FelCor Lodging Trust, Inc. ( FCH)

Q3 2010 Earnings Conference Call

November 3, 2010 12:00 PM ET

Executives

Steve Schafer – VP, Strategic Planning & IR

Rick Smith – President and CEO

Andy Welch – EVP and CFO

Analysts

Josh Attie – Citigroup

Chris Woronka – Deutsche Bank

Will Marks – JMP Securities

Patrick Scholes – FBR Capital Markets

David Loeb – Robert W Baird

Bryan Maher – Credit Securities

Susan Berlinger – JPMorgan

Bryan Scinder – BAM

Presentation

Operator

Good morning, my name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to FalCor’s Third Quarter Earnings Conference Call. (Operator instructions)

Mr. Steve Schafer, you may begin your conference.

Steve Schafer

Thank you and good morning to everyone on the call. With me this morning are Rick Smith, President and CEO; and Andy Welch, Executive Vice President and Chief Financial Officer. They will address the current operating environment, results for the quarter, and our outlook. Following their remarks, we will take your questions.

Before I turn the call over to Rick, let me remind you that with the exception of historical information, the matters discussed on this conference call may include forward-looking statements within the meaning of the Federal Securities laws. Those forward-looking statements are expressions of current expectations and are not guarantees of future performance.

Numerous risks and uncertainties in the occurrence of future events may cause actual results to differ materially from those currently expected. These risks and uncertainties are described in FelCor’s filing with the Securities and Exchange Commission. Although we believe our current expectations to be based upon reasonable assumptions, we cannot assure you that our expectations will be attained or that actual results will not differ materially.

With that, I will turn it over to Rick.

Rick Smith

Thanks, Steve. Good morning, everyone and thanks for joining us this morning. It was a busy and productive quarter.

RevPAR, FFO per share were at the high end our expectations. We close the acquisition of Fairmont in Boston on August 18 th and it has performed well thus far. We brought the first group of 14 sale hotels to market, and we are also assessing various acquisition opportunities in New York and D.C., which are our two remaining target markets.


During the quarter, we saw the moderation of RevPAR growth occurred during the summer months begin to subside and each month showed incremental improvement. RevPAR growth for July, August and September was 5.1, 6.1 and 7.9% respectively. Trends clearly have begun to strengthen again as the fears of a Double-Dip Recession abate and we are in the early stages of a lodging recovery and expect fundamentals to continue to improve.

We are seeing some pretty positive trends. ADR growth occurred six months after occupancy growth began. This is compared to 20 months in the previous cycle. The mix of ADR growth as a percentage of RevPAR growth improved each month during the quarter and we expect that to continue.

While booking remain relatively short, we have experienced significant improvement in our group booking pace. 2010 group pace was down 13% coming into the year and has sequentially improved throughout the year and was up 4% in September. Our hotels are getting a significant amount of in the month, for the month group bookings as well.

Group nights increased 17% during the quarter driven by a 28% increase in corporate group. Additionally, group rates turn positive during the quarter, up 1% and we expect that will continue to improve. Overall, transient rates increased 3%.

Premium transient rates increased 5% during the quarter, which is critical as we continue negotiations for customers for next year and agreements are driven off those rates largely. And the positive imbalance between supply and demand should continue for some time.

Supply is lower in our markets than the industry as a whole and only four of our top 20 markets have rooms under construction.

We continue to work hard on customer mix management. As corporate transient and group room nights improve and overall occupancy is strengthened, it is imperative that we take advantage and mix our customers as efficiently as possible. The manager is still in the initial phases of the 2011 budgets and we are encouraging them to be aggressive and take calculated risks on the mix. This means less government, third party and contract business and more premium corporate-rated business.

We have seen some improvement already with corporate transient room nights up 6% and leisure and discount segments down 5% during the third quarter.

Now, let’s talk about the balance sheet. As we have discussed, we anticipate selling more than 30 hotels and have begun that process with the first 14 hotels brought to market in September. It is still very early in the process and the brokers are working to finalize copies, setup tours in order to get the process moving as quickly as possible [inaudible].

There is great bill of interest judging from the copy process and other direct inquiries we have had. However, we will have to wait and see how the process goes as we will not accept prices that do not make sense for our shareholders.

The asset sales will do a number of things for us. They will reduce leverage for the company substantially. As I’ve pointed out before, with completion of the asset sale and moderate growth between now and 14, the company would be between three and four times levered.

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