<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 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 0-24250
FELCOR SUITE HOTELS, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 72-2541756
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
(972) 444-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and 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 (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- ------
The number of shares of Common Stock, par value $.01 per share, of
FelCor Suite Hotels, Inc. outstanding on May 11, 1998 was 36,592,325.
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<PAGE> 2
FELCOR SUITE HOTELS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. -- FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements.............................................................................. 3
FELCOR SUITE HOTELS, INC.
Consolidated Balance Sheets - March 31, 1998 (Unaudited)
and December 31, 1997..................................................................... 3
Consolidated Statements of Operations -- For the Three Months
Ended March 31, 1998 and 1997 (Unaudited)................................................. 4
Consolidated Statements of Cash Flows -- For the Three Months
Ended March 31, 1998 and 1997 (Unaudited)................................................. 5
Notes to Consolidated Financial Statements..................................................... 6
DJONT OPERATIONS, L.L.C.
Consolidated Balance Sheets - March 31, 1998 (Unaudited)
and December 31, 1997..................................................................... 12
Consolidated Statements of Operations -- For the Three Months
Ended March 31, 1998 and 1997 (Unaudited)................................................. 13
Consolidated Statements of Cash Flows -- For the Three Months
Ended March 31, 1998 and 1997 (Unaudited)................................................. 14
Notes to Consolidated Financial Statements..................................................... 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 17
General/First Quarter Highlights............................................................... 17
Pending Merger with Bristol.................................................................... 18
Recent Developments............................................................................ 18
Results of Operations.......................................................................... 19
Liquidity and Capital Resources................................................................ 24
PART II. -- OTHER INFORMATION
Item 2. Changes in Securities............................................................................. 27
Item 5. Other Information................................................................................. 27
Item 6. Exhibits And Reports on Form 8-K.................................................................. 27
Signatures...................................................................................................... 28
</TABLE>
2
<PAGE> 3
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FELCOR SUITE HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of $103,194
and $87,400 at March 31, 1998 and December 31, 1997, respectively................ $1,514,639 $1,489,764
Investment in unconsolidated entities............................................... 118,069 132,991
Cash and cash equivalents........................................................... 25,733 17,543
Due from Lessee..................................................................... 33,815 18,908
Deferred expenses, net of accumulated amortization of $2,316
and $1,987 at March 31, 1998 and December 31, 1997................................ 10,105 10,593
Other assets........................................................................ 6,475 3,565
---------- -----------
Total assets............................................................. $1,708,836 $ 1,673,364
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt, net of discount of $1,798 and $1,855 at March 31, 1998
and December 31, 1997, respectively.............................................. $ 484,183 $ 465,726
Distributions payable............................................................... 24,747 24,671
Accrued expenses and other liabilities.............................................. 24,159 11,331
Capital lease obligations........................................................... 10,517 11,093
Minority interest in Operating Partnership, 3,031 and 2,900 units issued and
outstanding at March 31, 1998 and December 31, 1997, respectively......... 76,792 73,451
Minority interest in other partnerships............................................. 10,162 8,594
---------- -----------
Total liabilities........................................................ 630,560 594,866
---------- -----------
Commitments and contingencies (Note 3 and 4)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized, 6,050 shares
issued and outstanding......................................................... 151,250 151,250
Common stock, $.01 par value, 100,000 shares authorized, 37,804 and
37,802 shares issued, including shares in treasury, at March 31, 1998
and December 31, 1997, respectively............................................ 378 378
Additional paid in capital.......................................................... 1,005,011 1,003,501
Unearned officers' and directors' compensation...................................... (1,355) (1,754)
Distributions in excess of earnings................................................. (35,902) (33,771)
---------- -----------
1,119,382 1,119,604
Less common stock in treasury at cost, 1,213 shares................................. (41,106) (41,106)
---------- -----------
Total shareholders' equity............................................... 1,078,276 1,078,498
---------- -----------
Total liabilities and shareholders' equity............................... $1,708,836 $ 1,673,364
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------- --------
<S> <C> <C>
Revenues:
Percentage lease revenue ....................................................... $ 56,060 $ 35,370
Equity in income from unconsolidated entities .................................. 1,293 1,127
Other revenue .................................................................. 175 95
-------- --------
Total revenue ......................................................... 57,528 36,592
-------- --------
Expenses:
General and administrative ..................................................... 1,199 972
Depreciation ................................................................... 15,887 10,417
Taxes, insurance and other ..................................................... 7,270 5,207
Interest expense ............................................................... 9,731 5,601
Minority interest in Operating Partnership ..................................... 1,751 1,417
Minority interest in other partnerships ........................................ 190 21
-------- --------
Total expenses ........................................................ 36,028 23,635
-------- --------
Net income before extraordinary charge ........................................... 21,500 12,957
Extraordinary charge from write off of deferred financing fees .................. (556)
-------- --------
Net income ...................................................................... 20,944 12,957
Preferred dividends ............................................................. 2,949 2,949
-------- --------
Net income applicable to common shareholders .................................... $ 17,995 $ 10,008
======== ========
Per common share data:
Basic:
Net income applicable to common shareholders before extraordinary charge....... $ 0.51 $ 0.39
Extraordinary charge .......................................................... (0.02)
-------- --------
Net income applicable to common shareholders .................................. $ 0.49 $ 0.39
======== ========
Weighted average common shares outstanding .................................... 36,539 25,389
======== ========
Diluted:
Net income applicable to common shareholders before extraordinary charge....... $ 0.51 $ 0.39
Extraordinary charge .......................................................... (0.02)
-------- --------
Net income applicable to common shareholders .................................. $ 0.49 $ 0.39
======== ========
Weighted average common shares outstanding .................................... 36,905 25,749
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................................ $ 20,944 $ 12,957
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of acquisitions:
Depreciation ............................................................ 15,887 10,417
Amortization of deferred financing fees and organization costs .......... 628 319
Amortization of unearned officers' and directors' compensation .......... 191 232
Equity in income from unconsolidated entities ........................... (1,293) (1,127)
Extraordinary charge for write off of deferred financing fees ........... 556
Minority interest in Operating Partnership .............................. 1,751 1,417
Minority interest in other partnerships ................................. 190 21
Changes in assets and liabilities:
Due from Lessee ......................................................... (14,907) (10,104)
Deferred financing fees ................................................. (84) (787)
Deferred costs and other assets ......................................... (2,898) 245
Accrued expenses and other liabilities .................................. 12,212 (942)
--------- ---------
Net cash flow provided by operating activities ................ 33,177 12,648
--------- ---------
Cash flows from investing activities:
Acquisition of hotels ............................................................. (26,516) (151,644)
Acquisition of unconsolidated entities ............................................ (10) (57,756)
Improvements and additions to hotels .............................................. (5,227) (12,377)
Cash distributions from unconsolidated entities ................................... 14,510 580
--------- ---------
Net cash flow used in investing activities .................... (17,243) (221,197)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings .......................................................... 30,000 132,000
Repayment of borrowings ........................................................... (13,078) (4,900)
Proceeds from sale of common stock ................................................ 106,500
Costs associated with public offerings ............................................ (5,796)
Distributions paid to limited partners ............................................ (1,667) (1,383)
Distributions paid to preferred shareholders ...................................... (2,949) (2,949)
Distributions paid to common shareholders ......................................... (20,050) (11,759)
--------- ---------
Net cash flow provided by (used in) financing activities....... (7,744) 211,713
--------- ---------
Net change in cash and cash equivalents ..................................................... 8,190 3,164
Cash and cash equivalents at beginning of periods ........................................... 17,543 7,793
--------- ---------
Cash and cash equivalents at end of periods ................................................. $ 25,733 $ 10,957
========= =========
Supplemental cash flow information --
Interest paid ..................................................................... $ 9,320 $ 4,107
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS
FelCor Suite Hotels, Inc. ("FelCor") is a real estate investment trust
("REIT") which, at March 31, 1998, owned interests in 75 hotels with an
aggregate of 18,348 suites/rooms (collectively the "Hotels") through its 92.4%
general partner interest in FelCor Suites Limited Partnership (the "Operating
Partnership"). FelCor, the Operating Partnership and its subsidiaries, are
herein referred to, collectively, as the "Company". The Company owns 100% equity
interests in 56 of the Hotels (13,691 suites/rooms), a 90% or greater interest
in partnerships owning five hotels (1,195 suites/rooms), and 50% interests in
separate partnerships that own 14 hotels (3,462 suites/rooms). At March 31,
1998, 52 of the Hotels were operated as Embassy Suites(R)hotels, fourteen as
Doubletree Guest Suites(R) hotels, five as Sheraton(R) hotels, two as Sheraton
Suites(R) hotels, one was in the process of being converted to a full-service
Doubletree(R) hotel, and one as a Hilton Suites(R) hotel. The Hotels are located
in 28 states, with 31 hotels in California, Florida and Texas. The following
table provides certain information regarding the acquisition of Hotels through
March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF HOTELS NUMBER OF
ACQUIRED SUITES/ROOMS
---------------- ------------
<S> <C> <C>
1994 7 1,730
1995 13 2,649
1996 23 5,769
1997 30 7,608
1ST QUARTER 1998 2 348
------ ------
75 18,104
======
Additional suites/rooms constructed
by the Company 244
------
18,348
=======
</TABLE>
The Company leases all of the Hotels to DJONT Operations, L.L.C., a
Delaware limited liability company, ("DJONT"), or a consolidated subsidiary
thereof (collectively, the "Lessee"), under operating leases providing for the
payment of percentage rent (the "Percentage Leases"). Hervey A. Feldman and
Thomas J. Corcoran, Jr., the Chairman of the Board of Directors and Chief
Executive Officer of the Company, respectively, beneficially own a 50% voting
equity interest in the Lessee. The remaining 50% non-voting equity interest is
beneficially owned by the children of Charles N. Mathewson, a director of and
major initial investor in the Company. The Lessee has entered into management
agreements pursuant to which 65 of the Hotels are managed by Promus Hotel
Corporation ("Promus"), or by a subsidiary thereof, seven are managed directly
by, or by a subsidiary of, ITT Sheraton Corporation ("Sheraton") and three are
managed by two independent management companies. Promus is the largest operator
of all-suite, full service hotels in the United States.
A brief discussion of hotels acquired and other significant
transactions occurring in the first quarter of 1998 follows:
On January 15, 1998 the Company announced the closing of $114 million
of fixed rate nonrecourse secured debt by the partnerships owning nine Embassy
Suites hotels in which the Company and Promus each own a 50% unconsolidated
interest. The new debt carries a coupon of 6.988%, is payable in ten years and
amortizes over 25 years. The proceeds were used to repay higher interest rate
debt associated with the unconsolidated entities jointly owned with Promus and
to repay other corporate debt. The Company recorded an extraordinary charge of
$556,000 which was the Company's portion of the write off of deferred financing
fees associated with this refinancing of debt.
6
<PAGE> 7
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS -- (CONTINUED)
On February 6, 1998, the Company acquired the 194-suite Doubletree
Guest Suites hotel in Columbus, Ohio for approximately $19.1 million. The
purchase price includes $14.1 million in cash and approximately 134,000
Operating Partnership Units, each valued at $37.06. The hotel is managed by a
wholly owned subsidiary of Promus.
On February 17, 1998, the Company filed a $1 billion "omnibus" shelf
registration statement with the Securities and Exchange Commission. This
registration statement will enable the Company to effect offerings from time to
time up to an additional $1 billion in registered securities, which may include
debt securities, preferred stock, depositary shares, common stock and/or common
stock warrants.
On March 17, 1998, the Company completed an exchange offer for the
73/8% Senior Notes due 2004 and 75/8% Senior Notes due 2007 issued and sold on
October 1, 1997 in a transaction exempt from the registration requirements of
the Securities Act of 1933. The new notes exchanged for those notes are
identical in amount and terms, except the new notes have been registered under
the Securities Act pursuant to a registration statement declared effective on
February 10, 1998.
On March 20, 1998, the Company acquired, through a 90% owned
partnership, a 154-room hotel in Wilmington, Delaware for approximately $14.0
million, which is currently in the process of conversion to a Doubletree hotel.
The Company paid approximately $12.6 million for its 90% partnership interest
and Promus paid approximately $1.4 million for its 10% limited partnership
interest. Upon completion of an approximate $3.5 million renovation, this hotel
will be converted to a traditional Doubletree Hotel.
On March 23, 1998, FelCor entered into a Merger Agreement (the "Merger
Agreement") with Bristol Hotel Company ("Bristol") under which the owned and
leased hotel assets of Bristol will be merged with and into FelCor (the
"Merger"). As a consequence of the Merger, Bristol's stockholders will acquire
approximately 44% of the FelCor common stock outstanding immediately following
the Merger and FelCor's board of directors will be reconstituted. In
anticipation of the Merger, Bristol will spin-off (the "Spin-Off") its hotel
operating business as a separate public company named Bristol Hotels & Resorts
("BHR"). The Bristol hotels acquired in the Merger will be leased to BHR.
On March 31, 1998, the Company declared a first quarter dividend of
$0.55 per common share and unit and $0.4875 per share on its $1.95 Series A
Cumulative Preferred Stock to shareholders of record on April 15, 1998 and paid
on April 30, 1998.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the financial statements and notes thereto of
the Company and the Lessee included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (the "10-K"). The notes to the
financial statements included herein highlight significant changes to the notes
included in the 10-K and present interim disclosures required by the SEC. The
financial statements for the three months ended March 31, 1998 and 1997 are
unaudited; however, in the opinion of management, all adjustments (which include
only normal recurring accruals) have been made which are considered necessary to
present fairly the operating results and financial position of the Company for
the unaudited periods.
7
<PAGE> 8
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUPPLEMENTAL CASH FLOW INFORMATION
In the first quarter of 1998 the Company purchased certain assets and
assumed certain liabilities of hotels. These purchases were recorded under the
purchase method of accounting. The fair value of the acquired assets and
liabilities recorded at the date of acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired................................................. $32,868
Minority interest contribution to Operating Partnership......... (4,976)
Minority interest contribution to other partnerships............ (1,376)
-------
Net cash paid by the Company........................... $26,516
=======
</TABLE>
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS
At March 31, 1998 the Company owned interests in 52 Embassy Suites
hotels, 14 Doubletree Guest Suites hotels, five Sheraton hotels, two Sheraton
Suites hotels, one Hilton Suites hotel and one hotel in the process of
conversion to a Doubletree hotel. The Embassy Suites hotels, the Hilton Suites
hotels and one hotel in the process of conversion to a Doubletree hotel operate
pursuant to franchise license agreements which require the payment of fees based
on a percentage of suite/room revenue. These fees are paid by the Lessee. There
are no separate franchise license agreements with respect to the Doubletree
Guest Suites hotels, Sheraton hotels or Sheraton Suites hotels, which rights are
included in the management agreement.
The Lessee generally pays the Hotel managers a base management fee
based on a percentage of suite/room revenue and an incentive management fee
based on the Lessee's income before overhead expenses for each hotel. In certain
instances, the hotel managers have subordinated fees and committed to make
subordinated loans to the Lessee, if needed, to meet its rental and other
obligations under the Percentage Leases.
The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19
hotels), 2007 (14 hotels), 2008 (2 hotels) and 2012 (7 hotels). The Percentage
Leases for the 14 unconsolidated entities expire in 2005 (1 hotel), 2006 (4
hotels) and 2007 (9 hotels). The rental income under the Percentage Leases
between the 14 unconsolidated entities, of which the Company owns 50%, and the
Lessee are payable to the respective partnerships and as such is not included in
the following schedule of future lease commitments to the Company. Minimum
future rental income (i.e., base rents) to the Company under these
noncancellable operating leases at March 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1998 ............................ $ 85,517
1999 ......................................... 114,023
2000 ......................................... 114,023
2001 ......................................... 114,023
2002 ......................................... 114,022
2003 and thereafter........................... 515,437
----------
$1,057,045
==========
</TABLE>
8
<PAGE> 9
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
Messrs. Feldman and Corcoran, certain entities owning preferred
interests in the Lessee and the managers of certain of the Hotels have agreed to
make loans to the Lessee of up to an aggregate of approximately $17.0 million,
to the extent necessary to enable the Lessee to pay rent and other obligations
due under the respective Percentage Leases relating to a total of 37 of the
Hotels. No loans were outstanding under such agreements at March 31, 1998.
4. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt obligations at March 31, 1998 and December 31, 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
Senior unsecured notes, net of discount......................................... $298,202 $298,145
Line of Credit.................................................................. 153,000 136,000
Renovation loan ................................................................ 25,000 25,000
Collateralized mortgage note.................................................... 7,331 5,931
Other debt payable.............................................................. 650 650
-------- --------
$484,183 $465,726
======== ========
</TABLE>
Under its loan agreements the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at March 31, 1998.
Capital lease obligations at March 31, 1998 and December 31, 1997
consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Capital land and building lease obligations..................................... $ 9,239 $ 9,330
Capital equipment lease obligations............................................. 1,278 1,763
--------- ---------
$ 10,517 $ 11,093
========= =========
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
At March 31, 1998, the Company owned 50% interests in separate
partnerships or limited liability companies owning fourteen 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.
Summarized combined financial information for 100% of these
unconsolidated partnerships is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
Balance sheet information:
Investment in hotels, net of accumulated depreciation...................... $ 252,733 $256,032
Non-recourse mortgage debt................................................. $ 168,164 $138,956
Equity..................................................................... $ 93,932 $126,324
</TABLE>
9
<PAGE> 10
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 ,
----------------------------
1998 1997
--------- --------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue................................................... $ 12,347 $ 9,505
Other income............................................................... 160
--------- --------
Total revenue..................................................... 12,507 9,505
--------- --------
Expenses:
Depreciation.......................................................... 4,263 3,148
Taxes, insurance and other............................................ 1,567 1,388
Interest expense...................................................... 3,259 2,094
--------- --------
Total expenses.................................................... 9,089 6,630
--------- --------
Net income................................................................. $ 3,418 $ 2,875
========= ========
50% of net income attributable to the Company.............................. $ 1,709 $ 1,437
Amortization of cost in excess of book value............................... (416) (310)
--------- --------
Equity in income from unconsolidated entities.............................. $ 1,293 $ 1,127
========= ========
</TABLE>
6. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the three
months ended March 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Real estate and personal property taxes......................................... $6,566 $4,410
Property insurance.............................................................. 252 408
Land lease expense.............................................................. 227 249
State franchise taxes........................................................... 225 140
------ --------
Total taxes, insurance and other....................................... $7,270 $5,207
====== ======
</TABLE>
7. SUBSEQUENT EVENTS
Under the Merger Agreement FelCor has agreed to provide Bristol a $120
million interim credit facility (the "Interim Credit Facility"). Under the
Interim Credit Facility, FelCor will loan to Bristol (i) $40 million to fund a
portion of the cash purchase price and to prepay certain indebtedness assumed by
Bristol in connection with the acquisition of a 20 hotel portfolio, (ii) $31.2
million to fund the prepayment of $30 million in outstanding principal amount of
Bristol's Senior Secured Notes and a related prepayment premium, (iii) $9
million for general corporate purposes and (iv) additional cash for necessary
capital improvements. The Interim Credit Facility will be secured by real estate
acceptable to FelCor. If the Merger Agreement is terminated due to the failure
of FelCor's stockholders to approve the Merger, the Interim Credit Facility will
be converted into unsecured indebtedness of Bristol with a maturity of December
31, 2003; however, any loan balance in excess of $56.2 million will remain
secured and due 120 days after the termination of the Merger Agreement. At May
11, 1998 FelCor had advanced the entire $120 million to be provided by it under
the Interim Credit Facility.
10
<PAGE> 11
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SUBSEQUENT EVENTS -- (CONTINUED)
On April 14, 1998 the Company acquired the 248-room Doubletree hotel
located in Aurora, Colorado for approximately $24.2 million in cash.
Additionally, the Company has committed to spend approximately $2.0 million for
renovations at this hotel, which will be managed by a subsidiary of Promus.
On April 21, 1998 the Company announced its filing of a Form S-4
Registration Statement with the Securities and Exchange Commission ("SEC") to
register 32.4 million shares of the Company's common stock to be issued in
connection with the merger of the Company and Bristol, including shares issuable
pursuant to outstanding options. This registration statement contains the Joint
Proxy Statement/Prospectus which, when declared effective by the SEC, will be
used by the Company and Bristol in the solicitation of proxies for their Annual
Meetings of Shareholders, at which the proposed merger will be voted upon.
On April 30, 1998 the Company acquired the 301-room Meadowlands Hilton
hotel located in Secaucus, New Jersey for approximately $23.4 million in cash.
The hotel will be leased to a subsidiary of Bristol.
On May 1, 1998 the Company purchased eight hotels from Starwood Hotels
& Resorts ("Starwood") for an aggregate cash purchase price of approximately
$245 million. The hotels have a total of 1,898 suites/rooms and consist of five
Embassy Suites hotels (Phoenix (Airport), AZ; Tempe (ASU), AZ; Palm Desert
Resort, CA; Atlanta (Airport), GA and St. Louis (Downtown), MO) and three
Doubletree Guest Suites hotels DFW (Airport), TX; Ft. Lauderdale (Cypress
Creek), FL and Lexington, KY) located in seven states. Six of the eight hotels
are expected to be operated as Embassy Suites hotels and be managed by Promus.
The remaining two hotels are expected to operated as Sheraton Suites hotels and
will be continue to be managed by a subsidiary of Starwood.
On May 7, 1998 the Company sold 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, which may be called by
the Company 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 the Company. The Series B Preferred Stock has a liquidation preference of
$2,500 per share (equivalent to $25 per depositary share) and will be entitled
to annual dividends at the rate of 9% of the liquidation preference (equivalent
to $2.25 annually per depositary share). The net proceeds of approximately
$139.2 million were used primarily to reduce borrowings on the Company's $500
million unsecured revolving line of credit ("Line of Credit").
The Company has entered into negotiations with its lenders to increase
its existing $550 million Line of Credit to $1 billion and to provide a $200
million unsecured loan facility. The Company expects this to be completed by the
end of the second quarter.
11
<PAGE> 12
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents....................................................... $ 40,253 $ 25,684
Accounts receivable, net........................................................ 27,232 20,274
Inventories..................................................................... 3,457 3,466
Prepaid expenses................................................................ 974 1,307
Other assets.................................................................... 3,129 3,971
---------- ---------
Total assets.......................................................... $ 75,045 $ 54,702
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade......................................................... $ 6,395 $ 9,426
Accounts payable, other......................................................... 7,423 4,625
Due to FelCor Suite Hotels, Inc................................................. 33,815 18,908
Accrued expenses and other liabilities.......................................... 35,711 30,818
---------- ---------
Total liabilities..................................................... 83,344 63,777
---------- ----------
Commitments and contingencies (Note 2)
Shareholders' equity:
Capital......................................................................... 1 1
Distributions in excess of earnings............................................. (8,300) (9,076)
---------- ----------
Total shareholders' deficit........................................... (8,299) (9,075)
---------- ----------
Total liabilities and shareholders' equity............................ $ 75,045 $ 54,702
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
12
<PAGE> 13
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Revenue:
Suite/room revenue ........................ $143,284 $ 93,153
Food and beverage revenue ................. 15,264 4,028
Food and beverage rent .................... 1,173 965
Other revenue ............................. 11,368 7,069
-------- --------
Total revenues ..................... 171,089 105,215
-------- --------
Expenses:
Property operating costs and expenses.... 38,605 25,182
General and administrative .............. 12,308 7,166
Advertising and promotion ............... 11,839 6,846
Repair and maintenance .................. 7,987 4,904
Utilities ............................... 6,097 4,130
Management fee .......................... 5,548 2,446
Franchise fee ........................... 4,087 2,841
Food and beverage expenses .............. 13,513 3,865
Percentage lease expenses ............... 68,438 44,615
Lessee overhead expenses ................ 359 518
Liability insurance ..................... 266 719
Other ................................... 1,267 869
-------- --------
Total expenses ..................... 170,314 104,101
-------- --------
Net income ................................... $ 775 $ 1,114
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
13
<PAGE> 14
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 775 $ 1,114
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in assets and liabilities:
Accounts receivable ........................................ (6,958) (4,233)
Inventories ................................................ 9 (443)
Prepaid expenses ........................................... 333 (955)
Other assets ............................................... 842 (42)
Due to FelCor Suite Hotels, Inc. ........................... 14,907 10,104
Accounts payable, accrued expenses and other liabilities ... 4,661 16,723
---------- ----------
Net cash flow provided by operating activities ........ 14,569 22,268
---------- ----------
Net change in cash and cash equivalents .............................. 14,569 22,268
Cash and cash equivalents at beginning of periods .................... 25,684 5,208
---------- ----------
Cash and cash equivalents at end of periods .......................... $ 40,253 $ 27,476
========== ==========
</TABLE>
The accompany notes are an integral part of these consolidated
financial statements.
14
<PAGE> 15
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Hervey A. Feldman and Thomas J. Corcoran, Jr. who serve as directors
and officers of FelCor Suite Hotels, Inc. (the "Company") and as managers and
officers of DJONT Operations, L.L.C., a Delaware limited liability company
("DJONT") own all of the voting Class A membership interest in DJONT
(representing a 50% equity interest). All of the non-voting Class B membership
interest in DJONT (representing the remaining 50% equity interest) is owned by
RGC Leasing, Inc., a Nevada corporation owned by the children of Mr. Mathewson,
a director of and major initial investor in the Company. Each of the 75 hotels
in which FelCor Suites Limited Partnership (the "Operating Partnership") had an
ownership interest at March 31, 1998 (the "Hotels"), is leased to DJONT or a
consolidated subsidiary thereof (collectively, the "Lessee") pursuant to
percentage leases (the "Percentage Leases"). Messrs. Feldman and Corcoran,
certain entities owning preferred interests in the Lessee and the managers of
certain of the Hotels have agreed, directly or through their affiliates, to make
loans to the Lessee of up to an aggregate of approximately $17.0 million, to the
extent necessary to enable the Lessee to pay rent and other obligations due
under the respective Percentage Leases relating to a total of 37 of the Hotels.
Amounts so borrowed by the Lessee, if any, will subordinate in right of
repayment to the prior payment in full of rent and other obligations due under
the Percentage Leases relating to such Hotels. No loans were outstanding under
such agreements at March 31, 1998.
Messrs. Feldman and Corcoran 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
of the Company 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 from the
Company for a period of two years from the date of purchase. RGC Leasing, Inc.,
which owns the other 50% of DJONT, may elect to purchase common stock of the
Company or Operating Partnership Units upon similar terms, at its option. The
independent directors of the Company may suspend or terminate such agreement at
any time.
At March 31, 1998, 52 of the Hotels were operated as Embassy Suites
hotels, fourteen as Doubletree Guest Suites hotels, five as Sheraton hotels, two
as Sheraton Suites hotels, one was in the process of being converted to a
full-service Doubletree hotel and one as a Hilton Suites hotel. Sixty five of
the Hotels are managed by Promus Hotel Corporation ("Promus"), or a subsidiary
thereof. Of the remaining Hotels, seven are managed directly by, or by a
subsidiary of, ITT Sheraton Corporation ("Sheraton") and three are managed by
two independent management companies. Promus is the largest operator of
all-suite, full-service hotels in the United States.
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Lessee has future lease commitments under the Percentage Leases
which expire in 2004 (7 hotels), 2005 (13 hotels) 2006 (23 hotels), 2007 (23
hotels), 2008 (2 hotels) and 2012 (7 hotels). Minimum future rental payments
(i.e., base rents) under these noncancellable operating leases at March 31, 1998
is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
Remainder of 1998............................... $ 105,806
1999............................................ 141,074
2000............................................ 141,074
2001............................................ 141,074
2002............................................ 141,074
2003 and thereafter............................. 621,843
-----------
$ 1,291,945
===========
</TABLE>
15
<PAGE> 16
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Lessee typically pays a franchise fee ranging from 4% to 5% of
suite/room revenue, and marketing and reservation fees ranging from 1% to 3.5%
of suite/room 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 total revenues.
Incentive management fees generally are based upon the hotel's net income before
overhead and typically range from 50% to 100% subject to, in certain cases, a
maximum annual payment of between 2% and 3% of applicable hotel revenues in
addition to the base management fee. 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.
3. SUBSEQUENT EVENTS
On April 14, 1998, the Lessee and the Operating Partnership entered
into a ten year operating lease on the 248-room Doubletree hotel located in
Aurora, Colorado. On May 1, 1998, the Lessee and the Operating Partnership
entered into ten year operating leases with respect to the following eight
hotels located in Phoenix, AZ (2 hotels); Palm Desert, CA; Ft. Lauderdale, FL;
Atlanta, GA; Lexington, KY; St. Louis, MO; and Dallas, TX.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
For background information relating to the Company and the definitions
of certain capitalized terms used herein, reference is made to Note 1 of Notes
to Consolidated Financial Statements of FelCor Suite Hotels, Inc.
appearing elsewhere herein.
FIRST QUARTER HIGHLIGHTS:
o FFO of $41.7 million or $0.94 per share and unit for the quarter ended
March 31, 1998 sets a new quarterly record for the Company .
o Net income increased from $0.39 per diluted share to $0.49 per diluted
share, an increase of 26%.
o The Company's 58 comparable hotels, those owned at both March 31, 1998
and 1997, had a 6.7% revenue per available room ("RevPAR") increase
over the first quarter of 1997.
o On March 24, 1998, the Company announced the proposed acquisition,
through merger, of the 110 hotels owned or leased by Bristol. After the
Merger, the Company will have ownership interests in 195 hotels and an
anticipated market capitalization in excess of $4 billion. The Company
is currently the largest owner of Embassy Suites hotels. Upon the
closing of the Merger, the Company also will become the world's largest
owner of Holiday Hospitality branded hotels. The Merger currently is
expected to be consummated near the end of the second quarter of 1998.
o The Company acquired two hotels (one hotel in Wilmington, Delaware to
be converted to a Doubletree hotel and one Doubletree Guest Suites
hotel in Columbus, Ohio) during the first quarter representing a gross
investment of approximately $33.1 million.
o The Company completed the following capital market activities during
the first quarter of 1998:
o The partnerships owning nine Embassy Suites hotels, in which the
Company and Promus each own a 50% unconsolidated interest, placed
$114 million of fixed rate nonrecourse secured debt. The new debt
carries a coupon of 6.988%, is payable in 10 years and amortizes
over 25 years. The proceeds were utilized to repay higher interest
rate debt related to the joint venture hotels and to repay other
corporate debt.
o Filed an "omnibus" shelf registration statement allowing the
Company to issue up to $1.0 billion in registered securities which
may be customized to meet its capital needs and current market
conditions.
o Completed its exchange of $300 million of registered debt for
private placement debt, thereby becoming the first hotel REIT to
have issued public unsecured debt.
o The Company has entered into negotiations with its lenders to increase
its existing $550 million Line of Credit to $1 billion and to provide a
$200 million unsecured term loan facility. The Company expects this to
be completed by the end of the second quarter.
o The Company declared first quarter dividends of $0.55 per share on its
Common Stock and Operating Partnership Units and $0.4875 per share on
its Series A Cumulative Convertible Preferred Stock.
17
<PAGE> 18
PENDING MERGER WITH BRISTOL:
On March 24, 1998, the Company announced the proposed acquisition,
through merger, of 110 hotels owned or leased by Bristol. Bristol will spin-off
(the "Spin-Off") its hotel operating business as a separate public company named
Bristol Hotels & Resorts ("BHR"). Upon closing of the merger, the Company will
be the largest non-paired hotel REIT, and become the world's largest owner of
Holiday Hospitality branded hotels. The Bristol hotels acquired in the Merger
will be leased to BHR.
The proposed Merger with Bristol will provide the Company with a number
of advantages, such as (i) providing the Company with further diversification
into a new segment of the lodging industry, with a resulting increase in
acquisition and growth opportunities, (ii) making the Company the owner of the
largest number of Holiday Hospitality branded hotels (including the Crowne
Plaza(R) and Holiday Inn(R) brands, the latter of which is one of the most
recognized brand names in America), (iii) creating a new strategic alliance with
BHR, which will be the nation's largest operator of third party owned and
branded hotels, (iv) establishing an independent third party lessee for the
Bristol hotels acquired by the Company and (v) enhancing the Company's critical
mass and market presence. In addition, these benefits may be obtained without
impairing or diminishing the Company's long-standing relationship with Promus or
its more recent relationship with Sheraton.
Bristol is one of the largest owner/operators of full-service hotels in
the United States. Bristol's hotels are primarily full-service hotels that
operate in the mid-scale to upscale segments of the lodging industry. Bristol is
the largest franchisee of Holiday Hospitality branded hotels, including Crowne
Plaza, Holiday Inns and Holiday Inns Select(R) hotels, and also operates 19
hotels under other brands, including Hampton Inn(R), Courtyard by Marriott(R)
and Fairfield Inn(R). Bristol's hotels are located in 22 states and Canada, with
hotels concentrated in major metropolitan areas of the South, East, Southwest
and Pacific regions of the United States.
RECENT DEVELOPMENTS:
Acquisitions. On May 1, 1998 the Company purchased eight upscale
full-service, all-suite hotels from Starwood for an aggregate cash purchase
price of approximately $245 million. These hotels have a total of 1,898
suites/rooms and consist of five Embassy Suites hotels and three Doubletree
Guest Suites hotels located in seven states. Following the acquisition, six of
the eight hotels are expected to be operated as Embassy Suites hotels and be
managed by Promus. The two remaining hotels are expected to be operated as
Sheraton Suites hotels and will continue to be managed by a subsidiary of
Starwood.
On May 5, 1998 the Company announced the acquisition of the 301-room
Meadowlands Hilton hotel located in Secaucus, New Jersey for approximately $23.4
million in cash. The hotel will be leased to a subsidiary of Bristol.
Preferred Stock Offering. On May 7, 1998 the Company sold 5.75 million
depositary shares, representing 57,500 shares of Series B Preferred Stock, at
$25 per share. The Series B Preferred Stock and the corresponding depositary
shares, which may be called by the Company 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 the Company. The Series B Preferred Stock has a
liquidation preference of $2,500 per share (equivalent to $25 per depositary
share) and will be entitled to annual dividends at the rate of 9% of the
liquidation preference (equivalent to $2.25 annually per depositary share). The
net proceeds of approximately $139.2 million were used primarily to reduce
borrowings on the Line of Credit.
18
<PAGE> 19
RESULTS OF OPERATIONS
The Company
Three Months Ended March 31, 1998 and 1997
For the three months ended March 31, 1998 and 1997, the Company had
revenues of $57.5 million and $36.6 million, respectively, consisting primarily
of Percentage Lease revenues of $56.1 million and $35.4 million, respectively.
The increase in total revenue is primarily attributed to the Company's
acquisition and subsequent leasing pursuant to Percentage Leases, of interests
in 32 additional hotels since December 31, 1996.
Suite/room revenues for the 43 hotels which were owned for all of the
first quarter of 1998 and 1997 increased 10.6% for the quarter ended March 31,
1998 over the corresponding period in 1997 (an increase of $8.4 million).
Furthermore, RevPAR for these hotels increased 8.7% and average daily rate
("ADR") increased 8.0% to $127.43 in the first quarter of 1998 from $118.00 in
the same period in 1997.
Management believes that the hotels it acquires will generally
experience increases in suite/room revenue and RevPAR (and accordingly, provide
the Company with increases in Percentage Lease revenue) after completion of
renovation, upgrade and possible rebranding; however, as individual hotels
undergo such renovation and/or rebranding, their performance has been, and may
continue to be adversely affected by such temporary factors as suites/rooms out
of service and disruptions of hotel operations. (A more detailed discussion of
hotel suite/room revenue is contained in "The Hotels -- Actual" section of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Total expenses increased $12.4 million in the three months ended March
31, 1998, from $23.6 million to $36.0 million, compared to the same period in
1997. This increase resulted primarily from the additional hotels acquired in
1998 and 1997. Total expenses decreased as percentage of total revenue from
64.6% in the first quarter of 1997 to 62.6% in the same period of 1998. The
major components of total expenses are depreciation; taxes, insurance and other;
and interest expense.
Depreciation increased primarily as a result of the additional
properties acquired in 1997 and 1998 and the suite/room renovation projects
completed in 1997. As a percentage of total revenue depreciation decreased
nearly 1% in the first quarter of 1998 as compared to the same period in 1997,
from 28.5% to 27.6%.
Taxes, insurance and other increased $2.1 million primarily as a result
of the increased number of hotels owned. As a percentage of total revenue,
taxes, insurance and other decreased from 14.2% in 1997 to 12.6% in 1998. The
major components in this decrease are in real estate and personal property taxes
which decreased from 12.1% of total revenue in 1997 to 11.2% in 1998 and
property insurance which decreased from 1.1% of total revenue in 1997 to 0.4% in
1998. Aggressive insurance placement was responsible for the decrease in
insurance costs.
Interest expense increased as a percentage of total revenue from 15.3%
in the first quarter of 1997 to 16.9% in 1998. This increase in interest expense
is attributed to the increased use of debt to finance acquisitions and
renovations.
In the first quarter of 1998 the Company recorded an extraordinary
charge of $556,000 which was the Company's portion of the write off of deferred
financing fees associated with the refinancing of debt relating to nine hotels
owned by joint ventures with Promus.
The Company spent approximately $3.3 million on upgrading, renovating
and/or rebranding 19 hotels during the first quarter of 1998.
19
<PAGE> 20
Funds From Operations
The Company considers Funds From Operations to be a key measure of a
REIT's performance and should be considered along with, but not as an
alternative to, net income and cash flow as a measure of the Company's operating
performance and liquidity.
The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales of properties, plus; real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items related to
unconsolidated entities and joint ventures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds From
Operations in accordance with standards established by NAREIT which may not be
comparable to Funds From Operations reported by other REITs that do not define
the term in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. Funds From Operations
does not represent cash generated from operating activities determined by GAAP
and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company 's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
Funds From Operations may include funds that may not be available for
management's discretionary use due to functional requirements to conserve funds
for capital expenditures and property acquisitions, and other commitments and
uncertainties.
The following table details the computation of Funds From Operations (in
thousands, except per share and unit data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- -------
<S> <C> <C>
Funds From Operations (FFO):
Net income ...................................................... $20,944 $12,957
Add back:
Extraordinary charge from write off of deferred financing fees
from unconsolidated entities ............................... 556
Minority interest in Operating Partnership ................... 1,751 1,417
Depreciation ................................................. 15,887 10,417
Depreciation for unconsolidated entities ..................... 2,547 1,884
------- -------
FFO ............................................................. $41,685 $26,675
======= =======
FFO per common share and unit data:
FFO per common share and unit ................................... $ 0.94 $ 0.80
======= =======
Weighted average common shares and units outstanding (a) ........ 44,575 33,222
======= =======
</TABLE>
(a) Weighted average common shares and units are computed including
dilutive options, unvested restricted stock grants and assuming
conversion of preferred stock to common stock.
20
<PAGE> 21
Included in the Funds From Operations described above is the Company's
share of FFO from its interest in fourteen unconsolidated entities. The FFO
contribution from these unconsolidated entities was derived as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
Statement of operations information:
Percentage Lease revenue ............................................... $ 12,347 $ 9,505
Other income ........................................................... 160
-------- --------
Total revenue ........................................... 12,507 9,505
-------- --------
Expenses:
Depreciation ................................................... 4,263 3,148
Taxes, insurance and other ..................................... 1,567 1,388
Interest expense ............................................... 3,259 2,094
-------- --------
Total expenses .......................................... 9,089 6,630
-------- --------
Net income ............................................................. $ 3,418 $ 2,875
======== ========
50% of net income attributable to the Company .......................... $ 1,709 $ 1,437
Amortization of cost in excess of book value ............ (416) (310)
-------- --------
Income from unconsolidated entities .................................... 1,293 1,127
Add back: 50% of depreciation .......................................... 2,132 1,574
Amortization of cost in excess of book value........................... 416 310
-------- --------
FFO contribution of unconsolidated entities ............................ $ 3,841 $ 3,011
======== ========
</TABLE>
The Lessee
The Three Months Ended March 31, 1998 and 1997
Total revenues increased to $171.1 million in the first quarter of 1998
from $105.2 million in the first quarter of 1997, an increase of 62.6%. Total
revenues consisted primarily of suite/room revenue of $143.3 million and $93.2
million in the first quarter of 1998 and 1997, respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased to 75 hotels at March 31, 1998 from 58 hotels at
March 31, 1997. Suite/room revenues from the 43 hotels which were leased for all
of the three months ended March 31, 1998 and 1997 increased 10.6% or $8.4
million. The increase in revenues at these hotels is due primarily to
improvements in the percentage of occupied rooms ("Occupancy") and in average
daily room rates ("ADR") of 78.6% and $126.85, respectively, for the three
months ended March 31, 1998, as compared to the 77.7% and $117.65 for the three
months ended March 31, 1997.
The Lessee's income before Percentage Lease rent decreased as a
percentage of total revenues from 43.5% in the first quarter of 1997 to 40.5% in
the first quarter of 1998 primarily as a result of increased food and beverage
expenses as a percentage of total revenues of 7.8% in the first quarter of 1998
compared to 3.6% in the first quarter of 1997.
21
<PAGE> 22
The Hotels
The following table sets forth historical suite/room revenue and
percentage changes therein between the periods presented for the 75 hotels which
the Lessee operated at March 31, 1998. The following table also presents
comparative information with respect to Occupancy, ADR and RevPAR for the 13
Original Hotels, the 18 CSS Hotels, the 12 1996 Acquisitions, the 15 1997
Acquisitions acquired before March 31, 1997, the 15 1997 Acquisitions acquired
after March 31, 1997 and the two 1998 Acquisitions, regardless of ownership,
through March 31, 1998. Except as otherwise noted below, each of such hotels is
operated as an Embassy Suites hotel.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997 VARIANCE
----------- ----------- ------------
<S> <C> <C> <C>
Suite/room Revenue (in thousands):
Original Hotels (13) ......................................... $ 23,190 $ 20,873 11.1 %
CSS Hotels (18) .............................................. $ 41,246 $ 37,004 11.5 %
1996 Acquisitions (12) ....................................... $ 23,476 $ 21,618 8.6 %
Hotels owned at December 31, 1996 (43) ....................... $ 87,912 $ 79,495 10.6 %
1997 Acquisitions acquired before March 31, 1997 (15)......... $ 23,843 $ 23,885 (0.2)%
Total for hotels owned at both March 31, 1998
and 1997 (58) ............................................. $ 111,755 $ 103,379 8.1 %
1997 Acquisitions acquired after March 31, 1997 (15) ......... $ 30,686 $ 29,730 3.2 %
1998 Acquisitions (2) ........................................ $ 2,017 $ 2,008 0.4 %
Occupancy:
Original Hotels .............................................. 74.4% 75.2% (1.1)%
CSS Hotels ................................................... 74.8% 73.1% 2.3 %
1996 Acquisitions ............................................ 72.1% 72.2% (0.1)%
Hotels owned at December 31, 1996 ............................ 73.9% 73.4% 0.7 %
1997 Acquisitions acquired before March 31, 1997 ............. 68.5% 73.0% (6.2)%
Total for hotels owned at both March 31, 1998 and 1997........ 72.6% 73.3% (1.0)%
1997 Acquisitions acquired after March 31, 1997 .............. 71.0% 70.8% 0.3 %
1998 Acquisitions ............................................ 66.5% 68.8% (3.3)%
ADR:
Original Hotels .............................................. $ 117.69 $ 111.29 5.8 %
CSS Hotels ................................................... $ 132.95 $ 122.04 8.9 %
1996 Acquisitions ............................................ $ 128.56 $ 118.20 8.8 %
Hotels owned at December 31, 1996 ............................ $ 127.43 $ 118.00 8.0 %
1997 Acquisitions acquired before March 31, 1997 ............. $ 112.57 $ 105.73 6.5 %
Total for hotels owned at both March 31, 1998 and 1997........ $ 123.94 $ 114.92 7.8 %
1997 Acquisitions acquired after March 31, 1997 .............. $ 115.27 $ 112.09 2.8 %
1998 Acquisitions ............................................ $ 96.81 $ 93.19 3.9 %
RevPAR:
Original Hotels .............................................. $ 87.51 $ 83.72 4.5 %
CSS Hotels ................................................... $ 99.48 $ 89.22 11.5 %
1996 Acquisitions ............................................ $ 92.66 $ 85.35 8.6 %
Hotels owned at December 31, 1996 ............................ $ 94.23 $ 86.66 8.7 %
1997 Acquisitions acquired before March 31, 1997 ............. $ 77.06 $ 77.17 (0.1)%
Total for hotels owned at both March 31, 1998 and 1997........ $ 89.95 $ 84.27 6.7 %
1997 Acquisitions acquired after March 31, 1997 .............. $ 81.90 $ 79.37 3.2 %
1998 Acquisitions ............................................ $ 64.41 $ 64.12 0.5 %
</TABLE>
22
<PAGE> 23
ORIGINAL HOTELS: Flagstaff, AZ; Jacksonville, FL; Orlando
(North), FL; Orlando (South), FL; Brunswick, GA;
Chicago - Lombard, IL; New Orleans, LA; Boston -
Marlborough, MA; Tulsa, OK; Nashville, TN; Corpus
Christi, TX; Dallas (Love Field), TX; Dallas (Park
Central), TX.
CSS HOTELS: Birmingham, AL; Phoenix (Camelback), AZ;
Anaheim, CA; El Segundo (LAX South), CA; Milpitas,
CA; Napa, CA; Oxnard (Mandalay Beach), CA; San
Francisco (Airport North), CA; San Francisco (Airport
South), CA; Boca Raton, FL(1); Deerfield Beach, FL;
Ft. Lauderdale, FL; Miami, FL; Tampa (Busch Gardens),
FL(1); Baton Rouge, LA; Minneapolis (Airport), MN;
Minneapolis (Downtown), MN; St. Paul, MN.
1996 ACQUISITIONS: San Rafael (Marin County), CA; Avon (Beaver Creek),
CO; Boca Raton, FL; Atlanta (Buckhead), GA;
Deerfield, IL; Indianapolis (North), IN; Lexington,
KY(2); Charlotte, NC; Parsippany, NJ; Piscataway, NJ;
Cleveland, OH; Myrtle Beach (Kingston Plantation),
SC.
1997 ACQUISITIONS ACQUIRED BEFORE MARCH 31, 1997:
Covina, CA; Dana Point, CA(1); Los Angeles (LAX
North), CA; Atlanta (Perimeter Center), GA; Overland
Park, KS; Baltimore, MD(1); Troy, MI(1); Bloomington,
MN(1); Kansas City (Plaza), MO; Raleigh, NC; Omaha,
NE(1); Secaucus, NJ; Austin (Airport North), TX;
Austin (Downtown), TX(1); San Antonio (Northwest),
TX;
REMAINING 1997 ACQUISITIONS ACQUIRED AFTER MARCH 31, 1997:
Phoenix (Crescent), AZ(3); Lake Buena Vista (Disney
World), FL(1); Tampa (Rocky Point), FL(1); Atlanta
(Airport), GA(4); Atlanta (Galleria)(3), GA; Chicago
(O'Hare), IL(4); Raleigh/Durham, NC(1); Syracuse, NY;
Dayton, OH(1); Philadelphia (Society Hill), PA(3);
Nashville (Airport); TN(1), Dallas (Market Center),
TX; Dallas (Park Central), TX (3); San Antonio
(Airport), TX; Burlington, VT (3).
1998 ACQUISITIONS: Wilmington, DE(5); Columbus, OH(1).
(1) Operating as a Doubletree Guest Suites hotel.
(2) Operating as a Hilton Suites hotel.
(3) Operating as a Sheraton hotel.
(4) Operating as a Sheraton Suites hotel.
(5) In the process of conversion to a Doubletree hotel.
Comparison of The Hotels' Suite/Room Revenues for the Three Months Ended
March 31, 1998 and 1997
The Company owned 58 hotels at both March 31, 1998 and 1997, these
hotels experienced increased RevPAR of 6.7% for 1998 compared to 1997. Within
this group of 58 hotels are the Original Hotels, the CSS Hotels, the 1996
Acquisition Hotels and the 1997 Acquisition Hotels acquired through March 31,
1997.
The Original Hotels increased suite/room revenue by 11.1% for the three
months ended March 31, 1998 compared to 1997. ADR increased 5.8% to $117.69 and
occupancy declined 1.1% from 75.2% to 74.4%. This resulted in an increase in
RevPAR of 4.5% in the first quarter of 1998 over the first quarter of 1997.
Included in this group are two hotels that added suites/rooms since the first
quarter of 1997, Boston-Marlborough Embassy Suites (added 129 suites/rooms in
the second quarter of 1997) and Orlando North Embassy Suites (added 67
suites/rooms in the first quarter of 1998). These two hotels experienced 48.6%
increase in suite/room revenue over the same period in 1997. The continued
growth in revenues at these hotels is attributed to the strength of the markets
in which these hotels are located and aggressive rate management.
The CSS Hotels are made up of 18 former Crown Sterling Suites(R) Hotels
which the Company acquired in late 1995 and early 1996. The CSS Hotels increased
suite/room revenue by 11.5% for the three months ended March 31, 1998 compared
to 1997. Occupancy increased by 2.3% to 74.8% and ADR increased 8.9% to $132.95.
RevPAR increased 11.5% from $89.22 to $99.48 in the first quarter of 1998. The
strength of the improvements in the CSS Hotels is partially a result of the $54
million suite/room renovation program that was completed in the first quarter of
1997.
23
<PAGE> 24
The 1996 Acquisition Hotels had an 8.6% increase in suite/room revenue
for the three months ended March 31, 1998 compared to the corresponding period
in 1997. ADR increased 8.8% to $128.56 and occupancy declined 0.1% from 72.2% to
72.1%. RevPAR for the three months ended 1998 increased 8.6% as compared to the
corresponding period in 1997, ranging from a decrease at the Beaver Creek,
Colorado Embassy Suite hotel of 0.9% to an increase of 42.3% at the Piscataway,
New Jersey Embassy Suites hotel.
The 1997 Acquisition Hotels experienced suite/room revenue increases of
1.7% during the first quarter of 1998. Occupancy declined 2.7% from 71.8% to
69.9% while ADR increased 4.5% to $114.07. Included in the 1997 Acquisition
hotels are ten hotels which were undergoing renovation or had recently been
converted to a different brand. Excluding these ten hotels, the 1997
Acquisitions would have recorded an increase in revenue of 5.1%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to stockholders, is its share of the Operating
Partnership's cash flow from the Percentage Leases. For the three months ended
March 31, 1998, cash flow provided by operating activities, consisting primarily
of Percentage Lease revenue, was $33.2 million and Funds From Operations (as
previously defined) was $41.7 million. The Lessee's obligations under the
Percentage Leases are unsecured. The Lessee's ability to make lease payments
under the Percentage Leases and the Company's liquidity, including its ability
to make distributions to stockholders, are substantially dependent on the
ability of the Lessee to generate sufficient cash flow from the operation of the
Hotels.
At March 31, 1998, the Lessee had paid all amounts then due the Company
under the Percentage Leases. During the first quarter of 1998, the Lessee had a
net income of $775,000. The Lessee's shareholders' deficit of $8.3 million at
March 31, 1998 resulted primarily from losses during 1997 and 1996 as a
consequence of the one-time costs of converting the CSS Hotels to the Embassy
Suites and Doubletree Guest Suites brands and the substantial number of
suite/room nights lost during those years due to renovation. It is anticipated
that a substantial portion of any future profits of the Lessee will be retained
until a positive shareholders' equity is restored. It is anticipated that the
Lessee's future earnings will be sufficient to enable it to continue to make its
lease payments under the Percentage Leases when due.
Messrs. Feldman and Corcoran, certain entities owning preferred
interests in the Lessee and the managers of certain of the Hotels have agreed,
directly or through their affiliates, to make loans to the Lessee of up to an
aggregate of approximately $17.0 million, to the extent necessary to enable the
Lessee to pay rent and other obligations due under the respective Percentage
Leases relating to a total of 37 of the Hotels. Amounts so borrowed by the
Lessee, if any, will be subordinate in right of repayment to the prior payment
in full of rent and other obligations due under the Percentage Leases relating
to such Hotels. No loans were outstanding under such agreements at March 31,
1998.
The Company intends to acquire additional hotels and may incur
indebtedness to make such acquisitions, or to meet distribution requirements
imposed on a REIT under the Internal Revenue Code, to the extent that working
capital and cash flow from the Company's investments are insufficient to make
such distributions.
At March 31, 1998, the Company had $25.7 million of cash and cash
equivalents and had utilized $153 million of the amount available under the
Line of Credit. The Company has entered into negotiations with its Lenders to
increase its existing $550 million Line of Credit to $1 billion and to provide a
$200 million unsecured term loan facility. These changes in the Line of Credit
are designed to provide the Company with additional flexibility in financing and
will enable the Company to pay off a portion of the secured debt to be acquired
by it in the Merger with Bristol.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into two separate interest rate swap
agreements. These interest rate swap agreements modify a portion of
24
<PAGE> 25
the interest characteristics of the Company's outstanding debt without an
exchange of the underlying principal amount and effectively convert variable
rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate,
and the initial variable rate to be received by the Company at March 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 3/31/98 MATURITY
- --------------- ------------ ---------- --------- -------------
<S> <C> <C> <C> <C>
$50 million 6.11125% 7.51125% 5.62500% October 1999
$25 million 5.95500% 7.35500% 5.62500% November 1999
</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 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,
which are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
To provide for additional flexibility, the Company registered up to an
aggregate of $1.0 billion in common stock, preferred stock, depositary shares,
debt securities and/or common stock warrants pursuant to an "omnibus" shelf
registration statement filed February 17, 1998.
Under the Merger Agreement FelCor has agreed to provide Bristol a $120
million interim credit facility (the "Interim Credit Facility"). Under the
Interim Credit Facility, FelCor will loan to Bristol (i) $40 million to fund a
portion of the cash purchase price and to prepay certain indebtedness assumed by
Bristol in connection with the acquisition of a 20 hotel portfolio, (ii) $31.2
million to fund the prepayment of $30 million in outstanding principal amount of
Bristol's Senior Secured Notes and a related prepayment premium, (iii) $9
million for general corporate purposes and (iv) additional cash for necessary
capital improvements. The Interim Credit Facility will be secured by real estate
acceptable to FelCor. If the Merger Agreement is terminated due to the failure
of FelCor's stockholders to approve the Merger, the Interim Credit Facility will
be converted into unsecured indebtedness of Bristol with a maturity of December
31, 2003; however, any loan balance in excess of $56.2 million will remain
secured and due 120 days after the termination of the Merger Agreement. At May
11, 1998 FelCor had advanced the entire $120 million to provided by it under the
Interim Credit Facility.
On May 7, 1998 the Company sold 5.75 million depositary shares
representing 57,500 shares of 9% Series B Preferred Stock at $25 per depositary
share. The net proceeds of approximately $139.2 million were primarily used to
reduce borrowings on the Line of Credit.
The Company's cash flow used in financing activities of approximately
$7.7 million for the three months ended March 31, 1998 resulted from the
following: net borrowings under the Company's line of credit of $17.0 million
and distributions paid to common shareholders, preferred shareholders and
limited partners of $24.7 million.
INFLATION
Operators of hotels, in general, possess the ability to adjust
suite/room rates periodically to reflect the effects of inflation. Competitive
pressures may, however, limit the Lessee's ability to raise suite/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 the cash flow from
operations are insufficient during any quarter, due to temporary
25
<PAGE> 26
or seasonal fluctuations in lease revenue, the Company expects to utilize other
cash on hand or borrowings under the Line of Credit to make distributions to its
shareholders.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Quarterly Report on Form 10-Q include forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended ("1933 Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended ("1934 Act"). 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 herein and in the Company's other
filings under the 1933 Act and 1934 Act (collectively, "Cautionary
Disclosures"). The forward looking statements included herein, and all
subsequent written and oral forward looking statements attributable to the
Company or persons acting on its behalf, are expressly qualified in their
entirety by the Cautionary Statements.
26
<PAGE> 27
PART II. -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the first quarter of 1998, the Company issued 2,491 shares of
its common stock in redemption of a like number of outstanding units of limited
partner interest in the Operating Partnership. Neither the units, nor the common
stock issued in redemption thereof, were registered under the 1933 Act in
reliance upon certain exemptions from the registration requirements thereof,
including the exemption provided by Section 4(2) of that act.
On March 4, 1998, the Company issued an aggregate of 4,875 shares of
its common stock to certain of its outside directors in the form of restricted
stock under its Restricted and Stock Option Stock Plan. Such shares were
registered under the 1933 Act pursuant to a registration statement Form S-8
(File No. 333-32579).
On May 7, 1998 the Company sold 5.75 million depositary shares,
representing 57,500 shares of 9% Series B Preferred Stock, at $25 per depositary
share. The Series B Preferred Stock and the corresponding depositary shares,
which may be called by the Company 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 the Company. The Series B Preferred Stock has a
liquidation preference of $2,500 per share (equivalent to $25 per depositary
share) and will be entitled to annual dividends at the rate of 9% of the
liquidation preference (equivalent to $2.25 annually per depositary share). The
net proceeds of approximately $139.2 million were used to reduce borrowings on
the Line of Credit.
ITEM 5. OTHER INFORMATION.
For information relating to hotel acquisitions and certain other
transactions by the Company through March 31, 1998, see Note 1 of Notes to
Consolidated Financial Statements of FelCor Suite Hotels, Inc. contained in Item
1 of Part I of this Quarterly Report on Form 10-Q. Such information is
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
(a) Exhibits:
Exhibit
Number Description
------ -----------
<S> <C>
10.2.1 - Schedule of executed Lease Agreements
identifying material variations from the form of
Lease Agreement with respect to hotels acquired by
the Company through April 20, 1998.
27 - Financial Data Schedule
(b) Reports on Form 8-K: - A current report on Form 8-K was filed by the Company on
April 23, 1998. This filing reported under Item 5, the
Agreement and Plan of Merger (the "Merger Agreement")
with Bristol Hotel Company ("Bristol"). Under the Merger
Agreement, Bristol will be merged with and into the
Company. The merger was unanimously approved by the
boards of both companies subject to final documentation.
The merger is currently expected to close near the end of the
second quarter of 1998.
</TABLE>
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 13, 1998
FELCOR SUITE HOTELS, INC.
By: /s/ Lester C. Johnson
-------------------------------------
Lester C. Johnson
Vice President and Controller
(Chief Accounting Officer)
28
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.2.1 - Schedule of executed Lease Agreements
identifying material variations from the form of
Lease Agreement with respect to hotels acquired by
the Company through April 20, 1998.
27 - Financial Data Schedule
</TABLE>
<PAGE> 1
SCHEDULE OF EXECUTED LEASE AGREEMENTS
SHOWING MATERIAL VARIATIONS FROM
FORM OF LEASE AGREEMENT
(AS OF MARCH 31, 1998)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Annual
Percentage Rent
---------------
Hotel Location/Franchise/ Suite
- ------------------------- Commencement Annual First Second Revenue
Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier(5) Tier(6) Breakpoint (4)
- ----------- ---------- ---------- -------------- ------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX - 7/28/94 1,477 17% 65% $3,590
Jacksonville, FL - 7/28/94 882 17% 65% 3,490
Nashville, TN - 7/28/94 1,667 17% 65% 4,290
Orlando (North), FL - 7/28/94 1,571 19% 65% 2,650
Orlando (South), FL - 7/28/94 1,413 17% 65% 4,580
Tulsa, OK - 7/28/94 1,268 19% 65% 2,770
New Orleans, LA - 12/1/94 1,960 19% 65% 4,290
Flagstaff, AZ - 2/15/95 570 17% 65% 1,160
Dallas (Love Field), TX (7) - 3/29/95 1,836 17% 65% 3,060
Boston-Marlborough, MA - 6/30/95 720 19% 65% 940
Corpus Christi, TX (8) 7/19/95 1,000 17% 65% 1,495
Brunswick, GA - 7/19/95 1,000 17% 65% 1,350
Chicago-Lombard, IL (9) 8/1/95 1,900 17% 65% 3,270
Burlingame (SF Airport), CA (10) 11/6/95 3,147 17% 65% 3,174
Minneapolis (Airport) MN (10) 11/6/95 2,778 17% 65% 2,138
Minneapolis (Downtown), MN (10) 11/15/95 1,387 17% 65% 2,091
St. Paul, MN (11) 11/15/95 1,085 17% 65% 3,115
Boca Raton, FL (11) (10) 11/15/95 654 17% 65% 1,421
Tampa (Busch Gardens), FL (11) (10) 11/15/95 786 17% 65% 1,287
Cleveland, OH (10) 11/17/95 1,258 17% 65% 4,929
Anaheim, CA (10) 1/3/96 1,272 17% 65% 2,062
Baton Rouge, LA (10) 1/3/96 1,204 17% 65% 2,281
Birmingham, AL (10) 1/3/96 1,898 17% 65% 1,273
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Annual
Percentage Rent
---------------
Hotel Location/Franchise/ Suite
- ------------------------- Commencement Annual First Second Revenue
Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier(5) Tier(6) Breakpoint (4)
- ----------- ---------- ---------- -------------- ------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Deerfield Beach, FL (10) 1/3/96 2,163 17% 65% 2,568
Ft. Lauderdale, FL (10) 1/3/96 3,228 17% 65% 1,969
Miami (Airport), FL (10) 1/3/96 2,222 17% 65% 2,882
Milpitas, CA (10) 1/3/96 2,143 17% 65% 1,402
Phoenix (Camelback), AZ (10) 1/3/96 2,812 17% 65% 1,428
South San Francisco (SF Airport), (10) 1/3/96 1,876 17% 65% 3,103
CA
Piscataway, NJ - 1/10/96 1,355 17% 65% 3,574
Lexington, KY (12) - 1/10/96 1,149 17% 65% 2,135
Beaver Creek, CO - 2/20/96 375 17% 65% 2,284
Boca Raton, FL - 2/28/96 1,368 17% 65% 3,670
Los Angeles (LAX), CA (14) 3/27/96 1,600 17% 65% 4,130
Mandalay Beach, CA (10) 5/8/96 1,927 17% 65% 2,909
Napa, CA (10) 5/8/96 1,215 17% 65% 3,145
Deerfield, IL (14) - (16) 6/20/96 1,743 17% 65% 2,505
San Rafael, CA (18) (16) 7/18/96 2,107 17% 65% 2,917
Parsippany, NJ (19) (16) 7/31/96 2,440 17% 65% 3,930
Charlotte, NC (20) (16) 9/12/96 2,200 17% 65% 3,353
Indianapolis, IN (21) (16) 9/12/96 1,470 17% 65% 2,794
Atlanta (Buckhead), GA - (16) 10/17/96 3,667 17% 65% 3,872
Myrtle Beach, SC - (16) 12/5/96 1,963 17% 65% 6,236
San Antonio, TX (22) (17) 2/1/97 1,400 17% 65% 2,474
Raleigh, NC (23) (17) 2/1/97 2,100 17% 65% 2,711
Overland Park, KS (24) (17) 2/1/97 1,600 17% 65% 2,114
Secaucus, NJ (25) (17) 2/1/97 2,400 17% 65% 4,788
Kansas City, MO (26) (17) 2/1/97 2,100 17% 65% 2,976
Covina, CA (27) (17) 2/1/97 900 17% 65% 3,066
Austin, TX (28) (17) 2/1/97 2,200 17% 65% 2,378
Atlanta (Perimeter Center), GA (29) (17) 2/1/97 2,300 17% 65% 2,949
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Annual
Percentage Rent
---------------
Hotel Location/Franchise/ Suite
- ------------------------- Commencement Annual First Second Revenue
Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier(5) Tier(6) Breakpoint (4)
- ----------- ---------- ---------- -------------- ------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bloomington, MN (12) (17) 2/1/97 1,800 17% 65% 2,468
Omaha, NE (12) (17) 2/1/97 1,400 17% 65% 1,703
Los Angeles (LAX North), CA (17) 2/18/97 1,669 17% 65% 3,176
Dana Point, CA (12) (30) 2/20/97 992 17% 65% 2,211 (1997)
1,983 (1988)
Anne Arundel County (31) (30) 3/20/97 (33) 1,900 17% 65% 2,536
(BWI), MD (12)
Troy, MI (12) (32) (30) 3/20/97 (33) 2,100 17% 65% 1,936
Austin, TX (12) (32) (30) 3/20/97 (33) 1,900 17% 65% 1,961
San Antonio, TX (34) (17) 5/16/97 1,773 17% 65% 3,640
Nashville, TN (35) 6/05/97 900 17% 65% 1,585
Dallas (Market Center), TX (17) 6/30/97 2,300 17% 65% 2,896
Syracuse, NY (17) 6/30/97 1,400 17% 65% 3,245
Atlanta (Galleria), GA (33) (37) (36) 6/30/97 2,155 17% 65% 3,777
College Park (Atlanta Airport), (36) 6/30/97 2,426 17% 65% 5,033
GA (33) (40)
Dallas (Park Central), TX (32) (36) 6/30/97 5,091 17% 65% 6,490
(40)
Rosemont (O'Hare Airport), IL (36) 6/30/97 3,522 17% 65% 2,760
(33) (37)
Phoenix (Crescent), AZ (32) (40) (36) 6/30/97 2,908 17% 65% 6,218
Durham, NC (11) (35) 7/28/97 1,700 17% 65% 1,900
Lake Buena Vista, FL (11) (35) 7/28/97 2,900 17% 65% 2,272
Tampa (Rocky Point), FL (11) (35) 7/28/97 1,700 17% 65% 1,939
Philadelphia Society Hill, PA (33) (38) (36) 9/30/97 3,834 17% 65% 5,220
Burlington, VT (40) (2) (39) 12/4/97 2,252 17% 65% 3,181
Dayton, OH (12) (2) (35) 12/30/97 797 17% 65% 1,331
Columbus, OH (12) (2) (35) 2/6/98 1,534 17% 65% 1,900
Wilmington, OH (32) (30) 3/20/98 901 17% 65% 2,284 (1998)
2,195 (1999)
-2001)
2,506 (2002)
Denver, CO (32) (30) 4/14/98 1,759 17% 65% 2,712
</TABLE>
-3-
<PAGE> 4
- --------------------
(1) Unless otherwise noted, the hotels under each Lease Agreement
are operated as Embassy Suites(R) Hotels under a commitment or
license agreement with Promus Hotels, Inc., and the Manager as
defined in each Lease Agreement is Promus Hotels, Inc. or an
affiliate thereof.
(2) Unless otherwise noted, Lessor as defined in each Lease
Agreement is FelCor Suites Limited Partnership
("Partnership").
(3) Unless otherwise noted, Lessee as defined in each Lease
Agreement is DJONT Operations, L.L.C., a Delaware limited
liability company.
(4) The amount shown represents the amount set forth in each Lease
Agreement as the annual Base Rent and the threshold suite
revenue amount. Both of these amounts are subject to
adjustment for changes in the consumer price index and may not
represent the actual amount currently required under each
Lease Agreement.
(5) Represents percentage of suite revenue payable as Percentage
Rent up to suite revenue breakpoint.
(6) Represents percentage of suite revenue payable as Percentage
Rent in excess of suite revenue breakpoint.
(7) The Manager as defined in this Lease Agreement is American
General Hospitality, Inc.
(8) The Lessee is FCOAM Inc.
(9) The Lessor as defined in this Lease Agreement is Embassy/GACL
Lombard Venture, a joint venture between the Partnership and
Promus Hotels, Inc.
(10) The Lessor as defined in these Lease Agreements is FelCor/CSS
Holdings, L.P., of which the Partnership is a 99% limited
partner.
(11) The Lessor as defined in this Lease Agreement is FelCor/St.
Paul Holdings, L.P., of which the Partnership is a 99% limited
partner and another subsidiary of the Company is a 1% general
partner.
(12) The hotels under these Lease Agreements are operated as
Doubletree Guest Suites(R) Hotels; the Manager as defined in
these Lease Agreements is DT Management, Inc.
(13) The hotel under this Lease Agreement is operated as a Hilton
Suites(R) Hotel under a franchise or license agreement with
Hilton Inns, Inc., and the Manager as defined in this Lease
Agreement is American General Hospitality, Inc.
(14) The Lessor as defined in this Lease Agreement is Los Angeles
International Airport Hotel Associates, a limited partnership
of which the Partnership is the sole general partner and of
which the Partnership has an approximate 97 % partnership
interest.
(15) The Manager as defined in this Lease Agreement is Coastal
Hotel Group, Inc.
(16) The Lessee as defined in the Lease Agreement for these hotels
is DJONT Leasing, L.L.C., a Delaware limited
liability company, pursuant to an assignment of the applicable
Lease Agreement from DJONT Operations, L.L.C.
(17) The Lessee as defined in the Lease Agreement for these hotels
is DJONT Leasing, L.L.C., a Delaware limited liability
company.
(18) The Lessor as defined in this Lease Agreement is MHV Joint
Venture, a joint venture between the Partnership and Promus
Hotels, Inc.
(19) The Lessor as defined in this Lease Agreement is Embassy/Shaw
Parsippany Venture, a joint venture between the Partnership
and Promus Hotels, Inc.
(20) The Lessor as defined in this Lease Agreement is E.S.
Charlotte, a Minnesota limited partnership, of which the
Partnership owns a 49% limited partner interest and FelCor/CSS
Hotels, L.L.C., a Delaware limited liability company, owns a
1% general partner interest.
-4-
<PAGE> 5
(21) The Lessor as defined in this Lease Agreement is E.S. North, a
Indiana Limited Partnership, an Indiana limited partnership,
of which the Partnership owns a 49% limited partner interest
and FelCor/CSS Hotels, L.L.C., a Delaware limited liability
company, owns a 1% general partner interest.
(22) The Lessor as defined in this Lease Agreement is EPT San
Antonio Limited Partnership, of which the Partnership owns 49%
and FelCor Eight Hotels, L.L.C. ("FelCor Eight") owns 1%.
(23) The Lessor as defined in this Lease Agreement is EPT Raleigh
Limited Partnership, of which the Partnership owns 49% and
FelCor Eight owns 1%.
(24) The Lessor as defined in this Lease Agreement is EPT Overland
Park Limited Partnership, of which the Partnership owns 49%
and FelCor Eight owns 1%.
(25) The Lessor as defined in this Lease Agreement is EPT
Meadowlands Limited Partnership, of which the Partnership owns
49% and FelCor Eight owns 1%.
(26) The Lessor as defined in this Lease Agreement is EPT Kansas
City Limited Partnership, of which the Partnership owns 49%
and FelCor Eight owns 1%.
(27) The Lessor as defined in this Lease Agreement is EPT Covina
Limited Partnership, of which the Partnership owns 49% and
FelCor Eight owns 1%.
(28) The Lessor as defined in this Lease Agreement is EPT Austin
Limited Partnership, of which the Partnership owns 49% and
FelCor Eight owns 1%.
(29) The Lessor as defined in this Lease Agreement is EPT
Atlanta-Perimeter Center Limited Partnership, of which the
Partnership owns 49% and FelCor Eight owns 1%.
(30) The Lessee as defined in the Lease Agreement for this hotel is
FCH/DT Leasing, L.L.C., a Delaware limited liability company.
(31) The Lessor as defined in the Lease Agreement is FCH/DT BWI
Holdings, L.P., a Delaware limited partnership.
(32) The Lessor as defined in these Lease Agreements is FCH/DT
Holdings, L.P., a Delaware limited partnership.
(33) The Lease is for a term of 15 years and contains an automatic
renewal provision, pursuant to which the Lease shall be
extended for an additional five-year term if the corresponding
Management Agreement is extended pursuant to the terms thereof
for an additional five-year period.
(34) The Lessor is Promus/FelCor San Antonio Venture, a Texas
general partnership.
(35) The Lessee is FCH/DT Leasing II, L.L.C., a Delaware limited
liability company.
(36) The Lessee is FCH/SH Leasing, L.L.C., a Delaware limited
liability company.
(37) The hotel under this Lease Agreement is operated as a Sheraton
Suites Hotel.
(38) The Lessor is FCH/Society Hill, L.P., a Pennsylvania limited
partnership.
(39) The Lessee is FCH/SH Leasing II, L.L.C., A Delaware limited
liability company.
(40) The hotel under this Lease Agreement is operated as a
Sheraton(R) Hotel.
-5-
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<PERIOD-START> JAN-01-1998
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0
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