10-Q 1 a2013q310q.htm 10-Q 2013 Q3 10Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q

(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
 
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2013
 

OR
o
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: 001-14236
 
(FelCor Lodging Trust Incorporated)
 
Commission file number: 333-39595-01
 
(FelCor Lodging Limited Partnership)
FelCor Lodging Trust Incorporated
FelCor Lodging Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)

 
Maryland
(FelCor Lodging Trust Incorporated)
 
75-2541756
 
 
Delaware
(FelCor Lodging Limited Partnership)
 
75-2544994
 
 
(State or Other Jurisdiction of Incorporation or Organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
545 E. John Carpenter Freeway, Suite 1300, Irving, Texas
 
75062
 
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
(972) 444-4900
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
FelCor Lodging Trust Incorporated
 
þ
Yes
¨
No
 
FelCor Lodging Limited Partnership
 
þ
Yes
¨
No




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
FelCor Lodging Trust Incorporated
 
þ
Yes
¨
No
 
FelCor Lodging Limited Partnership
 
þ
Yes
¨
No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
FelCor Lodging Trust Incorporated:
 
 
 Large accelerated filer  o
 
 Accelerated filer þ
 Non-accelerated filer     o (Do not check if a smaller reporting company)
 
 Smaller reporting company o
FelCor Lodging Limited Partnership:
 
 
 Large accelerated filer  o
 
 Accelerated filer ¨
 Non-accelerated filer     þ (Do not check if a smaller reporting company)
 
 Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
 
FelCor Lodging Trust Incorporated
 
¨
Yes
þ
No
 
FelCor Lodging Limited Partnership
 
¨
Yes
þ
No

At October 28, 2013, FelCor Lodging Trust Incorporated had issued and outstanding 124,125,625 shares of common stock.


EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarter ended September 30, 2013, combines the filings for FelCor Lodging Trust Incorporated, or FelCor, and FelCor Lodging Limited Partnership, or FelCor LP. Where it is important to distinguish between the two, we either refer specifically to FelCor or FelCor LP. Otherwise we use the terms “we” or “our” to refer to FelCor and FelCor LP, collectively (including their consolidated subsidiaries), unless the context indicates otherwise.

FelCor is a Maryland corporation operating as a real estate investment trust, or REIT, and is the sole general partner of, and the owner of a greater than 99% partnership interest in, FelCor LP. Through FelCor LP, FelCor owns hotels and conducts business. As the sole general partner of FelCor LP, FelCor has exclusive and complete control of FelCor LP’s day-to-day management.

We believe combining periodic reports for FelCor and FelCor LP into single combined reports results in the following benefits:

•
presents our business as a whole (the same way management views and operates the business);
•
eliminates duplicative disclosure and provides a more streamlined presentation (a substantial portion of our disclosure applies to both FelCor and FelCor LP); and
•
saves time and cost by preparing combined reports instead of separate reports.

We operate the company as one enterprise. The employees of FelCor direct the management and operation of FelCor LP. With sole control of FelCor LP, FelCor consolidates FelCor LP for financial reporting purposes. FelCor has no assets other than its investment in FelCor LP and no liabilities separate from FelCor LP. Therefore, the reported assets and liabilities for FelCor and FelCor LP are substantially identical.

The substantive difference between FelCor and FelCor LP filings is that FelCor is a REIT with publicly-traded equity, while FelCor LP is a partnership with no publicly-traded equity. This difference is reflected in the financial statements in the equity (or partners’ capital) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital). Apart from the different equity treatment, the consolidated financial statements for FelCor and FelCor LP are nearly identical, except the net income (loss) attributable to redeemable noncontrolling interests in FelCor LP is deducted from FelCor’s net income (loss) in order to arrive at net income (loss) attributable to FelCor common stockholders. The noncontrolling interest is included in net income (loss) attributable to FelCor LP common unitholders. The holders of noncontrolling interests in FelCor LP are unaffiliated with FelCor, and in aggregate, hold less than 1% of the operating partnership units.

We present the sections in this report combined unless separate disclosure is required for clarity.



i

FELCOR LODGING TRUST INCORPORATED and
FELCOR LODGING LIMITED PARTNERSHIP

INDEX
 
 
 
Page
 
 
  PART I − FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
Financial Statements
 
FelCor Lodging Trust Incorporated:
 
 
 
Consolidated Balance Sheets - September 30, 2013 and December 31, 2012 (unaudited)
 
 
Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
Consolidated Statements of Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
Consolidated Statements of Changes in Equity – For the Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
FelCor Lodging Limited Partnership:
 
 
 
Consolidated Balance Sheets - September 30, 2013 and December 31, 2012 (unaudited)
 
 
Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
Consolidated Statements of Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
Consolidated Statements of Partners’ Capital – For the Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
General
 
 
Results of Operations
 
 
Non-GAAP Financial Measures
 
 
Pro Rata Share of Rooms Owned
 
 
Hotel Portfolio Composition
 
 
Hotel Operating Statistics
 
 
Hotel Portfolio
 
 
Liquidity and Capital Resources
 
 
Inflation
 
 
Seasonality
 
 
Disclosure Regarding Forward-Looking Statements
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II − OTHER INFORMATION
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
Item 6.
Exhibits
 
 
 
 
SIGNATURES
 

ii

PART I -- FINANCIAL INFORMATION

Item 1.
Financial Statements.

FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $931,375 and $929,298 at September 30, 2013 and December 31, 2012, respectively
$
1,672,413

 
$
1,794,564

Hotel development
195,919

 
146,079

Investment in unconsolidated entities
51,069

 
55,082

Hotel held for sale
9,684

 
—

Cash and cash equivalents
68,589

 
45,745

Restricted cash
78,134

 
77,927

Accounts receivable, net of allowance for doubtful accounts of $221 and $469 at September 30, 2013 and December 31, 2012, respectively
38,892

 
25,383

Deferred expenses, net of accumulated amortization of $18,690 and $13,820 at September 30, 2013 and December 31, 2012, respectively
30,921

 
34,262

Other assets
26,741

 
23,391

Total assets
$
2,172,362

 
$
2,202,433

Liabilities and Equity
 
 
 
Debt, net of discount of $6,181 and $10,318 at September 30, 2013 and December 31, 2012, respectively
$
1,648,165

 
$
1,630,525

Distributions payable
8,545

 
8,545

Accrued expenses and other liabilities
163,464

 
138,442

Total liabilities
1,820,174

 
1,777,512

Commitments and contingencies


 


Redeemable noncontrolling interests in FelCor LP, 618 and 621 units issued and outstanding at September 30, 2013 and December 31, 2012, respectively
3,804

 
2,902

Equity:
 
 
 
 Preferred stock, $0.01 par value, 20,000 shares authorized:
 
 
 
Series A Cumulative Convertible Preferred Stock, 12,880 shares, liquidation value of $322,011, issued and outstanding at September 30, 2013 and December 31, 2012
309,362

 
309,362

Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at September 30, 2013 and December 31, 2012
169,412

 
169,412

Common stock, $0.01 par value, 200,000 shares authorized; 124,126 and 124,117 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively
1,241

 
1,241

Additional paid-in capital
2,355,086

 
2,353,581

Accumulated other comprehensive income
25,447

 
26,039

Accumulated deficit
(2,535,640
)
 
(2,464,968
)
Total FelCor stockholders’ equity
324,908

 
394,667

Noncontrolling interests in other partnerships
23,476

 
27,352

Total equity
348,384

 
422,019

Total liabilities and equity
$
2,172,362

 
$
2,202,433

The accompanying notes are an integral part of these consolidated financial statements.

1

FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands, except for per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
230,979

 
$
223,000

 
$
682,927

 
$
654,853

Other revenue
1,584

 
1,441

 
3,034

 
2,672

Total revenues
232,563

 
224,441

 
685,961

 
657,525

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
82,609

 
80,144

 
249,752

 
236,986

Other property-related costs
61,153

 
59,766

 
181,942

 
176,050

Management and franchise fees
9,272

 
10,425

 
27,568

 
30,787

Taxes, insurance and lease expense
25,957

 
24,771

 
73,209

 
70,257

Corporate expenses
5,817

 
5,695

 
20,343

 
20,074

Depreciation and amortization
30,124

 
30,050

 
90,407

 
87,305

Impairment loss
—

 
—

 
24,441

 
—

Conversion expenses
(81
)
 
—

 
1,134

 
—

Other expenses
2,102

 
1,959

 
6,838

 
3,722

Total operating expenses
216,953

 
212,810

 
675,634

 
625,181

Operating income
15,610

 
11,631

 
10,327

 
32,344

Interest expense, net
(25,996
)
 
(30,568
)
 
(79,053
)
 
(91,013
)
Debt extinguishment
—

 
(10,377
)
 
—

 
(10,498
)
Gain on involuntary conversion, net
21

 
—

 
21

 
—

Loss before equity in income from unconsolidated entities
(10,365
)
 
(29,314
)
 
(68,705
)
 
(69,167
)
Equity in income from unconsolidated entities
2,100

 
1,536

 
4,095

 
2,674

Loss from continuing operations
(8,265
)
 
(27,778
)
 
(64,610
)
 
(66,493
)
Income from discontinued operations
12,054

 
8,223

 
18,999

 
30,105

Net income (loss)
3,789

 
(19,555
)
 
(45,611
)
 
(36,388
)
Net loss (income) attributable to noncontrolling interests in other partnerships
(591
)
 
386

 
3,621

 
440

Net loss attributable to redeemable noncontrolling interests in FelCor LP
32

 
144

 
352

 
329

Net income (loss) attributable to FelCor
3,230

 
(19,025
)
 
(41,638
)
 
(35,619
)
Preferred dividends
(9,678
)
 
(9,678
)
 
(29,034
)
 
(29,034
)
Net loss attributable to FelCor common stockholders
$
(6,448
)
 
$
(28,703
)
 
$
(70,672
)
 
$
(64,653
)
Basic and diluted per common share data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.14
)
 
$
(0.30
)
 
$
(0.72
)
 
$
(0.76
)
Net loss
$
(0.05
)
 
$
(0.23
)
 
$
(0.57
)
 
$
(0.52
)
Basic and diluted weighted average common shares outstanding
123,817

 
123,640

 
123,815

 
123,648

The accompanying notes are an integral part of these consolidated financial statements.

2


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
3,789

 
$
(19,555
)
 
$
(45,611
)
 
$
(36,388
)
Foreign currency translation adjustment
329

 
502

 
(595
)
 
493

Comprehensive income (loss)
4,118

 
(19,053
)
 
(46,206
)
 
(35,895
)
Comprehensive loss (income) attributable to noncontrolling interests in other partnerships
(591
)
 
386

 
3,621

 
440

Comprehensive loss attributable to redeemable noncontrolling interests in FelCor LP
30

 
141

 
355

 
326

Comprehensive income (loss) attributable to FelCor
$
3,557

 
$
(18,526
)
 
$
(42,230
)
 
$
(35,129
)





























The accompanying notes are an integral part of these consolidated financial statements. 

3


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands)
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital 
 
Accumulated Other Comprehensive Income
 
 
 
Noncontrolling Interests in Other Partnerships
 
 
 
 
 
Number of Shares
 
Amount
 
Number of Shares
 
Amount
 
 
 
Accumulated Deficit
 
 
Comprehensive Loss
 
Total Equity
Balance at December 31, 2011
12,948

 
$
478,774

 
124,281

 
$
1,243

 
$
2,353,251

 
$
25,738

 
$
(2,297,468
)
 
$
25,357

 
 

 
$
586,895

Stock awards - amortization
—

 
—

 
—

 
—

 
630

 
—

 
—

 
—

 
 

 
630

Forfeiture of stock awards
—

 
—

 
(63
)
 
(1
)
 
193

 
—

 
(199
)
 
—

 
 

 
(7
)
Conversion of operating partnership units into common shares
—

 
—

 
11

 
—

 
45

 
—

 
—

 
—

 
 
 
45

Allocation to redeemable noncontrolling interests
—

 
—

 
—

 
—

 
(581
)
 
—

 
—

 
—

 
 

 
(581
)
Contribution from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,756

 
 

 
2,756

Distribution to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(931
)
 
 

 
(931
)
Other
—

 
—

 
—

 
—

 
—

 
—

 
(4
)
 
—

 
 

 
(4
)
Preferred dividends:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

$1.4625 per Series A preferred share
—

 
—

 
—

 
—

 
—

 
—

 
(18,837
)
 
—

 
 

 
(18,837
)
$1.50 per Series C depositary preferred share
—

 
—

 
—

 
—

 
—

 
—

 
(10,197
)
 
—

 
 

 
(10,197
)
Comprehensive loss (attributable to FelCor and noncontrolling interests in other partnerships):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign exchange translation
—

 
—

 
—

 
—

 
—

 
490

 
—

 
—

 
$
490

 
 

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(35,619
)
 
(440
)
 
(36,059
)
 
 

Comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
$
(35,569
)
 
(35,569
)
Balance at September 30, 2012
12,948

 
$
478,774

 
124,229

 
$
1,242

 
$
2,353,538

 
$
26,228

 
$
(2,362,324
)
 
$
26,742

 
 

 
$
524,200

Balance at December 31, 2012
12,948

 
$
478,774

 
124,117

 
$
1,241

 
$
2,353,581

 
$
26,039

 
$
(2,464,968
)
 
$
27,352

 
 

 
$
422,019

Issuance of stock awards
—

 
—

 
5

 
—

 
—

 
—

 
—

 
—

 
 

 
—

Stock awards - amortization and severance
—

 
—

 
—

 
—

 
2,762

 
—

 
—

 
—

 
 

 
2,762

Conversion of operating partnership units into common shares
—

 
—

 
4

 
—

 
23

 
—

 
—

 
—

 
 
 
23

Allocation to redeemable noncontrolling interests
—

 
—

 
—

 
—

 
(1,280
)
 
—

 
—

 
—

 
 

 
(1,280
)
Contribution from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,024

 
 

 
3,024

Distribution to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,279
)
 
 

 
(3,279
)
Preferred dividends:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

$1.4625 per Series A preferred share
—

 
—

 
—

 
—

 
—

 
—

 
(18,837
)
 
—

 
 

 
(18,837
)
$1.50 per Series C depositary preferred share
—

 
—

 
—

 
—

 
—

 
—

 
(10,197
)
 
—

 
 

 
(10,197
)
Comprehensive loss (attributable to FelCor and noncontrolling interests in other partnerships):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign exchange translation
—

 
—

 
—

 
—

 
—

 
(592
)
 
—

 
—

 
$
(592
)
 
 

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(41,638
)
 
(3,621
)
 
(45,259
)
 
 

Comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
$
(45,851
)
 
(45,851
)
Balance at September 30, 2013
12,948

 
$
478,774


124,126

 
$
1,241

 
$
2,355,086

 
$
25,447

 
$
(2,535,640
)
 
$
23,476

 
 
 
$
348,384

The accompanying notes are an integral part of these consolidated financial statements.

4


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net loss
$
(45,611
)
 
$
(36,388
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
94,102

 
97,477

Gain on sale of hotels, net
(19,068
)
 
(26,641
)
Gain on involuntary conversion, net
(87
)
 
—

Amortization of deferred financing fees and debt discount
8,224

 
13,646

Amortization of fixed stock and directors’ compensation
4,547

 
3,748

Equity based severance
822

 
—

Equity in income from unconsolidated entities
(4,095
)
 
(2,674
)
Distributions of income from unconsolidated entities
3,389

 
3,431

Debt extinguishment
—

 
12,598

Impairment loss
27,706

 
1,335

Changes in assets and liabilities:
 
 
 
Accounts receivable
(13,501
)
 
(7,649
)
Other assets
(8,336
)
 
(6,194
)
Accrued expenses and other liabilities
20,279

 
20,118

Net cash flow provided by operating activities
68,371

 
72,807

Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(74,456
)
 
(99,985
)
Hotel development
(46,724
)
 
(16,707
)
Net proceeds from asset dispositions
89,929

 
124,610

Change in restricted cash – investing
(670
)
 
2,598

Insurance proceeds
218

 
—

Distributions from unconsolidated entities
6,218

 
11,894

Contributions to unconsolidated entities
(1,500
)
 
—

Net cash flow provided by (used in) investing activities
(26,985
)
 
22,410

Cash flows from financing activities:
 
 
 
Proceeds from borrowings
137,245

 
378,750

Repayment of borrowings
(123,741
)
 
(395,355
)
Payment of deferred financing fees
(2,723
)
 
(3,167
)
Distributions paid to noncontrolling interests
(3,279
)
 
(931
)
Contributions from noncontrolling interests
3,024

 
2,756

Distributions paid to preferred stockholders
(29,034
)
 
(59,021
)
Net cash flow used in financing activities
(18,508
)
 
(76,968
)
Effect of exchange rate changes on cash
(34
)
 
112

Net change in cash and cash equivalents
22,844

 
18,361

Cash and cash equivalents at beginning of periods
45,745

 
93,758

Cash and cash equivalents at end of periods
$
68,589

 
$
112,119

 
 
 
 
Supplemental cash flow information – interest paid, net of capitalized interest
$
54,326

 
$
61,700


The accompanying notes are an integral part of these consolidated financial statements.

5


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
September 30,
 
December 31,
 
2013
 
2012
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $931,375 and $929,298 at September 30, 2013 and December 31, 2012, respectively
$
1,672,413

 
$
1,794,564

Hotel development
195,919

 
146,079

Investment in unconsolidated entities
51,069

 
55,082

Hotel held for sale
9,684

 
—

Cash and cash equivalents
68,589

 
45,745

Restricted cash
78,134

 
77,927

Accounts receivable, net of allowance for doubtful accounts of $221 and $469 at September 30, 2013 and December 31, 2012, respectively
38,892

 
25,383

Deferred expenses, net of accumulated amortization of $18,690 and $13,820 at September 30, 2013 and December 31, 2012, respectively
30,921

 
34,262

Other assets
26,741

 
23,391

Total assets
$
2,172,362

 
$
2,202,433

Liabilities and Partners’ Capital
 
 
 
Debt, net of discount of $6,181 and $10,318 at September 30, 2013 and December 31, 2012, respectively
$
1,648,165

 
$
1,630,525

Distributions payable
8,545

 
8,545

Accrued expenses and other liabilities
163,464

 
138,442

Total liabilities
1,820,174

 
1,777,512

Commitments and contingencies


 


Redeemable units, 618 and 621 units issued and outstanding at September 30, 2013 and December 31, 2012, respectively
3,804

 
2,902

Capital:
 
 
 
Preferred units:
 
 
 
Series A Cumulative Convertible Preferred Units, 12,880 units issued and outstanding at September 30, 2013 and December 31, 2012
309,362

 
309,362

Series C Cumulative Redeemable Preferred Units, 68 units issued and outstanding at September 30, 2013 and December 31, 2012
169,412

 
169,412

Common units, 124,126 and 124,117 units issued and outstanding at September 30, 2013 and December 31, 2012, respectively
(179,422
)
 
(110,258
)
Accumulated other comprehensive income
25,556

 
26,151

Total FelCor LP partners’ capital
324,908

 
394,667

Noncontrolling interests
23,476

 
27,352

Total partners’ capital
348,384

 
422,019

Total liabilities and partners’ capital
$
2,172,362

 
$
2,202,433


The accompanying notes are an integral part of these consolidated financial statements.

6

FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands, except for per unit data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
230,979

 
$
223,000

 
$
682,927

 
$
654,853

Other revenue
1,584

 
1,441

 
3,034

 
2,672

Total revenues
232,563

 
224,441

 
685,961

 
657,525

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
82,609

 
80,144

 
249,752

 
236,986

Other property-related costs
61,153

 
59,766

 
181,942

 
176,050

Management and franchise fees
9,272

 
10,425

 
27,568

 
30,787

Taxes, insurance and lease expense
25,957

 
24,771

 
73,209

 
70,257

Corporate expenses
5,817

 
5,695

 
20,343

 
20,074

Depreciation and amortization
30,124

 
30,050

 
90,407

 
87,305

Impairment loss
—

 
—

 
24,441

 
—

Conversion expenses
(81
)
 
—

 
1,134

 
—

Other expenses
2,102

 
1,959

 
6,838

 
3,722

Total operating expenses
216,953

 
212,810

 
675,634

 
625,181

Operating income
15,610

 
11,631

 
10,327

 
32,344

Interest expense, net
(25,996
)
 
(30,568
)
 
(79,053
)
 
(91,013
)
Debt extinguishment
—

 
(10,377
)
 
—

 
(10,498
)
Gain on involuntary conversion, net
21

 
—

 
21

 
—

Loss before equity in income from unconsolidated entities
(10,365
)
 
(29,314
)
 
(68,705
)
 
(69,167
)
Equity in income from unconsolidated entities
2,100

 
1,536

 
4,095

 
2,674

Loss from continuing operations
(8,265
)
 
(27,778
)
 
(64,610
)
 
(66,493
)
Income from discontinued operations
12,054

 
8,223

 
18,999

 
30,105

Net income (loss)
3,789

 
(19,555
)
 
(45,611
)
 
(36,388
)
Net loss (income) attributable to noncontrolling interests
(591
)
 
386

 
3,621

 
440

Net income (loss) attributable to FelCor LP
3,198

 
(19,169
)
 
(41,990
)
 
(35,948
)
Preferred distributions
(9,678
)
 
(9,678
)
 
(29,034
)
 
(29,034
)
Net loss attributable to FelCor LP common unitholders
$
(6,480
)
 
$
(28,847
)
 
$
(71,024
)
 
$
(64,982
)
Basic and diluted per common unit data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.14
)
 
$
(0.30
)
 
$
(0.72
)
 
$
(0.76
)
Net loss
$
(0.05
)
 
$
(0.23
)
 
$
(0.57
)
 
$
(0.52
)
Basic and diluted weighted average common units outstanding
124,435

 
124,266

 
124,435

 
124,278

The accompanying notes are an integral part of these consolidated financial statements. 

7


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
3,789

 
$
(19,555
)
 
$
(45,611
)
 
$
(36,388
)
Foreign currency translation adjustment
329

 
502

 
(595
)
 
493

Comprehensive income (loss)
4,118

 
(19,053
)
 
(46,206
)
 
(35,895
)
Comprehensive loss (income) attributable to noncontrolling interests
(591
)
 
386

 
3,621

 
440

Comprehensive income (loss) attributable to FelCor LP
$
3,527

 
$
(18,667
)
 
$
(42,585
)
 
$
(35,455
)






























The accompanying notes are an integral part of these consolidated financial statements.


8

FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands)
 
Preferred Units
 
Common Units
 
Accumulated Other Comprehensive Income
 
Noncontrolling Interests
 
Comprehensive Loss
 
Total Partners’ Capital
Balance at December 31, 2011
$
478,774

 
$
56,916

 
$
25,848

 
$
25,357

 
 
 
$
586,895

FelCor restricted stock compensation
—

 
623

 
—

 
—

 
 
 
623

Contributions
—

 
—

 
—

 
2,756

 
 
 
2,756

Distributions
—

 
(29,034
)
 
—

 
(931
)
 
 
 
(29,965
)
Allocation to redeemable units
—

 
(210
)
 
—

 
—

 
 
 
(210
)
Other
—

 
(4
)
 
—

 
—

 
 
 
(4
)
Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange translation


 


 
493

 


 
$
493

 
 
Net loss


 
(35,948
)
 


 
(440
)
 
(36,388
)
 
 
Comprehensive loss


 


 


 


 
$
(35,895
)
 
(35,895
)
Balance at September 30, 2012
$
478,774

 
$
(7,657
)
 
$
26,341

 
$
26,742

 
 
 
$
524,200

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
478,774

 
$
(110,258
)
 
$
26,151

 
$
27,352

 
 
 
$
422,019

FelCor restricted stock compensation
—

 
2,762

 
—

 
—

 
 
 
2,762

Contributions
—

 
—

 
—

 
3,024

 
 
 
3,024

Distributions
—

 
(29,034
)
 
—

 
(3,279
)
 
 
 
(32,313
)
Allocation to redeemable units
—

 
(902
)
 
—

 
—

 
 
 
(902
)
Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange translation


 


 
(595
)
 


 
$
(595
)
 
 
Net loss


 
(41,990
)
 


 
(3,621
)
 
(45,611
)
 
 
Comprehensive loss


 


 


 


 
$
(46,206
)
 
(46,206
)
Balance at September 30, 2013
$
478,774

 
$
(179,422
)
 
$
25,556

 
$
23,476

 
 
 
$
348,384






The accompanying notes are an integral part of these consolidated financial statements.

9


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2013 and 2012
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net loss
$
(45,611
)
 
$
(36,388
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
94,102

 
97,477

Gain on sale of hotels, net
(19,068
)
 
(26,641
)
Gain on involuntary conversion, net
(87
)
 
—

Amortization of deferred financing fees and debt discount
8,224

 
13,646

Amortization of fixed stock and directors’ compensation
4,547

 
3,748

Equity based severance
822

 
—

Equity in income from unconsolidated entities
(4,095
)
 
(2,674
)
Distributions of income from unconsolidated entities
3,389

 
3,431

Debt extinguishment
—

 
12,598

Impairment loss
27,706

 
1,335

Changes in assets and liabilities:
 
 
 
Accounts receivable
(13,501
)
 
(7,649
)
Other assets
(8,336
)
 
(6,194
)
Accrued expenses and other liabilities
20,279

 
20,118

Net cash flow provided by operating activities
68,371

 
72,807

 Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(74,456
)
 
(99,985
)
Hotel development
(46,724
)
 
(16,707
)
Net proceeds from asset dispositions
89,929

 
124,610

Change in restricted cash – investing
(670
)
 
2,598

Insurance proceeds
218

 
—

Distributions from unconsolidated entities
6,218

 
11,894

Contributions to unconsolidated entities
(1,500
)
 
—

Net cash flow provided by (used in) investing activities
(26,985
)
 
22,410

 Cash flows from financing activities:
 
 
 
Proceeds from borrowings
137,245

 
378,750

Repayment of borrowings
(123,741
)
 
(395,355
)
Payment of deferred financing fees
(2,723
)
 
(3,167
)
Distributions paid to noncontrolling interests
(3,279
)
 
(931
)
Contributions from noncontrolling interests
3,024

 
2,756

Distributions paid to preferred unitholders
(29,034
)
 
(59,021
)
Net cash flow used in financing activities
(18,508
)
 
(76,968
)
 Effect of exchange rate changes on cash
(34
)
 
112

 Net change in cash and cash equivalents
22,844

 
18,361

 Cash and cash equivalents at beginning of periods
45,745

 
93,758

 Cash and cash equivalents at end of periods
$
68,589

 
$
112,119

 
 
 
 
 Supplemental cash flow information – interest paid, net of capitalized interest
$
54,326

 
$
61,700


The accompanying notes are an integral part of these consolidated financial statements.

10

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.
Organization
FelCor Lodging Trust Incorporated (NYSE:FCH), or FelCor, is a Maryland corporation, operating as a real estate investment trust, or REIT. FelCor is the sole general partner of, and the owner of a greater than 99.5% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, through which we held ownership interests in 61 hotels in continuing operations with 17,815 rooms at September 30, 2013. At September 30, 2013, we had an aggregate of 124,743,167 shares and units outstanding, consisting of 124,125,625 shares of FelCor common stock and 617,542 FelCor LP units not owned by FelCor.
Of the 61 hotels included in continuing operations, we owned a 100% interest in 44 hotels, a 90% interest in entities owning two hotels, an 82% interest in an entity owning one hotel, a 60% interest in an entity owning one hotel and a 50% interest in entities owning 13 hotels. We consolidate our real estate interests in the 48 hotels in which we held majority interests, and we record the real estate interests of the 13 hotels in which we held 50% interests using the equity method. We leased 60 of the 61 hotels in continuing operations to our taxable REIT subsidiaries, of which we own a controlling interest. One 50% owned hotel was operated without a lease. Because we owned controlling interests in these lessees, we consolidated our interests in these 60 hotels (which we refer to as our Consolidated Hotels) and reflect those hotels’ operating revenues and expenses in our statements of operations.  Of our Consolidated Hotels, we owned 50% of the real estate interests in each of 12 hotels (we accounted for the ownership in our real estate interests of these hotels by the equity method) and majority real estate interests in each of the remaining 48 hotels (we consolidate our real estate interest in these hotels).
The following table illustrates the distribution of our 60 Consolidated Hotels at September 30, 2013:
Brand
 
Hotels
 
Rooms
 Embassy Suites Hotels® 
 
33

 
 
8,617

 Wyndham® and Wyndham Grand®
 
8

 
 
2,526

 Holiday Inn® 
 
4

 
 
1,702

 Sheraton® and Westin® 
 
4

 
 
1,604

 DoubleTree by Hilton® and Hilton® 
 
5

 
 
1,206

 Marriott® and Renaissance® 
 
3

 
 
1,321

 Fairmont® 
 
1

 
 
383

 Morgans and Royalton
 
2

 
 
285

  Total
 
60

 
 
17,644

At September 30, 2013, our Consolidated Hotels were located in the United States (59 hotels in 21 states) and Canada (one hotel in Ontario), with concentrations in California (13 hotels), Florida (7 hotels) and Texas (7 hotels). Approximately 51% of our revenue was generated from hotels in these three states during the first nine months of 2013.
At September 30, 2013, of our 60 Consolidated Hotels: (i) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 37 hotels, (ii) subsidiaries of Wyndham Worldwide Corporation, or Wyndham, managed eight hotels, (iii) subsidiaries of InterContinental Hotels Group, or IHG, managed four hotels, (iv) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood, managed four hotels, (v) subsidiaries of Marriott International Inc., or Marriott, managed three hotels, (vi) a subsidiary of Fairmont Hotels and Resorts, or Fairmont, managed one hotel, (vii) a subsidiary of Morgans Hotel Group Corporation managed two hotels, and (viii) an independent management company managed one hotel.

11

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Organization — (continued)
In addition to the above hotels, we own a 95% interest in a consolidated joint venture that owns the Knickerbocker Hotel, a former hotel and office building that is being redeveloped as a 4+ star hotel in midtown Manhattan and is expected to open in Summer 2014.
Effective January 1, 2013, our hotels managed by Marriott are accounted for on a 12-month calendar year basis as compared to a fiscal year comprised of 52 or 53 weeks ending on the Friday closest to December 31, as reported in 2012 and prior years. Our three and nine month periods ending September 30, 2013 are reported on a calendar basis for our Marriott-managed hotels, which is consistent with the reporting periods for our other managed hotels. However, our three and nine month periods ending September 30, 2012 include the results of operations for the Marriott-managed hotels for the 12 and 36 week periods, respectively, ending September 7, 2012. Prior year results have not been restated to reflect the reporting period transition as we do not believe the change in periods would result in a material difference for comparison of results year over year.
The information in our consolidated financial statements for the three and nine months ended September 30, 2013 and 2012 is unaudited. Preparing financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, 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. The accompanying financial statements for the three and nine months ended September 30, 2013 and 2012, include adjustments based on management’s estimates (consisting of normal and recurring accruals), which we consider necessary for a fair presentation of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2012, included in our Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of actual operating results for the entire year.
2.
Investment in Unconsolidated Entities
At September 30, 2013 and December 31, 2012, we owned 50% interests in joint ventures that owned 13 hotels. We also own 50% interests in entities that own real estate in Myrtle Beach, South Carolina and provide condominium management services there. We account for our investments in these unconsolidated entities under the equity method. We do not have any majority-owned subsidiaries that are not consolidated in our financial statements. We make adjustments to our equity in income from unconsolidated entities related to the difference between our basis in investment in unconsolidated entities compared to the historical basis of the assets recorded by the joint ventures.
The following table summarizes combined balance sheet information for our unconsolidated entities (in thousands):
 
September 30,
 
December 31,
 
2013
 
2012
Investment in hotels and other properties, net of accumulated depreciation
$
145,056

 
 
$
155,888

 
Total assets
$
163,602

 
 
$
170,477

 
Debt
$
146,872

 
 
$
148,395

 
Total liabilities
$
152,500

 
 
$
154,139

 
Equity
$
11,102

 
 
$
16,338

 


12

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.
Investment in Unconsolidated Entities — (continued)
The following table sets forth summarized combined statement of operations information for our unconsolidated entities (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Total revenues
$
21,844

 
 
$
21,075

 
 
$
55,995

 
$
54,012

Net income
$
5,131

 
 
$
4,002

 
 
$
10,980

 
$
8,138

 
 
 
 
 
 
 
 
 
 
Net income attributable to FelCor
$
2,565

 
 
$
2,001

 
 
$
5,490

 
$
4,069

Depreciation of cost in excess of book value
(465
)
 
 
(465
)
 
 
(1,395
)
 
(1,395
)
Equity in income from unconsolidated entities
$
2,100

 
 
$
1,536

 
 
$
4,095

 
$
2,674

The following table summarizes the components of our investment in unconsolidated entities (in thousands):
 
September 30,
 
December 31,
 
2013
 
2012
Hotel-related investments
$
(3,243
)
 
$
246

Cost in excess of book value of hotel investments
45,518

 
46,913

Land and condominium investments
8,794

 
7,923

 
$
51,069

 
$
55,082

The following table summarizes the components of our equity in income from unconsolidated entities (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Hotel investments
$
1,632

 
$
1,055

 
$
4,223

 
$
2,746

Other investments
468

 
481

 
(128
)
 
(72
)
Equity in income from unconsolidated entities
$
2,100

 
$
1,536

 
$
4,095

 
$
2,674


13

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.
Debt
Consolidated debt consisted of the following (dollars in thousands):
 
Encumbered
 
Interest
 
Maturity
 
September 30,
 
December 31,
 
Hotels
 
Rate (%)
 
Date
 
2013
 
2012
Line of credit
9

 
 
LIBOR + 3.375
 
 
June 2016(a)
 
$
73,000

 
$
56,000

Hotel mortgage debt
 
 
 
 
 
 
 
 
 
 
 
Mortgage debt(b)
5

 
 
6.66
 
 
June - August 2014
 
63,877

 
65,431

Mortgage debt
1

 
 
5.81
 
 
July 2016
 
10,032

 
10,405

Mortgage debt(b)
4

 
 
4.95
 
 
October 2022
 
126,839

 
128,066

Mortgage debt
1

 
 
4.94
 
 
October 2022
 
31,832

 
32,176

Senior notes
 
 
 
 
 
 
 
 
 
 
 
Senior secured notes
11

 
 
10.00
 
 
October 2014
 
227,724

 
223,586

Senior secured notes
6

 
 
6.75
 
 
June 2019
 
525,000

 
525,000

Senior secured notes
9

 
 
5.625
 
 
March 2023
 
525,000

 
525,000

Other(c)
—

 
 
LIBOR + 1.25
 
 
May 2016
 
64,861

 
64,861

Total
46

 
 
 
 
 
 
 
$
1,648,165

 
$
1,630,525

(a)
Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.
(b)
This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.
(c)
This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. This loan, which allows us to borrow up to $85 million, can be extended for one year subject to satisfying certain conditions.

We reported $26.0 million and $30.6 million of interest expense for the three months ended September 30, 2013 and 2012, respectively, which is net of: (i) interest income of $15,000 and $34,000 and (ii) capitalized interest of $3.4 million and $3.1 million, respectively. We reported $79.1 million and $91.0 million of interest expense for the nine months ended September 30, 2013 and 2012, respectively, which is net of: (i) interest income of $60,000 and $116,000 and (ii) capitalized interest of $9.1 million and $9.7 million, respectively.


14

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs
Hotel operating revenue from continuing operations was comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Room revenue
$
185,281

 
 
$
179,085

 
 
$
533,618

 
$
514,029

Food and beverage revenue
33,460

 
 
31,968

 
 
113,380

 
103,578

Other operating departments
12,238

 
 
11,947

 
 
35,929

 
37,246

Total hotel operating revenue
$
230,979

 
 
$
223,000

 
 
$
682,927

 
$
654,853

Nearly all of our revenue is comprised of hotel operating revenue. These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues are recorded on an accrual basis, as earned. Appropriate allowances are made for doubtful accounts, which are recorded as a bad debt expense.
Hotel departmental expenses from continuing operations were comprised of the following (in thousands):
 
Three Months Ended September 30,
 
2013
 
2012
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
48,436

 
21.0
%
 
 
$
47,095

 
21.1
%
 
Food and beverage
28,513

 
12.3

 
 
27,609

 
12.4

 
Other operating departments
5,660

 
2.5

 
 
5,440

 
2.4

 
Total hotel departmental expenses
$
82,609

 
35.8
%
 
 
$
80,144

 
35.9
%
 

 
Nine Months Ended September 30,
 
2013
 
2012
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
141,701

 
20.7
%
 
 
$
136,221

 
20.8
%
 
Food and beverage
91,061

 
13.3

 
 
84,250

 
12.9

 
Other operating departments
16,990

 
2.6

 
 
16,515

 
2.5

 
Total hotel departmental expenses
$
249,752

 
36.6
%
 
 
$
236,986

 
36.2
%
 

15

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs — (continued)
Other property-related costs from continuing operations were comprised of the following amounts (in thousands):
 
Three Months Ended September 30,
 
2013
 
2012
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
20,228

 
8.8
%
 
 
$
19,603

 
8.8
%
 
Marketing
18,475

 
8.0

 
 
18,321

 
8.2

 
Repair and maintenance
11,441

 
5.0

 
 
11,115

 
5.0

 
Utilities
11,009

 
4.7

 
 
10,727

 
4.8

 
Total other property-related costs
$
61,153

 
26.5
%
 
 
$
59,766

 
26.8
%
 
 
Nine Months Ended September 30,
 
2013
 
2012
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
60,964

 
8.9
%
 
 
$
58,891

 
9.0
%
 
Marketing
57,494

 
8.4

 
 
55,257

 
8.4

 
Repair and maintenance
34,489

 
5.1

 
 
33,405

 
5.1

 
Utilities
28,995

 
4.2

 
 
28,497

 
4.4

 
Total other property-related costs
$
181,942

 
26.6
%
 
 
$
176,050

 
26.9
%
 

In March 2013, we rebranded and transitioned management at eight core Holiday Inn hotels located in strategic markets to Wyndham brands. Wyndham's parent guaranteed a minimum level of net operating income for each year of the initial ten-year term, subject to an aggregate $100 million limit over the term and an annual $21.5 million limit. Amounts recorded under the guaranty will be accounted for, to the extent available, as a reduction in contractual management and other fees paid and payable to Wyndham. Any amounts in excess of those fees will be recorded as revenue when earned. For March through September 2013 (the first seven months during which Wyndham managed the hotels for FelCor), we have recorded a $5.2 million pro rata portion of the projected full-year guaranty (of which $2.4 million is for the three months ended September 30, 2013) as a reduction of Wyndham's contractual management and other fees.


16

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.
Taxes, Insurance and Lease Expense

Taxes, insurance and lease expense from continuing operations were comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Hotel lease expense(a) 
$
11,849

 
$
10,910

 
$
33,572

 
$
31,339

Land lease expense(b) 
3,313

 
3,381

 
8,478

 
8,568

Real estate and other taxes
8,596

 
7,937

 
24,022

 
23,012

Property insurance, general liability insurance and other
2,199

 
2,543

 
7,137

 
7,338

  Total taxes, insurance and lease expense
$
25,957

 
$
24,771

 
$
73,209

 
$
70,257


(a)
Hotel lease expense is recorded by the consolidated operating lessees of 12 hotels owned by unconsolidated entities and is partially (generally 49%) offset through noncontrolling interests in other partnerships. Our 50% share of the corresponding lease income is recorded through equity in income from unconsolidated entities.  Hotel lease expense includes percentage rent of $6.4 million and $5.5 million for the three months ended September 30, 2013 and 2012, respectively, and $17.2 million and $15.0 million for the nine months ended September 30, 2013 and 2012, respectively.

(b)
Land lease expense includes percentage rent of $1.9 million and $2.0 million for the three months ended September 30, 2013 and 2012, respectively, and $4.2 million and $4.3 million for the nine months ended September 30, 2013 and 2012, respectively.

6.
Impairment

Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider each hotel to be a component for purposes of determining impairment charges and reporting discontinued operations.

We may record impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and/or lodging industry weakens, or we shorten our contemplated holding period for additional hotels. In the second quarter of 2013, we recorded a $27.7 million impairment charge ($24.4 million related to two hotels included in continuing operations and $3.3 million related to one hotel included in discontinued operations). In the second quarter of 2012, we recorded a $1.3 million impairment charge related to one hotel included in discontinued operations.

The $3.3 million impairment charge recorded in the second quarter of 2013, as well as the second quarter 2012 impairment charge, was based on third-party offers to purchase (a Level 2 input under authoritative guidance for fair value measurements) at prices below our previously estimated fair market values for those properties. These are hotels we had identified as sale candidates in prior years, reducing their estimated hold period at that time.




17

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.
Impairment – (continued)

As part of our strategic plan, we may identify hotels that no longer meet our investment criteria. We identified two additional such hotels, thereby significantly reducing their respective estimated hold periods, resulting in impairments on both hotels during the second quarter of 2013. A portion ($24.4 million) of the second quarter 2013 impairment charges relates to these hotels and was determined using Level 3 inputs, as follows:

•
with respect to one hotel, we used a discounted cash flow analysis with an estimated stabilized growth rate of 3.0%, a discounted cash flow term of five years, a terminal capitalization rate of 8.0%, and a discount rate of 10.0%; and

•
with respect to the other hotel, we used information based on EBITDA multiples ranging from 10 to 12 times.

7.
Discontinued Operations

We had one hotel held for sale at September 30, 2013. We designate a hotel as held for sale when the sale is probable within the next twelve months. We consider a sale to be probable when a buyer completes its due diligence review, we have an executed contract for sale, and we have received a substantial non-refundable deposit.

Discontinued operations primarily include results of operations for one hotel designated as held for sale at September 30, 2013, four hotels sold during the nine months ended September 30, 2013, and ten hotels sold in 2012. The following table summarizes the condensed financial information for those hotels (in thousands):

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Hotel operating revenue
$
5,038

 
 
$
19,353

 
 
$
25,045

 
 
$
86,968

 
Operating expenses(a)
(4,859
)
 
 
(18,612
)
 
 
(25,180
)
 
 
(76,877
)
 
Operating income (loss) from discontinued operations
179

 
 
741

 
 
(135
)
 
 
10,091

 
Interest expense, net
—

 
 
(1,031
)
 
 
—

 
 
(4,527
)
 
Debt extinguishment
—

 
 
(1,409
)
 
 
—

 
 
(2,100
)
 
Gain on involuntary conversion, net
66

 
 
—

 
 
66

 
 
—

 
Gain on sale of hotels, net
11,809

 
 
9,922

 
 
19,068

 
 
26,641

 
Income from discontinued operations
$
12,054

 
 
$
8,223

 
 
$
18,999

 
 
$
30,105

 

(a) Includes impairment charges of $3.3 million and $1.3 million for the nine months ended September 30, 2013 and 2012, respectively.


18

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Loss Per Share/Unit

The following tables set forth the computation of basic and diluted income (loss) per share/unit (in thousands, except per share/unit data):

FelCor Loss Per Share

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor
$
3,230

 
$
(19,025
)
 
$
(41,638
)
 
$
(35,619
)
Discontinued operations attributable to FelCor
(11,121
)
 
(8,172
)
 
(17,945
)
 
(29,895
)
Loss from continuing operations attributable to FelCor
(7,891
)
 
(27,197
)
 
(59,583
)
 
(65,514
)
Less: Preferred dividends
(9,678
)
 
(9,678
)
 
(29,034
)
 
(29,034
)
Numerator for continuing operations attributable to FelCor common stockholders
(17,569
)
 
(36,875
)
 
(88,617
)
 
(94,548
)
Discontinued operations attributable to FelCor
11,121

 
8,172

 
17,945

 
29,895

Numerator for basic and diluted loss attributable to FelCor common stockholders
$
(6,448
)
 
$
(28,703
)
 
$
(70,672
)
 
$
(64,653
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic and diluted loss per share
123,817

 
123,640

 
123,815

 
123,648

Basic and diluted loss per share data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.14
)
 
$
(0.30
)
 
$
(0.72
)
 
$
(0.76
)
Discontinued operations
$
0.09

 
$
0.07

 
$
0.14

 
$
0.24

Net loss
$
(0.05
)
 
$
(0.23
)
 
$
(0.57
)
 
$
(0.52
)


19

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Loss Per Share/Unit — (continued)

FelCor LP Loss Per Unit
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor LP
$
3,198

 
$
(19,169
)
 
$
(41,990
)
 
$
(35,948
)
Discontinued operations attributable to FelCor LP
(11,176
)
 
(8,213
)
 
(18,033
)
 
(30,046
)
Loss from continuing operations attributable to FelCor LP
(7,978
)
 
(27,382
)
 
(60,023
)
 
(65,994
)
 Less: Preferred distributions
(9,678
)
 
(9,678
)
 
(29,034
)
 
(29,034
)
Numerator for continuing operations attributable to FelCor LP common unitholders
(17,656
)
 
(37,060
)
 
(89,057
)
 
(95,028
)
Discontinued operations attributable to FelCor LP
11,176

 
8,213

 
18,033

 
30,046

Numerator for basic and diluted loss attributable to FelCor common unitholders
$
(6,480
)
 
$
(28,847
)
 
$
(71,024
)
 
$
(64,982
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic and diluted loss per unit
124,435

 
124,266

 
124,435

 
124,278

Basic and diluted loss per unit data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.14
)
 
$
(0.30
)
 
$
(0.72
)
 
$
(0.76
)
Discontinued operations
$
0.09

 
$
0.07

 
$
0.14

 
$
0.24

Net loss
$
(0.05
)
 
$
(0.23
)
 
$
(0.57
)
 
$
(0.52
)

Securities that could potentially dilute earnings per share/unit in the future that were not included in the computation of diluted loss per share/unit, because they would have been antidilutive for the periods presented, are as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Series A convertible preferred shares/units
9,985
 
9,985
 
9,985

 
 
9,985

 
FelCor restricted stock units
728
 
—
 
461

 
 
—

 

Series A preferred dividends (distributions) that would be excluded from net income (loss) attributable to FelCor common stockholders (or FelCor LP common unitholders), if these preferred shares/units were dilutive, were $6.3 million for the three months ended September 30, 2013 and 2012, and $18.8 million for the nine months ended September 30, 2013 and 2012.

In February 2013, our executive officers were granted restricted stock units providing them with the potential to earn up to 1,250,000 common shares, collectively, vesting in three increments over four years, based on total stockholder return relative to a group of 10 lodging REIT peers. The fixed cost of these grants is amortized over the vesting period, and the potential impact of these restricted stock units on our earnings per share, had they been dilutive, was calculated using the treasury stock method.


20

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
Fair Value of Financial Instruments

Disclosures about fair value of our financial instruments are based on pertinent information available to management as of September 30, 2013. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.

Our estimates of the fair value of (i) cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) our publicly-traded debt is based on observable market data (a Level 2 input) and has an estimated fair value of $1.3 billion at September 30, 2013 and December 31, 2012; and (iii) our debt that is not publicly-traded is based on a discounted cash flow model using effective borrowing rates for debt with similar terms, loan to estimated fair value of collateral and remaining maturities (a Level 3 input) and has an estimated fair value of $372.0 million and $369.6 million at September 30, 2013 and December 31, 2012, respectively. The estimated fair value of all our debt was $1.7 billion at September 30, 2013 and December 31, 2012. The carrying value of our debt was $1.6 billion at September 30, 2013 and December 31, 2012.

10.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units

We record redeemable noncontrolling interests in FelCor LP, in the case of FelCor, and redeemable units, in the case of FelCor LP, in the mezzanine section (between liabilities and equity or partners’ capital) of our consolidated balance sheets because of the redemption feature of these units. Additionally, FelCor’s consolidated statements of operations separately present earnings attributable to redeemable noncontrolling interests. We adjust redeemable noncontrolling interests in FelCor LP (or redeemable units) each period to reflect the greater of its carrying value based on the accumulation of historical cost or its redemption value. The historical cost is based on the proportionate relationship between the carrying value of equity associated with FelCor’s common stockholders relative to that of FelCor LP’s unitholders. Redemption value is based on the closing price of FelCor’s common stock at period end. FelCor allocates net income (loss) to FelCor LP’s noncontrolling partners based on their weighted average ownership percentage during the period.

At September 30, 2013, we had 617,542 limited partnership units outstanding carried at $3.8 million. The value of these outstanding units is based on the closing price of FelCor’s common stock at September 30, 2013 ($6.16 per share).


21

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units - (continued)

Changes in redeemable noncontrolling interests (or redeemable units) for the nine months ended September 30, 2013 and 2012 are shown below (in thousands):
 
Nine Months Ended
 
September 30,
 
2013
 
2012
Balance at beginning of period
$
2,902

 
 
$
3,026

 
Conversion of units
(23
)
 
 
(45
)
 
Redemption value allocation
1,280

 
 
581

 
Comprehensive loss:
 
 
 
 
 
Foreign exchange translation
(3
)
 
 
3

 
Net loss
(352
)
 
 
(329
)
 
Balance at end of period
$
3,804

 
 
$
3,236

 


22

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.
FelCor LP’s Consolidating Financial Information
Certain of FelCor LP’s 100% owned subsidiaries (FCH/PSH, L.P.; FelCor Baton Rouge Owner, L.L.C.; FelCor/CMB Buckhead Hotel, L.L.C.; FelCor/CMB Marlborough Hotel, L.L.C.; FelCor/CMB Orsouth Holdings, L.P.; FelCor/CMB SSF Holdings, L.P.; FelCor/CSS Holdings, L.P.; FelCor Dallas Love Field Owner, L.L.C.; FelCor Lodging Holding Company, L.L.C.; FelCor Milpitas Owner, L.L.C.; FelCor TRS Borrower 4, L.L.C.; FelCor TRS Holdings, L.L.C.; FelCor Canada Co.; FelCor Hotel Asset Company, L.L.C.; FelCor Copley Plaza, L.L.C.; FelCor St. Pete (SPE), L.L.C.; FelCor Esmeralda (SPE), L.L.C.; FelCor S-4 Hotels (SPE), L.L.C.; Los Angeles International Airport Hotel Associates, a Texas L.P.; Madison 237 Hotel, L.L.C.; Myrtle Beach Owner, L.L.C.; and Royalton 44 Hotel, L.L.C., collectively, “Subsidiary Guarantors”), together with FelCor, guaranty, fully and unconditionally, except where subject to customary release provisions as described below, and jointly and severally, our senior debt.
The guaranties by the Subsidiary Guarantors may be automatically and unconditionally released upon (1) the sale or other disposition of all of the capital stock of the Subsidiary Guarantor or the sale or disposition of all or substantially all of the assets of the Subsidiary Guarantor, (2) the consolidation or merger of any such Subsidiary Guarantor with any person other than FelCor LP, or a subsidiary of FelCor LP, if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a subsidiary of FelCor LP, (3) a legal defeasance or covenant defeasance of the indenture, (4) the unconditional and complete release of such Subsidiary Guarantor in accordance with the modification and waiver provisions of the indenture, or (5) the designation of a restricted subsidiary that is a Subsidiary Guarantor as an unrestricted subsidiary under and in compliance with the indenture.
In the third quarter of 2013, we revised FelCor LP’s Consolidating Financial Information related to (1) the presentation of intercompany notes between a Subsidiary Guarantor, a Non-Guarantor Subsidiary, and FelCor LP and (2) the presentation of accumulated other comprehensive income and the related foreign currency translation adjustment in the consolidating statements as follows:

(1) Certain intercompany notes owed by a Subsidiary Guarantor to one of the Non-Guarantor Subsidiaries were historically included within equity as a component of common units. These amounts have been reclassified to properly reflect the notes as intercompany debt in the consolidating balance sheet of the Subsidiary Guarantor and as other assets in the consolidating balance sheet of the Non-Guarantor Subsidiary. The impact of this correction (which eliminates in consolidation) increases debt and total liabilities of the Subsidiary Guarantor and increases other assets and total assets of the Non-Guarantor Subsidiaries as follows (in millions):
December 31, 2011
$
21

 
December 31, 2012
$
11

 
March 31, 2013
$
12

 
June 30, 2013
$
11

 
In addition to the notes above, there were also intercompany notes at December 31, 2011 owed by a Non-Guarantor Subsidiary to FelCor LP that resulted in an increase in debt and a decrease in common units of $11 million for the Non-Guarantor Subsidiaries at December 31, 2011.

23

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.    FelCor LP’s Consolidating Financial Information – (continued)

Certain of these intercompany notes are denominated in foreign currency; accordingly, the Subsidiary Guarantor and Non-Guarantor Subsidiary also revised their accumulated other comprehensive income, or AOCI, and the condensed consolidating statement of comprehensive loss allocation to properly reflect the foreign currency translation adjustment related to the notes that were reclassified as discussed above. The result (which eliminates in consolidation) was to decrease AOCI for the Subsidiary Guarantor and to increase AOCI for the Non-Guarantor Subsidiary by the following amounts (in millions):

December 31, 2011
$
21

December 31, 2012
$
21

March 31, 2013
$
21

June 30, 2013
$
21


The impact to the statement of comprehensive loss (which also eliminates in consolidation) was to decrease (increase) the foreign currency translation adjustment in the Subsidiary Guarantor with an offsetting increase (decrease) in the Non-Guarantor Subsidiary as follows (in millions):
For the years ended:
 
December 31, 2012
$
0.3

December 31, 2011
$
(0.8
)
December 31, 2010
$
2.0

For the:
 
Three months ended March 31, 2013
$
(0.3
)
Three months ended March 31, 2012
$
0.3

Three months ended June 30, 2013
$
(0.5
)
Three months ended June 30, 2012
$
(0.2
)
Three months ended September 30, 2012
$
0.4

Six months ended June 30, 2013
$
(0.7
)
Six months ended June 30, 2012
$
—

Nine months ended September 30, 2012
$
0.4


(2) Historically, FelCor LP presented the accumulated other comprehensive income related to its subsidiaries within common units of FelCor LP. These amounts were reclassified to properly state accumulated other comprehensive income as a separate component of FelCor LP’s equity in the consolidating balance sheet. Similarly, the related foreign currency translation adjustment will be added as a foreign currency translation adjustment to FelCor LP in the consolidating statement of comprehensive income. The impact of these balance sheet revisions (which eliminate in consolidation

24

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.    FelCor LP’s Consolidating Financial Information – (continued)

and have no net effect on FelCor LP’s net equity) are to increase AOCI (and decrease common units) for FelCor LP as follows (in millions):

December 31, 2011
$
26

December 31, 2012
$
26

March 31, 2013
$
26

June 30, 2013
$
25


The impact of the revisions to the related condensed consolidating statement of comprehensive loss (which eliminate in consolidation) is to increase (decrease) foreign currency translation adjustment, comprehensive income (loss) and comprehensive income (loss) attributable to FelCor LP for FelCor LP as follows (in millions):

For the years ended:
 
December 31, 2012
$
0.3

December 31, 2011
$
(0.7
)
December 31, 2010
$
2.9

For the:
 
Three months ended March 31, 2013
$
(0.4
)
Three months ended March 31, 2012
$
0.3

Three months ended June 30, 2013
$
(0.6
)
Three months ended June 30, 2012
$
(0.3
)
Three months ended September 30, 2012
$
0.5

Six months ended June 30, 2013
$
(0.9
)
Six months ended June 30, 2012
$
—

Nine months ended September 30, 2012
$
0.5


Management evaluated the impact of the above corrections on all previously issued condensed consolidating financial statements and concluded the impact was not material. However, in order to present the above amounts appropriately in all comparative periods, the Company will revise previously issued condensed consolidating financial information to the extent the periods are included in future filings.

The following tables present consolidating information for the Subsidiary Guarantors.


25

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.
FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2013
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net investment in hotels
$
47,869

 
$
1,057,396

 
$
567,148

 
$
—

 
$
1,672,413

Hotel development
—

 
—

 
195,919

 
—

 
195,919

Equity investment in consolidated entities
1,515,142

 
—

 
—

 
(1,515,142
)
 
—

Investment in unconsolidated entities
37,229

 
12,473

 
1,367

 
—

 
51,069

Hotel held for sale
9,676

 
8

 
—

 
—

 
9,684

Cash and cash equivalents
15,731

 
45,649

 
7,209

 
—

 
68,589

Restricted cash
—

 
6,955

 
71,179

 
—

 
78,134

Accounts receivable, net
160

 
38,186

 
546

 
—

 
38,892

Deferred expenses, net
21,402

 
—

 
9,519

 
—

 
30,921

Other assets
8,719

 
12,513

 
17,249

 
(11,740
)
 
26,741

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,655,928

 
$
1,173,180

 
$
870,136

 
$
(1,526,882
)
 
$
2,172,362

 
 
 
 
 
 
 
 
 
 
Debt, net
$
1,277,723

 
$
11,740

 
$
370,442

 
$
(11,740
)
 
$
1,648,165

Distributions payable
8,545

 
—

 
—

 
—

 
8,545

Accrued expenses and other liabilities
40,948

 
109,426

 
13,090

 
—

 
163,464

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,327,216

 
121,166

 
383,532

 
(11,740
)
 
1,820,174

 
 
 
 
 
 
 
 
 
 
Redeemable units
3,804

 
—

 
—

 
—

 
3,804

 
 
 
 
 
 
 
 
 
 
Preferred units
478,774

 
—

 
—

 
—

 
478,774

Common units
(179,422
)
 
1,047,816

 
441,770

 
(1,489,586
)
 
(179,422
)
Accumulated other comprehensive income
25,556

 
4,630

 
20,926

 
(25,556
)
 
25,556

Total FelCor LP partners’ capital
324,908

 
1,052,446

 
462,696

 
(1,515,142
)
 
324,908

Noncontrolling interests
—

 
(432
)
 
23,908

 
—

 
23,476

Total partners’ capital
324,908

 
1,052,014

 
486,604

 
(1,515,142
)
 
348,384

Total liabilities and partners’ capital
$
1,655,928

 
$
1,173,180

 
$
870,136

 
$
(1,526,882
)
 
$
2,172,362


26

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2012
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net investment in hotels
$
66,945

 
$
1,102,262

 
$
625,357

 
$
—

 
$
1,794,564

Hotel development
—

 
—

 
146,079

 
—

 
146,079

Equity investment in consolidated entities
1,551,377

 
—

 
—

 
(1,551,377
)
 
—

Investment in unconsolidated entities
42,508

 
11,173

 
1,401

 
—

 
55,082

Cash and cash equivalents
8,312

 
30,425

 
7,008

 
—

 
45,745

Restricted cash
—

 
9,186

 
68,741

 
—

 
77,927

Accounts receivable, net
96

 
24,432

 
855

 
—

 
25,383

Deferred expenses, net
22,657

 
—

 
11,605

 
—

 
34,262

Other assets
8,122

 
10,322

 
16,187

 
(11,240
)
 
23,391

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,700,017

 
$
1,187,800

 
$
877,233

 
$
(1,562,617
)
 
$
2,202,433

 
 
 
 
 
 
 
 
 
 
Debt, net
$
1,273,587

 
$
11,240

 
$
356,938

 
$
(11,240
)
 
$
1,630,525

Distributions payable
8,545

 
—

 
—

 
—

 
8,545

Accrued expenses and other liabilities
20,316

 
95,986

 
22,140

 
—

 
138,442

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,302,448

 
107,226

 
379,078

 
(11,240
)
 
1,777,512

 
 
 
 
 
 
 
 
 
 
Redeemable units
2,902

 
—

 
—

 
—

 
2,902

 
 
 
 
 
 
 
 
 
 
Preferred units
478,774

 
—

 
—

 
—

 
478,774

Common units
(110,258
)
 
1,076,067

 
449,159

 
(1,525,226
)
 
(110,258
)
Accumulated other comprehensive income
26,151

 
4,782

 
21,369

 
(26,151
)
 
26,151

Total FelCor LP partners’ capital
394,667

 
1,080,849

 
470,528

 
(1,551,377
)
 
394,667

Noncontrolling interests
—

 
(275
)
 
27,627

 
—

 
27,352

Total partners’ capital
394,667

 
1,080,574

 
498,155

 
(1,551,377
)
 
422,019

Total liabilities and partners’ capital
$
1,700,017

 
$
1,187,800

 
$
877,233

 
$
(1,562,617
)
 
$
2,202,433



27

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$
—

 
$
230,979

 
$
—

 
$
—

 
$
230,979

Percentage lease revenue
2,756

 
—

 
21,567

 
(24,323
)
 
—

Other revenue
1

 
1,401

 
182

 
—

 
1,584

Total revenues
2,757

 
232,380

 
21,749

 
(24,323
)
 
232,563

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses
—

 
153,034

 
—

 
—

 
153,034

Taxes, insurance and lease expense
1,066

 
45,836

 
3,378

 
(24,323
)
 
25,957

Corporate expenses
(212
)
 
4,694

 
1,335

 
—

 
5,817

Depreciation and amortization
1,004

 
18,045

 
11,075

 
—

 
30,124

Conversion expenses
—

 
(17
)
 
(64
)
 
—

 
(81
)
Other expenses
105

 
1,174

 
823

 
—

 
2,102

Total operating expenses
1,963

 
222,766

 
16,547

 
(24,323
)
 
216,953

Operating income
794

 
9,614

 
5,202

 
—

 
15,610

Interest expense, net
(20,976
)
 
(317
)
 
(4,703
)
 
—

 
(25,996
)
Gain on involuntary conversion, net
—

 
—

 
21

 
—

 
21

Loss before equity in income from unconsolidated entities
(20,182
)
 
9,297

 
520

 
—

 
(10,365
)
Equity in income from consolidated entities
21,537

 
—

 
—

 
(21,537
)
 
—

Equity in income from unconsolidated entities
1,602

 
509

 
(11
)
 
—

 
2,100

Loss from continuing operations
2,957

 
9,806

 
509

 
(21,537
)
 
(8,265
)
Income from discontinued operations
241

 
2,122

 
9,691

 
—

 
12,054

Net income
3,198

 
11,928

 
10,200

 
(21,537
)
 
3,789

Income attributable to noncontrolling interests
—

 
319

 
(910
)
 
—

 
(591
)
Net income attributable to FelCor LP
3,198

 
12,247

 
9,290

 
(21,537
)
 
3,198

Preferred distributions
(9,678
)
 
—

 
—

 
—

 
(9,678
)
Net loss attributable to FelCor LP common unitholders
$
(6,480
)
 
$
12,247

 
$
9,290

 
$
(21,537
)
 
$
(6,480
)


28

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2012
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$
—

 
$
223,000

 
$
—

 
$
—

 
$
223,000

Percentage lease revenue
2,575

 
—

 
29,718

 
(32,293
)
 
—

Other revenue
7

 
1,269

 
165

 
—

 
1,441

Total revenues
2,582

 
224,269


29,883


(32,293
)
 
224,441

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses
—

 
150,335

 
—

 
—

 
150,335

Taxes, insurance and lease expense
319

 
52,721

 
4,024

 
(32,293
)
 
24,771

Corporate expenses
139

 
3,643

 
1,913

 
—

 
5,695

Depreciation and amortization
1,248

 
16,142

 
12,660

 
—

 
30,050

Other expenses
88

 
1,584

 
287

 
—

 
1,959

Total operating expenses
1,794

 
224,425

 
18,884

 
(32,293
)
 
212,810

Operating income
788

 
(156
)
 
10,999

 
—

 
11,631

Interest expense, net
(21,532
)
 
(3,997
)
 
(5,039
)
 
—

 
(30,568
)
Debt extinguishment
—

 
—

 
(10,377
)
 
—

 
(10,377
)
Loss before equity in income from unconsolidated entities
(20,744
)
 
(4,153
)

(4,417
)

—


(29,314
)
Equity in income from consolidated entities
559

 
—

 
—

 
(559
)
 
—

Equity in income from unconsolidated entities
1,040

 
507

 
(11
)
 
—

 
1,536

Loss from continuing operations
(19,145
)
 
(3,646
)
 
(4,428
)
 
(559
)
 
(27,778
)
Income from discontinued operations
(24
)
 
(3,375
)
 
11,622

 
—

 
8,223

Net loss
(19,169
)
 
(7,021
)
 
7,194

 
(559
)
 
(19,555
)
Loss attributable to noncontrolling interests
—

 
286

 
100

 
—

 
386

Net loss attributable to FelCor LP
(19,169
)
 
(6,735
)
 
7,294

 
(559
)
 
(19,169
)
Preferred distributions
(9,678
)
 
—

 
—

 
—

 
(9,678
)
Net loss attributable to FelCor LP common unitholders
$
(28,847
)
 
$
(6,735
)
 
$
7,294

 
$
(559
)
 
$
(28,847
)

29

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$
—

 
$
682,927

 
$
—

 
$
—

 
$
682,927

Percentage lease revenue
5,633

 
—

 
67,918

 
(73,551
)
 
—

Other revenue
6

 
2,653

 
375

 
—

 
3,034

Total revenues
5,639

 
685,580

 
68,293

 
(73,551
)
 
685,961

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses
—

 
459,262

 
—

 
—

 
459,262

Taxes, insurance and lease expense
1,756

 
134,714

 
10,290

 
(73,551
)
 
73,209

Corporate expenses
169

 
15,048

 
5,126

 
—

 
20,343

Depreciation and amortization
3,439

 
53,534

 
33,434

 
—

 
90,407

Impairment loss
14,294

 
—

 
10,147

 
—

 
24,441

Conversion expenses
23

 
666

 
445

 
—

 
1,134

Other expenses
2,883

 
2,533

 
1,422

 
—

 
6,838

Total operating expenses
22,564

 
665,757

 
60,864

 
(73,551
)
 
675,634

Operating income
(16,925
)
 
19,823

 
7,429

 
—

 
10,327

Interest expense, net
(63,961
)
 
(940
)
 
(14,152
)
 
—

 
(79,053
)
Gain on involuntary conversion, net
—

 
—

 
21

 
—

 
21

Loss before equity in income from unconsolidated entities
(80,886
)
 
18,883

 
(6,702
)
 
—

 
(68,705
)
Equity in income from consolidated entities
38,096

 
—

 
—

 
(38,096
)
 
—

Equity in income from unconsolidated entities
3,454

 
675

 
(34
)
 
—

 
4,095

Loss from continuing operations
(39,336
)
 
19,558

 
(6,736
)
 
(38,096
)
 
(64,610
)
Income from discontinued operations
(2,654
)
 
1,763

 
19,890

 
—

 
18,999

Net loss
(41,990
)
 
21,321

 
13,154

 
(38,096
)
 
(45,611
)
Loss attributable to noncontrolling interests
—

 
558

 
3,063

 
—

 
3,621

Net loss attributable to FelCor LP
(41,990
)
 
21,879

 
16,217

 
(38,096
)
 
(41,990
)
Preferred distributions
(29,034
)
 
—

 
—

 
—

 
(29,034
)
Net loss attributable to FelCor LP common unitholders
$
(71,024
)
 
$
21,879

 
$
16,217

 
$
(38,096
)
 
$
(71,024
)

30

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2012
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$
—

 
$
654,853

 
$
—

 
$
—

 
$
654,853

Percentage lease revenue
5,401

 
—

 
85,866

 
(91,267
)
 
—

Other revenue
12

 
2,311

 
349

 
—

 
2,672

Total revenues
5,413

 
657,164

 
86,215

 
(91,267
)
 
657,525

 
 
 
 
 
 
 
 
 

Expenses:
 
 
 
 
 
 
 
 

Hotel operating expenses
—

 
443,823

 
—

 
—

 
443,823

Taxes, insurance and lease expense
1,065

 
149,101

 
11,358

 
(91,267
)
 
70,257

Corporate expenses
333

 
12,601

 
7,140

 
—

 
20,074

Depreciation and amortization
3,523

 
46,667

 
37,115

 
—

 
87,305

Other expenses
564

 
2,765

 
393

 
—

 
3,722

Total operating expenses
5,485

 
654,957

 
56,006

 
(91,267
)
 
625,181

Operating income
(72
)
 
2,207

 
30,209

 
—

 
32,344

Interest expense, net
(63,906
)
 
(12,078
)
 
(15,029
)
 
—

 
(91,013
)
Debt extinguishment
(7
)
 
(26
)
 
(10,465
)
 
—

 
(10,498
)
Loss before equity in income from unconsolidated entities
(63,985
)
 
(9,897
)
 
4,715

 
—

 
(69,167
)
Equity in income from consolidated entities
26,048

 
—

 
—

 
(26,048
)
 
—

Equity in income from unconsolidated entities
2,058

 
650

 
(34
)
 
—

 
2,674

Loss from continuing operations
(35,879
)
 
(9,247
)
 
4,681

 
(26,048
)
 
(66,493
)
Income from discontinued operations
(69
)
 
(7,488
)
 
37,662

 
—

 
30,105

Net loss
(35,948
)
 
(16,735
)
 
42,343

 
(26,048
)
 
(36,388
)
Loss attributable to noncontrolling interests
—

 
575

 
(135
)
 
—

 
440

Net loss attributable to FelCor LP
(35,948
)
 
(16,160
)
 
42,208

 
(26,048
)
 
(35,948
)
Preferred distributions
(29,034
)
 
—

 
—

 
—

 
(29,034
)
Net loss attributable to FelCor LP common unitholders
$
(64,982
)
 
$
(16,160
)
 
$
42,208

 
$
(26,048
)
 
$
(64,982
)

31

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net income
$
3,198

 
$
11,928

 
$
10,200

 
$
(21,537
)
 
$
3,789

Foreign currency translation adjustment
329

 
54

 
275

 
(329
)
 
329

Comprehensive income
3,527

 
11,982

 
10,475

 
(21,866
)
 
4,118

Comprehensive income attributable to noncontrolling interests
—

 
319

 
(910
)
 
—

 
(591
)
Comprehensive income attributable to FelCor LP
$
3,527

 
$
12,301

 
$
9,565

 
$
(21,866
)
 
$
3,527



FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Three Months Ended September 30, 2012
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net loss
$
(19,169
)
 
$
(7,021
)
 
$
7,194

 
$
(559
)
 
$
(19,555
)
Foreign currency translation adjustment
502

 
113

 
389

 
(502
)
 
502

Comprehensive loss
(18,667
)
 
(6,908
)
 
7,583

 
(1,061
)
 
(19,053
)
Comprehensive loss attributable to noncontrolling interests
—

 
286

 
100

 
—

 
386

Comprehensive loss attributable to FelCor LP
$
(18,667
)
 
$
(6,622
)
 
$
7,683

 
$
(1,061
)
 
$
(18,667
)


32

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2013
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net loss
$
(41,990
)
 
$
21,321

 
$
13,154

 
$
(38,096
)
 
$
(45,611
)
Foreign currency translation adjustment
(595
)
 
(153
)
 
(442
)
 
595

 
(595
)
Comprehensive loss
(42,585
)
 
21,168

 
12,712

 
(37,501
)
 
(46,206
)
Comprehensive loss attributable to noncontrolling interests
—

 
558

 
3,063

 
—

 
3,621

Comprehensive loss attributable to FelCor LP
$
(42,585
)
 
$
21,726

 
$
15,775

 
$
(37,501
)
 
$
(42,585
)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2012
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net loss
$
(35,948
)
 
$
(16,735
)
 
$
42,343

 
$
(26,048
)
 
$
(36,388
)
Foreign currency translation adjustment
493

 
63

 
430

 
(493
)
 
493

Comprehensive loss
(35,455
)
 
(16,672
)
 
42,773

 
(26,541
)
 
(35,895
)
Comprehensive loss attributable to noncontrolling interests
—

 
575

 
(135
)
 
—

 
440

Comprehensive loss attributable to FelCor LP
$
(35,455
)
 
$
(16,097
)
 
$
42,638

 
$
(26,541
)
 
$
(35,455
)


33

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2013
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(33,236
)
 
$
73,336

 
$
28,271

 
$
—

 
$
68,371

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
2,467

 
(46,230
)
 
(30,693
)
 
—

 
(74,456
)
Hotel development
—

 
—

 
(46,724
)
 
—

 
(46,724
)
Net proceeds from asset dispositions
(24
)
 
18,277

 
71,676

 
—

 
89,929

Distributions from unconsolidated entities
5,343

 
875

 
—

 
—

 
6,218

Contributions to unconsolidated entities
—

 
(1,500
)
 
—

 
—

 
(1,500
)
Intercompany financing
64,238

 
—

 
—

 
(64,238
)
 
—

Other
—

 
2,006

 
(2,458
)
 
—

 
(452
)
Cash flows from investing activities
72,024

 
(26,572
)
 
(8,199
)
 
(64,238
)
 
(26,985
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
—

 
—

 
137,245

 
—

 
137,245

Repayment of borrowings
—

 
—

 
(123,741
)
 
—

 
(123,741
)
Distributions paid to preferred unitholders
(29,034
)
 
—

 
—

 
—

 
(29,034
)
Intercompany financing
—

 
(31,907
)
 
(32,331
)
 
64,238

 
—

Other
(2,335
)
 
401

 
(1,044
)
 
—

 
(2,978
)
Cash flows from financing activities
(31,369
)
 
(31,506
)
 
(19,871
)
 
64,238

 
(18,508
)
Effect of exchange rate changes on cash
—

 
(34
)
 
—

 
—

 
(34
)
Change in cash and cash equivalents
7,419

 
15,224

 
201

 
—

 
22,844

Cash and cash equivalents at beginning of period
8,312

 
30,425

 
7,008

 
—

 
45,745

Cash and cash equivalents at end of period
$
15,731

 
$
45,649

 
$
7,209

 
$
—

 
$
68,589


34

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2012
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(36,423
)
 
$
25,768

 
$
83,462

 
$
—

 
$
72,807

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(7,158
)
 
(64,516
)
 
(28,311
)
 
—

 
(99,985
)
Hotel development
—

 
—

 
(16,707
)
 
—

 
(16,707
)
Net proceeds from asset dispositions
(14
)
 
7,931

 
116,693

 
—

 
124,610

Distributions from unconsolidated entities
11,269

 
625

 
—

 
—

 
11,894

Intercompany financing
140,154

 
—

 
—

 
(140,154
)
 
—

Other
—

 
3,351

 
(753
)
 
—

 
2,598

Cash flows from investing activities
144,251

 
(52,609
)
 
70,922

 
(140,154
)
 
22,410

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
—

 
—

 
378,750

 
—

 
378,750

Repayment of borrowings
(96
)
 
(16,452
)
 
(378,807
)
 
—

 
(395,355
)
Distributions paid to preferred unitholders
(59,021
)
 
—

 
—

 
—

 
(59,021
)
Intercompany financing
—

 
10,272

 
(150,426
)
 
140,154

 
—

Other
—

 
1,796

 
(3,138
)
 
—

 
(1,342
)
Cash flows from financing activities
(59,117
)
 
(4,384
)
 
(153,621
)
 
140,154

 
(76,968
)
Effect of exchange rate changes on cash
—

 
112

 
—

 
—

 
112

Change in cash and cash equivalents
48,711

 
(31,113
)
 
763

 
—

 
18,361

Cash and cash equivalents at beginning of period
23,503

 
67,001

 
3,254

 
—

 
93,758

Cash and cash equivalents at end of period
$
72,214

 
$
35,888

 
$
4,017

 
$
—

 
$
112,119



35

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

General
Lodging demand growth remains strong and supply growth remains near historically low levels, which should provide for continued sustainable revenue per available room (“RevPAR”) growth. The RevPAR for our 52 comparable hotels (our Consolidated Hotels excluding the Wyndham portfolio) increased 7.1% in the third quarter of 2013 compared to the same period last year. Overall, for all of our Consolidated Hotels, RevPAR grew 2.8% in the third quarter of 2013 compared to the same period last year, driven primarily by a 2.6% increase in average daily rate (“ADR”) coupled with a slight increase (10 basis points) in occupancy.
RevPAR for the Wyndham portfolio declined 20.3% for the third quarter compared to the same period last year. This decline reflects the impact of transitioning brands and management companies, including related renovations. We expect revenues at these hotels to improve meaningfully as transitional disruption subsides. In addition, as previously disclosed, Wyndham’s parent has guaranteed a minimum level of net operating income for each year of the ten-year term. Wyndham’s payments under this guaranty are subject to an aggregate $100 million limit over the term, with an annual $21.5 million limit. For March through September 2013 (the first seven months during which Wyndham managed the hotels for FelCor), we have recorded a $5.2 million pro rata portion of the projected full-year guaranty (of which $2.4 million is for the third quarter of 2013) as a reduction of Wyndham's contractual management and other fees.
To date, we have sold 24 of 39 non-strategic hotels as part of our portfolio repositioning plan. We are currently marketing six non-strategic hotels, of which we have agreed to sell three. The remaining nine non-strategic hotels are owned by joint ventures, and we continue to advance toward agreements with our partners, and expect to begin marketing those properties in early 2014.
Results of Operations
Comparison of the Three Months ended September 30, 2013 and 2012
For the three months ended September 30, 2013, we recorded $3.8 million in net income compared to a net loss of $19.6 million for the same period last year. Our 2013 net income included a $11.8 million net gain on sale of hotels included in discontinued operations. Our 2012 net loss included $11.8 million in debt extinguishment charges (of which $1.4 million are included in discontinued operations) and $1.1 million of hurricane-related charges (of which $433,000 are included in discontinued operations). The 2012 charges were offset by a $9.9 million net gain on the sale of a hotel, which is included in discontinued operations.
For the three months ended September 30, 2013:
•
Total revenue was $232.6 million, 3.6% more than last year. The increase was driven by a 2.8% increase in same-store RevPAR, reflecting a 2.6% increase in ADR and a 10 basis point increase in occupancy.
•
Hotel departmental expenses increased $2.5 million. As a percentage of total revenue, hotel departmental expenses decreased from 35.7% last year to 35.5% in the current period. This decrease reflects favorable profitability margins in the rooms department, resulting from revenue increases driven primarily by ADR as opposed to occupancy.
•
Other property-related costs increased $1.4 million. As a percentage of total revenue, other property-related costs decreased from 26.6% to 26.3%. This decrease primarily results from

36

lower costs as a percent of total revenue associated with our sales efforts and marketing programs in the current period.
•
Management and franchise fees decreased $1.2 million. As a percentage of total revenue, these costs decreased from 4.6% last year to 4.0% in the current period. We converted eight hotels to Wyndham brands and management on March 1, 2013. Wyndham earns lower management fees than the previous management company. In addition, Wyndham’s guaranty of a minimum level of net operating income has reduced Wyndham’s contractual management fees during the current period. These arrangements with Wyndham more than offset increases in fees resulting from higher revenue.
•
Taxes, insurance and lease expense increased $1.2 million and increased as a percent of total revenue from 11.0% last year to 11.2% in the current period. The increase reflects a combination of higher percentage lease expense (computed as a percentage of hotel revenues in excess of base rent; as revenue increases, percentage rent increases at a faster rate than other expenses) and higher property and other taxes (last year we achieved significant reductions after appeals), partially offset by lower general liability insurance (reflecting more favorable claims experience).
•
Net interest expense decreased $4.6 million. The decrease reflects our lower average interest rate and increased capitalized interest, partially offset by an increase in average debt for the period.
•
Debt extinguishment. For the three months ended September 30, 2013, no debt extinguishment charges were included in continuing operations, while continuing operations for the same period last year included $10.4 million in debt extinguishment charges. The charges incurred in the prior year include prepayment penalties and the write-off of deferred loan costs related to the repayment of $143.5 million in debt secured by properties included in continuing operations.
•
Discontinued operations include the results of operations for one hotel designated as held for sale at September 30, 2013, four hotels sold in 2013 and ten hotels sold in 2012. Discontinued operations in 2013 included a $11.8 million net gain on sale of hotels. Discontinued operations for 2012 primarily consisted of a $9.9 million net gain on the sale of one hotel and $1.4 million of debt extinguishment charges (related to $49.0 million in repayment of debt).
Comparison of the Nine Months ended September 30, 2013 and 2012
For the nine months ended September 30, 2013, we recorded a $45.6 million net loss compared to a $36.4 million net loss for the same period last year. Our 2013 net loss included $27.7 million of impairment charges ($24.4 million related to two hotels included in continuing operations and $3.3 million related to one hotel included in discontinued operations), offset by a $19.1 million net gain on sale of hotels included in discontinued operations (primarily from the sale of four hotels). Our 2012 net loss included a $1.3 million impairment charge for one hotel included in discontinued operations, $1.1 million in hurricane-related charges (of which $433,000 are included in discontinued operations), and $12.6 million in debt extinguishment charges ($10.5 million included in continuing operations and $2.1 million included in discontinued operations). These 2012 charges were offset by a $26.6 million net gain on sale of hotels included in discontinued operations.
For the nine months ended September 30, 2013:
•
Total revenue was $686.0 million, 4.3% more than last year. The increase was driven by a 3.4% increase in same-store RevPAR, reflecting a 3.4% increase in ADR and a 10 basis point increase in occupancy.


37

•
Hotel departmental expenses increased $12.8 million. As a percentage of total revenue, hotel departmental expenses increased from 36.0% last year to 36.4% in the current period. This increase was primarily driven by low profitability at the eight transitioning Wyndham hotels.
•
Other property-related costs increased $5.9 million. As a percentage of total revenue, other property-related costs decreased from 26.8% last year to 26.5% in the current period. This improvement primarily reflects revenue increases driven by ADR as opposed to occupancy.
•
Management and franchise fees decreased $3.2 million. As a percentage of total revenue, these costs decreased from 4.7% last year to 4.0% in the current period. We converted eight hotels to Wyndham brands and management on March 1, 2013. Wyndham earns lower management fees than the previous management company. In addition, Wyndham’s guaranty of a minimum level of net operating income has reduced Wyndham’s contractual management fees during the current period. These arrangements with Wyndham more than offset increases in fees resulting from higher revenue.
•
Taxes, insurance and lease expense increased $3.0 million and remained relatively flat as a percentage of total revenue. The increase reflects a combination of higher percentage lease expense (computed as a percentage of hotel revenues in excess of base rent; as revenue increases, percentage rent increases at a faster rate than other expenses) and higher property and other taxes (last year we achieved significant reductions after appeals). These higher expenses are partially offset by lower general liability insurance (reflecting more favorable claims experience).
•
Depreciation and amortization expense increased $3.1 million, primarily reflecting additional depreciation after investing $121.5 million of capital in our hotels in 2012.
•
Impairment loss. For the nine months ended September 30, 2013, we recorded $24.4 million of impairment charges for two hotels included in continuing operations after we reduced their estimated hold periods.
•
Conversion expenses. We converted eight hotels to Wyndham brands and management in March 2013. We classified those expenses as conversion expense in our 2013 statements of operations.
•
Other expenses increased $3.1 million compared to the same period in 2012, primarily related to severance costs for two employees and pre-opening costs on our hotel development.
•
Net interest expense decreased $12.0 million, primarily reflecting our lower average interest rate. Lower interest rates in 2013 are partially offset by an increase in average debt for the period, as well as less capitalized interest attributable to renovation and redevelopment projects.
•
Debt extinguishment. For the nine months ended September 30, 2013, no debt extinguishment charges were included in continuing operations, while continuing operations for the same period last year included $10.5 million in debt extinguishment charges. The charges incurred in the prior year include prepayment penalties and the write-off of deferred loan costs related to the repayment of $143.5 million in debt secured by properties included in continuing operations.
•
Discontinued operations include the results of operations for one hotel designated as held for sale at September 30, 2013, four hotels sold in 2013 and ten hotels sold in 2012. Discontinued operations in 2013 included a $19.1 million net gain (primarily related to the sale of four hotels), offset by a $3.3 million impairment charge for the one hotel designated as held for sale. Discontinued operations for 2012 primarily consisted of a $26.6 million net gain on the sales of seven hotels, a $1.3 million impairment loss for one hotel and $2.1 million of debt extinguishment charges (related to $118.2 million in repayment of debt).

38

Non-GAAP Financial Measures
We refer in this report to certain “non-GAAP financial measures.” These measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA, and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with GAAP. The following tables reconcile these non-GAAP measures to the most comparable GAAP financial measure. Immediately following the reconciliations, we include a discussion of why we believe these measures are useful supplemental measures of our performance and the limitations of such measures.

39

Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)
 
Three Months Ended September 30,
 
2013
2012
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income (loss)
$
3,789

 
 
 
 
 
$
(19,555
)
 
 
 
 
Noncontrolling interests
(559
)
 
 
 
 
 
530

 
 
 
 
Preferred dividends
(9,678
)
 
 
 
 
 
(9,678
)
 
 
 
 
Net loss attributable to FelCor common stockholders
(6,448
)
 
123,817

 
$
(0.05
)
 
(28,703
)
 
123,640

 
$
(0.23
)
Depreciation and amortization
30,124

 
—

 
0.24

 
30,050

 
—

 
0.25

Depreciation, discontinued operations and unconsolidated entities
3,461

 
—

 
0.03

 
5,363

 
—

 
0.04

Gain on involuntary conversion
(21
)
 
—

 
—

 
—

 
—

 
—

Gain on involuntary conversion, discontinued operations, net of noncontrolling interests in other partnerships
(57
)
 
—

 
—

 
—

 
—

 
—

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(10,958
)
 
—

 
(0.09
)
 
(9,922
)
 
—

 
(0.08
)
Noncontrolling interests in FelCor LP
(32
)
 
618

 
—

 
(144
)
 
626

 
(0.01
)
Conversion of unvested restricted stock
—

 
983

 
—

 
—

 
—

 
—

FFO
16,069

 
125,418

 
0.13

 
(3,356
)
 
124,266

 
(0.03
)
Acquisition costs
—

 
—

 
—

 
16

 
—

 
—

Hurricane loss
—

 
—

 
—

 
646

 
—

 
0.01

Hurricane loss, discontinued operations and unconsolidated entities
—

 
—

 
—

 
436

 
—

 
—

Debt extinguishment, including discontinued operations
—

 
—

 
—

 
11,786

 
—

 
0.09

Severance costs
106

 
—

 
—

 
71

 
—

 
—

Conversion expenses
(81
)
 
—

 
—

 
—

 
—

 
—

Variable stock compensation
151

 
—

 
—

 
—

 
—

 
—

Abandoned projects
—

 
—

 
—

 
219

 
—

 
—

Pre-opening costs, net of noncontrolling interests
814

 
—

 
0.01

 
202

 
—

 
—

Conversion of unvested restricted stock
—

 
—

 
—

 
—

 
358

 
0.01

Adjusted FFO
$
17,059

 
125,418


$
0.14


$
10,020


124,624


$
0.08


40

Reconciliation of Net Loss to FFO and Adjusted FFO
(in thousands, except per share data)

 
Nine Months Ended September 30,
 
2013
2012
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net loss
$
(45,611
)
 
 
 
 
 
$
(36,388
)
 
 
 
 
Noncontrolling interests
3,973

 
 
 
 
 
769

 
 
 
 
Preferred dividends
(29,034
)
 
 
 
 
 
(29,034
)
 
 
 
 
Net loss attributable to FelCor common stockholders
(70,672
)
 
123,815

 
$
(0.57
)
 
(64,653
)
 
123,648

 
$
(0.52
)
Depreciation and amortization
90,407

 
—

 
0.73

 
87,305

 
—

 
0.71

Depreciation, discontinued operations and unconsolidated entities
11,800

 
—

 
0.10

 
18,554

 
—

 
0.15

Gain on involuntary conversion
(21
)
 
—

 
—

 
—

 
—

 
—

Gain on involuntary conversion, discontinued operations, net of noncontrolling interests in other partnerships
(57
)
 
—

 
—

 
—

 
—

 
—

Impairment loss, net of noncontrolling interests in other partnerships
20,382

 
—

 
0.16

 
—

 
—

 
—

Impairment loss, discontinued operations
3,265

 
—

 
0.03

 
1,335

 
—

 
0.01

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(18,217
)
 
—

 
(0.15
)
 
(26,641
)
 
—

 
(0.22
)
Noncontrolling interests in FelCor LP
(352
)
 
620

 
(0.01
)
 
(329
)
 
630

 
—

Conversion of unvested restricted stock
—

 
672

 
—

 
—

 
280

 
—

FFO
36,535

 
125,107

 
0.29

 
15,571

 
124,558

 
0.13

Acquisition costs
23

 
—

 
—

 
114

 
—

 
—

Hurricane loss
—

 
—

 
—

 
646

 
—

 
0.01

Hurricane loss, discontinued operations and unconsolidated entities
—

 
—

 
—

 
436

 
—

 
—

Debt extinguishment, including discontinued operations
—

 
—

 
—

 
12,598

 
—

 
0.10

Severance costs
2,896

 
—

 
0.02

 
451

 
—

 
—

Conversion expenses
1,134

 
—

 
0.01

 
—

 
—

 
—

Variable stock compensation
374

 
—

 
—

 
—

 
—

 
—

Abandoned projects
—

 
—

 
—

 
219

 
—

 
—

Pre-opening costs, net of noncontrolling interests
1,376

 
—

 
0.02

 
245

 
—

 
—

Adjusted FFO
$
42,338

 
125,107


$
0.34


$
30,280


124,558


$
0.24


41

Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-Store Adjusted EBITDA
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
3,789

 
$
(19,555
)
 
$
(45,611
)
 
$
(36,388
)
Depreciation and amortization
30,124

 
30,050

 
90,407

 
87,305

Depreciation, discontinued operations and unconsolidated entities
3,461

 
5,363

 
11,800

 
18,554

Interest expense
26,011

 
30,602

 
79,113

 
91,129

Interest expense, discontinued operations and unconsolidated entities
681

 
1,725

 
2,032

 
6,595

Noncontrolling interests in other partnerships
(591
)
 
386

 
3,621

 
440

EBITDA
63,475

 
48,571

 
141,362

 
167,635

Impairment loss, net of noncontrolling interests in other partnerships
—

 
—

 
20,382

 
—

Impairment loss, discontinued operations
—

 
—

 
3,265

 
1,335

Hurricane loss
—

 
646

 
—

 
646

Hurricane loss, discontinued operations and unconsolidated entities
—

 
436

 
—

 
436

Debt extinguishment, including discontinued operations
—

 
11,786

 
—

 
12,598

Acquisition costs
—

 
16

 
23

 
114

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(10,958
)
 
(9,922
)
 
(18,217
)
 
(26,641
)
Gain on involuntary conversion
(21
)
 
—

 
(21
)
 
—

Gain on involuntary conversion, discontinued operations, net of noncontrolling interests in other partnerships
(57
)
 
—

 
(57
)
 
—

Amortization of fixed stock and directors’ compensation
1,397

 
1,210

 
4,547

 
3,748

Severance costs
106

 
71

 
2,896

 
451

Abandoned projects
—

 
219

 
—

 
219

Conversion expenses
(81
)
 
—

 
1,134

 
—

Variable stock compensation
151

 
—

 
374

 
—

Pre-opening costs, net of noncontrolling interests
814

 
202

 
1,376

 
245

Adjusted EBITDA
$
54,826

 
$
53,235

 
157,064

 
160,786

Adjusted EBITDA from discontinued operations
(908
)
 
(3,773
)
 
(6,610
)
 
(21,855
)
Same-store Adjusted EBITDA
$
53,918

 
$
49,462

 
$
150,454

 
$
138,931



42


Reconciliation of Income from Discontinued Operations to Adjusted EBITDA
from Discontinued Operations
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Income from discontinued operations
$
12,054

 
$
8,223

 
$
18,999

 
$
30,105

Depreciation and amortization, net of noncontrolling interests in other partnerships
747

 
2,609

 
3,586

 
10,055

Interest expense
—

 
1,031

 
—

 
4,527

Noncontrolling interests in other partnerships
(878
)
 
(10
)
 
(966
)
 
(59
)
EBITDA from discontinued operations
$
11,923

 
$
11,853

 
$
21,619

 
$
44,628

Impairment loss
—

 
—

 
3,265

 
1,335

Hurricane loss
—

 
433

 
—

 
433

Debt extinguishment
—

 
1,409

 
—

 
2,100

Gain on involuntary conversion, net of noncontrolling interests in other partnerships
(57
)
 
—

 
(57
)
 
—

Gain on sale, net of noncontrolling interests in other partnerships
(10,958
)
 
(9,922
)
 
(18,217
)
 
(26,641
)
Adjusted EBITDA from discontinued operations
$
908

 
$
3,773

 
$
6,610

 
$
21,855


Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Same-store operating revenue:
 
 
 
 
 
 
 
Room
$
185,281

 
$
179,085

 
$
533,618

 
$
514,029

Food and beverage
33,460

 
31,968

 
113,380

 
103,578

Other operating departments
12,238

 
11,947

 
35,929

 
37,246

Same-store operating revenue
230,979

 
223,000

 
682,927

 
654,853

Same-store operating expense:
 
 
 
 
 
 
 
Room
48,436

 
47,095

 
141,701

 
136,221

Food and beverage
28,513

 
27,609

 
91,061

 
84,250

Other operating departments
5,660

 
5,440

 
16,990

 
16,515

Other property related costs
61,153

 
59,766

 
181,942

 
176,050

Management and franchise fees
9,272

 
10,425

 
27,568

 
30,787

Taxes, insurance and lease expense
15,907

 
15,588

 
45,374

 
44,410

Same-store operating expense
168,941

 
165,923

 
504,636

 
488,233

Hotel EBITDA
$
62,038

 
$
57,077

 
$
178,291

 
$
166,620

Hotel EBITDA Margin
26.9
%
 
25.6
%
 
26.1
%
 
25.4
%

43


Hotel EBITDA and Hotel EBITDA Margin (continued)
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Hotel EBITDA - Comparable core (37)
$
41,659

 
$
36,549

 
$
121,495

 
$
107,689

Hotel EBITDA - Non-strategic (15)
10,377

 
9,613

 
30,507

 
28,838

Hotel EBITDA - Comparable (52)
52,036

 
46,162

 
152,002

 
136,527

Hotel EBITDA - Wyndham (8)
10,002

 
10,915

 
26,289

 
30,093

Hotel EBITDA (60)
$
62,038

 
$
57,077

 
$
178,291

 
$
166,620

 
 
 
 
 
 
 
 
Hotel EBITDA Margin - Comparable core (37)
25.0
%
 
23.7
%
 
24.7
%
 
23.7
%
Hotel EBITDA Margin - Non-strategic (15)
27.3
%
 
26.7
%
 
27.5
%
 
27.0
%
Hotel EBITDA Margin - Comparable (52)
25.4
%
 
24.3
%
 
25.2
%
 
24.3
%
Hotel EBITDA Margin - Wyndham (8)
37.8
%
 
33.4
%
 
33.1
%
 
32.5
%
Hotel EBITDA Margin (60)
26.9
%
 
25.6
%
 
26.1
%
 
25.4
%

Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Same-store operating revenue
$
230,979

 
$
223,000

 
$
682,927

 
$
654,853

Other revenue
1,584

 
1,441

 
3,034

 
2,672

Total revenue
232,563

 
224,441

 
685,961

 
657,525

Same-store operating expense
168,941

 
165,923

 
504,636

 
488,233

Consolidated hotel lease expense(a)
11,849

 
10,910

 
33,572

 
31,339

Unconsolidated taxes, insurance and lease expense
(1,799
)
 
(1,727
)
 
(5,737
)
 
(5,492
)
Corporate expenses
5,817

 
5,695

 
20,343

 
20,074

Depreciation and amortization
30,124

 
30,050

 
90,407

 
87,305

Impairment loss
—

 
—

 
24,441

 
—

Hurricane loss
—

 
646

 
—

 
646

Conversion expenses
(81
)
 
—

 
1,134

 
—

Other expenses
2,102

 
1,313

 
6,838

 
3,076

Total operating expense
216,953

 
212,810

 
675,634

 
625,181

Operating income
$
15,610

 
$
11,631

 
$
10,327

 
$
32,344


(a)
Consolidated hotel lease expense represents the percentage lease expense of our 51% owned operating lessees. The offsetting percentage lease revenue is included in equity in income from unconsolidated entities.

44


Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT’s performance and should be considered along with, but not as an alternative to, net income (loss) attributable to FelCor as a measure of our operating performance.

FFO and EBITDA

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income or loss attributable to parent (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation, amortization and impairment losses. FFO for unconsolidated partnerships and joint ventures are calculated on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO 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 we do.

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss attributable to parent (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

Adjustments to FFO and EBITDA
We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional items provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income attributable to FelCor, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.
•
Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to extinguishment of debt and interest rate swaps from FFO and EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.
•
Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.
•
Other transaction costs - From time to time, we periodically incur costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversions costs, acquisition costs, pre-opening costs and severance costs. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.

•
Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.

45

In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. We also exclude the amortization of our fixed stock compensation. While this amortization is included in corporate expenses and is not separately stated on our statements of operations, excluding this amortization is consistent with the EBITDA definition.
Hotel EBITDA and Hotel EBITDA Margin
Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level and other expenses. We eliminate these additional items because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.
Use and Limitations of Non-GAAP Measures
Our management and Board of Directors use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers.
The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on a single financial measure.


46

Pro Rata Share of Rooms Owned

The following table sets forth, at September 30, 2013, our pro rata share of hotel rooms, included in continuing operations, after giving consideration to the portion of rooms attributed to our partners in our consolidated and unconsolidated joint ventures:
 
Hotels
 
Room Count at September 30, 2013
Consolidated Hotels
60

 
 
17,644

 
Unconsolidated hotel operations
1

 
 
171

 
Total hotels
61

 
 
17,815

 
 
 
 
 
 
 
    50% joint ventures
13

 
 
(1,573
)
 
    60% joint venture
1

 
 
(214
)
 
    82% joint venture
1

 
 
(40
)
 
    90% joint ventures
2

 
 
(44
)
 
Pro rata rooms attributed to joint venture partners
 
 
 
(1,871
)
 
Pro rata share of rooms owned
 
 
 
15,944

 


47

Hotel Portfolio Composition

The following table illustrates the distribution of Same-store hotels.

Brand
 
Hotels
 
Rooms
 
2012 Hotel Operating Revenue 
(in thousands)
 
2012 Hotel EBITDA 
(in thousands)(a)
Embassy Suites Hotels
20

 
 
5,434

 
 
$
256,201

 
 
$
78,370

 
Wyndham and Wyndham Grand(b)
8

 
 
2,526

 
 
120,355

 
 
37,951

 
Renaissance and Marriott
3

 
 
1,321

 
 
111,976

 
 
17,908

 
DoubleTree by Hilton and Hilton
5

 
 
1,206

 
 
56,071

 
 
16,702

 
Sheraton and Westin
4

 
 
1,604

 
 
68,369

 
 
14,536

 
Fairmont
1

 
 
383

 
 
41,255

 
 
4,285

 
Holiday Inn
2

 
 
968

 
 
40,512

 
 
4,217

 
Morgans and Royalton
2

 
 
285

 
 
32,129

 
 
3,457

 
Core hotels
45

 
 
13,727

 
 
726,868

 
 
177,426

 
Non-strategic hotels
15

 
 
3,917

 
 
140,475

 
 
37,367

 
Same-store hotels
60

 
 
17,644

 
 
$
867,343

 
 
$
214,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco area
4

 
 
1,637

 
 
$
99,659

 
 
$
21,030

 
Los Angeles area
3

 
 
677

 
 
33,287

 
 
13,757

 
South Florida
3

 
 
923

 
 
47,298

 
 
13,253

 
Boston
3

 
 
916

 
 
68,121

 
 
12,123

 
New York area
4

 
 
820

 
 
57,052

 
 
9,731

 
Myrtle Beach
2

 
 
640

 
 
36,974

 
 
9,427

 
Atlanta
3

 
 
952

 
 
35,410

 
 
9,228

 
Philadelphia
2

 
 
728

 
 
36,122

 
 
8,880

 
Tampa
1

 
 
361

 
 
45,152

 
 
7,955

 
San Diego
1

 
 
600

 
 
26,445

 
 
6,687

 
Other markets
19

 
 
5,473

 
 
241,348

 
 
65,355

 
Core hotels
45

 
 
13,727

 
 
726,868

 
 
177,426

 
Non-strategic hotels
15

 
 
3,917

 
 
140,475

 
 
37,367

 
Same-store hotels
60

 
 
17,644

 
 
$
867,343

 
 
$
214,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
 
 
 
 
 
 
 
 
 
 
 
Urban
17

 
 
5,308

 
 
$
316,355

 
 
$
74,428

 
Resort
10

 
 
2,929

 
 
183,808

 
 
41,465

 
Airport
9

 
 
2,957

 
 
126,906

 
 
33,734

 
Suburban
9

 
 
2,533

 
 
99,799

 
 
27,799

 
Core hotels
45

 
 
13,727

 
 
726,868

 
 
177,426

 
Non-strategic hotels
15

 
 
3,917

 
 
140,475

 
 
37,367

 
Same-store hotels
60

 
 
17,644

 
 
$
867,343

 
 
$
214,793

 
(a)
Hotel EBITDA is a non-GAAP financial measure. A detailed reconciliation and further discussion of Hotel EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Quarterly Report on Form 10-Q.
(b)
These hotels converted brand and management from Holiday Inn on March 1, 2013.


48

Hotel Operating Statistics
The following tables set forth occupancy, ADR and RevPAR for the three and nine months ended September 30, 2013 and 2012, and the percentage changes therein for the periods presented, for our Same-store Consolidated Hotels included in continuing operations.
Operating Statistics by Brand
 
Occupancy (%)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2013
 
2012
 
%Variance
 
2013
 
2012
 
%Variance
Embassy Suites Hotels
79.3

 
76.4

 
3.8

 
 
77.0

 
76.4

 
0.8

 
Renaissance and Marriott
66.9

 
68.3

 
(2.1
)
 
 
71.6

 
71.3

 
0.5

 
DoubleTree by Hilton and Hilton
76.1

 
78.1

 
(2.6
)
 
 
71.5

 
71.9

 
(0.6
)
 
Sheraton and Westin
70.0

 
69.0

 
1.5

 
 
67.7

 
65.8

 
2.9

 
Fairmont
85.5

 
81.7

 
4.6

 
 
75.5

 
62.0

 
21.7

 
Holiday Inn
85.3

 
80.9

 
5.5

 
 
80.7

 
74.1

 
8.9

 
Morgans and Royalton
88.8

 
85.6

 
3.7

 
 
86.4

 
83.2

 
3.9

 
Comparable core hotels (37)
77.1

 
75.5

 
2.2

 
 
74.9

 
73.3

 
2.3

 
Non-strategic hotels (15)
77.6

 
73.7

 
5.3

 
 
76.0

 
73.8

 
2.9

 
Comparable hotels (52)
77.3

 
75.0

 
3.0

 
 
75.2

 
73.4

 
2.4

 
Wyndham and Wyndham Grand(a)
68.7

 
81.1

 
(15.3
)
 
 
67.8

 
78.3

 
(13.4
)
 
Same-store hotels (60)
76.0

 
75.9

 
0.2

 
 
74.2

 
74.1

 
—

 
 
ADR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2013
 
2012
 
%Variance
 
2013
 
2012
 
%Variance
Embassy Suites Hotels
151.02

 
146.40

 
3.2

 
 
150.30

 
145.40

 
3.4

 
Renaissance and Marriott
191.81

 
171.56

 
11.8

 
 
209.87

 
194.01

 
8.2

 
DoubleTree by Hilton and Hilton
147.65

 
142.08

 
3.9

 
 
147.72

 
139.02

 
6.3

 
Sheraton and Westin
116.63

 
114.61

 
1.8

 
 
115.95

 
112.28

 
3.3

 
Fairmont
290.21

 
275.15

 
5.5

 
 
280.17

 
281.34

 
(0.4
)
 
Holiday Inn
176.59

 
159.36

 
10.8

 
 
144.64

 
134.56

 
7.5

 
Morgans and Royalton
299.78

 
295.74

 
1.4

 
 
300.11

 
289.76

 
3.6

 
Comparable core hotels (37)
162.42

 
154.53

 
5.1

 
 
160.67

 
152.78

 
5.2

 
Non-strategic hotels (15)
121.13

 
120.87

 
0.2

 
 
120.47

 
119.15

 
1.1

 
Comparable hotels (52)
151.66

 
145.89

 
4.0

 
 
150.15

 
143.95

 
4.3

 
Wyndham and Wyndham Grand(a)
140.19

 
149.07

 
(6.0
)
 
 
142.94

 
146.51

 
(2.4
)
 
Same-store hotels (60)
150.18

 
146.38

 
2.6

 
 
149.20

 
144.34

 
3.4

 
 
RevPAR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2013
 
2012
 
%Variance
 
2013
 
2012
 
%Variance
Embassy Suites Hotels
119.77

 
111.89

 
7.0

 
 
115.71

 
111.03

 
4.2

 
Renaissance and Marriott
128.29

 
117.18

 
9.5

 
 
150.36

 
138.32

 
8.7

 
DoubleTree by Hilton and Hilton
112.41

 
111.00

 
1.3

 
 
105.65

 
99.99

 
5.7

 
Sheraton and Westin
81.65

 
79.09

 
3.2

 
 
78.53

 
73.91

 
6.3

 
Fairmont
248.05

 
224.93

 
10.3

 
 
211.43

 
174.41

 
21.2

 
Holiday Inn
150.64

 
128.85

 
16.9

 
 
116.76

 
99.75

 
17.0

 
Morgans and Royalton
266.15

 
253.11

 
5.2

 
 
259.43

 
241.05

 
7.6

 
Comparable core hotels (37)
125.28

 
116.60

 
7.4

 
 
120.41

 
111.96

 
7.5

 
Non-strategic hotels (15)
94.04

 
89.10

 
5.5

 
 
91.55

 
87.96

 
4.1

 
Comparable hotels (52)
117.18

 
109.42

 
7.1

 
 
112.94

 
105.70

 
6.9

 
Wyndham and Wyndham Grand(a)
96.31

 
120.90

 
(20.3
)
 
 
96.95

 
114.69

 
(15.5
)
 
Same-store hotels (60)
114.19

 
111.08

 
2.8

 
 
110.65

 
107.00

 
3.4

 
(a)    These hotels converted from Holiday Inn (brand and management) on March 1, 2013.

49

Hotel Operating Statistics by Market
 
Occupancy (%)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2013
 
2012
 
%Variance
 
2013
 
2012
 
%Variance
San Francisco area
90.7

 
 
89.7

 
 
1.2

 
 
84.4

 
 
82.4

 
 
2.5

 
Los Angeles area
82.2

 
 
78.9

 
 
4.2

 
 
77.1

 
 
80.3

 
 
(4.0
)
 
South Florida
77.1

 
 
72.7

 
 
6.0

 
 
82.4

 
 
78.5

 
 
4.9

 
Boston
82.1

 
 
77.6

 
 
5.8

 
 
75.1

 
 
65.7

 
 
14.2

 
New York area
82.5

 
 
78.5

 
 
5.1

 
 
79.4

 
 
76.8

 
 
3.3

 
Myrtle Beach
88.6

 
 
82.1

 
 
8.0

 
 
67.3

 
 
66.5

 
 
1.2

 
Atlanta
76.4

 
 
75.6

 
 
1.1

 
 
74.7

 
 
75.0

 
 
(0.4
)
 
Philadelphia
70.4

 
 
68.3

 
 
3.2

 
 
67.5

 
 
62.6

 
 
7.9

 
Tampa
77.6

 
 
80.7

 
 
(3.8
)
 
 
81.0

 
 
83.7

 
 
(3.1
)
 
Other markets
68.7

 
 
68.6

 
 
0.1

 
 
70.0

 
 
69.0

 
 
1.4

 
Comparable core hotels (37)
77.1

 
 
75.5

 
 
2.2

 
 
74.9

 
 
73.3

 
 
2.3

 
 
ADR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2013
 
 
2012
 
%Variance
 
2013
 
 
2012
 
%Variance
San Francisco area
219.88

 
 
190.07

 
 
15.7

 
 
190.42

 
 
171.84

 
 
10.8

 
Los Angeles area
149.50

 
 
149.88

 
 
(0.3
)
 
 
142.91

 
 
137.77

 
 
3.7

 
South Florida
114.98

 
 
115.28

 
 
(0.3
)
 
 
148.76

 
 
147.52

 
 
0.8

 
Boston
241.44

 
 
230.59

 
 
4.7

 
 
231.03

 
 
225.32

 
 
2.5

 
New York area
211.12

 
 
205.13

 
 
2.9

 
 
210.47

 
 
202.24

 
 
4.1

 
Myrtle Beach
174.58

 
 
174.37

 
 
0.1

 
 
158.18

 
 
153.84

 
 
2.8

 
Atlanta
112.49

 
 
107.82

 
 
4.3

 
 
113.12

 
 
108.54

 
 
4.2

 
Philadelphia
155.73

 
 
157.43

 
 
(1.1
)
 
 
165.08

 
 
163.95

 
 
0.7

 
Tampa
155.99

 
 
151.48

 
 
3.0

 
 
185.51

 
 
178.36

 
 
4.0

 
Other markets
133.83

 
 
131.46

 
 
1.8

 
 
140.01

 
 
134.74

 
 
3.9

 
Comparable core hotels (37)
162.42

 
 
154.53

 
 
5.1

 
 
160.67

 
 
152.78

 
 
5.2

 
 
RevPAR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2013
 
 
2012
 
%Variance
 
2013
 
 
2012
 
%Variance
San Francisco area
199.50

 
 
170.41

 
 
17.1

 
 
160.76

 
 
141.59

 
 
13.5

 
Los Angeles area
122.88

 
 
118.23

 
 
3.9

 
 
110.14

 
 
110.57

 
 
(0.4
)
 
South Florida
88.66

 
 
83.83

 
 
5.8

 
 
122.53

 
 
115.85

 
 
5.8

 
Boston
198.14

 
 
178.94

 
 
10.7

 
 
173.39

 
 
148.06

 
 
17.1

 
New York area
174.14

 
 
160.99

 
 
8.2

 
 
167.08

 
 
155.35

 
 
7.6

 
Myrtle Beach
154.70

 
 
143.13

 
 
8.1

 
 
106.39

 
 
102.26

 
 
4.0

 
Atlanta
85.93

 
 
81.46

 
 
5.5

 
 
84.52

 
 
81.43

 
 
3.8

 
Philadelphia
109.65

 
 
107.45

 
 
2.0

 
 
111.48

 
 
102.59

 
 
8.7

 
Tampa
121.02

 
 
122.21

 
 
(1.0
)
 
 
150.35

 
 
149.25

 
 
0.7

 
Other markets
91.94

 
 
90.24

 
 
1.9

 
 
97.98

 
 
92.99

 
 
5.4

 
Comparable core hotels (37)
125.28

 
 
116.60

 
 
7.4

 
 
120.41

 
 
111.96

 
 
7.5

 

50


Hotel Portfolio

The following table sets forth certain descriptive information regarding the hotels in which we held ownership interest at September 30, 2013.

Core Hotels
 
 Brand
 State
Rooms
 % Owned

(a) 
Birmingham
 Embassy Suites Hotel
 AL
242
 
 
Phoenix – Biltmore
 Embassy Suites Hotel
 AZ
232
 
 
Dana Point – Doheny Beach
 DoubleTree Suites by Hilton
 CA
196
 
 
Indian Wells – Esmeralda Resort & Spa
 Renaissance Resort
 CA
560
 
 
Los Angeles – International Airport/South
 Embassy Suites Hotel
 CA
349
 
 
Napa Valley
 Embassy Suites Hotel
 CA
205
 
 
Mandalay Beach – Hotel & Resort
 Embassy Suites Hotel
 CA
250
 
 
San Diego Bayside
 Wyndham
 CA
600
 
 
San Francisco – Airport/Waterfront
 Embassy Suites Hotel
 CA
340
 
 
San Francisco – Airport/South San Francisco
 Embassy Suites Hotel
 CA
312
 
 
San Francisco – Fisherman’s Wharf
 Holiday Inn
 CA
585
 
 
San Francisco – Union Square
 Marriott
 CA
400
 
 
Santa Monica
 Wyndham
 CA
132
 
 
Deerfield Beach – Resort & Spa
 Embassy Suites Hotel
 FL
244
 
 
Ft. Lauderdale – 17th Street
 Embassy Suites Hotel
 FL
361
 
 
Miami – International Airport
 Embassy Suites Hotel
 FL
318
 
 
Orlando – International Drive South/Convention
 Embassy Suites Hotel
 FL
244
 
 
Orlando – Walt Disney World Resort
 DoubleTree Suites by Hilton
 FL
229
 
 
St. Petersburg – Vinoy Resort & Golf Club
 Renaissance Resort
 FL
361
 
 
Atlanta – Buckhead
 Embassy Suites Hotel
 GA
316
 
 
Atlanta – Gateway – Atlanta Airport
 Sheraton
 GA
395
 
 
Atlanta – Perimeter Center
 Embassy Suites Hotel
 GA
241
50
%
 
Chicago – Lombard/Oak Brook
 Embassy Suites Hotel
 IL
262
50
%
 
Boston – at Beacon Hill
 Wyndham
 MA
304
 
 
Boston – Copley Plaza
 Fairmont
 MA
383
 
 
Boston – Marlborough
 Embassy Suites Hotel
 MA
229
 
 
Baltimore – at BWI Airport
 Embassy Suites Hotel
 MD
251
90
%
 
New Orleans – French Quarter
 Wyndham
 LA
374
 
 
Charlotte – SouthPark
 DoubleTree Suites by Hilton
 NC
208
 
 
Parsippany
 Embassy Suites Hotel
 NJ
274
50
%
 
Secaucus – Meadowlands
 Embassy Suites Hotel
 NJ
261
50
%
 
New York – Morgans
 Independent
 NY
117
 
 
New York – Royalton
 Independent
 NY
168
 
 
Philadelphia – Historic District
 Wyndham
 PA
364
 
 
Philadelphia – Society Hill
 Sheraton
 PA
364
 
 
Pittsburgh – at University Center (Oakland)
 Wyndham
 PA
251
 
 
Charleston – The Mills House
 Wyndham Grand
 SC
214
 
 
Myrtle Beach – Oceanfront Resort
 Embassy Suites Hotel
 SC
255
 
 
Myrtle Beach Resort
 Hilton
 SC
385
 
 
Nashville – Opryland – Airport (Briley
   Parkway)
 Holiday Inn
 TN
383
 
 

51

Hotel Portfolio (continued)

Core Hotels
 
 Brand
 
 State
 
Rooms
 
 % Owned

(a) 
Austin
 DoubleTree Suites by Hilton
 
 TX
 
188
 
90
%
 
Dallas – Love Field
 Embassy Suites Hotel
 
 TX
 
248
 
 
 
Dallas – Park Central
 Westin
 
 TX
 
536
 
60
%
 
Houston – Medical Center
 Wyndham
 
 TX
 
287
 
 
 
Burlington Hotel & Conference Center
 Sheraton
 
 VT
 
309
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Hotel
 
 
 
 
 
 
 
 
New Orleans – French Quarter – Chateau
   LeMoyne
 Holiday Inn
 
 LA
 
171
 
50
%
 
 
 
 
 
 
 
 
 
 
 
Hotel under Development
 
 
 
 
 
 
 
 
New York – Knickerbocker
 Independent
 
 NY
 
330
 
95
%
 
 
 
 
 
 
 
 
 
 
Non-strategic Hotels
 
 
 
 
 
 
 
 
Milpitas – Silicon Valley
 Embassy Suites Hotel
 
 CA
 
266
 
 
 
San Rafael – Marin County
 Embassy Suites Hotel
 
 CA
 
235
 
50
%
 
Orlando – International Airport
 Holiday Inn
 
 FL
 
288
 
 
 
Atlanta – Airport
 Embassy Suites Hotel
 
 GA
 
232
 
 
 
Kansas City – Overland Park
 Embassy Suites Hotel
 
 KS
 
199
 
50
%
 
Indianapolis – North
 Embassy Suites Hotel
 
 IN
 
221
 
82
%
 
Minneapolis – Airport
 Embassy Suites Hotel
 
 MN
 
310
 
 
 
Bloomington
 Embassy Suites Hotel
 
 MN
 
218
 
 
 
Kansas City – Plaza
 Embassy Suites Hotel
 
 MO
 
266
 
50
%
 
Charlotte
 Embassy Suites Hotel
 
 NC
 
274
 
50
%
 
Raleigh – Crabtree
 Embassy Suites Hotel
 
 NC
 
225
 
50
%
 
Toronto – International Airport
 Holiday Inn
 
Ontario
 
446
 
 
 
Austin – Central
 Embassy Suites Hotel
 
 TX
 
260
 
50
%
 
San Antonio – International Airport
 Embassy Suites Hotel
 
 TX
 
261
 
50
%
 
San Antonio – NW I-10
 Embassy Suites Hotel
 
 TX
 
216
 
50
%
 
 
 
 
 
 
 
 
 
 
Non-strategic Hotel Held for Sale (included in discontinued operations)
 
 
 
 
 
Jacksonville – Baymeadows
 Embassy Suites Hotel
 
 FL
 
277
 
 
 

(a)
We own 100% of each hotel except where otherwise noted.

52

Liquidity and Capital Resources
Operating Activities
During the first nine months of 2013, our operations (primarily hotel operations) provided $68.4 million in cash, $4.4 million less than the same period last year. Our consolidated statements of cash flows combines cash flow from continuing and discontinued operations. Operating cash flow from discontinued operations was $6.8 million and $17.1 million for the nine months ended September 30, 2013 and 2012, respectively. The absence of these cash flows should not have a material impact on our business, as these hotels would not provide an acceptable return on our investment.
At September 30, 2013, we had $68.6 million of cash and cash equivalents, including $45.6 million held by third-party management companies.
RevPAR for the lodging industry remains strong. RevPAR at our comparable hotels for the first nine months increased 6.9%, driven by a 4.3% increase in ADR. We expect our RevPAR at our comparable hotels to increase 6.5-7.0% during 2013, primarily from ADR growth as supply growth in our markets generally remains well below historical levels. We expect to generate $71.8 million to $73.2 million of cash flow from operations in 2013.
Investing Activities
During the first nine months of 2013, we used $27.0 million of cash in investing activities compared to $22.4 million of cash provided from investing activities during the same period last year. So far in 2013, compared to last year, we spent $25.5 million less on improvements and additions to hotels, which was more than offset by a $30.0 million increase in hotel development and a $34.7 million decrease in net proceeds from hotel sales.
We expect to invest approximately $205 million of capital in our hotels in 2013. This includes: (i) approximately $105 million for renovations and redevelopment at our operating hotels, which will be funded from operating cash flow, cash on hand and borrowings under our line of credit and (ii) approximately $100 million to develop the Knickerbocker Hotel, funded primarily by cash, draws on an $85 million construction loan and $45 million in financing that is currently being raised through the EB-5 visa program.
Our strategic plan contemplates selling 39 non-strategic hotels that do not meet our investment criteria. We have sold 24 of these 39 hotels to date, and we have 15 non-strategic hotels remaining to sell. We are currently marketing six non-strategic hotels, of which we currently have three under contract. We will use the proceeds from dispositions to repay debt and reduce leverage.
Financing Activities
During the first nine months of 2013, cash used in financing activities decreased by $58.5 million compared to the same period last year, driven by $116.6 million of non-recurring debt payments in 2012 (primarily as a consequence of asset sales), and $30 million used to pay accrued preferred dividends in arrears in 2012, as well as a $13.5 million decrease in 2013 in our recurring principal payments. The foregoing were partially offset by a $100.0 million decrease in 2013 net borrowings on our line of credit. In 2013, we expect to pay approximately $5 million of normally occurring principal payments and $39 million of preferred dividends, all of which will be funded from operating cash flow and cash on hand. We are using proceeds from hotel sales to make additional non-recurring principal payments.
On October 31, 2013, our board declared a $0.02 per share quarterly common dividend for the fourth quarter. The board has reinstated our common dividend recognizing the ongoing success of our portfolio repositioning and restructured balance sheet positive funds available for distribution (“FAD”) The dividend will be paid on January 31, 2014 to holders of record on January 15, 2014.  Future quarterly

53

dividends will be based on estimates of FAD, reinvestment opportunities within our portfolio and taxable net income, among other things.
Except for our senior notes and line of credit, our mortgage debt is generally recourse solely to the specific hotels securing the debt, except in case of fraud, misapplication of funds and certain other customary limited recourse carve-out provisions that could extend recourse to us. Much of our secured debt allows us to substitute collateral under certain conditions and is prepayable, subject (in some instances) to various prepayment, yield maintenance or defeasance obligations.
Most of our secured debt (other than our senior notes and line of credit) includes lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our budgeted hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves, even if revenues are flowing through a lock-box because a specified debt service coverage ratio is not met. With the exception of loans secured by two properties, all of our consolidated loans subject to lock-box provisions currently exceed the applicable minimum debt service coverage ratios.

Senior Notes. Our senior notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: (i) incur additional indebtedness, except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to qualify as a REIT; (iii) repurchase capital stock; or (iv) merge. We currently exceed all minimum thresholds. These notes are guaranteed by us, and payment of our 10% notes is secured by a pledge of the limited partner interests in FelCor LP owned by FelCor. In addition, our senior notes are secured by a combination of first lien mortgages and related security interests and/or negative pledges on 26 hotels (11 hotels for our 10% senior notes, six hotels for our 6.75% senior notes and nine hotels for our 5.625% senior notes), as well as pledges of equity interests in certain subsidiaries of FelCor LP.

Inflation
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future. We are also subject to the risk that inflation will cause increases in hotel operating expenses disproportionately to revenues. If competition requires us to reduce room rates or limits our ability to raise room rates in the future, we may not be able to adjust our room rates to reflect the effects of inflation in full, in which case our operating results and liquidity could be adversely affected.

Seasonality

The lodging business is seasonal in nature. Generally, hotel revenues are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations. Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. Seasonal variations in revenue at our hotels can be expected to cause quarterly fluctuations in our revenues. Quarterly earnings also may be adversely affected by events beyond our control, such as extreme weather conditions, economic factors and other considerations affecting travel. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may utilize cash on hand or borrowings to satisfy our obligations.


54


Disclosure Regarding Forward-Looking Statements

This report and the documents incorporated by reference in this report include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” or other variations of these terms (including their use in the negative), or by discussions of strategies, plans or intentions. A number of factors could cause actual results to differ materially from those anticipated by these forward-looking statements. Certain of these risks and uncertainties are described in greater detail under “Risk Factors” in our Annual Report on Form 10-K or in our other filings with the Securities and Exchange Commission, or the SEC.

These forward-looking statements are necessarily dependent upon assumptions and estimates that may prove to be incorrect. Accordingly, while we believe that the plans, intentions and expectations reflected in these forward-looking statements are reasonable, we cannot assure you that deviations from these plans, intentions or expectations will not be material. The forward-looking statements included in this report, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the risk factors and cautionary statements discussed in our filings to the SEC. We undertake no obligation to publicly update any forward-looking statements to reflect future circumstances or changes in our expectations.


55

Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
At September 30, 2013, approximately 92% of our consolidated debt bears fixed-rate interest.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents scheduled maturities and weighted average interest rates, by maturity dates. The fair value of our fixed-rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market interest rates.
Expected Maturity Date
at September 30, 2013
(dollars in thousands)
 
Expected Maturity Date
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
Total
 
Fair Value
Liabilities
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
1,259

 
$
300,192

 
$
3,107

 
$
11,461

 
$
2,810

 
$
1,197,656

 
$
1,516,485

 
$
1,534,154

Average
  interest rate
5.77
%
 
9.25
%
 
5.11
%
 
5.61
%
 
4.95
%
 
6.03
%
 
6.66
%
 
 

Floating-rate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Debt
—

 
—

 
—

 
137,861

 
—

 
—

 
137,861

 
$
137,861

Average
  interest rate (a)
—

 
—

 
—

 
5.31
%
 
—

 
—

 
5.31
%
 
 

Total debt
$
1,259

 
$
300,192

 
$
3,107

 
$
149,322

 
$
2,810

 
$
1,197,656

 
$
1,654,346

 
 

Average
   interest rate
5.77
%
 
9.25
%
 
5.11
%
 
5.33
%
 
4.95
%
 
6.03
%
 
6.55
%
 
 

Net discount
 

 
 
 
 
 
 
 
 
 
 

 
(6,181
)
 
 

  Total debt
 

 
 
 
 
 
 
 
 
 
 

 
$
1,648,165

 
 

(a)
The average floating interest rate considers the implied forward rates in the yield curve at September 30, 2013.

Item 4.
Controls and Procedures.
(a)Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective, such that the information relating to us required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
(b)Changes in internal control over financial reporting.
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15 (f) promulgated under the Securities Exchange Act of 1934) during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

56

PART II – OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

In July 2013, FelCor issued 3,839 shares of common stock in exchange for like numbers of FelCor LP limited partnership units. Issuing these shares under these circumstances is a private transaction that is exempt from registration under Section 4(2) of the Securities Act of 1933.

Item 6.
Exhibits.

The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K:

Exhibit Number
 
Description of Exhibit
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
31.3
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
31.4
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
32.2
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
101.INS
 
XBRL Instance Document. Submitted electronically with this report.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document. Submitted electronically with this report.
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document. Submitted electronically with this report.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document. Submitted electronically with this report.
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document. Submitted electronically with this report.
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document. Submitted electronically with this report.

* Previously filed.


57

Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) FelCor’s Consolidated Balance Sheets at September 30, 2013 and December 31, 2012; (ii) FelCor’s Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012; (iii) FelCor’s Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2013 and 2012; (iv) FelCor’s Consolidated Statements of Changes in Equity for the nine months ended September 30, 2013 and 2012; (v) FelCor’s Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012; (vi) FelCor LP’s Consolidated Balance Sheets at September 30, 2013 and December 31, 2012; (vii) FelCor LP’s Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012; (viii) FelCor LP’s Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2013 and 2012; (ix) FelCor LP’s Consolidated Statements of Partners’ Capital for the nine months ended September 30, 2013 and 2012; (x) FelCor LP’s Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012; and (xi) the Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S‑T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

58

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
 FELCOR LODGING TRUST INCORPORATED
 
 
 
 
 
 
 
 
 
 
 
 
Date:  November 5, 2013
 By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Controller


 
FELCOR LODGING LIMITED PARTNERSHIP
 
a Delaware limited partnership
 
 
 
 
By:
FelCor Lodging Trust Incorporated
 
 
Its General Partner
 
 
 
 
 
 
Date:  November 5, 2013
By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Controller


59