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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005
 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 333-3959-01
 FelCor Lodging Limited Partnership  Delaware
    
    75-2544994(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or
    
    Identification No.)organization)545 E. John Carpenter Freeway, Suite 1300, Irving, Texas
    
    75062(Address of principal executive offices)
    
    (Zip Code)
 (972) 444-4900
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all 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. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). o Yes þ No




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FELCOR LODGING LIMITED PARTNERSHIP INDEX PagePART I.  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets March 31, 2005 and December 31, 2004 (unaudited)
    
    
    3Consolidated Statements of Operations  For the Three Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    4Consolidated Statements of Comprehensive Loss  For the Three Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    5Consolidated Statements of Cash Flows  For the Three Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21General
    
    
    21Financial Comparison
    
    
    21Results of Operations
    
    
    22Non-GAAP Financial Measures
    
    
    23Hotel Portfolio Composition
    
    
    28Hotel Operating Statistics
    
    
    29Liquidity and Capital Resources
    
    
    31Inflation
    
    
    35Seasonality
    
    
    35Disclosure Regarding Forward-Looking Statements
    
    
    35Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II.  OTHER INFORMATIONItem 6. Exhibits
    
    

    38SIGNATURE
    
    
    39Certification of CEO Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of Principal Financial Officer Pursuant to Section 906
 2




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PART I.  FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 FELCOR LODGING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands) March 31,
    
    
    December 31,2005
    
    
    2004ASSETSInvestment in hotels, net of accumulated depreciation of $966,080 at
March 31, 2005 and $948,631 at December 31, 2004
    
    $
    2,913,827
    
    
    $
    2,955,766Investment in unconsolidated entities
    
    
    111,078
    
    
    
    110,843Hotels held for sale
    
    
    38,329
    
    
    
    255Cash and cash equivalents
    
    
    125,506
    
    
    
    119,310Restricted cash
    
    
    26,086
    
    
    
    34,736Accounts receivable, net of allowance for doubtful accounts of $782 at
March 31, 2005 and $905 at December 31, 2004
    
    
    59,198
    
    
    
    51,845Deferred expenses, net of accumulated amortization of $15,768 at March
31, 2005 and $14,935 at December 31, 2004
    
    
    17,670
    
    
    
    18,804Other assets
    
    
    26,575
    
    
    
    26,099Total assets
    
    $
    3,318,269
    
    
    $
    3,317,658LIABILITIES AND PARTNERS CAPITALDebt, net of discount of $4,240 at March 31, 2005 and $4,529 at
December 31, 2004
    
    $
    1,762,209
    
    
    $
    1,767,122Distributions payable
    
    
    8,867
    
    
    
    8,867Accrued expenses and other liabilities
    
    
    147,338
    
    
    
    124,922Minority interest in other partnerships
    
    
    47,215
    
    
    
    46,765Total liabilities
    
    
    1,965,629
    
    
    
    1,947,676Commitments and contingenciesRedeemable units at redemption value, 2,788 units issued and
outstanding at March 31, 2005 and December 31, 2004
    
    
    34,657
    
    
    
    40,846Preferred units, $.01 par value, 20,000 units authorized:Series A Cumulative Convertible Preferred Units, 12,880 units
issued and outstanding at March 31, 2005 and December 31, 2004
    
    
    309,362
    
    
    
    309,362Series B Cumulative Redeemable Preferred Units, 68 units issued and
outstanding at March 31, 2005 and December 31, 2004
    
    
    169,395
    
    
    
    169,395Common units, 59,845 and 59,817 units issued and outstanding at March
31, 2005 and December 31, 2004, respectively
    
    
    822,064
    
    
    
    834,599Accumulated other comprehensive income
    
    
    17,162
    
    
    
    15,780Total partners capital
    
    
    1,317,983
    
    
    
    1,329,136Total liabilities, redeemable units and partners capital
    
    $
    3,318,269
    
    
    $
    3,317,658
 The accompanying notes are an integral part of these consolidated financial statements. 3




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FELCOR LODGING LIMITED PARTNERSHIP 
 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2005 and 2004
(unaudited, in thousands, except for per unit data) Three Months EndedMarch 31,2005
    
    
    2004Revenues:Hotel operating revenue
    
    $
    299,798
    
    
    $
    285,502Retail space rental and other revenue
    
    
    156
    
    
    
    245Total revenues
    
    
    299,954
    
    
    
    285,747Expenses:Hotel departmental expenses
    
    
    103,846
    
    
    
    101,660Other property related costs
    
    
    89,787
    
    
    
    84,811Management and franchise fees
    
    
    15,116
    
    
    
    14,678Taxes, insurance and lease expense
    
    
    31,135
    
    
    
    30,226Corporate expenses
    
    
    4,544
    
    
    
    3,386Depreciation
    
    
    30,054
    
    
    
    28,944Asset disposition costs
    
    
    1,300
    
    
    
    Total operating expenses
    
    
    275,782
    
    
    
    263,705Operating income
    
    
    24,172
    
    
    
    22,042Interest expense, net
    
    
    (33,241
    )
    
    
    (41,124
    )Charge-off of deferred financing costs
    
    
    
    
    
    
    (230
    )Loss before equity in income from
unconsolidated entities and minority interests
    
    
    (9,069
    )
    
    
    (19,312
    )Equity in income from unconsolidated entities
    
    
    1,131
    
    
    
    982Minority interests
    
    
    129
    
    
    
    (71
    )Loss from continuing operations
    
    
    (7,809
    )
    
    
    (18,401
    )Discontinued operations
    
    
    (1,048
    )
    
    
    (3,705
    )Net loss
    
    
    (8,857
    )
    
    
    (22,106
    )Preferred distributions
    
    
    (10,091
    )
    
    
    (6,726
    )Net loss applicable to common unitholders
    
    $
    (18,948
    )
    
    $
    (28,832
    )Basic and diluted per common unit data:Net loss from continuing operations
    
    $
    (0.29
    )
    
    $
    (0.41
    )Net loss
    
    $
    (0.30
    )
    
    $
    (0.47
    )Weighted average units outstanding
    
    
    62,204
    
    
    
    61,970
 The accompanying notes are an integral part of these consolidated financial statements. 4




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FELCOR LODGING LIMITED PARTNERSHIP 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Three Months Ended March 31, 2005 and 2004
(unaudited, in thousands) Three Months EndedMarch 31,2005
    
    
    2004Net loss
    
    $
    (8,857
    )
    
    $
    (22,106
    )Unrealized gain on swaps
    
    
    1,627
    
    
    
    Foreign currency translation adjustment
    
    
    (244
    )
    
    
    (461
    )Comprehensive loss
    
    $
    (7,474
    )
    
    $
    (22,567
    )
 The accompanying notes are an integral part of these consolidated financial statements. 5




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FELCOR LODGING LIMITED PARTNERSHIP 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(unaudited, in thousands) Three Months EndedMarch 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (8,857
    )
    
    $
    (22,106
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation
    
    
    30,497
    
    
    
    30,894Gain on sale of assets
    
    
    (20
    )
    
    
    (272
    )Amortization of deferred financing fees
    
    
    839
    
    
    
    1,309Accretion of debt, net of discount
    
    
    288
    
    
    
    190Amortization of unearned compensation
    
    
    597
    
    
    
    503Equity in income from unconsolidated entities
    
    
    (1,131
    )
    
    
    (982
    )Distributions of income from unconsolidated entities
    
    
    150
    
    
    
    271Asset disposition costs
    
    
    1,300
    
    
    
    Impairment loss
    
    
    559
    
    
    
    Charge-off of deferred financing costs
    
    
    
    
    
    
    230Minority interests
    
    
    (129
    )
    
    
    71Changes in assets and liabilities:Accounts receivable
    
    
    (7,348
    )
    
    
    (12,055
    )Restricted
cash - operations
    
    
    82
    
    
    
    (693
    )Other assets
    
    
    1,261
    
    
    
    5,186Accrued expenses and other liabilities
    
    
    20,059
    
    
    
    3,590Net cash flow provided by operating activities
    
    
    38,147
    
    
    
    6,136Cash flows (used in) provided by investing activities:Acquisition of hotel
    
    
    
    
    
    
    (27,759
    )Improvements and additions to hotels
    
    
    (26,723
    )
    
    
    (12,297
    )Proceeds from sale of assets
    
    
    385
    
    
    
    28,828Increase in
restricted cash - investing
    
    
    8,568
    
    
    
    375Capital contributions to unconsolidated entities
    
    
    (700
    )
    
    
    Distributions of capital from unconsolidated entities
    
    
    1,446
    
    
    
    1,255Net cash flow used in investing activities
    
    
    (17,024
    )
    
    
    (9,598
    )Cash flows (used in) provided by financing activities:Repayment of borrowings
    
    
    (5,201
    )
    
    
    (4,183
    )Payment of deferred financing fees
    
    
    (52
    )
    
    
    (149
    )Contributions from minority interest holders
    
    
    579
    
    
    
    Preferred unit offering expenses
    
    
    (155
    )
    
    
    Distributions paid to preferred unitholders
    
    
    (10,091
    )
    
    
    (6,726
    )Net cash flow used in financing activities
    
    
    (14,920
    )
    
    
    (11,058
    )Effect of exchange rate changes on cash
    
    
    (7
    )
    
    
    (368
    )Net change in cash and cash equivalents
    
    
    6,196
    
    
    
    (14,888
    )Cash and cash equivalents at beginning of periods
    
    
    119,310
    
    
    
    231,885Cash and cash equivalents at end of periods
    
    $
    125,506
    
    
    $
    216,997Supplemental
cash flow information -
Interest paid
    
    $
    16,685
    
    
    $
    45,448
 The accompanying notes are an integral part of these consolidated financial statements. 6




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FELCOR LODGING LIMITED PARTNERSHIP 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization In 1994, FelCor Lodging Limited Partnership, or FelCor LP, was established with six hotels.
At March 31, 2005, we held ownership interests in 148 hotels and at March 31, 2004, we held
ownership interests in 163 hotels. Our sole general partner is FelCor Lodging Trust Incorporated,
or FelCor, is one of the nations largest lodging Real Estate Investment Trusts, or REITs, based on
total assets and number of hotels owned. At March 31, 2005, FelCor owned an approximately 95%
equity interest in our operations. We are the owner of the largest number of Embassy Suites
Hotels®, Crowne Plaza® and independently owned Doubletree®-branded
hotels in North America. Our portfolio includes 69 full service, all suite hotels. At March 31, 2005, we had ownership interests in 148 hotels. We owned a 100% real estate
interest in 111 hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest
in an entity owning two hotels, a 51% interest in an entity owning eight hotels and 50% interests
in unconsolidated entities that own 20 hotels. As a result of our ownership interests in the
operating lessees of 143 of these hotels, we reflect their operating revenues and expenses in our
consolidated statements of operations. The operations of 141 of the 143 consolidated hotels were
included in continuing operations at March 31, 2005. The remaining two hotels were subject to firm
sale contracts at March 31, 2005, and their operations were included in discontinued operations.
The operating revenues and expenses of the remaining five hotels are unconsolidated. At March 31, 2005, we had an aggregate of 62,632,739 redeemable and common units of FelCor LP
partnership interest outstanding. The following table reflects the distribution, by brand, of the 141 hotels included in our
consolidated continuing operations at March 31, 2005: Brand
    
    Hotels
    
    
    RoomsEmbassy Suites Hotels
    
    
    55
    
    
    
    13,982Doubletree and Doubletree Guest Suites®
    
    
    10
    
    
    
    2,206Holiday Inn®  branded
    
    
    39
    
    
    
    12,769Crowne Plaza and Crowne Plaza Suites®
    
    
    12
    
    
    
    4,025Sheraton® and Sheraton Suites®
    
    
    10
    
    
    
    3,269Other brands
    
    
    15
    
    
    
    3,251Total hotels
    
    
    141
 The hotels shown in the above table are located in the United States (31 states) and Canada
(two hotels), with concentrations in Texas (31 hotels), California (19 hotels), Florida (16 hotels)
and Georgia (14 hotels). Approximately 59% of our hotel room revenues were generated from hotels
in these four states during the three months ended March 31, 2005. At March 31, 2005, of the 141 consolidated hotels included in continuing operations, (i)
subsidiaries of Hilton Hotels Corporation, or Hilton, managed 65, (ii) subsidiaries of
InterContinental Hotels Group, or IHG, managed 54 (iii) subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc., or Starwood, managed 11, (iv) subsidiaries of Interstate Hotels & Resorts, or
Interstate, managed 10, and (v) an independent management company manages one. Certain reclassifications have been made to prior period financial information to conform to
the current periods presentation with no effect on previously reported net loss or partners
capital. 7




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization 3⁄4 (continued) The financial information for the three months ended March 31, 2005 and 2004, is unaudited.
The preparation of the 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 months ended March 31, 2005 and 2004, include adjustments based on managements estimates
(consisting of normal and recurring accruals), which we consider necessary for a fair presentation
of the results for the periods. The financial information should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2004, included in our Annual
Report on Form 10-K for the year ended December 31, 2004 (Form 10-K). Operating results for the
three months ended March 31, 2005, are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2005. 2. Foreign Currency Translation Results of operations for our Canadian hotels are maintained in Canadian dollars and
translated using the average exchange rates during the period. Assets and liabilities are
translated to U.S. dollars using the exchange rates in effect at the balance sheet date. Resulting
translation adjustments are reflected in accumulated other comprehensive income included in
partners capital. 3. Investment in Unconsolidated Entities We owned 50% interests in joint venture entities that owned 20 hotels at March 31, 2005, and
December 31, 2004. We also owned a 50% interest in entities that own real estate in Myrtle Beach,
South Carolina, provide condominium management services, and lease four hotels. We account for our
investments in these unconsolidated entities under the equity method. We do not have any
majority-owned subsidiaries that are not consolidated in our financial statements. We make
adjustments to our equity in income from unconsolidated entities related to the difference between
our basis in investment in unconsolidated entities compared to the historical basis of the assets
recorded by the joint ventures. Summarized unaudited combined financial information for 100% of these unconsolidated entities
is as follows (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Balance sheet information:Investment in hotels, net of accumulated depreciation
    
    $
    271,814
    
    
    $
    282,028Total assets
    
    $
    295,234
    
    
    $
    313,104Debt
    
    $
    216,489
    
    
    $
    218,292Total liabilities
    
    $
    219,012
    
    
    $
    237,597Equity
    
    $
    76,222
    
    
    $
    75,507
 Debt of our unconsolidated entities at March 31, 2005, included $216 million of non-recourse
mortgage debt. 8




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Investment in Unconsolidated Entities  (continued) Summarized combined statement of operations information for 100% of our unconsolidated
entities is as follows (in thousands): Three Months Ended March 31,2005
    
    
    2004Total revenues
    
    $
    16,229
    
    
    $
    14,318Net income
    
    $
    2,888
    
    
    $
    2,706
 4. Debt Debt at March 31, 2005 and December 31, 2004, consists of the following (in thousands): Balance OutstandingEncumbered
    
    
    Interest Rate at
    
    
    Maturity
    
    
    March 31,
    
    
    December 31,Hotels
    
    
    March 31, 2005
    
    
    Date
    
    
    2005
    
    
    2004Promissory note
    
    none
    
    
    4.72
    (a)
    
    June 2016
    
    $
    650
    
    
    $
    650Senior unsecured term notes
    
    none
    
    
    7.63
    
    
    October 2007
    
    
    122,659
    
    
    
    122,426Senior unsecured term notes
    
    none
    
    
    9.00
    
    
    June 2011
    
    
    298,472
    
    
    
    298,409Senior unsecured term notes
    
    none
    
    
    7.19
    (b)
    
    June 2011
    
    
    290,000
    
    
    
    290,000Total unsecured debt
    
    
    
    
    
    
    8.02
    
    
    
    
    
    
    
    711,781
    
    
    
    711,485Mortgage debt
    
    9 hotels
    
    
    6.52
    
    
    July 2009 - 2014
    
    
    105,623
    
    
    
    105,951Mortgage debt
    
    6 hotels
    
    
    4.74
    (c)
    
    August 2007
    
    
    85,964
    
    
    
    86,412Mortgage debt
    
    10 hotels
    
    
    5.13
    (c)
    
    May 2006
    
    
    143,792
    
    
    
    144,669Mortgage debt
    
    15 hotels
    
    
    7.24
    
    
    Nov. 2007
    
    
    126,528
    
    
    
    127,316Mortgage debt
    
    7 hotels
    
    
    7.32
    
    
    April 2009
    
    
    129,713
    
    
    
    130,458Mortgage debt
    
    6 hotels
    
    
    7.55
    
    
    June 2009
    
    
    67,700
    
    
    
    67,959Mortgage debt
    
    8 hotels
    
    
    8.70
    
    
    May 2010
    
    
    174,742
    
    
    
    175,504Mortgage debt
    
    7 hotels
    
    
    8.73
    
    
    May 2010
    
    
    135,283
    
    
    
    135,690Mortgage debt
    
    1 hotel
    
    
    5.81
    (a)
    
    August 2008
    
    
    15,500
    
    
    
    15,500Mortgage debt
    
    1 hotel
    
    
    7.23
    
    
    September 2005
    
    
    10,380
    
    
    
    10,521Mortgage debt
    
    8 hotels
    
    
    7.48
    
    
    April 2011
    
    
    49,244
    
    
    
    49,476Other
    
    1 hotel
    
    
    9.17
    
    
    August 2011
    
    
    5,959
    
    
    
    6,181Total secured debt(d)
    
    79 hotels
    
    
    7.14
    
    
    
    
    
    
    
    1,050,428
    
    
    
    1,055,637Total(d)
    
    
    
    
    
    
    7.50
    %
    
    
    
    
    
    $
    1,762,209
    
    
    $
    1,767,122
   (a)
    
    Variable interest rate based on LIBOR. The six month LIBOR was 2.6% at March 31,
2005.(b)
    
    Variable interest rate based on LIBOR, however $100 million of these notes were
matched with interest rate swap agreements that effectively converted the variable
interest rate to a fixed rate of 7.8%.(c)
    
    Variable interest rate based on LIBOR. This debt may be extended at our option
for up to two, one-year periods, subject to meeting certain conditions.(d)
    
    Interest rates are calculated based on the weighted average outstanding debt at
March 31, 2005. We reported interest expense net of interest income of $0.6 million and $0.7 million and
capitalized interest of $0.6 million and $0.1 million for the three months ended March 31, 2005 and
2004, respectively. At March 31, 2005, we had aggregate mortgage indebtedness of approximately $1.0 billion that
was secured by 79 of our consolidated hotels with an aggregate book value of approximately $1.8
billion. Substantially all of this debt is recourse solely to the specific assets securing the
debt, except in the case of fraud, misapplication of funds and other customary recourse provisions.
Loans secured by 41 hotels provide for lock-box arrangements. With respect to loans secured by 23
of these hotels, if the debt service coverage ratios fall below certain levels, the lender is
entitled to apply the revenues from the hotels securing the loan to satisfy current requirements
for debt 9




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Debt 3⁄4 (continued) service, taxes, insurance and other reserves, before the balance of the revenues, if any, would be
available to the owner to pay the expenses of hotel operations and provide a return to the owner.
Eight of these 23 hotels, which accounted for 2% of our total revenues in 2004, are currently below
the prescribed debt service coverage ratios and are subject to these lock-box requirements. During
the second quarter, we expect to complete the process of surrendering these eight limited service
hotels, owned by a consolidated joint venture with Interstate Hotels & Resorts, to their
non-recourse mortgage holders at which time the consolidated debt balance of $49 million will be
extinguished. In asset disposition costs on the income statement, we recorded $1.3 million in estimated disposition costs in the first quarter related
to these hotels. The remaining 15 hotels are not currently subject to the lock-box requirements. With respect to loans secured by the remaining 18 hotels, the owner is permitted to retain
115% of budgeted hotel operating expenses before the remaining revenues would become subject to a
similar lock-box arrangement if a specified debt service coverage ratio was not met. The mortgage
loans secured by 16 of these 18 hotels also provide that, so long as the debt service coverage
ratios remain below a second, even lower minimum level, the lender may retain any excess cash
(after deduction for the 115% of budgeted operating expenses, debt service, tax, insurance and
other reserve requirements) and, if the debt service coverage ratio remains below this lower
minimum level for 12 consecutive months, apply any accumulated excess cash to the prepayment of the
principal amount of the debt. If the debt service coverage ratio exceeds the lower minimum level
for three consecutive months, any then accumulated excess cash will be returned to the owner. Ten
of these 18 hotels, which accounted for 6% of our total revenues in 2004, fell below the applicable
debt service coverage ratio in 2004 and are currently subject to the lock-box provisions. None of
the hotels are currently below the second, even lower minimum debt service coverage ratio that
would permit the lender to retain excess cash after deduction for the 115% of budgeted operating
expenses, debt service, tax, insurance and other reserve requirements. 5. Derivatives In the normal course of business, we are exposed to the effect of interest rate changes. We
limit these risks by following established risk management policies and procedures, including the
use of derivatives. It is our objective to use interest rate hedges to manage our fixed and
floating interest rate position and not to engage in speculation on interest rates. We manage
interest rate risk based on the varying circumstances of anticipated borrowings and existing
floating and fixed rate debt. We will generally seek to pursue interest rate risk mitigation
strategies that will result in the least amount of reported earnings volatility under GAAP while
still meeting strategic economic objectives and maintaining adequate liquidity and flexibility.
Instruments that meet these hedging criteria are formally designated as hedges at the inception of
the derivative contract. To determine the fair values of our derivative instruments, we use a variety of methods and
assumptions that are based on market conditions and risks existing at each balance sheet date. All
methods of assessing fair value result in a general approximation of value, and such value may
never actually be realized. At March 31, 2005, we had three interest rate swaps with an aggregate notional amount of $100
million, maturing in December 2007. These interest rate swaps are designated as cash flow hedges
and are marked to market through other comprehensive income. The estimated unrealized net gain on
these interest rate swap agreements was approximately $1.8 million at March 31, 2005, and
represents the amount we would receive if the agreements were terminated, based on current market
rates. The interest rate received on these interest rate swaps is 4.25% plus LIBOR and the
interest rate paid is 7.80%. These swaps were 100% effective through March 31, 2005. 10




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amounts paid or received by us under the terms of the interest rate swap agreements are
accrued as interest rates change, and we recognize them as an adjustment to interest expense, which
will have a corresponding effect on our future cash flows. The interest rate swaps increased interest expense by $0.2
million during the three months ended March 31, 2005. 11




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Derivatives  (continued) Our interest rate swaps have monthly to semi-annual settlement dates. Agreements such as
these contain a credit risk in that the counterparties may be unable to fulfill the terms of the
agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are
limited to major banks and financial institutions, and we do not anticipate nonperformance by the
counterparties. The Standard & Poors credit ratings for each of the financial institutions that
are counterparties to our interest rate swap agreements are AA- or better. Fair value hedges with a notional amount of $400 million were outstanding during the first
quarter 2004. These fair value hedges decreased interest by $2.8 million during the three months
ended March 31, 2004 and were subsequently unwound during the second and third quarters of 2004. To fulfill requirements under the $150 million secured loan facility executed in April 2003,
we purchased 6% interest rate caps with a notional amount of $143.8 million. We concurrently sold
interest rate caps with identical terms. In July 2004, we purchased 6.5% interest rate caps on
LIBOR with a notional amount of $87 million to fulfill requirements under an $87 million
cross-collateralized floating rate CMBS loan and concurrently sold interest rate caps with
identical terms. These interest rate cap agreements have not been designated as hedges. The fair
value of both the purchased and sold interest rate caps was $0.05 million at March 31, 2005,
resulting in no net earnings impact. 6. Preferred Units On April 8, 2005, FelCor completed the issuance of 5.4 million depositary shares, each
representing 1/100 of a share of its 8% Series C Cumulative Redeemable Preferred Stock, with gross
proceeds of $135 million. FelCor contributed the gross proceeds to FelCor LP in exchange for newly
issued Series C preferred units. The preference on these units is the same as FelCors Series C
preferred stock. The gross proceeds were used to redeem a like number of units of our 9% Series B
Cumulative Redeemable Preferred Units held by FelCor. FelCor then took the proceeds from the sale
of its 9% Series B Cumulative Redeemable Preferred Units to us and redeemed a like number of shares
of its 9% Series B Cumulative Redeemable Preferred Stock. The redemption of the Series B preferred
units will result in a second quarter 2005 reduction in income available to common unitholders of
$5.2 million as a result of the write-off of the original issuance cost of the Series B preferred
units redeemed. 7. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs Hotel operating revenue from continuing operations was comprised of the following (in
thousands): Three Months EndedMarch 31,2005
    
    
    2004Room revenue
    
    $
    242,490
    
    
    $
    229,271Food and beverage revenue
    
    
    42,410
    
    
    
    41,063Other operating departments
    
    
    14,898
    
    
    
    15,168Total hotel operating revenue
    
    $
    299,798
    
    
    $
    285,502
 Over 99% of our revenue in the quarter ended March 31, 2005 and 2004 was comprised of hotel
operating revenues, which included room revenue, food and beverage revenue, and revenue from other
hotel operating departments (such as telephone, parking and business centers). These revenues are
recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts
are recorded, when allowed, as a reduction in revenue, and there are no material contingent
obligations with respect to rebates or discounts offered by us. All revenues are recorded on an
accrual basis, as earned. Appropriate allowances are made for doubtful accounts and are recorded
as a bad debt expense. The remaining 1% of our revenue was from retail space rental revenue and
other sources in the quarter ended March 31, 2005 and 2004. 12




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  7.
    Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs 
(continued) Hotel departmental expenses from continuing operations were comprised of the following: Three Months Ended March 31,2005
    
    
    2004% of Total
    
    
    
    
    
    
    % of TotalHotel
    
    
    
    
    
    
    HotelDollars in
    
    
    Operating
    
    
    Dollars in
    
    
    OperatingThousands
    
    
    Revenue
    
    
    Thousands
    
    
    RevenueRoom
    
    $
    62,961
    
    
    
    21.0
    
    
    $
    61,031
    
    
    
    21.4Food and beverage
    
    
    33,516
    
    
    
    11.2
    
    
    
    33,093
    
    
    
    11.6Other operating departments
    
    
    7,369
    
    
    
    2.4
    
    
    
    7,536
    
    
    
    2.6Total hotel departmental expenses
    
    $
    103,846
    
    
    
    34.6
    
    
    $
    101,660
    
    
    
    35.6
 Other property operating costs from continuing operations were comprised of the following: Three Months Ended March 31,2005
    
    
    2004% of Total
    
    
    
    
    
    
    % of TotalHotel
    
    
    
    
    
    
    HotelDollars in
    
    
    Operating
    
    
    Dollars in
    
    
    OperatingThousands
    
    
    Revenue
    
    
    Thousands
    
    
    RevenueHotel general and administrative expense
    
    $
    29,149
    
    
    
    9.7
    
    
    $
    27,730
    
    
    
    9.7Marketing
    
    
    26,679
    
    
    
    8.9
    
    
    
    25,344
    
    
    
    8.9Repair and maintenance
    
    
    17,397
    
    
    
    5.8
    
    
    
    16,764
    
    
    
    5.9Energy
    
    
    16,562
    
    
    
    5.5
    
    
    
    14,973
    
    
    
    5.2Total other property operating costs
    
    $
    89,787
    
    
    
    29.9
    
    
    $
    84,811
    
    
    
    29.7
 Included in hotel departmental expenses and other property operating costs are hotel employee
compensation and benefit expenses of $98 million and $94 million for the three months ended March
31, 2005 and 2004, respectively. 8. Taxes, Insurance and Lease Expense Taxes, insurance and lease expense from continuing operations is comprised of the following
(in thousands): Three Months Ended March 31,2005
    
    
    2004Operating lease expense (a)
    
    $
    14,994
    
    
    $
    14,317Real estate and other taxes
    
    
    12,726
    
    
    
    12,214Property insurance, general liability insurance and other
    
    
    3,415
    
    
    
    3,695Total taxes, insurance and lease expense
    
    $
    31,135
    
    
    $
    30,226
   (a)
    
    Includes lease expense associated with 15 hotels owned by unconsolidated entities.
Included in lease expense are $5.6 million and $4.7 million in percentage rent for the
three months ended March 31, 2005 and 2004, respectively. 13




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Impairment Our hotels are comprised of operations and cash flows that can clearly be distinguished, both
operationally and for financial reporting purposes. Accordingly, we consider our hotels to be
components as defined by Statement of Financial Accounting Standards 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, or SFAS 144, for purposes of determining impairment
charges and reporting discontinued operations. We recorded impairment charges under the provisions
of the SFAS 144 of $0.6 million during the first quarter with respect to assets held for sale and
included in discontinued operations at March 31, 2005. The impairment charges included in
discontinued operations provide for estimated selling costs, including termination fees related to
our management and franchise agreements. We continue to review and evaluate our hotel portfolio on an ongoing basis and may identify
additional non-strategic hotels for sale based upon various factors. If we decide to sell
additional hotels, we could incur future impairment charges. 10. Discontinued Operations Included in discontinued operations are the results of operations of the 18 hotels sold or
otherwise disposed of in 2004, one hotel sold in January 2005, and two hotels designated as held
for sale at March 31, 2005. Condensed financial information for the hotels included in
discontinued operations is as follows (in thousands): Three Months EndedMarch 31,2005
    
    
    2004Hotel operating revenue
    
    $
    3,203
    
    
    $
    29,869Hotel operating expenses
    
    
    3,712
    
    
    
    28,949Operating income (loss)
    
    
    (509
    )
    
    
    920Direct interest costs
    
    
    
    
    
    
    3Impairment loss
    
    
    (559
    )
    
    
    Asset disposition costs
    
    
    
    
    
    
    (4,900
    )Gain on sale of assets
    
    
    20
    
    
    
    272Loss from discontinued operations
    
    $
    (1,048
    )
    
    $
    (3,705
    )
 In January 2005, we sold the Holiday Inn Salt Lake City, and in April 2005, one of the hotels
held for sale at March 31, 2005 (Whispering Woods Conference Center in Olive Branch, Mississippi),
was sold. These hotels were sold for gross proceeds of $10 million. During 2004, we sold 17 hotels for gross proceeds of $157 million. Also in 2004, we
terminated a hotel lease and incurred $4.9 million in lease termination charges upon the return of
the asset to the lessor. 14




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Earnings (Loss) Per Unit The following table sets forth the computation of basic and diluted loss per unit (in
thousands, except per unit data): Three Months EndedMarch 31,2005
    
    
    2004Numerator:Loss from continuing operations
    
    $
    (7,809
    )
    
    $
    (18,401
    )Less: Preferred distributions
    
    
    (10,091
    )
    
    
    (6,726
    )Loss from continuing operations applicable to unitholders
    
    $
    (17,900
    )
    
    $
    (25,127
    )Discontinued operations
    
    
    (1,048
    )
    
    
    (3,705
    )Net loss applicable to unitholders
    
    $
    (18,948
    )
    
    $
    (28,832
    )Denominator:Denominator for basic earnings per unit
    
    
    62,204
    
    
    
    61,970Denominator for diluted earnings per unit  adjusted
weighted average units and assumed conversions
    
    
    62,204
    
    
    
    61,970Loss per unit data:Basic:Loss from continuing operations
    
    $
    (0.29
    )
    
    $
    (0.41
    )Discontinued operations
    
    
    (0.01
    )
    
    
    (0.06
    )Net loss
    
    $
    (0.30
    )
    
    $
    (0.47
    )Diluted:Loss from continuing operations
    
    $
    (0.29
    )
    
    $
    (0.41
    )Discontinued operations
    
    
    (0.01
    )
    
    
    (0.06
    )Net loss
    
    $
    (0.30
    )
    
    $
    (0.47
    )
 Securities that could potentially dilute basic earnings per unit in the future and that were
not included in the computation of diluted earnings per unit, because they would have been
antidilutive for the periods presented, are as follows (in thousands): Three Months EndedMarch 31,2005
    
    
    2004FelCor restricted shares granted but not vested
    
    
    421
    
    
    
    201Series A preferred units
    
    
    9,985
    
    
    
    4,636
 Series A preferred distributions that would be excluded from net loss applicable to
unitholders, if these Series A preferred units were dilutive, were $6.3 million and $2.9 million
for the three months ended March 31, 2005 and 2004, respectively. 15




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. FelCor Stock Based Compensation Plans FelCor applies Accounting Principles Board Opinion 25, or APB 25, and related interpretations
in accounting for its stock based compensation plans for stock based compensation issued prior to
January 1, 2003. In 1995, Statement of Financial Accounting Standards 123, Accounting for
Stock-Based Compensation, or SFAS 123 was issued, which, if fully adopted by us, would have
changed the methods we apply in recognizing the cost of the plans. As permitted under the
transition provisions of Statement of Financial Accounting Standards 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, FelCor began recognizing compensation
expense in accordance with SFAS 123 for all new awards issued after December 31, 2002. Had the
compensation cost for FelCors stock-based 16




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Stock Based Compensation Plans  (continued) compensation plans been determined in accordance with SFAS 123 prior to January 1, 2003, our net
income or loss and net income or loss per unit for the periods presented would approximate the pro
forma amounts below (in thousands, except per unit data): Three Months EndedMarch 31,2005
    
    
    2004Loss from continuing operations, as reported
    
    $
    (7,809
    )
    
    $
    (18,401
    )Add stock based compensation included in the net loss, as reported
    
    
    597
    
    
    
    503Less stock based compensation expense that would have been
included in the determination of net loss if the fair value
method had been applied to all awards
    
    
    (600
    )
    
    
    (510
    )Loss from continuing operations, pro forma
    
    $
    (7,812
    )
    
    $
    (18,408
    )Basic and diluted net loss per unit:As reported
    
    $
    (0.29
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.29
    )
    
    $
    (0.41
    )
 The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future
amounts. 13. Recently Issued Statements of Financial Accounting Standards In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R, which is a
revision of SFAS No. 123. SFAS No. 123R supersedes APB 25 and its related implementation guidance.
SFAS No. 123R requires companies to record compensation expense for share-based payments to
employees, including grants of employee stock options, at fair value. Based on the issuance of a
recent ruling by the Securities and Exchange Commission, SFAS No. 123R is effective for most public
companies at the beginning of the first annual period beginning after June 15, 2005. We do not believe
that the implementation of the provisions of SFAS No. 123R will have a material impact on our
financial position or results of operations. 14. Subsequent Events At March 31, 2005, we were in the process of surrendering eight limited service hotels, owned
by a consolidated joint venture, to their non-recourse mortgage holders. On May 3, 2005, three of
the eight hotels were transferred to the lender and the remaining hotels are expected to be
transferred before the end of the second quarter. Upon the transfer of the remaining hotels the
full $49 million of consolidated debt associated with these hotels will be extinguished. 15. Condensed Consolidating Financial Information Certain of our wholly-owned subsidiaries (FelCor/CSS Holdings, L.P.; FelCor/CSS
Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels, L.L.C.; FelCor/St. Paul Holdings,
L.P.; FelCor/LAX Holdings, L.P.; FHAC Nevada Holdings, L.L.C.; FelCor TRS Holdings, L.P.; Kingston
Plantation Development Corp.; FHAC Texas Holdings, L.P.; FelCor Omaha Hotel Company, L.L.C.; FelCor
Country Villa Hotel, L.L.C.; FelCor Moline Hotel, L.L.C.; FelCor Canada Co. and FelCor Hotel Asset
Company, L.L.C., collectively, Subsidiary Guarantors), together with FelCor and one of its
wholly-owned subsidiaries (FelCor Nevada Holdings, L.L.C.), are guarantors of senior unsecured term notes. The
following tables present consolidating information for the Subsidiary Guarantors. 17




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Consolidating Financial Information - (continued) CONSOLIDATING BALANCE SHEET
March 31, 2005
(in thousands) Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSNet investment in hotel properties
    
    $
    163,766
    
    
    $
    1,006,065
    
    
    $
    1,743,996
    
    
    $
    
    
    
    $
    2,913,827Equity investment in consolidated entities
    
    
    1,773,819
    
    
    
    
    
    
    
    
    
    
    
    (1,773,819
    )
    
    
    Investment in unconsolidated entities
    
    
    78,747
    
    
    
    32,331
    
    
    
    
    
    
    
    
    
    
    
    111,078Assets held for sale
    
    
    29,591
    
    
    
    8,738
    
    
    
    
    
    
    
    
    
    
    
    38,329Cash and cash equivalents
    
    
    73,871
    
    
    
    46,424
    
    
    
    5,211
    
    
    
    
    
    
    
    125,506Restricted cash
    
    
    6,941
    
    
    
    2,333
    
    
    
    16,812
    
    
    
    
    
    
    
    26,086Accounts receivable
    
    
    6,510
    
    
    
    52,680
    
    
    
    8
    
    
    
    
    
    
    
    59,198Deferred assets
    
    
    8,552
    
    
    
    1,157
    
    
    
    7,961
    
    
    
    
    
    
    
    17,670Other assets
    
    
    8,457
    
    
    
    18,051
    
    
    
    67
    
    
    
    
    
    
    
    26,575Total assets
    
    $
    2,150,254
    
    
    $
    1,167,779
    
    
    $
    1,774,055
    
    
    $
    (1,773,819
    )
    
    $
    3,318,269LIABILITIES AND PARTNERS CAPITALDebt
    
    $
    776,797
    
    
    $
    159,280
    
    
    $
    826,132
    
    
    $
    
    
    
    $
    1,762,209Distributions payable
    
    
    8,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,867Accrued expenses and other liabilities
    
    
    11,833
    
    
    
    119,133
    
    
    
    16,372
    
    
    
    
    
    
    
    147,338Minority interest  other partnerships
    
    
    117
    
    
    
    113
    
    
    
    46,985
    
    
    
    
    
    
    
    47,215Total liabilities
    
    
    797,614
    
    
    
    278,526
    
    
    
    889,489
    
    
    
    
    
    
    
    1,965,629Redeemable units, at redemption value
    
    
    34,657
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,657Preferred units
    
    
    478,757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,757Common units
    
    
    837,452
    
    
    
    873,865
    
    
    
    884,566
    
    
    
    (1,773,819
    )
    
    
    822,064Accumulated other comprehensive income
    
    
    1,774
    
    
    
    15,388
    
    
    
    
    
    
    
    
    
    
    
    17,162Total partners capital
    
    
    1,317,983
    
    
    
    889,253
    
    
    
    884,566
    
    
    
    (1,773,819
    )
    
    
    1,317,983Total liabilities, redeemable
units and partners capital
    
    $
    2,150,254
    
    
    $
    1,167,779
    
    
    $
    1,774,055
    
    
    $
    (1,773,819
    )
    
    $
    3,318,269
 18




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Consolidating Financial Information 3⁄4 (continued) CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2004
(in thousands) Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSNet investment in hotel properties
    
    $
    193,625
    
    
    $
    1,015,607
    
    
    $
    1,746,534
    
    
    $
    
    
    
    $
    2,955,766Equity investment in consolidated entities
    
    
    1,765,320
    
    
    
    
    
    
    
    
    
    
    
    (1,765,320
    )
    
    
    Investment in unconsolidated entities
    
    
    76,190
    
    
    
    34,653
    
    
    
    
    
    
    
    
    
    
    
    110,843Assets held for sale
    
    
    
    
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    255Cash and cash equivalents
    
    
    84,829
    
    
    
    29,387
    
    
    
    5,094
    
    
    
    
    
    
    
    119,310Restricted cash
    
    
    9,287
    
    
    
    2,195
    
    
    
    23,254
    
    
    
    
    
    
    
    34,736Accounts receivable
    
    
    8,050
    
    
    
    43,787
    
    
    
    8
    
    
    
    
    
    
    
    51,845Deferred assets
    
    
    8,917
    
    
    
    1,218
    
    
    
    8,669
    
    
    
    
    
    
    
    18,804Other assets
    
    
    9,852
    
    
    
    16,185
    
    
    
    62
    
    
    
    
    
    
    
    26,099Total assets
    
    $
    2,156,070
    
    
    $
    1,143,287
    
    
    $
    1,783,621
    
    
    $
    (1,765,320
    )
    
    $
    3,317,658LIABILITIES AND PARTNERS CAPITALDebt
    
    $
    776,790
    
    
    $
    160,337
    
    
    $
    829,995
    
    
    $
    
    
    
    $
    1,767,122Distributions payable
    
    
    8,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,867Accrued expenses and other liabilities
    
    
    (764
    )
    
    
    106,047
    
    
    
    19,639
    
    
    
    
    
    
    
    124,922Minority interest  other partnerships
    
    
    1,195
    
    
    
    (5,353
    )
    
    
    50,923
    
    
    
    
    
    
    
    46,765Total liabilities
    
    
    786,088
    
    
    
    261,031
    
    
    
    900,557
    
    
    
    
    
    
    
    1,947,676Redeemable units, at redemption value
    
    
    40,846
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,846Preferred units
    
    
    478,757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,757Common units
    
    
    850,379
    
    
    
    866,476
    
    
    
    883,064
    
    
    
    (1,765,320
    )
    
    
    834,599Accumulated other comprehensive income
    
    
    
    
    
    
    15,780
    
    
    
    
    
    
    
    
    
    
    
    15,780Total partners capital
    
    
    1,329,136
    
    
    
    882,256
    
    
    
    883,064
    
    
    
    (1,765,320
    )
    
    
    1,329,136Total liabilities, redeemable
units and partners capital
    
    $
    2,156,070
    
    
    $
    1,143,287
    
    
    $
    1,783,621
    
    
    $
    (1,765,320
    )
    
    $
    3,317,658
 19




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Consolidating Financial Information 3⁄4 (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2005
(in thousands) Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Hotel operating revenue
    
    $
    
    
    
    $
    299,798
    
    
    $
    
    
    
    $
    
    
    
    $
    299,798Percentage lease revenue
    
    
    7,674
    
    
    
    
    
    
    
    57,339
    
    
    
    (65,013
    )
    
    
    Other revenue
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Total revenue
    
    
    7,830
    
    
    
    299,798
    
    
    
    57,339
    
    
    
    (65,013
    )
    
    
    299,954Expenses:Hotel operating expense
    
    
    
    
    
    
    208,749
    
    
    
    
    
    
    
    
    
    
    
    208,749Taxes, insurance and lease expense
    
    
    2,534
    
    
    
    86,354
    
    
    
    7,260
    
    
    
    (65,013
    )
    
    
    31,135Corporate expenses
    
    
    263
    
    
    
    2,479
    
    
    
    1,802
    
    
    
    
    
    
    
    4,544Depreciation
    
    
    2,540
    
    
    
    10,943
    
    
    
    16,571
    
    
    
    
    
    
    
    30,054Total operating expenses.
    
    
    5,337
    
    
    
    308,525
    
    
    
    25,633
    
    
    
    (65,013
    )
    
    
    274,482Operating income (loss)
    
    
    2,493
    
    
    
    (8,727
    )
    
    
    31,706
    
    
    
    
    
    
    
    25,472Interest expense, net
    
    
    (14,562
    )
    
    
    (3,409
    )
    
    
    (15,270
    )
    
    
    
    
    
    
    (33,241
    )Charge-off of deferred financing cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset disposition costs
    
    
    (1,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,300
    )Loss before equity in income from
unconsolidated entities, minority
interests and gain on sale of assets
    
    
    (13,369
    )
    
    
    (12,136
    )
    
    
    16,436
    
    
    
    
    
    
    
    (9,069
    )Equity in income from consolidated
entities
    
    
    2,791
    
    
    
    
    
    
    
    
    
    
    
    (2,791
    )
    
    
    Equity in income from unconsolidated
entities
    
    
    1,524
    
    
    
    (393
    )
    
    
    
    
    
    
    
    
    
    
    1,131Minority interests in other partnerships
    
    
    
    
    
    
    308
    
    
    
    (179
    )
    
    
    
    
    
    
    129Loss from continuing operations
    
    
    (9,054
    )
    
    
    (12,221
    )
    
    
    16,257
    
    
    
    (2,791
    )
    
    
    (7,809
    )Discontinued operations from
consolidated entities
    
    
    197
    
    
    
    (1,245
    )
    
    
    
    
    
    
    
    
    
    
    (1,048
    )Net loss
    
    
    (8,857
    )
    
    
    (13,466
    )
    
    
    16,257
    
    
    
    (2,791
    )
    
    
    (8,857
    )Preferred distributions
    
    
    (10,091
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,091
    )Net loss applicable to unitholders
    
    $
    (18,948
    )
    
    $
    (13,466
    )
    
    $
    16,257
    
    
    $
    (2,791
    )
    
    $
    (18,948
    )
 20




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Consolidating Financial Information 3⁄4 (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004
(in thousands) Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Hotel operating revenue
    
    $
    
    
    
    $
    285,502
    
    
    $
    
    
    
    $
    
    
    
    $
    285,502Percentage lease revenue
    
    
    7,998
    
    
    
    
    
    
    
    55,300
    
    
    
    (63,298
    )
    
    
    Other revenue
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Total revenue
    
    
    8,243
    
    
    
    285,502
    
    
    
    55,300
    
    
    
    (63,298
    )
    
    
    285,747Expenses:Hotel operating expense
    
    
    
    
    
    
    201,149
    
    
    
    
    
    
    
    
    
    
    
    201,149Taxes, insurance and other
    
    
    1,537
    
    
    
    84,287
    
    
    
    7,700
    
    
    
    (63,298
    )
    
    
    30,226Corporate expenses
    
    
    270
    
    
    
    1,877
    
    
    
    1,239
    
    
    
    
    
    
    
    3,386Depreciation
    
    
    2,921
    
    
    
    9,533
    
    
    
    16,490
    
    
    
    
    
    
    
    28,944Total operating expenses
    
    
    4,728
    
    
    
    296,846
    
    
    
    25,429
    
    
    
    (63,298
    )
    
    
    263,705Operating income (loss)
    
    
    3,515
    
    
    
    (11,344
    )
    
    
    29,871
    
    
    
    
    
    
    
    22,042Interest expense, net
    
    
    (25,759
    )
    
    
    (2,729
    )
    
    
    (12,636
    )
    
    
    
    
    
    
    (41,124
    )Charge-off of deferred financing cost
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )Loss before equity in income (loss)
from unconsolidated entities, minority
interests, and gain on sale of assets
    
    
    (22,474
    )
    
    
    (14,073
    )

    
    
    17,235
    
    
    
    
    
    
    
    (19,312
    )Equity in income from consolidated
entities
    
    
    (1,562
    )
    
    
    
    
    
    
    
    
    
    
    1,562Equity in loss from unconsolidated
entities
    
    
    1,526
    
    
    
    (544
    )
    
    
    
    
    
    
    
    
    
    
    982Minority interests in other partnerships
    
    
    159
    
    
    
    (94
    )
    
    

    (136
    )
    
    
    
    
    
    
    (71
    )Loss from continuing operations
    
    
    (22,351
    )
    
    
    (14,711
    )
    
    
    17,099
    
    
    
    1,562
    
    
    
    (18,401
    )Discontinued operations from
consolidated entities
    
    
    245
    
    
    
    (3,956
    )
    
    
    6
    
    
    
    
    
    
    
    (3,705
    )Net loss
    
    
    (22,106
    )
    
    
    (18,667
    )
    
    
    17,105
    
    
    
    1,562
    
    
    
    (22,106
    )Preferred distributions
    
    
    (6,726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,726
    )Net loss applicable to unitholders
    
    $
    (28,832
    )
    
    $
    (18,667
    )
    
    $
    17,105
    
    
    $
    1,562
    
    
    $
    (28,832
    )
 21




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Consolidating Financial Information 3⁄4 (continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2005
(in thousands) Subsidiary
    
    
    Non-Guarantor
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from (used in) operating activities
    
    $
    1,778
    
    
    $
    3,264
    
    
    $
    33,105
    
    
    $
    38,147Cash flows from (used in) investing activities
    
    
    (1,538
    )
    
    
    (9,940
    )
    
    
    (5,546
    )
    
    
    (17,024
    )Cash flows from (used in) financing activities
    
    
    (11,198
    )
    
    
    23,720
    
    
    
    (27,442
    )
    
    
    (14,920
    )Effect of exchange rates changes on cash
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Change in cash and cash equivalents
    
    
    (10,958
    )
    
    
    17,037
    
    
    
    117
    
    
    
    6,196Cash and cash equivalents at beginning of period
    
    
    84,829
    
    
    
    29,387
    
    
    
    5,094
    
    
    
    119,310Cash and equivalents at end of period
    
    $
    73,871
    
    
    $
    46,424
    
    
    $
    5,211
    
    
    $
    125,506
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2004
(in thousands) Subsidiary
    
    
    Non-Guarantor
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from (used in) operating activities
    
    $
    (20,860
    )
    
    $
    (7,313
    )
    
    $
    34,309
    
    
    $
    6,136Cash flows from (used in) investing activities
    
    
    362
    
    
    
    (18,727
    )
    
    
    8,767
    
    
    
    (9,598
    )Cash flows from (used in) financing activities
    
    
    (2,672
    )
    
    
    38,234
    
    
    
    (46,620
    )
    
    
    (11,058
    )Effect of exchange rates changes on cash
    
    
    
    
    
    
    (368
    )
    
    
    
    
    
    
    (368
    )Change in cash and cash equivalents
    
    
    (23,170
    )
    
    
    11,826
    
    
    
    (3,544
    )
    
    
    (14,888
    )Cash and cash equivalents at beginning of period
    
    
    168,224
    
    
    
    59,241
    
    
    
    4,420
    
    
    
    231,885Cash and equivalents at end of period
    
    $
    145,054
    
    
    $
    71,067
    
    
    $
    876
    
    
    $
    216,997
 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 
 General In the first quarter of 2005, revenue per available room, or RevPAR, increased 6.7% for our
consolidated hotels in continuing operations and our average daily room rate, or ADR, comprised 84%
of the increase in RevPAR. The significant role that ADR played in the increase in revenue
contributed to a 100 basis point improvement in hotel operating margin, compared to the same period
in 2004. We currently expect that ADR will continue to be a major portion of our RevPAR increases
for the intermediate-term, which should continue to improve our hotel operating margins. We continue to invest in our core hotels to maintain their competitive position and to take
advantage of the current phase of the lodging cycle. During the first three months of 2005, we
spent $28 million on capital improvements and replacements (including our pro rata share of capital
for unconsolidated ventures), and anticipate capital expenditures of approximately $100 million for
the full year. During 2005, through April, we have sold two hotels for gross proceeds of $10 million and have
one hotel under a firm sale contract for $38 million, which is expected to close in the second
quarter of 2005. During the second quarter, we expect to complete the process of surrendering
eight limited service hotels, owned by a consolidated joint venture, to their non-recourse mortgage
holders. These eight hotels have an aggregate fair market value below the outstanding debt balance
of $49 million, are generally located in depressed markets and are expected to generate negative
cash flow for the foreseeable future. We recorded $1 million in estimated disposition costs in the
first quarter related to these hotels After disposing of the previously mentioned hotels, we will have 16 hotels remaining that we
are currently marketing for sale. We estimate that the gross proceeds from the disposition of
these 16 hotels will be approximately $105 million and we intend to complete the sale of these
hotels by mid-2006. We continue to review and evaluate our hotel portfolio on an ongoing basis and may identify
additional non-strategic hotels for sale based upon various factors. If we decide to sell
additional hotels, we could incur future impairment charges. 
 Financial Comparison (in thousands of dollars, except RevPAR and hotel operating margin) Three Months EndedMarch 31,% Change2005
    
    
    2004
    
    
    2004-2005RevPAR
    
    $
    68.94
    
    
    $
    64.63
    
    
    
    6.7Hotel operating profit(1)
    
    
    59,914
    
    
    
    54,127
    
    
    
    10.7Hotel operating margin(1)
    
    
    20.0
    %
    
    
    19.0
    %
    
    
    5.3Loss from continuing operations(2)
    
    
    (7,809
    )
    
    
    (18,401
    )
    
    
    57.6Funds From Operations (FFO)(1) (3)
    
    
    13,794
    
    
    
    3,564
    
    
    
    287.1Earnings Before Interest, Taxes, Depreciation
and Amortization
(EBITDA)(1)(4)
    
    
    60,163
    
    
    
    54,229
    
    
    
    10.9
   (1)
    
    Included in the Financial Comparison are non-GAAP financial measures, including FFO,
EBITDA, hotel operating profit and hotel operating margin. Further discussion, and a
detailed reconciliation, of these non-GAAP financial measures to our financial statements
are found elsewhere in this Managements Discussion and Analysis of Financial Condition and
Results of Operations.(2)
    
    Included in the loss from continuing operations are the following amounts (in thousands): Three Months EndedMarch 31,2005
    
    
    2004Charge off of deferred debt costs
    
    $
    
    
    
    $
    230Asset disposition costs
    
    
    1,300
    
    
    
    
 23




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##### Table of Contents



(3)
    In accordance with the guidance provided by the Securities and Exchange Commission, or
SEC, on non-GAAP financial measures, FFO has not been adjusted to add back the following
items included in net loss (in thousands): Three Months EndedMarch 31,2005
    
    
    2004Charge-off of deferred debt costs
    
    $
    
    
    
    $
    230Asset disposition costs
    
    
    1,300
    
    
    
    4,900Impairment loss
    
    
    559
    
    
    
    
  (4)
    Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been
adjusted for the following amounts included in net loss (in thousands): Three Months EndedMarch 31,2005
    
    
    2004Charge-off of deferred debt costs
    
    $
    
    
    
    $
    230Asset disposition costs
    
    
    1,300
    
    
    
    4,900Impairment loss
    
    
    559
    
    
    
    Gain on sale of assets
    
    
    20
    
    
    
    
 
 Results of Operations Comparison of the Three Months Ended March 31, 2005 and 2004 For the three months ended March 31, 2005, we recorded a loss applicable to common unitholders
of $19 million, compared to a loss of $29 million for the three months ended March 31, 2004. Hotel operating revenues from continuing operations were $300 million for the first quarter
2005, reflecting an increase of $14 million, or 5%, compared to the same period in 2004. The
increase in revenues was primarily related to a 6.7% increase in our hotel portfolios RevPAR,
compared to the same period in 2004. Increases in ADR contributed to 84% of the improvement in
RevPAR as the trend in improving rates that began in 2004 continues. Our first quarter 2005 Hotel Operating Profit from continuing operations increased by 10.7%,
to $60 million, compared to the same period in 2004. Hotel Operating Margin, which is Hotel
Operating Profit divided by hotel revenue, increased 100 basis points, to 20.0 %. The improvement
in hotel operating margin resulted principally from improvements in rooms expense (40 basis point
improvement), and food and beverage expense (40 basis point improvement), as a percentage of hotel
operating revenue. We attribute the improvement in rooms expense, as a percentage of total
revenue, principally to the 5.6% increase in ADR. For the quarter, we sold 1% more hotel rooms,
but were able to charge an average of 5.6% more for all rooms sold. Food and beverage expenses
improved, as a percentage of total revenue, principally from an increase in higher margin banquet
business in the quarter. Net interest expense included in continuing operations decreased by 19.2 %, to $33 million.
This reduction is related to the $271 million reduction in our outstanding debt, largely resulting
from the early retirement of a portion of our senior notes in 2004, and a 54 basis point reduction
in average interest rate, compared to the same period of 2004. Included in the net loss from continuing operations is $1 million of estimated costs related
to eight limited service hotels (owned by a consolidated joint venture and included in continuing
operations) in the process of being surrendered to their non-recourse mortgage holders. We have
previously taken an impairment charge with regard to these hotels to reduce their book value to
fair value, which is less than the $49 million debt balance. This transfer is expected to be
completed in the second quarter of 2005. 24




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##### Table of Contents



At March 31, 2005, we had 141 hotels included in our consolidated continuing operations, of
which 16 were non-strategic hotels identified for sale and eight, as discussed above, were in the
process of being surrendered to their non-recourse mortgage holders. The 16 non-strategic hotels
included in continuing operations represented 11% of the rooms in our hotel portfolio but only 4%
of our calendar year 2004 consolidated Hotel Operating Profit. The eight hotels that we are in the
process of surrendering to their non-recourse mortgage holders, represented 4% of the rooms in our
hotel portfolio but only one percent of our calendar year 2004 hotel operating profit. Discontinued operations for the quarter represent the operating income, direct interest costs
and gains or losses on sale of one hotel disposed of during the quarter, two hotels that were
designated as held for sale at March 31, 2005, and 18 hotels disposed of in 2004. Included in
discontinued operations in the first quarter 2005 were impairment charges of $1 million. Included
in discontinued operations for the first quarter 2004 was $5 million related to the transfer of our
lessee interest in one hotel to the lessor. 
 Non-GAAP Financial Measures We refer in this quarterly report on Form 10-Q to certain non-GAAP financial measures.
These measures, including FFO, EBITDA, hotel operating profit and hotel operating margin, are
measures of our financial performance that are not calculated and presented in accordance with
generally accepted accounting principles (GAAP). The following tables reconcile each of 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 of the limitations upon such measures. 25




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##### Table of Contents



The following tables detail our computation of FFO and EBITDA (in thousands): Reconciliation of Net Loss to FFO
(in thousands, except per unit data) Three Months Ended March 31,2005
    
    
    2004Per Unit
    
    
    
    
    
    
    
    
    
    
    Per UnitDollars
    
    
    Units
    
    
    Amount
    
    
    Dollars
    
    
    Units
    
    
    AmountNet loss
    
    $
    (8,857
    )
    
    
    
    
    
    
    
    
    
    $
    (22,106
    )Preferred distributions
    
    
    (10,091
    )
    
    
    
    
    
    
    
    
    
    
    (6,726
    )Net loss applicable to common
unitholders
    
    
    (18,948
    )
    
    
    62,204
    
    
    $
    (0.30
    )
    
    
    (28,832
    )
    
    
    61,970
    
    
    $
    (0.47
    )Depreciation from continuing operations
    
    
    30,054
    
    
    
    
    
    
    
    0.48
    
    
    
    28,944
    
    
    
    
    
    
    
    0.47Depreciation from unconsolidated
entities and discontinued operations
    
    
    2,708
    
    
    
    
    
    
    
    0.04
    
    
    
    3,724
    
    
    
    
    
    
    
    0.06Gain on sale of assets
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (272
    )
    
    
    
    
    
    
    Conversion of options and unvested
restricted stock
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    
    
    
    
    201
    
    
    
    FFO
    
    $
    13,794
    
    
    
    62,625
    
    
    $
    0.22
    
    
    $
    3,564
    
    
    
    62,171
    
    
    $
    0.06
 Consistent with SEC guidance on non-GAAP financial measures, FFO has not been adjusted for the
following amounts included in net loss (in thousands): Three Months Ended March 31,2005
    
    
    2004Per Unit
    
    
    
    
    
    
    Per UnitDollars
    
    
    Amount
    
    
    Dollars
    
    
    AmountCharge off of deferred debt costs
    
    $
    
    
    
    $
    
    
    
    $
    230
    
    
    $
    Asset disposition costs
    
    
    1,300
    
    
    
    0.02
    
    
    
    4,900
    
    
    
    0.08Impairment loss
    
    
    559
    
    
    
    0.01
    
    
    
    
    
    
    
    
 Reconciliation of Net Loss to EBITDA
(in thousands) Three Months EndedMarch 31,2005
    
    
    2004Net loss
    
    $
    (8,857
    )
    
    $
    (22,106
    )Depreciation from continuing operations
    
    
    30,054
    
    
    
    28,944Depreciation from unconsolidated entities and discontinued operations
    
    
    2,708
    
    
    
    3,724Interest expense
    
    
    33,883
    
    
    
    41,845Interest expense from unconsolidated entities and discontinued operations
    
    
    1,778
    
    
    
    1,319Amortization expense
    
    
    597
    
    
    
    503EBITDA
    
    $
    60,163
    
    
    $
    54,229
 Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been adjusted for the
following amounts included in net loss (in thousands): Three Months EndedMarch 31,2005
    
    
    2004Charge off of deferred debt costs
    
    $
    
    
    
    $
    230Asset disposition costs
    
    
    1,300
    
    
    
    4,900Gain on sale of assets
    
    
    (20
    )
    
    
    (272
    )Impairment loss
    
    
    559
    
    
    
    
 26




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##### Table of Contents



The following tables detail our computation of hotel operating profit, hotel operating margin,
hotel operating expenses and the reconciliation of hotel operating expenses to total operating
expenses with respect to our hotels included in continuing operations at March 31, 2005. Hotel Operating Profit
(dollars in thousands) Three Months EndedMarch 31,2005
    
    
    2004Total revenue
    
    $
    299,954
    
    
    $
    285,747Retail space rental and other revenue
    
    
    (156
    )
    
    
    (245
    )Hotel revenue
    
    
    299,798
    
    
    $
    285,502Hotel operating expenses
    
    
    (239,884
    )
    
    
    (231,375
    )Hotel operating profit
    
    $
    59,914
    
    
    $
    54,127Hotel operating margin
    
    
    20.0
    %
    
    
    19.0
    %
 Hotel Operating Expense Composition
(dollars in thousands) Three Months EndedMarch 31,2005
    
    
    2004Hotel departmental expenses:Room
    
    $
    62,961
    
    
    $
    61,031Food and beverage
    
    
    33,516
    
    
    
    33,093Other operating departments
    
    
    7,369
    
    
    
    7,536Other property related costs:Administrative and general
    
    
    29,149
    
    
    
    27,730Marketing and advertising
    
    
    26,679
    
    
    
    25,344Repairs and maintenance
    
    
    17,397
    
    
    
    16,764Energy
    
    
    16,562
    
    
    
    14,973Taxes, insurance and lease expense
    
    
    31,135
    
    
    
    30,226Total other property related costs
    
    
    120,922
    
    
    
    115,037Management and franchise fees
    
    
    15,116
    
    
    
    14,678Hotel operating expenses
    
    $
    239,884
    
    
    $
    231,375Reconciliation of total operating
expense to hotel operating expense:Total operating expenses
    
    $
    275,782
    
    
    $
    263,705Corporate expenses
    
    
    (4,544
    )
    
    
    (3,386
    )Depreciation
    
    
    (30,054
    )
    
    
    (28,944
    )Asset disposition costs
    
    
    (1,300
    )
    
    
    Hotel operating expenses
    
    $
    239,884
    
    
    $
    231,375
 27




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##### Table of Contents



The following tables reconcile net less to hotel operating profit and the ratio of operating
income to total revenue to hotel operating margin. Reconciliation of Net Loss to Hotel Operating Profit
(in thousands) Three Months EndedMarch 31,2005
    
    
    2004Net loss
    
    $
    (8,857
    )
    
    $
    (22,106
    )Discontinued operations
    
    
    1,048
    
    
    
    3,705Equity in income from unconsolidated entities
    
    
    (1,131
    )
    
    
    (982
    )Minority interests
    
    
    (129
    )
    
    
    71Interest expense, net
    
    
    33,241
    
    
    
    41,124Charge-off of deferred financing costs
    
    
    
    
    
    
    230Asset disposition costs
    
    
    1,300
    
    
    
    Corporate expenses
    
    
    4,544
    
    
    
    3,386Depreciation
    
    
    30,054
    
    
    
    28,944Retail space rental and other revenue
    
    
    (156
    )
    
    
    (245
    )Hotel operating profit
    
    $
    59,914
    
    
    $
    54,127
 Reconciliation of Ratio of Operating Income to Total Revenue to Hotel Operating Margin Three Months EndedMarch 31,2005
    
    
    2004Ratio of operating income to total revenue
    
    
    8.5
    %
    
    
    7.7
    %Less:Retail space and rental and other revenue
    
    
    
    
    
    
    Plus:Corporate expenses
    
    
    1.5
    
    
    
    1.2Depreciation
    
    
    10.0
    
    
    
    10.1Hotel operating margin
    
    
    20.0
    %
    
    
    19.0
    %
 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 diminish
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, including FFO, EBITDA, hotel operating profit
and hotel operating margin, are not measures of operating performance under GAAP. However, we
consider these non-GAAP measures to be supplemental measures of a REITs performance and should be
considered along with, but not as an alternative to, net income as a measure of our operating
performance. FFO and EBITDA The White Paper on Funds From Operations approved by the Board of Governors of the National
Association of Real Estate Investment Trusts (NAREIT,) defines FFO as net income or loss
(computed in accordance with GAAP), excluding gains or losses from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect
FFO 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. 28




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##### Table of Contents



EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net
income or loss (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. Hotel Operating Profit and Operating Margin Hotel operating profit and operating 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 operating managers have direct control. We believe that hotel operating
profit and operating margin is useful to investors by providing greater transparency with respect
to two significant measures used by us in our financial and operational decision-making.
Additionally, these measures facilitate comparisons with other hotel REITs and hotel owners. We
present hotel operating profit and hotel operating margin by eliminating corporate-level expenses,
depreciation and expenses related to our capital structure. We eliminate corporate-level costs and
expenses because we believe property-level results provide investors with supplemental information
with respect to the ongoing operating performance of our hotels and the effectiveness of management
in running our business on a property-level basis. We eliminate depreciation and amortization,
even though they are property-level expenses, because we do not believe that these non-cash
expenses, which are based on historical cost accounting for real estate assets and implicitly
assume that the value of real estate assets diminish predictably over time, accurately reflect and
adjustment in the value of our assets. Use and Limitations of Non-GAAP Measures FelCors management and Board of Directors use FFO and EBITDA 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 operating profit and hotel operating
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. FFO, EBITDA, hotel
operating profit and hotel operating margin, as presented by us, may not be comparable to FFO,
EBITDA, hotel operating profit and hotel operating margin as calculated by other real estate
companies. These measures do not reflect certain expenses that we incurred and will incur, such as
depreciation, interest and capital expenditures. Management compensates for these limitations by
separately considering the impact of these excluded items to the extent they are material to
operating decisions or assessments of our operating performance. Our reconciliations to the most
comparable GAAP financial measures, and our consolidated statements of operations and cash flows,
include interest expense, capital expenditures, and other excluded items, all of which should be
considered when evaluating our performance, as well as the usefulness of our non-GAAP financial
measures. These non-GAAP financial measures are used in addition to and in conjunction with results
presented in accordance with GAAP. They should not be considered as alternatives to operating
profit, cash flow from operations, or any other operating performance measure prescribed by GAAP.
Neither should FFO, FFO per unit or EBITDA be considered as measures of our liquidity or indicative
of funds available for our cash needs, including our ability to make cash distributions or service
our debt. FFO per unit does not measure, and should not be used as a measure of, amounts that
accrue directly to the benefit of unitholders. FFO, EBITDA, hotel operating profit and hotel
operating margin reflect additional ways of viewing our operations that we believe, when viewed
with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide
a more complete understanding of factors and trends affecting our business than could be obtained
absent this disclosure. Management strongly encourages investors to review our financial
information in its entirety and not to rely on any single financial measure. 29




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##### Table of Contents



Hotel Portfolio Composition The following tables set forth, as of March 31, 2005, for 133 of our 141 hotels included in
our consolidated portfolio of continuing operations, distribution by brand, by our top metropolitan
markets, by selected states, by type of location, and by market segment. Eight limited service
hotels, which we are in the process of surrendering to their mortgage holders, have been excluded. % of
    
    
    % of 2004 HotelBrand
    
    Hotels
    
    
    Rooms
    
    
    Total Rooms
    
    
    Operating ProfitEmbassy Suites
    
    
    55
    
    
    
    13,982
    
    
    
    37
    %
    
    
    51
    %Holiday Inn-branded
    
    
    39
    
    
    
    12,769
    
    
    
    33
    
    
    
    23Sheraton-branded
    
    
    10
    
    
    
    3,269
    
    
    
    9
    
    
    
    10Doubletree-branded
    
    
    10
    
    
    
    2,206
    
    
    
    6
    
    
    
    6Crowne Plaza
    
    
    12
    
    
    
    4,025
    
    
    
    10
    
    
    
    5Other
    
    
    7
    
    
    
    1,811
    
    
    
    5
    
    
    
    5
 % of
    
    
    % of 2004 HotelTop Markets
        
    Hotels
    
    Rooms
    
    
    Total Rooms
    
    
    Operating ProfitAtlanta
    
    
    10
    
    
    
    3,061
    
    
    
    8
    %
    
    
    9
    %Dallas
    
    
    12
    
    
    
    3,586
    
    
    
    9
    
    
    
    5Los Angeles Area
    
    
    6
    
    
    
    1,492
    
    
    
    4
    
    
    
    5Orlando
    
    
    6
    
    
    
    2,219
    
    
    
    6
    
    
    
    5Boca Raton/Ft.
Lauderdale
    
    
    4
    
    
    
    1,118
    
    
    
    3
    
    
    
    4New Orleans
    
    
    2
    
    
    
    746
    
    
    
    2
    
    
    
    4Minneapolis
    
    
    4
    
    
    
    955
    
    
    
    3
    
    
    
    4Philadelphia
    
    
    3
    
    
    
    1,174
    
    
    
    3
    
    
    
    3San Diego
    
    
    1
    
    
    
    600
    
    
    
    2
    
    
    
    3Phoenix
    
    
    3
    
    
    
    798
    
    
    
    2
    
    
    
    3San Antonio
    
    
    4
    
    
    
    1,189
    
    
    
    3
    
    
    
    3Chicago
    
    
    4
    
    
    
    1,239
    
    
    
    3
    
    
    
    3San Francisco Bay Area
    
    
    8
    
    
    
    2,690
    
    
    
    7
    
    
    
    3Houston
    
    
    4
    
    
    
    1,403
    
    
    
    4
    
    
    
    3Washington DC
    
    
    1
    
    
    
    437
    
    
    
    1
    
    
    
    3
 % of
    
    
    % of 2004 HotelTop Four States
    
    Hotels
    
    
    Rooms
    
    
    Total Rooms
    
    
    Operating ProfitCalifornia
    
    
    19
    
    
    
    5,593
    
    
    
    15
    %
    
    
    16
    %Texas
    
    
    26
    
    
    
    7,515
    
    
    
    20
    
    
    
    14Florida
    
    
    16
    
    
    
    5,343
    
    
    
    14
    
    
    
    12Georgia
    
    
    12
    
    
    
    3,415
    
    
    
    9
    
    
    
    9
 % of
    
    
    % of 2004 HotelLocation
    
    Hotels
    
    
    Rooms
    
    
    Total Rooms
    
    
    Operating ProfitSuburban
    
    
    59
    
    
    
    15,022
    
    
    
    39
    %
    
    
    39
    %Urban
    
    
    31
    
    
    
    10,069
    
    
    
    26
    
    
    
    27Airport
    
    
    28
    
    
    
    8,509
    
    
    
    23
    
    
    
    22Resort
    
    
    13
    
    
    
    4,044
    
    
    
    11
    
    
    
    12Interstate
    
    
    2
    
    
    
    418
    
    
    
    1
    
    
    
    0
 % of
    
    
    % of 2004 HotelSegment
    
    Hotels
    
    
    Rooms
    
    
    Total Rooms
    
    
    Operating ProfitUpscale all-suite
    
    
    68
    
    
    
    16,848
    
    
    
    44
    %
    
    
    59
    %Full service
    
    
    39
    
    
    
    12,823
    
    
    
    34
    
    
    
    23Upscale
    
    
    23
    
    
    
    7,843
    
    
    
    21
    
    
    
    17Limited service
    
    
    3
    
    
    
    548
    
    
    
    1
    
    
    
    1
 30




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##### Table of Contents



Hotel Operating Statistics The following tables set forth historical occupancy, ADR and RevPAR at March 31, 2005 and
2004, and the percentage changes therein between the periods presented, for 133 of our 141 hotels
included in our consolidated portfolio of continuing operations. Eight limited service hotels,
which we are in the process of surrendering to their mortgage holders, have been excluded. Operating Statistics by Brand Occupancy (%)Three Months Ended March 31,2005
    
    
    2004
    
    
    % VarianceEmbassy Suites Hotels
    
    
    70.7
    
    
    
    69.5
    
    
    
    1.7Holiday Inn-branded hotels
    
    
    62.8
    
    
    
    61.8
    
    
    
    1.7Sheraton-branded hotels
    
    
    61.7
    
    
    
    64.1
    
    
    
    (3.7
    )Doubletree-branded hotels
    
    
    65.1
    
    
    
    68.6
    
    
    
    (5.2
    )Crowne Plaza hotels
    
    
    63.4
    
    
    
    61.6
    
    
    
    2.8Other hotels
    
    
    56.8
    
    
    
    54.3
    
    
    
    4.6Total hotels
    
    
    65.5
    
    
    
    64.8
    
    
    
    1.0
 ADR ($)Three Months Ended March 31,2005
    
    
    2004
    
    
    % VarianceEmbassy Suites Hotels
    
    
    126.15
    
    
    
    119.27
    
    
    
    5.8Holiday Inn-branded hotels
    
    
    83.19
    
    
    
    80.35
    
    
    
    3.5Sheraton-branded hotels
    
    
    107.78
    
    
    
    97.57
    
    
    
    10.5Doubletree-branded hotels
    
    
    113.77
    
    
    
    103.79
    
    
    
    9.6Crowne Plaza hotels
    
    
    92.35
    
    
    
    88.94
    
    
    
    3.8Other hotels
    
    
    91.39
    
    
    
    86.55
    
    
    
    5.6Total hotels
    
    
    105.24
    
    
    
    99.68
    
    
    
    5.6
 RevPAR ($)Three Months Ended March 31,2005
    
    
    2004
    
    
    % VarianceEmbassy Suites Hotels
    
    
    89.14
    
    
    
    82.87
    
    
    
    7.6Holiday Inn-branded hotels
    
    
    52.28
    
    
    
    49.63
    
    
    
    5.3Sheraton-branded hotels
    
    
    66.50
    
    
    
    62.54
    
    
    
    6.3Doubletree-branded hotels
    
    
    74.02
    
    
    
    71.23
    
    
    
    3.9Crowne Plaza hotels
    
    
    58.53
    
    
    
    54.83
    
    
    
    6.7Other hotels
    
    
    51.89
    
    
    
    47.00
    
    
    
    10.4Total hotels
    
    
    68.94
    
    
    
    64.63
    
    
    
    6.7
 31




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##### Table of Contents



Operating Statistics for Our Top Markets Occupancy (%)Three Months Ended March 31,2005
    
    
    2004
    
    
    % VarianceAtlanta
    
    
    70.7
    
    
    
    67.6
    
    
    
    4.6Dallas
    
    
    53.3
    
    
    
    52.4
    
    
    
    1.7Los Angeles Area
    
    
    68.6
    
    
    
    70.2
    
    
    
    (2.3
    )Orlando
    
    
    80.0
    
    
    
    75.9
    
    
    
    5.3Boca Raton/Ft. Lauderdale
    
    
    90.2
    
    
    
    87.0
    
    
    
    3.7New Orleans
    
    
    73.9
    
    
    
    66.1
    
    
    
    11.8Minneapolis
    
    
    65.5
    
    
    
    62.6
    
    
    
    4.5Philadelphia
    
    
    60.7
    
    
    
    56.2
    
    
    
    8.1San Diego
    
    
    81.5
    
    
    
    86.4
    
    
    
    (5.7
    )Phoenix
    
    
    81.4
    
    
    
    81.2
    
    
    
    0.3San Antonio
    
    
    69.5
    
    
    
    69.3
    
    
    
    0.2Chicago
    
    
    61.4
    
    
    
    62.2
    
    
    
    (1.2
    )San Francisco Bay Area
    
    
    62.3
    
    
    
    61.7
    
    
    
    0.8Houston
    
    
    69.3
    
    
    
    73.7
    
    
    
    (6.0
    )Washington DC
    
    
    67.1
    
    
    
    70.3
    
    
    
    (4.6
    )
 ADR ($)Three Months Ended March 31,2005
    
    
    2004
    
    
    % VarianceAtlanta
    
    
    91.15
    
    
    
    89.02
    
    
    
    2.4Dallas
    
    
    95.55
    
    
    
    90.87
    
    
    
    5.1Los Angeles Area
    
    
    114.47
    
    
    
    107.40
    
    
    
    6.6Orlando
    
    
    94.97
    
    
    
    83.80
    
    
    
    13.3Boca Raton/Ft. Lauderdale
    
    
    159.94
    
    
    
    139.05
    
    
    
    15.0New Orleans
    
    
    147.33
    
    
    
    147.76
    
    
    
    (0.3
    )Minneapolis
    
    
    122.77
    
    
    
    120.42
    
    
    
    2.0Philadelphia
    
    
    102.54
    
    
    
    96.14
    
    
    
    6.7San Diego
    
    
    122.73
    
    
    
    114.93
    
    
    
    6.8Phoenix
    
    
    146.46
    
    
    
    137.44
    
    
    
    6.6San Antonio
    
    
    86.00
    
    
    
    84.96
    
    
    
    1.2Chicago
    
    
    96.51
    
    
    
    94.27
    
    
    
    2.4San Francisco Bay Area
    
    
    110.69
    
    
    
    108.04
    
    
    
    2.4Houston
    
    
    70.01
    
    
    
    74.16
    
    
    
    (5.6
    )Washington DC
    
    
    147.94
    
    
    
    125.96
    
    
    
    17.4
 RevPAR ($)Three Months Ended March 31,2005
    
    
    2004
    
    
    % VarianceAtlanta
    
    
    64.47
    
    
    
    60.17
    
    
    
    7.1Dallas
    
    
    50.89
    
    
    
    47.60
    
    
    
    6.9Los Angeles Area
    
    
    78.48
    
    
    
    75.36
    
    
    
    4.1Orlando
    
    
    75.95
    
    
    
    63.64
    
    
    
    19.4Boca Raton/Ft. Lauderdale
    
    
    144.21
    
    
    
    120.90
    
    
    
    19.3New Orleans
    
    
    108.95
    
    
    
    97.74
    
    
    
    11.5Minneapolis
    
    
    80.36
    
    
    
    75.43
    
    
    
    6.5Philadelphia
    
    
    62.24
    
    
    
    54.00
    
    
    
    15.3San Diego
    
    
    100.03
    
    
    
    99.28
    
    
    
    0.8Phoenix
    
    
    119.25
    
    
    
    111.61
    
    
    
    6.8San Antonio
    
    
    59.73
    
    
    
    58.88
    
    
    
    1.5Chicago
    
    
    59.30
    
    
    
    58.63
    
    
    
    1.1San Francisco Bay Area
    
    
    68.91
    
    
    
    66.71
    
    
    
    3.3Houston
    
    
    48.50
    
    
    
    54.63
    
    
    
    (11.2
    )Washington DC
    
    
    99.32
    
    
    
    88.61
    
    
    
    12.1
 32




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##### Table of Contents



Liquidity and Capital Resources Our principal source of cash to meet our cash requirements, including distributions to
unitholders and repayments of indebtedness, is from the results of operations of our hotels. For
the three months ended March 31, 2005, net cash flow provided by operating activities, consisting
primarily of hotel operations, was $38 million. At March 31, 2005, we had cash and cash
equivalents of approximately $126 million. Included in cash and cash equivalents is approximately
$35 million utilized to meet our hotel minimum working capital requirements. We currently expect that our cash flow provided by operating activities for 2005 will be
approximately $125 million to $129 million. Our cash flow forecasts assume a full year RevPAR
increase of 6% to 7% and a hotel operating margin improvement of at least 100 basis points over our
prior year same-store margins. For 2005, our current operating plan contemplates preferred
distribution payments of $39 million, capital expenditures of approximately $100 million ($28
million has been spent through March 31, 2005), $25 million in normal recurring principal payments
and proceeds of approximately $83 million from the sale of non-strategic hotels ($10 million was
received through April 30, 2005). We are required to reinvest the proceeds from the further sale of IHG managed hotels in other
hotels to be managed by IHG or pay substantial termination fees. As of April 30, 2005, we had an
unsatisfied reinvestment obligation of $26 million from the sale of IHG managed hotels. If we do
not fulfill this reinvestment obligation within 12 months of the date of sale, we will be required
to pay liquidated damages to IHG aggregating $5 million. Additionally, until the earlier of either
our satisfaction of the reinvestment requirement, or the payment of liquidated damages, we are
required to pay monthly termination fees of $65,000 (based on the hotels we have sold through April
30, 2005), which payments will be offset against any liquidated damages payable with respect to
these properties. In addition, 12 of the 16 remaining hotels previously identified for sale are
managed by IHG and subject to the reinvestment obligation in the event they are sold. We will
incur additional reinvestment obligations of approximately $67 million if these hotels are sold at
currently estimated prices or, if the proceeds of sale are not so reinvested, we will incur
approximately $18 million in additional liquidated damages for which we would be liable to IHG. At March 31, 2005, approximately 25% of our outstanding debt had variable interest rates based
on LIBOR. Variable interest rates have recently been increasing and, based on our debt outstanding
at March 31, 2005, a one percent change in LIBOR would impact our annual interest expense by $4.3
million. On April 8, 2005, FelCor completed the issuance of 5.4 million depositary shares representing
their 8% Series C preferred stock, realizing gross proceeds of $135 million. FelCor contributed
the gross proceeds to FelCor LP in exchange for newly issued Series C preferred units. The
preference on these units is the same as FelCors Series C preferred stock. The gross proceeds
were used to redeem a like number of depositary units representing our 9% Series B preferred units
held by FelCor. FelCor then took the proceeds from the sale of its 9% Series B preferred units to
us and redeemed a like number of shares of its 9% Series B preferred stock. Following the
redemption, FelCor had approximately $35 million of their Series B preferred stock remaining
outstanding and we had a like number of our Series B preferred units outstanding. At March 31, 2005, we had aggregate mortgage indebtedness of approximately $1.0 billion that
was secured by 79 of our consolidated hotels with an aggregate book value of approximately $1.8
billion. Substantially all of this debt is recourse solely to the specific assets securing the
debt, except in the case of fraud, misapplication of funds and other customary recourse carve-out
provisions. Loans secured by 41 hotels provide for lock-box arrangements. With respect to loans
secured by 23 of these hotels, if the debt service coverage ratios fall below certain levels, the
lender is entitled to apply the revenues from the hotels securing the loan to satisfy current
requirements for debt service, taxes, insurance and other reserves, before the balance of the
revenues, if any, would be available to the owner to pay the expenses of hotel operations and
provide a return to the owner. Eight of these 23 hotels, which accounted for 2% of our total
revenues in 2004, are currently below the prescribed debt service 33




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##### Table of Contents



coverage ratios and are subject to these lock-box requirements. During the second quarter we
expect to complete the process of surrendering these eight limited service hotels, owned by a
consolidated joint venture, to their non-recourse mortgage holders. These eight hotels have an
aggregate fair market value below the outstanding debt balance of $49 million, are generally
located in depressed markets and are expected to generate negative cash flow for the foreseeable
future. We recorded $1 million in estimated disposition costs in the first quarter related to
these hotels. With respect to loans secured by the remaining 18 hotels, the owner is permitted to
retain 115% of budgeted hotel operating expenses before the remaining revenues would become subject
to a similar lock-box arrangement if a specified debt service coverage ratio was not met. The
mortgage loans secured by 16 of these 18 hotels also provide that, so long as the debt service
coverage ratios remain below a second, even lower minimum level, the lender may retain any excess
cash (after deduction for the 115% of budgeted operating expenses, debt service, tax, insurance and
other reserve requirements) and, if the debt service coverage ratio remains below this lower
minimum level for 12 consecutive months, apply any accumulated excess cash to the prepayment of the
principal amount of the debt. If the debt service coverage ratio exceeds the lower minimum level
for three consecutive months, any then accumulated excess cash will be returned to the owner. Ten
of these 18 hotels, which accounted for 6% of our total revenues in 2004, fell below the applicable
debt service coverage ratio in 2004 and are currently subject to the lock-box provisions. None of
the hotels are currently below the second, even lower minimum debt service coverage ratio that
would permit the lender to retain excess cash after deduction for the 115% of budgeted operating
expenses, debt service, tax, insurance and other reserve requirements. If actual operating results fail to meet our current expectations, as reflected in our
current public guidance, or if interest rates increase unexpectedly, we may be unable to continue
to satisfy the incurrence test under the indentures governing our senior unsecured notes. In such
an event, we may be prohibited from, among other things, incurring any additional indebtedness or
paying distributions on our preferred or common units, except to the extent necessary to satisfy
FelCors REIT qualification requirement that it distribute currently at least 90% of its taxable
income. In the event of our failure of this incurrence test, based upon our current estimates of
taxable income for 2005, we would be unable to distribute the full amount of distributions accruing
under our outstanding preferred units in 2005 and, accordingly, could pay no distributions on our
common units. However, based on our operating results to date and our current estimates for the
remainder of 2005, we do not anticipate a violation of this incurrence test. We currently anticipate that we will continue to meet our financial covenant and incurrence
tests under the RevPAR guidance provided by us at our first quarter earnings conference call on May
3, 2005. For the second quarter of 2005, we currently anticipate that our portfolio RevPAR will be
6% to 7% above the comparable period of the prior year. The RevPAR increase for April 2005 was
approximately 12% compared to the same period in 2004. We currently anticipate that full year 2005
hotel portfolio RevPAR will increase approximately 6% to 7%. For 2005 we expect to make capital
expenditures of approximately $100 million ($28 million has been spent through March 31, 2005), and
at April 30, 2005, we were under contract to sell one hotel for $38 million. We estimate that our
net loss applicable to common unitholders for 2005 will be in the range of $57 to $53 million, or
$0.96 to $0.89 per unit. FFO and EBITDA are non-GAAP financial measures as previously discussed under the caption
Non-GAAP Financial Measures elsewhere in this Quarterly Report on Form 10-Q and reference is made
to that discussion. Following is our reconciliation of FFO, FFO per share and EBITDA to the
corresponding GAAP financial measure. 34




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##### Table of Contents



Reconciliation of Estimated Income Loss to Estimated FFO and EBITDA
(in millions, except per unit data) 2nd Quarter 2005 Guidance(b)Low Guidance
    
    
    High GuidancePer Unit
    
    
    
    
    
    
    Per UnitEstimated
    
    Dollars
    
    
    Amount(a)
    
    
    Dollars
    
    
    Amount(a)Net income
    
    $
    11
    
    
    
    
    
    
    $
    13Preferred distributions
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Net income applicable to common unitholders
    
    
    1
    
    
    $
    0.02
    
    
    
    3
    
    
    $
    0.05Gain on sale of assets
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Depreciation
    
    
    37
    
    
    
    
    
    
    
    37FFO
    
    $
    31
    
    
    $
    0.49
    
    
    
    33
    
    
    $
    0.52Net income
    
    $
    11
    
    
    
    
    
    
    $
    13Depreciation
    
    
    37
    
    
    
    
    
    
    
    37Interest expense
    
    
    34
    
    
    
    
    
    
    
    34Interest expense from unconsolidated entities
    
    
    2
    
    
    
    
    
    
    
    2Amortization expense
    
    
    1
    
    
    
    
    
    
    
    1EBITDA
    
    $
    85
    
    
    
    
    
    
    $
    87
   (a)
    
    Weighted average units are 62.8 million.(b)
    
    Included in net income and FFO guidance are the following (in millions): Second Quarter 2005Per UnitDollars
    
    
    AmountGain on sale of assets
    
    $
    7
    
    
    $
    0.11
 35




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##### Table of Contents



Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per unit data) Full Year 2005 Guidance(b)Low Guidance
    
    
    High GuidancePer Unit
    
    
    
    
    
    
    Per UnitDollars
    
    
    Amount(a)
    
    
    Dollars
    
    
    Amount(a)Net loss
    
    $
    (20
    )
    
    
    
    
    
    $
    (16
    )Preferred distributions
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Net loss applicable to common unitholders
    
    
    (59
    )
    
    $
    (0.94
    )
    
    
    (55
    )
    
    $
    (0.88
    )Gain from sales of assets
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Depreciation
    
    
    142
    
    
    
    
    
    
    
    142FFO
    
    $
    76
    
    
    $
    1.21
    
    
    $
    80
    
    
    $
    1.28Net loss
    
    $
    (20
    )
    
    
    
    
    
    $
    (16
    )Depreciation
    
    
    142
    
    
    
    
    
    
    
    142Interest expense
    
    
    137
    
    
    
    
    
    
    
    137Interest expense from unconsolidated entities
    
    
    7
    
    
    
    
    
    
    
    7Amortization expense
    
    
    3
    
    
    
    
    
    
    
    3EBITDA
    
    $
    269
    
    
    
    
    
    
    $
    273
   (a)
    
    Weighted average units are 62.8 million.(b)
    
    Included in net loss and FFO guidance are the following estimated amounts (in millions): Full Year 2005Per UnitDollars
    
    
    AmountGain on sale of assets
    
    $
    7
    
    
    $
    0.11Asset disposition costs
    
    $
    (1
    )
    
    $
    (0.02
    )Impairment costs
    
    $
    (1
    )
    
    $
    (0.02
    )
 36




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##### Table of Contents



Inflation 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. 
 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 or make distributions to our equity holders. 
 Disclosure Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q and the documents incorporated by reference in this
Quarterly Report on Form 10-Q 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. Among these factors are:  
    general economic and lodging industry conditions, including the anticipated
continuation and magnitude of the current recovery in the economy, the realization of
anticipated job growth, the impact of the United States military involvement in the Middle
East and elsewhere, future acts of terrorism, and the impact on the travel industry of high
fuel costs and increased security precautions;
    our overall debt levels and our ability to obtain new financing and service debt;
    our inability to retain earnings;
    our liquidity and capital expenditures;
    our growth strategy and acquisition activities;
    our inability to sell the hotels held for sale at anticipated prices; and
    competitive conditions in the lodging industry. In addition, 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 these plans, intentions or expectations will be achieved. 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 under the Securities Act of
1933 and the Securities Exchange Act of 1934. We undertake no obligation to update any
forward-looking statements to reflect future events
or circumstances. 37




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures About Market Risk At March 31, 2005, approximately 75% of our consolidated debt had fixed interest rates, after
considering interest rate swaps. Currently, market rates of interest are below the rates we are
obligated to pay on our fixed-rate debt. The following table provides information about our financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations. For debt
obligations, the table presents scheduled maturities and weighted average interest rates, by
maturity dates. For interest rate swaps, the table presents the notional amount and weighted
average interest rate, by contractual maturity date. 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. The fair
value of our interest rate swaps indicates the estimated amount that would have been received or
paid by us had the swaps been terminated at the date presented. Expected Maturity Date
at March 31, 2005
(dollars in thousands) Fair2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    ValueLiabilitiesFixed rate:Debt
    
    $
    22,952
    
    
    $
    18,025
    
    
    $
    261,783
    
    
    $
    16,977
    
    
    $
    202,231
    
    
    $
    708,576
    
    
    $
    1,230,544
    
    
    $
    1,195,051Average interest
rate
    
    
    7.52
    %
    
    
    7.78
    %
    
    
    7.46
    %
    
    
    7.93
    %
    
    
    7.40
    %
    
    
    8.50
    %
    
    
    8.06
    %Floating rate:Debt
    
    
    4,067
    
    
    
    143,018
    
    
    
    2,015
    
    
    
    17,618
    
    
    
    78,537
    
    
    
    290,650
    
    
    
    535,905
    
    
    
    535,905Average interest
rate
    
    
    5.00
    %
    
    
    5.12
    %
    
    
    4.74
    %
    
    
    5.68
    %
    
    
    4.74
    %
    
    
    6.87
    %
    
    
    5.84
    %Total debt
    
    $
    27,019
    
    
    $
    161,043
    
    
    $
    263,798
    
    
    $
    34,595
    
    
    $
    280,768
    
    
    $
    999,226
    
    
    
    1,766,449Net discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,240
    )Total debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,762,209Interest rate derivativesInterest rate swaps
Variable to fixed
    
    
    
    
    
    
    
    
    
    $
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,000
    
    
    $
    1,461Average pay rate
    
    
    
    
    
    
    
    
    
    
    7.80
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.80
    %Average receive
rate
    
    
    
    
    
    
    
    
    
    
    6.87
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.87
    %
 Swap contracts, such as described above, contain a credit risk, in that the
counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by
evaluating the creditworthiness of our counterparties, who are limited to major banks and financial
institutions, and we do not anticipate nonperformance by the counterparties. The Standard & Poors
credit ratings for each of the financial institutions that are counterparties to our interest rate
swap agreements are AA- or better. 38




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##### Table of Contents



Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. We have no employees. FelCor as our sole general partner performs our management functions.
Under the supervision and with the participation of FelCors management, including its chief
executive officer and principal 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)
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, FelCors chief executive officer and principal
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 FelCors management, including its chief executive
officer and principal 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. 39




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##### Table of Contents



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 Exhibit31.1
    
    Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).32.2
    
    Certification of the Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
 40




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##### Table of Contents



SIGNATURE 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. Dated: May 9, 2005 FELCOR LODGING LIMITED PARTNERSHIPa Delaware Limited PartnershipBy:
    
    FelCor Lodging Trust IncorporatedIts General PartnerBy:
    
    /s/ Lester C. JohnsonLester C. JohnsonSenior Vice President and
Principal Accounting Officer
 41




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##### Table of Contents



INDEX TO EXHIBITS Exhibit Number
    
    Description of Exhibit31.1
    
    Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350).32.2
    
    Certification of the Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350).