<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration No. 333-3170
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* *
* INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS SUBJECT TO *
* COMPLETION. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS *
* BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION *
* PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933. A FINAL *
* PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS WILL BE DELIVERED *
* TO PURCHASERS OF THESE SECURITIES. THIS PROSPECTUS SUPPLEMENT AND THE *
* ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE *
* SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE *
* WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE *
* SECURITIES LAWS OF ANY SUCH STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, JANUARY 22, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 25, 1996)
3,000,000 SHARES
[FELCOR LOGO]
F E L C O R S U I T E H O T E L S , I N C.
COMMON STOCK
------------------
Felcor Suite Hotels, Inc. ("Company") is a self-administered equity real
estate investment trust ("REIT") that presently owns interests in 43 hotels
located in 19 states with an aggregate of 10,196 suites ("Current Hotels").
Thirty-nine of the Company's hotels are operated under, and one is being
converted to, the Embassy Suites(R) brand. Thirty-eight of the Company's hotels
are managed by a subsidiary of Promus Hotel Corporation ("Promus"). The Company
also owns interests in two Doubletree Guest Suites(R) hotels and one Hilton
Suites(R) hotel.
All of the shares of Common Stock offered hereby ("Offering") are being sold
by the Company, which intends to utilize a majority of the proceeds to acquire
from affiliates of the General Electric Pension Trust indirect ownership
interests in eight hotels (through the acquisition of an approximate 50%
interest in eight joint ventures, each of which owns or leases an existing
Embassy Suites hotel) and the direct 100% ownership of two additional Embassy
Suites hotels (collectively, "Acquisition Hotels"). A 50% interest in each of
such joint ventures will continue to be owned by Promus, resulting in a total of
11 hotels owned by joint ventures between Promus and the Company. The
Acquisition Hotels are located in nine states and have an aggregate of 2,342
suites. The eight Acquisition Hotels held by joint ventures will continue to be
operated as Embassy Suites hotels and managed by Promus. The Company believes
that the two Acquisition Hotels to be acquired directly will achieve maximum
results through repositioning within their respective markets and, accordingly,
will be converted to Doubletree Guest Suites hotels and will be managed by a
subsidiary of Doubletree Hotel Corporation.
The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "FCH." The last reported sale price of the Common Stock on the NYSE on
January 21, 1997 was $36 3/8 per share. The Company has paid regular quarterly
distributions on its Common Stock since its inception, with the fourth quarter
distribution of $0.50 per share being payable January 31, 1997 to stockholders
of record on December 30, 1996. Purchasers of the Common Stock offered hereby
will not be entitled to receive the fourth quarter distribution. To preserve its
REIT status, the Company's Charter limits the Common Stock that may be owned by
any single person or affiliated group to 9.9% of the outstanding shares and
restricts the transferability thereof under certain circumstances.
------------------
SEE "RISK FACTORS" BEGINNING ON S-4 HEREIN AND ON PAGE 5 OF THE
ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the offering estimated at $200,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as, and if accepted by them, and
subject to certain conditions. It is expected that certificates for the Common
Stock offered hereby will be available for delivery on or about ,
1997, at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
------------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
<PAGE> 2
[FELCOR SUITE HOTELS MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
The following information contained in this Prospectus Supplement is
qualified in its entirety by the more detailed information appearing elsewhere
in the accompanying Prospectus or incorporated therein or herein by reference.
Unless otherwise indicated, all information in this Prospectus Supplement
assumes that the Underwriters' over-allotment option is not exercised. Unless
the context otherwise requires, as used herein the term "Company" shall mean and
refer to the business and assets of FelCor Suite Hotels, Inc., FelCor Suites
Limited Partnership and their respective subsidiaries, on a consolidated basis.
------------------------
THE COMPANY
FelCor Suite Hotels, Inc. is a self-administered equity REIT that owns an
approximate 89.4% general partner interest in FelCor Suites Limited Partnership
("Partnership"), which holds the Company's interests in the Current Hotels. The
Current Hotels consist of 39 Embassy Suites(R) hotels, one hotel in the process
of conversion to an Embassy Suites hotel, two Doubletree Guest Suites(R) hotels
and one Hilton Suites(R) hotel, with an aggregate of 10,196 suites in 19 states.
Thirty-eight of the Current Hotels are managed by Promus, which is the largest
operator of full-service, all-suite hotels in the United States. The Company
will contribute all of the net proceeds of the Offering to the Partnership, and
following such contribution will own an approximate 90.5% general partner
interest therein.
The Company seeks to increase operating cash flow and enhance shareholder
value through both internal growth and acquisitions. The Company's internal
growth strategy is to utilize its asset management expertise to improve the
quality of its hotels through renovating, upgrading and repositioning, thereby
improving the revenue performance of the hotels, and to participate, through its
leases, in any growth in revenues at its hotels. Consistent with this strategy,
the Company undertook a major renovation and conversion program during 1996
under which substantially all guest suites and some of the public areas of the
18 Crown Sterling Suites(R) hotels ("CSS Hotels") it acquired in late 1995 and
early 1996, as well as the guest suites at a number of subsequently acquired
hotels, were extensively refurbished. The Company committed approximately $64
million to this renovation and conversion program during 1996. Sixteen of the
CSS Hotels have been converted to the Embassy Suites brand and two have been
converted to the Doubletree Guest Suites brand. In addition to the CSS Hotels,
since late 1995 the Company has acquired one Hilton Suites hotel, interests in
six existing Embassy Suites hotels, and three other non-Embassy Suites hotels,
two of which have since been, and one of which is being, converted to the
Embassy Suites brand.
The Company's acquisition growth strategy is to acquire additional existing
hotels that meet the Company's investment criteria. At present, the Company
intends to continue to focus its acquisition strategy primarily upon the
acquisition of hotels that may be converted to, or that are, Embassy Suites
hotels or hotels with another nationally recognized all-suite brand, although it
may consider the acquisition of a limited number of newly developed all-suite
hotels or other up-scale or mid-scale hotel properties in the future. In
addition, the Company may expand certain of its hotel properties by constructing
additional suites and/or meeting space, if market and other conditions warrant.
The Company has completed the construction of 17 additional suites at its
Flagstaff hotel and 32 additional suites at its New Orleans hotel and is in the
process of constructing a net of 128 additional suites at its Boston-Marlborough
hotel (with completion currently scheduled for mid-1997) at an estimated
aggregate cost of approximately $19.1 million. During 1997, the Company also
plans to begin the addition of 64 suites to each of two hotels located in
Orlando and Jacksonville, Florida, at an estimated aggregate cost of
approximately $10.2 million.
The Company's top management includes Hervey A. Feldman, Chairman of the
Board, and Thomas J. Corcoran, Jr., President and Chief Executive Officer. Mr.
Feldman has been engaged in the hotel business for approximately 30 years,
including serving as the founding President and Chief Executive Officer of
Embassy Suites (the predecessor of Promus) from January 1983 to May 1990 and as
its Chairman of the Board from June 1990 until January 1992. Mr. Corcoran has
been engaged in the hotel and restaurant business since 1979, with experience in
the development, financing and acquisition of hotel and restaurant properties.
Messrs. Feldman and Corcoran were the co-founders of the Company.
S-3
<PAGE> 4
To enable the Company to qualify as a REIT, the Partnership leases the
Current Hotels, and intends to lease hotels acquired in the future, to DJONT
Operations, L.L.C., or a subsidiary thereof (collectively, "Lessee"), pursuant
to leases ("Percentage Leases") providing for the payment of certain minimum
base rent or rent based primarily upon percentages of suite revenues of such
hotels. The Lessee pays rent to the Company under the Percentage Leases and, in
addition, pays all franchise fees, management fees and other operating expenses
of the hotels leased by it. The Lessee, which provides its audited financial
statements to the Company, is controlled by Messrs. Feldman and Corcoran who,
together with other officers and directors of the Company, beneficially own an
aggregate of approximately 3.8% (3.4% after consummation of the Offering) of the
outstanding Common Stock and units of limited partner interest in the
Partnership ("Units").
The Company's executive offices are located at 545 E. John Carpenter Frwy.,
Suite 1300, Irving, Texas 75062. The Company may also be reached by telephone at
(972) 444-4900, by facsimile transmission at (972) 444-4949, or by e-mail
addressed to [email protected]. Additional information regarding the
Company may be obtained from its Internet web site at http://www.felcor.com.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered for sale in the Offering........ 3,000,000 shares(1).
Common Stock to be outstanding after the Offering.... 26,498,676 shares(1)(2)
Use of Proceeds...................................... Primarily to fund the purchase of the ten
Acquisition Hotels and for general
corporate purposes and, pending such
application, for the temporary reduction of
indebtedness.
Listing and Trading Symbol........................... The Common Stock is traded on the NYSE
under the symbol "FCH."
Distribution Policy.................................. The Company anticipates the continued
payment of regular quarterly dividends on
the Common Stock, subject to the discretion
of the Board of Directors and the
availability of funds therefor. On December
18, 1996, the Company announced a cash
dividend of $0.50 per share on the Common
Stock for the fourth quarter of 1996,
payable on January 31, 1997 to stockholders
of record on December 30, 1996. Purchasers
of the shares offered hereby will not be
entitled to receive this dividend.
</TABLE>
- ---------------
(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) Excludes (a) 2,783,262 shares of Common Stock issuable at the option of the
Company (in lieu of cash) upon the redemption of a like number of
outstanding Units, (b) 4,689,960 shares of Common Stock issuable upon
conversion of the Company's outstanding $1.95 Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") and (c) 1,047,500
shares of Common Stock issuable upon the exercise of outstanding stock
options granted to employees of the Company.
RISK FACTORS
An investment in the Common Stock involves various risks. Investors should
carefully consider the matters discussed below and under "Risk Factors," which
begins on page 4 of the accompanying Prospectus:
- Common Stock is the most junior of the Company's outstanding securities
and is subordinate to the Company's outstanding indebtedness and Series A
Preferred Stock.
S-4
<PAGE> 5
- risks affecting the hotel industry generally, and the Company's hotels
specifically, that may adversely affect the Company's revenue and the
amounts available for distribution to shareholders.
- the risk that the financing of the Company's growth through acquisitions
and improvements will be constrained (i) because a REIT generally cannot
retain earnings, (ii) because the Company or the Lessee may not have
access to equity capital and (iii) by the 40% debt limitation contained
in its Charter.
- the Company is dependent upon the Lessee's ability to generate sufficient
cash flow from the operation of the Hotels to enable the Lessee to meet
its rent obligations under the Percentage Leases and, it is anticipated
that at December 31, 1996, the Lessee will have incurred aggregate net
losses, and have an accumulated deficit, of approximately $6.3 million.
- tax risks, including taxation of the Company as a corporation if it fails
to qualify as a REIT, taxation of the Partnership as a corporation if it
were deemed not to be a partnership, and the Company's liability for
federal and state taxes on its income in either such event, which could
significantly adversely affect Funds From Operations (which means
generally net income or loss plus depreciation and amortization; see note
(4) under "Recent Developments -- 1996 Operating Results") and
distributions to shareholders;
- the Company's rapid expansion has required the Lessee and Promus to hire
additional management, sales and accounting personnel. To the extent they
are unable to retain experienced personnel to operate the Company's
hotels, the operations of such hotels, the revenue to the Company under
the Percentage Leases and amounts available for distribution to
shareholders could be adversely affected.
- conflicts of interest exist between the Company and certain of its
affiliates (which means generally any person that directly or indirectly
controls, is controlled by, or is under common control with, such
person), including the Lessee, Messrs. Feldman and Corcoran (who control
the Lessee and serve as managers and officers thereof and as directors
and officers of the Company) and Charles N. Mathewson (who serves as a
director of the Company and who, together with his children, owns,
directly or indirectly, an approximately 5.1% limited partner interest in
the Partnership and a 50% non-voting equity interest in the Lessee);
- the Company must distribute annually at least 95% of its taxable net
income to maintain its status as a REIT. The Company has, from time to
time, incurred indebtedness to fund the acquisition of hotels and,
depending upon the cash available for distribution, the Company may be
required to borrow or obtain additional equity capital funds to make
additional investments or distributions; should the Company be unable to
meet its obligations with respect to such indebtedness, it may risk the
loss of all or a portion of its assets through foreclosure;
- increases in interest rates, which may adversely affect the market price
of the Company's Common Stock and increase the cost of funds borrowed to
make additional investments;
- the fact that the Company has limited experience operating as a REIT, and
that it, the Partnership and the Lessee have a limited operating history;
- the substantial influence of, and reliance upon, Messrs. Feldman and
Corcoran with respect to the affairs of the Company and the Lessee;
- risks affecting the real estate industry generally that may adversely
affect the value of the Company's hotels and the market price of the
Company's Common Stock;
- the restriction on ownership of the Company's capital stock intended to
help assure compliance with certain requirements related to continued
qualification of the Company as a REIT, and certain other provisions in
the Company's Charter and Bylaws, may have the effect of inhibiting a
change of control of the Company even though such change of control could
be beneficial to the Company's shareholders; and
- the effect of any adverse developments in the business or prospects of
Embassy Suites hotels that would impact the Company's hotels.
S-5
<PAGE> 6
RECENT DEVELOPMENTS
1996 OPERATING RESULTS
On January 22, 1997, the Company announced its results of operations for
the quarter and year ended December 31, 1996. The following sets forth the
announced results for the fiscal quarters and years ended December 31, 1995 and
December 31, 1996.
FELCOR SUITE HOTELS, INC.
RESULTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE AND UNIT DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE:
Percentage lease revenue(1).......................... $ 6,300 $25,302 $23,787 $97,950
Other revenue........................................ 1,259 47 1,691 984
Income from unconsolidated subsidiaries.............. 270 598 513 2,010
------- ------- ------- -------
Total revenue................................ 7,829 25,947 25,991 100,944
------- ------- ------- -------
EXPENSES:
General and administrative........................... 230 512 870 1,819
Depreciation......................................... 1,584 8,711 5,232 26,544
Taxes, insurance and other expenses.................. 808 4,038 2,563 13,897
Interest expense..................................... 947 3,530 2,004 9,803
Minority interest.................................... 739 970 3,131 5,590
------- ------- ------- -------
Total expenses............................... 4,308 17,761 13,800 57,653
------- ------- ------- -------
Net income before extraordinary charge............... 3,521 8,186 12,191 43,291
Extraordinary charge from write-off of deferred
financing fees.................................... 2,354
------- ------- ------- -------
Net income........................................... 3,521 8,186 12,191 40,937
Preferred dividends(2)............................... 2,949 7,734
------- ------- ------- -------
Net income available to common shareholders.......... $ 3,521 $ 5,237 $12,191 $33,203
======= ======= ======= =======
PER COMMON SHARE INFORMATION:
Net income applicable to common shareholders before
extraordinary charge.............................. $ 0.36 $ 0.22 $ 1.70 $ 1.54
Extraordinary charge................................. $ $ $ $ 0.10
------- ------- ------- -------
Net income(3)........................................ $ 0.36 $ 0.22 $ 1.70 $ 1.44
======= ======= ======= =======
Weighted average number of common shares
outstanding....................................... 9,867 23,502 7,165 23,076
FUNDS FROM OPERATIONS (FFO)
FFO available to common shares and units(4).......... $ 5,946 $15,758 $20,707 $69,407
Add preferred dividends.............................. 2,949 7,734
------- ------- ------- -------
FFO diluted for conversion of preferred stock........ $ 5,946 $18,707 $20,707 $77,141
======= ======= ======= =======
Weighted average number of common shares and units
outstanding....................................... 11,940 26,288 8,956 26,037
Weighted average number of common shares and units
outstanding, diluted for conversion of preferred
stock............................................. 11,940 30,978 8,956 29,164
FFO per common share and unit........................ $ 0.50 $ 0.60 $ 2.31 $ 2.67
FFO per common share and unit, diluted for conversion
of preferred stock................................ $ 0.50 $ 0.60 $ 2.31 $ 2.65
</TABLE>
See footnotes on following page
S-6
<PAGE> 7
- ---------------
(1) Represents lease payments from the Lessee to the Partnership calculated by
applying the rent provisions of the Percentage Leases to the historical
suite revenues at the Current Hotels. Also includes lease payments related
to food and beverage operations.
(2) Represents pro-rated dividends since April 30, 1996 on the 6,050,000 shares
of Series A Preferred Stock issued and outstanding.
(3) Net income per common share is computed by dividing net income available for
common shareholders by the weighted average number of common shares and
equivalents outstanding. Common share equivalents that have a dilutive
effect represent restricted shares issued to certain officers and
independent directors.
(4) Represents Funds From Operations of the Company, on a consolidated basis.
The following table computes Funds From Operations based on the National
Association of Real Estate Investment Trusts ("NAREIT") definition. Funds
From Operations consists of net income, computed in accordance with
generally accepted accounting principles, excluding gains or losses from
debt restructurings and sales of property, plus depreciation of real
property (including furniture and equipment) and added adjustments for
unconsolidated partnerships and joint ventures.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- ------------------
1995 1996 1995 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
Net income......................................... $3,521 $ 8,186 $12,191 $40,937
Less preferred dividends........................... 2,949 7,734
------ ------ ------- -------
3,521 5,237 12,191 33,203
Add:
Minority interest................................ 739 970 3,131 5,590
Depreciation..................................... 1,584 8,711 5,232 26,544
Depreciation for unconsolidated subsidiaries..... 102 840 153 1,716
Extraordinary charge from write off of deferred
financing fees................................ 2,354
------ ------ ------- -------
FFO available to common shares and units......... $5,946 $15,758 $20,707 $69,407
====== ====== ======= =======
</TABLE>
1996 OPERATING STATISTICS
The following table sets forth, with respect to the Company's original six
hotels ("Initial Hotels"), the seven hotels acquired by it from December 1994
through August 1995 ("Pre-CSS Hotels"), the combined Initial Hotels and Pre-CSS
Hotels ("Original Hotels"), the 18 CSS Hotels acquired in late 1995 and early
1996, the 12 other hotels acquired by the Company through December 1996 ("1996
Acquisitions"), and all 43 of the Current Hotels as a group, information with
respect to the occupancy percentages, average daily room rate ("ADR") and
revenue per available room or suite ("RevPAR") during the periods presented,
whether or not such hotels were owned by the Company throughout such periods.
FELCOR SUITE HOTELS, INC.
PERFORMANCE STATISTICS
<TABLE>
<CAPTION>
FOURTH QUARTER 1995 FOURTH QUARTER 1996 CHANGE FROM PRIOR PERIOD
--------------------------- --------------------------- ---------------------------
OCC% ADR $ REVPAR $ OCC% ADR $ REVPAR $ OCC% ADR REVPAR
---- ------- -------- ---- ------- -------- ---------- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Hotels.......... 72.2% $ 97.78 $70.55 74.2% $104.69 $77.63 2.0 Pts 7.1% 10.0%
Pre-CSS Hotels.......... 70.0 97.37 68.13 71.1 105.55 75.09 1.1 Pts 8.4 10.2
Original Hotels......... 71.2 97.59 69.45 72.8 105.07 76.46 1.6 Pts 7.7 10.1
CSS Hotels.............. 65.3 96.93 63.28 66.0 103.64 68.42 0.7 Pts 6.9 8.1
1996 Acquisitions....... 71.0 102.93 73.05 68.5 107.66 73.71 (2.5) Pts 4.6 0.9
Total Current
Hotels........ 68.4% $ 98.84 $67.65 68.5% $105.17 $72.06 0.1 Pts 6.4% 6.5%
</TABLE>
S-7
<PAGE> 8
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1996 CHANGE FROM PRIOR PERIOD
--------------------------- --------------------------- --------------------------
OCC% ADR $ REVPAR $ OCC% ADR $ REVPAR $ OCC% ADR REVPAR
---- ------- -------- ---- ------- -------- --------- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Hotels........... 76.1% $ 97.27 $74.02 77.5% $103.73 $80.43 1.4 Pts 6.6% 8.7%
Pre-CSS Hotels........... 74.1 94.40 69.96 75.3 101.71 76.55 1.2 Pts 7.7 9.4
Original Hotels.......... 75.2 95.98 72.17 76.5 102.82 78.65 1.3 Pts 7.1 9.0
CSS Hotels............... 69.6 97.75 68.01 67.8 103.31 70.05 (1.8) Pts 5.7 3.0
1996 Acquisitions........ 75.2 104.51 78.56 73.0 111.54 81.46 (2.2) Pts 6.7 3.7
Total Current
Hotels......... 72.6% $ 99.20 $72.05 71.6% $105.50 $75.52 (1.0) Pts 6.3% 4.8%
</TABLE>
During the fourth quarter of 1996, the Company realized an increase in
RevPAR from $67.65 to $72.06, an increase of 6.5% over the prior year period and
for the full year 1996 realized an increase in RevPAR from $72.05 to $75.52, an
increase of 4.8% over the prior year. These increases in RevPAR were achieved
during a period when the Company had a significant number of suites taken out of
service in connection with the renovation of the CSS Hotels and nearly half of
the 1996 Acquisition hotels. During the fourth quarter of 1996, the Company had
more than 60,000 suite nights out of service for renovations and for the full
year 1996 had an aggregate of approximately 175,000 suite nights out of service
because of renovations. The number of suites out of service for renovation
represented approximately 6.5% of the Company's total available suite inventory
during the fourth quarter of 1996 and approximately 5.5% of total available
suite inventory during the full year 1996. With the exception of a limited
number of suites to be completed at three CSS Hotels during the first quarter of
1997, all suites in the CSS Hotel portfolio are expected to be in service
throughout the current year.
The Original Hotels realized increases in RevPAR during the fourth quarter,
as compared to the same period of 1995, of approximately 10.1%, from $69.45 to
$76.46, and during the full year 1996, as compared to 1995, of approximately
9.0%, from $72.17 to $78.65. The CSS Hotels, as a group, realized increases in
RevPAR, over the comparable periods of 1995, of 8.1% during the fourth quarter
and of 3.0% for the full year. However, the ten CSS Hotels that had been
completely renovated and converted to the Embassy Suites brand by early in the
1996 fourth quarter realized RevPAR increases, over the same period of 1995, of
more than 15%.
RECENT ACQUISITIONS
Atlanta (Buckhead), Georgia. The Company acquired the 317-suite Atlanta
(Buckhead) Embassy Suites hotel on October 17, 1996 for a cash purchase price of
approximately $48.5 million. This 16-story hotel, which was opened in 1988, is
located in the upscale Buckhead area just north of downtown Atlanta. The hotel
will continue to be operated as an Embassy Suites hotel and will continue to be
managed by Promus. The Company anticipates spending less than $1 million during
1997 on minor renovations to this hotel.
Myrtle Beach (Kingston Plantation), South Carolina. On December 5, 1996,
the Company completed the purchase of the Kingston Plantation resort in Myrtle
Beach, South Carolina. The resort property included a 255-suite hotel and
conference center and a sports and health club which were purchased for a cash
purchase price of approximately $29 million. In addition, through entities
formed jointly by the Company and Promus, the Company acquired the management
rights with respect to approximately 450 of the 917 condominium units adjacent
to the hotel and approximately 14 acres of undeveloped land for an aggregate
cash purchase price of approximately $30 million. This 20-story hotel is located
on the beachfront in the resort area of Myrtle Beach. The hotel is currently
operated under its original brand and is expected to be converted to an Embassy
Suites hotel upon the completion of significant renovations to the guest suites
and building exterior later in 1997. The currently anticipated cost of such
renovations is approximately $5 million.
PENDING ACQUISITIONS
Acquisition Hotels.
The Company has entered into agreements pursuant to which it expects to
acquire the Acquisition Hotels from affiliates of the General Electric Pension
Trust or joint ventures between such affiliates and Promus. The Acquisition
Hotels consist of ten hotels located in nine states with an aggregate of 2,342
suites. The purchase of the Acquisition Hotels includes the purchase of an
approximately 50% equity interest in each of eight joint
S-8
<PAGE> 9
ventures, each of which owns a single hotel, and the purchase of a direct 100%
interest in two hotels. A 50% interest in each of such joint ventures will
continue to be owned by Promus, resulting in a total of 11 hotels owned by joint
ventures between Promus and the Company.
The joint venture interests will be acquired for an aggregate purchase
price of approximately $100 million, consisting of approximately $57 million in
cash and the assumption of approximately $43 million of non-recourse first
mortgage indebtedness, which constitutes the Company's pro rata portion of such
indebtedness. Each of the eight hotels owned by these joint ventures is and will
continue to be operated as an Embassy Suites hotel. Only minor renovations are
believed to be required at these hotels, with the anticipation that an aggregate
of approximately $4 million will be spent by the joint ventures (with
approximately $2 million being provided by the Company) on renovations in excess
of normal capital replacements approximating 4% of suite revenues annually,
during the next 12 to 18 months.
The following sets forth a brief description of each of these eight hotels
which the Company expects to acquire:
<TABLE>
<S> <C>
Atlanta (Perimeter Center), Georgia........... This ten-story, 241-suite hotel is located in
the Perimeter Office Park in Atlanta, Georgia.
The hotel opened in 1985.
Austin (Airport North), Texas................. This ten-story, 261-suite hotel is located near
Austin's Robert Mueller Airport, currently the
principal airport in Austin, Texas. The hotel
opened in 1984.
Covina, California............................ This three-story, 264-suite hotel is located in
Covina, California, near Ontario International
Airport. The hotel opened in 1980.
Kansas City (Country Club Plaza), Missouri.... This 12-story, 266-suite hotel is located
adjacent to the Country Club Plaza in Kansas
City, Missouri. This hotel, which was opened in
1976, is situated upon land leased under a
ground lease expiring in 2023, under which the
ground lessor has an option, exercisable in
2002, to purchase the hotel at its fair market
value.
Kansas City (Overland Park), Kansas........... This seven-story, 199-suite hotel is located in
Overland Park, Kansas, a suburb of Kansas City,
Missouri. The hotel opened in 1983.
Raleigh, North Carolina....................... This nine-story, 225-suite hotel is located in
Raleigh, North Carolina. The hotel opened in
1987.
San Antonio (Northwest), Texas................ This eight-story, 217-suite hotel is located
near the intersection of Interstate Highways 10
and 410 (West) in San Antonio, Texas. This
hotel, which was opened in 1979, is situated
upon land leased under a ground lease expiring
in 2030, but under which lease the lessee has a
fair market purchase option on the land
exercisable in 2011.
Secaucus, New Jersey.......................... This nine-story, 261-suite hotel is located in
the Plaza in the Meadows in the Meadowlands area
of Secaucus, New Jersey. This hotel, which was
opened in 1986, is leased under a lease expiring
in 2011, but under which lease the lessee has
two consecutive ten-year renewal options.
</TABLE>
The two hotels in which the Company expects to acquire a direct 100%
ownership will be acquired from two joint ventures between affiliates of the
General Electric Pension Trust and Promus for an aggregate cash purchase price
of approximately $39 million. The Company believes that these hotels will
achieve maximum results through repositioning within their respective markets
and it expects to convert these hotels into Doubletree Guest Suites hotels,
bringing to four the number of the Company's hotels operated under this
S-9
<PAGE> 10
brand. The Company has entered into a letter of intent with a subsidiary of
Doubletree Hotel Corporation to manage these hotels, under which the manager
will pay certain of the costs of converting these hotels to the Doubletree Guest
Suites brand (which is to be accomplished over a 60- to 90-day period following
the purchase) and may be obligated to make payments to the Lessee and/or
subordinate certain of their fees to assure that these hotels achieve specified
levels of performance during the first three years of operation.
The following sets forth a brief description of each of these two hotels
which the Company expects to acquire:
<TABLE>
<S> <C>
Bloomington, Minnesota........................ This eight-story, 219-suite hotel is located in
Bloomington, Minnesota. The hotel opened in
1980.
Omaha, Nebraska............................... This six-story, 189-suite hotel is located in
Omaha, Nebraska. The hotel opened in 1973.
</TABLE>
Other Potential Hotel Transactions.
Although no definitive agreements have been entered into with respect
thereto, the Company is in various stages of negotiation with respect to the
acquisition of interests in six additional hotels and fee ownership of the land
underlying one of the Company's Current Hotels that is subject to a ground
lease. The aggregate currently anticipated net investment required for these
transactions, if completed, would be between $75 and $100 million. Although the
Company has entered into non-binding letters of intent with respect to certain
of these properties, no assurance can be given that the Company will be
successful in acquiring any or all of such properties. In addition, the Company
is in the early stages of evaluating a number of other available hotel
transactions which, if the Company were to elect to pursue all of such
transactions, would require additional investments by the Company of more than
$200 million. Due to the preliminary status of such purchase negotiations and
evaluations, no assurance can be given that the Company will elect to pursue, or
succeed in the acquisition of, any of these other hotel transactions.
PROPOSED INCREASE IN LINE OF CREDIT
The Company presently has a $250 million unsecured revolving credit
facility co-arranged through The Chase Manhattan Bank and Wells Fargo Bank,
National Association ("Line of Credit"), of which approximately $115 million had
been borrowed at December 31, 1996 to fund the acquisition, upgrading and
conversion of hotels. The Company has received a written proposal from its
lenders to increase the limits of permitted borrowings thereunder to $400
million to provide the Company with greater capacity to pursue potential
acquisition opportunities and to fund additions and renovations at its existing
and acquired hotels. No assurance can be given that any such increase will be
obtained.
ADDITIONS TO SENIOR MANAGEMENT
During 1996, the Company added two new senior executive officers to its
management team, each of whom is briefly described below:
William S. McCalmont (age 41) has served as Senior Vice President, Chief
Financial Officer and Treasurer of the Company since August 1996. For
approximately 12 years prior to joining the Company, Mr. McCalmont had been
employed in various positions with The Promus Companies Incorporated and with
Harrah's Entertainment, Inc., which was created as a result of the spin-off of
Promus Hotel Corporation. During his 12-year career with these companies, Mr.
McCalmont served in various management positions in finance at the Embassy
Suites Hotel division, was Director of Finance, Corporate Director of Asset
Management and Project Finance and Vice President and Treasurer of its parent,
and most recently served as the Vice President and Treasurer of Harrah's.
Lawrence D. Robinson (age 53) has served as Senior Vice President, General
Counsel and Secretary of the Company since May 1996. From 1972 to 1989, Mr.
Robinson was a partner in the Kansas City based law firm of Stinson, Mag &
Fizzell, for which he founded and managed a Dallas, Texas office from 1982 to
1989. From 1989 through April 1996, Mr. Robinson was a partner in the Houston
based law firm of Bracewell &
S-10
<PAGE> 11
Patterson, L.L.P., where he served as the managing partner of its Dallas office
until 1992, as the head of that office's corporate and securities law section
and as chairman of its firm-wide hospitality group. Mr. Robinson continues to
maintain an "of counsel" relationship with that firm.
CAPITALIZATION OF LESSEE
With respect to the Acquisition Hotels and certain other hotels to be
acquired by the Company, the Company intends to lease such hotels to a
newly-formed subsidiary of the Lessee. The new subsidiary initially will be
capitalized by the assignment and contribution by the Lessee to such subsidiary
of the Percentage Leases relating to the seven most recently acquired hotels and
shall be restricted in making distributions until its net worth reaches certain
specified levels. In addition, entities controlled by Messrs. Feldman and
Corcoran have entered into an agreement with such new subsidiary pursuant to
which they have agreed to provide up to $ million in additional capital to the
subsidiary Lessee to the extent required to enable it to pay, when due, all
obligations to the Company under the Percentage Leases. In connection with such
agreement, Messrs. Feldman and Corcoran have agreed not to permit such entities
to sell or otherwise dispose of or encumber certain of the Units controlled by
them until the subsidiary attains certain specified levels of net worth or
receives alternate sources of capital, at which time specified amounts of Units
may be released from this negative pledge obligation.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby (based upon an assumed offering price of $36 3/8,
the last reported sale price on January 21, 1996) will be approximately $103.2
million ($118.7 million if the over-allotment option is fully exercised). The
Company will contribute the net proceeds of the Offering to the Partnership, and
after such contribution, will own an approximately 90.5% general partner
interest in the Partnership (90.6% if the over-allotment option is fully
exercised). The Partnership intends to use such net proceeds primarily to fund
the purchase price of the Acquisition Hotels and for general corporate purposes.
Pending such use, or in the event any of the Acquisition Hotels are not
acquired, the net proceeds may be temporarily applied to reduce indebtedness
under the Line of Credit.
At December 31, 1996, the Company had approximately $240 million of
indebtedness outstanding, including $115 million under its $250 million Line of
Credit, substantially all of which had been borrowed to fund the acquisition,
upgrading and conversion of hotels. The outstanding balance under the Line of
Credit bears interest at LIBOR plus 1.75% (7.27% at December 31, 1996). Amounts
outstanding under the Line of Credit will be payable in full during October
1999, unless otherwise extended by the lenders. The Company has received a
proposal from its lenders under the Line of Credit to increase the availability
thereunder to $400 million. No assurance can be given that any such increase
will be obtained.
S-11
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION POLICY
The Common Stock is currently listed on the NYSE under the symbol "FCH."
Prior to March 13, 1996, the Common Stock had been traded on The Nasdaq Stock
Market under the symbol "FLCO." The following table sets forth for the indicated
periods the reported high and low sale prices for the Common Stock and the cash
distributions declared per share:
<TABLE>
<CAPTION>
CASH
PRICE RANGE DISTRIBUTIONS
------------ DECLARED PER
HIGH LOW COMMON SHARE
---- ---- ------------
<S> <C> <C> <C>
CALENDAR 1995
First Quarter......................................... $24 1/4 $18 1/2 $ 0.46
Second Quarter........................................ 27 22 3/4 0.46
Third Quarter......................................... 30 24 5/8 0.46
Fourth Quarter........................................ 31 3/4 24 3/4 0.46
CALENDAR 1996
First Quarter......................................... $ 32 $27 1/8 $ 0.46
Second Quarter........................................ 31 5/8 28 1/2 0.46
Third Quarter......................................... 32 1/2 27 3/4 0.50
Fourth Quarter........................................ 36 3/4 30 3/8 0.50
CALENDAR 1997
First Quarter (through January 21).................... 36 7/8 34 3/4 --
</TABLE>
On January 21, 1997, the last sale price of the Common Stock as reported on
the NYSE was $36 3/8 per share.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its shareholders of at least 95% of its taxable income
(which does not include net capital gains). With respect to the year ended
December 31, 1996, the Company's distributions will total $1.92 per share of
Common Stock, of which approximately $1.63 per share would be required to
satisfy the 95% distribution test for maintaining its qualification as a REIT.
For the year ended December 31, 1995, the Company had distributions totaling
$1.84 per share, of which only $1.60 per share was required to satisfy the 95%
REIT distribution test. Under certain circumstances the Company may be required
to make distributions in excess of cash available for distribution in order to
meet such 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 retain
its qualification as a REIT for federal income tax purposes.
The Company currently anticipates that it will continue the payment of
regular quarterly dividends at the current dividend 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 the
Company and will depend on the actual cash flow of the Company, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code and such other factors as the Board
of Directors of the Company deems relevant. For a discussion of the tax
treatment of distributions to holders of shares of Common Stock, see "Federal
Income Tax Considerations" in the accompanying Prospectus.
To the extent that cash flow from operations are insufficient during any
quarter, due to temporary or seasonal fluctuations in Percentage Lease revenue,
the Company expects to utilize other cash on hand or borrowings under the Line
of Credit to make such distributions. The Company's use of the Line of Credit
for working capital, distributions and general corporate purposes is limited to
10% of the amount available under the Line of Credit. No assurance can be given,
however, that the Company will make distributions in the future at the current
rate, or at all.
The provisions of the Series A Preferred Stock prohibit the declaration and
payment of distributions on the Common Stock unless full cumulative dividends on
the Series A Preferred Stock have been or contemporaneously are declared and
paid or set aside for payment. All preferred dividends on the Series A
S-12
<PAGE> 13
Preferred Stock are current. In addition, the terms of the Company's debt
instruments, under which the Company had borrowed an aggregate of approximately
$240 million at December 31, 1996, further restrict the Company's ability to
make distributions with respect to its capital stock, although the Company would
be permitted, in any event, to make distributions in amounts necessary to
maintain its status as a REIT.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Prospectus Supplement and the accompanying Prospectus
include forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be achieved.
Important factors that could cause actual results to differ materially from the
Company's current expectations are disclosed under "Risk Factors" herein and in
the accompanying Prospectus and in conjunction with the forward looking
statements included herein (the "Cautionary Disclosures"). All written and oral
forward looking statements attributable to the Company or persons acting on its
behalf, whether contained or incorporated by reference in this Prospectus
Supplement or the accompanying Prospectus, or subsequently made, are expressly
qualified in their entirety by the Cautionary Disclosures.
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement, dated the date hereof, Smith Barney Inc., Alex. Brown & Sons
Incorporated, Dean Witter Reynolds Inc. and Montgomery Securities
("Underwriters"), have severally agreed to purchase from the Company, and the
Company has agreed to sell to such Underwriters, the numbers of shares of Common
Stock set forth opposite the respective names of such Underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc....................................
Alex. Brown & Sons Incorporated.....................
Dean Witter Reynolds Inc. ..........................
Montgomery Securities...............................
---------
Total..................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all of the shares of Common
Stock offered (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. is acting as the
Representative, propose to offer part of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus
Supplement and part of the shares to certain dealers at a price which represents
a concession not to exceed $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial
public offering, the public offering price, concessions and reallowances to
dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to 450,000
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus Supplement minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of
S-13
<PAGE> 14
such additional shares as the number of shares set forth opposite each
Underwriter's name in the preceding table bears to the total number of shares
listed in such table.
The Company and Messrs. Feldman, Corcoran and Mathewson, and certain of
their affiliates, have agreed that they will not, directly or indirectly, offer,
sell, contract to sell or otherwise dispose of any Common Stock or any security
convertible into or exchangeable for Common Stock prior to the expiration of 90
days from the date hereof, without the prior written consent of the
Underwriters.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bracewell & Patterson, L.L.P., Dallas, Texas. In
addition, the description of federal income tax consequences contained in the
section of the Prospectus entitled "Federal Income Tax Considerations" is based
on the opinion of Bracewell & Patterson, L.L.P. Lawrence D. Robinson, the Senior
Vice President, General Counsel and Secretary of the Company, maintains an "of
counsel" relationship with Bracewell & Patterson, L.L.P. The validity of the
shares of Common Stock offered hereby will be passed upon for the Underwriters
by King & Spalding, Atlanta, Georgia. Bracewell & Patterson, L.L.P. and King &
Spalding will rely on the opinion of Miles & Stockbridge, a Professional
Corporation, Baltimore, Maryland, with respect to all matters involving Maryland
law.
S-14
<PAGE> 15
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company........................... S-3
The Offering.......................... S-4
Risk Factors.......................... S-4
Recent Developments................... S-6
Use of Proceeds....................... S-11
Price Range of Common Stock and
Distribution Policy................. S-12
Disclosure Regarding Forward Looking
Statements.......................... S-13
Underwriting.......................... S-13
Legal Matters......................... S-14
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 15
Ratio of Earnings to Fixed Charges.... 16
Distribution Policy................... 16
Description of Debt Securities........ 16
Description of Preferred Stock........ 28
Description of Common Stock........... 34
Description of Common Stock
Warrants............................ 34
Certain Charter, Bylaw and Statutory
Provisions.......................... 35
Partnership Agreement................. 39
Federal Income Tax Considerations..... 42
Plan of Distribution.................. 57
Legal Matters......................... 58
Experts............................... 58
</TABLE>
================================================================================
================================================================================
3,000,000 SHARES
[LOGO]
F E L C O R S U I T E H O T E L S , I N C .
COMMON STOCK
------------
PROSPECTUS SUPPLEMENT
January , 1997
------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
================================================================================
