IRVING, Texas—FelCor Lodging Trust is in the midst of a spring cleaning, the company reported during a first-quarter earnings call Monday. The real-estate investment trust has plans to sell up to 14 hotels by the end of this year and bring another 21 to the market.
The asset-sale strategy is part of a plan to improve portfolio quality, said Andrew J. Welch, executive VP and CFO.
“We have taken a number of steps over the recent years to improve our balance sheet and refinance our debt,” he said.
FelCor brought 14 hotels to market at the end of 2010, six of which are now under contract to be purchased, Welch said. One will close soon and Welch expects FelCor to sell most of the other 13 by year end. Another 21 hotels will be brought to market “in due time”—most likely by the end of the year, he said.
“On the six we have under contract and one we sold—we’ll have about (US)$40 million net proceeds after paying debt,” he said. “The way we’re looking at asset sales—when it makes sense to bring them to market, we’ll bring them to market.”
Bolstering the balance sheet
In addition to letting go of some non-core assets, FelCor has made other moves to clean up its balance sheet. The company in March closed a US$225-million secured, revolving line of credit with a group of seven banks. At closing, FelCor repaid two loans secured by mortgages on 11 hotels totaling US$198.3 million and US$28.8 million.
The REIT on Tuesday said it intends to offer US$500 million of senior secured notes, with proceeds going to fund the purchases of the Morgans Hotel New York and The Royalton Hotel. Offering proceeds will also be used for general corporate purposes, including to reduce indebtedness and fund acquisitions.
In early April, the company sold 27.6 million shares of common stock at US$6 per share and received net proceeds of US$159 million.
FelCor agreed to purchase The Royalton and the Morgans Hotel, both in New York City, for US$140 million from Morgans Hotel Group Company. Both hotels have limited initial capital needs and are in “excellent condition,” Welch said.
“MHGC is providing structural support by reducing management fees if needed,” he said.
FelCor plans to eventually add a fitness center and additional rooms to the Morgans property. The new owners have been in talks with current management to reduce discounting, Welch said.
“Morgans spent more than (US)$30 million in the last three years renovating these hotels, which will require nominal initial capital in excess of customary reserves,” he said.
In its earnings announcement, FelCor reported its first-quarter net loss narrowed to US$31.73 million, or 43 cents per share, from a year ago loss of US$62.94 million, or US$1.14 per share. In a Thomson Financial Network poll, 10 analysts expected FelCor to post a net loss of 4 cents per share.
Revenue per available room at FelCor’s most recently closed acquisition, the Fairmont Copley Plaza, was up 18% year-over-year, Welch said. “So far it has outperformed its initial expectations at underwriting,” he said.
The company has US$250 million in commercial mortgage-backed securities debt on 12 hotel notes coming due in 2011, but Welch said some of those hotels will be sold by the time the debt matures. FelCor has no debt maturing in 2012.
Of the company’s 80 consolidated hotels, the best performing markets in the early part of 2011 were Austin, Texas; Boston; San Francisco; and Tampa-St. Petersburg, Florida.
Although the New York market was sluggish during the first quarter, Welch is bullish on the market overall in 2011.
“Getting into New York and (Washington) D.C. has always been our plan. We’ve talked about it forever and we’ll continue to look for opportunities,” he said. “I think the outlook is fine on New York. The storms and some other things had some impact. New York isn’t going anywhere; our outlook hasn’t changed.”
Welch said FelCor has four primary objectives moving forward: Continue to de-lever the company; acquire hotels to stabilize the portfolio; remain focused on mixed management and the expense creep; and restructure the company’s balance sheet “to achieve efficient borrowing and cost to capital.”