Condor Hospitality Trust Reports 2016 First Quarter Results

NORFOLK, NE--(Marketwired - May 10, 2016) - Condor Hospitality Trust, Inc. (NASDAQ: CDOR) (the "Company") today announced results for the first quarter ended March 31, 2016.

"The first quarter of 2016 was an inflection point for Condor as the $30.0 million investment by StepStone enabled the Company to greatly advance its goal of improving the quality of and simplifying the structure of its balance sheet," said Bill Blackham, Condor's Chief Executive Officer. "Our near term focus is to complete the strategic repositioning of the portfolio through continued disposition of legacy assets to recycle the net proceeds in a highly disciplined manner into high-quality, premium branded select service hotels."

2016 First Quarter Highlights

The Company continues to make significant progress on its strategic repositioning. In the first quarter of 2016, the Company successfully closed on a $30.0 million capital raise. Additionally, the Company continued to dispose of legacy assets at attractive valuations, successfully closing on four legacy dispositions in the first quarter. Both of these important accomplishments are further detailed below.

Capital Raise: On March 16, 2016, Condor announced that it had raised $30.0 million in a private placement transaction with an affiliate of the StepStone Group. The investment, structured as a new Series D Preferred Stock, includes a 6.25% coupon, payable quarterly, and may be converted under certain circumstances into shares of the Company's common stock at a conversion price of $1.60 per share. Subsequent to the close of the first quarter, the Company used a portion of the proceeds from the $30.0 million Series D raise to redeem for cash all outstanding Series A and Series B Preferred Stock, including all unpaid accrued dividends. Excess proceeds will be utilized by the Company to accelerate the strategic repositioning of its portfolio to high-quality select service, limited service, extended stay, and compact full service hotels. This investment capacity is in addition to the proceeds expected to be recycled from the planned disposition of legacy assets in 2016. Simultaneous with StepStone's Series D investment, the Company's outstanding Series C Preferred Stock, all of which was held by Real Estate Strategies L.P. (RES), was also exchanged for the newly created Series D Preferred Stock, resulting in one class of preferred stock for which the Company can require conversion entirely into common stock upon the occurrence of defined capital events.

Dispositions: In the first quarter of 2016, the Company continued to successfully dispose of legacy assets at attractive valuations. On January 8, 2016, the Company announced the sale of three legacy assets for gross proceeds of $7.0 million. On April 7, 2016, the Company announced the sale of an additional legacy asset with gross proceeds of $2.4 million. The Company expects to market up to 27 legacy hotels in 2016, including the four closed dispositions aforementioned. At a minimum, the Company anticipates disposing of 20 legacy hotels in 2016 and plans to utilize the net proceeds to continue to strategically reposition the portfolio.

Summary Financial Results

RevPAR: For the first quarter, revenue per available room (RevPAR) for the 22 same-store hotels not considered held for sale at March 31, 2016, declined 5.3 percent to $40.89. The decrease was attributed to an 11.5 percent reduction in occupancy to 53.5 percent, partially offset by a 7.0 percent increase in average daily rate (ADR) to $76.43. The decrease in occupancy was the result of market challenges facing the legacy hotels as a result of declines in oil and gas, rail, and fracking industries. Occupancy was also negatively impacted by a decrease in construction projects from 2015 where the rate of these projects was higher than typical. Despite these occupancy challenges, in the latter half of 2015 and in 2016, the Company has focused on increasing ADR in light of an improving economy and increasing leisure and transient travel.

Revenue: Condor's first quarter 2016 revenue from continuing operations was $12.2 million compared to $12.3 million in the same 2015 period. Revenue from newly acquired properties in the three months ended March 31, 2016 totaled $3.2 million, which was partially offset by a decrease in revenue from held for sale and sold properties included in continuing operations of $3.1 million.

Net Earnings:  First quarter net earnings attributable to common shareholders was $(10.4) million, or $(2.11) per basic and diluted share compared to $2.3 million, or $0.48 per basic and $(0.09) per diluted share for the same 2015 period.

These results include dividends declared and undeclared and in kind distributions to preferred shareholders of $17.7 million for the three months ended March 31, 2016, which increased considerably over $0.9 million in the same period in 2015 as a result of the first quarter 2016 preferred stock transactions.

Funds From Operations (FFO): Funds from operations for the three months ended March 31, 2016 increased to $5.8 million as compared to $4.7 million for the same period prior year. The increase in FFO was primarily driven by an increase in net earnings from $3.5 million for the first three months ended March 31, 2015 to $7.7 million for the same period 2016.

Capital Reinvestment: The Company invested $0.7 million in capital improvements throughout the portfolio in the first quarter 2016 to upgrade its properties and maintain brand standards.

Balance Sheet: The Company had cash and cash equivalents and available revolver of $16.3 million and $2.6 million, respectively, at March 31, 2016. As of March 31, 2016, the Company had total outstanding long-term debt of $81.5 million, with $67.5 million associated with assets held for use with a weighted average maturity of 2.7 years and a weighted average interest rate of 5.15%.

Dividends:On April 15, 2016, the Company completed the cash redemption of all of its outstanding shares of 8% Series A Cumulative Preferred Stock (NASDAQ: CDORP) (CUSIP No. 20676Y205) and 10% Series B Cumulative Preferred Stock (NASDAQ: CDORO) (CUSIP No. 20676Y304), including all accrued and unpaid dividends. The aggregate redemption price was approximately $20.1 million, an amount that was funded using proceeds from the Company's previously announced $30.0 million private placement transaction with StepStone Real Estate, an affiliate of the StepStone Group.

On March 16, 2016, the Company entered into an Exchange Agreement with RES and IRSA Inversiones y Representaciones Sociedad Anónima pursuant to which all 3,000,000 outstanding shares of Series C Preferred Stock were exchanged for 3,000,000 shares of Series D Preferred Stock. Pursuant to the Exchange Agreement, in lieu of payment of accrued and unpaid dividends in the amount of $4.9 million on the Series C Preferred Stock, Condor (a) paid to RES an amount of cash equal to $1.5 million (b) issued to RES 245,156 shares of Series D Preferred Stock (such that RES, IRSA and their affiliates do not beneficially own in excess of 49% of the voting stock of Condor) and (c) issued to RES a promissory note, bearing interest at 6.25% per annum, in the principal amount of $1.0 million and convertible into a number of shares of Series D Preferred Stock that would have otherwise been issued on account of the remaining accrued and unpaid dividends but for the foregoing 49% limitation (the "Note").

Following the execution of the Stock Purchase Agreement and Exchange Agreement on March 16, 2016, there were 6,245,156 shares of Series D Preferred Stock outstanding. The Series D Preferred stockholders receive cumulative cash dividends at a rate of 6.25% per annum, payable quarterly. The Series D Preferred Stock is convertible, at the option of the holder, at any time into common stock at a rate of $1.60 per share of common stock, which is equal to a rate of 6.25 shares of common stock for each share of Series D Preferred Stock. No dividend has been declared to-date for the Series D Preferred Stock. The Company's Board of Directors will announce distributions following the next Board of Director's meeting.

Outlook

"Over the past year, we have significantly improved the capitalization and liquidity position of Condor," said Jonathan Gantt, Condor's Chief Financial Officer. "We believe these improvements, combined with the capital recycling initiative, position the company to pursue increasing shareholder value."

About Condor Hospitality Trust, Inc.
Condor Hospitality Trust, Inc. (NASDAQ: CDOR) is a self-administered real estate investment trust that specializes in the investment and ownership of upper midscale and upscale, premium branded, select service, extended stay, and limited service hotels. The Company currently owns 37 hotels in 17 states. Condor's hotels are franchised by a number of the industry's most well-regarded brand families including Hilton, Marriott, InterContinental Hotels Group, Choice and Wyndham. For more information or to make a hotel reservation, visit www.condorhospitality.com.

Forward Looking Statement
Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. These risks are discussed in the Company's filings with the Securities and Exchange Commission.

SELECTED FINANCIAL DATA:

Reconciliation of Non-GAAP Financial Measures (Unaudited)

Non-GAAP financial measures are measures of our historical financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We report Funds from Operations ("FFO"), Adjusted FFO ("AFFO"), Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), Adjusted EBITDA, and Property Operating Income ("POI") as non-GAAP measures that we believe are useful to investors as key measures of our operating results and which management uses to facilitate a periodic evaluation of our operating results relative to those of our peers. Our non-GAAP measures should not be considered as an alternative to U.S. GAAP net earnings or operating income (loss) as an indication of financial performance or to U.S. GAAP cash flows from operating activities as a measure of liquidity. Additionally, these measures are not indicative of funds available to fund cash needs or our ability to make cash distributions as they have not been adjusted to consider cash requirements for capital expenditures, property acquisitions, debt service obligations, or other commitments.

FFO and AFFO

The following table reconciles net earnings to FFO and AFFO for the three months ended March 31 (in thousands.) All amounts presented include both continuing and discontinued operations.

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net earnings computed in accordance with GAAP, excluding gains or losses from sales of real estate assets, impairment, and the depreciation and amortization of real estate assets. FFO is calculated both for the Company in total and as FFO attributable to common shareholders, which is FFO excluding earnings attributable to noncontrolling interests and preferred stock dividends. AFFO is FFO attributable to common shareholders adjusted to exclude items we do not believe are representative of the results from our core operations, such as non-cash gains or losses on derivative liabilities and convertible debt and cash charges for acquisition costs. All REITs do not calculate FFO and AFFO in the same manner; therefore, our calculation may not be the same as the calculation of FFO and AFFO for similar REITs.

We consider FFO and AFFO to be useful additional measures of performance for an equity REIT because they facilitate an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that FFO and AFFO provide a meaningful indication of our performance.

EBITDA and Adjusted EBITDA

The following table reconciles net earnings to EBITDA and Adjusted EBITDA for the three months ended March 31 (in thousands). All amounts presented include both continuing and discontinued operations.

We calculate EBITDA and Adjusted EBITDA by adding back to net earnings certain non-operating expenses and certain non-cash charges which are based on historical cost accounting which we believe may be of limited significance in evaluating current performance. We believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods. In calculating EBITDA, we add back to net earnings interest expense, loss on debt extinguishment, income tax expense, and depreciation and amortization expense. In calculating Adjusted EBITDA, we adjust EBITDA to add back net gain on disposition of assets, and acquisition and terminated transactions expense, which are cash charges. We also add back impairment and gain or loss on derivatives and convertible debt, which are non-cash charges. Our current calculation of EBITDA varies from that presented in previous filings as EBITDA was historically calculated based on net earnings attributable to common shareholders with preferred dividends and noncontrolling interest added back only to Adjusted EBITDA. EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

We believe that EBITDA and Adjusted EBITDA to be useful additional measures of our operating performance, excluding the impact of our capital structure (primarily interest expense), our asset base (primarily depreciation and amortization expense), and other items we do not believe are representative of the results from our core operations.

Property Operating Income

The following table reconciles operating income (loss) to POI for the three months ended March 31 (in thousands). All amounts presented include only continuing operations unless otherwise noted.

We calculate POI as room rentals and other hotel services revenue less hotel and property operating expenses. We believe POI is helpful to investors as it better communicates the comparability of our hotels' operating results for all of the Company's hotel properties. POI as presented above includes both continuing and discontinued operations.