FelCor Lodging Trust Incorporated (NYSE: FCH) announces it has
entered into a binding purchase and sale agreement to acquire the
fee-simple interests in two midtown Manhattan hotels, The Royalton
and Morgans, for $140.0 million from Morgans Hotel Group Co.
(“MHGC”). MHGC will continue to manage the properties, which have a
total of 282 guest rooms, under a long-term management agreement.
FelCor expects to complete the purchase of these two iconic hotels,
funded with cash on hand, in the second quarter.
The Royalton (Photo: Business Wire)
Transaction Highlights:
Attractive pricing and estimated
returns. The purchase price of $496,000 per key
is approximately 60% of replacement cost. The purchase price
represents approximately ten times peak Hotel EBITDA. FelCor’s
estimated internal rate of return on this investment exceeds 12%,
which is above its weighted average cost of capital, creating
incremental long-term shareholder value. MHGC is providing
structural support by subordinating its management fees (if
necessary) to a minimum return to FelCor. Hotel EBITDA in 2011, for
our period of ownership, is expected to be between $6.0 and $6.5
million.
Additional opportunities to enhance
value. FelCor has identified opportunities to
enhance the hotels’ value, including adding guest rooms, and
improving the fitness center and guest lounge at the Morgans, as
well as food and beverage offerings. In addition, both hotels will
benefit from increased oversight and heightened management focus
typical of FelCor’s unique asset management approach, as well as
from the vision and management of MHGC’s new executive team. FelCor
has also identified revenue and customer mix management
opportunities to increase market share and average rate, and is
reviewing opportunities to complex various operational functions at
the two hotels to reduce expenses.
Limited initial capital
needs. Both hotels are in excellent condition. MHGC
spent more than $30 million in the last three years renovating
these hotels, which will require nominal initial capital in excess
of customary reserves.
Increases portfolio quality and
diversification. These hotels will be FelCor’s first
properties in New York. They would have accounted for approximately
5% of the company’s 2010 core hotel operating revenue on a pro
forma basis. The hotels’ 2010 RevPAR ($250) is almost three times
greater than FelCor’s 2010 portfolio average ($86). Once
stabilized, EBITDA per key of these hotels is estimated to be
greater than $40,000, significantly higher than the remaining
portfolio.
High barrier-to-entry
protection. The Manhattan submarkets benefit from
consistently strong demand generators and have extremely high
barriers to entry, which limit supply growth. New hotel room supply
since 2003 represented 1% of existing rooms, which is significantly
below the overall New York market and US averages, according to
Smith Travel Research.
“We are very excited about this opportunity to gain entry in
superb locations in Manhattan at a very favorable price per key and
substantial discount to replacement cost. These two high-quality
properties are in terrific condition and will require limited
capital in the near-term. This submarket within Manhattan
consistently performs at a high level compared to the industry and
is expected to experience above-average RevPAR and EBITDA growth
over the next few years and beyond. We feel confident in the
abilities and vision of the new management team at Morgans and look
forward to a rewarding long-term relationship,” said Richard A.
Smith, FelCor’s President and Chief Executive Officer.
The Hotels:
The Royalton is located on West 44th Street, between
fifth and sixth Avenues. It features a cutting-edge Philippe Starck
design, comprising 168 guest rooms, including 24 lofts and alcove
suites, 1,500 square feet of meeting space, the Brasserie 44
restaurant and adjacent Bar 44, as well as fitness and business
centers. In 2007, the hotel underwent a $20.2 million renovation
(approximately $120,000 per key), including re-establishing its
legendary lobby as a prominent New York locale. In 2010, an
additional lobby bar was added for $1.5 million.
The Royalton has an enviable location in the heart of midtown
Manhattan. Bryant Park, Times Square, Rockefeller Center, shopping
on Fifth and Madison Avenues and Grand Central Terminal are all
located within five blocks. This area benefits from some of the
highest barriers to new supply of any market in the world.
Moreover, hotel development is not considered a “highest and best”
use for most available sites within this area, and development of
large-scale, new full-service hotels within this area will remain
limited.
Morgans, the original “boutique” hotel, is located on
Madison Avenue, between 37th and 38th Streets. The 19-story hotel
comprises 114 guest rooms and 1,500 square feet of meeting space,
as well as a “living room” and fitness center on the first
guestroom level. Morgans also includes a full-service restaurant,
Asia de Cuba. The hotel recently underwent a renovation in 2008,
for $10.3 million (approximately $90,000 per key).
The area surrounding Morgans is among Manhattan’s most dynamic
and desirable neighborhoods, with over six million square feet of
office space. The hotel benefits from its proximity to many
diverse, major corporate headquarters, including some of the
biggest and most recognized names in advertising, banking, fashion,
cosmetics and pharmaceuticals. The hotel is also centrally located
near major tourist attractions, such as the Empire State Building,
the Chrysler Building, the United Nations, Grand Central Terminal,
Bryant Park and Madison Square Garden, as well as Fifth Avenue and
Madison Avenue shopping.
With the exception of historical information, the matters
discussed in this news release include “forward-looking statements”
within the meaning of the federal securities laws. These
forward-looking statements are identified by their use of terms and
phrases such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,”
“will,” “continue” and other similar terms and phrases, including
references to assumptions and forecasts of future results.
Forward-looking statements are not guarantees of future
performance. Numerous risks and uncertainties, and the occurrence
of future events, may cause actual results to differ materially
from those anticipated at the time the forward-looking statements
are made. Current economic circumstances or a further economic
slowdown and the impact on the lodging industry, operating risks
associated with the hotel business, relationships with our property
managers, risks associated with our level of indebtedness and our
ability to meet debt covenants in our debt agreements, our ability
to complete acquisitions, dispositions and debt refinancing, the
availability of capital, the impact on the travel industry from
increased fuel prices and security precautions, our ability to
continue to qualify as a Real Estate Investment Trust for federal
income tax purposes and numerous other factors may affect future
results, performance and achievements. Certain of these risks and
uncertainties are described in greater detail in our filings with
the Securities and Exchange Commission. Although we believe our
current expectations to be based upon reasonable assumptions, we
can give no assurance that our expectations will be attained or
that actual results will not differ materially. We undertake no
obligation to update any forward-looking statement to conform the
statement to actual results or changes in our expectations.
FelCor, a real estate investment trust, is the nation's largest
owner of upper-upscale, all-suite hotels. FelCor owns interests in
82 properties located in major markets throughout 22 states.
FelCor's diversified portfolio of hotels and resorts are flagged
under global brands, such as Doubletree ®, Embassy Suites Hotels®,
Hilton®, Fairmont®, Marriott®, Renaissance®, Sheraton®, Westin® and
Holiday Inn®. Additional information can be found on the Company's
Web site at www.felcor.com.
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