REPORT FROM THE U.S.—FelCor Lodging Trust won’t be buying any more hotels any time soon. Instead, the real-estate investment trust will spend the remainder of this cycle cutting the number of assets on its balance sheet in half and reducing debt, executives said Wednesday during the company’s fourth-quarter earnings call.
FelCor owns 76 upper-upscale, full-service hotels located in major markets throughout 22 states. Andrew Welch, executive VP and CFO, said the company considers 30 of those hotels “non-core assets.” They’ve sold nine hotels in the past two years; 16 are on the market, and another 14 will hit the market later this year.
“We knew they were going to move slower,” Welch said. “As far as the interest goes, it has been good. We feel comfortable with our ability to sell these assets. Doing single-asset sales is easier than portfolio sales, and we feel very confident about the overall process going forward.”
Richard Smith, president and CEO at FelCor Lodging Trust
Two of FelCor’s properties in Atlanta will hit the market soon, and another will be marketed once airport lease issues are worked out. President and CEO Richard Smith said Atlanta proved to be a fairly disappointing market for FelCor, a trend iterated by a number of hotel owners recently.
“It’s been fairly ugly across the board, especially with the airport properties,” Smith said of the Atlanta hotel market. “Three hotels in this market will eventually be sold. Performance (in Atlanta) increased a bit in January but one month is not a trend.”
The latest weekly performance data, for the week of 19-25 February, from STR, parent of HotelNewsNow.com, showed a 7.5% gain in revenue per available room for Atlanta, driven almost equally by growth in occupancy (3.9%) and average daily rate (3.5%).
However, while operating revenues have been weaker, Smith said there is still significant interest from potential buyers. “Only time will tell,” he said.
Another key part of FelCor’s strategy is investing in capital improvements at properties within the portfolio. The company is undergoing major renovations at the Knickerbocker Hotel in New York; the Fairmont Copley Plaza hotel in Boston; the Embassy Suites-Kingston Plantation in Myrtle Beach, South Carolina; and both the Royalton and Morgans hotels in New York.
FelCor formed a joint venture with Highgate Holdings to acquire the Knickerbocker in early February, and Smith said the hotel will serve as FelCor’s “flagship” when it opens in late 2013. Mock rooms will be completed in April, he said.
“It’s going to be a 4.5-star, a very upper-upscale hotel. It has 420-square-foot rooms, which are enormous for New York City,” Smith said.
He said that while FelCor believes the hotels work very well as an independent, the company has fielded several calls from upper-upscale brands interested in franchising the hotel and FelCor will “have those conversations.”
“What we think will drive (return on investment) is what we’ll go with,” Smith said. “It will definitely be independently managed by Highgate because we think they are the most efficient manager in New York.”
On top of the Knickerbocker, FelCor also is renovating the public spaces at the Embassy Suites-Kingston Plantation. The hotel will get a new restaurant, new porte-cochère and a full bar, all of which are between 75% and 90% complete. A new Starbucks has been installed and a new offsite laundry facility has the potential to become a profit center for FelCor.
The Embassy Suites will be repositioned and segmentation adjustments will be made to shift away from government and discounted business, and FelCor is working with Hilton Worldwide to install new revenue management practices at the hotel.
A similar strategy is underway at both the Morgans and Royalton hotels, each of which underwent complete management restructurings.
“We began working with a new leadership team to realize revenue we knew they could generate,” Smith said. “We have a great relationship with Morgans and are in agreement with their mixed management plan.”