-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N64vPnmTEG2VScS6sV6VyrVXe9zw6U3n2DTthlmCKIFtrhog/siokBNvx+FWqtiZ I6KTx166ablkTfnIRYgfGg== 0000950134-98-004228.txt : 19980514 0000950134-98-004228.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950134-98-004228 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR SUITE HOTELS INC CENTRAL INDEX KEY: 0000923603 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752541756 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14236 FILM NUMBER: 98618880 BUSINESS ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 2144444900 MAIL ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-24250 FELCOR SUITE HOTELS, INC. (Exact name of registrant as specified in its charter) MARYLAND 72-2541756 (State or other jurisdiction of (I.R.S. Employer incorporation or Identification No.) organization) 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all documents and 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 No ----- ------ The number of shares of Common Stock, par value $.01 per share, of FelCor Suite Hotels, Inc. outstanding on May 11, 1998 was 36,592,325. - -------------------------------------------------------------------------------- 2 FELCOR SUITE HOTELS, INC. INDEX
PAGE ---- PART I. -- FINANCIAL INFORMATION Item 1. Financial Statements.............................................................................. 3 FELCOR SUITE HOTELS, INC. Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997..................................................................... 3 Consolidated Statements of Operations -- For the Three Months Ended March 31, 1998 and 1997 (Unaudited)................................................. 4 Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 1998 and 1997 (Unaudited)................................................. 5 Notes to Consolidated Financial Statements..................................................... 6 DJONT OPERATIONS, L.L.C. Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997..................................................................... 12 Consolidated Statements of Operations -- For the Three Months Ended March 31, 1998 and 1997 (Unaudited)................................................. 13 Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 1998 and 1997 (Unaudited)................................................. 14 Notes to Consolidated Financial Statements..................................................... 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 17 General/First Quarter Highlights............................................................... 17 Pending Merger with Bristol.................................................................... 18 Recent Developments............................................................................ 18 Results of Operations.......................................................................... 19 Liquidity and Capital Resources................................................................ 24 PART II. -- OTHER INFORMATION Item 2. Changes in Securities............................................................................. 27 Item 5. Other Information................................................................................. 27 Item 6. Exhibits And Reports on Form 8-K.................................................................. 27 Signatures...................................................................................................... 28
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR SUITE HOTELS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1998 1997 --------- ---------- (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $103,194 and $87,400 at March 31, 1998 and December 31, 1997, respectively................ $1,514,639 $1,489,764 Investment in unconsolidated entities............................................... 118,069 132,991 Cash and cash equivalents........................................................... 25,733 17,543 Due from Lessee..................................................................... 33,815 18,908 Deferred expenses, net of accumulated amortization of $2,316 and $1,987 at March 31, 1998 and December 31, 1997................................ 10,105 10,593 Other assets........................................................................ 6,475 3,565 ---------- ----------- Total assets............................................................. $1,708,836 $ 1,673,364 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Debt, net of discount of $1,798 and $1,855 at March 31, 1998 and December 31, 1997, respectively.............................................. $ 484,183 $ 465,726 Distributions payable............................................................... 24,747 24,671 Accrued expenses and other liabilities.............................................. 24,159 11,331 Capital lease obligations........................................................... 10,517 11,093 Minority interest in Operating Partnership, 3,031 and 2,900 units issued and outstanding at March 31, 1998 and December 31, 1997, respectively......... 76,792 73,451 Minority interest in other partnerships............................................. 10,162 8,594 ---------- ----------- Total liabilities........................................................ 630,560 594,866 ---------- ----------- Commitments and contingencies (Note 3 and 4) Shareholders' equity: Preferred stock, $.01 par value, 10,000 shares authorized, 6,050 shares issued and outstanding......................................................... 151,250 151,250 Common stock, $.01 par value, 100,000 shares authorized, 37,804 and 37,802 shares issued, including shares in treasury, at March 31, 1998 and December 31, 1997, respectively............................................ 378 378 Additional paid in capital.......................................................... 1,005,011 1,003,501 Unearned officers' and directors' compensation...................................... (1,355) (1,754) Distributions in excess of earnings................................................. (35,902) (33,771) ---------- ----------- 1,119,382 1,119,604 Less common stock in treasury at cost, 1,213 shares................................. (41,106) (41,106) ---------- ----------- Total shareholders' equity............................................... 1,078,276 1,078,498 ---------- ----------- Total liabilities and shareholders' equity............................... $1,708,836 $ 1,673,364 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FELCOR SUITE HOTELS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1998 1997 --------- -------- Revenues: Percentage lease revenue ....................................................... $ 56,060 $ 35,370 Equity in income from unconsolidated entities .................................. 1,293 1,127 Other revenue .................................................................. 175 95 -------- -------- Total revenue ......................................................... 57,528 36,592 -------- -------- Expenses: General and administrative ..................................................... 1,199 972 Depreciation ................................................................... 15,887 10,417 Taxes, insurance and other ..................................................... 7,270 5,207 Interest expense ............................................................... 9,731 5,601 Minority interest in Operating Partnership ..................................... 1,751 1,417 Minority interest in other partnerships ........................................ 190 21 -------- -------- Total expenses ........................................................ 36,028 23,635 -------- -------- Net income before extraordinary charge ........................................... 21,500 12,957 Extraordinary charge from write off of deferred financing fees .................. (556) -------- -------- Net income ...................................................................... 20,944 12,957 Preferred dividends ............................................................. 2,949 2,949 -------- -------- Net income applicable to common shareholders .................................... $ 17,995 $ 10,008 ======== ======== Per common share data: Basic: Net income applicable to common shareholders before extraordinary charge....... $ 0.51 $ 0.39 Extraordinary charge .......................................................... (0.02) -------- -------- Net income applicable to common shareholders .................................. $ 0.49 $ 0.39 ======== ======== Weighted average common shares outstanding .................................... 36,539 25,389 ======== ======== Diluted: Net income applicable to common shareholders before extraordinary charge....... $ 0.51 $ 0.39 Extraordinary charge .......................................................... (0.02) -------- -------- Net income applicable to common shareholders .................................. $ 0.49 $ 0.39 ======== ======== Weighted average common shares outstanding .................................... 36,905 25,749 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 FELCOR SUITE HOTELS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------- 1998 1997 --------- --------- Cash flows from operating activities: Net income ........................................................................ $ 20,944 $ 12,957 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation ............................................................ 15,887 10,417 Amortization of deferred financing fees and organization costs .......... 628 319 Amortization of unearned officers' and directors' compensation .......... 191 232 Equity in income from unconsolidated entities ........................... (1,293) (1,127) Extraordinary charge for write off of deferred financing fees ........... 556 Minority interest in Operating Partnership .............................. 1,751 1,417 Minority interest in other partnerships ................................. 190 21 Changes in assets and liabilities: Due from Lessee ......................................................... (14,907) (10,104) Deferred financing fees ................................................. (84) (787) Deferred costs and other assets ......................................... (2,898) 245 Accrued expenses and other liabilities .................................. 12,212 (942) --------- --------- Net cash flow provided by operating activities ................ 33,177 12,648 --------- --------- Cash flows from investing activities: Acquisition of hotels ............................................................. (26,516) (151,644) Acquisition of unconsolidated entities ............................................ (10) (57,756) Improvements and additions to hotels .............................................. (5,227) (12,377) Cash distributions from unconsolidated entities ................................... 14,510 580 --------- --------- Net cash flow used in investing activities .................... (17,243) (221,197) --------- --------- Cash flows from financing activities: Proceeds from borrowings .......................................................... 30,000 132,000 Repayment of borrowings ........................................................... (13,078) (4,900) Proceeds from sale of common stock ................................................ 106,500 Costs associated with public offerings ............................................ (5,796) Distributions paid to limited partners ............................................ (1,667) (1,383) Distributions paid to preferred shareholders ...................................... (2,949) (2,949) Distributions paid to common shareholders ......................................... (20,050) (11,759) --------- --------- Net cash flow provided by (used in) financing activities....... (7,744) 211,713 --------- --------- Net change in cash and cash equivalents ..................................................... 8,190 3,164 Cash and cash equivalents at beginning of periods ........................................... 17,543 7,793 --------- --------- Cash and cash equivalents at end of periods ................................................. $ 25,733 $ 10,957 ========= ========= Supplemental cash flow information -- Interest paid ..................................................................... $ 9,320 $ 4,107 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 FELCOR SUITE HOTELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS FelCor Suite Hotels, Inc. ("FelCor") is a real estate investment trust ("REIT") which, at March 31, 1998, owned interests in 75 hotels with an aggregate of 18,348 suites/rooms (collectively the "Hotels") through its 92.4% general partner interest in FelCor Suites Limited Partnership (the "Operating Partnership"). FelCor, the Operating Partnership and its subsidiaries, are herein referred to, collectively, as the "Company". The Company owns 100% equity interests in 56 of the Hotels (13,691 suites/rooms), a 90% or greater interest in partnerships owning five hotels (1,195 suites/rooms), and 50% interests in separate partnerships that own 14 hotels (3,462 suites/rooms). At March 31, 1998, 52 of the Hotels were operated as Embassy Suites(R)hotels, fourteen as Doubletree Guest Suites(R) hotels, five as Sheraton(R) hotels, two as Sheraton Suites(R) hotels, one was in the process of being converted to a full-service Doubletree(R) hotel, and one as a Hilton Suites(R) hotel. The Hotels are located in 28 states, with 31 hotels in California, Florida and Texas. The following table provides certain information regarding the acquisition of Hotels through March 31, 1998:
NUMBER OF HOTELS NUMBER OF ACQUIRED SUITES/ROOMS ---------------- ------------ 1994 7 1,730 1995 13 2,649 1996 23 5,769 1997 30 7,608 1ST QUARTER 1998 2 348 ------ ------ 75 18,104 ====== Additional suites/rooms constructed by the Company 244 ------ 18,348 =======
The Company leases all of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company, ("DJONT"), or a consolidated subsidiary thereof (collectively, the "Lessee"), under operating leases providing for the payment of percentage rent (the "Percentage Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive Officer of the Company, respectively, beneficially own a 50% voting equity interest in the Lessee. The remaining 50% non-voting equity interest is beneficially owned by the children of Charles N. Mathewson, a director of and major initial investor in the Company. The Lessee has entered into management agreements pursuant to which 65 of the Hotels are managed by Promus Hotel Corporation ("Promus"), or by a subsidiary thereof, seven are managed directly by, or by a subsidiary of, ITT Sheraton Corporation ("Sheraton") and three are managed by two independent management companies. Promus is the largest operator of all-suite, full service hotels in the United States. A brief discussion of hotels acquired and other significant transactions occurring in the first quarter of 1998 follows: On January 15, 1998 the Company announced the closing of $114 million of fixed rate nonrecourse secured debt by the partnerships owning nine Embassy Suites hotels in which the Company and Promus each own a 50% unconsolidated interest. The new debt carries a coupon of 6.988%, is payable in ten years and amortizes over 25 years. The proceeds were used to repay higher interest rate debt associated with the unconsolidated entities jointly owned with Promus and to repay other corporate debt. The Company recorded an extraordinary charge of $556,000 which was the Company's portion of the write off of deferred financing fees associated with this refinancing of debt. 6 7 FELCOR SUITE HOTELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS -- (CONTINUED) On February 6, 1998, the Company acquired the 194-suite Doubletree Guest Suites hotel in Columbus, Ohio for approximately $19.1 million. The purchase price includes $14.1 million in cash and approximately 134,000 Operating Partnership Units, each valued at $37.06. The hotel is managed by a wholly owned subsidiary of Promus. On February 17, 1998, the Company filed a $1 billion "omnibus" shelf registration statement with the Securities and Exchange Commission. This registration statement will enable the Company to effect offerings from time to time up to an additional $1 billion in registered securities, which may include debt securities, preferred stock, depositary shares, common stock and/or common stock warrants. On March 17, 1998, the Company completed an exchange offer for the 73/8% Senior Notes due 2004 and 75/8% Senior Notes due 2007 issued and sold on October 1, 1997 in a transaction exempt from the registration requirements of the Securities Act of 1933. The new notes exchanged for those notes are identical in amount and terms, except the new notes have been registered under the Securities Act pursuant to a registration statement declared effective on February 10, 1998. On March 20, 1998, the Company acquired, through a 90% owned partnership, a 154-room hotel in Wilmington, Delaware for approximately $14.0 million, which is currently in the process of conversion to a Doubletree hotel. The Company paid approximately $12.6 million for its 90% partnership interest and Promus paid approximately $1.4 million for its 10% limited partnership interest. Upon completion of an approximate $3.5 million renovation, this hotel will be converted to a traditional Doubletree Hotel. On March 23, 1998, FelCor entered into a Merger Agreement (the "Merger Agreement") with Bristol Hotel Company ("Bristol") under which the owned and leased hotel assets of Bristol will be merged with and into FelCor (the "Merger"). As a consequence of the Merger, Bristol's stockholders will acquire approximately 44% of the FelCor common stock outstanding immediately following the Merger and FelCor's board of directors will be reconstituted. In anticipation of the Merger, Bristol will spin-off (the "Spin-Off") its hotel operating business as a separate public company named Bristol Hotels & Resorts ("BHR"). The Bristol hotels acquired in the Merger will be leased to BHR. On March 31, 1998, the Company declared a first quarter dividend of $0.55 per common share and unit and $0.4875 per share on its $1.95 Series A Cumulative Preferred Stock to shareholders of record on April 15, 1998 and paid on April 30, 1998. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the financial statements and notes thereto of the Company and the Lessee included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "10-K"). The notes to the financial statements included herein highlight significant changes to the notes included in the 10-K and present interim disclosures required by the SEC. The financial statements for the three months ended March 31, 1998 and 1997 are unaudited; however, in the opinion of management, all adjustments (which include only normal recurring accruals) have been made which are considered necessary to present fairly the operating results and financial position of the Company for the unaudited periods. 7 8 FELCOR SUITE HOTELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SUPPLEMENTAL CASH FLOW INFORMATION In the first quarter of 1998 the Company purchased certain assets and assumed certain liabilities of hotels. These purchases were recorded under the purchase method of accounting. The fair value of the acquired assets and liabilities recorded at the date of acquisition are as follows: Assets acquired................................................. $32,868 Minority interest contribution to Operating Partnership......... (4,976) Minority interest contribution to other partnerships............ (1,376) ------- Net cash paid by the Company........................... $26,516 =======
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS At March 31, 1998 the Company owned interests in 52 Embassy Suites hotels, 14 Doubletree Guest Suites hotels, five Sheraton hotels, two Sheraton Suites hotels, one Hilton Suites hotel and one hotel in the process of conversion to a Doubletree hotel. The Embassy Suites hotels, the Hilton Suites hotels and one hotel in the process of conversion to a Doubletree hotel operate pursuant to franchise license agreements which require the payment of fees based on a percentage of suite/room revenue. These fees are paid by the Lessee. There are no separate franchise license agreements with respect to the Doubletree Guest Suites hotels, Sheraton hotels or Sheraton Suites hotels, which rights are included in the management agreement. The Lessee generally pays the Hotel managers a base management fee based on a percentage of suite/room revenue and an incentive management fee based on the Lessee's income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and committed to make subordinated loans to the Lessee, if needed, to meet its rental and other obligations under the Percentage Leases. The Company is to receive rental income from the Lessee under the Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19 hotels), 2007 (14 hotels), 2008 (2 hotels) and 2012 (7 hotels). The Percentage Leases for the 14 unconsolidated entities expire in 2005 (1 hotel), 2006 (4 hotels) and 2007 (9 hotels). The rental income under the Percentage Leases between the 14 unconsolidated entities, of which the Company owns 50%, and the Lessee are payable to the respective partnerships and as such is not included in the following schedule of future lease commitments to the Company. Minimum future rental income (i.e., base rents) to the Company under these noncancellable operating leases at March 31, 1998 is as follows (in thousands):
YEAR ---- Remainder of 1998 ............................ $ 85,517 1999 ......................................... 114,023 2000 ......................................... 114,023 2001 ......................................... 114,023 2002 ......................................... 114,022 2003 and thereafter........................... 515,437 ---------- $1,057,045 ==========
8 9 FELCOR SUITE HOTELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Messrs. Feldman and Corcoran, certain entities owning preferred interests in the Lessee and the managers of certain of the Hotels have agreed to make loans to the Lessee of up to an aggregate of approximately $17.0 million, to the extent necessary to enable the Lessee to pay rent and other obligations due under the respective Percentage Leases relating to a total of 37 of the Hotels. No loans were outstanding under such agreements at March 31, 1998. 4. DEBT AND CAPITAL LEASE OBLIGATIONS Debt obligations at March 31, 1998 and December 31, 1997 consist of the following (in thousands):
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------- Senior unsecured notes, net of discount......................................... $298,202 $298,145 Line of Credit.................................................................. 153,000 136,000 Renovation loan ................................................................ 25,000 25,000 Collateralized mortgage note.................................................... 7,331 5,931 Other debt payable.............................................................. 650 650 -------- -------- $484,183 $465,726 ======== ========
Under its loan agreements the Company is required to satisfy various affirmative and negative covenants. The Company was in compliance with these covenants at March 31, 1998. Capital lease obligations at March 31, 1998 and December 31, 1997 consist of the following (in thousands):
MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ Capital land and building lease obligations..................................... $ 9,239 $ 9,330 Capital equipment lease obligations............................................. 1,278 1,763 --------- --------- $ 10,517 $ 11,093 ========= =========
5. INVESTMENT IN UNCONSOLIDATED ENTITIES At March 31, 1998, the Company owned 50% interests in separate partnerships or limited liability companies owning fourteen hotels, a parcel of undeveloped land and a condominium management company. The Company is accounting for its investments in these unconsolidated entities under the equity method. Summarized combined financial information for 100% of these unconsolidated partnerships is as follows (in thousands):
MARCH 31, DECEMBER 31, 1998 1997 ---------- ---------- Balance sheet information: Investment in hotels, net of accumulated depreciation...................... $ 252,733 $256,032 Non-recourse mortgage debt................................................. $ 168,164 $138,956 Equity..................................................................... $ 93,932 $126,324
9 10 FELCOR SUITE HOTELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED)
THREE MONTHS ENDED MARCH 31 , ---------------------------- 1998 1997 --------- -------- Statement of operations information: Percentage lease revenue................................................... $ 12,347 $ 9,505 Other income............................................................... 160 --------- -------- Total revenue..................................................... 12,507 9,505 --------- -------- Expenses: Depreciation.......................................................... 4,263 3,148 Taxes, insurance and other............................................ 1,567 1,388 Interest expense...................................................... 3,259 2,094 --------- -------- Total expenses.................................................... 9,089 6,630 --------- -------- Net income................................................................. $ 3,418 $ 2,875 ========= ======== 50% of net income attributable to the Company.............................. $ 1,709 $ 1,437 Amortization of cost in excess of book value............................... (416) (310) --------- -------- Equity in income from unconsolidated entities.............................. $ 1,293 $ 1,127 ========= ========
6. TAXES, INSURANCE AND OTHER Taxes, insurance and other is comprised of the following for the three months ended March 31, 1998 and 1997 (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------------ 1998 1997 ---------- ---------- Real estate and personal property taxes......................................... $6,566 $4,410 Property insurance.............................................................. 252 408 Land lease expense.............................................................. 227 249 State franchise taxes........................................................... 225 140 ------ -------- Total taxes, insurance and other....................................... $7,270 $5,207 ====== ======
7. SUBSEQUENT EVENTS Under the Merger Agreement FelCor has agreed to provide Bristol a $120 million interim credit facility (the "Interim Credit Facility"). Under the Interim Credit Facility, FelCor will loan to Bristol (i) $40 million to fund a portion of the cash purchase price and to prepay certain indebtedness assumed by Bristol in connection with the acquisition of a 20 hotel portfolio, (ii) $31.2 million to fund the prepayment of $30 million in outstanding principal amount of Bristol's Senior Secured Notes and a related prepayment premium, (iii) $9 million for general corporate purposes and (iv) additional cash for necessary capital improvements. The Interim Credit Facility will be secured by real estate acceptable to FelCor. If the Merger Agreement is terminated due to the failure of FelCor's stockholders to approve the Merger, the Interim Credit Facility will be converted into unsecured indebtedness of Bristol with a maturity of December 31, 2003; however, any loan balance in excess of $56.2 million will remain secured and due 120 days after the termination of the Merger Agreement. At May 11, 1998 FelCor had advanced the entire $120 million to be provided by it under the Interim Credit Facility. 10 11 FELCOR SUITE HOTELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. SUBSEQUENT EVENTS -- (CONTINUED) On April 14, 1998 the Company acquired the 248-room Doubletree hotel located in Aurora, Colorado for approximately $24.2 million in cash. Additionally, the Company has committed to spend approximately $2.0 million for renovations at this hotel, which will be managed by a subsidiary of Promus. On April 21, 1998 the Company announced its filing of a Form S-4 Registration Statement with the Securities and Exchange Commission ("SEC") to register 32.4 million shares of the Company's common stock to be issued in connection with the merger of the Company and Bristol, including shares issuable pursuant to outstanding options. This registration statement contains the Joint Proxy Statement/Prospectus which, when declared effective by the SEC, will be used by the Company and Bristol in the solicitation of proxies for their Annual Meetings of Shareholders, at which the proposed merger will be voted upon. On April 30, 1998 the Company acquired the 301-room Meadowlands Hilton hotel located in Secaucus, New Jersey for approximately $23.4 million in cash. The hotel will be leased to a subsidiary of Bristol. On May 1, 1998 the Company purchased eight hotels from Starwood Hotels & Resorts ("Starwood") for an aggregate cash purchase price of approximately $245 million. The hotels have a total of 1,898 suites/rooms and consist of five Embassy Suites hotels (Phoenix (Airport), AZ; Tempe (ASU), AZ; Palm Desert Resort, CA; Atlanta (Airport), GA and St. Louis (Downtown), MO) and three Doubletree Guest Suites hotels DFW (Airport), TX; Ft. Lauderdale (Cypress Creek), FL and Lexington, KY) located in seven states. Six of the eight hotels are expected to be operated as Embassy Suites hotels and be managed by Promus. The remaining two hotels are expected to operated as Sheraton Suites hotels and will be continue to be managed by a subsidiary of Starwood. On May 7, 1998 the Company sold 5.75 million depositary shares, representing 57,500 shares of 9% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), at $25 per depositary share. The Series B Preferred Stock and the corresponding depositary shares, which may be called by the Company at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption and are not convertible into any other securities of the Company. The Series B Preferred Stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and will be entitled to annual dividends at the rate of 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). The net proceeds of approximately $139.2 million were used primarily to reduce borrowings on the Company's $500 million unsecured revolving line of credit ("Line of Credit"). The Company has entered into negotiations with its lenders to increase its existing $550 million Line of Credit to $1 billion and to provide a $200 million unsecured loan facility. The Company expects this to be completed by the end of the second quarter. 11 12 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ----------- (UNAUDITED) ASSETS Cash and cash equivalents....................................................... $ 40,253 $ 25,684 Accounts receivable, net........................................................ 27,232 20,274 Inventories..................................................................... 3,457 3,466 Prepaid expenses................................................................ 974 1,307 Other assets.................................................................... 3,129 3,971 ---------- --------- Total assets.......................................................... $ 75,045 $ 54,702 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, trade......................................................... $ 6,395 $ 9,426 Accounts payable, other......................................................... 7,423 4,625 Due to FelCor Suite Hotels, Inc................................................. 33,815 18,908 Accrued expenses and other liabilities.......................................... 35,711 30,818 ---------- --------- Total liabilities..................................................... 83,344 63,777 ---------- ---------- Commitments and contingencies (Note 2) Shareholders' equity: Capital......................................................................... 1 1 Distributions in excess of earnings............................................. (8,300) (9,076) ---------- ---------- Total shareholders' deficit........................................... (8,299) (9,075) ---------- ---------- Total liabilities and shareholders' equity............................ $ 75,045 $ 54,702 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 12 13 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 -------- -------- Revenue: Suite/room revenue ........................ $143,284 $ 93,153 Food and beverage revenue ................. 15,264 4,028 Food and beverage rent .................... 1,173 965 Other revenue ............................. 11,368 7,069 -------- -------- Total revenues ..................... 171,089 105,215 -------- -------- Expenses: Property operating costs and expenses.... 38,605 25,182 General and administrative .............. 12,308 7,166 Advertising and promotion ............... 11,839 6,846 Repair and maintenance .................. 7,987 4,904 Utilities ............................... 6,097 4,130 Management fee .......................... 5,548 2,446 Franchise fee ........................... 4,087 2,841 Food and beverage expenses .............. 13,513 3,865 Percentage lease expenses ............... 68,438 44,615 Lessee overhead expenses ................ 359 518 Liability insurance ..................... 266 719 Other ................................... 1,267 869 -------- -------- Total expenses ..................... 170,314 104,101 -------- -------- Net income ................................... $ 775 $ 1,114 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Net income ...................................................... $ 775 $ 1,114 Adjustments to reconcile net income to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable ........................................ (6,958) (4,233) Inventories ................................................ 9 (443) Prepaid expenses ........................................... 333 (955) Other assets ............................................... 842 (42) Due to FelCor Suite Hotels, Inc. ........................... 14,907 10,104 Accounts payable, accrued expenses and other liabilities ... 4,661 16,723 ---------- ---------- Net cash flow provided by operating activities ........ 14,569 22,268 ---------- ---------- Net change in cash and cash equivalents .............................. 14,569 22,268 Cash and cash equivalents at beginning of periods .................... 25,684 5,208 ---------- ---------- Cash and cash equivalents at end of periods .......................... $ 40,253 $ 27,476 ========== ==========
The accompany notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Hervey A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and officers of FelCor Suite Hotels, Inc. (the "Company") and as managers and officers of DJONT Operations, L.L.C., a Delaware limited liability company ("DJONT") own all of the voting Class A membership interest in DJONT (representing a 50% equity interest). All of the non-voting Class B membership interest in DJONT (representing the remaining 50% equity interest) is owned by RGC Leasing, Inc., a Nevada corporation owned by the children of Mr. Mathewson, a director of and major initial investor in the Company. Each of the 75 hotels in which FelCor Suites Limited Partnership (the "Operating Partnership") had an ownership interest at March 31, 1998 (the "Hotels"), is leased to DJONT or a consolidated subsidiary thereof (collectively, the "Lessee") pursuant to percentage leases (the "Percentage Leases"). Messrs. Feldman and Corcoran, certain entities owning preferred interests in the Lessee and the managers of certain of the Hotels have agreed, directly or through their affiliates, to make loans to the Lessee of up to an aggregate of approximately $17.0 million, to the extent necessary to enable the Lessee to pay rent and other obligations due under the respective Percentage Leases relating to a total of 37 of the Hotels. Amounts so borrowed by the Lessee, if any, will subordinate in right of repayment to the prior payment in full of rent and other obligations due under the Percentage Leases relating to such Hotels. No loans were outstanding under such agreements at March 31, 1998. Messrs. Feldman and Corcoran have entered into an agreement with the Company pursuant to which they have agreed that through April 15, 2005 any distributions received by them from DJONT (in excess of their tax liabilities with respect to the income of DJONT) will be utilized to purchase common stock of the Company or units of limited partner interest in the Operating Partnership at then current market prices. The agreement stipulates that Messrs. Feldman and Corcoran are restricted from selling any stock or units so acquired from the Company for a period of two years from the date of purchase. RGC Leasing, Inc., which owns the other 50% of DJONT, may elect to purchase common stock of the Company or Operating Partnership Units upon similar terms, at its option. The independent directors of the Company may suspend or terminate such agreement at any time. At March 31, 1998, 52 of the Hotels were operated as Embassy Suites hotels, fourteen as Doubletree Guest Suites hotels, five as Sheraton hotels, two as Sheraton Suites hotels, one was in the process of being converted to a full-service Doubletree hotel and one as a Hilton Suites hotel. Sixty five of the Hotels are managed by Promus Hotel Corporation ("Promus"), or a subsidiary thereof. Of the remaining Hotels, seven are managed directly by, or by a subsidiary of, ITT Sheraton Corporation ("Sheraton") and three are managed by two independent management companies. Promus is the largest operator of all-suite, full-service hotels in the United States. 2. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Lessee has future lease commitments under the Percentage Leases which expire in 2004 (7 hotels), 2005 (13 hotels) 2006 (23 hotels), 2007 (23 hotels), 2008 (2 hotels) and 2012 (7 hotels). Minimum future rental payments (i.e., base rents) under these noncancellable operating leases at March 31, 1998 is as follows (in thousands):
YEAR AMOUNT ---- ----------- Remainder of 1998............................... $ 105,806 1999............................................ 141,074 2000............................................ 141,074 2001............................................ 141,074 2002............................................ 141,074 2003 and thereafter............................. 621,843 ----------- $ 1,291,945 ===========
15 16 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) The Lessee typically pays a franchise fee ranging from 4% to 5% of suite/room revenue, and marketing and reservation fees ranging from 1% to 3.5% of suite/room revenue. In the cases where there is not a separate franchise agreement, the right to use the brand name is included in the management agreement. Base management fees typically range from 2% to 3% of total revenues. Incentive management fees generally are based upon the hotel's net income before overhead and typically range from 50% to 100% subject to, in certain cases, a maximum annual payment of between 2% and 3% of applicable hotel revenues in addition to the base management fee. In many cases managers and franchisors have agreed to subordinate all or a portion of their fees at a specific hotel or group of hotels either for a set period of time, or until the hotel or group of hotels provides a predetermined return to the Lessee, or both. 3. SUBSEQUENT EVENTS On April 14, 1998, the Lessee and the Operating Partnership entered into a ten year operating lease on the 248-room Doubletree hotel located in Aurora, Colorado. On May 1, 1998, the Lessee and the Operating Partnership entered into ten year operating leases with respect to the following eight hotels located in Phoenix, AZ (2 hotels); Palm Desert, CA; Ft. Lauderdale, FL; Atlanta, GA; Lexington, KY; St. Louis, MO; and Dallas, TX. 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL For background information relating to the Company and the definitions of certain capitalized terms used herein, reference is made to Note 1 of Notes to Consolidated Financial Statements of FelCor Suite Hotels, Inc. appearing elsewhere herein. FIRST QUARTER HIGHLIGHTS: o FFO of $41.7 million or $0.94 per share and unit for the quarter ended March 31, 1998 sets a new quarterly record for the Company . o Net income increased from $0.39 per diluted share to $0.49 per diluted share, an increase of 26%. o The Company's 58 comparable hotels, those owned at both March 31, 1998 and 1997, had a 6.7% revenue per available room ("RevPAR") increase over the first quarter of 1997. o On March 24, 1998, the Company announced the proposed acquisition, through merger, of the 110 hotels owned or leased by Bristol. After the Merger, the Company will have ownership interests in 195 hotels and an anticipated market capitalization in excess of $4 billion. The Company is currently the largest owner of Embassy Suites hotels. Upon the closing of the Merger, the Company also will become the world's largest owner of Holiday Hospitality branded hotels. The Merger currently is expected to be consummated near the end of the second quarter of 1998. o The Company acquired two hotels (one hotel in Wilmington, Delaware to be converted to a Doubletree hotel and one Doubletree Guest Suites hotel in Columbus, Ohio) during the first quarter representing a gross investment of approximately $33.1 million. o The Company completed the following capital market activities during the first quarter of 1998: o The partnerships owning nine Embassy Suites hotels, in which the Company and Promus each own a 50% unconsolidated interest, placed $114 million of fixed rate nonrecourse secured debt. The new debt carries a coupon of 6.988%, is payable in 10 years and amortizes over 25 years. The proceeds were utilized to repay higher interest rate debt related to the joint venture hotels and to repay other corporate debt. o Filed an "omnibus" shelf registration statement allowing the Company to issue up to $1.0 billion in registered securities which may be customized to meet its capital needs and current market conditions. o Completed its exchange of $300 million of registered debt for private placement debt, thereby becoming the first hotel REIT to have issued public unsecured debt. o The Company has entered into negotiations with its lenders to increase its existing $550 million Line of Credit to $1 billion and to provide a $200 million unsecured term loan facility. The Company expects this to be completed by the end of the second quarter. o The Company declared first quarter dividends of $0.55 per share on its Common Stock and Operating Partnership Units and $0.4875 per share on its Series A Cumulative Convertible Preferred Stock. 17 18 PENDING MERGER WITH BRISTOL: On March 24, 1998, the Company announced the proposed acquisition, through merger, of 110 hotels owned or leased by Bristol. Bristol will spin-off (the "Spin-Off") its hotel operating business as a separate public company named Bristol Hotels & Resorts ("BHR"). Upon closing of the merger, the Company will be the largest non-paired hotel REIT, and become the world's largest owner of Holiday Hospitality branded hotels. The Bristol hotels acquired in the Merger will be leased to BHR. The proposed Merger with Bristol will provide the Company with a number of advantages, such as (i) providing the Company with further diversification into a new segment of the lodging industry, with a resulting increase in acquisition and growth opportunities, (ii) making the Company the owner of the largest number of Holiday Hospitality branded hotels (including the Crowne Plaza(R) and Holiday Inn(R) brands, the latter of which is one of the most recognized brand names in America), (iii) creating a new strategic alliance with BHR, which will be the nation's largest operator of third party owned and branded hotels, (iv) establishing an independent third party lessee for the Bristol hotels acquired by the Company and (v) enhancing the Company's critical mass and market presence. In addition, these benefits may be obtained without impairing or diminishing the Company's long-standing relationship with Promus or its more recent relationship with Sheraton. Bristol is one of the largest owner/operators of full-service hotels in the United States. Bristol's hotels are primarily full-service hotels that operate in the mid-scale to upscale segments of the lodging industry. Bristol is the largest franchisee of Holiday Hospitality branded hotels, including Crowne Plaza, Holiday Inns and Holiday Inns Select(R) hotels, and also operates 19 hotels under other brands, including Hampton Inn(R), Courtyard by Marriott(R) and Fairfield Inn(R). Bristol's hotels are located in 22 states and Canada, with hotels concentrated in major metropolitan areas of the South, East, Southwest and Pacific regions of the United States. RECENT DEVELOPMENTS: Acquisitions. On May 1, 1998 the Company purchased eight upscale full-service, all-suite hotels from Starwood for an aggregate cash purchase price of approximately $245 million. These hotels have a total of 1,898 suites/rooms and consist of five Embassy Suites hotels and three Doubletree Guest Suites hotels located in seven states. Following the acquisition, six of the eight hotels are expected to be operated as Embassy Suites hotels and be managed by Promus. The two remaining hotels are expected to be operated as Sheraton Suites hotels and will continue to be managed by a subsidiary of Starwood. On May 5, 1998 the Company announced the acquisition of the 301-room Meadowlands Hilton hotel located in Secaucus, New Jersey for approximately $23.4 million in cash. The hotel will be leased to a subsidiary of Bristol. Preferred Stock Offering. On May 7, 1998 the Company sold 5.75 million depositary shares, representing 57,500 shares of Series B Preferred Stock, at $25 per share. The Series B Preferred Stock and the corresponding depositary shares, which may be called by the Company at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption and are not convertible into any other securities of the Company. The Series B Preferred Stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and will be entitled to annual dividends at the rate of 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). The net proceeds of approximately $139.2 million were used primarily to reduce borrowings on the Line of Credit. 18 19 RESULTS OF OPERATIONS The Company Three Months Ended March 31, 1998 and 1997 For the three months ended March 31, 1998 and 1997, the Company had revenues of $57.5 million and $36.6 million, respectively, consisting primarily of Percentage Lease revenues of $56.1 million and $35.4 million, respectively. The increase in total revenue is primarily attributed to the Company's acquisition and subsequent leasing pursuant to Percentage Leases, of interests in 32 additional hotels since December 31, 1996. Suite/room revenues for the 43 hotels which were owned for all of the first quarter of 1998 and 1997 increased 10.6% for the quarter ended March 31, 1998 over the corresponding period in 1997 (an increase of $8.4 million). Furthermore, RevPAR for these hotels increased 8.7% and average daily rate ("ADR") increased 8.0% to $127.43 in the first quarter of 1998 from $118.00 in the same period in 1997. Management believes that the hotels it acquires will generally experience increases in suite/room revenue and RevPAR (and accordingly, provide the Company with increases in Percentage Lease revenue) after completion of renovation, upgrade and possible rebranding; however, as individual hotels undergo such renovation and/or rebranding, their performance has been, and may continue to be adversely affected by such temporary factors as suites/rooms out of service and disruptions of hotel operations. (A more detailed discussion of hotel suite/room revenue is contained in "The Hotels -- Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Total expenses increased $12.4 million in the three months ended March 31, 1998, from $23.6 million to $36.0 million, compared to the same period in 1997. This increase resulted primarily from the additional hotels acquired in 1998 and 1997. Total expenses decreased as percentage of total revenue from 64.6% in the first quarter of 1997 to 62.6% in the same period of 1998. The major components of total expenses are depreciation; taxes, insurance and other; and interest expense. Depreciation increased primarily as a result of the additional properties acquired in 1997 and 1998 and the suite/room renovation projects completed in 1997. As a percentage of total revenue depreciation decreased nearly 1% in the first quarter of 1998 as compared to the same period in 1997, from 28.5% to 27.6%. Taxes, insurance and other increased $2.1 million primarily as a result of the increased number of hotels owned. As a percentage of total revenue, taxes, insurance and other decreased from 14.2% in 1997 to 12.6% in 1998. The major components in this decrease are in real estate and personal property taxes which decreased from 12.1% of total revenue in 1997 to 11.2% in 1998 and property insurance which decreased from 1.1% of total revenue in 1997 to 0.4% in 1998. Aggressive insurance placement was responsible for the decrease in insurance costs. Interest expense increased as a percentage of total revenue from 15.3% in the first quarter of 1997 to 16.9% in 1998. This increase in interest expense is attributed to the increased use of debt to finance acquisitions and renovations. In the first quarter of 1998 the Company recorded an extraordinary charge of $556,000 which was the Company's portion of the write off of deferred financing fees associated with the refinancing of debt relating to nine hotels owned by joint ventures with Promus. The Company spent approximately $3.3 million on upgrading, renovating and/or rebranding 19 hotels during the first quarter of 1998. 19 20 Funds From Operations The Company considers Funds From Operations to be a key measure of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance and liquidity. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines Funds From Operations as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus; real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that Funds From Operations is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. The Company computes Funds From Operations in accordance with standards established by NAREIT which may not be comparable to Funds From Operations reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. Funds From Operations does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company 's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. Funds From Operations may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. The following table details the computation of Funds From Operations (in thousands, except per share and unit data):
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 -------- ------- Funds From Operations (FFO): Net income ...................................................... $20,944 $12,957 Add back: Extraordinary charge from write off of deferred financing fees from unconsolidated entities ............................... 556 Minority interest in Operating Partnership ................... 1,751 1,417 Depreciation ................................................. 15,887 10,417 Depreciation for unconsolidated entities ..................... 2,547 1,884 ------- ------- FFO ............................................................. $41,685 $26,675 ======= ======= FFO per common share and unit data: FFO per common share and unit ................................... $ 0.94 $ 0.80 ======= ======= Weighted average common shares and units outstanding (a) ........ 44,575 33,222 ======= =======
(a) Weighted average common shares and units are computed including dilutive options, unvested restricted stock grants and assuming conversion of preferred stock to common stock. 20 21 Included in the Funds From Operations described above is the Company's share of FFO from its interest in fourteen unconsolidated entities. The FFO contribution from these unconsolidated entities was derived as follows (in thousands):
THREE MONTHS ENDED MARCH 31, ----------------------- 1998 1997 --------- -------- Statement of operations information: Percentage Lease revenue ............................................... $ 12,347 $ 9,505 Other income ........................................................... 160 -------- -------- Total revenue ........................................... 12,507 9,505 -------- -------- Expenses: Depreciation ................................................... 4,263 3,148 Taxes, insurance and other ..................................... 1,567 1,388 Interest expense ............................................... 3,259 2,094 -------- -------- Total expenses .......................................... 9,089 6,630 -------- -------- Net income ............................................................. $ 3,418 $ 2,875 ======== ======== 50% of net income attributable to the Company .......................... $ 1,709 $ 1,437 Amortization of cost in excess of book value ............ (416) (310) -------- -------- Income from unconsolidated entities .................................... 1,293 1,127 Add back: 50% of depreciation .......................................... 2,132 1,574 Amortization of cost in excess of book value........................... 416 310 -------- -------- FFO contribution of unconsolidated entities ............................ $ 3,841 $ 3,011 ======== ========
The Lessee The Three Months Ended March 31, 1998 and 1997 Total revenues increased to $171.1 million in the first quarter of 1998 from $105.2 million in the first quarter of 1997, an increase of 62.6%. Total revenues consisted primarily of suite/room revenue of $143.3 million and $93.2 million in the first quarter of 1998 and 1997, respectively. The increase in total revenues is primarily a result of the increase in the number of hotels leased to 75 hotels at March 31, 1998 from 58 hotels at March 31, 1997. Suite/room revenues from the 43 hotels which were leased for all of the three months ended March 31, 1998 and 1997 increased 10.6% or $8.4 million. The increase in revenues at these hotels is due primarily to improvements in the percentage of occupied rooms ("Occupancy") and in average daily room rates ("ADR") of 78.6% and $126.85, respectively, for the three months ended March 31, 1998, as compared to the 77.7% and $117.65 for the three months ended March 31, 1997. The Lessee's income before Percentage Lease rent decreased as a percentage of total revenues from 43.5% in the first quarter of 1997 to 40.5% in the first quarter of 1998 primarily as a result of increased food and beverage expenses as a percentage of total revenues of 7.8% in the first quarter of 1998 compared to 3.6% in the first quarter of 1997. 21 22 The Hotels The following table sets forth historical suite/room revenue and percentage changes therein between the periods presented for the 75 hotels which the Lessee operated at March 31, 1998. The following table also presents comparative information with respect to Occupancy, ADR and RevPAR for the 13 Original Hotels, the 18 CSS Hotels, the 12 1996 Acquisitions, the 15 1997 Acquisitions acquired before March 31, 1997, the 15 1997 Acquisitions acquired after March 31, 1997 and the two 1998 Acquisitions, regardless of ownership, through March 31, 1998. Except as otherwise noted below, each of such hotels is operated as an Embassy Suites hotel.
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 VARIANCE ----------- ----------- ------------ Suite/room Revenue (in thousands): Original Hotels (13) ......................................... $ 23,190 $ 20,873 11.1 % CSS Hotels (18) .............................................. $ 41,246 $ 37,004 11.5 % 1996 Acquisitions (12) ....................................... $ 23,476 $ 21,618 8.6 % Hotels owned at December 31, 1996 (43) ....................... $ 87,912 $ 79,495 10.6 % 1997 Acquisitions acquired before March 31, 1997 (15)......... $ 23,843 $ 23,885 (0.2)% Total for hotels owned at both March 31, 1998 and 1997 (58) ............................................. $ 111,755 $ 103,379 8.1 % 1997 Acquisitions acquired after March 31, 1997 (15) ......... $ 30,686 $ 29,730 3.2 % 1998 Acquisitions (2) ........................................ $ 2,017 $ 2,008 0.4 % Occupancy: Original Hotels .............................................. 74.4% 75.2% (1.1)% CSS Hotels ................................................... 74.8% 73.1% 2.3 % 1996 Acquisitions ............................................ 72.1% 72.2% (0.1)% Hotels owned at December 31, 1996 ............................ 73.9% 73.4% 0.7 % 1997 Acquisitions acquired before March 31, 1997 ............. 68.5% 73.0% (6.2)% Total for hotels owned at both March 31, 1998 and 1997........ 72.6% 73.3% (1.0)% 1997 Acquisitions acquired after March 31, 1997 .............. 71.0% 70.8% 0.3 % 1998 Acquisitions ............................................ 66.5% 68.8% (3.3)% ADR: Original Hotels .............................................. $ 117.69 $ 111.29 5.8 % CSS Hotels ................................................... $ 132.95 $ 122.04 8.9 % 1996 Acquisitions ............................................ $ 128.56 $ 118.20 8.8 % Hotels owned at December 31, 1996 ............................ $ 127.43 $ 118.00 8.0 % 1997 Acquisitions acquired before March 31, 1997 ............. $ 112.57 $ 105.73 6.5 % Total for hotels owned at both March 31, 1998 and 1997........ $ 123.94 $ 114.92 7.8 % 1997 Acquisitions acquired after March 31, 1997 .............. $ 115.27 $ 112.09 2.8 % 1998 Acquisitions ............................................ $ 96.81 $ 93.19 3.9 % RevPAR: Original Hotels .............................................. $ 87.51 $ 83.72 4.5 % CSS Hotels ................................................... $ 99.48 $ 89.22 11.5 % 1996 Acquisitions ............................................ $ 92.66 $ 85.35 8.6 % Hotels owned at December 31, 1996 ............................ $ 94.23 $ 86.66 8.7 % 1997 Acquisitions acquired before March 31, 1997 ............. $ 77.06 $ 77.17 (0.1)% Total for hotels owned at both March 31, 1998 and 1997........ $ 89.95 $ 84.27 6.7 % 1997 Acquisitions acquired after March 31, 1997 .............. $ 81.90 $ 79.37 3.2 % 1998 Acquisitions ............................................ $ 64.41 $ 64.12 0.5 %
22 23 ORIGINAL HOTELS: Flagstaff, AZ; Jacksonville, FL; Orlando (North), FL; Orlando (South), FL; Brunswick, GA; Chicago - Lombard, IL; New Orleans, LA; Boston - Marlborough, MA; Tulsa, OK; Nashville, TN; Corpus Christi, TX; Dallas (Love Field), TX; Dallas (Park Central), TX. CSS HOTELS: Birmingham, AL; Phoenix (Camelback), AZ; Anaheim, CA; El Segundo (LAX South), CA; Milpitas, CA; Napa, CA; Oxnard (Mandalay Beach), CA; San Francisco (Airport North), CA; San Francisco (Airport South), CA; Boca Raton, FL(1); Deerfield Beach, FL; Ft. Lauderdale, FL; Miami, FL; Tampa (Busch Gardens), FL(1); Baton Rouge, LA; Minneapolis (Airport), MN; Minneapolis (Downtown), MN; St. Paul, MN. 1996 ACQUISITIONS: San Rafael (Marin County), CA; Avon (Beaver Creek), CO; Boca Raton, FL; Atlanta (Buckhead), GA; Deerfield, IL; Indianapolis (North), IN; Lexington, KY(2); Charlotte, NC; Parsippany, NJ; Piscataway, NJ; Cleveland, OH; Myrtle Beach (Kingston Plantation), SC. 1997 ACQUISITIONS ACQUIRED BEFORE MARCH 31, 1997: Covina, CA; Dana Point, CA(1); Los Angeles (LAX North), CA; Atlanta (Perimeter Center), GA; Overland Park, KS; Baltimore, MD(1); Troy, MI(1); Bloomington, MN(1); Kansas City (Plaza), MO; Raleigh, NC; Omaha, NE(1); Secaucus, NJ; Austin (Airport North), TX; Austin (Downtown), TX(1); San Antonio (Northwest), TX; REMAINING 1997 ACQUISITIONS ACQUIRED AFTER MARCH 31, 1997: Phoenix (Crescent), AZ(3); Lake Buena Vista (Disney World), FL(1); Tampa (Rocky Point), FL(1); Atlanta (Airport), GA(4); Atlanta (Galleria)(3), GA; Chicago (O'Hare), IL(4); Raleigh/Durham, NC(1); Syracuse, NY; Dayton, OH(1); Philadelphia (Society Hill), PA(3); Nashville (Airport); TN(1), Dallas (Market Center), TX; Dallas (Park Central), TX (3); San Antonio (Airport), TX; Burlington, VT (3). 1998 ACQUISITIONS: Wilmington, DE(5); Columbus, OH(1). (1) Operating as a Doubletree Guest Suites hotel. (2) Operating as a Hilton Suites hotel. (3) Operating as a Sheraton hotel. (4) Operating as a Sheraton Suites hotel. (5) In the process of conversion to a Doubletree hotel. Comparison of The Hotels' Suite/Room Revenues for the Three Months Ended March 31, 1998 and 1997 The Company owned 58 hotels at both March 31, 1998 and 1997, these hotels experienced increased RevPAR of 6.7% for 1998 compared to 1997. Within this group of 58 hotels are the Original Hotels, the CSS Hotels, the 1996 Acquisition Hotels and the 1997 Acquisition Hotels acquired through March 31, 1997. The Original Hotels increased suite/room revenue by 11.1% for the three months ended March 31, 1998 compared to 1997. ADR increased 5.8% to $117.69 and occupancy declined 1.1% from 75.2% to 74.4%. This resulted in an increase in RevPAR of 4.5% in the first quarter of 1998 over the first quarter of 1997. Included in this group are two hotels that added suites/rooms since the first quarter of 1997, Boston-Marlborough Embassy Suites (added 129 suites/rooms in the second quarter of 1997) and Orlando North Embassy Suites (added 67 suites/rooms in the first quarter of 1998). These two hotels experienced 48.6% increase in suite/room revenue over the same period in 1997. The continued growth in revenues at these hotels is attributed to the strength of the markets in which these hotels are located and aggressive rate management. The CSS Hotels are made up of 18 former Crown Sterling Suites(R) Hotels which the Company acquired in late 1995 and early 1996. The CSS Hotels increased suite/room revenue by 11.5% for the three months ended March 31, 1998 compared to 1997. Occupancy increased by 2.3% to 74.8% and ADR increased 8.9% to $132.95. RevPAR increased 11.5% from $89.22 to $99.48 in the first quarter of 1998. The strength of the improvements in the CSS Hotels is partially a result of the $54 million suite/room renovation program that was completed in the first quarter of 1997. 23 24 The 1996 Acquisition Hotels had an 8.6% increase in suite/room revenue for the three months ended March 31, 1998 compared to the corresponding period in 1997. ADR increased 8.8% to $128.56 and occupancy declined 0.1% from 72.2% to 72.1%. RevPAR for the three months ended 1998 increased 8.6% as compared to the corresponding period in 1997, ranging from a decrease at the Beaver Creek, Colorado Embassy Suite hotel of 0.9% to an increase of 42.3% at the Piscataway, New Jersey Embassy Suites hotel. The 1997 Acquisition Hotels experienced suite/room revenue increases of 1.7% during the first quarter of 1998. Occupancy declined 2.7% from 71.8% to 69.9% while ADR increased 4.5% to $114.07. Included in the 1997 Acquisition hotels are ten hotels which were undergoing renovation or had recently been converted to a different brand. Excluding these ten hotels, the 1997 Acquisitions would have recorded an increase in revenue of 5.1%. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to stockholders, is its share of the Operating Partnership's cash flow from the Percentage Leases. For the three months ended March 31, 1998, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $33.2 million and Funds From Operations (as previously defined) was $41.7 million. The Lessee's obligations under the Percentage Leases are unsecured. The Lessee's ability to make lease payments under the Percentage Leases and the Company's liquidity, including its ability to make distributions to stockholders, are substantially dependent on the ability of the Lessee to generate sufficient cash flow from the operation of the Hotels. At March 31, 1998, the Lessee had paid all amounts then due the Company under the Percentage Leases. During the first quarter of 1998, the Lessee had a net income of $775,000. The Lessee's shareholders' deficit of $8.3 million at March 31, 1998 resulted primarily from losses during 1997 and 1996 as a consequence of the one-time costs of converting the CSS Hotels to the Embassy Suites and Doubletree Guest Suites brands and the substantial number of suite/room nights lost during those years due to renovation. It is anticipated that a substantial portion of any future profits of the Lessee will be retained until a positive shareholders' equity is restored. It is anticipated that the Lessee's future earnings will be sufficient to enable it to continue to make its lease payments under the Percentage Leases when due. Messrs. Feldman and Corcoran, certain entities owning preferred interests in the Lessee and the managers of certain of the Hotels have agreed, directly or through their affiliates, to make loans to the Lessee of up to an aggregate of approximately $17.0 million, to the extent necessary to enable the Lessee to pay rent and other obligations due under the respective Percentage Leases relating to a total of 37 of the Hotels. Amounts so borrowed by the Lessee, if any, will be subordinate in right of repayment to the prior payment in full of rent and other obligations due under the Percentage Leases relating to such Hotels. No loans were outstanding under such agreements at March 31, 1998. The Company intends to acquire additional hotels and may incur indebtedness to make such acquisitions, or to meet distribution requirements imposed on a REIT under the Internal Revenue Code, to the extent that working capital and cash flow from the Company's investments are insufficient to make such distributions. At March 31, 1998, the Company had $25.7 million of cash and cash equivalents and had utilized $153 million of the amount available under the Line of Credit. The Company has entered into negotiations with its Lenders to increase its existing $550 million Line of Credit to $1 billion and to provide a $200 million unsecured term loan facility. These changes in the Line of Credit are designed to provide the Company with additional flexibility in financing and will enable the Company to pay off a portion of the secured debt to be acquired by it in the Merger with Bristol. To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into two separate interest rate swap agreements. These interest rate swap agreements modify a portion of 24 25 the interest characteristics of the Company's outstanding debt without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the initial variable rate to be received by the Company at March 31, 1998 are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 3/31/98 MATURITY - --------------- ------------ ---------- --------- ------------- $50 million 6.11125% 7.51125% 5.62500% October 1999 $25 million 5.95500% 7.35500% 5.62500% November 1999
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company pursuant to the terms of its interest rate agreement and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk that the counterparties may be unable to meet the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, which are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. To provide for additional flexibility, the Company registered up to an aggregate of $1.0 billion in common stock, preferred stock, depositary shares, debt securities and/or common stock warrants pursuant to an "omnibus" shelf registration statement filed February 17, 1998. Under the Merger Agreement FelCor has agreed to provide Bristol a $120 million interim credit facility (the "Interim Credit Facility"). Under the Interim Credit Facility, FelCor will loan to Bristol (i) $40 million to fund a portion of the cash purchase price and to prepay certain indebtedness assumed by Bristol in connection with the acquisition of a 20 hotel portfolio, (ii) $31.2 million to fund the prepayment of $30 million in outstanding principal amount of Bristol's Senior Secured Notes and a related prepayment premium, (iii) $9 million for general corporate purposes and (iv) additional cash for necessary capital improvements. The Interim Credit Facility will be secured by real estate acceptable to FelCor. If the Merger Agreement is terminated due to the failure of FelCor's stockholders to approve the Merger, the Interim Credit Facility will be converted into unsecured indebtedness of Bristol with a maturity of December 31, 2003; however, any loan balance in excess of $56.2 million will remain secured and due 120 days after the termination of the Merger Agreement. At May 11, 1998 FelCor had advanced the entire $120 million to provided by it under the Interim Credit Facility. On May 7, 1998 the Company sold 5.75 million depositary shares representing 57,500 shares of 9% Series B Preferred Stock at $25 per depositary share. The net proceeds of approximately $139.2 million were primarily used to reduce borrowings on the Line of Credit. The Company's cash flow used in financing activities of approximately $7.7 million for the three months ended March 31, 1998 resulted from the following: net borrowings under the Company's line of credit of $17.0 million and distributions paid to common shareholders, preferred shareholders and limited partners of $24.7 million. INFLATION Operators of hotels, in general, possess the ability to adjust suite/room rates periodically to reflect the effects of inflation. Competitive pressures may, however, limit the Lessee's ability to raise suite/room rates. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent the cash flow from operations are insufficient during any quarter, due to temporary 25 26 or seasonal fluctuations in lease revenue, the Company expects to utilize other cash on hand or borrowings under the Line of Credit to make distributions to its shareholders. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Portions of this Quarterly Report on Form 10-Q include forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("1933 Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("1934 Act"). Although the Company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's current expectations are disclosed herein and in the Company's other filings under the 1933 Act and 1934 Act (collectively, "Cautionary Disclosures"). The forward looking statements included herein, and all subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf, are expressly qualified in their entirety by the Cautionary Statements. 26 27 PART II. -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. During the first quarter of 1998, the Company issued 2,491 shares of its common stock in redemption of a like number of outstanding units of limited partner interest in the Operating Partnership. Neither the units, nor the common stock issued in redemption thereof, were registered under the 1933 Act in reliance upon certain exemptions from the registration requirements thereof, including the exemption provided by Section 4(2) of that act. On March 4, 1998, the Company issued an aggregate of 4,875 shares of its common stock to certain of its outside directors in the form of restricted stock under its Restricted and Stock Option Stock Plan. Such shares were registered under the 1933 Act pursuant to a registration statement Form S-8 (File No. 333-32579). On May 7, 1998 the Company sold 5.75 million depositary shares, representing 57,500 shares of 9% Series B Preferred Stock, at $25 per depositary share. The Series B Preferred Stock and the corresponding depositary shares, which may be called by the Company at par on or after May 7, 2003, have no stated maturity, sinking fund or mandatory redemption and are not convertible into any other securities of the Company. The Series B Preferred Stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and will be entitled to annual dividends at the rate of 9% of the liquidation preference (equivalent to $2.25 annually per depositary share). The net proceeds of approximately $139.2 million were used to reduce borrowings on the Line of Credit. ITEM 5. OTHER INFORMATION. For information relating to hotel acquisitions and certain other transactions by the Company through March 31, 1998, see Note 1 of Notes to Consolidated Financial Statements of FelCor Suite Hotels, Inc. contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such information is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit Number Description ------ ----------- 10.2.1 - Schedule of executed Lease Agreements identifying material variations from the form of Lease Agreement with respect to hotels acquired by the Company through April 20, 1998. 27 - Financial Data Schedule (b) Reports on Form 8-K: - A current report on Form 8-K was filed by the Company on April 23, 1998. This filing reported under Item 5, the Agreement and Plan of Merger (the "Merger Agreement") with Bristol Hotel Company ("Bristol"). Under the Merger Agreement, Bristol will be merged with and into the Company. The merger was unanimously approved by the boards of both companies subject to final documentation. The merger is currently expected to close near the end of the second quarter of 1998.
27 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 13, 1998 FELCOR SUITE HOTELS, INC. By: /s/ Lester C. Johnson ------------------------------------- Lester C. Johnson Vice President and Controller (Chief Accounting Officer) 28 29 INDEX TO EXHIBITS
Exhibit Number Description ------ ----------- 10.2.1 - Schedule of executed Lease Agreements identifying material variations from the form of Lease Agreement with respect to hotels acquired by the Company through April 20, 1998. 27 - Financial Data Schedule
EX-10.21 2 SCHEDULE OF EXECUTED LEASE AGREEMENTS 1 SCHEDULE OF EXECUTED LEASE AGREEMENTS SHOWING MATERIAL VARIATIONS FROM FORM OF LEASE AGREEMENT (AS OF MARCH 31, 1998) (Dollar Amounts in Thousands)
Annual Percentage Rent --------------- Hotel Location/Franchise/ Suite - ------------------------- Commencement Annual First Second Revenue Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier(5) Tier(6) Breakpoint (4) - ----------- ---------- ---------- -------------- ------------- -------- ------- ------------- Dallas (Park Central), TX - 7/28/94 1,477 17% 65% $3,590 Jacksonville, FL - 7/28/94 882 17% 65% 3,490 Nashville, TN - 7/28/94 1,667 17% 65% 4,290 Orlando (North), FL - 7/28/94 1,571 19% 65% 2,650 Orlando (South), FL - 7/28/94 1,413 17% 65% 4,580 Tulsa, OK - 7/28/94 1,268 19% 65% 2,770 New Orleans, LA - 12/1/94 1,960 19% 65% 4,290 Flagstaff, AZ - 2/15/95 570 17% 65% 1,160 Dallas (Love Field), TX (7) - 3/29/95 1,836 17% 65% 3,060 Boston-Marlborough, MA - 6/30/95 720 19% 65% 940 Corpus Christi, TX (8) 7/19/95 1,000 17% 65% 1,495 Brunswick, GA - 7/19/95 1,000 17% 65% 1,350 Chicago-Lombard, IL (9) 8/1/95 1,900 17% 65% 3,270 Burlingame (SF Airport), CA (10) 11/6/95 3,147 17% 65% 3,174 Minneapolis (Airport) MN (10) 11/6/95 2,778 17% 65% 2,138 Minneapolis (Downtown), MN (10) 11/15/95 1,387 17% 65% 2,091 St. Paul, MN (11) 11/15/95 1,085 17% 65% 3,115 Boca Raton, FL (11) (10) 11/15/95 654 17% 65% 1,421 Tampa (Busch Gardens), FL (11) (10) 11/15/95 786 17% 65% 1,287 Cleveland, OH (10) 11/17/95 1,258 17% 65% 4,929 Anaheim, CA (10) 1/3/96 1,272 17% 65% 2,062 Baton Rouge, LA (10) 1/3/96 1,204 17% 65% 2,281 Birmingham, AL (10) 1/3/96 1,898 17% 65% 1,273 - -------------------------------------------------------------------------------------------------------------------------------
2
Annual Percentage Rent --------------- Hotel Location/Franchise/ Suite - ------------------------- Commencement Annual First Second Revenue Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier(5) Tier(6) Breakpoint (4) - ----------- ---------- ---------- -------------- ------------- -------- ------- ------------- Deerfield Beach, FL (10) 1/3/96 2,163 17% 65% 2,568 Ft. Lauderdale, FL (10) 1/3/96 3,228 17% 65% 1,969 Miami (Airport), FL (10) 1/3/96 2,222 17% 65% 2,882 Milpitas, CA (10) 1/3/96 2,143 17% 65% 1,402 Phoenix (Camelback), AZ (10) 1/3/96 2,812 17% 65% 1,428 South San Francisco (SF Airport), (10) 1/3/96 1,876 17% 65% 3,103 CA Piscataway, NJ - 1/10/96 1,355 17% 65% 3,574 Lexington, KY (12) - 1/10/96 1,149 17% 65% 2,135 Beaver Creek, CO - 2/20/96 375 17% 65% 2,284 Boca Raton, FL - 2/28/96 1,368 17% 65% 3,670 Los Angeles (LAX), CA (14) 3/27/96 1,600 17% 65% 4,130 Mandalay Beach, CA (10) 5/8/96 1,927 17% 65% 2,909 Napa, CA (10) 5/8/96 1,215 17% 65% 3,145 Deerfield, IL (14) - (16) 6/20/96 1,743 17% 65% 2,505 San Rafael, CA (18) (16) 7/18/96 2,107 17% 65% 2,917 Parsippany, NJ (19) (16) 7/31/96 2,440 17% 65% 3,930 Charlotte, NC (20) (16) 9/12/96 2,200 17% 65% 3,353 Indianapolis, IN (21) (16) 9/12/96 1,470 17% 65% 2,794 Atlanta (Buckhead), GA - (16) 10/17/96 3,667 17% 65% 3,872 Myrtle Beach, SC - (16) 12/5/96 1,963 17% 65% 6,236 San Antonio, TX (22) (17) 2/1/97 1,400 17% 65% 2,474 Raleigh, NC (23) (17) 2/1/97 2,100 17% 65% 2,711 Overland Park, KS (24) (17) 2/1/97 1,600 17% 65% 2,114 Secaucus, NJ (25) (17) 2/1/97 2,400 17% 65% 4,788 Kansas City, MO (26) (17) 2/1/97 2,100 17% 65% 2,976 Covina, CA (27) (17) 2/1/97 900 17% 65% 3,066 Austin, TX (28) (17) 2/1/97 2,200 17% 65% 2,378 Atlanta (Perimeter Center), GA (29) (17) 2/1/97 2,300 17% 65% 2,949
-2- 3
Annual Percentage Rent --------------- Hotel Location/Franchise/ Suite - ------------------------- Commencement Annual First Second Revenue Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier(5) Tier(6) Breakpoint (4) - ----------- ---------- ---------- -------------- ------------- -------- ------- ------------- Bloomington, MN (12) (17) 2/1/97 1,800 17% 65% 2,468 Omaha, NE (12) (17) 2/1/97 1,400 17% 65% 1,703 Los Angeles (LAX North), CA (17) 2/18/97 1,669 17% 65% 3,176 Dana Point, CA (12) (30) 2/20/97 992 17% 65% 2,211 (1997) 1,983 (1988) Anne Arundel County (31) (30) 3/20/97 (33) 1,900 17% 65% 2,536 (BWI), MD (12) Troy, MI (12) (32) (30) 3/20/97 (33) 2,100 17% 65% 1,936 Austin, TX (12) (32) (30) 3/20/97 (33) 1,900 17% 65% 1,961 San Antonio, TX (34) (17) 5/16/97 1,773 17% 65% 3,640 Nashville, TN (35) 6/05/97 900 17% 65% 1,585 Dallas (Market Center), TX (17) 6/30/97 2,300 17% 65% 2,896 Syracuse, NY (17) 6/30/97 1,400 17% 65% 3,245 Atlanta (Galleria), GA (33) (37) (36) 6/30/97 2,155 17% 65% 3,777 College Park (Atlanta Airport), (36) 6/30/97 2,426 17% 65% 5,033 GA (33) (40) Dallas (Park Central), TX (32) (36) 6/30/97 5,091 17% 65% 6,490 (40) Rosemont (O'Hare Airport), IL (36) 6/30/97 3,522 17% 65% 2,760 (33) (37) Phoenix (Crescent), AZ (32) (40) (36) 6/30/97 2,908 17% 65% 6,218 Durham, NC (11) (35) 7/28/97 1,700 17% 65% 1,900 Lake Buena Vista, FL (11) (35) 7/28/97 2,900 17% 65% 2,272 Tampa (Rocky Point), FL (11) (35) 7/28/97 1,700 17% 65% 1,939 Philadelphia Society Hill, PA (33) (38) (36) 9/30/97 3,834 17% 65% 5,220 Burlington, VT (40) (2) (39) 12/4/97 2,252 17% 65% 3,181 Dayton, OH (12) (2) (35) 12/30/97 797 17% 65% 1,331 Columbus, OH (12) (2) (35) 2/6/98 1,534 17% 65% 1,900 Wilmington, OH (32) (30) 3/20/98 901 17% 65% 2,284 (1998) 2,195 (1999) -2001) 2,506 (2002) Denver, CO (32) (30) 4/14/98 1,759 17% 65% 2,712
-3- 4 - -------------------- (1) Unless otherwise noted, the hotels under each Lease Agreement are operated as Embassy Suites(R) Hotels under a commitment or license agreement with Promus Hotels, Inc., and the Manager as defined in each Lease Agreement is Promus Hotels, Inc. or an affiliate thereof. (2) Unless otherwise noted, Lessor as defined in each Lease Agreement is FelCor Suites Limited Partnership ("Partnership"). (3) Unless otherwise noted, Lessee as defined in each Lease Agreement is DJONT Operations, L.L.C., a Delaware limited liability company. (4) The amount shown represents the amount set forth in each Lease Agreement as the annual Base Rent and the threshold suite revenue amount. Both of these amounts are subject to adjustment for changes in the consumer price index and may not represent the actual amount currently required under each Lease Agreement. (5) Represents percentage of suite revenue payable as Percentage Rent up to suite revenue breakpoint. (6) Represents percentage of suite revenue payable as Percentage Rent in excess of suite revenue breakpoint. (7) The Manager as defined in this Lease Agreement is American General Hospitality, Inc. (8) The Lessee is FCOAM Inc. (9) The Lessor as defined in this Lease Agreement is Embassy/GACL Lombard Venture, a joint venture between the Partnership and Promus Hotels, Inc. (10) The Lessor as defined in these Lease Agreements is FelCor/CSS Holdings, L.P., of which the Partnership is a 99% limited partner. (11) The Lessor as defined in this Lease Agreement is FelCor/St. Paul Holdings, L.P., of which the Partnership is a 99% limited partner and another subsidiary of the Company is a 1% general partner. (12) The hotels under these Lease Agreements are operated as Doubletree Guest Suites(R) Hotels; the Manager as defined in these Lease Agreements is DT Management, Inc. (13) The hotel under this Lease Agreement is operated as a Hilton Suites(R) Hotel under a franchise or license agreement with Hilton Inns, Inc., and the Manager as defined in this Lease Agreement is American General Hospitality, Inc. (14) The Lessor as defined in this Lease Agreement is Los Angeles International Airport Hotel Associates, a limited partnership of which the Partnership is the sole general partner and of which the Partnership has an approximate 97 % partnership interest. (15) The Manager as defined in this Lease Agreement is Coastal Hotel Group, Inc. (16) The Lessee as defined in the Lease Agreement for these hotels is DJONT Leasing, L.L.C., a Delaware limited liability company, pursuant to an assignment of the applicable Lease Agreement from DJONT Operations, L.L.C. (17) The Lessee as defined in the Lease Agreement for these hotels is DJONT Leasing, L.L.C., a Delaware limited liability company. (18) The Lessor as defined in this Lease Agreement is MHV Joint Venture, a joint venture between the Partnership and Promus Hotels, Inc. (19) The Lessor as defined in this Lease Agreement is Embassy/Shaw Parsippany Venture, a joint venture between the Partnership and Promus Hotels, Inc. (20) The Lessor as defined in this Lease Agreement is E.S. Charlotte, a Minnesota limited partnership, of which the Partnership owns a 49% limited partner interest and FelCor/CSS Hotels, L.L.C., a Delaware limited liability company, owns a 1% general partner interest. -4- 5 (21) The Lessor as defined in this Lease Agreement is E.S. North, a Indiana Limited Partnership, an Indiana limited partnership, of which the Partnership owns a 49% limited partner interest and FelCor/CSS Hotels, L.L.C., a Delaware limited liability company, owns a 1% general partner interest. (22) The Lessor as defined in this Lease Agreement is EPT San Antonio Limited Partnership, of which the Partnership owns 49% and FelCor Eight Hotels, L.L.C. ("FelCor Eight") owns 1%. (23) The Lessor as defined in this Lease Agreement is EPT Raleigh Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (24) The Lessor as defined in this Lease Agreement is EPT Overland Park Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (25) The Lessor as defined in this Lease Agreement is EPT Meadowlands Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (26) The Lessor as defined in this Lease Agreement is EPT Kansas City Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (27) The Lessor as defined in this Lease Agreement is EPT Covina Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (28) The Lessor as defined in this Lease Agreement is EPT Austin Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (29) The Lessor as defined in this Lease Agreement is EPT Atlanta-Perimeter Center Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns 1%. (30) The Lessee as defined in the Lease Agreement for this hotel is FCH/DT Leasing, L.L.C., a Delaware limited liability company. (31) The Lessor as defined in the Lease Agreement is FCH/DT BWI Holdings, L.P., a Delaware limited partnership. (32) The Lessor as defined in these Lease Agreements is FCH/DT Holdings, L.P., a Delaware limited partnership. (33) The Lease is for a term of 15 years and contains an automatic renewal provision, pursuant to which the Lease shall be extended for an additional five-year term if the corresponding Management Agreement is extended pursuant to the terms thereof for an additional five-year period. (34) The Lessor is Promus/FelCor San Antonio Venture, a Texas general partnership. (35) The Lessee is FCH/DT Leasing II, L.L.C., a Delaware limited liability company. (36) The Lessee is FCH/SH Leasing, L.L.C., a Delaware limited liability company. (37) The hotel under this Lease Agreement is operated as a Sheraton Suites Hotel. (38) The Lessor is FCH/Society Hill, L.P., a Pennsylvania limited partnership. (39) The Lessee is FCH/SH Leasing II, L.L.C., A Delaware limited liability company. (40) The hotel under this Lease Agreement is operated as a Sheraton(R) Hotel. -5-
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 25,733 0 33,815 0 0 59,538 1,411,445 (103,194) 1,708,836 48,906 494,700 0 151,250 378 967,754 1,708,836 0 57,528 0 0 0 0 9,731 20,944 0 20,944 0 556 0 20,944 0.49 0.49
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