Press Release: FelCor Lodging Trust Incorporated
August 9, 2001
IRVING, TX -- FelCor Lodging Trust Incorporated (NYSE: FCH), the nation's second largest hotel real estate investment
trust (REIT), yesterday reported operating results for the second quarter and six months ended June 30, 2001.
Second quarter Funds From Operations (``FFO'') totaled $64.3 million, or $0.96 per share, compared to the second
quarter 2000 FFO of $80.9 million, or $1.20 per share. FelCor exceeded First Call analysts' consensus estimates
of $0.95 per share. FFO for the six months totaled $135.7 million, or $2.03 per share, compared to same period
last year FFO of $149.4 million, or $2.20 per share. Earnings before interest, taxes, depreciation, amortization,
and other non-cash charges (``EBITDA'') for the second quarter 2001 totaled $112.2 million, compared to $126.3
million for second quarter 2000. EBITDA for the six months ended June 30, 2001 totaled $229.6 million, compared
to $238.8 million for same period last year.
The net income applicable to common shareholders for the quarter was $16.4 million, compared to a net loss of $35.1
million for the second quarter 2000. The net income applicable to common shareholders for the six months was $3.5
million, compared to a $22.3 million loss for the same period in 2000. The comparisons to 2000 are affected by
a charge of $63 million in the second quarter of 2000 in connection with the identification of 25 non-strategic
hotels held for sale, and $36.2 million of first quarter 2001 lease termination costs.
The results of operations were impacted as a result of the decline in RevPAR. FelCor's total hotel portfolio RevPAR
decreased 7.4 percent during the quarter, compared to the same quarter last year, with occupancy declining 7.3
percent to 69.3 percent, and the average daily rate (``ADR'') remaining nearly flat at $104.41.
``The speed and magnitude of the decline in business travel was not anticipated,'' said Thomas J. Corcoran, Jr.,
FelCor's President and CEO. ``Even though this year is soft compared to the exceptional results of 2000, FelCor
and the overall lodging industry remain healthy and profitable.''
The operating margin for FelCor's hotels (excluding those leased to third parties) for the second quarter 2001
was 39.2 percent, compared to the 39.8 percent for the same period in 2000.
Richard J. O'Brien, FelCor's Executive Vice President and Chief Financial Officer said, ``Each of our brand managers
has implemented cost savings initiatives. As a result of the responsiveness of our brand managers in reducing variable
costs, FelCor was able to hold its margin contraction to 60 basis points.''
FelCor expects a challenging operating environment for the remainder of 2001 and early 2002. Second quarter RevPAR
was principally affected by declines in occupancy, with rates remaining flat. However, should softness in lodging
demand continue, it would put additional pressure on room rates and further reduce operating margins. For 2001,
the Company currently anticipates a full year same-store RevPAR decline of four to five percent. FelCor's FFO,
on a stand alone basis (excluding costs related to the MeriStar merger), is expected to be approximately $3.50
to $3.60 per share.
``Although hotel operations continue to reflect the softness in the economy, we are cautiously optimistic that
the supply deceleration and continued Federal Reserve interest rate reductions will lead to positive RevPAR growth
for our hotel portfolio by mid-2002,'' added Tom Corcoran.
On May 10, 2001, FelCor announced the acquisition of MeriStar Hospitality Corporation (NYSE: MHX - news), for $2.7
billion. The merger with MeriStar is progressing as planned with an anticipated closing in late September, subject
to approval by FelCor and MeriStar shareholders.
FelCor is on track in obtaining the financing necessary for the completion of the MeriStar merger. In June, FelCor
issued $600 million of 10-year, 8.5 percent senior unsecured notes. In July, the Company received a $500 million
standby loan facility which will be available to fund any required purchases of MeriStar's most recently issued
senior notes pursuant to change in control provisions. FelCor also closed an expanded line of credit facility in
July. The new line of credit will permit borrowing of $700 million, a $100 million increase from FelCor's previous
$600 million facility, contingent upon the merger closing.
FelCor's common dividend yield is approximately 9.9 percent based on the August 7, 2001, closing price of $22.15.
The FFO payout ratio for the second quarter was 57 percent.
FelCor's hotel portfolio consists of 185 hotels with approximately 50,000 rooms and suites and is concentrated
primarily in the upscale and full- service segments. FelCor is the owner of the largest number of Embassy Suites®,
Crowne Plaza®, Holiday Inn® and independently owned Doubletree®-branded hotels. Other leading hotel
brands under which FelCor's hotels are operated include Sheraton Suites®, Sheraton® and Westin®. FelCor
has a current market capitalization of approximately $3.5 billion. Additional information can be found on the Company's
website at www.felcor.com .
FelCor invites you to listen to the Company's second quarter 2001 conference call on Thursday, August 9, 2001,
at 9:00 a.m. Central Time. The conference call will be webcast simultaneously via the Company's website at www.felcor.com
. Interested investors and other parties who wish to access the call should go to the Company's website and click
on the conference call microphone icon on either the Investor Relations or FelCor News pages. In addition, a phone
replay will be available from Thursday, August 9, 2001, at 12:00 p.m. Central Time through Friday, August 31, 2001,
at 7:00 p.m. Central Time, by dialing 800-758-7977 (access code 5633). A recording of the call also will be archived
and available at www.felcor.com .
With the exception of historical information, the matters discussed in this news release and attachments include
``forward looking statements'' within the meaning of the federal securities laws that are qualified by cautionary
statements contained herein and in FelCor's filings with the Securities and Exchange Commission.
Introduction
The following financial information is presented in order to help our investors understand the financial position
of the Company as of, and for the three- and six-month periods ending June 30, 2001 and 2000.
Tables to Follow
Second Quarter Highlights
Financial Profile
Results of Operations - Three Months Ended
Results of Operations - Six Months Ended
Reconciliation of FFO and EBITDA
Hotel Performance Statistics
RevPAR Performance for Selected States
Brand Distribution
Selected State Distribution
Second Quarter Highlights
-- On May 10, 2001, FelCor announced the acquisition of MeriStar
Hospitality Corporation for $2.7 billion. The transaction will
result in a pro forma market capitalization of $6.3 billion for the
combined company and will bring the number of hotels owned by FelCor
to 299, with approximately 78,000 rooms.
-- On June 4, 2001, FelCor issued $600 million of 10-year, 8.5 percent
senior unsecured notes. Approximately $315 million of the proceeds
were placed in escrow to be released upon the merger closing.
Merger related carrying costs related to the escrowed funds,
impacted FFO by $1.4 million or $0.02 per share. Associated with
the issuance of the favorably priced fixed rate debt, and the
prepayment of floating rate debt, FelCor terminated $200 million of
interest rate swaps resulting in a one-time $4.8 million swap
termination cost.
-- The Company completed the acquisition of the remaining 88 FelCor
hotel leases held by Bass in exchange for long-term management
agreements. The transaction was effective July 1, 2001. Beginning
with the third quarter of this year, FelCor's financial statements
will reflect hotel revenues and expenses of these 88 hotels.
-- Project capital expenditures for improvements totaled $8.3 million
during the quarter. An additional $7.8 million was spent on
maintenance capital expenditures during the period.
-- In June, FelCor sold the 140-room Hampton Inn(R) located in
Marietta, Georgia, with net sales proceeds of $7.1 million.
-- FelCor declared and paid second quarter dividends of $0.55 per share
on its Common Stock, $0.4875 per share on its $1.95 Series A
Cumulative Convertible Preferred Stock and $0.5625 per depositary
share evidencing its 9% Series B Cumulative Redeemable Preferred
Stock.
Financial Profile
FelCor's financial profile was as follows at June 30, 2001:
June 30, 2001
-- Interest coverage ratio 2.7x
-- Debt to annual EBITDA 3.9x
-- Consolidated debt to investment in hotels, at cost 40%
-- Borrowing capacity under its Line of Credit $560 million
-- Fixed interest rate debt to total debt 98%
-- Weighted average maturity of fixed interest rate debt 8 years
-- Mortgage debt to total assets 16%
Results of Operations - Three Months Ended
(in thousands, except per share data)
Three Months Ended June 30,
Pro Forma
2001 2000 (A) 2000
Revenues:
Hotel operating revenue:
Room $173,118 $186,645 $---
Food and beverage 25,486 29,396 ---
Other operating departments 11,891 13,660 ---
Percentage lease revenue 63,606 62,453 133,286
Retail space rental and other revenue 548 546 371
Total revenue 274,649 292,700 133,657
Expenses:
Hotel operating expenses:
Room 39,784 44,255 ---
Food and beverage 19,024 21,572 ---
Other operating departments 5,195 5,566 ---
Management fees 5,495 6,776 ---
Other property related costs 57,586 60,110 ---
Taxes, insurance and lease expense 38,096 42,150 23,385
Corporate expenses 3,231 2,947 2,713
Depreciation 39,705 41,290 41,080
Total operating expenses 208,116 224,666 67,178
Operating income 66,533 68,034 66,479
Interest expense, net (40,265) (39,296) (39,301)
Swap termination expense (4,824) --- ---
Loss on assets held for sale --- (63,000) (63,000)
Income (loss) before equity in income
from unconsolidated entities,
minority interests, gain on sale
of assets, and extraordinary items 21,444 (34,262) (35,822)
Equity in income from unconsolidated
entities 4,178 3,769 3,769
Minority interests (3,320) 3,670 2,278
Gain on sale of assets 482 875 875
Income (loss) before extraordinary
items 22,784 (25,948) (28,900)
Extraordinary charge from write off
of deferred financing fees (225) --- ---
Net income (loss) 22,559 (25,948) (28,900)
Preferred dividends (6,150) (6,174) (6,174)
Net income (loss) applicable to
common shareholders $ 16,409 $(32,122) $ (35,074)
Per common share data:
Basic:
Net income (loss) applicable to
common shareholders $0.31 $(0.59) $(0.64)
Weighted average common shares
outstanding 52,630 54,714 54,714
Diluted:
Net income (loss) applicable to
common shareholders $0.31 $(0.58) $(0.64)
Weighted average common shares
outstanding 53,046 54,945 54,945
(A) Pro forma 2000 assumes the acquisition of DJONT occurred
January 1, 2000.
Results of Operations - Six Months Ended
(in thousands, except per share data)
Six Months Ended June 30,
Pro Forma
2001 2000 (A) 2000
Revenues:
Hotel operating revenue:
Room $365,343 $366,370 $ ---
Food and beverage 53,150 56,340 ---
Other operating departments 24,790 27,308 ---
Percentage lease revenue 115,137 119,638 256,335
Retail space rental and other revenue 1,882 1,069 1,824
Total revenue 560,302 570,725 258,159
Expenses:
Hotel operating expenses:
Room 83,404 85,531 ---
Food and beverage 39,141 41,926 ---
Other operating departments 10,922 11,054 ---
Management fees 12,612 12,761 ---
Other property related costs 121,642 119,280 ---
Taxes, insurance and lease expense 76,460 82,968 47,588
Corporate expenses 6,372 6,469 6,112
Depreciation 79,513 81,811 81,480
Lease termination costs 36,226 --- ---
Total operating expenses 466,292 441,800 135,180
Operating income 94,010 128,925 122,979
Interest expense, net (79,621) (76,817) (76,781)
Swap termination expense (4,824) --- ---
Loss on assets held for sale --- (63,000) (63,000)
Income (loss) before equity in income
from unconsolidated entities,
minority interests, gain on sale
of assets, and extraordinary items 9,565 (10,892) (16,802)
Equity in income from
unconsolidated entities 6,328 5,648 5,648
Minority interests (2,870) 352 306
Gain on sale of assets 2,955 875 875
Income (loss) before extraordinary
items 15,978 (4,017) (9,973)
Extraordinary charge from write off
of deferred financing fees (225) --- ---
Net income (loss) 15,753 (4,017) (9,973)
Preferred dividends (12,300) (12,358) (12,358)
Net income (loss) applicable to
common shareholders $3,453 $ (16,375) $ (22,331)
Per common share data:
Basic:
Net income (loss) applicable to
common shareholders $0.07 $(0.29) $(0.39)
Weighted average common shares
outstanding 52,614 56,930 56,930
Diluted:
Net income (loss) applicable to
common shareholders $0.07 $(0.29) $(0.39)
Weighted average common shares
outstanding 53,055 57,161 57,161
(A) Pro forma 2000 assumes the acquisition of DJONT occurred
January 1, 2000.
Reconciliation of FFO and EBITDA
(in thousands, except per share and unit data)
Three Months Ended June 30,
Pro Forma
2001 2000(A) 2000
Funds From Operations (FFO):
Net income (loss) $22,559 $(25,948) $(28,900)
Extraordinary charge 225 --- ---
Loss on assets held for sale --- 63,000 63,000
Swap termination expense 4,824 --- ---
Deferred rent (5,254) 7,665 9,750
Series B preferred dividends (3,234) (3,234) (3,234)
Depreciation 39,705 41,290 41,080
Depreciation from unconsolidated
entities 2,641 2,592 2,592
Minority interest in FelCor Lodging LP 2,794 (4,795) (3,403)
FFO $64,260 $80,570 $80,885
Diluted FFO per common share and unit $0.96 $1.19 $ 1.20
Weighted average common shares and
units outstanding 66,750 67,649 67,232
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA):
FFO $64,260 $80,570 $80,885
Interest expense 41,706 39,741 39,740
Interest expense from unconsolidated
entities 2,631 2,157 2,157
Amortization expense 408 602 312
Series B preferred dividends 3,234 3,234 3,234
EBITDA $ 112,239 $ 126,304 $126,328
Six Months Ended June 30,
Pro Forma
2001 2000(A) 2000
Funds From Operations (FFO):
Net income (loss) $15,753 $(4,017) $(9,973)
Extraordinary charge 225 --- ---
Loss on assets held for sale --- 63,000 63,000
Lease termination costs 36,226 --- ---
Swap termination expense 4,824 --- ---
Deferred rent --- 12,565 18,604
Series B preferred dividends (6,468) (6,468) (6,468)
Depreciation 79,513 81,811 81,480
Depreciation from unconsolidated
entities 5,022 5,136 5,136
Minority interest in FelCor Lodging LP 588 (2,445) (2,399)
FFO $135,683 $ 149,582 $149,380
Diluted FFO per common share and unit $2.03 $2.19 $ 2.20
Weighted average common shares and
units outstanding 66,759 68,403 67,987
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA):
FFO $135,683 $ 149,582 $149,380
Interest expense 81,799 77,644 77,644
Interest expense from unconsolidated
entities 4,742 4,787 4,787
Amortization expense 884 764 474
Series B preferred dividends 6,468 6,468 6,468
EBITDA $229,576 $ 239,245 $238,753
(A) Pro forma 2000 assumes the acquisition of DJONT occurred
January 1, 2000.
Hotel Performance Statistics
June 30, 2001
The following table sets forth historical occupancy, ADR and RevPAR and the percentage changes therein between the periods presented for the hotels in which the Company had an ownership interest at June 30, 2001.
Occupancy (%)
Second Quarter Year-to-Date
% %
2001 2000 Variance 2001 2000 Variance
Embassy Suites hotels 70.9 78.5 (9.7) 71.2 76.0 (6.4)
Holiday-branded hotels 72.8 75.7 (3.7) 71.0 72.2 (1.7)
Crowne Plaza hotels 65.9 75.2 (12.3) 65.3 72.6 (10.0)
Doubletree-branded hotels 72.2 76.1 (5.0) 72.2 72.1 0.1
Sheraton-branded hotels 69.2 76.0 (8.9) 68.8 73.9 (6.8)
Other hotels 61.6 67.8 (9.2) 64.4 67.2 (4.2)
Total hotels excluding
hotels held for sale 70.0 75.8 (7.7) 69.6 73.1 (4.8)
Hotels held for sale 56.6 54.0 4.7 53.4 52.1 2.5
Total hotels 69.3 74.8 (7.3) 68.8 72.1 (4.5)
ADR (dollars)
Second Quarter Year-to-Date
% %
2001 2000 Variance 2001 2000 Variance
Embassy Suites hotels 130.83 126.84 3.1 134.36 128.00 5.0
Holiday-branded hotels 87.54 89.22 (1.9) 87.12 87.51 (0.4)
Crowne Plaza hotels 106.98 107.37 (0.4) 106.41 104.79 1.5
Doubletree-branded hotels 108.59 108.11 0.4 112.92 109.53 3.1
Sheraton-branded hotels 111.32 112.04 (0.6) 114.74 113.33 1.2
Other hotels 79.72 82.34 (3.2) 83.78 85.05 (1.5)
Total hotels excluding
hotels held for sale 106.01 105.98 0.0 107.87 105.90 1.9
Hotels held for sale 64.38 66.05 (2.5) 68.17 67.70 0.7
Total hotels 104.41 104.61 (0.2) 106.42 104.60 1.7
RevPAR (dollars)
Second Quarter Year-to-Date
% %
2001 2000 Variance 2001 2000 Variance
Embassy Suites hotels 92.77 99.56 (6.8) 95.66 97.32 (1.7)
Holiday-branded hotels 63.75 67.50 (5.6) 61.87 63.21 (2.1)
Crowne Plaza hotels 70.54 80.73 (12.6) 69.50 76.03 (8.6)
Doubletree-branded hotels 78.42 82.22 (4.6) 81.48 78.97 3.2
Sheraton-branded hotels 77.02 85.10 (9.5) 78.97 83.70 (5.7)
Other hotels 49.13 55.86 (12.1) 53.95 57.18 (5.6)
Total hotels excluding
hotels held for sale 74.14 80.32 (7.7) 75.09 77.43 (3.0)
Hotels held for sale 36.44 35.69 2.1 36.42 35.30 3.2
Total hotels 72.39 78.21 (7.4) 73.26 75.44 (2.9)
RevPAR Performance for Selected States
Excluding hotels held for sale, hotels in Texas, California, Florida and Georgia accounted for 55.3 percent of hotel room revenues for the quarter. The RevPAR changes during the periods ended June 30, 2001 (versus comparable periods for 2000) from our hotels in these states are as follows:
RevPAR (dollars)
Second Quarter Year-to-Date
2001 2000 % Variance 2001 2000 % Variance
Texas 56.15 62.82 (10.6) 58.83 61.74 (4.7)
California 102.59 116.89 (12.2) 102.29 108.74 (5.9)
Florida 69.28 74.96 (7.6) 79.42 81.58 (2.7)
Georgia 68.78 68.66 0.2 71.42 70.67 1.1
Brand Distribution
Number Number Percentage of
of Hotels of Rooms Room Revenue
Embassy Suites 59 14,840 39.8
Holiday-branded hotels 51 15,526 26.9
Crowne Plaza 18 5,963 11.6
Doubletree-branded hotels 11 2,330 5.3
Sheraton-branded 10 3,269 7.2
Other hotels 21 4,470 6.9
Hotels held for sale 15 2,294 2.3
Total 185 48,692 100.0
Selected State Distribution
Number Number Percentage of
of Hotels of Rooms Room Revenue
Texas 41 11,147 18.4
California 19 6,028 17.3
Florida 16 5,346 11.9
Georgia 14 3,868 7.7
Total for four states 90 26,389 55.3
SOURCE: FelCor Lodging Trust Incorporated