This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

July 21, 2008 - Felcor Lodgins Trust, Inc. (FCH-NYSE) operates as a lodging real estate investment trust (REIT) primarily in the United States. It owns various hotels, including Embassy Suites Hotels, Doubletree, Hilton, Sheraton/Westin, Holiday Inn, and Crown Plaza hotels in North America. As of March 16, 2006, the company's hotel portfolio comprised of 117 consolidated hotels located in 28 states and Canada.

This is a way to make income while you wait for the stock to recover (it hit $29.50 last year). When and if it will recover are the two big questions. Just recently (July 17) Wachovia cut its ratings on FCH, along with 4 other lodging companies, because it believes revpar (revenue per available room) will drop by 3% this year. But the analyst who wrote the research article stated: "We believe .... FelCor will see tight dividend coverage but .....any shortfalls will be bridged through in-place credit lines."

So the dividend will be paid this quarter. The company reaffirmed on June 27 that 35 cents is going out. That's for shareholders of record on July 15 and will be distributed on July 31. And remember, with Real Estate Investment Trusts, in order to keep their tax favored position, 90% of taxable income has to be passed through to investors.

In the first quarter of the year, revenues rose by 17% compared to the same quarter last year. Felcor has been renovating many of its properties, and revenues from those 61 hotels rose by 7.9%. Expenses, however, increased, and there was a higher depreciation expense in the quarter as well. Funds from operations (FFO), one of the best measures for determining if the dividend is somewhat certain, rose by a small amount. As a dividend investor, it's good to remember that depreciation is a non-cash item. While it will affect earnings per share, it doesn't change the cash flow.

The renovations continue at Felcor. Of the 85 hotels it owns, 75 have been redone over the last several years. In the last quarter, 14 hotels were overhauled, costing the company close to $48 million. Management announced it will sell 6 of its hotels. That's most likely to pay for the continued refurbishment or to pay down debt (60% of capital). Most of the debt (54%) is about 4 years to maturity date, is fixed, and carries interest rates of around 6.3%.

Analysts see revenues increasing by 8% to 10% annually for the foreseeable future. With renovations almost completed, the company can focus on profitability and/or paying down debt.

Other numbers: Yield is (drum roll please): 17.7%. Earnings were $2.17 a share last year. This year analysts see $2.30 and next year $2.47. Next earnings will be released August 5 and expected to show 76 cents. There are 63.1 million shares outstanding for a market cap of $510 million.

This is a company that has put the money back into its business by renovating hotels and raising quality. Unfortunately, it's been done when the economy is sagging and gas prices are at peak levels. Vacations are being trimmed. People aren't traveling as much. When that happens, it doesn't matter how nice the rooms are. They're still empty. If you're an investor who thinks the worst for the travel industry is over, Felcor Lodging is worthy of more due diligence.

- Company Web site: none

- Ted Allrich