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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-39595-01
FELCOR SUITES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE 75-2564994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
(972) 444-4900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and non-voting limited
partnership interests held by non-affiliates of the registrant, as of March 10,
1998, was approximately $110 million.
DOCUMENTS INCORPORATED BY REFERENCE
None
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FELCOR SUITES LIMITED PARTNERSHIP
INDEX
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FORM 10-K
REPORT
ITEM NO. PAGE
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PART I
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1. Business ................................................................................... 3
2. Properties ................................................................................. 10
3. Legal Proceedings .......................................................................... 15
4. Submission of Matters to a Vote of Security Holders ........................................ 15
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ...................... 15
6. Selected Financial Data .................................................................... 17
7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 22
8. Financial Statements and Supplementary Data ................................................ 31
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ....... 31
PART III
10. Directors and Executive Officers of the Company .......................................... 32
11. Executive Compensation ................................................................... 35
12. Security Ownership of Certain Beneficial Owners and Management ........................... 40
13. Certain Relationships and Related Transactions ........................................... 41
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 42
</TABLE>
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PART I
ITEM 1. BUSINESS
FelCor Suites Limited Partnership (the "Operating Partnership") and its
subsidiaries at December 31, 1997, owned interests in 73 hotels with an
aggregate of 17,933 suite/rooms in 27 states (collectively the "Hotels"). The
sole general partner of the Operating Partnership is FelCor Suite Hotels, Inc.
("FelCor"), a self-administered equity real estate investment trust ("REIT")
that at December 31, 1997 owned a 92.7% general partner interest in the
Operating Partnership. FelCor, the Operating Partnership and its subsidiaries,
are herein referred to, collectively, as the "Company". Fifty-two of the Hotels
are operated as Embassy Suites(R) hotels (of which 28 were converted from other
brands), 13 are operated as Doubletree Guest Suites(R) hotels, seven are
operated as Sheraton(R) hotels (five of which are upscale, full-service
traditional non-suite hotels) and one is operated as a Hilton Suites(R) hotel.
Sixty-three of the Hotels are managed by subsidiaries of Promus Hotel
Corporation ("Promus") which, following its recent merger with Doubletree
Corporation, includes Doubletree Hotel Corporation and its subsidiaries
("Doubletree"). Promus is the largest operator of all-suite, full-service hotels
in the United States. Of the remaining Hotels, seven are managed by a subsidiary
of ITT Sheraton Corporation ("Sheraton") and three are managed by independent
management companies. At December 31, 1997, the Company was the owner of the
largest number of Embassy Suites hotels in the world.
To enable FelCor to satisfy certain requirements for qualifications as
a REIT, neither it nor the Operating Partnership can operate the hotels in which
they invest. Accordingly, the Company typically leases the Hotels to DJONT
Operations, L.L.C., or a consolidated subsidiary thereof (collectively, the
"Lessee"), pursuant to leases with terms of ten years that provide for rent
equal to the greater of a minimum base rent ("Base Rent") or a percentage rent
("Percentage Rent") based on hotel suite/room revenues and food and beverage
revenues and rents ("Percentage Leases"). See "Item 2. Properties" for
information regarding the terms of the Percentage Leases. DJONT Operations
L.L.C. is a Delaware limited liability company, of which all the voting
interests (constituting a 50% equity interest) are beneficially owned by Hervey
A. Feldman and Thomas J. Corcoran, Jr., who are directors and officers of the
Company, and the non-voting interests (constituting the remaining 50% equity
interest) is owned by RGC Leasing, Inc., a Nevada corporation owned by the
children of Charles N. Mathewson, a major investor in the Company and a director
of the Company.
Growth Strategies
The Company's primary business objectives are to (i) identify hotel
investments that are underperforming due to lack of sufficient capital
improvements, poor management or franchise affiliation, (ii) add value to its
hotels through active asset management and the strategic investment of capital,
and (iii) build solid working relationships with, and be the "owner-of-choice"
for, selected premium, full-service hotel brand owners/managers who are willing
to commit to the on-going success of the Company's hotels they license and
manage. The Company seeks to increase operating cash flow and enhance its value
through both internal growth and acquisitions. The Company's internal growth
strategy is to utilize its asset management expertise to improve the quality of
its hotels by renovating, upgrading and repositioning, thereby improving the
revenue performance of the hotels, and to participate, through the Percentage
Leases, in any growth in revenues at its hotels. The Company's acquisition
growth strategy remains focused substantially upon the purchase of additional
existing and a limited number of newly developed hotels that meet the Company's
investment criteria.
Strategic Relationships
The Company currently maintains strategic brand owner/manager
relationships with Promus and Sheraton. Promus recently completed the merger of
its company with Doubletree. The combined Promus company constitutes the lodging
industry's third largest entity based on annual revenue. The Company believes
that this merger will increase the Company's flexibility in branding its
all-suite hotels to capitalize on local market conditions and brand
representation. ITT Corporation, the parent of ITT Sheraton Corporation, was
recently acquired by Starwood Hotels and Resorts Worldwide, Inc.
("Starwood").
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o Promus Hotel Corporation is the largest operator of full-service, all-suite
hotels in the United States. Promus is also the owner of the Embassy
Suites, Doubletree(R) and Doubletree Guest Suites brands and the manager of
63 of the Company's Hotels. In addition, based on the closing price of the
Common Stock on the NYSE on December 31, 1997, Promus owned Common Stock of
FelCor and units of partnership interest ("Units") of the Operating
Partnership with an aggregate value of more than $50
relationship with Promus has provided the foundation for the Company's
historical growth.
o ITT Sheraton Corporation is the owner of the Sheraton brand and a wholly
owned subsidiary of Starwood with more than 460 hotels in over 60
countries. This newest strategic alliance, coupled with the purchase of
seven Sheraton hotels in 1997 (including a total of five non-suite hotels),
provided the Company with its initial entry into the upscale, full-service,
non-suite hotel market and may provide the Company with opportunities for
future growth.
The strength of the Company's strategic relationships with the
foregoing brand owner/managers are evidenced by their (i) significant equity
investments in 15 of the Company's Hotels, (ii) agreements to make subordinated
loans to the Lessee (in support of the Lessee's obligations under certain
Percentage Leases with respect to certain hotels), (iii) subordination of
certain customary fees to the Lessee's obligations under applicable Percentage
Leases, (iv) grants of certain performance-based termination rights by the
managers to the Lessees, and (v) in one case, guarantee of a $25 million loan to
the Company.
Hotel Acquisition and Expansion
At December 31, 1997, the Company owned interests in 73 hotels with an
aggregate of 17,933 suites/rooms. Of the Hotels, the Company owns 100% equity
interests in 55 hotels (13,430 suites), a 90% or greater interest in entities
owning four hotels (1,041 suites) and 50% interests in separate entities that
own 14 hotels (3,462 suites). The Hotels are located in 27 states, with 31
hotels in California, Florida and Texas. The following table provides certain
information regarding the Hotels acquired through December 31, 1997:
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NUMBER OF HOTELS NUMBER OF
HOTELS ACQUIRED SUITES/ROOMS
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1994 7 1,730
1995 13 2,649
1996 23 5,769
1997
1st Quarter 15 3,446
2nd Quarter 9 2,715
3rd Quarter 4 1,000
4th Quarter 2 447
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73 17,756
======
Additional suites constructed 177
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17,933
======
</TABLE>
Hotel Renovation and Conversion
The Company believes that its commitment to make the necessary capital
expenditures to upgrade and maintain its hotel properties in accordance with its
high standards differentiates it from many other hotel companies. Typically, the
Company renovates or upgrades hotels acquired and, in many instances, incurs the
cost of converting such hotels into national brands like Embassy Suites,
Doubletree Guest Suites or Sheraton. For the year ended December 31, 1997, the
Company spent approximately $22.0 million on renovations and upgrading 35 of its
Hotels. Additionally, the Company is planning to spend approximately $36.9
million for additional renovations and upgrades in 1998 for those hotels owned
at December 31, 1997.
During 1997 the Company completed construction in July on a net of 129
suites, additional meeting rooms and other public area upgrades at its
Boston-Marlborough, Massachusetts Embassy Suites hotel at a cost of
approximately $16.0 million. Additionally, during 1997 the Company started
construction of an aggregate of 134
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suites at its Jacksonville and Orlando (North), Florida Embassy Suites hotels
which are to open in the first quarter of 1998, at an aggregate projected
cost of $10.2 million. At December 31, 1997, an aggregate of approximately $7.4
million had been spent on these two hotels.
In addition to the conversion and upgrade costs typically incurred by
the Company in connection with newly acquired hotels, the Company is required
under the Percentage Leases to provide a capital replacement reserve, consisting
of 4% of suite revenues (on a cumulative basis), for recurring capital
improvements and replacements at its hotels. In addition to the capital
expenditures made, as described above, for the conversion and upgrade of newly
acquired hotels, the Company expended approximately $19.3 million (approximately
4.2% of suite revenues) during 1997 and approximately $9.2 million
(approximately 4.3% of suite revenues) during 1996, on recurring capital
replacements. In addition to such capital expenditures by the Company, the
Lessee also expended approximately $26.2 million (approximately 5.7% of suite
revenues) during 1997 and approximately $14.5 million (approximately 6.2% of
suite revenues) during 1996 on routine maintenance and repair of the Hotels, for
which the Lessee is responsible under the Percentage Leases.
Financing Transactions
The Board of Directors of FelCor ("Board of Directors") has adopted a
policy which limits the Company's indebtedness to not more than 40% of its
investment in hotel assets, at cost, which at December 31, 1997, would allow the
Company to borrow up to approximately $690 million under this policy. This
policy may be modified by the Board of Directors at any time. At December 31,
1997, the Company had a $550 million unsecured revolving line of credit ("Line
of Credit"), under which it had borrowed $136 million. In addition, the Company
had other indebtedness of an unsecured term loan of $25 million (guaranteed by
Promus) ("Renovation Loan"), $298 million in unsecured senior notes (net of
discount) and approximately $650,000 of other unsecured indebtedness. The
Company also had, at December 31, 1997, an additional $17.0 million in secured
debt, including capitalized lease obligations. At December 31, 1997, the total
Indebtedness of the Company was 28.5% of Adjusted Total Assets and its ratio of
EBITDA to interest paid for the year ended December 31, 1997 was 7.2 to 1. The
Company believes that its current debt limitation policy, its preference for
unsecured debt and its success in raising equity capital for expansion,
demonstrate the Company's commitment to the maintenance of a conservative but
flexible capital structure.
Hotel Operating Performance
The Company's 43 hotels owned at both December 31, 1997 and 1996, which
reflect the effect of the Company's ownership and management of strategic
partners, produced outstanding results with RevPAR increasing 12.9% over 1996.
The largest portion of this increase came from the 18 former Crown Sterling
Suites(R) hotels ("CSS Hotels") which continued their trend of improved RevPAR
throughout 1997, achieving a RevPAR of $85.01 in 1997 compared to $70.05 for
1996, an increase of approximately 21.4%. The Company attributes this dramatic
increase to the renovation and repositioning of these hotels in 1996 and early
1997.
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The following table sets forth historical suite revenue, occupancy
percentage ("Occupancy"), average daily rate ("ADR") and revenue per available
room ("RevPAR") and the percentage changes therein between the periods presented
for the 73 hotels which the Lessee operated at December 31, 1997. This
information is presented regardless of ownership. Except as otherwise noted
below, each of the hotels is operated as an Embassy Suites hotel.
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YEAR ENDED DECEMBER 31,
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1997 1996 VARIANCE
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Suite Revenue (in thousands):
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Original Hotels (13) ................................................. $ 85,944 $ 78,622 9.3%
CSS Hotels (18) ...................................................... 143,012 118,300 20.9%
1996 Acquisitions (12) ............................................... 90,162 83,920 7.4%
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Subtotal -- Hotels owned at both December 31, 1997 and 1996 (43) ..... 319,118 280,842 13.6%
1997 Acquisitions (30) ............................................... 217,662 210,570 3.4%
----------- -----------
Total (73) ........................................................... $ 536,780 $ 491,412 9.2%
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Occupancy:
Original Hotels ...................................................... 76.1% 76.5% (0.5)%
CSS Hotels ........................................................... 73.4% 67.8% 8.3%
1996 Acquisitions .................................................... 74.0% 73.0% 1.4%
Subtotal -- Hotels owned at both December 31, 1997 and 1996 .......... 74.3% 71.6% 3.8%
1997 Acquisitions .................................................... 71.8% 73.1% (1.8)%
Total ................................................................ 73.2% 72.2% 1.4%
Average Daily Rate (ADR):
Original Hotels ...................................................... $109.35 $102.82 6.4%
CSS Hotels ........................................................... $115.85 $103.31 12.1%
1996 Acquisitions .................................................... $118.61 $111.54 6.3%
Subtotal -- Hotels owned at both December 31, 1997 and 1996 .......... $114.77 $105.50 8.8%
1997 Acquisitions .................................................... $109.20 $103.69 5.3%
Total ................................................................ $112.44 $104.72 7.4%
Revenue Per Available Suite (RevPAR):
Original Hotels ...................................................... $ 83.17 $ 78.65 5.7%
CSS Hotels ........................................................... $ 85.01 $ 70.05 21.4%
1996 Acquisitions .................................................... $ 87.73 $ 81.46 7.7%
Subtotal -- Hotels owned at both December 31, 1997 and 1996 .......... $ 85.25 $ 75.52 12.9%
1997 Acquisitions .................................................... $ 78.39 $ 75.80 3.4%
Total ................................................................ $ 82.33 $ 75.64 8.8%
</TABLE>
ORIGINAL HOTELS: Flagstaff, AZ, Jacksonville, FL, Orlando (North), FL,
Orlando (South), FL, Brunswick, GA, Chicago - Lombard, IL,
New Orleans, LA, Boston - Marlborough, MA, Tulsa, OK,
Nashville, TN, Corpus Christi, TX, Dallas (Love Field), TX,
Dallas (Park Central), TX.
CSS HOTELS: Birmingham, AL, Phoenix (Camelback), AZ, Anaheim, CA, El
Segundo (LAX South), CA, Milpitas, CA, Napa, CA, Oxnard
(Mandalay Beach), CA, San Francisco (Airport North), CA,
San Francisco (Airport South), CA, Boca Raton, FL(1),
Deerfield Beach, FL, Ft. Lauderdale, FL, Miami, FL, Tampa
(Busch Gardens), FL(1), Baton Rouge, LA, Minneapolis
(Airport), MN, Minneapolis (Downtown), MN, St. Paul, MN.
1996 ACQUISITIONS: San Rafael (Marin County), CA, Avon (Beaver Creek), CO,
Boca Raton, FL, Atlanta (Buckhead), GA, Deerfield, IL,
Indianapolis (North), IN, Lexington, KY(2), Charlotte, NC,
Parsippany, NJ, Piscataway, NJ, Cleveland, OH, Myrtle Beach
(Kingston Plantation), SC(3).
1997 ACQUISITIONS: Phoenix (Crescent), AZ(3), Covina, CA, Dana Point, CA(1),
Los Angeles (LAX North), CA, Lake Buena Vista (Disney
World), FL(1), Tampa (Rocky Point), FL(1), Atlanta
(Airport), GA(4), Atlanta (Galleria)(3), GA, Atlanta
(Perimeter Center), GA, Chicago (O'Hare), IL(4), Overland
Park, KS, Baltimore, MD(1), Troy, MI(1), Bloomington,
MN(1), Kansas City (Country Club Plaza), MO, Raleigh, NC,
Raleigh/Durham, NC(1), Omaha,
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NE(1), Secaucus, NJ, Syracuse, NY, Dayton, OH(1),
Philadelphia (Society Hill), PA(3), Nashville (Airport),
TN(1), Austin (Airport North), TX, Austin (Downtown),
TX(1), Dallas (Market Center), TX, Dallas (Park Central),
TX (3), San Antonio (Airport), TX, San Antonio (Northwest),
TX, Burlington, VT (3).
(1) Operating as a Doubletree Guest Suites hotel.
(2) Operating as a Hilton Suites hotel.
(3) Operating as a Sheraton hotel.
(4) Operating as a Sheraton Suites hotel.
The principal factors affecting the Company's results of operations are
continued growth in the number of hotels through acquisitions and improvements
in the suite revenues measured by RevPAR. Improvements in suite revenue
significantly impacts the Company because the Company's principal source of
revenue is lease payments by the Lessee under the Percentage Leases. The
Percentage Leases are computed as a percentage of suite revenues, food and
beverage revenues and food and beverage rents of the Hotels. The portion of the
Percentage Lease revenue derived from suite revenues was approximately 97% for
each of the three years ended December 31, 1997, 1996 and 1995.
Seasonality
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly Percentage Rent revenue, particularly during the fourth
quarter. To the extent cash flow from operations is insufficient during any
quarter, due to temporary or seasonal fluctuations in lease revenue, the Company
expects to utilize other cash on hand or borrowings under the Line of Credit to
make distributions to its shareholders.
Competition
The hotel industry is highly competitive. Each of the Company's Hotels
is located in a developed area that includes other hotel properties and competes
for guests primarily with other upscale hotels in its immediate vicinity and
secondarily with other full service hotel properties in its geographic market.
An increase in the number of competitive hotel properties in a particular area
could have a material adverse effect on the occupancy, ADR and RevPAR of the
Company's Hotels in that area. The Company believes that brand recognition,
location, the quality of the hotel and services provided, and price are the
principal competitive factors affecting the Company's Hotels.
The Company competes for investment opportunities with other entities,
some of which have substantially greater financial resources than the Company.
These larger entities may generally be able to accept more risk than the Company
can prudently manage. Competition may generally reduce the number of suitable
investment opportunities offered to the Company and may increase the bargaining
power of owners seeking to sell their hotels.
Environmental Matters
Under various federal, state and local laws and regulations, a current
or previous owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on such
property. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of hazardous or
toxic substances on the property. Furthermore, a person that arranges for the
disposal or treatment of, or transports for disposal or treatment, a hazardous
or toxic substance at any property may be liable for the costs of removal or
remediation of hazardous or toxic substances released into the environment at or
from that property. The costs of removal or remediation of such substances may
be substantial, and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to fully
utilize such property without restriction, to sell such property or to borrow
using such
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property as collateral. In connection with the ownership and operation of the
Hotels, both the Company and the Lessee may be potentially liable for any such
costs.
Phase I environmental audits, by independent environmental engineers,
are customarily obtained with respect to hotels prior to the acquisition thereof
by the Company. The principal purpose of Phase I audits is to identify
indications of potential environmental contamination for which such hotels may
be responsible and, secondarily, to assess, to a limited extent, the potential
for environmental regulatory compliance liabilities. The Phase I audits obtained
by the Company with respect to the Hotels were designed to meet the requirements
of the then current industry standards governing Phase I audits, and consistent
with those requirements, none of the audits involved testing of groundwater,
soil or air. Accordingly, they do not represent evaluations of conditions at the
studied sites that would be revealed only through such testing. In addition,
their assessment of environmental regulatory compliance issues was general in
scope and was not a detailed determination of the studied Hotels' complete
compliance status. Similarly, the audits did not involve comprehensive analysis
of potential off-site liability. The Phase I audit reports did not reveal any
environmental liability that management believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is the
Company aware of any such liability. Nevertheless, it is possible that these
reports do not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware.
No assurances can be given that (i) future or amended laws, ordinances
or regulations or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability or (ii) the environmental condition of the Hotels will not be affected
by changes (of which the Company is unaware) occurring subsequent to the date of
such audits, by the condition of properties in the vicinity of such hotels (such
as the presence of leaking underground storage tanks) or by third parties
unrelated to the Company.
The Company believes that its Hotels are in compliance, in all material
respects, with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances and other environmental matters, the violation of
which would have a material adverse effect on the Company or the Lessee. The
Company has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental matters in connection with any of its present or former
properties.
Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While management of the Company believes
that, based upon an examination thereof and consultation with professionals, the
Hotels are substantially in compliance with these requirements, a determination
that the Company is not in compliance with the ADA could result in the
imposition of fines or an award of damages to private litigants. If the Company
were required to make substantial modifications at the Hotels to comply with the
ADA, the Company's ability to make required payments of principal and interest
on indebtedness and to make distributions to its equity owners could be
adversely affected.
Property Taxes
Each Hotel is subject to real and personal property taxes. The real and
personal property taxes on hotel properties in which the Company invests may
increase as property tax rates change and as the properties are assessed or
reassessed by taxing authorities.
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Tax Status
FelCor has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its initial taxable year ending December 31, 1994. As a REIT, FelCor (subject to
certain exceptions) will not be subject to federal income taxation, at the
corporate level, on its taxable income that is distributed to its shareholders.
A REIT is subject to a number of organizational and operational requirements,
including a requirement that it currently distribute at least 95% of its taxable
income. FelCor may, however, be subject to certain state and local taxes on its
income and property. In connection with FelCor's election to be taxed as a REIT,
FelCor's Charter imposes restrictions on the transfer of shares of Common Stock.
FelCor has adopted the calendar year as its taxable year.
Lessee Operations
The Lessee leases each of the Hotels under a Percentage Lease, pursuant
to which it is obligated to pay the Company the greater of a minimum Base Rent
or a Percentage Rent based on a percentage of revenues. See "Item 2. Properties"
for additional information regarding the terms of the Percentage Leases. The
Lessee has entered into, and is responsible for the payment of all fees under,
the franchise licenses and management agreements relating to each of the Hotels,
may hold the liquor licenses applicable to the Hotels, owns and maintains the
inventories required for the operation of the Hotels, pays for normal
maintenance and repair expenses, enters into various operating, maintenance and
service agreements with respect to the Hotels, and is responsible for compliance
with the license, management and other agreements affecting hotel operations. In
addition, the Lessee actively provides asset management services to the Hotels,
including the supervision of the day-to-day operations of the Hotels by the
management companies engaged to manage such hotels and the establishment and
implementation of capital expenditure programs.
Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate
50% equity interest in the Lessee, have entered into an agreement with the
Company pursuant to which they have agreed that, through April 15, 2005, any
distributions received by them from the Lessee (in excess of their tax
liabilities with respect to the income of the Lessee) will be utilized to
purchase Common Stock or Units from the Company in an underwritten public
offering or annually, at the then current market prices. The agreement
stipulates that Messrs. Feldman and Corcoran are restricted from selling the
stock so acquired for a period of two years from the date of purchase. RGC
Leasing, Inc., which owns the other 50% of the Lessee, may elect to purchase
Common Stock or Units upon similar terms, at its option. Pursuant to this
agreement, each of Messrs. Feldman and Corcoran purchased 3,775 shares of Common
Stock in December 1995. The Independent Directors (as herein defined) may
suspend or terminate such agreement at any time.
Employees
Messrs. Feldman and Corcoran have each entered into employment
agreements with FelCor through 1999. In addition, FelCor had 27 other full-time
employees at December 31, 1997. All persons employed in the day-to-day operation
of the Company's Hotels are employees of the management companies engaged by the
Lessee to operate such hotels.
Personnel and Office Sharing Arrangements
The Company shares executive offices with the Lessee and FelCor, Inc.,
a corporation owned by Messrs. Feldman and Corcoran. Each entity bears an
allocated share of the costs thereof, including but not limited to rent,
salaries of all personnel (other than Messrs. Feldman and Corcoran, who are
compensated solely by the Company), office supplies and telephones. Such
allocations of shared costs are subject to the approval of a majority of the
Independent Directors. During 1997 approximately $1.3 million (approximately 38%
of all allocable expenses) was borne by the Company under this arrangement.
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ITEM 2. PROPERTIES
The Hotels
Of the 73 Hotels owned by the Company at December 31, 1997, 52 were
operated under the Embassy Suites brand. Each Embassy Suites hotel operates
under a franchise license agreement from Promus and offers all of the guest
services and amenities typical of an Embassy Suites hotel. Embassy Suites hotels
are upscale, full-service, all-suite hotels typically providing, among other
things, two-room suites, free cooked-to-order breakfasts, complimentary
cocktails during two hours in the evenings (subject to local laws and
regulations), as well as a fitness center, indoor heated pool, saunas, whirlpool
and steam room, all in an atrium environment. Each suite usually contains two
telephones (with voice mail), a mini-refrigerator, coffee maker, microwave oven,
wet bar, a 25" color television in the living room and a 19" color television in
the bedroom. Restaurant, banquet and lounge facilities also are typically
available at each hotel.
Thirteen of the Hotels owned by the Company at December 31, 1997 were
operated as Doubletree Guest Suites hotels, five were operated as Sheraton
hotels and two were operated as Sheraton Suites hotels pursuant to management
agreements with Doubletree and Sheraton. There are no separate franchise license
agreements with respect to the Doubletree Guest Suites hotels, Sheraton hotels
or Sheraton Suites hotels, which rights are included in the management
agreements. One of the Hotels was operated as a Hilton Suites hotel under a
franchise license agreement with Hilton Inns, Inc.
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The following table sets forth certain additional descriptive
information regarding the Hotels in which the Company had ownership interests at
December 31, 1997:
<TABLE>
<CAPTION>
YEAR
ACQUIRED NUMBER RESTAURANT BANQUET/
FRANCHISE YEAR BY THE OF AND MEETING
LOCATION BRAND OPENED COMPANY SUITES LOUNGE SEATS(1) SPACE (2)
- -------- ----- ------ ------- ------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Birmingham, AL ................................ Embassy Suites 1987 1996 242 250(3) 5,600
Flagstaff, AZ ................................. Embassy Suites 1988 1995 119 70 1,300
Phoenix (Camelback), AZ ....................... Embassy Suites 1985 1996 233 205(3) 8,000
Phoenix, (Crescent), AZ ....................... Sheraton 1986 1997 342 180 28,000
Anaheim, CA ................................... Embassy Suites 1987 1996 222 270(3) 6,500
Burlingame (S.F. Airport So.), CA(4) .......... Embassy Suites 1986 1995 339 595(3) 10,900
Covina, CA(5) ................................. Embassy Suites 1981 1997 264 300(3) 9,000
Dana Point, CA ................................ Doubletree Guest
Suites 1992 1997 198 70 7,000
El Segundo (LAX Airport South), CA ............ Embassy Suites 1985 1996 350 320(3) 6,600
Los Angeles (LAX Airport North), CA ........... Embassy Suites 1990 1997 215 99 4,200
Milpitas, CA .................................. Embassy Suites 1987 1996 267 190 7,000
Napa, CA ...................................... Embassy Suites 1985 1996 205 170(3) 6,900
Oxnard (Mandalay Beach), CA ................... Embassy Suites 1986 1996 249 235(3) 16,600
San Rafael (Marin Co.), CA(5) ................. Embassy Suites 1990 1996 235 255(3) 12,000
South San Francisco (Airport .................. Embassy Suites 1988 1996 312 200 11,700
North), CA
Avon (Beaver Creek Resort), CO ................ Embassy Suites 1990 1996 72 70 1,600
Boca Raton (Doubletree), FL ................... Doubletree Guest
Suites 1989 1995 182 85 3,000
Boca Raton (Embassy), FL ...................... Embassy Suites 1989 1996 263 175(3) 14,000
Deerfield Beach, FL ........................... Embassy Suites 1987 1996 244 270(3) 8,500
Ft. Lauderdale, FL ............................ Embassy Suites 1986 1996 359 220(3) 14,000
Jacksonville, FL .............................. Embassy Suites 1985 1994 210 95(3) 8,000
Lake Buena Vista (Disney World), .............. Doubletree Guest
FL(4) ......................................... Suites 1987 1997 229 125 3,500
Miami (Airport), FL ........................... Embassy Suites 1987 1996 314 365(3) 11,200
Orlando (North), FL ........................... Embassy Suites 1985 1994 210 165(3) 9,000
Orlando (South), FL ........................... Embassy Suites 1985 1994 244 110(3) 5,200
Tampa (Busch Gardens), FL ..................... Doubletree Guest
Suites 1985 1995 129 55 2,200
Tampa (Rocky Point), FL ....................... Doubletree Guest
Suites 1986 1997 203 100 3,000
Atlanta (Airport), GA ......................... Sheraton Suites 1990 1997 278 120 4,000
Atlanta (Buckhead), GA ........................ Embassy Suites 1988 1996 317 210(3) 10,700
Atlanta (Gateway), GA ......................... Sheraton 1986 1997 395 140 13,000
Atlanta (Perimeter Center), GA(5) ............. Embassy Suites 1985 1997 241 62(3) 3,500
Brunswick, GA ................................. Embassy Suites 1988 1995 130 85 6,000
Chicago-Lombard, IL(5) ........................ Embassy Suites 1990 1995 262 205(3) 4,200
Chicago (O'Hare), IL .......................... Sheraton Suites 1994 1997 297 230 12,500
Deerfield, IL ................................. Embassy Suites 1987 1996 237 120(3) 3,700
Indianapolis (North), IN(5) .................. Embassy Suites 1985 1996 222 155 5,000
Overland Park, KS(5) .......................... Embassy Suites 1984 1997 199 180(3) 11,000
Lexington, KY ................................. Hilton Suites 1987 1996 174 150 1,700
Baton Rouge, LA ............................... Embassy Suites 1985 1996 224 170 5,800
New Orleans, LA ............................... Embassy Suites 1984 1994 282 130 10,000
Boston-Marlborough, MA ........................ Embassy Suites 1988 1995 229 60 800
Baltimore, MD ................................. Doubletree Guest
Suites 1987 1997 251 270 5,800
Troy, MI ...................................... Doubletree Guest
Suites 1987 1997 251 250 5,800
Bloomington, MN ............................... Doubletree Guest
Suites 1980 1997 219 235(3) 10,000
Minneapolis (Airport), MN ..................... Embassy Suites 1986 1995 311 175(3) 12,300
Minneapolis (Downtown), MN .................... Embassy Suites 1984 1995 218 200 3,600
St. Paul, MN(6) ............................... Embassy Suites 1983 1995 210 190(3) 3,300
Kansas City (Country Club), MO (4)(5).......... Embassy Suites 1978 1997 266 155(3) 1,800
Charlotte, NC(5) .............................. Embassy Suites 1989 1996 274 215(3) 9,200
Raleigh/Durham, NC ............................ Doubletree Guest
Suites 1987 1997 203 100 5,000
Raleigh, NC(5) ................................ Embassy Suites 1988 1997 225 183(3) 3,200
Omaha, NE ..................................... Doubletree Guest
Suites 1973 1997 189 110 3,000
Parsippany, NJ ................................ Embassy Suites 1989 1996 274 285(3) 5,800
Piscataway, NJ ................................ Embassy Suites 1988 1996 225 95 6,900
Secaucus, NJ (4)(5) ........................... Embassy Suites 1986 1997 261 95(3) 3,200
Syracuse, NY .................................. Embassy Suites 1989 1997 215 160(3) 3,200
Cleveland, OH ................................. Embassy Suites 1990 1995 268 175 8,200
Dayton, OH .................................... Doubletree Guest
Suites 1987 1997 138 45 1,100
Tulsa, OK ..................................... Embassy Suites 1985 1994 240 195(3) 3,300
Philadelphia (Society Hill), PA ............... Sheraton 1986 1997 365 240 20,500
Myrtle Beach (Kingston Plantation), SC......... Embassy Suites 1987 1996 255 275(3) 25,600
Nashville, TN ................................. Embassy Suites 1986 1994 296 210(3) 14,000
Nashville (Airport), TN ....................... Doubletree Guest
Suites 1988 1997 138 65 2,500
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
YEAR
ACQUIRED NUMBER RESTAURANT BANQUET/
FRANCHISE YEAR BY THE OF AND MEETING
LOCATION BRAND OPENED COMPANY SUITES LOUNGE SEATS(1) SPACE (2)
- -------- ----- ------ ------- ------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Austin (Downtown), TX ....................... Doubletree Guest
Suites 1987 1997 189 100 5,000
Austin (Airport North), TX(5) ............... Embassy Suites 1984 1997 261 140 5,600
Corpus Christi, TX .......................... Embassy Suites 1984 1995 150 130 3,900
Dallas (Love Field), TX ..................... Embassy Suites 1986 1995 248 200 3,500
Dallas (Market Center), TX .................. Embassy Suites 1980 1997 244 150(3) 4,000
Dallas (Park Central), TX ................... Sheraton 1983 1997 545 88(3) 28,000
Dallas (Park Central), TX ................... Embassy Suites 1985 1994 279 100 7,800
San Antonio (Airport), TX(5) ................ Embassy Suites 1985 1997 261 90 2,500
San Antonio (Northwest), TX(5) .............. Embassy Suites 1981 1997 217 101 6,600
Burlington, VT .............................. Sheraton 1967 1997 309 300 30,000
------- ------- -------
TOTALS 17,933 12,583 570,600
======= ======= =======
</TABLE>
- ---------
(1) Approximate, excluding atrium area seating.
(2) In approximate number of square feet.
(3) At December 31, 1997, these restaurants and lounges were subleased to
unrelated third party lessees, who also provide guest room service and
catering service to the meeting rooms.
(4) Situated on land leased under a long-term ground lease.
(5) This hotel is one of 14 hotels owned by unconsolidated entities in which
the Company owns a 50% equity interest.
(6) Owned subject to a capitalized industrial revenue bond lease which expires
in 2011 and permits the Company to purchase the fee interest at expiration
for a nominal amount.
On February 17, 1998, the Company announced the acquisition of a
194-suite Doubletree Guest Suites hotel in Columbus, Ohio.
The Percentage Leases
Each of the Hotels is leased to the Lessee pursuant to a Percentage
Lease, typically having a stated term of 10 years and providing for rent equal
to the greater of Base Rent or Percentage Rent. The terms of each Percentage
Lease is approved by the Company's Independent Directors. Rent. The annual Base
Rent is typically set at approximately 60% of the initial year's anticipated
total rent. The Percentage Rent is calculated in two tiers, a first tier
typically equal to 17% of suite revenues up to a specified amount ("Suite
Revenue Breakpoint") and a second tier typically equal to 65% of suite revenues
above such Suite Revenue Breakpoint. In addition, the Lessee typically pays the
Company 5% of the food and beverage revenues from each Hotel in which the
restaurant and bar operations are conducted directly by the Lessee and 98% of
the food and beverage rent revenues from each Hotel in which the restaurant and
bar operations are subleased by the Lessee to an unrelated third party. The
Suite Revenue Breakpoint is established at the time the Percentage Lease is
entered into, based upon the historical and anticipated operations of the
particular hotel, in a manner expected to provide the Company with approximately
95% of the anticipated operating profits of the hotels in which it invests.
The amount of Base Rent and of the Suite Revenue Breakpoint in each
Percentage Lease formula is subject to adjustment, annually, based upon a
formula taking into account changes in the Consumer Price Index ("CPI"). The
adjustment is calculated at the beginning of each calendar year, for the hotels
acquired prior to July of the previous year. The adjustment in any lease may not
exceed 7%. The CPI adjustments made in January 1998, 1997 and 1996 were 0.50%,
1.42% and 0.73%, respectively.
Maintenance and Modifications. Under the Percentage Leases, the Company
is required to maintain the underground utilities and the structural elements of
the improvements, including exterior walls (excluding plate glass) and the roof
of each leased hotel. In addition, the Percentage Leases obligate the Company to
fund periodic improvements (in addition to maintenance of structural elements)
to the buildings and grounds comprising the leased hotels, and the periodic
repair, replacement and refurbishment of furniture, fixtures and equipment in
the leased hotels, when and as required to meet the requirements of the
applicable franchise licenses, and to establish and maintain a reserve, which is
available to the Lessee for such purposes, in an amount equal to 4% of hotel
suite revenues, on a cumulative basis. The Company's obligation is not limited
to the amount in such reserve.
12
<PAGE> 13
Otherwise, the Lessee is required, at its expense, to maintain the leased
hotels in good order and repair, except for ordinary wear and tear, and
to make nonstructural repairs, whether foreseen or unforeseen, ordinary or
extraordinary, which may be necessary and appropriate to keep the leased hotels
in good order and repair.
Insurance and Property Taxes. The Company is responsible for paying
real estate and personal property taxes and property insurance premiums on the
leased hotels (except to the extent that personal property associated with the
leased hotels is owned by the Lessee). The Lessee is responsible for the cost of
all liability insurance on the leased hotels, which must include extended
coverage, comprehensive general public liability, workers' compensation and
other insurance appropriate and customary for properties similar to the leased
hotels.
Indemnification. Under each of the Percentage Leases, the Lessee will
indemnify, and will be obligated to hold harmless, the Company from and against
all liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) incurred by, imposed upon or asserted against the Company on account
of, among other things, (i) any accident or injury to person or property on or
about the leased hotels, (ii) any misuse by the Lessee or any of its agents of
the leased hotels, (iii) any environmental liability resulting from conditions
disclosed in the environmental audits received by the Company before it acquired
the leased hotels or caused or resulting thereafter from any action or
negligence of the Lessee, (iv) taxes and assessments in respect of the leased
hotels (other than real estate and personal property taxes and any income taxes
of the Company on income attributable to the leased hotels), (v) the sale or
consumption of alcoholic beverages on or in the real property or improvements
thereon, or (vi) any breach of the Percentage Leases by the Lessee; provided,
however, that such indemnification will not be construed to require the Lessee
to indemnify the Company against it's own grossly negligent acts or omissions or
willful misconduct.
Assignment and Subleasing. The Lessee is not permitted to sublet all or
substantially all of any one or more of the leased hotels or to assign its
interest under any of the Percentage Leases, other than to an affiliate of the
Lessee, without the prior written consent of the Company. The Lessee may,
however, sublet space to operators of gift shops, restaurants, lounges or other
amenities at the leased hotels. No assignment or subletting will release the
Lessee from any of its obligations under the Percentage Leases.
Damage to Hotels. In the event of damage to or destruction of any
leased hotel covered by insurance which renders the leased hotel unsuitable for
the Lessee's use and occupancy, the Lessee is generally obligated to repair,
rebuild, or restore the leased hotel or offer to acquire the leased hotel on the
terms set forth in the applicable Percentage Lease. If the Lessee rebuilds the
leased hotel, the Company is obligated to disburse to the Lessee, from time to
time and upon satisfaction of certain conditions, any insurance proceeds
actually received by the Company as a result of such damage or destruction, and
any excess costs of repair or restoration will be paid by the Lessee. If the
Lessee decides not to rebuild and the Company rejects the Lessee's mandatory
offer to purchase the leased hotel on the terms set forth in the Percentage
Lease, the Percentage Lease will terminate and the insurance proceeds will be
retained by the Company. If the Company accepts the Lessee's offer to purchase
the leased hotel, the Percentage Lease will terminate and the Lessee will be
entitled to the insurance proceeds. In the event that damage to or destruction
of a leased hotel which is covered by insurance does not render the leased hotel
wholly unsuitable for the Lessee's use and occupancy, the Lessee generally will
be obligated to repair or restore the leased hotel. In the event of material
damage to or destruction of any leased hotel which is not covered by insurance,
the Lessee is obligated to either repair, rebuild, or restore the leased hotel
or offer to purchase the leased hotel on the terms and conditions set forth in
the Percentage Lease. The Percentage Lease shall remain in full force and effect
during the first three months of any period required for repair or restoration
of any damaged or destroyed leased hotel, after which time, rent will be
equitably abated.
Condemnation of Hotels. In the event of a total condemnation of a
leased hotel, the relevant Percentage Lease will terminate as of the date of
taking, and the Company and the Lessee will be entitled to their shares of the
condemnation award in accordance with the provisions of the Percentage Lease. In
the event of a partial taking which does not render the leased hotel unsuitable
for the Lessee's use, the Lessee shall restore the untaken portion of the leased
hotel to a complete architectural unit and the Company shall contribute to the
cost of such restoration that part of the condemnation award specified for
restoration.
13
<PAGE> 14
Events of Default. Events of Default under the Percentage Leases include, among
others, the following:
(i) the occurrence of an Event of Default under any other
lease between the Company and the Lessee or any affiliate of the Lessee;
(ii) the failure by the Lessee to pay Base Rent when due and
the continuation of such failure for a period of 10 days thereafter;
(iii) the failure by the Lessee to pay the excess of
Percentage Rent over Base Rent within 90 days after the end of the calendar year
in which such payment was due;
(iv) the failure by the Lessee to observe or perform any
other term of a Percentage Lease and the continuation of such failure for a
period of 30 days after receipt by the Lessee of notice from the Company
thereof, unless such failure cannot be cured within such period and the Lessee
commences appropriate action to cure such failure within said 30 days and
thereafter acts, with diligence, to correct such failure within such time as is
necessary;
(v) if the Lessee shall file a petition in bankruptcy or
reorganization pursuant to any federal or state bankruptcy law or any similar
federal or state law, or shall be adjudicated a bankrupt or shall make an
assignment for the benefit of creditors or shall admit in writing its inability
to pay its debts generally as they become due, or if a petition or answer
proposing the adjudication of the Lessee as a bankrupt or its reorganization
pursuant to any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and the Lessee shall be adjudicated a bankrupt
and such adjudication shall not be vacated or set aside or stayed within 60 days
after the entry of an order in respect thereof, or if a receiver of the Lessee
or of the whole or substantially all of the assets of the Lessee shall be
appointed in any proceeding brought by the Lessee or if any such receiver,
trustee or liquidator shall be appointed in any proceeding brought against the
Lessee and shall not be vacated or set aside or stayed within 60 days after such
appointment;
(vi) if the Lessee voluntarily discontinues operations of a
leased hotel for more than 30 days, except as a result of damage, destruction,
or condemnation; or
(vii) if the franchise agreement with respect to a leased
hotel is terminated by the franchisor as a result of any action or failure to
act by the Lessee or its agents.
If an Event of Default occurs and continues beyond any curative period,
the Company has the option of terminating the Percentage Lease or any or all
other Percentage Leases by giving the Lessee 10 days' prior written notice of
the date for termination of the Percentage Lease and, unless such Event of
Default is cured prior to the termination date set forth in said notice, the
specified Percentage Leases shall terminate on the date specified in the
Company's notice and the Lessee is required to surrender possession of the
affected leased hotels.
Termination of Percentage Leases on Disposition of the Hotels. In the
event the Company enters into an agreement to sell or otherwise transfer a
leased hotel, the Company has the right to terminate the Percentage Lease with
respect to such leased hotel upon 90 days' prior written notice upon either (i)
paying the Lessee the fair market value of the Lessee's leasehold interest in
the remaining term of the Percentage Lease to be terminated or (ii) offering to
lease to the Lessee a substitute hotel on terms that would create a leasehold
interest in such hotel with a fair market value equal to or exceeding the fair
market value of the Lessee's remaining leasehold interest under the Percentage
Lease to be terminated. The Company also is obligated to pay, or reimburse the
Lessee for, (x) any assignment fees, termination fees or other liabilities
arising under any franchise license agreement solely as a result of the
assignment or termination of such franchise license agreement in connection with
the Company's sale of a leased hotel and termination of the Percentage Lease
with respect thereto and (y) any termination fees payable under any restaurant
sublease solely as a result of the termination thereof upon termination of the
Percentage Lease with respect thereto.
14
<PAGE> 15
Other Lease Covenants. The Lessee has agreed that during the term of the
Percentage Leases it will maintain a ratio of total debt to consolidated net
worth (as defined in the Percentage Leases) of less than or equal to 50%,
exclusive of capitalized leases and indebtedness subordinated in right to
repayment to the rent due under the Percentage Leases. In addition, the Lessee
has agreed that it will not pay fees to any affiliate of the Lessee.
Breach by Company. If the Company fails to cure a breach on its part under
a Percentage Lease, the Lessee may purchase the relevant leased hotel from the
Company for a purchase price equal to the leased hotel's then fair market value.
Upon notice from the Lessee that the Company has breached the Lease, the Company
has 30 days to cure the breach or proceed to cure the breach, which period may
be extended in the event of certain specified, unavoidable delays.
Inventory. The initial standard inventory of goods and supplies necessary
for the operation of the leased hotels has been acquired by the Lessee. The
Lessee is required to purchase, at its expense, any and all replacements and
additions to such inventory as may be necessary for the continued operation of
the leased hotels and, upon the termination of the applicable Percentage Lease,
to surrender such leased hotel to the Company.
ITEM 3. LEGAL PROCEEDINGS
There is no litigation pending or known to be threatened against the
Company or affecting any of its Hotels other than claims arising in the ordinary
course of business or which are not considered to be material. Furthermore, most
of such claims are substantially covered by insurance. Management does not
believe that any claims known to it (individually or in the aggregate) will have
a material adverse effect on the Company, without regard to any potential
recoveries from insurers or other third parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Operating
Partnership during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information.
There is no established public trading market for the Units. The Units,
however, are redeemable at the option of the holder for a like number of shares
of Common Stock of FelCor or, at the option of FelCor, for the cash equivalent
thereof. The following information is provided regarding the common stock of
FelCor:
FelCor's Common Stock was traded on The Nasdaq Stock Market from July 22,
1994 until March 13, 1996 under the symbol "FLCO" and has been traded on the New
York Stock Exchange since March 13, 1996 under the symbol "FCH." The following
table sets forth for the indicated periods the high and low sale prices for the
Common Stock, as traded on such market and exchange.
15
<PAGE> 16
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1996
----
<S> <C> <C>
First quarter ..................... $ 32 $ 27 1/8
Second quarter .................... 31 5/8 28 1/2
Third quarter ..................... 32 1/2 27 3/4
Fourth quarter .................... 36 3/4 30 3/8
1997
----
First quarter ..................... $ 37 1/2 $ 33 1/2
Second quarter .................... 37 3/4 34 1/2
Third quarter ..................... 41 1/2 36
Fourth quarter .................... 42 7/8 34 15/16
</TABLE>
The foregoing market quotations for the period prior to March 13, 1996
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
Unitholder Information.
At March 10, 1998, the Operating Partnership had approximately 55
holders of record of its Units. It is estimated that there were approximately
55 beneficial owners, in the aggregate, of the Units at that date.
Distribution Information.
The Operating Partnership has adopted a policy of paying regular
quarterly distributions on its Units, and cash distributions have been paid on
its Units with respect to each quarter since its inception. The following table
sets forth information regarding the declaration and payment of distributions by
the Company during 1996 and 1997.
<TABLE>
<CAPTION>
QUARTER TO DISTRIBUTION DISTRIBUTION PER UNIT
WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION
RELATES DATE DATE AMOUNT
------------------ -------- ---------- -------------
1996
<S> <C> <C> <C>
First quarter ..................... 4/11/96 4/30/96 $ 0.46
Second quarter .................... 7/15/96 7/30/96 $ 0.46
Third quarter ..................... 10/15/96 10/31/96 $ 0.50
Fourth quarter .................... 12/30/96 1/30/97 $ 0.50
1997
First quarter ..................... 4/15/97 4/30/97 $ 0.50
Second quarter .................... 7/15/97 7/30/97 $ 0.50
Third quarter ..................... 10/15/97 10/31/97 $ 0.55
Fourth quarter .................... 12/30/97 1/30/98 $ 0.55
</TABLE>
The foregoing distributions represent an approximate 6.0% return of
capital in 1997 and an approximate 11.5% return of capital in 1996. In order to
maintain its qualification as a REIT, FelCor must make annual distributions to
its shareholders of at least 95% of its taxable income (which does not include
net capital gains). For the years ended December 31, 1996 and December 31, 1997,
FelCor had distributions totaling $1.92 and $2.10 per share, respectively, of
which only $1.61 and $1.88 per share, respectively, were required to satisfy the
95% REIT distribution test. Under certain circumstances FelCor may be required
to make distributions in excess of cash available for distribution in order to
meet such REIT distribution requirements. In such event, FelCor presently would
expect to borrow funds, or to sell assets for cash, to the extent necessary to
obtain cash sufficient to make the distributions required to retain its
qualification as a REIT for federal income tax purposes.
16
<PAGE> 17
The Operating Partnership currently anticipates that it will maintain
at least the current distribution rate for the immediate future, unless actual
results of operations, economic conditions or other factors differ from its
current expectations. Future distributions, if any, paid by the Operating
Partnership will be at the discretion of the Board of Directors and will depend
on the actual cash flow of the Company, its financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of
the internal revenue code and such other factors as the Board of Directors deems
relevant.
Recent Sales of Unregistered Securities
As of May 16, 1997 the Operating Partnership issued an aggregate of
139,286 Units to PMB Associates, Ltd., in exchange for its 50% interest in a
partnership owning one hotel. Neither the Units nor the like number of shares of
Common Stock for which they may be redeemed, were registered under the
Securities Act in reliance upon certain exemptions from the registration
requirements thereof, including the exemption provided by section 4 (2) of that
act.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected historical operating and
financial data for the Operating Partnership and selected combined historical
financial data for the predecessor of the Operating Partnership (the "Initial
Hotels"). The selected historical financial data for the Operating Partnership
for the years ended December 31, 1997, 1996 and 1995 and the period from July
28, 1994 (inception of operations) to December 31, 1994 has been derived from
the historical financial statements of the Company and the notes thereto,
audited by Coopers & Lybrand, L.L.P., independent accountants. Such data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto.
The selected combined historical financial statements for the Initial
Hotels are presented for the year ended December 31, 1993 and the period from
January 1, 1994 to July 27, 1994 and represents the operations of the six hotels
acquired by the Company upon completion of FelCor's initial public offering of
common stock ("IPO") in July 1994. The Initial Hotels data is derived by
combining the selected combined historical financial data of five hotels for
periods prior to their acquisition by a FelCor affiliate (the "E-5 Hotels") and
the selected combined historical financial data of a FelCor affiliate prior to
the IPO (the "FelCor Hotels") and represents the selected combined historical
financial data of all six hotels for the entire periods presented. The E-5
Hotels include the operations of five hotels prior to the acquisition by a
FelCor affiliate on July 15, 1993 and the FelCor Hotels include operations of
all six hotels from the date of acquisition by the FelCor affiliate. The
selected combined historical financial data for the E-5 Hotels and the FelCor
Hotels have been derived from the historical financial statements and notes
thereto, audited by Coopers & Lybrand L.L.P., independent accountants.
17
<PAGE> 18
FELCOR SUITES LIMITED PARTNERSHIP
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD FROM JULY 28, 1994
--------------------------------------------- (INCEPTION OF OPERATIONS)
1997 1996 1995 THROUGH DECEMBER 31, 1994
--------- --------- --------- -------------------------
OPERATING DATA:
REVENUE
<S> <C> <C> <C> <C>
Percentage lease revenue ................. $ 169,114 $ 97,950 $ 23,787 $ 6,043
Equity in income from
unconsolidated entities................. 6,963 2,010 513
Other revenue ............................ 574 984 1,691 207
--------- --------- --------- ---------
TOTAL REVENUE ............................... 176,651 100,944 25,991 6,250
--------- --------- --------- ---------
EXPENSES
General and administrative ............... 3,743 1,819 870 355
Depreciation ............................. 50,798 26,544 5,232 1,487
Taxes, insurance and other ............... 23,093 13,897 2,563 881
Interest expense ......................... 28,792 9,803 2,004 109
Minority interest in other
partnerships............................ 573
--------- --------- --------- ---------
TOTAL EXPENSES .............................. 106,999 52,063 10,669 2,832
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE .......... 69,652 48,881 15,322 3,418
Extraordinary charge from write off
of deferred financing fees ............ 185 2,354
--------- --------- --------- ---------
NET INCOME .................................. 69,467 46,527 15,322 3,418
Preferred distributions .................. 11,797 7,734
--------- --------- --------- ---------
NET INCOME APPLICABLE TO UNITHOLDERS ........ $ 57,670 $ 38,793 $ 15,322 $ 3,418
========= ========= ========= =========
BASIC EARNINGS PER UNIT (1)
Income applicable to unitholders
before extraordinary charge ............ $ 1.70 $ 1.59 $ 1.72 $ 0.54
Extraordinary charge ..................... (0.01) (0.09)
--------- --------- --------- ---------
Net income applicable to unitholders...... $ 1.69 $ 1.50 $ 1.72 $ 0.54
========= ========= ========= =========
Weighted average number of units
outstanding............................. 34,126 25,809 8,927 6,385
========= ========= ========= =========
DILUTED EARNINGS PER UNIT (1)
Income applicable to unitholders
before extraordinary charge ............ $ 1.68 $ 1.58 $ 1.70 $ 0.54
Extraordinary charge ..................... (0.01) (0.09)
--------- --------- --------- ---------
Net income ............................... $ 1.67 $ 1.49 $ 1.70 $ 0.54
========= ========= ========= =========
Weighted average number of units
outstanding ............................ 34,467 26,003 8,989 6,385
========= ========= ========= =========
</TABLE>
18
<PAGE> 19
FELCOR SUITES LIMITED PARTNERSHIP
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD FROM JULY 28, 1994
-------------------------------------- (INCEPTION OF OPERATIONS)
1997 1996 1995 THROUGH DECEMBER 31, 1994
-------- -------- -------- -------------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Cash distributions per unit .............. 2.10 1.92 1.84 0.66
Funds From Operations (2) ................ 129,815 77,141 20,707 4,905
EBITDA (3) ............................... 153,496 86,583 22,203 5,014
Ratio of EBITDA to interest paid ......... 7.2x 9.4x 15.1x
Ratio of earnings to fixed charges (4) ... 3.3x 5.3x 8.6x 32.4x
Cash provided by financing activities .... 600,132 251,906 407,897 97,952
Cash provided by operating activities .... 97,478 67,494 17,003 3,959
Cash used in investing activities ........ (687,860) (478,428) (259,197) (100,793)
BALANCE SHEET DATA:
Cash and short term investments .......... $ 17,543 $ 7,793 $ 166,821 $ 1,118
Investment in hotel properties, net ...... 1,489,764 899,691 325,155 104,800
Investment in unconsolidated entities .... 132,991 59,867 13,819
Total assets ............................. 1,673,364 978,788 548,359 108,305
Debt and capital lease obligations ....... 476,819 239,425 19,666 8,750
Redeemable units, at redemption value .... 102,933 98,542 74,790 33,055
Preferred units .......................... 151,250 151,250
Partners' capital ........................ 897,766 468,246 445,433 61,885
</TABLE>
- ---------------
(1) In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per share" which established new standards for computing
and presenting earnings per unit. Earnings per unit for all periods
presented have been calculated according to this standard. Basic earnings
per unit have been computed by dividing net income applicable to
unitholders by the weighted average number of Units outstanding. Diluted
earnings per unit have been computed by dividing net income applicable to
unitholders by the weighted average number of units and equivalents
outstanding. Common share and unit equivalents that have a dilutive effect
represent stock options issued to officers and key employees and unvested
restricted stock grants issued to certain officers.
(2) The White Paper on Funds From Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds From Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after comparable adjustments for the Company's portion of
these items related to unconsolidated entities and joint ventures. The
Company believes that Funds From Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities,
it provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures and to fund other cash
needs. The Company computes Funds From Operations in accordance with
standards established by NAREIT which may not be comparable to Funds From
Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds From Operations does
not represent cash generated from operating activities determined by GAAP
and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. Funds From Operations may include
funds that may not be available for management's
19
<PAGE> 20
discretionary use due to functional requirements to conserve funds for
capital expenditures and property acquisitions, and other commitments and
uncertainties.
The following is a reconciliation between net income and Funds From
Operations (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
(INCEPTION OF
OPERATIONS)
YEAR ENDED DECEMBER 31, THROUGH
------------------------------ DECEMBER 31,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income .................................. $ 69,467 $ 46,527 $ 15,322 $ 3,418
Add:
Depreciation ................................ 50,798 26,544 5,232 1,487
Depreciation from unconsolidated entities ... 9,365 1,716 153
Extraordinary charge from write off of
deferred financing fees ............... 185 2,354
-------- -------- -------- --------
Funds From Operations (FFO) ................. $129,815 $ 77,141 $ 20,707 $ 4,905
======== ======== ======== ========
</TABLE>
(3) EBITDA is computed by adding net income, interest expense, the Company's
portion of interest expense from unconsolidated entities, income taxes,
depreciation expense, amortization expense, extraordinary expenses and cash
distributions paid by unconsolidated entities and deducting extraordinary
income, equity in income from unconsolidated entities and the Company's
portion of depreciation from unconsolidated entities. A reconciliation of
Funds From Operations to EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
(INCEPTION OF
OPERATIONS)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------------- DECEMBER 31,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Funds From Operations .................................. $ 129,815 $ 77,141 $ 20,707 $ 4,905
Add back:
Interest expense .................................. 28,792 9,803 2,004 109
Interest from unconsolidated entities ............. 5,896 819
Amortization expense .............................. 1,110 592 158
Cash distributions from unconsolidated entities ... 4,211 1,954
Deduct:
Equity in income from unconsolidated entities ..... (6,963) (2,010) (513)
Depreciation from unconsolidated entities ......... (9,365) (1,716) (153)
--------- --------- --------- ---------
EBITDA ................................................. $ 153,496 $ 86,583 $ 22,203 $ 5,014
========= ========= ========= =========
</TABLE>
(4) For purpose of computing the ratio of earnings to fixed charges, earnings
consist of net income plus fixed charges, excluding capitalized interest,
and fixed charges consist of interest, whether expensed or capitalized, and
amortization of loan costs.
20
<PAGE> 21
INITIAL HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1994
THROUGH YEAR ENDED
JULY 27, 1994 DECEMBER 31, 1993
------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Suite revenue .................................... $21,884 $33,550
Other revenue .................................... 1,307 2,002
------- -------
Total revenue .................................... 23,191 35,552
Hotel expenses ................................... 15,238 22,048
Depreciation ..................................... 2,325 4,092
Interest expense ................................. 3,446 5,437
Other corporate expenses ......................... 620 3,260
------- -------
Net income ....................................... $ 1,562 $ 715
======= =======
</TABLE>
FELCOR HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1994
THROUGH YEAR ENDED
JULY 27, 1994 DECEMBER 31, 1993
------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Suite revenue .................................... $21,884 $17,866
Other revenue .................................... 1,307 1,092
------- -------
Total revenue .................................... 23,191 18,958
Hotel expenses ................................... 15,238 12,042
Depreciation ..................................... 2,325 1,761
Interest expense ................................. 3,446 2,822
Other corporate expenses ......................... 620 1,590
------- -------
Net income ....................................... $ 1,562 $ 743
======= =======
</TABLE>
E-5 HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
-----------------
<S> <C>
Statement of Operations Data:
Suite revenue ......................................... $ 15,684
Other revenue ......................................... 910
--------
Total revenue ......................................... 16,594
Hotel expenses ........................................ 10,006
Depreciation .......................................... 2,331
Interest expense ...................................... 2,615
Other corporate expenses .............................. 1,670
--------
Net (loss) ............................................ $ (28)
========
</TABLE>
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
At December 31, 1997, the Operating Partnership owned interests in 73
hotels with an aggregate of 17,933 suites/rooms. For additional background
relating to the Company and the definitions of certain capitalized terms used
herein, reference is made to Note 1 of Notes to Consolidated Financial
Statements of FelCor Suites Limited Partnership appearing elsewhere herein.
The principal factors affecting the Company's results of operations are
continued growth in the number of hotels through acquisitions and improvements
in the suite revenues measured by RevPAR. Improvements in suite revenue
significantly impacts the Company because the Company's principal source of
revenue is lease payments by the Lessee under the Percentage Leases. The
Percentage Leases are computed as a percentage of suite revenues, food and
beverage revenues and food and beverage rents of the Hotels. The portion of the
Percentage Lease revenue derived from suite revenues was approximately 97% for
each of the three years ended December 31, 1997, 1996 and 1995.
In 1997 the Company acquired interests in 30 hotels at a gross
investment of approximately $700 million. The acquired hotels included 12
Embassy Suites, 11 Doubletree Guest Suites and seven Sheraton hotels.
The Company's 43 hotels owned at both December 31, 1997 and 1996, which
reflect the effect of the Company's ownership and management of strategic
partners, produced outstanding results with RevPAR increasing 12.9% over 1996.
The largest portion of this increase came from the 18 former Crown Sterling
Suites hotels which continued their trend of improved RevPAR throughout 1997,
achieving a RevPAR of $85.01 in 1997 compared to $70.05 for 1996, an increase of
approximately 21.4%. The Company attributes this dramatic increase to the
renovation and repositioning of these hotels in 1996 and early 1997.
The Operating Partnership's growth has been financed though unsecured
debt, preferred units and equity contributions from FelCor. The Company's market
capitalization at December 31, 1997 totaled approximately $2.1 billion, an
increase of 75% over December 31, 1996. During 1997 FelCor issued to the public
approximately $450 million of common stock and contributed the proceeds to the
Operating Partnership, and the Operating Partnership completed a private
placement of $300 million of long-term unsecured notes.
Actual historical results of operations for the years ended December
31, 1997, 1996 and 1995 are summarized as follows (in millions, except
percentages, per share data and hotel counts):
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------
1997 1996 1995 97 VS 96 96 VS 95
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Hotels ownership interests at year end 73 43 20 69.8% 115.0%
Revenues ............................. $ 176.7 $ 100.9 $ 26.0 75.1% 288.1%
Income before extraordinary charge ... $ 69.7 $ 48.9 $ 15.3 42.5% 219.6%
Net income available to unitholders .. $ 57.7 $ 38.8 $ 15.3 48.7% 153.6%
Funds From Operations (FFO) .......... $ 129.8 $ 77.1 $ 20.7 68.4% 272.5%
FFO per unit outstanding (a) ......... $ 3.32 $ 2.63 $ 2.30 26.2% 14.3%
</TABLE>
(a) Conversion of preferred units to Units, unvested restricted stock
grants and dilutive stock options are assumed for purposes of
computing weighted average shares and units outstanding for FFO per
unit outstanding.
22
<PAGE> 23
RESULTS OF OPERATIONS
THE COMPANY -- ACTUAL
Comparison of the Years Ended December 31, 1997 and 1996
For the years ended December 31, 1997 and 1996 the Company had total
revenues of $176.7 million and $100.9 million, respectively, consisting
primarily of Percentage Lease revenues of $169.1 million and $98.0 million. The
increase in total revenue is primarily attributed to the Company's acquisition
and subsequent leasing, pursuant to Percentage Leases, of interests in 30 hotels
during 1997. This increase represents nearly a 70% increase in the number of
hotel interests owned by the Company. Percentage Lease revenues for the 20
hotels which were owned for all of 1997 and 1996 increased 16.5% for the year
ended December 31, 1997 over the corresponding period in 1996 (an increase of
$8.8 million). The increase in Percentage Lease revenues is attributable to a
10% increase in RevPAR and to the addition of 177 new suites at three existing
hotels. Furthermore, RevPAR for the 43 hotels owned by the Company at December
31, 1997 and 1996 increased 12.9%.
Management believes that the hotels it acquires will generally
experience increases in suite revenue and RevPAR (and accordingly, provide the
Company with increases in Percentage Lease revenue) after completion of
renovation upgrade and possible rebranding; however, as individual hotels
undergo such renovation and/or rebranding, their performance has been, and may
continue to be, adversely affected by such temporary factors as suites out of
service and disruptions of hotel operations. (A more detailed discussion of
hotel suite revenue is contained in "The Hotels -- Actual" section of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Equity in income from unconsolidated entities increased approximately
$5.0 million in 1997 over the corresponding period in 1996 resulting primarily
from an increase in hotels owned through unconsolidated entities from five at
December 31, 1996 to 14 hotels at December 31, 1997.
Total expenses increased $54.9 million in 1997 over the corresponding
period in 1996 resulting primarily from increased expenses related to the
additional hotels acquired in 1997 and 1996.
As a percentage of total revenue, depreciation increased from 26.3% in
1996 to 28.8% in 1997. The relative increase in depreciation is primarily a
result of capital improvements made during 1996 and 1997 and the resultant
depreciation, as well as the increase of short lived assets relative to total
fixed assets (short lived assets made up 9.8% of fixed assets at December 31,
1997 and 9.0% at December 31, 1996).
General and administrative expenses and taxes, insurance and other
remained relatively constant as a percentage of total revenue in 1997 and 1996.
Interest expense increased as a percentage of total revenue from 9.7%
in 1996 to 16.3% in 1997. This relative increase in interest expense is
attributed to the increased use of debt to finance acquisitions and renovations.
Debt as a percentage of total assets increased from 24.5% at December 31, 1996
to 28.6% at December 31, 1997.
Comparison of the Years Ended December 31, 1996 and 1995
For the years ended December 31, 1996 and 1995, the Company had total
revenues of $100.9 million and $26.0 million, respectively, consisting primarily
of Percentage Lease revenues of $98.0 million and $23.8 million. The increase in
total revenue is primarily attributable to the Company's acquisition and
subsequent leasing, pursuant to Percentage Leases, of interests in 23 hotels
during 1996. Percentage Lease revenues for the seven hotels which were owned for
all of 1996 and 1995 increased 13.9% for the year ended December 31, 1996 over
the corresponding period in 1995 (an increase of $2.7 million). Furthermore,
RevPAR for the 20 hotels owned by the Company at both December 31, 1996 and 1995
increased 8.1%.
23
<PAGE> 24
Total expenses increased $41.4 million in 1996 over the corresponding
period in 1995 resulting primarily from increased expenses related to the
additional hotels acquired in 1996 and 1995.
As a percentage of total revenues, depreciation increased from 20% in
1995 to 26% in 1996. The relative increase in depreciation is primarily a result
of capital expenditures made during 1995 and 1996 and the resultant depreciation
as well as the increase of short lived assets relative to total fixed assets
(short lived assets made up 84.7% of total fixed assets at December 31, 1996 and
81.7% at December 31, 1995.
Taxes, insurance and other increased as a percentage of total revenue
from 10.0% in 1995 to 14.0% in 1996. In many instances upon purchase of a hotel,
the hotel is reassessed for tax purposes resulting in increased property tax
expenses.
Interest expense increased as a percentage of total revenue from 8% in
1995 to 10% in 1996. This relative increase is attributed to the increased use
of debt to finance acquisitions, the extensive renovations in 1996 and the
assumption of capital leases, for hotels purchased in late 1995 and during 1996.
FUNDS FROM OPERATIONS
The Company considers Funds From Operations to be a key measure of a
REIT's performance and should be considered along with, but not as an
alternative to, net income and cash flow as a measure of the Company's operating
performance and liquidity.
The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales of properties, plus; real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items related to
unconsolidated entities and joint ventures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds From
Operations in accordance with standards established by NAREIT which may not be
comparable to Funds From Operations reported by other REITs that do not define
the term in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. Funds From Operations
does not represent cash generated from operating activities determined by GAAP
and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company 's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
Funds From Operations may include funds that may not be available for
management's discretionary use due to functional requirements to conserve funds
for capital expenditures and property acquisitions, and other commitments and
uncertainties.
24
<PAGE> 25
The following table details the computation of Funds From Operations
(in thousands, except per share and unit data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
FUNDS FROM OPERATIONS (FFO):
Net income ........................................................... $ 69,467 $ 46,527 $ 15,322
Add back:
Extraordinary charge from write off of deferred financing fees ... 185 2,354
Depreciation ...................................................... 50,798 26,544 5,232
Depreciation for unconsolidated entities .......................... 9,365 1,716 153
-------- -------- --------
FFO .................................................................. $129,815 $ 77,141 $ 20,707
======== ======== ========
FFO PER UNIT DATA:
FFO per unit ......................................................... $ 3.32 $ 2.63 $ 2.30
======== ======== ========
Weighted average number of units outstanding (a) ..................... 39,157 29,306 8,989
</TABLE>
(a) Weighted average number of units for FFO are computed including
dilutive options, unvested restricted stock grants and assuming
conversion of preferred units to units.
Included in the Funds From Operations described above is the Company's
share of FFO from its interest in fourteen unconsolidated entities at December
31, 1997, five unconsolidated entities at December 31, 1996 and one
unconsolidated partnership at December 31, 1995. The FFO contribution from these
unconsolidated entities was derived as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statement of operations information:
Percentage Lease revenue ....................... $ 47,720 $ 9,974 $ 1,420
Depreciation ................................... $ 15,611 $ 1,543 $ 141
Taxes, insurance and other ..................... $ 5,667 $ 915 $ 229
Interest expense ............................... $ 11,791 $ 1,638
Net income ..................................... $ 17,044 $ 4,366 $ 1,050
50% of net income attributable to the Company... $ 8,522 $ 2,183 $ 525
Amortization of cost in excess of book value.... (1,559) (173) (12)
-------- -------- --------
Equity in income from unconsolidated entities... 6,963 2,010 513
Add back: Depreciation ........................ 7,806 1,543 141
Amortization of excess cost.......... 1,559 173 12
-------- -------- --------
FFO contribution of unconsolidated entities..... $ 16,328 $ 3,726 $ 666
======== ======== ========
</TABLE>
25
<PAGE> 26
THE HOTELS -- ACTUAL
The following table sets forth historical suite revenue, occupancy,
ADR and RevPAR and the percentage changes therein between the periods presented
for the 73 hotels which the Company had an ownership interest at December 31,
1997. This information is presented regardless of ownership. Except as otherwise
noted below, each of the hotels is operated as an Embassy Suites hotel.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 Variance
---- ---- --------
<S> <C> <C> <C>
Suite Revenue (in thousands):
Original Hotels (13) ................................................ $ 85,944 $ 78,622 9.3%
CSS Hotels (18) ..................................................... 143,012 118,300 20.9%
1996 Acquisitions (12) .............................................. 90,162 83,920 7.4%
----------- -----------
Subtotal -- Hotels owned at both December 31, 1997 and 1996 (43) .... 319,118 280,842 13.6%
1997 Acquisitions (30) .............................................. 217,662 210,570 3.4%
----------- -----------
Total (73) ........................................................... $ 536,780 $ 491,412 9.2%
=========== ===========
Occupancy:
Original Hotels ..................................................... 76.1% 76.5% (0.5)%
CSS Hotels .......................................................... 73.4% 67.8% 8.3%
1996 Acquisitions ................................................... 74.0% 73.0% 1.4%
Subtotal -- Hotels owned at both December 31, 1997 and 1996 ......... 74.3% 71.6% 3.8%
1997 Acquisitions .................................................... 71.8% 73.1% (1.8)%
Total ................................................................ 73.2% 72.2% 1.4%
Average Daily Rate (ADR):
Original Hotels ..................................................... $109.35 $102.82 6.4%
CSS Hotels .......................................................... $115.85 $103.31 12.1%
1996 Acquisitions ................................................... $118.61 $111.54 6.3%
Subtotal -- Hotels owned at both December 31, 1997 and 1996 ......... $114.77 $105.50 8.8%
1997 Acquisitions .................................................... $109.20 $103.69 5.3%
Total ................................................................ $112.44 $104.72 7.4%
Revenue Per Available Suite (RevPAR):
Original Hotels ..................................................... $83.17 $78.65 5.7%
CSS Hotels .......................................................... $85.01 $70.05 21.4%
1996 Acquisitions ................................................... $87.73 $81.46 7.7%
Subtotal -- Hotels owned at both December 31, 1997 and 1996 ......... $85.25 $75.52 12.9%
1997 Acquisitions .................................................... $78.39 $75.80 3.4%
Total ................................................................ $82.33 $75.64 8.8%
</TABLE>
ORIGINAL HOTELS: Flagstaff, AZ, Jacksonville, FL, Orlando (North), FL,
Orlando (South), FL, Brunswick, GA, Chicago - Lombard, IL,
New Orleans, LA, Boston - Marlborough, MA, Tulsa, OK,
Nashville, TN, Corpus Christi, TX, Dallas (Love Field), TX,
Dallas (Park Central), TX.
CSS HOTELS: Birmingham, AL, Phoenix (Camelback), AZ, Anaheim, CA, El
Segundo (LAX South), CA, Milpitas, CA, Napa, CA, Oxnard
(Mandalay Beach), CA, San Francisco (Airport North), CA, San
Francisco (Airport South), CA, Boca Raton, FL(1), Deerfield
Beach, FL, Ft. Lauderdale, FL, Miami, FL, Tampa (Busch
Gardens), FL(1), Baton Rouge, LA, Minneapolis (Airport), MN,
Minneapolis (Downtown), MN, St. Paul, MN.
1996 ACQUISITIONS: San Rafael (Marin County), CA, Avon (Beaver Creek), CO, Boca
Raton, FL, Atlanta (Buckhead), GA, Deerfield, IL,
Indianapolis (North), IN, Lexington, KY(2), Charlotte, NC,
Parsippany, NJ, Piscataway, NJ, Cleveland, OH, Myrtle Beach
(Kingston Plantation), SC(3).
1997 Acquisitions: Phoenix (Crescent), AZ(3), Covina, CA, Dana Point, CA(1),
Los Angeles (LAX North), CA, Lake Buena Vista (Disney
World), FL(1), Tampa (Rocky Point), FL(1), Atlanta
(Airport), GA(4), Atlanta (Galleria)(3), GA, Atlanta
(Perimeter Center), GA, Chicago (O'Hare), IL(4), Overland
Park, KS, Baltimore, MD(1), Troy, MI(1), Bloomington, MN(1),
26
<PAGE> 27
Kansas City (Country Club Plaza), MO, Raleigh, NC,
Raleigh/Durham, NC(1), Omaha, NE(1), Secaucus, NJ, Syracuse,
NY, Dayton, OH(1), Philadelphia (Society Hill), PA(3),
Nashville (Airport), TN(1), Austin (Airport North), TX,
Austin (Downtown), TX(1), Dallas (Market Center), TX, Dallas
(Park Central), TX (3), San Antonio (Airport), TX, San
Antonio (Northwest), TX, Burlington, VT (3).
(1) Operating as a Doubletree Guest Suites hotel.
(2) Operating as a Hilton Suites hotel.
(3) Operating as a Sheraton hotel.
(4) Operating as a Sheraton Suites hotel.
Comparison of the Hotels' Suite Revenue for the Years Ended December 31,
1997 and 1996
Pro forma suite revenues for the 73 hotels that the Company had
ownership interests at December 31, 1997, increased 9.2% for the year ended
December 31, 1997 over the corresponding period in 1996.
The Company owned 43 hotels at both December 31, 1997 and 1996, these
hotels experienced increased room revenue of 13.6% for 1997 compared to 1996.
Within this group of 43 hotels are the Original Hotels, the CSS Hotels and the
1996 Acquisition Hotels.
The Original Hotels consist of hotels purchased from the inception of
the Company in July 1994 through September 1995. The Original Hotels increased
suite revenue by 9.3% for the year ended December 31, 1997 compared to 1996. ADR
increased 6.4% to $109.35 and Occupancy declined 0.5% from 76.5% to 76.1%. The
decrease in occupancy was principally attributed to room additions at three of
the Original Hotels, where the Company added 177 suites during 1996 and 1997.
This resulted in an increase of RevPAR of 5.7% over 1996 RevPAR.
The CSS Hotels are made up of 18 former Crown Sterling Suites Hotels
which the Company acquired in late 1995 and early 1996. The Company spent more
than $50 million renovating these hotels during 1996 and completed the
renovation in early 1997. The CSS Hotels experienced increases in revenue of
20.9%, for the year ended December 31, 1997 compared to 1996. Occupancy
increased by 8.3% to 73.4% and ADR increased 12.1% to $115.85. The Company
attributes the dramatic increase in revenues to the renovation and repositioning
of these hotels.
The 1996 Acquisition Hotels, which includes 12 hotels, had a 7.4%
increase in suite revenue for the year ended December 31, 1997 compared to the
corresponding period in 1996. Occupancy increased 1.4% to 74.0% and ADR
increased 6.3% to $118.61. These hotels experienced increases in revenue and
Occupancy in the midst of renovation and upgrading. The changes in RevPAR ranges
from a decrease of 1.6% in Atlanta, GA (resulting from a comparison to 1996
revenues when the Summer Olympics were held in Atlanta) to increases of 150% at
Cleveland, OH.
Management believes that the 43 hotels owned at both December 31, 1997
and 1996 benefitted from capital improvements and upgrades, rebranding in some
instances, strong professional management and detailed asset management.
The 1997 Acquisition Hotels, which includes 30 hotels, experienced
suite revenue increases of 3.4% during 1997. Occupancy at these hotels decreased
1.8% from 73.1% to 71.8% while ADR increased 5.3% to $109.20. Since these hotels
were acquired during 1997, the impact of the Company's ownership programs were
not fully realized. Management believes that its renovation and upgrading, and
professional asset management will enable this group of hotels to experience
positive operating results in the future.
27
<PAGE> 28
RENOVATIONS AND CAPITAL EXPENDITURES
The Company believes that one factor that differentiates it from other
hotel companies is its commitment to make capital expenditures at the Hotels to
improve their performance and maintain the Company's high standards. The Company
approaches this in four different ways: (i) an aggressive renovation and upgrade
program as hotels are acquired to bring them up to the Company's standards, (ii)
contributions of at least 4% of annual suite/room revenue (on a cumulative
basis) for capital improvements (the "Capital Reserve"), (iii) insuring that the
Lessee maintains an aggressive maintenance and repair program for the Hotels and
(iv) after the initial renovation/upgrade, construction of additional suites,
meeting rooms and public areas where the market conditions indicate.
Renovation/Upgrade Program
In 1997 the Company spent approximately $22.0 million on renovation
and upgrades related to 35 hotels acquired in 1996 and 1997. The Company has
committed to spend an additional $36.9 million related to renovation and
upgrades for the Hotels owned at December 31, 1997 during fiscal 1998.
Capital Reserve
It is the Company's policy to contribute a minimum of 4% of suite/room
revenue to the Capital Reserve account to provide funds for necessary ongoing
capital improvements after the initial renovation or upgrade. During 1997 the
Company contributed approximately $18.9 million (4% of suite/room revenue) to
the Capital Reserve and approximately $19.3 million was spent on such
improvements in addition to the renovation and upgrade expenditures referenced
above.
Repair and Maintenance
During the year ended December 31, 1997 the Lessee spent $26.2 million
on routine repair and maintenance. This represents approximately 5.7% of hotel
suite/room revenue.
Room Additions
During 1997 the Company completed construction in July on a net of 129
suites, additional meeting rooms and other public area upgrades at its
Boston-Marlborough, Massachusetts Embassy Suites hotel at a cost of
approximately $16.0 million. Additionally, during 1997 the Company started
construction of an aggregate of 134 suites at its Jacksonville and Orlando
(North), Florida Embassy Suites hotels which are to open in the first quarter of
1998, at an aggregate projected cost of $10.2 million. At December 31, 1997, an
aggregate of approximately $7.4 million had been spent on these two hotels.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including repayments of indebtedness is cash flow from the Percentage Leases.
For the year ended December 31, 1997, cash flow provided by operating
activities, consisting primarily of Percentage Lease revenue, was $97.5 million
and Funds From Operations (as previously defined) was $129.8 million. The
Lessee's obligations under the Percentage Leases are unsecured. The Lessee's
ability to make lease payments under the Percentage Leases and the Company's
liquidity, including repayments of indebtedness, are substantially dependent on
the ability of the Lessee to generate sufficient cash flow from the operation of
the Hotels.
At December 31, 1997, the Lessee had paid all amounts then due the
Company under the Percentage Leases. During 1997 and 1996, the Lessee
experienced net losses of approximately $2.7 million and $5.4 million,
respectively, and, at December 31, 1997, had a cumulative shareholders' deficit
of approximately $9.1 million. The
28
<PAGE> 29
losses in 1997 and 1996 resulted primarily from the one-time costs of converting
the CSS Hotels to the Embassy Suites and Doubletree Guest Suites brands and the
substantial number of suite nights lost during the year due to renovation. It is
anticipated that a substantial portion of any future profits of the Lessee will
be retained until a positive shareholder's equity is restored. It is anticipated
that the Lessee's future earnings will be sufficient to enable it to continue to
make its lease payments under the Percentage Leases when due.
Messrs. Feldman and Corcoran and the managers and other equity owners
of certain of the Hotels have agreed, directly or through their affiliates, to
make loans to the Lessee of up to an aggregate of approximately $16.0 million,
to the extent necessary to enable the Lessee to pay rent and other obligations
due under the respective Percentage Leases relating to a total of 34 of the
Hotels. Amounts so borrowed by the Lessee, if any, will be subordinate in right
of repayment to the prior payment in full of rent and other obligations due
under the Percentage Leases for such Hotels. No loans were outstanding under
such agreements at December 31, 1997.
The Company intends to acquire additional hotels and may incur
indebtedness to make such acquisitions or to meet distribution requirements
imposed on a REIT under the Internal Revenue Code, to the extent that working
capital and cash flow from the Company's investments are insufficient to make
such distributions.
At December 31, 1997, the Company had a $550 million unsecured
revolving credit facility from a group of lenders co-arranged by The Chase
Manhattan Bank and Wells Fargo Bank, National Association ("Line of Credit").
The Line of Credit hasa term ending on October 1, 2000. Borrowings under the
Line of Credit bear interest, at the Company's option, (i) at the higher of the
base rate announced from time to time by The Chase Manhattan Bank plus an
applicable margin of 0% to 0.25%,or (ii) at a Eurodollar rate based upon the 30,
60, or 90 day or 6-month LIBOR rate plus an applicable margin of 1.0% to 1.75%.
The applicable margin varies depending upon the Company's long-term senior
unsecured actual or implied debt rating and its leverage ratio and, at December
31, 1997, was 0.00% in the case of Base Rate borrowings and 1.4% in the case of
Eurodollar Rate borrowings. The Company paid interest on its Line of Credit at
the weighted average interest rate of 7.6% for the year ended December 31, 1997.
Up to 10% of the amount available under the Line of Credit may be used for
general corporate or working capital purposes. The total amount available under
the Line of Credit is limited to 50% of the aggregate value of the Company's
eligible hotels, which generally include hotels that are unencumbered. At
December 31, 1997, the aggregate amount borrowed under the Line of Credit was
$136 million. Assuming the Company purchases qualifying hotel assets, it would
have up to an additional $414 million available under the existing Line of
Credit. The agreements governing the Line of Credit also contain various
negative and affirmative covenants, including limitations on total indebtedness,
total secured indebtedness and cash distributions, as well as obligations to
maintain a certain minimum tangible net worth and certain interest and debt
service coverage ratios. At December 31, 1997, the Company was in compliance
with all such covenants.
The Company has a $25 million renovation loan facility which was used
to fund a portion of the renovation cost of the CSS Hotels that were converted
to Embassy Suites hotels. The facility is guaranteed by Promus, bears interest
at LIBOR plus 45 basis points, requires quarterly principal payments of $1.25
million beginning in June 1999 and matures in June 2000. At December 31, 1997,
the Company had drawn the full $25 million under this loan facility.
On October 1, 1997 the Company completed the private placement of $300
million in aggregate principal amount of its long term senior unsecured notes.
The notes were issued in two maturities, consisting of $175 million of 7 3/8%
senior notes due 2004 priced at 99.489% to yield 7.47% and $125 million of
7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%. The $300 million
senior notes are discounted and accrete over the maturity of the notes (7 years
for the $175 million senior notes and 10 years for the $125 million senior
notes) using the interest method. On February 12, 1998 the Company announced an
offer to exchange these notes for new notes which were identical in amount and
terms except that the new notes have been registered under the Securities Act.
The Company expects to complete the exchange for the new notes by March 31,
1998.
At December 31, 1997, the Company had $17.5 million of cash and cash
equivalents and had utilized $136 million under its $550 million unsecured
revolving Line of Credit.
29
<PAGE> 30
To provide for additional financing flexibility FelCor has
approximately $89.1 million of common stock, preferred stock, debt securities
and/or common stock warrants available for offerings under a shelf registration
statement declared effective in 1997. In February 1998 FelCor registered an
additional $1 billion in common stock, preferred stock, depository shares, debt
securities and/or common stock warrants pursuant to a new shelf registration
statement.
The Company's cash flow from financing activities of approximately
$600.1 million for the year ended December 31, 1997 resulted from the following:
contributions from FelCor of $448.6 million; net repayments on the Company's
Line of Credit of $57.7 million; net proceeds from the private placement of
$300.0 million in senior unsecured notes of $290.9 million; and distributions
paid to preferred unitholders and unitholders of $81.7 million.
INFLATION
Operators of hotels, in general, possess the ability to adjust room
rates periodically to reflect the effects of inflation. Competitive pressures
may, however, limit the Lessee's ability to raise room rates.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize other cash on hand
or borrowings under the Line of Credit to make distributions to its equity
holders.
On a pro forma basis, suite revenue by quarter for the years ended
December 31, 1997 and 1996 is as follows (in millions, except percentages):
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
SUITE PERCENTAGE SUITE PERCENTAGE
REVENUE OF TOTAL REVENUE OF TOTAL
--------- ------------ -------- -----------
<S> <C> <C> <C> <C>
First Quarter ....... $132.7 24.7% $123.1 25.1%
Second Quarter ...... 139.0 25.9 124.1 25.2
Third Quarter ....... 136.6 25.5 125.6 25.6
Fourth Quarter ...... 128.5 23.9 118.6 24.1
------ ------ ------ -----
Total ............... $536.8 100.0% $491.4 100.0%
====== ====== ====== =====
</TABLE>
The above schedule of quarterly suite revenues, may not be indicative
of future seasonality trends because of the impact of suites out of service due
to renovation, the location of hotels acquired in the future or other market
factors.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Annual Report on Form 10-K include forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Company believes that the expectations reflected in such forward
looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's current
expectations are disclosed in conjunction with the forward looking statements
included herein (the "Cautionary Disclosures"). Subsequent written and oral
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Disclosures.
30
<PAGE> 31
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130") and No. 131 "Disclosures About Segments of an Enterprise an
Related Information" ("SFAS 131"), both of which are effective for fiscal years
beginning after December 15, 1997.
SFAS 130 specifies the presentation and disclosure requirements for
reporting comprehensive income which includes those items which have been
formerly reported as a component of shareholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information. The Company
believes that the adoption of SFAS 130 and 131 will not have a material impact
on previously reported financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included herein at pages F-1 through F-27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Operating Partnership has no directors or officers. Management
functions of the Operating Partnership are performed by FelCor as the sole
general partner. The following information is provided regarding the executive
officers and directors of FelCor:
The Board of Directors currently consists of seven members, four of
whom are not officers or employees of the Company or any subsidiary or Lessee
thereof ("Independent Directors"). The Board of Directors is divided into three
classes who serve staggered three-year terms with the term of each director
expiring at the annual meeting of shareholders held three years after his
election.
Set forth below is certain information regarding the directors and
executive officers of FelCor.
<TABLE>
<CAPTION>
YEAR
FIRST TERM
NAME POSITION ELECTED CLASS EXPIRES
---- -------- ------- ----- -------
<S> <C> <C> <C> <C>
Hervey A. Feldman ..................................... Chairman of the Board 1994 Class I 1998
Thomas J. Corcoran, Jr ................................ President and Chief Executive 1994 Class II 1999
Officer, Director
Richard S. Ellwood .................................... Independent Director 1994 Class III 2000
Richard O. Jacobson ................................... Independent Director 1994 Class III 2000
Charles A. Ledsinger, Jr .............................. Independent Director 1997 Class II 1999
Charles N. Mathewson .................................. Director 1994 Class I 1998
Thomas A. McChristy ................................... Independent Director 1994 Class III 2000
Randall L. Churchey ................................... Senior Vice President, Chief 1997 -- --
Financial Officer and Treasurer
Lawrence D. Robinson .................................. Senior Vice President, General 1996 -- --
Counsel and Secretary
William P. Stadler .................................... Senior Vice President, Director 1995 -- --
of Corporate Acquisitions
Jack Eslick ........................................... Vice President, Director of 1996 -- --
Asset Management
June H. McCutchen ..................................... Vice President, Director of 1995 -- --
Design and Construction
Larry J. Mundy ........................................ Vice President/Director of Hotel 1998 -- --
Acquisitions
</TABLE>
- ---------------------------
Hervey A. Feldman (age 60) is the Chairman of the Board of FelCor and
has served in such capacity since its formation in May 1994. He is also a
co-founder of FelCor, Inc. and has served as its Chairman since its formation in
1991. Prior to that time, he held executive positions with Embassy Suites, Inc.,
serving as its Chairman of the Board from June 1990 until January 1992, and as
its President and Chief Executive Officer from the founding of that company in
January 1983 to April 1990. Prior to 1990, Mr. Feldman had spent over 25 years
in the hotel industry, including serving in various management positions with
Brock Hotel Corporation during a period when that company was one of the largest
franchisees of Holiday Inn(R) hotels in the U.S.; as Executive Vice President
for North American Development of Holiday Inns, Inc.; and President and Chief
Executive Officer of Brock Residence Inns, Inc., which founded the
extended-stay, all-suite chain now known as Residence Inns by Marriott(R).
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<PAGE> 33
Thomas J. Corcoran, Jr. (age 49) is the President and Chief Executive
Officer of FelCor and has served in such capacity since its formation in May
1994. He is also a co-founder of FelCor, Inc. and has served as its President
and Chief Executive Officer since its formation in 1991. From October 1990 to
December 1991, he served as the Chairman, President and Chief Executive Officer
of Fiesta Foods, Inc., a manufacturer of tortilla chips and taco shells. From
1979 to 1990, Mr. Corcoran held various positions with Integra - A Hotel and
Restaurant Company (formerly Brock Hotel Corporation), including serving as the
President and Chief Executive Officer of that company from 1986 to 1990, and
with ShowBiz Pizza Time, Inc., an operator and franchisor of family
entertainment center/pizza restaurants.
Richard S. Ellwood (age 66) is the founder and principal owner of R.S.
Ellwood & Co., Inc., a real estate investment banking firm which was organized
in 1987. Prior to 1987, as an investment banker, Mr. Ellwood was elected
successively in 1968 a general partner of White Weld & Co., in 1978 a managing
director of Warburg Paribas Becker, Incorporated and in 1984 a managing director
and senior banker of Merrill Lynch Capital Markets. Mr. Ellwood has extensive
experience in hotel financing. He was a founder of Hotel Investors Trust, a
REIT, and served as a Trustee from 1970 until its merger with another REIT in
1987. He is currently a director of two additional REITs, Apartment Investment
and Management Company and Corporate Realty Income Trust.
Richard O. Jacobson (age 61) is the President and Chief Executive
Officer of Jacobson Warehouse Company, Inc., a privately-held warehouse company
with facilities in 15 locations in seven states, which Mr. Jacobson founded 30
years ago. He is also President and Chief Executive Officer of Jacobson
Transportation Company, Inc., a truckload common carrier with authority to
operate in 48 states and Canada. Mr. Jacobson is a member of the Boards of
Directors of Advanced Oxygen Technology, Inc., AlaTenn Resources, Inc., Allied
Group, Inc., Firstar Bank Des Moines, N.A., Firstar Bank of Iowa, N.A. and
Heartland Express, Inc.
Charles A. Ledsinger, Jr. (age 48) was recently elected as a director
of the Company to fill the vacancy created by the resignation of Donald J.
McNamara. Mr. Ledsinger has served as an officer of St. Joe Corporation since
May 1997. He has served as President and Chief Operating Officer since February
1998 and as Senior Vice President an Chief Financial Officer prior to that. From
June 1995 until May 1997, Mr. Ledsinger was Senior Vice President and Chief
Financial Officer of Harrah's Entertainment, Inc. For more than three years
prior, Mr. Ledsinger served as Senior Vice President and Chief Financial Officer
of The Promus Companies Incorporated, the former parent of Harrah's
Entertainment, Inc. Mr. Ledsinger is also a director of TBC Corporation, Perkins
Management Company, Inc. and Friendly Ice Cream Corporation. He is a member and
a past chairman of the Real Estate Financial Advisory Council of the American
Hotel and Motel Association.
Charles N. Mathewson (age 69) has served, for more than the past five
years, in various positions with International Game Technology ("IGT"), a
company engaged in the design and manufacture of microprocessor based gaming
products and gaming monitoring systems. Since February 1988, he has served as
the Chairman of the Board of IGT. He has served as a director of IGT since
December 1985, as President from December 1986 to February 1988, and as Chief
Executive Officer from December 1986 until June 1993 and from February 1996
until the present. Mr. Mathewson also is a member of the Board of Directors of
Baron Asset Fund.
Thomas A. McChristy (age 71) was the President of T.A. McChristy Co.
Inc., a real estate investment company, from 1957 to 1996. Mr. McChristy also
served as the President and Chief Operating Officer of Syntech International,
Inc., a lottery systems and equipment manufacturing company, from 1986 to 1988
and as its Chief Executive Officer from 1989 to 1992.
Randall L. Churchey (age 37) has served as Senior Vice President,
Chief Financial Officer and Treasurer of the Company since November 1997. For
approximately 15 years prior to joining the Company, Mr. Churchey held various
positions with Coopers & Lybrand, L.L.P. Most recently, Mr. Churchey served as
the Chairman of the Hospitality and Real Estate Practice of that firm for the
Southwestern United States.
Lawrence D. Robinson (age 54) has served as Senior Vice President,
General Counsel and Secretary of the Company since May 1996. From 1972 to 1989,
Mr. Robinson was a partner in the Kansas City based law firm of
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<PAGE> 34
Stinson, Mag & Fizzell, forwhich he founded and managed a Dallas, Texas office
from 1982 to 1989. From 1989 through April 1996, Mr. Robinson was a partner in
the Houston based law firm of Bracewell & Patterson, L.L.P., where he served as
the managing partner of its Dallas office until 1992, as the head of that
office's corporate and securities law section and as chairman of its firm-wide
hospitality group.
William P. Stadler (age 43) began his employment with FelCor in July
1995 as Vice President, Director of Acquisition and Development. On January 14,
1998, Mr. Stadler was promoted to Senior Vice President, Director of Corporate
Acquisitions. Mr. Stadler has over 17 years of experience in hotel acquisition
and development, having served as Vice President-Development for Coastal Hotel
Group from 1994 until he joined FelCor in 1995, as Vice President-Development
for Embassy Suites, Inc. from 1992 to 1994, as Senior Vice President-Development
for Landmark Hotels, Inc. from 1989 to 1991 and as Vice President-Development
for Marriott Corporation from 1985 to 1989.
Jack Eslick (age 46) joined FelCor in April 1996 as its Vice
President, Director of Asset Management. Mr. Eslick has over 20 years experience
in hotel operations. From April 1991 until he joined FelCor, Mr. Eslick served
as Vice President of Operations of Promus, where he had direct responsibility
for all operations in a region that grew from 14 hotels to 26 hotels. Prior to
April 1991, he served in various capacities with Holiday Inns, Inc., including
serving as general manager of various hotels and as a Regional Director of
Operations.
June H. McCutchen (age 42) joined FelCor in October 1995 as Vice
President, Director of Design and Construction. Her most recent experience was
as Account Executive for Hospitality Restoration & Builders, Inc. since 1994.
From 1992 to 1994 she was Project Manager for American General Hospitality, Inc.
where she managed all capital improvement work for over 35 properties each year.
Prior to 1992, Ms. McCutchen was Project Manager for Hilton Hotels, Inc. from
1987 to 1992, and prior to 1987, she served as design coordinator and purchasing
manager for Embassy Suites, Inc.
Larry J. Mundy (age 47) joined FelCor in January 1998 as Vice
President/Director of Hotel Acquisitions. From 1995 until he joined FelCor he
was Vice President of Franchise Development for Motel 6. From 1987 to 1995 he
was Vice President of Development in the South/Southeast for Hilton Hotels and
prior to 1987 he served as corporate counsel for Residence Inns and Embassy
Suites.
TERMS OF OFFICE; RELATIONSHIPS
The officers of FelCor are elected annually by the Board of Directors
at a meeting held following each annual meeting of shareholders, or as soon
thereafter as necessary and convenient in order to fill vacancies or newly
created offices. Each officer holds office until his successor is duly elected
and qualified or until death, resignation or removal, if earlier. Any officer or
agent elected or appointed by the Board of Directors may be removed by the Board
of Directors whenever in its judgement the best interests of the Company will be
served thereby, but such removal shall be without prejudice to the contractual
rights, if any, of the person so removed.
There are no family relationships among any of the directors or
executive officers of FelCor. Except as described above, none of FelCor's
directors hold directorships in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") or pursuant to Section 15 (d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
There are no arrangements or understandings between any director or officer and
any other person pursuant to which that director was nominated or officer was
selected.
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<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION
The Operating Partnership has no directors or officers. Management
functions of the Operating Partnership are performed by FelCor. The directors
and officers of FelCor receive no additional compensation from the Operating
Partnership. The following table sets forth information, for the fiscal years
ended December 31, 1997, 1996 and 1995, regarding the compensation paid by
FelCor to its Chief Executive Officer and the four other most highly
compensated executive officers ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------------------
SECURITIES
NAME AND PRINCIPAL POSITION OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
- --------------------------- COMPENSATION STOCK OPTIONS/ COMPENSATION
YEAR SALARY($) BONUS($) ($) AWARDS($)(4) SARS(#) ($)(13)
---- --------- -------- --- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Corcoran, Jr . . . . . 1997 200,000 250,000 None 525,000(5) 201,000(12) 14,250
President and Chief 1996 123,240 None None None None 4,875
Executive Officer 1995 120,000 None None 194,625(6) 150,000 4,875
243,000(7)
Hervey A. Feldman. . . . . . . . 1997 150,000 None None 525,000(5) 151,000(12) 9,000
Chairman of the Board 1996 123,240 None None None None 4,875
1995 120,000 None None 194,625(6) 150,000 4,875
243,000(7)
Lawrence D. Robinson . . . . . . 1997 115,500 47,500 None 87,500(8) 70,000(12) None
Senior Vice President 1996(2) 66,667 None None 349,500(9) 100,000 None
General Counsel
William S. McCalmont . . . . . . 1997 140,291 34,500 None None 20,000(12) 38,733
Senior Vice President 1996 67,708 None None 457,500(10) 92,500 55,524
Chief Financial Officer(1)
William P. Stadler . . . . . . . 1997 99,383 115,000 None None 25,000(12) 14,250
Vice President, Director 1996 79,020 100,000 None None None 4,875
of New Development 1995(3) 34,125 45,000 None 66,100(11) 25,000 2,438
</TABLE>
- ----------------
(1) Mr. McCalmont was employed as FelCor's Chief Financial Officer from August
14, 1996 until October 31, 1997. The information for 1996 includes
compensation only during the period from August 14, 1996 through December
31, 1996 and for 1997 includes compensation through the date of his
resignation.
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<PAGE> 36
(2) Includes compensation only during the period from the date of commencement
of Mr. Robinson's employment (May 1996) through December 31, 1996.
(3) Includes compensation only during the periods from the date of commencement
of Mr. Stadler's employment (July 1995) through December 31, 1995.
(4) An aggregate of 37,500 shares of restricted stock were awarded in the 1997
fiscal year. An aggregate of 35,000 of these restricted stock grants vest
over a five-year period and 2,500 shares vest fully within two months of
issuance. Holders of restricted stock are entitled to vote and receive
dividends on such shares from the date of grant. The amount reported in
this table represents the market value of the shares awarded on the date of
grant, determined by the closing price of the Common Stock on such date,
without giving effect to the diminution of value attributable to the
restrictions on such stock. As of December 31, 1997, the aggregate unvested
restricted stock holdings by the Named Executive Officers consisted of
65,200 shares as set forth below, with a then current aggregate market
value, determined in the same manner as of December 31, 1997, of
$1,924,000, as follows: Mr. Corcoran (25,800 shares, $758,604 value); Mr.
Feldman (25,800 shares, $758,604 value); Mr. Robinson (12,100 shares,
$367,132 value); and Mr. Stadler (1,500 shares, $39,660 value).
(5) Represents an award of 15,000 shares of restricted stock on February 19,
1997 which become vested over a five-year period at the rate of 20% per
year. The value is based upon the closing price of the Common Stock on the
date of grant of $35.00 per share.
(6) Represents an award of 9,000 shares of restricted stock on February 16,
1995 which becomes vested over a five-year period at the rate of 20% per
year. The value is based upon the closing price of the Common Stock on the
date of grant of $21.625 per share.
(7) Represents an award of 9,000 shares of restricted stock as of December 15,
1995, which become vested over a five-year period from the date of grant at
the rate of 20% per year. The value is based upon the closing price of the
Common Stock on the date of grant of $27.00 per share.
(8) Represents an award of 2,500 shares of restricted stock as of February 19,
1997, which become vested over a five-year period from the date of grant at
the rate of 20% per year. The value is based upon the closing price of the
Common Stock on the date of grant of $35.00 per share.
(9) Represents an award of 12,000 shares of restricted stock as of May 1, 1996
which become vested over a five-year period from the date of grant at the
rate of 20% per year. The value is based upon the closing price of the
Common Stock on the date of grant of $29.125 per share.
(10) Represents an award of 15,000 shares of restricted stock as of August 14,
1996 of which 2,500 shares vested on January 1, 1997 and 2,500 shares
vested on August 14, 1997. The unvested shares were forfeited upon the
termination of Mr. McCalmont's employment on October 31, 1997. The value is
based upon the closing price of the Common Stock on the date of grant of
$30.50 per share.
(11) Represents an award of 2,500 shares of restricted stock on July 24, 1995
which become vested over a five-year period at the rate of 20% per year.
The value is based upon the closing price of the Common Stock on the date
of grant of $26.44 per share.
(12) Represent shares purchasable pursuant to options granted in 1997. See
"--Option Grants" below.
(13) These amounts represent the Company's contributions to the Company's
employee savings and investment plan in the amount of up to $14,250 to each
executive officer and, in the case of Mr. McCalmont, a moving allowance of
$77,382 paid to Mr. McCalmont in connection with the commencement of his
employment with the Company, $26,733 of which was paid in 1997.
The executive officers receive health and disability insurance
benefits which do not exceed 10% of their respective salaries. These benefits
are also provided to all other employees of the Company.
Option Grants
The following table sets forth information regarding grants of stock
options to FelCor's Named Executive Officers during the 1997 fiscal year. The
options were granted pursuant to either the FelCor's 1994 Restricted Stock and
Stock Option Plan (the "1994 Plan") or the 1995 Restricted Stock and Stock
Option Plan (the "1995 Plan"). No stock appreciation rights ("SARs") were
granted during the 1997 fiscal year.
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<PAGE> 37
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------
% of Total
Number of Options Market Price
Securities Under- Granted to Exercise or on Date
lying Options Employees in Base Price of Grant Expiration
Name Granted(#) Fiscal Year ($/Share) ($/Share) Date
----------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Thomas J. Corcoran, 46,000 6.2% 29.50 35.00 2/19/07
Jr.
30,000 4.0% 35.50 35.00 2/19/07
10,000 1.3% 35.00 35.00 2/19/07
65,000 8.8% 36.63 36.63 6/24/07
50,000 6.7% 37.56 37.56 8/13/07
Hervey A. Feldman 46,000 6.2% 29.50 35.00 2/19/07
30,000 4.0% 35.50 35.00 2/19/07
10,000 1.3% 35.00 35.00 2/19/07
65,000 8.8% 36.63 36.63 6/24/07
Lawrence D. Robinson 10,000 1.3% 35.00 35.00 2/19/07
10,000 1.3% 36.63 36.63 6/24/07
50,000 6.7% 37.56 37.56 8/13/07
William S. McCalmont 10,000 1.3% 35.00 35.00 2/19/07 (1)
10,000 1.3% 36.63 36.63 6/24/07 (1)
William P. Stadler 10,000 1.3% 35.00 35.00 2/19/07
5,000 0.7% 36.63 36.63 6/24/07
10,000 1.3% 37.56 37.56 8/13/07
<CAPTION>
Assumed Annual Rate of Stock
Potential Realizable Value at
Price Appreciation for Option Term
0%($) 5%($) 10%($)
---------- --------- ---------
<S> <C> <C> <C>
Thomas J. Corcoran, 253,000 3,979,520 5,532,925
Jr.
0 2,775,339 3,788,430
0 920,113 1,257,810
0 6,259,267 8,556,521
0 4,937,064 6,749,048
Hervey A. Feldman 253,000 3,979,520 5,532,925
0 2,775,339 3,788,430
0 920,113 1,257,810
0 6,259,267 8,556,521
Lawrence D. Robinson 0 920,113 1,257,810
0 962,964 1,316,388
0 4,937,064 6,749,048
William S. McCalmont 0 0 0
0 0 0
William P. Stadler 0 920,113 1,257,810
0 481,482 658,194
0 987,413 1,349,810
</TABLE>
(1) All of the options awarded to Mr. McCalmont during 1997 expired upon
the termination of his employment on October 31, 1997.
Each of the aforementioned options becomes exercisable over a five
year period, with 20% of the total number of shares covered thereby becoming
exercisable on each of the first five anniversaries of the date of grant, and
expires on the tenth anniversary of the date of grant.
The unexpired stock options to purchase the FelCor's Common Stock held
by named executive officers of FelCor at December 31, 1997 are summarized in the
following table:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1997 December 31, 1997(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas J. Corcoran, Jr. .......................... 150,000 351,000 $1,822,500 $1,946,000
Hervey A. Feldman ................................ 150,000 301,000 1,822,500 1,946,000
Lawrence D. Robinson ............................. 20,000 150,000 127,600 515,400
William S. McCalmont ............................. 18,500 0(2) 92,500 0(2)
William P. Stadler ............................... 10,000 40,000 90,600 140,900
</TABLE>
- ------------------
(1) Based on the difference between the option exercise price and the closing
sales prices for the Common Stock on the New York Stock Exchange for
December 31, 1997, which was $35.50 per share.
(2) Mr. McCalmont's unvested options expired upon the termination of his
employment.
Employment Agreements
FelCor has entered into employment agreements with each of Messrs.
Feldman and Corcoran (each an "Employment Agreement") that will continue in
effect until December 31, 1999 and automatically be renewed for successive one
year terms, unless otherwise terminated. Pursuant to such Employment Agreements,
Mr. Feldman serves as Chairman of the Board, and Mr. Corcoran serves as
President and Chief Executive Officer, of the Company. Each was paid a base
salary of $10,000 per month in 1995, $10,270 in 1996 and in 1997 Mr. Feldman
received $12,500 per month and Mr. Corcoran received $16,667 per month.
Effective January 1, 1998, Mr.
37
<PAGE> 38
Feldman is to receive $12,500 per month and Mr. Corcoran is to receive $20,833
per month. Messrs. Feldman and Corcoran have agreed to devote substantially all
of their time to the business of the Company. The Compensation Committee of the
Board may provide for additional compensation as a bonus should it determine, in
its discretion, based on merit, the Company's anticipated financial performance
and other criteria, that such additional compensation is appropriate. The
Company maintains a comprehensive medical plan for the benefit of Messrs.
Feldman and Corcoran and their dependents.
Savings Plan
FelCor has established an employee savings and investment plan
("Savings Plan") covering substantially all employees, including executive
officers. The Savings Plan is designed to qualify under Section 401 (k) of the
Code. Each participant has the option to defer taxation of a portion of his or
her earnings by directing the Company to contribute a percentage of such
earnings to the Savings Plan. A participant may direct a minimum of 1% and a
maximum of 20% of eligible pre-tax earnings to the Savings Plan, subject to
certain limitations set forth in the Code. Participants may also elect after-tax
contributions to the Savings Plan in an amount not to exceed 10% of his or her
eligible earnings. A participant's contributions become distributable upon the
termination of his or her employment for any reason. The participants are fully
vested at all times in all amounts contributed by them to the Savings Plan.
Restricted Stock and Stock Option Plans
FelCor has adopted the 1994 Restricted Stock and Stock Option Plan
("1994 Plan") and the 1995 Restricted Stock and Stock Option Plan ("1995" Plan
and, together with the 1994 Plan, "Stock Plans"). The Stock Plans were adopted
to provide incentives to attract and retain Independent Directors, executive
officers and key employees. The Stock Plans are administered by the Compensation
Committee or, in the case of grants to Independent Directors, by the Board of
Directors. The Compensation Committee generally has the authority, within
limitations set forth in the Stock Plans, (i) to establish rules and regulations
concerning the Stock Plans, (ii) to determine the persons to whom Options (as
defined below) and Restricted Stock (as defined below) may be granted, (iii) to
fix the number of shares of Common Stock to be covered by each Option and the
number of shares of Restricted Stock granted, and (iv) to set the terms and
provisions of each grant of Options or Restricted Stock to be granted. The
summary of the Stock Plans set forth below is qualified in its entirety by
reference to the text of the Stock Plans.
The Stock Plans provide for the grant of stock options to purchase a
specified number of shares of Common Stock ("Options") or grants of restricted
shares of Common Stock ("Restricted Stock"). Under the 1994 Plan the total
number of shares originally available for grant was equal to 450,000 shares of
Common Stock, of which not more than 50,000 shares were to be grants of
Restricted Stock. Of the shares of Common Stock, originally available under the
1994 Plan, 433,500 shares were designated for grant to the officers and
employees of the Company, of which 33,500 shares could be granted as Restricted
Stock. The remaining 16,500 shares of Common Stock were designated for grant to
Independent Directors, all of which shares could be granted as Restricted Stock.
At March 10, 1998, there were no shares remaining available for the grant of
options to officers and eligible employees of the Company and 2,500 shares
remaining available for grants to independent directors of the Company under the
1994 Plan. Under the 1995 Plan, the total number of shares originally available
for grant was equal to 1,200,000 shares of Common Stock which was subsequently
amended to 1,500,000 shares of Common Stock, of which not more than 133,333
shares could be grants of Restricted Stock. Of the shares of Common Stock
originally available under the amended 1995 Plan, 1,450,000 shares were
designated for grants to the officers and eligible employees of the Company, of
which 83,333 shares could be granted as Restricted Stock. The remaining 50,000
shares of Common Stock were designated for grant to the Independent Directors,
of which 50,000 shares could be granted as Restricted Stock. At March 10, 1998,
there remained available under the 1995 Plan only 65,167 shares available for
grants of options and 17,833 shares available for grants of Restricted Stock to
officers and eligible employees of the Company. All of the 150,000 shares
originally available for grants to independent directors remained available.
Upon the occurrence of certain extraordinary events, the Board of Directors or
the Compensation Committee may make such adjustments in the aggregate number and
kind of shares reserved for issuance, the number of shares and kind covered by
outstanding awards and the exercise prices specified therein as may be
determined to be appropriate.
38
<PAGE> 39
Participants in the Stock Plans, who may be directors, officers or
employees of the Company, its subsidiaries (including the Operating Partnership)
or designated affiliates, are selected by the Compensation Committee.
The Compensation Committee may amend any award theretofore granted,
prospectively or retroactively. No such amendment may impair the rights of any
participant under any award without the consent of such participant (except for
any amendment made to cause the plan to qualify for an exemption provided by
Rule 16b-3 under the Exchange Act).
Options granted under the Stock Plans may be incentive stock options
("ISOs") under Section 422 of the Code or non-qualified options, at the
discretion of the Compensation Committee, provided that no Independent Director
may receive a grant of ISOs. The Stock Plans provide that the exercise price of
an Option will be fixed by the Compensation Committee on the date of grant;
however, the exercise price of an ISO must be not less than the fair market
value of a share of Common Stock on the date of the grant. Any ISOs granted to
such participants also must expire within ten years from the date of adoption of
the Stock Plans. Moreover, Options granted under either Stock Plan will not be
ISOs to an individual participant to the extent that the aggregate fair market
value of the shares of Common Stock with respect to which such Options under the
respective Stock Plan (or under any other plan maintained by the Company or a
subsidiary thereof) first become exercisable by such participant in any year
exceeds $100,000. No Options shall be granted under the 1994 Plan on or after
March 31, 2004, or under the 1995 Plan on or after November 1, 2005.
No Option may be exercised within six months after the date of grant
or in such circumstances where exercise would violate Federal or State
securities laws. Options will be non-transferable and non-assignable; provided,
however, that the estate of a deceased holder can exercise Options. Options
generally will be exercisable by the holder thereof subject to terms fixed by
the Compensation Committee. The right of any participant to exercise an Option
may not be transferred in any way other than by will or the laws of descent and
distribution.
Grants of Restricted Stock under the Stock Plans are subject to the
terms and conditions imposed by the Compensation Committee. Except for such
restrictions on transfer as the Compensation Committee may impose, the
participants have all the rights of a holder of Common Stock as to such
Restricted Stock including the right to vote the shares and the right to receive
any cash distributions. Except as provided by the Compensation Committee at the
time of grant or otherwise, upon a termination of employment for any reason
during the Restriction Period, all unvested shares will be forfeited by the
participant.
The Stock Plans may be terminated and may be modified or amended by
the Board of Directors at any time; however, (i) any modification or amendment
either increasing the aggregate number of shares which may be issued under
Options, increasing materially the benefits accruing to participants under the
Stock Plans or materially modifying the requirements as to eligibility to
receive Options is subject to shareholder approval within one year of the
adoption of such amendment; and (ii) no such termination, modification or
amendment of the Stock Plans will alter or affect the terms of any then
outstanding Options or Restricted Stock without the consent of the holders
thereof.
COMPENSATION FOR DIRECTORS
In lieu of cash compensation, on March 5, 1998, FelCor granted to each
of the Independent Directors, except Mr. Ledsinger, 1,500 shares of Restricted
Stock under the 1994 Plan or 1995 Plan for serving as a director of FelCor
during 1997. Mr. Ledsinger was granted 375 shares of restricted stock from the
1995 Plan, reflecting the partial year he served as an Independent Director.
FelCor intends to provide a similar grant to each Independent Director in lieu
of cash compensation for service during 1998. None of the other directors
received any compensation for their service as directors of FelCor during 1997
and 1996. FelCor reimburses directors for their out-of-pocket expenses incurred
in connection with their service on the Board of Directors.
39
<PAGE> 40
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ON
COMPENSATION DECISIONS
During 1997, FelCor's Compensation Committee of the Board of Directors
consisted of Donald J. McNamara (from January 1, 1997 through the date of his
resignation at September 30, 1997), Charles A. Ledsinger (from his appointment
as an Independent Director at October 1, 1997 through December 31, 1997),
Richard S. Ellwood, Richard O. Jacobson and Thomas A. McChristy, constituting
all of the Independent Directors, none of whom was, prior to or during 1997, an
officer or employee of the Company. None of such persons had any relationships
requiring disclosure under applicable rules and regulations. The Company did not
have a policy during 1997 prohibiting its executive officers from participating
in deliberations of the Compensation Committee regarding executive compensation.
Consequently, Mr. Corcoran, who is the President, Chief Executive Officer and a
director of the Company, and Mr. Robinson, as Secretary of the Company, were
present during certain deliberations of the Compensation Committee regarding
executive compensation during 1997, to provide information to, and to record the
actions of, the Compensation Committee.
See "Item 13. Certain Relationships and Related Transactions" herein
for information regarding the interests of Mr. Corcoran and Mr. Ellwood in
certain transactions with the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth information, as of March 10, 1998,
regarding each person known to the Operating Partnership to be the beneficial
owner of more than five percent (5%) of its Units. Unless otherwise indicated,
such Units are owned directly and the indicated person has sole voting and
investment power with respect thereto.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------- ---------- ----------
<S> <C> <C>
FelCor Suite Hotels, Inc. ........................ 36,591,080 92.4%
545 E. John Carpenter Freeway, Suite 1300
Irving, Texas 75062
</TABLE>
- -----------------
(1) Based upon 39,622,099 Units outstanding as of March 10, 1998.
Security Ownership of Management
The following table sets forth the beneficial ownership of the
Operating Partnership's Units as of March 10, 1998, by (i) each director and
director nominee, (ii) each Named Executive Officer and (iii) all directors and
executive officers as a group. Unless otherwise indicated, such Units and Series
A Preferred Stock are owned directly and the indicated person has sole voting
and investment power.
40
<PAGE> 41
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF OWNERSHIP OF
BENEFICIAL OWNER OF UNITS CLASS(1)
---------------- ---------- --------
<S> <C> <C>
Hervey A. Feldman ...................... 297,240(2) *
Thomas J. Corcoran, Jr. ................ 297,240(2) *
Richard S. Ellwood ..................... 0 0
Richard O. Jacobson .................... 0 0
Charles A. Ledsinger, Jr. .............. 0 0
Charles N. Mathewson ................... 609,777(3) 1.5%
Thomas A. McChristy .................... 0 0
Lawrence D. Robinson ................... 0 0
William S. McCalmont ................... 0 0
William P. Stadler ..................... 0 0
All executive officers and
directors as a group (11 persons) ...... 907,017 2.3%
</TABLE>
- ------------------
* Represents less than 1% of the outstanding Units of such class
(1) Based upon 39,622,099 Units outstanding as of March 10, 1998.
(2) Includes 294,915 Units held by FelCor, Inc. Messrs. Feldman and Corcoran
are the sole shareholders and directors of FelCor, Inc. and each may be
deemed to own beneficially all of the Units owned by FelCor, Inc.
(3) Includes 540,009 Units issuable to or for the benefit of Mr. Mathewson,
which represents Mr. Mathewson's pro rata interest in Units issued in
connection with the IPO to partnerships in which Mr. Mathewson is a limited
partner. Also includes 69,768 units issuable upon conversion of 90,000
shares of Series A Preferred Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Operating Partnership have entered into a number
of transactions with the Lessee and certain other affiliates. Mr. Feldman and
Mr. Corcoran, who are officers and directors of the Company, control and are
also officers and directors of the Lessee.
The Percentage Leases
The Company and the Lessee have entered into the Percentage Leases,
each with a term of ten years, relating to each hotel owned by the Company. The
Company anticipates that similar Percentage Leases will be executed with respect
to any additional hotel properties acquired by it in the future. Pursuant to the
terms of the Percentage Leases, the Lessee is required to pay the greater of
Base Rent or Percentage Rent and certain other additional charges, and is
entitled to all profits from the operation of the hotels after the payment of
operating, management and other expenses. The terms of the Percentage Leases
were not negotiated on an arms-length basis and, accordingly, may not reflect
fair market values or terms. management of the Company believes, however, that
the terms of such agreements are fair to the Company, and when entered into,
were upon terms as favorable to the Company as could then be obtained from a
financially responsible unrelated third party. Lease rent paid by the Lessee
under the Percentage Leases totaled approximately $217.0 million for the year
ended December 31, 1997. The Lessee is a Delaware limited liability company, all
of the voting Class A membership interest in which (representing a 50% equity
interest) is beneficially owned one half by Mr. Feldman and one half by Mr.
Corcoran. All of the non-voting Class B membership interest in the Lessee
(representing the remaining 50% equity interest) is owned by RGC Leasing, Inc.,
a Nevada corporation owned by the children of Charles N. Mathewson.
Employment Agreements
FelCor has entered into the Employment Agreements with each of Messrs.
Feldman and Corcoran that will continue in effect until December 31, 1999 and
automatically be renewed for successive one year terms, unless otherwise
terminated. Pursuant to such Employment Agreements, Mr. Feldman serves as
Chairman of the Board, and Mr. Corcoran serves as President and Chief Executive
Officer, of FelCor. Each was paid a base salary of
41
<PAGE> 42
$10,000 per month in 1995 and $10,270 in 1996 and in 1997 Mr. Feldman received
$12,500 per month and Mr. Corcoran received $16,667 per month. Effective January
1, 1998, Mr. Corcoran is to receive $20,833 per month and Mr. Feldman is to
receive $12,500 per month. The Compensation Committee of the Board may provide
for additional compensation as a bonus should it determine, in its discretion,
based on merit, the Company's anticipated financial performance and other
criteria, that such additional compensation is appropriate. The Company
maintains a comprehensive medical plan for the benefit of Messrs. Feldman and
Corcoran and their dependents.
Sharing of Offices and Employees
The Company shares the executive offices and certain employees with
FelCor, Inc. and the Lessee, and each company bears its share of the costs
thereof, including an allocated portion of the rent, salaries of certain
personnel (other than Messrs. Feldman and Corcoran, whose salaries are borne
solely by the Company), office supplies, telephones and depreciation of office
furniture, fixtures and equipment. Any such allocation of shared expenses to the
Company must be approved by a majority of the Independent Directors. During
1997, the Company paid approximately $1.3 million (approximately 38%) of the
allocable expenses under this arrangement.
Compensation of Director for Special Services
In connection with the Company's acquisition, in February 1997, of
interests in 10 hotels at an aggregate cost of approximately $139 million
(including the Company's share of certain assumed indebtedness), Mr. Richard S.
Ellwood, an Independent Director of FelCor, was paid a one-time fee in the
amount of $200,000 for his services in facilitating this transaction.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included herein at pages F-1 through F-27.
2. Financial Statement Schedules
The following financial statement schedule is included herein at page
F-26
Schedule III - Real Estate and Accumulated Depreciation for FelCor
Suites Limited Partnership
All other schedules for which provision is made in Regulation S-X are
either not required to be included herein under the related instructions or are
inapplicable or the related information is included in the footnotes to the
applicable financial statement and, therefore, have been omitted.
3. Exhibits
The following exhibits are filed as part of this Annual Report on Form
10-K:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 - Certificate of Limited Partnership of the Operating
Partnership dated May 20, 1994, as filed with the Secretary of
State of Delaware (filed as Exhibit 3.1 to the Operating
Partnership's registration statement on Form S-4 (File No.
333-39595) (the "1997 S-4 Registration Statement") and
incorporated herein by reference).
3.2 - Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (filed as Exhibit 10.1 to FelCor's Annual
Report on Form 10-K/A Amendment No. 1 for the fiscal year ended
December 31, 1994 (the "1994 10-K/A") and incorporated herein by
reference).
42
<PAGE> 43
3.2.1 - First Amendment to Amended and Restated Agreement of
Limited Partnership of the Operating Partnership dated as of
November 17, 1995 by and among FelCor, Promus Hotels, Inc. and
all of the persons or entities who are or shall in the future
become limited partners of the Operating Partnership (filed as
Exhibit 10.1.1 to FelCor's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1995 (the "1995
10-K") and incorporated herein by reference).
3.2.2 - Second Amendment to Amended and Restated Agreement of
Limited Partnership of the Operating Partnership dated as of
January 9, 1996 between FelCor and all of the persons or entities
who are or shall in the future become limited partners of the
Operating Partnership (filed as Exhibit 10.1.2 to the 1995 10-K
and incorporated herein by reference).
3.2.3 - Third Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of January 10,
1996 by and among FelCor, MarRay-LexGreen, Inc. and all of the
persons and entities who are or shall in the future become
limited partners of the Operating Partnership (filed as Exhibit
10.1.3 to the 1995 10-K and incorporated herein by reference).
3.2.4 - Fourth Amendment to the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership dated as of
January 10, 1996 by and among FelCor, Piscataway-Centennial
Associates Limited Partnership and all of the persons or entities
who are or shall in the future become limited partners of the
Operating Partnership (filed as Exhibit 10.1.4 to the 1995 10-K
and incorporated herein by reference).
3.2.5 - Fifth Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of May 2, 1996,
between FelCor and all of the persons or entities who are or
shall in the future become limited partners of the Operating
Partnership, adopting Addendum No. 2 to Amended and Restated
Agreement of Limited Partnership of the Operating Partnership
dated as of May 2, 1996 (filed as Exhibit 10.1.5 to FelCor's Form
10-Q for the quarter ended June 30, 1996 (the "1996 Second
Quarter 10-Q") and incorporated herein by reference).
3.2.6 - Sixth Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of September
16, 1996, by and among FelCor, John B. Urbahns, II and all of the
persons or entities who are or shall in the future become limited
partners of the Operating Partnership (filed as Exhibit 10.1.6 to
FelCor's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 10-K") and incorporated herein by
reference).
3.2.7 - Seventh Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of May 16,
1997, by and among the Registrant, PMB Associates, Ltd. and all
of the persons or entities who are or shall in the future become
limited partners of the Operating Partnership (filed as Exhibit
10.1.7 to FelCor's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and incorporated herein by reference).
3.2.8 - Eighth Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of February 6,
1998, by and among the Registrant, Columbus/Front Ltd. and all of
the persons or entities who are or shall in the future become
limited partners of the Operating Partnership (filed as Exhibit
10.1.8 to FelCor's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and incorporated herein by reference).
43
<PAGE> 44
4.1 - Indenture dated as of October 1, 1997 by and among the Operating
Partnership, FelCor, the Subsidiary Guarantors named therein and
SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1
to the 1997 S-4 Registration Statement and incorporated herein by
reference).
10.2.1 - Form of Lease Agreement between the Operating Partnership as
Lessor and DJONT Operations, L.L.C. ("DJONT") as Lessee (filed as
Exhibit 10.2.1 to FelCor's 1995 10-K and incorporated herein by
reference).
10.2.2 - Schedule of executed Lease Agreements identifying material
variations from the form of Lease Agreement with respect to
hotels acquired by the Operating Partnership through December 31,
1997 (filed as Exhibit 10.2.2 to FelCor's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference).
10.3 - Amended and Restated Loan Agreement dated as of September 26,
1996, among FelCor and the Operating Partnership, as Borrowers,
Boatmen's National Bank of Oklahoma, as Agent and Lender, and
First Tennessee Bank National Association, Liberty Bank and Trust
Company of Tulsa, National Association, Bank One, Texas, N.A.,
First National Bank of Commerce, and AmSouth Bank of Alabama, as
Lenders (filed as Exhibit 10.3.4 to FelCor's Form 10-Q for the
quarter ended September 30, 1996 (the "1996 Third Quarter 10-Q")
and incorporated herein by reference).
10.5 - Employment Agreement dated as of July 28, 1994 between FelCor
and Hervey A. Feldman (filed as Exhibit 10.7 to FelCor's 1994
10-K/A and incorporated herein by reference).
10.6 - Employment Agreement dated as of July 28, 1994 between FelCor
and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to FelCor's
1994 10-K/A and incorporated herein by reference).
10.7.1 - Restricted Stock and Stock Option Plan of FelCor (filed as
Exhibit 10.9 to FelCor's 1994 10-K/A and incorporated herein by
reference).
10.7.2 - 1995 Restricted Stock and Stock Option Plan of Felcor filed as
Exhibit 10.9.2 to FelCor's 1995 10-K and incorporated herein by
reference).
10.8. - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to
FelCor's 1994 10-K/A and incorporated herein by reference).
10.9 - Registration Rights Agreement dated as of July 21, 1994 between
FelCor and the parties named therein (filed as Exhibit 10.11 to
FelCor's 1994 10-K/A and incorporated herein by reference).
10.10 - Agreement dated as of April 15, 1995 among FelCor, the Operating
Partnership, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A.
Feldman relating to purchase of securities (filed as Exhibit
10.15 to FelCor's Registration Statement on Form S-11 (File No.
33-91870) (the "May 1995 Registration Statement") and
incorporated herein by reference).
10.11 - Registration Rights Agreement dated as of November 17, 1995
between the FelCor and Cleveland Finance Associates Limited
Partnership (filed as Exhibit 10.27 to FelCor's 1995 10-K and
incorporated herein by reference).
10.12 - Registration Rights Agreement dated as of January 3,
1996 between FelCor and Robert E. Woolley and Charles M. Sweeney
(filed as Exhibit 10.28 to FelCor's 1995 10-K and incorporated
herein by reference).
10.13 - Credit Agreement dated as of February 6, 1996 by and among the
Operating Partnership, as borrower, Holdings and FelCor, as
guarantors, and Canadian Imperial Bank of Commerce, as agent
(filed as Exhibit 10.30 to FelCor's 1996 Form 8-K and
incorporated herein by reference).
10.14 - Contract for Purchase and Sale of Hotels dated as of June 5, 1997
by and among ITT Sheraton Corporation, Sheraton Savannah Corp.,
Sheraton Peachtree Corp., Sheraton Crescent Corp., Sheraton
Dallas, Corp., Sheraton Gateway Suites O'Hare Investment
Partnership, and the Operating Partnership (filed as Exhibit
10.24 to the FelCor's Current Report on Form 8-K dated June 4,
1997 and incorporated herein by reference).
10.15 - Third Amended and Restated Revolving Credit Agreement dated as of
August 14, 1997 among FelCor and the Operating Partnership, as
Borrower, the Lenders party thereto, The Chase Manhattan Bank, as
Administrative Agent, and Wells Fargo Bank, National Association,
as Documentation Agent (filed as Exhibit 10.23 to the 1997 S-4
Registration Statement and incorporated herein by reference).
10.16 - Registration Rights Agreement dated as of September 26, 1997
among the General Partner, the Operating Partnership, Morgan
Stanley & Co. Incorporated, NationsBank Capital Markets, Inc. and
Salomon Brothers Inc (filed as Exhibit 10.25 to the 1997 S-4
Registration Statement and incorporated herein by reference).
21.1 - List of Subsidiaries of the Registrant.
23.1 - Consent of Coopers & Lybrand L.L.P.
27.1 - Financial Data Schedule.
(b) Reports on Form 8-K:
None
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FELCOR SUITES LIMITED PARTNERSHIP
a Delaware limited partnership
By: FelCor Suite Hotels, Inc.
Its General Partner
By: /s/ Randall L. Churchey
--------------------------------
Randall L. Churchey
Senior Vice President, Chief Financial
Officer & Treasurer
Date: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date Signature
---- ---------
<S> <C>
March 17, 1998 /s/ Hervey A. Feldman
-----------------------------
Hervey A. Feldman
Chairman of the Board and Director
March 17, 1998 /s/ Thomas J. Corcoran, Jr.
-----------------------------
Thomas J. Corcoran, Jr
President and Director
(Chief Executive Officer)
March 17, 1998 /s/ Randall L. Churchey
-----------------------------
Randall L. Churchey
Senior Vice President
(Chief Financial Officer)
March 17, 1998 /s/ Lester C. Johnson
-----------------------------
Lester C. Johnson
Vice President and Controller
(Principal Accounting Officer)
March 17, 1998 /s/ Richard S. Ellwood
-----------------------------
Richard S. Ellwood
Director
March 17, 1998 /s/ Richard O. Jacobson
-----------------------------
Richard O. Jacobson
Director
March 17, 1998 /s/ Charles A. Ledsinger, Jr.
-----------------------------
Charles A. Ledsinger, Jr
Director
March 19, 1998 /s/ Charles N. Mathewson
-----------------------------
Charles N. Mathewson
Director
March 17, 1998 /s/ Thomas A. McChristy
-----------------------------
Thomas A. McChristy
Director
</TABLE>
45
<PAGE> 46
FELCOR SUITES LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
PART I - FINANCIAL INFORMATION
FELCOR SUITES LIMITED PARTNERSHIP
<TABLE>
<S> <C>
Report of Independent Accountants .................................................................. F-2
Consolidated Balance Sheets - December 31, 1997 and 1996 ........................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 ......... F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1997, 1996 and 1995 .. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ......... F-6
Notes to Consolidated Financial Statements ......................................................... F-7
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997 .................... F-26
</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Suite Hotels, Inc.
We have audited the accompanying consolidated financial statements and
the financial statement schedule of FelCor Suites Limited Partnership listed in
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of FelCor Suite Hotels, Inc.'s (the "Company")
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FelCor Suites Limited Partnership as of December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years then ended in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 20, 1998
except for Note 13 as to which
the date is February 17, 1998
F-2
<PAGE> 48
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---------- ----------
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of
$87,400 in 1997 and $36,718 in 1996 .................................... $1,489,764 $ 899,691
Investment in unconsolidated entities ..................................... 132,991 59,867
Cash and cash equivalents ................................................. 17,543 7,793
Due from Lessee ........................................................... 18,908 5,526
Deferred expenses, net of accumulated amortization of
$1,987 in 1997 and $364 in 1996 ....................................... 10,593 3,235
Other assets .............................................................. 3,565 2,676
---------- ----------
Total assets ......................................................... $1,673,364 $ 978,788
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt, net of discount of $1,855 at December 31, 1997 ...................... $ 465,726 $ 226,550
Distributions payable ..................................................... 24,671 16,090
Accrued expenses and other liabilities .................................... 11,331 5,235
Capital lease obligations ................................................. 11,093 12,875
Minority interest in other partnerships ................................... 8,594
---------- ----------
Total liabilities .................................................... 521,415 260,750
Commitments and contingencies (Notes 5 and 8)
Redeemable units, at redemption value ..................................... 102,933 98,542
Preferred units ........................................................... 151,250 151,250
Partners' capital ......................................................... 897,766 468,246
---------- ----------
Total liabilities and partners' capital .............................. $1,673,364 $ 978,788
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE> 49
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
(in thousands, except per unit data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue ........................................ $ 169,114 $ 97,950 $ 23,787
Equity in income from unconsolidated entities ................... 6,963 2,010 513
Other revenue ................................................... 574 984 1,691
--------- --------- ---------
Total revenues ..................................... 176,651 100,944 25,991
--------- --------- ---------
Expenses:
General and administrative ...................................... 3,743 1,819 870
Depreciation .................................................... 50,798 26,544 5,232
Taxes, insurance and other ...................................... 23,093 13,897 2,563
Interest expense ................................................ 28,792 9,803 2,004
Minority interest in other partnerships ......................... 573
--------- --------- ---------
Total expenses ..................................... 106,999 52,063 10,669
--------- --------- ---------
Income before extraordinary charge ................................... 69,652 48,881 15,322
Extraordinary charge from write off of deferred financing fees ....... 185 2,354
--------- --------- ---------
Net income ........................................................... 69,467 46,527 15,322
Preferred distributions .............................................. 11,797 7,734
--------- --------- ---------
Net income applicable to unitholders ................................. $ 57,670 $ 38,793 $ 15,322
========= ========= =========
Per unit data:
Basic:
Net income applicable to unitholders
before extraordinary charge ................................ $ 1.70 $ 1.59 $ 1.72
Extraordinary charge ............................................ (0.01) (0.09)
--------- --------- ---------
Net income applicable to unitholders ............................ $ 1.69 $ 1.50 $ 1.72
========= ========= =========
Weighted average number of units outstanding .................... 34,126 25,809 8,927
========= ========= =========
Diluted:
Net income applicable to unitholders
before extraordinary charge ................................ $ 1.68 $ 1.58 $ 1.70
Extraordinary charge ............................................ (0.01) (0.09)
--------- --------- ---------
Net income applicable to unitholders ............................ $ 1.67 $ 1.49 $ 1.70
========= ========= =========
Weighted average number of units outstanding .................... 34,467 26,004 8,989
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 50
FELCOR SUITES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<S> <C>
Balance, December 31, 1994 ............. $ 61,885
Contributions .......................... 402,554
Distributions .......................... (17,593)
Allocations to redeemable units ........ (16,735)
Net income ............................. 15,322
---------
Balance, December 31, 1995 ............. 445,433
Contributions .......................... 44,483
Distributions .......................... (57,892)
Allocations to redeemable units ........ (10,304)
Net income ............................. 46,527
---------
Balance, December 31, 1996 ............. 468,246
Contributions .......................... 449,604
Distributions .......................... (90,261)
Allocations from redeemable units ...... 710
Net income ............................. 69,467
---------
Balance, December 31, 1997 ............. $ 897,766
=========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE> 51
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 69,467 $ 46,527 $ 15,322
Adjustments to reconcile net income to net cash provided
by operating activities, net of effects of acquisitions:
Depreciation .................................................... 50,798 26,544 5,232
Amortization of deferred financing fees and organization costs... 1,468 554 228
Amortization of unearned officers' and directors' compensation... 1,017 506 158
Equity in income from unconsolidated entities ................... (6,963) (2,010) (513)
Extraordinary charge for write off of deferred financing fees.... 185 2,354
Fully vested officer stock grant ................................ 108
Minority interest in other partnerships ......................... 573
Changes in assets and liabilities:
Due from Lessee ................................................. (13,382) (3,130) (1,137)
Deferred financing fees ......................................... (8,825) (4,484) (1,072)
Deferred costs and other assets ................................. (1,175) 353 (2,064)
Accrued expenses and other liabilities .......................... 4,315 280 741
--------- --------- ---------
Net cash flow provided by operating activities ........ 97,478 67,494 17,003
--------- --------- ---------
Cash flows from investing activities:
Acquisition of hotels ........................................... (574,100) (365,907) (219,164)
Prepayments under purchase agreements ........................... (21,701)
Acquisition of unconsolidated entities .......................... (65,271) (43,424) (13,166)
Improvements and additions to hotels ............................ (52,700) (71,051) (5,166)
Cash distributions from unconsolidated entities ............... 4,211 1,954
--------- --------- ---------
Net cash flow used in investing activities .......... (687,860) (478,428) (259,197)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings ........................................ 679,144 303,350 128,600
Repayment of borrowings ......................................... (445,900) (193,954) (129,850)
Contributions ................................................... 448,586 37,980 423,628
Proceeds from sale of preferred units ........................... 151,250
Distributions paid to unitholders ............................... (69,901) (41,936) (14,481)
Dividends paid to preferred unitholders ......................... (11,797) (4,784)
--------- --------- ---------
Net cash flow provided by financing activities ....... 600,132 251,906 407,897
--------- --------- ---------
Net change in cash and cash equivalents ................................. 9,750 (159,028) 165,703
Cash and cash equivalents at beginning of years ......................... 7,793 166,821 1,118
--------- --------- ---------
Cash and cash equivalents at end of years ............................... $ 17,543 $ 7,793 $ 166,821
========= ========= =========
Supplemental cash flow information - interest paid ...................... $ 21,414 $ 9,168 $ 1,467
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE> 52
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Suites Limited Partnership (the "Operating Partnership") and its
subsidiaries at December 31, 1997, owned interests in 73 hotels with an
aggregate of 17,933 suite/rooms in 27 states (collectively the "Hotels"). The
sole general partner of the Operating Partnership is FelCor Suite Hotels, Inc.
("FelCor"), a self-administered equity real estate investment trust ("REIT")
that at December 31, 1997 owned a 92.7% general partner interest in the
Operating Partnership. Fifty-two of the Hotels are operated as Embassy Suites(R)
hotels (of which 28 were converted from other brands), 13 are operated as
Doubletree Guest Suites(R) hotels, seven are operated as Sheraton(R) hotels
(five of which are upscale, full-service traditional non-suite hotels) and one
is operated as a Hilton Suites(R) hotel. Sixty-three of the Hotels are managed
by subsidiaries of Promus Hotel Corporation ("Promus") which, following its
recent merger with Doubletree Corporation, includes Doubletree Hotel Corporation
and its subsidiaries ("Doubletree"). Promus is the largest operator of
all-suite, full-service hotels in the United States. Of the remaining Hotels,
seven are managed by a subsidiary of ITT Sheraton Corporation ("Sheraton") and
three are managed by independent management companies. At December 31, 1997, the
Operating Partnership was the owner of the largest number of Embassy Suites
hotels in the world. The following table provides certain information regarding
the Hotels acquired through December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF HOTELS NUMBER OF
ACQUIRED SUITES/ROOMS
---------------- ------------
<S> <C> <C>
1994 7 1,730
1995 13 2,649
1996 23 5,769
1997
1st Quarter 15 3,446
2nd Quarter 9 2,715
3rd Quarter 4 1,000
4th Quarter 2 447
------ ------
73 17,756
======
Additional suites constructed 177
------
17,933
======
</TABLE>
The Operating Partnership leases all of the Hotels to DJONT Operations,
L.L.C. or a consolidated subsidiary thereof (collectively the "Lessee") under
operating leases providing for the payment of percentage rent (the "Percentage
Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the
Board of Directors and Chief Executive Officer of FelCor, respectively,
beneficially own a 50% voting equity interest in the Lessee. The remaining 50%
non-voting equity interest is beneficially owned by the children of Charles N.
Mathewson, a director of and major initial investor in the Operating
Partnership. The Lessee has entered into management agreements pursuant to
which, at December 31, 1997, 63 of the Hotels were managed by subsidiaries of
Promus Hotel Corporation ("Promus"), seven of the Hotels are managed by
subsidiaries of ITT Sheraton Corporation ("Sheraton"), and three of the Hotels
are managed by two independent management companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Operating Partnership and its majority owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-7
<PAGE> 53
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Fair Value of Financial Instruments -- Statement of Financial
Accounting Standards ("SFAS") 107 requires all entities to disclose the fair
value of certain financial instruments in their financial statements.
Accordingly, The Operating Partnership reports the carrying amount of cash and
cash equivalents, amounts due from the Lessee, accounts payable and accrued
expenses at cost which approximates fair value due to the short maturity of
these instruments. The carrying amount of The Operating Partnership's borrowings
approximates fair value due to the Operating Partnership's ability to obtain
such borrowings at comparable interest rates.
Investment in Hotels -- Hotels are stated at cost and are depreciated
using the straight-line method over estimated useful lives ranging from 31-40
years for buildings and improvements and 5 to 7 years for furniture, fixtures
and equipment.
The Operating Partnership periodically reviews the carrying value of
each Hotel to determine if circumstances exist indicating an impairment in the
carrying value of the investment in the hotel or that depreciation periods
should be modified. If facts or circumstances support the possibility of
impairment, the Operating Partnership will prepare a projection of the
undiscounted future cash flows, without interest charges, of the specific hotel
and determine if the investment in such hotel is recoverable based on the
undiscounted future cash flows. If impairment is indicated, an adjustment will
be made to the carrying value of the hotel based on discounted future cash
flows. The Operating Partnership does not believe that there are any factors or
circumstances indicating impairment of any of its investment in Hotels.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the related gain or loss is included in operations.
Investment in Unconsolidated Entities --The Operating Partnership owns
a 50% interest in various partnerships or limited liability companies in which
the partners jointly make all material decisions concerning the business affairs
and operations. Accordingly, the Operating Partnership does not control the
entities and carries its investment in unconsolidated entities at cost, plus its
equity in net earnings, less distributions received since the date of
acquisition. Equity in net earnings is being adjusted for the straight-line
amortization, over a 40 year period, of the difference between the Operating
Partnership's cost and its proportionate share of the underlying net assets at
date of acquisition.
Cash and Cash Equivalents -- All highly liquid investments with a
maturity of three months or less when purchased are considered to be cash
equivalents.
Deferred Expenses -- Deferred expenses are recorded at cost and consist
of the following at December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Organization costs......... $ 349 $ 349
Deferred financing fees.... 12,231 3,250
-------- --------
12,580 3,599
Accumulated amortization... (1,987) (364)
-------- --------
$ 10,593 $ 3,235
======== ========
</TABLE>
Amortization of organization costs is computed using the straight-line
method over three to five years. Amortization of deferred financing fees is
computed using the interest method over the maturity of the notes.
Revenue Recognition -- Percentage lease revenue is recognized when
earned from the Lessee under the Percentage Lease agreements. The Lessee is in
compliance with its obligations under the Percentage Leases.
F-8
<PAGE> 54
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Net Income Per Unit -- The Operating Partnership adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" in the fourth
quarter of 1997, which established new standards for computing and presenting
earnings per unit and requires restatement of prior years' comparative amounts.
Basic earnings per unit have been computed by dividing net income by the
weighted average number of units outstanding.
Diluted earnings per unit have been computed by dividing net income by
the weighted average number of units and equivalents outstanding. Unit
equivalents represent units issuable upon assumed exercise of stock options.
Net income applicable to unitholders before extraordinary charges for
both basic earnings per unit and diluted earnings per unit includes a deduction
for preferred distributions of $11.8 million and $7.7 million for the years
ended December 31, 1997 and 1996 respectively. Weighted average number of units
outstanding used in the computation of diluted earnings per unit includes the
dilutive effect of employee stock options and unvested officer restricted stock
grants of 341 thousand, 195 thousand and 62 thousand units at December 31, 1997,
1996 and 1995 respectively.
At December 31, 1997 and 1996 the Operating Partnership's convertible
preferred units if converted to common shares would be anti-dilutive,
accordingly the convertible preferred units are not assumed to be converted in
the computation of diluted earnings per unit.
Distributions and Dividends -- The Operating Partnership pays regular
quarterly distributions on its units. Additionally, the Operating Partnership
pays regular quarterly distribution on preferred units in accordance with its
distribution requirements.
Income Taxes -- No provision for income taxes is provided since all
taxable income or loss or tax credits are passed through to the partners.
FelCor qualifies as a real estate investment trust ("REIT") and
generally will not be subject to federal income tax to the extent it distributes
its REIT taxable income to shareholders. REITs are subject to a number of
organizational and operational requirements. If FelCor fails to qualify as a
REIT in any taxable year, FelCor will be subject to federal income tax on its
taxable income at regular corporate rates.
3. INVESTMENT IN HOTELS
Investment in hotels at December 31, 1997 and 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land ................................ $ 157,554 $ 89,106
Building and improvements ........... 1,257,247 744,758
Furniture, fixtures and equipment ... 147,923 77,526
Construction in progress ............ 14,440 25,019
----------- -----------
1,577,164 936,409
Accumulated depreciation ............ (87,400) (36,718)
----------- -----------
$ 1,489,764 $ 899,691
=========== ===========
</TABLE>
F-9
<PAGE> 55
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT IN UNCONSOLIDATED ENTITIES
The Operating Partnership owned 50% interests in separate partnerships
or limited liability companies owning fourteen hotels, a parcel of undeveloped
land and a condominium management company at December 31, 1997, five hotels, a
parcel of undeveloped land and a condominium management company at December 31,
1996 and one hotel at December 31, 1995. The Operating Partnership is accounting
for its investments in these unconsolidated entities under the equity method.
Summarized combined financial information for 100% of these unconsolidated
entities is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels ......... $256,032 $110,394
Non-recourse mortgage debt ... $138,956 $ 49,402
Equity ....................... $126,324 $ 91,156
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Statement of operations information:
Percentage lease revenue .......... $47,720 $ 9,974 $ 1,420
Net income ....................... $17,044 $ 4,366 $ 1,050
</TABLE>
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt at December 31, 1997 and 1996 consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Senior unsecured notes, net of discount ... $298,145
Line of Credit ............................ 136,000 $115,000
Term loan ................................. 85,000
Renovation loan ........................... 25,000 25,000
Collateralized mortgage note .............. 5,931
Other ..................................... 650 1,550
-------- --------
$465,726 $226,550
</TABLE>
On October 1, 1997 the Operating Partnership completed the private
placement of $300 million in aggregate principal amount of its long term senior
unsecured notes. The notes were issued in two maturities, consisting of $175
million of 7 3/8% senior notes due 2004 priced at 99.489% to yield 7.47% and
$125 million of 7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%.
The discount on the $300 million senior notes accrete using the interest method
over the maturity of the notes.
The Operating Partnership has an unsecured line of credit facility
("Line of Credit") of up to $550 million which matures on October 1, 2000.
Interest payable on borrowings under the Line of Credit is variable, determined
from a ratings and leverage-based pricing matrix, and is currently set at LIBOR
(5.71875% at December 31, 1997) plus 140 basis points. Additionally, the
Operating Partnership is required to pay an unused commitment fee which is
variable, determined from a ratings based pricing matrix, currently set at 20
basis points. The Operating Partnership paid unused commitment fees of
approximately $560,000 and $164,000 during 1997 and 1996, respectively. For the
years ended December 31, 1997 and 1996, the Operating Partnership paid interest
on its Line of Credit at the weighted average interest rate of 7.6% and
F-10
<PAGE> 56
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
7.4%, respectively. Up to 10% of the amount available under the Line of Credit
may be used for general corporate or working capital purposes. The total amount
available under the Line of Credit is limited to 50% of the aggregate value of
the Operating Partnership's eligible hotels, which generally includes hotels
that are unencumbered. At December 31, 1997, the aggregate amount borrowed under
the Line of Credit was $136 million. Assuming the Operating Partnership
purchases qualifying hotel assets, it would have up to an additional $414
million available under the existing Line of Credit. The agreements governing
the Line of Credit also contain various negative and affirmative covenants,
including limitations on total indebtedness, total secured indebtedness and cash
distributions, as well as obligations to maintain a certain minimum tangible net
worth and certain interest and debt service coverage ratios. At December 31,
1997, the Operating Partnership was in compliance with all such covenants.
The Operating Partnership has a $25 million loan facility ("Renovation
Loan") which is guaranteed by Promus, bears interest at LIBOR plus 45 basis
points, requires monthly interest payments, and quarterly principal payments of
$1.25 million beginning June 1999 and matures in June 2000. The weighted average
interest rate for 1997 and 1996 was 6.4% and 6.1%, respectively.
On December 4, 1997, the Operating Partnership assumed an existing
collateralized mortgage note when it acquired the Dayton, Ohio Doubletree Guest
Suites hotel. The mortgage note bears interest at 10.22 % per annum, requires
monthly installment payments and matures on March 31, 2003. The outstanding
principal balance at December 31, 1997 was approximately $5.9 million. The note
prohibits any prepayment of the outstanding principal before May 1, 1998 upon
which there is a prepayment penalty fee of at least 1% of the then outstanding
principal balance.
Under its loan agreements, the Operating Partnership is required to
satisfy various affirmative and negative covenants. The Operating Partnership
was in compliance with these covenants at December 31, 1997.
Future scheduled principal payments on debt at December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1998 ................................... $ 116
1999 ................................... 3,879
2000 ................................... 157,393
2001 ................................... 158
2002 ................................... 175
2003 and thereafter .................... 305,860
---------
467,581
Discount accretion over term ........... (1,855)
---------
$ 465,726
=========
</TABLE>
To manage the relative mix of its debt between fixed and variable rate
instruments, the Operating Partnership has entered into two separate interest
rate swap agreements. These interest rate swap agreements modify a portion of
the interest characteristics of the Operating Partnership's outstanding debt
without an exchange of the underlying principal amount and effectively convert
variable rate debt to a fixed rate. The fixed rates to be paid, the effective
fixed rate, and the variable rate to be received by the Operating Partnership at
December 31, 1997 are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/97 MATURITY
- --------------- ------------ ---------- ------------- --------
<S> <C> <C> <C> <C>
$50 million 6.11125% 7.51125% 5.78125% October 1999
$25 million 5.95500% 7.35500% 5.75000% November 1999
</TABLE>
F-11
<PAGE> 57
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
The differences to be paid or received by the Operating Partnership
under the terms of the interest rate swap agreements are accrued as interest
rates change and recognized as an adjustment to interest expense by the
Operating Partnership pursuant to the terms of its interest rate agreement and
will have a corresponding effect on its future cash flows. Agreements such as
these contain a credit risk that the counterparties may be unable to meet the
terms of the agreement. The Operating Partnership minimizes that risk by
evaluating the creditworthiness of its counterparties, which is limited to major
banks and financial institutions, and does not anticipate nonperformance by the
counterparties.
Capital lease obligations at December 31, 1997 and 1996 consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Capital land and building lease obligations ...... $ 9,330 $ 9,675
Capital equipment lease obligations .............. 1,763 3,200
------- -------
$11,093 $12,875
======= =======
</TABLE>
The Operating Partnership assumed the obligation for a capital
industrial revenue bond lease for land and building associated with the purchase
of the Embassy Suites hotel - St. Paul in November 1995. The term of the lease
is through August 31, 2011 and contains a provision that allows the Operating
Partnership to purchase the property at the termination of the lease, under
certain conditions, for a nominal amount.
The Operating Partnership has assumed various capital equipment leases
associated with hotels purchased. These capital leases are generally for
telephones and televisions and vary in remaining terms from one year to four
years.
Minimum future lease payments under capital leases at December 31, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1998 ....................................................... $ 2,820
1999 ....................................................... 1,502
2000 ....................................................... 1,336
2001 ....................................................... 1,217
2002 ....................................................... 1,217
2003 and thereafter ........................................ 10,552
--------
18,644
Executory costs ............................................ (788)
Imputed interest ........................................... (6,763)
--------
Present value of net minimum lease payments ................ $ 11,093
========
</TABLE>
Included in investment in hotels at December 31, 1997 and 1996, are
assets under capital leases with a net book value of approximately $10.7 million
and $12.5 million, respectively.
6. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS
Redeemable Operating Partnership Units
The outstanding units of limited partnership interest in the Operating
Partnership ("Units") are redeemable at the option of the holder for a like
number of shares of common stock of FelCor or, cash or a combination thereof, at
the election of Felcor. Due to these redemption rights, these limited
partnership units have been excluded from partners' capital and are included in
redeemable units and measured at redemption value as of the end of the periods
presented. At December 31, 1997 and 1996 there were 2,899,510 and 2,785,636
redeemable units outstanding. The value of the
F-12
<PAGE> 58
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS -- (CONTINUED)
redeemable units are based on the closing market price of FelCor's common stock
at the balance sheet date, which at December 31, 1997 and 1996 was $35.50 and
$35.375 respectively.
In 1997, an aggregate of 139,286 Units were issued to sellers in
conjunction with the purchases of interests in one hotel and, in 1996, an
aggregate of 491,703 Units were issued to sellers in conjunction with the
purchase of interests in four hotels.
Preferred Units
FelCor's Board of Directors is authorized to provide for the issuance
of up to 10,000,000 shares of Preferred Stock in one or more series, to
establish the number of shares in each series and to fix the designation, powers
preferences, and rights of each such series and the qualifications, limitations
or restrictions thereof. In 1996, FelCor issued 6,050,000 shares of its $1.95
Series A Cumulative Preferred Stock ("Series A Preferred Stock") at $25 per
share. The Series A Preferred Stock bears an annual dividend equal to the
greater of $1.95 per share or the cash distributions declared or paid for the
corresponding period on the number of shares of common stock into which the
Series A Preferred Stock is then convertible. Each share of the Series A
Preferred Stock is convertible at the shareholder's option to 0.7752 shares of
common stock, subject to certain adjustments, and may not be redeemed by FelCor
before April 30, 2001. At December 31, 1997 and 1996, all dividends then payable
on the Preferred Stock had been paid. All preferred stock proceeds have been
contributed to the Operating Partnership in exchange for preferred units. The
preference on the preferred units are the same as FelCor's preferred stock.
7. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the years
ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Real estate and personal property taxes .................... $18,976 $11,110 $ 2,233
Property insurance ......................................... 1,627 1,312 155
Land lease expense ......................................... 1,610 952
State franchise taxes ...................................... 718 472 175
Other ...................................................... 162 51
------- ------- -------
Total taxes, insurance and other .................. $23,093 $13,897 $ 2,563
======= ======= =======
</TABLE>
8. COMMITMENTS AND RELATED PARTY TRANSACTIONS
At December 31, 1997 the Operating Partnership owned interests in 52
Embassy Suites hotels, 13 Doubletree Guest Suites hotels, five Sheraton hotels,
two Sheraton Suites hotels and one Hilton Suites hotel. The Embassy Suites
hotels and the Hilton Suites hotel operate pursuant to franchise license
agreements, which require the payment of fees based on a percentage of suite
revenue. These fees are paid by the Lessee. There are no separate franchise
license agreements for the Doubletree Guest Suites hotels, Sheraton hotels or
Sheraton Suites hotels, which rights are included in the management agreements.
The Lessee generally pays the Hotel managers a base management fee
based on a percentage of suite revenue and an incentive management fee based on
the Lessee's income before overhead expenses for each hotel. In certain
instances, the hotel managers have subordinated fees and committed to make
subordinated loans to the Lessee, if needed, to meet its rental and other
obligations under the Percentage Leases.
F-13
<PAGE> 59
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Operating Partnership is to receive rental income from the Lessee
under the Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels),
2006 (19 hotels) and 2007 (21 hotels). The rental income under the Percentage
Leases between the 14 unconsolidated entities, of which the Operating
Partnership owns 50%, and the Lessee is payable to the respective partnerships
and as such is not included in the following schedule of future lease
commitments to the Operating Partnership. Minimum future rental income (i.e.,
base rents) to the Operating Partnership under these noncancellable operating
leases at December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1998 ............................................. $108,182
1999 ............................................. 108,182
2000 ............................................. 108,182
2001 ............................................. 108,182
2002 ............................................. 108,182
2003 and thereafter .............................. 385,106
--------
$926,016
========
</TABLE>
The Percentage Lease revenue is based on a percentage of suite
revenues, food and beverage revenues, and food and beverage rents of the Hotels.
Both the base rent and the threshold suite revenue in each lease computation are
subject to adjustments for changes in the Consumer Price Index ("CPI"). The
adjustment is calculated at the beginning of each calendar year, for the hotels
acquired prior to July of the previous year. The adjustment in any lease year
may not exceed 7%. The CPI adjustments made in January 1998, 1997 and 1996 were
0.50%, 1.42% and 0.73% respectively.
Under the Percentage Leases, the Operating Partnership is obligated to
pay the costs of real estate and personal property taxes, property insurance,
maintenance of underground utilities and structural elements of the Hotels, and
to set aside 4% of suite revenues per month, on a cumulative basis, to fund
capital expenditures for the periodic replacement or refurbishment of furniture,
fixtures and equipment required for the retention of the franchise licenses with
respect to the Hotels. Included in cash and cash equivalents at December 31,
1997 and 1996 were cash balances held by the Hotel managers for these capital
expenditures of $7.3 million and $3.5 million, respectively. In addition, the
Operating Partnership will incur certain additional capital expenditures in
connection with the conversion and upgrade of acquired hotels, which may be
funded from cash on hand or borrowings under its Line of Credit.
The Operating Partnership shares the executive offices and certain
employees with FelCor, Inc. and the Lessee, and each company bears its share of
the costs thereof, including an allocated portion of the rent, compensation of
certain personnel (other than Messrs. Feldman and Corcoran, whose compensation
is borne solely by FelCor), office supplies, telephones and depreciation of
office furniture, fixtures and equipment. Any such allocation of shared expenses
to the Operating Partnership must be approved by a majority of the independent
directors. During 1997, 1996 and 1995, the Operating Partnership paid
approximately $1.3 million (approximately 38%), $807,000 (approximately 38%) and
$387,000 (approximately 38%), respectively, of the allocable expenses under this
agreement.
FelCor has entered into employment contracts with Messrs. Feldman and
Corcoran, that will continue in effect until December 31, 1999 and, unless
terminated, will be automatically renewed for successive one year terms. Each
was paid a base salary of $10,000 per month in 1995 and $10,270 per month in
1996 and in 1997 Mr. Feldman received $12,500 per month and Mr. Corcoran
received $16,667 per month. Effective January 1, 1998, Mr. Feldman is to receive
$12,500 per month and Mr. Corcoran is to receive $20,833 per month.
Additionally, FelCor is required to maintain a comprehensive medical plan for
such persons.
The Operating Partnership has a capital upgrade and renovation program
for the Hotels and has committed approximately $55 million to be invested in
1998 under this program for those hotels which are wholly owned and
approximately $11 million for the unconsolidated entities. The Operating
Partnership is also constructing an additional 67
F-14
<PAGE> 60
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
suites at its Jacksonville, Florida hotel and 67 additional suites at its
Orlando (North), Florida hotel at an aggregate projected cost of $10.2 million
(of which $7.4 million had been spent as of December 31, 1997) with an expected
completion in early 1998.
9. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Operating Partnership purchased certain assets and assumed certain
liabilities in connection with the acquisition of hotels. These purchases were
recorded under the purchase method of accounting. The fair values of the
acquired assets and liabilities recorded at the date of acquisition are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Assets acquired ................... $ 588,053 $ 494,354 $ 221,213
Prepayments assumed ............... 13,616
Liabilities assumed ............... (5,932) (108,744) (910)
Capital land lease assumed ........ (10,045)
Capital equipment leases assumed... (2,823) (1,211)
Common stock issued ............... (6,000) (3,499)
Minority interest contribution .... (8,021)
Units issued ...................... (10,880)
--------- --------- ---------
Net cash paid ............ $ 574,100 $ 365,907 $ 219,164
========= ========= =========
</TABLE>
The Operating Partnership purchased interests in unconsolidated
entities during 1997, 1996 and 1995. These unconsolidated entities separately
own fourteen hotels, a parcel of undeveloped land and a condominium management
company. These purchases were recorded under the equity method of accounting.
The value of the assets recorded at the date of acquisition is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Acquisition of interests in unconsolidated entities... $ 70,372 $ 45,992 $ 13,166
Units issued ......................................... (5,101) (2,568)
-------- -------- --------
Net cash paid ............................... $ 65,271 $ 43,424 $ 13,166
======== ======== ========
</TABLE>
Approximately $24.7 million, $16.1 million, and $3.8 million of
aggregate preferred unit distributions and Unit distributions had been declared
as of December 31, 1997, 1996, and 1995, respectively. These amounts were paid
in January following each year.
F-15
<PAGE> 61
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LESSEE
All of the Operating Partnership's percentage lease revenues is derived
from the Percentage Leases with the Lessee. Certain information, related to the
Lessee's financial statements, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents ..................... $ 25,684 $ 5,208
Total assets .................................. $ 54,702 $ 18,471
Due to FelCor Suites Limited Partnership ...... $ 18,908 $ 5,526
Shareholders' deficit ......................... $ (9,075) $ (6,403)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statement of Operations Information:
Suite revenue ................... $ 456,614 $ 234,451 $ 65,649
Percentage lease expenses ....... $ 216,990 $ 107,935 $ 26,945
Net loss ........................ $ (2,672) $ (5,430) $ (240)
</TABLE>
Messrs. Feldman and Corcoran, certain entities owning partnership
interests in the Lessee and managers for certain hotels, have agreed to make
loans to the Lessee of up to an aggregate of approximately $16.0 million to the
extent necessary to enable the Lessee to pay rent and other obligations due
under the respective Percentage Leases relating to a total of 34 of these
Hotels. No such loans were outstanding at December 31, 1997.
11. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the acquisition of hotels in 1997 and 1996, the
historical results of operations may not be indicative of future results of
operations and net income per common share.
The following unaudited Pro Forma Consolidated Statements of Operations
for the years ended December 31, 1997 and 1996 (in thousands, except per share
data) are presented as if the acquisitions of all 73 hotels owned at December
31, 1997, the private placement of $300 million of senior unsecured notes and
the consummation of the 1997 and 1996 public offerings and the application of
the net proceeds therefrom had occurred on January 1, 1996, and all of the
hotels had been leased to the Lessee pursuant to the Percentage Leases. Such pro
forma information is based in part upon the Consolidated Statements of
Operations of the Operating Partnership and pro forma Statements of Operations
of the Lessee. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
F-16
<PAGE> 62
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PRO FORMA INFORMATION (UNAUDITED) -- (CONTINUED)
The following unaudited Pro Forma Consolidated Statements of Operations
for the periods presented are not necessarily indicative of what actual results
of operations of the Operating Partnership would have been assuming such
transactions had been completed on January 1, 1996, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Percentage lease revenue ........................ $203,922 $177,741
Income from unconsolidated entities ........... 6,937 4,540
-------- --------
Total revenues ............................. 210,859 182,281
-------- --------
Expenses:
General and administrative ...................... 4,163 3,394
Depreciation .................................... 59,187 44,149
Taxes, insurance and other ...................... 25,933 24,962
Interest expense ................................ 37,527 31,528
Minority interest in other partnerships ......... 663 236
-------- --------
Total expenses ............................ 127,473 104,269
-------- --------
Net income ......................................... 83,386 78,012
Preferred distributions ............................ 11,797 11,797
-------- --------
Net income applicable to unitholders ............... $ 71,589 $ 66,215
======== ========
Per unit data:
Basic:
Net income applicable to unitholders ............ $ 1.82 $ 1.70
======== ========
Weighted average number of units outstanding .... 39,353 38,970
======== ========
Diluted:
Net income applicable to unitholders ............ $ 1.80 $ 1.69
======== ========
Weighted average number of units outstanding .... 39,695 39,165
======== ========
</TABLE>
F-17
<PAGE> 63
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income ("SFAS
130") and No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"), both of which are effective for fiscal years
beginning after December 15, 1997.
SFAS 130 specifies the presentation and disclosure requirements for
reporting comprehensive income which includes those items which have been
formerly reported as a component of shareholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information. The Operating
Partnership believes that the adoption of SFAS 130 and 131 will not have a
material impact on previously reported financial statements.
13. SUBSEQUENT EVENTS
On January 15, 1998 the Operating Partnership announced the closing of
$114 million of fixed rate nonrecourse secured debt associated with nine Embassy
Suites hotels in which the Operating Partnership and Promus each own a 50%
unconsolidated interest. The new debt carries a coupon of 6.988%, matures in ten
years and amortizes over 25 years. The proceeds were used to repay higher
interest rate debt associated with unconsolidated entities jointly owned with
Promus and to repay other corporate debt.
On February 12, 1998, the Operating Partnership announced an exchange
offer for the 7 3/8% Senior Notes due 2004 and 7 5/8% Senior Notes due 2007
issued and sold on October 1, 1997 in a transaction exempt from the registration
requirements of the Securities Act of 1993, as amended, and accordingly are
subject to certain restrictions upon transfer. The new notes offered in exchange
for these notes are identical in amount and terms, except the new notes have
been registered under the Securities Act pursuant to a registration statement
declared effective on February 10, 1998.
On February 17, 1998, FelCor filed a $1 billion omnibus shelf
registration with the Securities and Exchange Commission. This registration
statement will enable the Operating Partnership to provide offerings from time
to time up to an additional $1 billion in securities, which may include debt
securities, preferred stock, depository shares, common stock and/or common stock
warrants.
On February 17, 1998, the Operating Partnership announced the
acquisition of the 194-suite Doubletree Guest Suites hotel in Columbus, Ohio.
The purchase price includes $14.1 million in cash and approximately 134,000
Units each valued at $37.06. The hotel is managed by a wholly owned subsidiary
of Promus.
F-18
<PAGE> 64
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Operating Partnership's unaudited consolidated quarterly operating
data for the years ended December 31, 1997 and 1996 follows (in thousands,
except per share data). In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
quarterly results have been reflected in the data. It is also management's
opinion, however, that quarterly operating data for hotel enterprises are not
indicative of results to be achieved in succeeding quarters or years. In order
to obtain a more accurate indication of performance, there should be a review of
operating results, changes in shareholders' equity and cash flows for a period
of several years.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue .................................... $ 35,370 $ 38,677 $ 48,603 $ 46,464
Equity in income from unconsolidated entities ............... 1,127 2,300 2,338 1,198
Other revenue ............................................... 95 76 112 291
-------- -------- -------- --------
Total revenues ............................ 36,592 41,053 51,053 47,953
-------- -------- -------- --------
Expenses:
General and administrative .................................. 972 874 897 1,000
Depreciation ................................................ 10,417 11,314 14,238 14,829
Taxes, insurance and other .................................. 5,207 5,549 6,155 6,182
Interest expense ............................................ 5,601 7,313 7,183 8,695
Minority interest in other partnerships ..................... 21 121 195 236
-------- -------- -------- --------
Total expenses ............................ 22,218 25,171 28,668 30,942
-------- -------- -------- --------
Income before extraordinary charge ................................... 14,374 15,882 22,385 17,011
Extraordinary charge from write off of deferred financing fees ....... 185
-------- -------- -------- --------
Net income ........................................................... 14,374 15,882 22,385 16,826
Preferred distributions .............................................. 2,949 2,949 2,949 2,950
-------- -------- -------- --------
Net income applicable to unitholders ................................. $ 11,425 $ 12,933 $ 19,436 $ 13,876
======== ======== ======== ========
Earnings per share information:
Basic:
Income applicable to unitholders
before extraordinary charge ................................. $ 0.40 $ 0.44 $ 0.50 $ 0.36
Extraordinary charge ........................................ (0.01)
-------- -------- -------- --------
Net income applicable to unitholders ........................ $ 0.40 $ 0.44 $ 0.50 $ 0.35
======== ======== ======== ========
Weighted average number of units outstanding ................ 28,174 29,457 39,262 39,417
======== ======== ======== ========
Diluted:
Income applicable to unitholders
before extraordinary charge ................................. $ 0.40 $ 0.43 $ 0.49 $ 0.36
Extraordinary charge ........................................ (0.01)
-------- -------- -------- --------
Net income applicable to unitholders ........................ $ 0.40 $ 0.43 $ 0.49 $ 0.35
======== ======== ======== ========
Weighted average number of units outstanding ................ 28,474 29,833 39,648 39,784
======== ======== ======== ========
</TABLE>
F-19
<PAGE> 65
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY OPERATING RESULTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue .................................... $ 23,976 $ 23,409 $ 25,263 $ 25,302
Income from unconsolidated entities ......................... 320 165 927 598
Other revenue ............................................... 146 628 163 47
-------- -------- -------- --------
Total revenues ............................ 24,442 24,202 26,353 25,947
-------- -------- -------- --------
Expenses:
General and administrative .................................. 382 466 458 513
Depreciation ................................................ 4,516 5,788 7,529 8,711
Taxes, insurance and other .................................. 3,529 3,070 3,260 4,038
Interest expense ............................................ 2,424 2,089 1,760 3,530
-------- -------- -------- --------
Total expenses ............................ 10,851 11,413 13,007 16,792
-------- -------- -------- --------
Income before extraordinary charge ................................... 13,591 12,789 13,346 9,155
Extraordinary charge from write off of deferred financing fees ....... 2,354
-------- -------- -------- --------
Net income ........................................................... 13,591 12,789 10,992 9,155
Preferred distributions .............................................. 1,835 2,949 2,950
-------- -------- -------- --------
Net income applicable to unitholders ................................. $ 13,591 $ 10,954 $ 8,043 $ 6,205
======== ======== ======== ========
Earnings per unit information:
Basic:
Net income applicable to unitholders
before extraordinary charge .............................. $ 0.53 $ 0.42 $ 0.40 $ 0.24
Extraordinary charge ........................................ (0.09)
-------- -------- -------- --------
Net income applicable to unitholders ........................ $ 0.53 $ 0.42 $ 0.31 $ 0.24
======== ======== ======== ========
Weighted average number of units outstanding ................ 25,629 25,957 26,097 26,224
======== ======== ======== ========
Diluted:
Net income applicable to unitholders
before extraordinary charge .............................. $ 0.53 $ 0.42 $ 0.40 $ 0.23
Extraordinary charge ........................................ (0.09)
-------- -------- -------- --------
Net income applicable to unitholders ........................ $ 0.53 $ 0.42 $ 0.31 $ 0.23
======== ======== ======== ========
Weighted average number of units outstanding ................ 25,744 26,254 26,249 26,549
======== ======== ======== ========
</TABLE>
15. CONSOLIDATING FINANCIAL INFORMATION
On October 1, 1997 the Operating Partnership completed the private
placement of $300 million in aggregate principal amount of its long term senior
unsecured notes. The notes were issued in two maturities, consisting of $175
million of 7 3/8% senior notes due 2004 priced at 99.489% to yield 7.47% and
$125 million of 7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%.
The discount on the $300 million senior notes accrete using the straight line
method over the maturity of the notes.
FelCor and all the wholly-owned consolidated subsidiaries of the
Operating Partnership (FelCor/CSS Holdings, L.P.; FelCor/CSS Hotels, L.L.C.;
FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels, L.L.C.; FelCor/St. Paul Holdings,
L.P.; and FelCor/LAX Holdings, L.P. collectively "Subsidiary Guarantors") are
guarantors of the debt offering. The following table presents consolidating
information for the Subsidiary Guarantors.
F-20
<PAGE> 66
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net investment in hotel properties ............. $ 858,338 $ 551,882 $ 79,544 $ 1,489,764
Equity investment in consolidated entities ..... 652,489 $ (652,489)
Investment in unconsolidated entities .......... 132,991 132,991
Cash and cash equivalents ...................... 17,543 17,543
Due from Lessee ................................ 12,356 4,257 2,295 18,908
Due (to)/from subsidiary ....................... (57,153) 52,870 4,283
Deferred assets ................................ 10,528 65 10,593
Other assets ................................... 1,858 1,707 3,565
----------- ----------- ----------- ----------- -----------
Total assets ............................ $ 1,628,950 $ 610,781 $ 86,122 $ (652,489) $ 1,673,364
=========== =========== =========== =========== ===========
LIABILITIES & PARTNERS' CAPITAL
Debt ........................................... $ 440,726 $ 25,000 $ 465,726
Distributions payable .......................... 24,671 24,671
Accrued expenses and other liabilities ......... 11,331 11,331
Capitalized leases ............................. 273 10,820 11,093
Minority interest - other partnerships ........ $ 8,594 8,594
----------- ----------- ----------- ----------- -----------
Total liabilities ....................... 477,001 35,820 8,594 521,415
----------- ----------- ----------- ----------- -----------
Redeemable units, at redemption value .......... 102,933 102,933
Preferred units ................................ 151,250 151,250
Partners' capital .............................. 897,766 574,961 77,528 $ (652,489) 897,766
----------- ----------- ----------- ----------- -----------
Total liabilities and partners' capital . $ 1,628,950 $ 610,781 $ 86,122 $ (652,489) $ 1,673,364
=========== =========== =========== =========== ===========
</TABLE>
F-21
<PAGE> 67
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net investment in hotel properties ................. $ 341,269 $ 558,422 $ 899,691
Equity investment in consolidated subsidiaries ..... 538,004 $(538,004)
Investment in unconsolidated entities .............. 59,867 59,867
Cash and cash equivalents .......................... 7,793 7,793
Due from Lessee .................................... 614 4,912 5,526
Due (to)/from subsidiary ........................... (10,929) 10,929
Deferred assets .................................... 3,235 3,235
Other assets ....................................... 1,060 1,616 2,676
--------- --------- --------- ---------
Total assets ................................ $ 940,913 $ 575,879 $(538,004) $ 978,788
========= ========= ========= =========
LIABILITIES & PARTNERS' CAPITAL
Debt ............................................... $ 201,550 $ 25,000 $ 226,550
Distributions payable .............................. 16,090 16,090
Accrued expenses and other liabilities ............. 5,235 5,235
Capitalized leases ................................. 12,875 12,875
Minority interest - other partnerships
--------- --------- --------- ---------
Total liabilities ........................... 222,875 37,875 260,750
Redeemable units, at redemption value .............. 98,542 98,542
Preferred units .................................... 151,250 151,250
Partners' capital .................................. 468,246 538,004 $(538,004) 468,246
--------- --------- --------- ---------
Total liabilities and partners' capital ..... $ 940,913 $ 575,879 $(538,004) $ 978,788
========= ========= ========= =========
</TABLE>
F-22
<PAGE> 68
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTORS TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent ............................................... $ 83,528 $ 77,335 $ 8,251 $169,114
Equity in income from unconsolidated entities .............. 6,963 6,963
Other revenue .............................................. 367 207 574
-------- -------- -------- --------
Total revenue ....................................... 90,858 77,542 8,251 176,551
-------- -------- -------- --------
Expenses:
General and administrative ................................. 1,848 1,712 183 3,743
Depreciation ............................................... 22,798 26,094 1,906 50,798
Taxes, insurance and other ................................. 11,781 10,661 651 23,093
Interest expense ........................................... 26,673 2,119 28,792
Minority interest other partnerships ....................... 573 573
-------- -------- -------- --------
Total expenses ...................................... 63,100 40,586 3,313 106,999
-------- -------- -------- --------
Net income before extraordinary charge ................ 27,758 36,956 4,938 69,652
Extraordinary charge for write off of deferred
financing fees ..................................... 185 185
-------- -------- -------- --------
Net income ............................................ 27,573 36,956 4,938 69,467
Preferred distributions .................................... 11,797 11,797
-------- -------- -------- --------
Net income applicable to unitholders ....................... $ 15,776 $ 36,956 $ 4,938 $ 57,670
======== ======== ======== ========
</TABLE>
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTORS TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities .................. $ 57,817 $ 36,598 $ 3,063 $ 97,478
Cash flows from investing activities .................. (598,467) (16,242) (73,151) (687,860)
Cash flows from financing activities .................. 550,400 (20,356) 70,088 600,132
--------- --------- --------- ---------
Change in cash and cash equivalents ................... 9,750 9,750
Cash and cash equivalents at beginning of period ...... 7,793 7,793
--------- --------- --------- ---------
Cash and equivalents at end of year ................... $ 17,543 $ $ $ 17,543
========= ========= ========= =========
</TABLE>
F-23
<PAGE> 69
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Percent rent .................................................... $ 39,489 $ 58,461 $ 97,950
Equity in income from unconsolidated entities ................... 2,010 2,010
Other revenue ................................................... 632 352 984
-------- -------- --------
Total revenue ............................................ 42,131 58,813 100,944
-------- -------- --------
Expenses:
General and administrative ...................................... 733 1,086 1,819
Depreciation .................................................... 9,337 17,207 26,544
Taxes, insurance and other ...................................... 4,645 9,252 13,897
Interest expense ................................................ 7,369 2,434 9,803
-------- -------- --------
Total expenses ........................................... 22,084 29,979 52,063
-------- -------- --------
Net income before extraordinary charge ..................... 20,047 28,834 48,881
Extraordinary charge for write off of deferred financing ... 2,354 2,354
-------- -------- --------
Net income ................................................. 17,693 28,834 46,527
Preferred distributions ......................................... 7,734 7,734
-------- -------- --------
Net income applicable to unitholders ............................ $ 9,959 $ 28,834 $ 38,793
======== ======== ========
</TABLE>
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities ........... $ 36,077 $ 31,417 $ 67,494
Cash flows from investing activities ........... (66,461) (411,967) (478,428)
Cash flows from financing activities ........... (128,644) 380,550 251,906
--------- --------- ---------
Change in cash and cash equivalents ............ (159,028) (159,028)
Cash and cash equivalents at beginning of period 166,821 166,821
--------- --------- ---------
Cash and equivalents at end of year ............ $ 7,793 $ $ 7,793
========= ========= =========
</TABLE>
F-24
<PAGE> 70
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Percent rent ..................................... $22,002 $ 1,785 $23,787
Equity in income from unconsolidated entities .... 513 513
Other revenue .................................... 1,684 7 1,691
------- ------- -------
Total revenue ............................. 24,199 1,792 25,991
------- ------- -------
Expenses:
General and administrative ....................... 799 71 870
Depreciation ..................................... 5,232 5,232
Taxes, insurance and other ....................... 2,134 429 2,563
Interest expense ................................. 1,902 102 2,004
------- ------- -------
Total expenses ............................ 10,067 602 10,669
------- ------- -------
Net income ................................ $14,132 $ 1,190 $15,322
======= ======= =======
</TABLE>
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities .................. $ 18,645 $ (1,642) $ 17,003
Cash flows from investing activities .................. (110,023) (149,174) (259,197)
Cash flows from financing activities .................. 257,081 150,816 407,897
--------- --------- ---------
Change in cash and cash equivalents ................... 165,703 165,703
Cash and cash equivalents at beginning of period ...... 1,118 1,118
--------- --------- ---------
Cash and equivalents at end of year ................... $ 166,821 $ $ 166,821
========= ========= =========
</TABLE>
F-25
<PAGE> 71
FELCOR SUITES LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
---------------------------------------------------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ---- ------------ -------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
BIRMINGHAM, AL $ 2,843 $29,286 $ 160 $ 730 $ 3,174
FLAGSTAFF, AZ 900 6,825 268 1,561 1,115
PHOENIX (CAMELBACK), AZ 38,998 613 $ 4,695 826 4,808
PHOENIX (CRESCENT), AZ 3,608 29,583 2,886 326
ANAHEIM, CA 2,548 14,832 607 554 3,163
BURLINGAME (SF AIRPORT SO.), CA 39,929 818 60 2,998
DANA POINT, CA 1,787 15,545 536 71 883
EL SEGUNDO (LAX AIRPORT SOUTH), CA 2,660 17,997 798 809 4,705
LOS ANGELES (LAX AIRPORT NORTH), CA 2,207 18,764 1,104 445
MILPITAS, CA 4,021 23,677 562 943 3,474
NAPA, CA 3,287 14,205 494 813 2,801
OXNARD (MANDALAY BEACH), CA 2,930 22,125 879 617 4,595
SO. SAN FRANCISCO (AIRPORT N.), CA 3,418 31,737 527 768 3,831
AVON (BEAVER CREEK RESORT), CO 1,134 9,864 340 186 1,293
BOCA RATON (DOUBLETREE), FL 5,327 3,066 304 41 1,012
BOCA RATON (EMBASSY), FL 1,868 16,253 561 186 2,876
DEERFIELD BEACH, FL 4,523 29,443 918 1,159 3,676
FT. LAUDERDALE, FL 5,329 47,850 903 1,604 4,301
JACKSONVILLE, FL 1,130 9,608 456 28 865
LAKE BUENA VISTA (DISNEY WORLD), FL 2,896 25,196 869
MIAMI (AIRPORT), FL 4,135 24,950 1,171 728 4,309
ORLANDO (NORTH), FL 1,673 14,218 684 28 939
ORLANDO (SOUTH), FL 1,632 13,870 799 28 1,504
TAMPA (BUSCH GARDENS), FL 772 12,387 226 57 621
TAMPA (ROCKY POINT), FL 2,142 18,639 643 33
ATLANTA (AIRPORT), GA 5,113 22,857 2,105 16
ATLANTA (BUCKHEAD), GA 7,303 38,996 2,437 13 50
ATLANTA (GALLERIA), GA 5,052 28,507 2,526 113
BRUNSWICK, GA 705 6,067 247 720
CHICAGO (O'HARE), IL 8,178 37,043 2,886 89
DEERFIELD, IL 2,305 20,054 692 162 684
LEXINGTON, KY 1,955 13,604 587 1,280
BATON ROUGE, LA 2,350 19,092 525 521 3,322
NEW ORLEANS, LA 2,570 22,300 895 3,854 2,369
BOSTON - MARLBOROUGH, MA 948 8,143 325 761 12,394 4,442
BALTIMORE, MD 2,568 22,433 770 505
TROY, MI 2,968 25,905 909 246
BLOOMINGTON, MN 2,038 17,731 611 8
MINNEAPOLIS (AIRPORT), MN 5,416 36,508 602 78 2,683
MINNEAPOLIS (DOWNTOWN), MN 818 16,820 505 66 3,043
ST. PAUL, MN 1,156 17,315 849 40 2,876
RALEIGH/DURHAM, NC 2,124 18,476 637 31
OMAHA, NE 1,877 16,328 563 10 140
<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
------------------------------------------------ BUILDINGS AND BUILDINGS AND
BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS;
AND AND FURNITURE & FURNITURE &
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES
- ----------------------- ---- ------------ -------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BIRMINGHAM, AL $ 2,843 $30,015 $ 3,334 $36,192 $ 2,188 $34,005
FLAGSTAFF, AZ 900 8,386 1,383 10,669 1,171 9,497
PHOENIX (CAMELBACK), AZ 4,694 39,824 5,420 49,939 3,290 46,649
PHOENIX (CRESCENT), AZ 3,608 29,583 3,212 36,403 666 35,736
ANAHEIM, CA 2,548 15,386 3,770 21,704 1,982 19,722
BURLINGAME (SF AIRPORT SO.), CA 39,802 4,003 43,805 3,290 40,515
DANA POINT, CA 1,787 15,616 1,419 18,822 433 18,389
EL SEGUNDO (LAX AIRPORT SOUTH), CA 2,660 18,807 5,503 26,969 2,901 24,068
LOS ANGELES (LAX AIRPORT NORTH), CA 2,207 18,764 1,549 22,520 590 21,930
MILPITAS, CA 4,021 24,620 4,036 32,677 2,452 30,225
NAPA, CA 3,287 15,019 3,295 21,601 1,227 20,374
OXNARD (MANDALAY BEACH), CA 2,930 22,742 5,474 31,146 1,984 29,162
SO. SAN FRANCISCO (AIRPORT N.), CA 3,418 32,506 4,358 40,281 2,794 37,488
AVON (BEAVER CREEK RESORT), CO 1,134 10,050 1,633 12,816 831 11,986
BOCA RATON (DOUBLETREE), FL 5,333 3,102 1,316 9,750 598 9,152
BOCA RATON (EMBASSY), FL 1,868 16,438 3,436 21,743 1,700 20,043
DEERFIELD BEACH, FL 4,541 30,583 4,593 39,718 2,643 37,075
FT. LAUDERDALE, FL 5,374 49,409 5,204 59,986 3,870 56,117
JACKSONVILLE, FL 1,130 9,636 1,321 12,088 1,648 10,440
LAKE BUENA VISTA (DISNEY WORLD), FL 2,896 25,196 869 28,960 335 28,626
MIAMI (AIRPORT), FL 4,135 25,679 5,479 35,293 2,793 32,500
ORLANDO (NORTH), FL 1,673 14,246 1,624 17,543 2,568 14,974
ORLANDO (SOUTH), FL 1,632 13,898 2,303 17,832 2,581 15,251
TAMPA (BUSCH GARDENS), FL 772 12,444 848 14,063 804 13,260
TAMPA (ROCKY POINT), FL 2,142 18,639 676 21,458 248 21,210
ATLANTA (AIRPORT), GA 5,113 22,857 2,121 30,091 498 29,593
ATLANTA (BUCKHEAD), GA 7,303 39,009 2,487 48,799 1,707 47,092
ATLANTA (GALLERIA), GA 5,052 28,507 2,639 36,198 610 35,588
BRUNSWICK, GA 705 6,067 967 7,739 631 7,108
CHICAGO (O'HARE), IL 8,178 37,043 2,975 48,196 757 47,439
DEERFIELD, IL 2,305 20,216 1,376 23,897 1,006 22,891
LEXINGTON, KY 1,955 13,604 1,866 17,425 1,059 16,366
BATON ROUGE, LA 2,350 19,612 3,847 25,810 1,920 23,890
NEW ORLEANS, LA 2,569 26,154 3,265 31,989 2,932 29,057
BOSTON - MARLBOROUGH, MA 1,709 20,537 4,767 27,014 1,292 25,721
BALTIMORE, MD 2,568 22,433 1,275 26,276 621 25,655
TROY, MI 2,968 25,905 1,155 30,028 700 29,329
BLOOMINGTON, MN 2,038 17,732 619 20,389 471 19,918
MINNEAPOLIS (AIRPORT), MN 5,417 36,396 3,475 45,288 3,060 42,228
MINNEAPOLIS (DOWNTOWN), MN 818 16,809 3,625 21,252 2,018 19,234
ST. PAUL, MN 1,156 17,264 3,815 22,236 2,251 19,985
RALEIGH/DURHAM, NC 2,124 18,476 668 21,267 246 21,022
OMAHA, NE 1,877 16,338 703 18,918 436 18,481
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- ------------ -------- -----------
<S> <C> <C> <C>
BIRMINGHAM, AL 1987 01-03-96 5 - 40 YRS
FLAGSTAFF, AZ 1988 02-16-95 5 - 40 YRS
PHOENIX (CAMELBACK), AZ 1985 01-03-96 5 - 40 YRS
PHOENIX (CRESCENT), AZ 1986 06-30-97 5 - 40 YRS
ANAHEIM, CA 1987 01-03-96 5 - 40 YRS
BURLINGAME (SF AIRPORT SO.), CA 1986 11-06-95 5 - 40 YRS
DANA POINT, CA 1992 02-21-97 5 - 40 YRS
EL SEGUNDO (LAX AIRPORT SOUTH), CA 1985 03-27-96 5 - 40 YRS
LOS ANGELES (LAX AIRPORT NORTH), CA 1990 02-18-97 5 - 40 YRS
MILPITAS, CA 1987 01-03-96 5 - 40 YRS
NAPA, CA 1985 05-08-96 5 - 40 YRS
OXNARD (MANDALAY BEACH), CA 1986 05-08-96 5 - 40 YRS
SO. SAN FRANCISCO (AIRPORT N.), CA 1988 01-03-96 5 - 40 YRS
AVON (BEAVER CREEK RESORT), CO 1989 02-20-96 5 - 40 YRS
BOCA RATON (DOUBLETREE), FL 1989 11-15-95 5 - 40 YRS
BOCA RATON (EMBASSY), FL 1989 02-28-96 5 - 40 YRS
DEERFIELD BEACH, FL 1987 01-03-96 5 - 40 YRS
FT. LAUDERDALE, FL 1986 01-03-96 5 - 40 YRS
JACKSONVILLE, FL 1986 07-28-94 5 - 40 YRS
LAKE BUENA VISTA (DISNEY WORLD), FL 1987 07-28-97 5 - 40 YRS
MIAMI (AIRPORT), FL 1987 01-03-96 5 - 40 YRS
ORLANDO (NORTH), FL 1985 07-28-94 5 - 40 YRS
ORLANDO (SOUTH), FL 1985 07-28-94 5 - 40 YRS
TAMPA (BUSCH GARDENS), FL 1985 11-15-95 5 - 40 YRS
TAMPA (ROCKY POINT), FL 1986 07-28-97 5 - 40 YRS
ATLANTA (AIRPORT), GA 1986 06-30-97 5 - 40 YRS
ATLANTA (BUCKHEAD), GA 1988 10-17-96 5 - 40 YRS
ATLANTA (GALLERIA), GA 1990 06-30-97 5 - 40 YRS
BRUNSWICK, GA 1988 07-19-95 5 - 40 YRS
CHICAGO (O'HARE), IL 1994 06-30-97 5 - 40 YRS
DEERFIELD, IL 1987 06-20-96 5 - 40 YRS
LEXINGTON, KY 1987 01-10-96 5 - 40 YRS
BATON ROUGE, LA 1985 01-03-96 5 - 40 YRS
NEW ORLEANS, LA 1984 12-01-94 5 - 40 YRS
BOSTON - MARLBOROUGH, MA 1988 06-30-95 5 - 40 YRS
BALTIMORE, MD 1987 03-20-97 5 - 40 YRS
TROY, MI 1987 03-20-97 5 - 40 YRS
BLOOMINGTON, MN 1980 02-01-97 5 - 40 YRS
MINNEAPOLIS (AIRPORT), MN 1986 11-06-95 5 - 40 YRS
MINNEAPOLIS (DOWNTOWN), MN 1984 11-15-95 5 - 40 YRS
ST. PAUL, MN 1983 11-15-95 5 - 40 YRS
RALEIGH/DURHAM, NC 1987 07-28-97 5 - 40 YRS
OMAHA, NE 1973 02-01-97 5 - 40 YRS
</TABLE>
F-26
<PAGE> 72
FELCOR SUITES LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
----------------------------------------- -----------------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ---------- ------------ --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
PISCATAWAY, NJ 1,755 17,563 527 463 2,296
SYRACUSE, NY 1,597 14,812 1,330
CLEVELAND, OH 1,755 15,329 527 1,259 1,511
DAYTON, OH 1,140 9,924 342
TULSA, OK 525 7,344 3,117 140 1,644
PHILADELPHIA (SOCIETY HILL), PA 4,542 45,121 1,536
MYRTLE BEACH (KINGSTON PLANTATION), SC 2,940 24,988 1,470 268 832
NASHVILLE (AIRPORT), TN 1,073 9,331 322 20
NASHVILLE, TN 1,118 9,506 961 28 1,222
AUSTIN (DOWNTOWN), TX 2,508 21,908 752 137
CORPUS CHRISTI, TX 1,112 9,618 390 51 1,461
DALLAS (LOVE FIELD), TX 1,934 16,674 757 168 1,177
DALLAS (MARKET CENTER), TX 2,619 24,298 2,182
DALLAS (PARK CENTRAL ES), TX 1,497 12,722 647 28 1,415
DALLAS (PARK CENTRAL SH), TX 4,513 43,125 2,507 195
BURLINGTON, VT 3,136 27,283 941
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 151,978 $1,226,572 $ 55,105 $ 5,507 $ 31,289 $ 92,274
========== ========== ========== ========== ========== ==========
<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED
CARRIED AT CLOSE OF PERIOD DEPRECIATION
------------------------------------------- BUILDINGS AND
BUILDINGS FURNITURE IMPROVEMENTS;
AND AND FURNITURE &
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES
- ----------------------- ----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
PISCATAWAY, NJ 1,755 18,026 2,822 22,603 1,343
SYRACUSE, NY 1,597 14,812 1,331 17,739 318
CLEVELAND, OH 1,755 16,588 2,037 20,380 1,237
DAYTON, OH 1,140 9,924 342 11,406
TULSA, OK 525 7,483 4,762 12,770 4,673
PHILADELPHIA (SOCIETY HILL), PA 4,542 45,121 1,536 51,199 361
MYRTLE BEACH (KINGSTON PLANTATION), SC 2,940 25,256 2,302 30,498 945
NASHVILLE (AIRPORT), TN 1,073 9,331 341 10,745 149
NASHVILLE, TN 1,118 9,534 2,183 12,836 2,911
AUSTIN (DOWNTOWN), TX 2,508 21,908 890 25,305 585
CORPUS CHRISTI, TX 1,164 9,618 1,852 12,634 1,222
DALLAS (LOVE FIELD), TX 1,934 16,841 1,934 20,710 1,923
DALLAS (MARKET CENTER), TX 2,619 24,298 2,183 29,100 522
DALLAS (PARK CENTRAL ES), TX 1,497 12,750 2,062 16,309 2,534
DALLAS (PARK CENTRAL SH), TX 4,513 43,125 2,702 50,340 802
BURLINGTON, VT 3,136 27,283 941 31,360 73
---------- ---------- ---------- ---------- ----------
TOTAL $ 157,554 $1,257,247 $ 147,923 $1,562,724 $ 87,400
========== ========== ========== ========== ==========
<CAPTION>
NET BOOK
VALUE LIFE UPON
BUILDINGS AND WHICH
IMPROVEMENTS; DEPRECIATION
FURNITURE & DATE OF DATE IN STATEMENT
FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED
-------------- ------------- -------- -------------
<S> <C> <C> <C> <C>
PISCATAWAY, NJ 21,260 1988 01-10-96 5 - 40 YRS
SYRACUSE, NY 17,421 1989 06-30-97 5 - 40 YRS
CLEVELAND, OH 19,143 1990 11-17-95 5 - 40 YRS
DAYTON, OH 11,406 1987 12-30-97 5 - 40 YRS
TULSA, OK 8,097 1985 07-28-94 5 - 40 YRS
PHILADELPHIA (SOCIETY HILL), PA 50,838 1986 10-01-97 5 - 40 YRS
MYRTLE BEACH (KINGSTON PLANTATION), SC 29,553 1987 12-05-96 5 - 40 YRS
NASHVILLE (AIRPORT), TN 10,596 1988 06-05-97 5 - 40 YRS
NASHVILLE, TN 9,925 1985 07-28-94 5 - 40 YRS
AUSTIN (DOWNTOWN), TX 24,720 1987 03-20-97 5 - 40 YRS
CORPUS CHRISTI, TX 11,412 1984 07-19-95 5 - 40 YRS
DALLAS (LOVE FIELD), TX 18,787 1986 03-29-95 5 - 40 YRS
DALLAS (MARKET CENTER), TX 28,578 1980 06-30-97 5 - 40 YRS
DALLAS (PARK CENTRAL ES), TX 13,774 1985 07-28-94 5 - 40 YRS
DALLAS (PARK CENTRAL SH), TX 49,537 1983 06-30-97 5 - 40 YRS
BURLINGTON, VT 31,287 1967 12-04-97 5 - 40 YRS
----------
TOTAL $1,475,325
==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
(a) BALANCE AT DECEMBER 31, 1995 $ 343,398 (b) BALANCE AT DECEMBER 31, 1994 $ 5,026
ADDITIONS DURING THE PERIOD 568,073 DEPRECIATION EXPENSE DURING THE PERIOD 5,371
DISPOSITIONS DURING THE PERIOD (81) ---------
----------- BALANCE AT DECEMBER 31, 1995 10,397
BALANCE AT DECEMBER 31, 1996 911,390 DEPRECIATION EXPENSE DURING THE PERIOD 26,321
ADDITIONS DURING THE PERIOD 651,334 ---------
----------- BALANCE AT DECEMBER 31, 1996 36,718
BALANCE AT DECEMBER 31, 1997 $ 1,562,724 DEPRECIATION EXPENSE DURING THE PERIOD 50,682
---------
BALANCE AT DECEMBER 31, 1997 $ 87,400
</TABLE>
F-27
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1 - Certificate of Limited Partnership of the Operating Partnership dated May
20, 1994, as filed with the Secretary of State of Delaware (filed as
Exhibit 3.1 to the Operating Partnership's registration statement on Form
S-4 (File No. 333-39595) (the "1997 S-4 Registration Statement") and
incorporated herein by reference).
3.2 - Amended and Restated Agreement of Limited Partnership of the Operating
Partnership (filed as Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A
Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994
10-K/A") and incorporated herein by reference).
3.2.1 - First Amendment to Amended and Restated Agreement of Limited Partnership of
the Operating Partnership dated as of November 17, 1995 by and among
FelCor, Promus Hotels, Inc. and all of the persons or entities who are or
shall in the future become limited partners of the Operating Partnership
(filed as Exhibit 10.1.1 to FelCor's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and
incorporated herein by reference).
3.2.2 - Second Amendment to Amended and Restated Agreement of Limited Partnership
of the Operating Partnership dated as of January 9, 1996 between FelCor and
all of the persons or entities who are or shall in the future become
limited partners of the Operating Partnership (filed as Exhibit 10.1.2 to
the 1995 10-K and incorporated herein by reference).
3.2.3 - Third Amendment to Amended and Restated Agreement of Limited Partnership
of the Operating Partnership dated as of January 10, 1996 by and among
FelCor, MarRay-LexGreen, Inc. and all of the persons and entities who are
or shall in the future become limited partners of the Operating Partnership
(filed as Exhibit 10.1.3 to the 1995 10-K and incorporated herein by
reference).
3.2.4 - Fourth Amendment to the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of January 10, 1996 by
and among FelCor, Piscataway-Centennial Associates Limited Partnership and
all of the persons or entities who are or shall in the future become
limited partners of the Operating Partnership (filed as Exhibit 10.1.4 to
the 1995 10-K and incorporated herein by reference).
3.2.5 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of
the Operating Partnership dated as of May 2, 1996, between FelCor and all
of the persons or entities who are or shall in the future become limited
partners of the Operating Partnership, adopting Addendum No. 2 to Amended
and Restated Agreement of Limited Partnership of the Operating Partnership
dated as of May 2, 1996 (filed as Exhibit 10.1.5 to FelCor's Form 10-Q for
the quarter ended June 30, 1996 (the "1996 Second Quarter 10-Q") and
incorporated herein by reference).
3.2.6 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership
of the Operating Partnership dated as of September 16, 1996, by and among
FelCor, John B. Urbahns, II and all of the persons or entities who are or
shall in the future become limited partners of the Operating Partnership
(filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "1996 10-K") and incorporated
herein by reference).
</TABLE>
<PAGE> 74
<TABLE>
<S> <C>
3.2.7 - Seventh Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as of May 16, 1997, by and
among the Registrant, PMB Associates, Ltd. and all of the persons or
entities who are or shall in the future become limited partners of the
Operating Partnership (filed as Exhibit 10.1.7 to FelCor's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference).
3.2.8 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership
of the Operating Partnership dated as of February 6, 1998, by and among the
Registrant, Columbus/Front Ltd. and all of the persons or entities who are
or shall in the future become limited partners of the Operating Partnership
(filed as Exhibit 10.1.8 to FelCor's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference).
4.1 - Indenture dated as of October 1, 1997 by and among the Operating
Partnership, FelCor, the Subsidiary Guarantors named therein and SunTrust
Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the 1997 S-4
Registration Statement and incorporated herein by reference).
10.2.2 - Schedule of executed Lease Agreements identifying material variations
from the form of Lease Agreement with respect to hotels acquired by the
Operating Partnership through December 31, 1997 (filed as Exhibit 10.2.2 to
FelCor's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 and incorporated herein by reference).
10.23 - Third Amended and Restated Revolving Credit Agreement dated as of August
14, 1997 among FelCor and the Operating Partnership, as Borrower, the
Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent,
and Wells Fargo Bank, National Association, as Documentation Agent (filed
as Exhibit 10.23 to the 1997 S-4 Registration Statement and incorporated
herein by reference).
10.25 - Registration Rights Agreement dated as of September 26, 1997 among the
General Partner, the Operating Partnership, Morgan Stanley & Co.
Incorporated, NationsBank Capital Markets, Inc. and Salomon Brothers Inc
(filed as Exhibit 10.25 to the 1997 S-4 Registration Statement and
incorporated herein by reference).
21.1 - List of Subsidiaries of the Registrant.
23.1 - Consent of Coopers & Lybrand L.L.P.
27.1 - Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF FELCOR SUITES LIMITED PARTNERSHIP
The following lists all of the subsidiaries of FelCor Suites Limited
Partnership by name, state of organization and type of entity:
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY ORGANIZATION TYPE OF ENTITY
------------------ ------------ --------------
<S> <C> <C>
FelCor/CSS Hotels, L.L.C. Delaware Limited Liability Company
FelCor/LAX Hotels, L.L.C. Delaware Limited Liability Company
FelCor/CSS Holdings, L.P. Delaware Limited Partnership
FelCor/St. Paul Holdings, L.P. Delaware Limited Partnership
FelCor/LAX Holdings, L.P. Delaware Limited Partnership
Los Angeles International Airport Hotel Texas Limited Partnership
Associates, a Texas limited partnership
Promus/FelCor Lombard Venture Illinois General Partnership
MHV Joint Venture Texas General Partnership
Promus/FelCor Parsippany Venture New Jersey General Partnership
E. S. Charlotte Limited Partnership Minnesota Limited Partnership
E.S. North, an Indiana Limited Partnership Indiana Limited Partnership
Promus/FCH Development Company, L.L.C. Delaware Limited Liability Company
Promus/FCH Condominium Company, L.L.C. Delaware Limited Liability Company
FelCor Eight Hotels, L.L.C. Delaware Limited Liability Company
EPT Atlanta-Perimeter Center Limited Partnership Delaware Limited Partnership
EPT Austin Limited Partnership Delaware Limited Partnership
EPT Covina Limited Partnership Delaware Limited Partnership
EPT Kansas City Limited Partnership Delaware Limited Partnership
EPT Meadowlands Limited Partnership Delaware Limited Partnership
EPT Overland Park Limited Partnership Delaware Limited Partnership
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY ORGANIZATION TYPE OF ENTITY
------------------ ------------ --------------
<S> <C> <C>
EPT Raleigh Limited Partnership Delaware Limited Partnership
EPT San Antonio Limited Partnership Delaware Limited Partnership
FCH/DT Hotels, L.L.C. Delaware Limited Liability Company
FCH/DT Holdings, L.P. Delaware Limited Partnership
FCH/DT BWI Holdings, L.P. Delaware Limited Partnership
Kingston Plantation Development Corp. Delaware Corporation
FCH/PSH, L.P. Pennsylvania Limited Partnership
FelCor/Charlotte Hotel, L.L.C. Delaware Limited Liability Company
FelCor/Indianapolis Hotel, L.L.C. Delaware Limited Liability Company
Promus/FelCor San Antonio Venture Texas General Partnership
Promus/FelCor Hotels, L.L.C. Delaware Limited Liability Company
Promus/FelCor Manager, Inc. Delaware Corporation
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FelCor Suite Hotels, Inc.
We consent to the incorporation by reference in the registration statement on
Form S-4 (File No. 333-39595) of our report dated January 20, 1998 on our audit
of the consolidated financial statements and financial statement schedule of
FelCor Suites Limited Partnership as of December 31, 1997 and 1996, and for the
years ended December 31, 1997, 1996, 1995, which report is included herein in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,543
<SECURITIES> 0
<RECEIVABLES> 18,908
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,451
<PP&E> 1,577,164
<DEPRECIATION> 87,400
<TOTAL-ASSETS> 1,673,364
<CURRENT-LIABILITIES> 36,002
<BONDS> 476,819
0
151,250
<COMMON> 0
<OTHER-SE> 1,000,699
<TOTAL-LIABILITY-AND-EQUITY> 1,673,364
<SALES> 0
<TOTAL-REVENUES> 176,651
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,792
<INCOME-PRETAX> 69,652
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,652
<DISCONTINUED> 0
<EXTRAORDINARY> 185
<CHANGES> 0
<NET-INCOME> 69,467
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.67
</TABLE>
