FelCor Readies Stage to Reinstate Common Dividends

Nonetheless, it's a strong signal about the success of FelCor's 2004 performance, bolstered by a hotel disposition plan that last year raked in $157 million or $32 million more than anticipated from the sale of 17 properties with 4,337 rooms. Eighteen properties remain on the "to go" list, which are expected to generate another $155 million in gross revenues, according to information presented yesterday to shareholders and analysts. This year, the REIT predicts $60 million to $80 million will be raised from the ongoing sales, with proceeds going to further reduce debt and leverage acquisitions, Thomas J. Corcoran Jr., FelCor's president and CEO, says. The first sale this year will be March 1 when the Embassy Suites in St. Louis, MO is handed off for $38 million. In the last four years, FelCor has sold 55 hotels with 11,300 rooms.

Overall, last year surpassed expectations although the fourth quarter ended on the low end of its guidance. According to FelCor, the quarter's net loss applicable to common shareholders was 35 cents per share or $21 million and an FFO decline of 10 cents or $6 million. The bright side is the performance was significantly improved from 2003's Q4 when losses were $2.55 per share, equal to $150 million, and $2.06 in FFO or $128 million. EBITDA was $53 million versus $47 million in the prior year while RevPAR for the quarter was $59.94 in comparison to $57.70 in 2003. The average daily room rate rose to $99.28, up $2.87.

Looking at the full year, FelCor's EBITDA was up 7.1% or $259 million; it was $242 million in 2003. The 2004 FFO was $63 million versus $38 million for the prior year. Shareholders' net loss was $2.29 per share or $135 million and FFO ended down 49 cents or $31 million. In 2003, per share losses were $3.35, totaling $337 million and FFO dropped $207 million. RevPAR came in at $64.91 versus $61.89 in 2003 and ADR was $99.07, a gain of $1.69.

The return to a common dividend payment kicks off a second phase to a repositioning set in motion to cut debt and reconfigure the portfolio with upscale and resort assets. Last year, FelCor slashed $270 million of debt and retired $600 million in senior notes due in 2008 through sales and refinancing. In all, the year ended with $775 million prepaid early on its debt line. The next fiscal hurdle is a $145-million mortgage for 10 hotels coming due in early 2006. FelCor's CFO Richard Smith says the corporate chiefs most likely will opt for an extension. "But," he says, "it depends on market conditions at the time."

Another $100 million will be spent this year on upgrades, including the cost to put the "bedding program" into an estimated 40 more hotels. This year's "cap ex" plan includes computer and technology upgrades across the board, Corcoran says, adding the last overhaul was Y2K.

On the acquisitions front, Corcoran says the guidance doesn't include any hotel or resort buys this year. "It will be challenging, but I believe that with the relationships with our brand partners, there will be hotels that come up," he says. "When the right transaction comes along, we'll do it." FelCor's focus is the Northeast and Southern California.

"We are looking at positive cash flow going forward in this year," Corcoran says. "That will be a focus when we talk to our board in April."