<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
(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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ---------------------
<S> <C>
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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<PAGE> 2
FELCOR SUITES LIMITED PARTNERSHIP
INDEX
<TABLE>
<CAPTION>
FORM 10-K
REPORT
ITEM NO. PAGE
- ------- --------
<S> <C>
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 3
</TABLE>
2
<PAGE> 3
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).
3
<PAGE> 4
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).
4
<PAGE> 5
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
5
<PAGE> 6
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: June 16, 1998
6
<PAGE> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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)
As discussed in Note 1, the Operating Partnership completed
acquisitions of interests in 23 hotels during 1996 and 30 hotels in 1997 for
aggregate purchase prices of $540.3 million and $658.4 million respectively.
The acquisitions are accounted for using the purchase method and the results of
operations for the hotels acquired are included in the Company's historical
Statements of Operations from the date of acquisition. As such, 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 at the beginning of the respective
periods presented, 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> 23
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 at the beginning of the respective periods
presented, 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> 24
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> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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
