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On September 19th Felcor (NYSE:FCH) announced the sale of hotels in New Orleans and Nashville for an aggregate transaction price of $70MM. On September 28th they declared the current quarter's preferred dividends as well as payment of all remaining accrued and unpaid dividends on the Felcor Series A (FHC-A) and Series C (FCH-C) preferred shares. Stockholders of record on October 15th, 2012 will on October 31st receive payment of $2.39 and $2.45 per Series A and Series C share, respectively.

To get clear and current on the preferreds, management has sold 18 "non-strategic" hotels since December 2010. Time will tell if these were fair-market or fire sales, but the transactions hew close to management's prescribed trajectory. Two years ago, Felcor management described a plan to sell non-strategic assets, clear the preferred backlog, and address the prospect of reinstating a common dividend. At this stage they look like truth-tellers and I commend their efforts and execution in what will always be remembered as difficult times.

As the table below describes, the A Series might now be available at a small discount to liquidation preference, but we should really look at what Felcor equity has to offer going forward.

ISSUESeries A Cumulative Convertible Preferred StockSeries C Cumulative Redeemable Preferred Stock
TickerFCH-AFCH-C
Nominal Par$25.00$25.00
Shares Outstanding12,880,0006,800,000
Recent Price$26.58$26.75
Annual Dividend$1.95$2.00
Ex- Dividend 10/15/12$2.39$2.45

As markets have stabilized, REIT preferred shares have been a little "coupon commoditized" in that callable issues will trade at premiums to par if it's perceived that they are not likely to be called. Considering that it took Felcor 20 months and the sale of 18 hotels to get even, I don't see FCH-A or FCH-C as candidates for redemption. Post Oct. 15th ex-dividend, I think each of these issues can be purchased to produce an 8% yield for a minimum of 2 years.

FCH common shares are a longer shot. In an October 1st press release, Felcor announced the closing of five new single asset, 10-year mortgage loans totaling nearly $161 million with an average fixed interest cost of 4.95%. They used a portion of the loan proceeds to repay a $107 million mortgage that bore interest of 9.02%; that's a huge savings and improves cash flow materially. However, Smith Travel Research describes that REVPAR growth is slowing across all hotel sectors and all geographic markets across the country. That's not a disaster, but, to get to a common dividend, Felcor will need to experience significant, sustained revenue growth.

Source: Felcor Lodging Trust Gets Current With Its Preferreds

Additional disclosure: 2nd Market Capital Advisory ant its affiliated accounts are long FCH-A and FCH-C at the time of this writing.