Hurricane and Airline Bankruptcies Dent FelCor's Profits

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IRVING, TX-FelCor Lodging Trust, one of the nation’s largest hotel real estate investment trusts, posted third-quarter earnings of $64 million, an 11.6% increase from the $57.3 million during the same period in 2004. Hotel operating margins rose to 20.4%, a 48-basis-point increase from the prior year of 20%.

Almost by every measure, other than adjusted FFO, FelCor’s financials improved from the same period last year, according to its recent third-quarter report, even though the Katrina hurricane cost it $2.6 million reduction in EBITA, and 4 cents to Adjusted FFO. “But for these hurricane-related losses, we would have exceeded, the high end of our FFO per share and EBITDA guidance,” the company noted in a recent filing.

The company says its New Orleans hotels sustained limited physical damage from Katrina and they reopened for business in early October. “While we still have rooms out of service for renovation and the housing of some employees, we have been able to fill all available rooms at these hotels with a mix of FEMA contractors and construction and renovation crews,” the company said in the filing. “We believe our property and business interruption insurance proceeds should cover our losses in excess of the amount that was expensed in the third quarter.”

FelCor’s results were also impacted by the bankruptcies of Delta Air Lines and Northwest Airlines, which resulted in a bad debt charges totaling $1.6 million during the quarter. That loss, however, was partially offset by a favorable settlement of a lawsuit in which it recovered $1.4 million. “The combined effect of the hurricane and airline bankruptcies negatively affected hotel operating margins by approximately 66 basis points for the quarter and approximately 23 basis points for the nine-month period,” the company said.

Adjusted FFO during the quarter were $23.1 million, a $4.3-million decrease from the prior year period. However, same-store earnings before EBITDA increased by $10.1 million to $683.3 million, or 17.3% compared with the third quarter of 2004. Adjusted EBITDA decreased $4.6 million to $69.7 million, or 6.2% compared to the same period in 2004.

Net income was $100,000, or less than 1 cent per share, compared to a net loss of $46.3 million, or 78 cents per share in the third quarter of 2004. RevPAR increased 10.8% compared to the same period in 2004, which exceeded its third-quarter growth forecast of RevPAR growth of 7% to 8%. Average daily rates made up of 55% of the RevPAR growth. The company says it has seen double digits RevPAR increase in its key markets of Dallas, San Francisco, Houston, Los Angeles, Phoenix, Chicago, Philadelphia, San Diego, San Antonio and Washington, DC.

Thomas J. Corcoran Jr., FelCor’s president and CEO, says he is pleased with continued improvements and “positive momentum” in earnings from operations. He says FelCor is seeing the benefits of its portfolio repositioning strategy and capital improvements to its hotels. “We are well positioned to take advantage of he expected strong growth over the next few years,” Corcoran says.