The Company generated adjusted FFO of approximately $3.0 million during the first quarter 2014, an increase of 37.9% or approximately $0.8 million over the first quarter 2013.
Sotherly Hotels Inc. (NASDAQ: SOHO), a self-managed and self-administered lodging real estate investment trust, reported its consolidated results for the first quarter ended March 31, 2014.
HIGHLIGHTS:
- Adjusted FFO. The Company generated adjusted FFO of approximately $3.0 million during the first quarter 2014, an increase of 37.9% or approximately $0.8 million over the first quarter 2013.
- Common Dividends. On April 21, 2014, the Company announced an 11.1% increase in its quarterly dividend (distribution) on its common stock (and units) to $0.050 per share (and unit), payable on July 11, 2014 to stockholders (and unitholders) of record as of June 13, 2014.
- RevPAR. Room revenue per available room (“RevPAR”) for the Company’s wholly-owned properties during the first quarter 2014 increased 8.3% over the first quarter 2013 to $81.14 driven by a 2.5% increase in occupancy and a 5.6% increase in average daily rate (“ADR”).
- Hotel EBITDA. The Company generated hotel EBITDA of approximately $6.3 million during the first quarter 2014, an increase of 30.3% or approximately $1.5 million over the first quarter 2013.
- Adjusted EBITDA. The Company generated adjusted EBITDA of approximately $6.0 million during the first quarter 2014, an increase of 30.7% or approximately $1.4 million over the first quarter 2013.
The Company’s results include the following*:
| Three Months ended | ||||||||
| March 31, 2014 | March 31, 2013 | |||||||
| (in $000s, except per share data) | ||||||||
| Total Revenue | $ | 25,010 | $ | 20,190 | ||||
| Net income (loss) attributable to the Company | 783 | (2,595 | ) | |||||
| EBITDA |
5,883 |
|
1,880 | |||||
| Adjusted EBITDA |
6,038 |
|
4,622 | |||||
| Hotel EBITDA |
6,319 |
|
4,848 | |||||
| FFO |
3,575 |
|
(1,168 | ) | ||||
| Adjusted FFO |
2,995 |
|
2,173 | |||||
| Net income (loss) per share attributable to the Company |
$ |
0.08 |
|
$ | (0.26 | ) | ||
| FFO per share and unit |
0.27 |
|
(0.09 | ) | ||||
| Adjusted FFO per share and unit |
0.23 |
|
0.17 | |||||
(*) Earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, hotel EBITDA, funds from operations (“FFO”), adjusted FFO, FFO per share and unit and adjusted FFO per share and unit are non-GAAP financial measures. See further discussion of these non-GAAP measures, including definitions related thereto, and reconciliations to net income (loss) later in this press release. All references in this release to the “Company”, “Sotherly”, “SoTHERLY”, “we”, “us” and “our” refer to Sotherly Hotels Inc., its operating partnership and its subsidiaries and predecessors, unless the context otherwise requires or where otherwise indicated.
Andrew M. Sims, Chairman and Chief Executive Officer of Sotherly Hotels Inc., commented, “We had a stellar first quarter, which resulted from last year’s balance sheet restructuring, strength in our core markets, and our expanding portfolio of hotels. We are pleased with the results and are optimistic about the balance of the year.”
Acquisition
On March 27, 2014, the Company acquired the Georgian Terrace in Atlanta, Georgia for approximately $61.1 million. As a part of the transaction, the Company closed on a $41.5 million loan with Bank of the Ozarks collateralized by a first mortgage on the property. The loan matures in March 2017, but can be extended through the fourth and fifth anniversary of the commencement date of the loan, subject to certain terms and conditions. The loan bears a floating rate of interest of 3-month LIBOR plus 3.75%, with a 4.00% interest rate floor and requires payments of interest-only during the first twelve months, after which the loan amortizes on a 25-year schedule.
On March 26, 2014, the Company entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured loan (the “Bridge Loan”) with Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC. The Bridge Loan bears interest at a fixed rate of 10.00%, is subject to a prepayment premium if the loan is prepaid in full or in part prior to its maturity on March 26, 2015, and requires mandatory prepayment upon certain events. Proceeds of the Bridge Loan were used to partially fund the acquisition of the Georgian Terrace.
The balance of the cash portion of the purchase price was funded by the Company with available cash.
Financing Transactions
On March 31, 2014, the Company entered into a First Amendment and other amended loan documents to extend the maturity date and secure additional proceeds on the original $30.0 million mortgage on the Hilton Philadelphia Airport hotel with its existing lender, TD Bank, N.A. Pursuant to the First Amendment and other amended loan documents, the principal balance of the mortgage was increased by $5.6 million to approximately $34.1 million and the maturity extended to April 1, 2019, with no prepayment penalty. The mortgage continues to bear a floating rate of interest of 1-month LIBOR plus 3.00%, with a LIBOR floor of 0.50% and re-amortizes over the 25-year period that began with the commencement of the mortgage in March 2012.
Balance Sheet/Liquidity
At March 31, 2014, the Company had total cash of approximately $18.4 million, consisting of available cash and cash equivalents of approximately $13.0 million, and restricted cash of approximately $5.4 million reserved for real estate taxes, insurance, capital improvements and certain other expenses or otherwise restricted. The Company had approximately $253.2 million in outstanding debt at a weighted average interest rate of approximately 5.46%.
2014 Outlook
The Company is updating its prior guidance for 2014, accounting for current and expected performance within its portfolio as well as its recent acquisition of the Georgian Terrace. The guidance is predicated on estimates of occupancy and ADR that are consistent with the most recent 2014 calendar year forecasts by Smith Travel Research for the market segments in which the Company operates.
The table below reflects the Company’s projections, within a range, of various financial measures for 2014, as compared to its prior guidance for 2014 (in $000s, except per share data):
| Initial 2014 Guidance | Revised 2014 Guidance | |||||||||||
| Low Range | High Range | Low Range | High Range | |||||||||
| Total revenue | $ | 103,171 | $ | 106,224 | $ | 118,020 | $ | 121,524 | ||||
| Net income | 2,949 | 4,282 | 3,458 | 4,776 | ||||||||
| EBITDA | 24,995 | 26,351 | 28,775 | 30,128 | ||||||||
| Hotel EBITDA | 26,294 | 28,293 | 30,854 | 32,393 | ||||||||
| FFO | 12,599 | 13,932 | 13,108 | 14,426 | ||||||||
| Adjusted FFO | 13,099 | 14,432 | 13,759 | 15,077 | ||||||||
| Net income per share attributable to the Company | $ | 0.22 | $ | 0.33 | $ | 0.26 | $ | 0.36 | ||||
| FFO per share and unit | 0.96 | 1.06 | 1.00 | 1.10 | ||||||||
| Adjusted FFO per share and unit | 1.00 | 1.10 | 1.05 | 1.15 | ||||||||
About Sotherly Hotels Inc.
Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the Southern United States. Currently, the Company’s portfolio consists of investments in twelve hotel properties, eleven of which are wholly-owned and comprise 2,698 rooms. The Company also has a 25.0% interest in the Crowne Plaza Hollywood Beach Resort. Many of the Company’s properties operate under the Hilton, Crowne Plaza, DoubleTree, Sheraton and Holiday Inn brands. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia.
Financial Tables Follow…
| SOTHERLY HOTELS INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| March 31, 2014 | December 31, 2013 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Investment in hotel properties, net |
$ |
262,204,677 |
$ | 202,645,633 | ||||
| Investment in joint venture | 2,083,590 | 2,446,039 | ||||||
| Cash and cash equivalents | 13,008,035 | 9,376,628 | ||||||
| Restricted cash | 5,439,820 | 3,796,141 | ||||||
| Accounts receivable, net | 3,367,565 | 1,982,091 | ||||||
| Accounts receivable-affiliate | 77,692 | 101,439 | ||||||
| Prepaid expenses, inventory and other assets |
3,459,365 |
2,444,975 | ||||||
| Shell Island sublease, net | 180,147 | 240,196 | ||||||
| Deferred income taxes | 1,921,441 | 1,186,122 | ||||||
| Deferred financing costs, net | 5,066,625 | 3,820,838 | ||||||
| TOTAL ASSETS | $ | 296,808,957 | $ | 228,040,102 | ||||
| LIABILITIES | ||||||||
| Mortgage debt | $ | 206,554,064 | $ | 160,363,549 | ||||
|
Bridge loan |
19,000,000 | — | ||||||
| Unsecured notes | 27,600,000 | 27,600,000 | ||||||
| Accounts payable and accrued liabilities | 9,677,240 | 7,650,219 | ||||||
| Advance deposits | 1,573,335 | 666,758 | ||||||
| Dividends and distributions payable | 589,851 | 588,197 | ||||||
| TOTAL LIABILITIES | 264,994,490 | 196,868,723 | ||||||
| Commitments and contingencies | ||||||||
| EQUITY | ||||||||
| Sotherly Hotels Inc. stockholders’ equity | ||||||||
|
Preferred stock, par value $0.01; 1,000,000 shares authorized; 0 shares issued and outstanding at each of March 31, 2014 and December 31, 2013 |
— | — | ||||||
| Common stock, par value $0.01; 49,000,000 shares authorized; 10,243,677 shares and 10,206,927 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively | 102,437 | 102,069 | ||||||
| Additional paid in capital | 57,764,370 |
|
57,534,113 | |||||
| Distributions in excess of retained earnings | (31,888,880 | ) |
|
(32,210,917 | ) | |||
| Total Sotherly Hotels Inc. stockholders’ equity | 25,977,927 | 25,425,265 | ||||||
| Noncontrolling interest | 5,836,540 |
|
5,746,114 | |||||
| TOTAL EQUITY | 31,814,467 | 31,171,379 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 296,808,957 | $ | 228,040,102 | ||||
| SOTHERLY HOTELS INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (unaudited) | ||||||||
| Quarter ended | Quarter ended | |||||||
|
March 31, 2014 |
March 31, 2013 | |||||||
| REVENUE | ||||||||
| Rooms department | $ | 17,453,189 | $ | 14,249,959 | ||||
| Food and beverage department | 6,251,683 | 4,851,571 | ||||||
| Other operating departments | 1,305,517 | 1,088,282 | ||||||
| Total revenue | 25,010,389 | 20,189,812 | ||||||
| EXPENSES | ||||||||
| Hotel operating expenses | ||||||||
| Rooms department | 4,751,526 | 4,013,733 | ||||||
| Food and beverage department | 4,070,370 | 3,224,480 | ||||||
| Other operating departments | 201,507 | 106,674 | ||||||
| Indirect | 9,483,873 | 7,815,061 | ||||||
| Total hotel operating expenses | 18,507,276 | 15,159,948 | ||||||
| Depreciation and amortization | 2,434,328 | 2,052,821 | ||||||
| Corporate general and administrative | 1,307,790 | 1,093,787 | ||||||
| Total operating expenses | 22,249,394 | 18,306,556 | ||||||
| NET OPERATING INCOME | 2,760,995 | 1,883,256 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (2,883,439 | ) | (2,680,547 | ) | ||||
| Interest income | 1,889 | 3,906 | ||||||
| Equity income in joint venture | 387,550 | 469,739 | ||||||
| Unrealized loss on warrant derivative | — | (2,769,065 | ) | |||||
| Net income (loss) before taxes | 266,995 | (3,092,711 | ) | |||||
| Income tax benefit (provision) | 735,319 | (263,055 | ) | |||||
| Net income (loss) | 1,002,314 | (3,355,766 | ) | |||||
| Add: Net income (loss) attributable to the noncontrolling interest | (219,312 | ) | 760,850 | |||||
| Net income (loss) attributable to the Company | $ | 783,002 | $ | (2,594,916 | ) | |||
| Net income (loss) per share | $ | 0.08 | $ | (0.26 | ) | |||
| Weighted average number of shares outstanding | 10,225,710 | 10,080,375 | ||||||
|
SOTHERLY HOTELS INC. |
|
KEY OPERATING METRICS |
|
(unaudited) |
| The following tables illustrate the key operating metrics for the three months ended March 31, 2014 and 2013, respectively, for the Company’s wholly-owned properties during each respective reporting period (“consolidated” properties) as well as the nine wholly-owned properties in the portfolio that were under the Company’s control during both the three months ended March 31, 2014 and the corresponding period in 2013 (“same-store” properties). Accordingly, the same-store data does not reflect the performance of the Crowne Plaza Houston Downtown, which was acquired in November 2013, or the Georgian Terrace, which was acquired in March 2014. Each table excludes performance data for the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture in August 2007 and in which the Company has a 25.0% indirect interest. |
|
Consolidated Properties (All Hotels) |
Three Months Ended March 31, |
|
||||||
| 2014 | 2013 | Variance | ||||||
| Occupancy | 67.3% | 65.6% | 2.5% | |||||
| ADR | $ | 120.60 | $ | 114.19 | 5.6% | |||
| RevPAR | $ | 81.14 | $ | 74.93 | 8.3% | |||
|
Same-Store Properties (9 Hotels) |
Three Months Ended March 31, |
|
||||||
| 2014 | 2013 | Variance | ||||||
| Occupancy | 65.7% | 65.6% | 0.1% | |||||
| ADR | $ | 116.93 | $ | 114.19 | 2.4% | |||
| RevPAR | $ | 76.81 | $ | 74.93 | 2.5% | |||
|
SOTHERLY HOTELS INC. |
|
SUPPLEMENTAL DATA |
|
(unaudited) |
| The following tables illustrate the key operating metrics for the three months ended March 31, 2014, 2013 and 2012, respectively, for each of the Company’s wholly-owned properties during each respective reporting period as well as the Company’s joint venture property, Crowne Plaza Hollywood Beach Resort, in which it owns a 25.0% interest. |
|
Occupancy |
|||||||||
| Q1 2014 | Q1 2013 | Q1 2012 | |||||||
| Crowne Plaza Hampton Marina | |||||||||
| Hampton, Virginia | 40.0 | % | 38.9 | % | 45.6 | % | |||
| Crowne Plaza Hollywood Beach | |||||||||
| Hollywood, Florida | 89.6 | % | 88.6 | % | 87.5 | % | |||
| Crowne Plaza Houston Downtown* | |||||||||
| Houston, Texas | 79.6 | % | |||||||
| Crowne Plaza Jacksonville Riverfront | |||||||||
| Jacksonville, Florida | 65.9 | % | 62.5 | % | 72.5 | % | |||
| Crowne Plaza Tampa Westshore | |||||||||
| Tampa, Florida | 85.6 | % | 81.4 | % | 83.7 | % | |||
| DoubleTree by Hilton Raleigh Brownstone – University | |||||||||
| Raleigh, North Carolina | 73.0 | % | 69.6 | % | 61.5 | % | |||
| The Georgian Terrace* | |||||||||
| Atlanta, Georgia | 76.9 | % | |||||||
| Hilton Philadelphia Airport | |||||||||
| Philadelphia, Pennsylvania | 79.2 | % | 74.5 | % | 69.8 | % | |||
| Hilton Savannah DeSoto | |||||||||
| Savannah, Georgia | 70.1 | % | 68.0 | % | 73.5 | % | |||
| Hilton Wilmington Riverside | |||||||||
| Wilmington, North Carolina | 55.4 | % | 64.4 | % | 63.2 | % | |||
| Holiday Inn Laurel West | |||||||||
| Laurel, Maryland | 50.6 | % | 58.5 | % | 56.6 | % | |||
| Sheraton Louisville Riverside | |||||||||
| Jeffersonville, Indiana | 59.8 | % | 63.1 | % | 57.0 | % | |||
* Data is provided for only those periods in which the Company owned the property.
|
ADR |
|||||||||
| Q1 2014 | Q1 2013 | Q1 2012 | |||||||
| Crowne Plaza Hampton Marina | |||||||||
| Hampton, Virginia | $ | 81.57 | $ | 82.32 | $ | 77.03 | |||
| Crowne Plaza Hollywood Beach | |||||||||
| Hollywood, Florida | $ | 207.62 | $ | 207.01 | $ | 178.52 | |||
| Crowne Plaza Houston Downtown* | |||||||||
| Houston, Texas | $ | 142.82 | |||||||
| Crowne Plaza Jacksonville Riverfront | |||||||||
| Jacksonville, Florida | $ | 97.49 | $ | 95.92 | $ | 94.20 | |||
| Crowne Plaza Tampa Westshore | |||||||||
| Tampa, Florida | $ | 114.50 | $ | 106.62 | $ | 104.41 | |||
| DoubleTree by Hilton Raleigh Brownstone – University | |||||||||
| Raleigh, North Carolina | $ | 119.68 | $ | 108.88 | $ | 99.32 | |||
|
The Georgian Terrace* |
|||||||||
| Atlanta, Georgia | $ | 157.19 | |||||||
| Hilton Philadelphia Airport | |||||||||
| Philadelphia, Pennsylvania | $ | 125.77 | $ | 128.41 | $ | 126.63 | |||
| Hilton Savannah DeSoto | |||||||||
| Savannah, Georgia | $ | 141.85 | $ | 139.37 | $ | 130.75 | |||
| Hilton Wilmington Riverside | |||||||||
| Wilmington, North Carolina | $ | 125.37 | $ | 124.48 | $ | 119.31 | |||
| Holiday Inn Laurel West | |||||||||
| Laurel, Maryland | $ | 88.27 | $ | 91.38 | $ | 90.65 | |||
| Sheraton Louisville Riverside | |||||||||
| Jeffersonville, Indiana | $ | 129.88 | $ | 121.07 | $ | 118.72 | |||
* Data is provided for only those periods in which the Company owned the property.
|
RevPAR |
|||||||||
| Q1 2014 | Q1 2013 | Q1 2012 | |||||||
| Crowne Plaza Hampton Marina | |||||||||
| Hampton, Virginia | $ | 32.60 | $ | 32.00 | $ | 35.09 | |||
| Crowne Plaza Hollywood Beach | |||||||||
| Hollywood, Florida | $ | 186.06 | $ | 183.47 | $ | 156.25 | |||
| Crowne Plaza Houston Downtown* | |||||||||
| Houston, Texas | $ | 113.62 | |||||||
| Crowne Plaza Jacksonville Riverfront | |||||||||
| Jacksonville, Florida | $ | 64.29 | $ | 59.97 | $ | 68.31 | |||
| Crowne Plaza Tampa Westshore | |||||||||
| Tampa, Florida | $ | 97.96 | $ | 86.79 | $ | 87.41 | |||
| DoubleTree by Hilton Raleigh Brownstone – University | |||||||||
| Raleigh, North Carolina | $ | 87.38 | $ | 75.76 | $ | 61.05 | |||
|
The Georgian Terrace* |
|||||||||
| Atlanta, Georgia | $ | 120.93 | |||||||
| Hilton Philadelphia Airport | |||||||||
| Philadelphia, Pennsylvania | $ | 99.57 | $ | 95.69 | $ | 88.38 | |||
| Hilton Savannah DeSoto | |||||||||
| Savannah, Georgia | $ | 99.43 | $ | 94.77 | $ | 96.12 | |||
| Hilton Wilmington Riverside | |||||||||
| Wilmington, North Carolina | $ | 69.49 | $ | 80.19 | $ | 75.44 | |||
| Holiday Inn Laurel West | |||||||||
| Laurel, Maryland | $ | 44.71 | $ | 53.47 | $ | 51.28 | |||
| Sheraton Louisville Riverside | |||||||||
| Jeffersonville, Indiana | $ | 77.63 | $ | 76.42 | $ | 67.62 | |||
* Data is provided for only those periods in which the Company owned the property.
| SOTHERLY HOTELS INC. | ||||||||
| RECONCILIATION OF NET INCOME (LOSS) TO | ||||||||
| FFO, Adjusted FFO, EBITDA, Adjusted EBITDA and Hotel EBITDA | ||||||||
| (unaudited) | ||||||||
| Three months ended March 31, | ||||||||
|
2014 |
2013 | |||||||
| Net income (loss) attributable to the Company | $ | 783,002 | $ | (2,594,916 | ) | |||
| Noncontrolling interest | 219,312 | (760,850 | ) | |||||
| Depreciation and amortization | 2,434,328 | 2,052,821 | ||||||
| Equity in depreciation and amortization of joint venture | 138,684 | 135,101 | ||||||
| FFO |
3,575,326 |
(1,167,844 | ) | |||||
| Unrealized (gain)/loss on hedging activities(1) | — | (27,323 | ) | |||||
| Unrealized loss on warrant derivative | — | 2,769,065 | ||||||
| (Increase) decrease in deferred income taxes | (735,319 | ) | 261,696 | |||||
| Acquisition costs | 155,187 | — | ||||||
| Loss on early extinguishment of debt(2) | — | 337,136 | ||||||
| Adjusted FFO | $ |
2,995,194 |
$ | 2,172,730 | ||||
| Weighted average shares outstanding | 10,225,710 |
10,080,375 |
||||||
| Weighted average units outstanding | 2,864,127 |
2,955,617 |
||||||
| Weighted average shares and units | 13,089,837 |
13,035,992 |
||||||
| FFO per share and unit | $ | 0.27 | $ | (0.09 | ) | |||
| Adjusted FFO per share and unit | $ | 0.23 | $ | 0.17 | ||||
| Three months ended March 31, | ||||||||
|
2014 |
2013 | |||||||
| Net income (loss) attributable to the Company | $ | 783,002 | $ | (2,594,916 | ) | |||
| Noncontrolling interest | 219,312 | (760,850 | ) | |||||
| Interest expense | 2,883,439 | 2,680,547 | ||||||
| Interest income | (1,889 | ) | (3,906 | ) | ||||
| Income tax (benefit) provision | (735,319 | ) |
263,055 |
|||||
| Depreciation and amortization | 2,434,328 | 2,052,821 | ||||||
| Equity in interest expense and depreciation and amortization of joint venture | 300,225 | 243,170 | ||||||
| EBITDA | 5,883,098 | 1,879,921 | ||||||
| Unrealized (gain)/loss on hedging activities(1) | — | (27,323 | ) | |||||
| Unrealized loss on warrant derivative | — | 2,769,065 | ||||||
| Acquisition costs | 155,187 | — | ||||||
| Adjusted EBITDA | 6,038,285 | 4,621,663 | ||||||
| Corporate general and administrative | 1,152,603 | 1,093,787 | ||||||
| Equity in Adjusted EBITDA of joint venture | (687,775 | ) | (685,586 | ) | ||||
| Net lease rental income | (87,500 | ) | (87,500 | ) | ||||
| Other fee income | (96,440 | ) | (94,323 | ) | ||||
| Hotel EBITDA | $ | 6,319,173 | $ | 4,848,041 | ||||
Non-GAAP Financial Measures
The Company considers the non-GAAP measures of FFO (including FFO per share), EBITDA and hotel EBITDA to be key supplemental measures of the Company’s performance and could be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance. These measures do not represent cash generated from operating activities determined by generally accepted accounting principles (“GAAP”) or amounts available for the Company’s discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by GAAP.
FFO
Industry analysts and investors use Funds from Operations (“FFO”), as a supplemental operating performance measure of an equity REIT. FFO is calculated in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with GAAP 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, many investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by itself.
The Company considers FFO to be a useful measure of adjusted net income (loss) for reviewing comparative operating and financial performance because we believe FFO is most directly comparable to net income (loss), which remains the primary measure of performance, because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies. Although FFO is intended to be a REIT industry standard, other companies may not calculate FFO in the same manner as we do, and investors should not assume that FFO as reported by us is comparable to FFO as reported by other REITs.
EBITDA
The Company believes that excluding the effect of non-operating expenses and non-cash charges, and the portion of those items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrued directly to shareholders.
Hotel EBITDA
The Company defines hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) equity in the income or loss of equity investees, (4) unrealized gains and losses on derivative instruments not included in other comprehensive income, (5) gains and losses on disposal of assets, (6) realized gains and losses on investments, (7) impairment of long-lived assets or investments, (8) corporate general and administrative expense; (9) depreciation and amortization; and (10) other operating revenue not related to the Company’s wholly-owned portfolio. We believe this provides a more complete understanding of the operating results over which the Company’s wholly-owned hotels and its operators have direct control. We believe hotel EBITDA provides investors with supplemental information on the on-going operational performance of the Company’s hotels and the effectiveness of third-party management companies operating the Company’s business on a property-level basis. The Company’s calculation of hotel EBITDA may be different from similar measures calculated by other REITs.
Adjusted FFO and Adjusted EBITDA
The Company presents adjusted FFO, including adjusted FFO per share and unit, and adjusted EBITDA, which adjusts for certain additional items including any unrealized gain (loss) on its hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, aborted offering costs, costs associated with the departure of executive officers and acquisition transaction costs. The Company excludes these items as it believes it allows for meaningful comparisons between periods and among other REITs and is more indicative of the on-going performance of its business and assets. The Company’s calculation of adjusted FFO and adjusted EBITDA may be different from similar measures calculated by other REITs.