10-K 1 d85610e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-14236 FelCor Lodging Trust Incorporated (Exact name of registrant as specified in its charter) MARYLAND 75-2541756 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- -------------------------- COMMON STOCK NEW YORK STOCK EXCHANGE, INC. $1.95 SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC. DEPOSITARY SHARES REPRESENTING 9% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act: NONE (Title of class) Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common equity securities of the registrant held by non-affiliates of the registrant, as of March 15, 2001, was approximately $1.1 billion. As of March 15, 2001, the registrant had issued and outstanding 53,105,335 shares of common stock. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive Proxy Statement pertaining to the 2001 Annual Meeting of Stockholders (the "Proxy Statement") and filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A is incorporated herein by reference into Part III. ================================================================================ 2 FELCOR LODGING TRUST INCORPORATED INDEX
FORM 10-K REPORT ITEM NO. PAGE ------- --------- PART I 1. Business...............................................................................................1 2. Properties........................................................................................... 15 3. Legal Proceedings.....................................................................................18 4. Submission of Matters to a Vote of Security Holders...................................................18 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................19 6. Selected Financial Data...............................................................................21 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................22 7A. Quantitative and Qualitative Disclosures About Market Risk............................................38 8. Financial Statements and Supplementary Data...........................................................38 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..................38 PART III 10. Directors and Executive Officers of the Company ......................................................39 11. Executive Compensation................................................................................39 12. Security Ownership of Certain Beneficial Owners and Management........................................39 13. Certain Relationships and Related Transactions........................................................39 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................40
3 PART I ITEM 1. BUSINESS FelCor Lodging Trust Incorporated ("FelCor"), a Maryland corporation, is the nation's second largest hotel real estate investment trust ("REIT"). At December 31, 2000, FelCor owned interests in 186 hotels with nearly 50,000 rooms and suites (collectively the "Hotels") through its greater than 86% equity interest in FelCor Lodging Limited Partnership (the "Operating Partnership"). FelCor, the Operating Partnership, and their subsidiaries are herein referred to, collectively, as the "Company." At December 31, 2000, the Company owned 100% interests in 161 Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 16 hotels. The Hotels are located in the United States (35 states) and Canada, with concentrations in Texas (41 hotels), California (19 hotels), Florida (18 hotels) and Georgia (15 hotels). The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. The following table provides a schedule of the Hotels, by brand, at December 31, 2000:
BRAND TOTAL ----- ----- Hilton(R) Brands: Embassy Suites ..................................................... 59 Doubletree and Doubletree Guest Suites(R) .......................... 14 Hampton Inn(R) ..................................................... 9 Hilton Suites(R) ................................................... 1 Homewood Suites(R) ................................................. 1 Bass Brands: Holiday Inn ........................................................ 44 Crowne Plaza and Crowne Plaza Suites(R) ............................ 18 Holiday Inn Select(R) .............................................. 10 Holiday Inn Express(R) ............................................. 5 Starwood Brands: Sheraton(R)and Sheraton Suites(R) .................................. 10 Westin(R) .......................................................... 1 Other Brands ............................................................. 14 ---- Total Hotels .................................................... 186 ====
The Company seeks to increase operating cash flow through both internal growth and selective acquisitions, while maintaining a flexible and conservative capital structure. In addition to renovating, redeveloping and repositioning the Company's acquired hotels, the Company may seek to acquire new upscale properties that will benefit from affiliation with one of the premium brands available to the Company through its strategic brand owner and manager relationships with Hilton Hotels Corporation ("Hilton"), Bass plc ("Bass") and Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). On July 28, 1998, the Company merged Bristol Hotel Company into FelCor, acquiring its 107 primarily full-service hotels (the "Merger"). These hotels added more than 28,000 rooms and suites to the Company's portfolio, more than doubling the Company's size. The merger also provided diversification, both geographically and by asset class, by adding hotels in many of its key markets and broadening its portfolio in the full-service, upscale and midscale hotel markets. -1- 4 In the second quarter of 2000, the Company identified 25 non-strategic hotels and indicated its intent to sell these hotels. The Company expects gross sale proceeds from these sales to be approximately $150 million and net proceeds to be approximately $137 million (after deducting estimated transaction costs). The Company anticipates that the sale of these 25 hotels will result in a book loss of approximately $63 million. Accordingly, FelCor's Board of Directors approved the establishment of a $63 million reserve in the second quarter of 2000 for hotels held for sale, to reflect the difference between book value and the estimated market value of these hotels. In December 2000, the Company completed the sale of one of these hotels held for sale and recorded a gain of approximately $135,000. In March 2001, the Company contributed eight of the hotels held for sale to an entity in which the Company holds a 50% equity interest, and a subsidiary of Interstate Hotels Corporation ("IHC") holds the other 50% equity interest. Another subsidiary of IHC manages each of these hotels. On January 1, 2001, the provisions of the REIT Modernization Act became effective. These provisions: o reduce the percentage of taxable income required to be distributed by a REIT from 95% to 90% for taxable years after 2000; and o subject to certain limitations, permit a REIT to own taxable subsidiaries that engage in businesses previously prohibited to a REIT, including, among other things, leasing hotels from a hotel REIT, provided that the hotels in question continue to be managed by unrelated third parties. As a result of the REIT Modernization Act's enactment, the Company undertook steps to realize the benefits the Act offers to REIT's by o effective January 1, 2001, acquiring DJONT Operations, L.L.C. and its consolidated subsidiaries ("DJONT"), which leased 85 of the Company's hotels at December 31, 2000. The management contracts for all of the DJONT leased hotels remained in place; o effective January 1, 2001, completing the acquisition of leases for 12 hotels leased to Bristol Hotels & Resorts and its consolidated subsidiaries ("Bristol"), and entering into management contracts with a subsidiary of Bass for two of the hotels, a subsidiary of IHC for eight of the hotels, with a subsidiary of Hilton for one of the hotels and one hotel was sold; o effective July 1, 2001, acquiring leases for the remaining 88 hotels leased to Bristol and entering into long term management agreements with a subsidiary of Bass to manage these hotels; and o contributing the acquired Lessee and/or leases as acquired, to newly created wholly owned taxable REIT subsidiaries ("TRS"). The Company believes that the advantages of holding the lessees and leases in a TRS include (i) a more direct relationship with the hotel and the brand managers, (ii) elimination of potential conflicts of interest and (iii) the ability to present consolidated hotel level financial reporting. As the Hotel leases are acquired, the Company's results of operations will reflect hotel revenues and expenses rather than percentage lease revenue. Pro forma consolidated statements of operations for the years ended December 31, 2000 and 1999, which reflect the acquisition of all the Hotel leases, are contained in the Notes to the Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein. -2- 5 The Leases At December 31, 2000, the Company leased 85 hotels to DJONT and leased 99 hotels to Bristol (Bristol together with DJONT, the "Lessees"). Bristol became a subsidiary of Bass by virtue of a merger between Bristol and a subsidiary of Bass in March 2000. Two of the Hotels were operated without a lease. At December 31, 2000, DJONT was a private company controlled by Thomas J. Corcoran, Jr. the President, Chief Executive Officer and a Director of FelCor. Subject to the receipt of certain lender consents, effective January 1, 2001, the Company acquired and contributed to a newly formed taxable REIT subsidiary, all of the equity interests in DJONT. In consideration for the acquisition of DJONT, the Operating Partnership issued an aggregate of 416,667 units of limited partnership interest valued at approximately $10 million, which, together with DJONT's accumulated shareholders' deficit of $24.5 million, will be expensed in the first quarter of 2001 as a lease termination cost. Effective January 1, 2001, the Company completed the acquisition of 12 of the Bristol leases which were held by Bass. In consideration for the acquisition of such leases, the Company issued to Bass 413,585 shares of FelCor common stock valued at approximately $10 million. The Company has entered into an agreement with IHC to manage eight of the hotels, two hotels are being managed by a subsidiary of Bass under short term management contracts, one hotel is being managed by a subsidiary of Hilton and one hotel was sold. In March 2001, the Company entered into an agreement with Bass to acquire the remaining 88 leases effective July 1, 2001. In consideration for the acquisition of such leases, the Company will enter into long term management agreements with Bass with regard to these hotels and issue to Bass100 shares of FelCor common stock. A portion of the management fees with respect to the 88 hotels managed by Bass under long term management agreements will be considered to be lease termination costs and the Company will record a lease termination expense of approximately $125 million in the third quarter of 2001. The Company will record a corresponding liability of approximately $125 million that will be amortized over the term of the applicable management agreements. At January 1, 2001, (i) subsidiaries of Bass managed 91 of the Hotels, (ii) subsidiaries of Hilton managed 72 of the Hotels, (iii) subsidiaries of Starwood managed 11 of the Hotels, (iv) subsidiaries of IHC managed eight of the Hotels and (v) three independent management companies managed the four remaining Hotels. THE INDUSTRY The United States hotel industry profitability has improved each year since 1992, the longest sustained growth in history. According to PricewaterhouseCoopers LLP's Lodging Research Journal, after a period of extended unprofitability in the late 1980's and early 1990's, during which time the increase in supply of new hotel rooms significantly outpaced growth in room demand, lodging industry revenues increased every year from 1992 through 2000. The percentage growth in room demand exceeded percentage growth in new room supply from 1992 through 1996. While 1997 and 1998 experienced the highest number of new room starts in the prior 10 years, 1999 showed a decline in new room starts from 1997-1998 levels. In spite of above-average increases in room supply, according to PricewaterhouseCoopers LLP's January 2001 Lodging Research Journal, room demand for the year 2000 reflected a growth rate of 3.7 percent, which was the strongest since 1989. Increases in room rates of an estimated 4.9 percent contributed to a growth in revenue per available room ("RevPAR") of 5.5 percent for the year. Although 2000 was the first year in which hotel occupancy had risen since 1995, PricewaterhouseCoopers indicated that occupancy in the U.S. lodging industry is expected to fall and estimated slower RevPAR growth during the first two quarters of 2001. However, it anticipates the lodging industry will regain momentum towards the end of 2001 and estimates RevPAR growth for 2001 to be 2.8%. -3- 6 Smith Travel Research, another leading provider of industry data, classifies hotel chains into five distinct categories: Upper Upscale, Upscale, Midscale with Food & Beverage, Midscale Without Food & Beverage, and Economy. The Company remains focused primarily on properties in the Upper Upscale (including Doubletree Guest Suites, Embassy Suites, Sheraton and Westin hotels), Upscale (including Crowne Plaza, Doubletree hotels and Homewood Suites), and Midscale With Food & Beverage (including Holiday Inn and Holiday Inn Select hotels) categories, from which the Company derived approximately 97% of its room and suite revenues in 2000. PricewaterhouseCoopers LLP's January 2001 Lodging Research Journal projects that for 2001, RevPAR growth will be 2.3% for Upper Upscale hotels, 2.4% for Upscale hotels, and 2.1% for hotels in the Midscale With Food & Beverage category. The same publication projects 2001 changes in supply and demand for each segment: Upper Upscale hotels, supply growth of 3.7% with a demand growth of 2.3%; Upscale hotels, supply growth of 4.2% with a demand growth of 3.7%; and hotels in the Midscale With Food & Beverage category with a supply growth of 0.3% and a decline in demand of 0.5%. BUSINESS STRATEGY The Company seeks to increase operating cash flow through active asset management. In addition to actively overseeing the operation of its hotels by its lessees and their managers, the Company applies its asset management expertise to the renovation, redevelopment and rebranding of its hotels, to the maintenance of strong strategic relationships with its brand owners and managers, and to maintaining financial flexibility and a conservative balance sheet. HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING The Company has historically sought to enhance the value of its portfolio through: o its practice of upgrading, renovating and/or redeveloping most of its recently acquired hotels to enhance their competitive position, and, in certain instances, rebranding them to improve their revenue generating capacity; and o its ongoing program for the maintenance of the Company's upgraded hotel assets, which includes: o the contribution of approximately 4% of total annual room and suite revenue to a capital reserve, for routine capital replacements and improvements; and o ensuring that the Lessees' adhere to a rigorous maintenance and repair program, resulting in the expenditure of more than 4% of annual hotel revenues on maintenance of the Hotels. For information regarding the Company's renovation, redevelopment and rebranding activities during 2000 and 1999, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Renovations, Redevelopments and Rebrandings" contained elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2000. MAINTENANCE OF STRONG STRATEGIC RELATIONSHIPS The Company benefits from strategic brand owner and manager relationships with Hilton (Embassy Suites and Doubletree), Bass (Crowne Plaza and Holiday Inn) and Starwood (Sheraton and Westin). o Hilton, which acquired Promus Hotel Corporation in November 1999, has a hotel portfolio of more than 1,800 hotels with more than 300,000 guest rooms in 50 states and the District of Columbia, and is the largest operator of full-service, all-suite hotels in the United States. In addition to its Hilton and Conrad International(R)-branded hotels, Hilton owns the Embassy Suites, Doubletree and Doubletree Guest Suites brands and at December 31, 2000, managed 71 of the -4- 7 Company's hotels. As a result of its acquisition of Promus Hotel Corporation, Hilton acquired an equity interest in the Company having an aggregate value of approximately $34 million at December 31, 2000, and became a 50% partner in unconsolidated entities with the Company in the ownership of 12 hotels and the holder of a 10% equity interest in certain consolidated subsidiaries owning six hotels. The relationship with Promus Hotel Corporation and its Embassy Suites brand provided the foundation for the Company's historical growth, and it expects to expand its relationship with Hilton, as the successor to Promus. o Bass is one of the largest hotel operating companies in the world. Bass owns, operates or franchises more than 3,000 hotels worldwide, with over 490,000 guest rooms in more than 100 countries around the world. Among the brands owned by Bass are Crowne Plaza, Holiday Inn, Holiday Inn Select, Holiday Inn Express and Inter-Continental(R). Bass, which acquired Bristol in March 2000, managed 100 of the Company's hotels at December 31, 2000. Bass also owns FelCor common stock and Operating Partnership units aggregating approximately 16.2% of the Company's outstanding common stock and units. o Starwood is one of the world's largest hotel operating companies. Directly and through subsidiaries, Starwood owns, leases, manages or franchises more than 725 properties in 80 countries. The Company's strategic alliance with Starwood, coupled with the purchase of seven Sheraton hotels in 1997, provided the Company with its initial entry into the upscale, full-service, non-suite hotel market. Starwood manages 11 of the Company's hotels and is a 40% joint venture partner in the ownership of two hotels and a 50% joint venture partner in the ownership of one hotel. MAINTENANCE OF FINANCIAL FLEXIBILITY The Company is committed to maintaining substantial financial flexibility. In funding its growth, the Company has used a broad selection of financing sources to minimize the cost of capital, including public equity, collateralized mortgage-backed securities, public and private debt, and asset divestitures. It believes that its capital structure will continue to be among the most conservative in the hotel REIT industry. It further believes its financial flexibility should enable it to pursue selective expansion opportunities and to take advantage of renovation, redevelopment and rebranding opportunities to help it improve its hotels' competitive position. FINANCING TRANSACTIONS On April 26, 2000, the Company closed a 10-year, $145 million First Mortgage Term Loan, which is collateralized by seven Sheraton hotels and carries an 8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of 10-year, First Mortgage Term Loans which are collateralized by eight Embassy Suites hotels and carry an 8.70% fixed interest rate. These loans are non-recourse, mature in May 2010, and amortize over 25 years. The proceeds of these loans were used to reduce borrowings under the Company's line of credit (the "Line of Credit"). On August 1, 2000, the Company renewed its Line of Credit. The Line of Credit was reduced from $850 million to $600 million and the maturity was extended from July 2001 to August 2003. The effective interest rate on the renewed Line of Credit ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. An extraordinary charge of approximately $578,000 was recorded to write-off a portion of the deferred financing costs associated with the Line of Credit. On September 15, 2000, the Company completed the private placement of $400 million of senior unsecured notes which mature in September, 2008 and bear an interest rate of 9 1/2%. The notes were issued at a discount to yield 9.75%. The proceeds were used to retire the $375 million floating rate senior term loan, -5- 8 which matured in 2004, and to pay down the Line of Credit. An extraordinary charge of approximately $3.3 million was recorded to write-off unamortized deferred financing costs associated with the $375 million loan. The Company subsequently completed an offer to exchange $400 million in aggregate principal amount of the private placement senior notes for notes with identical terms which were registered under the Securities Act of 1933. On January 11, 2001, the Company completed the private placement of an additional $100 million in 9 1/2% senior unsecured notes that mature in September 2008. These notes were issued at a premium to yield an effective interest rate of 9 1/8%. The proceeds were used initially to pay down the Company's Line of Credit. HOTEL OPERATING PERFORMANCE Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday Inn and Holiday Inn Select, Doubletree Guest Suites, and Sheraton and Sheraton Suites hotels account for approximately 97% of the Company's percentage lease revenue. For a detailed discussion of the Company's hotel operating performance, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-The Hotels-Actual" contained elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2000. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in quarterly hotel income, particularly during the fourth quarter. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations, the Company expects to utilize other cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. COMPETITION The hotel industry is highly competitive. Each of the Company's Hotels is located in a developed area that includes other hotel properties and competes for guests primarily with other full-service hotels in its immediate vicinity and secondarily with other hotel properties in its geographic market. An increase in the number of competitive hotel properties in a particular area could have a material adverse effect on the occupancy, average daily rate ("ADR") and RevPAR of the Company's hotels in that area. The Company believes that brand recognition, location, the quality of the hotel and services provided, and price are the principal competitive factors affecting the Company's hotels. The Company competes for investment opportunities with other entities, some of which have substantially greater financial resources than the Company. These larger entities may generally be able to accept more risk than the Company can prudently manage. Competition may generally reduce the number of suitable investment opportunities offered to the Company and may increase the bargaining power of owners seeking to sell their hotels. PROPERTY TAXES Each Hotel is subject to real and personal property taxes. During 2000, real and personal property taxes incurred by the Company amounted to $63.2 million, or 11.4 % of the Company's total revenues. Real and personal property taxes on the Hotels may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. FelCor's Vice President, Taxes, Michael L. Hunter and his staff, -6- 9 work with the numerous taxing authorities, both directly and through independent agents, to assure that the Hotels are fairly assessed and to minimize the Company's tax liabilities. TAX STATUS FelCor has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its initial taxable year ending December 31, 1994. As a REIT, FelCor generally is not subject to federal income taxation at the corporate level, on its taxable income that is distributed to its shareholders. The Company may, however, be subject to certain state and local taxes on its income and property. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute annually at least 90% of its taxable income. In connection with FelCor's election to be taxed as a REIT, FelCor's Charter imposes restrictions on the ownership and transfer of shares of its common stock. FelCor has adopted the calendar year as its taxable year. REIT Modernization Act On December 17, 1999, the provisions of the REIT Modernization Act were enacted into law. These provisions became effective January 1, 2001 and, among other things: o reduce the percentage of taxable income required to be distributed by a REIT from 95% to 90%; and o subject to certain limitations, permit a REIT to own taxable subsidiaries that engage in businesses previously prohibited to a REIT, including, among other things, leasing hotels from its parent hotel REIT, provided that the hotels in question continue to be managed by unrelated third parties. This act and its potential impact on the Company are discussed in further detail in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Annual Report on Form 10-K for the year December 31, 2000. LESSEE OPERATIONS At December 31, 2000, the Lessees leased all but two of the Hotels under Percentage Leases, pursuant to which the Lessee is obligated to pay the Company the greater of a minimum Base Rent or Percentage Rent based on a percentage of revenues. The Lessees have entered into and are responsible for the payment of all fees under the franchise licenses and management agreements relating to the Hotels, may hold the liquor licenses applicable to the Hotels, own and maintain the inventories required for the operation of the Hotels, pay for normal maintenance and repair expenses, enter into various operating, maintenance and service agreements with respect to the Hotels, and are responsible for compliance with the license, management and other agreements affecting hotel operations. In addition, the Lessees provide asset management services to the Hotels, including the supervision of the day-to-day operations of the Hotels by the management companies engaged to manage such Hotels and the establishment and implementation of capital expenditure programs. DJONT and the Bristol Tenant Companies have provided audited financial statements to the Company for inclusion elsewhere in this Form 10-K. See "Index to Financial Statements" at page F-1. REPAIRS AND MAINTENANCE During the year ended December 31, 2000, approximately $41.0 million and $32.2 million was spent by the Lessees on routine repairs and maintenance at the Hotels leased by DJONT and Bristol, respectively. This represents approximately 4.4% of total hotel revenues. -7- 10 EMPLOYEES Mr. Corcoran entered into an employment agreement with the Company in 1994 that continues through 2001. None of FelCor's other executive officers has an employment agreement with FelCor. In addition to Mr. Corcoran, the Company had 50 other full-time employees at December 31, 2000. All persons employed in the day-to-day operation of the Company's Hotels are employees of the management companies engaged by the Lessees to operate such Hotels and are not employees of the Company. PERSONNEL AND OFFICE SHARING ARRANGEMENTS The Company shares executive offices and certain employees with DJONT and FelCor, Inc. (a private company controlled by Mr. Corcoran). Each entity bears an allocated share of the costs thereof, including but not limited to rent, compensation of certain personnel (other than Mr. Corcoran, whose compensation is borne solely by the Company), office supplies, telephones and depreciation of office furniture, fixtures and equipment. Any such allocation of shared expenses to the Company is required to be approved by a majority of the Independent Directors. During 2000, approximately $7.5 million (approximately 89.5% of all allocable expenses) were paid by the Company under this arrangement. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS CERTAIN STATEMENTS AND ANALYSES CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, IN FELCOR'S 2000 ANNUAL REPORT TO STOCKHOLDERS, OR THAT MAY IN THE FUTURE BE MADE BY, OR BE ATTRIBUTABLE TO, THE COMPANY, MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ALL OF SUCH FORWARD-LOOKING STATEMENTS ARE BASED UPON PRESENT EXPECTATIONS AND ASSUMPTIONS THAT MAY OR MAY NOT ACTUALLY OCCUR. THE FOLLOWING FACTORS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING MATERIAL RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS OR IN THE COMPANY'S HISTORICAL RESULTS. EACH OF THE FOLLOWING FACTORS, AMONG OTHERS, COULD ADVERSELY AFFECT THE ABILITY OF THE COMPANY TO MEET ITS CURRENT EXPECTATIONS. The Company has had increases in leverage that could adversely affect its financial condition As a result of its 1998 merger with Bristol Hotel Company, the Company's leverage increased during 1998, and has increased further to fund its renovation, redevelopment and rebranding program and share repurchase program. The share repurchase program authorizes repurchases up to an aggregate maximum of $300 million. Through December 31, 2000, the Company had repurchased approximately 10.2 million shares of common stock under this program at an aggregate cost of approximately $185 million. At December 31, 2000 the Company had: o approximately $1.8 billion in consolidated debt, of which approximately $783 million was collateralized by mortgages or capital leases; o a ratio of consolidated debt to investment in hotels at cost of 39.9%; o a ratio of EBITDA to interest expense for the year ended December 31, 2000, of 2.8-to-1; and o $175 million of floating rate debt, which constituted 9.5% of its total debt. -8- 11 Most of the Company's floating rate debt bears interest at a rate equal to 2.00% plus the one month LIBOR rate. At December 31, 2000, the one month LIBOR rate was 6.565%. Changes in economic conditions could result in higher interest rates, thereby increasing the Company's interest expense on its floating rate debt and reducing funds available for its current renovation, redevelopment and rebranding plans and its share repurchase program. The Company's leverage could have important consequences. For example, it could: o limit the Company's ability to obtain additional financing, if needed, for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements or other purposes; o increase the Company's vulnerability to adverse economic and industry conditions; o require it to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby reducing funds available for operations, future business opportunities or other purposes; o limit its flexibility in planning for, or reacting to, changes in its business and the industry in which it competes; and o place it at a competitive disadvantage compared to competitors that have less debt. The Company may be unable to realize the anticipated benefits of its renovations The majority of its hotels either recently have been, or are in the process of being, substantially renovated, redeveloped and, in certain cases, rebranded. If the completion of the current renovation projects are significantly delayed, the Company's operating results could be adversely affected. In addition, no assurance can be given that the recently completed and ongoing improvements will achieve the results anticipated when the decision was made to invest in the improvements. Conflicts of interest could adversely affect the Company's business Certain FelCor directors. Subsidiaries of Bass currently manage 89 of our hotels. Richard C. North, who joined FelCor's Board during 1998, is the Group Finance Director of Bass plc, which is also the parent of Holiday Hospitality Franchising, Inc. Holiday Hospitality is the franchisor of most of the hotels managed by Bass and, together with its affiliates, owns FelCor common stock and FelCor LP units aggregating approximately 16.2% of the Company's outstanding common stock and units. Issues may arise under the franchise agreements and management contracts, and in the allocation of acquisition opportunities, that present conflicts of interests due to the relationship of Mr. North to the companies with which he is associated. As an example, in the event the Company enters into new or additional transactions with Bristol, the interests of Mr. North, by virtue of his relationship with Bass, may conflict with the Company's interests. For example, in the selection of franchises under which the Company's hotels will be operated, Mr. North by virtue of his relationship with Holiday Hospitality, may have interests that conflict with the Company's interest. It is anticipated that any director who has a conflict of interest with respect to an issue presented to the FelCor board will abstain from voting upon that issue, although he will have no legal obligation to do so. There are no provisions in the Company's bylaws or charter that require an interested director to abstain from voting upon an issue. Although each director has a fiduciary duty of loyalty to the Company, there is a risk that, should an interested director vote upon an issue in which he or one of his affiliates has an interest, his vote may reflect a bias that could be contrary to the Company's best interests. In addition, even if an interested director abstains from voting, the director's participation in the meeting and -9- 12 discussion of an issue in which he or companies with which he is associated have an interest could influence the votes of other directors regarding the issue. Acquisition of lessees. As a result of the passage of the REIT Modernization Act, FelCor was able to form or acquire taxable REIT subsidiaries (TRSs) to acquire its existing hotel leases, and to serve as the lessee for any hotels acquired after January 1, 2001. Subject to the receipt of consents from certain lenders, the acquisition of DJONT was completed effective January 1, 2001. The acquisition of DJONT required negotiations between the Company and the owners of DJONT, including Mr. Corcoran and the children of Charles N. Mathewson, a director of FelCor. The interests of Mr. Corcoran and Mr. Mathewson were in direct conflict with the interest of the Company in these negotiations and, accordingly, they abstained from participation in the discussion and vote on this matter. In December 2000, the Company sold one Bristol hotel and, on January 1, 2001, terminated leases with respect to 12 hotels. In consideration for the acquisition and termination of such leases, 413,585 shares of FelCor common stock valued at approximately $10 million were issued to Bass. In March 2001, the Company entered into an agreement to acquire the remaining 88 leases held by Bristol effective July 1, 2001. The acquisition of the leases held by Bristol involved negotiations between the Company and Bass. Richard C. North, a director of FelCor, is the Group Finance Director of Bass plc. The interest of Bass in those negotiations was in direct conflict with the interests of the Company. Mr. North abstained from participating in any discussion or vote by the Board of Directors relating to these transactions. Adverse tax consequences to certain affiliates on a sale of certain hotels. Messrs. Corcoran and Mathewson may incur additional tax liability if the Company sells its investments in six hotels that were acquired in July 1994 from partnerships controlled by these individuals. Consequently, the Company's interests could differ from Messrs. Corcoran and Mathewson's interests in the event that a sale of any of these hotels is considered. Decisions regarding a sale of any of these six hotels must be made by a majority of the independent directors. The Company has restrictive debt covenants that could adversely affect its ability to run its business At December 31, 2000, the Company had approximately $362 million borrowed under its Line of Credit. It also had issued and outstanding an aggregate of $700 million of senior notes. The indentures governing the senior notes and the agreements governing the Line of Credit contain various restrictive covenants including, among others, provisions restricting the Company from: o incurring indebtedness; o making distributions; o making investments; o engaging in transactions with affiliates; o incurring liens; o merging or consolidating with another person; o disposing of all or substantially all of its assets; or o permitting limitations on the ability of its subsidiaries to make payments to it. -10- 13 These restrictions may adversely affect the Company's ability to finance its operations or engage in other business activities that may be in its best interest. In addition, certain of these agreements require the Company to maintain certain specified financial ratios. Its ability to comply with such ratios may be affected by events beyond its control. Under the most restrictive of these provisions, the maximum additional debt that the Company could incur for investment in hotel properties was limited to approximately $1 billion at December 31, 2000. These covenants also may restrict its ability to engage in certain transactions. In addition, any breach of these limitations could result in the acceleration of most of the Company's debt. It may not be able to refinance or repay this debt in full under such circumstances. The Company will encounter industry related risks that may adversely affect its business Investing in hotel assets involves special risks. The Company has invested only in hotel-related assets, and its hotels are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, and generally include: o competition from other hotels; o construction of more hotel rooms in a particular area than needed to meet demand; o increases in energy costs and other travel expenses that reduce business and leisure travel; o adverse effects of declines in general and local economic activity; o fluctuations in revenue caused by the seasonal nature of the hotel industry; o adverse effects of a downturn in the hotel industry; and o risks generally associated with the ownership of hotels and real estate, as discussed below. The Company will be subject to the risks of hotel operations. Prior to January 1, 2001, substantially all of the Hotels were leased to Bristol or DJONT under leases providing for the payment of rent based, in part, upon revenues from the hotels. Accordingly, the Company's operating risks were essentially limited to changes in hotel revenues and to the lessees' ability to pay the rent due under the leases. Following completion of the acquisition of DJONT and leases held by Bristol, the acquisition of such leases, in addition to the ownership expenses previously not borne by it, the Company will become subject to the risk of fluctuating hotel operating expenses, including but not limited to: o wage and benefit costs; o repair and maintenance expenses; o the costs of gas and electricity, which have increased significantly in recent months; o the costs of liability insurance; and o other operating expenses. These operating expenses are more difficult to predict and control than revenue, resulting in an increased risk of volatility in the Company's results of operations. The Company could face increased competition. Each of the Hotels competes with other hotels in a given geographic area. A number of additional hotel rooms have been or may be built in a number of the -11- 14 geographic areas in which the Company's hotels are located, which could adversely affect the results of operations of these hotels. An oversupply of hotel rooms could adversely affect both occupancy and rates in the markets in which the Company's hotels are located. A significant increase in the supply of Midprice, Upscale and Upper Upscale hotel rooms and suites, if demand fails to increase proportionately, could have a severe adverse effect on the Company's business, financial condition, and results of operations. Acquisition growth opportunities have decreased. There has been substantial consolidation in, and capital allocated to, the U.S. lodging industry since the early 1990's. This generally has resulted in higher prices for hotels. In addition, current market prices of FelCor's common stock make its cost of equity capital relatively high. These conditions have resulted in fewer attractive acquisition opportunities. An important part of the Company's historical growth strategy has been the acquisition and, in many instances, the renovation and repositioning of hotels at less than replacement cost. Continued industry consolidation and competition for acquisitions could adversely affect its growth prospects. The Company competes for hotel investment opportunities with other companies, some of which have greater financial or other resources than it has. Certain competitors may have a lower cost of capital and may be able to pay higher prices or assume greater risks than would be prudent for the Company to pay or assume. The Company must comply with requirements of franchise agreements. Most of its hotels are operated under various franchise licenses. Each license agreement requires that the franchised hotel be maintained and operated in accordance with certain standards. The franchisors also may require substantial improvements to the hotels as a condition to the renewal or continuation of these franchise licenses. If a franchise license terminates due to the Company's failure to make required improvements or to otherwise comply with its terms, the Company may be liable to the franchisor for a termination payment. These termination payments would vary by franchise agreement and by hotel. The loss of a substantial number of franchise licenses and the related termination payments could have a material adverse effect on the Company's business, financial condition and results of operations. The ability to grow may be limited by the Company's ability to attract debt financing Since the merger with Bristol Hotel Company, the Company has focused on its internal growth strategy, which includes the renovation, redevelopment and rebranding of the Hotels to achieve improved revenue performance. It may not be able to fund growth solely from cash provided from operating activities because FelCor must distribute at least 90% of taxable income each year to maintain its status as a REIT. Consequently, the Company must rely primarily upon the availability of debt or equity capital to fund hotel acquisitions and improvements. The ability of the Company to issue new equity securities is largely dependent on the market prices of such securities, which have not been high enough to effect a public offering of equity securities in recent years. Consequently, the Company may be largely dependent upon its ability to attract debt financing from public or institutional lenders. The Company can make no assurance that it will be successful in attracting sufficient debt financing to fund future growth at an acceptable cost. In addition, it currently has a policy of limiting debt to not more than 50% of its investment in hotel assets, at cost, which (unless waived or modified by its board of directors) could also limit its ability to incur additional debt to fund continued growth. At December 31, 2000, the Company's consolidated debt represented 39.9% of its investment in hotels at cost. The recent mergers of Promus and Bristol create uncertainties for the future While the Company expects its positive historical relationships with Promus and Bristol to continue with their successors, the mergers of Promus Hotel Corporation into a subsidiary of Hilton, and of Bristol Hotels & Resorts into a subsidiary of Bass, give rise to some uncertainties. Changes in personnel, brand standards or operating methods could adversely affect relationships, result in increases in required capital expenditures, reductions in hotel revenues or other adverse consequences of which the Company is not presently aware. -12- 15 The Company is subject to potential tax risks The federal income tax laws governing REITs are complex. FelCor has operated and intends to continue to operate in a manner that is intended to qualify it as a REIT under the federal income tax laws. The REIT qualification requirements are extremely complicated, however, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, FelCor cannot be certain that it has been or will continue to be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws or the federal income tax consequences of qualification as a REIT. Failure to make required distributions would subject FelCor to tax. In order to qualify as a REIT, each year FelCor must pay out to its shareholders at least 90% of its taxable income (other than any net capital gain). To the extent that FelCor satisfies the applicable distribution requirement, but distributes less than 100% of its taxable income, it will be subject to federal corporate income tax on its undistributed taxable income. In addition, FelCor will be subject to a 4% nondeductible tax if the actual amount it pays out to its shareholders in a calendar year is less than a minimum amount specified under federal tax laws. FelCor's only source of funds to make such distributions comes from distributions to FelCor from the Operating Partnership. Accordingly, it may be required to borrow money or sell assets to make distributions sufficient to enable it to pay out enough of its taxable income to satisfy the applicable distribution requirement and to avoid corporate income tax and the 4% tax in a particular year. Failure to qualify as a REIT would subject FelCor to federal income tax. If FelCor fails to qualify as a REIT, FelCor would be subject to federal income tax on its taxable income. It might need to borrow money or sell hotels in order to pay any such tax. If FelCor ceases to be a REIT, it no longer would be required to distribute most of its taxable income to its shareholders. Unless its failure to qualify as a REIT were excused under federal income tax laws, FelCor could not re-elect REIT status until the fifth calendar year following the year in which it failed to qualify. Failure to have distributed Bristol Hotel Company's earnings and profits in 1998 could cause FelCor to fail to qualify as a REIT. At the end of any taxable year, a REIT may not have any accumulated earnings and profits (described generally for federal income tax purposes as cumulative undistributed net income) from a non-REIT corporation. Arthur Andersen LLP prepared and provided to FelCor its computation of the accumulated earnings and profits of Bristol Hotel Company through the date of the merger of Bristol Hotel Company into FelCor, and the Company made a corresponding special one-time distribution to its shareholders. However, the determination of accumulated earnings and profits for federal income tax purposes is extremely complex and the computations by Arthur Andersen LLP are not binding upon the IRS. Should the IRS successfully assert that the accumulated earnings and profits of Bristol Hotel Company were greater than the amount so distributed by FelCor, the Company may fail to qualify as a REIT. Sale of assets acquired from Bristol Hotel Company within ten years after the Merger may result in tax. If, within ten years after the Merger, the Company sells any assets acquired in the Merger and recognizes a taxable gain on such sale, FelCor will be taxed at the highest corporate rate on an amount equal to the lesser of (i) the amount of gain that FelCor recognizes at the time of the sale or (ii) the amount of gain that FelCor would have recognized if it had sold the asset at the time of the Merger for its then fair market value. The sales of Bristol hotels that have been made to date have not resulted in any material amount of tax liability. If FelCor is successful in selling all of the hotels shown as assets held for sale, FelCor could incur a significant tax liability, the amount of which cannot yet be determined. Departure of key personnel, including Mr. Corcoran, could adversely affect the Company's future operating results -13- 16 The Company will encounter risks that may adversely affect real estate ownership General Risks. The Company's investments in hotels are subject to the numerous risks generally associated with owning real estate, including among others: o adverse changes in general or local economic or real estate market conditions; o changes in zoning laws; o changes in traffic patterns and neighborhood characteristics; o increases in assessed valuation and tax rates; o increases in the cost of property insurance; o governmental regulations and fiscal policies; o the potential for uninsured or underinsured property losses; o the impact of environmental laws and regulations; and o other circumstances beyond its control. Moreover, real estate investments are relatively illiquid, and the Company may not be able to vary its portfolio in response to changes in economic and other conditions. Compliance with environmental laws may adversely affect the Company's financial condition. Real estate owners are subject to numerous federal, state and local environmental laws and regulations. Under these laws, a current or prior owner of real estate may be liable for costs of cleaning up and removing hazardous or toxic substances found on his property, whether or not he was responsible for their presence. In addition, if an owner of real property arranges for the disposal of hazardous or toxic substances at another site, it may also be liable for the costs of cleaning up and removing such substances from the disposal site, even if it did not own or operate the disposal site. A property owner may also be liable to third parties for personal injuries or property damage sustained as a result of its release of hazardous or toxic substances (including asbestos-containing materials) into the environment. Environmental laws may require one to incur substantial expenses and limit the use of his properties. The Company could be liable for substantial amounts for a failure to comply with applicable environmental laws, which may be enforced by the government or, in certain instances, by private parties. The existence of hazardous or toxic substances on a property can also adversely affect the value of, and the owner's ability to use, sell or borrow against, the property. No assurances can be given that future or amended laws, ordinances or regulations or more stringent interpretations or enforcement policies of existing environmental requirements, will not impose any material environmental liability, or that the environmental condition of the hotels will not be affected by changes (of which the Company is unaware) occurring subsequent to the dates of such audits, by the condition of properties in the vicinity of such hotels (such as the presence of leaking underground storage tanks) or by the actions or unrelated third parties. Compliance with Americans with Disabilities Act may adversely affect the Company's financial condition. Under the Americans with Disabilities Act of 1990, all public accommodations (including hotels) are required to meet certain federal requirements for access and use by disabled persons. The Company believes that its hotels substantially comply with the requirements of the Americans with Disabilities Act. However, a determination that the hotels are not in compliance with that Act could result in liability for both governmental fines and damages to private parties. If the Company were required to make unanticipated major modifications to the hotels to comply with the requirements of the Americans with Disabilities Act, it could adversely affect its ability to pay its obligations. -14- 17 ITEM 2. PROPERTIES THE HOTELS The following table sets forth certain descriptive information regarding the Hotels in which the Company had ownership interests at December 31, 2000:
YEAR NUMBER OF LOCATION FRANCHISE BRAND ACQUIRED ROOMS/SUITES -------- --------------- -------- ------------ Birmingham, AL(1).......................................... Embassy Suites 1996 242 Montgomery (East I-85), AL................................. Holiday Inn 1998 213 Texarkana (I-30), AR(2).................................... Holiday Inn 1998 210 Flagstaff, AZ.............................................. Embassy Suites 1995 119 Phoenix (Airport - 44th St.), AZ........................... Embassy Suites 1998 229 Phoenix (Camelback), AZ.................................... Embassy Suites 1996 233 Phoenix, (Crescent), AZ(1)................................. Sheraton 1997 342 Scottsdale (Downtown), AZ(2)(3)............................ Fairfield Inn 1998 218 Tempe (ASU), AZ(1)......................................... Embassy Suites 1998 224 Anaheim (Disney(R)Area), CA(1)............................. Embassy Suites 1996 222 Burlingame (S.F. Airport So.), CA(2)....................... Embassy Suites 1995 339 Covina (I-10), CA(1)(4).................................... Embassy Suites 1997 264 Dana Point, CA............................................. Doubletree Guest Suites 1997 198 El Segundo (LAX Airport South), CA......................... Embassy Suites 1996 350 Irvine (Orange County Airport), CA......................... Crowne Plaza 1998 335 Milpitas, CA(1)............................................ Embassy Suites 1996 267 Milpitas (San Jose North), CA.............................. Crowne Plaza 1998 305 Napa, CA(1)................................................ Embassy Suites 1996 205 Oxnard (Mandalay Beach), CA................................ Embassy Suites 1996 249 Palm Desert, CA(1) ........................................ Embassy Suites 1998 198 Pleasanton, CA............................................. Crowne Plaza 1998 244 Santa Barbara, CA(1)....................................... Holiday Inn 1998 160 San Diego (On the Bay), CA(2).............................. Holiday Inn 1998 600 San Francisco (Financial District), CA(2).................. Holiday Inn 1998 566 San Francisco (Fisherman's Wharf), CA(2)................... Holiday Inn 1998 584 San Francisco (Union Square), CA........................... Crowne Plaza 1998 400 San Rafael (Marin Co.), CA(1)(4)........................... Embassy Suites 1996 235 South San Francisco (S.F. Airport North), CA(1)............ Embassy Suites 1996 312 Aurora (Denver Southeast), CO(7)........................... Doubletree 1998 248 Avon (Beaver Creek Resort), CO............................. Independent 1996 72 Hartford (Downtown), CT.................................... Crowne Plaza 1998 342 Stamford, CT(2)............................................ Holiday Inn Select 1998 383 Wilmington, DE(7).......................................... Doubletree 1998 244 Boca Raton, FL(3).......................................... Doubletree Guest Suites 1995 182 Boca Raton, FL............................................. Embassy Suites 1996 263 Cocoa Beach (Oceanfront Resort), FL........................ Holiday Inn 1998 500 Deerfield Beach, FL(1)..................................... Embassy Suites 1996 244 Ft. Lauderdale, FL(1)...................................... Embassy Suites 1996 359 Ft. Lauderdale (Cypress Creek), FL(1)...................... Sheraton Suites 1998 253 Jacksonville, FL........................................... Embassy Suites 1994 277 Kissimmee (Nikki Bird Resort), FL(2)....................... Holiday Inn 1998 529 Lake Buena Vista (Walt Disney World(R)), FL(2)............. Doubletree Guest Suites 1997 229 Miami (Airport), FL(2)..................................... Crowne Plaza 1998 304 Miami (Airport), FL(1)..................................... Embassy Suites 1996 314 Orlando (North), FL........................................ Embassy Suites 1994 277 Orlando (South), FL(1)..................................... Embassy Suites 1994 244 Orlando (International Drive Resort), FL................... Holiday Inn 1998 652 Orlando (Airport), FL...................................... Holiday Inn Select 1998 288 Tampa (Busch Gardens), FL(3)............................... Doubletree Guest Suites 1995 129 Tampa (Rocky Point), FL.................................... Doubletree Guest Suites 1997 203 Tampa (Near Busch Gardens), FL(2).......................... Holiday Inn 1998 395 Atlanta (Downtown), GA(3).................................. Courtyard by Marriott 1998 211 Atlanta (Airport), GA...................................... Crowne Plaza 1998 378 Atlanta (Powers Ferry), GA(1).............................. Crowne Plaza 1998 296 Atlanta (Buckhead), GA(1).................................. Embassy Suites 1996 317 Atlanta (Airport), GA...................................... Embassy Suites 1998 233 Atlanta (Perimeter Center), GA(1)(4)....................... Embassy Suites 1997 241 Atlanta (Downtown), GA(3).................................. Fairfield Inn 1998 242 Atlanta (Airport North), GA(1)............................. Holiday Inn 1998 493 Atlanta (Jonesboro South), GA(1)........................... Holiday Inn 1998 180
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YEAR NUMBER OF LOCATION FRANCHISE BRAND ACQUIRED ROOMS/SUITES -------- --------------- -------- ------------ Atlanta (Perimeter Dunwoody), GA(1)................................ Holiday Inn Select 1998 250 Atlanta (Airport Gateway), GA...................................... Sheraton 1997 395 Atlanta (Galleria), GA(1).......................................... Sheraton Suites 1997 278 Brunswick, GA...................................................... Embassy Suites 1995 130 Columbus (Airport North), GA(2).................................... Holiday Inn 1998 223 Marietta, GA(3).................................................... Hampton Inn 1998 140 Davenport, IA(3)................................................... Hampton Inn 1998 132 Davenport, IA(3)................................................... Holiday Inn 1998 287 Chicago (Allerton), IL............................................. Crowne Plaza 1998 443 Chicago (Lombard), IL(1)(4)........................................ Embassy Suites 1995 262 Chicago (O'Hare), IL(1)............................................ Sheraton Suites 1997 297 Deerfield, IL(1)................................................... Embassy Suites 1996 237 Moline, IL(3)...................................................... Hampton Inn 1998 138 Moline (Airport), IL(3)............................................ Holiday Inn 1998 216 Moline (Airport), IL(3)............................................ Holiday Inn Express 1998 111 Indianapolis (North), IN(1)(4).................................... Embassy Suites 1996 222 Colby, KS(3)....................................................... Holiday Inn Express 1998 72 Great Bend, KS(3).................................................. Holiday Inn 1998 175 Hays, KS(3)........................................................ Hampton Inn 1998 116 Hays, KS(3)........................................................ Holiday Inn 1998 190 Overland Park, KS(1)(4)............................................ Embassy Suites 1997 199 Salina, KS(1)(3)................................................... Holiday Inn 1998 192 Salina (I-70), KS(2)(3)............................................ Holiday Inn Express Hotel & Suites 1998 93 Lexington, KY...................................................... Hilton Suites 1996 174 Lexington, KY(1)................................................... Sheraton Suites 1998 155 Baton Rouge, LA(1)................................................. Embassy Suites 1996 224 New Orleans, LA(1)................................................. Embassy Suites 1994 372 New Orleans (Chateau LeMoyne), LA(1)(2)(4)......................... Holiday Inn 1998 171 New Orleans (French Quarter), LA(1)(2)............................. Holiday Inn 1998 276 Boston (Marlborough), MA(1)........................................ Embassy Suites 1995 229 Boston (Government Center), MA(2).................................. Holiday Inn Select 1998 303 Baltimore (BWI), MD(7)............................................. Embassy Suites 1997 251 Troy, MI(7)........................................................ Embassy Suites 1997 251 Bloomington, MN.................................................... Embassy Suites 1997 219 Minneapolis (Airport), MN(1)....................................... Embassy Suites 1995 311 Minneapolis (Downtown), MN......................................... Embassy Suites 1995 218 St. Paul, MN(5).................................................... Embassy Suites 1995 210 Kansas City (Country Club Plaza), MO (1)(2)(4)..................... Embassy Suites 1997 266 Kansas City (Northeast), MO........................................ Holiday Inn 1998 167 St. Louis (Downtown), MO........................................... Embassy Suites 1998 297 St. Louis (Westport), MO(1)........................................ Holiday Inn 1998 318 Jackson (Downtown), MS(1).......................................... Crowne Plaza 1998 354 Jackson (Briarwood), MS(1)(3)...................................... Hampton Inn 1998 119 Jackson (North), MS(1)............................................. Holiday Inn Hotel & Suites 1998 224 Olive Branch (Whispering Woods Hotel and Conference Center), MS.... Independent 1998 179 Charlotte, NC(1)(4)................................................ Embassy Suites 1996 274 Raleigh/Durham, NC................................................. Doubletree Guest Suites 1997 203 Raleigh, NC(1)(4).................................................. Embassy Suites 1997 225 Omaha, NE.......................................................... Doubletree Guest Suites 1998 189 Omaha (Central), NE(1)............................................. Hampton Inn 1998 132 Omaha (Southwest), NE.............................................. Hampton Inn 1998 131 Omaha (I-80), NE(1)................................................ Holiday Inn 1998 383 Omaha (Old Mill Northwest), NE..................................... Crowne Plaza 1998 213 Omaha (Southwest), NE.............................................. Holiday Inn Express Hotel & Suites 1998 78 Omaha (Southwest), NE.............................................. Homewood Suites 1998 108 Parsippany, NJ(1)(4)............................................... Embassy Suites 1996 274 Piscataway, NJ(1).................................................. Embassy Suites 1996 225 Secaucus (Meadowlands), NJ(2)(4)................................... Embassy Suites 1997 261 Secaucus (Meadowlands), NJ......................................... Crowne Plaza 1998 301 Albuquerque (Mountain View), NM.................................... Holiday Inn 1998 360 Syracuse, NY....................................................... Embassy Suites 1997 215 Cleveland, OH...................................................... Embassy Suites 1995 268 Columbus, OH....................................................... Doubletree Guest Suites 1998 194 Dayton, OH(1)...................................................... Doubletree Guest Suites 1997 138 Tulsa, OK.......................................................... Embassy Suites 1994 240 Philadelphia (Center City), PA(1).................................. Crowne Plaza 1998 445 Philadelphia (Independence Mall), PA(1)............................ Holiday Inn 1998 364
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YEAR NUMBER OF LOCATION FRANCHISE BRAND ACQUIRED ROOMS/SUITES -------- --------------- -------- ------------ Philadelphia (Society Hill), PA(1)......................... Sheraton 1997 365 Pittsburgh, PA(1)(2)....................................... Holiday Inn Select 1998 251 Charleston (Mills House), SC............................... Holiday Inn 1998 214 Greenville (Roper), SC..................................... Crowne Plaza 1998 208 Myrtle Beach (Kingston Plantation), SC..................... Embassy Suites 1996 255 Knoxville (Central), TN(2)................................. Holiday Inn 1998 242 Nashville (Airport), TN(3)................................. Doubletree Guest Suites 1997 138 Nashville, TN.............................................. Embassy Suites 1994 296 Nashville (Opryland/Airport), TN(2)........................ Holiday Inn Select 1998 385 Addison (North Dallas), TX(1).............................. Crowne Plaza 1998 429 Amarillo (I-40), TX(2)..................................... Holiday Inn 1998 247 Austin (Downtown), TX(7)................................... Doubletree Guest Suites 1997 189 Austin (Airport North), TX(1)(4)........................... Embassy Suites 1997 261 Austin (Town Lake), TX..................................... Holiday Inn 1998 320 Beaumont (Midtown I-10), TX................................ Holiday Inn 1998 253 Corpus Christi, TX(1)...................................... Embassy Suites 1995 150 Dallas (Alpha Road), TX.................................... Bristol House(R) 1998 127 Dallas (Market Center), TX(1).............................. Crowne Plaza 1998 354 Dallas (Park Central), TX (1).............................. Crowne Plaza Suites 1998 295 Dallas (Campbell Centre), TX(7)............................ Doubletree 1998 302 Dallas (DFW Airport South), TX............................. Embassy Suites 1998 305 Dallas (Love Field), TX(1)................................. Embassy Suites 1995 248 Dallas (Market Center), TX(1).............................. Embassy Suites 1997 244 Dallas (Park Central), TX.................................. Embassy Suites 1994 279 Dallas (Regal Row), TX(3).................................. Fairfield Inn 1998 204 Dallas (Downtown West End), TX............................. Hampton Inn 1998 311 Dallas, TX(1).............................................. Harvey Hotel 1998 313 Dallas (Park Central), TX(6)............................... Sheraton 1998 438 Dallas (Park Central), TX(6)............................... Westin 1997 545 Houston (Near the Galleria), TX(3)......................... Courtyard by Marriott 1998 209 Houston (Medical Center), TX(1)............................ Crowne Plaza 1998 297 Houston (Near the Galleria), TX(3)......................... Fairfield Inn 1998 107 Houston (I-10 East), TX(3)................................. Fairfield Inn 1998 160 Houston (I-10 East), TX(3)................................. Hampton Inn 1998 90 Houston (Medical Center), TX(1)(2)......................... Holiday Inn Hotel & Suites 1998 285 Houston (International Airport), TX(1)..................... Holiday Inn 1998 401 Houston (I-10 West), TX.................................... Holiday Inn Select 1998 345 Houston (Near Greenway Plaza), TX(1)....................... Holiday Inn Select 1998 355 Irving (DFW Airport North), TX(1).......................... Harvey Hotel 1998 506 Irving (DFW Airport North), TX(1).......................... Harvey Suites 1998 164 Midland (Country Villa), TX................................ Holiday Inn 1998 250 Odessa (Parkway Blvd.), TX................................. Holiday Inn Express Hotel & Suites 1998 186 Odessa (Centre), TX........................................ Holiday Inn Hotel & Suites 1998 245 Plano, TX(1)............................................... Harvey Hotel 1998 279 Plano, TX.................................................. Holiday Inn 1998 161 San Antonio (Airport), TX(1)(2)(4)......................... Embassy Suites 1997 261 San Antonio (Northwest), TX(1)(4).......................... Embassy Suites 1997 217 San Antonio (Downtown), TX(2).............................. Holiday Inn 1998 315 San Antonio (International Airport), TX.................... Holiday Inn Select 1998 397 Waco (I-35), TX............................................ Holiday Inn 1998 171 Salt Lake City (Airport), UT(2)............................ Holiday Inn 1998 191 Tyson's Corner, VA (1)(4).................................. Sheraton 1999 437 Burlington, VT(1).......................................... Sheraton 1997 309 Cambridge, Canada.......................................... Holiday Inn 1998 139 Kitchener (Waterloo), Canada............................... Holiday Inn 1998 182 Peterborough (Waterfront), Canada ......................... Holiday Inn 1998 155 Sarnia, Canada............................................. Holiday Inn 1998 151 Toronto (Yorkdale), Canada................................. Holiday Inn 1998 370 Toronto (Airport), Canada.................................. Holiday Inn Select 1998 444
---------- (1) Encumbered by mortgage debt. (2) Situated on land leased under a long-term ground lease. (3) This hotel is one of the 24 remaining non-strategic hotels that the Company intends to sell. (4) This hotel is one of 16 hotels owned by unconsolidated entities in which the Company owns a 50% equity interest. (5) Owned subject to a capitalized industrial revenue bond lease that expires in 2011 and permits the Company to purchase the fee interest at expiration for a nominal amount. (6) This hotel is one of 2 hotels owned by a joint venture in which the Company owns a 60% equity interest. (7) This hotel is one of 6 hotels in which the Company owns a 90% equity interest. -17- 20 THE PERCENTAGE LEASES At December 31, 2000, each of the Hotels (with two exceptions) was leased pursuant to a percentage lease. As a result of the acquisition of DJONT on January 1, 2001, and the pending acquisition of the Bristol leases on July 1, 2001, all of the hotel leases will be held by our taxable REIT subsidiaries. ITEM 3. LEGAL PROCEEDINGS There is no litigation pending or known to be threatened against the Company or affecting any of its Hotels other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of such claims are substantially covered by insurance. Management does not believe that any claims known to it (individually or in the aggregate) will have a material adverse effect on the Company, without regard to any potential recoveries from insurers or other third parties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -18- 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's common stock is traded on the New York Stock Exchange under the symbol "FCH." The following table sets forth for the indicated periods the high and low sale prices for the common stock, as traded on such exchange.
HIGH LOW ---- --- 1999 First quarter .................................... $24 11/16 $21 5/8 Second quarter ................................... 26 1/8 20 Third quarter .................................... 21 5/8 16 11/16 Fourth quarter ................................... 18 3/8 16 1/4 2000 First quarter .................................... $18 3/4 $16 1/2 Second quarter ................................... 22 1/16 17 11/16 Third quarter .................................... 23 3/4 19 11/16 Fourth quarter ................................... 24 1/2 21 1/2
STOCKHOLDER INFORMATION At March 15, 2001, the Company had approximately 560 holders of record of its common stock and approximately 50 holders of record of the $1.95 Series A Cumulative Convertible Preferred Stock (which is convertible into common stock). It is estimated that there were approximately 28,000 beneficial owners, in the aggregate, of the common stock and Series A Preferred Stock at that date. IN ORDER TO COMPLY WITH CERTAIN REQUIREMENTS RELATED TO QUALIFI- CATION OF THE COMPANY AS A REIT, THE COMPANY'S CHARTER LIMITS THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE OWNED BY ANY SINGLE PERSON OR AFFILIATED GROUP TO 9.9% OF THE OUTSTANDING COMMON STOCK. DISTRIBUTION INFORMATION The Company has adopted a policy of paying regular quarterly distributions on its common stock, and cash distributions have been paid on the Company's common stock with respect to each quarter since its inception. The following table sets forth information regarding the declaration and payment of distributions by the Company on its common stock during 1999 and 2000. -19- 22
QUARTER TO DISTRIBUTION DISTRIBUTION PER SHARE WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION RELATES DATE DATE AMOUNT ------------------ ------------ ------------ ------------ 1999 First quarter................................................... 4/15/99 4/30/99 $0.55 Second quarter.................................................. 7/15/99 7/30/99 $0.55 Third quarter................................................... 10/15/99 10/29/99 $0.55 Fourth quarter.................................................. 12/30/99 1/31/00 $0.55 2000 First quarter................................................... 4/14/00 4/28/00 $0.55 Second quarter.................................................. 7/14/00 7/31/00 $0.55 Third quarter................................................... 10/16/00 10/31/00 $0.55 Fourth quarter.................................................. 12/29/00 1/31/01 $0.55
The foregoing distributions represent approximately a 0% return of capital in 2000 and an approximate 7.2% return of capital in 1999. In order to maintain its qualification as a REIT, FelCor must make annual distributions to its shareholders of at least 90% (95% prior to January 1, 2001) of its taxable income (which does not include net capital gains). For the years ended December 31, 2000 and December 31, 1999, FelCor had annual distributions totaling $2.20 per common share, of which only $2.09 and $1.84 per share, respectively, were required to satisfy the 95% REIT distribution test in the respective years. Under certain circumstances FelCor may be required to make distributions in excess of cash available for distribution in order to meet such REIT distribution requirements. In such event, FelCor presently would expect to borrow funds, or to sell assets for cash, to the extent necessary to obtain cash sufficient to make the distributions required to retain its qualification as a REIT for federal income tax purposes. The Company currently anticipates that it will maintain at least the current dividend rate for the immediate future, unless actual results of operations, economic conditions or other factors differ from its current expectations. Future distributions, if any, paid by the Company will be at the discretion of the Board of Directors and will depend on its actual cash flow, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the internal revenue code and such other factors as the Board of Directors deems relevant. RECENT SALES OF UNREGISTERED SECURITIES In connection with the efforts of Bass plc ("Bass") to acquire Bristol, in February 2000, a Bass subsidiary (Bass America, Inc.) contributed 4,713,185 outstanding shares of FelCor common stock to the Operating Partnership, in exchange for a like number of units of limited partner interest therein. In November 2000, Bass America, Inc. contributed an additional 1,000,000 outstanding shares of FelCor common stock to the Operating Partnership in exchange for a like number of units of limited partner interest therein. Neither the units issued by the Operating Partnership, nor the common stock issuable upon redemption of such units, was registered under the Securities Act in reliance upon certain exemptions from the registration requirements thereof, including the exemption provided by Section 4(2) of that act. -20- 23 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected financial data for the Company for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 that has been derived from the financial statements of the Company and the notes thereto, audited by PricewaterhouseCoopers LLP, independent accountants. Such data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2000 1999 1998 (2) 1997 1996 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Total revenue ............................ $ 556,692 $ 504,001 $ 339,617 $ 176,651 $ 100,944 Income before nonrecurring items ......... $ 61,176(1) $ 131,957 $ 117,437 $ 63,835 $ 43,291 Net income ............................... $ 61,699(1) $ 131,080 $ 114,839 $ 63,650 $ 40,937 Net income applicable to common shareholders .......................... $ 37,017(1) $ 106,345 $ 93,416 $ 51,853 $ 33,203 DILUTED EARNINGS PER SHARE: Income applicable to common shareholders before extraordinary charge ................................ $ 0.74(1) $ 1.59 $ 1.92 $ 1.65 $ 1.53 Net income applicable to common shareholders .......................... $ 0.67(1) $ 1.57 $ 1.86 $ 1.64 $ 1.43 OTHER DATA: Cash dividends per common share .......... $ 2.20 $ 2.20 $ 2.545(3) $ 2.10 $ 1.92 Funds From Operations (4) ................ $ 288,636 $ 286,895 $ 217,363 $ 129,815 $ 77,141 EBITDA (4) ............................... $ 470,861 $ 432,690 $ 306,361 $ 165,613 $ 88,355 Weighted average common shares and units outstanding ..................... 67,239 75,251 58,013 39,157 29,306 BALANCE SHEET DATA: Total assets ............................. $ 4,103,603 $ 4,255,751 $ 4,175,383 $ 1,673,364 $ 978,788 Debt ..................................... $ 1,838,241 $ 1,833,954 $ 1,594,734 $ 476,819 $ 239,425
---------- (1) In the second quarter of 2000 the Company recorded a $63 million reserve for the sale of non-strategic hotel assets, which is reflected in the income statements presented for the period. (2) On July 28, 1998, the Company completed the merger of Bristol Hotel Company's real estate holdings with and into the Company. The merger resulted in the net acquisition of 107 primarily full-service hotels in return for approximately 31.0 million shares of newly issued common stock. (3) In 1998, the Company declared a special one-time distribution of accumulated but undistributed earnings and profits as a result of the merger of Bristol Hotel Company into FelCor, in addition to the regular quarterly dividend of $0.55 per common share and $0.4875 per Series A preferred share. The amount of the one-time distribution was $0.345 per common share and $0.207 per Series A preferred share. (4) A more detailed description of FFO and EBITDA is contained in the "Funds From Operations" section of Management's Discussion and Analysis of Financial Condition and Results of Operations. -21- 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL FelCor is the nation's second largest hotel REIT. At December 31, 2000, it owned interests in 186 hotels with nearly 50,000 rooms and suites through its greater than 86% equity interest in the Operating Partnership. Additional organizational information relating to the Company, and the definitions of certain capitalized terms, are contained in the Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R) and independently owned Doubletree(R) branded hotels in the world. The Hotels are located in 35 states and Canada with concentrations in Texas (41), California (19), Florida (18) and Georgia (15 hotels). The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at December 31, 2000:
NOT OPERATED BRAND DJONT BRISTOL UNDER A LEASE TOTAL ----- ----- ------- ------------- ----- Hilton(R) Brands: Embassy Suites.................................. 59 59 Doubletree and Doubletree Guest Suites(R)....... 14 14 Hampton Inn(R).................................. 9 9 Hilton Suites(R)................................ 1 1 Homewood Suites(R).............................. 1 1 Bass Brands: Holiday Inn..................................... 43 1 44 Crowne Plaza and Crowne Plaza Suites(R)......... 18 18 Holiday Inn Select(R)........................... 10 10 Holiday Inn Express(R).......................... 5 5 Starwood Brands: Sheraton(R)and Sheraton Suites(R)............... 10 10 Westin(R)....................................... 1 1 Other Brands.......................................... 13 1 14 --- --- --- --- Total Hotels................................. 85 99 2 186 === === === ===
The principal factors affecting the Company's results of operations are changes in room and suite revenues reflected by revenue per available room ("RevPAR"), renovations, redevelopments, and rebrandings of hotels and acquisitions. The Company seeks to increase operating cash flow through both internal growth and selective acquisitions, while maintaining a flexible and conservative capital structure. In addition to renovating, redeveloping and repositioning the Company's acquired hotels, the Company may seek to acquire existing or new upscale properties that will benefit from affiliation with one of the premium brands available to the Company through its strategic brand owner and manager relationships with Hilton Hotels Corporation ("Hilton"), Bass and Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). On July 28, 1998, the Company merged Bristol Hotel Company into FelCor, acquiring its 107 primarily full-service hotels (the "Merger"). These hotels added more than 28,000 rooms and suites to the Company's portfolio, more than doubling the Company's size. The Merger also provided diversification, both geographically and by asset class, by adding hotels in many of its key markets and broadening its portfolio in the full-service, upscale and midscale hotel markets. -22- 25 In 1999 and 2000, the Company completed the major portion of its program of renovation, redevelopment and rebranding of hotels, which was undertaken to improve under-performing assets and increase revenues. The Company spent nearly $220 million in 1998, $222 million in 1999 and $95 million in 2000 on renovations, redevelopment, rebrandings, room additions to existing hotels and other hotel improvements. Management believes that its strategy of renovating, redeveloping and rebranding selected hotels continues to be effective in improving revenue performance. The Company's historical results of operations for 2000, 1999, and 1998 are summarized as follows (in millions, except percentages and hotel counts):
YEARS ENDED DECEMBER 31, PERCENTAGE CHANGE ------------------------------------------- ------------------------- 2000 1999 1998(B) 00 VS 99 99 VS 98(B) ---------- ---------- ---------- --------- ----------- Hotels owned at year end .......................... 186 188 193 (1.1)% (2.6)% Revenues .......................................... $ 556.7 $ 504.0 $ 339.6 10.5% 48.4% Income before nonrecurring items .................. $ 61.2(a) $ 132.0 $ 117.4 (53.6)%(a) 12.4% Net income applicable to common shareholders ...... $ 37.0(a) $ 106.3 $ 93.4 (65.2)%(a) 13.8% Funds From Operations (FFO) ....................... $ 288.6 $ 286.9 $ 217.4 0.6% 32.0% Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ........................ $ 470.9 $ 432.7 $ 306.4 8.9% 41.2%
(a) Includes a reserve of $63 million established for the proposed sale of 25 non-strategic hotels described under "Liquidity and Capital Resources" below. (b) Reflects the acquisition of the Bristol hotels effective July 28, 1998. Historically the Company has been financed primarily with equity, resulting in a conservative financial structure. The Company's emphasis on maintaining this conservative approach is evidenced in part, by the following, as of December 31, 2000: o Interest coverage ratio of 2.8x o Total debt to annual EBITDA of 4.1x o Borrowing capacity under its Line of Credit of $238 million o Consolidated debt equal to 39.9% of its investment in hotels at cost o Fixed interest rate debt comprising 91% of total debt o Secured mortgage debt to total assets of 19% o Debt of approximately $24 million maturing in 2001 On January 1, 2001, the provisions of the REIT Modernization Act became effective. These provisions: o reduce the percentage of taxable income required to be distributed by a REIT from 95% to 90% for taxable years after 2000; and o subject to certain limitations, permit a REIT to own taxable subsidiaries that engage in businesses previously prohibited to a REIT, including, among other things, leasing hotels from a hotel REIT, provided that the hotels continue to be managed by unrelated third parties. As a result of the REIT Modernization Act's enactment, the Company, undertook steps to realize the benefits the Act offers to REIT's by: o effective January 1, 2001, acquiring DJONT which leased 85 of the Company's hotels at December 31, 2000. The management contracts for all of the DJONT leased hotels remained in place. o effective January 1, 2001, completing the acquisition of leases for 12 hotels leased to Bristol and entering into management contracts with a subsidiary of Bass for two of the hotels, a subsidiary of Interstate Hotels Corporation for eight hotels, with a subsidiary of Hilton for one of the hotels and one hotel was sold. -23- 26 o effective July 1, 2001, acquiring leases for the remaining 88 hotels leased to Bristol and entering into long term management agreements with a subsidiary of Bass to manage these hotels. o contributing the acquired lessee and/or leases as acquired, to newly created, wholly-owned taxable REIT subsidiaries ("TRS"). The Company believes that the advantages of holding the lessees and leases in a TRS include (i) a more direct relationship with the hotel and the brand managers, (ii) elimination of potential conflicts of interest and (iii) the ability to present consolidated hotel level financial reporting. As a result of the acquisition of the hotel leases the Company will report its results of operations showing hotel revenues and expenses rather than percentage lease revenue. Pro forma consolidated statements of operations for the years ended December 31, 2000 and 1999, which reflect the acquisition of the hotel leases, are contained in the Notes to the Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein. RESULTS OF OPERATIONS THE COMPANY -- ACTUAL Comparison of the Years Ended December 31, 2000 and 1999 For the year ended December 31, 2000, the Company recorded net income of $61.7 million compared to $131.1 million for the year ended December 31, 1999. Included in expense for the year ended December 31, 2000, is a one-time reserve of $63.0 million related to 25 non-strategic hotels that the Company has identified as held for sale. The reserve represents the difference between the net book value of the hotels and their estimated net sale proceeds. Net income excluding the reserve would have been $124.7 million. The Company's total revenues increased $52.7 million to $556.7 million for the year ended December 31, 2000, compared to $504.0 million for the year end December 31, 1999. This increase is principally from increased Percentage Lease revenues of $46.0 million, which increased to $536.9 million from $490.9 million in the prior year. Changes in the Hotels' room and suite revenues significantly affect the Company because its principal source of revenue historically has been rent payments from the Lessees under the Percentage Leases. The Percentage Leases provide for rent based on a percentage of room and suite revenue, food and beverage revenue, food and beverage rents, and in some instances, other hotel revenues. During 2000 and 1999, Percentage Lease revenue derived from room and suite revenue represented 90% and 91% of total Percentage Lease revenue, respectively. RevPAR, which is a measure of room and suite revenue, increased by 7.0% in 2000 for all Hotels. This increase in RevPAR resulted from both increases in average daily rate ("ADR") at the Hotels and increases in occupied rooms ("Occupancy"). For the year ended December 31, 2000, ADR increased by 3.7% over the prior year and Occupancy increased by 2.2 percentage points. The Company's ability to achieve increases in room and suite revenue and RevPAR at its Hotels is affected, among other things, by overall demand in the marketplace, room supply and the success of the Company's renovation, redevelopment and rebranding program. The Company had 59 hotels which had undergone renovation, redevelopment or rebranding in either 1999 or 2000, which are identified by the Company as non-comparable hotels. The non-comparable hotels reflected increases in RevPAR of 10.1% which was greater than the results for hotels that had not recently undergone renovation. (A more detailed discussion of hotel room and suite revenue is contained in "The Hotels - Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations). The Company generally seeks to improve those of its Hotels that management believes can achieve increases in room and suite revenue and RevPAR as a result of renovation, redevelopment and rebranding. -24- 27 Since the beginning of 1998, the Company spent nearly $440 million in capital improvements to its Hotels. Management attributes much of the improvement in RevPAR to these capital improvements. Equity in income from unconsolidated entities increased by $6.3 million in 2000 compared to 1999. The principal reasons for this increase in 2000 were (i) a $3.7 million gain recorded in 2000 from the development and sale of the Brighton Beach condominiums at Kingston Plantation in Myrtle Beach, South Carolina, by an entity in which the Company owns a 50% equity interest and (ii) the operations of a hotel in which the Company acquired a 50% equity interest in the fourth quarter of 1999. Total expenses increased $123.5 million in the year ended December 31, 2000, to $495.5 million from $372.0 million in 1999. Included in total expenses is a reserve of $63.0 million, recorded in the second quarter of 2000, related to the 25 non-strategic hotels the Company has identified as held for sale. Total expenses, excluding the $63.0 million reserve for sale of non-strategic hotels, increased by $60.5 million, and as a percentage of total revenue increased to 78% from 74% in 1999. The major components of the increase in expenses were interest expense; taxes, insurance and other; and depreciation expense. Interest expense increased by $33.2 million for the year ended December 31, 2000, compared to 1999, and increased as a percentage of total revenue from 24.9% to 28.5%. This increase is principally the result of the following items: o The Company increased its average debt outstanding in 2000 by approximately $197 million over the prior year. The increase in average debt resulted principally from stock repurchases in 2000 of approximately $87 million and capital expenditures in 2000 totaling approximately $101.4 million. o The average interest rate on the Company's indebtedness increased from about 7% in 1999 to nearly 8% in 2000. o The Company capitalized interest related to major renovations of approximately $5.2 million in 1999, but because of reduced renovation activity in 2000, the Company had only $1.1 million of interest capitalized in 2000. Taxes, insurance and other increased by $11.1 million in 2000, compared to the prior year, and increased as a percentage of total revenue from 11.8% to 12.6%. This increase in expenses was principally from increases in real estate and personal property taxes. The Company's real estate and personal property taxes increased from higher assessed values generally resulting from the major renovations completed over the past three years. Depreciation expense increased by $7.8 million in 2000, compared to the prior year, and decreased as a percentage of total revenue from 30.3% to 28.9%. Depreciation expense increased principally as a result of additional depreciation related to fixed asset additions of $95 million in 2000 and $222 million in 1999. The Company also recorded gains on the sale of two hotels of $2.6 million and $1.8 million for the sale of excess land during the year ended December 31, 2000 and an extraordinary charge of $3.9 million for the write-off of deferred loan costs associated with debt which was retired prior to maturity. Comparison of the Years Ended December 31, 1999 and 1998 For the years 1999 and 1998, FelCor had total revenue of $504.0 million and $339.6 million, respectively, consisting primarily of Percentage Lease revenue of $490.9 million and $328.0 million. The increase in revenue is primarily attributable to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of interests in more than 100 hotels in 1998, including the hotels that were acquired -25- 28 through the Merger on July 28, 1998. The hotels which were acquired during 1998, including those acquired through the Merger, accounted for $151.1 million (93%) of the change in Percentage Lease revenue for the twelve months ended December 31, 1999, compared to 1998. The 73 hotels owned throughout both of the years ended December 31, 1999 and 1998 produced an increase in Percentage Lease revenues of $10.9 million (or 1.9%) between 1998 and 1999. Changes in room and suite revenues significantly affect the Company because, historically, its principal source of revenue is rent payments from the Lessees under the Percentage Leases. The Percentage Leases provide for rent based on a percentage of room and suite revenue, food and beverage revenue, food and beverage rents, and in some instances, other hotel revenues. In 1999 and 1998, Percentage Lease revenue derived from room and suite revenue represented 91% and 93% of total Percentage Lease revenue, respectively. The 73 hotels owned throughout both 1999 and 1998 increased room and suite revenue by $11.6 million (or 2%) in 1999, compared to 1998, and increased RevPAR by 1.4%. The RevPAR increase was driven by an increase in ADR of 1.5%, despite a slight drop in Occupancy of 0.1 percentage points. Of the 73 hotels, 18 had undergone renovation in either 1998 or 1999. Those renovated hotels reflected increases in ADR of 2.2% and in RevPAR of 1.9%, which was greater than the results for hotels that had not undergone renovation. This reflects both the improvement from renovation and the impact of taking rooms out of service for such renovation. The Company generally seeks to improve those of its hotels that management believes can achieve increases in room and suite revenue and RevPAR as a result of renovation, redevelopment and rebranding. However, during the course of such improvements hotel revenue performance is often adversely affected, compared to the prior year, by such temporary factors as rooms and suites out of service and disruptions of hotel operations. During 1999, FelCor spent $177 million on the renovation, redevelopment and rebranding of its hotels. As a result of the extensive renovations, FelCor's portfolio experienced significant disruption during 1999, with approximately 350,000 room nights out of service, or 2% of its portfolio. (A more detailed discussion of hotel room and suite revenue is contained in the "The Hotels--Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Total expenses increased $149.9 million in the year ended December 31, 1999, to $372.0 million from $222.2 million in 1998. This increase resulted primarily from the additional hotels acquired in July 1998 through the Merger. Total expenses as a percentage of total revenue increased to 73.8% for the twelve months ended December 31, 1999, compared to 65.4% in 1998. The major components of the increase in expenses, as a percentage of total revenue, are depreciation, land leases, and interest expense. Depreciation increased, as a percentage of total revenue, to 30.4% in the twelve months ended December 31, 1999, from 26.8% in 1998. The relative increase in depreciation expense is primarily attributed to depreciation on $341.4 million in capital expenditures made over the past two years, approximately 40% of which are short-lived assets that are depreciated over 3 to 5 years. Land lease expenses represent 3.5% of total revenue in 1999, as compared to 2.4% in 1998. This increase, as a percentage of total revenue, results primarily from the larger percentage of hotels subject to land leases among those acquired through the Merger. Interest expense increased, as a percentage of total revenue, to 24.9% in the twelve months ended December 31, 1999, from 21.6% in 1998. This increase in interest expense is attributed to the increased debt used to finance renovations, higher interest rates on debt that was refinanced to extend maturities and convert such debt from variable to fixed rates, the assumption of debt related to the more highly leveraged Bristol assets, and borrowings to fund the Company's stock repurchase program. -26- 29 General and administrative expenses and taxes, insurance and other expense remained relatively constant as a percentage of total revenue in 1999 and 1998. FUNDS FROM OPERATIONS AND EBITDA The Company considers Funds From Operations ("FFO") and earnings before interest, taxes, depreciation and amortization ("EBITDA") to be key measures of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance and liquidity. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from extraordinary items and sales of properties, plus real estate related depreciation and amortization, after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that FFO and EBITDA are helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, they provide investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures, to pay dividends and to fund other cash needs. The Company computes FFO in accordance with standards established by NAREIT. 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 the Company. FFO and EBITDA do not represent cash generated from operating activities as determined by GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company 's liquidity, nor do they necessarily reflect the funds available to fund the Company's cash needs, including its ability to make cash distributions. FFO and EBITDA may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. The following table details the computation of Funds From Operations (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ FUNDS FROM OPERATIONS (FFO): Net income ........................................................... $ 61,699 $ 131,080 $ 114,839 Reserve for hotels held for sale .................................. 63,000 Series B preferred share dividends ................................ (12,937) (12,937) (8,373) Gain on sale of hotels ............................................ (2,595) Extraordinary charge from write off of deferred financing fees ... 3,865 1,113 3,075 Depreciation ...................................................... 160,745 152,948 90,835 Depreciation for unconsolidated entities .......................... 10,167 9,995 10,487 Minority interest in Operating Partnership ........................ 4,692 4,696 6,500 ------------ ------------ ------------ FFO .................................................................. $ 288,636 $ 286,895 $ 217,363 ============ ============ ============ Weighted average common shares and units outstanding (a) ............. 67,239 75,251 58,013
(a) Weighted average common shares and units outstanding are computed including dilutive options, unvested stock grants and assuming conversion of Series A preferred stock to common stock. -27- 30 The following table details the computation of EBITDA (in thousands):
YEARS ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ---------- ---------- ---------- EBITDA: Funds from operations ........................................... $ 288,636 $ 286,895 $ 217,363 Interest expense ............................................. 158,620 125,435 73,182 Interest expense of unconsolidated entities .................. 9,188 6,729 6,521 Amortization expense ......................................... 1,480 693 922 Series B preferred distributions ............................. 12,937 12,937 8,373 ---------- ---------- ---------- EBITDA .......................................................... $ 470,861 $ 432,689 $ 306,361 ========== ========== ========== Weighted average common shares and units outstanding (a) ........ 67,239 75,251 58,013
(a) Weighted average common shares and units outstanding are computed including dilutive options, unvested stock grants and assuming conversion of Series A preferred stock to common stock. THE HOTELS -- ACTUAL Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and Sheraton and Sheraton Suites hotels account for approximately 97% of the Company's Percentage Lease revenue and 98% of the Hotels' room and suite revenue. The Company believes that when analyzing the performance of the Hotels, looking at "Comparable Hotels" is the most meaningful. The Company defines "Comparable Hotels" as those not undergoing renovation, redevelopment or rebranding in either of the comparison years. Major renovations generally have an adverse affect on hotel earnings by taking rooms out of service and disrupting hotel operations. "Non- comparable Hotels" are those undergoing renovation, redevelopment or rebranding during either year. -28- 31 Comparison of the Hotels' Operating Statistics for the Years Ended December 31, 2000 and 1999 The following table sets forth historical Occupancy, ADR and RevPAR at December 31, 2000 and 1999, and the percentage changes therein between the years presented for the Hotels in which the Company had an ownership interest at December 31, 2000. This information is presented regardless of the date of acquisition.
OCCUPANCY ----------------------------------------- 2000 1999 VARIANCE --------- --------- -------- Bristol Comparable Hotels ....................................................... 70.8% 69.9% 0.9 pts DJONT Comparable Hotels ......................................................... 73.3% 71.7% 1.6 pts Total Comparable Hotels (a) ................................................. 72.1% 70.8% 1.3 pts Non-comparable Hotels (b) ....................................................... 70.4% 65.7% 4.7 pts Total Hotels excluding hotels held for sale ............................ 71.5% 69.0% 2.5 pts Hotels held for sale (c) ........................................................ 58.2% 59.4% (1.2) pts Total Hotels .................................................. 70.4% 68.2% 2.2 pts
ADR ----------------------------------------- 2000 1999 VARIANCE --------- --------- -------- Bristol Comparable Hotels ....................................................... $ 94.87 $ 91.23 4.0% DJONT Comparable Hotels ......................................................... $ 126.57 $ 121.21 4.4% Total Comparable Hotels (a) ................................................. $ 111.71 $ 107.09 4.3% Non-comparable Hotels (b) ....................................................... $ 98.08 $ 95.42 2.8% Total Hotels excluding hotels held for sale ............................ $ 106.87 $ 103.09 3.7% Hotels held for sale (c) ........................................................ $ 69.58 $ 68.89 1.0% Total Hotels .................................................. $ 104.42 $ 100.72 3.7%
REVPAR ----------------------------------------- 2000 1999 VARIANCE --------- --------- -------- Bristol Comparable Hotels ....................................................... $ 67.13 $ 63.74 5.3 % DJONT Comparable Hotels ......................................................... $ 92.75 $ 86.91 6.7 % Total Comparable Hotels (a) ................................................. $ 80.52 $ 75.85 6.2 % Non-comparable Hotels (b) ....................................................... $ 69.03 $ 62.72 10.1 % Total Hotels excluding hotels held for sale ............................ $ 76.37 $ 71.13 7.4 % Hotels held for sale (c) ........................................................ $ 40.46 $ 40.94 (1.2)% Total Hotels .................................................. $ 73.52 $ 68.72 7.0 %
(a) Bristol Comparable Hotels include 44 hotels and DJONT Comparable Hotels include 59 hotels which were not undergoing renovation, redevelopment, or rebranding in either the 2000 or 1999 periods reported and exclude hotels held for sale. (b) Non-comparable Hotels include 59 hotels undergoing redevelopment in either the 2000 or 1999 periods reported and exclude hotels held for sale. (c) Hotels held for sale include three DJONT leased hotels and 21 Bristol leased hotels, consisting of two Courtyard by Marriott hotels, five Fairfield Inn hotels, six Hampton Inn hotels, eight Holiday-branded hotels, and three Doubletree Guest Suites hotels. -29- 32 For the twelve months ended December 31, 2000, the Company's Comparable Hotels' RevPAR increased compared to the same period in 1999, by 6.2%. For the same period, the Comparable Hotels' ADR and Occupancy increased 4.3% and 1.3 percentage points, respectively. The total hotel portfolio RevPAR, excluding hotels held for sale, increased 7.4%. The ADR and Occupancy for these hotels increased 3.7% and 2.5 percentage points, respectively. The DJONT Comparable Hotels are predominately Embassy Suites, Doubletree and Doubletree Guest Suites, and Sheraton hotels. The Bristol Comparable Hotels are predominately Holiday Inn and Crowne Plaza hotels. The following table shows the Comparable Hotel RevPAR changes for the year ended December 31, 2000, compared to 1999, by brand:
RevPAR PERCENTAGE OF TOTAL Change ROOM REVENUE ------ ------------------- Embassy Suites 47 hotels 7.0% 41.0% Holiday Inn 25 hotels 7.7% 28.1% Crowne Plaza 13 hotels 4.6% 13.1% Doubletree-branded 6 hotels 6.7% 5.2% Sheraton 3 hotels 1.3% 7.7% Other 9 hotels 0.5% 4.9% ----- Total 103 hotels 6.2% 100.0% =====
The Company attributes much of the improvement in RevPAR to the renovation, rebranding and repositioning program in which the Company and, prior to the Merger, Bristol Hotel Company has spent nearly $500 million since the beginning of 1998. The Company's Hotels outperformed most other hotels in their respective markets during the year and the Company expects its Hotels to continue to favorably compare to other hotels in their markets. Through the fourth quarter of 2000, the Company's Embassy Suites hotels had experienced their sixth consecutive quarterly increase in Occupancy. The Company's 47 Comparable Embassy Suites hotels achieved a 7.0% growth in RevPAR for 2000, compared to the prior year. These hotels, which provide 41.0% of the Comparable Hotel room revenues, increased their ADR by 5.2% and Occupancy by 1.3 percentage points. The Company's Comparable Doubletree-branded hotels had a 6.7% RevPAR gain for the year, made up of increases in both Occupancy and ADR of 3.4 percentage points and 1.7%, respectively. The Company believes that, in addition to recent renovations at the majority of these hotels, the Hilton/Promus merger and the addition of the Hilton HHonors(R) guest frequency program has had and will continue to have a positive impact on its Embassy Suites and Doubletree-branded hotel revenues. Bass completed its merger with Bristol Hotels & Resorts at the end of the first quarter of 2000. The Company expects the integration of the Bristol management team with Bass will continue to be beneficial to the development and strengthening of the Crowne Plaza and Holiday brands. The Company's 13 Comparable Crowne Plaza hotels (all of which were renovated and rebranded from Holiday Inn and Harvey hotels), reported increased RevPAR of 4.6% for 2000, compared to 1999. This increase resulted primarily from a 2.6 percentage point increase in Occupancy between the periods. In addition to the recent renovations, the Company attributes a portion of this improvement to the change in marketing for the brand, which now supports the marketing of Crowne Plaza with the Inter-Continental(R) brand. The Company's Comparable Holiday-branded hotels increased RevPAR for the year by 7.7%. The increase in RevPAR resulted from a 1.1 percentage point increase in Occupancy and a 6.1% increase in ADR. The Company's 29 Comparable Holiday-branded hotels with greater than 250 rooms (representing nearly 80% of the Company's Holiday-branded revenue) reported an increase in RevPAR of 6.8% for the full year 2000, which came from Occupancy and ADR increases of 2.2 percentage points and 3.6%, respectively. -30- 33 Approximately 63% of the Company's 2000 Comparable Hotel room revenues were derived from four states: Texas, California, Florida and Georgia. Changes in Comparable Hotel RevPAR during 2000 for hotels in these states, compared to the same period in 1999, are illustrated in the following table:
REVPAR PERCENTAGE OF TOTAL CHANGE ROOM REVENUE ------ ------------ Texas 28 hotels 4.0% 20.9% California 16 hotels 14.8% 25.7% Florida 10 hotels 3.6% 11.0% Georgia 7 hotels 2.0% 5.8%
The Comparable Hotels in Texas, which account for approximately 20.9% of FelCor's Comparable Hotel total room revenue, experienced the fourth consecutive quarter with positive RevPAR growth compared to prior year. The growth in supply from new hotels in most major markets in Texas appears to have slowed and management believes that their recently renovated hotels will continue to effectively compete in their market segments. The Company's 14 Comparable Hotels located in Dallas, which had been adversely affected by new competition in recent years, had RevPAR increases of 5.5% for the fourth quarter 2000 and 3.8% for the year. The Company's 59 Non-comparable Hotels reported an increase in RevPAR of 10.1% for the twelve months ended December 31, 2000. These hotels were profoundly affected by the Allerton Crowne Plaza (increased RevPAR by 89.5% for the twelve month period), which was closed for renovation in 1998 and partially reopened in the second quarter of 1999. The Non-comparable Hotels, excluding the Allerton, reported increased RevPAR of 7.5%. DJONT - ACTUAL Comparison of the Years Ended December 31, 2000 and 1999 Total revenues increased to $879.7 million in the twelve months ended December 31, 2000, from $797.7 million in the same period of 1999, an increase of 10.3%. Total revenues consisted primarily of room and suite revenue of $709.8 million and $649.3 million for the twelve months of 2000 and 1999, respectively. The increase in room and suite revenue of $60.5 million resulted primarily from an increase in ADR of $5.15, and an increase in Occupancy of 2.4%. Income before Percentage Lease rent increased $30.9 million for the year ended December 31, 2000, compared to 1999, and expressed as a percentage of total revenue remained constant at 37.9% for both years. Total expenses before Percentage Lease rent increased $51.2 million. The increase in total expenses before Percentage Lease rent is principally related to the increased revenues; however, the introduction of Hilton's HHonors frequent guest program is one of the reasons that the additional revenues in 2000 did not serve to improve margins. It is believed by management that much of the expense for the new frequency program, in the year of inception, is start-up related and should serve to provide more incremental profit in future years. Percentage Lease rent increased by $37.2 million in 2000, compared to 1999, and increased as a percentage of total revenue from 38.6% in 1999 to 39.2% in 2000. Percentage Lease rent as a percentage of total revenue increased principally because percent rent on incremental room and suite revenues is computed using the highest tier rate, therefore making disproportionate increases in the expense. -31- 34 DJONT recorded a net loss of $11.2 million for the year ended December 31, 2000, compared to a loss of $4.9 million in 1999. Management believes that its Embassy Suites and Doubletree-branded hotels, collectively 73 hotels, should benefit from the November 1999 merger between Hilton and Promus (the brand manager for all but two of DJONT's Embassy Suites and Doubletree-branded hotels). Hilton's upscale hotel experience and integration into Hilton's central reservation system, marketing infrastructure and frequent stay program are believed to have the potential to drive both incremental occupancy and rate. Comparison of the Years Ended December 31, 1999 and 1998 Total revenues increased to $797.7 million in the twelve months ended December 31, 1999, from $749.5 million in the same period of 1998, an increase of 6.4%. Total revenues consisted primarily of room and suite revenue of $649.3 million and $618.1 million in the twelve months of 1999 and 1998, respectively. The increase in total revenues is primarily a result of the acquisition of twelve additional hotels in 1998. Room and suite revenues from the these 12 hotels, for the twelve months ended December 31, 1999 over 1998, increased 1.9% or $10.6 million. The room and suite revenue for the 73 hotels which were leased for all of 1999 and 1998, increased $11.6 million as a result of an increase in ADR of $1.81, with a slight decrease in Occupancy of 0.1%. DJONT's income before Percentage Lease rent decreased as a percentage of total revenues from 38.8% in the twelve months ended December 31, 1998 to 37.9% in the twelve months ended December 31, 1999. For the twelve months ended December 31, 1999, DJONT incurred losses of $4.9 million. This was largely due to higher labor costs and related payroll benefits, increased reservation costs, and increased fees related to the former Crown Sterling Suite hotels. Percentage Lease rent remained relatively constant as a percentage of total revenue in 1999 and 1998. RENOVATIONS, REDEVELOPMENTS AND REBRANDINGS The Company has historically sought to enhance the value of its portfolio through: o its practice of upgrading, renovating and/or redeveloping most of its recently acquired hotels to enhance their competitive position, and, in certain instances, rebranding them to improve their revenue generating capacity; and o its ongoing program for the maintenance of the Company's upgraded hotel assets, which includes: o the contribution of approximately 4% of total annual hotel revenue to a capital reserve, for routine capital replacements and improvements; and o ensuring that the Lessees' adhere to a rigorous maintenance and repair program, resulting in the expenditure of more than 4% of annual hotel revenues on maintenance of the Hotels. -32- 35 Renovation and Redevelopment Program The Company has demonstrated its ability to successfully generate returns on investments in renovations. Its renovation and rebranding of the 18 Crown Sterling Suites hotels, which were acquired during 1996 and 1997, achieved an overall RevPAR increase of 47.7% between 1996 and 2000. During 1998, 1999, and 2000, an aggregate of approximately $550 million in capital improvements and other capital expenditures were made to the Company's hotels, with approximately 3% of total hotel room nights being lost due to renovation in 1998, 2% in 1999 and 1% in 2000. During 2000, the Company spent approximately $55.8 million under its renovation and redevelopment program. During 2001, the Company currently expects to spend approximately $20 million on the renovation of 8 hotels, approximately $28 million to complete renovations started in 2000 at 46 hotels, and approximately $50 million for other capital expenditures. The Company is currently reviewing the feasibility of undertaking up to $64 million of additional renovations and room additions during 2001. The Company currently expects an insignificant number of room nights to be lost during 2001 as a result of renovations. By the end of 2001, the Company will have spent more than $1 billion since 1994 on renovations and other capital expenditures to its hotel portfolio, which should limit the need for future renovation expenditures primarily to those necessary to maintain the Hotels in their upgraded condition or to enhance a hotel's earning capability through room addition or rebranding as deemed appropriate. Capital Reserve During 2000, approximately $45.0 million was contributed to the capital reserve for capital replacements and improvements and approximately $45.6 million was spent on such replacements and improvements (which is in addition to the $55.8 million spent under the renovation and redevelopment program described above). Repairs and Maintenance During the year ended December 31, 2000, approximately $41.0 million and $66.7 million were spent by the Lessees on routine repairs and maintenance at the Hotels leased by DJONT and Bristol, respectively. This represents approximately 4.4% of total 2000 hotel revenues. LIQUIDITY AND CAPITAL RESOURCES FelCor's principal source of cash to meet its cash requirements, including distributions to shareholders and repayments of indebtedness, has historically been its share of the Operating Partnership's cash flow from the Percentage Leases. For the year ended December 31, 2000, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $277.3 million and Funds From Operations was $288.6 million. DJONT recorded a net loss of $11.2 million for the year ended December 31, 2000. DJONT's accumulated deficit totaled $24.5 million at December 31, 2000. The losses in the current year are partially attributed to increased costs of frequent guest programs instituted during the year and increased operating costs which resulted in lower than anticipated operating margins. Subject to the receipt of consents from certain lenders, effective January 1, 2001, the Company acquired and contributed to a taxable REIT subsidiary, all of the equity interests in DJONT. In consideration for the acquisition of DJONT, the Operating Partnership issued an aggregate of 416,667 units of its limited partner interest (valued at $10 million based upon the $23.125 closing share price of FelCor common stock on December 29, 2000), 50% to an entity owned by Thomas J. Corcoran, Jr. and Hervey A. Feldman and 50% to an entity owned by the children of Charles N. Mathewson. The Company will treat the acquisition of DJONT, -33- 36 for financial reporting purposes, as a termination of the DJONT leases and, accordingly, will expense the value of the Operating Partnership units issued as consideration together with the $24.5 million accumulated shareholders' deficit of DJONT, in the first quarter of 2001. Effective January 1, 2001, the Company completed the acquisition of 12 of the Bristol leases which were held by Bass. In consideration for the acquisition of such leases, the Company issued to Bass 413,585 shares of FelCor common stock valued at approximately $10 million. Of the 12 hotels, (i) the Company has entered into an agreement with Interstate Hotels Corporation ("IHC") to manage eight of the hotels, (ii) two hotels are being managed by a subsidiary of Bass under short term management contracts, (iii) one hotel is being managed by a subsidiary of Hilton and (iv) one hotel was sold. In March 2001, the Company entered into an agreement with Bass to acquire the remaining 88 leases effective July 1, 2001. In consideration for the acquisition of such leases, the Company will enter into long term management agreements with Bass with regard to these hotels and issue to Bass 100 shares of FelCor common stock. A portion of the management fees with respect to the 88 hotels managed by Bass under long term management agreements will be considered to be lease termination costs for financial reporting purposes and the Company will record a lease termination expense of approximately $125 million in the third quarter of 2001. At that time, the Company will record a corresponding liability of approximately $125 million that will be amortized over the term of the applicable management agreements. As a result of the effectiveness of the REIT Modernization Act, which, among other things, allows the Company to own its lessees in taxable REIT subsidiaries, and the acquisition of the Hotel leases in 2001, the Company will be reporting the income and expenses of operating hotels rather than lease income from the Percentage Leases. Any profits or losses from the TRS entities holding the hotel leases, after applicable corporate taxes, will be reflected in the Company's results of operations. Pro forma consolidated statements of operations for the years ended December 31, 2000 and 1999, which reflect the acquisition of the hotel leases, are contained in the Notes to the Consolidated Financial Statements of FelCor Lodging Trust Incorporated, appearing elsewhere herein. In 2000, the Company identified 25 non-strategic hotels and indicated its intent to sell these hotels. The Company expects gross sale proceeds from these sales to be approximately $150 million and net proceeds to be approximately $137 million (after deducting estimated transaction costs). The Company anticipates that the sale of these 25 hotels will result in a book loss of approximately $63 million. Accordingly, FelCor's Board of Directors approved the establishment of a $63 million reserve in the second quarter of 2000 for hotels held for sale, to reflect the difference between book value and the estimated market value of these hotels. In December 2000, the Company completed the sale of one of these hotels held for sale and recorded a gain of approximately $135,000. In March 2001, the Company contributed eight of the hotels held for sale to an entity in which the Company holds a 50% equity interest, and a subsidiary of IHC holds the other 50% equity interest. Another subsidiary of IHC manages each of these hotels. In January 2000, FelCor's Board of Directors authorized an increase in its share repurchase program to an aggregate of $300 million. The stock repurchases have been and, at the discretion of FelCor's management, may be made from time to time at prevailing prices in the open market or through privately negotiated transactions. FelCor funds the repurchase of stock through redemption of the Operating Partnership's units, which redemptions are funded from existing credit facilities and proceeds from the sale of assets. During 2000, FelCor repurchased approximately 4.5 million shares of its outstanding common stock on the open market for approximately $86.7 million. Since inception of the program, FelCor has repurchased an aggregate of 10.3 million shares of its common stock for a total of approximately $185.1 million. The Company may incur indebtedness to make property acquisitions, to purchase shares of its capital stock or to meet distribution requirements imposed on a REIT under the Internal Revenue Code, to the extent that working capital and cash flow from the Company's investments are insufficient for such purposes. At -34- 37 December 31, 2000, the Company had $26.1 million of cash and cash equivalents and had utilized $362 million under its $600 million revolving line of credit (the "Line of Credit"). The following details the Company's debt outstanding at December 31, 2000 and 1999 (in thousands):
DECEMBER 31, COLLATERAL INTEREST RATE MATURITY DATE 2000 1999 ---------- ------------- ------------- ---- ---- FLOATING RATE DEBT: Line of credit None LIBOR + 200bp August 2003 $ 112,000 $ 351,000 Senior term loan (a) LIBOR + 250bp March 2004 250,000 Mortgage debt 3 hotels LIBOR + 200bp February 2003 61,909 62,553 Other None LIBOR + 200bp Various 650 32,282 ---------- ---------- Total floating rate debt 174,559 695,835 ---------- ---------- FIXED RATE DEBT: Line of credit - swapped None 7.66% August 2003 250,000 313,000 Publicly-traded term notes None 7.38% October 2004 174,505 174,377 Publicly-traded term notes None 7.63% October 2007 124,320 124,221 Publicly-traded term notes None 9.50% September 2008 394,731 Mortgage debt 15 hotels 7.24% November 2022 140,148 142,542 Senior term loan - swapped (a) 8.30% March 2004 125,000 Mortgage debt 7 hotels 7.54% April 2009 97,604 99,075 Mortgage debt 6 hotels 7.55% June 2009 73,389 74,483 Mortgage debt 7 hotels 8.73% May 2010 144,032 Mortgage debt 8 hotels 8.70% May 2010 184,829 Other 13 hotels 6.96% - 7.23% 2000 - 2005 80,124 85,421 ---------- ---------- Total fixed rate debt 1,663,682 1,138,119 ---------- ---------- Total debt $1,838,241 $1,833,954 ========== ==========
---------- (a) The senior term loan was retired early from the proceeds of publicly traded term notes issued in 2000. The Line of Credit contains various affirmative and negative covenants, including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain a certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 2000, the Company was not in default with respect to such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit. The mortgage debt is nonrecourse to the Company (with certain exceptions) and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the mortgage debt is prepayable, subject, however, to various prepayment penalties, yield maintenance, or defeasance obligations. The Company took several steps, during the year ended December 31, 2000, to increase its proportion of fixed rate debt, improve its debt maturity profile, diversify its funding sources and expand its financial flexibility. On April 26, 2000, the Company closed a 10-year, $145 million First Mortgage Term Loan, which is collateralized by seven Sheraton hotels and carries an 8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of 10-year, First Mortgage Term Loans which are collateralized by eight Embassy Suites hotels and carry an 8.70% fixed interest rate. These loans are non-recourse, mature in May 2010, and amortize over 25 years. The proceeds of these loans were used to reduce borrowings under the Company's Line of Credit. -35- 38 On August 1, 2000, the Company renewed its Line of Credit. The Line of Credit was reduced from $850 million to $600 million and the maturity was extended from July 2001 to August 2003. The effective interest rate on the renewed Line of Credit ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. An extraordinary charge of approximately $578,000 was recorded to write-off a portion of the deferred financing costs associated with the Line of Credit. On September 15, 2000, the Company completed the private placement of $400 million of senior unsecured notes that mature in September 2008 and bear an interest rate of 9 1/2%. The notes were issued at a discount to yield 9 3/4%. The proceeds were used to retire the $375 million floating rate senior term loan, which matured in 2004, and to pay down the Line of Credit. An extraordinary charge of approximately $3.3 million was recorded to write-off unamortized deferred financing costs associated with the $375 million loan. The Company subsequently completed an offer to exchange $400 million in aggregate principal amount of the private placement senior notes for notes with identical terms which were registered under the Securities Act of 1933. On January 11, 2001, the Company completed the private placement of an additional $100 million in 9 1/2% senior unsecured notes that mature in September 2008. These notes were issued at a premium to yield an effective rate of 91/8%. The proceeds were used initially to pay down the Company's Line of Credit. The Company had interest rate swap agreements with a total notional amount of $250 million that were outstanding at December 31, 2000 and which were designated as cash flow hedges. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its line of credit without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, and the variable rate to be received by the Company at December 31, 2000 are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) 12/31/00 MATURITY --------------- ------------ ------------- ------------ $ 25 million 5.5575% 6.8213% July 2001(a) 25 million 5.5480% 6.8213% July 2001(a) 75 million 5.5550% 6.8213% July 2001(a) 100 million 5.7955% 6.8213% July 2003 25 million 5.8260% 6.8213% July 2003 ------------- $ 250 million =============
(a) The variable rate payer has the option to terminate this swap in July 2001; if not so terminated, it matures July 2003. To provide for additional financing flexibility, the Company has approximately $946 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under shelf registration statements previously declared effective. In the event of a significant economic downturn, the Company believes that its Hotels will continue to benefit from the Company's extensive capital expenditure programs. Most future renovation and redevelopment expenditures are discretionary and are expected to be funded from the Company's cash flow. The Company's $252.6 million in cash flow used in financing activities for the year ended December 31, 2000, relates primarily to the repurchase of approximately 4.5 million shares of FelCor's common stock for approximately $86.7 million and distributions aggregating $168.8 million. -36- 39 INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the Company's ability to raise room rates. Recently, some utility costs have increased at a faster rate than overall inflation. The Company may not be able to increase room rates sufficiently to offset the increased utility costs. However, in certain markets, the Company's Hotels have charged their guests a utility surcharge to help offset such increases. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly revenue, particularly during the fourth quarter. To the extent cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Portions of this Annual Report on Form 10-K include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. A number of important factors which, among others, could adversely affect the ability of the Company to meet its current expectations are disclosed in conjunction with the forward-looking statements and under "Cautionary Factors That May Affect Future Results" in Item 1 of this Annual Report on Form 10-K ("Cautionary Statements"). Subsequent written and oral forward-looking statements made by or attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS Effective January 1, 2001, the Company will adopt SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133" or the "Statement"). SFAS 133 will be adopted as a change in accounting principle and cannot be applied retroactively to financial statements of prior periods. SFAS 133 requires derivatives to be recorded on the balance sheet as an asset or liability at fair value. The Statement also requires that the Company record derivatives that are not hedges at fair value through earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows the Company to offset a derivative instrument's gains and losses against related results on the hedged item in the income statement, to the extent effective, and requires that the Company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company's interest rate swap contracts outstanding as of January 1, 2001, have been designated as cash flow hedges. Cash Flow Hedges The Company has entered into six interest rate swap agreements, with a total notional amount of $250 million. Three of these agreements, at the option of the variable rate payer, may be terminated in July 2001 or otherwise terminate in July 2003 along with the other three agreements. Under these arrangements, the Company receives the one month LIBOR rate and pays a fixed rate of 5.548% to 5.826%. Prior to adoption of FAS 133, the Company treated these swaps as hedges and accounted for them as such. The Company has not recorded any amounts on the Consolidated Balance Sheet as of December 31, 2000 in connection with these instruments and the net effect of the hedges was to record interest expense at the fixed rate of 7.548% to 7.826% on $250 million of variable rate debt. The Company has designated these swaps as cash flow hedges of variable future cash flows associated with the interest on its Line of Credit facility through July 2003. Upon adoption, the Company will record the fair value of these swaps as an asset on its balance -37- 40 sheet valued at $248,000, with a corresponding credit to other comprehensive income. The Company will record subsequent changes in fair value of the swaps through other comprehensive income, except for changes related to ineffectiveness, during the period these instruments are designated as hedges. The Company has no other derivative instruments, including embedded derivatives under SFAS 133. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is to changes in interest rates on its floating rate debt. The Company manages the risk of increasing interest rates on its floating rate debt through the use of interest rate swaps, which effectively convert variable rate debt to a fixed rate, by locking the interest rates paid. The Company had entered into interest rate swap contracts relating to debt of $250 million at December 31, 2000. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations at December 31, 2000, the table presents scheduled maturities and weighted average interest rates by maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by contractual maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as of December 31, 2000. The fair value of the Company's fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements which could have been borrowed at December 31, 2000 at then current market interest rates. The fair value of the Company's variable to fixed interest rate swaps indicates the estimated amount that would have been received by the Company had they been sold at December 31, 2000. EXPECTED MATURITY DATE (IN THOUSANDS)
2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE -------- ------- --------- --------- -------- ----------- ----------- ----------- LIABILITIES Debt: Fixed rate $ 23,092 $13,039 $ 34,906 $ 189,228 $ 43,127 $ 1,116,732 $ 1,420,124 $ 1,231,177 Average interest rate 9.43% 8.19% 8.09% 7.44% 8.67% 5.17% Variable rate $ 711 $ 785 $ 422,413 $ 650 $ 424,559 $ 424,559 Average interest rate 9.21% 9.50% 9.24% 9.63% Discount accretion $ (6,443) ----------- Total debt $ 1,838,241 =========== INTEREST RATE DERIVATIVES Interest rate swaps: Variable to fixed $125,000(a) $ 125,000 $ 250,000 $ 248 Average pay rate 5.61% 5.75% Average receive rate 6.57% 5.89%
(a) The variable rate payer has the option to terminate this swap in July 2001; if not so terminated, it matures July 2003. Swap contracts, such as those described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included herein beginning at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -38- 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, and incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, and incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, and incorporated herein by reference. -39- 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Included herein at pages F-1 through F-53. 2. Financial Statement Schedules The following financial statement schedule is included herein at page F-28. Schedule III - Real Estate and Accumulated Depreciation for FelCor Lodging Trust Incorporated All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted. 3. Exhibits The following exhibits are filed as part of this Annual Report on Form 10-K:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 - Agreement and Plan of Merger by and between the Registrant and Bristol Hotel Company ("Bristol") dated as of March 23, 1998 (filed as Exhibit 2.1 to the Registrant's Form 8-K dated April 23, 1998, and incorporated herein by reference). 3.1 - Articles of Amendment and Restatement dated June 22, 1995, amending and restating the Charter of the Registrant, as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996, Articles of Amendment dated August 8, 1996, Articles of Amendment dated June 16, 1997, Articles of Amendment dated October 30, 1997, Articles Supplementary dated May 6, 1998, Articles of Merger and Articles of Amendment dated July 27, 1998, and Certificate of Correction dated March 11, 1999 (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K") and incorporated herein by reference). 3.1.1 - Certificate of Correction to the Articles of Merger between FelCor Lodging Trust Incorporated and Bristol Hotel Company, dated August 31, 1999 (filed as Exhibit 3.1.1 to the Registrant's Form 10-Q dated September 30, 1999 ("September 1999 10-Q") and incorporated herein by reference). 3.2 - Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-11 (file no. 333-98332) and incorporated herein by reference). 4.1 - Form of Share Certificate for Common Stock (filed as Exhibit 4.1 to the Registrant's Form 10- Q for the quarter ended June 30, 1996, and incorporated herein by reference). 4.2 - Form of Share Certificate for $1.95 Series A Cumulative Convertible Preferred Stock (filed as Exhibit 4.4 to the Registrant's Form 8-K dated May 1, 1996, and incorporated herein by reference). 4.3 - Form of Share Certificate for 9% Series B Cumulative Redeemable Preferred Stock (filed as Exhibit 4.5 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 4.4 - Deposit Agreement dated April 30, 1998, between the Registrant and SunTrust Bank, Atlanta, as preferred share depositary (filed as Exhibit 4.6 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.5 - Form of Depositary Receipt evidencing the Depositary Shares (filed as Exhibit 4.7 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 4.6 - Indenture dated as of April 22, 1996 by and between the Registrant and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registrant's Form 8-K dated May 1, 1996 and incorporated herein by reference). 4.7 - Indenture dated as of October 1, 1997 by and among FelCor Lodging Limited Partnership, formerly FelCor Suites Limited Partnership (the "Partnership"), the Registrant, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (file no. 333-39595) and the other co- registrants named therein and incorporated herein by reference). 4.7.1 - First Amendment to Indenture dated as of February 5, 1998 by and among the Registrant, the Partnership, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-4 (file no. 333- 39595) and incorporated herein by reference). 4.7.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998, by and among the Registrant, the Partnership, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference). 4.7.3 - Third Amendment to Indenture dated as of March 30,1999 by and among the Partnership, the Registrant, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta (filed as Exhibit 4.7.3 to the Registrant's Form 10-Q for the quarter ended March 31,1999 ("March 1999 10-Q") and incorporated herein by reference). 4.7.4 - Second Supplemental Indenture dated as of August 1, 2000, by and among the Partnership, the Registrant, the Subsidiary Guarantors named therein, who are signatories thereto, and SunTrust Bank (filed as Exhibit 4.2.4 to the Partnership's Registration Statement on Form S-4 (file no. 333- 47506) and incorporated herein by reference). 4.8 - Indenture dated as of September 15, 2000, by and among the Partnership, the Registrant, the Subsidiary Guarantors named therein, and SunTrust Bank, as Trustee (filed as Exhibit 4.3 to the Partnership's Registration Statement on Form S-4 (file no. 333-47506) and incorporated herein by reference). 10.1 - Amended and Restated Agreement of Limited Partnership of the Partnership (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference). 10.1.1 - First Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 17, 1995 by and among the Registrant, Promus Hotels, Inc. and all of the persons or entities who are or shall in the future become of the limited partners of the Partnership (filed as Exhibit 10.1.1 to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and incorporated herein by reference). 10.1.2 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 9, 1996 between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.2 to the Registrant's 1995 10-K and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.1.3 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, MarRay-LexGreen, Inc. and all of the persons and entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.3 to the Registrant's 1995 10-K and incorporated herein by reference). 10.1.4 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, Piscataway-Centennial Associates Limited Partnership and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.4 to the Registrant's 1995 10-K and incorporated herein by reference). 10.1.5 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996 (filed as Exhibit 10.1.5 to the Registrant's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference). 10.1.6 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of September 16, 1996, by and among the Registrant, John B. Urbahns, II and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 10.1.7 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 16, 1997, by and among the Registrant, PMB Associates, Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 10.1.8 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 6, 1998, by and among the Registrant, Columbus/Front Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 10.1.9 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 1, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of May 1, 1998 (filed as Exhibit 10.1.9 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 10.1.10 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of June 22, 1998, by and among the Registrant, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.10 to the Registrant's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 10.1.11 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of July 28, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, changing the name of the Partnership to "FelCor Lodging Limited Partnership" (filed as Exhibit 10.1.11 to the Registrant's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------- ---------------------- 10.1.12 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 29, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, amending certain provisions of the Partnership Agreement (filed as Exhibit 10.1.12 to the Registrant's 1998 10-K and incorporated herein by reference). 10.1.13 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 31, 1998, by and between the Registrant, FelCor Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.13 to the Registrant's 1998 10-K and incorporated herein by reference). 10.1.14 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of March 1, 1999, by and among the Registrant, Huie Properties, Ltd., and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.14 to the Registrant's 1998 10-K and incorporated herein by reference). 10.1.15 - Fifteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of October 15, 1999, by and among the Registrant, SRS Properties Limited Partnership, and all of the persons and entities who are or shall in the future become limited partners of the Partnership. (filed as Exhibit 10.1.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 10-K") and incorporated herein by reference). 10.1.16 - Sixteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 27, 2000, by and among the Registrant, Bass America, Inc., and all of the persons and entities who are or shall in the future become limited partners of the Partnership. (filed as Exhibit 10.1.16 to the Registrant's 1999 10-K and incorporated herein by reference). 10.1.17 - Seventeenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 1, 2000, by and among the Registrant, Bass America, Inc., and all of the persons and entities who are or shall in the future become limited partners of the Partnership. 10.2 - Form of Lease Agreement between the Partnership as Lessor and DJONT Operations, L.L.C. or its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the Registrant's 1995 10-K and incorporated herein by reference). 10.2.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among the Registrant, the Partnership and DJONT to clarify the meaning of Article III of the lease as represented by the actual course of dealing between lessors and lessees under such leases (filed as Exhibit 10.19 to the Registrant's Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.3 - Form of Lease Agreement between the Partnership as Lessor and a subsidiary of Bristol Hotels & Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the Registrant's 1998 10-K and incorporated herein by reference). 10.3.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the Registrant, the Partnership, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to the Registrant's Form 8-K dated August 10, 1998, and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.4 - Employment Agreement dated as of July 28, 1994 between the Registrant and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to the Registrant's 1994 10-K/A and incorporated herein by reference). 10.5 - Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9 to the Registrant's 1994 10- K/A and incorporated herein by reference). 10.6 - Savings and Investment Plan of the Registrant (filed as Exhibit 10.10 to the Registrant's 1994 10- K/A and incorporated herein by reference). 10.7 - 1995 Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9.2 to the Registrant's 1995 10- K and incorporated herein by reference). 10.8 - Non-Qualified Deferred Compensation Plan, as amended and restated July 1999 (filed as exhibit 10.9 to the Registrant's Form 10-Q for the quarter ended September 30,1999 ("September 1999 10-Q") and incorporated herein by reference). 10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 (file no. 333-66041) and incorporated herein by reference). 10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to the Registrant's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (file no. 333-50509) and incorporated herein by reference). 10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to the Registrant's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (file no. 333-50509) and incorporated herein by reference). 10.12 - Form of Severance Agreement for executive officers and certain key employees of the Registrant (filed as Exhibit 10.13 to the Registrant's 1998 10-K and incorporated herein by reference). 10.13 - Agreement dated as of April 15, 1995 among the Registrant, the Partnership, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit 10.15 to the Registrant's Registration Statement on Form S-11 (file no. 333-91870) and incorporated herein by reference). 10.14 - Voting and Cooperation Agreement dated as of March 23, 1998 among the Registrant, Bristol, Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as Exhibit 99.7 to the Registrant's Registration Statement on Form S-4 (file no. 333-50509) and incorporated herein by reference). 10.15 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by the Registrant (filed as Exhibit 99.8 to the Registrant's Registration Statement on Form S-4 (file no. 333-50509) and incorporated herein by reference). 10.16 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among the Registrant, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to the Registrant's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.17 - Sixth Amended and Restated Credit Agreement dated as of December 18, 2000, among the Registrant, the Partnership and FelCor Canada Co., as Borrowers, the Lenders party thereto, The
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- Chase Manhattan Bank and The Chase Manhattan Bank of Canada, as Administrative Agents, Chase Securities, Inc., as Joint Lead Arranger, Joint Book Manager and Syndication Agent, Bankers Trust Company, as Joint Lead Arranger, Joint Book Manager and Documentation Agent, Bank of America, N.A. and Wells Fargo Bank, National Association, as Documentation Agents. 10.18 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.18.1 - First Amendment to Loan Agreement and Ancillary Loan Documents made as of May 28, 1999, among FelCor Lodging Company, L.L.C., FelCor Lodging Holding Company, L.L.C. and LaSalle National Bank, as Trustee for Nomura Asset Securities Corporation Commercial Pass-Through Certificates Series 1998-D6, as administrative agent and collateral agent (filed as Exhibit 10.19.1 to the Registrant's 1999 10-K and incorporated herein by reference). 10.19 - Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, Dated March 1, 1999, by FelCor Hotel Company II, Ltd., as Grantor, to Howard E. Schreiber, Trustee, in trust for the benefit of Banker Trust Company, as Beneficiary (filed as Exhibit 10.21 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20 - Loan Agreement, dated April 1, 1999, among the Registrant and the Partnership, as Borrower, The Lenders Party Thereto and The Chase Manhattan Bank, as Administrative Agent and Collateral Agent (filed as Exhibit 10.22.1 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20.1 - Guaranty, dated April 1, 1999, made by each of the named Guarantors therein, who are signatories thereto (filed as Exhibit 10.22.2 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20.2 - Pledge and Security Agreement, dated April 1, 1999, made by each of the named Pledgors therein, who are signatories thereto, in favor of The Chase Manhattan Bank, as Collateral Agent (filed as Exhibit 10.22.3 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20.3 - Second Amendment to Loan Agreement dated as of August 20,1999, among the Registrant and the Partnership, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent (filed as Exhibit 10.22.4 to the Registrant's September 1999 10-Q and incorporated herein by reference). 10.20.4 - Third Amendment to Loan Agreement dated as of December 1,1999, among the Registrant and the Partnership, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent (filed as Exhibit 10.21.4 to the Registrant's 1999 10-K and incorporated herein by reference). 10.20.5 - Fourth Amendment to Loan Agreement dated as of August 7, 2000, among the Registrant and the Partnership, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent (filed as Exhibit 10.21.6 to the Partnership's Registration Statement on Form S-4 (file no. 333-47506) and incorporated herein by reference). 10.21 - Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P. as Mortgagor and The Prudential Insurance Company of America, as Mortgagee (filed as Exhibit 10.23 to the Registrant's March 1999 10-Q and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.21.1 - Promissory Note dated April 1, 1999, in the original principal amount of $100,000,000 made by FelCor/CSS Holdings, Ltd., payable to the order of The Prudential Insurance Company of America (filed as Exhibit 10.23.1 to the Registrant's Form 10-Q for the quarter ended June 30,1999 ("June 1999 10-Q") and incorporated herein by reference). 10.22 - Form of Deed of Trust, Security Agreement and Fixture Filing, each dated as of May 12, 1999, from FelCor/MM Holdings, L.P., as Borrower, in favor of Fidelity National Title Insurance Company, as Trustee, and Massachusetts Mutual Life Insurance Company, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.23.1, also executed by FelCor/CSS Holdings, L.P. with respect to the Embassy Suites-Anaheim and Embassy Suites-Deerfield Beach, and by the Partnership with respect to the Embassy Suites- Palm Desert (filed as Exhibit 10.24.2 to the Registrant's June 1999 10-Q and incorporated herein by reference). 10.22.1 - Form of six separate Promissory Notes each dated May 12, 1999, made by FelCor/MM Holdings, L.P. payable to the order of Massachusetts Mutual Life Insurance Company in the respective original principal amounts of $12,500,000 (Embassy Suites-Dallas Market Center), $14,000,000 (Embassy Suites-Dallas Love Field), $12,450,000 (Embassy Suites-Tempe), $11,550,000 (Embassy Suites-Anaheim), $8,900,000 (Embassy Suites-Palm Desert), $15,600,000 (Embassy Suites-Deerfield Beach) (filed as Exhibit 10.24.1 to the Registrant's June 1999 10-Q and incorporated herein by reference). 10.23 - Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.2 (filed as Exhibit 10.24 to the Registrant's Form 10-Q for the quarter ended June 30, 2000 (the "June 2000 10-Q") and incorporated herein by reference). 10.23.1 - Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.23.2 - Form of fourteen separate Promissory Notes each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O'Hare Airport, Illinois), $12,500,000 (Chicago O'Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont), and, $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.24 - Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.25.1 (filed as Exhibit 10.25 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.24.1 - Form of eight separate Promissory Notes each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey), and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.25 - Registration Rights Agreement dated as of September 8, 2000 among the Registrant, the Partnership, Deutsche Banc Securities Inc., Chase Securities Inc., Morgan Stanley & Co. Incorporated, Banc of America Securities LLC, Banc One Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., and Scotia Capital (USA) Inc. (filed as Exhibit 10.26 to the Partnership's Registration Statement on Form S-4 (file no. 333-47506) and incorporated herein by reference). 10.26 - Registration Rights Agreement dated as of January 11, 2001 among the Registrant, the Partnership and Deutsche Bank Securities Inc. 21 - List of Subsidiaries of the Registrant. 23.1 - Consent of PricewaterhouseCoopers LLP. 23.2 - Consent of Deloitte & Touche LLP
(b) Reports on Form 8-K. - None filed. -47- 50 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FELCOR LODGING TRUST INCORPORATED By: /s/ Lawrence D. Robinson ------------------------------------- Lawrence D. Robinson Executive Vice President Date: March 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
DATE SIGNATURE ---- --------- March 29, 2001 /s/ Donald J. McNamara --------------------------------------------------------------- Donald J. McNamara Chairman of the Board and Director March 29, 2001 /s/ Thomas J. Corcoran, Jr. --------------------------------------------------------------- Thomas J. Corcoran, Jr. President and Director (Chief Executive Officer) March 29, 2001 /s/ Lester C. Johnson --------------------------------------------------------------- Lester C. Johnson Senior Vice President and Controller (Principal Financial Officer and Principal Accounting Officer) March , 2001 --------------------------------------------------------------- Melinda J. Bush, Director March 27, 2001 /s/ Richard S. Ellwood --------------------------------------------------------------- Richard S. Ellwood, Director March 27, 2001 /s/ Richard O. Jacobson --------------------------------------------------------------- Richard O. Jacobson, Director March 27, 2001 /s/ Charles A. Ledsinger, Jr. --------------------------------------------------------------- Charles A. Ledsinger, Jr., Director March 27, 2001 /s/ Robert H. Lutz, Jr. --------------------------------------------------------------- Robert H. Lutz, Jr., Director March 26, 2001 /s/ Charles N. Mathewson --------------------------------------------------------------- Charles N. Mathewson, Director March , 2001 --------------------------------------------------------------- Thomas A. McChristy, Director March , 2001 --------------------------------------------------------------- Richard C. North, Director March 29, 2001 /s/ Michael D. Rose --------------------------------------------------------------- Michael D. Rose, Director
48 51 FELCOR LODGING TRUST INCORPORATED INDEX TO FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION FELCOR LODGING TRUST INCORPORATED Report of Independent Accountants.................................................................................F-2 Consolidated Balance Sheets - December 31, 2000 and 1999..........................................................F-3 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998........................F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998............. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998........................F-6 Notes to Consolidated Financial Statements........................................................................F-7 Report of Independent Accountants on Financial Statement Schedule................................................F-27 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2000..................................F-28 DJONT OPERATIONS, L.L.C. Report of Independent Accountants................................................................................F-32 Consolidated Balance Sheets - December 31, 2000 and 1999.........................................................F-33 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.......................F-34 Consolidated Statements of Shareholders' Deficit for the years ended December 31, 2000, 1999 and 1998............F-35 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................F-36 Notes to Consolidated Financial Statements.......................................................................F-37 BRISTOL HOTELS & RESORTS TENANT COMPANIES Independent Auditors' Report.....................................................................................F-41 Combined Balance Sheet - December 31, 2000.......................................................................F-42 Combined Statements of Operations for the nine months ended December 31, 2000 and the three months ended March 31, 2000 (Predecessor).....................................................F-43 Combined Statements of Stockholder's Equity - March 31, 2000 (Predecessor) and December 31, 2000.......................................................................................F-44 Combined Statements of Cash Flows for the nine months ended December 31, 2000 and the three months ended March 31, 2000 (Predecessor).....................................................F-45 Notes to the Combined Financial Statements.......................................................................F-46
F-1 52 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Lodging Trust Incorporated: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of FelCor Lodging Trust Incorporated at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Dallas, Texas February 5, 2001, except for footnotes 1 and 20, as to which the date is March 28, 2001 F-2 53 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (IN THOUSANDS) ASSETS
2000 1999 ----------- ----------- Investment in hotels, net of accumulated depreciation of $473,101 in 2000 and $330,555 in 1999 ...................................... $ 3,750,275 $ 4,035,344 Investment in unconsolidated entities .......................................... 128,593 136,718 Assets held for sale ........................................................... 129,294 Cash and cash equivalents ...................................................... 26,060 36,123 Due from Lessees ............................................................... 28,058 18,394 Note receivable from unconsolidated entity ..................................... 7,695 7,760 Deferred expenses, net of accumulated amortization of $7,146 in 2000 and $4,491 in 1999 ........................................... 23,944 15,473 Other assets ................................................................... 9,684 5,939 ----------- ----------- Total assets ............................................................ $ 4,103,603 $ 4,255,751 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Debt, net of discount of $6,443 in 2000 and $1,401 in 1999 ..................... $ 1,838,241 $ 1,833,954 Distributions payable .......................................................... 33,957 39,657 Accrued expenses and other liabilities ......................................... 94,232 65,480 Minority interest in Operating Partnership, 8,597 and 2,991 units issued and outstanding at December 31, 2000 and 1999, respectively ..................... 252,294 90,078 Minority interest in other partnerships ........................................ 50,774 51,671 ----------- ----------- Total liabilities .............................................................. 2,269,498 2,080,840 ----------- ----------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value, 20,000 shares authorized: Series A Cumulative Preferred Stock, 5,981 and 6,050 shares issued and outstanding at December 31, 2000 and 1999, respectively ................... 149,515 151,250 Series B Redeemable Preferred Stock, 58 shares issued and outstanding ....... 143,750 143,750 Common stock, $.01 par value, 200,000 shares authorized, 69,415 and 69,291 shares issued at December 31, 2000 and 1999, respectively ............ 694 693 Additional paid-in capital ..................................................... 2,064,909 2,138,477 Distributions in excess of earnings ............................................ (201,598) (119,385) ----------- ----------- 2,157,270 2,314,785 Less: Common stock in treasury, at cost, 16,906 and 6,975 shares at December 31, 2000 and 1999, respectively ................................. (323,165) (139,874) ----------- ----------- Total shareholders' equity ............................................. 1,834,105 2,174,911 ----------- ----------- Total liabilities and shareholders' equity ............................. $ 4,103,603 $ 4,255,751 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 54 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2000, 1999, and 1998 (in thousands, except per share data)
2000 1999 1998 ------------- ------------- ------------- Revenues: Percentage lease revenue ............................................. $ 536,907 $ 490,893 $ 328,035 Equity in income from unconsolidated entities ........................ 14,820 8,484 7,017 Other revenue ........................................................ 4,965 4,624 4,565 ------------- ------------- ------------- Total revenues .................................. 556,692 504,001 339,617 ------------- ------------- ------------- Expenses: General and administrative ........................................... 12,256 9,122 5,254 Depreciation ......................................................... 160,745 152,948 90,835 Taxes, insurance and other ........................................... 70,648 59,572 37,158 Land leases .......................................................... 21,985 17,558 8,130 Interest expense ..................................................... 158,620 125,435 73,182 Reserve for hotels held for sale ..................................... 63,000 Minority interest in Operating Partnership .......................... 4,692 4,696 6,500 Minority interest in other partnerships .............................. 3,570 2,713 1,121 ------------- ------------- ------------- Total expenses ................................. 495,516 372,044 222,180 ------------- ------------- ------------- Income before nonrecurring items ..................................... 61,176 131,957 117,437 Gain on sale of assets ............................................... 4,388 236 477 Extraordinary charge from write off of deferred financing fees ....... 3,865 1,113 3,075 ------------- ------------- ------------- Net income ........................................................... 61,699 131,080 114,839 Preferred dividends .................................................. 24,682 24,735 21,423 ------------- ------------- ------------- Net income applicable to common shareholders ......................... $ 37,017 $ 106,345 $ 93,416 ============= ============= ============= Per common share data: Basic: Income applicable to common shareholders before extraordinary charge ................................ $ 0.74 $ 1.59 $ 1.93 Extraordinary charge ........................................... (0.07) (0.02) (0.06) ------------- ------------- ------------- Net income applicable to common shareholders ................... $ 0.67 $ 1.57 $ 1.87 ============= ============= ============= Weighted average common shares outstanding ..................... 55,264 67,392 49,968 Diluted: Income applicable to common shareholders before extraordinary charge ................................ $ 0.74 $ 1.59 $ 1.92 Extraordinary charge ........................................... (0.07) (0.02) (0.06) ------------- ------------- ------------- Net income applicable to common shareholders ................... $ 0.67 $ 1.57 $ 1.86 ============= ============= ============= Weighted average common shares and equivalents outstanding ..... 55,519 67,581 50,314
The accompanying notes are an integral part of these consolidated financial statements. F-4 55 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS)
COMMON STOCK ------------------ NUMBER ADDITIONAL DISTRIBUTIONS TOTAL PREFERRED OF PAID-IN IN EXCESS OF TREASURY SHAREHOLDERS' STOCK SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY --------- ------- ------ ----------- ------------- --------- ------------ BALANCE AT DECEMBER 31, 1997 $ 151,250 37,802 $ 378 $ 1,001,747 $ (33,771) $ (41,106) $1,078,498 Issuance of common shares, net of offering expenses 31,482 315 1,151,038 1,151,353 Forfeiture of restricted common stock awards (381) (381) Allocation to minority interest (5,848) (5,848) Issuance of Series B preferred stock, net of offering expenses 143,750 (4,687) 139,063 Distributions/dividends declared: $2.545 per common share (138,484) (138,484) $2.157 per Series A preferred share (13,050) (13,050) $1.44 per Series B depositary preferred share (8,373) (8,373) Net income 114,839 114,839 --------- ------- ------ ----------- ---------- --------- ---------- BALANCE AT DECEMBER 31, 1998 295,000 69,284 693 2,142,250 (78,839) (41,487) 2,317,617 Issuance of common shares 7 5 5 Repurchase of common shares (98,387) (98,387) Allocation to minority interest (3,778) (3,778) Distributions/dividends declared: $2.20 per common share (146,891) (146,891) $1.95 per Series A preferred share (11,797) (11,797) $2.25 per Series B depositary preferred share (12,938) (12,938) Net income 131,080 131,080 --------- ------- ------ ----------- ---------- --------- ---------- BALANCE AT DECEMBER 31, 1999 295,000 69,291 693 2,138,477 (119,385) (139,874) 2,174,911 Issuance of common shares 124 1 (890) 4,340 3,451 Conversion of Series A preferred stock (1,735) 811 924 Repurchase of common shares (86,681) (86,681) Purchase of options (1,861) (1,861) Contribution of shares in exchange for operating partnership units (101,874) (101,874) Allocation to minority interest (71,628) (71,628) Distributions/dividends declared: $2.20 per common share (119,230) (119,230) $1.95 per Series A preferred share (11,744) (11,744) $2.25 per Series B depositary preferred share (12,938) (12,938) Net income 61,699 61,699 --------- ------- ------ ----------- ---------- --------- ---------- BALANCE AT DECEMBER 31, 2000 $ 293,265 69,415 $ 694 $ 2,064,909 $ (201,598) $(323,165) $1,834,105 ========= ======= ====== =========== ========== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-5 56 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS)
2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net income .......................................................... $ 61,699 $ 131,080 $ 114,839 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of assets ........................................... (4,388) (236) (477) Depreciation ..................................................... 160,745 152,948 90,835 Reserve for hotels held for sale ................................. 63,000 Amortization of deferred financing fees .......................... 3,936 1,816 1,985 Amortization of unearned officers' and directors' compensation ... 1,478 652 830 Equity in income from unconsolidated entities .................... (14,820) (8,484) (7,017) Extraordinary charge for write off of deferred financing fees .... 3,865 1,113 3,075 Minority interest in Operating Partnership ....................... 4,692 4,696 6,500 Minority interest in other partnerships .......................... 3,570 2,713 1,121 Changes in assets and liabilities, net of effects of acquisitions: Due from Lessees ................................................. (9,664) 574 (3,035) Deferred financing fees .......................................... (16,964) (9,313) (4,348) Other assets ..................................................... (5,339) (282) (602) Accrued expenses and other liabilities ........................... 25,494 5,088 (11,123) ----------- ----------- ----------- Net cash flow provided by operating activities ......... 277,304 282,365 192,583 ----------- ----------- ----------- Cash flows used in investing activities: Acquisition of hotels ............................................ (10,802) (326,276) Acquisition of unconsolidated entities ........................... (7,452) (4,230) Improvements and additions to hotels ............................. (95,235) (222,320) (119,107) Note receivable from unconsolidated entity ....................... (7,766) Bristol interim credit facility .................................. (120,000) Sale of assets ................................................... 35,111 15,476 7,815 Cash distributions from unconsolidated entities .................. 25,358 19,581 19,066 ----------- ----------- ----------- Net cash flow used in investing activities ............. (34,766) (205,517) (550,498) ----------- ----------- ----------- Cash flows provided by (used in) financing activities: Proceeds from borrowings ......................................... 997,424 1,034,667 1,013,003 Repayment of borrowings .......................................... (992,635) (804,915) (658,524) Proceeds from sale of preferred stock ............................ 143,750 Costs associated with public offerings ........................... (4,687) Purchase of treasury stock ....................................... (86,681) (98,387) Buyback of assumed stock options ................................. (1,861) Proceeds from exercise of stock options .......................... 8 3,884 Distributions paid to minority interest .......................... (5,229) Distributions paid to limited partners ........................... (14,190) (7,559) (6,671) Distributions paid to common shareholders ........................ (124,738) (173,244) (98,754) Dividends paid to preferred shareholders ......................... (24,691) (25,987) (16,937) ----------- ----------- ----------- Net cash flow provided by (used in) financing activities (252,601) (75,417) 375,064 ----------- ----------- ----------- Net change in cash and cash equivalents .................................. (10,063) 1,431 17,149 Cash and cash equivalents at beginning of years .......................... 36,123 34,692 17,543 ----------- ----------- ----------- Cash and cash equivalents at end of years ................................ $ 26,060 $ 36,123 $ 34,692 =========== =========== =========== Supplemental cash flow information - interest paid ....................... $ 143,594 $ 125,085 $ 72,215 ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 57 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION FelCor Lodging Trust Incorporated ("FelCor") is the nation's second largest hotel real estate investment trust ("REIT"). At December 31, 2000, it owned interests in 186 hotels with nearly 50,000 rooms and suites (collectively the "Hotels") through its greater than 86% equity interest in FelCor Lodging Limited Partnership (the "Operating Partnership"). FelCor, the Operating Partnership, and their subsidiaries are herein referred to, collectively, as the "Company". At December 31, 2000, the Company owned 100% of the interest in 161 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 16 hotels. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's lessees at December 31, 2000:
NOT OPERATED BRAND DJONT BRISTOL UNDER A LEASE TOTAL ----- ----- ------- ------------- ----- Hilton(R)Brands: Embassy Suites(R) 59 59 Doubletree(R)and Doubletree Guest Suites(R) 14 14 Hampton Inn(R) 9 9 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Bass Brands: Holiday Inn(R) 43 1 44 Crowne Plaza(R)and Crowne Plaza Suites(R) 18 18 Holiday Inn Select(R) 10 10 Holiday Inn Express(R) 5 5 Starwood Brands: Sheraton(R)and Sheraton Suites(R) 10 10 Westin(R) 1 1 Other Brands 13 1 14 --- -- --- ---- Total Hotels 85 99 2 186 === == === ====
The Hotels are located in the United States (35 states) and Canada, with a concentration in Texas (41 hotels), California (19 hotels), Florida (18 hotels) and Georgia (15 hotels). The following table provides information regarding the net acquisition and disposition of hotels through December 31, 2000:
NET HOTELS ACQUIRED/(DISPOSED OF) ---------------------- 1994 7 1995 13 1996 23 1997 30 1998 120 1999 (5) 2000 (2) ----- 186 =====
On January 1, 2001, the provisions of the REIT Modernization Act became effective. These provisions reduce the percentage of taxable income required to be distributed by a REIT from 95% to 90% for taxable years after 2000 and subject to certain limitations, permit a REIT to own taxable subsidiaries that engage in businesses previously prohibited to a REIT, including, among other things, leasing hotels from a hotel REIT, provided that the hotels continue to be managed by unrelated third parties. F-7 58 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION -- (CONTINUED) At December 31, 2000, the Company leased 85 hotels to DJONT Operations, L.L.C., a Delaware limited liability company, or a consolidated subsidiary thereof (collectively "DJONT") and leased 99 hotels to Bristol Hotels & Resorts and its consolidated subsidiaries ("Bristol" and, together with DJONT, the"Lessees"). Bristol became a subsidiary of Bass plc ("Bass") by virtue of a merger between Bristol and a subsidiary of Bass on March 31, 2000. Two of the Hotels were operated without a lease. At December 31, 2000, DJONT was a private company controlled by Thomas J. Corcoran, Jr., the President, Chief Executive Officer and a Director of FelCor. Subject to the receipt of certain lender consents, effective January 1, 2001, the Company acquired and contributed to a newly formed taxable REIT subsidiary, all of the equity interests in DJONT. In consideration for the acquisition of DJONT, the Operating Partnership issued an aggregate of 416,667 units of limited partnership interest valued at approximately $10 million, which, together with DJONT's accumulated shareholders' deficit of $24.5 million, will be expensed in the first quarter of 2001 as a lease termination cost. Effective January 1, 2001, the Company completed the acquisition of 12 of the Bristol leases which were held by Bass. In consideration for the acquisition of such leases, the Company issued to Bass 413,585 shares of FelCor common stock valued at approximately $10 million. Of the 12 hotels, (i) the Company has entered into an agreement with Interstate Hotels Corporation ("IHC") to manage eight of the hotels, (ii) two hotels are being managed by a subsidiary of Bass under short term management contracts, (iii) one hotel is being managed by a subsidiary of Hilton Hotels Corporation ("Hilton") and (iv) one hotel was sold. In March 2001, the Company entered into an agreement with Bass to acquire the remaining 88 leases effective July 1, 2001. In consideration for the acquisition of such leases, the Company will enter into long term management agreements with Bass with regard to these hotels and issue to Bass 100 shares of FelCor common stock. A portion of the management fees with respect to the 88 hotels managed by Bass under long term management agreements will be considered to be lease termination costs and the Company will record a lease termination expense of approximately $125 million in the third quarter of 2001. At that time, the Company will record a corresponding liability of approximately $125 million that will be amortized over the term of the applicable management agreements. At January 1, 2001, (i) subsidiaries of Bass managed 91 of the Hotels, (ii) subsidiaries of Hilton managed 72 of the Hotels, (iii) subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") managed 11 of the Hotels, (iv) subsidiaries of IHC managed eight of the Hotels and (v) three independent management companies managed the four remaining Hotels. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The consolidated financial statements include the accounts of FelCor, the Operating Partnership, and their consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Investment in Hotels -- Hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives ranging from 31 to 40 years for buildings and improvements and three to seven years for furniture, fixtures, and equipment. F-8 59 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) The Company periodically reviews the carrying value of each Hotel to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare a projection of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel based on discounted future cash flows. The Company does not believe that there are any factors or circumstances indicating impairment of any of its investment in the Hotels except as reflected in reserve established for the assets held for sale. Maintenance and repairs are the responsibility of the Lessees; major renewals and betterments by the Company are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from the accounts and the related gain or loss is included in operations. Investment in Unconsolidated Entities --The Company owns a 50% interest in various partnerships or limited liability companies in which the partners jointly make all material decisions concerning the business affairs and operations. The Company also owns a 97% nonvoting interest in an entity. Accordingly, the Company does not control these entities and carries its investment in unconsolidated entities at cost, plus its equity in net earnings, less distributions received since the date of acquisition. Equity in net earnings is adjusted for the straight-line amortization, over a 40-year period, of the difference between the Company's cost and its proportionate share of the underlying net assets at the date of acquisition. Cash and Cash Equivalents -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Deferred Expenses -- Deferred expenses, consisting primarily of loan costs, are recorded at cost. Amortization is computed using the interest method over the maturity of the related debt. Revenue Recognition -- Percentage lease revenue is reported as income when earned. Capitalized Interest -- The Company capitalizes interest and certain other costs relating to hotels undergoing major renovations and redevelopments. Such costs capitalized in 2000, 1999 and 1998 were approximately $2.0 million, $7.4 million and $5.9 million, respectively. Net Income Per Common Share -- Basic earnings per share have been computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share have been computed by dividing net income available to common shareholders by the weighted average number of common shares and equivalents outstanding. Common stock equivalents represent shares issuable upon exercise of stock options and unvested officers' restricted stock grants. At December 31, 2000, 1999, and 1998, the Company's Series A Cumulative Preferred Stock, if converted to common shares, would be antidilutive; accordingly the Series A Cumulative Preferred Stock is not assumed to be converted in the computation of diluted earnings per share. Distributions and Dividends -- FelCor and the Operating Partnership pay regular quarterly distributions on their Common Stock and Units. Additionally, the Company pays regular quarterly dividends on preferred stock in accordance with its preferred stock dividend requirements. FelCor's ability to make distributions is dependent on its receipt of quarterly distributions from the Operating Partnership. F-9 60 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) For 2000, FelCor paid regular dividends of $2.20 per common share, $1.95 per share of $1.95 Series A Cumulative Preferred Stock ("Series A preferred stock"), and $2.25 per depositary share evidencing its 9% Series B Redeemable Preferred Stock ("Series B preferred stock"). Minority Interest in Operating Partnership -- Minority interest in the Operating Partnership represents the proportionate share of the equity in the Operating Partnership not owned by FelCor. Income is allocated to minority interest based on the weighted average percentage ownership throughout the year. Income Taxes -- The Company has elected to be treated as a REIT under Sections 856 to 860 of the Internal Revenue Code. Accordingly, no provision for federal income taxes has been reflected in the financial statements. 3. INVESTMENT IN HOTELS Investment in hotels at December 31, 2000 and 1999, consists of the following (in thousands):
2000 1999 ----------- ----------- Land ................................... $ 321,994 $ 346,862 Building and improvements .............. 3,477,006 3,616,269 Furniture, fixtures and equipment ...... 409,011 383,931 Construction in progress ............... 15,365 18,837 ----------- ----------- 4,223,376 4,365,899 Accumulated depreciation ............... (473,101) (330,555) ----------- ----------- $ 3,750,275 $ 4,035,344 =========== ===========
4. INVESTMENT IN UNCONSOLIDATED ENTITIES At December 31, 2000, the Company owned 50% interests in separate entities owning 16 hotels, a parcel of undeveloped land, and a condominium management company. The Company also owned a 97% nonvoting interest in an entity that owns an annex to a hotel owned by the Company and holds a 50% interest in an entity that has developed condominiums for sale. The Company accounts for its investments in these unconsolidated entities under the equity method. Summarized unaudited combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
DECEMBER 31, ------------------------ 2000 1999 ---------- ---------- Balance sheet information: Investment in hotels.............................. $ 294,941 $ 337,444 Non-recourse mortgage debt........................ $ 225,302 $ 254,668 Equity............................................ $ 82,986 $ 101,120
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---------- ---------- ---------- Statements of operations information: Total revenues ................................... $ 80,761 $ 69,146 $ 57,006 Net income ....................................... $ 30,729 $ 21,726 $ 17,438 Net income attributable to the Company ........... $ 16,962 $ 10,626 $ 8,719 Amortization of cost in excess of book value ..... (2,142) (2,142) (1,702) ---------- ---------- ---------- Equity in income from unconsolidated entities .... $ 14,820 $ 8,484 $ 7,017 ========== ========== ==========
F-10 61 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. ASSETS HELD FOR SALE In the second quarter of 2000, the Company identified 25 hotels that it considered non-strategic and announced its intention to sell such hotels by June 30, 2001. In connection with the decision to sell these hotels, the Company recorded a reserve of $63 million representing the difference between the net book value of these hotels and the estimated net proceeds. No depreciation expense has been recorded on these hotels since June 30, 2000. Percentage rent income related to the assets held for sale, less costs associated with those assets, were included in the Company's results of operations for the year ended December 31, 2000, and represented net income of approximately $16 million. During 2000, one of these hotels was sold and the Company recognized a gain of approximately $135,000. At December 31, 2000, assets held for sale, which represent the 24 remaining hotels, are reported net of the $63 million reserve. 6. DEBT Debt at December 31, 2000 and 1999, consists of the following (in thousands):
DECEMBER 31, ----------------------------- COLLATERAL INTEREST RATE MATURITY DATE 2000 1999 ---------- ------------- ------------- ------------- ------------ FLOATING RATE DEBT: Line of credit None LIBOR + 200bp August 2003 $ 112,000 $ 351,000 Senior term loan (a) LIBOR + 250bp March 2004 250,000 Mortgage debt 3 hotels LIBOR + 200bp February 2003 61,909 62,553 Other None LIBOR + 200bp Various 650 32,282 ------------- ------------ Total floating rate debt 174,559 695,835 ------------- ------------ FIXED RATE DEBT: Line of credit - swapped None 7.66% August 2003 250,000 313,000 Publicly-traded term notes None 7.38% October 2004 174,505 174,377 Publicly-traded term notes None 7.63% October 2007 124,320 124,221 Publicly-traded term notes None 9.50% October 2008 394,731 Mortgage debt 15 hotels 7.24% November 2007 140,148 142,542 Senior term loan - swapped (a) 8.30% March 2004 125,000 Mortgage debt 7 hotels 7.54% April 2009 97,604 99,075 Mortgage debt 6 hotels 7.55% June 2009 73,389 74,483 Mortgage debt 7 hotels 8.73% May 2010 144,032 Mortgage debt 8 hotels 8.70% May 2010 184,829 Other 13 hotels 6.96% - 7.23% 2000-2005 80,124 85,421 ------------- ------------ Total fixed rate debt 1,663,682 1,138,119 ------------- ------------ Total debt $ 1,838,241 $ 1,833,954 ============= ============
(a) Collateralized by stock and partnership interests in certain subsidiaries of FelCor. The senior term loan was retired early from the proceeds of publicly traded term notes issued in 2000. One month LIBOR at December 31, 2000 was 6.565%. The Company's $600 million line of credit (the "Line of Credit") contains various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At December 31, 2000, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit. Most of the mortgage debt is non-recourse to the Company (with certain exceptions) and contains provisions allowing for the substitution of collateral upon satisfaction of F-11 62 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT -- (CONTINUED) certain conditions. Most of the mortgage debt is prepayable, subject, however, to various prepayment penalties, yield maintenance, or defeasance obligations. On April 26, 2000, the Company completed a 10-year, $145 million First Mortgage Term Loan, which is collateralized by seven Sheraton hotels and carries an 8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of 10-year, First Mortgage Term Loans which are collateralized by eight Embassy Suites hotels and carry an 8.70% fixed interest rate. These loans are non-recourse, mature in May 2010, and amortize over 25 years. The proceeds of these loans were used to reduce borrowings under the Company's Line of Credit. On August 1, 2000, the Company renewed its Line of Credit. The Line of Credit was reduced from $850 million to $600 million and the maturity was extended from July 2001 to August 2003. The effective interest rate on the renewed Line of Credit ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. An extraordinary charge of approximately $578,000 was recorded to write-off a portion of the deferred financing costs associated with the Line of Credit. On September 15, 2000, the Company completed the private placement of $400 million of senior unsecured notes which mature in September, 2008 and bear an interest rate of 9 1/2%. The notes were issued at a discount to yield 9 3/4%. The proceeds were used to retire the $375 million floating rate senior term loan, which matured in 2004, and to pay down the Line of Credit. An extraordinary charge of approximately $3.3 million was recorded to write-off unamortized deferred financing costs associated with the $375 million loan. During the fourth quarter of 2000, the Company exchanged the $400 million in aggregate principal amount of the private placement senior notes for notes with identical terms which were registered under the Securities Act of 1933. Future scheduled principal payments on debt obligations at December 31, 2000 are as follows (in thousands): YEAR 2001......................................................... $ 23,802 2002......................................................... 13,825 2003......................................................... 457,319 2004......................................................... 189,228 2005......................................................... 43,129 2006 and thereafter.......................................... 1,117,381 ------------ 1,844,684 Discount accretion over term................................. (6,443) ------------ $ 1,838,241 ============
To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into interest rate swap agreements with four financial institutions. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its Line of Credit without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid and the variable rate to be received by the Company at December 31, 2000, are summarized in the following table: F-12 63 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT -- (CONTINUED)
SWAP RATE RECEIVED SWAP RATE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) 12/31/00 MATURITY --------------- ------------ ---------- ------------- $ 25 million 5.5575% 6.8213% July 2001(a) 25 million 5.5480% 6.8213% July 2001(a) 75 million 5.5550% 6.8213% July 2001(a) 100 million 5.7955% 6.8213% July 2003 25 million 5.8260% 6.8213% July 2003 ------------- $250 million =============
(a) The variable rate payer has the option to terminate this swap in July 2001; if not so terminated, it matures July 2003. The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company, pursuant to the terms of its interest rate agreement, and will have a corresponding effect on its future cash flows. During 2000, the Company received a net $1.8 million under the interest rate swaps and paid a net $1.7 million and $383,000 during 1999 and 1998, respectively. Agreements such as these contain a credit risk in that the counterparties may be unable to meet the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 2000. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management estimates the fair value of (i) accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) the note receivable approximates carrying value based upon effective borrowing rates for issuance of debt with similar terms and remaining maturities; (iii) the borrowings under the Line of Credit and various other mortgage notes approximate carrying value because these borrowings accrue interest at floating interest rates based on market. The estimated fair value of the Company's fixed rate debt of $1.4 billion is $1.2 billion at December 31, 2000, based on current market interest rates estimated by the Company for similar debt with similar maturities. The Company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. The fair value of interest rate hedge contracts is estimated based on quotes from the market makers of these instruments and represents the estimated amounts the Company would expect to receive or pay to terminate the contracts. Credit and market risk exposures are limited to the net interest differentials. The estimated unrealized net gain on these instruments was approximately $248,000 at December 31, 2000, which represents the amount the Company would receive to terminate the agreements based on current market rates. F-13 64 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. CAPITAL STOCK As of December 31, 2000, the Company had approximately $946 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under shelf registration statements previously declared effective. Preferred Stock The Board of Directors is authorized to provide for the issuance of up to 20,000,000 shares of preferred stock in one or more series, to establish the number of shares in each series, to fix the designation, powers preferences and rights of each such series, and the qualifications, limitations or restrictions thereof. In 1996, the Company issued 6.1 million shares of its Series A preferred stock at $25 per share. The Series A preferred stock bears an annual dividend equal to the greater of $1.95 per share or the cash distributions declared or paid for the corresponding period on the number of shares of common stock into which the Series A preferred stock is then convertible. Each share of the Series A preferred stock is convertible at the shareholder's option to 0.7752 shares of common stock, subject to certain adjustments, and may not be redeemed by the Company before April 30, 2001. During 2000, holders of 69,400 shares of Series A preferred stock converted their shares to 53,798 common shares which were issued from treasury shares. On May 1, 1998, the Company issued 5.75 million depositary shares, representing 57,500 shares of its Series B preferred stock, at $25 per depositary share. The Series B preferred stock and the corresponding depositary shares may be called by FelCor at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption, and are not convertible into any other securities of FelCor. The Series B preferred stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and is entitled to annual dividends at the rate of 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). At December 31, 2000, all dividends then payable on the Series A and Series B preferred stock had been paid. Operating Partnership Units FelCor is the sole general partner of the Operating Partnership and is obligated to contribute the net proceeds from any issuance of its equity securities to the Operating Partnership in exchange for units of partnership interest ("Units") corresponding in number and terms to the equity securities issued by it. Units of limited partner interest may also be issued by the Operating Partnership to third parties in exchange for cash or property, and Units so issued to third parties are redeemable at the option of the holders thereof for a like number of shares of FelCor common stock or, at the option of FelCor, for the cash equivalent thereof. In connection with the efforts of Bass to acquire Bristol, a Bass subsidiary contributed approximately 4.7 million and 1 million outstanding FelCor common shares held by it to the Operating Partnership in exchange for a like number of units of limited partnership interest on February 28 and November 1, 2000, respectively. This exchange reduced FelCor's percentage ownership in the Operating Partnership from approximately 95% to approximately 86%. The shares were recorded in treasury at an average of $17.83 per share which represented fair market value on the dates of exchange (aggregating $101.9 million) and increased the minority interest liability related to the Operating Partnership for a like amount. F-14 65 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. CAPITAL STOCK -- (CONTINUED) Treasury Stock Repurchase Program On September 3, 1999, FelCor announced that its Board of Directors (the "Board") had authorized the Company to repurchase up to $100 million of its outstanding common shares. On January 4, 2000, the Board approved a $200 million increase in its stock repurchase program. At December 31, 2000, the Company had completed the repurchase of approximately 10.3 million common shares at a cost of approximately $185.1 million (of the $300 million authorized), which has been recorded as treasury stock. 9. TAXES, INSURANCE AND OTHER Taxes, insurance and other is comprised of the following for the years ended December 31, 2000, 1999, and 1998 (in thousands):
2000 1999 1998 ---------- ---------- ---------- Real estate and personal property taxes .......... $ 63,207 $ 52,118 $ 32,892 Property insurance ............................... 4,065 3,481 2,341 State franchise taxes and Canadian income tax .... 3,376 3,973 1,609 Other ............................................ 316 ---------- ---------- ---------- Total taxes, insurance, and other ....... $ 70,648 $ 59,572 $ 37,158 ========== ========== ==========
10. LAND LEASES The Company leases land occupied by certain hotels from third parties under various operating leases. Certain leases contain contingent rent features based on gross revenue at the respective hotels. Future minimum lease payments under the Company's land lease obligations at December 31, 2000, are as follows (in thousands): YEAR 2001 $ 4,863 2002 4,756 2003 4,706 2004 4,773 2005 4,573 2006 and thereafter 135,978 ---------- $ 159,649 ==========
11. GAIN ON SALE OF ASSETS On December 11, 2000, the Company completed the sale of its Four Points by Sheraton(R) hotel - Leominster, Massachusetts (one of the 25 hotels designated as held for sale), for a gross price of $10.5 million which resulted in a gain of approximately $135,000. On September 27, 2000, the Company completed the sale of its Embassy Suites hotel, Los Angeles International Airport - North, California for a gross price of approximately $23.3 million. The Company recorded a gain of approximately $2.5 million. F-15 66 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. GAIN ON SALE OF ASSETS -- (CONTINUED) During the third quarter of 2000, the Company sold two acres of vacant excess land adjacent to its Embassy Suites hotel - Fort Lauderdale, Florida and a billboard in Dallas, Texas, for an aggregate of $1.3 million and recorded a gain of approximately $0.9 million. On June 30, 2000, the Company sold 31 acres of vacant excess land adjacent to its Whispering Woods Hotel in Olive Branch, Mississippi, for approximately $1 million and recorded a gain of $0.9 million. 12. COMMITMENTS AND RELATED PARTY TRANSACTIONS Through December 31, 2000, the Company shared the executive offices and certain employees with FelCor, Inc., and DJONT, and each company paid its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel (other than Mr. Corcoran, whose compensation is borne solely by the Company), office supplies, telephones, and depreciation of office furniture, fixtures, and equipment. Any such allocation of shared expenses to the Company is required to be approved by a majority of the Independent Directors. During 2000, 1999, and 1998, the Company paid approximately $7.5 million (approximately 89.4%), $5.7 million (approximately 89.5%), and $2.8 million (approximately 63%), respectively, of the allocable expenses under this arrangement. Included in the mortgage debt of the unconsolidated entities is a mortgage loan payable to the Company in the amount of $7.7 million and $7.8 million for 2000 and 1999, respectively. The note bears a fixed interest rate of 8% per annum with a 30 year amortization, matures on December 31, 2004, and is collateralized by a Mortgage and Assignment of Leases and Rents with respect to a hotel annex owned by an entity in which the Company has a 97% nonvoting interest. 13. SUPPLEMENTAL CASH FLOW DISCLOSURE The Company purchased certain assets and assumed certain liabilities in connection with the acquisition of hotels in 1998. During 1999 the Company purchased the land related to three hotels, which previously had been leased. These purchases were recorded under the purchase method of accounting. The fair values of the acquired assets and liabilities recorded at the date of acquisition are as follows (in thousands):
1999 1998 ----------- ----------- Assets acquired ............................. $ 19,776 $ 2,427,027 Liabilities assumed ......................... (7,800) (940,906) Common Stock and Units issued ............... (1,174) (1,152,856) Minority interest contribution .............. (6,989) ----------- ----------- Net cash paid ...................... $ 10,802 $ 326,276 =========== ===========
Approximately $34.0 million, $39.7 million, and $67.3 million of aggregate preferred stock dividends and common stock distributions had been declared as of December 31, 2000, 1999, and 1998, respectively. These amounts were paid in the following January of each year. In 1998, the Company entered into a joint venture, in which the Company contributed a hotel with a net book value of $53.9 million for a 60% equity interest in the venture. The Company has consolidated this venture in the financial statements and recorded increases of $34.4 million in investment in hotels and minority interest in other partnerships. F-16 67 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. STOCK BASED COMPENSATION PLANS FelCor sponsors three restricted stock and stock option plans (the "FelCor Plans"). In addition, upon completion of the merger with Bristol Hotel Company (the "Merger"), FelCor assumed two stock option plans previously sponsored by Bristol Hotel Company (the "Bristol Plans"). FelCor was initially obligated to issue up to 1,271,103 shares of its common stock pursuant to the Bristol Plans. No additional options may be awarded under the Bristol Plans. The FelCor Plans and the Bristol Plans are referred to collectively as the "Plans". The Company applies APB Opinion 25 and related interpretations in accounting for the Plans. In 1995 the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plans. Adoption of the cost recognition provisions of SFAS 123 is optional and the Company has decided not to adopt the provisions of SFAS 123. However, pro forma disclosures, as if the Company adopted the cost recognition provisions of SFAS 123, are required by SFAS 123 and are presented below. Stock Options FelCor is authorized to issue 2,950,000 shares of common stock under the FelCor Plans pursuant to awards granted in the form of incentive stock options, non-qualified stock options, and restricted stock. All options have 10-year contractual terms and vest over five equal annual installments (20% per year), beginning in the year following the date of grant. The options outstanding under the Bristol Plans generally vest either in four equal annual installments (25% per year) beginning in the second year following the original date of award, in five equal annual installments (20% per year) beginning in the year following the original date of award, or on a single date that is three to five years following the original date of the award. A summary of the status of FelCor's non-qualified stock options under the Plans as of December 31, 2000, 1999, and 1998, and the changes during the years are presented below:
2000 1999 1998 ------------------------- ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED # SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES ----------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of the year ..... 2,496,773 $ 22.32 2,540,466 $ 22.53 1,670,500 $ 29.96 Granted (a)(b) ........................... 69,000 $ 19.50 9,750 $ 22.13 2,445,813 $ 20.54 Exercised ................................ (760) $ 10.33 (332,915) $ 11.67 Retired (c) .............................. (349,443) $ 12.28 Forfeited (b)(c) ......................... (315,550) $ 26.75 (52,683) $ 32.41 (1,242,932) $ 31.51 ---------- ---------- ---------- Outstanding at end of year ............... 1,900,780 $ 23.33 2,496,773 $ 22.32 2,540,466 $ 22.53 ========== ========== ========== Exercisable at end of year ............... 804,066 $ 24.64 906,675 $ 24.58 796,499 $ 24.64
(a) 1998 grants include options covering 1,271,103 shares of Common Stock issuable as a result of the assumption of the Bristol Plans. (b) To enable FelCor to preserve its stock options as a meaningful element of compensation in 1998, existing option holders under the FelCor Plans employed by FelCor on a full-time basis were offered the opportunity to exchange their existing options (having exercise prices ranging from $26.44 to $38.56 per share) for a lesser number of new options having an equal value under the Black-Scholes option pricing model. Twenty-two employees accepted this offer in 1998, surrendering for cancellation existing options covering an aggregate of 1,151,500 shares of Common Stock at a F-17 68 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. STOCK BASED COMPENSATION PLANS -- (CONTINUED) weighted average exercise price of $32.807 per share for new options covering an aggregate of 840,393 shares of Common Stock at an exercise price of $22.125 per share. The new options have the same expiration dates and vesting schedules as the options surrendered for cancellation; however, none of the new options were exercisable prior to January 1, 2000. (c) In the second quarter of 2000 the Company purchased options covering an aggregate of 349,443 shares of FelCor's common stock for approximately $1.9 million. These options were held by employees of Bristol and were issued in substitution for stock options previously granted by Bristol Hotel Company that were outstanding at the time of its merger with FelCor in 1998. These options so purchased and retired had exercise prices ranging from $10.33 to $16.95 per share and the majority of these options were scheduled to vest in the third quarter of 2000. The purchase price was recorded as a reduction in additional paid in capital.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- ------------------------------- NUMBER WGTD. AVG. NUMBER RANGE OF OUTSTANDING REMAINING WGTD AVG. EXERCISABLE WGTD. AVG. EXERCISE PRICES AT 12/31/00 LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE ---------------- ----------- ------------------- -------------- ----------- -------------- $10.33 to $29.92 1,735,841 6.46 $22.21 663,155 $22.36 $30.28 to $36.63 164,939 6.48 $35.09 140,911 $35.38 ---------------- ----------- ---- ------ -------- ------ $10.33 to $36.63 1,900,780 6.46 $23.33 804,066 $24.64
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: dividend yield of 11.28%; risk free interest rates are different for each grant and range from 4.65% to 6.58%; the expected lives of options are 6 years; and volatility of 18.22% for 2000 grants, 18.44% for 1999 grants, and 32.90% for grants issued in 1998. The weighted average fair value of options granted during 2000, 1999, and 1998 was $0.90, $1.07, and $3.35 per share, respectively. Restricted Stock A summary of the status of the Company's restricted stock grants as of December 31, 2000, 1999, and 1998 and the changes during the years are presented below:
2000 1999 1998 --------------------- ------------------------ -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE FAIR MARKET FAIR MARKET FAIR MARKET VALUE VALUE VALUE # SHARES AT GRANT # SHARES AT GRANT # SHARES AT GRANT -------- ----------- --------- ------------ ------------ ------------ Outstanding at beginning of the year ..... 125,375 $ 28.35 125,375 $ 28.97 115,500 $ 29.03 Granted: With 5-year pro rata vesting .......... 210,100 $ 23.50 5,000 $ 21.25 Vest 100% at grant date ............... 4,875 $ 35.63 Forfeited................................. --------- ---------- ------------ Outstanding at end of year ............... 335,475 $ 25.55 125,375 $ 28.97 125,375 $ 28.97 ========= ========== ============ Vested at end of year .................... 107,975 $ 28.77 83,575 $ 28.35 65,175 $ 28.26
F-18 69 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. STOCK BASED COMPENSATION PLANS -- (CONTINUED) Pro Forma Net Income and Net Income Per Common Share Had the compensation cost for the Company's stock-based compensation plans been determined in accordance with SFAS 123, the Company's net income and net income per common share for 2000, 1999, and 1998 would approximate the pro forma amounts below (in thousands, except per share data):
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 --------------------------- --------------------------- --------------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA SFAS 123 charge ................... $ 1,636 $ 1,606 $ 1,799 APB 25 charge ..................... $ 1,478 $ 652 $ 830 Net income applicable to common shareholders ............ $ 37,017 $ 36,859 $ 106,345 $ 105,391 $ 93,416 $ 92,446 Diluted net income applicable to common shareholders per common share ............... $ 0.67 $ 0.66 $ 1.57 $ 1.56 $ 1.86 $ 1.84
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. 15. EMPLOYEE BENEFITS The Company offers a 401(k) plan, health insurance benefits and a deferred compensation plan to its employees. In 2000, the Company's matching contribution to the 401(k) plan was $412,271 and the cost of health insurance benefits were $349,000. The deferred compensation plan offered by the Company is available only to directors and employees making in excess of $100,000 annually. The Company makes no matching or other contributions to the deferred compensation plan other than the payment of its operating and administrative expenses. F-19 70 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SEGMENT INFORMATION The Company has determined that its reportable segments are those that are consistent with the Company's method of internal reporting, which segments its business by Lessee. The Company's Lessees at December 31, 2000, were DJONT and Bristol. Prior to July 28, 1998 (the date of the Merger), the Company had only one lessee, DJONT. The following tables present information about the reportable segments for the years ended December 31, 2000, 1999 and 1998 (in thousands):
CORPORATE NOT SEGMENT ALLOCABLE CONSOLIDATED YEAR ENDED DECEMBER 31, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ----------- ----------- ----------- ----------- ------------ Statement of Operations Information: Percentage lease revenue ......................... $ 277,283 $ 259,624 $ 536,907 $ 536,907 Equity in income from unconsolidated entities ................................... $ 13,898 $ 922 $ 14,820 $ 14,820 Expenses: Depreciation ................................ $ 83,974 $ 76,479 $ 160,453 $ 292 $ 160,745 Reserve for assets held for sale ............ $ 9,510 $ 53,490 $ 63,000 $ 63,000 Interest expense ............................ $ 158,620 $ 158,620 Income (loss) before nonrecurring items .......... $ 156,512 $ 75,559 $ 232,071 $ (170,895) $ 61,176 Gain on sale of assets ........................... $ 3,105 $ 1,283 $ 4,388 $ 4,388 Income (loss) before extraordinary charge ........ $ 159,617 $ 76,842 $ 236,459 $ (170,895) $ 65,564 Funds From Operations: Income (loss) before extraordinary charge ........ $ 159,617 $ 76,842 $ 236,459 $ (170,895) $ 65,564 Series B preferred dividends ..................... (12,937) (12,937) Reserve for hotels held for sale ................. 9,510 53,490 63,000 63,000 Gain on sale of hotels ........................... (2,461) (134) (2,595) (2,595) Depreciation ..................................... 83,974 76,479 160,453 292 160,745 Depreciation from unconsolidated entities ........ 9,426 741 10,167 10,167 Minority interest in Operating Partnership ....... 4,692 4,692 ----------- ----------- ----------- ----------- ----------- Funds from operations ............................ $ 260,066 $ 207,418 $ 467,484 $ (178,848) $ 288,636 =========== =========== =========== =========== =========== Weighted average common shares and units outstanding (a) ......................... 67,239 Other Information: Investment in unconsolidated entities .... $ 112,654 $ 15,939 $ 128,593 $ 128,593 Total assets ............................. $ 1,860,847 $ 2,179,321 $ 4,040,168 $ 63,435 $ 4,103,603 Capital expenditures ..................... $ 34,865 $ 60,370 $ 95,235 $ 95,235
F-20 71 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SEGMENT INFORMATION -- (CONTINUED)
CORPORATE NOT SEGMENT ALLOCABLE CONSOLIDATED YEAR ENDED DECEMBER 31, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ---------------------------- ----------- ----------- ----------- ----------- ------------ Statement of Operations Information: Percentage lease revenue ..................... $ 256,128 $ 234,765 $ 490,893 $ 490,893 Equity in income from unconsolidated entities ............................... $ 7,725 $ 759 $ 8,484 $ 8,484 Expenses: Depreciation ............................ $ 80,969 $ 71,748 $ 152,717 $ 231 $ 152,948 Interest expense ........................ $ 125,435 $ 125,435 Income (loss) before nonrecurring items ...... $ 147,868 $ 118,949 $ 266,817 $ (134,860) $ 131,957 Gain on sale of hotels ....................... $ 236 $ 236 Income (loss) before extraordinary charge .... $ 147,868 $ 118,949 $ 266,817 $ (134,624) $ 132,193 Funds From Operations: Income (loss) before extraordinary charge .... $ 147,868 $ 118,949 $ 266,817 $ (134,624) $ 132,193 Series B preferred dividends ................. (12,937) (12,937) Depreciation ................................. 80,969 71,748 152,717 231 152,948 Depreciation from unconsolidated entities .... 9,248 747 9,995 9,995 Minority interest in Operating Partnership ... 4,696 4,696 ----------- ----------- ----------- ----------- ----------- Funds from operations ........................ $ 238,085 $ 191,444 $ 429,529 $ (142,634) $ 286,895 =========== =========== =========== =========== =========== Weighted average common shares and units outstanding (a) ..................... 75,251 Other Information: Investment in unconsolidated entities $ 120,556 $ 16,162 $ 136,718 $ 136,718 Total assets ......................... $ 1,940,247 $ 2,243,916 $ 4,184,163 $ 68,555 $4,252,718 Capital expenditures ................. $ 51,587 $ 170,733 $ 222,320 $ 222,320
F-21 72 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SEGMENT INFORMATION -- (CONTINUED)
CORPORATE NOT SEGMENT ALLOCABLE CONSOLIDATED YEAR ENDED DECEMBER 31, 1998 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ---------------------------- ------------ ------------ ------------ ------------ ------------ Statement of Operations Information: Percentage lease revenue ......................... $ 237,555 $ 90,480 $ 328,035 $ 328,035 Equity in income from unconsolidated entities ................................... $ 6,744 $ 273 $ 7,017 $ 7,017 Expenses: Depreciation ............................... $ 71,055 $ 19,619 $ 90,674 $ 161 $ 90,835 Interest expense ........................... $ 73,182 $ 73,182 Income before nonrecurring item .................. $ 143,736 $ 54,233 $ 197,969 $ (80,532) $ 117,437 Gain on sale of hotels ........................... $ 477 $ 477 Income (loss) before extraordinary charge ........ $ 143,736 $ 54,233 $ 197,969 $ (80,055) $ 117,914 Funds From Operations: Income (loss) before extraordinary charge ........ $ 143,736 $ 54,233 $ 197,969 $ (80,055) $ 117,914 Series B preferred dividends ..................... (8,373) (8,373) Depreciation ..................................... 71,055 19,619 90,674 161 90,835 Depreciation from unconsolidated entities ........ 10,254 233 10,487 10,487 Minority interest in Operating Partnership ....... 6,500 6,500 ------------ ------------ ------------ ------------ ------------ Funds from operations ............................ $ 225,045 $ 74,085 $ 299,130 $ (81,767) $ 217,363 ============ ============ ============ ============ ============ Weighted average common shares and units outstanding (a) ......................... 58,013 Other Information: Investment in unconsolidated entities .... $ 123,507 $ 16,792 $ 140,299 $ 140,299 Total assets ............................. $ 2,022,975 $ 2,093,328 $ 4,116,303 $ 59,080 $ 4,175,383 Capital expenditures ..................... $ 65,264 $ 65,839 $ 131,103 $ 131,103
(a) Weighted average common shares and units outstanding are computed including dilutive options and unvested stock grants, and assuming conversion of Series A preferred stock to common stock. The following table sets forth Percentage Lease revenue and investment in hotel assets represented by the following geographical areas as of and for the years ended December 31, 2000, 1999 and 1998 (in thousands):
PERCENTAGE LEASE REVENUE INVESTMENT IN HOTEL ASSETS ------------------------ -------------------------- 2000 1999 1998 2000 1999 1998 -------- --------- --------- ----------- ----------- ----------- California............... $118,857 $ 97,283 $ 63,733 $ 681,714 $ 698,942 $ 642,965 Texas.................... 97,157 94,782 52,220 862,199 891,626 854,558 Florida.................. 66,014 61,516 45,719 530,933 542,298 519,280 Georgia.................. 40,183 39,247 23,691 316,267 355,519 349,429 Other States............. 200,836 186,248 138,437 1,752,303 1,802,220 1,705,220 Canada................... 13,860 11,817 5,123 79,960 75,294 62,202 -------- --------- --------- ----------- ----------- ----------- Total........... $536,907 $ 490,893 $ 328,923 $ 4,223,376 $ 4,365,899 $ 4,133,654 ======== ========= ========= =========== =========== ===========
F-22 73 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. PRO FORMA INFORMATION (UNAUDITED) The following unaudited Pro Forma Statements of Operations for the years ended December 31, 2000 and 1999 are presented as if the acquisition of DJONT and acquisition of the Bristol leases occurred on January 1, 1999. The following unaudited Pro Forma Consolidated Statements of Operations for the periods presented are not necessarily indicative of what actual results operations of the Company would have been assuming such transactions had been completed at the beginning of the respective periods presented, nor does it purport to represent the results of operations for future periods.
2000 1999 ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Hotel operating revenue: Room and suite revenue .................................... $ 1,309,301 $ 1,208,954 Food and beverage revenue ................................. 261,551 228,271 Other operating departments ............................... 93,616 98,642 Other revenue ............................................... 4,965 4,624 ------------- ------------- Total revenues ............................................ 1,669,433 1,540,491 ------------- ------------- Expenses: Hotel operating expenses .................................... 539,665 519,333 Undistributed operating expenses: Property operating costs .................................. 676,507 592,507 General and administrative ................................ 13,329 10,112 Reserve for assets held for sale .......................... 63,000 Depreciation .............................................. 161,836 153,498 Total operating expenses .............................. 1,454,337 1,275,450 ------------- ------------- Operating income .................................................. 215,096 265,041 Interest expense ............................................ (166,191) (133,305) Equity in income from unconsolidated entities ............... 11,551 8,534 Minority interest ........................................... (7,419) (8,052) ------------- ------------- Income before nonrecurring items .................................. 53,037 132,218 Gain on sale of assets ...................................... 4,388 236 Extraordinary charge ........................................ (3,865) (1,113) ------------- ------------- Net income ........................................................ 53,560 131,341 Preferred dividends ............................................... (24,682) (24,735) ------------- ------------- Net income applicable to common shareholders ...................... $ 28,878 $ 106,606 ============= ============= Diluted Earnings per share: Net income (loss) applicable to common shareholders ....... $ 0.52 $ 1.57 ============= ============= Weighted average shares outstanding ....................... 55,933 67,995
F-23 74 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 18. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS Effective January 1, 2001, the Company will adopt SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133" or the "Statement"). SFAS 133 will be adopted as a change in accounting principle and cannot be applied retroactively to financial statements of prior periods. SFAS 133 requires that the Company record derivatives on the balance sheet as an asset or liability at fair value. The Statement also requires that the Company record derivatives that are not hedges at fair value through earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows the Company to offset a derivative instrument's gains and losses against related results on the hedged item in the income statement, to the extent effective, and requires that the Company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company's interest rate swap contracts outstanding as of January 1, 2001, have been designated as cash flow hedges. Cash flow hedges The Company has entered into six interest rate swap agreements, with a total notional amount of $250 million. Three of these agreements, at the option of the variable rate payer, may be terminated in July 2001 or otherwise terminate in July 2003 along with the other three agreements. Under these arrangements, the Company receives the one month LIBOR rate and pays a fixed rate of 5.548% to 5.826%. Prior to adoption of FAS 133, the Company treated these swaps as hedges and accounted for them as such. The Company has not recorded any amounts on the Consolidated Balance Sheet as of December 31, 2000 in connection with these instruments and the net effect of the hedges was to record interest expense at the fixed rate of 7.548% to 7.826% on $250 million of variable rated debt. The Company has designated these swaps as cash flow hedges of variable future cash flows associated with the interest on its Line of Credit facility through July 2003. Upon adoption, the Company will record the fair value of these swaps as an asset on its balance sheet valued at $248,000, with a corresponding credit to other comprehensive income. The Company will record subsequent changes in fair value of the swaps through other comprehensive income, except for changes related to ineffectiveness, during the period these instruments are designated as hedges. The Company has no other derivative instruments, including embedded derivatives under SFAS 133. F-24 75 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. QUARTERLY OPERATING RESULTS (UNAUDITED) The Company's unaudited consolidated quarterly operating data for the years ended December 31, 2000 and 1999, follows (in thousands, except per share data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in shareholders' equity and cash flows for a period of several years.
FIRST SECOND THIRD FOURTH 2000 QUARTER QUARTER QUARTER QUARTER ---- ---------- ---------- ---------- ---------- Total revenues ..................................................... $ 126,805 $ 137,865 $ 140,476 $ 151,546 ---------- ---------- ---------- ---------- Reserve for hotels held for sale ................................... $ 63,000 Income (loss) before nonrecurring items ............................ $ 18,927 $ (29,775) $ 30,853 $ 41,171 Extraordinary charge from write off of deferred financing fee ...... $ 3,865 Net income (loss) applicable to common shareholders ................ $ 12,743 $ (35,074) $ 24,211 $ 35,137 Diluted per common share data: Net income (loss) applicable to common shareholders ........... $ 0.21 $ (0.64) $ 0.44 $ 0.66 Weighted average common shares outstanding .................... 59,377 54,945 54,579 53,202
FIRST SECOND THIRD FOURTH 1999 QUARTER QUARTER QUARTER QUARTER ---- ---------- ---------- ---------- ---------- Total revenues ..................................................... $ 126,917 $ 135,187 $ 124,082 $ 117,815 Income before nonrecurring items ................................... $ 36,747 $ 41,935 $ 30,021 $ 23,254 Extraordinary charge from write off of deferred financing fee ...... $ 1,113 Net income applicable to common shareholders ....................... $ 30,563 $ 34,638 $ 23,837 $ 17,306 Diluted per common share data: Net income applicable to common shareholders .................. $ 0.45 $ 0.51 $ 0.35 $ 0.26 Weighted average common shares outstanding .................... 68,344 68,351 68,221 65,543
20. SUBSEQUENT EVENTS Effective January 1, 2001, subject to the receipt of certain lender consents, the Company acquired and contributed to a newly formed taxable REIT subsidiary, all of the equity interests in DJONT. In consideration for the acquisition of DJONT, the Company issued an aggregate of 416,667 units of limited partnership interest valued at approximately $10 million, which, together with DJONT's accumulated shareholders' deficit of $24.5 million, will be expensed in the first quarter of 2001 as a lease termination cost. Effective January 1, 2001, the Company completed the acquisition of 12 of the Bristol leases. In consideration for the acquisition of such leases, the Company issued to Bass 413,585 shares of FelCor common stock valued at approximately $10 million. In March 2001, the Company entered into an agreement with Bass to acquire the remaining 88 leases effective July 1, 2001. In consideration for the acquisition of such leases, the Company will enter into long term management agreements with Bass with regard to these hotels and issue to Bass 100 shares of FelCor common stock. A portion of the management fees with respect to the 88 hotels managed by Bass under long term management agreements will be considered to be lease termination costs and the Company will record a lease termination expense of approximately $125 million in the third quarter of 2001. At that time, the Company will record a corresponding liability of approximately $125 million, that will be amortized over the term of the applicable management agreements. F-25 76 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. SUBSEQUENT EVENTS -- (CONTINUED) On January 11, 2001, FelCor completed the private placement of an additional $100 million in 9 1/2% senior unsecured notes that mature in September, 2008. These notes were issued at a premium to yield an effective rate of 9 1/8%. The proceeds were used initially to pay down the Company's Line of Credit. In March 2001, the Company contributed eight of the hotels held for sale to an entity in which the Company holds a 50% equity interest and a subsidiary of IHC holds the other 50% equity interest. The Company contributed assets with a book value of approximately $77 million. Another subsidiary of IHC manages each of these hotels. F-26 77 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of FelCor Lodging Trust Incorporated: Our audits of the consolidated financial statements referred to in our report dated February 5, 2001 except for footnotes 1 and 20 as to which the date is March 28, 2001, appearing on page F-2 of the Annual Report on Form 10-K of FelCor Lodging Trust Incorporated (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Dallas, Texas February 5, 2001 F-27 78 FELCOR LODGING TRUST INCORPORATED SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2000 (IN THOUSANDS)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION --------------------------------- --------------------------------- BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES ----------------------- ------------ ------ ------------ --------- ------ ------------ --------- Birmingham, AL (1) $ 12,298 $2,843 $29,286 $ 160 $ 653 $ 4,132 Montgomery E. (I-85), AL (2) 836 7,272 251 2,669 1,038 Texarkana (I-30), AR (2) 5,245 162 1,438 521 Flagstaff, AZ (1) 900 6,825 268 1,605 1,329 Phoenix (Airport - 44th St.), AZ (1) 2,969 25,828 891 1,357 2,598 Phoenix (Camelback), AZ (1) 38,998 612 4,695 935 5,782 Phoenix (Crescent), AZ (3) 26,820 3,608 29,583 2,886 166 1,159 Tempe (ASU), AZ (1) 12,183 3,951 34,371 1,185 915 2,768 Anaheim (Disney(R)Area), CA (1) 11,302 2,548 14,832 607 546 3,836 Burlingame (San Francisco A/P So.), CA (1) 39,929 818 200 4,426 Dana Point, CA (5) 1,787 15,545 536 644 2,907 El Segundo (LAX Airport South), CA (1) 2,660 17,997 798 557 6,392 Irvine (Orange County Airport), CA (6) 4,981 43,338 1,494 1,745 744 Milpitas, CA (1) 21,180 4,021 23,677 562 1,041 4,713 Milpitas (San Jose N.), CA (6) 4,153 36,130 1,246 5,810 1,964 Napa, CA (1) 11,127 3,287 14,205 494 997 3,594 Oxnard (Mandalay Beach), CA (1) 2,930 22,124 879 1,174 5,871 Palm Desert, CA (1) 8,709 2,368 20,598 710 1,607 2,855 Pleasanton, CA (6) 3,169 27,569 951 159 295 San Diego (On the Bay), CA (2) 68,633 2,123 282 1,052 San Francisco (Financial District), CA (2) 21,679 670 1,426 2,014 San Francisco (Fisherman's Wharf), CA (2) 62,203 1,924 749 756 San Francisco (Union Square), CA (6) 8,514 74,075 2,554 3,513 1,390 Santa Barbara, CA (2) 5,535 1,692 14,723 508 103 292 So. San Francisco (SF Airport No.), CA (1) 26,118 3,418 31,737 527 827 5,017 Aurora (Denver Southeast), CO (7) 2,432 21,158 730 439 2,112 Avon (Beaver Creek Resort), CO (8) 1,134 9,864 340 (16) 79 1,125 Hartford Downtown, CT (6) 2,327 20,243 698 5,981 3,221 Stamford, CT (9) 37,356 1,155 1,548 999 Wilmington, DE (7) 1,379 12,487 431 9,486 3,582 Boca Raton, FL (1) 1,868 16,253 560 90 4,006 Cocoa Beach (Oceanfront Resort), FL (2) 2,304 20,046 691 9,350 3,808 Deerfield Beach, FL (1) 15,265 4,522 29,443 917 69 989 5,016 Ft. Lauderdale, FL (1) 16,300 5,329 47,850 903 (163) 1,457 5,771 Ft. Lauderdale (Cypress Creek), FL (11) 12,913 3,009 26,177 903 972 2,681 Jacksonville, FL (1) 1,130 9,608 456 4,877 2,330 Kissimmee (Nikki Bird Resort), FL (2) 31,652 979 6,261 2,238 Lake Buena Vista (Disney World(R)), FL (5) 2,896 25,196 869 245 2,944 Miami (Airport), FL (6) 26,146 809 993 1,429 Miami (Airport), FL (1) 13,177 4,135 24,950 1,171 315 6,289 Orlando (Airport), FL (9) 2,564 22,310 769 1,675 428 Orlando (Int'l Drive Resort), FL (2) 5,142 44,735 1,543 4,593 1,948 Orlando (North), FL (1) 1,673 14,218 684 5,072 2,711 Orlando (South), FL (1) 25,437 1,632 13,870 799 375 2,349 Tampa (Near Busch Gardens), FL (2) 9,534 295 11,176 2,200 Tampa Rocky Point, FL (5) 2,142 18,639 643 1,121 2,473 Atlanta (Airport), GA (6) 40,943 1,266 132 623 Atlanta (Airport), GA (1) 22,342 770 2,568 1,149 1,568 Atlanta (Airport Gateway), GA (3) 5,113 22,857 2,105 201 3,988 Atlanta (Airport North), GA (2) 17,255 34,531 1,068 265 739 Atlanta Buckhead, GA (1) 38,031 7,303 38,996 2,437 670 2,557
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE -------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES ----------------------- ------- ------------ --------- ----- ------------- ------------- Birmingham, AL (1) $ 2,843 $29,939 $ 4,292 $ 37,074 $ 6,685 $30,389 Montgomery E. (I-85), AL (2) 836 9,941 1,289 12,066 1,056 11,010 Texarkana (I-30), AR (2) 6,683 683 7,366 620 6,746 Flagstaff, AZ (1) 900 8,430 1,597 10,927 2,558 8,369 Phoenix (Airport - 44th St.), AZ (1) 2,969 27,185 3,489 33,643 2,447 31,196 Phoenix (Camelback), AZ (1) 4,695 39,933 6,394 51,022 9,725 41,297 Phoenix (Crescent), AZ (3) 3,608 29,749 4,045 37,402 4,996 32,406 Tempe (ASU), AZ (1) 3,951 35,286 3,953 43,190 3,513 39,677 Anaheim (Disney(R)Area), CA (1) 2,548 15,378 4,443 22,369 5,600 16,769 Burlingame (San Francisco A/P So.), CA (1) 40,129 5,244 45,373 8,919 36,454 Dana Point, CA (5) 1,787 16,189 3,443 21,419 3,488 17,931 El Segundo (LAX Airport South), CA (1) 2,660 18,554 7,190 28,404 7,872 20,532 Irvine (Orange County Airport), CA (6) 4,981 45,083 2,238 52,302 3,547 48,755 Milpitas, CA (1) 4,021 24,718 5,275 34,014 6,984 27,030 Milpitas (San Jose N.), CA (6) 4,153 41,940 3,210 49,303 3,324 45,979 Napa, CA (1) 3,287 15,202 4,088 22,577 4,553 18,024 Oxnard (Mandalay Beach), CA (1) 2,930 23,298 6,750 32,978 7,303 25,675 Palm Desert, CA (1) 2,368 22,205 3,565 28,138 2,697 25,441 Pleasanton, CA (6) 3,169 27,728 1,246 32,143 2,143 30,000 San Diego (On the Bay), CA (2) 68,915 3,175 72,090 5,167 66,923 San Francisco (Financial District), CA (2) 23,105 2,684 25,789 2,106 23,683 San Francisco (Fisherman's Wharf), CA (2) 62,952 2,680 65,632 4,722 60,910 San Francisco (Union Square), CA (6) 8,514 77,588 3,944 90,046 6,077 83,969 Santa Barbara, CA (2) 1,692 14,826 800 17,318 1,187 16,131 So. San Francisco (SF Airport No.), CA (1) 3,418 32,564 5,544 41,526 8,121 33,405 Aurora (Denver Southeast), CO (7) 2,432 21,597 2,842 26,871 2,653 24,218 Avon (Beaver Creek Resort), CO (8) 1,118 9,943 1,465 12,526 2,449 10,077 Hartford Downtown, CT (6) 2,327 26,224 3,919 32,470 2,905 29,565 Stamford, CT (9) 38,904 2,154 41,058 3,049 38,009 Wilmington, DE (7) 1,379 21,973 4,013 27,365 1,828 25,537 Boca Raton, FL (1) 1,868 16,343 4,566 22,777 5,217 17,560 Cocoa Beach (Oceanfront Resort), FL (2) 2,304 29,396 4,499 36,199 2,998 33,201 Deerfield Beach, FL (1) 4,591 30,432 5,933 40,956 8,003 32,953 Ft. Lauderdale, FL (1) 5,166 49,307 6,674 61,147 11,072 50,075 Ft. Lauderdale (Cypress Creek), FL (11) 3,009 27,149 3,584 33,742 2,609 31,133 Jacksonville, FL (1) 1,130 14,485 2,786 18,401 3,777 14,624 Kissimmee (Nikki Bird Resort), FL (2) 37,913 3,217 41,130 3,373 37,757 Lake Buena Vista (Disney World(R)), FL (5) 2,896 25,441 3,813 32,150 3,765 28,385 Miami (Airport), FL (6) 27,139 2,238 29,377 2,489 26,888 Miami (Airport), FL (1) 4,135 25,265 7,460 36,860 8,560 28,300 Orlando (Airport), FL (9) 2,564 23,985 1,197 27,746 1,760 25,986 Orlando (Int'l Drive Resort), FL (2) 5,142 49,328 3,491 57,961 3,660 54,301 Orlando (North), FL (1) 1,673 19,290 3,395 24,358 5,063 19,295 Orlando (South), FL (1) 1,632 14,245 3,148 19,025 4,685 14,340 Tampa (Near Busch Gardens), FL (2) 20,710 2,495 23,205 2,119 21,086 Tampa Rocky Point, FL (5) 2,142 19,760 3,116 25,018 2,842 22,176 Atlanta (Airport), GA (6) 41,075 1,889 42,964 3,151 39,813 Atlanta (Airport), GA (1) 2,568 23,491 2,338 28,397 2,018 26,379 Atlanta (Airport Gateway), GA (3) 5,113 23,058 6,093 34,264 5,007 29,257 Atlanta (Airport North), GA (2) 34,796 1,807 36,603 2,612 33,991 Atlanta Buckhead, GA (1) 7,303 39,666 4,994 51,963 6,989 44,974
LIFE UPON WHICH DEPRECIATION DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED ----------------------- ------------ --------- ------------ Birmingham, AL (1) 1987 01-03-96 5 - 40 Yrs Montgomery E. (I-85), AL (2) 1964 07-28-98 5 - 40 Yrs Texarkana (I-30), AR (2) 1970 07-28-98 5 - 40 Yrs Flagstaff, AZ (1) 1988 02-16-95 5 - 40 Yrs Phoenix (Airport - 44th St.), AZ (1) 1981 05-04-98 5 - 40 Yrs Phoenix (Camelback), AZ (1) 1985 01-03-96 5 - 40 Yrs Phoenix (Crescent), AZ (3) 1986 06-30-97 5 - 40 Yrs Tempe (ASU), AZ (1) 1986 05-04-98 5 - 40 Yrs Anaheim (Disney(R)Area), CA (1) 1987 01-03-96 5 - 40 Yrs Burlingame (San Francisco A/P So.), CA (1) 1986 11-06-95 5 - 40 Yrs Dana Point, CA (5) 1992 02-21-97 5 - 40 Yrs El Segundo (LAX Airport South), CA (1) 1985 03-27-96 5 - 40 Yrs Irvine (Orange County Airport), CA (6) 1986 07-28-98 5 - 40 Yrs Milpitas, CA (1) 1987 01-03-96 5 - 40 Yrs Milpitas (San Jose N.), CA (6) 1987 07-28-98 5 - 40 Yrs Napa, CA (1) 1985 05-08-96 5 - 40 Yrs Oxnard (Mandalay Beach), CA (1) 1986 05-08-96 5 - 40 Yrs Palm Desert, CA (1) 1984 05-04-98 5 - 40 Yrs Pleasanton, CA (6) 1986 07-28-98 5 - 40 Yrs San Diego (On the Bay), CA (2) 1965 07-28-98 5 - 40 Yrs San Francisco (Financial District), CA (2) 1970 07-28-98 5 - 40 Yrs San Francisco (Fisherman's Wharf), CA (2) 1970 07-28-98 5 - 40 Yrs San Francisco (Union Square), CA (6) 1970 07-28-98 5 - 40 Yrs Santa Barbara, CA (2) 1969 07-28-98 5 - 40 Yrs So. San Francisco (SF Airport No.), CA (1) 1988 01-03-96 5 - 40 Yrs Aurora (Denver Southeast), CO (7) 1989 03-15-98 5 - 40 Yrs Avon (Beaver Creek Resort), CO (8) 1989 02-20-96 5 - 40 Yrs Hartford Downtown, CT (6) 1973 07-28-98 5 - 40 Yrs Stamford, CT (9) 1984 07-28-98 5 - 40 Yrs Wilmington, DE (7) 1972 03-20-98 5 - 40 Yrs Boca Raton, FL (1) 1989 02-28-96 5 - 40 Yrs Cocoa Beach (Oceanfront Resort), FL (2) 1960 07-28-98 5 - 40 Yrs Deerfield Beach, FL (1) 1987 01-03-96 5 - 40 Yrs Ft. Lauderdale, FL (1) 1986 01-03-96 5 - 40 Yrs Ft. Lauderdale (Cypress Creek), FL (11) 1986 05-04-98 5 - 40 Yrs Jacksonville, FL (1) 1986 07-28-94 5 - 40 Yrs Kissimmee (Nikki Bird Resort), FL (2) 1974 07-28-98 5 - 40 Yrs Lake Buena Vista (Disney World(R)), FL (5) 1987 07-28-97 5 - 40 Yrs Miami (Airport), FL (6) 1987 01-03-96 5 - 40 Yrs Miami (Airport), FL (1) 1983 07-28-98 5 - 40 Yrs Orlando (Airport), FL (9) 1984 07-28-98 5 - 40 Yrs Orlando (Int'l Drive Resort), FL (2) 1972 07-28-98 5 - 40 Yrs Orlando (North), FL (1) 1985 07-28-94 5 - 40 Yrs Orlando (South), FL (1) 1985 07-28-94 5 - 40 Yrs Tampa (Near Busch Gardens), FL (2) 1966 07-28-98 5 - 40 Yrs Tampa Rocky Point, FL (5) 1986 07-28-97 5 - 40 Yrs Atlanta (Airport), GA (6) 1975 07-28-98 5 - 40 Yrs Atlanta (Airport), GA (1) 1989 05-04-98 5 - 40 Yrs Atlanta (Airport Gateway), GA (3) 1986 06-30-97 5 - 40 Yrs Atlanta (Airport North), GA (2) 1967 07-28-98 5 - 40 Yrs Atlanta Buckhead, GA (1) 1988 10-17-96 5 - 40 Yrs
F-28 79 FELCOR LODGING TRUST INCORPORATED SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION --------------------------------- ------------------------------ BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES ----------------------- ------------ ------ ------------ --------- ------ ------------ -------- Atlanta (Galleria), GA (11) 17,880 5,052 28,507 2,526 477 626 Atlanta (Jonesboro South), GA (2) 2,869 864 7,515 259 137 507 Atlanta Perimeter, GA (9) 10,708 20,556 636 188 502 Atlanta Powers Ferry, GA (6) 10,444 3,410 29,672 1,023 555 550 Brunswick, GA (1) 705 6,067 247 28 1,067 Columbus (Airport North), GA (2) 7,026 217 1,965 856 Chicago (Allerton), IL (6) 3,343 29,086 1,003 54,918 7,758 Chicago (O'Hare), IL (3) 24,833 8,178 37,043 2,887 337 1,334 Deerfield, IL (1) 16,480 2,305 20,054 692 531 1,570 Lexington, KY (14) 1,955 13,604 587 155 1,992 Lexington, KY (11) 6,953 21,644 746 2,488 396 669 Baton Rouge, LA (1) 7,906 2,350 19,092 525 1 618 4,090 New Orleans (French Quarter), LA (2) 24,147 5,263 45,793 1,579 272 621 New Orleans, LA (1) 32,463 2,570 22,300 895 4,806 3,261 Boston (Government Center), MA (9) 45,452 1,406 4,495 1,105 Boston (Marlborough), MA (1) 20,383 948 8,143 325 761 12,994 5,154 Baltimore (BWI), MD (1) 2,568 22,433 770 (2) 1,272 2,279 Troy, MI (1) 2,968 25,905 909 1,212 2,013 Bloomington, MN (1) 2,038 17,731 611 529 3,285 Minneapolis (Airport), MN (1) 15,617 5,417 36,508 602 249 3,307 Minneapolis (Downtown), MN (1) 818 16,820 505 227 3,519 St. Paul, MN (1) 1,156 17,315 849 90 3,455 Kansas City (Northeast), MO (2) 973 8,461 292 12 2,602 St. Louis (Downtown), MO (1) 3,179 27,659 954 1,274 2,332 St. Louis (Westport), MO (2) 2,767 24,072 830 192 448 Jackson (Downtown), MS (6) 5,036 2,226 19,370 668 116 329 Jackson (North), MS (15) 5,438 1,643 14,296 493 221 394 Olive Branch (Whispering Woods Conference Center), MS (8) 1,247 12,155 419 (158) 1,564 1,496 Raleigh/Durham, NC (5) 2,124 18,476 637 99 1,890 Omaha (Central), NE (5) 1,877 16,328 563 215 1,796 Omaha (Central), NE (12) 518 4,504 155 816 484 Omaha (I-80), NE (2) 6,154 1,795 15,614 538 2,289 1,853 Omaha (Old Mill Northwest), NE (6) 979 8,519 294 4,669 2,459 Omaha (Southwest), NE (12) 464 4,036 139 613 263 Omaha, (Southwest) NE (13) 923 8,029 277 864 392 Omaha (Southwest), NE (15) 373 3,245 112 12 118 Piscataway, NJ (1) 20,609 1,755 17,563 527 843 2,924 Secaucus (Meadowlands), NJ (6) 2,356 20,497 707 4,254 5,981 Albuquerque (Mountain View), NM (2) 1,322 11,505 397 120 547 Syracuse, NY (1) 1,483 13,756 1,330 274 417 Cleveland, OH (1) 1,755 15,329 527 1,852 2,436 Columbus, OH (5) 1,918 16,691 576 760 1,077 Dayton, OH (5) 6,707 1,140 11,223 342 149 1,109 391 Tulsa, OK (1) 525 7,344 3,117 636 2,591 Philadelphia (Center City), PA (6) 5,793 50,395 1,738 2,470 1,349 Philadelphia (Independence Mall), PA (2) 14,000 3,184 27,704 955 5,861 2,154 Philadelphia (Society Hill), PA (3) 33,773 4,542 45,121 1,536 1,056 2,872 Pittsburgh, PA (9) 15,500 25,170 773 1,692 1,913 Charleston (Mills House), SC (2) 3,270 28,446 981 347 2,376 Greenville (Roper), SC (6) 1,551 13,492 465 670 782 Myrtle Beach (Kingston Plantation), SC (1) 2,940 24,988 1,470 1,557 4,913
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE -------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES ----------------------- ------- ------------ --------- ----- ------------- ------------- Atlanta (Galleria), GA (11) 5,052 28,984 3,152 37,188 4,433 32,755 Atlanta (Jonesboro South), GA (2) 864 7,652 766 9,282 648 8,634 Atlanta Perimeter, GA (9) 20,744 1,138 21,882 1,641 20,241 Atlanta Powers Ferry, GA (6) 3,410 30,227 1,573 35,210 2,365 32,845 Brunswick, GA (1) 705 6,095 1,314 8,114 1,692 6,422 Columbus (Airport North), GA (2) 8,991 1,073 10,064 931 9,133 Chicago (Allerton), IL (6) 3,343 84,004 8,761 96,108 5,351 90,757 Chicago (O'Hare), IL (3) 8,178 37,380 4,221 49,779 5,676 44,103 Deerfield, IL (1) 2,305 20,585 2,262 25,152 3,634 21,518 Lexington, KY (14) 1,955 13,759 2,579 18,293 3,390 14,903 Lexington, KY (11) 2,488 22,040 1,415 25,943 1,890 24,053 Baton Rouge, LA (1) 2,351 19,710 4,615 26,676 5,911 20,765 New Orleans (French Quarter), LA (2) 5,263 46,065 2,200 53,528 3,575 49,953 New Orleans, LA (1) 2,570 27,106 4,156 33,832 6,896 26,936 Boston (Government Center), MA (9) 49,947 2,511 52,458 3,459 48,999 Boston (Marlborough), MA (1) 1,709 21,137 5,479 28,325 5,821 22,504 Baltimore (BWI), MD (1) 2,566 23,705 3,049 29,320 3,330 25,990 Troy, MI (1) 2,968 27,117 2,922 33,007 3,553 29,454 Bloomington, MN (1) 2,038 18,260 3,896 24,194 3,151 21,043 Minneapolis (Airport), MN (1) 5,417 36,757 3,909 46,083 8,013 38,070 Minneapolis (Downtown), MN (1) 818 17,047 4,024 21,889 5,539 16,350 St. Paul, MN (1) 1,156 17,405 4,304 22,865 5,938 16,927 Kansas City (Northeast), MO (2) 973 8,473 2,894 12,340 1,705 10,635 St. Louis (Downtown), MO (1) 3,179 28,933 3,286 35,398 2,722 32,676 St. Louis (Westport), MO (2) 2,767 24,264 1,278 28,309 1,943 26,366 Jackson (Downtown), MS (6) 2,226 19,486 997 22,709 1,651 21,058 Jackson (North), MS (15) 1,643 14,517 887 17,047 1,267 15,780 Olive Branch (Whispering Woods Conference Center), MS (8) 1,089 13,719 1,915 16,723 1,473 15,250 Raleigh/Durham, NC (5) 2,124 18,575 2,527 23,226 2,752 20,474 Omaha (Central), NE (5) 1,877 16,543 2,359 20,779 2,930 17,849 Omaha (Central), NE (12) 518 5,320 639 6,477 475 6,002 Omaha (I-80), NE (2) 1,795 17,903 2,391 22,089 1,338 20,751 Omaha (Old Mill Northwest), NE (6) 979 13,188 2,753 16,920 1,426 15,494 Omaha (Southwest), NE (12) 464 4,649 402 5,515 394 5,121 Omaha, (Southwest) NE (13) 923 8,893 669 10,485 720 9,765 Omaha (Southwest), NE (15) 373 3,257 230 3,860 351 3,509 Piscataway, NJ (1) 1,755 18,406 3,451 23,612 4,493 19,119 Secaucus (Meadowlands), NJ (6) 2,356 24,751 6,688 33,795 2,890 30,905 Albuquerque (Mountain View), NM (2) 1,322 11,625 944 13,891 1,070 12,821 Syracuse, NY (1) 1,483 14,030 1,747 17,260 2,253 15,007 Cleveland, OH (1) 1,755 17,181 2,963 21,899 3,910 17,989 Columbus, OH (5) 1,918 17,451 1,653 21,022 1,987 19,035 Dayton, OH (5) 1,289 12,332 733 14,354 1,196 13,158 Tulsa, OK (1) 525 7,980 5,708 14,213 6,727 7,486 Philadelphia (Center City), PA (6) 5,793 52,865 3,087 61,745 4,264 57,481 Philadelphia (Independence Mall), PA (2) 3,184 33,565 3,109 39,858 3,021 36,837 Philadelphia (Society Hill), PA (3) 4,542 46,177 4,408 55,127 5,320 49,807 Pittsburgh, PA (9) 26,862 2,686 29,548 2,277 27,271 Charleston (Mills House), SC (2) 3,270 28,793 3,357 35,420 2,609 32,811 Greenville (Roper), SC (6) 1,551 14,162 1,247 16,960 1,315 15,645 Myrtle Beach (Kingston Plantation), SC (1) 2,940 26,545 6,383 35,868 6,201 29,667
LIFE UPON WHICH DEPRECIATION DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED ----------------------- ------------ --------- ------------ Atlanta (Galleria), GA (11) 1990 06-30-97 5 - 40 Yrs Atlanta (Jonesboro South), GA (2) 1973 07-28-98 5 - 40 Yrs Atlanta Perimeter, GA (9) 1985 07-28-98 5 - 40 Yrs Atlanta Powers Ferry, GA (6) 1981 07-28-98 5 - 40 Yrs Brunswick, GA (1) 1988 07-19-95 5 - 40 Yrs Columbus (Airport North), GA (2) 1969 07-28-98 5 - 40 Yrs Chicago (Allerton), IL (6) 1923 07-28-98 5 - 40 Yrs Chicago (O'Hare), IL (3) 1994 06-30-97 5 - 40 Yrs Deerfield, IL (1) 1987 06-20-96 5 - 40 Yrs Lexington, KY (14) 1987 01-10-96 5 - 40 Yrs Lexington, KY (11) 1989 05-04-98 5 - 40 Yrs Baton Rouge, LA (1) 1985 01-03-96 5 - 40 Yrs New Orleans (French Quarter), LA (2) 1969 07-28-98 5 - 40 Yrs New Orleans, LA (1) 1984 12-01-94 5 - 40 Yrs Boston (Government Center), MA (9) 1968 07-28-98 5 - 40 Yrs Boston (Marlborough), MA (1) 1988 06-30-95 5 - 40 Yrs Baltimore (BWI), MD (1) 1987 03-20-97 5 - 40 Yrs Troy, MI (1) 1987 03-20-97 5 - 40 Yrs Bloomington, MN (1) 1980 02-01-97 5 - 40 Yrs Minneapolis (Airport), MN (1) 1986 11-06-95 5 - 40 Yrs Minneapolis (Downtown), MN (1) 1984 11-15-95 5 - 40 Yrs St. Paul, MN (1) 1983 11-15-95 5 - 40 Yrs Kansas City (Northeast), MO (2) 1975 07-28-98 5 - 40 Yrs St. Louis (Downtown), MO (1) 1985 05-04-98 5 - 40 Yrs St. Louis (Westport), MO (2) 1979 07-28-98 5 - 40 Yrs Jackson (Downtown), MS (6) 1975 07-28-98 5 - 40 Yrs Jackson (North), MS (15) 1957 07-28-98 5 - 40 Yrs Olive Branch (Whispering Woods Conference Center), MS (8) 1972 07-28-98 5 - 40 Yrs Raleigh/Durham, NC (5) 1987 07-28-97 5 - 40 Yrs Omaha (Central), NE (5) 1973 02-01-97 5 - 40 Yrs Omaha (Central), NE (12) 1965 07-28-98 5 - 40 Yrs Omaha (I-80), NE (2) 1991 07-28-98 5 - 40 Yrs Omaha (Old Mill Northwest), NE (6) 1974 07-28-98 5 - 40 Yrs Omaha (Southwest), NE (12) 1986 07-28-98 5 - 40 Yrs Omaha, (Southwest) NE (13) 1989 07-28-98 5 - 40 Yrs Omaha (Southwest), NE (15) 1996 07-28-98 5 - 40 Yrs Piscataway, NJ (1) 1988 01-10-96 5 - 40 Yrs Secaucus (Meadowlands), NJ (6) N/A 07-28-98 5 - 40 Yrs Albuquerque (Mountain View), NM (2) 1968 07-28-98 5 - 40 Yrs Syracuse, NY (1) 1989 06-30-97 5 - 40 Yrs Cleveland, OH (1) 1990 11-17-95 5 - 40 Yrs Columbus, OH (5) 1985 02-04-98 5 - 40 Yrs Dayton, OH (5) 1987 12-30-97 5 - 40 Yrs Tulsa, OK (1) 1985 07-28-94 5 - 40 Yrs Philadelphia (Center City), PA (6) 1970 07-28-98 5 - 40 Yrs Philadelphia (Independence Mall), PA (2) 1972 07-28-98 5 - 40 Yrs Philadelphia (Society Hill), PA (3) 1986 10-01-97 5 - 40 Yrs Pittsburgh, PA (9) 1988 07-28-98 5 - 40 Yrs Charleston (Mills House), SC (2) 1982 07-28-98 5 - 40 Yrs Greenville (Roper), SC (6) 1984 07-28-98 5 - 40 Yrs Myrtle Beach (Kingston Plantation), SC (1) 1987 12-05-96 5 - 40 Yrs
F-29 80 FELCOR LODGING TRUST INCORPORATED SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION --------------------------------- ------------------------------ BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES ----------------------- ------------ ---- ------------ ---------- ---- ------------ -------- Knoxville (Central), TN (2) 11,586 358 1,512 1,009 Nashville, TN (1) 1,118 9,506 961 265 2,201 Nashville (Opryland/Airport), TN (9) 27,889 863 1,849 1,671 Addison (North Dallas), TX (6) 18,180 4,938 42,965 1,482 293 889 Amarillo (I-40), TX (2) 5,754 178 2,591 861 Austin (Downtown), TX (5) 2,508 21,908 752 829 576 Austin (Town Lake), TX (2) 21,551 667 750 1,605 Beaumont (Midtown I-10), TX (2) 685 5,964 206 1,872 703 Corpus Christi, TX (1) 5,307 1,113 9,618 390 51 396 1,656 Dallas, TX (19) 3,536 13,564 420 2,409 264 617 Dallas (Alpha Road), TX (17) 9,795 53 1,623 (1,678) 1,713 Dallas (Campbell Center), TX (7) 3,208 27,907 962 988 1,981 Dallas, (DFW Airport South), TX (1) 35,156 1,212 4,041 448 3,906 Dallas (Downtown West End), TX (12) 1,953 16,989 586 155 96 Dallas (Love Field), TX (1) 13,699 1,934 16,674 757 371 1,775 Dallas (Market Center), TX (6) 12,830 4,079 35,486 1,224 559 817 Dallas (Market Center), TX (1) 12,231 2,560 23,751 2,182 413 536 Dallas (Park Central), TX (6) 15,723 30,513 944 5,623 201 654 Dallas (Park Central), TX (1) 1,497 12,722 647 703 2,399 Dallas (Park Central), TX (3) 1,720 28,550 4,130 125 989 Dallas (Park Central), TX (20) 4,513 43,125 2,507 4,437 2,477 Houston (I-10 West), TX (9) 3,055 26,575 916 191 316 Houston (Int'l Airport), TX (2) 13,088 3,890 33,842 1,167 173 438 Houston (Medical Center), TX (6) 6,214 2,493 21,687 748 581 505 Houston (Medical Center), TX (15) 8,248 2,284 19,869 685 2,029 1,744 Houston (Near Greenway), TX (9) 6,944 3,418 29,736 1,025 327 1,104 Irving (DFW Airport North), TX (19) 28,006 56,714 1,754 10,039 654 1,663 Irving (DFW Airport North), TX (21) 10,766 1,546 13,453 464 145 2,158 Midland (Country Villa), TX (2) 404 3,517 121 68 291 Odessa (Centre), TX (15) 487 4,238 146 58 363 Odessa (Parkway Blvd), TX (13) 370 3,218 111 38 202 Plano, TX (19) 4,813 1,813 15,775 544 467 1,124 Plano, TX (2) 885 7,696 265 113 284 San Antonio (Downtown), TX (2) 22,246 688 524 562 San Antonio (Int'l Airport), TX (9) 3,371 29,326 1,011 1,825 778 Waco (I-35), TX (2) 574 4,994 172 93 306 Salt Lake City (Airport), UT (2) 5,346 165 2,725 1,046 Burlington, VT (3) 20,860 3,136 27,283 941 446 1,731 Cambridge, Canada (2) 481 4,188 144 1,082 841 Kitchener (Waterloo), Canada (2) 9,441 292 1,543 715 Peterbourough (Waterfront), Canada (2) 735 6,391 220 632 593 Sarnia, Canada (2) 271 2,359 81 1,093 810 Toronto (Airport), Canada (9) 21,168 655 3,137 1,679 Toronto (Yorkdale), Canada (2) 1,578 13,725 473 4,372 1,261 -------- -------- ---------- -------- ------- -------- -------- Total $751,995 $287,816 $3,213,820 $123,687 $34,178 $263,186 $285,324 ======== ======== ========== ======== ======= ======== ======== GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE ------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES ----------------------- ---- ------------ --------- ----- ------------- ------------- Knoxville (Central), TN (2) 13,098 1,367 14,465 1,306 13,159 Nashville, TN (1) 1,118 9,771 3,162 14,051 4,493 9,558 Nashville (Opryland/Airport), TN (9) 29,738 2,534 32,272 2,420 29,852 Addison (North Dallas), TX (6) 4,938 43,258 2,371 50,567 3,702 46,865 Amarillo (I-40), TX (2) 8,345 1,039 9,384 793 8,591 Austin (Downtown), TX (5) 2,508 22,737 1,328 26,573 2,857 23,716 Austin (Town Lake), TX (2) 22,301 2,272 24,573 2,116 22,457 Beaumont (Midtown I-10), TX (2) 685 7,836 909 9,430 731 8,699 Corpus Christi, TX (1) 1,164 10,014 2,046 13,224 3,062 10,162 Dallas, TX (19) 2,409 13,828 1,037 17,274 1,211 16,063 Dallas (Alpha Road), TX (17) 1,623 8,117 1,766 11,506 2,787 8,719 Dallas (Campbell Center), TX (7) 3,208 28,895 2,943 35,046 2,462 32,584 Dallas, (DFW Airport South), TX (1) 4,041 35,604 5,118 44,763 3,426 41,337 Dallas (Downtown West End), TX (12) 1,953 17,144 682 19,779 1,287 18,492 Dallas (Love Field), TX (1) 1,934 17,045 2,532 21,511 4,325 17,186 Dallas (Market Center), TX (6) 4,079 36,045 2,041 42,165 2,876 39,289 Dallas (Market Center), TX (1) 2,560 24,164 2,718 29,442 3,772 25,670 Dallas (Park Central), TX (6) 5,623 30,714 1,598 37,935 2,462 35,473 Dallas (Park Central), TX (1) 1,497 13,425 3,046 17,968 4,475 13,493 Dallas (Park Central), TX (3) 1,720 28,675 5,119 35,514 3,169 32,345 Dallas (Park Central), TX (20) 4,513 47,562 4,984 57,059 6,446 50,613 Houston (I-10 West), TX (9) 3,055 26,766 1,232 31,053 2,116 28,937 Houston (Int'l Airport), TX (2) 3,890 34,015 1,605 39,510 2,675 36,835 Houston (Medical Center), TX (6) 2,493 22,268 1,253 26,014 1,847 24,167 Houston (Medical Center), TX (15) 2,284 21,898 2,429 26,611 2,206 24,405 Houston (Near Greenway), TX (9) 3,418 30,063 2,129 35,610 2,502 33,108 Irving (DFW Airport North), TX (19) 10,039 57,368 3,417 70,824 4,883 65,941 Irving (DFW Airport North), TX (21) 1,546 13,598 2,622 17,766 1,200 16,566 Midland (Country Villa), TX (2) 404 3,585 412 4,401 391 4,010 Odessa (Centre), TX (15) 487 4,296 509 5,292 393 4,899 Odessa (Parkway Blvd), TX (13) 370 3,256 313 3,939 305 3,634 Plano, TX (19) 1,813 16,242 1,668 19,723 1,530 18,193 Plano, TX (2) 885 7,809 549 9,243 704 8,539 San Antonio (Downtown), TX (2) 22,770 1,250 24,020 1,876 22,144 San Antonio (Int'l Airport), TX (9) 3,371 31,151 1,789 36,311 2,532 33,779 Waco (I-35), TX (2) 574 5,087 478 6,139 494 5,645 Salt Lake City (Airport), UT (2) 8,071 1,211 9,282 759 8,523 Burlington, VT (3) 3,136 27,729 2,672 33,537 2,986 30,551 Cambridge, Canada (2) 481 5,270 985 6,736 563 6,173 Kitchener (Waterloo), Canada (2) 10,984 1,007 11,991 882 11,109 Peterbourough (Waterfront), Canada (2) 735 7,023 813 8,571 678 7,893 Sarnia, Canada (2) 271 3,452 891 4,614 197 4,417 Toronto (Airport), Canada (9) 24,305 2,334 26,639 2,215 24,424 Toronto (Yorkdale), Canada (2) 1,578 18,097 1,734 21,409 1,409 20,000 ------- ---------- -------- ---------- -------- ---------- Total 321,994 $3,477,006 $409,011 $4,208,011 $473,101 $3,734,910 ======= ========== ======== ========== ======== ========== LIFE UPON WHICH DEPRECIATION DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED ----------------------- ------------ -------- ------------- Knoxville (Central), TN (2) 1966 07-28-98 5 - 40 Yrs Nashville, TN (1) 1985 07-28-94 5 - 40 Yrs Nashville (Opryland/Airport), TN (9) 1981 07-28-98 5 - 40 Yrs Addison (North Dallas), TX (6) 1985 07-28-98 5 - 40 Yrs Amarillo (I-40), TX (2) 1970 07-28-98 5 - 40 Yrs Austin (Downtown), TX (5) 1987 03-20-97 5 - 40 Yrs Austin (Town Lake), TX (2) 1967 07-28-98 5 - 40 Yrs Beaumont (Midtown I-10), TX (2) 1967 07-28-98 5 - 40 Yrs Corpus Christi, TX (1) 1984 07-19-95 5 - 40 Yrs Dallas, TX (19) 1988 07-28-98 5 - 40 Yrs Dallas (Alpha Road), TX (17) 1997 07-28-98 5 - 40 Yrs Dallas (Campbell Center), TX (7) 1982 05-29-98 5 - 40 Yrs Dallas, (DFW Airport South), TX (1) 1985 07-28-98 5 - 40 Yrs Dallas (Downtown West End), TX (12) 1969 07-28-98 5 - 40 Yrs Dallas (Love Field), TX (1) 1986 03-29-95 5 - 40 Yrs Dallas (Market Center), TX (6) 1983 07-28-98 5 - 40 Yrs Dallas (Market Center), TX (1) 1980 06-30-97 5 - 40 Yrs Dallas (Park Central), TX (6) 1981 07-28-98 5 - 40 Yrs Dallas (Park Central), TX (1) 1985 07-28-94 5 - 40 Yrs Dallas (Park Central), TX (3) 1972 11-01-98 5 - 40 Yrs Dallas (Park Central), TX (20) 1983 06-30-97 5 - 40 Yrs Houston (I-10 West), TX (9) 1969 07-28-98 5 - 40 Yrs Houston (Int'l Airport), TX (2) 1971 07-28-98 5 - 40 Yrs Houston (Medical Center), TX (6) 1973 07-28-98 5 - 40 Yrs Houston (Medical Center), TX (15) 1984 07-28-98 5 - 40 Yrs Houston (Near Greenway), TX (9) 1984 07-28-98 5 - 40 Yrs Irving (DFW Airport North), TX (19) 1987 07-28-98 5 - 40 Yrs Irving (DFW Airport North), TX (21) 1989 07-28-98 5 - 40 Yrs Midland (Country Villa), TX (2) 1979 07-28-98 5 - 40 Yrs Odessa (Centre), TX (15) 1982 07-28-98 5 - 40 Yrs Odessa (Parkway Blvd), TX (13) 1977 07-28-98 5 - 40 Yrs Plano, TX (19) 1983 07-28-98 5 - 40 Yrs Plano, TX (2) 1983 07-28-98 5 - 40 Yrs San Antonio (Downtown), TX (2) 1968 07-28-98 5 - 40 Yrs San Antonio (Int'l Airport), TX (9) 1981 07-28-98 5 - 40 Yrs Waco (I-35), TX (2) 1970 07-28-98 5 - 40 Yrs Salt Lake City (Airport), UT (2) 1963 07-28-98 5 - 40 Yrs Burlington, VT (3) 1967 12-04-97 5 - 40 Yrs Cambridge, Canada (2) 1969 07-28-98 5 - 40 Yrs Kitchener (Waterloo), Canada (2) 1965 07-28-98 5 - 40 Yrs Peterbourough (Waterfront), Canada (2) 1965 07-28-98 5 - 40 Yrs Sarnia, Canada (2) 1970 07-28-98 5 - 40 Yrs Toronto (Airport), Canada (9) 1970 07-28-98 5 - 40 Yrs Toronto (Yorkdale), Canada (2) 1970 07-28-98 5 - 40 Yrs Total
F-30 81 FELCOR LODGING TRUST INCORPORATED SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED) Balance at December 31, 1997 $ 1,562,724 Depreciation expense during the period $ 50,682 ----------- Additions during the period 2,537,222 Balance at December 31, 1997 87,400 ----------- Balance at December 31, 1998 $ 4,099,946 Depreciation expense during the period 90,672 ----------- Additions during the period 247,116 Balance at December 31, 1998 $ 178,072 ----------- Balance at December 31, 1999 $ 4,347,062 Depreciation expense during the period 152,483 ----------- Sold Hotels in 2000 (31,921) Balance at December 31, 1999 $ 330,555 Hotels Held for Sale (206,000) Sold Hotels in 2000 Additions during the period 98,870 Hotels Held for Sale (13,706) =========== Depreciation expense during the period 160,452 Balance at December 31, 2000 $ 4,208,011 =========== Balance at December 31, 2000 $ 473,101
COST CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION --------------------------------- ------------------------------ BUILDINGS FURNITURE BUILDINGS FURNITURE AND AND AND AND DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES ----------------------- ------------ ---- ------------ ---------- ---- ------------ -------- Scottsdale (Downtown), AZ (4) 12,430 384 24 151 Boca Raton, FL (5) 5,433 2,796 468 243 1,316 Tampa (Busch Gardens), FL (5) 672 12,387 226 134 991 Atlanta (Downtown), GA (10) 2,025 17,618 608 25 202 Atlanta, (Downtown), GA (4) 1,266 11,017 380 213 494 Marietta, GA (12) 952 8,285 286 467 587 Davenport, IA (12) 434 3,776 130 405 372 Davenport, IA (2) 547 4,763 164 1,333 1,003 Moline, IL (12) 505 4,398 152 535 470 Moline (Airport), IL (2) 822 7,149 247 1,240 1,039 Moline (Airport), IL (13) 232 2,021 70 383 429 Colby, KS (13) 339 2,950 102 228 48 Great Bend, KS (2) 549 4,780 165 215 372 Hays, KS (12) 243 2,112 73 306 267 Hays, KS (2) 597 5,190 179 43 183 Salina, KS (2) 4,891 502 4,370 151 66 341 Salina (I-70), KS (13) 341 2,964 102 (14) 95 Jackson (Briarwood), MS (12) 626 747 6,501 224 144 191 Nashville (Airport), TN (5) 1,073 9,331 322 624 1,114 Dallas (Regal Row), TX (4) 778 6,770 233 19 76 Houston (Galleria), TX (10) 1,855 16,143 557 177 322 Houston (Galleria), TX (4) 465 4,047 140 19 135 Houston (I-10 East), TX (4) 586 5,099 176 66 300 Houston (I-10 East), TX (12) 478 4,155 143 196 236 ------ ------- -------- ------ ------ ------- Total $5,517 $21,441 $161,052 $5,682 $7,091 $10,734 Reserve for assets held for sale GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE ------------------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS; AND AND FURNITURE & FURNITURE & DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES ----------------------- ---- ------------ --------- ----- ------------- ------------- Scottsdale (Downtown), AZ (4) 12,454 535 12,989 731 12,258 Boca Raton, FL (5) 5,433 3,039 1,784 10,256 1,538 8,718 Tampa (Busch Gardens), FL (5) 672 12,521 1,217 14,410 2,118 12,292 Atlanta (Downtown), GA (10) 2,025 17,643 810 20,478 1,056 19,422 Atlanta, (Downtown), GA (4) 1,266 11,230 874 13,370 721 12,649 Marietta, GA (12) 952 8,752 873 10,577 631 9,946 Davenport, IA (12) 434 4,181 502 5,117 238 4,879 Davenport, IA (2) 547 6,096 1,167 7,810 328 7,482 Moline, IL (12) 505 4,933 622 6,060 282 5,778 Moline (Airport), IL (2) 822 8,389 1,286 10,497 455 10,042 Moline (Airport), IL (13) 232 2,404 499 3,135 148 2,987 Colby, KS (13) 339 3,178 150 3,667 195 3,472 Great Bend, KS (2) 549 4,995 537 6,081 344 5,737 Hays, KS (12) 243 2,418 340 3,001 131 2,870 Hays, KS (2) 597 5,233 362 6,192 338 5,854 Salina, KS (2) 502 4,436 492 5,430 307 5,123 Salina (I-70), KS (13) 341 2,950 197 3,488 186 3,302 Jackson (Briarwood), MS (12) 747 6,645 415 7,807 392 7,415 Nashville (Airport), TN (5) 1,073 9,955 1,436 12,464 1,240 11,224 Dallas (Regal Row), TX (4) 778 6,789 309 7,876 406 7,470 Houston (Galleria), TX (10) 1,855 16,320 879 19,054 1,010 18,044 Houston (Galleria), TX (4) 465 4,066 275 4,806 258 4,548 Houston (I-10 East), TX (4) 586 5,165 476 6,227 352 5,875 Houston (I-10 East), TX (12) 478 4,351 379 5,208 301 4,907 ------- -------- ------- -------- ------- -------- Total $21,441 $168,143 $16,416 $206,000 $13,706 $192,294 Reserve for assets held for sale (63,000) --------- $129,294 ========= LIFE UPON WHICH DEPRECIATION DATE OF DATE IN STATEMENT DESCRIPTION OF PROPERTY CONSTRUCTION ACQUIRED IS COMPUTED ----------------------- ------------ -------- ------------- Scottsdale (Downtown), AZ (4) 1970 07-28-98 5 - 40 Yrs Boca Raton, FL (5) 1989 11-15-95 5 - 40 Yrs Tampa (Busch Gardens), FL (5) 1985 11-15-95 5 - 40 Yrs Atlanta (Downtown), GA (10) 1963 07-28-98 5 - 40 Yrs Atlanta, (Downtown), GA (4) 1963 07-28-98 5 - 40 Yrs Marietta, GA (12) 1986 07-28-98 5 - 40 Yrs Davenport, IA (12) 1985 07-28-98 5 - 40 Yrs Davenport, IA (2) 1966 07-28-98 5 - 40 Yrs Moline, IL (12) 1985 07-28-98 5 - 40 Yrs Moline (Airport), IL (2) 1961 07-28-98 5 - 40 Yrs Moline (Airport), IL (13) 1996 07-28-98 5 - 40 Yrs Colby, KS (13) 1998 07-28-98 5 - 40 Yrs Great Bend, KS (2) 1964 07-28-98 5 - 40 Yrs Hays, KS (12) 1985 07-28-98 5 - 40 Yrs Hays, KS (2) 1966 07-28-98 5 - 40 Yrs Salina, KS (2) 1986 07-28-98 5 - 40 Yrs Salina (I-70), KS (13) 1997 07-28-98 5 - 40 Yrs Jackson (Briarwood), MS (12) 1985 07-28-98 5 - 40 Yrs Nashville (Airport), TN (5) 1988 06-05-97 5 - 40 Yrs Dallas (Regal Row), TX (4) 1969 07-28-98 5 - 40 Yrs Houston (Galleria), TX (10) 1968 07-28-98 5 - 40 Yrs Houston (Galleria), TX (4) 1968 07-28-98 5 - 40 Yrs Houston (I-10 East), TX (4) 1984 07-28-98 5 - 40 Yrs Houston (I-10 East), TX (12) 1969 07-28-98 5 - 40 Yrs Total Reserve for assets held for sale
1.Embassy Suites 19. Harvey Hotel 2.Holiday Inn 20. Westin 3.Sheraton 21. Harvey Suites 4.Fairfield Inn 5.Doubletree Guest Suites 6.Crowne Plaza 7.Doubletree 8.Independents 9.Holiday Inn Select 10.Courtyard by Marriott 11.Sheraton Suites 12.Hampton Inn 13.Holiday Inn Express 14.Hilton Suites 15.Holiday Inn Hotel & Suites 16.Homewood Suites 17.Bristol House(R) 18.Crowne Plaza Suites
F-31 82 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of FelCor Lodging Trust Incorporated: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' deficit and cash flows present fairly, in all material respects, the financial position of DJONT Operations, L.L.C. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years ended December 31, 2000, 1999 and 1998, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Dallas, Texas March 7, 2001 F-32 83 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (IN THOUSANDS)
ASSETS 2000 1999 ---- ---- Cash and cash equivalents ................................... $ 25,583 $ 20,127 Accounts receivable, net .................................... 30,689 28,601 Inventories ................................................. 4,367 4,260 Prepaid expenses ............................................ 3,084 1,444 Other assets ................................................ 2,907 5,791 Investment in real estate, net of accumulated depreciation of $482 in 2000 and $530 in 1999 ............................ 10,954 11,436 --------- --------- Total assets ........................................... $ 77,584 $ 71,659 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Accounts payable ............................................ $ 18,656 $ 12,742 Due to FelCor Lodging Trust Incorporated .................... 31,771 22,064 Accrued expenses and other liabilities ...................... 40,072 37,121 Minority interest ........................................... 3,927 5,113 Debt ........................................................ 7,695 7,761 --------- --------- Total liabilities ...................................... 102,121 84,801 --------- --------- Commitments and contingencies Shareholders' deficit: Capital ..................................................... 1 1 Accumulated deficit ......................................... (24,538) (13,143) --------- --------- Total shareholders' deficit ............................ (24,537) (13,142) --------- --------- Total liabilities and shareholders' deficit ............ $ 77,584 $ 71,659 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-33 84 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS)
2000 1999 1998 ---- ---- ---- Revenues: Room and suite revenue .................. $ 709,802 $ 649,323 $ 618,122 Food and beverage revenue ............... 112,594 87,212 77,834 Food and beverage rent .................. 5,045 5,212 4,792 Gain on sale of Brighton condos ......... 3,851 Other revenue ........................... 48,437 55,903 48,781 --------- --------- --------- Total revenues ................. 879,729 797,650 749,529 --------- --------- --------- Expenses: Property operating costs ................ 194,810 190,798 169,955 General and administrative .............. 65,970 61,025 56,995 Advertising and promotion ............... 67,691 56,450 51,105 Repair and maintenance .................. 41,048 38,555 36,374 Utilities ............................... 32,039 29,700 28,799 Management and incentive fees ........... 24,766 22,514 23,636 Franchise fees .......................... 20,330 19,253 18,102 Food and beverage expenses .............. 84,542 66,514 65,924 Percentage lease expenses ............... 344,699 307,532 289,891 Lessee overhead expenses ................ 1,073 991 1,990 Liability insurance ..................... 3,227 2,518 1,258 Interest expense ........................ 618 682 Depreciation and amortization ........... 482 530 Minority interest ....................... 3,243 (90) Other ................................... 6,403 5,589 4,656 --------- --------- --------- Total expenses ................. 890,941 802,561 748,685 --------- --------- --------- Net income (loss) ............................... $ (11,212) $ (4,911) $ 844 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-34 85 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS) Balance at December 31, 1998 ................... $ (8,231) Net loss ....................................... (4,911) -------- Balance at December 31, 1999 ................... $(13,142) Net loss ....................................... (11,212) Distributions .................................. (183) -------- Balance at December 31, 2000 ................... $(24,537) ========
The accompanying notes are an integral part of these consolidated financial statements. F-35 86 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS)
2000 1999 1998 ------ ------ ----- Cash flows from operating activities: Net income (loss) ............................................................ $(11,212) $ (4,911) $ 844 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ................................................ 482 530 Minority interest in partnership income ...................................... 3,243 (90) Changes in assets and liabilities: Accounts receivable ..................................................... (2,088) (1,040) (7,287) Inventories ............................................................. (107) 121 (915) Prepaid expenses ........................................................ (1,640) (973) 836 Other assets ............................................................ 2,668 (1,744) 950 Due to FelCor Lodging Trust Incorporated ................................ 9,707 5,189 (2,033) Accounts payable, accrued expenses and other liabilities ................ 8,865 (5,488) 10,459 -------- -------- -------- Net cash flow provided by (used in) operating activities ........... 9,918 (8,406) 2,854 -------- -------- -------- Cash flows used in financing activities: Distributions paid to minority interest .............................. (4,213) Distributions to owners .............................................. (183) Repayment of borrowings .............................................. (66) (5) -------- -------- -------- Net cash flow used in financing activities ...................... (4,462) (5) -------- -------- -------- Net change in cash and cash equivalents .............................................. 5,456 (8,411) 2,854 Cash and cash equivalents at beginning of years ...................................... 20,127 28,538 25,684 -------- -------- -------- Cash and cash equivalents at end of years ............................................ $ 25,583 $ 20,127 $ 28,538 ======== ======== ======== Supplemental cash flow information - interest paid ................................... $ 618 $ 682 -------- --------
The accompanying notes are an integral part of these consolidated financial statements. F-36 87 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Effective January 1, 2001, subject to the receipt of certain lender consents, FelCor Lodging Limited Partnership (the "Operating Partnership") acquired and contributed to a wholly owned consolidated subsidiary, all of the equity interests in DJONT. In consideration for the acquisition of DJONT, the Operating Partnership issued an aggregate of 416,667 units of limited partnership interest valued at approximately $10 million to DJONT's shareholders. Eighty-five of the hotels in which the Operating Partnership had an ownership interest at December 31, 2000 (the "Hotels"), were leased to DJONT pursuant to percentage leases ("Percentage Leases"). Certain entities owning interests in DJONT and the managers of certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. No loans were outstanding under such agreements at December 31, 2000. At December 31, 2000, 59 of the Hotels were operated as Embassy Suites(R) hotels, 14 were operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, ten were operated as Sheraton(R) or Sheraton Suites(R) hotels, one was operated as a Westin(R) hotel and one was operated as a Hilton Suites(R) hotel. Seventy-one of the Hotels were managed by subsidiaries of Hilton Hotels Corporation ("Hilton"). Hilton is the largest operator of all-suite, full-service hotels in the United States. Of the remaining Hotels, 11 were managed by subsidiaries of Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") and three were managed by independent management companies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation -- Investments in affiliates in which the Company has the ability to exercise significant influence, but not control, are accounted for by the equity method. All other investments in affiliates are carried at cost. Intercompany transactions are eliminated. Use of Estimates -- The preparation of the financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Inventories -- Inventories are stated at the lower of cost or market. Investment in Real Estate -- Hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives of forty years for buildings and improvements and five to seven years for furniture, fixtures, and equipment. The carrying value of the property is periodically reviewed to determine if circumstances indicate an impairment in the carrying value of the investment or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, DJONT will prepare a projection of the undiscounted future cash flows, without interest charges, of the hotel and determine if the investment in the property is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the real estate based on discounted future cash flows. DJONT does not believe that there are any factors or circumstances indicating impairment of any of its investment in real estate. F-37 88 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Revenue Recognition -- Revenue is recognized as earned. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the portion of accounts receivable which is estimated to be uncollectible. Such losses have been within management's expectations. Income Taxes -- At December 31, 2000, DJONT was a limited liability company which is taxed for federal income tax purposes as a partnership and, accordingly, all taxable income or loss flows through to the shareholders. 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Percentage Lease expense is based on a percentage of room and suite revenues, food and beverage revenues, and food and beverage rents of the Hotels. Both the base rent and the threshold room and suite revenue in each lease computation is subject to adjustments in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year for the hotels acquired prior to July of the previous year. The adjustment in any lease year may not exceed 7%. The CPI adjustments made in January 2001, 2000 and 1999 were 1.05%, 0.55% and 0.55%, respectively. Other than real estate and personal property taxes, casualty insurance, capital improvements and maintenance of underground utilities and structural elements, which are obligations of the Operating Partnership, the Percentage Leases require DJONT to pay rent, liability insurance premiums, operating costs, utilities and other charges incurred in the operation of the leased hotels. DJONT typically pays a franchise fee ranging from 4% to 5% of suite revenue, and marketing and reservation fees ranging from 1% to 3.5% of room and suite revenue. In the cases where there is not a separate franchise agreement, the right to use the brand name is included in the management agreement. Base management fees typically range from 2% to 3% of applicable hotel revenues. Incentive management fees are based upon the hotel's net income before overhead and typically range from 50% to 100% subject to a maximum annual payment of between 2% and 3% of total revenues. In many cases managers and franchisors have agreed to subordinate all or a portion of their fees at a specific hotel or group of hotels either for a set period of time, or until the hotel or group of hotels provides a predetermined return to the Lessee, or both. DJONT shares the executive offices and certain employees with FelCor and FelCor, Inc., and each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel, office supplies, telephones and depreciation of office furniture, fixtures and equipment. Such allocation of shared expenses is approved by a majority of FelCor's independent directors. During 2000, 1999 and 1998, DJONT paid approximately $752,000 (approximately 10%), $660,000 (approximately 10%) and $1.6 million (approximately 37%), respectively, of the allocable expenses under this agreement. 4. GAIN ON SALE OF ASSETS DJONT holds 3% equity interest and 100% voting interest in Kingston Plantation Development Corporation ("KPDC") and records the results of its operations on a consolidated basis. During 2000, an entity in which KPDC owns a 50% equity interest completed the construction and sale of 200 condominium units adjacent to the Embassy Suites hotel - Myrtle Beach at Kingston Plantation, SC. DJONT F-38 89 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. GAIN ON SALE OF ASSETS-- (CONTINUED) has included in total revenue a $3.9 million gain on the sale of the condominiums by the venture. KPDC's 97% non-voting interest is shown as minority interest expense. KPDC distributed $4.2 million to its shareholders during the quarter, of which $126,000 represented DJONT's 3% equity interest. 5. DEBT DJONT has reflected as a liability, a mortgage note, dated November 24, 1998, from a wholly-owned subsidiary of KPDC payable to FelCor Lodging Limited Partnership. The note bears a fixed interest rate of 8% per annum with a 30 year amortization and matures on December 31, 2004. The indebtedness is collateralized by a Mortgage and Assignment of Leases and Rents with respect to the New Orleans Embassy Suites Hotel Annex. Future scheduled principal payments on the debt are as follows (in thousands): 2001.................................. $ 71 2002.................................. 77 2003.................................. 83 2004.................................. 7,464 ------- $ 7,695 =======
6. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 2000. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management estimates the fair value of accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; and the borrowing under the mortgage note approximates carrying value because it accrues interest at a fixed rate which approximates market rates. 7. SUPPLEMENTAL CASH FLOW DISCLOSURE DJONT recorded certain real estate and assumed certain liabilities in connection with its investment in KPDC in 1999. The assets and liabilities, related to KPDC and recorded at December 31, 1999, are as follows (in thousands): Investment in real estate......................... $11,436 Other assets acquired............................. 1,458 ------- $12,894 ======= Liabilities assumed............................... $ 7,781 Minority interest contribution.................... 5,113 ------- $12,894 =======
F-39 90 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. SUPPLEMENTAL CASH FLOW DISCLOSURE -- (CONTINUED) During 2000, KPDC's unconsolidated subsidiary distributed land with a carrying value of $342,000 to the minority interest holder. Accordingly, KPDC has reduced its investment in the joint venture and reduced minority interest by the corresponding amount. F-40 91 INDEPENDENT AUDITORS' REPORT To the Stockholder Bristol Hotels & Resorts Tenant Companies We have audited the accompanying combined balance sheet of Bristol Hotels & Resorts Tenant Companies (the "Company") as of December 31, 2000, and the related combined statements of operations, stockholder's equity, and cash flows for the nine months ended December 31, 2000. We have also audited the combined statements of operations, stockholder's equity, and cash flows for the three months ended March 31, 2000 (Predecessor). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2000, and the results of its operations and its cash flows for the nine months ended December 31, 2000 and for the three months ended March 31, 2000 (Predecessor) in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP March 30, 2001 Atlanta, GA F-41 92 BRISTOL HOTELS & RESORTS TENANT COMPANIES COMBINED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA) --------------------------------------------------------------------------------
DECEMBER 31, ASSETS 2000 CURRENT ASSETS: Cash and cash equivalents $ 3,494 Accounts receivable - Net of allowance of $1,067 36,214 Inventory 6,628 Prepaid rent 14,672 Deferred tax 5,696 Other current assets 4,683 -------- Total current assets 71,387 INTANGIBLE ASSET - Net of amortization of $5,735 124,265 DEFERRED INCOME TAX 354 -------- $196,006 ======== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 26,725 Accrued occupancy, sales and use tax 6,817 Accrued rent 11,117 Advance deposits 2,830 Due to parent and affiliates 17,509 -------- Total current liabilities 64,998 -------- COMMITMENTS AND CONTINGENCIES -- STOCKHOLDER'S EQUITY: Common stock ($0.01 par value, 5,000 shares (issued and outstanding) -- Paid-in capital 129,324 Retained earnings 1,684 -------- Total stockholder's equity 131,008 -------- $196,006 ========
See notes to combined financial statements. F-42 93 On April 2, 2000, Bass PLC, through its wholly owned subsidiary Bass (U.S.A.), Inc. ("Bass"), acquired all of the outstanding shares of common stock of Bristol Hotels & Resorts. The purchase method of accounting was used to record assets acquired and liabilities assumed by Bass. As a result of the acquisition, purchase accounting, and certain costs of the Predecessor, the accompanying financial statements of the Predecessor and the Company are not comparable in all material respects since the financial statements report results of operations, stockholder's equity and cash flows of these two separate entities. BRISTOL HOTELS & RESORTS TENANT COMPANIES COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS) --------------------------------------------------------------------------------
COMPANY PREDECESSOR ------------------- -------------------- FOR THE NINE MONTHS FOR THE THREE MONTHS ENDED DECEMBER 31, ENDED MARCH 31, 2000 2000 REVENUE Rooms $ 461,978 $ 143,952 Food and beverage 115,176 36,645 Other 27,657 4,000 --------- --------- Total revenue 604,811 184,597 OPERATING COSTS AND EXPENSES Departmental expenses: Rooms 128,721 40,241 Food and beverage 84,817 26,454 Other operating departments 11,216 3,842 Undistributed operating expenses: Administrative and general 57,920 21,159 Marketing 42,377 14,171 Property occupancy costs 70,338 16,306 Tenant lease expense 199,338 62,916 Depreciation and amortization 5,735 175 --------- --------- Total operating costs and expenses 600,462 185,264 --------- --------- OPERATING INCOME (LOSS) 4,349 (667) INTEREST INCOME 133 35 --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 4,482 (632) INCOME TAX EXPENSE (BENEFIT) 2,798 (267) --------- --------- NET INCOME (LOSS) $ 1,684 $ (365) ========= =========
See notes to combined financial statements. F-43 94 On April 2, 2000, Bass PLC, through its wholly owned subsidiary Bass (U.S.A.), Inc. ("Bass"), acquired all of the outstanding shares of common stock of Bristol Hotels & Resorts. The purchase method of accounting was used to record assets acquired and liabilities assumed by Bass. As a result of the acquisition, purchase accounting, and certain costs of the Predecessor, the accompanying financial statements of the Predecessor and the Company are not comparable in all material respects since the financial statements report results of operations, stockholder's equity and cash flows of these two separate entities. BRISTOL HOTELS & RESORTS TENANT COMPANIES COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY (In Thousands) --------------------------------------------------------------------------------
CAPITAL IN TOTAL COMMON EXCESS OF RETAINED STOCKHOLDER'S STOCK PAR VALUE EARNINGS EQUITY ------ --------- ---------- ------------- PREDECESSOR: BALANCES at December 31, 1999 -- $ 10,040 $ 1,105 $ 11,145 Net (Loss) (365) (365) ---- --------- --------- --------- BALANCES at March 31, 2000 -- $ 10,040 $ 740 $ 10,780 ---- ========= ========= ========= -------------------------------------------------------------------------------------------------- COMPANY: Purchase of assets and assumption of liabilities -- $ 129,324 $ -- $ 129,324 Net Income -- 1,684 1,684 ---- --------- --------- --------- BALANCES at December 31, 2000 -- $ 129,324 $ 1,684 $ 131,008 ==== ========= ========= =========
See notes to combined financial statements. F-44 95 On April 2, 2000, Bass PLC, through its wholly owned subsidiary Bass (U.S.A.), Inc. ("Bass"), acquired all of the outstanding shares of common stock of Bristol Hotels & Resorts. The purchase method of accounting was used to record assets acquired and liabilities assumed by Bass. As a result of the acquisition, purchase accounting, and certain costs of the Predecessor, the accompanying financial statements of the Predecessor and the Company are not comparable in all material respects since the financial statements report results of operations, stockholder's equity and cash flows of these two separate entities BRISTOL HOTELS & RESORTS TENANT COMPANIES COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS) --------------------------------------------------------------------------------
COMPANY PREDECESSOR ------------ ------------- FOR THE NINE FOR THE THREE MONTHS ENDED MONTHS ENDED DECEMBER 31, TO MARCH 31, 2000 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,684 $ (365) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 5,735 175 Accounts receivable 1,992 (5,611) Inventory (473) (257) Prepaid rent 958 (1,517) Deferred income tax (1,492) (1,182) Other current assets (3,494) (67) Other assets -- 10 Accounts payable and accrued expenses (5,319) 5,637 Accrued sales and use tax (1,720) 2,211 Accrued rent (4,828) 7,464 Advance deposits (613) 1,007 Due to parent and affiliates 7,697 (7,449) ------- ------- Net cash provided by operating activities 127 56 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Improvements to property and equipment -- (687) ------- ------- Net cash used in investing activities -- (687) ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 127 (631) ------- ------- CASH AND CASH EQUIVALENTS, beginning of period 3,367 3,998 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 3,494 $ 3,367 ======= =======
See notes to combined financial statements. F-45 96 BRISTOL HOTELS & RESORTS TENANT COMPANIES NOTES TO THE COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 AND THREE MONTHS ENDED MARCH 31, 2000 (PREDECESSOR) -------------------------------------------------------------------------------- 1. ORGANIZATION Bristol Hotel & Resorts Tenant Companies (the "Company" and "Predecessor"), represent five wholly owned subsidiaries of Bristol Hotels & Resorts (BH&R), a Delaware corporation, which operate as a single segment within the hospitality industry. On April 2, 2000, Bass PLC, through a subsidiary, Bass (U.S.A.), Inc., completed the acquisition of the remaining outstanding 90.1% of ownership interest in BH&R for total consideration of $157 million. Together the Company accounts for the operations of 101 hotels and properties, operated pursuant to long term operating leases. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principals of Combination - The accompanying combined financial statements include the accounts of the following five tenant companies: Bristol Hotel Tenant Company, Bristol Lodging Tenant Company, Bristol Hospitality Tenant Company, Bristol Salt Lake Tenant Company, and Bristol Hotel Tenant Company Canada. All significant intercompany accounts and transactions have been eliminated. The effects of the purchase transaction on April 2, 2000, mentioned above, have been reflected within the financial statements of the Company. Assets and liabilities assumed in the purchase were recorded at fair value as of March 31, 2000, the effective date of the transaction. Excess of the amount paid over working capital has been recorded as purchased operating leases. Cash and Cash Equivalents - Cash and cash equivalents include unrestricted cash in banks and cash on hand. Liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Inventory - Inventory, consisting primarily of food and beverage products as well as consumable supplies, is carried at the lower of cost or market. Cost is determined on the first-in, first-out basis. Prepaid Rent - In accordance with property leases with FelCor Lodging Trust ("FelCor"), the Company must prepay each month's base rent on the last day of the prior month. At December 31, 2000, this amount was approximately $14.7 million. Intangible Asset - The cost of purchased operating leases is being amortized on a straight-line basis over the remaining lives of the lease contracts, approximately 17 years. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported as assets and liabilities and contingent assets and liabilities in these financial statements. Actual results could differ from these estimates. Recognition of Revenue - Revenue is recognized when services are rendered. Services are deemed to be rendered at the date upon which a guest occupies a room and/or utilizes the hotel's services. F-46 97 Long-Lived Assets - The Company reviews long-lived assets used in operations and goodwill when indicators of impairment are present. Impairment losses are recorded when the undiscounted cash flows estimated to be generated by those assets are less than the asset's carrying amount. Income Taxes - The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. New Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and in June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. The Company adopted the provisions of SFAS 133 and the corresponding amendments under SFAS 138 on October 1, 2000. SFAS 133, as amended by SFAS 138, does not have a material impact on the Company's combined results of operations, financial position, or cash flows. 3. FELCOR LEASES Of the 101 hotels operated by the Company, 100 are subject to long-term operating leases with FelCor. The principal terms of the FelCor leases are summarized below, although certain terms vary from hotel to hotel. Term - The leases are for initial terms of three to 15 years, with renewal options on the same terms for a total of 15 years. If a lease has been extended to 15 years, the Company may renew the lease for an additional five years at then current market rates. F-47 98 Rent - The Company will pay rent equal to the greater of base rent or percentage rent (contingent rent). The percentage rent is based on specified percentages of various revenue streams. Those percentages will vary within the following ranges: Room revenues: 0% to 10% up to a first revenue breakpoint amount specified for each hotel, then 70% from such first breakpoint to the second revenue breakpoint, then 60% thereafter. Food and beverage revenues: 5% to 25% Other revenues: Varying percentages depending on the nature and source of such revenues.
The base rent and the thresholds for computing percentage rent under the leases will be adjusted annually to reflect changes in the Consumer Price Index. Rent may be renegotiated if there are material changes in the markets in which the Company operates. Base rent paid for the nine months ended December 31, 2000 was $138.3 million and for the three months ended March 31, 2000 (Predecessor) was $43.3 million. The remaining tenant lease expense was percentage rent in excess of the base amount of $61.0 million and $19.6 million for the nine months ended December 31, 2000 and for the three months ended March 31, 2000 (Predecessor), respectively. Future minimum (base) lease payment amounts at December 31, 2000 are as follows (in thousands): 2001 $188,065 2002 193,707 2003 199,518 2004 196,081 2005 195,318 Thereafter 694,067 ---------- $1,666,756 ==========
Termination - Upon the sale of a property to a third party, FelCor may terminate the lease. The Company would be entitled to damages upon any termination to which it did not consent consisting of a monthly payment equal to one-twelfth of 75% of the cash flow derived from the lease for the prior 12 months. The payment, for the majority of the assets, would be due for a period equal to the remainder of the lease term for the terminated lease. A lease may also be terminated by FelCor if the Company fails to satisfy certain performance targets, liquid net worth tests, defaults under a franchise agreement, or for other criteria. Either party may terminate upon a breach by the other party of the agreements under the lease. F-48 99 Insurance, Property Taxes, and Ground Leases - FelCor will pay all real estate and personal property taxes (other than with respect to personal property of the Company), property insurance premiums, and ground lease payments on the leased hotels. The Company will pay for all liability insurance on the leased hotels, which includes extended coverage, comprehensive general public liability, and other insurance appropriate and customary for properties similar to the leased hotels. 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following at December 31, 2000 (in thousands): Accrued payroll $12,805 Accrued utilities 2,666 Accrued franchise fees 2,509 Trade accounts payable 686 Other accrued expenses 8,059 ------- $26,725 =======
5. RELATED PARTY TRANSACTIONS A subsidiary of BH&R maintains centralized disbursement and cash management systems, and from time to time may advance sums for payment of expenses on behalf of the Company prior to receiving reimbursement. This may result in amounts due to or from the Parent and affiliates. As of December 31, 2000, the Company owed BH&R and affiliates approximately $17.5 million. A reconciliation of cash transferred to other BH&R subsidiaries and expenses paid on behalf of the company by other subsidiaries for the three and nine months ended March 31, 2000 (Predecessor) and December 31, 2000, respectively, follows (in thousands): Due to parent and affiliates, December 31, 1999 (Predecessor) $ 12,755 Net cash transferred to other BH&R subsidiaries (178,985) Expenses paid on behalf of Company 171,536 --------- Due to parent and affiliates, March 31, 2000 (Predecessor) 5,306 Net cash transferred to other BH&R subsidiaries (606,801) Expenses paid on behalf of Company 619,004 --------- Due to parent and affiliates, December 31, 2000 $ 17,509 =========
A subsidiary of the BH&R provides management services for the leased properties. The fees are based on a percentage of revenues. The Company paid management fees for the nine months ended December 31, 2000 of $16.8 million for the three months ended March 31, 2000 (Predecessor) of $5.6 million. These amounts are included in property occupancy costs on the accompanying statements of operations. A subsidiary of BH&R owns its own proprietary hotel brands, Harvey Hotels and Bristol. Five properties operated by the Company operate hotels under these brands, and incurred royalty fees of $1.2 million for the nine months ended December 31, 2000 and $0.5 million for the three months F-49 100 ended March 31, 2000 (Predecessor). These amounts are included in rooms departmental expense on the accompanying statements of operations. The Company has entered into Franchise Agreements with Bass or its affiliates, that generally require the payment of franchise fees of 5% of room revenues. Amounts paid to Bass pursuant to franchise agreements and related marketing, reservation services, frequent guest programs, and royalty fee agreements were $37.4 million for the nine months ended December 31, 2000 and $11.3 million for the three months ended March 31, 2000 (Predecessor). 7. INCOME TAXES The Company files a consolidated federal income tax return with Bass (U.S.A.) Incorporated, its ultimate U.S. parent company. The Company's income tax provision and related tax asset and liability accounts are computed as if the Company filed a separate income tax return. The Company's current federal tax liability is shown on the accompanying balance sheets as a component of the Payable to affiliated company balance. The state income tax receivable or liability is separately stated. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax asset balance as of December 31, 2000 are (in thousands):
U.S. CANADA TOTAL --- ------ ----- Allowance for accounts receivable $ 429 $ 429 Accrued expenses 2,050 2,050 Accrued reserves 3,217 3,217 ------ ------ Total current deferred tax assets 5,696 5,696 Depreciation 635 $(281) 354 ------ ----- ------ Total long-term deferred tax assets 635 (281) 354 ------ ----- ------ Total deferred tax assets $6,331 $(281) $6,050 ====== ===== ======
F-50 101 Significant components of the provision (benefit) for income taxes for the nine months ended December 31, 2000 and the three months ended March 31, 2000 (Predecessor) are as follows (in thousands):
COMPANY PREDECESSOR ----------------- ------------------ NINE MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, 2000 MARCH 31, 2000 FEDERAL: Current $ 3,216 $ 859 Deferred (1,292) (989) STATE: Current 580 56 Deferred (222) (170) CANADA: Current 494 Deferred 22 (23) ------- ----- $ 2,798 $(267) ======= =====
A reconciliation between the income tax expense recognized in the Company's consolidated statement of operations and the income tax expense computed by applying the U.S. statutory federal income tax rate to earnings before income tax is as follows (in thousands):
COMPANY PREDECESSOR ------------------------------ --------------------------- NINE MONTHS THREE MONTHS ENDED ENDED DECEMBER 31, 2000 PERCENTAGE MARCH 31, 2000 PERCENTAGE ----------------- ---------- -------------- ---------- Income tax expense at the U.S. federal statutory rate $1,569 35.0% $ (221) 35.0% Effect of non-deductible goodwill and other permanent differences 902 20.1% 47 (7.4)% State income taxes, net of federal benefit and permanent differences 148 3.3% (10) 1.6% Effect of higher Canadian tax rates 179 4.0% (83) 13.0% ------ ----- ------ ----- $2,798 62.4% $ (267) 42.2% ====== ===== ====== =====
8. BENEFITS The Company offers a Profit Sharing Plan and Trust ("401(k) Plan") to certain employees. The 401(k) Plan is designed to be a qualified trust under Section 401 of the Internal Revenue Code. Under the 401(k) Plan, eligible employees are allowed to defer up to 16% of their income on a pretax basis through contributions to the 401(k) Plan; however, only the first 6% of pretax income is subject to matching by the Company. The Company automatically makes matching contributions of 50% of the employees' matchable contributions and may elect to make matching contributions of up to an additional 50% of the employees' matchable contributions subject to certain performance F-51 102 measures of the Company. Management of the Company decided not to contribute matching contributions for the nine months ended December 31, 2000. The Company provided for matching contributions for the three months ended March 31, 2000 (Predecessor) of $0.6 million. 9. COMMITMENTS AND CONTINGENCIES Substantially all of the Company's hotel properties are operated pursuant to franchise or license agreements ("Franchise Agreements"), primarily with Bass or its affiliates. The Company also operates hotels under franchise agreements with Marriott International, Inc. Hilton Hotels Corporation (formerly Promus Hotels, Inc.), Hawthorn Suites Franchising, Incorporated, and ITT Sheraton Corporation. The Franchise Agreements generally require the payment of a monthly royalty fee based on gross room revenue and various other fees associated with certain marketing or advertising and centralized reservation services, also generally based on gross room revenues. The Franchise Agreements have various durations through the year 2018, and generally may not be terminated without the payment of substantial fees. Franchise marketing and royalty fees of $3.6 million for the nine months ended December 31, 2000 and $1.1 million for the three months ended March 31, 2000 (Predecessor), were paid. The Franchise Agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels, which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage, and protection of trademarks. Compliance with such standards may from time to time require significant expenditures for capital improvements, which would be paid by the property owner. The Company is currently involved in certain guest and customer claims, employee wage claims, and other disputes arising in the ordinary course of business. In the opinion of management, the pending litigation will not have a materially adverse effect on the Company's financial position or results of operations. 11. FAIR VALUE The Company has estimated the fair value of its financial instruments at December 31, 2000, as required by Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are reasonable estimates of the fair values. 12. FOREIGN OPERATIONS As discussed in Note 1, all operations of the Company are part of the hospitality services industry and it currently reports as a single industry segment. Foreign operations were conducted in Canada in 2000. Revenues generated from Canadian operations were $32.1 million and $9.2 million for the nine months ended December 31, 2000 and three months ended March 31, 2000 (Predecessor), respectively. The Company did not allocate values for purchased operating leases to individual properties. Therefore, an amount related to purchased operating leases has not been disclosed for the Canadian properties. F-52 103 13. SUBSEQUENT EVENTS The Company sold the leases and transferred the assets of 12 hotels maintained under operating leases to FelCor for consideration of 413,585 shares of FelCor common stock effective January 1, 2001. FelCor has entered into short-term management contracts with Bass to manage two of these 12 hotels. In addition, the Company has entered into an agreement with FelCor to sell the remaining 88 leases effective July 1, 2001. In consideration for the sale of such leases, FelCor will enter into long-term management agreements with Bass and issue 100 shares of FelCor common stock to Bass. F-53 104 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 - Agreement and Plan of Merger by and between the Registrant and Bristol Hotel Company ("Bristol") dated as of March 23, 1998 (filed as Exhibit 2.1 to the Registrant's Form 8-K dated April 23, 1998, and incorporated herein by reference). 3.1 - Articles of Amendment and Restatement dated June 22, 1995, amending and restating the Charter of the Registrant, as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996, Articles of Amendment dated August 8, 1996, Articles of Amendment dated June 16, 1997, Articles of Amendment dated October 30, 1997, Articles Supplementary dated May 6, 1998, Articles of Merger and Articles of Amendment dated July 27, 1998, and Certificate of Correction dated March 11, 1999 (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K") and incorporated herein by reference). 3.1.1 - Certificate of Correction to the Articles of Merger between FelCor Lodging Trust Incorporated and Bristol Hotel Company, dated August 31, 1999 (filed as Exhibit 3.1.1 to the Registrant's Form 10-Q dated September 30, 1999 ("September 1999 10-Q") and incorporated herein by reference). 3.2 - Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-11 (file no. 333-98332) and incorporated herein by reference). 4.1 - Form of Share Certificate for Common Stock (filed as Exhibit 4.1 to the Registrant's Form 10- Q for the quarter ended June 30, 1996, and incorporated herein by reference). 4.2 - Form of Share Certificate for $1.95 Series A Cumulative Convertible Preferred Stock (filed as Exhibit 4.4 to the Registrant's Form 8-K dated May 1, 1996, and incorporated herein by reference). 4.3 - Form of Share Certificate for 9% Series B Cumulative Redeemable Preferred Stock (filed as Exhibit 4.5 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 4.4 - Deposit Agreement dated April 30, 1998, between the Registrant and SunTrust Bank, Atlanta, as preferred share depositary (filed as Exhibit 4.6 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 4.5 - Form of Depositary Receipt evidencing the Depositary Shares (filed as Exhibit 4.7 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 4.6 - Indenture dated as of April 22, 1996 by and between the Registrant and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registrant's Form 8-K dated May 1, 1996 and incorporated herein by reference). 4.7 - Indenture dated as of October 1, 1997 by and among FelCor Lodging Limited Partnership, formerly FelCor Suites Limited Partnership (the "Partnership"), the Registrant, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (file no. 333-39595) and the other co- registrants named therein and incorporated herein by reference). 4.7.1 - First Amendment to Indenture dated as of February 5, 1998 by and among the Registrant, the Partnership, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-4 (file no. 333-39595) and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.7.2 - Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998, by and among the Registrant, the Partnership, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference). 4.7.3 - Third Amendment to Indenture dated as of March 30,1999 by and among the Partnership, the Registrant, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta (filed as Exhibit 4.7.3 to the Registrant's Form 10-Q for the quarter ended March 31,1999 ("March 1999 10-Q") and incorporated herein by reference). 4.7.4 - Second Supplemental Indenture dated as of August 1, 2000, by and among the Partnership, the Registrant, the Subsidiary Guarantors named therein, who are signatories thereto, and SunTrust Bank (filed as Exhibit 4.2.4 to the Partnership's Registration Statement on Form S-4 (file no. 333- 47506) and incorporated herein by reference). 4.8 - Indenture dated as of September 15, 2000, by and among the Partnership, the Registrant, the Subsidiary Guarantors named therein, and SunTrust Bank, as Trustee (filed as Exhibit 4.3 to the Partnership's Registration Statement on Form S-4 (file no. 333-47506) and incorporated herein by reference). 10.1 - Amended and Restated Agreement of Limited Partnership of the Partnership (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 1994 (the "1994 10-K/A") and incorporated herein by reference). 10.1.1 - First Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 17, 1995 by and among the Registrant, Promus Hotels, Inc. and all of the persons or entities who are or shall in the future become of the limited partners of the Partnership (filed as Exhibit 10.1.1 to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1995 (the "1995 10-K") and incorporated herein by reference). 10.1.2 - Second Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 9, 1996 between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.2 to the Registrant's 1995 10-K and incorporated herein by reference). 10.1.3 - Third Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, MarRay-LexGreen, Inc. and all of the persons and entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.3 to the Registrant's 1995 10-K and incorporated herein by reference). 10.1.4 - Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of January 10, 1996 by and among the Registrant, Piscataway-Centennial Associates Limited Partnership and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.4 to the Registrant's 1995 10-K and incorporated herein by reference). 10.1.5 - Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 2 to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 2, 1996 (filed as Exhibit 10.1.5 to the Registrant's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.1.6 - Sixth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of September 16, 1996, by and among the Registrant, John B. Urbahns, II and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 10.1.7 - Seventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 16, 1997, by and among the Registrant, PMB Associates, Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 10.1.8 - Eighth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 6, 1998, by and among the Registrant, Columbus/Front Ltd. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference). 10.1.9 - Ninth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 1, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, adopting Addendum No. 3 to Amended and Restated Agreement of Limited Partnership dated as of May 1, 1998 (filed as Exhibit 10.1.9 to the Registrant's Form 8-K dated May 29, 1998, and incorporated herein by reference). 10.1.10 - Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of June 22, 1998, by and among the Registrant, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.10 to the Registrant's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 10.1.11 - Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of July 28, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, changing the name of the Partnership to "FelCor Lodging Limited Partnership" (filed as Exhibit 10.1.11 to the Registrant's Form 10-Q for the quarter ended October 30, 1998, and incorporated herein by reference). 10.1.12 - Twelfth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 29, 1998, between the Registrant and all of the persons or entities who are or shall in the future become limited partners of the Partnership, amending certain provisions of the Partnership Agreement (filed as Exhibit 10.1.12 to the Registrant's 1998 10-K and incorporated herein by reference). 10.1.13 - Thirteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 31, 1998, by and between the Registrant, FelCor Nevada Holdings, L.L.C. and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.13 to the Registrant's 1998 10-K and incorporated herein by reference). 10.1.14 - Fourteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of March 1, 1999, by and among the Registrant, Huie Properties, Ltd., and all of the persons or entities who are or shall in the future become limited partners of the Partnership (filed as Exhibit 10.1.14 to the Registrant's 1998 10-K and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.1.15 - Fifteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of October 15, 1999, by and among the Registrant, SRS Properties Limited Partnership, and all of the persons and entities who are or shall in the future become limited partners of the Partnership. (filed as Exhibit 10.1.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 10-K") and incorporated herein by reference). 10.1.16 - Sixteenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 27, 2000, by and among the Registrant, Bass America, Inc., and all of the persons and entities who are or shall in the future become limited partners of the Partnership. (filed as Exhibit 10.1.16 to the Registrant's 1999 10-K and incorporated herein by reference). 10.1.17* - Seventeenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 1, 2000, by and among the Registrant, Bass America, Inc., and all of the persons and entities who are or shall in the future become limited partners of the Partnership. 10.2 - Form of Lease Agreement between the Partnership as Lessor and DJONT Operations, L.L.C. or its subsidiaries ("DJONT") as Lessee (filed as Exhibit 10.2.1 to the Registrant's 1995 10-K and incorporated herein by reference). 10.2.1 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among the Registrant, the Partnership and DJONT to clarify the meaning of Article III of the lease as represented by the actual course of dealing between lessors and lessees under such leases (filed as Exhibit 10.19 to the Registrant's Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.3 - Form of Lease Agreement between the Partnership as Lessor and a subsidiary of Bristol Hotels & Resorts ("BHR") as Lessee (the "Bristol Lease Agreement") (filed as Exhibit 10.3 to the Registrant's 1998 10-K and incorporated herein by reference). 10.3.1 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among the Registrant, the Partnership, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to the Registrant's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.4 - Employment Agreement dated as of July 28, 1994 between the Registrant and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to the Registrant's 1994 10-K/A and incorporated herein by reference). 10.5 - Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9 to the Registrant's 1994 10- K/A and incorporated herein by reference). 10.6 - Savings and Investment Plan of the Registrant (filed as Exhibit 10.10 to the Registrant's 1994 10- K/A and incorporated herein by reference). 10.7 - 1995 Restricted Stock and Stock Option Plan of the Registrant (filed as Exhibit 10.9.2 to the Registrant's 1995 10- K and incorporated herein by reference). 10.8 - Non-Qualified Deferred Compensation Plan, as amended and restated July 1999 (filed as exhibit 10.9 to the Registrant's Form 10-Q for the quarter ended September 30,1999 ("September 1999 10-Q") and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.9 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 (file no. 333-66041) and incorporated herein by reference). 10.10 - Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to the Registrant's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (file no. 333-50509) and incorporated herein by reference). 10.11 - Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to the Registrant's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (file no. 333-50509) and incorporated herein by reference). 10.12 - Form of Severance Agreement for executive officers and certain key employees of the Registrant (filed as Exhibit 10.13 to the Registrant's 1998 10-K and incorporated herein by reference). 10.13 - Agreement dated as of April 15, 1995 among the Registrant, the Partnership, FelCor, Inc., Thomas J. Corcoran, Jr. and Hervey A. Feldman relating to purchase of securities (filed as Exhibit 10.15 to the Registrant's Registration Statement on Form S-11 (file no. 333-91870) and incorporated herein by reference). 10.14 - Voting and Cooperation Agreement dated as of March 23, 1998 among the Registrant, Bristol, Bass America Inc., Holiday Corporation and United/Harvey Holdings, L.P. (filed as Exhibit 99.7 to the Registrant's Registration Statement on Form S-4 (file no. 333-50509) and incorporated herein by reference). 10.15 - Spin-Off Agreement dated as of March 23, 1998 among Bristol, Bristol Hotel Management Corporation and Bristol Hotel and Resorts, Inc., as agreed to by the Registrant (filed as Exhibit 99.8 to the Registrant's Registration Statement on Form S-4 (file no. 333-50509) and incorporated herein by reference). 10.16 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998 by and among the Registrant, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P., and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to the Registrant's Form 8-K dated August 10, 1998, and incorporated herein by reference). 10.17* - Sixth Amended and Restated Credit Agreement dated as of December 18, 2000, among the Registrant, the Partnership and FelCor Canada Co., as Borrowers, the Lenders party thereto, The Chase Manhattan Bank and The Chase Manhattan Bank of Canada, as Administrative Agents, Chase Securities, Inc., as Joint Lead Arranger, Joint Book Manager and Syndication Agent, Bankers Trust Company, as Joint Lead Arranger, Joint Book Manager and Documentation Agent, Bank of America, N.A. and Wells Fargo Bank, National Association, as Documentation Agents. 10.18 - Loan Agreement dated as of October 10, 1997 among Bristol Lodging Company, Bristol Lodging Holding Company, Nomura Asset Capital Corporation as administrative agent and collateral agent for Lenders and Bankers Trust Company as co-agent for Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.18.1 - First Amendment to Loan Agreement and Ancillary Loan Documents made as of May 28, 1999, among FelCor Lodging Company, L.L.C., FelCor Lodging Holding Company, L.L.C. and LaSalle National Bank, as Trustee for Nomura Asset Securities Corporation Commercial Pass-Through Certificates Series 1998-D6, as administrative agent and collateral agent (filed as Exhibit 10.19.1 to the Registrant's 1999 10-K and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.19 - Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, Dated March 1, 1999, by FelCor Hotel Company II, Ltd., as Grantor, to Howard E. Schreiber, Trustee, in trust for the benefit of Banker Trust Company, as Beneficiary (filed as Exhibit 10.21 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20 - Loan Agreement, dated April 1, 1999, among the Registrant and the Partnership, as Borrower, The Lenders Party Thereto and The Chase Manhattan Bank, as Administrative Agent and Collateral Agent (filed as Exhibit 10.22.1 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20.1 - Guaranty, dated April 1, 1999, made by each of the named Guarantors therein, who are signatories thereto (filed as Exhibit 10.22.2 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20.2 - Pledge and Security Agreement, dated April 1, 1999, made by each of the named Pledgors therein, who are signatories thereto, in favor of The Chase Manhattan Bank, as Collateral Agent (filed as Exhibit 10.22.3 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.20.3 - Second Amendment to Loan Agreement dated as of August 20,1999, among the Registrant and the Partnership, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent (filed as Exhibit 10.22.4 to the Registrant's September 1999 10-Q and incorporated herein by reference). 10.20.4 - Third Amendment to Loan Agreement dated as of December 1,1999, among the Registrant and the Partnership, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent (filed as Exhibit 10.21.4 to the Registrant's 1999 10-K and incorporated herein by reference). 10.20.5 - Fourth Amendment to Loan Agreement dated as of August 7, 2000, among the Registrant and the Partnership, as Borrower, the financial institutions party thereto, and The Chase Manhattan Bank, as Administrative Agent (filed as Exhibit 10.21.6 to the Partnership's Registration Statement on Form S-4 (file no. 333-47506) and incorporated herein by reference). 10.21 - Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P. as Mortgagor and The Prudential Insurance Company of America, as Mortgagee (filed as Exhibit 10.23 to the Registrant's March 1999 10-Q and incorporated herein by reference). 10.21.1 - Promissory Note dated April 1, 1999, in the original principal amount of $100,000,000 made by FelCor/CSS Holdings, Ltd., payable to the order of The Prudential Insurance Company of America (filed as Exhibit 10.23.1 to the Registrant's Form 10-Q for the quarter ended June 30,1999 ("June 1999 10-Q") and incorporated herein by reference). 10.22 - Form of Deed of Trust, Security Agreement and Fixture Filing, each dated as of May 12, 1999, from FelCor/MM Holdings, L.P., as Borrower, in favor of Fidelity National Title Insurance Company, as Trustee, and Massachusetts Mutual Life Insurance Company, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.23.1, also executed by FelCor/CSS Holdings, L.P. with respect to the Embassy Suites-Anaheim and Embassy Suites-Deerfield Beach, and by the Partnership with respect to the Embassy Suites- Palm Desert (filed as Exhibit 10.24.2 to the Registrant's June 1999 10-Q and incorporated herein by reference). 10.22.1 - Form of six separate Promissory Notes each dated May 12, 1999, made by FelCor/MM Holdings, L.P. payable to the order of Massachusetts Mutual Life Insurance Company in the respective original principal amounts of $12,500,000 (Embassy Suites-Dallas Market Center), $14,000,000
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- (Embassy Suites-Dallas Love Field), $12,450,000 (Embassy Suites-Tempe), $11,550,000 (Embassy Suites-Anaheim), $8,900,000 (Embassy Suites-Palm Desert), $15,600,000 (Embassy Suites-Deerfield Beach) (filed as Exhibit 10.24.1 to the Registrant's June 1999 10-Q and incorporated herein by reference). 10.23 - Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.2 (filed as Exhibit 10.24 to the Registrant's Form 10-Q for the quarter ended June 30, 2000 (the "June 2000 10-Q") and incorporated herein by reference). 10.23.1 - Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.23.2 - Form of fourteen separate Promissory Notes each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O'Hare Airport, Illinois), $12,500,000 (Chicago O'Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont), and, $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.24 - Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.25.1 (filed as Exhibit 10.25 to the Registrant's June 2000 10-Q and incorporated herein by reference). 10.24.1 - Form of eight separate Promissory Notes each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey), and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to the Registrant's June 2000 10-Q and incorporated herein by reference).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.25 - Registration Rights Agreement dated as of September 8, 2000 among the Registrant, the Partnership, Deutsche Banc Securities Inc., Chase Securities Inc., Morgan Stanley & Co. Incorporated, Banc of America Securities LLC, Banc One Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., and Scotia Capital (USA) Inc. (filed as Exhibit 10.26 to the Partnership's Registration Statement on Form S-4 (file no. 333-47506) and incorporated herein by reference). 10.26* - Registration Rights Agreement dated as of January 11, 2001 among the Registrant, the Partnership and Deutsche Bank Securities Inc. 21* - List of Subsidiaries of the Registrant. 23.1* - Consent of PricewaterhouseCoopers LLP. 23.2* - Consent of Deloitte & Touche LLP.
---------- * Filed herewith. E-8