-----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, AUZKB8LS5M42B0EtPeHnoTMGzBHvClXSxZ2YmmZEcUDnj1fdrFCVNGD2yL2tzB91 BoBp8bIn+/MJFzJZxt5wxA== 0000950134-99-002300.txt : 19990402 0000950134-99-002300.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950134-99-002300 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR LODGING L P CENTRAL INDEX KEY: 0001048789 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752564994 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-39595-01 FILM NUMBER: 99580040 BUSINESS ADDRESS: STREET 1: 545 E. JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 9724444900 FORMER COMPANY: FORMER CONFORMED NAME: FELCOR SUITES LP DATE OF NAME CHANGE: 19971030 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 333-3959-01 FelCor Lodging Limited Partnership (Exact name of registrant as specified in its charter) DELAWARE 75-2544994 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code)
(972) 444-4900 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- NONE
Securities registered pursuant to Section 12(g) of the Act: NONE (Title of class) Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting limited partnership interests held by non-affiliates of the registrant, as of March 10, 1999, was approximately $48.4 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders of FelCor Lodging Trust Incorporated - Part III ================================================================================ 2 FELCOR LODGING LIMITED PARTNERSHIP INDEX
FORM 10-K REPORT ITEM NO. PAGE - -------- --------- PART I 1. Business.....................................................................................................1 2. Properties................................................................................................. 18 3. Legal Proceedings...........................................................................................25 4. Submission of Matters to a Vote of Security Holders.........................................................25 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................25 6. Selected Financial Data.....................................................................................28 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................31 7A. Quantitative and Qualitative Disclosures About Market Risk..................................................44 8. Financial Statements and Supplementary Data.................................................................44 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................44 PART III 10. Directors and Executive Officers of the Company ............................................................45 11. Executive Compensation......................................................................................45 12. Security Ownership of Certain Beneficial Owners and Management..............................................45 13. Certain Relationships and Related Transactions..............................................................46 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................47
3 PART I ITEM 1. BUSINESS FelCor Lodging Limited Partnership and its subsidiaries (the "Company") at December 31, 1998, owned interests in 193 hotels with nearly 50,000 rooms and suites (collectively the "Hotels"). The sole general partner of the Company is FelCor Lodging Trust Incorporated ("FelCor"), one of the nations largest hotel real estate investment trusts ("REIT"). At December 31, 1998 FelCor owned a greater than 95% equity interest in the Company. The Company owns 100% interests in 169 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 15 hotels. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's lessees at December 31, 1998:
BRAND DJONT BRISTOL TOTAL ----- ----- ------- ----- Embassy Suites 57 57 Holiday Inn 49* 49 Doubletree and Doubletree Guest Suites(R) 17 17 Crowne Plaza and Crowne Plaza Suites(R) 14 14 Holiday Inn Select(R) 11 11 Sheraton(R)and Sheraton Suites(R) 9 1 10 Hampton Inn(R) 9 9 Holiday Inn Express(R) 7* 7 Fairfield Inn(R) 5 5 Harvey Hotel(R) 4 4 Independents 2 2 Courtyard by Marriott(R) 2 2 Days Inn(R) 1* 1 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Radisson(R) 1 1 Ramada(R) 1* 1 Westin(R) 1 1 ---- ---- ---- Total Hotels 86 107 193 ==== ==== ====
* The Company has sold, or intends to sell in 1999, two Holiday Inns, two Holiday Inn Expresses and the Ramada and Days Inn owned at December 31, 1998. At December 31, 1998, the Company leased 86 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company or a consolidated subsidiary thereof (collectively "DJONT"), and 106 of the Hotels to Bristol Hotels & Resorts or a consolidated subsidiary thereof ("Bristol" and, together with DJONT, the "Lessees"). One hotel managed by Bristol was not leased. The Hotels are leased to the Lessees pursuant to leases generally having initial terms of five to 15 years that provide for rent equal to the greater of a minimum base rent ("Base Rent") or a percentage rent ("Percentage Rent") based on room and suite revenues, food and beverage revenues, food and beverage rents and, in certain instances, other hotel revenues ("Percentage Leases"). See "Item 2. Properties" for information regarding the terms of the Percentage Leases. 4 Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT. The remaining 50% nonvoting common equity interest is beneficially owned by the children of Charles N. Mathewson, a director of FelCor and major initial investor in the Company. DJONT has entered into management agreements pursuant to which 73 of the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation ("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), and three are managed by two independent management companies. Bristol leases and manages 106 Hotels and manages one hotel which operates without a lease. Bristol is one of the largest independent hotel operating companies in North America and operates the largest number of Bass Hotels & Resorts-branded hotels in the world. GROWTH STRATEGIES The Company's primary business objectives are to (i) add value to its current hotels through aggressive asset management and the strategic investment of capital, (ii) build and maintain solid working relationships with selected upscale and full-service hotel brand owners/managers who are willing to commit to the ongoing success of the Company's hotels they license and/or manage and (iii) selectively acquire hotel assets that have been underperforming due to lack of sufficient capital improvements, or poor management or franchise affiliation. The Company seeks to increase operating cash flow and enhance its value through both internal growth and acquisitions. The Company's internal growth strategy, which has been its primary focus since the completion of FelCor's merger with Bristol Hotel Company in July 1998, is to utilize its asset management expertise to improve the quality of its hotels by renovating, redeveloping and, in some instances, rebranding them, thereby improving hotel revenue performance, and to participate, through the Percentage Leases, in any growth in revenues at its hotels. The Company presently intends to concentrate its acquisition growth strategy on a limited number of carefully selected upscale and full-service hotel opportunities that meet the Company's investment criteria. STRATEGIC RELATIONSHIPS The Company currently maintains strategic brand owner/manager relationships with Promus (Embassy Suites and Doubletree), Bass Hotels & Resorts, Inc. ("Bass") and Bristol (Crowne Plaza and Holiday Inn), and Starwood (Sheraton and Westin). o Promus Hotel Corporation is the largest operator of full-service, all-suite hotels in the United States. Promus is also the owner of the Embassy Suites, Doubletree and Doubletree Guest Suites brands and the manager of 73 of the Company's Hotels. In addition, based on the closing price of FelCor's Common Stock on the NYSE on December 31, 1998, Promus owned Common Stock of FelCor and units of partnership interest ("Units") in the Company with an aggregate value of more than $32 million at December 31, 1998, and was a 50% joint venture partner with the Company in the ownership of 12 hotels and the holder of a 10% equity interest in subsidiaries of the Company owning six hotels. The relationship with Promus has provided the foundation for the Company's historical growth. o Bass Hotels & Resorts, Inc., which holds the hotel businesses of Bass plc of the United Kingdom, operates or franchises more than 2,600 hotels and 450,000 guest rooms in more than 75 countries and territories. Among the brands owned by Bass are Holiday Inn, Crowne Plaza, Holiday Inn Express, Holiday Inn Select and Inter-Continental(R). At December 31, 1998, Bass owned approximately 14% of the outstanding Common Stock of FelCor (with a market value of more than $200 million) and nearly 10% of the outstanding Common Stock of Bristol. -2- 5 o Starwood Hotels & Resorts Worldwide, Inc. is one of the world's largest hotel operating companies. Directly and through subsidiaries, Starwood owns, leases, manages or franchises approximately 650 hotels with more than 212,500 rooms in 70 countries. This strategic alliance, coupled with the purchase of seven Sheraton hotels in 1997, provided the Company with its initial entry into the upscale, full-service, non-suite hotel market. Most recently, Starwood and the Company formed a joint venture, owned 60% by the Company and 40% by Starwood, to own two hotels managed by Starwood. This joint venture owns the Company's first Westin hotel. The strength of the Company's strategic relationships with the foregoing brand owner/managers are evidenced by their significant equity investments in the Company and in 20 of the Hotels. Both Promus and Starwood have, directly or through affiliates, also (i) agreed to make subordinated loans to DJONT (in support of its obligations under certain Percentage Leases) (ii) subordinated certain customary fees to DJONT's obligations under applicable Percentage Leases and (iii) granted to DJONT certain performance-based termination rights under certain of their management agreements. Promus has also guaranteed a $25 million loan to the Company. HOTEL ACQUISITION AND EXPANSION On July 28, 1998, FelCor completed its merger with Bristol Hotel Company, and the contribution of the real estate holdings and other assets acquired to the Company (the "Merger"). The Merger resulted in the Company's net acquisition of 107 primarily full-service hotels in return for approximately 31.0 million units of limited partner interest ("Units") and the assumption, net of cash received, of approximately $889 million of related debts and other liabilities. Three of the 107 hotels acquired in the Merger were disposed of prior to December 31, 1998 for approximately $7.8 million. In addition to the Bristol Hotel Company assets, the Company acquired interests in 16 hotels in 1998 at an aggregate cost of approximately $412.8 million. At December 31, 1998, the Company owned interests in 193 hotels with an aggregate of 49,186 rooms and suites. Of the Hotels, the Company owns 100% equity interests in 169 hotels (42,984 rooms and suites), a 90% or greater interest in entities owning seven hotels (1,745 rooms and suites), a 60% interest in an entity owning two hotels (824 rooms) and 50% interests in separate entities that own 15 hotels (3,633 rooms and suites). The Hotels are located in 34 states and Canada with an aggregate of 79 hotels located in California (20), Florida (18) and Texas (41). The following table provides information regarding the net acquisition of hotels through December 31, 1998:
NET NUMBER OF HOTELS ACQUIRED --------------- 1994 7 1995 13 1996 23 1997 30 1998 120 ---- TOTALS 193 ====
-3- 6 During 1998, the Company also completed the construction of an aggregate of 224 additional suites, additional meeting rooms and other public area upgrades at three of the Hotels leased to DJONT, at an aggregate cost of approximately $23.4 million. These additions were made to the Company's Embassy Suites hotels in Jacksonville, Florida (67 suites), Orlando (North), Florida (67 suites) and New Orleans, Louisiana (90 suites). HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING The Company believes that one factor that differentiates it from other hotel companies is its commitment to making capital expenditures where necessary, to renovate, redevelop, and rebrand its Hotels. The Company approaches this in four different ways: (i) an aggressive renovation and redevelopment program as hotels are acquired to bring them up to their optimum competitive position, (ii) rebranding hotels in certain instances to improve the revenue generating capacity of the hotel, (iii) contributions of at least 4% of annual room and suite revenue for the DJONT hotels and 3% of total annual hotel revenue for the Bristol hotels (on a cumulative basis) for routine capital replacements and improvements (the "Capital Reserve"), and (iv) insuring that the Lessees adhere to a proactive maintenance and repair program for the Hotels amounting to approximately 4.5% of hotel revenues. In 1998, the Company, together with Bristol Hotel Company prior to the Merger, spent a total of approximately $40 million from the Capital Reserve on routine replacements and improvements at the Hotels and completed approximately $180 million in additional capital improvements to approximately 40 hotels. During 1998, approximately 3% of total Hotel room nights were lost due to renovations. The Company presently expects to spend an additional $160 million in capital improvements to 56 Hotels during 1999 and expects that approximately 3% of total Hotel room nights again will be lost due to renovations. In 1998, the Company rebranded 16 hotels, as follows:
PRIOR BRAND NEW BRAND LOCATION ----------- --------- -------- Hilton Crowne Plaza Secaucus, New Jersey Holiday Inn Crowne Plaza Hartford, Connecticut Holiday Inn Crowne Plaza San Francisco, California Holiday Inn Crowne Plaza Houston, Texas Holiday Inn Select Crowne Plaza Greenville, South Carolina Holiday Inn Select Crowne Plaza Miami, Florida Holiday Inn Select Crowne Plaza Philadelphia, Pennsylvania Harvey Hotel Crowne Plaza Atlanta, Georgia Harvey Hotel Crowne Plaza Dallas, Texas Harvey Hotel Crowne Plaza Addison, Texas Bristol Suites Crowne Plaza Suites Dallas, Texas Doubletree Guest Suites Sheraton Suites Ft. Lauderdale, Florida Doubletree Guest Suites Sheraton Suites Lexington, Kentucky Sheraton Westin Dallas, Texas Radisson Sheraton Dallas, Texas Harvey Suites Holiday Inn & Suites Houston, Texas
During 1999, the Company presently expects to rebrand four Holiday Inn hotels and one independent hotel as Crowne Plaza hotels, four Doubletree Guest Suites hotels as Embassy Suites hotels, and one Radisson hotel as a Doubletree hotel. -4- 7 REPAIRS AND MAINTENANCE During the year ended December 31, 1998, approximately $36.4 million and $32.0 million was spent by the Lessees on routine repairs and maintenance at the Hotels leased by DJONT and Bristol, respectively. This represents approximately 4.7% of total hotel revenues. FINANCING TRANSACTIONS On May 1, 1998, FelCor issued 5.75 million depositary shares, representing 57,500 shares of its 9% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), at $25.00 per depositary share, providing net proceeds of approximately $139.1 million which was contributed to the Company for corresponding Series B Preferred Units. The Series B Preferred Stock and the corresponding depositary shares may be called by FelCor at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption, and are not convertible into any other securities of FelCor. The Series B Preferred Stock has a liquidation preference of $2,500 per share (equivalent to $25.00 per depositary share) and is entitled to quarterly dividends at an annual rate equal to 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). The Series B Preferred Units have the same features as the Series B Preferred Stock. On July 1, 1998, the Company increased its unsecured credit facilities to $1.1 billion, consisting of an $850 million revolving line of credit ("Line of Credit") which matures in June 2001 and a $250 million non-amortizing term loan ("Term Loan") which matures in December 1999. Interest payable on borrowings under the credit facilities is variable, determined from a ratings- and leverage-based pricing matrix, ranging from 87.5 basis points to 175 basis points above the London Interbank Offered Rate ("LIBOR"). During 1998, the Company's interest spread was 150 basis points over LIBOR and, at December 31, 1998, the 30-day LIBOR rate was 5.628750%. Additionally, the Company is required to pay an unused commitment fee, which varies under a ratings-based pricing matrix, ranging from 20 to 30 basis points. During 1998, the Company wrote off approximately $2.5 million of deferred financing fees relating to the previous unsecured credit facility of $550 million. The Line of Credit and Term Loan contain various affirmative and negative covenants, including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. The Company's other borrowings also contain affirmative and negative covenants that are generally equal to or less restrictive than under the Line of Credit and Term Loan. At December 31, 1998, the Company was in compliance with all such covenants. In addition to Line of Credit and Term Loan, at December 31, 1998, the Company had other unsecured indebtedness consisting of a $25 million term loan guaranteed by Promus ("Renovation Loan"), $298 million (net of discount) of publicly-traded senior term notes, and approximately $10 million of other indebtedness. At December 31, 1998, the Company also had approximately $276 million in secured debt, most of which is nonrecourse to the Company (with certain exceptions) and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. The Company had approximately $114 million in borrowing capacity under its Line of Credit at December 31, 1998 and FelCor also had the ability to issue up to $946 million of common stock, preferred stock, debt securities and/or common stock warrants under shelf registration statements previously declared effective. Given the current market prices of its equity securities, FelCor has no present intention to effect a public offering of equity securities in the near future. -5- 8 The FelCor Board of Directors has adopted a policy which limits the Company's indebtedness to not more than 40% of its investment in hotel assets, at cost, which at December 31, 1998, would have allowed the Company to borrow up to approximately $1.7 billion under such policy. This policy may be modified by FelCor's Board of Directors at any time. At December 31, 1998, the consolidated indebtedness of the Company was approximately 38% of total assets and its interest coverage ratio was 3.8-to-1. The Company believes that its current policy (limiting indebtedness to 40% of its investment in hotel assets), its preference for unsecured debt and its historical success in raising equity capital for expansion, demonstrate the Company's commitment to the maintenance of a conservative but flexible capital structure. The Company is currently seeking to refinance the $250 million term loan that matures on December 31, 1999. HOTEL OPERATING PERFORMANCE The Company's 102 "Comparable Hotels" (as defined on the following page) owned at December 31, 1998, produced a RevPAR (as defined below) increase of 6.2% over 1997, nearly double that of the industry average. The largest portion of this increase, with respect to the DJONT Hotels, came from the 18 former Crown Sterling Suites hotels ("CSS Hotels"), which continued their trend of improved RevPAR throughout 1998, achieving a RevPAR of $92.05 in 1998 compared to $85.04 during 1997, an increase of 8.2%. The Company attributes this increase to the continuing effects of the renovation, redevelopment and rebranding of these hotels in 1996 and early 1997. The largest increase, with respect to the Bristol Hotels, came from the Omaha Acquisition hotels, which experienced a RevPAR increase of approximately 15.3% in 1998 over 1997. The Company attributes this increase primarily to a transition of the Omaha Acquisition hotels to the professional management of Bristol. The Company believes that, when analyzing the performance of the Hotels, looking at "comparable" hotels is the most meaningful. For the DJONT Hotels, "Comparable Hotels" means those hotels that were owned by the Company throughout all of 1997 and 1998. This generally includes the Hotels that have benefitted from the Company's renovation, redevelopment and rebranding programs and generally excludes those Hotels that are currently undergoing renovation and experiencing out-of-service rooms and suites due to their renovation. For the Bristol Hotels, "Comparable Hotels" excludes those Hotels undergoing redevelopment during either of the comparison years and those hotels that are identified for sale. The following tables set forth, by Lessee, the historical occupancy percentage ("Occupancy"), average daily rate ("ADR") and revenue per available room ("RevPAR") at December 31, 1998 and 1997, and the percentage changes therein between the periods presented, for both the Comparable Hotels and the Non- comparable Hotels owned by the Company at December 31, 1998. This information is presented regardless of ownership of the Hotels during the periods presented. -6- 9 Comparable Hotels
1998 ------------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ Original Hotels.......................... 73.6% $113.59 $83.59 CSS Hotels............................... 73.2 125.77 92.05 1996 Acquisitions........................ 73.7 126.08 92.86 Total DJONT Comparable Hotels (A)........ 73.4 122.33 89.83 Original Bristol......................... 71.5 74.38 53.15 Holiday Acquisition...................... 73.9 87.31 64.52 Omaha Acquisition........................ 50.5 62.15 31.36 Total Bristol Comparable Hotels (B)...... 67.4 77.94 52.55 Total Comparable Hotels............... 70.0% $97.71 $68.38
1997 -------------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ Original Hotels.......................... 76.1% $109.35 $83.17 CSS Hotels............................... 73.4 115.85 85.04 1996 Acquisitions........................ 74.0 118.61 87.76 Total DJONT Comparable Hotels............ 74.3 114.77 85.27 Original Bristol......................... 74.2 68.76 51.00 Holiday Acquisition...................... 74.7 81.10 60.60 Omaha Acquisition........................ 46.1 59.05 27.21 Total Bristol Comparable Hotels.......... 67.7 72.74 49.26 Total Comparable Hotels............... 70.5% $ 91.37 $64.40
CHANGE FROM 1998 VS. 1997 ------------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ Original Hotels......................... (2.5)pts. 3.9 % 0.5% CSS Hotels.............................. (0.2) 8.6 8.2 1996 Acquisitions....................... (0.3) 6.3 5.8 Total DJONT Comparable Hotels........... (0.9) 6.6 5.4 Original Bristol........................ (2.7) 8.2 4.2 Holiday Acquisition..................... (0.8) 7.7 6.5 Omaha Acquisition....................... 4.4 5.2 15.3 Total Bristol Comparable Hotels......... (0.3) 7.1 6.7 Total Comparable Hotels.............. (0.5)pts. 6.9 % 6.2%
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels), and 1996 Acquisitions (12 hotels) are considered DJONT Comparable Hotels, since these hotels were owned by the Company throughout the years ended December 31, 1998 and 1997. (B) Bristol Comparable Hotels (59 hotels) excludes 39 hotels undergoing redevelopment during either 1997 or 1998, three individual hotel acquisitions, and six hotels identified for sale. -7- 10 Non-comparable Hotels
1998 ---------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ 1997 Acquisitions (A)................... 71.0 % $112.11 $79.56 1998 Acquisitions (A)................... 71.4 99.77 71.22 Bristol Non-comparable Hotels (B)....... 67.0 87.30 58.46
1997 ---------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ 1997 Acquisitions....................... 71.8 % $109.26 $78.45 1998 Acquisitions....................... 72.6 97.80 71.01 Bristol Non-comparable Hotels .......... 72.3 79.11 57.21
CHANGE FROM 1998 VS. 1997 ----------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ 1997 Acquisitions....................... (0.8) pts. 2.6 % 1.4% 1998 Acquisitions....................... (1.2) 2.0 0.3 Bristol Non-comparable Hotels .......... (5.3) 10.4 2.2
(A) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions (13 hotels) are excluded from the DJONT Comparable Hotels because they were not owned by the Company during all of 1998 and 1997. (B) The Bristol Non-comparable Hotels excludes two hotels closed during renovation and six hotels identified for sale. In the aggregate, the six hotels identified for sale had a 7.5% decline in RevPAR during 1998. The principal factors affecting the Company's results of operations during 1998 were the growth in the number of hotels owned and the continuing improvement in room and suite revenue, as measured by RevPAR. It is currently expected that improvements in room and suite revenue will be an increasingly important factor during 1999 as the renovation, redevelopment and rebranding of a number of the Hotels is completed. Growth in room and suite revenues significantly impacts the Company because its principal source of revenue is lease payments by the Lessees under the Percentage Leases. The Percentage Leases are computed as a percentage of room and suite revenues, food and beverage revenues, food and beverage rents and, in certain instances, other Hotel revenues. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize other cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. COMPETITION The hotel industry is highly competitive. Each of the Company's hotels is located in a developed area that includes other hotel properties and competes for guests primarily with other full-service hotels in its immediate vicinity and secondarily with other hotel properties in its geographic market. An increase in the number of competitive hotel properties in a particular area could have a material adverse effect on the -8- 11 Occupancy, ADR and RevPAR of the Company's hotels in that area. The Company believes that brand recognition, location, the quality of the hotel and services provided, and price are the principal competitive factors affecting the Company's hotels. The Company competes for investment opportunities with other entities, some of which have substantially greater financial resources than the Company. These larger entities may generally be able to accept more risk than the Company can prudently manage. Competition may generally reduce the number of suitable investment opportunities offered to the Company and may increase the bargaining power of owners seeking to sell their hotels. PROPERTY TAXES Each Hotel is subject to real and personal property taxes, which are borne by the Company under the Percentage Leases. During 1998, real and personal property taxes incurred by the Company amounted to $32.9 million, or 9.7% of the Company's total revenues. Real and personal property taxes on the Hotels may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. FelCor's Vice President, Taxes, Michael L. Hunter and his staff, work with the numerous taxing authorities, both directly and through independent agents, to assure that the Hotels are fairly assessed and to minimize the Company's tax liabilities. TAX STATUS OF FELCOR FelCor has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its initial taxable year ending December 31, 1994. As a REIT, FelCor (subject to certain exceptions) will not be subject to federal income taxation, at the corporate level, on its taxable income that is distributed to its shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute annually at least 95% of its taxable income. FelCor may, however, be subject to certain state and local taxes on its income and property. The Company expects to make distributions on its Units sufficient to enable FelCor to meet its distribution obligations as a REIT. FelCor and the Company have each adopted the calendar year as its taxable year. LESSEE OPERATIONS The Lessees lease all but one of the Hotels under Percentage Leases, pursuant to which the Lessee is obligated to pay the Company the greater of a minimum Base Rent or Percentage Rent based on a percentage of revenues. See "Item 2. Properties" for additional information regarding the terms of the Percentage Leases. The Lessees have entered into, and are responsible for the payment of all fees under, the franchise licenses and management agreements relating to the Hotels, may hold the liquor licenses applicable to the Hotels, own and maintain the inventories required for the operation of the Hotels, pay for normal maintenance and repair expenses, enter into various operating, maintenance and service agreements with respect to the Hotels, and are responsible for compliance with the license, management and other agreements affecting hotel operations. In addition, the Lessees provide asset management services to the Hotels, including the supervision of the day-to-day operations of the Hotels by the management companies engaged to manage such Hotels and the establishment and implementation of capital expenditure programs. Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate 50% common equity interest in DJONT, have entered into an agreement with the Company pursuant to which they have agreed that, through April 15, 2005, any distributions received by them from DJONT (in excess of their tax liabilities with respect to the income of DJONT) will be utilized to purchase Common Stock or Units from FelCor or the Company in an underwritten public offering or annually, at the then current market prices. The agreement stipulates that Messrs. Feldman and Corcoran are restricted from selling the stock so acquired for a period of two years from the date of purchase. RGC Leasing, Inc., which owns the other 50% common equity interest in the Lessee, may -9- 12 elect to purchase Common Stock or Units upon similar terms, at its option. Pursuant to this agreement, each of Messrs. Feldman and Corcoran purchased 3,775 shares of Common Stock in December 1995. The Independent Directors (as herein defined) may suspend or terminate such agreement at any time. DJONT, as a related third party, has elected to provide its audited financial statements to the Company for inclusion elsewhere in this Form 10-K, although such statements are not generally required to be disclosed. See "Index to Financial Statements" at page F-1. Bristol, which succeeded to the hotel operating business conducted by Bristol Hotel Company prior to its July 1998 merger into FelCor, is an independent publicly owned company whose common stock is traded on the New York Stock Exchange. Bristol is required to file with the Securities and Exchange Commission such financial statements and other information as may be required under the Securities Exchange Act of 1934, as amended. Reference is made to Bristol's filings with the Securities and Exchange Commission for information relating to Bristol. EMPLOYEES The Company has no employees. Management functions of the Company are performed by FelCor as the sole general partner. Mr. Corcoran entered into an employment agreement with the FelCor in 1994 that continues through 1999. None of FelCor's other executive officers has an employment agreement with FelCor. In addition to Mr. Corcoran, FelCor had 40 other full-time employees at December 31, 1998. All persons employed in the day-to-day operation of the Company's Hotels are employees of the Lessees, or of the management companies engaged by the Lessees, to operate such Hotels and are not employees of FelCor or the Company. PERSONNEL AND OFFICE SHARING ARRANGEMENTS The Company's general partner, FelCor, shares executive offices with DJONT and FelCor, Inc., a corporation owned by Messrs. Feldman and Corcoran. Each entity bears an allocated share of the costs thereof, including but not limited to rent, salaries of certain personnel (other than Mr. Corcoran, who is compensated solely by FelCor), office supplies, telephones and depreciation of office furniture, fixtures and equipment. The Company reimburses FelCor for its share of such allocated costs. Such allocations of shared costs are subject to the approval of a majority of the Independent Directors of FelCor. During 1998, approximately $2.8 million (approximately 63% of all allocable expenses) were ultimately borne by the Company under this arrangement. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS Certain statements and analyses contained in this Annual Report on Form 10-K, in FelCor's 1998 Annual Report to Stockholders, or that may in the future be made by, or be attributable to, the Company, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. All of such forward-looking statements are based upon present expectations and assumptions that may or may not actually occur. The following factors constitute cautionary statements identifying important factors, including material risks and uncertainties, with respect to such forward-looking statements that could cause actual results to differ materially from those reflected in such forward-looking statements or in the Company's historical results. Each of the following factors, among others, could adversely affect the ability of the Company to meet its current expectations. -10- 13 Inability to Integrate Bristol Hotel Company's Assets or Realize Anticipated Benefits of Merger. Primarily as a result of the Merger, the number of hotels owned by the Company more than doubled during 1998. Although the Bristol Hotels are operated by Bristol under long-term leases, the Company must fully integrate those hotels into its hotel portfolio and FelCor may need additional people and resources to handle the increased work load. If the Company is unable successfully to integrate the Bristol Hotels into its portfolio, the Company's business, financial condition and results of operations could suffer. A large number of the Bristol Hotels are in the process of, or awaiting, substantial renovation, redevelopment and rebranding. If the implementation of these plans is significantly delayed or curtailed, or the improvements do not yield the anticipated results, then FelCor and the Company may have paid too much for the Bristol Hotels in the Merger. Increases in Leverage and Floating Rate Debt; Inability to Retain Earnings or Refinance Debt. As a result of the Merger with Bristol Hotel Company, the Company's leverage increased during 1998 and may increase further. At December 31, 1998, the Company had approximately $1.6 billion in indebtedness, of which approximately $276 million was secured, and a consolidated debt-to-total assets ratio of 38%. The Company's ratio of EBITDA to interest expense for the years ended December 31, 1999 and 1997 was 3.8-to-1 and 4.4-to-1, respectively. At December 31, 1998, the Company had $695.7 million in indebtedness, or 44% of all the Company's indebtedness, that provided for the payment of interest at floating rates. Most of this floating rate debt bears interest at a rate equal to between 0.45% and 1.75% plus the 30-day LIBOR rate. At December 31, 1998, the 30-day LIBOR rate was 5.628750%. Changes in economic conditions could result in higher interest rates, thereby increasing the Company's interest expense on its floating rate debt and reducing funds available for its current renovation, redevelopment and rebranding plans and for distribution to the Company's unitholders. In order to qualify as a REIT, FelCor must distribute to its stockholders, annually, at least 95% of its net taxable income (excluding capital gains) and the distributions it receives from the Company are its sole source of funds to make such distributions. Accordingly, the Company cannot retain any substantial portion of its earnings to meet its capital needs. The Company has $16 million in debt maturing prior to December 31, 1998 and its $250 million Term Loan matures on that date. At December 31, 1998, the Company had $114 million in borrowing capacity available under its existing Line of Credit and is currently seeking to refinance all or a substantial portion of the debt coming due during 1999. If the Company were to default in the payment when due of more than $10 million of its outstanding indebtedness, cross default provisions under most of its credit facilities could result in substantially all of the Company's debt being declared immediately due and payable. Should that occur, the Company may be unable to refinance or repay such indebtedness in full under such circumstances. Dependence on Lessees' Hotel Operations. The Company's revenues currently and in the future will consist primarily of rents received under its leases. The Lessees' payment of such rental obligations is generally unsecured. As the lessee of 106 of the Bristol Hotels, Bristol had a net worth of approximately $35 million at December 31, 1998, and is obligated to maintain certain net worth and liquidity requirements. DJONT, which leases 86 of the Hotels, has limited assets, derives its revenue solely from the operation of the Company's hotels and, at December 31, 1998, had a stockholders' deficit of approximately $8.2 million. However, DJONT or its subsidiaries have the right to borrow from FelCor, Inc., Promus, Doubletree Hotel Corporation, Lee & Urbahns, L.P. and ITT Sheraton Corporation (which have an equity interest in and/or are managers of hotels leased by DJONT), on a subordinated basis and subject to certain limitations, up to an aggregate of approximately $17.3 million to meet certain of its rental obligations. The Company will be substantially dependent upon the successful operation of its hotels to enable the lessees (particularly DJONT) to meet their rental obligations under the leases. -11- 14 The leases with DJONT and Bristol have varying terms, generally no longer than 15 years. At the expiration of the lease terms, the Company will be required to negotiate renewals or seek replacement leases, which could adversely affect its results of operations. Conflicts of Interest Certain FelCor Directors. As of December 31, 1998, DJONT leased 86 of the Company's hotels. All of the voting interests (and a 50% common equity interest) in DJONT are beneficially owned by Hervey A. Feldman and Thomas J. Corcoran, Jr. The remaining 50% of the common equity interests in DJONT are non-voting and are beneficially owned by the children of Charles N. Mathewson. Mr. Feldman is a co-founder and the Chairman Emeritus of FelCor. Mr. Corcoran is a co-founder and the President and Chief Executive Officer of FelCor. Mr. Mathewson and Mr. Corcoran both serve as directors of FelCor. All of the Bristol Hotels are leased to and/or managed by Bristol. No officer or director of Bristol is also an officer or director of FelCor. However, Donald J. McNamara, the Chairman of the Board of FelCor, is a principal in a firm that controls the general partner of United/Harvey Holdings, L.P. ("United Harvey"), which beneficially owns approximately 39.5% of the stock of Bristol. Five partnerships that own substantial equity interests in United Harvey also own in the aggregate approximately 14.1% of FelCor's outstanding Common Stock. In addition, Michael D. Rose and Richard C. North joined FelCor's Board during 1998. Mr. Rose is the former Chairman of the Board of Promus. Mr. North is the Group Finance Director of the parent of Holiday Hospitality Franchising, Inc. ("Holiday Hospitality"). Promus is, and will continue to be, the franchisor and manager of many of FelCor's hotels. Holiday Hospitality is the franchisor of most of the Bristol Hotels and, together with its affiliates, owns approximately 9.9% of the stock of Bristol and approximately 14.1% of FelCor's outstanding Common Stock. Issues may arise under the leases, franchise agreements and management contracts, and in the allocation of acquisition and leasing opportunities, that present conflicts of interests due to the relationship of these directors to the companies with which they are or have been associated. As an example, any decreases in lease rental rates payable by DJONT may increase the profits of DJONT, in which Messrs. Feldman and Corcoran and Mr. Mathewson's children have a direct economic interest, at the expense of the Company and its unitholders. In the event the Company enters into new or additional hotel leases or other transactions with Bristol, the interests of Mr. McNamara and Mr. North, by virtue of their relationships to significant investors in Bristol, may conflict with the interests of the Company and its unitholders. For example, any decrease in lease rental rates payable by Bristol may decrease the Company's profits to the benefit of Bristol. Also, in the selection of franchises under which the Company's hotels will be operated, Mr. Rose and Mr. North, by virtue of their relationships with Promus and Holiday Hospitality, respectively, which are hotel franchising companies, may have interests which conflict with those of the Company and its unitholders. It is anticipated that any director who has a conflict of interest with respect to an issue presented to the FelCor Board will abstain from voting upon that issue although he will have no legal obligation to do so. FelCor has no provisions in its bylaws or charter that require an interested director to abstain from voting upon an issue, although each director will have a fiduciary duty of loyalty to the Company. There is a risk that, should an interested director vote upon an issue in which he or one of his affiliates has an interest, his vote may reflect a bias that could be contrary to the best interests of the Company. In addition, even if an interested director abstains in the actual vote, the director's participation in the meeting and discussion of an issue in which he or companies with which he is associated have an interest could influence the votes of other directors regarding the issue. No Arms-Length Bargaining on DJONT Percentage Leases. The terms of the leases between the Company and DJONT were not negotiated on an arms-length basis. Accordingly, these Percentage Leases may not reflect fair market values or terms. However, the management of FelCor believes that the terms of these leases are fair to the Company. The rental terms of these leases were set based upon historical financial information and projected operating performance of the applicable hotel. The other terms of the leases are -12- 15 typical of the provisions found in other leases entered into in similar circumstances. The leases were approved by a majority of the Independent Directors of FelCor at the time they were entered into. Adverse Tax Consequences to Certain Affiliates on a Sale of Certain Hotels. Messrs. Corcoran and Mathewson may have additional tax liability if the Company sells its investments in six hotels acquired by the Company in July 1994 from partnerships controlled by these individuals. Consequently, the interests of the Company and of Messrs. Corcoran and Mathewson could be different in the event that the Company decided to consider a sale of any of these hotels. Decisions regarding a sale of any of these six hotels must be made by a majority of the Independent Directors of FelCor. Restrictive Debt Covenants At December 31, 1998, the Company's unsecured Line of Credit and Term Loan provided for borrowings of up to an aggregate of $1.1 billion, of which the Company had borrowed approximately $986 million. The Company also had issued and outstanding $298 million (net of discount) in principal amount of publicly-traded senior term notes. The agreements governing the Company's Line of Credit, Term Loan and senior notes contain various restrictive covenants, including, among others, provisions restricting the Company or FelCor from incurring indebtedness, making investments, engaging in transactions with stockholders and affiliates, incurring liens, merging or consolidating with another person, disposing of all or substantially all of its assets or permitting limitations on its subsidiaries with respect to the payment of dividends or other amounts to the Company. In addition, these agreements require the Company to maintain certain specified financial ratios. Under the most restrictive of these provisions, the Company's maximum additional indebtedness that could be incurred for the acquisition of hotel properties would have been limited to approximately $860 million at December 31, 1998. These covenants also may restrict the Company's ability to engage in certain transactions. In addition, any breach of these limitations could result in the acceleration of most of the Company's outstanding indebtedness. The Company may not be able to refinance or repay this indebtedness in full under such circumstances. Matters That May Adversely Affect the Hotel Industry Fewer Growth Opportunities. There has been substantial consolidation in, and capital allocated to, the U.S. lodging industry since the early 1990s. This has generally resulted in higher prices for hotels and fewer attractive acquisition opportunities. An important part of the Company's growth strategy has been the acquisition and, in many instances, the renovation and repositioning, of hotels at less than replacement cost. Continued industry consolidation and competition for acquisitions could adversely affect the Company's growth prospects. The Company competes for hotel investment opportunities with other companies, some of which have greater financial or other resources. Certain competitors may be able to pay higher prices or assume greater risks than would be appropriate for the Company. Potential Adverse Effects on Hotel Operations. The Hotels owned by the Company are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, and generally include: o The existence of competition from other hotels; o The construction of more hotel rooms in a particular area than needed to meet demand; o The increase in energy costs and other travel expenses that reduce business and leisure travel; o The adverse effects of declines in general and local economic activity; and -13- 16 o The risks generally associated with the ownership of hotels and real estate, as discussed in the following four paragraphs and under "-- Matters That May Adversely Affect Real Estate Ownership." In addition, annual adjustments (based on changes in the Consumer Price Index) are made to the Base Rent and the thresholds used to compute Percentage Rent under the Percentage Leases. These adjustments, unless offset by increases in hotel revenues, would reduce the amount of rent payable to the Company under the Percentage Leases and, consequently, the Company's results of operations. Competition. Each of the Company's Hotels competes with other hotels in its geographic area. A number of additional hotel rooms have been or may be built in a number of the geographic areas in which the Hotels are located, which could adversely affect the results of operations of these hotels. According to PricewaterhouseCoopers LLP, total hotel room supply in the United States increased by 3.5%, or approximately 126,000 rooms, from 1997 to 1998, while the demand for hotel rooms increased only 3.2% during the same period. Management believes that most of the increase in United States hotel room supply has been in the limited service or extended stay segments of the hotel industry, from which the Company derives approximately 5% of its revenues. An oversupply of hotel rooms, regardless of market segment, could adversely affect both occupancy and rates in the markets in which the Hotels are located. However, a significant increase in the supply of midscale and upscale hotel rooms and suites, if demand fails to increase proportionately, could have a more severe adverse effect on the Company's operations. Seasonality. The hotel industry is seasonal in nature. Generally, hotel revenues are highest in the first three quarters of each year. Seasonality causes quarterly fluctuations in the Company's revenue. The Company may be able to reduce, but not eliminate, the effects of seasonality by continuing to diversify the geographic location and primary customer base of its Hotels. Investment Concentration in a Single Industry. Historically, the Company has only invested in hotel-related assets. In the event of a downturn in the hotel industry, the adverse effect on the Company may be greater than on a more diversified company with assets outside of the hotel industry. Requirements of Franchise Agreements. Most of the Company's Hotels are operated under various franchise licenses. Each license agreement requires that the franchised hotel be maintained and operated in accordance with certain standards. The franchisors also may require substantial improvements to the Company's Hotels, for which the Company would be responsible under the Percentage Leases, as a condition to the renewal or continuation of these franchise licenses. If a franchise license terminates due to the Company's failure to make required improvements or to otherwise comply with its terms, the Company may be liable to the franchisor for a termination payment. These termination payments would vary among the various franchise agreements and by hotel. The loss of a substantial number of franchise licenses and the related termination payments could have a material adverse effect on the Company's results of operations. Limitations on Acquisitions and Improvements The Company presently intends to continue its acquisition growth strategy, but at a much slower pace than in prior years. Since the completion of the Merger with Bristol Hotel Company in July 1998 the Company's growth strategy has been focused, and it presently intends to focus during 1999, on its internal growth strategy, which includes the renovation, redevelopment and rebranding of its hotels to achieve improved revenue performance. The Company generally cannot fund its growth solely from cash provided from operating activities because FelCor must distribute to its stockholders at least 95% of its taxable income each year to maintain its status as a REIT. Consequently, the Company must rely, to a significant extent, upon the availability of debt or equity capital to fund hotel acquisitions and improvements. Given the current market prices of its equity securities, FelCor has no present intention to effect a public offering of equity securities in the near future. Consequently, the Company will be largely dependent upon its ability to attract debt financing from public or institutional lenders. There can be no assurance that the Company will be successful in attracting -14- 17 sufficient debt financing to fund future growth at an acceptable cost. In addition, FelCor's Board has adopted a policy of limiting indebtedness to not more than 40% of the Company's investment in hotel assets, at cost, which could also limit the Company's ability to incur additional indebtedness to fund its continued growth. At December 31, 1998, the Company's indebtedness represented 38% of its investment in hotel assets, at cost. Potential Tax Risks General. Failure to qualify as a REIT would subject FelCor to federal income tax. FelCor has operated and will continue to operate in a manner that is intended to qualify it as a REIT under federal income tax laws. The REIT qualification requirements are extremely complicated and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, FelCor cannot be certain that it has been or will continue to be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws or the federal income tax consequences of qualification as a REIT. If FelCor failed to qualify as a REIT, FelCor would be required to pay federal income tax on its taxable income. The Company may be required to make distributions to enable FelCor pay any such tax and, accordingly, the Company might need to borrow money or sell hotels in order to make distributions sufficient to pay any such tax. If FelCor ceased to be a REIT, it would no longer be required to pay out most of its taxable income to its stockholders, which could result in reduced distributions by the Company on its Units. Unless its failure to qualify as a REIT were excused under federal income tax laws, FelCor could not re-elect REIT status until the fifth calendar year following the year in which it failed to qualify. Failure to Make Required Distributions Would Subject FelCor to Tax. In order to qualify as a REIT, each year FelCor must pay out to its stockholders at least 95% of its taxable income (other than any net capital gain). In addition, FelCor would be subject to a 4% nondeductible tax if the actual amount it pays out to its stockholders in a calendar year were less than the minimum amount specified under federal tax laws. FelCor has paid out and intends to continue to pay out its income to its stockholders in a manner intended to satisfy the 95% test and to avoid the 4% tax. FelCor's only source of funds to make such distributions comes from distributions by the Company on its Units. Accordingly, the Company may be required to borrow money or sell assets to make distributions sufficient to enable FelCor to pay out enough of its taxable income to satisfy the 95% test and to avoid the 4% tax in a particular year. Failure to Distribute Earnings and Profits in Connection With the 1998 Merger With Bristol Hotel Company Would Cause FelCor to Fail to Qualify as a REIT. At the end of any taxable year, a REIT may not have any accumulated earnings and profits (described generally for federal income tax purposes as cumulative undistributed net income) from a non-REIT corporation. Arthur Andersen LLP prepared and provided to FelCor its computation of the accumulated earnings and profits of Bristol Hotel Company through the date of the Merger. Based upon such computation, in addition to its regular fourth quarter distribution, FelCor paid a special one-time distribution of $0.345 per share on its Common Stock, and $0.207 per share on its Series A Preferred Stock, in respect of such accumulated earnings and profits. Corresponding distributions were made by the Company on its Units. However, the determination of a company's accumulated earnings and profits for federal income tax purposes is extremely complex and the computations by Arthur Andersen LLP are not binding upon the Internal Revenue Service. Should the Internal Revenue Service successfully assert that the accumulated earnings and profits of Bristol Hotel Company were greater than the amount so distributed by FelCor, it may fail to qualify as a REIT. Sale of Assets Acquired in the Merger Within Ten Years After the Merger Will Result in Corporate Tax. If the Company sells any asset acquired in the Merger, within ten years after the Merger, and recognizes gain, FelCor will be taxed at the highest corporate rate on an amount equal to the fair market value of the asset minus the adjusted basis of the asset as of the Merger. The sales of Bristol Hotels that have been made, and are currently planned to be made, are not expected to result in any material amount of income tax liability. -15- 18 Effect of Market Interest Rates on the Price of the Common Stock One of the factors that may affect the price of the Common Stock is the amount of distributions to stockholders in comparison to yields on other financial instruments. An increase in market interest rates would provide higher yields on other financial instruments, which could adversely affect the price of FelCor's Common Stock and the value of the Company's Units. Reliance on Key Personnel and Board of Directors FelCor's stockholders have no right to participate in FelCor's management, except through the exercise of their voting rights. The Board of Directors of FelCor, as the Company's sole general partner, will be responsible for oversight of the management of the Company. The Company's future success will be dependent in part on FelCor's ability to retain key personnel, including Mr. Corcoran. Matters That May Adversely Affect Real Estate Ownership General. The Company's investments in hotels are subject to the numerous risks generally associated with owning real estate. These risks include, among others, adverse changes in general or local economic or real estate market conditions, zoning laws, traffic patterns and neighborhood characteristics, real estate tax assessments and rates, governmental regulations and fiscal policies, the potential for uninsured or underinsured casualty and other losses, the impact of environmental laws and regulations (discussed below) and other circumstances beyond the control of the Company. Moreover, real estate investments are relatively illiquid, which means that the Company's ability to vary its portfolio in response to changes in economic and other conditions may be limited. Possible Liability for Environmental Matters. There are numerous federal, state and local environmental laws and regulations to which owners of real estate are subject. Under these laws a current or prior owner of real estate may be liable for the costs of cleaning up and removing hazardous or toxic substances found on its property, whether or not it was responsible for their presence. In addition, if an owner of real property arranges for the disposal of hazardous or toxic substances at another site, it may also be liable for the costs of cleaning up and removing such substances from the disposal site, even if it did not own or operate the disposal site. A property owner may also be liable to third parties for personal injuries or property damage sustained as a result of its release of hazardous or toxic substances (including asbestos-containing materials) into the environment. Environmental laws may require the Company to incur substantial expenses and limit the use of its properties. The Company could be liable for substantial amounts for a failure to comply with applicable environmental laws, which may be enforced by the government or, in certain instances, by private parties. The existence of hazardous or toxic substances on a property can also adversely affect the value of, and the owner's ability to use, sell or borrow against, the property. Generally, the Company obtains a Phase I environmental audit from an independent environmental engineer prior to its acquisition of a hotel. With respect to the Bristol Hotels, the Company has relied upon the Phase I audits obtained by Bristol Hotel Company in connection with its acquisition of these properties. No updates or new environmental audits were obtained. The primary purpose of a Phase I environmental audit is to identify indications of potential environmental contamination at a property and, secondarily, to make a limited assessment as to the potential for environmental regulatory compliance costs. Consistent with current industry standards, the Phase I environmental audits on which the Company has relied did not include an assessment of potential off-site liability or involve any testing of groundwater, soil or air conditions. Accordingly, they would not reveal information that could only be obtained by such tests. In addition, the assessment of environmental compliance contained in such reports is general in nature and was not a detailed determination of the property's complete compliance status. -16- 19 The Phase I environmental audits relied upon by the Company disclose the existence of certain hazardous or toxic substances at or near a limited number of the Company's hotels. In these instances, the Company made such additional investigations, if any, as they considered necessary to evaluate the risk of liability. However, FelCor's management does not believe that the identified conditions, or any other environmental conditions known to it, will have a material adverse effect on the Company's business, assets or profits. It is possible, however, that such environmental audits and investigations do not reveal all environmental conditions or liabilities for which the Company could be liable and there could be potential environmental liabilities of which the Company is unaware. Costs of Complying with Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990 ("ADA"), all public accommodations (including hotels) are required to meet certain federal requirements for access and use by disabled persons. FelCor's management believes that its hotels are substantially in compliance with the requirements of the ADA. However, a determination that the hotels are not in compliance with the ADA could result in liability for both governmental fines and damages to private parties. If the Company were required to make unanticipated major modifications to the hotels to comply with the requirements of the ADA, it could adversely affect its ability to pay its obligations and make distributions to its stockholders. Impact of Year 2000 Issue The year 2000 issue relates to computer programs that were written using two digits rather than four to define the applicable year. In those programs the year 2000 may be incorrectly identified as the year 1900, which could result in a system failure or miscalculations causing a disruption of operations, including a temporary inability to process transactions, prepare financial statements, or engage in other normal business activities. The Company believes that its efforts to identify and resolve the year 2000 issues will avoid a major disruption of its business. The Company has assessed its internal computer systems and believes that they will properly utilize dates beyond December 31, 1999. The Hotels owned by the Company are in various stages of identifying both computer and noninformation technology systems to determine if they are year 2000 compliant, including embedded systems that operate elevators, phone systems, energy maintenance systems, security systems, and other systems. The assessments, which have not been completed at this date, are scheduled to be completed by the end of the first quarter of 1999. Most of the upgrades to make a hotel year 2000 compliant had been anticipated as part of the renovation, redevelopment, and rebranding program that the Company generally undertakes upon acquisition of a hotel. The Company currently anticipates that the total cost to remediate all hotel year 2000 issues to be approximately $8 million, which is included in the Company's 1999 capital plans. The Company has requested and received assurances from the managers of the Hotels, the franchisors of the Hotels and the Lessees, that they have implemented appropriate steps to insure that they will avoid a major disruption of business due to year 2000 issues. Concurrent with the assessment of the year 2000 issue, the Company and its hotel managers and Lessees are developing contingency plans intended to mitigate the possible disruption in business operations that may result from year 2000 issues and are developing cost estimates for such plans. Once developed, contingency plans and related cost estimates will be continually refined as additional information becomes available. -17- 20 ITEM 2. PROPERTIES THE HOTELS The following table sets forth certain descriptive information regarding the Hotels in which the Company had ownership interests at December 31, 1998:
YEAR ACQUIRED BY NUMBER OF LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES - -------- --------------- ------ ----------- ------------ Birmingham, AL.................................... Embassy Suites DJONT 1996 242 Montgomery, AL.................................... Holiday Inn Bristol 1998 213 Flagstaff, AZ..................................... Days Inn Bristol 1998 157 Flagstaff, AZ..................................... Embassy Suites DJONT 1995 119 Phoenix (Airport), AZ............................. Embassy Suites DJONT 1998 229 Phoenix (Camelback), AZ........................... Embassy Suites DJONT 1996 233 Phoenix, (Crescent), AZ........................... Sheraton DJONT 1997 342 Scottsdale, AZ(1)................................. Fairfield Inn Bristol 1998 218 Tempe, AZ......................................... Embassy Suites DJONT 1998 224 Texarkana (I-30), AR(1)........................... Holiday Inn Bristol 1998 210 Anaheim (Disney(R)Area), CA....................... Embassy Suites DJONT 1996 222 Burlingame (S.F. Airport So.), CA(1).............. Embassy Suites DJONT 1995 339 Covina (I-10), CA(2).............................. Embassy Suites DJONT 1997 264 Dana Point, CA.................................... Doubletree Guest Suites DJONT 1997 198 El Segundo (LAX Airport South), CA(1)............. Embassy Suites DJONT 1996 350 Irvine (Orange County Airport, CA................. Holiday Inn Select Bristol 1998 335 Los Angeles (LAX Airport North), CA............... Embassy Suites DJONT 1997 215 Milpitas, CA...................................... Embassy Suites DJONT 1996 267 Milpitas, CA...................................... Holiday Inn Bristol 1998 305 Napa, CA.......................................... Embassy Suites DJONT 1996 205 Oxnard (Mandalay Beach), CA....................... Embassy Suites DJONT 1996 249 Palm Desert, CA................................... Embassy Suites DJONT 1998 198 Pleasanton, CA.................................... Crowne Plaza Bristol 1998 244 Santa Barbara, CA(4).............................. Holiday Inn Bristol 1998 160 San Diego (On-the-Bay), CA(1)..................... Holiday Inn Bristol 1998 600 San Francisco (Financial District), CA(1)......... Holiday Inn Bristol 1998 566 San Francisco (Fisherman's Wharf), CA(1).......... Holiday Inn Bristol 1998 584 San Francisco (Union Square), CA.................. Crowne Plaza Bristol 1998 400 San Rafael (Marin Co.), CA(2)..................... Embassy Suites DJONT 1996 235 South San Francisco (Airport North), CA........... Embassy Suites DJONT 1996 312 Avon (Beaver Creek Resort), CO.................... Embassy Suites DJONT 1996 72 Colorado Springs, CO.............................. Holiday Inn Express Bristol 1998 207 Colorado Springs, CO.............................. Ramada Inn Bristol 1998 220 Denver (Southeast), CO............................ Doubletree DJONT 1998 248 Hartford (Downtown), CT........................... Crowne Plaza Bristol 1998 342 Stamford, CT(1)................................... Holiday Inn Select Bristol 1998 383 Wilmington, DE.................................... Doubletree DJONT 1998 154 Boca Raton, FL.................................... Doubletree Guest Suites DJONT 1995 182 Boca Raton, FL.................................... Embassy Suites DJONT 1996 263 Cocoa, Beach (Ocean Front Resort), FL............. Holiday Inn Bristol 1998 500 Deerfield Beach, FL............................... Embassy Suites DJONT 1996 244 Ft. Lauderdale, FL................................ Embassy Suites DJONT 1996 359 Ft. Lauderdale (Cypress Creek), FL................ Sheraton Suites DJONT 1998 253 Jacksonville, FL.................................. Embassy Suites DJONT 1994 210 Kissimme (Nikki Bird Resort), FL(1)............... Holiday Inn Bristol 1998 529 Lake Buena Vista (Walt Disney World(R)), FL(1).... Doubletree Guest Suites DJONT 1997 229 Miami (Airport), FL(1)............................ Crowne Plaza Bristol 1998 304 Miami (Airport), FL............................... Embassy Suites DJONT 1996 314 Orlando (North), FL............................... Embassy Suites DJONT 1994 210 Orlando (South), FL............................... Embassy Suites DJONT 1994 244 Orlando (International Drive Resort), FL.......... Holiday Inn Bristol 1998 652 Orlando (Airport), FL............................. Holiday Inn Select Bristol 1998 288 Tampa (Busch Gardens), FL......................... Doubletree Guest Suites DJONT 1995 129 Tampa (Rocky Point), FL........................... Doubletree Guest Suites DJONT 1997 203 Tampa (Near Busch Gardens), FL(1)................. Holiday Inn Bristol 1998 395 Atlanta, GA....................................... Courtyard by Marriott Bristol 1998 211 Atlanta (Airport), GA............................. Crowne Plaza Bristol 1998 378 Atlanta (Powers Ferry), GA(4)..................... Crowne Plaza Bristol 1998 296 Atlanta (Buckhead), GA............................ Embassy Suites DJONT 1998 317 Atlanta (Airport), GA............................. Embassy Suites DJONT 1998 233 Atlanta (Perimeter Center), GA(2)................. Embassy Suites DJONT 1998 241 Atlanta (Downtown), GA............................ Fairfield Inn Bristol 1998 242 Atlanta (Marietta), GA............................ Hampton Inn Bristol 1998 140
-18- 21
YEAR ACQUIRED BY NUMBER OF LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES - -------- --------------- ------ ----------- ------------ Atlanta (Airport North), GA(1)(4).............. Holiday Inn Bristol 1998 493 Atlanta (Jonesboro South), GA(4)............... Holiday Inn Bristol 1998 180 Atlanta (Decatur I-20 East), GA................ Holiday Inn Express Bristol 1998 167 Atlanta (Perimeter Dunwoody), GA(4)............ Holiday Inn Select Bristol 1998 250 Atlanta (Airport Gateway), GA.................. Sheraton DJONT 1997 395 Atlanta (Galleria), GA......................... Sheraton Suites DJONT 1997 278 Brunswick, GA.................................. Embassy Suites DJONT 1995 130 Columbus (Airport I-85), GA(1)................. Holiday Inn Bristol 1998 223 Chicago (Allerton), IL......................... Independent Bristol 1998 378 Chicago-Lombard, IL(2)......................... Embassy Suites DJONT 1995 262 Chicago (O'Hare), IL........................... Sheraton Suites DJONT 1997 297 Deerfield, IL.................................. Embassy Suites DJONT 1996 237 Moline, IL..................................... Hampton Inn Bristol 1998 138 Moline (Airport), IL(4)........................ Holiday Inn Bristol 1998 216 Moline (Airport), IL(4)........................ Holiday Inn Express Bristol 1998 111 Indianapolis (North), IN(2)................... Embassy Suites DJONT 1996 222 Davenport, IA.................................. Hampton Inn Bristol 1998 132 Davenport, IA.................................. Holiday Inn Bristol 1998 287 Colby, KS...................................... Holiday Inn Express Bristol 1998 72 Great Bend, KS................................. Holiday Inn Bristol 1998 175 Hays, KS(4).................................... Hampton Inn Bristol 1998 116 Hays, KS(4).................................... Holiday Inn Bristol 1998 190 Overland Park, KS(2)........................... Embassy Suites DJONT 1997 199 Salina, KS(4).................................. Holiday Inn Bristol 1998 192 Salina (I-70), KS.............................. Holiday Inn Express Hotel & Suites Bristol 1998 93 Lexington, KY.................................. Hilton Suites DJONT 1996 174 Lexington, KY.................................. Sheraton Suites DJONT 1998 155 Baton Rouge, LA................................ Embassy Suites DJONT 1996 224 New Orleans, LA................................ Embassy Suites DJONT 1994 282 New Orleans (Chateau LeMoyne), LA(1)(2)........ Holiday Inn Bristol 1998 171 New Orleans (French Quarter), LA(1)(4)......... Holiday Inn Bristol 1998 276 Baltimore, MD.................................. Doubletree Guest Suites DJONT 1997 251 Boston (Marlborough), MA....................... Embassy Suites DJONT 1995 229 Boston (Government Center), MA(1).............. Holiday Inn Select Bristol 1998 303 Leominster, MA................................. Four Points(R) Bristol 1998 187 Troy, MI....................................... Doubletree Guest Suites DJONT 1997 251 Bloomington, MN................................ Embassy Suites DJONT 1997 219 Minneapolis (Airport), MN...................... Embassy Suites DJONT 1995 311 Minneapolis (Downtown), MN..................... Embassy Suites DJONT 1995 218 St. Paul, MN(3)................................ Embassy Suites DJONT 1995 210 Jackson (Downtown), MS(4)...................... Crowne Plaza Bristol 1998 354 Jackson (North), MS............................ Hampton Inn Bristol 1998 119 Jackson (Southwest), MS(4)..................... Holiday Inn Bristol 1998 289 Jackson (North), MS(4)......................... Holiday Inn & Suites Bristol 1998 224 Olive Branch (Whispering Woods Hotel and Conference Center), MS.................. Holiday Inn Bristol 1998 179 Kansas City (Plaza), MO (1)(2)................. Embassy Suites DJONT 1997 266 Kansas City (Northeast), MO.................... Holiday Inn Bristol 1998 167 St. Louis (Downtown), MO....................... Embassy Suites DJONT 1998 297 St. Louis (Westport), MO(4).................... Holiday Inn Bristol 1998 318 Omaha, NE...................................... Doubletree Guest Suites DJONT 1998 189 Omaha (Central), NE............................ Hampton Inn Bristol 1998 132 Omaha (Southwest), NE.......................... Hampton Inn Bristol 1998 131 Omaha (I-80), NE(4)............................ Holiday Inn Bristol 1998 383 Omaha (Old Mill Northwest), NE................. Holiday Inn Bristol 1998 213 Omaha (Southwest), NE.......................... Holiday Inn Express Bristol 1998 78 Hotel & Suites Omaha (Southwest), NE.......................... Homewood Suites Bristol 1998 116 Parsippany, NJ(2).............................. Embassy Suites DJONT 1996 274 Piscataway, NJ................................. Embassy Suites DJONT 1996 225 Secaucus, NJ (1)(2)............................ Embassy Suites DJONT 1997 261 Secaucus, NJ................................... Crowne Plaza Bristol 1998 261 Albuquerque (Mountain View), NM................ Holiday Inn Bristol 1998 360 Syracuse, NY................................... Embassy Suites DJONT 1997 215 Charlotte, NC(2)............................... Embassy Suites DJONT 1996 274 Raleigh/Durham, NC............................. Doubletree Guest Suites DJONT 1997 203 Raleigh, NC(2)................................. Embassy Suites DJONT 1997 225
-19- 22
YEAR ACQUIRED BY NUMBER OF LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES - -------- --------------- ------ ----------- ------------ Cleveland, OH.................................. Embassy Suites DJONT 1995 268 Columbus, OH................................... Doubletree Guest Suites DJONT 1998 194 Dayton, OH(4).................................. Doubletree Guest Suites DJONT 1997 138 Tulsa, OK...................................... Embassy Suites DJONT 1994 240 Philadelphia (Center City), PA(4).............. Crowne Plaza Bristol 1998 445 Philadelphia (Independence Mall), PA........... Holiday Inn Bristol 1998 364 Philadelphia (Society Hill), PA................ Sheraton DJONT 1997 365 Pittsburgh, PA(1)(4)........................... Holiday Inn Select Bristol 1998 251 Charleston (Mills House), SC................... Holiday Inn Bristol 1998 214 Columbia, SC Holiday Inn Bristol 1998 148 Myrtle Beach (Kingston Plantation), SC......... Embassy Suites DJONT 1996 255 Roper (Greenville), SC......................... Crowne Plaza Bristol 1998 208 Knoxville (Central), TN(1)..................... Holiday Inn Bristol 1998 242 Nashville (Airport), TN........................ Doubletree Guest Suites DJONT 1997 138 Nashville, TN.................................. Embassy Suites DJONT 1994 296 Nashville (Opryland/Airport), TN(1)............ Holiday Inn Select Bristol 1998 385 Amarillo (I-40), TX(1)......................... Holiday Inn Bristol 1998 247 Austin (Downtown), TX.......................... Doubletree Guest Suites DJONT 1997 189 Austin (Airport North), TX(2).................. Embassy Suites DJONT 1997 261 Austin (Town Lake), TX......................... Holiday Inn Bristol 1998 320 Beaumont (Midtown I-10), TX.................... Holiday Inn Bristol 1998 190 Corpus Christi, TX............................. Embassy Suites DJONT 1995 150 Dallas (Alpha Road), TX(1)..................... Bristol House(R) Bristol 1998 127 Dallas (Addison North), TX(4).................. Crowne Plaza Bristol 1998 354 Dallas (Market Center), TX(4).................. Crowne Plaza Bristol 1998 244 Dallas, TX(1)(4)............................... Crowne Plaza Suites Bristol 1998 295 Dallas (Campbell Center), TX................... Doubletree DJONT 1998 302 Dallas (DFW Airport South), TX................. Embassy Suites DJONT 1998 305 Dallas (Love Field), TX........................ Embassy Suites DJONT 1995 248 Dallas (Market Center), TX..................... Embassy Suites DJONT 1997 244 Dallas (Park Central), TX...................... Embassy Suites DJONT 1994 279 Dallas (Regal Row), TX......................... Fairfield Inn Bristol 1998 204 Dallas (Downtown West End), TX................. Hampton Inn Bristol 1998 311 Dallas, TX(1)(4)............................... Harvey Hotel Bristol 1998 313 Dallas (DFW Airport North), TX(1)(4)........... Harvey Hotel Bristol 1998 506 Dallas (DFW Airport North), TX(4).............. Harvey Suites Bristol 1998 164 Dallas (Park Central), TX...................... Sheraton DJONT 1998 279 Dallas (Park Central), TX...................... Westin DJONT 1997 545 Houston (Near the Galleria), TX................ Courtyard by Marriott Bristol 1998 209 Houston (Medical Center), TX(4)................ Crowne Plaza Bristol 1998 297 Houston (Near the Galleria), TX................ Fairfield Inn Bristol 1998 107 Houston (I-10 East), TX........................ Fairfield Inn Bristol 1998 160 Houston (I-10 East), TX........................ Hampton Inn Bristol 1998 90 Houston (Medical Center), TX(1)(4)............. Holiday Inn & Suites Bristol 1998 285 Houston (International Airport), TX(4)......... Holiday Inn Bristol 1998 413 Houston (I-10 West), TX........................ Holiday Inn Select Bristol 1998 345 Houston (Near Greenway Plaza), TX(4)........... Holiday Inn Select Bristol 1998 355 Midland (Country Villa), TX.................... Holiday Inn Bristol 1998 250 Odessa (Parkway Blvd.), TX..................... Holiday Inn Express Bristol 1998 186 Hotel & Suites Odessa (Center), TX............................ Holiday Inn Hotel & Bristol 1998 245 Suites Plano, TX(4)................................... Harvey Hotel Bristol 1998 279 Plano, TX...................................... Holiday Inn Bristol 1998 161 San Antonio (Airport), TX(2)................... Embassy Suites DJONT 1997 261 San Antonio (Northwest), TX(2)................. Embassy Suites DJONT 1997 217 San Antonio (Downtown), TX(1).................. Holiday Inn Bristol 1998 315 San Antonio (International Airport), TX........ Holiday Inn Select Bristol 1998 397 Waco (I-35), TX................................ Holiday Inn Bristol 1998 171 Salt Lake City (Airport), UT(1)................ Holiday Inn Bristol 1998 191 Burlington, VT................................. Sheraton DJONT 1997 309
-20- 23
YEAR ACQUIRED BY NUMBER OF LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES - -------- --------------- ------ ----------- ------------ Cambridge, Canada.............................. Holiday Inn Bristol 1998 139 Kitchener (Waterloo), Canada................... Holiday Inn Bristol 1998 182 Peterborough (Waterfront), Canada ............. Holiday Inn Bristol 1998 155 Sarnia, Canada................................. Holiday Inn Bristol 1998 151 Toronto (Yorkdale), Canada..................... Holiday Inn Bristol 1998 370 Toronto (Airport), Canada...................... Holiday Inn Select Bristol 1998 444
- --------- (1) Situated on land leased under a long-term ground lease. (2) This hotel is one of 15 hotels owned by unconsolidated entities in which the Company owns a 50% equity interest. (3) Owned subject to a capitalized industrial revenue bond lease which expires in 2011 and permits the Company to purchase the fee interest at expiration for a nominal amount. (4) Encumbered by mortgage debt. THE PERCENTAGE LEASES Each of the Hotels (with one exception) is leased to a Lessee pursuant to a Percentage Lease. The terms of each Percentage Lease with DJONT was approved by FelCor's Independent Directors at the time it was entered into. The DJONT Percentage Leases. The principal terms of the Percentage Leases with DJONT ("DJONT Leases") are summarized below, although certain terms will vary from hotel to hotel. Term. The DJONT Leases typically have a stated term of 10 years. Rent. The annual Base Rent is typically set at approximately 60% of the initial year's anticipated total rent. The Percentage Rent is calculated in two tiers, a first tier typically equal to 17% of room and suite revenues up to a specified amount ("Room and Suite Revenue Breakpoint") and a second tier typically equal to 65% of room and suite revenues above such Room and Suite Revenue Breakpoint. In addition, the DJONT Lessee typically pays the Company 5% of the food and beverage revenues from each Hotel in which the restaurant and bar operations are conducted directly by the DJONT Lessee and 98% of the food and beverage rent revenues from each Hotel in which the restaurant and bar operations are subleased by the DJONT Lessee to an unrelated third party. The Room and Suite Revenue Breakpoint is established at the time the Percentage Lease is entered into, based upon the historical and anticipated operations of the particular hotel, in a manner expected to provide the Company with approximately 95% of the anticipated operating profits of the hotels in which it invests. The amount of Base Rent and of the Room and Suite Revenue Breakpoint in each DJONT Lease formula generally is subject to adjustment, annually, based upon a formula taking into account changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year, for the hotels acquired prior to July of the previous year. The adjustment in any year may not exceed 7%. The CPI adjustments applicable to 1998, 1997 and 1996 were 0.50%, 1.42% and 0.73%, respectively. Events of Default. If an Event of Default occurs and continues beyond any curative period, the Company has the option of terminating the DJONT Lease or any or all other DJONT Leases. Events of Default under the DJONT Leases include typical defaults such as failure to pay rent, certain insolvency events and, among others, the following: o the breach by the DJONT Lessee of any term of a DJONT Lease that is not cured within certain specified periods or an Event of Default under any other DJONT Lease; -21- 24 o if the DJONT Lessee voluntarily discontinues operations of a leased hotel for more than 30 days, except as a result of damage, destruction, or condemnation; or o if the franchise agreement with respect to a leased hotel is terminated by the franchisor as a result of any action or failure to act by the DJONT Lessee or its agents. Termination of Percentage Leases on Disposition of the Hotels. If the Company enters into an agreement to sell or otherwise transfer a leased hotel, the Company has the right to terminate the DJONT Lease with respect to such leased hotel upon 90 days' prior written notice upon either (i) paying the DJONT Lessee the fair market value of the DJONT Lessee's leasehold interest in the remaining term of the DJONT Lease to be terminated or (ii) offering to lease to the DJONT Lessee a substitute hotel on terms that would create a leasehold interest with a fair market value equal to or exceeding the fair market value of the DJONT Lessee's remaining leasehold interest under the DJONT Lease to be terminated. The Company also is obligated to pay, or reimburse the DJONT Lessee for certain fees and expenses resulting from the termination of the DJONT Lease. Maintenance and Modifications. Under the DJONT Leases, the Company is required to maintain the underground utilities and the structural elements of the improvements, including exterior walls (excluding plate glass) and the roof of each leased hotel. In addition, the DJONT Leases obligate the Company to fund periodic improvements (in addition to maintenance of structural elements) to the buildings and grounds comprising the leased hotels, and the periodic repair, replacement and refurbishment of furniture, fixtures and equipment in the leased hotels, when and as required to meet the requirements of the applicable franchise licenses, and to establish and maintain a reserve, which is available to the DJONT Lessee for such purposes, in an amount equal to 4% of hotel room and suite revenues, on a cumulative basis. The Company's obligation is not limited to the amount in such reserve. Otherwise, the DJONT Lessee is required, at its expense, to maintain the leased hotels in good order and repair, except for ordinary wear and tear, and to make nonstructural repairs, whether foreseen or unforeseen, ordinary or extraordinary, which may be necessary and appropriate to keep the leased hotels in good order and repair. Insurance and Property Taxes. The Company is responsible for paying real estate and personal property taxes and property insurance premiums on the leased hotels (except to the extent that personal property associated with the leased hotels is owned by the DJONT Lessee). The DJONT Lessee is responsible for the cost of all liability insurance on the leased hotels, which must include extended coverage, comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to the leased hotels. Indemnification. Under each of the DJONT Leases, the DJONT Lessee will indemnify the Company for certain losses relating to the leased hotel, including losses related to any accident or injury to person or property at the leased hotels, certain environmental liability, taxes and assessments (other than real estate and personal property taxes and any income taxes of the Company on income attributable to the leased hotels), the sale or consumption of alcoholic beverages, or any breach of the DJONT Leases by the DJONT Lessee. -22- 25 Other Lease Covenants. The DJONT Lessee has agreed that during the term of the DJONT Leases it will maintain a ratio of total debt to consolidated net worth of less than or equal to 50%, exclusive of capitalized leases and indebtedness subordinated in right to repayment to the rent due under the DJONT Leases. In addition, the DJONT Lessee has agreed that it will not pay fees to any of its affiliates. Breach by Company. Upon notice from the DJONT Lessee that the Company has breached the Lease, the Company has 30 days to cure the breach or proceed to cure the breach, which period may be extended in the event of certain specified, unavoidable delays. If the Company fails to cure a breach on its part under a DJONT Lease, the DJONT Lessee may purchase the leased hotel from the Company for a purchase price equal to the leased hotel's then fair market value. Bristol Master Hotel Agreement. Bristol and the Company are parties to an Amended and Restated Master Hotel Agreement ("MHA"), pursuant to which, among other things, Bristol and the Bristol Lessees are required to use their reasonable best efforts to permit FelCor to continue to qualify as a real estate investment trust under the Code. Bristol and the Bristol Lessees are required to maintain a minimum liquid net worth (including not only working capital and other liquid assets, but also income-producing or readily-marketable assets, and any letters of credit or other credit enhancements necessary to meet such requirement) at all times at least equal to fifteen percent (15%) of projected annual rent under all of the Bristol leases during each calendar year. If such minimum liquid net worth is not maintained, and Bristol fails to cure the deficiency, the leases will be in default, and the Bristol Lessees generally will be prohibited from making cash dividends or other distributions or any other payments to affiliates. Under the MHA, the Bristol Hotels also are treated as a whole, and the leases are cross-defaulted, for purposes of the Company's remedies upon default. Upon certain material defaults under one or more leases, the Company has the option to terminate the particular lease(s) in default, or all leases to which the defaulting Bristol Lessee is a party, or all (but not less than all) of the Bristol leases. The Bristol Percentage Leases. The principal terms of the Percentage Leases with Bristol (the "Bristol Leases") are summarized below, although certain terms will vary from hotel to hotel. Term. The Bristol Leases are for initial terms of five to ten years, with renewal options on the same terms for a total of 15 years. If a Bristol Lease has been extended to 15 years, the Bristol Lessee may renew the lease for an additional five years at then current market rates. Rent. The Bristol Lessees pay a monthly rent equal to the greater of Base Rent or Percentage Rent. The Percentage Rent is based on specified percentages of various revenue streams. Those percentages will vary from hotel to hotel within the following ranges: Room and Suite Revenues: 0% to 10% up to a revenue breakpoint amount specified for each hotel, then 60% to 75% above such breakpoint. Food & Beverage Revenues: 5% to 25%. Telephone Revenues: 5% to 10%. Other Revenues: Varying percentages depending on the nature and source of such revenues.
-23- 26 The Base Rent and the thresholds for computing Percentage Rent under the Bristol Leases will be adjusted annually to reflect changes in the CPI. The parties to the Bristol Leases also agree to renegotiate the rent in the event of any rebranding, substantial renovations (other than those agreed upon prior to the execution of the Bristol Leases) or other, future hotel repositioning strategies resulting in significant disruption of the operations of the leased hotels. The Bristol Lessees have the right to require the Company to renegotiate the rent for all the hotels in a particular region if there is an extended, material reduction in midscale hotel occupancy rates in the U.S. and in such region. If the Company and the Bristol Lessees are unable to agree on a reduction in rent, the Bristol Lessees may terminate all Bristol Leases in the respective region. The Bristol Lessee also may require the Company to renegotiate the rent for a particular hotel if, as a result of certain force majeure events, there is an extended, material decline in the travel or hotel business and a material reduction in the occupancy rate of such hotel and the hotel's competitive set. If the Bristol Lessee and the Company are unable to agree on a change in rent, the Bristol Lessee may terminate the lease for such hotel. Termination. A Bristol Lease also may be terminated by the Company for typical defaults such as failure to pay rent, certain insolvency events and the following reasons, among others: o if Bristol fails to satisfy certain performance targets for any one hotel and all other hotels in the aggregate during any three consecutive years based on budgeted room revenues, unless Bristol pays the Company the difference between the actual rent paid and 80% (or, in certain circumstances, 90%) of the budgeted rent; o upon a change in control of Bristol, defined as the acquisition of more than 50% of Bristol's stock by any person or group not approved by Bristol's Board of Directors or the election of a majority of directors not supported by Bristol's Board of Directors; o upon any breach by the Bristol Lessee of the agreements under the lease that is not cured within certain specified periods; o if Bristol fails to maintain a minimum liquid net worth or to provide other credit support for the obligations of the Bristol Lessees under the Bristol Leases; o if a franchisor terminates a franchise license as a result of the Bristol Lessee's default under the franchise agreement; and o if the Company sells the hotel to an unaffiliated third party. If the Company terminates the lease upon sale of a hotel and Bristol does not continue as a manager or lessee of the hotel (or a substitute hotel offered by the Company), Bristol will be entitled to monthly termination payments during the remainder of the lease term equal to one-twelfth of 60% of the average monthly profit and allocable overhead contribution associated with operating the hotel over the 12 months ending on the termination date. Indemnification. The Bristol Lessee agrees to indemnify the Company for certain losses relating to the hotel, including losses related to any accident or injury to persons or property at the hotel, any breach of the lease by the Bristol Lessee and certain environmental and tax liabilities not assumed by the Company in connection with its acquisition of the Bristol Hotels. The Company will indemnify the Bristol Lessee for any breach of the lease by the Company, for liability for the environmental condition of the hotel at the time the lease commences and for the Company's acts of gross negligence or willful misconduct. -24- 27 Maintenance and Capital Expenditures. The Bristol Lessee is responsible for maintaining the leased hotel in good order and repair and for making all repairs that do not constitute capital improvements. The Bristol Lessee is generally required to budget and expend an amount equal to at least 4.5% of gross revenues of the hotel for maintenance and repairs (other than capital improvements) during each lease year. The Bristol Lessee must supply and maintain the inventory that is necessary to operate the leased hotel. The Company is responsible for all hotel capital improvements (including those required by applicable law or, with certain exceptions, the respective franchise license) and for maintaining the underground utilities and all hotel improvements, furniture, fixtures and equipment owned by the Company to the extent such maintenance constitutes capital expenditures in accordance with generally accepted accounting principles or the capital improvements policy agreed to by both the Company and the Bristol Lessee. The Company must make available an amount equal to at least 3% of the hotel's gross revenues, on a cumulative basis, for budgeted or other approved capital expenditures. Insurance and Property Taxes. The Company will pay all real estate and personal property taxes and property insurance premiums on the leased hotels, other than with respect to the Bristol Lessee's personal property. The Bristol Lessee will pay for all liability insurance on the leased hotels, including extended coverage, comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to the leased hotels. ITEM 3. LEGAL PROCEEDINGS There is no litigation pending or known to be threatened against the Company or affecting any of its Hotels other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of such claims are substantially covered by insurance. Management does not believe that any claims known to it (individually or in the aggregate) will have a material adverse effect on the Company, without regard to any potential recoveries from insurers or other third parties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION There is no established public trading market for the Units. The Units, however, are redeemable at the option of the holder for a like number of shares of Common Stock of FelCor or, at the option of FelCor, for the cash equivalent thereof. The following information is provided regarding the Common Stock of FelCor. FelCor's Common Stock is traded on the New York Stock Exchange under the symbol "FCH." The following table sets forth for the indicated periods the high and low sale prices for the Common Stock, as traded on such exchange. -25- 28
HIGH LOW ---- --- 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 1998 ---- First quarter................................................ 38 5/16 34 15/16 Second quarter............................................... 37 5/16 31 3/16 Third quarter................................................ 32 1/4 20 Fourth quarter............................................... 24 3/16 18 3/16
UNITHOLDER INFORMATION At March 10, 1999, the Company had approximately 40 holders of record of its Units. It is estimated that there were approximately 40 beneficial owners, in the aggregate, of the Units at that date. DISTRIBUTION INFORMATION The Company has adopted a policy of paying regular quarterly distributions on its Units, and cash distributions have been paid on the Company's Units with respect to each quarter since its inception. The following table sets forth information regarding the declaration and payment of distributions by the Company on its Units during 1997 and 1998.
QUARTER TO DISTRIBUTION DISTRIBUTION PER SHARE WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION RELATES DATE DATE AMOUNT ------------------ ------------ ------------ ------------ 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 1998 ---- First quarter................................................... 4/15/98 4/30/98 $0.55 Second quarter.................................................. 7/15/98 7/31/98 $0.55 Third quarter................................................... 10/15/98 10/30/98 $0.55 Fourth quarter.................................................. 12/30/98 1/29/99 $0.895(1)
- ------------- (1) Includes a special one-time distribution of $0.345 per Unit, representing accumulated earnings and profits from FelCor's July 1998 merger with Bristol Hotel Company. -26- 29 The foregoing distributions represent an approximate 17.0% return of capital in 1998 and an approximate 6.0% return of capital in 1997. 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, 1998 and December 31, 1997, FelCor had distributions totaling $2.545 and $2.10 per share, respectively, of which only $2.01 and $1.88 per share, respectively, were required to satisfy the 95% REIT distribution test. All of such funds were provided by the Company through distributions on its Units. Under certain circumstances the Company may be required to make distributions in excess of cash available for distribution in order to meet FelCor's REIT distribution requirements. In such event, the Company presently would expect to borrow funds, or to sell assets for cash, to the extent necessary to obtain cash sufficient to make the distributions required to enable FelCor to retain its qualification as a REIT for federal income tax purposes. The Company currently anticipates that it will maintain at least the current distribution rate for the immediate future, unless actual results of operations, economic conditions or other factors differ from its current expectations. Future distributions, if any, paid by the Company will be at the discretion of the Board of Directors of FelCor and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements of FelCor under the REIT provisions of the internal revenue code and such other factors as the Board of Directors deems relevant. RECENT SALES OF UNREGISTERED SECURITIES During 1998, the Company issued an aggregate of 189,916 Units, which may be redeemed for a like number of shares of FelCor's Common Stock, in connection with the acquisition of two hotels. Neither the Units, nor the shares of Common Stock issuable in redemption thereof, were registered under the Securities Act in reliance upon certain exemptions from the registration requirements thereof, including the exemption provided by section 4(2) of that act. -27- 30 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected financial data for the Company for the years ended December 31, 1998, 1997, 1996 and 1995 and the period from July 28, 1994 (inception of operations) to December 31, 1994 that has been derived from the financial statements of the Company and the notes thereto, audited by PricewaterhouseCoopers LLP, independent accountants. Such data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994 ----------------------------------------------- (INCEPTION OF OPERATIONS) 1998 1997 1996 1995 THROUGH DECEMBER 31, 1994(1) --------- --------- --------- --------- ---------------------------- REVENUE: Percentage lease revenue ......................... $ 328,923 $ 169,114 $ 97,950 $ 23,787 $ 6,043 Equity in income from unconsolidated entities .... 7,017 6,963 2,010 513 Other revenue .................................... 4,154 574 984 1,691 207 --------- --------- --------- --------- --------- TOTAL REVENUE ....................................... 340,094 176,651 100,944 25,991 6,250 --------- --------- --------- --------- --------- EXPENSES: General and administrative ....................... 5,254 3,743 1,819 870 355 Depreciation ..................................... 90,835 50,798 26,544 5,232 1,487 Taxes, insurance and other ....................... 45,288 23,093 13,897 2,563 881 Interest expense ................................. 73,182 28,792 9,803 2,004 109 Minority interest in other partnerships .......... 1,121 573 --------- --------- --------- --------- --------- TOTAL EXPENSES ...................................... 215,680 106,999 52,063 10,669 2,832 --------- --------- --------- --------- --------- INCOME BEFORE EXTRAORDINARY CHARGE .................. 124,414 69,652 48,881 15,322 3,418 Extraordinary charge from write off of deferred financing fees .................... 3,075 185 2,354 --------- --------- --------- --------- --------- NET INCOME .......................................... 121,339 69,467 46,527 15,322 3,418 Preferred distributions .......................... 21,423 11,797 7,734 --------- --------- --------- --------- --------- NET INCOME APPLICABLE TO UNITHOLDERS ................ $ 99,916 $ 57,670 $ 38,793 $ 15,322 $ 3,418 ========= ========= ========= ========= ========= DILUTED EARNINGS PER UNIT: Income applicable to unitholders before extraordinary charge ................................ $ 1.93 $ 1.68 $ 1.58 $ 1.70 $ 0.54 Extraordinary charge ............................. (0.06) (0.01) (0.09) --------- --------- --------- --------- --------- Net income applicable to unitholders ............. $ 1.87 $ 1.67 $ 1.49 $ 1.70 $ 0.54 ========= ========= ========= ========= ========= Weighted average units outstanding ............... 53,323 34,467 26,003 8,989 6,385
-28- 31 FELCOR LODGING LIMITED PARTNERSHIP SELECTED FINANCIAL DATA -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994 ------------------------------------------------- (INCEPTION OF OPERATIONS) 1998 1997 1996 1995 THROUGH DECEMBER 31, 1994 (1) ---------- ---------- --------- ---------- ------------------------------ OTHER DATA: Cash distributions per unit .................. $ 2.545 $ 2.10 $ 1.92 $ 1.84 $ 0.66 Funds From Operations (2) .................... 217,363 129,815 77,141 20,707 4,905 EBITDA (3) ................................... 299,550 153,496 86,583 22,203 5,014 Ratio of EBITDA to interest expense .......... 3.8x 4.4x 8.2x 11.1x 46.0x Ratio of earnings to combined fixed charges and preferred distributions (4) ..... 1.9x 2.2x 3.0x 8.6x 32.4x Cash provided by operating activities ........ 192,583 97,478 67,494 17,003 3,959 Cash provided by financing activities ........ 375,064 600,132 251,906 407,897 97,952 Cash used in investing activities ............ (550,498) (687,860) (478,428) (259,197) (100,793) BALANCE SHEET DATA: Cash and cash equivalents .................... $ 34,692 $ 17,543 $ 7,793 $ 166,821 $ 1,118 Investment in hotel properties, net .......... 3,964,484 1,489,764 899,691 325,155 104,800 Investment in unconsolidated entities ........ 136,069 132,991 59,867 13,819 Total assets ................................. 4,175,383 1,673,364 978,788 548,359 108,305 Debt ......................................... 1,594,734 476,819 239,425 19,666 8,750 Partners' capital ............................ 897,766 468,246 445,433 61,885
- ----------------- (1) Prior to FelCor's initial public offering on July 28, 1994, six hotels were owned by entities deemed to be the predecessor of the Company. Suite revenues, total revenues, total expenses and net income of the predecessor for the period from January 1, 1994 through July 27, 1994 were $21.9 million, $23.2 million, $21.6 million and $1.6 million, respectively. (2) The following table details the computation of Funds From Operations (in thousands). A more detailed description of FFO is contained in the "Funds From Operations" section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994 ---------------------------------------------- (INCEPTION OF OPERATIONS) 1998 1997 1996 1995 THROUGH DECEMBER 31, 1994 (1) --------- --------- --------- --------- ----------------------------- Net income ....................................... $ 121,339 $ 69,467 $ 46,527 $ 15,322 $ 3,418 Series B redeemable preferred distributions ... (8,373) Extraordinary charge from write off of deferred financing fees ...... 3,075 185 2,354 Depreciation .................................. 90,835 50,798 26,544 5,232 1,487 Depreciation from unconsolidated entities ..... 10,487 9,365 1,716 153 Funds From Operations (FFO) ...................... $ 217,363 $ 129,815 $ 77,141 $ 20,707 $ 4,905 ========= ========= ========= ========= ========= Weighted average units outstanding * ............. 58,013 39,157 29,306 8,989 6,385
- ----------------------- * Weighted average units outstanding are computed using dilutive options and unvested stock grants, and assuming conversion of Series A Preferred Units to Units. -29- 32 (3) EBITDA is computed by adding FFO, interest expense, the Company's portion of interest expense from unconsolidated entities, amortization expense, and operating cash distributions from unconsolidated entities and deducting 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):
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994 ---------------------------------------------- (INCEPTION OF OPERATIONS) 1998 1997 1996 1995 THROUGH DECEMBER 31, 1994 (1) --------- --------- --------- --------- ----------------------------- Funds From Operations ........................... $ 217,363 $ 129,815 $ 77,141 $ 20,707 $ 4,905 Interest expense ........................... 73,182 28,792 9,803 2,004 109 Interest expense from unconsolidated entities ............................... 6,521 5,895 818 Amortization expense ....................... 922 1,111 593 158 Operating cash distributions from unconsolidated entities ............... 19,066 4,211 1,954 Equity in income from unconsolidated entities .............................. (7,017) (6,963) (2,010) (513) Depreciation from unconsolidated entities... (10,487) (9,365) (1,716) (153) --------- --------- --------- --------- --------- EBITDA .......................................... $ 299,550 $ 153,496 $ 86,583 $ 22,203 $ 5,014 ========= ========= ========= ========= =========
(4) For the purpose of computing the ratio of earnings to combined fixed charges and preferred unit distributions, earnings consist of income from continuing operations plus fixed charges, excluding capitalized interest, and fixed charges consist of interest, whether expensed or capitalized, and amortization of loan costs. -30- 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company at December 31, 1998, owned interests in 193 hotels with nearly 50,000 rooms and suites. Additional organizational information relating to the Company, and the definitions of certain capitalized terms, are contained in the Notes to Consolidated Financial Statements of FelCor Lodging Limited Partnership appearing elsewhere herein. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R) and independently owned Doubletree(R) branded hotels in the world. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at December 31, 1998:
BRAND DJONT BRISTOL TOTAL ----- ----- ------- ----- Embassy Suites 57 57 Holiday Inn 49* 49 Doubletree and Doubletree Guest Suites(R) 17 17 Crowne Plaza and Crowne Plaza Suites(R) 14 14 Holiday Inn Select(R) 11 11 Sheraton(R)and Sheraton Suites(R) 9 1 10 Hampton Inn(R) 9 9 Holiday Inn Express(R) 7* 7 Fairfield Inn(R) 5 5 Harvey Hotel(R) 4 4 Independents 2 2 Courtyard by Marriott(R) 2 2 Days Inn(R) 1* 1 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Radisson(R) 1 1 Ramada Inn(R) 1* 1 Westin(R) 1 1 --- ---- ---- Total Hotels 86 107 193 === ==== ====
* The Company has sold, or intends to sell, during 1999 two Holiday Inn, two Holiday Inn Express, the Ramada Inn and Days Inn hotels owned at December 31, 1998. The Hotels are located in 34 states and Canada with 79 in California (20), Florida (18) and Texas (41). The principal factors affecting the Company's results of operations are acquisitions of hotels, renovations, redevelopments, and rebrandings of hotels, and changes in room and suite revenues measured by revenue per available room ("RevPAR"). On July 28, 1998, FelCor completed the acquisition of the assets of Bristol through a merger, which resulted in the net addition of 107 hotels, valued at approximately $2 billion, to the Company's portfolio. In addition to the Bristol assets, the Company acquired 16 hotels, valued at $412.8 million. Three of the hotels acquired in the Merger were sold prior to December 31, 1998. The Company continued its program of renovation, redevelopment, and rebranding of hotels, to improve under-performing assets and increase revenues. The Company and, prior to the Merger, Bristol Hotel Company, spent nearly $220 million in 1998 on renovations, redevelopments, rebrandings, room additions to existing hotels, and other hotel improvements. This strategy continues to be effective in improving revenue performance. -31- 34 The Company's growth has been financed primarily with equity, resulting in a conservative financial structure. The results of this conservative approach are evidenced by the following, as of December 31, 1998: o Interest coverage ratio of 3.8x o Pro forma interest coverage ratio of 3.6x o Total debt to pro forma EBITDA of 4.1x o Borrowing capacity under existing credit facilities of $114 million o Consolidated debt-to-total assets of 38% o Fixed interest rate debt comprising 56% of total debt o Secured debt to total assets of 7% o Debt of $16 million maturing prior to December 31, 1999 The Company's historical results of operations for 1998, 1997, and 1996 are summarized as follows (in millions, except percentages and hotel counts):
PERCENTAGE YEARS ENDED DECEMBER 31, CHANGE ------------------------------- -------------------- 1998 1997 1996 98 VS 97 97 VS 96 ------ ------- ------- -------- -------- Hotels owned at year end.................................... 193 73 43 164.4% 69.8% Revenues.................................................... $340.1 $ 176.7 $ 100.9 92.5% 75.1% Income before extraordinary charge.......................... $124.4 $ 69.7 $ 48.9 78.5% 42.5% Net income applicable to unitholders........................ $ 99.9 $ 57.7 $ 38.8 73.1% 48.7% Funds From Operations (FFO)................................. $217.4 $129.8 $ 77.1 67.5% 68.4%
RESULTS OF OPERATIONS THE COMPANY -- ACTUAL Comparison of the Years Ended December 31, 1998 and 1997. For the years 1998 and 1997 the Company had total revenue of $340.1 million and $176.7 million, respectively, consisting primarily of Percentage Lease revenue of $328.9 million and $169.1 million. The 43 hotels owned by the Company throughout both of the years 1998 and 1997 (DJONT Comparable Hotels), which reflect the effect of the Company's ownership and the management by its strategic partners, experienced a growth in RevPAR during 1998 of 5.4% over 1997. The largest portion of this increase came from the 18 former Crown Sterling Suite hotels, which continued their trend of improved RevPAR throughout 1998, achieving a RevPAR of $92.05 in 1998 compared to $85.04 for 1997, an increase of 8.2%. These hotels have improved their RevPAR performance by 31.4% since 1996. The Company attributes this dramatic increase to the renovation, redevelopment, and rebranding of these hotels in 1996 and early 1997. Likewise, the 59 Bristol Comparable Hotels (those Bristol hotels not undergoing renovation in either 1997 or 1998) produced improved RevPAR performance of 6.7% over 1997. The improvement in room and suite revenue significantly impacts the Company because its principal source of revenue is rent payments from the Lessees under the Percentage Leases. The Percentage Leases provide for rent based on a percentage of room and suite revenue, food and beverage revenue, food and beverage rents, and in some instances, other hotel revenues. The portion of the Percentage Lease revenue derived from room and suite revenues was approximately 93% in 1998 and 97% in 1997. The decrease in the portion of Percentage Lease revenue derived from room and suite revenues is attributed primarily to the more extensive food and beverage operations in the Bristol hotels. -32- 35 The Company generally seeks to acquire hotels that management believes can achieve increases in room and suite revenue and RevPAR as a result of renovation, redevelopment, and rebranding, or a change in management. However, during the course of such improvements hotel revenue performance is often adversely affected by such temporary factors as out-of-service rooms and suites and disruptions of hotel operations. (A more detailed discussion of hotel room and suite revenue is contained in "The Hotels -- Actual" section of the Management's Discussion and Analysis of Financial Condition and Results of Operations.) Total expenses increased $108.7 million in 1998 over 1997, primarily resulting from the net acquisition of 120 hotels during 1998 and 30 hotels in 1997. Total expenses as a percentage of total revenue increased in 1998 to 63.4% from 60.6% in 1997. The major component of the increase in expenses, as a percentage of total revenue, was interest expense. Interest expense increased by $44.4 million from $28.8 million in 1997 to $73.2 million in 1998, and increased as a percentage of total revenue from 16.3% in 1997 to 21.5% in 1998. The relative increase in interest expense is attributed to the assumption of debt related to the more highly leveraged Bristol assets. Debt as a percentage of total assets increased from 28.5% at December 31, 1997 to 38.2% at December 31, 1998. General and administrative expenses, depreciation, and taxes, insurance, and other expenses remained relatively constant as a percentage of total revenue in 1998 and 1997. Comparison of the Years Ended December 31, 1997 and 1996. For the years 1997 and 1996 the Company had total revenue of $176.7 million and $100.9 million, respectively, consisting primarily of Percentage Lease revenue 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 at the end of 1996. Percentage Lease revenue from the 20 hotels which were owned during all of 1997 and 1996 increased 16.5% for 1997 over 1996 (an increase of $8.8 million). The increase in Percentage Lease revenue is attributed to a 10% increase in RevPAR and to the addition of 177 new suites at three existing hotels. Furthermore, RevPAR at the 43 hotels owned by the Company at December 31, 1996, increased 12.9% during 1997. Equity in income from unconsolidated entities increased approximately $5.0 million in 1997 over 1996, resulting primarily from an increase in the number of hotels owned through unconsolidated entities from five at December 31, 1996, to 14 at December 31, 1997. Total expenses increased $54.9 million in 1997 over 1996, resulting primarily from increased expenses related to the acquisition of additional hotels during 1997 and 1996. The major component of the increased expenses as a percentage of total revenue was interest expense. 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 28.5% at December 31, 1997. 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 expenses remained relatively constant as a percentage of total revenue in 1997 and 1996. -33- 36 FUNDS FROM OPERATIONS The Company and FelCor consider Funds From Operations to be a key measure of a REIT's performance which should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's and FelCor's operating performance and liquidity. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines Funds From Operations as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and 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 requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. The following table details the computation of Funds From Operations (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 -------- --------- ------- FUNDS FROM OPERATIONS (FFO): Net income................................................................. $121,339 $ 69,467 $46,527 Series B redeemable preferred distributions............................. (8,373) Extraordinary charge from write off of deferred financing fees......... 3,075 185 2,354 Depreciation............................................................ 90,835 50,798 26,544 Depreciation for unconsolidated entities................................ 10,487 9,365 1,716 -------- --------- ------- FFO........................................................................ $217,363 $ 129,815 $77,141 ======== ========= ======= Weighted average units outstanding*........................................ 58,013 39,157 29,306
- ------------ * Weighted average units outstanding are computed using dilutive options and unvested stock grants, and assuming conversion of Series A Preferred Units to Units. -34- 37 Included in FFO is the Company's share of FFO from its interest in 15 unconsolidated entities at December 31, 1998, 14 unconsolidated entities at December 31, 1997, and five unconsolidated entities at December 31, 1996. The following table details the computation of FFO from these unconsolidated entities (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Statements of operations information: Percentage lease revenue ................................... $ 52,313 $ 47,720 $ 9,974 Depreciation ............................................... $ 17,570 $ 15,611 $ 3,086 Taxes, insurance and other ................................. $ 8,956 $ 9,555 $ 886 Interest expense ........................................... $ 13,042 $ 11,790 $ 1,636 Net income ................................................. $ 17,438 $ 17,044 $ 4,366 50% of net income attributable to the Company .............. $ 8,719 $ 8,522 $ 2,183 Amortization of cost in excess of book value ............... (1,702) (1,559) (173) -------- -------- -------- Equity in income from unconsolidated entities .............. 7,017 6,963 2,010 Add: Depreciation ......................................... 8,785 7,806 1,543 Amortization of cost in excess of book value ..... 1,702 1,559 173 -------- -------- -------- FFO from unconsolidated entities ........................... $ 17,504 $ 16,328 $ 3,726 ======== ======== ========
THE HOTELS -- ACTUAL Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and Sheraton and Sheraton Suites hotels account for 95% of the Company's Percentage Lease revenue. As a result of the renovation and rebranding of hotels, approximately 97% of Percentage Lease revenue is expected to be derived from upscale and full service hotels in 1999. The following tables set forth historical occupancy, average daily rate ("ADR"), and RevPAR at December 31, 1998 and 1997, and the percentage changes therein between the years presented for the Hotels in which the Company had an ownership interest at December 31, 1998. This information is presented regardless of the date of acquisition. -35- 38 Comparable Hotels The Company believes that, when analyzing the performance of the hotels, looking at "comparable" hotels is the most meaningful. For the DJONT hotels, "comparable" is defined to include those hotels that were owned throughout all of 1997 and 1998. This generally includes the hotels that have benefitted from the Company's renovation, redevelopment, and rebranding programs and generally excludes those hotels that are currently undergoing renovation and experiencing out-of-service rooms and suites due to their renovation. For the Bristol hotels, "comparable" excludes those hotels undergoing redevelopment during either of the comparison years and those hotels that are identified for sale.
1998 ------------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ Original Hotels.......................... 73.6% $113.59 $83.59 CSS Hotels............................... 73.2 125.77 92.05 1996 Acquisitions........................ 73.7 126.08 92.86 Total DJONT Comparable Hotels (A)........ 73.4 122.33 89.83 Original Bristol......................... 71.5 74.38 53.15 Holiday Acquisition...................... 73.9 87.31 64.52 Omaha Acquisition........................ 50.5 62.15 31.36 Total Bristol Comparable Hotels (B)...... 67.4 77.94 52.55 Total Comparable Hotels............... 70.0% $ 97.71 $68.38
1997 ------------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ Original Hotels.......................... 76.1% $109.35 $83.17 CSS Hotels............................... 73.4 115.85 85.04 1996 Acquisitions........................ 74.0 118.61 87.76 Total DJONT Comparable Hotels............ 74.3 114.77 85.27 Original Bristol......................... 74.2 68.76 51.00 Holiday Acquisition...................... 74.7 81.10 60.60 Omaha Acquisition........................ 46.1 59.05 27.21 Total Bristol Comparable Hotels.......... 67.7 72.74 49.26 Total Comparable Hotels............... 70.5% $ 91.37 $64.40
CHANGE FROM 1998 VS. 1997 ------------------------------------ OCCUPANCY ADR REVPAR --------- --- ------ Original Hotels......................... (2.5)pts. 3.9% 0.5% CSS Hotels.............................. (0.2) 8.6 8.2 1996 Acquisitions....................... (0.3) 6.3 5.8 Total DJONT Comparable Hotels........... (0.9) 6.6 5.4 Original Bristol........................ (2.7) 8.2 4.2 Holiday Acquisition..................... (0.8) 7.7 6.5 Omaha Acquisition....................... 4.4 5.2 15.3 Total Bristol Comparable Hotels......... (0.3) 7.1 6.7 Total Comparable Hotels.............. (0.5)pts. 6.9% 6.2%
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels), and 1996 Acquisitions (12 hotels) are considered DJONT Comparable Hotels since these hotels were owned by the Company throughout the years ended December 31, 1998 and 1997. (B) Bristol Comparable Hotels excludes 39 hotels undergoing redevelopment during either 1997 or 1998, three individual hotel acquisitions, and six hotels identified for sale. -36- 39 Non-comparable Hotels
1998 ---------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ 1997 Acquisitions (A)................... 71.0% $112.11 $79.56 1998 Acquisitions (A)................... 71.4 99.77 71.22 Bristol Non-comparable Hotels (B)....... 67.0 87.30 58.46
1997 ---------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ 1997 Acquisitions....................... 71.8% $109.26 $78.45 1998 Acquisitions....................... 72.6 97.80 71.01 Bristol Non-comparable Hotels .......... 72.3 79.11 57.21
CHANGE FROM 1998 VS. 1997 ---------------------------------- OCCUPANCY ADR REVPAR --------- --- ------ 1997 Acquisitions....................... (0.8)pts. 2.6% 1.4% 1998 Acquisitions....................... (1.2) 2.0 0.3 Bristol Non-comparable Hotels .......... (5.3) 10.4 2.2
(A) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions (13 hotels) are excluded from the DJONT Comparable Hotels because they were not owned by the Company during all of 1998 and 1997. (B) The Bristol Non-comparable Hotels excludes two hotels closed during renovation and six hotels identified for sale. In the aggregate, the six hotels identified for sale had a 7.5% decline in RevPAR during 1998. Comparison of the Hotels' Operating Statistics for the Years Ended December 31, 1998 and 1997. DJONT Comparable Hotels. The DJONT Comparable Hotels' RevPAR increased 5.4% in 1998 over 1997. This improvement was driven by an increase in ADR of 6.6%, partially offset by a decrease of approximately one point in occupancy. Forty of the 43 DJONT Comparable Hotels are Embassy Suites hotels. The strongest performance of the DJONT Comparable Hotels came from the CSS Hotels which include 18 former Crown Sterling Suite hotels purchased in 1995 and 1996. These hotels benefitted from the Company's renovation, redevelopment, and rebranding program, under which 16 of these hotels were converted to Embassy Suites and two to Doubletree Guest Suites hotels. The renovations, redevelopments, and rebrandings were completed in 1996 and early 1997. These hotels posted RevPAR of $92.05 in 1998, an improvement of 8.2% over the 1997 RevPAR of $85.04 and an improvement of 31.4% over the 1996 RevPAR of $70.05. The Original Hotels include the 13 hotels acquired by the Company from 1994 through October 1996. While this group of hotels had only a modest increase in RevPAR of 0.5% over 1997, room and suite revenue in this group of hotels increased $5.8 million (6.8%). This increase in room and suite revenue resulted from the 1998 construction of 224 additional suites at three hotels. The 1996 Acquisitions consist of 12 hotels that the Company acquired in late 1995 and 1996. These hotels improved RevPAR performance by 5.8% over 1997. This improvement is generally attributed to the renovation and redevelopment of these hotels in 1996 and 1997. -37- 40 Bristol Comparable Hotels. The Bristol Comparable Hotels improved RevPAR by 6.7% in 1998 over 1997. This improvement was driven by higher ADR with a slight drop (0.3 pts.) in occupancy. The following table sets forth additional information for the Bristol Comparable Hotels:
PERCENTAGE NUMBER 1998 CHANGE OF HOTELS REVPAR IN REVPAR --------- ------ --------- Bristol Comparable Hotels: Holiday Inn................................................... 39 $53.95 7.9% Hampton Inn................................................... 8 $41.52 12.4% Fairfield Inn................................................. 5 $40.94 3.9% Harvey Hotel.................................................. 4 $56.16 (2.4)% Other......................................................... 3 $60.84 7.4% --- Total Bristol Comparable Hotels........................... 59 $52.55 6.7% ===
The strongest performance in the Bristol Comparable Hotels came from the Omaha Acquisition. The Omaha Acquisition hotels include 19 hotels (nine Holiday Inn hotels, five Hampton Inn hotels, four Holiday Inn Express hotels, and one Homewood Suites hotel) acquired by Bristol in early 1998. The increase in RevPAR of 15.3% over 1997 is attributed to the change in management of these hotels to Bristol Hotels & Resorts. The Holiday Acquisition hotels (19 Holiday Inn hotels) increased RevPAR by 6.5% and the Original Bristol hotels (seven Holiday Inn and Holiday Inn Select, five Fairfield Inn, four Harvey, three Hampton Inn, and two Courtyard by Marriott hotels) increased RevPAR by 4.2%, primarily attributable to the positive impact from renovations and redevelopments in 1996. DJONT Non-comparable Hotels. The DJONT Non-comparable Hotels produced slight RevPAR increases which were driven by increases in ADR with a slight drop in occupancy. Bristol Non-comparable Hotels. The Bristol Non-comparable Hotels include eight recently renovated and rebranded Crowne Plaza hotels. These hotels produced RevPAR increases in the fourth quarter of 1998 of 14.3% over the fourth quarter of 1997. More significantly, the ADR at these eight Crowne Plaza hotels increased 20.0% in the fourth quarter of 1998 over the comparable prior year quarter. DJONT - ACTUAL Comparison of the Years Ended December 31, 1998 and 1997 Total revenues increased to $749.5 million in 1998 from $534.5 million in 1997, an increase of 40.2%. Total revenues consisted primarily of suite revenue of $ 618.1 million and $456.6 million in 1998 and 1997, respectively. The increase in total revenues is primarily a result of the increase in the number of hotels leased to 86 hotels at December 31, 1998 from 73 hotels at December 31, 1997. Suite revenues for the 43 hotels which were leased for all of 1998 and 1997 increased 8.0% or $19.3 million. The increase in revenues at these hotels is due primarily to improved average daily room rates of $122.33, for the year ended December 31, 1998, as compared to $114.77 for the year ended December 31, 1997. DJONT recorded a net income of $844,000 in 1998 compared to a net loss of $2.7 million in 1997. This improvement in operating performance is primarily attributed to improved profitability of food and beverage operations for DJONT and a decrease in percentage lease expenses as a percentage of total revenue. Food and beverage profits increased to 1.6% of total revenue in 1998 from 0.3% in 1997, an increase of $10.2 million. This change is attributed to the increased number of hotels leased by DJONT which have a greater emphasis on food and beverage than the traditional Embassy Suites. Food and beverage revenue, as a percentage of total revenue, increased to 10.4% in 1998 compared to 6.5% in 1997. -38- 41 Percentage lease expenses as a percentage of total revenue decreased to 39% from 41%. A portion of this change is attributed to the increase in food and beverage revenues, as a percentage of total revenues, which bear a lower percentage rent than room revenues. Comparison of the Years Ended December 31, 1997 and 1996 Total revenues increased to $534.5 million in 1997 from $269.2 million in 1996, an increase of 98.5%. Total revenues consisted primarily of suite revenue of $456.6 million and $234.5 million in 1997 and 1996, respectively. The increase in total revenues is primarily a result of the increase in the number of hotels leased to 73 hotels at December 31, 1997 from 43 hotels at December 31, 1996. Suite revenues for the 20 hotels which were leased for all of 1997 and 1996 increased 12.2% or $14.6 million. The increase in revenues at these hotels is due primarily to improved occupancy and average daily room rates of 74.7% and $110.20, respectively, for the year ended December 31, 1997, as compared to 72.9% and $102.62 for the year ended December 31, 1996. DJONT income before Percentage Lease rent increased in 1997 to 40.1% from 38.1% of total revenues in 1996 primarily as a result of higher revenue earned per available room. The net loss of approximately $2.7 million during 1997 was half that incurred in 1996 and resulted primarily from the one-time costs of converting the last of 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. RENOVATIONS, REDEVELOPMENTS AND REBRANDINGS The Company believes that one factor that differentiates it from other hotel companies is its commitment to making capital expenditures where necessary, to renovate, redevelop, and rebrand its Hotels. The Company approaches this in five different ways: (i) an aggressive renovation and redevelopment program as hotels are acquired to bring them up to their optimum competitive position, (ii) rebranding hotels in certain instances to improve the revenue generating capacity of the hotel, (iii) contributions of at least 4% of annual room and suite revenue for the DJONT hotels and 3% of total annual hotel revenue for the Bristol hotels (on a cumulative basis) for routine capital replacements and improvements (the "Capital Reserve"), (iv) insuring that the Lessees adhere to a proactive maintenance and repair program for the Hotels amounting to approximately 4.5% of hotel revenues, and (v) after the initial renovation and redevelopment, the construction of additional rooms and suites, meeting rooms and public areas where market conditions dictate. Renovation and Redevelopment Program In 1998, the Company and, prior to the Merger, Bristol Hotel Company completed approximately $180 million of capital improvements to approximately 40 hotels. During 1998, approximately 3% of total hotel room nights were out of service due to renovations. The Company presently expects to spend an additional $160 million in capital improvements to 56 hotels during 1999 and expects that approximately 3% of total room nights again will be out of service due to renovation. -39- 42 Rebranding In 1998 the Company re-branded 16 hotels as follows:
PRIOR BRAND NEW BRAND LOCATION ----------- --------- -------- Hilton Crowne Plaza Secaucus, New Jersey Holiday Inn Crowne Plaza Hartford, Connecticut Holiday Inn Crowne Plaza San Francisco, California Holiday Inn Crowne Plaza Houston, Texas Holiday Inn Select Crowne Plaza Greenville, South Carolina Holiday Inn Select Crowne Plaza Miami, Florida Holiday Inn Select Crowne Plaza Philadelphia, Pennsylvania Harvey Hotel Crowne Plaza Atlanta, Georgia Harvey Hotel Crowne Plaza Dallas, Texas Harvey Hotel Crowne Plaza Addison, Texas Bristol Suites Crowne Plaza Suites Dallas, Texas Doubletree Guest Suites Sheraton Suites Ft. Lauderdale, Florida Doubletree Guest Suites Sheraton Suites Lexington, Kentucky Sheraton Westin Dallas, Texas Radisson Sheraton Dallas, Texas Harvey Suites Holiday Inn & Suites Houston, Texas
In 1999, the Company expects to re-brand four Holiday Inn hotels and one independent hotel as Crowne Plaza hotels, four Doubletree Guest Suites hotels to Embassy Suites hotels, and one Radisson hotel to a Doubletree hotel. Room Additions During 1998, the Company completed construction of an aggregate of 224 suites at its Embassy Suites hotels in Jacksonville (67) and Orlando (North) (67), Florida, and New Orleans (90), Louisiana. CAPITAL RESERVE It is the Company's policy to contribute a minimum of 4% of room and suite revenue from the DJONT leased hotels and 3% of total hotel revenue from the Bristol leased hotels to the Capital Reserve account in order to provide funds for necessary ongoing capital replacements and improvements after the initial renovation or upgrade. During 1998 approximately $40 million was spent on such replacements and improvements, in addition to the $180 million spent under the Renovation and Redevelopment Program described above. REPAIRS AND MAINTENANCE During the year ended December 31, 1998, approximately $36.4 million and $32.0 million were spent by the Lessees on routine repairs and maintenance at the Hotels leased by DJONT and Bristol, respectively. This represents approximately 4.7% of total hotel revenues. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions and repayments of indebtedness, is its share of the cash flow from the Percentage Leases. For the year ended December 31, 1998, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $192.6 million and Funds From Operations was $217.4 million. -40- 43 The Lessees' obligations under the Percentage Leases are largely unsecured. The Lessees have limited capital resources, and, accordingly, their ability to make lease payments under the Percentage Leases is substantially dependent on the ability of the Lessees to generate sufficient cash flow from the operation of the Hotels. At December 31, 1998, the Lessees had paid all amounts then due the Company under the Percentage Leases. During 1998 and 1997, DJONT realized net income of approximately $0.8 million and a net loss of $2.7 million. At December 31, 1998, DJONT had a cumulative shareholders' deficit of approximately $8.2 million. The losses in 1997 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 DJONT will be retained until a positive shareholders' equity is restored. It is anticipated that DJONT's future earnings will be sufficient to enable it to continue to make its lease payments under the Percentage Leases. Certain entities owning interests in DJONT and the managers of certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations when due under the respective Percentage Leases relating to a total of 34 of the Hotels. No such loans were outstanding at December 31, 1998. Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases. As an additional credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of the Company in the original amount of $20 million. This Letter of Credit is subject to periodic reductions upon satisfaction of certain conditions and is required to be maintained until July 27, 1999. For the period from July 28, 1998 (inception of operations) through December 31, 1998, Bristol earned $2.6 million of net income and at December 31, 1998, had stockholders' equity of $35.4 million. The Company may 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, 1998, the Company had $34.7 million of cash and cash equivalents and had utilized $736 million under its $850 million unsecured revolving Line of Credit. The following details the Company's debt outstanding at December 31, 1998 and 1997 (in thousands):
DECEMBER 31, ------------------------- COLLATERAL INTEREST RATE MATURITY DATE 1998 1997 ---------- ------------- ------------- ---------- -------- FLOATING RATE DEBT: Line of credit Unsecured LIBOR + 150bp June 2001 $ 411,000 $ 61,000 Term loan Unsecured LIBOR + 150bp December 1999 250,000 Other Unsecured Up to LIBOR + 150bp Various 34,750 25,650 ---------- -------- Total floating rate debt 695,750 86,650 ---------- -------- FIXED RATE DEBT: Line of credit Unsecured 7.27% June 2001 325,000 75,000 Publicly-traded term Unsecured 7.38% October 2004 174,249 174,116 notes Publicly-traded term Unsecured 7.63% October 2007 124,122 124,029 notes Mortgage debt 15 hotels 7.24% November 2007 145,062 Mortgage debt 3 hotels 6.97% December 2002 43,836 Other 13 hotels 6.96% - 7.23% 2000 - 2005 86,715 17,024 ---------- -------- Total fixed rate debt 898,984 390,169 ---------- -------- Total debt $1,594,734 $476,819 ========== ========
-41- 44 The Company is currently seeking to refinance the $250 million term loan that matures on December 31, 1999. The Line of Credit and the Term Loan contain various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 1998, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to the Company (with certain exceptions) and contain provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the collateralized borrowings are prepayable, however approximately $43.8 million is not subject to any prepayment penalty, yield maintenance, or defeasance obligation. The remaining collateralized borrowings are subject to various prepayment penalties, yield maintenance, or defeasance obligations. To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into interest rate swap agreements with six financial institutions. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its Line of Credit without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the variable rate to be received by the Company at December 31, 1998, are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/98 MATURITY --------------- ------------ ---------- ---------- ------------- $ 50 million 6.11125% 7.61125% 5.33501% October 1999 $ 25 million 5.95500% 7.45500% 5.20000% November 1999 $ 25 million 5.55800% 7.05800% 5.54656% July 2001 $ 25 million 5.54800% 7.04800% 5.54656% July 2001 $ 75 million 5.55500% 7.05500% 5.54656% July 2001 $ 100 million 5.79600% 7.29600% 5.54656% July 2003 $ 25 million 5.82600% 7.32600% 5.54656% July 2003 ------------- $ 325 million =============
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company and have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk in that the counterparties may be unable to fulfill the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. To provide for additional financing flexibility, Felcor has approximately $946 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under shelf registration statements previously declared effective. The Company's cash flow from financing activities of approximately $375.1 million for the year ended December 31, 1998 resulted primarily from FelCor's sale of 5.75 million depositary shares, representing 57,500 shares of FelCor's 9% Series B Cumulative Redeemable Preferred Stock, with net proceeds of $139.1 million (which were subsequently contributed to the Company for preferred units) and net borrowings by the Company of $354.5 million, partially offset by distributions paid to unitholders, of $122.4 million. -42- 45 INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the Lessees' ability to raise room rates. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. THE YEAR 2000 ISSUE The year 2000 issue relates to computer programs that were written using two digits rather than four to define the applicable year. In those programs the year 2000 may be incorrectly identified as the year 1900, which could result in a system failure or miscalculations causing a disruption of operations, including a temporary inability to process transactions, prepare financial statements, or engage in other normal business activities. The Company believes that its efforts to identify and resolve the year 2000 issues will avoid a major disruption of its business. The Company has assessed its internal computer systems and believes that they will properly utilize dates beyond December 31, 1999. The Hotels owned by the Company are in various stages of identifying both computer and noninformation technology systems to determine if they are year 2000 compliant, including embedded systems that operate elevators, phone systems, energy maintenance systems, security systems, and other systems. The assessments, which have not been completed at this date, are scheduled to be completed by the end of the first quarter of 1999. Most of the upgrades to make a hotel year 2000 compliant had been anticipated as part of the Renovation and Redevelopment Program that the Company generally undertakes upon acquisition of a hotel. The Company currently anticipates that the total cost to remediate all hotel year 2000 issues to be approximately $8 million, which is included in the Company's 1999 capital plans. The Company has requested and received assurances from the managers of the Hotels, the franchisors of the Hotels and the Lessees, that they have implemented appropriate steps to insure that they will avoid a major disruption of business due to year 2000 issues. Concurrent with the assessment of the year 2000 issue, the Company and its hotel managers and Lessees are developing contingency plans intended to mitigate the possible disruption in business operations that may result from year 2000 issues and are developing cost estimates for such plans. Once developed, contingency plans and related cost estimates will be continually refined as additional information becomes available. -43- 46 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Portions of this Annual Report on Form 10-K include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. A number of important factors which, among others, could adversely affect the ability of the Company to meet its current expectations are disclosed in conjunction with the forward-looking statements and under "Cautionary Factors That May Affect Future Results" in Item 1 of this Annual Report on Form 10-K ("Cautionary Statements"). Subsequent written and oral forward-looking statements made by or attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998 the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company believes that, upon implementation, FAS No. 133 will not have a material impact on the financial statements of the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information and disclosures regarding market risks applicable to the Company is incorporated herein by reference to the discussion under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" contained elsewhere in this Annual Report on Form 10- K for the fiscal year ended December 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included herein beginning at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -44- 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The Company has no directors or officers. Management functions of the Company are performed by FelCor as the sole general partner. Information about the Directors and Executive Officers of FelCor is incorporated herein by reference to the discussion under "Election of Directors" in FelCor's Proxy Statement for its 1999 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The Company has no directors or officers. Management functions of the Company are performed by FelCor as the sole general partner. The directors and officers of FelCor receive no additional compensation from the Company. Information about FelCor's executive compensation is incorporated herein by reference to the discussion under "Election of Directors" in FelCor's Proxy Statement for its 1999 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth information, as of March 10, 1999, regarding each person known to the Company to be the beneficial owner of more than five percent (5%) of its Units. Unless otherwise indicated, such Units are owned directly and the indicated person has sole voting and dispositive power with respect thereto.
AMOUNT AND NATURE OF PERCENT NAME AND ADDRESS BENEFICIAL OF OF BENEFICIAL OWNER CLASS OF UNIT OWNERSHIP CLASS (1) ------------------- ------------- --------- --------- FelCor Lodging Trust Incorporated GP Units 722,490 100.0% 545 E. John Carpenter Frwy., Suite 1300 LP Units 67,340,397 (2) 95.8% Irving, Texas 75062 Series A Preferred Units 6,050,000 (2) 100.0% Series B Preferred Units 57,500 (2) 100.0%
- ----------------- (1) Based upon 722,490 GP Units, 70,278,085 LP Units, 6,050,000 Series A Preferred Units, and 57,500 Series B Preferred Units outstanding as of March 10, 1999. (2) Includes 67,340,397 LP Units, 5,989,500 Series A Preferred Units, and 56,925 Series B Preferred Units held of record by FelCor Nevada Holdings, L.L.C., a wholly-owned subsidiary of FelCor. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth the beneficial ownership of the Company's LP Units, as of March 10, 1999, by (i) each of FelCor's directors and director nominees, (ii) each Named Executive Officer of FelCor and (iii) all directors and executive officers of FelCor, as a group. Unless otherwise indicated, such LP Units are owned directly and the the indicated person has sole voting and dispositive power. -45- 48
AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME OF OWNERSHIP OF BENEFICIAL OWNER OF LP UNITS CLASS (1) ---------------- ----------- --------- Thomas J. Corcoran, Jr........................ 294,915(2) * Richard S. Ellwood............................ 0 0 Richard O. Jacobson........................... 0 0 Charles A. Ledsinger, Jr...................... 0 0 Robert H. Lutz, Jr............................ 0 0 Charles N. Mathewson.......................... 540,009(3) * Thomas A. McChristy........................... 0 0 Donald J. McNamara............................ 0 0 Richard C. North.............................. 0 0 Michael D. Rose............................... 0 0 Randall L. Churchey........................... 0 0 Jack Eslick................................... 0 0 Lawrence D. Robinson.......................... 0 0 William P. Stadler............................ 0 0 Larry J. Mundy................................ 0 0 June H. McCutchen............................. 0 0 All executive officers and directors of FelCor as a group (16 persons)............. 834,924 1.2%
- ---------------- * Represents less than 1% of the outstanding LP Units. (1) Based upon 70,278,085 LP Units outstanding on March 10, 1999. (2) Owned of record by FelCor, Inc., of which Mr. Corcoran is a 50% stockholder, a director and the President. (3) Represents Mr. Mathewson's pro rata interest in partnerships which hold LP Units of record. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information about certain relationships and related transactions is incorporated herein by reference to the discussion under "Election of Directors" in FelCor's Proxy Statement for its 1999 Annual Meeting of Stockholders. -46- 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Included herein at pages F-1 through F-43. 2. Financial Statement Schedules The following financial statement schedule is included herein at page F-30. Schedule III - Real Estate and Accumulated Depreciation for FelCor Lodging Limited Partnership All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted. 3. Exhibits The following exhibits are filed as part of this Annual Report on Form 10-K:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 3.1 - Amended and Restated Agreement of Limited Partnership of the Partnership (filed as Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference). 3.2 - First Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 17, 1995 by and among the Registrant, Promus Hotels, Inc. and all of the persons or entities who are or shall in the future become of the limited partners of the Partnership (filed as Exhibit 10.1.1 to FelCor's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and incorporated herein by reference). 3.3 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 9, 1996 between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.2 to the 1995 10-K and incorporated herein by reference). 3.4 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, MarRay-LexGreen, Inc. and all of the persons and entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.3 to the 1995 10-K and incorporated herein by reference). 3.5 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, Piscataway- Centennial Associates Limited Partnership and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.4 to the 1995 10-K and incorporated herein by reference).
-47- 50 3.6 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996 (filed as Exhibit 10.1.5 to FelCor's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference). 3.7 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of September 16, 1996, by and among the Registrant, John B. Urbahns, II and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10- K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 3.8 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 16, 1997, by and among the Registrant, PMB Associates, Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.7 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 3.9 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 6, 1998, by and among the Registrant, Columbus/Front Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.8 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 3.10 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 1, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of May 1, 1998 (filed as Exhibit 10.1.9 to FelCor's Form 8-K dated May 29, 1998, and incorporated herein by reference). 3.11 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of June 22, 1998, by and among the Registrant, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.10 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.12 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of July 28, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, changing the name of the Partnership to "FelCor Lodging Limited Partnership" (filed as Exhibit 10.1.11 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.13 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 29, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, amending certain provisions of the Partnership Agreement (filed as Exhibit 10.1.12 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K") and incorporated herein by reference). 3.14 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 31, 1998, by and between the Registrant, FelCor Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.13 to the 1998 10-K and incorporated herein by reference).
-48- 51 3.15 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of March 1, 1999, by and among the Registrant, Huie Properties, Ltd., and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.14 to the 1998 10-K and incorporated herein by reference). 4.1 - Indenture dated as of April 22, 1996 by and between FelCor and Sun Trust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to FelCor's Form 8-K dated May 1, 1996 and incorporated herein by reference). 4.2 - Indenture dated as of October 1, 1997 by and among the Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (file No. 333-39595) and the other co-registrants named therein and incorporated herein by reference). 4.2.1 - First Amendment to Indenture dated as of February 5, 1998 by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-39595) and incorporated herein by reference). 4.2.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998, by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference). 10.1 - Form of Lease Agreement between the Registrant as Lessor and DJONT Operations, L.L.C. or its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the 1995 10-K and incorporated herein by reference). 10.1.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the Registrant, and DJONT to clarify the meaning of Article III of the lease as represented by the actual course of dealing between lessors and lessees under such leases (filed as Exhibit 10.19 to FelCor's Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.2 - Form of Lease Agreement between the Partnership as Lessor and a subsidiary of Bristol Hotels & Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the 1998 10-K and incorporated herein by reference). 10.2.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the Registrant, the Partnership, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.3 - Employment Agreement dated as of July 28, 1994 between FelCor and Hervey A. Feldman (filed as Exhibit 10.7 to the 1994 10-K/A and incorporated herein by reference). 10.4 - Employment Agreement dated as of July 28, 1994 between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to the 1994 10-K/A and incorporated herein by reference). 10.5 - Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10- K/A and incorporated herein by reference). 10.6 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 1994 10-K/A and incorporated herein by reference).
-49- 52 10.7 - 1995 Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9.2 to the 1995 10-K and incorporated herein by reference). 10.8 - Non-Qualified Deferred Compensation Plan (filed as Exhibit 4 to FelCor's Registration Statement on Form S-8 (File No. 333-69869) and incorporated herein by reference). 10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor's Registration Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference). 10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.12 - Form of Severance Agreement for executive officers and certain key employees of FelCor (filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference). 10.13 - Agreement dated as of April 15, 1995 among FelCor, the Registrant, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit 10.15 to the Registration Statement on Form S-11 (File No. 33-91870) and incorporated herein by reference). 10.14 - Credit Agreement dated as of February 6, 1996 by and among the Registrant, as borrower, Holdings and FelCor, as guarantors, and Canadian Imperial Bank of Commerce, as agent (filed as Exhibit 10.30 to FelCor's Form 8-K dated May 1, 1996, and incorporated herein by reference). 10.15 - Voting and Cooperation Agreement dated as of March 23, 1998 among Registrant, Bristol, Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as Exhibit 99.7 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.16 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by FelCor (filed as Exhibit 99.8 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.17 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.18 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1998 among FelCor and the Registrant, as Borrower, the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's Form 8-K dated August 10, 1998 and incorporated herein by reference).
-50- 53 10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 21.1* - List of Subsidiaries of the Registrant. 23.1* - Consent of PricewaterhouseCoopers LLP 27* - Financial Data Schedule.
(b) Reports on Form 8-K. Registrant did not file any reports on Form 8-K during the fourth quarter of 1998. -51- 54 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FELCOR LODGING LIMITED PARTNERSHIP a Delaware Limited Partnership By: FelCor Lodging Trust Incorporated Its General Partner By: /s/ Randall L. Churchey ------------------------------------- Randall L. Churchey Senior Vice President and Chief Financial Officer Date: March 29, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date Signature ---- --------- March 29, 1999 /s/ Donald J. McNamara -------------------------------------------------------------- Donald J. McNamara Chairman of the Board and Director March 29, 1999 /s/ Thomas J. Corcoran, Jr. -------------------------------------------------------------- Thomas J. Corcoran, Jr. President and Director (Chief Executive Officer) March 29, 1999 /s/ Randall L. Chruchey -------------------------------------------------------------- Randall L. Churchey Senior Vice President (Chief Financial Officer) March 29, 1999 /s/ Lester C. Johnson -------------------------------------------------------------- Lester C. Johnson Vice President and Controller (Principal Accounting Officer) March 29, 1999 /s/ Richard S. Ellwood -------------------------------------------------------------- Richard S. Ellwood, Director March 29, 1999 /s/ Richard O. Jacobson -------------------------------------------------------------- Richard O. Jacobson, Director March 29, 1999 /s/ Charles A. Ledsinger, Jr. -------------------------------------------------------------- Charles A. Ledsinger, Jr., Director March 29, 1999 /s/ Robert H. Lutz, Jr. -------------------------------------------------------------- Robert H. Lutz, Jr., Director March 29, 1999 /s/ Charles N. Mathewson -------------------------------------------------------------- Charles N. Mathewson, Director March 29, 1999 /s/ Thomas A. McChristy -------------------------------------------------------------- Thomas A. McChristy, Director March 29, 1999 /s/ Richard C. North -------------------------------------------------------------- Richard C. North, Director March 29, 1999 /s/ Michael D. Rose -------------------------------------------------------------- Michael D. Rose, Director
55 FELCOR LODGING LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION FELCOR LODGING LIMITED PARTNERSHIP Report of Independent Accountants...............................................................................F-2 Consolidated Balance Sheets - December 31, 1998 and 1997........................................................F-3 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996......................F-4 Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996.............. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996......................F-6 Notes to Consolidated Financial Statements......................................................................F-7 Report of Independent Accountants..............................................................................F-29 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1998................................F-30 DJONT OPERATIONS, L.L.C. Report of Independent Accountants..............................................................................F-34 Consolidated Balance Sheets - December 31, 1998 and 1997.......................................................F-35 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996.....................F-36 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996...........F-37 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.....................F-38 Notes to Consolidated Financial Statements.....................................................................F-39
F-1 56 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Lodging Trust Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, partners' capital and cash flows present fairly, in all material respects, the financial position of FelCor Lodging Limited Partnership (the "Company") at December 31, 1998 and 1997, and the consolidated results of operations and cash flows for the years ended December 31, 1998, 1997 and 1996, respectively, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas February 2, 1999 F-2 57 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
ASSETS 1998 1997 ---------- ---------- Investment in hotels, net of accumulated depreciation of $178,072 in 1998 and $87,400 in 1997 ....................................... $3,964,484 $1,489,764 Investment in unconsolidated entities .......................................... 136,069 132,991 Cash and cash equivalents ...................................................... 34,692 17,543 Due from Lessees ............................................................... 21,943 18,908 Deferred expenses, net of accumulated amortization of $2,096 in 1998 and $1,987 in 1997 ........................................... 10,041 10,593 Other assets ................................................................... 8,154 3,565 ---------- ---------- Total assets ............................................................ $4,175,383 $1,673,364 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Debt, net of discount of $1,628 in 1998 and $1,855 in 1997 ..................... $1,594,734 $ 476,819 Distributions payable .......................................................... 67,262 24,671 Accrued expenses and other liabilities ......................................... 57,312 11,331 Minority interest in other partnerships ........................................ 51,105 8,594 ---------- ---------- Total liabilities .............................................................. 1,770,413 521,415 ---------- ---------- Commitments and contingencies (Notes 6 and 9) Redeemable units at redemption value ........................................... 67,595 102,933 Preferred units: Series A Cumulative Preferred Units, 6,050 units issued and outstanding ..... 151,250 151,250 Series B Redeemable Preferred Units, 58 units issued and outstanding ........ 143,750 Partners' Capital .............................................................. 2,042,375 897,766 ---------- ---------- Total liabilities and partners' capital ................................ $4,175,383 $1,673,364 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-3 58 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS, EXCEPT PER UNIT DATA)
1998 1997 1996 --------- --------- --------- Revenues: Percentage lease revenue ............................................. $ 328,923 $ 169,114 $ 97,950 Equity in income from unconsolidated entities ........................ 7,017 6,963 2,010 Other revenue ........................................................ 4,154 574 984 --------- --------- --------- Total revenues .................................. 340,094 176,651 100,944 --------- --------- --------- Expenses: General and administrative ........................................... 5,254 3,743 1,819 Depreciation ......................................................... 90,835 50,798 26,544 Taxes, insurance, and other .......................................... 45,288 23,093 13,897 Interest expense ..................................................... 73,182 28,792 9,803 Minority interest in other partnerships .............................. 1,121 573 --------- --------- --------- Total expenses ................................. 215,680 106,999 52,063 --------- --------- --------- Income before extraordinary charge ................................... 124,414 69,652 48,881 Extraordinary charge from write off of deferred financing fees ....... 3,075 185 2,354 --------- --------- --------- Net income ........................................................... 121,339 69,467 46,527 Preferred distributions .............................................. 21,423 11,797 7,734 --------- --------- --------- Net income applicable to unitholders ................................. $ 99,916 $ 57,670 $ 38,793 ========= ========= ========= Per unit data: Basic: Income applicable to unitholders before extraordinary charge ................................ $ 1.95 $ 1.70 $ 1.59 Extraordinary charge ........................................... (0.06) (0.01) (0.09) --------- --------- --------- Net income applicable to unitholders ........................... $ 1.89 $ 1.69 $ 1.50 ========= ========= ========= Weighted average units outstanding ............................. 52,978 34,126 25,809 Diluted: Income applicable to unitholders before extraordinary charge ................................ $ 1.93 $ 1.68 $ 1.58 Extraordinary charge ........................................... (0.06) (0.01) (0.09) --------- --------- --------- Net income applicable to unitholders ........................... $ 1.87 $ 1.67 $ 1.49 ========= ========= ========= Weighted average units outstanding ............................. 53,323 34,467 26,004
The accompanying notes are an integral part of these consolidated financial statements. F-4 59 FELCOR LODGING LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER UNIT DATA) 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 ....................... 468,247 Contributions .................................... 449,591 Distributions .................................... (90,249) Allocations from redeemable units ................ 710 Net income ....................................... 69,467 ----------- Balance, December 31, 1997 ....................... $ 897,766 Contributions .................................... 1,147,739 Distributions .................................... (166,580) Allocations from redeemable units ................ 42,111 Net income ....................................... 121,339 ----------- Balance, December 31, 1998 ....................... $ 2,042,375 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 60 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
1998 1997 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income ................................................................ $ 121,339 $ 69,467 $ 46,527 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of assets ............................................... (477) Depreciation ........................................................... 90,835 50,798 26,544 Amortization of deferred financing fees and organization costs ......... 1,985 1,468 554 Amortization of unearned officers' and directors' compensation ......... 830 1,017 506 Equity in income from unconsolidated entities .......................... (7,017) (6,963) (2,010) Extraordinary charge for write off of deferred financing fees .......... 3,075 185 2,354 Minority interest in other partnerships ................................ 1,121 573 Changes in assets and liabilities, net of effects of acquisitions: Due from Lessees ....................................................... (3,035) (13,382) (3,130) Deferred financing fees ................................................ (4,348) (8,825) (4,484) Other assets ........................................................... (602) (1,175) 353 Accrued expenses and other liabilities ................................. (11,123) 4,315 280 ----------- ----------- ----------- Net cash flow provided by operating activities ............... 192,583 97,478 67,494 ----------- ----------- ----------- Cash flows used in investing activities: Acquisition of hotels .................................................. (326,276) (574,100) (365,907) Acquisition of unconsolidated entities ................................. (65,271) (43,424) Improvements and additions to hotels ................................... (131,103) (52,700) (71,051) Bristol interim credit facility ........................................ (120,000) Sale of hotels ......................................................... 7,815 Cash distributions from unconsolidated entities ........................ 19,066 4,211 1,954 ----------- ----------- ----------- Net cash flow used in investing activities ................... (550,498) (687,860) (478,428) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from borrowings ............................................... 1,013,003 679,144 303,350 Repayment of borrowings ................................................ (658,524) (445,900) (193,954) Proceeds from sale of preferred units .................................. 139,063 151,250 Contributions .......................................................... 3,884 448,586 37,980 Distributions paid to unitholders ...................................... (105,425) (69,901) (41,936) Dividends paid to preferred unitholders ................................ (16,937) (11,797) (4,784) ----------- ----------- ----------- Net cash flow provided by financing activities ............... 375,064 600,132 251,906 ----------- ----------- ----------- Net change in cash and cash equivalents ........................................ 17,149 9,750 (159,028) Cash and cash equivalents at beginning of years ................................ 17,543 7,793 166,821 ----------- ----------- ----------- Cash and cash equivalents at end of years ...................................... $ 34,692 $ 17,543 $ 7,793 =========== =========== =========== Supplemental cash flow information - interest paid ............................. $ 72,215 $ 21,414 $ 9,168 ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 61 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION FelCor Lodging Limited Partnership and its subsidiaries ( the "Company") at December 31, 1998, owned interests in 193 hotels with nearly 50,000 rooms and suites (collectively the "Hotels"). The sole general partner of the Company is FelCor Lodging Trust Incorporated ("FelCor"), one of the nation's largest hotel real estate investment trusts ("REIT"). At December 31, 1998, FelCor owned a greater than 95% equity interest in the Company. The Company owns 100% interests in 169 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 15 hotels. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at December 31, 1998:
BRAND DJONT BRISTOL TOTAL ----- ----- ------- ----- Embassy Suites 57 57 Holiday Inn 49* 49 Doubletree and Doubletree Guest Suites(R) 17 17 Crowne Plaza and Crowne Plaza Suites(R) 14 14 Holiday Inn Select(R) 11 11 Sheraton(R)and Sheraton Suites(R) 9 1 10 Hampton Inn(R) 9 9 Holiday Inn Express(R) 7* 7 Fairfield Inn(R) 5 5 Harvey Hotel(R) 4 4 Independents 2 2 Courtyard by Marriott(R) 2 2 Days Inn(R) 1* 1 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Radisson(R) 1 1 Ramada(R) 1* 1 Westin(R) 1 1 --- ---- ---- Total Hotels 86 107 193 === ==== ====
* The Company has sold, or intends to sell in 1999, two Holiday Inns, two Holiday Inn Expresses and the Ramada and Days Inn owned at December 31, 1998. The Hotels are located in 34 states and Canada. The following table provides information regarding the net acquisition of hotels through December 31, 1998:
NET HOTELS ACQUIRED --------- 1994 7 1995 13 1996 23 1997 30 1998 120 ---- 193 ====
F-7 62 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION -- (CONTINUED) At December 31, 1998, the Company leased 86 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company or a consolidated subsidiary thereof (collectively "DJONT"), 106 of the Hotels to Bristol Hotels & Resorts or a consolidated subsidiary thereof ("Bristol") and, together with DJONT, the "Lessees". One hotel managed by Bristol was not leased. Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT. The remaining 50% nonvoting common equity interest is beneficially owned by the children of Charles N. Mathewson, a director of FelCor and major initial investor in the Company. DJONT has entered into management agreements pursuant to which 73 of the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation ("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), and three are managed by two independent management companies. Bristol leases and manages 106 Hotels and manages one hotel which operates without a lease. Bristol is the largest independent hotel operating company in North America and operates the largest number of Bass Hotels & Resorts-branded hotels in the world. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates -- 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. 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. The Company reports the carrying amount of cash and cash equivalents, amounts due from the Lessees, accrued expenses, and other liabilities at cost, which approximates fair value due to the short maturity of these instruments. The carrying amount of the Company's borrowings approximates fair value due to the Company'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 to 40 years for buildings and improvements and five to seven years for furniture, fixtures, and equipment. The Company periodically reviews the carrying value of each Hotel to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare a projection of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel based on discounted future cash flows. The Company does not believe that there are any factors or circumstances indicating impairment of any of its investment in the Hotels. F-8 63 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Maintenance and repairs are charged to the Lessees' operations as incurred; major renewals and betterments by the Company are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from the accounts and the related gain or loss is included in operations. Investment in Unconsolidated Entities --The Company owns a 50% interest in various partnerships or limited liability companies in which the partners jointly make all material decisions concerning the business affairs and operations. Accordingly, the Company 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 Company's cost and its proportionate share of the underlying net assets at the 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. Amortization is computed using the interest method over the maturity of the related debt. Revenue Recognition -- Percentage lease revenue is reported as income over the lease term as it becomes receivable from the Lessees according to the provisions of the Percentage Lease agreements. The Lessees are in compliance with their rental obligations under the Percentage Leases. Capitalized Interest -- The Company capitalizes interest and certain other costs relating to hotels undergoing major renovations and redevelopments. Such costs capitalized in 1998 and 1997 were approximately $5.9 million and $1.0 million, respectively. Net Income Per Unit -- Basic earnings per unit have been computed by dividing net income by the weighted average number of units outstanding. Diluted earnings per unit have been computed by dividing net income by the weighted average number of units and equivalents outstanding. Unit equivalents represent units issuable upon exercise of stock options and unvested officers' restricted stock grants. At December 31, 1998, 1997, and 1996, the Company's Series A Cumulative Preferred Units, if converted to Units, would be antidilutive; accordingly the Series A Cumulative Preferred Units are not assumed to be converted in the computation of diluted earnings per unit. Distributions and Dividends -- The Company pays regular quarterly distributions on its Units. Additionally, the Company pays regular quarterly dividends on preferred units in accordance with their distribution requirements. For 1998 the Company paid regular dividends of $2.20 per unit, $1.95 per Series A preferred unit, and $1.44 per Series B depositary preferred unit. Additionally, the Company declared a one-time distribution of accumulated but undistributed earnings and profits as a result of the Bristol merger into FelCor. The amount of the one-time distribution was $0.345 per unit and $0.207 per Series A preferred unit and was paid with its regular fourth quarter distribution. F-9 64 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Income Taxes -- No provision for federal income taxes has been reflected in the financial statements because all taxable income or loss, or tax credits are passed through to the partners. 3. BRISTOL MERGER On July 28, 1998, FelCor completed the merger of Bristol Hotel Company's real estate holdings with and into FelCor (the "Merger"). The Merger resulted in the net acquisition of 107 primarily full-service hotels which were contributed to the Company in return for approximately 31.0 million units. A summary of the fair values of the assets and liabilities acquired in the Merger, recorded at the date of acquisition, is as follows (in thousands): Investment in hotels ............................. $2,014,250 Investment in unconsolidated entity .............. 16,839 Other assets ..................................... 4,151 ---------- 2,035,240 ---------- Units issued ..................................... 1,146,081 Debt obligations ................................. 868,615 Accrued expenses and other liabilities ........... 55,297 ---------- 2,069,993 ---------- Total cash received in Merger .................... $ 34,753 ==========
The Merger has been accounted for as a purchase, and, accordingly, the results of operations since the date of acquisition are included in the Company's consolidated statements of operations. 4. INVESTMENT IN HOTELS Investment in hotels at December 31, 1998 and 1997, consist of the following (in thousands):
1998 1997 ----------- ----------- Land ............................................. $ 329,667 $ 157,554 Building and improvements ........................ 3,480,571 1,257,247 Furniture, fixtures and equipment ................ 298,610 147,923 Construction in progress ......................... 33,708 14,440 ----------- ----------- 4,142,556 1,577,164 Accumulated depreciation ......................... (178,072) (87,400) ----------- ----------- $ 3,964,484 $ 1,489,764 =========== ===========
5. INVESTMENT IN UNCONSOLIDATED ENTITIES At December 31, 1998, the Company owned 50% interests in separate entities owning 15 hotels, a parcel of undeveloped land, and a condominium management company. The Company is accounting for its investments in these unconsolidated entities under the equity method. F-10 65 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED) Summarized unaudited combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
DECEMBER 31, --------------------- 1998 1997 -------- -------- Balance sheet information: Investment in hotels .................................. $257,431 $256,032 Non-recourse mortgage debt ............................ 168,989 138,956 Equity ................................................ 100,670 126,324
YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Statements of operations information: Percentage lease revenue .............................. $ 52,313 $ 47,720 $ 9,974 Other income .......................................... 4,693 6,280 -------- -------- -------- Total revenues ............................... 57,006 54,000 9,974 -------- -------- -------- Expenses: Depreciation ...................................... 17,570 15,611 3,086 Taxes, insurance, and other ...................... 8,956 9,555 886 Interest expense ................................. 13,042 11,790 1,636 -------- -------- -------- Total expenses .............................. 39,568 36,956 5,608 -------- -------- -------- Net income ............................................ 17,438 17,044 4,366 -------- -------- -------- 50% of net income attributable to the Company ......... 8,719 8,522 2,183 Amortization of cost in excess of book value .......... (1,702) (1,559) (173) -------- -------- -------- Equity in income from unconsolidated entities ......... $ 7,017 $ 6,963 $ 2,010 ======== ======== ========
6. DEBT Debt at December 31, 1998 and 1997, consists of the following (in thousands):
DECEMBER 31, ----------------------- COLLATERAL INTEREST RATE MATURITY DATE 1998 1997 ---------- ------------- ------------- ---------- -------- FLOATING RATE DEBT: - ------------------- Line of credit Unsecured LIBOR + 150bp June 2001 $ 411,000 $ 61,000 Term loan Unsecured LIBOR + 150bp December 1999 250,000 Other Unsecured Up to LIBOR + 150bp Various 34,750 25,650 ---------- -------- Total floating rate debt 695,750 86,650 ---------- -------- FIXED RATE DEBT: - ---------------- Line of credit Unsecured 7.27% June 2001 325,000 75,000 Publicly-traded term notes Unsecured 7.38% October 2004 174,249 174,116 Publicly-traded term notes Unsecured 7.63% October 2007 124,122 124,029 Mortgage debt 15 hotels 7.24% November 2007 145,062 Mortgage debt 3 hotels 6.97% December 2002 43,836 Other 13 hotels 6.96% - 7.23% 2000 - 2005 86,715 17,024 ---------- -------- Total fixed rate debt 898,984 390,169 ---------- -------- Total debt $1,594,734 $476,819 ========== ========
F-11 66 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT -- (CONTINUED) On July 1, 1998, the Company increased its unsecured credit facilities to $1.1 billion, consisting of an $850 million revolving line of credit ("Line of Credit") which matures June 2001 and a $250 million non-amortizing term loan ("Term Loan") which matures December 1999. Interest payable on borrowings under the credit facilities is variable, determined from a ratings and leverage-based pricing matrix, ranging from 87.5 basis points to 175 basis points above LIBOR (30-day LIBOR at December 31, 1998, was 5.628750%). The interest spread in 1998 was 150 basis points. Additionally, the Company is required to pay an unused commitment fee which is variable, determined from a ratings-based pricing matrix, ranging from 20 to 30 basis points. In 1998, the Company wrote off approximately $2.5 million of deferred financing fees relating to the previous unsecured credit facility of $550 million. For the years ended December 31, 1998, 1997, and 1996, the Company paid interest on its unsecured credit facilities at the weighted average interest rate of 7.1%, 7.6%, and 7.4%, respectively. At December 31, 1998, the Company had borrowing capacity under its Line of Credit of $114 million. The Line of Credit and the Term Loan contain various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 1998, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to the Company (with certain exceptions) and contain provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the collateralized borrowings are prepayable, however, approximately $43.8 million is not subject to any prepayment penalty, yield maintenance, or defeasance obligation. The remaining collateralized borrowings are subject to various prepayment penalties, yield maintenance, or defeasance obligations. Future scheduled principal payments on debt obligations at December 31, 1998 are as follows (in thousands):
YEAR ---- 1999 ............................................... $ 274,663 2000 ............................................... 32,823 2001 ............................................... 756,920 2002 ............................................... 11,112 2003 ............................................... 45,559 2004 and thereafter ................................ 475,285 ----------- 1,596,362 Discount accretion over term ....................... (1,628) ----------- $ 1,594,734 ===========
F-12 67 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT -- (CONTINUED) To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into interest rate swap agreements with six financial institutions. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its Line of Credit without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the variable rate to be received by the Company at December 31, 1998, are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/98 MATURITY --------------- ------------ ---------- -------- -------- $ 50 million 6.11125% 7.61125% 5.33501% October 1999 $ 25 million 5.95500% 7.45500% 5.20000% November 1999 $ 25 million 5.55800% 7.05800% 5.54656% July 2001 $ 25 million 5.54800% 7.04800% 5.54656% July 2001 $ 75 million 5.55500% 7.05500% 5.54656% July 2001 $ 100 million 5.79600% 7.29600% 5.54656% July 2003 $ 25 million 5.82600% 7.32600% 5.54656% July 2003 ------------- $ 325 million =============
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company pursuant to the terms of its interest rate agreement and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk in that the counterparties may be unable to meet the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. 7. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS The outstanding units of limited partnership interest in the Company ("Units") are redeemable at the option of the holder for a like number of shares of common stock of FelCor, or cash, or a combination thereof, at the election of FelCor. Due to these redemption rights, these limited partnership units have been excluded from partners' capital and are included in redeemable units and measured at redemption value as of the end of the periods presented. At December 31, 1998 and 1997 there were 2,938,933 and 2,899,510 redeemable units outstanding. The value of the redeemable units are based on the closing market price of FelCor's common stock at the balance sheet date, which at December 31, 1998 and 1997 was $23.00 and $35.50, respectively. Preferred Units FelCor's Board of Directors is authorized to provide for the issuance of up to 20,000,000 shares of Preferred Stock in one or more series, to establish the number of shares in each series, to fix the designation, powers preferences and rights of each such series, and the qualifications, limitations or restrictions thereof. In 1996 FelCor issued 6.1 million shares of its $1.95 Series A Cumulative Convertible 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. The proceeds from the Series A Preferred Stock were contributed to the Company in exchange for Series A Preferred Units. The preference on these units are the same as FelCor's Series A Preferred Stock. F-13 68 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. CAPITAL STOCK -- (CONTINUED) On May 1, 1998, FelCor issued 5.75 million depositary shares, representing 57,500 shares of 9% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), at $25 per depositary share. The Series B Preferred Stock and the corresponding depositary shares may be called by FelCor at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption and are not convertible into any other securities of FelCor. The Series B Preferred Stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and is entitled to annual dividends at the rate of 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). The proceeds from the Series B Preferred Stock were contributed to the Company in exchange for Series B Preferred Units. The preference on these units are the same as FelCor's Series B Preferred Stock. At December 31, 1998, all distributions then payable on the Series A and Series B Preferred Units had been paid. 8. TAXES, INSURANCE, AND OTHER Taxes, insurance, and other is comprised of the following for the years ended December 31, 1998, 1997, and 1996 (in thousands):
1998 1997 1996 ------- ------- ------- Real estate and personal property taxes ........................ $32,892 $18,976 $11,110 Property insurance ............................................. 2,341 1,627 1,312 Land lease expense ............................................. 7,759 1,610 952 State franchise taxes .......................................... 1,609 718 472 Other 687 162 51 ------- ------- ------- Total taxes, insurance, and other...................... $45,288 $23,093 $13,897 ======= ======= =======
Future minimum lease payments under the Company's land lease obligations at December 31, 1998, are as follows (in thousands):
YEAR ---- 1999 $ 13,557 2000 13,609 2001 13,534 2002 13,397 2003 13,187 2004 and thereafter 280,893 -------- $348,177 ========
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS Commitments The Company is to receive rental income from the Lessees under the Percentage Leases which expire in 2002 (six hotels), 2003 (eight hotels), 2004 (12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54 hotels), and thereafter (16 hotels). The rental income under the Percentage Leases between 14 of the unconsolidated entities, of which the Company owns 50%, is payable by the Lessee to the respective entities and is not included in the following schedule of future lease commitments to the Company. Minimum future rental F-14 69 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) income (i.e., base rents) to the Company under these noncancelable operating leases at December 31, 1998 is as follows (in thousands):
LESSEES ------------------- DJONT BRISTOL TOTAL ----- ------- ----- YEAR ---- 1999 ..................... $ 139,217 $ 157,616 $ 296,833 2000 ..................... 139,305 182,090 321,395 2001 ..................... 142,397 182,111 324,508 2002 ..................... 142,397 182,084 324,481 2003 ..................... 128,362 178,849 307,211 2004 and thereafter ...... 504,383 822,831 1,327,214 ---------- ---------- ---------- $1,196,061 $1,705,581 $2,901,642 ========== ========== ==========
The Percentage Lease revenue is based on a percentage of room and suite revenues, food and beverage revenues, food and beverage rents, and other revenues of the Hotels. Both the base rent and the threshold suite revenue in each lease computation are subject to adjustments for changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year for the hotels acquired prior to July of the previous year. The adjustment in any lease year may not exceed 7%. The CPI adjustments made in January 1999 ranged from 0.55% to 1.5% dependent upon the Lessee. The CPI adjustments for 1998 and 1997 were 0.50% and 1.42%, 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 a portion of the hotels' revenues (varying from 4% of room and suite revenue to 3% of total hotel revenue) per month, on a cumulative basis, to fund capital expenditures for the periodic replacement or refurbishment of furniture, fixtures and equipment required for the retention of the franchise licenses with respect to the Hotels. Included in cash and cash equivalents at December 31, 1998 and 1997, were cash balances held by the Hotel managers for these capital expenditures of $14.8 million and $7.3 million, respectively. The Company has a Renovation and Redevelopment Program for the Hotels and presently expects approximately $160 million to be invested in 1999 under this program, which may be funded from cash on hand or borrowings under its Line of Credit. Related Party Transactions The Company's general partner, FelCor, shares the executive offices and certain employees with FelCor, Inc., and DJONT. Each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel (other than Mr. Corcoran, whose compensation is borne solely by FelCor), office supplies, telephones, and depreciation of office furniture, fixtures, and equipment. The Company reimburses FelCor for its share of such allocated costs. Such allocation of shared costs is subject to approval by a majority of FelCor's independent directors. During 1998, 1997, and 1996, the Company and FelCor paid approximately $2.8 million (approximately 63%), $1.3 million (approximately 38%), and $807,000 (approximately 38%), respectively, of the allocable expenses under this arrangement. F-15 70 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. SUPPLEMENTAL CASH FLOW DISCLOSURE The Company 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):
1998 1997 1996 ----------- ----------- ----------- Assets acquired ....................... $ 2,427,027 $ 588,053 $ 494,354 Liabilities assumed ................... (940,906) (5,932) (111,567) Units issued .......................... (1,152,856) (16,880) Minority interest contribution ........ (6,989) (8,021) ----------- ----------- ----------- Net cash paid ................ $ 326,276 $ 574,100 $ 365,907 =========== =========== ===========
Under the Merger Agreement with Bristol Hotel Company, FelCor provided Bristol a $120 million interim credit facility (the "Interim Credit Facility"). At July 28, 1998, the Interim Credit facility was assumed and canceled by FelCor upon completion of the Merger. Approximately $67.2 million, $24.7 million, and $16.1 million of aggregate preferred unit and unit distributions had been declared as of December 31, 1998, 1997, and 1996, respectively. These amounts were paid in January following each year. In 1998 the Company entered into a joint venture, in which the Company contributed a hotel with a net book value of $53.9 million for a 60% equity interest in the venture. The Company has consolidated this venture in the financial statements and recorded an increase in investment in hotels and minority interest in other partnerships of $34.4 million. 11. LESSEES All of the Company's percentage lease revenue is derived from the Percentage Leases with the Lessees. Certain information, related to DJONT's financial statements, is as follows (in thousands):
DECEMBER 31, ---------------------- 1998 1997 -------- -------- Balance Sheet Information: Cash and cash equivalents ........................ $ 28,538 $ 25,684 Total assets ..................................... $ 63,972 $ 54,702 Due to FelCor Lodging Limited Partnership ........ $ 16,875 $ 18,908 Shareholders' deficit ............................ $ (8,231) $ (9,075)
YEARS ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 --------- --------- --------- Statement of Operations Information: Room and suite revenue ........................... $ 618,122 $ 456,614 $ 234,451 Percentage lease expenses ........................ $ 289,891 $ 216,990 $ 107,935 Net income/(loss) ................................ $ 844 $ (2,672) $ (5,430)
Certain entities owning interests in DJONT and managers for certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 34 of the Hotels. No such loans were outstanding at December 31, 1998. F-16 71 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. LESSEES -- (CONTINUED) Bristol is a publicly traded company whose stock is listed on the New York Stock Exchange under the symbol BH and that files financial statements in accordance with the Securities Exchange Act of 1934, as amended. At December 31, 1998, the Company owned interests in 193 Hotels operating under various brand names. The Hotels generally operate pursuant to franchise license agreements which require the payment of fees based on a percentage of room and suite revenue. These fees are paid by the Lessees. DJONT engages third-party managers to operate the Hotels leased by it and generally pays such managers a base management fee based on a percentage of room and suite revenue and an incentive management fee based on DJONT's income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and committed to make subordinated loans to DJONT, if needed, to meet its rental and other obligations under the Percentage Leases. Bristol serves as both the lessee and manager of the 106 Hotels leased to it by the Company at December 31, 1998, and, as such, is compensated for both roles through the profitability of the Hotels, after meeting their operating expenses and rental obligations under the terms of the Percentage Leases. Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases. As an additional credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of the Company in the original amount of $20 million. This Letter of Credit is subject to periodic reductions upon satisfaction of certain conditions and is required to be maintained until July 27, 1999. According to Bristol's audited financial statements filed with the SEC, for the period from July 28, 1998, (inception of operations) through December 31, 1998, Bristol earned $2.6 million of net income and at December 31, 1998, had stockholders' equity of $35.4 million. 12. SEGMENT INFORMATION The Company has determined that its reportable segments are those that are consistent with the Company's method of internal reporting, which segments its business by Lessee. The Company's Lessees at December 31, 1998, were DJONT and Bristol. Prior to 1998, the Company had only one lessee, DJONT. Accordingly, segment information is not disclosed for prior years. F-17 72 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SEGMENT INFORMATION -- (CONTINUED) The following table presents information about the reportable segments for the year ended December 31, 1998 (in thousands):
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ----------- ----------- ----------- ------------- ------------ Statement of Operations Information: - ------------------------------------ Revenues: Percentage lease revenue .................. $ 237,904 $ 91,019 $ 328,923 $ 328,923 Equity in income from unconsolidated entities ............................... 6,744 273 7,017 7,017 Other revenue ............................. $ 4,154 4,154 ----------- ----------- ----------- ----------- ----------- Total revenues .................. 244,648 91,292 335,940 4,154 340,094 ----------- ----------- ----------- ----------- ----------- Expenses: General and administrative ................ 5,254 5,254 Depreciation .............................. 71,055 19,619 90,674 161 90,835 Taxes, insurance, and other ............... 28,387 16,901 45,288 45,288 Interest expense .......................... 73,182 73,182 Minority interest in other partnerships ... 1,121 1,121 1,121 ----------- ----------- ----------- ----------- ----------- Total expenses .................. 100,563 36,520 137,083 78,597 215,680 ----------- ----------- ----------- ----------- ----------- Income before extraordinary charge ........... $ 144,085 $ 54,772 $ 198,857 $ (74,443) $ 124,414 =========== =========== =========== =========== =========== Funds from operations: - ---------------------- Income before extraordinary charge ........... $ 144,085 $ 54,772 $ 198,857 $ (74,443) $ 124,414 Series B preferred dividends ................. (8,373) (8,373) Depreciation ................................. 71,055 19,619 90,674 161 90,835 Depreciation for unconsolidated entities ..... 10,254 233 10,487 10,487 ----------- ----------- ----------- ----------- ----------- Funds from operations ........................ $ 225,394 $ 74,624 $ 300,018 $ (82,655) $ 217,363 =========== =========== =========== =========== =========== Weighted average units outstanding (1) ....... 58,013 Other Information: - ------------------ Total assets ..................... $ 1,998,165 $ 2,102,388 $ 4,100,553 $ 74,830 $ 4,175,383 Capital expenditures ............. $ 65,264 $ 65,839 $ 131,103 $ 131,103
(1) Weighted average units outstanding are computed including dilutive options and unvested stock grants, and assuming conversion of Series A preferred units to Units. F-18 73 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SEGMENT INFORMATION -- (CONTINUED) The following table sets forth Percentage Lease revenue and investment in hotel assets represented by the following geographical areas as of and for the years ended December 31, (in thousands):
PERCENTAGE LEASE REVENUE INVESTMENT IN HOTEL ASSETS ------------------------ ----------------------------- 1998 1997 1998 1997 -------- -------- ---------- ---------- California ................................. $ 63,733 $ 36,762 $ 642,965 $ 232,747 Texas ...................................... 52,220 16,085 854,558 155,986 Florida .................................... 45,719 34,559 519,280 286,610 Georgia .................................... 23,691 10,232 349,429 123,203 Other States ............................... 138,437 71,476 1,714,122 778,618 Canada ..................................... 5,123 62,202 -------- -------- ---------- ---------- Total ............................. $328,923 $169,114 $4,142,556 $1,577,164 ======== ======== ========== ==========
13. PRO FORMA INFORMATION (UNAUDITED) The following unaudited Pro Forma Statements of Operations for the years ended December 31, 1998 and 1997 are presented as if the acquisitions of all hotels owned by the Company at December 31, 1998, the equity offerings consummated during 1998 and 1997, and the Merger had occurred as of the beginning of the periods presented and the Hotels had been leased pursuant to Percentage Leases. 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 Company would have been assuming such transactions had been completed at the beginning of the respective periods presented, nor does it purport to represent the results of operations for future periods.
1998 1997 -------- -------- Revenues: Percentage lease revenue ............................ $469,695 $441,768 Income from unconsolidated entities ................. 8,633 8,788 Other income ........................................ 770 -------- -------- Total revenues .................................. 479,098 450,556 -------- -------- Expenses: General and administrative .......................... 6,421 5,163 Depreciation ........................................ 126,931 121,817 Taxes, insurance, and other ......................... 72,621 68,206 Interest expense .................................... 106,298 110,838 Minority interest in other partnerships ............. 1,316 1,157 -------- -------- Total expenses ................................... 313,587 307,181 -------- -------- Net income ............................................ 165,511 143,375 Preferred distributions ............................... 25,988 24,735 -------- -------- Net income applicable to unitholders .................. $139,523 $118,640 ======== ======== Per unit data: Diluted: Net income applicable to unitholders .............. $ 1.84 $ 1.56 ======== ======== Weighted average number of units outstanding ...... 75,699 76,184
14. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts F-19 74 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS -- (CONTINUED) (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company believes that, upon implementation, FAS 133 will not have a material impact on the financial statements of the Company. 15. QUARTERLY OPERATING RESULTS (UNAUDITED) The Company's unaudited consolidated quarterly operating data for the years ended December 31, 1998 and 1997 follows (in thousands, except per unit data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in partners' capital and cash flows for a period of several years.
FIRST SECOND THIRD FOURTH 1998 QUARTER QUARTER QUARTER QUARTER ---- ------- ------- ------- ------- Revenues: Percentage lease revenue ............................................. $ 56,060 $ 62,793 $105,123 $104,947 Equity in income from unconsolidated entities ........................ 1,293 2,689 2,446 589 Other revenue ........................................................ 175 1,920 1,030 1,029 -------- -------- -------- -------- Total revenues .................................................... 57,528 67,402 108,599 106,565 -------- -------- -------- -------- Expenses: General and administrative ........................................... 1,199 1,375 1,452 1,228 Depreciation ......................................................... 15,887 17,429 27,720 29,799 Taxes, insurance, and other .......................................... 7,270 7,568 14,651 15,799 Interest expense ..................................................... 9,731 13,795 22,960 26,696 Minority interest in other partnerships .............................. 190 291 323 317 -------- -------- -------- -------- Total expenses .................................................... 34,277 40,458 67,106 73,839 -------- -------- -------- -------- Income before extraordinary charge ..................................... 23,251 26,944 41,493 32,726 Extraordinary charge from write off of deferred financing fees ......... (556) (2,519) -------- -------- -------- -------- Net income ............................................................. 22,695 26,944 38,974 32,726 Preferred distributions ................................................ 2,949 4,854 6,184 7,436 -------- -------- -------- -------- Net income applicable to unitholders ................................... $ 19,746 $ 22,090 $ 32,790 $ 25,290 ======== ======== ======== ======== Per unit data: Diluted: Income applicable to unitholders before extraordinary charge .................................... $ 0.51 $ 0.55 $ 0.57 $ 0.36 Extraordinary charge .............................................. (0.01) (0.04) -------- -------- -------- -------- Net income applicable to unitholders .............................. $ 0.50 $ 0.55 $ 0.53 $ 0.36 ======== ======== ======== ======== Weighted average units outstanding ................................ 39,885 39,882 61,913 71,126
F-20 75 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. QUARTERLY OPERATING RESULTS (UNAUDITED)-- (CONTINUED)
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 ======== ======== ======== ======== Per common unit data: 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 units outstanding .......................... 28,532 29,858 39,717 39,784
16. CONSOLIDATING FINANCIAL INFORMATION In 1997 the Company completed the private placement of $300 million in aggregate principal amount of its long term senior unsecured notes. The notes were issued in two maturities, consisting of $175 million of 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. In 1998 these notes were exchanged for publicly traded notes with the same terms. FelCor and certain of the majority-owned subsidiaries of the Company (FelCor/CSS Holdings, L.P.; FelCor/CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels, L.L.C.; FelCor/St. Paul Holdings, L.P.; FelCor/LAX Holdings, L.P.; FelCor Nevada Holdings, L.L.C.; FHAC Nevada Holdings, L.L.C.; FHAC Texas Holdings, L.P. and FelCor Hotel Asset Company, L.L.C., collectively "Subsidiary Guarantors") are guarantors of the debt offering. The following table presents consolidating information for the Subsidiary Guarantors. F-21 76 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 (IN THOUSANDS)
ASSETS SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ----------- ------------- ------------ ------------ Net investment in hotel properties ................ $ 1,082,168 $ 1,733,128 $ 1,149,188 $ 3,964,484 Investment in consolidated entities ............... 2,647,693 $(2,647,693) Investment in unconsolidated entities ............. 119,115 16,912 42 136,069 Cash and cash equivalents ......................... 20,000 4,672 10,020 34,692 Due from Lessee ................................... 11,223 8,246 2,474 21,943 Due (to)/from subsidiary .......................... (51,291) 46,429 4,862 Deferred assets ................................... 9,996 45 10,041 Other assets ...................................... 6,320 1,834 8,154 ----------- ----------- ----------- ----------- ----------- Total assets ................................ $ 3,845,224 $ 1,811,266 $ 1,166,586 $(2,647,693) $ 4,175,383 =========== =========== =========== =========== =========== LIABILITIES & PARTNERS' CAPITAL Debt .............................................. $ 1,316,696 $ 34,316 $ 243,722 $ 1,594,734 Distributions payable ............................. 67,262 67,262 Accrued expenses and other liabilities ............ 56,296 1,016 57,312 Minority interest - other partnerships ........... 51,105 51,105 ----------- ----------- ----------- ----------- ----------- Total liabilities ........................... 1,440,254 34,316 295,843 1,770,413 ----------- ----------- ----------- ----------- ----------- Redeemable units, at redemption value ............. 67,595 67,595 Preferred units ................................... 295,000 295,000 Partners' capital ................................. 2,042,375 1,776,950 870,743 (2,647,693) 2,042,375 ----------- ----------- ----------- ----------- ----------- Total liabilities and partners' capital ..... $ 3,845,224 $ 1,811,266 $ 1,166,586 $(2,647,693) $ 4,175,383 =========== =========== =========== =========== ===========
F-22 77 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. CONSOLIDATING FINANCIAL INFORMATION -- (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 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 ............................................ $ 440,999 $ 35,820 $ 476,819 Distributions payable ........................... 24,671 24,671 Accrued expenses and other liabilities .......... 11,331 11,331 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-23 78 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- -------------- ------------ Revenues: Percent rent .......................................... $ 125,991 $ 134,250 $ 68,682 $ 328,923 Equity in income from unconsolidated entities ......... 6,960 57 7,017 Other revenue ......................................... 4,093 61 4,154 --------- --------- --------- --------- Total revenue ................................ 137,044 134,311 68,739 340,094 --------- --------- --------- --------- Expenses: General and administrative ............................ 2,117 2,076 1,061 5,254 Depreciation .......................................... 36,490 39,341 15,004 90,835 Taxes, insurance and other ............................ 14,388 20,826 10,074 45,288 Interest expense ...................................... 62,785 2,393 8,004 73,182 Minority interest other partnerships .................. 1,121 1,121 --------- --------- --------- --------- Total expenses ............................... 115,780 64,636 35,264 215,680 Net income before extraordinary charge ........... 21,264 69,675 33,475 124,414 Extraordinary charge for write off of deferred financing fees ................................ 3,075 3,075 --------- --------- --------- --------- Net income ....................................... 18,189 69,675 33,475 121,339 Preferred distributions ............................... 21,423 21,423 --------- --------- --------- --------- Net income (loss) applicable to unitholders ........... $ (3,234) $ 69,675 $ 33,475 $ 99,916 ========= ========= ========= =========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- -------------- ------------ Cash flows from operating activities .................. $ 34,025 $ 109,015 $ 49,543 $ 192,583 Cash flows from investing activities .................. (444,363) (24,350) (81,785) (550,498) Cash flows from financing activities .................. 412,795 (79,993) 42,262 375,064 --------- --------- --------- --------- Change in cash and cash equivalents ................... 2,457 4,672 10,020 17,149 Cash and cash equivalents at beginning of period ...... 17,543 17,543 --------- --------- --------- --------- Cash and equivalents at end of year ................... $ 20,000 $ 4,672 $ 10,020 $ 34,692 ========= ========= ========= =========
F-24 79 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- -------------- ------------ Revenues: Percent rent ............................................... $ 83,528 $ 77,335 $ 8,251 $169,114 Equity in income from unconsolidated entities .............. 6,963 6,963 Other revenue .............................................. 367 207 574 -------- -------- -------- -------- Total revenue ..................................... 90,858 77,542 8,251 176,651 -------- -------- -------- -------- Expenses: General and administrative ................................. 1,848 1,712 183 3,743 Depreciation ............................................... 22,798 26,094 1,906 50,798 Taxes, insurance and other ................................. 11,781 10,661 651 23,093 Interest expense ........................................... 26,673 2,119 28,792 Minority interest other partnerships ....................... 573 573 -------- -------- -------- -------- Total expenses .................................... 63,100 40,586 3,313 106,999 -------- -------- -------- -------- Net income before extraordinary charge ................ 27,758 36,956 4,938 69,652 Extraordinary charge for write off of deferred financing fees ..................................... 185 185 -------- -------- -------- -------- Net income ............................................ 27,573 36,956 4,938 69,467 Preferred distributions .................................... 11,797 11,797 -------- -------- -------- -------- Net income applicable to unitholders ....................... $ 15,776 $ 36,956 $ 4,938 $ 57,670 ======== ======== ======== ========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
SUBSIDIARY NON-GUARANTOR TOTAL FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED ----------- ---------- -------------- ------------ Cash flows from operating activities ....................... $ 57,817 $ 36,598 $ 3,063 $ 97,478 Cash flows 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-25 80 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. CONSOLIDATING FINANCIAL INFORMATION -- (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-26 81 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. FELCOR STOCK BASED COMPENSATION PLANS FelCor sponsors three restricted stock and stock option plans (the "FelCor Plans"). In addition, upon completion of the Merger, FelCor assumed two stock option plans previously sponsored by Bristol Hotel Company (the "Bristol Plans"). FelCor is obligated to issue up to 1,271,103 shares of its Common Stock pursuant to the Bristol Plans, and no additional options may be awarded under those plans. The FelCor Plans and the Bristol Plans are referred to collectively as the "Plans". Upon issuance of any stock, FelCor is obligated to contribute the proceeds to the Company in exchange for a like number of units. Stock Options FelCor is authorized to issue 2,950,000 shares of Common Stock under the FelCor Plans pursuant to awards granted in the form of incentive stock options, non-qualified stock options, and restricted stock. All options have 10-year contractual terms and vest over five equal annual installments (20% per year), beginning in the year following the original date of grant. The options outstanding under the Bristol Plans generally vest either in four equal annual installments (25% per year) beginning in the second year following the original date of award, in five equal annual installments (20% per year) beginning in the year following the original date of award, or on a single date that is three to five years following the original date of award. A summary of the status of the non-qualified stock options under the Plans as of December 31, 1998, 1997, and 1996, and the changes during the years are presented below:
1998 1997 1996 ---- ---- ---- WEIGHTED WEIGHTED WEIGHTED # SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES ------------- ---------- ----------- ---------- ----------- --------- Outstanding at beginning of the year. 1,670,500 $29.96 1,047,500 $25.67 745,000 $23.58 Granted (A) (B)...................... 2,445,813 $20.54 752,000 $35.70 327,500 $30.08 Exercised............................ (332,915) $11.67 (31,000) $19.11 Forfeited (B)........................ (1,242,932) $31.51 (98,000) $31.56 (25,000) $21.00 ----------- --------- --------- Outstanding at end of year........... 2,540,466 $22.53 1,670,500 $29.96 1,047,500 $25.67 =========== ========= ========= Exercisable at end of year........... 796,499 $24.64 411,500 $24.42 225,665 $22.71
(A) Includes options covering 1,271,103 shares of Common Stock issuable as a result of the assumption of the Bristol Plans. (B) To enable FelCor to preserve its stock options as a meaningful element of compensation, existing option holders under the FelCor Plans currently employed by FelCor on a full-time basis were offered the opportunity to exchange their existing options (having exercise prices ranging from $26.44 to $38.56 per share) for a lesser number of new options having an equal value under the Black-Scholes option pricing model. Twenty-two employees accepted this offer, surrendering for cancellation existing options covering an aggregate of 1,151,500 shares of Common Stock at a weighted average exercise price of $32.807 per share for new options covering an aggregate of 840,393 shares of Common Stock at an exercise price of $22.125 per share. The new options have the same expiration dates and vesting schedules as the options surrendered for cancellation, however, none of the new options may be exercised prior to January 1, 2000. F-27 82 FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. FELCOR STOCK BASED COMPENSATION PLANS - (CONTINUED)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- ------------------------------- NUMBER WGTD. AVG. NUMBER RANGE OF OUTSTANDING REMAINING WGTD AVG. EXERCISABLE WGTD. AVG. EXERCISE PRICES AT 12/31/98 LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE - --------------- ----------- ----- -------------- ----------- -------------- $10.33 to $30.00 2,205,086 8.21 $20.82 658,404 $22.41 $30.28 to $36.63 335,380 8.63 $33.77 138,095 $22.53 - ---------------- -------- ---- ------ ------- ------ $10.33 to $36.63 2,540,466 8.26 $22.53 796,499 $24.64
Restricted Stock A summary of the status of the Company's restricted stock grants as of December 31, 1998, 1997, and 1996 and the changes during the years are presented below:
1998 1997 1996 ----------------------- ----------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE FAIR MARKET FAIR MARKET AIR MARKET VALUE VALUE VALUE # SHARES AT GRANT # SHARES AT GRANT # SHARES AT GRANT -------- ----------- -------- ----------- -------- ----------- Outstanding at beginning of the year..... 115,500 $29.03 84,500 $26.04 51,500 $24.03 ------- --------- ------ Granted: With 5-year pro rata vesting.......... 5,000 $21.25 35,000 $35.00 24,500 $28.93 Vest 100% at grant date............... 4,875 $35.63 6,000 $35.00 6,000 $30.46 Vest 100% within 12 months of grant... 2,500 $36.94 2,500 $28.75 ------- --------- ------ Total granted............................ 9,875 $28.35 43,500 $35.11 33,000 $29.19 Forfeited (12,500) $30.00 ------- --------- Outstanding at end of year............... 125,375 $28.97 115,500 $29.03 84,500 $26.04 ======= ========= ====== Vested at end of year.................... 65,175 $28.26 40,400 $26.60 23,500 $24.93
F-28 83 FELCOR LODGING LIMITED PARTNERSHIP REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of FelCor Lodging Trust Incorporated Our audits of the consolidated financial statements referred to in our report dated February 2, 1999 appearing on page F-2 of the Annual Report on Form 10-K of FelCor Lodging Limited Partnership (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Dallas, Texas February 2, 1999 F-29 84 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998 (IN THOUSANDS)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION ------------------------------- --------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENT FIXTURES LAND IMPROVEMENTS FIXTURES - ----------------------- ------------ ---- ----------- -------- ---- ------------ -------- Birmingham, AL (1) $ 75 $ 2,843 $ 29,286 $ 160 $ 730 $ 3,384 Montgomery E. I-85, AL (2) 836 7,272 251 1,987 735 Texarkana I-30, AR (2) 5,245 162 7 Flagstaff, AZ (3) 276 2,397 83 1 Flagstaff, AZ (1) 900 6,825 268 1,561 1,209 Phoenix (Airport), AZ (1) 2,969 25,828 891 61 5 Phoenix (Camelback), AZ (1) 38,998 613 $ 4,694 823 5,181 Phoenix (Crescent), AZ (4) 3,608 29,583 2,886 623 Scottsdale, AZ (5) 12,430 384 11 Tempe, AZ (1) 3,951 34,371 1,185 565 959 Anaheim, CA (1) 2,548 14,832 607 562 3,481 Dana Point, CA (6) 1,787 15,545 536 254 2,709 Irvine Orange Co., CA (7) 4,981 43,338 1,494 200 187 LAX Airport, CA (1) 2,660 17,997 798 755 5,354 LAX Century, CA (1) 2,207 18,764 1,104 663 Mandalay Beach, CA (1) 11 2,930 22,125 879 655 5,223 Milpitas, CA (1) 65 4,021 23,677 562 943 3,888 Milpitas San Jose N., CA (2) 4,153 36,130 1,246 110 Napa, CA (1) 6 3,287 14,205 494 825 3,177 Palm Desert, CA (1) 2,368 20,598 710 885 1,452 Pleasanton, CA (8) 3,169 27,569 951 51 37 San Diego on the Bay, CA (2) 68,053 2,105 45 Santa Barbara, CA (2) 6,255 1,692 14,723 508 44 SF Burlingame, CA (1) 12 39,929 818 3,652 SF Financial District, CA (2) 21,679 670 25 SF Fisherman's Wharf, CA (2) 61,623 1,906 523 166 SF Union Square, CA (8) 8,392 67,105 9,069 3,082 615 So. San Francisco, CA (1) 6 3,418 31,737 527 769 4,207 Beaver Creek, CO (1) 1,134 9,864 340 175 1,183 Colorado Springs, CO (9) 190 1,653 57 Colorado Springs, CO (10) 285 2,479 85 2 Denver, CO (6) 2,432 21,158 730 13 710 Hartford Downtown, CT (8) 2,327 20,243 698 4,029 2,122 Stamford, CT (7) 37,356 1,155 1,349 324 Wilmington, DE (11) 1,435 12,487 431 78 Boca Raton, FL (6) 5,327 3,066 304 1,064 Boca Raton, FL (1) 82 1,868 16,253 561 6 181 3,317 Cocoa Beach, FL (2) 2,304 20,046 691 384 969 Deerfield Beach, FL (1) 4,523 29,443 918 18 1,163 4,213 Ft. Lauderdale, FL (1) 5,329 47,850 903 45 1,560 4,810 Ft. Lauderdale, FL (4) 3,009 26,177 903 61 24 Jacksonville, FL (1) 82 1,130 9,608 456 4,820 2,119 Kissimmee Nikki Bird, FL (2) 31,652 979 967 1,175 Miami Airport, FL (8) 26,146 809 803 1,078 Miami (Airport), FL (1) 4,135 24,950 1,171 742 5,315 Orlando Int'l Airport, FL (7) 2,564 22,310 769 27 Orlando Int'l Drive, FL (2) 5,141 44,735 1,543 155 Orlando (North), FL (1) 1,673 14,218 684 4,890 2,060 Orlando (South), FL (1) 1,632 13,870 799 28 1,870 Tampa Busch Gardens, FL (6) 772 12,387 226 163 834
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE -------------------------------- BUILDINGS BUILDINGS BUILDINGS FURNITURE IMPROVEMENTS IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DATE OF DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION - ----------------------- ---- ------------ -------- ----- -------- -------- ------------ Birmingham, AL (1) $ 2,843 $ 30,016 $ 3,544 $ 36,403 $ 3,670 $ 32,733 1987 Montgomery E. I-85, AL (2) 836 9,259 986 11,081 77 11,004 1964 Texarkana I-30, AR (2) 5,245 169 5,414 55 5,359 1970 Flagstaff, AZ (3) 276 2,397 84 2,757 26 2,731 1964 Flagstaff, AZ (1) 900 8,386 1,477 10,763 1,666 9,097 1988 Phoenix (Airport), AZ (1) 2,969 25,889 896 29,754 482 29,272 1981 Phoenix (Camelback), AZ (1) 4,694 39,821 5,794 50,309 5,455 44,854 1985 Phoenix (Crescent), AZ (4) 3,608 29,583 3,509 36,700 2,083 34,617 1986 Scottsdale, AZ (5) 12,430 395 12,825 130 12,695 1970 Tempe, AZ (1) 3,951 34,936 2,144 41,031 677 40,354 1986 Anaheim, CA (1) 2,548 15,394 4,088 22,030 3,214 18,816 1987 Dana Point, CA (6) 1,787 15,799 3,245 20,831 1,341 19,490 1992 Irvine Orange Co., CA (7) 4,981 43,538 1,681 50,200 440 49,760 1986 LAX Airport, CA (1) 2,660 18,752 6,152 27,564 4,624 22,940 1985 LAX Century, CA (1) 2,207 18,764 1,767 22,738 1,383 21,355 1990 Mandalay Beach, CA (1) 2,930 22,780 6,102 31,812 3,730 28,082 1986 Milpitas, CA (1) 4,021 24,620 4,450 33,091 3,946 29,145 1987 Milpitas San Jose N., CA (2) 4,153 36,130 1,356 41,639 366 41,273 1987 Napa, CA (1) 3,287 15,030 3,671 21,988 2,338 19,650 1985 Palm Desert, CA (1) 2,368 21,483 2,162 26,013 444 25,569 1984 Pleasanton, CA (8) 3,169 27,620 988 31,777 293 31,484 1986 San Diego on the Bay, CA (2) 68,053 2,150 70,203 736 69,467 1965 Santa Barbara, CA (2) 1,692 14,723 552 16,967 158 16,809 1969 SF Burlingame, CA (1) 39,929 4,470 44,399 5,163 39,236 1986 SF Financial District, CA (2) 21,679 695 22,374 226 22,148 1970 SF Fisherman's Wharf, CA (2) 62,146 2,072 64,218 631 63,587 1970 SF Union Square, CA (8) 8,392 70,187 9,684 88,263 811 87,452 1970 So. San Francisco, CA (1) 3,418 32,506 4,734 40,658 4,587 36,071 1988 Beaver Creek, CO (1) 1,134 10,039 1,523 12,696 1,367 11,329 1989 Colorado Springs, CO (9) 190 1,653 57 1,900 18 1,882 1966 Colorado Springs, CO (10) 285 2,479 87 2,851 26 2,825 1973 Denver, CO (6) 2,432 21,171 1,440 25,043 475 24,568 1989 Hartford Downtown, CT (8) 2,327 24,272 2,820 29,419 216 29,203 1973 Stamford, CT (7) 38,705 1,479 40,184 368 39,816 1984 Wilmington, DE (11) 1,435 12,487 509 14,431 300 14,131 1972 Boca Raton, FL (6) 5,327 3,066 1,368 9,761 982 8,779 1989 Boca Raton, FL (1) 1,874 16,434 3,878 22,186 2,841 19,345 1989 Cocoa Beach, FL (2) 2,304 20,430 1,660 24,394 214 24,180 1960 Deerfield Beach, FL (1) 4,541 30,606 5,131 40,278 4,418 35,860 1987 Ft. Lauderdale, FL (1) 5,374 49,410 5,713 60,497 6,253 54,244 1986 Ft. Lauderdale, FL (4) 3,009 26,238 927 30,174 489 29,685 1986 Jacksonville, FL (1) 1,130 14,428 2,575 18,133 2,301 15,832 1986 Kissimmee Nikki Bird, FL (2) 32,619 2,154 34,773 309 34,464 1974 Miami Airport, FL (8) 26,949 1,887 28,836 273 28,563 1983 Miami (Airport), FL (1) 4,135 25,692 6,486 36,313 4,636 31,677 1987 Orlando Int'l Airport, FL (7) 2,564 22,310 796 25,670 237 25,433 1984 Orlando Int'l Drive, FL (2) 5,141 44,735 1,698 51,574 459 51,115 1972 Orlando (North), FL (1) 1,673 19,108 2,744 23,525 3,357 20,168 1985 Orlando (South), FL (1) 1,632 13,898 2,669 18,199 3,345 14,854 1985 Tampa Busch Gardens, FL (6) 772 12,550 1,060 14,382 1,326 13,056 1985
LIFE UPON WHICH DEPRECIATION DATE IN STATEMENT DESCRIPTION OF PROPERTY ACQUIRED IS COMPUTED - ----------------------- -------- ----------- Birmingham, AL (1) 01-03-96 5 - 40 Yrs Montgomery E. I-85, AL (2) 07-28-98 5 - 40 Yrs Texarkana I-30, AR (2) 07-28-98 5 - 40 Yrs Flagstaff, AZ (3) 07-28-98 5 - 40 Yrs Flagstaff, AZ (1) 02-16-95 5 - 40 Yrs Phoenix (Airport), AZ (1) 05-04-98 5 - 40 Yrs Phoenix (Camelback), AZ (1) 01-03-96 5 - 40 Yrs Phoenix (Crescent), AZ (4) 06-30-97 5 - 40 Yrs Scottsdale, AZ (5) 07-28-98 5 - 40 Yrs Tempe, AZ (1) 05-04-98 5 - 40 Yrs Anaheim, CA (1) 01-03-96 5 - 40 Yrs Dana Point, CA (6) 02-21-97 5 - 40 Yrs Irvine Orange Co., CA (7) 07-28-98 5 - 40 Yrs LAX Airport, CA (1) 03-27-96 5 - 40 Yrs LAX Century, CA (1) 02-18-97 5 - 40 Yrs Mandalay Beach, CA (1) 05-08-96 5 - 40 Yrs Milpitas, CA (1) 01-03-96 5 - 40 Yrs Milpitas San Jose N., CA (2) 07-28-98 5 - 40 Yrs Napa, CA (1) 05-08-96 5 - 40 Yrs Palm Desert, CA (1) 05-04-98 5 - 40 Yrs Pleasanton, CA (8) 07-28-98 5 - 40 Yrs San Diego on the Bay, CA (2) 07-28-98 5 - 40 Yrs Santa Barbara, CA (2) 07-28-98 5 - 40 Yrs SF Burlingame, CA (1) 11-06-95 5 - 40 Yrs SF Financial District, CA (2) 07-28-98 5 - 40 Yrs SF Fisherman's Wharf, CA (2) 07-28-98 5 - 40 Yrs SF Union Square, CA (8) 07-28-98 5 - 40 Yrs So. San Francisco, CA (1) 01-03-96 5 - 40 Yrs Beaver Creek, CO (1) 02-20-96 5 - 40 Yrs Colorado Springs, CO (9) 07-28-98 5 - 40 Yrs Colorado Springs, CO (10) 07-28-98 5 - 40 Yrs Denver, CO (6) 03-15-98 5 - 40 Yrs Hartford Downtown, CT (8) 07-28-98 5 - 40 Yrs Stamford, CT (7) 07-28-98 5 - 40 Yrs Wilmington, DE (11) 03-20-98 5 - 40 Yrs Boca Raton, FL (6) 11-15-95 5 - 40 Yrs Boca Raton, FL (1) 02-28-96 5 - 40 Yrs Cocoa Beach, FL (2) 07-28-98 5 - 40 Yrs Deerfield Beach, FL (1) 01-03-96 5 - 40 Yrs Ft. Lauderdale, FL (1) 01-03-96 5 - 40 Yrs Ft. Lauderdale, FL (4) 05-04-98 5 - 40 Yrs Jacksonville, FL (1) 07-28-94 5 - 40 Yrs Kissimmee Nikki Bird, FL (2) 07-28-98 5 - 40 Yrs Miami Airport, FL (8) 07-28-98 5 - 40 Yrs Miami (Airport), FL (1) 01-03-96 5 - 40 Yrs Orlando Int'l Airport, FL (7) 07-28-98 5 - 40 Yrs Orlando Int'l Drive, FL (2) 07-28-98 5 - 40 Yrs Orlando (North), FL (1) 07-28-94 5 - 40 Yrs Orlando (South), FL (1) 07-28-94 5 - 40 Yrs Tampa Busch Gardens, FL (6) 11-15-95 5 - 40 Yrs
F-30 85 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
INITIAL COST ---------------------------- BUILDINGS FURNITURE AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES - ----------------------- ------------ ---- ------------ -------- Tampa Busch Gardens, FL (2) 9,534 295 Tampa Rocky Point, FL (6) 2,142 18,639 643 WDW Village, FL (6) 2,896 25,196 869 Atlanta Airport North, GA (2) 13,134 34,531 1,068 Atlanta Airport, GA (8) 40,943 1,266 Atlanta Airport, GA (1) 22,342 770 Atlanta Buckhead, GA (1) 7,303 38,996 2,437 Atlanta Galleria, GA (4) 5,052 28,507 2,526 Atlanta Gateway, GA (4) 5,113 22,857 2,105 Atlanta Perimeter, GA (7) 7,879 20,556 636 Atlanta Powers Ferry, GA (8) 12,726 3,411 29,672 1,023 Atlanta South (Jonesboro), GA (2) 3,194 864 7,515 259 Atlanta-Courtyd by Marriott, GA (12) 2,025 17,618 608 Atlanta, GA (5) 1,266 11,017 380 Brunswick, GA (1) 705 6,067 247 Columbus N. Airport, GA (2) 7,026 217 Decatur I-20 East, GA (9) 171 1,488 51 Marietta, GA (13) 952 8,285 286 Davenport, IA (2) 547 4,763 164 Davenport, IA (13) 434 3,776 130 Chicago Allerton, IL (14) 3,343 29,086 1,003 Chicago O'Hare, IL (4) 8,178 37,043 2,886 Deerfield, IL (1) 2,305 20,054 692 Moline Airport, IL (2) 1,105 822 7,149 247 Moline Airport, IL (9) 312 232 2,021 70 Moline, IL (13) 505 4,398 152 Colby, KS (9) 339 2,950 102 Great Bend, KS (2) 549 4,780 165 Hays, KS (2) 803 597 5,190 179 Hays, KS (13) 326 243 2,112 73 Salina, KS (2) 2,640 502 4,370 151 Salina, KS (9) 341 2,964 102 Lexington, KY (15) 1,955 13,604 587 Lexington, KY (4) 21,644 746 Baton Rouge, LA (1) 20 2,350 19,092 525 New Orleans French Quarter, LA (2) 19,456 5,264 45,793 1,579 New Orleans, LA (1) 2,570 22,300 895 Boston Gov't Center, MA (7) 45,452 1,406 Boston - Marlborough, MA (1) 948 8,143 325 Leominster Four Points, MA (4) 900 7,830 270 BWI, MD (6) 2,568 22,433 770 Troy, MI (6) 2,968 25,905 909 Bloomington Airport W, MN (6) 2,038 17,731 611 Minneapolis Airport, MN (1) 5,417 36,508 602 Minneapolis Downtown, MN (1) 818 16,820 505 St. Paul, MN (1) 8,957 1,156 17,315 849 Kansas City, MO (2) 973 8,461 292 St. Louis, MO (1) 3,179 27,659 954 St. Louis Westport, MO (2) 9,085 2,767 24,072 830 Jackson Briarwood, MS (13) 747 6,501 224 Jackson Downtown, MS (8) 8,218 2,226 19,370 668 Jackson North, MS (2) 6,144 1,643 14,296 493
COST CAPITALIZED SUBSEQUENT GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK TO ACQUISITION CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE ---------------------------- ----------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND AND AND FURNITURE & FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES - ----------------------- ---- ------------ -------- ---- ------------ -------- ----- ------------- ------------- Tampa Busch Gardens, FL (2) 12 9,534 307 9,841 99 9,742 Tampa Rocky Point, FL (6) 176 1,433 2,142 18,815 2,076 23,033 909 22,124 WDW Village, FL (6) 12 1,977 2,896 25,208 2,846 30,950 1,246 29,704 Atlanta Airport North, GA (2) 29 34,531 1,097 35,628 339 35,289 Atlanta Airport, GA (8) 41 40,943 1,307 42,250 406 41,844 Atlanta Airport, GA (1) 2,568 52 2,568 22,394 770 25,732 416 25,316 Atlanta Buckhead, GA (1) 283 1,180 7,303 39,279 3,617 50,199 3,337 46,862 Atlanta Galleria, GA (4) 295 5,052 28,507 2,821 36,380 1,867 34,513 Atlanta Gateway, GA (4) 3,216 5,113 22,857 5,321 33,291 1,634 31,657 Atlanta Perimeter, GA (7) 181 20,556 817 21,373 220 21,153 Atlanta Powers Ferry, GA (8) 381 35 3,411 30,053 1,058 34,522 285 34,237 Atlanta South (Jonesboro), GA (2) 26 864 7,515 285 8,664 81 8,583 Atlanta-Courtyd by Marriott, GA (12) 41 2,025 17,618 649 20,292 189 20,103 Atlanta, GA (5) 102 1,266 11,017 482 12,765 121 12,644 Brunswick, GA (1) 800 705 6,067 1,047 7,819 984 6,835 Columbus N. Airport, GA (2) 95 7,026 312 7,338 76 7,262 Decatur I-20 East, GA (9) 171 1,488 51 1,710 16 1,694 Marietta, GA (13) 294 952 8,285 580 9,817 98 9,719 Davenport, IA (2) 116 547 4,763 280 5,590 54 5,536 Davenport, IA (13) 14 434 3,776 144 4,354 41 4,313 Chicago Allerton, IL (14) 3,343 29,086 1,003 33,432 309 33,123 Chicago O'Hare, IL (4) 700 8,178 37,043 3,586 48,807 2,343 46,464 Deerfield, IL (1) 459 1,049 2,305 20,513 1,741 24,559 1,838 22,721 Moline Airport, IL (2) 41 822 7,149 288 8,259 77 8,182 Moline Airport, IL (9) 9 232 2,021 79 2,332 22 2,310 Moline, IL (13) 24 505 4,398 176 5,079 48 5,031 Colby, KS (9) 276 37 339 3,226 139 3,704 31 3,673 Great Bend, KS (2) 5 549 4,780 170 5,499 51 5,448 Hays, KS (2) 36 597 5,190 215 6,002 56 5,946 Hays, KS (13) 8 243 2,112 81 2,436 23 2,413 Salina, KS (2) 33 502 4,370 184 5,056 48 5,008 Salina, KS (9) 341 2,964 102 3,407 32 3,375 Lexington, KY (15) 1,636 1,955 13,604 2,223 17,782 1,787 15,995 Lexington, KY (4) 2,488 51 15 2,488 21,695 761 24,944 404 24,540 Baton Rouge, LA (1) 520 3,593 2,350 19,612 4,118 26,080 3,258 22,822 New Orleans French Quarter, LA (2) 149 5,264 45,793 1,728 52,785 470 52,315 New Orleans, LA (1) 1,079 13,484 3,980 3,649 35,784 4,875 44,308 4,261 40,047 Boston Gov't Center, MA (7) 72 45,452 1,478 46,930 454 46,476 Boston - Marlborough, MA (1) 647 12,707 4,761 1,595 20,850 5,086 27,531 2,789 24,742 Leominster Four Points, MA (4) 49 900 7,830 319 9,049 2 9,047 BWI, MD (6) 930 2,568 22,433 1,700 26,701 1,458 25,243 Troy, MI (6) 517 2,968 25,905 1,426 30,299 1,601 28,698 Bloomington Airport W, MN (6) 30 1,720 2,038 17,761 2,331 22,130 1,209 20,921 Minneapolis Airport, MN (1) 3,191 5,417 36,508 3,793 45,718 4,708 41,010 Minneapolis Downtown, MN (1) 3,334 818 16,820 3,839 21,477 3,199 18,278 St. Paul, MN (1) 3,239 1,156 17,315 4,088 22,559 3,487 19,072 Kansas City, MO (2) 83 856 973 8,544 1,148 10,665 90 10,575 St. Louis, MO (1) 65 3,179 27,724 954 31,857 516 31,341 St. Louis Westport, MO (2) 199 2,767 24,072 1,029 27,868 263 27,605 Jackson Briarwood, MS (13) 21 747 6,501 245 7,493 70 7,423 Jackson Downtown, MS (8) 29 2,226 19,370 697 22,293 207 22,086 Jackson North, MS (2) 146 88 1,643 14,442 581 16,666 153 16,513
LIFE UPON WHICH DEPRECIATION DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED - ----------------------- ------------ -------- ----------- Tampa Busch Gardens, FL (2) 1966 07-28-98 5 - 40 Yrs Tampa Rocky Point, FL (6) 1986 07-28-97 5 - 40 Yrs WDW Village, FL (6) 1987 07-28-97 5 - 40 Yrs Atlanta Airport North, GA (2) 1967 07-28-98 5 - 40 Yrs Atlanta Airport, GA (8) 1975 07-28-98 5 - 40 Yrs Atlanta Airport, GA (1) 1989 05-04-98 5 - 40 Yrs Atlanta Buckhead, GA (1) 1988 10-17-96 5 - 40 Yrs Atlanta Galleria, GA (4) 1990 06-30-97 5 - 40 Yrs Atlanta Gateway, GA (4) 1986 06-30-97 5 - 40 Yrs Atlanta Perimeter, GA (7) 1985 07-28-98 5 - 40 Yrs Atlanta Powers Ferry, GA (8) 1981 07-28-98 5 - 40 Yrs Atlanta South (Jonesboro), GA (2) 1973 07-28-98 5 - 40 Yrs Atlanta-Courtyd by Marriott, GA (12) 1963 07-28-98 5 - 40 Yrs Atlanta, GA (5) 1963 07-28-98 5 - 40 Yrs Brunswick, GA (1) 1988 07-19-95 5 - 40 Yrs Columbus N. Airport, GA (2) 1969 07-28-98 5 - 40 Yrs Decatur I-20 East, GA (9) 1973 07-28-98 5 - 40 Yrs Marietta, GA (13) 1986 07-28-98 5 - 40 Yrs Davenport, IA (2) 1966 07-28-98 5 - 40 Yrs Davenport, IA (13) 1985 07-28-98 5 - 40 Yrs Chicago Allerton, IL (14) 1923 07-28-98 5 - 40 Yrs Chicago O'Hare, IL (4) 1994 06-30-97 5 - 40 Yrs Deerfield, IL (1) 1987 06-20-96 5 - 40 Yrs Moline Airport, IL (2) 1961 07-28-98 5 - 40 Yrs Moline Airport, IL (9) 1996 07-28-98 5 - 40 Yrs Moline, IL (13) 1985 07-28-98 5 - 40 Yrs Colby, KS (9) 1998 07-28-98 5 - 40 Yrs Great Bend, KS (2) 1964 07-28-98 5 - 40 Yrs Hays, KS (2) 1966 07-28-98 5 - 40 Yrs Hays, KS (13) 1985 07-28-98 5 - 40 Yrs Salina, KS (2) 1986 07-28-98 5 - 40 Yrs Salina, KS (9) 1997 07-28-98 5 - 40 Yrs Lexington, KY (15) 1987 01-10-96 5 - 40 Yrs Lexington, KY (4) 1989 05-04-98 5 - 40 Yrs Baton Rouge, LA (1) 1985 01-03-96 5 - 40 Yrs New Orleans French Quarter, LA (2) 1969 07-28-98 5 - 40 Yrs New Orleans, LA (1) 1984 12-01-94 5 - 40 Yrs Boston Gov't Center, MA (7) 1968 07-28-98 5 - 40 Yrs Boston - Marlborough, MA (1) 1988 06-30-95 5 - 40 Yrs Leominster Four Points, MA (4) 1989 07-28-98 5 - 40 Yrs BWI, MD (6) 1987 03-20-97 5 - 40 Yrs Troy, MI (6) 1987 03-20-97 5 - 40 Yrs Bloomington Airport W, MN (6) 1980 02-01-97 5 - 40 Yrs Minneapolis Airport, MN (1) 1986 11-06-95 5 - 40 Yrs Minneapolis Downtown, MN (1) 1984 11-15-95 5 - 40 Yrs St. Paul, MN (1) 1983 11-15-95 5 - 40 Yrs Kansas City, MO (2) 1975 07-28-98 5 - 40 Yrs St. Louis, MO (1) 1985 05-04-98 5 - 40 Yrs St. Louis Westport, MO (2) 1979 07-28-98 5 - 40 Yrs Jackson Briarwood, MS (13) 1985 07-28-98 5 - 40 Yrs Jackson Downtown, MS (8) 1975 07-28-98 5 - 40 Yrs Jackson North, MS (2) 1957 07-28-98 5 - 40 Yrs
F-31 86 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION ------------------------------ ------------------------------ BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - ----------------------- ------------ ---- ------------ -------- ---- ------------ -------- Jackson Southwest, MS (2) 1,170 314 2,728 94 39 Olive Branch Exec Conf Ctr, MS (2) 1,397 12,155 419 1,147 682 Raleigh/Durham, NC (6) 2,124 18,476 637 6 1,458 Omaha Central I-80, NE (2) 9,440 1,795 15,614 538 134 Omaha Central I-80, NE (13) 518 4,504 155 30 Omaha Central, NE (6) 1,877 16,328 563 130 1,698 Omaha Northwest, NE (2) 979 8,519 294 3 Omaha Northwest, NE (9) 373 3,245 112 Omaha Southwest, NE (13) 464 4,036 139 2 Omaha, NE (16) 923 8,029 277 1 Piscataway, NJ (1) 1,755 17,563 527 605 2,511 Secaucus, NJ (8) 2,356 20,497 707 145 Albuquerque Mountainview, NM (2) 1,322 11,505 397 56 Syracuse, NY (1) 1,597 14,812 1,330 147 Cleveland, OH (1) 1,755 15,329 527 1,258 878 Columbus, OH (6) 1,918 16,691 576 271 785 Dayton, OH (6) 7,166 1,140 9,924 342 1,299 83 Tulsa, OK (1) 525 7,344 3,117 139 1,874 Philadelphia Center City, PA (8) 14,225 5,733 49,875 1,720 1,823 619 Philadelphia Independence Mall, PA (2) 3,184 27,704 955 214 Pittsburgh, PA (7) 15,408 25,170 773 34 Society Hill, PA (4) 4,542 45,121 1,536 125 Charleston Mills House, SC (2) 3,270 28,446 981 471 Columbia Airport, SC (2) 238 2,067 71 20 Greenville Roper, SC (8) 1,551 13,492 465 404 367 Kingston Plantation, SC (1) 2,940 24,988 1,470 1,426 4,193 Knoxville West, TN (2) 11,586 358 1,179 693 Nashville Airport Briley, TN (7) 27,889 863 145 Nashville, TN (6) 1,073 9,331 322 350 754 Nashville Airport, TN (1) 1,118 9,506 961 28 1,534 Amarillo I-40, TX (2) 5,754 178 26 Austin Town Lake, TX (2) 21,551 667 675 Austin, TX (6) 2,508 21,908 752 321 Beaumont Midtown I-10, TX (2) 685 5,964 206 13 Corpus Christi, TX (1) 1,112 9,618 390 52 1,585 Dallas Bristol House, TX (14) 1,704 8,144 Dallas Campbell Ctr, TX (6) 3,208 27,907 962 Dallas Downtown, TX (13) 1,953 16,989 586 14 Dallas Love Field, TX (1) 1,934 16,674 757 167 1,376 Dallas Market Center, TX (8) 15,418 4,078 35,486 1,224 775 Dallas Market Center, TX (1) 2,619 24,298 2,182 Dallas Park Central, TX (1) 1,497 12,722 647 28 1,649 Dallas Park Central, TX (4) 1,720 28,550 4,130 Dallas Park Central, TX (17) 4,513 43,125 2,507 3,984 1,335 Dallas Regal Row, TX (5) 778 6,770 233 23 Dallas, TX (8) 9,942 30,513 944 124 303 Dallas, TX (18) 7,772 13,564 420 191 DFW Airport, TX (18) 18,278 56,134 1,736 752 DFW Airport (Suites), TX (18) 5,757 1,546 13,453 464 153 DFW South, TX (6) 35,156 1,212 4,041 82 Houston Galleria, TX (12) 1,855 16,143 557 89 Houston Galleria, TX (5) 465 4,047 140 39
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE --------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DATE OF DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES CONSTRUCTION - ----------------------- ---- ------------ -------- ----- ------------- ------------- ------------ Jackson Southwest, MS (2) 314 2,728 133 3,175 30 3,145 1962 Olive Branch Exec Conf Ctr, MS (2) 1,397 13,302 1,101 15,800 130 15,670 1972 Raleigh/Durham, NC (6) 2,124 18,482 2,095 22,701 934 21,767 1987 Omaha Central I-80, NE (2) 1,795 15,614 672 18,081 170 17,911 1965 Omaha Central I-80, NE (13) 518 4,504 185 5,207 49 5,158 1991 Omaha Central, NE (6) 1,877 16,458 2,261 20,596 1,207 19,389 1973 Omaha Northwest, NE (2) 979 8,519 297 9,795 91 9,704 1974 Omaha Northwest, NE (9) 373 3,245 112 3,730 35 3,695 1996 Omaha Southwest, NE (13) 464 4,036 141 4,641 43 4,598 1986 Omaha, NE (16) 923 8,029 278 9,230 85 9,145 1989 Piscataway, NJ (1) 1,755 18,168 3,038 22,961 2,358 20,603 1988 Secaucus, NJ (8) 2,356 20,497 852 23,705 399 23,306 N/A Albuquerque Mountainview, NM (2) 1,322 11,505 453 13,280 123 13,157 1968 Syracuse, NY (1) 1,597 14,812 1,477 17,886 928 16,958 1989 Cleveland, OH (1) 1,755 16,587 1,405 19,747 2,094 17,653 1990 Columbus, OH (6) 1,918 16,962 1,361 20,241 535 19,706 1985 Dayton, OH (6) 1,140 11,223 425 12,788 350 12,438 1987 Tulsa, OK (1) 525 7,483 4,991 12,999 5,716 7,283 1985 Philadelphia Center City, PA (8) 5,733 51,698 2,339 59,770 509 59,261 1970 Philadelphia Independence Mall, PA (2) 3,184 27,704 1,169 32,057 290 31,767 1972 Pittsburgh, PA (7) 25,170 807 25,977 262 25,715 1988 Society Hill, PA (4) 4,542 45,121 1,661 51,324 1,810 49,514 1986 Charleston Mills House, SC (2) 3,270 28,446 1,452 33,168 287 32,881 1982 Columbia Airport, SC (2) 238 2,067 91 2,396 22 2,374 1966 Greenville Roper, SC (8) 1,551 13,896 832 16,279 144 16,135 1984 Kingston Plantation, SC (1) 2,940 26,414 5,663 35,017 2,556 32,461 1987 Knoxville West, TN (2) 12,765 1,051 13,816 120 13,696 1966 Nashville Airport Briley, TN (7) 27,889 1,008 28,897 263 28,634 1981 Nashville, TN (6) 1,073 9,681 1,076 11,830 539 11,291 1988 Nashville Airport, TN (1) 1,118 9,534 2,495 13,147 3,520 9,627 1985 Amarillo I-40, TX (2) 5,754 204 5,958 60 5,898 1970 Austin Town Lake, TX (2) 21,551 1,342 22,893 246 22,647 1967 Austin, TX (6) 2,508 21,908 1,073 25,489 1,324 24,165 1987 Beaumont Midtown I-10, TX (2) 685 5,964 219 6,868 64 6,804 1967 Corpus Christi, TX (1) 1,164 9,618 1,975 12,757 1,842 10,915 1984 Dallas Bristol House, TX (14) 1,704 8,144 9,848 557 9,291 1997 Dallas Campbell Ctr, TX (6) 3,208 27,907 962 32,077 445 31,632 1982 Dallas Downtown, TX (13) 1,953 16,989 600 19,542 181 19,361 1969 Dallas Love Field, TX (1) 1,934 16,841 2,133 20,908 2,752 18,156 1986 Dallas Market Center, TX (8) 4,078 36,261 1,224 41,563 358 41,205 1983 Dallas Market Center, TX (1) 2,619 24,298 2,182 29,099 1,581 27,518 1980 Dallas Park Central, TX (1) 1,497 12,750 2,296 16,543 3,214 13,329 1985 Dallas Park Central, TX (4) 1,720 28,550 4,130 34,400 34,400 1972 Dallas Park Central, TX (17) 4,513 47,109 3,842 55,464 2,591 52,873 1983 Dallas Regal Row, TX (5) 778 6,770 256 7,804 73 7,731 1969 Dallas, TX (8) 30,637 1,247 31,884 294 31,590 1988 Dallas, TX (18) 13,564 611 14,175 147 14,028 1981 DFW Airport, TX (18) 56,134 2,488 58,622 587 58,035 1987 DFW Airport (Suites), TX (18) 1,546 13,453 617 15,616 148 15,468 1989 DFW South, TX (6) 4,041 35,238 1,212 40,491 655 39,836 1985 Houston Galleria, TX (12) 1,855 16,143 646 18,644 175 18,469 1968 Houston Galleria, TX (5) 465 4,047 179 4,691 44 4,647 1968
LIFE UPON WHICH DEPRECIATION DATE IN STATEMENT DESCRIPTION OF PROPERTY ACQUIRED IS COMPUTED - ----------------------- -------- ------------ Jackson Southwest, MS (2) 07-28-98 5 - 40 Yrs Olive Branch Exec Conf Ctr, MS (2) 07-28-98 5 - 40 Yrs Raleigh/Durham, NC (6) 07-28-97 5 - 40 Yrs Omaha Central I-80, NE (2) 07-28-98 5 - 40 Yrs Omaha Central I-80, NE (13) 07-28-98 5 - 40 Yrs Omaha Central, NE (6) 02-01-97 5 - 40 Yrs Omaha Northwest, NE (2) 07-28-98 5 - 40 Yrs Omaha Northwest, NE (9) 07-28-98 5 - 40 Yrs Omaha Southwest, NE (13) 07-28-98 5 - 40 Yrs Omaha, NE (16) 07-28-98 5 - 40 Yrs Piscataway, NJ (1) 01-10-96 5 - 40 Yrs Secaucus, NJ (8) 07-28-98 5 - 40 Yrs Albuquerque Mountainview, NM (2) 07-28-98 5 - 40 Yrs Syracuse, NY (1) 06-30-97 5 - 40 Yrs Cleveland, OH (1) 11-17-95 5 - 40 Yrs Columbus, OH (6) 02-04-98 5 - 40 Yrs Dayton, OH (6) 12-30-97 5 - 40 Yrs Tulsa, OK (1) 07-28-94 5 - 40 Yrs Philadelphia Center City, PA (8) 07-28-98 5 - 40 Yrs Philadelphia Independence Mall, PA (2) 07-28-98 5 - 40 Yrs Pittsburgh, PA (7) 07-28-98 5 - 40 Yrs Society Hill, PA (4) 10-01-97 5 - 40 Yrs Charleston Mills House, SC (2) 07-28-98 5 - 40 Yrs Columbia Airport, SC (2) 07-28-98 5 - 40 Yrs Greenville Roper, SC (8) 07-28-98 5 - 40 Yrs Kingston Plantation, SC (1) 12-05-96 5 - 40 Yrs Knoxville West, TN (2) 07-28-98 5 - 40 Yrs Nashville Airport Briley, TN (7) 07-28-98 5 - 40 Yrs Nashville, TN (6) 06-05-97 5 - 40 Yrs Nashville Airport, TN (1) 07-28-94 5 - 40 Yrs Amarillo I-40, TX (2) 07-28-98 5 - 40 Yrs Austin Town Lake, TX (2) 07-28-98 5 - 40 Yrs Austin, TX (6) 03-20-97 5 - 40 Yrs Beaumont Midtown I-10, TX (2) 07-28-98 5 - 40 Yrs Corpus Christi, TX (1) 07-19-95 5 - 40 Yrs Dallas Bristol House, TX (14) 07-28-98 5 - 40 Yrs Dallas Campbell Ctr, TX (6) 05-29-98 5 - 40 Yrs Dallas Downtown, TX (13) 07-28-98 5 - 40 Yrs Dallas Love Field, TX (1) 03-29-95 5 - 40 Yrs Dallas Market Center, TX (8) 07-28-98 5 - 40 Yrs Dallas Market Center, TX (1) 06-30-97 5 - 40 Yrs Dallas Park Central, TX (1) 07-28-94 5 - 40 Yrs Dallas Park Central, TX (4) 11-01-98 5 - 40 Yrs Dallas Park Central, TX (17) 06-30-97 5 - 40 Yrs Dallas Regal Row, TX (5) 07-28-98 5 - 40 Yrs Dallas, TX (8) 07-28-98 5 - 40 Yrs Dallas, TX (18) 07-28-98 5 - 40 Yrs DFW Airport, TX (18) 07-28-98 5 - 40 Yrs DFW Airport (Suites), TX (18) 07-28-98 5 - 40 Yrs DFW South, TX (6) 07-28-98 5 - 40 Yrs Houston Galleria, TX (12) 07-28-98 5 - 40 Yrs Houston Galleria, TX (5) 07-28-98 5 - 40 Yrs
F-32 87 FELCOR LODGING LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------------- ------------------------------ BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES - ----------------------- ------------ ---- ------------ -------- ---- ------------ --------- Houston Greenway, TX (7) 12,675 3,418 29,736 1,025 204 Houston I-10 West, TX (5) 586 5,099 176 13 Houston I-10 West, TX (7) 3,055 26,575 916 253 Houston I-10 West, TX (13) 478 4,155 143 220 Houston Int'l Airport, TX (2) 14,377 3,890 33,842 1,167 101 Houston Medical Center, TX (8) 9,329 2,493 21,687 748 233 145 Houston Medical Center, TX (2) 9,329 2,284 19,869 685 1,235 1,234 Midland Country Villa, TX (2) 404 3,517 121 12 N. Dallas Addison, TX (8) 15,616 4,938 42,965 1,482 354 344 Odessa Center, TX (2) 487 4,238 146 4 Odessa Parkway, TX (9) 370 3,218 111 7 Plano, TX (2) 885 7,696 265 65 Plano, TX (18) 9,118 1,813 15,775 544 363 San Antonio Airport, TX (7) 3,371 29,326 1,011 30 San Antonio Downtown, TX (2) 22,246 688 377 198 Waco I-35, TX (2) 574 4,994 172 114 108 Salt Lake City Airport, UT (2) 5,346 165 47 Burlington, VT (4) 3,136 27,283 941 267 Cambridge, CAN (2) 481 4,188 144 Kitchener Waterloo, CAN (2) 9,441 292 25 Peterbourough Waterfront, CAN (2) 735 6,391 220 12 Sarnia, CAN (2) 271 2,359 81 4 Toronto Airport, CAN (7) 21,168 655 217 234 Toronto Yorkdale, CAN (2) 1,578 13,725 473 118 -------- -------- ---------- -------- ------- ------- -------- Total $275,613 $314,029 $3,397,532 $145,556 $15,638 $83,039 $153,054 ======== ======== ========== ======== ======= ======= ========
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 - ----------------------- ---- ------------ -------- ----- ------------- Houston Greenway, TX (7) 3,418 29,736 1,229 34,383 292 Houston I-10 West, TX (5) 586 5,099 189 5,874 55 Houston I-10 West, TX (7) 3,055 26,575 1,169 30,799 290 Houston I-10 West, TX (13) 478 4,155 363 4,996 51 Houston Int'l Airport, TX (2) 3,890 33,842 1,268 39,000 342 Houston Medical Center, TX (8) 2,493 21,920 893 25,306 231 Houston Medical Center, TX (2) 2,284 21,104 1,919 25,307 211 Midland Country Villa, TX (2) 404 3,517 133 4,054 38 N. Dallas Addison, TX (8) 4,938 43,319 1,826 50,083 436 Odessa Center, TX (2) 487 4,238 150 4,875 45 Odessa Parkway, TX (9) 370 3,218 118 3,706 34 Plano, TX (2) 885 7,696 330 8,911 84 Plano, TX (18) 1,813 15,775 907 18,495 180 San Antonio Airport, TX (7) 3,371 29,326 1,041 33,738 281 San Antonio Downtown, TX (2) 22,623 886 23,509 232 Waco I-35, TX (2) 574 5,108 280 5,962 53 Salt Lake City Airport, UT (2) 5,346 212 5,558 57 Burlington, VT (4) 3,136 27,283 1,208 31,627 972 Cambridge, CAN (2) 481 4,188 144 4,813 45 Kitchener Waterloo, CAN (2) 9,441 317 9,758 99 Peterbourough Waterfront, CAN (2) 735 6,391 232 7,358 68 Sarnia, CAN (2) 271 2,359 85 2,715 25 Toronto Airport, CAN (7) 21,385 889 22,274 220 Toronto Yorkdale, CAN (2) 1,578 13,725 591 15,894 150 -------- ---------- -------- ---------- -------- Total $329,667 $3,480,571 $298,610 $4,108,848 $178,072 ======== ========== ======== ========== ========
NET BOOK VALUE LIFE UPON BUILDINGS AND WHICH IMPROVEMENTS; DEPRECIATION FURNITURE & DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED - ----------------------- ------------- ------------ -------- ------------ Houston Greenway, TX (7) 34,091 1984 07-28-98 5 - 40 Yrs Houston I-10 West, TX (5) 5,819 1969 07-28-98 5 - 40 Yrs Houston I-10 West, TX (7) 30,509 1984 07-28-98 5 - 40 Yrs Houston I-10 West, TX (13) 4,945 1969 07-28-98 5 - 40 Yrs Houston Int'l Airport, TX (2) 38,658 1971 07-28-98 5 - 40 Yrs Houston Medical Center, TX (8) 25,075 1973 07-28-98 5 - 40 Yrs Houston Medical Center, TX (2) 25,096 1984 07-28-98 5 - 40 Yrs Midland Country Villa, TX (2) 4,016 1979 07-28-98 5 - 40 Yrs N. Dallas Addison, TX (8) 49,647 1985 07-28-98 5 - 40 Yrs Odessa Center, TX (2) 4,830 1982 07-28-98 5 - 40 Yrs Odessa Parkway, TX (9) 3,672 1977 07-28-98 5 - 40 Yrs Plano, TX (2) 8,827 1983 07-28-98 5 - 40 Yrs Plano, TX (18) 18,315 1983 07-28-98 5 - 40 Yrs San Antonio Airport, TX (7) 33,457 1981 07-28-98 5 - 40 Yrs San Antonio Downtown, TX (2) 23,277 1968 07-28-98 5 - 40 Yrs Waco I-35, TX (2) 5,909 1970 07-28-98 5 - 40 Yrs Salt Lake City Airport, UT (2) 5,501 1963 07-28-98 5 - 40 Yrs Burlington, VT (4) 30,655 1967 12-04-97 5 - 40 Yrs Cambridge, CAN (2) 4,768 1969 07-28-98 5 - 40 Yrs Kitchener Waterloo, CAN (2) 9,659 1965 07-28-98 5 - 40 Yrs Peterbourough Waterfront, CAN 7,290 1965 07-28-98 5 - 40 Yrs Sarnia, CAN (2) 2,690 1970 07-28-98 5 - 40 Yrs Toronto Airport, CAN (7) 22,054 1970 07-28-98 5 - 40 Yrs Toronto Yorkdale, CAN (2) 15,744 1970 07-28-98 5 - 40 Yrs ---------- Total $3,930,776 ==========
(a) Balance at December 31, 1996 $ 911,390 (b) Balance at December 31, 1995 $ 10,397 Additions during the period 651,334 Depreciation expense during the period 26,321 ---------- --------- Balance at December 31, 1997 $1,562,724 Balance at December 31, 1996 36,718 Additions during the period 2,546,124 Depreciation expense during the period 50,682 ---------- --------- Balance at December 31, 1998 $4,108,848 Balance at December 31, 1997 $ 87,400 Depreciation expense during the period 90,672 --------- Balance at December 31, 1998 $ 178,072
1. Embassy Suites 2. Holiday Inn 3. Days Inn 4. Sheraton and Sheraton Suites 5. Fairfield Inn 6. Doubletree and Doubletree Guest Suites 7. Holiday Inn Select 8. Crowne Plaza and Crowne Plaza Suites 9. Holiday Inn Express 10. Ramada Inn 11. Radisson 12. Courtyard by Marriott 13. Hampton Inn 14. Independents 15. Hilton Suites 16. Homewood Suites 17. Westin 18. Harvey Hotel F-33 88 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Lodging Trust Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of DJONT Operations, L.L.C. at December 31, 1998 and 1997, and the consolidated results of operations and cash flows for the years ended December 31, 1998, 1997 and 1996, respectively, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas March 2, 1999 F-34 89 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
ASSETS 1998 1997 -------- -------- Cash and cash equivalents ............................................ $ 28,538 $ 25,684 Accounts receivable, net ............................................. 27,561 20,274 Inventories .......................................................... 4,381 3,466 Prepaid expenses ..................................................... 471 1,307 Other assets ......................................................... 3,021 3,971 -------- -------- Total assets ....................................................... $ 63,972 $ 54,702 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, trade .............................................. $ 6,514 $ 9,426 Accounts payable, other .............................................. 6,994 4,625 Due to FelCor Lodging Trust Incorporated ............................. 16,875 18,908 Accrued expenses and other liabilities ............................... 41,820 30,818 -------- -------- Total liabilities .................................................. 72,203 63,777 -------- -------- Commitments and contingencies (Note 4) Shareholders' equity (deficit): Capital .............................................................. 1 1 Accumulated deficit .................................................. (8,232) (9,076) -------- -------- Total shareholders' deficit ........................................ (8,231) (9,075) -------- -------- Total liabilities and shareholders' equity ......................... $ 63,972 $ 54,702 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-35 90 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
1998 1997 1996 --------- --------- --------- Revenues: Room and suite revenue ........................ $ 618,122 $ 456,614 $ 234,451 Food and beverage revenue ..................... 77,834 34,813 15,119 Food and beverage rent ........................ 4,792 4,393 2,334 Other revenue ................................. 48,781 38,690 17,340 --------- --------- --------- Total revenues ......................... 749,529 534,510 269,244 --------- --------- --------- Expenses: Property operating costs ...................... 169,955 128,077 66,236 General and administrative .................... 56,995 39,147 20,123 Advertising and promotion ..................... 51,105 37,333 18,520 Repair and maintenance ........................ 36,374 26,236 14,453 Utilities ..................................... 28,799 21,363 12,248 Management and incentive fees ................. 23,636 11,879 6,077 Franchise fees ................................ 18,102 13,407 5,693 Food and beverage expenses .................... 65,924 33,119 15,701 Percentage lease expenses ..................... 289,891 216,990 107,935 Lessee overhead expenses ...................... 1,990 2,332 1,776 Liability insurance ........................... 1,258 3,202 1,818 Preopening and conversion costs ............... 569 340 2,165 Other expenses ................................ 4,087 3,757 1,929 --------- --------- --------- Total expenses ......................... 748,685 537,182 274,674 --------- --------- --------- Net income/(loss) ................................ $ 844 $ (2,672) $ (5,430) ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-36 91 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS) Balance at December 31, 1995 ..................... $ (773) Distributions declared ........................... (200) Net loss ......................................... (5,430) ------- Balance at December 31, 1996 ..................... (6,403) Net loss ......................................... (2,672) ------- Balance at December 31, 1997 ..................... (9,075) Net income ....................................... 844 ------- Balance at December 31, 1998 ..................... $(8,231) =======
The accompanying notes are an integral part of these consolidated financial statements. F-37 92 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income (loss) .................................................. $ 844 $ (2,672) $ (5,430) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable ........................................... (7,287) (11,574) (5,571) Inventories ................................................... (915) (1,361) (1,573) Prepaid expenses .............................................. 836 (1,052) 33 Other assets .................................................. 950 (1,768) (1,898) Due to FelCor Lodging Trust Incorporated ...................... (2,033) 13,382 3,130 Accounts payable, accrued expenses and other liabilities ...... 10,459 25,521 11,372 -------- -------- -------- Net cash flow provided by operating activities ...... 2,854 20,476 63 -------- -------- -------- Cash flows from financing activities: Distributions paid ................................................. (200) -------- -------- -------- Net cash flow used in financing activities .......... (200) -------- -------- -------- Net change in cash and cash equivalents .............................. 2,854 20,476 (137) Cash and cash equivalents at beginning of years ...................... 25,684 5,208 5,345 -------- -------- -------- Cash and cash equivalents at end of years ............................ $ 28,538 $ 25,684 $ 5,208 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-38 93 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Thomas J. Corcoran, the President, Chief Executive Officer and a Director of FelCor Lodging Trust Incorporated ("FelCor") and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT Operations LLC, a Delaware limited liability company. The remaining 50% non-voting common equity interest is beneficially owned by the children of Charles N. Mathewson, a Director and major initial investor of FelCor. Each of the 86 hotels in which FelCor Lodging Limited Partnership (the "Operating Partnership") had an ownership interest at December 31, 1998 (the "Hotels"), is leased to DJONT Operations LLC or a consolidated subsidiary thereof ("DJONT") pursuant to percentage leases ("Percentage Leases"). Certain entities owning interests in DJONT and the managers of certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 34 of the Hotels. No loans were outstanding under such agreements at December 31, 1998. Messrs. Feldman and Corcoran have entered into an agreement with FelCor pursuant to which they have agreed that through April 15, 2005, any distributions received by them from DJONT (in excess of their tax liabilities with respect to the income of DJONT) will be utilized to purchase common stock from FelCor or units of limited partner interest in the Operating Partnership at then current market prices. The agreement stipulates that Messrs. Feldman and Corcoran are restricted from selling any stock or units so acquired for a period of two years from the date of purchase. RGC Leasing, Inc., which owns the other 50% common equity interest in DJONT, may elect to purchase common stock of FelCor or Operating Partnership units upon similar terms, at its option. The independent directors of FelCor may suspend or terminate such agreement at any time. Fifty-seven of the Hotels are operated as Embassy Suites(R) hotels, 17 are operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, nine are operated as Sheraton(R) or Sheraton Suites(R) hotels one is operated as a Westin(R) hotel, one is operated as a Hilton Suites(R) hotel and one is in the process of conversion to a Doubletree hotel. Seventy-three of the Hotels are managed by subsidiaries of Promus Hotel Corporation ("Promus"). Promus is the largest operator of all-suite, full-service hotels in the United States. Of the remaining Hotels, 10 are managed by subsidiaries of Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") and three are managed by independent management companies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates -- The preparation of the financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair Value of Financial Instruments -- Statement of Financial Accounting Standards 107 requires all entities to disclose the fair value of certain financial instruments in their financial statements. Accordingly, DJONT reports the carrying amount of cash and cash equivalents, accounts receivable, inventories, prepaid expenses, other assets, accounts payable, amounts due to lessor and accrued expenses at cost which approximates fair value due to the short maturity of these instruments. Cash Equivalents -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Inventories -- Inventories are stated at the lower of cost or market. F-39 94 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Revenue Recognition -- Revenue is recognized as earned. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the portion of accounts receivable which is estimated to be uncollectible. Such losses have been within management's expectations. Income Taxes -- DJONT is a limited liability company which is taxed for federal income taxes purposes as a limited partnership and, accordingly, all taxable income or loss flows through to the shareholders. 3. ACCUMULATED DEFICIT In 1998 DJONT had net income of $844,000, however, because of losses in recent years had an accumulated deficit of approximately $8.2 million. A significant portion of such losses are attributable to the one-time costs of converting the Crown Sterling Suites(R) hotels to Embassy Suites and Doubletree Guest Suites, and operations of these hotels during periods of substantial renovation. Such renovations were required under the terms of the related franchise agreements. In accordance with the terms of the Percentage Leases, DJONT is required to pay the full required lease payment. Although a portion of the suites are not available for guests to rent, management believes, and operating data indicates, that overall the performances of the hotels is adversely impacted as evidenced by improved operating performances immediately following completion of renovations. Management is exploring several options to anticipate negative operating cash flow during renovations, including potential changes to the terms of leases for future renovations which might mitigate losses for DJONT during such renovation periods. At December 31, 1998 DJONT had paid all amounts then due to FelCor under the Percentage Leases. It is anticipated that a substantial portion of any future profits of DJONT will be retained until a positive shareholders' equity is restored. Management anticipates that future earnings will be sufficient to enable DJONT to continue to make necessary payments when due. Management deems DJONT to be a viable going concern and, as such, no adjustments are required to the accompanying financial statements. 4. COMMITMENTS AND RELATED PARTY TRANSACTIONS DJONT has future lease commitments under the Percentage Leases which expire in 2002 (6 hotels), 2004 (7 hotels), 2005 (12 hotels), 2006 (18 hotels),2007 (23 hotels), 2008 (12 hotels), and thereafter (8 hotels). Minimum future rental payments are computed based on the base rent as defined under the noncancellable operating leases and are as follows (in thousands):
YEAR AMOUNT ---- ---------- 1999 ................................ $ 166,418 2000 ................................ 166,506 2001 ................................ 169,597 2002 ................................ 169,597 2003 ................................ 155,562 2004 and thereafter ................. 584,174 ---------- $1,411,854 ==========
F-40 95 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) The Percentage Lease expense is based on a percentage of room and suite revenues, food and beverage revenues and food and beverage rents of the Hotels. Both the base rent and the threshold room and suite revenue in each lease computation is subject to adjustments in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year for the hotels acquired prior to July of the previous year. The adjustment in any lease year may not exceed 7%. The CPI adjustments made in January 1999, 1998, 1997 and 1996 are 0.55% 0.50%, 1.42% and 0.73%, respectively. Other than real estate and personal property taxes, casualty insurance, capital improvements and maintenance of underground utilities and structural elements, which are obligations of the Operating Partnership, the Percentage Leases require DJONT to pay rent, liability insurance premiums, all costs, expenses, utilities and other charges incurred in the operation of the leased hotels. DJONT is also obligated to indemnify and hold harmless the Operating Partnership from and against all liabilities, costs and expenses incurred by or asserted against the Operating Partnership in the normal course of operating the Hotels. DJONT is not permitted to sublet all or any substantial part of the Hotels or assign its interest under any of the Percentage Leases without the prior written consent of the Operating Partnership. DJONT has agreed that during the term of the Percentage Leases it will maintain a ratio of total debt to consolidated net worth (as defined in the Percentage Leases) of less than or equal to 50%, exclusive of capital leases. In addition, the Lessee has agreed that it will not pay fees to any affiliate of the Lessee. DJONT typically pays a franchise fee ranging from 4% to 5% of suite revenue, and marketing and reservation fees ranging from 1% to 3.5% of room and suite revenue. In the cases where there is not a separate franchise agreement, the right to use the brand name is included in the management agreement. Base management fees typically range from 2% to 3% of applicable hotel revenues. Incentive management fees are based upon the hotel's net income before overhead and typically range from 50% to 100% subject to a maximum annual payment of between 2% and 3% of total revenues. In many cases managers and franchisors have agreed to subordinate all or a portion of their fees at a specific hotel or group of hotels either for a set period of time, or until the hotel or group of hotels provides a predetermined return to the Lessee, or both. In the event FelCor enters into an agreement to sell or otherwise transfer a leased hotel, FelCor has the right to terminate the Percentage Lease with respect to such leased hotel upon 90 days' prior written notice upon either (1) paying DJONT the fair market value of the DJONT's leasehold interest in the remaining term of the Percentage Lease to be terminated or (2) offering to lease to DJONT a substitute hotel on terms that would create a leasehold interest in such hotel with a fair market value equal to or exceeding the fair market value of DJONT's remaining leasehold interest under the Percentage Lease to be terminated. FelCor also is obligated to pay or reimburse DJONT for any assignment fees, termination fees or other liabilities arising under any franchise license agreement and restaurant sublease agreements. DJONT shares the executive offices and certain employees with FelCor and FelCor, Inc., and each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel, office supplies, telephones and depreciation of office furniture, fixtures and equipment. Such allocation of shared expenses approved by a majority of FelCor's independent directors. During 1998, 1997 and 1996, DJONT paid approximately $1.6 million (approximately 37%), $2.1 million (approximately 61%), and $1.3 million (approximately 61%), respectively, of the allocable expenses under this agreement. F-41 96 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 3.1 - Amended and Restated Agreement of Limited Partnership of the Partnership (filed as Exhibit 10.1 to FelCor's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference). 3.2 - First Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 17, 1995 by and among the Registrant, Promus Hotels, Inc. and all of the persons or entities who are or shall in the future become of the limited partners of the Partnership (filed as Exhibit 10.1.1 to FelCor's Annual Report on Form 10- K, as amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and incorporated herein by reference). 3.3 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 9, 1996 between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.2 to the 1995 10-K and incorporated herein by reference). 3.4 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, MarRay-LexGreen, Inc. and all of the persons and entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.3 to the 1995 10-K and incorporated herein by reference). 3.5 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, Piscataway- Centennial Associates Limited Partnership and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.4 to the 1995 10-K and incorporated herein by reference). 3.6 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996 (filed as Exhibit 10.1.5 to FelCor's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference). 3.7 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of September 16, 1996, by and among the Registrant, John B. Urbahns, II and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.6 to FelCor's Annual Report on Form 10- K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 3.8 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 16, 1997, by and among the Registrant, PMB Associates, Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.7 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference).
97 3.9 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 6, 1998, by and among the Registrant, Columbus/Front Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.8 to FelCor's Annual Report on Form 10- K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 3.10 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 1, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of May 1, 1998 (filed as Exhibit 10.1.9 to FelCor's Form 8-K dated May 29, 1998, and incorporated herein by reference). 3.11 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of June 22, 1998, by and among the Registrant, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.10 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.12 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of July 28, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, changing the name of the Partnership to "FelCor Lodging Limited Partnership" (filed as Exhibit 10.1.11 to FelCor's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 3.13 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 29, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, amending certain provisions of the Partnership Agreement (filed as Exhibit 10.1.12 to FelCor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K") and incorporated herein by reference). 3.14 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 31, 1998, by and between the Registrant, FelCor Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.13 to the 1998 10-K and incorporated herein by reference). 3.15 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of March 1, 1999, by and among the Registrant, Huie Properties, Ltd., and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.14 to the 1998 10-K and incorporated herein by reference). 4.1 - Indenture dated as of April 22, 1996 by and between FelCor and Sun Trust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to FelCor's Form 8-K dated May 1, 1996 and incorporated herein by reference). 4.2 - Indenture dated as of October 1, 1997 by and among the Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (file No. 333-39595) and the other co-registrants named therein and incorporated herein by reference).
98 4.2.1 - First Amendment to Indenture dated as of February 5, 1998 by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-39595) and incorporated herein by reference). 4.2.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998, by and among Registrant, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference). 10.1 - Form of Lease Agreement between the Registrant as Lessor and DJONT Operations, L.L.C. or its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the 1995 10-K and incorporated herein by reference). 10.1.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the Registrant, and DJONT to clarify the meaning of Article III of the lease as represented by the actual course of dealing between lessors and lessees under such leases (filed as Exhibit 10.19 to FelCor's Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.2 - Form of Lease Agreement between the Partnership as Lessor and a subsidiary of Bristol Hotels & Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the 1998 10-K and incorporated herein by reference). 10.2.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the Registrant, the Partnership, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.3 - Employment Agreement dated as of July 28, 1994 between FelCor and Hervey A. Feldman (filed as Exhibit 10.7 to the 1994 10-K/A and incorporated herein by reference). 10.4 - Employment Agreement dated as of July 28, 1994 between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to the 1994 10-K/A and incorporated herein by reference). 10.5 - Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10- K/A and incorporated herein by reference). 10.6 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 1994 10-K/A and incorporated herein by reference). 10.7 - 1995 Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9.2 to the 1995 10-K and incorporated herein by reference). 10.8 - Non-Qualified Deferred Compensation Plan (filed as Exhibit 4 to FelCor's Registration Statement on Form S-8 (File No. 333-69869) and incorporated herein by reference). 10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor's Registration Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference).
99 10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) and incorporated herein by reference). 10.12 - Form of Severance Agreement for executive officers and certain key employees of FelCor (filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference). 10.13 - Agreement dated as of April 15, 1995 among FelCor, the Registrant, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit 10.15 to the Registration Statement on Form S-11 (File No. 33-91870) and incorporated herein by reference). 10.14 - Credit Agreement dated as of February 6, 1996 by and among the Registrant, as borrower, Holdings and FelCor, as guarantors, and Canadian Imperial Bank of Commerce, as agent (filed as Exhibit 10.30 to FelCor's Form 8-K dated May 1, 1996, and incorporated herein by reference). 10.15 - Voting and Cooperation Agreement dated as of March 23, 1998 among Registrant, Bristol, Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as Exhibit 99.7 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.16 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by FelCor (filed as Exhibit 99.8 to FelCor's Registration Statement on Form S-4 (File No. 333-50509) and incorporated herein by reference). 10.17 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to FelCor's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.18 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1998 among FelCor and the Registrant, as Borrower, the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's Form 8-K dated August 10, 1998 and incorporated herein by reference). 10.19 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 21.1* - List of Subsidiaries of the Registrant. 23.1* - Consent of PricewaterhouseCoopers LLP 27* - Financial Data Schedule.
- --------------------------- * Filed herewith. EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES AND UNCONSOLIDATED ENTITIES
STATE AND FORM OF NAME ORGANIZATION OWNERSHIP INTEREST FelCor/CSS Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP ("FelCor/CSS Hotels") Company FelCor/CSS Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor/CSS Hotels; 99% LP interest owned by FelCor LP FelCor/St. Paul Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor/CSS Hotels; 99% LP interest owned by FelCor LP FelCor/Charlotte Hotel, L.L.C. Delaware; Limited Liability 50% owned by FelCor/CSS Hotels ("FelCor/Charlotte") Company FelCor/Indianapolis Hotel, L.L.C. Delaware; Limited Liability 50% owned by FelCor/CSS Hotels ("FelCor/Indianapolis") Company E.S. Charlotte Limited Partnership Minnesota; Limited Partnership 2% GP interest owned by FelCor/Charlotte; 49% LP interest owned by FelCor LP E.S. North, an Indiana Limited Indiana; Limited Partnership 2% GP interest owned by Partnership FelCor/Indianapolis; 49% LP interest owned by FelCor LP FCH/PSH, L.P. Pennsylvania; Limited Partnership 1% GP interest owned by FelCor/CSS Hotels; 99% LP interest owned by FelCor LP FelCor Lodging Holding Company, Delaware; Limited Liability 100% owned by FelCor LP; special L.L.C. Company 0% interest owned by Special Remote I, Inc. FelCor Lodging Company, L.L.C. Delaware; Limited Liability 100% owned by FelCor Lodging Company Holding Company, L.L.C.
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STATE AND FORM OF NAME ORGANIZATION OWNERSHIP INTEREST FelCor Hotel Operating Company, Delaware; Limited Liability 100% owned by FelCor LP L.L.C. ("FHOC") Company FelCor Pennsylvania Company, Delaware; Limited Liability 100% owned by FHOC L.L.C. Company FelCor Hospitality Holding Delaware; Limited Liability 100% owned by FHOC Company, L.L.C. Company FelCor Hospitality Company, Delaware; Limited Liability 100% owned by FelCor Hospitality L.L.C. Company Holding Company, L.L.C. FelCor Hotel Asset Company, Delaware; Limited Liability 100% owned by FelCor LP L.L.C. ("FHAC") Company FHAC Nevada Holdings, L.L.C. Nevada; Limited Liability 100% owned by FHAC Company FHAC Texas Holdings, L.P. Texas; Limited Partnership 1% GP interest owned by FHAC and 99% LP interest owned by FHAC Nevada Holdings, L.L.C. FelCor HHCL Company, L.L.C. Delaware; Limited Liability 100% owned by FHAC ("FelCor HHCL") Company FelCor Hotels GenPar, L.L.C. Delaware; Limited Liability 100% owned by FelCor HHCL ("FelCor GenPar") Company FelCor Hotels LimPar, L.L.C. Delaware; Limited Liability 100% owned by FelCor HHCL ("FelCor LimPar") Company HHHC GenPar, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor GenPar, and 99% LP interest owned by FelCor LimPar FelCor Hotel Company, Ltd. Texas; Limited Partnership 87% GP interest owned by HHHC ("FelCor Hotel Company") GenPar, L.P. and 13% LP interest owned by FelCor LimPar FelCor Hotels GenPar II, L.L.C. Delaware; Limited Liability 100% owned by FelCor Hotel Company Company FelCor Hotel Company II, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor Hotels GenPar II, L.L.C. and 99% LP interest owned by FelCor Hotel Company FelCor Chat-Lem, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company HI Chat-Lem/Iowa - New Orleans Louisiana; General Partnership 50% owned by FelCor Chatlem, Venture L.L.C.
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STATE AND FORM OF NAME ORGANIZATION OWNERSHIP INTEREST FelCor Philadelphia Center, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company FelCor Marshall Motels, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company Center City Hotel Associates Pennsylvania; Limited Partnership 1% GP interest owned by FelCor Philadelphia Center, L.L.C. and 99% LP interest owned by FelCor Marshall Motels, L.L.C. FelCor Hotels Financing II, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company FelCor Hotels Financing I, L.L.C. Delaware; Limited Liability 100% owned by FelCor Hotels ("FelCor Financing I") Company Financing II, L.L.C. FelCor Hotels Investments I, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor Financing I and 99% LP interest owned by FelCor Hotel Company FelCor Hotels Investments II, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor Financing I and 99% LP interest owned by FelCor Hotel Company FelCor Salt Lake, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company FelCor St. Louis Company, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company FelCor Canada Holding GP, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company FelCor Canada Holding, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor Canada Holding GP, L.L.C. and 99% LP interest owned by FHAC FelCor Canada Co. Nova Scotia; Unlimited Liability 100% owned by FelCor Canada Company Holding, L.P. FelCor Omaha Hotel Company, Delaware; Limited Liability 100% owned by FelCor LP L.L.C. ("FelCor Omaha") Company FelCor Country Villa Hotel, L.L.C. Delaware; Limited Liability 100% owned by FelCor Omaha Company FelCor Moline Hotel, L.L.C. Delaware; Limited Liability 100% owned by FelCor Omaha Company FelCor Eight Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP ("FelCor Eight Hotels") Company
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STATE AND FORM OF NAME ORGANIZATION OWNERSHIP INTEREST EPT Meadowlands Limited Delaware; Limited Partnership 1% GP interest owned by FelCor Partnership Eight Hotels; 49% LP interest owned by FelCor LP EPT Kansas City Limited Delaware; Limited Partnership 1% GP interest owned by FelCor Partnership Eight Hotels; 49% LP interest owned by FelCor LP EPT San Antonio Limited Delaware; Limited Partnership 1% GP interest owned by FelCor Partnership ("EPT San Antonio") Eight Hotels; 49% LP interest owned by FelCor LP EPT Austin Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor ("EPT Austin") Eight Hotels; 49% LP interest owned by FelCor LP EPT Overland Park Limited Delaware; Limited Partnership 1% GP interest owned by FelCor Partnership Eight Hotels; 49% LP interest ("EPT Overland Park") owned by FelCor LP EPT Atlanta - Perimeter Center Delaware; Limited Partnership 1% GP interest owned by FelCor Limited Partnership Eight Hotels; 49% LP interest ("EPT Atlanta") owned by FelCor LP EPT Raleigh Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor ("EPT Raleigh") Eight Hotels; 49% LP interest owned by FelCor LP EPT Covina Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor ("EPT Covina") Eight Hotels; 49% LP interest owned by FelCor LP Promus/FCH Condominium Delaware; Limited Liability 50% owned by FelCor LP Company, L.L.C. Company Promus/FCH Development Delaware; Limited Liability 50% owned by FelCor LP Company, L.L.C. Company Promus/FelCor San Antonio Texas; General Partnership 50% GP interest owned by FelCor Venture LP Promus/FelCor Parsippany Venture New Jersey; General Partnership 50% GP interest owned by FelCor ("Parsippany JV") LP MHV Joint Venture Texas; General Partnership 50% GP interest owned by FelCor ("MHV JV") LP Promus/FelCor Lombard Venture Illinois; General Partnership 50% GP interest owned by FelCor ("Lombard JV") LP
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STATE AND FORM OF NAME ORGANIZATION OWNERSHIP INTEREST Promus/FelCor Hotels, L.L.C. Delaware; Limited Liability 1% owned by Promus/FelCor Manager, Inc.; Company 99% owned by EPT Atlanta, EPT Austin, EPT Covina, EPT Overland Park, EPT Raleigh, EPT San Antonio, Lombard JV, MHV JV and Parsippany JV Kingston Plantation Development Delaware; Corporation 97% non-voting Class B Corporation ("KPDC") interest owned by FelCor LP Promus/FelCor Manager, Inc. Delaware; Corporation 50% owned by KPDC FelCor/New Orleans Annex, L.L.C. Delaware; Limited Liability 100% owned by KPDC Company Brighton at Kingston Plantation, Delaware; Limited Liability 50% owned by KPDC L.L.C. Company FCH/DT Hotels, L.L.C. Delaware; Limited Liability 90% owned by FelCor LP ("FCH/DT Hotels") Company FCH/DT Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FCH/DT Hotels; 89.1% LP interest owned by FelCor LP FCH/DT BWI Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FCH/DT Hotels; 99% LP interest owned by FCH/DT Holdings, LP FelCor/LAX Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP ("FelCor/LAX Hotels") Company FelCor/LAX Holdings, L.P. Delaware; Limited Partnership 1% GP Interest owned by FelCor/LAX Hotels; 99% LP interest owned by FelCor LP Los Angeles International Airport Texas; Limited Partnership 50% GP interest owned by Hotel Associates, a Texas limited FelCor/LAX Holdings, L.P. and partnership 47% LP interest owned by FelCor/LAX Hotels Park Central Joint Venture Texas; General Partnership 60% owned by FelCor LP FelCor Airport Utilities, L.L.C. Delaware; Limited Liability 100% owned by FHAC Company
-5- EX-23.1 3 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of FelCor Lodging Limited Partnership on Form S-3 (File No. 333-50509) of our reports dated (i) February 2, 1999 on our audits of the consolidated financial statements of FelCor Lodging Limited Partnership, (ii) February 2, 1999 on our audit of the financial statement schedule of FelCor Lodging Limited Partnership, and (iii) March 2, 1999 on our audit of the consolidated financial statements of DJONT Operations, L.L.C., which reports are included in this Annual Report on Form 10-K. We also consent to the reference to our firm under the caption "Selected Financial Data." PricewaterhouseCoopers LLP Dallas, Texas March 29, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 34,692 0 21,943 0 0 56,635 4,142,556 (178,072) 4,175,383 124,574 1,594,734 0 295,000 0 2,109,970 4,175,383 0 340,094 0 0 0 0 73,182 124,414 0 124,414 0 3,075 0 121,339 1.89 1.87
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