FelCor Exceeds 2006 Goals

Growth Plans on Track

• 
  SAVE
• 
  SHARE
• 
  TEXT SIZE
• 
  PRINT
• 
  COMMENT
• 
  PDF

. October 14, 2008

FEBRUARY 23, 2007. Adjusted Funds From Operations ("FFO") was $21.0 million, a $7.6 million increase from the prior year period. Adjusted FFO per share increased to $0.33, compared to $0.21 in the prior year quarter, an increase of 57 percent.

Hotel Earnings Before Interest, Taxes, Depreciation and Amortization ("Hotel EBITDA") increased to $62.3 million, compared to $58.6 million in the prior year quarter, an increase of 6.3 percent. Hotel EBITDA margin was 26.7 percent, representing a 41 basis point improvement to the prior year.

Revenue Per Available Room ("RevPAR") increased 3.4 percent, compared to the same period in 2005. Average Daily Rate ("ADR") increased 7.7 percent, in line with prior expectations.

Displacement as a result of major renovations caused reductions to RevPAR (approximately 3 percent) and Adjusted EBITDA (approximately $3.5 million), which negatively affected Hotel EBITDA margin by approximately 85 basis points.

Same-Store EBITDA increased by $7.2 million, to $53.1 million, or 15.7 percent to prior year. Adjusted EBITDA (including sold hotels) remained essentially flat at $59.0 million.

Net income was $11.0 million for fourth quarter 2006, a $276.2 million increase over the same period in 2005. Net income applicable to common stockholders was $1.3 million, or $0.02 per share, compared to a net loss applicable to common stockholders of $274.9 million, or $4.62 per share, in the fourth quarter of 2005. Included in the current year net income was a net gain from the sale of hotels of $25.9 million. Included in the prior year net loss was $264.9 million of impairment charges.

Full Year Results:

Adjusted FFO was $124.9 million, a $38.9 million increase from the prior year. Adjusted FFO per share increased to $1.98, compared to $1.37 in the prior year, an increase of 45 percent.

Hotel EBITDA increased to $292.4 million, compared to $252.8 million in the prior year, an increase of 15.7 percent. Hotel EBITDA margin was 29.5 percent, representing a 182 basis point improvement to the prior year.

RevPAR increased 7.8 percent, compared to the same period in 2005. ADR increased 8.5 percent.

Displacement as a result of major renovations caused reductions to RevPAR (approximately 1 percent) and Adjusted EBITDA (approximately $8.7 million), which negatively affected Hotel EBITDA margin by approximately 51 basis points.

Same-Store EBITDA increased by $39.4 million, to $255.0 million, or 18.3 percent to prior year. Adjusted EBITDA (including sold hotels) increased $20.2 million, to $291.2 million, or 7.5 percent to prior year.

Net income was $51.0 million for the year, a $302.7 million increase over 2005. Net income applicable to common stockholders was $12.3 million, or $0.20 per share, compared to a net loss applicable to common stockholders of $297.5 million, or $5.01 per share, in 2005. A $40.7 million net gain from the sale of hotels was included in current year net income. A $266.8 million impairment charge was included in the prior year net loss.

Operating statistics and Same Store EBITDA are presented for our 83 core hotels. We consider our 11 non-strategic hotels owned at December 31, 2006 to be held for sale and presented in discontinued operations.

Fourth Quarter Highlights:

RevPAR growth remains strong across the portfolio with the exception of those hotels undergoing renovation and our New Orleans hotels. RevPAR increased 8.1 percent excluding displacement from renovations and New Orleans. RevPAR declined 38.3 percent in New Orleans, which impacted our portfolio RevPAR by 210 basis points. Occupancy declined primarily as a result of renovations; however, ADR grew 7.7 percent with double digit increases in a majority of our largest markets. ADR growth in our key markets is accelerating as hotels complete renovation and as we focus on our customer mix and take advantage of industry trends.

We paid a common dividend of $0.25 per share for the fourth quarter of 2006, which represented a $0.05 increase from our third quarter dividend of $0.20.

"Our goal at the beginning of 2006 was to continue the transformation to the New FelCor, and we accomplished all of our objectives for the year. We are ahead of schedule on asset sales, completed our debt reduction plan and increased the dividend twice during 2006. 2006 was a great year for FelCor as the benefits of the portfolio repositioning were evident in the strong operating results. We surpassed our original operating expectations in every category," said Richard A. Smith, FelCor's President and Chief Executive Officer. "We are embarking on the next phase of our strategic plan. We believe we have a unique opportunity for significant growth relative to our peers as we execute our internal growth plans including the renovation and redevelopment programs."

Capital Structure:

At December 31, 2006, we had $1.37 billion of consolidated debt outstanding with a weighted average life of five years, including construction debt on our Royale Palms condominium development of $58.6 million, which we anticipate repaying in the second quarter 2007. At September 30, 2005, when we began our disposition program, we had $1.71 billion of consolidated debt outstanding. Our cash and cash equivalents totaled approximately $124.2 million at December 31, 2006.

In October 2006, we sold $215 million of senior floating rate notes. These notes bear interest at LIBOR plus 1.875 percent and mature in 2011 including extension options. We also finalized a $250 million mortgage facility bearing interest at LIBOR plus 0.93 percent, which we closed in November 2006. Proceeds from these two financings along with cash from hotel sales were used in the fourth quarter to: (i) redeem our $290 million senior floating rate notes due 2011 paying LIBOR plus 4.25 percent interest and $125 million senior notes due 2007 paying 7.625 percent interest; and (ii) repay $129 million of mortgage indebtedness.

"We have completed the $400 million debt reduction plan and taken advantage of the strong capital market environment by refinancing $465 million in debt, which lowered our weighted average cost of funds by more than 50 basis points. We now have a stronger and more flexible balance sheet," said Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer. "This allows us to focus our attention on the remainder of our strategic plan."

Hotel Disposition Update:

During the year ended December 31, 2006, we sold 31 non-strategic hotels for gross proceeds of $514 million, and in 2007 through the date of this release, we have sold two additional hotels for gross proceeds of $42.7 million. We have now sold 36 of the 45 hotels for total proceeds of approximately $572 million. We currently have nine non-strategic hotels remaining to sell, of which we have three hotels under hard contract, and are in negotiations on the remaining six hotels. We are on target to substantially complete our disposition program in the first part of 2007.

Renovation Program Update:

Improvements and additions to hotels for the fourth quarter, including our pro rata share of joint ventures, totaled $62.1 million for the quarter, and $178.9 million for the year. We completed major renovations at eight of our hotels in 2006. We expect revenue growth in these renovated hotels to substantially exceed the growth in their respective markets in 2007. The budgeted RevPAR growth for these eight hotels is more than double that of the remainder of our core portfolio, and the EBITDA growth is nearly triple that of the remainder of the core portfolio. While displacement is included in these numbers, the budgeted growth, in excess of market gains, represents a 12 percent cash on cash return on the funds spent on customer impact areas, as expected. Customer impact areas represent approximately 75 percent of the renovation dollars spent. We also started renovations at 20 hotels during 2006 that we expect to complete in the first quarter of 2007.

Our Royale Palms condominium project in Myrtle Beach, South Carolina, is scheduled to be completed in the second quarter 2007. At December 31, 2006, the balance on the construction loan was $58.6 million. We have pre sold approximately 98 percent of these condominiums. We currently expect to earn net income of approximately $18 million at the completion of the project, and we expect that between 50 and 60 percent of the condominium units will enter our rental program, which will result in additional continuing income.