Income Taxes Schedule of Income Tax Reconciliation (Tables)

4 Months Ended

12 Months Ended

Dec. 31, 2017

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

FelCor's TRSs had a consolidated deferred tax asset, which had a 100% valuation allowance, primarily comprised of the following (in thousands):



	December 31, 2016
Accumulated net operating losses of TRSs	$	94,219
Tax property basis compared to book	4,844
Accrued employee benefits not deductible for tax	4,966
Historic tax credits (1)	19,357
Other	26
Deferred tax asset	123,412
Valuation allowance	(123,412		)
Deferred tax asset, net	$	—

(1)

Because of the completion of construction at The Knickerbocker hotel property in 2015, one of FelCor's TRSs became entitled to the future benefits of historic tax credits that vest over a five year period and they do not expire. Upon the filing of the 2015 state tax return in 2016, the state credit became refundable to FelCor. Accordingly, the historic tax credits for 2016 reflect the federal credits only.

The deferred tax assets (liabilities) of the TRS Sub include the following (in thousands):



	December 31, 2017
Deferred tax liabilities:
Partnership basis	$	(1,209	)
Deferred tax liabilities	$	(1,209	)

Deferred tax assets:
Property and equipment	$	9,841
Net operating loss carryforwards	5,805
Federal historic tax credits	631
Valuation allowance	(15,068		)
Deferred tax assets	$	1,209

Schedule of Characterization of Cash Dividends Distrubuted [Table Text Block]

For income tax purposes, the dividends paid consist of ordinary income, capital gains, return of capital or a combination thereof. The dividends paid per share were characterized, in accordance with the requirements under the Internal Revenue Code, as follows:



	January 1 through August 31,			For the year ended December 31,			For the year ended December 31,
	2017			2016			2015
	Amount (3)		%	Amount (4)		%	Amount (5)		%
Preferred Stock – Series A
Capital gains	$	0.9750	3.26	$	—	—	$	1.23	63.08
Cash liquidating distributions (1)	0.4875		1.62	—		—	—		—
Non-cash liquidating distributions (2)	28.49		95.12	—		—	—		—
Dividend income	—		—	1.03		52.82	0.72		36.92
Non-dividend distribution	—		—	0.92		47.18	—		—
	$	29.9525	100.00	$	1.95	100.00	$	1.95	100.00
Preferred Stock – Series C
Capital gains	$	—	—	$	—	—	$	0.63	63.00
Dividend income	—		—	—		—	0.37		37.00
Non-dividend distribution	—		—	—		—	—		—
	$	—	—	$	—	—	$	1.00	100.00
Common Stock
Capital gains	$	0.12	1.59	$	—	—	$	—	—
Cash liquidating distributions (1)	0.10		1.33	—		—	—		—
Non-cash liquidating distributions (2)	7.31		97.08	—		—	—		—
Dividend income	—		—	—		—	—		—
Non-dividend distribution	—		—	0.24		100.00	0.16		100.00
	$	7.53	100.00	$	0.24	100.00	$	0.16	100.00


(1)	All cash dividends declared after the execution of the Merger Agreement in April 2017 were characterized as cash liquidating distributions for tax purposes.


(2)	Represents the value per share of the RLJ shares received by FelCor shareholders upon consummation of the Mergers on August 31, 2017.


(3)	The fourth quarter 2016 preferred and common stock distributions were paid on January 31, 2017, so they were treated as 2017 distributions for tax purposes. All 2017 cash dividends declared prior to the execution of the Merger Agreement in April 2017 were designated by FelCor as capital gains dividends.


(4)	The fourth quarter 2015 preferred and common stock distributions were paid on January 29, 2016, so they were treated as 2016 distributions for tax purposes.


(5)	The fourth quarter 2014 preferred and common stock distributions were paid on January 29, 2015, so they were treated as 2015 distributions for tax purposes.

Income Taxes

Successor Period

The Company is considered to be a partnership for income tax purposes, and is not subject to federal, state, or local income taxes. Any taxable income or loss will be recognized by the partners. Accordingly, no federal, state, or local income taxes have been reflected in the accompanying consolidated financial statements with respect to the Company.

The Company retains an ownership of one taxable REIT subsidiary related to one hotel property (the "TRS Sub") which is treated as a C-corporation for income tax purposes. The TRS Sub pays federal, state and local income taxes on its net taxable income, and its after-tax net income will be available for distribution to the Company but it is not required to be distributed.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Reform Act"). The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing limitations on net operating loss carryovers, and allowing dividend income from a REIT to be eligible for a 20% qualified business income deduction. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

The Company uses the asset and liability method of accounting for income taxes of the TRS Sub. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse. The provisional estimate of $0.2 million incorporates assumptions made based upon the best available interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.

The provision for income taxes of the TRS Sub differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences (in thousands):



	September 1 through December 31,
	2017
Expected TRS Sub federal tax expense at statutory rate	$	1,627
Tax impact of REIT election	(560		)
Expected TRS Sub tax expense	1,067
Change in valuation allowance	(879		)
Impact of rate change	(188		)
TRS Sub income tax (expense) benefit	$	—

A reconciliation of the TRS Sub's effective tax rate and the U.S. federal statutory income tax rate is as follows:



	September 1 through December 31,
	2017
Statutory U.S. federal income tax rate	34.0	%
Impact of REIT election	(11.7	)%
Change in valuation allowance	(18.4	)%
Impact of rate change	(3.9	)%
Effective tax rate of TRS Sub	—	%

The TRS Sub's deferred income taxes represent the tax effect of the differences between the book and tax basis of the assets and liabilities. The deferred tax assets (liabilities) of the TRS Sub include the following (in thousands):



	December 31, 2017
Deferred tax liabilities:
Partnership basis	$	(1,209	)
Deferred tax liabilities	$	(1,209	)

Deferred tax assets:
Property and equipment	$	9,841
Net operating loss carryforwards	5,805
Federal historic tax credits	631
Valuation allowance	(15,068		)
Deferred tax assets	$	1,209

The Company records a valuation allowance to reduce the TRS Sub's deferred tax assets to the amount that is most likely to be utilized in future periods to offset taxable income. As of December 31, 2017, the Company had a valuation allowance of approximately $15.1 million related to net operating loss ("NOL") carryforwards, historic tax credits, and other deferred tax assets of the TRS Sub. The Company considered all available evidence, both positive and negative, including cumulative income in recent years and its current forecast of future income in its analysis. The Company recognized a 100% valuation allowance related to the TRS Sub's net deferred tax asset because the Company believed it is more likely than not that the deferred tax assets of the TRS Sub will not be fully realized. The realization of the deferred tax assets associated with the TRS Sub's NOLs and historic tax credits was dependent on projections of future taxable income, for which there was uncertainty when considering the TRS Sub's historic results and the cyclical nature of the lodging industry. Accordingly, no provision or benefit for deferred income taxes is reflected in the accompanying consolidated statements of operations and comprehensive income.

The TRS Sub's NOLs and historic tax credits begin to expire in 2035. Additionally, the annual utilization of these NOLs and historic tax credits is limited pursuant to Sections 382 and 383 of the Internal Revenue Code.

The Company files tax returns as prescribed by the tax laws of the United States of America, the jurisdiction in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and local jurisdictions, where applicable. As of December 31, 2017, the tax years that remain subject to examination under the statute of limitations are from 2014 forward.

The Company had no accruals for tax uncertainties as of December 31, 2017.

Predecessor Period

For the Predecessor period, FelCor LP was a partnership for federal income tax purposes and was not subject to federal income tax. However, under its partnership agreement, FelCor LP was required to reimburse FelCor for any tax payments FelCor was required to make relative to its taxable income or loss. Accordingly, the tax information herein represents the disclosures regarding FelCor and its taxable subsidiaries.

FelCor elected to be treated as a REIT under the federal income tax laws. As a REIT, FelCor generally was not subject to federal income taxation at the corporate level on taxable income that was distributed to its stockholders. FelCor was, however, subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income. FelCor’s taxable REIT subsidiaries, or TRSs, formed to lease its hotel properties were subject to federal, state and local income taxes. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its annual taxable income to its stockholders. If FelCor fails to qualify as a REIT in any taxable year for which the statute of limitations remains open, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) for such taxable year and may not qualify as a REIT for four subsequent years. In connection with FelCor’s election to be treated as a REIT, its charter imposed restrictions on the ownership and transfer of shares of its common stock. It was FelCor LP's intention to make distributions on its units sufficient to enable FelCor to meet its distribution obligations as a REIT.

FelCor accounted for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

The following table reconciles FelCor's TRSs’ GAAP net (loss) income to federal taxable income (in thousands):



	January 1 through August 31,			For the year ended December 31,			For the year ended December 31,
	2017			2016			2015
GAAP consolidated net (loss) income attributable to FelCor LP	$	(97,340	)	$	3,405		$	(9,059	)
Loss (income) allocated to FelCor LP unitholders	495			93			194
GAAP consolidated net income (loss) attributable to FelCor	(96,845		)	3,498			(8,865		)
GAAP net loss (income) from REIT operations	105,888			21,332			21,838
GAAP net income of taxable subsidiaries	9,043			24,830			12,973
Gain/loss differences from dispositions	—			—			(872		)
Depreciation and amortization (1)	1,571			(12,437		)	(1,877		)
Employee benefits not deductible for tax	1,531			(2,965		)	(588		)
Management fee recognition	—			—			(107		)
Other book/tax differences	5,480			386			3,827
Federal tax income of taxable subsidiaries before utilization of net operating losses	17,625			9,814			13,356
Utilization of net operating loss	(17,625		)	(9,814		)	(13,356		)
Net federal tax income of taxable subsidiaries	$	—		$	—		$	—


(1)	The changes in book/tax differences in depreciation and amortization principally result from book and tax basis differences, differences in depreciable lives and accelerated depreciation methods.

FelCor's state income taxes of $0.5 million, $0.9 million and $1.2 million are included in income tax expense in the consolidated statements of operations and comprehensive income for the period of January 1, 2017 through August 31, 2017, and for the years ended December 31, 2016 and 2015, respectively.

FelCor's TRSs had a consolidated deferred tax asset, which had a 100% valuation allowance, primarily comprised of the following (in thousands):



	December 31, 2016
Accumulated net operating losses of TRSs	$	94,219
Tax property basis compared to book	4,844
Accrued employee benefits not deductible for tax	4,966
Historic tax credits (1)	19,357
Other	26
Deferred tax asset	123,412
Valuation allowance	(123,412		)
Deferred tax asset, net	$	—

(1)

FelCor recognized a 100% valuation allowance related to its TRSs’ net deferred tax asset because FelCor believed it is more likely than not that the deferred tax asset will not be fully realized. The realization of the deferred tax assets associated with FelCor's net operating losses and historic tax credits was dependent on projections of future taxable income, for which there was uncertainty when considering FelCor's historic results and the cyclical nature of the lodging industry. Accordingly, no provision or benefit for deferred income taxes is reflected in the accompanying consolidated statements of operations and comprehensive income. At December 31, 2016, FelCor's TRSs had net operating loss carryforwards for federal income tax purposes of $254.8 million, which are available to offset future taxable income, if any, and do not begin to expire until 2024.

The following table reconciles the REIT's GAAP net loss to taxable (loss) income (in thousands):



	January 1 through August 31,			For the year ended December 31,			For the year ended December 31,
	2017			2016			2015
GAAP net loss from REIT operations	$	(105,888	)	$	(21,332	)	$	(21,838	)
Book/tax differences, net:
Dividend income from TRS	17,794			25,650			24,809
Depreciation and amortization (1)	12,908			19,582			3,937
Noncontrolling interests	(495		)	(93		)	(400		)
Gain/loss differences from dispositions	(46,054		)	(16,572		)	18,335
Impairment loss not deductible for tax	35,109			26,459			20,861
Conversion costs	(2,155		)	(3,233		)	(3,233		)
Compensation	20,402			—			—
Other	10,035			(446		)	1,505
Taxable (loss) income (2)	$	(58,344	)	$	30,015		$	43,976


(1)	The book/tax differences in depreciation and amortization primarily result from the differences in depreciable lives and accelerated depreciation methods.


(2)	The dividend distribution requirement is 90% of any taxable income (net of capital gains). For 2017 and 2016, FelCor's distributions were in excess of 100% of taxable income.

At December 31, 2016, FelCor had net operating loss carryforwards for federal income tax purposes of $534.2million, which it expected to use to offset future distribution requirements.



	January 1 through August 31,			For the year ended December 31,			For the year ended December 31,
	2017			2016			2015
	Amount (3)		%	Amount (4)		%	Amount (5)		%
Preferred Stock – Series A
Capital gains	$	0.9750	3.26	$	—	—	$	1.23	63.08
Cash liquidating distributions (1)	0.4875		1.62	—		—	—		—
Non-cash liquidating distributions (2)	28.49		95.12	—		—	—		—
Dividend income	—		—	1.03		52.82	0.72		36.92
Non-dividend distribution	—		—	0.92		47.18	—		—
	$	29.9525	100.00	$	1.95	100.00	$	1.95	100.00
Preferred Stock – Series C
Capital gains	$	—	—	$	—	—	$	0.63	63.00
Dividend income	—		—	—		—	0.37		37.00
Non-dividend distribution	—		—	—		—	—		—
	$	—	—	$	—	—	$	1.00	100.00
Common Stock
Capital gains	$	0.12	1.59	$	—	—	$	—	—
Cash liquidating distributions (1)	0.10		1.33	—		—	—		—
Non-cash liquidating distributions (2)	7.31		97.08	—		—	—		—
Dividend income	—		—	—		—	—		—
Non-dividend distribution	—		—	0.24		100.00	0.16		100.00
	$	7.53	100.00	$	0.24	100.00	$	0.16	100.00


(1)	All cash dividends declared after the execution of the Merger Agreement in April 2017 were characterized as cash liquidating distributions for tax purposes.


(2)	Represents the value per share of the RLJ shares received by FelCor shareholders upon consummation of the Mergers on August 31, 2017.


(3)	The fourth quarter 2016 preferred and common stock distributions were paid on January 31, 2017, so they were treated as 2017 distributions for tax purposes. All 2017 cash dividends declared prior to the execution of the Merger Agreement in April 2017 were designated by FelCor as capital gains dividends.


(4)	The fourth quarter 2015 preferred and common stock distributions were paid on January 29, 2016, so they were treated as 2016 distributions for tax purposes.


(5)	The fourth quarter 2014 preferred and common stock distributions were paid on January 29, 2015, so they were treated as 2015 distributions for tax purposes.

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]



	September 1 through December 31,
	2017
Expected TRS Sub federal tax expense at statutory rate	$	1,627
Tax impact of REIT election	(560		)
Expected TRS Sub tax expense	1,067
Change in valuation allowance	(879		)
Impact of rate change	(188		)
TRS Sub income tax (expense) benefit	$	—

A reconciliation of the TRS Sub's effective tax rate and the U.S. federal statutory income tax rate is as follows:



	September 1 through December 31,
	2017
Statutory U.S. federal income tax rate	34.0	%
Impact of REIT election	(11.7	)%
Change in valuation allowance	(18.4	)%
Impact of rate change	(3.9	)%
Effective tax rate of TRS Sub	—	%

The following table reconciles the REIT's GAAP net loss to taxable (loss) income (in thousands):



	January 1 through August 31,			For the year ended December 31,			For the year ended December 31,
	2017			2016			2015
GAAP net loss from REIT operations	$	(105,888	)	$	(21,332	)	$	(21,838	)
Book/tax differences, net:
Dividend income from TRS	17,794			25,650			24,809
Depreciation and amortization (1)	12,908			19,582			3,937
Noncontrolling interests	(495		)	(93		)	(400		)
Gain/loss differences from dispositions	(46,054		)	(16,572		)	18,335
Impairment loss not deductible for tax	35,109			26,459			20,861
Conversion costs	(2,155		)	(3,233		)	(3,233		)
Compensation	20,402			—			—
Other	10,035			(446		)	1,505
Taxable (loss) income (2)	$	(58,344	)	$	30,015		$	43,976


(1)	The book/tax differences in depreciation and amortization primarily result from the differences in depreciable lives and accelerated depreciation methods.


(2)	The dividend distribution requirement is 90% of any taxable income (net of capital gains). For 2017 and 2016, FelCor's distributions were in excess of 100% of taxable income.

Subsidiaries

Income Taxes [Line Items]

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

The following table reconciles FelCor's TRSs’ GAAP net (loss) income to federal taxable income (in thousands):



	January 1 through August 31,			For the year ended December 31,			For the year ended December 31,
	2017			2016			2015
GAAP consolidated net (loss) income attributable to FelCor LP	$	(97,340	)	$	3,405		$	(9,059	)
Loss (income) allocated to FelCor LP unitholders	495			93			194
GAAP consolidated net income (loss) attributable to FelCor	(96,845		)	3,498			(8,865		)
GAAP net loss (income) from REIT operations	105,888			21,332			21,838
GAAP net income of taxable subsidiaries	9,043			24,830			12,973
Gain/loss differences from dispositions	—			—			(872		)
Depreciation and amortization (1)	1,571			(12,437		)	(1,877		)
Employee benefits not deductible for tax	1,531			(2,965		)	(588		)
Management fee recognition	—			—			(107		)
Other book/tax differences	5,480			386			3,827
Federal tax income of taxable subsidiaries before utilization of net operating losses	17,625			9,814			13,356
Utilization of net operating loss	(17,625		)	(9,814		)	(13,356		)
Net federal tax income of taxable subsidiaries	$	—		$	—		$	—


(1)	The changes in book/tax differences in depreciation and amortization principally result from book and tax basis differences, differences in depreciable lives and accelerated depreciation methods.