-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MS/nDFCptqy59a82RjNi5iVEuKtLMeuM9swcStKVUGLHtUyLPj84KQedy7LuRI3E KHLySQiXhQLEupYMUp2H9Q== 0000950134-98-004853.txt : 19980601 0000950134-98-004853.hdr.sgml : 19980601 ACCESSION NUMBER: 0000950134-98-004853 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980529 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR SUITES LP CENTRAL INDEX KEY: 0001048789 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752564994 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-39595-01 FILM NUMBER: 98634556 BUSINESS ADDRESS: STREET 1: 545 E. JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 9724444900 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K FOR PERIOD 12/31/97 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 333-39595-01 FELCOR SUITES LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) DELAWARE 75-2564994 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------- --------------------- NONE
Securities registered pursuant to Section 12(g) of the Act: NONE (Title of class) Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting and non-voting limited partnership interests held by non-affiliates of the registrant, as of March 10, 1998, was approximately $110 million. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ 2 FELCOR SUITES LIMITED PARTNERSHIP INDEX
FORM 10-K REPORT ITEM NO. PAGE - ------- -------- PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters ...................... 3 6. Selected Financial Data .................................................................... 5 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 10 8. Financial Statements and Supplementary Data ................................................ 19 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ....... 19
2 3 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information. There is no established public trading market for the Units. The Units, however, are redeemable at the option of the holder for a like number of shares of Common Stock of FelCor or, at the option of FelCor, for the cash equivalent thereof. The following information is provided regarding the common stock of FelCor: FelCor's Common Stock was traded on The Nasdaq Stock Market from July 22, 1994 until March 13, 1996 under the symbol "FLCO" and has been traded on the New York Stock Exchange since March 13, 1996 under the symbol "FCH." The following table sets forth for the indicated periods the high and low sale prices for the Common Stock, as traded on such market and exchange. 3 4
HIGH LOW ---- --- 1996 ---- First quarter ..................... $ 32 $ 27 1/8 Second quarter .................... 31 5/8 28 1/2 Third quarter ..................... 32 1/2 27 3/4 Fourth quarter .................... 36 3/4 30 3/8 1997 ---- First quarter ..................... $ 37 1/2 $ 33 1/2 Second quarter .................... 37 3/4 34 1/2 Third quarter ..................... 41 1/2 36 Fourth quarter .................... 42 7/8 34 15/16
The foregoing market quotations for the period prior to March 13, 1996 reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Unitholder Information. At March 10, 1998, the Operating Partnership had approximately 55 holders of record of its Units. It is estimated that there were approximately 55 beneficial owners, in the aggregate, of the Units at that date. Distribution Information. The Operating Partnership has adopted a policy of paying regular quarterly distributions on its Units, and cash distributions have been paid on its Units with respect to each quarter since its inception. The following table sets forth information regarding the declaration and payment of distributions by the Company during 1996 and 1997.
QUARTER TO DISTRIBUTION DISTRIBUTION PER UNIT WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION RELATES DATE DATE AMOUNT ------------------ -------- ---------- ------------- 1996 First quarter ..................... 4/11/96 4/30/96 $ 0.46 Second quarter .................... 7/15/96 7/30/96 $ 0.46 Third quarter ..................... 10/15/96 10/31/96 $ 0.50 Fourth quarter .................... 12/30/96 1/30/97 $ 0.50 1997 First quarter ..................... 4/15/97 4/30/97 $ 0.50 Second quarter .................... 7/15/97 7/30/97 $ 0.50 Third quarter ..................... 10/15/97 10/31/97 $ 0.55 Fourth quarter .................... 12/30/97 1/30/98 $ 0.55
The foregoing distributions represent an approximate 6.0% return of capital in 1997 and an approximate 11.5% return of capital in 1996. In order to maintain its qualification as a REIT, FelCor must make annual distributions to its shareholders of at least 95% of its taxable income (which does not include net capital gains). For the years ended December 31, 1996 and December 31, 1997, FelCor had distributions totaling $1.92 and $2.10 per share, respectively, of which only $1.61 and $1.88 per share, respectively, were required to satisfy the 95% REIT distribution test. Under certain circumstances FelCor may be required to make distributions in excess of cash available for distribution in order to meet such REIT distribution requirements. In such event, FelCor presently would expect to borrow funds, or to sell assets for cash, to the extent necessary to obtain cash sufficient to make the distributions required to retain its qualification as a REIT for federal income tax purposes. 4 5 The Operating Partnership currently anticipates that it will maintain at least the current distribution rate for the immediate future, unless actual results of operations, economic conditions or other factors differ from its current expectations. Future distributions, if any, paid by the Operating Partnership will be at the discretion of the Board of Directors and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the internal revenue code and such other factors as the Board of Directors deems relevant. Recent Sales of Unregistered Securities As of May 16, 1997 the Operating Partnership issued an aggregate of 139,286 Units to PMB Associates, Ltd., in exchange for its 50% interest in a partnership owning one hotel. Neither the Units nor the like number of shares of Common Stock for which they may be redeemed, were registered under the Securities Act in reliance upon certain exemptions from the registration requirements thereof, including the exemption provided by section 4 (2) of that act. ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected historical operating and financial data for the Operating Partnership and selected combined historical financial data for the predecessor of the Operating Partnership (the "Initial Hotels"). The selected historical financial data for the Operating Partnership for the years ended December 31, 1997, 1996 and 1995 and the period from July 28, 1994 (inception of operations) to December 31, 1994 has been derived from the historical financial statements of the Company and the notes thereto, audited by Coopers & Lybrand, L.L.P., independent accountants. Such data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto. The selected combined historical financial statements for the Initial Hotels are presented for the year ended December 31, 1993 and the period from January 1, 1994 to July 27, 1994 and represents the operations of the six hotels acquired by the Company upon completion of FelCor's initial public offering of common stock ("IPO") in July 1994. The Initial Hotels data is derived by combining the selected combined historical financial data of five hotels for periods prior to their acquisition by a FelCor affiliate (the "E-5 Hotels") and the selected combined historical financial data of a FelCor affiliate prior to the IPO (the "FelCor Hotels") and represents the selected combined historical financial data of all six hotels for the entire periods presented. The E-5 Hotels include the operations of five hotels prior to the acquisition by a FelCor affiliate on July 15, 1993 and the FelCor Hotels include operations of all six hotels from the date of acquisition by the FelCor affiliate. The selected combined historical financial data for the E-5 Hotels and the FelCor Hotels have been derived from the historical financial statements and notes thereto, audited by Coopers & Lybrand L.L.P., independent accountants. 5 6 FELCOR SUITES LIMITED PARTNERSHIP SELECTED HISTORICAL OPERATING AND FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994 --------------------------------------------- (INCEPTION OF OPERATIONS) 1997 1996 1995 THROUGH DECEMBER 31, 1994 --------- --------- --------- ------------------------- OPERATING DATA: REVENUE Percentage lease revenue ................. $ 169,114 $ 97,950 $ 23,787 $ 6,043 Equity in income from unconsolidated entities................. 6,963 2,010 513 Other revenue ............................ 574 984 1,691 207 --------- --------- --------- --------- TOTAL REVENUE ............................... 176,651 100,944 25,991 6,250 --------- --------- --------- --------- EXPENSES General and administrative ............... 3,743 1,819 870 355 Depreciation ............................. 50,798 26,544 5,232 1,487 Taxes, insurance and other ............... 23,093 13,897 2,563 881 Interest expense ......................... 28,792 9,803 2,004 109 Minority interest in other partnerships............................ 573 --------- --------- --------- --------- TOTAL EXPENSES .............................. 106,999 52,063 10,669 2,832 --------- --------- --------- --------- INCOME BEFORE EXTRAORDINARY CHARGE .......... 69,652 48,881 15,322 3,418 Extraordinary charge from write off of deferred financing fees ............ 185 2,354 --------- --------- --------- --------- NET INCOME .................................. 69,467 46,527 15,322 3,418 Preferred distributions .................. 11,797 7,734 --------- --------- --------- --------- NET INCOME APPLICABLE TO UNITHOLDERS ........ $ 57,670 $ 38,793 $ 15,322 $ 3,418 ========= ========= ========= ========= BASIC EARNINGS PER UNIT (1) Income applicable to unitholders before extraordinary charge ............ $ 1.70 $ 1.59 $ 1.72 $ 0.54 Extraordinary charge ..................... (0.01) (0.09) --------- --------- --------- --------- Net income applicable to unitholders...... $ 1.69 $ 1.50 $ 1.72 $ 0.54 ========= ========= ========= ========= Weighted average number of units outstanding............................. 34,126 25,809 8,927 6,385 ========= ========= ========= ========= DILUTED EARNINGS PER UNIT (1) Income applicable to unitholders before extraordinary charge ............ $ 1.68 $ 1.58 $ 1.70 $ 0.54 Extraordinary charge ..................... (0.01) (0.09) --------- --------- --------- --------- Net income ............................... $ 1.67 $ 1.49 $ 1.70 $ 0.54 ========= ========= ========= ========= Weighted average number of units outstanding ............................ 34,467 26,003 8,989 6,385 ========= ========= ========= =========
6 7 FELCOR SUITES LIMITED PARTNERSHIP SELECTED HISTORICAL OPERATING AND FINANCIAL DATA -- (CONTINUED)
YEAR ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994 -------------------------------------- (INCEPTION OF OPERATIONS) 1997 1996 1995 THROUGH DECEMBER 31, 1994 -------- -------- -------- ------------------------- OTHER DATA: Cash distributions per unit .............. 2.10 1.92 1.84 0.66 Funds From Operations (2) ................ 129,815 77,141 20,707 4,905 EBITDA (3) ............................... 153,496 86,583 22,203 5,014 Ratio of EBITDA to interest paid ......... 7.2x 9.4x 15.1x Ratio of earnings to fixed charges (4) ... 3.3x 5.3x 8.6x 32.4x Cash provided by financing activities .... 600,132 251,906 407,897 97,952 Cash provided by operating activities .... 97,478 67,494 17,003 3,959 Cash used in investing activities ........ (687,860) (478,428) (259,197) (100,793) BALANCE SHEET DATA: Cash and short term investments .......... $ 17,543 $ 7,793 $ 166,821 $ 1,118 Investment in hotel properties, net ...... 1,489,764 899,691 325,155 104,800 Investment in unconsolidated entities .... 132,991 59,867 13,819 Total assets ............................. 1,673,364 978,788 548,359 108,305 Debt and capital lease obligations ....... 476,819 239,425 19,666 8,750 Redeemable units, at redemption value .... 102,933 98,542 74,790 33,055 Preferred units .......................... 151,250 151,250 Partners' capital ........................ 897,766 468,246 445,433 61,885
- --------------- (1) In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per share" which established new standards for computing and presenting earnings per unit. Earnings per unit for all periods presented have been calculated according to this standard. Basic earnings per unit have been computed by dividing net income applicable to unitholders by the weighted average number of Units outstanding. Diluted earnings per unit have been computed by dividing net income applicable to unitholders by the weighted average number of units and equivalents outstanding. Common share and unit equivalents that have a dilutive effect represent stock options issued to officers and key employees and unvested restricted stock grants issued to certain officers. (2) The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 defines Funds From Operations as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that Funds From Operations is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. The Company computes Funds From Operations in accordance with standards established by NAREIT which may not be comparable to Funds From Operations reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. Funds From Operations does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. Funds From Operations may include funds that may not be available for management's 7 8 discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. The following is a reconciliation between net income and Funds From Operations (in thousands):
PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS) YEAR ENDED DECEMBER 31, THROUGH ------------------------------ DECEMBER 31, 1997 1996 1995 1994 ---- ---- ---- ---- Net income .................................. $ 69,467 $ 46,527 $ 15,322 $ 3,418 Add: Depreciation ................................ 50,798 26,544 5,232 1,487 Depreciation from unconsolidated entities ... 9,365 1,716 153 Extraordinary charge from write off of deferred financing fees ............... 185 2,354 -------- -------- -------- -------- Funds From Operations (FFO) ................. $129,815 $ 77,141 $ 20,707 $ 4,905 ======== ======== ======== ========
(3) EBITDA is computed by adding net income, interest expense, the Company's portion of interest expense from unconsolidated entities, income taxes, depreciation expense, amortization expense, extraordinary expenses and cash distributions paid by unconsolidated entities and deducting extraordinary income, equity in income from unconsolidated entities and the Company's portion of depreciation from unconsolidated entities. A reconciliation of Funds From Operations to EBITDA is as follows (in thousands):
PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS) YEAR ENDED DECEMBER 31, THROUGH ---------------------------------- DECEMBER 31, 1997 1996 1995 1994 ---- ---- ---- ---- Funds From Operations .................................. $ 129,815 $ 77,141 $ 20,707 $ 4,905 Add back: Interest expense .................................. 28,792 9,803 2,004 109 Interest from unconsolidated entities ............. 5,896 819 Amortization expense .............................. 1,110 592 158 Cash distributions from unconsolidated entities ... 4,211 1,954 Deduct: Equity in income from unconsolidated entities ..... (6,963) (2,010) (513) Depreciation from unconsolidated entities ......... (9,365) (1,716) (153) --------- --------- --------- --------- EBITDA ................................................. $ 153,496 $ 86,583 $ 22,203 $ 5,014 ========= ========= ========= =========
(4) For purpose of computing the ratio of earnings to fixed charges, earnings consist of net income plus fixed charges, excluding capitalized interest, and fixed charges consist of interest, whether expensed or capitalized, and amortization of loan costs. 8 9 INITIAL HOTELS SELECTED COMBINED HISTORICAL FINANCIAL DATA (UNAUDITED, IN THOUSANDS)
JANUARY 1, 1994 THROUGH YEAR ENDED JULY 27, 1994 DECEMBER 31, 1993 ------------- ----------------- Statement of Operations Data: Suite revenue .................................... $21,884 $33,550 Other revenue .................................... 1,307 2,002 ------- ------- Total revenue .................................... 23,191 35,552 Hotel expenses ................................... 15,238 22,048 Depreciation ..................................... 2,325 4,092 Interest expense ................................. 3,446 5,437 Other corporate expenses ......................... 620 3,260 ------- ------- Net income ....................................... $ 1,562 $ 715 ======= =======
FELCOR HOTELS SELECTED COMBINED HISTORICAL FINANCIAL DATA (IN THOUSANDS)
JANUARY 1, 1994 THROUGH YEAR ENDED JULY 27, 1994 DECEMBER 31, 1993 ------------- ----------------- Statement of Operations Data: Suite revenue .................................... $21,884 $17,866 Other revenue .................................... 1,307 1,092 ------- ------- Total revenue .................................... 23,191 18,958 Hotel expenses ................................... 15,238 12,042 Depreciation ..................................... 2,325 1,761 Interest expense ................................. 3,446 2,822 Other corporate expenses ......................... 620 1,590 ------- ------- Net income ....................................... $ 1,562 $ 743 ======= =======
E-5 HOTELS SELECTED COMBINED HISTORICAL FINANCIAL DATA (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1993 ----------------- Statement of Operations Data: Suite revenue ......................................... $ 15,684 Other revenue ......................................... 910 -------- Total revenue ......................................... 16,594 Hotel expenses ........................................ 10,006 Depreciation .......................................... 2,331 Interest expense ...................................... 2,615 Other corporate expenses .............................. 1,670 -------- Net (loss) ............................................ $ (28) ========
9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL At December 31, 1997, the Operating Partnership owned interests in 73 hotels with an aggregate of 17,933 suites/rooms. For additional background 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 Suites Limited Partnership appearing elsewhere herein. The principal factors affecting the Company's results of operations are continued growth in the number of hotels through acquisitions and improvements in the suite revenues measured by RevPAR. Improvements in suite revenue significantly impacts the Company because the Company's principal source of revenue is lease payments by the Lessee under the Percentage Leases. The Percentage Leases are computed as a percentage of suite revenues, food and beverage revenues and food and beverage rents of the Hotels. The portion of the Percentage Lease revenue derived from suite revenues was approximately 97% for each of the three years ended December 31, 1997, 1996 and 1995. In 1997 the Company acquired interests in 30 hotels at a gross investment of approximately $700 million. The acquired hotels included 12 Embassy Suites, 11 Doubletree Guest Suites and seven Sheraton hotels. The Company's 43 hotels owned at both December 31, 1997 and 1996, which reflect the effect of the Company's ownership and management of strategic partners, produced outstanding results with RevPAR increasing 12.9% over 1996. The largest portion of this increase came from the 18 former Crown Sterling Suites hotels which continued their trend of improved RevPAR throughout 1997, achieving a RevPAR of $85.01 in 1997 compared to $70.05 for 1996, an increase of approximately 21.4%. The Company attributes this dramatic increase to the renovation and repositioning of these hotels in 1996 and early 1997. The Operating Partnership's growth has been financed though unsecured debt, preferred units and equity contributions from FelCor. The Company's market capitalization at December 31, 1997 totaled approximately $2.1 billion, an increase of 75% over December 31, 1996. During 1997 FelCor issued to the public approximately $450 million of common stock and contributed the proceeds to the Operating Partnership, and the Operating Partnership completed a private placement of $300 million of long-term unsecured notes. Actual historical results of operations for the years ended December 31, 1997, 1996 and 1995 are summarized as follows (in millions, except percentages and hotel counts):
PERCENTAGE CHANGE ----------------- 1997 1996 1995 97 VS 96 96 VS 95 ---- ---- ---- -------- -------- Hotels ownership interests at year end 73 43 20 69.8% 115.0% Revenues ............................. $ 176.7 $ 100.9 $ 26.0 75.1% 288.1% Income before extraordinary charge ... $ 69.7 $ 48.9 $ 15.3 42.5% 219.6% Net income available to unitholders .. $ 57.7 $ 38.8 $ 15.3 48.7% 153.6% Funds From Operations (FFO) .......... $ 129.8 $ 77.1 $ 20.7 68.4% 272.5%
10 11 RESULTS OF OPERATIONS THE COMPANY -- ACTUAL Comparison of the Years Ended December 31, 1997 and 1996 For the years ended December 31, 1997 and 1996 the Company had total revenues of $176.7 million and $100.9 million, respectively, consisting primarily of Percentage Lease revenues of $169.1 million and $98.0 million. The increase in total revenue is primarily attributed to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of interests in 30 hotels during 1997. This increase represents nearly a 70% increase in the number of hotel interests owned by the Company. Percentage Lease revenues for the 20 hotels which were owned for all of 1997 and 1996 increased 16.5% for the year ended December 31, 1997 over the corresponding period in 1996 (an increase of $8.8 million). The increase in Percentage Lease revenues is attributable to a 10% increase in RevPAR and to the addition of 177 new suites at three existing hotels. Furthermore, RevPAR for the 43 hotels owned by the Company at December 31, 1997 and 1996 increased 12.9%. Management believes that the hotels it acquires will generally experience increases in suite revenue and RevPAR (and accordingly, provide the Company with increases in Percentage Lease revenue) after completion of renovation upgrade and possible rebranding; however, as individual hotels undergo such renovation and/or rebranding, their performance has been, and may continue to be, adversely affected by such temporary factors as suites out of service and disruptions of hotel operations. (A more detailed discussion of hotel suite revenue is contained in "The Hotels -- Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Equity in income from unconsolidated entities increased approximately $5.0 million in 1997 over the corresponding period in 1996 resulting primarily from an increase in hotels owned through unconsolidated entities from five at December 31, 1996 to 14 hotels at December 31, 1997. Total expenses increased $54.9 million in 1997 over the corresponding period in 1996 resulting primarily from increased expenses related to the acquisition of 90% to 100% interests in 21 hotels during 1997 and 19 hotels in 1996. The 21 hotels acquired in 1997 consist of 11 Doubletree Guest Suites, five Sheraton, three Embassy Suites and two Sheraton Suites hotels. The 19 hotels acquired in 1996 consist of 18 Embassy Suites hotels and one Hilton Suites hotel. As a percentage of total revenue, depreciation increased from 26.3% in 1996 to 28.8% in 1997. The relative increase in depreciation is primarily a result of capital improvements made during 1996 and 1997 and the resultant depreciation, as well as the increase of short lived assets relative to total fixed assets (short lived assets made up 9.8% of fixed assets at December 31, 1997 and 9.0% at December 31, 1996). General and administrative expenses and taxes, insurance and other remained relatively constant as a percentage of total revenue in 1997 and 1996. Interest expense increased as a percentage of total revenue from 9.7% in 1996 to 16.3% in 1997. This relative increase in interest expense is attributed to the increased use of debt to finance acquisitions and renovations. Debt as a percentage of total assets increased from 24.5% at December 31, 1996 to 28.6% at December 31, 1997. Comparison of the Years Ended December 31, 1996 and 1995 For the years ended December 31, 1996 and 1995, the Company had total revenues of $100.9 million and $26.0 million, respectively, consisting primarily of Percentage Lease revenues of $98.0 million and $23.8 million. The increase in total revenue is primarily attributable to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of interests in 23 hotels during 1996. Percentage Lease revenues for the seven hotels which were owned for all of 1996 and 1995 increased 13.9% for the year ended December 31, 1996 over the corresponding period in 1995 (an increase of $2.7 million). Furthermore, RevPAR for the 20 hotels owned by the Company at both December 31, 1996 and 1995 increased 8.1%. 11 12 Total expenses increased $41.4 million in 1996 over the corresponding period in 1995 resulting primarily from increased expenses related to the additional hotels acquired in 1996 and 1995. As a percentage of total revenues, depreciation increased from 20% in 1995 to 26% in 1996. The relative increase in depreciation is primarily a result of capital expenditures made during 1995 and 1996 and the resultant depreciation as well as the increase of short lived assets relative to total fixed assets (short lived assets made up 84.7% of total fixed assets at December 31, 1996 and 81.7% at December 31, 1995. Taxes, insurance and other increased as a percentage of total revenue from 10.0% in 1995 to 14.0% in 1996. In many instances upon purchase of a hotel, the hotel is reassessed for tax purposes resulting in increased property tax expenses. Interest expense increased as a percentage of total revenue from 8% in 1995 to 10% in 1996. This relative increase is attributed to the increased use of debt to finance acquisitions, the extensive renovations in 1996 and the assumption of capital leases, for hotels purchased in late 1995 and during 1996. FUNDS FROM OPERATIONS The Company considers Funds From Operations to be a key measure of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance and liquidity. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines Funds From Operations as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus; real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that Funds From Operations is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. The Company computes Funds From Operations in accordance with standards established by NAREIT which may not be comparable to Funds From Operations reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. Funds From Operations does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company 's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. Funds From Operations may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. 12 13 The following table details the computation of Funds From Operations (in thousands):
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ---- ---- ---- FUNDS FROM OPERATIONS (FFO): Net income ........................................................... $ 69,467 $ 46,527 $ 15,322 Add back: Extraordinary charge from write off of deferred financing fees ... 185 2,354 Depreciation ...................................................... 50,798 26,544 5,232 Depreciation for unconsolidated entities .......................... 9,365 1,716 153 -------- -------- -------- FFO .................................................................. $129,815 $ 77,141 $ 20,707 ======== ======== ======== Weighted average number of units outstanding (a) ..................... 39,157 29,306 8,989
(a) Weighted average number of units are computed including dilutive options, unvested restricted stock grants and assuming conversion of preferred units to units. Included in the Funds From Operations described above is the Company's share of FFO from its interest in fourteen unconsolidated entities at December 31, 1997, five unconsolidated entities at December 31, 1996 and one unconsolidated partnership at December 31, 1995. The FFO contribution from these unconsolidated entities was derived as follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ---- ---- ---- Statement of operations information: Percentage Lease revenue ....................... $ 47,720 $ 9,974 $ 1,420 Depreciation ................................... $ 15,611 $ 1,543 $ 141 Taxes, insurance and other ..................... $ 5,667 $ 915 $ 229 Interest expense ............................... $ 11,791 $ 1,638 Net income ..................................... $ 17,044 $ 4,366 $ 1,050 50% of net income attributable to the Company... $ 8,522 $ 2,183 $ 525 Amortization of cost in excess of book value.... (1,559) (173) (12) -------- -------- -------- Equity in income from unconsolidated entities... 6,963 2,010 513 Add back: Depreciation ........................ 7,806 1,543 141 Amortization of excess cost.......... 1,559 173 12 -------- -------- -------- FFO contribution of unconsolidated entities..... $ 16,328 $ 3,726 $ 666 ======== ======== ========
13 14 THE HOTELS -- ACTUAL The following table sets forth historical suite revenue, occupancy, ADR and RevPAR and the percentage changes therein between the periods presented for the 73 hotels which the Company had an ownership interest at December 31, 1997. This information is presented regardless of ownership. Except as otherwise noted below, each of the hotels is operated as an Embassy Suites hotel.
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 Variance ---- ---- -------- Suite Revenue (in thousands): Original Hotels (13) ................................................ $ 85,944 $ 78,622 9.3% CSS Hotels (18) ..................................................... 143,012 118,300 20.9% 1996 Acquisitions (12) .............................................. 90,162 83,920 7.4% ----------- ----------- Subtotal -- Hotels owned at both December 31, 1997 and 1996 (43) .... 319,118 280,842 13.6% 1997 Acquisitions (30) .............................................. 217,662 210,570 3.4% ----------- ----------- Total (73) ........................................................... $ 536,780 $ 491,412 9.2% =========== =========== Occupancy: Original Hotels ..................................................... 76.1% 76.5% (0.5)% CSS Hotels .......................................................... 73.4% 67.8% 8.3% 1996 Acquisitions ................................................... 74.0% 73.0% 1.4% Subtotal -- Hotels owned at both December 31, 1997 and 1996 ......... 74.3% 71.6% 3.8% 1997 Acquisitions .................................................... 71.8% 73.1% (1.8)% Total ................................................................ 73.2% 72.2% 1.4% Average Daily Rate (ADR): Original Hotels ..................................................... $109.35 $102.82 6.4% CSS Hotels .......................................................... $115.85 $103.31 12.1% 1996 Acquisitions ................................................... $118.61 $111.54 6.3% Subtotal -- Hotels owned at both December 31, 1997 and 1996 ......... $114.77 $105.50 8.8% 1997 Acquisitions .................................................... $109.20 $103.69 5.3% Total ................................................................ $112.44 $104.72 7.4% Revenue Per Available Suite (RevPAR): Original Hotels ..................................................... $83.17 $78.65 5.7% CSS Hotels .......................................................... $85.01 $70.05 21.4% 1996 Acquisitions ................................................... $87.73 $81.46 7.7% Subtotal -- Hotels owned at both December 31, 1997 and 1996 ......... $85.25 $75.52 12.9% 1997 Acquisitions .................................................... $78.39 $75.80 3.4% Total ................................................................ $82.33 $75.64 8.8%
ORIGINAL HOTELS: Flagstaff, AZ, Jacksonville, FL, Orlando (North), FL, Orlando (South), FL, Brunswick, GA, Chicago - Lombard, IL, New Orleans, LA, Boston - Marlborough, MA, Tulsa, OK, Nashville, TN, Corpus Christi, TX, Dallas (Love Field), TX, Dallas (Park Central), TX. CSS HOTELS: Birmingham, AL, Phoenix (Camelback), AZ, Anaheim, CA, El Segundo (LAX South), CA, Milpitas, CA, Napa, CA, Oxnard (Mandalay Beach), CA, San Francisco (Airport North), CA, San Francisco (Airport South), CA, Boca Raton, FL(1), Deerfield Beach, FL, Ft. Lauderdale, FL, Miami, FL, Tampa (Busch Gardens), FL(1), Baton Rouge, LA, Minneapolis (Airport), MN, Minneapolis (Downtown), MN, St. Paul, MN. 1996 ACQUISITIONS: San Rafael (Marin County), CA, Avon (Beaver Creek), CO, Boca Raton, FL, Atlanta (Buckhead), GA, Deerfield, IL, Indianapolis (North), IN, Lexington, KY(2), Charlotte, NC, Parsippany, NJ, Piscataway, NJ, Cleveland, OH, Myrtle Beach (Kingston Plantation), SC(3). 1997 Acquisitions: Phoenix (Crescent), AZ(3), Covina, CA, Dana Point, CA(1), Los Angeles (LAX North), CA, Lake Buena Vista (Disney World), FL(1), Tampa (Rocky Point), FL(1), Atlanta (Airport), GA(4), Atlanta (Galleria)(3), GA, Atlanta (Perimeter Center), GA, Chicago (O'Hare), IL(4), Overland Park, KS, Baltimore, MD(1), Troy, MI(1), Bloomington, MN(1), 14 15 Kansas City (Country Club Plaza), MO, Raleigh, NC, Raleigh/Durham, NC(1), Omaha, NE(1), Secaucus, NJ, Syracuse, NY, Dayton, OH(1), Philadelphia (Society Hill), PA(3), Nashville (Airport), TN(1), Austin (Airport North), TX, Austin (Downtown), TX(1), Dallas (Market Center), TX, Dallas (Park Central), TX (3), San Antonio (Airport), TX, San Antonio (Northwest), TX, Burlington, VT (3). (1) Operating as a Doubletree Guest Suites hotel. (2) Operating as a Hilton Suites hotel. (3) Operating as a Sheraton hotel. (4) Operating as a Sheraton Suites hotel. Comparison of the Hotels' Suite Revenue for the Years Ended December 31, 1997 and 1996 Pro forma suite revenues for the 73 hotels that the Company had ownership interests at December 31, 1997, increased 9.2% for the year ended December 31, 1997 over the corresponding period in 1996. The Company owned 43 hotels at both December 31, 1997 and 1996, these hotels experienced increased room revenue of 13.6% for 1997 compared to 1996. Within this group of 43 hotels are the Original Hotels, the CSS Hotels and the 1996 Acquisition Hotels. The Original Hotels consist of hotels purchased from the inception of the Company in July 1994 through September 1995. The Original Hotels increased suite revenue by 9.3% for the year ended December 31, 1997 compared to 1996. ADR increased 6.4% to $109.35 and Occupancy declined 0.5% from 76.5% to 76.1%. The decrease in occupancy was principally attributed to room additions at three of the Original Hotels, where the Company added 177 suites during 1996 and 1997. This resulted in an increase of RevPAR of 5.7% over 1996 RevPAR. The CSS Hotels are made up of 18 former Crown Sterling Suites Hotels which the Company acquired in late 1995 and early 1996. The Company spent more than $50 million renovating these hotels during 1996 and completed the renovation in early 1997. The CSS Hotels experienced increases in revenue of 20.9%, for the year ended December 31, 1997 compared to 1996. Occupancy increased by 8.3% to 73.4% and ADR increased 12.1% to $115.85. The Company attributes the dramatic increase in revenues to the renovation and repositioning of these hotels. The 1996 Acquisition Hotels, which includes 12 hotels, had a 7.4% increase in suite revenue for the year ended December 31, 1997 compared to the corresponding period in 1996. Occupancy increased 1.4% to 74.0% and ADR increased 6.3% to $118.61. These hotels experienced increases in revenue and Occupancy in the midst of renovation and upgrading. The changes in RevPAR ranges from a decrease of 1.6% in Atlanta, GA (resulting from a comparison to 1996 revenues when the Summer Olympics were held in Atlanta) to increases of 150% at Cleveland, OH. Management believes that the 43 hotels owned at both December 31, 1997 and 1996 benefitted from capital improvements and upgrades, rebranding in some instances, strong professional management and detailed asset management. The 1997 Acquisition Hotels, which includes 30 hotels, experienced suite revenue increases of 3.4% during 1997. Occupancy at these hotels decreased 1.8% from 73.1% to 71.8% while ADR increased 5.3% to $109.20. Since these hotels were acquired during 1997, the impact of the Company's ownership programs were not fully realized. Management believes that its renovation and upgrading, and professional asset management will enable this group of hotels to experience positive operating results in the future. 15 16 RENOVATIONS AND CAPITAL EXPENDITURES The Company believes that one factor that differentiates it from other hotel companies is its commitment to make capital expenditures at the Hotels to improve their performance and maintain the Company's high standards. The Company approaches this in four different ways: (i) an aggressive renovation and upgrade program as hotels are acquired to bring them up to the Company's standards, (ii) contributions of at least 4% of annual suite/room revenue (on a cumulative basis) for capital improvements (the "Capital Reserve"), (iii) insuring that the Lessee maintains an aggressive maintenance and repair program for the Hotels and (iv) after the initial renovation/upgrade, construction of additional suites, meeting rooms and public areas where the market conditions indicate. Renovation/Upgrade Program In 1997 the Company spent approximately $22.0 million on renovation and upgrades related to 35 hotels acquired in 1996 and 1997. The Company has committed to spend an additional $36.9 million related to renovation and upgrades for the Hotels owned at December 31, 1997 during fiscal 1998. Capital Reserve It is the Company's policy to contribute a minimum of 4% of suite/room revenue to the Capital Reserve account to provide funds for necessary ongoing capital improvements after the initial renovation or upgrade. During 1997 the Company contributed approximately $18.9 million (4% of suite/room revenue) to the Capital Reserve and approximately $19.3 million was spent on such improvements in addition to the renovation and upgrade expenditures referenced above. Repair and Maintenance During the year ended December 31, 1997 the Lessee spent $26.2 million on routine repair and maintenance. This represents approximately 5.7% of hotel suite/room revenue. Room Additions During 1997 the Company completed construction in July on a net of 129 suites, additional meeting rooms and other public area upgrades at its Boston-Marlborough, Massachusetts Embassy Suites hotel at a cost of approximately $16.0 million. Additionally, during 1997 the Company started construction of an aggregate of 134 suites at its Jacksonville and Orlando (North), Florida Embassy Suites hotels which are to open in the first quarter of 1998, at an aggregate projected cost of $10.2 million. At December 31, 1997, an aggregate of approximately $7.4 million had been spent on these two hotels. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including repayments of indebtedness is cash flow from the Percentage Leases. For the year ended December 31, 1997, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $97.5 million and Funds From Operations (as previously defined) was $129.8 million. The Lessee's obligations under the Percentage Leases are unsecured. The Lessee's ability to make lease payments under the Percentage Leases and the Company's liquidity, including repayments of indebtedness, are substantially dependent on the ability of the Lessee to generate sufficient cash flow from the operation of the Hotels. At December 31, 1997, the Lessee had paid all amounts then due the Company under the Percentage Leases. During 1997 and 1996, the Lessee experienced net losses of approximately $2.7 million and $5.4 million, respectively, and, at December 31, 1997, had a cumulative shareholders' deficit of approximately $9.1 million. The 16 17 losses in 1997 and 1996 resulted primarily from the one-time costs of converting the CSS Hotels to the Embassy Suites and Doubletree Guest Suites brands and the substantial number of suite nights lost during the year due to renovation. It is anticipated that a substantial portion of any future profits of the Lessee will be retained until a positive shareholder's equity is restored. It is anticipated that the Lessee's future earnings will be sufficient to enable it to continue to make its lease payments under the Percentage Leases when due. Messrs. Feldman and Corcoran and the managers and other equity owners of certain of the Hotels have agreed, directly or through their affiliates, to make loans to the Lessee of up to an aggregate of approximately $16.0 million, to the extent necessary to enable the Lessee to pay rent and other obligations due under the respective Percentage Leases relating to a total of 34 of the Hotels. Amounts so borrowed by the Lessee, if any, will be subordinate in right of repayment to the prior payment in full of rent and other obligations due under the Percentage Leases for such Hotels. No loans were outstanding under such agreements at December 31, 1997. The Company intends to acquire additional hotels and may incur indebtedness to make such acquisitions or to meet distribution requirements imposed on a REIT under the Internal Revenue Code, to the extent that working capital and cash flow from the Company's investments are insufficient to make such distributions. At December 31, 1997, the Company had a $550 million unsecured revolving credit facility from a group of lenders co-arranged by The Chase Manhattan Bank and Wells Fargo Bank, National Association ("Line of Credit"). The Line of Credit hasa term ending on October 1, 2000. Borrowings under the Line of Credit bear interest, at the Company's option, (i) at the higher of the base rate announced from time to time by The Chase Manhattan Bank plus an applicable margin of 0% to 0.25%,or (ii) at a Eurodollar rate based upon the 30, 60, or 90 day or 6-month LIBOR rate plus an applicable margin of 1.0% to 1.75%. The applicable margin varies depending upon the Company's long-term senior unsecured actual or implied debt rating and its leverage ratio and, at December 31, 1997, was 0.00% in the case of Base Rate borrowings and 1.4% in the case of Eurodollar Rate borrowings. The Company paid interest on its Line of Credit at the weighted average interest rate of 7.6% for the year ended December 31, 1997. Up to 10% of the amount available under the Line of Credit may be used for general corporate or working capital purposes. The total amount available under the Line of Credit is limited to 50% of the aggregate value of the Company's eligible hotels, which generally include hotels that are unencumbered. At December 31, 1997, the aggregate amount borrowed under the Line of Credit was $136 million. Assuming the Company purchases qualifying hotel assets, it would have up to an additional $414 million available under the existing Line of Credit. The agreements governing the Line of Credit also contain various negative and affirmative covenants, including limitations on total indebtedness, total secured indebtedness and cash distributions, as well as obligations to maintain a certain minimum tangible net worth and certain interest and debt service coverage ratios. At December 31, 1997, the Company was in compliance with all such covenants. The Company has a $25 million renovation loan facility which was used to fund a portion of the renovation cost of the CSS Hotels that were converted to Embassy Suites hotels. The facility is guaranteed by Promus, bears interest at LIBOR plus 45 basis points, requires quarterly principal payments of $1.25 million beginning in June 1999 and matures in June 2000. At December 31, 1997, the Company had drawn the full $25 million under this loan facility. On October 1, 1997 the Company completed the private placement of $300 million in aggregate principal amount of its long term senior unsecured notes. The notes were issued in two maturities, consisting of $175 million of 7 3/8% senior notes due 2004 priced at 99.489% to yield 7.47% and $125 million of 7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%. The $300 million senior notes are discounted and accrete over the maturity of the notes (7 years for the $175 million senior notes and 10 years for the $125 million senior notes) using the interest method. On February 12, 1998 the Company announced an offer to exchange these notes for new notes which were identical in amount and terms except that the new notes have been registered under the Securities Act. The Company expects to complete the exchange for the new notes by March 31, 1998. At December 31, 1997, the Company had $17.5 million of cash and cash equivalents and had utilized $136 million under its $550 million unsecured revolving Line of Credit. 17 18 To provide for additional financing flexibility FelCor has approximately $89.1 million of common stock, preferred stock, debt securities and/or common stock warrants available for offerings under a shelf registration statement declared effective in 1997. In February 1998 FelCor registered an additional $1 billion in common stock, preferred stock, depository shares, debt securities and/or common stock warrants pursuant to a new shelf registration statement. The Company's cash flow from financing activities of approximately $600.1 million for the year ended December 31, 1997 resulted from the following: contributions from FelCor of $448.6 million; net repayments on the Company's Line of Credit of $57.7 million; net proceeds from the private placement of $300.0 million in senior unsecured notes of $290.9 million; and distributions paid to preferred unitholders and unitholders of $81.7 million. INFLATION Operators of hotels, in general, possess the ability to adjust room rates periodically to reflect the effects of inflation. Competitive pressures may, however, limit the Lessee's ability to raise room rates. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize other cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. On a pro forma basis, suite revenue by quarter for the years ended December 31, 1997 and 1996 is as follows (in millions, except percentages):
1997 1996 -------------------------- -------------------------- SUITE PERCENTAGE SUITE PERCENTAGE REVENUE OF TOTAL REVENUE OF TOTAL --------- ------------ -------- ----------- First Quarter ....... $132.7 24.7% $123.1 25.1% Second Quarter ...... 139.0 25.9 124.1 25.2 Third Quarter ....... 136.6 25.5 125.6 25.6 Fourth Quarter ...... 128.5 23.9 118.6 24.1 ------ ------ ------ ----- Total ............... $536.8 100.0% $491.4 100.0% ====== ====== ====== =====
The above schedule of quarterly suite revenues, may not be indicative of future seasonality trends because of the impact of suites out of service due to renovation, the location of hotels acquired in the future or other market factors. THE YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer program that has date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has recently assessed its internal computer systems and believes that the current systems used will properly utilize dates beyond December 31, 1999. The Company has been informed that companies leasing and managing the hotels owned by it are in the process of studying the Year 2000 issue, including inquiries of their vendors. Upon the completion of these studies, which is expected in late 1998, the Company will determine the extent to which it may be vulnerable to third parties' failure to remedy their Year 2000 issues and potential effects of any such failures. The Company estimates that the expense associated with the Year 2000 issue will not be material to the Company's business, operations or financial condition. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Portions of this Annual Report on Form 10-K include forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's current expectations are disclosed in conjunction with the forward looking statements included herein (the "Cautionary Disclosures"). 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 Disclosures. 18 19 RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS During 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and No. 131 "Disclosures About Segments of an Enterprise an Related Information" ("SFAS 131"), both of which are effective for fiscal years beginning after December 15, 1997. SFAS 130 specifies the presentation and disclosure requirements for reporting comprehensive income which includes those items which have been formerly reported as a component of shareholders' equity. SFAS 131 establishes the disclosure requirements for reporting segment information. The Company believes that the adoption of SFAS 130 and 131 will not have a material impact on previously reported financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included herein at pages F-1 through F-27. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 19 20 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FELCOR SUITES LIMITED PARTNERSHIP a Delaware limited partnership By: FelCor Suite Hotels, Inc. Its General Partner By: /s/ Randall L. Churchey -------------------------------- Randall L. Churchey Senior Vice President, Chief Financial Officer & Treasurer Date: May 29, 1998 20 21 FELCOR SUITES LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION FELCOR SUITES LIMITED PARTNERSHIP Report of Independent Accountants .................................................................. F-2 Consolidated Balance Sheets - December 31, 1997 and 1996 ........................................... F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 ......... F-4 Consolidated Statements of Partners' Capital for the years ended December 31, 1997, 1996 and 1995 .. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ......... F-6 Notes to Consolidated Financial Statements ......................................................... F-7 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997 .................... F-26
F-1 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Suite Hotels, Inc. We have audited the accompanying consolidated financial statements and the financial statement schedule of FelCor Suites Limited Partnership listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of FelCor Suite Hotels, Inc.'s (the "Company") management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FelCor Suites Limited Partnership as of December 31, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Dallas, Texas January 20, 1998 except for Note 13 as to which the date is February 17, 1998 F-2 23 FELCOR SUITES LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
ASSETS 1997 1996 ---------- ---------- Investment in hotels, net of accumulated depreciation of $87,400 in 1997 and $36,718 in 1996 .................................... $1,489,764 $ 899,691 Investment in unconsolidated entities ..................................... 132,991 59,867 Cash and cash equivalents ................................................. 17,543 7,793 Due from Lessee ........................................................... 18,908 5,526 Deferred expenses, net of accumulated amortization of $1,987 in 1997 and $364 in 1996 ....................................... 10,593 3,235 Other assets .............................................................. 3,565 2,676 ---------- ---------- Total assets ......................................................... $1,673,364 $ 978,788 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Debt, net of discount of $1,855 at December 31, 1997 ...................... $ 465,726 $ 226,550 Distributions payable ..................................................... 24,671 16,090 Accrued expenses and other liabilities .................................... 11,331 5,235 Capital lease obligations ................................................. 11,093 12,875 Minority interest in other partnerships ................................... 8,594 ---------- ---------- Total liabilities .................................................... 521,415 260,750 Commitments and contingencies (Notes 5 and 8) Redeemable units, at redemption value ..................................... 102,933 98,542 Preferred units ........................................................... 151,250 151,250 Partners' capital ......................................................... 897,766 468,246 ---------- ---------- Total liabilities and partners' capital .............................. $1,673,364 $ 978,788 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-3 24 FELCOR SUITES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1997, 1996 and 1995 (in thousands, except per unit data)
1997 1996 1995 --------- --------- --------- Revenues: Percentage lease revenue ........................................ $ 169,114 $ 97,950 $ 23,787 Equity in income from unconsolidated entities ................... 6,963 2,010 513 Other revenue ................................................... 574 984 1,691 --------- --------- --------- Total revenues ..................................... 176,651 100,944 25,991 --------- --------- --------- Expenses: General and administrative ...................................... 3,743 1,819 870 Depreciation .................................................... 50,798 26,544 5,232 Taxes, insurance and other ...................................... 23,093 13,897 2,563 Interest expense ................................................ 28,792 9,803 2,004 Minority interest in other partnerships ......................... 573 --------- --------- --------- Total expenses ..................................... 106,999 52,063 10,669 --------- --------- --------- Income before extraordinary charge ................................... 69,652 48,881 15,322 Extraordinary charge from write off of deferred financing fees ....... 185 2,354 --------- --------- --------- Net income ........................................................... 69,467 46,527 15,322 Preferred distributions .............................................. 11,797 7,734 --------- --------- --------- Net income applicable to unitholders ................................. $ 57,670 $ 38,793 $ 15,322 ========= ========= ========= Per unit data: Basic: Net income applicable to unitholders before extraordinary charge ................................ $ 1.70 $ 1.59 $ 1.72 Extraordinary charge ............................................ (0.01) (0.09) --------- --------- --------- Net income applicable to unitholders ............................ $ 1.69 $ 1.50 $ 1.72 ========= ========= ========= Weighted average number of units outstanding .................... 34,126 25,809 8,927 ========= ========= ========= Diluted: Net income applicable to unitholders before extraordinary charge ................................ $ 1.68 $ 1.58 $ 1.70 Extraordinary charge ............................................ (0.01) (0.09) --------- --------- --------- Net income applicable to unitholders ............................ $ 1.67 $ 1.49 $ 1.70 ========= ========= ========= Weighted average number of units outstanding .................... 34,467 26,004 8,989 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 25 FELCOR SUITES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER UNIT DATA) Balance, December 31, 1994 ............. $ 61,885 Contributions .......................... 402,554 Distributions .......................... (17,593) Allocations to redeemable units ........ (16,735) Net income ............................. 15,322 --------- Balance, December 31, 1995 ............. 445,433 Contributions .......................... 44,483 Distributions .......................... (57,892) Allocations to redeemable units ........ (10,304) Net income ............................. 46,527 --------- Balance, December 31, 1996 ............. 468,246 Contributions .......................... 449,604 Distributions .......................... (90,261) Allocations from redeemable units ...... 710 Net income ............................. 69,467 --------- Balance, December 31, 1997 ............. $ 897,766 =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 26 FELCOR SUITES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net income ......................................................... $ 69,467 $ 46,527 $ 15,322 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation .................................................... 50,798 26,544 5,232 Amortization of deferred financing fees and organization costs... 1,468 554 228 Amortization of unearned officers' and directors' compensation... 1,017 506 158 Equity in income from unconsolidated entities ................... (6,963) (2,010) (513) Extraordinary charge for write off of deferred financing fees.... 185 2,354 Fully vested officer stock grant ................................ 108 Minority interest in other partnerships ......................... 573 Changes in assets and liabilities: Due from Lessee ................................................. (13,382) (3,130) (1,137) Deferred financing fees ......................................... (8,825) (4,484) (1,072) Deferred costs and other assets ................................. (1,175) 353 (2,064) Accrued expenses and other liabilities .......................... 4,315 280 741 --------- --------- --------- Net cash flow provided by operating activities ........ 97,478 67,494 17,003 --------- --------- --------- Cash flows from investing activities: Acquisition of hotels ........................................... (574,100) (365,907) (219,164) Prepayments under purchase agreements ........................... (21,701) Acquisition of unconsolidated entities .......................... (65,271) (43,424) (13,166) Improvements and additions to hotels ............................ (52,700) (71,051) (5,166) Cash distributions from unconsolidated entities ............... 4,211 1,954 --------- --------- --------- Net cash flow used in investing activities .......... (687,860) (478,428) (259,197) --------- --------- --------- Cash flows from financing activities: Proceeds from borrowings ........................................ 679,144 303,350 128,600 Repayment of borrowings ......................................... (445,900) (193,954) (129,850) Contributions ................................................... 448,586 37,980 423,628 Proceeds from sale of preferred units ........................... 151,250 Distributions paid to unitholders ............................... (69,901) (41,936) (14,481) Dividends paid to preferred unitholders ......................... (11,797) (4,784) --------- --------- --------- Net cash flow provided by financing activities ....... 600,132 251,906 407,897 --------- --------- --------- Net change in cash and cash equivalents ................................. 9,750 (159,028) 165,703 Cash and cash equivalents at beginning of years ......................... 7,793 166,821 1,118 --------- --------- --------- Cash and cash equivalents at end of years ............................... $ 17,543 $ 7,793 $ 166,821 ========= ========= ========= Supplemental cash flow information - interest paid ...................... $ 21,414 $ 9,168 $ 1,467 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 27 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION FelCor Suites Limited Partnership (the "Operating Partnership") and its subsidiaries at December 31, 1997, owned interests in 73 hotels with an aggregate of 17,933 suite/rooms in 27 states (collectively the "Hotels"). The sole general partner of the Operating Partnership is FelCor Suite Hotels, Inc. ("FelCor"), a self-administered equity real estate investment trust ("REIT") that at December 31, 1997 owned a 92.7% general partner interest in the Operating Partnership. Fifty-two of the Hotels are operated as Embassy Suites(R) hotels (of which 28 were converted from other brands), 13 are operated as Doubletree Guest Suites(R) hotels, seven are operated as Sheraton(R) hotels (five of which are upscale, full-service traditional non-suite hotels) and one is operated as a Hilton Suites(R) hotel. Sixty-three of the Hotels are managed by subsidiaries of Promus Hotel Corporation ("Promus") which, following its recent merger with Doubletree Corporation, includes Doubletree Hotel Corporation and its subsidiaries ("Doubletree"). Promus is the largest operator of all-suite, full-service hotels in the United States. Of the remaining Hotels, seven are managed by a subsidiary of ITT Sheraton Corporation ("Sheraton") and three are managed by independent management companies. At December 31, 1997, the Operating Partnership was the owner of the largest number of Embassy Suites hotels in the world. The following table provides certain information regarding the Hotels acquired through December 31, 1997:
NUMBER OF HOTELS NUMBER OF ACQUIRED SUITES/ROOMS ---------------- ------------ 1994 7 1,730 1995 13 2,649 1996 23 5,769 1997 1st Quarter 15 3,446 2nd Quarter 9 2,715 3rd Quarter 4 1,000 4th Quarter 2 447 ------ ------ 73 17,756 ====== Additional suites constructed 177 ------ 17,933 ======
The Operating Partnership leases all of the Hotels to DJONT Operations, L.L.C. or a consolidated subsidiary thereof (collectively the "Lessee") under operating leases providing for the payment of percentage rent (the "Percentage Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive Officer of FelCor, respectively, beneficially own a 50% voting equity interest in the Lessee. The remaining 50% non-voting equity interest is beneficially owned by the children of Charles N. Mathewson, a director of and major initial investor in the Operating Partnership. The Lessee has entered into management agreements pursuant to which, at December 31, 1997, 63 of the Hotels were managed by subsidiaries of Promus Hotel Corporation ("Promus"), seven of the Hotels are managed by subsidiaries of ITT Sheraton Corporation ("Sheraton"), and three of the Hotels are managed by two independent management companies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The consolidated financial statements include the accounts of the Operating Partnership and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-7 28 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Fair Value of Financial Instruments -- Statement of Financial Accounting Standards ("SFAS") 107 requires all entities to disclose the fair value of certain financial instruments in their financial statements. Accordingly, The Operating Partnership reports the carrying amount of cash and cash equivalents, amounts due from the Lessee, accounts payable and accrued expenses at cost which approximates fair value due to the short maturity of these instruments. The carrying amount of The Operating Partnership's borrowings approximates fair value due to the Operating Partnership's ability to obtain such borrowings at comparable interest rates. Investment in Hotels -- Hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives ranging from 31-40 years for buildings and improvements and 5 to 7 years for furniture, fixtures and equipment. The Operating Partnership periodically reviews the carrying value of each Hotel to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Operating Partnership will prepare a projection of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel based on discounted future cash flows. The Operating Partnership does not believe that there are any factors or circumstances indicating impairment of any of its investment in Hotels. Maintenance and repairs are charged to operations as incurred; major renewals and betterments are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from the accounts, and the related gain or loss is included in operations. Investment in Unconsolidated Entities --The Operating Partnership owns a 50% interest in various partnerships or limited liability companies in which the partners jointly make all material decisions concerning the business affairs and operations. Accordingly, the Operating Partnership does not control the entities and carries its investment in unconsolidated entities at cost, plus its equity in net earnings, less distributions received since the date of acquisition. Equity in net earnings is being adjusted for the straight-line amortization, over a 40 year period, of the difference between the Operating Partnership's cost and its proportionate share of the underlying net assets at date of acquisition. Cash and Cash Equivalents -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Deferred Expenses -- Deferred expenses are recorded at cost and consist of the following at December 31, 1997 and 1996 (in thousands):
1997 1996 ---- ---- Organization costs......... $ 349 $ 349 Deferred financing fees.... 12,231 3,250 -------- -------- 12,580 3,599 Accumulated amortization... (1,987) (364) -------- -------- $ 10,593 $ 3,235 ======== ========
Amortization of organization costs is computed using the straight-line method over three to five years. Amortization of deferred financing fees is computed using the interest method over the maturity of the notes. Revenue Recognition -- Percentage lease revenue is recognized when earned from the Lessee under the Percentage Lease agreements. The Lessee is in compliance with its obligations under the Percentage Leases. F-8 29 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Net Income Per Unit -- The Operating Partnership adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" in the fourth quarter of 1997, which established new standards for computing and presenting earnings per unit and requires restatement of prior years' comparative amounts. Basic earnings per unit have been computed by dividing net income by the weighted average number of units outstanding. Diluted earnings per unit have been computed by dividing net income by the weighted average number of units and equivalents outstanding. Unit equivalents represent units issuable upon assumed exercise of stock options. Net income applicable to unitholders before extraordinary charges for both basic earnings per unit and diluted earnings per unit includes a deduction for preferred distributions of $11.8 million and $7.7 million for the years ended December 31, 1997 and 1996 respectively. Weighted average number of units outstanding used in the computation of diluted earnings per unit includes the dilutive effect of employee stock options and unvested officer restricted stock grants of 341 thousand, 195 thousand and 62 thousand units at December 31, 1997, 1996 and 1995 respectively. At December 31, 1997 and 1996 the Operating Partnership's convertible preferred units if converted to common shares would be anti-dilutive, accordingly the convertible preferred units are not assumed to be converted in the computation of diluted earnings per unit. Distributions and Dividends -- The Operating Partnership pays regular quarterly distributions on its units. Additionally, the Operating Partnership pays regular quarterly distribution on preferred units in accordance with its distribution requirements. Income Taxes -- No provision for income taxes is provided since all taxable income or loss or tax credits are passed through to the partners. FelCor qualifies as a real estate investment trust ("REIT") and generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to shareholders. REITs are subject to a number of organizational and operational requirements. If FelCor fails to qualify as a REIT in any taxable year, FelCor will be subject to federal income tax on its taxable income at regular corporate rates. 3. INVESTMENT IN HOTELS Investment in hotels at December 31, 1997 and 1996 consist of the following (in thousands):
1997 1996 ---- ---- Land ................................ $ 157,554 $ 89,106 Building and improvements ........... 1,257,247 744,758 Furniture, fixtures and equipment ... 147,923 77,526 Construction in progress ............ 14,440 25,019 ----------- ----------- 1,577,164 936,409 Accumulated depreciation ............ (87,400) (36,718) ----------- ----------- $ 1,489,764 $ 899,691 =========== ===========
F-9 30 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INVESTMENT IN UNCONSOLIDATED ENTITIES The Operating Partnership owned 50% interests in separate partnerships or limited liability companies owning fourteen hotels, a parcel of undeveloped land and a condominium management company at December 31, 1997, five hotels, a parcel of undeveloped land and a condominium management company at December 31, 1996 and one hotel at December 31, 1995. The Operating Partnership is accounting for its investments in these unconsolidated entities under the equity method. Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
DECEMBER 31, --------------------- 1997 1996 -------- -------- Balance sheet information: Investment in hotels ......... $256,032 $110,394 Non-recourse mortgage debt ... $138,956 $ 49,402 Equity ....................... $126,324 $ 91,156
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ------- ------- ------- Statement of operations information: Percentage lease revenue .......... $47,720 $ 9,974 $ 1,420 Net income ....................... $17,044 $ 4,366 $ 1,050
5. DEBT AND CAPITAL LEASE OBLIGATIONS Debt at December 31, 1997 and 1996 consists of the following (in thousands):
DECEMBER 31, --------------------- 1997 1996 -------- -------- Senior unsecured notes, net of discount ... $298,145 Line of Credit ............................ 136,000 $115,000 Term loan ................................. 85,000 Renovation loan ........................... 25,000 25,000 Collateralized mortgage note .............. 5,931 Other ..................................... 650 1,550 -------- -------- $465,726 $226,550
On October 1, 1997 the Operating Partnership completed the private placement of $300 million in aggregate principal amount of its long term senior unsecured notes. The notes were issued in two maturities, consisting of $175 million of 7 3/8% senior notes due 2004 priced at 99.489% to yield 7.47% and $125 million of 7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%. The discount on the $300 million senior notes accrete using the interest method over the maturity of the notes. The Operating Partnership has an unsecured line of credit facility ("Line of Credit") of up to $550 million which matures on October 1, 2000. Interest payable on borrowings under the Line of Credit is variable, determined from a ratings and leverage-based pricing matrix, and is currently set at LIBOR (5.71875% at December 31, 1997) plus 140 basis points. Additionally, the Operating Partnership is required to pay an unused commitment fee which is variable, determined from a ratings based pricing matrix, currently set at 20 basis points. The Operating Partnership paid unused commitment fees of approximately $560,000 and $164,000 during 1997 and 1996, respectively. For the years ended December 31, 1997 and 1996, the Operating Partnership paid interest on its Line of Credit at the weighted average interest rate of 7.6% and F-10 31 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED) 7.4%, respectively. Up to 10% of the amount available under the Line of Credit may be used for general corporate or working capital purposes. The total amount available under the Line of Credit is limited to 50% of the aggregate value of the Operating Partnership's eligible hotels, which generally includes hotels that are unencumbered. At December 31, 1997, the aggregate amount borrowed under the Line of Credit was $136 million. Assuming the Operating Partnership purchases qualifying hotel assets, it would have up to an additional $414 million available under the existing Line of Credit. The agreements governing the Line of Credit also contain various negative and affirmative covenants, including limitations on total indebtedness, total secured indebtedness and cash distributions, as well as obligations to maintain a certain minimum tangible net worth and certain interest and debt service coverage ratios. At December 31, 1997, the Operating Partnership was in compliance with all such covenants. The Operating Partnership has a $25 million loan facility ("Renovation Loan") which is guaranteed by Promus, bears interest at LIBOR plus 45 basis points, requires monthly interest payments, and quarterly principal payments of $1.25 million beginning June 1999 and matures in June 2000. The weighted average interest rate for 1997 and 1996 was 6.4% and 6.1%, respectively. On December 4, 1997, the Operating Partnership assumed an existing collateralized mortgage note when it acquired the Dayton, Ohio Doubletree Guest Suites hotel. The mortgage note bears interest at 10.22 % per annum, requires monthly installment payments and matures on March 31, 2003. The outstanding principal balance at December 31, 1997 was approximately $5.9 million. The note prohibits any prepayment of the outstanding principal before May 1, 1998 upon which there is a prepayment penalty fee of at least 1% of the then outstanding principal balance. Under its loan agreements, the Operating Partnership is required to satisfy various affirmative and negative covenants. The Operating Partnership was in compliance with these covenants at December 31, 1997. Future scheduled principal payments on debt at December 31, 1997 are as follows (in thousands):
YEAR - ---- 1998 ................................... $ 116 1999 ................................... 3,879 2000 ................................... 157,393 2001 ................................... 158 2002 ................................... 175 2003 and thereafter .................... 305,860 --------- 467,581 Discount accretion over term ........... (1,855) --------- $ 465,726 =========
To manage the relative mix of its debt between fixed and variable rate instruments, the Operating Partnership has entered into two separate interest rate swap agreements. These interest rate swap agreements modify a portion of the interest characteristics of the Operating Partnership's outstanding debt without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the variable rate to be received by the Operating Partnership at December 31, 1997 are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/97 MATURITY - --------------- ------------ ---------- ------------- -------- $50 million 6.11125% 7.51125% 5.78125% October 1999 $25 million 5.95500% 7.35500% 5.75000% November 1999
F-11 32 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED) The differences to be paid or received by the Operating Partnership 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 Operating Partnership pursuant to the terms of its interest rate agreement and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk that the counterparties may be unable to meet the terms of the agreement. The Operating Partnership minimizes that risk by evaluating the creditworthiness of its counterparties, which is limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. Capital lease obligations at December 31, 1997 and 1996 consists of the following (in thousands):
DECEMBER 31, ------------------- 1997 1996 ------- ------- Capital land and building lease obligations ...... $ 9,330 $ 9,675 Capital equipment lease obligations .............. 1,763 3,200 ------- ------- $11,093 $12,875 ======= =======
The Operating Partnership assumed the obligation for a capital industrial revenue bond lease for land and building associated with the purchase of the Embassy Suites hotel - St. Paul in November 1995. The term of the lease is through August 31, 2011 and contains a provision that allows the Operating Partnership to purchase the property at the termination of the lease, under certain conditions, for a nominal amount. The Operating Partnership has assumed various capital equipment leases associated with hotels purchased. These capital leases are generally for telephones and televisions and vary in remaining terms from one year to four years. Minimum future lease payments under capital leases at December 31, 1997 are as follows (in thousands):
YEAR - ---- 1998 ....................................................... $ 2,820 1999 ....................................................... 1,502 2000 ....................................................... 1,336 2001 ....................................................... 1,217 2002 ....................................................... 1,217 2003 and thereafter ........................................ 10,552 -------- 18,644 Executory costs ............................................ (788) Imputed interest ........................................... (6,763) -------- Present value of net minimum lease payments ................ $ 11,093 ========
Included in investment in hotels at December 31, 1997 and 1996, are assets under capital leases with a net book value of approximately $10.7 million and $12.5 million, respectively. 6. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS Redeemable Operating Partnership Units The outstanding units of limited partnership interest in the Operating Partnership ("Units") are redeemable at the option of the holder for a like number of shares of common stock of FelCor or, cash or a combination thereof, at the election of Felcor. Due to these redemption rights, these limited partnership units have been excluded from partners' capital and are included in redeemable units and measured at redemption value as of the end of the periods presented. At December 31, 1997 and 1996 there were 2,899,510 and 2,785,636 redeemable units outstanding. The value of the F-12 33 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS -- (CONTINUED) redeemable units are based on the closing market price of FelCor's common stock at the balance sheet date, which at December 31, 1997 and 1996 was $35.50 and $35.375 respectively. In 1997, an aggregate of 139,286 Units were issued to sellers in conjunction with the purchases of interests in one hotel and, in 1996, an aggregate of 491,703 Units were issued to sellers in conjunction with the purchase of interests in four hotels. Preferred Units FelCor's Board of Directors is authorized to provide for the issuance of up to 10,000,000 shares of Preferred Stock in one or more series, to establish the number of shares in each series and to fix the designation, powers preferences, and rights of each such series and the qualifications, limitations or restrictions thereof. In 1996, FelCor issued 6,050,000 shares of its $1.95 Series A Cumulative Preferred Stock ("Series A Preferred Stock") at $25 per share. The Series A Preferred Stock bears an annual dividend equal to the greater of $1.95 per share or the cash distributions declared or paid for the corresponding period on the number of shares of common stock into which the Series A Preferred Stock is then convertible. Each share of the Series A Preferred Stock is convertible at the shareholder's option to 0.7752 shares of common stock, subject to certain adjustments, and may not be redeemed by FelCor before April 30, 2001. At December 31, 1997 and 1996, all dividends then payable on the Preferred Stock had been paid. All preferred stock proceeds have been contributed to the Operating Partnership in exchange for preferred units. The preference on the preferred units are the same as FelCor's preferred stock. 7. TAXES, INSURANCE AND OTHER Taxes, insurance and other is comprised of the following for the years ended December 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995 ------- ------- ------- Real estate and personal property taxes .................... $18,976 $11,110 $ 2,233 Property insurance ......................................... 1,627 1,312 155 Land lease expense ......................................... 1,610 952 State franchise taxes ...................................... 718 472 175 Other ...................................................... 162 51 ------- ------- ------- Total taxes, insurance and other .................. $23,093 $13,897 $ 2,563 ======= ======= =======
8. COMMITMENTS AND RELATED PARTY TRANSACTIONS At December 31, 1997 the Operating Partnership owned interests in 52 Embassy Suites hotels, 13 Doubletree Guest Suites hotels, five Sheraton hotels, two Sheraton Suites hotels and one Hilton Suites hotel. The Embassy Suites hotels and the Hilton Suites hotel operate pursuant to franchise license agreements, which require the payment of fees based on a percentage of suite revenue. These fees are paid by the Lessee. There are no separate franchise license agreements for the Doubletree Guest Suites hotels, Sheraton hotels or Sheraton Suites hotels, which rights are included in the management agreements. The Lessee generally pays the Hotel managers a base management fee based on a percentage of suite revenue and an incentive management fee based on the Lessee's income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and committed to make subordinated loans to the Lessee, if needed, to meet its rental and other obligations under the Percentage Leases. F-13 34 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) The Operating Partnership is to receive rental income from the Lessee under the Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19 hotels) and 2007 (21 hotels). The rental income under the Percentage Leases between the 14 unconsolidated entities, of which the Operating Partnership owns 50%, and the Lessee is payable to the respective partnerships and as such is not included in the following schedule of future lease commitments to the Operating Partnership. Minimum future rental income (i.e., base rents) to the Operating Partnership under these noncancellable operating leases at December 31, 1997 is as follows (in thousands):
YEAR - ---- 1998 ............................................. $108,182 1999 ............................................. 108,182 2000 ............................................. 108,182 2001 ............................................. 108,182 2002 ............................................. 108,182 2003 and thereafter .............................. 385,106 -------- $926,016 ========
The Percentage Lease revenue is based on a percentage of suite revenues, food and beverage revenues, and food and beverage rents of the Hotels. Both the base rent and the threshold suite revenue in each lease computation are subject to adjustments for changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year, for the hotels acquired prior to July of the previous year. The adjustment in any lease year may not exceed 7%. The CPI adjustments made in January 1998, 1997 and 1996 were 0.50%, 1.42% and 0.73% respectively. Under the Percentage Leases, the Operating Partnership is obligated to pay the costs of real estate and personal property taxes, property insurance, maintenance of underground utilities and structural elements of the Hotels, and to set aside 4% of suite revenues per month, on a cumulative basis, to fund capital expenditures for the periodic replacement or refurbishment of furniture, fixtures and equipment required for the retention of the franchise licenses with respect to the Hotels. Included in cash and cash equivalents at December 31, 1997 and 1996 were cash balances held by the Hotel managers for these capital expenditures of $7.3 million and $3.5 million, respectively. In addition, the Operating Partnership will incur certain additional capital expenditures in connection with the conversion and upgrade of acquired hotels, which may be funded from cash on hand or borrowings under its Line of Credit. The Operating Partnership shares the executive offices and certain employees with FelCor, Inc. and the Lessee, and each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel (other than Messrs. Feldman and Corcoran, whose compensation is borne solely by FelCor), office supplies, telephones and depreciation of office furniture, fixtures and equipment. Any such allocation of shared expenses to the Operating Partnership must be approved by a majority of the independent directors. During 1997, 1996 and 1995, the Operating Partnership paid approximately $1.3 million (approximately 38%), $807,000 (approximately 38%) and $387,000 (approximately 38%), respectively, of the allocable expenses under this agreement. FelCor has entered into employment contracts with Messrs. Feldman and Corcoran, that will continue in effect until December 31, 1999 and, unless terminated, will be automatically renewed for successive one year terms. Each was paid a base salary of $10,000 per month in 1995 and $10,270 per month in 1996 and in 1997 Mr. Feldman received $12,500 per month and Mr. Corcoran received $16,667 per month. Effective January 1, 1998, Mr. Feldman is to receive $12,500 per month and Mr. Corcoran is to receive $20,833 per month. Additionally, FelCor is required to maintain a comprehensive medical plan for such persons. The Operating Partnership has a capital upgrade and renovation program for the Hotels and has committed approximately $55 million to be invested in 1998 under this program for those hotels which are wholly owned and approximately $11 million for the unconsolidated entities. The Operating Partnership is also constructing an additional 67 F-14 35 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) suites at its Jacksonville, Florida hotel and 67 additional suites at its Orlando (North), Florida hotel at an aggregate projected cost of $10.2 million (of which $7.4 million had been spent as of December 31, 1997) with an expected completion in early 1998. 9. SUPPLEMENTAL CASH FLOW DISCLOSURE The Operating Partnership purchased certain assets and assumed certain liabilities in connection with the acquisition of hotels. These purchases were recorded under the purchase method of accounting. The fair values of the acquired assets and liabilities recorded at the date of acquisition are as follows (in thousands):
1997 1996 1995 --------- --------- --------- Assets acquired ................... $ 588,053 $ 494,354 $ 221,213 Prepayments assumed ............... 13,616 Liabilities assumed ............... (5,932) (108,744) (910) Capital land lease assumed ........ (10,045) Capital equipment leases assumed... (2,823) (1,211) Common stock issued ............... (6,000) (3,499) Minority interest contribution .... (8,021) Units issued ...................... (10,880) --------- --------- --------- Net cash paid ............ $ 574,100 $ 365,907 $ 219,164 ========= ========= =========
The Operating Partnership purchased interests in unconsolidated entities during 1997, 1996 and 1995. These unconsolidated entities separately own fourteen hotels, a parcel of undeveloped land and a condominium management company. These purchases were recorded under the equity method of accounting. The value of the assets recorded at the date of acquisition is as follows (in thousands):
1997 1996 1995 -------- -------- -------- Acquisition of interests in unconsolidated entities... $ 70,372 $ 45,992 $ 13,166 Units issued ......................................... (5,101) (2,568) -------- -------- -------- Net cash paid ............................... $ 65,271 $ 43,424 $ 13,166 ======== ======== ========
Approximately $24.7 million, $16.1 million, and $3.8 million of aggregate preferred unit distributions and Unit distributions had been declared as of December 31, 1997, 1996, and 1995, respectively. These amounts were paid in January following each year. F-15 36 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. LESSEE All of the Operating Partnership's percentage lease revenues is derived from the Percentage Leases with the Lessee. Certain information, related to the Lessee's financial statements, is as follows (in thousands):
DECEMBER 31, ---------------------- 1997 1996 -------- -------- Balance Sheet Information: Cash and cash equivalents ..................... $ 25,684 $ 5,208 Total assets .................................. $ 54,702 $ 18,471 Due to FelCor Suites Limited Partnership ...... $ 18,908 $ 5,526 Shareholders' deficit ......................... $ (9,075) $ (6,403)
YEAR ENDED DECEMBER 31, --------------------------------------- 1997 1996 1995 --------- --------- --------- Statement of Operations Information: Suite revenue ................... $ 456,614 $ 234,451 $ 65,649 Percentage lease expenses ....... $ 216,990 $ 107,935 $ 26,945 Net loss ........................ $ (2,672) $ (5,430) $ (240)
Messrs. Feldman and Corcoran, certain entities owning partnership interests in the Lessee and managers for certain hotels, have agreed to make loans to the Lessee of up to an aggregate of approximately $16.0 million to the extent necessary to enable the Lessee to pay rent and other obligations due under the respective Percentage Leases relating to a total of 34 of these Hotels. No such loans were outstanding at December 31, 1997. 11. PRO FORMA INFORMATION (UNAUDITED) As discussed in Note 1, the Operating Partnership completed acquisitions of interests in 23 hotels during 1996 and 30 hotels in 1997 for aggregate purchase prices of $540.3 million and $658.4 million respectively. The acquisitions are accounted for using the purchase method and the results of operations for the hotels acquired are included in the Company's historical Statements of Operations from the date of acquisition. As such, the historical results of operations may not be indicative of future results of operations and net income per common share. The following unaudited Pro Forma Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 (in thousands, except per share data) are presented as if the acquisitions of all 73 hotels owned at December 31, 1997, the private placement of $300 million of senior unsecured notes and the consummation of the 1997 and 1996 public offerings and the application of the net proceeds therefrom had occurred at the beginning of the periods presented, and all of the hotels had been leased to the Lessee pursuant to the Percentage Leases. Such pro forma information is based in part upon the Consolidated Statements of Operations of the Operating Partnership and pro forma Statements of Operations of the Lessee. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. F-16 37 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. PRO FORMA INFORMATION (UNAUDITED) -- (CONTINUED) The following unaudited Pro Forma Consolidated Statements of Operations for the periods presented are not necessarily indicative of what actual results of operations of the Operating Partnership would have been assuming such transactions had been completed on January 1, 1996, nor does it purport to represent the results of operations for future periods.
1997 1996 -------- -------- Revenues: Percentage lease revenue ........................ $203,922 $177,741 Income from unconsolidated entities ........... 6,937 4,540 -------- -------- Total revenues ............................. 210,859 182,281 -------- -------- Expenses: General and administrative ...................... 4,163 3,394 Depreciation .................................... 59,187 44,149 Taxes, insurance and other ...................... 25,933 24,962 Interest expense ................................ 37,527 31,528 Minority interest in other partnerships ......... 663 236 -------- -------- Total expenses ............................ 127,473 104,269 -------- -------- Net income ......................................... 83,386 78,012 Preferred distributions ............................ 11,797 11,797 -------- -------- Net income applicable to unitholders ............... $ 71,589 $ 66,215 ======== ======== Per unit data: Basic: Net income applicable to unitholders ............ $ 1.82 $ 1.70 ======== ======== Weighted average number of units outstanding .... 39,353 38,970 ======== ======== Diluted: Net income applicable to unitholders ............ $ 1.80 $ 1.69 ======== ======== Weighted average number of units outstanding .... 39,695 39,165 ======== ========
F-17 38 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS During 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 "Reporting Comprehensive Income ("SFAS 130") and No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), both of which are effective for fiscal years beginning after December 15, 1997. SFAS 130 specifies the presentation and disclosure requirements for reporting comprehensive income which includes those items which have been formerly reported as a component of shareholders' equity. SFAS 131 establishes the disclosure requirements for reporting segment information. The Operating Partnership believes that the adoption of SFAS 130 and 131 will not have a material impact on previously reported financial statements. 13. SUBSEQUENT EVENTS On January 15, 1998 the Operating Partnership announced the closing of $114 million of fixed rate nonrecourse secured debt associated with nine Embassy Suites hotels in which the Operating Partnership and Promus each own a 50% unconsolidated interest. The new debt carries a coupon of 6.988%, matures in ten years and amortizes over 25 years. The proceeds were used to repay higher interest rate debt associated with unconsolidated entities jointly owned with Promus and to repay other corporate debt. On February 12, 1998, the Operating Partnership announced an exchange offer for the 7 3/8% Senior Notes due 2004 and 7 5/8% Senior Notes due 2007 issued and sold on October 1, 1997 in a transaction exempt from the registration requirements of the Securities Act of 1993, as amended, and accordingly are subject to certain restrictions upon transfer. The new notes offered in exchange for these notes are identical in amount and terms, except the new notes have been registered under the Securities Act pursuant to a registration statement declared effective on February 10, 1998. On February 17, 1998, FelCor filed a $1 billion omnibus shelf registration with the Securities and Exchange Commission. This registration statement will enable the Operating Partnership to provide offerings from time to time up to an additional $1 billion in securities, which may include debt securities, preferred stock, depository shares, common stock and/or common stock warrants. On February 17, 1998, the Operating Partnership announced the acquisition of the 194-suite Doubletree Guest Suites hotel in Columbus, Ohio. The purchase price includes $14.1 million in cash and approximately 134,000 Units each valued at $37.06. The hotel is managed by a wholly owned subsidiary of Promus. F-18 39 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY OPERATING RESULTS (UNAUDITED) The Operating Partnership's unaudited consolidated quarterly operating data for the years ended December 31, 1997 and 1996 follows (in thousands, except per share data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in shareholders' equity and cash flows for a period of several years.
FIRST SECOND THIRD FOURTH 1997 QUARTER QUARTER QUARTER QUARTER ---- ------- ------- ------- ------- Revenues: Percentage lease revenue .................................... $ 35,370 $ 38,677 $ 48,603 $ 46,464 Equity in income from unconsolidated entities ............... 1,127 2,300 2,338 1,198 Other revenue ............................................... 95 76 112 291 -------- -------- -------- -------- Total revenues ............................ 36,592 41,053 51,053 47,953 -------- -------- -------- -------- Expenses: General and administrative .................................. 972 874 897 1,000 Depreciation ................................................ 10,417 11,314 14,238 14,829 Taxes, insurance and other .................................. 5,207 5,549 6,155 6,182 Interest expense ............................................ 5,601 7,313 7,183 8,695 Minority interest in other partnerships ..................... 21 121 195 236 -------- -------- -------- -------- Total expenses ............................ 22,218 25,171 28,668 30,942 -------- -------- -------- -------- Income before extraordinary charge ................................... 14,374 15,882 22,385 17,011 Extraordinary charge from write off of deferred financing fees ....... 185 -------- -------- -------- -------- Net income ........................................................... 14,374 15,882 22,385 16,826 Preferred distributions .............................................. 2,949 2,949 2,949 2,950 -------- -------- -------- -------- Net income applicable to unitholders ................................. $ 11,425 $ 12,933 $ 19,436 $ 13,876 ======== ======== ======== ======== Earnings per share information: Basic: Income applicable to unitholders before extraordinary charge ................................. $ 0.40 $ 0.44 $ 0.50 $ 0.36 Extraordinary charge ........................................ (0.01) -------- -------- -------- -------- Net income applicable to unitholders ........................ $ 0.40 $ 0.44 $ 0.50 $ 0.35 ======== ======== ======== ======== Weighted average number of units outstanding ................ 28,174 29,457 39,262 39,417 ======== ======== ======== ======== Diluted: Income applicable to unitholders before extraordinary charge ................................. $ 0.40 $ 0.43 $ 0.49 $ 0.36 Extraordinary charge ........................................ (0.01) -------- -------- -------- -------- Net income applicable to unitholders ........................ $ 0.40 $ 0.43 $ 0.49 $ 0.35 ======== ======== ======== ======== Weighted average number of units outstanding ................ 28,474 29,833 39,648 39,784 ======== ======== ======== ========
F-19 40 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY OPERATING RESULTS (UNAUDITED) -- (CONTINUED)
FIRST SECOND THIRD FOURTH 1996 QUARTER QUARTER QUARTER QUARTER ---- ------- ------- ------- ------- Revenues: Percentage lease revenue .................................... $ 23,976 $ 23,409 $ 25,263 $ 25,302 Income from unconsolidated entities ......................... 320 165 927 598 Other revenue ............................................... 146 628 163 47 -------- -------- -------- -------- Total revenues ............................ 24,442 24,202 26,353 25,947 -------- -------- -------- -------- Expenses: General and administrative .................................. 382 466 458 513 Depreciation ................................................ 4,516 5,788 7,529 8,711 Taxes, insurance and other .................................. 3,529 3,070 3,260 4,038 Interest expense ............................................ 2,424 2,089 1,760 3,530 -------- -------- -------- -------- Total expenses ............................ 10,851 11,413 13,007 16,792 -------- -------- -------- -------- Income before extraordinary charge ................................... 13,591 12,789 13,346 9,155 Extraordinary charge from write off of deferred financing fees ....... 2,354 -------- -------- -------- -------- Net income ........................................................... 13,591 12,789 10,992 9,155 Preferred distributions .............................................. 1,835 2,949 2,950 -------- -------- -------- -------- Net income applicable to unitholders ................................. $ 13,591 $ 10,954 $ 8,043 $ 6,205 ======== ======== ======== ======== Earnings per unit information: Basic: Net income applicable to unitholders before extraordinary charge .............................. $ 0.53 $ 0.42 $ 0.40 $ 0.24 Extraordinary charge ........................................ (0.09) -------- -------- -------- -------- Net income applicable to unitholders ........................ $ 0.53 $ 0.42 $ 0.31 $ 0.24 ======== ======== ======== ======== Weighted average number of units outstanding ................ 25,629 25,957 26,097 26,224 ======== ======== ======== ======== Diluted: Net income applicable to unitholders before extraordinary charge .............................. $ 0.53 $ 0.42 $ 0.40 $ 0.23 Extraordinary charge ........................................ (0.09) -------- -------- -------- -------- Net income applicable to unitholders ........................ $ 0.53 $ 0.42 $ 0.31 $ 0.23 ======== ======== ======== ======== Weighted average number of units outstanding ................ 25,744 26,254 26,249 26,549 ======== ======== ======== ========
15. CONSOLIDATING FINANCIAL INFORMATION On October 1, 1997 the Operating Partnership completed the private placement of $300 million in aggregate principal amount of its long term senior unsecured notes. The notes were issued in two maturities, consisting of $175 million of 7 3/8% senior notes due 2004 priced at 99.489% to yield 7.47% and $125 million of 7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%. The discount on the $300 million senior notes accrete using the straight line method over the maturity of the notes. FelCor and all the wholly-owned consolidated subsidiaries of the Operating Partnership (FelCor/CSS Holdings, L.P.; FelCor/CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels, L.L.C.; FelCor/St. Paul Holdings, L.P.; and FelCor/LAX Holdings, L.P. collectively "Subsidiary Guarantors") are guarantors of the debt offering. The following table presents consolidating information for the Subsidiary Guarantors. F-20 41 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS)
ASSETS SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net investment in hotel properties ............. $ 858,338 $ 551,882 $ 79,544 $ 1,489,764 Equity investment in consolidated entities ..... 652,489 $ (652,489) Investment in unconsolidated entities .......... 132,991 132,991 Cash and cash equivalents ...................... 17,543 17,543 Due from Lessee ................................ 12,356 4,257 2,295 18,908 Due (to)/from subsidiary ....................... (57,153) 52,870 4,283 Deferred assets ................................ 10,528 65 10,593 Other assets ................................... 1,858 1,707 3,565 ----------- ----------- ----------- ----------- ----------- Total assets ............................ $ 1,628,950 $ 610,781 $ 86,122 $ (652,489) $ 1,673,364 =========== =========== =========== =========== =========== LIABILITIES & PARTNERS' CAPITAL Debt ........................................... $ 440,726 $ 25,000 $ 465,726 Distributions payable .......................... 24,671 24,671 Accrued expenses and other liabilities ......... 11,331 11,331 Capitalized leases ............................. 273 10,820 11,093 Minority interest - other partnerships ........ $ 8,594 8,594 ----------- ----------- ----------- ----------- ----------- Total liabilities ....................... 477,001 35,820 8,594 521,415 ----------- ----------- ----------- ----------- ----------- Redeemable units, at redemption value .......... 102,933 102,933 Preferred units ................................ 151,250 151,250 Partners' capital .............................. 897,766 574,961 77,528 $ (652,489) 897,766 ----------- ----------- ----------- ----------- ----------- Total liabilities and partners' capital . $ 1,628,950 $ 610,781 $ 86,122 $ (652,489) $ 1,673,364 =========== =========== =========== =========== ===========
F-21 42 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS)
ASSETS SUBSIDIARY TOTAL FELCOR L.P. GUARANTORS ELIMINATIONS CONSOLIDATED ----------- ---------- ------------ ------------ Net investment in hotel properties ................. $ 341,269 $ 558,422 $ 899,691 Equity investment in consolidated subsidiaries ..... 538,004 $(538,004) Investment in unconsolidated entities .............. 59,867 59,867 Cash and cash equivalents .......................... 7,793 7,793 Due from Lessee .................................... 614 4,912 5,526 Due (to)/from subsidiary ........................... (10,929) 10,929 Deferred assets .................................... 3,235 3,235 Other assets ....................................... 1,060 1,616 2,676 --------- --------- --------- --------- Total assets ................................ $ 940,913 $ 575,879 $(538,004) $ 978,788 ========= ========= ========= ========= LIABILITIES & PARTNERS' CAPITAL Debt ............................................... $ 201,550 $ 25,000 $ 226,550 Distributions payable .............................. 16,090 16,090 Accrued expenses and other liabilities ............. 5,235 5,235 Capitalized leases ................................. 12,875 12,875 Minority interest - other partnerships --------- --------- --------- --------- Total liabilities ........................... 222,875 37,875 260,750 Redeemable units, at redemption value .............. 98,542 98,542 Preferred units .................................... 151,250 151,250 Partners' capital .................................. 468,246 538,004 $(538,004) 468,246 --------- --------- --------- --------- Total liabilities and partners' capital ..... $ 940,913 $ 575,879 $(538,004) $ 978,788 ========= ========= ========= =========
F-22 43 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTORS TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- -------------- ------------ Revenues: Percent rent ............................................... $ 83,528 $ 77,335 $ 8,251 $169,114 Equity in income from unconsolidated entities .............. 6,963 6,963 Other revenue .............................................. 367 207 574 -------- -------- -------- -------- Total revenue ....................................... 90,858 77,542 8,251 176,551 -------- -------- -------- -------- Expenses: General and administrative ................................. 1,848 1,712 183 3,743 Depreciation ............................................... 22,798 26,094 1,906 50,798 Taxes, insurance and other ................................. 11,781 10,661 651 23,093 Interest expense ........................................... 26,673 2,119 28,792 Minority interest other partnerships ....................... 573 573 -------- -------- -------- -------- Total expenses ...................................... 63,100 40,586 3,313 106,999 -------- -------- -------- -------- Net income before extraordinary charge ................ 27,758 36,956 4,938 69,652 Extraordinary charge for write off of deferred financing fees ..................................... 185 185 -------- -------- -------- -------- Net income ............................................ 27,573 36,956 4,938 69,467 Preferred distributions .................................... 11,797 11,797 -------- -------- -------- -------- Net income applicable to unitholders ....................... $ 15,776 $ 36,956 $ 4,938 $ 57,670 ======== ======== ======== ========
FELCOR SUITES LIMITED PARTNERSHIP CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTORS TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ------------- ------------ ---------------- ------------ Cash flows from operating activities .................. $ 57,817 $ 36,598 $ 3,063 $ 97,478 Cash flows from investing activities .................. (598,467) (16,242) (73,151) (687,860) Cash flows from financing activities .................. 550,400 (20,356) 70,088 600,132 --------- --------- --------- --------- Change in cash and cash equivalents ................... 9,750 9,750 Cash and cash equivalents at beginning of period ...... 7,793 7,793 --------- --------- --------- --------- Cash and equivalents at end of year ................... $ 17,543 $ $ $ 17,543 ========= ========= ========= =========
F-23 44 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
SUBSIDIARY TOTAL FELCOR L.P. GUARANTORS CONSOLIDATED ----------- ---------- ------------ Revenues: Percent rent .................................................... $ 39,489 $ 58,461 $ 97,950 Equity in income from unconsolidated entities ................... 2,010 2,010 Other revenue ................................................... 632 352 984 -------- -------- -------- Total revenue ............................................ 42,131 58,813 100,944 -------- -------- -------- Expenses: General and administrative ...................................... 733 1,086 1,819 Depreciation .................................................... 9,337 17,207 26,544 Taxes, insurance and other ...................................... 4,645 9,252 13,897 Interest expense ................................................ 7,369 2,434 9,803 -------- -------- -------- Total expenses ........................................... 22,084 29,979 52,063 -------- -------- -------- Net income before extraordinary charge ..................... 20,047 28,834 48,881 Extraordinary charge for write off of deferred financing ... 2,354 2,354 -------- -------- -------- Net income ................................................. 17,693 28,834 46,527 Preferred distributions ......................................... 7,734 7,734 -------- -------- -------- Net income applicable to unitholders ............................ $ 9,959 $ 28,834 $ 38,793 ======== ======== ========
FELCOR SUITES LIMITED PARTNERSHIP CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
SUBSIDIARY TOTAL FELCOR L.P. GUARANTORS CONSOLIDATED ----------- ---------- ------------ Cash flows from operating activities ........... $ 36,077 $ 31,417 $ 67,494 Cash flows from investing activities ........... (66,461) (411,967) (478,428) Cash flows from financing activities ........... (128,644) 380,550 251,906 --------- --------- --------- Change in cash and cash equivalents ............ (159,028) (159,028) Cash and cash equivalents at beginning of period 166,821 166,821 --------- --------- --------- Cash and equivalents at end of year ............ $ 7,793 $ $ 7,793 ========= ========= =========
F-24 45 FELCOR SUITES LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
SUBSIDIARY TOTAL FELCOR L.P. GUARANTORS CONSOLIDATED ----------- ---------- ------------ Revenues: Percent rent ..................................... $22,002 $ 1,785 $23,787 Equity in income from unconsolidated entities .... 513 513 Other revenue .................................... 1,684 7 1,691 ------- ------- ------- Total revenue ............................. 24,199 1,792 25,991 ------- ------- ------- Expenses: General and administrative ....................... 799 71 870 Depreciation ..................................... 5,232 5,232 Taxes, insurance and other ....................... 2,134 429 2,563 Interest expense ................................. 1,902 102 2,004 ------- ------- ------- Total expenses ............................ 10,067 602 10,669 ------- ------- ------- Net income ................................ $14,132 $ 1,190 $15,322 ======= ======= =======
FELCOR SUITES LIMITED PARTNERSHIP CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
SUBSIDIARY TOTAL FELCOR L.P. GUARANTORS CONSOLIDATED ----------- ---------- ------------ Cash flows from operating activities .................. $ 18,645 $ (1,642) $ 17,003 Cash flows from investing activities .................. (110,023) (149,174) (259,197) Cash flows from financing activities .................. 257,081 150,816 407,897 --------- --------- --------- Change in cash and cash equivalents ................... 165,703 165,703 Cash and cash equivalents at beginning of period ...... 1,118 1,118 --------- --------- --------- Cash and equivalents at end of year ................... $ 166,821 $ $ 166,821 ========= ========= =========
F-25 46 FELCOR SUITES LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (IN THOUSANDS)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION --------------------------------------------------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - ----------------------- ---- ------------ -------- ---- ------------ -------- BIRMINGHAM, AL $ 2,843 $29,286 $ 160 $ 730 $ 3,174 FLAGSTAFF, AZ 900 6,825 268 1,561 1,115 PHOENIX (CAMELBACK), AZ 38,998 613 $ 4,695 826 4,808 PHOENIX (CRESCENT), AZ 3,608 29,583 2,886 326 ANAHEIM, CA 2,548 14,832 607 554 3,163 BURLINGAME (SF AIRPORT SO.), CA 39,929 818 60 2,998 DANA POINT, CA 1,787 15,545 536 71 883 EL SEGUNDO (LAX AIRPORT SOUTH), CA 2,660 17,997 798 809 4,705 LOS ANGELES (LAX AIRPORT NORTH), CA 2,207 18,764 1,104 445 MILPITAS, CA 4,021 23,677 562 943 3,474 NAPA, CA 3,287 14,205 494 813 2,801 OXNARD (MANDALAY BEACH), CA 2,930 22,125 879 617 4,595 SO. SAN FRANCISCO (AIRPORT N.), CA 3,418 31,737 527 768 3,831 AVON (BEAVER CREEK RESORT), CO 1,134 9,864 340 186 1,293 BOCA RATON (DOUBLETREE), FL 5,327 3,066 304 41 1,012 BOCA RATON (EMBASSY), FL 1,868 16,253 561 186 2,876 DEERFIELD BEACH, FL 4,523 29,443 918 1,159 3,676 FT. LAUDERDALE, FL 5,329 47,850 903 1,604 4,301 JACKSONVILLE, FL 1,130 9,608 456 28 865 LAKE BUENA VISTA (DISNEY WORLD), FL 2,896 25,196 869 MIAMI (AIRPORT), FL 4,135 24,950 1,171 728 4,309 ORLANDO (NORTH), FL 1,673 14,218 684 28 939 ORLANDO (SOUTH), FL 1,632 13,870 799 28 1,504 TAMPA (BUSCH GARDENS), FL 772 12,387 226 57 621 TAMPA (ROCKY POINT), FL 2,142 18,639 643 33 ATLANTA (AIRPORT), GA 5,113 22,857 2,105 16 ATLANTA (BUCKHEAD), GA 7,303 38,996 2,437 13 50 ATLANTA (GALLERIA), GA 5,052 28,507 2,526 113 BRUNSWICK, GA 705 6,067 247 720 CHICAGO (O'HARE), IL 8,178 37,043 2,886 89 DEERFIELD, IL 2,305 20,054 692 162 684 LEXINGTON, KY 1,955 13,604 587 1,280 BATON ROUGE, LA 2,350 19,092 525 521 3,322 NEW ORLEANS, LA 2,570 22,300 895 3,854 2,369 BOSTON - MARLBOROUGH, MA 948 8,143 325 761 12,394 4,442 BALTIMORE, MD 2,568 22,433 770 505 TROY, MI 2,968 25,905 909 246 BLOOMINGTON, MN 2,038 17,731 611 8 MINNEAPOLIS (AIRPORT), MN 5,416 36,508 602 78 2,683 MINNEAPOLIS (DOWNTOWN), MN 818 16,820 505 66 3,043 ST. PAUL, MN 1,156 17,315 849 40 2,876 RALEIGH/DURHAM, NC 2,124 18,476 637 31 OMAHA, NE 1,877 16,328 563 10 140 GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE ------------------------------------------------ BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES - ----------------------- ---- ------------ -------- ----- -------- -------- BIRMINGHAM, AL $ 2,843 $30,015 $ 3,334 $36,192 $ 2,188 $34,005 FLAGSTAFF, AZ 900 8,386 1,383 10,669 1,171 9,497 PHOENIX (CAMELBACK), AZ 4,694 39,824 5,420 49,939 3,290 46,649 PHOENIX (CRESCENT), AZ 3,608 29,583 3,212 36,403 666 35,736 ANAHEIM, CA 2,548 15,386 3,770 21,704 1,982 19,722 BURLINGAME (SF AIRPORT SO.), CA 39,802 4,003 43,805 3,290 40,515 DANA POINT, CA 1,787 15,616 1,419 18,822 433 18,389 EL SEGUNDO (LAX AIRPORT SOUTH), CA 2,660 18,807 5,503 26,969 2,901 24,068 LOS ANGELES (LAX AIRPORT NORTH), CA 2,207 18,764 1,549 22,520 590 21,930 MILPITAS, CA 4,021 24,620 4,036 32,677 2,452 30,225 NAPA, CA 3,287 15,019 3,295 21,601 1,227 20,374 OXNARD (MANDALAY BEACH), CA 2,930 22,742 5,474 31,146 1,984 29,162 SO. SAN FRANCISCO (AIRPORT N.), CA 3,418 32,506 4,358 40,281 2,794 37,488 AVON (BEAVER CREEK RESORT), CO 1,134 10,050 1,633 12,816 831 11,986 BOCA RATON (DOUBLETREE), FL 5,333 3,102 1,316 9,750 598 9,152 BOCA RATON (EMBASSY), FL 1,868 16,438 3,436 21,743 1,700 20,043 DEERFIELD BEACH, FL 4,541 30,583 4,593 39,718 2,643 37,075 FT. LAUDERDALE, FL 5,374 49,409 5,204 59,986 3,870 56,117 JACKSONVILLE, FL 1,130 9,636 1,321 12,088 1,648 10,440 LAKE BUENA VISTA (DISNEY WORLD), FL 2,896 25,196 869 28,960 335 28,626 MIAMI (AIRPORT), FL 4,135 25,679 5,479 35,293 2,793 32,500 ORLANDO (NORTH), FL 1,673 14,246 1,624 17,543 2,568 14,974 ORLANDO (SOUTH), FL 1,632 13,898 2,303 17,832 2,581 15,251 TAMPA (BUSCH GARDENS), FL 772 12,444 848 14,063 804 13,260 TAMPA (ROCKY POINT), FL 2,142 18,639 676 21,458 248 21,210 ATLANTA (AIRPORT), GA 5,113 22,857 2,121 30,091 498 29,593 ATLANTA (BUCKHEAD), GA 7,303 39,009 2,487 48,799 1,707 47,092 ATLANTA (GALLERIA), GA 5,052 28,507 2,639 36,198 610 35,588 BRUNSWICK, GA 705 6,067 967 7,739 631 7,108 CHICAGO (O'HARE), IL 8,178 37,043 2,975 48,196 757 47,439 DEERFIELD, IL 2,305 20,216 1,376 23,897 1,006 22,891 LEXINGTON, KY 1,955 13,604 1,866 17,425 1,059 16,366 BATON ROUGE, LA 2,350 19,612 3,847 25,810 1,920 23,890 NEW ORLEANS, LA 2,569 26,154 3,265 31,989 2,932 29,057 BOSTON - MARLBOROUGH, MA 1,709 20,537 4,767 27,014 1,292 25,721 BALTIMORE, MD 2,568 22,433 1,275 26,276 621 25,655 TROY, MI 2,968 25,905 1,155 30,028 700 29,329 BLOOMINGTON, MN 2,038 17,732 619 20,389 471 19,918 MINNEAPOLIS (AIRPORT), MN 5,417 36,396 3,475 45,288 3,060 42,228 MINNEAPOLIS (DOWNTOWN), MN 818 16,809 3,625 21,252 2,018 19,234 ST. PAUL, MN 1,156 17,264 3,815 22,236 2,251 19,985 RALEIGH/DURHAM, NC 2,124 18,476 668 21,267 246 21,022 OMAHA, NE 1,877 16,338 703 18,918 436 18,481 LIFE UPON WHICH DEPRECIATION DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED - ----------------------- ------------ -------- ----------- BIRMINGHAM, AL 1987 01-03-96 5 - 40 YRS FLAGSTAFF, AZ 1988 02-16-95 5 - 40 YRS PHOENIX (CAMELBACK), AZ 1985 01-03-96 5 - 40 YRS PHOENIX (CRESCENT), AZ 1986 06-30-97 5 - 40 YRS ANAHEIM, CA 1987 01-03-96 5 - 40 YRS BURLINGAME (SF AIRPORT SO.), CA 1986 11-06-95 5 - 40 YRS DANA POINT, CA 1992 02-21-97 5 - 40 YRS EL SEGUNDO (LAX AIRPORT SOUTH), CA 1985 03-27-96 5 - 40 YRS LOS ANGELES (LAX AIRPORT NORTH), CA 1990 02-18-97 5 - 40 YRS MILPITAS, CA 1987 01-03-96 5 - 40 YRS NAPA, CA 1985 05-08-96 5 - 40 YRS OXNARD (MANDALAY BEACH), CA 1986 05-08-96 5 - 40 YRS SO. SAN FRANCISCO (AIRPORT N.), CA 1988 01-03-96 5 - 40 YRS AVON (BEAVER CREEK RESORT), CO 1989 02-20-96 5 - 40 YRS BOCA RATON (DOUBLETREE), FL 1989 11-15-95 5 - 40 YRS BOCA RATON (EMBASSY), FL 1989 02-28-96 5 - 40 YRS DEERFIELD BEACH, FL 1987 01-03-96 5 - 40 YRS FT. LAUDERDALE, FL 1986 01-03-96 5 - 40 YRS JACKSONVILLE, FL 1986 07-28-94 5 - 40 YRS LAKE BUENA VISTA (DISNEY WORLD), FL 1987 07-28-97 5 - 40 YRS MIAMI (AIRPORT), FL 1987 01-03-96 5 - 40 YRS ORLANDO (NORTH), FL 1985 07-28-94 5 - 40 YRS ORLANDO (SOUTH), FL 1985 07-28-94 5 - 40 YRS TAMPA (BUSCH GARDENS), FL 1985 11-15-95 5 - 40 YRS TAMPA (ROCKY POINT), FL 1986 07-28-97 5 - 40 YRS ATLANTA (AIRPORT), GA 1986 06-30-97 5 - 40 YRS ATLANTA (BUCKHEAD), GA 1988 10-17-96 5 - 40 YRS ATLANTA (GALLERIA), GA 1990 06-30-97 5 - 40 YRS BRUNSWICK, GA 1988 07-19-95 5 - 40 YRS CHICAGO (O'HARE), IL 1994 06-30-97 5 - 40 YRS DEERFIELD, IL 1987 06-20-96 5 - 40 YRS LEXINGTON, KY 1987 01-10-96 5 - 40 YRS BATON ROUGE, LA 1985 01-03-96 5 - 40 YRS NEW ORLEANS, LA 1984 12-01-94 5 - 40 YRS BOSTON - MARLBOROUGH, MA 1988 06-30-95 5 - 40 YRS BALTIMORE, MD 1987 03-20-97 5 - 40 YRS TROY, MI 1987 03-20-97 5 - 40 YRS BLOOMINGTON, MN 1980 02-01-97 5 - 40 YRS MINNEAPOLIS (AIRPORT), MN 1986 11-06-95 5 - 40 YRS MINNEAPOLIS (DOWNTOWN), MN 1984 11-15-95 5 - 40 YRS ST. PAUL, MN 1983 11-15-95 5 - 40 YRS RALEIGH/DURHAM, NC 1987 07-28-97 5 - 40 YRS OMAHA, NE 1973 02-01-97 5 - 40 YRS
F-26 47 FELCOR SUITES LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION ----------------------------------------- ----------------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - ----------------------- ---------- ------------ --------- ---------- ------------ ---------- PISCATAWAY, NJ 1,755 17,563 527 463 2,296 SYRACUSE, NY 1,597 14,812 1,330 CLEVELAND, OH 1,755 15,329 527 1,259 1,511 DAYTON, OH 1,140 9,924 342 TULSA, OK 525 7,344 3,117 140 1,644 PHILADELPHIA (SOCIETY HILL), PA 4,542 45,121 1,536 MYRTLE BEACH (KINGSTON PLANTATION), SC 2,940 24,988 1,470 268 832 NASHVILLE (AIRPORT), TN 1,073 9,331 322 20 NASHVILLE, TN 1,118 9,506 961 28 1,222 AUSTIN (DOWNTOWN), TX 2,508 21,908 752 137 CORPUS CHRISTI, TX 1,112 9,618 390 51 1,461 DALLAS (LOVE FIELD), TX 1,934 16,674 757 168 1,177 DALLAS (MARKET CENTER), TX 2,619 24,298 2,182 DALLAS (PARK CENTRAL ES), TX 1,497 12,722 647 28 1,415 DALLAS (PARK CENTRAL SH), TX 4,513 43,125 2,507 195 BURLINGTON, VT 3,136 27,283 941 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 151,978 $1,226,572 $ 55,105 $ 5,507 $ 31,289 $ 92,274 ========== ========== ========== ========== ========== ========== GROSS AMOUNTS AT WHICH ACCUMULATED CARRIED AT CLOSE OF PERIOD DEPRECIATION ------------------------------------------- BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; AND AND FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES - ----------------------- ----------- ------------ ---------- ---------- ------------- PISCATAWAY, NJ 1,755 18,026 2,822 22,603 1,343 SYRACUSE, NY 1,597 14,812 1,331 17,739 318 CLEVELAND, OH 1,755 16,588 2,037 20,380 1,237 DAYTON, OH 1,140 9,924 342 11,406 TULSA, OK 525 7,483 4,762 12,770 4,673 PHILADELPHIA (SOCIETY HILL), PA 4,542 45,121 1,536 51,199 361 MYRTLE BEACH (KINGSTON PLANTATION), SC 2,940 25,256 2,302 30,498 945 NASHVILLE (AIRPORT), TN 1,073 9,331 341 10,745 149 NASHVILLE, TN 1,118 9,534 2,183 12,836 2,911 AUSTIN (DOWNTOWN), TX 2,508 21,908 890 25,305 585 CORPUS CHRISTI, TX 1,164 9,618 1,852 12,634 1,222 DALLAS (LOVE FIELD), TX 1,934 16,841 1,934 20,710 1,923 DALLAS (MARKET CENTER), TX 2,619 24,298 2,183 29,100 522 DALLAS (PARK CENTRAL ES), TX 1,497 12,750 2,062 16,309 2,534 DALLAS (PARK CENTRAL SH), TX 4,513 43,125 2,702 50,340 802 BURLINGTON, VT 3,136 27,283 941 31,360 73 ---------- ---------- ---------- ---------- ---------- TOTAL $ 157,554 $1,257,247 $ 147,923 $1,562,724 $ 87,400 ========== ========== ========== ========== ========== NET BOOK VALUE LIFE UPON BUILDINGS AND WHICH IMPROVEMENTS; DEPRECIATION FURNITURE & DATE OF DATE IN STATEMENT FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED -------------- ------------- -------- ------------- PISCATAWAY, NJ 21,260 1988 01-10-96 5 - 40 YRS SYRACUSE, NY 17,421 1989 06-30-97 5 - 40 YRS CLEVELAND, OH 19,143 1990 11-17-95 5 - 40 YRS DAYTON, OH 11,406 1987 12-30-97 5 - 40 YRS TULSA, OK 8,097 1985 07-28-94 5 - 40 YRS PHILADELPHIA (SOCIETY HILL), PA 50,838 1986 10-01-97 5 - 40 YRS MYRTLE BEACH (KINGSTON PLANTATION), SC 29,553 1987 12-05-96 5 - 40 YRS NASHVILLE (AIRPORT), TN 10,596 1988 06-05-97 5 - 40 YRS NASHVILLE, TN 9,925 1985 07-28-94 5 - 40 YRS AUSTIN (DOWNTOWN), TX 24,720 1987 03-20-97 5 - 40 YRS CORPUS CHRISTI, TX 11,412 1984 07-19-95 5 - 40 YRS DALLAS (LOVE FIELD), TX 18,787 1986 03-29-95 5 - 40 YRS DALLAS (MARKET CENTER), TX 28,578 1980 06-30-97 5 - 40 YRS DALLAS (PARK CENTRAL ES), TX 13,774 1985 07-28-94 5 - 40 YRS DALLAS (PARK CENTRAL SH), TX 49,537 1983 06-30-97 5 - 40 YRS BURLINGTON, VT 31,287 1967 12-04-97 5 - 40 YRS ---------- TOTAL $1,475,325 ==========
(a) BALANCE AT DECEMBER 31, 1995 $ 343,398 (b) BALANCE AT DECEMBER 31, 1994 $ 5,026 ADDITIONS DURING THE PERIOD 568,073 DEPRECIATION EXPENSE DURING THE PERIOD 5,371 DISPOSITIONS DURING THE PERIOD (81) --------- ----------- BALANCE AT DECEMBER 31, 1995 10,397 BALANCE AT DECEMBER 31, 1996 911,390 DEPRECIATION EXPENSE DURING THE PERIOD 26,321 ADDITIONS DURING THE PERIOD 651,334 --------- ----------- BALANCE AT DECEMBER 31, 1996 36,718 BALANCE AT DECEMBER 31, 1997 $ 1,562,724 DEPRECIATION EXPENSE DURING THE PERIOD 50,682 --------- BALANCE AT DECEMBER 31, 1997 $ 87,400
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