e10vq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

The number of shares of Common Stock, par value $.01 per share, of FelCor Lodging Trust Incorporated outstanding on November 10, 2003 was 59,084,131.


				Page

		PART I. — FINANCIAL INFORMATION
Item 1.	Financial Statements				3
		Consolidated Balance Sheets – September 30, 2003 (unaudited) and December 31, 2002			3
		Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)			4
		Consolidated Statements of Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)			5
		Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2003 and 2002 (unaudited)			6
		Notes to Consolidated Financial Statements			7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		General			21
		Financial Comparison			22
		Results of Operations			23
		Liquidity and Capital Resources			32
		Inflation			36
		Seasonality			37
		Recent Accounting Announcements			37
		Disclosure Regarding Forward Looking Statements			37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk				37
Item 4.	Controls and Procedures				37
			PART II. – OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K				38
SIGNATURE					40


					September 30,			December 31,
					2003			2002

					(unaudited)
				ASSETS
Investment in hotels, net of accumulated depreciation of $871,685 at September 30, 2003 and $782,166 at December 31, 2002					$	3,275,831		$	3,473,452
Investment in unconsolidated entities						120,899			141,943
Hotels held for sale						82,031			—
Cash and cash equivalents						175,983			66,542
Accounts receivable, net of allowance for doubtful accounts of $1,106 at September 30, 2003 and $1,413 at December 31, 2002						52,893			48,548
Deferred expenses, net of accumulated amortization of $14,745 at September 30, 2003 and $13,357 at December 31, 2002						23,959			24,185
Other assets						29,029			25,693

		Total assets			$	3,760,625		$	3,780,363

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Debt, net of discount of $4,443 at September 30, 2003 and $3,231 at December 31, 2002					$	2,041,284		$	1,877,134
Distributions payable						5,483			14,792
Accrued expenses and other liabilities						156,873			150,385
Minority interest in FelCor LP, 3,054 and 3,290 units issued and outstanding at September 30, 2003 and December 31, 2002, respectively						58,208			72,639
Minority interest in other partnerships						52,585			48,596

		Total liabilities				2,314,433			2,163,546

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 20,000 shares authorized:
	Series A Cumulative Convertible Preferred Stock, 5,980 shares issued and outstanding at September 30, 2003 and December 31, 2002					149,512			149,512
	Series B Cumulative Redeemable Preferred Stock, 68 shares issued and outstanding at September 30, 2003 and December 31, 2002					169,395			169,395
Common stock, $.01 par value, 200,000 shares authorized, 69,413 and 75,126 shares issued, including shares in treasury, at September 30, 2003 and December 31, 2002, respectively						694			751
Additional paid-in capital						2,094,821			2,204,530
Accumulated other comprehensive income						10,656			(99	)
Distributions in excess of earnings						(781,226	)		(593,834	)
Less: Common stock in treasury, at cost, 10,329 and 16,369 shares at September 30, 2003 and December 31, 2002, respectively						(197,660	)		(313,438	)

		Total stockholders’ equity				1,446,192			1,616,817

		Total liabilities and stockholders’ equity			$	3,760,625		$	3,780,363

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

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2003 and 2002
(unaudited, in thousands, except for per share data)


			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

Revenues:
	Hotel operating revenue		$	312,330		$	316,038		$	919,920		$	962,195
	Retail space rental and other revenue			256			353			875			1,451

Total revenues				312,586			316,391			920,795			963,646

Expenses:
	Hotel departmental expenses			113,876			111,790			328,199			329,266
	Other property operating costs			92,106			87,877			267,998			258,220
	Management and franchise fees			16,752			16,421			48,476			48,860
	Taxes, insurance and lease expense			33,231			32,044			97,369			98,325
	Abandoned projects			—			1,663			—			1,663
	Corporate expenses			3,299			2,577			10,459			10,293
	Depreciation			34,725			36,044			104,898			109,491

Total operating expenses				293,989			288,416			857,399			856,118

Operating income				18,597			27,975			63,396			107,528
Interest expense, net				(42,285	)		(40,528	)		(123,359	)		(122,736	)
Charge-off of deferred financing costs				—			—			(2,834	)		—
Gain on early extinguishment of debt				—			—			1,260			—
Impairment loss				(107,720	)		—			(107,720	)		—

Loss before equity in income of unconsolidated entities, minority interests and gain on sales of assets				(131,408	)		(12,553	)		(169,257	)		(15,208	)
	Equity in income from unconsolidated entities			1,674			1,230			2,252			3,816
	Gain (loss) on sale of assets			(47	)		—			106			5,861
	Minority interests			7,388			3,285			9,945			2,991

Loss from continuing operations				(122,393	)		(8,038	)		(156,954	)		(2,540	)
	Discontinued operations			(3,524	)		957			(10,257	)		2,315

Net loss				(125,917	)		(7,081	)		(167,211	)		(225	)
	Preferred dividends			(6,727	)		(6,727	)		(20,181	)		(19,565	)

Net loss applicable to common stockholders			$	(132,644	)	$	(13,808	)	$	(187,392	)	$	(19,790	)

Loss per common share data:
	Basic:
		Net loss from continuing operations	$	(2.20	)	$	(0.28	)	$	(3.02	)	$	(0.42	)

		Net loss	$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)

		Weighted average common shares outstanding		58,690			52,729			58,609			52,724
	Diluted:
		Net loss from continuing operations	$	(2.20	)	$	(0.28	)	$	(3.02	)	$	(0.42	)

		Net loss	$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)

		Weighted average common shares outstanding		58,690			52,729			58,609			52,724
Cash dividends declared on common stock			$	—		$	0.15		$	—		$	0.45

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Months Ended September 30, 2003 and 2002
(unaudited, in thousands)

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(unaudited, in thousands)


					Nine Months Ended
					September 30,

					2003			2002

Cash flows from operating activities:
	Net loss				$	(167,211	)	$	(225	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
			Depreciation			109,113			114,592
			Loss (gain) on sale of assets			776			(6,061	)
			Amortization of deferred financing fees			3,660			4,010
			Accretion of debt, net of discount			399			307
			Amortization of unearned compensation			1,645			1,561
			Equity in income from unconsolidated entities			(2,252	)		(3,816	)
			Impairment loss			120,526			—
			Charge-off of deferred finance costs, net of gain on debt extinguishment			1,223			—
			Minority interests			(10,486	)		(2,598	)
		Changes in assets and liabilities:
			Accounts receivable			(4,359	)		(6,271	)
			Deferred expenses			(5,001	)		(974	)
			Other assets			(6,059	)		(6,578	)
			Accrued expenses and other liabilities			2,735			(2,921	)

				Net cash flow provided by operating activities		44,709			91,026

Cash flows (used in) provided by investing activities:
	Acquisition of hotels					—			(49,778	)
	Improvements and additions to hotels					(52,040	)		(34,953	)
	Proceeds from sale of assets					12,185			29,001
	Cash from purchase of percentage interest in Interstate Joint Venture					2,705			—
	Cash distributions from unconsolidated entities					4,384			7,806

				Net cash flow used in investing activities		(32,766	)		(47,924	)

Cash flows (used in) provided by financing activities:
	Proceeds from borrowings					321,119			—
	Repayment of borrowings					(194,308	)		(59,255	)
	Net proceeds from sale of preferred stock					—			23,921
	Purchase of treasury stock					—			(113	)
	Distributions paid to other partnership minority interests					—			(2,058	)
	Distributions paid to FelCor LP limited partners					(493	)		(3,244	)
	Distributions paid to common stockholders					(8,814	)		(18,524	)
	Distributions paid to preferred stockholders					(20,181	)		(19,181	)

				Net cash flow provided by (used in) financing activities		97,323			(78,454	)

Effect of exchange rate changes on cash						175			(26	)
Net change in cash and cash equivalents						109,441			(35,378	)
Cash and cash equivalents at beginning of periods						66,542			128,742

Cash and cash equivalents at end of periods					$	175,983		$	93,364

Supplemental cash flow information — Interest paid					$	126,141		$	123,243

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

In 1994, FelCor Lodging Trust Incorporated, or FelCor, went public as a real estate investment trust, or REIT, with six hotels and a market capitalization of $120 million. We are now the nation’s second largest lodging REIT and the largest owner of full service, all-suite hotels in the nation. At September 30, 2003, our hotel portfolio included 76 full service, all-suite hotels, and we are the owner of the greatest number of Embassy Suites Hotels® and independently-owned Doubletree Guest Suites® hotels in North America. Our portfolio also includes 79 hotels in the upscale and full service segments.

FelCor is the sole general partner of, and the owner of an approximately 95% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP. All of our operations are conducted solely through FelCor LP, or its subsidiaries. In the fourth quarter of 2002, 5,713,185 shares of our common stock were issued in exchange for a like number of limited partnership units of FelCor LP. This exchange increased our ownership of limited partnership units of FelCor LP from approximately 85% to 95%.

At September 30, 2003, we had ownership interests in 177 hotels. We owned a 100% real estate interest in 140 hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels, a 51% interest in an entity owning eight hotels and 50% interests in unconsolidated entities that own 20 hotels. As a result of our ownership interests in the operating lessees of 172 of these hotels, we reflect their operating revenues and expenses in our consolidated statements of operations. The operating revenues and expenses of the remaining five hotels are unconsolidated.

At September 30, 2003, we had an aggregate of 62,154,264 shares of FelCor common stock and units of FelCor LP limited partnership interest outstanding.

The following table reflects the distribution, by brand, of the 172 hotels included in our consolidated hotel operations at September 30, 2003:


Brand

Hilton Hotels Corporation, or Hilton, brands:
	Embassy Suites Hotels	59
	Doubletree^® and Doubletree Guest Suites	12
	Hampton Inn^®	4
	Hilton and Hilton Suites^®	2
	Homewood Suites^®	1
InterContinental Hotels Group brands:
	Holiday Inn^®	40
	Crowne Plaza^® and Crowne Plaza Suites^®	18
	Holiday Inn Select^®	10
	Holiday Inn Express^®	3
	Staybridge Suites^®	1
Starwood Hotels & Resorts Worldwide Inc., or Starwood, brands:
	Sheraton^® and Sheraton Suites^®	10
	Westin^®	1
Marriott International, Inc., or Marriott brands:
	Fairfield Inn® by Marriott^®	5
	Courtyard^® by Marriott	2
Other brands		4

Total hotels		172

The hotels shown in the above table are located in the United States (35 states) and Canada (six hotels), with concentrations in Texas (39 hotels), California (19 hotels), Florida (16 hotels) and Georgia (14 hotels). Approximately 51% of our hotel room revenues were generated from hotels in these four states during the quarter.

At September 30, 2003, of the 172 consolidated hotels, (i) subsidiaries of InterContinental Hotels Group, or IHG, managed 78, (ii) subsidiaries of Hilton managed 71, (iii) subsidiaries of Starwood managed 11, (iv) subsidiaries of Interstate Hotels Corporation, or IHC, managed 10, and (v) two independent management companies managed one each.

Certain reclassifications have been made to prior period financial information to conform to the current period’s presentation with no effect to previously reported net income (loss) or stockholders’ equity.

The financial information for the three and nine months ended September 30, 2003, and 2002, is unaudited. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements for the three and nine months ended September 30, 2003, and 2002, include adjustments based on management’s estimates (consisting of an impairment charge and normal recurring accruals) which we consider necessary for a fair presentation of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2002, included in our Annual Report on Form 10-K for the year ended December 31, 2002 (“Form 10-K”). Operating results for the three and nine months ended September 30, 2003, are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2003.

Our hotel acquisitions consist almost exclusively of land, building, furniture, fixtures and equipment, and inventory. We allocate the purchase price among these asset classes based upon their respective values determined in accordance with Statement of Financial Accounting Standards (SFAS) 141, “Business Combinations.” When we acquire properties, we acquire them for use. The only intangible assets typically acquired consist of miscellaneous operating agreements all of which are of short duration and at market rates. We do not acquire any significant in-place leases or other intangible assets (e.g., management agreements, franchise agreements or trademarks) when we acquire hotels. In conjunction with the acquisition of a hotel, we negotiate new franchise and management agreements with the selected brand owner and manager.

We owned 50% interests in joint venture entities that owned 20 hotels at September 30, 2003, and 29 hotels at September 30, 2002. We also owned a 50% interest in entities that: own an undeveloped parcel of land; provide condominium management services; develop condominiums in Myrtle Beach, South Carolina; and lease four hotels. We account for our investments in these unconsolidated entities under the equity method. We do not have any majority-owned subsidiaries that are not consolidated in our financial statements.

Effective June 1, 2003, we made a $0.2 million capital contribution to our joint venture with IHC, which increased our ownership in that venture to more than 50 percent. As a result, we began consolidating the eight hotels owned by this venture. The consolidation of these eight hotels increased our net investment in hotels by $73 million, increased our debt by $51 million and reduced our investment in unconsolidated entities by $19 million.

Summarized combined financial information for 100% of our unconsolidated entities is as follows (in thousands):

Debt of our unconsolidated entities at September 30, 2003, consisted of $214.3 million of non-recourse mortgage debt. It also included $22.7 million of mortgage debt guaranteed by us and $22.5 million of mortgage debt guaranteed by Hilton, on one of our joint venture partners. The debt guaranteed by us consisted primarily of 50% of a loan related to the construction of a residential condominium project in Myrtle Beach, South Carolina. The loan commitment is for $97.6 million, of which approximately $45 million was outstanding as of September 30, 2003. Our guarantee reduces from 50% to 25% of the outstanding balance when the condominium project is completed and receives a certificate of occupancy, which we expect to occur in late 2004.

Our guarantee is a payment guarantee and will require us to pay in the event that the joint venture fails to pay interest or principal due under the debt agreement. The loan matures in August 2005, and bears interest at LIBOR plus 200 basis points. As of September 30, 2003, we had not established any liability related to our guarantees of debt because it was not believed to be probable that we would be required to perform under the guarantees.

Summarized combined statement of operations information for 100% of our unconsolidated entities is as follows (in thousands):


									Balance Outstanding

				Encumbered	Interest Rate at			Maturity	September 30,		December 31,
				Hotels	September 30, 2003			Date	2003		2002

Unsecured line of credit				none		4.37	%^(a)	October 2004	$	—	$	—
Promissory note				none		3.12	^(a)	June 2016		650		650
Senior unsecured term notes				none		4.33	^(b)	Oct. 2004		174,856		174,760
Senior unsecured term notes				none		5.16	^(b)	Oct. 2007		124,592		124,518
Senior unsecured term notes				none		10.00		Sept. 2008		596,697		596,195
Senior unsecured term notes				none		9.00		June 2011		298,095		297,907

	Total unsecured debt^(c)					8.41				1,194,890		1,194,030

Secured debt facility				14 hotels		—		December 2004		—		—
Mortgage debt				10 hotels		3.62	^(a)	May 2006		148,914		—
Mortgage debt				15 hotels		7.24		Nov. 2007		132,503		134,738
Mortgage debt				7 hotels		7.54		April 2009		92,917		94,288
Mortgage debt				6 hotels		7.55		June 2009		69,919		70,937
Mortgage debt				8 hotels		8.70		May 2010		178,758		180,534
Mortgage debt				7 hotels		8.73		May 2010		138,746		140,315
Mortgage debt				1 hotel		3.97	^(a)	August 2008		15,500		—
Mortgage debt				1 hotel		7.17		October 2005		11,974		54,993
Mortgage debt				8 hotels		7.48		April 2011		50,507		—
Other				1 hotel		9.17		August 2011		6,656		7,299

		Total secured debt^(c)		78 hotels		7.24				846,394		683,104

			Total^(c)			7.93	%		$	2,041,284	$	1,877,134

(a)

Floating interest rates are based on LIBOR, which was 1.1% as of September 30, 2003.

(b)

At September 30, 2003, our $175 million publicly-traded notes due October 2004 and our $125 million publicly traded notes due October 2007, were matched with interest rate swap agreements that effectively converted the fixed interest rate on the notes to a floating interest rate tied to LIBOR. The differences to be paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense. The interest rate swaps decreased interest expense by $1.9 million and $5.2 million for the three months and nine months ended September 30, 2003, respectively.

(c)

Calculated based on the weighted average outstanding debt at September 30, 2003.

We reported interest expense, net of interest income of $42.3 million and $40.5 million and capitalized interest of $0.1 million and $0.4 million for the three months ended September 30, 2003 and 2002, respectively. We reported interest expense, net of interest income of $123.4 million and $122.7 million and capitalized interest of $0.5 million and $0.6 million, for the nine months ended September 30, 2003 and 2002, respectively.

In June 2003, we entered into a non-recourse secured loan facility for up to $200 million, with a delayed draw feature. This facility has an initial term of 18 months, that can be extended for an additional six months at our option, and carries a floating interest rate of LIBOR plus 225 to 275 basis points, depending on the loan-to-value ratio of the facility. The outstanding balances under the loan facility, once borrowed, are expected to be converted into 10-year fixed rate commercial mortgage backed securities loans. We also have the option of converting $75 million of the debt to floating-rate debt based on LIBOR, with a three year maturity and two one year extension options. At the date of this filing, no amounts had been borrowed, and we had $176 million available under this facility, which was secured by 14 hotels. The amount available under this facility may be increased to a maximum of $200 million from improved performance of the hotels currently securing the facility or as additional properties are mortgaged to secure borrowings thereunder.

On April 24, 2003, we completed a $150 million non-recourse mortgage loan, at a floating interest rate of LIBOR plus 250 basis points, secured by 10 full service hotels. The loan matures in May 2006, with two, one-year extension options. The proceeds were used to pay off all outstanding borrowings under our unsecured line of credit.

In May 2003, we made a prepayment of $7.1 million of secured debt and recorded a gain from debt extinguishment of $0.3 million. In February 2003, we made a prepayment of $5.2 million of secured debt and recorded a gain from debt extinguishment of $1.0 million.

Effective March 31, 2003, we completed the refinancing of $15.5 million of secured debt that was to mature in late 2003. Under the refinancing terms, this fixed rate debt was converted to a floating interest rate of LIBOR plus 285 basis points effective August 2003. The new maturity is August 2008.

During the second quarter of 2003, we reduced the commitments under our unsecured line of credit from $300 million to $50 million. The line of credit has an accordion feature that allows us to increase the commitments to $200 million, subject to lender consent and the satisfaction of certain conditions. As the result of this reduction in our line commitments, we charged-off unamortized costs of $2.8 million during the second quarter. Effective September 30, 2003, we amended certain financial covenants under our line of credit to provide additional flexibility. Pricing under the line remained the same and varies based upon leverage. There were no borrowings outstanding under the line of credit at September 30, 2003.

In addition to financial covenants, our line of credit includes certain other affirmative and negative covenants, including: restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation and ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred stock, share repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, issue stock of our subsidiaries and sell all or substantially all of our assets; restrictions on our ability to construct new hotels or acquire hotels under construction; limitations on our ability to change the nature of our business; limitations on our ability to modify certain instruments; limitations on our ability to create liens; limitations on our ability to enter into transactions with affiliates; and limitations on our ability to enter into joint ventures. At September 30, 2003, we were in compliance with all covenants under our line of credit.

At the date of this filing, we have no restrictions on our ability to use our line of credit. However, at certain leverage levels, usage under the line of line credit is restricted to fund operational cash flow shortfalls. At these higher leverage levels, excess cash flow from operations and net cash proceeds from sales, must first be used to reduce any outstanding balances under our line of credit.

Failure to satisfy one or more of the financial or other covenants under our line of credit would result in our inability to borrow under the line of credit and a continuation of such default could result in an event of default, notwithstanding our ability to meet our debt service obligations. If revenue per available room declines continue or become more severe, we may be unable to satisfy all of the covenant requirements under our line of credit. Other events that would be events of default under our line of credit include a default in the payment of other recourse indebtedness in the amount of $10 million or more, bankruptcy or a change of control.

Our other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than those in our line of credit. Most of our mortgage debt is non-recourse to us and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of our mortgage debt is prepayable, subject to various prepayment penalties, yield maintenance or defeasance obligations.

Our publicly-traded senior unsecured notes require that we satisfy a total leverage, a secured leverage and an interest coverage test in order to: incur additional indebtedness, except under our line of credit or to refinance maturing debt with replacement debt, as defined in our senior unsecured note indentures; pay dividends in excess of the minimum dividend required to meet the REIT qualification test; repurchase stock; or merge. As of September 30, 2003, and the date of this filing, we have satisfied all such incurrence tests. If revenue per available room declines continue or become more severe, we may be unable to satisfy all of the incurrence tests under our senior unsecured notes.

As a consequence of the prolonged economic slowdown, its impact on the travel and lodging industries and our higher secured debt levels, Moody’s lowered its ratings on our $1.2 billion in senior unsecured debt to B1, in June 2003. This downgrade, coupled with a similar downgrade by Standard & Poor’s earlier in the year to B, triggered a 50 basis point step-up in interest rates on $900 million of our senior unsecured debt, which will continue in effect unless and until either Moody’s raises its ratings on our senior unsecured debt to Ba3 or Standard & Poor’s raises its rating to BB-. On October 31, 2003, Standard & Poor’s placed our credit ratings on watch, with negative indications.

On the date we enter into a derivative contract, we designate the derivative as a hedge to the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), or the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge). For a fair value hedge, the gain or loss is recognized in earnings in the period of change, together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. At September 30, 2003, all of our outstanding hedges were fair value hedges.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy, relating to our various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or specific firm commitments. We also formally assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows or fair values of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When we determine that a derivative is not (or has ceased to be) highly effective as a hedge, we will discontinue hedge accounting, prospectively.

In the normal course of business, we are exposed to the effect of interest rate changes. We limit these risks by following established risk management policies and procedures including the use of derivatives. It is our objective to use interest rate hedges to manage our fixed and floating interest rate position and not to engage in speculation on interest rates. We manage interest rate risk based on the varying circumstances of anticipated borrowings, and existing floating and fixed rate debt. We will generally seek to pursue interest rate risk mitigation strategies that will result in the least amount of reported earnings volatility under generally accepted accounting principles, while still meeting strategic economic objectives and maintaining adequate liquidity and flexibility. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.

To manage the relative mix of our debt between fixed and variable rate instruments, through September 30, 2003, we had entered into eleven interest rate swap agreements with five financial institutions with an aggregate notional value of $300 million. These interest rate swap agreements modify a portion of the interest characteristics of our outstanding fixed rate debt, without an exchange of the underlying principal amount, and effectively convert fixed rate debt to a variable rate.

To determine the fair values of our derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

The interest rate swap agreements held at September 30, 2003, are designated as fair value hedges, are marked to market through the income statement, but are offset by the change in fair value of our swapped outstanding fixed rate debt. The estimated unrealized net gain on these interest rate swap agreements was approximately $10.1 million at September 30, 2003, and represents the amount we would receive if the agreements were terminated, based on current market rates.

The fixed rates we will receive and the variable rates we will pay under these swaps, as of September 30, 2003, are summarized in the following table:

The amounts paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change and we recognize them as an adjustment to interest expense, which will have a corresponding effect on our future cash flows. The interest rate swaps decreased interest expense by $1.9 million and $5.2 million for the three months and nine months ended September 30, 2003, respectively. Our interest rate swaps have semi-annual settlement dates in April and October. Agreements such as these contain a credit risk in that the counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties. The Standard & Poor’s credit ratings for the financial institutions that are counterparties to our interest rate swap agreements range from A+ to AA-.

To fulfill requirements under the $150 million non-recourse mortgage loan executed in April 2003, we purchased 6% interest rate caps with a notional amount of $150 million. We concurrently sold interest rate caps with identical terms. These interest rate cap agreements have not been designated as hedges. The changes in the fair value of both the purchased and sold interest rate caps is $0.3 million at September 30, 2003, resulting in no net earnings impact.

6. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs

Hotel operating revenue from continuing operations was comprised of the following (in thousands):

As indicated in the above table, approximately 99.9% of our revenue is comprised of hotel operating revenues, which includes room revenue, food and beverage revenue, and revenue from other hotel operating departments (such as telephone, parking and business centers). These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues are recorded on an accrual basis, as earned. Appropriate allowances are made for doubtful accounts and are recorded as a bad debt expense. The remaining 0.1% of our revenue is from retail space rental revenue and other sources.

We do not have any time-share arrangements and do not sponsor any points programs for which we would have any contingent liability. We participate in points programs sponsored by the brand owners of our hotels and we expense the charges associated with those programs (typically consisting of a percentage of the total guest charges incurred by a participating guest), as incurred. When a guest redeems accumulated points at one of our hotels, the hotel bills the sponsor for the services provided in redemption of such points and records revenue in the amount of the charges billed to the sponsor. Associated with the points programs, we have no loss contingencies or ongoing obligation beyond what is paid to the brand owner at the time of the guest’s stay.

Included in total hotel operating revenue for the three months and nine months ended September 30, 2003, was $5.8 million and $7.8 million, respectively, of hotel operating revenue revenue associated with the consolidation of eight hotels in June 2003, which were previously unconsolidated.

Hotel departmental expenses from continuing operations were comprised of the following (in thousands):

6. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs — (continued)

Other property operating costs from continuing operations were comprised of the following (in thousands):

Included in hotel departmental expenses and other property operating costs were hotel compensation and benefit expenses of $103 million and $98 million for the three months ended September 30, 2003 and 2002, respectively, and $300 million and $295 million for the nine months ended September 30, 2003 and 2002, respectively.

Included in hotel operating expenses for the three months and nine months ended September 30, 2003, was $4.6 million and $6.1 million, respectively, associated with the consolidation of eight hotels in June 2003, which were previously unconsolidated.

Taxes, insurance and lease expense from continuing operations is comprised of the following (in thousands):

We recorded impairment charges under the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), of $112.7 million ($107.7 million in continuing operations and $5.0 million in discontinued operations) and $120.5 million ($107.7 million in continuing operations and $12.8 million in discontinued operations) for the three and nine months ended September 30, 2003, respectively.

Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider our hotels to be components as defined by SFAS 144 for purposes of determining impairment charges and reporting discontinued operations.

The 2003 charges were primarily related to the third quarter decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels. In addition, we recorded impairment charges on certain of the 28 remaining non-strategic hotels identified for sale in December 2002, primarily triggered by decreases in fair value estimates for these hotels.

Of the 39 hotels noted in the previous paragraph, 10 hotels were classified as “held for sale.” In accordance with SFAS 144, we do not consider hotels as “held for sale” until it is probable that the sale will be completed within one year. Once a hotel is “held for sale” the operations related to the hotel are included in discontinued operations. We consider a hotel as “held for sale” once we have executed a contract for sale, received a substantial non-refundable deposit and allowed the buyer to complete their due diligence review. Until a buyer has completed its due diligence review of the asset, necessary approvals have been received and substantive conditions to the buyer’s obligation to perform have been satisfied, we do not consider a sale to be probable. Our previous experience selling hotels supports this policy. These hotels were written down to the lower of cost or estimated fair value, less selling costs, as of September 30, 2003, and all hotels designated as “held for sale” at September 30, 2003, were sold in October 2003.

The 29 non-strategic hotels held for investment and included in our continuing operations were tested for impairment using the undiscounted cash flows for the shorter of the estimated remaining holding periods or the useful life of the hotels. Those hotels that failed the impairment test described in SFAS 144 were written down to their current estimated fair value, before any selling expenses. These hotels continue to be depreciated over their remaining useful lives.

We may be subject to additional impairment charges in the event that operating results of individual hotels are materially different from our forecasts, the economy and lodging industry remains weak, or if we shorten our contemplated holding period for certain of our hotels.

Condensed combined financial information for the 15 hotels included in discontinued operations is as follows:

In August 2003, we relinquished title to two low rise Harvey hotels in Dallas through a foreclosure action. This resulted in a gain of $0.4 million from the extinguishment of $9.6 million of debt (net of escrow balances). In July 2003, we sold our Doubletree Guest Suites in Nashville, Tennessee, for net proceeds of approximately $3.0 million. In May 2003, we sold two non-strategic hotels, the 138-room Hampton Inn in Moline, Illinois, and the 132-room Hampton Inn in Davenport, Iowa, for aggregate net sales proceeds of $6.5 million. From the sale of these hotels we realized a net loss on disposition of $0.9 million.

The results of operations of these hotels for the three and nine months ending September 30, 2003 and 2002 are included in discontinued operations in the accompanying statement of operations.

In May 2003, we sold a parking garage adjacent to our Crowne Plaza — Union Square hotel in San Francisco, California, for net sales proceeds of $5.6 million and realized a gain of $0.2 million.

During the nine months ended September 30, 2002, we sold our Doubletree Guest Suites hotel in Boca Raton, Florida, for net proceeds of $6.5 million and recorded a net gain of $0.8 million. Additionally, we sold retail space associated with the Allerton Hotel located in Chicago, Illinois, for net proceeds of $16.7 million and recorded a net gain of approximately $5.1 million. We also recognized a $0.2 million gain related to the condemnation of land adjacent to one of our hotels.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share data):


				Three Months Ended						Nine Months Ended
				September 30,						September 30,

				2003			2002			2003			2002

Numerator:
	Loss from continuing operations			$	(122,393	)	$	(8,038	)	$	(156,954	)	$	(2,540	)
			Less: Preferred dividends		(6,727	)		(6,727	)		(20,181	)		(19,565	)

	Loss from continuing operations applicable to common stockholders				(129,120	)		(14,765	)		(177,135	)		(22,105	)
	Discontinued operations				(3,524	)		957			(10,257	)		2,315

	Net loss applicable to common stockholders			$	(132,644	)	$	(13,808	)	$	(187,392	)	$	(19,790	)

Denominator:
	Denominator for basic loss per share				58,690			52,729			58,609			52,724
	Effect of dilutive securities:
		Stock options			—			—			—			—
		Restricted shares			—			—			—			—

	Denominator for diluted loss per share — adjusted weighted average shares and assumed conversions				58,690			52,729			58,609			52,724

Loss per share data:
Basic:
	Loss from continuing operations			$	(2.20	)	$	(0.28	)	$	(3.02	)	$	(0.42	)
	Discontinued operations				(0.06	)		0.02			(0.18	)		0.04

	Net loss			$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)

Diluted:
	Loss from continuing operations			$	(2.20	)	$	(0.28	)	$	(3.02	)	$	(0.42	)
	Discontinued operations				(0.06	)		0.02			(0.18	)		0.04

	Net loss			$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)

Securities that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share, because they would have been antidilutive for the periods presented, are as follows (in thousands):

Series A convertible preferred dividends that would be excluded from net loss applicable to common stockholders, if these preferred shares were dilutive, were $2.9 million for the three months, and $8.7 million for the nine months, ended September 30, 2003 and 2002, respectively.

We apply APB Opinion 25 and related interpretations in accounting for our stock based compensation plans for stock based compensation issued prior to January 1, 2003. In 1995, SFAS 123, “Accounting for Stock-Based Compensation,” was issued, which, if fully adopted by us, would have changed the methods we apply in recognizing the cost of the plans. As permitted under the transition provisions of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” we began recognizing compensation expense in accordance with SFAS 123 for all new awards issued after December 31, 2002. Had the compensation cost for all of our stock-based compensation plans been determined in accordance with SFAS 123, our net income or loss and related per share amount for the three and nine months ended September 30, 2003 and 2002 would approximate the pro forma amounts below (in thousands, except per share data):


		Three Months Ended						Nine Months Ended
		September 30,						September30,

		2003			2002			2003			2002

Net loss, as reported		$	(125,917	)	$	(7,081	)	$	(167,211	)	$	(225	)
Add stock based compensation included in the net loss, as reported			565			526			1,645			1,561
Less stock based compensation expense that would have been included in the determination of net loss if the fair value method had been applied to all awards			(589	)		(642	)		(1,766	)		(1,925	)

Net loss, pro forma		$	(125,941	)	$	(7,197	)	$	(167,332	)	$	(589	)

Basic net loss per common share:
	As reported	$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)
	Pro forma	$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)
Diluted net loss per common share:
	As reported	$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)
	Pro forma	$	(2.26	)	$	(0.26	)	$	(3.20	)	$	(0.38	)

The effects of applying SFAS 123 in this pro forma disclosure are not necessarily indicative of future results.

We lease a hotel under a lease that expires in 2004, subject to our right, exercisable during the fourth quarter of this year, to extend the term of the lease under certain conditions. On July 31, 2003, the lessor under this lease asserted that we were in default of our obligations for maintenance, repair and replacement under the lease, and asserted that the cost of correcting the alleged deficiencies was approximately $13.9 million. On November 3, 2003, we reached a settlement with the lessor regarding a portion of the lessor’s claim, pursuant to which we paid the lessor $296,000 in full satisfaction and discharge of certain maintenance obligations under our lease that the lessor had valued in its original claim at $470,300. We have not yet completed our evaluation of the remainder of the lessor’s claims to determine whether or not the remaining claims have any merit.

•

Five non-strategic hotels, consisting of Embassy Suites Hotels in Phoenix, Arizona, Syracuse, New York, and Flagstaff, Arizona, and Doubletree Guest Suites hotels in Columbus, Ohio, and Dayton, Ohio, with a total of 894 suites, for an aggregate of $50 million;

•

Four Holiday Inn hotels located in Ontario, Canada, with a total of 630 rooms, for $32 million;

•

A Holiday Inn hotel located in Texarkana, Arkansas, and a Crowne Plaza hotel located in Greenville, South Carolina, for combined proceeds of $8.5 million; and

•

A parking garage adjacent to our Crowne Plaza hotel in Philadelphia, Pennsylvania, for $6.8 million.

The net realized gain on the October 2003 asset sales was approximately $3.2 million, which assumes the completion of a tax free exchange for the Canadian hotels for both US and Canadian purposes.

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 150 (SFAS 150) “Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity”, which became effective during the three months ended September 30, 2003. Neither SFAS 150 or subsequently issued FASB staff positions have a material impact on our consolidated financial statements.

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

For background information relating to us and the definition of certain capitalized terms used herein, reference is made to Notes 1 and 2 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein.

We identified three strategic objectives for 2003: reposition our portfolio; improve the competitive positioning of our hotel portfolio; and maintain our financial flexibility. We have made the following progress in meeting these objectives through the date of this filing:

•

At the end of 2002, we identified 33 non-strategic hotels for sale, which were generally smaller hotels in secondary and tertiary markets, with about one-third of these hotels in Texas where we intend to reduce our concentration of hotels.

•

To date, we have disposed of 16 of the 33 hotels identified in late 2002, (including 11 subsequent to September 30, 2003) and have 17 remaining to sell.

•

During the third quarter we identified an additional 11 InterContential Hotels Group, or IHG, managed hotels to sell, after amending the management agreements to provide us with greater flexibility to sell certain hotels. The hotels identified as non-strategic, are generally in high supply growth markets with low barriers to entry.

•

The 28 non-strategic hotels held at November 1, 2003, represent 16% of our available rooms, while only comprising 5% of our hotel-level EBITDA. Of these non-strategic hotels, we estimate that six will generate negative hotel-level EBITDA of approximately $0.05 per share for the full year 2003.

•

We continue to provide the necessary capital spending to add long-term value to our hotels. We spent approximately $52 million, on capital expenditures for our hotels during the nine months ended September 30, 2003, or 6% of revenues. We expect to spend approximately $70 million, including both replacement and revenue enhancing projects, for the full year 2003, or approximately 6% of revenues.

•

Earlier this year, we re-branded an independent hotel to a Staybridge Suites® hotel. This hotel had an 18% increase in revenue per available room, or RevPAR, in the third quarter in a difficult Dallas market.

•

We acquired two hotels in 2002 and subsequently renovated and rebranded them. The Doubletree hotel in Charlotte, South Carolina improved RevPAR by 10.1% in the third quarter over the prior year period and the Hilton Myrtle Beach hotel improved RevPAR by 8.3% for the same periods.

•

In October 2003, we executed an agreement with IHG amending the management agreements covering 58 of the hotels we currently own, and also affecting 14 hotels previously sold. We also extended the management agreements on 27 hotels that we plan to hold long term, in exchange for increased flexibility in asset sales, where we will use the proceeds to pay down debt. We also received the right to rebrand three independent hotels managed by IHG to brands that will add incremental value to our portfolio.

•

At the end of the quarter we had cash on hand of $176 million. After the asset sales that closed in October of 2003, we have approximately $270 million in cash.

•

In addition to our cash position we have access to $176 million under our $200 million secured debt facility and $50 million under our unsecured line of credit. The secured debt facility provides a source for the repayment of the October 2004 maturity of our $175 million in senior unsecured notes.

Financial Comparison (in millions, except Revenue Per Available Room (“RevPAR”), operating margin and percentage change)

For a discussion of the computation of FFO and EBITDA, and a reconciliation thereof to net income (loss), see “Results of Operations — Funds From Operations and EBITDA” below.

We recognized a net loss of $125.9 million for the three months ended September 30, 2003, compared to a net loss of $7.1 million for the same period in 2002. The principal reason for the increased net loss in the third quarter of 2003, compared to 2002, was an impairment charge of $112.7 million. The impairment charge primarily related to the third quarter decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels, and an additional impairment charge on certain of the 28 remaining non-strategic hotels identified for sale in December 2002.

Total revenue decreased by $3.8 million compared to the same period in 2002. The primary component of the decrease in total revenue was a decrease in room revenue of $2.5 million. One of the hotel industry’s principal measurements of room revenue is RevPAR. Our consolidated hotel portfolio RevPAR for the three months ended September 30, 2003, was $60.54, or 2.4% below that of the same period in 2002. The decrease in RevPAR resulted from a 2.7% decrease in average daily rate, or ADR, somewhat offset by a 0.3% increase in occupied rooms as a percentage of available rooms, or Occupancy. The decrease in RevPAR principally reflected a decline in business travel for the three months ended September 30, 2003, compared to the same period in the prior year. The sluggish economy and soft corporate transient demand continues to adversely affect the lodging industry. Included in total revenue for the third quarter of 2003 was $5.8 million of revenue associated with the consolidation of eight hotels in June 2003, which were previously unconsolidated.

Total operating expenses increased by $5.6 million, to $294 million, for the three months ended September 30, 2003, compared to the same period in 2002. This increase primarily consisted of increases in hotel operating expenses (defined as hotel departmental expenses, other property operating costs and management and franchise fees) and operating lease expense.

Hotel operating expenses increased by $6.6 million (of which $4.6 million was associated with the consolidation of eight hotels in June 2003, which were previously unconsolidated), for the three months ended September 30, 2003, compared to the same period in 2002, and hotel operating margins, as a percentage of hotel operating revenues, decreased by 290 basis points, compared to the same period last year. The deterioration in margins is principally related to a 2.7% decline in ADR, and increases, as a percentage of hotel revenue, in energy costs (60 basis points), repairs and maintenance (30 basis points) and marketing (50 basis points). In addition, included in departmental and administrative and general expenses were increases in employee wages and benefit costs (in spite of a lower headcount) compared to prior year, which resulted in an increase in these costs as a percentage of total revenue of 100 basis points.

Depreciation expense decreased by $1.3 million in the current quarter, compared to the same quarter of 2002, primarily from a increase in fully depreciated furniture, fixtures and equipment.

Taxes, insurance and lease expense increased $1.2 million, compared to the same period of 2002, principally from an increase in operating lease expense of $1.4 million and property and general liability insurance expense of $1.2 million. These increases were partially offset by a decrease in real estate and other taxes of $1.4 million. The comparative increase in operating lease expense resulted from an adjustment that reduced lease expense in the third quarter of 2002 by $1.5 million. Real estate and other taxes decreased primarily from an adjustment to reflect the expected resolution of prior years disputed property taxes.

Interest expense, net of interest income, increased $1.8 million for the three months ended September 30, 2003, from the same period in 2002. This net increase primarily relates to a $2.3 million increase from a higher average debt balance, partially offset by a $0.6 million decrease from a lower average interest cost. The higher average debt balance relates to our decision in the first quarter of 2003, to carry excess cash.

During the third quarter, we recorded a $112.7 million impairment charge primarily related to the decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels, and an additional impairment charge on certain of the 28 remaining non-strategic hotels identified for sale in December 2002. Of the impairment charge, $107.7 million was recorded as part of continuing operations and $5.0 million was recorded in discontinued operations. The 30 non-strategic hotels are under-performing and generally in markets that no longer meet our long-term investment strategy. Although we expect to sell these hotels over the next 36 months, the impaired assets were written down to our estimate of today’s fair market value.

Minority interest decreased our net loss by $7.6 million for the three months ended September 30, 2003, and decreased our net loss by $3.1 million for the three months ended September 30, 2002. Minority interest represents the proportionate share of the net income or loss allocable to minority owners of FelCor LP and the proportionate share of the income or loss of other consolidated subsidiaries allocable to minority interest holders. Of this $4.5 million change in minority interest in the current period, compared to the prior year, $4.7 million resulted from the FelCor LP minority interest holders’ share of FelCor LP’s losses, partially offset by a $0.2 million decrease in the minority interest holders’ share of income from other consolidated entities.

Discontinued operations reflects all income and direct expenses associated with five hotels sold during the nine months ended September 30, 2003, and 10 hotels held for sale at September 30, 2003. Discontinued operations for these hotels reflected a loss for the quarter ended September 30, 2003, of $3.5 million, principally as the result of a $5.0 million impairment charge associated with six of the hotels held for sale at September 30, 2003.

We recorded a net loss of $167.2 million for the nine months ended September 30, 2003, compared to net loss of $0.2 million for the same period in 2002. The principal component of the difference between the net loss in 2003, compared to the net loss in 2002, were the impairment charges of $107.7 million from continuing operations and $12.8 million from discontinued operations. The impairment charge primarily related to the third quarter decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels, and an additional impairment charge on certain of the 28 remaining non-strategic hotels identified for sale in December 2002.

For the nine months ended September 30, 2003, total revenue decreased $43 million. The primary component of the decrease in total revenue was a decrease in room revenue of $34.3 million. One of the hotel industry’s principal measurements of room revenue is RevPAR. Our hotel portfolio RevPAR for the nine months ended September 30, 2003, was $60.08, or 4.9% below that of the same period in 2002. The decrease in RevPAR was comprised of a 4.0% decrease in ADR, and a 1.0% decrease in Occupancy. The decrease in RevPAR reflected a decline in both business and leisure travel for the nine months ended September 30, 2003, compared to the same period in the prior year. Travel was negatively affected during the nine months ended September 30, 2003, by the conflict in Iraq, the issuance of heightened terror alerts, the SARS outbreak, and the sluggish economy. Included in total revenue for the nine months of 2003 was $7.8 million of revenue associated with the consolidation of eight hotels in June 2003, which were previously unconsolidated.

Total operating expenses increased by $1.3 million, to $857.4 million, for the nine months ended September 30, 2003, compared to the same period in 2002. This increase primarily consisted of increases in other property operating costs that were partially offset by decreases in depreciation and other operating expenses.

Hotel operating expenses increased by $8.3 million, (of which $6.1 million was associated with the consolidation of eight hotels in June 2003, which were previously unconsolidated) for the nine months ended September 30, 2003, compared to the same period in 2002. Hotel operating margins as a percentage of hotel operating revenue decreased by 400 basis points compared to the same period last year. The deterioration in margins is principally related to a 4.0% decline in ADR and increases, as a percentage of hotel revenue, in energy costs (70 basis points), repairs and maintenance (50 basis points) and marketing (60 basis points). In addition,

included in departmental and administrative and general expenses were increases in employee wages and benefit costs (in spite of a lower headcount) compared to prior year, which resulted in an increase in these costs, as a percentage of total revenue, of 130 basis points.

Depreciation expense decreased by $4.6 million, primarily due to an increase in fully depreciated furniture, fixtures and equipment.

Taxes, insurance and lease expense decreased $1.0 million, compared to the same period of 2002, principally as the result of decreases in operating lease expense of $1.4 million and a $1.7 million decrease in real estate and other taxes. These decreases were partially offset by increases in property and general liability insurance expense of $2.2 million. The decrease in operating lease expense is principally from the decrease in hotel revenue for those hotels with participating leases. The decrease in real estate and other taxes resulted primarily from the resolution of prior year disputed property taxes.

Interest expense, net of interest income, increased $0.6 million for the nine months ended September 30, 2003, from the same period in 2002. This net increase results from higher average debt balances, offset by a lower average interest cost. The higher average debt balance relates to our decision, in the first quarter of 2003, to carry excess cash.

The nine months ended September 30, 2003, included a $2.8 million charge-off of line of credit costs related to the reduction in our outstanding line of credit commitments from $300 million to $50 million, and a $1.3 million gain on early extinguishment of debt.

We recorded $121.7 million of impairment losses during the nine months of 2003, of which $112.7 million related to the third quarter 2003, decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels, and an additional impairment charge on certain of the 19 remaining non-strategic hotels identified for sale in December 2002. The 30 non-strategic hotels are under-performing and generally in markets that no longer meet our long-term investment strategy. Although we expect to sell these hotels over the next 36 months, the impaired assets were written down to our estimate of today’s fair market value. In the second quarter of 2003, we recorded a $7.8 million impairment charge related to two low rise Harvey hotels in Dallas. We relinquished title to these hotels through a foreclosure action in August 2003.

Equity in income of unconsolidated entities decreased $1.6 million for the nine months ended September 30, 2003, compared to the same period in 2002. The change relates principally to a 3.8% decrease in RevPAR at our unconsolidated hotels.

During the nine months ended September 30, 2003, we realized a $0.2 million gain from the sale of a parking garage adjacent to one of our hotels. During the nine months ended September 30, 2002, we realized a gain of $5.1 million on the sale of retail space and $0.8 million on the sale of a hotel.

Minority interest decreased our net loss by $10.5 million for the nine months ended September 30, 2003, and decreased our net loss by $2.6 million for the nine months ended September 30, 2002. Minority interest represents the proportionate share of the net income or loss allocable to minority owners of FelCor LP and the proportionate share of the income or loss of other consolidated subsidiaries allocable to minority interest holders. Of the $7.9 million change in minority interest for the current period, compared to the prior year, $6.7 million resulted from the FelCor LP minority interest holders’ share of FelCor LP’s losses and $1.2 million resulted from decreases in the minority interest holders’ share of income from other consolidated entities.

Discontinued operations reflected a $10.2 million loss in 2003 compared to income of $2.3 million in 2002. Included in discontinued operations for 2003, was a realized loss of $0.9 million on the sale of three hotels in the nine months ended September 30, 2003, and a $12.8 million impairment loss. These losses were partially offset by $3.0 million of operating income from the sold hotels and 12 additional hotels that were held for sale and a gain of $0.4 million on the early extinguishment of debt. Discontinued operations in 2002 represented the operating income of these 15 hotels.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measurements of performance to be helpful in evaluating a real estate company’s operations. We consider Funds From Operations, or FFO, and Earnings Before Interest, Taxes, Depreciation, and Amortization, or EBITDA, to be supplemental measures of a REIT’s performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.

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 generally accepted accounting principles), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. We believe that FFO and EBITDA are helpful to investors as a supplemental measure of the performance of an equity REIT. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do.

FFO and EBITDA should not be considered as an alternative to net income, operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, FFO per share and EBITDA be considered as a measure of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. FFO per share does not measure, and should not be used as a measure of amounts that accrue directly to stockholders’ benefit.

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


		Three Months Ended September 30,

		2003								2002

							Per Share								Per Share
		Dollars			Shares		Amount			Dollars			Shares		Amount

Net loss		$	(125,917	)		58,690	$	(2.15	)	$	(7,081	)		52,729	$	(0.13	)
	Depreciation from continuing operations		34,725			—		0.59			36,044			—		0.68
	Depreciation from unconsolidated entities and discontinued operations		3,228			—		0.06			4,709			—		0.09
	Gain on sale of assets		446			—		0.01			—			—		—
	Preferred dividends		(6,727	)		—		(0.11	)		(6,727	)		—		(0.13	)
	Minority interest in FelCor LP		(7,015	)		3,161		(0.03	)		(2,344	)		9,003		(0.11	)
	Conversion of options and unvested restricted stock		—			303		—			—			324		—

FFO		$	(101,260	)		62,154	$	(1.63	)	$	24,601			62,056	$	0.40


		Nine Months Ended September 30,

		2003								2002

							Per Share								Per Share
		Dollars			Shares		Amount			Dollars			Shares		Amount

Net loss		$	(167,211	)		58,609	$	(2.85	)	$	(225	)		52,724	$	—
	Depreciation from continuing operations		104,898			—		1.79			109,491			—		2.08
	Depreciation from unconsolidated entities and discounted operations		11,947			—		0.20			13,341			—		0.25
	Gain (loss) on sale of assets		776			—		0.01			(5,861	)		—		(0.11	)
	Preferred dividends		(20,181	)		—		(0.34	)		(19,565	)		—		(0.37	)
	Minority interest in FelCor LP		(10,065	)		3,234		(0.09	)		(3,359	)		9,004		(0.34	)
	Conversion of options and unvested restricted stock		—			303		—			—			349		—

FFO		$	(79,836	)		62,146	$	(1.28	)	$	93,822			62,077	$	1.51

Consistent with recently clarified SEC guidance, FFO has not been adjusted for the following amounts included in net loss (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Net loss	$	(125,917	)	$	(7,081	)	$	(167,211	)	$	(225	)
Depreciation from continuing operations		34,725			36,044			104,898			109,491
Depreciation from unconsolidated entities and discontinued operations		3,228			4,709			11,947			13,341
Loss (gain) on sale of assets		446			—			776			(5,861	)
Minority interest in FelCor Lodging LP		(7,015	)		(2,344	)		(10,065	)		(3,359	)
Interest expense		42,777			41,073			124,780			124,488
Interest expense from unconsolidated entities and discontinued operations		1,378			2,529			6,199			7,804
Amortization expense		565			526			1,645			1,561

EBITDA	$	(49,813	)	$	75,456		$	72,969		$	247,240

Consistent with recently clarified SEC guidance, EBITDA has not been adjusted for the following amounts included in net loss (in thousands):

The following tables set forth, as of September 30, 2003, for our consolidated hotel portfolio of 172 hotels, distribution by brand, by our top metropolitan markets, by selected states, by type of location, and by market segment. For comparative purposes, also set forth below is the percentage of EBITDA contributed by each grouping for the year ended December 31, 2002.

The following tables set forth historical occupancy, ADR and RevPAR at September 30, 2003 and 2002, and the percentage changes therein between the periods presented, for our 172 consolidated hotels:


	ADR ($)

	Three Months Ended September 30,							Nine Months Ended September 30,

	2003		2002		% Variance			2003		2002		% Variance

Atlanta		83.31		85.49		(2.6	)		85.52		90.06		(5.0	)
Dallas		80.77		85.47		(5.5	)		83.40		90.00		(7.3	)
San Francisco Bay Area		110.46		114.94		(3.9	)		109.13		118.65		(8.0	)
Orlando		65.98		69.17		(4.6	)		74.25		79.45		(6.6	)
Houston		68.47		72.12		(5.1	)		71.45		74.33		(3.9	)
New Orleans		106.25		108.55		(2.1	)		131.24		137.00		(4.2	)
Philadelphia		105.55		109.29		(3.4	)		105.27		116.68		(9.8	)
Phoenix		80.18		82.89		(3.3	)		98.33		107.67		(8.7	)
Minneapolis		125.02		128.98		(3.1	)		123.01		125.84		(2.2	)
Chicago		108.78		119.83		(9.2	)		108.52		119.98		(9.6	)


	RevPAR ($)

	Three Months Ended September 30,							Nine Months Ended September 30,

	2003		2002		% Variance			2003		2002		% Variance

Atlanta		58.26		59.25		(1.7	)		57.03		61.74		(7.6	)
Dallas		39.07		40.65		(3.9	)		40.87		45.96		(11.1	)
San Francisco Bay Area		80.53		85.79		(6.1	)		71.91		79.55		(9.6	)
Orlando		45.71		44.67		2.3			51.83		54.34		(4.6	)
Houston		43.77		44.21		(1.0	)		45.77		48.71		(6.0	)
New Orleans		63.74		64.55		(1.3	)		85.37		94.28		(9.5	)
Philadelphia		69.35		69.17		0.3			65.08		73.51		(11.5	)
Phoenix		44.12		44.20		(0.2	)		66.20		65.49		1.1
Minneapolis		93.86		101.38		(7.4	)		81.58		86.21		(5.4	)
Chicago		81.90		80.98		1.1			74.60		76.24		(2.2	)

Our principal source of cash to meet our cash requirements, including distributions to stockholders and repayments of indebtedness, is from the results of operations of our hotels. For the nine months ended September 30, 2003, net cash flow provided by operating activities, consisting primarily of hotel operations, was $45 million. We currently expect that our cash flow provided by operating activities for 2003 (before fourth quarter changes in working capital) will be approximately $46 million to $50 million using current RevPAR forecasts. We expect 2003 preferred dividend payments to be $27 million, and 2003 capital expenditures to be approximately $70 million, of which $52 million has been spent during the nine months ended September 30, 2003. We have closed on non-strategic assets sales of $113 million through October 31, 2003, at which date we had cash on hand of approximately $265 million. We have no remaining debt maturities during the remainder of 2003, other than $5 million in normal recurring principal payments. Cash necessary to fund cash flow shortfalls and distributions, if any, will be funded from our cash balances, which were $176 million at September 30, 2003, proceeds from the sale of hotels or additional borrowings. We expect our Board of Directors to defer future common dividends until our hotels experience a 2% to 4% increase in RevPAR over 2002 levels, and to determine the amount of preferred dividends, if any, for each quarterly period, based upon the operating results of that quarter, economic conditions, other operating trends and minimum REIT distribution requirements. We do not expect to declare any dividends on our common stock during 2003.

Recent events, including the threat of additional terrorist attacks, U.S. military involvement in the Middle East and the bankruptcy of several major corporations, have had an adverse impact on the capital markets. These events, new terrorist attacks or additional bankruptcies could further adversely affect the availability and cost of capital for our business. In addition, should the anticipated recovery of the overall economy, and of the lodging industry, continue to be delayed significantly, that too could adversely affect our operating cash flow and the availability and cost of capital for our business. As a consequence of the prolonged economic slowdown, its impact on the travel and lodging industries and our higher secured debt levels, Moody’s lowered its ratings on our $1.2 billion in senior unsecured debt one level, to B1 in June 2003. This downgrade, along with a similar downgrade by Standard & Poor’s earlier this year to B, triggered a 50 basis point step-up in interest rates on $900 million of our $1.2 billion in senior unsecured debt, which will continue in effect unless and until either Moody’s raises its rating on our senior unsecured debt to Ba3 or Standard & Poor’s increases its rating to BB-. On October 31, 2003, Standard & Poor’s placed our credit rating on watch with negative indications.

We are also subject to the risks of fluctuating hotel operating margins at our hotels, including but not limited to increases in wage and benefit costs, repair and maintenance expenses, utilities, insurance, and other operating expenses that can fluctuate disproportionately to revenues. These operating expenses are difficult to predict and control, resulting in an increased risk of volatility in our results of operations. The economic slowdown and the sharp drop in Occupancy and ADR that began in 2001, have resulted both in declines in RevPAR and in an erosion in our operating margins. If the declines in hotel RevPAR and/or operating margins worsen or continue for a protracted time, they could have a material adverse effect on our operations, earnings and cash flow.

Effective June 1, 2003, we made a $0.2 million capital contribution to our joint venture with Interstate Hotels, which increased our ownership in that venture to more than 50 percent. As a result, we began consolidating the eight hotels, owned by this venture. The consolidation of these eight hotels increased our investment in hotels by $73 million, our debt by $51 million and reduced our investment in unconsolidated entities by $19 million.

In June 2003, we entered into a non-recourse secured debt facility with JPMorgan Chase Bank for up to $200 million. This secured facility has an initial term of 18 months, that can be extended for an additional six months at FelCor’s option, and carries a floating interest rate of LIBOR plus 225 to 275 basis points. The outstanding balances under the loan facility, once borrowed, are expected to be converted into 10-year fixed rate commercial mortgage backed securities loans through JPMorgan Chase Bank. We also have the option of converting $75 million of the debt to floating-rate debt based on LIBOR, with a three year maturity and two one year extension options. At the date of this filing, no amounts had been borrowed, and we had $176 million available, under this facility, which is secured by 14 hotels. The amount available under this facility may be increased to a maximum of $200 million as additional properties are mortgaged to secure borrowings thereunder or from improved performance of the hotels currently securing the facility.

On April 24, 2003, we entered into a $150 million non-recourse mortgage loan, at a floating interest rate of LIBOR plus 250 basis points secured by 10 full service hotels. The loan matures in May 2006, with two, one-year extension options. The proceeds were used to pay off all outstanding borrowings under our unsecured line of credit. We have no remaining debt maturing during 2003, other than $5 million in normal recurring principal payments. Our next significant debt maturity is our $175 million of senior notes maturing in October 2004. We expect to satisfy this obligation primarily from our excess cash and additional secured debt capacity. However, we also anticipate that we will have positive cash flow from operations and net sales proceeds from the sale of non-strategic hotels that may be available as secondary sources of funds for repayment of this debt in the next 12 months.

In the first nine months of 2003, we prepaid $12.3 million of secured debt and recognized gains in the aggregate amount of $1.3 million from the early extinguishment of debt.

In June 2003, we reduced our unsecured line of credit commitments from $300 million to $50 million, and obtained more relaxed covenant levels. Effective September 30, 2003, we again amended certain financial covenants to allow for greater flexibility. In addition to financial covenants, our unsecured line of credit includes certain other affirmative and negative covenants, including: restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation and ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred stock, share repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, to issue stock of our subsidiaries and to sell all or substantially all of our assets; restrictions on our ability to construct new hotels or acquire hotels under construction; limitations on our ability to change the nature of our business; limitations on our ability to modify certain instruments; limitations on our ability to create liens; limitations on our ability to enter into transactions with affiliates; and limitations on our ability to enter into joint ventures. At September 30, 2003, and at the date of this filing, we were in compliance with all of these covenants. At the date of this filing, we have no restrictions on our ability to use our line of credit. However, at certain leverage levels, usage under the line of line credit is restricted to fund operational cash flow shortfalls. At these higher leverage levels, excess cash flow from operations and net cash proceeds from asset sales, must first be used to reduce any outstanding balances under our line of credit.

Unless our business and cash flow stabilizes, we may not be able to satisfy the current financial covenant requirements. In such an event, we may need to obtain further amendments from our lenders under the line of credit to continue to be able to borrow under it. We are not certain whether, to what extent, or upon what terms the lenders may be willing to further relax the covenants. Further amendments to our line of credit may result in additional restrictions on us that, together with any limitation on our ability to borrow under the line, may adversely affect our ability to run our business and manage our financial affairs.

Our publicly-traded senior unsecured notes require that we satisfy a total leverage, a secured leverage and an interest coverage test in order to: incur additional indebtedness, except under our line of credit or to refinance maturing debt with replacement debt, as defined under our indentures; pay dividends in excess of the minimum dividend required to meet the REIT qualification test; repurchase stock; or merge. As of the date of this filing, we have satisfied all such incurrence tests. We currently expect that we will have the flexibility to meet these tests unless RevPAR declines continue or become more severe. We anticipate meeting our debt service obligations through a combination of cash on hand, cash flow from operations, additional secured debt and the sale of non-strategic hotel assets.

Our failure to timely satisfy any judgment or recourse indebtedness, if in the amount of $10 million or more, could result in the acceleration of most of our other unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.

For the fourth quarter of 2003, we currently anticipate our portfolio RevPAR will be 2.5% to flat, compared to the comparable period of the prior year, and that our operating margins will decrease 50 to 200 basis points from 2002 levels. Our net loss for the fourth quarter of 2003, before asset sales, is expected to be within the range of $41 million to $36 million. FFO for the fourth quarter is expected to be within the range of a loss of $5 million to zero, or $(0.07) to $0.01 per share and unit, and EBITDA is expected to be within the range of $47 million to $52 million for the same period. This forecast takes into consideration sales of non-strategic hotels that previously had not been anticipated to occur in 2003. This acceleration in expected hotel sales reduced our fourth quarter FFO estimate by approximately $0.04 per share.

We estimate our full year 2003 hotel portfolio RevPAR will be 4.0% to 4.6% below 2002, and that our operating margins for 2003 will decrease by 290 to 330 basis points from 2002 levels. Our net loss for the full year 2003, before asset sales, is expected to be within the range of $228 million to $223 million. Our FFO for the full year 2003 is currently anticipated to be within the range of $(84) million to $(79) million, or $(1.36) to $(1.28) per share and unit, and EBITDA is expected to be within the range of $120 million to $125 million for the same period. Full year net loss, FFO and EBITDA include non-cash charges for impairment, of $121 million; charge-off of deferred debt costs, of $3 million; and gain on early extinguishment of debt, of $2 million.

In the event that RevPAR declines, compared to the prior year, are greater than anticipated in the preparation of this forecast, or operating margins are lower than anticipated, we may not meet our forecast for the fourth quarter or the full year 2003. We expect to be able to meet our preferred dividend obligations even if RevPAR declines for the year are 6% to 8% below prior year. Our RevPAR results for October 2003 were approximately 2.5% below the same period in 2002, and our RevPAR for the first 11 days of November was approximately 2.8% below the same period in 2002.

Our estimates of FFO and EBITDA for the fourth quarter and full year of 2003 were derived from our estimate of net loss applicable to common stockholders for these periods. The following table provides a reconciliation of our estimates of FFO and EBITDA to our estimates of net loss applicable to common stockholders for both the fourth quarter and full year 2003.

Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per share and unit data)


			Full Year 2003 Guidance^(b)

			Low Guidance						High Guidance

						Per Share						Per Share
			Dollars			Amount^(a)			Dollars			Amount ^(a)

Net loss applicable to common stockholders			$	(228	)	$	(3.89	)	$	(223	)	$	(3.82	)
	Depreciation			155						155
	Gain from sales of assets			1						1
	Minority interest in FelCor LP			(12	)					(12	)

FFO			$	(84	)	$	(1.36	)	$	(79	)	$	(1.28	)

Net loss applicable to common stockholders			$	(228	)				$	(223	)
	Depreciation			155						155
		Gains from sales of assets		1						1
	Minority interest in FelCor LP			(12	)					(12	)
	Interest expense			175						175
	Amortization expense			2						2
	Preferred dividends			27						27

EBITDA			$	120					$	125

At September 30, 2003, approximately 77% of our consolidated debt had fixed interest rates. Currently, market rates of interest are below the rates we are obligated to pay on our fixed-rate debt.

The following table provides information about our financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations at September 30, 2003, the following table presents scheduled maturities and weighted average interest rates, by maturity dates. For interest rate swaps, the table presents the notional amount and weighted average interest rate, by contractual maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as of September 30, 2003. The fair value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at September 30, 2003, at then current market interest rates.


			2003			2004			2005			2006			2007			Thereafter			Total			Fair Value

Fixed rate:
	Debt		$	4,169		$	188,842		$	23,754		$	14,993		$	259,123		$	1,389,782		$	1,880,663		$	1,933,625
	Interest rate swaps ^(a)			—			(175,000	)		—			—			(125,000	)		—			(300,000	)		—
		Average interest rate		7.63	%		7.94	%		7.69	%		8.02	%		7.33	%		9.17	%		8.96	%		—
Floating rate:
	Debt			834			3,411			3,568			141,101			—			16,150			165,064			165,064
	Interest rate swaps ^(a)			—			175,000			—			—			125,000			—			300,000			(10,140	)
		Average interest rate		3.62	%		4.31	%		3.62	%		3.62	%		5.16	%		4.18	%		4.31	%		—
Total debt			$	5,003		$	192,253		$	27,322		$	156,094		$	259,123		$	1,405,932		$	2,045,727			—
		Average interest rate		6.78	%		4.57	%		7.15	%		4.04	%		6.28	%		9.06	%		7.93	%		—
Net discount				—			—			—			—			—			—			(4,443	)		—
Total debt				—			—			—			—			—			—		$	2,041,284			—

Swap agreements, such as described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties. The Standard & Poor’s credit ratings for the financial institutions that are counterparties to our interest rate swap agreements range from A+ to AA-.

Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future.

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

Portions of this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. The risks, uncertainties and assumptions that may affect our actual results, some of which are discussed more fully in our previous filings under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (collectively, “Cautionary Disclosures”) include: general economic conditions, including the timing and magnitude of any recovery from the current soft economy; future acts of terrorism; the impact on the travel industry of increased security precautions; the availability of capital; the impact of U.S. military involvement in the Middle East and elsewhere; the ability to effect sales of non-strategic hotels at anticipated prices and numerous other factors that may affect results, performance and achievements. The forward looking statements included herein, and all subsequent written and oral forward looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the Cautionary Disclosures. We undertake no obligation to update any forward-looking statements to reflect future events or circumstances.

Information and disclosures regarding market risks applicable to us is incorporated herein by reference to the discussion under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources – Quantitative and Qualitative Disclosures About Market Risks” contained elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(a)

Exhibits: The following exhibits are filed as part of this Quarterly Report on Form 10-Q:


Exhibit Number		Description of Exhibit

10.4.1		Master Amendment to Management Agreements, dated September 17, 2003, by and among FelCor Lodging Trust Incorporated (“FelCor”), FelCor Lodging Limited Partnership (“FelCor LP”), FelCor TRS I, L.L.C., FelCor TRS Holdings, L.P., BHR Operations, L.L.C., BHR Lodging Tenant Company, BHR Salt Lake Tenant Company, L.L.C., BHR Hotels Finance, Inc., BHR Dallas Tenant Company, L.P. and BHR Plano Tenant Company, L.P.

10.19.4		Fourth Amendment, dated June 25, 2003, among FelCor, FelCor LP and FelCor Canada Co., as borrowers, the lenders from time to time party thereto, Deutsche Bank Trust Company Americas, as syndication agent, and JPMorgan Chase Bank and J.P. Morgan Bank Canada, as administrative agent for the lenders.

10.19.5		Fifth Amendment, dated October 29, 2003, among FelCor, FelCor LP and FelCor Canada Co., as borrowers, the lenders from time to time party thereto, Deutsche Bank Trust Company Americas, as syndication agent, and JPMorgan Chase Bank, as administrative agent for the lenders.

10.31.4		Second Amendment to Note, Loan Agreement, Environmental Indemnity Agreement and Other Loan Documents, dated October 23, 2003, by and among FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., DJONT/JPM Atlanta CP Leasing, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., DJONT/JPM Austin Leasing, L.P., DJONT/JPM Mandalay Leasing, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., DJONT/JPM BWI Leasing, L.L.C., FelCor LP, FelCor/JPM BWI Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Orlando I-Drive Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C., DJONT/JPM Austin HI Leasing, L.P., DJONT/JPM Boca Raton Leasing, L.L.C., DJONT/JPM Denver Leasing, L.L.C., DJONT/JPM LBV Leasing, L.L.C., DJONT/JPM Orlando I-Drive Leasing, L.L.C., DJONT/JPM Troy Leasing, L.L.C., FCH/DT BWI Hotel, L.L.C., and FCH/DT BWI Holdings, L.P., as loan parties, and JPMorgan Chase Bank, as lender, and acknowledged by FelCor Hotel Asset Company, L.L.C.

31.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.

31.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.

A current report on Form 8-K dated October 29, 2003, was filed by FelCor on October 29, 2003. This filing, under Item 12, disclosed that on October 29, 2003, FelCor Lodging Trust Incorporated issued a press release announcing its results of operations for the quarter and nine months ended September 30, 2003, and published its Third Quarter 2003 Supplemental Information, which provided additional corporate data, financial highlights and portfolio statistical data for the quarter and nine months ended September 30, 2003. Copies of the press release and the Third Quarter 2003 Supplemental Information were furnished as Exhibits 99.1 and 99.2, respectively.

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

40 EX-10.4.1 3 d10215exv10w4w1.txt EX-10.4.1 MASTER AMENDMENT TO MANAGEMENT AGREEMENT EXHIBIT 10.4.1 MASTER AMENDMENT TO MANAGEMENT AGREEMENTS This Master Amendment to Management Agreements ("Master Amendment") is entered into as of the 17th day of September, 2003, by and between: FelCor Lodging Trust Incorporated, a Maryland corporation ("FelCor"), FelCor Lodging Limited Partnership, a Delaware limited partnership ("FLLP"), FelCor TRS I, L.L.C., a Delaware limited liability company ("TRS GP"), FelCor TRS Holdings, L.P., a Delaware limited partnership ("TRS"), BHR Operations, L.L.C., a Delaware limited liability company ("BHR Operations"), BHR Lodging Tenant Company, a Delaware corporation ("BHR Lodging"), BHR Salt Lake Tenant Company, L.L.C., a Delaware limited liability company ("BHR Salt Lake"), BHR Hotels Finance, Inc., a Delaware corporation ("BHR Hotels"), BHR Dallas Tenant Company, L.P., a Delaware limited partnership ("BHR Dallas"), and BHR Plano Tenant Company, L.P., a Delaware limited partnership ("BHR Plano"), all of which entities may be referred to herein, severally or collectively, as the "FelCor Entities", and: InterContinental Hotels Group Operating Corporation, f/k/a Bass (U.S.A.) Incorporated, a Delaware corporation, BHMC Canada, Inc. ("BHMC"), an Ontario corporation, Bristol Management, L.P. ("BMLP"), a Texas limited partnership, and Bristol SLC Management Company ("BSLC"), a Texas corporation. All of which entities may be referred to herein, severally or collectively, as the "IHG Entities." RECITATIONS: WHEREAS, on or about July 1, 2001, one or more of the FelCor Entities entered into Management Agreements (each individually a "Management Agreement," and collectively or severally "Management Agreements") with BHMC, BMLP and BSLC to provide for the management and operation of a number of hotels collectively listed on Exhibits "A" through "F" attached hereto, which are collectively referred to herein as the "Hotels"; and WHEREAS, the Management Agreements with respect to the Hotels listed in Exhibits "A" through "E" all provide for a Term ending in the year 2013; and WHEREAS, the Management Agreements with respect to the Hotels listed in Exhibit "F" (hereinafter referred to as the "Long Term Hotels") each provides for a Term ending in the year 2018; and WHEREAS, each Management Agreement provides, in sections 15.04 and 15.05 thereof, various continuing fees (the "Replacement Management Fee") and/or liquidated damages ("Termination Liquidated Damages") payable by a FelCor Entity upon the sale of a hotel and termination of its individual Management Agreement prior to expiration of its stated Term; and WHEREAS, each Management Agreement further provides that any Replacement Management Fee and/or Liquidated Damages otherwise payable upon the sale of a Hotel and termination of its individual Management Agreement prior to expiration of its stated Term, may be reduced, avoided or nullified by the execution of a new management agreement between a FelCor Entity and an IHG Entity, identical in all substantive respects to the Management Agreement so terminated, with respect to a newly-acquired hotel, or by expenditure by a FelCor Entity for an addition to an existing Hotel, either of which is termed a "Replacement Investment"; WHEREAS, the FelCor Entities wish to sell certain Hotels as provided herein and terminate the Management Agreements affecting such Hotels at the time of such sales; and WHEREAS, the FelCor Entities have already effected the sale of certain Hotels listed as "Kansas Hotels" on Exhibit "D" and "Sold/Foreclosed Hotels on Exhibit "E" hereto, and additionally intend to sell many of the "Sale Hotels" set forth on Exhibit "B" hereto; and WHEREAS, the parties desire to reach a compromise with respect to any Replacement Management Fees and Liquidated damages which might otherwise be owed to or accruing for the benefit of, any IHG Entity, by reason of the sale of Exhibit "B" Hotels and, under certain circumstances, Exhibit "C" Hotels and/or the termination of the Management Agreements pertaining to any of such Hotels; NOW THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties, and each of them, agree as follows: 1) The parties agree that the Terms of the Management Agreements for each Hotel identified on Exhibit "A" hereto ("Extension Hotels") shall, and by this agreement hereby are, extended until July 31, 2018. Each of the FelCor Entities represents and warrants to the IHG Entities that no approval or consent of any person is required in order for it to amend any of the Management Agreements as provided herein (or that any such consents, if required, have been obtained), that the appropriate FelCor Entity has the right to extend the Term of and occupy and possess the Exhibit "A" Hotel or the land where the Exhibit "A" Hotel is located until the end of the extended Term and that the FelCor Entities have full power and authority to amend the terms of the Management Agreements of such Hotels as provided herein. From and after the date of this amendment the Exhibit "A" Hotels shall henceforth be considered to be "17.5 Year Hotels" for purposes of Section 15.05 of each Management Agreement and any liquidated damages with respect to such Hotels shall be calculated accordingly. 2 2) The IHG Entities agree that the FelCor Entities have, by virtue of the mutual promises herein, and in addition by virtue of certain Replacement Investments accomplished prior to the date hereof, and certain Replacement Management Fees paid as of the date hereof, satisfied all requirements with respect to Replacement Management Fees and Liquidated damages with respect to all Hotels ("Kansas Hotels") set forth on Exhibit "D" hereto. In addition, one or more FelCor Entities have effected the sale of, and/or permitted the foreclosure of, the Hotels listed on Exhibit "E" hereto ("Sold/Foreclosed Hotels"), but have not yet paid the required Replacement Management Fees and/or Termination Liquidated Damages. The parties agree that, as to the Exhibit "E" Hotels the compensation due to IHG will be dealt with as provided in paragraphs 3 and 4, below, the appropriate amounts shall be calculated as if the respective Management Agreements were terminated on the dates indicated in Exhibit "E", and shall be debited to the Special Damages Credit (defined below). Any Replacement Management Fees received by IHG prior to the date of this Amendment may be retained by IHG and credited appropriately against the Termination Liquidated Damages. 3) The parties agree that, in consideration of the Term extensions effected with respect to the Exhibit "A" Hotels in Paragraph 1 above, FelCor shall receive a special credit of $25,073,718.00 ("Special Damages Credit") to be applied to the payment, satisfaction and discharge of amounts that the IHG Entities would be entitled to receive under the provisions of Sections 15.04 and 15.05 of the Management Agreements with respect to Exhibit "B" Hotels, and, under certain circumstances, Exhibit "C" Hotels, as follows: A. With respect to the sale of any Exhibit "B" Hotel which a FelCor entity may effect at any time to offset Replacement Management Fees and/or Liquidated Damages which might otherwise be due or payable to an IHG Entity by reason of the termination of the Management Agreements pertaining to such Hotels. The FelCor Entity(ies) may sell any Exhibit "B" Hotel and terminate the applicable Management Agreement upon thirty (30) days prior written notice to the IHG Entity that is manager thereunder. Upon termination of the applicable Management Agreement, to the extent that the Special Damages Credit balance is greater than zero, FelCor will receive a credit against any Termination Liquidated Damages applicable to such termination, and shall have no further obligation of paying any Replacement Management Fees with respect to such Hotel, all as provided for in paragraph 4, below. B. With respect to the sale of an Exhibit "C" Hotel, if a FelCor Entity sells such a Hotel (i) as part of a "portfolio sale" in which there are no fewer than three Hotels in the portfolio and at least half the number of Hotels sold in the portfolio are Exhibit "B" Hotels, and (ii) the composition of the portfolio has been approved in advance by Six Continents Hotels, Inc., then, upon termination of the applicable Management Agreement, to the extent that the Special Damages Credit 3 balance is greater than zero, FelCor will receive a credit against any Termination Liquidated Damages applicable to such sale and termination, and shall have no further obligation for the payment of any Replacement Management Fees with respect to such Hotel(s), all as provided for in paragraph 4, below. C. The FelCor Entities agree that all Net Proceeds of each sale of Exhibit "B" or "C" Hotels as to which the Special Damages Credit applies shall be held as cash or cash equivalents by FelCor pending application only to pay FelCor Qualifying Debt (defined to mean any corporate debt with a maturity greater than one (1) year from the date it is being measured, any of FelCor's publicly-traded debt such as FelCor's Senior Notes, and any mortgage(s) secured by any of the Hotels sold). For purposes hereof, any Qualifying Debt repaid by the FelCor Entities subsequent to the date of this Master Amendment to Management Agreements shall be deemed to have been paid from Net Proceeds of the sale of Exhibit "B" or "C" hotels, regardless of whether such sales occur before or after the repayment of such Qualifying Debt. D. The Special Damages Credit accruing to the FelCor Entities by virtue of this Paragraph 3 may not be used to offset any other Replacement Management Fees or Liquidated Damages which might otherwise be due or payable with respect to termination of a Management Agreement pertaining to any other Hotel under any other circumstances. Further, the Special Damages Credit shall not be considered to be part of a Replacement Investment Balance as that term is used in the Management Agreements. 4) The parties agree that, with respect to Replacement Management Fees and Liquidated Damages due and payable to the IHG entities upon sale of an Exhibit "B" Hotel, or an Exhibit "C" Hotel and the termination of the related Management Agreement pursuant to paragraph 3(B), above: (i) the "Termination Liquidated Damages" for the Hotel shall be calculated as provided in Section 15.05 of the affected Management Agreement and the Special Damages Credit balance as of the date of termination of the Management Agreement shall be applied to the payment, satisfaction and discharge of the Termination Liquidated Damages that would be due an IHG Entity as a result of such termination; (ii) upon full payment, satisfaction and discharge of Termination Liquidated Damages by application of the Special Damages Credit, FelCor shall have no further obligation for the payment of Replacement Management Fees with respect to that Hotel; and (iii) as to any Hotel which is IHG-branded at the time of termination of the Management Agreement, in the event the purchaser of the Hotel executes a franchise or license agreement for that Hotel ("Buyer's Franchise") with an IHG Entity or an Affiliate for a term of at least three (3) years, the Special Damages Credit shall be credited with (i.e., increased by) a "Franchise Fee Credit". The Franchise Fee Credit as to each Hotel shall be calculated as follows: Gross Rooms Revenues of the Hotel for the most recent twelve (12) months prior to termination, multiplied times each of the applicable royalty rates for each of the first three (3) years in the Buyer's Franchise, net of any royalty reduction or 4 "advertising assistance" granted to the licensee in the Buyer's Franchise or in any side agreement exclusive of any allowance or assistance provided from any advertising or marketing fund to which franchisees contribute, that may be maintained by IHG Entities or any of their Affiliates. The total of the three calculations is the Franchise Fee Credit and shall be immediately added to the Special Damages Credit. In the event the Buyer's Franchise is terminated for any reason other than a breach by the IHG Entity within thirty-six (36) months of it being in effect as to the Hotel, the parties shall reduce the Special Damages Credit by a number equal to the Franchise Fee Credit multiplied by a fraction, the numerator of which is thirty-six (36) minus the number of months Buyer's Franchise was in effect, and the denominator of which is thirty-six (36). 5) The parties further acknowledge that the FelCor Entities may, as a strategy for disposing of or otherwise repositioning certain Hotels, wish to convert them to different brands than they presently have. In order to facilitate appropriate brand conversions with respect to all Hotels, the parties agree as follows: A. The Whispering Woods Conference Center Hotel, DFW Harvey Hotel and DFW Harvey Suites Hotel listed on Exhibit B , and no other hotels, may be retained by their respective FelCor entities in lieu of sale to a third party and converted to a non-IHG brand. No brand conversion of any other Hotel may be effected by FelCor without advance, written approval by the IHG Entity serving as Manager under the particular Management Agreement, in its sole discretion. B. For purposes of the conversion of Whispering Woods Conference Center, DFW Harvey or DFW Harvey Suites, the applicable Management Agreement shall be terminated on the date of actual conversion and such termination shall, for purposes of compensation to IHG, be treated as having occurred as a result of a sale of the Hotel. Therefore, "Net Proceeds" shall be deemed to be the fair market value of the Hotel as of the day prior to the brand conversion as determined by a certified appraisal of the asset conducted by an MAI appraiser experienced in appraising hotels (the cost of which shall be paid by FelCor), and FelCor shall be obligated to pay Replacement Management Fees and Termination Liquidated Damages under Sections 15.04 and 15.05, if circumstances at the time require it. The provisions of Section 3(A) of this Amendment shall be applicable to such imputed sale(s) if on the dates of such imputed sale(s) the Special Damages Credit balance is greater than zero. 6) As an additional concession to the FelCor Entities, the IHG Entities agree that, from and after the date the Special Damages Credit is exhausted, until, if later, five (5) years from the date of this Master Amendment of Management Agreements, a FelCor entity may sell any Hotel on Exhibit "B" or "C" and terminate its Management Agreement, and the Replacement Management Fees and Termination Liquidated Damages shall be calculated as provided in Sections 15.04 and 15.05 of the applicable Management Agreements. However, so long as the FelCor Entities apply the Net Proceeds of sale of such Hotels to the payment of FelCor Qualifying Debt, and so long as the applicable FelCor Entity makes 5 timely payment of all Replacement Management Fees with respect to the Hotel as calculated pursuant to Section 15.04 until the Termination Liquidated Damages with respect thereto have been satisfied and discharged (which period is not limited to one year as contemplated by Section 15.05(a)), payment of any Termination Liquidated Damages with respect to such Hotel(s) may, at the option of the FelCor Entities, be held in abeyance without interest until such time as the Debt-to-EBITDA ratio of FelCor (defined to mean FelCor Long Term Debt as of the end of any Fiscal Year divided by EBITDA for that year) is 4.5:1 or less, but in no event later than five (5) years from the date of this Master Amendment. Provided further, that with respect to each such Hotel listed on Exhibit "C" as to which FelCor elects to postpone such payment, in the event FelCor seeks to reduce or nullify the remaining Replacement Management Fee and Termination Liquidated Damages by the making of a Replacement Investment by FelCor or any of the FelCor Entities by their purchase, while payment of Termination Liquidated Damages are postponed or held in abeyance, of a new hotel pursuant to Section 15.04(b) of the applicable Management Agreement, which hotel is made subject to a new management agreement on the same terms as the applicable Management Agreement(s), or by an expansion of an existing Hotel approved by IHG as provided in section 15.04(b) of the Management Agreements), such new management agreement or expanded hotel shall only reduce or nullify the remaining Replacement Management Fees and/or Termination Liquidated Damages if the new or existing management agreement is given a Term extending until at least July 31, 2018. 7) The parties agree that, for purposes of Section 15.04(b), with respect to any Exhibit "B" or "C" Hotel transaction used against the Special Damages Credit as provided in paragraphs 3 and 4, above, the Net Proceeds of the sale of that Hotel shall not be deducted from Leasehold Owner's Replacement Investment Balance, nor shall they then be added to Leasehold Owner's Replacement Investment Balance as if the Liquidated Damages had been paid. It is the intention of the parties that the sale of Exhibit "B" or "C" Hotels as to which the Special Damages Credit is applied, above, shall have no effect on the Replacement Investment Balance. 8) Within thirty (30) days after the end of each calendar quarter, FelCor shall provide a written quarterly report of activity with respect to the Special Damages Credit. The report shall include a statement of (1) all Hotel sales, and related Management Agreement terminations effected in the quarter; (2) Net Proceeds realized from any such sales, Qualifying Debt paid, and the carryover from either; and (3) debits and credits, by Hotel, applied to the Special Damages Credit. The report shall also state the quarter-end Debt-to-EBITDA ratio of FelCor for purposes of paragraph 6, above. The IHG Entities will promptly provide FelCor the amount of the Franchise Fee Credit applicable to any Hotel sale with a new Buyer's Franchise. 6 9) The parties agree, merely as a point of clarification of the Management Agreements, that the Net Proceeds of Sale for a hotel foreclosed upon by a lender, or transferred to a lender by a FelCor Entity by virtue of a deed in lieu of foreclosure, shall be the unpaid principal and interest on the relevant loan at the time of such foreclosure or deed in lieu of foreclosure, before giving any effect to the reduction of the loan by the amount of any deposits, escrow balances or other impounds held by the lender or otherwise securing the loan. 10) When and if the Special Damages Credit is fully used by offsetting Termination Liquidated Damages arising from the sale of Hotels and the termination of Management Agreements, any future sales of Hotels and the compensation payable to the IHG Entities for termination of their Management Agreements shall be governed by the requirements of Sections 15.04 and 15.05. Notwithstanding the provisions of Paragraph 7, in the event a Hotel is sold whose Termination Liquidated Damages would deplete the remaining balance of the Special Damages Credit and leave a portion of the Termination Liquidated Damages unpaid (the "SHORTFALL"), the applicable FelCor Entity may either (1) immediately pay the Shortfall in cash; (2) pay a prorated Replacement Management Fee determined by multiplying the normal Replacement Management Fee by a fraction, the numerator of which is the amount of the Shortfall and the denominator of which is the normal Termination Liquidated Damages attributable to the sale of such Hotel; or (3) have deducted from any positive Replacement Investment Balance an amount equal to the Net Proceeds of such sale multiplied by a fraction, the numerator of which is the amount of the Shortfall and the denominator of which is the normal Termination Liquidated Damages attributable to the sale of such Hotel. If the FelCor Entities pay such prorated Replacement Management Fee and there is no Replacement Investment Balance sufficient to satisfy the Shortfall pursuant to (2) above within one year of the sale of the Hotel, the FelCor Entity shall promptly pay the amount of the Shortfall in cash. In the event the Special Damages Credit is not fully used by FelCor prior to or in connection with the expiration or termination of the last Management Agreements on Exhibit "B" or Exhibit "C" to expire or terminate, the parties agree that the then remaining balance of the Special Damages Credit has no cash or other credit value and the IHG Entities shall have no obligation to pay or reimburse any of the FelCor Entities for any such unused balance. 11) All provisions of the Management Agreements not expressly amended by this Master Amendment shall remain in full force and effect. Defined terms used herein shall have the same meanings as such terms in the Management Agreements unless expressly modified in this Master Amendment to Management Agreements. 7 FelCor Lodging Trust Incorporated, InterContinental Hotels Group a Maryland corporation ("FelCor") Operating Corporation, f/k/a Bass (U.S.A.) Incorporated, a Delaware By: /s/ Thomas J. Corcoran, Jr. corporation ------------------------------------ Title: President Date: 09/22/03 By: /s/ Illegible -------------------------------- Title: Vice President, Treasurer FelCor Lodging Limited Date:_______________________________ Partnership, a Delaware limited partnership ("FLLP") By: FelCor Lodging Trust, BHMC Canada, Inc. ("BHMC"), an Incorporated,general partner Ontario corporation By: /s/ Thomas J. Corcoran, Jr. By: /s/ David Hom ------------------------------------ -------------------------------- Title: President Title: Vice President Date: 09/22/03 Date: ______________________________ FelCor TRS I, L.L.C., a Delaware limited liability company Bristol Management, L.P. ("TRS GP") ("BMLP"), a Texas limited partnership By: /s/ Thomas J. Corcoran, Jr. by: BHMC GenPar, LLC, general ------------------------------------ partner Title: President Date: 09/22/03 By: /s/ Illegible -------------------------------- Title: Vice President, Treasurer FelCor TRS Holdings, L.P., Date: ______________________________ a Delaware limited partnership ("TRS") Bristol SLC Management Company by: FelCor TRS I, LLC, general ("BSLC"), a Texas corporation partner By: /s/ Thomas J. Corcoran, Jr. By: /s/ Illegible ------------------------------------ -------------------------------- Title: President Title: Vice President, Treasurer Date: 09/22/03 Date: ______________________________ BHR Operations, L.L.C., a Delaware limited liability company ("BHR Operations") By: /s/ Thomas J. Corcoran, Jr. ----------------------------------- Title: President Date: 09/22/03 8 BHR Lodging Tenant Company, a Delaware corporation ("BHR Lodging") By: /s/ Thomas J. Corcoran, Jr. ----------------------------------- Title: President Date: 09/22/03 BHR Salt Lake Tenant Company, L.L.C., a Delaware limited liability company ("BHR Salt Lake") By: /s/ Thomas J. Corcoran, Jr. ----------------------------------- Title: President Date: 09/22/03 BHR Hotels Finance, Inc., a Delaware corporation ("BHR Hotels") By: /s/ Thomas J. Corcoran, Jr. ------------------------------------ Title: President Date: 09/22/03 BHR Dallas Tenant Company, L.P., a Delaware limited partnership ("BHR Dallas") by: BHR Hotels Finance Inc., general partner By: /s/ Thomas J. Corcoran, Jr. ------------------------------------ Title: President Date: 09/22/03 BHR Plano Tenant Company, L.P., a Delaware limited partnership ("BHR Plano") by: BHR Hotels Finance Inc., general partner By: /s/ Thomas J. Corcoran, Jr. ------------------------------------ Title:__________________________________ Date: 09/22/03 9 Exhibit "A" - Extension Hotels Atlanta AP N-HI Atlanta AP-CP Atlanta Powers Ferry-CP Austin Town Lake-HI Boston Government-HIS Charleston Mills-HI Cocoa Beach Ocean-HI Dallas Park Ctrl-BH Houston Med Ctr-HI Irvine-CP Miami AP-CP Nashville Opryland-HIS New Orleans Fr Qtr-HI Omaha Old Mill-CP Orlando AP-HIS Orlando I Drive-HI Philadelphia Indepen-HI Pittsburgh Univ Ctr-HIS Pleasanton-CP San Antonio AP-HIS San Antonio Downtown-HI San Jose Silicon-CP Santa Barbara-HI Secaucus Meadow-CP Stamford-HIS Toronto AP-HIS Toronto Yorkdale-HI 10 Exhibit "B" - Sale Hotels Albuquerque Mount-HI Amarillo I-40-HI Beaumont Midtown-HI Cambridge-HI Columbus AP N-HI Dallas Addison-CP Dallas DFW N-HH Dallas DFW N-HS Dallas Park Ctrl-CPS Dallas Plano-HI Davenport-HI Greenville Roper-CP Hartford Downtown-CP Houston I-10 W-HIS Jackson Downtown-CP Jackson N-HI Kitchener Waterloo-HI Midland Country Villa-HI Moline AP-HI Moline AP-HIX Odessa Ctr-HI Odessa-HIX Olive Branch WW-IND Omaha Ctrl I-80-HI Omaha Ctrl-HAM Omaha SW-HAM Omaha SW-HIX Omaha-HWD Orlando Nikki Bird-HI Peterborough-HI Salt Lake City AP-HI Sarnia-HI St Louis Westport-HI Texarkana I-30-HI Waco I-35-HI 11 Exhibit "C" - Unaffected hotels Atlanta Jonesboro-HI Atlanta Perimeter-HIS Dallas Market Ctr-CP Houston AP-HI Houston Greenway-HIS Houston Med Ctr-CP KC NE-HI Knoxville W-HI Montgomery E I-85-HI SF Financial District-HI 12 Exhibit "D" - Kansas Hotels Hampton Inn - Hays Holiday Inn - Great Bend Holiday Inn - Hays Holiday Inn - Salina Holiday Inn Express & Suites - Colby Holiday Inn Express & Suites - Salina I-70 13 EXHIBIT "E"SOLD/FORECLOSED HOTELS Dallas Park Ctrl-HH - August 5, 2003 Dallas Plano-HH - August 5, 2003 Davenport-HAM - May 14, 2003 Moline-HAM - May 14, 2003 14 EXHIBIT "F" - LONG-TERM HOTELSChicago Allerton-CP Philadelphia Ctr City-CP SF Fish Wharf-HI SF Union Square-CP San Diego on Bay-HI Tampa Busch-HI 15 EX-10.19.4 4 d10215exv10w19w4.txt EX-10.19.4 FOURTH AMENDMENT DATED JUNE 25, 2003 EXHIBIT 10.19.4 FOURTH AMENDMENT FOURTH AMENDMENT (the "Fourth Amendment"), dated as of June 25, 2003, among FELCOR LODGING TRUST INCORPORATED (f/k/a FelCor Suite Hotels, Inc.), a Maryland corporation ("FelCor"), FELCOR LODGING LIMITED PARTNERSHIP (f/k/a FelCor Suites Limited Partnership), a Delaware limited partnership ("FelCor LP" and collectively with FelCor, the "US Borrower"), FELCOR CANADA CO., a Nova Scotia unlimited liability company (the "Canadian Borrower" and collectively with the US Borrower, the "Borrower"), the Lenders from time to time party thereto, DEUTSCHE Bank Trust Company AMERICAS (f/k/a Bankers Trust Company), as Syndication Agent (the "Syndication Agent") and JPMORGAN CHASE BANK (f/k/a The Chase Manhattan Bank) ("JPMCB") and J.P. MORGAN Bank Canada (f/k/a The Chase Manhattan Bank of Canada) ("JPM Canada") as Administrative Agent for the Lenders. Unless otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement referred to below are used herein as so defined. W I T N E S S E T H : WHEREAS, the Borrower, the Lenders, the Syndication Agent and the Administrative Agent are party to the Seventh Amended and Restated Credit Agreement, dated as of July 26, 2001 (as the same has been amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement"); and WHEREAS, subject to the terms and conditions set forth below, the parties hereto wish to amend certain provisions the Credit Agreement as provided herein; NOW, THEREFORE, it is agreed; I. Amendments 1. Section 1.1 of the Credit Agreement is hereby amended by deleting the definitions of "Adjusted EBITDA," "Applicable Margin," "Consolidated Total Revenue," "Status" and "Total Indebtedness" and inserting the following new definitions in lieu thereof: "Adjusted EBITDA" for any Person for any period, shall be (A) the sum of (i) EBITDA of such Person for such period and (ii) for any Fiscal Quarter ending after April 1, 2003 and prior to October 1, 2004, up to $25,000,000 of Net Proceeds from Asset Sales consumated during the Fiscal Quarter of such Person less (B) the FF&E Reserve for such Person. "Applicable Margin" means, with respect to each Revolving Credit Loan, the applicable percentage per annum set forth below based upon (i) with respect to Level I through IV Status, the Status then in effect and (ii) with respect to Level V through XVI Status, the Status in effect on the most recent Applicable Margin Reset Date, it being understood that the Applicable Margin for (i) Base Rate Loans, Swing Advances and Canadian Prime Rate Loans shall be the percentage set forth under the column "Base Rate/Canadian Prime Rate Loans", (ii) Eurodollar Rate Loans shall be the percentage set forth under the column "Eurodollar Rate Loans", and (iii) the Commitment Fee shall be the percentage set forth under the column "Commitment Fee":

"Consolidated Total Revenue" shall mean, for any period, (i) the aggregate stated amount of all revenue of the US Borrower and its Subsidiaries on a consolidated basis as determined in accordance with GAAP plus (ii) the US Borrower's Pro Rata Share of the aggregate stated amount of all revenue of its Unconsolidated Entities. "Status" means the existence of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status, Level VI Status, Level VII Status, Level VIII Status, Level IX Status, Level X Status, Level XI Status, Level XII Status, Level XIII Status, Level XIV Status, Level XV or Level XVI Status, as the case may be. As used in this definition: "Level I Status" exists on any date if, on such date, either US Borrower has a long-term senior unsecured actual debt rating of A- or better by S&P and A3 or better by Moody's Investor Service, Inc. ("Moody's"); "Level II Status" exists on any date if, on such date, either US Borrower has a long-term senior unsecured actual debt rating of BBB+ by S&P and Baa1 by Moody's; -2- "Level III Status" exists on any date if, on such date, either US Borrower has a long-term senior unsecured actual debt rating of BBB by S&P and Baa2 by Moody's; "Level IV Status" exists on any date if, on such date, either US Borrower has a long-term senior unsecured debt rating of BBB- by S&P and Baa3 by Moody's; "Level V Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is less than 25%; "Level VI Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 25% but less than 35%; "Level VII Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 35% but less than 40%; "Level VIII Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 40% but less than 45%; "Level IX Status" exists on any date if, on such date (y) none of the Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 45% but less than 50%; "Level X Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 50% but less than 55%; "Level XI Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 55% but less than 60%. "Level XII Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 60% but less than 65%. "Level XIII Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 65% but less than 70%. Level XIV Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 70% but less than 75%. "Level XV Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 75% but less than 80%. -3- "Level XVI Status" exists on any date if, on such date (y) none of Level I Status through Level IV Status exists and (z) the Leverage Ratio is equal to or greater than 80%. If S&P and/or Moody's shall cease to issue ratings of debt securities of real estate investment trusts generally, then the Administrative Agent and the US Borrower shall negotiate in good faith to agree upon a substitute rating agency or agencies (and to correlate the system of ratings of each substitute rating agency with that of the rating agency for which it is substituting) and (a) until such substitute rating agency or agencies are agreed upon, Status shall be determined on the basis of the rating assigned by the other rating agency (or, if both S&P and Moody's shall have so ceased to issue such ratings, on the basis of the Status in effect immediately prior thereto) and (b) after such substitute rating agency or agencies are agreed upon, Status shall be determined on the basis of the rating assigned by the other rating agency and such substitute rating agency or the two substitute rating agencies, as the case may be. If the long term senior unsecured actual debt ratings of either US Borrower by S&P and Moody's are not equivalent, the higher rating will apply for the purposes of determining Status. If the long term senior unsecured actual debt ratings of either US Borrower by S&P and Moody's are two or more Levels apart, the rating one Level below the higher rating will apply for the purposes of determining Status. "Total Indebtedness of any Person means the sum of the following (without duplication): (a) all Indebtedness of such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP, plus (b) such Person's Pro Rata Share of Indebtedness of such Person's Unconsolidated Entities, provided, however, Indebtedness of a Person's Subsidiary shall only be included in the calculation of Total Indebtedness to the extent of the greater of (x) such Person's Pro Rata Share of such Indebtedness and (y) the amount of such Indebtedness guaranteed by such Person, provided further, that in calculating Total Indebtedness of the US Borrower and its Subsidiaries for the purposes of Sections 2.6(e), 2.6(f), 2.6(g), 2.22, 5.5, 7.4(b), 7.5(d), 7.6(c) 7.13(b) and 7.17, Total Indebtedness shall be reduced by unencumbered cash and Cash Equivalents in excess of $25,000,000 held by the US Borrower and its Subsidiaries at such time." 2. Section 1.1 of the Credit Agreement is hereby further amended by (A) inserting the following text immediately preceding the period at the end of the definition of "Net Cash Proceeds", ", it being understood and agreed, with respect to like-kind exchanges consummated pursuant to, and in compliance with, Section 1031 of the Code, Net Cash Proceeds shall not be deemed to have been received by the US Borrower or it Subsidiaries while held by a "qualified intermediary" (as such term is defined under Section 1031 of the Code)" and (B) in the definition of "Total Value" (i) deleting clause (D) thereof in its entirety, (ii) re-designating clauses (E) and (F) of said definition as clauses (D) and (E), respectively, (iii) in new clause (D), deleting the reference "(D)" appearing therein and inserting the reference "(C)" in lieu thereof and (iv) in new clause (E), deleting the reference "(E)" appearing therein and inserting the reference "(D)" in lieu thereof. 3. Section 1.1 of the Credit Agreement is hereby further amended by inserting the following new defined term in the appropriate alphabetical order: -4- "Specified Purposes" shall mean (i) any operating expenses incurred within thirty days of payment thereof by the US Borrower or its Subsidiaries in the ordinary course of business including, without limitation, interest expense, taxes and maintenance reserves, scheduled principal payments and interest in connection therewith on any Indebtedness (regardless of when incurred) of the US Borrower or its Subsidiaries; provided, however, the redemption or the repayment of any Indebtedness other than provided above shall not constitute a Specified Purpose and (ii) the prepayment by the US Borrower or any of its Subsidiaries of any such operating expenses incurred in the ordinary course within thirty days prior to the date such payment is due. 4. Sections 2.6(e), (f) and (g) of the Credit Agreement are each hereby amended to read in their entirety as follows: "(e) In addition to any other mandatory prepayments required pursuant to this Section 2.6, if on any date the US Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale and the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 70% of Total Value (before giving effect to the application of the proceeds thereof), then, unless the proceeds from such Asset Sale are required to be reinvested in accordance with any Management Agreement governing the sale of such asset, a prepayment of an amount equal to 100% of such Net Cash Proceeds (or the portion thereof not required to be reinvested pursuant to such Management Agreement) shall be applied to repay outstanding Revolving Credit Loans within five Business Days following such date. (f) In addition to any other mandatory prepayments required pursuant to this Section 2.6, if on any date the US Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from the sale or issuance of equity by the US Borrower or its Subsidiaries and, if at the time of such issuance the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 70% of Total Value (before to giving effect to the application of the proceeds thereof), then, a prepayment of an amount equal to 100% of such Net Cash Proceeds shall be applied to repay outstanding Revolving Credit Loans within five Business Days following such date. (g) In addition to any other mandatory prepayments required pursuant to this Section 2.6, 45 days after the last day of each Fiscal Quarter of the US Borrower, beginning with the Fiscal Quarter ending December 31, 2002, if the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 70% of Total Value as of the last day of such Fiscal Quarter, then outstanding Revolving Credit Loans shall be repaid in an amount equal to 100% of Available Free Cash Flow for such Fiscal Quarter." 5. Section 2.17(c) of the Credit Agreement is hereby amended by deleting the amount "$75,000,000" appearing in said Section and inserting the amount "$15,000,000" in lieu thereof. -5- 6. The Credit Agreement is hereby further amended by deleting Sections 2.21(c) and (d) in their entirety. 7. Section 2.22 of the Credit Agreement is hereby amended by deleting clause (iii) thereof in its entirety and inserting the following new clause (iii) in lieu thereof, "(iii) at the time of the delivery of any notice pursuant to clause (a) or (b) of this Section 2.22 requesting an extension of the Final Maturity Date, the US Borrower's Total Indebtedness for borrowed money shall be equal to or less than (x) in the case of a request to extend the Final Maturity Date made pursuant to clause (a) hereof, 60% of Total Value at all times from the delivery of the notice requesting such extension until such Extension Effective Date and (y) in the case of a request to extend the Final Maturity Date made pursuant to clause (b) hereof, 55% of Total Value at all times from the delivery of such notice requesting such extension until such Extension Effective Date". 8. Section 4.18 of the Credit Agreement is hereby amended by inserting the following text immediately preceding the period at the end thereof", provided that at any time the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 75% of Total Value (or will after giving effect to the application of proceeds of such Revolving Credit Loans), the proceeds of the Revolving Credit Loans will be used by the Borrowers solely for Specified Purposes that can not be funded from operational cash flow". 9. Section 5.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "5.1. Unsecured Interest Expense Coverage. The US Borrower shall maintain at the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on June 30, 2000, a ratio of (a) Unencumbered NOI to (b) Unsecured Interest Expense, in each case determined on the basis of the four (4) Fiscal Quarters ending on the date of determination, of not less than 1.90:1.0, provided that, the minimum ratio set forth above shall be not less than 1.20:1.0 for the Fiscal Quarters ending June 30, 2003 through September 30, 2004." 10. Section 5.2 of the Credit Agreement is hereby amended to read in its entirety as follows: "5.2. Fixed Charge Coverage Ratio. The US Borrower shall maintain at the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on June 30, 2000, a ratio of (a) Adjusted EDITDA to (b) Fixed Charges, in each case determined on the basis of the four (4) Fiscal Quarters ending on the date of determination, of not less than 1.50:1.0, provided that, the minimum ratio set forth above shall be (i) 1.00:1.0 for the Fiscal Quarters ending June 30, 2003 through March 31, 2004, (ii) 1.05:1.0 for the Fiscal Quarters ending June 30, 2004 and September 30, 2004. 11. Section 5.4 of the Credit Agreement is hereby amended to read in its entirety as follows: -6- "5.4. Limitations on Total Indebtedness. The US Borrower shall not, during each Fiscal Quarter on a consolidated basis, permit the Total Indebtedness (including, without limitation, the Obligations and all Capitalized Lease Obligations) of the US Borrower for borrowed money to exceed (i) 70% of Total Value from December 31, 2002 through and including June 29, 2003, (ii) 80% of Total Value from and including June 30, 2003 through March 31, 2004, (iii) 75% of Total Value from and including April 1, 2004 through June 30, 2004, (iv) 70% of Total Value from and including July 1, 2004 through September 30, 2004 and (v) 60% of Total Value at all other times." 12. Section 5.5 of the Credit Agreement is hereby amended to read in its entirety as follows: "5.5. Limitations on Total Secured Indebtedness. The US Borrower shall not, during each Fiscal Quarter on a consolidated basis, permit the Total Secured Indebtedness (including, without limitation, secured Obligations and Capitalized Lease Obligations) of the US Borrower, to exceed 45% of Total Value, provided that, Total Secured Indebtedness shall not exceed (i) 32% of Total Value from December 31, 2002 through and including June 29, 2003 and (ii) 50% of Total Value from June 30, 2003 through September 30, 2004." 13. Section 7.1(c) of the Credit Agreement is hereby amended by deleting the percentage "25%" appearing in the second proviso of said Section and inserting the percentage "50%" in lieu thereof. 14. Section 7.4(b) of the Credit Agreement is hereby amended to read in its entirety as follows: "(b) Notwithstanding anything to the contrary contained in clause (a) of this Section 7.4, other than Restricted Payments made in accordance with clauses (a)(i) and (a)(ii) of this Section 7.4, the US Borrower shall not make Restricted Payments under such clause (a) during any Fiscal Quarter ending from and including December 31, 2002 through September 30, 2004, at any time that the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 55% of Total Value, except that (x) to the extent that the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 55% of Total Value but is less than 65% of Total Value, at the time of and after giving effect to such Restricted Payments, when added to the Restricted Payments made during the immediately preceding three consecutive Fiscal Quarters, in an amount equal to the lesser of (I) 85% of the consolidated Adjusted Funds From Operations and (II) 85% of the Free Cash Flow of the US Borrower, in each case for the immediately preceding four consecutive Fiscal Quarters and (y) to the extent that the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 65% of Total Value but is equal to or less than 70% of Total Value, at the time of and after giving effect to any such Restricted Payment, when added to the Restricted Payments made during the immediately preceding three consecutive Fiscal Quarters, in an amount equal to the lesser of (I) 85% of the consolidated Adjusted -7- Funds From Operations and (II) 75% of the Free Cash Flow of the US Borrower, in each case for the immediately preceding four consecutive Fiscal Quarters; provided that notwithstanding the above, (A) the US Borrower shall be permitted to declare or authorize the payment of current dividends on its preferred stock during any Fiscal Quarter in an aggregate amount not to exceed the difference of (I) the sum of (x) 100% of the Free Cash Flow of the US Borrower for the immediately preceding four (4) consecutive Fiscal Quarters ending prior to the date of payment of such dividend plus (y) up to $25,000,000 of Net Proceeds of Asset Sales per Fiscal Quarter consummated in the four (4) Fiscal Quarter period ending prior to the date of payment of such dividend, less (II) the amount of dividends paid by the US Borrower on its preferred stock during the immediately preceding three (3) consecutive Fiscal Quarters ending prior to the date of payment of such dividend and (B) the US Borrower shall be permitted to declare or authorize the payment of current dividends on its Stock during any Fiscal Quarter but only to the extent required to maintain its status as a real estate investment trust." 15. Section 7.5(d) of the Credit Agreement is hereby amended to read in its entirety as follows: "(d) Notwithstanding anything to the contrary contained in this Agreement, for the period from the Third Amendment Effective Date through September 30, 2004, the US Borrower may acquire existing Hotel properties, so long as (I) the Total Indebtedness for borrowed money of the US Borrower does not exceed 60% of Total Value both before and after giving effect to such acquisition and (II) at least 10 Business Days prior to the consummation of any such acquisition the US Borrower shall deliver to the Administrative Agent a certificate of the US Borrower's chief financial officer or treasurer certifying (and showing calculations in reasonable detail) that the US Borrower would have been in compliance with the financial covenants set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7, as amended hereby, for the most recently ended four (4) Fiscal Quarters prior to the date of such acquisition, in each case with such financial covenants to be determined on a pro forma basis as if such acquisition had been consummated on the first day of such four (4) Fiscal Quarter period (and assuming that any Indebtedness incurred, issued, assumed or repaid in connection therewith had been incurred, issued, assumed or repaid on the first day of such four (4) Fiscal Quarter period); provided that (i) to the extent that the US Borrower's Total Indebtedness for borrowed money exceeds 60% of Total Value but is less than or equal to 65% of Total Value before such acquisition, the US Borrower may acquire existing Hotel properties at such time, so long as (I) the US Borrower's Total Indebtedness for borrowed money as a percentage of Total Value after giving effect to such acquisition is equal to or less than the US Borrower's Total Indebtedness for borrowed money as a percentage of Total Value immediately prior to such acquisition, (II) at least 10 Business Days prior to the consummation of any such acquisition, the US Borrower shall deliver to the Administrative Agent a certificate of the US Borrower's chief financial officer or treasurer certifying (and showing calculations in reasonable detail) that the US -8- Borrower would have been in compliance with the financial covenants set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7, as amended hereby, for the most recently ended (4) Fiscal Quarters prior to the date of such acquisition, in each case with such financial covenants to be determined on a pro forma basis as if such acquisition had been consummated on the first day of such (4) Fiscal Quarter period (and assuming that any Indebtedness incurred, issued, assumed or repaid in connection therewith had been incurred, issued, assumed or repaid on the first day of such four (4) Fiscal Quarter period); (ii) to the extent that the US Borrower's Total Indebtedness for borrowed money exceeds 65% of Total Value but is less than or equal to 70% of Total Value either at the time of or after giving effect to such acquisition, the US Borrower may only acquire existing Hotel properties (I) in an aggregate amount not to exceed the Specified Acquisition Amount at the time of such acquisition and (II) if the US Borrower's Total Indebtedness for borrowed money as a percentage of Total Value after giving effect to such acquisition is equal to or less than the US Borrower's Total Indebtedness for borrowed money as a percentage of Total Value immediately prior to such acquisition; provided further, that notwithstanding the above, the US Borrower shall be permitted to acquire replacement assets required pursuant to management agreements." 16. Section 7.5 of the Credit Agreement is hereby further amended by inserting the following new Sections (e) and (f) at the end thereof: "(e) Notwithstanding anything contained in this Agreement, the US Borrower may engage in like-kind exchanges pursuant to, and in compliance with, Section 1031 of the Code that may result in Net Cash Proceeds in an aggregate amount not to exceed $30,000,000 with respect to the Holiday Inn Amarillo; Holiday Inn Texarkana; Holiday Inn Odessa; Holiday Inn Moline Airport; Holiday Inn Express Omaha SW; and Hampton Omaha SW properties. (f) Notwithstanding anything to the contrary contained in this Agreement, the US Borrower may acquire assets if the only consideration paid by the US Borrower for such assets is (x) Stock of the US Borrower, (y) the assumption of Indebtedness or (z) the payment of reasonable fees and expenses in connection with the acquisition of such asset; provided that to the extent the US Borrower assumes any Indebtedness in connection with the acquisition of an asset, (I) the US Borrower's Total Indebtedness for borrowed money as a percentage of Total Value after giving effect to such acquisition shall be equal to or less than the US Borrower's Total Indebtedness for borrowed money as a percentage of Total Value immediately prior to such acquisition and (II) at least 10 Business Days prior to the consummation of any such acquisition, the US Borrower shall deliver to the Administrative Agent a certificate of the US Borrower's chief financial officer or treasurer certifying (and showing calculations in reasonable detail) that the US Borrower would have been in compliance with the financial covenants set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7, as amended hereby, for the most recently ended (4) Fiscal Quarters prior to the date of such acquisition, in each case with such financial -9- covenants to be determined on a pro forma basis as if such acquisition had been consummated on the first day of such (4) Fiscal Quarter period (and assuming that any Indebtedness assumed in connection therewith had been assumed on the first day of such four (4) Fiscal Quarter period)." 17. Section 7.6(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) Notwithstanding anything to the contrary contained in this Agreement, during the period from the First Amendment Effective Date to December 31, 2004 at any time the US Borrower's Total Indebtedness for borrowed money is greater than 65% of Total Value, the US Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to engage in the construction of new hotels, enter into any commitments or agreements to purchase any Hotels under or to be under, original construction or to acquire any additional budget hotels, limited service hotels or extended stay hotels, other than, so long as the US Borrower's Total Indebtedness for borrowed money is greater than 65% of Total Value but is less than or equal to 70% of Total Value, (A) to engage in or continue the construction of the Margate complex and (B) to invest an aggregate amount not to exceed $65,000,000 in up to three Holiday Inns or Embassy Suites prototypes (or any combination thereof) owned by the Borrower or its Subsidiaries, it being understood and agreed that if the US Borrower or any of its Subsidiaries has commenced construction of the Margate complex or a Hotel at a time when it is in compliance with this Section 7.6(c), it shall be permitted to complete such construction notwithstanding the fact that it is no longer in compliance herewith." 18. Section 8.1(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure shall remain unremedied for (I) 90 days after the earlier of the date on which a Responsible Officer of any Borrower becomes aware of such failure or written notice thereof shall have been given to the US Borrower by the Administrative Agent or any Lender, and (II) if on the last day of the 90 day period set forth in clause (I) of this Section 8.1(c), no Revolving Credit Loans are outstanding and all Drawings in respect of Letters of Credit have been reimbursed, then such period shall be extended for an additional 90 days so long any Drawing in respect of a Letter of Credit during such period is reimbursed within three (3) Business Days of the date of such Drawing as provided in Section 2.20(a); provided that the periods referred to in this clause (c) shall terminate immediately if at any time during such periods the Total Indebtedness of the US Borrower for borrowed money exceeds 82.5% of the Total Value ; or" 19. Section 8.3(a) of the Credit Agreement is hereby amended by inserting the text "or upon the occurrence and during the continuation of an Event of Default under Section 8.1(c) -10- as a result of the US Borrower's Total Indebtedness exceeding 82.5% of Total Value" immediately following the text "Termination Date" appearing in said Section. 20. Exhibit B to the Credit Agreement is hereby amended by inserting the following new clause (D) immediately following clause (C) thereof: "[(D) the proceeds of the Revolving Credit Loans shall be used solely for Specified Purposes that can not be funded from operational cash flow.]1 1/ To be included for a Proposed Borrowing at any time the US Borrower's Total Indebtedness for borrowed money is equal to or exceeds 75% of Total Value (or will exceed 75% of Total Value after giving effect to the application of proceeds of such Proposed Borrowing)." II. Miscellaneous Provisions 1. In order to induce the Lenders to enter into this Fourth Amendment, each Borrower hereby represents and warrants on behalf of itself and its respective Subsidiaries that (i) the representations and warranties of contained in Article IV of the Credit Agreement are true and correct in all material respects on and as of the Fourth Amendment Effective Date (as defined below) (except with respect to any representations and warranties limited by their terms to a specific date, which shall be true and correct in all material respects as of such date), and (ii) there exists no Default or Event of Default under the Credit Agreement on the Fourth Amendment Effective Date, in each case both before and after giving effect to this Fourth Amendment. 2. The US Borrower hereby agrees to pay each Lender which delivers an executed copy of this Fourth Amendment (by hard copy or facsimile) to the Administrative Agent by no later than 5:00 p.m. (New York time) on June 25, 2003, a fee (the "Amendment Fee") in an amount equal to 0.15% of such Lender's Revolving Credit Commitment (after giving effect to this Fourth Amendment), which Amendment Fee shall be due and payable on the first Business Day following the date on which the Super Majority Lenders shall have executed and delivered this Fourth Amendment. 3. This Fourth Amendment is limited as specified and shall not constitute an amendment, modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document. 4. THIS FOURTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Fourth Amendment shall become effective on the date (the "Fourth Amendment Effective Date") when (i) each Borrower and the Super Majority Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) the same to the Administrative Agent and (ii) the US Borrower has terminated Revolving Credit Commitments in an aggregate amount equal to at least $100,000,000 in accordance with Section 2.4 of the Credit Agreement. -11- 6. From and after the Fourth Amendment Effective Date, all references in the Credit Agreement and in the other Loan Documents shall be deemed to be referenced to the Credit Agreement as modified hereby. * * * -12- FELCOR LODGING TRUST INCORPORATED By: /s/ Andrew J. Welch ----------------------------------- Name: Andrew J. Welch Title: Senior Vice President FELCOR LODGING LIMITED PARTNERSHIP By: FelCor Lodging Trust Incorporated, its general partner By: /s/ Andrew J. Welch ----------------------------------- Name: Andrew J. Welch Title: Senior Vice President FELCOR CANADA CO. By: /s/ Andrew J. Welch ----------------------------------- Name: Andrew J. Welch Title: Senior Vice President JPMORGAN CHASE BANK (f/k/a The Chase Manhattan Bank), Individually and as Administrative Agent By: /s/ Charles E. Hoagland ----------------------------------- Name: Charles E. Hoagland Title: Vice President J.P. MORGAN BANK CANADA (f/k/a The Chase Manhattan Bank of Canada), as Administrative Agent By: /s/ Drew McDonald ----------------------------------- Name: Drew McDonald Title: Vice President JPMORGAN CHASE BANK, TORONTO BRANCH (f/k/a The Chase Manhattan Bank, Toronto Branch) By: /s/ Drew McDonald ----------------------------------- Name: Drew McDonald Title: Vice President By: ___________________________________ Name: Title: BANK OF AMERICA, N.A. By: /s/ Lesa J. Butler ----------------------------------- Name: Lesa J. Butler Title: Principal BANK OF MONTREAL By: ___________________________________ Name: Title: BANK OF NOVA SCOTIA, NEW YORK AGENCY By: /s/ T.J. McNaught ----------------------------------- Name: T.J. McNaught Title: Director DEUTSCHE BANK TRUST COMPANY AMERICAS (f/k/a Bankers Trust Company) By: /s/ George R. Reynolds ----------------------------------- Name: George R. Reynolds Title: Vice President CHANG HWA COMMERCIAL BANK LTD., NEW YORK BRANCH By: /s/ Ming-Hsien Lin ----------------------------------- Name: Ming-Hsien Lin Title: SVP & General Manager CITICORP NORTH AMERICA, INC. By: /s/ Michael P. Psyllos ----------------------------------- Name: Michael P. Psyllos Title: Vice President CREDIT LYONNAIS, NEW YORK BRANCH By: /s/ Bruno DeFloor ----------------------------------- Name: Bruno DeFloor Title: Vice President FLEET NATIONAL BANK, N.A. By: ___________________________________ Name: Title: HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY By: /s/ Yun-Peng Chang ----------------------------------- Name: Yun-Peng Chang Title: SVP & General Manger MORGAN STANLEY SENIOR FUNDING, INC. By: /s/ illegible ----------------------------------- Name: illegible Title: Executive Director WELLS FARGO, NATIONAL ASSOCIATION By: /s/ Stephen P. Prinz ----------------------------------- Name: Stephen P. Prinz Title: Executive Vice President CITIBANK, N.A. By: /s/ James B. Maxwell ----------------------------------- Name: James B. Maxwell Title: Attorney-in-fact EX-10.19.5 5 d10215exv10w19w5.txt EX-10.19.5 FIFTH AMENDMENT DATED OCTOBER 29, 2003 EXHIBIT 10.19.5 FIFTH AMENDMENT FIFTH AMENDMENT (the "Fifth Amendment"), dated as of October 29, 2003, among FELCOR LODGING TRUST INCORPORATED (f/k/a FelCor Suite Hotels, Inc.), a Maryland corporation ("FelCor"), FELCOR LODGING LIMITED PARTNERSHIP (f/k/a FelCor Suites Limited Partnership), a Delaware limited partnership ("FelCor LP" and collectively with FelCor, the "US Borrower"), FELCOR CANADA CO., a Nova Scotia unlimited liability company (the "Canadian Borrower" and collectively with the US Borrower, the "Borrower"), the Lenders from time to time party thereto, DEUTSCHE Bank Trust Company AMERICAS (f/k/a Bankers Trust Company), as Syndication Agent (the "Syndication Agent") and JPMORGAN CHASE BANK (f/k/a The Chase Manhattan Bank) ("JPMCB"), as Administrative Agent for the Lenders. Unless otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement referred to below are used herein as so defined. W I T N E S S E T H : WHEREAS, the Borrower, the Lenders, the Syndication Agent and the Administrative Agent are party to the Seventh Amended and Restated Credit Agreement, dated as of July 26, 2001 (as the same has been amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement"); and WHEREAS, subject to the terms and conditions set forth below, the parties hereto wish to amend certain provisions the Credit Agreement as provided herein; NOW, THEREFORE, it is agreed; I. Amendments 1. Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of "Minimum Tangible Net Worth" appearing therein and inserting the following new definition in lieu thereof: "Minimum Tangible Net Worth" means, with respect to the US Borrower, the sum of (i) $1,500,000,000; plus (ii) 50% of the aggregate net proceeds received by the US Borrower or any of its Subsidiaries after June 30, 2000 in connection with any offering of Stock or Stock Equivalents of the US Borrower and its Subsidiaries taken as a whole, minus (iii) up to $250,000,000 in the aggregate of non-cash impairment charges related to the write-down of certain non-strategic Hotels actually incurred by the US Borrower after June 30, 2003. 2. Section 1.1 of the Credit Agreement is hereby further amended by deleting the paragraph appearing at the end of the definition of "Unencumbered Hotel Property" and inserting the following paragraph in lieu thereof: "provided that, if a Joint Venture Hotel is owned by an Eligible Joint Venture which owns more than a single Hotel, such Joint Venture Hotel shall only be an Unencumbered Hotel Property if it satisfies all of the requirements set forth in subparagraphs (a) through (d) above and all other Hotels owned by such Eligible Joint Venture satisfy the conditions set forth in subparagraphs (a) and (c) above; provided further, that the parties acknowledge and agree that (I) the Embassy Suites Hotel located at Los Angeles Airport, CA is subject to a mortgage in favor of FelCor LP but the Administrative Agent has agreed, as a one time waiver only, to accept such Hotel as Unencumbered (for purposes of clause (a) above) so long as such Hotel shall cease to be Unencumbered (for purposes of clause (a) above), inter alia, in the event that FelCor LP assigns its mortgage to any other Person and (II) each Warehouse Facility Hotel shall be deemed to be an Unencumbered (for purposes of clause (a) above) even if it is subject to a mortgage or other Lien granted under the Warehouse Facility, at all times when there is no (x) Indebtedness outstanding and (y) claim for indemnification against the Borrower or any of it Subsidiaries, for which notice has been received, in each case under the Warehouse Facility, provided that each Warehouse Facility Hotel shall cease to be deemed to be Unencumbered (for purposes of clause (a) above), inter alia, at any time that (x) any Indebtedness is outstanding or (y) the Borrower or any of its Subsidiaries receives notice that it is subject to a claim for indemnification, in each case under the Warehouse Facility." 3. Section 1.1 of the Credit Agreement is hereby further amended by inserting the following defined terms in the appropriate alphabetical order: "Warehouse Facility" shall mean that certain loan facility agreement dated as of June 18, 2003, among the Borrower, certain Subsidiaries of the Borrower and JPMorgan Chase Bank, as same may be amended from time to time. "Warehouse Facility Hotel" shall mean each Hotel that is mortgaged or otherwise subject to a Lien to secure the Warehouse Facility. 4. Section 5.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "5.1. Unsecured Interest Expense Coverage. The US Borrower shall maintain at the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on June 30, 2000, a ratio of (a) Unencumbered NOI to (b) Unsecured Interest Expense, in each case determined on the basis of the four (4) Fiscal Quarters ending on the date of determination, of not less than 1.90:1.0, provided that, the minimum ratio set forth above shall be not less than 1.10:1.0 for the Fiscal Quarters ending September 30, 2003 through September 30, 2004." 5. Section 7.5(e) of the Credit Agreement is hereby amended to read in its entirety as follows: -2- "(e) Notwithstanding anything contained in this Agreement, the US Borrower may engage in like-kind exchanges pursuant to, and in compliance with, Section 1031 of the Code (i) that may result in Net Cash Proceeds in an aggregate amount not to exceed $30,000,000 with respect to the Holiday Inn Amarillo; Holiday Inn Texarkana; Holiday Inn Odessa; Holiday Inn Moline Airport; Holiday Inn Express Omaha SW; and Hampton Omaha SW properties and (ii) with up to $32,000,000 of Net Cash Proceeds received from the disposition of four (4) Holiday Inn Hotels located in Ontario, Canada.". II. Miscellaneous Provisions 1. In order to induce the Lenders to enter into this Fifth Amendment, each Borrower hereby represents and warrants on behalf of itself and its respective Subsidiaries that (i) the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects on and as of the Fifth Amendment Effective Date (as defined below) (except with respect to any representations and warranties limited by their terms to a specific date, which shall be true and correct in all material respects as of such date), and (ii) there exists no Default or Event of Default under the Credit Agreement on the Fifth Amendment Effective Date, in each case both before and after giving effect to this Fifth Amendment. 2. This Fifth Amendment is limited as specified and shall not constitute an amendment, modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document. 3. THIS FIFTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 4. This Fifth Amendment shall become effective on the date (the "Fifth Amendment Effective Date") when each Borrower and the Super Majority Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) same to the Administrative Agent. 5. From and after the Fifth Amendment Effective Date, all references in the Credit Agreement and in the other Loan Documents shall be deemed to be references to the Credit Agreement as modified hereby. * * * -3- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Fifth Amendment as of the date first above written. FELCOR LODGING TRUST INCORPORATED By: /s/ Andrew J. Welch ----------------------------------- Name: Andrew J. Welch Title: Senior Vice President FELCOR LODGING LIMITED PARTNERSHIP By: FelCor Lodging Trust Incorporated, its general partner By: /s/ Andrew J. Welch ----------------------------------- Name: Andrew J. Welch Title: Senior Vice President FELCOR CANADA CO. By: /s/ Andrew J. Welch ----------------------------------- Name: Andrew J. Welch Title: Senior Vice President JPMORGAN CHASE BANK (f/k/a The Chase Manhattan Bank), Individually and as Administrative Agent By: /s/ illegible ----------------------------------- Name: illegible Title: Managing Director BANK OF AMERICA, N.A. By: /s/ Lesa J. Butler ----------------------------------- Name: Lesa J. Butler Title: Principal BANK OF MONTREAL By: ___________________________________ Name: Title: BANK OF NOVA SCOTIA, NEW YORK AGENCY By: ___________________________________ Name: Title: DEUTSCHE BANK TRUST COMPANY AMERICAS (f/k/a Bankers Trust Company) By: /s/ George R. Reynolds ----------------------------------- Name: George R. Reynolds Title: Vice President CHANG HWA COMMERCIAL BANK LTD., NEW YORK BRANCH By: /s/ Ming-Hsien Lin ----------------------------------- Name: Ming-Hsien Lin Title: SVP & General Manager CITICORP NORTH AMERICA, INC. By: /s/ Michael P. Psyllos ----------------------------------- Name: Michael P. Psyllos Title: Vice President CREDIT LYONNAIS, NEW YORK BRANCH By: ___________________________________ Name: Title: FLEET NATIONAL BANK, N.A. By: ___________________________________ Name: Title: HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY By: ___________________________________ Name: Title: MORGAN STANLEY SENIOR FUNDING, INC. By: /s/ Todd Vannucci ----------------------------------- Name: Todd Vannucci Title: Executive Director WELLS FARGO, NATIONAL ASSOCIATION By: /s/ Kent Howard ----------------------------------- Name: Kent Howard Title: SVP CITIBANK, N.A. By: /s/ James B. Maxwell ----------------------------------- Name: James B. Maxwell Title: Attorney-in-fact EX-10.31.4 6 d10215exv10w31w4.txt EX-10.31.4 SECOND AMENDMENT TO NOTE LOAN AGREEMENT EXHIBIT 10.31.4 SECOND AMENDMENT TO NOTE, LOAN AGREEMENT, ENVIRONMENTAL INDEMNITY AGREEMENT AND OTHER LOAN DOCUMENTS SECOND AMENDMENT TO NOTE, LOAN AGREEMENT, ENVIRONMENTAL INDEMNITY AGREEMENT AND OTHER LOAN DOCUMENTS (this "Amendment") made the 23rd day of October, 2003, by each of the entities identified on Schedule I attached hereto, each having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (individually and collectively, as the context may require, "Original Owner"), each of the entities identified on Schedule II attached hereto, each having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (individually and collectively, as the context may require, "Original Operating Lessee") (Original Owner and Original Operating Lessee, individually and collectively, as the context may require, "Original Loan Party"), each of the entities identified on Schedule III attached hereto, each having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (individually and collectively, as the context may require, "Additional Owner"), each of the entities identified on Schedule IV attached hereto, each having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (individually and collectively, as the context may require, "Additional Operating Lessee") (Additional Owner and Additional Operating Lessee, individually and collectively, as the context may require, "Additional Loan Party"), FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("FelCor Lodging"; Original Loan Party, FelCor Lodging and Additional Loan Party hereinafter referred to, individually and collectively, as the context may require, as "Loan Party"), and JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender"). RECITALS: Lender has made a loan (the "Loan") to Original Owner and FELCOR/JPM BWI HOTEL, L.L.C., a Delaware limited liability company ("FelCor BWI"; together with Original Owner (other than FELCOR HOTEL ASSET COMPANY, L.L.C.), individually and collectively, as the context may require, "Original Borrower") in the principal amount of TWO HUNDRED MILLION AND 00/100 DOLLARS ($200,000,000.00), or so much thereof as may be advanced pursuant to a Loan Facility Agreement, dated June 18, 2003, among Original Borrower, FCH/DT BWI HOTEL, L.L.C., a Delaware limited liability company ("FCH BWI") and Lender (the "Original Loan Agreement"), as amended by that certain First Amendment to Note, Loan Agreement, Environmental Indemnity Agreement and Other Loan Documents, dated July 31, 2003, among Original Loan Party, FelCor BWI, FCH BWI, FelCor Lodging, certain affiliates of Original Loan Party and Lender (the "First Amendment"; together with the Original Loan Agreement and as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Loan Agreement"), which Loan is evidenced by the Note and secured by, among other things, the Security Instruments. The Loan is further secured or evidenced by that certain Environmental Indemnity Agreement, dated June 18, 2003, given by Original Loan Party and FelCor Lodging (individually and collectively, as the context may require, "Indemnitor") to Lender (the "Environmental Indemnity"). On the date hereof and pursuant to Section 2.9 of the Loan Agreement, Additional Owner and Additional Operating Lessee are being added as additional Borrowers and additional Operating Lessees, respectively, under the Loan Agreement. Loan Party and Lender have agreed in the manner hereinafter set forth to modify the terms and provisions of the Note, the Loan Agreement, the Environmental Indemnity and the other Loan Documents to reflect the foregoing. All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Loan Agreement. In consideration of the foregoing and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto consent and agree as follows: 1. Additional Owner does hereby, jointly and severally, assume the Debt and all of the Obligations and agrees to pay the principal sum of the Loan together with interest at the applicable interest rate in accordance with the terms of the Loan Documents, as modified, and to observe, comply with and perform all of the terms, covenants, conditions and indemnifications of the Loan Documents on the part of Borrower to be performed arising from and after the date hereof, as modified, with the same force and effect as if the Loan Documents had originally been executed by Additional Owner. Additional Owner hereby ratifies and confirms to Lender as of the date hereof that, except as otherwise expressly and specifically modified by this Amendment, all of the terms, representations, warranties, covenants, indemnifications and provisions of the Loan Documents are and shall remain in full force and effect, and are true and correct with respect to Additional Owner as Borrower and Indemnitor thereunder, as of the date hereof. 2. Additional Operating Lessee does hereby, jointly and severally, agree to observe, comply with and perform all of the terms, covenants, conditions and indemnifications of the Loan Documents on the part of Operating Lessee to be performed arising from and after the date hereof, as modified, with the same force and effect as if the Loan Documents had originally been executed by Additional Operating Lessee. Additional Operating Lessee hereby ratifies and confirms to Lender as of the date hereof that, except as otherwise expressly and specifically modified by this Amendment, all of the terms, representations, warranties, covenants, indemnifications and provisions of the Loan Documents are and shall remain in full force and effect, and are true and correct with respect to Additional Operating Lessee as Operating Lessee and Indemnitor thereunder, as of the date hereof. 3. Original Borrower and Additional Owner confirm that they are jointly and severally liable for the payment in full of the Loan and all other sums owing under any of the Loan Documents and the performance of all of the Obligations. Notwithstanding anything to the contrary contained in this Amendment, the liability of Original Borrower and Additional Owner, as Borrower under the Loan Agreement, to pay the Debt and for the performance of the other agreements, covenants and obligations contained herein and in the Note, the Security Instruments, the Loan Agreement and the other Loan Documents shall be limited as set forth in Section 9.4 of the Loan Agreement. 4. The Loan Documents are modified such that: (a) Wherever the term "Borrower" appears in the Loan Documents, it shall be deemed to include Additional Owner; and - 2 - (b) Wherever the term "Operating Lessee" appears in the Loan Documents, it shall be deemed to include Additional Operating Lessee. 5. The Environmental Indemnity is modified such that: (a) Wherever the term "Indemnitor" appears in the Environmental Indemnity, it shall be deemed to include Additional Loan Party; (b) Wherever the term "Owner" appears in the Environmental Indemnity, it shall be deemed to include Additional Owner; and (c) Wherever the term "Operating Lessee" appears in the Environmental Indemnity, it shall be deemed to include Additional Operating Lessee. 6. The following are hereby added as new definitions in Section 1.1 of the Loan Agreement entitled "DEFINITIONS": "90/10 Properties" shall mean, collectively, the Austin Property, the Denver Property, the Maryland Property, the Troy Property and the Wilmington Property. "Atlanta CP Property" shall mean that certain Property commonly known as Atlanta Airport - Crowne Plaza located in Atlanta, Georgia. "Austin Town Lake Property" shall mean that certain Property commonly known as Austin Town Lake - Holiday Inn located in Austin, Texas. "CMBS Concentration Account" shall have the meaning provided in Section 9.1.5 hereof. "CMBS Loan Agreement" shall have the meaning provided in Section 9.1.5 hereof. "Conversion Property" shall have the meaning provided in Section 9.1.5 hereof. "Denver Property" shall mean that certain Property commonly known as DoubleTree Hotel - Denver located in Aurora, Colorado. "Hedging Losses" shall mean any actual losses incurred by Lender in connection with the termination of any interest rate hedging transaction entered into by Lender relating to the portion of the Available Facility Amount attributable to such Property; provided, however, that no Hedging Losses shall be applicable in connection with the Floating Rate CMBS Loan. - 3 - "LBV Property" shall mean that certain Property commonly known as DoubleTree Guest Suites - Walt Disney World Resort located in Lake Buena Vista, Florida. "LBV Property Estoppel Work" shall have the meaning provided in Section 5.6 hereof. "LBV Property Estoppel Work Account" shall have the meaning provided in Section 5.6 hereof. "Lender's Floating Rate Conversion Notice" shall have the meaning provided in Section 9.2.1(c)(i) hereof. "Orlando International Drive Property" shall mean that certain Property commonly known as Holiday Inn - International Drive located in Orlando, Florida. "Proposed Floating Rate CMBS Loan Properties" shall mean the following Properties and no other Properties: (i) the Atlanta CP Property, (ii) the Austin Town Lake Property, (iii) the LBV Property, (iv) the Mandalay Beach Property, and (v) the Orlando International Drive Property. "Troy Property" shall mean that certain Property commonly known as Embassy Suites Hotel - Troy located in Troy, Michigan. "Wilmington Property" shall mean that certain Property commonly known as DoubleTree Hotel located in Wilmington, Delaware. 7. The definition of "Available Facility Amount" in Section 1.1 of the Loan Agreement entitled "DEFINITIONS" is hereby deleted in its entirety and replaced with the following text: "Available Facility Amount" shall mean the sum of (A) with respect to the Proposed Floating Rate CMBS Loan Properties, that portion of the Facility Amount equal to the maximum hypothetical loan amount applicable to the Floating Rate CMBS Loan which satisfies (i) a loan to value ratio of forty-eight percent (48%) and (ii) a Debt Service Coverage Ratio of 1.53:1.00, each as determined in the aggregate for all of the Proposed Floating Rate CMBS Loan Properties and (B) with respect to each of the Properties other than the Proposed Floating Rate CMBS Loan Properties, that portion of the Facility Amount equal to the aggregate maximum hypothetical loan amounts applicable to each Fixed Rate CMBS Loan relating to such Property which satisfies (i) a loan to value ratio of sixty percent (60%) and (ii) a Debt Service Coverage Ratio of 1.30:1.00; provided, however, in no - 4 - event shall the Available Facility Amount exceed the Facility Amount. 8. The following text is hereby added as a new Section 5.5 of the Loan Agreement: Section 5.5 Troy Property Special Product Evaluation. Borrower shall (a) comply with the requirements of Hilton Hotels Corporation set forth in the Notice of Default & Termination letter from Hilton Hotels Corporation, dated July 14, 2003, relating to the Troy Property, within the time frames set forth therein, (b) complete any work required by Hilton Hotels Corporation in connection with such Notice of Default & Termination letter in a good and workmanlike manner, on a lien-free basis and within the time frames required of Borrower, and (c) use its commercially reasonable efforts to prevent the Troy Property from failing to achieve an overall "Acceptable" score on the Special Product Evaluation scheduled for December 1, 2003. Borrower shall deliver to Lender a letter from Hilton Hotels Corporation confirming that the Troy Property has achieved such "Acceptable" score no later than the earlier of (A) two (2) Business Days following the receipt of such letter from Hilton Hotels Corporation or (B) January 31, 2004. Failure to comply with any provision of this Section 5.5 shall, at Lender's option, be deemed an Event of Default hereunder, the Troy Property shall be removed from the Loan facility and Borrower shall within ten (10) Business Days of any such failure, prepay the outstanding principal balance of the Loan (together with any prepayment premiums and/or Hedging Losses) by any amount by which the then outstanding principal balance of the Loan exceeds the Available Facility Amount calculated without the inclusion of the Troy Property as security for the Loan. 9. The following text is hereby added as a new Section 5.6 of the Loan Agreement: Section 5.6 LBV Property Estoppel Work Requirements. (a) Borrower shall (i) comply with the requirements of Walt Disney World Hospitality & Recreation Corporation set forth in the Ground Lessor Estoppel and Agreement given by Walt Disney World Hospitality & Recreation Corporation, dated October 23, 2003, relating to the LBV Property, within the time frames set forth therein and (ii) complete the work described on Exhibit D to such Ground Lessor Estoppel and Agreement (the "LBV Property Estoppel Work") in a good and workmanlike manner, on a lien-free basis and within the time frames set forth in such Exhibit D. Within ten (10) days of written request from Lender, Borrower shall deliver to Lender evidence satisfactory to Lender in all respects that the LBV Property Estoppel Work required to be - 5 - completed as of such written request date has either been (x) completed in a good and workmanlike, on a lien-free basis and within the time frames set forth in such Exhibit D or (y) waived by Walt Disney World Hospitality & Recreation Corporation. Failure to comply with any provision of this Section 5.6 shall, at Lender's option, be deemed an Event of Default hereunder, the LBV Property shall be removed from the Loan facility and Borrower shall within ten (10) Business Days of any such failure, prepay the outstanding principal balance of the Loan (together with any prepayment premiums and/or Hedging Losses) by any amount by which the then outstanding principal balance of the Loan exceeds the Available Facility Amount calculated without the inclusion of the LBV Property as security for the Loan. (b) In connection with the LBV Property Estoppel Work, at Lender's option at the time of the Floating Rate CMBS Conversion, Borrower shall deposit into an escrow account with Lender (the "LBV Property Estoppel Work Account"), an amount which is one-hundred twenty five percent (125%) of the amount reasonably determined by Lender to be necessary to complete the LBV Property Estoppel Work. Amounts so deposited with Lender shall be held by Lender in accordance with Section 7.7 hereof. Amounts deposited in the LBV Property Estoppel Work Account shall be held as additional collateral for the Loan and Borrower shall be entitled to receive a disbursement of all of the amounts contained in such LBV Property Estoppel Work Account upon delivery to Lender of evidence satisfactory to Lender in all respects that the LBV Property Estoppel Work has been completed in a good and workmanlike, on a lien-free basis and within the time frames set forth in such Exhibit D. The provisions of this Section 5.6(b) shall be incorporated into the Floating Rate Conversion Documents applicable to the LBV Property. 10. The following text is hereby added as a new Section 9.1.4 of the Loan Agreement: Section 9.1.4. Troy Property. Notwithstanding anything to the contrary contained in Section 9.1 hereof, in the event that the Troy Property is selected to be the Fixed Rate CMBS Collateral for a Fixed Rate CMBS Loan but such Fixed Rate CMBS Loan is removed from a Securitization involving such Fixed Rate CMBS Loan due to investor rejection of such Fixed Rate CMBS Loan, Borrower shall either (i) within ten (10) Business Days of notice from Lender of such rejection, prepay (without the payment of any prepayment premium) the outstanding principal balance of such Fixed Rate CMBS Loan or (ii) within the time period set forth below, cause the release of the Troy Property from the Lien of its applicable Security Instrument and substitute therefor another hotel - 6 - property in accordance with Section 2.5 hereof (including, without limitation, obtaining the approval of Lender's internal credit committee(s)), provided, however, in connection with such release and substitution, the Substitute Property shall not be counted towards the three (3) Property limitation set forth in subsection (a) thereof and the time period set forth in subsection (b) thereof in which to identify a proposed Substitute Property shall be reduced to ten (10) Business Days. If Borrower elects to release the Troy Property in accordance with subsection (ii) above, (A) Borrower shall promptly identify a proposed Substitute Property for Lender's preliminary approval together with a statement of Net Cash Flow and historical operating statistics for such proposed Substitute Property and any additional information reasonably requested by Lender; (B) Lender shall notify Borrower of its preliminary approval or disapproval of such proposed Substitute Property within two (2) Business Days following Lender's receipt of the statements and information referenced in (A) above, which such approval or disapproval shall be based upon Lender's reasonable discretion in accordance with Lender's then current Commercial Lending Program Criteria; and (C) if Lender has given its preliminary disapproval of such proposed Substitute Property, Borrower shall promptly identify another proposed Substitute Property for Lender's preliminary approval in accordance with (A) and (B) above and this process shall continue until the earlier of (x) Lender's preliminary approval of a proposed Substitute Property or (y) ten (10) Business Days of notice from Lender of the rejection of the Fixed Rate CMBS Loan involving the Troy Property. If Borrower fails to receive Lender's preliminary approval of a proposed Substitute Property within such ten (10) Business Day period, Borrower shall no longer be permitted to release the Troy Property in accordance with subsection (ii) above and shall instead, within ten (10) Business Days following the expiration of such preliminary approval period, prepay (without the payment of any prepayment premium) the outstanding principal balance of such Fixed Rate CMBS Loan. If Borrower shall have received Lender's preliminary approval of a proposed Substitute Property within such ten (10) Business Day period but shall have failed to cause the release of the Troy Property from the Lien of its applicable Security Instrument and substitute therefor such proposed Substitute Property in accordance with Section 2.5 hereof within forty-five (45) days of notice from Lender of the rejection of the Fixed Rate CMBS Loan involving the Troy Property, Borrower shall no longer be permitted to release the Troy Property in accordance with subsection (ii) above and shall instead, within ten - 7 - (10) Business Days following such forty-five (45) day period, prepay (without the payment of any prepayment premium) the outstanding principal balance of such Fixed Rate CMBS Loan. During such forty-five (45) day period, Lender agrees that it shall not unreasonably delay or withhold any consents or approvals required by Borrower pursuant to Section 2.5 hereof nor unreasonably delay in ordering or obtaining any third-party reports or other documents required to be ordered or obtained by Lender pursuant to Section 2.5 hereof. In the event that the (x) removal of the Fixed Rate CMBS Loan involving the Troy Property from a Securitization due to investor rejection, (y) prepayment referenced in subsection (i) above or (z) release and substitution of the Troy Property in accordance with subsection (ii) above, results in Lender incurring any Hedging Losses, Borrower agrees to pay to Lender, upon demand, the amount of such Hedging Losses. 11. The following text is hereby added as a new Section 9.1.5 of the Loan Agreement: Section 9.1.5. Revised Cash Management. At the request of Borrower, and in connection with any Property serving as collateral to a Fixed Rate CMBS Loan (a "Conversion Property") and if such Fixed Rate CMBS Loan requires the establishment and implementation of a cash management system, Lender shall cooperate with Borrower to revise the cash management provisions of the loan agreement to such Fixed Rate CMBS Loan (the "CMBS Loan Agreement") to provide that: (i) Borrower may establish a Concentration Account (the "CMBS Concentration Account") in connection with any Conversion Property; (ii) any funds contained in the Property Account for such Conversion Property shall be transferred from the Property Account into such CMBS Concentration Account; and (iii) the Manager for such Property may make withdrawals from such CMBS Concentration Account as if such CMBS Concentration Account were the Property Account under the form of loan agreement attached to the Loan Agreement as Exhibit BB. 12. The text of Section 9.2.1(a)(v) of the Loan Agreement entitled "Floating Rate Conversion" is hereby deleted in its entirety and replaced with the following text: (v) the original principal balance of the Floating Rate CMBS Loan shall be equal to the maximum amount in order for the Floating Rate CMBS Loan to achieve (i) a loan to value ratio of forty-eight percent (48%) and (ii) a Debt Service Coverage Ratio of 1.53:1.00, each as determined in the aggregate for all of the Proposed Floating Rate CMBS Loan Properties; provided, - 8 - however, if Lender determines an original principal balance for the Floating Rate CMBS Loan of less than $75,000,000.00, Borrower may add any one or two Properties (other than the Proposed Floating Rate CMBS Loan Properties, the 90/10 Properties or any Property which is selected to be Fixed Rate CMBS Collateral) as additional collateral for the Floating Rate CMBS Loan, provided, that Borrower shall not be entitled to add any Properties if Lender, in its reasonable discretion, determines that the addition of one or both Properties would adversely affect the value, marketability and/or pricing of such Floating Rate CMBS Loan. In the event that Lender determines that one or both Properties can be added as collateral for the Floating Rate CMBS Loan, Lender shall re-determine the original principal balance for the Floating Rate CMBS Loan factoring in such additional Property or Properties in accordance with the provisions of this Section 9.2.1(a)(v), provided, however such original principal balance shall not be greater than $75,000,000.00; 13. The text of Section 9.2.1(a)(vi) of the Loan Agreement entitled "Floating Rate Conversion" is hereby deleted in its entirety and replaced with the following text: (vi) Lender shall determine in its reasonable discretion that the last dollar of such Floating Rate CMBS Loan shall be rated no less than Investment Grade from each of the Rating Agencies applying the then current standards of such Rating Agencies in evaluating floating rate CMBS loans; 14. The following text is hereby added as new Sections 9.2.1(c) and (d) of the Loan Agreement: (c) On or before the Maturity Date, Lender may engage in a Floating Rate CMBS Conversion subject to the terms and conditions set forth below. Upon Lender's exercise of the Floating Rate CMBS Conversion and execution of the Floating Rate Conversion Documents, the portion of the Loan that is the subject of such Floating Rate CMBS Conversion shall automatically convert into a Floating Rate CMBS Loan and the Property secured thereby shall no longer be deemed a Property hereunder. Lender shall not have the right to exercise the Floating Rate CMBS Conversion unless and until the conditions in subsection (i), (ii) and (iv) below have been satisfied: (i) Lender shall have given notice (the "Lender's Floating Rate Conversion Notice") to Borrower of the Floating Rate Conversion Date; which notice shall be given to Borrower at least thirty (30) days prior to the Floating Rate Conversion Date unless Lender has waived Borrower's obligation to comply with the provisions of - 9 - Section 9.2.1(c)(v) below (as it relates to 9.1.1(iv)(A), (C) and (D) hereof and as they relating to the Floating Rate CMBS Collateral); and provided, however, that Lender agrees not to give the Lender's Floating Rate Conversion Notice unless the then outstanding principal balance of the Loan is equal to or greater than the proposed original principal balance of the Floating Rate CMBS Loan calculated pursuant to Section 9.2.1(c)(ii) below. (ii) The original principal balance of the Floating Rate CMBS Loan shall be equal to the maximum amount in order for the Floating Rate CMBS Loan to achieve (i) a loan to value ratio of forty-eight percent (48%) and (ii) a Debt Service Coverage Ratio of 1.53:1.00, each as determined in the aggregate for all of the Proposed Floating Rate CMBS Loan Properties (subject to Lender's right to adjust such original principal balance in accordance with Section 9.2.2(d) hereof); provided, however, if Lender determines an original principal balance for the Floating Rate CMBS Loan of less than $75,000,000.00, Borrower may add any one or two Properties (other than the Proposed Floating Rate CMBS Loan Properties, the 90/10 Properties or any Property which is selected to be Fixed Rate CMBS Collateral) as additional collateral for the Floating Rate CMBS Loan, provided, that Borrower shall not be entitled to add any Properties if Lender, in its reasonable discretion, determines that the addition of one or both Properties would adversely affect the value, marketability and/or pricing of such Floating Rate CMBS Loan. In the event that Lender determines that one or both Properties can be added as collateral for the Floating Rate CMBS Loan, Lender shall re-determine the original principal balance for the Floating Rate CMBS Loan factoring in such additional Property or Properties in accordance with the provisions of this Section 9.2.1(c)(ii), provided, however such original principal balance shall not be greater than $75,000,000.00. (iii) Lender shall determine in its reasonable discretion that the last dollar of such Floating Rate CMBS Loan shall be rated no less than Investment Grade from each of the Rating Agencies applying the then current standards of such Rating Agencies in evaluating floating rate CMBS loans. (iv) Lender shall have provided Borrower with all of the Floating Rate Conversion Documents not later than five (5) Business Days prior to the Floating Rate Conversion Date. (v) Borrower shall have provided Lender with all of the Conversion Documents (relating to the Floating Rate CMBS Loan) - 10 - not later than five (5) Business Days prior to the Floating Rate Conversion Date. (vi) Lender shall have received evidence that no circumstances or conditions regarding the Floating Rate CMBS Collateral, Borrower, FelCor, Manager, Franchisor or Operating Lessee or any tenant under a Major Lease exist that could reasonably be expected to (A) cause the Floating Rate CMBS Loan to become in default or (B) adversely affect the value or marketability of the Floating Rate CMBS Loan. (vii) Borrower and, if applicable, FelCor shall have executed and delivered to Lender the Floating Rate Conversion Documents; provided, however, in the event of any inconsistencies between the terms and conditions of the Floating Rate Conversion Documents and the provisions of the then current Commercial Lending Program Criteria, the terms and conditions of the then current Commercial Lending Program Criteria shall control and be binding, except with respect to the determination of the applicable interest rate and the CMBS Loan Amount for which the terms and conditions of the Floating Rate Conversion Documents shall control and be binding. The Floating Rate Conversion Documents will require, among other things, (A) reserves and/or escrow as reasonably determined by Lender, including, without limitation, tax and insurance escrows, replacement reserves and required repair reserves, (B) full cash management provisions and (C) that the financial statements of Borrower and/or Operating Lessee be audited by a certified public accountant. (viii) Lender shall have received (A) an opinion of counsel with respect to the execution, delivery and enforceability of the Floating Rate Conversion Documents and (B) an update or revised Insolvency Opinion, each such opinion shall be in form, scope and from counsel reasonably acceptable to Lender. (ix) Borrower shall have paid to Lender the origination fee required pursuant to Section 9.2.2(a)(iv) hereof. (d) Borrower shall have satisfied, or caused the satisfaction of, such other requirements and/or conditions as are then reasonably being required by Lender with respect to floating rate loans being made by Lender for the purpose of resale into the secondary mortgage market (including, without limitation, the execution and delivery by Borrower of any supplemental documentation then being reasonably required by Lender). - 11 - 15. The following text is hereby added as a new Section 9.2.1(e) of the Loan Agreement: (e) Notwithstanding anything to the contrary contained in Sections 9.1 or 9.2 to the contrary, the collateral for the Floating Rate CMBS Loan shall be the Proposed Floating Rate CMBS Loan Properties and the additional Property or Properties, if any, selected to be collateral for the Floating Rate CMBS Loan pursuant to Section 9.2.1(a)(v) hereof or Section 9.2.1(c)(ii) hereof. 16. The following text is hereby added as a new Section 9.2.2(d) of the Loan Agreement: (d) Upon Borrower's request to Lender, on or subsequent to the giving of a Floating Rate Conversion Notice or the receipt of Lender's Floating Rate Conversion Notice but prior to the Floating Rate Conversion Date, the holder of the direct interest in Borrower may obtain mezzanine financing in the event that Lender has reasonably determined that such mezzanine financing satisfies Lender's then current and customary underwriting standards for mezzanine financings and Lender's then current Commercial Lending Program Criteria, including, without limitation, (i) the identity of the proposed mezzanine lender, (ii) the amount of the proposed mezzanine financing, (iii) the maturity date of the proposed mezzanine financing, (iv) the interest rate of the proposed mezzanine financing, (v) any other material terms of the proposed mezzanine financing, (vi) the probability of obtaining a suitable intercreditor agreement, and (vii) the marketability and/or pricing of CMBS mortgage loans with underlying mezzanine financing. In connection with the approval of any such mezzanine financing, Lender shall have the right to adjust the original principal balance of the Floating Rate CMBS Loan accordingly taking into consideration, among other things, any or all of the above criteria and/or the effect of such proposed mezzanine financing on the origination, value, marketability and/or pricing of such Floating Rate CMBS Loan. 17. The following text is hereby added as a new Section 9.4(b)(xiv) to the Loan Agreement and shall be incorporated into the Conversion Amended Loan Documents or the Floating Rate Conversion Documents (including any guaranty in connection therewith) applicable to the Austin Town Lake Property (with such conforming revisions as may be necessary in connection therewith): (xiv) any Loss resulting from the Austin Town Lake Property's failure to comply with all applicable zoning laws and ordinances relating to the number of parking spaces; provided, however, Borrower shall have no liability pursuant to this Section 9.4(b)(xiv) - 12 - from and after the date Borrower has delivered to Lender evidence acceptable to Lender that the Austin Town Lake Property complies with all applicable zoning laws and ordinances relating to the number of parking spaces. 18. The following text is hereby added as a new Section 9.4(b)(xv) to the Loan Agreement: (xv) any Loss resulting from Borrower's failure to (1) prepay the Loan, if required, pursuant to the provisions of Section 9.1.4 hereof (which such Loss shall, at a minimum, be deemed to be equal to the amount of the prepayment due in connection with such Section 9.1.4) and (2) pay the Hedging Losses, if any were required to have been paid pursuant to the provisions of such Section 9.1.4 19. The following text is hereby added as a new Section 9.4(b)(xvi) to the Loan Agreement and shall be incorporated into the Conversion Amended Loan Documents (including any guaranty in connection therewith) applicable to the Troy Property (with such conforming revisions as may be necessary in connection therewith): (xvi) any Loss resulting from Borrower's failure to (1) prepay the Loan, if required, pursuant to the provisions of Section 5.5 hereof (which such Loss shall, at a minimum, be deemed to be equal to the amount of the prepayment due in connection with such Section 5.5) and (2) pay the Hedging Losses, if any were required to have been paid pursuant to the provisions of such Section 5.5 20. The following text is hereby added as a new Section 9.4(b)(xvii) to the Loan Agreement and shall be incorporated into the Floating Rate Conversion Documents (including any guaranty in connection therewith) applicable to the LBV Property (with such conforming revisions as may be necessary in connection therewith): (xvii) any Loss resulting from Borrower's failure to prepay the Loan, if required, pursuant to the provisions of Section 5.6 hereof (which such Loss shall, at a minimum, be deemed to be equal to the amount of the prepayment due in connection with such Section 5.6) 21. Effective as of the date hereof, the Available Facility Amount is $176,172,018.00 and the Facility Amount is $200,000,000.00. 22. The Amended and Restated Letter Agreement, dated July 31, 2003, is hereby terminated and of no further force and effect. 23. Lender acknowledges that, with respect to the Ground Lease applicable to the Atlanta CP Property only, Borrower's failure to comply with the representations contained in Section 4.1.42(g) of the Loan Agreement shall not constitute an Event of Default under the Loan Documents. - 13 - 24. Attached as Schedule V hereto is a true, correct and complete list of all of the Properties currently encumbered by the lien of a Security Instrument or contemplated to be encumbered by the lien of a Security Instrument pursuant to this Amendment. 25. FelCor Lodging hereby ratifies and confirms that it absolutely and unconditionally guarantees to Lender the prompt and unconditional payment of all obligations and liabilities of Borrower for which Borrower shall be personally liable pursuant to Section 9.4 of the Loan Agreement, as amended by this Amendment. 26. Loan Party acknowledges that, except as expressly set forth herein, nothing contained herein shall be construed to relieve Loan Party from its respective obligations under the Note, the Loan Agreement, the Security Instruments, the Environmental Indemnity and the other Loan Documents. 27. Loan Party ratifies and confirms to Lender as of the date hereof that, except as otherwise expressly and specifically modified by this Amendment, all of the terms, covenants, indemnifications and provisions of the Note, the Loan Agreement, the Security Instruments, the Environmental Indemnity and the other Loan Documents are and shall remain in full force and effect without change except as otherwise expressly and specifically modified by this Amendment. 28. Loan Party represents, warrants and covenants that Loan Party has full power, authority and legal right to execute this Amendment and to keep and observe all of the terms of this Amendment on its part to be observed or performed. 29. In the event of any conflict or ambiguity between the terms, covenants and provisions of this Amendment and those of the Loan Agreement and the other Loan Documents, the terms, covenants and provisions of this Amendment shall control. 30. This Amendment may not be modified, amended, waived, changed or terminated orally, but only by an agreement in writing signed by the party against whom the enforcement of the modification, amendment, waiver, change or termination is sought. 31. This Amendment shall be binding upon and inure to the benefit of Loan Party, Lender and their respective successors and assigns. 32. This Amendment maybe executed in any number of duplicate originals and each such duplicate original shall be deemed to constitute but one and the same instrument. 33. If any term, covenant or condition of this Amendment shall be held to be invalid, illegal or unenforceable in any respect, this Amendment shall be construed without such provision. 34. This Amendment shall be governed by and construed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] - 14 - IN WITNESS WHEREOF, Loan Party and Lender have executed this Amendment the day and year first above written. ORIGINAL OWNER: FelCor/JPM Atlanta CP Hotel, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM ATLANTA ES HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM AUSTIN HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/JPM AUSTIN HOTEL, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM MANDALAY HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM ORLANDO HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM PHOENIX HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM WILMINGTON HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President ORIGINAL OPERATING LESSEE: DJONT/JPM ATLANTA CP LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM ATLANTA ES LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM AUSTIN LEASING, L.P., a Delaware limited partnership By: DJONT/JPM AUSTIN TENANT CO., L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM MANDALAY LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM ORLANDO LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM PHOENIX LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM WILMINGTON LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM BWI LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR LODGING: FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership By: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation, its general partner By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR BWI: FELCOR/JPM BWI HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President ADDITIONAL OWNER: FELCOR/JPM AUSTIN HI HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/JPM AUSTIN HI HOTEL, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM BOCA RATON HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM DENVER HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM LBV HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM ORLANDO I-DRIVE HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FELCOR/JPM TROY HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President ADDITIONAL OPERATING LESSEE: DJONT/JPM AUSTIN HI LEASING, L.P., a Delaware limited partnership By: DJONT/JPM AUSTIN HI TENANT CO., L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM BOCA RATON LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM DENVER LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM LBV LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM ORLANDO I-DRIVE LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President DJONT/JPM TROY LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FCH/DT BWI HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President FCH/DT BWI HOLDINGS, L.P., a Delaware limited partnership By: FCH/DT HOTELS, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President ACKNOWLEDGED AND AGREED: FELCOR HOTEL ASSET COMPANY, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------------- Joel M. Eastman Vice President LENDER: JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard ---------------------------------------- Name: Michael Mesard Title: Vice President SCHEDULE I ORIGINAL OWNER 1. FelCor/JPM Atlanta CP Hotel, L.L.C., a Delaware limited liability company 2. FelCor/JPM Atlanta ES Hotel, L.L.C., a Delaware limited liability company 3. FelCor/JPM Austin Holdings, L.P., a Delaware limited partnership 4. FelCor/JPM Mandalay Hotel, L.L.C., a Delaware limited liability company 5. FelCor/JPM Nashville Hotel, L.L.C., a Delaware limited liability company (1) 6. FelCor/JPM Orlando Hotel, L.L.C., a Delaware limited liability company 7. FelCor/JPM Phoenix Hotel, L.L.C., a Delaware limited liability company 8. FelCor/JPM Wilmington Hotel, L.L.C., a Delaware limited liability company 9. FelCor Hotel Asset Company, L.L.C., a Delaware limited liability company (2) - --------------- (1) Original party to the Original Loan Agreement. Released of all liability under the Original Loan Agreement pursuant to the First Amendment. (2) Fee owner of the Holiday Inn Select - Orlando Airport property. Not a borrower under the Note but an Indemnitor under the Environmental Indemnity. SCHEDULE II ORIGINAL OPERATING LESSEE 1. DJONT/JPM Atlanta CP Leasing, L.L.C., a Delaware limited liability company 2. DJONT/JPM Atlanta ES Leasing, L.L.C., a Delaware limited liability company 3. DJONT/JPM Austin Leasing, L.P., a Delaware limited partnership 4. DJONT/JPM BWI Leasing, L.L.C., a Delaware limited liability company 5. DJONT/JPM Mandalay Leasing, L.L.C., a Delaware limited liability company 6. DJONT/JPM Orlando Leasing, L.L.C., a Delaware limited liability company 7. DJONT/JPM Phoenix Leasing, L.L.C., a Delaware limited liability company 8. DJONT/JPM Wilmington Leasing, L.L.C., a Delaware limited liability company SCHEDULE III ADDITIONAL OWNER 1. FelCor/JPM Austin HI Holdings, L.P., a Delaware limited partnership 2. FelCor/JPM Boca Raton Hotel, L.L.C., a Delaware limited liability company 3. FelCor/JPM Denver Hotel, L.L.C., a Delaware limited liability company 4. FelCor/JPM LBV Hotel, L.L.C., a Delaware limited liability company 5. FelCor/JPM Orlando I-Drive Hotel, L.L.C., a Delaware limited liability company 6. FelCor/JPM Troy Hotel, L.L.C., a Delaware limited liability company 7. FelCor Hotel Asset Company, L.L.C., a Delaware limited liability company(3) - ------------------- (3) Fee owner of the Embassy Suites Hotel - Boca Raton property and the Holiday Inn Orlando International Drive Resort property. Not a borrower under the Note but an Indemnitor under the Environmental Indemnity. SCHEDULE IV ADDITIONAL OPERATING LESSEE 1. DJONT/JPM Austin HI Leasing, L.P., a Delaware limited partnership 2. DJONT/JPM Boca Raton Leasing, L.L.C., a Delaware limited liability company 3. DJONT/JPM Denver Leasing, L.L.C., a Delaware limited liability company 4. DJONT/JPM LBV Leasing, L.L.C., a Delaware limited liability company 5. DJONT/JPM Orlando I-Drive Leasing, L.L.C., a Delaware limited liability company 6. DJONT/JPM Troy Leasing, L.L.C., a Delaware limited liability company SCHEDULE V LIST OF PROPERTIES

Shaded Properties denote Properties added pursuant to the Second Amendment. EX-31.1 7 d10215exv31w1.htm EX-31.1 CERTIFICATION OF CEO - SECTION 302 exv31w1

1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging Trust Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging Trust Incorporated;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

In connection with the Quarterly Report of FelCor Lodging Trust Incorporated (the “Registrant”) on Form 10-Q for the quarter and nine months ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report), the undersigned hereby certifies, in the capacity as indicated below and pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.


Maryland		75-2541756

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

545 E. John Carpenter Freeway, Suite 1300, Irving,Texas		75062

(Address of principal executive offices)		(Zip Code)


		September 30,		December 31,
		2003		2002

Balance sheet information:
	Investment in hotels, net of accumulated depreciation	$	329,869	$	383,249
	Total assets	$	355,613	$	408,979
	Debt	$	259,529	$	278,978
	Total liabilities	$	261,724	$	279,887
	Equity	$	93,889	$	129,854


					Weighted-average
	Notional Amount				Spread Paid in
Swap Maturity	(in millions)		Number of Swaps		Excess of LIBOR			Fixed Rate Received

October 2004	$	175		6		3.20	%		7.375	%
October 2007		125		5		4.03	%		7.625	%

	$	300


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

Room revenue		$	251,243	$	253,717	$	731,205	$	765,538
Food and beverage revenue			44,570		45,030		140,042		146,792
Other operating departments			16,517		17,291		48,673		49,865

	Total hotel operating revenues	$	312,330	$	316,038	$	919,920	$	962,195


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

Room		$	68,462	$	66,106	$	192,776	$	191,368
Food and beverage			37,265		37,523		112,384		115,167
Other operating departments			8,149		8,161		23,039		22,731

	Total hotel departmental expenses	$	113,876	$	111,790	$	328,199	$	329,266

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x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		CONSOLIDATED BALANCE SHEETS
PART I. — FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		General
		Financial Comparison
		Results of Operations
		Liquidity and Capital Resources
		Inflation
		Seasonality
		Recent Accounting Announcements
		Disclosure Regarding Forward Looking Statements
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. — OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURE
EX-10.4.1 Master Amendment to Management Agreement
EX-10.19.4 Fourth Amendment dated June 25, 2003
EX-10.19.5 Fifth Amendment dated October 29, 2003
EX-10.31.4 Second Amendment to Note Loan Agreement
EX-31.1 Certification of CEO - Section 302
EX-31.2 Certification of CFO - Section 302
EX-32.1 Certification of CEO - Section 906
EX-32.1 Certification of CFO - Section 906

(1)		Operating margin is calculated by dividing hotel operating revenue in excess of hotel departmental expenses, other property operating costs, and management and franchise fees by hotel operating revenue.

(2)		Consistent with recently clarified SEC guidance, FFO and EBITDA have not been adjusted for the following amounts included in net loss (in thousands):


Brand	Hotels		Rooms		% of Total Rooms			% of 2002 EBITDA

Embassy Suites Hotels®		59		14,842		32	%		46	%
Holiday Inn®-branded		53		16,017		34			24
Crowne Plaza®		18		5,963		13			9
Sheraton®-branded		10		3,269		7			7
Doubletree®-branded		12		2,537		5			6
Other		20		4,252		9			7


Top Markets	Hotels		Rooms		% of Total Rooms			% of 2002 EBITDA

Atlanta		12		3,514		8	%		8	%
Dallas		16		4,885		10			8
San Francisco Bay Area		9		3,255		7			5
Orlando		6		2,220		5			4
Houston		9		2,262		5			4
New Orleans		2		746		2			3
Philadelphia		3		1,174		2			3
Phoenix		5		1,245		3			3
Minneapolis		4		955		2			3
Chicago		4		1,239		3			3


Top Four States	Hotels		Rooms		% of Total Rooms			% of 2002 EBITDA

California		19		6,023		13	%		14	%
Texas		39		10,544		23			17
Florida		16		5,346		11			10
Georgia		14		3,868		8			9


Location	Hotels		Rooms		% of Total Rooms			% of 2002 EBITDA

Suburban		79		19,443		42	%		40	%
Urban		35		11,252		24			26
Airport		31		9,435		20			22
Highway		15		3,072		6			3
Resort		12		3,678		8			9


Segment	Hotels		Rooms		% of Total Rooms			% of 2002 EBITDA

Upscale all-suite		76		18,219		39	%		53	%
Full service		53		16,494		35			26
Upscale		30		10,087		22			19
Limited service		13		2,080		4			2


		Occupancy (%)

		Three Months Ended September 30,							Nine Months Ended September 30,

		2003		2002		% Variance			2003		2002		% Variance

Embassy Suites Hotels			69.7		69.7		0.0			68.6		68.8		(0.2	)
Holiday Inn-branded hotels			65.4		65.5		(0.1	)		62.5		63.6		(1.7	)
Crowne Plaza hotels			57.9		60.0		(3.6	)		57.2		60.0		(4.6	)
Doubletree-branded hotels			68.8		68.5		0.4			67.6		66.3		1.9
Sheraton-branded hotels			61.5		59.2		4.0			60.3		59.1		2.0
Other hotels			61.3		57.9		5.8			58.6		58.9		(0.5	)
	Total hotels		65.3		65.2		0.3			63.5		64.2		(1.0	)


(Mark One)


		Fourth Quarter 2003 Guidance

		Low Guidance						High Guidance

					Per Share						Per Share
		Dollars			Amount^(a)			Dollars			Amount^(a)

Net loss applicable to common stockholders		$	(41	)	$	(0.70	)	$	(36	)	$	(0.62	)
	Depreciation		38						38
	Minority interest in FelCor LP		(2	)					(2	)

FFO		$	(5	)	$	(0.07	)	$	0		$	0.01

Net loss applicable to common stockholders		$	(41	)				$	(36	)
	Depreciation		38						38
	Minority interest in FelCor LP		(2	)					(2	)
	Interest expense		44						44
	Amortization expense		1						1
	Preferred dividends		7						7

EBITDA		$	47					$	52

(a)		Weighted average shares are 58.6 million. Adding minority interest and unvested restricted stock of 3.6 million shares to weighted average shares, provides the weighted average shares and units of 62.2 million used to compute FFO per share.

(b)		Consistent with recently clarified SEC guidance, full year FFO and EBITDA guidance has not been adjusted for the following non-cash charges included in estimated net loss (in thousands):


Dated: November 13, 2003

	FELCOR LODGING TRUST INCORPORATED



	By:	/s/ Richard J. O’Brien

		Richard J. O’Brien
		Executive Vice President and
		Chief Financial Officer



	By:	/s/ Lester C. Johnson

		Lester C. Johnson
		Senior Vice President and
		Principal Accounting Officer


Date: November 6, 2003
		/s/ Thomas J. Corcoran, Jr.

		Thomas J. Corcoran, Jr. Chief Executive Officer


Date: November 6, 2003
		/s/ Richard J. O’Brien

		Richard J. O’Brien Chief Financial Officer


November 6, 2003		/s/ Thomas J. Corcoran, Jr.

		Thomas J. Corcoran, Jr. Chief Executive Officer