FelCor Reports Fourth Quarter Earnings

FelCor Lodging Trust Incorporated (NYSE: FCH) reported operating results for the quarter and year ended December 31, 2013.

Highlights for the Quarter

• Adjusted FFO per share improved from $(0.01) to $0.05.
• RevPAR for 51 comparable hotels increased 7.7%.
• Adjusted EBITDA increased by $1.2 million to $43.2 million, and Same-store Adjusted EBITDA increased by $4.4 million to $42.9 million.
• Net loss per share improved by $0.59, from $0.83 to $0.24.
• Sold, or agreed to sell, three hotels for total gross proceeds of $51 million.
• Reinstated quarterly common stock dividend ($0.02 per share).

Commenting on operating results, Richard A. Smith, President and Chief Executive Officer of FelCor, said, “ I am very pleased with our fourth quarter performance, as we generally exceeded our expectations, and RevPAR for our comparable portfolio once again outperformed the industry. Our six recently acquired and redeveloped hotels performed extremely well throughout 2013, with RevPAR and EBITDA growing 11% and 28%, respectively. Our outlook remains optimistic based on the outstanding condition of our portfolio, favorable industry fundamentals and improving ADR growth.”

Mr. Smith added, “We remain focused on our balance sheet restructuring and portfolio repositioning program, with six hotels being actively marketed and more hotels going to market later this year. Since December 2010, we have sold 25 hotels, with another under contract. During 2014, we intend to sell most of our 20 remaining non-strategic hotels and repay our 2014 debt maturities. Through the combination of asset sales and EBITDA growth, we will continue to reduce leverage and increase the quality of our portfolio. Given our successful execution to-date and meaningful cash flow growth, we were pleased to reinstate our common dividend.”

RevPAR for our 31 comparable core hotels (39 core hotels that exclude the eight Wyndham hotels) increased 9.5% compared to the same period in 2012, while RevPAR for our 20 non-strategic hotels increased 4.2% compared to the same period in 2012.

RevPAR for our 51 comparable hotels (31 comparable core hotels plus 20 non-strategic hotels) was $104.61, a 7.7% increase compared to the same period in 2012. The increase reflects a 3.2% increase in ADR to $150.43 and a 4.4% increase in occupancy to 69.5%.

We believe the comparable hotels metric (which excludes the Wyndham hotels) is the most appropriate measure to assess the current operating performance of our portfolio. The eight Wyndham hotels were rebranded from Holiday Inn to Wyndham on March 1, 2013. RevPAR for those eight hotels declined 11.6% for the fourth quarter compared to the same period in 2012, an improvement from the third quarter 2013 decline of 20.3%. This decline reflects the impact of transitioning brands and management companies, including related renovations. Wyndham Worldwide Corporation has guaranteed minimum annual NOI for the eight hotels over the ten-year term of the management agreement. We have recorded $8 million (of which approximately $3 million is for the fourth quarter 2013) as a reduction of Wyndham’s contractual management and other fees, which is reflected in Hotel EBITDA and Hotel EBITDA margin. We expect revenues at these hotels to grow meaningfully during 2014 and beyond, as the transitional disruption subsides.

RevPAR for our 59 Same-store hotels (51 comparable hotels plus the Wyndham hotels) was $102.27, a 4.9% increase compared to the same period in 2012. The increase reflects a 3.4% increase in ADR to $150.29 and a 1.5% increase in occupancy to 68.0%.

For our 51 comparable hotels, Hotel EBITDA was $43.9 million, an increase of 10.0%, and Hotel EBITDA margin was 23.2% during the quarter, a 135 basis point increase.

See page 16 for hotel portfolio composition and pages 17 and 23 for more detailed hotel portfolio operating data.

Same-store Adjusted EBITDA was $42.9 million compared to $38.5 million for the same period in 2012. Adjusted EBITDA (which includes Adjusted EBITDA for sold hotels prior to sale) was $43.2 million compared to $42.0 million for the same period in 2012.

Adjusted FFO was $6.3 million, or $0.05 per share, in 2013 compared to a loss of $1.5 million, or $0.01 per share, in 2012. Net loss attributable to common stockholders was $29.5 million, or $0.24 per share, in 2013 compared to a net loss of $102.1 million, or $0.83 per share, in 2012. We recorded $373,000 and $27.8 million in net gains on asset sales in the fourth quarters of 2013 and 2012, respectively. We also recorded $62.5 million in debt extinguishment charges in the fourth quarter of 2012.

Full Year Operating Results

RevPAR for 51 comparable hotels in 2013 was $111.22, a 7.1% increase compared to 2012. The increase reflects a 4.1% increase in ADR to $150.75 and a 2.9% increase in occupancy to 73.8%. Total hotel revenue for the 51 comparable hotels increased 6.4% in 2013. RevPAR for our 31 comparable core hotels increased 8.4%, while RevPAR for our 20 non-strategic hotels increased 3.9%, in 2013. RevPAR for our 59 Same-store hotels in 2013 was $108.83, a 3.8% increase compared to 2012.

Same-store Adjusted EBITDA was $191.9 million in 2013 compared to $176.1 million in 2012. Hotel EBITDA margin was 25.8%, a 99 basis point increase from 2012. Adjusted EBITDA was $200.3 million in 2013 compared to $202.8 million in 2012.

Adjusted FFO was $48.7 million, or $0.39 per share, in 2013 compared to $28.8 million, or $0.23 per share, in 2012. Net loss attributable to common stockholders was $100.2 million, or $0.81 per share in 2013, compared to a net loss of $166.7 million, or $1.35 per share, in 2012. Net loss in 2013 included a $19.4 million net gain on asset sales and a $28.8 million impairment charge. Net loss in 2012 included $54.5 million in net gains on asset sales, a $1.3 million impairment charge and $75.1 million in debt extinguishment charges.

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 19 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.

Portfolio Repositioning

Since December 2010, we have sold 25 non-strategic hotels as part of our portfolio repositioning plan. During 2013, we sold five hotels for total gross proceeds of $102.7 million. In January, we also sold the 232-room Embassy Suites hotel in Atlanta for $17.2 million. These hotels’ operating performance is included in discontinued operations for the fourth quarter and in 2013.

We have also agreed to sell our 218-room Embassy Suites hotel in Bloomington for $24 million. The purchaser has paid a non-refundable deposit toward the purchase price, and we expect the sale to close in March.

We have 20 remaining non-strategic hotels, including the one hotel that is under contract. Of the remaining hotels, we are currently marketing six and expect to begin marketing three more later this year. We indirectly own 50% interests in the other 10 non-strategic hotels, which are owned by a joint venture with one of our brand-managers. We are working diligently to unwind that joint venture, as a consequence of which we would own five of those hotels outright (our joint venture partner would own the other five). When the joint venture is unwound (which we are targeting to occur in the second quarter), we intend to begin marketing those hotels immediately.

Capital Expenditures

During the quarter, we invested $27.2 million in capital expenditures at our operating hotels, including approximately $12.8 million for redevelopment projects and repositioning our Wyndham hotels. During 2013, we invested $102.3 million on capital improvements and renovations on a pro rata basis.

During 2014, we will invest approximately $60 million in capital improvements and renovations (including $10 million for 2013 projects), concentrated mostly at seven hotels, as part of our long-term capital plan. In addition, we are investing approximately $25 million to complete the repositioning of our Wyndham portfolio. Please see page 13 of this release for more detail on renovations.

Knickerbocker

We have spent $65.3 million (excluding the initial acquisition costs and capitalized interest) through December 31, 2013 to redevelop the 4+ star Knickerbocker Hotel, located in the heart of Times Square in Manhattan. Our total project cost is expected to be $240 million (net of historic tax credit), which is within 5% of our original estimate.

We expect the hotel to open in early fall, as winter weather delays have slightly disrupted the schedule. The hotel’s executive team is in place and fully engaged in the sales and marketing efforts to ensure a successful and strong opening. In early 2014, we finalized an agreement with one of the nation’s most recognized Master Chefs, Charlie Palmer, to manage the food and beverage operations. Mr. Palmer’s flagship restaurant, the Michelin-starred Aureole, is located adjacent to the hotel, which will create sales and marketing synergies.

Our Knickerbocker Hotel venture raised $45 million through the sale of 3.5% preferred equity through the EB-5 immigrant investor program. The venture received $40 million in proceeds in February 2014, and the remaining $5 million will be received as investors’ visas are approved by the government. We are using our 95% share of the proceeds to repay borrowings under our line of credit.

Balance Sheet

As of December 31, 2013, we had $1.7 billion of consolidated debt bearing a 6.3% weighted-average interest rate and a six-year weighted-average maturity. We had $45.6 million of cash and cash equivalents and $77.2 million of restricted cash, of which $64.9 million secures our Knickerbocker construction loan.

Common Dividend

Our Board of Directors reinstated a quarterly common dividend in October 2013 in recognition of our ongoing and successful portfolio repositioning and balance sheet restructuring, as well as our positive funds available for distribution (“FAD”) during 2013. At that time, we declared a $0.02 per share fourth quarter common stock dividend, which was paid in January. Future quarterly dividends will be based on estimates of FAD, reinvestment opportunities within our portfolio and taxable income, among other things.

Outlook

Our 2014 outlook reflects continued strong fundamentals in the lodging industry. Our expected RevPAR growth reflects a premium to the industry, because of our high-quality, diversified portfolio and continued strong growth at our recently acquired and redeveloped hotels. Our outlook reflects the sale of all 20 non-strategic hotels. Both the low and high-end of our guidance includes the March sale of one hotel under contract. The low-end of our outlook assumes that nine hotels are sold in the second quarter, and the remaining hotels are sold in the third quarter. The high-end of our outlook assumes six hotels are sold in the third quarter, and the remaining hotels are sold during the fourth quarter. Our outlook assumes EBITDA for the Wyndham hotels equals the amount of Wyndham’s annual NOI guaranty.

During 2014, we project:

• RevPAR for comparable hotels (51 hotels) will increase 6.25% to 7.25% and RevPAR for Same-store hotels (59 hotels) will increase 7.5% to 8.5%;
• Adjusted EBITDA will be $202.0 million to $217.0 million ($216.0 million to $221.0 million prior to asset sales);
• Adjusted FFO per share will be $0.50 to $0.58;
• Net loss attributable to FelCor will be $44.0 million to $40.0 million; and
• Interest expense, including pro rata share from joint ventures, will be $94.0 million to $99.0 million.

The following table reconciles our 2014 Adjusted EBITDA to Same-store Adjusted EBITDA outlook (in millions):

About FelCor

FelCor, a real estate investment trust, owns a diversified portfolio of primarily upper-upscale and luxury hotels that are located in major and resort markets. FelCor partners with leading hotel companies to operate its hotels, which are flagged under globally renowned brands and premier independent hotels. Additional information can be found on the Company’s website at www.felcor.com.

We invite you to listen to our fourth quarter earnings Conference Call on Tuesday, February 25, 2014 at 10:00 a.m. (Central Time). The conference call will be webcast simultaneously on FelCor’s website at www.felcor.com. Interested investors and other parties who wish to access the call can go to FelCor’s website and click on the conference call microphone icon on the “Investor Relations” page. The conference call replay will also be archived on the Company’s website.

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.

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 and year ended December 31, 2013.

The following tables set forth occupancy, ADR and RevPAR for the three months and year ended December 31, 2013 and 2012, and the percentage changes therein for the periods presented, for our same-store Consolidated Hotels included in continuing operations.

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.