FelCor Lodging Trust Incorporated (NYSE: FCH) today announced the acquisition of the landmark Knickerbocker Hotel in midtown Manhattan, New York, for $115 million. Consistent with its portfolio repositioning strategy, the company also announced it is marketing 16 non-strategic hotels. FelCor will apply the sale proceeds to strengthen its balance sheet and reduce leverage.

Knickerbocker Hotel Acquisition

FelCor formed a joint venture with an affiliate of Highgate Holdings LLC ("Highgate") which acquired the Knickerbocker Hotel in midtown Manhattan, New York. Located at Broadway and 42nd Street, the Knickerbocker Hotel boasts one of the world's premier addresses for both business and leisure travelers, and will serve as FelCor's flagship upon opening in late 2013. The four-plus star hotel will feature approximately 330 large guest rooms (average in excess of 420 square feet), several food and beverage outlets – including a large rooftop sky bar and lounge directly overlooking Times Square – state-of-the-art meeting space, and a full-service fitness facility.

This acquisition underscores FelCor's commitment to enhancing and diversifying its portfolio into core markets such as New York City, where the company now owns three properties. New York City has significantly outperformed the industry in long-term RevPAR growth. Given the Knickerbocker's superior location in Manhattan, FelCor expects the hotel will produce strong long-term EBITDA growth. FelCor expects the Knickerbocker to be its last acquisition in this cycle, as the company focuses on strengthening its balance sheet through the sale of non-strategic hotels and reducing leverage.

The purchase price reflects a 30 percent discount per square foot, compared to recent similar transactions, and is meaningfully below replacement cost. The redevelopment cost will be primarily funded by a development loan for an aggregate investment of approximately $697,000 per key. FelCor expects the project will generate an internal rate of return that exceeds the Company's weighted average cost of capital, and the property is expected to generate nearly $24 million of EBITDA at the first year of stabilization, yielding strong future cash flow.

"With its unique architecture and Times Square location, the Knickerbocker is an irreplaceable asset in a marquee location. To acquire a landmark hotel at a meaningful discount to replacement cost is a rare opportunity, and we are confident this acquisition is a strategic investment that will enhance future stockholder value," said Richard A. Smith, FelCor's President and Chief Executive Officer. "This acquisition is perfectly aligned with a central element of our long-term strategy – investing in the future of the business – as we continue to focus on other components of our strategy, specifically strengthening our balance sheet through non-strategic asset sales and debt reduction."

FelCor owns 95 percent of the joint venture and partnered with Highgate, which will manage the hotel upon opening. The joint venture will leverage the development expertise of both companies to realize the full value of this iconic New York building. The hotel floors have been cleared and abated and are ready for immediate redevelopment, which greatly mitigates the risks typically associated with adaptive reuse projects. In addition, the redevelopment plan has been approved by New York City's Landmarks Commission and New York City's Board of Standards and Appeals.

FelCor has completed more than $300 million of high-rise, ground-up development projects, including three upscale, high-rise condominium buildings containing over 600 units. In addition, the company successfully redeveloped high-density, urban properties, including the San Francisco Marriott Union Square and Fairmont Copley Plaza. Highgate has an extensive track record of developing successful hotels in Manhattan that have generated superior returns for its investors and is a premier Manhattan hotel operator.

Portfolio Repositioning

FelCor is marketing a total of 16 non-strategic hotels as part of its long-term portfolio repositioning strategy. The funds resulting from the sale of these hotels will allow the company to continue to reduce debt, improve future funds from operations ("FFO"), increase long-term EBITDA growth and contribute to a sound and flexible balance sheet.

FelCor has 16 non-strategic hotels for sale:

  • Three Holiday Inns – Orlando, FL (Airport); Toronto, ONT; and San Antonio, TX (Airport)
  • Three Sheratons – Phoenix, AZ; Ft. Lauderdale, FL; and Atlanta, GA (Galleria)
  • Three Doubletree Guest Suites – Raleigh/Durham, NC; Tampa Bay, FL; and Wilmington, DE
  • Seven Embassy Suites Hotels – Anaheim, CA; Boca Raton and Jacksonville, FL; Atlanta, GA (Airport), New Orleans, LA; St. Paul, MN; and Nashville, TN

The company expects to generate approximately $350 million in gross proceeds with the sale of these hotels. FelCor is committed to using these funds to repay all accrued preferred dividends, reduce debt and strengthen its balance sheet. Nine of the 16 hotels secure approximately $150 million of mortgage debt. The company has received strong interest from potential buyers and expects to sell the majority of the hotels in 2012.

FelCor has brought to market a total of 25 hotels since December 2010. Nine of which have been sold to date, for gross proceeds of $222 million, representing approximately 12 times 2010 hotel EBITDA. The Company expects to sell a majority of the remaining 16 hotels in 2012.

With a focus on creating a high-value portfolio of superior hotels, FelCor intends to sell a total of up to 40 non-strategic hotels as part of its portfolio repositioning plan, representing 72 percent of its suburban hotels and 44 percent of its airport hotels. FelCor's core hotels are located primarily in major, urban markets and resort destinations. The remaining suburban and airport hotels are generally located in gateway cities and benefit from relatively high barriers-to-entry. The remaining non-strategic hotels will be brought to market at the appropriate time.

About FelCor

FelCor, a real estate investment trust, owns a diversified portfolio of primarily upper-upscale hotels that are located in major urban and resort markets throughout the U.S. FelCor partners with top hotel companies that operate its properties under globally renowned names and as premier independent hotels. Additional information can be found on the company's website at www.felcor.com.

Forward Looking Statements

The information presented herein may contain forward looking statements. These forward looking statements, which are based on current expectations, estimates and projections about the industry and markets in which RLJ Lodging Trust ("RLJ") and FelCor operate and beliefs of and assumptions made by RLJ management and FelCor management, involve uncertainties that could significantly affect the financial results of RLJ or FelCor or the combined company. Words such as "projects," "will," "could," "continue," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "forecast," "guidance," "outlook," "may," and "might" and variations of such words and similar expressions are intended to identify such forward looking statements, which generally are not historical in nature. Such forward-looking statements may include, but are not limited to, statements about the anticipated benefits of the proposed merger between FelCor and RLJ, including future financial and operating results, the attractiveness of the value to be received by FelCor stockholders, the attractiveness of the value to be received by RLJ, the combined company"s plans, objectives, expectations and intentions, the timing of future events, anticipated administrative and operating synergies, the anticipated impact of the merger on net debt ratios, cost of capital, future dividend payment rates, forecasts of FFO accretion, projected capital improvements, expected sources of financing, and descriptions relating to these expectations. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to expected synergies, improved liquidity and balance sheet strength — are forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, 2 we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, regional and local economic climates, (ii) changes in the real estate industry, financial markets and interest rates, or to the business or financial condition of either company or business, (iii) increased or unanticipated competition for the companies" properties, (iv) risks associated with acquisitions, including the integration of the combined companies" businesses, (v) the potential liability for the failure to meet regulatory requirements, including the maintenance of REIT status, (vi) availability of financing and capital, (vii) risks associated with achieving expected revenue synergies or cost savings, (viii) risks associated with the companies" ability to consummate the merger and the timing of the closing of the merger, (ix) the outcome of claims and litigation involving or affecting either company, (x) applicable regulatory changes, and (xi) those additional risks and factors discussed in reports filed with the SEC by RLJ and FelCor from time to time, including those discussed under the heading "Risk Factors" in their respective most recently filed reports on Forms 10K and 10Q. Neither RLJ nor FelCor, except as required by law, undertakes any duty to update any forward looking statements appearing in this document, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Stephen A. Schafer
Vice President Strategic Planning & Investor Relations
972-444-4912
FelCor