FelCor Lodging Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

FelCor Lodging Trust Incorporated (FCH)

Q2 2012 Earnings Call

July 25, 2012 11:00 am ET

Executives

Steve Schafer - VP, IR

Rick Smith - President & CEO

Andy Welch - EVP & CFO

Analysts

Eli Hackel - Goldman Sachs

Nikhil Bhalla - FBR

Patrick Scholes - SunTrust

Tim Wengerd - Deutsche Bank

Josh Attie - Citigroup

Susan Berliner - JPMorgan

Smedes Rose - Keefe, Bruyette & Woods

Presentation

Operator

Good morning, my name is Heidi and I will be your conference operator today. At this time, I would like to welcome everyone to FelCor’s second quarter earnings conference call. (Operator instructions) After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Steve Schafer, you may begin your call.

Steve Schafer

Thank you and good morning. With me are Rick Smith, President and CEO; and Andy Welch, Executive Vice President and Chief Financial Officer. They will address the current operating outlook 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. These 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 filings with the SEC. Although, we believe our current expectations to be based upon reasonable assumptions, we cannot assure you that our expectations will be attained and that actual results will not differ materially. And with that, I’ll turn the call over to Rick.

Rick Smith

Thanks, Steve and good morning everyone. We had a good and productive second quarter. Our focus continues to be on the five [guidelines] that I outlined to you both on previous calls and during our extensive road show. They are operations, investor communications, asset sales and using the proceeds to reduce debt, pay the accrued preferred dividends, further strengthening our balance sheet and our redevelopment projects.

Operationally, we had a strong quarter. EBITDA was $66.2 million. This was at the high end of our expectations and approximately 1 million above consensus. FFO per share was $0.18 and equaled to consensus. RevPAR was in line with our budget at 5.9% with ADR representing more than a 100% of that growth.

I feel good about how we ended the quarter, particularly given that we had disruptions at these hotels under renovation, which had an occupancy decline of 4.4%. RevPAR growth improved sequentially throughout the quarter as we completed most of the renovation projects resulting in a very strong June which had an increase in RevPAR of 9.9% with rate of 8.3%. Lodging fundamentals remain strong and we’re experiencing strength in most markets. As such we expect the trends to continue, which accounts for our increase in operational guidance for the remainder of the year.

Our strongest markets were San Francisco, San Diego, Tampa, Philadelphia, Boston and New Orleans, which on average increased RevPAR 12%. San Francisco continues to perform very well and the Marriott Union Square continues to be well above budget with a 13% increase in RevPAR and we expect that to continue. The markets where we had challenges during the quarter were Atlanta, South Florida and Orlando.

Atlanta suffered a general drop in business in the airport market while other Atlanta properties did well. Our biggest area of focus this year operationally has been on revenue management across the portfolio and particularly in the Embassy brand and the Morgans hotels. The plans in both cases are bearing fruit. The Hilton managed hotels had a 6% increase in corporate rates which was slightly ahead of budget.

The Morgans hotels had an 11% increase in corporate rates and a 16% increase in group rates. Overall, rate at the two Morgans hotels grew 10%, which was 2% ahead of budget. Occupancy declined at the Morgans hotel due to the redevelopment work and while this will continue through the remainder of the year, the two hotels are expected to generate an average 10% RevPAR growth during the third quarter.

Overall for the portfolio, all segments had an increase in rate led by corporate negotiated which increased 8%. Our focus for the remainder of the year remains on revenue management and driving rate throughout the portfolio, not only for 2012 results but also to set the tone importantly for 2013 RFPs. One final note on ops before I turn to other items.

During the second quarter, our EBITDA margins improved only 62 basis points. This was primarily driven by the hotels under renovation which experienced a 35 basis point decline in margins. We full expect margin improvement to be in excess of a 150 basis points in the second half of the year.

Turning to other items. We completed our three months road show during the quarter and hit every major market. The new investor presentation gives investors a much better roadmap as to where we are headed and how we will get there and it was well received. We anticipate another road show this fall to some additional or secondary markets as well as some follow up in the markets previously visited.

As you are aware, we closed on the six hotel portfolio sale at the end of May. The $103 million in proceeds allowed us to pay 73 million in debt and related costs and provided 30 million to pay a portion of the accrued preferred dividends. That 30 million will be paid on July 31st, and we are anticipating that we will pay the remaining balance with proceeds from asset sales by the end of the year.

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