FelCor, InterContinental Settle Work-Out Plan; More Sales Coming

IRVING, TX-In an ongoing shuffle of the hospitality industry, FelCor Lodging Trust Inc. has jumped into the throes in a work-out agreement with InterContinental Hotels Group Plc. The deal sets up 38 more hotel sales to churn out another $400 million to cut nearly $1.7 billion of debt, pool up to $150 million for hotel upgrades and slash exposure in markets like Dallas, Houston and Atlanta.

The FelCor-IHG agreement, ending a year of negotiations, prunes the managed properties to 17 Holiday Inns, representing 6,301 rooms in mostly urban locations in the Northeast, California and on the East Coast. The Irving-based REIT's emerging portfolio will have 90 hotels with 25,537 rooms in 25 states, of which 75% are upper upscale brands. Embassy Suites, Doubletree, Hilton, Sheraton/Westin and Holiday Inn flags will stay put; Crowne Plaza is out, with 11 of 12 ticketed for sale. The Crowne Plaza San Francisco will be re-branded. The 38 hotel sales--31 of which are IHG-managed--are expected to be completed within 18 months and anticipated to bring in $500 million to $550 million.

"We have now accomplished our two primary objectives outlined at the beginning of 2005: to amend the IHG management agreement and reinstate a common dividend," Thomas J. Corcoran Jr., FelCor's president and CEO, says in this morning's press release. He tells GlobeSt.com that "the purpose was to position FelCor for the future. It's a smaller company, but a better positioned company with a better foundation." And, he stresses, that unlike some peers, "it's not for the purpose of setting it up to sell the company."

Under the work-out, the UK-based InterContinental's US operations, headquartered in Atlanta, will manage FelCor's 17 Holiday Inns until 2025, with FelCor agreeing to complete about $50 million of upgrades at 11 of the 17 hotels. FelCor is shouldering a $260-million impairment charge for fourth quarter 2005 to initiate the agreement, but it also erases the potential for liquidated damages and reinvestment requirements with respect previously sold hotels, the upcoming sales and the conversion.

In the press release, the FelCor team acknowledges it's selling 31% of its rooms, but says it works out to just 15% of its hotel EBITDA. According to supplemental information, FelCor's retained Holiday Inns earn $70 in RevPAR and $7,300 per room in EBITDA while the "for sale" grouping has $49 in RevPAR and $3,600 per room in EBITDA. FelCor sold three hotels in December for net proceeds of $15 million and this month turned over another seven, totaling 2,072 rooms, to Hospitality Properties Trust for $160 million. The Newton, MA-based Hospitality Properties Trust has retained InterContinental to manage the package.

The "repositioned" FelCor will end up with 12 hotels in Texas instead of 25. It is selling three of its four in Houston; seven of 12 in Dallas; and paring three from its nine in other Texas cities. Atlanta's property count will be cut in half, with five hotels left in the portfolio. The goal is to have no market contributing more than 6% of the EBITDA. After the sales, FelCor expects to realize a 5% NOI cap rate from its core portfolio.

In InterContintental's press release, it says FelCor also got the right to convert 15 hotels with 4,954 rooms, some of which could end up under its management control. Meanwhile, InterContinental has sold the Staybridge Suites in Las Colinas and plans to sell the Holiday Inn in Montego Bay, Jamaica for a total $35 million.