IRVING, Texas--FelCor Lodging Trust today reported operating results for the first quarter ended March 31, 2012.
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First Quarter Summary:
Revenue per available room ("RevPAR") for 69 same-store hotels increased 3.6%. RevPAR for same-store hotels not under renovation or redevelopment increased 7.1%.
Hotel EBITDA margin remained the same as the prior year at 21.8% for the quarter and increased 125 basis points for hotels not under renovation.
Adjusted funds from operations ("FFO") per share were a loss of $0.02, and Adjusted EBITDA was $41.4 million, both of which met the high end of our expectations.
Net loss was $28.9 million.
Agreed to sell six non-strategic hotels for $103 million. Proceeds from the sale will be used to repay $73 million of related debt and other costs with the remaining proceeds used to pay $30 million of accrued preferred dividends.
First Quarter Operating Results:
RevPAR (for 69 same-store hotels) was $95.31, a 3.6% increase compared to the same period in 2011. The increase was driven by a 3.5% increase in average daily rate ("ADR") to $137.02 and a 10 basis point increase in occupancy to 69.6%. RevPAR for hotels not under renovation increased 7.1%.
Commenting on the first quarter, Richard A. Smith, President and Chief Executive Officer of FelCor, said, “We continue to execute our long-term strategic plan. We have six hotels under contract and expect to sell a majority of the remaining non-strategic hotels on the market this year. As part of our previously announced balance restructuring plan, we are using the proceeds to repay debt and pay accrued preferred dividends as we work to substantially reduce leverage, stagger debt maturities and lower our cost of borrowing. The redevelopment projects and value creation plans at our newly acquired hotels are also progressing as expected. These hotels will provide the company with substantial RevPAR and EBITDA growth in the future. For the quarter, RevPAR at our hotels not under renovation was very strong and FFO per share was at the high end of our expectations. These results reflect our high-quality and diversified portfolio as well as strong lodging fundamentals. Corporate transient demand is strong, and group pace continues to slowly improve. Coupled with historically low supply growth, our confidence in a sustained lodging recovery is growing, and we are raising our 2012 outlook. Last quarter, the lodging industry experienced the highest quarterly ADR growth since the first quarter of 2008. As hotels approach prior peak occupancy levels, ADR growth should continue to accelerate."
Hotel EBITDA was $48.2 million, 3.5% higher than $46.6 million for the same period in 2011. Hotel EBITDA and other same-store metrics reflect 69 consolidated hotels (45 core hotels plus 24 non-strategic hotels). Same-store metrics include Royalton and Morgans, which were acquired in May 2011, and exclude six hotels held for sale at March 31, 2012, which are included in discontinued operations. Hotel EBITDA for the hotels not under renovation and redevelopment increased 12.6% compared to the prior year period. Displacement from renovations and redevelopments during the quarter negatively impacted Hotel EBITDA by $3 million.
Adjusted FFO was a loss of $2.1 million, or $0.02 per share, which is the same as the prior year and met the high end of our expectations.
Adjusted EBITDA (which includes our pro rata share from joint ventures) was $41.4 million, 6.3% lower than the same period in 2011. Same-store Adjusted EBITDA was $37.2 million, 7.2% higher than the $34.7 million for the same period in 2011.
Net loss attributable to common stockholders was $38.1 million, or $0.31 per share for the quarter, compared to a net loss of $41.3 million, or $0.43 per share, for the same period in 2011.
EBITDA, Adjusted EBITDA, same-store Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA margin, FFO, Adjusted FFO and Adjusted FFO per share are all non-GAAP financial measures. See our discussion of “Non-GAAP Financial Measures” beginning on page 16 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:
We have agreed to sell six non-strategic hotels for $103.0 million, in aggregate, which represents a 6.8% cap rate based on 2011 net operating income. The purchaser has made a $3.9 million hard money deposit toward the purchase price, and the transaction is expected to close late in the second quarter. After repaying $73 million of secured debt and other costs at closing, we will use the remaining $30 million of proceeds to pay a portion of the accrued preferred dividends (almost half of the $67.8 million arrearage) in conjunction with paying regular quarterly preferred dividends on July 31, 2012. We expect that the remaining accrued dividends will be paid in 2012 using proceeds from future asset sales.
As part of our long-term portfolio repositioning strategy, we are selling 39 non-strategic hotels, including nine sold to date. We are currently marketing 10 hotels, and have six additional hotels currently under contract. We expect to generate approximately $350 million in gross proceeds from selling these 16 hotels. We will be using these funds to pay all accrued preferred dividends, reduce debt and strengthen our balance sheet. We expect to bring the 14 remaining hotels to market in late 2012 or in early 2013. The proceeds from selling these hotels will allow us to continue to reduce debt, build a sound and flexible balance sheet, and improve long-term FFO and stockholder value.
Capital Expenditures:
In the quarter, we spent $41.6 million on capital improvements at our hotels (including our pro rata share of joint venture expenditures). During 2012, the company anticipates spending approximately $85 million on improvements and renovations, a majority of which is focused on 11 hotels, including four of our largest properties. Please see page 11 of this release for more detail on renovations. We expect to spend an additional $35 million on value-enhancing redevelopment projects at three hotels: Morgans, Myrtle Beach Oceanfront Resort-Embassy Suites, and the Boston Copley Plaza-Fairmont.
During the quarter, we were renovating or redeveloping 10 hotels. As of April, we had substantially completed renovations or redevelopments at seven of these hotels. RevPAR for the 10 hotels under renovation decreased 19.6% during the quarter. These hotels are expected to generate above market growth for the remainder of 2012.
Balance Sheet:
At March 31, 2012, we had $1.6 billion of consolidated debt, with an average interest rate of 7.5% and weighted average maturity of 4.4 years. We had $98.2 million of cash and cash equivalents and $189 million available under our line of credit.
Andrew J. Welch, FelCor's Executive Vice President and Chief Financial Officer, said, "We have made solid strides laying the foundation for building a strong and flexible balance sheet, and expect that the remainder of the year will continue to see substantial progress. Selling non-strategic hotels and paying accrued preferred dividends this year are important steps toward that goal. Also, as we sell hotels this year, we expect to repay our only loan that matures in 2013 with sale proceeds and to refinance a $108 million mortgage loan that would otherwise mature in 2014. By the end of 2014, our balance sheet will reflect substantially improved financing costs, well-staggered debt maturities and a significant number of unencumbered hotels."
Outlook:
We are increasing our 2012 operating outlook to reflect strong first quarter results that were at the high end of our expectations and higher RevPAR for the remainder of the year. Additionally, we are adjusting our outlook to reflect anticipated asset sales. Our previous outlook did not contemplate any asset sales. However, given the solid progress of the asset sale program and the strong interest from potential buyers, we now assume (for guidance purposes) that 18 hotels are sold during 2012 (all of the 16 hotels currently on the market plus two additional hotels for which we have received unsolicited offers). The previously announced sale of the six-hotel portfolio for $103 million is expected to occur May 31. The revised low end of our outlook reflects the sale of the 12 remaining hotels during the middle of the third quarter. The high end of our outlook reflects the sale of the 12 remaining hotels during the middle of the fourth quarter.
