FelCor Reports Third Quarter Results
• RevPAR increased 6.2%, exceeding industry average
• Asset sale program proceeding as planned
• Continues to lower cost of debt and extend maturities
Revenue per available room ("RevPAR") for 66 same-store hotels (45 core and 21 non-strategic) increased 6.2% for the quarter.
Adjusted EBITDA was $53.2 million.
Adjusted funds from operations ("FFO") per share was $0.08.
Net loss was $19.6 million.
Sold three non-strategic hotels (one in August and two in October) for $95.5 million. Proceeds were used to repay debt and the remaining $38 million of accrued preferred dividends on October 31. Expect to sell one additional non-strategic hotel for gross proceeds of $8.7 million. To date, we have sold 19 of 39 hotels.
Closed five non-crossed 10-year secured loans bearing an average interest rate of 4.95%, raising $160.8 million. Used a portion of the proceeds to repay a $107 million mortgage loan (secured by seven properties) at 9.02%.
Third Quarter Operating Results:
RevPAR for 66 same-store hotels was $107.78, a 6.2% increase compared to the same period in 2011. The increase reflects a 6.9% increase in average daily rate ("ADR") to $144.06 and a 50 basis point decrease in occupancy to 74.8%. RevPAR for our core hotels increased 6.6%, while RevPAR at our non-strategic hotels increased 4.7%. RevPAR at newly-acquired and redeveloped hotels increased 12.0% during the quarter and 14.3% during the month of September.
Commenting on third quarter results, Richard A. Smith, President and Chief Executive Officer of FelCor, said, "I am pleased with our results, as our RevPAR growth exceeded the industry average. Our efforts to remix customer segments and increase ADR have been successful, and ADR growth exceeded our expectations. While food and beverage profit was significantly above prior year, it was below our expectations and impacted our margins. Nonetheless, our operating results met the low-end of our expectations. Overall, lodging fundamentals remain strong. Transient demand continues to be solid, and supply growth is at historically low levels. These tailwinds will bolster U.S. RevPAR for the next few years."
Added Mr. Smith, "We have made great progress in repositioning the portfolio and restructuring the balance sheet. As of today, we will have sold 10 non-strategic hotels this year, including four since the second quarter. Our asset sale program is ahead of plan and we are currently in discussions with buyers for an additional six hotels. Our strategy will result in a high-growth, diversified portfolio that will outperform the industry for the foreseeable future. We have used the sale proceeds to pay all the accrued preferred dividends and to support our overall balance sheet restructuring plan to lower our leverage and cost of capital. During the quarter, we repaid our lone 2013 debt maturity and refinanced a 2014 debt maturity at a much higher loan-to-value, while reducing the interest rate significantly."
Hotel EBITDA was $59.2 million, which was 8.4% higher than the same period in 2011. Hotel EBITDA and other same-store metrics reflect 66 same-store hotels.
Same-store Adjusted EBITDA was $51.6 million, 9.9% higher than the $46.9 million for the same period in 2011. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $53.2 million, 2.4% higher than the same period in 2011.
Adjusted FFO was $10.0 million, or $0.08 per share, compared to $0.05 per share for the same period in 2011. Net loss attributable to common stockholders was $28.7 million, or $0.23 per share for the quarter, compared to a net loss of $32.5 million, or $0.26 per share, for the same period in 2011.
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 18 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.
Year to Date Operating Results:
RevPAR for 66 same-store hotels was $104.31, a 5.1% increase compared to the same period in 2011. The increase was driven by a 5.8% increase in ADR to $141.91. Displacement from renovations and redevelopments adversely affected revenue by $10 million.
Hotel EBITDA was $174.8 million, 6.1% higher than the $164.8 million for the same period in 2011.
Same-store Adjusted EBITDA was $147.0 million, 8.1% higher than the $136.0 million for the same period in 2011. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $160.8 million, 0.2% higher than the same period in 2011.
Adjusted FFO was $30.3 million, or $0.24 per share, which is $0.07 per share higher than the prior year. Net loss attributable to common stockholders was $64.7 million, or $0.52 per share for the nine months ended September 30, 2012, compared to a net loss of $125.8 million, or $1.10 per share, for the same period in 2011.
During the quarter, we sold the 222-room Embassy Suites - Anaheim-North for $25.5 million.
On October 25, 2012, we completed the sale of the 370-room Embassy Suites - New Orleans-Convention Center and the 296-room Embassy Suites - Nashville-Airport for an aggregate purchase price of $70 million. The hotels' operating performance is included in discontinued operations during the third quarter and year-to-date.
We have agreed to sell the Sheraton Crescent Hotel in Phoenix for $8.7 million. The buyer made a hard-money deposit toward the purchase price, and we expect the sale to close in the immediate future.
Through today, we will have sold 19 of 39 non-strategic hotels as part of our portfolio repositioning plan. Twenty non-strategic hotels remain to be sold. Of those, 10 have been brought to market or are in the preliminary marketing stage. We are currently in discussion with buyers to sell six of these hotels. Ten remaining hotels will be brought to market in 2013. We will use the proceeds from dispositions to repay debt and augment our balance sheet, which, when fully restructured, will provide a flexible foundation for improved long-term FFO and stockholder value.
We spent $26.9 million and $101.0 million on capital improvements at our operating hotels during the three and nine months ended September 30, 2012, respectively (including our pro rata share of joint venture expenditures).
During 2012, we anticipate spending approximately $85 million on improvements and renovations, a majority of which is focused on 12 hotels, including six of our largest properties. We will also spend $35 million this year on value-enhancing redevelopment projects at three hotels: Morgans, the Embassy Suites-Myrtle Beach-Oceanfront Resort and The Fairmont Copley Plaza. Please see page 12 of this release for more detail on renovations.
Our redevelopment of the 4+ star Knickerbocker Hotel, located in midtown Manhattan, is progressing as planned. We have spent $18 million in excess of the acquisition costs to date, and this project remains on schedule and on budget, with opening scheduled at the end of 2013.
At September 30, 2012, we had $1.6 billion of consolidated debt, with an average interest rate of 7.5%. Our debt has a weighted average maturity of 4.8 years and none of our debt matures before June 2014. We had $112.1 million of cash and cash equivalents and $81.6 million in restricted cash as of September 30, 2012.
During the quarter, we closed five single asset-mortgage loans totaling $160.8 million. The 10-year loans mature in 2022, bear an average fixed interest rate of 4.95% and are not cross-collateralized. A portion of the proceeds from the new loans were used to repay the 9.02% mortgage loan, which had an outstanding balance of $107 million and would have otherwise matured in 2014. The repaid loan was secured by a pool of seven hotels, including four of the five hotels mortgaged to support the new loans. The remaining three hotels that secured the repaid loan (two of which are non-strategic) are now unencumbered.
We also repaid the remaining $60 million balance of a CMBS loan using excess proceeds from the new loan and recent asset sales. This repaid loan, which would have otherwise matured in 2013, was secured by five properties. Of these five properties, one property now secures a new loan and the remaining four are now unencumbered.
On October 31, we paid dividends of $2.39 per share on our Series A Preferred Stock and $2.45 per depositary share evidencing the Series C Preferred Stock. The dividend payment to holders of the Series A Preferred Stock included the current quarterly dividends of $0.4875 per share and accrued preferred dividends of $1.9025 per share. The dividend payment to holders of the Series C Preferred Stock included the current quarterly dividends of $0.50 per depositary share and accrued preferred dividends of $1.95 per depositary share. FelCor has now paid all of the outstanding accrued preferred dividends.
Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer, said, "We continue to progress toward completely restructuring our balance sheet, including reducing leverage, reducing our average interest rate and extending and staggering our debt maturity profile. We have lowered our weighted-average cost of debt by 23 basis points in the last twelve months and expect to ultimately reduce our cost of debt to roughly 6.0%, as we repay and refinance debt."
Our 2012 operating outlook reflects updated timing for asset sales and third quarter results, which met the low-end of our expectations. We are increasing the low-end of our Adjusted EBITDA guidance and maintaining the low-end of our same-store Adjusted EBITDA guidance for 57 hotels.
During 2012, we anticipate:
Same-store RevPAR to increase between 5.5% and 6.0%;
Adjusted EBITDA to be between $200 million and $204 million;
Adjusted FFO per share to be between $0.21 and $0.25;
Net loss attributable to FelCor to be between $40 million and $36 million; and
Interest expense, including pro rata share of joint ventures, to be $129 million.
Our previous outlook assumed the sale of 12 hotels (three of which have been sold and one will be sold in the immediate future). For comparing to our previous outlook, we are providing the following data that reconciles the current Adjusted EBITDA outlook to 2012 Same-store Adjusted EBITDA (in millions). Same-store Adjusted EBITDA reflects EBITDA for 57 hotels (i.e., giving pro forma effect to selling the remaining hotels):
Current Adjusted EBITDA Outlook
Same-store Adjusted EBITDA (57 hotels)
(a) EBITDA from January 1, 2012 through the dates of sale of nine hotels sold to date and one hotel expected to sell in the immediate future, plus EBITDA for the full year for eight remaining sale hotels.
FelCor, a real estate investment trust, is the nation's largest owner of upper-upscale, all-suite hotels. FelCor owns interests in 67 properties located in major markets throughout 22 states. FelCor's diversified portfolio of hotels and resorts are flagged under global brands such as: Doubletree ®, Embassy Suites Hotels®, Hilton®, Fairmont®, 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 third quarter earnings Conference Call on Thursday, November 1, 2012 at 10:00 a.m. (Central Time). The conference call will be Webcast simultaneously on FelCor's Web site at www.felcor.com. Interested investors and other parties who wish to access the call can go to FelCor's Web site and click on the conference call microphone icon on either the "Investor Relations" or "News Releases" page. The conference call replay also 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 an 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 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.
The following information is presented in order to help our investors understand FelCor's financial position as of and for the three and nine month period ended September 30, 2012.
TABLE OF CONTENTS
Consolidated Statements of Operations(a)
Consolidated Balance Sheets(a)
Consolidated Debt Summary
Schedule of Encumbered Hotels
Hotels Under Renovation or Redevelopment During 2012
Supplemental Financial Data
Hotel Portfolio Composition
Detailed Operating Statistics by Brand
Comparable Hotels Operating Statistics for Our Top Markets
Historical Operating Statistics
Non-GAAP Financial Measures
(a) Our consolidated statements of operations and balance sheets have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. The consolidated statements of operations and balance sheets should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent Quarterly Report on Form 10-Q.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended
Nine Months Ended
Hotel operating revenue:
Food and beverage
Other operating departments
Hotel departmental expenses:
Food and beverage
Other operating departments
Other property-related costs
Management and franchise fees
Taxes, insurance and lease expense
Depreciation and amortization
Total operating expenses
Interest expense, net
Gain on involuntary conversion, net
Loss before equity in income (loss) from unconsolidated entities
Equity in income (loss) from unconsolidated entities
Loss from continuing operations
Income (loss) from discontinued operations
Net loss attributable to noncontrolling interests in other partnerships
Net loss attributable to redeemable noncontrolling interests in FelCor LP
Net loss attributable to FelCor
Net loss attributable to FelCor common stockholders
Basic and diluted per common share data:
Loss from continuing operations
Basic and diluted weighted average common shares outstanding
Consolidated Balance Sheets
Investment in hotels, net of accumulated depreciation of $931,508 and $987,895 at September 30, 2012 and December 31, 2011, respectively
Investment in unconsolidated entities
Hotels held for sale
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $419 and $333 at September 30, 2012 and December 31, 2011, respectively
Deferred expenses, net of accumulated amortization of $14,262 and $13,119 at September 30, 2012 and December 31, 2011, respectively
Liabilities and Equity
Debt, net of discount of $24,406 and $32,069 at September 30, 2012 and December 31, 2011, respectively
Accrued expenses and other liabilities
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP, 625 and 636 units issued and outstanding at September 30, 2012 and December 31, 2011
Preferred stock, $0.01 par value, 20,000 shares authorized: