Following a second quarter of less-than-ideal corporate demand, FelCor Lodging Trust has revised its 2016 guidance down, despite RevPAR, ADR and occupancy gains in the quarter.
IRVING, Texas—Despite softer corporate transient demand in the second quarter of 2016, FelCor Lodging Trust posted same-store revenue-per-available-room gains of 2.6% over the same quarter last year.
Those RevPAR gains reflect a 2.0% increase in average daily rate to $194.28 and a 0.6% increase in occupancy to 81.6% compared to the second quarter of 2015. The company also posted a 3.1% rise in hotel earnings before interest, taxes, depreciation and amortization to $74 million.
While FelCor President and CEO Richard Smith said on the company’s second quarter earnings call with investors that the company feels “very good about the strength of our portfolio,” weak corporate transient demand is chipping away at performance.
Because of that, the company reduced its guidance for the year and now expects RevPAR for same-store hotels to increase between 3% and 4%—down from a guidance of 3.5% to 5.5% RevPAR growth projected in Q1—and 2016 net income is expected to be between $23.3 million and $29.4 million, which is down from $44 million to $48.8 million projected in the first quarter.
Smith said the hit from softening corporate transient demand was felt mostly in primary urban markets including New York City, Boston and Philadelphia. However, market share overall for the portfolio did increase, largely thanks to improved performance in airport and resort locations.
As of press time, the company’s stock was trading at $6.61, down 9.5% year to date. The Baird/STR Hotel Stock Index was at $$3,360.37, up 8.1% year to date.
Offsetting softening corporate demand
Smith said FelCor is combating the decline in corporate transient business by “remixing our customer base as effectively as possible, and kicking off cost-containing measures,” both of which are already in effect.
Smith said the company is ready should overall industry performance and outlook require more drastic measures.
“We started working in June on step 1 of our cost-containment process,” he said. “If things get worse, there’s a second step of contingency plans. We will gauge where we need to go when we need to go there, and we will move quickly.”
FelCor has two hotel sales under contract currently—the 560-room Renaissance Esmeralda Indian Wells Resort in Indian Wells, California, for $76 million; and the 383-room Holiday Inn Nashville Airport in Nashville, for $32 million.
Smith said the Esmeralda deal is scheduled to close on 1 August and the Holiday Inn on 1 September, with gross proceeds going toward paying down a line of credit.
Beyond that, he said the company “continues to work very hard” to market its New York City hotel listings, which include the Morgans Hotel, the Royalton Hotel and The Knickerbocker Hotel.
Smith said the company has received recent inquiries on the Knickerbocker from European and Asian investors.
“You’re talking about money that wants to be parked in the U.S. (for this deal) and the long-term view of New York is that it’s a continuously increasing real estate value play,” he said. “We haven’t seen their underwriting yet and we haven’t talked pricing yet, but the current operating environment (in New York) is of far less concern to them than it would be to U.S. investors.”