FelCor, one of the nation's largest hotel REITs, has been through a period of dramatic change in the last two and a half years and is plotting a course for future growth in a new direction. FelCor proves “bigger is not always better.” The company spent a year and a half selling off 45 hotels and paying down $400 million in debt. The result is a smaller company with fewer properties owned, but with a core portfolio of hotels that have been repositioned, renovated and in some cases, rebuilt.

It's a story of managing change in a difficult market environment, while repositioning for the future. FelCor is one of the largest owners of hotels in the upscale segment. It has 85 hotels, with brands like Embassy Suites, Doubletree, Hilton, Sheraton, Westin and Holiday Inn and more recently, Renaissance and Marriott. The company's focus in recent months has been in building RevPAR and market share in the face of softening industry demand.

Times have not always been easy for FelCor. A few years ago, the company had grown bloated with deals and acquisitions of hotels in easy-entry markets like Texas that had begun to be saturated with new products and brands.

The FelCor story is one of managed change and executive leadership that set the stage and then stayed the course despite considerable challenges. President & CEO Rick Smith had the courage to say, “Let's shrink the company and reposition for the future.” This was a tough decision, the results of which we focus on in this interview with Smith.

Q What were FelCor's challenges when you joined the company in November 2004.

A A number of issues needed to be addressed. We had a lot of exposure to older properties located in tertiary and secondary markets, which hurt our internal growth prospects. Contractually, we were prohibited from efficiently selling those properties. This, coupled with the level of our debt, gave us very little capacity for external growth. We also had a core portfolio that was in dire need of renovation, and we weren't maximizing the value of our owned real estate. Further, I saw an opportunity, with the asset management function, to increase hotel profitability.

Q What steps did you take?

A First, we restructured the contract with our brand-partner, which gave us the flexibility to sell the hotels we needed to sell. This allowed us to reposition the portfolio by selling the properties in secondary and tertiary markets and by significantly reducing our exposure in markets like Dallas, Houston and Atlanta, where we had an over-concentration of hotels.