FelCor: Transient Demand Good, Group Demand, Not So Much

IRVING, TX – Though transient demand increased at FelCor Lodging Trust Inc. properties, group demand, not so much. Still, the continued sluggishness on the group side didn’t seem to impact Q3 results, which revealed year-over-year increase in ADR of 3.3% to $130.43 and occupancy of 75.9%, an increase of 1.6% from the same time last year.

“We’re pleased with the results of the quarter, despite the headwinds of the summer,” commented FelCor president and CEO Richard A. Smith during the opening remarks of the Q3 earnings conference call on Nov. 1. “Things are moving in the right direction.”

Such “things” include an asset sale program that continues on track, continued strong demand in lodging and the modification of a $178 million loan, which is the only debt scheduled for maturity before 2014. The modification, noted FelCor EVP and CFO Andrew J. Welch, will help the company be in a better position to sell assets with a pre-payable facility while preserving the attractive interest rate. “We will continue to identify opportunities to refinance our existing debt to extend maturities further and lower our overall cost of capital,” he added.

During the Q&A period following the prepared remarks, Smith and Welch were asked about the buyer profile for the hotels currently on the block. Smith said that, while the buyer profile was, in his words, a “mixed bag,” the majority seem to be “management companies hooking up with money,” he continued. “That is, far and away, the leader of potential buyers on everything we’ve done to date, and I don’t anticipate it changing that much.”

Both Smith and Welch shared their dismay about the stubbornness of the group segment, pointing out they’d expected that segment to pick up a little more quickly. Though corporate rooms haven’t really picked up, “people are coming to the table for next year,” Smith remarked.

Another question dealing with the composition of FelCor’s portfolio brought forth the response that the goal is to dispose of assets in tertiary markets in which there is little interest “ as well as reducing concentrated risk in other markets,” Welch said. “Those are strong markets, but there is too much concentration.” Once the assets are disposed of and additional hotels in target markets acquired, “we’ll have one of the stronger, more diversified portfolios in REIT-land, and a balance sheet that is completely restructured,” Welch said.