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 FelCor Reports 2003 Net Loss of $337 million Compared
to the Prior Year Net Loss of $205 million; 
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Hotel Portfolio RevPAR for the Full Year 2003 Declines 4.4%
Compared to 2002, Occupancy Decreased to 62.4%
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IRVING, Texas, Feb. 4, 2004 - FelCor Lodging Trust Incorporated (NYSE: FCH), the nation's second largest hotel real estate investment trust (REIT), today reported operating results for the fourth quarter and year ended December 31, 2003.

Fourth Quarter Results:

FelCor's fourth quarter revenues from continuing operations were $292 million in both 2003 and 2002. The Company's fourth quarter hotel portfolio revenue per available room (RevPAR) from continuing operations declined 1.7 percent, compared to fourth quarter of 2002. For the quarter, occupancy increased 0.6 percent, to 58.6 percent, and hotel average daily rate (ADR) decreased 2.3 percent, to $94.02, compared to the same quarter in 2002. For the two most recent consecutive quarters, FelCor's hotel portfolio had occupancy improvement, compared to the same periods in the prior year.

The decline in RevPAR and its effects on revenues during 2003 was offset by the inclusion in revenues of $5 million from consolidating the Interstate Hotels & Resorts joint venture and the operating results of its eight hotels that were accounted for by the equity method until June 2003.

The operating margin from continuing operations of FelCor's hotels during the fourth quarter 2003 was 25.1 percent, which represents a 310 basis point decrease compared to the same period of 2002. The continued deterioration in operating margins principally resulted from the $2.22, or 2.3 percent, decline in ADR, partially offset by slightly higher occupancies. In addition, health and workers compensation insurance put additional pressure on FelCor's operating margins, compared to the same period in 2002.

FelCor's net loss applicable to common stockholders for the fourth quarter of 2003 was $150 million, or a net loss of $2.55 per share. This is compared to the prior year fourth quarter net loss of $185 million, or $3.17 per share. The fourth quarter 2003 loss included an impairment loss of $123 million, or $1.99 per share. The fourth quarter loss in 2002 included an impairment loss of $158 million and a $3 million charge-off of deferred debt costs, which had a combined $161 million, or $2.60 per share impact.

In accordance with the Securities and Exchange Commission's (SEC) guidance on non-GAAP financial measures, Funds From Operations (FFO) and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) have not been adjusted to add back the impairment charges and the charge-off of deferred debt costs. Accompanying this press release is a discussion of the non-GAAP financial measures, FFO and EBITDA, and a reconciliation of these measures to the Company's net loss.

FFO for the fourth quarter of 2003 was a loss of $128 million, compared to the fourth quarter of 2002 loss of $154 million. FFO per share for the fourth quarter of 2003 was a loss of $2.06 (including a $1.99 per share impairment loss), compared to a FFO per share loss of $2.49 during the same period of 2002 (including $2.60 per share resulting from an impairment loss and the charge-off of deferred debt costs).

EBITDA for fourth quarter 2003 reflected a loss of $76 million (including a $123 million impairment loss), compared to a 2002 fourth quarter EBITDA loss of $103 million (including $161 million related to an impairment loss and the charge-off of deferred debt costs).

The fourth quarter 2003 operating results (before impairment losses) were consistent with the low end of the Company's previously provided guidance of an FFO loss of $0.07 per share and EBITDA of $47 million.

Consistent with FelCor's strategic objective to improve its portfolio quality, the Company identified seven additional hotels for sale during the fourth quarter of 2003. The fourth quarter 2003 impairment charge principally resulted from FelCor's decision to sell these non-strategic hotels and reflects the difference between book value and the estimated current fair market value of these hotels.

Of the Company's 161 consolidated hotels, 35 hotels (including two in discontinued operations) have been identified as non-strategic. FelCor expects to sell these non-strategic hotels over the next 24 months with sales proceeds expected to be approximately $250 million. During 2003, the Company disposed of 16 non-strategic hotels and has designated two hotels as held for sale. The operating results of these 18 hotels are included in discontinued operations for 2003 and 2002. Disposition proceeds from the 16 non-strategic hotels and two parking garages sold during 2003 totaled approximately $125 million.

"We continue to focus on our strategy to sell non-strategic hotels in our portfolio and on future acquisitions in low supply-growth markets," said Thomas J. Corcoran, Jr., FelCor's President and CEO. "We believe the worst is over following three tough years for our industry. We are optimistic that we are in the early stages of a recovery and that the positive signs will continue and pricing power will return. FelCor is well positioned for the recovery."

Full Year 2003 Results:

FelCor's revenues from continuing operations for the full year 2003 were $1.2 billion, which reflected a decline of 3.4 percent, compared to 2002. The decline in revenue principally resulted from a 4.4 percent decline in hotel portfolio RevPAR, compared to full year 2002. Occupancy decreased 0.6 percent, to 62.4 percent, and ADR decreased 3.8 percent, to $94.92, compared to 2002.

The revenue decrease related to the RevPAR decline during 2003 was partially offset by $13 million of increased revenues from consolidating the Interstate Hotels & Resorts joint venture and the operating results of its eight hotels in June 2003, that were accounted for by the equity method, and the added revenues of two hotels acquired in the third quarter of 2002.

The operating margin from continuing operations of FelCor's hotels during 2003 was 28.9 percent, this represents a 380 basis point decrease compared to 2002. The 2003 decrease in operating margin principally resulted from the $3.78, or 3.8 percent decline in ADR during the year. In addition, health and workers compensation insurance, and energy costs, put additional pressure on FelCor's operating margins, compared to 2002.

FelCor's net loss applicable to common stockholders for 2003 was $337 million, or a net loss of $5.75 per share. This is compared to the prior year net loss of $205 million, or $3.78 per share. The loss in 2003 included net charges of $245 million, or $3.95 per share, resulting from an impairment loss of $244 million, a charge-off of deferred debt costs of $3 million and a gain on early extinguishment of debt of $2 million. The loss in 2002 included net charges of $162 million, or $2.63 per share, resulting from an impairment loss of $158 million, a $3 million charge-off of deferred debt costs, and $2 million of abandoned project costs.

In accordance with the SEC's guidance on non-GAAP financial measures, FFO and EBITDA have not been adjusted to add back the impairment charges, the charge-off of deferred debt costs, abandoned project costs or the gain on early extinguishment of debt.

FFO for 2003 was a loss of $207 million, compared to the 2002 loss of $60 million. FFO per share for 2003 was a loss of $3.35 (including $3.95 per share resulting from impairment losses, charge-off of deferred debt costs and gain on early extinguishment of debt), compared to an FFO per share loss of $0.97 during the same period of 2002 (including $2.63 per share resulting from impairment losses, charge-off of deferred debt costs and abandoned project costs).

EBITDA for 2003 reflected a loss of $3 million (including net charges of $245 million resulting from impairment losses, charge-off of deferred debt costs and gain on early extinguishment of debt), compared to a 2002 EBITDA of $144 million (including net charges of $162 million resulting from impairment losses, charge-off of deferred debt costs and abandoned project costs).

The impairment losses in 2003 and 2002 principally resulted from the Company's decision to sell non-strategic hotels and reflect the difference between book value and the current estimated fair market value of these hotels. After the completion of a comprehensive review of FelCor's investment strategy and its portfolio, the Company refined its investment strategy and decided to sell smaller hotels in secondary and tertiary markets, emphasize the acquisition of hotels in the upper upscale segment in low supply growth markets, and better diversify its portfolio by geographic market and brand.

The 33 non-strategic hotels, included in continuing operations, represent 20 percent of the rooms in FelCor's hotel portfolio, but less than nine percent of FelCor's consolidated hotel operating profit. The 2003 operating margin for these 33 non-strategic hotels was 17.9 percent, compared to 30.6 percent for the core portfolio.

Capital Structure:

At December 31, 2003, FelCor had $246 million in cash and cash equivalents and $2.04 billion of debt outstanding. FelCor had no outstanding borrowings under its secured debt facility, under which it currently has $174 million of available borrowing capacity, or its $50 million unsecured line of credit. The weighted average life of FelCor's debt is five years. During 2004, debt maturities total $175 million, and there will be $17 million of additional recurring principal payments.

"Our liquidity position is strong, with excess cash and available capacity under our secured debt facility, which more than covers FelCor's October 2004 senior note maturity," said Richard J. O'Brien, FelCor's Executive Vice President and Chief Financial Officer. "In addition, the Company has four hotels under sale contracts, with hard money deposits, and we anticipate $30 million in sales proceeds over the next 90 days."

2004 Guidance:

For the first quarter of 2004, FelCor currently anticipates its portfolio RevPAR will be 1.5 to 2.5 percent above the comparable period of the prior year. The Company expects to realize proceeds from the sale of approximately $30 million related to four non-strategic hotels with hard money deposits. FelCor's RevPAR for the month of January increased approximately 1.8 percent, compared to January of 2003. FelCor currently anticipates that for the full year 2004:

  • Hotel portfolio RevPAR will increase approximately three to four percent.
  • Operating margins will have a flow-through in 2004 of 1.4 to 1.6 times.
  • It will realize a third-quarter development gain of approximately $8 million upon the completion and sale of a 251-unit residential condominium development project known as "Margate," in Myrtle Beach, South Carolina.
  • Its capital expenditures will be within the range of $75 to $100 million.
  • FFO per share will be within the range of $0.76 to $0.86 per share and EBITDA will be within the range of $249 to $255 million, excluding any transaction gains or losses. 
Consolidated Statements of Operations
 (in thousands, except per share data)

                                      Three Months              Year
                                    Ended December 31,    Ended December 31,
                                     2003      2002        2003       2002
    Revenues:
      Hotel operating revenue:
       Room                        $224,646  $223,382    $947,254    $979,830
       Food and beverage             52,162    53,007     188,582     195,991
       Other operating departments   14,927    15,402      63,003      64,718
      Retail space rental and other
       revenue                          148       195       1,022       1,646
         Total revenues            $291,883  $291,986  $1,199,861  $1,242,185

    Expenses:
      Hotel departmental expenses:
       Room                          64,700    60,156     255,102     249,120
       Food and beverage             41,390    40,868     150,975     153,123
       Other operating departments    7,355     7,492      30,011      29,913
      Other property related costs   89,677    85,651     353,293     339,811
      Management and franchise fees  15,322    15,215      63,113      63,350
      Taxes, insurance and lease
        expense                      28,564    29,605     125,328     127,279
      Abandoned projects                ---       ---         ---       1,663
      Corporate expenses              3,808     3,463      14,266      13,756
      Depreciation                   31,037    35,902     134,883     143,978
         Total operating expenses   281,853   278,352   1,126,971   1,121,993

    Operating income                 10,030    13,634      72,890     120,192
      Interest expense, net         (42,026)  (40,385)   (165,314)   (162,786)
      Charge-off of debt related
       costs                            ---    (3,222)     (2,834)     (3,222)
      Gain on early extinguishment
       of debt                          ---       ---         331         ---
      Impairment loss              (124,686)  (70,168)   (224,583)    (70,168)

    Loss before equity in income
     from unconsolidated entities,
      minority interests and
       gain on sale of assets      (156,682) (100,141)   (319,510)   (115,984)
      Equity in income from
        unconsolidated entities         118   (13,943)      2,370     (10,127)
      Gain on sale of assets            178       ---         284       5,861
      Minority interests             10,266     6,086      19,908       8,861
    Loss from continuing
     operations                    (146,120) (107,998)   (296,948)   (111,389)
      Discontinued operations         3,187   (70,358)    (13,196)    (67,192)
    Net loss                       (142,933) (178,356)   (310,144)   (178,581)
      Preferred dividends            (6,727)   (6,727)    (26,908)    (26,292)
    Net loss applicable
     to common stockholders       $(149,660)$(185,083)  $(337,052)  $(204,873)

    Basic and diluted per common
     share data:
      Net loss from continuing
       operations                    $(2.60)   $(1.96)     $(5.52)     $(2.54)
      Net loss                       $(2.55)   $(3.17)     $(5.75)     $(3.78)
      Weighted average common
       shares outstanding            58,801    58,450      58,657      54,173
 

                           Discontinued Operations
                                (in thousands)

  Condensed financial information for the 18 hotels included in discontinued
                          operations is as follows:

                                    Three Months Ended         Year Ended
                                        December 31,           December 31,
                                      2003       2002        2003       2002

    Hotel operating revenue          $4,693    $17,855     $58,206    $75,774
    Hotel operating expenses          4,303     17,870      54,314     71,502
    Operating income                    390        (15)      3,892      4,272
    Direct interest costs, net          ---       (364)       (498)    (1,508)
    Impairment loss                    (297)   (73,917)    (20,926)   (73,917)
    Gain on the early extinguishment
     of debt                            ---        ---       1,280        ---
    Gain on disposition               3,258        ---       2,376        200
    Minority interest                  (164)     3,938         680      3,761
    Income (loss) from discontinued
     operations                      $3,187   $(70,358)   $(13,196)  $(67,192)
 

                         Selected Balance Sheet Data
                                (in thousands)

                                                     December 31,
                                                 2003           2002

    Investment in hotels                       $3,989,964    $4,255,618
    Accumulated depreciation                     (886,168)     (782,166)
    Investment in hotels, net
     of accumulated depreciation               $3,103,796    $3,473,452

    Total cash and cash equivalents            $  246,036    $   66,542
    Total assets                               $3,590,893    $3,780,363
    Total debt                                 $2,037,355    $1,877,134
    Total stockholders' equity                 $1,296,272    $1,616,817
 

                      Reconciliation of Net Loss to FFO
                    (in thousands, except per share data)

                                     Three Months Ended December 31,
                                    2003                        2002
                                            Per                          Per
                                           Share                        Share
                        Dollars    Shares  Amount    Dollars   Shares   Amount

    Net loss           $(142,933) 58,801  $(2.43)  $(178,356)  58,450  $(3.05)
     Depreciation from
      continuing
       operations         31,037            0.58      35,902             0.61
     Depreciation from
      unconsolidated
       entities and
        discontinued
         operations        2,153            0.04       5,699             0.10
     Gain on sale
      of assets           (3,444)          (0.06)        ---              ---
     Preferred dividends  (6,727)          (0.12)     (6,727)           (0.12)
     Minority interest in
      FelCor LP           (7,712)  3,050   (0.07)    (10,358)   3,290   (0.03)
    FFO                $(127,626) 61,851  $(2.06)   (153,840)  61,740  $(2.49)
 

                                          Year Ended December 31,
                                    2003                        2002
                                             Per                        Per
                                            Share                      Share
                         Dollars   Shares   Amount   Dollars   Shares  Amount

    Net loss           $(310,144) 58,657  $(5.29)  $(178,581)  54,173  $(3.29)
     Depreciation from
      continuing
       operations        134,883            2.30     143,978             2.66
     Depreciation from
      unconsolidated
       entities and
        discontinued
         operations       15,152            0.26      20,455             0.38
     Gain on sale
      of assets           (2,668)          (0.05)     (5,861)           (0.11)
     Preferred dividends (26,908)          (0.46)    (26,292)           (0.49)
     Minority interest in
      FelCor LP          (17,777)   3,188  (0.11)    (13,717)   7,564   (0.12)
    FFO                $(207,462)  61,845 $(3.35)   $(60,018)  61,737  $(0.97)
 

Consistent with SEC guidance, FFO has not been adjusted for the following amounts included in net loss (in thousands):

                                   Three Months Ended         Year Ended
                                      December 31,           December 31,
                                    2003        2002         2003      2002

    Impairment loss              $(124,983) $(157,505)   $(245,509) $(157,505)
    Minority interest share
     of impairment loss              1,770        ---        1,770        ---
    Charge-off of deferred debt
     costs                             ---     (3,222)      (2,834)    (3,222)
    Gain on early extinguishment
     of debt                           ---        ---        1,611        ---
    Abandoned projects                 ---        ---          ---     (1,663)
                                 $(123,213) $(160,727)   $(244,962) $(162,390)

    Per share amounts            $   (1.99) $   (2.60)   $   (3.95) $   (2.63)
 

                     Reconciliation of Net Loss to EBITDA
                                (in thousands)

                                   Three Months Ended          Year Ended
                                       December 30,            December 31,
                                     2003       2002         2003      2002

    Net loss                     $(142,933) $(178,356)   $(310,144) $(178,581)
      Depreciation from
       continuing operations        31,037     35,902      134,883    143,978
      Depreciation from
       unconsolidated entities and
        discontinued operations      2,153      5,699       15,152     20,455
      Gain on sale of assets        (3,444)       ---       (2,668)    (5,861)
      Minority interest
       in FelCor Lodging LP         (7,712)   (10,358)     (17,777)   (13,717)
      Interest expense              42,871     40,766      167,581    164,917
      Interest expense from
       unconsolidated entities and
        discontinued operations      1,294      2,743        7,563     10,884
      Amortization expense             565        527        2,210      2,088
    EBITDA                        $(76,169) $(103,077)     $(3,200)  $144,163
 
 

Consistent with SEC guidance, EBITDA has not been adjusted for the following amounts included in net loss (in thousands):

                                     Three Months Ended        Year Ended
                                        December 31,           December 31,
                                       2003      2002        2003     2002
    Impairment loss                $(124,983) $(157,505) $(245,509) $(157,505)
    Minority interest share of
     impairment loss                   1,770        ---      1,770        ---
    Charge-off of deferred
     debt costs                          ---     (3,222)    (2,834)    (3,222)
    Gain on early extinguishment
     of debt                             ---        ---      1,611        ---
    Abandoned projects                   ---        ---        ---     (1,663)

                                   $(123,213) $(160,727) $(244,962) $(162,390)
 

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measurements of performance to be helpful in evaluating a real estate company's operations. We consider Funds From Operations, or FFO, and Earnings Before Interest, Taxes, Depreciation, and Amortization, or EBITDA, to be supplemental measures of a REIT's performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.

The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income or loss (computed in accordance with generally accepted accounting principles), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. We believe that FFO and EBITDA are helpful to investors as a supplemental measure of the performance of an equity REIT. 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.

FFO and EBITDA should not be considered as an alternative to net income, operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, FFO per share and EBITDA be considered as a measure of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. FFO per share does not measure, and should not be used as a measure of amounts that accrue directly to stockholders' benefit.

       Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
                (in millions, except per share and unit data)

                                                Full Year 2004 Guidance
                                           Low Guidance          High Guidance
                                                Per Share          Per Share
                                        Dollars  Amount(A) Dollars  Amount(A)
    Net loss                             $(55)    $(0.93)   $(49)   $(0.83)
       Depreciation                       133                133
       Preferred Dividends                (27)               (27)
       Minority interest in FelCor LP      (4)                (4)
    FFO                                   $47      $0.76     $53     $0.86

    Net loss                             $(55)              $(49)
       Depreciation                       133                133
       Minority interest in FelCor LP      (4)                (4)
       Interest expense                   172                172
       Amortization expense                 3                  3
    EBITDA                               $249               $255

    (A)  Weighted average shares are 58.9 million.  Adding minority interest
         and unvested restricted stock of 3.4 million shares to weighted
         average shares, provides the weighted average shares and units of
         62.3 million used to compute FFO per share.
 

                            Hotel Operating Profit
                            (dollars in thousands)

                                       Three Months          Year Ended
                                     Ended December 31,      December 31,
                                     2003      2002       2003        2002

    Total revenue                  $291,883  $291,986  $1,199,861  $1,242,185

    Retail space rental and other
     revenue                           (148)     (195)     (1,022)     (1,646)
    Hotel revenue                   291,735   291,791   1,198,839   1,240,539
    Hotel operating expenses       (218,444) (209,382)   (852,494)   (835,317)
    Hotel operating profit          $73,291   $82,409    $346,345    $405,222
    Operating margin                   25.1%     28.2%       28.9%       32.7%
 

                     Hotel Operating Expense Composition
                            (dollars in thousands)

                                     Three Months Ended       Year Ended
                                        December 31,         December 31,
                                       2003      2002      2003        2002
    Hotel departmental expenses:
       Room                          $64,700   $60,156  $255,102    $249,120
       Food and beverage              41,390    40,868   150,975     153,123
       Other operating departments     7,355     7,492    30,011      29,913

    Other property related costs:
       Administrative and general     29,477    29,321   116,641     116,073
       Marketing and advertising      26,612    24,747   104,507     100,215
       Repairs and maintenance        18,381    16,841    69,171      65,274
       Energy                         15,207    14,742    62,974      58,249
         Total other property related
          costs                       89,677    85,651   353,293     339,811
    Management and franchise fees     15,322    15,215    63,113      63,350
    Hotel operating expenses        $218,444  $209,382  $852,494    $835,317

    Reconciliation of total
     operating expense
      to hotel operating expense:
    Total operating expenses        $281,853  $278,352 $1,126,971 $1,121,993
       Taxes, insurance and lease
        expense                      (28,564)  (29,605)  (125,328)  (127,279)
       Abandoned projects                ---       ---        ---     (1,663)
       Corporate expenses             (3,808)   (3,463)   (14,266)   (13,756)
       Depreciation                  (31,037)  (35,902)  (134,883)  (143,978)
    Hotel operating expenses        $218,444  $209,382   $852,494   $835,317

Hotel operating profit and operating margin are commonly used measures of performance in the industry and give investors a more complete understanding of the operating results over which FelCor's individual hotels and operating managers have direct control. The Company believes that hotel operating profit and operating margin is useful to investors by providing greater transparency with respect to a significant measure used by management in its financial and operational decision-making.

FelCor has published its Supplemental Information for the Three Months and Year Ended December 31, 2003, which provides additional corporate data, financial highlights and portfolio statistical data. Investors are encouraged to access the Supplemental Information on the Company's website at www.felcor.com , on its Investor Relations page in the "Financial Reports" section. The Supplemental Information also will be furnished upon request. Requests may be made by e-mail to information@felcor.com or by writing to the Director of Investor Relations, FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas, 75062.

FelCor is the nation's second largest lodging REIT and the largest owner of full service, all-suite hotels. FelCor's consolidated portfolio is comprised of 161 hotels, located in 33 states and Canada. FelCor owns 71 upscale, all-suite hotels, and is the owner of the largest number of Embassy Suites Hotels® and Doubletree Guest Suites® hotels in the U.S. FelCor's portfolio also includes 77 hotels in the upscale and full service segments. FelCor has a current market capitalization of approximately $3.1 billion. Additional information can be found on the Company's Web site at www.felcor.com .

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. 

###

Contact:
FelCor Lodging Trust Incorporated
www.felcor.com

 
Also See: FelCor Reports 2002 Net Loss of $178.5 million; Plans to Sell 33 Smaller Hotels from Portfolio of 169, Expects to Defer Further Common Dividends / February 2003
FelCor Reports Fourth-quarter Net Loss of $35.4 million, Reverses Profit of $35.1 million in the Year-earlier Period / Feb 2002
.

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