FelCor Results

FelCor First Quarter 2017 Hotel Revenues Decline

FelCor Reports First Quarter 2017 Earnings

FelCor

FelCor Lodging Trust Incorporated (NYSE: FCH) today reported results for the first quarter ended March 31, 2017.

First Quarter Highlights

  • Same-store RevPAR was $142.15 compared to $143.97 for the same period in 2016.
  • Net loss attributable to FelCor common stockholders was $42.2 million ($0.31 per share) versus $11.2 million ($0.08 per share) for the same period in 2016.
  • Adjusted FFO per share was $0.09 versus $0.14 for the same period in 2016.
  • Same-store Adjusted EBITDA was $40.1 million versus $43.1 million for the same period in 2016.

“Since our last earnings release, we have continued on our path to recognize and realize the value of our portfolio for all our stockholders,” said Steven R. Goldman, FelCor’s Chief Executive Officer. “Adjusted FFO per share and Adjusted EBITDA for the quarter were in line with our expectations and speak to the quality of our portfolio and its ability to withstand some challenging market conditions.”

“Following the end of the quarter, in addition to the recent merger announcement with RLJ, we finalized agreements to sell Morgans and Royalton in New York City,” continued Mr. Goldman. “For the remainder of the year, we remain focused on operating the business and working to complete our merger with RLJ.”

First Quarter Hotel Results

      First Quarter
        2017         2016       Change
Same-store hotels (38)                  
RevPAR     $ 142.15       $ 143.97       (1.3 )%
Total hotel revenue, in millions     $ 187.4       $ 190.4       (1.6 )%
Hotel EBITDA, in millions     $ 45.2       $ 48.1       (6.1 )%
Hotel EBITDA margin       24.1 %       25.3 %     (116) bps
                           

RevPAR for our 38 same-store hotels decreased 1.3% (to $142.15) from the same period in 2016. The change reflects reductions of 0.1% in average daily rate, or ADR, (to $189.63) and 1.2% in occupancy (to 75.0%). Hotel EBITDA for our 38 same-store hotels decreased 6.1% to $45.2 million, and Hotel EBITDA margin was 24.1%, a 116 basis point decrease. Our RevPAR performance during the quarter was particularly impacted by certain underperforming markets, mainly New York, Boston, San Francisco and Miami. We were able to offset much of the RevPAR weakness through effective cost controls and the Wyndham guaranty.

Wyndham Worldwide Corporation has guaranteed minimum annual NOI for eight of our hotels over the 10-year term of their management agreements. Hotel EBITDA for the three months ended March 31, 2017 includes $1.0 million in fee reductions related to the Wyndham guaranty compared to $48,000 during the same period last year.

First Quarter Operating Results

      First Quarter
$ in millions, except for per share information       2017       2016     Change
Net loss attributable to FelCor common stockholders     $ (42.2 )   $ (11.2 )     (276.7 )%
Net loss per share     $ (0.31 )   $ (0.08 )   $ (0.23 )
Same-store Adjusted EBITDA     $ 40.1     $ 43.1       (7.0 )%
Adjusted EBITDA     $ 40.2     $ 49.0       (17.9 )%
Adjusted FFO per share     $ 0.09     $ 0.14     $ (0.05 )
                           

Net loss attributable to common stockholders was $42.2 million ($0.31 per share) in 2017, compared to $11.2 million ($0.08 per share) for the same period in 2016. Net loss in 2017 includes an impairment charge of $24.8 million attributable to one hotel.

EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Adjusted FFO per share 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 the most comparable GAAP financial measure and for information regarding the use, limitations and importance of these non-GAAP financial measures.

Balance Sheet

As of March 31, 2017, we had $1.4 billion of consolidated debt with a 5.4% weighted-average interest rate and a six-year weighted-average maturity. We had $50.2 million of cash and cash equivalents on hand and $22.3 million of restricted cash.

Asset Sales

In April and May 2017, we entered into binding agreements for the sale of Morgans and Royalton for a combined price of $92 million. We continue to market The Knickerbocker.

Common Dividend

We paid our first quarter common stock dividend of $0.06 per share at the end of April.

Capital Expenditures

In 2016, we began redeveloping two resort properties (The Vinoy Renaissance St. Petersburg Resort & Golf Club and Embassy Suites Myrtle Beach-Oceanfront Resort). We expect to complete our Myrtle Beach project this month, as scheduled and under budget. These redevelopments are intended to enhance our portfolio quality and offer attractive returns. We spent $19.6 million on renovations and redevelopments at our hotels during the first quarter of 2017.

Outlook

In the first quarter of 2017, our Adjusted FFO per share and Adjusted EBITDA met the expectations on which we based our full-year guidance. We are reaffirming the guidance we provided in our February 23, 2017 earnings release. We do not plan to provide any further updates to our guidance for the remainder of the year, given our pending merger.

RLJ Transaction

On April 24, 2017, we announced that we had entered into a definitive merger agreement under which we will merge with and into a wholly-owned subsidiary of RLJ in an all-stock transaction. At closing, our stockholders are expected to receive 0.362 RLJ common shares for each share of our common stock. The transaction is expected to close by the end of 2017 and is subject to customary closing conditions, including the approval of both companies’ shareholders.

“We believe our recently-announced merger with RLJ will create long-term value for FelCor stockholders,” said Mr. Goldman. “The combined company’s growth profile will make it a formidable competitor among lodging REITs. It will have approximately $7 billion in assets, strong and efficient cash flow margins, and the financial strength and long-term flexibility to grow through accretive acquisitions and continually prune its portfolio to improve the quality of its earnings.”

Mr. Goldman continued, “The RLJ team is committed, experienced, and a proven leader in the lodging industry. I am very pleased for our stockholders - and for RLJ’s shareholders, as this transaction provides meaningful value for all.”

About FelCor

FelCor Lodging Trust Incorporated, a real estate investment trust, owns a diversified portfolio of primarily upper-upscale and luxury hotels that are located in major markets and resort locations throughout the U.S. FelCor partners with top hotel companies that operate its properties under globally renowned names and as premier independent hotels. 

Important Information for Investors and Stockholders

In connection with the proposed merger, RLJ expects to file with the SEC a registration statement on Form S-4 that will include a joint proxy statement of RLJ and FelCor that also constitutes a prospectus of RLJ, which joint proxy statement/prospectus will be mailed or otherwise disseminated to RLJ shareholders and FelCor stockholders when it becomes available. RLJ and FelCor also plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy statement/prospectus and other relevant documents (if and when they become available) filed by RLJ and FelCor with the SEC at the SEC’s website at www.sec.gov. Copies of the documents filed by RLJ with the SEC will be available free of charge on RLJ’s website at www.rljlodgingtrust.com or by emailing RLJ Investor Relations at ir@rljlodgingtrust.com or calling 301-280-7774. Copies of the documents filed by FelCor with the SEC will be available free of charge on FelCor’s website at www.felcor.com or by contacting FelCor Investor Relations at asalami@felcor.com or calling 972-444-4967.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

Participants in the Solicitation

RLJ and FelCor and their respective trustees, directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed merger. You can find information about RLJ’s executive officers and trustees in RLJ’s definitive proxy statement filed with the SEC on March 28, 2017 in connection with its 2017 annual meeting of shareholders and in Form 4s of RLJ’s trustees and executive officers filed with the SEC. You can find information about FelCor’s executive officers and directors in FelCor’s Form 10-K/A filed with the SEC on April 28, 2017. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus and other relevant documents filed with the SEC if and when they become available. You may obtain free copies of these documents from RLJ or FelCor using the sources indicated above.

SUPPLEMENTAL INFORMATION

INTRODUCTION

The following information is presented in order to help our investors understand FelCor’s financial position as of and for the three months ended March 31, 2017.

 

TABLE OF CONTENTS

 
      Page  
Consolidated Statements of Operations(a)  

8

Consolidated Balance Sheets(a) 9
Consolidated Debt Summary 10
Schedule of Encumbered Hotels 11
Capital Expenditures 11
Total Enterprise Value 12
Hotel Operating Statistics 13
Historical Quarterly Operating Statistics 14
Non-GAAP Financial Measures 14
 
 
Consolidated Statements of Operations

(in thousands, except per share data)

 
    Three Months Ended
March 31,
  2017         2016  
Revenues:
Hotel operating revenue:
Room $ 144,933 $ 159,076
Food and beverage 32,074 39,532
Other operating departments 10,689 10,849
Other revenue   408     687  
Total revenues   188,104     210,144  
Expenses:
Hotel departmental expenses:
Room 40,678 42,699
Food and beverage 26,222 30,956
Other operating departments 3,533 3,783
Other property-related costs 50,855 55,566
Management and franchise fees 7,550 9,225
Taxes, insurance and lease expense 13,902 13,582
Corporate expenses 6,940 8,400
Depreciation and amortization 27,838 29,183
Impairment 24,838
Other expenses   1,260     828  
Total operating expenses   203,616     194,222  
Operating income (loss) (15,512 ) 15,922
Interest expense, net   (19,286 )   (19,720 )
Loss before equity in loss from unconsolidated entities (34,798 ) (3,798 )
Equity in loss from unconsolidated entities   (130 )   (154 )
Loss from continuing operations before income tax (34,928 ) (3,952 )
Income tax   (547 )   (415 )
Loss from continuing operations before loss on sale of hotels (35,475 ) (4,367 )
Loss on sale of hotels   (666 )     (714 )
Net loss and comprehensive loss (36,141 ) (5,081 )
Net loss attributable to noncontrolling interests in other partnerships 404 471
Net loss attributable to redeemable noncontrolling interests in FelCor LP 186 48
Preferred distributions - consolidated joint venture   (360 )   (360 )
Net loss and comprehensive loss attributable to FelCor (35,911 ) (4,922 )
Preferred dividends   (6,279 )   (6,279 )
Net loss attributable to FelCor common stockholders $ (42,190 ) $ (11,201 )
Basic and diluted per common share data:
Net loss $ (0.31 ) $ (0.08 )
Basic and diluted weighted average common shares outstanding   137,778     139,678  
 
 
Consolidated Balance Sheets

(in thousands, except par values)

 
    March 31,     December 31,
  2017     2016  
Assets
Investment in hotels, net of accumulated depreciation of $945,449 and $932,886 at March 31, 2017 and December 31, 2016, respectively $ 1,535,718 $ 1,566,823
Investment in unconsolidated entities 7,532 8,312
Cash and cash equivalents 50,235 47,317
Restricted cash 22,319 19,491
Accounts receivable, net of allowance for doubtful accounts of $148 and $177 at March 31, 2017 and December 31, 2016, respectively 40,976 42,080
Deferred expenses, net of accumulated amortization of $3,427 and $2,959 at March 31, 2017 and December 31, 2016, respectively 4,059 4,527
Other assets   19,326     18,542  
Total assets $ 1,680,165   $ 1,707,092  
Liabilities and Equity
Debt, net of unamortized debt issuance costs of $15,389 and $15,967 at March 31, 2017 and December 31, 2016, respectively $ 1,354,187 $ 1,338,326
Distributions payable 14,853 14,858
Accrued expenses and other liabilities   123,505     116,437  
Total liabilities   1,492,545     1,469,621  
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP, 610 units issued and outstanding at March 31, 2017 and December 31, 2016   4,583     4,888  
Equity:
Preferred stock, $0.01 par value, 20,000 shares authorized:
Series A Cumulative Convertible Preferred Stock, 12,879 shares, liquidation value of $321,987, issued and outstanding at March 31, 2017 and December 31, 2016 309,337 309,337
Common stock, $0.01 par value, 200,000 shares authorized; 138,409 and 137,990 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively 1,384 1,380
Additional paid-in capital 2,579,066 2,576,988
Accumulated deficit   (2,757,732 )   (2,706,408 )
Total FelCor stockholders’ equity 132,055 181,297
Noncontrolling interests in other partnerships 7,199 7,503
Preferred equity in consolidated joint venture, liquidation value of $44,694 and $44,667 at March 31, 2017 and December 31, 2016, respectively   43,783     43,783  
Total equity   183,037     232,583  
Total liabilities and equity $ 1,680,165   $ 1,707,092  
 
 
Consolidated Debt Summary

(dollars in thousands)

 
    Encumbered     Interest         March 31,     December 31,
Hotels Rate (%) Maturity Date 2017 2016
Senior unsecured notes   6.00 June 2025 $ 475,000 $ 475,000
Senior secured notes 9 5.625 March 2023 525,000 525,000
Mortgage debt(a) 4 4.95 October 2022 119,536 120,109
Mortgage debt 1 4.94 October 2022 30,040 30,184
Line of credit(b) 7 LIBOR + 2.75 June 2019 135,000 119,000
Mortgage debt(c) 1   LIBOR + 3.00 November 2017   85,000     85,000  
Total 22   $ 1,369,576 $ 1,354,293
Unamortized debt issuance costs   (15,389 )   (15,967 )
Debt, net of unamortized debt issuance costs $ 1,354,187   $ 1,338,326  
 
 
Schedule of Encumbered Hotels

(dollars in millions)

 
Consolidated        
Debt March 31, 2017 Encumbered Hotels
Senior secured notes   $ 525   Atlanta Buckhead - ES, Boston Marlboro - ES, Burlington - SH, Dallas Love Field - ES, Milpitas - ES, Myrtle Beach Resort - HIL, Orlando South - ES, Philadelphia Society Hill - SH and SF South San Francisco - ES
Mortgage debt $ 27 Napa Valley - ES
Mortgage debt $ 34 Ft. Lauderdale - ES
Mortgage debt $ 23 Birmingham - ES
Mortgage debt $ 36 Minneapolis Airport - ES
Mortgage debt $ 30 Deerfield Beach - ES
Line of credit $ 135 Austin - DTG, Boston Copley - FM, Charleston Mills House - WYN, LA LAX S - ES, Santa Monica at the Pier - WYN, SF Union Square - MAR and St. Petersburg Vinoy - REN
Mortgage debt $ 85 The Knickerbocker
 
 
Capital Expenditures

(dollars in thousands)

 
    Three Months Ended
March 31,
  2017         2016  
Improvements and additions to majority-owned hotels $ 19,462 $ 14,008
Partners’ pro rata share of additions to consolidated joint venture hotels (34 ) (27 )
Pro rata share of additions to unconsolidated hotels   189     257  
Total additions to hotels(a) $ 19,617   $ 14,238  
 
 
Total Enterprise Value

(in thousands, except per share data)

 
    March 31,     December 31,
  2017     2016  
Common shares outstanding 138,409 137,990
Units outstanding   610     610  
Combined shares and units outstanding 139,019 138,600
Common stock price $ 7.51   $ 8.01  
Market capitalization $ 1,044,033 $ 1,110,186
Series A preferred stock(a) 321,987 321,987
Preferred equity - Knickerbocker joint venture, net 41,594 41,594
Consolidated debt (b) 1,369,576 1,354,293
Noncontrolling interests of consolidated debt (4,250 ) (4,250 )
Pro rata share of unconsolidated debt 11,096 11,167
Cash, cash equivalents and restricted cash   (72,554 )   (66,808 )
Total enterprise value (TEV) $ 2,711,482   $ 2,768,169  
 
 

Hotel Operating Statistics

 
    Occupancy (%)     ADR ($)     RevPAR ($)
Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31,
Same-store Hotels 2017     2016     %Change 2017     2016     %Change   2017     2016     %Change
Embassy Suites Atlanta-Buckhead 73.4 80.9 (9.4 ) 165.91 159.13 4.3 121.70 128.79 (5.5 )
DoubleTree Suites by Hilton Austin 85.3 82.8 3.0 251.65 240.06 4.8 214.75 198.87 8.0
Embassy Suites Birmingham 79.3 80.7 (1.6 ) 133.91 133.82 0.1 106.25 107.92 (1.6 )
The Fairmont Copley Plaza, Boston 62.3 64.0 (2.6 ) 245.20 252.18 (2.8 ) 152.80 161.36 (5.3 )
Wyndham Boston Beacon Hill 73.1 63.8 14.7 149.02 164.42 (9.4 ) 108.99 104.87 3.9
Embassy Suites Boston-Marlborough 57.0 64.8 (12.0 ) 160.42 167.60 (4.3 ) 91.49 108.56 (15.7 )
Sheraton Burlington Hotel & Conference Center 63.6 68.5 (7.2 ) 91.82 93.17 (1.4 ) 58.43 63.86 (8.5 )
The Mills House Wyndham Grand Hotel, Charleston 77.0 78.1 (1.3 ) 219.17 205.75 6.5 168.80 160.63 5.1
Embassy Suites Dallas-Love Field 78.9 85.3 (7.4 ) 153.71 143.51 7.1 121.35 122.36 (0.8 )
Embassy Suites Deerfield Beach-Resort & Spa 83.5 88.2 (5.4 ) 253.56 269.69 (6.0 ) 211.69 237.96 (11.0 )
Embassy Suites Fort Lauderdale 17th Street 87.3 93.4 (6.5 ) 236.33 231.31 2.2 206.43 215.99 (4.4 )
Wyndham Houston-Medical Center Hotel & Suites 77.7 86.0 (9.7 ) 163.88 159.64 2.7 127.30 137.32 (7.3 )
The Knickerbocker- New York 69.5 58.5 18.8 270.32 264.35 2.3 187.97 154.74 21.5
Embassy Suites Los Angeles-International Airport/South 89.8 90.0 (0.2 ) 171.13 162.70 5.2 153.73 146.41 5.0
Embassy Suites Mandalay Beach-Hotel & Resort 74.4 76.7 (3.0 ) 186.58 207.31 (10.0 ) 138.84 158.98 (12.7 )
Embassy Suites Miami-International Airport 85.7 91.5 (6.3 ) 182.81 197.22 (7.3 ) 156.74 180.41 (13.1 )
Embassy Suites Milpitas-Silicon Valley 79.8 80.8 (1.2 ) 200.18 211.62 (5.4 ) 159.78 170.92 (6.5 )
Embassy Suites Minneapolis-Airport 66.4 68.7 (3.4 ) 135.95 143.73 (5.4 ) 90.27 98.80 (8.6 )
Embassy Suites Myrtle Beach-Oceanfront Resort 65.6 68.6 (4.3 ) 129.18 129.48 (0.2 ) 84.79 88.83 (4.5 )
Hilton Myrtle Beach Resort 45.5 48.1 (5.4 ) 107.81 106.90 0.8 49.11 51.47 (4.6 )
Embassy Suites Napa Valley 73.2 79.9 (8.4 ) 191.45 182.08 5.1 140.15 145.56 (3.7 )
Wyndham New Orleans-French Quarter 78.1 73.7 6.0 160.31 155.37 3.2 125.23 114.53 9.3
Morgans New York 75.9 72.9 4.2 184.26 212.76 (13.4 ) 139.83 155.01 (9.8 )
Royalton New York 74.5 76.2 (2.3 ) 216.27 237.95 (9.1 ) 161.11 181.40 (11.2 )
Embassy Suites Orlando-International Drive South/Convention Center 81.2 88.1 (7.9 ) 186.16 176.25 5.6 151.10 155.36 (2.7 )
DoubleTree Suites by Hilton Orlando-Lake Buena Vista 89.9 92.3 (2.6 ) 162.75 165.40 (1.6 ) 146.32 152.60 (4.1 )
Wyndham Philadelphia Historic District 59.8 55.0 8.7 124.29 125.93 (1.3 ) 74.29 69.26 7.3
Sheraton Philadelphia Society Hill Hotel 56.4 55.0 2.4 151.09 151.24 (0.1 ) 85.16 83.24 2.3
Embassy Suites Phoenix-Biltmore 77.0 78.0 (1.3 ) 229.70 243.29 (5.6 ) 176.88 189.88 (6.8 )
Wyndham Pittsburgh University Center 60.8 55.4 9.8 131.56 132.08 (0.4 ) 80.05 73.21 9.4
Wyndham San Diego Bayside 79.2 77.5 2.2 157.83 137.19 15.0 124.99 106.31 17.6
Embassy Suites San Francisco Airport-South San Francisco 85.5 85.4 0.1 200.19 197.13 1.6 171.15 168.39 1.6
Embassy Suites San Francisco Airport-Waterfront 84.7 85.3 (0.7 ) 214.24 204.40 4.8 181.36 174.25 4.1
Holiday Inn San Francisco-Fisherman’s Wharf 84.9 82.0 3.6 185.45 194.67 (4.7 ) 157.53 159.58 (1.3 )
San Francisco Marriott Union Square 83.3 88.6 (6.0 ) 321.37 319.58 0.6 267.59 283.21 (5.5 )
Wyndham Santa Monica at the Pier 84.1 87.8 (4.2 ) 255.78 258.44 (1.0 ) 215.04 226.83 (5.2 )
Embassy Suites Secaucus-Meadowlands 60.2 54.6 10.2 167.01 171.47 (2.6 ) 100.48 93.62 7.3
The Vinoy Renaissance St. Petersburg Resort & Golf Club 86.2 88.2 (2.2 ) 264.31 256.26 3.1   227.86 225.92 0.9  
Same-store Hotels 75.0 75.9 (1.2 ) 189.63 189.76 (0.1 ) 142.15 143.97 (1.3 )
 
 

Historical Quarterly Operating Statistics

 
    Occupancy (%)
Q1 2016     Q2 2016     Q3 2016     Q4 2016     Q1 2017
Same-store hotels(a) 75.9 83.0 82.0 73.5 75.0
 
ADR ($)
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
Same-store hotels(a) 189.76 200.24 199.99 192.05 189.63
 
RevPAR ($)
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
Same-store hotels(a) 143.97 166.13 163.92 141.11 142.15

Non-GAAP Financial Measures

We refer in this release to certain “non-GAAP financial measures.” These measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with generally accepted accounting principles (“GAAP”). The following tables reconcile each of these non-GAAP measures to the most comparable GAAP financial measure. Immediately following the reconciliations, we include a discussion of why we believe these measures are useful supplemental measures of our performance and the limitations of such measures.

 
 
Reconciliation of Net Loss to FFO and Adjusted FFO

(in thousands, except per share data)

 
    Three Months Ended March 31,
2017     2016
        Per         Per
Share Share
Dollars Shares Amount Dollars Shares Amount
Net loss $ (36,141 ) $ (5,081 )
Noncontrolling interests 590 519
Preferred distributions - consolidated joint venture (360 ) (360 )
Preferred dividends   (6,279 )   (6,279 )
Net loss attributable to FelCor common stockholders (42,190 ) (11,201 )
Less: Dividends declared on unvested restricted stock   (37 )   (38 )
Basic and diluted earnings per share data (42,227 ) 137,778 $ (0.31) (11,239 ) 139,678 $ (0.08)
Depreciation and amortization 27,838 0.20 29,183 0.22
Depreciation, unconsolidated entities and other partnerships 455 467
Impairment 24,838 0.18
Loss on sale of hotels 666 0.01 714
Noncontrolling interests in FelCor LP (186 ) 610 (48 ) 611
Dividends declared on unvested restricted stock 37 55 38 8
Conversion of unvested restricted stock units     207       619
FFO* 11,421 138,650 0.08 19,115 140,916 0.14
Hurricane loss 17
Hurricane loss, unconsolidated entities 4
Cost of potential transaction 473 0.01
Abandoned projects 232
Variable stock compensation 761
Pre-opening costs   132       54  
Adjusted FFO* $ 12,047   138,650 $ 0.09 $ 20,162   140,916 $ 0.14
 
 
Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA

(in thousands)

 
    Three Months Ended
March 31,
  2017         2016  
Net loss $ (36,141 ) $ (5,081 )
Depreciation and amortization 27,838 29,183
Depreciation, unconsolidated entities and other partnerships 455 467
Interest expense 19,319 19,732
Interest expense, unconsolidated entities and other partnerships 84 99
Income tax 547 415
Noncontrolling interests in preferred distributions, consolidated joint venture (18 ) (18 )
Noncontrolling interests in other partnerships   404     471  
EBITDA* 12,488 45,268
Impairment 24,838
Hurricane loss 17
Hurricane loss, unconsolidated entities 4
Loss on sale of hotels 666 714
Amortization of fixed stock and directors’ compensation 1,593 1,935
Cost of potential transaction 473
Abandoned projects 232
Variable stock compensation 761
Pre-opening costs   132     54  
Adjusted EBITDA* 40,211 48,964
Adjusted EBITDA from sold hotels   (146 )   (5,881 )
Same-store Adjusted EBITDA* $ 40,065   $ 43,083  
 
 
Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)

 
    Three Months Ended
March 31,
  2017         2016  
Same-store operating revenue:
Room $ 144,933 $ 148,423
Food and beverage 32,074 31,990
Other operating departments   10,415     10,027  
Same-store operating revenue 187,422 190,440
 
Same-store operating expense:
Room 40,669 40,417
Food and beverage 26,221 26,284
Other operating departments 3,533 3,489
Other property-related costs 50,863 51,011
Management and franchise fees 7,424 8,459
Taxes, insurance and lease expense   13,525     12,665  
Same-store operating expense   142,235     142,325  
Hotel EBITDA $ 45,187   $ 48,115  
Hotel EBITDA Margin 24.1 % 25.3 %
 
 

The following tables set forth the components of our Hotel EBITDA for our same-store hotels (dollars in thousands):

 
   

Three months ended March 31, 2017

Hotel Operating     Net Income     Other         Interest     Hotel     Hotel EBITDA

Same-store Hotels

Revenue (Loss) Adjustments Depreciation Expense EBITDA Margin
Embassy Suites Atlanta-Buckhead $ 3,838 $ 1,027 $   $ 519 $ $ 1,546 40.3 %
DoubleTree Suites by Hilton Austin 4,466 1,441 465 152 2,058 46.1 %
Embassy Suites Birmingham 2,462 125 400 290 815 33.1 %
The Fairmont Copley Plaza, Boston 9,607 (4,020 ) 2,233 388 (1,399 ) (14.6 )%
Wyndham Boston Beacon Hill 3,594 (374 ) 986 612 17.0 %
Embassy Suites Boston-Marlborough 2,166 167 288 455 21.0 %
Sheraton Burlington Hotel & Conference Center 2,554 (429 ) 620 191 7.5 %
The Mills House Wyndham Grand Hotel, Charleston 4,676 860 617 199 1,676 35.8 %
Embassy Suites Dallas-Love Field 3,132 353 607 960 30.7 %
Embassy Suites Deerfield Beach-Resort & Spa 5,621 1,785 469 388 2,642 47.0 %
Embassy Suites Fort Lauderdale 17th Street 7,665 2,340 714 436 3,490 45.5 %
Wyndham Houston-Medical Center Hotel & Suites 3,709 1,155 (19 ) 541 1,677 45.2 %
The Knickerbocker-New York 7,581 (4,845 ) 699 2,565 920 (661 ) (8.7 )%
Embassy Suites Los Angeles-International Airport/South 5,908 1,452 628 228 2,308 39.1 %
Embassy Suites Mandalay Beach-Hotel & Resort 4,059 371 772 1,143 28.2 %
Embassy Suites Miami-International Airport 5,423 1,502 460 1,962 36.2 %
Embassy Suites Milpitas-Silicon Valley 4,596 1,355 307 1,662 36.2 %
Embassy Suites Minneapolis-Airport 2,623 (193 ) 364 461 632 24.1 %
Embassy Suites Myrtle Beach-Oceanfront Resort 3,798 (442 ) 3 654 215 5.7 %
Hilton Myrtle Beach Resort 2,959 (1,057 ) 14 885 (158 ) (5.3 )%
Embassy Suites Napa Valley 3,353 66 483 337 886 26.4 %
Wyndham New Orleans-French Quarter 4,636 1,509 718 2,227 48.0 %
Morgans New York 1,720 (1,445 ) 266 503 (676 ) (39.3 )%
Royalton New York 3,582 (26,887 ) 25,098

(1)

599 (1,190 ) (33.2 )%
Embassy Suites Orlando-International Drive South/Convention Center 3,419 824 419 1,243 36.4 %
DoubleTree Suites by Hilton Orlando-Lake Buena Vista 3,670 344 765 1,109 30.2 %
Wyndham Philadelphia Historic District 3,181 (256 ) (3 ) 721 462 14.5 %
Sheraton Philadelphia Society Hill Hotel 4,587 (360 ) 967 607 13.2 %
Embassy Suites Phoenix-Biltmore 3,812 1,396 435 1,831 48.0 %
Wyndham Pittsburgh University Center 2,334 (101 ) 496 395 16.9 %
Wyndham San Diego Bayside 8,512 753 1,558 2,311 27.1 %
Embassy Suites San Francisco Airport-South San Francisco 5,675 1,302 443 1,745 30.7 %
Embassy Suites San Francisco Airport-Waterfront 6,653 1,324 1 784 2,109 31.7 %
Holiday Inn San Francisco-Fisherman’s Wharf 9,282 10 608 618 6.7 %
San Francisco Marriott Union Square 11,275 1,982 (7 ) 1,302 466 3,743 33.2 %
Wyndham Santa Monica at the Pier 2,790 994 263 157 1,414 50.7 %
Embassy Suites Secaucus-Meadowlands 2,563 (87 ) 104 17 0.7 %
The Vinoy Renaissance St. Petersburg Resort & Golf Club   15,941   2,573     139       1,466   332   4,510   28.3 %
$ 187,422 $ (13,486 ) $ 26,191     $ 27,728 $ 4,754 $ 45,187   24.1 %
   

Three months ended March 31, 2016

  Hotel Operating     Net Income     Other         Interest    

Hotel

    Hotel EBITDA

Same-store Hotels

Revenue (Loss) Adjustments Depreciation Expense

EBITDA

Margin
Embassy Suites Atlanta-Buckhead $ 4,042 $ 1,104 $ $ 634 $ $ 1,738 43.0 %
DoubleTree Suites by Hilton Austin 3,984 1,204 482 182 1,868 46.9 %
Embassy Suites Birmingham 2,538 231 389 298 918 36.2 %
The Fairmont Copley Plaza, Boston 10,036 (3,149 ) (91 ) 2,179 465 (596 ) (5.9 )%
Wyndham Boston Beacon Hill 3,469 (497 ) 991 494 14.2 %
Embassy Suites Boston-Marlborough 2,569 374 297 671 26.1 %
Sheraton Burlington Hotel & Conference Center 2,711 (406 ) 621 215 7.9 %
The Mills House Wyndham Grand Hotel, Charleston 4,666 831 637 239 1,707 36.6 %
Embassy Suites Dallas-Love Field 3,107 642 338 980 31.5 %
Embassy Suites Deerfield Beach-Resort & Spa 6,195 2,104 476 399 2,979 48.1 %
Embassy Suites Fort Lauderdale 17th Street 7,956 2,475 712 448 3,635 45.7 %
Wyndham Houston-Medical Center Hotel & Suites 4,015 1,267 (19 ) 553 1,801 44.9 %
The Knickerbocker-New York 5,953 (5,401 ) 706 2,570 702 (1,423 ) (23.9 )%
Embassy Suites Los Angeles-International Airport/South 5,674 1,230 642 273 2,145 37.8 %
Embassy Suites Mandalay Beach-Hotel & Resort 4,616 854 771 1,625 35.2 %
Embassy Suites Miami-International Airport 6,112 1,893 470 2,363 38.7 %
Embassy Suites Milpitas-Silicon Valley 4,771 1,519 302 1,821 38.2 %
Embassy Suites Minneapolis-Airport 2,926 (130 ) 444 474 788 26.9 %
Embassy Suites Myrtle Beach-Oceanfront Resort 4,194 (235 ) 1 675 441 10.5 %
Hilton Myrtle Beach Resort 3,054 (961 ) 848 (113 ) (3.7 )%
Embassy Suites Napa Valley 3,554 150 517 346 1,013 28.5 %
Wyndham New Orleans-French Quarter 4,358 1,210 716 1,926 44.2 %
Morgans New York 1,739 (1,418 ) 159 627 (632 ) (36.3 )%
Royalton New York 4,079 (1,538 ) 205 580 (753 ) (18.5 )%
Embassy Suites Orlando-International Drive South/Convention Center 3,561 1,102 271 1,373 38.6 %
DoubleTree Suites by Hilton Orlando-Lake Buena Vista 3,897 495 765 1,260 32.3 %
Wyndham Philadelphia Historic District 3,024 (513 ) 750 237 7.8 %
Sheraton Philadelphia Society Hill Hotel 4,363 (621 ) 979 358 8.2 %
Embassy Suites Phoenix-Biltmore 4,150 1,637 438 2,075 50.0 %
Wyndham Pittsburgh University Center 2,141 (323 ) 520 197 9.2 %
Wyndham San Diego Bayside 7,082 54 1,571 1,625 22.9 %
Embassy Suites San Francisco Airport-South San Francisco 5,723 1,449 412 1,861 32.5 %
Embassy Suites San Francisco Airport-Waterfront 6,531 1,364 749 2,113 32.4 %
Holiday Inn San Francisco-Fisherman’s Wharf 9,471 295 480 775 8.2 %
San Francisco Marriott Union Square 11,929 2,376 (2 ) 1,370 560 4,304 36.1 %
Wyndham Santa Monica at the Pier 2,972 990 283 189 1,462 49.2 %
Embassy Suites Secaucus-Meadowlands 2,377 (241 ) 1 121 (119 ) (5.0 )%
The Vinoy Renaissance St. Petersburg Resort & Golf Club   16,901   3,086     56     1,443   398   4,983   29.5 %
$ 190,440 $ 14,503   $ 1,016   $ 27,623 $ 4,973 $ 48,115   25.3 %
 
 
Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total
Revenue, Total Operating Expense and Operating Income (Loss)

(in thousands)

 
    Three Months Ended
March 31,
  2017         2016  
Same-store operating revenue $ 187,422 $ 190,440
Other revenue 408 687
Revenue from sold hotels(a)   274     19,017  
Total revenue 188,104 210,144
Same-store operating expense 142,235 142,325
Consolidated hotel lease expense(b) 815 802
Unconsolidated taxes, insurance and lease expense (438 ) (452 )
Corporate expenses 6,940 8,400
Depreciation and amortization 27,838 29,183
Impairment 24,838
Expenses from sold hotels(a) 128 13,136
Other expenses   1,260     828  
Total operating expense   203,616     194,222  
Operating income (loss) $ (15,512 ) $ 15,922  

Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT’s performance and should be considered along with, but not as an alternative to, net income (loss) attributable to FelCor as a measure of our operating performance.

FFO and EBITDA

The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”) as net income or loss attributable to parent (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation, amortization and impairment losses. FFO for unconsolidated partnerships and joint ventures is calculated on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) is a commonly used measure of performance in many industries. We define EBITDA as net income or loss attributable to parent (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

Adjustments to FFO and EBITDA

We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional items provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income attributable to FelCor, EBITDA and FFO, is beneficial to an investor’s understanding of our operating performance.

  • Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to extinguishment of debt and interest rate swaps from Adjusted FFO and Adjusted EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.
  • Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.
  • Other expenses and costs - From time to time, we incur expenses or transaction costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversion costs, acquisition costs, pre-opening costs, severance costs and certain non-cash adjustments. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.
  • Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.

In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. We also exclude the amortization of our fixed stock and directors’ compensation, which is included in corporate expenses and is not separately stated on our statements of operations. Excluding amortization of our fixed stock and directors’ compensation maintains consistency with the EBITDA definition.

Hotel EBITDA and Hotel EBITDA Margin

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brands/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level expenses. We eliminate these additional items because we believe property-level results provide investors with supplemental information regarding the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our consolidated hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.

Use and Limitations of Non-GAAP Measures

We use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other hotel REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers.

The use of these non-GAAP financial measures has certain limitations. As we present them, these non-GAAP financial measures may not be comparable to similar non-GAAP financial measures as presented by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, and the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on any single financial measure.



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