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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q

(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
 
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2014
 

OR
o
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: 001-14236
 
(FelCor Lodging Trust Incorporated)
 
Commission file number: 333-39595-01
 
(FelCor Lodging Limited Partnership)
FelCor Lodging Trust Incorporated
FelCor Lodging Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)

 
Maryland
(FelCor Lodging Trust Incorporated)
 
75-2541756
 
 
Delaware
(FelCor Lodging Limited Partnership)
 
75-2544994
 
 
(State or Other Jurisdiction of Incorporation or Organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
545 E. John Carpenter Freeway, Suite 1300, Irving, Texas
 
75062
 
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
(972) 444-4900
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
FelCor Lodging Trust Incorporated
 
þ
Yes
¨
No
 
FelCor Lodging Limited Partnership
 
o
Yes
þ
No





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
FelCor Lodging Trust Incorporated
 
þ
Yes
¨
No
 
FelCor Lodging Limited Partnership
 
þ
Yes
¨
No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
FelCor Lodging Trust Incorporated:
 
 
 Large accelerated filer  þ
 
 Accelerated filer o
 Non-accelerated filer     o (Do not check if a smaller reporting company)
 
 Smaller reporting company o
FelCor Lodging Limited Partnership:
 
 
 Large accelerated filer  o
 
 Accelerated filer ¨
 Non-accelerated filer     þ (Do not check if a smaller reporting company)
 
 Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
 
FelCor Lodging Trust Incorporated
 
¨
Yes
þ
No
 
FelCor Lodging Limited Partnership
 
¨
Yes
þ
No

At July 28, 2014, FelCor Lodging Trust Incorporated had issued and outstanding 124,289,525 shares of common stock.




EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarter ended June 30, 2014, combines the filings for FelCor Lodging Trust Incorporated, or FelCor, and FelCor Lodging Limited Partnership, or FelCor LP. Where it is important to distinguish between the two, we either refer specifically to FelCor or FelCor LP. Otherwise we use the terms “we” or “our” to refer to FelCor and FelCor LP, collectively (including their consolidated subsidiaries), unless the context indicates otherwise.

FelCor is a Maryland corporation operating as a real estate investment trust, or REIT, and is the sole general partner of, and the owner of a greater than 99% partnership interest in, FelCor LP. Through FelCor LP, FelCor owns hotels and conducts business. As the sole general partner of FelCor LP, FelCor has exclusive and complete control of FelCor LP’s day-to-day management.

We believe combining periodic reports for FelCor and FelCor LP into single combined reports results in the following benefits:

presents our business as a whole (the same way management views and operates the business);
eliminates duplicative disclosure and provides a more streamlined presentation (a substantial portion of our disclosure applies to both FelCor and FelCor LP); and
saves time and cost by preparing combined reports instead of separate reports.

We operate the company as one enterprise. The employees of FelCor direct the management and operation of FelCor LP. With sole control of FelCor LP, FelCor consolidates FelCor LP for financial reporting purposes. FelCor has no assets other than its investment in FelCor LP and no liabilities separate from FelCor LP. Therefore, the reported assets and liabilities for FelCor and FelCor LP are substantially identical.

The substantive difference between FelCor and FelCor LP filings is that FelCor is a REIT with publicly-traded equity, while FelCor LP is a partnership with no publicly-traded equity. This difference is reflected in the financial statements in the equity (or partners’ capital) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital). Apart from the different equity treatment, the consolidated financial statements for FelCor and FelCor LP are nearly identical, except the net income (loss) attributable to redeemable noncontrolling interests in FelCor LP is deducted from FelCor’s net income (loss) in order to arrive at net income (loss) attributable to FelCor common stockholders. The noncontrolling interest is included in net income (loss) attributable to FelCor LP common unitholders. The holders of noncontrolling interests in FelCor LP are unaffiliated with FelCor, and in aggregate, hold less than 1% of the operating partnership units.

We present the sections in this report combined unless separate disclosure is required for clarity.



i


FELCOR LODGING TRUST INCORPORATED and
FELCOR LODGING LIMITED PARTNERSHIP

INDEX
 
 
 
Page
 
 
  PART I − FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
Financial Statements
 
FelCor Lodging Trust Incorporated:
 
 
 
Consolidated Balance Sheets - June 30, 2014 and December 31, 2013 (unaudited)
 
 
Consolidated Statements of Operations – For the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 
Consolidated Statements of Comprehensive Income (Loss) – For the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 
Consolidated Statements of Changes in Equity – For the Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2014 and 2013 (unaudited)
 
FelCor Lodging Limited Partnership:
 
 
 
Consolidated Balance Sheets - June 30, 2014 and December 31, 2013 (unaudited)
 
 
Consolidated Statements of Operations – For the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 
Consolidated Statements of Comprehensive Income (Loss) – For the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 
Consolidated Statements of Partners’ Capital – For the Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2014 and 2013 (unaudited)
 
 Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
General
 
 
Results of Operations
 
 
Non-GAAP Financial Measures
 
 
Pro Rata Share of Rooms Owned
 
 
Hotel Portfolio Composition
 
 
Hotel Operating Statistics
 
 
Hotel Portfolio
 
 
Liquidity and Capital Resources
 
 
Inflation
 
 
Seasonality
 
 
Disclosure Regarding Forward-Looking Statements
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II − OTHER INFORMATION
 
 
 
 
 
Item 6.
Exhibits
 
 
 
 
SIGNATURES
 

ii


PART I -- FINANCIAL INFORMATION

Item 1.
Financial Statements.

FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
June 30,
2014
 
December 31,
2013
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $882,585 and $929,801 at June 30, 2014 and December 31, 2013, respectively
$
1,552,172

 
$
1,653,267

Hotel development
261,181

 
216,747

Investment in unconsolidated entities
44,126

 
46,943

Hotels held for sale
33,148

 
16,319

Cash and cash equivalents
61,344

 
45,645

Restricted cash
66,046

 
77,227

Accounts receivable, net of allowance for doubtful accounts of $231 and $262 at June 30, 2014 and December 31, 2013, respectively
35,889

 
35,747

Deferred expenses, net of accumulated amortization of $22,095 and $20,362 at June 30, 2014 and December 31, 2013, respectively
25,962

 
29,325

Other assets
26,796

 
23,060

Total assets
$
2,106,664

 
$
2,144,280

Liabilities and Equity
 
 
 
Debt, net of discount of $1,615 and $4,714 at June 30, 2014 and December 31, 2013, respectively
$
1,601,166

 
$
1,663,226

Distributions payable
11,228

 
11,047

Accrued expenses and other liabilities
149,799

 
150,738

Total liabilities
1,762,193

 
1,825,011

Commitments and contingencies


 


Redeemable noncontrolling interests in FelCor LP, 613 and 618 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively
6,440

 
5,039

Equity:
 
 
 
 Preferred stock, $0.01 par value, 20,000 shares authorized:
 
 
 
Series A Cumulative Convertible Preferred Stock, 12,880 shares, liquidation value of $322,004 and $322,011, issued and outstanding at June 30, 2014 and December 31, 2013, respectively
309,354

 
309,362

Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at June 30, 2014 and December 31, 2013
169,412

 
169,412

Common stock, $0.01 par value, 200,000 shares authorized; 124,290 and 124,051 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
1,243

 
1,240

Additional paid-in capital
2,354,847

 
2,354,328

Accumulated other comprehensive income
24,892

 
24,937

Accumulated deficit
(2,584,211
)
 
(2,568,350
)
Total FelCor stockholders’ equity
275,537

 
290,929

Noncontrolling interests in other partnerships
21,500

 
23,301

Preferred equity in consolidated joint venture, liquidation value of $41,590
40,994

 

Total equity
338,031

 
314,230

Total liabilities and equity
$
2,106,664

 
$
2,144,280

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

1


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands, except for per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
258,279

 
$
238,806

 
$
479,301

 
$
447,344

Other revenue
1,236

 
1,050

 
1,563

 
1,449

Total revenues
259,515

 
239,856

 
480,864

 
448,793

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
89,628

 
84,971

 
173,151

 
165,376

Other property-related costs
62,912

 
60,030

 
124,490

 
119,458

Management and franchise fees
10,160

 
8,914

 
19,173

 
18,077

Taxes, insurance and lease expense
26,992

 
24,853

 
50,625

 
47,017

Corporate expenses
7,647

 
6,694

 
15,472

 
14,526

Depreciation and amortization
29,082

 
29,898

 
58,683

 
59,653

Impairment loss

 
24,441

 

 
24,441

Conversion expenses

 
587

 

 
1,215

Other expenses
2,114

 
3,915

 
4,128

 
4,736

Total operating expenses
228,535

 
244,303

 
445,722

 
454,499

Operating income (loss)
30,980

 
(4,447
)
 
35,142

 
(5,706
)
Interest expense, net
(24,495
)
 
(26,376
)
 
(49,722
)
 
(52,661
)
Debt extinguishment
(27
)
 

 
(33
)
 

Gain on sale of other assets, net
100

 

 
100

 

Income (loss) before equity in income from unconsolidated entities
6,558

 
(30,823
)
 
(14,513
)
 
(58,367
)
Equity in income from unconsolidated entities
2,766

 
1,905

 
3,409

 
1,994

Income (loss) from continuing operations
9,324

 
(28,918
)
 
(11,104
)
 
(56,373
)
Income from discontinued operations
5

 
6,123

 
140

 
6,973

Income (loss) before gain on sale of property
9,329

 
(22,795
)
 
(10,964
)
 
(49,400
)
Gain on sale of property, net
15,626

 

 
21,083

 

Net income (loss)
24,955

 
(22,795
)
 
10,119

 
(49,400
)
Net loss (income) attributable to noncontrolling interests in other partnerships
(262
)
 
3,972

 
(184
)
 
4,212

Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP
(71
)
 
140

 
50

 
320

Preferred distributions - consolidated joint venture
(341
)



(522
)


Net income (loss) attributable to FelCor
24,281

 
(18,683
)
 
9,463

 
(44,868
)
Preferred dividends
(9,678
)
 
(9,678
)
 
(19,356
)
 
(19,356
)
Net income (loss) attributable to FelCor common stockholders
$
14,603

 
$
(28,361
)
 
$
(9,893
)
 
$
(64,224
)
Basic and diluted per common share data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.12

 
$
(0.28
)
 
$
(0.08
)
 
$
(0.57
)
Net income (loss)
$
0.12

 
$
(0.23
)
 
$
(0.08
)
 
$
(0.52
)
Basic weighted average common shares outstanding
124,169

 
123,814

 
124,158

 
123,814

Diluted weighted average common shares outstanding
125,386

 
123,814

 
124,158

 
123,814

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

2



FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
24,955

 
$
(22,795
)
 
$
10,119

 
$
(49,400
)
Foreign currency translation adjustment
575

 
(567
)
 
(45
)
 
(924
)
Comprehensive income (loss)
25,530

 
(23,362
)
 
10,074

 
(50,324
)
Comprehensive loss (income) attributable to noncontrolling interests in other partnerships
(262
)
 
3,972

 
(184
)
 
4,212

Comprehensive loss (income) attributable to redeemable noncontrolling interests in FelCor LP
(74
)
 
143

 
50

 
325

Preferred distributions - consolidated joint venture
(341
)
 

 
(522
)
 

Comprehensive income (loss) attributable to FelCor
$
24,853

 
$
(19,247
)
 
$
9,418

 
$
(45,787
)




























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

3


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital 
 
Accumulated Other Comprehensive Income
 
 
 
Noncontrolling Interests in Other Partnerships
 
Preferred Equity in Consolidated Joint Venture
 
 
 
 
 
Number of Shares
 
Amount
 
Number of Shares
 
Amount
 
 
 
Accumulated Deficit
 
 
 
Comprehensive Income (Loss)
 
Total Equity
Balance at December 31, 2012
12,948

 
$
478,774

 
124,117

 
$
1,241

 
$
2,353,581

 
$
26,039

 
$
(2,464,968
)
 
$
27,352

 
$

 
 

 
$
422,019

Issuance of stock awards

 

 
5

 

 

 

 

 

 

 
 

 

Stock awards - amortization

 

 

 

 
2,173

 

 

 

 

 
 

 
2,173

Allocation to redeemable noncontrolling interests

 

 

 

 
(1,095
)
 

 

 

 

 
 

 
(1,095
)
Contribution from noncontrolling interests

 

 

 

 

 

 

 
1,840

 

 
 

 
1,840

Distribution to noncontrolling interests

 

 

 

 

 

 

 
(446
)
 

 
 

 
(446
)
Preferred dividends:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

$0.975 per Series A preferred share

 

 

 

 

 

 
(12,558
)
 

 

 
 

 
(12,558
)
$1.00 per Series C depositary preferred share

 

 

 

 

 

 
(6,798
)
 

 

 
 

 
(6,798
)
Comprehensive loss (attributable to FelCor and noncontrolling interests in other partnerships):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Foreign exchange translation

 

 

 

 

 
(919
)
 

 

 

 
$
(919
)
 
 

Net loss

 

 

 

 

 

 
(44,868
)
 
(4,212
)
 

 
(49,080
)
 
 

Comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
$
(49,999
)
 
(49,999
)
Balance at June 30, 2013
12,948

 
$
478,774

 
124,122

 
$
1,241

 
$
2,354,659

 
$
25,120

 
$
(2,529,192
)
 
$
24,534

 
$

 
 

 
$
355,136

Balance at December 31, 2013
12,948

 
$
478,774

 
124,051

 
$
1,240

 
$
2,354,328

 
$
24,937

 
$
(2,568,350
)
 
$
23,301

 

 
 

 
$
314,230

Conversion of preferred stock into common stock

 
(8
)
 

 

 
8

 

 

 

 

 
 

 

Issuance of stock awards

 

 
349

 
4

 
(4
)
 

 

 

 

 
 

 

Stock awards - amortization

 

 

 

 
1,990

 

 

 

 

 
 

 
1,990

Forfeiture of stock awards

 

 
(115
)
 
(1
)
 

 

 
(931
)
 

 

 
 

 
(932
)
Conversion of operating partnership units into common shares

 

 
5

 

 
44

 

 

 

 

 
 
 
44

Allocation to redeemable noncontrolling interests

 

 

 

 
(1,519
)
 

 

 

 

 
 

 
(1,519
)
Contribution from noncontrolling interests

 

 

 

 

 

 

 
5,069

 

 
 

 
5,069

Distribution to noncontrolling interests

 

 

 

 

 

 

 
(7,054
)
 

 
 

 
(7,054
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

$0.04 per common share

 

 

 

 

 

 
(5,037
)
 

 

 
 
 
(5,037
)
$0.975 per Series A preferred share

 

 

 

 

 

 
(12,558
)
 

 

 
 

 
(12,558
)
$1.00 per Series C depositary preferred share

 

 

 

 

 

 
(6,798
)
 

 

 
 

 
(6,798
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 

 
(522
)
 
 
 
(522
)
Issuance of preferred equity - consolidated joint venture

 

 

 

 

 

 

 

 
40,994

 
 
 
40,994

Comprehensive income (attributable to FelCor and noncontrolling interests in other partnerships):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Foreign exchange translation

 

 

 

 

 
(45
)
 

 

 

 
$
(45
)
 
 

Net income

 

 

 

 

 

 
9,463

 
184

 
522

 
10,169

 
 

Comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
$
10,124

 
10,124

Balance at June 30, 2014
12,948

 
$
478,766


124,290

 
$
1,243

 
$
2,354,847

 
$
24,892

 
$
(2,584,211
)
 
$
21,500

 
$
40,994

 
 
 
$
338,031

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

4


  
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
10,119

 
$
(49,400
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
58,683

 
63,194

Gain on sale of property and other assets, net
(21,574
)
 
(7,259
)
Amortization of deferred financing fees and debt discount
5,907

 
5,426

Amortization of fixed stock and directors’ compensation
2,953

 
3,150

Equity based severance

 
822

Equity in income from unconsolidated entities
(3,409
)
 
(1,994
)
Distributions of income from unconsolidated entities
2,320

 
2,384

Debt extinguishment
278

 

Impairment loss

 
27,706

Changes in assets and liabilities:
 
 
 
Accounts receivable
(1,155
)
 
(15,803
)
Other assets
(5,825
)
 
(7,211
)
Accrued expenses and other liabilities
5,824

 
8,256

Net cash flow provided by operating activities
54,121

 
29,271

Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(48,032
)
 
(47,023
)
Hotel development
(48,178
)
 
(22,220
)
Net proceeds from asset dispositions
93,608

 
20,479

Change in restricted cash – investing
11,181

 
46

Insurance proceeds
255

 

Distributions from unconsolidated entities
3,906

 
3,441

Contributions to unconsolidated entities

 
(1,500
)
Net cash flow provided by (used in) investing activities
12,740

 
(46,777
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
140,500

 
127,245

Repayment of borrowings
(205,904
)
 
(68,535
)
Payment of deferred financing fees
(11
)
 
(2,698
)
Distributions paid to noncontrolling interests
(7,054
)
 
(446
)
Contributions from noncontrolling interests
5,069

 
1,840

Distributions paid to FelCor LP limited partners
(20
)
 

Distributions paid to preferred stockholders
(19,356
)
 
(19,356
)
Preferred distributions - consolidated joint venture
(409
)
 

Distributions paid to common stockholders
(4,968
)
 

Net proceeds from issuance of preferred equity - consolidated joint venture
40,994

 

Net cash flow provided by (used in) financing activities
(51,159
)
 
38,050

Effect of exchange rate changes on cash
(3
)
 
(54
)
Net change in cash and cash equivalents
15,699

 
20,490

Cash and cash equivalents at beginning of periods
45,645

 
45,745

Cash and cash equivalents at end of periods
$
61,344

 
$
66,235

 
 
 
 
Supplemental cash flow information – interest paid, net of capitalized interest
$
43,747

 
$
38,301

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

5


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
June 30,
 
December 31,
 
2014
 
2013
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $882,585 and $929,801 at June 30, 2014 and December 31, 2013, respectively
$
1,552,172

 
$
1,653,267

Hotel development
261,181

 
216,747

Investment in unconsolidated entities
44,126

 
46,943

Hotels held for sale
33,148

 
16,319

Cash and cash equivalents
61,344

 
45,645

Restricted cash
66,046

 
77,227

Accounts receivable, net of allowance for doubtful accounts of $231 and $262 at June 30, 2014 and December 31, 2013, respectively
35,889

 
35,747

Deferred expenses, net of accumulated amortization of $22,095 and $20,362 at June 30, 2014 and December 31, 2013, respectively
25,962

 
29,325

Other assets
26,796

 
23,060

Total assets
$
2,106,664

 
$
2,144,280

Liabilities and Partners’ Capital
 
 
 
Debt, net of discount of $1,615 and $4,714 at June 30, 2014 and December 31, 2013, respectively
$
1,601,166

 
$
1,663,226

Distributions payable
11,228

 
11,047

Accrued expenses and other liabilities
149,799

 
150,738

Total liabilities
1,762,193

 
1,825,011

Commitments and contingencies


 


Redeemable units, 613 and 618 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively
6,440

 
5,039

Capital:
 
 
 
Preferred units:
 
 
 
Series A Cumulative Convertible Preferred Units, 12,880 units issued and outstanding at June 30, 2014 and December 31, 2013
309,354

 
309,362

Series C Cumulative Redeemable Preferred Units, 68 units issued and outstanding at June 30, 2014 and December 31, 2013
169,412

 
169,412

Common units, 124,290 and 124,051 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively
(228,227
)
 
(212,888
)
Accumulated other comprehensive income
24,998

 
25,043

Total FelCor LP partners’ capital
275,537

 
290,929

Noncontrolling interests
21,500

 
23,301

Preferred capital in consolidated joint venture
40,994

 

Total partners’ capital
338,031

 
314,230

Total liabilities and partners’ capital
$
2,106,664

 
$
2,144,280

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

6


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands, except for per unit data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
258,279

 
$
238,806

 
$
479,301

 
$
447,344

Other revenue
1,236

 
1,050

 
1,563

 
1,449

Total revenues
259,515

 
239,856

 
480,864

 
448,793

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
89,628

 
84,971

 
173,151

 
165,376

Other property-related costs
62,912

 
60,030

 
124,490

 
119,458

Management and franchise fees
10,160

 
8,914

 
19,173

 
18,077

Taxes, insurance and lease expense
26,992

 
24,853

 
50,625

 
47,017

Corporate expenses
7,647

 
6,694

 
15,472

 
14,526

Depreciation and amortization
29,082

 
29,898

 
58,683

 
59,653

Impairment loss

 
24,441

 

 
24,441

Conversion expenses

 
587

 

 
1,215

Other expenses
2,114

 
3,915

 
4,128

 
4,736

Total operating expenses
228,535

 
244,303

 
445,722

 
454,499

Operating income (loss)
30,980

 
(4,447
)
 
35,142

 
(5,706
)
Interest expense, net
(24,495
)
 
(26,376
)
 
(49,722
)
 
(52,661
)
Debt extinguishment
(27
)
 

 
(33
)
 

Gain on sale of other assets, net
100

 

 
100

 

Income (loss) before equity in income from unconsolidated entities
6,558

 
(30,823
)
 
(14,513
)
 
(58,367
)
Equity in income from unconsolidated entities
2,766

 
1,905

 
3,409

 
1,994

Income (loss) from continuing operations
9,324

 
(28,918
)
 
(11,104
)
 
(56,373
)
Income from discontinued operations
5

 
6,123

 
140

 
6,973

Income (loss) before gain on sale of property
9,329

 
(22,795
)
 
(10,964
)
 
(49,400
)
Gain on sale of property, net
15,626

 

 
21,083

 

Net income (loss)
24,955

 
(22,795
)
 
10,119

 
(49,400
)
Net loss (income) attributable to noncontrolling interests
(262
)
 
3,972

 
(184
)
 
4,212

Preferred distributions - consolidated joint venture
(341
)
 

 
(522
)
 

Net income (loss) attributable to FelCor LP
24,352

 
(18,823
)
 
9,413

 
(45,188
)
Preferred distributions
(9,678
)
 
(9,678
)
 
(19,356
)
 
(19,356
)
Net income (loss) attributable to FelCor LP common unitholders
$
14,674

 
$
(28,501
)
 
$
(9,943
)
 
$
(64,544
)
Basic and diluted per common unit data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.12

 
$
(0.28
)
 
$
(0.08
)
 
$
(0.57
)
Net income (loss)
$
0.12

 
$
(0.23
)
 
$
(0.08
)
 
$
(0.52
)
Basic weighted average common units outstanding
124,783

 
124,435

 
124,774

 
124,435

Diluted weighted average common units outstanding

126,000

 
124,435

 
124,774

 
124,435

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

7



FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
24,955

 
$
(22,795
)
 
$
10,119

 
$
(49,400
)
Foreign currency translation adjustment
575

 
(567
)
 
(45
)
 
(924
)
Comprehensive income (loss)
25,530

 
(23,362
)
 
10,074

 
(50,324
)
Comprehensive loss (income) attributable to noncontrolling interests
(262
)
 
3,972

 
(184
)
 
4,212

Preferred distributions - consolidated joint venture
(341
)
 

 
(522
)
 

Comprehensive income (loss) attributable to FelCor LP
$
24,927

 
$
(19,390
)
 
$
9,368

 
$
(46,112
)



























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


8


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Preferred Units
 
Common Units
 
Accumulated Other Comprehensive Income
 
Noncontrolling Interests
 
Preferred Capital in Consolidated Joint Venture
 
Comprehensive Income (Loss)
 
Total Partners’ Capital
Balance at December 31, 2012
$
478,774

 
$
(110,258
)
 
$
26,151

 
$
27,352

 
$

 
 
 
$
422,019

FelCor restricted stock compensation

 
2,173

 

 

 

 
 
 
2,173

Contributions

 

 

 
1,840

 

 
 
 
1,840

Distributions

 
(19,356
)
 

 
(446
)
 

 
 
 
(19,802
)
Allocation to redeemable units

 
(770
)
 

 

 

 
 
 
(770
)
Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange translation


 


 
(924
)
 


 

 
$
(924
)
 
 
Net loss


 
(45,188
)
 


 
(4,212
)
 

 
(49,400
)
 
 
Comprehensive loss


 


 


 


 
 
 
$
(50,324
)
 
(50,324
)
Balance at June 30, 2013
$
478,774

 
$
(173,399
)
 
$
25,227

 
$
24,534

 
$

 
 
 
$
355,136

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
478,774

 
$
(212,888
)
 
$
25,043

 
$
23,301

 

 
 
 
$
314,230

Conversion of preferred units into common units
(8
)
 
8

 

 

 

 
 
 

FelCor restricted stock compensation

 
1,058

 

 

 

 
 
 
1,058

Contributions

 

 

 
5,069

 

 
 
 
5,069

Distributions

 
(24,393
)
 

 
(7,054
)
 
(522
)
 
 
 
(31,969
)
Allocation to redeemable units

 
(1,425
)
 

 

 

 
 
 
(1,425
)
Issuance of preferred capital - consolidated joint venture

 

 

 

 
40,994

 
 
 
40,994

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange translation


 


 
(45
)
 


 

 
$
(45
)
 
 
Net income


 
9,413

 


 
184

 
522

 
10,119

 
 
Comprehensive income


 


 


 


 
 
 
$
10,074

 
10,074

Balance at June 30, 2014
$
478,766

 
$
(228,227
)
 
$
24,998

 
$
21,500

 
$
40,994

 
 
 
$
338,031

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

9



FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
10,119

 
$
(49,400
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
58,683

 
63,194

Gain on sale of property and other assets, net
(21,574
)
 
(7,259
)
Amortization of deferred financing fees and debt discount
5,907

 
5,426

Amortization of fixed stock and directors’ compensation
2,953

 
3,150

Equity based severance

 
822

Equity in income from unconsolidated entities
(3,409
)
 
(1,994
)
Distributions of income from unconsolidated entities
2,320

 
2,384

Debt extinguishment
278

 

Impairment loss

 
27,706

Changes in assets and liabilities:
 
 
 
Accounts receivable
(1,155
)
 
(15,803
)
Other assets
(5,825
)
 
(7,211
)
Accrued expenses and other liabilities
5,824

 
8,256

Net cash flow provided by operating activities
54,121

 
29,271

 Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(48,032
)
 
(47,023
)
Hotel development
(48,178
)
 
(22,220
)
Net proceeds from asset dispositions
93,608

 
20,479

Change in restricted cash – investing
11,181

 
46

Insurance proceeds
255

 

Distributions from unconsolidated entities
3,906

 
3,441

Contributions to unconsolidated entities

 
(1,500
)
Net cash flow provided by (used in) investing activities
12,740

 
(46,777
)
 Cash flows from financing activities:
 
 
 
Proceeds from borrowings
140,500

 
127,245

Repayment of borrowings
(205,904
)
 
(68,535
)
Payment of deferred financing fees
(11
)
 
(2,698
)
Distributions paid to noncontrolling interests
(7,054
)
 
(446
)
Contributions from noncontrolling interests
5,069

 
1,840

Distributions paid to FelCor LP limited partners
(20
)
 

Distributions paid to preferred unitholders
(19,356
)
 
(19,356
)
Preferred distributions - consolidated joint venture
(409
)
 

Distributions paid to common unitholders
(4,968
)
 

Net proceeds from issuance of preferred capital - consolidated joint venture
40,994

 

Net cash flow provided by (used in) financing activities
(51,159
)
 
38,050

 Effect of exchange rate changes on cash
(3
)
 
(54
)
 Net change in cash and cash equivalents
15,699

 
20,490

 Cash and cash equivalents at beginning of periods
45,645

 
45,745

 Cash and cash equivalents at end of periods
$
61,344

 
$
66,235

 
 
 
 
 Supplemental cash flow information – interest paid, net of capitalized interest
$
43,747

 
$
38,301

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

10



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.
Organization
FelCor Lodging Trust Incorporated (NYSE:FCH), or FelCor, is a Maryland corporation, operating as a real estate investment trust, or REIT. FelCor is the sole general partner of, and the owner of a greater than 99.5% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, through which we held ownership interests in 57 hotels as of June 30, 2014, two of which were held for sale. At June 30, 2014, we had an aggregate of 124,902,232 shares and units outstanding, consisting of 124,289,525 shares of FelCor common stock and 612,707 FelCor LP units not owned by FelCor.
Of the 55 hotels not held for sale as of June 30, 2014, we owned a 100% interest in 39 hotels, a 90% interest in an entity owning one hotel, an 82% interest in an entity owning one hotel, a 60% interest in an entity owning one hotel and a 50% interest in entities owning 13 hotels. We consolidate our real estate interests in the 42 hotels in which we held majority interests, and we record the real estate interests of the 13 hotels in which we held 50% interests using the equity method. We leased 54 of the 55 hotels in continuing operations to our taxable REIT subsidiaries, of which we own a controlling interest. One 50% owned hotel was operated without a lease. Because we owned controlling interests in these lessees, we consolidated our interests in these 54 hotels (which we refer to as our Consolidated Hotels) and reflect those hotels’ operating revenues and expenses in our statements of operations.  Of our Consolidated Hotels, we owned 50% of the real estate interests in each of 12 hotels (we accounted for the ownership in our real estate interests of these hotels by the equity method) and majority real estate interests in each of the remaining 42 hotels (we consolidate our real estate interest in these hotels).
The following table illustrates the distribution of our 54 Consolidated Hotels at June 30, 2014:
Brand
 
Hotels
 
Rooms
 Embassy Suites Hotels® 
 
30

 
 
7,916

 Wyndham® and Wyndham Grand®
 
8

 
 
2,528

 Sheraton® and Westin® 
 
4

 
 
1,604

 Marriott® and Renaissance® 
 
3

 
 
1,321

 Holiday Inn® 
 
3

 
 
1,256

 DoubleTree by Hilton® and Hilton® 
 
3

 
 
802

 Fairmont® 
 
1

 
 
383

 Morgans and Royalton
 
2

 
 
285

  Total
 
54

 
 
16,095

At June 30, 2014, our Consolidated Hotels were located in in 20 states, with concentrations in California (12 hotels), Florida (seven hotels) and Texas (seven hotels). Approximately 53% of our revenue was generated from hotels in these three states during the first six months of 2014.
At June 30, 2014, of our 54 Consolidated Hotels: (i) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 32 hotels, (ii) subsidiaries of Wyndham Hotel Group, or Wyndham, managed eight hotels, (iii) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood, managed four hotels,(iv) subsidiaries of Marriott International Inc., or Marriott, managed three hotels, (v) subsidiaries of InterContinental Hotels Group, or IHG, managed three hotels, (vi) a subsidiary of Fairmont Hotels and Resorts, or Fairmont, managed one hotel, (vii) a subsidiary of Morgans Hotel Group Corporation managed two hotels, and (viii) an independent management company managed one hotel.

11



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Organization — (continued)
In addition to the above hotels, we own a 95% interest in a consolidated joint venture that owns the Knickerbocker Hotel, a former hotel and office building that is being redeveloped as a 4+ star hotel in midtown Manhattan and is expected to open in early fall 2014.
The information in our consolidated financial statements for the three and six months ended June 30, 2014 and 2013 is unaudited. Preparing financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements for the three and six months ended June 30, 2014 and 2013, include adjustments based on management’s estimates (consisting of normal and recurring accruals), which we consider necessary for a fair presentation of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2013, included in our Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of actual operating results for the entire year.
2.
Investment in Unconsolidated Entities
At June 30, 2014 and December 31, 2013, we owned 50% interests in joint ventures that owned 13 hotels. We also own 50% interests in entities that own real estate in Myrtle Beach, South Carolina and provide condominium management services there. We account for our investments in these unconsolidated entities under the equity method. We do not have any majority-owned subsidiaries that are not consolidated in our financial statements. We make adjustments to our equity in income from unconsolidated entities related to the difference between our basis in investment in unconsolidated entities compared to the historical basis of the assets recorded by the joint ventures.
The following table summarizes combined balance sheet information for our unconsolidated entities (in thousands):
 
June 30,
 
December 31,
 
2014
 
2013
Investment in hotels and other properties, net of accumulated depreciation
$
132,773

 
 
$
140,145

 
Total assets
$
152,454

 
 
$
155,848

 
Debt
$
146,722

 
 
$
146,358

 
Total liabilities
$
152,446

 
 
$
152,068

 
Equity
$
8

 
 
$
3,780

 
Our unconsolidated entities’ debt at June 30, 2014 and December 31, 2013 consisted entirely of non-recourse mortgage debt.  In March 2014, one of our unconsolidated joint ventures refinanced $128 million of debt and extended the maturity until 2017.


12



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.
Investment in Unconsolidated Entities — (continued)
The following table sets forth summarized combined statement of operations information for our unconsolidated entities (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Total revenues
$
22,327

 
$
20,543

 
$
36,945

 
$
34,151

Net income
$
6,462

 
$
4,740

 
$
8,678

 
$
5,848

 
 
 
 
 
 
 
 
Net income attributable to FelCor
$
3,231

 
$
2,370

 
$
4,339

 
$
2,924

Depreciation of cost in excess of book value
(465
)
 
(465
)
 
(930
)
 
(930
)
Equity in income from unconsolidated entities
$
2,766

 
$
1,905

 
$
3,409

 
$
1,994

The following table summarizes the components of our investment in unconsolidated entities (in thousands):
 
June 30,
 
December 31,
 
2014
 
2013
Hotel-related investments
$
(7,651
)
 
 
$
(6,349
)
 
Cost in excess of book value of hotel investments
44,122

 
 
45,053

 
Land and condominium investments
7,655

 
 
8,239

 
Investment in unconsolidated entities
$
44,126

 
 
$
46,943

 
The following table summarizes the components of our equity in income from unconsolidated entities (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Hotel investments
$
2,722

 
$
1,883

 
$
3,993

 
$
2,591

Other investments
44

 
22

 
(584
)
 
(597
)
Equity in income from unconsolidated entities
$
2,766

 
$
1,905

 
$
3,409

 
$
1,994

On July 25, 2014, we unwound unconsolidated joint ventures, in which we held a 50% interest, that owned 10 hotels. As a consequence, we now own 100% of five of the hotels and affiliates of our joint venture partner now own 100% of the other five hotels. In addition, we received our partner’s 10% interest in a separate venture also resulting in our 100% ownership of an additional hotel. We paid $2.2 million to our joint venture partner to equalize the aggregate value of assets received by us compared to our joint venture partner. We have not yet determined the anticipated gain to be recorded in our consolidated statement of operations for the third quarter from this transaction.
Our joint ventures had a loan secured by eight of these properties. That loan bears interest at one-month LIBOR plus 3%, matures in March 2017 and is freely pre-payable in whole or in part. In connection with unwinding the joint ventures, that loan was bifurcated. We are only liable to repay our share of the bifurcated loan ($64 million), which share is secured by mortgages on four of the hotels we now wholly-own.

13



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.
Debt
Consolidated debt consisted of the following (dollars in thousands):
 
Encumbered
 
Interest
 
Maturity
 
June 30,
 
December 31,
 
Hotels
 
Rate (%)
 
Date
 
2014
 
2013
Line of credit
8

 
 
LIBOR + 3.375
 
June 2016(a)
 
$
87,500

 
$
88,000

Hotel mortgage debt
 
 
 
 
 
 
 
 
 
 
 
Mortgage debt
1

 
 
5.81

 
 
July 2016
 
9,641

 
9,904

Mortgage debt(b)
4

 
 
4.95

 
 
October 2022
 
125,404

 
126,220

Mortgage debt
1

 
 
4.94

 
 
October 2022
 
31,471

 
31,714

Senior notes
 
 
 
 
 
 
 
 
 
 
 
Senior secured notes(c)
11

 
 
10.00

 
 
October 2014
 
232,289

 
229,190

Senior secured notes
6

 
 
6.75

 
 
June 2019
 
525,000

 
525,000

Senior secured notes
9

 
 
5.625

 
 
March 2023
 
525,000

 
525,000

Knickerbocker loan(d)
 
 
 
 
 
 
 
 
 
 
 
Construction tranche

 
 
LIBOR + 4.00
 
May 2016
 
12,994

 

Cash collateralized tranche

 
 
LIBOR + 1.25
 
May 2016
 
51,867

 
64,861

Retired debt

 
 

 
 
 

 
63,337

Total
40

 
 
 
 
 
 
 
$
1,601,166

 
$
1,663,226

(a)
Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.
(b)
This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.
(c)
We originally issued $636 million (face amount) of these notes. After redemptions in 2011 and 2012, $234 million (face amount) of these notes were outstanding at June 30, 2014 and December 31, 2013.
(d)
In November 2012, we obtained an $85.0 million construction loan to finance the redevelopment of the Knickerbocker Hotel. This loan can be extended for one year subject to satisfying certain conditions. In January 2014, we drew $13.0 million of the cash collateral to fund construction costs, leaving $51.9 million of cash collateral to be drawn before drawing on the remaining $20.1 million available under the construction loan.
In January 2014, we repaid $10.9 million of secured loan debt, scheduled to mature in July 2014, when we sold a hotel. In March 2014, we repaid an additional $17.1 million of debt, secured by a hotel, scheduled to mature in June 2014. We incurred $251,000 of debt extinguishment costs with these repayments.
In April 2014, we repaid $15.6 million of debt, secured by two hotels, scheduled to mature in July 2014. In May 2014, we paid an additional $19.2 million of debt, secured by a hotel, scheduled to mature in August 2014.
We reported $24.5 million and $26.4 million of interest expense for the three months ended June 30, 2014 and 2013, respectively, which is net of: (i) interest income of $14,000 and $22,000 and (ii) capitalized interest of $4.3 million and $2.9 million, respectively. We reported $49.7 million and $52.7 million of interest expense for the six months ended June 30, 2014 and 2013, respectively, which is net of: (i) interest income of $29,000 and $45,000 and (ii) capitalized interest of $8.3 million and $5.7 million, respectively.

14



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.    Debt — (continued)

During July, we obtained a $140 million term loan secured by three hotels. Borrowings under the facility bear interest at LIBOR (no floor) plus 2.5%. The loan matures in 2017 (may be extended for up to two years, subject to satisfaction of certain conditions) and is freely pre-payable. On August 15, 2014, we expect to use borrowings from the term loan, cash on hand and borrowings under our line of credit to repay the remaining $234 million of our maturing 10% senior secured notes. We will use proceeds from pending and future asset sales to repay the term loan and our line of credit.

4.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs
Hotel operating revenue from continuing operations was comprised of the following (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Room revenue
$
200,238

 
$
184,327

 
$
370,067

 
$
344,834

Food and beverage revenue
45,471

 
42,162

 
85,256

 
79,105

Other operating departments
12,570

 
12,317

 
23,978

 
23,405

Total hotel operating revenue
$
258,279

 
$
238,806

 
$
479,301

 
$
447,344

Nearly all of our revenue is comprised of hotel operating revenue. These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues are recorded on an accrual basis, as earned. Appropriate allowances are made for doubtful accounts, which are recorded as a bad debt expense. Hotel departmental expenses from continuing operations were comprised of the following (in thousands):
 
Three Months Ended June 30,
 
2014
 
2013
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
50,585

 
19.6
%
 
 
$
47,322

 
19.8
%
 
Food and beverage
33,066

 
12.8

 
 
31,747

 
13.3

 
Other operating departments
5,977

 
2.3

 
 
5,902

 
2.5

 
Total hotel departmental expenses
$
89,628

 
34.7
%
 
 
$
84,971

 
35.6
%
 


15



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs — (continued)
 
Six Months Ended June 30,
 
2014
 
2013
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
97,318

 
20.3
%
 
 
$
92,192

 
20.6
%
 
Food and beverage
64,253

 
13.4

 
 
61,993

 
13.9

 
Other operating departments
11,580

 
2.4

 
 
11,191

 
2.5

 
Total hotel departmental expenses
$
173,151

 
36.1
%
 
 
$
165,376

 
37.0
%
 
Other property-related costs from continuing operations were comprised of the following amounts (in thousands):
 
Three Months Ended June 30,
 
2014
 
2013
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
21,133

 
8.2
%
 
 
$
20,311

 
8.5
%
 
Marketing
21,150

 
8.2

 
 
19,555

 
8.2

 
Repair and maintenance
11,332

 
4.4

 
 
11,247

 
4.7

 
Utilities
9,297

 
3.6

 
 
8,917

 
3.7

 
Total other property-related costs
$
62,912

 
24.4
%
 
 
$
60,030

 
25.1
%
 
 
Six Months Ended June 30,
 
2014
 
2013
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
40,967

 
8.5
%
 
 
$
40,358

 
9.0
%
 
Marketing
41,221

 
8.6

 
 
38,566

 
8.6

 
Repair and maintenance
23,019

 
4.8

 
 
22,808

 
5.1

 
Utilities
19,283

 
4.1

 
 
17,726

 
4.0

 
Total other property-related costs
$
124,490

 
26.0
%
 
 
$
119,458

 
26.7
%
 

16



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs — (continued)

In March 2013, we rebranded and transitioned management at eight core hotels located in strategic markets to Wyndham brands. Wyndham's parent guaranteed a minimum level of net operating income for each year of the initial ten-year term, subject to an aggregate $100 million limit over the term and an annual $21.5 million limit. Amounts recorded under the guaranty will be accounted for, to the extent available, as a reduction in contractual management and other fees paid and payable to Wyndham. Any amounts in excess of those fees will be recorded as revenue when earned. For the six months ended June 30, 2014 and 2013, we have recorded a $431,000 and $2.7 million, respectively, pro rata portion of the projected full-year guaranty (of which $295,000 and $2.3 million is for the three months ended June 30, 2014 and 2013, respectively) as a reduction of Wyndham's contractual management and other fees.

5.
Taxes, Insurance and Lease Expense

Taxes, insurance and lease expense from continuing operations were comprised of the following (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Hotel lease expense(a) 
$
13,296

 
$
12,166

 
$
23,687

 
$
21,723

Land lease expense(b) 
3,160

 
2,772

 
5,622

 
5,166

Real estate and other taxes
8,025

 
7,637

 
16,133

 
15,232

Property insurance, general liability insurance and other
2,511

 
2,278

 
5,183

 
4,896

  Total taxes, insurance and lease expense
$
26,992

 
$
24,853

 
$
50,625

 
$
47,017


(a)
Hotel lease expense is recorded by the consolidated operating lessees of 12 hotels owned by unconsolidated entities and is partially (generally 49%) offset through noncontrolling interests in other partnerships. Our 50% share of the corresponding lease income is recorded through equity in income from unconsolidated entities.  Hotel lease expense includes percentage rent of $7.8 million and $6.7 million for the three months ended June 30, 2014 and 2013, respectively, and $12.7 million and $10.8 million for the six months ended June 30, 2014 and 2013, respectively.

(b)
Land lease expense includes percentage rent of $1.7 million and $1.3 million for the three months ended June 30, 2014 and 2013, respectively, and $2.7 million and $2.3 million for the six months ended June 30, 2014 and 2013, respectively.


17



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.
Impairment
Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider each hotel to be a component for purposes of determining impairment charges and reporting discontinued operations.
We may record impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and/or lodging industry weakens, or we shorten our contemplated holding period for additional hotels. For the quarter ended June 30, 2013, we recorded a $27.7 million impairment charge ($24.4 million related to two hotels included in continuing operations and $3.3 million related to one hotel included in discontinued operations).
The impairment charge related to the one hotel included in discontinued operations ($3.3 million) was based on third-party offers to purchase (a Level 2 input under authoritative guidance for fair value measurements) at prices below our previously estimated fair market values for this property. This hotel had been identified as a sale candidate in a prior year, reducing its estimated hold period at that time.
As part of our long-term strategic plan, we may identify hotels that no longer meet our investment criteria. We identified two additional such hotels, thereby significantly reducing their respective estimated hold periods, resulting in impairments on both hotels during the second quarter of 2013. A portion ($24.4 million) of the second quarter 2013 impairment charges relates to these hotels and was determined using Level 3 inputs, as follows:
with respect to one hotel, we used a discounted cash flow analysis with an estimated stabilized growth rate of 3.0%, a discounted cash flow term of five years, a terminal capitalization rate of 8.0%, and a discount rate of 10.0%; and
with respect to the other hotel, we used information based on EBITDA multiples ranging from 10 to 12 times.

7.
Hotel Dispositions
Effective January 1, 2014, we have adopted the provisions of Accounting Standards Update No. 2014-08 (the Update), under which the disposal of components of an entity are reported as discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. These new provisions are applied prospectively only and, as such, hotels that were considered discontinued operations for the year ended December 31, 2013 and prior continue to be reported as discontinued operations in all periods presented.
During the six months ended June 30, 2014, we sold four hotels, one of which was previously held for sale at December 31, 2013. Additionally, as of June 30, 2014, we had two hotels held for sale. We designate a hotel as held for sale when the sale is probable within the next twelve months. We consider a sale to be probable when a buyer completes its due diligence review, we have an executed contract for sale, and we have received a substantial non-refundable deposit. Operations for five of the hotels (three hotels sold not previously held for sale and two hotels held for sale as of June 30, 2014) are included in income (loss) from continuing operations as shown in the statements of operations for the three and six months ended June 30, 2014 and 2013, as disposition of these hotels does not represent a strategic shift in our business.

18



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.
Hotel Dispositions — (continued)

The following table includes operations from these five hotels (in thousands):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Income (loss) from continuing operations
$816
 
 
$652
 
 
$226
 
 
$(370)
Net income (loss) attributable to FelCor
$784
 
 
$621
 
 
$173
 
 
$(413)

The gain on the sale of the three hotels not previously held for sale is reported in the accompanying statement of operations on a separate line item and is not included in continuing operations.

Discontinued operations include the results of operations for five hotels sold in 2013 and one hotel sold in 2014 (which was held for sale as of December 31, 2013). The following table summarizes the condensed financial information for those hotels (in thousands):


Three Months Ended

Six Months Ended
 
June 30,

June 30,
 
2014

2013

2014

2013
Hotel operating revenue
$



$
12,858



$
730



$
24,612


Operating expenses
5



(13,796
)


(670
)


(24,501
)

Operating income (loss) from discontinued operations
5

 
 
(938
)
 
 
60

 
 
111

 
Interest expense, net

 
 
(198
)
 
 
(66
)
 
 
(397
)
 
Debt extinguishment

 
 

 
 
(245
)
 
 

 
Gain on sale of property, net

 
 
7,259

 
 
391

 
 
7,259

 
Income from discontinued operations
$
5

 
 
$
6,123

 
 
$
140

 
 
$
6,973

 



19



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Income (Loss) Per Share/Unit

The following tables set forth the computation of basic and diluted income (loss) per share/unit (in thousands, except per share/unit data):

FelCor Income (Loss) Per Share

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor
$
24,281

 
$
(18,683
)
 
$
9,463

 
$
(44,868
)
Discontinued operations attributable to FelCor
(5
)
 
(6,021
)
 
(139
)
 
(6,852
)
Income (loss) from continuing operations attributable to FelCor
24,276

 
(24,704
)
 
9,324

 
(51,720
)
Less: Preferred dividends
(9,678
)
 
(9,678
)
 
(19,356
)
 
(19,356
)
Less: Dividends declared on unvested restricted stock
(2
)
 

 
(3
)
 

Less: Undistributed earnings allocated to unvested restricted stock
(6
)
 

 

 

Numerator for continuing operations attributable to FelCor common stockholders
14,590

 
(34,382
)
 
(10,035
)
 
(71,076
)
Discontinued operations attributable to FelCor
5

 
6,021

 
139

 
6,852

Numerator for basic and diluted income (loss) attributable to FelCor common stockholders
$
14,595

 
$
(28,361
)
 
$
(9,896
)
 
$
(64,224
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic income (loss) per share
124,169

 
123,814

 
124,158

 
123,814

Denominator for diluted income (loss) per share
125,386

 
123,814

 
124,158

 
123,814

Basic and diluted income (loss) per share data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.12

 
$
(0.28
)
 
$
(0.08
)
 
$
(0.57
)
Discontinued operations
$

 
$
0.05

 
$

 
$
0.06

Net income (loss)
$
0.12

 
$
(0.23
)
 
$
(0.08
)
 
$
(0.52
)


20



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Income (Loss) Per Share/Unit — (continued)

FelCor LP Income (Loss) Per Unit

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor LP
$
24,352

 
$
(18,823
)
 
$
9,413

 
$
(45,188
)
Discontinued operations attributable to FelCor LP
(5
)
 
(6,051
)
 
(140
)
 
(6,886
)
Income (loss) from continuing operations attributable to FelCor LP
24,347

 
(24,874
)
 
9,273

 
(52,074
)
Less: Preferred distributions
(9,678
)
 
(9,678
)
 
(19,356
)
 
(19,356
)
Less: Distributions declared on FelCor unvested restricted stock
(2
)
 

 
(3
)
 

Less: Undistributed earnings allocated to FelCor unvested restricted stock
(6
)
 

 

 

Numerator for continuing operations attributable to FelCor LP common unitholders
14,661

 
(34,552
)
 
(10,086
)
 
(71,430
)
Discontinued operations attributable to FelCor LP
5

 
6,051

 
140

 
6,886

Numerator for basic and diluted income (loss) attributable to FelCor common unitholders
$
14,666

 
$
(28,501
)
 
$
(9,946
)
 
$
(64,544
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic income (loss) per unit
124,783

 
124,435

 
124,774

 
124,435

Denominator for diluted income (loss) per unit
126,000

 
124,435

 
124,774

 
124,435

Basic and diluted income (loss) per unit data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.12

 
$
(0.28
)
 
$
(0.08
)
 
$
(0.57
)
Discontinued operations
$

 
$
0.05

 
$

 
$
0.06

Net income (loss)
$
0.12

 
$
(0.23
)
 
$
(0.08
)
 
$
(0.52
)

The income (loss) from continuing operations attributable to FelCor/FelCor LP share/unit calculations includes the gain on the sale of property attributable to FelCor/FelCor LP.

Securities that could potentially dilute earnings per share/unit in the future that were not included in the computation of diluted income (loss) per share/unit, because they would have been antidilutive for the periods presented, are as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Series A convertible preferred shares/units
9,985
 
9,985
 
9,985

 
 
9,985

FelCor restricted stock units
 
576
 
1,020

 
 
373


21



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Income (Loss) Per Share/Unit — (continued)

Series A preferred dividends (distributions) that would be excluded from net income (loss) attributable to FelCor common stockholders (or FelCor LP common unitholders), if these preferred shares/units were dilutive, were $6.3 million for the three months ended June 30, 2014 and 2013, and $12.6 million for the six months ended June 30, 2014 and 2013.

We grant our executive officers restricted stock units each year, which provides them with the potential to earn shares of our common stock in three increments over four years. The actual number of shares that vest is determined based on total stockholder return relative to a group of 10 lodging REIT peers. We amortize the fixed cost of these grants over the vesting period. We calculate the potential dilutive impact of these awards on our earnings per share using the treasury stock method.

9.
Fair Value of Financial Instruments
Disclosures about fair value of our financial instruments are based on pertinent information available to management as of June 30, 2014 and December 31, 2013. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize on disposition of the financial instruments. Different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
Our estimates of the fair value of (i) cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) our publicly-traded debt is based on observable market data (a Level 2 input) and has an estimated fair value of $1.3 billion at June 30, 2014 and December 31, 2013; and (iii) our debt that is not publicly-traded is based on a discounted cash flow model using effective borrowing rates for debt with similar terms, loan to estimated fair value of collateral and remaining maturities (a Level 3 input) and has an estimated fair value of $322.2 million and $390.1 million at June 30, 2014 and December 31, 2013, respectively. The estimated fair value of all our debt was $1.7 billion at June 30, 2014 and December 31, 2013. The carrying value of our debt was $1.6 billion and $1.7 billion at June 30, 2014 and December 31, 2013, respectively.
10.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units
We record redeemable noncontrolling interests in FelCor LP, in the case of FelCor, and redeemable units, in the case of FelCor LP, in the mezzanine section (between liabilities and equity or partners’ capital) of our consolidated balance sheets because of the redemption feature of these units. Additionally, FelCor’s consolidated statements of operations separately present earnings attributable to redeemable noncontrolling interests. We adjust redeemable noncontrolling interests in FelCor LP (or redeemable units) each period to reflect the greater of its carrying value based on the accumulation of historical cost or its redemption value. The historical cost is based on the proportionate relationship between the carrying value of equity associated with FelCor’s common stockholders relative to that of FelCor LP’s unitholders. Redemption value is based on the closing price of FelCor’s common stock at period end. FelCor allocates net income (loss) to FelCor LP’s noncontrolling partners based on their weighted average ownership percentage during the period.
At June 30, 2014, we had 612,707 limited partnership units outstanding carried at $6.4 million. The value of these outstanding units is based on the closing price of FelCor’s common stock at June 30, 2014 ($10.51 per share).

22



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units — (continued)
Changes in redeemable noncontrolling interests (or redeemable units) for the six months ended June 30, 2014 and 2013 are shown below (in thousands):
 
Six Months Ended
 
June 30,
 
2014
 
2013
Balance at beginning of period
$
5,039

 
 
$
2,902

 
Conversion of units
(44
)
 
 

 
Redemption value allocation
1,519

 
 
1,095

 
Distributions paid to unitholders
(24
)
 
 

 
Comprehensive loss:
 
 
 
 
 
Foreign exchange translation

 
 
(5
)
 
Net loss
(50
)
 
 
(320
)
 
Balance at end of period
$
6,440

 
 
$
3,672

 
11.    Consolidated Joint Venture Preferred Equity/Capital
Our joint venture that is redeveloping the Knickerbocker Hotel raised $45 million through the sale of 3.5% preferred equity/capital under the EB-5 immigrant investor program. The investors in this preferred equity receive a 3.25% current annual return, with a 0.25% non-compounding annual return paid at redemption. Redemption is at the company’s option. If the preferred equity is not redeemed within five years, the current return increases to 8.00%. The venture received $41.6 million in gross proceeds ($41.0 million net of issuance costs) during the six months ended June 30, 2014, and the remaining $3.4 million will be received as investors’ visas are approved by the government. We used our 95% share of the proceeds to repay borrowings under our line of credit.
12.    Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.


23



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.
FelCor LP’s Consolidating Financial Information
Certain of FelCor LP’s 100% owned subsidiaries (FCH/PSH, L.P.; FelCor Baton Rouge Owner, L.L.C.; FelCor/CMB Buckhead Hotel, L.L.C.; FelCor/CMB Marlborough Hotel, L.L.C.; FelCor/CMB Orsouth Holdings, L.P.; FelCor/CMB SSF Holdings, L.P.; FelCor/CSS Holdings, L.P.; FelCor Dallas Love Field Owner, L.L.C.; FelCor Lodging Holding Company, L.L.C.; FelCor Milpitas Owner, L.L.C.; FelCor TRS Borrower 4, L.L.C.; FelCor TRS Holdings, L.L.C.; FelCor Canada Co.; FelCor Hotel Asset Company, L.L.C.; FelCor Copley Plaza, L.L.C.; FelCor St. Pete (SPE), L.L.C.; FelCor Esmeralda (SPE), L.L.C.; FelCor S-4 Hotels (SPE), L.L.C.; Los Angeles International Airport Hotel Associates, a Texas L.P.; Madison 237 Hotel, L.L.C.; Myrtle Beach Owner, L.L.C.; and Royalton 44 Hotel, L.L.C., collectively, “Subsidiary Guarantors”), together with FelCor, guaranty, fully and unconditionally, except where subject to customary release provisions as described below, and jointly and severally, our senior debt.
The guaranties by the Subsidiary Guarantors may be automatically and unconditionally released upon (1) the sale or other disposition of all of the capital stock of the Subsidiary Guarantor or the sale or disposition of all or substantially all of the assets of the Subsidiary Guarantor, (2) the consolidation or merger of any such Subsidiary Guarantor with any person other than FelCor LP, or a subsidiary of FelCor LP, if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a subsidiary of FelCor LP, (3) a legal defeasance or covenant defeasance of the indenture, (4) the unconditional and complete release of such Subsidiary Guarantor in accordance with the modification and waiver provisions of the indenture, or (5) the designation of a restricted subsidiary that is a Subsidiary Guarantor as an unrestricted subsidiary under and in compliance with the indenture.

24



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.
FelCor LP’s Consolidating Financial Information – (continued)
The following tables present consolidating information for the Subsidiary Guarantors.
FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2014
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net investment in hotels
$
44,166

 
$
1,040,284

 
$
467,722

 
$

 
$
1,552,172

Hotel development

 

 
261,181

 

 
261,181

Equity investment in consolidated entities
1,491,230

 

 

 
(1,491,230
)
 

Investment in unconsolidated entities
31,479

 
11,314

 
1,333

 

 
44,126

Hotels held for sale

 
13,974

 
19,174

 

 
33,148

Cash and cash equivalents
12,816

 
45,033

 
3,495

 

 
61,344

Restricted cash

 
10,160

 
55,886

 

 
66,046

Accounts receivable, net
336

 
34,921

 
632

 

 
35,889

Deferred expenses, net
18,783

 

 
7,179

 

 
25,962

Other assets
7,650

 
11,996

 
19,065

 
(11,915
)
 
26,796

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,606,460

 
$
1,167,682

 
$
835,667

 
$
(1,503,145
)
 
$
2,106,664

 
 
 
 
 
 
 
 
 
 
Debt, net
$
1,282,289

 
$
11,915

 
$
360,075

 
$
(53,113
)
 
$
1,601,166

Distributions payable
11,116

 

 
112

 

 
11,228

Accrued expenses and other liabilities
31,078

 
104,033

 
14,688

 

 
149,799

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,324,483

 
115,948

 
374,875

 
(53,113
)
 
1,762,193

 
 
 
 
 
 
 
 
 
 
Redeemable units
6,440

 

 

 

 
6,440

 
 
 
 
 
 
 
 
 
 
Preferred units
478,766

 

 

 

 
478,766

Common units
(228,227
)
 
1,047,455

 
377,579

 
(1,425,034
)
 
(228,227
)
Accumulated other comprehensive income
24,998

 
4,551

 
20,447

 
(24,998
)
 
24,998

Total FelCor LP partners’ capital
275,537

 
1,052,006

 
398,026

 
(1,450,032
)
 
275,537

Noncontrolling interests

 
(272
)
 
21,772

 

 
21,500

Preferred capital in consolidated joint venture

 

 
40,994

 

 
40,994

Total partners’ capital
275,537

 
1,051,734

 
460,792

 
(1,450,032
)
 
338,031

Total liabilities and partners’ capital
$
1,606,460

 
$
1,167,682

 
$
835,667

 
$
(1,503,145
)
 
$
2,106,664


25



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2013
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net investment in hotels
$
48,971

 
$
1,053,724

 
$
550,572

 
$

 
$
1,653,267

Hotel development

 

 
216,747

 

 
216,747

Equity investment in consolidated entities
1,508,593

 

 

 
(1,508,593
)
 

Investment in unconsolidated entities
34,090

 
11,497

 
1,356

 

 
46,943

Hotel held for sale

 

 
16,319

 

 
16,319

Cash and cash equivalents
5,227

 
33,283

 
7,135

 

 
45,645

Restricted cash

 
9,051

 
68,176

 

 
77,227

Accounts receivable, net
516

 
34,366

 
865

 

 
35,747

Deferred expenses, net
20,540

 

 
8,785

 

 
29,325

Other assets
6,248

 
10,767

 
17,998

 
(11,953
)
 
23,060

Total assets
$
1,624,185

 
$
1,152,688

 
$
887,953

 
$
(1,520,546
)
 
$
2,144,280

 
 
 
 
 
 
 
 
 
 
Debt, net
$
1,279,190

 
$
11,953

 
$
464,036

 
$
(91,953
)
 
$
1,663,226

Distributions payable
11,047

 

 

 

 
11,047

Accrued expenses and other liabilities
37,980

 
96,494

 
16,264

 

 
150,738

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,328,217

 
108,447

 
480,300

 
(91,953
)
 
1,825,011

 
 
 
 
 
 
 
 
 
 
Redeemable units
5,039

 

 

 

 
5,039

 
 
 
 
 
 
 
 
 
 
Preferred units
478,774

 

 

 

 
478,774

Common units
(212,888
)
 
1,039,903

 
363,647

 
(1,403,550
)
 
(212,888
)
Accumulated other comprehensive income
25,043

 
4,569

 
20,474

 
(25,043
)
 
25,043

Total FelCor LP partners’ capital
290,929

 
1,044,472

 
384,121

 
(1,428,593
)
 
290,929

Noncontrolling interests

 
(231
)
 
23,532

 

 
23,301

Total partners’ capital
290,929

 
1,044,241

 
407,653

 
(1,428,593
)
 
314,230

Total liabilities and partners’ capital
$
1,624,185

 
$
1,152,688

 
$
887,953

 
$
(1,520,546
)
 
$
2,144,280



26



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
258,279

 
$

 
$

 
$
258,279

Percentage lease revenue
1,910

 

 
24,401

 
(26,311
)
 

Other revenue
1

 
1,082

 
153

 

 
1,236

Total revenues
1,911

 
259,361

 
24,554

 
(26,311
)
 
259,515

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
162,700

 

 

 
162,700

Taxes, insurance and lease expense
450

 
49,544

 
3,309

 
(26,311
)
 
26,992

Corporate expenses
149

 
5,263

 
2,235

 

 
7,647

Depreciation and amortization
992

 
18,004

 
10,086

 

 
29,082

Other expenses

 
789

 
1,325

 

 
2,114

Total operating expenses
1,591

 
236,300

 
16,955

 
(26,311
)
 
228,535

Operating income
320

 
23,061

 
7,599

 

 
30,980

Interest expense, net
(20,300
)
 
(306
)
 
(3,889
)
 

 
(24,495
)
Debt extinguishment

 

 
(27
)
 

 
(27
)
Gain on sale of other assets, net

 
100

 

 

 
100

Income before equity in income from unconsolidated entities
(19,980
)
 
22,855

 
3,683

 

 
6,558

Equity in income from consolidated entities
42,238

 

 

 
(42,238
)
 

Equity in income from unconsolidated entities
2,315

 
462

 
(11
)
 

 
2,766

Income from continuing operations
24,573

 
23,317

 
3,672

 
(42,238
)
 
9,324

Income from discontinued operations

 
5

 

 

 
5

Income before gain on sale of property
24,573

 
23,322

 
3,672

 
(42,238
)
 
9,329

Gain on sale of property, net
(221
)
 
(15
)
 
15,862

 

 
15,626

Net income
24,352

 
23,307

 
19,534

 
(42,238
)
 
24,955

Income attributable to noncontrolling interests

 
(113
)
 
(149
)
 

 
(262
)
Preferred distributions - consolidated joint venture

 

 
(341
)
 

 
(341
)
Net income attributable to FelCor LP
24,352

 
23,194

 
19,044

 
(42,238
)
 
24,352

Preferred distributions
(9,678
)
 

 

 

 
(9,678
)
Net income attributable to FelCor LP common unitholders
$
14,674

 
$
23,194

 
$
19,044

 
$
(42,238
)
 
$
14,674


27



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
238,806

 
$

 
$

 
$
238,806

Percentage lease revenue
1,615

 

 
21,788

 
(23,403
)
 

Other revenue
2

 
918

 
130

 

 
1,050

Total revenues
1,617

 
239,724


21,918


(23,403
)
 
239,856

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
153,915

 

 

 
153,915

Taxes, insurance and lease expense
386

 
44,436

 
3,434

 
(23,403
)
 
24,853

Corporate expenses
272

 
4,811

 
1,611

 

 
6,694

Depreciation and amortization
1,185

 
17,879

 
10,834

 

 
29,898

Impairment loss
14,294

 

 
10,147

 

 
24,441

Conversion expenses
4

 
292

 
291

 

 
587

Other expenses
2,754

 
842

 
319

 

 
3,915

Total operating expenses
18,895

 
222,175

 
26,636

 
(23,403
)
 
244,303

Operating loss
(17,278
)
 
17,549

 
(4,718
)
 

 
(4,447
)
Interest expense, net
(21,380
)
 
(319
)
 
(4,677
)
 

 
(26,376
)
Loss before equity in income from unconsolidated entities
(38,658
)
 
17,230


(9,395
)



(30,823
)
Equity in income from consolidated entities
21,183

 

 

 
(21,183
)
 

Equity in income from unconsolidated entities
1,547

 
369

 
(11
)
 

 
1,905

Loss from continuing operations
(15,928
)
 
17,599

 
(9,406
)
 
(21,183
)
 
(28,918
)
Income from discontinued operations
(2,895
)
 
(119
)
 
9,137

 

 
6,123

Net loss
(18,823
)
 
17,480

 
(269
)
 
(21,183
)
 
(22,795
)
Loss attributable to noncontrolling interests

 
(16
)
 
3,988

 

 
3,972

Net loss attributable to FelCor LP
(18,823
)
 
17,464

 
3,719

 
(21,183
)
 
(18,823
)
Preferred distributions
(9,678
)
 

 

 

 
(9,678
)
Net loss attributable to FelCor LP common unitholders
$
(28,501
)
 
$
17,464

 
$
3,719

 
$
(21,183
)
 
$
(28,501
)

28



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
479,301

 
$

 
$

 
$
479,301

Percentage lease revenue
3,309

 

 
50,010

 
(53,319
)
 

Other revenue
2

 
1,348

 
213

 

 
1,563

Total revenues
3,311

 
480,649

 
50,223

 
(53,319
)
 
480,864

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
316,814

 

 

 
316,814

Taxes, insurance and lease expense
870

 
96,372

 
6,702

 
(53,319
)
 
50,625

Corporate expenses
272

 
10,333

 
4,867

 

 
15,472

Depreciation and amortization
1,984

 
35,770

 
20,929

 

 
58,683

Other expenses
35

 
1,629

 
2,464

 

 
4,128

Total operating expenses
3,161

 
460,918

 
34,962

 
(53,319
)
 
445,722

Operating income
150

 
19,731

 
15,261

 

 
35,142

Interest expense, net
(40,784
)
 
(634
)
 
(8,304
)
 

 
(49,722
)
Debt extinguishment

 

 
(33
)
 

 
(33
)
Gain on sale of other assets, net

 
100

 

 

 
100

Loss before equity in income from unconsolidated entities
(40,634
)
 
19,197

 
6,924

 

 
(14,513
)
Equity in income from consolidated entities
47,381

 

 

 
(47,381
)
 

Equity in income from unconsolidated entities
3,115

 
317

 
(23
)
 

 
3,409

Loss from continuing operations
9,862

 
19,514

 
6,901

 
(47,381
)
 
(11,104
)
Income from discontinued operations

 
34

 
106

 

 
140

Loss before gain on sale of property
9,862

 
19,548

 
7,007

 
(47,381
)
 
(10,964
)
Gain on sale of property, net
(449
)
 
(28
)
 
21,560

 

 
21,083

Net income
9,413

 
19,520

 
28,567

 
(47,381
)
 
10,119

Income attributable to noncontrolling interests

 
21

 
(205
)
 

 
(184
)
Preferred distributions - consolidated joint venture

 

 
(522
)
 

 
(522
)
Net income attributable to FelCor LP
9,413

 
19,541

 
27,840

 
(47,381
)
 
9,413

Preferred distributions
(19,356
)
 

 

 

 
(19,356
)
Net loss attributable to FelCor LP common unitholders
$
(9,943
)
 
$
19,541

 
$
27,840

 
$
(47,381
)
 
$
(9,943
)

29



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
447,344

 
$

 
$

 
$
447,344

Percentage lease revenue
2,877

 

 
44,931

 
(47,808
)
 

Other revenue
5

 
1,251

 
193

 

 
1,449

Total revenues
2,882

 
448,595

 
45,124

 
(47,808
)
 
448,793

 
 
 
 
 
 
 
 
 

Expenses:
 
 
 
 
 
 
 
 

Hotel operating expenses

 
302,911

 

 

 
302,911

Taxes, insurance and lease expense
690

 
87,427

 
6,708

 
(47,808
)
 
47,017

Corporate expenses
380

 
10,355

 
3,791

 

 
14,526

Depreciation and amortization
2,435

 
35,475

 
21,743

 

 
59,653

Impairment loss
14,294

 

 
10,147

 

 
24,441

Conversion expenses
24

 
682

 
509

 

 
1,215

Other expenses
2,777

 
1,359

 
600

 

 
4,736

Total operating expenses
20,600

 
438,209

 
43,498

 
(47,808
)
 
454,499

Operating loss
(17,718
)
 
10,386

 
1,626

 

 
(5,706
)
Interest expense, net
(42,985
)
 
(622
)
 
(9,054
)
 

 
(52,661
)
Loss before equity in income from unconsolidated entities
(60,703
)
 
9,764

 
(7,428
)
 

 
(58,367
)
Equity in income from consolidated entities
16,558

 

 

 
(16,558
)
 

Equity in income from unconsolidated entities
1,852

 
165

 
(23
)
 

 
1,994

Loss from continuing operations
(42,293
)
 
9,929

 
(7,451
)
 
(16,558
)
 
(56,373
)
Income from discontinued operations
(2,895
)
 
(535
)
 
10,403

 

 
6,973

Net loss
(45,188
)
 
9,394

 
2,952

 
(16,558
)
 
(49,400
)
Loss attributable to noncontrolling interests

 
240

 
3,972

 

 
4,212

Net loss attributable to FelCor LP
(45,188
)
 
9,634

 
6,924

 
(16,558
)
 
(45,188
)
Preferred distributions
(19,356
)
 

 

 

 
(19,356
)
Net loss attributable to FelCor LP common unitholders
$
(64,544
)
 
$
9,634

 
$
6,924

 
$
(16,558
)
 
$
(64,544
)

30



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended June 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net income
$
24,352

 
$
23,307

 
$
19,534

 
$
(42,238
)
 
$
24,955

Foreign currency translation adjustment
575

 
65

 
510

 
(575
)
 
575

Comprehensive income
24,927

 
23,372

 
20,044

 
(42,813
)
 
25,530

Comprehensive income attributable to noncontrolling interests

 
(113
)
 
(149
)
 

 
(262
)
Preferred distributions - consolidated joint venture

 

 
(341
)
 

 
(341
)
Comprehensive income attributable to FelCor LP
$
24,927

 
$
23,259

 
$
19,554

 
$
(42,813
)
 
$
24,927




FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Three Months Ended June 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net loss
$
(18,823
)
 
$
17,480

 
$
(269
)
 
$
(21,183
)
 
$
(22,795
)
Foreign currency translation adjustment
(567
)
 
(111
)
 
(456
)
 
567

 
(567
)
Comprehensive loss
(19,390
)
 
17,369

 
(725
)
 
(20,616
)
 
(23,362
)
Comprehensive loss attributable to noncontrolling interests

 
(16
)
 
3,988

 

 
3,972

Comprehensive loss attributable to FelCor LP
$
(19,390
)
 
$
17,353

 
$
3,263

 
$
(20,616
)
 
$
(19,390
)


31



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    FelCor LP’s Consolidating Financial Information – (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2014
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net income
$
9,413

 
$
19,520

 
$
28,567

 
$
(47,381
)
 
$
10,119

Foreign currency translation adjustment
(45
)
 
(18
)
 
(27
)
 
45

 
(45
)
Comprehensive income
9,368

 
19,502

 
28,540

 
(47,336
)
 
10,074

Comprehensive income attributable to noncontrolling interests

 
21

 
(205
)
 

 
(184
)
Preferred distributions - consolidated joint venture

 

 
(522
)
 

 
(522
)
Comprehensive income attributable to FelCor LP
$
9,368

 
$
19,523

 
$
27,813

 
$
(47,336
)
 
$
9,368



FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Six Months Ended June 30, 2013
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net loss
$
(45,188
)
 
$
9,394

 
$
2,952

 
$
(16,558
)
 
$
(49,400
)
Foreign currency translation adjustment
(924
)
 
(207
)
 
(717
)
 
924

 
(924
)
Comprehensive loss
(46,112
)
 
9,187

 
2,235

 
(15,634
)
 
(50,324
)
Comprehensive loss attributable to noncontrolling interests

 
240

 
3,972

 

 
4,212

Comprehensive loss attributable to FelCor LP
$
(46,112
)
 
$
9,427

 
$
6,207

 
$
(15,634
)
 
$
(46,112
)



32



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(38,098
)
 
$
62,307

 
$
29,912

 
$

 
$
54,121

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(685
)
 
(36,397
)
 
(10,950
)
 

 
(48,032
)
Hotel development

 

 
(48,178
)
 

 
(48,178
)
Net proceeds from asset dispositions
(419
)
 
(73
)
 
94,100

 

 
93,608

Insurance proceeds

 
255

 

 

 
255

Change in restricted cash - investing

 
(1,533
)
 
12,714

 

 
11,181

Distributions from unconsolidated entities
3,406

 
500

 

 

 
3,906

Intercompany financing
67,733

 

 

 
(67,733
)
 

Cash flows from investing activities
70,035

 
(37,248
)
 
47,686

 
(67,733
)
 
12,740

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings

 

 
140,500

 

 
140,500

Repayment of borrowings

 

 
(205,904
)
 

 
(205,904
)
Distributions paid to noncontrolling interests

 
(626
)
 
(6,428
)
 

 
(7,054
)
Contributions from noncontrolling interests

 
605

 
4,464

 

 
5,069

Distributions paid to preferred unitholders
(19,356
)
 

 

 

 
(19,356
)
Distributions paid to common unitholders
(4,968
)
 

 

 

 
(4,968
)
Net proceeds from issuance of preferred capital - consolidated joint venture

 

 
40,994

 

 
40,994

Intercompany financing

 
(13,285
)
 
(54,448
)
 
67,733

 

Other
(24
)
 

 
(416
)
 

 
(440
)
Cash flows from financing activities
(24,348
)
 
(13,306
)
 
(81,238
)
 
67,733

 
(51,159
)
Effect of exchange rate changes on cash

 
(3
)
 

 

 
(3
)
Change in cash and cash equivalents
7,589

 
11,750

 
(3,640
)
 

 
15,699

Cash and cash equivalents at beginning of period
5,227

 
33,283

 
7,135

 

 
45,645

Cash and cash equivalents at end of period
$
12,816

 
$
45,033

 
$
3,495

 
$

 
$
61,344


33



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    FelCor LP’s Consolidating Financial Information – (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2013
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(30,682
)
 
$
40,893

 
$
19,060

 
$

 
$
29,271

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
2,689

 
(30,529
)
 
(19,183
)
 

 
(47,023
)
Hotel development

 

 
(22,220
)
 

 
(22,220
)
Net proceeds from asset dispositions
(5
)
 
(1,252
)
 
21,736

 

 
20,479

Distributions from unconsolidated entities
3,066

 
375

 

 

 
3,441

Contributions to unconsolidated entities

 
(1,500
)
 

 

 
(1,500
)
Intercompany financing
52,477

 

 

 
(52,477
)
 

Other

 
1,824

 
(1,778
)
 

 
46

Cash flows from investing activities
58,227

 
(31,082
)
 
(21,445
)
 
(52,477
)
 
(46,777
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings

 

 
127,245

 

 
127,245

Repayment of borrowings

 

 
(68,535
)
 

 
(68,535
)
Distributions paid to preferred unitholders
(19,356
)
 

 

 

 
(19,356
)
Intercompany financing

 
1,799

 
(54,276
)
 
52,477

 

Other
(2,329
)
 
372

 
653

 

 
(1,304
)
Cash flows from financing activities
(21,685
)
 
2,171

 
5,087

 
52,477

 
38,050

Effect of exchange rate changes on cash

 
(54
)
 

 

 
(54
)
Change in cash and cash equivalents
5,860

 
11,928

 
2,702

 

 
20,490

Cash and cash equivalents at beginning of period
8,312

 
30,425

 
7,008

 

 
45,745

Cash and cash equivalents at end of period
$
14,172

 
$
42,353

 
$
9,710

 
$

 
$
66,235



34


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

General
Revenue per available room, or RevPAR, for our 46 comparable hotels (our same-store hotels excluding the Wyndham portfolio) increased 9.2% in the second quarter of 2014 compared to the same period last year. Same-store hotels RevPAR (which includes our Wyndham portfolio) grew 10.8% in the second quarter of 2014 compared to the same period last year, driven primarily by a 7.0% increase in average daily rate, or ADR, and a 3.5% increase in occupancy.
RevPAR for the Wyndham portfolio, which were converted from Holiday Inn on March 1, 2013, increased 20.4% for the second quarter compared to the same period last year. As expected, revenues at these hotels have improved meaningfully as the transitional disruption is subsiding. In addition, Wyndham’s parent has guaranteed a minimum level of net operating income for each year of the ten-year term. Wyndham’s aggregate payments under this guaranty are limited to $100 million over the term and $21.5 million annually. For the six months ended June 30, 2014 and 2013, we have recorded a $431,000 and $2.7 million, respectively, pro rata portion of the projected full-year guaranty as a reduction of Wyndham's contractual management and other fees.
We have spent $105.5 million (excluding the initial acquisition costs and capitalized interest) through June 30, 2014 to redevelop the 4+ star Knickerbocker Hotel, located in the heart of Times Square in Manhattan. We expect the net project will cost $240 million, in the aggregate, and to open the hotel in early fall.
Our joint venture that is redeveloping the Knickerbocker Hotel raised $45 million through the sale of 3.5% preferred equity through the EB-5 immigrant investor program. The venture received $41.6 million in proceeds during the first six months of 2014, and the remaining $3.4 million will be received as investors’ visas are approved by the government. We used our 95% share of the proceeds to repay borrowings under our line of credit.
On July 25, 2014, we unwound unconsolidated joint ventures, in which we held a 50% interest, that owned 10 hotels. As a consequence, we now own 100% of five of the hotels and affiliates of our joint venture partner now own 100% of the other five hotels. The five retained hotels will be marketed for sale in early September. In addition, we received our partner’s 10% interest in a separate venture also resulting in our 100% ownership of an additional hotel. We paid $2.3 million to our joint venture partner to equalize the aggregate value of assets received by us compared to our joint venture partner. We have not yet determined the gain we will be recording in our consolidated statement of operations from this transaction.
Our joint ventures had a loan secured by eight of these properties. That loan bears interest at one-month LIBOR plus 3%, matures in March 2017 and is freely pre-payable in whole or in part. In connection with unwinding the joint ventures, that loan was bifurcated. We are only liable to repay our share of the bifurcated loan ($64 million), which share is secured by mortgages on four of the hotels we now own outright.

During July, we obtained a $140 million term loan secured by three hotels. Borrowings under the facility bear interest at LIBOR (no floor) plus 2.5%. The loan matures in 2017 (may be extended for up to two years, subject to satisfaction of certain conditions) and is freely pre-payable. On August 15, 2014, we expect to use borrowings from the term loan, cash on hand and borrowings under our line of credit to repay the remaining $234 million of our maturing 10% senior secured notes. We will use proceeds from pending and future asset sales to repay the term loan and our line of credit. After repaying the 10% notes, we will have no significant debt maturities other than our line of credit, until 2019.

35


Since December 2010, we have sold 28 non-strategic hotels, for total gross proceeds of $627 million, and exchanged interests in 10 non-strategic hotels with our joint venture partner. Following the exchange of interests in our joint venture hotels, we have 12 non-strategic hotels remaining to be sold of which we have agreed to sell five (three with non-refundable deposits).
Results of Operations
Comparison of the Three Months ended June 30, 2014 and 2013
For the three months ended June 30, 2014, we recorded net income of $25.0 million compared to a $22.8 million net loss for the same period last year. Our 2014 net income included a $15.6 million net gain on sale primarily related to two hotels. Our 2013 net loss included a $27.7 million impairment charge ($24.4 million related to two hotels included in continuing operations and $3.3 million related to one hotel included in discontinued operations), offset by a $7.3 million net gain on sale, included in discontinued operations, primarily related to one hotel.
For the three months ended June 30, 2014:
Total revenue was $259.5 million, 8.2% more than last year. The increase was driven by a 10.8% increase in RevPAR at our same-store hotels, reflecting a 7.0% increase in ADR and a 280 basis point increase in occupancy. RevPAR for our recently-converted Wyndham portfolio increased 20.4%, driven by a 10.8% increase in ADR and a 620 basis point increase in occupancy. The increase in revenue for the Wyndham portfolio primarily reflects less transitional disruption compared to the same period in 2013.

Hotel departmental expenses increased $4.7 million. As a percentage of total revenue, hotel departmental expenses decreased to 34.5% in the current period from 35.4% last year. In the current period, we experienced a favorable shift in banquet and catering operations, which typically have higher margins than other food and beverage operations. Hotel departmental operations also recognized a slight improvement in profitability margins for the rooms department, which was driven by a favorable increase in ADR.
Other property-related costs increased $2.9 million. As a percentage of total revenue, other property-related costs decreased to 24.2% in the current period from 25.0% last year, primarily attributable to growth in ADR.
Management and franchise fees increased $1.2 million. As a percentage of total revenue, these costs increased to 3.9% in the current period from 3.7% last year. In March 2013, we converted eight hotels to Wyndham brands and management. Wyndham’s base management fee is lower than the previous management company, resulting in an improved cost structure. In addition, Wyndham Worldwide Corporation guaranteed a minimum annual NOI for the eight hotels. We account for amounts recorded under the guaranty, to the extent available, as a reduction in contractual management fees. We recorded a smaller reduction in Wyndham management fees in the current period than in the same period in 2013 as a consequence of improved operating performance, driven primarily by higher ADR and occupancy.
Taxes, insurance and lease expense increased $2.1 million and remained relatively flat as a percentage of total revenue. The increase reflects higher percentage lease expense (computed as a percentage of hotel revenues in excess of base rent; as revenue increases, percentage rent increases at a faster rate than other expenses) and higher general liability costs (due to less favorable claims experience in 2014).

36


Corporate expenses increased $953,000 (increasing slightly as a percentage of total revenue from 2.8% to 2.9%). This increase primarily reflects our higher stock price, which increases the variable stock compensation expense associated with our incentive awards.
Depreciation and amortization expense decreased $816,000 primarily related to the sale of one hotel and the held for sale classification of another hotel in the first quarter of 2014.
Conversion expenses. We converted eight hotels to Wyndham brands and management in March 2013. We classified those expenses as conversion expense in our 2013 statements of operations.
Other expenses decreased $1.8 million compared to last year, primarily related to severance costs incurred in June 2013. This reduction in severance costs is offset by an increase in pre-opening costs incurred in the current period for the Knickerbocker Hotel.
Net interest expense decreased $1.9 million, primarily reflecting greater capitalized interest, attributable to renovation and redevelopment projects, and lower average outstanding debt.
Discontinued operations include the results of operations for one hotel sold in January 2014 and five hotels sold in 2013. Discontinued operations in 2013 included a $7.3 million net gain on sale primarily related to one hotel, offset by an impairment charge of $3.3 million related to another hotel.
Comparison of the Six Months ended June 30, 2014 and 2013
For the six months ended June 30, 2014, we recorded net income of $10.1 million compared to a $49.4 million net loss for the same period last year. Our 2014 net income included a $21.5 million net gain on sale primarily related to two hotels (including $391,000 in discontinued operations). Our 2013 net loss included a $27.7 million impairment charge ($24.4 million related to two hotels included in continuing operations and $3.3 million related to one hotel included in discontinued operations), offset by a $7.3 million net gain on sale, included in discontinued operations, primarily related to one hotel.
For the six months ended June 30, 2014:
Total revenue was $480.9 million, 7.1% more than last year. The increase was driven by a 8.9% increase in same-store RevPAR, reflecting a 6.1% increase in ADR and a 190 basis point increase in occupancy. RevPAR for our recently-converted Wyndham portfolio increased 12.5%, driven by a 8.0% increase in ADR and a 280 basis point increase in occupancy. The increase in revenue for the Wyndham portfolio primarily reflects less transitional disruption compared to the same period in 2013.

Hotel departmental expenses increased $7.8 million. As a percentage of total revenue, hotel departmental expenses decreased to 36.0% in the current period from 36.8% last year. In the current period, we experienced a favorable shift in banquet and catering operations, which typically have higher margins than other food and beverage operations. Hotel departmental operations also recognized a slight improvement in profitability margins for the rooms department, which was driven by a favorable increase in ADR.
Other property-related costs increased $5.0 million. As a percentage of total revenue, other property-related costs decreased to 25.9% in the current period from 26.6% last year, primarily attributable to growth in ADR and a change in employee benefit plans implemented by one of the management companies during the current period.
Management and franchise fees increased $1.1 million. As a percentage of total revenue, these costs remained flat. In March 2013, we converted eight hotels to Wyndham brands and management. Wyndham’s base management fee is lower than the previous management

37


company, resulting in an improved cost structure. In addition, Wyndham Worldwide Corporation guaranteed a minimum annual NOI for the eight hotels. We account for amounts recorded under the guaranty, to the extent available, as a reduction in contractual management fees. We recorded a smaller reduction in Wyndham management fees in the current period than in the same period in 2013 as a consequence of improved operating performance, driven primarily by higher ADR and occupancy.
Taxes, insurance and lease expense increased $3.6 million and remained flat as a percentage of total revenue. The increase reflects higher percentage lease expense (computed as a percentage of hotel revenues in excess of base rent; as revenue increases, percentage rent increases at a faster rate than other expenses) and higher property taxes.
Corporate expenses increased $946,000 and remained relatively flat as a percentage of total revenue. This increase primarily reflects our higher stock price, which increases the variable stock compensation expense associated with our incentive awards.
Depreciation and amortization expense decreased $970,000 primarily related to the sale of one hotel and the held for sale classification of another hotel in the first quarter of 2014.
Conversion expenses. We converted eight hotels to Wyndham brands and management in March 2013. We classified those expenses as conversion expense in our 2013 statements of operations.
Other expenses decreased $608,000 compared to the same period in 2013, primarily related to severance costs incurred in June 2013. This reduction in severance costs is offset by an increase in pre-opening costs incurred in the current period for the Knickerbocker Hotel.
Net interest expense decreased $2.9 million, primarily reflecting greater capitalized interest, attributable to renovation and redevelopment projects, and lower average outstanding debt.
Discontinued operations include the results of operations for one hotel sold in January 2014 and five hotels sold in 2013. Discontinued operations in 2014 included a $391,000 net gain on sale, offset by debt extinguishment charges of $245,000 (related to $10.9 million in repayment of debt for the hotel sold in the current period). Discontinued operations in 2013 included a $7.3 million net gain on sale primarily related to one hotel, offset by an impairment charge of $3.3 million related to another hotel.
Non-GAAP Financial Measures
We refer in this report to certain “non-GAAP financial measures.” These measures, including FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA, and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with GAAP. The following tables reconcile these non-GAAP measures to the most comparable GAAP financial measure. Immediately following the reconciliations, we include a discussion of why we believe these measures are useful supplemental measures of our performance and the limitations of such measures.

38


Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)
 
Three Months Ended June 30,
 
2014
2013
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income (loss)
$
24,955

 
 
 
 
 
$
(22,795
)
 
 
 
 
Noncontrolling interests
(333
)
 
 
 
 
 
4,112

 
 
 
 
Preferred dividends
(9,678
)
 
 
 
 
 
(9,678
)
 
 
 
 
Preferred distributions - consolidated joint venture
(341
)










Net income (loss) attributable to FelCor common stockholders
14,603

 
 
 
 
 
(28,361
)
 
 
 
 
Less: Dividends declared on unvested restricted stock
(2
)
 
 
 
 
 

 
 
 
 
Less: Undistributed earnings allocated to unvested restricted stock
(6
)
 
 
 
 
 

 
 
 
 
Basic earnings per share data
14,595

 
124,169

 
$
0.12

 
(28,361
)
 
123,814

 
$
(0.23
)
Restricted stock units

 
1,217

 

 

 

 

Diluted earnings per share data
14,595

 
125,386

 
0.12

 
(28,361
)
 
123,814

 
(0.23
)
Depreciation and amortization
29,082

 

 
0.23

 
29,898

 

 
0.24

Depreciation, discontinued operations and unconsolidated entities
2,700

 

 
0.02

 
4,448

 

 
0.04

Gain on sale of other assets
(100
)










Impairment loss, net of noncontrolling interests in other partnerships

 

 

 
20,382

 

 
0.16

Impairment loss, discontinued operations

 

 

 
3,265

 

 
0.03

Gain on sale of property, net of noncontrolling interests in other partnerships
(15,541
)
 

 
(0.12
)
 
(7,259
)
 

 
(0.06
)
Noncontrolling interests in FelCor LP
71

 
614

 
(0.01
)
 
(140
)
 
621

 

Dividends declared on unvested restricted stock
2

 

 

 

 

 

Undistributed earnings allocated to unvested restricted stock
6

 

 

 

 

 

Conversion of unvested restricted stock and units

 
11

 

 

 
792

 

FFO
30,815

 
126,011

 
0.24

 
22,233

 
125,227

 
0.18

Debt extinguishment
25

 

 

 

 

 

Severance costs
3

 

 

 
2,791

 

 
0.02

Conversion expenses

 

 

 
587

 

 
0.01

Variable stock compensation
854

 

 
0.01

 
121

 

 

Pre-opening costs, net of noncontrolling interests
1,206

 

 
0.01

 
322

 

 

Adjusted FFO
$
32,903

 
126,011


$
0.26


$
26,054


125,227


$
0.21


39


Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)
 
Six Months Ended June 30,
 
2014
2013
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income (loss)
$
10,119

 
 
 
 
 
$
(49,400
)
 
 
 
 
Noncontrolling interests
(134
)
 
 
 
 
 
4,532

 
 
 
 
Preferred distributions - consolidated joint venture
(522
)
 
 
 
 
 

 
 
 
 
Preferred dividends
(19,356
)
 
 
 
 
 
(19,356
)
 
 
 
 
Net loss attributable to FelCor common stockholders
(9,893
)
 
 
 
 
 
(64,224
)
 
 
 
 
Less: Dividends declared on unvested restricted stock
(3
)
 
 
 
 
 

 
 
 
 
Basic and diluted earnings per share data
(9,896
)
 
124,158

 
(0.08
)
 
(64,224
)
 
123,814

 
(0.52
)
Depreciation and amortization
58,683

 

 
0.47

 
59,653

 

 
0.48

Depreciation, discontinued operations and unconsolidated entities
5,374

 

 
0.04

 
8,971

 

 
0.07

Gain on sale of other assets
(100
)










Impairment loss, net of noncontrolling interests in other partnerships

 

 

 
20,382

 

 
0.16

Impairment loss, discontinued operations

 

 

 
3,265

 

 
0.03

Gain on sale of property, net of noncontrolling interests in other partnerships
(21,361
)
 

 
(0.17
)
 
(7,259
)
 

 
(0.06
)
Noncontrolling interests in FelCor LP
(50
)
 
616

 

 
(320
)
 
621

 

Dividends declared on unvested restricted stock
3

 

 

 

 

 

Conversion of unvested restricted stock and units

 
1,029

 

 

 
565

 

FFO
32,653

 
125,803

 
0.26

 
20,468

 
125,000

 
0.16

Acquisition costs

 

 

 
23

 

 

Debt extinguishment, including discontinued operations
276

 

 

 

 

 

Severance costs
403

 

 

 
2,791

 

 
0.02

Conversion expenses

 

 

 
1,215

 

 
0.01

Variable stock compensation
1,419

 

 
0.01

 
223

 

 

Pre-opening costs, net of noncontrolling interests
2,259

 

 
0.02

 
563

 

 
0.01

Adjusted FFO
$
37,010

 
125,803


$
0.29


$
25,283


125,000


$
0.20


40



Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-Store Adjusted EBITDA
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
24,955

 
$
(22,795
)
 
$
10,119

 
$
(49,400
)
Depreciation and amortization
29,082

 
29,898

 
58,683

 
59,653

Depreciation, discontinued operations and unconsolidated entities
2,700

 
4,448

 
5,374

 
8,971

Interest expense
24,509

 
26,398

 
49,751

 
52,705

Interest expense, discontinued operations and unconsolidated entities
647

 
879

 
1,390

 
1,749

Noncontrolling interests in other partnerships
(262
)
 
3,972

 
(184
)
 
4,212

EBITDA
81,631

 
42,800

 
125,133

 
77,890

Impairment loss, net of noncontrolling interests in other partnerships

 
20,382

 

 
20,382

Impairment loss, discontinued operations

 
3,265

 

 
3,265

Debt extinguishment, including discontinued operations
25

 

 
276

 

Acquisition costs

 

 

 
23

Gain on sale of property, net of noncontrolling interests in other partnerships
(15,541
)
 
(7,259
)
 
(21,361
)
 
(7,259
)
Gain on sale of other assets
(100
)



(100
)


Amortization of fixed stock and directors’ compensation
1,171

 
1,572

 
2,292

 
3,150

Severance costs
3

 
2,791

 
403

 
2,791

Conversion expenses

 
587

 

 
1,215

Variable stock compensation
854

 
121

 
1,419

 
223

Pre-opening costs, net of noncontrolling interests
1,206

 
322

 
2,259

 
563

Adjusted EBITDA
$
69,249

 
$
64,581

 
110,321

 
102,243

Adjusted EBITDA from hotels, disposed and held for sale
(2,293
)
 
(7,507
)
 
(4,210
)
 
(12,224
)
Same-store Adjusted EBITDA
$
66,956

 
$
57,074

 
$
106,111

 
$
90,019



41



Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Same-store operating revenue:
 
 
 
 
 
 
 
Room
$
192,523

 
$
173,831

 
$
353,480

 
$
325,313

Food and beverage
43,389

 
39,823

 
81,196

 
74,700

Other operating departments
12,222

 
11,891

 
23,239

 
22,575

Same-store operating revenue
248,134

 
225,545

 
457,915

 
422,588

Same-store operating expense:
 
 
 
 
 
 
 
Room
48,335

 
44,465

 
92,368

 
86,578

Food and beverage
31,473

 
30,044

 
61,074

 
58,697

Other operating departments
5,823

 
5,690

 
11,246

 
10,772

Other property related costs
60,108

 
56,259

 
118,095

 
112,078

Management and franchise fees
9,732

 
8,305

 
18,234

 
16,939

Taxes, insurance and lease expense
15,120

 
14,251

 
29,584

 
27,924

Same-store operating expense
170,591

 
159,014

 
330,601

 
312,988

Hotel EBITDA
$
77,543

 
$
66,531

 
$
127,314

 
$
109,600

Hotel EBITDA Margin
31.3
%
 
29.5
%
 
27.8
%
 
25.9
%

Hotel EBITDA and Hotel EBITDA Margin (continued)
(dollars in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Hotel EBITDA - Comparable core (31)
$
51,241

 
$
43,979

 
$
84,650

 
$
72,552

Hotel EBITDA - Non-strategic (15)
12,382

 
11,351

 
22,706

 
20,762

Hotel EBITDA - Comparable (46)
63,623

 
55,330

 
107,356

 
93,314

Hotel EBITDA - Wyndham (8)
13,920

 
11,201

 
19,958

 
16,286

Hotel EBITDA (54)
$
77,543

 
$
66,531

 
$
127,314

 
$
109,600

 
 
 
 
 
 
 
 
Hotel EBITDA Margin - Comparable core (31)
30.1
%
 
28.0
%
 
26.8
%
 
24.8
%
Hotel EBITDA Margin - Non-strategic (15)
29.3
%
 
28.6
%
 
27.8
%
 
27.0
%
Hotel EBITDA Margin - Comparable (46)
29.9
%
 
28.1
%
 
27.0
%
 
25.2
%
Hotel EBITDA Margin - Wyndham (8)
39.5
%
 
38.7
%
 
33.3
%
 
30.8
%
Hotel EBITDA Margin (54)
31.3
%
 
29.5
%
 
27.8
%
 
25.9
%


42


Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income (Loss)
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Same-store operating revenue
$
248,134

 
$
225,545

 
$
457,915

 
$
422,588

Other revenue
1,236

 
1,050

 
1,563

 
1,449

Revenue from hotels, disposed and held for sale(a)
10,145

 
13,261

 
21,386

 
24,756

Total revenue
259,515

 
239,856

 
480,864

 
448,793

Same-store operating expense
170,591

 
159,014

 
330,601

 
312,988

Consolidated hotel lease expense(b)
13,296

 
12,166

 
23,687

 
21,723

Unconsolidated taxes, insurance and lease expense
(1,985
)
 
(2,040
)
 
(3,951
)
 
(3,938
)
Corporate expenses
7,647

 
6,694

 
15,472

 
14,526

Depreciation and amortization
29,082

 
29,898

 
58,683

 
59,653

Impairment loss

 
24,441

 

 
24,441

Conversion expenses

 
587

 

 
1,215

Expenses from hotels, disposed and held for sale(a)
7,790

 
9,628

 
17,102

 
19,155

Other expenses
2,114

 
3,915

 
4,128

 
4,736

Total operating expense
228,535

 
244,303

 
445,722

 
454,499

Operating income (loss)
$
30,980

 
$
(4,447
)
 
$
35,142

 
$
(5,706
)
(a)
During the six months ended June 30, 2014, we sold three hotels, which were not held for sale at December 31, 2013, for $78.1 million. In addition, we have agreed to sell two hotels for $52 million. These hotels are considered held for sale on our June 30, 2014 balance sheet, as the purchasers each paid a non-refundable deposit toward the purchase price. Under recently issued GAAP accounting guidance, we included the operating performance for these hotels in continuing operations in our Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013. However, for purposes of our Non-GAAP reporting metrics, we have excluded the results of these hotels to provide a meaningful same-store comparison.
(b)
Consolidated hotel lease expense represents the percentage lease expense of our 51% owned operating lessees. The offsetting percentage lease revenue is included in equity in income from unconsolidated entities.
Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT’s performance and should be considered along with, but not as an alternative to, net income (loss) attributable to FelCor as a measure of our operating performance.


43



FFO and EBITDA

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income or loss attributable to parent (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation, amortization and impairment losses. FFO for unconsolidated partnerships and joint ventures are calculated on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss attributable to parent (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

Adjustments to FFO and EBITDA
We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional items provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income attributable to FelCor, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.
Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to extinguishment of debt and interest rate swaps from FFO and EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.
Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.
Other transaction costs - From time to time, we periodically incur costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversions costs, acquisition costs, pre-opening costs and severance costs. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.

Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.
In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. We also exclude the amortization of our fixed stock compensation. While this amortization is included in corporate expenses and is not separately stated on our statements of operations, excluding this amortization is consistent with the EBITDA definition.

44


Hotel EBITDA and Hotel EBITDA Margin
Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level and other expenses. We eliminate these additional items because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.
Use and Limitations of Non-GAAP Measures
Our management and Board of Directors use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers.
The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on a single financial measure.


45


Pro Rata Share of Rooms Owned

The following table sets forth, at June 30, 2014, our pro rata share of hotel rooms, included in continuing operations, after giving consideration to the portion of rooms attributed to our partners in our consolidated and unconsolidated joint ventures:
 
Hotels
 
Room Count at June 30, 2014
Consolidated Hotels(a)
54

 
 
16,095

 
Unconsolidated hotel operations
1

 
 
171

 
Total hotels
55

 
 
16,266

 
 
 
 
 
 
 
    50% joint ventures
13

 
 
(1,573
)
 
    60% joint venture
1

 
 
(214
)
 
    82% joint venture
1

 
 
(40
)
 
    90% joint ventures
1

 
 
(19
)
 
Pro rata rooms attributed to joint venture partners
 
 
 
(1,846
)
 
Pro rata share of rooms owned
 
 
 
14,420

 

(a)    Excludes two hotels held for sale as of June 30, 2014.


46


Hotel Portfolio Composition
The following table illustrates the distribution of same-store hotels.
 
 
 
 
 
 
 
 
Year Ended December 31, 2013
Brand
 
Hotels
 
Rooms
 
Hotel Operating Revenue
(in thousands)
 
Hotel EBITDA
(in thousands)(a)
Embassy Suites Hotels
18

 
 
4,982

 
 
$
255,744

 
 
$
81,051

 
Wyndham and Wyndham Grand(b)
8

 
 
2,528

 
 
103,932

 
 
35,042

 
Renaissance and Marriott
3

 
 
1,321

 
 
119,839

 
 
21,338

 
DoubleTree by Hilton and Hilton
3

 
 
802

 
 
41,106

 
 
12,619

 
Sheraton and Westin
2

 
 
673

 
 
37,996

 
 
10,173

 
Fairmont
1

 
 
383

 
 
49,104

 
 
7,844

 
Holiday Inn
2

 
 
968

 
 
46,403

 
 
6,405

 
Morgans and Royalton
2

 
 
285

 
 
34,340

 
 
3,513

 
Core hotels
39

 
 
11,942

 
 
688,464

 
 
177,985

 
Non-strategic hotels(c)
15

 
 
4,153

 
 
152,039

 
 
40,348

 
Same-store hotels
54

 
 
16,095

 
 
$
840,503

 
 
$
218,333

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco area
5

 
 
1,903

 
 
$
124,825

 
 
$
31,583

 
Boston
3

 
 
916

 
 
76,510

 
 
17,791

 
South Florida
3

 
 
923

 
 
50,011

 
 
14,303

 
Los Angeles area
2

 
 
481

 
 
23,760

 
 
10,450

 
Myrtle Beach
2

 
 
640

 
 
37,956

 
 
10,118

 
Philadelphia
2

 
 
728

 
 
34,271

 
 
7,567

 
Tampa
1

 
 
361

 
 
46,423

 
 
7,434

 
New York area
3

 
 
546

 
 
48,045

 
 
6,760

 
Austin
1

 
 
188

 
 
13,126

 
 
5,679

 
Atlanta
1

 
 
316

 
 
14,016

 
 
5,490

 
Other markets
16

 
 
4,940

 
 
219,521

 
 
60,810

 
Core hotels
39

 
 
11,942

 
 
688,464

 
 
177,985

 
Non-strategic hotels(c)
15

 
 
4,153

 
 
152,039

 
 
40,348

 
Same-store hotels
54

 
 
16,095

 
 
$
840,503

 
 
$
218,333

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
 
 
 
 
 
 
 
 
 
 
 
Urban
17

 
 
5,310

 
 
$
323,305

 
 
$
81,341

 
Resort
9

 
 
2,733

 
 
185,264

 
 
41,288

 
Airport
8

 
 
2,621

 
 
122,735

 
 
37,359

 
Suburban
5

 
 
1,278

 
 
57,160

 
 
17,997

 
Core hotels
39

 
 
11,942

 
 
688,464

 
 
177,985

 
Non-strategic hotels(c)
15

 
 
4,153

 
 
152,039

 
 
40,348

 
Same-store hotels
54

 
 
16,095

 
 
$
840,503

 
 
$
218,333

 
(a)
Hotel EBITDA is a non-GAAP financial measure. A detailed reconciliation and further discussion of Hotel EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Quarterly Report on Form 10-Q. We consider Hotel Operating Revenue and Hotel EBITDA to be same store metrics for this presentation and hotels disposed or held for sale are excluded.
(b)
These hotels converted to Wyndham on March 1, 2013.
(c)
Excludes two hotels held for sale as of June 30, 2014.

47


Hotel Operating Statistics
The following tables set forth occupancy, ADR and RevPAR for the three and six months ended June 30, 2014 and 2013, and the percentage changes therein for the periods presented, for our same-store hotels.
Operating Statistics by Brand
 
Occupancy (%)
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30,
 
 
 
 
June 30,
 
 
 
 
2014
 
2013
 
%Variance
 
2014
 
2013
 
%Variance
Embassy Suites Hotels
81.7

 
78.7

 
3.7

 
 
79.3

 
76.4

 
3.7

 
Renaissance and Marriott
76.3

 
73.2

 
4.2

 
 
76.0

 
74.0

 
2.6

 
DoubleTree by Hilton and Hilton
82.8

 
77.9

 
6.3

 
 
73.7

 
68.9

 
7.0

 
Sheraton and Westin
75.5

 
75.5

 
0.1

 
 
66.0

 
66.9

 
(1.2
)
 
Fairmont
83.9

 
80.3

 
4.5

 
 
71.3

 
70.4

 
1.3

 
Holiday Inn
85.1

 
88.3

 
(3.7
)
 
 
74.8

 
78.4

 
(4.5
)
 
Morgans and Royalton
91.0

 
89.4

 
1.7

 
 
85.2

 
85.3

 

 
Comparable core hotels (31)
81.3

 
79.0

 
2.9

 
 
76.8

 
75.0

 
2.4

 
Non-strategic hotels (15)(a)
77.7

 
76.1

 
2.2

 
 
75.0

 
73.4

 
2.2

 
Comparable hotels (46)
80.2

 
78.1

 
2.7

 
 
76.2

 
74.5

 
2.3

 
Wyndham and Wyndham Grand(b)
77.4

 
71.2

 
8.7

 
 
70.2

 
67.4

 
4.2

 
Same-store hotels (54)
79.8

 
77.0

 
3.5

 
 
75.3

 
73.4

 
2.6

 
 
ADR ($)
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30,
 
 
 
 
June 30,
 
 
 
 
2014
 
2013
 
%Variance
 
2014
 
2013
 
%Variance
Embassy Suites Hotels
162.07

 
150.55

 
7.7

 
 
164.31

 
153.80

 
6.8

 
Renaissance and Marriott
227.30

 
214.91

 
5.8

 
 
231.96

 
218.02

 
6.4

 
DoubleTree by Hilton and Hilton
160.29

 
152.07

 
5.4

 
 
158.52

 
153.54

 
3.2

 
Sheraton and Westin
153.06

 
159.32

 
(3.9
)
 
 
142.37

 
144.64

 
(1.6
)
 
Fairmont
330.56

 
313.17

 
5.6

 
 
292.78

 
273.98

 
6.9

 
Holiday Inn
160.13

 
138.09

 
16.0

 
 
147.99

 
126.97

 
16.6

 
Morgans and Royalton
331.94

 
336.33

 
(1.3
)
 
 
297.97

 
300.28

 
(0.8
)
 
Comparable core hotels (31)
182.53

 
171.23

 
6.6

 
 
179.59

 
168.90

 
6.3

 
Non-strategic hotels (15)(a)
122.74

 
166.70

 
5.2

 
 
121.57

 
116.58

 
4.3

 
Comparable hotels (46)
164.79

 
154.98

 
6.3

 
 
162.12

 
153.15

 
5.9

 
Wyndham and Wyndham Grand(b)
164.91

 
148.81

 
10.8

 
 
155.86

 
144.36

 
8.0

 
Same-store hotels (54)
164.81

 
154.08

 
7.0

 
 
161.21

 
151.88

 
6.1

 
 
RevPAR ($)
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30,
 
 
 
 
June 30,
 
 
 
 
2014
 
2013
 
%Variance
 
2014
 
2013
 
%Variance
Embassy Suites Hotels
132.35

 
118.53

 
11.7

 
 
130.22

 
117.55

 
10.8

 
Renaissance and Marriott
173.47

 
157.39

 
10.2

 
 
176.20

 
161.40

 
9.2

 
DoubleTree by Hilton and Hilton
132.72

 
118.41

 
12.1

 
 
116.77

 
105.76

 
10.4

 
Sheraton and Westin
115.62

 
120.21

 
(3.8
)
 
 
94.03

 
96.70

 
(2.8
)
 
Fairmont
227.30

 
251.44

 
10.3

 
 
208.76

 
192.81

 
8.3

 
Holiday Inn
136.21

 
121.92

 
11.7

 
 
110.75

 
99.53

 
11.3

 
Morgans and Royalton
301.98

 
300.74

 
0.4

 
 
253.93

 
256.00

 
(0.8
)
 
Comparable core hotels (31)
148.39

 
135.30

 
9.7

 
 
137.88

 
126.64

 
8.9

 
Non-strategic hotels (15)(a)
95.40

 
88.76

 
7.5

 
 
91.12

 
85.53

 
6.5

 
Comparable hotels (46)
132.17

 
121.06

 
9.2

 
 
123.57

 
114.08

 
8.3

 
Wyndham and Wyndham Grand(b)
127.59

 
105.95

 
20.4

 
 
109.40

 
97.27

 
12.5

 
Same-store hotels (54)
131.45

 
118.69

 
10.8

 
 
121.34

 
111.43

 
8.9

 
(a)    Excludes two hotels held for sale as of June 30, 2014.
(b)    These hotels converted to Wyndham on March 1, 2013.

48


Hotel Operating Statistics by Market
 
Occupancy (%)
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30,
 
 
 
 
June 30,
 
 
 
 
2014
 
2013
 
%Variance
 
2014
 
2013
 
%Variance
San Francisco area
85.1

 
 
86.3

 
 
(1.4
)
 
 
78.6

 
 
80.3

 
 
(2.2
)
 
Boston
83.1

 
 
79.9

 
 
4.0

 
 
72.0

 
 
71.5

 
 
0.8

 
South Florida
84.9

 
 
79.3

 
 
6.9

 
 
88.0

 
 
85.0

 
 
3.5

 
Los Angeles area
84.9

 
 
87.0

 
 
(2.4
)
 
 
83.8

 
 
82.0

 
 
2.2

 
Myrtle Beach
78.4

 
 
75.7

 
 
3.6

 
 
62.0

 
 
56.5

 
 
9.7

 
Philadelphia
78.4

 
 
79.0

 
 
(0.8
)
 
 
69.1

 
 
66.1

 
 
4.6

 
Tampa
84.8

 
 
81.8

 
 
3.6

 
 
85.5

 
 
82.8

 
 
3.2

 
New York area
88.0

 
 
87.8

 
 
0.2

 
 
79.9

 
 
80.6

 
 
(0.9
)
 
Austin
82.1

 
 
87.1

 
 
(5.7
)
 
 
80.3

 
 
83.7

 
 
(4.1
)
 
Atlanta
76.9

 
 
74.4

 
 
3.4

 
 
76.2

 
 
73.3

 
 
3.9

 
Other markets
77.0

 
 
72.4

 
 
6.4

 
 
74.8

 
 
71.3

 
 
4.8

 
Comparable core hotels (31)
81.3

 
 
79.0

 
 
2.9

 
 
76.8

 
 
75.0

 
 
2.4

 
 
ADR ($)
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30,
 
 
 
 
June 30,
 
 
 
 
2014
 
 
2013
 
%Variance
 
2014
 
 
2013
 
%Variance
San Francisco area
203.56

 
 
179.54

 
 
13.4

 
 
196.51

 
 
171.62

 
 
14.5

 
Boston
267.04

 
 
251.75

 
 
6.1

 
 
240.43

 
 
224.95

 
 
6.9

 
South Florida
148.46

 
 
134.39

 
 
10.5

 
 
177.73

 
 
164.33

 
 
8.2

 
Los Angeles area
146.14

 
 
138.07

 
 
5.8

 
 
141.77

 
 
137.16

 
 
3.4

 
Myrtle Beach
170.84

 
 
162.69

 
 
5.0

 
 
148.21

 
 
145.28

 
 
2.0

 
Philadelphia
172.66

 
 
182.05

 
 
(5.2
)
 
 
162.40

 
 
170.15

 
 
(4.6
)
 
Tampa
194.20

 
 
182.67

 
 
6.3

 
 
210.17

 
 
199.34

 
 
5.4

 
New York area
265.24

 
 
260.37

 
 
1.9

 
 
249.10

 
 
241.31

 
 
3.2

 
Austin
209.58

 
 
192.74

 
 
8.7

 
 
220.94

 
 
206.60

 
 
6.9

 
Atlanta
141.54

 
 
144.32

 
 
(1.9
)
 
 
143.98

 
 
143.56

 
 
0.3

 
Other markets
154.90

 
 
146.29

 
 
5.9

 
 
154.54

 
 
147.69

 
 
4.6

 
Comparable core hotels (31)
182.53

 
 
171.23

 
 
6.6

 
 
179.59

 
 
168.90

 
 
6.3

 
 
RevPAR ($)
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30,
 
 
 
 
June 30,
 
 
 
 
2014
 
 
2013
 
%Variance
 
2014
 
 
2013
 
%Variance
San Francisco area
173.22

 
 
154.94

 
 
11.8

 
 
154.42

 
 
137.87

 
 
12.0

 
Boston
221.88

 
 
201.17

 
 
10.3

 
 
173.16

 
 
160.81

 
 
7.7

 
South Florida
125.98

 
 
106.63

 
 
18.1

 
 
156.41

 
 
139.74

 
 
11.9

 
Los Angeles area
124.13

 
 
120.18

 
 
3.3

 
 
118.82

 
 
112.49

 
 
5.6

 
Myrtle Beach
133.98

 
 
123.19

 
 
8.8

 
 
91.94

 
 
82.16

 
 
11.9

 
Philadelphia
135.35

 
 
143.82

 
 
(5.9
)
 
 
112.22

 
 
112.41

 
 
(0.2
)
 
Tampa
164.67

 
 
149.46

 
 
10.2

 
 
179.62

 
 
165.02

 
 
8.8

 
New York area
233.33

 
 
228.66

 
 
2.0

 
 
198.94

 
 
194.52

 
 
2.3

 
Austin
172.12

 
 
167.82

 
 
2.6

 
 
177.37

 
 
172.96

 
 
2.6

 
Atlanta
108.84

 
 
107.37

 
 
1.4

 
 
109.73

 
 
105.28

 
 
4.2

 
Other markets
119.32

 
 
105.93

 
 
12.6

 
 
115.54

 
 
105.34

 
 
9.7

 
Comparable core hotels (31)
148.39

 
 
135.30

 
 
9.7

 
 
137.88

 
 
126.64

 
 
8.9

 

49



Hotel Portfolio

The following table sets forth certain descriptive information regarding the hotels in which we held ownership interest at June 30, 2014.

Core Hotels
 
 Brand
 State
Rooms
 % Owned

(a) 
Birmingham
 Embassy Suites Hotel
 AL
242
 
 
Phoenix – Biltmore
 Embassy Suites Hotel
 AZ
232
 
 
Indian Wells – Esmeralda Resort & Spa
 Renaissance
 CA
560
 
 
Los Angeles – International Airport/South
 Embassy Suites Hotel
 CA
349
 
 
Napa Valley
 Embassy Suites Hotel
 CA
205
 
 
Mandalay Beach – Hotel & Resort
 Embassy Suites Hotel
 CA
250
 
 
Milpitas – Silicon Valley
 Embassy Suites Hotel
 CA
266
 
 
San Diego – Bayside
 Wyndham
 CA
600
 
 
San Francisco – Airport/Waterfront
 Embassy Suites Hotel
 CA
340
 
 
San Francisco – Airport/South San Francisco
 Embassy Suites Hotel
 CA
312
 
 
San Francisco – Fisherman’s Wharf
 Holiday Inn
 CA
585
 
 
San Francisco – Union Square
 Marriott
 CA
400
 
 
Santa Monica – at the Pier
 Wyndham
 CA
132
 
 
Deerfield Beach – Resort & Spa
 Embassy Suites Hotel
 FL
244
 
 
Ft. Lauderdale – 17th Street
 Embassy Suites Hotel
 FL
361
 
 
Miami – International Airport
 Embassy Suites Hotel
 FL
318
 
 
Orlando – International Drive South/Convention
 Embassy Suites Hotel
 FL
244
 
 
Orlando – Walt Disney World Resort
 DoubleTree Suites by Hilton
 FL
229
 
 
St. Petersburg – Vinoy Resort & Golf Club
 Renaissance
 FL
361
 
 
Atlanta – Buckhead
 Embassy Suites Hotel
 GA
316
 
 
New Orleans – French Quarter
 Wyndham
 LA
374
 
 
Boston – Beacon Hill
 Wyndham
 MA
304
 
 
Boston – Copley Plaza
 Fairmont
 MA
383
 
 
Boston – Marlborough
 Embassy Suites Hotel
 MA
229
 
 
Minneapolis – Airport
 Embassy Suites Hotel
 MN
310
 
 
Secaucus – Meadowlands
 Embassy Suites Hotel
 NJ
261
50
%
 
New York – Morgans
 Independent
 NY
117
 
 
New York – Royalton
 Independent
 NY
168
 
 
Philadelphia – Historic District
 Wyndham
 PA
364
 
 
Philadelphia – Society Hill
 Sheraton
 PA
364
 
 
Pittsburgh – at University Center (Oakland)
 Wyndham
 PA
251
 
 
Charleston – The Mills House
 Wyndham Grand
 SC
216
 
 
Myrtle Beach – Oceanfront Resort
 Embassy Suites Hotel
 SC
255
 
 
Myrtle Beach Resort
 Hilton
 SC
385
 
 
Nashville – Opryland – Airport (Briley
   Parkway)
 Holiday Inn
 TN
383
 
 

50


Hotel Portfolio (continued)

Core Hotels
 
 Brand
 
 State
 
Rooms
 
 % Owned

(a) 
Austin(b)
 DoubleTree Suites by Hilton
 
 TX
 
188
 
90
%
 
Dallas – Love Field
 Embassy Suites Hotel
 
 TX
 
248
 
 
 
Houston – Medical Center
 Wyndham
 
 TX
 
287
 
 
 
Burlington Hotel & Conference Center
 Sheraton
 
 VT
 
309
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Hotel
 
 
 
 
 
 
 
 
New Orleans – French Quarter – Chateau
   LeMoyne
 Holiday Inn
 
 LA
 
171
 
50
%
 
 
 
 
 
 
 
 
 
 
 
Hotel under Development
 
 
 
 
 
 
 
 
New York – Knickerbocker
 Independent
 
 NY
 
330
 
95
%
 
 
 
 
 
 
 
 
 
 
Non-strategic Hotels
 
 
 
 
 
 
 
 
San Rafael – Marin County(c)
 Embassy Suites Hotel
 
 CA
 
235
 
50
%
 
Orlando – International Airport
 Holiday Inn
 
 FL
 
288
 
 
 
Atlanta – Gateway – Atlanta Airport
 Sheraton
 
 GA
 
395
 
 
 
Atlanta – Perimeter Center(c)
 Embassy Suites Hotel
 
 GA
 
241
 
50
%
 
Chicago – Lombard/Oak Brook(b)
 Embassy Suites Hotel
 
 IL
 
262
 
50
%
 
Indianapolis – North
 Embassy Suites Hotel
 
 IN
 
221
 
82
%
 
Kansas City – Overland Park(c)
 Embassy Suites Hotel
 
 KS
 
199
 
50
%
 
Kansas City – Plaza(c)
 Embassy Suites Hotel
 
 MO
 
266
 
50
%
 
Charlotte
 Embassy Suites Hotel
 
 NC
 
274
 
50
%
 
Raleigh – Crabtree(b)
 Embassy Suites Hotel
 
 NC
 
225
 
50
%
 
Parsippany(c)
 Embassy Suites Hotel
 
 NJ
 
274
 
50
%
 
Austin – Central(b)
 Embassy Suites Hotel
 
 TX
 
260
 
50
%
 
Dallas – Park Central
 Westin
 
 TX
 
536
 
60
%
 
San Antonio – International Airport(b)
 Embassy Suites Hotel
 
 TX
 
261
 
50
%
 
San Antonio – NW I-10(b)
 Embassy Suites Hotel
 
 TX
 
216
 
50
%
 
 
 
 
 
 
 
 
 
 
Non-strategic Hotels Held for Sale
 
 
 
 
 
Charlotte – SouthPark
 DoubleTree Suites by Hilton
 
NC
 
208
 
 
 
Toronto – International Airport
 Holiday Inn
 
Ontario
 
446
 
 
 

(a)
We own 100% of each hotel except where otherwise noted.
(b)
Effective July 25, 2014, we own 100% of this hotel as a result of unwinding our joint venture.
(c)
Effective July 25, 2014, we no longer own an interest in this hotel after unwinding our joint venture.

51


Liquidity and Capital Resources
Operating Activities
During the first six months of 2014, our operations (primarily hotel operations) provided $54.1 million in cash, $24.9 million more than the same period last year. This increase is primarily attributable to receiving Wyndham’s $8 million net operating income guaranty in 2014, which we accrued for in 2013, as well as improved operations compared to last year. Our consolidated statements of cash flows combines cash flow from continuing and discontinued operations. Hotels in discontinued operations did not generate operating cash flow for the six months ended June 30, 2014 and generated $6.5 million of operating cash flow for the six months ended June 30, 2013. The hotels reported in discontinued operations would not have provided acceptable future returns of operating cash flow on our investment, and the absence of their operating cash flow has not had a material impact on our business.
At June 30, 2014, we had $61.3 million of cash and cash equivalents, including $43.9 million held by third-party management companies.
RevPAR growth for the lodging industry remains strong. RevPAR at our comparable hotels for the first six months increased 8.3%, driven by a 5.9% increase in ADR and a 2.3% increase in occupancy. We expect RevPAR at our comparable hotels to increase 7.5-8.0% during 2014, primarily from ADR growth, which is a premium to the industry due to portfolio condition and quality. We expect to generate $129.2 million - $134.8 million of operating cash flow in 2014.
Investing Activities
During the first six months of 2014, we had $12.7 million of cash provided by investing activities compared to $46.8 million of cash used during the same period last year. So far in 2014, compared to the same period last year, we spent $1.0 million more on improvements and additions to hotels and $26.0 million more on hotel development. Our increase in capitalized investments were more than offset by a $73.1 million increase in net proceeds from hotel sales and a $11.1 million reduction of restricted cash (which was primarily used to fund our hotel development).
For renovations and redevelopment in 2014, we expect to spend approximately $85 million which will be funded from operating cash flow, cash on hand and borrowings under our line of credit. In addition, for the Knickerbocker Hotel we expect to invest approximately $81 million in 2014, which will be funded primarily by draws on the Knickerbocker construction loan and additional capital that is currently being raised through the EB-5 immigrant investment program.
Since December 2010, we have sold 28 non-strategic hotels, for total gross proceeds of $627 million, and exchanged interests in 10 non-strategic hotels with our joint venture partner. Following the exchange of interests in our joint venture hotels, we now have 12 non-strategic hotels remaining to be sold of which we have agreed to sell five (three with non-refundable deposits).
Financing Activities
During the first six months of 2014, cash provided by financing activities decreased by $89.2 million compared to the same period last year. We repaid $137.4 million more of debt in the current year as compared to the same period last year, which was partially offset by $41.0 million in net proceeds from issuing preferred equity by our Knickerbocker Hotel consolidated joint venture. In 2014, we expect to pay approximately $3 million of normally occurring principal payments, $39 million of preferred dividends and $10 million in common dividends (assuming the current quarterly dividend per

52


share), all of which will be funded from operating cash flow and cash on hand. We are using proceeds from hotel sales to make additional non-recurring principal payments.
During July, we obtained a $140 million term loan secured by three hotels. Borrowings under the facility bear interest at LIBOR (no floor) plus 2.5%. The loan matures in 2017 (may be extended for up to two years, subject to satisfaction of certain conditions) and is freely pre-payable. On August 15, 2014, we expect to use borrowings from the term loan, cash on hand and borrowings under our line of credit to repay the remaining $234 million of our maturing 10% senior secured notes. We will use proceeds from pending and future asset sales to repay the term loan and our line of credit. After repaying the 10% notes, we will have no significant debt maturities other than our line of credit, until 2019.
FelCor’s Board of Directors declared $0.02 per share first and second quarter common stock dividends, which were paid in April 2014 and July 2014, respectively. FelCor LP, which is our operating partnership, distributes funds to FelCor to pay common or preferred dividends. FelCor's Board of Directors will determine the amount of future common and preferred dividends for each quarter, if any, based upon various factors including operating results, economic conditions, other operating trends, our financial condition and capital requirements, as well as the minimum REIT distribution requirements.
Except for our senior notes, line of credit and 2014 term loan, our mortgage debt is generally recourse solely to the specific hotels securing the debt, except in case of fraud, misapplication of funds and certain other customary limited recourse carve-out provisions that could extend recourse to us. Much of our secured debt allows us to substitute collateral under certain conditions and is prepayable, subject (in some instances) to various prepayment, yield maintenance or defeasance obligations.
Most of our secured debt (other than our senior notes and line of credit) includes lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our budgeted hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves, even if revenues are flowing through a lock-box because a specified debt service coverage ratio is not met. All of our consolidated loans subject to lock-box provisions currently exceed the applicable minimum debt service coverage ratios.
Senior Notes. Our senior notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: (i) incur additional indebtedness, except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to qualify as a REIT; (iii) repurchase capital stock; or (iv) merge. We currently exceed all minimum thresholds. These notes are guaranteed by us, and payment of our 10% notes is secured by a pledge of the limited partner interests in FelCor LP owned by FelCor. In addition, our senior notes are secured by a combination of first lien mortgages and related security interests and/or negative pledges on 26 hotels (11 hotels for our 10% senior notes, six hotels for our 6.75% senior notes and nine hotels for our 5.625% senior notes), as well as pledges of equity interests in certain subsidiaries of FelCor LP.

Inflation and Competition
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future. We are also subject to the risk that inflation will cause increases in hotel operating expenses disproportionately to revenues. If competition requires us to reduce room rates or limits our ability to raise room rates in the future, we may not be able to adjust our room rates to reflect the effects of inflation in full, in which case our operating results and liquidity could be adversely affected.


53



Seasonality

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

Disclosure Regarding Forward-Looking Statements

This report and the documents incorporated by reference in this report include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” or other variations of these terms (including their use in the negative), or by discussions of strategies, plans or intentions. A number of factors could cause actual results to differ materially from those anticipated by these forward-looking statements. Certain of these risks and uncertainties are described in greater detail under “Risk Factors” in our Annual Report on Form 10-K or in our other filings with the Securities and Exchange Commission, or the SEC.

These forward-looking statements are necessarily dependent upon assumptions and estimates that may prove to be incorrect. Accordingly, while we believe that the plans, intentions and expectations reflected in these forward-looking statements are reasonable, we cannot assure you that deviations from these plans, intentions or expectations will not be material. The forward-looking statements included in this report, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the risk factors and cautionary statements discussed in our filings to the SEC. We undertake no obligation to publicly update any forward-looking statements to reflect future circumstances or changes in our expectations.


54


Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
At June 30, 2014, approximately 90% of our consolidated debt bears fixed-rate interest.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents scheduled maturities and weighted average interest rates, by maturity dates. The fair value of our fixed-rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market interest rates.
Expected Maturity Date
at June 30, 2014
(dollars in thousands)
 
Expected Maturity Date
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
Fair Value
Liabilities
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
235,387

 
$
3,107

 
$
11,461

 
$
2,810

 
$
2,954

 
$
1,194,701

 
$
1,450,420

 
$
1,511,403

Average
  interest rate
9.97
%
 
5.11
%
 
5.61
%
 
4.95
%
 
4.95
%
 
6.04
%
 
6.67
%
 
 

Floating-rate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Debt

 

 
152,361

 

 

 

 
152,361

 
$
152,754

Average
  interest rate (a)

 

 
3.74
%
 

 

 

 
3.74
%
 
 

Total debt
$
235,387

 
$
3,107

 
$
163,822

 
$
2,810

 
$
2,954

 
$
1,194,701

 
$
1,602,781

 
 

Average
   interest rate
9.97
%
 
5.11
%
 
3.87
%
 
4.95
%
 
4.95
%
 
6.04
%
 
6.39
%
 
 

Net discount
 

 
 
 
 
 
 
 
 
 
 

 
(1,615
)
 
 

  Total debt
 

 
 
 
 
 
 
 
 
 
 

 
$
1,601,166

 
 

(a)
The average floating interest rate considers the implied forward rates in the yield curve at June 30, 2014.

Item 4.
Controls and Procedures.
(a)Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective, such that the information relating to us required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
(b)Changes in internal control over financial reporting.
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15 (f) promulgated under the Securities Exchange Act of 1934) during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

55


PART II – OTHER INFORMATION

Item 6.
Exhibits.

The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K:

Exhibit Number
 
Description of Exhibit
 
 
 
10.1
 
Amendment No. 2 to Amended and Restated Revolving Credit Agreement dated as of May 23, 2014, among FelCor/JPM Hospitality (SPE), L.L.C., DJONT/JPM Hospitality Leasing (SPE), L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., Miami AP Hotel, L.L.C. and Charleston Mills House Hotel, L.L.C as borrowers, and JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are parties thereto.
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
31.3
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
31.4
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
32.2
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
101.INS
 
XBRL Instance Document. Submitted electronically with this report.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document. Submitted electronically with this report.
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document. Submitted electronically with this report.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document. Submitted electronically with this report.
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document. Submitted electronically with this report.
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document. Submitted electronically with this report.



56


Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) FelCor’s Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (ii) FelCor’s Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (iii) FelCor’s Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013; (iv) FelCor’s Consolidated Statements of Changes in Equity for the six months ended June 30, 2014 and 2013; (v) FelCor’s Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; (vi) FelCor LP’s Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (vii) FelCor LP’s Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (viii) FelCor LP’s Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013; (ix) FelCor LP’s Consolidated Statements of Partners’ Capital for the six months ended June 30, 2014 and 2013; (x) FelCor LP’s Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (xi) the Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S‑T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

57


SIGNATURES

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


 
 FELCOR LODGING TRUST INCORPORATED
 
 
 
 
 
 
 
 
 
 
 
 
Date: August 1, 2014
 By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Controller


 
FELCOR LODGING LIMITED PARTNERSHIP
 
a Delaware limited partnership
 
 
 
 
By:
FelCor Lodging Trust Incorporated
 
 
Its General Partner
 
 
 
 
 
 
Date:  August 1, 2014
By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Controller


58