REPORT FROM THE U.S.—The Morgans New York Hotel—purchased by FelCor Lodging Trust in combination with The Royalton hotel in April 2011 for $140 million—is giving executives at the real-estate investment trust headaches.
Not only are renovations at the property taking longer than expected and impacting quarterly earnings results, but the hotel is now without power and offline as a result of Superstorm Sandy.
“Morgans is without power and not operating, which we are told will be restored by Friday or Saturday when we will be reopening,” said Rick Smith, president and CEO of FelCor, Thursday during the company’s third-quarter earnings call.
In total, Smith said 14 hotels in FelCor’s portfolio of 66 “felt some impact” from the storm.
“However, the actual property damage is fairly immaterial, relatively speaking,” he said. “No hotels sustained material exterior damage. Only three of the 14 hotels … had notable water intrusion but in a limited number of rooms, and those rooms should be back in service this week.”
Along with a strong asset-sale strategy in 2012, FelCor spent much of the year renovating and redeveloping key assets in its portfolio. The company completed work at 10 hotels—six of which were at the top of the portfolio in terms of size.
“The lone remaining hotel is Morgans,” Smith said. “The permitting process took longer than expected, but the work is underway.”
Smith said FelCor expects to complete the redevelopment of Morgans’ food-and-beverage area and the addition of three guestrooms in January. Meanwhile, even when power is restored, nine rooms will continue to be out of service as well as the F&B offerings through January.
The displacement affected FelCor’s revenue-per-available-room growth for the quarter. However, an increase of 6.2% year-over-year exceeded the industry average. Smith said efforts to increase rate and grow market share were successful.
But that growth was offset somewhat by lower-than-expected F&B profit. F&B revenues increased 11.2% compared with prior year but fell short of expectations due to lower group capture and displacement at both Morgans and the Fairmont Copley Plaza.
“As a result, we met the low end of our expectations,” Smith said.
FelCor Lodging Trust
Once redevelopment work is complete at Morgans, FelCor executives are excited about the hotel’s prospects. The key to growing revenue at the hotel will be re-mixing business segmentation and “getting back to what the hotel was targeting” before the renovations began.
“We totally changed the sales plan from a mix standpoint,” Smith said. “We feel very good about going forward, and ADR will be going up too through the remixing, and absolute rates will be increasing as well.”
Overall positive Q3
Overall, Smith said FelCor had a “very productive third quarter.”
RevPAR for the 66 hotels was $107.78, a 6.2% year-over-year increase. The increase was driven by a 6.9% gain in ADR to $144.06 and a 50-basis-point decrease in occupancy to 74.8%.
Also, FelCor continues to execute a strategic plan to reposition the portfolio. The company has sold 10 hotels in 2012 for gross proceeds of $207 million, which Smith said is “ahead of plan.”
“We have an additional 20 hotels to be sold; of those 10 have been brought to market or are in the preliminary marketing stage,” he said. “We currently are in discussion on six of these hotels with potential buyers. We expect to bring the remaining 10 hotels to market sometime in 2013.”