FelCor Reports Second Quarter Results
- Closed a $200 million secured term loan.
- Repaid and terminated our line of credit facility, eliminating restrictive corporate financial covenants.
- Adjusted FFO per share was $0.33 for the second quarter, which met our low-end of expectations. Adjusted EBITDA was $55.9 million.
- Increased market share two percent for the second quarter at our 85 consolidated hotels.
- RevPAR decreased 20.6 percent for the second quarter at our 85 consolidated hotels and 20.1 percent year-to-date through June.
- Hotel expenses declined 14.6 percent during the second quarter. Due to strict expense controls at our hotels, we were able to limit the effect of reduced revenue on flow-through to Hotel EBITDA to 53 percent compared to the prior year, and only 27 percent compared to budget. Hotel EBITDA margin decreased 534 basis points, which was better than expected.
- Completed the redevelopment at our San Francisco Marriott Union Square hotel in June. RevPAR and market share have been exceeding expectations.
- Net loss applicable to common stockholders for the second quarter was $20.9 million.
Second Quarter Operating Results:
Revenue per available room (“RevPAR”) for our 85 consolidated hotels decreased by 20.6 percent to $84.01, driven by decreases in both average daily rate (“ADR”) (an 11.6 percent decrease to $122.14) and occupancy (a 10.1 percent decrease to 68.8 percent), compared to the same period in 2008.
“We expected year-over-year RevPAR comparisons to ease somewhat beginning in May 2009, but that did not occur until July. As a result, Adjusted EBITDA was lower than anticipated during the second quarter. However, our portfolio continued to gain market share and our margins were better than expected. We are encouraged by the recent improvement in the economic indicators, including consumer confidence, unemployment claims, home prices and industrial manufacturing, which should lead to higher demand. Furthermore, supply growth for the industry has peaked. As a result, our RevPAR in July decreased only 15 percent to prior year, compared to 20 percent in June and 22 percent in May. However, we remain cautious, as the timing of the recovery is difficult to predict, and visibility into future demand trends remains low. We will continue to focus on our goals to improve market share, which include maintaining rate integrity and working with our operators to achieve the most efficient cost structure in the face of deteriorating lodging demand,” continued Mr. Smith.
Adjusted Funds from Operations (“FFO”) was $20.9 million, or $0.33 per share, compared to Adjusted FFO of $49.5 million, or $0.76 per share, for the same period in 2008.
Hotel EBITDA decreased to $64.1 million, compared to $97.4 million in the same period in 2008. Hotel EBITDA margin was 26.6 percent, a 534 basis point decrease compared to the same period in 2008. Hotel operating expenses decreased 14.6 percent compared to prior year. This decline reflects various factors, including: decreased labor costs, including permanent hotel staffing reductions; decreased other room expenses, such as guest transportation and in-room amenities; decreased incentive management fees; and improved efficiencies in the food and beverage outlets. Prior to accounting for taxes, insurance and land leases, Hotel EBITDA margins declined only 359 basis points. Hotel EBITDA represents EBITDA generated by our hotels before corporate expenses and joint venture adjustments.
Adjusted EBITDA was $55.9 million, compared to $87.2 million for the same period in 2008.
Net loss applicable to common stockholders was $20.9 million, or $0.33 per share, compared to net income of $13.6 million, or $0.21 per share, for the same period in 2008.
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 13 for a reconciliation of each of these measures to the most comparable GAAP financial measure and for information regarding the use, limitations and importance of these non-GAAP financial measures.
At June 30, 2009, we had $1.6 billion of consolidated debt outstanding with a weighted average interest rate of 5.6 percent, and our cash and cash equivalents totaled $118.5 million.
In June, we closed a $200 million secured term loan. Proceeds of the new loan will be used for general corporate purposes. The new loan is non-recourse and secured by nine hotels. The loan bears interest at LIBOR plus 350 basis points, has a 65 percent loan to appraised value ratio and matures in 2013, including two one-year extension options. We also repaid all of our outstanding obligations (totaling $128 million) under our line of credit, which we then terminated.
“We are pleased to have closed this loan in a very challenging environment. This new loan extends our maturity profile and provides additional cash on hand. We also were able to eliminate restrictive covenants by terminating our line of credit. Our attention now turns to the debt that matures in 2010 and 2011. We have engaged in discussions with various lenders and bankers to modify and/or extend, or refinance this debt,” said Andrew J. Welch, FelCor’s Executive Vice President and Chief Financial Officer.
Capital Expenditures and Development:
For the quarter and six months ended June 30, 2009, we spent $22 million and $48 million, respectively, on capital expenditures at our hotels (including our pro rata share of joint ventures). Included in the capital expenditures are $11 million and $25 million, respectively, to complete our renovation and redevelopment projects.
In June, we completed the final phase of the comprehensive redevelopment at our San Francisco Marriott Union Square hotel. Second quarter RevPAR (under the Marriott flag) increased 21 percent at this hotel, compared to the prior year, and its market share increased by 82 percent, exceeding expectations. The market share index at this hotel was 109 percent in the second quarter compared to 79 percent in 2006 (prior to its renovation).
As a result of the continued deterioration of lodging demand, we now expect our RevPAR to decline more than our previous guidance. However, our revised FFO outlook reflects the positive impact of our strict expense controls and lower interest expense, which offsets 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.
Assuming full-year 2009 RevPAR for our 85 consolidated hotels decreases between 17 and 15 percent, we anticipate:
- Adjusted EBITDA to be between $188 million and $196 million;
- Adjusted FFO per share to be between $0.74 and $0.86;
- Net loss to be between $82 million and $74 million; and
- Interest expense to be approximately $97 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 - Embassy Suites Hotels®, Doubletree®, Hilton®, Marriott®, 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 second quarter earnings Conference Call on Thursday, August 6, 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
VP Strategic Planning & Investor Relations