IRVING, Texas—FelCor Lodging Trust officials plan to sell five properties this year and use a portion of those proceeds to buy more of the company’s stocks, according to executives speaking Thursday during the real estate investment trust’s quarterly earnings call with analysts.
One of the properties the REIT plans to sell is the Knickerbocker Hotel in New York City, which FelCor has owned since 2012. When it was reopened in 2015 following a $240-million, multiyear renovation, FelCor President and CEO Richard Smith described it as the company’s “flagship property.”
FelCor has been under pressure to sell off its properties in the underperforming New York City market, particularly from the activist hedge fund Land and Buildings Investment Management, which owns roughly 2% of FelCor, according to reports from The Wall Street Journal and Reuters.
The fund also has pushed FelCor to buy back stock and reduce its debt. FelCor officials said during the earnings call that those are two of their stated goals following the planned property sales. Land and Buildings also has pushed FelCor to explore the sale of the entire company, which was not addressed as a possibility during the call.
Smith said during the earnings call that ultimately FelCor would like to retain some interest in the Knickerbocker, but his company “will be very open-minded in terms of the process.”
Smith said he believes the property could be attractive to foreign investors who are looking to operate as silent partners.
“The only reason you’d look at selling the entire thing is if the pricing differential is so ridiculously different or extremely compelling that it’d lead you to that conclusion,” Smith told analysts during the call.
In addition to the Knickerbocker, FelCor officials plan to sell Morgans New York, Royalton New York, the Holiday Inn Nashville Airport and the Renaissance Esmeralda Indian Wells Resort & Spa.
The company has a letter of intent from a buyer for the Morgans and Royalton properties, and the Nashville property is in contract negotiations, Smith said. The company is marketing the Knickerbocker and the Renaissance, and the process to sell the former is expected to pick up in March.
A portion of capital generated from selling the Knickerbocker will be used to pay down debt incurred to fund its renovation. Collectively, the sales are expected to give the company more flexibility, Smith said.
“Selling these hotels enhances the company and shareholder value,” Smith said. “It will allow us to pay down additional debt and reduce our leverage below our long-term targets. … It will create nearly $700 million of liquidity. This will allow us to buy back stock that currently trades at a significant discount to net asset value.”
Stock buybacks
FelCor’s board of directors approved a $100-million stock repurchase program in 2015, and so far, $29 million has been spent on 4.3 million FelCor shares. Smith said buying stock is what’s in the best interest for the company and its shareholders because of the relatively low price.
“We will go after stock as long as it’s trading at a meaningful discount,” Smith said.
FelCor’s stocks have risen 4.8% to $7.65 since the beginning of the year, while the Baird/STR Hotel Stock Index has fallen 2.3% during the same time frame.
For the full year, occupancy at FelCor’s same-store hotels jumped 2.7% from 75.8% in 2014 to 77.8% in 2015. Average daily rate increased 5.3% to $185.62 in 2015, and revenue per available room grew 8.1% to $144.35. The company saw full-year revenue drop from $921.6 million in 2014 to $886.3 million in 2015.
For the fourth quarter, occupancy grew 3.3% to 74.3%; ADR increased 2% to $179.39; and RevPAR rose 5.4% to $133.36. Total revenue for the quarter dropped slightly from $206.7 million to $206.3 million.