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EX-32.1 - 2015 Q3 EXHIBIT 32.1 - FelCor Lodging Trust Inca2015q310qexh321.htm
EX-31.2 - 2015 Q3 EXHIBIT 31.2 - FelCor Lodging Trust Inca2015q310qexh312.htm
EX-32.2 - 2015 Q3 EXHIBIT 32.2 - FelCor Lodging Trust Inca2015q310qexh322.htm
EX-31.4 - 2015 Q3 EXHIBIT 31.4 - FelCor Lodging Trust Inca2015q310qexh314.htm
EX-31.1 - 2015 Q3 EXHIBIT 31.1 - FelCor Lodging Trust Inca2015q310qexh311.htm
EX-31.3 - 2015 Q3 EXHIBIT 31.3 - FelCor Lodging Trust Inca2015q310qexh313.htm




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

(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
 
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2015
 

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
(see Note)
¨
Yes
þ
No
Note: The registrant is currently subject to the filing requirements of the Securities Exchange Act of 1934, but the registrant has not been subject to such filing requirements for the past 90 days. Prior to becoming subject to such filing requirements, the registrant was a voluntary filer and as a voluntary filer, the registrant has filed all reports pursuant to Section 13 or 15(d) for the preceding 12 months as if it had been subject to such filing requirements.



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 October 27, 2015, FelCor Lodging Trust Incorporated had issued and outstanding 143,388,304 shares of common stock.




EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarter ended September 30, 2015, 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 - September 30, 2015 and December 31, 2014 (unaudited)

 
 
Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
 
Consolidated Statements of Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
 
Consolidated Statements of Changes in Equity – For the Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
 
Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
FelCor Lodging Limited Partnership:
 
 
 
Consolidated Balance Sheets - September 30, 2015 and December 31, 2014 (unaudited)

 
 
Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
 
Consolidated Statements of Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
 
Consolidated Statements of Partners’ Capital – For the Nine Months Ended September 30, 2015 and 2014 (unaudited)

 
 
Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2015 and 2014 (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 and Competition

 
 
Seasonality
58

 
 
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)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $880,002 and $850,687 at September 30, 2015 and December 31, 2014, respectively
$
1,694,066

 
$
1,599,791

Hotel development
48,655

 
297,466

Investment in unconsolidated entities
10,938

 
15,095

Hotels held for sale

 
47,145

Cash and cash equivalents
56,911

 
47,147

Restricted cash
24,701

 
20,496

Accounts receivable, net of allowance for doubtful accounts of $230 and $241 at September 30, 2015 and December 31, 2014, respectively
37,085

 
27,805

Deferred expenses, net of accumulated amortization of $6,864 and $17,111 at September 30, 2015 and December 31, 2014, respectively
25,240

 
25,827

Other assets
16,574

 
23,886

Total assets
$
1,914,170

 
$
2,104,658

 
 
 
 
Liabilities and Equity
 
 
 
Debt
$
1,418,632

 
$
1,585,867

Distributions payable
12,450

 
13,827

Accrued expenses and other liabilities
132,321

 
135,481

Total liabilities
1,563,403

 
1,735,175

Commitments and contingencies


 


Redeemable noncontrolling interests in FelCor LP, 611 units issued and outstanding at September 30, 2015 and December 31, 2014
4,323

 
6,616

Equity:
 
 
 
 Preferred stock, $0.01 par value, 20,000 shares authorized:
 
 
 
Series A Cumulative Convertible Preferred Stock, 12,879 shares, liquidation value of $321,987, issued and outstanding at September 30, 2015 and December 31, 2014
309,337

 
309,337

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

 
169,412

Common stock, $0.01 par value, 200,000 shares authorized; 143,382 and 124,605 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
1,434

 
1,246

Additional paid-in capital
2,566,123

 
2,353,666

Accumulated deficit
(2,582,726
)
 
(2,530,671
)
Total FelCor stockholders’ equity
294,168

 
302,990

Noncontrolling interests in other partnerships
9,090

 
18,435

Preferred equity in consolidated joint venture, liquidation value of $43,926 and $42,094 at September 30, 2015 and December 31, 2014, respectively
43,186

 
41,442

Total equity
346,444

 
362,867

Total liabilities and equity
$
1,914,170

 
$
2,104,658

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 Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands, except for per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
223,474

 
$
232,449

 
$
672,808

 
$
711,750

Other revenue
1,678

 
1,607

 
7,142

 
3,170

Total revenues
225,152

 
234,056

 
679,950

 
714,920

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
78,514

 
82,731

 
236,202

 
255,882

Other property-related costs
55,893

 
59,441

 
170,579

 
183,931

Management and franchise fees
9,138

 
9,632

 
27,425

 
28,805

Taxes, insurance and lease expense
12,716

 
19,053

 
43,933

 
69,276

Corporate expenses
4,672

 
6,442

 
19,775

 
21,914

Depreciation and amortization
28,988

 
28,523

 
85,510

 
87,206

Impairment loss
20,861

 

 
20,861

 

Other expenses
5,807

 
9,746

 
11,446

 
13,874

Total operating expenses
216,589

 
215,568

 
615,731

 
660,888

Operating income
8,563

 
18,488

 
64,219

 
54,032

Interest expense, net
(19,602
)
 
(21,922
)
 
(59,361
)
 
(71,644
)
Debt extinguishment
(13
)
 
(4,730
)
 
(30,909
)
 
(4,763
)
Gain on sale of investment in unconsolidated entities, net

 
30,184

 

 
30,184

Gain from remeasurement of unconsolidated entities, net

 
20,733

 

 
20,733

Other gains, net

 

 
166

 
100

Income (loss) before equity in income from unconsolidated entities
(11,052
)
 
42,753

 
(25,885
)
 
28,642

Equity in income from unconsolidated entities
321

 
1,347

 
7,983

 
4,756

Income (loss) from continuing operations before income tax expense
(10,731
)
 
44,100

 
(17,902
)
 
33,398

Income tax expense
(1,054
)
 
(78
)
 
(1,392
)
 
(480
)
Income (loss) from continuing operations
(11,785
)
 
44,022

 
(19,294
)
 
32,918

Income (loss) from discontinued operations
498

 
(8
)
 
419

 
132

Income (loss) before gain on sale of hotels
(11,287
)
 
44,014

 
(18,875
)
 
33,050

Gain on sale of hotels, net
3,154

 
29,556

 
19,491

 
50,639

Net income (loss)
(8,133
)
 
73,570

 
616

 
83,689

Net loss (income) attributable to noncontrolling interests in other partnerships
227

 
(646
)
 
(4,405
)
 
(830
)
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP
61

 
(185
)
 
150

 
(135
)
Preferred distributions - consolidated joint venture
(363
)

(348
)

(1,070
)

(870
)
Net income (loss) attributable to FelCor
(8,208
)
 
72,391

 
(4,709
)
 
81,854

Preferred dividends
(6,279
)
 
(9,678
)
 
(23,860
)
 
(29,034
)
Redemption of preferred stock

 

 
(6,096
)
 

Net income (loss) attributable to FelCor common stockholders
$
(14,487
)
 
$
62,713

 
$
(34,665
)
 
$
52,820

Basic per common share data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.43

Basic weighted average common shares outstanding
142,982

 
124,168

 
136,009

 
124,159

Diluted per common share data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Diluted weighted average common shares outstanding
142,982

 
125,526

 
136,009

 
125,289

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 Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(8,133
)
 
$
73,570

 
$
616

 
$
83,689

Foreign currency translation adjustment

 
(445
)
 

 
(490
)
Reclassification of foreign currency translation to gain

 
(24,448
)
 

 
(24,448
)
Comprehensive income (loss)
(8,133
)
 
48,677

 
616

 
58,751

Comprehensive loss (income) attributable to noncontrolling interests in other partnerships
227

 
(646
)
 
(4,405
)
 
(830
)
Comprehensive loss (income) attributable to redeemable noncontrolling interests in FelCor LP
61

 
(184
)
 
150

 
(134
)
Preferred distributions - consolidated joint venture
(363
)
 
(348
)
 
(1,070
)
 
(870
)
Comprehensive income (loss) attributable to FelCor
$
(8,208
)
 
$
47,499

 
$
(4,709
)
 
$
56,917




























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 Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital 
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit 
 
Noncontrolling Interests in Other Partnerships
 
Preferred Equity in Consolidated Joint Venture
 
Comprehensive Income (Loss) 
 
Total Equity
 
Number of Shares
 
Amount
 
Number of Shares
 
Amount
 
 
 
 
 
 
 
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

 

 

 

 
3,066

 

 

 

 

 
 

 
3,066

Forfeiture of stock awards

 

 
(117
)
 
(1
)
 

 

 
(931
)
 

 

 
 

 
(932
)
Conversion of operating partnership units into common shares

 

 
6

 

 
56

 

 

 

 

 
 
 
56

Allocation to redeemable noncontrolling interests

 

 

 

 
(642
)
 

 

 

 

 
 

 
(642
)
Contribution from noncontrolling interests

 

 

 

 

 

 

 
5,508

 

 
 

 
5,508

Distribution to noncontrolling interests

 

 

 

 

 

 

 
(8,634
)
 

 
 

 
(8,634
)
Acquisition of noncontrolling interest

 

 

 

 
(3,508
)
 

 

 
(2,342
)
 

 
 
 
(5,850
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

$0.06 per common share

 

 

 

 

 

 
(7,556
)
 

 

 
 

 
(7,556
)
$1.4625 per Series A preferred share

 

 

 

 

 

 
(18,837
)
 

 

 
 

 
(18,837
)
$1.50 per Series C depositary preferred share

 

 

 

 

 

 
(10,197
)
 

 

 
 

 
(10,197
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 

 
(870
)
 
 
 
(870
)
Issuance of preferred equity - consolidated joint venture

 

 

 

 

 

 

 

 
41,443

 
 
 
41,443

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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Foreign exchange translation

 

 

 

 

 
(489
)
 

 

 

 
$
(489
)
 
 

Reclassification of foreign currency translation to gain

 

 

 

 

 
(24,448
)
 

 

 

 
(24,448
)
 
 
Net income

 

 

 

 

 

 
81,854

 
830

 
870

 
83,554

 
 

Comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
$
58,617

 
58,617

Balance at September 30, 2014
12,948

 
$
478,766

 
124,289

 
$
1,243

 
$
2,353,304

 
$

 
$
(2,524,017
)
 
$
18,663

 
$
41,443

 
 

 
$
369,402

Balance at December 31, 2014
12,947

 
$
478,749

 
124,605

 
$
1,246

 
$
2,353,666

 
$

 
$
(2,530,671
)
 
$
18,435

 
$
41,442

 
 

 
$
362,867

Issuance of common stock

 

 
18,400

 
184

 
198,467

 

 

 

 

 
 

 
198,651

Issuance of stock awards

 

 
379

 
4

 
690

 

 

 

 

 
 

 
694

Stock awards - amortization and severance

 

 

 

 
5,702

 

 

 

 

 
 

 
5,702

Redemption of Series C preferred stock
(68
)
 
(169,412
)
 

 

 
5,522

 

 
(6,096
)
 

 

 
 
 
(169,986
)
Forfeiture of stock awards

 

 
(2
)
 

 

 

 
(8
)
 

 

 
 

 
(8
)
Allocation to redeemable noncontrolling interests

 

 

 

 
2,076

 

 

 

 

 
 

 
2,076

Contribution from noncontrolling interests

 

 

 

 

 

 

 
2,544

 

 
 

 
2,544

Distribution to noncontrolling interests

 

 

 

 

 

 

 
(16,294
)
 

 
 

 
(16,294
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

$0.12 per common share

 

 

 

 

 

 
(17,382
)
 

 

 
 
 
(17,382
)
$1.4625 per Series A preferred share

 

 

 

 

 

 
(18,837
)
 

 

 
 

 
(18,837
)
$1.00 per Series C depositary preferred share

 

 

 

 

 

 
(5,023
)
 

 

 
 

 
(5,023
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 

 
(1,070
)
 
 
 
(1,070
)
Issuance of preferred equity - consolidated joint venture

 

 

 

 

 

 

 

 
1,744

 
 
 
1,744

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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Net income (loss)

 

 

 

 

 

 
(4,709
)
 
4,405

 
1,070

 
$
766

 
 

Comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
$
766

 
766

Balance at September 30, 2015
12,879

 
$
309,337


143,382

 
$
1,434

 
$
2,566,123

 
$

 
$
(2,582,726
)
 
$
9,090

 
$
43,186

 
 
 
$
346,444

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

4


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
616

 
$
83,689

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
85,510

 
87,206

Gain on sale of hotels and other assets, net
(20,065
)
 
(51,129
)
Gain on sale of investment in unconsolidated entities, net

 
(30,184
)
Gain from remeasurement of unconsolidated entities, net

 
(20,733
)
Amortization of deferred financing fees and debt discount
4,085

 
8,136

Amortization of fixed stock and directors’ compensation
5,214

 
4,490

Equity based severance
1,352

 

Equity in income from unconsolidated entities
(7,983
)
 
(4,756
)
Distributions of income from unconsolidated entities
5,680

 
3,394

Debt extinguishment
30,909

 
5,008

Impairment loss
20,861

 

Changes in assets and liabilities:
 
 
 
Accounts receivable
(9,696
)
 
271

Other assets
1,529

 
(4,834
)
Accrued expenses and other liabilities
(3,958
)
 
7,107

Net cash flow provided by operating activities
114,054

 
87,665

Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(35,979
)
 
(65,547
)
Hotel development
(31,599
)
 
(63,381
)
Net proceeds from asset sales
190,035

 
119,991

Proceeds from unconsolidated joint venture transaction

 
4,032

Change in restricted cash – investing
(4,204
)
 
42,964

Insurance proceeds
274

 
255

Distributions from unconsolidated entities in excess of earnings
6,460

 
10,658

Net cash flow provided by investing activities
124,987

 
48,972

Cash flows from financing activities:
 
 
 
Proceeds from borrowings
979,000

 
439,607

Repayment of borrowings
(1,166,693
)
 
(553,867
)
Payment of deferred financing fees
(14,348
)
 
(3,052
)
Acquisition of noncontrolling interest

 
(5,850
)
Distributions paid to noncontrolling interests
(16,294
)
 
(8,634
)
Contributions from noncontrolling interests
2,544

 
5,508

Distributions paid to FelCor LP limited partners
(68
)
 
(31
)
Distributions paid to preferred stockholders
(26,125
)
 
(29,034
)
Redemption of preferred stock
(169,986
)
 

Preferred distributions - consolidated joint venture
(1,070
)
 
(757
)
Distributions paid to common stockholders
(16,498
)
 
(7,453
)
Net proceeds from issuance of preferred equity - consolidated joint venture
1,744

 
41,443

Net proceeds from common stock issuance
198,651

 

Net cash flow used in financing activities
(229,143
)
 
(122,120
)
Effect of exchange rate changes on cash
(134
)
 
(52
)
Net change in cash and cash equivalents
9,764

 
14,465

Cash and cash equivalents at beginning of periods
47,147

 
45,645

Cash and cash equivalents at end of periods
$
56,911

 
$
60,110

Supplemental cash flow information – interest paid, net of capitalized interest
$
55,215

 
$
67,187

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

5


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
September 30,
 
December 31,
 
2015
 
2014
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $880,002 and $850,687 at September 30, 2015 and December 31, 2014, respectively
$
1,694,066

 
$
1,599,791

Hotel development
48,655

 
297,466

Investment in unconsolidated entities
10,938

 
15,095

Hotels held for sale

 
47,145

Cash and cash equivalents
56,911

 
47,147

Restricted cash
24,701

 
20,496

Accounts receivable, net of allowance for doubtful accounts of $230 and $241 at September 30, 2015 and December 31, 2014, respectively
37,085

 
27,805

Deferred expenses, net of accumulated amortization of $6,864 and $17,111 at September 30, 2015 and December 31, 2014, respectively
25,240

 
25,827

Other assets
16,574

 
23,886

Total assets
$
1,914,170

 
$
2,104,658

 
 
 
 
Liabilities and Partners’ Capital
 
 
 
Debt
$
1,418,632

 
$
1,585,867

Distributions payable
12,450

 
13,827

Accrued expenses and other liabilities
132,321

 
135,481

Total liabilities
1,563,403

 
1,735,175

Commitments and contingencies


 


Redeemable units, 611 units issued and outstanding at September 30, 2015 and December 31, 2014
4,323

 
6,616

Capital:
 
 
 
Preferred units:
 
 
 
Series A Cumulative Convertible Preferred Units, 12,879 units issued and outstanding at September 30, 2015 and December 31, 2014
309,337

 
309,337

Series C Cumulative Redeemable Preferred Units, 68 units issued and outstanding at December 31, 2014

 
169,412

Common units, 143,382 and 124,605 units issued and outstanding at September 30, 2015 and December 31, 2014, respectively
(15,169
)
 
(175,759
)
Total FelCor LP partners’ capital
294,168

 
302,990

Noncontrolling interests
9,090

 
18,435

Preferred capital in consolidated joint venture
43,186

 
41,442

Total partners’ capital
346,444

 
362,867

Total liabilities and partners’ capital
$
1,914,170

 
$
2,104,658



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 Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands, except for per unit data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
223,474

 
$
232,449

 
$
672,808

 
$
711,750

Other revenue
1,678

 
1,607

 
7,142

 
3,170

Total revenues
225,152

 
234,056

 
679,950

 
714,920

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
78,514

 
82,731

 
236,202

 
255,882

Other property-related costs
55,893

 
59,441

 
170,579

 
183,931

Management and franchise fees
9,138

 
9,632

 
27,425

 
28,805

Taxes, insurance and lease expense
12,716

 
19,053

 
43,933

 
69,276

Corporate expenses
4,672

 
6,442

 
19,775

 
21,914

Depreciation and amortization
28,988

 
28,523

 
85,510

 
87,206

Impairment loss
20,861

 

 
20,861

 

Other expenses
5,807

 
9,746

 
11,446

 
13,874

Total operating expenses
216,589

 
215,568

 
615,731

 
660,888

Operating income
8,563

 
18,488

 
64,219

 
54,032

Interest expense, net
(19,602
)
 
(21,922
)
 
(59,361
)
 
(71,644
)
Debt extinguishment
(13
)
 
(4,730
)
 
(30,909
)
 
(4,763
)
Gain on sale of investment in unconsolidated entities, net

 
30,184

 

 
30,184

Gain from remeasurement of unconsolidated entities, net

 
20,733

 

 
20,733

Other gains, net

 

 
166

 
100

Income (loss) before equity in income from unconsolidated entities
(11,052
)
 
42,753

 
(25,885
)
 
28,642

Equity in income from unconsolidated entities
321

 
1,347

 
7,983

 
4,756

Income (loss) from continuing operations before income tax expense
(10,731
)
 
44,100

 
(17,902
)
 
33,398

Income tax expense
(1,054
)
 
(78
)
 
(1,392
)
 
(480
)
Income (loss) from continuing operations
(11,785
)
 
44,022

 
(19,294
)
 
32,918

Income (loss) from discontinued operations
498

 
(8
)
 
419

 
132

Income (loss) before gain on sale of hotels
(11,287
)
 
44,014

 
(18,875
)
 
33,050

Gain on sale of hotels, net
3,154

 
29,556

 
19,491

 
50,639

Net income (loss)
(8,133
)
 
73,570

 
616

 
83,689

Net loss (income) attributable to noncontrolling interests
227

 
(646
)
 
(4,405
)
 
(830
)
Preferred distributions - consolidated joint venture
(363
)
 
(348
)
 
(1,070
)
 
(870
)
Net income (loss) attributable to FelCor LP
(8,269
)
 
72,576

 
(4,859
)
 
81,989

Preferred distributions
(6,279
)
 
(9,678
)
 
(23,860
)
 
(29,034
)
Redemption of preferred units

 

 
(6,096
)
 

Net income (loss) attributable to FelCor LP common unitholders
$
(14,548
)
 
$
62,898

 
$
(34,815
)
 
$
52,955

Basic and diluted per common unit data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Basic weighted average common units outstanding
143,594

 
124,781

 
136,621

 
124,774

Diluted weighted average common units outstanding
143,594

 
126,164

 
136,621

 
125,916


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 Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(8,133
)
 
$
73,570

 
$
616

 
$
83,689

Foreign currency translation adjustment

 
(445
)
 

 
(490
)
Reclassification of foreign currency translation to gain

 
(24,553
)
 

 
(24,553
)
Comprehensive income (loss)
(8,133
)
 
48,572

 
616

 
58,646

Comprehensive loss (income) attributable to noncontrolling interests
227

 
(646
)
 
(4,405
)
 
(830
)
Preferred distributions - consolidated joint venture
(363
)
 
(348
)
 
(1,070
)
 
(870
)
Comprehensive income (loss) attributable to FelCor LP
$
(8,269
)
 
$
47,578

 
$
(4,859
)
 
$
56,946





























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

8


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Preferred Units
 
Common Units
 
Accumulated Other Comprehensive Income
 
Noncontrolling Interests
 
Preferred Capital in Consolidated Joint Venture
 
Comprehensive Income
 
Total Partners’ Capital
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

 
2,134

 

 

 

 
 
 
2,134

Contributions

 

 

 
5,508

 

 
 
 
5,508

Distributions

 
(36,590
)
 

 
(8,634
)
 
(870
)
 
 
 
(46,094
)
Allocation to redeemable units

 
(615
)
 

 

 

 
 
 
(615
)
Acquisition of noncontrolling interests

 
(3,508
)
 

 
(2,342
)
 

 
 
 
(5,850
)
Issuance of preferred capital - consolidated joint venture

 

 

 

 
41,443

 
 
 
41,443

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange translation

 

 
(490
)
 

 

 
$
(490
)
 
 
Reclassification of foreign currency translation to gain

 

 
(24,553
)
 

 

 
(24,553
)
 
 
Net income

 
81,989

 

 
830

 
870

 
83,689

 
 
Comprehensive income

 

 

 

 

 
$
58,646

 
58,646

Balance at September 30, 2014
$
478,766

 
$
(169,470
)
 
$

 
$
18,663

 
$
41,443

 
 
 
$
369,402

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
478,749

 
$
(175,759
)
 
$

 
$
18,435

 
$
41,442

 
 
 
$
362,867

Issuance of common units

 
198,651

 

 

 

 
 
 
198,651

FelCor restricted stock compensation

 
6,388

 

 

 

 
 
 
6,388

Redemption of Series C preferred units
(169,412
)
 
(574
)
 

 

 

 
 
 
(169,986
)
Contributions

 

 

 
2,544

 

 
 
 
2,544

Distributions

 
(41,309
)
 

 
(16,294
)
 
(1,070
)
 
 
 
(58,673
)
Allocation to redeemable units

 
2,293

 

 

 

 
 
 
2,293

Issuance of preferred capital - consolidated joint venture

 

 

 

 
1,744

 
 
 
1,744

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 
(4,859
)
 

 
4,405

 
1,070

 
$
616

 
 
Comprehensive income

 

 

 

 

 
$
616

 
616

Balance at September 30, 2015
$
309,337

 
$
(15,169
)
 
$

 
$
9,090

 
$
43,186

 
 
 
$
346,444

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

9


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
616

 
$
83,689

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
85,510

 
87,206

Gain on sale of hotels and other assets, net
(20,065
)
 
(51,129
)
Gain on sale of investment in unconsolidated entities, net

 
(30,184
)
Gain from remeasurement of unconsolidated entities, net

 
(20,733
)
Amortization of deferred financing fees and debt discount
4,085

 
8,136

Amortization of fixed stock and directors’ compensation
5,214

 
4,490

Equity based severance
1,352

 

Equity in income from unconsolidated entities
(7,983
)
 
(4,756
)
Distributions of income from unconsolidated entities
5,680

 
3,394

Debt extinguishment
30,909

 
5,008

Impairment loss
20,861

 

Changes in assets and liabilities:
 
 
 
Accounts receivable
(9,696
)
 
271

Other assets
1,529

 
(4,834
)
Accrued expenses and other liabilities
(3,958
)
 
7,107

Net cash flow provided by operating activities
114,054

 
87,665

 Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(35,979
)
 
(65,547
)
Hotel development
(31,599
)
 
(63,381
)
Net proceeds from asset sales
190,035

 
119,991

Proceeds from unconsolidated joint venture transaction

 
4,032

Change in restricted cash – investing
(4,204
)
 
42,964

Insurance proceeds
274

 
255

Distributions from unconsolidated entities in excess of earnings
6,460

 
10,658

Net cash flow provided by investing activities
124,987

 
48,972

 Cash flows from financing activities:
 
 
 
Proceeds from borrowings
979,000

 
439,607

Repayment of borrowings
(1,166,693
)
 
(553,867
)
Payment of deferred financing fees
(14,348
)
 
(3,052
)
Acquisition of noncontrolling interest

 
(5,850
)
Distributions paid to noncontrolling interests
(16,294
)
 
(8,634
)
Contributions from noncontrolling interests
2,544

 
5,508

Distributions paid to FelCor LP limited partners
(68
)
 
(31
)
Distributions paid to preferred unitholders
(26,125
)
 
(29,034
)
Redemption of preferred units
(169,986
)
 

Preferred distributions - consolidated joint venture
(1,070
)
 
(757
)
Distributions paid to common unitholders
(16,498
)
 
(7,453
)
Net proceeds from issuance of preferred capital - consolidated joint venture
1,744

 
41,443

Net proceeds from common unit issuance
198,651

 

Net cash flow used in financing activities
(229,143
)
 
(122,120
)
 Effect of exchange rate changes on cash
(134
)
 
(52
)
 Net change in cash and cash equivalents
9,764

 
14,465

 Cash and cash equivalents at beginning of periods
47,147

 
45,645

 Cash and cash equivalents at end of periods
$
56,911

 
$
60,110

 Supplemental cash flow information – interest paid, net of capitalized interest
$
55,215

 
$
67,187

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 41 hotels as of September 30, 2015. At September 30, 2015, we had an aggregate of 143,993,871 shares and units outstanding, consisting of 143,382,409 shares of FelCor common stock and 611,462 FelCor LP units not owned by FelCor.
Of our 41 hotels as of September 30, 2015, we owned 100% interests in 38 hotels, a 95% interest in one hotel (The Knickerbocker) and 50% interests in entities owning two hotels. The Knickerbocker opened in February 2015, and based on its partial completion as of September 30, 2015, we have transferred $284.8 million of the development into investment in hotels, with the remaining investment ($48.7 million) classified as hotel development. We consolidate our real estate interests in the 39 hotels in which we hold majority interests, and we record the real estate interests of the two hotels in which we hold indirect 50% interests using the equity method. We lease 40 of the 41 hotels to our taxable REIT subsidiaries, of which we own a controlling interest. We operate one 50%-owned hotel without a lease. Because we own controlling interests in our operating lessees, we consolidate our interests in all 40 leased hotels (which we refer to as our Consolidated Hotels) and reflect their operating revenues and expenses in our statements of operations. We own 50% of the real estate interest in one Consolidated Hotel (we account for our real estate interest of this hotel by the equity method) and majority real estate interests in our remaining 39 Consolidated Hotels (we consolidate our real estate interests in these hotels).
The following table illustrates the distribution of our 40 Consolidated Hotels at September 30, 2015:
Brand
 
Hotels
 
Rooms
 Embassy Suites Hotels® 
 
18

 
 
4,982

 Wyndham® and Wyndham Grand®
 
8

 
 
2,528

 Marriott® and Renaissance® 
 
3

 
 
1,321

 Holiday Inn® 
 
2

 
 
968

 DoubleTree by Hilton® and Hilton® 
 
3

 
 
802

 Sheraton®
 
2

 
 
673

 Fairmont® 
 
1

 
 
383

 The Knickerbocker®
 
1

 
 
330

 Morgans® and Royalton®
 
2

 
 
285

  Total
 
40

 
 
12,272

At September 30, 2015, our Consolidated Hotels were located in 15 states, with concentrations in California (11 hotels), Florida (six hotels) and Massachusetts (three hotels). Approximately 60% of our revenue was generated from hotels in these three states during the first nine months of 2015.
At September 30, 2015, of our Consolidated Hotels: (i) subsidiaries of Hilton Worldwide, or Hilton, managed 20 hotels; (ii) subsidiaries of Wyndham Worldwide, or Wyndham, managed eight hotels; (iii) subsidiaries of Marriott International Inc., or Marriott, managed three hotels; (iv) subsidiaries of InterContinental Hotels Group, or IHG, managed two hotels; (v) subsidiaries of Starwood Hotels &

11



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization — (continued)
Resorts Worldwide Inc., or Starwood, managed two hotels; (vi) a subsidiary of Fairmont Raffles Hotels International, or Fairmont, managed one hotel; (vii) a subsidiary of Highgate Hotels, or Highgate, managed one hotel; (viii) a subsidiary of Morgans Hotel Group Corporation, or Morgans, managed two hotels; and (ix) Aimbridge Hospitality managed one hotel.
The information in our consolidated financial statements for the three and nine months ended September 30, 2015 and 2014 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 nine months ended September 30, 2015 and 2014, include adjustments based on management’s estimates (consisting of normal and recurring accruals), which we consider necessary for a fair statement of the results for the periods. Income taxes in prior periods have been reclassified from taxes, insurance and lease expense to conform to the current period presentation of a single line for income tax expense on our consolidated statement of operations. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2014, included in our Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of actual operating results for the entire year.
2.    Joint Venture Transaction
In July 2014, we unwound unconsolidated joint ventures, in which we held 50% interests, that collectively owned 10 hotels. As a consequence of that transaction, we owned 100% of five of those hotels and none of the other five hotels. We also obtained 100% ownership of an additional hotel of which we owned 90% prior to the unwinding of the joint ventures. We paid $2.2 million to our joint venture partner to equalize the aggregate value of assets each party received as the joint ventures were unwound. This payment was the net of $5.9 million paid for our partner’s 10% interest in the one hotel and $3.7 million received for the difference in values of the five hotels wholly-owned by us compared to the five hotels in which we no longer had any ownership subsequent to the transaction.

As a result of these transactions, we recorded the following in the third quarter of 2014:
A $20.7 million gain on the remeasurement of the fair value of the five previously unconsolidated hotels, which we controlled and wholly-owned following the transaction;
A $30.2 million gain on the disposition of our unconsolidated interests in the five other hotels (net of $457,000 in transaction costs);
A $3.5 million decrease in Additional Paid-In Capital related to our acquisition of the 10% noncontrolling interest of another hotel, which we wholly-owned following the transaction.
In addition to the foregoing, we increased our ownership interest in the operating entities of all six hotels in conjunction with unwinding the joint ventures. Prior to the transaction, we had 51% controlling interests in 10 of the hotel lessees that operated the joint ventures’ 10 hotels and a 90%



12



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.    Joint Venture Transaction — (continued)
controlling interest in the hotel lessee that operated the eleventh hotel. After unwinding the joint ventures, we no longer had any interest in five lessees and owned 100% in the lessees of the six hotels we owned outright following the transaction. When we unwound the joint ventures, we liquidated the lessees’ assets and liabilities to cash, which was then distributed to the partners based on their ownership interests just prior to unwinding the joint ventures. Consequently, we recorded no gains or losses when changing ownership of the lessees.
The following table summarizes the fair values of assets acquired and liabilities assumed where we obtained control of a previously unconsolidated entity (i.e., a business combination) through this, primarily, non-cash transaction:
Assets
 
Investment in hotels
$
130,100

Other assets
1,300

Deferred expenses
259

Total assets acquired
$
131,659

 
 
Liabilities
 
Debt
$
64,000

Net assets acquired
$
67,659

The value of the assets acquired was primarily based on a sales comparison approach (for land) and a depreciated replacement cost approach (for buildings).  The sales comparison approach used inputs of recent land sales in the respective hotel markets.  The depreciated replacement cost approach used inputs of both direct and indirect replacement costs using a nationally recognized authority on replacement cost information as well as the age and the square footage of the respective buildings.  The fair value of the debt was based on the estimated principal amount of debt having the same debt service requirements that could have been borrowed on the transaction date, at then current market interest rates.
The non-cash transaction also resulted in a $19.9 million decrease in our investment in unconsolidated entities.
The following unaudited consolidated pro forma results of operations for the three and nine months ended September 30, 2014 and 2013 assumes the joint venture transactions (the business combination, the disposition of unconsolidated interests, the acquisition of a 10% interest in one hotel, and the change in lessee ownership percentages) occurred on January 1, 2013. The unaudited consolidated pro forma results of operations are not necessarily indicative of the results of operations if the transactions had been completed on the assumed date.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
73,640

 
$
3,378

 
$
84,408

 
$
(45,201
)
Income (loss) per share/unit - basic
$
0.50

 
$
(0.06
)
 
$
0.43

 
$
(0.57
)
Income (loss) per share/unit - diluted
$
0.50

 
$
(0.06
)
 
$
0.42

 
$
(0.57
)



13



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.
Investment in Unconsolidated Entities
At September 30, 2015 and December 31, 2014, we owned 50% interests in joint ventures that owned two and three hotels, respectively. 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 consolidate all of our majority-owned subsidiaries 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):
 
September 30,
 
December 31,
 
2015
 
2014
Investment in hotels and other properties, net of accumulated depreciation
$
21,684

 
 
$
30,288

 
Total assets
$
32,510

 
 
$
45,374

 
Debt
$
22,994

 
 
$
34,192

 
Total liabilities
$
25,486

 
 
$
36,974

 
Equity
$
7,024

 
 
$
8,400

 
Our unconsolidated entities’ debt at September 30, 2015 and December 31, 2014 consisted entirely of non-recourse mortgage debt.
In May 2015, one of our joint ventures sold a hotel, resulting in a $7.1 million gain that we include in our equity in income from unconsolidated entities. In connection with selling this hotel, the joint venture repaid the outstanding $10.5 million mortgage loan encumbering this hotel.
The following table (which, among other things, reflects decreases attributable to the unwinding of our 10-hotel unconsolidated joint ventures in July 2014) sets forth summarized combined statement of operations information for our unconsolidated entities (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenues
$
10,642

 
$
15,699

 
$
27,622

 
$
52,644

Net income
$
836

 
$
3,121

 
$
22,906

 
$
11,800

Net income attributable to FelCor
$
418

 
$
1,561

 
$
11,453

 
$
5,900

Cost in excess of joint venture book value of sold hotel

 

 
(3,140
)
 

Depreciation of cost in excess of book value
(97
)
 
(214
)
 
(330
)
 
(1,144
)
Equity in income from unconsolidated entities
$
321

 
$
1,347

 
$
7,983

 
$
4,756




14



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.    Investment in Unconsolidated Entities — (continued)
The following table summarizes the components of our investments in unconsolidated entities (in thousands):
 
September 30,
 
December 31,
 
2015
 
2014
Equity basis of hotel joint venture investments
$
(3,795
)
 
 
$
(3,265
)
 
Cost of hotel investments in excess of joint venture book value
7,426

 
 
10,895

 
Equity basis of land and condominium joint venture investments
7,307

 
 
7,465

 
Investment in unconsolidated entities
$
10,938

 
 
$
15,095

 
The following table summarizes the components of our equity in income from unconsolidated entities (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Hotel investments
$
(63
)
 
$
1,029

 
$
8,141

 
$
5,022

Other investments
384

 
318

 
(158
)
 
(266
)
Equity in income from unconsolidated entities
$
321

 
$
1,347

 
$
7,983

 
$
4,756



15



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.
Debt
Consolidated debt consisted of the following (dollars in thousands):
 
Encumbered
 
Interest
 
Maturity
 
September 30,
 
December 31,
 
Hotels
 
Rate (%)
 
Date
 
2015
 
2014
Senior unsecured notes

 
 
6.00
 
 
June 2025
 
$
475,000

 
$

Senior secured notes
9

 
 
5.625
 
 
March 2023
 
525,000

 
525,000

Mortgage debt(a)
4

 
 
4.95
 
 
October 2022
 
122,923

 
124,278

Mortgage debt
1

 
 
4.94
 
 
October 2022
 
30,848

 
31,228

Line of credit
7

 
 
LIBOR + 2.75
 
June 2019(b)
 
200,000

 

The Knickerbocker loan(c)
 
 
 
 
 
 
 
 
 
 
 
Construction tranche
1

 
 
LIBOR + 4.00
 
May 2016
 
58,562

 
58,562

Cash collateralized tranche

 
 
LIBOR + 1.25
 
May 2016
 
6,299

 
6,299

Retired debt

 
 

 
 
 

 
840,500

Total
22

 
 
 
 
 
 
 
$
1,418,632

 
$
1,585,867

(a)
This debt is comprised of separate non-cross-collateralized loans, each secured by a mortgage encumbering different hotels.
(b)
Our line of credit can be extended for one year (to 2020), subject to satisfying certain conditions.
(c)
This construction loan (total capacity of $85.0 million) finances the redevelopment of The Knickerbocker and can be extended for one year, subject to satisfying certain conditions.

In February 2015, we sold a hotel and repaid $13.0 million in mortgage debt secured by that hotel that would have otherwise matured in March 2017.

In May 2015, we issued $475 million aggregate principal amount of our 6.00% unsecured senior notes due 2025. We used the proceeds from that issuance, together with cash on hand and funds drawn under our line of credit, to repurchase and redeem $525 million in aggregate principal amount of our 6.75% senior secured notes due 2019, which was secured by mortgages on six hotels. We incurred $28.4 million of debt extinguishment charges relating to prepayment premiums and the write-off of deferred loan costs in connection with this transaction. All cash paid to satisfy the extinguishment of the senior secured notes is classified as a financing activity in the statements of cash flows.

In June 2015, we amended and restated our secured line of credit facility primarily to expand our borrowing capacity from $225 million to $400 million. The amended facility now matures in June 2020 (extended from June 2017), assuming we exercise a one-year extension option that is subject to certain conditions. Borrowings under the facility bear interest at LIBOR (no floor) plus an applicable margin ranging from 225 to 275 basis points (reduced from 337.5 basis points), depending on our leverage. The facility is secured by mortgages on seven hotels and permits partial release and substitution of properties, subject to certain conditions. We incurred $164,000 of debt extinguishment charges (relating to writing-off deferred loan costs) when amending the facility. We concurrently repaid a $140 million term loan that otherwise matured in 2017, bore interest at LIBOR plus 250 basis points and was secured by mortgages on three hotels, including one hotel that is part of the security for the amended facility. We incurred $2.0 million of debt extinguishment charges relating to writing-off deferred loan costs for the repaid loan.

16



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.    Debt — (continued)

In June 2015, when we sold two hotels, we repaid a $49.1 million loan secured by mortgages on three hotels (including the two sold hotels), that would have otherwise matured in March 2017. We sold the remaining hotel that had been mortgaged to secure this loan in September 2015. We incurred $237,000 of debt extinguishment charges relating to writing-off deferred loan costs for the repaid loan.

We reported $19.6 million and $21.9 million of interest expense for the three months ended September 30, 2015 and 2014, respectively, which is net of: (i) interest income of $6,000 and $13,000 and (ii) capitalized interest of $565,000 and $4.1 million, respectively. We reported $59.4 million and $71.6 million of interest expense for the nine months ended September 30, 2015 and 2014, respectively, which is net of: (i) interest income of $18,000 and $41,000 and (ii) capitalized interest of $5.6 million and $12.4 million, respectively.

5.
FelCor Capital Stock/FelCor LP Partners’ Capital

In April 2015, FelCor issued 18.4 million shares of its common stock at $11.25 per share in a public offering. FelCor contributed the net proceeds from the offering ($199 million) to FelCor LP in exchange for 18.4 million common units of limited partnership interests.

In April 2015, FelCor called for redemption of all of its outstanding shares of 8% Series C Cumulative Redeemable Preferred Stock and all depositary shares representing the Series C Preferred Stock. FelCor redeemed those shares of Series C Preferred Stock and the depositary shares, and FelCor LP concurrently redeemed its Series C Preferred Units, on May 14, 2015 using proceeds from the equity offering. Including dividends of $491,000, the total redemption price was $170.4 million. We reduced income available to common shareholders (unitholders) by $6.1 million for the nine months ended September 30, 2015, primarily representing the original issuance costs ($5.5 million) and discount ($538,000) of the redeemed Series C Preferred Stock (Units).

6.
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Room revenue
$
177,378

 
$
185,969

 
$
521,750

 
$
556,036

Food and beverage revenue
34,370

 
34,287

 
116,365

 
119,543

Other operating departments
11,726

 
12,193

 
34,693

 
36,171

Total hotel operating revenue
$
223,474

 
$
232,449

 
$
672,808

 
$
711,750

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. We record all rebates or discounts, 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. We make appropriate allowances for doubtful accounts, which we record as bad debt expense.

17



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

Hotel departmental expenses from continuing operations were comprised of the following (in thousands):
 
Three Months Ended September 30,
 
2015
 
2014
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
44,485

 
19.9
%
 
 
$
48,348

 
20.8
%
 
Food and beverage
29,457

 
13.2

 
 
28,667

 
12.3

 
Other operating departments
4,572

 
2.0

 
 
5,716

 
2.5

 
Total hotel departmental expenses
$
78,514

 
35.1
%
 
 
$
82,731

 
35.6
%
 

 
Nine Months Ended September 30,
 
2015
 
2014
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
131,419

 
19.5
%
 
 
$
145,666

 
20.5
%
 
Food and beverage
91,431

 
13.6

 
 
92,920

 
13.1

 
Other operating departments
13,352

 
2.0

 
 
17,296

 
2.4

 
Total hotel departmental expenses
$
236,202

 
35.1
%
 
 
$
255,882

 
36.0
%
 
Other property-related costs from continuing operations were comprised of the following amounts (in thousands):
 
Three Months Ended September 30,
 
2015
 
2014
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
19,493

 
8.7
%
 
 
$
19,669

 
8.5
%
 
Marketing
18,595

 
8.3

 
 
19,013

 
8.2

 
Repair and maintenance
9,724

 
4.4

 
 
10,887

 
4.7

 
Utilities
8,081

 
3.6

 
 
9,872

 
4.2

 
Total other property-related costs
$
55,893

 
25.0
%
 
 
$
59,441

 
25.6
%
 

18



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs — (continued)
 
Nine Months Ended September 30,
 
2015
 
2014
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
59,388

 
8.8
%
 
 
$
60,638

 
8.5
%
 
Marketing
58,295

 
8.7

 
 
60,233

 
8.5

 
Repair and maintenance
29,816

 
4.4

 
 
33,906

 
4.8

 
Utilities
23,080

 
3.5

 
 
29,154

 
4.0

 
Total other property-related costs
$
170,579

 
25.4
%
 
 
$
183,931

 
25.8
%
 
Wyndham has guaranteed minimum levels of annual net operating income at each of the hotels it manages for us. We recorded $1.3 million and $524,000 for the pro rata portions of the projected aggregate full-year guaranties for the nine months ended September 30, 2015 and 2014, respectively (of which $258,000 and $93,000 is attributable to the three months ended September 30, 2015 and 2014, respectively). We record these amounts as a reduction of Wyndham's contractual management and other fees.

7.
Taxes, Insurance and Lease Expense

Taxes, insurance and lease expense from continuing operations were comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Hotel lease expense(a) 
$
1,524

 
$
5,537

 
$
5,762

 
$
29,224

Land lease expense(b) 
3,892

 
3,670

 
10,684

 
9,292

Real estate and other taxes
5,691

 
7,634

 
22,048

 
23,365

Property insurance, general liability insurance and other
1,609

 
2,212

 
5,439

 
7,395

  Total taxes, insurance and lease expense
$
12,716

 
$
19,053

 
$
43,933

 
$
69,276


(a)
We record hotel lease expense for the consolidated operating lessees of hotels owned by unconsolidated entities and partially offset this expense through noncontrolling interests in other partnerships (generally 49%). We record our 50% share of the corresponding lease income through equity in income from unconsolidated entities.  Hotel lease expense includes percentage rent of $726,000 and $3.3 million for the three months ended September 30, 2015 and 2014, respectively, and $2.8 million and $16.0 million for the nine months ended September 30, 2015 and 2014, respectively, and reflects a decrease attributable to the unwinding of our 10-hotel unconsolidated joint ventures in July 2014.

(b)
We include in land lease expense percentage rent of $2.4 million and $2.2 million for the three months ended September 30, 2015 and 2014, respectively, and $6.1 million and $4.9 million for the nine months ended September 30, 2015 and 2014, respectively.

19



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Impairment Charges

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

We test for impairment whenever changes in circumstances indicate a hotel’s carrying value may not be recoverable. We conduct the test using undiscounted cash flows for the shorter of the hotel’s estimated hold period or its remaining useful life. When testing for recoverability of hotels held for investment, we use projected cash flows over its expected hold period. Those hotels held for investment that fail the impairment test are written down to their then current estimated fair value, before any selling expense, and we continue to depreciate the hotels over their remaining useful lives.

In the third quarter of 2015, we recorded a $20.9 million impairment charge related to a hotel that no longer meets our investment criteria, resulting in a reduced estimated hold period. The impairment charge was determined using Level 3 input under authoritative guidance for fair value measurements. For this estimate, we used a discounted cash flow analysis with an estimated stabilized growth rate of 3%, a discounted cash flow term of five years, a terminal capitalization rate of 8%, and a discount rate of 11%. As we do not consider a sale of this hotel to be probable within the next twelve months, the hotel is not considered to be held for sale at September 30, 2015.

We may record additional impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and lodging industry weakens, or we shorten our contemplated holding period for additional hotels.


9.
Hotel Dispositions
Effective January 1, 2014, we adopted the provisions of Accounting Standards Update No. 2014-08, 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. We only apply these new provisions prospectively; consequently, we continue to report hotels that were considered discontinued operations for the year ended December 31, 2013 and prior years as discontinued operations in all periods presented.
During the nine months ended September 30, 2015, we sold eight hotels. In the nine months ended September 30, 2014, we sold six hotels, one of which was previously held for sale at December 31, 2013, and disposed of five unconsolidated hotels when we unwound our joint ventures. We designate a hotel as held for sale when the sale is probable within the next twelve months. Excluding the hotel held for sale at December 31, 2013, we included operations for the sold hotels, and those hotels designated as held for sale, in income (loss) from continuing operations as shown in the statements of operations for the three and nine months ended September 30, 2015 and 2014, as disposition of these hotels does not represent a strategic shift in our business.


20



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.    Hotel Dispositions — (continued)

The following table includes condensed financial information primarily related to 12 of 13 hotels sold in 2014 (the remaining hotel was held for sale as of December 31, 2013) and eight hotels sold during the nine months ended September 30, 2015 (in thousands):

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Hotel operating revenue
$
2,890

 
 
$
32,952

 
 
$
32,150

 
 
$
135,918

Operating expenses
(2,396
)
 
 
(30,633
)
 
 
(26,016
)
 
 
(130,856
)
Operating income
494

 
 
2,319

 
 
6,134

 
 
5,062

Interest expense, net

 
 
(575
)
 
 
(1,031
)
 
 
(1,854
)
Debt extinguishment

 
 
(914
)
 
 
(309
)
 
 
(932
)
Gain on sale of investment in unconsolidated entities, net

 
 
30,184

 
 

 
 
30,184

Equity in income from unconsolidated entities
14

 
 
690

 
 
7,111

 
 
3,209

Income from continuing operations
508

 
 
31,704

 
 
11,905

 
 
35,669

Gain on sale of hotels, net (a)
3,154

 
 
29,556

 
 
19,491

 
 
50,639

Net income
3,662

 
 
61,260

 
 
31,396

 
 
86,308

Net loss (income) attributable to noncontrolling interests in other partnerships
45

 
 
(838
)
 
 
(5,146
)
 
 
(1,333
)
Net income attributable to redeemable noncontrolling interests in FelCor LP
(16
)
 
 
(290
)
 
 
(110
)
 
 
(408
)
Net income attributable to FelCor
$
3,691

 
 
$
60,132

 
 
$
26,140

 
 
$
84,567


(a)
We recorded a $24.4 million gain from foreign currency translation (which we had previously recorded in accumulated other comprehensive income) when we sold our remaining Canadian hotel in the third quarter of 2014, which substantially liquidated all of our foreign investments.


21



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor
$
(8,208
)
 
$
72,391

 
$
(4,709
)
 
$
81,854

Discontinued operations attributable to FelCor
(496
)
 
8

 
(425
)
 
(131
)
Income (loss) from continuing operations attributable to FelCor
(8,704
)
 
72,399

 
(5,134
)
 
81,723

Less: Preferred dividends
(6,279
)
 
(9,678
)
 
(23,860
)
 
(29,034
)
Less: Redemption of preferred stock

 

 
(6,096
)
 

Less: Dividends declared on unvested restricted stock
(13
)
 
(2
)
 
(40
)
 
(5
)
Less: Undistributed earnings allocated to unvested restricted stock

 
(48
)
 

 
(18
)
Numerator for continuing operations attributable to FelCor common stockholders
(14,996
)
 
62,671

 
(35,130
)
 
52,666

Discontinued operations attributable to FelCor
496

 
(8
)
 
425

 
131

Numerator for basic and diluted income (loss) attributable to FelCor common stockholders
$
(14,500
)
 
$
62,663

 
$
(34,705
)
 
$
52,797

Denominator:
 
 
 
 
 
 
 
Denominator for basic income (loss) per share
142,982

 
124,168

 
136,009

 
124,159

Denominator for diluted income (loss) per share
142,982

 
125,526

 
136,009

 
125,289

Basic and diluted income (loss) per share data:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.43

Diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42



22



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.
Income (Loss) Per Share/Unit — (continued)
FelCor LP Income (Loss) Per Unit
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor LP
$
(8,269
)
 
$
72,576

 
$
(4,859
)
 
$
81,989

Discontinued operations attributable to FelCor LP
(498
)
 
8

 
(427
)
 
(132
)
Income (loss) from continuing operations attributable to FelCor LP
(8,767
)
 
72,584

 
(5,286
)
 
81,857

Less: Preferred distributions
(6,279
)
 
(9,678
)
 
(23,860
)
 
(29,034
)
Less: Redemption of preferred units

 

 
(6,096
)
 

Less: Distributions declared on FelCor unvested restricted stock
(13
)
 
(2
)
 
(40
)
 
(5
)
Less: Undistributed earnings allocated to FelCor unvested restricted stock

 
(48
)
 

 
(18
)
Numerator for continuing operations attributable to FelCor LP common unitholders
(15,059
)
 
62,856

 
(35,282
)
 
52,800

Discontinued operations attributable to FelCor LP
498

 
(8
)
 
427

 
132

Numerator for basic and diluted income (loss) attributable to FelCor common unitholders
$
(14,561
)
 
$
62,848

 
$
(34,855
)
 
$
52,932

Denominator:
 
 
 
 
 
 
 
Denominator for basic income (loss) per unit
143,594

 
124,781

 
136,621

 
124,774

Denominator for diluted income (loss) per unit
143,594

 
126,164

 
136,621

 
125,916

Basic and diluted income (loss) per unit data:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

Net income (loss)
$
(0.10
)
 
$
0.50

 
$
(0.26
)
 
$
0.42

We include the net gain (loss) on sale of hotels attributable to FelCor/FelCor LP in income (loss) from continuing operations attributable to FelCor/FelCor LP share/unit calculations.
We do not include the following securities because they would have been antidilutive for the periods presented (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Series A convertible preferred shares/units
9,984
 
9,985
 
9,984

 
 
9,985

FelCor restricted stock units
1,173
 
 
1,136

 
 


23



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.
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 September 30, 2015 and 2014, and $18.8 million for the nine months ended September 30, 2015 and 2014.

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 ten 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.


11.
Fair Value of Financial Instruments
Disclosures about fair value of our financial instruments are based on pertinent information available to management as of September 30, 2015 and December 31, 2014. 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 debt for which trading prices are publicly available is based on observable market data (a Level 2 input) and has an estimated fair value of $1.0 billion and $1.1 billion at September 30, 2015 and December 31, 2014, respectively; and (iii) our debt for which trading prices are not publicly available 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 $427.5 million and $548.2 million at September 30, 2015 and December 31, 2014, respectively. The estimated fair value of all our debt was $1.4 billion and $1.6 billion at September 30, 2015 and December 31, 2014, respectively. The carrying value of our debt was $1.4 billion and $1.6 billion at September 30, 2015 and December 31, 2014, respectively.

12.
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.


24



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units — (continued)
At September 30, 2015, we had 611,462 limited partnership units outstanding carried at $4.3 million. The value of these outstanding units is based on the closing price of FelCor’s common stock at September 30, 2015 ($7.07 per share).

Changes in redeemable noncontrolling interests (or redeemable units) for the nine months ended September 30, 2015 and 2014 are shown below (in thousands):
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Balance at beginning of period
$
6,616

 
 
$
5,039

 
Conversion of units

 
 
(56
)
 
Redemption value allocation
(2,076
)
 
 
642

 
Distributions paid to unitholders
(67
)
 
 
(36
)
 
Comprehensive income (loss):
 
 
 
 
 
Foreign exchange translation

 
 
(1
)
 
Net income (loss)
(150
)
 
 
135

 
Balance at end of period
$
4,323

 
 
$
5,723

 

13.    Consolidated Joint Venture Preferred Equity/Capital
Our joint venture that is redeveloping The Knickerbocker raised $45 million through the sale of redeemable preferred equity under the EB-5 immigrant investor program. The purchasers receive a 3.25% current annual return (which increases to 8% if we do not redeem this equity interest before the fifth anniversary of its issuance), plus a 0.25% non-compounding annual return payable at redemption. The venture received $42.0 million in gross proceeds ($41.4 million net of issuance costs) in 2014 and $1.8 million during the nine months ended September 30, 2015. The venture will receive the remaining $1.2 million as investors’ visas are approved. We used our 95% share of the proceeds to repay borrowings under our line of credit (which were used to fund the redevelopment).

14.    Contingency

One of our consolidated subsidiaries has been engaged in a commercial dispute with a third party. Under generally accepted accounting principles, we recorded $5.9 million in other expenses during the third quarter of 2014 to establish a provision for our estimate of our maximum exposure for this contingency. We paid the disputed amount in January 2015 but continued asserting our contractual rights. In June 2015, we settled the commercial dispute and recovered $3.7 million (net of legal costs) of the expense recorded in 2014, which we have recorded in other revenue for the nine months ended September 30, 2015.

15.    Severance

During the three and nine months ended September 30, 2015, we recorded severance charges of $3.6 million, included in other expenses, related to certain FelCor officers.



25



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.    Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. 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, 2017, and early adoption is permitted but not before the original effective date (for annual reporting periods beginning after December 15, 2016). We are evaluating what impact (if any) ASU 2014-09 will have on our financial position or results of operations.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance
Costs. Under ASU 2015-03, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This amendment provides additional guidance within ASU 2015-03 for debt issuance costs related to line of credit arrangements. These amendments are effective for the first interim period within annual reporting periods beginning after December 15, 2015, and early adoption is permitted. We are evaluating what impact (if any) adopting this guidance will have on our financial position or results of operations.


17.
FelCor LP’s Consolidating Financial Information
Certain of FelCor LP’s 100% owned subsidiaries (FCH/PSH, L.P.; 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 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 St. Pete (SPE), L.L.C.; FelCor Esmeralda (SPE), L.L.C.; FelCor S-4 Hotels (SPE), L.L.C.; 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 (i) 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, if, in each case, as a result of such sale or disposition, such Subsidiary Guarantor ceases to be a subsidiary of FelCor LP, (ii) 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, (iii) a legal defeasance or covenant defeasance of the indenture, (iv) the unconditional and complete release of such Subsidiary Guarantor in accordance with the modification and waiver provisions of the indenture, or (v) the designation of a restricted subsidiary that is a Subsidiary Guarantor as an unrestricted subsidiary under and in compliance with the indenture.

26



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.
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
September 30, 2015
(in thousands)

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

 
$
621,978

 
$
1,072,088

 
$

 
$
1,694,066

Hotel development

 

 
48,655

 

 
48,655

Equity investment in consolidated entities
1,292,813

 

 

 
(1,292,813
)
 

Investment in unconsolidated entities
4,544

 
5,118

 
1,276

 

 
10,938

Cash and cash equivalents
18,453

 
36,464

 
1,994

 

 
56,911

Restricted cash

 
14,163

 
10,538

 

 
24,701

Accounts receivable, net
440

 
33,459

 
3,186

 

 
37,085

Deferred expenses, net
16,163

 

 
9,077

 

 
25,240

Other assets
4,512

 
8,615

 
3,447

 

 
16,574

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,336,925

 
$
719,797

 
$
1,150,261

 
$
(1,292,813
)
 
$
1,914,170

 
 
 
 
 
 
 
 
 
 
Debt
$
1,000,000

 
$

 
$
458,068

 
$
(39,436
)
 
$
1,418,632

Distributions payable
12,331

 

 
119

 

 
12,450

Accrued expenses and other liabilities
26,103

 
88,390

 
17,828

 

 
132,321

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,038,434

 
88,390

 
476,015

 
(39,436
)
 
1,563,403

 
 
 
 
 
 
 
 
 
 
Redeemable units, at redemption value
4,323

 

 

 

 
4,323

 
 
 
 
 
 
 
 
 
 
Preferred units
309,337

 

 

 

 
309,337

Common units
(15,169
)
 
632,039

 
621,338

 
(1,253,377
)
 
(15,169
)
Total FelCor LP partners’ capital
294,168

 
632,039

 
621,338

 
(1,253,377
)
 
294,168

Noncontrolling interests

 
(632
)
 
9,722

 

 
9,090

Preferred capital in consolidated joint venture

 

 
43,186

 

 
43,186

Total partners’ capital
294,168

 
631,407

 
674,246

 
(1,253,377
)
 
346,444

Total liabilities and partners’ capital
$
1,336,925

 
$
719,797

 
$
1,150,261

 
$
(1,292,813
)
 
$
1,914,170


27



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    FelCor LP’s Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2014
(in thousands)

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

 
$
757,694

 
$
842,097

 
$

 
$
1,599,791

Hotel development

 

 
297,466

 

 
297,466

Equity investment in consolidated entities
1,364,470

 

 

 
(1,364,470
)
 

Investment in unconsolidated entities
7,270

 
6,514

 
1,311

 

 
15,095

Hotels held for sale

 

 
47,145

 

 
47,145

Cash and cash equivalents
5,717

 
32,923

 
8,507

 

 
47,147

Restricted cash

 
12,199

 
8,297

 

 
20,496

Accounts receivable, net
963

 
26,343

 
499

 

 
27,805

Deferred expenses, net
17,203

 

 
8,624

 

 
25,827

Other assets
4,866

 
11,510

 
7,510

 

 
23,886

Total assets
$
1,400,489

 
$
847,183

 
$
1,221,456

 
$
(1,364,470
)
 
$
2,104,658

 
 
 
 
 
 
 
 
 
 
Debt
$
1,050,000

 
$

 
$
576,654

 
$
(40,787
)
 
$
1,585,867

Distributions payable
13,709

 

 
118

 

 
13,827

Accrued expenses and other liabilities
27,174

 
93,690

 
14,617

 

 
135,481

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,090,883

 
93,690

 
591,389

 
(40,787
)
 
1,735,175

 
 
 
 
 
 
 
 
 
 
Redeemable units, at redemption value
6,616

 

 

 

 
6,616

 
 
 
 
 
 
 
 
 
 
Preferred units
478,749

 

 

 

 
478,749

Common units
(175,759
)
 
753,646

 
570,037

 
(1,323,683
)
 
(175,759
)
Total FelCor LP partners’ capital
302,990

 
753,646

 
570,037

 
(1,323,683
)
 
302,990

Noncontrolling interests

 
(153
)
 
18,588

 

 
18,435

Preferred capital in consolidated joint venture

 

 
41,442

 

 
41,442

Total partners’ capital
302,990

 
753,493

 
630,067

 
(1,323,683
)
 
362,867

Total liabilities and partners’ capital
$
1,400,489

 
$
847,183

 
$
1,221,456

 
$
(1,364,470
)
 
$
2,104,658



28



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
223,474

 
$

 
$

 
$
223,474

Percentage lease revenue

 

 
44,523

 
(44,523
)
 

Other revenue
3

 
1,497

 
178

 

 
1,678

Total revenues
3

 
224,971

 
44,701

 
(44,523
)
 
225,152

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
143,545

 

 

 
143,545

Taxes, insurance and lease expense
533

 
53,272

 
3,434

 
(44,523
)
 
12,716

Corporate expenses

 
2,718

 
1,954

 

 
4,672

Depreciation and amortization
49

 
11,876

 
17,063

 

 
28,988

Impairment loss

 
20,861

 

 

 
20,861

Other expenses
3,626

 
1,311

 
870

 

 
5,807

Total operating expenses
4,208

 
233,583

 
23,321

 
(44,523
)
 
216,589

Operating income
(4,205
)
 
(8,612
)
 
21,380

 

 
8,563

Interest expense, net
(14,302
)
 
3

 
(5,303
)
 

 
(19,602
)
Debt extinguishment
(13
)
 

 

 

 
(13
)
Loss before equity in income from unconsolidated entities
(18,520
)
 
(8,609
)
 
16,077

 

 
(11,052
)
Equity in income from consolidated entities
10,069

 

 

 
(10,069
)
 

Equity in income from unconsolidated entities
417

 
(85
)
 
(11
)
 

 
321

Loss from continuing operations before income tax expense
(8,034
)
 
(8,694
)
 
16,066

 
(10,069
)
 
(10,731
)
Income tax expense
(194
)
 
(860
)
 

 

 
(1,054
)
Loss from continuing operations
(8,228
)
 
(9,554
)
 
16,066

 
(10,069
)
 
(11,785
)
Income from discontinued operations

 
(2
)
 
500

 

 
498

Loss before gain on sale of hotels
(8,228
)
 
(9,556
)
 
16,566

 
(10,069
)
 
(11,287
)
Gain on sale of hotels, net
(41
)
 
(31
)
 
3,226

 

 
3,154

Net loss
(8,269
)
 
(9,587
)
 
19,792

 
(10,069
)
 
(8,133
)
Loss attributable to noncontrolling interests

 
81

 
146

 

 
227

Preferred distributions - consolidated joint venture

 

 
(363
)
 

 
(363
)
Net loss attributable to FelCor LP
(8,269
)
 
(9,506
)
 
19,575

 
(10,069
)
 
(8,269
)
Preferred distributions
(6,279
)
 

 

 

 
(6,279
)
Net loss attributable to FelCor LP common unitholders
$
(14,548
)
 
$
(9,506
)
 
$
19,575

 
$
(10,069
)
 
$
(14,548
)


29



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 
$
232,449

 
$

 
$

 
$
232,449

Percentage lease revenue
2,537

 

 
36,131

 
(38,668
)
 

Other revenue
3

 
1,425

 
179

 

 
1,607

Total revenues
2,540

 
233,874


36,310


(38,668
)
 
234,056

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
151,804

 

 

 
151,804

Taxes, insurance and lease expense
492

 
52,036

 
5,193

 
(38,668
)
 
19,053

Corporate expenses
152

 
3,801

 
2,489

 

 
6,442

Depreciation and amortization
694

 
14,075

 
13,754

 

 
28,523

Other expenses
84

 
7,116

 
2,546

 

 
9,746

Total operating expenses
1,422

 
228,832

 
23,982

 
(38,668
)
 
215,568

Operating income
1,118

 
5,042

 
12,328

 

 
18,488

Interest expense, net
(16,850
)
 
(126
)
 
(4,946
)
 

 
(21,922
)
Debt extinguishment
(3,816
)
 

 
(914
)
 

 
(4,730
)
Gain on sale of investment in unconsolidated entities, net
30,184

 

 

 

 
30,184

Gain from remeasurement of unconsolidated entities, net
20,733

 

 

 

 
20,733

Income before equity in income from unconsolidated entities
31,369

 
4,916


6,468




42,753

Equity in income from consolidated entities
40,734

 

 

 
(40,734
)
 

Equity in income from unconsolidated entities
1,099

 
259

 
(11
)
 

 
1,347

Income from continuing operations before income tax expense
73,202

 
5,175

 
6,457

 
(40,734
)
 
44,100

Income tax expense
(14
)
 
(64
)
 

 

 
(78
)
Income from continuing operations
73,188

 
5,111

 
6,457

 
(40,734
)
 
44,022

Loss from discontinued operations

 
(8
)
 

 

 
(8
)
Income before gain on sale of hotels
73,188

 
5,103

 
6,457

 
(40,734
)
 
44,014

Gain on sale of hotels, net
(612
)
 
22,176

 
7,992

 

 
29,556

Net income
72,576

 
27,279

 
14,449

 
(40,734
)
 
73,570

Income attributable to noncontrolling interests

 
217

 
(863
)
 

 
(646
)
Preferred distributions - consolidated joint venture

 

 
(348
)
 

 
(348
)
Net income attributable to FelCor LP
72,576

 
27,496

 
13,238

 
(40,734
)
 
72,576

Preferred distributions
(9,678
)
 

 

 

 
(9,678
)
Net income attributable to FelCor LP common unitholders
$
62,898

 
$
27,496

 
$
13,238

 
$
(40,734
)
 
$
62,898


30



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
672,808

 
$

 
$

 
$
672,808

Percentage lease revenue

 

 
130,397

 
(130,397
)
 

Other revenue
111

 
6,645

 
386

 

 
7,142

Total revenues
111

 
679,453

 
130,783

 
(130,397
)
 
679,950

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
434,206

 

 

 
434,206

Taxes, insurance and lease expense
422

 
159,103

 
14,805

 
(130,397
)
 
43,933

Corporate expenses

 
11,010

 
8,765

 

 
19,775

Depreciation and amortization
138

 
37,770

 
47,602

 

 
85,510

Impairment loss

 
20,861

 

 

 
20,861

Other expenses
3,629

 
6,820

 
997

 

 
11,446

Total operating expenses
4,189

 
669,770

 
72,169

 
(130,397
)
 
615,731

Operating income
(4,078
)
 
9,683

 
58,614

 

 
64,219

Interest expense, net
(42,613
)
 
8

 
(16,756
)
 

 
(59,361
)
Debt extinguishment
(28,459
)
 

 
(2,450
)
 

 
(30,909
)
Other gains, net

 

 
166

 

 
166

Loss before equity in income from unconsolidated entities
(75,150
)
 
9,691

 
39,574

 

 
(25,885
)
Equity in income from consolidated entities
62,807

 

 

 
(62,807
)
 

Equity in income from unconsolidated entities
8,060

 
(43
)
 
(34
)
 

 
7,983

Loss from continuing operations before income tax expense
(4,283
)
 
9,648

 
39,540

 
(62,807
)
 
(17,902
)
Income tax expense
(256
)
 
(1,136
)
 

 

 
(1,392
)
Loss from continuing operations
(4,539
)
 
8,512

 
39,540

 
(62,807
)
 
(19,294
)
Income from discontinued operations

 
2

 
417

 

 
419

Loss before gain on sale of hotels
(4,539
)
 
8,514

 
39,957

 
(62,807
)
 
(18,875
)
Gain on sale of hotels, net
(320
)
 
(44
)
 
19,855

 

 
19,491

Net income
(4,859
)
 
8,470

 
59,812

 
(62,807
)
 
616

Income attributable to noncontrolling interests

 
591

 
(4,996
)
 

 
(4,405
)
Preferred distributions - consolidated joint venture

 

 
(1,070
)
 

 
(1,070
)
Net loss attributable to FelCor LP
(4,859
)
 
9,061

 
53,746

 
(62,807
)
 
(4,859
)
Preferred distributions
(23,860
)
 

 

 

 
(23,860
)
Redemption of preferred units
(6,096
)
 

 

 

 
(6,096
)
Net loss attributable to FelCor LP common unitholders
$
(34,815
)
 
$
9,061

 
$
53,746

 
$
(62,807
)
 
$
(34,815
)

31



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    FelCor LP’s Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
711,750

 
$

 
$

 
$
711,750

Percentage lease revenue
5,846

 

 
100,719

 
(106,565
)
 

Other revenue
4

 
2,774

 
392

 

 
3,170

Total revenues
5,850

 
714,524

 
101,111

 
(106,565
)
 
714,920

 
 
 
 
 
 
 
 
 

Expenses:
 
 
 
 
 
 
 
 

Hotel operating expenses

 
468,618

 

 

 
468,618

Taxes, insurance and lease expense
1,287

 
160,081

 
14,473

 
(106,565
)
 
69,276

Corporate expenses
423

 
12,944

 
8,547

 

 
21,914

Depreciation and amortization
2,678

 
43,332

 
41,196

 

 
87,206

Other expenses
119

 
8,745

 
5,010

 

 
13,874

Total operating expenses
4,507

 
693,720

 
69,226

 
(106,565
)
 
660,888

Operating income
1,343

 
20,804

 
31,885

 

 
54,032

Interest expense, net
(57,634
)
 
(760
)
 
(13,250
)
 

 
(71,644
)
Debt extinguishment
(3,816
)
 

 
(947
)
 

 
(4,763
)
Gain on sale of investment in unconsolidated entities, net
30,184

 

 

 

 
30,184

Gain from remeasurement of unconsolidated entities, net
20,733

 

 

 

 
20,733

Other gains, net

 
100

 

 

 
100

Income before equity in income from unconsolidated entities
(9,190
)
 
20,144

 
17,688

 

 
28,642

Equity in income from consolidated entities
88,114

 

 

 
(88,114
)
 

Equity in income from unconsolidated entities
4,213

 
577

 
(34
)
 

 
4,756

Income from continuing operations
83,137

 
20,721

 
17,654

 
(88,114
)
 
33,398

Income tax expense
(88
)
 
(392
)
 

 

 
(480
)
Income from continuing operations
83,049

 
20,329

 
17,654

 
(88,114
)
 
32,918

Income from discontinued operations

 
26

 
106

 

 
132

Income before gain on sale of hotels
83,049

 
20,355

 
17,760

 
(88,114
)
 
33,050

Gain on sale of hotels, net
(1,060
)
 
22,147

 
29,552

 

 
50,639

Net income
81,989

 
42,502

 
47,312

 
(88,114
)
 
83,689

Income attributable to noncontrolling interests

 
238

 
(1,068
)
 

 
(830
)
Preferred distributions - consolidated joint venture

 

 
(870
)
 

 
(870
)
Net income attributable to FelCor LP
81,989

 
42,740

 
45,374

 
(88,114
)
 
81,989

Preferred distributions
(29,034
)
 

 

 

 
(29,034
)
Net income attributable to FelCor LP common unitholders
$
52,955

 
$
42,740

 
$
45,374

 
$
(88,114
)
 
$
52,955


32



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    FelCor LP’s Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Three Months Ended September 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net loss
$
(8,269
)
 
$
(9,587
)
 
$
19,792

 
$
(10,069
)
 
$
(8,133
)
Foreign currency translation adjustment

 

 

 

 

Comprehensive loss
(8,269
)
 
(9,587
)
 
19,792

 
(10,069
)
 
(8,133
)
Comprehensive loss attributable to noncontrolling interests

 
81

 
146

 

 
227

Preferred distributions - consolidated joint venture

 

 
(363
)
 

 
(363
)
Comprehensive loss attributable to FelCor LP
$
(8,269
)
 
$
(9,506
)
 
$
19,575

 
$
(10,069
)
 
$
(8,269
)


FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net income
$
72,576

 
$
27,279

 
$
14,449

 
$
(40,734
)
 
$
73,570

Foreign currency translation adjustment
(445
)
 
(103
)
 
(342
)
 
445

 
(445
)
Reclassification of foreign currency translation to gain
(24,553
)
 
(4,448
)
 
(20,105
)
 
24,553

 
(24,553
)
Comprehensive income
47,578

 
22,728

 
(5,998
)
 
(15,736
)
 
48,572

Comprehensive income attributable to noncontrolling interests

 
217

 
(863
)
 

 
(646
)
Preferred distributions - consolidated joint venture

 

 
(348
)
 

 
(348
)
Comprehensive income attributable to FelCor LP
$
47,578

 
$
22,945

 
$
(7,209
)
 
$
(15,736
)
 
$
47,578



33



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    FelCor LP’s Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net income
$
(4,859
)
 
$
8,470

 
$
59,812

 
$
(62,807
)
 
$
616

Foreign currency translation adjustment

 

 

 

 

Comprehensive income
(4,859
)
 
8,470

 
59,812

 
(62,807
)
 
616

Comprehensive income attributable to noncontrolling interests

 
591

 
(4,996
)
 

 
(4,405
)
Preferred distributions - consolidated joint venture

 

 
(1,070
)
 

 
(1,070
)
Comprehensive loss attributable to FelCor LP
$
(4,859
)
 
$
9,061

 
$
53,746

 
$
(62,807
)
 
$
(4,859
)



FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net income
$
81,989

 
$
42,502

 
$
47,312

 
$
(88,114
)
 
$
83,689

Foreign currency translation adjustment
(490
)
 
(121
)
 
(369
)
 
490

 
(490
)
Reclassification of foreign currency translation to gain
(24,553
)
 
(4,448
)
 
(20,105
)
 
24,553

 
(24,553
)
Comprehensive income
56,946

 
37,933

 
26,838

 
(63,071
)
 
58,646

Comprehensive income attributable to noncontrolling interests

 
238

 
(1,068
)
 

 
(830
)
Preferred distributions - consolidated joint venture

 

 
(870
)
 

 
(870
)
Comprehensive income attributable to FelCor LP
$
56,946

 
$
38,171

 
$
24,900

 
$
(63,071
)
 
$
56,946


34



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(40,101
)
 
$
59,884

 
$
94,271

 
$

 
$
114,054

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(13
)
 
(21,664
)
 
(14,302
)
 

 
(35,979
)
Hotel development

 

 
(31,599
)
 

 
(31,599
)
Net proceeds from asset sales
(429
)
 
10

 
190,454

 

 
190,035

Insurance proceeds
274

 

 

 

 
274

Change in restricted cash - investing

 
(1,964
)
 
(2,240
)
 

 
(4,204
)
Distributions from unconsolidated entities
6,460

 

 

 

 
6,460

Intercompany financing
139,524

 

 

 
(139,524
)
 

Cash flows from investing activities
145,816

 
(23,618
)
 
142,313

 
(139,524
)
 
124,987

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
475,000

 

 
504,000

 

 
979,000

Repayment of borrowings
(545,453
)
 

 
(621,240
)
 

 
(1,166,693
)
Payment of deferred financing fees
(8,500
)
 

 
(5,848
)
 

 
(14,348
)
Distributions paid to noncontrolling interests

 
(401
)
 
(15,893
)
 

 
(16,294
)
Contributions from noncontrolling interests

 
513

 
2,031

 

 
2,544

Redemption of preferred units
(169,986
)
 

 

 

 
(169,986
)
Distributions paid to preferred unitholders
(26,125
)
 

 

 

 
(26,125
)
Distributions paid to common unitholders
(16,498
)
 

 

 

 
(16,498
)
Net proceeds from issuance of preferred capital - consolidated joint venture

 

 
1,744

 

 
1,744

Net proceeds from common stock issuance
198,651

 

 

 

 
198,651

Intercompany financing

 
(32,703
)
 
(106,821
)
 
139,524

 

Other
(68
)
 

 
(1,070
)
 

 
(1,138
)
Cash flows from financing activities
(92,979
)
 
(32,591
)
 
(243,097
)
 
139,524

 
(229,143
)
Effect of exchange rate changes on cash

 
(134
)
 

 

 
(134
)
Change in cash and cash equivalents
12,736

 
3,541

 
(6,513
)
 

 
9,764

Cash and cash equivalents at beginning of period
5,717

 
32,923

 
8,507

 

 
47,147

Cash and cash equivalents at end of period
$
18,453

 
$
36,464

 
$
1,994

 
$

 
$
56,911


35



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2014
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(50,911
)
 
$
71,441

 
$
67,135

 
$

 
$
87,665

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(409
)
 
(36,685
)
 
(28,453
)
 

 
(65,547
)
Hotel development

 

 
(63,381
)
 

 
(63,381
)
Net proceeds from asset sales
(1,091
)
 
13,998

 
107,084

 

 
119,991

Proceeds from unconsolidated joint venture transaction
3,154

 

 
878

 

 
4,032

Insurance proceeds

 
255

 

 

 
255

Change in restricted cash - investing

 
(1,783
)
 
44,747

 

 
42,964

Distributions from unconsolidated entities
6,052

 
4,606

 

 

 
10,658

Intercompany financing
328,666

 

 

 
(328,666
)
 

Cash flows from investing activities
336,372

 
(19,609
)
 
60,875

 
(328,666
)
 
48,972

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings

 

 
439,607

 

 
439,607

Repayment of borrowings
(236,738
)
 

 
(317,129
)
 

 
(553,867
)
Payment of deferred financing fees
(4
)
 

 
(3,048
)
 

 
(3,052
)
Acquisition of noncontrolling interest

 

 
(5,850
)
 

 
(5,850
)
Distributions paid to preferred unitholders
(29,034
)
 

 

 

 
(29,034
)
Distributions paid to common unitholders
(7,453
)
 

 

 

 
(7,453
)
Distributions paid to noncontrolling interests

 
(684
)
 
(7,950
)
 

 
(8,634
)
Contributions from noncontrolling interests

 
901

 
4,607

 

 
5,508

Net proceeds from issuance of preferred capital- consolidated joint venture

 

 
41,443

 

 
41,443

Intercompany financing

 
(46,510
)
 
(282,156
)
 
328,666

 

Other
(31
)
 

 
(757
)
 

 
(788
)
Cash flows from financing activities
(273,260
)
 
(46,293
)
 
(131,233
)
 
328,666

 
(122,120
)
Effect of exchange rate changes on cash

 
(52
)
 

 

 
(52
)
Change in cash and cash equivalents
12,201

 
5,487

 
(3,223
)
 

 
14,465

Cash and cash equivalents at beginning of period
5,227

 
33,283

 
7,135

 

 
45,645

Cash and cash equivalents at end of period
$
17,428

 
$
38,770

 
$
3,912

 
$

 
$
60,110



36


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

General
Revenue per available room, or RevPAR, for our 39 same-store hotels (which excludes The Knickerbocker) increased 7.0% in the third quarter of 2015 compared to the same period last year, driven by a 6.2% increase in average daily rate, or ADR, and a 0.7% increase in occupancy.
During the first nine months of 2015, we sold eight non-strategic hotels for aggregate gross proceeds of $192.0 million (representing our pro rata share), two of which were sold in the third quarter 2015. The sale of these properties completes our portfolio repositioning program.
We continually strive to increase long-term stockholder value. As part of this on-going pursuit, we look for opportunities to recycle capital that can be redeployed to achieve superior returns. In accordance with our strategy, our Board has approved the sale of four hotels (inclusive of selling a minority interest in one hotel), which we will begin marketing shortly. We are taking advantage of favorable current market pricing and expect these hotels to be sold at high multiples to current EBITDA. Net proceeds from future asset sales will be used to repurchase stock, fund high-ROI redevelopments, repay debt and fund other growth opportunities.
Our discussions have begun with Morgans Hotel Group regarding their management of our Morgans and Royalton hotels, and we will provide updates as appropriate.
During the first nine months of 2015, we completed the following balance sheet transactions:
In April 2015, we issued 18.4 million shares of our common stock for aggregate net proceeds of approximately $199 million (after deducting underwriting discounts and commissions and expenses).
In April 2015, we called all of our outstanding shares of 8% Series C Cumulative Redeemable Preferred Stock, or the Series C Preferred Stock, and all depositary shares representing the Series C Preferred Stock for redemption. We redeemed the shares of Series C Preferred Stock and the depositary shares on May 14, 2015 with proceeds from our April 2015 equity offering. Including accrued dividends ($491,000), the total redemption price was $170.4 million.
In May 2015, we issued $475 million aggregate principal amount of our 6.00% senior notes due 2025. We used the proceeds from that issuance, together with cash on hand and funds drawn under our line of credit, to repurchase and redeem $525 million aggregate principal amount of our 6.75% senior secured notes due 2019, which was secured by mortgages on six hotels.
In June 2015, we amended and restated our secured line of credit facility primarily to expand our borrowing capacity from $225 million to $400 million. The amended facility now matures in June 2020 (extended from June 2017), assuming we exercise a one-year extension option, which is subject to satisfaction of certain conditions. Borrowings under the facility bear interest at LIBOR (no floor) plus an applicable margin ranging from 225 to 275 basis points (reduced from 337.5 basis points), depending on our leverage. The facility is secured by mortgages on seven hotels and permits partial release and substitution of properties, subject to certain conditions. In connection with amending the facility, we repaid a $140 million term loan that otherwise matured in 2017 and was secured by mortgages on three hotels, including one hotel that is part of the security for the amended facility.

37


These transactions enable us to benefit from historically low interest rates (which reduced our cost of debt), as well as mitigate future market risk and further stagger our maturity profile.
The Knickerbocker, located in the heart of Times Square on the corner of 42nd Street and Broadway in New York City, opened on February 12, 2015. The newly-redeveloped hotel has 330 spacious guest rooms, including 31 suites, a state-of-the-art fitness center, a 2,200 square-foot event space, upscale food and dining options and a spectacular 7,500 square-foot rooftop bar and terrace with unrivaled views of New York City’s skyline. The 4-plus star luxury property is a member of The Leading Hotels of the World®.

Results of Operations
Comparison of the Three Months ended September 30, 2015 and 2014
For the three months ended September 30, 2015, we recorded a net loss of $8.1 million compared to net income of $73.6 million for the same period last year. Our 2015 net loss includes a $20.9 million impairment charge for one hotel, partially offset by a $3.6 million net gain on hotel sales (including $491,000 in discontinued operations). Our 2014 net income included a $29.6 million net gain on hotel sales (of which $24.4 million resulted from foreign currency translation previously recorded in accumulated other comprehensive income), a $30.2 million gain on the disposition of our interests in unconsolidated hotels and a $20.7 million gain on the fair value remeasurement of previously unconsolidated hotels. The 2014 gains were partially offset by a $5.9 million charge for a commercial dispute contingency (of which $3.7 million was subsequently recovered in the second quarter of 2015) and $4.7 million of debt extinguishment charges.
For the three months ended September 30, 2015:
Hotel operating revenue decreased $9.0 million, inclusive of a $22.2 million reduction in revenue for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, hotel operating revenue increased 6.7% from last year. The increase was driven by a 7.0% increase in same-store RevPAR, reflecting a 6.2% increase in ADR and a slight increase in occupancy. RevPAR for our Wyndham portfolio increased 13.0%, driven by a 12.2% increase in ADR and a slight increase in occupancy, which primarily reflects repositioning these hotels to upper-upscale.
Hotel departmental expenses decreased $4.2 million, inclusive of a $6.5 million reduction in expense for hotels that have been disposed of, are classified as held for sale or recently opened. Excluding these hotels, hotel departmental expenses decreased to 34.5% of hotel operating revenue in the current period from 35.6% last year. This reduction primarily reflects improved profitability margins for the rooms department, driven by increased ADR.
Other property-related costs decreased $3.5 million, inclusive of a $7.3 million reduction in expense for hotels that have been disposed of, are classified as held for sale or recently opened. Excluding these hotels, other property-related costs increased slightly to 24.8% of hotel operating revenue in the current period from 24.6% last year, primarily reflecting higher marketing costs.
Management and franchise fees decreased $494,000, inclusive of a $1.2 million reduction in expense for hotels that have been disposed of, are classified as held for sale or recently opened. Excluding these hotels, these costs remained flat as a percentage of hotel operating revenue compared to last year.
Taxes, insurance and lease expense decreased $6.3 million and decreased to 5.7% of hotel operating revenue in the current period as compared to 8.2% for last year. The decline primarily

38


reflects $3.9 million lower hotel lease expense resulting from unwinding our 10-hotel unconsolidated joint ventures and the sale of one hotel owned by an unconsolidated joint venture in the second quarter of 2015. Historically, we recorded hotel lease expense for 12 consolidated operating lessees and the corresponding lease income was recorded in equity in income from unconsolidated entities, with the hotel lease expense not eliminated in consolidation. We unwound the joint ventures in July 2014, and, as a result, we recorded lower percentage lease expense for the current period. Property tax expense also decreased from last year primarily due to the successful resolution of property tax appeals.
Corporate expenses decreased $1.8 million and decreased to 2.1% of hotel operating revenue for the current period as compared to 2.8% for last year. This decline primarily reflects the change in stock compensation expense associated with variable stock awards (triggered by an increase in our stock price during the three months ended September 30, 2014 as compared to a decrease in our stock price during the three months ended September 30, 2015) and a decrease in corporate bonus expense.
Depreciation and amortization expense increased $465,000, primarily attributable to depreciation recognized on The Knickerbocker, which opened in February 2015, partially offset by a decrease related to the sale of hotels.
Impairment loss for 2015 was $20.9 million resulting from a reduced estimated hold period for one hotel.
Other expenses decreased $3.9 million from the same period last year. This decrease is primarily attributable to a $5.9 million charge for a commercial dispute contingency recognized in 2014, and lower pre-opening costs incurred for The Knickerbocker in the current period as compared to the same period in 2014 (resulting from the opening of the hotel in February 2015), partially offset by $3.6 million in severance charges for certain FelCor officers recognized in the current period (compared to $426,000 last year related to hotel-level employees).
Net interest expense decreased $2.3 million, primarily reflecting lower outstanding debt and a lower blended interest rate for the period, partially offset by lower capitalized interest as we complete certain renovation and redevelopment projects, including The Knickerbocker.
Debt extinguishment. In 2014, we recorded $4.7 million in debt extinguishment charges related to repaying the remaining $234.0 million of our 10% senior secured notes, which were due in 2014, and repaying a $9.6 million loan in connection with the sale of a hotel.
Equity in income from unconsolidated entities decreased $1.0 million. The decrease is primarily due to the unwinding of our 10-hotel unconsolidated joint ventures in July 2014 and a decline in operations at one of our remaining unconsolidated joint ventures resulting from renovation related displacement.
Income tax expense increased approximately $1.0 million primarily due to changes in state apportionment factors, resulting from hotel asset sales, and full utilization of state net operating loss carryforwards.
Comparison of the Nine Months ended September 30, 2015 and 2014
For the nine months ended September 30, 2015, we recorded net income of $616,000 compared to net income of $83.7 million for the same period last year. Our 2015 net income includes debt extinguishment charges of $30.9 million and a $20.9 million impairment charge for one hotel, partially offset by a net gain on hotel sales of $19.9 million (including $407,000 in discontinued operations) and

39


$3.7 million in net revenue attributable to a favorable settlement of a commercial dispute. Additionally, during the current period, one of our unconsolidated joint ventures sold a hotel, the gain from which increased our equity in income from unconsolidated entities by $7.1 million. Our 2014 net income included a $51.0 million net gain on hotel sales (of which $24.4 million resulted from foreign currency translation previously recorded in accumulated other comprehensive income and $391,000 is included in discontinued operations), a $30.2 million gain on the disposition of our interests in unconsolidated hotels, and a $20.7 million gain on the fair value remeasurement of previously unconsolidated hotels. The 2014 gains were partially offset by a $5.9 million charge for a commercial dispute contingency (of which $3.7 million was subsequently recovered in the second quarter of 2015) and $5.0 million of debt extinguishment charges (including $245,000 in discontinued operations).
For the nine months ended September 30, 2015:
Hotel operating revenue decreased $38.9 million, inclusive of a $90.2 million reduction in revenue for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, hotel operating revenue increased 8.9% from last year. The increase was driven by a 9.0% increase in same-store RevPAR, reflecting a 6.4% increase in ADR and a 2.5% increase in occupancy. RevPAR for our Wyndham portfolio increased 17.0%, driven by an 11.7% increase in ADR and a 4.7% increase in occupancy which primarily reflects repositioning these hotels to upper-upscale.
Other revenue increased $4.0 million, which primarily reflects a favorable $3.7 million net settlement of a commercial dispute.
Hotel departmental expenses decreased $19.7 million, inclusive of a $28.7 million reduction in expense for hotels that have been disposed of, are classified as held for sale or recently opened. Excluding these hotels, hotel departmental expenses decreased to 34.8% of hotel operating revenue in the current period from 36.3% last year. This reduction primarily reflects improved profitability margins for the rooms department, driven by increased ADR. Additionally, we experienced an increase in banquet and catering operations compared to the prior year, which typically have higher margins than other food and beverage operations.
Other property-related costs decreased $13.4 million, inclusive of a $25.3 million reduction in expense for hotels that have been disposed of, are classified as held for sale or recently opened. Excluding these hotels, other property-related costs decreased slightly as a percentage of hotel operating revenue to 24.8% in the current period from 24.9% last year, primarily driven by ADR growth.
Management and franchise fees decreased $1.4 million, inclusive of a $4.2 million reduction in expense for hotels that have been disposed of, are classified as held for sale or recently opened. Excluding these hotels, these costs increased slightly to 4.0% of hotel operating revenue in the current period from 3.9% last year.
Taxes, insurance and lease expense decreased $25.3 million and decreased to 6.5% of hotel operating revenue in the current period as compared to 9.7% for last year. The decline primarily reflects $23.3 million lower hotel lease expense resulting from unwinding our 10-hotel unconsolidated joint ventures and the sale of one hotel owned by an unconsolidated joint venture in the second quarter of 2015. Historically, we recorded hotel lease expense for 12 consolidated operating lessees and the corresponding lease income was recorded in equity in income from unconsolidated entities, with the hotel lease expense not eliminated in consolidation. We unwound the joint ventures in July 2014, and, as a result, we recorded lower percentage lease expense for the current period. The decrease in the current period also reflects a net reduction in property tax expense resulting from the successful resolution of property tax appeals, partially offset by an increase in assessed property values, and a decline in insurance expense due to more

40


favorable property insurance rates and a successful claims experience in the current year. These reductions are partially offset by an increase in land lease expense, which to the extent our ground lease rent is tied to revenue, increases as revenue increases.
Corporate expenses decreased $2.1 million and decreased slightly as a percentage of hotel operating revenue from 3.1% to 2.9%. This decline primarily reflects the change in stock compensation expense associated with variable stock awards (triggered by an increase in our stock price during the nine months ended September 30, 2014 compared to a decrease in our stock price during the nine months ended September 30, 2015) and a decrease in corporate bonus expense.
Depreciation and amortization expense decreased $1.7 million primarily attributable to the sale of hotels, partially offset by depreciation recognized on The Knickerbocker.
Impairment loss for 2015 was $20.9 million resulting from a reduced estimated hold period for one hotel.
Other expenses decreased $2.4 million from the same period last year. This change from last year is primarily attributable to a $5.9 million charge for a commercial dispute contingency recognized in 2014, partially offset by $3.6 million in severance charges for certain FelCor officers recognized in the current period (compared to $827,000 last year related to hotel-level employees) and increased pre-opening costs incurred for The Knickerbocker in 2015, in conjunction with the February 2015 opening.
Net interest expense decreased $12.3 million, primarily reflecting lower outstanding debt and a lower blended interest rate for the period, offset by lower capitalized interest as we completed certain renovation and redevelopment projects, including The Knickerbocker.
Debt extinguishment. In the current period, we recorded $30.9 million in debt extinguishment charges (which includes a $10.5 million write-off of deferred loan costs), primarily related to redeeming our 6.75% senior secured notes due 2019. In 2014, we recorded $4.8 million in debt extinguishment charges related to repaying the remaining $234.0 million of our 10% senior secured notes, which were due in 2014, and repaying a $9.6 million loan in connection with the sale of a hotel.
Equity in income from unconsolidated entities increased $3.2 million. In the current period, one of our unconsolidated joint ventures sold a hotel, which increased our equity in income from unconsolidated entities by $7.1 million from the gain on sale. That increase was offset by lower income after we unwound our 10-hotel unconsolidated joint ventures in July 2014 and a decline in operations at one of our remaining unconsolidated joint ventures, resulting from renovation related displacement.
Income tax expense increased $912,000 primarily due to changes in state apportionment factors, resulting from hotel asset sales, and full utilization of state net operating loss carryforwards.


41


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.

42



Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)
 
Three Months Ended September 30,
 
2015
2014
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income (loss)
$
(8,133
)
 
 
 
 
 
$
73,570

 
 
 
 
Noncontrolling interests
288

 
 
 
 
 
(831
)
 
 
 
 
Preferred dividends
(6,279
)
 
 
 
 
 
(9,678
)
 
 
 
 
Preferred distributions - consolidated joint venture
(363
)





(348
)




Net income (loss) attributable to FelCor common stockholders
(14,487
)
 
 
 
 
 
62,713

 
 
 
 
Less: Dividends declared on unvested restricted stock
(13
)
 
 
 
 
 
(2
)
 
 
 
 
Less: Undistributed earnings allocated to unvested restricted stock

 
 
 
 
 
(48
)
 
 
 
 
Basic earnings per share data
(14,500
)
 
142,982

 
$
(0.10
)
 
62,663

 
124,168

 
$
0.50

Restricted stock units

 

 

 

 
1,358

 

Diluted earnings per share data
(14,500
)
 
142,982

 
(0.10
)
 
62,663

 
125,526

 
0.50

Depreciation and amortization
28,988

 

 
0.21

 
28,523

 

 
0.23

Depreciation, unconsolidated entities and other partnerships
471

 

 

 
1,021

 

 
0.01

Gain on sale of investment in unconsolidated entities, net

 

 

 
(30,184
)
 

 
(0.24
)
Gain from remeasurement of unconsolidated entities, net

 

 

 
(20,733
)
 

 
(0.17
)
Impairment loss
20,861

 

 
0.15

 

 

 

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(3,682
)
 

 
(0.03
)
 
(28,410
)
 

 
(0.23
)
Noncontrolling interests in FelCor LP
(61
)
 
611

 
(0.01
)
 
185

 
613

 

Dividends declared on unvested restricted stock
13

 

 

 
2

 

 

Undistributed earnings allocated to unvested restricted stock

 

 

 
48

 

 

Conversion of unvested restricted stock and units

 
1,205

 

 

 
26

 

FFO
32,090

 
144,798

 
0.22

 
13,115

 
126,165

 
0.10

Debt extinguishment
14

 

 

 
4,566

 

 
0.04

Debt extinguishment, unconsolidated entities

 

 

 
155

 

 

Contract dispute contingency

 

 

 
5,850

 

 
0.05

Severance costs
3,624

 

 
0.03

 
426

 

 

Variable stock compensation
(1,086
)
 

 
(0.01
)
 
201

 

 

Pre-opening costs, net of noncontrolling interests
1,079

 

 
0.01

 
2,346

 

 
0.02

Adjusted FFO
$
35,721

 
144,798


$
0.25


$
26,659


126,165


$
0.21


43


Reconciliation of Net Income to FFO and Adjusted FFO
(in thousands, except per share data)

 
Nine Months Ended September 30,
 
2015
2014
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income
$
616

 
 
 
 
 
$
83,689

 
 
 
 
Noncontrolling interests
(4,255
)
 
 
 
 
 
(965
)
 
 
 
 
Preferred distributions - consolidated joint venture
(1,070
)
 
 
 
 
 
(870
)
 
 
 
 
Redemption of preferred stock
(6,096
)
 
 
 
 
 

 
 
 
 
Preferred dividends
(23,860
)
 
 
 
 
 
(29,034
)
 
 
 
 
Net income (loss) attributable to FelCor common stockholders
(34,665
)
 
 
 
 
 
52,820

 
 
 
 
Less: Dividends declared on unvested restricted stock
(40
)
 
 
 
 
 
(5
)
 
 
 
 
Less: Undistributed earnings allocated to unvested restricted stock

 
 
 
 
 
(18
)
 
 
 
 
Basic earnings per share data
(34,705
)
 
136,009

 
$
(0.26
)
 
52,797

 
124,159

 
$
0.43

Restricted stock units

 

 

 

 
1,130

 
(0.01
)
Diluted earnings per share data
(34,705
)
 
136,009

 
(0.26
)
 
52,797

 
125,289

 
0.42

Depreciation and amortization
85,510

 

 
0.63

 
87,206

 

 
0.70

Depreciation, discontinued operations and unconsolidated entities
1,730

 

 
0.01

 
6,395

 

 
0.05

Gain on sale of investment in unconsolidated entities, net

 

 

 
(30,184
)
 

 
(0.24
)
Gain from remeasurement of unconsolidated entities, net

 

 

 
(20,733
)
 

 
(0.17
)
Impairment loss
20,861

 

 
0.15

 

 

 

Gain on sale of hotel in unconsolidated entity
(7,113
)
 

 
(0.05
)
 

 

 

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(14,931
)
 

 
(0.11
)
 
(49,771
)
 

 
(0.40
)
Other gains, net
(100
)
 

 

 
(100
)
 

 

Noncontrolling interests in FelCor LP
(150
)
 
611

 

 
135

 
615

 

Dividends declared on unvested restricted stock
40

 

 

 
5

 

 

Conversion of unvested restricted stock and units

 
1,173

 

 
18

 
12

 

FFO
51,142

 
137,793

 
0.37

 
45,768

 
125,916

 
0.36

Debt extinguishment, including discontinued operations, net of noncontrolling interests
30,909

 

 
0.22

 
4,843

 

 
0.04

Debt extinguishment, unconsolidated entities
330

 

 

 
155

 

 

Contract dispute contingency

 

 

 
5,850

 

 
0.05

Severance costs
3,624

 

 
0.03

 
829

 

 
0.01

Variable stock compensation
(161
)
 

 

 
1,620

 

 
0.01

Redemption of preferred stock
6,096

 

 
0.04

 

 

 

Contract dispute recovery
(3,717
)
 

 
(0.03
)
 

 

 

Pre-opening costs, net of noncontrolling interests
5,125

 

 
0.05

 
4,605

 

 
0.04

Adjusted FFO
$
93,348

 
137,793


$
0.68


$
63,670


125,916


$
0.51


44


Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(8,133
)
 
$
73,570

 
$
616

 
$
83,689

Depreciation and amortization
28,988

 
28,523

 
85,510

 
87,206

Depreciation, unconsolidated entities and other partnerships
471

 
1,021

 
1,730

 
6,395

Interest expense
19,608

 
21,935

 
59,379

 
71,685

Interest expense, discontinued operations and unconsolidated entities
96

 
290

 
439

 
1,681

Income taxes
1,392

 

 
1,392

 

Noncontrolling interests in other partnerships
227

 
(646
)
 
(4,405
)
 
(830
)
EBITDA
42,649

 
124,693

 
144,661

 
249,826

Impairment loss
20,861

 

 
20,861

 

Debt extinguishment, including discontinued operations, net of noncontrolling interests
14

 
4,566

 
30,909

 
4,843

Debt extinguishment, unconsolidated entities

 
155

 
330

 
155

Gain on sale of hotel in unconsolidated entity

 

 
(7,113
)
 

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(3,682
)
 
(28,410
)
 
(14,931
)
 
(49,771
)
Other gains, net

 

 
(100
)
 
(100
)
Gain on sale of investment in unconsolidated entities, net

 
(30,184
)
 

 
(30,184
)
Gain from remeasurement of unconsolidated entities, net

 
(20,733
)
 

 
(20,733
)
Contract dispute contingency

 
5,850

 

 
5,850

Amortization of fixed stock and directors’ compensation
1,652

 
2,198

 
5,214

 
4,490

Severance costs
3,624

 
426

 
3,624

 
829

Variable stock compensation
(1,086
)
 
201

 
(161
)
 
1,620

Contract dispute recovery

 

 
(3,717
)
 

Pre-opening costs, net of noncontrolling interests
1,079

 
2,346

 
5,125

 
4,605

Adjusted EBITDA
65,111

 
61,108

 
184,702

 
171,430

Adjusted EBITDA from hotels disposed, held for sale or recently opened
(1,604
)
 
(5,820
)
 
(6,867
)
 
(22,424
)
Same-store Adjusted EBITDA
$
63,507

 
$
55,288

 
$
177,835

 
$
149,006



45



Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Same-store operating revenue:
 
 
 
 
 
 
 
Room
$
168,862

 
$
157,888

 
$
482,670

 
$
442,871

Food and beverage
32,281

 
30,419

 
110,534

 
100,966

Other operating departments
11,628

 
11,190

 
33,848

 
31,995

Same-store operating revenue(a)
212,771

 
199,497

 
627,052

 
575,832

Same-store operating expense:
 
 
 
 
 
 
 
Room
41,821

 
40,378

 
120,030

 
114,918

Food and beverage
26,977

 
25,507

 
85,075

 
79,004

Other operating departments
4,536

 
5,152

 
13,005

 
15,120

Other property related costs
52,794

 
49,030

 
155,368

 
143,380

Management and franchise fees
8,800

 
8,108

 
25,340

 
22,494

Taxes, insurance and lease expense
10,904

 
13,057

 
37,155

 
38,232

Same-store operating expense(a)
145,832

 
141,232

 
435,973

 
413,148

Hotel EBITDA
$
66,939

 
$
58,265

 
$
191,079

 
$
162,684

Hotel EBITDA Margin
31.5
%
 
29.2
%
 
30.5
%
 
28.3
%

(a)
Excludes The Knickerbocker, which opened in February 2015.

46


Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Same-store operating revenue
$
212,771

 
$
199,497

 
$
627,052

 
$
575,832

Other revenue
1,678

 
1,607

 
7,142

 
3,170

Revenue from hotels disposed, held for sale and recently opened(a)
10,703

 
32,952

 
45,756

 
135,918

Total revenue
225,152

 
234,056

 
679,950

 
714,920

Same-store operating expense
145,832

 
141,232

 
435,973

 
413,148

Consolidated hotel lease expense(b)
1,524

 
5,537

 
5,762

 
29,224

Unconsolidated taxes, insurance and lease expense
(168
)
 
(994
)
 
(1,681
)
 
(5,347
)
Corporate expenses
4,672

 
6,442

 
19,775

 
21,914

Depreciation and amortization
28,988

 
28,523

 
85,510

 
87,206

Impairment loss
20,861

 

 
20,861

 

Expenses from hotels disposed, held for sale and recently opened(a)
9,073

 
25,082

 
38,085

 
100,869

Other expenses
5,807

 
9,746

 
11,446

 
13,874

Total operating expense
216,589

 
215,568

 
615,731

 
660,888

Operating income
$
8,563

 
$
18,488

 
$
64,219

 
$
54,032

(a)
Under GAAP, we include the operating performance for disposed, held for sale and recently opened hotels in continuing operations in our Consolidated Statements of Operations. 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.


47



FFO and EBITDA

The National Association of Real Estate Investment Trusts, or “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, conversion 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 and directors’ compensation, which is included in corporate expenses and is not separately stated on our statements of operations. Excluding amortization of our fixed stock and directors’ compensation maintains consistency with the EBITDA definition.

48


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 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
We 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. As we present them, these non-GAAP financial measures may not be comparable to similar non-GAAP financial measures as presented 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. We compensate 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. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.


49


Pro Rata Share of Rooms Owned

The following table sets forth, at September 30, 2015, our pro rata share of hotel rooms after giving consideration to the portion of rooms attributed to our partners in our consolidated and unconsolidated joint ventures:
 
Hotels
 
Room Count at September 30, 2015
Consolidated Hotels(a)
40

 
 
12,272

 
Unconsolidated hotel operations
1

 
 
171

 
Total hotels
41

 
 
12,443

 
 
 
 
 
 
 
    50% joint ventures
2

 
 
(216
)
 
    95% joint venture
1

 
 
(17
)
 
Pro rata rooms attributed to joint venture partners
 
 
 
(233
)
 
Pro rata share of rooms owned
 
 
 
12,210

 

(a) Includes The Knickerbocker, which opened in February 2015.


50


Hotel Portfolio Composition
The following table illustrates the distribution of same-store hotels.
 
 
 
 
 
 
 
 
Year Ended December 31, 2014
Brand
 
Hotels
 
Rooms
 
Hotel Operating Revenue
(in thousands)
 
Hotel EBITDA
(in thousands)(a)
Embassy Suites Hotels
18

 
 
4,982

 
 
$
282,866

 
 
$
94,990

 
Wyndham and Wyndham Grand
8

 
 
2,528

 
 
125,354

 
 
43,122

 
Renaissance and Marriott
3

 
 
1,321

 
 
128,770

 
 
26,086

 
DoubleTree by Hilton and Hilton
3

 
 
802

 
 
45,383

 
 
15,483

 
Sheraton
2

 
 
673

 
 
39,639

 
 
10,622

 
Fairmont
1

 
 
383

 
 
53,451

 
 
10,010

 
Holiday Inn
2

 
 
968

 
 
51,511

 
 
8,966

 
Morgans and Royalton
2

 
 
285

 
 
33,895

 
 
3,314

 
Same-store hotels(b)
39

 
 
11,942

 
 
$
760,869

 
 
$
212,593

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco area
5

 
 
1,903

 
 
$
139,692

 
 
$
39,466

 
Boston
3

 
 
916

 
 
85,670

 
 
21,832

 
South Florida
3

 
 
923

 
 
55,561

 
 
17,007

 
Los Angeles
2

 
 
481

 
 
28,696

 
 
12,404

 
Myrtle Beach
2

 
 
640

 
 
41,149

 
 
12,218

 
Philadelphia
2

 
 
728

 
 
38,680

 
 
9,630

 
Tampa
1

 
 
361

 
 
49,358

 
 
9,301

 
New York area
3

 
 
546

 
 
48,456

 
 
7,259

 
Other markets
18

 
 
5,444

 
 
273,607

 
 
83,476

 
Same-store hotels(b)
39

 
 
11,942

 
 
$
760,869

 
 
$
212,593

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
 
 
 
 
 
 
 
 
 
 
 
Urban
17

 
 
5,310

 
 
$
360,177

 
 
$
97,584

 
Resort
9

 
 
2,733

 
 
203,370

 
 
51,679

 
Airport
8

 
 
2,621

 
 
136,144

 
 
43,204

 
Suburban
5

 
 
1,278

 
 
61,178

 
 
20,126

 
Same-store hotels(b)
39

 
 
11,942

 
 
$
760,869

 
 
$
212,593

 
(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 this Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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)
Excludes The Knickerbocker, which opened in February 2015.

51


Hotel Operating Statistics
The following tables set forth occupancy, ADR and RevPAR for the three and nine months ended September 30, 2015 and 2014, and the percentage changes therein for the periods presented, for our same-store hotels.
Operating Statistics by Brand
 
Occupancy (%)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2015
 
2014
 
%Variance
 
2015
 
2014
 
%Variance
Embassy Suites Hotels
82.9

 
81.5

 
1.7

 
 
82.4

 
80.0

 
3.0

 
Wyndham and Wyndham Grand
79.4

 
78.9

 
0.7

 
 
76.5

 
73.1

 
4.7

 
Renaissance and Marriott
68.7

 
70.0

 
(1.9
)
 
 
73.8

 
74.0

 
(0.3
)
 
DoubleTree by Hilton and Hilton
85.0

 
81.9

 
3.8

 
 
78.9

 
76.4

 
3.2

 
Sheraton
77.1

 
79.1

 
(2.4
)
 
 
71.2

 
70.4

 
1.1

 
Fairmont
86.7

 
85.0

 
2.1

 
 
77.6

 
75.9

 
2.3

 
Holiday Inn
84.6

 
86.5

 
(2.2
)
 
 
78.9

 
78.8

 
0.2

 
Morgans and Royalton
89.5

 
89.8

 
(0.4
)
 
 
83.8

 
86.8

 
(3.4
)
 
Same-store hotels (39)(a)
80.8

 
80.3

 
0.7

 
 
78.9

 
77.0

 
2.5

 
 
ADR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2015
 
2014
 
%Variance
 
2015
 
2014
 
%Variance
Embassy Suites Hotels
177.63

 
167.65

 
6.0

 
 
176.27

 
165.46

 
6.5

 
Wyndham and Wyndham Grand
179.78

 
160.19

 
12.2

 
 
175.91

 
157.44

 
11.7

 
Renaissance and Marriott
217.22

 
207.35

 
4.8

 
 
235.17

 
224.11

 
4.9

 
DoubleTree by Hilton and Hilton
162.11

 
155.89

 
4.0

 
 
162.91

 
157.57

 
3.4

 
Sheraton
151.89

 
153.46

 
(1.0
)
 
 
147.80

 
146.57

 
0.8

 
Fairmont
337.92

 
319.97

 
5.6

 
 
323.51

 
303.03

 
6.8

 
Holiday Inn
205.51

 
192.61

 
6.7

 
 
180.62

 
164.50

 
9.8

 
Morgans and Royalton
290.70

 
294.02

 
(1.1
)
 
 
281.49

 
296.60

 
(5.1
)
 
Same-store hotels (39)(a)
190.19

 
179.06

 
6.2

 
 
187.60

 
176.37

 
6.4

 
 
RevPAR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2015
 
2014
 
%Variance
 
2015
 
2014
 
%Variance
Embassy Suites Hotels
147.22

 
136.57

 
7.8

 
 
145.18

 
132.36

 
9.7

 
Wyndham and Wyndham Grand
142.70

 
126.31

 
13.0

 
 
134.62

 
115.10

 
17.0

 
Renaissance and Marriott
149.30

 
145.21

 
2.8

 
 
173.45

 
165.75

 
4.6

 
DoubleTree by Hilton and Hilton
137.82

 
127.71

 
7.9

 
 
128.53

 
120.46

 
6.7

 
Sheraton
117.15

 
121.31

 
(3.4
)
 
 
105.22

 
103.23

 
1.9

 
Fairmont
293.13

 
271.87

 
7.8

 
 
251.11

 
230.03

 
9.2

 
Holiday Inn
173.83

 
166.52

 
4.4

 
 
142.57

 
129.55

 
10.1

 
Morgans and Royalton
260.12

 
264.03

 
(1.5
)
 
 
235.84

 
257.33

 
(8.4
)
 
Same-store hotels (39)(a)
153.70

 
143.71

 
7.0

 
 
148.05

 
135.85

 
9.0

 

(a)
Excludes The Knickerbocker, which opened in February 2015.

52


Hotel Operating Statistics by Market
 
Occupancy (%)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2015
 
2014
 
%Variance
 
2015
 
2014
 
%Variance
San Francisco area
90.7

 
 
90.4

 
 
0.3

 
 
87.3

 
 
82.6

 
 
5.7

 
Boston
86.4

 
 
86.1

 
 
0.4

 
 
78.8

 
 
77.7

 
 
1.5

 
South Florida
79.3

 
 
76.4

 
 
3.8

 
 
85.4

 
 
84.1

 
 
1.6

 
Los Angeles area
85.9

 
 
86.0

 
 
(0.1
)
 
 
83.7

 
 
84.6

 
 
(1.1
)
 
Myrtle Beach
87.8

 
 
87.9

 
 
(0.2
)
 
 
73.3

 
 
70.8

 
 
3.5

 
Philadelphia
73.2

 
 
77.2

 
 
(5.1
)
 
 
66.8

 
 
69.9

 
 
(4.4
)
 
Tampa
77.3

 
 
74.2

 
 
4.2

 
 
83.4

 
 
81.7

 
 
2.1

 
New York area
85.4

 
 
86.9

 
 
(1.7
)
 
 
80.2

 
 
82.2

 
 
(2.4
)
 
Other markets
76.2

 
 
75.1

 
 
1.4

 
 
76.3

 
 
74.0

 
 
3.2

 
Same-store hotels (39)(a)
80.8

 
 
80.3

 
 
0.7

 
 
78.9

 
 
77.0

 
 
2.5

 
 
ADR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2015
 
 
2014
 
%Variance
 
2015
 
 
2014
 
%Variance
San Francisco area
249.58

 
 
235.29

 
 
6.1

 
 
225.67

 
 
210.81

 
 
7.0

 
Boston
275.74

 
 
254.94

 
 
8.2

 
 
256.50

 
 
235.23

 
 
9.0

 
South Florida
130.71

 
 
123.87

 
 
5.5

 
 
170.85

 
 
161.23

 
 
6.0

 
Los Angeles area
212.65

 
 
191.06

 
 
11.3

 
 
190.69

 
 
174.46

 
 
9.3

 
Myrtle Beach
191.85

 
 
185.24

 
 
3.6

 
 
165.58

 
 
163.72

 
 
1.1

 
Philadelphia
166.50

 
 
143.71

 
 
15.9

 
 
167.00

 
 
143.55

 
 
16.3

 
Tampa
173.53

 
 
167.93

 
 
3.3

 
 
213.32

 
 
197.24

 
 
8.2

 
New York area
242.71

 
 
243.04

 
 
(0.1
)
 
 
237.74

 
 
246.95

 
 
(3.7
)
 
Other markets
155.47

 
 
146.42

 
 
6.2

 
 
161.05

 
 
151.82

 
 
6.1

 
Same-store hotels (39)(a)
190.19

 
 
179.06

 
 
6.2

 
 
187.60

 
 
176.37

 
 
6.4

 
 
RevPAR ($)
 
Three Months Ended
 
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
 
September 30,
 
 
 
 
2015
 
 
2014
 
%Variance
 
2015
 
 
2014
 
%Variance
San Francisco area
226.30

 
 
212.62

 
 
6.4

 
 
196.94

 
 
174.03

 
 
13.2

 
Boston
238.17

 
 
219.42

 
 
8.5

 
 
202.09

 
 
182.66

 
 
10.6

 
South Florida
103.68

 
 
94.67

 
 
9.5

 
 
145.95

 
 
135.60

 
 
7.6

 
Los Angeles area
182.71

 
 
164.31

 
 
11.2

 
 
159.70

 
 
147.66

 
 
8.2

 
Myrtle Beach
168.42

 
 
162.89

 
 
3.4

 
 
121.32

 
 
115.85

 
 
4.7

 
Philadelphia
121.91

 
 
110.90

 
 
9.9

 
 
111.57

 
 
100.34

 
 
11.2

 
Tampa
134.20

 
 
124.61

 
 
7.7

 
 
177.95

 
 
161.08

 
 
10.5

 
New York area
207.29

 
 
211.13

 
 
(1.8
)
 
 
190.71

 
 
203.05

 
 
(6.1
)
 
Other markets
118.46

 
 
110.01

 
 
7.7

 
 
122.95

 
 
112.30

 
 
9.5

 
Same-store hotels (39)(a)
153.70

 
 
143.71

 
 
7.0

 
 
148.05

 
 
135.85

 
 
9.0

 
(a)
Excludes The Knickerbocker, which opened in February 2015.


53



Hotel Portfolio

The following table sets forth certain descriptive information regarding the hotels in which we held ownership interest at September 30, 2015.
Consolidated Hotels
 
 State
Rooms
 % Owned(a)

 
Embassy Suites Birmingham
 AL
242
 
 
Embassy Suites Phoenix-Biltmore
 AZ
232
 
 
Renaissance Esmeralda Indian Wells Resort & Spa
 CA
560
 
 
Embassy Suites Los Angeles-International Airport/South
 CA
349
 
 
Embassy Suites Mandalay Beach-Hotel & Resort
 CA
250
 
 
Embassy Suites Milpitas-Silicon Valley
 CA
266
 
 
Embassy Suites Napa Valley
 CA
205
 
 
Wyndham San Diego Bayside
 CA
600
 
 
Embassy Suites San Francisco Airport-Waterfront
 CA
340
 
 
Embassy Suites San Francisco Airport-South San Francisco
 CA
312
 
 
Holiday Inn San Francisco-Fisherman’s Wharf
 CA
585
 
 
San Francisco Marriott Union Square
 CA
400
 
 
Wyndham Santa Monica At the Pier
 CA
132
 
 
Embassy Suites Deerfield Beach-Resort & Spa
 FL
244
 
 
Embassy Suites Fort Lauderdale-17th Street
 FL
361
 
 
Embassy Suites Miami-International Airport
 FL
318
 
 
DoubleTree Suites by Hilton Orlando-Lake Buena Vista
 FL
229
 
 
Embassy Suites Orlando-International Drive South/Convention Center
 FL
244
 
 
The Vinoy Renaissance St. Petersburg Resort & Golf Club
 FL
361
 
 
Embassy Suites Atlanta-Buckhead
 GA
316
 
 
Wyndham New Orleans-French Quarter
 LA
374
 
 
The Fairmont Copley Plaza, Boston
 MA
383
 
 
Wyndham Boston Beacon Hill
 MA
304
 
 
Embassy Suites Boston-Marlborough
 MA
229
 
 
Embassy Suites Minneapolis-Airport
 MN
310
 
 
Embassy Suites Secaucus-Meadowlands
 NJ
261
50
%
 
The Knickerbocker
 NY
330
95
%
 
Morgans New York
 NY
117
 
 
Royalton New York
 NY
168
 
 
Sheraton Philadelphia Society Hill Hotel
 PA
364
 
 
Wyndham Philadelphia Historic District
 PA
364
 
 
Wyndham Pittsburgh University Center
 PA
251
 
 
The Mills House Wyndham Grand Hotel, Charleston
 SC
216
 
 
Embassy Suites Myrtle Beach-Oceanfront Resort
 SC
255
 
 
Hilton Myrtle Beach Resort
 SC
385
 
 
Holiday Inn Nashville Airport
 TN
383
 
 
DoubleTree Suites by Hilton Austin
 TX
188
 
 
Embassy Suites Dallas-Love Field
 TX
248
 
 
Wyndham Houston-Medical Center Hotel & Suites
 TX
287
 
 
Sheraton Burlington Hotel & Conference Center
 VT
309
 
 
 
 
 
 
 
Unconsolidated Hotel
 
 
 
 
Chateau LeMoyne-French Quarter, New Orleans (A Holiday Inn Hotel)
 LA
171
50
%
 
(a)
We own 100% of each hotel, except where otherwise noted.

54


Liquidity and Capital Resources
Operating Activities
RevPAR growth for the lodging industry continues to be above the long-term average. For the nine months ended September 30, 2015, RevPAR at our same-store hotels increased 9.0%, driven by a 6.4% increase in ADR and a 2.5% increase in occupancy. We expect RevPAR for these hotels will outperform the industry, increase 8.75-9.0% during 2015 (primarily from higher ADR), and our operations will generate $157.0 million to $161.0 million of cash flow this year.
During the first nine months of 2015, our operations (primarily hotel operations) provided $114.1 million in cash, $26.4 million more than the same period last year. This increase primarily reflects improved operations this year, offset by $8 million received in 2014 from Wyndham under its annual net operating income guaranties (for 2013) compared to $1 million received this year (for 2014), as well as a net $2.1 million payment made in the current year for a commercial contract dispute. Additionally, we paid less interest in the current year than in the same period last year.
At September 30, 2015, we had $56.9 million of cash and cash equivalents, including $35.4 million held by third-party management companies.
Investing Activities
During the nine months ended September 30, 2015, we had $125.0 million of cash provided by investing activities compared to $49.0 million provided during the same period last year. During the nine months ended September 30, 2015, we sold hotels for $190.0 million in aggregate net proceeds. Our restricted cash increased $4.2 million during the current period compared to a $43.0 million reduction of restricted cash during the same period last year, as we used restricted cash in 2014 to fund redevelopment of The Knickerbocker. So far this year, compared to the same period last year, we have spent $29.6 million less on renovations at our hotels and $31.8 million less on our hotel development project resulting from the wind-down of certain capital and development projects.
Through September 30, 2015, we have spent $163.2 million (excluding initial acquisition costs and capitalized interest) to redevelop The Knickerbocker, a 4-plus star hotel that opened in February 2015.
For renovations and redevelopment projects (other than The Knickerbocker), we expect to spend approximately $45 million this year, funded from operating cash flow, cash on hand and borrowings under our line of credit. In addition, we expect to invest approximately $33 million this year at The Knickerbocker, funded primarily by proceeds from the construction loan.
Since December 2010, we have sold 40 non-strategic hotels for aggregate gross proceeds of $844 million (representing our pro rata share) and have disposed of our 50% interests in five non-strategic hotels by unwinding certain joint ventures. We sold eight hotels in 2015, thereby completing our portfolio repositioning program.

55


Financing Activities
During the nine months ended September 30, 2015, cash used in financing activities increased by $107.0 million compared to the same period last year. During the current period:
We amended and restated our secured line of credit facility to increase aggregate lender commitments to $400 million from $225 million (which resulted in payment of $5.8 million of related deferred financing fees), as well as extend the facility’s maturity to 2020 (assuming we satisfy certain conditions and exercise a one-year extension option) and reduced the applicable interest rate spread by 62.5 basis points. At September 30, 2015, we had $200 million drawn and outstanding under that facility.

We issued $475 million of our 6.0% senior notes due 2025 (which resulted in payment of $8.5 million of related deferred financing fees) and used all of the net proceeds, together with cash on hand and funds drawn under our line of credit, to repurchase and redeem $525 million (face value) of our outstanding 6.75% senior secured notes due 2019.

We used funds drawn under our line of credit to repay a $140 million secured loan that would have otherwise matured in 2017.

We used asset sale proceeds to repay $62.1 million of other secured debt.

We issued 18.4 million shares of our common stock for net proceeds of approximately $199 million.

We used proceeds from selling shares of our common stock to redeem all of our outstanding shares of 8% Series C Cumulative Preferred Stock for an aggregate redemption price of $170.4 million (including $491,000 of accrued dividends), thereby significantly reducing our recurring preferred dividend expense.

We received $1.7 million of additional net proceeds from The Knickerbocker consolidated joint venture’s sale of preferred equity interests pursuant to the EB-5 Immigrant Investor Program.

We increased our distributions to non-controlling interest holders during the first nine months of 2015 to $16.3 million, primarily due to the sale of a hotel in a consolidated joint venture.
In 2015, we expect to pay approximately $2 million of scheduled principal payments, $32 million of preferred dividends and $22 million in common dividends (assuming no change to our current quarterly dividend rate), all of which will be funded from operating cash flow and cash on hand.
Our Board of Directors declared, and we paid, a $0.04 per share quarterly common stock dividend in April, July, and October of 2015.
Our Board approved a stock repurchase program in October 2015. Under the program, we may repurchase up to $100 million of our common stock over the next two years. We may repurchase shares from time to time in transactions on the open market, in privately-negotiated transactions or by other means, including Rule 10b5-1 trading plans. There is no guaranty as to the number of shares that will be repurchased (if any), and we may extend, suspend or discontinue our repurchase program at any time without notice at our discretion. Repurchased shares will be re-designated as authorized but unissued. We have not yet purchased any shares under the program.

56


Financing Activities (continued)
FelCor LP, which is our operating partnership, distributes funds to FelCor to pay common or preferred dividends. Our Board determines the amount of 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 5.625% senior secured notes due 2023 and our line of credit, our secured 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 freely prepayable, (subject in some instances to various prepayment, yield maintenance or defeasance obligations).
Most of our secured debt (other than our 5.625% senior secured notes and our line of credit) is subject to lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves, even if revenues are flowing through a lock-box triggered by a specified debt service coverage ratio not being 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, which are guaranteed by FelCor, 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. In addition, our 5.625% senior secured notes are secured by a combination of first lien mortgages and related security interests on nine hotels, as well as pledges of equity interests in certain subsidiaries of FelCor LP, and the 6.0% senior unsecured notes require us to maintain at least a minimum amount of unencumbered assets.

Interest Rate Caps. To fulfill requirements under one of our loans, we entered into an interest rate cap agreement with an aggregate notional amount of $140 million at September 30, 2015 and December 31, 2014. This interest rate cap was not designated as a hedge and had an insignificant fair value at September 30, 2015 and December 31, 2014, resulting in no significant impact on earnings.

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.


57



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.


58


Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
At September 30, 2015, approximately 81% 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 September 30, 2015
(dollars in thousands)
 
Expected Maturity Date
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
 
Fair Value
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
1,277

 
$
2,652

 
$
2,810

 
$
2,954

 
$
3,106

 
$
1,140,972

 
$
1,153,771

 
$
1,172,802

Average
  interest rate
4.95
%
 
4.95
%
 
4.95
%
 
4.95
%
 
4.95
%
 
5.70
%
 
5.69
%
 
 

Floating-rate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Debt

 
64,861

 

 

 
200,000

 

 
264,861

 
265,235

Average
  interest rate (a)

 
4.35
%
 

 

 
4.51
%
 

 
4.47
%
 
 

Total debt
$
1,277

 
$
67,513

 
$
2,810

 
$
2,954

 
$
203,106

 
$
1,140,972

 
$
1,418,632

 
 

Average
   interest rate
4.95
%
 
4.37
%
 
4.95
%
 
4.95
%
 
4.51
%
 
5.70
%
 
5.46
%
 
 

Net discount
 

 
 
 
 
 
 
 
 
 
 

 

 
 

  Total debt
 

 
 
 
 
 
 
 
 
 
 

 
$
1,418,632

 
 

(a)
The average floating interest rate considers the implied forward rates in the yield curve at September 30, 2015.

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.

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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
 
Severance Agreement by and between FelCor Lodging Trust Incorporated and Michael A. DeNicola (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated April 4, 2015).

 
 
 
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.

----------------------
*Filed herewith

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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 September 30, 2015 and December 31, 2014; (ii) FelCor’s Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014; (iii) FelCor’s Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014; (iv) FelCor’s Consolidated Statements of Changes in Equity for the nine months ended September 30, 2015 and 2014; (v) FelCor’s Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014; (vi) FelCor LP’s Consolidated Balance Sheets at September 30, 2015 and December 31, 2014; (vii) FelCor LP’s Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014; (viii) FelCor LP’s Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014; (ix) FelCor LP’s Consolidated Statements of Partners’ Capital for the nine months ended September 30, 2015 and 2014; (x) FelCor LP’s Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014; 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.

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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
 
a Maryland Corporation
 
 
 
 
 
 
 
 
Date: October 30, 2015
 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: October 30, 2015
By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Controller


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