-----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, NllDv2op1OL9htK62DI0O/xyIK0pIYnUAnoa51mOUzZNYkycE7MikIcyx/MUHkXH Yp8u6TBktGN30bBnuUedNg== 0000950134-98-007018.txt : 19980817 0000950134-98-007018.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950134-98-007018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR LODGING TRUST 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: 98690862 BUSINESS ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 9724444900 MAIL ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 FORMER COMPANY: FORMER CONFORMED NAME: FELCOR SUITE HOTELS INC DATE OF NAME CHANGE: 19940523 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 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 JUNE 30, 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 LODGING TRUST INCORPORATED (formerly 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 Lodging Trust Incorporated outstanding on August 10, 1998 was 67,599,206. - ------------------------------------------------------------------------------- 2 FELCOR LODGING TRUST INCORPORATED INDEX
PAGE PART I. -- FINANCIAL INFORMATION ---- Item 1. Financial Statements.............................................................................. 3 FELCOR LODGING TRUST INCORPORATED Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997..................................................................... 3 Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited).................................................. 4 Consolidated Statements of Cash Flows -- For the Six Months Ended June 30, 1998 and 1997 (Unaudited).................................................. 5 Notes to Consolidated Financial Statements..................................................... 6 DJONT OPERATIONS, L.L.C. Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997..................................................................... 13 Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited).................................................. 14 Consolidated Statements of Cash Flows -- For the Six Months Ended June 30, 1998 and 1997 (Unaudited).................................................. 15 Notes to Consolidated Financial Statements..................................................... 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 17 General/Second Quarter Highlights.............................................................. 17 Results of Operations.......................................................................... 18 Liquidity and Capital Resources................................................................ 24 PART II. -- OTHER INFORMATION Item 2. Changes in Securities............................................................................. 27 Item 4. Submission of Matters to a vote of Security Holders............................................... 27 Item 5. Other Information................................................................................. 27 Item 6. Exhibits and Reports on Form 8-K.................................................................. 27 SIGNATURE....................................................................................................... 29
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $120,554 and $87,400 at June 30, 1998 and December 31, 1997, respectively .............. $ 1,847,039 $ 1,489,764 Investment in unconsolidated entities ............................................ 119,866 132,991 Cash and cash equivalents ........................................................ 11,060 17,543 Due from Lessee .................................................................. 32,701 18,908 Deferred expenses, net of accumulated amortization of $2,888 and $1,987 at June 30, 1998 and December 31, 1997, respectively ................ 13,007 10,593 Bristol Interim Credit Facility .................................................. 120,000 Other assets ..................................................................... 11,913 3,565 ------------ ------------ Total assets .......................................................... $ 2,155,586 $ 1,673,364 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Debt, net of discount of $1,741 and $1,855 at June 30, 1998 and December 31, 1997, respectively ........................................... $ 784,172 $ 465,726 Distributions payable ............................................................ 26,664 24,671 Accrued expenses and other liabilities ........................................... 24,016 11,331 Capital lease obligations ........................................................ 10,048 11,093 Minority interest in Operating Partnership, 3,030 and 2,900 units issued and outstanding at June 30, 1998 and December 31, 1997, respectively .......... 76,435 73,451 Minority interest in other partnerships .......................................... 16,064 8,594 ------------ ------------ Total liabilities ..................................................... 937,399 594,866 ------------ ------------ Commitments and contingencies (Note 3 and 4) Shareholders' equity: Preferred stock, $.01 par value, 10,000 shares authorized: Series A Cumulative Preferred Stock, 6,050 shares issued and outstanding .... 151,250 151,250 Series B Redeemable Preferred Stock, 58 shares issued and outstanding ....... 143,750 Common stock, $.01 par value, 100,000 shares authorized, 37,798 and 37,802 shares issued, including shares in treasury, at June 30, 1998 and December 31, 1997, respectively ........................................... 378 378 Additional paid in capital ....................................................... 1,001,076 1,003,501 Unearned officers' and directors' compensation ................................... (1,150) (1,754) Distributions in excess of earnings .............................................. (36,011) (33,771) ------------ ------------ 1,259,293 1,119,604 Less common stock in treasury at cost, 1,213 shares .............................. (41,106) (41,106) ------------ ------------ Total shareholders' equity ............................................ 1,218,187 1,078,498 ------------ ------------ Total liabilities and shareholders' equity ............................ $ 2,155,586 $ 1,673,364 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenues: Percentage lease revenue ............................. $ 62,793 $ 38,677 $ 118,853 $ 74,048 Equity in income from unconsolidated entities ........ 2,689 2,300 3,982 3,427 Other revenue ........................................ 1,920 76 2,095 170 ---------- ---------- ---------- ---------- Total revenue ............................... 67,402 41,053 124,930 77,645 ---------- ---------- ---------- ---------- Expenses: General and administrative ........................... 1,375 874 2,574 1,846 Depreciation ......................................... 17,429 11,314 33,316 21,730 Taxes, insurance and other ........................... 7,568 5,549 14,838 10,756 Interest expense ..................................... 13,795 7,313 23,526 12,914 Minority interest in Operating Partnership ........... 2,063 1,524 3,813 2,942 Minority interest in other partnerships .............. 291 121 482 142 ---------- ---------- ---------- ---------- Total expenses .............................. 42,521 26,695 78,549 50,330 ---------- ---------- ---------- ---------- Net income before extraordinary charge ................. 24,881 14,358 46,381 27,315 Extraordinary charge from write off of deferred financing fees .................................... 556 ---------- ---------- ---------- ---------- Net income ............................................. 24,881 14,358 45,825 27,315 Preferred dividends .................................... 4,854 2,949 7,803 5,899 ---------- ---------- ---------- ---------- Net income applicable to common shareholders ........... $ 20,027 $ 11,409 $ 38,022 $ 21,416 ========== ========== ========== ========== Per common share data: Basic: Net income applicable to common shareholders before extraordinary charge ............................... $ 0.55 $ 0.43 $ 1.06 $ 0.82 Extraordinary charge ................................. (0.02) ---------- ---------- ---------- ---------- Net income applicable to common shareholders ......... $ 0.55 $ 0.43 $ 1.04 $ 0.82 ========== ========== ========== ========== Weighted average common shares outstanding ........... 36,537 26,605 36,541 25,993 ========== ========== ========== ========== Diluted: Net income applicable to common shareholders before extraordinary charge ............................... $ 0.54 $ 0.42 $ 1.05 $ 0.81 Extraordinary charge ................................. (0.02) ---------- ---------- ---------- ---------- Net income applicable to common shareholders ......... $ 0.54 $ 0.42 $ 1.03 $ 0.81 ========== ========== ========== ========== Weighted average common shares and equivalents outstanding ........................................ 36,851 27,024 36,878 26,397 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Net income ................................................................... $ 45,825 $ 27,315 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation ....................................................... 33,316 21,730 Amortization of deferred financing fees and organization costs ..... 1,256 672 Amortization of unearned officers' and directors' compensation ..... 396 510 Equity in income from unconsolidated entities ...................... (3,982) (3,427) Extraordinary charge for write off of deferred financing fees ...... 556 Minority interest in Operating Partnership ......................... 3,813 2,942 Minority interest in other partnerships ............................ 482 142 Changes in assets and liabilities: Due from Lessee .................................................... (13,793) (3,533) Deferred financing fees ............................................ (3,558) Deferred costs and other assets .................................... (8,436) (4,225) Accrued expenses and other liabilities ............................. 11,599 168 ----------- ----------- Net cash flow provided by operating activities ........... 67,474 42,294 ----------- ----------- Cash flows from investing activities: Acquisition of hotels ........................................................ (353,615) (409,587) Acquisition of unconsolidated entities ....................................... (418) (59,571) Improvements and additions to hotels ......................................... (22,244) (25,374) Bristol Interim Credit Facility .............................................. (120,000) Cash distributions from unconsolidated entities .............................. 15,809 1,402 ----------- ----------- Net cash flow used in investing activities ............... (480,468) (493,130) ----------- ----------- Cash flows from financing activities: Proceeds from borrowings ..................................................... 461,000 149,000 Repayment of borrowings ...................................................... (144,145) (72,900) Proceeds from sale of preferred stock ........................................ 143,750 Proceeds from sale of common stock ........................................... 480,075 Costs associated with public offerings ....................................... (4,686) (25,480) Proceeds from exercise of stock options ...................................... 563 Purchase of treasury stock ................................................... (41,106) Distributions paid to limited partners ....................................... (3,336) (2,835) Distributions paid to preferred shareholders ................................. (7,803) (5,899) Distributions paid to common shareholders .................................... (38,269) (24,981) ----------- ----------- Net cash flow provided by financing activities ........... 406,511 456,437 ----------- ----------- Net change in cash and cash equivalents ................................................ (6,483) 5,601 Cash and cash equivalents at beginning of periods ...................................... 17,543 7,793 ----------- ----------- Cash and cash equivalents at end of periods ............................................ $ 11,060 $ 13,394 =========== =========== Supplemental cash flow information -- Interest paid ................................................................ $ 22,226 $ 9,760 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS FelCor Lodging Trust Incorporated, formerly FelCor Suite Hotels, Inc. ("FelCor"), is a real estate investment trust ("REIT") which, at June 30, 1998, owned interests in 86 hotels with an aggregate of 21,164 suites/rooms (collectively the "Hotels") through its 92.4% general partner interest in FelCor Lodging Limited Partnership, formerly 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 65 of the Hotels (15,957 suites/rooms), a 90% or greater interest in entities owning seven hotels (1,745 suites/rooms), and 50% interests in separate entities that own 14 hotels (3,462 suites/rooms). At June 30, 1998, 58 of the Hotels were operated as Embassy Suites(R)hotels, 14 as Doubletree Guest Suites(R) hotels, two as full-service Doubletree(R) hotels, five as Sheraton(R) hotels, four as Sheraton Suites(R) hotels, one as a Hilton(R) hotel, ONE as a Hilton Suites(R) hotel and one was in the process of being converted to a full-service Doubletree hotel. The Hotels are located in 28 states, with 35 hotels in California, Florida and Texas. The following table provides certain information regarding the acquisition of Hotels through June 30, 1998:
NUMBER OF HOTELS NUMBER OF ACQUIRED SUITES/ROOMS -------- ------------ 1994 7 2,041 1995 13 2,649 1996 23 5,769 1997 30 7,608 1ST QUARTER 1998 2 348 2ND QUARTER 1998 11 2,749 -- ------ 86 21,164 == ======
At June 30, 1998, the Company leased 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., who at June 30, 1998 were Chairman of the Board of Directors and Chief Executive Officer of FelCor, 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 FelCor and major initial investor in the Company. The Lessee has entered into management agreements pursuant to which 73 of the Hotels are managed by Promus Hotel Corporation ("Promus"), or by a subsidiary thereof, nine are managed directly by, or by a subsidiary of, ITT Sheraton Corporation ("Sheraton") and four are managed by three independent management companies. Promus is the largest operator of all-suite, full service hotels in the United States. 6 7 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SECOND QUARTER HIGHLIGHTS -- (CONTINUED) o A brief discussion of the second quarter 1998 highlights follows: The Company acquired 11 hotels during the second quarter of 1998. Eight upscale, full-service all-suite hotels were acquired from Starwood Hotels & Resorts (NYSE:HOT) for an aggregate cash price of $245 million. The eight hotels acquired from Starwood have a total of 1,898 suites and are located in geographically diverse U.S. markets. The Company acquired 100% ownership interests in one hotel located in Secaucus, New Jersey for approximately $23.4 million. In addition, the Company acquired, through a 90% owned partnership, interests in two other hotels located in Denver, Colorado and Dallas, Texas for approximately $50.9 million in cash. o In May 1998, FelCor raised approximately $140 million from the sale of depositary shares representing its 9% Series B Cumulative Redeemable Preferred Stock net of $3.8 million of offering expenses. o FelCor declared second quarter dividends of $0.55 per share on its Common Stock, $0.4875 per share on its $1.95 Series A Cumulative Convertible Preferred Stock and $0.525 per depositary share on its 9% Series B Cumulative Redeemable Preferred Stock. o Following the end of the second quarter 1998 the Company increased its unsecured credit facilities to $1.1 billion from $550 million. The new unsecured credit facility consists of an $850 million revolving line of credit which matures in three years and a $250 million term loan that matures in 18 months. (See Note 4) o On July 28, 1998, FelCor completed the merger with Bristol Hotel Company (NYSE:BH) ("Bristol") following approval by FelCor's Shareholders on July 27, 1998. In conjunction with this closing FelCor issued 31.0 million shares of Common Stock and assumed approximately $700 million in debt. (See Note 9) 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 FelCor'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 and six months ended June 30, 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 LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SUPPLEMENTAL CASH FLOW INFORMATION During the first six months 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 (in thousands):
Assets acquired................................................. $367,058 Debt assumed.................................................... (1,479) Operating Partnership units issued.............................. (4,976) Minority interest contribution in other partnerships............ (6,988) -------- Net cash paid by the Company............................... $353,615 ========
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS At June 30, 1998, the Company owned interests in 58 Embassy Suites hotels, 14 Doubletree Guest Suites hotels, two full-service Doubletree hotels, five Sheraton hotels, four Sheraton Suites hotels, one Hilton Suites hotel, one Hilton hotel and one hotel in the process of conversion to a full-service Doubletree hotel. The Embassy Suites hotels, Hilton Suites hotel and Hilton 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, Doubletree hotels, Sheraton hotels or Sheraton Suites hotels, which rights are included in management agreements with the Lessee. 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 (13 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 entities 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 June 30, 1998 is as follows (in thousands):
Remainder of 1998............................................... $ 66,989 1999............................................................ 134,364 2000............................................................ 134,451 2001............................................................ 137,596 2002............................................................ 137,596 2003 and thereafter............................................. 641,199 ---------- $1,252,195 ==========
8 9 FELCOR LODGING TRUST INCORPORATED 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 $17.3 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 38 of the Hotels. No loans were outstanding under such agreements at June 30, 1998. 4. DEBT Debt obligations at June 30, 1998 and December 31, 1997 consist of the following (in thousands):
JUNE 30, DECEMBER 31, 1998 1997 -------- -------- Senior unsecured notes, net of discount......................................... $298,259 $298,145 Line of Credit.................................................................. 453,000 136,000 Renovation loan ................................................................ 25,000 25,000 Collateralized mortgage note.................................................... 7,263 5,931 Other debt payable.............................................................. 650 650 -------- -------- $784,172 $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 June 30, 1998. On July 1, 1998, the Company increased its unsecured credit facilities to $1.1 billion, consisting of an $850 million revolving line of credit ("Line of Credit") which matures in three years and a $250 million non- amortizing term loan ("term loan") which matures in 18 months. Interest payable on borrowings under the credit facilities is variable, determined from a ratings and leverage-based pricing matrix, ranging from 87.5 basis points to 175 basis points above LIBOR. The initial interest spread will be 150 basis points. Additionally, the Company is required to pay an unused commitment fee which is variable, determined from a ratings based pricing matrix, ranging from 20 to 30 basis points. In the third quarter of 1998, the Company intends to write off approximately $2.5 million of deferred expenses relating to the $550 million Line of Credit. Through June 30, 1998, the Company has incurred additional expenses of approximately $3.6 million in deferred loan costs associated with the $1.1 billion unsecured credit facility. On July 1, 1998, the Company entered into six separate interest rate swap agreements with four financial institutions to manage the relative mix of its debt between fixed and variable rate instruments. These interest rate swap agreements modify a portion of 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 $250 million of interest rate swaps are comprised of $125 million of 5-year contracts maturing on July 1, 2003, with fixed rates ranging from 5.80% to 5.83% and $125 million of 5-year contracts maturing on July 1, 2003, providing for optional termination by the counterparties on July 1, 2001, with fixed rates ranging from 5.55% to 5.56%. 9 10 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENT IN UNCONSOLIDATED ENTITIES At June 30, 1998, the Company owned 50% interests in separate entities owning 14 hotels, a parcel of undeveloped land and a condominium management company. The Company also owned a 97% non-voting interest in an entity developing condominiums for sale. The Company is accounting for its investments in these unconsolidated entities under the equity method. Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
JUNE 30, DECEMBER 31, 1998 1997 -------- -------- Balance sheet information: Investment in hotels, net of accumulated depreciation......................... $250,215 $256,032 Non-recourse mortgage debt.................................................... $167,317 $138,956 Equity........................................................................ $ 94,154 $126,324
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Statements of operations information: Percentage lease revenue ......................... $ 14,222 $ 14,224 $ 26,569 $ 23,729 Other income ..................................... 954 1,114 -------- -------- -------- -------- Total revenue .............................. 15,176 14,224 27,683 23,729 -------- -------- -------- -------- Expenses: Depreciation ................................ 4,278 4,108 8,543 7,214 Taxes, insurance and other .................. 1,594 1,748 3,160 3,178 Interest expense ............................ 3,095 2,907 6,354 5,001 -------- -------- -------- -------- Total expenses ............................. 8,967 8,763 18,057 15,393 -------- -------- -------- -------- Net income ....................................... $ 6,209 $ 5,461 $ 9,626 $ 8,336 ======== ======== ======== ======== 50% of net income attributable to the Company .... $ 3,105 $ 2,731 $ 4,813 $ 4,168 Amortization of cost in excess of book value ..... (416) (431) (831) (741) -------- -------- -------- -------- Equity in income from unconsolidated entities .... $ 2,689 $ 2,300 $ 3,982 $ 3,427 ======== ======== ======== ========
6. SERIES B PREFERRED STOCK On May 7, 1998, FelCor issued 5,750,000 Depositary Shares (including 750,000 shares pursuant to the exercise of an over-allotment option), each representing an 1/100 interest in a share of 9% Series B Cumulative Redeemable Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), of FelCor. Each share of Series B Preferred Stock is entitled to a liquidation preference of $2,500 per share (equivalent to $25 per Depositary Share plus accrued dividends). The Series B Preferred Stock is not redeemable prior to May 7, 2003. The Series B Preferred Stock may be redeemed at the option of FelCor in whole or in part, at a redemption price of $2,500 per share plus accrued dividends. 10 11 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. TAXES, INSURANCE AND OTHER Taxes, insurance and other is comprised of the following for the three and six months ended June 30, 1998 and 1997 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- --------------------- 1998 1997 1998 1997 ------ ------ ------- ------- Real estate and personal property taxes....................... $6,456 $4,423 $13,023 $ 8,833 Property insurance............................................ 293 455 545 863 Land lease expense............................................ 579 411 805 660 State franchise taxes......................................... 240 160 465 300 Other......................................................... 100 100 ------ ------ ------- ------- Total taxes, insurance and other......................... $7,568 $5,549 $14,838 $10,756 ====== ====== ======= =======
8. BRISTOL INTERIM CREDIT FACILITY Under the Bristol Merger Agreement, FelCor provided Bristol a $120 million interim credit facility (the "Interim Credit Facility"). Under the Interim Credit Facility, FelCor loaned to Bristol (i) $45 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) $32.8 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) $33.2 million for necessary capital improvements. The Interim Credit Facility was secured by real estate. At June 30, 1998, FelCor had advanced the entire $120 million to Bristol under the Interim Credit Facility. At July 28, 1998, the Interim Credit Facility was assumed and canceled by FelCor upon completion of the merger with Bristol. 9. SUBSEQUENT EVENTS On July 27, 1998, the Company announced the approval by its Shareholders of the merger with Bristol at its 1998 Annual Shareholders Meeting. Approximately 75% of the Company's outstanding Common Stock voted in favor of, and less than 1% voted against, the proposed merger. On July 28, 1998, the Company completed the merger of Bristol's real estate holdings with and into the Company. The merger resulted in the acquisition of 109 primarily full-service Bristol hotels in return for approximately 31.0 million shares of newly issued Common Stock. Based on the July 27, 1998 closing prices of FelCor Common Stock, the transaction was valued at approximately $1.7 billion, including the assumption of approximately $700 million in debt. The Bristol hotels add more than 28,000 rooms to the FelCor portfolio at approximately $59,000 per room. The merger established significant brand/owner manager relationships for the Company with Bass plc and its subsidiary Bass Hotels & Resorts, which acquired approximately 14% of the Company's currently outstanding Common Stock in the merger. Bristol Hotels & Resorts, the new hotel operating company spun off from Bristol prior to Bristol's merger into FelCor, will continue to lease and operate the hotels acquired by FelCor in the merger. With the completion of the Bristol merger and related transactions, the Company's consolidated debt-to-total investment in hotel assets, at cost, is approximately 37%, fixed interest rate debt comprised 61% of total indebtedness, and only 7% of total assets were encumbered with secured debt. In addition to its current standing as the owner of the largest number of Embassy Suites hotels, as a result of the merger the Company is the owner of the largest number of Crowne Plaza(R) and Holiday Inn(R) hotels. 11 12 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. PRO FORMA INFORMATION (UNAUDITED) The following unaudited Pro Forma Consolidated Statements of Operations for the six months ended June 30, 1998 and 1997 are presented as if the acquisitions of all hotels owned by the Company at June 30, 1998, the equity offerings consummated during 1997 and 1998 and the merger with Bristol had occurred as of the beginning of the periods presented and the Hotels had been leased pursuant to Percentage Leases. The following unaudited Pro Forma Consolidated Statements of Operations for the periods presented are not necessarily indicative of what actual results of operations of the Company would have been assuming such transactions had been completed at the beginning of the periods presented nor does it purport to represent the results of operations for future periods. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Percentage lease revenue ................................. $ 244,227 $ 226,564 Equity in income from unconsolidated entities ............ 5,367 4,462 Other income ............................................. 103 ---------- ---------- Total revenue ......................................... 249,697 231,026 ---------- ---------- Expenses: General and administrative ............................... 3,073 2,346 Depreciation ............................................. 65,513 62,313 Taxes, insurance and other ............................... 38,814 37,278 Interest expense ......................................... 52,625 51,202 Minority interest in Operating Partnership ............... 3,836 3,324 Minority interest in other partnerships .................. 677 628 ---------- ---------- Total expenses ........................................ 164,538 157,091 ---------- ---------- Net income ................................................. 85,159 75,935 Preferred dividends ........................................ 12,368 12,368 ---------- ---------- Net income applicable to common shareholders ............... $ 72,791 $ 61,567 ========== ========== Per common share data: Basic: Net income applicable to common shareholders ............. $ 1.08 $ .93 ========== ========== Weighted average number of common shares outstanding ..... 67,527 66,460 ========== ========== Diluted: Net income applicable to common shareholders ............. $ 1.06 $ .91 ========== ========== Weighted average common shares outstanding ............... 68,453 67,466 ========== ==========
12 13 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1998 1997 ---------- ---------- (UNAUDITED) ASSETS Cash and cash equivalents ................................................... $ 41,624 $ 25,684 Accounts receivable, net .................................................... 29,807 20,274 Inventories ................................................................. 3,920 3,466 Prepaid expenses ............................................................ 746 1,307 Other assets ................................................................ 2,758 3,971 ---------- ---------- Total assets ...................................................... $ 78,855 $ 54,702 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, trade ..................................................... $ 5,958 $ 9,426 Accounts payable, other ..................................................... 11,221 4,625 Due to FelCor Lodging Trust Incorporated .................................... 32,701 18,908 Accrued expenses and other liabilities ...................................... 35,123 30,818 ---------- ---------- Total liabilities ................................................. 85,003 63,777 ---------- ---------- Commitments and contingencies (Note 2) Shareholders' equity: Capital ..................................................................... 1 1 Distributions in excess of earnings ......................................... (6,149) (9,076) ---------- ---------- Total shareholders' deficit ....................................... (6,148) (9,075) ---------- ---------- Total liabilities and shareholders' equity ........................ $ 78,855 $ 54,702 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenue: Suite/room revenue .................... $ 160,993 $ 108,932 $ 304,278 $ 202,085 Food and beverage revenue ............. 19,847 6,160 35,111 10,189 Food and beverage rent ................ 1,297 1,058 2,470 2,023 Other revenue ......................... 13,023 9,652 24,391 16,720 ---------- ---------- ---------- ---------- Total revenues ................... 195,160 125,802 366,250 231,017 ---------- ---------- ---------- ---------- Expenses: Property operating costs and expenses . 43,148 31,183 81,753 56,366 General and administrative ............ 14,223 9,151 26,481 16,317 Advertising and promotion ............. 12,676 8,677 24,462 15,523 Repair and maintenance ................ 8,943 6,167 16,930 11,071 Utilities ............................. 7,058 4,562 13,155 8,691 Management fee ........................ 6,184 3,217 11,779 5,663 Franchise fee ......................... 4,780 3,344 8,921 6,184 Food and beverage expenses ............ 16,823 4,824 30,335 8,689 Percentage lease expenses ............. 77,021 52,459 145,459 97,074 Lessee overhead expenses .............. 482 526 842 1,044 Liability insurance ................... 300 781 569 1,500 Other ................................. 1,370 1,012 2,637 1,882 ---------- ---------- ---------- ---------- Total expenses ................... 193,008 125,903 363,323 230,004 ---------- ---------- ---------- ---------- Net income (loss) .......................... $ 2,152 $ (101) $ 2,927 $ 1,013 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 --------- --------- Cash flows from operating activities: Net income .................................................... $ 2,927 $ 1,013 Adjustments to reconcile net income to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable ...................................... (9,533) (9,411) Inventories .............................................. (454) (622) Prepaid expenses ......................................... 561 4 Other assets ............................................. 1,213 (1,626) Due to FelCor Lodging Trust Incorporated ................. 13,793 3,533 Accounts payable, accrued expenses and other liabilities . 7,433 21,606 --------- --------- Net cash flow provided by operating activities ...... 15,940 14,497 --------- --------- Net change in cash and cash equivalents ............................ 15,940 14,497 Cash and cash equivalents at beginning of periods .................. 25,684 5,208 --------- --------- Cash and cash equivalents at end of periods ........................ $ 41,624 $ 19,705 ========= =========
The accompany notes are an integral part of these consolidated financial statements. 15 16 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Hervey A. Feldman and Thomas J. Corcoran, Jr, who at June 30, 1998 were the Chairman of the Board of Directors and Chief Executive Officer of FelCor Lodging Trust Incorporated (formerly FelCor Suite Hotels, Inc.), own all of the voting Class A membership interest in DJONT Operations, L.L.C., a Delaware limited liability company ("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 FelCor. Each of the 86 hotels in which FelCor Lodging Limited Partnership (formerly FelCor Suites Limited Partnership) (the "Operating Partnership") had an ownership interest at June 30, 1998 (the "Hotels"), was 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 $17.3 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 38 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 June 30, 1998. At June 30, 1998, 58 of the Hotels were operated as Embassy Suites hotels, 14 as Doubletree Guest Suites hotels, two as full-service Doubletree hotels, five as Sheraton hotels, four as Sheraton Suites hotels, one as a Hilton hotel, one as a Hilton Suites hotel and one was in the process of being converted to a full-service Doubletree hotel. Seventy-three of the Hotels are managed by Promus Hotel Corporation ("Promus"), or by a subsidiary thereof. Of the remaining Hotels, nine are managed directly by, or by a subsidiary of, ITT Sheraton Corporation ("Sheraton") and four are managed by three 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 (seven hotels), 2005 (13 hotels) 2006 (23 hotels), 2007 (23 hotels), 2008 (13 hotels) and 2012 (seven hotels). Minimum future rental payments (i.e., base rents) under these noncancellable operating leases at June 30, 1998 is as follows (in thousands):
YEAR AMOUNT ---- ------ Remainder of 1998................................................... $ 80,515 1999................................................................ 161,415 2000................................................................ 161,503 2001................................................................ 164,647 2002................................................................ 164,647 2003 and thereafter................................................. 747,605 ---------- $1,480,332 ==========
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 Lodging Trust Incorporated appearing elsewhere herein. SECOND QUARTER HIGHLIGHTS: o Total revenue increased by 64% for the second quarter and 61% for the first six months of 1998 over the comparable periods last year. o Funds From Operations ("FFO") of $45.0 million for the quarter ended June 30, 1998 sets a new quarterly record. o Net income per diluted share for the quarter increased 29% from $0.42 to $0.54. o The Company's 43 comparable hotels, those owned at both December 31, 1997 and 1996, produced a 6.3% Revenue Per Available Suite/Room ("RevPAR") increase over the second quarter 1997 and a 7.5% RevPAR increase over the six months ended June 30, 1997. This increase in RevPAR, coupled with 263 new suites added at three of the 13 Original hotels (as hereafter defined) resulted in increased suite revenue for the 43 comparable hotels of 8.6% for the second quarter and 9.6% for the six months ended June 30, 1997. o In May 1998, FelCor raised approximately $140 million from the sale of depositary shares representing its 9% Series B Cumulative Redeemable Preferred Stock net of $3.8 million of offering expenses. o FelCor declared second quarter dividends of $0.55 per share on its Common Stock, $0.4875 per share on its $1.95 Series A Cumulative Convertible Preferred Stock and $0.525 per depositary share on its 9% Series B Cumulative Redeemable Preferred Stock. o On July 28, 1998, FelCor completed the merger with Bristol following approval by FelCor's Shareholders on July 27, 1998. In conjunction with this closing FelCor issued 31.0 million shares of Common Stock and assumed approximately $700 million in debt. (See Note 9 of Notes to Consolidated Financial Statements of FelCor) o Hotel Acquisitions in Second Quarter 1998: o On April 15, 1998, the Company acquired a 90% ownership interest in a 248-room Doubletree hotel in Denver (Aurora), Colorado for approximately $21.7 million in cash. The hotel has 11,000 square feet of meeting space and is located 13 miles from the Denver International Airport. o On May 4, 1998, the Company acquired eight upscale, full-service all-suite hotels from Starwood Hotels & Resorts. The $245 million all-cash purchase includes five Embassy Suites hotels and three Doubletree Guest Suites hotels comprising 1,898 suites. After planned conversions, six hotels will be Embassy Suites 17 18 hotels managed by Promus and two hotels will be Sheraton Suites hotels managed by Sheraton. Located in geographically diverse U.S. markets, the hotels are currently identified as:
HOTEL NUMBER OF SUITES ---------------- ---------------- Embassy Suites - Phoenix (Airport-44th St.), AZ 229 Embassy Suites - Phoenix (Tempe/ASU), AZ 224 Embassy Suites Resort - Palm Desert, CA 198 Embassy Suites - Atlanta (Airport), GA 233 Embassy Suites - St. Louis (Downtown), MO 297 Doubletree Guest Suites - Dallas-Ft. Worth (Airport), TX 308 Sheraton Suites - Ft. Lauderdale (Cypress Creek), FL 254 Sheraton Suites - Lexington, KY 155
o On May 5, 1998, the Company acquired the 301-room Meadowlands Hilton hotel in Secaucus, New Jersey for $23.4 million in cash. The 12-story hotel features 19,000 square feet of meeting and convention space, a 10,000 square foot exhibition center and is located within four miles from downtown Manhattan. o On June 1, 1998, the Company acquired a 90% ownership interest in a 302-room Doubletree Hotel at Dallas-Campbell Centre for $29.2 million in cash, with the remaining 10% ownership interest being purchased by Promus. The Company acquired the hotel in conjunction with GE Investments' purchase of the 920,000 square-foot integrated complex known as "Campbell Centre." The 21-story high-rise hotel features 14,000 square feet of meeting space and is inter-connected to two adjoining office towers by interior walkways. The complex is centrally located in the heart of the Central Expressway corridor in Dallas, four miles from Dallas-Love Field Airport and five miles from downtown Dallas. o Subsequent to the end of the second quarter, the Company increased its unsecured credit facilities to $1.1 billion from $550 million. (See Note 4 of notes to Consolidated Financial Statements of FelCor) RESULTS OF OPERATIONS The Company Six Months Ended June 30, 1998 and 1997 For the six months ended June 30, 1998 and 1997, the Company had revenues of $124.9 million and $77.6 million, respectively, consisting primarily of Percentage Lease revenues of $118.9 million and $74.0 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 19 additional hotels since June 30, 1997. Suite/room revenues for the 43 Hotels owned at both December 31, 1997 and 1996 increased 9.6% for the six months ended June 30, 1998 over the corresponding period in 1997 (an increase of $15.4 million). Furthermore, RevPAR for these hotels increased 7.5% and average daily rate ("ADR") increased 8.2% to $124.67 in the six months ended June 30, 1998 from $115.26 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" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) 18 19 Total expenses increased $28.2 million in the six months ended June 30, 1998, from $50.3 million to $78.5 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 64.8% in the six months ended June 30, 1997 to 62.9% 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. Taxes, insurance and other increased $4.1 million primarily as a result of the increased number of hotels owned. Interest expense increased as a percentage of total revenue from 16.6% in the six months ended June 30, 1997 to 18.8% in 1998. This increase in interest expense is attributed to the increased use of debt to finance acquisitions, renovations and the $120 million loan to Bristol. Three Months Ended June 30, 1998 and 1997 For the three months ended June 30, 1998 and 1997, the Company had revenues of $67.4 million and $41.1 million, respectively, consisting primarily of Percentage Lease revenues of $62.8 million and $38.7 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 19 additional hotels since June 30, 1997. Suite/room revenues for the 43 Hotels owned at both December 31, 1997 and 1996 increased 8.6% for the quarter ended June 30, 1998 over the corresponding period in 1997 (an increase of $7.0 million). Furthermore, RevPAR for these hotels increased 6.3% and ADR increased 8.3% to $122.06 in the second quarter of 1998 from $112.71 in the same period in 1997. Total expenses increased $15.8 million in the three months ended June 30, 1998, from $26.7 million to $42.5 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 65.0% in the second quarter of 1997 to 63.1% 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. Taxes, insurance and other increased $2.0 million primarily as a result of the increased number of hotels owned. Interest expense increased as a percentage of total revenue from 17.8% in the second quarter of 1997 to 20.5% in 1998. This increase in interest expense is attributed to the increased use of debt to finance acquisitions, renovations, and the $120 million loan to Bristol. 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- --------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Funds From Operations (FFO): Net income ............................................ $ 24,881 $ 14,358 $ 45,825 $ 27,315 Less: Series B redeemable preferred dividends ......... (1,905) (1,905) Add back: Extraordinary charge from write off of deferred financing fees from unconsolidated entities ...... 556 Minority interest in Operating Partnership ......... 2,063 1,524 3,813 2,942 Depreciation ....................................... 17,429 11,314 33,316 21,730 Depreciation for unconsolidated entities ........... 2,555 2,485 5,103 4,348 --------- --------- --------- --------- FFO ................................................... $ 45,023 $ 29,681 $ 86,708 $ 56,335 ========= ========= ========= ========= Weighted average common shares and units outstanding (a) ............................ 44,572 34,548 44,573 33,896 ========= ========= ========= =========
(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 14 unconsolidated entities. The FFO contribution from these unconsolidated entities was derived as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Statement of operations information: Percentage Lease revenue ........................................ $ 14,222 $ 14,224 $ 26,569 $ 23,729 Other income .................................................... 954 1,114 --------- --------- --------- Total revenue .................................... $ 15,176 14,224 27,683 23,729 --------- --------- --------- --------- Expenses: Depreciation ............................................ 4,278 4,108 8,543 7,214 Taxes, insurance and other .............................. 1,594 1,748 3,160 3,178 Interest expense ........................................ 3,095 2,907 6,354 5,001 --------- --------- --------- --------- Total expenses ................................... 8,967 8,763 18,057 15,393 --------- --------- --------- --------- Net income ...................................................... $ 6,209 $ 5,461 $ 9,626 $ 8,336 ========= ========= ========= ========= 50% of net income attributable to the Company ................... $ 3,105 $ 2,731 $ 4,813 $ 4,168 Amortization of cost in excess of book value .................... (416) (431) (831) (741) --------- --------- --------- --------- Income from unconsolidated entities ............................. 2,689 2,300 3,982 3,427 Add back: 50% of depreciation ................................... 2,139 2,054 4,271 3,607 Amortization of cost in excess of book value ............ 416 431 831 741 --------- --------- --------- --------- FFO contribution of unconsolidated entities ..................... $ 5,244 $ 4,785 $ 9,084 $ 7,775 ========= ========= ========= =========
The Lessee Six Months Ended June 30, 1998 and 1997 Total revenues increased to $366.3 million for the six months ended June 30, 1998 from $231.0 million in the same period of 1997, an increase of 58.6%. Total revenues consisted primarily of suite/room revenue of $304.3 million and $202.1 million in the first six months of 1998 and 1997, respectively. The increase in total revenues is primarily a result of the increase in the number of hotels leased to 86 hotels at June 30, 1998 from 67 hotels at June 30, 1997. Suite/room revenues from the 43 Hotels owned both at December 31, 1997 and 1996 increased 9.6% or $15.4 million. The increase in revenues at these hotels is due primarily to improvements in ADR of $124.67 for the six months ended June 30, 1998, as compared to $115.26 for the six months ended June 30, 1997, an increase of 8.2%. The Lessee's income before Percentage Lease rent decreased as a percentage of total revenues from 42.5% in the six months ended June 30, 1997 to 40.5% in the six months ended June 30, 1998. Three Months Ended June 30, 1998 and 1997 Total revenues increased to $195.2 million in the second quarter of 1998 from $125.8 million in the second quarter of 1997, an increase of 55.2%. Total revenues consisted primarily of suite/room revenue of $161.0 million and $108.9 million in the second 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 86 hotels at June 30, 1998 from 67 hotels at June 30, 1997. Suite/room revenues from the 43 Hotels owned at both December 31, 1997 and 1996 increased 8.6% or $7.0 million. The increase in revenues at these hotels is due primarily to improvements in ADR of $122.06 for the three months ended June 30, 1998, as compared to $112.71 for the same period in 1997. 21 22 The Lessee's income before Percentage Lease rent decreased as a percentage of total revenues from 41.6% in the second quarter of 1997 to 40.6% in the second quarter of 1998. The Hotels The following table sets forth historical suite/room revenue and percentage changes therein between the periods presented for the 86 hotels which the Lessee operated at June 30, 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 30 1997 Acquisitions and the 13 1998 Acquisitions, regardless of ownership, through June 30, 1998. Except as otherwise noted below, each of such hotels is operated as an Embassy Suites hotel.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------------------- --------------------------------------- 1998 1997 VARIANCE 1998 1997 VARIANCE -------- -------- -------- -------- -------- -------- Suite/room Revenue (in thousands): Original Hotels (13)................... $ 24,055 $ 22,045 9.1 % $ 47,245 $ 42,918 10.1% CSS Hotels (18)........................ 39,184 35,559 10.2 % 80,429 72,563 10.8% 1996 Acquisitions (12)................. 25,226 23,868 5.7 % 48,701 45,486 7.1% -------- -------- -------- -------- Total for Hotels owned at both December 31, 1997 and 1996 (43).... 88,465 81,472 8.6 % 176,375 160,967 9.6% 1997 Acquisitions (30)................. 58,743 57,295 2.5 % 113,272 110,897 2.1% 1998 Acquisitions (13)................. 20,719 21,021 (1.4)% 43,291 42,387 2.1% -------- -------- -------- -------- $167,927 $159,788 5.1 % $332,938 $314,251 5.9% ======== ======== ======== ======== Occupancy: Original Hotels........................ 77.2% 80.1% (2.9) pts. 75.8% 77.7% (1.9) pts. CSS Hotels............................. 75.6% 75.8% (0.2) pts. 75.2% 74.5% 0.7 pts. 1996 Acquisitions...................... 77.4% 79.3% (1.9) pts. 74.7% 75.8% (1.1) pts. Total for Hotels owned at both December 31, 1997 and 1996......... 76.5% 77.9% (1.4) pts. 75.2% 75.7% (0.5) pts. 1997 Acquisitions...................... 74.7% 74.9% (0.2) pts. 72.4% 73.4% (1.0) pts. 1998 Acquisitions...................... 75.2% 79.0% (3.8) pts. 74.8% 75.9% (1.1) pts. ADR: Original Hotels........................ $ 114.60 $109.24 4.9 % $ 116.10 $ 110.22 5.3% CSS Hotels............................. $ 123.71 $111.86 10.6 % $ 128.27 $ 116.83 9.8% 1996 Acquisitions...................... $ 127.31 $117.50 8.3 % $ 127.91 $ 117.83 8.6% Total for Hotels owned at both December 31, 1997 and 1996......... $ 122.06 $112.71 8.3 % $ 124.67 $ 115.26 8.2% 1997 Acquisitions...................... $ 113.82 $110.52 3.0 % $ 113.81 $ 109.85 3.6% 1998 Acquisitions...................... $ 97.90 $ 94.57 3.5 % $ 103.48 $ 99.78 3.7% RevPAR: Original Hotels........................ $ 88.49 $ 87.50 1.1 % $ 88.00 $ 85.62 2.8% CSS Hotels............................. $ 93.46 $ 84.81 10.2 % $ 96.45 $ 87.01 10.8% 1996 Acquisitions...................... $ 98.48 $ 93.18 5.7 % $ 95.58 $ 89.29 7.0% Total for Hotels owned at both December 31, 1997 and 1996......... $ 93.39 $ 87.85 6.3 % $ 93.81 $ 87.26 7.5% 1997 Acquisitions...................... $ 84.99 $ 82.83 2.6 % $ 82.39 $ 80.61 2.2% 1998 Acquisitions...................... $ 73.65 $ 74.73 (1.4)% $ 77.38 $ 75.76 2.1%
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. 22 23 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: Phoenix (Crescent), AZ(3); Covina, CA; Dana Point, - ----------------- CA(1); Los Angeles (LAX North), CA; Lake Buena Vista (Disney World), FL(1); Tampa (Rocky Point), FL(1); Atlanta (Airport), GA(4); Atlanta (Galleria)(3), GA; Atlanta (Perimeter Center), GA; Chicago (O'Hare), IL(4); Overland Park, KS; Baltimore, MD(1); Troy, MI(1); Bloomington, MN(1); Kansas City (Plaza), MO; Raleigh, NC; Raleigh/Durham, NC(1); Omaha, NE(1); Secaucus, NJ; Syracuse, NY; Dayton, OH(1); Philadelphia (Society Hill), PA(3); Nashville (Airport), TN(1); Austin (Airport North), TX; Austin (Downtown), TX(1); Dallas (Market Center), TX; Dallas (Park Central), TX (3); San Antonio (Airport), TX; San Antonio (Northwest), TX; Burlington, VT (3). 1998 ACQUISITIONS: Phoenix (Airport - 44th St.), AZ; Phoenix - ----------------- (Tempe/ASU), AZ; Palm Desert, CA; Denver (Aurora), CO(6); Wilmington, DE(5); Ft. Lauderdale (Cypress Creek), FL(4); Atlanta (Airport), GA; Lexington, KY(4); St. Louis (Downtown), MO; Secaucus (Meadowlands, NJ(7); Columbus, OH(1); Dallas (Campbell Centre), TX(6); Dallas - Ft. Worth (Airport), TX. (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. (6) Operating as a Doubletree hotel. (7) Operating as a Hilton hotel. Comparison of The Hotels' Suite/Room Revenues for the Six Months Ended June 30, 1998 and 1997 The Company owned 43 hotels at both December 31, 1997 and 1996. These hotels experienced increased RevPAR of 7.5% for 1998 compared to 1997. Within this group of 43 hotels are the Original Hotels, the CSS Hotels and the 1996 Acquisition Hotels. The Original Hotels increased suite/room revenue by 10.1% for the six months ended June 30, 1998 compared to 1997. ADR increased 5.3% to $116.10 and Occupancy declined 1.9 pts. from 75.8% to 77.7%. This resulted in an increase in RevPAR of 2.8% in the six months ended June 30, 1998 over the same period of 1997. Included in this group are three 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), Orlando North Embassy Suites (added 67 suites/rooms in the first quarter of 1998) and Jacksonville Embassy Suites (added 67 suites/rooms in the second quarter of 1998). These three hotels experienced 33.0% 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. 23 24 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 10.8% for the six months ended June 30, 1998 compared to 1997. Occupancy increased by 0.7 pts. to 75.2% and ADR increased 9.8% to $128.27. RevPAR increased 10.8% from $87.01 to $96.45 in the six months ended June 30, 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. The 1996 Acquisition Hotels had a 7.1% increase in suite/room revenue for the six months ended June 30, 1998 compared to the corresponding period in 1997. ADR increased 8.6% to $127.91 and Occupancy declined 1.1 pts. from 75.8% to 74.7%. RevPAR for the six months ended 1998 increased 7.0% as compared to the corresponding period in 1997. The 1997 Acquisition Hotels experienced suite/room revenue increases of 2.1% during the six months ended June 30, 1998. Occupancy declined 1.0% from 73.4% to 72.4% while ADR increased 3.6% to $113.81. Included in the 1997 Acquisition hotels are nine hotels which were undergoing renovation or had recently been converted to a different brand. Excluding these nine hotels, the 1997 Acquisitions would have recorded an increase in revenue of 4.9%. For the 43 Hotels owned at both December 31, 1997 and 1996 the operating results in the Pacific region (8 hotels) were especially strong with RevPAR increasing 15.6% for the six months ended June 30, 1998 when compared to the same period of 1997. Other strong geographical regions included the East North Central (7 hotels) and the Mid Atlantic states (2 hotels) with RevPAR increases of 9.5% and 11.1%, respectively. The South Atlantic (13 hotels) and West South Central regions (6 hotels) experienced weaker growth in RevPAR resulting in increases of 3.5% and 4.4%, respectively for the six months ended June 30, 1998 as compared to the same period of 1997. The remaining regions include Mountain (3 hotels), New England (1 hotel) and East South Central (3 hotels) which experienced RevPAR increases of 2.3%, 3.3% and 5.3%, respectively. The moderate increase in the South Atlantic region was partially due to the widespread fires in the state of Florida which affected leisure travel in that region. 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 six months ended June 30, 1998, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $67.5 million and Funds From Operations (as previously defined) was $86.7 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 June 30, 1998, the Lessee had paid all amounts then due the Company under the Percentage Leases. During the six months ended June 30, 1998, the Lessee had net income of $2.9 million. The Lessee had a shareholders' deficit of $6.1 million at June 30, 1998 resulting 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 $17.3 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 38 of the Hotels. Amounts so 24 25 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 June 30, 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 June 30, 1998, the Company had $11.1 million of cash and cash equivalents and had utilized $453 million of the amount available under the Line of Credit. 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 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 June 30, 1998 are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 6/30/98 MATURITY --------------- ------------ ---------- --------- --------- $50 million 6.11% 7.61% 5.69% October 1999 $25 million 5.95% 7.45% 5.69% November 1999
On July 1, 1998, the Company entered into six separate interest rate swap agreements. The fixed rates to be paid, the effective interest rate, and the initial variable rate to be received by the Company as of July 1, 1998 are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 7/01/98 MATURITY --------------- ------------ ---------- --------- --------- $75 million 5.55% 7.05% 5.67% July 2001 $25 million 5.56% 7.06% 5.67% July 2001 $25 million 5.55% 7.05% 5.67% July 2001 $50 million 5.80% 7.29% 5.67% July 2003 $50 million 5.80% 7.29% 5.67% July 2003 $25 million 5.83% 7.33% 5.67% July 2003
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company pursuant to the terms of its interest rate agreement and will have a corresponding effect on its future cash flows. 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. Under the Bristol Merger Agreement, FelCor provided Bristol a $120 million interim credit facility (the "Interim Credit Facility"). Under the Interim Credit Facility, FelCor loaned to Bristol (i) $45 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) $32.8 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) $33.2 million for necessary capital improvements. The Interim Credit Facility was secured by 25 26 real estate. At June 30, 1998 FelCor had advanced the entire $120 million to Bristol under the Interim Credit Facility. At July 28, 1998 the Interim Credit Facility was assumed and canceled by FelCor with the completion of the merger with Bristol. The Company spent approximately $15.9 million on upgrading, renovating and/or rebranding 32 hotels during the six months ended June 30, 1998. In addition, the Company plans to continue Bristol's $400 million repositioning and redevelopment program of Crowne Plaza and Holiday Inn hotels which were recently acquired by FelCor upon completion of the Bristol merger. At July 28, 1998, the redevelopment of 39 hotels was completed with a remaining 43 hotels currently in the process of redevelopment. FelCor plans to spend approximately $175 million to complete this repositioning and redevelopment program, commenced by Bristol in 1997, with an expected completion by the end of 1999. 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 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. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS During the second quarter 1998, the Emerging Issues Task Force reached a consensus on the issue "Accounting for Contingent Rent in Interim Financial Periods"("EITF 98-9"). Under EITF 98-9, for leases that contain contingent rent provisions based on specified annual sales thresholds, no contingent rent revenue shall be recorded by the lessor in the interim financial statements until the annual thresholds have been reached, which generally occurs later in the fiscal year. The contingent rent provisions of the Company's leases contain quarterly thresholds, and as such, EITF 98-9 will have no impact on the financial statements of the Company. 26 27 PART II. -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. During the second quarter of 1998, the Company issued 1,245 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 July 8, 1998, the Company issued an aggregate of 18,500 shares of its common stock to a former chief financial officer of the Company pursuant to a nonqualified stock option granted to him by the Company in August 1996 under its 1995 Restricted Stock and Stock Option Plan. Such shares were not 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 July 9, 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.. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The information required by this item has been previously reported by FelCor and is included or incorporated by reference in the current report on Form 8-K as filed with the Securities and Exchange Commission on August 10, 1998. ITEM 5. OTHER INFORMATION. For information relating to hotel acquisitions and certain other transactions by the Company through June 30, 1998, see Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated 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 ------ ----------- 3.1 - Articles of Amendment and Restatement dated June 22, 1995, amending and restating the Charter of FelCor, as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996, Articles of Amendment dated August 8, 1996, Articles of Amendment dated June 16, 1997, Articles of Amendment dated October 30, 1997, Articles Supplementary dated May 6, 1998, Articles of Merger and attached Articles of Amendment dated July 27, 1998 (filed as Exhibit 3.1 to FelCor's Current Report on Form 8-K dated July 27, 1998 and filed August 10, 1998 ("August Form 8-K") and incorporated herein by reference). 27 28 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 June 30, 1998. 10.14 - Fourth Amended and Restated Revolving Credit Agreement dated as of July 1, 1997 among FelCor and the Operating Partnership, as borrower, the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Chase Securities, Inc. as Arranger, and Bankers Trust Company, NationsBank, N.A. and Wells Fargo Bank, National Association as Co-Arrangers and Documentation Agents (filed as Exhibit 10.14 to FelCor's August Form 8-K and incorporated herein by reference) 10.17 - Amended and Restated Master Hotel Agreement dated as of July 27, 1998 among FelCor, the Operating Partnership, BHR and the lessors and lessees named therein (filed as Exhibit 10.17 to FelCor's August Form 8-K and incorporated herein by reference) 10.18 - Stockholders' and Registration Rights Agreement dated as of July 27, 1998, by and among FelCor, Bass America, Inc., Holiday Corporation, Bass plc, United/Harvey Investors I, L.P., United/Harvey Investors II, L.P., United/Harvey Investors III, L.P., United/Harvey Investors IV, L.P. and United/Harvey Investors V, L.P. (filed as Exhibit 10.18 to FelCor's August Form 8-K and incorporated herein by reference) 10.19 - Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the Operating Partnership and the Lessee to clarify the meaning of Article III of the Lease as represented by the actual course of dealing between Lessors and Lessees under such leases prior to the date hereof. 27 - Financial Data Schedule (b) Reports on Form 8-K: - A current report on Form 8-K was filed by the Company on May 28, 1998. This filing reported under Item 5. the issuance by the Company of 5,750,000 Depositary Shares each representing an 1/100 interest in a share of 9% Cumulative Redeemable Preferred Stock, par value $0.01 per share. - A current report on Form 8-K was filed by the Company on August 10, 1998. This filing reported under Item 2. that on July 28, 1998 pursuant to an Agreement and Plan or Merger Bristol Hotel Company was merged with and into FelCor. Additionally under Item 5. the Company reported the results of its Stockholders Meeting on July 27, 1998 in which the stockholders (i) approved and adopted the Merger Agreement, (ii) approved an amendment to FelCor's Charter to change the name of FelCor from FelCor Suite Hotels, Inc. to FelCor Lodging Trust Incorporated, (iii) approved an amendment to FelCor's Charter to increase the authorized number of shares of capital stock of FelCor to 220,000,000 shares, consisting of 200,000,000 shares of Common Stock and 20,000,000 of preferred stock, par value $.01 per share, (iv) elected Michael D. Rose and Charles N. Mathewson as Class I directors of FelCor, to serve until the Annual Meeting of Stockholders to be held in 2001, and (v) approved FelCor's 1998 Restricted Stock and Stock Option Plan ("1998 Plan"). The amendments to FelCor's Charter became effective July 28, 1998. 28 29 SIGNATURE 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: August 14, 1998 FELCOR LODGING TRUST INCORPORATED By: /s/ Lester C. Johnson ------------------------------- Lester C. Johnson Vice President and Controller (Chief Accounting Officer) 29 30 INDEX TO EXHIBITS EXHIBIT 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 June 30, 1998. 10.19 Omnibus Lease Amendment Agreement dated as of June 30, 1998 among FelCor, the Operating Partnership and the Lessee to clarify the meaning of Article III of the Lease as represented by the actual course of dealing between Lessors and Lessees under such leases prior to the date hereof. 27 Financial Data Schedule EX-10.2.1 2 SCHEDULE OF EXECUTED LEASE AGREEMENTS 1 SCHEDULE OF EXECUTED LEASE AGREEMENTS SHOWING MATERIAL VARIATIONS FROM FORM OF LEASE AGREEMENT (AS OF JUNE 30, 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 (8) 6/30/95 720 19% 65% 940 Corpus Christi, TX 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 (12) (10) 11/15/95 654 17% 65% 1,421 Tampa (Busch Gardens), FL (12) (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 (13) 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 (15) (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
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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) - ----------- ---------- ---------- ---- ------------- -------- ------- ------------- Atlanta (Perimeter Center), GA (29) (17) 2/1/97 2,300 17% 65% 2,949 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) (17) 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 (37) (36) 6/30/97 (33) 2,155 17% 65% 3,777 College Park (Atlanta Airport), GA (36) 6/30/97 (33) 2,426 17% 65% 5,033 (38) Dallas (Park Central), TX (38) (36) 6/30/97 (33) 5,091 17% 65% 6,490 Rosemont (O'Hare Airport), IL (37) (36) 6/30/97 (33) 3,522 17% 65% 2,760 Phoenix (Crescent), AZ (38) (36) 6/30/97 (33) 2,908 17% 65% 6,218 Durham, NC (12) (35) 7/28/97 1,700 17% 65% 1,900 Lake Buena Vista, FL (12) (35) 7/28/97 2,900 17% 65% 2,272 Tampa (Rocky Point), FL (12) (35) 7/28/97 1,700 17% 65% 1,939 Philadelphia Society Hill, PA (38) (38) (36) 9/30/97 (33) 3,834 17% 65% 5,220 Burlington, VT (38) (40) 12/4/97 2,252 17% 65% 3,181 Dayton, OH (41) (35) 12/30/97 797 17% 65% 1,331 Columbus, OH (12) (32) (35) 2/6/98 1,534 17% 65% 1,900 Wilmington, DE (42) (32) (30) 3/20/98 901 17% 65% 2,284 (1998) 2,195 (1999 (2001) 2,506 (2002) Denver, CO (41) (32) (30) 4/14/98 1,759 17% 65% 2,712
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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) - ----------- ---------- ---------- ------ ------------- ------- ------- ------------- Atlanta (College Park), GA 5/1/98 1,700 17% 65% 3,421 Palm Desert, CA 5/1/98 1,700 17% 65% 3,181 Lexington, KY (37) (36) 5/1/98 1,500 17% 65% 413 Phoenix, AZ 5/1/98 1,900 17% 65% 2,354 Tempe, AZ 5/1/98 2,500 17% 65% 1,651 Cypress Creek (Ft. Lauderdale), FL (36) 5/1/98 1,982 17% 65% 2,944 (37) Irving (DFW), TX (12) 5/1/98 2,884 17% 65% 4,657 Dallas (Campbell Centre), TX (41) (32) (30) 5/29/98 2,230 17% 65% 2,834
- -------------------- (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 Promus/FelCor 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 and another subsidiary of the Company is a 1% general 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. (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. -4- 5 (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 Promus/FelCor 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 and subsidiary of the Partnership, owns a 1% general partner interest. (21) The Lessor as defined in this Lease Agreement is E.S. North, a 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 and subsidiary of the Partnership, 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. a subsidiary of the Partnership ("FelCor Eight") owns a 1% general partner interest. (23) The Lessor as defined in this Lease Agreement is EPT Raleigh Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns a 1% general partner interest. (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 a 1% general partner interest. (25) The Lessor as defined in this Lease Agreement is EPT Meadowlands Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns a 1% general partner interest. (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 a 1% general partner interest. (27) The Lessor as defined in this Lease Agreement is EPT Covina Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns a 1% general partner interest. (28) The Lessor as defined in this Lease Agreement is EPT Austin Limited Partnership, of which the Partnership owns 49% and FelCor Eight owns a 1% general partner interest. (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 a 1% general partner interest. (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. -5- 6 (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(R)hotel and managed by a subsidiary of Starwood Hotels & Resorts. (38) The hotel under this Lease Agreement is operated as a Sheraton(R)hotel and managed by a subsidiary of Starwood Hotels & Resorts. (39) The Lessor is FCH/PSH, L.P., a Pennsylvania limited partnership. (40) The Lessee is FCH/SH Leasing II, L.L.C., A Delaware limited liability company. (41) The hotel under this lease agreement is operated as a Doubletree(R) hotel. (42) The hotel under this lease agreement is currently operated as a Radisson(R) hotel. -6- EX-10.19 3 OMNIBUS LEASE AMENDMENT AGREEMENT 1 OMNIBUS LEASE AMENDMENT AGREEMENT THIS AGREEMENT is made as of June 30, 1998 among FelCor Lodging Trust Incorporated, a Maryland corporation formerly known as FelCor Suite Hotels, Inc., FelCor Lodging Limited Partnership, a Delaware limited partnership formerly known as FelCor Suites Limited Partnership, and each other "Lessor" and "Lessee" also signing below. RECITALS: 1. A Lessor and a Lessee are parties to those certain Lease Agreements listed and described by Hotel location, date and parties on Exhibit A attached hereto (the "Leases"). Capitalized terms used and not defined herein shall have the respective meanings therefor set forth in the Leases. 2. Lessor and Lessee desire to amend the Leases to clarify the meaning of Article III of the Lease as represented by the actual course of dealing between Lessors and Lessees under such Leases prior to the date hereof, on the terms and conditions hereinafter set forth. AGREEMENT: NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The definition of "Fiscal Year" under each Lease is hereby amended to read in its entirety as follows: Fiscal Year: Any 12-month period from January 1st through December 31st during the Term, or any shorter period at the beginning or end of the Term. 2. Except to the extent provided otherwise below, ARTICLE III of each of the Leases is hereby amended to read in its entirety as follows: ARTICLE III 3.1 Rent. Lessee will pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, in immediately available funds, at Lessor's address set forth in Article XXXII hereof or at such other place or to such other Person as Lessor from time to time may designate in a Notice, all Base Rent, Percentage Rent and Additional Charges, during the Term, as follows: (a) Monthly Payments of Base Rent: With respect to each calendar month of each Fiscal Year during the Term, Lessee shall pay to Lessor, in advance on or before the tenth (10th) day of each calendar month of the Term, the amount equal to the portion of the 2 annual Base Rent for such Fiscal Year included in the Annual Budget for (or otherwise allocated by agreement of the parties to) such calendar month, the sum of which monthly payment amounts for such Fiscal Year shall be the annual sum of $[_____________.00] (prorated for the Fiscal Year in which the Commencement Date occurs), [or $_________ for Fiscal Year 1998, $_________ for Fiscal Years 1999 through 2001, and $_________ for all subsequent years,] as adjusted pursuant to Section 3.1(d) hereof ("BASE RENT"), which amount shall be fully earned by Lessor and shall not be subject to adjustment or reduction, except as expressly set forth in this Article III, during any subsequent month, quarter or Fiscal Year; provided, however, that the first monthly payment of Base Rent shall be payable during the second calendar month of the Term, and that the first and last monthly payments of Base Rent shall be pro rated as to any partial month (subject to adjustment as provided in Sections 5.2, 14.5 and 15.3); and (b) Quarterly Computation of Percentage Rent: With respect to each calendar quarter of each Fiscal Year during the Term, as soon as practicable but in any event on or before the date forty-five (45) days following the end of each calendar quarter, Lessee shall pay to Lessor an amount equal to the amount, if any, by which the aggregate of all payments in respect of Base Rent for such calendar quarter shall be less than the amount determined pursuant to the Revenues Computation for such calendar quarter. For each calendar quarter of each Fiscal Year of the Term, the aggregate amount of Percentage Rent that shall be fully earned by Lessor, which amount shall not be subject to adjustment or reduction during any subsequent quarter or Fiscal Year, shall be the amount determined by the following calculation ("REVENUES COMPUTATION"): An amount equal to the sum of: (i) the product of the First Tier Room Revenue Percentage times the aggregate Suite [or Room] Revenues during such calendar quarter up to and including that portion of the Suite [or Room] Revenue Breakpoint allocated to such calendar quarter in the Annual Budget or otherwise by agreement of the parties (the "QUARTERLY ROOM REVENUE BREAKPOINT"); plus (ii) the product of the Second Tier Room Revenue Percentage times the aggregate Suite [or Room] Revenues during such calendar quarter in excess of the Quarterly Room Revenue Breakpoint; plus (iii) five percent (5.0%) of Food and Beverage Revenues for such calendar quarter, plus (iv) ninety-eight percent (98.0%) of any Restaurant Sublease Rent received by Lessee for such calendar quarter; no Percentage Rent shall be payable by Lessee with respect to Sundry Revenues. For the purpose of defining the Revenues Computation: (i) "FIRST TIER ROOM REVENUE PERCENTAGE" shall mean seventeen percent (17%)[**] and "SECOND TIER ROOM REVENUE PERCENTAGE" shall mean sixty-five (65%); and -2- 3 [**substitute "nineteen percent (19%)" in the Leases listed as item 4, 6, 7 and 10 on Exhibit A hereto] (ii) "SUITE [OR ROOM] REVENUE BREAKPOINT" shall mean the amount of Suite [or Room] Revenues (which amount shall always be equal to the sum of the Quarterly Room Revenue Breakpoint amounts for each calendar quarter during such Fiscal Year) equal to the amount set forth as the Suite [or Room] Revenue Breakpoint in this Lease for the first full Fiscal Year during the Term, [or $_________ for Fiscal Year 1998, $_________ for Fiscal Years 1999 through 2001, and $_________ for all subsequent years, in each case (after 1998)] as adjusted from year to year by the same percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d) of this Lease. In no event will the amount of Rent payable for any calendar quarter or the result of any quarterly Revenues Computation be less than zero, and there shall be no reduction in the Base Rent regardless of the result of any quarterly Revenues Computation. (c) Officer's Certificates. An Officer's Certificate shall be delivered to Lessor, together with each such quarterly payment based upon the quarterly Revenues Computation, which Officer's Certificate shall set forth the calculation of the Revenues Computation and all prior payments of Rent in respect of such calendar quarter. If the Percentage Rent earned by Lessor for such calendar quarter (as shown in the applicable Officer's Certificate) exceeds the amount actually paid as Percentage Rent by Lessee for such calendar quarter, Lessee also shall pay such excess to Lessor at the time such Officer's Certificate is delivered to Lessor. If the aggregate Percentage Rent earned by Lessor for such calendar quarter (as shown in the applicable Officer's Certificate) is less than the amount actually paid as Percentage Rent for the applicable calendar quarter, Lessor will reimburse such amount to Lessee within five (5) Business Days after such Officer's Certificate is delivered to Lessor. Any amount to be paid or reimbursed as provided above that is not paid when due, whether in favor of Lessor or Lessee, shall bear interest at the Overdue Rate, which interest shall accrue from the due date of the last quarterly payment for the respective Fiscal Year until the amount of such difference shall be paid or otherwise discharged. Any such interest payable to Lessor shall be deemed to be and shall be payable as Additional Charges. The obligation to pay Percentage Rent shall survive the expiration or earlier termination of the Term, and a final reconciliation (taking into account, among other relevant adjustments, any adjustments which are accrued after such expiration or termination date but which related to Percentage Rent accrued prior to such termination date, and adjustments required as a result of mathematical error, mistake, the use of preliminary, rather than final, revenue figures in performing earlier computations, or other similar factor), shall be made not -3- 4 later than two (2) years after such expiration or termination date, but Lessee shall advise Lessor within sixty (60) days after such expiration or termination date of Lessee's best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Lessee or have any legal effect whatsoever. (d) CPI Adjustments to Base Rent and Percentage Rent. For each full Fiscal Year of the Term beginning after the Commencement Date (except as otherwise indicated in the Annual Budget for the first such full Fiscal Year), and for any partial Fiscal Year during which the Term of this Lease ends, the Base Rent shall be adjusted from time to time as follows: (1) If the most recently published Consumer Price Index as of the last day of the last month (the "COMPARISON MONTH") of any Fiscal Year is different than the average Consumer Price Index for the twelve (12) month period prior thereto, the Base Rent for the next Fiscal Year shall be adjusted by the percentage change in the Consumer Price Index calculated as follows: (A) The difference between the Consumer Price Index for the most recent Comparison Month and the average Consumer Price Index for the twelve (12) month period prior thereto shall be divided by the average Consumer Price Index for the twenty four (24) month period prior thereto. (B) The Base Rent shall be multiplied by the lesser of (i) seven percent (7%) or (ii) the quotient obtained in subparagraph (d)(1)(A) above. (C) The product obtained in subparagraph (d)(1)(B) above shall be added to the Base Rent. Adjustments in the Base Rent shall be effective on the first day of the first calendar month of the Fiscal Year to which such adjusted Base Rent applies. The Suite [or Room] Revenue Breakpoint then included in the Revenues Computation pursuant to Section 3.1(b) shall be similarly adjusted, effective with any such adjustment in the Base Rent. (2) If (i) a significant change is made in the number or nature (or both) of items used in determining the Consumer Price Index, or (ii) the Consumer Price Index shall be discontinued for any reason, the Bureau of Labor Statistics shall be requested to furnish a new index comparable to the Consumer Price Index, together with information which will make possible a conversion to the new index in computing the adjusted Base Rent hereunder. If for any reason the Bureau of Labor Statistics does not furnish such an index and such information, the parties will instead mutually select, accept and use such other index or comparable statistics on the cost of living that is computed and published by an agency of the United States or a responsible financial periodical of recognized authority. -4- 5 (e) Manager Fund-up Cure Payments. If and to the extent that Manager pays amounts to Lessee pursuant to the Management Agreement in order to avoid termination of the Management Agreement by Lessee for Manager's failure to meet certain performance hurdles described therein, Lessee shall pay such amounts to Lessor as additional Percentage Rent hereunder. 3.2 Confirmation of Percentage Rent. Lessee shall utilize, or cause to be utilized, an accounting system for the Leased Property in accordance with its usual and customary practices, and in accordance with generally accepted accounting principles and the Uniform System, that will accurately record all data necessary to compute Percentage Rent, and Lessee shall retain, for at least four (4) years after the expiration of each Fiscal Year (and in any event until the reconciliation described in Section 3.1(c) for each calendar quarter of such Fiscal Year has been made), reasonably adequate records conforming to such accounting system showing all data necessary to compute Percentage Rent for each calendar quarter of the applicable Fiscal Years. Lessor, at its expense (except as provided hereinbelow), shall have the right from time to time, upon prior written notice to Lessee and Manager, by its accountants or representatives to audit the information that formed the basis for the data set forth in any Officer's Certificate provided under Section 3.1(c) and, in connection with such audits, to examine all Lessee's records (including supporting data and sales and excise tax returns) reasonably required to verify Percentage Rent, subject to any prohibitions or limitations on disclosure of any such data under Legal Requirements; provided, however that Lessor may only inspect or audit records in Manager's possession subject to the terms of Lessee's access thereto under the Management Agreement. If any such audit discloses an overpayment of Percentage Rent, and either Lessor agrees with the result of such audit or the matter is otherwise determined or compromised, Lessor shall forthwith pay to Lessee the amount of the deficiency, as finally agreed or determined. If any such audit discloses a deficiency in the payment of Percentage Rent, and either Lessee agrees with the result of such audit or the matter is otherwise determined or compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally agreed or determined, together with interest at the Overdue Rate from the date when said payment should have been made to the date of payment thereof; provided, however, that as to any audit that is commenced more than two (2) years after the date Percentage Rent for the final quarter of any Fiscal Year is reported by Lessee to Lessor, the deficiency, if any, with respect to such Percentage Rent shall bear interest at the Overdue Rate only from the date such determination of deficiency is made unless such deficiency is the result of gross negligence or willful misconduct on the part of Lessee, in which case interest at the Overdue Rate will accrue from the date such payment should have been made to the date of payment thereof. If any such audit discloses that the Percentage Rent actually due from Lessee for any Fiscal Year exceed those reported by Lessee by more than three percent (3%), Lessee shall pay the cost of such audit and examination. Any proprietary information obtained by Lessor pursuant to the provisions of this Section shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties and except further that Lessor may disclose such information to prospective lenders. The obligations of -5- 6 Lessee contained in this Section shall survive the expiration or earlier termination of this Lease. 3.3 Additional Charges. In addition to the Base Rent and Percentage Rent, (a) Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions that Lessee assumes or agrees to pay under this Lease, and (b) in the event of any failure on the part of Lessee to pay any of those items referred to in clause (a) of this Section 3.3, Lessee also will promptly pay and discharge every fine, penalty, interest and cost that may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) of this Section 3.3 being additional rent hereunder and being referred to herein collectively as the "ADDITIONAL CHARGES"), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Base Rent. If any installment of Base Rent, Percentage Rent or Additional Charges (but only as to those Additional Charges that are payable directly to Lessor) shall not be paid on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Lessee pays any Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which they would otherwise be due and Lessor shall pay same from monies received from Lessee. 3.4 Net Lease Provision. The Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the full amount of the installments of Base Rent, Percentage Rent and Additional Charges throughout the Term, all as more fully set forth in Article V, but subject to any other provisions of this Lease that expressly provide for adjustment or abatement of Rent or other charges or expressly provide that certain expenses or maintenance shall be paid or performed by Lessor. 3.5 Annual Budget. Not later than thirty (30) days prior to the commencement of each Fiscal Year, Lessee shall submit the Annual Budget to Lessor. The Annual Budget shall contain Lessee's good faith proposal for (i) apportionment of Base Rent to be included in the Annual Budget for each calendar month of such Fiscal Year, (ii) the apportionment of the Room Revenue Breakpoint to be included in the Annual Budget as the Quarterly Room Revenue Breakpoint for each calendar quarter of such Fiscal Year, and (iii) the resulting calculation of projected Percentage Rent payable in each calendar quarter of such Fiscal Year. The Annual Budget also shall contain the following, to the extent included in the operating budgets and capital budgets provided to Lessee by Manager under the management agreement for the Hotel: (a) Lessee's reasonable estimate of Gross Revenues (including room rates and Suite Revenues), Gross Operating Expenses, and Gross Operating Profits for the -6- 7 forthcoming Fiscal Year itemized on schedules on a quarterly basis as approved by Lessor and Lessee, as same may be revised or replaced from time to time by Lessee and approved by Lessor, together with the assumptions, in narrative form, forming the basis of such schedules. (b) An estimate of the amounts to be dedicated to the repair, replacement, or refurbishment of Furniture and Equipment. (c) An estimate of any amounts Lessor will be required to provide for required or desirable capital improvements to the Hotel or any of its components. (d) A cash flow projection. (e) A business plan, which shall describe business objectives and strategies for the forthcoming Fiscal Year, and shall include without limitation an analysis of the market area in which the Hotel competes, a comparison of the Hotel and its business with competitive hotels, an analysis of categories of potential guests, and a description of sales and marketing activities designed to achieve and implement identified objectives and strategies. 3.6 Books and Records. Lessee shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with generally accepted accounting principles and the obligations of Lessee under this Lease Agreement. The books of account and all other records relating to or reflecting the operation of the Hotel shall be kept either at the Hotel or at Lessee's offices in Irving, Texas or at Manager's central offices, and shall be available to Lessor and its representatives and its auditors or accountants, at all reasonable times, upon prior written notice to Lessee and Manager, for examination, audit, inspection, and transcription; provided, however that Lessor may only inspect or audit records in Manager's possession subject to the terms of Lessee's access thereto under the Management Agreement. All of such books and records pertaining to the Hotel including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessor and shall not be removed from the Hotel or Lessee's offices or Manager's central offices (but may be moved among any of the foregoing) by Lessee without Lessor approval. MATERIAL BRACKETED IN THE FOREGOING INSERT, WITH RESPECT TO (i) THE ANNUAL BASE RENT AMOUNTS, (ii) ROOM REVENUE BREAKPOINT AMOUNTS, AND (iii) THE DESIGNATION OF REVENUES AS "SUITE REVENUES" OR "ROOM REVENUES" UNDER A PARTICULAR LEASE, WILL REMAIN AS ORIGINALLY SET FORTH IN THE RESPECTIVE LEASE, INCLUDING (WITHOUT LIMITATION) IN SOME CASES SPECIFIED BASE RENT AND ROOM REVENUE BREAKPOINT AMOUNTS FOR TWO OR MORE OF THE INITIAL FULL FISCAL YEARS OF THE TERM. In addition, however, with respect to each of the Leases to which FSH/SH Leasing, L.L.C. or FSH/SH Leasing II, L.L.C. are parties as Lessee, Section 3.1(d) shall read in its entirety as follows, in lieu of the language of Section 3.1(d) from the foregoing Article III: -7- 8 (d) Annual Adjustments to Base Rent and Percentage Rent. For each year of the Term beginning on or after the Commencement Date (except as otherwise indicated in the Annual Budget for the first such full Fiscal Year), and for any partial Fiscal Year during which the Term of this Lease ends, the Base Rent shall be adjusted annually to increase (but not decrease) the Base Rent by one and one-half percent (1.5%) over the Base Rent for the preceding year. Adjustments in the Base Rent shall be effective on the first day of the first calendar month of the Fiscal Year to which such adjusted Base Rent applies. The Room Revenues Breakpoint then included in the Revenues Computation pursuant to Section 3.1(b) shall be similarly adjusted, effective with each such adjustment in the Base Rent. OTHER CHANGES, AS NECESSARY TO ACCOMMODATE VARIATIONS FROM LEASE TO LEASE, SHALL BE MADE TO ACHIEVE THE INTENT OF THIS AGREEMENT TO CLARIFY THE RENT CALCULATION METHODOLOGY OF ARTICLE III WITHOUT MODIFYING OTHER PROVISIONS OF THE LEASES NOT INTENDED TO BE AFFECTED HEREBY. 3. Except as expressly amended hereby, the Leases shall continue in full force and effect between the Lessors and Lessees. No adjustments shall be made to Base Rent or Percentage Rent amounts previously computed and accrued or paid under the Leases as of June 30, 1998, as a result of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FELCOR LODGING TRUST INCORPORATED, a Maryland corporation By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR LODGING LIMITED PARTNERSHIP, By: FelCor Lodging Trust Incorporated, its General Partner By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President -8- 9 DJONT OPERATIONS, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President LESSORS: FELCOR LODGING LIMITED PARTNERSHIP, formerly known as FelCor Suites Limited Partnership By: FelCor Lodging Trust Incorporated, its General Partner By: ---------------------------------------- Lawrence D. Robinson, Senior Vice President PROMUS/FELCOR HOTELS, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR/CSS HOLDINGS, L.P., a Delaware limited partnership By: FelCor/CSS Hotels, L.L.C., its General Partner By: ---------------------------------------- Lawrence D. Robinson, Senior Vice President -9- 10 FELCOR/ST. PAUL HOLDINGS, L.P., a Delaware limited partnership By: FelCor/CSS Hotels, L.L.C., its General Partner By: ---------------------------------------- Lawrence D. Robinson, Senior Vice President LOS ANGELES INTERNATIONAL AIRPORT HOTEL ASSOCIATES, a Texas Limited Partnership By: FelCor/LAX Holdings, L.P., its General Partner By: FelCor/LAX Hotels, L.L.C., its General Partner By: ---------------------------------- Lawrence D. Robinson Senior Vice President E. S. CHARLOTTE LIMITED PARTNERSHIP, a Minnesota limited partnership By: FelCor/Charlotte Hotel, L.L.C., a Delaware limited liability company, its General Partner By: ---------------------------------------- Lawrence D. Robinson, Senior Vice President -10- 11 E. S. NORTH, AN INDIANA LIMITED PARTNERSHIP, an Indiana limited partnership By: FelCor/Indianapolis Hotel, L.L.C., a Delaware limited liability company, its General Partner By: ------------------------------------- Lawrence D. Robinson, Senior Vice President EPT KANSAS CITY LIMITED PARTNERSHIP, a Delaware limited partnership By: FelCor Eight Hotels, L.L.C., a Delaware limited liability company, its managing General Partner By: ------------------------------------- Lawrence D. Robinson, Senior Vice President EPT MEADOWLANDS LIMITED PARTNERSHIP, a Delaware limited partnership By: FelCor Eight Hotels, L.L.C., a Delaware limited liability company, its managing General Partner By: ------------------------------------- Lawrence D. Robinson, Senior Vice President FCH/DT BWI HOLDINGS, L.P., a Delaware limited partnership By: FCH/DT HOTELS, L.L.C. a Delaware limited partnership, its General Partner By: ------------------------------------- Lawrence D. Robinson, Senior Vice President -11- 12 FCH/DT HOLDINGS, L.P., a Delaware limited partnership By: FCH/DT HOTELS, L.L.C. a Delaware limited partnership, its General Partner By: ------------------------------------- Lawrence D. Robinson, Senior Vice President PROMUS/FELCOR SAN ANTONIO VENTURE By: FelCor Lodging Limited Partnership, a Joint Venturer By: FelCor Lodging Trust Incorporated, its general partner By: ---------------------------------- Lawrence D. Robinson Senior Vice President FCH/PSH, L.P., a Pennsylvania limited partnership formerly known as FCH/Society Hill, L.P. By: FelCor/CSS Holdings, L.P., its General Partner By: FelCor/CSS Hotels, L.L.C.,its General Partner By: ---------------------------------- Lawrence D. Robinson Senior Vice President -12- 13 LESSEES: DJONT OPERATIONS, L.L.C.,a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President FCOAM, INC., a Texas corporation By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President DJONT/EPT LEASING, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President DJONT LEASING, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President FCH/DT LEASING, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President -13- 14 FCH/DT LEASING II, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President FCH/SH LEASING, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President FCH/SH LEASING II, L.L.C., a Delaware limited liability company By: --------------------------------------------- Lawrence D. Robinson, Senior Vice President -14- 15 EXHIBIT A DESCRIPTION OF HOTEL PERCENTAGE LEASE AGREEMENTS 1994 LEASES 1. Dallas (Park Central), Texas, dated July 28, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 2. Jacksonville, Florida, dated July 28, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 3. Nashville, Tennessee, dated July 28, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 4. Orlando-North (Altamonte Springs), Florida, dated July 28, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 5. Orlando-South (International Drive), Florida, dated July 28, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 6. Tulsa, Oklahoma, dated July 28, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 7. New Orleans, Louisiana, dated December 1, 1994 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. -15- 16 1995 LEASES 8. Flagstaff, Arizona, dated February 15, 1995 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 9. Dallas (Love Field), Texas, dated March 29, 1995 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 10. Marlborough, Massachusetts, dated June 30, 1995 Lessor: FelCor Suites Limited Partnership Lessee: FCOAM, Inc. 11. Brunswick, Georgia, dated July 19, 1995 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 12. Corpus Christi, Texas, dated July 19, 1995 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 13. Chicago-Lombard, Illinois, dated August 1, 1995 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 14. Burlingame, California, dated November 6, 1995 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 15. Minneapolis Airport, Minnesota, dated November 6, 1995 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. -16- 17 16. Boca Raton, Florida, dated November 15, 1995 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 17. Minneapolis (Downtown), Minnesota, dated November 15, 1995 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 18. St. Paul, Minnesota, dated November 15, 1995 Lessor: FelCor/St. Paul Holdings, L.P. Lessee: DJONT Operations, L.L.C. 19. Tampa (Busch Gardens), Florida, dated November 15, 1995 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 20. Cleveland, Ohio, dated November 17, 1995 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 1996 LEASES 21. Anaheim, California, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 22. Baton Rouge, Louisiana, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 23. Birmingham, Alabama, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. -17- 18 24. Camelback, Arizona, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 25. Deerfield Beach, Florida, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 26. Fort Lauderdale, Florida, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 27. Miami, Florida, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 28. Milpitas, California, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 29. South San Francisco, California, dated January 3, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 30. Lexington, Kentucky, dated January 10, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 31. Piscataway, New Jersey, dated January 10, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. -18- 19 32. Beaver Creek Colorado, dated February 20, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 33. Boca Raton, Florida, dated February 28, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 34. LAX, El Segundo, California, dated March 27, 1996 Lessor: Los Angeles International Airport Hotel Associates, a Texas Limited Partnership Lessee: DJONT Operations, L.L.C. 35. Mandalay Beach, California, dated May 8, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 36. Napa, California, dated May 8, 1996 Lessor: FelCor/CSS Holdings, L.P. Lessee: DJONT Operations, L.L.C. 37. Deerfield, Illinois, dated June 20, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 38. San Rafael (Marin Co.), California, dated July 18, 1996 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 39. Parsippany, New Jersey, dated July 31, 1996 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. -19- 20 40. Charlotte, North Carolina, dated September 2, 1996 Lessor: E.S. Charlotte Limited Partnership Lessee: DJONT Operations, L.L.C. 41. Indianapolis, Indiana, dated September 12, 1996 Lessor: E.S. North, an Indiana Limited Partnership Lessee: DJONT Operations, L.L.C. 42. Atlanta, Georgia, dated October 17, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 43. Myrtle Beach (Kingston Plantation), South Carolina, dated December 5, 1996 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Operations, L.L.C. 1997 LEASES 44. Atlanta (Perimeter Center), Georgia, dated February 1, 1997 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 45. Austin, Texas, dated February 1, 1997 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 46. Bloomington, Minnesota, dated February 1, 1997 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 47. Covina, California, dated February 1, 1997 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. -20- 21 48. Kansas City, Missouri, dated February 1, 1997 Lessor: EPT Kansas City Limited Partnership Lessee: DJONT Leasing, L.L.C. 49. Meadowlands (Secaucus), New Jersey, dated February 1, 1997 Lessor: EPT Meadowlands Limited Partnership Lessee: DJONT Leasing, L.L.C. 50. Omaha, Nebraska, dated February 1, 1997 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 51. Overland Park, Kansas, dated February 1, 1997 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 52. Raleigh, North Carolina, dated February 1, 1997 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 53. San Antonio, Texas, dated February 1, 1997 Lessor: Promus/FelCor Hotels, L.L.C. Lessee: DJONT/EPT Leasing, L.L.C. 54. LAX II, California, dated February 18, 1997 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 55. Dana Point, California, dated February 20, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing, L.L.C. -21- 22 56. Anne Arundel County, Maryland, dated March 20, 1997 Lessor: FCH/DT BWI Holdings, L.P. Lessee: FCH/DT Leasing, L.L.C. 57. Austin, Texas, dated March 20, 1997 Lessor: FCH/DT Holdings, L.P. Lessee: FCH/DT Leasing, L.L.C. 58. Troy, Michigan, dated March 20, 1997 Lessor: FCH/DT Holdings, L.P. Lessee: FCH/DT Leasing, L.L.C. 59. San Antonio, Texas, dated May 16, 1997 Lessor: Promus/FelCor San Antonio Venture Lessee: DJONT Leasing, L.L.C. 60. Nashville (Airport), Tennessee, dated June 5, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing II, L.L.C. 61. Atlanta-Airport (Gateway/College Park), Georgia, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. 62. Atlanta-Galleria (Cumberland), Georgia, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. 63. Chicago-O'Hare Airport, Illinois, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. -22- 23 64. Phoenix-Crescent, Arizona, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. 65. Dallas-Park Central, Texas, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. 66. Syracuse, New York, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 67. Dallas (Market Center), Texas, dated June 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 68. Lake Buena Vista, Florida, dated July 28, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing II, L.L.C. 69. Raleigh/Durham, North Carolina, dated July 28, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing II, L.L.C. 70. Tampa (Rocky Point), Florida, dated July 28, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing II, L.L.C. 71. Philadelphia (Society Hill), Pennsylvania, dated September 30, 1997 Lessor: FCH/PSH, L.P. Lessee: FCH/SH Leasing, L.L.C. -23- 24 72. Burlington, Vermont, dated December 3, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing II, L.L.C. 73. Dayton, Ohio, dated December 30, 1997 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing II, L.L.C. 1998 LEASES 74. Columbus, Ohio, dated February 6, 1998 Lessor: FelCor Suites Limited Partnership Lessee: FCH/DT Leasing II, L.L.C. 75. Wilmington, Delaware, dated March 20, 1998 Lessor: FCH/DT Holdings, L.P. Lessee: FCH/DT Leasing, L.L.C. 76. Aurora, Colorado, dated April 14, 1998 Lessor: FCH/DT Holdings, L.P. Lessee: FCH/DT Leasing, L.L.C. 77. Ft. Lauderdale, Florida, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. 78. Irving (DFW Airport), Texas, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 79. St. Louis, Missouri, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. -24- 25 80. Phoenix (44th St.), Arizona, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 81. Tempe, Arizona, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 82. Atlanta (College Park), Georgia, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 83. Palm Desert, California, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: DJONT Leasing, L.L.C. 84. Lexington, Kentucky, dated May 1, 1998 Lessor: FelCor Suites Limited Partnership Lessee: FCH/SH Leasing, L.L.C. 85. Dallas (Campbell Center), Texas, dated May 29, 1998 Lessor: FCH/DT Holdings, L.P. Lessee: FCH/DT Leasing, L.L.C. -25- EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 11,060 0 32,701 0 0 43,761 1,967,593 (120,554) 2,155,586 50,680 794,220 0 295,000 378 922,809 2,155,586 0 124,930 0 0 0 0 23,526 45,825 0 45,825 0 556 0 45,825 1.04 1.03
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