-----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, TJxW7muuGac8mKCOuaDBft4W7lVOVPy8V6w0vtgCoD3q+BZq7U795lDVFUdMmP/A PvTG+c9zcLqmnbVLTMKOqw== 0000950134-98-009030.txt : 19981118 0000950134-98-009030.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950134-98-009030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98751821 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 SEPTEMBER 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 SEPTEMBER 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 (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 November 10, 1998 was 67,891,552. - -------------------------------------------------------------------------------- 2 FELCOR LODGING TRUST INCORPORATED INDEX
PAGE ---- PART I. -- FINANCIAL INFORMATION Item 1. Financial statements.............................................................................. 3 FELCOR LODGING TRUST INCORPORATED Consolidated balance sheets - September 30, 1998 (unaudited) and December 31, 1997..................................................................... 3 Consolidated statements of operations -- for the three and nine months ended September 30, 1998 and 1997 (unaudited)............................................. 4 Consolidated statements of cash flows -- for the nine months ended September 30, 1998 and 1997 (unaudited)............................................. 5 Notes to consolidated financial statements..................................................... 6 DJONT OPERATIONS, L.L.C. Consolidated balance sheets - September 30, 1998 (unaudited) and December 31, 1997..................................................................... 14 Consolidated statements of operations -- for the three and nine months ended September 30, 1998 and 1997 (unaudited)............................................. 15 Consolidated statements of cash flows -- for the nine months ended September 30, 1998 and 1997 (unaudited)............................................. 16 Notes to consolidated financial statements..................................................... 17 ITEM 2. Management's discussion and analysis of financial condition and results of operations............. 18 General/Third quarter highlights............................................................... 18 Results of operations.......................................................................... 19 Liquidity and capital resources................................................................ 25 PART II. -- OTHER INFORMATION ITEM 2. Changes in securities............................................................................. 30 ITEM 4. Submission of matters to a vote of security holders............................................... 30 ITEM 5. Other information................................................................................. 30 ITEM 6. Exhibits and reports on Form 8-K.................................................................. 30 SIGNATURE....................................................................................................... 32
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1998 1997 --------------- --------------- (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $148,339 and $87,400 at September 30, 1998 and December 31, 1997, respectively ...... $ 3,831,313 $ 1,489,764 Investment in unconsolidated entities ......................................... 136,556 132,991 Cash and cash equivalents ..................................................... 49,368 17,543 Due from Lessees .............................................................. 28,861 18,908 Deferred expenses, net of accumulated amortization of $1,473 and $1,987 at September 30, 1998 and December 31, 1997, respectively ........... 10,617 10,593 Other assets .................................................................. 9,316 3,565 --------------- --------------- Total assets ....................................................... $ 4,066,031 $ 1,673,364 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Debt and capital lease obligations, net of discount of $1,704 and $1,855 at September 30, 1998 and December 31, 1997, respectively ..................... $ 1,504,852 $ 476,819 Distributions payable ......................................................... 42,432 24,671 Accrued expenses and other liabilities ........................................ 63,890 11,331 Minority interest in Operating Partnership, 2,943 and 2,900 units issued and outstanding at September 30, 1998 and December 31, 1997, respectively .. 89,086 73,451 Minority interest in other partnerships ....................................... 16,388 8,594 --------------- --------------- Total liabilities .................................................. 1,716,648 594,866 --------------- --------------- Commitments and contingencies (Note 3) Shareholders' equity: Preferred stock, $.01 par value, 20,000 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, 200,000 shares authorized, 69,077 and 37,802 shares issued, including shares in treasury, at September 30, 1998 and December 31, 1997, respectively ........................................ 691 378 Additional paid in capital .................................................... 2,137,482 1,003,501 Unearned officers' and directors' compensation ................................ (462) (1,754) Distributions in excess of earnings ........................................... (42,222) (33,771) --------------- --------------- 2,390,489 1,119,604 Less common stock in treasury at cost, 1,213 shares ........................... (41,106) (41,106) --------------- --------------- Total shareholders' equity ......................................... 2,349,383 1,078,498 --------------- --------------- Total liabilities and shareholders' equity ......................... $ 4,066,031 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenues: Percentage lease revenue ................................ $ 105,123 $ 48,603 $ 223,990 $ 122,651 Equity in income from unconsolidated entities ........... 2,446 2,338 6,429 5,765 Other revenue ........................................... 1,030 112 3,111 283 ------------ ------------ ------------ ------------ Total revenue .................................. 108,599 51,053 233,530 128,699 ------------ ------------ ------------ ------------ Expenses: General and administrative .............................. 1,452 897 4,026 2,743 Depreciation ............................................ 27,720 14,238 61,036 35,969 Taxes, insurance and other .............................. 14,651 6,155 29,490 16,912 Interest expense ........................................ 22,960 7,183 46,486 20,097 Minority interest in Operating Partnership .............. 1,639 1,643 5,452 4,584 Minority interest in other partnerships ................. 323 195 805 337 ------------ ------------ ------------ ------------ Total expenses ................................. 68,745 30,311 147,295 80,642 ------------ ------------ ------------ ------------ Net income before extraordinary charge .................... 39,854 20,742 86,235 48,057 Extraordinary charge from write off of deferred financing fees ....................................... 2,519 3,075 ------------ ------------ ------------ ------------ Net income ................................................ 37,335 20,742 83,160 48,057 Preferred dividends ....................................... 6,184 2,949 13,987 8,848 ------------ ------------ ------------ ------------ Net income applicable to common shareholders .............. $ 31,151 $ 17,793 $ 69,173 $ 39,209 ============ ============ ============ ============ Per common share data: Basic: Income applicable to common shareholders before extraordinary charge ................................. $ 0.58 $ 0.49 $ 1.64 $ 1.33 Extraordinary charge .................................... (0.04) (0.07) ------------ ------------ ------------ ------------ Net income applicable to common shareholders ............ $ 0.54 $ 0.49 $ 1.57 $ 1.33 ============ ============ ============ ============ Weighted average common shares outstanding .............. 58,461 36,356 43,925 29,495 Diluted: Income applicable to common shareholders before extraordinary charge ................................. $ 0.57 $ 0.48 $ 1.63 $ 1.31 Extraordinary charge .................................... (0.04) (0.07) ------------ ------------ ------------ ------------ Net income applicable to common shareholders ............ $ 0.53 $ 0.48 $ 1.56 $ 1.31 ============ ============ ============ ============ Weighted average common shares and equivalents outstanding ........................................... 58,834 36,812 44,294 29,907
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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1998 1997 ------------ ------------ Cash flows from operating activities: Net income ............................................................... $ 83,160 $ 48,057 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation ................................................... 61,036 35,969 Amortization of deferred financing fees and organization costs . 1,927 1,011 Amortization of unearned officers' and directors' compensation . 605 737 Equity in income from unconsolidated entities .................. (6,429) (5,765) Extraordinary charge for write off of deferred financing fees .. 3,075 Minority interest in Operating Partnership ..................... 5,452 4,584 Minority interest in other partnerships ........................ 805 337 Changes in assets and liabilities, net of effects of acquisitions: Due from Lessee ................................................ (19,031) (7,893) Deferred financing fees ........................................ (4,300) Deferred costs and other assets ................................ (4,102) (4,362) Accrued expenses and other liabilities ......................... 28,933 (966) ------------ ------------ Net cash flow provided by operating activities ....... 151,131 71,709 ------------ ------------ Cash flows from investing activities, net of effects of acquisitions: Acquisition of hotels .................................................... (354,435) (537,100) Net cash paid in the acquisition of unconsolidated entities .............. (984) (59,571) Net cash received in acquisition of Bristol hotels ....................... 16,790 Bristol Interim Credit Facility .......................................... (120,000) Improvements and additions to hotels ..................................... (44,310) (38,413) Cash distributions from unconsolidated entities .......................... 18,406 2,849 ------------ ------------ Net cash flow used in investing activities ........... (484,533) (632,235) ------------ ------------ Cash flows from financing activities, net of effects of acquisitions: Proceeds from borrowings ................................................. 942,003 332,000 Repayment of borrowings .................................................. (640,300) (151,900) Proceeds from sale of preferred stock .................................... 143,750 Proceeds from sale of common stock ....................................... 516,700 Costs associated with public offerings ................................... (4,686) (27,600) Proceeds from exercise of stock options .................................. 1,657 592 Purchase of treasury stock ............................................... (41,106) Distributions paid to limited partners ................................... (4,807) (4,432) Distributions paid to preferred shareholders ............................. (13,987) (8,848) Distributions paid to common shareholders ................................ (58,403) (43,731) ------------ ------------ Net cash flow provided by financing activities ....... 365,227 571,675 ------------ ------------ Net change in cash and cash equivalents ............................................ 31,825 11,149 Cash and cash equivalents at beginning of periods .................................. 17,543 7,793 ------------ ------------ Cash and cash equivalents at end of periods ........................................ $ 49,368 $ 18,942 ============ ============ Supplemental cash flow information -- Interest paid ............................................................ $ 33,322 $ 19,907 ============ ============
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 THIRD QUARTER HIGHLIGHTS FelCor Lodging Trust Incorporated ("FelCor") is a real estate investment trust ("REIT") which, at September 30, 1998, owned interests in 194 hotels with nearly 50,000 rooms and suites (collectively the "Hotels") through its 95.8% general partner interest in FelCor Lodging 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 172 of the Hotels, a 90% or greater interest in entities owning seven hotels, and 50% interests in separate entities that own 15 hotels. FelCor is the owner of the largest number of Embassy Suites(R), Doubletree Guest Suites(R), Crowne Plaza(R) and Holiday Inn(R) branded hotels. The following table provides a schedule of the Hotels by brand:
BRAND HOTELS ----- ------ Embassy Suites 57 Holiday Inn 52 Doubletree(R) and Doubletree Guest Suites 18 Crowne Plaza and Crowne Plaza Suites(R) 11 Holiday Inn Select(R) 12 Sheraton(R) and Sheraton Suites(R) 10 Harvey Hotel(R) 5 Other Upscale 7 Hampton Inn(R) 9 Fairfield Inn(R) 5 Holiday Inn Express(R) 6 Other Full Service 2 --- Total Hotels 194 ===
The Hotels are located in 34 states and Canada, with 78 hotels in California, Florida and Texas. The following table provides information regarding the net acquisition of Hotels through September 30, 1998:
NET HOTELS ACQUIRED -------- 1994 7 1995 13 1996 23 1997 30 1ST QUARTER 1998 2 2ND QUARTER 1998 12 3RD QUARTER 1998 107 --- 194 ===
At September 30, 1998 the Company leased 87 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company, or a consolidated subsidiary thereof (collectively "DJONT"), 106 of the Hotels to Bristol Hotels & Resorts or a consolidated subsidiary thereof, (collectively with DJONT, the "Lessees") and one hotel was not leased. Thomas J. Corcoran, Jr., the President, Chief Executive Officer and a Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting equity interest in DJONT. The remaining 50% non-voting equity interest is beneficially owned by the children of Charles N. Mathewson, a director of 6 7 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. ORGANIZATION AND THIRD QUARTER HIGHLIGHTS -- (CONTINUED) FelCor and major initial investor in the Company. DJONT has entered into management agreements pursuant to which 73 of the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation ("Promus"), nine are managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), two are managed by Bristol Hotels & Resorts and three are managed by two independent management companies. Promus is the operator of the largest number of all-suite, full service hotels in the United States. Bristol Hotels & Resorts leases and/or manages the remaining 107 Hotels and is the largest independent hotel operating company in North America. They operate the largest number of Bass Hotels & Resorts-branded hotels in the world. A brief discussion of the third quarter 1998 highlights follows: o Completed the merger of Bristol Hotel Company's hotel assets into the Company ( the "Bristol Merger") on July 28, 1998. The merger resulted in the acquisition of 109 primarily full-service 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 hotels acquired added more than 28,000 rooms to the Company's 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 FelCor's currently outstanding Common Stock in the merger. Bristol Hotels & Resorts ("Bristol"), the new hotel operating company spun off from Bristol Hotel Company prior to its merger into FelCor, continues to lease and operate the hotels acquired by FelCor in the merger. o Sold two of the hotels acquired in the Bristol Merger, the 199-room Holiday Inn Express - Northeast in Atlanta, Ga., and the 200-room Holiday Inn-Orlando Winter Park in Orlando, Fla., for an aggregate sale price of $7.7 million. Presently, the Company has pending sales contracts on three additional limited service hotels, which are expected to close before year end, for an aggregate sales price of $8.6 million. Five additional hotel properties, acquired from Bristol Hotel Company, are being actively offered for sale. o Twenty-three hotels were undergoing redevelopment and renovation during the quarter, resulting in approximately 120,000 room nights out-of-service, or approximately 3% of available room nights. During the quarter, two hotels were re-branded as Sheraton Suites and four hotels were re-branded as Crowne Plaza hotels. In total, renovations at 11 hotels were completed during the quarter. o Increased unsecured credit facilities to $1.1 billion from $550 million. The new unsecured credit facilities consist of a $850 million revolving line of credit that matures on July 1, 2001, and a $250 million term loan that matures on January 1, 2000. In connection with the retirement of the old unsecured credit facilities, an extraordinary charge of $2.5 million was recognized in the quarter. o Declared third quarter dividends of $0.55 per common share, $0.4875 per $1.95 Series A Cumulative Convertible Preferred share and $0.5625 per depository share evidencing the 9% Series B Cumulative Redeemable Preferred Stock. 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 7 8 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. ORGANIZATION AND THIRD QUARTER HIGHLIGHTS -- (CONTINUED) and notes thereto of the Company and DJONT 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 nine months ended September 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. 2. SUPPLEMENTAL CASH FLOW INFORMATION On July 28, 1998, the Company acquired by merger, certain assets and assumed certain liabilities relating to hotels owned by Bristol Hotel Company. This was 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 $ 1,975,887 Debt assumed (846,116) Common Stock issued (1,146,561) ------------ Net cash received by the Company $ (16,790) ============
Under the Bristol Merger the Company provided Bristol a $120 million interim credit facility (the "Interim Credit Facility"). At July 28, 1998, the Interim Credit Facility was assumed and canceled by the Company upon completion of the Bristol Merger. During the first nine months of 1998, the Company purchased certain other assets and assumed certain liabilities relating to 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................................................. $367,878 Debt assumed.................................................... (1,479) Operating Partnership units issued.............................. (4,976) Minority interest contribution in other partnerships............ (6,988) -------- Net cash paid by the Company........................... $354,435 ========
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS At September 30, 1998, the Company owned interests in 194 Hotels operating under various brand names. The Hotels generally 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 Lessees. 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 DJONT. DJONT generally pays the Hotel managers a base management fee based on a percentage of suite/room revenue and an incentive management fee based on income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and committed to make subordinated loans to DJONT, if needed, to meet its rental and other obligations under the Percentage Leases. Bristol was both the lessee and/or manager of 107 hotels at September 30, 1998, and, as such, is compensated for both roles through the profitability of the hotels, after meeting their operating expenses and rental obligations under the Percentage Leases. Bristol is a public company whose common stock is listed on the New York Stock Exchange under the symbol BH and that files financial statements in accordance with the Securities and Exchange Act of 1934. 8 9 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) The Company receives rental income from the Lessees under the Percentage Leases which expire in 2002 (six hotels), 2003 (12 hotels), 2004 (12 hotels), 2005 (19 hotels), 2006 (25 hotels), 2007 (38 hotels), 2008 (52 hotels), and thereafter (15 hotels). Minimum future rental income (i.e., base rents) payable to the Company under these noncancellable operating leases at September 30, 1998 is set forth below (in thousands). The Percentage Leases for 14 of the unconsolidated entities expire in 2005 - 2007. The rental income under the Percentage Leases between these 14 unconsolidated entities, of which the Company owns 50%, and DJONT are payable to the respective entities and as such is not included in the following schedule of lease commitments to the Company.
BRISTOL HOTELS DJONT & RESORTS TOTAL ----- --------- ----- Remainder of 1998.................................... $ 34,329 $ 32,865 $ 67,194 1999................................................. 138,575 150,801 289,376 2000................................................. 139,903 176,797 316,700 2001................................................. 143,096 176,797 319,893 2002................................................. 143,090 176,797 319,887 2003 and thereafter.................................. 603,953 965,798 1,569,751 ---------- ---------- ---------- $1,202,946 $1,679,855 $2,882,801 ========== ========== ==========
Directly or through affiliates, Messrs. Feldman and Corcoran, the owners of joint venture interests in and the managers of certain of the Hotels leased by DJONT have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million, to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. No loans were outstanding under such agreements at September 30, 1998. Pursuant to the Amended and Restated Master Hotel Agreement dated as of July 27, 1998 (the "Master Hotel Agreement"), the lessees under the Percentage Leases that are affiliated with Bristol (the "Bristol Lessees") are required to maintain, collectively, a certain amount of Minimum Liquid Net Worth (defined to mean Liquid Net Worth equal to 15% of the projected annual rent to be paid by the Bristol Lessees under the Percentage Leases). In addition, each Bristol Lessee is required to maintain an individual Liquid Net Worth equal to the portion of the Minimum Liquid Net Worth for all Bristol Lessees allocable to it. For purposes of these covenants, Liquid Net Worth is defined generally to mean the lesser of (i) the net worth of the Bristol Lessee (for this purpose, excluding intangibles) plus any Credit Enhancement Amount, and (ii) the Bristol Lessees' Liquid Assets Amount plus any Credit Enhancement Amount. Liquid Assets Amount is defined generally to mean working capital plus the lesser of book or fair market value of lease or management contracts for non-affiliated hotel properties (those not owned by an affiliate of FelCor or Bristol), hotels or other real property owned and any other income producing or readily marketable tangible property, subject to the reasonable approval of FelCor. Credit Enhancement Amount means, generally, the aggregate amount available under letters of credit, guaranties provided by Bristol or its affiliates, or other forms of credit enhancement acceptable to FelCor. The Master Hotel Agreement also requires each Bristol Lessee to certify the amount of its Liquid Net Worth and its then applicable Minimum Liquid Net Worth, as well as the aggregate Liquid Net Worth and the Minimum Liquid Net Worth then applicable to the Bristol Lessees, collectively. If the Liquid Net Worth of any Bristol Lessee or the Bristol Lessees, collectively is less than the Minimum Liquid Net Worth, Bristol has the obligation, pursuant to the Master Hotel Agreement, to contribute additional cash, marketable securities or other assets that qualify for the Liquid Assets Amount, or to provide additional credit enhancement equal to the deficiency in the Liquid Net Worth. 9 10 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) At the closing of the Merger, the Liquid Net Worth of the Bristol Lessees, collectively, was set at $30 million. As credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of all of the Bristol Lessees in a total amount of $20 million. This Letter of Credit is required to be maintained until July 27, 1999. In addition, Bristol and certain of its affiliates have provided guaranties of the Percentage Leases pursuant to which Bristol and such affiliates have guaranteed the payment of rent under the Percentage Leases; provided, however, that the obligation under each such Guaranty is limited to the amount of any deficiency in the Liquid Net Worth of the Bristol Lessees below the Minimum Liquid Net Worth. 4. DEBT AND CAPITAL LEASE OBLIGATIONS Debt and capital lease obligations at September 30, 1998 and December 31, 1997 consist of the following (in thousands):
BALANCE INTEREST RATE MATURITY DATE SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------- ------------- ------------------ ----------------- FLOATING RATE DEBT: Line of credit - unsecured LIBOR + 150bp July 2001 $ 349,000 $ 61,000 Term loan - unsecured LIBOR + 150bp January 2000 250,000 Other - unsecured Various June 2000 25,650 25,650 ------------- ------------- Total floating rate debt 624,650 86,650 ------------- ------------- FIXED RATE DEBT: Line of credit - unsecured 7.27% July 2001 325,000 75,000 Publicly-traded term notes - 7.38% October 2004 174,218 174,116 unsecured Publicly-traded term notes - 7.63% October 2007 124,098 124,029 unsecured Mortgage debt - secured 7.46% November 2007 143,289 Mortgage debt - secured 8.0% December 2002 45,101 Other - secured Various Various 68,496 17,024 ------------- ------------- Total fixed rate debt 880,202 390,169 ------------- ------------- Total debt and capital lease obligations $ 1,504,852 $ 476,819 ============= =============
A portion of the Company's Line of Credit is matched with interest rate swap agreements which effectively convert the variable rate on the Line of Credit to a fixed rate. Under its loan agreements, the Company is required to satisfy various affirmative and negative covenants. The Company was in compliance with these covenants at September 30, 1998. 5. INVESTMENT IN UNCONSOLIDATED ENTITIES At September 30, 1998, the Company owned 50% interests in separate entities owning 15 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. 10 11 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 5. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED) Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Balance sheet information: Investment in hotels, net of accumulated depreciation...................... $252,112 $256,032 Non-recourse mortgage debt................................................. $169,939 $138,956 Equity..................................................................... $ 94,775 $126,324
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 , SEPTEMBER 30 , ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Statements of operations information: Percentage lease revenue........................ $ 13,575 $ 13,297 $ 40,144 $ 35,551 Other income.................................... 2,087 3,140 3,201 4,316 ------------ ------------ ------------ ------------ Total revenue.......................... 15,662 16,437 43,345 39,867 ------------ ------------ ------------ ------------ Expenses: Depreciation............................... 4,261 4,216 12,804 11,431 Taxes, insurance and other................. 2,303 3,436 5,462 6,314 Interest expense........................... 3,373 3,215 9,727 8,216 ------------ ------------ ------------ ------------ Total expenses......................... 9,937 10,867 27,993 25,961 ------------ ------------ ------------ ------------ Net income...................................... $ 5,725 $ 5,570 $ 15,352 $ 13,906 ============ ============ ============ ============ 50% of net income attributable to the Company... $ 2,862 $ 2,785 $ 7,676 $ 6,953 Amortization of cost in excess of book value.... (416) (447) (1,247) (1,188) ------------ ------------ ------------ ------------ Equity in income from unconsolidated entities... $ 2,446 $ 2,338 $ 6,429 $ 5,765 ============ ============ ============ ============
6. TAXES, INSURANCE AND OTHER Taxes, insurance and other is comprised of the following for the three and nine months ended September 30, 1998 and 1997 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Real estate and personal property taxes.............. $ 10,246 $ 5,015 $ 23,269 $ 13,848 Property insurance................................... 801 483 1,346 1,347 Land lease expense................................... 2,729 459 3,535 1,119 State franchise taxes................................ 561 198 1,026 498 Other 314 314 100 ------------ ------------ ------------ ------------ Total taxes, insurance and other............ $ 14,651 $ 6,155 $ 29,490 $ 16,912 ============ ============ ============ ============
11 12 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. SUBSEQUENT EVENTS The Company completed a $15.5 million non-recourse financing of the Holiday Inn Select in Pittsburgh, Pa., for a term of five years at a fixed interest rate of 7.15%. This financing was obtained to satisfy commitments to the seller made in connection with the acquisition of this hotel. A one-time distribution of earnings and profits arising from the Bristol Merger is expected to be made in conjunction with the regular fourth quarter dividend, which is expected to be paid to shareholders of record on December 30, 1998. The amount of this additional distribution, which is expected to be finalized before the end of November, 1998, is currently expected to be within the ranges of $0.30 to $0.50 per share and unit for common shareholders and Operating Partnership unitholders, and $0.17 to $0.33 per share on the $1.95 Series A Cumulative Convertible Preferred Stock. The 9% Series B Cumulative Redeemable Preferred Stock does not participate in this additional distribution. FelCor and Starwood announced the re-branding of FelCor's 545-room Sheraton Park Central hotel in Dallas, Texas, to the Westin(R) brand. In addition, the two companies have entered into a joint venture agreement combining the ownership of this hotel and an adjacent 438-room Sheraton hotel owned by Starwood, which has recently been re-branded from a Radisson(R) hotel. FelCor owns 60%, and Starwood owns 40%, of the new joint venture. 8. PRO FORMA INFORMATION (UNAUDITED) The following unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997 are presented as if the acquisitions of all hotels owned by the Company at September 30, 1998, the equity offerings consummated during 1997 and 1998 and the Bristol Merger 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. 12 13 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 8. PRO FORMA INFORMATION (UNAUDITED) -- (CONTINUED) PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ------------ ------------ Revenues: Percentage lease revenue ....................... $ 364,762 $ 302,606 Equity in income from unconsolidated entities .. 8,045 7,318 Other income ................................... 159 ------------ ------------ Total revenue ............................... 372,966 309,924 ------------ ------------ Expenses: General and administrative ..................... 5,193 3,493 Depreciation ................................... 97,486 92,731 Taxes, insurance and other ..................... 56,823 54,917 Interest expense ............................... 79,602 76,686 Minority interest in Operating Partnership ..... 5,827 3,491 Minority interest in other partnerships ........ 1,000 1,047 ------------ ------------ Total expenses .............................. 245,931 232,365 ------------ ------------ Net income ....................................... 127,035 77,559 Preferred dividends .............................. 18,552 18,552 ------------ ------------ Net income applicable to common shareholders ..... $ 108,483 $ 59,007 ============ ============ Per common share data: Basic: Net income applicable to common shareholders ... $ 1.61 $ 0.89 ============ ============ Weighted average common shares outstanding ..... 67,527 66,460 ============ ============ Diluted: Net income applicable to common shareholders ... $ 1.58 $ 0.87 ============ ============ Weighted average common shares outstanding ..... 68,454 67,466 ============ ============
13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents ................................................... $ 36,060 $ 25,684 Accounts receivable, net .................................................... 32,452 20,274 Inventories ................................................................. 4,152 3,466 Prepaid expenses ............................................................ 48 1,307 Other assets ................................................................ 671 3,971 ------------ ------------ Total assets ...................................................... $ 73,383 $ 54,702 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, trade ..................................................... $ 4,993 $ 9,426 Accounts payable, other ..................................................... 15,703 4,625 Due to FelCor Lodging Trust Incorporated .................................... 20,915 18,908 Accrued expenses and other liabilities ...................................... 41,783 30,818 ------------ ------------ Total liabilities ................................................. 83,394 63,777 ------------ ------------ Commitments and contingencies (Note 2) Shareholders' equity: Capital ..................................................................... 1 1 Distributions in excess of earnings ......................................... (10,012) (9,076) ------------ ------------ Total shareholders' deficit ....................................... (10,011) (9,075) ------------ ------------ Total liabilities and shareholders' equity ........................ $ 73,383 $ 54,702 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenue: Suite/room revenue ............................... $ 158,681 $ 128,461 $ 462,959 $ 330,545 Food and beverage revenue ........................ 18,567 10,387 53,678 20,576 Food and beverage rent ........................... 1,122 1,315 3,592 3,338 Other revenue .................................... 11,780 9,488 36,171 26,209 ------------ ------------ ------------ ------------ Total revenues .............................. 190,150 149,651 556,400 380,668 ------------ ------------ ------------ ------------ Expenses: Property operating costs and expenses ............ 43,796 37,076 125,550 93,442 General and administrative ....................... 15,116 11,377 41,597 27,694 Advertising and promotion ........................ 13,289 10,720 37,751 26,243 Repair and maintenance ........................... 9,660 7,345 26,590 18,417 Utilities ........................................ 8,303 6,625 21,458 15,316 Management fee ................................... 4,390 2,832 16,169 8,121 Franchise fee .................................... 4,705 3,644 13,626 9,828 Food and beverage expenses ....................... 16,617 8,770 46,952 17,459 Percentage lease expenses ........................ 75,935 61,362 221,393 158,436 Lessee overhead expenses ......................... 468 574 1,309 1,618 Liability insurance .............................. 354 996 923 2,496 Other ............................................ 1,380 930 4,018 3,186 ------------ ------------ ------------ ------------ Total expenses .............................. 194,013 152,251 557,336 382,256 ------------ ------------ ------------ ------------ Net loss .............................................. $ (3,863) $ (2,600) $ (936) $ (1,588) ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 15 16 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ------------ ------------ Cash flows from operating activities: Net loss ........................................................ $ (936) $ (1,588) Adjustments to reconcile net loss to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable ........................................ (12,178) (15,270) Inventories ................................................ (686) (960) Prepaid expenses ........................................... 1,259 (2,189) Other assets ............................................... 3,300 59 Due to FelCor Lodging Trust Incorporated ................... 2,007 7,892 Accounts payable, accrued expenses and other liabilities ... 17,610 36,019 ------------ ------------ Net cash flow provided by operating activities ........ 10,376 23,963 ------------ ------------ Net change in cash and cash equivalents .............................. 10,376 23,963 Cash and cash equivalents at beginning of periods .................... 25,684 5,208 ------------ ------------ Cash and cash equivalents at end of periods .......................... $ 36,060 $ 29,171 ============ ============
The accompany notes are an integral part of these consolidated financial statements. 16 17 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Thomas J. Corcoran, Jr, the President, Chief Executive Officer and a director of FelCor Lodging Trust Incorporated ("FelCor"), and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own all of the voting Class A membership interest in DJONT Operations, L.L.C. ("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. At September 30, 1998, FelCor Lodging Limited Partnership (the "Operating Partnership") leased 87 hotels to DJONT (the "Hotels") pursuant to percentage leases (the "Percentage Leases"). Directly or through affiliates, Messrs. Feldman and Corcoran, the owners of joint venture interests in, and the managers of certain of the Hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million, to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. Amounts so borrowed by DJONT, 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 September 30, 1998. At September 30, 1998, 57 of the Hotels leased to DJONT, were operated as Embassy Suites hotels, 15 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, one as a Holiday Inn Select and one was in the process of being converted to a full-service Doubletree hotel. Seventy-three of the Hotels leased to DJONT are managed by Promus Hotel Corporation ("Promus"), or by a subsidiary thereof. Of the remaining Hotels leased to DJONT, nine are managed directly by, or by a subsidiary of, Starwood Hotels & Resorts Worldwide, Inc., two are managed by Bristol Hotels & Resorts and three are managed by two independent management companies. Promus is the largest operator of all-suite, full-service hotels in the United States. 2. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Lessee has future lease commitments under the Percentage Leases which expire in 2002 (six hotels), 2003 (two hotels), 2004 (seven hotels), 2005 (12 hotels) 2006 (18 hotels), 2007 (23 hotels), 2008 (12 hotels) and 2012 (seven hotels). Minimum future rental payments (i.e., base rents) under these noncancellable operating leases at September 30, 1998 is as follows (in thousands):
YEAR AMOUNT - ---- ------ Remainder of 1998................................................... $ 41,091 1999................................................................ 165,626 2000................................................................ 166,954 2001................................................................ 170,148 2002................................................................ 170,142 2003 and thereafter................................................. 710,359 ------------ $1,424,320 ============
17 18 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. THIRD QUARTER HIGHLIGHTS: o Revenues increased 113% for the quarter from $51.1 million to $108.6 million. o Net income applicable to common shareholders increased 75% for the quarter from $17.8 million to $31.2 million. o Income before extraordinary charges per share increased 19% for the quarter from $0.48 to $0.57. o Funds From Operations ("FFO") of $68.5 million or $1.03 per share and unit sets a new quarterly record. o Completed the merger of Bristol Hotel Company's hotel assets, including 109 hotels, into FelCor on July 28, 1998. FelCor's 1998 third quarter earnings include the results from these hotels for 65 of the 92 days in the quarter. o The hotel portfolio's revenue per available room ("RevPAR"), including the comparable hotels acquired in the Bristol Merger, increased 4.1% for the quarter and 6.4% year-to-date over the comparable periods. The overall RevPAR percentage increased for the quarter, but at a slower pace than during the first half of 1998. The third quarter RevPAR increase was negatively affected by some overbuilding in select markets and by room additions at three of the hotels. Nevertheless, 70% of the comparable hotels (85 of 123 hotels) produced RevPAR increases in the third quarter as compared to the prior year. Furthermore, the Holiday Inn and Holiday Inn Select hotels, not undergoing renovation in either reporting period, produced RevPAR increases of 5.8% and 6.8% for the quarter and year-to-date, respectively. o Twenty-three hotels were undergoing redevelopment and renovation during the quarter, resulting in approximately 120,000 room nights out-of-service or approximately 3% of available room nights. During the quarter, two hotels were re-branded as Sheraton Suites and four hotels were re-branded as Crowne Plaza hotels. In total, renovations at 11 hotels were completed during the quarter. o Sold two of the hotels acquired in the Bristol Merger: the 199-room Holiday Inn Express(R) - Northeast in Atlanta, Ga., and the 200-room Holiday Inn-Orlando Winter Park in Orlando, Fla., for an aggregate sale price of $7.7 million. Presently, FelCor has pending sales contracts on three additional limited-service hotels, which are expected to close before year end, for an aggregate sales price of $8.6 million. Five additional hotel properties, acquired in the Bristol Merger, are being actively offered for sale. o Increased FelCor's unsecured credit facilities to $1.1 billion from $550 million. The new unsecured credit facilities consist of a $850 million revolving line of credit that matures on July 1, 2001, and a $250 million term loan that matures on January 1, 2000. In connection with the retirement of the old unsecured credit facilities, an extraordinary charge of $2.5 million was recognized in the quarter. o Following the end of the quarter, completed $15.5 million non-recourse financing of the Holiday Inn Select in Pittsburgh, Pa., for a term of five years at a fixed interest rate of 7.15%. This financing was obtained to satisfy commitments to the seller made in connection with the acquisition of this hotel. 18 19 o Declared third quarter dividends of $0.55 per common share, $0.4875 per $1.95 Series A Cumulative Convertible Preferred share and $0.5625 per depositary share relating to the 9% Series B Cumulative Redeemable Preferred Stock. The current annual dividend on Common Stock of $2.20 results in a current FFO payout ratio of approximately 60% and a dividend yield of approximately 9.2%, based on the November 2, 1998, closing price for FelCor Common Stock on the NYSE. RESULTS OF OPERATIONS The Company Nine Months Ended September 30, 1998 and 1997 For the nine months ended September 30, 1998 and 1997, the Company had revenues of $233.5 million and $128.7 million, respectively, consisting primarily of Percentage Lease revenues of $224.0 million and $122.7 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 123 additional hotels since September 30, 1997 including 107 hotels acquired on July 28, 1998 through the Bristol Merger. 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.) Total expenses increased $66.7 million in the nine months ended September 30, 1998, from $80.6 million to $147.3 million, compared to the same period in 1997. This increase resulted primarily from the additional hotels acquired in 1998 and 1997. Total expenses as a percentage of total revenue remained constant at 63% in the nine months ended September 30, 1998 and in the same period of 1997. The major components of total expenses are depreciation; taxes, insurance and other; and interest expense. Depreciation increased primarily as a result of the additional hotels acquired in 1998 and 1997. However, as a percentage of revenue, depreciation remained relatively constant. Taxes, insurance and other increased $12.6 million primarily as a result of the increased number of hotels owned. As a percentage of total revenue, taxes, insurance and other decreased insignificantly from 13.1% to 12.6%. Interest expense increased as a percentage of total revenue to 19.9% in the nine months ended September 30, 1998 from 15.6% in the nine months ended September 30, 1997. This increase in interest expense is attributed to the increased use of debt to finance acquisitions and renovations and the debt assumed in connection with the Bristol Merger. Three Months Ended September 30, 1998 and 1997 For the three months ended September 30, 1998 and 1997, the Company had revenues of $108.6 million and $51.1 million, respectively, consisting primarily of Percentage Lease revenues of $105.1 million and $48.6 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 123 additional hotels since September 30, 1997, including 107 hotels acquired on July 28, 1998 through the Bristol Merger. 19 20 Total expenses increased $38.4 million in the three months ended September 30, 1998, to $68.7 million, compared to the same period in 1997. This increase resulted primarily from the additional hotels acquired in 1998 and 1997. Total expenses increased as percentage of total revenue to 63.3% in the third quarter of 1998 from 59.4% in the third quarter of 1997. 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 1998 and 1997. However, as a percentage of revenue, depreciation remained relatively constant. Taxes, insurance and other increased $8.5 million primarily as a result of the increased number of hotels owned. As a percentage of total revenue, taxes, insurance and other increased from 12.1% to 13.4%. Interest expense increased as a percentage of total revenue to 21.1% in the third quarter of 1998 from 14.1% in the third quarter of 1997. This increase in interest expense is attributed to the increased use of debt to finance acquisitions and renovations, and the debt assumed in connection with the Bristol Merger. 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. 20 21 The following table details the computation of Funds From Operations (in thousands, except per share and unit data):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Funds From Operations (FFO): Net income ....................................... $ 37,335 $ 20,742 $ 83,160 $ 48,057 Less: Series B redeemable preferred dividends .... (3,234) (5,139) Add back: Extraordinary charge from write off of deferred financing fees from unconsolidated entities . 2,519 3,075 Minority interest in Operating Partnership .... 1,639 1,643 5,452 4,584 Depreciation .................................. 27,720 14,238 61,036 35,969 Depreciation for unconsolidated entities ...... 2,501 2,555 7,604 6,904 ------------ ------------ ------------ ------------ FFO .............................................. $ 68,480 $ 39,178 $ 155,188 $ 95,514 ============ ============ ============ ============ Weighted average common shares and units outstanding(a) ........................ 66,603 44,407 52,017 37,439 ============ ============ ============ ============
(a) Weighted average common shares and units are computed including dilutive options, unvested restricted stock grants and assuming conversion of convertible preferred stock to common stock. Included in the Funds From Operations described above is the Company's share of FFO from its interest in fifteen unconsolidated entities. The FFO contribution from these unconsolidated entities was derived as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Statements of operations information: Percentage Lease revenue ..................................... $ 13,575 $ 13,297 $ 40,144 $ 35,551 Other income ................................................. 2,087 3,140 3,201 4,316 ------------ ------------ ------------ ------------ Total revenue ................................. 15,662 16,437 43,345 39,867 ------------ ------------ ------------ ------------ Expenses: Depreciation ......................................... 4,170 4,216 12,714 11,431 Taxes, insurance and other ........................... 2,394 3,436 5,552 6,314 Interest expense ..................................... 3,373 3,215 9,727 8,216 ------------ ------------ ------------ ------------ Total expenses ................................ 9,937 10,867 27,993 25,961 ------------ ------------ ------------ ------------ Net income ................................................... $ 5,725 $ 5,570 $ 15,352 $ 13,906 ============ ============ ============ ============ 50% of net income attributable to the Company ................ $ 2,862 $ 2,785 $ 7,676 $ 6,953 Amortization of cost in excess of book value ................. (416) (447) (1,247) (1,188) ------------ ------------ ------------ ------------ Income from unconsolidated entities .......................... 2,446 2,338 6,429 5,765 Add back: 50% of depreciation ................................ 2,085 2,108 6,357 5,715 Amortization of cost in excess of book value ................................... 416 447 1,247 1,188 ------------ ------------ ------------ ------------ FFO contribution of unconsolidated entities .................. $ 4,947 $ 4,893 $ 14,033 $ 12,668 ============ ============ ============ ============
21 22 DJONT Nine Months Ended September 30, 1998 and 1997 Total revenues increased to $556.4 million for the nine months ended September 30, 1998 from $380.7 million in the same period of 1997, an increase of 46.2%. Total revenues consisted primarily of suite/room revenue of $463.0 million and $330.5 million in the nine 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 87 hotels at September 30, 1998 from 71 hotels at September 30, 1997 and the increase in RevPAR experienced at the hotels. Total expenses increased to $557,000 from $382,000 for the nine months ended September 30, 1998 compared to the same period in 1997. This increase is attributed to the increased number of hotels leased in 1998. Expense as a percentage of total revenue remained essentially constant for both periods presented, except for food and beverage expenses which increased to 8% from 5%. This increase in food and beverage expense is consistent with the increase in food and beverage revenue as a percentage of total revenue and results from a larger number of hotels operating food and beverage facilities rather than leasing them to a third party. DJONT's income before Percentage Lease expense decreased as a percentage of total revenues to 40% in the nine months ended September 30, 1998 from 41% in the nine months ended September 30, 1997. Three Months Ended September 30, 1998 and 1997 Total revenues increased to $190.1 million for the three months ended September 30, 1998 from $149.6 million in the same period of 1997, an increase of 27.1%. Total revenues consisted primarily of suite/room revenue of $158.7 million and $128.5 million in the three 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 87 hotels at September 30, 1998 from 71 hotels at September 30, 1997 and the increase in RevPAR experienced at the hotels. Total expenses as a percentage of total revenue remained constant for both the three months ended September 30, 1998 and 1997. DJONT's income before Percentage Lease expense decreased as a percentage of total revenues to 38% in the three months ended September 30, 1998 from 39% in the three months ended September 30, 1997. Bristol Bristol is a public company whose common stock is listed on the New York Stock Exchange under the symbol BH and that files financial statements in accordance with the Securities and Exchange Act of 1934. 22 23 The Hotels The following table sets forth hotel operating statistics for all Hotels in which FelCor owned an interest at September 30, 1998, regardless of the date of acquisition. COMPARABLE HOTELS (A)
THIRD QUARTER 1998 YEAR-TO-DATE 1998 --------------------------------- -------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ Original Hotels......................... 73.7% $108.90 $80.27 75.1% $113.68 $85.36 CSS Hotels.............................. 73.5 122.10 89.78 74.6 126.22 94.20 1996 Acquisitions....................... 77.2 126.26 97.51 75.6 127.34 96.23 Total DJONT Comparable Hotels........... 74.6 119.48 89.10 75.6 122.92 92.21 Original Bristol........................ 69.4 74.37 51.63 73.6 73.91 54.40 Holiday Acquisition..................... 77.7 88.82 69.03 76.0 84.01 63.82 Omaha Acquisition....................... 57.0 62.56 35.65 52.2 62.43 32.60 Total Bristol Comparable Hotels......... 71.3 80.32 57.31 70.4 77.43 54.49 Total Comparable Hotels.............. 72.4% $ 93.79 $67.93 72.2% $ 95.71 $69.07
THIRD QUARTER 1997 YEAR-TO-DATE 1997 --------------------------------- -------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ Original Hotels......................... 76.9% $107.50 $82.70 77.4% $109.29 $84.61 CSS Hotels.............................. 74.5 113.40 84.49 74.5 115.67 86.16 1996 Acquisitions....................... 77.0 120.34 92.70 76.2 118.69 90.44 Total DJONT Comparable Hotels........... 75.9 113.65 86.23 75.8 114.71 86.91 Original Bristol........................ 73.4 68.19 50.08 76.0 68.37 51.93 Holiday Acquisition..................... 79.8 83.13 66.33 77.8 77.90 60.57 Omaha Acquisition....................... 52.9 60.12 31.78 48.1 58.48 28.14 Total Bristol Comparable Hotels......... 73.1 74.99 54.84 71.2 72.06 51.30 Total Comparable Hotels.............. 74.0% $ 88.10 $65.23 72.9% $ 89.01 $64.92
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR YEAR 3RD QTR. 1998 VS. 3RD QTR. 1997 1998 VS. 1997 YEAR-TO-DATE --------------------------------- ------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ Original Hotels......................... (3.2) pts. 1.3% (2.9)% (2.3) pts. 4.0% 0.9% CSS Hotels.............................. (1.0) 7.7 6.3 0.1 9.1 9.3 1996 Acquisitions....................... (0.2) 4.9 5.2 (0.6) 7.3 6.4 Total DJONT Comparable Hotels........... (1.3) 5.1 3.3 (0.2) 7.2 6.1 Original Bristol........................ (4.0) 9.1 3.1 (2.4) 8.1 4.8 Holiday Acquisition..................... (2.1) 6.8 4.1 (1.8) 7.8 5.4 Omaha Acquisition....................... 4.1 4.1 12.2 4.1 6.8 15.9 Total Bristol Comparable Hotels......... (1.8) 7.1 4.5 (0.8) 7.5 6.2 Total Comparable Hotels.............. (1.6) pts. 6.5% 4.1% (0.7) pts. 7.5% 6.4%
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels) and 1996 Acquisitions (12 hotels) are considered DJONT Comparable Hotels since these hotels were owned by FelCor for both the nine months ended September 30, 1997 and 1998. 23 24 Bristol Comparable Hotels exclude hotels undergoing redevelopment in either the 1998 or 1997 period reported, five individual hotel acquisitions and eight hotels targeted for sale. For the third quarter 1998 data, 17 hotels were undergoing redevelopment and were excluded. For year-to-date September 30, 1998 data, 29 hotels were undergoing redevelopment and were excluded. NON-COMPARABLE HOTELS (B)
THIRD QUARTER 1998 YEAR-TO-DATE 1998 --------------------------------- -------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ 1997 Acquisitions 71.7% $108.87 $78.08 72.2% $112.16 $80.93 1998 Acquisitions 71.0 91.44 64.89 73.5 99.56 73.17 Bristol Non-Comparable Hotels (C) 61.5 85.37 52.52 66.3 88.16 58.41
THIRD QUARTER 1997 YEAR-TO-DATE 1997 --------------------------------- -------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ 1997 Acquisitions 72.8% $107.34 $78.17 73.2% $109.01 $79.79 1998 Acquisitions 72.4 89.03 64.50 74.8 96.27 71.96 Bristol Non-Comparable Hotels (C) 69.4 78.07 54.20 73.0 80.68 58.88
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR YEAR 3RD QTR. 1998 VS. 3RD QTR. 1997 1998 VS. 1997 YEAR-TO-DATE --------------------------------- -------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ 1997 Acquisitions (1.1) pts. 1.4% (0.1)% (1.0) pts. 2.9% 1.4% 1998 Acquisitions (1.4) 2.7 0.6 (1.3) 3.4 1.7 Bristol Non-Comparable Hotels (C) (7.9) 9.3 (3.1) (6.7) 9.3 (0.8)
(B) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions (13 hotels) are not considered comparable since these hotels were not owned by FelCor for both the nine months ended September 30, 1998 and 1997 and the hotels were undergoing renovation in either the 1998 or 1997 period reported. (C) Excludes two closed hotels under renovation and eight hotels targeted for sale. In aggregate, the eight hotels targeted for sale had a 8.7% and 9.5% decline in RevPAR for the third quarter 1998 and year-to-date, respectively. All hotel performance statistics reflect the hotels' performance for the entire periods noted, whether or not the hotel was owned by FelCor for the entire periods. Comparison of The Hotels' Operating Statistics for the Nine Months Ended September 30, 1998 and 1997 Revenue per available room ("RevPAR") for the DJONT Comparable Hotels increased 6.1% for the nine months ended September 30, 1998 compared to the same period in 1997. Of these hotels the strongest performance came from the CSS Hotels, which the Company purchased in late 1995 and early 1996. The Company invested more than $50 million to renovate and reposition these hotels and believes that this contributed to the strong increase in RevPAR. The Original Hotels which represent 13 hotels acquired between 1994 and 1995 had increases in RevPAR of 0.9%. There were room additions at two of these hotels which negatively effected RevPAR, but resulted in increases in revenue and percentage rent income. Additionally, three of the Original Hotels are in Florida and were impacted by adverse weather conditions and three hotels are located in markets experiencing overall decreases in occupancy. RevPAR for the Bristol Comparable Hotels increased 4.5% over the same period in 1997. These were led by the Omaha Acquisition, which has benefitted from Bristol management. The Company noted that most of the markets in which Company's hotels are located experienced strong performance. The Company's hotels in Southern California saw double digit RevPAR growth. Florida and east coast hotels were adversely affected by Hurricane Bonnie during the peak summer season but generally performed well. 24 25 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 nine months ended September 30, 1998, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $151.1 million and Funds From Operations (as previously defined) was $155.2 million. The Lessees' obligations under the Percentage Leases are unsecured. The Lessees' 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 Lessees to generate sufficient cash flow from the operation of the Hotels. At September 30, 1998, DJONT had paid all amounts then due the Company under the Percentage Leases. During the nine months ended September 30, 1998, DJONT had net loss of $1 million. DJONT had a shareholders' deficit of $10 million at September 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 DJONT will be retained until a positive shareholders' equity is restored. It is anticipated that DJONT's future earnings will be sufficient to enable it to continue to make its lease payments under the Percentage Leases when due. Directly or through affiliates, Messrs. Feldman and Corcoran, the owners of joint venture interests in and the managers of certain of the Hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million, to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. Amounts so borrowed by DJONT, 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 September 30, 1998. Pursuant to the Amended and Restated Master Hotel Agreement dated as of July 27, 1998 (the "Master Hotel Agreement"), the lessees under the Percentage Leases that are affiliated with Bristol (the "Bristol Lessees") are required to maintain, collectively, a certain amount of Minimum Liquid Net Worth (defined to mean Liquid Net Worth equal to 15% of the projected annual rent to be paid by the Bristol Lessees under the Percentage Leases). In addition, each Bristol Lessee is required to maintain an individual Liquid Net Worth equal to the portion of the Minimum Liquid Net Worth for all Bristol Lessees allocable to it. For purposes of these covenants, Liquid Net Worth is defined generally to mean the lesser of (i) the net worth of the Bristol Lessee (for this purpose, excluding intangibles) plus any Credit Enhancement Amount, and (ii) the Bristol Lessees' Liquid Assets Amount plus any Credit Enhancement Amount. Liquid Assets Amount is defined generally to mean working capital plus the lesser of book or fair market value of lease or management contracts for non-affiliated hotel properties (those not owned by an affiliate of FelCor or Bristol), hotels or other real property owned and any other income producing or readily marketable tangible property, subject to the reasonable approval of FelCor. Credit Enhancement Amount means, generally, the aggregate amount available under letters of credit, guaranties provided by Bristol or its affiliates, or other forms of credit enhancement acceptable to FelCor. The Master Hotel Agreement also requires each Bristol Lessee to certify the amount of its Liquid Net Worth and its then applicable Minimum Liquid Net Worth, as well as the aggregate Liquid Net Worth and the Minimum Liquid Net Worth then applicable to the Bristol Lessees, collectively. If the Liquid Net Worth of any Bristol Lessee or the Bristol Lessees, collectively is less than the Minimum Liquid Net Worth, Bristol has the obligation, pursuant to the Master Hotel Agreement, to contribute additional cash, marketable securities or other assets that qualify for the Liquid Assets Amount, or to provide additional credit enhancement equal to the deficiency in the Liquid Net Worth. 25 26 At the closing of the Merger, the Liquid Net Worth of the Bristol Lessees, collectively, was set at $30 million. As credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of all of the Bristol Lessees in a total amount of $20 million. This Letter of Credit is required to be maintained until July 27, 1999. In addition, Bristol and certain of its affiliates have provided guaranties of the Percentage Leases pursuant to which Bristol and such affiliates have guaranteed the payment of rent under the Percentage Leases; provided, however, that the obligation under each such Guaranty is limited to the amount of any deficiency in the Liquid Net Worth of the Bristol Lessees below the Minimum Liquid Net Worth. The Company may 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 September 30, 1998, the Company had $49.4 million of cash and cash equivalents and had utilized $674 million of the amount available under the Line of Credit. Significant debt statistics at September 30, 1998 are as follows: o Interest coverage ratio of 3.5x o Total debt to EBITDA of 3.9x o Borrowing capacity under existing credit facilities of $150 million o Consolidated debt-to-investment in hotels, at cost, of 38% o Fixed interest rate debt comprising 58% of total debt o Total assets encumbered by secured debt of 7% o Debt maturing in 1999 of $16 million In addition, FelCor has no interest rate hedging instrument exposure or forward equity commitments. To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into eight 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 September 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 $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 26 27 are limited to major banks and financial institutions, and it does not anticipate nonperformance by the counterparties. The Company spent approximately $43 million on upgrading, renovating and/or rebranding 50 hotels during the nine months ended September 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 acquired by FelCor in the Bristol Merger. At July 28, 1998, the redevelopment of 39 hotels was completed with a remaining 43 hotels currently in various stages of redevelopment. FelCor plans to spend approximately $125 million to complete this repositioning and redevelopment program, commenced by Bristol in 1997, with an expected completion by the end of 1999. Hotels undergoing renovations, redevelopment and re-branding during the third quarter of 1998 included three Doubletree Guest Suites, one Sheraton, four Embassy Suites, two Sheraton Suites and 13 Holiday Inn or Holiday Inn Select hotels. Included in these are two hotels, the Allerton Hotel - Chicago (to be re-branded as a Crowne Plaza) and the Holiday Inn - Tampa Busch Gardens, which are closed. Both hotels are expected to reopen in the summer of 1999. Renovations at 11 hotels, containing approximately 3,200 rooms, were completed during the third quarter and the hotels were returned to service as follows: 296 - room Crowne Plaza Atlanta, Ga. 224 - room Crowne Plaza Greenville, S.C. 445 - room Crowne Plaza - City Center Philadelphia, Pa. 400 - room Crowne Plaza - Union Square San Francisco, Calif. 219 - room Doubletree Guest Suites Bloomington, Minn. 198 - room Doubletree Guest Suites Dana Point, Calif. 261 - room Embassy Suites Austin, Texas 217 - room Embassy Suites San Antonio, Texas 242 - room Holiday Inn Knoxville, Tenn. 385 - room Holiday Inn Select Stamford, Conn. 316 - room Holiday Inn - Downtown San Antonio, Texas
The recently renovated and re-branded Crowne Plaza hotels produced RevPAR increases in each post renovation month of the third quarter 1998 as compared to the prior year period. During the remainder of 1998 and in calendar year 1999, nine additional hotels are expected to be re-branded as Crowne Plaza hotels. 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 Lessees' 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 is 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. 27 28 YEAR 2000 The year 2000 issue relates to computer programs that were written using two digits rather than four to define the applicable year. In those programs, the year 2000 may be incorrectly identified as the year 1900, which could result in a system failure or miscalculations causing a disruption of operations, including a temporary inability to process transactions, prepare financial statements or engage in other normal business activities. The Company believes that its efforts to remediate the year 2000 issues will avoid a major business disruption. FelCor has assessed its internal computer systems and believes that they will properly utilize dates beyond December 31, 1999. The Hotels owned by FelCor are in various stages of identifying both computer issues and non-information technology systems issues to determine if they are year 2000 compliant, including embedded systems that operate elevators, phone systems, energy maintenance systems, security systems and other systems. The assessments, which have not been completed at this date, are scheduled to be completed by the end of the first quarter of 1999. Most of the upgrades to make a hotel year 2000 compliant had been anticipated as part of the renovation and re-branding program that the Company undertakes upon acquisition of a hotel. The Company currently anticipates that the total cost to remediate all hotel year 2000 issues to be approximately $20 million, which is included in the Company's 1998 and 1999 capital plans. Concurrent with the assessment of the year 2000 issue, the Company and its hotel managers and Lessees are developing contingency plans intended to mitigate the possible disruption in business operations that may result from year 2000 issues, and are developing cost estimates for such plans. Once developed, contingency plans and related cost estimates will be continually refined as additional information becomes available. 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 In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS No. 132"). FAS No. 132 provides additional information to facilitate financial analysis and eliminates certain disclosures which are no longer useful. To the extent practicable, the Statement also standardizes disclosures for retiree benefits. FAS No. 132 is effective for financial statements issued for periods ending after December 15, 1997. The Company believes that FAS No. 132 will not have a material impact on the financial statements of the Company. 28 29 In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company believes that, upon implementation, FAS 133 will not have a material impact on the financial statements of the Company. 29 30 PART II. -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. During the third quarter of 1998, the Company issued 141,777 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 September 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 ------ ----------- 10.1.10 Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership effective as of June 22, 1998, by and among the Company, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Operating Partnership. 10.1.11 Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of July 28, 1998, by and between the Company and all of the persons or entities who are or shall in the future become limited partners of the Operating Partnership, changing the name of the Operating Partnership to "FelCor Lodging Limited Partnership." 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 September 30, 1998. 10.20 FelCor Suite Hotels, Inc. 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference). 10.21 Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to the Company's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) (the "Form S-3 Registration Statement") and incorporated herein by reference).
30 31 10.22 Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to the Company's Form S-3 Registration Statement and incorporated herein by reference). 10.23 Form of Nonqualified Stock Option Agreement for 1995 Equity Incentive Plan (filed as Exhibit 99.3 to the Company's Form S-3 Registration Statement and incorporated herein by reference). 10.24 Form of Nonqualified Stock Option Agreement for Non-Employee Directors Stock Option Plan (filed as Exhibit 99.4 to the Company's Form S-3 Registration Statement and incorporated herein by reference). 27 Financial Data Schedule.
(b) Reports on Form 8-K: - 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. 31 32 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: November 16, 1998 FELCOR LODGING TRUST INCORPORATED By: /s/ Randall L. Churchey ------------------------------------------------- Randall L. Churchey Senior Vice President and Chief Financial Officer (Chief Financial Officer) 32 33 INDEX TO EXHIBITS
Exhibit Number Description of Exhibit ------ ---------------------- 10.1.10 Tenth Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership effective as of June 22, 1998, by and among the Company, Schenley Hotel Associates, and all of the persons or entities who are or shall in the future become limited partners of the Partnership. 10.1.11 Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership dated as of July 28, 1998, by and between the Company and all of the persons or entities who are or shall in the future become limited partners of the Partnership, changing the name of the Partnership to "FelCor Lodging Limited Partnership." 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 September 30, 1998. 10.20 FelCor Suite Hotels, Inc. 1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (File No. 333-66041) and incorporated herein by reference). 10.21 Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to the Company's Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) (the "Form S-3 Registration Statement") and incorporated herein by reference). 10.22 Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to the Company's Form S-3 Registration Statement and incorporated herein by reference). 10.23 Form of Nonqualified Stock Option Agreement for 1995 Equity Incentive Plan (filed as Exhibit 99.3 to the Company's Form S-3 Registration Statement and incorporated herein by reference). 10.24 Form of Nonqualified Stock Option Agreement for Non-Employee Directors Stock Option Plan (filed as Exhibit 99.4 to the Company's Form S-3 Registration Statement and incorporated herein by reference). 27 Financial Data Schedule.
EX-10.01.10 2 10TH AMEND TO AMENDED/RESTATED AGREEMENT - LP 1 TENTH AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FELCOR SUITES LIMITED PARTNERSHIP This Tenth Amendment to Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited Partnership is made and entered into effective as of June 22, 1998, by and among FelCor Suite Hotels, Inc., a Maryland corporation, as the General Partner ("General Partner"), Schenley Hotel Associates, a Pennsylvania limited partnership ("Schenley"), as an Additional Limited Partner, and all of the persons and entities who are or shall in the future become Limited Partners of this limited partnership in accordance with the provisions of the Partnership Agreement (as hereinafter defined). R E C I T A L S: A. The General Partner and the existing Limited Partners have previously executed and delivered that certain Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited Partnership dated as of July 25, 1994, as previously amended (the "Partnership Agreement"), pursuant to which they have formed a Delaware limited partnership under the name of "FelCor Suites Limited Partnership" (the "Partnership"). B. The Partnership, the General Partner and Schenley have executed that certain Hotel Contribution Agreement dated as of June 22, 1998 (the "Contribution Agreement"), pursuant to which Schenley has agreed to contribute certain assets in accordance with the terms and conditions set forth therein, in exchange for 55,556 units of limited partnership interest ("Units") of the Partnership. C. The parties hereto desire to amend the Partnership Agreement to reflect the foregoing issuance of Units and the admission of Schenley as an Additional Limited Partner to the Partnership in connection therewith. A G R E E M E N T S: NOW, THEREFORE, in consideration of the agreements and obligations of the parties set forth herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Acceptance of Partnership Agreement. Schenley does hereby accept and agree to be bound by all of the terms and conditions of the Partnership Agreement, including without limitation, the power of attorney set forth in Section 1.4 thereof. Each of Schenley and its Assignees hereby constitutes and appoints the General Partner and the other parties named in Section 1.4, with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead, to take the actions set forth in Section 1.4 of the Partnership Agreement, with the same effect as if Schenley had been one of the original partners to execute the Partnership Agreement. 2 2. Admission of Additional Partner. In accordance with the provisions of Section 11.4 of the Partnership Agreement, Schenley is hereby admitted as an Additional Limited Partner of the Partnership entitled to all rights and benefits of Limited Partners therein as set forth in the Partnership Agreement with respect to the Units acquired by Schenley. 3. Amendment of Exhibit A. Exhibit A to the Partnership Agreement is hereby amended to reflect the admission of Schenley as an Additional Limited Partner in the Partnership and the issuance of 55,556 Units to Schenley pursuant to the Purchase Agreement. 4. Defined Terms: Effect Upon Partnership Agreement. All initially capitalized terms used without definition herein shall have the meanings set forth therefor in the Partnership Agreement. Except as expressly amended hereby, the Partnership Agreement shall remain in full force and effect and each of the parties hereto hereby reaffirms the terms and provisions thereof. IN WITNESS WHEREOF, this Eighth Amendment to Agreement of Limited Partnership is executed and entered into as of the date first above written. GENERAL PARTNER: FELCOR SUITE HOTELS, INC., a Maryland corporation By: /s/ Lawrence D. Robinson ------------------------------------------- Lawrence D. Robinson, Senior Vice President ADDITIONAL LIMITED PARTNER: SCHENLEY HOTEL ASSOCIATES, a Pennsylvania Limited Partnership By: NDC PROPERTIES, INC., a Pennsylvania corporation, its General Partner By: /s/ James R. Allen ------------------------------------- Name: James R. Allen ------------------------------------- Title: President ------------------------------------- - 2 - 3 LIMITED PARTNERS (for all the Limited Partners now and hereafter admitted as Limited Partners of the Partnership, pursuant to the powers of attorney in favor of the General Partner contained in Section 1.4 of the Partnership Agreement): By: FELCOR SUITE HOTELS, INC., acting as General Partner and as duly authorized attorney-in-fact By: /s/ Lawrence D. Robinson ---------------------------------- Lawrence D. Robinson, Senior Vice President -3- EX-10.01.11 3 11TH AMEND TO AMENDED/RESTATED AGREEMENT - LP 1 ELEVENTH AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FELCOR SUITES LIMITED PARTNERSHIP This Eleventh Amendment to Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited Partnership (the "Amendment"), is entered into as of July 28, 1998, by and between FelCor Suite Hotels, Inc., a Maryland corporation, as General Partner, and all other persons and entities who are or shall in the future become limited partners of this limited partnership in accordance with the provisions of the Partnership Agreement (as hereinafter defined). R E C I T A L S: A. The parties have previously executed and delivered that certain Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited Partnership dated as of July 25, 1994, as previously amended (the "Partnership Agreement"), pursuant to which they formed a Delaware limited partnership under the name "FelCor Suites Limited Partnership" (the "Partnership"). B. Pursuant to Section 1.2 of the Partnership Agreement, the General Partner is authorized to change the name of the Partnership at any time and from time to time. C. The General Partner desires to exercise such authority by amending the Partnership Agreement as provided herein to change the name of the Partnership. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms used without definition herein shall have the meanings set forth therefor in the Partnership Agreement. 2. Amendment of Partnership Agreement. The first sentence in Section 1.2 of the Partnership Agreement is hereby amended to read in its entirety as: "The name of the Partnership shall be "FelCor Lodging Limited Partnership"." IN WITNESS WHEREOF, the General Partner has caused this Amendment to be duly executed in its respective capacities set forth below as of the date first set forth above. GENERAL PARTNER: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation formerly known as FelCor Suite Hotels, Inc. By: /s/ Lawrence D. Robinson ------------------------------- Lawrence D. Robinson, Senior Vice President - 1 - 2 LIMITED PARTNERS (for all the Limited Partners now and hereafter admitted as limited partners of the Partnership, pursuant to the powers of attorney in favor of the General Partner contained in Section 1.4 of the Partnership Agreement): By: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation, formerly known as FelCor Suite Hotels, Inc., acting as General Partner and as duly authorized attorney-in-fact By: /s/ Lawrence D. Robinson ------------------------------------------- Lawrence D. Robinson, Senior Vice President -2- EX-10.2.1 4 SCHEDULE OF EXECUTED LEASE AGREEMENTS 1 SCHEDULE OF EXECUTED LEASE AGREEMENTS SHOWING MATERIAL VARIATIONS FROM FORM OF LEASE AGREEMENT (AS OF SEPTEMBER 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 (Rocky Point), 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 Deerfield Beach, FL (10) 1/3/96 2,163 17% 65% 2,568
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) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- 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 Atlanta (Perimeter Center), GA (29) (17) 2/1/97 2,300 17% 65% 2,949
-2- 3
Annual Percentage Rent ------------------ Hotel Location/Franchise/ Suite - ------------------------- Commencement Annual First Second Revenue Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier (5) Tier (6) Breakpoint (4) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- Bloomington, MN (12) (17) 2/1/97 1,800 17% 65% 2,468 Omaha, NE (12) (17) 2/1/97 1,400 17% 65% 1,703 Los Angeles (LAX North), CA (17) 2/18/97 1,669 17% 65% 3,176 Dana Point, CA (12) (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 (38) (36) 6/30/97 (33) 2,426 17% 65% 5,033 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 Atlanta (College Park), GA 5/1/98 1,700 17% 65% 3,421
-3- 4
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) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- 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% 2,535 Cypress Creek (Ft. Lauderdale), FL (37) (36) 5/1/98 1,982 17% 65% 2,944 Irving (DFW), TX (12) 5/1/98 2,884 17% 65% 2,994 Dallas (Campbell Centre), TX (41) (32) (30) 5/29/98 2,230 17% 65% 2,834 St. Louis (Downtown) MO 5/1/98 1,800 17% 65% 4,657 Montgomery (East I-85), AL (43) (44) (45) 7/28/98 821 10% 70% 2,014 Texarkana (I-30), AR (43) (44) (45) 7/28/98 615 10% 70% 1,594 Flagstaff, AZ (46) (44) (45) 7/28/98 294 0% 70% 951 Scottsdale, AZ (47) (44) (45) 7/28/98 969 10% 70% 1,511 Pleasanton, CA (48) (44) (45) 7/28/98 2,365 10% 70% 3,478 San Diego (On the Bay), CA (43) (44) (45) 7/28/98 7,109 10% 70% 10,066 San Francisco (Financial Dist.), CA (43) (44) (45) 7/28/98 6,855 10% 70% 9,906 San Francisco (Fisherman's Wharf), (44) (45) 7/28/98 7,300 10% 70% 10,950 CA (43) San Jose North (Milpitas), CA (43) (44) (45) 7/28/98 4,569 10% 70% 3,997 Santa Barbara, CA (43) (49) (50) 7/28/98 1,055 10% 70% 1,487 Irvin (Orange County Airport), CA (51) (44) (45) 7/28/98 2,280 10% 70% 4,672 San Francisco (Union Square), CA (51) (44) (45) 7/28/98 5,079 10% 70% 11,500 Cambridge, CN (43) (52) (52) 7/28/98 558 10% 70% 1,406 Kitchener Waterloo, CN (43) (52) (52) 7/28/98 791 10% 70% 1,818 Peterborough (Waterfront), CN (43) (52) (52) 7/28/98 701 10% 70% 1,454 Sarnia, CN (43) (52) (52) 7/28/98 618 10% 70% 1,526 Toronto (Yorkdale), CN (43) (52) (52) 7/28/98 1,856 10% 70% 4,661 Toronto (Airport), CN (43) (52) (52) 7/28/98 2,435 10% 70% 4,923
-4- 5
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) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- Colorado Springs (Central), CO (53) (44) (45) 7/28/98 537 0% 70% 1,229 Colorado Springs (North), CO (54) (44) (45) 7/28/98 552 0% 70% 1,061 Hartford (Downtown), CT (43) (44) (45) 7/28/98 1,549 10% 70% 4,511 Stamford, CT (51) (44) (45) 7/28/98 2,274 10% 70% 6,559 Cocoa Beach (Oceanfront Resort), FL (43) (44) (45) 7/28/98 2,105 10% 70% 6,122 Tampa (Busch Gardens), FL (43) (44) (45) 7/28/98 1,366 0% 70% 3,666 Orlando (Disney Main Gate), FL (43) (44) (45) 7/28/98 2,480 10% 70% 5,584 Orlando (Int'l. Drive Resort), FL (43) (44) (45) 7/28/98 4,467 10% 70% 7,830 Miami (Int'l. Airport), FL (51) (44) (45) 7/28/98 2,329 10% 70% 3,900 Orlando (Int'l. Airport), FL (51) (44) (45) 7/28/98 1,516 10% 70% 3,917 Atlanta (Downtown), GA (55) (44) (45) 7/28/98 1,272 10% 70% 1,985 Atlanta (Airport), GA (48) (44) (45) 7/28/98 2,577 10% 70% 5,237 Atlanta (Downtown), GA (47) (44) (45) 7/28/98 860 10% 70% 2,317 Marietta, GA (56) (44) (45) 7/28/98 537 10% 70% 1,283 Atlanta (Powers Ferry), GA (57) (49) (50) 7/28/98 1,784 10% 70% 3,442 Atlanta (Airport North), GA (43) (49) (50) 7/28/98 2,976 10% 70% 4,971 Atlanta (Airport South), GA (43) (49) (50) 7/28/98 565 0% 70% 1,439 Columbus (Airport North), GA (43) (44) (45) 7/28/98 559 10% 70% 2,084 Atlanta (I-20 East), GA (53) (44) (45) 7/28/98 93 0% 70% 1,114 Pittsburgh, PA (51) 6/25/98 2,033 17% 65% 2,824 Atlanta (Perimeter Dunwoody), GA (51) (49) (50) 7/28/98 1,555 10% 70% 2,963 Davenport, IA (56) (58) (45) 7/28/98 389 10% 70% 571 Davenport, IA (43) (58) (45) 7/28/98 733 0% 70% 991 Chicago, IL (59) (44) (45) 7/28/98 5,266 0% 70% 9,034 Moline, IL (56) (60) (45) 7/28/98 437 10% 70% 549 Moline (Airport), IL (56) (60) (45) 7/28/98 255 0% 70% 1,090 Moline (Airport), IL (43) (60) (45) 7/28/98 681 0% 70% 363
-5- 6
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) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- Hays, KS (56) (58) (45) 7/28/98 197 10% 70% 444 Great Bend, KS (43) (58) (45) 7/28/98 311 0% 5% 1,124 Hays, KS (43) (58) (45) 7/28/98 282 0% 70% 659 Salina, KS (43) (58) (45) 7/28/98 524 0% 70% 828 Colby, KS (53) (61) (45) 7/28/98 96 0% 70% 478 Salina, (I-70), KS (53) (49) (45) 7/28/98 187 0% 70% 346 Secaucus(Meadowlands),N.J. (48) 4/30/98 2,208 17% 65% 4,728 New Orleans (French Quarter), LA (43) (49) (50) 7/28/98 3,525 10% 70% 2,725 Boston (Government Center), MA (51) (44) (45) 7/28/98 4,570 10% 70% 4,966 Kansas City (Northeast), MO (43) (44) (45) 7/28/98 931 10% 70% 1,877 St. Louis/Westport, MO (43) (62) (45) 7/28/98 1,439 10% 70% 4,409 Jackson (Downtown), MS (48) (49) (50) 7/28/98 1,224 0% 70% 3,511 Jackson (North), MS (56) (44) (45) 7/28/98 477 10% 70% 997 Jackson (North), MS (57) (49) (45) 7/28/98 863 10% 70% 2,087 Whispering Woods, MS (43) (44) (45) 7/28/98 2,001 0% 70% 3,002 Jackson (Southwest), MS (43) (49) (50) 7/28/98 562 0% 70% 2,220 Omaha (Southwest), NE (56) (58) (45) 7/28/98 515 0% 70% 502 Omaha (Central), NE (56) (58) (45) 7/28/98 522 10% 70% 1,119 Omaha (Old Mill), NE (43) (58) (45) 7/28/98 1,365 0% 70% 1,952 Omaha (Southwest), NE (53) (58) (45) 7/28/98 280 10% 70% 396 Omaha (Central I-80), NE (43) (58) (45) 7/28/98 1,366 0% 70% 1,943 Omaha, NE (63) (58) (45) 7/28/98 645 10% 70% 635 Albuquerque (Mountainview), NM (43) (44) (45) 7/28/98 501 0% 70% 3,094 Philadelphia (Independence Mall), PA (43) (64) (45) 7/28/98 2,501 10% 70% 6,585 Philadelphia (Center City), PA (51) (64) (45) 7/28/98 3,809 10% 70% 9,007 Columbia (Airport), SC (43) (44) (45) 7/28/98 327 0% 70% 1,194 Spartanburg (West), SC (43) (44) (45) 7/28/98 476 0% 70% 1,604
-6- 7
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) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- Greenville (Roper), SC (51) (44) (45) 7/28/98 1,467 10% 70% 2,596 Charleston (Mills House), SC (43) (44) (45) 7/28/98 2,047 10% 70% 4,016 Chattanooga (Southeast I-75), TN (44) (45) 7/28/98 215 0% 70% 1,613 (43) Knoxville (West), TN (43) (44) (45) 7/28/98 1,270 10% 70% 1,972 Nashville (Briley Parkway), TN (51) (44) (45) 7/28/98 2,105 10% 70% 5,690 Dallas, TX (48) (65) (45) 7/28/98 2,860 10% 70% 3,571 Houston (Galleria), TX (55) (44) (45) 7/28/98 1,198 10% 70% 2,424 Dallas (Regal Row), TX (47) (44) (45) 7/28/98 579 10% 70% 1,588 Houston ( I-10 East), TX (47) (44) (45) 7/28/98 336 0% 70% 1,132 Houston (Galleria), TX (47) (44) (45) 7/28/98 381 10% 70% 1,116 Dallas (Downtown), TX (56) (44) (45) 7/28/98 1,299 10% 70% 2,831 Houston ( I-10 East), TX (56) (44) (45) 7/28/98 359 10% 70% 731 Addison, TX (48) (65) (45) 7/28/98 1,846 10% 70% 5,294 Dallas, TX (57) (66) (45) 7/28/98 1,478 10% 70% 2,793 Dallas (Market Center), TX (48) (49) (50) 7/28/98 2,077 10% 70% 3,790 Dallas (DFW Airport), TX (57) (65) (45) 7/28/98 5,853 10% 70% 4,836 Plano, TX (57) (66) (45) 7/28/98 1,779 10% 70% 2,983 Dallas (DFW Airport), TX (57) (49) (50) 7/28/98 1,608 10% 70% 1,350 Houston (Medical Center), TX (57) (49) (50) 7/28/98 1,192 10% 70% 2,716 Amarillo (I-40), TX (43) (44) (45) 7/28/98 757 10% 70% 1,930 Austin (Town Lake), TX (43) (44) (45) 7/28/98 1,312 10% 70% 4,078 Beaumont (Midtown I-10), TX (43) (44) (45) 7/28/98 633 10% 70% 1,806 Houston (Intercontinental Airport), (49) (50) 7/28/98 2,758 10% 70% 3,980 TX (43) Houston (Medical Center), TX (43) (49) (50) 7/28/98 1,727 10% 70% 3,955 Midland (Country Villa), TX (43) (67) (45) 7/28/98 504 0% 70% 936 Plano, TX (43) (44) (45) 7/28/98 538 10% 70% 1,629 San Antonio (Downtown), TX (43) (44) (45) 7/28/98 1,669 10% 70% 3,151 Waco (I-35), TX (43) (44) (45) 7/28/98 681 10% 70% 1,466
-7- 8
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) - ----------- ---------- ---------- ------------ ------------- -------- -------- -------------- Odessa (Parkway), TX (53) (67) (45) 7/28/98 318 0% 70% 548 Odessa (Centre), TX (43) (67) (45) 7/28/98 487 0% 70% 867 Houston (I-10 West), TX (51) (44) (45) 7/28/98 1,942 10% 70% 5,003 Houston (Greenway Plaza), TX (51) (49) (50) 7/28/98 1,622 10% 70% 4,617 San Antonio (Airport), TX (51) (44) (45) 7/28/98 1,981 10% 70% 4,090 Salt Lake City (Airport), UT (43) (68) 7/28/98 946 10% 70% 1,768 Leominster (Four Points), MA (59) (69) 7/28/98 731 0% 70% 2,422 Dallas (Bristol House), TX (59) 7/28/98 929 10% 70% 783 - --------------------
(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 Lodging 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. (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. -8- 9 (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. (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. -9- 10 (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. (43) The hotel under this lease agreement is operated as a Holiday Inn(R). (44) The Lessor is FelCor Hotel Asset Company, L.L.C., a Delaware limited liability company. (45) The Lessee is Bristol Hotel Tenant Company, a Delaware corporation. (46) The hotel under this lease agreement is operated as a Days Inn(R). (47) The hotel under this lease agreement is operated as a Fairfield Inn(R). (48) The hotel under this lease agreement is operated as a Crowne Plaza(R). (49) The lessor is FelCor Lodging Company, L.L.C., a Delaware limited liability company. (50) The Lessee is Bristol Lodging Tenant Company, a Delaware corporation. (51) The hotel under this lease agreement is operated as a Holiday Inn Select(R). (52) The lessor is FelCor Canada Co. and the lessee is BHTC Canada, Inc. (53) The hotel under this agreement is operated as a Holiday Inn Express(R). (54) The hotel under this agreement is operated as a Ramada Inn(R). (55) The hotel under this agreement is operated as a Courtyard by Marriott(R). (56) The hotel under this agreement is operated as a Hampton Inn(R). (57) The hotel under this agreement is operated as a Harvey Hotel(R). (58) The lessor is FelCor Omaha Hotel Company, L.L.C., a Delaware limited liability company. (59) The hotel under this agreement is a non-branded hotel. (60) The lessor is FelCor Moline Hotel, L.L.C., a Delaware limited liability corporation. (61) The lessor as defined in the lease agreement (62) The lessor is FelCor St. Louis Company, L.L.C., a Delaware limited liability corporation. (63) The hotel under this agreement is operated as a Homewood Suites Hotel. (64) The lessor is FelCor Pennsylvania Company, L.L.C., a Delaware limited liability corporation. (65) The lessor is FelCor Hotel Company Ltd., a Texas corporation. (66) The lessor is FelCor Hotels Investments II, Ltd., a Texas corporation. (67) The lessor is FelCor Country Villa Hotel, L.L.C., a Delaware limited liability corporation. (68) The lessor is FelCor Salt Lake, L.L.C., a Delaware limited liability corporation and the lessee is Bristol Salt Lake Tenant Company, a Delaware corporation. (69) The lessor is FelCor Hospitality Company, L.L.C., a Delaware limited liability company and the lessee is Bristol Hospitality Tenant Company. -10- EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 49,368 0 28,861 0 0 0 3,831,313 148,339 4,066,031 106,322 1,504,852 0 295,000 691 2,094,798 4,066,031 0 233,530 0 0 147,295 0 46,486 86,235 0 86,235 0 3,075 0 83,160 1.57 1.56
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