Amid recent news pushing the company to sell, the lodging REIT’s interim leader shared Q3 financial highlights and challenges with analysts.
IRVING, Texas—Despite pressure from analysts to address recent shareholder concerns about FelCor Lodging Trust’s overall strategy, the company’s president, interim senior executive officer and COO Troy Pentecost only skirted the issue during a third-quarter earnings call with analysts Tuesday.
“We solicit input from our shareholders, but we’re not here to comment on those discussions,” Pentecost said to an analyst who asked why the company isn’t thinking about selling, following last week’s letter from shareholder Snow Park Capital Partners. Snow Park owns 2.4% of FelCor and, in last week’s open letter to the board of directors, requested “the Board establish a definitive full capital return plan for FelCor and then hire a CEO or an administrator who is capable, committed and economically incentivized to implement it.”
But Pentecost, who took interim leadership when former president and CEO Richard Smith retired under activist pressure in September, said that while the company is “open-minded and continuing to evaluate opportunities,” many of the terms Snow Park Capital Partners suggested in its letter “would not benefit our long-term shareholders.”
The search for a permanent CEO for FelCor is underway, Pentecost said, and will likely go into next year. Analysts and shareholders won’t be updated on the process until a new hire has been made, he said.
Q3 financial highlights
Same-store revenue per available room was essentially flat (-0.7% to $159.78) compared to the third quarter of 2015. The change reflects a 0.6% increase in average daily rate to $195.33 and a 1.3% decline in occupancy to 81.8%, according to FelCor’s third-quarter financial news release.
Pentecost attributed the company’s room revenue decline to three main factors: softer demand, tropical storms and brand-led initiatives to discount room rates for loyalty program members.
On the demand front, corporate transient demand declined 2% in the quarter, and group demand declined 8%, which Pentecost said was “the largest demand shift we saw, though group ADR was up 6%.” Boston, New York City, Houston and San Francisco were the most affected markets, which accounted for 42% of FelCor’s roomnights in the quarter.
One highlight, however, was 5% food-and-beverage revenue growth in the quarter, which Pentecost attributed to strong banquet and catering performance.
FelCor completed the sales of the Renaissance Indian Wells Resort in Indian Wells, California; and the Holiday Inn Nashville Airport for aggregate gross proceeds of approximately $108 million. The company continues to market its three New York City hotels for sale—the Knickerbocker, the Morgans New York and the Royalton New York.
For full-year 2016, FelCor updated its guidance to reflect same-store RevPAR growth of 1.25% to 1.5%. At the end of the second quarter, the company had anticipated full-year RevPAR growth of 3% to 4%.
At press time, FelCor’s stock was down 15.5% year to date. The Baird/STR Hotel Stock Index was down 1.4% for the same period.
Loyalty program impacts
Pentecost attributed some performance dips to recent initiatives by hotel brand companies to offer lower prices to loyalty program members.
“This resulted in significant discounts to bar rate that significantly reduced ADR, and it was especially heavy in the summer months, which were experiencing soft demand,” he said.
While the short-term impacts of these programs will continue to be felt, he said, the company continues to support these efforts from brands.
“We believe they will improve customer booking habits in the long run, which is important for the health of the industry and our portfolio,” he said.
Pentecost said one of the best moves FelCor made in the last two quarters was implementing cost-containing initiatives at its properties—efforts that allowed the company to “meet bottom-line expectations for the quarter.”
Most of those efforts focused on marketing and labor cost controls, particularly in tighter scheduling and greater control over overtime, he said.
“You have to get ahead of labor and be on top of overtime,” he said. “Our biggest advantage was that we started thinking about this in Q2. All year, we’ve had contingency plans in place, ready to pull them off the shelf and put them into play, and we were able to do that quickly. We think we can maintain these.”