10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 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 Identification No.) organization) 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] -------------------------------------------------------------------------------- 2 FELCOR LODGING LIMITED PARTNERSHIP INDEX
PAGE ---- PART I. -- FINANCIAL INFORMATION Item 1. Financial Statements .................................................................................... 3 FELCOR LODGING LIMITED PARTNERSHIP Consolidated Balance Sheets - June 30, 2000 (Unaudited) and December 31, 1999 ..................................................................... 3 Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 2000 and 1999 (Unaudited) .................................................. 4 Consolidated Statements of Cash Flows -- For the Six Months Ended June 30, 2000 and 1999 (Unaudited) .................................................. 5 Notes to Consolidated Financial Statements ..................................................... 6 DJONT OPERATIONS, L.L.C. Consolidated Balance Sheets - June 30, 2000 (Unaudited) and December 31, 1999 ..................................................................... 14 Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 2000 and 1999 (Unaudited) .................................................. 15 Consolidated Statements of Cash Flows -- For the Six Months Ended June 30, 2000 and 1999 (Unaudited) .................................................. 16 Notes to Consolidated Financial Statements ..................................................... 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 19 General/Second Quarter Activities .............................................................. 19 Results of Operations .......................................................................... 20 Liquidity and Capital Resources ................................................................ 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk .............................................. 30 PART II. -- OTHER INFORMATION Item 5. Other Information ....................................................................................... 31 Item 6. Exhibits and Reports on Form 8-K ........................................................................ 31 SIGNATURE ....................................................................................................... 33
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $397,735 at June 30, 2000 and $330,555 at December 31, 1999 ......................... $3,796,755 $4,035,344 Investment in unconsolidated entities ......................................... 133,038 136,718 Assets held for sale .......................................................... 135,647 Cash and cash equivalents ..................................................... 50,852 36,123 Due from Lessees .............................................................. 28,598 18,394 Note receivable from unconsolidated entity .................................... 7,728 7,760 Deferred expenses, net of accumulated amortization of $6,874 at June 30, 2000 and $4,491 at December 31, 1999 ........................... 17,093 15,473 Other assets .................................................................. 7,054 5,939 ---------- ---------- Total assets ....................................................... $4,176,765 $4,255,751 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Debt, net of discount of $1,288 at June 30, 2000 and $1,401 at December 31, 1999 ............................................ $1,882,743 $1,833,954 Distributions payable ......................................................... 35,237 39,657 Accrued expenses and other liabilities ........................................ 73,335 65,480 Deferred rent ................................................................. 18,604 Minority interest in other partnerships ....................................... 50,710 51,671 ---------- ---------- Total liabilities .................................................. 2,060,629 1,990,762 Commitments and contingencies (Notes 5 and 6) Redeemable units at redemption value .......................................... 151,948 52,338 Preferred units: Series A Cumulative Preferred Units, 6,031 and 6,050 units issued and outstanding at June 30, 2000 and December 31, 1999, respectively ......... 150,765 151,250 Series B Redeemable Preferred Units, 58 units issued and outstanding ....... 143,750 143,750 Partners' capital ............................................................. 1,669,188 1,917,651 ---------- ---------- Total liabilities and partners' capital ............................ $4,176,765 $4,255,751 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER UNIT DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: Percentage lease revenue ......................... $ 133,286 $ 131,891 $ 256,335 $ 256,882 Equity in income from unconsolidated entities .... 3,769 2,591 5,648 3,837 Other revenue .................................... 810 705 2,687 1,385 --------- --------- --------- --------- Total revenues .......................... 137,865 135,187 264,670 262,104 --------- --------- --------- --------- Expenses: Depreciation ..................................... 41,080 37,737 81,480 74,162 Reserve for assets held for sale ................. 63,000 63,000 Interest expense ................................. 39,740 30,750 77,644 59,172 Taxes, insurance, and other ...................... 17,234 15,425 35,877 32,372 Land leases ...................................... 6,151 4,479 11,711 8,485 General and administrative ....................... 2,713 2,509 6,112 4,753 Minority interest in other partnerships .......... 1,125 833 2,093 1,639 --------- --------- --------- --------- Total expenses .......................... 171,043 91,733 277,917 180,583 --------- --------- --------- --------- Net income (loss) before nonrecurring items ........ (33,178) 43,454 (13,247) 81,521 Gain on sale of land ............................... 875 875 Extraordinary charge from write off of deferred financing fees ................................ (1,113) (1,113) --------- --------- --------- --------- Net income (loss) .................................. (32,303) 42,341 (12,372) 80,408 Preferred distributions ............................ 6,174 6,184 12,358 12,368 --------- --------- --------- --------- Net income (loss) applicable to unitholders ........ $ (38,477) $ 36,157 $ (24,730) $ 68,040 ========= ========= ========= ========= Per unit data: Basic: Net income (loss) applicable to unitholders ...... $ (0.62) $ 0.51 $ (0.39) $ 0.96 ========= ========= ========= ========= Weighted average units outstanding ............... 62,312 71,000 63,066 70,998 ========= ========= ========= ========= Diluted: Net income (loss) applicable to unitholders ...... $ (0.62) $ 0.51 $ (0.39) $ 0.95 ========= ========= ========= ========= Weighted average units outstanding ............... 62,543 71,338 63,297 71,334 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------ 2000 1999 --------- --------- Cash flows from operating activities: Net income (loss) ............................................................ $ (12,372) $ 80,408 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ....................................................... 81,480 74,162 Gain on sale of land ............................................... (875) Reserve for assets held for sale ................................... 63,000 Amortization of deferred financing fees ............................ 2,383 1,303 Accretion of debt .................................................. (446) (494) Amortization of unearned officers' and directors' compensation ..... 472 350 Equity in income from unconsolidated entities ...................... (5,648) (3,837) Extraordinary charge for write off of deferred financing fees ...... 1,113 Minority interest in other partnerships ............................ 2,093 1,639 Changes in assets and liabilities: Due from Lessees ................................................... (10,204) (13,356) Deferred expenses .................................................. (4,003) (5,538) Other assets ....................................................... (1,251) (1,140) Deferred rent ...................................................... 18,604 Accrued expenses and other liabilities ............................. 5,510 15,343 --------- --------- Net cash flow provided by operating activities ........... 138,743 149,953 --------- --------- Cash flows used in investing activities: Improvements and additions to hotels ......................................... (41,408) (148,519) Acquisition of hotel assets .................................................. (10,802) Proceeds from sale of assets ................................................. 1,071 15,091 Cash distributions from unconsolidated entities .............................. 11,708 13,297 --------- --------- Net cash flow used in investing activities ............... (28,629) (130,933) --------- --------- Cash flows from financing activities: Proceeds from borrowings ..................................................... 500,892 744,000 Repayment of borrowings ...................................................... (451,847) (630,899) Purchase of treasury stock ................................................... (56,733) Buyback of assumed stock options ............................................. (1,860) Other distributions .......................................................... (3,054) Distributions paid to preferred unitholders .................................. (12,368) (13,619) Distributions paid to unitholders ............................................ (70,415) (102,625) --------- --------- Net cash flow used in financing activities ............... (95,385) (3,143) --------- --------- Net change in cash and cash equivalents ................................................ 14,729 15,877 Cash and cash equivalents at beginning of periods ...................................... 36,123 34,692 --------- --------- Cash and cash equivalents at end of periods ............................................ $ 50,852 $ 50,569 ========= ========= Supplemental cash flow information-- Interest paid ................................................................ $ 73,259 $ 55,549 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION FelCor Lodging Limited Partnership and its subsidiaries (the "Company") at June 30, 2000, 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 June 30, 2000 FelCor owned a greater than 88% 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. At June 30, 2000, the Company leased 86 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company, or a consolidated subsidiary thereof (collectively "DJONT"), and leased 100 of the Hotels to Bristol Hotels & Resorts, or a consolidated subsidiary thereof ("Bristol" and, together with DJONT, the "Lessees"). Two Hotels were operated without a lease. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at June 30, 2000:
NOT OPERATED BRAND DJONT BRISTOL UNDER A LEASE TOTAL ----- ----- ------- ------------- ----- Embassy Suites 60 60 Holiday Inn 43 1 44 Crowne Plaza and Crowne Plaza Suites(R) 18 18 Doubletree and Doubletree Guest Suites(R) 14 14 Holiday Inn Select(R) 10 10 Sheraton(R)and Sheraton Suites(R) 10 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 86 100 2 188 === === === ===
The Hotels are located in the United States (35 states) and Canada, with a concentration in Texas (41 hotels), California (20 hotels), Florida (18 hotels) and Georgia (15 hotels). 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 June 30, 2000, DJONT had entered into management agreements pursuant to which 72 of the Hotels leased by it were managed by 6 7 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION -- (CONTINUED) subsidiaries of Hilton Hotels Corporation ("Hilton"), 11 were managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") and three were managed by two unrelated management companies. At June 30, 2000, Bristol, which became a subsidiary of Bass plc ("Bass") by virtue of the merger between Bristol and a subsidiary of Bass on March 31, 2000, leased and managed 100 Hotels and managed and operated one hotel, in which the Company owned a 50% interest, without a lease. Bass is one of the largest hotel operating companies 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. The financial information for the three and six months ended June 30, 2000 and 1999, is unaudited but includes all adjustments (consisting only of normal recurring accruals) which the Company considers necessary for a fair presentation of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 1999, included in the Company's Annual Report on Form 10-K ("Form 10-K"). Operating results for the three and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2000. 2. DEFERRED RENT Effective January 2000, Percentage Leases with regard to 68 of the Company's 188 hotels were changed to provide for the computation of rent on an annual, rather than quarterly basis. This should result in no change in annual Percentage Rent or cash flows. In accordance with Staff Accounting Bulletin No. 101 (SAB 101), this change requires that the Company defer Percentage Lease revenue until annual thresholds are exceeded. This deferred rent is expected to be fully earned and recognized as Percentage Lease Revenue by the end of 2000. 3. ASSETS HELD FOR SALE The Company has identified 25 hotels that it considers non-strategic and has announced its intention to sell such hotels within the next year. Three of the hotels are leased by DJONT and the other 22 are leased and managed by Bristol. The Company expects gross sales proceeds from these hotels to be approximately $150 million and net proceeds to be approximately $136 million. In connection with the decision to sell these hotels, the Company has recorded, at June 30, 2000, a one-time reserve of $63 million representing the difference between the net book value of these hotels and the estimated net proceeds. The results of operations associated with the assets held for sale, included in the Company's results of operations, for the six months ended June 30, 2000, is $6.1 million. The hotels were depreciated through June 30, 2000. 4. INVESTMENT IN UNCONSOLIDATED ENTITIES The Company owned 50% interests in separate entities owning 16 hotels at June 30, 2000, and 15 hotels at June 30, 1999, a parcel of undeveloped land, and a condominium management company. The Company also owned a 97% nonvoting interest in an entity that owns an annex to a hotel owned by the Company and holds a 50% interest in an entity that is developing condominiums for sale. The Company accounts for its investments in these unconsolidated entities under the equity method. 7 8 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED) Summarized unaudited combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
JUNE 30, --------------------- 2000 1999 -------- -------- Balance sheet information: Investment in hotels ........... $339,795 $269,123 Non-recourse mortgage debt ..... $265,874 $196,462 Equity ......................... $ 88,096 $ 93,524
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- STATEMENTS OF OPERATIONS INFORMATION: Total revenues ................................... $ 21,245 $ 17,137 $ 39,173 $ 31,297 Net income ....................................... $ 8,715 $ 6,358 $ 13,649 $ 10,078 Net income attributable to the Company ........... $ 4,304 $ 3,127 $ 6,719 $ 4,908 Amortization of cost in excess of book value ..... (535) (536) (1,071) (1,071) -------- -------- -------- -------- Equity in income from unconsolidated entities .... $ 3,769 $ 2,591 $ 5,648 $ 3,837 ======== ======== ======== ========
5. DEBT Debt at June 30, 2000, and December 31, 1999, consisted of the following (in thousands):
JUNE 30, DECEMBER 31, COLLATERAL INTEREST RATE MATURITY DATE 2000 1999 ---------- ------------- ------------- ----------- ------------ FLOATING RATE DEBT: Line of credit (a) LIBOR + 163bp June 2001 $ 285,000 $ 351,000 Senior term loan (a) LIBOR + 275bp March 2004 249,000 250,000 Mortgage debt 3 hotels LIBOR + 200bp February 2003 62,239 62,553 Other Uncollateralized Up to LIBOR + 200bp Various 11,032 32,282 ----------- ----------- Total floating rate debt 607,271 695,835 ----------- ----------- FIXED RATE DEBT: Line of credit - swapped (a) 7.17 - 7.56% June 2001 125,000 313,000 Publicly-traded term notes (a) 7.38% October 2004 174,441 174,377 Publicly-traded term notes (a) 7.63% October 2007 124,271 124,221 Mortgage debt 15 hotels 7.24% November 2007 141,367 142,542 Senior term loan - swapped (a) 8.56% March 2004 125,000 125,000 Mortgage debt 7 hotels 7.54% April 2009 98,354 99,075 Mortgage debt 6 hotels 7.55% June 2009 73,946 74,483 Mortgage debt 7 hotels 8.73% May 2010 144,865 Mortgage debt 8 hotels 8.70% May 2010 185,762 Other 13 hotels 6.96% - 7.23% 2000 - 2005 82,466 85,421 ----------- ----------- Total fixed rate debt 1,275,472 1,138,119 ----------- ----------- Total debt $ 1,882,743 $ 1,833,954 =========== ===========
(a) Collateralized by stock and partnership interests in certain subsidiaries of FelCor. 8 9 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. DEBT -- (CONTINUED) Thirty-day LIBOR at June 30, 2000, was 6.649%. A portion of the Company's Line of Credit and Senior Term Loan is matched with interest rate swap agreements which effectively convert the variable rate on the Line of Credit and Senior Term Loan to a fixed rate. 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 certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At June 30, 2000, the Company was not in default with respect to any 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 contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the mortgage debt is prepayable; subject, however, to various prepayment penalties, yield maintenance, or defeasance obligations. On April 26, 2000, the Company closed a 10-year, $145 million First Mortgage Term Loan, which is secured by seven Sheraton hotels and carries an 8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of 10-year, First Mortgage Term Loans which are secured by eight Embassy Suites hotels and carry an 8.70% fixed interest rate. The loans are non-recourse, mature in May 2010, and amortize over 25 years. The proceeds of these loans were used to reduce borrowings under the Company's $850 million Line of Credit. 6. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Company is to receive rental income from the Lessees under the Percentage Leases which expire in 2003 (six hotels), 2004 (11 hotels), 2005 (18 hotels), 2006 (22 hotels), 2007 (27 hotels), 2008 (44 hotels), and thereafter (19 hotels). The rental income under the Percentage Leases between 15 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 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 June 30, 2000, excluding the 25 hotels that have been designated as held for sale, is as follows (in thousands):
LESSEES ------------------------- DJONT BRISTOL TOTAL ---------- ---------- ---------- YEAR Remainder of 2000 ....... $ 72,351 $ 84,402 $ 156,753 2001 .................... 148,009 168,805 316,814 2002 .................... 148,240 168,816 317,056 2003 .................... 137,190 166,123 303,313 2004 .................... 132,584 158,827 291,411 2005 and thereafter ..... 447,848 620,570 1,068,418 ---------- ---------- ---------- $1,086,222 $1,367,543 $2,453,765 ========== ========== ==========
9 10 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Minimum future rental income (i.e., base rents) payable to the Company under the noncancelable operating leases for the 25 hotels held for sale as of June 30, 2000 is as follows (in thousands):
LESSEES --------------------- YEAR DJONT BRISTOL TOTAL ---- -------- -------- -------- Remainder of 2000 ....... $ 1,575 $ 6,338 $ 7,913 2001 .................... 3,150 12,676 15,826 2002 .................... 3,150 12,676 15,826 2003 .................... 3,150 12,578 15,728 2004 .................... 3,150 12,382 15,532 2005 and thereafter ..... 4,696 34,255 38,951 -------- -------- -------- $ 18,871 $ 90,905 $109,776 ======== ======== ========
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 June 30, 2000. 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 serves as both the lessee and manager of 100 Hotels leased to it by the Company at June 30, 2000, 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 June 30, 2000, totaled $9.1 million. 7. 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 June 30, 2000, were DJONT and Bristol. 10 11 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. SEGMENT INFORMATION -- (CONTINUED) The following tables present information for the reportable segments for the three and six months ended June 30, 2000 and 1999 for both DJONT and Bristol (in thousands):
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED THREE MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL -------------------------------- -------- -------- --------- ------------- ------------ Total revenues .............................. $ 74,338 $ 62,717 $ 137,055 $ 810 $ 137,865 Net income (loss) ........................... $ 33,193 $(23,785) $ 9,408 $ (41,711) $ (32,303) Funds from operations ....................... $ 68,567 $ 57,197 $ 125,764 $ (44,879) $ 80,885 Weighted average units outstanding (1) ...... 67,232
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED THREE MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL -------------------------------- -------- -------- --------- ------------- ------------ Total revenues .............................. $ 72,845 $ 62,114 $ 134,959 $ 228 $ 135,187 Net income (loss) ........................... $ 43,252 $ 33,233 $ 76,485 $ (34,144) $ 42,341 Funds from operations ....................... $ 65,385 $ 51,264 $ 116,649 $ (36,266) $ 80,383 Weighted average units outstanding (1) ...... 76,029
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED SIX MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ------------------------------ -------- -------- --------- ------------- ------------ Total revenues .............................. $ 142,746 $ 119,237 $ 261,983 $ 2,687 $ 264,670 Net income (loss) ........................... $ 69,892 $ (1,059) $ 68,833 $ (81,205) $ (12,372) Funds from operations ....................... $ 132,459 $ 104,459 $ 236,918 $ (87,538) $ 149,380 Weighted average units outstanding (1) ...... 67,987
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED SIX MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ------------------------------ -------- -------- --------- ------------- ------------ Total revenues .............................. $ 146,901 $ 114,752 $ 261,653 $ 451 $ 262,104 Net income (loss) ........................... $ 87,200 $ 57,795 $ 144,995 $ (64,587) $ 80,408 Funds from operations ....................... $ 131,827 $ 92,348 $ 224,175 $ (69,943) $ 154,232 Weighted average units outstanding (1) ...... 76,008
---------- (1) Weighted average units outstanding are computed including dilutive options, unvested stock grants, and assuming conversion of Series A Preferred Units to Units. 11 12 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. TREASURY STOCK REPURCHASE PROGRAM On January 4, 2000, FelCor announced that its Board of Directors had approved a stock repurchase program, authorizing FelCor to purchase up to an aggregate of $200 million of its outstanding common shares. During the six months ended June 30, 2000, FelCor had repurchased approximately 3.1 million shares of FelCor common stock for approximately $56.7 million. This has been recorded as a reduction to Partners' Capital as a result of the redemption of units held by FelCor to fund the repurchase. 9. BASS STOCK CONTRIBUTION In connection with the efforts of Bass to acquire Bristol, 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 on February 28, 2000. This exchange did not affect the Company's FFO or earnings per unit, although it resulted in reducing FelCor's percentage ownership in the Company from approximately 95% to approximately 88%. 10. BUYBACK OF ASSUMED STOCK OPTIONS In the second quarter of 2000 the Company purchased options covering an aggregate of 349,443 shares of FelCor's Common Stock for approximately $1.9 million. The options were held by employees of Bristol Hotels & Resorts and were issued in substitution for stock options previously granted by Bristol Hotel Company that were outstanding at the time of its merger with FelCor in 1998. The options so purchased and retired had exercise prices ranging from $10.33 to $16.95 per share and the majority of these options were scheduled to vest in the third quarter of 2000. 11. EARNINGS PER UNIT The following table sets forth the computation of basic and diluted earnings (loss) per unit for the three and six months ended June 30, 2000 and 1999 (in thousands, except per unit data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE JUNE ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Numerator: Net income (loss) applicable to unitholders ............. $(38,477) $ 36,157 $(24,730) $ 68,040 Denominator: Denominator for basic earnings per unit - weighted average units ............................. 62,312 71,000 63,066 70,998 Effect of diluted securities: Options .......................................... 273 271 Restricted units ................................. 231 65 231 65 -------- -------- -------- -------- Denominator for diluted earnings per unit - adjusted weighted average units and assumed conversions ... 62,543 71,338 63,297 71,334 ======== ======== ======== ======== Earnings (loss) per unit data: Basic ................................................... $ (0.62) $ 0.51 $ (0.39) $ 0.96 Diluted ................................................. $ (0.62) $ 0.51 $ (0.39) $ 0.95
The Series A Preferred Units and most of the options granted are anti-dilutive and not included in the calculation of diluted earnings per unit. 12 13 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. SUBSEQUENT EVENTS On July 14, the Company entered into a binding sale contract to sell its Embassy Suites hotel, Los Angeles International Airport-North, California (215 suites) for a gross price of approximately $24 million. The Company expects the sale will close by the end of August 2000, and FelCor will record a gain on sale of approximately $3 million, in the third quarter of 2000. This hotel is not included in the 25 hotels held for sale. On August 1, 2000, the Company renewed its Line of Credit. The Line of Credit was reduced from $850 million to $600 million and the maturity was extended from July 2001 to August 2003. The effective interest rate ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. On July 21, 2000, FelCor's Independent Directors approved the acquisition of 100% of DJONT effective January 1, 2001. The purchase price is approximately 417,000 units of the Company. 13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 ---------- ------------ (UNAUDITED) ASSETS Cash and cash equivalents ................................................ $ 28,494 $ 20,127 Accounts receivable, net ................................................. 38,200 28,601 Inventories .............................................................. 4,319 4,260 Prepaid expenses ......................................................... 1,193 1,444 Other assets ............................................................. 4,737 5,791 Investment in real estate, net of accumulated depreciation of $771 in 2000 and $530 in 1999 .............................................. 11,195 11,436 --------- --------- Total assets ................................................... $ 88,138 $ 71,659 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Accounts payable, trade .................................................. $ 21,356 $ 12,742 Due to FelCor Lodging Trust Incorporated ................................. 25,655 22,064 Accrued expenses and other liabilities ................................... 41,570 37,121 Minority interest ........................................................ 4,867 5,113 Debt ..................................................................... 7,728 7,761 --------- --------- Total liabilities .............................................. 101,176 84,801 --------- --------- Commitments and contingencies (Note 3) Shareholders' deficit: Capital .................................................................. 1 1 Accumulated deficit ...................................................... (13,039) (13,143) --------- --------- Total shareholders' deficit .................................... (13,038) (13,142) --------- --------- Total liabilities and shareholders' deficit .................... $ 88,138 $ 71,659 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- Revenue: Room and suite revenue .............. $ 186,395 $ 167,109 $ 364,687 $ 334,840 Food and beverage revenue ........... 29,396 22,280 56,340 43,467 Food and beverage rent .............. 1,390 1,349 2,714 2,614 Other revenue ....................... 12,467 14,618 24,921 28,630 --------- --------- --------- --------- Total revenues ................. 229,648 205,356 448,662 409,551 --------- --------- --------- --------- Expenses: Property operating costs ............ 50,481 49,110 97,799 95,338 General and administrative .......... 16,699 15,784 32,952 30,730 Advertising and promotion ........... 17,532 13,823 33,626 27,730 Repair and maintenance .............. 10,296 9,548 20,454 19,106 Utilities ........................... 7,575 6,969 14,764 14,122 Management and incentive fees ....... 6,769 5,573 12,691 11,966 Franchise fees ...................... 5,414 4,929 10,603 9,847 Food and beverage expenses .......... 21,550 16,600 41,868 32,125 Percentage lease expenses ........... 90,828 83,714 178,177 169,558 Lessee overhead expenses ............ 269 301 426 567 Liability insurance ................. 812 589 1,608 1,154 Interest expense .................... 248 156 310 372 Depreciation ........................ 121 289 241 289 Minority interest in partnership .... (216) 157 (247) 157 Other ............................... 1,678 1,310 3,286 2,752 --------- --------- --------- --------- Total expenses ................. 230,056 208,852 448,558 415,813 --------- --------- --------- --------- Net income (loss) ........................ $ (408) $ (3,496) $ 104 $ (6,262) ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 15 16 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------------- 2000 1999 -------- -------- Cash flows from operating activities: Net income (loss) ................................................ $ 104 $ (6,262) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............................... 241 289 Minority interest in partnership income ..................... (247) 157 Changes in assets and liabilities: Accounts receivable ......................................... (9,599) (5,686) Inventories ................................................. (59) 224 Prepaid expenses ............................................ 251 (2,750) Other assets ................................................ 1,054 (1,903) Due to FelCor Lodging Trust Incorporated .................... 3,591 17,989 Accounts payable, accrued expenses and other liabilities .... 13,064 5,104 -------- -------- Net cash flow provided by operating activities ......... 8,400 7,162 -------- -------- Cash flows from financing activities: Repayment of borrowings .......................................... (33) -------- Net cash flow used in financing activities .................. (33) -------- Net change in cash and cash equivalents ............................... 8,367 7,162 Cash and cash equivalents at beginning of periods ..................... 20,127 28,538 -------- -------- Cash and cash equivalents at end of periods ........................... $ 28,494 $ 35,700 ======== ========
The accompany notes are an integral part of these consolidated financial statements. 16 17 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Thomas J. Corcoran, Jr., the President, Chief Executive Officer and a Director of FelCor Lodging Trust Incorporated ("FelCor") and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT Operations LLC, a Delaware limited liability company. The remaining 50% non-voting common equity interest is beneficially owned by the children of Charles N. Mathewson, a Director and major initial investor in FelCor. Eighty-six of the hotels in which FelCor Lodging Limited Partnership (the "Operating Partnership") had an ownership interest at June 30, 2000 (the "Hotels"), were 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 June 30, 2000. At June 30, 2000, 60 of the Hotels were operated as Embassy Suites(R) hotels, 14 were operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, ten 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 were 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, 11 were managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") and three were managed by two unrelated management companies. 2. ASSETS HELD FOR SALE The Operating Partnership has identified three hotels leased by DJONT, which it considers non-strategic and has announced its intention to sell such hotels within the next year. The results of operations associated with the hotels held for sale, included in DJONT's results of operations for the six months ended June 30, 2000, was an operating loss of $245,000. 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS DJONT has future lease commitments under the Percentage Leases which expire in 2003 (4 hotels), 2004 (6 hotels), 2005 (13 hotels), 2006 (17 hotels), 2007 (23 hotels), 2008 (11 hotels), and thereafter (12 hotels). Minimum future rental payments are computed based on the base rent as defined under the noncancelable operating leases, excluding the three hotels that have been designated as held for sale, and are as follows (in thousands):
YEAR AMOUNT ---- ---------- Remainder of 2000............................................. $ 72,351 2001.......................................................... 148,009 2002.......................................................... 148,240 2003.......................................................... 137,190 2004.......................................................... 132,584 2005 and thereafter........................................... 447,848 ---------- $1,086,222 ==========
17 18 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Minimum future rental payments (i.e., base rents) under the noncancelable operating leases for the three DJONT hotels held for sale are as follows (in thousands):
YEAR AMOUNT ---- ---------- Remainder of 2000.................................................. $ 1,575 2001............................................................... 3,150 2002............................................................... 3,150 2003............................................................... 3,150 2004............................................................... 3,150 2005 and thereafter................................................ 4,696 ---------- $ 18,871 ==========
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 June 30, 2000, 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 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 is approved by a majority of FelCor's Independent Directors. 4. SUBSEQUENT EVENTS On July 21, 2000, FelCor's Independent Directors approved the acquisition of 100% of DJONT effective January 1, 2001. The purchase price is approximately 417,000 units of the Operating Partnership. 18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL For background information relating to the Company and the definitions of certain capitalized terms used herein, reference is made to Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Limited Partnership appearing elsewhere herein. SECOND QUARTER ACTIVITIES: FINANCIAL PERFORMANCE (AS COMPARED TO SECOND QUARTER 1999): o Total revenues, after adding back deferred rent of $9.8 million, increased 9.2% to $147.6 million from $135.2 million o Total hotel portfolio, excluding hotels held for sale, (163 hotels) revenue per available room ("RevPAR") increased 9.9% o Comparable hotels, excluding hotels held for sale, (131 hotels) RevPAR increased 8.2% o Non-comparable hotels, excluding hotels held for sale, (32 hotels) RevPAR increased 18.8% o Hotels held for sale (25 hotels) RevPAR decreased 2.1% OTHER HIGHLIGHTS: o The Company has agreed in principle to purchase DJONT Operations, LLC, one of its two Lessees, currently leasing 86 hotels, effective January 1, 2001, for approximately 417,000 units. o The Company has identified 25 non-strategic hotels to be sold, with estimated aggregate net sale proceeds of approximately $136 million. In connection with the decision to sell these hotels, the Company has recorded a one-time reserve of $63 million in the second quarter of 2000. o On July 14, the Company entered into a binding sale contract for its Embassy Suites(R) hotel-Los Angeles International Airport-North, California (215 suites) for a gross price of approximately $24 million ($112,000 per room). The Company expects that the sale will close by the end of August 2000, and will record a gain on sale of approximately $3 million in the third quarter of 2000. o The Company sold 31 acres of vacant excess land adjacent to its 179-room Whispering Woods Hotel, Conference Center and Golf Course in Olive Branch, Mississippi, for approximately $1 million. o Renovations were completed at three hotels during the quarter and 13 additional hotels were undergoing renovation at the end of the quarter. o Renovation expenditures on the Company's hotel portfolio totaled $8.3 million during the quarter and an additional $10.4 million was spent on maintenance capital expenditures. The Company expects to spend an additional $28 million in renovation expenditures and $33 million in maintenance capital expenditures during the remainder of 2000. o Construction was started on a 90 room addition at the Holiday Inn-French Quarter hotel located on Royal Street in New Orleans, Louisiana at an expected cost of $10 million. 19 20 CAPITALIZATION: o During the second quarter 2000, FelCor repurchased a total of approximately 718,000 common shares for approximately $14.0 million. For the Year 2000 FelCor has repurchased 3.1 million common shares for approximately $56.7 million. o The Company declared second quarter distributions of $0.55 per unit on its Units, $0.4875 per unit on its $1.95 Series A Cumulative Convertible Preferred Units and $0.5625 per depositary unit evidencing its 9% Series B Cumulative Redeemable Preferred Units. o On August 1, 2000, the Company renewed, reduced in size, and extended for two years its Senior Revolving Credit Facility. The new $600 million Line of Credit matures in August 2003. The effective interest rate ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. The initial spread is 200 basis points. RESULTS OF OPERATIONS The Company Six Months Ended June 30, 2000 and 1999 For the six months ended June 30, 2000 and 1999, the Company had revenues of $264.7 million and $262.1 million, respectively, consisting primarily of Percentage Lease revenues of $256.3 million and $256.9 million, respectively. The reason for the decline in Percentage Lease revenues is approximately $18.6 million of deferred rent recorded in 2000 but not in 1999. Effective January, 2000, Percentage Leases for 68 of the Company's 188 hotels were changed to provide for the computation of rent on an annual, rather than quarterly basis. This should result in no change in annual Percentage Rent or cash flows. However, this change requires the deferral of Percentage Lease revenue until annual thresholds are exceeded in accordance with Staff Accounting Bulletin No. 101 (SAB 101). The deferred rent is expected to be fully earned and recognized as Percentage Lease Revenue by the end of 2000. After adding back rent deferred under SAB 101, Percentage Lease revenues for the six months ended June 30, 2000, increased 7.0% to $274.9 million as compared to the six months ended June 30, 1999. The reason for this comparative increase is attributed to an overall increase in RevPAR of 7.7%. This change in hotel RevPAR is more fully discussed under "The Hotels" section of this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Total expenses increased $97.3 million for the six months ended June 30, 2000, from $180.6 million to $277.9 million, compared to the same period in 1999. Since there was no deferred rent recorded in 1999, for comparison purposes deferred rent recorded in 2000 has been added back to total revenue for the computation of expenses as a percent of total revenue. Total expenses as a percentage of total revenue after adding back deferred rent, increased to 98.1% for the six months ended June 30, 2000, from 68.9% in the same period of 1999. Included in total expenses is a one-time reserve of $63.0 million related to the 25 non-strategic hotels the Company has identified as held for sale. This reserve represents the difference between the net book value of the hotels and the estimated net sale proceeds. Other major components of the increase in expenses, as a percentage of total revenue after adding back deferred rent, were interest expense and land lease expenses. 20 21 Interest expense increased, as a percentage of total revenue, after adding back deferred rent, to 27.4% in the six months ended June 30, 2000, from 22.6% in the six months ended June 30, 1999. This increase in interest expense is attributed to the following: o increased debt, which was used to finance renovations and to fund $155 million stock repurchased in 1999 and 2000, o higher average interest rates for debt refinanced in 2000 to extend maturities and convert variable rates to fixed, o an increase in the LIBOR rate which affects the Company's variable rate debt and o reduction of interest capitalized on major renovations and construction from $3.2 million for the six months ended June 30, 1999 to approximately $497,000 in 2000. Land leases as a percent of total revenue, after adding back deferred rent, increased from 3.2% to 4.1% for the six months ended June 30, 1999 and 2000, respectively. The increase in land lease expense is primarily attributed to a reserve established in June 2000, for prior year disputed land lease expense and current year land lease expense for two hotels. The land lease rent for these hotels is computed as a percentage of hotel revenues and these two hotels had larger than average percentage increases in revenue for the period. Three Months Ended June 30, 2000 and 1999 For the three months ended June 30, 2000 and 1999, the Company had revenues of $137.9 million and $135.2 million, respectively, consisting primarily of Percentage Lease revenues of $133.3 million and $131.9 million, respectively. After adding back rent deferred under SAB 101, Percentage Lease revenues for the three months ended June 30, 2000, increased 9.2% to $147.6 million as compared to the three months ended June 30, 1999. The reason for this comparative increase is attributed to an overall increase in RevPAR of 9.3%. This change in RevPAR is more fully discussed under "The Hotels" section of this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Total expenses increased $79.3 million for the three months ended June 30, 2000, from $91.7 million to $171.0 million, compared to the same period in 1999. Since there was no deferred rent recorded in 1999, for comparison purposes deferred rent recorded in 2000 has been added back to total revenue for the computation of expenses as a percent of total revenue. Total expenses as a percentage of total revenue after adding back deferred rent, increased to 115.9% for the six months ended June 30, 2000, from 67.9% in the same period of 1999. Included in the second quarter total expenses is a one-time reserve of $63.0 million related to the 25 non-strategic hotels the Company has identified as held for sale. This reserve represents the difference between the net book value of the hotels and the estimated net sale proceeds. Other major components of the increase in expenses, as a percentage of total revenue after adding back deferred rent, were interest expense and land lease expenses. Interest expense increased, as a percentage of total revenue after adding back deferred rent, from 22.7% to 26.9% for the quarter over the prior year period. The Company's total borrowings increased by approximately $170 million since June 30, 1999, primarily to fund its stock repurchase program and its renovation, redevelopment and rebranding program. In addition, the average interest rate on the Company's floating rate debt increased approximately 130 basis points since the second quarter 1999, as a result of corresponding increases in short term interest rates. 21 22 Land leases as a percent of total revenue, after adding back deferred rent, increased from 3.3% to 4.2% for the quarters ended June 30, 1999 and 2000, respectively. The increase in land lease expense is primarily attributed to a reserve established in June 2000, for prior year disputed land lease expense and current year land lease expense for two hotels. The land lease rent for these hotels is computed as a percentage of hotel revenues and these two hotels had larger than average percentage increases in revenue for the period. Funds From Operations and EBITDA The Company considers Funds From Operations ("FFO") and earnings before interest, taxes, depreciation and amortization ("EBITDA") to be key measures of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance and liquidity. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus real estate related depreciation and amortization, after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that FFO and EBITDA are 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, they provide investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures, to pay dividends and to fund other cash needs. The Company computes FFO in accordance with standards established by NAREIT, except that the Company adds back rent deferred under SAB 101 to derive FFO. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, that interpret the current NAREIT definition differently than the Company or that do not adjust FFO for rent deferred under SAB 101. FFO and EBITDA do not represent cash generated from operating activities as 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 does it necessarily reflect the funds available to fund the Company's cash needs, including its ability to make cash distributions. FFO and EBITDA may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. 22 23 The following table details the computation of FFO (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- FFO: Net income (loss) .................................... $ (32,303) $ 42,341 $ (12,372) $ 80,408 Deferred rent ..................................... 9,750 18,604 Reserve for assets held for sale .................. 63,000 63,000 Series B preferred distributions .................. (3,234) (3,234) (6,468) (6,468) Extraordinary charge from write off of deferred financing fees ............................... 1,113 1,113 Depreciation ...................................... 41,080 37,737 81,480 74,162 Depreciation for unconsolidated entities .......... 2,592 2,426 5,136 5,017 --------- --------- --------- --------- FFO .................................................. $ 80,885 $ 80,383 $ 149,380 $ 154,232 ========= ========= ========= ========= Weighted average units outstanding (1) ............... 67,232 76,029 67,987 76,008 ========= ========= ========= =========
---------- (1) Weighted average units outstanding are computed including dilutive options, unvested stock grants, and assuming conversion of Series A Preferred Units to Units. The following table details the computation of EBITDA (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- EBITDA: Funds from Operations ................................... $ 80,885 $ 80,383 $149,380 $154,232 Interest expense .................................. 39,740 30,750 77,644 59,172 Interest expense of unconsolidated subsidiaries ... 2,157 1,734 4,787 3,343 Amortization of unearned compensation ............. 312 185 474 375 Series B preferred distributions .................. 3,234 3,234 6,468 6,468 -------- -------- -------- -------- EBITDA .................................................. $126,328 $116,286 $238,753 $253,590 ======== ======== ======== ========
The 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 periods. 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 period presented. 23 24 The following table sets forth historical Occupancy, ADR and RevPAR and the percentage changes therein between the periods presented for the Hotels in which the Company had an ownership interest at June 30, 2000. This information is presented regardless of the date of acquisition.
SECOND QUARTER 2000 YEAR TO DATE 2000 --------------------------------- --------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- ------- ------- --------- ------- ------- DJONT Comparable Hotels 77.7% $123.92 $ 96.31 75.4% $126.27 $ 95.07 Bristol Comparable Hotels 75.1% $ 92.12 $ 69.23 72.3% $ 91.48 $ 66.14 Total Comparable Hotels (A) 76.5% $108.87 $ 83.26 73.8% $109.00 $ 80.49 Non-comparable Hotels (B) 74.3% $ 99.58 $ 73.97 71.6% $101.04 $ 72.32 Total Hotels excluding hotels held for sale 76.0% $107.03 $ 81.37 73.2% $106.92 $ 78.30 Hotels held for sale (C) 60.8% $ 70.42 $ 42.84 60.1% $ 72.02 $ 43.28 Total Hotels 74.8% $104.57 $ 78.19 72.1% $104.52 $ 75.41
SECOND QUARTER 1999 YEAR TO DATE 1999 --------------------------------- --------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- ------- ------- --------- ------- ------- DJONT Comparable Hotels 74.3% $119.27 $88.66 73.2% $123.07 $90.04 Bristol Comparable Hotels 71.8% $ 89.70 $64.41 70.0% $ 89.81 $62.84 Total Comparable Hotels 73.1% $105.28 $76.98 71.5% $106.68 $76.33 Non-comparable Hotels 64.2% $ 96.98 $62.28 62.1% $ 99.18 $61.54 Total Hotels excluding hotels held for sale 71.3% $103.78 $74.02 69.0% $104.88 $72.39 Hotels held for sale 63.0% $ 69.47 $43.74 60.5% $ 72.38 $43.76 Total Hotels 70.6% $101.25 $71.51 68.3% $102.50 $70.02
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR PERIOD 2ND QTR. 2000 VS. 2ND QTR. 1999 2000 VS. 1999 YEAR TO DATE --------------------------------- --------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- ------- ------- --------- ------- ------- DJONT Comparable Hotels 3.4 pts 3.9% 8.6% 2.2 pts 2.4% 5.6% Bristol Comparable Hotels 3.3 pts 2.7% 7.5% 2.3 pts 1.9% 5.3% Total Comparable Hotels 3.4 pts 3.4% 8.2% 2.3 pts 2.2% 5.5% Non-comparable Hotels 10.1 pts 2.7% 18.8% 9.5 pts 1.9% 17.5% Total Hotels excluding hotels held for sale 4.7 pts 3.1% 9.9% 4.2 pts 1.9% 8.2% Hotels held for sale (2.2)pts 1.4% (2.1)% (0.4)pts (0.5)% (1.1)% Total Hotels 4.2 pts 3.3% 9.3% 3.8 pts 2.0% 7.7%
---------- (A) DJONT Comparable Hotels include 73 and 65 hotels and Bristol Comparable Hotels include 58 and 56 hotels in the second quarter and year-to-date which were not undergoing renovation, redevelopment, or rebranding in either the 2000 or 1999 periods reported, and exclude hotels held for sale. (B) Non-comparable Hotels include 32 and 42 hotels in the second quarter and year-to-date undergoing redevelopment in either the 2000 or 1999 periods reported, and exclude hotels held for sale. (C) Hotels held for sale includes three DJONT leased hotels and 22 Bristol leased hotels, consisting of two Courtyard by Marriott hotels, five Fairfield Inn hotels, six Hampton Inn hotels, eight Holiday-branded hotels, three Doubletree Guest Suites hotels, and one Four Points by Sheraton. 24 25 Comparison of The Hotels' Operating Statistics for the Three and Six Months Ended June 30, 2000 and 1999 For the six months ended June 30, 2000, the Company's Comparable Hotels' RevPAR, excluding hotels held for sale, increased compared to the same period in 1999, by 5.5%. For the same period the Comparable Hotels' ADR and Occupancy increased 2.2% and 2.3 percentage points, respectively. A large portion of the increase in year-to-date 2000 RevPAR came from the second quarter 2000 hotel performance. For the quarter, the Company's Comparable Hotels' RevPAR, excluding hotels held for sale, increased 8.2%. The ADR and Occupancy for these hotels increased 3.4% and 3.4 percentage points, respectively. The total hotel portfolio RevPAR, excluding hotels held for sale, increased 9.9%. This represents the fourth consecutive quarter that the Company's hotels reported increases in both ADR and Occupancy. 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 (excluding hotels held for sale) for the second quarter 2000, compared to 1999:
REVPAR PERCENTAGE OF TOTAL ------ ------------------- CHANGE ROOM REVENUE ------ -------------------- Embassy Suites (54 hotels) 9.6% 46.0% Holiday -branded (34 hotels) 9.4% 24.4% Crowne Plaza (14 hotels) 9.0% 11.7% Doubletree -branded (9 hotels) 6.2% 5.1% Sheraton (7 hotels) 5.4% 6.9% Other (13 hotels) (3.2)% 5.9% --- ----- 8.2% 100.0% === =====
The Company attributes much of the improvement in RevPAR to the renovation, rebranding and repositioning program in which the Company has spent approximately $465 million in 1998, 1999 and the first six months of 2000. The Company's Hotels outperformed most other hotels in their respective markets during the second quarter and the Company expects this strong performance to continue. The Company's Embassy Suites hotels experienced their third consecutive quarterly increase in occupancy with 54 Comparable Embassy Suites hotels achieving a 9.6% RevPAR improvement for the quarter compared to prior year. These hotels, which constitute nearly 46% of Comparable Hotel room revenues, increased ADR by 5.0% and Occupancy by 3.3 percentage points over the same three month period in 1999. The Company's Comparable Doubletree hotels had a 6.2% RevPAR gain for the quarter. The Company believes, in addition to the renovation program, the recent Hilton/Promus merger and the addition of the Hilton HHonors(R) program has had a positive impact on its Embassy Suite and Doubletree portfolios. Bass completed its merger with Bristol Hotels & Resorts at the end of the first quarter of 2000. The Company expects the integration of the Bristol management team with Bass will continue to be beneficial to the development and strengthening of the Crowne Plaza and Holiday brands. The Company's 14 Comparable Crowne Plaza hotels (all of which were renovated and rebranded from Holiday Inn and Harvey hotels), reported increased RevPAR of 9% for the second quarter for 2000 compared to the same period in 1999. This increase resulted from an increase of 7.0 percentage points in occupancy, which brought the average occupancy for these hotels up to 75.1% for the quarter. In addition to the recent renovations, the Company attributes a portion of this improvement to the change in marketing for the brand, which now supports the marketing of Crowne Plaza with the Inter-Continental(R) brand. 25 26 The Company's Holiday Inn and Holiday Inn Select hotels continue to outperform their competition. The Company's Holiday-branded hotels increased RevPAR for the quarter by 9.4%. The second quarter increase in RevPAR resulted from a 3.3 percentage point increase in Occupancy and a 4.6% increase in ADR. The Company's 20 Comparable Holiday-branded hotels with greater than 250 rooms (representing nearly 81% of the Company's Holiday-branded revenue) reported an increase in RevPAR of 8.8% for the quarter, which came from Occupancy and ADR increases of 4.0 percentage points and 3.2%, respectively. Nearly 58.3% of the Company's Comparable Hotel room revenues in the quarter were derived from four states: Texas, California, Florida and Georgia. Changes in Comparable Hotel RevPAR during the quarter for these states, excluding hotels held for sale, compared to the same period in 1999, are illustrated in the following table:
REVPAR PERCENTAGE OF TOTAL CHANGE ROOM REVENUE ------ ------------------- Texas (31 hotels) 5.2% 19.2% California (17 hotels) 17.1% 21.7% Florida (12 hotels) 7.5% 10.4% Georgia (10 hotels) 0.8% 7.0%
The Comparable Hotels in Texas, which account for approximately 19.2% of FelCor's Comparable Hotel total room revenue, experienced the second consecutive quarter with positive RevPAR growth compared to prior year. The growth in supply from new hotels in most major markets in Texas appears to have slowed and management believes that their recently renovated hotels will continue to effectively compete in their market segments. The Company's 17 hotels located in Dallas, which had been adversely affected by new competition in recent quarters, had RevPAR increases of 5.5% for the quarter and 3.7% year-to-date. The Company's Non-comparable Hotels (32 hotels) reported an increase in RevPAR of 18.8% for the quarter and the 42 Non-comparable Hotels had a RevPAR increase of 17.5% year-to-date. These hotels were profoundly affected by the Allerton Crowne Plaza (increased RevPAR by 236% for the second quarter), which was closed for renovation in the third quarter 1998 and partially reopened in the second quarter of 1999. The Non-comparable Hotels, excluding the Allerton, reported increased RevPAR of 11.6%. DJONT The Six Months Ended June 30, 2000 and 1999 Total revenues increased to $448.7 million in the first six months of 2000, from $409.6 million in the first six months of 1999, an increase of 9.5% Total revenues consisted primarily of room and suite revenue of $364.7 million and $334.8 million in the first six months of 2000 and 1999, respectively. The increase in room and suite revenue resulted from a 2.7 percentage point increase in Occupancy combined with a 2.3% increase in ADR and the addition of one hotel to the DJONT portfolio in January of 2000, which contributed $14.4 million in room and suite revenue. DJONT's total expenses decreased as a percentage of total revenues from 101.5% in the six months ended June 30, 1999, to 100.0% in the six months ended June 30, 2000. This is largely due to reductions of Percent Rent as a percentage of total revenue from 41.4% to 39.7%. Net income for DJONT for the six months ended June 30, 2000, was $104,000 compared to a loss of $6.3 million in the same period in 1999. 26 27 The Three Months Ended June 30, 2000 and 1999 Total revenues increased to $229.6 million in the second quarter of 2000 from $205.4 million in the second quarter of 1999, an increase of 11.8%. Total revenues consisted primarily of room and suite revenue of $186.4 million and $167.1 million in the second quarter of 2000 and 1999, respectively. The increase in total revenues is primarily a result of a 3.9 percentage point increase in occupancy coupled with a 3.7% increase in ADR. The addition of one hotel to the DJONT portfolio in January 2000 contributed $8 million to second quarter revenues. DJONT's total expenses decreased as a percentage of total revenues from 102% for the three months ended June 30, 1999, to 100% for the three months ended June 30, 2000. Net loss for DJONT for the quarter ending June 30, 2000, was $408,000 compared to a loss of $3.5 million in the same period in 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to unitholders and repayments of indebtedness, is its share of the cash flow from the Percentage Leases. For the six months ended June 30, 2000, net cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $138.7 million and Funds From Operations was $149.4 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. DJONT recorded net income of $104,000 for the six months ended June 30, 2000, but had a cumulative shareholders' deficit of $13.0 million, largely as a result of losses in prior years. Consistent with the operating results for the six months ended June 30, 2000, management anticipates revenue growth at the DJONT hotels during 2000, but DJONT may record a small operating loss for the year 2000. On July 21, 2000, FelCor's Independent Directors approved the acquisition of 100% of DJONT Operations, LLC and its subsidiaries effective January 1, 2001 (the effective date for the recently passed REIT Modernization Act). The purchase price is approximately 417,000 units. The benefits to the Company from the purchase of DJONT include: (i) a more direct relationship with the hotel and brand managers, (ii) elimination of potential conflicts of interest and (iii) consolidated hotel level financial reporting. Bristol had 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. At June 30, 2000, a portion of this liquid net worth was being satisfied through a letter of credit for the benefit of the Company, in the amount of $9.1 million. On July 27, 2000, the letter of credit was replaced with an absolute and unconditional guarantee not to exceed $20 million, by a wholly owned subsidiary of Bass. The Company currently expects to acquire the Bristol Percentage Leases from Bass by January 1, 2001, but at this date has not entered into any agreements to acquire the Bristol Lessees or their leasehold interests. 27 28 The Company has identified 25 non-strategic hotels which it intends to sell. The Company expects gross sales proceeds from these hotels to be approximately $150 million and net proceeds to be approximately $136 million (after deducting estimated transaction costs). The Company anticipates that the sale of these hotels will result in a book loss of approximately $63 million. Accordingly, FelCor's Board of Directors approved the establishment of a $63 million reserve for hotels held for sale, to reflect the lower of cost or market for these hotels. In January 2000 FelCor's Board of Directors authorized the repurchase of up to $200 million of its outstanding common shares. The stock repurchases may, at the discretion of FelCor's management, be made from time to time at prevailing prices in the open market or through privately negotiated transactions. FelCor expects to fund the repurchase of stock through redemption of the Company's units, existing credit facilities, and proceeds from the sale of assets. From January 2000 through June 30, 2000, FelCor repurchased approximately 3.1 million shares of its outstanding common stock on the open market for approximately $56.7 million and the Company has redeemed a like number of units. 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 and asset sales are insufficient for such purposes. The Line of Credit and the Senior Term Loan contain various affirmative and negative covenants, including limitations on total indebtedness, total secured indebtedness, restricted payments (such as stock repurchases and cash distributions), as well as the obligation to maintain certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At June 30, 2000, the Company was not in default with respect to any 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, however, to various prepayment penalties, yield maintenance, or defeasance obligations. At June 30, 2000, the Company had $50.8 million of cash and cash equivalents and had utilized $410 million of the $850 million available under the Line of Credit. Certain significant credit and debt statistics at June 30, 2000, are as follows: o Interest coverage ratio of 2.9x o Borrowing capacity of $440 million under the Line of Credit o Consolidated debt equal to 41% of investment in hotels, at cost o Fixed interest rate debt equal to 68% of total debt o Weighted average maturity of fixed interest rate debt of approximately six years o Mortgage debt to total assets of 19% o Debt of approximately $17 million maturing for the remainder of 2000 On August 1, 2000, the Company renewed, reduced in size, and extended for two years its Senior Revolving Credit Facility. The new $600 million Line of Credit matures in August 2003. The effective interest rate ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. The initial spread is 200 basis points. 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 28 29 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 June 30, 2000, are summarized in the following table:
EFFECTIVE SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 6/30/00 MATURITY --------------- ------------ ---------- ------------- --------- $ 25 million 5.5575% 7.1825% 8.2663% July 2001 $ 25 million 5.5480% 7.1730% 8.2663% July 2001 $ 75 million 5.5550% 7.1800% 8.2663% July 2001 $ 100 million 5.7955% 8.5455% 9.3913% July 2003 $ 25 million 5.8260% 8.5760% 9.3913% July 2003 ------------- $ 250 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. The Company spent approximately $8.3 million during the quarter on upgrading and renovating its Hotels during the three months ended June 30, 2000 and a total of $22.9 million for the year 2000. It had completed renovations at three hotels during the quarter and had 13 additional hotels undergoing renovation at the end of the quarter. Room nights out-of-service, due to renovation, were less than 1% during the quarter. The Company currently plans to spend an additional $30 million on hotel renovations during the remainder of 2000 and expects an insignificant number of room nights to be lost as a result of such renovations. 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 $250 million at June 30, 2000. 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 June 30, 2000, 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 June 30, 2000. 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 June 30, 2000 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 June 30, 2000. 29 30 (in thousands, except rates)
EXPECTED MATURITY DATE ------------------------------------------------------------------------------- REMAINDER OF 2000 2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE ------- -------- ------- -------- --------- ------- ---------- --------- ---------- LIABILITIES Debt: Fixed rate $ 6,656 $ 23,721 $13,040 $ 34,905 $ 188,669 $43,090 $715,391 $1,025,472 $913,929 Average interest rate 8.01% 9.38% 8.19% 8.09% 7.44% 8.67% 8.05% Variable rate $10,712 $411,711 $ 1,785 $ 61,413 $ 371,000 $ 650 $ 857,271 $857,271 Average interest rate 8.29% 8.84% 9.92% 9.57% 10.31% 9.63% INTEREST RATE DERIVATIVES Interest rate swaps: Variable to fixed $125,000 $125,000 $ 250,000 $ 6,207 Average pay rate 5.55% 5.80% Average receive rate 7.21% 7.56%
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 that 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. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Portions of this Quarterly Report on Form 10-Q 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. Important factors that could cause actual results to differ materially from the Company's current expectations are disclosed herein and in the Company's other filings under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, (collectively, "Cautionary Disclosures"). The forward looking statements included herein, and all subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf, are expressly qualified in their entirety by the Cautionary Statements. ITEM 3. 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 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" contained elsewhere in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2000. 30 31 PART II. -- OTHER INFORMATION ITEM 5. OTHER INFORMATION. For information relating to certain other transactions by the Company through June 30, 2000, see Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Limited Partnership contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such information is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit Number Description ------ ----------- 10.24 Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.2 (filed as Exhibit 10.24 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.24.1 Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.24.2 Form of fourteen separate Promissory Notes each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O'Hare Airport, Illinois), $12,500,000 (Chicago O'Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont), and, $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.25 Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.25.1 (filed as Exhibit 10.25 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 31 32 10.25.1 Form of eight separate Promissory Notes each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey), and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 27 Financial Data Schedule. (b) Reports on Form 8-K: Registrant did not file any reports on Form 8-K during the second quarter of 2000. 32 33 SIGNATURE Pursuant to the requirements 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. Dated: August 14, 2000 FELCOR LODGING LIMITED PARTNERSHIP a Delaware Limited Partnership By: FelCor Lodging Trust Incorporated Its General Partner By: /s/ Lester C. Johnson -------------------------------------- Lester C. Johnson Vice President and Controller (Principal Financial Officer and Principal Accounting Officer) 33 34 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.24 Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.2 (filed as Exhibit 10.24 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.24.1 Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.24.2 Form of fourteen separate Promissory Notes each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O'Hare Airport, Illinois), $12,500,000 (Chicago O'Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont), and, $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.25 Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.25.1 (filed as Exhibit 10.25 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 10.25.1 Form of eight separate Promissory Notes each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey), and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to FelCor's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference). 27 Financial Data Schedule.