debt that matures in 2010 and 2011. Additionally, we have suspended dividend payments, postponed further redevelopment spending, improved our cost structure through hotel expense reductions and reduced corporate expenses, all of which we expect will result in positive cash flow during 2009 prior to debt repayments,” said Andrew J. Welch, FelCor’s Executive Vice President and Chief Financial Officer.
Capital Expenditures and Development:
We spent $26 million on renovations and redevelopment projects at our hotels, including our pro rata share of joint venture expenditures, during first quarter 2009.
Overall, our renovated hotels continue to perform consistent with our expectations. Market share at our 70 hotels where we completed renovations during 2007 and 2008 increased by approximately two percent for the quarter, compared to the same period in the prior year. Market share increased approximately one percent in the first quarter and approximately five percent in April for our 85 consolidated hotels.
RevPAR at our San Francisco Marriott Union Square hotel decreased by 44 percent during the first quarter. On April 1, 2009, this property was reflagged as a Marriott following a comprehensive redevelopment of the hotel. We will complete the remaining portion of the public area renovation by the end of June 2009. RevPAR increased more than 40 percent in April, compared to prior year, and we expect that level of RevPAR improvement to continue.
During the first quarter, we sold the Ramada Hotel in Hays, Kansas for $3.0 million. Subsequent to the end of the quarter, we sold the Holiday Inn in Salina, Kansas for $2.5 million. These hotels were part of an unconsolidated joint venture with one other hotel that is currently being marketed for sale. Combined Hotel EBITDA for the two sold hotels totaled less than $400,000 during 2008. The proceeds from the sale of the hotels were used to repay a portion of the joint venture’s mortgage loan. The remaining hotels we previously identified as non-strategic are currently being marketed for sale.
As a result of the continued deterioration of lodging demand, we now expect RevPAR to decline more than our previous guidance. However, our FFO and EBITDA outlook remains unchanged as a result of our strict expense controls, which offset the decline in RevPAR. While we expect RevPAR to decline sharply in 2009, our portfolio will benefit from the renovations we completed in 2008 and the redevelopment of our San Francisco Marriott Union Square hotel. Therefore, we expect our portfolio to grow market share by an average of more than one percent relative to its competitive sets.
Assuming full year 2009 RevPAR for our 85 consolidated hotels decreases between 12 and 14 percent, we anticipate:
- Adjusted EBITDA to be between $200 million and $213 million;
- Adjusted FFO per share to be between $0.76 and $1.00;
- Net Loss to be between $62 million and $77 million; and
- Interest expense to be between $105 million and $107 million.
FelCor, a real estate investment trust, is the nation’s largest owner of upper-upscale, all-suite hotels. FelCor owns interests in 87 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®, Marriott®, Renaissance®, Sheraton®, Westin® and Holiday Inn®. Additional information can be found on the Company’s Web site at www.felcor.com.
We invite you to listen to our first quarter earnings Conference Call on Friday, May 8, 2009, 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.
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, dispositions and debt refinancing, 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