FelCor Reports Third Quarter 2015 Earnings

FelCor Lodging Trust Incorporated (NYSE: FCH) today reported results for the third quarter ended September 30, 2015.

Third Quarter Highlights

• Same-store RevPAR increased 7.0% over the same period in 2014. Same-store RevPAR increased 10.0% in September.
• Hotel EBITDA margins increased 225 basis points over the same period in 2014.
• Adjusted FFO per share increased to $0.25 from $0.21 in the prior year.
• Adjusted EBITDA was $65.1 million and same-store Adjusted EBITDA increased by $8.2 million, or 14.9%, to $63.5 million compared to the same period in 2014.
• Net loss per share was $0.10.
• Sold two hotels for aggregate gross proceeds of $41.5 million.

“We are pleased with our progress this year. We have completed the non-strategic asset sale program and are realizing the returns from our repositioning and renovation efforts. We have created a high-quality and well-positioned portfolio that will continue to outperform the industry. We also completed several balance sheet initiatives that lowered our cost of debt, created the best debt maturity profile in the industry and will allow us to pursue opportunities that best drive stockholder value,” said Richard A. Smith, President and Chief Executive Officer of FelCor.

Mr. Smith added, “We remain optimistic about the future of the lodging industry. Although there were pockets of volatility during the quarter, we believe they do not reflect a lasting trend. September was particularly strong, with 10% RevPAR growth, as corporate travel bounced back solidly from a mid-quarter slow down. We expect demand growth to continue to outpace new supply, especially in our markets. This dynamic will allow us to continue to increase ADR across our portfolio.”

RevPAR for our 39 same-store hotels increased 7.0% (to $153.70) from the same period in 2014. The change reflects a 6.2% increase in ADR (to $190.19) and a 0.7% increase in occupancy (to 80.8%). Hotel EBITDA for our 39 same-store hotels increased by 14.9% to $66.9 million and Hotel EBITDA margin was 31.5% during the quarter, a 225 basis point increase.

RevPAR for our 39 same-store hotels increased 9.1% in July, 1.9% in August and 10.0% in September. Corporate transient and group room nights decreased in August, which led to a 2.4% decline in occupancy. Occupancy in September increased 4.6%. RevPAR in September was above our expectations, as demand trends rebounded significantly.

RevPAR for the eight Wyndham hotels (which we converted from Holiday Inn on March 1, 2013) increased 13.0% (to $142.70) from the same period in 2014. We expect revenue and EBITDA at these properties will continue to grow meaningfully this year because of their recent renovations and repositioning to the upper-upscale segment. Wyndham Worldwide Corporation has guaranteed the minimum annual NOI for these hotels through 2023. We recorded $258,000 of the guaranteed amount in the quarter.

See page 14 for hotel portfolio composition and pages 15-17 and 21-22 for more detailed hotel portfolio operating data.

Same-store Adjusted EBITDA increased 14.9% to $63.5 million from the same period in 2014. Adjusted EBITDA (which includes Adjusted EBITDA from sold hotels) was $65.1 million.

Adjusted FFO was $35.7 million ($0.25 per share), compared to $26.7 million ($0.21 per share) for the same period in 2014. Net loss attributable to common stockholders was $14.5 million ($0.10 per share) in 2015, compared to net income of $62.7 million ($0.50 per share) for the same period in 2014. Net loss for the third quarter 2015 included a $20.9 million impairment charge. Net income in 2014 included $29.6 million of net gain on the sale of consolidated hotels, a $30.2 million gain on the sale of our interest in unconsolidated hotels, and a $20.7 million gain on the fair value remeasurement of previously unconsolidated hotels.

Year-to-Date Operating Results

RevPAR for our 39 same-store hotels increased 9.0% (to $148.05) from the same period in 2014. The change reflects a 6.4% increase in ADR (to $187.60) and a 2.5% increase in occupancy (to 78.9%). Hotel EBITDA for our 39 same-store hotels increased 17.5% to $191.1 million, and Hotel EBITDA margin for these properties increased 222 basis points to 30.5%.

Same-store Adjusted EBITDA increased 19.3% to $177.8 million from the same period in 2014. Adjusted EBITDA (which includes Adjusted EBITDA from sold hotels) increased 7.7% to $184.7 million from the same period in 2014.

Adjusted FFO was $93.3 million ($0.68 per share), compared to $63.7 million ($0.51 per share) for the same period in 2014. Net loss attributable to common stockholders was $34.7 million ($0.26 per share) in 2015, compared to a net income of $52.8 million ($0.43 per share) for the same period in 2014. Net loss in 2015 included $30.9 million in debt extinguishment charges and a $20.9 million impairment charge offset by a $19.9 million net gain on the sale of consolidated hotels (including discontinued operations) and a $7.1 million gain on sale of an unconsolidated joint venture. Net income in 2014 included $51.0 million of net gain on the sale of consolidated hotels, a $30.2 million gain on the sale of our interest in unconsolidated hotels, and a $20.7 million gain on the fair value remeasurement of previously unconsolidated hotels.

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 17 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 Management

During the third quarter, we completed the final phase of our portfolio repositioning program. Since December 2010, we have sold 40 non-strategic hotels for total gross proceeds of $844 million (which reflects our pro rata share from disposing of joint venture hotels).

During the third quarter, we sold two hotels - the Holiday Inn Orlando-Airport and the Embassy Suites Chicago-Lombard (for gross proceeds of $14 million and $28 million, respectively). Proceeds from the asset sales were used to repay debt.

We continually strive to increase long-term stockholder value. As part of this on-going pursuit, we look for opportunities to recycle capital that can be redeployed to achieve superior returns. In accordance with our strategy, our Board has approved the sale of four hotels (inclusive of selling a minority interest in one hotel), which we will begin marketing shortly. We are taking advantage of favorable current market pricing and expect these hotels to be sold at high multiples to current EBITDA. Net proceeds from future asset sales will be used to repurchase stock, fund high-ROI redevelopments, repay debt and fund other growth opportunities.

Our discussions have begun with Morgans Hotel Group regarding their management of our Morgans and Royalton hotels, and we will provide updates as appropriate.

Stock Repurchase Program

Our Board has approved a stock repurchase program. Under the new stock repurchase program, we may repurchase up to $100 million of our common stock over the next two years. Under the program, we would repurchase shares from time to time in transactions on the open market, in privately-negotiated transactions or by other means, including Rule 10b5-1 trading plans, in accordance with applicable securities laws and other restrictions. There is no guaranty as to the number of shares that will be repurchased (if any), and we may extend, suspend or discontinue our repurchase program at any time without notice at our discretion. Repurchased shares will be re-designated as authorized but unissued.

Balance Sheet

As of September 30, 2015, we had $1.4 billion of consolidated debt bearing a 5.2% weighted average interest rate and an eight-year weighted-average maturity. We had $56.9 million of cash and cash equivalents and $24.7 million of restricted cash, of which $6.3 million secured our Knickerbocker construction loan.

“With the portfolio and balance sheet transformation completed, our financial condition is in great shape. We are on track to meet our leverage goal by the end of next year, as the Wyndham portfolio and Knickerbocker stabilize. Our leverage will improve further with the contemplated opportunistic asset sales. During 2015, we significantly reduced our cost of debt, mitigated rising interest rate risk and further staggered our already exceptional maturity profile. We have no material debt maturing until 2020 and a weighted average debt maturity of 2023. Our weighted-average cost of debt is approximately 110 basis points lower than at December 31, 2013. We now have 18 unencumbered properties,” said Michael C. Hughes, Executive Vice President and Chief Financial Officer of FelCor.

Common Dividend

During the third quarter, we declared a $0.04 per share common stock dividend, which will be paid in October. Our Board of Directors will determine future quarterly common stock dividends based on funds available for distribution, reinvestment opportunities within our portfolio and taxable income, among other things.

Capital Expenditures

During the third quarter, we invested $11.5 million in capital improvements at our hotels (excluding The Knickerbocker, in which we invested $10.0 million during the quarter). During 2015, we plan to invest approximately $45 million in capital improvements and renovations, concentrated at five hotels, as part of our long-term capital plan. Please see page 12 of this release for more detail on renovations.

Outlook and The Knickerbocker Update

We have lowered our EBITDA guidance by $6.0 million (mid-point) to account for lower than expected August results and updated Knickerbocker operations. Our same-store RevPAR expectations for the fourth quarter remain unchanged.

Our updated forecast for The Knickerbocker primarily reflects strict inventory control that is necessary to maintain rate integrity. After successful revenue management changes in early September, ADR is trending within our expectations. Since Labor Day, ADR has been roughly $500 and we will maintain this aggressive rate positioning going forward. We continue to expect that the hotel will meet or exceed our stabilized forecast.

Our outlook assumes EBITDA for the Wyndham hotels equals the aggregate amounts guaranteed by Wyndham for the year.

For the year, we expect:

• RevPAR for same-store hotels will increase 8.75 - 9.0%;
• Adjusted EBITDA will be $236.5 million - 240.5 million;
• Adjusted FFO per share will be $0.83 - 0.86;
• Net loss attributable to FelCor will be $5.3 million - 1.3 million; and
• Interest expense, including our pro rata share from joint ventures, will be approximately $80.0 million.

The following table reconciles our Adjusted EBITDA outlook (in millions):

About FelCor

FelCor Lodging Trust Incorporated, a real estate investment trust (REIT), owns a diversified portfolio of primarily upper-upscale and luxury hotels that are located in major urban and resort markets throughout the U.S. FelCor partners with top hotel companies that operate its properties under globally renowned names and as premier independent hotels. Additional information can be found on the Company’s website at www.felcor.com.

We invite you to listen to our third quarter earnings Conference Call on Tuesday, October 27, 2015 at 11:00 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 and nine months ended September 30, 2015.

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.