REIT - September/October 2010

The company went public on the Nasdaq Stock Market Inc.
in 1994, when its holdings consisted of a half-dozen Embassy
Suites hotels, earning FelCor the nickname “the suite REIT.”
The actual name of the company is derived from the sur-
names of its co-founders, Hervey Feldman, who died in 2004,
and Corcoran, now chairman. Feldman helped found Embassy
Suites in the early 1980s and oversaw a major expansion of the
brand, now owned by Hilton Hotels Corp., before joining forces
with Corcoran. The t wo bought their first hotel in 1991, a Holi-
day Inn at Dallas/Fort Worth International Airport, and went
on to make acquisitions of Embassy Suites hotels or suite hotels
that were rebranded Embassy Suites.

In 1998, FelCor made its largest acquisition ever, a $2.2 bil-
lion purchase of 109 hotels from the now-defunct Bristol Hotel
Co. The deal grew FelCor’s holdings dramatically, but, Smith
candidly says it “turned things in a direction the company didn’t
need to be heading.”
The Bristol portfolio contained a smat-
tering of hotels in major urban markets,
including Philadelphia and Chicago, but
many of the properties were aging Holiday
Inns and Crowne Plazas lacking in ame-
nities and located in places like Jackson,
Miss., and Waco, Texas. Many of the
former Bristol hotels proved to be a drag on the company, and
FelCor’s overall portfolio didn’t measure up to those of other
large hotel REITs as a result of the acquisition, Smith says.

company soon began selling many of the former Bristol hotels. By 2007, FelCor had sold about 45 hotels, raising $720 million, which it used to pay down debt and invest in assets with upside potential.

“Strategically and tactically, pretty much everything at the company needed to change,” says Smith, adding that he has sought to preserve the familial culture that Corcoran and Feldman created.

While many competitors tinkered at the edges of their portfolios in recent years, FelCor embarked on an aggressive $500 million renovation and redevelopment program, overhauling many of its hotels and resorts and adding such amenities as fitness centers and meeting, ballroom and spa facilities. It recon-figured many properties to turn underutilized space into areas with revenue-generating potential.

Its most ambitious undertaking was a $45 million redevelopment of a former Crowne Plaza hotel in downtown San Francisco.

The rebranded 400-room San Francisco Marriott Union Square reopened in April 2009 and had significant gains in revenue per available room (RevPAR) and market share during the second half of the year.

This year, it is the company’s best-performing property, with RevPAR up 63 percent over last year through the second quarter. By 2012 it is expected to be among the company’s top-three EBITDA-producing hotels.

“There has been a concerted effort to shed
assets in weaker markets and focus on reno-
vating and updating their assets in better
markets,” says Smedes Rose, a lodging sector
analyst at Keefe, Bruyette & Woods Inc.
Smith also overhauled the company’s
approach to asset management. FelCor’s
asset managers had been aligned by brands
and oversaw about 35 hotels each.

“While they understood their hotels, they understood very little about their markets,” says Smith, who put them in charge of specific geographic regions and 15 hotels apiece. Today, asset managers spend the vast majority of their time in the regions that they oversee.

“They really understand the business that is available in their markets and how to mix that business to best drive profitability,” Smith said.

FelCor Lodging
Trust: At A Glance
545 East John Carpenter
Freeway, Suite 1300
Irving, TX 75062-3933
www.felcor.com

Management Team:

Thomas J. Corcoran, Jr.

Chairman

Richard A. Smith President & CEO Andrew J. Welch CFO

Michael A. DeNicola CIO

Company Statistics

• 84 hotels and resorts
• Approximately 24,000 rooms
• 23 states and Canada
• Portfolio comprised primarily
of upper-upscale hotels
• Total enterprise value
of $2.3 billion

President & CEO

New Direction Smith, previously chief financial officer for the former Wyndham International, wasted no time implementing a new strategic plan when he joined FelCor as its heir apparent in late 2004. The

Recession Throws Wrench in Works

Smith got three years into his strategic plan when the recession struck. Not only did hotel demand decline—by 2. 3 percent in 2008 and 6 percent in 2009—but supply increased by about 3 percent in each of those years as projects begun during better times were completed, according to Smith Travel Research, the leading provider of hotel industry benchmarking data.