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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 333-3959-01
FelCor Lodging Limited Partnership
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2544994
(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)
</TABLE>
(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. [ ]
The aggregate market value of the voting and non-voting limited
partnership interests held by non-affiliates of the registrant, as of March 10,
1999, was approximately $48.4 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders of
FelCor Lodging Trust Incorporated - Part III
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FELCOR LODGING LIMITED PARTNERSHIP
INDEX
<TABLE>
<CAPTION>
FORM 10-K
REPORT
ITEM NO. PAGE
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<S> <C>
PART I
1. Business.....................................................................................................1
2. Properties................................................................................................. 18
3. Legal Proceedings...........................................................................................25
4. Submission of Matters to a Vote of Security Holders.........................................................25
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................25
6. Selected Financial Data.....................................................................................28
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................31
7A. Quantitative and Qualitative Disclosures About Market Risk..................................................44
8. Financial Statements and Supplementary Data.................................................................44
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................44
PART III
10. Directors and Executive Officers of the Company ............................................................45
11. Executive Compensation......................................................................................45
12. Security Ownership of Certain Beneficial Owners and Management..............................................45
13. Certain Relationships and Related Transactions..............................................................46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................47
</TABLE>
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PART I
ITEM 1. BUSINESS
FelCor Lodging Limited Partnership and its subsidiaries (the "Company")
at December 31, 1998, owned interests in 193 hotels with nearly 50,000 rooms and
suites (collectively the "Hotels"). The sole general partner of the Company is
FelCor Lodging Trust Incorporated ("FelCor"), one of the nations largest hotel
real estate investment trusts ("REIT"). At December 31, 1998 FelCor owned a
greater than 95% equity interest in the Company. The Company owns 100% interests
in 169 of the Hotels, a 90% or greater interest in entities owning seven hotels,
a 60% interest in an entity owning two hotels and 50% interests in separate
entities that own 15 hotels.
The Company is the owner of the largest number of Embassy Suites(R),
Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded
hotels in the world. The following table provides a schedule of the Hotels, by
brand, operated by each of the Company's lessees at December 31, 1998:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ----- ------- -----
<S> <C> <C> <C>
Embassy Suites 57 57
Holiday Inn 49* 49
Doubletree and Doubletree Guest Suites(R) 17 17
Crowne Plaza and Crowne Plaza Suites(R) 14 14
Holiday Inn Select(R) 11 11
Sheraton(R)and Sheraton Suites(R) 9 1 10
Hampton Inn(R) 9 9
Holiday Inn Express(R) 7* 7
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independents 2 2
Courtyard by Marriott(R) 2 2
Days Inn(R) 1* 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Radisson(R) 1 1
Ramada(R) 1* 1
Westin(R) 1 1
---- ---- ----
Total Hotels 86 107 193
==== ==== ====
</TABLE>
* The Company has sold, or intends to sell in 1999, two Holiday Inns,
two Holiday Inn Expresses and the Ramada and Days Inn owned at
December 31, 1998.
At December 31, 1998, the Company leased 86 of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company or a consolidated
subsidiary thereof (collectively "DJONT"), and 106 of the Hotels to Bristol
Hotels & Resorts or a consolidated subsidiary thereof ("Bristol" and, together
with DJONT, the "Lessees"). One hotel managed by Bristol was not leased. The
Hotels are leased to the Lessees pursuant to leases generally having initial
terms of five to 15 years that provide for rent equal to the greater of a
minimum base rent ("Base Rent") or a percentage rent ("Percentage Rent") based
on room and suite revenues, food and beverage revenues, food and beverage rents
and, in certain instances, other hotel revenues ("Percentage Leases"). See "Item
2. Properties" for information regarding the terms of the Percentage Leases.
<PAGE> 4
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. DJONT has entered into management agreements pursuant to which 73 of
the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation
("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood"), and three are managed by two independent
management companies.
Bristol leases and manages 106 Hotels and manages one hotel which
operates without a lease. Bristol is one of the largest independent hotel
operating companies in North America and operates the largest number of Bass
Hotels & Resorts-branded hotels in the world.
GROWTH STRATEGIES
The Company's primary business objectives are to (i) add value to its
current hotels through aggressive asset management and the strategic investment
of capital, (ii) build and maintain solid working relationships with selected
upscale and full-service hotel brand owners/managers who are willing to commit
to the ongoing success of the Company's hotels they license and/or manage and
(iii) selectively acquire hotel assets that have been underperforming due to
lack of sufficient capital improvements, or poor management or franchise
affiliation. The Company seeks to increase operating cash flow and enhance its
value through both internal growth and acquisitions. The Company's internal
growth strategy, which has been its primary focus since the completion of
FelCor's merger with Bristol Hotel Company in July 1998, is to utilize its asset
management expertise to improve the quality of its hotels by renovating,
redeveloping and, in some instances, rebranding them, thereby improving hotel
revenue performance, and to participate, through the Percentage Leases, in any
growth in revenues at its hotels. The Company presently intends to concentrate
its acquisition growth strategy on a limited number of carefully selected
upscale and full-service hotel opportunities that meet the Company's investment
criteria.
STRATEGIC RELATIONSHIPS
The Company currently maintains strategic brand owner/manager
relationships with Promus (Embassy Suites and Doubletree), Bass Hotels &
Resorts, Inc. ("Bass") and Bristol (Crowne Plaza and Holiday Inn), and Starwood
(Sheraton and Westin).
o Promus Hotel Corporation is the largest operator of
full-service, all-suite hotels in the United States. Promus is
also the owner of the Embassy Suites, Doubletree and
Doubletree Guest Suites brands and the manager of 73 of the
Company's Hotels. In addition, based on the closing price of
FelCor's Common Stock on the NYSE on December 31, 1998, Promus
owned Common Stock of FelCor and units of partnership interest
("Units") in the Company with an aggregate value of more than
$32 million at December 31, 1998, and was a 50% joint venture
partner with the Company in the ownership of 12 hotels and the
holder of a 10% equity interest in subsidiaries of the Company
owning six hotels. The relationship with Promus has provided
the foundation for the Company's historical growth.
o Bass Hotels & Resorts, Inc., which holds the hotel businesses
of Bass plc of the United Kingdom, operates or franchises more
than 2,600 hotels and 450,000 guest rooms in more than 75
countries and territories. Among the brands owned by Bass are
Holiday Inn, Crowne Plaza, Holiday Inn Express, Holiday Inn
Select and Inter-Continental(R). At December 31, 1998, Bass
owned approximately 14% of the outstanding Common Stock of
FelCor (with a market value of more than $200 million) and
nearly 10% of the outstanding Common Stock of Bristol.
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o Starwood Hotels & Resorts Worldwide, Inc. is one of the
world's largest hotel operating companies. Directly and
through subsidiaries, Starwood owns, leases, manages or
franchises approximately 650 hotels with more than 212,500
rooms in 70 countries. This strategic alliance, coupled with
the purchase of seven Sheraton hotels in 1997, provided the
Company with its initial entry into the upscale, full-service,
non-suite hotel market. Most recently, Starwood and the
Company formed a joint venture, owned 60% by the Company and
40% by Starwood, to own two hotels managed by Starwood. This
joint venture owns the Company's first Westin hotel.
The strength of the Company's strategic relationships with the
foregoing brand owner/managers are evidenced by their significant equity
investments in the Company and in 20 of the Hotels. Both Promus and Starwood
have, directly or through affiliates, also (i) agreed to make subordinated loans
to DJONT (in support of its obligations under certain Percentage Leases) (ii)
subordinated certain customary fees to DJONT's obligations under applicable
Percentage Leases and (iii) granted to DJONT certain performance-based
termination rights under certain of their management agreements. Promus has also
guaranteed a $25 million loan to the Company.
HOTEL ACQUISITION AND EXPANSION
On July 28, 1998, FelCor completed its merger with Bristol Hotel
Company, and the contribution of the real estate holdings and other assets
acquired to the Company (the "Merger"). The Merger resulted in the Company's net
acquisition of 107 primarily full-service hotels in return for approximately
31.0 million units of limited partner interest ("Units") and the assumption, net
of cash received, of approximately $889 million of related debts and other
liabilities. Three of the 107 hotels acquired in the Merger were disposed of
prior to December 31, 1998 for approximately $7.8 million. In addition to the
Bristol Hotel Company assets, the Company acquired interests in 16 hotels in
1998 at an aggregate cost of approximately $412.8 million.
At December 31, 1998, the Company owned interests in 193 hotels with an
aggregate of 49,186 rooms and suites. Of the Hotels, the Company owns 100%
equity interests in 169 hotels (42,984 rooms and suites), a 90% or greater
interest in entities owning seven hotels (1,745 rooms and suites), a 60%
interest in an entity owning two hotels (824 rooms) and 50% interests in
separate entities that own 15 hotels (3,633 rooms and suites). The Hotels are
located in 34 states and Canada with an aggregate of 79 hotels located in
California (20), Florida (18) and Texas (41).
The following table provides information regarding the net acquisition
of hotels through December 31, 1998:
<TABLE>
<CAPTION>
NET NUMBER OF
HOTELS ACQUIRED
---------------
<S> <C>
1994 7
1995 13
1996 23
1997 30
1998 120
----
TOTALS 193
====
</TABLE>
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During 1998, the Company also completed the construction of an
aggregate of 224 additional suites, additional meeting rooms and other public
area upgrades at three of the Hotels leased to DJONT, at an aggregate cost of
approximately $23.4 million. These additions were made to the Company's Embassy
Suites hotels in Jacksonville, Florida (67 suites), Orlando (North), Florida (67
suites) and New Orleans, Louisiana (90 suites).
HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING
The Company believes that one factor that differentiates it from other
hotel companies is its commitment to making capital expenditures where
necessary, to renovate, redevelop, and rebrand its Hotels. The Company
approaches this in four different ways: (i) an aggressive renovation and
redevelopment program as hotels are acquired to bring them up to their optimum
competitive position, (ii) rebranding hotels in certain instances to improve the
revenue generating capacity of the hotel, (iii) contributions of at least 4% of
annual room and suite revenue for the DJONT hotels and 3% of total annual hotel
revenue for the Bristol hotels (on a cumulative basis) for routine capital
replacements and improvements (the "Capital Reserve"), and (iv) insuring that
the Lessees adhere to a proactive maintenance and repair program for the Hotels
amounting to approximately 4.5% of hotel revenues. In 1998, the Company,
together with Bristol Hotel Company prior to the Merger, spent a total of
approximately $40 million from the Capital Reserve on routine replacements and
improvements at the Hotels and completed approximately $180 million in
additional capital improvements to approximately 40 hotels. During 1998,
approximately 3% of total Hotel room nights were lost due to renovations. The
Company presently expects to spend an additional $160 million in capital
improvements to 56 Hotels during 1999 and expects that approximately 3% of total
Hotel room nights again will be lost due to renovations.
In 1998, the Company rebranded 16 hotels, as follows:
<TABLE>
<CAPTION>
PRIOR BRAND NEW BRAND LOCATION
----------- --------- --------
<S> <C> <C>
Hilton Crowne Plaza Secaucus, New Jersey
Holiday Inn Crowne Plaza Hartford, Connecticut
Holiday Inn Crowne Plaza San Francisco, California
Holiday Inn Crowne Plaza Houston, Texas
Holiday Inn Select Crowne Plaza Greenville, South Carolina
Holiday Inn Select Crowne Plaza Miami, Florida
Holiday Inn Select Crowne Plaza Philadelphia, Pennsylvania
Harvey Hotel Crowne Plaza Atlanta, Georgia
Harvey Hotel Crowne Plaza Dallas, Texas
Harvey Hotel Crowne Plaza Addison, Texas
Bristol Suites Crowne Plaza Suites Dallas, Texas
Doubletree Guest Suites Sheraton Suites Ft. Lauderdale, Florida
Doubletree Guest Suites Sheraton Suites Lexington, Kentucky
Sheraton Westin Dallas, Texas
Radisson Sheraton Dallas, Texas
Harvey Suites Holiday Inn & Suites Houston, Texas
</TABLE>
During 1999, the Company presently expects to rebrand four Holiday Inn
hotels and one independent hotel as Crowne Plaza hotels, four Doubletree Guest
Suites hotels as Embassy Suites hotels, and one Radisson hotel as a Doubletree
hotel.
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<PAGE> 7
REPAIRS AND MAINTENANCE
During the year ended December 31, 1998, approximately $36.4 million
and $32.0 million was spent by the Lessees on routine repairs and maintenance at
the Hotels leased by DJONT and Bristol, respectively. This represents
approximately 4.7% of total hotel revenues.
FINANCING TRANSACTIONS
On May 1, 1998, FelCor issued 5.75 million depositary shares,
representing 57,500 shares of its 9% Series B Cumulative Redeemable Preferred
Stock ("Series B Preferred Stock"), at $25.00 per depositary share, providing
net proceeds of approximately $139.1 million which was contributed to the
Company for corresponding Series B Preferred Units. The Series B Preferred Stock
and the corresponding depositary shares may be called by FelCor at par on or
after May 7, 2003, have no stated maturity, sinking fund or mandatory
redemption, and are not convertible into any other securities of FelCor. The
Series B Preferred Stock has a liquidation preference of $2,500 per share
(equivalent to $25.00 per depositary share) and is entitled to quarterly
dividends at an annual rate equal to 9% of the liquidation preference
(equivalent to $2.25 annually per depositary share). The Series B Preferred
Units have the same features as the Series B Preferred Stock.
On July 1, 1998, the Company increased its unsecured credit facilities
to $1.1 billion, consisting of an $850 million revolving line of credit ("Line
of Credit") which matures in June 2001 and a $250 million non-amortizing term
loan ("Term Loan") which matures in December 1999. Interest payable on
borrowings under the credit facilities is variable, determined from a ratings-
and leverage-based pricing matrix, ranging from 87.5 basis points to 175 basis
points above the London Interbank Offered Rate ("LIBOR"). During 1998, the
Company's interest spread was 150 basis points over LIBOR and, at December 31,
1998, the 30-day LIBOR rate was 5.628750%. Additionally, the Company is required
to pay an unused commitment fee, which varies under a ratings-based pricing
matrix, ranging from 20 to 30 basis points. During 1998, the Company wrote off
approximately $2.5 million of deferred financing fees relating to the previous
unsecured credit facility of $550 million.
The Line of Credit and Term Loan contain various affirmative and
negative covenants, including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. The Company's other borrowings also contain affirmative and
negative covenants that are generally equal to or less restrictive than under
the Line of Credit and Term Loan. At December 31, 1998, the Company was in
compliance with all such covenants.
In addition to Line of Credit and Term Loan, at December 31, 1998, the
Company had other unsecured indebtedness consisting of a $25 million term loan
guaranteed by Promus ("Renovation Loan"), $298 million (net of discount) of
publicly-traded senior term notes, and approximately $10 million of other
indebtedness. At December 31, 1998, the Company also had approximately $276
million in secured debt, most of which is nonrecourse to the Company (with
certain exceptions) and contains provisions allowing for the substitution of
collateral upon satisfaction of certain conditions.
The Company had approximately $114 million in borrowing capacity under
its Line of Credit at December 31, 1998 and FelCor also had the ability to issue
up to $946 million of common stock, preferred stock, debt securities and/or
common stock warrants under shelf registration statements previously declared
effective. Given the current market prices of its equity securities, FelCor has
no present intention to effect a public offering of equity securities in the
near future.
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The FelCor Board of Directors has adopted a policy which limits the
Company's indebtedness to not more than 40% of its investment in hotel assets,
at cost, which at December 31, 1998, would have allowed the Company to borrow up
to approximately $1.7 billion under such policy. This policy may be modified by
FelCor's Board of Directors at any time.
At December 31, 1998, the consolidated indebtedness of the Company was
approximately 38% of total assets and its interest coverage ratio was 3.8-to-1.
The Company believes that its current policy (limiting indebtedness to 40% of
its investment in hotel assets), its preference for unsecured debt and its
historical success in raising equity capital for expansion, demonstrate the
Company's commitment to the maintenance of a conservative but flexible capital
structure.
The Company is currently seeking to refinance the $250 million term
loan that matures on December 31, 1999.
HOTEL OPERATING PERFORMANCE
The Company's 102 "Comparable Hotels" (as defined on the following
page) owned at December 31, 1998, produced a RevPAR (as defined below) increase
of 6.2% over 1997, nearly double that of the industry average. The largest
portion of this increase, with respect to the DJONT Hotels, came from the 18
former Crown Sterling Suites hotels ("CSS Hotels"), which continued their trend
of improved RevPAR throughout 1998, achieving a RevPAR of $92.05 in 1998
compared to $85.04 during 1997, an increase of 8.2%. The Company attributes this
increase to the continuing effects of the renovation, redevelopment and
rebranding of these hotels in 1996 and early 1997. The largest increase, with
respect to the Bristol Hotels, came from the Omaha Acquisition hotels, which
experienced a RevPAR increase of approximately 15.3% in 1998 over 1997. The
Company attributes this increase primarily to a transition of the Omaha
Acquisition hotels to the professional management of Bristol.
The Company believes that, when analyzing the performance of the
Hotels, looking at "comparable" hotels is the most meaningful. For the DJONT
Hotels, "Comparable Hotels" means those hotels that were owned by the Company
throughout all of 1997 and 1998. This generally includes the Hotels that have
benefitted from the Company's renovation, redevelopment and rebranding programs
and generally excludes those Hotels that are currently undergoing renovation and
experiencing out-of-service rooms and suites due to their renovation. For the
Bristol Hotels, "Comparable Hotels" excludes those Hotels undergoing
redevelopment during either of the comparison years and those hotels that are
identified for sale.
The following tables set forth, by Lessee, the historical occupancy
percentage ("Occupancy"), average daily rate ("ADR") and revenue per available
room ("RevPAR") at December 31, 1998 and 1997, and the percentage changes
therein between the periods presented, for both the Comparable Hotels and the
Non- comparable Hotels owned by the Company at December 31, 1998. This
information is presented regardless of ownership of the Hotels during the
periods presented.
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Comparable Hotels
<TABLE>
<CAPTION>
1998
-------------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels.......................... 73.6% $113.59 $83.59
CSS Hotels............................... 73.2 125.77 92.05
1996 Acquisitions........................ 73.7 126.08 92.86
Total DJONT Comparable Hotels (A)........ 73.4 122.33 89.83
Original Bristol......................... 71.5 74.38 53.15
Holiday Acquisition...................... 73.9 87.31 64.52
Omaha Acquisition........................ 50.5 62.15 31.36
Total Bristol Comparable Hotels (B)...... 67.4 77.94 52.55
Total Comparable Hotels............... 70.0% $97.71 $68.38
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels.......................... 76.1% $109.35 $83.17
CSS Hotels............................... 73.4 115.85 85.04
1996 Acquisitions........................ 74.0 118.61 87.76
Total DJONT Comparable Hotels............ 74.3 114.77 85.27
Original Bristol......................... 74.2 68.76 51.00
Holiday Acquisition...................... 74.7 81.10 60.60
Omaha Acquisition........................ 46.1 59.05 27.21
Total Bristol Comparable Hotels.......... 67.7 72.74 49.26
Total Comparable Hotels............... 70.5% $ 91.37 $64.40
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
-------------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels......................... (2.5)pts. 3.9 % 0.5%
CSS Hotels.............................. (0.2) 8.6 8.2
1996 Acquisitions....................... (0.3) 6.3 5.8
Total DJONT Comparable Hotels........... (0.9) 6.6 5.4
Original Bristol........................ (2.7) 8.2 4.2
Holiday Acquisition..................... (0.8) 7.7 6.5
Omaha Acquisition....................... 4.4 5.2 15.3
Total Bristol Comparable Hotels......... (0.3) 7.1 6.7
Total Comparable Hotels.............. (0.5)pts. 6.9 % 6.2%
</TABLE>
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels), and 1996
Acquisitions (12 hotels) are considered DJONT Comparable Hotels, since these
hotels were owned by the Company throughout the years ended December 31, 1998
and 1997.
(B) Bristol Comparable Hotels (59 hotels) excludes 39 hotels undergoing
redevelopment during either 1997 or 1998, three individual hotel acquisitions,
and six hotels identified for sale.
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<PAGE> 10
Non-comparable Hotels
<TABLE>
<CAPTION>
1998
----------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions (A)................... 71.0 % $112.11 $79.56
1998 Acquisitions (A)................... 71.4 99.77 71.22
Bristol Non-comparable Hotels (B)....... 67.0 87.30 58.46
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions....................... 71.8 % $109.26 $78.45
1998 Acquisitions....................... 72.6 97.80 71.01
Bristol Non-comparable Hotels .......... 72.3 79.11 57.21
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
-----------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions....................... (0.8) pts. 2.6 % 1.4%
1998 Acquisitions....................... (1.2) 2.0 0.3
Bristol Non-comparable Hotels .......... (5.3) 10.4 2.2
</TABLE>
(A) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions (13 hotels) are
excluded from the DJONT Comparable Hotels because they were not owned by the
Company during all of 1998 and 1997.
(B) The Bristol Non-comparable Hotels excludes two hotels closed during
renovation and six hotels identified for sale. In the aggregate, the six hotels
identified for sale had a 7.5% decline in RevPAR during 1998.
The principal factors affecting the Company's results of operations
during 1998 were the growth in the number of hotels owned and the continuing
improvement in room and suite revenue, as measured by RevPAR. It is currently
expected that improvements in room and suite revenue will be an increasingly
important factor during 1999 as the renovation, redevelopment and rebranding of
a number of the Hotels is completed. Growth in room and suite revenues
significantly impacts the Company because its principal source of revenue is
lease payments by the Lessees under the Percentage Leases. The Percentage Leases
are computed as a percentage of room and suite revenues, food and beverage
revenues, food and beverage rents and, in certain instances, other Hotel
revenues.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize other cash on hand
or borrowings under the Line of Credit to make distributions to its equity
holders.
COMPETITION
The hotel industry is highly competitive. Each of the Company's hotels
is located in a developed area that includes other hotel properties and competes
for guests primarily with other full-service hotels in its immediate vicinity
and secondarily with other hotel properties in its geographic market. An
increase in the number of competitive hotel properties in a particular area
could have a material adverse effect on the
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<PAGE> 11
Occupancy, ADR and RevPAR of the Company's hotels in that area. The Company
believes that brand recognition, location, the quality of the hotel and services
provided, and price are the principal competitive factors affecting the
Company's hotels.
The Company competes for investment opportunities with other entities,
some of which have substantially greater financial resources than the Company.
These larger entities may generally be able to accept more risk than the Company
can prudently manage. Competition may generally reduce the number of suitable
investment opportunities offered to the Company and may increase the bargaining
power of owners seeking to sell their hotels.
PROPERTY TAXES
Each Hotel is subject to real and personal property taxes, which are
borne by the Company under the Percentage Leases. During 1998, real and personal
property taxes incurred by the Company amounted to $32.9 million, or 9.7% of the
Company's total revenues. Real and personal property taxes on the Hotels may
increase as property tax rates change and as the properties are assessed or
reassessed by taxing authorities. FelCor's Vice President, Taxes, Michael L.
Hunter and his staff, work with the numerous taxing authorities, both directly
and through independent agents, to assure that the Hotels are fairly assessed
and to minimize the Company's tax liabilities.
TAX STATUS OF FELCOR
FelCor has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its initial taxable year ending December 31, 1994. As a REIT, FelCor (subject to
certain exceptions) will not be subject to federal income taxation, at the
corporate level, on its taxable income that is distributed to its shareholders.
A REIT is subject to a number of organizational and operational requirements,
including a requirement that it distribute annually at least 95% of its taxable
income. FelCor may, however, be subject to certain state and local taxes on its
income and property. The Company expects to make distributions on its Units
sufficient to enable FelCor to meet its distribution obligations as a REIT.
FelCor and the Company have each adopted the calendar year as its taxable year.
LESSEE OPERATIONS
The Lessees lease all but one of the Hotels under Percentage Leases,
pursuant to which the Lessee is obligated to pay the Company the greater of a
minimum Base Rent or Percentage Rent based on a percentage of revenues. See
"Item 2. Properties" for additional information regarding the terms of the
Percentage Leases. The Lessees have entered into, and are responsible for the
payment of all fees under, the franchise licenses and management agreements
relating to the Hotels, may hold the liquor licenses applicable to the Hotels,
own and maintain the inventories required for the operation of the Hotels, pay
for normal maintenance and repair expenses, enter into various operating,
maintenance and service agreements with respect to the Hotels, and are
responsible for compliance with the license, management and other agreements
affecting hotel operations. In addition, the Lessees provide asset management
services to the Hotels, including the supervision of the day-to-day operations
of the Hotels by the management companies engaged to manage such Hotels and the
establishment and implementation of capital expenditure programs.
Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate
50% common equity interest in DJONT, have entered into an agreement with the
Company pursuant to which they have agreed that, through April 15, 2005, any
distributions received by them from DJONT (in excess of their tax liabilities
with respect to the income of DJONT) will be utilized to purchase Common Stock
or Units from FelCor or the Company in an underwritten public offering or
annually, at the then current market prices. The agreement stipulates that
Messrs. Feldman and Corcoran are restricted from selling the stock so acquired
for a period of two years from the date of purchase. RGC Leasing, Inc., which
owns the other 50% common equity interest in the Lessee, may
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elect to purchase Common Stock or Units upon similar terms, at its option.
Pursuant to this agreement, each of Messrs. Feldman and Corcoran purchased 3,775
shares of Common Stock in December 1995. The Independent Directors (as herein
defined) may suspend or terminate such agreement at any time.
DJONT, as a related third party, has elected to provide its audited
financial statements to the Company for inclusion elsewhere in this Form 10-K,
although such statements are not generally required to be disclosed.
See "Index to Financial Statements" at page F-1.
Bristol, which succeeded to the hotel operating business conducted by
Bristol Hotel Company prior to its July 1998 merger into FelCor, is an
independent publicly owned company whose common stock is traded on the New York
Stock Exchange. Bristol is required to file with the Securities and Exchange
Commission such financial statements and other information as may be required
under the Securities Exchange Act of 1934, as amended. Reference is made to
Bristol's filings with the Securities and Exchange Commission for information
relating to Bristol.
EMPLOYEES
The Company has no employees. Management functions of the Company are
performed by FelCor as the sole general partner. Mr. Corcoran entered into an
employment agreement with the FelCor in 1994 that continues through 1999. None
of FelCor's other executive officers has an employment agreement with FelCor. In
addition to Mr. Corcoran, FelCor had 40 other full-time employees at December
31, 1998. All persons employed in the day-to-day operation of the Company's
Hotels are employees of the Lessees, or of the management companies engaged by
the Lessees, to operate such Hotels and are not employees of FelCor or the
Company.
PERSONNEL AND OFFICE SHARING ARRANGEMENTS
The Company's general partner, FelCor, shares executive offices with
DJONT and FelCor, Inc., a corporation owned by Messrs. Feldman and Corcoran.
Each entity bears an allocated share of the costs thereof, including but not
limited to rent, salaries of certain personnel (other than Mr. Corcoran, who is
compensated solely by FelCor), office supplies, telephones and depreciation of
office furniture, fixtures and equipment. The Company reimburses FelCor for its
share of such allocated costs. Such allocations of shared costs are subject to
the approval of a majority of the Independent Directors of FelCor. During 1998,
approximately $2.8 million (approximately 63% of all allocable expenses) were
ultimately borne by the Company under this arrangement.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements and analyses contained in this Annual Report on Form
10-K, in FelCor's 1998 Annual Report to Stockholders, or that may in the future
be made by, or be attributable to, the Company, may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. All of such
forward-looking statements are based upon present expectations and assumptions
that may or may not actually occur. The following factors constitute cautionary
statements identifying important factors, including material risks and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements or in the Company's historical results. Each of the following
factors, among others, could adversely affect the ability of the Company to meet
its current expectations.
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Inability to Integrate Bristol Hotel Company's Assets or Realize
Anticipated Benefits of Merger.
Primarily as a result of the Merger, the number of hotels owned by the
Company more than doubled during 1998. Although the Bristol Hotels are operated
by Bristol under long-term leases, the Company must fully integrate those hotels
into its hotel portfolio and FelCor may need additional people and resources to
handle the increased work load. If the Company is unable successfully to
integrate the Bristol Hotels into its portfolio, the Company's business,
financial condition and results of operations could suffer. A large number of
the Bristol Hotels are in the process of, or awaiting, substantial renovation,
redevelopment and rebranding. If the implementation of these plans is
significantly delayed or curtailed, or the improvements do not yield the
anticipated results, then FelCor and the Company may have paid too much for the
Bristol Hotels in the Merger.
Increases in Leverage and Floating Rate Debt; Inability to Retain Earnings
or Refinance Debt.
As a result of the Merger with Bristol Hotel Company, the Company's
leverage increased during 1998 and may increase further. At December 31, 1998,
the Company had approximately $1.6 billion in indebtedness, of which
approximately $276 million was secured, and a consolidated debt-to-total assets
ratio of 38%. The Company's ratio of EBITDA to interest expense for the years
ended December 31, 1999 and 1997 was 3.8-to-1 and 4.4-to-1, respectively. At
December 31, 1998, the Company had $695.7 million in indebtedness, or 44% of all
the Company's indebtedness, that provided for the payment of interest at
floating rates. Most of this floating rate debt bears interest at a rate equal
to between 0.45% and 1.75% plus the 30-day LIBOR rate. At December 31, 1998, the
30-day LIBOR rate was 5.628750%. Changes in economic conditions could result in
higher interest rates, thereby increasing the Company's interest expense on its
floating rate debt and reducing funds available for its current renovation,
redevelopment and rebranding plans and for distribution to the Company's
unitholders.
In order to qualify as a REIT, FelCor must distribute to its
stockholders, annually, at least 95% of its net taxable income (excluding
capital gains) and the distributions it receives from the Company are its sole
source of funds to make such distributions. Accordingly, the Company cannot
retain any substantial portion of its earnings to meet its capital needs. The
Company has $16 million in debt maturing prior to December 31, 1998 and its $250
million Term Loan matures on that date. At December 31, 1998, the Company had
$114 million in borrowing capacity available under its existing Line of Credit
and is currently seeking to refinance all or a substantial portion of the debt
coming due during 1999. If the Company were to default in the payment when due
of more than $10 million of its outstanding indebtedness, cross default
provisions under most of its credit facilities could result in substantially all
of the Company's debt being declared immediately due and payable. Should that
occur, the Company may be unable to refinance or repay such indebtedness in full
under such circumstances.
Dependence on Lessees' Hotel Operations.
The Company's revenues currently and in the future will consist
primarily of rents received under its leases. The Lessees' payment of such
rental obligations is generally unsecured. As the lessee of 106 of the Bristol
Hotels, Bristol had a net worth of approximately $35 million at December 31,
1998, and is obligated to maintain certain net worth and liquidity requirements.
DJONT, which leases 86 of the Hotels, has limited assets, derives its revenue
solely from the operation of the Company's hotels and, at December 31, 1998, had
a stockholders' deficit of approximately $8.2 million. However, DJONT or its
subsidiaries have the right to borrow from FelCor, Inc., Promus, Doubletree
Hotel Corporation, Lee & Urbahns, L.P. and ITT Sheraton Corporation (which have
an equity interest in and/or are managers of hotels leased by DJONT), on a
subordinated basis and subject to certain limitations, up to an aggregate of
approximately $17.3 million to meet certain of its rental obligations. The
Company will be substantially dependent upon the successful operation of its
hotels to enable the lessees (particularly DJONT) to meet their rental
obligations under the leases.
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The leases with DJONT and Bristol have varying terms, generally no
longer than 15 years. At the expiration of the lease terms, the Company will be
required to negotiate renewals or seek replacement leases, which could adversely
affect its results of operations.
Conflicts of Interest
Certain FelCor Directors. As of December 31, 1998, DJONT leased 86 of
the Company's hotels. All of the voting interests (and a 50% common equity
interest) in DJONT are beneficially owned by Hervey A. Feldman and Thomas J.
Corcoran, Jr. The remaining 50% of the common equity interests in DJONT are
non-voting and are beneficially owned by the children of Charles N. Mathewson.
Mr. Feldman is a co-founder and the Chairman Emeritus of FelCor. Mr. Corcoran is
a co-founder and the President and Chief Executive Officer of FelCor. Mr.
Mathewson and Mr. Corcoran both serve as directors of FelCor.
All of the Bristol Hotels are leased to and/or managed by Bristol. No
officer or director of Bristol is also an officer or director of FelCor.
However, Donald J. McNamara, the Chairman of the Board of FelCor, is a principal
in a firm that controls the general partner of United/Harvey Holdings, L.P.
("United Harvey"), which beneficially owns approximately 39.5% of the stock of
Bristol. Five partnerships that own substantial equity interests in United
Harvey also own in the aggregate approximately 14.1% of FelCor's outstanding
Common Stock. In addition, Michael D. Rose and Richard C. North joined FelCor's
Board during 1998. Mr. Rose is the former Chairman of the Board of Promus. Mr.
North is the Group Finance Director of the parent of Holiday Hospitality
Franchising, Inc. ("Holiday Hospitality"). Promus is, and will continue to be,
the franchisor and manager of many of FelCor's hotels. Holiday Hospitality is
the franchisor of most of the Bristol Hotels and, together with its affiliates,
owns approximately 9.9% of the stock of Bristol and approximately 14.1% of
FelCor's outstanding Common Stock.
Issues may arise under the leases, franchise agreements and management
contracts, and in the allocation of acquisition and leasing opportunities, that
present conflicts of interests due to the relationship of these directors to the
companies with which they are or have been associated. As an example, any
decreases in lease rental rates payable by DJONT may increase the profits of
DJONT, in which Messrs. Feldman and Corcoran and Mr. Mathewson's children have a
direct economic interest, at the expense of the Company and its unitholders. In
the event the Company enters into new or additional hotel leases or other
transactions with Bristol, the interests of Mr. McNamara and Mr. North, by
virtue of their relationships to significant investors in Bristol, may conflict
with the interests of the Company and its unitholders. For example, any decrease
in lease rental rates payable by Bristol may decrease the Company's profits to
the benefit of Bristol. Also, in the selection of franchises under which the
Company's hotels will be operated, Mr. Rose and Mr. North, by virtue of their
relationships with Promus and Holiday Hospitality, respectively, which are hotel
franchising companies, may have interests which conflict with those of the
Company and its unitholders. It is anticipated that any director who has a
conflict of interest with respect to an issue presented to the FelCor Board will
abstain from voting upon that issue although he will have no legal obligation to
do so. FelCor has no provisions in its bylaws or charter that require an
interested director to abstain from voting upon an issue, although each director
will have a fiduciary duty of loyalty to the Company. There is a risk that,
should an interested director vote upon an issue in which he or one of his
affiliates has an interest, his vote may reflect a bias that could be contrary
to the best interests of the Company. In addition, even if an interested
director abstains in the actual vote, the director's participation in the
meeting and discussion of an issue in which he or companies with which he is
associated have an interest could influence the votes of other directors
regarding the issue.
No Arms-Length Bargaining on DJONT Percentage Leases. The terms of the
leases between the Company and DJONT were not negotiated on an arms-length
basis. Accordingly, these Percentage Leases may not reflect fair market values
or terms. However, the management of FelCor believes that the terms of these
leases are fair to the Company. The rental terms of these leases were set based
upon historical financial information and projected operating performance of the
applicable hotel. The other terms of the leases are
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typical of the provisions found in other leases entered into in similar
circumstances. The leases were approved by a majority of the Independent
Directors of FelCor at the time they were entered into.
Adverse Tax Consequences to Certain Affiliates on a Sale of Certain
Hotels. Messrs. Corcoran and Mathewson may have additional tax liability if the
Company sells its investments in six hotels acquired by the Company in July 1994
from partnerships controlled by these individuals. Consequently, the interests
of the Company and of Messrs. Corcoran and Mathewson could be different in the
event that the Company decided to consider a sale of any of these hotels.
Decisions regarding a sale of any of these six hotels must be made by a majority
of the Independent Directors of FelCor.
Restrictive Debt Covenants
At December 31, 1998, the Company's unsecured Line of Credit and Term
Loan provided for borrowings of up to an aggregate of $1.1 billion, of which the
Company had borrowed approximately $986 million. The Company also had issued and
outstanding $298 million (net of discount) in principal amount of
publicly-traded senior term notes. The agreements governing the Company's Line
of Credit, Term Loan and senior notes contain various restrictive covenants,
including, among others, provisions restricting the Company or FelCor from
incurring indebtedness, making investments, engaging in transactions with
stockholders and affiliates, incurring liens, merging or consolidating with
another person, disposing of all or substantially all of its assets or
permitting limitations on its subsidiaries with respect to the payment of
dividends or other amounts to the Company. In addition, these agreements require
the Company to maintain certain specified financial ratios. Under the most
restrictive of these provisions, the Company's maximum additional indebtedness
that could be incurred for the acquisition of hotel properties would have been
limited to approximately $860 million at December 31, 1998. These covenants also
may restrict the Company's ability to engage in certain transactions. In
addition, any breach of these limitations could result in the acceleration of
most of the Company's outstanding indebtedness. The Company may not be able to
refinance or repay this indebtedness in full under such circumstances.
Matters That May Adversely Affect the Hotel Industry
Fewer Growth Opportunities. There has been substantial consolidation
in, and capital allocated to, the U.S. lodging industry since the early 1990s.
This has generally resulted in higher prices for hotels and fewer attractive
acquisition opportunities. An important part of the Company's growth strategy
has been the acquisition and, in many instances, the renovation and
repositioning, of hotels at less than replacement cost. Continued industry
consolidation and competition for acquisitions could adversely affect the
Company's growth prospects. The Company competes for hotel investment
opportunities with other companies, some of which have greater financial or
other resources. Certain competitors may be able to pay higher prices or assume
greater risks than would be appropriate for the Company.
Potential Adverse Effects on Hotel Operations. The Hotels owned by the
Company are subject to all of the risks common to the hotel industry. These
risks could adversely affect hotel occupancy and the rates that can be charged
for hotel rooms, and generally include:
o The existence of competition from other hotels;
o The construction of more hotel rooms in a particular area than
needed to meet demand;
o The increase in energy costs and other travel expenses that
reduce business and leisure travel;
o The adverse effects of declines in general and local economic
activity; and
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o The risks generally associated with the ownership of hotels
and real estate, as discussed in the following four paragraphs
and under "-- Matters That May Adversely Affect Real Estate
Ownership."
In addition, annual adjustments (based on changes in the Consumer Price Index)
are made to the Base Rent and the thresholds used to compute Percentage Rent
under the Percentage Leases. These adjustments, unless offset by increases in
hotel revenues, would reduce the amount of rent payable to the Company under the
Percentage Leases and, consequently, the Company's results of operations.
Competition. Each of the Company's Hotels competes with other hotels in
its geographic area. A number of additional hotel rooms have been or may be
built in a number of the geographic areas in which the Hotels are located, which
could adversely affect the results of operations of these hotels. According to
PricewaterhouseCoopers LLP, total hotel room supply in the United States
increased by 3.5%, or approximately 126,000 rooms, from 1997 to 1998, while the
demand for hotel rooms increased only 3.2% during the same period. Management
believes that most of the increase in United States hotel room supply has been
in the limited service or extended stay segments of the hotel industry, from
which the Company derives approximately 5% of its revenues. An oversupply of
hotel rooms, regardless of market segment, could adversely affect both occupancy
and rates in the markets in which the Hotels are located. However, a significant
increase in the supply of midscale and upscale hotel rooms and suites, if demand
fails to increase proportionately, could have a more severe adverse effect on
the Company's operations.
Seasonality. The hotel industry is seasonal in nature. Generally, hotel
revenues are highest in the first three quarters of each year. Seasonality
causes quarterly fluctuations in the Company's revenue. The Company may be able
to reduce, but not eliminate, the effects of seasonality by continuing to
diversify the geographic location and primary customer base of its Hotels.
Investment Concentration in a Single Industry. Historically, the
Company has only invested in hotel-related assets. In the event of a downturn
in the hotel industry, the adverse effect on the Company may be greater than on
a more diversified company with assets outside of the hotel industry.
Requirements of Franchise Agreements. Most of the Company's Hotels are
operated under various franchise licenses. Each license agreement requires that
the franchised hotel be maintained and operated in accordance with certain
standards. The franchisors also may require substantial improvements to the
Company's Hotels, for which the Company would be responsible under the
Percentage Leases, as a condition to the renewal or continuation of these
franchise licenses. If a franchise license terminates due to the Company's
failure to make required improvements or to otherwise comply with its terms, the
Company may be liable to the franchisor for a termination payment. These
termination payments would vary among the various franchise agreements and by
hotel. The loss of a substantial number of franchise licenses and the related
termination payments could have a material adverse effect on the Company's
results of operations.
Limitations on Acquisitions and Improvements
The Company presently intends to continue its acquisition growth
strategy, but at a much slower pace than in prior years. Since the completion of
the Merger with Bristol Hotel Company in July 1998 the Company's growth strategy
has been focused, and it presently intends to focus during 1999, on its internal
growth strategy, which includes the renovation, redevelopment and rebranding of
its hotels to achieve improved revenue performance. The Company generally cannot
fund its growth solely from cash provided from operating activities because
FelCor must distribute to its stockholders at least 95% of its taxable income
each year to maintain its status as a REIT. Consequently, the Company must rely,
to a significant extent, upon the availability of debt or equity capital to fund
hotel acquisitions and improvements. Given the current market prices of its
equity securities, FelCor has no present intention to effect a public offering
of equity securities in the near future. Consequently, the Company will be
largely dependent upon its ability to attract debt financing from public or
institutional lenders. There can be no assurance that the Company will be
successful in attracting
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sufficient debt financing to fund future growth at an acceptable cost. In
addition, FelCor's Board has adopted a policy of limiting indebtedness to not
more than 40% of the Company's investment in hotel assets, at cost, which could
also limit the Company's ability to incur additional indebtedness to fund its
continued growth. At December 31, 1998, the Company's indebtedness represented
38% of its investment in hotel assets, at cost.
Potential Tax Risks
General. Failure to qualify as a REIT would subject FelCor to federal
income tax. FelCor has operated and will continue to operate in a manner that is
intended to qualify it as a REIT under federal income tax laws. The REIT
qualification requirements are extremely complicated and interpretations of the
federal income tax laws governing qualification as a REIT are limited.
Accordingly, FelCor cannot be certain that it has been or will continue to be
successful in operating so as to qualify as a REIT. At any time, new laws,
interpretations or court decisions may change the federal tax laws or the
federal income tax consequences of qualification as a REIT.
If FelCor failed to qualify as a REIT, FelCor would be required to pay
federal income tax on its taxable income. The Company may be required to make
distributions to enable FelCor pay any such tax and, accordingly, the Company
might need to borrow money or sell hotels in order to make distributions
sufficient to pay any such tax. If FelCor ceased to be a REIT, it would no
longer be required to pay out most of its taxable income to its stockholders,
which could result in reduced distributions by the Company on its Units. Unless
its failure to qualify as a REIT were excused under federal income tax laws,
FelCor could not re-elect REIT status until the fifth calendar year following
the year in which it failed to qualify.
Failure to Make Required Distributions Would Subject FelCor to Tax. In
order to qualify as a REIT, each year FelCor must pay out to its stockholders at
least 95% of its taxable income (other than any net capital gain). In addition,
FelCor would be subject to a 4% nondeductible tax if the actual amount it pays
out to its stockholders in a calendar year were less than the minimum amount
specified under federal tax laws. FelCor has paid out and intends to continue to
pay out its income to its stockholders in a manner intended to satisfy the 95%
test and to avoid the 4% tax. FelCor's only source of funds to make such
distributions comes from distributions by the Company on its Units. Accordingly,
the Company may be required to borrow money or sell assets to make distributions
sufficient to enable FelCor to pay out enough of its taxable income to satisfy
the 95% test and to avoid the 4% tax in a particular year.
Failure to Distribute Earnings and Profits in Connection With the 1998
Merger With Bristol Hotel Company Would Cause FelCor to Fail to Qualify as a
REIT. At the end of any taxable year, a REIT may not have any accumulated
earnings and profits (described generally for federal income tax purposes as
cumulative undistributed net income) from a non-REIT corporation. Arthur
Andersen LLP prepared and provided to FelCor its computation of the accumulated
earnings and profits of Bristol Hotel Company through the date of the Merger.
Based upon such computation, in addition to its regular fourth quarter
distribution, FelCor paid a special one-time distribution of $0.345 per share on
its Common Stock, and $0.207 per share on its Series A Preferred Stock, in
respect of such accumulated earnings and profits. Corresponding distributions
were made by the Company on its Units. However, the determination of a company's
accumulated earnings and profits for federal income tax purposes is extremely
complex and the computations by Arthur Andersen LLP are not binding upon the
Internal Revenue Service. Should the Internal Revenue Service successfully
assert that the accumulated earnings and profits of Bristol Hotel Company were
greater than the amount so distributed by FelCor, it may fail to qualify as a
REIT.
Sale of Assets Acquired in the Merger Within Ten Years After the Merger
Will Result in Corporate Tax. If the Company sells any asset acquired in the
Merger, within ten years after the Merger, and recognizes gain, FelCor will be
taxed at the highest corporate rate on an amount equal to the fair market value
of the asset minus the adjusted basis of the asset as of the Merger. The sales
of Bristol Hotels that have been made, and are currently planned to be made, are
not expected to result in any material amount of income tax liability.
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Effect of Market Interest Rates on the Price of the Common Stock
One of the factors that may affect the price of the Common Stock is the
amount of distributions to stockholders in comparison to yields on other
financial instruments. An increase in market interest rates would provide higher
yields on other financial instruments, which could adversely affect the price of
FelCor's Common Stock and the value of the Company's Units.
Reliance on Key Personnel and Board of Directors
FelCor's stockholders have no right to participate in FelCor's
management, except through the exercise of their voting rights. The Board of
Directors of FelCor, as the Company's sole general partner, will be responsible
for oversight of the management of the Company. The Company's future success
will be dependent in part on FelCor's ability to retain key personnel, including
Mr. Corcoran.
Matters That May Adversely Affect Real Estate Ownership
General. The Company's investments in hotels are subject to the
numerous risks generally associated with owning real estate. These risks
include, among others, adverse changes in general or local economic or real
estate market conditions, zoning laws, traffic patterns and neighborhood
characteristics, real estate tax assessments and rates, governmental regulations
and fiscal policies, the potential for uninsured or underinsured casualty and
other losses, the impact of environmental laws and regulations (discussed below)
and other circumstances beyond the control of the Company. Moreover, real estate
investments are relatively illiquid, which means that the Company's ability to
vary its portfolio in response to changes in economic and other conditions may
be limited.
Possible Liability for Environmental Matters. There are numerous
federal, state and local environmental laws and regulations to which owners of
real estate are subject. Under these laws a current or prior owner of real
estate may be liable for the costs of cleaning up and removing hazardous or
toxic substances found on its property, whether or not it was responsible for
their presence. In addition, if an owner of real property arranges for the
disposal of hazardous or toxic substances at another site, it may also be liable
for the costs of cleaning up and removing such substances from the disposal
site, even if it did not own or operate the disposal site. A property owner may
also be liable to third parties for personal injuries or property damage
sustained as a result of its release of hazardous or toxic substances (including
asbestos-containing materials) into the environment. Environmental laws may
require the Company to incur substantial expenses and limit the use of its
properties. The Company could be liable for substantial amounts for a failure to
comply with applicable environmental laws, which may be enforced by the
government or, in certain instances, by private parties. The existence of
hazardous or toxic substances on a property can also adversely affect the value
of, and the owner's ability to use, sell or borrow against, the property.
Generally, the Company obtains a Phase I environmental audit from an
independent environmental engineer prior to its acquisition of a hotel. With
respect to the Bristol Hotels, the Company has relied upon the Phase I audits
obtained by Bristol Hotel Company in connection with its acquisition of these
properties. No updates or new environmental audits were obtained.
The primary purpose of a Phase I environmental audit is to identify
indications of potential environmental contamination at a property and,
secondarily, to make a limited assessment as to the potential for environmental
regulatory compliance costs. Consistent with current industry standards, the
Phase I environmental audits on which the Company has relied did not include an
assessment of potential off-site liability or involve any testing of
groundwater, soil or air conditions. Accordingly, they would not reveal
information that could only be obtained by such tests. In addition, the
assessment of environmental compliance contained in such reports is general in
nature and was not a detailed determination of the property's complete
compliance status.
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The Phase I environmental audits relied upon by the Company disclose
the existence of certain hazardous or toxic substances at or near a limited
number of the Company's hotels. In these instances, the Company made such
additional investigations, if any, as they considered necessary to evaluate the
risk of liability. However, FelCor's management does not believe that the
identified conditions, or any other environmental conditions known to it, will
have a material adverse effect on the Company's business, assets or profits. It
is possible, however, that such environmental audits and investigations do not
reveal all environmental conditions or liabilities for which the Company could
be liable and there could be potential environmental liabilities of which the
Company is unaware.
Costs of Complying with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 ("ADA"), all public accommodations
(including hotels) are required to meet certain federal requirements for access
and use by disabled persons. FelCor's management believes that its hotels are
substantially in compliance with the requirements of the ADA. However, a
determination that the hotels are not in compliance with the ADA could result in
liability for both governmental fines and damages to private parties. If the
Company were required to make unanticipated major modifications to the hotels to
comply with the requirements of the ADA, it could adversely affect its ability
to pay its obligations and make distributions to its stockholders.
Impact of Year 2000 Issue
The year 2000 issue relates to computer programs that were written
using two digits rather than four to define the applicable year. In those
programs the year 2000 may be incorrectly identified as the year 1900, which
could result in a system failure or miscalculations causing a disruption of
operations, including a temporary inability to process transactions, prepare
financial statements, or engage in other normal business activities.
The Company believes that its efforts to identify and resolve the year
2000 issues will avoid a major disruption of its business. The Company has
assessed its internal computer systems and believes that they will properly
utilize dates beyond December 31, 1999.
The Hotels owned by the Company are in various stages of identifying
both computer and noninformation technology systems to determine if they are
year 2000 compliant, including embedded systems that operate elevators, phone
systems, energy maintenance systems, security systems, and other systems. The
assessments, which have not been completed at this date, are scheduled to be
completed by the end of the first quarter of 1999. Most of the upgrades to make
a hotel year 2000 compliant had been anticipated as part of the renovation,
redevelopment, and rebranding program that the Company generally undertakes upon
acquisition of a hotel.
The Company currently anticipates that the total cost to remediate all
hotel year 2000 issues to be approximately $8 million, which is included in the
Company's 1999 capital plans.
The Company has requested and received assurances from the managers of
the Hotels, the franchisors of the Hotels and the Lessees, that they have
implemented appropriate steps to insure that they will avoid a major disruption
of business due to year 2000 issues.
Concurrent with the assessment of the year 2000 issue, the Company and
its hotel managers and Lessees are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
year 2000 issues and are developing cost estimates for such plans. Once
developed, contingency plans and related cost estimates will be continually
refined as additional information becomes available.
-17-
<PAGE> 20
ITEM 2. PROPERTIES
THE HOTELS
The following table sets forth certain descriptive information
regarding the Hotels in which the Company had ownership interests at December
31, 1998:
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Birmingham, AL.................................... Embassy Suites DJONT 1996 242
Montgomery, AL.................................... Holiday Inn Bristol 1998 213
Flagstaff, AZ..................................... Days Inn Bristol 1998 157
Flagstaff, AZ..................................... Embassy Suites DJONT 1995 119
Phoenix (Airport), AZ............................. Embassy Suites DJONT 1998 229
Phoenix (Camelback), AZ........................... Embassy Suites DJONT 1996 233
Phoenix, (Crescent), AZ........................... Sheraton DJONT 1997 342
Scottsdale, AZ(1)................................. Fairfield Inn Bristol 1998 218
Tempe, AZ......................................... Embassy Suites DJONT 1998 224
Texarkana (I-30), AR(1)........................... Holiday Inn Bristol 1998 210
Anaheim (Disney(R)Area), CA....................... Embassy Suites DJONT 1996 222
Burlingame (S.F. Airport So.), CA(1).............. Embassy Suites DJONT 1995 339
Covina (I-10), CA(2).............................. Embassy Suites DJONT 1997 264
Dana Point, CA.................................... Doubletree Guest Suites DJONT 1997 198
El Segundo (LAX Airport South), CA(1)............. Embassy Suites DJONT 1996 350
Irvine (Orange County Airport, CA................. Holiday Inn Select Bristol 1998 335
Los Angeles (LAX Airport North), CA............... Embassy Suites DJONT 1997 215
Milpitas, CA...................................... Embassy Suites DJONT 1996 267
Milpitas, CA...................................... Holiday Inn Bristol 1998 305
Napa, CA.......................................... Embassy Suites DJONT 1996 205
Oxnard (Mandalay Beach), CA....................... Embassy Suites DJONT 1996 249
Palm Desert, CA................................... Embassy Suites DJONT 1998 198
Pleasanton, CA.................................... Crowne Plaza Bristol 1998 244
Santa Barbara, CA(4).............................. Holiday Inn Bristol 1998 160
San Diego (On-the-Bay), CA(1)..................... Holiday Inn Bristol 1998 600
San Francisco (Financial District), CA(1)......... Holiday Inn Bristol 1998 566
San Francisco (Fisherman's Wharf), CA(1).......... Holiday Inn Bristol 1998 584
San Francisco (Union Square), CA.................. Crowne Plaza Bristol 1998 400
San Rafael (Marin Co.), CA(2)..................... Embassy Suites DJONT 1996 235
South San Francisco (Airport North), CA........... Embassy Suites DJONT 1996 312
Avon (Beaver Creek Resort), CO.................... Embassy Suites DJONT 1996 72
Colorado Springs, CO.............................. Holiday Inn Express Bristol 1998 207
Colorado Springs, CO.............................. Ramada Inn Bristol 1998 220
Denver (Southeast), CO............................ Doubletree DJONT 1998 248
Hartford (Downtown), CT........................... Crowne Plaza Bristol 1998 342
Stamford, CT(1)................................... Holiday Inn Select Bristol 1998 383
Wilmington, DE.................................... Doubletree DJONT 1998 154
Boca Raton, FL.................................... Doubletree Guest Suites DJONT 1995 182
Boca Raton, FL.................................... Embassy Suites DJONT 1996 263
Cocoa, Beach (Ocean Front Resort), FL............. Holiday Inn Bristol 1998 500
Deerfield Beach, FL............................... Embassy Suites DJONT 1996 244
Ft. Lauderdale, FL................................ Embassy Suites DJONT 1996 359
Ft. Lauderdale (Cypress Creek), FL................ Sheraton Suites DJONT 1998 253
Jacksonville, FL.................................. Embassy Suites DJONT 1994 210
Kissimme (Nikki Bird Resort), FL(1)............... Holiday Inn Bristol 1998 529
Lake Buena Vista (Walt Disney World(R)), FL(1).... Doubletree Guest Suites DJONT 1997 229
Miami (Airport), FL(1)............................ Crowne Plaza Bristol 1998 304
Miami (Airport), FL............................... Embassy Suites DJONT 1996 314
Orlando (North), FL............................... Embassy Suites DJONT 1994 210
Orlando (South), FL............................... Embassy Suites DJONT 1994 244
Orlando (International Drive Resort), FL.......... Holiday Inn Bristol 1998 652
Orlando (Airport), FL............................. Holiday Inn Select Bristol 1998 288
Tampa (Busch Gardens), FL......................... Doubletree Guest Suites DJONT 1995 129
Tampa (Rocky Point), FL........................... Doubletree Guest Suites DJONT 1997 203
Tampa (Near Busch Gardens), FL(1)................. Holiday Inn Bristol 1998 395
Atlanta, GA....................................... Courtyard by Marriott Bristol 1998 211
Atlanta (Airport), GA............................. Crowne Plaza Bristol 1998 378
Atlanta (Powers Ferry), GA(4)..................... Crowne Plaza Bristol 1998 296
Atlanta (Buckhead), GA............................ Embassy Suites DJONT 1998 317
Atlanta (Airport), GA............................. Embassy Suites DJONT 1998 233
Atlanta (Perimeter Center), GA(2)................. Embassy Suites DJONT 1998 241
Atlanta (Downtown), GA............................ Fairfield Inn Bristol 1998 242
Atlanta (Marietta), GA............................ Hampton Inn Bristol 1998 140
</TABLE>
-18-
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Atlanta (Airport North), GA(1)(4).............. Holiday Inn Bristol 1998 493
Atlanta (Jonesboro South), GA(4)............... Holiday Inn Bristol 1998 180
Atlanta (Decatur I-20 East), GA................ Holiday Inn Express Bristol 1998 167
Atlanta (Perimeter Dunwoody), GA(4)............ Holiday Inn Select Bristol 1998 250
Atlanta (Airport Gateway), GA.................. Sheraton DJONT 1997 395
Atlanta (Galleria), GA......................... Sheraton Suites DJONT 1997 278
Brunswick, GA.................................. Embassy Suites DJONT 1995 130
Columbus (Airport I-85), GA(1)................. Holiday Inn Bristol 1998 223
Chicago (Allerton), IL......................... Independent Bristol 1998 378
Chicago-Lombard, IL(2)......................... Embassy Suites DJONT 1995 262
Chicago (O'Hare), IL........................... Sheraton Suites DJONT 1997 297
Deerfield, IL.................................. Embassy Suites DJONT 1996 237
Moline, IL..................................... Hampton Inn Bristol 1998 138
Moline (Airport), IL(4)........................ Holiday Inn Bristol 1998 216
Moline (Airport), IL(4)........................ Holiday Inn Express Bristol 1998 111
Indianapolis (North), IN(2)................... Embassy Suites DJONT 1996 222
Davenport, IA.................................. Hampton Inn Bristol 1998 132
Davenport, IA.................................. Holiday Inn Bristol 1998 287
Colby, KS...................................... Holiday Inn Express Bristol 1998 72
Great Bend, KS................................. Holiday Inn Bristol 1998 175
Hays, KS(4).................................... Hampton Inn Bristol 1998 116
Hays, KS(4).................................... Holiday Inn Bristol 1998 190
Overland Park, KS(2)........................... Embassy Suites DJONT 1997 199
Salina, KS(4).................................. Holiday Inn Bristol 1998 192
Salina (I-70), KS.............................. Holiday Inn Express
Hotel & Suites Bristol 1998 93
Lexington, KY.................................. Hilton Suites DJONT 1996 174
Lexington, KY.................................. Sheraton Suites DJONT 1998 155
Baton Rouge, LA................................ Embassy Suites DJONT 1996 224
New Orleans, LA................................ Embassy Suites DJONT 1994 282
New Orleans (Chateau LeMoyne), LA(1)(2)........ Holiday Inn Bristol 1998 171
New Orleans (French Quarter), LA(1)(4)......... Holiday Inn Bristol 1998 276
Baltimore, MD.................................. Doubletree Guest Suites DJONT 1997 251
Boston (Marlborough), MA....................... Embassy Suites DJONT 1995 229
Boston (Government Center), MA(1).............. Holiday Inn Select Bristol 1998 303
Leominster, MA................................. Four Points(R) Bristol 1998 187
Troy, MI....................................... Doubletree Guest Suites DJONT 1997 251
Bloomington, MN................................ Embassy Suites DJONT 1997 219
Minneapolis (Airport), MN...................... Embassy Suites DJONT 1995 311
Minneapolis (Downtown), MN..................... Embassy Suites DJONT 1995 218
St. Paul, MN(3)................................ Embassy Suites DJONT 1995 210
Jackson (Downtown), MS(4)...................... Crowne Plaza Bristol 1998 354
Jackson (North), MS............................ Hampton Inn Bristol 1998 119
Jackson (Southwest), MS(4)..................... Holiday Inn Bristol 1998 289
Jackson (North), MS(4)......................... Holiday Inn & Suites Bristol 1998 224
Olive Branch (Whispering Woods Hotel
and Conference Center), MS.................. Holiday Inn Bristol 1998 179
Kansas City (Plaza), MO (1)(2)................. Embassy Suites DJONT 1997 266
Kansas City (Northeast), MO.................... Holiday Inn Bristol 1998 167
St. Louis (Downtown), MO....................... Embassy Suites DJONT 1998 297
St. Louis (Westport), MO(4).................... Holiday Inn Bristol 1998 318
Omaha, NE...................................... Doubletree Guest Suites DJONT 1998 189
Omaha (Central), NE............................ Hampton Inn Bristol 1998 132
Omaha (Southwest), NE.......................... Hampton Inn Bristol 1998 131
Omaha (I-80), NE(4)............................ Holiday Inn Bristol 1998 383
Omaha (Old Mill Northwest), NE................. Holiday Inn Bristol 1998 213
Omaha (Southwest), NE.......................... Holiday Inn Express Bristol 1998 78
Hotel & Suites
Omaha (Southwest), NE.......................... Homewood Suites Bristol 1998 116
Parsippany, NJ(2).............................. Embassy Suites DJONT 1996 274
Piscataway, NJ................................. Embassy Suites DJONT 1996 225
Secaucus, NJ (1)(2)............................ Embassy Suites DJONT 1997 261
Secaucus, NJ................................... Crowne Plaza Bristol 1998 261
Albuquerque (Mountain View), NM................ Holiday Inn Bristol 1998 360
Syracuse, NY................................... Embassy Suites DJONT 1997 215
Charlotte, NC(2)............................... Embassy Suites DJONT 1996 274
Raleigh/Durham, NC............................. Doubletree Guest Suites DJONT 1997 203
Raleigh, NC(2)................................. Embassy Suites DJONT 1997 225
</TABLE>
-19-
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Cleveland, OH.................................. Embassy Suites DJONT 1995 268
Columbus, OH................................... Doubletree Guest Suites DJONT 1998 194
Dayton, OH(4).................................. Doubletree Guest Suites DJONT 1997 138
Tulsa, OK...................................... Embassy Suites DJONT 1994 240
Philadelphia (Center City), PA(4).............. Crowne Plaza Bristol 1998 445
Philadelphia (Independence Mall), PA........... Holiday Inn Bristol 1998 364
Philadelphia (Society Hill), PA................ Sheraton DJONT 1997 365
Pittsburgh, PA(1)(4)........................... Holiday Inn Select Bristol 1998 251
Charleston (Mills House), SC................... Holiday Inn Bristol 1998 214
Columbia, SC Holiday Inn Bristol 1998 148
Myrtle Beach (Kingston Plantation), SC......... Embassy Suites DJONT 1996 255
Roper (Greenville), SC......................... Crowne Plaza Bristol 1998 208
Knoxville (Central), TN(1)..................... Holiday Inn Bristol 1998 242
Nashville (Airport), TN........................ Doubletree Guest Suites DJONT 1997 138
Nashville, TN.................................. Embassy Suites DJONT 1994 296
Nashville (Opryland/Airport), TN(1)............ Holiday Inn Select Bristol 1998 385
Amarillo (I-40), TX(1)......................... Holiday Inn Bristol 1998 247
Austin (Downtown), TX.......................... Doubletree Guest Suites DJONT 1997 189
Austin (Airport North), TX(2).................. Embassy Suites DJONT 1997 261
Austin (Town Lake), TX......................... Holiday Inn Bristol 1998 320
Beaumont (Midtown I-10), TX.................... Holiday Inn Bristol 1998 190
Corpus Christi, TX............................. Embassy Suites DJONT 1995 150
Dallas (Alpha Road), TX(1)..................... Bristol House(R) Bristol 1998 127
Dallas (Addison North), TX(4).................. Crowne Plaza Bristol 1998 354
Dallas (Market Center), TX(4).................. Crowne Plaza Bristol 1998 244
Dallas, TX(1)(4)............................... Crowne Plaza Suites Bristol 1998 295
Dallas (Campbell Center), TX................... Doubletree DJONT 1998 302
Dallas (DFW Airport South), TX................. Embassy Suites DJONT 1998 305
Dallas (Love Field), TX........................ Embassy Suites DJONT 1995 248
Dallas (Market Center), TX..................... Embassy Suites DJONT 1997 244
Dallas (Park Central), TX...................... Embassy Suites DJONT 1994 279
Dallas (Regal Row), TX......................... Fairfield Inn Bristol 1998 204
Dallas (Downtown West End), TX................. Hampton Inn Bristol 1998 311
Dallas, TX(1)(4)............................... Harvey Hotel Bristol 1998 313
Dallas (DFW Airport North), TX(1)(4)........... Harvey Hotel Bristol 1998 506
Dallas (DFW Airport North), TX(4).............. Harvey Suites Bristol 1998 164
Dallas (Park Central), TX...................... Sheraton DJONT 1998 279
Dallas (Park Central), TX...................... Westin DJONT 1997 545
Houston (Near the Galleria), TX................ Courtyard by Marriott Bristol 1998 209
Houston (Medical Center), TX(4)................ Crowne Plaza Bristol 1998 297
Houston (Near the Galleria), TX................ Fairfield Inn Bristol 1998 107
Houston (I-10 East), TX........................ Fairfield Inn Bristol 1998 160
Houston (I-10 East), TX........................ Hampton Inn Bristol 1998 90
Houston (Medical Center), TX(1)(4)............. Holiday Inn & Suites Bristol 1998 285
Houston (International Airport), TX(4)......... Holiday Inn Bristol 1998 413
Houston (I-10 West), TX........................ Holiday Inn Select Bristol 1998 345
Houston (Near Greenway Plaza), TX(4)........... Holiday Inn Select Bristol 1998 355
Midland (Country Villa), TX.................... Holiday Inn Bristol 1998 250
Odessa (Parkway Blvd.), TX..................... Holiday Inn Express Bristol 1998 186
Hotel & Suites
Odessa (Center), TX............................ Holiday Inn Hotel & Bristol 1998 245
Suites
Plano, TX(4)................................... Harvey Hotel Bristol 1998 279
Plano, TX...................................... Holiday Inn Bristol 1998 161
San Antonio (Airport), TX(2)................... Embassy Suites DJONT 1997 261
San Antonio (Northwest), TX(2)................. Embassy Suites DJONT 1997 217
San Antonio (Downtown), TX(1).................. Holiday Inn Bristol 1998 315
San Antonio (International Airport), TX........ Holiday Inn Select Bristol 1998 397
Waco (I-35), TX................................ Holiday Inn Bristol 1998 171
Salt Lake City (Airport), UT(1)................ Holiday Inn Bristol 1998 191
Burlington, VT................................. Sheraton DJONT 1997 309
</TABLE>
-20-
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Cambridge, Canada.............................. Holiday Inn Bristol 1998 139
Kitchener (Waterloo), Canada................... Holiday Inn Bristol 1998 182
Peterborough (Waterfront), Canada ............. Holiday Inn Bristol 1998 155
Sarnia, Canada................................. Holiday Inn Bristol 1998 151
Toronto (Yorkdale), Canada..................... Holiday Inn Bristol 1998 370
Toronto (Airport), Canada...................... Holiday Inn Select Bristol 1998 444
</TABLE>
- ---------
(1) Situated on land leased under a long-term ground lease.
(2) This hotel is one of 15 hotels owned by unconsolidated entities in which
the Company owns a 50% equity interest.
(3) Owned subject to a capitalized industrial revenue bond lease which expires
in 2011 and permits the Company to purchase the fee interest at expiration
for a nominal amount.
(4) Encumbered by mortgage debt.
THE PERCENTAGE LEASES
Each of the Hotels (with one exception) is leased to a Lessee pursuant to a
Percentage Lease. The terms of each Percentage Lease with DJONT was approved by
FelCor's Independent Directors at the time it was entered into.
The DJONT Percentage Leases.
The principal terms of the Percentage Leases with DJONT ("DJONT
Leases") are summarized below, although certain terms will vary from hotel to
hotel.
Term. The DJONT Leases typically have a stated term of 10 years.
Rent. The annual Base Rent is typically set at approximately 60% of the
initial year's anticipated total rent. The Percentage Rent is calculated in two
tiers, a first tier typically equal to 17% of room and suite revenues up to a
specified amount ("Room and Suite Revenue Breakpoint") and a second tier
typically equal to 65% of room and suite revenues above such Room and Suite
Revenue Breakpoint. In addition, the DJONT Lessee typically pays the Company 5%
of the food and beverage revenues from each Hotel in which the restaurant and
bar operations are conducted directly by the DJONT Lessee and 98% of the food
and beverage rent revenues from each Hotel in which the restaurant and bar
operations are subleased by the DJONT Lessee to an unrelated third party. The
Room and Suite Revenue Breakpoint is established at the time the Percentage
Lease is entered into, based upon the historical and anticipated operations of
the particular hotel, in a manner expected to provide the Company with
approximately 95% of the anticipated operating profits of the hotels in which it
invests.
The amount of Base Rent and of the Room and Suite Revenue Breakpoint in
each DJONT Lease formula generally is subject to adjustment, annually, based
upon a formula taking into account changes in the Consumer Price Index ("CPI").
The adjustment is calculated at the beginning of each calendar year, for the
hotels acquired prior to July of the previous year. The adjustment in any year
may not exceed 7%. The CPI adjustments applicable to 1998, 1997 and 1996 were
0.50%, 1.42% and 0.73%, respectively.
Events of Default. If an Event of Default occurs and continues beyond
any curative period, the Company has the option of terminating the DJONT Lease
or any or all other DJONT Leases. Events of Default under the DJONT Leases
include typical defaults such as failure to pay rent, certain insolvency events
and, among others, the following:
o the breach by the DJONT Lessee of any term of a DJONT Lease
that is not cured within certain specified periods or an Event
of Default under any other DJONT Lease;
-21-
<PAGE> 24
o if the DJONT Lessee voluntarily discontinues operations of a
leased hotel for more than 30 days, except as a result of
damage, destruction, or condemnation; or
o if the franchise agreement with respect to a leased hotel is
terminated by the franchisor as a result of any action or
failure to act by the DJONT Lessee or its agents.
Termination of Percentage Leases on Disposition of the Hotels. If the
Company enters into an agreement to sell or otherwise transfer a leased hotel,
the Company has the right to terminate the DJONT Lease with respect to such
leased hotel upon 90 days' prior written notice upon either (i) paying the DJONT
Lessee the fair market value of the DJONT Lessee's leasehold interest in the
remaining term of the DJONT Lease to be terminated or (ii) offering to lease to
the DJONT Lessee a substitute hotel on terms that would create a leasehold
interest with a fair market value equal to or exceeding the fair market value of
the DJONT Lessee's remaining leasehold interest under the DJONT Lease to be
terminated. The Company also is obligated to pay, or reimburse the DJONT Lessee
for certain fees and expenses resulting from the termination of the DJONT Lease.
Maintenance and Modifications. Under the DJONT Leases, the Company is
required to maintain the underground utilities and the structural elements of
the improvements, including exterior walls (excluding plate glass) and the roof
of each leased hotel. In addition, the DJONT Leases obligate the Company to fund
periodic improvements (in addition to maintenance of structural elements) to the
buildings and grounds comprising the leased hotels, and the periodic repair,
replacement and refurbishment of furniture, fixtures and equipment in the leased
hotels, when and as required to meet the requirements of the applicable
franchise licenses, and to establish and maintain a reserve, which is available
to the DJONT Lessee for such purposes, in an amount equal to 4% of hotel room
and suite revenues, on a cumulative basis. The Company's obligation is not
limited to the amount in such reserve. Otherwise, the DJONT Lessee is required,
at its expense, to maintain the leased hotels in good order and repair, except
for ordinary wear and tear, and to make nonstructural repairs, whether foreseen
or unforeseen, ordinary or extraordinary, which may be necessary and appropriate
to keep the leased hotels in good order and repair.
Insurance and Property Taxes. The Company is responsible for paying
real estate and personal property taxes and property insurance premiums on the
leased hotels (except to the extent that personal property associated with the
leased hotels is owned by the DJONT Lessee). The DJONT Lessee is responsible for
the cost of all liability insurance on the leased hotels, which must include
extended coverage, comprehensive general public liability, workers' compensation
and other insurance appropriate and customary for properties similar to the
leased hotels.
Indemnification. Under each of the DJONT Leases, the DJONT Lessee will
indemnify the Company for certain losses relating to the leased hotel, including
losses related to any accident or injury to person or property at the leased
hotels, certain environmental liability, taxes and assessments (other than real
estate and personal property taxes and any income taxes of the Company on income
attributable to the leased hotels), the sale or consumption of alcoholic
beverages, or any breach of the DJONT Leases by the DJONT Lessee.
-22-
<PAGE> 25
Other Lease Covenants. The DJONT Lessee has agreed that during the term
of the DJONT Leases it will maintain a ratio of total debt to consolidated net
worth of less than or equal to 50%, exclusive of capitalized leases and
indebtedness subordinated in right to repayment to the rent due under the DJONT
Leases. In addition, the DJONT Lessee has agreed that it will not pay fees to
any of its affiliates.
Breach by Company. Upon notice from the DJONT Lessee that the Company
has breached the Lease, the Company has 30 days to cure the breach or proceed to
cure the breach, which period may be extended in the event of certain specified,
unavoidable delays. If the Company fails to cure a breach on its part under a
DJONT Lease, the DJONT Lessee may purchase the leased hotel from the Company for
a purchase price equal to the leased hotel's then fair market value.
Bristol Master Hotel Agreement.
Bristol and the Company are parties to an Amended and Restated Master
Hotel Agreement ("MHA"), pursuant to which, among other things, Bristol and the
Bristol Lessees are required to use their reasonable best efforts to permit
FelCor to continue to qualify as a real estate investment trust under the Code.
Bristol and the Bristol Lessees are required to maintain a minimum liquid net
worth (including not only working capital and other liquid assets, but also
income-producing or readily-marketable assets, and any letters of credit or
other credit enhancements necessary to meet such requirement) at all times at
least equal to fifteen percent (15%) of projected annual rent under all of the
Bristol leases during each calendar year. If such minimum liquid net worth is
not maintained, and Bristol fails to cure the deficiency, the leases will be in
default, and the Bristol Lessees generally will be prohibited from making cash
dividends or other distributions or any other payments to affiliates.
Under the MHA, the Bristol Hotels also are treated as a whole, and the
leases are cross-defaulted, for purposes of the Company's remedies upon default.
Upon certain material defaults under one or more leases, the Company has the
option to terminate the particular lease(s) in default, or all leases to which
the defaulting Bristol Lessee is a party, or all (but not less than all) of the
Bristol leases.
The Bristol Percentage Leases.
The principal terms of the Percentage Leases with Bristol (the "Bristol
Leases") are summarized below, although certain terms will vary from hotel to
hotel.
Term. The Bristol Leases are for initial terms of five to ten years,
with renewal options on the same terms for a total of 15 years. If a Bristol
Lease has been extended to 15 years, the Bristol Lessee may renew the lease for
an additional five years at then current market rates.
Rent. The Bristol Lessees pay a monthly rent equal to the greater of
Base Rent or Percentage Rent. The Percentage Rent is based on specified
percentages of various revenue streams. Those percentages will vary from hotel
to hotel within the following ranges:
<TABLE>
<S> <C>
Room and Suite Revenues: 0% to 10% up to a revenue breakpoint amount specified for
each hotel, then 60% to 75% above such breakpoint.
Food & Beverage Revenues: 5% to 25%.
Telephone Revenues: 5% to 10%.
Other Revenues: Varying percentages depending on the nature and source of such
revenues.
</TABLE>
-23-
<PAGE> 26
The Base Rent and the thresholds for computing Percentage Rent under
the Bristol Leases will be adjusted annually to reflect changes in the CPI. The
parties to the Bristol Leases also agree to renegotiate the rent in the event of
any rebranding, substantial renovations (other than those agreed upon prior to
the execution of the Bristol Leases) or other, future hotel repositioning
strategies resulting in significant disruption of the operations of the leased
hotels.
The Bristol Lessees have the right to require the Company to
renegotiate the rent for all the hotels in a particular region if there is an
extended, material reduction in midscale hotel occupancy rates in the U.S. and
in such region. If the Company and the Bristol Lessees are unable to agree on a
reduction in rent, the Bristol Lessees may terminate all Bristol Leases in the
respective region. The Bristol Lessee also may require the Company to
renegotiate the rent for a particular hotel if, as a result of certain force
majeure events, there is an extended, material decline in the travel or hotel
business and a material reduction in the occupancy rate of such hotel and the
hotel's competitive set. If the Bristol Lessee and the Company are unable to
agree on a change in rent, the Bristol Lessee may terminate the lease for such
hotel.
Termination. A Bristol Lease also may be terminated by the Company for
typical defaults such as failure to pay rent, certain insolvency events and the
following reasons, among others:
o if Bristol fails to satisfy certain performance targets for
any one hotel and all other hotels in the aggregate during any
three consecutive years based on budgeted room revenues,
unless Bristol pays the Company the difference between the
actual rent paid and 80% (or, in certain circumstances, 90%)
of the budgeted rent;
o upon a change in control of Bristol, defined as the
acquisition of more than 50% of Bristol's stock by any person
or group not approved by Bristol's Board of Directors or the
election of a majority of directors not supported by Bristol's
Board of Directors;
o upon any breach by the Bristol Lessee of the agreements under
the lease that is not cured within certain specified periods;
o if Bristol fails to maintain a minimum liquid net worth or to
provide other credit support for the obligations of the
Bristol Lessees under the Bristol Leases;
o if a franchisor terminates a franchise license as a result of
the Bristol Lessee's default under the franchise agreement;
and
o if the Company sells the hotel to an unaffiliated third party.
If the Company terminates the lease upon sale of a hotel and Bristol does not
continue as a manager or lessee of the hotel (or a substitute hotel offered by
the Company), Bristol will be entitled to monthly termination payments during
the remainder of the lease term equal to one-twelfth of 60% of the average
monthly profit and allocable overhead contribution associated with operating the
hotel over the 12 months ending on the termination date.
Indemnification. The Bristol Lessee agrees to indemnify the Company for
certain losses relating to the hotel, including losses related to any accident
or injury to persons or property at the hotel, any breach of the lease by the
Bristol Lessee and certain environmental and tax liabilities not assumed by the
Company in connection with its acquisition of the Bristol Hotels. The Company
will indemnify the Bristol Lessee for any breach of the lease by the Company,
for liability for the environmental condition of the hotel at the time the lease
commences and for the Company's acts of gross negligence or willful misconduct.
-24-
<PAGE> 27
Maintenance and Capital Expenditures. The Bristol Lessee is responsible
for maintaining the leased hotel in good order and repair and for making all
repairs that do not constitute capital improvements. The Bristol Lessee is
generally required to budget and expend an amount equal to at least 4.5% of
gross revenues of the hotel for maintenance and repairs (other than capital
improvements) during each lease year. The Bristol Lessee must supply and
maintain the inventory that is necessary to operate the leased hotel. The
Company is responsible for all hotel capital improvements (including those
required by applicable law or, with certain exceptions, the respective franchise
license) and for maintaining the underground utilities and all hotel
improvements, furniture, fixtures and equipment owned by the Company to the
extent such maintenance constitutes capital expenditures in accordance with
generally accepted accounting principles or the capital improvements policy
agreed to by both the Company and the Bristol Lessee. The Company must make
available an amount equal to at least 3% of the hotel's gross revenues, on a
cumulative basis, for budgeted or other approved capital expenditures.
Insurance and Property Taxes. The Company will pay all real estate and
personal property taxes and property insurance premiums on the leased hotels,
other than with respect to the Bristol Lessee's personal property. The Bristol
Lessee will pay for all liability insurance on the leased hotels, including
extended coverage, comprehensive general public liability, workers' compensation
and other insurance appropriate and customary for properties similar to the
leased hotels.
ITEM 3. LEGAL PROCEEDINGS
There is no litigation pending or known to be threatened against the
Company or affecting any of its Hotels other than claims arising in the ordinary
course of business or which are not considered to be material. Furthermore, most
of such claims are substantially covered by insurance. Management does not
believe that any claims known to it (individually or in the aggregate) will have
a material adverse effect on the Company, without regard to any potential
recoveries from insurers or other third parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for the Units. The Units,
however, are redeemable at the option of the holder for a like number of shares
of Common Stock of FelCor or, at the option of FelCor, for the cash equivalent
thereof. The following information is provided regarding the Common Stock of
FelCor.
FelCor's Common Stock is traded on the New York Stock Exchange under
the symbol "FCH." The following table sets forth for the indicated periods the
high and low sale prices for the Common Stock, as traded on such exchange.
-25-
<PAGE> 28
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
----
First quarter................................................ $37 1/2 $33 1/2
Second quarter............................................... 37 3/4 34 1/2
Third quarter................................................ 41 1/2 36
Fourth quarter............................................... 42 7/8 34 15/16
1998
----
First quarter................................................ 38 5/16 34 15/16
Second quarter............................................... 37 5/16 31 3/16
Third quarter................................................ 32 1/4 20
Fourth quarter............................................... 24 3/16 18 3/16
</TABLE>
UNITHOLDER INFORMATION
At March 10, 1999, the Company had approximately 40 holders of record
of its Units. It is estimated that there were approximately 40 beneficial
owners, in the aggregate, of the Units at that date.
DISTRIBUTION INFORMATION
The Company has adopted a policy of paying regular quarterly
distributions on its Units, and cash distributions have been paid on the
Company's Units with respect to each quarter since its inception. The following
table sets forth information regarding the declaration and payment of
distributions by the Company on its Units during 1997 and 1998.
<TABLE>
<CAPTION>
QUARTER TO DISTRIBUTION DISTRIBUTION PER SHARE
WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION
RELATES DATE DATE AMOUNT
------------------ ------------ ------------ ------------
<S> <C> <C> <C>
1997
----
First quarter................................................... 4/15/97 4/30/97 $0.50
Second quarter.................................................. 7/15/97 7/30/97 $0.50
Third quarter................................................... 10/15/97 10/31/97 $0.55
Fourth quarter.................................................. 12/30/97 1/30/98 $0.55
1998
----
First quarter................................................... 4/15/98 4/30/98 $0.55
Second quarter.................................................. 7/15/98 7/31/98 $0.55
Third quarter................................................... 10/15/98 10/30/98 $0.55
Fourth quarter.................................................. 12/30/98 1/29/99 $0.895(1)
</TABLE>
- -------------
(1) Includes a special one-time distribution of $0.345 per Unit,
representing accumulated earnings and profits from FelCor's July 1998
merger with Bristol Hotel Company.
-26-
<PAGE> 29
The foregoing distributions represent an approximate 17.0% return of
capital in 1998 and an approximate 6.0% return of capital in 1997. In order to
maintain its qualification as a REIT, FelCor must make annual distributions to
its shareholders of at least 95% of its taxable income (which does not include
net capital gains). For the years ended December 31, 1998 and December 31, 1997,
FelCor had distributions totaling $2.545 and $2.10 per share, respectively, of
which only $2.01 and $1.88 per share, respectively, were required to satisfy the
95% REIT distribution test. All of such funds were provided by the Company
through distributions on its Units. Under certain circumstances the Company may
be required to make distributions in excess of cash available for distribution
in order to meet FelCor's REIT distribution requirements. In such event, the
Company presently would expect to borrow funds, or to sell assets for cash, to
the extent necessary to obtain cash sufficient to make the distributions
required to enable FelCor to retain its qualification as a REIT for federal
income tax purposes.
The Company currently anticipates that it will maintain at least the
current distribution rate for the immediate future, unless actual results of
operations, economic conditions or other factors differ from its current
expectations. Future distributions, if any, paid by the Company will be at the
discretion of the Board of Directors of FelCor and will depend on the actual
cash flow of the Company, its financial condition, capital requirements, the
annual distribution requirements of FelCor under the REIT provisions of the
internal revenue code and such other factors as the Board of Directors deems
relevant.
RECENT SALES OF UNREGISTERED SECURITIES
During 1998, the Company issued an aggregate of 189,916 Units, which
may be redeemed for a like number of shares of FelCor's Common Stock, in
connection with the acquisition of two hotels. Neither the Units, nor the shares
of Common Stock issuable in redemption thereof, were registered under the
Securities Act in reliance upon certain exemptions from the registration
requirements thereof, including the exemption provided by section 4(2) of that
act.
-27-
<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data for the Company
for the years ended December 31, 1998, 1997, 1996 and 1995 and the period from
July 28, 1994 (inception of operations) to December 31, 1994 that has been
derived from the financial statements of the Company and the notes thereto,
audited by PricewaterhouseCoopers LLP, independent accountants. Such data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD FROM JULY 28, 1994
----------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994(1)
--------- --------- --------- --------- ----------------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Percentage lease revenue ......................... $ 328,923 $ 169,114 $ 97,950 $ 23,787 $ 6,043
Equity in income from unconsolidated entities .... 7,017 6,963 2,010 513
Other revenue .................................... 4,154 574 984 1,691 207
--------- --------- --------- --------- ---------
TOTAL REVENUE ....................................... 340,094 176,651 100,944 25,991 6,250
--------- --------- --------- --------- ---------
EXPENSES:
General and administrative ....................... 5,254 3,743 1,819 870 355
Depreciation ..................................... 90,835 50,798 26,544 5,232 1,487
Taxes, insurance and other ....................... 45,288 23,093 13,897 2,563 881
Interest expense ................................. 73,182 28,792 9,803 2,004 109
Minority interest in other partnerships .......... 1,121 573
--------- --------- --------- --------- ---------
TOTAL EXPENSES ...................................... 215,680 106,999 52,063 10,669 2,832
--------- --------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE .................. 124,414 69,652 48,881 15,322 3,418
Extraordinary charge from write off
of deferred financing fees .................... 3,075 185 2,354
--------- --------- --------- --------- ---------
NET INCOME .......................................... 121,339 69,467 46,527 15,322 3,418
Preferred distributions .......................... 21,423 11,797 7,734
--------- --------- --------- --------- ---------
NET INCOME APPLICABLE TO UNITHOLDERS ................ $ 99,916 $ 57,670 $ 38,793 $ 15,322 $ 3,418
========= ========= ========= ========= =========
DILUTED EARNINGS PER UNIT:
Income applicable to unitholders before
extraordinary charge ................................ $ 1.93 $ 1.68 $ 1.58 $ 1.70 $ 0.54
Extraordinary charge ............................. (0.06) (0.01) (0.09)
--------- --------- --------- --------- ---------
Net income applicable to unitholders ............. $ 1.87 $ 1.67 $ 1.49 $ 1.70 $ 0.54
========= ========= ========= ========= =========
Weighted average units outstanding ............... 53,323 34,467 26,003 8,989 6,385
</TABLE>
-28-
<PAGE> 31
FELCOR LODGING LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD FROM JULY 28, 1994
------------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994 (1)
---------- ---------- --------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Cash distributions per unit .................. $ 2.545 $ 2.10 $ 1.92 $ 1.84 $ 0.66
Funds From Operations (2) .................... 217,363 129,815 77,141 20,707 4,905
EBITDA (3) ................................... 299,550 153,496 86,583 22,203 5,014
Ratio of EBITDA to interest expense .......... 3.8x 4.4x 8.2x 11.1x 46.0x
Ratio of earnings to combined fixed
charges and preferred distributions (4) ..... 1.9x 2.2x 3.0x 8.6x 32.4x
Cash provided by operating activities ........ 192,583 97,478 67,494 17,003 3,959
Cash provided by financing activities ........ 375,064 600,132 251,906 407,897 97,952
Cash used in investing activities ............ (550,498) (687,860) (478,428) (259,197) (100,793)
BALANCE SHEET DATA:
Cash and cash equivalents .................... $ 34,692 $ 17,543 $ 7,793 $ 166,821 $ 1,118
Investment in hotel properties, net .......... 3,964,484 1,489,764 899,691 325,155 104,800
Investment in unconsolidated entities ........ 136,069 132,991 59,867 13,819
Total assets ................................. 4,175,383 1,673,364 978,788 548,359 108,305
Debt ......................................... 1,594,734 476,819 239,425 19,666 8,750
Partners' capital ............................ 897,766 468,246 445,433 61,885
</TABLE>
- -----------------
(1) Prior to FelCor's initial public offering on July 28, 1994, six
hotels were owned by entities deemed to be the predecessor of the
Company. Suite revenues, total revenues, total expenses and net
income of the predecessor for the period from January 1, 1994
through July 27, 1994 were $21.9 million, $23.2 million, $21.6
million and $1.6 million, respectively.
(2) The following table details the computation of Funds From
Operations (in thousands). A more detailed description of FFO is
contained in the "Funds From Operations" section of Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994
---------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994 (1)
--------- --------- --------- --------- -----------------------------
<S> <C> <C> <C> <C> <C>
Net income ....................................... $ 121,339 $ 69,467 $ 46,527 $ 15,322 $ 3,418
Series B redeemable preferred distributions ... (8,373)
Extraordinary charge from
write off of deferred financing fees ...... 3,075 185 2,354
Depreciation .................................. 90,835 50,798 26,544 5,232 1,487
Depreciation from unconsolidated entities ..... 10,487 9,365 1,716 153
Funds From Operations (FFO) ...................... $ 217,363 $ 129,815 $ 77,141 $ 20,707 $ 4,905
========= ========= ========= ========= =========
Weighted average units outstanding * ............. 58,013 39,157 29,306 8,989 6,385
</TABLE>
- -----------------------
* Weighted average units outstanding are computed using dilutive options and
unvested stock grants, and assuming conversion of Series A Preferred Units
to Units.
-29-
<PAGE> 32
(3) EBITDA is computed by adding FFO, interest expense, the Company's
portion of interest expense from unconsolidated entities,
amortization expense, and operating cash distributions from
unconsolidated entities and deducting equity in income from
unconsolidated entities and the Company's portion of depreciation
from unconsolidated entities. A reconciliation of Funds From
Operations to EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994
---------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994 (1)
--------- --------- --------- --------- -----------------------------
<S> <C> <C> <C> <C> <C>
Funds From Operations ........................... $ 217,363 $ 129,815 $ 77,141 $ 20,707 $ 4,905
Interest expense ........................... 73,182 28,792 9,803 2,004 109
Interest expense from unconsolidated
entities ............................... 6,521 5,895 818
Amortization expense ....................... 922 1,111 593 158
Operating cash distributions from
unconsolidated entities ............... 19,066 4,211 1,954
Equity in income from unconsolidated
entities .............................. (7,017) (6,963) (2,010) (513)
Depreciation from unconsolidated entities... (10,487) (9,365) (1,716) (153)
--------- --------- --------- --------- ---------
EBITDA .......................................... $ 299,550 $ 153,496 $ 86,583 $ 22,203 $ 5,014
========= ========= ========= ========= =========
</TABLE>
(4) For the purpose of computing the ratio of earnings to combined
fixed charges and preferred unit distributions, earnings consist
of income from continuing operations plus fixed charges, excluding
capitalized interest, and fixed charges consist of interest,
whether expensed or capitalized, and amortization of loan costs.
-30-
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company at December 31, 1998, owned interests in 193 hotels with
nearly 50,000 rooms and suites. Additional organizational information relating
to the Company, and the definitions of certain capitalized terms, are contained
in the Notes to Consolidated Financial Statements of FelCor Lodging Limited
Partnership appearing elsewhere herein.
The Company is the owner of the largest number of Embassy Suites(R),
Crowne Plaza(R), Holiday Inn(R) and independently owned Doubletree(R) branded
hotels in the world. The following table provides a schedule of the Hotels, by
brand, operated by each of the Company's Lessees at December 31, 1998:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ----- ------- -----
<S> <C> <C> <C>
Embassy Suites 57 57
Holiday Inn 49* 49
Doubletree and Doubletree Guest Suites(R) 17 17
Crowne Plaza and Crowne Plaza Suites(R) 14 14
Holiday Inn Select(R) 11 11
Sheraton(R)and Sheraton Suites(R) 9 1 10
Hampton Inn(R) 9 9
Holiday Inn Express(R) 7* 7
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independents 2 2
Courtyard by Marriott(R) 2 2
Days Inn(R) 1* 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Radisson(R) 1 1
Ramada Inn(R) 1* 1
Westin(R) 1 1
--- ---- ----
Total Hotels 86 107 193
=== ==== ====
</TABLE>
* The Company has sold, or intends to sell, during 1999 two Holiday Inn,
two Holiday Inn Express, the Ramada Inn and Days Inn hotels owned at
December 31, 1998.
The Hotels are located in 34 states and Canada with 79 in California
(20), Florida (18) and Texas (41).
The principal factors affecting the Company's results of operations are
acquisitions of hotels, renovations, redevelopments, and rebrandings of hotels,
and changes in room and suite revenues measured by revenue per available room
("RevPAR"). On July 28, 1998, FelCor completed the acquisition of the assets of
Bristol through a merger, which resulted in the net addition of 107 hotels,
valued at approximately $2 billion, to the Company's portfolio. In addition to
the Bristol assets, the Company acquired 16 hotels, valued at $412.8 million.
Three of the hotels acquired in the Merger were sold prior to December 31, 1998.
The Company continued its program of renovation, redevelopment, and
rebranding of hotels, to improve under-performing assets and increase revenues.
The Company and, prior to the Merger, Bristol Hotel Company, spent nearly $220
million in 1998 on renovations, redevelopments, rebrandings, room additions to
existing hotels, and other hotel improvements. This strategy continues to be
effective in improving revenue performance.
-31-
<PAGE> 34
The Company's growth has been financed primarily with equity, resulting
in a conservative financial structure. The results of this conservative approach
are evidenced by the following, as of December 31, 1998:
o Interest coverage ratio of 3.8x
o Pro forma interest coverage ratio of 3.6x
o Total debt to pro forma EBITDA of 4.1x
o Borrowing capacity under existing credit facilities of $114 million
o Consolidated debt-to-total assets of 38%
o Fixed interest rate debt comprising 56% of total debt
o Secured debt to total assets of 7%
o Debt of $16 million maturing prior to December 31, 1999
The Company's historical results of operations for 1998, 1997, and 1996
are summarized as follows (in millions, except percentages and hotel counts):
<TABLE>
<CAPTION>
PERCENTAGE
YEARS ENDED DECEMBER 31, CHANGE
------------------------------- --------------------
1998 1997 1996 98 VS 97 97 VS 96
------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Hotels owned at year end.................................... 193 73 43 164.4% 69.8%
Revenues.................................................... $340.1 $ 176.7 $ 100.9 92.5% 75.1%
Income before extraordinary charge.......................... $124.4 $ 69.7 $ 48.9 78.5% 42.5%
Net income applicable to unitholders........................ $ 99.9 $ 57.7 $ 38.8 73.1% 48.7%
Funds From Operations (FFO)................................. $217.4 $129.8 $ 77.1 67.5% 68.4%
</TABLE>
RESULTS OF OPERATIONS
THE COMPANY -- ACTUAL
Comparison of the Years Ended December 31, 1998 and 1997.
For the years 1998 and 1997 the Company had total revenue of $340.1
million and $176.7 million, respectively, consisting primarily of Percentage
Lease revenue of $328.9 million and $169.1 million. The 43 hotels owned by the
Company throughout both of the years 1998 and 1997 (DJONT Comparable Hotels),
which reflect the effect of the Company's ownership and the management by its
strategic partners, experienced a growth in RevPAR during 1998 of 5.4% over
1997. The largest portion of this increase came from the 18 former Crown
Sterling Suite hotels, which continued their trend of improved RevPAR throughout
1998, achieving a RevPAR of $92.05 in 1998 compared to $85.04 for 1997, an
increase of 8.2%. These hotels have improved their RevPAR performance by 31.4%
since 1996. The Company attributes this dramatic increase to the renovation,
redevelopment, and rebranding of these hotels in 1996 and early 1997. Likewise,
the 59 Bristol Comparable Hotels (those Bristol hotels not undergoing renovation
in either 1997 or 1998) produced improved RevPAR performance of 6.7% over 1997.
The improvement in room and suite revenue significantly impacts the
Company because its principal source of revenue is rent payments from the
Lessees under the Percentage Leases. The Percentage Leases provide for rent
based on a percentage of room and suite revenue, food and beverage revenue, food
and beverage rents, and in some instances, other hotel revenues. The portion of
the Percentage Lease revenue derived from room and suite revenues was
approximately 93% in 1998 and 97% in 1997. The decrease in the portion of
Percentage Lease revenue derived from room and suite revenues is attributed
primarily to the more extensive food and beverage operations in the Bristol
hotels.
-32-
<PAGE> 35
The Company generally seeks to acquire hotels that management believes
can achieve increases in room and suite revenue and RevPAR as a result of
renovation, redevelopment, and rebranding, or a change in management. However,
during the course of such improvements hotel revenue performance is often
adversely affected by such temporary factors as out-of-service rooms and suites
and disruptions of hotel operations. (A more detailed discussion of hotel room
and suite revenue is contained in "The Hotels -- Actual" section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Total expenses increased $108.7 million in 1998 over 1997, primarily
resulting from the net acquisition of 120 hotels during 1998 and 30 hotels in
1997. Total expenses as a percentage of total revenue increased in 1998 to 63.4%
from 60.6% in 1997.
The major component of the increase in expenses, as a percentage of
total revenue, was interest expense. Interest expense increased by $44.4 million
from $28.8 million in 1997 to $73.2 million in 1998, and increased as a
percentage of total revenue from 16.3% in 1997 to 21.5% in 1998. The relative
increase in interest expense is attributed to the assumption of debt related to
the more highly leveraged Bristol assets. Debt as a percentage of total assets
increased from 28.5% at December 31, 1997 to 38.2% at December 31, 1998.
General and administrative expenses, depreciation, and taxes,
insurance, and other expenses remained relatively constant as a percentage of
total revenue in 1998 and 1997.
Comparison of the Years Ended December 31, 1997 and 1996.
For the years 1997 and 1996 the Company had total revenue of $176.7
million and $100.9 million, respectively, consisting primarily of Percentage
Lease revenue of $169.1 million and $98.0 million. The increase in total revenue
is primarily attributed to the Company's acquisition and subsequent leasing,
pursuant to Percentage Leases, of interests in 30 hotels during 1997. This
increase represents nearly a 70% increase in the number of hotel interests owned
by the Company at the end of 1996. Percentage Lease revenue from the 20 hotels
which were owned during all of 1997 and 1996 increased 16.5% for 1997 over 1996
(an increase of $8.8 million). The increase in Percentage Lease revenue is
attributed to a 10% increase in RevPAR and to the addition of 177 new suites at
three existing hotels. Furthermore, RevPAR at the 43 hotels owned by the Company
at December 31, 1996, increased 12.9% during 1997.
Equity in income from unconsolidated entities increased approximately
$5.0 million in 1997 over 1996, resulting primarily from an increase in the
number of hotels owned through unconsolidated entities from five at December 31,
1996, to 14 at December 31, 1997.
Total expenses increased $54.9 million in 1997 over 1996, resulting
primarily from increased expenses related to the acquisition of additional
hotels during 1997 and 1996.
The major component of the increased expenses as a percentage of total
revenue was interest expense. Interest expense increased as a percentage of
total revenue from 9.7% in 1996 to 16.3% in 1997. This relative increase in
interest expense is attributed to the increased use of debt to finance
acquisitions and renovations. Debt as a percentage of total assets increased
from 24.5% at December 31, 1996, to 28.5% at December 31, 1997.
As a percentage of total revenue, depreciation increased from 26.3% in
1996 to 28.8% in 1997. The relative increase in depreciation is primarily a
result of capital improvements made during 1996 and 1997 and the resultant
depreciation, as well as the increase of short lived assets relative to total
fixed assets (short lived assets made up 9.8% of fixed assets at December 31,
1997 and 9.0% at December 31, 1996).
General and administrative expenses and taxes, insurance, and other
expenses remained relatively constant as a percentage of total revenue in 1997
and 1996.
-33-
<PAGE> 36
FUNDS FROM OPERATIONS
The Company and FelCor consider Funds From Operations to be a key
measure of a REIT's performance which should be considered along with, but not
as an alternative to, net income and cash flow as a measure of the Company's and
FelCor's operating performance and liquidity.
The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales of properties, plus real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items related to
unconsolidated entities and joint ventures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities, and investing activities, it provides investors with an indication
of the ability of the Company to incur and service debt, to make capital
expenditures, and to fund other cash needs. The Company computes Funds From
Operations in accordance with standards established by NAREIT which may not be
comparable to Funds From Operations reported by other REITs that do not define
the term in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. Funds From Operations
does not represent cash generated from operating activities determined by GAAP
and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company 's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
Funds From Operations may include funds that may not be available for
management's discretionary use due to requirements to conserve funds for capital
expenditures and property acquisitions and other commitments and uncertainties.
The following table details the computation of Funds From Operations
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
-------- --------- -------
<S> <C> <C> <C>
FUNDS FROM OPERATIONS (FFO):
Net income................................................................. $121,339 $ 69,467 $46,527
Series B redeemable preferred distributions............................. (8,373)
Extraordinary charge from write off of deferred financing fees......... 3,075 185 2,354
Depreciation............................................................ 90,835 50,798 26,544
Depreciation for unconsolidated entities................................ 10,487 9,365 1,716
-------- --------- -------
FFO........................................................................ $217,363 $ 129,815 $77,141
======== ========= =======
Weighted average units outstanding*........................................ 58,013 39,157 29,306
</TABLE>
- ------------
* Weighted average units outstanding are computed using dilutive
options and unvested stock grants, and assuming conversion of Series
A Preferred Units to Units.
-34-
<PAGE> 37
Included in FFO is the Company's share of FFO from its interest in 15
unconsolidated entities at December 31, 1998, 14 unconsolidated entities at
December 31, 1997, and five unconsolidated entities at December 31, 1996. The
following table details the computation of FFO from these unconsolidated
entities (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statements of operations information:
Percentage lease revenue ................................... $ 52,313 $ 47,720 $ 9,974
Depreciation ............................................... $ 17,570 $ 15,611 $ 3,086
Taxes, insurance and other ................................. $ 8,956 $ 9,555 $ 886
Interest expense ........................................... $ 13,042 $ 11,790 $ 1,636
Net income ................................................. $ 17,438 $ 17,044 $ 4,366
50% of net income attributable to the Company .............. $ 8,719 $ 8,522 $ 2,183
Amortization of cost in excess of book value ............... (1,702) (1,559) (173)
-------- -------- --------
Equity in income from unconsolidated entities .............. 7,017 6,963 2,010
Add: Depreciation ......................................... 8,785 7,806 1,543
Amortization of cost in excess of book value ..... 1,702 1,559 173
-------- -------- --------
FFO from unconsolidated entities ........................... $ 17,504 $ 16,328 $ 3,726
======== ======== ========
</TABLE>
THE HOTELS -- ACTUAL
Upscale and full service hotels like Embassy Suites, Crowne Plaza,
Holiday Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and
Sheraton and Sheraton Suites hotels account for 95% of the Company's Percentage
Lease revenue. As a result of the renovation and rebranding of hotels,
approximately 97% of Percentage Lease revenue is expected to be derived from
upscale and full service hotels in 1999.
The following tables set forth historical occupancy, average daily rate
("ADR"), and RevPAR at December 31, 1998 and 1997, and the percentage changes
therein between the years presented for the Hotels in which the Company had an
ownership interest at December 31, 1998. This information is presented
regardless of the date of acquisition.
-35-
<PAGE> 38
Comparable Hotels
The Company believes that, when analyzing the performance of the
hotels, looking at "comparable" hotels is the most meaningful. For the DJONT
hotels, "comparable" is defined to include those hotels that were owned
throughout all of 1997 and 1998. This generally includes the hotels that have
benefitted from the Company's renovation, redevelopment, and rebranding programs
and generally excludes those hotels that are currently undergoing renovation and
experiencing out-of-service rooms and suites due to their renovation. For the
Bristol hotels, "comparable" excludes those hotels undergoing redevelopment
during either of the comparison years and those hotels that are identified for
sale.
<TABLE>
<CAPTION>
1998
-------------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels.......................... 73.6% $113.59 $83.59
CSS Hotels............................... 73.2 125.77 92.05
1996 Acquisitions........................ 73.7 126.08 92.86
Total DJONT Comparable Hotels (A)........ 73.4 122.33 89.83
Original Bristol......................... 71.5 74.38 53.15
Holiday Acquisition...................... 73.9 87.31 64.52
Omaha Acquisition........................ 50.5 62.15 31.36
Total Bristol Comparable Hotels (B)...... 67.4 77.94 52.55
Total Comparable Hotels............... 70.0% $ 97.71 $68.38
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels.......................... 76.1% $109.35 $83.17
CSS Hotels............................... 73.4 115.85 85.04
1996 Acquisitions........................ 74.0 118.61 87.76
Total DJONT Comparable Hotels............ 74.3 114.77 85.27
Original Bristol......................... 74.2 68.76 51.00
Holiday Acquisition...................... 74.7 81.10 60.60
Omaha Acquisition........................ 46.1 59.05 27.21
Total Bristol Comparable Hotels.......... 67.7 72.74 49.26
Total Comparable Hotels............... 70.5% $ 91.37 $64.40
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
------------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels......................... (2.5)pts. 3.9% 0.5%
CSS Hotels.............................. (0.2) 8.6 8.2
1996 Acquisitions....................... (0.3) 6.3 5.8
Total DJONT Comparable Hotels........... (0.9) 6.6 5.4
Original Bristol........................ (2.7) 8.2 4.2
Holiday Acquisition..................... (0.8) 7.7 6.5
Omaha Acquisition....................... 4.4 5.2 15.3
Total Bristol Comparable Hotels......... (0.3) 7.1 6.7
Total Comparable Hotels.............. (0.5)pts. 6.9% 6.2%
</TABLE>
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels), and 1996
Acquisitions (12 hotels) are considered DJONT Comparable Hotels since these
hotels were owned by the Company throughout the years ended December 31, 1998
and 1997.
(B) Bristol Comparable Hotels excludes 39 hotels undergoing redevelopment during
either 1997 or 1998, three individual hotel acquisitions, and six hotels
identified for sale.
-36-
<PAGE> 39
Non-comparable Hotels
<TABLE>
<CAPTION>
1998
----------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions (A)................... 71.0% $112.11 $79.56
1998 Acquisitions (A)................... 71.4 99.77 71.22
Bristol Non-comparable Hotels (B)....... 67.0 87.30 58.46
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions....................... 71.8% $109.26 $78.45
1998 Acquisitions....................... 72.6 97.80 71.01
Bristol Non-comparable Hotels .......... 72.3 79.11 57.21
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
----------------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions....................... (0.8)pts. 2.6% 1.4%
1998 Acquisitions....................... (1.2) 2.0 0.3
Bristol Non-comparable Hotels .......... (5.3) 10.4 2.2
</TABLE>
(A) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions (13 hotels) are
excluded from the DJONT Comparable Hotels because they were not owned by the
Company during all of 1998 and 1997.
(B) The Bristol Non-comparable Hotels excludes two hotels closed during
renovation and six hotels identified for sale. In the aggregate, the six hotels
identified for sale had a 7.5% decline in RevPAR during 1998.
Comparison of the Hotels' Operating Statistics for the Years Ended December
31, 1998 and 1997.
DJONT Comparable Hotels. The DJONT Comparable Hotels' RevPAR increased
5.4% in 1998 over 1997. This improvement was driven by an increase in ADR of
6.6%, partially offset by a decrease of approximately one point in occupancy.
Forty of the 43 DJONT Comparable Hotels are Embassy Suites hotels.
The strongest performance of the DJONT Comparable Hotels came from the
CSS Hotels which include 18 former Crown Sterling Suite hotels purchased in 1995
and 1996. These hotels benefitted from the Company's renovation, redevelopment,
and rebranding program, under which 16 of these hotels were converted to Embassy
Suites and two to Doubletree Guest Suites hotels. The renovations,
redevelopments, and rebrandings were completed in 1996 and early 1997. These
hotels posted RevPAR of $92.05 in 1998, an improvement of 8.2% over the 1997
RevPAR of $85.04 and an improvement of 31.4% over the 1996 RevPAR of $70.05.
The Original Hotels include the 13 hotels acquired by the Company from
1994 through October 1996. While this group of hotels had only a modest increase
in RevPAR of 0.5% over 1997, room and suite revenue in this group of hotels
increased $5.8 million (6.8%). This increase in room and suite revenue resulted
from the 1998 construction of 224 additional suites at three hotels.
The 1996 Acquisitions consist of 12 hotels that the Company acquired in
late 1995 and 1996. These hotels improved RevPAR performance by 5.8% over 1997.
This improvement is generally attributed to the renovation and redevelopment of
these hotels in 1996 and 1997.
-37-
<PAGE> 40
Bristol Comparable Hotels. The Bristol Comparable Hotels improved
RevPAR by 6.7% in 1998 over 1997. This improvement was driven by higher ADR with
a slight drop (0.3 pts.) in occupancy.
The following table sets forth additional information for the Bristol
Comparable Hotels:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER 1998 CHANGE
OF HOTELS REVPAR IN REVPAR
--------- ------ ---------
<S> <C> <C> <C>
Bristol Comparable Hotels:
Holiday Inn................................................... 39 $53.95 7.9%
Hampton Inn................................................... 8 $41.52 12.4%
Fairfield Inn................................................. 5 $40.94 3.9%
Harvey Hotel.................................................. 4 $56.16 (2.4)%
Other......................................................... 3 $60.84 7.4%
---
Total Bristol Comparable Hotels........................... 59 $52.55 6.7%
===
</TABLE>
The strongest performance in the Bristol Comparable Hotels came from
the Omaha Acquisition. The Omaha Acquisition hotels include 19 hotels (nine
Holiday Inn hotels, five Hampton Inn hotels, four Holiday Inn Express hotels,
and one Homewood Suites hotel) acquired by Bristol in early 1998. The increase
in RevPAR of 15.3% over 1997 is attributed to the change in management of these
hotels to Bristol Hotels & Resorts. The Holiday Acquisition hotels (19 Holiday
Inn hotels) increased RevPAR by 6.5% and the Original Bristol hotels (seven
Holiday Inn and Holiday Inn Select, five Fairfield Inn, four Harvey, three
Hampton Inn, and two Courtyard by Marriott hotels) increased RevPAR by 4.2%,
primarily attributable to the positive impact from renovations and
redevelopments in 1996.
DJONT Non-comparable Hotels. The DJONT Non-comparable Hotels produced
slight RevPAR increases which were driven by increases in ADR with a slight drop
in occupancy.
Bristol Non-comparable Hotels. The Bristol Non-comparable Hotels
include eight recently renovated and rebranded Crowne Plaza hotels. These hotels
produced RevPAR increases in the fourth quarter of 1998 of 14.3% over the fourth
quarter of 1997. More significantly, the ADR at these eight Crowne Plaza hotels
increased 20.0% in the fourth quarter of 1998 over the comparable prior year
quarter.
DJONT - ACTUAL
Comparison of the Years Ended December 31, 1998 and 1997
Total revenues increased to $749.5 million in 1998 from $534.5 million
in 1997, an increase of 40.2%. Total revenues consisted primarily of suite
revenue of $ 618.1 million and $456.6 million in 1998 and 1997, respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased to 86 hotels at December 31, 1998 from 73 hotels at
December 31, 1997. Suite revenues for the 43 hotels which were leased for all of
1998 and 1997 increased 8.0% or $19.3 million. The increase in revenues at these
hotels is due primarily to improved average daily room rates of $122.33, for the
year ended December 31, 1998, as compared to $114.77 for the year ended December
31, 1997.
DJONT recorded a net income of $844,000 in 1998 compared to a net loss
of $2.7 million in 1997. This improvement in operating performance is primarily
attributed to improved profitability of food and beverage operations for DJONT
and a decrease in percentage lease expenses as a percentage of total revenue.
Food and beverage profits increased to 1.6% of total revenue in 1998
from 0.3% in 1997, an increase of $10.2 million. This change is attributed to
the increased number of hotels leased by DJONT which have a greater emphasis on
food and beverage than the traditional Embassy Suites. Food and beverage
revenue, as a percentage of total revenue, increased to 10.4% in 1998 compared
to 6.5% in 1997.
-38-
<PAGE> 41
Percentage lease expenses as a percentage of total revenue decreased to
39% from 41%. A portion of this change is attributed to the increase in food and
beverage revenues, as a percentage of total revenues, which bear a lower
percentage rent than room revenues.
Comparison of the Years Ended December 31, 1997 and 1996
Total revenues increased to $534.5 million in 1997 from $269.2 million
in 1996, an increase of 98.5%. Total revenues consisted primarily of suite
revenue of $456.6 million and $234.5 million in 1997 and 1996, respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased to 73 hotels at December 31, 1997 from 43 hotels at
December 31, 1996. Suite revenues for the 20 hotels which were leased for all of
1997 and 1996 increased 12.2% or $14.6 million. The increase in revenues at
these hotels is due primarily to improved occupancy and average daily room rates
of 74.7% and $110.20, respectively, for the year ended December 31, 1997, as
compared to 72.9% and $102.62 for the year ended December 31, 1996.
DJONT income before Percentage Lease rent increased in 1997 to 40.1%
from 38.1% of total revenues in 1996 primarily as a result of higher revenue
earned per available room. The net loss of approximately $2.7 million during
1997 was half that incurred in 1996 and resulted primarily from the one-time
costs of converting the last of the CSS Hotels to the Embassy Suites and
Doubletree Guest Suites brands and the substantial number of suite nights lost
during the year due to renovation.
RENOVATIONS, REDEVELOPMENTS AND REBRANDINGS
The Company believes that one factor that differentiates it from other
hotel companies is its commitment to making capital expenditures where
necessary, to renovate, redevelop, and rebrand its Hotels. The Company
approaches this in five different ways: (i) an aggressive renovation and
redevelopment program as hotels are acquired to bring them up to their optimum
competitive position, (ii) rebranding hotels in certain instances to improve the
revenue generating capacity of the hotel, (iii) contributions of at least 4% of
annual room and suite revenue for the DJONT hotels and 3% of total annual hotel
revenue for the Bristol hotels (on a cumulative basis) for routine capital
replacements and improvements (the "Capital Reserve"), (iv) insuring that the
Lessees adhere to a proactive maintenance and repair program for the Hotels
amounting to approximately 4.5% of hotel revenues, and (v) after the initial
renovation and redevelopment, the construction of additional rooms and suites,
meeting rooms and public areas where market conditions dictate.
Renovation and Redevelopment Program
In 1998, the Company and, prior to the Merger, Bristol Hotel Company
completed approximately $180 million of capital improvements to approximately 40
hotels. During 1998, approximately 3% of total hotel room nights were out of
service due to renovations. The Company presently expects to spend an additional
$160 million in capital improvements to 56 hotels during 1999 and expects that
approximately 3% of total room nights again will be out of service due to
renovation.
-39-
<PAGE> 42
Rebranding
In 1998 the Company re-branded 16 hotels as follows:
<TABLE>
<CAPTION>
PRIOR BRAND NEW BRAND LOCATION
----------- --------- --------
<S> <C> <C>
Hilton Crowne Plaza Secaucus, New Jersey
Holiday Inn Crowne Plaza Hartford, Connecticut
Holiday Inn Crowne Plaza San Francisco, California
Holiday Inn Crowne Plaza Houston, Texas
Holiday Inn Select Crowne Plaza Greenville, South Carolina
Holiday Inn Select Crowne Plaza Miami, Florida
Holiday Inn Select Crowne Plaza Philadelphia, Pennsylvania
Harvey Hotel Crowne Plaza Atlanta, Georgia
Harvey Hotel Crowne Plaza Dallas, Texas
Harvey Hotel Crowne Plaza Addison, Texas
Bristol Suites Crowne Plaza Suites Dallas, Texas
Doubletree Guest Suites Sheraton Suites Ft. Lauderdale, Florida
Doubletree Guest Suites Sheraton Suites Lexington, Kentucky
Sheraton Westin Dallas, Texas
Radisson Sheraton Dallas, Texas
Harvey Suites Holiday Inn & Suites Houston, Texas
</TABLE>
In 1999, the Company expects to re-brand four Holiday Inn hotels and
one independent hotel as Crowne Plaza hotels, four Doubletree Guest Suites
hotels to Embassy Suites hotels, and one Radisson hotel to a Doubletree hotel.
Room Additions
During 1998, the Company completed construction of an aggregate of 224
suites at its Embassy Suites hotels in Jacksonville (67) and Orlando (North)
(67), Florida, and New Orleans (90), Louisiana.
CAPITAL RESERVE
It is the Company's policy to contribute a minimum of 4% of room and
suite revenue from the DJONT leased hotels and 3% of total hotel revenue from
the Bristol leased hotels to the Capital Reserve account in order to provide
funds for necessary ongoing capital replacements and improvements after the
initial renovation or upgrade. During 1998 approximately $40 million was spent
on such replacements and improvements, in addition to the $180 million spent
under the Renovation and Redevelopment Program described above.
REPAIRS AND MAINTENANCE
During the year ended December 31, 1998, approximately $36.4 million
and $32.0 million were spent by the Lessees on routine repairs and maintenance
at the Hotels leased by DJONT and Bristol, respectively. This represents
approximately 4.7% of total hotel revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions and repayments of indebtedness, is its share of the cash
flow from the Percentage Leases. For the year ended December 31, 1998, cash flow
provided by operating activities, consisting primarily of Percentage Lease
revenue, was $192.6 million and Funds From Operations was $217.4 million.
-40-
<PAGE> 43
The Lessees' obligations under the Percentage Leases are largely
unsecured. The Lessees have limited capital resources, and, accordingly, their
ability to make lease payments under the Percentage Leases is substantially
dependent on the ability of the Lessees to generate sufficient cash flow from
the operation of the Hotels. At December 31, 1998, the Lessees had paid all
amounts then due the Company under the Percentage Leases.
During 1998 and 1997, DJONT realized net income of approximately $0.8
million and a net loss of $2.7 million. At December 31, 1998, DJONT had a
cumulative shareholders' deficit of approximately $8.2 million. The losses in
1997 resulted primarily from the one-time costs of converting the CSS Hotels to
the Embassy Suites and Doubletree Guest Suites brands and the substantial number
of suite nights lost during the year due to renovation. It is anticipated that a
substantial portion of any future profits of DJONT will be retained until a
positive shareholders' equity is restored. It is anticipated that DJONT's future
earnings will be sufficient to enable it to continue to make its lease payments
under the Percentage Leases.
Certain entities owning interests in DJONT and the managers of certain
hotels have agreed to make loans to DJONT of up to an aggregate of approximately
$17.3 million to the extent necessary to enable DJONT to pay rent and other
obligations when due under the respective Percentage Leases relating to a total
of 34 of the Hotels. No such loans were outstanding at December 31, 1998.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases. As an additional
credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter
of Credit") issued by Bankers Trust Company for the benefit of the Company in
the original amount of $20 million. This Letter of Credit is subject to periodic
reductions upon satisfaction of certain conditions and is required to be
maintained until July 27, 1999. For the period from July 28, 1998 (inception of
operations) through December 31, 1998, Bristol earned $2.6 million of net income
and at December 31, 1998, had stockholders' equity of $35.4 million.
The Company may acquire additional hotels and may incur indebtedness to
make such acquisitions or to meet distribution requirements imposed on a REIT
under the Internal Revenue Code, to the extent that working capital and cash
flow from the Company's investments are insufficient to make such distributions.
At December 31, 1998, the Company had $34.7 million of cash and cash
equivalents and had utilized $736 million under its $850 million unsecured
revolving Line of Credit.
The following details the Company's debt outstanding at December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
COLLATERAL INTEREST RATE MATURITY DATE 1998 1997
---------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
FLOATING RATE DEBT:
Line of credit Unsecured LIBOR + 150bp June 2001 $ 411,000 $ 61,000
Term loan Unsecured LIBOR + 150bp December 1999 250,000
Other Unsecured Up to LIBOR + 150bp Various 34,750 25,650
---------- --------
Total floating rate debt 695,750 86,650
---------- --------
FIXED RATE DEBT:
Line of credit Unsecured 7.27% June 2001 325,000 75,000
Publicly-traded term Unsecured 7.38% October 2004 174,249 174,116
notes
Publicly-traded term Unsecured 7.63% October 2007 124,122 124,029
notes
Mortgage debt 15 hotels 7.24% November 2007 145,062
Mortgage debt 3 hotels 6.97% December 2002 43,836
Other 13 hotels 6.96% - 7.23% 2000 - 2005 86,715 17,024
---------- --------
Total fixed rate debt 898,984 390,169
---------- --------
Total debt $1,594,734 $476,819
========== ========
</TABLE>
-41-
<PAGE> 44
The Company is currently seeking to refinance the $250 million term
loan that matures on December 31, 1999.
The Line of Credit and the Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. At December 31, 1998, the Company was in compliance with all
such covenants.
The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the Line of
Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to
the Company (with certain exceptions) and contain provisions allowing for the
substitution of collateral upon satisfaction of certain conditions. Most of the
collateralized borrowings are prepayable, however approximately $43.8 million is
not subject to any prepayment penalty, yield maintenance, or defeasance
obligation. The remaining collateralized borrowings are subject to various
prepayment penalties, yield maintenance, or defeasance obligations.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with six
financial institutions. These interest rate swap agreements modify a portion of
the interest characteristics of the Company's outstanding debt under its Line of
Credit 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 Company at
December 31, 1998, are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/98 MATURITY
--------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
$ 50 million 6.11125% 7.61125% 5.33501% October 1999
$ 25 million 5.95500% 7.45500% 5.20000% November 1999
$ 25 million 5.55800% 7.05800% 5.54656% July 2001
$ 25 million 5.54800% 7.04800% 5.54656% July 2001
$ 75 million 5.55500% 7.05500% 5.54656% July 2001
$ 100 million 5.79600% 7.29600% 5.54656% July 2003
$ 25 million 5.82600% 7.32600% 5.54656% July 2003
-------------
$ 325 million
=============
</TABLE>
The differences to be paid or received by the Company 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 Company and have a
corresponding effect on its future cash flows. Agreements such as these contain
a credit risk in that the counterparties may be unable to fulfill the terms of
the agreement. The Company minimizes that risk by evaluating the
creditworthiness of its counterparties, who are limited to major banks and
financial institutions, and does not anticipate nonperformance by the
counterparties.
To provide for additional financing flexibility, Felcor has
approximately $946 million of common stock, preferred stock, debt securities,
and/or common stock warrants available for offerings under shelf registration
statements previously declared effective.
The Company's cash flow from financing activities of approximately
$375.1 million for the year ended December 31, 1998 resulted primarily from
FelCor's sale of 5.75 million depositary shares, representing 57,500 shares of
FelCor's 9% Series B Cumulative Redeemable Preferred Stock, with net proceeds of
$139.1 million (which were subsequently contributed to the Company for preferred
units) and net borrowings by the Company of $354.5 million, partially offset by
distributions paid to unitholders, of $122.4 million.
-42-
<PAGE> 45
INFLATION
Operators of hotels, in general, possess the ability to adjust room
rates daily to reflect the effects of inflation. Competitive pressures may,
however, limit the Lessees' ability to raise room rates.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize cash on hand or
borrowings under the Line of Credit to make distributions to its equity holders.
THE YEAR 2000 ISSUE
The year 2000 issue relates to computer programs that were written
using two digits rather than four to define the applicable year. In those
programs the year 2000 may be incorrectly identified as the year 1900, which
could result in a system failure or miscalculations causing a disruption of
operations, including a temporary inability to process transactions, prepare
financial statements, or engage in other normal business activities.
The Company believes that its efforts to identify and resolve the year
2000 issues will avoid a major disruption of its business. The Company has
assessed its internal computer systems and believes that they will properly
utilize dates beyond December 31, 1999.
The Hotels owned by the Company are in various stages of identifying
both computer and noninformation technology systems to determine if they are
year 2000 compliant, including embedded systems that operate elevators, phone
systems, energy maintenance systems, security systems, and other systems. The
assessments, which have not been completed at this date, are scheduled to be
completed by the end of the first quarter of 1999. Most of the upgrades to make
a hotel year 2000 compliant had been anticipated as part of the Renovation and
Redevelopment Program that the Company generally undertakes upon acquisition of
a hotel.
The Company currently anticipates that the total cost to remediate all
hotel year 2000 issues to be approximately $8 million, which is included in the
Company's 1999 capital plans.
The Company has requested and received assurances from the managers of
the Hotels, the franchisors of the Hotels and the Lessees, that they have
implemented appropriate steps to insure that they will avoid a major disruption
of business due to year 2000 issues.
Concurrent with the assessment of the year 2000 issue, the Company and
its hotel managers and Lessees are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
year 2000 issues and are developing cost estimates for such plans. Once
developed, contingency plans and related cost estimates will be continually
refined as additional information becomes available.
-43-
<PAGE> 46
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Annual Report on Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. A number of important factors
which, among others, could adversely affect the ability of the Company to meet
its current expectations are disclosed in conjunction with the forward-looking
statements and under "Cautionary Factors That May Affect Future Results" in Item
1 of this Annual Report on Form 10-K ("Cautionary Statements"). Subsequent
written and oral forward-looking statements made by or attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998 the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS No. 133"). FAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. FAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company believes
that, upon implementation, FAS No. 133 will not have a material impact on the
financial statements of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information and disclosures regarding market risks applicable to the
Company is incorporated herein by reference to the discussion under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" contained elsewhere in this
Annual Report on Form 10- K for the fiscal year ended December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included herein beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-44-
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company has no directors or officers. Management functions of the
Company are performed by FelCor as the sole general partner. Information about
the Directors and Executive Officers of FelCor is incorporated herein by
reference to the discussion under "Election of Directors" in FelCor's Proxy
Statement for its 1999 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The Company has no directors or officers. Management functions of the
Company are performed by FelCor as the sole general partner. The directors and
officers of FelCor receive no additional compensation from the Company.
Information about FelCor's executive compensation is incorporated herein by
reference to the discussion under "Election of Directors" in FelCor's Proxy
Statement for its 1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of March 10, 1999,
regarding each person known to the Company to be the beneficial owner of more
than five percent (5%) of its Units. Unless otherwise indicated, such Units are
owned directly and the indicated person has sole voting and dispositive power
with respect thereto.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF
OF BENEFICIAL OWNER CLASS OF UNIT OWNERSHIP CLASS (1)
------------------- ------------- --------- ---------
<S> <C> <C> <C>
FelCor Lodging Trust Incorporated GP Units 722,490 100.0%
545 E. John Carpenter Frwy., Suite 1300 LP Units 67,340,397 (2) 95.8%
Irving, Texas 75062 Series A Preferred Units 6,050,000 (2) 100.0%
Series B Preferred Units 57,500 (2) 100.0%
</TABLE>
- -----------------
(1) Based upon 722,490 GP Units, 70,278,085 LP Units, 6,050,000 Series A
Preferred Units, and 57,500 Series B Preferred Units outstanding as of
March 10, 1999.
(2) Includes 67,340,397 LP Units, 5,989,500 Series A Preferred Units, and
56,925 Series B Preferred Units held of record by FelCor Nevada Holdings,
L.L.C., a wholly-owned subsidiary of FelCor.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's LP
Units, as of March 10, 1999, by (i) each of FelCor's directors and director
nominees, (ii) each Named Executive Officer of FelCor and (iii) all directors
and executive officers of FelCor, as a group. Unless otherwise indicated, such
LP Units are owned directly and the the indicated person has sole voting and
dispositive power.
-45-
<PAGE> 48
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF OWNERSHIP OF
BENEFICIAL OWNER OF LP UNITS CLASS (1)
---------------- ----------- ---------
<S> <C> <C>
Thomas J. Corcoran, Jr........................ 294,915(2) *
Richard S. Ellwood............................ 0 0
Richard O. Jacobson........................... 0 0
Charles A. Ledsinger, Jr...................... 0 0
Robert H. Lutz, Jr............................ 0 0
Charles N. Mathewson.......................... 540,009(3) *
Thomas A. McChristy........................... 0 0
Donald J. McNamara............................ 0 0
Richard C. North.............................. 0 0
Michael D. Rose............................... 0 0
Randall L. Churchey........................... 0 0
Jack Eslick................................... 0 0
Lawrence D. Robinson.......................... 0 0
William P. Stadler............................ 0 0
Larry J. Mundy................................ 0 0
June H. McCutchen............................. 0 0
All executive officers and directors
of FelCor as a group (16 persons)............. 834,924 1.2%
</TABLE>
- ----------------
* Represents less than 1% of the outstanding LP Units.
(1) Based upon 70,278,085 LP Units outstanding on March 10, 1999.
(2) Owned of record by FelCor, Inc., of which Mr. Corcoran is a 50%
stockholder, a director and the President.
(3) Represents Mr. Mathewson's pro rata interest in partnerships
which hold LP Units of record.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and related transactions is
incorporated herein by reference to the discussion under "Election of Directors"
in FelCor's Proxy Statement for its 1999 Annual Meeting of Stockholders.
-46-
<PAGE> 49
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-43.
2. Financial Statement Schedules
The following financial statement schedule is included herein at page
F-30.
Schedule III - Real Estate and Accumulated Depreciation for
FelCor Lodging 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:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 - Amended and Restated Agreement of Limited Partnership of the Partnership (filed as
Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal
year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference).
3.2 - First Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of November 17, 1995 by and among the Registrant, Promus Hotels,
Inc. and all of the persons or entities who are or shall in the future become of the limited
partners of the 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).
3.3 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of January 9, 1996 between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership (filed as
Exhibit 10.1.2 to the 1995 10-K and incorporated herein by reference).
3.4 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of January 10, 1996 by and among the Registrant, MarRay-LexGreen,
Inc. and all of the persons and entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.3 to the 1995 10-K and incorporated
herein by reference).
3.5 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of January 10, 1996 by and among the Registrant, Piscataway-
Centennial Associates Limited Partnership and all of the persons or entities who are or
shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.4 to the
1995 10-K and incorporated herein by reference).
</TABLE>
-47-
<PAGE> 50
<TABLE>
<S> <C>
3.6 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of May 2, 1996, between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership, adopting
Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the
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, and incorporated herein by reference).
3.7 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of September 16, 1996, by and among the Registrant, John B.
Urbahns, II and all of the persons or entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10-
K for the fiscal year ended December 31, 1996, and incorporated herein by reference).
3.8 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the
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 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).
3.9 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the
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 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).
3.10 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of May 1, 1998, between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership, adopting
Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of
May 1, 1998 (filed as Exhibit 10.1.9 to FelCor's Form 8-K dated May 29, 1998, and
incorporated herein by reference).
3.11 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of June 22, 1998, by and among the Registrant, Schenley Hotel
Associates, and all of the persons or entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.10 to FelCor's Form 10-Q for the quarter
ended October 30, 1998, and incorporated herein by reference).
3.12 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of July 28, 1998, between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership, changing
the name of the Partnership to "FelCor Lodging Limited Partnership" (filed as Exhibit
10.1.11 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated
herein by reference).
3.13 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of December 29, 1998, between the Registrant and all of the persons
or entities who are or shall in the future become limited partners of the Partnership,
amending certain provisions of the Partnership Agreement (filed as Exhibit 10.1.12 to
FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 10-K") and incorporated herein by reference).
3.14 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of December 31, 1998, by and between the Registrant, FelCor
Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future
become limited partners of the Partnership (filed as Exhibit 10.1.13 to the 1998 10-K and
incorporated herein by reference).
</TABLE>
-48-
<PAGE> 51
<TABLE>
<S> <C>
3.15 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of March 1, 1999, by and among the Registrant, Huie Properties,
Ltd., and all of the persons or entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.14 to the 1998 10-K and incorporated
herein by reference).
4.1 - Indenture dated as of April 22, 1996 by and between FelCor and Sun Trust Bank, Atlanta,
Georgia, as Trustee (filed as Exhibit 4.2 to FelCor's Form 8-K dated May 1, 1996 and
incorporated herein by reference).
4.2 - Indenture dated as of October 1, 1997 by and among the Registrant, FelCor, the Subsidiary
Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as
Exhibit 4.1 to the Registration Statement on Form S-4 (file No. 333-39595) and the other
co-registrants named therein and incorporated herein by reference).
4.2.1 - First Amendment to Indenture dated as of February 5, 1998 by and among
Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank,
Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement
on Form S-4 (File No. 333-39595) and incorporated herein by reference).
4.2.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of
December 30, 1998, by and among Registrant, FelCor, the Subsidiary Guarantors
named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit
4.7.2 to the 1998 10-K and incorporated herein by reference).
10.1 - Form of Lease Agreement between the Registrant as Lessor and DJONT Operations, L.L.C. or
its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the 1995 10-K and
incorporated herein by reference).
10.1.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the
Registrant, and DJONT to clarify the meaning of Article III of the lease as
represented by the actual course of dealing between lessors and lessees under
such leases (filed as Exhibit 10.19 to FelCor's Form 10-Q for the quarter ended
June 30, 1998, and incorporated herein by reference).
10.2 - Form of Lease Agreement between the Partnership as Lessor and a subsidiary of Bristol Hotels
& Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the
1998 10-K and incorporated herein by reference).
10.2.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the
Registrant, the Partnership, BHR and the lessors and lessees named therein
(filed as Exhibit 10.17 to FelCor's Form 8-K dated August 10, 1998, and
incorporated herein by reference).
10.3 - Employment Agreement dated as of July 28, 1994 between FelCor and Hervey A. Feldman
(filed as Exhibit 10.7 to the 1994 10-K/A and incorporated herein by reference).
10.4 - Employment Agreement dated as of July 28, 1994 between FelCor and Thomas J. Corcoran, Jr.
(filed as Exhibit 10.8 to the 1994 10-K/A and incorporated herein by reference).
10.5 - Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10-
K/A and incorporated herein by reference).
10.6 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 1994 10-K/A and
incorporated herein by reference).
</TABLE>
-49-
<PAGE> 52
<TABLE>
<S> <C> <C>
10.7 - 1995 Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9.2 to
the 1995 10-K and incorporated herein by reference).
10.8 - Non-Qualified Deferred Compensation Plan (filed as Exhibit 4 to FelCor's Registration
Statement on Form S-8 (File No. 333-69869) and incorporated herein by reference).
10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor's Registration
Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference).
10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to
FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement
(File No. 333-50509) and incorporated herein by reference).
10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit
99.2 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration
Statement (File No. 333-50509) and incorporated herein by reference).
10.12 - Form of Severance Agreement for executive officers and certain key employees of FelCor
(filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference).
10.13 - Agreement dated as of April 15, 1995 among FelCor, the Registrant, FelCor, Inc., Thomas
J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit
10.15 to the Registration Statement on Form S-11 (File No. 33-91870) and incorporated
herein by reference).
10.14 - Credit Agreement dated as of February 6, 1996 by and among the Registrant, as borrower,
Holdings and FelCor, as guarantors, and Canadian Imperial Bank of Commerce, as agent
(filed as Exhibit 10.30 to FelCor's Form 8-K dated May 1, 1996, and incorporated herein
by reference).
10.15 - Voting and Cooperation Agreement dated as of March 23, 1998 among Registrant, Bristol,
Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as
Exhibit 99.7 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and
incorporated herein by reference).
10.16 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel
Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by FelCor (filed
as Exhibit 99.8 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and
incorporated herein by reference).
10.17 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among
FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I,
L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey
Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to
FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference).
10.18 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1998
among FelCor and the Registrant, as Borrower, the Lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and
Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association
as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's Form 8-K
dated August 10, 1998 and incorporated herein by reference).
</TABLE>
-50-
<PAGE> 53
<TABLE>
<S> <C>
10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol
Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent
and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders
(filed as Exhibit 10.10 to the Bristol Hotel Company Annual report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference).
21.1* - List of Subsidiaries of the Registrant.
23.1* - Consent of PricewaterhouseCoopers LLP
27* - Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
Registrant did not file any reports on Form 8-K during the fourth
quarter of 1998.
-51-
<PAGE> 54
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 LODGING LIMITED PARTNERSHIP
a Delaware Limited Partnership
By: FelCor Lodging Trust Incorporated
Its General Partner
By: /s/ Randall L. Churchey
-------------------------------------
Randall L. Churchey
Senior Vice President and
Chief Financial Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date Signature
---- ---------
<S> <C>
March 29, 1999 /s/ Donald J. McNamara
--------------------------------------------------------------
Donald J. McNamara
Chairman of the Board and Director
March 29, 1999 /s/ Thomas J. Corcoran, Jr.
--------------------------------------------------------------
Thomas J. Corcoran, Jr.
President and Director (Chief Executive Officer)
March 29, 1999 /s/ Randall L. Chruchey
--------------------------------------------------------------
Randall L. Churchey
Senior Vice President (Chief Financial Officer)
March 29, 1999 /s/ Lester C. Johnson
--------------------------------------------------------------
Lester C. Johnson
Vice President and Controller
(Principal Accounting Officer)
March 29, 1999 /s/ Richard S. Ellwood
--------------------------------------------------------------
Richard S. Ellwood, Director
March 29, 1999 /s/ Richard O. Jacobson
--------------------------------------------------------------
Richard O. Jacobson, Director
March 29, 1999 /s/ Charles A. Ledsinger, Jr.
--------------------------------------------------------------
Charles A. Ledsinger, Jr., Director
March 29, 1999 /s/ Robert H. Lutz, Jr.
--------------------------------------------------------------
Robert H. Lutz, Jr., Director
March 29, 1999 /s/ Charles N. Mathewson
--------------------------------------------------------------
Charles N. Mathewson, Director
March 29, 1999 /s/ Thomas A. McChristy
--------------------------------------------------------------
Thomas A. McChristy, Director
March 29, 1999 /s/ Richard C. North
--------------------------------------------------------------
Richard C. North, Director
March 29, 1999 /s/ Michael D. Rose
--------------------------------------------------------------
Michael D. Rose, Director
</TABLE>
<PAGE> 55
FELCOR LODGING LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
FELCOR LODGING LIMITED PARTNERSHIP
Report of Independent Accountants...............................................................................F-2
Consolidated Balance Sheets - December 31, 1998 and 1997........................................................F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996......................F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996......................F-6
Notes to Consolidated Financial Statements......................................................................F-7
Report of Independent Accountants..............................................................................F-29
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1998................................F-30
DJONT OPERATIONS, L.L.C.
Report of Independent Accountants..............................................................................F-34
Consolidated Balance Sheets - December 31, 1998 and 1997.......................................................F-35
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996.....................F-36
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996...........F-37
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.....................F-38
Notes to Consolidated Financial Statements.....................................................................F-39
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Lodging Trust Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, partners' capital and cash flows present
fairly, in all material respects, the financial position of FelCor Lodging
Limited Partnership (the "Company") at December 31, 1998 and 1997, and the
consolidated results of operations and cash flows for the years ended December
31, 1998, 1997 and 1996, respectively, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 2, 1999
F-2
<PAGE> 57
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1998 1997
---------- ----------
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of
$178,072 in 1998 and $87,400 in 1997 ....................................... $3,964,484 $1,489,764
Investment in unconsolidated entities .......................................... 136,069 132,991
Cash and cash equivalents ...................................................... 34,692 17,543
Due from Lessees ............................................................... 21,943 18,908
Deferred expenses, net of accumulated amortization of
$2,096 in 1998 and $1,987 in 1997 ........................................... 10,041 10,593
Other assets ................................................................... 8,154 3,565
---------- ----------
Total assets ............................................................ $4,175,383 $1,673,364
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt, net of discount of $1,628 in 1998 and $1,855 in 1997 ..................... $1,594,734 $ 476,819
Distributions payable .......................................................... 67,262 24,671
Accrued expenses and other liabilities ......................................... 57,312 11,331
Minority interest in other partnerships ........................................ 51,105 8,594
---------- ----------
Total liabilities .............................................................. 1,770,413 521,415
---------- ----------
Commitments and contingencies (Notes 6 and 9)
Redeemable units at redemption value ........................................... 67,595 102,933
Preferred units:
Series A Cumulative Preferred Units, 6,050 units issued and outstanding ..... 151,250 151,250
Series B Redeemable Preferred Units, 58 units issued and outstanding ........ 143,750
Partners' Capital .............................................................. 2,042,375 897,766
---------- ----------
Total liabilities and partners' capital ................................ $4,175,383 $1,673,364
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE> 58
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue ............................................. $ 328,923 $ 169,114 $ 97,950
Equity in income from unconsolidated entities ........................ 7,017 6,963 2,010
Other revenue ........................................................ 4,154 574 984
--------- --------- ---------
Total revenues .................................. 340,094 176,651 100,944
--------- --------- ---------
Expenses:
General and administrative ........................................... 5,254 3,743 1,819
Depreciation ......................................................... 90,835 50,798 26,544
Taxes, insurance, and other .......................................... 45,288 23,093 13,897
Interest expense ..................................................... 73,182 28,792 9,803
Minority interest in other partnerships .............................. 1,121 573
--------- --------- ---------
Total expenses ................................. 215,680 106,999 52,063
--------- --------- ---------
Income before extraordinary charge ................................... 124,414 69,652 48,881
Extraordinary charge from write off of deferred financing fees ....... 3,075 185 2,354
--------- --------- ---------
Net income ........................................................... 121,339 69,467 46,527
Preferred distributions .............................................. 21,423 11,797 7,734
--------- --------- ---------
Net income applicable to unitholders ................................. $ 99,916 $ 57,670 $ 38,793
========= ========= =========
Per unit data:
Basic:
Income applicable to unitholders
before extraordinary charge ................................ $ 1.95 $ 1.70 $ 1.59
Extraordinary charge ........................................... (0.06) (0.01) (0.09)
--------- --------- ---------
Net income applicable to unitholders ........................... $ 1.89 $ 1.69 $ 1.50
========= ========= =========
Weighted average units outstanding ............................. 52,978 34,126 25,809
Diluted:
Income applicable to unitholders
before extraordinary charge ................................ $ 1.93 $ 1.68 $ 1.58
Extraordinary charge ........................................... (0.06) (0.01) (0.09)
--------- --------- ---------
Net income applicable to unitholders ........................... $ 1.87 $ 1.67 $ 1.49
========= ========= =========
Weighted average units outstanding ............................. 53,323 34,467 26,004
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE> 59
FELCOR LODGING LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<S> <C>
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 ....................... 468,247
Contributions .................................... 449,591
Distributions .................................... (90,249)
Allocations from redeemable units ................ 710
Net income ....................................... 69,467
-----------
Balance, December 31, 1997 ....................... $ 897,766
Contributions .................................... 1,147,739
Distributions .................................... (166,580)
Allocations from redeemable units ................ 42,111
Net income ....................................... 121,339
-----------
Balance, December 31, 1998 ....................... $ 2,042,375
===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE> 60
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $ 121,339 $ 69,467 $ 46,527
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of assets ............................................... (477)
Depreciation ........................................................... 90,835 50,798 26,544
Amortization of deferred financing fees and organization costs ......... 1,985 1,468 554
Amortization of unearned officers' and directors' compensation ......... 830 1,017 506
Equity in income from unconsolidated entities .......................... (7,017) (6,963) (2,010)
Extraordinary charge for write off of deferred financing fees .......... 3,075 185 2,354
Minority interest in other partnerships ................................ 1,121 573
Changes in assets and liabilities, net of effects of acquisitions:
Due from Lessees ....................................................... (3,035) (13,382) (3,130)
Deferred financing fees ................................................ (4,348) (8,825) (4,484)
Other assets ........................................................... (602) (1,175) 353
Accrued expenses and other liabilities ................................. (11,123) 4,315 280
----------- ----------- -----------
Net cash flow provided by operating activities ............... 192,583 97,478 67,494
----------- ----------- -----------
Cash flows used in investing activities:
Acquisition of hotels .................................................. (326,276) (574,100) (365,907)
Acquisition of unconsolidated entities ................................. (65,271) (43,424)
Improvements and additions to hotels ................................... (131,103) (52,700) (71,051)
Bristol interim credit facility ........................................ (120,000)
Sale of hotels ......................................................... 7,815
Cash distributions from unconsolidated entities ........................ 19,066 4,211 1,954
----------- ----------- -----------
Net cash flow used in investing activities ................... (550,498) (687,860) (478,428)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ............................................... 1,013,003 679,144 303,350
Repayment of borrowings ................................................ (658,524) (445,900) (193,954)
Proceeds from sale of preferred units .................................. 139,063 151,250
Contributions .......................................................... 3,884 448,586 37,980
Distributions paid to unitholders ...................................... (105,425) (69,901) (41,936)
Dividends paid to preferred unitholders ................................ (16,937) (11,797) (4,784)
----------- ----------- -----------
Net cash flow provided by financing activities ............... 375,064 600,132 251,906
----------- ----------- -----------
Net change in cash and cash equivalents ........................................ 17,149 9,750 (159,028)
Cash and cash equivalents at beginning of years ................................ 17,543 7,793 166,821
----------- ----------- -----------
Cash and cash equivalents at end of years ...................................... $ 34,692 $ 17,543 $ 7,793
=========== =========== ===========
Supplemental cash flow information - interest paid ............................. $ 72,215 $ 21,414 $ 9,168
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE> 61
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Lodging Limited Partnership and its subsidiaries ( the
"Company") at December 31, 1998, owned interests in 193 hotels with nearly
50,000 rooms and suites (collectively the "Hotels"). The sole general partner of
the Company is FelCor Lodging Trust Incorporated ("FelCor"), one of the nation's
largest hotel real estate investment trusts ("REIT"). At December 31, 1998,
FelCor owned a greater than 95% equity interest in the Company. The Company owns
100% interests in 169 of the Hotels, a 90% or greater interest in entities
owning seven hotels, a 60% interest in an entity owning two hotels and 50%
interests in separate entities that own 15 hotels.
The Company is the owner of the largest number of Embassy Suites(R),
Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded
hotels in the world. The following table provides a schedule of the Hotels, by
brand, operated by each of the Company's Lessees at December 31, 1998:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ----- ------- -----
<S> <C> <C> <C>
Embassy Suites 57 57
Holiday Inn 49* 49
Doubletree and Doubletree Guest Suites(R) 17 17
Crowne Plaza and Crowne Plaza Suites(R) 14 14
Holiday Inn Select(R) 11 11
Sheraton(R)and Sheraton Suites(R) 9 1 10
Hampton Inn(R) 9 9
Holiday Inn Express(R) 7* 7
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independents 2 2
Courtyard by Marriott(R) 2 2
Days Inn(R) 1* 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Radisson(R) 1 1
Ramada(R) 1* 1
Westin(R) 1 1
--- ---- ----
Total Hotels 86 107 193
=== ==== ====
</TABLE>
* The Company has sold, or intends to sell in 1999, two Holiday Inns, two
Holiday Inn Expresses and the Ramada and Days Inn owned at December 31, 1998.
The Hotels are located in 34 states and Canada. The following table
provides information regarding the net acquisition of hotels through December
31, 1998:
<TABLE>
<CAPTION>
NET HOTELS
ACQUIRED
---------
<S> <C>
1994 7
1995 13
1996 23
1997 30
1998 120
----
193
====
</TABLE>
F-7
<PAGE> 62
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION -- (CONTINUED)
At December 31, 1998, the Company leased 86 of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company or a consolidated
subsidiary thereof (collectively "DJONT"), 106 of the Hotels to Bristol Hotels &
Resorts or a consolidated subsidiary thereof ("Bristol") and, together with
DJONT, the "Lessees". One hotel managed by Bristol was not leased.
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. DJONT has entered into management agreements pursuant to which 73 of
the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation
("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood"), and three are managed by two independent
management companies.
Bristol leases and manages 106 Hotels and manages one hotel which
operates without a lease. Bristol is the largest independent hotel operating
company in North America and operates the largest number of Bass Hotels &
Resorts-branded hotels in the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its consolidated 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.
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. The
Company reports the carrying amount of cash and cash equivalents, amounts due
from the Lessees, accrued expenses, and other liabilities at cost, which
approximates fair value due to the short maturity of these instruments. The
carrying amount of the Company's borrowings approximates fair value due to the
Company'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 to 40
years for buildings and improvements and five to seven years for furniture,
fixtures, and equipment.
The Company 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 Company
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 Company does not believe that there
are any factors or circumstances indicating impairment of any of its investment
in the Hotels.
F-8
<PAGE> 63
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Maintenance and repairs are charged to the Lessees' operations as
incurred; major renewals and betterments by the Company 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 Company 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 Company 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 Company's cost and its
proportionate share of the underlying net assets at the 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.
Amortization is computed using the interest method over the maturity of the
related debt.
Revenue Recognition -- Percentage lease revenue is reported as income
over the lease term as it becomes receivable from the Lessees according to the
provisions of the Percentage Lease agreements. The Lessees are in compliance
with their rental obligations under the Percentage Leases.
Capitalized Interest -- The Company capitalizes interest and certain
other costs relating to hotels undergoing major renovations and redevelopments.
Such costs capitalized in 1998 and 1997 were approximately $5.9 million and $1.0
million, respectively.
Net Income Per Unit -- 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 exercise of stock options and unvested officers' restricted
stock grants.
At December 31, 1998, 1997, and 1996, the Company's Series A Cumulative
Preferred Units, if converted to Units, would be antidilutive; accordingly the
Series A Cumulative Preferred Units are not assumed to be converted in the
computation of diluted earnings per unit.
Distributions and Dividends -- The Company pays regular quarterly
distributions on its Units. Additionally, the Company pays regular quarterly
dividends on preferred units in accordance with their distribution requirements.
For 1998 the Company paid regular dividends of $2.20 per unit, $1.95
per Series A preferred unit, and $1.44 per Series B depositary preferred unit.
Additionally, the Company declared a one-time distribution of accumulated but
undistributed earnings and profits as a result of the Bristol merger into
FelCor. The amount of the one-time distribution was $0.345 per unit and $0.207
per Series A preferred unit and was paid with its regular fourth quarter
distribution.
F-9
<PAGE> 64
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes -- No provision for federal income taxes has been
reflected in the financial statements because all taxable income or loss, or tax
credits are passed through to the partners.
3. BRISTOL MERGER
On July 28, 1998, FelCor completed the merger of Bristol Hotel
Company's real estate holdings with and into FelCor (the "Merger"). The Merger
resulted in the net acquisition of 107 primarily full-service hotels which were
contributed to the Company in return for approximately 31.0 million units.
A summary of the fair values of the assets and liabilities acquired in
the Merger, recorded at the date of acquisition, is as follows (in thousands):
<TABLE>
<S> <C>
Investment in hotels ............................. $2,014,250
Investment in unconsolidated entity .............. 16,839
Other assets ..................................... 4,151
----------
2,035,240
----------
Units issued ..................................... 1,146,081
Debt obligations ................................. 868,615
Accrued expenses and other liabilities ........... 55,297
----------
2,069,993
----------
Total cash received in Merger .................... $ 34,753
==========
</TABLE>
The Merger has been accounted for as a purchase, and, accordingly, the
results of operations since the date of acquisition are included in the
Company's consolidated statements of operations.
4. INVESTMENT IN HOTELS
Investment in hotels at December 31, 1998 and 1997, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land ............................................. $ 329,667 $ 157,554
Building and improvements ........................ 3,480,571 1,257,247
Furniture, fixtures and equipment ................ 298,610 147,923
Construction in progress ......................... 33,708 14,440
----------- -----------
4,142,556 1,577,164
Accumulated depreciation ......................... (178,072) (87,400)
----------- -----------
$ 3,964,484 $ 1,489,764
=========== ===========
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
At December 31, 1998, the Company owned 50% interests in separate
entities owning 15 hotels, a parcel of undeveloped land, and a condominium
management company. The Company is accounting for its investments in these
unconsolidated entities under the equity method.
F-10
<PAGE> 65
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED)
Summarized unaudited combined financial information for 100% of these
unconsolidated entities is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels .................................. $257,431 $256,032
Non-recourse mortgage debt ............................ 168,989 138,956
Equity ................................................ 100,670 126,324
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statements of operations information:
Percentage lease revenue .............................. $ 52,313 $ 47,720 $ 9,974
Other income .......................................... 4,693 6,280
-------- -------- --------
Total revenues ............................... 57,006 54,000 9,974
-------- -------- --------
Expenses:
Depreciation ...................................... 17,570 15,611 3,086
Taxes, insurance, and other ...................... 8,956 9,555 886
Interest expense ................................. 13,042 11,790 1,636
-------- -------- --------
Total expenses .............................. 39,568 36,956 5,608
-------- -------- --------
Net income ............................................ 17,438 17,044 4,366
-------- -------- --------
50% of net income attributable to the Company ......... 8,719 8,522 2,183
Amortization of cost in excess of book value .......... (1,702) (1,559) (173)
-------- -------- --------
Equity in income from unconsolidated entities ......... $ 7,017 $ 6,963 $ 2,010
======== ======== ========
</TABLE>
6. DEBT
Debt at December 31, 1998 and 1997, consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
COLLATERAL INTEREST RATE MATURITY DATE 1998 1997
---------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
FLOATING RATE DEBT:
- -------------------
Line of credit Unsecured LIBOR + 150bp June 2001 $ 411,000 $ 61,000
Term loan Unsecured LIBOR + 150bp December 1999 250,000
Other Unsecured Up to LIBOR + 150bp Various 34,750 25,650
---------- --------
Total floating rate debt 695,750 86,650
---------- --------
FIXED RATE DEBT:
- ----------------
Line of credit Unsecured 7.27% June 2001 325,000 75,000
Publicly-traded term notes Unsecured 7.38% October 2004 174,249 174,116
Publicly-traded term notes Unsecured 7.63% October 2007 124,122 124,029
Mortgage debt 15 hotels 7.24% November 2007 145,062
Mortgage debt 3 hotels 6.97% December 2002 43,836
Other 13 hotels 6.96% - 7.23% 2000 - 2005 86,715 17,024
---------- --------
Total fixed rate debt 898,984 390,169
---------- --------
Total debt $1,594,734 $476,819
========== ========
</TABLE>
F-11
<PAGE> 66
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
On July 1, 1998, the Company increased its unsecured credit facilities
to $1.1 billion, consisting of an $850 million revolving line of credit ("Line
of Credit") which matures June 2001 and a $250 million non-amortizing term loan
("Term Loan") which matures December 1999. Interest payable on borrowings under
the credit facilities is variable, determined from a ratings and leverage-based
pricing matrix, ranging from 87.5 basis points to 175 basis points above LIBOR
(30-day LIBOR at December 31, 1998, was 5.628750%). The interest spread in 1998
was 150 basis points. Additionally, the Company is required to pay an unused
commitment fee which is variable, determined from a ratings-based pricing
matrix, ranging from 20 to 30 basis points. In 1998, the Company wrote off
approximately $2.5 million of deferred financing fees relating to the previous
unsecured credit facility of $550 million. For the years ended December 31,
1998, 1997, and 1996, the Company paid interest on its unsecured credit
facilities at the weighted average interest rate of 7.1%, 7.6%, and 7.4%,
respectively. At December 31, 1998, the Company had borrowing capacity under its
Line of Credit of $114 million.
The Line of Credit and the Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. At December 31, 1998, the Company was in compliance with all
such covenants.
The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the Line of
Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to
the Company (with certain exceptions) and contain provisions allowing for the
substitution of collateral upon satisfaction of certain conditions. Most of the
collateralized borrowings are prepayable, however, approximately $43.8 million
is not subject to any prepayment penalty, yield maintenance, or defeasance
obligation. The remaining collateralized borrowings are subject to various
prepayment penalties, yield maintenance, or defeasance obligations.
Future scheduled principal payments on debt obligations at December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1999 ............................................... $ 274,663
2000 ............................................... 32,823
2001 ............................................... 756,920
2002 ............................................... 11,112
2003 ............................................... 45,559
2004 and thereafter ................................ 475,285
-----------
1,596,362
Discount accretion over term ....................... (1,628)
-----------
$ 1,594,734
===========
</TABLE>
F-12
<PAGE> 67
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with six
financial institutions. These interest rate swap agreements modify a portion of
the interest characteristics of the Company's outstanding debt under its Line of
Credit 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 Company at
December 31, 1998, are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/98 MATURITY
--------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
$ 50 million 6.11125% 7.61125% 5.33501% October 1999
$ 25 million 5.95500% 7.45500% 5.20000% November 1999
$ 25 million 5.55800% 7.05800% 5.54656% July 2001
$ 25 million 5.54800% 7.04800% 5.54656% July 2001
$ 75 million 5.55500% 7.05500% 5.54656% July 2001
$ 100 million 5.79600% 7.29600% 5.54656% July 2003
$ 25 million 5.82600% 7.32600% 5.54656% July 2003
-------------
$ 325 million
=============
</TABLE>
The differences to be paid or received by the Company 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 Company 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 in that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
who are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
7. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS
The outstanding units of limited partnership interest in the Company
("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, 1998 and 1997 there were 2,938,933 and 2,899,510 redeemable units
outstanding. The value of the redeemable units are based on the closing market
price of FelCor's common stock at the balance sheet date, which at December 31,
1998 and 1997 was $23.00 and $35.50, respectively.
Preferred Units
FelCor's Board of Directors is authorized to provide for the issuance
of up to 20,000,000 shares of Preferred Stock in one or more series, to
establish the number of shares in each series, to fix the designation, powers
preferences and rights of each such series, and the qualifications, limitations
or restrictions thereof.
In 1996 FelCor issued 6.1 million shares of its $1.95 Series A
Cumulative Convertible 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. The proceeds from the Series A Preferred Stock were
contributed to the Company in exchange for Series A Preferred Units. The
preference on these units are the same as FelCor's Series A Preferred Stock.
F-13
<PAGE> 68
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL STOCK -- (CONTINUED)
On May 1, 1998, FelCor issued 5.75 million depositary shares,
representing 57,500 shares of 9% Series B Cumulative Redeemable Preferred Stock
("Series B Preferred Stock"), at $25 per depositary share. The Series B
Preferred Stock and the corresponding depositary shares may be called by FelCor
at par on or after May 7, 2003, have no stated maturity, sinking fund or
mandatory redemption and are not convertible into any other securities of
FelCor. The Series B Preferred Stock has a liquidation preference of $2,500 per
share (equivalent to $25 per depositary share) and is entitled to annual
dividends at the rate of 9% of the liquidation preference (equivalent to $2.25
annually per depositary share). The proceeds from the Series B Preferred Stock
were contributed to the Company in exchange for Series B Preferred Units. The
preference on these units are the same as FelCor's Series B Preferred Stock.
At December 31, 1998, all distributions then payable on the Series A
and Series B Preferred Units had been paid.
8. TAXES, INSURANCE, AND OTHER
Taxes, insurance, and other is comprised of the following for the years
ended December 31, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Real estate and personal property taxes ........................ $32,892 $18,976 $11,110
Property insurance ............................................. 2,341 1,627 1,312
Land lease expense ............................................. 7,759 1,610 952
State franchise taxes .......................................... 1,609 718 472
Other 687 162 51
------- ------- -------
Total taxes, insurance, and other...................... $45,288 $23,093 $13,897
======= ======= =======
</TABLE>
Future minimum lease payments under the Company's land lease
obligations at December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1999 $ 13,557
2000 13,609
2001 13,534
2002 13,397
2003 13,187
2004 and thereafter 280,893
--------
$348,177
========
</TABLE>
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Commitments
The Company is to receive rental income from the Lessees under the
Percentage Leases which expire in 2002 (six hotels), 2003 (eight hotels), 2004
(12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54
hotels), and thereafter (16 hotels). The rental income under the Percentage
Leases between 14 of the unconsolidated entities, of which the Company owns 50%,
is payable by the Lessee to the respective entities and is not included in the
following schedule of future lease commitments to the Company. Minimum future
rental
F-14
<PAGE> 69
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
income (i.e., base rents) to the Company under these noncancelable operating
leases at December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
LESSEES
-------------------
DJONT BRISTOL TOTAL
----- ------- -----
YEAR
----
<S> <C> <C> <C>
1999 ..................... $ 139,217 $ 157,616 $ 296,833
2000 ..................... 139,305 182,090 321,395
2001 ..................... 142,397 182,111 324,508
2002 ..................... 142,397 182,084 324,481
2003 ..................... 128,362 178,849 307,211
2004 and thereafter ...... 504,383 822,831 1,327,214
---------- ---------- ----------
$1,196,061 $1,705,581 $2,901,642
========== ========== ==========
</TABLE>
The Percentage Lease revenue is based on a percentage of room and suite
revenues, food and beverage revenues, food and beverage rents, and other
revenues 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 1999 ranged from 0.55% to 1.5% dependent upon the Lessee. The CPI
adjustments for 1998 and 1997 were 0.50% and 1.42%, 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 a portion of the hotels' revenues (varying from 4% of room and
suite revenue to 3% of total hotel revenue) 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, 1998 and 1997, were cash balances held by the Hotel managers for
these capital expenditures of $14.8 million and $7.3 million, respectively.
The Company has a Renovation and Redevelopment Program for the Hotels
and presently expects approximately $160 million to be invested in 1999 under
this program, which may be funded from cash on hand or borrowings under its Line
of Credit.
Related Party Transactions
The Company's general partner, FelCor, shares the executive offices and
certain employees with FelCor, Inc., and DJONT. Each company bears its share of
the costs thereof, including an allocated portion of the rent, compensation of
certain personnel (other than Mr. Corcoran, whose compensation is borne solely
by FelCor), office supplies, telephones, and depreciation of office furniture,
fixtures, and equipment. The Company reimburses FelCor for its share of such
allocated costs. Such allocation of shared costs is subject to approval by a
majority of FelCor's independent directors. During 1998, 1997, and 1996, the
Company and FelCor paid approximately $2.8 million (approximately 63%), $1.3
million (approximately 38%), and $807,000 (approximately 38%), respectively, of
the allocable expenses under this arrangement.
F-15
<PAGE> 70
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Company 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>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Assets acquired ....................... $ 2,427,027 $ 588,053 $ 494,354
Liabilities assumed ................... (940,906) (5,932) (111,567)
Units issued .......................... (1,152,856) (16,880)
Minority interest contribution ........ (6,989) (8,021)
----------- ----------- -----------
Net cash paid ................ $ 326,276 $ 574,100 $ 365,907
=========== =========== ===========
</TABLE>
Under the Merger Agreement with Bristol Hotel Company, FelCor provided
Bristol a $120 million interim credit facility (the "Interim Credit Facility").
At July 28, 1998, the Interim Credit facility was assumed and canceled by FelCor
upon completion of the Merger.
Approximately $67.2 million, $24.7 million, and $16.1 million of
aggregate preferred unit and unit distributions had been declared as of December
31, 1998, 1997, and 1996, respectively. These amounts were paid in January
following each year.
In 1998 the Company entered into a joint venture, in which the Company
contributed a hotel with a net book value of $53.9 million for a 60% equity
interest in the venture. The Company has consolidated this venture in the
financial statements and recorded an increase in investment in hotels and
minority interest in other partnerships of $34.4 million.
11. LESSEES
All of the Company's percentage lease revenue is derived from the
Percentage Leases with the Lessees. Certain information, related to DJONT's
financial statements, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents ........................ $ 28,538 $ 25,684
Total assets ..................................... $ 63,972 $ 54,702
Due to FelCor Lodging Limited Partnership ........ $ 16,875 $ 18,908
Shareholders' deficit ............................ $ (8,231) $ (9,075)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statement of Operations Information:
Room and suite revenue ........................... $ 618,122 $ 456,614 $ 234,451
Percentage lease expenses ........................ $ 289,891 $ 216,990 $ 107,935
Net income/(loss) ................................ $ 844 $ (2,672) $ (5,430)
</TABLE>
Certain entities owning interests in DJONT and managers for certain
hotels have agreed to make loans to DJONT of up to an aggregate of approximately
$17.3 million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of 34
of the Hotels. No such loans were outstanding at December 31, 1998.
F-16
<PAGE> 71
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LESSEES -- (CONTINUED)
Bristol is a publicly traded company whose stock is listed on the New
York Stock Exchange under the symbol BH and that files financial statements in
accordance with the Securities Exchange Act of 1934, as amended.
At December 31, 1998, the Company owned interests in 193 Hotels
operating under various brand names. The Hotels generally operate pursuant to
franchise license agreements which require the payment of fees based on a
percentage of room and suite revenue. These fees are paid by the Lessees.
DJONT engages third-party managers to operate the Hotels leased by it
and generally pays such managers a base management fee based on a percentage of
room and suite revenue and an incentive management fee based on DJONT's income
before overhead expenses for each hotel. In certain instances, the hotel
managers have subordinated fees and committed to make subordinated loans to
DJONT, if needed, to meet its rental and other obligations under the Percentage
Leases.
Bristol serves as both the lessee and manager of the 106 Hotels leased
to it by the Company at December 31, 1998, and, as such, is compensated for both
roles through the profitability of the Hotels, after meeting their operating
expenses and rental obligations under the terms of
the Percentage Leases.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases. As an additional
credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter
of Credit") issued by Bankers Trust Company for the benefit of the Company in
the original amount of $20 million. This Letter of Credit is subject to periodic
reductions upon satisfaction of certain conditions and is required to be
maintained until July 27, 1999. According to Bristol's audited financial
statements filed with the SEC, for the period from July 28, 1998, (inception of
operations) through December 31, 1998, Bristol earned $2.6 million of net income
and at December 31, 1998, had stockholders' equity of $35.4 million.
12. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that
are consistent with the Company's method of internal reporting, which segments
its business by Lessee. The Company's Lessees at December 31, 1998, were DJONT
and Bristol. Prior to 1998, the Company had only one lessee, DJONT. Accordingly,
segment information is not disclosed for prior years.
F-17
<PAGE> 72
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT INFORMATION -- (CONTINUED)
The following table presents information about the reportable segments
for the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Information:
- ------------------------------------
Revenues:
Percentage lease revenue .................. $ 237,904 $ 91,019 $ 328,923 $ 328,923
Equity in income from unconsolidated
entities ............................... 6,744 273 7,017 7,017
Other revenue ............................. $ 4,154 4,154
----------- ----------- ----------- ----------- -----------
Total revenues .................. 244,648 91,292 335,940 4,154 340,094
----------- ----------- ----------- ----------- -----------
Expenses:
General and administrative ................ 5,254 5,254
Depreciation .............................. 71,055 19,619 90,674 161 90,835
Taxes, insurance, and other ............... 28,387 16,901 45,288 45,288
Interest expense .......................... 73,182 73,182
Minority interest in other partnerships ... 1,121 1,121 1,121
----------- ----------- ----------- ----------- -----------
Total expenses .................. 100,563 36,520 137,083 78,597 215,680
----------- ----------- ----------- ----------- -----------
Income before extraordinary charge ........... $ 144,085 $ 54,772 $ 198,857 $ (74,443) $ 124,414
=========== =========== =========== =========== ===========
Funds from operations:
- ----------------------
Income before extraordinary charge ........... $ 144,085 $ 54,772 $ 198,857 $ (74,443) $ 124,414
Series B preferred dividends ................. (8,373) (8,373)
Depreciation ................................. 71,055 19,619 90,674 161 90,835
Depreciation for unconsolidated entities ..... 10,254 233 10,487 10,487
----------- ----------- ----------- ----------- -----------
Funds from operations ........................ $ 225,394 $ 74,624 $ 300,018 $ (82,655) $ 217,363
=========== =========== =========== =========== ===========
Weighted average units outstanding (1) ....... 58,013
Other Information:
- ------------------
Total assets ..................... $ 1,998,165 $ 2,102,388 $ 4,100,553 $ 74,830 $ 4,175,383
Capital expenditures ............. $ 65,264 $ 65,839 $ 131,103 $ 131,103
</TABLE>
(1) Weighted average units outstanding are computed including dilutive
options and unvested stock grants, and assuming conversion of Series A
preferred units to Units.
F-18
<PAGE> 73
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT INFORMATION -- (CONTINUED)
The following table sets forth Percentage Lease revenue and investment
in hotel assets represented by the following geographical areas as of and for
the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE INVESTMENT IN HOTEL ASSETS
------------------------ -----------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
California ................................. $ 63,733 $ 36,762 $ 642,965 $ 232,747
Texas ...................................... 52,220 16,085 854,558 155,986
Florida .................................... 45,719 34,559 519,280 286,610
Georgia .................................... 23,691 10,232 349,429 123,203
Other States ............................... 138,437 71,476 1,714,122 778,618
Canada ..................................... 5,123 62,202
-------- -------- ---------- ----------
Total ............................. $328,923 $169,114 $4,142,556 $1,577,164
======== ======== ========== ==========
</TABLE>
13. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Statements of Operations for the
years ended December 31, 1998 and 1997 are presented as if the acquisitions of
all hotels owned by the Company at December 31, 1998, the equity offerings
consummated during 1998 and 1997, and the Merger had occurred as of the
beginning of the periods presented and the Hotels had been leased pursuant to
Percentage Leases.
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 Company 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>
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Percentage lease revenue ............................ $469,695 $441,768
Income from unconsolidated entities ................. 8,633 8,788
Other income ........................................ 770
-------- --------
Total revenues .................................. 479,098 450,556
-------- --------
Expenses:
General and administrative .......................... 6,421 5,163
Depreciation ........................................ 126,931 121,817
Taxes, insurance, and other ......................... 72,621 68,206
Interest expense .................................... 106,298 110,838
Minority interest in other partnerships ............. 1,316 1,157
-------- --------
Total expenses ................................... 313,587 307,181
-------- --------
Net income ............................................ 165,511 143,375
Preferred distributions ............................... 25,988 24,735
-------- --------
Net income applicable to unitholders .................. $139,523 $118,640
======== ========
Per unit data:
Diluted:
Net income applicable to unitholders .............. $ 1.84 $ 1.56
======== ========
Weighted average number of units outstanding ...... 75,699 76,184
</TABLE>
14. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts
F-19
<PAGE> 74
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS -- (CONTINUED)
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company believes that, upon implementation,
FAS 133 will not have a material impact on the financial statements of the
Company.
15. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's unaudited consolidated quarterly operating data for the
years ended December 31, 1998 and 1997 follows (in thousands, except per unit
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 partners' capital and cash flows for a period of several years.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue ............................................. $ 56,060 $ 62,793 $105,123 $104,947
Equity in income from unconsolidated entities ........................ 1,293 2,689 2,446 589
Other revenue ........................................................ 175 1,920 1,030 1,029
-------- -------- -------- --------
Total revenues .................................................... 57,528 67,402 108,599 106,565
-------- -------- -------- --------
Expenses:
General and administrative ........................................... 1,199 1,375 1,452 1,228
Depreciation ......................................................... 15,887 17,429 27,720 29,799
Taxes, insurance, and other .......................................... 7,270 7,568 14,651 15,799
Interest expense ..................................................... 9,731 13,795 22,960 26,696
Minority interest in other partnerships .............................. 190 291 323 317
-------- -------- -------- --------
Total expenses .................................................... 34,277 40,458 67,106 73,839
-------- -------- -------- --------
Income before extraordinary charge ..................................... 23,251 26,944 41,493 32,726
Extraordinary charge from write off of deferred financing fees ......... (556) (2,519)
-------- -------- -------- --------
Net income ............................................................. 22,695 26,944 38,974 32,726
Preferred distributions ................................................ 2,949 4,854 6,184 7,436
-------- -------- -------- --------
Net income applicable to unitholders ................................... $ 19,746 $ 22,090 $ 32,790 $ 25,290
======== ======== ======== ========
Per unit data:
Diluted:
Income applicable to unitholders
before extraordinary charge .................................... $ 0.51 $ 0.55 $ 0.57 $ 0.36
Extraordinary charge .............................................. (0.01) (0.04)
-------- -------- -------- --------
Net income applicable to unitholders .............................. $ 0.50 $ 0.55 $ 0.53 $ 0.36
======== ======== ======== ========
Weighted average units outstanding ................................ 39,885 39,882 61,913 71,126
</TABLE>
F-20
<PAGE> 75
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY OPERATING RESULTS (UNAUDITED)-- (CONTINUED)
<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
======== ======== ======== ========
Per common unit data:
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 units outstanding .......................... 28,532 29,858 39,717 39,784
</TABLE>
16. CONSOLIDATING FINANCIAL INFORMATION
In 1997 the Company completed the private placement of $300 million in
aggregate principal amount of its long term senior unsecured notes. The notes
were issued in two maturities, consisting of $175 million of 7 3/8% senior notes
due 2004 priced at 99.489% to yield 7.47% and $125 million of 7 5/8% senior
notes due 2007 priced at 99.209% to yield 7.74%. The discount on the $300
million senior notes accrete using the straight line method over the maturity of
the notes. In 1998 these notes were exchanged for publicly traded notes with the
same terms.
FelCor and certain of the majority-owned subsidiaries of the Company
(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.; FelCor/LAX
Holdings, L.P.; FelCor Nevada Holdings, L.L.C.; FHAC Nevada Holdings, L.L.C.;
FHAC Texas Holdings, L.P. and FelCor Hotel Asset Company, L.L.C., collectively
"Subsidiary Guarantors") are guarantors of the debt offering. The following
table presents consolidating information for the Subsidiary Guarantors.
F-21
<PAGE> 76
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(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 ................ $ 1,082,168 $ 1,733,128 $ 1,149,188 $ 3,964,484
Investment in consolidated entities ............... 2,647,693 $(2,647,693)
Investment in unconsolidated entities ............. 119,115 16,912 42 136,069
Cash and cash equivalents ......................... 20,000 4,672 10,020 34,692
Due from Lessee ................................... 11,223 8,246 2,474 21,943
Due (to)/from subsidiary .......................... (51,291) 46,429 4,862
Deferred assets ................................... 9,996 45 10,041
Other assets ...................................... 6,320 1,834 8,154
----------- ----------- ----------- ----------- -----------
Total assets ................................ $ 3,845,224 $ 1,811,266 $ 1,166,586 $(2,647,693) $ 4,175,383
=========== =========== =========== =========== ===========
LIABILITIES & PARTNERS' CAPITAL
Debt .............................................. $ 1,316,696 $ 34,316 $ 243,722 $ 1,594,734
Distributions payable ............................. 67,262 67,262
Accrued expenses and other liabilities ............ 56,296 1,016 57,312
Minority interest - other partnerships ........... 51,105 51,105
----------- ----------- ----------- ----------- -----------
Total liabilities ........................... 1,440,254 34,316 295,843 1,770,413
----------- ----------- ----------- ----------- -----------
Redeemable units, at redemption value ............. 67,595 67,595
Preferred units ................................... 295,000 295,000
Partners' capital ................................. 2,042,375 1,776,950 870,743 (2,647,693) 2,042,375
----------- ----------- ----------- ----------- -----------
Total liabilities and partners' capital ..... $ 3,845,224 $ 1,811,266 $ 1,166,586 $(2,647,693) $ 4,175,383
=========== =========== =========== =========== ===========
</TABLE>
F-22
<PAGE> 77
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONSOLIDATING FINANCIAL INFORMATION -- (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
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 ............................................ $ 440,999 $ 35,820 $ 476,819
Distributions payable ........................... 24,671 24,671
Accrued expenses and other liabilities .......... 11,331 11,331
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-23
<PAGE> 78
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent .......................................... $ 125,991 $ 134,250 $ 68,682 $ 328,923
Equity in income from unconsolidated entities ......... 6,960 57 7,017
Other revenue ......................................... 4,093 61 4,154
--------- --------- --------- ---------
Total revenue ................................ 137,044 134,311 68,739 340,094
--------- --------- --------- ---------
Expenses:
General and administrative ............................ 2,117 2,076 1,061 5,254
Depreciation .......................................... 36,490 39,341 15,004 90,835
Taxes, insurance and other ............................ 14,388 20,826 10,074 45,288
Interest expense ...................................... 62,785 2,393 8,004 73,182
Minority interest other partnerships .................. 1,121 1,121
--------- --------- --------- ---------
Total expenses ............................... 115,780 64,636 35,264 215,680
Net income before extraordinary charge ........... 21,264 69,675 33,475 124,414
Extraordinary charge for write off of deferred
financing fees ................................ 3,075 3,075
--------- --------- --------- ---------
Net income ....................................... 18,189 69,675 33,475 121,339
Preferred distributions ............................... 21,423 21,423
--------- --------- --------- ---------
Net income (loss) applicable to unitholders ........... $ (3,234) $ 69,675 $ 33,475 $ 99,916
========= ========= ========= =========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities .................. $ 34,025 $ 109,015 $ 49,543 $ 192,583
Cash flows from investing activities .................. (444,363) (24,350) (81,785) (550,498)
Cash flows from financing activities .................. 412,795 (79,993) 42,262 375,064
--------- --------- --------- ---------
Change in cash and cash equivalents ................... 2,457 4,672 10,020 17,149
Cash and cash equivalents at beginning of period ...... 17,543 17,543
--------- --------- --------- ---------
Cash and equivalents at end of year ................... $ 20,000 $ 4,672 $ 10,020 $ 34,692
========= ========= ========= =========
</TABLE>
F-24
<PAGE> 79
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR 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 8,251 176,651
-------- -------- -------- --------
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>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR 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-25
<PAGE> 80
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONSOLIDATING FINANCIAL INFORMATION -- (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-26
<PAGE> 81
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. FELCOR STOCK BASED COMPENSATION PLANS
FelCor sponsors three restricted stock and stock option plans (the
"FelCor Plans"). In addition, upon completion of the Merger, FelCor assumed two
stock option plans previously sponsored by Bristol Hotel Company (the "Bristol
Plans"). FelCor is obligated to issue up to 1,271,103 shares of its Common
Stock pursuant to the Bristol Plans, and no additional options may be awarded
under those plans. The FelCor Plans and the Bristol Plans are referred to
collectively as the "Plans". Upon issuance of any stock, FelCor is obligated to
contribute the proceeds to the Company in exchange for a like number of units.
Stock Options
FelCor is authorized to issue 2,950,000 shares of Common Stock under
the FelCor Plans pursuant to awards granted in the form of incentive stock
options, non-qualified stock options, and restricted stock. All options have
10-year contractual terms and vest over five equal annual installments (20% per
year), beginning in the year following the original date of grant.
The options outstanding under the Bristol Plans generally vest either
in four equal annual installments (25% per year) beginning in the second year
following the original date of award, in five equal annual installments (20%
per year) beginning in the year following the original date of award, or on a
single date that is three to five years following the original date of award.
A summary of the status of the non-qualified stock options under the
Plans as of December 31, 1998, 1997, and 1996, and the changes during the years
are presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
------------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year. 1,670,500 $29.96 1,047,500 $25.67 745,000 $23.58
Granted (A) (B)...................... 2,445,813 $20.54 752,000 $35.70 327,500 $30.08
Exercised............................ (332,915) $11.67 (31,000) $19.11
Forfeited (B)........................ (1,242,932) $31.51 (98,000) $31.56 (25,000) $21.00
----------- --------- ---------
Outstanding at end of year........... 2,540,466 $22.53 1,670,500 $29.96 1,047,500 $25.67
=========== ========= =========
Exercisable at end of year........... 796,499 $24.64 411,500 $24.42 225,665 $22.71
</TABLE>
(A) Includes options covering 1,271,103 shares of Common Stock
issuable as a result of the assumption of the Bristol Plans.
(B) To enable FelCor to preserve its stock options as a meaningful
element of compensation, existing option holders under the FelCor
Plans currently employed by FelCor on a full-time basis were offered
the opportunity to exchange their existing options (having exercise
prices ranging from $26.44 to $38.56 per share) for a lesser number of
new options having an equal value under the Black-Scholes option
pricing model. Twenty-two employees accepted this offer, surrendering
for cancellation existing options covering an aggregate of 1,151,500
shares of Common Stock at a weighted average exercise price of $32.807
per share for new options covering an aggregate of 840,393 shares of
Common Stock at an exercise price of $22.125 per share. The new
options have the same expiration dates and vesting schedules as the
options surrendered for cancellation, however, none of the new options
may be exercised prior to January 1, 2000.
F-27
<PAGE> 82
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. FELCOR STOCK BASED COMPENSATION PLANS - (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -------------------------------
NUMBER WGTD. AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WGTD AVG. EXERCISABLE WGTD. AVG.
EXERCISE PRICES AT 12/31/98 LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
- --------------- ----------- ----- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C> <C>
$10.33 to $30.00 2,205,086 8.21 $20.82 658,404 $22.41
$30.28 to $36.63 335,380 8.63 $33.77 138,095 $22.53
- ---------------- -------- ---- ------ ------- ------
$10.33 to $36.63 2,540,466 8.26 $22.53 796,499 $24.64
</TABLE>
Restricted Stock
A summary of the status of the Company's restricted stock grants as of
December 31, 1998, 1997, and 1996 and the changes during the years are
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FAIR MARKET FAIR MARKET AIR MARKET
VALUE VALUE VALUE
# SHARES AT GRANT # SHARES AT GRANT # SHARES AT GRANT
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year..... 115,500 $29.03 84,500 $26.04 51,500 $24.03
------- --------- ------
Granted:
With 5-year pro rata vesting.......... 5,000 $21.25 35,000 $35.00 24,500 $28.93
Vest 100% at grant date............... 4,875 $35.63 6,000 $35.00 6,000 $30.46
Vest 100% within 12 months of grant... 2,500 $36.94 2,500 $28.75
------- --------- ------
Total granted............................ 9,875 $28.35 43,500 $35.11 33,000 $29.19
Forfeited (12,500) $30.00
------- ---------
Outstanding at end of year............... 125,375 $28.97 115,500 $29.03 84,500 $26.04
======= ========= ======
Vested at end of year.................... 65,175 $28.26 40,400 $26.60 23,500 $24.93
</TABLE>
F-28
<PAGE> 83
FELCOR LODGING LIMITED PARTNERSHIP
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of FelCor Lodging Trust Incorporated
Our audits of the consolidated financial statements referred to in our report
dated February 2, 1999 appearing on page F-2 of the Annual Report on Form 10-K
of FelCor Lodging Limited Partnership (which report and consolidated financial
statements are included in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
February 2, 1999
F-29
<PAGE> 84
FELCOR LODGING LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
------------------------------- ---------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENT FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ----------- -------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Birmingham, AL (1) $ 75 $ 2,843 $ 29,286 $ 160 $ 730 $ 3,384
Montgomery E. I-85, AL (2) 836 7,272 251 1,987 735
Texarkana I-30, AR (2) 5,245 162 7
Flagstaff, AZ (3) 276 2,397 83 1
Flagstaff, AZ (1) 900 6,825 268 1,561 1,209
Phoenix (Airport), AZ (1) 2,969 25,828 891 61 5
Phoenix (Camelback), AZ (1) 38,998 613 $ 4,694 823 5,181
Phoenix (Crescent), AZ (4) 3,608 29,583 2,886 623
Scottsdale, AZ (5) 12,430 384 11
Tempe, AZ (1) 3,951 34,371 1,185 565 959
Anaheim, CA (1) 2,548 14,832 607 562 3,481
Dana Point, CA (6) 1,787 15,545 536 254 2,709
Irvine Orange Co., CA (7) 4,981 43,338 1,494 200 187
LAX Airport, CA (1) 2,660 17,997 798 755 5,354
LAX Century, CA (1) 2,207 18,764 1,104 663
Mandalay Beach, CA (1) 11 2,930 22,125 879 655 5,223
Milpitas, CA (1) 65 4,021 23,677 562 943 3,888
Milpitas San Jose N., CA (2) 4,153 36,130 1,246 110
Napa, CA (1) 6 3,287 14,205 494 825 3,177
Palm Desert, CA (1) 2,368 20,598 710 885 1,452
Pleasanton, CA (8) 3,169 27,569 951 51 37
San Diego on the Bay, CA (2) 68,053 2,105 45
Santa Barbara, CA (2) 6,255 1,692 14,723 508 44
SF Burlingame, CA (1) 12 39,929 818 3,652
SF Financial District, CA (2) 21,679 670 25
SF Fisherman's Wharf, CA (2) 61,623 1,906 523 166
SF Union Square, CA (8) 8,392 67,105 9,069 3,082 615
So. San Francisco, CA (1) 6 3,418 31,737 527 769 4,207
Beaver Creek, CO (1) 1,134 9,864 340 175 1,183
Colorado Springs, CO (9) 190 1,653 57
Colorado Springs, CO (10) 285 2,479 85 2
Denver, CO (6) 2,432 21,158 730 13 710
Hartford Downtown, CT (8) 2,327 20,243 698 4,029 2,122
Stamford, CT (7) 37,356 1,155 1,349 324
Wilmington, DE (11) 1,435 12,487 431 78
Boca Raton, FL (6) 5,327 3,066 304 1,064
Boca Raton, FL (1) 82 1,868 16,253 561 6 181 3,317
Cocoa Beach, FL (2) 2,304 20,046 691 384 969
Deerfield Beach, FL (1) 4,523 29,443 918 18 1,163 4,213
Ft. Lauderdale, FL (1) 5,329 47,850 903 45 1,560 4,810
Ft. Lauderdale, FL (4) 3,009 26,177 903 61 24
Jacksonville, FL (1) 82 1,130 9,608 456 4,820 2,119
Kissimmee Nikki Bird, FL (2) 31,652 979 967 1,175
Miami Airport, FL (8) 26,146 809 803 1,078
Miami (Airport), FL (1) 4,135 24,950 1,171 742 5,315
Orlando Int'l Airport, FL (7) 2,564 22,310 769 27
Orlando Int'l Drive, FL (2) 5,141 44,735 1,543 155
Orlando (North), FL (1) 1,673 14,218 684 4,890 2,060
Orlando (South), FL (1) 1,632 13,870 799 28 1,870
Tampa Busch Gardens, FL (6) 772 12,387 226 163 834
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
-------------------------------- BUILDINGS BUILDINGS
BUILDINGS FURNITURE IMPROVEMENTS IMPROVEMENTS;
AND AND FURNITURE & FURNITURE & DATE OF
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION
- ----------------------- ---- ------------ -------- ----- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Birmingham, AL (1) $ 2,843 $ 30,016 $ 3,544 $ 36,403 $ 3,670 $ 32,733 1987
Montgomery E. I-85, AL (2) 836 9,259 986 11,081 77 11,004 1964
Texarkana I-30, AR (2) 5,245 169 5,414 55 5,359 1970
Flagstaff, AZ (3) 276 2,397 84 2,757 26 2,731 1964
Flagstaff, AZ (1) 900 8,386 1,477 10,763 1,666 9,097 1988
Phoenix (Airport), AZ (1) 2,969 25,889 896 29,754 482 29,272 1981
Phoenix (Camelback), AZ (1) 4,694 39,821 5,794 50,309 5,455 44,854 1985
Phoenix (Crescent), AZ (4) 3,608 29,583 3,509 36,700 2,083 34,617 1986
Scottsdale, AZ (5) 12,430 395 12,825 130 12,695 1970
Tempe, AZ (1) 3,951 34,936 2,144 41,031 677 40,354 1986
Anaheim, CA (1) 2,548 15,394 4,088 22,030 3,214 18,816 1987
Dana Point, CA (6) 1,787 15,799 3,245 20,831 1,341 19,490 1992
Irvine Orange Co., CA (7) 4,981 43,538 1,681 50,200 440 49,760 1986
LAX Airport, CA (1) 2,660 18,752 6,152 27,564 4,624 22,940 1985
LAX Century, CA (1) 2,207 18,764 1,767 22,738 1,383 21,355 1990
Mandalay Beach, CA (1) 2,930 22,780 6,102 31,812 3,730 28,082 1986
Milpitas, CA (1) 4,021 24,620 4,450 33,091 3,946 29,145 1987
Milpitas San Jose N., CA (2) 4,153 36,130 1,356 41,639 366 41,273 1987
Napa, CA (1) 3,287 15,030 3,671 21,988 2,338 19,650 1985
Palm Desert, CA (1) 2,368 21,483 2,162 26,013 444 25,569 1984
Pleasanton, CA (8) 3,169 27,620 988 31,777 293 31,484 1986
San Diego on the Bay, CA (2) 68,053 2,150 70,203 736 69,467 1965
Santa Barbara, CA (2) 1,692 14,723 552 16,967 158 16,809 1969
SF Burlingame, CA (1) 39,929 4,470 44,399 5,163 39,236 1986
SF Financial District, CA (2) 21,679 695 22,374 226 22,148 1970
SF Fisherman's Wharf, CA (2) 62,146 2,072 64,218 631 63,587 1970
SF Union Square, CA (8) 8,392 70,187 9,684 88,263 811 87,452 1970
So. San Francisco, CA (1) 3,418 32,506 4,734 40,658 4,587 36,071 1988
Beaver Creek, CO (1) 1,134 10,039 1,523 12,696 1,367 11,329 1989
Colorado Springs, CO (9) 190 1,653 57 1,900 18 1,882 1966
Colorado Springs, CO (10) 285 2,479 87 2,851 26 2,825 1973
Denver, CO (6) 2,432 21,171 1,440 25,043 475 24,568 1989
Hartford Downtown, CT (8) 2,327 24,272 2,820 29,419 216 29,203 1973
Stamford, CT (7) 38,705 1,479 40,184 368 39,816 1984
Wilmington, DE (11) 1,435 12,487 509 14,431 300 14,131 1972
Boca Raton, FL (6) 5,327 3,066 1,368 9,761 982 8,779 1989
Boca Raton, FL (1) 1,874 16,434 3,878 22,186 2,841 19,345 1989
Cocoa Beach, FL (2) 2,304 20,430 1,660 24,394 214 24,180 1960
Deerfield Beach, FL (1) 4,541 30,606 5,131 40,278 4,418 35,860 1987
Ft. Lauderdale, FL (1) 5,374 49,410 5,713 60,497 6,253 54,244 1986
Ft. Lauderdale, FL (4) 3,009 26,238 927 30,174 489 29,685 1986
Jacksonville, FL (1) 1,130 14,428 2,575 18,133 2,301 15,832 1986
Kissimmee Nikki Bird, FL (2) 32,619 2,154 34,773 309 34,464 1974
Miami Airport, FL (8) 26,949 1,887 28,836 273 28,563 1983
Miami (Airport), FL (1) 4,135 25,692 6,486 36,313 4,636 31,677 1987
Orlando Int'l Airport, FL (7) 2,564 22,310 796 25,670 237 25,433 1984
Orlando Int'l Drive, FL (2) 5,141 44,735 1,698 51,574 459 51,115 1972
Orlando (North), FL (1) 1,673 19,108 2,744 23,525 3,357 20,168 1985
Orlando (South), FL (1) 1,632 13,898 2,669 18,199 3,345 14,854 1985
Tampa Busch Gardens, FL (6) 772 12,550 1,060 14,382 1,326 13,056 1985
</TABLE>
<TABLE>
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
DATE IN STATEMENT
DESCRIPTION OF PROPERTY ACQUIRED IS COMPUTED
- ----------------------- -------- -----------
<S> <C> <C>
Birmingham, AL (1) 01-03-96 5 - 40 Yrs
Montgomery E. I-85, AL (2) 07-28-98 5 - 40 Yrs
Texarkana I-30, AR (2) 07-28-98 5 - 40 Yrs
Flagstaff, AZ (3) 07-28-98 5 - 40 Yrs
Flagstaff, AZ (1) 02-16-95 5 - 40 Yrs
Phoenix (Airport), AZ (1) 05-04-98 5 - 40 Yrs
Phoenix (Camelback), AZ (1) 01-03-96 5 - 40 Yrs
Phoenix (Crescent), AZ (4) 06-30-97 5 - 40 Yrs
Scottsdale, AZ (5) 07-28-98 5 - 40 Yrs
Tempe, AZ (1) 05-04-98 5 - 40 Yrs
Anaheim, CA (1) 01-03-96 5 - 40 Yrs
Dana Point, CA (6) 02-21-97 5 - 40 Yrs
Irvine Orange Co., CA (7) 07-28-98 5 - 40 Yrs
LAX Airport, CA (1) 03-27-96 5 - 40 Yrs
LAX Century, CA (1) 02-18-97 5 - 40 Yrs
Mandalay Beach, CA (1) 05-08-96 5 - 40 Yrs
Milpitas, CA (1) 01-03-96 5 - 40 Yrs
Milpitas San Jose N., CA (2) 07-28-98 5 - 40 Yrs
Napa, CA (1) 05-08-96 5 - 40 Yrs
Palm Desert, CA (1) 05-04-98 5 - 40 Yrs
Pleasanton, CA (8) 07-28-98 5 - 40 Yrs
San Diego on the Bay, CA (2) 07-28-98 5 - 40 Yrs
Santa Barbara, CA (2) 07-28-98 5 - 40 Yrs
SF Burlingame, CA (1) 11-06-95 5 - 40 Yrs
SF Financial District, CA (2) 07-28-98 5 - 40 Yrs
SF Fisherman's Wharf, CA (2) 07-28-98 5 - 40 Yrs
SF Union Square, CA (8) 07-28-98 5 - 40 Yrs
So. San Francisco, CA (1) 01-03-96 5 - 40 Yrs
Beaver Creek, CO (1) 02-20-96 5 - 40 Yrs
Colorado Springs, CO (9) 07-28-98 5 - 40 Yrs
Colorado Springs, CO (10) 07-28-98 5 - 40 Yrs
Denver, CO (6) 03-15-98 5 - 40 Yrs
Hartford Downtown, CT (8) 07-28-98 5 - 40 Yrs
Stamford, CT (7) 07-28-98 5 - 40 Yrs
Wilmington, DE (11) 03-20-98 5 - 40 Yrs
Boca Raton, FL (6) 11-15-95 5 - 40 Yrs
Boca Raton, FL (1) 02-28-96 5 - 40 Yrs
Cocoa Beach, FL (2) 07-28-98 5 - 40 Yrs
Deerfield Beach, FL (1) 01-03-96 5 - 40 Yrs
Ft. Lauderdale, FL (1) 01-03-96 5 - 40 Yrs
Ft. Lauderdale, FL (4) 05-04-98 5 - 40 Yrs
Jacksonville, FL (1) 07-28-94 5 - 40 Yrs
Kissimmee Nikki Bird, FL (2) 07-28-98 5 - 40 Yrs
Miami Airport, FL (8) 07-28-98 5 - 40 Yrs
Miami (Airport), FL (1) 01-03-96 5 - 40 Yrs
Orlando Int'l Airport, FL (7) 07-28-98 5 - 40 Yrs
Orlando Int'l Drive, FL (2) 07-28-98 5 - 40 Yrs
Orlando (North), FL (1) 07-28-94 5 - 40 Yrs
Orlando (South), FL (1) 07-28-94 5 - 40 Yrs
Tampa Busch Gardens, FL (6) 11-15-95 5 - 40 Yrs
</TABLE>
F-30
<PAGE> 85
FELCOR LODGING LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
<TABLE>
<CAPTION>
INITIAL COST
----------------------------
BUILDINGS FURNITURE
AND AND
DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ------------ --------
<S> <C> <C> <C> <C>
Tampa Busch Gardens, FL (2) 9,534 295
Tampa Rocky Point, FL (6) 2,142 18,639 643
WDW Village, FL (6) 2,896 25,196 869
Atlanta Airport North, GA (2) 13,134 34,531 1,068
Atlanta Airport, GA (8) 40,943 1,266
Atlanta Airport, GA (1) 22,342 770
Atlanta Buckhead, GA (1) 7,303 38,996 2,437
Atlanta Galleria, GA (4) 5,052 28,507 2,526
Atlanta Gateway, GA (4) 5,113 22,857 2,105
Atlanta Perimeter, GA (7) 7,879 20,556 636
Atlanta Powers Ferry, GA (8) 12,726 3,411 29,672 1,023
Atlanta South (Jonesboro), GA (2) 3,194 864 7,515 259
Atlanta-Courtyd by
Marriott, GA (12) 2,025 17,618 608
Atlanta, GA (5) 1,266 11,017 380
Brunswick, GA (1) 705 6,067 247
Columbus N. Airport, GA (2) 7,026 217
Decatur I-20 East, GA (9) 171 1,488 51
Marietta, GA (13) 952 8,285 286
Davenport, IA (2) 547 4,763 164
Davenport, IA (13) 434 3,776 130
Chicago Allerton, IL (14) 3,343 29,086 1,003
Chicago O'Hare, IL (4) 8,178 37,043 2,886
Deerfield, IL (1) 2,305 20,054 692
Moline Airport, IL (2) 1,105 822 7,149 247
Moline Airport, IL (9) 312 232 2,021 70
Moline, IL (13) 505 4,398 152
Colby, KS (9) 339 2,950 102
Great Bend, KS (2) 549 4,780 165
Hays, KS (2) 803 597 5,190 179
Hays, KS (13) 326 243 2,112 73
Salina, KS (2) 2,640 502 4,370 151
Salina, KS (9) 341 2,964 102
Lexington, KY (15) 1,955 13,604 587
Lexington, KY (4) 21,644 746
Baton Rouge, LA (1) 20 2,350 19,092 525
New Orleans French
Quarter, LA (2) 19,456 5,264 45,793 1,579
New Orleans, LA (1) 2,570 22,300 895
Boston Gov't Center, MA (7) 45,452 1,406
Boston - Marlborough, MA (1) 948 8,143 325
Leominster Four Points, MA (4) 900 7,830 270
BWI, MD (6) 2,568 22,433 770
Troy, MI (6) 2,968 25,905 909
Bloomington Airport W, MN (6) 2,038 17,731 611
Minneapolis Airport, MN (1) 5,417 36,508 602
Minneapolis Downtown, MN (1) 818 16,820 505
St. Paul, MN (1) 8,957 1,156 17,315 849
Kansas City, MO (2) 973 8,461 292
St. Louis, MO (1) 3,179 27,659 954
St. Louis Westport, MO (2) 9,085 2,767 24,072 830
Jackson Briarwood, MS (13) 747 6,501 224
Jackson Downtown, MS (8) 8,218 2,226 19,370 668
Jackson North, MS (2) 6,144 1,643 14,296 493
</TABLE>
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
TO ACQUISITION CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
---------------------------- ----------------------------------- BUILDINGS AND BUILDINGS AND
BUILDINGS FURNITURE BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS;
AND AND AND AND FURNITURE & FURNITURE &
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES
- ----------------------- ---- ------------ -------- ---- ------------ -------- ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tampa Busch Gardens, FL (2) 12 9,534 307 9,841 99 9,742
Tampa Rocky Point, FL (6) 176 1,433 2,142 18,815 2,076 23,033 909 22,124
WDW Village, FL (6) 12 1,977 2,896 25,208 2,846 30,950 1,246 29,704
Atlanta Airport North, GA (2) 29 34,531 1,097 35,628 339 35,289
Atlanta Airport, GA (8) 41 40,943 1,307 42,250 406 41,844
Atlanta Airport, GA (1) 2,568 52 2,568 22,394 770 25,732 416 25,316
Atlanta Buckhead, GA (1) 283 1,180 7,303 39,279 3,617 50,199 3,337 46,862
Atlanta Galleria, GA (4) 295 5,052 28,507 2,821 36,380 1,867 34,513
Atlanta Gateway, GA (4) 3,216 5,113 22,857 5,321 33,291 1,634 31,657
Atlanta Perimeter, GA (7) 181 20,556 817 21,373 220 21,153
Atlanta Powers Ferry, GA (8) 381 35 3,411 30,053 1,058 34,522 285 34,237
Atlanta South (Jonesboro), GA (2) 26 864 7,515 285 8,664 81 8,583
Atlanta-Courtyd by
Marriott, GA (12) 41 2,025 17,618 649 20,292 189 20,103
Atlanta, GA (5) 102 1,266 11,017 482 12,765 121 12,644
Brunswick, GA (1) 800 705 6,067 1,047 7,819 984 6,835
Columbus N. Airport, GA (2) 95 7,026 312 7,338 76 7,262
Decatur I-20 East, GA (9) 171 1,488 51 1,710 16 1,694
Marietta, GA (13) 294 952 8,285 580 9,817 98 9,719
Davenport, IA (2) 116 547 4,763 280 5,590 54 5,536
Davenport, IA (13) 14 434 3,776 144 4,354 41 4,313
Chicago Allerton, IL (14) 3,343 29,086 1,003 33,432 309 33,123
Chicago O'Hare, IL (4) 700 8,178 37,043 3,586 48,807 2,343 46,464
Deerfield, IL (1) 459 1,049 2,305 20,513 1,741 24,559 1,838 22,721
Moline Airport, IL (2) 41 822 7,149 288 8,259 77 8,182
Moline Airport, IL (9) 9 232 2,021 79 2,332 22 2,310
Moline, IL (13) 24 505 4,398 176 5,079 48 5,031
Colby, KS (9) 276 37 339 3,226 139 3,704 31 3,673
Great Bend, KS (2) 5 549 4,780 170 5,499 51 5,448
Hays, KS (2) 36 597 5,190 215 6,002 56 5,946
Hays, KS (13) 8 243 2,112 81 2,436 23 2,413
Salina, KS (2) 33 502 4,370 184 5,056 48 5,008
Salina, KS (9) 341 2,964 102 3,407 32 3,375
Lexington, KY (15) 1,636 1,955 13,604 2,223 17,782 1,787 15,995
Lexington, KY (4) 2,488 51 15 2,488 21,695 761 24,944 404 24,540
Baton Rouge, LA (1) 520 3,593 2,350 19,612 4,118 26,080 3,258 22,822
New Orleans French
Quarter, LA (2) 149 5,264 45,793 1,728 52,785 470 52,315
New Orleans, LA (1) 1,079 13,484 3,980 3,649 35,784 4,875 44,308 4,261 40,047
Boston Gov't Center, MA (7) 72 45,452 1,478 46,930 454 46,476
Boston - Marlborough, MA (1) 647 12,707 4,761 1,595 20,850 5,086 27,531 2,789 24,742
Leominster Four Points, MA (4) 49 900 7,830 319 9,049 2 9,047
BWI, MD (6) 930 2,568 22,433 1,700 26,701 1,458 25,243
Troy, MI (6) 517 2,968 25,905 1,426 30,299 1,601 28,698
Bloomington Airport W, MN (6) 30 1,720 2,038 17,761 2,331 22,130 1,209 20,921
Minneapolis Airport, MN (1) 3,191 5,417 36,508 3,793 45,718 4,708 41,010
Minneapolis Downtown, MN (1) 3,334 818 16,820 3,839 21,477 3,199 18,278
St. Paul, MN (1) 3,239 1,156 17,315 4,088 22,559 3,487 19,072
Kansas City, MO (2) 83 856 973 8,544 1,148 10,665 90 10,575
St. Louis, MO (1) 65 3,179 27,724 954 31,857 516 31,341
St. Louis Westport, MO (2) 199 2,767 24,072 1,029 27,868 263 27,605
Jackson Briarwood, MS (13) 21 747 6,501 245 7,493 70 7,423
Jackson Downtown, MS (8) 29 2,226 19,370 697 22,293 207 22,086
Jackson North, MS (2) 146 88 1,643 14,442 581 16,666 153 16,513
</TABLE>
<TABLE>
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- ------------ -------- -----------
<S> <C> <C> <C>
Tampa Busch Gardens, FL (2) 1966 07-28-98 5 - 40 Yrs
Tampa Rocky Point, FL (6) 1986 07-28-97 5 - 40 Yrs
WDW Village, FL (6) 1987 07-28-97 5 - 40 Yrs
Atlanta Airport North, GA (2) 1967 07-28-98 5 - 40 Yrs
Atlanta Airport, GA (8) 1975 07-28-98 5 - 40 Yrs
Atlanta Airport, GA (1) 1989 05-04-98 5 - 40 Yrs
Atlanta Buckhead, GA (1) 1988 10-17-96 5 - 40 Yrs
Atlanta Galleria, GA (4) 1990 06-30-97 5 - 40 Yrs
Atlanta Gateway, GA (4) 1986 06-30-97 5 - 40 Yrs
Atlanta Perimeter, GA (7) 1985 07-28-98 5 - 40 Yrs
Atlanta Powers Ferry, GA (8) 1981 07-28-98 5 - 40 Yrs
Atlanta South (Jonesboro), GA (2) 1973 07-28-98 5 - 40 Yrs
Atlanta-Courtyd by
Marriott, GA (12) 1963 07-28-98 5 - 40 Yrs
Atlanta, GA (5) 1963 07-28-98 5 - 40 Yrs
Brunswick, GA (1) 1988 07-19-95 5 - 40 Yrs
Columbus N. Airport, GA (2) 1969 07-28-98 5 - 40 Yrs
Decatur I-20 East, GA (9) 1973 07-28-98 5 - 40 Yrs
Marietta, GA (13) 1986 07-28-98 5 - 40 Yrs
Davenport, IA (2) 1966 07-28-98 5 - 40 Yrs
Davenport, IA (13) 1985 07-28-98 5 - 40 Yrs
Chicago Allerton, IL (14) 1923 07-28-98 5 - 40 Yrs
Chicago O'Hare, IL (4) 1994 06-30-97 5 - 40 Yrs
Deerfield, IL (1) 1987 06-20-96 5 - 40 Yrs
Moline Airport, IL (2) 1961 07-28-98 5 - 40 Yrs
Moline Airport, IL (9) 1996 07-28-98 5 - 40 Yrs
Moline, IL (13) 1985 07-28-98 5 - 40 Yrs
Colby, KS (9) 1998 07-28-98 5 - 40 Yrs
Great Bend, KS (2) 1964 07-28-98 5 - 40 Yrs
Hays, KS (2) 1966 07-28-98 5 - 40 Yrs
Hays, KS (13) 1985 07-28-98 5 - 40 Yrs
Salina, KS (2) 1986 07-28-98 5 - 40 Yrs
Salina, KS (9) 1997 07-28-98 5 - 40 Yrs
Lexington, KY (15) 1987 01-10-96 5 - 40 Yrs
Lexington, KY (4) 1989 05-04-98 5 - 40 Yrs
Baton Rouge, LA (1) 1985 01-03-96 5 - 40 Yrs
New Orleans French
Quarter, LA (2) 1969 07-28-98 5 - 40 Yrs
New Orleans, LA (1) 1984 12-01-94 5 - 40 Yrs
Boston Gov't Center, MA (7) 1968 07-28-98 5 - 40 Yrs
Boston - Marlborough, MA (1) 1988 06-30-95 5 - 40 Yrs
Leominster Four Points, MA (4) 1989 07-28-98 5 - 40 Yrs
BWI, MD (6) 1987 03-20-97 5 - 40 Yrs
Troy, MI (6) 1987 03-20-97 5 - 40 Yrs
Bloomington Airport W, MN (6) 1980 02-01-97 5 - 40 Yrs
Minneapolis Airport, MN (1) 1986 11-06-95 5 - 40 Yrs
Minneapolis Downtown, MN (1) 1984 11-15-95 5 - 40 Yrs
St. Paul, MN (1) 1983 11-15-95 5 - 40 Yrs
Kansas City, MO (2) 1975 07-28-98 5 - 40 Yrs
St. Louis, MO (1) 1985 05-04-98 5 - 40 Yrs
St. Louis Westport, MO (2) 1979 07-28-98 5 - 40 Yrs
Jackson Briarwood, MS (13) 1985 07-28-98 5 - 40 Yrs
Jackson Downtown, MS (8) 1975 07-28-98 5 - 40 Yrs
Jackson North, MS (2) 1957 07-28-98 5 - 40 Yrs
</TABLE>
F-31
<PAGE> 86
FELCOR LODGING 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 ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ------------ -------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Jackson Southwest, MS (2) 1,170 314 2,728 94 39
Olive Branch Exec Conf Ctr, MS (2) 1,397 12,155 419 1,147 682
Raleigh/Durham, NC (6) 2,124 18,476 637 6 1,458
Omaha Central I-80, NE (2) 9,440 1,795 15,614 538 134
Omaha Central I-80, NE (13) 518 4,504 155 30
Omaha Central, NE (6) 1,877 16,328 563 130 1,698
Omaha Northwest, NE (2) 979 8,519 294 3
Omaha Northwest, NE (9) 373 3,245 112
Omaha Southwest, NE (13) 464 4,036 139 2
Omaha, NE (16) 923 8,029 277 1
Piscataway, NJ (1) 1,755 17,563 527 605 2,511
Secaucus, NJ (8) 2,356 20,497 707 145
Albuquerque Mountainview, NM (2) 1,322 11,505 397 56
Syracuse, NY (1) 1,597 14,812 1,330 147
Cleveland, OH (1) 1,755 15,329 527 1,258 878
Columbus, OH (6) 1,918 16,691 576 271 785
Dayton, OH (6) 7,166 1,140 9,924 342 1,299 83
Tulsa, OK (1) 525 7,344 3,117 139 1,874
Philadelphia Center City, PA (8) 14,225 5,733 49,875 1,720 1,823 619
Philadelphia Independence
Mall, PA (2) 3,184 27,704 955 214
Pittsburgh, PA (7) 15,408 25,170 773 34
Society Hill, PA (4) 4,542 45,121 1,536 125
Charleston Mills House, SC (2) 3,270 28,446 981 471
Columbia Airport, SC (2) 238 2,067 71 20
Greenville Roper, SC (8) 1,551 13,492 465 404 367
Kingston Plantation, SC (1) 2,940 24,988 1,470 1,426 4,193
Knoxville West, TN (2) 11,586 358 1,179 693
Nashville Airport Briley, TN (7) 27,889 863 145
Nashville, TN (6) 1,073 9,331 322 350 754
Nashville Airport, TN (1) 1,118 9,506 961 28 1,534
Amarillo I-40, TX (2) 5,754 178 26
Austin Town Lake, TX (2) 21,551 667 675
Austin, TX (6) 2,508 21,908 752 321
Beaumont Midtown I-10, TX (2) 685 5,964 206 13
Corpus Christi, TX (1) 1,112 9,618 390 52 1,585
Dallas Bristol House, TX (14) 1,704 8,144
Dallas Campbell Ctr, TX (6) 3,208 27,907 962
Dallas Downtown, TX (13) 1,953 16,989 586 14
Dallas Love Field, TX (1) 1,934 16,674 757 167 1,376
Dallas Market Center, TX (8) 15,418 4,078 35,486 1,224 775
Dallas Market Center, TX (1) 2,619 24,298 2,182
Dallas Park Central, TX (1) 1,497 12,722 647 28 1,649
Dallas Park Central, TX (4) 1,720 28,550 4,130
Dallas Park Central, TX (17) 4,513 43,125 2,507 3,984 1,335
Dallas Regal Row, TX (5) 778 6,770 233 23
Dallas, TX (8) 9,942 30,513 944 124 303
Dallas, TX (18) 7,772 13,564 420 191
DFW Airport, TX (18) 18,278 56,134 1,736 752
DFW Airport (Suites), TX (18) 5,757 1,546 13,453 464 153
DFW South, TX (6) 35,156 1,212 4,041 82
Houston Galleria, TX (12) 1,855 16,143 557 89
Houston Galleria, TX (5) 465 4,047 140 39
</TABLE>
<TABLE>
<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 & DATE OF
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION
- ----------------------- ---- ------------ -------- ----- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jackson Southwest, MS (2) 314 2,728 133 3,175 30 3,145 1962
Olive Branch Exec Conf Ctr, MS (2) 1,397 13,302 1,101 15,800 130 15,670 1972
Raleigh/Durham, NC (6) 2,124 18,482 2,095 22,701 934 21,767 1987
Omaha Central I-80, NE (2) 1,795 15,614 672 18,081 170 17,911 1965
Omaha Central I-80, NE (13) 518 4,504 185 5,207 49 5,158 1991
Omaha Central, NE (6) 1,877 16,458 2,261 20,596 1,207 19,389 1973
Omaha Northwest, NE (2) 979 8,519 297 9,795 91 9,704 1974
Omaha Northwest, NE (9) 373 3,245 112 3,730 35 3,695 1996
Omaha Southwest, NE (13) 464 4,036 141 4,641 43 4,598 1986
Omaha, NE (16) 923 8,029 278 9,230 85 9,145 1989
Piscataway, NJ (1) 1,755 18,168 3,038 22,961 2,358 20,603 1988
Secaucus, NJ (8) 2,356 20,497 852 23,705 399 23,306 N/A
Albuquerque Mountainview, NM (2) 1,322 11,505 453 13,280 123 13,157 1968
Syracuse, NY (1) 1,597 14,812 1,477 17,886 928 16,958 1989
Cleveland, OH (1) 1,755 16,587 1,405 19,747 2,094 17,653 1990
Columbus, OH (6) 1,918 16,962 1,361 20,241 535 19,706 1985
Dayton, OH (6) 1,140 11,223 425 12,788 350 12,438 1987
Tulsa, OK (1) 525 7,483 4,991 12,999 5,716 7,283 1985
Philadelphia Center City, PA (8) 5,733 51,698 2,339 59,770 509 59,261 1970
Philadelphia Independence
Mall, PA (2) 3,184 27,704 1,169 32,057 290 31,767 1972
Pittsburgh, PA (7) 25,170 807 25,977 262 25,715 1988
Society Hill, PA (4) 4,542 45,121 1,661 51,324 1,810 49,514 1986
Charleston Mills House, SC (2) 3,270 28,446 1,452 33,168 287 32,881 1982
Columbia Airport, SC (2) 238 2,067 91 2,396 22 2,374 1966
Greenville Roper, SC (8) 1,551 13,896 832 16,279 144 16,135 1984
Kingston Plantation, SC (1) 2,940 26,414 5,663 35,017 2,556 32,461 1987
Knoxville West, TN (2) 12,765 1,051 13,816 120 13,696 1966
Nashville Airport Briley, TN (7) 27,889 1,008 28,897 263 28,634 1981
Nashville, TN (6) 1,073 9,681 1,076 11,830 539 11,291 1988
Nashville Airport, TN (1) 1,118 9,534 2,495 13,147 3,520 9,627 1985
Amarillo I-40, TX (2) 5,754 204 5,958 60 5,898 1970
Austin Town Lake, TX (2) 21,551 1,342 22,893 246 22,647 1967
Austin, TX (6) 2,508 21,908 1,073 25,489 1,324 24,165 1987
Beaumont Midtown I-10, TX (2) 685 5,964 219 6,868 64 6,804 1967
Corpus Christi, TX (1) 1,164 9,618 1,975 12,757 1,842 10,915 1984
Dallas Bristol House, TX (14) 1,704 8,144 9,848 557 9,291 1997
Dallas Campbell Ctr, TX (6) 3,208 27,907 962 32,077 445 31,632 1982
Dallas Downtown, TX (13) 1,953 16,989 600 19,542 181 19,361 1969
Dallas Love Field, TX (1) 1,934 16,841 2,133 20,908 2,752 18,156 1986
Dallas Market Center, TX (8) 4,078 36,261 1,224 41,563 358 41,205 1983
Dallas Market Center, TX (1) 2,619 24,298 2,182 29,099 1,581 27,518 1980
Dallas Park Central, TX (1) 1,497 12,750 2,296 16,543 3,214 13,329 1985
Dallas Park Central, TX (4) 1,720 28,550 4,130 34,400 34,400 1972
Dallas Park Central, TX (17) 4,513 47,109 3,842 55,464 2,591 52,873 1983
Dallas Regal Row, TX (5) 778 6,770 256 7,804 73 7,731 1969
Dallas, TX (8) 30,637 1,247 31,884 294 31,590 1988
Dallas, TX (18) 13,564 611 14,175 147 14,028 1981
DFW Airport, TX (18) 56,134 2,488 58,622 587 58,035 1987
DFW Airport (Suites), TX (18) 1,546 13,453 617 15,616 148 15,468 1989
DFW South, TX (6) 4,041 35,238 1,212 40,491 655 39,836 1985
Houston Galleria, TX (12) 1,855 16,143 646 18,644 175 18,469 1968
Houston Galleria, TX (5) 465 4,047 179 4,691 44 4,647 1968
</TABLE>
<TABLE>
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
DATE IN STATEMENT
DESCRIPTION OF PROPERTY ACQUIRED IS COMPUTED
- ----------------------- -------- ------------
<S> <C> <C>
Jackson Southwest, MS (2) 07-28-98 5 - 40 Yrs
Olive Branch Exec Conf Ctr, MS (2) 07-28-98 5 - 40 Yrs
Raleigh/Durham, NC (6) 07-28-97 5 - 40 Yrs
Omaha Central I-80, NE (2) 07-28-98 5 - 40 Yrs
Omaha Central I-80, NE (13) 07-28-98 5 - 40 Yrs
Omaha Central, NE (6) 02-01-97 5 - 40 Yrs
Omaha Northwest, NE (2) 07-28-98 5 - 40 Yrs
Omaha Northwest, NE (9) 07-28-98 5 - 40 Yrs
Omaha Southwest, NE (13) 07-28-98 5 - 40 Yrs
Omaha, NE (16) 07-28-98 5 - 40 Yrs
Piscataway, NJ (1) 01-10-96 5 - 40 Yrs
Secaucus, NJ (8) 07-28-98 5 - 40 Yrs
Albuquerque Mountainview, NM (2) 07-28-98 5 - 40 Yrs
Syracuse, NY (1) 06-30-97 5 - 40 Yrs
Cleveland, OH (1) 11-17-95 5 - 40 Yrs
Columbus, OH (6) 02-04-98 5 - 40 Yrs
Dayton, OH (6) 12-30-97 5 - 40 Yrs
Tulsa, OK (1) 07-28-94 5 - 40 Yrs
Philadelphia Center City, PA (8) 07-28-98 5 - 40 Yrs
Philadelphia Independence
Mall, PA (2) 07-28-98 5 - 40 Yrs
Pittsburgh, PA (7) 07-28-98 5 - 40 Yrs
Society Hill, PA (4) 10-01-97 5 - 40 Yrs
Charleston Mills House, SC (2) 07-28-98 5 - 40 Yrs
Columbia Airport, SC (2) 07-28-98 5 - 40 Yrs
Greenville Roper, SC (8) 07-28-98 5 - 40 Yrs
Kingston Plantation, SC (1) 12-05-96 5 - 40 Yrs
Knoxville West, TN (2) 07-28-98 5 - 40 Yrs
Nashville Airport Briley, TN (7) 07-28-98 5 - 40 Yrs
Nashville, TN (6) 06-05-97 5 - 40 Yrs
Nashville Airport, TN (1) 07-28-94 5 - 40 Yrs
Amarillo I-40, TX (2) 07-28-98 5 - 40 Yrs
Austin Town Lake, TX (2) 07-28-98 5 - 40 Yrs
Austin, TX (6) 03-20-97 5 - 40 Yrs
Beaumont Midtown I-10, TX (2) 07-28-98 5 - 40 Yrs
Corpus Christi, TX (1) 07-19-95 5 - 40 Yrs
Dallas Bristol House, TX (14) 07-28-98 5 - 40 Yrs
Dallas Campbell Ctr, TX (6) 05-29-98 5 - 40 Yrs
Dallas Downtown, TX (13) 07-28-98 5 - 40 Yrs
Dallas Love Field, TX (1) 03-29-95 5 - 40 Yrs
Dallas Market Center, TX (8) 07-28-98 5 - 40 Yrs
Dallas Market Center, TX (1) 06-30-97 5 - 40 Yrs
Dallas Park Central, TX (1) 07-28-94 5 - 40 Yrs
Dallas Park Central, TX (4) 11-01-98 5 - 40 Yrs
Dallas Park Central, TX (17) 06-30-97 5 - 40 Yrs
Dallas Regal Row, TX (5) 07-28-98 5 - 40 Yrs
Dallas, TX (8) 07-28-98 5 - 40 Yrs
Dallas, TX (18) 07-28-98 5 - 40 Yrs
DFW Airport, TX (18) 07-28-98 5 - 40 Yrs
DFW Airport (Suites), TX (18) 07-28-98 5 - 40 Yrs
DFW South, TX (6) 07-28-98 5 - 40 Yrs
Houston Galleria, TX (12) 07-28-98 5 - 40 Yrs
Houston Galleria, TX (5) 07-28-98 5 - 40 Yrs
</TABLE>
F-32
<PAGE> 87
FELCOR LODGING 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 ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ------------ -------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Houston Greenway, TX (7) 12,675 3,418 29,736 1,025 204
Houston I-10 West, TX (5) 586 5,099 176 13
Houston I-10 West, TX (7) 3,055 26,575 916 253
Houston I-10 West, TX (13) 478 4,155 143 220
Houston Int'l Airport, TX (2) 14,377 3,890 33,842 1,167 101
Houston Medical Center, TX (8) 9,329 2,493 21,687 748 233 145
Houston Medical Center, TX (2) 9,329 2,284 19,869 685 1,235 1,234
Midland Country Villa, TX (2) 404 3,517 121 12
N. Dallas Addison, TX (8) 15,616 4,938 42,965 1,482 354 344
Odessa Center, TX (2) 487 4,238 146 4
Odessa Parkway, TX (9) 370 3,218 111 7
Plano, TX (2) 885 7,696 265 65
Plano, TX (18) 9,118 1,813 15,775 544 363
San Antonio Airport, TX (7) 3,371 29,326 1,011 30
San Antonio Downtown, TX (2) 22,246 688 377 198
Waco I-35, TX (2) 574 4,994 172 114 108
Salt Lake City Airport, UT (2) 5,346 165 47
Burlington, VT (4) 3,136 27,283 941 267
Cambridge, CAN (2) 481 4,188 144
Kitchener Waterloo, CAN (2) 9,441 292 25
Peterbourough Waterfront,
CAN (2) 735 6,391 220 12
Sarnia, CAN (2) 271 2,359 81 4
Toronto Airport, CAN (7) 21,168 655 217 234
Toronto Yorkdale, CAN (2) 1,578 13,725 473 118
-------- -------- ---------- -------- ------- ------- --------
Total $275,613 $314,029 $3,397,532 $145,556 $15,638 $83,039 $153,054
======== ======== ========== ======== ======= ======= ========
</TABLE>
<TABLE>
<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>
Houston Greenway, TX (7) 3,418 29,736 1,229 34,383 292
Houston I-10 West, TX (5) 586 5,099 189 5,874 55
Houston I-10 West, TX (7) 3,055 26,575 1,169 30,799 290
Houston I-10 West, TX (13) 478 4,155 363 4,996 51
Houston Int'l Airport, TX (2) 3,890 33,842 1,268 39,000 342
Houston Medical Center, TX (8) 2,493 21,920 893 25,306 231
Houston Medical Center, TX (2) 2,284 21,104 1,919 25,307 211
Midland Country Villa, TX (2) 404 3,517 133 4,054 38
N. Dallas Addison, TX (8) 4,938 43,319 1,826 50,083 436
Odessa Center, TX (2) 487 4,238 150 4,875 45
Odessa Parkway, TX (9) 370 3,218 118 3,706 34
Plano, TX (2) 885 7,696 330 8,911 84
Plano, TX (18) 1,813 15,775 907 18,495 180
San Antonio Airport, TX (7) 3,371 29,326 1,041 33,738 281
San Antonio Downtown, TX (2) 22,623 886 23,509 232
Waco I-35, TX (2) 574 5,108 280 5,962 53
Salt Lake City Airport, UT (2) 5,346 212 5,558 57
Burlington, VT (4) 3,136 27,283 1,208 31,627 972
Cambridge, CAN (2) 481 4,188 144 4,813 45
Kitchener Waterloo, CAN (2) 9,441 317 9,758 99
Peterbourough Waterfront,
CAN (2) 735 6,391 232 7,358 68
Sarnia, CAN (2) 271 2,359 85 2,715 25
Toronto Airport, CAN (7) 21,385 889 22,274 220
Toronto Yorkdale, CAN (2) 1,578 13,725 591 15,894 150
-------- ---------- -------- ---------- --------
Total $329,667 $3,480,571 $298,610 $4,108,848 $178,072
======== ========== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
NET BOOK
VALUE LIFE UPON
BUILDINGS AND WHICH
IMPROVEMENTS; DEPRECIATION
FURNITURE & DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- ------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Houston Greenway, TX (7) 34,091 1984 07-28-98 5 - 40 Yrs
Houston I-10 West, TX (5) 5,819 1969 07-28-98 5 - 40 Yrs
Houston I-10 West, TX (7) 30,509 1984 07-28-98 5 - 40 Yrs
Houston I-10 West, TX (13) 4,945 1969 07-28-98 5 - 40 Yrs
Houston Int'l Airport, TX (2) 38,658 1971 07-28-98 5 - 40 Yrs
Houston Medical Center, TX (8) 25,075 1973 07-28-98 5 - 40 Yrs
Houston Medical Center, TX (2) 25,096 1984 07-28-98 5 - 40 Yrs
Midland Country Villa, TX (2) 4,016 1979 07-28-98 5 - 40 Yrs
N. Dallas Addison, TX (8) 49,647 1985 07-28-98 5 - 40 Yrs
Odessa Center, TX (2) 4,830 1982 07-28-98 5 - 40 Yrs
Odessa Parkway, TX (9) 3,672 1977 07-28-98 5 - 40 Yrs
Plano, TX (2) 8,827 1983 07-28-98 5 - 40 Yrs
Plano, TX (18) 18,315 1983 07-28-98 5 - 40 Yrs
San Antonio Airport, TX (7) 33,457 1981 07-28-98 5 - 40 Yrs
San Antonio Downtown, TX (2) 23,277 1968 07-28-98 5 - 40 Yrs
Waco I-35, TX (2) 5,909 1970 07-28-98 5 - 40 Yrs
Salt Lake City Airport, UT (2) 5,501 1963 07-28-98 5 - 40 Yrs
Burlington, VT (4) 30,655 1967 12-04-97 5 - 40 Yrs
Cambridge, CAN (2) 4,768 1969 07-28-98 5 - 40 Yrs
Kitchener Waterloo, CAN (2) 9,659 1965 07-28-98 5 - 40 Yrs
Peterbourough Waterfront, CAN 7,290 1965 07-28-98 5 - 40 Yrs
Sarnia, CAN (2) 2,690 1970 07-28-98 5 - 40 Yrs
Toronto Airport, CAN (7) 22,054 1970 07-28-98 5 - 40 Yrs
Toronto Yorkdale, CAN (2) 15,744 1970 07-28-98 5 - 40 Yrs
----------
Total $3,930,776
==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(a) Balance at December 31, 1996 $ 911,390 (b) Balance at December 31, 1995 $ 10,397
Additions during the period 651,334 Depreciation expense during the period 26,321
---------- ---------
Balance at December 31, 1997 $1,562,724 Balance at December 31, 1996 36,718
Additions during the period 2,546,124 Depreciation expense during the period 50,682
---------- ---------
Balance at December 31, 1998 $4,108,848 Balance at December 31, 1997 $ 87,400
Depreciation expense during the period 90,672
---------
Balance at December 31, 1998 $ 178,072
</TABLE>
1. Embassy Suites
2. Holiday Inn
3. Days Inn
4. Sheraton and Sheraton Suites
5. Fairfield Inn
6. Doubletree and Doubletree Guest Suites
7. Holiday Inn Select
8. Crowne Plaza and Crowne Plaza Suites
9. Holiday Inn Express
10. Ramada Inn
11. Radisson
12. Courtyard by Marriott
13. Hampton Inn
14. Independents
15. Hilton Suites
16. Homewood Suites
17. Westin
18. Harvey Hotel
F-33
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Lodging Trust Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of DJONT
Operations, L.L.C. at December 31, 1998 and 1997, and the consolidated results
of operations and cash flows for the years ended December 31, 1998, 1997 and
1996, respectively, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Dallas, Texas
March 2, 1999
F-34
<PAGE> 89
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1998 1997
-------- --------
<S> <C> <C>
Cash and cash equivalents ............................................ $ 28,538 $ 25,684
Accounts receivable, net ............................................. 27,561 20,274
Inventories .......................................................... 4,381 3,466
Prepaid expenses ..................................................... 471 1,307
Other assets ......................................................... 3,021 3,971
-------- --------
Total assets ....................................................... $ 63,972 $ 54,702
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade .............................................. $ 6,514 $ 9,426
Accounts payable, other .............................................. 6,994 4,625
Due to FelCor Lodging Trust Incorporated ............................. 16,875 18,908
Accrued expenses and other liabilities ............................... 41,820 30,818
-------- --------
Total liabilities .................................................. 72,203 63,777
-------- --------
Commitments and contingencies (Note 4)
Shareholders' equity (deficit):
Capital .............................................................. 1 1
Accumulated deficit .................................................. (8,232) (9,076)
-------- --------
Total shareholders' deficit ........................................ (8,231) (9,075)
-------- --------
Total liabilities and shareholders' equity ......................... $ 63,972 $ 54,702
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-35
<PAGE> 90
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Room and suite revenue ........................ $ 618,122 $ 456,614 $ 234,451
Food and beverage revenue ..................... 77,834 34,813 15,119
Food and beverage rent ........................ 4,792 4,393 2,334
Other revenue ................................. 48,781 38,690 17,340
--------- --------- ---------
Total revenues ......................... 749,529 534,510 269,244
--------- --------- ---------
Expenses:
Property operating costs ...................... 169,955 128,077 66,236
General and administrative .................... 56,995 39,147 20,123
Advertising and promotion ..................... 51,105 37,333 18,520
Repair and maintenance ........................ 36,374 26,236 14,453
Utilities ..................................... 28,799 21,363 12,248
Management and incentive fees ................. 23,636 11,879 6,077
Franchise fees ................................ 18,102 13,407 5,693
Food and beverage expenses .................... 65,924 33,119 15,701
Percentage lease expenses ..................... 289,891 216,990 107,935
Lessee overhead expenses ...................... 1,990 2,332 1,776
Liability insurance ........................... 1,258 3,202 1,818
Preopening and conversion costs ............... 569 340 2,165
Other expenses ................................ 4,087 3,757 1,929
--------- --------- ---------
Total expenses ......................... 748,685 537,182 274,674
--------- --------- ---------
Net income/(loss) ................................ $ 844 $ (2,672) $ (5,430)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-36
<PAGE> 91
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1995 ..................... $ (773)
Distributions declared ........................... (200)
Net loss ......................................... (5,430)
-------
Balance at December 31, 1996 ..................... (6,403)
Net loss ......................................... (2,672)
-------
Balance at December 31, 1997 ..................... (9,075)
Net income ....................................... 844
-------
Balance at December 31, 1998 ..................... $(8,231)
=======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-37
<PAGE> 92
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ 844 $ (2,672) $ (5,430)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Changes in assets and liabilities:
Accounts receivable ........................................... (7,287) (11,574) (5,571)
Inventories ................................................... (915) (1,361) (1,573)
Prepaid expenses .............................................. 836 (1,052) 33
Other assets .................................................. 950 (1,768) (1,898)
Due to FelCor Lodging Trust Incorporated ...................... (2,033) 13,382 3,130
Accounts payable, accrued expenses and other liabilities ...... 10,459 25,521 11,372
-------- -------- --------
Net cash flow provided by operating activities ...... 2,854 20,476 63
-------- -------- --------
Cash flows from financing activities:
Distributions paid ................................................. (200)
-------- -------- --------
Net cash flow used in financing activities .......... (200)
-------- -------- --------
Net change in cash and cash equivalents .............................. 2,854 20,476 (137)
Cash and cash equivalents at beginning of years ...................... 25,684 5,208 5,345
-------- -------- --------
Cash and cash equivalents at end of years ............................ $ 28,538 $ 25,684 $ 5,208
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-38
<PAGE> 93
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Thomas J. Corcoran, the President, Chief Executive Officer and a
Director of FelCor Lodging Trust Incorporated ("FelCor") and Hervey A. Feldman,
Chairman Emeritus of FelCor, beneficially own a 50% voting common equity
interest in DJONT Operations LLC, a Delaware limited liability company. The
remaining 50% non-voting common equity interest is beneficially owned by the
children of Charles N. Mathewson, a Director and major initial investor of
FelCor.
Each of the 86 hotels in which FelCor Lodging Limited Partnership (the
"Operating Partnership") had an ownership interest at December 31, 1998 (the
"Hotels"), is leased to DJONT Operations LLC or a consolidated subsidiary
thereof ("DJONT") pursuant to percentage leases ("Percentage Leases"). Certain
entities owning interests in DJONT and the managers of certain hotels have
agreed to make loans to DJONT of up to an aggregate of approximately $17.3
million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of 34
of the Hotels. No loans were outstanding under such agreements at December 31,
1998.
Messrs. Feldman and Corcoran have entered into an agreement with FelCor
pursuant to which they have agreed that through April 15, 2005, any
distributions received by them from DJONT (in excess of their tax liabilities
with respect to the income of DJONT) will be utilized to purchase common stock
from FelCor or units of limited partner interest in the Operating Partnership at
then current market prices. The agreement stipulates that Messrs. Feldman and
Corcoran are restricted from selling any stock or units so acquired for a period
of two years from the date of purchase. RGC Leasing, Inc., which owns the other
50% common equity interest in DJONT, may elect to purchase common stock of
FelCor or Operating Partnership units upon similar terms, at its option. The
independent directors of FelCor may suspend or terminate such agreement at any
time.
Fifty-seven of the Hotels are operated as Embassy Suites(R) hotels, 17
are operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, nine are
operated as Sheraton(R) or Sheraton Suites(R) hotels one is operated as a
Westin(R) hotel, one is operated as a Hilton Suites(R) hotel and one is in the
process of conversion to a Doubletree hotel. Seventy-three of the Hotels are
managed by subsidiaries of Promus Hotel Corporation ("Promus"). Promus is the
largest operator of all-suite, full-service hotels in the United States. Of the
remaining Hotels, 10 are managed by subsidiaries of Starwood Hotels and Resorts
Worldwide, Inc. ("Starwood") and three are managed by independent management
companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principals 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.
Fair Value of Financial Instruments -- Statement of Financial
Accounting Standards 107 requires all entities to disclose the fair value of
certain financial instruments in their financial statements. Accordingly, DJONT
reports the carrying amount of cash and cash equivalents, accounts receivable,
inventories, prepaid expenses, other assets, accounts payable, amounts due to
lessor and accrued expenses at cost which approximates fair value due to the
short maturity of these instruments.
Cash Equivalents -- All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost or market.
F-39
<PAGE> 94
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition -- Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible. Such losses have been within management's expectations.
Income Taxes -- DJONT is a limited liability company which is taxed for
federal income taxes purposes as a limited partnership and, accordingly, all
taxable income or loss flows through to the shareholders.
3. ACCUMULATED DEFICIT
In 1998 DJONT had net income of $844,000, however, because of losses in
recent years had an accumulated deficit of approximately $8.2 million. A
significant portion of such losses are attributable to the one-time costs of
converting the Crown Sterling Suites(R) hotels to Embassy Suites and Doubletree
Guest Suites, and operations of these hotels during periods of substantial
renovation. Such renovations were required under the terms of the related
franchise agreements. In accordance with the terms of the Percentage Leases,
DJONT is required to pay the full required lease payment. Although a portion of
the suites are not available for guests to rent, management believes, and
operating data indicates, that overall the performances of the hotels is
adversely impacted as evidenced by improved operating performances immediately
following completion of renovations. Management is exploring several options to
anticipate negative operating cash flow during renovations, including potential
changes to the terms of leases for future renovations which might mitigate
losses for DJONT during such renovation periods.
At December 31, 1998 DJONT had paid all amounts then due to FelCor
under the Percentage Leases. It is anticipated that a substantial portion of any
future profits of DJONT will be retained until a positive shareholders' equity
is restored. Management anticipates that future earnings will be sufficient to
enable DJONT to continue to make necessary payments when due. Management deems
DJONT to be a viable going concern and, as such, no adjustments are required to
the accompanying financial statements.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
DJONT has future lease commitments under the Percentage Leases which
expire in 2002 (6 hotels), 2004 (7 hotels), 2005 (12 hotels), 2006 (18
hotels),2007 (23 hotels), 2008 (12 hotels), and thereafter (8 hotels). Minimum
future rental payments are computed based on the base rent as defined under the
noncancellable operating leases and are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1999 ................................ $ 166,418
2000 ................................ 166,506
2001 ................................ 169,597
2002 ................................ 169,597
2003 ................................ 155,562
2004 and thereafter ................. 584,174
----------
$1,411,854
==========
</TABLE>
F-40
<PAGE> 95
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Percentage Lease expense is based on a percentage of room and suite
revenues, food and beverage revenues and food and beverage rents of the Hotels.
Both the base rent and the threshold room and suite revenue in each lease
computation is subject to adjustments 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 1999, 1998, 1997 and 1996
are 0.55% 0.50%, 1.42% and 0.73%, respectively.
Other than real estate and personal property taxes, casualty insurance,
capital improvements and maintenance of underground utilities and structural
elements, which are obligations of the Operating Partnership, the Percentage
Leases require DJONT to pay rent, liability insurance premiums, all costs,
expenses, utilities and other charges incurred in the operation of the leased
hotels.
DJONT is also obligated to indemnify and hold harmless the Operating
Partnership from and against all liabilities, costs and expenses incurred by or
asserted against the Operating Partnership in the normal course of operating the
Hotels.
DJONT is not permitted to sublet all or any substantial part of the
Hotels or assign its interest under any of the Percentage Leases without the
prior written consent of the Operating Partnership.
DJONT has agreed that during the term of the Percentage Leases it will
maintain a ratio of total debt to consolidated net worth (as defined in the
Percentage Leases) of less than or equal to 50%, exclusive of capital leases. In
addition, the Lessee has agreed that it will not pay fees to any affiliate of
the Lessee.
DJONT typically pays a franchise fee ranging from 4% to 5% of suite
revenue, and marketing and reservation fees ranging from 1% to 3.5% of room and
suite revenue. In the cases where there is not a separate franchise agreement,
the right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of applicable hotel revenues.
Incentive management fees are based upon the hotel's net income before overhead
and typically range from 50% to 100% subject to a maximum annual payment of
between 2% and 3% of total revenues. In many cases managers and franchisors have
agreed to subordinate all or a portion of their fees at a specific hotel or
group of hotels either for a set period of time, or until the hotel or group of
hotels provides a predetermined return to the Lessee, or both.
In the event FelCor enters into an agreement to sell or otherwise
transfer a leased hotel, FelCor has the right to terminate the Percentage Lease
with respect to such leased hotel upon 90 days' prior written notice upon either
(1) paying DJONT the fair market value of the DJONT's leasehold interest in the
remaining term of the Percentage Lease to be terminated or (2) offering to lease
to DJONT a substitute hotel on terms that would create a leasehold interest in
such hotel with a fair market value equal to or exceeding the fair market value
of DJONT's remaining leasehold interest under the Percentage Lease to be
terminated. FelCor also is obligated to pay or reimburse DJONT for any
assignment fees, termination fees or other liabilities arising under any
franchise license agreement and restaurant sublease agreements.
DJONT shares the executive offices and certain employees with FelCor
and FelCor, Inc., and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel,
office supplies, telephones and depreciation of office furniture, fixtures and
equipment. Such allocation of shared expenses approved by a majority of FelCor's
independent directors. During 1998, 1997 and 1996, DJONT paid approximately $1.6
million (approximately 37%), $2.1 million (approximately 61%), and $1.3 million
(approximately 61%), respectively, of the allocable expenses under this
agreement.
F-41
<PAGE> 96
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 - Amended and Restated Agreement of Limited Partnership of the Partnership (filed as
Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal
year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference).
3.2 - First Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of November 17, 1995 by and among the Registrant, Promus Hotels,
Inc. and all of the persons or entities who are or shall in the future become of the limited
partners of the 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).
3.3 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of January 9, 1996 between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership (filed as
Exhibit 10.1.2 to the 1995 10-K and incorporated herein by reference).
3.4 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of January 10, 1996 by and among the Registrant, MarRay-LexGreen,
Inc. and all of the persons and entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.3 to the 1995 10-K and incorporated
herein by reference).
3.5 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of January 10, 1996 by and among the Registrant, Piscataway-
Centennial Associates Limited Partnership and all of the persons or entities who are or
shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.4 to the
1995 10-K and incorporated herein by reference).
3.6 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of May 2, 1996, between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership, adopting
Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the
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, and incorporated herein by reference).
3.7 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of September 16, 1996, by and among the Registrant, John B.
Urbahns, II and all of the persons or entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10-
K for the fiscal year ended December 31, 1996, and incorporated herein by reference).
3.8 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the
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 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).
</TABLE>
<PAGE> 97
<TABLE>
<S> <C>
3.9 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the
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 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).
3.10 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of May 1, 1998, between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership, adopting
Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of
May 1, 1998 (filed as Exhibit 10.1.9 to FelCor's Form 8-K dated May 29, 1998, and
incorporated herein by reference).
3.11 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of June 22, 1998, by and among the Registrant, Schenley Hotel
Associates, and all of the persons or entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.10 to FelCor's Form 10-Q for the quarter
ended October 30, 1998, and incorporated herein by reference).
3.12 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of July 28, 1998, between the Registrant and all of the persons or
entities who are or shall in the future become limited partners of the Partnership, changing
the name of the Partnership to "FelCor Lodging Limited Partnership" (filed as Exhibit
10.1.11 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated
herein by reference).
3.13 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of December 29, 1998, between the Registrant and all of the persons
or entities who are or shall in the future become limited partners of the Partnership,
amending certain provisions of the Partnership Agreement (filed as Exhibit 10.1.12 to
FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 10-K") and incorporated herein by reference).
3.14 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of December 31, 1998, by and between the Registrant, FelCor
Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future
become limited partners of the Partnership (filed as Exhibit 10.1.13 to the 1998 10-K and
incorporated herein by reference).
3.15 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of March 1, 1999, by and among the Registrant, Huie Properties,
Ltd., and all of the persons or entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.14 to the 1998 10-K and incorporated
herein by reference).
4.1 - Indenture dated as of April 22, 1996 by and between FelCor and Sun Trust Bank, Atlanta,
Georgia, as Trustee (filed as Exhibit 4.2 to FelCor's Form 8-K dated May 1, 1996 and
incorporated herein by reference).
4.2 - Indenture dated as of October 1, 1997 by and among the Registrant, FelCor, the Subsidiary
Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as
Exhibit 4.1 to the Registration Statement on Form S-4 (file No. 333-39595) and the other
co-registrants named therein and incorporated herein by reference).
</TABLE>
<PAGE> 98
<TABLE>
<S> <C>
4.2.1 - First Amendment to Indenture dated as of February 5, 1998 by and among
Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank,
Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement
on Form S-4 (File No. 333-39595) and incorporated herein by reference).
4.2.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of
December 30, 1998, by and among Registrant, FelCor, the Subsidiary Guarantors
named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit
4.7.2 to the 1998 10-K and incorporated herein by reference).
10.1 - Form of Lease Agreement between the Registrant as Lessor and DJONT Operations, L.L.C. or
its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the 1995 10-K and
incorporated herein by reference).
10.1.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the
Registrant, and DJONT to clarify the meaning of Article III of the lease as
represented by the actual course of dealing between lessors and lessees under
such leases (filed as Exhibit 10.19 to FelCor's Form 10-Q for the quarter ended
June 30, 1998, and incorporated herein by reference).
10.2 - Form of Lease Agreement between the Partnership as Lessor and a subsidiary of Bristol Hotels
& Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the
1998 10-K and incorporated herein by reference).
10.2.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the
Registrant, the Partnership, BHR and the lessors and lessees named therein
(filed as Exhibit 10.17 to FelCor's Form 8-K dated August 10, 1998, and
incorporated herein by reference).
10.3 - Employment Agreement dated as of July 28, 1994 between FelCor and Hervey A. Feldman
(filed as Exhibit 10.7 to the 1994 10-K/A and incorporated herein by reference).
10.4 - Employment Agreement dated as of July 28, 1994 between FelCor and Thomas J. Corcoran, Jr.
(filed as Exhibit 10.8 to the 1994 10-K/A and incorporated herein by reference).
10.5 - Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10-
K/A and incorporated herein by reference).
10.6 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 1994 10-K/A and
incorporated herein by reference).
10.7 - 1995 Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9.2 to
the 1995 10-K and incorporated herein by reference).
10.8 - Non-Qualified Deferred Compensation Plan (filed as Exhibit 4 to FelCor's Registration
Statement on Form S-8 (File No. 333-69869) and incorporated herein by reference).
10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor's Registration
Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference).
</TABLE>
<PAGE> 99
<TABLE>
<S> <C>
10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to
FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement
(File No. 333-50509) and incorporated herein by reference).
10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit
99.2 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration
Statement (File No. 333-50509) and incorporated herein by reference).
10.12 - Form of Severance Agreement for executive officers and certain key employees of FelCor
(filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference).
10.13 - Agreement dated as of April 15, 1995 among FelCor, the Registrant, FelCor, Inc., Thomas
J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit
10.15 to the Registration Statement on Form S-11 (File No. 33-91870) and incorporated
herein by reference).
10.14 - Credit Agreement dated as of February 6, 1996 by and among the Registrant, as borrower,
Holdings and FelCor, as guarantors, and Canadian Imperial Bank of Commerce, as agent
(filed as Exhibit 10.30 to FelCor's Form 8-K dated May 1, 1996, and incorporated herein
by reference).
10.15 - Voting and Cooperation Agreement dated as of March 23, 1998 among Registrant, Bristol,
Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as
Exhibit 99.7 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and
incorporated herein by reference).
10.16 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel
Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by FelCor (filed
as Exhibit 99.8 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and
incorporated herein by reference).
10.17 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among
FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I,
L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey
Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to
FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference).
10.18 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1998
among FelCor and the Registrant, as Borrower, the Lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and
Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association
as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's Form 8-K
dated August 10, 1998 and incorporated herein by reference).
10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol
Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent
and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders
(filed as Exhibit 10.10 to the Bristol Hotel Company Annual report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference).
21.1* - List of Subsidiaries of the Registrant.
23.1* - Consent of PricewaterhouseCoopers LLP
27* - Financial Data Schedule.
</TABLE>
- ---------------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES AND UNCONSOLIDATED ENTITIES
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
FelCor/CSS Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP
("FelCor/CSS Hotels") Company
FelCor/CSS Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by
FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor/St. Paul Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by
FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor/Charlotte Hotel, L.L.C. Delaware; Limited Liability 50% owned by FelCor/CSS Hotels
("FelCor/Charlotte") Company
FelCor/Indianapolis Hotel, L.L.C. Delaware; Limited Liability 50% owned by FelCor/CSS Hotels
("FelCor/Indianapolis") Company
E.S. Charlotte Limited Partnership Minnesota; Limited Partnership 2% GP interest owned by
FelCor/Charlotte; 49% LP interest
owned by FelCor LP
E.S. North, an Indiana Limited Indiana; Limited Partnership 2% GP interest owned by
Partnership FelCor/Indianapolis; 49% LP
interest owned by FelCor LP
FCH/PSH, L.P. Pennsylvania; Limited Partnership 1% GP interest owned by
FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor Lodging Holding Company, Delaware; Limited Liability 100% owned by FelCor LP; special
L.L.C. Company 0% interest owned by Special
Remote I, Inc.
FelCor Lodging Company, L.L.C. Delaware; Limited Liability 100% owned by FelCor Lodging
Company Holding Company, L.L.C.
</TABLE>
-1-
<PAGE> 2
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
FelCor Hotel Operating Company, Delaware; Limited Liability 100% owned by FelCor LP
L.L.C. ("FHOC") Company
FelCor Pennsylvania Company, Delaware; Limited Liability 100% owned by FHOC
L.L.C. Company
FelCor Hospitality Holding Delaware; Limited Liability 100% owned by FHOC
Company, L.L.C. Company
FelCor Hospitality Company, Delaware; Limited Liability 100% owned by FelCor Hospitality
L.L.C. Company Holding Company, L.L.C.
FelCor Hotel Asset Company, Delaware; Limited Liability 100% owned by FelCor LP
L.L.C. ("FHAC") Company
FHAC Nevada Holdings, L.L.C. Nevada; Limited Liability 100% owned by FHAC
Company
FHAC Texas Holdings, L.P. Texas; Limited Partnership 1% GP interest owned by FHAC
and 99% LP interest owned by
FHAC Nevada Holdings, L.L.C.
FelCor HHCL Company, L.L.C. Delaware; Limited Liability 100% owned by FHAC
("FelCor HHCL") Company
FelCor Hotels GenPar, L.L.C. Delaware; Limited Liability 100% owned by FelCor HHCL
("FelCor GenPar") Company
FelCor Hotels LimPar, L.L.C. Delaware; Limited Liability 100% owned by FelCor HHCL
("FelCor LimPar") Company
HHHC GenPar, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor
GenPar, and 99% LP interest
owned by FelCor LimPar
FelCor Hotel Company, Ltd. Texas; Limited Partnership 87% GP interest owned by HHHC
("FelCor Hotel Company") GenPar, L.P. and 13% LP interest
owned by FelCor LimPar
FelCor Hotels GenPar II, L.L.C. Delaware; Limited Liability 100% owned by FelCor Hotel
Company Company
FelCor Hotel Company II, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor
Hotels GenPar II, L.L.C. and 99%
LP interest owned by FelCor Hotel
Company
FelCor Chat-Lem, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
HI Chat-Lem/Iowa - New Orleans Louisiana; General Partnership 50% owned by FelCor Chatlem,
Venture L.L.C.
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
FelCor Philadelphia Center, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Marshall Motels, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
Center City Hotel Associates Pennsylvania; Limited Partnership 1% GP interest owned by FelCor
Philadelphia Center, L.L.C. and
99% LP interest owned by FelCor
Marshall Motels, L.L.C.
FelCor Hotels Financing II, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Hotels Financing I, L.L.C. Delaware; Limited Liability 100% owned by FelCor Hotels
("FelCor Financing I") Company Financing II, L.L.C.
FelCor Hotels Investments I, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor
Financing I and 99% LP interest
owned by FelCor Hotel Company
FelCor Hotels Investments II, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor
Financing I and 99% LP interest
owned by FelCor Hotel Company
FelCor Salt Lake, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor St. Louis Company, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Canada Holding GP, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Canada Holding, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor
Canada Holding GP, L.L.C. and
99% LP interest owned by FHAC
FelCor Canada Co. Nova Scotia; Unlimited Liability 100% owned by FelCor Canada
Company Holding, L.P.
FelCor Omaha Hotel Company, Delaware; Limited Liability 100% owned by FelCor LP
L.L.C. ("FelCor Omaha") Company
FelCor Country Villa Hotel, L.L.C. Delaware; Limited Liability 100% owned by FelCor Omaha
Company
FelCor Moline Hotel, L.L.C. Delaware; Limited Liability 100% owned by FelCor Omaha
Company
FelCor Eight Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP
("FelCor Eight Hotels") Company
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
EPT Meadowlands Limited Delaware; Limited Partnership 1% GP interest owned by FelCor
Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Kansas City Limited Delaware; Limited Partnership 1% GP interest owned by FelCor
Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT San Antonio Limited Delaware; Limited Partnership 1% GP interest owned by
FelCor Partnership ("EPT San Antonio") Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Austin Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor
("EPT Austin") Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Overland Park Limited Delaware; Limited Partnership 1% GP interest owned by FelCor
Partnership Eight Hotels; 49% LP interest
("EPT Overland Park") owned by FelCor LP
EPT Atlanta - Perimeter Center Delaware; Limited Partnership 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
("EPT Atlanta") owned by FelCor LP
EPT Raleigh Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor
("EPT Raleigh") Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Covina Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor
("EPT Covina") Eight Hotels; 49% LP interest
owned by FelCor LP
Promus/FCH Condominium Delaware; Limited Liability 50% owned by FelCor LP
Company, L.L.C. Company
Promus/FCH Development Delaware; Limited Liability 50% owned by FelCor LP
Company, L.L.C. Company
Promus/FelCor San Antonio Texas; General Partnership 50% GP interest owned by FelCor
Venture LP
Promus/FelCor Parsippany Venture New Jersey; General Partnership 50% GP interest owned by FelCor
("Parsippany JV") LP
MHV Joint Venture Texas; General Partnership 50% GP interest owned by FelCor
("MHV JV") LP
Promus/FelCor Lombard Venture Illinois; General Partnership 50% GP interest owned by FelCor
("Lombard JV") LP
</TABLE>
-4-
<PAGE> 5
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
Promus/FelCor Hotels, L.L.C. Delaware; Limited Liability 1% owned by Promus/FelCor Manager, Inc.;
Company 99% owned by EPT Atlanta, EPT Austin,
EPT Covina, EPT Overland Park, EPT
Raleigh, EPT San Antonio, Lombard JV,
MHV JV and Parsippany JV
Kingston Plantation Development Delaware; Corporation 97% non-voting Class B
Corporation ("KPDC") interest owned by FelCor LP
Promus/FelCor Manager, Inc. Delaware; Corporation 50% owned by KPDC
FelCor/New Orleans Annex, L.L.C. Delaware; Limited Liability 100% owned by KPDC
Company
Brighton at Kingston Plantation, Delaware; Limited Liability 50% owned by KPDC
L.L.C. Company
FCH/DT Hotels, L.L.C. Delaware; Limited Liability 90% owned by FelCor LP
("FCH/DT Hotels") Company
FCH/DT Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FCH/DT
Hotels; 89.1% LP interest owned
by FelCor LP
FCH/DT BWI Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FCH/DT
Hotels; 99% LP interest owned by
FCH/DT Holdings, LP
FelCor/LAX Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP
("FelCor/LAX Hotels") Company
FelCor/LAX Holdings, L.P. Delaware; Limited Partnership 1% GP Interest owned by
FelCor/LAX Hotels; 99% LP
interest owned by FelCor LP
Los Angeles International Airport Texas; Limited Partnership 50% GP interest owned by
Hotel Associates, a Texas limited FelCor/LAX Holdings, L.P. and
partnership 47% LP interest owned by
FelCor/LAX Hotels
Park Central Joint Venture Texas; General Partnership 60% owned by FelCor LP
FelCor Airport Utilities, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
</TABLE>
-5-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of FelCor Lodging Limited Partnership on Form S-3 (File No. 333-50509)
of our reports dated (i) February 2, 1999 on our audits of the consolidated
financial statements of FelCor Lodging Limited Partnership, (ii) February 2,
1999 on our audit of the financial statement schedule of FelCor Lodging Limited
Partnership, and (iii) March 2, 1999 on our audit of the consolidated financial
statements of DJONT Operations, L.L.C., which reports are included in this
Annual Report on Form 10-K. We also consent to the reference to our firm under
the caption "Selected Financial Data."
PricewaterhouseCoopers LLP
Dallas, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 34,692
<SECURITIES> 0
<RECEIVABLES> 21,943
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,635
<PP&E> 4,142,556
<DEPRECIATION> (178,072)
<TOTAL-ASSETS> 4,175,383
<CURRENT-LIABILITIES> 124,574
<BONDS> 1,594,734
0
295,000
<COMMON> 0
<OTHER-SE> 2,109,970
<TOTAL-LIABILITY-AND-EQUITY> 4,175,383
<SALES> 0
<TOTAL-REVENUES> 340,094
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,182
<INCOME-PRETAX> 124,414
<INCOME-TAX> 0
<INCOME-CONTINUING> 124,414
<DISCONTINUED> 0
<EXTRAORDINARY> 3,075
<CHANGES> 0
<NET-INCOME> 121,339
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.87
</TABLE>
