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FelCor Lodging Trust Reports a Net Loss of $4.7 million
Applicable to Common Stockholders for 2nd Qtr 2005
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Surrenders Five Limited Service Hotels to their Mortgage Holders
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IRVING, Texas, Aug. 3, 2005 - FelCor Lodging Trust Incorporated (NYSE: FCH), one of the nation's largest hotel real estate investment trusts (REITs), today reported operating results for the second quarter and six months ended June 30, 2005.

Highlights:

Second Quarter Results:

  • Same-Store EBITDA increased to $80 million in the second quarter of 2005, from $68 million in the same period of 2004, a 17 percent increase.  Adjusted EBITDA grew from $73 million in the second quarter of 2004 to $81 million in the second quarter of 2005, and exceeded the high end of our guidance.
  • Adjusted FFO was $34 million, compared to $22 million for the same period last year.  Adjusted FFO per share was $0.54, compared to $0.35 for the same period last year, an increase of 54 percent.  Adjusted FFO for the second quarter exceeded our previous guidance of $0.49 to $0.52 per share.
  • Net loss applicable to common stockholders was $5 million, or a net loss of $0.08 per share, compared to the prior year second quarter net loss of $41 million, or $0.69 per share.
  • Revenue per available room ("RevPAR") for the quarter increased 9.6 percent, compared to the same period in 2004, exceeding our second quarter forecast RevPAR growth of between six and seven percent.  Average daily rate ("ADR") made up 59 percent of our RevPAR growth for the quarter.
  • Hotel operating profit increased to $75 million for the quarter, compared to $66 million in the prior year period, an increase of 14 percent.  Hotel operating profit margin during the quarter was 23.1 percent, an increase of 130 basis points over the 21.8 percent margin last year.
Year to Date Results:
  • Same-Store EBITDA increased to $142 million in the first half of 2005, from $124 million, a 15 percent increase, for the six month period ended June 30, 2004.  Adjusted EBITDA grew from $132 million in the first six months of 2004 to $143 million in the first six months of 2005.
  • Adjusted FFO for the year-to-date period was $50 million, compared to $30 million for the same period last year and Adjusted FFO per share was $0.79 for the current period, compared to $0.49 for the same period last year, an increase of 61 percent.
  • Net loss applicable to common stockholders was $23 million, or a net loss of $0.38 per share, compared to the prior year six month net loss of $68 million, or $1.15 per share.
  • RevPAR for the six months increased 8.2 percent, compared to the same period in 2004.  ADR made up 70 percent of our RevPAR growth for the period.
  • Hotel operating profit increased to $135 million for the first six months, compared to $119 million in the prior year period, an increase of 13 percent.  Hotel operating profit margin during the six months was 21.7 percent, an increase of 120 basis points over the 20.5 percent margin during the first half of last year.
"Although a number of our key markets have recovered, other markets are just beginning to recover and are starting to show strong growth this year.  Coupled with our portfolio repositioning, the recovery in many of our key markets has enabled our RevPAR growth to outperform the industry averages for the second quarter and year-to-date periods," said Thomas J. Corcoran, Jr., FelCor's President and CEO.  "RevPAR and EBITDA in markets such as Los Angeles, San Diego, Minneapolis, New Orleans and Washington, D.C. have recovered.  However, the recovery in the San Francisco Bay area, Chicago, northern New Jersey and Philadelphia markets has just begun and offers significant upside potential for our EBITDA growth, as these four high-quality, primary markets represent more than 17 percent of our room inventory."

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, Same-Store EBITDA, Funds From Operations ("FFO"), Adjusted FFO, Hotel Operating Profit and Hotel Operating Margin are all non-GAAP financial measures.  See our discussion of "Non-GAAP Financial Measures" for a reconciliation of each of these measures to our net loss and for information regarding the use, limitations and importance of these non-GAAP financial measures.

Capital Structure:

At June 30, 2005, we had $1.7 billion of debt outstanding with a weighted average life of five years, compared to $1.8 billion at December 31, 2004.  Our cash and cash equivalents totaled approximately $125 million at the end of the quarter, compared to $119 million at year end.

On April 8, 2005, we completed the issuance of 5.4 million depositary shares representing our 8% Series C preferred stock, with gross proceeds of $135 million.  The gross proceeds were used to redeem a like number of depositary shares representing our 9% Series B preferred stock.  In the second quarter, we recorded a reduction in net income applicable to common stockholders of $5 million for the original issuance cost of the Series B preferred shares redeemed.  This transaction will reduce our preferred dividend obligations by approximately $1.4 million annually to $39 million.  Following the redemption, we had approximately $34 million of our Series B preferred stock remaining outstanding.

Other Highlights:

We expect our July total portfolio RevPAR to increase approximately eight percent, compared to the same period in 2004.

During 2005, through July, we have sold five hotels for gross proceeds of $16 million.  We also have one hotel under a firm sale contract for $38 million that is currently expected to close in the third quarter of 2005.  During the second quarter, we completed the process of surrendering five of eight limited service hotels, owned by a consolidated joint venture with Interstate Hotels and Resorts, to their non-recourse mortgage holders.  Two hotels were surrendered in July and the final hotel is expected to be transferred to the lender before the end of the third quarter.  These eight hotels are generally located in depressed markets and are expected to generate negative cash flow for the foreseeable future.  These hotels have an aggregate fair value less than the outstanding debt balance.

After disposing of the previously mentioned hotels, we will have 13 hotels remaining that we are actively marketing for sale.  Gross proceeds from the disposition of these hotels are expected to be approximately $107 million and we anticipate completing the sale of these hotels by mid-2006.

Our capital expenditures for the most recent quarter totaled $24 million.

We declared and paid second quarter dividends on our Series A, Series B
and Series C preferred stock.

2005 Guidance:

As the result of our improving outlook, we have revised our guidance upward for the remainder of the year.

We currently anticipate:

  • Adjusted EBITDA to be between $268 and $270 million for the full year and between $71 and $72 million for the third quarter;
  • RevPAR for the full year 2005 to increase 7.5 percent to 8.0 percent over 2004 RevPAR.  For the third quarter, we expect RevPAR growth to be between 7.0 to 8.0 percent;
  • Adjusted FFO per share to be between $1.29 and $1.33 for 2005, and to be between $0.38 and $0.40 for the third quarter;
  • Net loss applicable to common stockholders to be between $57 million and $55 million, or $0.96 to $0.93 per share for the full year 2005, and $9 million and $8 million, or $0.15 to $0.13 for the third quarter; and
  • Capital expenditures for 2005, as previously stated, are expected to total approximately $100 million.
"We are taking advantage of the robust demand growth and low supply growth.  As we move through this lodging cycle with a higher quality portfolio, we expect strong RevPAR growth and further improvement in our operating margins," said Richard A. Smith, FelCor's Executive Vice President and Chief Financial Officer.  "As a result of the better than expected lodging trends, we are pleased to raise guidance again for the remainder of 2005."

We have published our Second Quarter 2005 Supplemental Information, which provides additional corporate data, financial highlights and portfolio statistical data for the quarter and six months ended June 30, 2005.  Investors are encouraged to access the Supplemental Information on our Web site at http://www.felcor.com , on the 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 Vice President of Investor Relations, FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas, 75062.

FelCor is one of the nation's largest hotel REITs and the nation's largest owner of full service, all-suite hotels.  FelCor's portfolio is comprised of 130 consolidated hotels, located in 30 states and Canada.  FelCor owns 68 upscale, all-suite hotels, and is the largest owner of Embassy Suites Hotels(R) and Doubletree Guest Suites(R) hotels.  FelCor's portfolio also includes 60 hotels in the upscale and full service segments.  FelCor has a current market capitalization of approximately $3.2 billion.  Additional information can be found on the Company's Web site at http://www.felcor.com .
 
 


Consolidated Statements of Operations
(in thousands, except per share data)

                                    Three Months Ended       Six Months Ended
                                          June 30,               June 30,
                                     2005         2004       2005        2004
    Revenues:
      Hotel operating revenue:
       Room                       $262,294     $241,784   $500,837   $466,622
       Food and beverage            47,154       45,021     88,810     85,194
       Other operating departments  16,105       15,640     30,834     30,624
      Retail space rental and
       other revenue                   120          180        276        425
          Total revenues           325,673      302,625    620,757    582,865

    Expenses:
      Hotel departmental expenses:
       Room                         67,105       63,661    128,721    123,352
       Food and beverage            35,856       35,275     68,748     67,676
       Other operating departments   8,142        7,869     15,367     15,231
      Other property related costs  89,903       84,240    177,841    167,230
      Management and franchise fees 16,887       15,863     31,687     30,179
      Taxes, insurance and lease
       expense                      32,524       29,628     63,341     59,543
      Corporate expenses             4,728        4,380      9,269      7,742
      Depreciation                  30,485       28,027     60,093     56,503
      Asset disposition costs          ---          ---        650        ---
          Total operating expenses 285,630      268,943    555,717    527,456

    Operating income                40,043       33,682     65,040     55,409
      Interest expense, net        (33,471)     (39,203)   (66,170)   (79,797)
      Charge-off of deferred
       financing costs                 ---       (3,944)       ---     (4,174)
      Impairment                      (732)         ---       (732)       ---
      Loss on early extinguishment
       of debt                         ---      (28,246)       ---    (28,246)
      Gain on swap termination         ---        1,005        ---      1,005
    Income (loss) before equity in
     income from unconsolidated
     entities, minority interests
     and gain on sale of assets      5,840      (36,706)    (1,862)   (55,803)
      Equity in income from
       unconsolidated entities       3,837        2,691      4,968      3,673
      Minority interests               111        1,617        975      2,764
      Gain on sale of assets           389          ---        389        ---

    Income (loss) from continuing
     operations                     10,177      (32,398)     4,470    (49,366)
      Discontinued operations          174          725     (2,133)    (3,006)
    Net income (loss)               10,351      (31,673)     2,337    (52,372)
      Preferred dividends           (9,809)      (8,970)   (19,900)   (15,696)
      Issuance costs of redeemed preferred stock  (5,198)   ---     (5,198)       ---
  Net loss applicable to common stockholders  $(4,656)  $(40,643) $(22,761)  $(68,068)
    Basic and diluted per common
     share data:
      Net loss from continuing
       operations                   $(0.08)      $(0.70)    $(0.35)    $(1.10)
      Net loss                      $(0.08)      $(0.69)    $(0.38)    $(1.15)
      Weighted average common
       shares outstanding           59,404       58,950     59,363     58,952
 

                           Discontinued Operations
                                (in thousands)
    Included in discontinued operations are the results of operations of the 18 hotels disposed of in 2004, two hotels designated as held for sale at June 30, 2005, and nine hotels disposed of in the first two quarters of 2005.  Condensed financial information for the hotels included in discontinued operations is as follows:
 

                                    Three Months Ended       Six Months Ended
                                          June 30,               June 30,
                                     2005         2004       2005        2004
      Operating revenue             $6,166      $32,811    $14,240    $68,186
      Operating expenses             5,710       31,114     15,118     70,154
        Operating income (loss)        456        1,697       (878)    (1,968)
      Direct interest costs, net       (40)        (534)      (581)    (1,060)
      Impairment loss                  ---          ---       (559)       ---

      Loss on sale of assets          (234)      (1,214)      (214)      (941)
      Minority interests                (8)         776         99        963
    Income (loss) from discontinued
     operations                        174          725     (2,133)    (3,006)
      Depreciation                     300        2,144      1,189      4,562
      Minority interest in FelCor LP     8           37        (99)      (154)
      Interest expense                  40          536        583      1,064
    EBITDA from discontinued
     operations                        522        3,442       (460)     2,466
      Loss on sale of assets           234        1,214        214        941
      Impairment loss                  ---          ---        559        ---
      Asset disposition costs          ---          ---        650      4,900
    Adjusted EBITDA from
     discontinued operations          $756       $4,656       $963     $8,307
 

                         Selected Balance Sheet Data
                                (in thousands)
                                              June 30,        December 31,
                                                2005             2004
    Investment in hotels                     $3,887,365       $3,904,397
    Accumulated depreciation                   (994,414)        (948,631)
    Investments in hotels, net of
     accumulated depreciation                $2,892,951       $2,955,766

    Total cash and cash equivalents          $  124,945       $  119,310
    Total assets                             $3,294,836       $3,317,658
    Total debt                               $1,743,420       $1,767,122
    Total stockholders' equity               $1,309,272       $1,330,323
 

    Non-GAAP Financial Measures
    We refer in this press release to certain "non-GAAP financial measures."
These measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit and hotel operating margin, are measures of our financial performance that are not calculated and presented in accordance with generally accepted accounting principles ("GAAP").  The following tables set forth the adjustments made and 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 of the limitations upon such measures.
 

              Reconciliation of Net Loss to FFO and Adjusted FFO (in thousands, except per share and unit data)
                                      Three Months Ended June 30,
                                   2005                        2004
                                          Per Share                  Per Share
                        Dollars   Shares   Amount   Dollars   Shares   Amount
    Net income (loss)   $10,351                    $(31,673)
      Preferred
       dividends         (9,809)                     (8,970)
      Issuance costs of
       redeemed preferred
       stock             (5,198)                        ---
    Net loss applicable
     to common
     stockholders        (4,656)  59,404  $(0.08)   (40,643)  58,950   $(0.69)
      Depreciation from
       continuing
       operations        30,485             0.51     28,027              0.47
      Depreciation from
       unconsolidated
       entities and
       discontinued
       operations         2,604             0.04      3,991              0.07 Loss (gain) on sale of assets           (155)           (0.00)     1,214              0.02 Minority interest in FelCor LP        (216)   2,788   (0.02)    (2,078)   3,033    (0.02)
      Conversion of options
       and unvested
       restricted stock     ---      339     ---        ---               ---
    FFO                  28,062   62,531   $0.45     (9,489)  61,983    (0.15)
      Charge-off of
       deferred debt costs  ---              ---      3,944              0.06
      Early extinguishment
       of debt              ---                      28,246              0.46
      Impairment            732             0.01        ---               ---
      Issuance costs of
       redeemed preferred
       stock              5,198             0.08        ---               ---
      Asset disposition costs                ---              ---        ---               ---
      Gain on swap
       termination          ---              ---     (1,005)            (0.02)
    Adjusted FFO        $33,992   62,531  $ 0.54   $ 21,696   61,983    $0.35
 
 

              Reconciliation of Net Loss to FFO and Adjusted FFO
                (in thousands, except per share and unit data)
                                        Six Months Ended June 30,
                                   2005                        2004
                                          Per Share                  Per Share
                        Dollars   Shares   Amount   Dollars   Shares   Amount
    Net income (loss)    $2,337                    $(52,372)
      Preferred
       dividends        (19,900)                    (15,696)
      Issuance costs of
       redeemed
       preferred stock   (5,198)                        ---
    Net loss applicable
     to common
     stockholders       (22,761)  59,363  $(0.38)   (68,068)  58,952   $(1.15)
      Depreciation from
       continuing
       operations        60,093             1.01     56,503              0.96
      Depreciation from
       unconsolidated
       entities and
       discontinued
       operations         5,758             0.10      8,182              0.14 Loss (gain) on sale of assets           (175)            0.00        941              0.02 Minority interest in FelCor LP      (1,059)   2,788   (0.06)    (3,485)   3,033    (0.07)
      Conversion of
       options and
       unvested restricted
       stock                ---      319                ---
    FFO                  41,856   62,470    0.67     (5,927)  61,985    (0.10)
      Charge-off of
       deferred debt
       costs                ---                       4,174              0.07
      Early extinguishment
       of debt              ---                      28,246              0.46
      Issuance costs of
       redeemed preferred
       stock              5,198             0.08        ---               ---

      Asset disposition
       costs              1,300             0.02      4,900              0.08
      Gain on swap
       termination          ---              ---     (1,005)            (0.02)
      Impairment          1,291             0.02        ---               ---
    Adjusted FFO       $ 49,645   62,470  $ 0.79   $ 30,388   61,985   $ 0.49
 
 

     Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and Same-Store
                                    EBITDA (in thousands)

                                    Three Months Ended       Six Months Ended
                                          June 30,               June 30,
                                     2005         2004       2005        2004
    Net income (loss)              $10,351     $(31,673)    $2,337   $(52,372)
      Depreciation from continuing
       operations                   30,485       28,027     60,093     56,503
      Depreciation from
       unconsolidated entities
       and discontinued operations   2,604        3,991      5,758      8,182
      Minority interest in
       FelCor Lodging LP              (216)      (2,078)    (1,059)    (3,485)
      Interest expense              34,273       39,798     67,614     81,114
      Interest expense from
       unconsolidated entities
       and discontinued operations   1,687        1,943      4,007      3,791
      Amortization expense             755          519      1,352      1,022
    EBITDA                          79,939       40,527    140,102     94,755
      Charge off of deferred
       debt costs                      ---        3,944        ---      4,174
      Early extinguishment of debt     ---       28,246        ---     28,246
      Asset disposition costs          ---          ---      1,300      4,900
      Loss (gain) on sale of assets   (155)       1,214       (175)       941
      Gain on swap termination         ---       (1,005)       ---     (1,005)
      Impairment                       732          ---      1,291        ---

    Adjusted EBITDA                 80,516       72,926    142,518    132,011
      Adjusted EBITDA from
       discontinued operations        (756)      (4,656)      (963)    (8,307)
    Same-Store EBITDA              $79,760      $68,270   $141,555   $123,704
 
 

       Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
                (in millions, except per share and unit data)
                                           Third Quarter 2005 Guidance
                                      Low Guidance          High Guidance
                                           Per Share               Per Share
                                 Dollars    Amount (A)   Dollars    Amount (A)
    Net income                    $1                      $2
      Preferred dividends        (10)                    (10)
      Issuance costs of redeemed
       preferred stock           ---                     ---
    Net loss applicable to
     common stockholders          (9)        $(0.15)      (8)        $(0.13)
      Depreciation                33                      33
      Minority interest in
       FelCor LP                 ---                     ---
      Issuance costs of redeemed
       preferred stock           ---                     ---
    FFO                           24           0.38       25           0.40
      Asset disposition costs    ---                     ---
      Impairment                 ---                     ---
    Adjusted FFO                 $24          $0.38      $25         $ 0.40

    Net income                    $1                      $2
      Depreciation                33                      33
      Minority interest in
       FelCor LP                 ---                     ---
      Interest expense            34                      34
      Interest expense from
       unconsolidated entities     2                       2
      Amortization expense         1                       1
    EBITDA                        71                      72
      Asset disposition costs    ---                     ---
      Impairment                 ---                     ---
    Adjusted EBITDA              $71                     $72
 
 

       Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
                (in millions, except per share and unit data)
                                            Full Year 2005 Guidance
                                      Low Guidance          High Guidance
                                           Per Share               Per Share
                                 Dollars    Amount (A)   Dollars    Amount (A)
    Net loss                     $ (13)                  $ (11)
      Preferred dividends          (39)                    (39)
      Issuance costs of redeemed
       preferred stock              (5)                     (5)
    Net loss applicable to
     common stockholders           (57)     $(.96)         (55)     $(.93)
      Depreciation                 133                     133
      Minority interest in
       FelCor LP                   (2)                      (2)
      Issuance costs of redeemed
       preferred stock              5                        5
    FFO                            79        1.26           81       1.29
      Asset disposition costs       1                        1
      Impairment                    1                        1
    Adjusted FFO                  $81       $1.29          $83      $1.33
    Net loss                    $ (13)                   $ (11)
      Depreciation                133                      133
      Minority interest in
       FelCor LP                   (2)                      (2)
      Interest expense            137                      137
      Interest expense from
       unconsolidated entities      8                        8
      Amortization expense          3                        3
    EBITDA                        266                      268
      Asset disposition costs       1                        1
      Impairment                    1                        1
    Adjusted EBITDA             $ 268                    $ 270

    (A)  Weighted average shares are 59.4 million.  Adding minority interest
         and unvested restricted stock of 3.3 million shares to weighted average shares, provides the weighted average shares and units of 62.7 million used to compute FFO per share.
 

                Hotel Operating Profit and Hotel Operating Margin
                              (dollars in thousands)
                                    Three Months Ended     Six Months Ended
                                          June 30,              June 30,
                                      2005       2004       2005       2004
    Total revenue                   $325,673   $302,625   $620,757   $582,865
    Retail space rental and
     other revenue                      (120)      (180)      (276)      (425)
    Hotel revenue                    325,553    302,445    620,481    582,440
    Hotel operating expenses        (250,417)  (236,536)  (485,705)  (463,211)
    Hotel operating profit          $ 75,136   $ 65,909   $134,776   $119,229
    Hotel operating margin             23.1%      21.8%      21.7%      20.5%
 
 

                       Hotel Operating Expense Composition
                              (dollars in thousands)
                                   Three Months Ended      Six Months Ended
                                        June 30,               June 30,
                                    2005        2004       2005        2004
    Hotel departmental expenses:
      Room                       $ 67,105    $ 63,661    $128,721    $123,352
      Food and beverage            35,856      35,275      68,748      67,676
      Other operating departments   8,142       7,869      15,367      15,231

    Other property related costs:
      Administrative and general   29,406      27,874      57,893      54,982
      Marketing and advertising    27,553      25,946      53,859      50,874
      Repairs and maintenance      17,518      16,314      34,495      32,666
      Energy                       15,426      14,106      31,594      28,708
      Taxes, insurance and
       lease expense               32,524      29,628      63,341      59,543
        Total other property
         related costs            122,427     113,868     241,182     226,773
    Management and franchise fees  16,887      15,863      31,687      30,179
    Hotel operating expenses     $250,417    $236,536    $485,705    $463,211

    Reconciliation of total
     operating expense to
     hotel operating expense:
    Total operating expenses     $285,630    $268,943    $555,717    $527,456
      Corporate expenses           (4,728)     (4,380)     (9,269)     (7,742)
      Depreciation                (30,485)    (28,027)    (60,093)    (56,503)
      Asset disposition costs         ---         ---        (650)        ---
    Hotel operating expenses     $250,417    $236,536    $485,705    $463,211

    Supplemental information:
    Compensation and benefits
     expense (included in hotel
     operating expenses)         $100,618     $97,084    $196,571    $189,629
 

    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, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit and hotel operating margin, 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 as a measure of our operating performance.
    FFO and EBITDA
    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 GAAP), 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 FFO 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.
    EBITDA is a commonly used measure of performance in many industries.  We define EBITDA as net income or loss (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 recurring and non-recurring items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, Adjusted EBITDA and Same-Store EBITDA, when combined with GAAP net income, EBITDA and FFO, is beneficial to an investor's better understanding of our operating performance.
     *  Gains and losses related to early extinguishment of debt and interest rate swaps -- We exclude gains and losses related to early extinguishment of debt and interest rate swaps from FFO and 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.
     *  Impairment losses -- We exclude the effect of impairment losses and gains or losses on disposition of assets in computing Adjusted FFO and Adjusted EBITDA because we believe that including these is not consistent with reflecting the ongoing performance of our remaining assets.  Additionally, we believe that impairment charges and gains or losses on disposition of assets represent accelerated depreciation, or excess depreciation, and depreciation is excluded from FFO by the NAREIT definition and 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.

    In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of assets because we believe that including them in EBITDA is not consistent with reflecting the ongoing performance of our remaining assets.  Additionally, the gain or loss on sale of depreciable assets represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.
    To derive Same-Store EBITDA, we make the same adjustments to EBITDA as for Adjusted EBITDA and, additionally, exclude EBITDA from discontinued operations and gains and losses on the disposition of non-hotel related assets.
    Hotel Operating Profit and Operating Margin
    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 our individual hotels and operating managers have direct control.  We believe that hotel operating profit and operating margin is useful to investors by providing greater transparency with respect to two significant measures used by us in our financial and operational decision-making.  Additionally, these measures facilitate comparisons with other hotel REITs and hotel owners.  We present hotel operating profit and hotel operating margin by eliminating corporate-level expenses, depreciation and expenses related to our capital structure.  We eliminate corporate-level costs and expenses because we believe property-level results provide investors with supplemental information with respect to the ongoing operating performance of our hotels and the effectiveness of management in running our business on a property-level basis.  We eliminate depreciation and amortization, even though they are property-level expenses, because we do not believe that these non-cash expenses, which are based on historical cost accounting for real estate assets and implicitly assume that the value of real estate assets diminish predictably over time, accurately reflect an adjustment in the value of our assets.
    Use and Limitations of Non-GAAP Measures
    Our management and Board of Directors use FFO, Adjusted FFO, EBITDA and
Adjusted EBITDA to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies.  Same-Store EBITDA is used to provide investors with supplemental information as to the ongoing operating performance of our hotels without regard to those hotels sold or held for sale at the date of presentation.
    The use of these non-GAAP financial measures has certain limitations.  FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit and hotel operating margin, as presented by us, may not be comparable to FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit and hotel operating margin as calculated by other real estate companies.  These measures do not reflect certain expenses that we incurred and will incur, such as depreciation, interest and capital expenditures.  Management compensates 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 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, as well as 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.  Neither should FFO, FFO per share, Adjusted FFO, Adjusted FFO per share, EBITDA, Adjusted EBITDA or Same-Store EBITDA be considered as measures 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 the benefit of stockholders.  FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-Store EBITDA, hotel operating profit and hotel operating margin 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.  Management strongly encourages investors to review our financial information in its entirety and not to rely on any single financial measure.

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. 

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Contact:

FelCor Lodging Trust Incorporated
Web Site: http://www.felcor.com

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Also See: FelCor Reports 2004 4th Qtr Net loss of $21 million Compared with a Loss of $150 million a Year Earlier; Sold Five Hotels Resulting in Proceeds of $86 million During the Quarter / February 2005
FelCor Reports 2003 Net Loss of $337 million Compared to the Prior Year Net Loss of $205 million;
Hotel Portfolio RevPAR for the Full Year 2003 Declines 4.4% Compared to 2002, Occupancy
Decreased to 62.4% / February 2004
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