FelCor's $100M Nest Egg Ready to Tap at Q2's Close

Word of the capital pool surfaced during yesterday's conference call for the REIT's first-quarter earnings. The industry's eyes and ears were listening to how FelCor exceeded analysts' projections and meted a 15-cent dividend to common shareholders. FelCor is the first of the Dallas-Fort Worth-based hotel giants to roll out its numbers.

The upshot is the market is recovering, albeit slowly, and FelCor has managed to pull ahead of forecasts made four to six months ago. Amid FelCor's better-than-anticipated financials came acquisition talk and news that certain hotel components are on the market. Specifically, retail and parking garages at some properties are up for sale, Richard J. O'Brien, FelCor's executive vice president and CFO, tells GlobeSt.com. Chicago's Allerton Crowne Plaza is the first in line to have its retail hawked to an outsider. And, it's no surprise that a buyer already is sitting at the bargaining table for the premier retail space. A closing could come midyear, O'Brien says.

Selling "non-core hotel assets" is not a big part of FelCor's strategy although it is a way to "more efficiently deploy capital to create a higher return on the assets," O'Brien explains. That "deployment" certainly would increase the capital available for the buy mode that FelCor's president and CEO Thomas J. Corcoran Jr. has been alluding to for months.

To capture FelCor's attention, the product must be full-service upscale quality. The Northwest and Northeast are at the top of the list due to FelCor's limited presence in the regions, O'Brien confides. Nothing is under contract and O'Brien won't give as to whether talks are under way with any hoteliers. His official word: "FelCor is always looking at portfolios and potential opportunity."

There are no fire sales, but the bid-ask has improved in recent months and could get better as FelCor nears its time to buy. "Sellers are more realistic in asking prices because the trends are clear," O'Brien says, "and buyers are now more confident of the numbers (of net operating results)."

In the past year, FelCor has sold 13 of 25 hotels earmarked for disposition. The REIT collected $6.5 million in the first quarter for the 183-room Doubletree Guest Suites in Boca Raton, FL and has its 71-room Holiday Inn Express in Colby, KS under contract.

Debt now totals $1.9 billion, with the weighted average life standing at seven years. The REIT also has pulled $39.3 million from its $615 million credit line. Other highlights of FelCor's Q1 numbers show average occupancy is up to 60.6% from 55.2% at the end of fourth quarter 2001. Recurring FFO for the first quarter was $29.3 million or 44 cents per share in comparison to $71.4 million or $1.07 per share for Q1 2001. RevPAR was 18.1% below last year's first quarter. EBITDA for the quarter totaled $77.2 million in comparison to $117.3 million for first quarter 2001. The Q1 net loss came in at $6.1 million, down $700,000 from the prior year.