IRVING, TX— FelCor Lodging Trust is seeing improvement in many of the markets where it operates and expects better results in other areas where the recovery is just now taking hold, according to Tom Corcoran, president and CEO of the company, one of the nation’s largest real estate investment trusts.
FelCor, which currently owns 130 hotels in 30 states and Canada, focuses on major markets and the upscale, all-suite and full-service segments. The properties in its portfolio are primarily brands of Hilton Hotels Corp., InterContinental Hotels Group and Starwood Hotels & Resorts.
Not only do FelCor’s brand partners manage the properties, they also have ownership stakes in the company. For example, InterContinental owns 17% of FelCor’s outstanding stock and units and is FelCor’s largest shareholder, while Hilton owns 2% of FelCor’s outstanding stock and units and is a joint venture partner in 18 hotels.
According to Corcoran, several of the key markets where FelCor operates have recovered from the economic slump including Los Angeles, Minneapolis, New Orleans, San Diego and Washington, D.C.
In four other key markets for FelCor, the recovery is just now being felt. Those markets include Chicago, northern New Jersey, Philadelphia and the San Francisco Bay area.
FelCor is currently engaged in repositioning its portfolio and shedding non-strategic assets in secondary and teritiary markets “and in areas like Texas where we have too many hotels,” Corcoran said.
“At the end of 2001, we had close to 200 hotels. When we are done [selling non-strategic assets], we will have sold 80 to 85 hotels.” The REIT will wrap up the repositioning by late 2006 or 2007, he indicated.
While most of the hotels sold have been Holiday Inns, “a few were Embassy Suites and a few were Doubletrees,” Corcoran said.
FelCor Lodging Trust is the largest owner of Embassy Suites hotels and Doubletree Guest Suites properties, he noted.
As for acquisitions, FelCor has not made any for the year to date but is continually looking at possible candidates, according to Corcoran.
Areas of interest include the Northeast, southern California and resort properties, he said, adding that FelCor would like to partner with Marriott and Hyatt in the future while maintaining its relationships with Hilton, InterContinental and Starwood.
In terms of an ideal size for the company’s portfolio, “there is no magic number, it’s the overall quality of the hotels,” he said.
Currently, 51% of FelCor’s properties are urban and airport hotels; 39% are suburban; and 10% are resorts. In the future, there may be some shifts in concentration with more urban properties and fewer suburban and airport properties, Corcoran said. “There is a lot better upside in urban, it’s less susceptible to new supply,” he explained.
Corcoran noted that for the second quarter ended June 30, 2005, FelCor posted improved earnings. Same-store earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $80 million in the second quarter, up 17% from $68 million in the same period of 2004. Adjusted EBITDA was $81 million for the quarter, compared to $73 million in the second quarter of 2004.
The company had a second quarter loss of $4.7 million, or 8 cents per share, compared with a loss of $40.6 million, or 69 cents a share a year earlier.
RevPAR for the quarter increased 9.6% compared to the same period in 2004, exceeding the company’s second quarter forecast of RevPAR growth of between 6% and 7%. ADR made up 59% of RevPAR growth for the quarter.
Higher RevPAR
Meanwhile, RevPAR for the six months ended June 30, 2005 increased 8.2% compared to the same six-month period in 2004. ADR made up 70% of RevPAR growth for the period.
Along with the improved results this year, Corcoran noted that FelCor had some significant accomplishments in 2004. “Last year we paid off about $200 million in debt and refinanced another $500 million and replaced it with lower cost debt,” he said.
Additionally, the company sold 17 hotels for $157 million, spent $102 million on capital expenditures at its hotels and acquired the Holiday Inn in Santa Monica, CA.
Corcoran is upbeat about business for the balance of the year. “We expect it to be fairly strong with 7% to 8% RevPAR growth,” he said, adding that growth for the industry should be “in the same range.”