FelCor's First 2004 Sale Ready to Close

With the Dallas sale closing any day now, three more will go by the first quarter's close with four deeds passing to four buyers, GlobeSt.com is told about sales in Houston, Jackson, MS and one location that FelCor's keeping under wraps just as it's hushed about which of its 16 hotels in the "Big D" is going to go. The REIT has 33 hotels, totaling 8,682 rooms, up for sale in an ongoing disposition to strip non-strategic assets from the fold.

Richard J. O'Brien, FelCor's executive vice president and CFO, tells GlobeSt.com that buying and selling has hit a hot streak with the bid-ask spread narrowing "as the economy becomes more certain." The change in attitude has brought hard money not only for FelCor, but its local peer, Wyndham International Inc., which sold nine hotels with 2,867 rooms in two transactions last week. Both hoteliers are using market conditions to trade in older product for resort and upscale urban/suburban properties and reduce debt incurred in the last three years in the juxtaposition to stay afloat during the worst hospitality slump in decades.

O'Brien expects this year will be much like 2003 with sales gaining momentum in the latter half of the year. Of the $125 million gleaned from 2003 sales, $80 million in transactions closed in October. The sweet spot for the fourth quarter deal-making is that FelCor's corporate chiefs were able to tell stockholders that there is $246 million in cash and cash equivalents to push the selective buying strategy.

That's not to say that FelCor had a rosy 2003. Last year's net loss applicable to shareholders was $337 million or $131 million more than 2002 while the 2003 FFO was a loss of $207 million versus the prior's year's loss of $60 million as well as an EBITDA loss. FelCor's top brass says the high impairment losses reflect the difference between the book value and current estimated fair market value for hotels on the sales block.

"We believe 2004 will be a stronger year for FelCor...The good news is there is an active market to sell hotels today," Thomas J. Corcoran Jr., FelCor's president and CEO, said during last week's earnings call. "2004 should be a very good year to sell hotels."

O'Brien says low-secured debt costs have made regional players active buyers alongside institutional investors. "There is a significant amount of capital available to invest in hotels," he says. "The lending community is as willing as the investment community because they see the hospitality market recovery...The industry is cyclical and we are in the early stages of a lodging recovery."

The growing opportunities within the industry have prompted USAA, traditionally an office and industrial buyer, to announce plans to debut a large hotel co-investment fund in the near future--a plan put on the street with the first acquisition, 2,249 rooms in six hotels from the Wyndham stock. Meanwhile, Friday brought word that Dallas-based Ashford Hospitality Trust Inc. closed a three-year, $60 million-secured revolving credit facility led by Credit Lyonnais' New York branch so Ashford can "take advantage of its near-term investment pipeline with the flexibility to pursue longer term strategic objectives," Monty J. Bennett, Ashford's president and CEO said in a press release.