FelCor Lodging Trust prepares for new era
01 AUGUST 2014 7:52 AM
By the end of 2014, FelCor Lodging Trust will have opened the redeveloped Knickerbocker Hotel in New York and sold 19 of 21 non-strategic hotels.
IRVING, Texas—As FelCor Lodging Trust prepares to complete a multi-year plan to transform the real estate investment trust, company executives said they will look at new investment strategies once the process is complete.
“This will open up a period for us to be more opportunistic and more offensive,” said Richard A. Smith, president and CEO, during the company’s second-quarter earnings call on Thursday. “After the sales (of remaining assets), we will have a good portion of (capital) capacity and should have a number of opportunities to pursue, including six or seven potential redevelopment projects.”
During the call, Smith updated analysts on several facets of the company transformation plan:
Asset sales. At the beginning of the year, the REIT had 21 non-strategic hotels it intended to sell. According to Smith, all but two of them should be sold or in the marketing process by the end of 2014.
The company has sold four properties and has agreed to sell five more, with non-refundable deposits on four of the hotels. Earlier this month, FelCor unwound a series of joint ventures with Hilton Worldwide Holdings that owned 10 hotels. FelCor retained five of the hotels.
“We have hired brokers and have informally started the marketing process on these properties,” he said. “Full-scale marketing should begin in early September, and we expect the first call for offers by the end of September. And we will bring the remaining two hotels (of the 21 the company had at the beginning of the year) to market later this year or early 2015.”
Smith said the company will use proceeds from the sales to repay debt and finalize restructuring of its balance sheet.
Redevelopment of the Knickerbocker. This fall, FelCor will reopen the Knickerbocker Hotel in New York following a $240-million redevelopment project of the 330-room property.
“We’ve made steady progress on the Knickerbocker project since the last earnings call … and we expect the hotel to open this fall,” Smith said.
Revamping recently acquired hotels. Smith said six properties the company purchased in the last two years are ahead of operational expectations, with earnings before interest, taxes, depreciation and amortization for the portfolio up 23% during the quarter.
Similarly, performance continues to improve for a set of eight former Holiday Inn properties FelCor bought last year, redeveloped and converted to Wyndham-branded hotels. To secure the deal, Wyndham Worldwide Corporation provided a $100-million performance guarantee for the hotels over 10 years.
Smith said revenue per available room for these properties rose 20.4% during the quarter.
A strong quarter
Stronger group revenues and a remixing of customer segments helped FelCor achieve operating performance improvements during the second quarter. RevPAR for the company’s 54 hotels increased 10.8% based on a 3.5% increase in occupancy to 79.8% and a 7% rise in average daily rate, according to a news release.
Michael C. Hughes, senior VP and CFO, said the rise in average rate was due to a combination of rate management and remixing of business away from lower-rated segments, such as government, and into higher-rated segments.
“So far this year, corporate transient roomnights, which represents the largest concentration of demand for our hotels, are up 6%, and group roomnights are up 8%,” Hughes said. “Roomnights for our lower-rated segments are down 5%.”
Shares of FelCor are up 28.6% year to date as of Thursday afternoon. The R.W. Baird/STR Hotel Stock Index is up nearly 11% year to date.