UPDATE: FelCor Details $175M of Capital Improvements

Work will start in May on the majority of the InterContinental package and the balance will be under construction by September, Richard A. Smith, FelCor's newly named president and CEO, told shareholders and analysts during yesterday's earnings call. A $100-million pool of excess cash will be tapped to start the work although the lion's share will paid out of returns from future sales of 27 hotels, totaling 8,400 rooms. The disposition, expected to take 18 months, is projected to yield $325 million to $375 million, of which $125 million is ticketed for the cap-ex program for its core portfolio.

FelCor's executives said historical data shows renovated properties are driving significant EBITDA gains. In 2004, the hotelier spent $30 million to renovate 10 hotels, with the end result being a 31% EBITDA gain in comparison to 14% portfolio-wide for the same period. "Forty percent of that 31% was due specifically to renovations," Smith explained. FelCor's executives project a 12% to 15% increase in EBITDA with future renovations. "We certainly expect those kinds of returns or better on renovations," he added. Additionally, it's projected a 15% to 20% yield is possible for improvements that add meeting space and spas. "We expect the payback to be quicker and the returns higher," he said.

In its core portfolio, FelCor plans to renovate 10 to 15 hotels this year, including a full-scale repositioning of the Holiday Inn-flagged Charleston-Mills House in historic Downtown Charleston, SC and the redevelopment and re-flagging of the San Francisco Union Square. This year also will bring the start of a convention center property beside the Embassy Suites Hotel at Kingston Plantation in Myrtle Beach, SC.

Last year, the hotelier started renovations on 20 hotels, all penciled for midyear completions. FelCor's 2005 cap-ex program funded $124 million in improvements, with $38 million being paid out in the fourth quarter.