-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+dOf5tp8tiyZWj61sYmGHoqcfN+iKzPCqbvqFfbpaG5B90BR7ujSDAjndJYDAx3 gK4xGwMsZE0YOTz05ftsXw== 0000950134-00-002879.txt : 20000508 0000950134-00-002879.hdr.sgml : 20000508 ACCESSION NUMBER: 0000950134-00-002879 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 DATE AS OF CHANGE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR LODGING L P CENTRAL INDEX KEY: 0001048789 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 752564994 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-39595-01 FILM NUMBER: 589669 BUSINESS ADDRESS: STREET 1: 545 E. JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 9724444900 FORMER COMPANY: FORMER CONFORMED NAME: FELCOR SUITES LP DATE OF NAME CHANGE: 19971030 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 333-3959-01 FelCor Lodging Limited Partnership (Exact name of registrant as specified in its charter) DELAWARE 75-2544994 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- NONE Securities registered pursuant to Section 12(g) of the Act: NONE (Title of class) Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting limited partnership interests held by non-affiliates of the registrant, as of March 15, 2000, was approximately $23 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report on Form 10-K, for the fiscal year ended December 31, 1999 of FelCor Lodging Trust Incorporated -Part III ================================================================================ 2 FELCOR LODGING LIMITED PARTNERSHIP INDEX
FORM 10-K ITEM NO. REPORT - - -------- PAGE --------- PART I 1. Business......................................................................................1 2. Properties.................................................................................. 15 3. Legal Proceedings............................................................................22 4. Submission of Matters to a Vote of Security Holders..........................................22 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters........................23 6. Selected Financial Data......................................................................25 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........26 7A. Quantitative and Qualitative Disclosures About Market Risk...................................38 8. Financial Statements and Supplementary Data..................................................38 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.........38 PART III 10. Directors and Executive Officers of the Company .............................................39 11. Executive Compensation.......................................................................39 12. Security Ownership of Certain Beneficial Owners and Management...............................39 13. Certain Relationships and Related Transactions...............................................40 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................41
3 PART I ITEM 1. BUSINESS FelCor Lodging Limited Partnership and its subsidiaries ("the Company") at December 31, 1999, owned interests in 188 hotels with nearly 50,000 rooms and suites (collectively the "Hotels"). The sole general partner of the Company is FelCor Lodging Trust Incorporated ("FelCor"), a Maryland corporation, one of the nation's largest hotel real estate investment trusts ("REIT"). At December 31, 1999, FelCor owned a greater than 95% equity interest in the Company. The Company owns 100% interests in 163 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 16 hotels. The Hotels are located in the United States (35 states) and Canada, with concentrations in Texas (41 hotels), California (20 hotels), Florida (18 hotels) and Georgia (15 hotels). The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. The following table provides a schedule of the Hotels, by brand, at December 31, 1999:
BRAND TOTAL ----- ----- Embassy Suites 58 Holiday Inn 44 Doubletree and Doubletree Guest Suites(R) 16(1) Crowne Plaza and Crowne Plaza Suites(R) 18 Holiday Inn Select(R) 10 Sheraton(R)and Sheraton Suites(R) 10 Hampton Inn(R) 9 Holiday Inn Express(R) 5 Fairfield Inn(R) 5 Harvey Hotel(R) 4 Independents 3 Courtyard by Marriott(R) 2 Four Points by Sheraton(R) 1 Hilton Suites(R) 1 Homewood Suites(R) 1 Westin(R) 1 ---- Total Hotels 188 ====
- - ------------- (1) On January 1, 2000, two of these Doubletree Guest Suites hotels were converted to the Embassy Suites brand. The Company seeks to increase operating cash flow through both internal growth and selective acquisitions, while maintaining a flexible and conservative capital structure. In addition to renovating, redeveloping and repositioning the Company's acquired hotels, the Company may seek to acquire new upscale properties that will benefit from affiliation with one of the premium brands available to the Company through our strategic brand owner and manager relationships with Hilton Hotels Corporation ("Hilton"), Bass Hotels & Resorts Inc. ("Bass") and Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). In support of this strategy, on July 28, 1998, Bristol Hotel Company was merged into FelCor. FelCor then contributed the assets so acquired to the Company in exchange for approximately 31 million units of partnership interest, resulting in the Company acquiring 107 primarily full-service hotels (the "Merger"). These hotels added more than 28,000 rooms and suites to the Company's portfolio, more than doubling the Company's size. The merger also provided diversification, both geographically and by asset class, by adding hotels in many of our key markets and broadening our portfolio in the full-service, upscale and midscale hotel markets. During 1998, the Company purchased 16 hotels in addition to those acquired in the merger. During 1999, the Company sold six of the hotels acquired in the Merger that did not meet our investment criteria and acquired a 50% joint venture interest in one hotel. 4 The Leases. To enable FelCor to satisfy certain requirements for qualification as a REIT, generally the Company cannot operate the hotels in which it invests. Accordingly, at December 31, 1999, the Company leased 85 hotels to DJONT Operations, L.L.C. and its consolidated subsidiaries ("DJONT") and 100 hotels to Bristol Hotels & Resorts and its consolidated subsidiaries ("Bristol"), which succeeded to the hotel operating business of Bristol Hotel Company prior to its merger into FelCor. On February 28, 2000, Bass plc and Bristol jointly announced a definitive merger agreement pursuant to which Bass plc expects to acquire Bristol during April 2000. Three of the hotels were not leased at December 31, 1999 (on January 1, 2000, a lease on one of these hotels became effective between the Company and DJONT). The Company's leases generally have initial terms of five to 15 years and provide for rent equal to the greater of a minimum base rent or a percentage rent based on room and suite revenues, food and beverage revenues, food and beverage rents and, in certain instances, other hotel revenues. Such arrangements are generally referred to as Percentage Leases. The Lessees. Bristol, which is a publicly traded company, is one of the largest independent hotel operating companies in North America and operated the largest number of Bass-branded hotels in the world. DJONT is a private company controlled by Thomas J. Corcoran, Jr., the President, Chief Executive Officer and a director of FelCor. Bristol manages all of the hotels leased by it, plus one of the three FelCor hotels that were not leased at December 31, 1999. DJONT has entered into management agreements pursuant to which 72 hotels leased by it are managed by subsidiaries of Hilton, ten are managed by subsidiaries of Starwood and three are managed by two unrelated management companies. THE INDUSTRY The United States hotel industry profitability has improved each year since 1992, the longest sustained growth in history. According to PricewaterhouseCoopers LLP's December 1999/January 2000 Lodging Research Journal, after a period of extended unprofitability in the late 1980's and early 1990's, during which time the increase in supply of new hotel rooms significantly outpaced growth in room demand, lodging industry revenues increased every year from 1992 through 1999 and is expected to increase again in 2000. The percentage growth in room demand exceeded percentage growth in new room supply from 1992 through 1996. While 1997 and 1998 experienced the highest number of new room starts in the prior 10 years, 1999 showed a decline in new room starts from 1997-1998 levels. In spite of the above-average increases in room supply, according to PricewaterhouseCoopers LLP's December 1999/January 2000 Lodging Research Journal, annual revenue per available room has grown each year from 1995 through 1999 and is expected to continue to grow in 2000. Smith Travel Research, another leading provider of industry data, classifies hotel chains into five distinct categories: Upper Upscale, Upscale, Midscale with Food & Beverage, Midscale Without Food & Beverage, and Economy. We remain focused primarily on properties in the Upper Upscale, Upscale, and Midscale With Food & Beverage categories, from which we derived approximately 97% of our revenues in 1999. PricewaterhouseCoopers LLP's December 1999/January 2000 Lodging Research Journal projects that for 2000, RevPAR growth will be 2.4% for Upper Upscale hotels, 2.9% for Upscale hotels, and 3.0% for hotels in the Midscale With Food & Beverage category. The same publication projects 2000 changes in supply and demand for each segment: Upper Upscale hotels, supply growth of 4.3% with a demand growth of 3.2%; Upscale hotels, supply growth of 7% with a demand growth of 7.3%; and hotels in the Midscale With Food & Beverage category with no change in supply growth and a decline in demand of 0.7%. BUSINESS STRATEGY The Company seeks to increase operating cash flow through active asset management. In addition to actively overseeing the operation of its hotels by the Lessees and their managers, the Company applies its asset management expertise to the renovation, redevelopment and rebranding of its hotels, to the maintenance of strong strategic relationships with its brand owners and managers, and to maintaining financial flexibility and a conservative balance sheet. -2- 5 HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING The Company has historically differentiated itself from many of its competitors by: o the practice of upgrading, renovating and/or redeveloping most of the Company's acquired hotels to enhance their competitive position and, in certain instances, rebranding them to improve their revenue generating capacity; and o the ongoing program for the maintenance of our upgraded hotel's, which includes: o the contribution of at least 4% of annual room and suite revenue for the DJONT hotels and 3% of total annual hotel revenue for the Bristol hotels for routine capital replacements and improvements; and o ensuring the Lessees' adherence to a maintenance and repair program amounting to approximately 4.5% of annual hotel revenues. For information regarding the Company's renovation, redevelopment and rebranding activities during 1999 and 1998, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Renovations, Redevelopments and Rebrandings" contained elsewhere in this Annual Report on Form 10-K for the year ended December 31, 1999. MAINTENANCE OF STRONG STRATEGIC RELATIONSHIPS The Company benefits from strategic brand owner and manager relationships with Hilton (Embassy Suites, Doubletree and Hilton Suites), Bass and Bristol (Crowne Plaza and Holiday Inn) and Starwood (Sheraton and Westin). o Hilton, which acquired Promus Hotel Corporation on November 30, 1999, now has a hotel portfolio of more than 1,750 hotels with more than 300,000 rooms in 50 countries, and is now the largest operator of full-service, all-suite hotels in the United States. In addition to its Hilton and Conrad International-branded hotels, Hilton now owns the Embassy Suites, Doubletree and Doubletree Guest Suites brands and manages 72 of our hotels. As a result of its acquisition of Promus, Hilton acquired an equity interest in our Company having an aggregate value of approximately $25 million at December 31, 1999, and it became a 50% partner in joint ventures with us in the ownership of 12 hotels and the holder of a 10% equity interest in certain subsidiaries owning six hotels. The relationship with Promus and its Embassy Suites brand provided the foundation for our historical growth, and we expect to expand our relationship with Hilton, as the successor to Promus. o Bass operates or franchises more than 2,800 hotels worldwide, with over 457,000 guest rooms in more than 90 countries around the world. Among the brands owned by Bass are Crowne Plaza, Holiday Inn, Holiday Inn Select, Holiday Inn Express and Inter-Continental. Bass, together with its subsidiaries, beneficially owns approximately 49.6% of the stock of Bristol and have announced a definitive merger agreement pursuant to which they expect to acquire the remaining shares of Bristol during April 2000. Subsidiaries of Bass also own approximately 8.8% of FelCor's outstanding common stock ("Common Stock"). In addition, subsidiaries of Bass own an aggregate of 4,713,185 limited partnership units of the Company ("Units"). Under certain circumstances, these Units may be redeemed for a like number of shares of FelCor Common Stock. If so redeemed, Bass and its affiliates would own approximately 16.0% of FelCor's Common Stock. Bristol is one of the largest hotel operating companies in North America and operates the largest number of Bass-branded hotels in the world. On February 28, 2000, -3- 6 Bass and Bristol jointly announced a definitive merger agreement pursuant to which Bass expects to acquire the remaining shares of Bristol during April 2000. o Starwood is one of the world's largest hotel operating companies. Directly and through subsidiaries, Starwood owns, leases, manages or franchises approximately 716 hotels with more than 217,000 rooms in 70 countries. The Company's strategic alliance with Starwood, coupled with the purchase of seven Sheraton hotels in 1997, provided the Company with its initial entry into the upscale, full-service, non-suite hotel market. Most recently, in October 1999, the Company formed a joint venture with Starwood, owned 50% by us and 50% by Starwood, which acquired the 437-room Sheraton Premier Hotel in Tysons Corner, Virginia. MAINTENANCE OF FINANCIAL FLEXIBILITY The Company is committed to maintaining substantial financial flexibility. FelCor's Board of Directors has authorized the repurchase of up to $300 million of FelCor's Common Stock. Through March 15, 2000, FelCor has completed the repurchase of approximately 7.8 million shares for $134 million at an average purchase price of $17.22 per share. The Company has concurrently redeemed a like number of Units from FelCor at a like cost. At December 31, 1999, the consolidated indebtedness of the Company was approximately 40% of its investment in hotels, at cost, and its interest coverage ratio was 3.3-to-1. In funding its growth, the Company has used a broad selection of financing sources to minimize the cost of capital, including public equity, collateralized mortgage-backed securities, public and private debt, and asset divestitures. We believe that our capital structure, following the completion of our share repurchases, will continue to be among the most conservative in the hotel REIT industry. We believe our financial flexibility should enable us to pursue selective expansion opportunities and to take advantage of renovation, redevelopment and rebranding opportunities to help us improve our hotels' competitive position. Our ability to make significant future acquisitions will be largely dependent upon the Company's ability to obtain additional equity financing. FINANCING TRANSACTIONS On March 4, 1999, the Company completed a $63 million first mortgage term loan. This loan is collateralized by three hotels, bears interest at 200 basis points over LIBOR, matures in February 2003 and amortizes over 25 years. The proceeds from this loan were used to pay off a $44 million mortgage loan due December 2002 and to acquire ownership of land previously held under ground leases. On April 1, 1999, the Company entered into a $375 million term loan ("the Senior Term Loan"), increasing its credit facilities to $1.2 billion, consisting of the Senior Term Loan which matures in March 2004 and an $850 million revolving line of credit ("Line of Credit") which matures in June 2001. The Line of Credit, Senior Term Loan and the Company's publicly traded term notes are collateralized by stock and partnership interests in certain subsidiaries of FelCor. The financial covenants in the Senior Term Loan are consistent with those in the Company's existing Line of Credit. If the Company achieves investment grade credit ratings from the applicable rating agencies, or when the Senior Term Loan is retired, the stock and partnership interest collateral will be released. The proceeds of the Senior Term Loan were used to prepay a $250 million term loan, which was to mature on December 31, 1999, and initially to reduce borrowings under the Company's Line of Credit. Interest payable on borrowings under the credit facilities is variable, determined from a ratings and leverage-based pricing matrix, ranging from 87.5 basis points to 275 basis points above LIBOR (30-day LIBOR at December 31, 1999, was 5.83%). The interest rate spread on the Line of Credit ranged from 150 to 162.5 basis points in 1999. Additionally, the Company is required to pay an unused commitment fee on the Line of Credit which is variable, determined from a ratings-based pricing matrix, ranging from 20 to 30 basis points. In 1999 and 1998, the Company wrote off approximately $1.1 million and $2.5 million, respectively, of deferred financing fees relating to the term loan of $250 million and the previous unsecured credit facility of $550 million, respectively. For the years ended December 31, 1999, 1998, and 1997, the Company paid interest on its unsecured credit facilities at weighted average interest rates of 7.1%, -4- 7 7.1% and 7.6%, respectively. At December 31, 1999, the Company had borrowing capacity under its Line of Credit of $186 million. On April 1, 1999, the Company also closed a 10-year, $100 million mortgage loan. This loan is non-recourse (with certain exceptions), is collateralized by seven Embassy Suites hotels, carries a fixed rate coupon of 7.54%, matures in April 2009 and amortizes over 25 years. The proceeds from this loan were used to reduce outstanding borrowings under the Company's Line of Credit. On May 13, 1999, the Company closed a 10-year, $75 million mortgage loan. This loan is non-recourse (with certain exceptions), is collateralized by six Embassy Suites hotels, carries a fixed rate coupon of 7.55%, matures in June 2009 and amortizes over 25 years. The proceeds from this loan were used initially to reduce outstanding borrowings under the Company's Line of Credit. The Line of Credit and the Senior Term Loan contain various affirmative and negative covenants, including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 1999, the Company was in compliance with all such covenants. The Company had approximately $186 million in borrowing capacity under its Line of Credit at December 31, 1999 and FelCor had the ability to issue up to $946 million of Common Stock, Preferred Stock, debt securities and/or Common Stock warrants under shelf registration statements previously declared effective. Given the current market prices of its equity securities, FelCor has no present intention to effect a public offering of equity securities in the near future. HOTEL OPERATING PERFORMANCE Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday Inn and Holiday Inn Select, Doubletree Guest Suites, and Sheraton and Sheraton Suites hotels account for approximately 97% of the Company's Percentage Lease revenue. As a result of the renovation and rebranding of hotels, approximately 98% of Percentage Lease revenue for 2000 is expected to be derived from upscale and full service hotels. For a detailed discussion of the Company's hotel operating performance, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-The Hotels-Actual" contained elsewhere in this Annual Report on Form 10-K for the year ended December 31, 1999. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize other cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. COMPETITION The hotel industry is highly competitive. Each of the Company's hotels is located in a developed area that includes other hotel properties and competes for guests primarily with other full-service hotels in its immediate vicinity and secondarily with other hotel properties in its geographic market. An increase in the number of competitive hotel properties in a particular area could have a material adverse effect on the occupancy, average daily rate ("ADR") and revenue per available room or suite ("RevPAR") of the Company's hotels in that area. The -5- 8 Company believes that brand recognition, location, the quality of the hotel and services provided, and price are the principal competitive factors affecting the Company's hotels. The Company competes for investment opportunities with other entities, some of which have substantially greater financial resources than the Company. These larger entities may generally be able to accept more risk than the Company can prudently manage. Competition may generally reduce the number of suitable investment opportunities offered to the Company and may increase the bargaining power of owners seeking to sell their hotels. PROPERTY TAXES Each Hotel is subject to real and personal property taxes, which are borne by the Company under the Percentage Leases. During 1999, real and personal property taxes incurred by the Company amounted to $52.1 million, or 10.3 % of the Company's total revenues. Real and personal property taxes on the Hotels may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. FelCor's Vice President, Taxes, Michael L. Hunter and his staff, work with the numerous taxing authorities, both directly and through independent agents, to assure that the Hotels are fairly assessed and to minimize the Company's tax liabilities. TAX STATUS OF FELCOR FelCor has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its initial taxable year ending December 31, 1994. As a REIT, FelCor generally is not subject to federal income taxation at the corporate level, on its taxable income that is distributed to its shareholders. FelCor may, however, be subject to certain state and local taxes on its income and property. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute annually at least 95% of its taxable income (this will change to 90% beginning in 2001). In connection with FelCor's election to be taxed as a REIT, FelCor's Charter imposes restrictions on the ownership and transfer of shares of its Common Stock. The Company expects to make distributions on its Units sufficient to enable FelCor to meet its distribution obligations as a REIT. FelCor and the Company have adopted the calendar year as their taxable year. REIT MODERNIZATION ACT On December 17, 1999, the provisions of the REIT Modernization Act were enacted into law. These provisions, which will become effective January 1, 2001, will, among other things: o reduce the percentage of taxable income required to be distributed by a REIT from 95% to 90%, and o subject to certain limitations, permit a REIT to own taxable subsidiaries that engage in businesses previously prohibited to a REIT, including, among other things, leasing hotels from its parent hotel REIT, provided that the hotels in question continue to be managed by unrelated third parties. LESSEE OPERATIONS At December 31, 1999, the Lessees leased all but three of the Hotels under Percentage Leases, pursuant to which the Lessee is obligated to pay the Company the greater of a minimum Base Rent or Percentage Rent based on a percentage of revenues. See "Item 2. Properties" for additional information regarding the terms of the Percentage Leases. The Lessees have entered into, and are responsible for the payment of all fees under, the franchise licenses and management agreements relating to the Hotels, may hold the liquor licenses applicable to the Hotels, own and maintain the inventories required for the operation of the Hotels, pay for normal maintenance and repair expenses, enter into various operating, maintenance and service agreements with respect to the Hotels, and are responsible for compliance with the license, management and other agreements affecting hotel operations. In addition, the Lessees -6- 9 provide asset management services to the Hotels, including the supervision of the day-to-day operations of the Hotels by the management companies engaged to manage such Hotels and the establishment and implementation of capital expenditure programs. Thomas J. Corcoran, the President, Chief Executive Officer and a Director of FelCor and Hervey A. Feldman, Chairman Emeritus of FelCor, as the beneficial owners of an aggregate 50% common equity interest in DJONT, have entered into an agreement with the Company pursuant to which they have agreed that, through April 15, 2005, any distributions received by them from DJONT (in excess of their tax liabilities with respect to the income of DJONT) will be utilized to purchase FelCor Common Stock or Units from the Company in an underwritten public offering or annually, at the then current market prices. The agreement stipulates that Messrs. Feldman and Corcoran are restricted from selling the stock so acquired for a period of two years from the date of purchase. RGC Leasing, Inc., which owns the other 50% common equity interest in the Lessee, may elect to purchase FelCor Common Stock or Units upon similar terms, at its option. Pursuant to this agreement, each of Messrs. Feldman and Corcoran purchased 3,775 shares of FelCor Common Stock in December 1995. The FelCor Independent Directors (as herein defined) may suspend or terminate such agreement at any time. DJONT, as a related third party, has elected to provide its audited financial statements to the Company for inclusion elsewhere in this Form 10-K, although such statements are not generally required to be disclosed. See "Index to Financial Statements" at page F-1. Bristol, which succeeded to the hotel operating business conducted by Bristol Hotel Company prior to its July 1998 merger into FelCor, is an independent publicly owned company whose common stock is traded on the New York Stock Exchange. Bristol is required to file with the Securities and Exchange Commission such financial statements and other information as may be required under the Securities Exchange Act of 1934, as amended. Reference is made to Bristol's filings with the Securities and Exchange Commission for information relating to Bristol. REPAIRS AND MAINTENANCE During the year ended December 31, 1999, approximately $38.5 million and $32.7 million was spent by the Lessees on routine repairs and maintenance at the Hotels leased by DJONT and Bristol, respectively. This represents approximately 4.6% of total hotel revenues. EMPLOYEES The Company has no employees. Management functions of the Company are performed by FelCor as the sole general partner. Mr. Corcoran entered into an employment agreement with FelCor in 1994 that continues through 2000. None of FelCor's other executive officers has an employment agreement with FelCor. In addition to Mr. Corcoran, FelCor had 48 other full-time employees at December 31, 1999. All persons employed in the day-to-day operation of the Company's Hotels are employees of the management companies engaged by the Lessees to operate such Hotels and are not employees of FelCor or the Company. PERSONNEL AND OFFICE SHARING ARRANGEMENTS The Company's general partner, FelCor, shares executive offices and certain employees with DJONT and FelCor, Inc. (a private company controlled by Messrs. Feldman and Corcoran). Each entity bears an allocated share of the costs thereof, including but not limited to rent, compensation of certain personnel (other than Mr. Corcoran, whose compensation is borne solely by FelCor), office supplies, telephones and depreciation of office furniture, fixtures and equipment. The Company reimburses FelCor for its share of such allocated costs. Any such allocation of shared expenses to the Company is required to be approved by a majority of FelCor's Independent Directors. During 1999, approximately $5.7 million (approximately 89.5% of all allocable expenses) were paid by the Company and FelCor under this arrangement. -7- 10 CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS CERTAIN STATEMENTS AND ANALYSES CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, OR THAT MAY IN THE FUTURE BE MADE BY, OR BE ATTRIBUTABLE TO, THE COMPANY, MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ALL OF SUCH FORWARD-LOOKING STATEMENTS ARE BASED UPON PRESENT EXPECTATIONS AND ASSUMPTIONS THAT MAY OR MAY NOT ACTUALLY OCCUR. THE FOLLOWING FACTORS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING MATERIAL RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS OR IN THE COMPANY'S HISTORICAL RESULTS. EACH OF THE FOLLOWING FACTORS, AMONG OTHERS, COULD ADVERSELY AFFECT THE ABILITY OF THE COMPANY TO MEET ITS CURRENT EXPECTATIONS. Increases in Leverage and Floating Rate Debt; Inability to Retain Earnings or Refinance Debt. As a result of FelCor's Merger with Bristol Hotel Company, the Company's leverage increased significantly during 1998. As a result of the Company's aggressive renovation, redevelopment and rebranding program and FelCor's share repurchases (and the Company's corresponding Unit redemptions), its leverage also increased during 1999, and may increase further. At December 31, 1999, the Company had approximately $1.8 billion in indebtedness, of which approximately $464.0 million was collateralized, and consolidated debt equal to approximately 40% of its investment in hotels, at cost. The Company's ratio of EBITDA to interest expense for the years ended December 31, 1999 and 1998 was 3.3-to-1 and 3.8-to-1, respectively. At December 31, 1999, the Company had $695.8 million in floating rate debt, or 37.9% of all the Company indebtedness, that provided for the payment of interest at floating rates. Most of this floating rate debt bears interest at a rate equal to between 1.63% and 2.50% plus the 30-day LIBOR rate. At December 31, 1999, the 30-day LIBOR rate was 5.83%. Changes in economic conditions could result in higher interest rates, thereby increasing the Company's interest expense on its floating rate debt and reducing funds available for its current renovation, redevelopment and rebranding plans, for future share repurchases, and for distribution to the Company's unitholders. In order to qualify as a REIT, FelCor must distribute to its stockholders, annually, at least 95% (90% effective in 2001) of its net taxable income (excluding capital gains) and the distributions it receives from the Company are its sole source of funds to make such distributions. Accordingly, the Company cannot retain any substantial portion of its earnings to meet its capital needs. At December 31, 1999, the Company had $42.6 million in debt maturing prior to December 31, 2000 and $186 million in borrowing capacity available under its existing Line of Credit. If the Company were to default in the payment of more than $10 million of its outstanding indebtedness, cross default provisions under most of its credit facilities could result in substantially all of the Company's debt being declared immediately due and payable. Should that occur, the Company may be unable to refinance or repay such indebtedness in full under such circumstances. Dependence on Lessees' Hotel Operations. The Company's revenues currently and in the future will consist primarily of rents received under its leases. The Lessees' payment of such rental obligations is generally unsecured. As the lessee of 100 of the Bristol Hotels, Bristol had a net worth of approximately $43.1 million at December 31, 1999, and is obligated to maintain certain net worth and liquidity requirements. DJONT, which leases 85 of the Hotels, has limited assets, derives its revenue solely from the operation of the Company's hotels and, at December 31, 1999, had a accumulated deficit of approximately $13.1 million. However, DJONT or its subsidiaries have the right to borrow from FelCor, Inc., Promus Hotels, Inc., Doubletree Hotel Corporation, Lee & Urbahns, L.P. and ITT Sheraton Corporation (which have equity interests in and/or are managers of hotels leased by DJONT), on a subordinated basis and subject to certain limitations, up to an aggregate of approximately $17.3 million to meet certain of its rental obligations. The Company will be substantially dependent upon the successful operation of its hotels to enable the Lessees (particularly DJONT) to meet their rental obligations under the leases. -8- 11 The leases with DJONT and Bristol have varying terms, generally no longer than 15 years. At the expiration of the lease terms, the Company will be required to negotiate renewals or seek replacement leases, which could adversely affect its results of operations. Conflicts of Interest Certain FelCor Directors. As of December 31, 1999, DJONT leased 85 of the Company's hotels. All of the voting interests (and a 50% common equity interest) in DJONT are beneficially owned by Hervey A. Feldman and Thomas J. Corcoran, Jr. The remaining 50% of the common equity interests in DJONT are non-voting and are beneficially owned by the children of Charles N. Mathewson, a Director of FelCor. Mr. Feldman is a co-founder and the Chairman Emeritus of FelCor. Mr. Corcoran is a co-founder, President, Chief Executive Officer and Director of FelCor. All of the Bristol Hotels are leased to and/or managed by Bristol. No officer or director of Bristol is also an officer or director of FelCor. However, Donald J. McNamara, the Chairman of the Board of FelCor, is a principal in a firm that controls the general partner of United/Harvey Holdings, L.P. ("United Harvey"), which beneficially owns approximately 39.5% of the stock of Bristol. Five partnerships that own substantial equity interests in United Harvey also own in the aggregate approximately 17.3% of FelCor's outstanding Common Stock. In addition, Richard C. North joined FelCor's Board during 1998. Mr. North is the Group Finance Director of the parent of Holiday Hospitality Franchising, Inc. ("Holiday Hospitality"), a subsidiary of Bass plc. Holiday Hospitality is the franchisor of most of the Bristol Hotels and, together with its affiliates, beneficially owns approximately 49.6% of the stock of Bristol and owns approximately 8.8% of FelCor's outstanding Common Stock. In connection with the efforts of Bass to acquire Bristol, as announced on February 28, 2000, a Bass subsidiary (Bass America, Inc.) contributed 4,713,185 shares of outstanding FelCor Common Stock held by it to the Company in exchange for a like number of Units. If these Units were to be redeemed for FelCor Common Stock, Bass and its affiliates would own approximately 16.0% of FelCor's Common Stock. The exchange by Bass of Common Stock for Units will not affect the Company's FFO or earnings per unit, although it results in reducing FelCor's percentage ownership in the Company from approximately 95% to approximately 88%. Issues may arise under the leases, franchise agreements and management contracts, and in the allocation of acquisition and leasing opportunities, that present conflicts of interests due to the relationship of these directors to the companies with which they are or have been associated. As an example, any decreases in lease rental rates payable by DJONT would benefit DJONT, in which Messrs. Feldman and Corcoran and Mr. Mathewson's children have a direct economic interest, at the expense of the Company and its unitholders. In the event the Company enters into new or additional hotel leases or other transactions with Bristol, the interests of Mr. McNamara and Mr. North, by virtue of their relationships to significant investors in Bristol, may conflict with the interests of the Company and its unitholders. For example, any decrease in lease rental rates payable by Bristol may decrease the Company's profits to the benefit of Bristol. Also, as the Company seeks to take advantage of the opportunity provided by the REIT Modernization Act to acquire the Lessees, and/or the leases on the Hotels, the personal interests of Messrs. Feldman, Corcoran, Mathewson, McNamara and North may conflict with those of the Company and its unitholders. It is anticipated that any director who has a conflict of interest with respect to an issue presented to the FelCor Board will abstain from voting upon that issue although he will have no legal obligation to do so. FelCor has no provisions in its bylaws or charter that require an interested director to abstain from voting upon an issue, although each director will have a fiduciary duty of loyalty to FelCor. There is a risk that, should an interested director vote upon an issue in which he or one of his affiliates has an interest, his vote may reflect a bias that could be contrary to the best interests of the Company or FelCor. In addition, even if an interested director abstains in the actual vote, that director's participation in the meeting and discussion of an issue in which he or companies with which he is associated have an interest could influence the votes of other directors regarding the issue. No Arms-Length Bargaining on DJONT Percentage Leases. The terms of the original leases between the Company and DJONT were not negotiated on an arms-length basis. Accordingly, these Percentage Leases may not reflect fair market values or terms. However, the management of FelCor believes that the terms of these leases are -9- 12 fair to the Company. The rental terms of these leases were set based upon historical financial information and projected operating performance of the respective hotels. The other terms of the leases are typical of the provisions found in other leases entered into in similar circumstances. The leases were approved by a majority of the Independent Directors of FelCor at the time they were entered into. Adverse Tax Consequences to Certain Affiliates on a Sale of Certain Hotels. Messrs. Corcoran and Mathewson may have additional tax liability if the Company sells its investments in six hotels acquired by the Company in July 1994 from partnerships controlled by these individuals. Consequently, the interests of the Company and of Messrs. Corcoran and Mathewson could be different in the event that the Company decided to consider a sale of any of these hotels. Decisions regarding a sale of any of these six hotels must be made by a majority of the Independent Directors of FelCor. Restrictive Debt Covenants At December 31, 1999, the Company's unsecured Line of Credit and Senior Term Loan provided for borrowings of up to an aggregate of $1.2 billion, of which the Company had borrowed approximately $1.0 billion. The Company also had issued and outstanding $298 million (net of discount) in principal amount of publicly-traded senior term notes. The agreements governing the Company's Line of Credit, Senior Term Loan and senior notes contain various restrictive covenants, including, among others, provisions restricting the Company or FelCor from incurring indebtedness, making investments, engaging in transactions with stockholders and affiliates, incurring liens, merging or consolidating with another person, disposing of all or substantially all of its assets or permitting limitations on its subsidiaries with respect to the payment of dividends or other amounts to the Company. In addition, these agreements require the Company to maintain certain specified financial ratios. Under the most restrictive of these provisions, the Company's maximum additional indebtedness that could be incurred for the acquisition of hotel properties would have been limited to approximately $989.5 million at December 31, 1999. These covenants also may restrict the Company's ability to engage in certain transactions. In addition, any breach of these limitations could result in the acceleration of most of the Company's outstanding indebtedness. The Company may not be able to refinance or repay this indebtedness in full under such circumstances. Matters That May Adversely Affect the Hotel Industry Fewer Growth Opportunities. There has been substantial consolidation in, and capital allocated to, the U.S. lodging industry since the early 1990s. This has generally resulted in higher prices for hotels and fewer attractive acquisition opportunities. The hotel REIT industry, including FelCor, has suffered from declining stock prices over the past two years, limiting the ability to raise additional equity capital at reasonable prices which it would contribute to the Company for Units. An important part of the Company's historical growth strategy has been the acquisition and, in many instances, the renovation and repositioning, of hotels at less than replacement cost. Continued industry consolidation and competition for acquisitions, and limitations on the availability of reasonably priced equity capital, could adversely affect the Company's future growth prospects. The Company competes for hotel investment opportunities and capital with other companies, some of which have greater financial or other resources. Certain competitors may be able to obtain capital at lower costs and to pay higher prices for properties than the Company. Potential Adverse Effects on Hotel Operations. The Hotels owned by the Company are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, and generally include: o The existence of competition from other hotels; o The construction of more hotel rooms in a particular area than needed to meet demand; o The increase in energy costs and other travel expenses that reduce business and leisure travel; o The adverse effects of declines in general and local economic activity; and -10- 13 o The risks generally associated with the ownership of hotels and real estate, as discussed in the following four paragraphs and under "-- Matters That May Adversely Affect Real Estate Ownership." In addition, annual adjustments (based on changes in the Consumer Price Index) are made to the Base Rent and the thresholds used to compute Percentage Rent under the Percentage Leases. These adjustments, unless offset by increases in hotel revenues, would reduce the amount of rent payable to the Company under the Percentage Leases and, consequently, the Company's results of operations. Competition. Each of the Company's Hotels competes with other hotels in its geographic area. A number of additional hotel rooms have been or may be built in a number of the geographic areas in which the Hotels are located, which could adversely affect the results of operations of these hotels. According to PricewaterhouseCoopers LLP's December 1999/January 2000 Hospitality Directions, total hotel room supply in the United States is expected to increase by 3.5% or approximately 136,500 rooms, from 1999 to 2000, while the demand for hotel rooms is expected to increase only 3.0% during the same period. Management believes that most of the increase in United States hotel room supply has been in the limited service or extended stay segments of the hotel industry, from which FelCor derives approximately 5% of its revenues. An oversupply of hotel rooms, regardless of market segment, could adversely affect both occupancy and rates in the markets in which the Hotels are located. However, a significant increase in the supply of midscale and upscale hotel rooms and suites, if demand fails to increase proportionately, could have a more severe adverse effect on the Company's operations. Seasonality. The hotel industry is seasonal in nature. Generally, hotel revenues are highest in the first three quarters of each year. Seasonality causes quarterly fluctuations in the Company's revenue. The Company may be able to reduce, but not eliminate, the effects of seasonality by continuing to diversify the geographic location and primary customer base of its Hotels. Investment Concentration in a Single Industry. Historically, the Company has only invested in hotel-related assets. In the event of a downturn in the hotel industry, the adverse effect on the Company may be greater than on a more diversified company with assets outside of the hotel industry. Requirements of Franchise Agreements. Most of the Company's Hotels are operated under various franchise licenses. Each license agreement requires that the franchised hotel be maintained and operated in accordance with certain standards. The franchisors also may require substantial improvements to the Company's Hotels, for which the Company would be responsible under the Percentage Leases, as a condition to the renewal or continuation of these franchise licenses. If a franchise license terminates due to the Company's failure to make required improvements or to otherwise comply with its terms, the Company may be liable to the franchisor for a termination payment. These termination payments would vary among the various franchise agreements and by hotel. The loss of a substantial number of franchise licenses and the related termination payments could have a material adverse effect on the Company's results of operations. Limitations on Acquisitions and Improvements Since the completion of FelCor's Merger with Bristol Hotel Company in July 1998, the Company's growth strategy has been focused, and it presently intends to focus during 2000, on its internal growth strategy, which includes the renovation, redevelopment and rebranding of its hotels to achieve improved revenue performance. The Company is limited in its ability to fund its growth solely from cash provided from operating activities, because FelCor must distribute to its stockholders at least 95% (90% beginning in 2001) of its taxable income each year to maintain its status as a REIT. Consequently, the Company may rely, to a significant extent, upon the availability of debt or equity capital to fund hotel acquisitions and improvements. Given the current market prices of its equity securities, FelCor has no present intention to effect a public offering of equity securities in the near future, the proceeds of which it would contribute to the Company for Units. Consequently, the Company will be dependent upon its ability to attract debt financing from public or institutional -11- 14 lenders. There can be no assurance that the Company will be successful in attracting sufficient debt financing to fund future growth at an acceptable cost. In addition, FelCor's Board has adopted a policy of limiting indebtedness to not more than 50% of the Company's investment in hotel assets, at cost, which could also limit the Company's ability to incur additional indebtedness to fund its continued growth. At December 31, 1999, the Company's indebtedness represented approximately 40% of its investment in hotel assets, at cost. Potential Tax Risks General. Failure to qualify as a REIT would subject FelCor to federal income tax. FelCor has operated and will continue to operate in a manner that is intended to qualify it as a REIT under federal income tax laws. The REIT qualification requirements are extremely complicated and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, FelCor cannot be certain that it has been or will continue to be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws or the federal income tax consequences of qualification as a REIT. If FelCor failed to qualify as a REIT, FelCor would be required to pay federal income tax on its taxable income. The Company might need to borrow money or sell hotels in order to distribute to Felcor the funds to pay any such tax. However, FelCor would no longer be required to pay out most of its taxable income to its stockholders, which may reduce the Company's need to make distributions to unitholders. Unless FelCor's failure to qualify as a REIT were excused under federal income tax laws, FelCor could not re-elect REIT status until the fifth calendar year following the year in which it failed to qualify. Failure to Make Required Distributions Would Subject FelCor to Tax. In order to qualify as a REIT, each year FelCor must pay out to its stockholders at least 95% (90% beginning in 2001) of its taxable income (other than any net capital gain). In addition, FelCor would be subject to a 4% nondeductible tax if the actual amount it pays out to its stockholders in a calendar year were less than the minimum amount specified under federal tax laws. FelCor has paid out and intends to continue to pay out its income to its stockholders in a manner intended to satisfy the 95% test and to avoid the 4% tax. FelCor's only source of funds to make such distributions comes from distributions by the Company on its Units. Accordingly, the Company may be required to borrow money or sell assets to make distributions sufficient to enable FelCor to pay out enough of its taxable income to satisfy the 95% test and to avoid the 4% tax in a particular year. Failure to Distribute Earnings and Profits in Connection With the 1998 Merger With Bristol Hotel Company Would Cause FelCor to Fail to Qualify as a REIT. At the end of any taxable year, a REIT may not have any accumulated earnings and profits (described generally for federal income tax purposes as cumulative undistributed net income) from a non-REIT corporation. Arthur Andersen LLP prepared and provided to FelCor its computation of the accumulated earnings and profits of Bristol Hotel Company through the date of the Merger. Based upon such computation, in addition to its regular fourth quarter 1998 distribution, FelCor paid a special one-time distribution of $0.345 per share on its Common Stock, and $0.207 per share on its Series A Preferred Stock, in respect of such accumulated earnings and profits. Corresponding distributions were made by the Company on its Units. However, the determination of a company's accumulated earnings and profits for federal income tax purposes is extremely complex and the computations by Arthur Andersen LLP are not binding upon the Internal Revenue Service. Should the Internal Revenue Service successfully assert that the accumulated earnings and profits of Bristol Hotel Company were greater than the amount so distributed by FelCor, it may fail to quality as a REIT. Sale of Assets Acquired in the Merger Within Ten Years After the Merger Will Result in Corporate Tax. If the Company sells any asset acquired in the Merger, within ten years after the Merger, and recognizes gain, FelCor will be taxed at the highest corporate rate on an amount equal to the fair market value of the asset minus the adjusted basis of the asset as of the Merger. The sales of Bristol Hotels that have been made, and are currently planned to be made, are not expected to result in any material amount of income tax liability. -12- 15 Effect of Market Interest Rates on the Price of the Common Stock One of the factors that may affect the price of FelCor's Common Stock is the amount of distributions to stockholders in comparison to yields on other financial instruments. An increase in market interest rates would provide higher yields on other financial instruments, which could adversely affect the price of FelCor's Common Stock and the value of the Company's Units. Reliance on Key Personnel and Board of Directors FelCor's stockholders have no right to participate in FelCor's management, except through the exercise of their voting rights. FelCor's Board of Directors will be responsible for oversight of the management of the Company. The Company's future success will be dependent in part on FelCor's ability to retain key personnel, including Mr. Corcoran. Matters That May Adversely Affect Real Estate Ownership General. The Company's investments in hotels are subject to the numerous risks generally associated with owning real estate. These risks include, among others, adverse changes in general or local economic or real estate market conditions, zoning laws, traffic patterns and neighborhood characteristics, real estate tax assessments and rates, governmental regulations and fiscal policies, the potential for uninsured or underinsured casualty and other losses, the impact of environmental laws and regulations (discussed below) and other circumstances beyond the control of the Company. Moreover, real estate investments are relatively illiquid, which means that the Company's ability to vary its portfolio in response to changes in economic and other conditions may be limited. Possible Liability for Environmental Matters. There are numerous federal, state and local environmental laws and regulations to which owners of real estate are subject. Under these laws a current or prior owner of real estate may be liable for the costs of cleaning up and removing hazardous or toxic substances found on its property, whether or not it was responsible for their presence. In addition, if an owner of real property arranges for the disposal of hazardous or toxic substances at another site, it may also be liable for the costs of cleaning up and removing such substances from the disposal site, even if it did not own or operate the disposal site. A property owner may also be liable to third parties for personal injuries or property damage sustained as a result of its release of hazardous or toxic substances (including asbestos-containing materials) into the environment. Environmental laws may require the Company to incur substantial expenses and limit the use of its properties. The Company could be liable for substantial amounts for a failure to comply with applicable environmental laws, which may be enforced by the government or, in certain instances, by private parties. The existence of hazardous or toxic substances on a property can also adversely affect the value of, and the owner's ability to use, sell or borrow against, the property. Generally, the Company obtains a Phase I environmental audit from an independent environmental engineer prior to its acquisition of a hotel. With respect to the Bristol Hotels, the Company has relied upon the Phase I audits obtained by Bristol Hotel Company in connection with its acquisition of these properties. No updates or new environmental audits were obtained. The primary purpose of a Phase I environmental audit is to identify indications of potential environmental contamination at a property and, secondarily, to make a limited assessment as to the potential for environmental regulatory compliance costs. Consistent with current industry standards, the Phase I environmental audits on which the Company has relied did not include an assessment of potential off-site liability or involve any testing of groundwater, soil or air conditions. Accordingly, they would not reveal information that could only be obtained by such tests. In addition, the assessment of environmental compliance contained in such reports is general in nature and was not a detailed determination of the property's complete compliance status. The Phase I environmental audits relied upon by the Company disclose the existence of certain hazardous or toxic substances at or near a limited number of the Company's hotels. In these instances, the Company made -13- 16 such additional investigations, if any, as they considered necessary to evaluate the risk of liability. However, FelCor's management does not believe that the identified conditions, or any other environmental conditions known to it, will have a material adverse effect on the Company's business, assets or profits. It is possible, however, that such environmental audits and investigations do not reveal all environmental conditions or liabilities for which the Company could be liable and there could be potential environmental liabilities of which the Company is unaware. Costs of Complying with Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990 ("ADA"), all public accommodations (including hotels) are required to meet certain federal requirements for access and use by disabled persons. FelCor's management believes that its hotels are substantially in compliance with the requirements of the ADA. However, a determination that the hotels are not in compliance with the ADA could result in liability for both governmental fines and damages to private parties. If the Company were required to make unanticipated major modifications to the hotels to comply with the requirements of the ADA, it could adversely affect its ability to pay its obligations and make distributions to its unitholders. -14- 17 ITEM 2. PROPERTIES THE HOTELS The following table sets forth certain descriptive information regarding the Hotels in which the Company had ownership interests at December 31, 1999:
YEAR NUMBER OF LOCATION FRANCHISE BRAND LESSEE ACQUIRED ROOMS/SUITES - - -------- --------------- ------ -------- ------------ Birmingham, AL(1)........................... Embassy Suites DJONT 1996 242 Montgomery, AL.............................. Holiday Inn Bristol 1998 213 Flagstaff, AZ............................... Embassy Suites DJONT 1995 119 Phoenix (Airport), AZ....................... Embassy Suites DJONT 1998 229 Phoenix (Camelback), AZ..................... Embassy Suites DJONT 1996 232 Phoenix, (Crescent), AZ..................... Sheraton DJONT 1997 342 Scottsdale, AZ(2)........................... Fairfield Inn Bristol 1998 218 Tempe, AZ(1)................................ Embassy Suites DJONT 1998 224 Texarkana (I-30), AR(2)..................... Holiday Inn Bristol 1998 210 Anaheim (Disney(R)Area), CA(1)............... Embassy Suites DJONT 1996 222 Burlingame (S.F. Airport So.), CA(2)........ Embassy Suites DJONT 1995 340 Covina (I-10), CA(1)(3)..................... Embassy Suites DJONT 1997 259 Dana Point, CA.............................. Doubletree Guest Suites DJONT 1997 196 El Segundo (LAX Airport South), CA(2)....... Embassy Suites DJONT 1996 350 Irvine (Orange County Airport, CA........... Crowne Plaza Bristol 1998 335 Los Angeles (LAX Airport North), CA......... Embassy Suites DJONT 1997 215 Milpitas, CA(1)............................. Embassy Suites DJONT 1996 266 Milpitas, CA................................ Crowne Plaza Bristol 1998 305 Napa, CA(1)................................. Embassy Suites DJONT 1996 205 Oxnard (Mandalay Beach), CA................. Embassy Suites DJONT 1996 249 Palm Desert, CA(1) ......................... Embassy Suites DJONT 1998 198 Pleasanton, CA.............................. Crowne Plaza Bristol 1998 244 Santa Barbara, CA(1)........................ Holiday Inn Bristol 1998 160 San Diego (On-the-Bay), CA(2)............... Holiday Inn Bristol 1998 600 San Francisco (Financial District), CA(2)... Holiday Inn Bristol 1998 566 San Francisco (Fisherman's Wharf), CA(2).... Holiday Inn Bristol 1998 585 San Francisco (Union Square), CA............ Crowne Plaza Bristol 1998 403 San Rafael (Marin Co.), CA(1)(3)............ Embassy Suites DJONT 1996 235 South San Francisco (Airport North), CA..... Embassy Suites DJONT 1996 312 Avon (Beaver Creek Resort), CO.............. Independent 1996 73 Denver (Southeast), CO(5)................... Doubletree DJONT 1998 248 Hartford (Downtown), CT..................... Crowne Plaza Bristol 1998 342 Stamford, CT(2)............................. Holiday Inn Select Bristol 1998 383 Wilmington, DE(5)........................... Doubletree Guest DJONT 1998 154 Boca Raton, FL.............................. Doubletree Guest Suites DJONT 1995 182 Boca Raton, FL.............................. Embassy Suites DJONT 1996 263 Cocoa, Beach (Ocean Front Resort), FL....... Holiday Inn Bristol 1998 500 Deerfield Beach, FL(1)...................... Embassy Suites DJONT 1996 244 Ft. Lauderdale, FL(1)....................... Embassy Suites DJONT 1996 359 Ft. Lauderdale (Cypress Creek), FL.......... Sheraton Suites DJONT 1998 253 Jacksonville, FL............................ Embassy Suites DJONT 1994 277 Kissimmee (Nikki Bird Resort), FL(2)........ Holiday Inn Bristol 1998 529 Lake Buena Vista (Walt Disney World(R)), FL(2) ....................... Doubletree Guest Suites DJONT 1997 229 Miami (Airport), FL(2)...................... Crowne Plaza Bristol 1998 304 Miami (Airport), FL(1)...................... Embassy Suites DJONT 1996 316 Orlando (North), FL......................... Embassy Suites DJONT 1994 277 Orlando (South), FL......................... Embassy Suites DJONT 1994 244 Orlando (International Drive Resort), FL.... Holiday Inn Bristol 1998 652 Orlando (Airport), FL....................... Holiday Inn Select Bristol 1998 288 Tampa (Busch Gardens), FL................... Doubletree Guest Suites DJONT 1995 129 Tampa (Rocky Point), FL..................... Doubletree Guest Suites DJONT 1997 203 Tampa (Near Busch Gardens), FL(2)........... Holiday Inn Bristol 1998 395 Atlanta, GA................................. Courtyard by Marriott Bristol 1998 211 Atlanta (Airport), GA(2).................... Crowne Plaza Bristol 1998 378 Atlanta (Powers Ferry), GA(1)............... Crowne Plaza Bristol 1998 296 Atlanta (Buckhead), GA...................... Embassy Suites DJONT 1998 317 Atlanta (Airport), GA....................... Embassy Suites DJONT 1998 233 Atlanta (Perimeter Center), GA(1)(3)........ Embassy Suites DJONT 1998 241
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YEAR NUMBER OF LOCATION FRANCHISE BRAND LESSEE ACQUIRED ROOMS/SUITES - - -------- --------------- ------ -------- ------------ Atlanta (Downtown), GA ....................... Fairfield Inn Bristol 1998 242 Atlanta (Marietta), GA ....................... Hampton Inn Bristol 1998 140 Atlanta (Airport North), GA(1)(2) ............ Holiday Inn Bristol 1998 493 Atlanta (Jonesboro South), GA(1) ............. Holiday Inn Bristol 1998 180 Atlanta (Perimeter Dunwoody), GA(1) .......... Holiday Inn Select Bristol 1998 250 Atlanta (Airport Gateway), GA ................ Sheraton DJONT 1997 395 Atlanta (Galleria), GA ....................... Sheraton Suites DJONT 1997 278 Brunswick, GA ................................ Embassy Suites DJONT 1995 130 Columbus (Airport I-85), GA(2) ............... Holiday Inn Bristol 1998 223 Chicago (Allerton), IL ....................... Crowne Plaza Bristol 1998 443 Chicago (Lombard), IL(1)(3) .................. Embassy Suites DJONT 1995 262 Chicago (O'Hare), IL ......................... Sheraton Suites DJONT 1997 297 Deerfield, IL ................................ Embassy Suites DJONT 1996 237 Moline, IL ................................... Hampton Inn Bristol 1998 138 Moline (Airport), IL(1) ...................... Holiday Inn Bristol 1998 216 Moline (Airport), IL(1) ...................... Holiday Inn Express Bristol 1998 111 Indianapolis (North), IN(1)(3) .............. Embassy Suites DJONT 1996 221 Davenport, IA ................................ Hampton Inn Bristol 1998 132 Davenport, IA ................................ Holiday Inn Bristol 1998 287 Colby, KS .................................... Holiday Inn Express Bristol 1998 70 Great Bend, KS ............................... Holiday Inn Bristol 1998 173 Hays, KS ..................................... Hampton Inn Bristol 1998 116 Hays, KS ..................................... Holiday Inn Bristol 1998 191 Overland Park, KS(1)(3) ...................... Embassy Suites DJONT 1997 199 Salina, KS(7) ................................ Holiday Inn Bristol 1998 192 Salina (I-70), KS(2) ......................... Holiday Inn Express Hotel & Suites Bristol 1998 93 Lexington, KY ................................ Hilton Suites DJONT 1996 174 Lexington, KY ................................ Sheraton Suites DJONT 1998 155 Baton Rouge, LA(1) ........................... Embassy Suites DJONT 1996 223 New Orleans, LA .............................. Embassy Suites DJONT 1994 372 New Orleans (Chateau LeMoyne), LA(1)(2)(3) ... Holiday Inn 1998 171 New Orleans (French Quarter), LA(1)(2) ....... Holiday Inn Bristol 1998 276 Baltimore (BWI), MD(5)(6) .................... Doubletree Guest Suites DJONT 1997 251 Boston (Marlborough), MA ..................... Embassy Suites DJONT 1995 229 Boston (Government Center), MA(2) ............ Holiday Inn Select Bristol 1998 303 Leominster, MA ............................... Four Points(R) Bristol 1998 187 Troy, MI(5)(6) ............................... Doubletree Guest Suites DJONT 1997 251 Bloomington, MN .............................. Embassy Suites DJONT 1997 219 Minneapolis (Airport), MN(1) ................. Embassy Suites DJONT 1995 310 Minneapolis (Downtown), MN ................... Embassy Suites DJONT 1995 217 St. Paul, MN(7) .............................. Embassy Suites DJONT 1995 210 Jackson (Downtown), MS(1) .................... Crowne Plaza Bristol 1998 354 Jackson (Briarwood), MS(1) ................... Hampton Inn Bristol 1998 119 Jackson (North), MS(1) ....................... Holiday Inn & Suites Bristol 1998 224 Olive Branch (Whispering Woods Hotel and Conference Center), MS .................. Independent Bristol 1998 179 Kansas City (Plaza), MO (1)(2)(3) ............ Embassy Suites DJONT 1997 266 Kansas City (Northeast), MO .................. Holiday Inn Bristol 1998 167 St. Louis (Downtown), MO ..................... Embassy Suites DJONT 1998 297 St. Louis (Westport), MO(1) .................. Holiday Inn Bristol 1998 320 Omaha, NE .................................... Doubletree Guest Suites DJONT 1998 189 Omaha (Central), NE(1) ....................... Hampton Inn Bristol 1998 132 Omaha (Southwest), NE ........................ Hampton Inn Bristol 1998 132 Omaha (I-80), NE(1) .......................... Holiday Inn Bristol 1998 383 Omaha (Old Mill Northwest), NE ............... Crowne Plaza Bristol 1998 213 Omaha (Southwest), NE ........................ Holiday Inn Express Hotel & Suites Bristol 1998 78 Omaha (Southwest), NE ........................ Homewood Suites Bristol 1998 108 Parsippany, NJ(1)(3) ......................... Embassy Suites DJONT 1996 274 Piscataway, NJ ............................... Embassy Suites DJONT 1996 225 Secaucus (Meadowlands), NJ(2)(3) ............. Embassy Suites DJONT 1997 261 Secaucus (Meadowlands), NJ ................... Crowne Plaza Bristol 1998 301 Albuquerque (Mountain View), NM .............. Holiday Inn Bristol 1998 360 Syracuse, NY ................................. Embassy Suites DJONT 1997 215 Charlotte, NC(1)(3) .......................... Embassy Suites DJONT 1996 274 Raleigh/Durham, NC ........................... Doubletree Guest Suites DJONT 1997 203 Raleigh, NC(1)(3) ............................ Embassy Suites DJONT 1997 225
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YEAR NUMBER OF LOCATION FRANCHISE BRAND LESSEE ACQUIRED ROOMS/SUITES - - -------- --------------- ------ -------- ------------ Cleveland, OH ................................ Embassy Suites DJONT 1995 268 Columbus, OH ................................. Doubletree Guest Suites DJONT 1998 194 Dayton, OH(1) ................................ Doubletree Guest Suites DJONT 1997 138 Tulsa, OK .................................... Embassy Suites DJONT 1994 240 Philadelphia (Center City), PA ............... Crowne Plaza Bristol 1998 445 Philadelphia (Independence Mall), PA(1) ...... Holiday Inn Bristol 1998 364 Philadelphia (Society Hill), PA .............. Sheraton DJONT 1997 362 Pittsburgh, PA(1) ............................ Holiday Inn Select Bristol 1998 251 Charleston (Mills House), SC ................. Holiday Inn Bristol 1998 214 Myrtle Beach (Kingston Plantation), SC ....... Embassy Suites DJONT 1996 255 Roper (Greenville), SC ....................... Crowne Plaza Bristol 1998 208 Knoxville (Central), TN(2) ................... Holiday Inn Bristol 1998 242 Nashville, TN ................................ Doubletree Guest Suites DJONT 1997 138 Nashville (Airport), TN ...................... Embassy Suites DJONT 1994 296 Nashville (Opryland/Airport), TN(2) .......... Holiday Inn Select Bristol 1998 385 Amarillo (I-40), TX(2) ....................... Holiday Inn Bristol 1998 248 Austin (Downtown), TX(5) ..................... Doubletree Guest Suites DJONT 1997 189 Austin (Airport North), TX(1)(3) ............. Embassy Suites DJONT 1997 260 Austin (Town Lake), TX ....................... Holiday Inn Bristol 1998 320 Beaumont (Midtown I-10), TX .................. Holiday Inn Bristol 1998 253 Corpus Christi, TX ........................... Embassy Suites DJONT 1995 150 Dallas (Alpha Road), TX ...................... Bristol House(R) Bristol 1998 127 Dallas (Addison North), TX(1) ................ Crowne Plaza Bristol 1998 429 Dallas (Market Center), TX(1) ................ Crowne Plaza Bristol 1998 354 Dallas, TX(1) ................................ Crowne Plaza Suites Bristol 1998 295 Dallas (Campbell Centre), TX(5) .............. Doubletree DJONT 1998 302 Dallas (DFW Airport South), TX ............... Embassy Suites DJONT 1998 305 Dallas (Love Field), TX(1) ................... Embassy Suites DJONT 1995 248 Dallas (Market Center), TX(1) ................ Embassy Suites DJONT 1997 244 Dallas (Park Central), TX .................... Embassy Suites DJONT 1994 279 Dallas (Regal Row), TX ....................... Fairfield Inn Bristol 1998 204 Dallas (Downtown West End), TX ............... Hampton Inn Bristol 1998 311 Dallas, TX(1) ................................ Harvey Hotel Bristol 1998 313 Dallas (DFW Airport North), TX(1) ............ Harvey Hotel Bristol 1998 506 Dallas (DFW Airport North), TX(1) ............ Harvey Suites Bristol 1998 164 Dallas (Park Central), TX(8) ................. Sheraton DJONT 1998 438 Dallas (Park Central), TX(8) ................. Westin DJONT 1997 545 Houston (Near the Galleria), TX .............. Courtyard by Marriott Bristol 1998 209 Houston (Medical Center), TX(1) .............. Crowne Plaza Bristol 1998 297 Houston (Near the Galleria), TX .............. Fairfield Inn Bristol 1998 107 Houston (I-10 East), TX ...................... Fairfield Inn Bristol 1998 160 Houston (I-10 East), TX ...................... Hampton Inn Bristol 1998 90 Houston (Medical Center), TX(1)(2) ........... Holiday Inn & Suites Bristol 1998 285 Houston (Intercontinental Airport), TX(1) .... Holiday Inn Bristol 1998 401 Houston (I-10 West), TX ...................... Holiday Inn Select Bristol 1998 349 Houston (Near Greenway Plaza), TX(1) ......... Holiday Inn Select Bristol 1998 355 Midland (Country Villa), TX .................. Holiday Inn Bristol 1998 250 Odessa (Parkway Blvd.), TX ................... Holiday Inn Express Hotel & Suites Bristol 1998 186 Odessa (Center), TX .......................... Holiday Inn Hotel & Suites Bristol 1998 245 Plano, TX(1) ................................. Harvey Hotel Bristol 1998 279 Plano, TX .................................... Holiday Inn Bristol 1998 161 San Antonio (Airport), TX(1)(2)(3) ........... Embassy Suites DJONT 1997 261 San Antonio (Northwest), TX(1)(3) ............ Embassy Suites DJONT 1997 217 San Antonio (Downtown), TX(2) ................ Holiday Inn Bristol 1998 315 San Antonio (International Airport), TX ...... Holiday Inn Select Bristol 1998 397 Waco (I-35), TX .............................. Holiday Inn Bristol 1998 171 Salt Lake City (Airport), UT(2) .............. Holiday Inn Bristol 1998 191 Vienna, VA (Tyson's Corner)(1)(3)(9) ......... Sheraton 1999 437 Burlington, VT ............................... Sheraton DJONT 1997 309 Cambridge, Canada ............................ Holiday Inn Bristol 1998 139 Kitchener (Waterloo), Canada ................. Holiday Inn Bristol 1998 182 Peterborough (Waterfront), Canada ............ Holiday Inn Bristol 1998 154 Sarnia, Canada ............................... Holiday Inn Bristol 1998 151 Toronto (Yorkdale), Canada ................... Holiday Inn Bristol 1998 370 Toronto (Airport), Canada .................... Holiday Inn Select Bristol 1998 444
-17- 20 - - --------- (1) Encumbered by mortgage debt. (2) Situated on land leased under a long-term ground lease. (3) This hotel is one of 16 hotels owned by unconsolidated entities in which the Company owns a 50% equity interest. (4) This hotel is owned by an entity in which the Company has greater than a 90% interest. (5) This hotel is one of 6 hotels owned by an entity in which the Company owns a 90% equity interest. (6) Converted to the Embassy Suites brand January 1, 2000. (7) Owned subject to a capitalized industrial revenue bond lease which permits the Company to purchase the fee interest at expiration for a nominal amount. (8) This hotel is one of two hotels in which the Company owns a 60% equity interest. (9) On January 1, 2000, a lease on this hotel became effective between the Company and DJONT. THE PERCENTAGE LEASES At December 31, 1999, each of the Hotels (with three exceptions) was leased to a Lessee pursuant to a Percentage Lease. The terms of each Percentage Lease with DJONT was approved by FelCor's Independent Directors at the time it was entered into. The DJONT Percentage Leases. The principal terms of the Percentage Leases with DJONT ("DJONT Leases") are summarized below, although certain terms will vary from hotel to hotel. Term. The DJONT Leases typically have a stated term of 10 years. Rent. The annual Base Rent is typically set at approximately 60% of the initial year's anticipated total rent. The Percentage Rent is calculated in two tiers, a first tier typically equal to 17% of room and suite revenues up to a specified amount ("Room and Suite Revenue Breakpoint") and a second tier typically equal to 65% of room and suite revenues above such Room and Suite Revenue Breakpoint. In addition, the DJONT Lessee typically pays the Company 5% of the food and beverage revenues from each Hotel in which the restaurant and bar operations are conducted directly by the DJONT Lessee and 98% of the food and beverage rent revenues from each Hotel in which the restaurant and bar operations are subleased by the DJONT Lessee to an unrelated third party. The Room and Suite Revenue Breakpoint is established at the time the Percentage Lease is entered into, based upon the historical and anticipated operations of the particular hotel, in a manner expected to provide the Company with approximately 95% of the anticipated operating profits of the hotels in which it invests. Generally, the Percentage Leases provide for the computation of rent on a standalone quarterly basis. The amount of Base Rent and of the Room and Suite Revenue Breakpoint in each DJONT Lease formula generally is subject to adjustment, annually, based upon a formula taking into account changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year, for the hotels acquired prior to July of the previous year. The adjustment in any year may not exceed 7%. The CPI adjustments applicable to 2000, 1999 and 1998 were 1.05%, 0.55% and 0.50%, respectively. Events of Default. If an Event of Default occurs and continues beyond any curative period, the Company has the option of terminating the DJONT Lease or any or all other DJONT Leases. Events of Default under the DJONT Leases include typical defaults such as failure to pay rent, certain insolvency events and, among others, the following: o the breach by the DJONT Lessee of any term of a DJONT Lease that is not cured within certain specified periods or an Event of Default under any other DJONT Lease; o if the DJONT Lessee voluntarily discontinues operations of a leased hotel for more than 30 days, except as a result of damage, destruction, or condemnation; or -18- 21 o if the franchise agreement with respect to a leased hotel is terminated by the franchisor as a result of any action or failure to act by the DJONT Lessee or its agents. Termination of Percentage Leases on Disposition of the Hotels. If the Company enters into an agreement to sell or otherwise transfer a leased hotel, the Company has the right to terminate the DJONT Lease with respect to such leased hotel upon 90 days' prior written notice upon either (i) paying the DJONT Lessee the fair market value of the DJONT Lessee's leasehold interest in the remaining term of the DJONT Lease to be terminated or (ii) offering to lease to the DJONT Lessee a substitute hotel on terms that would create a leasehold interest with a fair market value equal to or exceeding the fair market value of the DJONT Lessee's remaining leasehold interest under the DJONT Lease to be terminated. The Company also is obligated to pay, or reimburse the DJONT Lessee for certain fees and expenses resulting from the termination of the DJONT Lease. Maintenance and Modifications. Under the DJONT Leases, the Company is required to maintain the underground utilities and the structural elements of the improvements, including exterior walls (excluding plate glass) and the roof of each leased hotel. In addition, the DJONT Leases obligate the Company to fund periodic improvements (in addition to maintenance of structural elements) to the buildings and grounds comprising the leased hotels, and the periodic repair, replacement and refurbishment of furniture, fixtures and equipment in the leased hotels, when and as required to meet the requirements of the applicable franchise licenses, and to establish and maintain a reserve, which is available to the DJONT Lessee for such purposes, in an amount equal to 4% of hotel room and suite revenues, on a cumulative basis. The Company's obligation is not limited to the amount in such reserve. Otherwise, the DJONT Lessee is required, at its expense, to maintain the leased hotels in good order and repair, except for ordinary wear and tear, and to make nonstructural repairs, whether foreseen or unforeseen, ordinary or extraordinary, which may be necessary and appropriate to keep the leased hotels in good order and repair. Insurance and Property Taxes. The Company is responsible for paying real estate and personal property taxes and property insurance premiums on the leased hotels (except to the extent that personal property associated with the leased hotels is owned by the DJONT Lessee). The DJONT Lessee is responsible for the cost of all liability insurance on the leased hotels, which must include extended coverage, comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to the leased hotels. Indemnification. Under each of the DJONT Leases, the DJONT Lessee will indemnify the Company for certain losses relating to the leased hotel, including losses related to any accident or injury to person or property at the leased hotels, certain environmental liability, taxes and assessments (other than real estate and personal property taxes and any income taxes of the Company on income attributable to the leased hotels), the sale or consumption of alcoholic beverages, or any breach of the DJONT Leases by the DJONT Lessee. Other Lease Covenants. The DJONT Lessee has agreed that during the term of the DJONT Leases it will maintain a ratio of total debt to consolidated net worth of less than or equal to 50%, exclusive of capitalized leases and indebtedness subordinated in right to repayment to the rent due under the DJONT Leases. In addition, the DJONT Lessee has agreed that it will not pay fees to any of its affiliates. Breach by Company. Upon notice from the DJONT Lessee that the Company has breached the Lease, the Company has 30 days to cure the breach or proceed to cure the breach, which period may be extended in the event of certain specified, unavoidable delays. If the Company fails to cure a breach on its part under a DJONT Lease, the DJONT Lessee may purchase the leased hotel from the Company for a purchase price equal to the leased hotel's then fair market value. -19- 22 Bristol Master Hotel Agreement. Bristol and the Company are parties to an Amended and Restated Master Hotel Agreement ("MHA"), pursuant to which, among other things, Bristol and the Bristol Lessees are required to use their reasonable best efforts to permit FelCor to continue to qualify as a real estate investment trust under the Code. Bristol and the Bristol Lessees are required to maintain a minimum liquid net worth (including not only working capital and other liquid assets, but also income-producing or readily-marketable assets, and any letters of credit or other credit enhancements necessary to meet such requirement) at all times at least equal to fifteen percent (15%) of projected annual rent under all of the Bristol leases during each calendar year. If such minimum liquid net worth is not maintained, and Bristol fails to cure the deficiency, the leases will be in default, and the Bristol Lessees generally will be prohibited from making cash dividends or other distributions or any other payments to affiliates. Under the MHA, the Bristol Hotels also are treated as a whole, and the leases are cross_defaulted, for purposes of the Company's remedies upon default. Upon certain material defaults under one or more leases, the Company has the option to terminate the particular lease(s) in default, or all leases to which the defaulting Bristol Lessee is a party, or all (but not less than all) of the Bristol leases. The Bristol Percentage Leases. The principal terms of the Percentage Leases with Bristol (the "Bristol Leases") are summarized below, although certain terms will vary from hotel to hotel. Term. The Bristol Leases are for initial terms of five to ten years, with renewal options on the same terms for a total of 15 years. If a Bristol Lease has been extended to 15 years, the Bristol Lessee may renew the lease for an additional five years at then current market rates. Rent. The Bristol Lessees pay a monthly rent equal to the greater of Base Rent or Percentage Rent. The Percentage Rent is based on specified percentages of various revenue streams. Those percentages will vary from hotel to hotel within the following ranges: Room and Suite Revenues: 0% to 10% up to a revenue breakpoint amount specified for each hotel, then 60% to 75% above such breakpoint. Food & Beverage Revenues: 5% to 25%. Telephone Revenues: 5% to 10%. Other Revenues: Varying percentages depending on the nature and source of such revenues. Generally, the Percentage Leases provide for the computation of rent on a standalone quarterly basis. The Base Rent and the thresholds for computing Percentage Rent under the Bristol Leases will be adjusted annually to reflect changes in the CPI. The CPI adjustment applicable to 2000 and 1999 were 2.2% and 1.6%, respectively. The parties to the Bristol Leases also agree to renegotiate the rent in the event of any rebranding, substantial renovations (other than those agreed upon prior to the execution of the Bristol Leases) or other, future hotel repositioning strategies resulting in significant disruption of the operations of the leased hotels. The Bristol Lessees have the right to require the Company to renegotiate the rent for all the hotels in a particular region if there is an extended, material reduction in midscale hotel occupancy rates in the U.S. and in such region. If the Company and the Bristol Lessees are unable to agree on a reduction in rent, the Bristol Lessees may terminate all Bristol Leases in the respective region. The Bristol Lessee also may require the Company to -20- 23 renegotiate the rent for a particular hotel if, as a result of certain force majeure events, there is an extended, material decline in the travel or hotel business and a material reduction in the occupancy rate of such hotel and the hotel's competitive set. If the Bristol Lessee and the Company are unable to agree on a change in rent, the Bristol Lessee may terminate the lease for such hotel. Termination. A Bristol Lease also may be terminated by the Company for typical defaults such as failure to pay rent, certain insolvency events and the following reasons, among others: o if Bristol fails to satisfy certain performance targets for any one hotel and all other hotels in the aggregate during any three consecutive years based on budgeted room revenues, unless Bristol pays the Company the difference between the actual rent paid and 80% (or, in certain circumstances, 90%) of the budgeted rent; o upon a change in control of Bristol, defined as the acquisition of more than 50% of Bristol's stock by any person or group not approved by Bristol's Board of Directors or the election of a majority of directors not supported by Bristol's Board of Directors; o upon any breach by the Bristol Lessee of the agreements under the lease that is not cured within certain specified periods; o if Bristol fails to maintain a minimum liquid net worth or to provide other credit support for the obligations of the Bristol Lessees under the Bristol Leases; o if a franchisor terminates a franchise license as a result of the Bristol Lessee's default under the franchise agreement; and o if the Company sells the hotel to an unaffiliated third party. If the Company terminates the lease upon sale of a hotel and Bristol does not continue as a manager or lessee of the hotel (or a substitute hotel offered by the Company), Bristol will be entitled to monthly termination payments during the remainder of the lease term equal to one-twelfth of 60% of the average monthly profit and allocable overhead contribution associated with operating the hotel over the 12 months ending on the termination date. Indemnification. The Bristol Lessee agrees to indemnify the Company for certain losses relating to the hotel, including losses related to any accident or injury to persons or property at the hotel, any breach of the lease by the Bristol Lessee and certain environmental and tax liabilities not assumed by the Company in connection with its acquisition of the Bristol Hotels. The Company will indemnify the Bristol Lessee for any breach of the lease by the Company, for liability for the environmental condition of the hotel at the time the lease commences and for the Company's acts of gross negligence or willful misconduct. Maintenance and Capital Expenditures. The Bristol Lessee is responsible for maintaining the leased hotel in good order and repair and for making all repairs that do not constitute capital improvements. The Bristol Lessee is generally required to budget and expend an amount equal to at least 4.5% of gross revenues of the hotel for maintenance and repairs (other than capital improvements) during each lease year. The Bristol Lessee must supply and maintain the inventory that is necessary to operate the leased hotel. The Company is responsible for all hotel capital improvements (including those required by applicable law or, with certain exceptions, the respective franchise license) and for maintaining the underground utilities and all hotel improvements, furniture, fixtures and equipment owned by the Company to the extent such maintenance constitutes capital expenditures in accordance with generally accepted accounting principles or the capital improvements policy agreed to by both the Company and the Bristol Lessee. The Company must make available an amount equal to at least 3% of the hotel's gross revenues, on a cumulative basis, for budgeted or other approved capital expenditures. -21- 24 Insurance and Property Taxes. The Company will pay all real estate and personal property taxes and property insurance premiums on the leased hotels, other than with respect to the Bristol Lessee's personal property. The Bristol Lessee will pay for all liability insurance on the leased hotels, including extended coverage, comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to the leased hotels. ITEM 3. LEGAL PROCEEDINGS There is no litigation pending or known to be threatened against the Company or affecting any of its Hotels other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of such claims are substantially covered by insurance. FelCor's management does not believe that any claims known to it (individually or in the aggregate) will have a material adverse effect on the Company, without regard to any potential recoveries from insurers or other third parties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -22- 25 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION There is no established public trading market for the Units. The Units, however, are redeemable at the option of the holder for a like number of shares of Common Stock of FelCor or, at the option of FelCor, for the cash equivalent thereof. The following information is provided regarding the Common Stock of FelCor. FelCor's Common Stock is traded on the New York Stock Exchange under the symbol "FCH." The following table sets forth for the indicated periods the high and low sale prices for the Common Stock, as traded on such exchange.
HIGH LOW ---- --- 1998 ---- First quarter............................................... $ 38 5/16 $ 34 15/16 Second quarter.............................................. 37 5/16 31 3/16 Third quarter............................................... 32 1/4 20 Fourth quarter.............................................. 24 3/16 18 3/16 1999 ---- First quarter............................................... $ 24 1/2 $ 21 13/16 Second quarter.............................................. 25 7/16 20 3/8 Third quarter............................................... 21 7/16 16 13/16 Fourth quarter.............................................. 18 16 3/8
STOCKHOLDER INFORMATION At March 15, 2000, the Company had approximately 40 holders of record of its Units. It is estimated that there also were approximately 40 beneficial owners, in the aggregate, of the Units at that date. DISTRIBUTION INFORMATION The Company has adopted a policy of paying regular quarterly distributions on its Units, and cash distributions have been paid on the Company's Units with respect to each quarter since its inception. The following table sets forth information regarding the declaration and payment of distributions by the Company on its Units during 1998 and 1999. -23- 26
QUARTER TO DISTRIBUTION DISTRIBUTION PER UNIT WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION RELATES DATE DATE AMOUNT ------- ---- ---- ------ 1998 ---- First quarter.................................................. 4/15/98 4/30/98 $0.55 Second quarter................................................. 7/15/98 7/31/98 $0.55 Third quarter.................................................. 10/15/98 10/30/98 $0.55 Fourth quarter................................................. 12/30/98 1/29/99 $0.895(1) 1999 ---- First quarter.................................................. 4/15/99 4/30/99 $0.55 Second quarter................................................. 7/15/99 7/30/99 $0.55 Third quarter.................................................. 10/15/99 10/29/99 $0.55 Fourth quarter................................................. 12/30/99 1/31/00 $0.55
- - ------------- (1) Includes a special one-time distribution of $0.345 per Unit, representing accumulated earnings and profits from FelCor's July 1998 merger with Bristol Hotel Company. The foregoing distributions represent an approximate 7.2% return of capital in 1999 and an approximate 17.0% return of capital in 1998. In order to maintain its qualification as a REIT, FelCor must make annual distributions to its shareholders of at least 95% (90% beginning in 2001) of its taxable income (which does not include net capital gains). For the years ended December 31, 1999 and December 31, 1998, FelCor had distributions totaling $2.20 and $2.545 per common share, respectively, of which only $1.84 and $2.01 per share, respectively, were required to satisfy the 95% REIT distribution test. All of such funds were provided by the Company through distributions on its Units. Under certain circumstances the Company may be required to make distributions in excess of cash available for distribution in order to meet FelCor's REIT distribution requirements. In such event, the Company presently would expect to borrow funds, or to sell assets for cash, to the extent necessary to obtain cash sufficient to make the distributions required to enable FelCor to retain its qualification as a REIT for federal income tax purposes. The Company currently anticipates that it will maintain at least the current distribution rate for the immediate future, unless actual results of operations, economic conditions or other factors differ from its current expectations. Future distributions, if any, paid by the Company will be at the discretion of the Board of Directors of FelCor and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements of FelCor under the REIT provisions of the internal revenue code and such other factors as the Board of Directors deems relevant. RECENT SALES OF UNREGISTERED SECURITIES During 1999, the Company issued an aggregate of 54,319 Units, in connection with the acquisition of a joint venture interest in a hotel and the purchase of land previously leased under a long term land lease, which may be redeemed for a like number of shares of FelCor's Common Stock. Neither the Units, nor the shares of Common Stock issuable in redemption thereof, were registered under the Securities Act in reliance upon certain exemptions from the registration requirements thereof, including the exemption provided by section 4(2) of that act. -24- 27 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected financial data for the Company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 that has been derived from the financial statements of the Company and the notes thereto, audited by PricewaterhouseCoopers LLP, independent accountants. Such data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------- 1999 1998 (1) 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Total revenue ....................... $ 504,001 $ 339,617 $ 176,651 $ 100,944 $ 25,991 Income before nonrecurring items .... $ 136,653 $ 123,937 $ 69,652 $ 48,881 $ 15,322 Net income .......................... $ 135,776 $ 121,339 $ 69,467 $ 46,527 $ 15,322 Net income applicable to unitholders ...................... $ 111,041 $ 99,916 $ 57,670 $ 38,793 $ 15,322 DILUTED EARNINGS PER UNIT: Income applicable to unitholders before extraordinary charge ...... $ 1.59 $ 1.95 $ 1.68 $ 1.58 $ 1.70 Net income applicable to unitholders ...................... $ 1.57 $ 1.87 $ 1.67 $ 1.49 $ 1.70 OTHER DATA: Cash dividends per unit ............. $ 2.20 $ 2.545 (2) $ 2.10 $ 1.92 $ 1.84 Funds From Operations (3) ........... $ 286,895 $ 217,363 $ 129,815 $ 77,141 $ 20,707 EBITDA (4) .......................... $ 432,690 $ 306,361 $ 165,613 $ 88,355 $ 22,869 Weighted average units outstanding .. 75,251 58,013 39,157 29,306 8,989 BALANCE SHEET DATA: Total assets ........................ $4,255,751 $4,175,383 $1,673,364 $ 978,788 $ 548,359 Debt ................................ $1,833,954 $1,594,734 $ 476,819 $ 239,425 $ 19,666
-------------- (1) On July 28, 1998, FelCor completed the merger of Bristol Hotel Company's real estate holdings with and into FelCor. FelCor then contributed the assets so acquired to the Company in exchange for approximately 31 million units of partnership interest. The merger resulted in the Company's net acquisition of 107 primarily full-service hotels. (2) In 1998, the Company declared a special one-time distribution of accumulated but undistributed earnings and profits as a result of the merger of Bristol Hotel Company into FelCor, in addition to the regular quarterly distribution of $0.55 per unit and $0.4875 per Series A preferred unit. The amount of the one-time distribution was $0.345 per unit and $0.207 per Series A preferred unit. (3) A more detailed description of FFO is contained in the "Funds From Operations" section of Management's Discussion and Analysis of Financial Condition and Results of Operations. (4) EBITDA is computed by adding FFO, interest expense, the Company's portion of interest expense from unconsolidated entities, amortization expense, and Series B preferred unit distributions. -25- 28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL FelCor Lodging Limited Partnership and its subsidiaries (the "Company"), at December 31, 1999, owned interests in 188 hotels with nearly 50,000 rooms and suites. Additional organizational information relating to the Company, and the definitions of certain capitalized terms, are contained in the Notes to Consolidated Financial Statements of FelCor Lodging Limited Partnership appearing elsewhere herein. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R) and independently owned Doubletree(R) branded hotels in the world. The Hotels are located in 35 states and Canada with concentrations in Texas (41), California (20), Florida (18), and Georgia (15). The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at December 31, 1999:
NOT OPERATED BRAND DJONT BRISTOL UNDER A LEASE TOTAL ----- ----- ------- ------------- ----- Embassy Suites .............................. 58 58 Holiday Inn ................................. 43 1 44 Doubletree and Doubletree Guest Suites(R).... 16(1) 16 Crowne Plaza and Crowne Plaza Suites(R) ..... 18 18 Holiday Inn Select(R) ....................... 10 10 Sheraton(R)and Sheraton Suites(R) ........... 9 1(2) 10 Hampton Inn(R) .............................. 9 9 Holiday Inn Express(R) ...................... 5 5 Fairfield Inn(R) ............................ 5 5 Harvey Hotel(R) ............................. 4 4 Independents ................................ 2 1 3 Courtyard by Marriott(R) .................... 2 2 Hilton Suites(R) ............................ 1 1 Homewood Suites(R) .......................... 1 1 Four Points by Sheraton(R) .................. 1 1 Westin(R) ................................... 1 1 ---- ---- ---- ---- Total Hotels ............................ 85 100 3 188 ==== ==== ==== ====
(3) On January 1, 2000 two of these Doubletree Guest Suites hotels were converted to the Embassy Suites brand. (4) On January 1, 2000 a lease on this hotel became effective between the Company and DJONT. The principal factors affecting the Company's results of operations are changes in room and suite revenues reflected by revenue per available room ("RevPAR"), renovations, redevelopments, and rebrandings of hotels and acquisitions. On July 28, 1998, the Company completed the acquisition of the real estate assets of Bristol Hotel Company through the Merger, which resulted in the net addition of 107 hotels, valued at approximately $2 billion, to the Company's portfolio. In addition to the assets acquired in the Merger, the Company acquired ownership interests in 16 hotels in 1998 and one additional hotel in 1999. Nine of the hotels acquired in the Merger did not meet the Company's investment criteria and were sold in 1998 and 1999. In 1999, the Company completed the major portion of its program of renovation, redevelopment, and rebranding of hotels, undertaken to improve under-performing assets and increase revenues. The Company and, prior to the Merger, Bristol Hotel Company, spent nearly $220 million in 1998 on renovations, redevelopments, rebrandings, room additions to existing hotels, and other hotel improvements. In 1999 the Company completed renovations at 44 hotels during the year, totaling $193 million. Nineteen hotels were undergoing renovation at the end of 1999 and renovation expenditures on the hotel portfolio totaled $177 million during the year. A total of eight hotels were rebranded during 1999. On January 1, 2000, two Doubletree Guest Suites hotels were rebranded as Embassy Suites hotels. Management believes that its -26- 29 strategy of renovating, redeveloping and rebranding selected hotels continues to be effective in improving revenue performance. Historically the Company has been financed primarily with equity, resulting in a conservative financial structure. The Company's emphasis on maintaining this conservative approach is evidenced in part, by the following, as of December 31, 1999: o Interest coverage ratio of 3.3x o Total debt to annual EBITDA of 4.5x o Borrowing capacity under its Line of Credit of $186 million o Consolidated debt equal to 40% of its investment in hotels at cost o Fixed interest rate debt comprising 62% of total debt o Secured mortgage debt to total assets of 11% o Debt of approximately $43 million maturing in 2000 The Company's historical results of operations for 1999, 1998, and 1997 are summarized as follows (in millions, except percentages and hotel counts):
YEARS ENDED DECEMBER 31, PERCENTAGE CHANGE ---------------------------------------- ------------------------- 1999 1998 1997 99 VS 98 98 VS 97 ---------- ---------- ---------- ---------- ---------- Hotels owned at year end ........... 188 193 73 (2.6)% 164.4% Revenues ........................... $ 504.0 $ 339.6 $ 176.7 48.4 % 92.2% Income before nonrecurring items ... $ 136.7 $ 123.9 $ 69.7 10.3 % 77.8% Net income applicable to unitholders $ 111.0 $ 99.9 $ 57.7 11.1 % 73.1% Funds From Operations (FFO) ........ $ 286.9 $ 217.4 $ 129.8 32.0 % 67.5%
RESULTS OF OPERATIONS THE COMPANY -- ACTUAL Comparison of the Years Ended December 31, 1999 and 1998. For the years 1999 and 1998, the Company had total revenue of $504.0 million and $339.6 million, respectively, consisting primarily of Percentage Lease revenue of $490.9 million and $328.0 million. The increase in revenue is primarily attributable to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of interests in more than 100 hotels in 1998, including the hotels that were acquired through the Merger on July 28, 1998. The hotels which were acquired during 1998, including those acquired through the Merger, accounted for $151.1 million (93%) of the change in Percentage Lease revenue for the twelve months ended December 31, 1999 compared to 1998. The 73 hotels owned throughout both of the years ended December 31, 1999 and 1998 produced an increase in Percentage Lease revenues of $10.9 million (or 1.9%) between 1998 and 1999. Changes in room and suite revenues significantly affect the Company because its principal source of revenue is rent payments from the Lessees under the Percentage Leases. The Percentage Leases provide for rent based on a percentage of room and suite revenue, food and beverage revenue, food and beverage rents, and in some instances, other hotel revenues. In 1999 and 1998, Percentage Lease revenue derived from room and suite revenue represented 91% and 93% of total Percentage Lease revenue, respectively. The 73 hotels owned throughout both 1999 and 1998 increased room and suite revenue by $11.6 million (or 2%) in 1999 compared to 1998 and increased RevPAR by 1.4%. The RevPAR increase was driven by an increase in average daily rate ("ADR") of 1.5%, despite a slight drop in occupied rooms ("Occupancy") of 0.1 percentage points. Of the 73 hotels, 18 had undergone renovation in either 1998 or 1999. Those renovated hotels reflected increases in ADR of 2.2% and in RevPAR of 1.9%, which was greater than the results for hotels that had not undergone renovation. This reflects both the improvement from renovation and the impact of taking rooms out of service for such renovation. -27- 30 The Company generally seeks to improve those of its hotels that management believes can achieve increases in room and suite revenue and RevPAR as a result of renovation, redevelopment and rebranding. However, during the course of such improvements hotel revenue performance is often adversely affected, compared to the prior year, by such temporary factors as rooms and suites out of service and disruptions of hotel operations. During 1999, the Company spent $177 million on the renovation, redevelopment and rebranding of its hotels. As a result of the extensive renovations, the Company's portfolio experienced significant disruption during 1999, with approximately 350,000 room nights out of service, or 2% of its portfolio. (A more detailed discussion of hotel room and suite revenue is contained in the "The Hotels - Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Total expenses increased $151.7 million in the year ended December 31, 1999, to $367.3 million from $215.7 million in 1998. This increase resulted primarily from the additional hotels acquired in July 1998 through the Merger. Total expenses as a percentage of total revenue increased to 72.9% for the twelve months ended December 31, 1999, compared to 63.4% in the same period of 1998. The major components of the increase in expenses, as a percentage of total revenue, are depreciation, land leases, and interest expense. Depreciation increased as a percentage of total revenue to 30.4% in the twelve months ended December 31, 1999, from 26.8% in 1998. The relative increase in depreciation expense is primarily attributed to depreciation on $341.4 million in capital expenditures made over the past two years, approximately 40% of which are short-lived assets that are depreciated over 3 to 5 years. Land lease expenses represent 3.5% of total revenue in 1999 as compared to 2.4% in 1998. This increase, as a percentage of total revenue, results primarily from the larger percentage of hotels subject to land leases among those acquired through the Merger. Interest expense increased, as a percentage of total revenue, to 24.9% in the twelve months ended December 31, 1999, from 21.6% in 1998. This increase in interest expense is attributed to the increased debt used to finance renovations, higher interest rates on debt that was refinanced to extend maturities and convert such debt from variable to fixed rates, the assumption of debt related to the more highly leveraged Bristol assets, and borrowings to fund the Company's stock repurchase program. General and administrative expenses and taxes, insurance and other expense remained relatively constant as a percentage of total revenue in 1999 and 1998. Comparison of the Years Ended December 31, 1998 and 1997. For the years 1998 and 1997, the Company had revenue of $339.6 million and $176.7 million, respectively, consisting primarily of Percentage Lease revenue of $328.0 million and $169.1 million. The 43 hotels owned by the Company throughout both of the years 1998 and 1997, which reflect the effect of the Company's ownership and the management by its strategic partners, experienced a growth in RevPAR during 1998 of 5.4% over 1997. The largest portion of this increase came from the 18 former Crown Sterling Suite hotels, which continued their trend of improved RevPAR throughout 1998, achieving a RevPAR of $92.05 in 1998 compared to $85.04 for 1997, an increase of 8.2%. These hotels have improved their RevPAR performance by 31.4% since 1996. The Company attributes this dramatic increase to the renovation, redevelopment and rebranding of these hotels in 1996 and early 1997. The improvement in room and suite revenue significantly impacts the Company because its principal source of revenue is rent payments from the Lessees under the Percentage Leases. The Percentage Leases provide for rent based on a percentage of room and suite revenue, food and beverage revenue, food and beverage rents, and in some instances, other hotel revenues. The portion of the Percentage Lease revenue -28- 31 derived from room and suite revenues was approximately 93% in 1998 and 97% in 1997. The decrease in the portion of Percentage Lease revenue derived from room and suite revenues is attributed primarily to the more extensive food and beverage operations in the Bristol hotels. Total expenses increased $108.7 million in 1998 over 1997, primarily resulting from the net acquisition of 120 hotels during 1998 and 30 hotels in 1997. Total expenses as a percentage of total revenue increased in 1998 to 63.4% from 60.6% in 1997. The major component of the increase in expenses, as a percentage of total revenue, was interest expense. Interest expense increased by $44.4 million, from $28.8 million in 1997 to $73.2 million in 1998, and increased as a percentage of total revenue, from 16.3% in 1997 to 21.6% in 1998. The relative increase in interest expense is attributed to the assumption of debt related to the more highly leveraged Bristol assets. Debt as a percentage of total assets increased from 28.5% at December 31, 1997 to 38.2% at December 31, 1998. General and administrative expenses, depreciation, and taxes, insurance and other expenses remained relatively constant as a percentage of total revenue in 1998 and 1997. FUNDS FROM OPERATIONS The Company and FelCor considers Funds From Operations to be a key measure of a REIT's performance which should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's and FelCor's operating performance and liquidity. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines Funds From Operations as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and extraordinary gains or losses from sales of properties, plus real estate related depreciation and amortization, after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company and FelCor 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 and FelCor to incur and service debt, to make capital expenditures and to fund other cash needs. The Company computes Funds From Operations in accordance with standards established by NAREIT which may not be comparable to Funds From Operations reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. Funds From Operations does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company 's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. Funds From Operations may include funds that may not be available for management's discretionary use due to requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. The following table details the computation of Funds From Operations (in thousands):
YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 --------- --------- --------- FUNDS FROM OPERATIONS (FFO): Net income .......................................................... $ 135,776 $ 121,339 $ 69,467 Series B preferred unit distributions ............................ (12,937) (8,373) Extraordinary charge from write off of deferred financing fees .. 1,113 3,075 185 Depreciation ..................................................... 152,948 90,835 50,798 Depreciation for unconsolidated entities ......................... 9,995 10,487 9,365 --------- --------- --------- FFO ................................................................. $ 286,895 $ 217,363 $ 129,815 ========= ========= ========= Weighted average units outstanding .................................. 75,251 58,013 39,157
-29- 32 THE HOTELS -- ACTUAL Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and Sheraton and Sheraton Suites hotels account for approximately 97% of the Company's Percentage Lease revenue. As a result of the renovation and rebranding of hotels, approximately 98% of Percentage Lease revenue for 2000 is expected to be derived from upscale and full service hotels. The Company believes that when analyzing the performance of the hotels, looking at "Comparable Hotels" is the most meaningful. The Company defines "Comparable Hotels" as those not undergoing renovation, redevelopment or rebranding in either of the comparison years. Major renovations generally have an adverse affect on hotel earnings by taking rooms out of service and disrupting hotel operations. "Non-comparable Hotels" are those undergoing renovation, redevelopment or rebranding during either year. The following tables set forth historical Occupancy, ADR and RevPAR at December 31, 1999 and 1998, and the percentage changes therein between the years presented for the Hotels in which the Company had an ownership interest at December 31, 1999. This information is presented regardless of the date of acquisition.
1999 ------------ ------------ ------------ OCCUPANCY ADR REVPAR ------------ ------------ ------------ DJONT Comparable Hotels 73.0% $ 123.00 $ 89.79 Bristol Comparable Hotels 65.7% $ 81.55 $ 53.59 Total Comparable Hotels (A) 69.6% $ 104.61 $ 72.79 DJONT Non-Comparable Hotels 67.9% $ 108.58 $ 73.74 Bristol Non-Comparable Hotels 66.4% $ 89.84 $ 59.64 Total Non-Comparable Hotels (B) 66.9% $ 96.64 $ 64.68 Total Hotels 68.3% $ 100.72 $ 68.77
1998 ------------ ------------ ------------ OCCUPANCY ADR REVPAR ------------ ------------ ------------ DJONT Comparable Hotel 73.0% $ 121.42 $ 88.67 Bristol Comparable Hotels 67.3% $ 80.00 $ 53.86 Total Comparable Hotels 70.3% $ 102.74 $ 72.27 DJONT Non-comparable Hotels 69.7% $ 106.08 $ 73.96 Bristol Non-comparable Hotels 65.9% $ 83.67 $ 55.14 Total Non-comparable Hotels 67.3% $ 92.02 $ 61.90 Total Hotels 68.8% $ 97.56 $ 67.16
CHANGE FROM PRIOR PERIOD 1999 VS. 1998 ------------------------------------------------ OCCUPANCY ADR REVPAR ------------ ------------ ------------ DJONT Comparable Hotels 0.0pts 1.3% 1.3% Bristol Comparable Hotels (1.6)pts 1.9% (0.5)% Total Comparable Hotels (0.7)pts 1.8% 0.7% DJONT Non-comparable Hotels (1.8)pts 2.4% (0.3)% Bristol Non-comparable Hotels 0.5pts 7.4% 8.2% Total Non-comparable Hotels (0.3)pts 5.0% 4.5% Total Hotels (0.5)pts 3.2% 2.4%
(A) DJONT Comparable Hotels includes 55 hotels and Bristol Comparable Hotels includes 49 hotels which were not undergoing renovation, redevelopment, or rebranding in either the 1999 or 1998 periods reported. (B) DJONT Non-comparable Hotels includes 32 hotels and Bristol Non-comparable Hotels includes 52 hotels undergoing redevelopment in either the 1999 or 1998 periods reported. -30- 33 Comparison of the Hotels' Operating Statistics for the Years Ended December 31, 1999 and 1998. For the twelve months ended December 31, 1999, the Company's Comparable Hotels' RevPAR increased, compared to the same period in 1998, by 0.7%. In the twelve months ended December 31, 1999, the Comparable Hotels' ADR increased 1.8%, but Occupancy fell 0.7 percentage points. In general, the Company is encouraged by the relative firming of room rates in the last half of the year, which appears to be indicative of the absorption of the new rooms introduced in certain markets during the past year. The DJONT Comparable Hotels are predominately Embassy Suites, Doubletree and Doubletree Guest Suites, and Sheraton hotels. The Bristol Comparable Hotels are predominately Holiday Inn and Crowne Plaza hotels. The following table shows the Comparable Hotel RevPAR changes for these five brands for the year ended December 31, 1999, compared to 1998:
REVPAR PERCENTAGE OF TOTAL CHANGE ROOM REVENUE ------ ------------------- Embassy Suites (45 hotels) 1.3% 56.9% Holiday Inn (29 hotels) 1.4% 22.5% Sheraton (3 hotels) 1.4% 4.4% Doubletree (5 hotels) 2.5% 2.9% Crowne Plaza (2 hotels) (8.9)% 2.0%
The poor performance of the Comparable Crowne Plaza hotels is primarily the result of one hotel in Jackson, Mississippi, which was converted to a Crowne Plaza in 1997. This hotel suffered both significant competition from a new full service hotel and the relocation of a major employer that had contributed significant business in prior years. The Comparable Embassy Suites and Holiday Inn hotels showed improving RevPAR trends in the last half of 1999, which appear to be continuing into 2000. Nearly 52% of the Company's 1999 Comparable Hotel revenue was derived from four states: Texas, California, Georgia and Florida. Changes in Comparable Hotel RevPAR during 1999 for these states, compared to 1998, are illustrated in the following table:
REVPAR PERCENTAGE OF TOTAL CHANGE ROOM REVENUE ------ ------------------- Texas (25 hotels) (3.9)% 24.0% California (12 hotels) 3.3% 11.5% Georgia (10 hotels) 1.0% 9.6% Florida (7 hotels) 4.6% 6.7%
The Company's exposure in overbuilt markets, such as Dallas, Texas, had a negative impact on Comparable Hotel trends during 1999, although management expects the rate of new supply additions to decline in 2000. During 1999, the Company's Texas hotels, experienced a 3.9% decrease in RevPAR, while the 10 Comparable Hotels in the Dallas market experienced a 5.9% decline in RevPAR. Management is encouraged, although it continues to see an oversupply in the Dallas market, that the situation appears to be improving and supply growth is now expected to begin a gradual decline. In addition, the Company has recently renovated eight of its 18 Dallas-based properties and management is currently projecting positive RevPAR growth for the majority of its hotels in this market during 2000. The Non-comparable Hotel performance was most profoundly affected by the Allerton Crowne Plaza, which was closed for renovation in the third quarter 1998 and partially reopened in the second quarter of 1999. The Allerton generated an 84.3% increase in its RevPAR for the year ended December 31, 1999, as compared to -31- 34 the same period in 1998. The remainder of the Bristol Non-comparable Hotels also showed improvements in RevPAR, which are attributed to the completion of renovations at many of these hotels. Most of the DJONT Non-comparable Hotels where renovations had been completed also showed strong RevPAR increases for the year, compared to the same period last year. Other factors which management believes will have favorable impacts on future hotel revenues are the recent merger between Hilton Hotels Corporation and Promus Hotel Corporation and the recently announced merger agreement between Bristol and Bass plc. The Hilton/Promus merger, which was completed in November 1999, should provide stability and focus for the Embassy Suites and Doubletree brands. In addition, the Promus brands should benefit from the distribution of the Hilton brands in the United States and worldwide, cross-selling through the larger Hilton/Promus reservation system and the addition of Hilton's HHonors(R) frequent traveler and loyalty program to the Company's Embassy Suites and Doubletree hotels. The proposed Bass/Bristol merger will serve to match the management of the Company's Bass branded hotels with the brand owner, which management expects to be beneficial to the development and strengthening of these brands and should help strengthen the Company's relationship with the brand owner. DJONT- ACTUAL Comparison of the Years Ended December 31, 1999 and 1998 Total revenues increased to $797.6 million in the twelve months ended December 31, 1999, from $749.5 million in the same period of 1998, an increase of 6.4%. Total revenues consisted primarily of room and suite revenue of $649.3 million and $618.1 million in the twelve months of 1999 and 1998, respectively. The increase in total revenues is primarily a result of the acquisition of twelve additional hotels in 1998. Room and suite revenues from the these 12 hotels, for the twelve months ended December 31, 1999 over 1998, increased 1.9% or $10.6 million. The room and suite revenue for 73 hotels which were leased for all of 1999 and 1998 increased $11.6 million as a result of an increase in ADR of $1.81, with a slight decrease, Occupancy of 0.1%. The Embassy Suites and Doubletree branded hotels, collectively 74 hotels, should benefit from the recently completed merger between Hilton Hotel Corporation and Promus Hotel corporation (the brand manager for all but two of DJONT's Embassy Suites and Doubletree hotel). Hilton's upscale hotel experience and integration into Hilton's central reservation system, marketing infrastructure and frequent stay program which has the potential to drive both incremental occupancy and rate. DJONT's income before Percentage Lease rent decreased as a percentage of total revenues from 38.8% in the twelve months ended December 31, 1998 to 37.9% in the twelve months ended December 31, 1999. For the twelve months ended December 31, 1999, DJONT incurred losses of $4.9 million. This is largely due to increased property operating costs resulting from higher labor costs and related payroll benefits, increased reservation costs, and increased fees related to the former Crowne Sterling hotels. Percentage lease expense remained relatively constant as a percentage of total revenue in 1999 and 1998. Comparison of the Years Ended December 31, 1998 and 1997 Total revenues increased to $749.5 million in 1998 from $534.5 million in 1997, an increase of 40.2%. Total revenues consisted primarily of suite revenue of $ 618.1 million and $456.6 million in 1998 and 1997, respectively. -32- 35 The increase in total revenues is primarily a result of the increase in the number of hotels leased to 86 hotels at December 31, 1998 from 73 hotels at December 31, 1997. Suite revenues for the 43 hotels which were leased for all of 1998 and 1997 increased 8.0% or $19.3 million. The increase in revenues at these hotels is due primarily to improved average daily room rates of $122.33, for the year ended December 31, 1998, as compared to $114.77 for the year ended December 31, 1997. DJONT recorded a net income of $844,000 in 1998 compared to a net loss of $2.7 million in 1997. This improvement in operating performance is primarily attributed to improved profitability of food and beverage operations for DJONT and a decrease in percentage lease expenses as a percentage of total revenue. Food and beverage profits increased to 1.6% of total revenue in 1998 from 0.3% in 1997, an increase of $10.2 million. This change is attributed to the increased number of hotels leased by DJONT which have a greater emphasis on food and beverage than the traditional Embassy Suites. Food and beverage revenue, as a percentage of total revenue, increased to 10.4% in 1998 compared to 6.5% in 1997. Percentage lease expenses as a percentage of total revenue decreased to 39% from 41%. A portion of this change is attributed to the increase in food and beverage revenues, as a percentage of total revenues, which bear a lower percentage rent than room revenues. RENOVATIONS, REDEVELOPMENTS AND REBRANDINGS The Company has historically differentiated itself from many of its competitors by: o the practice of upgrading, renovating and/or redeveloping most of its acquired hotels to enhance their competitive position, and, in certain instances, rebranding them to improve their revenue generating capacity; and o the ongoing program for the maintenance of the Company's upgraded hotel assets, which includes: o the contribution of at least 4% of annual room and suite revenue for the DJONT hotels, and 3% of total annual hotel revenue for the Bristol hotels, for routine capital replacements and improvements; and o ensuring the Lessees' adherence to a maintenance and repair program amounting to approximately 4.5% of annual hotel revenues. Renovation and Redevelopment Program The Company has demonstrated its ability to successfully execute renovations. Its renovation and rebranding of the 18 Crown Sterling Suites hotels, which were acquired during 1996 and 1997, achieved an overall RevPAR increase of 34.1% between 1996 and 1999. During 1998 and 1999, an aggregate of approximately $442 million in capital improvements were made to the Company's hotels, with approximately 3% of total hotel room nights being lost due to renovation in 1998 and 2% in 1999. During 2000, the Company currently expects to spend approximately $15 million on the renovation of 28 hotels, approximately $42 million to complete renovations started in 1999 at 28 hotels, and approximately $40 million for other capital expenditures. The Company is currently reviewing the feasibility of undertaking between $4 and $20 million of additional renovations and room additions during 2000. The Company currently expects an insignificant number of room nights to be lost during 2000 as a result of renovations. By the end of 2000, the Company will have spent nearly $650 million since 1994 on renovations and other capital expenditures to its hotel portfolio, which should limit the need for future renovation expenditures primarily to those necessary to maintain the hotels in their upgraded condition. The largest single renovation project completed during 1999 was the Allerton Crowne Plaza in Chicago, which was partially reopened in July 1999, after having been closed for more than a year. This project has -33- 36 received numerous awards, including Lodging Hospitality magazine's Year's Best Design competition in two categories, Bass Hotels & Resorts 1999 Newcomer of the Year award, and Chicago's Greater North Michigan Avenue Association 1999 Avenue Enhancement award. Rebranding In 1998 and 1999, the Company re-branded 24 hotels as follows:
NEW BRAND PRIOR BRAND LOCATION --------- ----------- -------- Crowne Plaza Holiday Inn Hartford, Connecticut Crowne Plaza Holiday Inn San Francisco, California Crowne Plaza Hilton Secaucus, New Jersey Crowne Plaza Holiday Inn Houston, Texas Crowne Plaza Holiday Inn Select Greenville, South Carolina Crowne Plaza Holiday Inn Select Miami, Florida Crowne Plaza Holiday Inn Select Philadelphia, Pennsylvania Crowne Plaza Harvey Hotel Atlanta, Georgia Crowne Plaza Harvey Hotel Dallas, Texas Crowne Plaza Harvey Hotel Addison, Texas Crowne Plaza Holiday Inn Select Irvine, California Crowne Plaza Holiday Inn San Jose, California Crowne Plaza Independent Chicago, Illinois Crowne Plaza Holiday Inn Omaha, Nebraska Crowne Plaza Suites Bristol Suites Dallas, Texas Doubletree Radisson Wilmington, Delaware Embassy Suites Doubletree Guest Suites Bloomington, Minnesota Embassy Suites Doubletree Guest Suites Dallas, Texas Holiday Inn & Suites Harvey Suites Houston, Texas Independent Embassy Suites Beaver Creek, Colorado Sheraton Radisson Dallas, Texas Sheraton Suites Doubletree Guest Suites Lexington, Kentucky Sheraton Suites Doubletree Guest Suites Ft. Lauderdale, Florida Westin Sheraton Dallas, Texas
On January 1, 2000, two hotels were converted from Doubletree Guest Suites hotels to the Embassy Suites brand. They are located in Troy, Michigan, and near the Baltimore/Washington International Airport in Linthicum, Maryland. Room Additions During 1998, the Company completed construction of an aggregate of 224 suites at its Embassy Suites hotels in Jacksonville (67) and Orlando (North) (67), Florida, and New Orleans (90), Louisiana. In early 2000, the Company expects to complete construction on a 90 room addition to its Doubletree hotel in Wilmington, Delaware. Capital Reserve It is the Company's policy to contribute a minimum of 4% of room and suite revenue from the DJONT leased hotels and 3% of total hotel revenue from the Bristol leased hotels to a capital reserve account in order to provide funds for necessary ongoing capital replacements and improvements. During 1999, approximately $49.3 million was spent on such replacements and improvements (which is in addition to the $161 million spent under the Renovation and Redevelopment Program described above). -34- 37 Repairs and Maintenance During the year ended December 31, 1999, approximately $38.5 million and $32.7 million were spent by the Lessees on routine repairs and maintenance at the Hotels leased by DJONT and Bristol, respectively. This represents approximately 4.6% of total hotel revenues. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions and repayments of indebtedness, is its share of the cash flow from the Percentage Leases. For the year ended December 31, 1999, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $282.4 million and Funds From Operations was $286.9 million. The Lessees' obligations under the Percentage Leases are largely unsecured. The Lessees have limited capital resources and, accordingly, their ability to make lease payments under the Percentage Leases is substantially dependent on the ability of the Lessees to generate sufficient cash flow from the operation of the Hotels. At December 31, 1999, the Lessees had paid all amounts then due the Company under the Percentage Leases. DJONT recorded a net loss of $4.9 million for the year ended December 31, 1999. Because of the current year loss and losses in prior years, DJONT's accumulated deficit totaled $13.1 million at December 31, 1999. The losses in the current year are attributed to weaker than anticipated revenues in 1999 and lower operating margins. A significant portion of prior year losses are attributable to the operation of hotels during periods of substantial renovation. Management anticipates modest revenue growth at the DJONT hotels during 2000, which may result in additional operating losses. Management anticipates that DJONT will be able to generate profits over the next five years, and to significantly reduce the accumulated deficit, as a result of the planned rebranding of one of its hotels, the elimination of certain expenses, and Percentage Leases that expire and are expected to be renewed with more favorable terms at the time of their expiration. Management believes that the loan commitments from certain entities owning interests in DJONT and the managers of certain hotels, aggregating approximately $17.3 million, and improvements in operating margins will be sufficient to enable DJONT to continue to make necessary payments when due. It is anticipated that a substantial portion of any future profits of DJONT will be retained until a positive net worth is restored. The Company deems DJONT to be a viable going concern and, as such, no adjustments are required to the accompanying financial statements. Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases. As an additional credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of the Company in the original amount of $20 million. This Letter of Credit is subject to periodic reductions upon satisfaction of certain conditions and at December 31, 1999 was in the amount of $9.1 million. According to Bristol's earnings release dated February 1, 2000, for the years ended December 31, 1999 and 1998, Bristol had net income of $8.2 million and $2.6 million, respectively, and a shareholders' equity of $43.1 million at December 31, 1999. The Company may incur indebtedness to make property acquisitions, to purchase shares of its capital stock 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 for such purposes. At December 31, 1999, the Company had $36.1 million of cash and cash equivalents and had utilized $664 million under its $850 million unsecured revolving Line of Credit. -35- 38 The following details the Company's debt outstanding at December 31, 1999 and 1998 (in thousands):
DECEMBER 31, ------------------------- COLLATERAL INTEREST RATE MATURITY DATE 1999 1998 ---------- ------------- ------------- ---------- --------- FLOATING RATE DEBT: Line of credit (a) LIBOR + 163bp June 2001 $ 351,000 $ 411,000 Senior term loan (a) LIBOR + 250bp March 2004 250,000 Term loan Unsecured LIBOR + 150bp December 1999 250,000 Mortgage debt 3 hotels LIBOR + 200bp February 2003 62,553 Other Unsecured Up to LIBOR + 200bp Various 32,282 34,750 ---------- ---------- Total floating rate debt 695,835 695,750 ---------- ---------- FIXED RATE DEBT: Line of credit - swapped (a) 7.17 - 7.56% March 2000-2001 313,000 325,000 Publicly-traded term notes (a) 7.38% October 2004 174,377 174,249 Publicly-traded term notes (a) 7.63% October 2007 124,221 124,122 Mortgage debt 15 hotels 7.24% November 2022 142,542 145,062 Senior term loan - swapped (a) 8.30% March 2000-2004 125,000 Mortgage debt 3 hotels 6.97% December 2002 43,836 Mortgage debt 7 hotels 7.54% April 2009 99,075 Mortgage debt 6 hotels 7.55% June 2009 74,483 Other 13 hotels 6.96% - 7.23% 2000 - 2005 85,421 86,715 ---------- ---------- Total fixed rate debt 1,138,119 898,984 ---------- ---------- Total debt $1,833,954 $1,594,734 ========== ==========
- - ------------------- (a) Collateralized by stock and partnership interests in certain subsidiaries of FelCor. The Line of Credit and the Senior Term Loan contain various affirmative and negative covenants, including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 1999, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Senior Term Loan. Most of the mortgage debt is nonrecourse to the Company (with certain exceptions) and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the mortgage debt is prepayable, subject to various prepayment penalties, yield maintenance, or defeasance obligations. To provide for additional financing flexibility, FelCor has approximately $946 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under shelf registration statements previously declared effective. On September 3, 1999, FelCor announced that its Board of Directors had authorized FelCor to repurchase up to $100 million of its outstanding common shares. At December 31, 1999, FelCor had completed the repurchase of approximately 5.8 million shares of FelCor common stock at a cost of approximately $98.4 million and the Company has redeemed a like number of Units. On January 4, 2000, FelCor announced that its Board of Directors had approved a $200 million increase to the existing $100 million stock repurchase program, authorizing FelCor to purchase up to an aggregate of $300 million of its outstanding common shares. Through March 15, 2000, FelCor had purchased an aggregate of 7.8 million shares of FelCor common stock at an aggregate cost of approximately $134.1 million and the Company has redeemed a like number of Units. -36- 39 [PG NUMBER] The Company's $75.4 million in cash flow used in financing activities for the year ended December 31, 1999, relates primarily to the repurchase of approximately 5.8 million shares of FelCor's common stock for approximately $98.4 million and distributions aggregating $206.8 million. These expenditures were partially offset by net borrowings by the Company of $229.8 million during the year. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposure is to changes in interest rates on its floating rate debt. The Company manages the risk of increasing interest rates on its floating rate debt through the use of interest rate swaps, which effectively convert variable rate debt to a fixed rate, by locking the interest rates paid. The Company had entered into interest rate swap contracts relating to debt of $438 million at December 31, 1999. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations at December 31, 1999, the table presents scheduled maturities and weighted average interest rates, by maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates, by contractual maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as of December 31, 1999. The Fair Value of the Company's fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements which could have been borrowed at December 31, 1999 at then current market interest rates. The Fair Value of the Company's variable to fixed interest rate swaps indicates the estimated amount that would have been received by the Company had they been sold at December 31, 1999. EXPECTED MATURITY DATE ( IN THOUSANDS )
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES Debt: Fixed rate $ 10,332 $ 19,878 $8,836 $ 30,355 $183,684 $447,034 $ 700,119 $ 567,603 Average interest rate 7.90% 9.52% 7.88% 7.57% 7.41% 7.66% Variable rate $ 32,276 $664,711 $ 785 $ 60,413 $375,000 $ 650 $1,133,835 $1,133,835 Average interest rate 7.55% 8.76% 9.38% 9.25% 9.01% 9.30% INTEREST RATE DERIVATIVES Interest rate swaps: Variable to fixed $188,000 $125,000 -- $125,000 -- -- $ 438,000 $ 6,292 Average pay rate 5.31% 5.72% 5.80% 5.80% Average receive rate 5.83% 5.83% 5.83% 5.83%
Swap contracts, such as those described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the Lessees' ability to raise room rates. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. -37- 40 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Portions of this Annual Report on Form 10-K include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. A number of important factors which, among others, could adversely affect the ability of the Company to meet its current expectations are disclosed in conjunction with the forward-looking statements and under "Cautionary Factors That May Affect Future Results" in Item 1 of this Annual Report on Form 10-K ("Cautionary Statements"). Subsequent written and oral forward-looking statements made by or attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB 133" which deferred the effective date of FAS 133 for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company believes that, upon implementation, FAS 133 will not have a material impact on the financial statements of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidance on revenue recognition. SAB 101 is effective for fiscal years beginning after December 15, 1999. SAB 101 requires that a lessor not recognize contingent rental income until annual specified thresholds have been achieved by the lessee. During 1999, the Company's leases had quarterly, rather than annual, specified rental thresholds and the Company recognized contingent rentals earned in each quarter pursuant to the Percentage Lease terms. The Company has reviewed the terms of its Percentage Leases and has determined that the provisions of SAB 101 will not materially impact the Company's revenue recognition on an interim basis in 2000, since a significant majority of the Percentage Leases contain quarterly specified thresholds. SAB 101 will not impact the Company's revenue recognition on an annual basis given the Company maintains only calendar year leases. SAB 101 will have no impact on the Company's interim or annual cash flow from the Lessees. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information and disclosures regarding market risks applicable to the Company is incorporated herein by reference to the discussion under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" contained elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included herein beginning at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -38- 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The Company has no directors or officers. Management functions of the Company are performed by FelCor as the sole general partner. Information about the Directors and Executive Officers of FelCor is incorporated herein by reference to the discussion under Part III, Item 10. Directors and Executive Officers of the Company in FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. ITEM 11. EXECUTIVE COMPENSATION The Company has no directors or officers. Management functions of the Company are performed by FelCor as the sole general partner. The directors and officers of FelCor receive no additional compensation from the Company. Information about FelCor's executive compensation is incorporated herein by reference to the discussion under Part III, Item 11. Executive Compensation in FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth information, as of March 15, 2000, regarding each person known to the Company to be the beneficial owner of more than five percent (5%) of its Units. Unless otherwise indicated, such Units are owned directly and the indicated person has sole voting and dispositive power with respect thereto.
AMOUNT AND NATURE OF PERCENT NAME AND ADDRESS BENEFICIAL OF OF BENEFICIAL OWNER CLASS OF UNIT OWNERSHIP CLASS (1) ------------------- ------------- --------- --------- FelCor Lodging Trust Incorporated GP Units 737,295 100.0% 545 E. John Carpenter Frwy., Suite 1300 LP Units 59,552,497(2) 100.0% Irving, Texas 75062 Series A Preferred Units 6,050,000(2) 88.6% Series B Preferred Units 57,500(2) 100.0% Bass America, Inc. LP Units 4,713,185 7.0% Three Ravinia Drive, Suite 2900 Atlanta, Georgia 30346
- - ----------------- (1) Based upon 737,295 GP Units, 67,256,444 LP Units, 6,050,000 Series A Preferred Units, and 57,500 Series B Preferred Units outstanding as of March 15, 2000. (2) Includes 59,552,497 LP Units, 5,989,500 Series A Preferred Units, and 56,925 Series B Preferred Units held of record by FelCor Nevada Holdings, L.L.C., a wholly-owned subsidiary of FelCor. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth the beneficial ownership of the Company's LP Units, as of March 15, 2000, by (i) each of FelCor's directors and director nominees, (ii) each Named Executive Officer of FelCor and (iii) all directors and executive officers of FelCor, as a group. Unless otherwise indicated, such LP Units are owned directly and the indicated person has sole voting and dispositive power. -39- 42
AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME OF OWNERSHIP OF BENEFICIAL OWNER OF LP UNITS CLASS (1) ---------------- ----------- --------- Thomas J. Corcoran, Jr .................. 294,915(2) * Richard S. Ellwood ...................... 0 0 Richard O. Jacobson ..................... 0 0 Charles A. Ledsinger, Jr ................ 0 0 Robert H. Lutz, Jr ...................... 0 0 Charles N. Mathewson .................... 540,009(3) * Thomas A. McChristy ..................... 0 0 Donald J. McNamara ...................... 0 0 Richard C. North ........................ 0 0 Michael D. Rose ......................... 0 0 Jack Eslick ............................. 0 0 Lawrence D. Robinson .................... 0 0 William P. Stadler ...................... 0 0 Larry J. Mundy .......................... 0 0 June H. McCutchen ....................... 0 0 Andrew J. Welch ......................... 0 0 Lester C. Johnson ....................... 0 0 All executive officers and directors of FelCor as a group (17 persons)....... 834,924 1.2%
- - ------------ * Represents less than 1% of the outstanding LP Units. (1) Based upon 67,256,444 LP Units outstanding on March 15, 2000. (2) Owned of record by FelCor, Inc., of which Mr. Corcoran is a 50% stockholder, a director and the President. (3) Represents Mr. Mathewson's pro rata interest in partnerships which hold LP Units of record. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information about certain relationships and related transactions is incorporated herein by reference to the discussion under Part III Item 13. Certain Relationships and Related Transactions in FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. -40- 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Included herein at pages F-1 through F-43. 2. Financial Statement Schedules The following financial statement schedule is included herein at page F-30. Schedule III - Real Estate and Accumulated Depreciation for FelCor Lodging Limited Partnership All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted. 3. Exhibits The following exhibits are filed as part of this Annual Report on Form 10-K: EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 3.1 - Amended and Restated Agreement of Limited Partnership of the Company (filed as Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference). 3.2 - First Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of November 17, 1995 by and among FelCor, Promus Hotels, Inc. and all of the persons or entities who are or shall in the future become of the limited partners of the Company (filed as Exhibit 10.1.1 to FelCor's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and incorporated herein by reference). 3.3 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of January 9, 1996 between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.2 to the 1995 10-K and incorporated herein by reference). 3.4 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of January 10, 1996 by and among FelCor, MarRay-LexGreen, Inc. and all of the persons and entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.3 to the 1995 10-K and incorporated herein by reference). 3.5 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Company dated as of January 10, 1996 by and among FelCor, Piscataway-Centennial Associates Limited Partnership and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.4 to the 1995 10-K and incorporated herein by reference). 3.6 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 2, 1996, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, adopting Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 2, 1996 (filed as Exhibit 10.1.5 to FelCor's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference). -41- 44 3.7 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of September 16, 1996, by and among FelCor, John B. Urbahns, II and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 3.8 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 16, 1997, by and among FelCor, PMB Associates, Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.7 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 3.9 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of February 6, 1998, by and among FelCor, Columbus/Front Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.8 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 3.10 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 1, 1998, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, adopting Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of May 1, 1998 (filed as Exhibit 10.1.9 to FelCor's Form 8-K dated May 29, 1998, and incorporated herein by reference). 3.11 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of June 22, 1998, by and among FelCor, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.10 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.12 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of July 28, 1998, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, changing the name of the Company to "FelCor Lodging Limited Partnership" (filed as Exhibit 10.1.11 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.13 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of December 29, 1998, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, amending certain provisions of the Company Agreement (filed as Exhibit 10.1.12 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K") and incorporated herein by reference). 3.14 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of December 31, 1998, by and between FelCor, FelCor Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.13 to the 1998 10-K and incorporated herein by reference). 3.15 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of March 1, 1999, by and among FelCor, Huie Properties, Ltd., and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.14 to the 1998 10-K and incorporated herein by reference). 3.16 - Fifteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of October 15, 1999, by and among FelCor, SRS Properties Limited Partnership, and all of the persons and entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.15 to FelCor's Form 10-K for the fiscal year ended December 31, 1999 ("the 1999 10-K") and incorporated herein by reference). 3.17 - Sixteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of February 27, 2000, by and among FelCor, Bass America, Inc., and all of the persons and entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.16 to the 1999 10-K and incorporated herein by reference). 4.1 - Indenture dated as of April 22, 1996 by and between FelCor and Sun Trust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to FelCor's Form 8-K dated May 1, 1996 and incorporated herein by reference). -42- 45 4.2 - Indenture dated as of October 1, 1997 by and among the Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (file No. 333-39595) and the other co-registrants named therein and incorporated herein by reference). 4.2.1 - First Amendment to Indenture dated as of February 5, 1998 by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-39595) and incorporated herein by reference). 4.2.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998, by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference). 4.2.3 - Third Amendment to Indenture dated as of March 30, 1999 by and among the Company, FelCor, the Subsidiary Guarantors named therein, who are signatories thereto and SunTrust Bank, Atlanta (filed as Exhibit 4.7.3 to FelCor's Form 10-Q for the quarter ended March 31, 1999 (the "March 1999 10-Q"), and incorporated herein by reference). 10.1 - Form of Lease Agreement between the Registrant as Lessor and DJONT Operations, L.L.C. or its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the 1995 10-K and incorporated herein by reference). 10.1.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the Company, and DJONT to clarify the meaning of Article III of the lease as represented by the actual course of dealing between lessors and lessees under such leases (filed as Exhibit 10.19 to FelCor's Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.2 - Form of Lease Agreement between the Company as Lessor and a subsidiary of Bristol Hotels & Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the 1998 10-K and incorporated herein by reference). 10.2.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the Company, FelCor, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.3 - Employment Agreement dated as of July 28, 1994 between FelCor and Hervey A. Feldman (filed as Exhibit 10.7 to the 1994 10-K/A and incorporated herein by reference). 10.4 - Employment Agreement dated as of July 28, 1994 between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to the 1994 10-K/A and incorporated herein by reference). 10.5 - Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10-K/A and incorporated herein by reference). -43- 46 10.6 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 1994 10-K/A and incorporated herein by reference). 10.7 - 1995 Restricted Stock and Stock Option Plan of the Company (filed as Exhibit 10.9.2 to the 1995 10-K and incorporated herein by reference). 10.8 - Non-Qualified Deferred Compensation Plan, as amended and restated July 1999 (filed as Exhibit 10.9 to FelCor's Form 10-Q for the quarter ended September 30, 1999 (the "September 1999 10-Q") and incorporated herein by reference). 10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor's Registration Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference). 10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.12 - Form of Severance Agreement for executive officers and certain key employees of FelCor (filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference). 10.13 - Agreement dated as of April 15, 1995 among FelCor, the Company, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit 10.15 to the Registration Statement on Form S-11 (File No. 33-91870) and incorporated herein by reference). 10.14 - Credit Agreement dated as of February 6, 1996 by and among the Company, as borrower, Holdings and FelCor, as guarantors, and Canadian Imperial Bank of Commerce, as agent (filed as Exhibit 10.30 to FelCor's Form 8_K dated May 1, 1996, and incorporated herein by reference). 10.15 - Voting and Cooperation Agreement dated as of March 23, 1998 among the Company, Bristol, Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as Exhibit 99.7 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.16 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by FelCor (filed as Exhibit 99.8 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.17 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.18 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1998 among FelCor and the Company, as Borrower, the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's Form 8-K dated August 10, 1998 and incorporated herein by reference). -44- 47 10.18.1 - Second Amendment to Credit Agreement dated as of August 20, 1999, among FelCor and the Company as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as administrative agent (filed as Exhibit 10.19.1 to the September 1999 10-Q and incorporated herein by reference). 10.18.2 - Third Amendment to Credit Agreement dated as of December 1, 1999, among FelCor and the Company, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as administrative agent (filed as Exhibit 10.18.2 to the 1999 10-K and incorporated herein by reference). 10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference) 10.19.1 - First Amendment to Loan Agreement and Ancillary Loan Documents made as of May 28, 1999, among FelCor Lodging Company, L.L.C., FelCor Lodging Holding Company, L.L.C. and LaSalle National Bank, as Trustee for Nomura Asset Securities Corporation Commercial Pass-Through Certificates Series 1998-D6, administrative agent and collateral agent (filed as Exhibit 10.19.1 to the 1999 10-K and incorporated herein by reference). 10.20 - Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated March 1, 1999, by FelCor Hotel Company II, Ltd., as Grantor, to Howard E. Schreiber, Trustee, in trust for the benefit of Bankers Trust Company, as Beneficiary (filed as Exhibit 10.21 to the March 1999 10-Q, and incorporated herein by reference). 10.21.1 - Loan Agreement, dated April 1, 1999, among FelCor Lodging Trust Incorporated and FelCor Lodging Limited Partnership as Borrower, and The Lenders Party Thereto and The Chase Manhattan Bank as Administrative Agent and Collateral Agent (filed as Exhibit 10.22.1 to the March 1999 10-Q, and incorporated herein by reference). 10.21.2 - Guaranty, dated April 1, 1999, made by each of the named Guarantors therein, who are signatories thereto (filed as Exhibit 10.22.2 to the March 1999 10-Q, and incorporated herein by reference). 10.21.3 - Pledge and Security Agreement, dated April 1, 1999, made by each of the named Pledgors therein, who are signatories thereto, in favor of The Chase Manhattan Bank, as Collateral Agent (filed as Exhibit 10.22.3 to the March 1999 10-Q, and incorporated herein by reference). 10.21.4 - Second Amendment to Loan Agreement dated as of August 20, 1999, among FelCor and the Company, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as administrative agent (filed as Exhibit 10.22.4 to the September 1999 10-Q and incorporated herein by reference). 10.21.5 - Third Amendment to Loan Agreement dated as of December 1, 1999, among FelCor and the Registrant, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent. 10.22 - Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P. as Mortgagor and The Prudential Insurance Company of America as Mortgagee (filed as Exhibit 10.23 to the March 1999 10-Q, and incorporated herein by reference). 10.22.1 - Promissory Note dated April 1, 1999, in the original principal amount of $100,000,000 made by FelCor/CSS Holdings, L.P., payable to the order of The Prudential Insurance Company of America. (filed as Exhibit 10.23.1 to FelCor's Form 10-Q for the quarter ended June 30, 1999 (the "June 1999 10-Q") and incorporated herein by reference). -45- 48 10.22.2 - Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L. P., as Mortgagor, and The Prudential Insurance Company of America, as Mortgagee (incorporated by reference to Exhibit 10.23 to FelCor's Form 10-Q for the quarter ended March 31, 1999). 10.22.3 - Mortgage Loan Agreement dated as of April 1, 1999, by and between The Prudential Insurance Company of America, as Lender, and FelCor/CSS Holdings, L.P., as Borrower (filed as Exhibit 10.23.3 to the June 1999 10-Q and incorporated herein by reference). 10.23.1 - Form of six separate Promissory Notes each dated May 12, 1999, made by FelCor/MM Holdings, L.P. payable to the order of Massachusetts Mutual Life Insurance Company in the respective original principal amounts of $12,500,000 (Embassy Suites-Dallas Market Center), $14,000,000 (Embassy Suites-Dallas Love Field), $12,450,000 (Embassy Suites-Tempe), $11,550,000 (Embassy Suites-Anaheim), $8,900,000 (Embassy Suites-Palm Desert), $15,600,000 (Embassy Suites-Deerfield Beach) (filed as Exhibit 10.24.1 to the June 1999 10-Q and incorporated herein by reference). 10.23.2 - Form of Deed of Trust, Security Agreement and Fixture Filing, each dated as of May 12, 1999, from FelCor/MM Holdings, L.P., as Borrower, in favor of Fidelity National Title Insurance Company, as Trustee, and Massachusetts Mutual Life Insurance Company, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.1, also executed by FelCor/CSS Holdings, L.P. with respect to the Embassy Suites-Anaheim and Embassy Suites-Deerfield Beach, and by FelCor Lodging Limited Partnership with respect to the Embassy Suites-Palm Desert (filed as Exhibit 10.24.2 to the June 1999 10-Q and incorporated herein by reference). 21 - List of Subsidiaries of the Registrant. 23 - Consent of PricewaterhouseCoopers LLP 27 - Financial Data Schedule. (b) Reports on Form 8-K. Registrant did not file any reports on Form 8-K during the fourth quarter of 1999. -46- 49 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FELCOR LODGING LIMITED PARTNERSHIP a Delaware Limited Partnership By: FelCor Lodging Trust Incorporated Its General Partner By: /s/ Lawrence D. Robinson ------------------------------------ Lawrence D. Robinson Senior Vice President Date: March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
DATE SIGNATURE ---- --------- ---------------------------------------------------------- Donald J. McNamara March [ ], 2000 Chairman of the Board and Director /s/ Thomas J. Corcoran, Jr. ---------------------------------------------------------- Thomas J. Corcoran, Jr. March 29, 2000 President and Director (Chief Executive Officer) /s/ Lester C. Johnson ---------------------------------------------------------- Lester C. Johnson March 29, 2000 Vice President and Controller (Principal Financial Officer and Principal Accounting Officer) /s/ Richard S. Ellwood ---------------------------------------------------------- Richard S. Ellwood, March [ ], 2000 Director /s/ Richard O. Jacobson ---------------------------------------------------------- Richard O. March [ ], 2000 Jacobson, Director /s/ Charles A. Ledsinger, Jr. ---------------------------------------------------------- Charles A. Ledsinger, Jr., March 24, 2000 Director /s/ Robert H. Lutz, Jr. ---------------------------------------------------------- March 24, 2000 Robert H. Lutz, Jr., Director /s/ Charles N. Mathewson ---------------------------------------------------------- March 24, 2000 Charles N. Mathewson, Director /s/ Thomas A. McChristy ---------------------------------------------------------- March 24, 2000 Thomas A. McChristy, Director /s/ Richard C. North ---------------------------------------------------------- March 27, 2000 Richard C. North, Director /s/ Michael D. Rose ---------------------------------------------------------- March [ ], 2000 Michael D. Rose, Director
50 FELCOR LODGING LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION FELCOR LODGING LIMITED PARTNERSHIP Report of Independent Accountants.......................................................................F-2 Consolidated Balance Sheets - December 31, 1999 and 1998................................................F-3 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997..............F-4 Consolidated Statements of Partners' Capital for the years ended December 31, 1999, 1998 and 1997...... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997..............F-6 Notes to Consolidated Financial Statements..............................................................F-7 Report of Independent Accountants......................................................................F-29 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1999........................F-30 DJONT OPERATIONS, L.L.C. Report of Independent Accountants......................................................................F-34 Consolidated Balance Sheets - December 31, 1999 and 1998...............................................F-35 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.............F-36 Consolidated Statements of Shareholders' Deficit for the years ended December 31, 1999, 1998 and 1997..F-37 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.............F-38 Notes to Consolidated Financial Statements.............................................................F-39
F-1 51 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Lodging Trust Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, partners' capital and cash flows present fairly, in all material respects, the financial position of FelCor Lodging Limited Partnership at December 31, 1999 and 1998, and the consolidated results of operations and cash flows for the years ended December 31, 1999, 1998 and 1997, respectively, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas February 1, 2000, except as to the information in Note 18, for which the date is March 15, 2000. F-2 52 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS) ASSETS
1999 1998 ---------- ---------- Investment in hotels, net of accumulated depreciation of $330,555 in 1999 and $178,072 in 1998 .................................... $4,035,344 $3,955,582 Investment in unconsolidated entities ........................................ 136,718 140,299 Cash and cash equivalents .................................................... 36,123 34,692 Due from Lessees ............................................................. 18,394 18,968 Note receivable from unconsolidated entity ................................... 7,760 7,766 Deferred expenses, net of accumulated amortization of $4,491 in 1999 and $2,096 in 1998 ......................................... 15,473 10,041 Other assets ................................................................. 5,939 8,035 ---------- ---------- Total assets .......................................................... $4,255,751 $4,175,383 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Debt, net of discount of $1,401 in 1999 and $1,628 in 1998 ................... $1,833,954 $1,594,734 Distributions payable ........................................................ 39,657 67,262 Accrued expenses and other liabilities ....................................... 65,480 57,312 Minority interest in other partnerships ...................................... 51,671 51,105 ---------- ---------- Total liabilities ............................................................ 1,990,762 1,770,413 ---------- ---------- Commitments and contingencies (Notes 6 and 11) Redeemable units at redemption value ......................................... 52,338 67,595 Preferred units: Series A Cumulative Preferred Units, 6,050 units issued and outstanding ... 151,250 151,250 Series B Redeemable Preferred Units, 58 units issued and outstanding ...... 143,750 143,750 ---------- ---------- Partners' Capital ............................................................ 1,917,651 2,042,375 ---------- ---------- Total liabilities and partners' capital ................................ $4,255,751 $4,175,383 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-3 53 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 --------- --------- --------- Revenues: Percentage lease revenue ......................................... $ 490,893 $ 328,035 $ 169,114 Equity in income from unconsolidated entities .................... 8,484 7,017 6,963 Other revenue .................................................... 4,624 4,565 574 --------- --------- --------- Total revenues .............................. 504,001 339,617 176,651 --------- --------- --------- Expenses: General and administrative ....................................... 9,122 5,254 3,743 Depreciation ..................................................... 152,948 90,835 50,798 Taxes, insurance and other ....................................... 59,572 37,158 21,483 Land leases ...................................................... 17,558 8,130 1,610 Interest expense ................................................. 125,435 73,182 28,792 Minority interest in other partnerships .......................... 2,713 1,121 573 --------- --------- --------- Total expenses ............................. 367,348 215,680 106,999 --------- --------- --------- Income before nonrecurring items ................................. 136,653 123,937 69,652 Gain on sale of hotels, net ...................................... 236 477 Extraordinary charge from write off of deferred financing fees ... 1,113 3,075 185 --------- --------- --------- Net income ....................................................... 135,776 121,339 69,467 Preferred distributions .......................................... 24,735 21,423 11,797 --------- --------- --------- Net income applicable to unitholders ............................. $ 111,041 $ 99,916 $ 57,670 ========= ========= ========= Per unit data: Basic: Income applicable to unitholders before extraordinary charge ............................ $ 1.59 $ 1.95 $ 1.70 Extraordinary charge ....................................... (0.01) (0.06) (0.01) --------- --------- --------- Net income applicable to unitholders ....................... $ 1.58 $ 1.89 $ 1.69 ========= ========= ========= Weighted average units outstanding ......................... 70,372 52,978 34,126 Diluted: Income applicable to unitholders before extraordinary charge ............................ $ 1.59 $ 1.93 $ 1.68 Extraordinary charge ....................................... (0.02) (0.06) (0.01) --------- --------- --------- Net income applicable to unitholders ....................... $ 1.57 $ 1.87 $ 1.67 ========= ========= ========= Weighted average units outstanding ......................... 70,561 53,323 34,467
The accompanying notes are an integral part of these consolidated financial statements. F-4 54 FELCOR LODGING LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER UNIT DATA) Balance, December 31, 1996 ............................... 468,247 Contributions ............................................ 449,591 Distributions ............................................ (90,249) Allocations from redeemable units ........................ 710 Net income ............................................... 69,467 ----------- Balance, December 31, 1997 ............................... 897,766 Contributions ............................................ 1,147,739 Distributions ............................................ (166,580) Allocations from redeemable units ........................ 42,111 Net income ............................................... 121,339 ----------- Balance, December 31, 1998 ............................... 2,042,375 Contributions ............................................ 583 Redemption of units ...................................... (98,387) Distributions ............................................ (179,185) Allocations from redeemable units ........................ 16,489 Net income ............................................... 135,776 ----------- Balance .................................................. $ 1,917,651 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 55 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income .............................................................. $ 135,776 $ 121,339 $ 69,467 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of assets ............................................... (236) (477) Depreciation ......................................................... 152,948 90,835 50,798 Amortization of deferred financing fees and organization costs ....... 1,816 1,985 1,468 Amortization of unearned officers' and directors' compensation ....... 652 830 1,017 Equity in income from unconsolidated entities ........................ (8,484) (7,017) (6,963) Extraordinary charge for write off of deferred financing fees ........ 1,113 3,075 185 Minority interest in other partnerships .............................. 2,713 1,121 573 Changes in assets and liabilities, net of effects of acquisitions: Due from Lessees ..................................................... 574 (3,035) (13,382) Deferred financing fees .............................................. (9,313) (4,348) (8,825) Other assets ......................................................... (282) (602) (1,175) Accrued expenses and other liabilities ............................... 5,088 (11,123) 4,315 ----------- ----------- ----------- Net cash flow provided by operating activities ............. 282,365 192,583 97,478 ----------- ----------- ----------- Cash flows used in investing activities: Acquisition of hotels ................................................ (10,802) (326,276) (574,100) Acquisition of unconsolidated entities ............................... (7,452) (4,230) (65,271) Improvements and additions to hotels ................................. (222,320) (119,107) (52,700) Note receivable from unconsolidated entity ........................... (7,766) Bristol interim credit facility ...................................... (120,000) Sale of hotels ....................................................... 15,476 7,815 Cash distributions from unconsolidated entities ...................... 19,581 19,066 4,211 ----------- ----------- ----------- Net cash flow used in investing activities ................. (205,517) (550,498) (687,860) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from borrowings ............................................. 1,034,667 1,013,003 679,144 Repayment of borrowings .............................................. (804,915) (658,524) (445,900) Proceeds from sale of preferred units ................................ 139,063 Purchase of treasury stock ........................................... (98,387) Contributions ........................................................ 8 3,884 448,586 Distributions paid to unitholders .................................... (180,803) (105,425) (69,901) Dividends paid to preferred unitholders .............................. (25,987) (16,937) (11,797) ----------- ----------- ----------- Net cash flow provided by (used in) financing activities ... (75,417) 375,064 600,132 ----------- ----------- ----------- Net change in cash and cash equivalents ...................................... 1,431 17,149 9,750 Cash and cash equivalents at beginning of years .............................. 34,692 17,543 7,793 ----------- ----------- ----------- Cash and cash equivalents at end of years .................................... $ 36,123 $ 34,692 $ 17,543 =========== =========== =========== Supplemental cash flow information - interest paid ........................... $ 125,085 $ 72,215 $ 21,414 ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 56 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION FelCor Lodging Limited Partnership and its subsidiaries (the "Company") at December 31, 1999, owned interests in 188 hotels with nearly 50,000 rooms and suites (collectively the "Hotels"). The sole general partner of the Company is FelCor Lodging Trust Incorporated ("FelCor"), one of the nation's largest hotel real estate investment trusts, ("REIT"). At December 31, 1999, FelCor owned a greater than 95% equity interest in the Company. The Company owns 100% of the interest in 163 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 16 hotels. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at December 31, 1999:
NOT OPERATED BRAND DJONT BRISTOL UNDER A LEASE TOTAL ----- ----- ------- ------------- ----- Embassy Suites 58 58 Holiday Inn 43 1 44 Doubletree and Doubletree Guest Suites(R) 16(1) 16 Crowne Plaza and Crowne Plaza Suites(R) 18 18 Holiday Inn Select(R) 10 10 Sheraton(R) and Sheraton Suites(R) 9 1(2) 10 Hampton Inn(R) 9 9 Holiday Inn Express(R) 5 5 Fairfield Inn(R) 5 5 Harvey Hotel(R) 4 4 Independents 2 1 3 Courtyard by Marriott(R) 2 2 Four Points by Sheraton(R) 1 1 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Westin(R) 1 1 --- ---- -- ---- Total Hotels 85 100 3 188 === ==== == ====
(1) On January 1, 2000, two of these Doubletree Guest Suites hotels were converted to the Embassy Suites brand. (2) On January 1, 2000, a lease on this hotels became effective between the Company and DJONT. The Hotels are located in the United States (35 states) and Canada, with a concentration in California (20 hotels), Florida (18 hotels), Georgia (15 hotels) and Texas (41 hotels). The following table provides information regarding the net acquisition and disposition of hotels through December 31, 1999:
NET HOTELS ACQUIRED/(DISPOSED OF) ---------------------- 1994 7 1995 13 1996 23 1997 30 1998 120 1999 (5) ---- 188 ====
F-7 57 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION -- (CONTINUED) At December 31, 1999, the Company leased 85 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company, or a consolidated subsidiary thereof (collectively "DJONT"), and leased 100 of the Hotels to Bristol Hotels & Resorts, or a consolidated subsidiary thereof ("Bristol" and, together with DJONT, the "Lessees"). Three Hotels were operated without a lease. Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT. The remaining 50% nonvoting common equity interest is beneficially owned by the children of Charles N. Mathewson, a director of FelCor and major initial investor in the Company. At December 31, 1999, DJONT had entered into management agreements pursuant to which 72 of the Hotels leased by it were managed by subsidiaries of Hilton Hotels Corporation ("Hilton"), ten were managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), and three were managed by two unrelated management companies. Bristol, an independent publicly owned company, at December 31, 1999, leased and managed 100 Hotels and managed one hotel which operated without a lease. Bristol is one of the largest independent hotel operating companies in North America and operates the largest number of Bass Hotels & Resorts-branded hotels in the world. Certain reclassifications have been made to prior period financial information to conform to the current period's presentation with no effect to previously reported net income or shareholder's equity. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation C The consolidated financial statements include the accounts of, the Company, and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates C The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Investment in Hotels C Hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives ranging from 31 to 40 years for buildings and improvements and three to seven years for furniture, fixtures, and equipment. The Company periodically reviews the carrying value of each Hotel to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare a projection of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel based on discounted future cash flows. The Company does not believe that there are any factors or circumstances indicating impairment of any of its investment in the Hotels. Maintenance and repairs are charged to the Lessees' operations as incurred; major renewals and betterments by the Company are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from the accounts and the related gain or loss is included in operations. F-8 58 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Investment in Unconsolidated Entities CThe Company owns a 50% interest in various partnerships or limited liability companies in which the partners jointly make all material decisions concerning the business affairs and operations. The Company also owns a 97% nonvoting interest in an entity. Accordingly, the Company does not control these entities and carries its investment in unconsolidated entities at cost, plus its equity in net earnings, less distributions received since the date of acquisition. Equity in net earnings is adjusted for the straight-line amortization, over a 40-year period, of the difference between the Company's cost and its proportionate share of the underlying net assets at the date of acquisition. Cash and Cash Equivalents C All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Deferred Expenses C Deferred expenses are recorded at cost. Amortization is computed using the interest method over the maturity of the related debt. Revenue Recognition C Percentage lease revenue is reported as income over the lease term as it becomes receivable from the Lessees according to the provisions of the Percentage Lease agreements. The Lessees are in compliance with their rental obligations under the Percentage Leases. Capitalized Interest C The Company capitalizes interest and certain other costs relating to hotels undergoing major renovations and redevelopments. Such costs capitalized in 1999 and 1998 were approximately $7.4 million and $5.9 million, respectively. Net Income Per Unit C Basic earnings per unit have been computed by dividing net income by the weighted average number of units outstanding. Diluted earnings per unit have been computed by dividing net income by the weighted average number of units and equivalents outstanding. Unit equivalents represent units issuable upon exercise of FelCor stock options and unvested officers' restricted FelCor stock grants. At December 31, 1999, 1998, and 1997, the Company's Series A Cumulative Preferred Units, if converted to units, would be antidilutive; accordingly the Series A Cumulative Preferred Units are not assumed to be converted in the computation of diluted earnings per unit. Distributions C The Company pays regular quarterly distributions on its Units. Additionally, the Company pays regular quarterly distributions on preferred units in accordance with its preferred units distribution requirements. For 1999 The Company paid distributions of $2.20 per unit, $1.95 per unit of Series A Cumulative Preferred Units ("Series A Preferred Units"), and $2.25 per depositary share evidencing Series B Redeemable Preferred Units ("Series B Preferred Units"). F-9 59 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Income Taxes C No provision for federal income taxes has been reflected in the financial statements because all taxable income or loss, or tax credits are passed through to the partners. 3. BRISTOL MERGER On July 28, 1998, FelCor completed the merger of Bristol Hotel Company's real estate holdings with and into FelCor (the "Merger"). The Merger resulted in the net acquisition of 107 primarily full-service hotels which were contributed to the Company in return for approximately 31.0 million units. A summary of the fair values of the assets and liabilities acquired in the Merger, recorded at the date of acquisition, is as follows (in thousands): Investment in hotels ............................................ $2,014,250 Investment in unconsolidated entity ............................. 16,839 Other assets .................................................... 4,151 ---------- 2,035,240 ---------- Common stock issued ............................................. 1,146,081 Debt obligations assumed ........................................ 868,615 Accrued expenses and other liabilities assumed .................. 55,297 ---------- 2,069,993 ---------- Total cash received in Merger ................................... $ 34,753 ==========
The Merger has been accounted for as a purchase, and, accordingly, the results of operations since the date of acquisition are included in the Company's consolidated statements of operations. 4. INVESTMENT IN HOTELS Investment in hotels at December 31, 1999 and 1998, consist of the following (in thousands):
1999 1998 ----------- ----------- Land ........................................... $ 346,862 $ 328,591 Building and improvements ...................... 3,616,269 3,470,854 Furniture, fixtures and equipment .............. 383,931 300,501 Construction in progress ....................... 18,837 33,708 ----------- ----------- 4,365,899 4,133,654 Accumulated depreciation ....................... (330,555) (178,072) ----------- ----------- $ 4,035,344 $ 3,955,582 =========== ===========
F-10 60 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INVESTMENT IN UNCONSOLIDATED ENTITIES At December 31, 1999, the Company owned 50% interests in separate entities owning 16 hotels, a parcel of undeveloped land, and a condominium management company. The Company also owned a 97% nonvoting interest in an entity that is developing condominiums for sale and that owns an annex to a hotel owned by the Company. The Company accounts for its investments in these unconsolidated entities under the equity method. Summarized unaudited combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
DECEMBER 31, ------------------------- 1999 1998 -------- -------- Balance sheet information: Investment in hotels .................... $337,444 $269,881 Non-recourse mortgage debt .............. $254,668 $176,755 Equity .................................. $101,120 $105,347
YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Statements of operations information: Total revenues .................................. $ 69,146 $ 57,006 $ 54,000 Net income ...................................... $ 21,726 $ 17,438 $ 17,044 Net income attributable to the Company .......... $ 10,626 $ 8,719 $ 8,522 Amortization of cost in excess of book value .... (2,142) (1,702) (1,559) -------- -------- -------- Equity in income from unconsolidated entities ... $ 8,484 $ 7,017 $ 6,963 ======== ======== ========
6. DEBT Debt at December 31, 1999 and 1998, consists of the following (in thousands):
DECEMBER 31, ---------------------------- COLLATERAL INTEREST RATE MATURITY DATE 1999 1998 ---------- ------------- ------------- ---------- ---------- FLOATING RATE DEBT: Line of credit (a) LIBOR + 163bp June 2001 $ 351,000 $ 411,000 Senior term loan (a) LIBOR + 250bp March 2004 250,000 Term loan Unsecured LIBOR + 150bp December 1999 250,000 Mortgage debt 3 hotels LIBOR + 200bp February 2003 62,553 Other Unsecured Up to LIBOR + 200bp Various 32,282 34,750 ---------- ---------- Total floating rate debt 695,835 695,750 ---------- ---------- FIXED RATE DEBT: Line of credit - swapped (a) 7.17 - 7.56% March 2000- 2001 313,000 325,000 Publicly-traded term notes (a) 7.38% October 2004 174,377 174,249 Publicly-traded term notes (a) 7.63% October 2007 124,221 124,122 Mortgage debt 15 hotels 7.24% November 2022 142,542 145,062 Senior term loan - swapped (a) 8.30% March 2000-2004 125,000 Mortgage debt 3 hotels 6.97% December 2002 43,836 Mortgage debt 7 hotels 7.54% April 2009 99,075 Mortgage debt 6 hotels 7.55% June 2009 74,483 Other 13 hotels 6.96% - 7.23% 2000 - 2005 85,421 86,715 ---------- ---------- Total fixed rate debt 1,138,119 898,984 ---------- ---------- Total debt $1,833,954 $1,594,734 ========== ==========
(a) Collateralized by stock and partnership interests in certain subsidiaries of FelCor. F-11 61 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT -- (CONTINUED) On March 4, 1999 the Company completed a $63 million first mortgage term loan ("Mortgage Loan"). The Mortgage Loan is collateralized by three hotels, bears interest at 200 basis points over LIBOR, matures in February 2003 and amortizes over 25 years. The proceeds from this loan were used to pay off a $44 million mortgage loan due December 2002 and to acquire ownership of land previously held under ground leases. On April 1, 1999, the Company entered into a $375 million term loan ("the Senior Term Loan") increasing its credit facilities to $1.2 billion, consisting of the Senior Term Loan which matures in March 2004 and an $850 million revolving line of credit ("Line of Credit") which matures in June 2001. The Line of Credit, Senior Term Loan and the Company's publicly traded term notes are collateralized by stock and partnership interests in certain subsidiaries of FelCor. The financial covenants in the Senior Term Loan are consistent with those in the Company's existing Line of Credit. If the Company achieves investment grade credit ratings from the applicable rating agencies, or when the Senior Term Loan is retired, the stock and partnership interest collateral will be released. The proceeds of the Senior Term Loan were used to prepay a $250 million term loan, which was to mature on December 31, 1999, and initially to reduce borrowings under the Company's Line of Credit. Interest payable on borrowings under the credit facilities is variable, determined from a ratings and leverage-based pricing matrix, ranging from 87.5 basis points to 275 basis points above LIBOR (30-day LIBOR at December 31, 1999, was 5.83%). The interest rate spread on the Line of Credit ranged from 150 to 162.5 basis points in 1999. Additionally, the Company is required to pay an unused commitment fee on the Line of Credit which is variable, determined from a ratings-based pricing matrix, ranging from 20 to 30 basis points. In 1999 and 1998, the Company wrote off approximately $1.1 million and $2.5 million, respectively, of deferred financing fees relating to the term loan of $250 million and the previous unsecured credit facility of $550 million, respectively. For the years ended December 31, 1999, 1998, and 1997, the Company paid interest on its unsecured credit facilities at weighted average interest rates of 7.1%, 7.1%, and 7.6%, respectively. At December 31, 1999, the Company had borrowing capacity under its Line of Credit of $186 million. On April 1, 1999, the Company also closed a 10-year, $100 million mortgage loan (the "April 1999 First Mortgage Term Loan"). The April 1999 First Mortgage Term Loan is non-recourse (with certain exceptions), is collateralized by seven Embassy Suites hotels, carries a fixed rate coupon of 7.54%, matures in April 2009 and amortizes over 25 years. The proceeds from this loan were used initially to reduce outstanding borrowings under the Company's Line of Credit. On May 13, 1999, the Company closed a 10-year, $75 million mortgage loan. This loan is non-recourse (with certain exceptions), is collateralized by six Embassy Suites hotels, carries a fixed rate coupon of 7.55%, matures in June 2009 and amortizes over 25 years. The proceeds from this loan were used initially to reduce outstanding borrowings under the Company's Line of Credit. The Line of Credit and the Senior Term Loan contain various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 1999, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Senior Term Loan. Most of the mortgage debt is non-recourse to the Company (with certain exceptions) and contain provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the mortgage debt is prepayable; subject, however, to various prepayment, yield maintenance, or defeasance obligations. F-12 62 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT -- (CONTINUED) Future scheduled principal payments on debt obligations at December 31, 1999 are as follows (in thousands): YEAR 2000................................................................ $42,608 2001................................................................ 684,588 2002................................................................ 9,622 2003................................................................ 90,768 2004................................................................ 559,306 2005 and thereafter................................................. 448,463 ---------- 1,835,355 Discount accretion over term........................................ (1,401) ---------- $1,833,954 ==========
To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into interest rate swap agreements with six financial institutions. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its Line of Credit and Senior Term Loan without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the variable rate to be received by the Company at December 31, 1999, are summarized in the following table:
EFFECTIVE SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/99 MATURITY - - --------------- ------------ ---------- -------------------- ----------- $113 million 5.9300% 7.5550% 7.7450% March 2000 $ 75 million 5.9375% 7.5625% 7.7450% March 2000 $ 25 million 5.5750% 7.1830% 8.1013% July 2001 $ 25 million 5.5480% 7.1730% 8.1013% July 2001 $ 75 million 5.5550% 7.1800% 8.1013% July 2001 $ 100 million 5.7955% 8.2960% 8.9763% July 2003 $ 25 million 5.8260% 8.3260% 8.9763% July 2003 - - ------------- $ 438 million ============
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company, pursuant to the terms of its interest rate agreement, and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk in that the counterparties may be unable to meet the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. F-13 63 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 1999. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management estimates the fair value of (i) accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) the note receivable approximates carrying value based upon effective borrowing rates for issuance of debt with similar terms and remaining maturities; (iii) the borrowings under the Line of Credit, Senior Term loan and various other mortgage notes approximate carrying value because these borrowings accrue interest at floating interest rates based on market. The estimated fair value of the Company's fixed rate debt of $700 million is $568 million at December 31, 1999, based on current market interest rates estimated by the Company for similar debt with similar maturities. The Company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. The fair value of interest rate hedge contracts is estimated based on quotes from the market makers of these instruments and represents the estimated amounts the Company would expect to receive or pay to terminate the contracts. Credit and market risk exposures are limited to the net interest differentials. The estimated unrealized net gain on these instruments was approximately $6.3 million at December 31, 1999, which represents the amount the Company would receive to terminate the agreements based on current market rates. 8. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS The outstanding units of limited partnership interest in the Company ("Units") are redeemable at the option of the holder for a like number of shares of common stock of FelCor, or cash, or a combination thereof, at the election of FelCor. Due to these redemption rights, these limited partnership units have been excluded from partners' capital and are included in redeemable units and measured at redemption value as of the end of the periods presented. At December 31, 1999 and 1998 there were 2,990,762 and 2,938,933 redeemable units outstanding. The value of the redeemable units are based on the closing market price of FelCor's common stock at the balance sheet date, which at December 31, 1999 and 1998 was $17.50 and $23.00, respectively. Preferred Units FelCor's Board of Directors is authorized to provide for the issuance of up to 20,000,000 shares of Preferred Stock in one or more series, to establish the number of shares in each series, to fix the designation, powers preferences and rights of each such series, and the qualifications, limitations or restrictions thereof. In 1996 FelCor issued 6.1 million shares of its $1.95 Series A Preferred Stock at $25 per share. The Series A Preferred Stock bears an annual dividend equal to the greater of $1.95 per share or the cash distributions declared or paid for the corresponding period on the number of shares of Common Stock into which the Series A Preferred Stock is then convertible. Each share of the Series A Preferred Stock is convertible at the shareholder's option to 0.7752 shares of Common Stock, subject to certain adjustments, and F-14 64 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS -- (CONTINUED) may not be redeemed by the Company before April 30, 2001. The proceeds from the Series A Preferred Stock were contributed to the Company in exchange for Series A Preferred Units. The preference on these units are the same as FelCor's Series A Preferred Stock. On May 1, 1998, FelCor issued 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 may be called by FelCor at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption, and are not convertible into any other securities of FelCor. The Series B Preferred Stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and is entitled to annual dividends at the rate of 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). The proceeds from the Series B Preferred Stock were contributed to the Company in exchange for Series B Preferred Units. The preference on these units are the same as FelCor's Series B Preferred Stock. At December 31, 1999, all distributions then payable on the Series A and Series B Preferred Units had been paid. Treasury Stock Repurchase Program On September 3, 1999, FelCor announced that its Board of Directors had authorized it to repurchase up to $100 million of its outstanding common shares. At December 31, 1999, FelCor had completed the repurchase of approximately 5.8 million common shares at a cost of approximately $98.4 million which has been recorded as a reduction to Partner's Capital as a result of the redemption of units held by FelCor to fund the repurchase. 9. TAXES, INSURANCE AND OTHER Taxes, insurance and other is comprised of the following for the years ended December 31, 1999, 1998, and 1997 (in thousands):
1999 1998 1997 ------- ------- ------- Real estate and personal property taxes ............ $52,118 $32,892 $18,976 Property insurance ................................. 3,481 2,341 1,627 State franchise taxes and Canadian income tax ...... 3,973 1,609 718 Other .............................................. 316 162 ------- ------- ------- Total taxes, insurance, and other ... $59,572 $37,158 $21,483 ======= ======= =======
10. LAND LEASES The Company leases land occupied by certain hotels from third parties under various operating leases. Certain leases contain contingent rent features based on gross revenue at the respective hotels. Future minimum lease payments under the Company's land lease obligations at December 31, 1999, are as follows (in thousands):
YEAR - - ---- 2000 $ 18,358 2001 18,346 2002 17,951 2003 17,767 2004 17,703 2005 and thereafter 265,115 -------- $355,240 ========
F-15 65 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. COMMITMENTS AND RELATED PARTY TRANSACTIONS Commitments The Company is to receive rental income from the Lessees under the Percentage Leases, which expire in 2002 (five hotels), 2003 (three hotels), 2004 (12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54 hotels), and thereafter (15 hotels). The rental income under the Percentage Leases between 14 of the unconsolidated entities, of which the Company owns 50%, is payable by the Lessee to the respective entities and is not included in the following schedule of future lease commitments to the Company. Minimum future rental income (i.e., base rents) payable to the Company under these noncancelable operating leases at December 31, 1999 is as follows (in thousands):
LESSEES ------------------------ DJONT BRISTOL TOTAL ---------- ---------- ---------- YEAR 2000 ................................. $ 140,235 $ 180,055 $ 320,290 2001 ................................. 143,609 180,076 323,685 2002 ................................. 143,966 180,049 324,015 2003 ................................. 130,445 177,302 307,747 2004 ................................. 126,885 169,930 296,815 2005 and thereafter .................. 392,499 650,239 1,042,738 ---------- ---------- ---------- $1,077,639 $1,537,651 $2,615,290 ========== ========== ==========
The Percentage Lease revenue is based on a percentage of room and suite revenues, and a varying combination of food and beverage revenues, food and beverage rents, and other revenues of the Hotels. Both the base rent and the threshold suite revenue in each lease computation are subject to adjustments for changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year for the hotels acquired prior to July of the previous year. The adjustment in any lease year may not exceed 7%. The CPI adjustments made in January 2000 ranged from 1.05% to 2.20%, dependent upon the Lessee. The CPI adjustments for 1999 ranged from 0.55% to 1.5%, dependent upon the Lessee, and in 1998 was 0.50%. Under the Percentage Leases, the Company is obligated to pay the costs of real estate and personal property taxes, property insurance, maintenance of underground utilities and structural elements of the Hotels, and to set aside a portion of the hotels' revenues (varying from 4% of room and suite revenue to 3% of total hotel revenue) per month, on a cumulative basis, to fund capital expenditures for the periodic replacement or refurbishment of furniture, fixtures and equipment required for the retention of the franchise licenses with respect to the Hotels. Included in cash and cash equivalents at December 31, 1999 and 1998, were cash balances held by the Hotel managers for these capital expenditures of $19.9 million and $14.8 million, respectively. Related Party Transactions The Company's general partner, FelCor, shares its executive offices and certain employees with FelCor, Inc., and DJONT, and each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel (other than Mr. Corcoran, whose compensation is borne solely by FelCor), office supplies, telephones, and depreciation of office furniture, fixtures, and equipment. The Company reimburses FelCor for its share of such allocated costs. Any such allocation of shared expenses to FelCor is required to be approved by a majority of FelCor's Independent Directors. During 1999, 1998, and 1997, the Company and FelCor paid approximately $5.7 million (approximately 89.5%), $2.8 million (approximately 63%), and $1.3 million (approximately 38%), respectively, of the allocable expenses under this arrangement. F-16 66 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Included in the mortgage debt of the unconsolidated entities is a mortgage loan payable to the Company in the amount of $7.8 million for 1999 and 1998. The note bears a fixed interest rate of 8% per annum with a 30 year amortization, matures on December 31, 2004, and is collateralized by a Mortgage and Assignment of Leases and Rents with respect to the annex of the hotel owned by an entity in which the Company has a 97% nonvoting interest. 12. SUPPLEMENTAL CASH FLOW DISCLOSURE The Company purchased certain assets and assumed certain liabilities in connection with the acquisition of hotels in 1998 and 1997. During 1999 the Company purchased the land related to three hotels, which was previously leased. These purchases were recorded under the purchase method of accounting. The fair values of the acquired assets and liabilities recorded at the date of acquisition are as follows (in thousands):
1999 1998 1997 ----------- ----------- ----------- Assets acquired ..................... $ 19,776 $ 2,427,027 $ 588,053 Liabilities assumed ................. (7,800) (940,906) (5,932) Common Stock and Units issued ....... (1,174) (1,152,856) Minority interest contribution ...... (6,989) (8,021) ----------- ----------- ----------- Net cash paid ........ $ 10,802 $ 326,276 $ 574,100 =========== =========== ===========
Under the Merger Agreement with Bristol Hotel Company, FelCor provided Bristol a $120 million interim credit facility (the "Interim Credit Facility"). At July 28, 1998, the Interim Credit facility was assumed and canceled by FelCor upon completion of the Merger. Approximately $39.7 million, $67.3 million, and $24.7 million of aggregate preferred unit distributions and unit distributions had been declared as of December 31, 1999, 1998, and 1997, respectively. These amounts were paid in the following January of each year. In 1998 the Company entered into a joint venture, in which the Company contributed a hotel with a net book value of $53.9 million for a 60% equity interest in the venture. The Company has consolidated this venture in the financial statements and recorded increases of $34.4 million in investment in hotels and minority interest in other partnerships. 13. STOCK BASED COMPENSATION PLANS FelCor sponsors three restricted stock and stock option plans (the "FelCor Plans"). In addition, upon completion of the Merger, FelCor assumed two stock option plans previously sponsored by Bristol Hotel Company (the "Bristol Plans"). FelCor was initially obligated to issue up to 1,271,103 shares of its Common Stock pursuant to the Bristol Plans. No additional options may be awarded under the Bristol Plans. The FelCor Plans and the Bristol Plans are referred to collectively as the "Plans". Upon issuance of any stock, FelCor is obligated to contribute the proceeds to the Company in exchange for a like number of units. Stock Options FelCor is authorized to issue 2,950,000 shares of Common Stock under the FelCor Plans pursuant to awards granted in the form of incentive stock options, non-qualified stock options, and restricted stock. All options have 10-year contractual terms and vest over five equal annual installments (20% per year), beginning in the year following the date of grant. F-17 67 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. STOCK BASED COMPENSATION PLANS -- (CONTINUED) The options outstanding under the Bristol Plans generally vest either in four equal annual installments (25% per year) beginning in the second year following the original date of award, in five equal annual installments (20% per year) beginning in the year following the original date of award, or on a single date that is three to five years following the original date of the date of award. A summary of the status of FelCor's non-qualified stock options under the Plans as of December 31, 1999, 1998, and 1997, and the changes during the years are presented below:
1999 1998 1997 -------------------------- ---------------------------- --------------------------- WEIGHTED WEIGHTED WEIGHTED # SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES ----------- -------- ----------- --------- ------------ --------- Outstanding at beginning of the year....... 2,540,466 $22.53 1,670,500 $29.96 1,047,500 $25.67 Granted (A) (B)............................ 9,750 $22.13 2,445,813 $20.54 752,000 $35.70 Exercised.................................. (760) $10.33 (332,915) $11.67 (31,000) $19.11 Forfeited (B).............................. (52,683) $32.41 (1,242,932) $31.51 (98,000) $31.56 ---------- ----------- ---------- Outstanding at end of year................. 2,496,773 $22.32 2,540,466 $22.53 1,670,500 $29.96 ========== =========== ========== Exercisable at end of year................. 906,675 $24.58 796,499 $24.64 411,500 $24.42
(A) 1998 grants include options covering 1,271,103 shares of Common Stock issuable as a result of the assumption of the Bristol Plans. (B) To enable FelCor to preserve its stock options as a meaningful element of compensation in 1998, existing option holders under the FelCor Plans employed by FelCor on a full-time basis were offered the opportunity to exchange their existing options (having exercise prices ranging from $26.44 to $38.56 per share) for a lesser number of new options having an equal value under the Black-Scholes option pricing model. Twenty-two employees accepted this offer in 1998, surrendering for cancellation existing options covering an aggregate of 1,151,500 shares of Common Stock at a weighted average exercise price of $32.807 per share for new options covering an aggregate of 840,393 shares of Common Stock at an exercise price of $22.125 per share. The new options have the same expiration dates and vesting schedules as the options surrendered for cancellation; however, none of the new options were exercisable prior to January 1, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ---------------------------------- NUMBER WGTD. AVG. NUMBER RANGE OF OUTSTANDING REMAINING WGTD AVG. EXERCISABLE WGTD. AVG. EXERCISE PRICES AT 12/31/99 LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE - - ---------------- ----------- ---------- -------------- -------------- --------------- $10.33 to $29.50 2,206,819 7.21 $20.80 734,890 $22.21 $30.28 to $36.63 289,954 7.63 $33.92 171,785 $34.72 - - ---------------- ---------- ---- ------ ------- ------ $10.33 to $36.63 2,496,773 7.26 $22.32 906,675 $24.58
Restricted Stock A summary of the status of FelCor's restricted stock grants as of December 31, 1999, 1998, and 1997 and the changes during the years are presented below:
1999 1998 1997 ---------------------- ------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE FAIR MARKET FAIR MARKET FAIR MARKET VALUE VALUE VALUE # SHARES AT GRANT # SHARES AT GRANT # SHARES AT GRANT -------- ----------- -------- ----------- -------- ----------- Outstanding at beginning of the year........... 125,375 $28.97 115,500 $29.03 84,500 $26.04 ------- ------- ------- Granted: With 5-year pro rata vesting................ 5,000 $21.25 35,000 $35.00 Vest 100% at grant date..................... 4,875 $35.63 6,000 $35.00 Vest 100% within 12 months of grant......... 2,500 $36.94 ------ ------ ------- Total granted.................................. 9,875 $28.35 43,500 $35.11 Forfeited...................................... (12,500) $30.00 ------- ------- ------- Outstanding at end of year..................... 125,375 $28.97 125,375 $28.97 115,500 $29.03 ======= ======= ======= Vested at end of year.......................... 83,575 $28.35 65,175 $28.26 40,400 $26.60
F-18 68 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. LESSEES All of the Company's percentage lease revenue is derived from the Percentage Leases with the Lessees. Certain information, related to DJONT's financial statements, is as follows (in thousands):
DECEMBER 31, ------------------------ 1999 1998 -------- -------- Balance Sheet Information: Cash and cash equivalents.................................... $20,127 $28,538 Accounts receivable, net..................................... $28,601 $27,561 Total assets................................................. $71,659 $63,972 Due to FelCor Lodging Limited Partnership.................... $22,064 $16,875 Accounts payable............................................. $12,742 $13,508 Shareholders' deficit........................................ $(13,142) $(8,231)
YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 -------- -------- -------- Statement of Operations Information: Room and suite revenue....................................... $649,323 $618,122 $456,614 Percentage lease expenses.................................... $307,532 $289,891 $216,990 Net income (loss)............................................ $(4,911) $ 844 $(2,672)
Certain entities owning interests in DJONT and managers for certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. No such loans were outstanding at December 31, 1999. DJONT engages third-party managers to operate the Hotels leased by it and generally pays such managers a base management fee based on a percentage of room and suite revenue and an incentive management fee based on DJONT's income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and are committed to make subordinated loans to DJONT, if needed, to meet its rental and other obligations under the Percentage Leases. Bristol is a publicly traded company whose stock is listed on the New York Stock Exchange under the symbol BH and that files financial statements in accordance with the Securities Exchange Act of 1934, as amended. Bristol serves as both the lessee and manager of the 100 Hotels leased to it by the Company at December 31, 1999, and, as such, is compensated for both roles through the profitability of the Hotels, after meeting their operating expenses and rental obligations under the Percentage Leases. Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases, and is required to maintain a minimum liquid net worth. A portion of this liquid net worth is being satisfied through a letter of credit for the benefit of the Company. This Letter of Credit is subject to periodic reductions upon satisfaction of certain conditions and, at December 31, 1999, totaled $9.1 million. According to Bristol's press release dated February 1, 2000, for the year ended December 31, 1999, and the period from July 28, 1998, through December 31, 1998, Bristol had net income of $8.2 million and $2.6 million, respectively, and at December 31, 1999 and 1998, had stockholders' equity of $43.1 million and $35.4 million, respectively. At December 31, 1999, the Company owned interests in 188 Hotels operating under various brand names. The Hotels generally operate pursuant to franchise license agreements which require the payment of fees based on a percentage of room and suite revenue. These fees are paid by the Lessees. F-19 69 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. SEGMENT INFORMATION The Company has determined that its reportable segments are those that are consistent with the Company's method of internal reporting, which segments its business by Lessee. The Company's Lessees at December 31, 1999, were DJONT and Bristol. Prior to July 28, 1998 (the date of the Bristol Merger), the Company had only one lessee, DJONT. The following tables present information about the reportable segments for the year ended December 31, 1999 and 1998 (in thousands):
CORPORATE NOT SEGMENT ALLOCABLE CONSOLIDATED DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ----------- ----------- ----------- ----------- ------------ YEAR ENDED DECEMBER 31, 1999 Statement of Operations Information: Revenues: Percentage lease revenue ................. $ 256,128 $ 234,765 $ 490,893 $ 490,893 Equity in income from unconsolidated entities .............................. $ 7,725 $ 759 $ 8,484 $ 8,484 Expenses: Depreciation ............................. $ 80,969 $ 71,748 $ 152,717 $ 231 $ 152,948 Interest expense ......................... $ 125,435 $ 125,435 Income (loss) before nonrecurring items...... $ 147,868 $ 118,949 $ 266,817 $ (130,164) $ 136,653 Gain on sale of hotels ...................... $ 236 $ 236 Income (loss) before extraordinary change ... $ 147,868 $ 118,949 $ 266,817 $ (129,928) $ 136,889 Funds from operations: Income (loss) before extraordinary charge ... $ 147,868 $ 118,949 $ 266,817 $ (129,928) $ 136,889 Series B preferred distributions ............ (12,937) (12,937) Depreciation ................................ 80,969 71,748 152,717 231 152,948 Depreciation for unconsolidated entities .... 9,248 747 9,995 9,995 ----------- ----------- ----------- ----------- ----------- Funds from operations ....................... $ 238,085 $ 191,444 $ 429,529 $ (142,634) $ 286,895 =========== =========== =========== =========== =========== Weighted average units outstanding (1) ...... 75,251 Other Information: Total assets .................... $ 1,940,247 $ 2,243,916 $ 4,184,163 $ 68,555 $ 4,252,718 Capital expenditures ............ $ 51,587 $ 170,733 $ 222,320 $ 222,320
F-20 70 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. SEGMENT INFORMATION -- (CONTINUED)
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ----------- ----------- ----------- ------------- ------------ YEAR ENDED DECEMBER 31, 1998 Statement of Operations Information: Percentage lease revenue .................... $ 237,555 $ 90,480 $ 328,035 $ 328,035 Equity in income from unconsolidated entities .............................. $ 6,744 $ 273 $ 7,017 $ 7,017 Expenses: Depreciation ............................. $ 71,055 $ 19,619 $ 90,674 $ 161 $ 90,835 Interest expense ......................... $ 73,182 $ 73,182 Income before nonrecurring item ............. $ 143,736 $ 54,233 $ 197,969 $ (74,032) $ 123,937 Gain on sale of hotels ...................... $ 477 $ 477 Income (loss) before extraordinary charge ... $ 143,736 $ 54,233 $ 197,969 $ (73,555) $ 124,414 Funds from operations: Income (loss) before extraordinary charge ... $ 143,736 $ 54,233 $ 197,969 $ (73,555) $ 124,414 Series B preferred distributions ............ (8,373) (8,373) Depreciation ................................ 71,055 19,619 90,674 161 90,835 Depreciation for unconsolidated entities .... 10,254 233 10,487 10,487 ----------- ----------- ----------- ----------- ----------- Funds from operations ....................... $ 225,045 $ 74,085 $ 299,130 $ (81,767) $ 217,363 =========== =========== =========== =========== =========== Weighted average units outstanding (1) ...... 58,013 Other Information: Total assets .................... $ 2,022,975 $ 2,093,328 $ 4,116,303 $ 59,080 $ 4,175,383 Capital expenditures ............ $ 65,264 $ 65,839 $ 131,103 $ 131,103
(1) Weighted average units outstanding are computed including dilutive FelCor options and unvested stock grants, and assuming conversion of Series A Preferred Units to Units. The following table sets forth Percentage Lease revenue and investment in hotel assets represented by the following geographical areas as of and for the years ended December 31, (in thousands):
PERCENTAGE LEASE REVENUE INVESTMENT IN HOTEL ASSETS ------------------------- -------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- California ......... $ 97,283 $ 63,733 $ 698,942 $ 642,965 Texas .............. 94,782 52,220 891,626 854,558 Florida ............ 61,516 45,719 542,298 519,280 Georgia ............ 39,247 23,691 355,519 349,429 Other States ....... 186,248 138,437 1,802,220 1,705,220 Canada ............. 11,817 5,123 75,294 62,202 ---------- ---------- ---------- ---------- Total ........... $ 490,893 $ 328,923 $4,365,899 $4,133,654 ========== ========== ========== ==========
16. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts F-21 71 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS -- (CONTINUED) (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - - - Deferral of the Effective Date of FASB 133" which deferred the effective date of FAS 133 for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company believes that, upon implementation, FAS 133 will not have a material impact on the financial statements of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidance on revenue recognition. SAB 101 is effective for fiscal years beginning after December 15, 1999. SAB 101 requires that a lessor not recognize contingent rental income until annual specified thresholds have been achieved by the lessee. During 1999, the Company's leases had quarterly, rather than annual, specified rental thresholds and the Company recognized contingent rentals earned in each quarter pursuant to the Percentage Lease terms. The Company has reviewed the terms of its Percentage Leases and has determined that the provisions of SAB 101 will not materially impact the Company's revenue recognition on an interim basis in 2000, since a significant majority of the Percentage Leases contain quarterly specified thresholds. SAB 101 will not impact the Company's revenue recognition on an annual basis given the Company maintains only calendar year leases. SAB 101 will have no impact on the Company's interim or annual cash flow from the Lessees, and therefore on its ability to pay distributions. 17. QUARTERLY OPERATING RESULTS (UNAUDITED) The Company's unaudited consolidated quarterly operating data for the years ended December 31, 1999 and 1998 follows (in thousands, except per unit data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in partner's equity and cash flows for a period of several years.
FIRST SECOND THIRD FOURTH 1999 QUARTER QUARTER QUARTER QUARTER ---- ---------- ---------- ---------- ---------- Total revenues ............................. $ 126,917 $ 135,187 $ 124,082 $ 117,815 Income before nonrecurring items ........... $ 38,067 $ 43,454 $ 31,115 $ 24,017 Net income applicable to unitholders ....... $ 31,883 $ 36,157 $ 24,931 $ 18,070 Per diluted unit data: Net income applicable to unitholders .... $ 0.45 $ 0.51 $ 0.35 $ 0.26 Weighted average units outstanding ...... 70,964 71,338 71,001 68,533
FIRST SECOND THIRD FOURTH 1998 QUARTER QUARTER QUARTER QUARTER ---- ---------- ---------- ---------- ---------- Total revenues ............................. $ 57,528 $ 67,402 $ 108,599 $ 106,088 Income before nonrecurring items ........... $ 23,251 $ 26,944 $ 41,493 $ 32,249 Net income applicable to unitholders ....... $ 19,746 $ 22,090 $ 32,790 $ 25,290 Per diluted unit data: Net income applicable to unitholders .... $ 0.50 $ 0.55 $ 0.53 $ 0.36 Weighted average units outstanding ...... 39,885 39,882 61,913 71,126
F-22 72 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 18. SUBSEQUENT EVENTS In connection with the efforts of Bass plc to acquire Bristol, as announced on February 28, 2000, a Bass subsidiary (Bass America, Inc.) contributed 4,713,185 outstanding FelCor common shares held by it to the Company in exchange for a like number of units. This exchange will not affect FFO or earnings per unit, although it results in reducing FelCor's percentage ownership in the Company from approximately 95% to approximately 88%. On January 4, 2000, FelCor announced that its Board of Directors had approved a $200 million increase to the existing $100 million stock repurchase program, authorizing FelCor to purchase up to an aggregate of $300 million of its outstanding common shares. Through March 15, 2000, FelCor had purchased an aggregate of 7.8 million common shares at an aggregate cost of approximately $137.3 million. 19. CONSOLIDATING FINANCIAL INFORMATION In 1997 the Company completed the private placement of $300 million in aggregate principal amount of its long term senior unsecured notes. The notes were issued in two maturities, consisting of $175 million of 7u% senior notes due 2004 priced at 99.489% to yield 7.47% and $125 million of 7e% senior notes due 2007 priced at 99.209% to yield 7.74%. The discount on the $300 million senior notes accrete using the straight line method over the maturity of the notes. In 1998 these notes were exchanged for publicly traded notes with the same terms. FelCor and certain of the majority-owned subsidiaries of the Company (FelCor/CSS Holdings, L.P.; FelCor/CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels, L.L.C.; FelCor/St. Paul Holdings, L.P.; FelCor/LAX Holdings, L.P.; FelCor Nevada Holdings, L.L.C.; FHAC Nevada Holdings, L.L.C.; FHAC Texas Holdings, L.P. and FelCor Hotel Asset Company, L.L.C., collectively "Subsidiary Guarantors") are guarantors of the debt offering. The following table presents consolidating information for the Subsidiary Guarantors. F-23 73 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999 (IN THOUSANDS) ASSETS
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ----------- ------------- ------------ ------------ Net investment in hotel properties ........... $ 999,085 $ 1,741,134 $ 1,295,125 $ 4,035,344 Equity investment in consolidated entities ... 2,791,424 $(2,791,424) Investment in unconsolidated entities ........ 120,556 16,162 136,718 Cash and cash equivalents .................... 3,093 10,438 22,592 36,123 Due from Lessee .............................. 14,011 2,655 1,728 18,394 Due (to)/from subsidiary ..................... (208,221) 237,006 (28,785) Note receivable from unconsolidated entity ... 7,760 7,760 Deferred assets .............................. 9,842 1,336 4,295 15,473 Other assets ................................. 3,795 1,834 310 5,939 ----------- ----------- ----------- ----------- ----------- Total assets ...................... $ 3,741,345 $ 2,010,565 $ 1,295,265 $(2,791,424) $ 4,255,751 =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' CAPITAL Debt.......................................... $1,371,220 $ 129,943 $ 332,791 $ 1,833,954 Distributions payable......................... 39,657 39,657 Accrued expenses and other liabilities........ 65,480 65,480 Minority interest - other partnerships....... 51,671 51,671 ---------- ----------- ----------- ----------- ----------- Total liabilities.................. 1,476,357 129,943 384,462 1,990,762 ---------- ----------- ----------- ----------- ----------- Redeemable units, at redemption value......... 52,338 52,338 Preferred units............................... 295,000 295,000 Partners' capital............................. 1,917,651 1,880,621 910,803 (2,791,424) 1,917,651 ---------- ----------- ----------- ----------- ----------- Total liabilities and partners' capital.......................... $3,741,346 $ 2,010,564 $ 1,295,265 $(2,791,424) $ 4,255,751 ========== =========== =========== =========== ===========
F-24 74 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 (IN THOUSANDS) ASSETS
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ----------- ------------- ------------ ------------ Net investment in hotel properties .................. $ 1,073,266 $ 1,733,128 $ 1,149,188 $ 3,955,582 Equity investment in consolidated entities .......... 2,647,693 $(2,647,693) Investment in unconsolidated entities ............... 123,345 16,912 42 140,299 Cash and cash equivalents ........................... 20,000 4,672 10,020 34,692 Due from Lessee ..................................... 8,248 8,246 2,474 18,968 Due (to)/from subsidiary ............................ (51,291) 46,429 4,862 Note receivable from unconsolidated entity .......... 7,766 7,766 Deferred assets ..................................... 9,996 45 10,041 Other assets ........................................ 6,201 1,834 8,035 ----------- ----------- ----------- ----------- ----------- Total assets ............................. $ 3,845,224 $ 1,811,266 $ 1,166,586 $(2,647,693) $ 4,175,383 =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' CAPITAL Debt ................................................ $ 1,316,696 $ 34,316 $ 243,722 $ 1,594,734 Distributions payable ............................... 67,262 67,262 Accrued expenses and other liabilities .............. 56,296 1,016 57,312 Minority interest - other partnerships ............. 51,105 51,105 ----------- ----------- ----------- ----------- ----------- Total liabilities ........................ 1,440,254 34,316 295,843 1,770,413 ----------- ----------- ----------- ----------- ----------- Redeemable units, at redemption value ............... 67,595 67,595 Preferred units ..................................... 295,000 295,000 Partners' capital ................................... 2,042,375 1,776,950 870,743 (2,647,693) 2,042,375 ----------- ----------- ----------- ----------- ----------- Total liabilities and partners' capital... $ 3,845,224 $ 1,811,266 $ 1,166,586 $(2,647,693) $ 4,175,383 =========== =========== =========== =========== ===========
F-25 75 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- ------------- ------------ Revenues: Percent rent .................................... $ 136,617 $ 214,371 $ 139,904 $ 490,892 Equity in income from unconsolidated entities ... 7,725 760 8,484 Other revenue ................................... 4,624 4,624 ---------- ---------- ---------- ---------- Total revenue .................... 148,966 215,131 139,904 504,001 ---------- ---------- ---------- ---------- Expenses: General and administrative ...................... 3,597 3,441 2,084 9,122 Depreciation .................................... 44,198 66,718 42,032 152,948 Taxes, insurance and other ...................... 20,073 35,450 21,607 77,130 Interest expense ................................ 97,785 6,196 21,454 125,435 Minority interest other partnerships ............ 1,099 1,614 2,713 ---------- ---------- ---------- ---------- Total expenses ................... 166,752 111,805 88,791 367,348 Net income (loss) before nonrecurring items ..... (17,786) 103,326 51,113 136,653 Gain on sale of hotels, net ..................... 236 236 Extraordinary charge for write off of deferred financing fees ............................... 1,113 1,113 ---------- ---------- ---------- ---------- Net income (loss) ............................... (18,663) 103,326 51,113 135,776 Preferred distributions ......................... 24,735 24,735 ---------- ---------- ---------- ---------- Net income (loss) applicable to unitholders ..... $ (43,398) $ 103,326 $ 51,113 $ 111,041 ========== ========== ========== ==========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- ------------- ------------ Cash flows from operating activities ............ $ 18,324 $ 169,284 $ 94,757 $ 282,365 Cash flows from (used in)investing activities ... 55,786 (73,334) (187,969) (205,517) Cash flows from (used in) financing activities... (91,017) (90,184) 105,784 (75,417) ---------- ---------- ---------- ---------- Change in cash and cash equivalents ............. (16,907) 5,766 12,572 1,431 Cash and cash equivalents at beginning of period ........................................ 20,000 4,672 10,020 34,692 ---------- ---------- ---------- ---------- Cash and equivalents at end of year ............. $ 3,093 $ 10,438 $ 22,592 $ 36,123 ========== ========== ========== ==========
F-26 76 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- ------------- ------------ Revenues: Percent rent ..................................... $ 125,103 $ 134,250 $ 68,682 $ 328,035 Equity in income from unconsolidated entities .... 6,960 57 7,017 Other revenue .................................... 4,504 61 4,565 ---------- ---------- ---------- ---------- Total revenue ..................... 136,567 134,311 68,739 339,617 ---------- ---------- ---------- ---------- Expenses: General and administrative ....................... 2,117 2,076 1,061 5,254 Depreciation ..................................... 36,490 39,341 15,004 90,835 Taxes, insurance and other ....................... 14,388 20,826 10,074 45,288 Interest expense ................................. 62,785 2,393 8,004 73,182 Minority interest other partnerships ............. 1,121 1,121 ---------- ---------- ---------- ---------- Total expenses .................... 115,780 64,636 35,264 215,680 Net income before nonrecurring items ............. 20,787 69,675 33,475 123,937 Gain on sale of hotels, net ...................... 477 477 Extraordinary charge for write off of deferred financing fees ................................ 3,075 3,075 ---------- ---------- ---------- ---------- Net income ....................................... 18,189 69,675 33,475 121,339 Preferred distributions .......................... 21,423 21,423 ---------- ---------- ---------- ---------- Net income (loss) applicable to unitholders ...... $ (3,234) $ 69,675 $ 33,475 $ 99,916 ========== ========== ========== ==========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- ------------- ------------ Cash flows from operating activities ............. $ 34,025 $ 109,015 $ 49,543 $ 192,583 Cash flows used in investing activities .......... (444,363) (24,350) (81,785) (550,498) Cash flows from (used in) financing activities ... 412,795 (79,993) 42,262 375,064 ---------- ---------- ---------- ---------- Change in cash and cash equivalents .............. 2,457 4,672 10,020 17,149 Cash and cash equivalents at beginning of period ........................................ 17,543 17,543 ---------- ---------- ---------- ---------- Cash and equivalents at end of year .............. $ 20,000 $ 4,672 $ 10,020 $ 34,692 ========== ========== ========== ==========
F-27 77 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- ------------- ------------ Revenues: Percent rent ..................................... $ 83,528 $ 77,335 $ 8,251 $ 169,114 Equity in income from unconsolidated entities .... 6,963 6,963 Other revenue .................................... 367 207 574 ---------- ---------- ---------- ---------- Total revenue ..................... 90,858 77,542 8,251 176,651 ---------- ---------- ---------- ---------- Expenses: General and administrative ....................... 1,848 1,712 183 3,743 Depreciation ..................................... 22,798 26,094 1,906 50,798 Taxes, insurance and other ....................... 11,781 10,661 651 23,093 Interest expense ................................. 26,673 2,119 28,792 Minority interest other partnerships ............. 573 573 ---------- ---------- ---------- ---------- Total expenses .................... 63,100 40,586 3,313 106,999 ---------- ---------- ---------- ---------- Net income before extraordinary charge ........... 27,758 36,956 4,938 69,652 Extraordinary charge for write off of deferred financing fees ................................ 185 185 ---------- ---------- ---------- ---------- Net income ....................................... 27,573 36,956 4,938 69,467 Preferred distributions .......................... 11,797 11,797 ---------- ---------- ---------- ---------- Net income applicable to unitholders ............. $ 15,776 $ 36,956 $ 4,938 $ 57,670 ========== ========== ========== ==========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- ------------- ------------ Cash flows from operating activities ............. $ 57,817 $ 36,598 $ 3,063 $ 97,478 Cash flows used in investing activities .......... (598,467) (16,242) (73,151) (687,860) Cash flows from (used in) financing activities ... 550,400 (20,356) 70,088 600,132 ---------- ---------- ---------- ---------- Change in cash and cash equivalents .............. 9,750 9,750 Cash and cash equivalents at beginning of period ......................................... 7,793 7,793 ---------- ---------- ---------- ---------- Cash and equivalents at end of year .............. $ 17,543 $ $ $ 17,543 ========== ========== ========== ==========
F-28 78 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of FelCor Lodging Trust Incorporated Our audits of the consolidated financial statements referred to in our report dated February 1, 2000, except as to the information in Note 18, for which the date is March 15, 2000, appearing on page F-2 of the Annual Report on Form 10-K of FelCor Lodging Limited Partnership (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Dallas, Texas February 1, 2000 F-29 79 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1999 (IN THOUSANDS)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------------- ----------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - - ----------------------- ------------ ---- ------------ --------- ---- ------------ --------- Birmingham, AL (1) $12,483 $2,843 $29,286 $ 160 $ 701 $3,801 Montgomery E. I-85, AL (2) 836 7,272 251 2,590 1,038 Texarkana I-30, AR (2) 5,245 162 550 1,249 Flagstaff, AZ (1) 900 6,825 268 1,637 1,220 Phoenix (Airport), AZ (1) 2,969 25,828 891 2,649 928 Phoenix (Camelback), AZ (1) 38,998 612 4,695 925 5,486 Phoenix (Crescent), AZ (3) 3,608 29,583 2,887 266 658 Scottsdale, AZ (4) 12,430 384 19 112 Tempe, AZ (1) 12,363 3,951 34,371 1,185 1,144 2,077 Anaheim, CA (1) 11,470 2,548 14,832 607 516 3,804 Dana Point, CA (5) 1,787 15,545 536 357 2,972 Irvine Orange Co., CA (6) 4,981 43,338 1,494 1,093 1,243 LAX Airport, CA (1) 2,660 17,997 798 728 5,816 LAX Century, CA (1) 2,207 18,764 1,104 191 702 Mandalay Beach, CA (1) 2,930 22,125 879 717 5,405 Milpitas, CA (1) 21,497 4,021 23,677 562 1,155 4,297 Milpitas San Jose N., CA (6) 4,153 36,130 1,246 6,311 1,237 Napa, CA (1) 11,295 3,287 14,205 494 941 3,304 Palm Desert, CA (1) 8,839 2,368 20,598 710 1,591 2,673 Pleasanton, CA (6) 3,169 27,569 951 145 225 San Diego on the Bay, CA (2) 68,633 2,123 10 110 Santa Barbara, CA (2) 6 1,692 14,723 508 69 187 SF Burlingame, CA (1) 39,929 818 110 4,022 SF Financial District, CA (2) 21,679 670 1,843 1,253 SF Fisherman's Wharf, CA (2) 62,202 1,924 749 373 SF Union Square, CA (6) 8,392 74,076 2,554 3,436 970 So. San Francisco, CA (1) 3,418 31,737 527 880 4,529 Beaver Creek, CO (7) 1,134 9,864 340 (16) 93 1,123 Denver, CO (5) 2,432 21,158 730 215 2,228 Hartford Downtown, CT (6) 2,327 20,243 698 5,902 3,124 Stamford, CT (8) 37,356 1,155 1,459 630 Wilmington, DE (5) 1,379 12,487 431 507 2,222 Boca Raton, FL (5) 5,433 2,796 468 166 1,193 Boca Raton, FL (1) 1,868 16,253 560 242 3,482 Cocoa Beach, FL (2) 2,304 20,046 691 4,898 4,885 Deerfield Beach, FL (1) 15,491 4,523 29,443 917 18 1,270 4,548 Ft. Lauderdale, FL (1) 16,544 5,329 47,850 903 45 1,530 5,223 Ft. Lauderdale, FL (3) 3,009 26,177 903 1,926 1,041 Jacksonville, FL (1) 1,130 9,608 456 5,083 2,116 Kissimmee Nikki Bird, FL (2) 31,652 979 5,186 2,709 Miami Airport, FL (6) 26,146 809 922 1,439 Miami (Airport), FL (1) 13,374 4,135 24,950 1,171 816 5,589 Orlando Int'l Airport, FL (8) 2,564 22,310 769 40 211 Orlando Int'l Drive, FL (2) 5,142 44,735 1,543 1,614 1,591 Orlando (North), FL (1) 1,673 14,218 684 5,154 2,108 Orlando (South), FL (1) 1,632 13,870 799 457 2,071 Tampa Busch Gardens, FL (5) 672 12,387 226 181 935 GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE -------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DATE OF DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION - - ----------------------- ---- ------------ --------- ----- ------------- ------------- ------------ Birmingham, AL (1) $2,843 $29,987 $3,961 $36,791 $5,178 $31,613 1987 Montgomery E. I-85, AL (2) 836 9,862 1,289 11,987 548 11,439 1964 Texarkana I-30, AR (2) 5,795 1,411 7,206 321 6,885 1970 Flagstaff, AZ (1) 900 8,462 1,488 10,850 2,168 8,682 1988 Phoenix (Airport), AZ (1) 2,969 28,477 1,819 33,265 1,326 31,939 1981 Phoenix (Camelback), AZ (1) 4,695 39,923 6,098 50,716 7,583 43,133 1985 Phoenix (Crescent), AZ (3) 3,608 29,849 3,545 37,002 3,523 33,479 1986 Scottsdale, AZ (4) 12,449 496 12,945 526 12,419 1970 Tempe, AZ (1) 3,951 35,515 3,262 42,728 2,020 40,708 1986 Anaheim, CA (1) 2,548 15,348 4,411 22,307 4,405 17,902 1987 Dana Point, CA (5) 1,787 15,902 3,508 21,197 2,414 18,783 1992 Irvine Orange Co., CA (6) 4,981 44,431 2,737 52,149 1,969 50,180 1986 LAX Airport, CA (1) 2,660 18,725 6,614 27,999 6,242 21,757 1985 LAX Century, CA (1) 2,207 18,955 1,806 22,968 2,202 20,766 1990 Mandalay Beach, CA (1) 2,930 22,842 6,284 32,056 5,514 26,542 1986 Milpitas, CA (1) 4,021 24,832 4,859 33,712 5,446 28,266 1987 Milpitas San Jose N., CA (6) 4,153 42,441 2,483 49,077 1,680 47,397 1987 Napa, CA (1) 3,287 15,146 3,798 22,231 3,440 18,791 1985 Palm Desert, CA (1) 2,368 22,189 3,383 27,940 1,553 26,387 1984 Pleasanton, CA (6) 3,169 27,714 1,176 32,059 1,203 30,856 1986 San Diego on the Bay, CA (2) 68,643 2,233 70,876 2,873 68,003 1965 Santa Barbara, CA (2) 1,692 14,792 695 17,179 658 16,521 1969 SF Burlingame, CA (1) 40,039 4,840 44,879 7,044 37,835 1986 SF Financial District, CA (2) 23,522 1,923 25,445 1,093 24,352 1970 SF Fisherman's Wharf, CA (2) 62,951 2,297 65,248 2,646 62,602 1970 SF Union Square, CA (6) 8,514 77,512 3,524 89,550 3,385 86,165 1970 So. San Francisco, CA (1) 3,418 32,617 5,056 41,091 6,344 34,747 1988 Beaver Creek, CO (7) 1,118 9,957 1,463 12,538 1,913 10,625 1989 Denver, CO (5) 2,432 21,373 2,958 26,763 1,489 25,274 1989 Hartford Downtown, CT (6) 2,327 26,145 3,822 32,294 1,498 30,796 1973 Stamford, CT (8) 38,815 1,785 40,600 1,670 38,930 1984 Wilmington, DE (5) 1,379 12,994 2,653 17,026 947 16,079 1972 Boca Raton, FL (5) 5,433 2,962 1,661 10056 1,350 8,706 1989 Boca Raton, FL (1) 1,868 16,495 4,042 22,405 4,010 18,395 1989 Cocoa Beach, FL (2) 2,304 24,944 5,576 32,824 1,451 31,373 1960 Deerfield Beach, FL (1) 4,541 30,713 5,465 40,719 6,192 34,527 1987 Ft. Lauderdale, FL (1) 5,374 49,380 6,126 60,880 8,657 52,223 1986 Ft. Lauderdale, FL (3) 3,009 28,103 1,944 33,056 1,459 31,597 1986 Jacksonville, FL (1) 1,130 14,691 2,572 18,393 3,039 15,354 1986 Kissimmee Nikki Bird, FL (2) 36,838 3,688 40,526 1,741 38,785 1974 Miami Airport, FL (6) 27,068 2,248 29,316 1,360 27,956 1983 Miami (Airport), FL (1) 4,135 25,766 6,760 36,661 6,550 30,111 1987 Orlando Int'l Airport, FL (8) 2,564 22,350 980 25,894 977 24,917 1984 Orlando Int'l Drive, FL (2) 5,142 46,349 3,134 54,625 1,933 52,692 1972 Orlando (North), FL (1) 1,673 19,372 2,792 23,837 4,200 19,637 1985 Orlando (South), FL (1) 1,632 14,327 2,870 18,829 4,029 14,800 1985 Tampa Busch Gardens, FL (5) 672 12,568 1,161 14,401 1,852 12,549 1985 LIFE UPON WHICH DEPRECIATION DATE IN STATEMENT DESCRIPTION OF PROPERTY ACQUIRED IS COMPUTED - - ----------------------- -------- ----------- Birmingham, AL (1) 01-03-96 5 - 40 Yrs Montgomery E. I-85, AL (2) 07-28-98 5 - 40 Yrs Texarkana I-30, AR (2) 07-28-98 5 - 40 Yrs Flagstaff, AZ (1) 02-16-95 5 - 40 Yrs Phoenix (Airport), AZ (1) 05-04-98 5 - 40 Yrs Phoenix (Camelback), AZ (1) 01-03-96 5 - 40 Yrs Phoenix (Crescent), AZ (3) 06-30-97 5 - 40 Yrs Scottsdale, AZ (4) 07-28-98 5 - 40 Yrs Tempe, AZ (1) 05-04-98 5 - 40 Yrs Anaheim, CA (1) 01-03-96 5 - 40 Yrs Dana Point, CA (5) 02-21-97 5 - 40 Yrs Irvine Orange Co., CA (6) 07-28-98 5 - 40 Yrs LAX Airport, CA (1) 03-27-96 5 - 40 Yrs LAX Century, CA (1) 02-18-97 5 - 40 Yrs Mandalay Beach, CA (1) 05-08-96 5 - 40 Yrs Milpitas, CA (1) 01-03-96 5 - 40 Yrs Milpitas San Jose N., CA (6) 07-28-98 5 - 40 Yrs Napa, CA (1) 05-08-96 5 - 40 Yrs Palm Desert, CA (1) 05-04-98 5 - 40 Yrs Pleasanton, CA (6) 07-28-98 5 - 40 Yrs San Diego on the Bay, CA (2) 07-28-98 5 - 40 Yrs Santa Barbara, CA (2) 07-28-98 5 - 40 Yrs SF Burlingame, CA (1) 11-06-95 5 - 40 Yrs SF Financial District, CA (2) 07-28-98 5 - 40 Yrs SF Fisherman's Wharf, CA (2) 07-28-98 5 - 40 Yrs SF Union Square, CA (6) 07-28-98 5 - 40 Yrs So. San Francisco, CA (1) 01-03-96 5 - 40 Yrs Beaver Creek, CO (7) 02-20-96 5 - 40 Yrs Denver, CO (5) 03-15-98 5 - 40 Yrs Hartford Downtown, CT (6) 07-28-98 5 - 40 Yrs Stamford, CT (8) 07-28-98 5 - 40 Yrs Wilmington, DE (5) 03-20-98 5 - 40 Yrs Boca Raton, FL (5) 11-15-95 5 - 40 Yrs Boca Raton, FL (1) 02-28-96 5 - 40 Yrs Cocoa Beach, FL (2) 07-28-98 5 - 40 Yrs Deerfield Beach, FL (1) 01-03-96 5 - 40 Yrs Ft. Lauderdale, FL (1) 01-03-96 5 - 40 Yrs Ft. Lauderdale, FL (3) 05-04-98 5 - 40 Yrs Jacksonville, FL (1) 07-28-94 5 - 40 Yrs Kissimmee Nikki Bird, FL (2) 07-28-98 5 - 40 Yrs Miami Airport, FL (6) 07-28-98 5 - 40 Yrs Miami (Airport), FL (1) 01-03-96 5 - 40 Yrs Orlando Int'l Airport, FL (8) 07-28-98 5 - 40 Yrs Orlando Int'l Drive, FL (2) 07-28-98 5 - 40 Yrs Orlando (North), FL (1) 07-28-94 5 - 40 Yrs Orlando (South), FL (1) 07-28-94 5 - 40 Yrs Tampa Busch Gardens, FL (5) 11-15-95 5 - 40 Yrs
F-30 80 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION ------------------------------- ----------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - - ----------------------- ------------ ---- ------------ --------- ---- ------------ --------- Tampa Busch Gardens, FL (2) 9,534 295 8,879 4,172 Tampa Rocky Point, FL (5) 2,142 18,639 643 887 2,346 WDW Village, FL (5) 2,896 25,196 869 192 2,601 Atlanta, GA (4) 1,266 11,017 380 151 328 Atlanta Airport, GA (6) 40,943 1,266 119 317 Atlanta Airport, GA (1) 22,342 770 2,568 1,920 296 Atlanta Airport North, GA (2) 18 34,531 1,068 205 238 Atlanta Buckhead, GA (1) 7,303 38,996 2,437 572 1,951 Atlanta-Courtyd by Marriott, GA (9) 2,025 17,618 608 35 83 Atlanta Galleria, GA (3) 5,052 28,507 2,526 150 313 Atlanta Gateway, GA (3) 5,113 22,857 2,105 232 3,592 Atlanta Perimeter, GA (8) 11 20,556 636 153 348 Atlanta Powers Ferry, GA (6) 11 3,411 29,672 1,023 530 285 Atlanta South (Jonesboro), GA (2) 3 864 7,515 259 102 147 Brunswick, GA (1) 705 6,067 247 78 839 Columbus N. Airport, GA (2) 7,026 217 319 2,331 Marietta, GA (10) 952 8,285 286 377 469 Davenport, IA (2) 547 4,763 164 133 173 Davenport, IA (10) 434 3,776 130 32 93 Chicago Allerton, IL (6) 3,343 29,086 1,003 55,907 6,283 Chicago O'Hare, IL (3) 8,178 37,043 2,886 498 773 Deerfield, IL (1) 2,305 20,054 692 707 1,229 Moline, IL (10) 505 4,398 152 51 105 Moline Airport, IL (2) 538 822 7,149 247 57 198 Moline Airport, IL (11) 175 232 2,021 70 43 155 Colby, KS (11) 339 2,950 102 260 37 Great Bend, KS (2) 549 4,780 165 148 262 Hays, KS (2) 43 597 5,190 179 70 173 Hays, KS (10) 243 2,112 73 8 47 Salina, KS (2) 5,249 502 4,370 151 84 268 Salina, KS (11) 341 2,964 102 16 87 Lexington, KY (12) 1,955 13,604 587 363 1,774 Lexington, KY (3) 21,644 746 2,488 403 465 Baton Rouge, LA (1) 8,025 2,350 19,092 525 462 3,822 New Orleans French Quarter, LA (2) 35 5,264 45,793 1,579 164 438 New Orleans, LA (1) 2,570 22,300 895 4,423 3,087 Boston Gov't Center, MA (8) 45,452 1,406 97 234 Boston - Marlborough, MA (1) 947 8,143 325 761 12,922 4,821 Leominster Four Points, MA (3) 900 7,830 270 77 307 BWI, MD (5) 2,568 22,433 770 177 658 Troy, MI (5) 2,968 25,905 909 138 343 Bloomington Airport W, MN (1) 2,038 17,731 611 174 1,676 Minneapolis Airport, MN (1) 15,851 5,417 36,508 602 219 3,254 Minneapolis Downtown, MN (1) 818 16,820 505 234 3,346 St. Paul, MN (1) 1,156 17,315 849 140 3,256 Kansas City, MO (2) 973 8,461 292 (391) 2,948 St. Louis, MO (1) 3,179 27,659 954 229 2,728 St. Louis Westport, MO (2) 2,767 24,072 830 144 372 Jackson Briarwood, MS (10) 1 747 6,501 224 17 48 Jackson Downtown, MS (6) 5 2,226 19,370 668 97 311 Jackson North, MS (2) 6 1,643 14,296 493 229 276 GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE --------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DATE OF DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION - - ----------------------- ---- ------------ -------- ----- -------- -------- ------------ Tampa Busch Gardens, FL (2) 18,413 4,467 22,880 1,172 21,708 1966 Tampa Rocky Point, FL (5) 2,142 19,526 2,989 24,657 1,813 22,844 1986 WDW Village, FL (5) 2,896 25,388 3,470 31,754 2,487 29,267 1987 Atlanta, GA (4) 1,266 11,168 708 13,142 520 12,622 1963 Atlanta Airport, GA (6) 41,062 1,583 42,645 1,757 40,888 1975 Atlanta Airport, GA (1) 2,568 24,262 1,066 27,896 1,155 26,741 1989 Atlanta Airport North, GA (2) 34,736 1,306 36,042 1,435 34,607 1967 Atlanta Buckhead, GA (1) 7,303 39,568 4,388 51,259 5,118 46,141 1988 Atlanta-Courtyd by Marriott, GA (9) 2,025 17,653 691 20,369 764 19,605 1963 Atlanta Galleria, GA (3) 5,052 28,657 2,839 36,548 3,143 33,405 1990 Atlanta Gateway, GA (3) 5,113 23,089 5,697 33,899 3,295 30,604 1986 Atlanta Perimeter, GA (8) 20,709 984 21,693 902 20,791 1985 Atlanta Powers Ferry, GA (6) 3,411 30,202 1,308 34,921 1,303 33,618 1981 Atlanta South (Jonesboro), GA (2) 864 7,617 406 8,887 339 8,548 1973 Brunswick, GA (1) 705 6,145 1,086 7,936 1,347 6,589 1988 Columbus N. Airport, GA (2) 7,345 2,548 9,893 499 9,394 1969 Marietta, GA (10) 952 8,662 755 10,369 462 9,907 1986 Davenport, IA (2) 547 4,896 337 5,780 267 5,513 1966 Davenport, IA (10) 434 3,808 223 4,465 195 4,270 1985 Chicago Allerton, IL (6) 3,343 84,993 7,286 95,622 1,877 93,745 1923 Chicago O'Hare, IL (3) 8,178 37,541 3,659 49,378 3,989 45,389 1994 Deerfield, IL (1) 2,305 20,761 1,921 24,987 2,722 22,265 1987 Moline, IL (10) 505 4,449 257 5,211 224 4,987 1985 Moline Airport, IL (2) 822 7,206 445 8,473 360 8,113 1961 Moline Airport, IL (11) 232 2,064 225 2,521 118 2,403 1996 Colby, KS (11) 339 3,210 139 3,688 140 3,548 1998 Great Bend, KS (2) 549 4,928 427 5,904 260 5,644 1964 Hays, KS (2) 597 5,260 352 6,209 259 5,950 1966 Hays, KS (10) 243 2,120 120 2,483 108 2,375 1985 Salina, KS (2) 502 4,454 419 5,375 246 5,129 1986 Salina, KS (11) 341 2,980 189 3,510 164 3,346 1997 Lexington, KY (12) 1,955 13,967 2,361 18,283 2,587 15,696 1987 Lexington, KY (3) 2,488 22,047 1,211 25,746 1,128 24,618 1989 Baton Rouge, LA (1) 2,350 19,554 4,347 26,251 4,574 21,677 1985 New Orleans French Quarter, LA (2) 5,264 45,957 2,017 53,238 1,999 51,239 1969 New Orleans, LA (1) 2,570 26,723 3,982 33,275 5,672 27,603 1984 Boston Gov't Center, MA (8) 45,549 1,640 47,189 1,907 45,282 1968 Boston - Marlborough, MA (1) 1,708 21,065 5,146 27,919 4,323 23,596 1988 Leominster Four Points, MA (3) 900 7,907 577 9,384 332 9,052 1989 BWI, MD (5) 2,568 22,610 1,428 26,606 2,317 24,289 1987 Troy, MI (5) 2,968 26,043 1,252 30,263 2,504 27,759 1987 Bloomington Airport W, MN (1) 2,038 17,905 2,287 22,230 2,111 20,119 1980 Minneapolis Airport, MN (1) 5,417 36,727 3,856 46,000 6,365 39,635 1986 Minneapolis Downtown, MN (1) 818 17,054 3,851 21,723 4,375 17,348 1984 St. Paul, MN (1) 1,156 17,455 4,105 22,716 4,726 17,990 1983 Kansas City, MO (2) 973 8,070 3,240 12,283 912 11,371 1975 St. Louis, MO (1) 3,179 27,888 3,682 34,749 1,519 33,230 1985 St. Louis Westport, MO (2) 2,767 24,216 1,202 28,185 1,088 27,097 1979 Jackson Briarwood, MS (10) 747 6,518 272 7,537 289 7,248 1985 Jackson Downtown, MS (6) 2,226 19,467 979 22,672 924 21,748 1975 Jackson North, MS (2) 1,643 14,525 769 16,937 703 16,234 1957 LIFE UPON WHICH DEPRECIATION DATE IN STATEMENT ACQUIRED IS COMPUTED DESCRIPTION OF PROPERTY -------- ----------- - - ----------------------- Tampa Busch Gardens, FL (2) 07-28-98 5 - 40 Yrs Tampa Rocky Point, FL (5) 07-28-97 5 - 40 Yrs WDW Village, FL (5) 07-28-97 5 - 40 Yrs Atlanta, GA (4) 07-28-98 5 - 40 Yrs Atlanta Airport, GA (6) 07-28-98 5 - 40 Yrs Atlanta Airport, GA (1) 05-04-98 5 - 40 Yrs Atlanta Airport North, GA (2) 07-28-98 5 - 40 Yrs Atlanta Buckhead, GA (1) 10-17-96 5 - 40 Yrs Atlanta-Courtyd by Marriott, GA (9) 07-28-98 5 - 40 Yrs Atlanta Galleria, GA (3) 06-30-97 5 - 40 Yrs Atlanta Gateway, GA (3) 06-30-97 5 - 40 Yrs Atlanta Perimeter, GA (8) 07-28-98 5 - 40 Yrs Atlanta Powers Ferry, GA (6) 07-28-98 5 - 40 Yrs Atlanta South (Jonesboro), GA (2) 07-28-98 5 - 40 Yrs Brunswick, GA (1) 07-19-95 5 - 40 Yrs Columbus N. Airport, GA (2) 07-28-98 5 - 40 Yrs Marietta, GA (10) 07-28-98 5 - 40 Yrs Davenport, IA (2) 07-28-98 5 - 40 Yrs Davenport, IA (10) 07-28-98 5 - 40 Yrs Chicago Allerton, IL (6) 07-28-98 5 - 40 Yrs Chicago O'Hare, IL (3) 06-30-97 5 - 40 Yrs Deerfield, IL (1) 06-20-96 5 - 40 Yrs Moline, IL (10) 07-28-98 5 - 40 Yrs Moline Airport, IL (2) 07-28-98 5 - 40 Yrs Moline Airport, IL (11) 07-28-98 5 - 40 Yrs Colby, KS (11) 07-28-98 5 - 40 Yrs Great Bend, KS (2) 07-28-98 5 - 40 Yrs Hays, KS (2) 07-28-98 5 - 40 Yrs Hays, KS (10) 07-28-98 5 - 40 Yrs Salina, KS (2) 07-28-98 5 - 40 Yrs Salina, KS (11) 07-28-98 5 - 40 Yrs Lexington, KY (12) 01-10-96 5 - 40 Yrs Lexington, KY (3) 05-04-98 5 - 40 Yrs Baton Rouge, LA (1) 01-03-96 5 - 40 Yrs New Orleans French Quarter, LA (2) 07-28-98 5 - 40 Yrs New Orleans, LA (1) 12-01-94 5 - 40 Yrs Boston Gov't Center, MA (8) 07-28-98 5 - 40 Yrs Boston - Marlborough, MA (1) 06-30-95 5 - 40 Yrs Leominster Four Points, MA (3) 07-28-98 5 - 40 Yrs BWI, MD (5) 03-20-97 5 - 40 Yrs Troy, MI (5) 03-20-97 5 - 40 Yrs Bloomington Airport W, MN (1) 02-01-97 5 - 40 Yrs Minneapolis Airport, MN (1) 11-06-95 5 - 40 Yrs Minneapolis Downtown, MN (1) 11-15-95 5 - 40 Yrs St. Paul, MN (1) 11-15-95 5 - 40 Yrs Kansas City, MO (2) 07-28-98 5 - 40 Yrs St. Louis, MO (1) 05-04-98 5 - 40 Yrs St. Louis Westport, MO (2) 07-28-98 5 - 40 Yrs Jackson Briarwood, MS (10) 07-28-98 5 - 40 Yrs Jackson Downtown, MS (6) 07-28-98 5 - 40 Yrs Jackson North, MS (2) 07-28-98 5 - 40 Yrs
F-31 81 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION ------------------------------- ----------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - - ----------------------- ------------ ---- ------------ --------- ---- ------------ --------- Olive Branch Exec Conf Ctr, MS (7) 1,247 12,155 419 1,559 1,192 Raleigh/Durham, NC (5) 2,124 18,476 637 112 1,586 Omaha, NE (13) 923 8,029 277 680 130 Omaha Central I-80, NE (6) 6,604 1,795 15,614 538 117 264 Omaha Central I-80, NE (10) 518 4,504 155 815 140 Omaha Central, NE (5) 1,877 16,328 563 231 1,753 Omaha Northwest, NE (2) 979 8,519 294 3,559 3,476 Omaha Northwest, NE (11) 373 3,245 112 10 111 Omaha Southwest, NE (10) 464 4,036 139 299 327 Piscataway, NJ (1) 1,755 17,563 527 872 2,568 Secaucus, NJ (6) 2,356 20,497 707 2,242 3,223 Albuquerque Mountainview, NM (2) 1,322 11,505 397 86 497 Syracuse, NY (1) 1,483 13,756 1,330 303 307 Cleveland, OH (1) 1,755 15,329 527 1,683 2,008 Columbus, OH (5) 1,918 16,691 576 396 852 Dayton, OH (5) 1,140 11,223 342 149 124 938 Tulsa, OK (1) 525 7,344 3,117 253 1,796 Philadelphia Center City, PA (6) 5,793 50,395 1,738 2,345 1,138 Philadelphia Independence Mall, PA (2) 3,184 27,704 955 4,686 3,080 Pittsburgh, PA (8) 25,170 773 2,373 1,072 Society Hill, PA (3) 4,542 45,121 1,536 718 2,525 Charleston Mills House, SC (2) 3,270 28,446 981 286 791 Greenville Roper, SC (6) 1,551 13,492 465 588 765 Kingston Plantation, SC (1) 2,940 24,988 1,470 1,737 4,364 Knoxville West, TN (2) 11,586 358 1,452 1,006 Nashville, TN (5) 1,073 9,331 322 413 827 Nashville Airport, TN (1) 1,118 9,506 961 335 1,629 Nashville Airport Briley, TN (8) 27,889 863 2,180 814 Amarillo I-40, TX (2) 5,754 178 2,121 1,164 Austin, TX (5) 2,508 21,908 752 593 303 Austin Town Lake, TX (2) 21,551 667 747 1,182 Beaumont Midtown I-10, TX (2) 685 5,964 206 1,327 1,152 Corpus Christi, TX (1) 1,112 9,618 390 52 118 1,599 Dallas, TX (6) 15,885 30,513 944 5,624 205 554 Dallas, TX (14) 13,564 420 2,409 195 500 Dallas Bristol House, TX (7) 1,704 8,143 1,623 18 6 Dallas Campbell Ctr, TX (5) 3,208 27,907 962 1,794 577 Dallas Downtown, TX (10) 1,953 16,989 586 18 33 Dallas Love Field, TX (1) 13,904 1,934 16,674 757 377 1,475 Dallas Market Center, TX (6) 13 4,079 35,486 1,224 555 612 Dallas Market Center, TX (1) 12,414 2,560 23,751 2,182 450 315 Dallas Park Central, TX (1) 1,497 12,722 647 167 1,619 Dallas Park Central, TX (3) 1,720 28,550 4,130 186 88 Dallas Park Central, TX (15) 4,513 43,125 2,507 4,279 1,304 Dallas Regal Row, TX (4) 778 6,770 233 14 36 DFW Airport, TX (14) 28,296 56,713 1,754 10,040 523 1,306 DFW Airport (Suites), TX (14) 11 1,546 13,453 464 122 148 DFW South, TX (1) 35,156 1,212 4,041 2,170 1,681 Houston Galleria, TX (9) 1,855 16,143 557 184 271 Houston Galleria, TX (4) 465 4,047 140 26 64 GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE --------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DATE OF DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION - - ----------------------- ---- ------------ -------- ----- -------- -------- ------------ Olive Branch Exec Conf Ctr, MS (7) 1,247 13,714 1,611 16,572 773 15,799 1972 Raleigh/Durham, NC (5) 2,124 18,588 2,223 22,935 1,828 21,107 1987 Omaha, NE (13) 923 8,709 407 10,039 365 9,674 1989 Omaha Central I-80, NE (6) 795 15,731 802 18,328 711 17,617 1965 Omaha Central I-80, NE (10) 518 5,319 295 6,132 221 5,911 1991 Omaha Central, NE (5) 1,877 16,559 2,316 20,752 2,068 18,684 1973 Omaha Northwest, NE (2) 979 12,078 3,770 16,827 593 16,234 1974 Omaha Northwest, NE (11) 373 3,255 223 3,851 195 3,656 1996 Omaha Southwest, NE (10) 464 4,335 466 5,265 192 5,073 1986 Piscataway, NJ (1) 1,755 18,435 3,095 23,285 3,406 19,879 1988 Secaucus, NJ (6) 2,356 22,739 3,930 29,025 1,173 27,852 N/A Albuquerque Mountainview, NM (2) 1,322 11,591 894 13,807 569 13,238 1968 Syracuse, NY (1) 1483 14059 1637 17179 1580 15,599 1989 Cleveland, OH (1) 1755 17012 2535 21302 2985 18,317 1990 Columbus, OH (5) 1,918 17,087 1,428 20,433 1,279 19,154 1985 Dayton, OH (5) 1289 11347 1280 13916 780 13,136 1987 Tulsa, OK (1) 525 7,597 4,913 13,035 6,223 6,812 1985 Philadelphia Center City, PA (6) 5,793 52,740 2,876 61,409 2,325 59,084 1970 Philadelphia Independence Mall, PA (2) 3,184 32,390 4,035 39,609 1,535 38,074 1972 Pittsburgh, PA (8) 27,543 1,845 29,388 1,152 28,236 1988 Society Hill, PA (3) 4,542 45,839 4,061 54,442 3,537 50,905 1986 Charleston Mills House, SC (2) 3,270 28,732 1,772 33,774 1,287 32,487 1982 Greenville Roper, SC (6) 1,551 14,080 1,230 16,861 705 16,156 1984 Kingston Plantation, SC (1) 2,940 26,725 5,834 35,499 4,363 31,136 1987 Knoxville West, TN (2) 13,038 1,364 14,402 698 13,704 1966 Nashville, TN (5) 1,073 9,744 1,149 11,966 1,004 10,962 1988 Nashville Airport, TN (1) 1,118 9,841 2,590 13,549 4,031 9,518 1985 Nashville Airport Briley, TN (8) 30,069 1,677 31,746 1,283 30,463 1981 Amarillo I-40, TX (2) 7,875 1,342 9,217 360 8,857 1970 Austin, TX (5) 2,508 22,501 1,055 26,064 2,074 23,990 1987 Austin Town Lake, TX (2) 22,298 1,849 24,147 1,125 23,022 1967 Beaumont Midtown I-10, TX (2) 685 7,291 1,358 9,334 355 8,979 1967 Corpus Christi, TX (1) 1,164 9,736 1,989 12,889 2,477 10,412 1984 Dallas, TX (6) 5,624 30,718 1,498 37,840 1,367 36,473 1988 Dallas, TX (14) 2,409 13,759 920 17,088 654 16,434 1981 Dallas Bristol House, TX (7) 1,623 1,722 8,149 11,494 2,230 9,264 1997 Dallas Campbell Ctr, TX (5) 3,208 29,701 1,539 34,448 1,340 33,108 1982 Dallas Downtown, TX (10) 1,953 17,007 619 19,579 729 18,850 1969 Dallas Love Field, TX (1) 1,934 17,051 2,232 21,217 3,602 17,615 1986 Dallas Market Center, TX (6) 4,079 36,041 1,836 41,956 1,587 40,369 1983 Dallas Market Center, TX (1) 2,560 24,201 2,497 29,258 2,666 26,592 1980 Dallas Park Central, TX (1) 1,497 12,889 2,266 16,652 3,852 12,800 1985 Dallas Park Central, TX (3) 1,720 28,736 4,218 34,674 4,499 30,175 1972 Dallas Park Central, TX (15) 4,513 47,404 3,811 55,728 1,546 54,182 1983 Dallas Regal Row, TX (4) 778 6,784 269 7,831 295 7,536 1969 DFW Airport, TX (14) 10,040 57,236 3,060 70,336 2,682 67,654 1987 DFW Airport (Suites), TX (14) 1,546 13,575 612 15,733 605 15,128 1989 DFW South, TX (1) 4,041 37,326 2,893 44,260 1,934 42,326 1985 Houston Galleria, TX (9) 1,855 16,327 828 19,010 726 18,284 1968 Houston Galleria, TX (4) 465 4,073 204 4,742 189 4,553 1968 LIFE UPON WHICH DEPRECIATION DATE IN STATEMENT ACQUIRED IS COMPUTED DESCRIPTION OF PROPERTY -------- ----------- - - ----------------------- Olive Branch Exec Conf Ctr, MS (7) 07-28-98 5 - 40 Yrs Raleigh/Durham, NC (5) 07-28-97 5 - 40 Yrs Omaha, NE (13) 07-28-98 5 - 40 Yrs Omaha Central I-80, NE (6) 07-28-98 5 - 40 Yrs Omaha Central I-80, NE (10) 07-28-98 5 - 40 Yrs Omaha Central, NE (5) 02-01-97 5 - 40 Yrs Omaha Northwest, NE (2) 07-28-98 5 - 40 Yrs Omaha Northwest, NE (11) 07-28-98 5 - 40 Yrs Omaha Southwest, NE (10) 07-28-98 5 - 40 Yrs Piscataway, NJ (1) 01-10-96 5 - 40 Yrs Secaucus, NJ (6) 07-28-98 5 - 40 Yrs Albuquerque Mountainview, NM (2) 07-28-98 5 - 40 Yrs Syracuse, NY (1) 06-30-97 5 - 40 Yrs Cleveland, OH (1) 11-17-95 5 - 40 Yrs Columbus, OH (5) 02-04-98 5 - 40 Yrs Dayton, OH (5) 12-30-97 5 - 40 Yrs Tulsa, OK (1) 07-28-94 5 - 40 Yrs Philadelphia Center City, PA (6) 07-28-98 5 - 40 Yrs Philadelphia Independence Mall, PA (2) 07-28-98 5 - 40 Yrs Pittsburgh, PA (8) 07-28-98 5 - 40 Yrs Society Hill, PA (3) 10-01-97 5 - 40 Yrs Charleston Mills House, SC (2) 07-28-98 5 - 40 Yrs Greenville Roper, SC (6) 07-28-98 5 - 40 Yrs Kingston Plantation, SC (1) 12-05-96 5 - 40 Yrs Knoxville West, TN (2) 07-28-98 5 - 40 Yrs Nashville, TN (5) 06-05-97 5 - 40 Yrs Nashville Airport, TN (1) 07-28-94 5 - 40 Yrs Nashville Airport Briley, TN (8) 07-28-98 5 - 40 Yrs Amarillo I-40, TX (2) 07-28-98 5 - 40 Yrs Austin, TX (5) 03-20-97 5 - 40 Yrs Austin Town Lake, TX (2) 07-28-98 5 - 40 Yrs Beaumont Midtown I-10, TX (2) 07-28-98 5 - 40 Yrs Corpus Christi, TX (1) 07-19-95 5 - 40 Yrs Dallas, TX (6) 07-28-98 5 - 40 Yrs Dallas, TX (14) 07-28-98 5 - 40 Yrs Dallas Bristol House, TX (7) 07-28-98 5 - 40 Yrs Dallas Campbell Ctr, TX (5) 05-29-98 5 - 40 Yrs Dallas Downtown, TX (10) 07-28-98 5 - 40 Yrs Dallas Love Field, TX (1) 03-29-95 5 - 40 Yrs Dallas Market Center, TX (6) 07-28-98 5 - 40 Yrs Dallas Market Center, TX (1) 06-30-97 5 - 40 Yrs Dallas Park Central, TX (1) 07-28-94 5 - 40 Yrs Dallas Park Central, TX (3) 11-01-98 5 - 40 Yrs Dallas Park Central, TX (15) 06-30-97 5 - 40 Yrs Dallas Regal Row, TX (4) 07-28-98 5 - 40 Yrs DFW Airport, TX (14) 07-28-98 5 - 40 Yrs DFW Airport (Suites), TX (14) 07-28-98 5 - 40 Yrs DFW South, TX (1) 07-28-98 5 - 40 Yrs Houston Galleria, TX (9) 07-28-98 5 - 40 Yrs Houston Galleria, TX (4) 07-28-98 5 - 40 Yrs
F-32 82 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION ------------------------------- ----------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - - ----------------------- ------------ ---- ------------ --------- ---- ------------ --------- Houston Greenway, TX (8) 7 3,418 29,736 1,025 292 600 Houston I-10 West, TX (4) 586 5,099 176 74 267 Houston I-10 West, TX (8) 3,055 26,575 916 167 306 Houston I-10 West, TX (10) 478 4,155 143 147 178 Houston Int'l Airport, TX (2) 13 3,890 33,842 1,167 119 284 Houston Medical Center, TX (6) 6 2,493 21,687 748 471 461 Houston Medical Center, TX (2) 8 2,284 19,869 685 1,709 1,865 Midland Country Villa, TX (2) 404 3,517 121 30 176 N. Dallas Addison, TX (6) 18,368 4,938 42,965 1,482 245 595 Odessa Center, TX (2) 487 4,238 146 30 195 Odessa Parkway, TX (11) 370 3,218 111 29 109 Plano, TX (2) 885 7,696 265 70 229 Plano, TX (14) 1,813 15,775 544 380 783 San Antonio Airport, TX (8) 3,371 29,326 1,011 1,302 1,163 San Antonio Downtown, TX (2) 22,246 688 486 410 Waco I-35, TX (2) 574 4,994 172 102 200 Salt Lake City Airport, UT (2) 5,346 165 1,982 1,663 Burlington, VT (3) 313 27,283 941 533 707 Cambridge, CAN (2) 481 4,188 144 705 1,049 Kitchener Waterloo, CAN (2) 9,441 292 976 913 Peterbourough Waterfront, CAN (2) 735 6,391 220 281 836 Sarnia, CAN (2) 271 2,359 81 19 36 Toronto Airport, CAN (8) 21,168 655 2,107 2,346 Toronto Yorkdale, CAN (2) 1,578 13,725 473 1,778 1,697 -------- -------- ---------- -------- ------- -------- -------- Total $248,862 $312,365 $3,393,375 $138,833 $34,497 $222,894 $245,098 ======== ======== ========== ======== ======= ======== ======== GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE --------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DATE OF DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION - - ----------------------- ---- ------------ -------- ----- -------- -------- ------------ Houston Greenway, TX (8) 3,418 30,028 1,625 35,071 1,347 33,724 1984 Houston I-10 West, TX (4) 586 5,173 443 6,202 244 5,958 1969 Houston I-10 West, TX (8) 3,055 26,742 1,222 31,019 1,194 29,825 1984 Houston I-10 West, TX (10) 478 4,302 321 5,101 227 4,874 1969 Houston Int'l Airport, TX (2) 3,890 33,961 1,451 39,302 1,494 37,808 1971 Houston Medical Center, TX (6) 2,493 22,158 1,209 25,860 1,023 24,837 1973 Houston Medical Center, TX (2) 2,284 21,578 2,550 26,412 1,181 25,231 1984 Midland Country Villa, TX (2) 404 3,547 297 4,248 207 4,041 1979 N. Dallas Addison, TX (6) 4,938 43,210 2,077 50,225 2,077 48,148 1985 Odessa Center, TX (2) 487 4,268 341 5,096 203 4,893 1982 Odessa Parkway, TX (11) 370 3,247 220 3,837 167 3,670 1977 Plano, TX (2) 885 7,766 494 9,145 386 8,759 1983 Plano, TX (14) 1,813 16,155 1,327 19,295 815 18,480 1983 San Antonio Airport, TX (8) 3,371 30,628 2,174 36,173 1,365 34,808 1981 San Antonio Downtown, TX (2) 22,732 1,098 23,830 1,039 22,791 1968 Waco I-35, TX (2) 574 5,096 372 6,042 268 5,774 1970 Salt Lake City Airport, UT (2) 7,328 1,828 9,156 328 8,828 1963 Burlington, VT (3) 3,136 27,816 1,648 32,600 1,891 30,709 1967 Cambridge, CAN (2) 481 4,893 1,193 6,567 261 6,306 1969 Kitchener Waterloo, CAN (2) 10,417 1,205 11,622 410 11,212 1965 Peterbourough Waterfront, CAN (2) 735 6,672 1,056 8,463 354 8,109 1965 Sarnia, CAN (2) 271 2,378 117 2,766 108 2,658 1970 Toronto Airport, CAN (8) 23,275 3,001 26,276 1,178 25,098 1970 Toronto Yorkdale, CAN (2) 1,578 15,503 2,170 19,251 617 18,634 1970 -------- ---------- -------- ---------- -------- ---------- Total $346,862 $3,616,269 $383,931 $4,347,062 $330,555 $4,016,507 ======== ========== ======== ========== ======== ========== WHICH DEPRECIATION DATE IN STATEMENT DESCRIPTION OF PROPERTY ACQUIRED IS COMPUTED - - ----------------------- -------- ----------- Houston Greenway, TX (8) 07-28-98 5 - 40 Yrs Houston I-10 West, TX (4) 07-28-98 5 - 40 Yrs Houston I-10 West, TX (8) 07-28-98 5 - 40 Yrs Houston I-10 West, TX (10) 07-28-98 5 - 40 Yrs Houston Int'l Airport, TX (2) 07-28-98 5 - 40 Yrs Houston Medical Center, TX (6) 07-28-98 5 - 40 Yrs Houston Medical Center, TX (2) 07-28-98 5 - 40 Yrs Midland Country Villa, TX (2) 07-28-98 5 - 40 Yrs N. Dallas Addison, TX (6) 07-28-98 5 - 40 Yrs Odessa Center, TX (2) 07-28-98 5 - 40 Yrs Odessa Parkway, TX (11) 07-28-98 5 - 40 Yrs Plano, TX (2) 07-28-98 5 - 40 Yrs Plano, TX (14) 07-28-98 5 - 40 Yrs San Antonio Airport, TX (8) 07-28-98 5 - 40 Yrs San Antonio Downtown, TX (2) 07-28-98 5 - 40 Yrs Waco I-35, TX (2) 07-28-98 5 - 40 Yrs Salt Lake City Airport, UT (2) 07-28-98 5 - 40 Yrs Burlington, VT (3) 12-04-97 5 - 40 Yrs Cambridge, CAN (2) 07-28-98 5 - 40 Yrs Kitchener Waterloo, CAN (2) 07-28-98 5 - 40 Yrs Peterbourough Waterfront, CAN (2) 07-28-98 5 - 40 Yrs Sarnia, CAN (2) 07-28-98 5 - 40 Yrs Toronto Airport, CAN (8) 07-28-98 5 - 40 Yrs Toronto Yorkdale, CAN (2) 07-28-98 5 - 40 Yrs
(a) Balance at December 31, 1997 $ 1,562,724 (b) Depreciation expense during the period $ 50,682 -------- Additions during the period 2,546,124 Balance at December 31, 1996 87,400 ----------- Balance at December 31, 1998 $ 4,108,848 Depreciation expense during the period 90,672 -------- Additions during the period 238,214 Balance at December 31, 1997 $178,072 ----------- Balance at December 31, 1999 $ 4,347,062 Depreciation expense during the period 152,483 -------- Balance at December 31, 1998 $330,555
1. Embassy Suites 2. Holiday Inn 3. Sheraton and Sheraton Suites 4. Fairfield Inn 5. Doubletree and Doubletree Guest Suites 6. Crowne Plaza and Crowne Plaza Suites 7. Independents 8. Holiday Inn Select 9. Courtyard by Marriott 10. Hampton Inn 11. Holiday Inn Express 12. Hilton Suites 13. Homewood Suites 14. Harvey Hotel 15. Westin F-33 83 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Lodging Trust Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of DJONT Operations, L.L.C. at December 31, 1999 and 1998, and the consolidated results of operations and cash flows for the years ended December 31, 1999, 1998 and 1997, respectively, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about her whet the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas March 20, 2000 F-34 84 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS) ASSETS
1999 1998 -------- -------- Cash and cash equivalents ..................................................... $ 20,127 $ 28,538 Accounts receivable, net ...................................................... 28,601 27,561 Inventories ................................................................... 4,260 4,381 Prepaid expenses .............................................................. 1,444 471 Other assets .................................................................. 5,791 3,021 Investment in real estate, net of accumulated depreciation of $530 in 1999 .... 11,436 -------- -------- Total assets ............................................................. $ 71,659 $ 63,972 ======== ======== LIABILITIES AND SHAREHOLDERS' DEFICIT Accounts payable .............................................................. $ 12,742 $ 13,508 Due to FelCor Lodging Limited Partnership ..................................... 22,064 16,875 Accrued expenses and other liabilities ........................................ 37,121 41,820 Minority interest ............................................................. 5,113 Debt .......................................................................... 7,761 -------- -------- Total liabilities ........................................................ 84,801 72,203 -------- -------- Commitments and contingencies (Notes 3 and 6 ) Shareholders' deficit: Capital ....................................................................... 1 1 Accumulated deficit ........................................................... (13,143) (8,232) -------- -------- Total shareholders' deficit .............................................. (13,142) (8,231) -------- -------- Total liabilities and shareholders' deficit .............................. $ 71,659 $ 63,972 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-35 85 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
1999 1998 1997 --------- --------- --------- Revenues: Room and suite revenue .............. $ 649,323 $ 618,122 $ 456,614 Food and beverage revenue ........... 87,212 77,834 34,813 Food and beverage rent .............. 5,212 4,792 4,393 Other revenue ....................... 55,903 48,781 38,690 --------- --------- --------- Total revenues ............. 797,650 749,529 534,510 --------- --------- --------- Expenses: Property operating costs ............ 190,798 169,955 128,077 General and administrative .......... 61,025 56,995 39,147 Advertising and promotion ........... 56,450 51,105 37,333 Repair and maintenance .............. 38,555 36,374 26,236 Utilities ........................... 29,700 28,799 21,363 Management and incentive fees ....... 22,514 23,636 11,879 Franchise fees ...................... 19,253 18,102 13,407 Food and beverage expenses .......... 66,514 65,924 33,119 Percentage lease expenses ........... 307,532 289,891 216,990 Lessee overhead expenses ............ 991 1,990 2,332 Liability insurance ................. 2,518 1,258 3,202 Preopening and conversion costs ..... 19 569 340 Interest expense .................... 682 Depreciation and amortization ....... 530 Minority interest ................... (90) Other ............................... 5,570 4,087 3,757 --------- --------- --------- Total expenses ............. 802,561 748,685 537,182 --------- --------- --------- Net income (loss) ........................... $ (4,911) $ 844 $ (2,672) ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-36 86 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS) Balance at December 31, 1996 ........... $ (6,403) Net loss ............................... (2,672) -------- Balance at December 31, 1997 ........... (9,075) Net income ............................. 844 -------- Balance at December 31, 1998 ........... (8,231) Net loss ............................... (4,911) -------- Balance at December 31, 1999 ........... $(13,142) ========
The accompanying notes are an integral part of these consolidated financial statements. F-37 87 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income (loss) ................................................. $ (4,911) $ 844 $ (2,672) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ..................................... 530 Minority interest in partnership income ........................... (90) Changes in assets and liabilities: Accounts receivable .......................................... (1,040) (7,287) (11,574) Inventories .................................................. 121 (915) (1,361) Prepaid expenses ............................................. (973) 836 (1,052) Other assets ................................................. (1,841) 950 (1,768) Due to FelCor Lodging Limited Partnership .................... 5,189 (2,033) 13,382 Accounts payable, accrued expenses and other liabilities ..... (5,396) 10,459 25,521 -------- -------- -------- Net cash flow used in operating activities .............. (8,411) 2,854 20,476 -------- -------- -------- Net change in cash and cash equivalents ................................... (8,411) 2,854 20,476 Cash and cash equivalents at beginning of years ........................... 28,538 25,684 5,208 -------- -------- -------- Cash and cash equivalents at end of years ................................. $ 20,127 $ 28,538 $ 25,684 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-38 88 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Thomas J. Corcoran, the President, Chief Executive Officer and a Director of FelCor Lodging Limited Partnership ("FelCor") and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT Operations LLC, a Delaware limited liability company. The remaining 50% non-voting common equity interest is beneficially owned by the children of Charles N. Mathewson, a Director and major initial investor of FelCor. Eighty-five of the hotels in which FelCor Lodging Limited Partnership (the "Operating Partnership") had an ownership interest at December 31, 1999 (the "Hotels"), are leased to DJONT Operations LLC or a consolidated subsidiary thereof ("DJONT") pursuant to percentage leases ("Percentage Leases"). Certain entities owning interests in DJONT and the managers of certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. No loans were outstanding under such agreements at December 31, 1999. Messrs. Feldman and Corcoran have entered into an agreement with FelCor pursuant to which they have agreed that through April 15, 2005, any distributions received by them from DJONT (in excess of their tax liabilities with respect to the income of DJONT) will be utilized to purchase common stock from FelCor or units of limited partner interest in the Operating Partnership at then current market prices. The agreement stipulates that Messrs. Feldman and Corcoran are restricted from selling any stock or units so acquired for a period of two years from the date of purchase. RGC Leasing, Inc., which owns the other 50% common equity interest in DJONT, may elect to purchase common stock of FelCor or Operating Partnership units upon similar terms, at its option. The independent directors of FelCor may suspend or terminate such agreement at any time. At December 31, 1999, 58 of the Hotels were operated as Embassy Suites(R) hotels, 16 were operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, nine were operated as Sheraton(R) or Sheraton Suites(R) hotels, one was operated as a Westin(R) hotel and one was operated as a Hilton Suites(R) hotel. Seventy-two of the Hotels are managed by subsidiaries of Hilton Hotels Corporation ("Hilton"). Hilton is the largest operator of all-suite, full-service hotels in the United States. Of the remaining Hotels, 10 are managed by subsidiaries of Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") and three are managed by independent management companies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates -- The preparation of the financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Inventories -- Inventories are stated at the lower of cost or market. F-39 89 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Investment in Real Estate -- Hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives of forty years for buildings and improvements and five to seven years for furniture, fixtures, and equipment. The carrying value of the property is periodically reviewed to determine if circumstances indicate an impairment in the carrying value of the investment or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, DJONT will prepare a projection of the undiscounted future cash flows, without interest charges, of the hotel and determine if the investment in the property is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the real estate based on discounted future cash flows. DJONT does not believe that there are any factors or circumstances indicating impairment of any of its investment in real estate. Revenue Recognition -- Revenue is recognized as earned. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the portion of accounts receivable which is estimated to be uncollectible. Such losses have been within management's expectations. Income Taxes -- DJONT is a limited liability company which is taxed for federal income taxes purposes as a partnership and, accordingly, all taxable income or loss flows through to the shareholders. 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS DJONT has future lease commitments under the Percentage Leases which expire in 2002 (5 hotels), 2004 (7 hotels), 2005 (12 hotels), 2006 (18 hotels),2007 (23 hotels), 2008 (12 hotels), and thereafter (9 hotels). This includes one hotel which had a lease agreement entered into on October 15, 1999, but is not effective until January 1, 2000. Minimum future rental payments are computed based on the base rent as defined under the noncancellable operating leases and are as follows (in thousands):
YEAR AMOUNT ---- ------ 2000 .............................. $ 172,395 2001 .............................. 176965 2002 .............................. 177321 2003 .............................. 163801 2004 .............................. 160240 2005 and thereafter ............... 512794 ----------- $ 1,363,516 ===========
The Percentage Lease expense is based on a percentage of room and suite revenues, food and beverage revenues, and food and beverage rents of the Hotels. Both the base rent and the threshold room and suite revenue in each lease computation is subject to adjustments in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year for the hotels acquired prior to July of the previous year. The adjustment in any lease year may not exceed 7%. The CPI adjustments made in January 2000, 1999 and 1998 are 1.05% 0.55%, and 0.50%, respectively. F-40 90 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Other than real estate and personal property taxes, casualty insurance, capital improvements and maintenance of underground utilities and structural elements, which are obligations of the Operating Partnership, the Percentage Leases require DJONT to pay rent, liability insurance premiums, operating costs, utilities and other charges incurred in the operation of the leased hotels. DJONT is also obligated to indemnify and hold harmless the Operating Partnership from and against all liabilities, costs and expenses incurred by or asserted against the Operating Partnership in the normal course of operating the Hotels. DJONT is not permitted to sublet all or any substantial part of the Hotels or assign its interest under any of the Percentage Leases without the prior written consent of the Operating Partnership. DJONT has agreed that during the term of the Percentage Leases it will maintain a ratio of total debt to consolidated net worth (as defined in the Percentage Leases) of less than or equal to 50%, exclusive of capital leases. All of the debt recorded in DJONT's balance sheet at December 31, 1999, is held in the 3% owned consolidated subsidiary and is not considered for this test. In addition, the Lessee has agreed that it will not pay fees to any affiliate of the Lessee. DJONT typically pays a franchise fee ranging from 4% to 5% of suite revenue, and marketing and reservation fees ranging from 1% to 3.5% of room and suite revenue. In the cases where there is not a separate franchise agreement, the right to use the brand name is included in the management agreement. Base management fees typically range from 2% to 3% of applicable hotel revenues. Incentive management fees are based upon the hotel's net income before overhead and typically range from 50% to 100% subject to a maximum annual payment of between 2% and 3% of total revenues. In many cases managers and franchisors have agreed to subordinate all or a portion of their fees at a specific hotel or group of hotels either for a set period of time, or until the hotel or group of hotels provides a predetermined return to the Lessee, or both. In the event FelCor enters into an agreement to sell or otherwise transfer a leased hotel, FelCor has the right to terminate the Percentage Lease with respect to such leased hotel upon 90 days' prior written notice upon either (1) paying DJONT the fair market value of DJONT's leasehold interest in the remaining term of the Percentage Lease to be terminated or (2) offering to lease to DJONT a substitute hotel on terms that would create a leasehold interest in such hotel with a fair market value equal to or exceeding the fair market value of DJONT's remaining leasehold interest under the Percentage Lease to be terminated. FelCor also is obligated to pay or reimburse DJONT for any assignment fees, termination fees or other liabilities arising under any franchise license agreement and restaurant sublease agreements. DJONT shares the executive offices and certain employees with FelCor and FelCor, Inc., and each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel, office supplies, telephones and depreciation of office furniture, fixtures and equipment. Such allocation of shared expenses approved by a majority of FelCor's independent directors. During 1999, 1998 and 1997, DJONT paid approximately $660,000 (approximately 10%), $1.6 million (approximately 37%) and $2.1 million (approximately 61%), respectively, of the allocable expenses under this agreement. F-41 91 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INVESTMENT IN REAL ESTATE At December 31, 1999, DJONT owned thirty shares of the Class A Voting Common Stock, $0.01 par value per share of Kingston Plantation Development Corporation ("KPDC") which represents 3% of the equity and 100% of the voting interest in that entity. This investment is recorded on a consolidated basis in DJONT's financial statements. Through a consolidated subsidiary, KPDC owns a hotel annex adjoining the Embassy Suites in New Orleans, Louisiana. KPDC is to receive rental income from a lease agreement for this hotel which expires in November, 2008 between a wholly owned subsidiary of KPDC, as lessor, and FelCor Lodging Limited Partnership, as lessee. The future monthly rental payments under this lease at December 31, 1999 are as follows (in thousands):
YEAR AMOUNT - - ---- ------ 2000........................................ $ 593 2001........................................ 593 2002........................................ 593 2003........................................ 593 2004 and thereafter......................... 2914 ------ $5,286 ======
5. OTHER ASSETS KPDC also owns a 50% interest in an entity developing a parcel of land. This entity is accounted for under the equity method of accounting and KPDC's equity investment of $1.0 million is reflected in other assets on DJONT's balance sheet. This unconsolidated entity had no operating income or expense for the year ended December 31, 1999. The unconsolidated entity's balance sheet consists of land, construction in progress and $24.8 million of construction loans at December 31, 1999. 6. DEBT DJONT has reflected as a liability, a mortgage note, dated November 24, 1998, from a wholly-owned subsidiary of KPDC payable to FelCor Lodging Limited Partnership. The note bears a fixed interest rate of 8% per annum with a 30 year amortization and matures on December 31, 2004. The indebtedness is collateralized by a Mortgage and Assignment of Leases and Rents with respect to the New Orleans Embassy Suites Hotel Annex. Future scheduled principal payments on the debt are as follows (in thousands): 2000 $ 65 2001 71 2002 77 2003 83 2004 7465 ------ $7,761 ======
F-42 92 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 1999. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management estimates the fair value of accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; and the borrowing under the mortgage note approximates carrying value because it accrues interest at a fixed rate which approximates market rates. 8. ACCUMULATED DEFICIT DJONT recorded a net loss of $4.9 million for the year ended December 31, 1999. Because of the current year loss and losses in recent years, DJONT had an accumulated deficit of $13.1 million at December 31, 1999. The losses in the current year are attributed to weaker than anticipated revenues in 1999 and lower operating margins. A significant portion of the prior year losses are attributable to the operations of hotels during periods of substantial renovation. Management believes and operating data indicates, that overall performances of the hotels are adversely impacted during substantial renovation. Management is working closely with the companies that manage DJONT's hotels to improve operating margins. Management anticipates modest revenue growth at the DJONT hotels during 2000 which may result in operating losses. Management anticipates DJONT will be able to generate profits over the next five years to significantly reduce the accumulated deficit as a result of planned rebranding of one of its hotels, the elimination of certain expenses, and leases which are expected to be renewed with more favorable terms at the time of their termination. At December 31, 1999 DJONT had paid all amounts then due under the Percentage Leases. Management believes that the loan commitments from certain entities owning interests in DJONT and the managers of certain hotels, of approximately $17.3 million and improvements in operating margins will be sufficient to enable DJONT to continue to make necessary payments when due. It is anticipated that a substantial portion of any future profits of DJONT will be retained until a positive net worth is restored. Management deems DJONT to be a viable going concern and, as such, no adjustments are required to the accompanying financial statements. 9. SUPPLEMENTAL CASH FLOW DISCLOSURE DJONT recorded certain real estate and assumed certain liabilities in connection with its investment in KPDC in 1999. The assets and liabilities, related to KPDC and recorded at December 31, 1999, are as follows (in thousands): Investment in real estate .............. $ 11,436 Other assets acquired .................. 1458 -------- $ 12,894 ======== Liabilities assumed .................... $ 7,781 Minority interest contribution ......... 5113 -------- $ 12,894 ========
F-43 93 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 3.1 - Amended and Restated Agreement of Limited Partnership of the Company (filed as Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference). ` 3.2 - First Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of November 17, 1995 by and among FelCor, Promus Hotels, Inc. and all of the persons or entities who are or shall in the future become of the limited partners of the Company (filed as Exhibit 10.1.1 to FelCor's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and incorporated herein by reference). 3.3 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of January 9, 1996 between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.2 to the 1995 10-K and incorporated herein by reference). 3.4 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of January 10, 1996 by and among FelCor, MarRay-LexGreen, Inc. and all of the persons and entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.3 to the 1995 10-K and incorporated herein by reference). 3.5 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Company dated as of January 10, 1996 by and among FelCor, Piscataway-Centennial Associates Limited Partnership and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.4 to the 1995 10-K and incorporated herein by reference). 3.6 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 2, 1996, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, adopting Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 2, 1996 (filed as Exhibit 10.1.5 to FelCor's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference). 3.7 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of September 16, 1996, by and among FelCor, John B. Urbahns, II and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 3.8 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 16, 1997, by and among FelCor, PMB Associates, Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.7 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 3.9 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of February 6, 1998, by and among FelCor, Columbus/Front Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.8 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference).
E-1 94
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 3.10 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of May 1, 1998, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, adopting Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of May 1, 1998 (filed as Exhibit 10.1.9 to FelCor's Form 8-K dated May 29, 1998, and incorporated herein by reference). 3.11 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of June 22, 1998, by and among FelCor, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.10 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.12 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of July 28, 1998, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, changing the name of the Company to "FelCor Lodging Limited Partnership" (filed as Exhibit 10.1.11 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.13 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of December 29, 1998, between FelCor and all of the persons or entities who are or shall in the future become limited partners of the Company, amending certain provisions of the Company Agreement (filed as Exhibit 10.1.12 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K") and incorporated herein by reference). 3.14 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of December 31, 1998, by and between FelCor, FelCor Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.13 to the 1998 10-K and incorporated herein by reference). 3.15 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of March 1, 1999, by and among FelCor, Huie Properties, Ltd., and all of the persons or entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.14 to the 1998 10-K and incorporated herein by reference). 3.16 - Fifteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of October 15, 1999, by and among FelCor, SRS Properties Limited Partnership, and all of the persons and entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.15 to FelCor's Form 10-K for the fiscal year ended December 31, 1999 ("the 1999 10-K") and incorporated herein by reference). 3.17 - Sixteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Company dated as of February 27, 2000, by and among FelCor, Bass America, Inc., and all of the persons and entities who are or shall in the future become limited partners of the Company (filed as Exhibit 10.1.16 to the 1999 10-K and incorporated herein by reference). 4.1 - Indenture dated as of April 22, 1996 by and between FelCor and Sun Trust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to FelCor's Form 8-K dated May 1, 1996 and incorporated herein by reference). 4.2 - Indenture dated as of October 1, 1997 by and among the Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (file No. 333-39595) and the other co-registrants named therein and incorporated herein by reference). 4.2.1 - First Amendment to Indenture dated as of February 5, 1998 by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-39595) and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.2.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998, by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference). 4.2.3 - Third Amendment to Indenture dated as of March 30, 1999 by and among the Company, FelCor, the Subsidiary Guarantors named therein, who are signatories thereto and SunTrust Bank, Atlanta (filed as Exhibit 4.7.3 to FelCor's Form 10-Q for the quarter ended March 31, 1999 (the "March 1999 10-Q"), and incorporated herein by reference). 10.1 - Form of Lease Agreement between the Registrant as Lessor and DJONT Operations, L.L.C. or its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the 1995 10-K and incorporated herein by reference). 10.1.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the Company, and DJONT to clarify the meaning of Article III of the lease as represented by the actual course of dealing between lessors and lessees under such leases (filed as Exhibit 10.19 to FelCor's Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.2 - Form of Lease Agreement between the Company as Lessor and a subsidiary of Bristol Hotels & Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the 1998 10-K and incorporated herein by reference). 10.2.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the Company, FelCor, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.3 - Employment Agreement dated as of July 28, 1994 between FelCor and Hervey A. Feldman (filed as Exhibit 10.7 to the 1994 10-K/A and incorporated herein by reference). 10.4 - Employment Agreement dated as of July 28, 1994 between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to the 1994 10-K/A and incorporated herein by reference). 10.5 - Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10-K/A and incorporated herein by reference). 10.6 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 1994 10-K/A and incorporated herein by reference). 10.7 - 1995 Restricted Stock and Stock Option Plan of the Company (filed as Exhibit 10.9.2 to the 1995 10-K and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.8 - Non-Qualified Deferred Compensation Plan, as amended and restated July 1999 (filed as Exhibit 10.9 to FelCor's Form 10-Q for the quarter ended September 30, 1999 (the "September 1999 10-Q") and incorporated herein by reference). 10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor's Registration Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference). 10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.12 - Form of Severance Agreement for executive officers and certain key employees of FelCor (filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference). 10.13 - Agreement dated as of April 15, 1995 among FelCor, the Company, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit 10.15 to the Registration Statement on Form S-11 (File No. 33-91870) and incorporated herein by reference). 10.14 - Credit Agreement dated as of February 6, 1996 by and among the Company, as borrower, Holdings and FelCor, as guarantors, and Canadian Imperial Bank of Commerce, as agent (filed as Exhibit 10.30 to FelCor's Form 8_K dated May 1, 1996, and incorporated herein by reference). 10.15 - Voting and Cooperation Agreement dated as of March 23, 1998 among the Company, Bristol, Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as Exhibit 99.7 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.16 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by FelCor (filed as Exhibit 99.8 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.17 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.18 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1998 among FelCor and the Company, as Borrower, the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's Form 8-K dated August 10, 1998 and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.18.1 - Second Amendment to Credit Agreement dated as of August 20, 1999, among FelCor and the Company as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as administrative agent (filed as Exhibit 10.19.1 to the September 1999 10-Q and incorporated herein by reference). 10.18.2 - Third Amendment to Credit Agreement dated as of December 1, 1999, among FelCor and the Company, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as administrative agent (filed as Exhibit 10.18.2 to the 1999 10-K and incorporated herein by reference). 10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference) 10.19.1 - First Amendment to Loan Agreement and Ancillary Loan Documents made as of May 28, 1999, among FelCor Lodging Company, L.L.C., FelCor Lodging Holding Company, L.L.C. and LaSalle National Bank, as Trustee for Nomura Asset Securities Corporation Commercial Pass-Through Certificates Series 1998-D6, administrative agent and collateral agent (filed as Exhibit 10.19.1 to the 1999 10-K and incorporated herein by reference). 10.20 - Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated March 1, 1999, by FelCor Hotel Company II, Ltd., as Grantor, to Howard E. Schreiber, Trustee, in trust for the benefit of Bankers Trust Company, as Beneficiary (filed as Exhibit 10.21 to the March 1999 10-Q, and incorporated herein by reference). 10.21.1 - Loan Agreement, dated April 1, 1999, among FelCor Lodging Trust Incorporated and FelCor Lodging Limited Partnership as Borrower, and The Lenders Party Thereto and The Chase Manhattan Bank as Administrative Agent and Collateral Agent (filed as Exhibit 10.22.1 to the March 1999 10-Q, and incorporated herein by reference). 10.21.2 - Guaranty, dated April 1, 1999, made by each of the named Guarantors therein, who are signatories thereto (filed as Exhibit 10.22.2 to the March 1999 10-Q, and incorporated herein by reference). 10.21.3 - Pledge and Security Agreement, dated April 1, 1999, made by each of the named Pledgors therein, who are signatories thereto, in favor of The Chase Manhattan Bank, as Collateral Agent (filed as Exhibit 10.22.3 to the March 1999 10-Q, and incorporated herein by reference). 10.21.4 - Second Amendment to Loan Agreement dated as of August 20, 1999, among FelCor and the Company, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as administrative agent (filed as Exhibit 10.22.4 to the September 1999 10-Q and incorporated herein by reference). 10.21.5 - Third Amendment to Loan Agreement dated as of December 1, 1999, among FelCor and the Registrant, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent. 10.22 - Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P. as Mortgagor and The Prudential Insurance Company of America as Mortgagee (filed as Exhibit 10.23 to the March 1999 10-Q, and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.22.1 - Promissory Note dated April 1, 1999, in the original principal amount of $100,000,000 made by FelCor/CSS Holdings, L.P., payable to the order of The Prudential Insurance Company of America. (filed as Exhibit 10.23.1 to FelCor's Form 10-Q for the quarter ended June 30, 1999 (the "June 1999 10-Q") and incorporated herein by reference). 10.22.2 - Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L. P., as Mortgagor, and The Prudential Insurance Company of America, as Mortgagee (incorporated by reference to Exhibit 10.23 to FelCor's Form 10-Q for the quarter ended March 31, 1999). 10.22.3 - Mortgage Loan Agreement dated as of April 1, 1999, by and between The Prudential Insurance Company of America, as Lender, and FelCor/CSS Holdings, L.P., as Borrower (filed as Exhibit 10.23.3 to the June 1999 10-Q and incorporated herein by reference). 10.23.1 - Form of six separate Promissory Notes each dated May 12, 1999, made by FelCor/MM Holdings, L.P. payable to the order of Massachusetts Mutual Life Insurance Company in the respective original principal amounts of $12,500,000 (Embassy Suites-Dallas Market Center), $14,000,000 (Embassy Suites-Dallas Love Field), $12,450,000 (Embassy Suites-Tempe), $11,550,000 (Embassy Suites-Anaheim), $8,900,000 (Embassy Suites-Palm Desert), $15,600,000 (Embassy Suites-Deerfield Beach) (filed as Exhibit 10.24.1 to the June 1999 10-Q and incorporated herein by reference). 10.23.2 - Form of Deed of Trust, Security Agreement and Fixture Filing, each dated as of May 12, 1999, from FelCor/MM Holdings, L.P., as Borrower, in favor of Fidelity National Title Insurance Company, as Trustee, and Massachusetts Mutual Life Insurance Company, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.1, also executed by FelCor/CSS Holdings, L.P. with respect to the Embassy Suites-Anaheim and Embassy Suites-Deerfield Beach, and by FelCor Lodging Limited Partnership with respect to the Embassy Suites-Palm Desert (filed as Exhibit 10.24.2 to the June 1999 10-Q and incorporated herein by reference). 21* - List of Subsidiaries of the Registrant. 23* - Consent of PricewaterhouseCoopers LLP 27* - Financial Data Schedule.
- - ------------- * Filed herewith. E-6 EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF FELCOR LODGING LIMITED PARTNERSHIP (AS OF 12/31/99) The following lists all of the subsidiaries of FelCor Lodging Trust Incorporated by name, state of organization and type of entity:
STATE OF NAME OF SUBSIDIARY ORGANIZATION TYPE OF ENTITY - - ------------------ ------------ -------------- FelCor/CSS Hotels, L.L.C. Delaware Limited Liability Company FelCor/LAX Hotels, L.L.C. Delaware Limited Liability Company FelCor/CSS Holdings, L.P. Delaware Limited Partnership FelCor/St. Paul Holdings, L.P. Delaware Limited Partnership FelCor/LAX Holdings, L.P. Delaware Limited Partnership Los Angeles International Airport Hotel Texas Limited Partnership Associates, L.P. FelCor/Charlotte Hotel, L.L.C. Delaware Limited Liability Company FelCor/Indianapolis Hotel, L.L.C. Delaware Limited Liability Company E. S. Charlotte Limited Partnership Minnesota Limited Partnership E.S. North, an Indiana Limited Partnership Indiana Limited Partnership FelCor Eight Hotels, L.L.C. Delaware Limited Liability Company Promus/FCH Development Company, L.L.C. Delaware Limited Liability Company Promus/FCH Condominium Company, L.L.C. Delaware Limited Liability Company EPT Atlanta-Perimeter Center Limited Delaware Limited Partnership Partnership EPT Austin Limited Partnership Delaware Limited Partnership EPT Covina Limited Partnership Delaware Limited Partnership
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STATE OF NAME OF SUBSIDIARY ORGANIZATION TYPE OF ENTITY - - ------------------ ------------ -------------- EPT Kansas City Limited Partnership Delaware Limited Partnership EPT Meadowlands Limited Partnership Delaware Limited Partnership EPT Overland Park Limited Partnership Delaware Limited Partnership EPT Raleigh Limited Partnership Delaware Limited Partnership EPT San Antonio Limited Partnership Delaware Limited Partnership FCH/DT Hotels, L.L.C. Delaware Limited Liability Company FCH/DT Holdings, L.P. Delaware Limited Partnership FCH/DT BWI Holdings, L.P. Delaware Limited Partnership Kingston Plantation Development Corp. Delaware Corporation FCH/PSH, L.P. Pennsylvania Limited Partnership Promus/FelCor Lombard Venture Illinois General Partnership MHV Joint Venture Texas General Partnership Promus/FelCor Parsippany Venture New Jersey General Partnership Promus/FelCor San Antonio Venture Texas General Partnership Promus/FelCor Hotels, L.L.C. Delaware Limited Liability Company Promus/FelCor Manager, Inc. Delaware Corporation Brighton at Kingston Plantation, L.L.C. Delaware Limited Liability Company FelCor Hotel Operating Company, L.L.C. Delaware Limited Liability Company FelCor Hospitality Company, L.L.C. Delaware Limited Liability Company FelCor Hospitality Holding Company, L.L.C. Delaware Limited Liability Company
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STATE OF NAME OF SUBSIDIARY ORGANIZATION TYPE OF ENTITY - - ------------------ ------------ -------------- FelCor St. Louis Company, L.L.C. Delaware Limited Liability Company FelCor Hotel Asset Company, L.L.C. Delaware Limited Liability Company FelCor HHCL Company, L.L.C. Delaware Limited Liability Company FelCor Hotels GenPar, L.L.C. Delaware Limited Liability Company FelCor Hotels Limpar, L.L.C. Delaware Limited Liability Company FelCor Hotels Financing I, L.L.C. Delaware Limited Liability Company FelCor Hotels Financing II, L.L.C. Delaware Limited Liability Company FelCor Chat-Lem, L.L.C. Delaware Limited Liability Company FelCor Lodging Company, L.L.C. Delaware Limited Liability Company FelCor Lodging Holding Company, L.L.C. Delaware Limited Liability Company FelCor Philadelphia Center, L.L.C. Delaware Limited Liability Company FelCor Pennsylvania Company, L.L.C. Delaware Limited Liability Company FelCor Airport Utilities, L.L.C. Delaware Limited Liability Company FelCor Salt Lake, L.L.C. Delaware Limited Liability Company FelCor Omaha Hotel Company, L.L.C. Delaware Limited Liability Company FelCor Moline Hotel, L.L.C. Delaware Limited Liability Company FelCor Country Villa Hotel, L.L.C. Delaware Limited Liability Company FelCor Marshall Motels, L.L.C. Delaware Limited Liability Company FelCor Canada Holding GP, L.L.C. Delaware Limited Liability Company FelCor Canada Co. Nova Scotia Unlimited Liability Company
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STATE OF NAME OF SUBSIDIARY ORGANIZATION TYPE OF ENTITY - - ------------------ ------------ -------------- FelCor Canada Holding, L.P. Delaware Limited Partnership FelCor Hotel Company, Ltd. Texas Limited Partnership FelCor Hotels Investments I, Ltd. Texas Limited Partnership FelCor Hotels Investments II, Ltd. Texas Limited Partnership HHHC GenPar, L.P. Delaware Limited Partnership City Center Hotel Associates Pennsylvania Limited Partnership HI Chat-Lem/Iowa - New Orleans Venture Louisiana General Partnership FHAC Nevada Holdings, L.L.C. Nevada Limited Liablity Company FHAC Texas Holdings, L.P. Texas Limited Partnership FelCor/MM Hotels, L.L.C. Delaware Limited Liability Company FelCor/MM Holdings, L.P. Delaware Limited Partnership FelCor Hotels GenPar II, L.L.C. Delaware Limited Liability Company FelCor Hotel Company II, Ltd. Texas Limited Partnership FelCor/New Orleans Annex, L.L.C. Delaware Limited Liability Company Park Central Joint Venture Texas General Partnership Tysons Corner Hotel Company, L.L.C. Delaware Limited Liability Company
-4- EX-23.1 3 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333-50509) of FelCor Lodging Limited Partnership of our reports dated (i) February 1, 2000 (except as to information in Note 18, for which the date is March 15, 2000) on our audits of the consolidated financial statements and financial statement schedule of FelCor Lodging Limited Partnership, and (ii) March 20, 2000 on our audit of the consolidated financial statements of DJONT Operations, L.L.C., which reports are included in this Annual Report on Form 10-K. We also consent to the reference to our firm under the caption "Selected Financial Data." PricewaterhouseCoopers LLP Dallas, Texas March 30, 2000 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FELCOR LODGING LIMITED PARTNERSHIP 10K FOR DECEMBER 31, 1999. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 36,123 0 26,154 0 0 62,277 4,365,899 330,555 4,255,751 105,137 1,833,954 0 295,000 0 1,969,989 4,255,751 0 504,001 0 0 0 0 125,435 136,653 0 136,653 0 1,113 0 135,776 1.58 1.57
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