Hotels

FelCor Reports Second Quarter 2017 Earnings

FelCor Reports Second Quarter 2017 Earnings

FelCor

FelCor Lodging Trust Incorporated (NYSE: FCH) yesterday reported results for the second quarter ended June 30, 2017.

Second Quarter Highlights

  • Same-store RevPAR was $161.98 compared to $163.62 for the same period in 2016.
  • Net loss attributable to FelCor common stockholders was $8.0 million, or $0.06 per share, versus net income of $7.1 million, or $0.05 per share, for the same period in 2016.
  • Adjusted FFO per share was $0.26 versus $0.32 for the same period in 2016.
  • Same-store Adjusted EBITDA was $65.0 million versus $67.9 million for the same period in 2016.

“We are pleased to have completed the sale of Morgans New York and The Royalton,” said Steven R. Goldman, FelCor’s Chief Executive Officer. “Regarding our merger with RLJ, we are excited by the opportunity to participate in creating a leading lodging REIT with a greater reach in key markets, streamlined operating structure and improved cost of capital. Our team is working diligently with RLJ to effect a timely close and efficient transition.”

Second Quarter Hotel Results

   Second Quarter
    2017    2016   Change
Same-store hotels (36)         
RevPAR  $161.98   $163.62   (1.0)%
Total hotel revenue, in millions  $211.9   $212.7   (0.4)%
Hotel EBITDA, in millions  $69.2   $72.3   (4.3)%
Hotel EBITDA margin   32.7%   34.0%  (135) bps
              

RevPAR for our 36 same-store hotels was $161.98 compared to $163.62 for the same period in 2016. The change reflects a 0.4% increase in occupancy (to 83.2%) offset by a 1.4% reduction in average daily rate, or ADR, (to $194.81). Hotel EBITDA for our 36 same-store hotels was $69.2 million compared to $72.3 million, and Hotel EBITDA margin was 32.7% compared to 34.0% in the prior year quarter. RevPAR was particularly affected by weakness at hotels in San Francisco, which constitute 17% of our available rooms. Excluding this market, RevPAR growth would have been 0.5% and margins would have been 34.0%.

Wyndham Worldwide Corporation has guaranteed minimum annual NOI for eight of our hotels over the 10-year terms of the management agreements. Hotel EBITDA for the three months ended June 30, 2017 includes $1.4 million of fee reductions related to that guaranty compared to $1.5 million during the same period last year.

Second Quarter Operating Results

   Second Quarter
$ in millions, except for per share information  2017  2016  Change
Net income (loss) attributable to FelCor common stockholders  $(8.0)  $7.1  $(15.1)
Net income (loss) per share  $(0.06)  $0.05  $(0.11)
Same-store Adjusted EBITDA  $65.0   $67.9   (4.2)%
Adjusted EBITDA  $64.7   $72.4   (10.6)%
Adjusted FFO per share  $0.26   $0.32  $(0.06)
               

Net loss attributable to common stockholders was $8.0 million, or $0.06 per share, in 2017, compared to net income of $7.1 million, or $0.05 per share, for the same period in 2016. Net loss in 2017 includes a $10.3 million impairment charge, reflecting further basis reduction for two hotels held for sale at June 30, 2017. Net income for the same period in 2016 includes a $6.3 million impairment charge attributable to one hotel sold in the third quarter of 2016.

Year-to-Date Operating Results

Net loss attributable to common stockholders was $50.2 million, or $0.36 per share, in 2017, compared to $4.1 million, or $0.03 per share, for the same period in 2016. Net loss in 2017 includes an impairment charge of $35.1 million, reflecting a reduction in basis for two hotels held for sale at June 30, 2017. Net loss for the same period in 2016 includes an impairment charge of $6.3 million attributable to one hotel sold in the third quarter of 2016.

RevPAR for our 36 same-store hotels was $151.99 compared to $153.45 for the same period in 2016. The change reflects ADR of $192.20 compared to $193.36 and 0.4% lower occupancy (to 79.1%). Hotel EBITDA for our 36 same-store hotels was $116.2 million compared to $121.8 million, and Hotel EBITDA margin was 29.5% compared to 30.7%.

Adjusted FFO was $48.7 million ($0.35 per share) compared to $64.3 million ($0.46 per share) for the same period in 2016.

Same-store Adjusted EBITDA was $107.0 million versus $112.4 million for the same period in 2016.

Balance Sheet

At June 30, 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 $58.1 million of cash and cash equivalents on hand and $24.2 million of restricted cash.

Asset Sales

We sold two hotels, Morgans New York in July 2017 and The Royalton in August 2017, for $92 million in aggregate gross proceeds.

Common Dividend

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

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 completed our Myrtle Beach project last quarter, as scheduled and under budget. Also, Phase I of our Vinoy redevelopment is substantially complete and within budget. These redevelopments are intended to enhance our portfolio quality and offer attractive returns. During the six months ended June 30, 2017, we spent $42.1 million on renovations and redevelopments at our hotels.

Outlook

As discussed in our prior earnings release, given our pending merger with RLJ, we are not providing any further updates to our guidance for the remainder of the year.

Merger with RLJ

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 will receive 0.362 RLJ common shares for each share of our common stock. The transaction is expected to close on August 31, 2017 and is subject to customary closing conditions, including the approval of both companies’ shareholders at their respective special meetings on August 15, 2017.

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 described elsewhere in this release, RLJ has filed with the SEC a registration statement on Form S-4 (File No. 333-218439), and RLJ and FelCor have filed with the SEC a definitive joint proxy statement/prospectus, which was first mailed to security holders of RLJ and FelCor on July 18, 2017. RLJ and FelCor filed a supplement to the joint proxy statement/prospectus on August 7, 2017 and plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ALL RELATED SUPPLEMENTS AND AMENDMENTS THERETO AND ALL 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 all related supplements and amendments and all other relevant documents (if and when they become available) filed by RLJ and FelCor with the SEC at the SEC’s website at . Copies of the documents filed by RLJ with the SEC will be available free of charge on RLJ’s website at or by contacting RLJ Investor Relations at or at 301-280-7774. Copies of the documents filed by FelCor with the SEC will be available free of charge on FelCor’s website at or by contacting FelCor Investor Relations at or at 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 Amendment No. 1 to FelCor’s Annual Report on Form 10-K for the year ended December 31, 2016 on Form 10-K/A filed with the SEC on April 28, 2017 and in Form 4s of FelCor’s directors and executive officers filed with the SEC. Additional information regarding the interests of such potential participants is included in the joint proxy statement/prospectus and other relevant documents filed with the SEC in connection with the proposed merger. 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 and six months ended June 30, 2017.

 
 

TABLE OF CONTENTS

 
    Page
Consolidated Statements of Operations(a)

7

Consolidated Balance Sheets(a)8
Consolidated Debt Summary9
Schedule of Encumbered Hotels10
Capital Expenditures10
Total Enterprise Value11
Hotel Operating Statistics13
Historical Quarterly Operating Statistics14
Non-GAAP Financial Measures14
 
 
Consolidated Statements of Operations

(in thousands, except per share data)

 
  Three Months Ended  Six Months Ended
June 30,June 30,
 2017    2016  2017    2016 
Revenues:
Hotel operating revenue:
Room$168,772$181,318$313,705$340,394
Food and beverage37,92143,69769,99583,229
Other operating departments12,42311,74623,11222,595
Other revenue 1,324  1,145  1,732  1,832 
Total revenues 220,440  237,906  408,544  448,050 
Expenses:
Hotel departmental expenses:
Room43,48344,74884,16187,447
Food and beverage28,28132,59254,50363,548
Other operating departments3,9474,0397,4807,822
Other property-related costs52,22056,007103,075111,573
Management and franchise fees7,7268,50115,27617,726
Taxes, insurance and lease expense15,45414,86429,35628,446
Corporate expenses6,2816,04713,22114,447
Depreciation and amortization27,52829,17755,36658,360
Impairment10,2716,33335,1096,333
Other expenses 7,331  2,142  8,591  2,970 
Total operating expenses 202,522  204,450  406,138  398,672 
Operating income17,91833,4562,40649,378
Interest expense, net(19,416)(19,907)(38,702)(39,627)
Other gains, net 100  100  100  100 
Income (loss) before equity in income from unconsolidated entities(1,398)13,649(36,196)9,851
Equity in income from unconsolidated entities 648  726  518  572 
Income (loss) from continuing operations before income tax(750)14,375(35,678)10,423
Income tax (503) 25  (1,050) (390)
Income (loss) from continuing operations before loss on sale of hotels(1,253)14,400(36,728)10,033
Loss on sale of hotels (207) (630) (873)  (1,344)
Net income (loss) and comprehensive income (loss)(1,460)13,770(37,601)8,689
Net loss attributable to noncontrolling interests in other partnerships3316437487
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP35(31)22117
Preferred distributions – consolidated joint venture (367) (364) (727) (724)
Net income (loss) and comprehensive income (loss) attributable to FelCor(1,759)13,391(37,670)8,469
Preferred dividends (6,279) (6,279) (12,558) (12,558)
Net income (loss) attributable to FelCor common stockholders$(8,038)$7,112 $(50,228)$(4,089)
Basic and diluted per common share data:
Net income (loss)$(0.06)$0.05 $(0.36)$(0.03)
Basic weighted average common shares outstanding 137,866  138,182  137,820  138,930 
Diluted weighted average common shares outstanding 137,866  138,678  137,820  138,930 
 
Dividends declared per common share$0.06 $0.06 $0.12 $0.12 
 
 
Consolidated Balance Sheets

(in thousands, except par values)

 
  June 30,  December 31,
 2017  2016 
Assets
Investment in hotels, net of accumulated depreciation of $932,184 and $932,886 at June 30, 2017 and December 31, 2016, respectively$1,448,346$1,566,823
Investment in unconsolidated entities7,6578,312
Hotels held for sale77,937—
Cash and cash equivalents58,13547,317
Restricted cash24,19919,491
Accounts receivable, net of allowance for doubtful accounts of $184 and $177 at June 30, 2017 and December 31, 2016, respectively43,92342,080
Deferred expenses, net of accumulated amortization of $3,895 and $2,959 at June 30, 2017 and December 31, 2016, respectively3,5914,527
Other assets 20,240  18,542 
Total assets$1,684,028 $1,707,092 
Liabilities and Equity
Debt, net of unamortized debt issuance costs of $14,803 and $15,967 at June 30, 2017 and December 31, 2016, respectively$1,360,071$1,338,326
Distributions payable14,88714,858
Accrued expenses and other liabilities 135,792  116,437 
Total liabilities 1,510,750  1,469,621 
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP, 610 units issued and outstanding at June 30, 2017 and December 31, 2016 4,400  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 June 30, 2017 and December 31, 2016309,337309,337
Common stock, $0.01 par value, 200,000 shares authorized; 138,412 and 137,990 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively1,3841,380
Additional paid-in capital2,580,5392,576,988
Accumulated deficit (2,774,178) (2,706,408)
Total FelCor stockholders’ equity117,082181,297
Noncontrolling interests in other partnerships7,3657,503
Preferred equity in consolidated joint venture, liquidation value of $45,373 and $44,667 at June 30, 2017 and December 31, 2016, respectively 44,431  43,783 
Total equity 168,878  232,583 
Total liabilities and equity$1,684,028 $1,707,092 
 
 
Consolidated Debt Summary

(dollars in thousands)

 
  Encumbered Hotels  Interest

Rate (%)

  Maturity Date  June 30, 2017  December 31, 2016
Senior unsecured notes— 6.00June 2025$475,000$475,000
Senior secured notes95.625March 2023525,000525,000
Mortgage debt(a)44.95October 2022118,971120,109
Mortgage debt14.94October 202229,90330,184
Line of credit(b)7LIBOR + 2.75June 2019141,000119,000
Mortgage debt(c)1 LIBOR + 3.00November 2017 85,000  85,000 
Total22 $1,374,874$1,354,293
Unamortized debt issuance costs (14,803) (15,967)
Debt, net of unamortized debt issuance costs$1,360,071 $1,338,326 
 
 
Schedule of Encumbered Hotels
(dollars in millions)
 
Consolidated  
DebtJune 30, 2017Encumbered 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$26Napa Valley – ES
Mortgage debt$34Ft. Lauderdale – ES
Mortgage debt$23Birmingham – ES
Mortgage debt$36Minneapolis Airport – ES
Mortgage debt$30Deerfield Beach – ES
Line of credit$141Austin – 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$85The Knickerbocker
 
 
Capital Expenditures

(dollars in thousands)

 
  Three Months Ended  Six Months Ended
June 30,June 30,
 2017    2016  2017    2016 
Improvements and additions to majority-owned hotels$22,459$17,901$41,921$31,909
Partners’ pro rata share of additions to consolidated joint venture hotels(29)(127)(63)(225)
Pro rata share of additions to unconsolidated hotels 88  159  277  417 
Total additions to hotels(a)$22,518 $17,933 $42,135 $32,101 
 
 
Total Enterprise Value

(in thousands, except per share data)

 
  June 30,  December 31,
 2017  2016 
Common shares outstanding138,412137,990
Units outstanding 610  610 
Combined shares and units outstanding139,022138,600
Common stock price$7.21 $8.01 
Market capitalization$1,002,349$1,110,186
Series A preferred stock(a)321,987321,987
Preferred equity – Knickerbocker joint venture, net42,20941,594
Consolidated debt (b)1,374,8741,354,293
Noncontrolling interests of consolidated debt(4,250)(4,250)
Pro rata share of unconsolidated debt11,02611,167
Cash, cash equivalents and restricted cash (82,334) (66,808)
Total enterprise value (TEV)$2,665,861 $2,768,169 
 
 

Hotel Operating Statistics

 
  Occupancy (%)  ADR ($)  RevPAR ($)
Three Months Ended June 30,Three Months Ended June 30,Three Months Ended June 30,

Same-store Hotels

2017  2016  %Change2017  2016  %Change2017  2016  %Change
Embassy Suites Atlanta-Buckhead71.780.7(11.2)144.71154.42(6.3)103.77124.66(16.8)
DoubleTree Suites by Hilton Austin87.188.6(1.7)224.51217.743.1195.64193.011.4
Embassy Suites Birmingham80.680.30.4142.04143.14(0.8)114.46114.88(0.4)
The Fairmont Copley Plaza, Boston87.783.25.4359.69366.02(1.7)315.32304.573.5
Wyndham Boston Beacon Hill89.586.93.0264.45258.352.4236.77224.625.4
Embassy Suites Boston-Marlborough77.177.2(0.1)164.34175.60(6.4)126.66135.52(6.5)
Sheraton Burlington Hotel & Conference Center73.072.01.3125.14123.441.491.2988.862.7
The Mills House Wyndham Grand Hotel, Charleston88.291.7(3.8)273.10262.484.0240.95240.670.1
Embassy Suites Dallas-Love Field81.378.53.5147.42141.993.8119.89111.527.5
Embassy Suites Deerfield Beach-Resort & Spa83.181.32.2172.33174.71(1.4)143.14142.020.8
Embassy Suites Fort Lauderdale 17th Street82.079.92.7152.60157.06(2.8)125.20125.52(0.3)
Wyndham Houston-Medical Center Hotel & Suites74.080.3(7.9)140.49152.72(8.0)103.98122.70(15.3)
The Knickerbocker- New York84.989.9(5.5)352.19336.794.6299.11302.77(1.2)
Embassy Suites Los Angeles-International Airport/South91.585.57.0171.29173.74(1.4)156.76148.635.5
Embassy Suites Mandalay Beach-Hotel & Resort87.986.41.8219.95233.46(5.8)193.44201.60(4.0)
Embassy Suites Miami-International Airport80.484.5(4.9)125.45130.21(3.6)100.88110.04(8.3)
Embassy Suites Milpitas-Silicon Valley82.884.8(2.3)209.86203.163.3173.81172.200.9
Embassy Suites Minneapolis-Airport79.378.60.8144.48157.60(8.3)114.55123.91(7.6)
Embassy Suites Myrtle Beach-Oceanfront Resort91.585.57.0171.29173.74(1.4)156.76148.635.5
Hilton Myrtle Beach Resort74.574.30.2169.01158.896.4125.91118.126.6
Embassy Suites Napa Valley83.283.6(0.4)264.84257.772.7220.48215.392.4
Wyndham New Orleans-French Quarter81.681.20.4137.06151.61(9.6)111.82123.14(9.2)
Embassy Suites Orlando-International Drive South/Convention Center83.773.314.2164.86138.3119.2137.94101.3436.1
DoubleTree Suites by Hilton Orlando-Lake Buena Vista87.491.7(4.6)149.69138.997.7130.84127.392.7
Wyndham Philadelphia Historic District84.085.3(1.5)171.11163.194.9143.78139.253.3
Sheraton Philadelphia Society Hill Hotel77.981.4(4.3)192.03193.05(0.5)149.65157.15(4.8)
Embassy Suites Phoenix-Biltmore74.770.56.0160.29159.690.4119.75112.586.4
Wyndham Pittsburgh University Center79.877.72.7146.85153.69(4.5)117.20119.43(1.9)
Wyndham San Diego Bayside80.177.92.7162.83161.970.5130.39126.253.3
Embassy Suites San Francisco Airport-South San Francisco91.889.42.8190.76208.42(8.5)175.21186.23(5.9)
Embassy Suites San Francisco Airport-Waterfront91.792.0(0.3)206.58207.43(0.4)189.41190.75(0.7)
Holiday Inn San Francisco-Fisherman’s Wharf92.389.82.7186.00207.18(10.2)171.63186.12(7.8)
San Francisco Marriott Union Square87.290.8(3.9)266.56291.00(8.4)232.40264.08(12.0)
Wyndham Santa Monica At the Pier90.287.13.5265.81273.84(2.9)239.63238.440.5
Embassy Suites Secaucus-Meadowlands82.279.53.5183.10188.41(2.8)150.56149.730.5
The Vinoy Renaissance St. Petersburg Resort & Golf Club83.3 83.9 (0.8)218.24 220.88 (1.2)181.79 185.39 (1.9)

Same-store Hotels(a)

83.2 82.8 0.4 194.81 197.55 (1.4)161.98 163.62 (1.0)
 
 

Hotel Operating Statistics

 
  Occupancy (%)  ADR ($)  RevPAR ($)
Six Months Ended June 30,Six Months Ended June 30,Six Months Ended June 30,

Same-store Hotels

2017  2016  %Change2017  2016  %Change2017  2016  %Change
Embassy Suites Atlanta-Buckhead72.580.8(10.3)155.37156.78(0.9)112.68126.72(11.1)
DoubleTree Suites by Hilton Austin86.285.70.6237.86228.524.1205.14195.944.7
Embassy Suites Birmingham80.080.5(0.6)138.03138.46(0.3)110.37111.40(0.9)
The Fairmont Copley Plaza, Boston75.173.62.0312.43316.53(1.3)234.51232.970.7
Wyndham Boston Beacon Hill81.475.48.0212.86218.60(2.6)173.23164.745.2
Embassy Suites Boston-Marlborough67.171.0(5.5)162.69171.95(5.4)109.17122.04(10.5)
Sheraton Burlington Hotel & Conference Center68.370.3(2.8)109.71108.670.974.9576.36(1.8)
The Mills House Wyndham Grand Hotel, Charleston82.784.9(2.6)248.11236.395.0205.07200.652.2
Embassy Suites Dallas-Love Field80.181.9(2.2)150.50142.785.4120.62116.943.1
Embassy Suites Deerfield Beach-Resort & Spa83.384.8(1.8)212.82224.15(5.1)177.22189.99(6.7)
Embassy Suites Fort Lauderdale 17th Street84.786.6(2.3)195.54197.07(0.8)165.59170.75(3.0)
Wyndham Houston-Medical Center Hotel & Suites75.883.2(8.8)152.40156.30(2.5)115.58130.01(11.1)
The Knickerbocker- New York77.374.24.1315.56308.222.4243.85228.756.6
Embassy Suites Los Angeles-International Airport/South90.787.83.3171.21168.081.9155.26147.525.2
Embassy Suites Mandalay Beach-Hotel & Resort81.281.5(0.4)204.75221.16(7.4)166.29180.29(7.8)
Embassy Suites Miami-International Airport83.188.0(5.6)154.89165.04(6.1)128.65145.23(11.4)
Embassy Suites Milpitas-Silicon Valley81.382.8(1.7)205.14207.29(1.0)166.83171.56(2.8)
Embassy Suites Minneapolis-Airport72.973.7(1.1)140.61151.13(7.0)102.48111.36(8.0)
Embassy Suites Myrtle Beach-Oceanfront Resort90.787.83.3171.21168.081.9155.26147.525.2
Hilton Myrtle Beach Resort60.161.2(1.9)145.95138.465.487.7284.793.5
Embassy Suites Napa Valley78.381.8(4.3)230.71220.764.5180.54180.47—
Wyndham New Orleans-French Quarter79.977.53.1148.36153.40(3.3)118.49118.84(0.3)
Embassy Suites Orlando-International Drive South/Convention Center82.480.72.1175.29159.0310.2144.48128.3512.6
DoubleTree Suites by Hilton Orlando-Lake Buena Vista88.692.0(3.6)156.28152.242.7138.54140.00(1.0)
Wyndham Philadelphia Historic District72.070.22.6151.78148.582.1109.23104.264.8
Sheraton Philadelphia Society Hill Hotel67.268.2(1.5)174.96176.18(0.7)117.59120.20(2.2)
Embassy Suites Phoenix-Biltmore75.974.32.1195.33203.61(4.1)148.16151.23(2.0)
Wyndham Pittsburgh University Center70.466.65.7140.27144.69(3.1)98.7396.322.5
Wyndham San Diego Bayside79.677.72.5160.36149.617.2127.71116.289.8
Embassy Suites San Francisco Airport-South San Francisco88.787.41.5195.28202.90(3.8)173.19177.31(2.3)
Embassy Suites San Francisco Airport-Waterfront88.288.6(0.5)210.24205.972.1185.40182.501.6
Holiday Inn San Francisco-Fisherman’s Wharf88.685.93.2185.73201.21(7.7)164.62172.85(4.8)
San Francisco Marriott Union Square85.289.7(5.0)293.18305.12(3.9)249.90273.65(8.7)
Wyndham Santa Monica at the Pier87.187.4(0.3)261.00266.11(1.9)227.41232.64(2.2)
Embassy Suites Secaucus-Meadowlands71.367.06.3176.34181.51(2.8)125.66121.683.3
The Vinoy Renaissance St. Petersburg Resort & Golf Club84.7 86.0 (1.5)241.55 239.00 1.1 204.70 205.65 (0.5)

Same-store Hotels(a)

79.1 79.4 (0.4)192.20 193.36 (0.6)151.99 153.45 (1.0)
 
 

Historical Quarterly Operating Statistics

 
  Occupancy (%)
Q2 2016  Q3 2016  Q4 2016  Q1 2017  Q2 2017
Same-store hotels(a)82.881.973.175.083.2
 
ADR ($)
Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017
Same-store hotels(a)197.55197.88188.39189.28194.81
 
RevPAR ($)
Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017
Same-store hotels(a)163.62161.98137.71141.88161.98

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 Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)
 
  Three Months Ended June 30,
2017  2016
Dollars  Shares  Per Share AmountDollars  Shares  Per Share Amount
Net income (loss)$(1,460)$13,770
Noncontrolling interests68(15)
Preferred dividends(6,279)(6,279)
Preferred distributions – consolidated joint venture (367) (364)
Net income (loss) attributable to FelCor common stockholders(8,038)7,112
Less: Dividends declared on unvested restricted stock (36) (35)
Basic and diluted earnings per share data(8,074)137,866$(0.06)7,077138,182$0.05
Restricted stock units — — —  — 496 — 
Diluted earnings per share data(8,074)137,866(0.06)7,077138,6780.05
Depreciation and amortization27,528—0.2029,177—0.21
Depreciation, unconsolidated entities and other partnerships464——469——
Loss on sale of hotels207—0.01630——
Other gains(100)——(100)——
Impairment10,271—0.076,333—0.05
Noncontrolling interests in FelCor LP(35)610—31611—
Dividends declared on unvested restricted stock3665—3566—
Conversion of unvested restricted stock units — 287 —  — — — 
FFO*30,297138,8280.2243,652139,3550.31
Transaction costs5,844—0.04———
Severance costs———27——
Abandoned projects———383—0.01
Variable stock compensation———(789)—(0.01)
Litigation settlement———650—0.01
Pre-opening costs 532 — —  191 — — 
Adjusted FFO*$36,673 138,828$0.26 $44,114 139,355$0.32 
 
 
Reconciliation of Net Income (Loss) to FFO and Adjusted FFO

(in thousands, except per share data)

 
  Six Months Ended June 30,
2017  2016
Dollars  Shares  Per Share AmountDollars  Shares  Per Share Amount
Net income (loss)$(37,601)$8,689
Noncontrolling interests658504
Preferred distributions – consolidated joint venture(727)(724)
Preferred dividends (12,558) (12,558)
Net loss attributable to FelCor common stockholders(50,228)(4,089)
Less: Dividends declared on unvested restricted stock (73) (73)
Basic and diluted earnings per share data(50,301)137,820$(0.36)(4,162)138,930$(0.03)
Depreciation and amortization55,366—0.3958,360—0.42
Depreciation, unconsolidated entities and other partnerships918—0.01936—0.01
Other gains(100)——(100)——
Impairment35,109—0.256,333—0.05
Loss on sale of hotels873—0.011,344——
Noncontrolling interests in FelCor LP(221)610—(17)611—
Dividends declared on unvested restricted stock7347—7322—
Conversion of unvested restricted stock units — 239—  — 451 — 
FFO*41,717138,7160.3062,767140,0140.45
Hurricane loss17—————
Hurricane loss, unconsolidated entities4—————
Severance costs———27——
Transaction costs6,317—0.05———
Abandoned projects———615——
Variable stock compensation———(27)——
Litigation settlement———650—0.01
Pre-opening costs 665 ——  245 — — 
Adjusted FFO*$48,720 138,716$0.35 $64,277 140,014$0.46 
 
 
Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA

(in thousands)

 
  Three Months Ended  Six Months Ended
June 30,June 30,
 2017    2016  2017    2016 
Net income (loss)$(1,460)$13,770$(37,601)$8,689
Depreciation and amortization27,52829,17755,36658,360
Depreciation, unconsolidated entities and other partnerships464469918936
Interest expense19,46219,92338,78239,655
Interest expense, unconsolidated entities and other partnerships8190165190
Income tax503(25)1,050390
Noncontrolling interests in preferred distributions, consolidated joint venture(18)(18)(36)(36)
Noncontrolling interests in other partnerships 33  16  437  487 
EBITDA*46,59363,40259,081108,671
Impairment10,2716,33335,1096,333
Hurricane loss——17—
Hurricane loss, unconsolidated entities——4—
Loss on sale of hotels2076308731,344
Other gains(100)(100)(100)(100)
Amortization of fixed stock and directors’ compensation1,3941,6932,9883,627
Severance costs—27—27
Transaction costs5,844—6,317—
Abandoned projects—383—615
Variable stock compensation—(789)—(27)
Litigation settlement—650—650
Pre-opening costs 532  191  665  245 
Adjusted EBITDA*64,74172,420104,954121,385
Adjusted EBITDA from held for sale and sold hotels 293  (4,516) 2,014  (9,011)
Same-store Adjusted EBITDA*$65,034 $67,904 $106,968 $112,374 
 
 
Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)

 
  Three Months Ended  Six Months Ended
June 30,June 30,
 2017    2016  2017    2016 
Same-store operating revenue:
Room$162,792$164,439$303,817$308,439
Food and beverage36,97737,50167,91268,195
Other operating departments 12,150  10,795  22,310  20,725 
Same-store operating revenue(a)211,919212,735394,039397,359
 
Same-store operating expense:
Room40,46739,58578,29877,135
Food and beverage26,94827,39551,79052,372
Other operating departments3,8343,6137,2507,025
Other property-related costs50,05849,07498,89497,894
Management and franchise fees7,7277,78615,15116,245
Taxes, insurance and lease expense 13,693  12,946  26,409  24,851 
Same-store operating expense(a) 142,727  140,399  277,792  275,522 
Hotel EBITDA$69,192 $72,336 $116,247 $121,837 
Hotel EBITDA Margin32.7%34.0%29.5%30.7%

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

  

Three months ended June 30, 2017

Same-store Hotels

 Hotel Operating Revenue  Net Income (Loss)  Other Adjustments  Depreciation  Interest Expense  Hotel EBITDA  Hotel EBITDA Margin
Embassy Suites Atlanta-Buckhead$3,341$623$—$504$—$1,12733.7%
DoubleTree Suites by Hilton Austin4,0351,177—4551611,79344.4%
Embassy Suites Birmingham2,701319—4022921,01337.5%
The Fairmont Copley Plaza, Boston18,3782,24712,1944124,85426.4%
Wyndham Boston Beacon Hill7,3182,504—951—3,45547.2%
Embassy Suites Boston-Marlborough2,995731—291—1,02234.1%
Sheraton Burlington Hotel & Conference Center3,686525—629—1,15431.3%
The Mills House Wyndham Grand Hotel, Charleston6,2032,219—5962123,02748.8%
Embassy Suites Dallas-Love Field3,131410—618—1,02832.8%
Embassy Suites Deerfield Beach-Resort & Spa4,184474—4573901,32131.6%
Embassy Suites Fort Lauderdale 17th Street5,007223—7084391,37027.4%
Wyndham Houston-Medical Center Hotel & Suites3,115715(19)519—1,21539.0%
The Knickerbocker- New York12,242(293)852,5709813,34327.3%
Embassy Suites Los Angeles-International Airport/South6,0171,561—6282412,43040.4%
Embassy Suites Mandalay Beach-Hotel & Resort5,7881,491—766—2,25739.0%
Embassy Suites Miami-International Airport3,63159—462—52114.3%
Embassy Suites Milpitas-Silicon Valley4,8691,740—307—2,04742.0%
Embassy Suites Minneapolis-Airport3,350418—3624631,24337.1%
Embassy Suites Myrtle Beach-Oceanfront Resort7,3051,852263652—2,76737.9%
Hilton Myrtle Beach Resort7,3762,416—898—3,31444.9%
Embassy Suites Napa Valley4,8151,23034763392,04842.5%
Wyndham New Orleans-French Quarter4,2401,229—714—1,94345.8%
Embassy Suites Orlando-International Drive South/Convention Center3,236485—537—1,02231.6%
DoubleTree Suites by Hilton Orlando-Lake Buena Vista3,284110—758—86826.4%
Wyndham Philadelphia Historic District5,8941,957—678—2,63544.7%
Sheraton Philadelphia Society Hill Hotel7,1291,645—962—2,60736.6%
Embassy Suites Phoenix-Biltmore2,643325—436—76128.8%
Wyndham Pittsburgh University Center3,457840—501—1,34138.8%
Wyndham San Diego Bayside8,8331,049—1,557—2,60629.5%
Embassy Suites San Francisco Airport-South San Francisco5,9251,585—422—2,00733.9%
Embassy Suites San Francisco Airport-Waterfront7,0101,594—739—2,33333.3%
Holiday Inn San Francisco-Fisherman’s Wharf10,346458—614—1,07210.4%
San Francisco Marriott Union Square9,614805(110)1,3004952,49025.9%
Wyndham Santa Monica at the Pier3,148975—2591671,40144.5%
Embassy Suites Secaucus-Meadowlands3,7867405118—86322.8%
The Vinoy Renaissance St. Petersburg Resort & Golf Club 13,887 812  267  1,463 352 2,89420.8%
$211,919$37,250 $495  $26,503$4,944$69,19232.7%
 
 
  

Three months ended June 30, 2016

Same-store Hotels

Hotel Operating Revenue  Net Income (Loss)  Other Adjustments  Depreciation  Interest Expense  Hotel EBITDA  Hotel EBITDA Margin
Embassy Suites Atlanta-Buckhead$3,928$934$—$604$—$1,53839.2%
DoubleTree Suites by Hilton Austin3,901955—4921901,63742.0%
Embassy Suites Birmingham2,688363—3942971,05439.2%
The Fairmont Copley Plaza, Boston17,7882,386—2,1984855,06928.5%
Wyndham Boston Beacon Hill7,0172,477—981—3,45849.3%
Embassy Suites Boston-Marlborough3,203850—297—1,14735.8%
Sheraton Burlington Hotel & Conference Center3,979584—622—1,20630.3%
The Mills House Wyndham Grand Hotel, Charleston6,4572,346—6322493,22750.0%
Embassy Suites Dallas-Love Field2,875535—349—88430.7%
Embassy Suites Deerfield Beach-Resort & Spa4,233429—4763971,30230.8%
Embassy Suites Fort Lauderdale 17th Street5,092242—7124471,40127.5%
Wyndham Houston-Medical Center Hotel & Suites3,6301,294(19)550—1,82550.3%
The Knickerbocker- New York11,736(859)862,5818602,66822.7%
Embassy Suites Los Angeles-International Airport/South5,5481,328—6342852,24740.5%
Embassy Suites Mandalay Beach-Hotel & Resort5,8901,694—771—2,46541.9%
Embassy Suites Miami-International Airport3,934285—456—74118.8%
Embassy Suites Milpitas-Silicon Valley4,7061,551—301—1,85239.4%
Embassy Suites Minneapolis-Airport3,630477—4334721,38238.1%
Embassy Suites Myrtle Beach-Oceanfront Resort6,8571,575227658—2,46035.9%
Hilton Myrtle Beach Resort6,6661,888—875—2,76341.4%
Embassy Suites Napa Valley4,5181,095—5183451,95843.3%
Wyndham New Orleans-French Quarter4,5731,492—721—2,21348.4%
Embassy Suites Orlando-International Drive South/Convention Center2,318304—269—57324.7%
DoubleTree Suites by Hilton Orlando-Lake Buena Vista3,25993—775—86826.6%
Wyndham Philadelphia Historic District5,8311,81910734—2,56344.0%
Sheraton Philadelphia Society Hill Hotel8,0261,887—974—2,86135.6%
Embassy Suites Phoenix-Biltmore2,640403—431—83431.6%
Wyndham Pittsburgh University Center3,4738063516—1,32538.2%
Wyndham San Diego Bayside8,1631,275—1,560—2,83534.7%
Embassy Suites San Francisco Airport-South San Francisco6,3021,935—415—2,35037.3%
Embassy Suites San Francisco Airport-Waterfront7,0031,149650763—2,56236.6%
Holiday Inn San Francisco-Fisherman’s Wharf10,9251,447—495—1,94217.8%
San Francisco Marriott Union Square10,8091,372(102)1,3425833,19529.6%
Wyndham Santa Monica at the Pier3,1081,31612791971,79357.7%
Embassy Suites Secaucus-Meadowlands3,7647821122—90524.0%
The Vinoy Renaissance St. Petersburg Resort & Golf Club 14,265 1,212  179   1,427 415 3,23322.7%
$212,735$39,721 $1,036  $26,357$5,222$72,33634.0%
  
 

Six months ended June 30, 2017

Same-store Hotels

Hotel Operating Revenue  Net Income (Loss)  Other Adjustments  Depreciation  Interest Expense  Hotel EBITDA  Hotel EBITDA Margin
Embassy Suites Atlanta-Buckhead$7,179$1,650$—$1,023$—$2,67337.2%
DoubleTree Suites by Hilton Austin8,5022,618—9203133,85145.3%
Embassy Suites Birmingham5,16244418025821,82935.4%
The Fairmont Copley Plaza, Boston27,985(1,774)14,4277993,45312.3%
Wyndham Boston Beacon Hill10,9122,130—1,937—4,06737.3%
Embassy Suites Boston-Marlborough5,162898—579—1,47728.6%
Sheraton Burlington Hotel & Conference Center6,24096—1,249—1,34521.6%
The Mills House Wyndham Grand Hotel, Charleston10,8793,079—1,2134114,70343.2%
Embassy Suites Dallas-Love Field6,263763—1,225—1,98831.7%
Embassy Suites Deerfield Beach-Resort & Spa9,8042,259—9257783,96240.4%
Embassy Suites Fort Lauderdale 17th Street12,6722,56311,4228754,86138.4%
Wyndham Houston-Medical Center Hotel & Suites6,8251,871(39)1,060—2,89242.4%
The Knickerbocker-New York19,824(4,718)3635,1341,9012,68013.5%
Embassy Suites Los Angeles-International Airport/South11,9253,013—1,2574694,73939.7%
Embassy Suites Mandalay Beach-Hotel & Resort9,8471,862—1,538—3,40034.5%
Embassy Suites Miami-International Airport9,0541,560—922—2,48227.4%
Embassy Suites Milpitas-Silicon Valley9,4653,095—615—3,71039.2%
Embassy Suites Minneapolis-Airport5,97322517279241,87731.4%
Embassy Suites Myrtle Beach-Oceanfront Resort11,1031,4102661,306—2,98226.9%
Hilton Myrtle Beach Resort10,3351,359141,783—3,15630.5%
Embassy Suites Napa Valley8,1681,29639596762,93435.9%
Wyndham New Orleans-French Quarter8,8772,738—1,431—4,16947.0%
Embassy Suites Orlando-International Drive South/Convention Center6,6551,309—956—2,26534.0%
DoubleTree Suites by Hilton Orlando-Lake Buena Vista6,954454—1,523—1,97728.4%
Wyndham Philadelphia Historic District9,0751,702(3)1,399—3,09834.1%
Sheraton Philadelphia Society Hill Hotel11,7161,285—1,929—3,21427.4%
Embassy Suites Phoenix-Biltmore6,4551,721—871—2,59240.2%
Wyndham Pittsburgh University Center5,791739—997—1,73630.0%
Wyndham San Diego Bayside17,3441,802—3,115—4,91728.3%
Embassy Suites San Francisco Airport-South San Francisco11,6002,887—865—3,75232.3%
Embassy Suites San Francisco Airport-Waterfront13,6632,91711,524—4,44232.5%
Holiday Inn San Francisco-Fisherman’s Wharf19,627468—1,222—1,6908.6%
San Francisco Marriott Union Square20,8892,787(116)2,6039616,23529.8%
Wyndham Santa Monica at the Pier5,9381,969—5223242,81547.4%
Embassy Suites Secaucus-Meadowlands6,3496536222—88113.9%
The Vinoy Renaissance St. Petersburg Resort & Golf Club 29,827 3,385  407   2,928 683 7,40324.8%
$394,039$52,515 $906  $53,130$9,696$116,24729.5%
  
 
 

Six months ended June 30, 2016

Same-store Hotels

Hotel Operating Revenue  Net Income (Loss)  Other Adjustments  Depreciation  Interest Expense  Hotel EBITDA  Hotel EBITDA Margin
Embassy Suites Atlanta-Buckhead$7,970$2,037$—$1,238$—$3,27541.1%
DoubleTree Suites by Hilton Austin7,8862,158—9743723,50444.4%
Embassy Suites Birmingham5,22659417845951,97437.8%
The Fairmont Copley Plaza, Boston27,825(757)(91)4,3779504,47916.1%
Wyndham Boston Beacon Hill10,4861,983—1,972—3,95537.7%
Embassy Suites Boston-Marlborough5,7711,224—593—1,81731.5%
Sheraton Burlington Hotel & Conference Center6,690179—1,243—1,42221.3%
The Mills House Wyndham Grand Hotel, Charleston11,1233,178—1,2694894,93644.4%
Embassy Suites Dallas-Love Field5,9821,176—686—1,86231.1%
Embassy Suites Deerfield Beach-Resort & Spa10,4282,529—9537964,27841.0%
Embassy Suites Fort Lauderdale 17th Street13,0482,71311,4248955,03338.6%
Wyndham Houston-Medical Center Hotel & Suites7,6442,560(38)1,104—3,62647.4%
The Knickerbocker-New York17,690(5,814)3465,1521,5621,2467.0%
Embassy Suites Los Angeles-International Airport/South11,2212,558—1,2765584,39239.1%
Embassy Suites Mandalay Beach-Hotel & Resort10,5062,548—1,542—4,09038.9%
Embassy Suites Miami-International Airport10,0472,175—927—3,10230.9%
Embassy Suites Milpitas-Silicon Valley9,4773,070—603—3,67338.8%
Embassy Suites Minneapolis-Airport6,55634718779452,17033.1%
Embassy Suites Myrtle Beach-Oceanfront Resort11,0511,3432281,333—2,90426.3%
Hilton Myrtle Beach Resort9,720930—1,723—2,65327.3%
Embassy Suites Napa Valley8,0721,24611,0356912,97336.8%
Wyndham New Orleans-French Quarter8,9312,701—1,437—4,13846.3%
Embassy Suites Orlando-International Drive South/Convention Center5,8791,405—540—1,94533.1%
DoubleTree Suites by Hilton Orlando-Lake Buena Vista7,156587—1,541—2,12829.7%
Wyndham Philadelphia Historic District8,8551,308101,483—2,80131.6%
Sheraton Philadelphia Society Hill Hotel12,3891,269—1,953—3,22226.0%
Embassy Suites Phoenix-Biltmore6,7902,039—869—2,90842.8%
Wyndham Pittsburgh University Center5,61548431,035—1,52227.1%
Wyndham San Diego Bayside15,2451,330—3,131—4,46129.3%
Embassy Suites San Francisco Airport-South San Francisco12,0253,384—827—4,21135.0%
Embassy Suites San Francisco Airport-Waterfront13,5342,5136501,512—4,67534.5%
Holiday Inn San Francisco-Fisherman’s Wharf20,3961,743—975—2,71813.3%
San Francisco Marriott Union Square22,7383,745(104)2,7121,1437,49633.0%
Wyndham Santa Monica at the Pier6,0802,30615623863,25553.5%
Embassy Suites Secaucus-Meadowlands6,1415431243—78712.8%
The Vinoy Renaissance St. Petersburg Resort & Golf Club 31,166 4,292  233  2,869 812 8,20626.3%
$397,359$57,626 $1,243 $52,774$10,194$121,83730.7%
 
 
Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total
Revenue, Total Operating Expense and Operating Income

(in thousands)

 
  Three Months Ended  Six Months Ended
June 30,June 30,
 2017    2016  2017    2016 
Same-store operating revenue$211,919$212,735$394,039$397,359
Other revenue1,3241,1451,7321,832
Revenue from held for sale and sold hotels(a) 7,197  24,026  12,773  48,859 
Total revenue220,440237,906408,544448,050
Same-store operating expense142,727140,399277,792275,522
Consolidated hotel lease expense(b)1,4301,3592,2452,161
Unconsolidated taxes, insurance and lease expense(536)(517)(973)(969)
Corporate expenses6,2816,04713,22114,447
Depreciation and amortization27,52829,17755,36658,360
Impairment10,2716,33335,1096,333
Expenses from held for sale and sold hotels(a)7,49019,51014,78739,848
Other expenses 7,331  2,142  8,591  2,970 
Total operating expense 202,522  204,450  406,138  398,672 
Operating income$17,918 $33,456 $2,406 $49,378 

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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