UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

**Form 10-Q**

 

**(Mark One)**

 

|   | **/X/**   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF** |
|--------|---------------------|---------------------------------------------------------|

**THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended March 31, 2009**

 

**or**

 

|   | **/**   | **/**   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF** |
|--------|-------------------|-------------------|----------------------------------------------------------|

**THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from to**

 

**Commission file number 333-39595-01**

 

**FelCor Lodging Limited Partnership**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                    |   | **75-2544994**      |
|---------------------------------|--------|---------------------|
| (State or other jurisdiction of |   | (I.R.S. Employer    |
| incorporation or organization)  |   | Identification No.) |

 

| **545 E. John Carpenter Freeway, Suite 1300, Irving, Texas** |   | **75062**  |
|--------------------------------------------------------------|--------|------------|
| (Address of principal executive offices)                     |   | (Zip Code) |

 

**(972) 444-4900**

(Registrant’s telephone number, including area code)

 

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements            for the past 90 days.                          þ Yes oNo

 

      Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required            to submit and post such            files).                                                                            o Yes oNo

 

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check            one):

 

| Large accelerated filer  o                                                                    |   | Accelerated filer o         |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------|
| Non-accelerated filer    þ (Do not check if a smaller reporting company) |   | Smaller reporting company o |

 

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   oYes    þ No

 

 

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**FELCOR LODGING LIMITED PARTNERSHIP**

 

**INDEX**

 

 

|      |                                                                                                                                                    | Page      |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|      | **PART I. -- FINANCIAL INFORMATION**                                                                                                                    |      |
|      |                                                                                                                                                    |      |
| Item 1.   | Financial Statements                                                                                                                                    | 3         |
|      | Consolidated Balance Sheets March 31, 2009 and December 31, 2008 (unaudited)                                                                            | 3         |
|      | Consolidated Statements of Operations – For the Three Months Ended                                                                                |      |
|      | March 31, 2009 and 2008 (unaudited)                                                                                                                     | 4         |
|      | Consolidated Statements of Comprehensive Loss – For the Three Months                                                                              |      |
|      | Ended March 31, 2009 and 2008 (unaudited)                                                                                                               | 5         |
|      | Consolidated Statement of Partners’ Capital for the Year Ended December 31, 2008 and

the Three Months Ended March 31, 2009 (unaudited) |  

6 |
|      | Consolidated Statements of Cash Flows – For the Three Months Ended March 31,                                                                      |      |
|      | 2009 and 2008 (unaudited)                                                                                                                               | 7         |
|      | Notes to Consolidated Financial Statements                                                                                                              | 8         |
| Item 2.   | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                             | 22        |
|      | General                                                                                                                                                 | 22        |
|      | Financial Comparison                                                                                                                                    | 23        |
|      | Results of Operations                                                                                                                                   | 24        |
|      | Non-GAAP Financial Measures                                                                                                                             | 25        |
|      | Pro Rata Share of Rooms Owned                                                                                                                           | 29        |
|      | Hotel Portfolio Composition                                                                                                                             | 30        |
|      | Hotel Operating Statistics                                                                                                                              | 31        |
|      | Hotel Portfolio Listing                                                                                                                                 | 33        |
|      | Liquidity and Capital Resources                                                                                                                         | 35        |
|      | Inflation                                                                                                                                               | 37        |
|      | Seasonality                                                                                                                                             | 37        |
|      | Disclosure Regarding Forward-Looking Statements                                                                                                         | 37        |
| Item 3.   | Quantitative and Qualitative Disclosures about Market Risk                                                                                              | 38        |
| Item 4.   | Controls and Procedures                                                                                                                                 | 38        |
|      |                                                                                                                                                    |      |
|      | **PART II. – OTHER INFORMATION**                                                                                                                  |      |
|      |                                                                                                                                                    |      |
| Item 5.   | Other Information                                                                                                                                       | 39        |
| Item 6.   | Exhibits                                                                                                                                                | 39        |
|      |                                                                                                                                                    |
| SIGNATURE | 41                                                                                                                                                      |

 

 

2

 

----

**PART I. -- FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**CONSOLIDATED BALANCE SHEETS**

**(unaudited, in thousands)**

 

|                                                                                                                                 | **March 31,**

**2009** |              | **December 31, 2008** |
|--------------------------------------------------------------------------------------------------------------------------------------|-------------------------|-------------------|-----------------------|
| **Assets**                                                                                                                           |                    |              |                  |   |   |   |   |
| Investment in hotels, net of accumulated depreciation of $849,380 at

March 31, 2009 and $816,271 at December 31, 2008          |  

$               |  

2,261,572 |                  |   |  

$ |  

2,279,026 |   |
| Investment in unconsolidated entities                                                                                                |                    | 88,298            |                  |   |   | 94,506 |   |
| Cash and cash equivalents                                                                                                            |                    | 52,956            |                  |   |   | 50,187 |   |
| Restricted cash                                                                                                                      |                    | 12,372            |                  |   |   | 13,213 |   |
| Accounts receivable, net of allowance for doubtful accounts of $389 at March 31, 2009 and $521 at December 31, 2008             |                    |  

37,749    |                  |   |   |  

35,240 |   |
| Deferred expenses, net of accumulated amortization of $11,550 at

March 31, 2009 and $13,087 at December 31, 2008               |                    |  

7,017     |                  |   |   |  

5,556 |   |
| Other assets                                                                                                                         |                    | 31,192            |                  |   |   | 34,541 |   |
| Total assets                                                                                                                         | $                       | 2,491,156         |                  |   | $ | 2,512,269 |   |
| **Liabilities and Partners’ Capital**                                                                                          |                    |              |                  |   |   |   |   |
| Debt, net of discount of $1,409 at March 31, 2009 and $1,544 at 

December 31, 2008                                             |  

$               |  

1,565,159 |                  |   |  

$ |  

1,551,686 |   |
| Distributions payable                                                                                                                |                    | 8,545             |                  |   |   | 8,545 |   |
| Accrued expenses and other liabilities                                                                                               |                    | 129,826           |                  |   |   | 132,604 |   |
| Total liabilities                                                                                                                    |                    | 1,703,530         |                  |   |   | 1,692,835 |   |
| Commitments and contingencies                                                                                                        |                    |              |                  |   |   |   |   |
| Redeemable units at redemption value, 296 units issued and outstanding at March 31, 2009 and December 31, 2008             |                    | 402               |                  |   |   | 545 |   |
| Partners’ capital:                                                                                                             |                    |              |                  |   |   |   |   |
| Preferred units, $0.01 par value, 20,000 units authorized:                                                                           |                    |              |                  |   |   |   |   |
| Series A Cumulative Convertible Preferred Units, 12,880 units, 

issued and outstanding at March 31, 2009 and December 31, 2008 |                    |  

309,362   |                  |   |   |  

309,362 |   |
| Series C Cumulative Redeemable Preferred Units, 68 units, 

issued and outstanding at March 31, 2009 and December 31, 2008      |                    |  

169,412   |                  |   |   |  

169,412 |   |
| Common units, 69,413 units issued and outstanding at March 31, 2009 and December 31, 2008                                  |                    | 271,485           |                  |   |   | 300,913 |   |
| Accumulated other comprehensive income                                                                                               |                    | 13,709            |                  |   |   | 15,418 |   |
| Total FelCor LP partners’ capital                                                                                              |                    | 763,968           |                  |   |   | 795,105 |   |
| Noncontrolling interests in other partnerships                                                                                       |                    | 23,256            |                  |   |   | 23,784 |   |
| Total partners’ capital                                                                                                        |                    | 787,224           |                  |   |   | 818,889 |   |
| Total liabilities and partners’ capital                                                                                        | $                       | 2,491,156         |                  |   | $ | 2,512,269 |   |

 

 

 

 

 

 

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, 2009 and 2008**

**(unaudited, in thousands, except for per unit data)**

 

|                                                                             | **Three Months Ended ****     ****March 31,** |
|----------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
|                                                                             | **2009**                                                                    |   | **2008** |
| Revenues:                                                                        |                                                                        |   |   |   |   |   |   |
| Hotel operating revenue                                                          | $                                                                           | 234,002 |   |   | $ | 291,547 |   |
| Other revenue                                                                    |                                                                        | 286 |   |   |   | 328 |   |
| Total revenues                                                                   |                                                                        | 234,288 |   |   |   | 291,875 |   |
|                                                                             |                                                                        |   |   |   |   |   |   |
| Expenses:                                                                        |                                                                        |   |   |   |   |   |   |
| Hotel departmental expenses                                                      |                                                                        | 81,578 |   |   |   | 97,126 |   |
| Other property related costs                                                     |                                                                        | 67,307 |   |   |   | 77,125 |   |
| Management and franchise fees                                                    |                                                                        | 11,507 |   |   |   | 15,902 |   |
| Taxes, insurance and lease expense                                               |                                                                        | 25,031 |   |   |   | 29,304 |   |
| Corporate expenses                                                               |                                                                        | 6,122 |   |   |   | 6,827 |   |
| Depreciation and amortization                                                    |                                                                        | 37,385 |   |   |   | 33,768 |   |
| Impairment loss                                                                  |                                                                        | 1,368 |   |   |   | 17,131 |   |
| Other expenses                                                                   |                                                                        | 696 |   |   |   | 933 |   |
| Total operating expenses                                                         |                                                                        | 230,994 |   |   |   | 278,116 |   |
|                                                                             |                                                                        |   |   |   |   |   |   |
| Operating income                                                                 |                                                                        | 3,294 |   |   |   | 13,759 |   |
| Interest expense, net                                                            |                                                                        | (21,292 | ) |   |   | (26,003 | ) |
| Loss before equity in loss from unconsolidated entities                          |                                                                        | (17,998 | ) |   |   | (12,244 | ) |
| Equity in loss from unconsolidated entities                                      |                                                                        | (3,424 | ) |   |   | (622 | ) |
| Loss from continuing operations                                                  |                                                                        | (21,422 | ) |   |   | (12,866 | ) |
| Discontinued operations                                                          |                                                                        | -    |   |   |   | (13 | ) |
| Net loss                                                                         |                                                                        | (21,422 | ) |   |   | (12,879 | ) |
| Net loss (income) attributable to noncontrolling interests in other partnerships |                                                                        | 216 |   |   |   | (71 | ) |
| Net loss attributable to FelCor LP                                               |                                                                        | (21,206 | ) |   |   | (12,950 | ) |
| Preferred distributions                                                          |                                                                        | (9,678 | ) |   |   | (9,678 | ) |
| Net loss applicable to FelCor LP common unitholders                              | $                                                                           | (30,884 | ) |   | $ | (22,628 | ) |
|                                                                             |                                                                        |   |   |   |   |   |   |
| Basic and diluted per common unit data:                                          |                                                                        |   |   |   |   |   |   |
| Net loss from continuing operations attributable to FelCor LP common unitholders | $                                                                           | (0.49 | ) |   | $ | (0.36 | ) |
| Net loss attributable to FelCor LP common unitholders                            | $                                                                           | (0.49 | ) |   | $ | (0.36 | ) |
| Basic and diluted weighted average common units outstanding                      |                                                                        | 63,285 |   |   |   | 63,068 |   |
| Cash distributions declared on common units                                      | $                                                                           | -    |   |   | $ | 0.35 |   |

 

 

 

 

 

 

 

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

 

4

 

----

 

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**

**For the Three Months Ended March 31, 2009 and 2008**

**(unaudited, in thousands)**

 

 

|                                                                                       | **Three Months Ended** |
|--------------------------------------------------------------------------------------------|------------------------|
|                                                                                       | **March 31,**          |
|                                                                                       | **2009**               |   | **2008** |
| Net loss                                                                                   | $                      | (21,422 | ) |   | $ | (12,879 | ) |
| Foreign currency translation adjustment                                                    |                   | (1,709 | ) |   |   | (1,730 | ) |
| Comprehensive loss                                                                         |                   | (23,131 | ) |   |   | (14,609 | ) |
| Comprehensive loss (income) attributable to noncontrolling interests in other partnerships |                   | 216 |   |   |   | (71 | ) |
| Comprehensive loss attributable to FelCor LP                                               | $                      | (22,915 | ) |   | $ | (14,680 | ) |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

5

 

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**FELCOR LODGING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL**

**For the Year Ended December** **31, 2008 and the Three Months Ended March** **31, 2009**

**(unaudited, in thousands)**

 

 

|                                               | **Preferred Units** |                | **Partnership Units** |   | **Accumulated Other Comprehensive Income (Loss)** |                |   | **Noncontrolling Interests** |   | **Total Partners’ Capital** |
|----------------------------------------------------|---------------------|---------------------|-----------------------|--------|---------------------------------------------------|---------------------|--------|------------------------------|--------|-----------------------------------|
| **Balance at December 31, 2007**                   | $                   | 478,774             |                  |   | $                                                 | 490,979             |   |                         | $      | 27,450                            |   |   |   | $ | 25,264 |   |   | $ | 1,022,467 |   |
| Foreign exchange translation                       |                | -    |                  |   |                                              | -    |   |                         |   | (12,032                           | ) |   |   |   | -    |   |   |   | (12,032 | ) |
| FelCor restricted stock compensation               |                | -    |                  |   |                                              | 4,956               |   |                         |   | -                  |   |   |   |   | -    |   |   |   | 4,956 |   |
| Contributions                                      |                | -    |                  |   |                                              | -    |   |                         |   | -                  |   |   |   |   | 565 |   |   |   | 565 |   |
| Distributions                                      |                | -    |                  |   |                                              | (93,868             | )      |                         |   | -                  |   |   |   |   | (3,236 | ) |   |   | (97,104 | ) |
| Allocation to redeemable units                     |                | -    |                  |   |                                              | 20,562              |   |                         |   | -                  |   |   |   |   | -    |   |   |   | 20,562 |   |
| Costs related to FelCor’s shelf registration |                | -    |                  |   |                                              | (38                 | )      |                         |   | -                  |   |   |   |   | -    |   |   |   | (38 | ) |
| Net income (loss)                                  |                | -    |                  |   |                                              | (121,678            | )      |                         |   | -                  |   |   |   |   | 1,191 |   |   |   | (120,487 | ) |
| **Balance at December 31, 2008**                   |                | 478,774             |                  |   |                                              | 300,913             |   |                         |   | 15,418                            |   |   |   |   | 23,784 |   |   |   | 818,889 |   |
| Foreign exchange translation                       |                | -    |                  |   |                                              | -    |   |                         |   | (1,709                            | ) |   |   |   | -    |   |   |   | (1,709 | ) |
| FelCor restricted stock compensation               |                | -    |                  |   |                                              | 1,319               |   |                         |   | -                  |   |   |   |   | -    |   |   |   | 1,319 |   |
| Contributions                                      |                | -    |                  |   |                                              | -    |   |                         |   | -                  |   |   |   |   | 85 |   |   |   | 85 |   |
| Distributions                                      |                | -    |                  |   |                                              | (9,678              | )      |                         |   | -                  |   |   |   |   | (397 | ) |   |   | (10,075 | ) |
| Allocation to redeemable units                     |                | -    |                  |   |                                              | 143                 |   |                         |   | -                  |   |   |   |   | -    |   |   |   | 143 |   |
| Other                                              |                | -    |                  |   |                                              | (6                  | )      |                         |   | -                  |   |   |   |   | -    |   |   |   | (6 | ) |
| Net loss                                           |                | -    |                  |   |                                              | (21,206             | )      |                         |   | -                  |   |   |   |   | (216 | ) |   |   | (21,422 | ) |
| **Balance at March** **31, 2009**             | $                   | 478,774             |                  |   | $                                                 | 271,485             |   |                         | $      | 13,709                            |   |   |   | $ | 23,256 |   |   | $ | 787,224 |   |

 

 

 

 

 

 

 

 

 

 

 

 

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

 

6

 

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**FELCOR LODGING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For the Three Months Ended March 31, 2009 and 2008**

**(unaudited, in thousands)**

 

 

|                                                                            | **Three Months Ended**

**March 31,** |
|---------------------------------------------------------------------------------|---------------------------------------|
|                                                                            | **2009**                              |   | **2008** |
| Cash flows from operating activities:                                           |                                  |   |   |   |   |   |   |
| Net loss                                                                        | $                                     | (21,422 | ) |   | $ | (12,879 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: |                                  |   |   |   |   |   |   |
| Depreciation and amortization                                                   |                                  | 37,385 |   |   |   | 33,768 |   |
| Amortization of deferred financing fees and debt discount                       |                                  | 714 |   |   |   | 718 |   |
| Amortization of unearned officers’ and directors’ compensation      |                                  | 1,398 |   |   |   | 1,265 |   |
| Equity in loss from unconsolidated entities                                     |                                  | 3,424 |   |   |   | 622 |   |
| Distributions of income from unconsolidated entities                            |                                  | 585 |   |   |   | 819 |   |
| Impairment loss on hotels                                                       |                                  | 1,368 |   |   |   | 17,131 |   |
| Changes in assets and liabilities:                                              |                                  |   |   |   |   |   |   |
| Accounts receivable                                                             |                                  | (1,776 | ) |   |   | (11,863 | ) |
| Restricted cash – operations                                              |                                  | 897 |   |   |   | (1,697 | ) |
| Other assets                                                                    |                                  | 1,242 |   |   |   | 3,170 |   |
| Accrued expenses and other liabilities                                          |                                  | 634 |   |   |   | 16,428 |   |
| Net cash flow provided by operating activities                                  |                                  | 24,449 |   |   |   | 47,482 |   |
|                                                                            |                                  |   |   |   |   |   |   |
| Cash flows from investing activities:                                           |                                  |   |   |   |   |   |   |
| Improvements and additions to hotels                                            |                                  | (25,274 | ) |   |   | (42,374 | ) |
| Additions to condominium project                                                |                                  | (48 | ) |   |   | -    |   |
| Decrease in restricted cash – investing                                   |                                  | (56 | ) |   |   | 424 |   |
| Redemption of investment securities                                             |                                  | 473 |   |   |   | 2,525 |   |
| Cash distributions from unconsolidated entities                                 |                                  | 2,200 |   |   |   | 21,458 |   |
| Capital contribution to unconsolidated entities                                 |                                  | -    |   |   |   | (5,995 | ) |
| Net cash flow used in investing activities                                      |                                  | (22,705 | ) |   |   | (23,962 | ) |
|                                                                            |                                  |   |   |   |   |   |   |
| Cash flows from financing activities:                                           |                                  |   |   |   |   |   |   |
| Proceeds from borrowings                                                        |                                  | 198,317 |   |   |   | 40,000 |   |
| Repayment of borrowings                                                         |                                  | (184,980 | ) |   |   | (16,942 | ) |
| Payment of deferred financing fees                                              |                                  | (1,982 | ) |   |   | -    |   |
| Distributions paid to other partnerships’ noncontrolling interests        |                                  | (397 | ) |   |   | (1,000 | ) |
| Contributions from noncontrolling interests                                     |                                  | 85 |   |   |   | 537 |   |
| Distributions paid to preferred unitholders                                     |                                  | (9,678 | ) |   |   | (9,678 | ) |
| Distributions paid to common unitholders                                        |                                  | -    |   |   |   | (22,418 | ) |
| Net cash flow provided by (used in) financing activities                        |                                  | 1,365 |   |   |   | (9,501 | ) |
|                                                                            |                                  |   |   |   |   |   |   |
| Effect of exchange rate changes on cash                                         |                                  | (340 | ) |   |   | (303 | ) |
| Net change in cash and cash equivalents                                         |                                  | 2,769 |   |   |   | 13,716 |   |
| Cash and cash equivalents at beginning of periods                               |                                  | 50,187 |   |   |   | 57,609 |   |
| Cash and cash equivalents at end of periods                                     | $                                     | 52,956 |   |   | $ | 71,325 |   |
|                                                                            |                                  |   |   |   |   |   |   |
| Supplemental cash flow information — interest paid                        | $                                     | 13,105 |   |   | $ | 17,061 |   |

 

 

 

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

 

7

 

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**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

| **1.** | **Organization** |
|--------|------------------|

 

FelCor Lodging Limited Partnership, or FelCor LP, held ownership interests in 88 hotels with more than 25,000 rooms and suites at March 31, 2009. The sole general partner of FelCor LP is FelCor Lodging Trust Incorporated (NYSE:FCH), or FelCor, a Maryland corporation operating as a real estate investment trust, or REIT. All of FelCor’s operations are conducted solely through            FelCor LP and at March 31, 2009, FelCor owned greater than 99% partnership interest in FelCor LP.

 

Of the 88 hotels in which we had an ownership interest at March 31, 2009, we owned a 100% interest in 66 hotels, a 90% or greater interest in entities owning four hotels, a 75% interest in an entity owning one hotel, a 60% interest in an entity owning one hotel and a 50% interest in entities owning 16 hotels. We leased 87 of our hotels to operating lessees and one 50%-owned hotel is            operated without a lease.

 

We consolidated the operating lessees of 85 of our hotels (which we refer to as our Consolidated Hotels) because of our controlling interest in those operating lessees. These hotels include 13 of the 16 hotels in which we had a 50% ownership interest at March 31, 2009.  The hotel operating revenues and expenses of our other three hotels (in which we had a 50% ownership interest)            were not consolidated.

 

At March 31, 2009, we had an aggregate of 65,060,330 redeemable and common units of FelCor LP outstanding. 

 

          The following table illustrates the distribution of our 85 Consolidated Hotels among our various brands at March 31, 2009:

 

| **Brand**                          | **Hotels** |   | **Rooms** |
|------------------------------------|------------|--------|-----------|
| Embassy Suites Hotels®         |       | 47     |      |   | 12,132 |   |
| Holiday Inn®                   |       | 17     |      |   | 6,306 |   |
| Sheraton® and Westin®      |       | 9      |      |   | 3,217 |   |
| Doubletree®                    |       | 7      |      |   | 1,471 |   |
| Marriott® and Renaissance® |       | 3      |      |   | 1,321 |   |
| Hilton®                        |       | 2      |      |   | 559 |   |
| Total hotels                       |       | 85     |      |   |   |   |

 

          At March 31, 2009, our Consolidated Hotels were located in the United States (83 hotels in 23 states) and Canada (two hotels in Ontario), with concentrations in California (15 hotels), Florida (14 hotels) and Texas (11 hotels). Approximately 54% of our hotel room revenues were generated from hotels in these            three states during 2009.

 

          At March 31, 2009, of our 85 Consolidated Hotels (i) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 54 hotels, (ii) subsidiaries of InterContinental Hotels Group, or IHG, managed 17 hotels, (iii) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood, managed nine hotels,            (iv) subsidiaries of Marriott International Inc., or Marriott, managed three hotels, and (iv) independent management companies managed two hotels.

 

          Our hotels managed by Marriott are accounted for on a fiscal year comprised of 52 or 53 weeks ending on the Friday closest to December 31. Their 2009 and 2008 first fiscal quarters ended on March 27, 2009 and March 21, 2008, respectively.

 

8

 

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**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

| **1.** | **Organization – (continued)** |
|--------|--------------------------------------|

 

          The information in our consolidated financial statements for the three months ended March 31, 2009 and 2008 is unaudited. Preparing financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect            the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements for the three months ended March 31, 2009 and 2008, 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, 2008, included in our Annual Report on 

Form 10-K.  Operating results for the three months ended March 31, 2009 are not necessarily indicative of actual operating results for the entire year. 

 

| **2.** | **Investment in Unconsolidated Entities** |
|--------|-------------------------------------------|

 

          We owned 50% interests in joint venture entities that owned 16 hotels at March 31, 2009 and 17 hotels at December 31, 2008. We also owned a 50% interest in joint venture entities that own real estate in Myrtle Beach, South Carolina, provide condominium management services and lease three 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 depreciation of our excess basis in investment in unconsolidated entities when compared to the historical basis of the assets recorded by the joint ventures.

 

The following table summarizes combined financial information for our unconsolidated entities (in thousands):

 

|                                                  | **March 31, 2009** |    | **December** **31, 2008** |
|-------------------------------------------------------|--------------------|---------|--------------------------------|
| Balance sheet information:                            |               |    |                           |   |   |
| Investment in hotels, net of accumulated depreciation | $                  | 279,558 |                           | $ | 290,504 |
| Total assets                                          | $                  | 301,923 |                           | $ | 317,672 |
| Debt                                                  | $                  | 220,662 |                           | $ | 224,440 |
| Total liabilities                                     | $                  | 228,407 |                           | $ | 233,296 |
| Equity                                                | $                  | 73,516  |                           | $ | 84,376 |

 

Our unconsolidated entities’ debt at March 31, 2009 and December 31, 2008 consisted entirely of non-recourse mortgage debt.

 

 

9

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

| **2.** | **Investment in Unconsolidated Entities – (continued)** |
|--------|---------------------------------------------------------------|

 

          Summarized combined statement of operations information for our unconsolidated entities follows (in thousands):

 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Three Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **March 31,**          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **2009**               |   | **2008** |   |
| Total revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $                      | 14,738 |   |   | $ | 18,943 |   |
| Net loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | $                      | (1,799 | ) |   | $ | (178 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   |   |   |   |   |   |   |
| Net loss attributable to FelCor LP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $                      | (889   | ) |   | $ | (155 | ) |
| Impairment loss                                                                                                                   |                   | (2,068 | )(a) |   |   | -    |   |
| Depreciation of cost in excess of book value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                   | (467   | ) |   |   | (467 | ) |
| Equity in loss from unconsolidated entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $                      | (3,424 | ) |   | $ | (622 | ) |

 

|   | (a) | One of our unconsolidated investments recorded an impairment charge for one of its held-for-sale assets under the provisions of SFAS 144. The SFAS 144 impairment recorded by the unconsolidated entity was based on a sales contract for one of the entity’s assets (a Level 1 input under SFAS 157) which closed on April 23, 2009. As a result of this                            charge, the net book value of the joint venture’s assets no longer supported the recovery of our investment. Therefore, we recorded an impairment charge to reduce our investment in this joint venture to zero. We have no obligation to provide this joint venture with future funding. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | The components of our investment in unconsolidated entities are summarized as follows (in thousands): |
|--------|-------------------------------------------------------------------------------------------------------|

 

|                                              | **March** **31,**

**2009** |   | **December 31, 2008** |
|---------------------------------------------------|----------------------------------|--------|-----------------------|
| Hotel related-investments                         | $                                | 28,028 |                  |   | $ | 31,102 |   |
| Cost in excess of book value of hotel investments |                             | 49,398 |                  |   |   | 51,933 |   |
| Land and condominium investments                  |                             | 10,872 |                  |   |   | 11,471 |   |
|                                              | $                                | 88,298 |                  |   | $ | 94,506 |   |

 

|   | The components of our equity in loss from unconsolidated entities are summarized as follows (in thousands): |
|--------|-------------------------------------------------------------------------------------------------------------|

 

|                                        | **Three Months Ended**

**March 31,** |
|---------------------------------------------|---------------------------------------|
|                                        | **2009**                              |   | **2008** |
| Hotel investments                           | $                                     | (2,826 | ) |   | $ | 33 |   |
| Other investments                           |                                  | (598 | ) |   |   | (655 | ) |
| Equity in loss from unconsolidated entities | $                                     | (3,424 | ) |   | $ | (622 | ) |

 

          In the first quarter of 2009, a 50%-owned joint venture entity sold the Ramada Hotel in Hays, Kansas for gross proceeds of $2.8 million. All proceeds from this sale were used to repay the debt of this venture.

 

10

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

| **3.** | **Debt** |
|--------|----------|

 

Debt at March 31, 2009 and December 31, 2008 consisted of the following (in thousands):

 

|                                      |                      |   |                 |   |               |   | **Balance Outstanding** |
|-------------------------------------------|---------------------------|--------|----------------------|--------|--------------------|--------|-------------------------|
|                                      | **Encumbered**            |   | **Interest Rate at** |   |               |   | **March 31,**           |   | **December 31,** |
|                                      | **Hotels**                |   | **March 31, 2009**   |   | **Maturity Date**  |   | **2009**                |   | **2008** |
| Senior term notes                         | none                      |   | 9.00%(a)             |   | June 2011          |   | $                       | 299,477 |   | $ | 299,414 |
| Senior term notes                         | none                      |   | L + 1.875            |   | December 2011      |   |                    | 215,000 |   |   | 215,000 |
| Line of credit(b)                         | none                      |   | L + 1.00             |   | August 2011(c)     |   |                    | 128,000 |   |   | 113,000 |
| Total line of credit 

and senior debt(d) |                      |   |  

5.71         |   |               |   |                    |  

642,477 |   |   |  

627,414 |
|                                      |                      |   |                 |   |               |   |                    |   |   |   |   |
| Mortgage debt                             | 12 hotels                 |   | L + 0.93(e)          |   | November 2011(f)   |   |                    | 250,000 |   |   | 250,000 |
| Mortgage debt                             | 2 hotels                  |   | L + 1.55(g)          |   | May 2012(h)        |   |                    | 176,339 |   |   | 176,267 |
| Mortgage debt                             | 8 hotels                  |   | 8.70                 |   | May 2010           |   |                    | 161,206 |   |   | 162,250 |
| Mortgage debt(i)                          | 7 hotels                  |   | 9.02                 |   | April 2014         |   |                    | 118,293 |   |   | 117,131 |
| Mortgage debt                             | 6 hotels                  |   | 8.73                 |   | May 2010           |   |                    | 115,418 |   |   | 116,285 |
| Mortgage debt                             | 5 hotels                  |   | 6.66                 |   | June - August 2014 |   |                    | 72,111 |   |   | 72,517 |
| Mortgage debt                             | 2 hotels                  |   | 6.15                 |   | June 2009          |   |                    | 14,518 |   |   | 14,641 |
| Mortgage debt                             | 1 hotel                   |   | 5.81                 |   | July 2016          |   |                    | 12,038 |   |   | 12,137 |
| Other                                     | 1 hotel    |   | various              |   | various            |   |                    | 2,759 |   |   | 3,044 |
| Total mortgage debt(d)                    | 44 hotels                 |   | 5.27                 |   |               |   |                    | 922,682 |   |   | 924,272 |
| Total                                     |                      | 5.45%  |                 |   |               | $      | 1,565,159               |   | $ | 1,551,686 |

 

|   | (a) | Our senior notes are currently rated B2 and B by Moody’s Investor Service and Standard & Poor’s Rating Services, respectively. As a result of rating downgrading of our senior notes, the interest rate on $300 million of our senior notes due 2011 was increased by 50 basis points to 9.0%, effective February 13, 2009. If either                            Moody’s or Standard & Poor’s increases our senior note ratings to Ba3 or BB-, respectively, the interest rate would decrease to 8.5%. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | We have a $250 million line of credit, of which $128 million was outstanding at March 31, 2009. The interest rate can range from 80 to 150 basis points over LIBOR, based on our leverage ratio as defined in our line of credit agreement. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | This can be extended to 2012 under certain conditions. |
|--------|-----|--------------------------------------------------------|

|   | (d) | Interest rates are calculated based on the weighted average debt outstanding at March 31, 2009. |
|--------|-----|------------------------------------------------------------------------------------------------------|

|   | (e) | We have purchased an interest rate cap that caps LIBOR at 7.8% and expires in November 2009 for this notional amount. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------|

|   | (f) | The maturity date assumes that we will exercise the remaining two one-year extension options that permit, at our sole discretion, the current November 2009 maturity to be extended to 2011. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | We have purchased interest rate caps that cap LIBOR at 6.5% and expire in May 2010 for aggregate notional amounts of $177 million. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | (h) | We have exercised the first of three successive one-year extension options that permit, at our sole discretion, the original May 2009 maturity to be extended to 2012. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (i) | This debt was refinanced in March 2009. |
|--------|-----|-----------------------------------------|

 

11

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

| **3.** | **Debt – (continued)** |
|--------|------------------------------|

 

          We reported interest expense of $21.3 million and $26.0 million for the three months ended March 31, 2009 and 2008, respectively, which is net of: (i) interest income of $0.2 million and $0.6 million, respectively, and (ii) capitalized interest of $0.2 million and $0.4 million,            respectively. 

 

Our line of credit contains certain restrictive financial covenants, with which we were in compliance at the date of this filing. Our compliance with these covenants in future periods will depend substantially on the financial results of our hotels. If current financial market conditions persist and our business continues to deteriorate, we may fail to comply with one or more of these            covenants in 2009. 

 

We have agreed in principle on the material terms with the lead lender of a new $200 million term loan, which would be secured by first mortgages on nine currently unencumbered hotels and, assuming all extension options are exercised, will not mature until 2013. This loan would not be subject to any corporate financial covenants and would only be recourse to the borrower, a            to-be-formed wholly-owned subsidiary. While we believe that we will successfully close our new secured term loan, as discussed above, we have several other alternatives available to ensure continued compliance with our financial covenants or repay our line of credit, including identifying other sources of debt or equity financing, selling unencumbered hotels and/or implementing additional cost cutting measures. Of course, we can provide no assurance that we will be able to close our            new secured term loan, identify additional sources of debt or equity financing or sell hotels on terms that are favorable or otherwise acceptable to us.

 

In March 2009, we entered into a loan agreement with The Prudential Insurance Company of America secured by mortgages on seven hotels.  The proceeds of the loan were used to repay the balance of an existing loan secured by the same properties that would have matured on April 1, 2009.  The loan matures in 2014 and bears interest at an annual rate of 9.02%.  FelCor            has the right to prepay the loan and/or obtain partial release of one or more of the mortgages, subject to certain conditions. 

 

| **4.** | **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 Ended**

**March 31,** |
|-------------------------------|---------------------------------------|
|                          | **2009**                              |   | **2008** |
| Room revenue                  | $                                     | 183,000 |   |   | $ | 230,132 |   |
| Food and beverage revenue     |                                  | 37,113 |   |   |   | 46,508 |   |
| Other operating departments   |                                  | 13,889 |   |   |   | 14,907 |   |
| Total hotel operating revenue | $                                     | 234,002 |   |   | $ | 291,547 |   |

 

For both of the three month periods ended March 31, 2009 and 2008, nearly all of our revenue was comprised of hotel operating revenue, 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, which are recorded as a bad debt expense. The remainder of our revenue was derived from other sources.

 

12

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

| **4.** | **Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs – (continued)** |
|--------|-----------------------------------------------------------------------------------------------------------|

 

Hotel departmental expenses from continuing operations were comprised of the following (in thousands):

 

|                              | **Three Months Ended March 31,**   |
|-----------------------------------|------------------------------------|
|                              | **2009**                           |   | **2008** |
|                              |  

 

 

**Amount** |   | **% of Total Hotel**

**Operating Revenue** |   |  

 

 

**Amount** |   | **% of Total Hotel**

**Operating Revenue** |
| Room                              | $                                  | 46,500 |   |   | 19.9 | % |   | $ | 54,651 |   |   | 18.7 | % |
| Food and beverage                 |                               | 28,871 |   |   | 12.3 |   |   |   | 35,446 |   |   | 12.2 |   |
| Other operating departments       |                               | 6,207 |   |   | 2.7 |   |   |   | 7,029 |   |   | 2.4 |   |
| Total hotel departmental expenses | $                                  | 81,578 |   |   | 34.9 | % |   | $ | 97,126 |   |   | 33.3 | % |

 

Other property operating costs from continuing operations were comprised of the following (in thousands):

 

|                                     | **Three Months Ended March 31,**   |
|------------------------------------------|------------------------------------|
|                                     | **2009**                           |   | **2008** |
|                                     |  

 

 

**Amount** |   | **% of Total Hotel**

**Operating Revenue** |   |  

 

 

**Amount** |   | **% of Total Hotel**

**Operating Revenue** |
| Hotel general and administrative expense | $                                  | 21,618 |   |   | 9.2 | % |   | $ | 25,261 |   |   | 8.7 | % |
| Marketing                                |                               | 19,925 |   |   | 8.5 |   |   |   | 23,938 |   |   | 8.2 |   |
| Repair and maintenance                   |                               | 12,984 |   |   | 5.6 |   |   |   | 14,761 |   |   | 5.1 |   |
| Utilities                                |                               | 12,780 |   |   | 5.5 |   |   |   | 13,165 |   |   | 4.5 |   |
| Total other property operating costs     | $                                  | 67,307 |   |   | 28.8 | % |   | $ | 77,125 |   |   | 26.5 | % |

 

          Hotel departmental expenses and other property operating costs include hotel employee compensation and benefit expenses of $74.1 million and $84.6 million for the three months ended March 31, 2009 and 2008, respectively.

| **5.** | **Taxes, Insurance and Lease Expense** |
|--------|----------------------------------------|

 

          Taxes, insurance and lease expense from continuing operations were comprised of the following (in thousands):

 

|                                                      | **Three Months Ended March 31,** |
|-----------------------------------------------------------|----------------------------------|
|                                                      | **2009**                         |   | **2008** |
| Operating lease expense(a)                                | $                                | 12,247 |   |   | $ | 14,836 |   |
| Real estate and other taxes                               |                             | 9,203 |   |   |   | 10,874 |   |
| Property insurance, general liability insurance and other |                             | 3,581 |   |   |   | 3,594 |   |
| Total taxes, insurance and lease expense                  | $                                | 25,031 |   |   | $ | 29,304 |   |

 

|   | (a) | Includes lease expense related to our 51%-owned operating lessees of $10.1 million and $12.2 million (paid to 13 of our unconsolidated, 50%-owned ventures) and $2.2 million and $2.6 million of ground lease expense for the three months ended March 31, 2009 and 2008, respectively. Operating lease expense includes percentage rent                            (based on operating results) of $4.4 million and $6.8 million for the three months ended March 31, 2009 and 2008, respectively. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

13

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **6.** | **Impairment Charge** |
|--------|-----------------------|

 

Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider our hotels to be components as defined by SFAS No. 144 for purposes of determining impairment charges and reporting discontinued operations.

 

          During 2008, we identified eight hotels as candidates to be sold and tested them for impairment (three no longer are identified as candidates for sale and five hotels remain sale candidates). Of the hotels tested, two failed the test under SFAS No. 144, which resulted in a $17.1 million impairment charge in the quarter            ended March 31, 2008 to write down these hotel assets to our then current estimate of their fair market value before selling expenses. During the quarter ended March 31, 2009, we recorded an impairment charge of $1.4 million on one of the five remaining sale candidates based on an offer to purchase received from a third party (a Level 2 input under SFAS 157) at a price less than our previously estimated fair value. Under current market conditions, we do not consider a            sale to be probable within the next twelve months (i.e. held for sale under SFAS 144) until a buyer has completed its due diligence review of the asset, we have an executed a contract for sale, and have received a substantial non-refundable deposit. The hotels identified as sale candidates continue to be depreciated over their remaining useful lives.

 

          We may be subject to additional impairment charges in the event that operating results of individual hotels are materially different from our forecasts, the economy or lodging industry weakens, or we shorten our contemplated holding period for certain of our hotels.

 

14

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **7.** | **Loss Per Unit** |
|--------|-------------------|

 

The computation of basic and diluted loss per unit is as follows (in thousands, except per unit data):

 

|                                                                             | **Three Months Ended**

**March 31,** |
|----------------------------------------------------------------------------------|---------------------------------------|
|                                                                             | **2009**                              |   | **2008** |
| Numerator:                                                                       |                                  |   |   |   |   |   |   |
| Loss from continuing operations                                                  | $                                     | (21,422 | ) |   | $ | (12,866 | ) |
| Net loss (income) attributable to noncontrolling interests in other partnerships |                                  | 216 |   |   |   | (71 | ) |
| Net loss from continuing operations attributable to FelCor LP                    |                                  | (21,206 | ) |   |   | (12,937 | ) |
| Less: Preferred distributions                                                    |                                  | (9,678 | ) |   |   | (9,678 | ) |
| Loss from continuing operations applicable to FelCor LP common unitholders       |                                  | (30,884 | ) |   |   | (22,615 | ) |
| Discontinued operations                                                          |                                  | -    |   |   |   | (13 | ) |
| Net loss applicable to FelCor LP common unitholders                              | $                                     | (30,884 | ) |   | $ | (22,628 | ) |
| Denominator:                                                                     |                                  |   |   |   |   |   |   |
| Denominator for basic loss per unit                                              |                                  | 63,285 |   |   |   | 63,068 |   |
| Denominator for diluted loss per unit                                            |                                  | 63,285 |   |   |   | 63,068 |   |
|                                                                             |                                  |   |   |   |   |   |   |
| Loss per unit data:                                                              |                                  |   |   |   |   |   |   |
| Basic:                                                                           |                                  |   |   |   |   |   |   |
| Loss from continuing operations attributable to FelCor LP                        | $                                     | (0.49 | ) |   | $ | (0.36 | ) |
| Discontinued operations                                                          | $                                     | -    |   |   | $ | -    |   |
| Net loss attributable to FelCor LP                                               | $                                     | (0.49 | ) |   | $ | (0.36 | ) |
|                                                                             |                                  |   |   |   |   |   |   |
| Diluted:                                                                         |                                  |   |   |   |   |   |   |
| Loss from continuing operations attributable to FelCor LP                        | $                                     | (0.49 | ) |   | $ | (0.36 | ) |
| Discontinued operations                                                          | $                                     | -    |   |   | $ | -    |   |
| Net loss attributable to FelCor LP                                               | $                                     | (0.49 | ) |   | $ | (0.36 | ) |

 

          The following securities, which could potentially dilute basic earnings per unit in the future, were not included in the computation of diluted loss per unit because they would have been antidilutive for the periods presented (in thousands):

 

|                                 | **Three Months Ended** |
|--------------------------------------|------------------------|
|                                 | **March 31,**          |
|                                 | **2009**               |   | **2008** |
| FelCor unvested restricted stock     |                   | 128 |   |   |   | 126 |   |
| Series A convertible preferred units |                   | 9,985 |   |   |   | 9,985 |   |

 

          Series A preferred distributions that would be excluded from net loss applicable to FelCor LP common unitholders, if these Series A preferred units were dilutive, were $6.3 million for the three months ended both March 31, 2009 and 2008.

 

15

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

|   | **8.** | **Suspension of Distributions** |
|--------|--------|---------------------------------|

 

We suspended our common distributions in December 2008 and our preferred distributions in March 2009. Although distributions are not paid unless declared by FelCor’s Board of Directors, unpaid preferred distributions continue to accrue, and accrued and current preferred distributions must be paid in full prior to payment of any common distributions. FelCor’s Board of            Directors will determine whether to declare future distributions based upon various factors, including operating results, economic conditions, other operating trends, its financial condition and capital requirements, as well as FelCor’s minimum REIT distribution requirements. 

 

| **9.** | **Application of New Accounting Standards** |
|--------|---------------------------------------------|

 

Effective January 1, 2009, we adopted the provisions of SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements,” which establishes and expands accounting and reporting standards for minority interests (which are recharacterized as noncontrolling interests) in a subsidiary and the deconsolidation of a subsidiary. As a result of our adoption of this            standard, amounts previously reported as minority interests in other partnerships on our balance sheets are now presented as noncontrolling interests in other partnerships within partners’ capital. The revised presentation and measurement required by SFAS 160 has been adopted retrospectively. 

 

Also effective with the adoption SFAS 160, previously reported minority interests have been recharacterized on the accompanying statement of operations to noncontrolling interests and placed below net loss before arriving at net loss attributable to FelCor LP.

 

In April 2009, the FASB issued FASB Staff Position 107-1 and APB 28-1 which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. We plan to adopt this FSP in the second quarter of 2009 and do not believe it will have a material effect on our financial position and results of            operations.

 

In April 2009, the FASB issued FASB Staff Position 157-4 which provides guidance on estimating fair values when the volume and level of activity for the asset and liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. If the weight of evidence indicates that the transaction is not orderly, a reporting            entity shall place little, if any, weight on that transaction price when estimating fair value. We plan to adopt this FSP in the second quarter of 2009 and believe it could have a material effect on our financial position to the extent we are estimating fair values to be recorded in the financial statements for assets or liabilities in markets where the volume and activity for the asset or liability has significantly decreased.

 

16

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **10.** | **Consolidating Financial Information** |
|---------|-----------------------------------------|

 

Certain of our wholly-owned subsidiaries (FelCor/CSS Holdings, L.P.; FelCor Pennsylvania Company, L.L.C.; FelCor Lodging Holding Company, L.L.C.; Myrtle Beach Hotels, L.L.C.; FelCor TRS Borrower 1, L.P.; FelCor TRS Borrower 3, L.P.; FelCor TRS Borrower 4, L.L.C.; FelCor TRS Guarantor, L.P.; Center City Hotel Associates; FelCor Lodging Company, L.L.C.; FelCor TRS Holdings, L.P.; FHAC            Texas Holdings, L.P.; FelCor Omaha Hotel Company, L.L.C.; FelCor Canada Co.; FelCor/St. Paul Holdings, L.P. and FelCor Hotel Asset Company, L.L.C., collectively, “Subsidiary Guarantors”), together with FelCor, guarantee, fully and unconditionally, and jointly and severally, our senior debt. The following tables present consolidating information for the Subsidiary Guarantors.

 

**CONSOLIDATING BALANCE SHEET**

**March 31, 2009**

**(in thousands)**

 

| **ASSETS**                                                 |
|------------------------------------------------------------|
|                                                       | **FelCor LP** |   | **Subsidiary Guarantors** |   | **Non-Guarantor Subsidiaries** |   | **Eliminations** |   | **Total Consolidated** |   |
| Net investment in hotel properties                         | $ | 121,684 |   |   | $ | 883,834 |   | $ | 1,256,054 |   |   | $ | -    |   |   | $ | 2,261,572 |   |
| Equity investment in consolidated entities                 |   | 1,220,845 |   |   |   | -    |   |   | -    |   |   |   | (1,220,845 | ) |   |   | -    |   |
| Investment in unconsolidated entities                      |   | 73,712 |   |   |   | 14,586 |   |   | -    |   |   |   | -    |   |   |   | 88,298 |   |
| Cash and cash equivalents                                  |   | 12,573 |   |   |   | 39,862 |   |   | 521 |   |   |   | -    |   |   |   | 52,956 |   |
| Restricted cash                                            |   | -    |   |   |   | 2,177 |   |   | 10,195 |   |   |   | -    |   |   |   | 12,372 |   |
| Accounts receivable                                        |   | 4,712 |   |   |   | 33,036 |   |   | 1 |   |   |   | -    |   |   |   | 37,749 |   |
| Deferred expenses                                          |   | 2,412 |   |   |   | 2,040 |   |   | 2,565 |   |   |   | -    |   |   |   | 7,017 |   |
| Other assets                                               |   | 4,986 |   |   |   | 25,326 |   |   | 880 |   |   |   | -    |   |   |   | 31,192 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                               | $ | 1,440,924 |   |   | $ | 1,000,861 |   | $ | 1,270,216 |   |   | $ | (1,220,845 | ) |   | $ | 2,491,156 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LIABILITES AND PARTNERS’ CAPITAL**                 |
| Debt                                                       | $ | 642,477 |   |   | $ | 121,051 |   | $ | 801,631 |   |   | $ | -    |   |   | $ | 1,565,159 |   |
| Distributions payable                                      |   | 8,545 |   |   |   | -    |   |   | -    |   |   |   | -    |   |   |   | 8,545 |   |
| Accrued expenses and other liabilities                     |   | 25,532 |   |   |   | 94,549 |   |   | 9,745 |   |   |   | -    |   |   |   | 129,826 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                          |   | 676,554 |   |   |   | 215,600 |   |   | 811,376 |   |   |   | -    |   |   |   | 1,703,530 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redeemable units, at redemption value                      |   | 402 |   |   |   | -    |   |   | -    |   |   |   | -    |   |   |   | 402 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred units                                            |   | 478,774 |   |   |   | -    |   |   | -    |   |   |   | -    |   |   |   | 478,774 |   |
| Common units                                               |   | 285,194 |   |   |   | 771,290 |   |   | 435,846 |   |   |   | (1,220,845 | ) |   |   | 271,485 |   |
| Accumulated other comprehensive income                     |   | -    |   |   |   | 13,709 |   |   | -    |   |   |   | -    |   |   |   | 13,709 |   |
| Total FelCor partners’ capital                       |   | 763,968 |   |   |   | 784,999 |   |   | 435,846 |   |   |   | (1,220,845 | ) |   |   | 763,968 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncontrolling interests - other partnerships              |   | -    |   |   |   | 262 |   |   | 22,994 |   |   |   | -    |   |   |   | 23,256 |   |
| Total partners’ capital                              |   | 763,968 |   |   |   | 785,261 |   |   | 458,840 |   |   |   | (1,220,845 | ) |   |   | 787,224 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities, redeemable units

and partners' capital | $ | 1,440,924 |   |   | $ | 1,000,861 |   | $ | 1,270,216 |   |   | $ | (1,220,845 | ) |   | $ | 2,491,156 |   |

 

 

17

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **10.** | **Consolidating Financial Information – (continued)** |
|---------|-------------------------------------------------------------|

 

**CONDENSED CONSOLIDATING BALANCE SHEET**

**December 31, 2008**

**(in thousands)**

 

| **ASSETS**                                                 |
|------------------------------------------------------------|
|                                                       | **FelCor LP** |   | **Subsidiary Guarantors** |   | **Non-Guarantor Subsidiaries** |   | **Eliminations** |   | **Total Consolidated** |   |
| Net investment in hotel properties                         | $ | 124,752 |   |   | $ | 888,925 |   | $ | 1,265,349 |   |   | $ | -    |   |   | $ | 2,279,026 |   |
| Equity investment in consolidated entities                 |   | 1,230,038 |   |   |   | -    |   |   | -    |   |   |   | (1,230,038 | ) |   |   | -    |   |
| Investment in unconsolidated entities                      |   | 77,106 |   |   |   | 17,400 |   |   | -    |   |   |   | -    |   |   |   | 94,506 |   |
| Cash and cash equivalents                                  |   | 7,719 |   |   |   | 40,018 |   |   | 2,450 |   |   |   | -    |   |   |   | 50,187 |   |
| Restricted cash                                            |   | -    |   |   |   | 2,104 |   |   | 11,109 |   |   |   | -    |   |   |   | 13,213 |   |
| Accounts receivable                                        |   | 4,576 |   |   |   | 30,664 |   |   | -    |   |   |   | -    |   |   |   | 35,240 |   |
| Deferred expenses                                          |   | 2,660 |   |   |   | 49 |   |   | 2,847 |   |   |   | -    |   |   |   | 5,556 |   |
| Other assets                                               |   | 9,061 |   |   |   | 24,588 |   |   | 892 |   |   |   | -    |   |   |   | 34,541 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                               | $ | 1,455,912 |   |   | $ | 1,003,748 |   | $ | 1,282,647 |   |   | $ | (1,230,038 | ) |   | $ | 2,512,269 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LIABILITES AND PARTNERS’ CAPITAL**                 |
| Debt                                                       | $ | 627,414 |   |   | $ | 120,175 |   | $ | 804,097 |   |   | $ | -    |   |   | $ | 1,551,686 |   |
| Distributions payable                                      |   | 8,545 |   |   |   | -    |   |   | -    |   |   |   | -    |   |   |   | 8,545 |   |
| Accrued expenses and other liabilities                     |   | 24,303 |   |   |   | 95,221 |   |   | 13,080 |   |   |   | -    |   |   |   | 132,604 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                          |   | 660,262 |   |   |   | 215,396 |   |   | 817,177 |   |   |   | -    |   |   |   | 1,692,835 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redeemable units, at redemption value                      |   | 545 |   |   |   | -    |   |   | -    |   |   |   | -    |   |   |   | 545 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred units                                            |   | 478,774 |   |   |   | -    |   |   | -    |   |   |   | -    |   |   |   | 478,774 |   |
| Common units                                               |   | 316,331 |   |   |   | 772,383 |   |   | 442,237 |   |   |   | (1,230,038 | ) |   |   | 300,913 |   |
| Accumulated other comprehensive income                     |   | -    |   |   |   | 15,418 |   |   | -    |   |   |   | -    |   |   |   | 15,418 |   |
| Total FelCor partners’ capital                       |   | 795,105 |   |   |   | 787,801 |   |   | 442,237 |   |   |   | (1,230,038 | ) |   |   | 795,105 |   |
| Noncontrolling interests – 

other partnerships      |   | -    |   |   |   | 551 |   |   | 23,233 |   |   |   | -    |   |   |   | 23,784 |   |
| Total partners’ capital                              |   | 795,105 |   |   |   | 788,352 |   |   | 465,470 |   |   |   | (1,230,038 | ) |   |   | 818,889 |   |
| Total liabilities, redeemable units

and partners' capital | $ | 1,455,912 |   |   | $ | 1,003,748 |   | $ | 1,282,647 |   |   | $ | (1,230,038 | ) |   | $ | 2,512,269 |   |

 

 

18

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **10.** | **Consolidating Financial Information – (continued)** |
|---------|-------------------------------------------------------------|

 

**CONDENSED****CONSOLIDATING STATEMENT OF OPERATIONS**

**For the Three Months Ended March 31, 2009**

**(in thousands)**

 

|                                                                                                | **FelCor LP** |                | **Subsidiary Guarantors** |   | **Non-Guarantor Subsidiaries** |                | **Eliminations** |   | **Total Consolidated** |
|-----------------------------------------------------------------------------------------------------|---------------|---------------------|---------------------------|--------|--------------------------------|---------------------|------------------|--------|------------------------|
| Revenues:                                                                                           |          |                |                      |   |                           |                |             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Hotel operating revenue                                                                             | $             | -    |                      |   | $                              | 234,002             |             |   | $                      | -    |   |   | $ | -    |   |   | $ | 234,002 |   |
| Percentage lease revenue                                                                            |          | 4,479               |                      |   |                           | -    |             |   |                   | 38,138 |   |   |   | (42,617 | ) |   |   | -    |   |
| Other revenue                                                                                       |          | 4                   |                      |   |                           | 265                 |             |   |                   | 17 |   |   |   | -    |   |   |   | 286 |   |
| Total revenue                                                                                       |          | 4,483               |                      |   |                           | 234,267             |             |   |                   | 38,155 |   |   |   | (42,617 | ) |   |   | 234,288 |   |
|                                                                                                |          |                |                      |   |                           |                |             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                           |          |                |                      |   |                           |                |             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Hotel operating expenses                                                                            |          | -    |                      |   |                           | 160,392             |             |   |                   | -    |   |   |   | -    |   |   |   | 160,392 |   |
| Taxes, insurance and lease expense                                                                  |          | 558                 |                      |   |                           | 60,610              |             |   |                   | 6,480 |   |   |   | (42,617 | ) |   |   | 25,031 |   |
| Corporate expenses                                                                                  |          | 241                 |                      |   |                           | 3,876               |             |   |                   | 2,005 |   |   |   | -    |   |   |   | 6,122 |   |
| Depreciation and amortization                                                                       |          | 2,967               |                      |   |                           | 15,855              |             |   |                   | 18,563 |   |   |   | -    |   |   |   | 37,385 |   |
| Impairment loss                                                                                     |          | -    |                      |   |                           | 1,368               |             |   |                   | -    |   |   |   | -    |   |   |   | 1,368 |   |
| Other expenses                                                                                      |          | (11                 | )                         |   |                           | 698                 |             |   |                   | 9 |   |   |   | -    |   |   |   | 696 |   |
| Total operating expenses                                                                            |          | 3,755               |                      |   |                           | 242,799             |             |   |                   | 27,057 |   |   |   | (42,617 | ) |   |   | 230,994 |   |
| Operating income                                                                                    |          | 728                 |                      |   |                           | (8,532              | )                |   |                   | 11,098 |   |   |   | -    |   |   |   | 3,294 |   |
| Interest expense, net                                                                               |          | (9,214              | )                         |   |                           | (2,295              | )                |   |                   | (9,783 | ) |   |   | -    |   |   |   | (21,292 | ) |
| Income (loss) before equity in income 

from unconsolidated entities and 

noncontrolling interests |          | (8,486              | )                         |   |                           | (10,827             | )                |   |                   | 1,315 |   |   |   | -    |   |   |   | (17,998 | ) |
| Equity in income from consolidated entities                                                         |          | (12,110             | )                         |   |                           | -    |             |   |                   | -    |   |   |   | 12,110 |   |   |   | -    |   |
| Equity in income (loss) from unconsolidated 

entities                                              |          | (610                | )                         |   |                           | (2,814              | )                |   |                   | -    |   |   |   | -    |   |   |   | (3,424 | ) |
| Net income (loss)                                                                                   |          | (21,206             | )                         |   |                           | (13,641             | )                |   |                   | 1,315 |   |   |   | 12,110 |   |   |   | (21,422 | ) |
| Net (income) loss attributable to noncontrolling interests                                          |          | -    |                      |   |                           | 178                 |             |   |                   | 38 |   |   |   | -    |   |   |   | 216 |   |
| Net income (loss) attributable to FelCor LP                                                         |          | (21,206             | )                         |   |                           | (13,463             | )                |   |                   | 1,353 |   |   |   | 12,110 |   |   |   | (21,206 | ) |
| Preferred distributions                                                                             |          | (9,678              | )                         |   |                           | -    |             |   |                   | -    |   |   |   | -    |   |   |   | (9,678 | ) |
| Net income (loss) applicable to FelCor LP unitholders                                               | $             | (30,884             | )                         |   | $                              | (13,463             | )                |   | $                      | 1,353 |   |   | $ | 12,110 |   |   |   | (30,884 | ) |

 

 

 

19

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **10.** | **Consolidating Financial Information – (continued)** |
|---------|-------------------------------------------------------------|

 

**CONDENSED****CONSOLIDATING STATEMENT OF OPERATIONS**

**For the Three Months Ended March 31, 2008**

**(in thousands)**

 

|                                                                                                | **FelCor LP** |                | **Subsidiary Guarantors** |   | **Non-Guarantor Subsidiaries** |                | **Eliminations** |   | **Total Consolidated** |
|-----------------------------------------------------------------------------------------------------|---------------|---------------------|---------------------------|--------|--------------------------------|---------------------|------------------|--------|------------------------|
| Revenues:                                                                                           |          |                |                      |   |                           |                |             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Hotel operating revenue                                                                             | $             | -    |                      |   | $                              | 291,547             |             |   | $                      | -    |   |   | $ | -    |   |   | $ | 291,547 |   |
| Percentage lease revenue                                                                            |          | 6,054               |                      |   |                           | -    |             |   |                   | 52,372 |   |   |   | (58,426 | ) |   |   | -    |   |
| Other revenue                                                                                       |          | -    |                      |   |                           | 4                   |             |   |                   | 324 |   |   |   | -    |   |   |   | 328 |   |
| Total revenue                                                                                       |          | 6,054               |                      |   |                           | 291,551             |             |   |                   | 52,696 |   |   |   | (58,426 | ) |   |   | 291,875 |   |
|                                                                                                |          |                |                      |   |                           |                |             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                           |          |                |                      |   |                           |                |             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Hotel operating expenses                                                                            |          | -    |                      |   |                           | 190,153             |             |   |                   | -    |   |   |   | -    |   |   |   | 190,153 |   |
| Taxes, insurance and lease expense                                                                  |          | 1,355               |                      |   |                           | 78,888              |             |   |                   | 7,487 |   |   |   | (58,426 | ) |   |   | 29,304 |   |
| Corporate expenses                                                                                  |          | 308                 |                      |   |                           | 3,856               |             |   |                   | 2,663 |   |   |   | -    |   |   |   | 6,827 |   |
| Depreciation and amortization                                                                       |          | 2,540               |                      |   |                           | 14,557              |             |   |                   | 16,671 |   |   |   | -    |   |   |   | 33,768 |   |
| Impairment loss                                                                                     |          | -    |                      |   |                           | -    |             |   |                   | 17,131 |   |   |   | -    |   |   |   | 17,131 |   |
| Other expenses                                                                                      |          | -    |                      |   |                           | 265                 |             |   |                   | 668 |   |   |   | -    |   |   |   | 933 |   |
| Total operating expenses                                                                            |          | 4,203               |                      |   |                           | 287,719             |             |   |                   | 44,620 |   |   |   | (58,426 | ) |   |   | 278,116 |   |
| Operating income                                                                                    |          | 1,851               |                      |   |                           | 3,832               |             |   |                   | 8,076 |   |   |   | -    |   |   |   | 13,759 |   |
| Interest expense, net                                                                               |          | (9,885              | )                         |   |                           | (2,749              | )                |   |                   | (13,369 | ) |   |   | -    |   |   |   | (26,003 | ) |
| Income (loss) before equity in income 

from unconsolidated entities and 

noncontrolling interests |          | (8,034              | )                         |   |                           | 1,083               |             |   |                   | (5,293 | ) |   |   | -    |   |   |   | (12,244 | ) |
| Equity in income from consolidated entities                                                         |          | (4,991              | )                         |   |                           | -    |             |   |                   | -    |   |   |   | 4,991 |   |   |   | -    |   |
| Equity in income (loss) from unconsolidated 

entities                                              |          | 75                  |                      |   |                           | (679                | )                |   |                   | (18 | ) |   |   | -    |   |   |   | (622 | ) |
| Income (loss) from continuing operations                                                            |          | (12,950             | )                         |   |                           | 404                 |             |   |                   | (5,311 | ) |   |   | 4,991 |   |   |   | (12,866 | ) |
| Discontinued operations from consolidated 

entities                                                |          | -    |                      |   |                           | (13                 | )                |   |                   | -    |   |   |   | -    |   |   |   | (13 | ) |
| Net income (loss)                                                                                   |          | (12,950             | )                         |   |                           | 391                 |             |   |                   | (5,311 | ) |   |   | 4,991 |   |   |   | (12,879 | ) |
| Net (income) loss attributable to 

noncontrolling interests                                        |          | -    |                      |   |                           | 143                 |             |   |                   | (214 | ) |   |   | -    |   |   |   | (71 | ) |
| Net income (loss) attributable to FelCor LP                                                         |          | (12,950             | )                         |   |                           | 534                 |             |   |                   | (5,525 | ) |   |   | 4,991 |   |   |   | (12,950 | ) |
| Preferred distributions                                                                             |          | (9,678              | )                         |   |                           | -    |             |   |                   | -    |   |   |   | -    |   |   |   | (9,678 | ) |
| Net income (loss) applicable to unitholders                                                         | $             | (22,628             | )                         |   | $                              | 534                 |             |   |                   | (5,525 | ) |   | $ | 4,991 |   |   | $ | (22,628 | ) |

 

 

20

 

----

**FELCOR LODGING LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

| **10.** | **Consolidating Financial Information – (continued)** |
|---------|-------------------------------------------------------------|

 

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**For the Three Months Ended March 31, 2009**

**(in thousands)**

 

 

|                                             | **FelCor LP** |                | **Subsidiary Guarantors** |   | **Non-Guarantor Subsidiaries** |    | **Total Consolidated** |
|--------------------------------------------------|---------------|---------------------|---------------------------|--------|--------------------------------|---------|------------------------|
| Cash flows from (used in) operating activities   | $             | 2,522               |                      |   | $                              | 3,221   |                   |   | $ | 18,706 |   |   | $ | 24,449 |   |
| Cash flows from (used in) investing activities   |          | 1,150               |                      |   |                           | (13,706 | )                      |   |   | (10,149 | ) |   |   | (22,705 | ) |
| Cash flows from (used in) financing activities   |          | 1,182               |                      |   |                           | 10,669  |                   |   |   | (10,486 | ) |   |   | 1,365 |   |
| Effect of exchange rates changes on cash         |          | -    |                      |   |                           | (340    | )                      |   |   | -    |   |   |   | (340 | ) |
| Change in cash and cash equivalents              |          | 4,854               |                      |   |                           | (156    | )                      |   |   | (1,929 | ) |   |   | 2,769 |   |
| Cash and cash equivalents at beginning of period |          | 7,719               |                      |   |                           | 40,018  |                   |   |   | 2,450 |   |   |   | 50,187 |   |
| Cash and equivalents at end of period            | $             | 12,573              |                      |   | $                              | 39,862  |                   |   | $ | 521 |   |   | $ | 52,956 |   |

 

 

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**For the Three Months Ended March 31, 2008**

**(in thousands)**

 

|                                             | **FelCor LP** |                | **Subsidiary Guarantors** |   | **Non-Guarantor Subsidiaries** |    | **Total Consolidated** |
|--------------------------------------------------|---------------|---------------------|---------------------------|--------|--------------------------------|---------|------------------------|
| Cash flows from (used in) operating activities   | $             | (3,660              | )                         |   | $                              | 17,444  |                   |   | $ | 33,698 |   |   | $ | 47,482 |   |
| Cash flows from (used in) investing activities   |          | 22,843              |                      |   |                           | (25,460 | )                      |   |   | (21,345 | ) |   |   | (23,962 | ) |
| Cash flows from (used in) financing activities   |          | (18,287             | )                         |   |                           | 24,296  |                   |   |   | (15,510 | ) |   |   | (9,501 | ) |
| Effect of exchange rates changes on cash         |          | -    |                      |   |                           | (303    | )                      |   |   | -    |   |   |   | (303 | ) |
| Change in cash and cash equivalents              |          | 896                 |                      |   |                           | 15,977  |                   |   |   | (3,157 | ) |   |   | 13,716 |   |
| Cash and cash equivalents at beginning of period |          | 7,889               |                      |   |                           | 43,305  |                   |   |   | 6,415 |   |   |   | 57,609 |   |
| Cash and equivalents at end of period            | $             | 8,785               |                      |   | $                              | 59,282  |                   |   | $ | 3,258 |   |   | $ | 71,325 |   |

 

 

 

 

21

 

----

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

 

| **General** |
|-------------|

 

In the first quarter of 2009, the lodging industry continued to see nationwide decreases in revenue per available room, or RevPAR (U.S. average RevPAR decreased 17.7% in the first quarter of 2009). However, in spite of reduced RevPAR, our hotels have generally been able to continue increasing their market share, which we believe is largely attributable to our recently completed            $450 million hotel renovation program. 

 

As lodging demand continues to slow in 2009, we are working closely with our brand-managers to cut operating costs in the lower RevPAR environment. Many of our hotels have been able to reduce labor costs permanently, and all of our hotels have trimmed non-critical functions. These cost reductions have enabled us to minimize EBITDA margin erosion.

 

We entered 2009 in the midst of a recession. Our hotels are focused on maintaining market share, protecting average daily rate, or ADR, and preserving EBITDA margins, while we are focused on managing our balance sheet, including maturing debt and compliance with debt covenants. We started 2009 with $132 million of non-recourse mortgage debt, in the aggregate, that would mature in            2009.  In March 2009, we refinanced $116 million of our 2009 maturities with a new loan that matures in 2014.  We have $15 million of non-recourse mortgage debt maturing in 2009 (two loans, each secured by different hotels) that we are seeking to extend. 

 

Our line of credit contains certain restrictive financial covenants; we were in compliance with these at the date of this filing. Our compliance with these covenants in future periods will depend substantially on the financial results of our hotels. If current financial market conditions persist and our business continues to deteriorate, we may fail to comply with one or more of these            covenants in 2009. 

 

We have agreed in principle on the material terms with the lead lender of a new $200 million term loan, which would be secured by first mortgages on nine currently unencumbered hotels and, assuming all extension options are exercised, will not mature until 2013. This loan would not be subject to any corporate financial covenants and would only be recourse to the borrower, a            to-be-formed wholly-owned subsidiary. While we believe that we will successfully close our new secured term loan, as discussed above, we have several other alternatives available to ensure continued compliance with our financial covenants or repay our line of credit, including identifying other sources of debt or equity financing, selling unencumbered hotels and/or implementing additional cost cutting measures. Of course, we can provide no assurance that we will be able to close our            new secured term loan, identify additional sources of debt or equity financing or sell hotels on terms that are favorable or otherwise acceptable to us.

 

We have two non-recourse mortgage loans aggregating $277 million secured by 14 hotels that will mature in May 2010. We are in preliminary discussions with potential lenders to refinance all of our debt that will mature in 2010 and 2011. 

 

          On April 1, 2009, we opened our San Francisco Marriott Union Square Hotel, which had been operating as Hotel 480 during renovations that began in 2007. Renovations at this hotel were comprehensive and included guest rooms, guest baths, guest corridors, meeting space, food and beverage outlets, public areas and building            exterior. Following the Marriott conversion, April RevPAR increased more than 40% at this hotel, compared to the prior year.

 

We suspended our common distributions in December 2008 and our preferred distributions in March 2009. Although distributions are not paid unless declared by FelCor’s Board of Directors, unpaid preferred distributions continue to accrue, and accrued and current preferred distributions must be paid in full prior to payment of any common distributions. FelCor’s Board of            Directors will determine whether to declare future distributions based upon various factors, including operating results, economic conditions, other operating trends, its financial condition and capital requirements, as well as FelCor’s minimum REIT distribution requirements. 

 

22

 

----

**Financial Comparison (in thousands of dollars, except RevPAR and Hotel EBITDA margin)**

 

|                                                         | **Three Months Ended March 31,** |    | **% Change** |
|--------------------------------------------------------------|----------------------------------|---------|--------------|
|                                                         | **2009**                         |    | **2008**     |   | **2009-2008** |
| RevPAR                                                       | $                                | 81.60   |         |   | $ | 101.55 |   |   |   | (19.6 | ) | % |
| Hotel EBITDA(a)                                              | $                                | 56,705  |         |   | $ | 82,165 |   |   |   | (31.0 | ) | % |
| Hotel EBITDA margin(a)                                       |                             | 24.2    | %            |   |   | 28.2 | % |   |   | (14.2 | ) | % |
| Loss from continuing operations attributable to FelCor LP(b) | $                                | (21,206 | )            |   | $ | (12,937 | ) |   |   | (63.9 | ) | % |
| FFO(a)(c)                                                    | $                                | 10,188  |         |   | $ | 14,689 |   |   |   | (30.6 | ) | % |
| EBITDA(a)(d)                                                 | $                                | 43,752  |         |   | $ | 53,777 |   |   |   | (18.6 | ) | % |

 

____________

|   | (a) | A discussion of the use, limitations and importance of these non-GAAP financial measures and detailed reconciliations to the most comparable GAAP measure are found elsewhere in Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | (b) | Included in loss from continuing operations attributable to FelCor LP are the following amounts (in thousands): |
|--------|-----|-----------------------------------------------------------------------------------------------------------------|

 

|                                     | **Three Months Ended** |
|------------------------------------------|------------------------|
|                                     | **March 31,**          |
|                                     | **2009**               |   | **2008** |
| Impairment loss                          | $                      | (1,368 | ) |   | $ | (17,131 | ) |
| Impairment loss on unconsolidated hotels |                   | (2,068 | ) |   |   | -    |   |
| Conversion costs                         |                   | (38 | ) |   |   | (259 | ) |
| Severance costs                          |                   | (145 | ) |   |   | -    |   |

 

|   | (c) | FFO has not been adjusted for the following amounts included in net loss attributable to FelCor LP |
|--------|-----|----------------------------------------------------------------------------------------------------|

(in thousands):

 

|                                             | **Three Months Ended** |
|--------------------------------------------------|------------------------|
|                                             | **March 31,**          |
|                                             | **2009**               |   | **2008** |
| Impairment loss                                  | $                      | (1,368 | ) |   | $ | (17,131 | ) |
| Impairment loss on unconsolidated hotels         |                   | (2,068 | ) |   |   | -    |   |
| Conversion costs                                 |                   | (38 | ) |   |   | (259 | ) |
| Severance costs, net of noncontrolling interests |                   | (135 | ) |   |   | -    |   |

 

|   | (d) | EBITDA has not been adjusted for the following amounts included in net loss attributable to FelCor LP |
|--------|-----|-------------------------------------------------------------------------------------------------------|

(in thousands):

 

|                                             | **Three Months Ended March** **31,** |
|--------------------------------------------------|-------------------------------------------|
|                                             | **2009**                                  |   | **2008** |
| Impairment loss                                  | $                                         | (1,368 | ) |   | $ | (17,131 | ) |
| Impairment loss on unconsolidated hotels         |                                      | (2,068 | ) |   |   | -    |   |
| Conversion costs                                 |                                      | (38 | ) |   |   | (259 | ) |
| Severance costs, net of noncontrolling interests |                                      | (135 | ) |   |   | -    |   |

 

 

23

 

----

**Results of Operations**

 

*Comparison of the Three Months Ended March 31, 2009 and 2008*

 

For the three months ended March 31, 2009, we recorded a $30.9 million net loss applicable to common unitholders, or $0.49 per unit, compared to $22.6 million net loss applicable to common unitholders, or $0.36 per unit, for the same period in 2008. The current year loss is attributable primarily to the 19.7% decrease in revenue compared to the same period in 2008. We were            able to limit our margin loss in the first quarter of 2009 compared to the first quarter of 2008, primarily by reducing hotel labor costs by $10.5 million and reducing other costs associated with non-critical functions. Hotel expenses decreased 15.3% compared to first quarter 2008. The current year loss included impairment charges of $3.5 million ($1.4 million related to a consolidated hotel and $2.1 million related to an unconsolidated entity), while the prior            year loss included a $17.1 million impairment charge on two consolidated hotels. 

 

In the first quarter of 2009, total revenue from continuing operations was $234.3 million, a 19.7% decrease compared to the same period in 2008. The decrease in revenue is attributed principally to a 19.6% decrease in RevPAR, which was driven by an 11.6% decrease in occupancy and a 9.1% decrease in ADR.

 

In the first quarter of 2009, hotel departmental expenses decreased $15.5 million (16.0%) compared to the same period in 2008. As a percentage of total revenue, hotel departmental expenses increased from 33.3% to 34.8% compared to the same period in 2008. The $15.5 million expense reduction reflects: (i) an 11.6% decrease in occupancy; (ii) a $7.7 million decrease in            labor costs, which includes permanent reductions related to a decrease in hotel departmental employees; (iii) a decrease in non-critical room expenses, such as guest transportation, in-room amenities, bath linen quantities, and newspaper service; and (iv) menu modifications in food and beverage.

 

In the first quarter of 2009, other property operating costs decreased $9.8 million (12.7%) compared to the same period in 2008. As a percentage of total revenue, other property operating costs increased from 26.4% to 28.7% compared to the same period in 2008. The $9.8 million reduction includes: (i) a $2.8 million decrease in labor costs; (ii) a $2.8 million            decrease in marketing assessments, credit card commissions and frequent guest expense (all of which reflect the decrease in revenue); (iii) a $1.2 million decrease in repairs and maintenance, partially attributable to our recently completed renovation program; and (iv) reductions in other non-critical expenses.

 

In the first quarter of 2009, management and franchise fees decreased $4.4 million compared to the same period in 2008. As a percent of total revenue, franchise fees and base management fees were essentially unchanged from 2008 to 2009 since both fees are based on a percentage of revenue. Incentive fees decreased from 0.9% to 0.2% of total revenue because these fees are based on            the profitability of the hotel operations, which significantly decreased from 2008 to 2009.

 

In the first quarter of 2009, taxes, insurance and lease expense decreased $4.3 million compared to the same period in 2008. This decrease was primarily related to a $2.1 million decrease in percentage rent, which is attributable to the decreased revenue at our consolidated hotel lessees, and a $1.7 million decrease in real estate and other taxes, which related to the            successful resolution of estimated tax accruals related to prior years. Taxes, insurance and lease expense increased as a percentage of total revenue from 10.0% to 10.7% compared to the same period in 2008.

 

Corporate expenses decreased $700,000 in the first quarter of 2009 compared to the same period in 2008, principally due to general cost reduction efforts in our corporate office.

 

In the first quarter of 2009, depreciation and amortization expense increased $3.6 million, compared to the same period in 2008, which reflects $142.9 million of consolidated hotel capital expenditures incurred in 2008.

 

24

 

----

During 2008, we identified eight hotels as candidates to be sold (three are no longer identified as candidates for sale and five hotels remain sale candidates). We recorded an impairment charge of $1.4 million for one of these hotels in the first quarter of 2009 and $17.1 million for two of these hotels in the first quarter of 2008 under the provisions of SFAS            144.

 

Net interest expense included in continuing operations for the first quarter decreased $4.7 million compared to the same period in 2008. This decrease reflects declining interest rates for our floating-rate debt.

 

Equity in loss from unconsolidated entities increased $2.8 million in the first quarter of 2009 from the first quarter of 2008. This is primarily attributed to $2.1 million impairment charge on one of our unconsolidated investments. 

 

**Non-GAAP Financial Measures**

 

We refer in this report to certain “non-GAAP financial measures.” These measures, including FFO, Hotel EBITDA and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with GAAP. The following tables reconcile 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 the limitations of such measures.

 

|   | The following tables detail our computation of FFO and EBITDA (in thousands, except per unit data): |
|--------|-----------------------------------------------------------------------------------------------------|

 

**Reconciliation of Net Loss Attributable to FelCor LP to FFO**

 

|                                                                                                                                                                                                                            | **Three Months Ended March 31,** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                                                                                                                                                                                                                            | **2009**                         |   | **2008** |
|                                                                                                                                                                                                                            | **Dollars**                      |   | **Units** |   | **Per Unit Amount** |   | **Dollars** |   | **Units** |   | **Per Unit Amount** |
| **Net loss attributable to FelCor LP**                                                                                                                                                                                          | $                                | (21,206 | ) |   |   |   |   |   |   |   | $ | (12,950 | ) |   |   |   |   |   |   |
| Preferred distributions(a)                                                                                                                                                                                                      |                             | (9,678 | ) |   |   |   |   |   |   |   |   | (9,678 | ) |   |   |   |   |   |   |
| **Net loss attributable to FelCor LP common****unitholders     **                        |                             | (30,884 | ) |   |  

63,285 |   | $ | (0.49 | ) |   |   | (22,628 | ) |   | 63,068 |   | $ | (0.36 | ) |
| Depreciation and amortization                                                                                                                                                                                                   |                             | 37,385 |   |   | -    |   |   | 0.59 |   |   |   | 33,768 |   |   | -    |   |   | 0.53 |   |
| Depreciation, unconsolidated entities                                                                                                                                                                                           |                             | 3,687 |   |   | -    |   |   | 0.06 |   |   |   | 3,549 |   |   | -    |   |   | 0.06 |   |
| Conversion of FelCor options and unvested 

restricted stock                                                                                                                                                                    |                             | -    |   |   |  

128 |   |   |  

-    |   |   |   | -    |   |   | 126 |   |   | -    |   |
| **FFO**                                                                                                                                                                                                                         | $                                | 10,188 |   |   | 63,413 |   | $ | 0.16 |   |   | $ | 14,689 |   |   | 63,194 |   | $ | 0.23 |   |

 

|   | (a) | We suspended our preferred distributions in March 2009 and unpaid preferred distributions continue to accrue until paid. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

 

    FFO has not been adjusted for the following amounts included in net loss applicable to FelCor LP common unitholders (in thousands):

 

|                                             | **Three Months Ended** |
|--------------------------------------------------|------------------------|
|                                             | **March 31,**          |
|                                             | **2009**               |   | **2008** |
| Impairment loss                                  | $                      | (1,368 | ) |   | $ | (17,131 | ) |
| Impairment loss on unconsolidated hotels         |                   | (2,068 | ) |   |   | -    |   |
| Conversion costs                                 |                   | (38 | ) |   |   | (259 | ) |
| Severance costs, net of noncontrolling interests |                   | (135 | ) |   |   | -    |   |

 

 

25

 

----

**Reconciliation of Net Loss Attributable to FelCor LP to EBITDA**

(in thousands)

 

|                                              | **Three Months Ended** |
|---------------------------------------------------|------------------------|
|                                              | **March 31,**          |
|                                              | **2009**               |   | **2008** |
| **Net loss attributable to FelCor LP**            | $                      | (21,206 | ) |   | $ | (12,950 | ) |
| Depreciation and amortization                     |                   | 37,385 |   |   |   | 33,768 |   |
| Depreciation, unconsolidated entities             |                   | 3,687 |   |   |   | 3,549 |   |
| Interest expense                                  |                   | 21,469 |   |   |   | 26,549 |   |
| Interest expense, unconsolidated entities         |                   | 1,019 |   |   |   | 1,596 |   |
| Amortization of FelCor’s stock compensation |                   | 1,398 |   |   |   | 1,265 |   |
| **EBITDA**                                        | $                      | 43,752 |   |   | $ | 53,777 |   |

 

EBITDA has not been adjusted for the following amounts included in net loss attributable to FelCor LP 

(in thousands):

 

|                                             | **Three Months Ended March 31,** |
|--------------------------------------------------|----------------------------------|
|                                             | **2009**                         |   | **2008** |
| Impairment loss                                  | $                                | (1,368 | ) |   | $ | (17,131 | ) |
| Impairment loss on unconsolidated hotels         |                             | (2,068 | ) |   |   | -    |   |
| Conversion costs                                 |                             | (38 | ) |   |   | (259 | ) |
| Severance costs, net of noncontrolling interests |                             | (135 | ) |   |   | -    |   |

 

          The following tables detail our computation of Hotel EBITDA, Hotel EBITDA 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 the dates presented.

 

**Hotel EBITDA and Hotel EBITDA Margin**

(dollars in thousands)

 

|                     | **Three Months Ended**

**March 31,** |
|--------------------------|---------------------------------------|
|                     | **2009**                              |   | **2008** |
| Total revenues           | $                                     | 234,288 |   |   | $ | 291,875 |   |   |
| Other revenue            |                                  | (286 | ) |   |   | (328 | ) |   |
| Hotel operating revenue  |                                  | 234,002 |   |   |   | 291,547 |   |   |
| Hotel operating expenses |                                  | (177,297 | ) |   |   | (209,382 | ) |   |
| Hotel EBITDA             | $                                     | 56,705 |   |   | $ | 82,165 |   |   |
| Hotel EBITDA margin(a)   |                                  | 24.2% |   |   |   | 28.2% |   |   |

 

|   | (a) | Hotel EBITDA as a percentage of hotel operating revenue. |
|--------|-----|----------------------------------------------------------|

 

26

 

----

**Reconciliation of Total Operating Expenses to Hotel Operating Expenses**

(dollars in thousands)

 

|                                              | **Three Months Ended** |
|---------------------------------------------------|------------------------|
|                                              | **March 31,**          |
|                                              | **2009**               |   | **2008** |
| Total operating expenses                          | $                      | 230,994 |   |   | $ | 278,116 |   |
| Unconsolidated taxes, insurance and lease expense |                   | 1,934 |   |   |   | 2,122 |   |
| Consolidated hotel lease expense                  |                   | (10,060 | ) |   |   | (12,197 | ) |
| Corporate expenses                                |                   | (6,122 | ) |   |   | (6,827 | ) |
| Depreciation and amortization                     |                   | (37,385 | ) |   |   | (33,768 | ) |
| Impairment loss                                   |                   | (1,368 | ) |   |   | (17,131 | ) |
| Other expenses                                    |                   | (696 | ) |   |   | (933 | ) |
| Hotel operating expenses                          | $                      | 177,297 |   |   | $ | 209,382 |   |

 

          The following tables reconcile net loss attributable to FelCor LP to Hotel EBITDA and the ratio of operating income to total revenue to Hotel EBITDA margin.

 

**Reconciliation of Net Loss Attributable to FelCor LP to Hotel EBITDA**

(in thousands)

 

|                                                                             | **Three Months Ended****March 31,** |
|----------------------------------------------------------------------------------|-------------------------------------|
|                                                                             | **2009**                            |   | **2008** |
| Net loss attributable to FelCor LP                                               | $                                   | (21,206 | ) |   | $ | (12,950 | ) |
| Discontinued operations                                                          |                                | -    |   |   |   | 13 |   |
| Equity in loss from unconsolidated entities                                      |                                | 3,424 |   |   |   | 622 |   |
| Net income (loss) attributable to noncontrolling interests in other partnerships |                                | (216 | ) |   |   | 71 |   |
| Consolidated hotel lease expense                                                 |                                | 10,060 |   |   |   | 12,197 |   |
| Unconsolidated taxes, insurance and lease expense                                |                                | (1,934 | ) |   |   | (2,122 | ) |
| Interest expense, net                                                            |                                | 21,292 |   |   |   | 26,003 |   |
| Corporate expenses                                                               |                                | 6,122 |   |   |   | 6,827 |   |
| Depreciation and amortization                                                    |                                | 37,385 |   |   |   | 33,768 |   |
| Impairment loss                                                                  |                                | 1,368 |   |   |   | 17,131 |   |
| Other expenses                                                                   |                                | 696 |   |   |   | 933 |   |
| Other revenue                                                                    |                                | (286 | ) |   |   | (328 | ) |
| **Hotel EBITDA**                                                                 | $                                   | 56,705 |   |   | $ | 82,165 |   |

 

 

27

 

----

**Reconciliation of Ratio of Operating Income to Total Revenues to Hotel EBITDA Margin**

 

|                                              | **Three Months Ended**

**March 31,** |
|---------------------------------------------------|---------------------------------------|
|                                              | **2009**                              |   | **2008** |
| Ratio of operating income to total revenues       | 1.4                                   | % |   | 4.7 | % |
| Other revenue                                     | (0.1                                  | ) |   | (0.1 | ) |
| Unconsolidated taxes, insurance and lease expense | (0.8                                  | ) |   | (0.7 | ) |
| Consolidated hotel lease expense                  | 4.3                                   |   |   | 4.2 |   |
| Other expenses                                    | 0.3                                   |   |   | 0.3 |   |
| Corporate expenses                                | 2.6                                   |   |   | 2.3 |   |
| Depreciation and amortization                     | 15.9                                  |   |   | 11.6 |   |
| Impairment loss                                   | 0.6                                   |   |   | 5.9 |   |
| Hotel EBITDA margin                               | 24.2                                  | % |   | 28.2 | % |

 

Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not            measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures, including FFO, EBITDA, Hotel EBITDA and Hotel EBITDA 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, or NAREIT, defines FFO as net income or loss attributable to FelCor LP (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.

 

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss attributable to FelCor LP (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 EBITDA and Hotel EBITDA Margin*

 

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and operating managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two            significant measures used by us in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating from continuing operations all revenues and expenses not directly associated with hotel operations including corporate-level expenses, depreciation and amortization 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 into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. 

 

           We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, 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 diminishes predictably over time, accurately            reflect an adjustment in the value of our assets. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from 

 

28

 

----

unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our hotels. 

 

*Limitations of Non-GAAP Measures*

 

FelCor’s management and Board of Directors use FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and lodging REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency            of our hotel managers.

 

The use of these non-GAAP financial measures has certain limitations. FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, as presented by us, may not be comparable to FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin as calculated by other real estate companies. These measures do not reflect certain expenses that we incurred and will incur, such as depreciation and amortization,            interest and capital expenditures. FelCor’s 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 should not be used as a measure of amounts that accrue directly to the benefit of unitholders. FFO, EBITDA, Hotel EBITDA and Hotel EBITDA 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 a single financial measure. 

 

**Pro Rata Share of Rooms Owned**

 

          The following table sets forth, as of March 31, 2009, the pro rata share of hotel rooms owned by us after giving consideration to the portion of rooms owned by our partners in our consolidated and unconsolidated joint ventures:

 

|                                         |  

**Hotels** |   | **Room Count** **at**

**March 31, 2009** |
|----------------------------------------------|--------------------|--------|------------------------------------------------|
| Consolidated hotels in continuing operations | 85                 |   |                                           |   | 25,006 |   |
| Unconsolidated hotel operations              | 3                  |   |                                           |   | 456 |   |
| Total hotels                                 | 88                 |   |                                           |   | 25,462 |   |
|                                         |               |   |                                           |   |   |   |
| 50% joint ventures                           | 16                 |   |                                           |   | (1,937 | ) |
| 60% joint ventures                           | 1                  |   |                                           |   | (214 | ) |
| 75% joint ventures                           | 1                  |   |                                           |   | (55 | ) |
| 90% joint ventures                           | 3                  |   |                                           |   | (68 | ) |
| 97% joint venture                            | 1                  |   |                                           |   | (10 | ) |
| Total rooms owned by joint venture partners  |               |   |                                           |   | (2,284 | ) |
| Pro rata share of rooms owned                |               |   |                                           |   | 23,178 |   |

 

 

29

 

----

**Hotel Portfolio Composition**

 

The following tables set forth, as of March 31, 2009, for 85 Consolidated Hotels distribution by brand, by our top markets and by type of location. 

 

| **Brand**                |  

**Hotels** |   |  

**Rooms** |   | **% of**

**Total Rooms** |   | **% of 2008**

**Hotel** **EBITDA(a)** |
|--------------------------|--------------------|--------|-------------------|--------|---------------------------|--------|---------------------------------------------|
| Embassy Suites Hotels    | 47                 |   | 12,132            |   | 49                        |   | 55                                          |   |
| Holiday Inn              | 17                 |   | 6,306             |   | 25                        |   | 19                                          |   |
| Sheraton and Westin      | 9                  |   | 3,217             |   | 13                        |   | 12                                          |   |
| Doubletree               | 7                  |   | 1,471             |   | 6                         |   | 7                                           |   |
| Renaissance and Marriott | 3                  |   | 1,321             |   | 5                         |   | 5                                           |   |
| Hilton                   | 2                  |   | 559               |   | 2                         |   | 2                                           |   |
|                     |               |   |              |   |                      |   |                                        |   |
| **Top Markets**          |               |   |              |   |                      |   |                                        |   |
| South Florida            | 5                  |   | 1,439             |   | 6                         |   | 7                                           |   |
| San Francisco area       | 6                  |   | 2,138             |   | 8                         |   | 6                                           |   |
| Atlanta                  | 5                  |   | 1,462             |   | 6                         |   | 6                                           |   |
| Los Angeles area         | 4                  |   | 899               |   | 4                         |   | 6                                           |   |
| Orlando                  | 5                  |   | 1,690             |   | 7                         |   | 5                                           |   |
| Dallas                   | 4                  |   | 1,333             |   | 5                         |   | 4                                           |   |
| Philadelphia             | 2                  |   | 729               |   | 3                         |   | 4                                           |   |
| Northern New Jersey      | 3                  |   | 756               |   | 3                         |   | 4                                           |   |
| Minneapolis              | 3                  |   | 736               |   | 3                         |   | 4                                           |   |
| San Diego                | 1                  |   | 600               |   | 2                         |   | 4                                           |   |
| Phoenix                  | 3                  |   | 798               |   | 3                         |   | 3                                           |   |
| San Antonio              | 3                  |   | 874               |   | 4                         |   | 3                                           |   |
| Chicago                  | 3                  |   | 795               |   | 3                         |   | 3                                           |   |
| Boston                   | 2                  |   | 532               |   | 2                         |   | 3                                           |   |
| Washington, D.C.         | 1                  |   | 443               |   | 2                         |   | 2                                           |   |
|                     |               |   |              |   |                      |   |                                        |   |
| **Location**             |               |   |              |   |                      |   |                                        |   |
| Suburban                 | 35                 |   | 8,781             |   | 35                        |   | 34                                          |   |
| Urban                    | 20                 |   | 6,358             |   | 25                        |   | 26                                          |   |
| Airport                  | 18                 |   | 5,788             |   | 24                        |   | 24                                          |   |
| Resort                   | 12                 |   | 4,079             |   | 16                        |   | 16                                          |   |

 

 

|   | (a) | Hotel EBITDA is a non-GAAP financial measure. A detailed reconciliation and further discussion of Hotel EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Quarterly Report on Form 10-Q. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

30

 

----

**Hotel Operating Statistics**

 

          The following tables set forth occupancy, ADR and RevPAR for the three months ended March 31, 2009 and 2008, and the percentage changes thereof between the periods presented, for hotels included in our consolidated operations. 

 

**Operating Statistics by Brand**

 

|                     | **Occupancy (%)**                |
|--------------------------|----------------------------------|
|                     | **Three Months Ended March 31,** |   |   |   |
|                     | **2009**                         |   | **2008** |   | **%Variance** |
| Embassy Suites Hotels    | 66.5                             |   | 73.0 |   | (8.9 | ) |
| Holiday Inn              | 61.7                             |   | 70.0 |   | (11.8 | ) |
| Sheraton and Westin      | 55.0                             |   | 66.1 |   | (16.8 | ) |
| Doubletree               | 63.6                             |   | 75.6 |   | (15.9 | ) |
| Renaissance and Marriott | 56.3                             |   | 70.7 |   | (20.3 | ) |
| Hilton                   | 47.3                             |   | 52.3 |   | (9.6 | ) |
|                     |                             |   |   |   |   |   |
| Total hotels             | 62.7                             |   | 70.9 |   | (11.6 | ) |
|                     |                             |   |   |   |   |   |
|                     |                             |   |   |   |   |   |
|                     |                             |   |   |   |   |   |
|                     | **ADR ($)**                      |
|                     | **Three Months Ended March 31,** |   |   |   |
|                     | **2009**                         |   | **2008** |   | **%Variance** |
| Embassy Suites Hotels    | 138.64                           |   | 152.21 |   | (8.9 | ) |
| Holiday Inn              | 105.16                           |   | 117.89 |   | (10.8 | ) |
| Sheraton and Westin      | 118.11                           |   | 130.15 |   | (9.2 | ) |
| Doubletree               | 139.17                           |   | 153.99 |   | (9.6 | ) |
| Renaissance and Marriott | 201.68                           |   | 210.93 |   | (4.4 | ) |
| Hilton                   | 97.59                            |   | 106.35 |   | (8.2 | ) |
|                     |                             |   |   |   |   |   |
| Total hotels             | 130.11                           |   | 143.20 |   | (9.1 | ) |
|                     |                             |   |   |   |   |   |
|                     |                             |   |   |   |   |   |
|                     |                             |   |   |   |   |   |
|                     | **RevPAR ($)**                   |
|                     | **Three Months Ended March 31,** |   |   |   |
|                     | **2009**                         |   | **2008** |   | **%Variance** |
| Embassy Suites Hotels    | 92.22                            |   | 111.09 |   | (17.0 | ) |
| Holiday Inn              | 64.93                            |   | 82.50 |   | (21.3 | ) |
| Sheraton and Westin      | 65.01                            |   | 86.06 |   | (24.5 | ) |
| Doubletree               | 88.47                            |   | 116.42 |   | (24.0 | ) |
| Renaissance and Marriott | 113.55                           |   | 149.06 |   | (23.8 | ) |
| Hilton                   | 46.13                            |   | 55.62 |   | (17.1 | ) |
|                     |                             |   |   |   |   |   |
| Total hotels             | 81.60                            |   | 101.55 |   | (19.6 | ) |
|                          |                                  |  |  |  |  |  |  |

 

 

31

 

----

**Operating Statistics for Our Top Markets**

 

|                | **Occupancy (%)**                |
|---------------------|----------------------------------|
|                | **Three Months Ended March 31,** |   |   |
|                | **2009**                         |   | **2008** |   | **%Variance** |
| South Florida       | 79.3                             |   | 87.1 |   | (8.9 | ) |
| San Francisco area  | 55.9                             |   | 71.0 |   | (21.2 | ) |
| Atlanta             | 65.6                             |   | 76.3 |   | (14.0 | ) |
| Los Angeles area    | 68.6                             |   | 73.6 |   | (6.7 | ) |
| Orlando             | 68.2                             |   | 81.9 |   | (16.8 | ) |
| Dallas              | 59.4                             |   | 69.9 |   | (15.0 | ) |
| Philadelphia        | 49.4                             |   | 62.5 |   | (20.9 | ) |
| Northern New Jersey | 59.6                             |   | 66.4 |   | (10.2 | ) |
| Minneapolis         | 60.9                             |   | 67.0 |   | (9.1 | ) |
| San Diego           | 64.0                             |   | 80.5 |   | (20.5 | ) |
| Phoenix             | 64.1                             |   | 75.9 |   | (15.5 | ) |
| San Antonio         | 69.6                             |   | 77.1 |   | (9.8 | ) |
| Chicago             | 52.5                             |   | 65.0 |   | (19.3 | ) |
| Boston              | 70.6                             |   | 69.0 |   | 2.3 |   |
| Washington, D.C.    | 45.1                             |   | 43.9 |   | 2.7 |   |
|                | **ADR ($)**                      |
|                | **Three Months Ended March 31,** |   |   |
|                | **2009**                         |   | **2008** |   | **%Variance** |
| South Florida       | 170.57                           |   | 199.14 |   | (14.3 | ) |
| San Francisco area  | 120.64                           |   | 136.22 |   | (11.4 | ) |
| Atlanta             | 111.22                           |   | 127.06 |   | (12.5 | ) |
| Los Angeles area    | 138.48                           |   | 156.95 |   | (11.8 | ) |
| Orlando             | 112.89                           |   | 124.53 |   | (9.3 | ) |
| Dallas              | 126.94                           |   | 130.17 |   | (2.5 | ) |
| Philadelphia        | 129.62                           |   | 136.34 |   | (4.9 | ) |
| Northern New Jersey | 151.68                           |   | 161.98 |   | (6.4 | ) |
| Minneapolis         | 131.14                           |   | 145.02 |   | (9.6 | ) |
| San Diego           | 132.31                           |   | 152.80 |   | (13.4 | ) |
| Phoenix             | 157.30                           |   | 186.19 |   | (15.5 | ) |
| San Antonio         | 105.65                           |   | 113.77 |   | (7.1 | ) |
| Chicago             | 112.26                           |   | 120.74 |   | (7.0 | ) |
| Boston              | 126.00                           |   | 136.39 |   | (7.6 | ) |
| Washington, D.C.    | 154.72                           |   | 162.65 |   | (4.9 | ) |
|                | **RevPAR ($)**                   |
|                | **Three Months Ended March 31,** |   |   |
|                | **2009**                         |   | **2008** |   | **%Variance** |
| South Florida       | 135.25                           |   | 173.37 |   | (22.0 | ) |
| San Francisco area  | 67.43                            |   | 96.67 |   | (30.2 | ) |
| Atlanta             | 72.99                            |   | 96.90 |   | (24.7 | ) |
| Los Angeles area    | 95.04                            |   | 115.45 |   | (17.7 | ) |
| Orlando             | 76.97                            |   | 102.05 |   | (24.6 | ) |
| Dallas              | 75.44                            |   | 90.96 |   | (17.1 | ) |
| Philadelphia        | 64.05                            |   | 85.16 |   | (24.8 | ) |
| Northern New Jersey | 90.37                            |   | 107.47 |   | (15.9 | ) |
| Minneapolis         | 79.80                            |   | 97.14 |   | (17.8 | ) |
| San Diego           | 84.72                            |   | 123.01 |   | (31.1 | ) |
| Phoenix             | 100.90                           |   | 141.34 |   | (28.6 | ) |
| San Antonio         | 73.48                            |   | 87.75 |   | (16.3 | ) |
| Chicago             | 58.89                            |   | 78.53 |   | (25.0 | ) |
| Boston              | 88.95                            |   | 94.10 |   | (5.5 | ) |
| Washington, D.C.    | 69.80                            |   | 71.44 |   | (2.3 | ) |
|                     |                                  |  |  |  |  |  |  |  |

 

 

32

 

----

**Hotel Portfolio Listing**

 

          The following table provides the name, location, number of rooms, our ownership percentage and brand names of each of our hotels.

 

|                                                     | **State** |   |   | **Rooms**               |   |   | **% Owned** | **(a)** |   | **Brand** |   |
|----------------------------------------------------------|-----------|--------|--------|-------------------------|--------|--------|-------------|---------|--------|-----------|--------|
| **Consolidated Hotels**                                  |      |   |   |                    |   |   |
| Birmingham(b)                                            | AL        | 242    |   | Embassy Suites Hotel    |   |
| Phoenix – Biltmore(b)                              | AZ        | 232    |   | Embassy Suites Hotel    |   |
| Phoenix – Crescent(b)                              | AZ        | 342    |   | Sheraton                |   |
| Phoenix – Tempe(b)                                 | AZ        | 224    |   | Embassy Suites Hotel    |   |
| Anaheim – North(b)                                 | CA        | 222    |   | Embassy Suites Hotel    |   |
| Dana Point – Doheny Beach                          | CA        | 196    |   | Doubletree Guest Suites |   |
| Indian Wells – Esmeralda Resort & Spa(b)       | CA        | 560    |   | Renaissance Resort      |   |
| Los Angeles – International Airport –South   | CA        | 349    | 97%    | Embassy Suites Hotel    |   |
| Milpitas – Silicon Valley(b)                       | CA        | 266    |   | Embassy Suites Hotel    |   |
| Napa Valley(b)                                           | CA        | 205    |   | Embassy Suites Hotel    |   |
| Oxnard – Mandalay Beach – Hotel & Resort | CA        | 248    |   | Embassy Suites Hotel    |   |
| San Diego – On the Bay                             | CA        | 600    |   | Holiday Inn             |   |
| San Francisco – Airport/Burlingame                 | CA        | 340    |   | Embassy Suites Hotel    |   |
| San Francisco – Airport/South San Francisco (b)    | CA        | 312    |   | Embassy Suites Hotel    |   |
| San Francisco – Fisherman’s Wharf            | CA        | 585    |   | Holiday Inn             |   |
| San Francisco Union Square                               | CA        | 400    |   | Marriott(c)             |   |
| San Rafael – Marin County(b)                       | CA        | 235    | 50%    | Embassy Suites Hotel    |   |
| Santa Barbara – Goleta                             | CA        | 160    |   | Holiday Inn             |   |
| Santa Monica Beach – at the Pier                   | CA        | 132    |   | Holiday Inn             |   |
| Wilmington(b)                                            | DE        | 244    | 90%    | Doubletree              |   |
| Boca Raton(b)                                            | FL        | 263    |   | Embassy Suites Hotel    |   |
| Cocoa Beach – Oceanfront                           | FL        | 500    |   | Holiday Inn             |   |
| Deerfield Beach –Resort & Spa(b)               | FL        | 244    |   | Embassy Suites Hotel    |   |
| Ft. Lauderdale – 17th Street(b)                    | FL        | 361    |   | Embassy Suites Hotel    |   |
| Ft. Lauderdale – Cypress Creek(b)                  | FL        | 253    |   | Sheraton Suites         |   |
| Jacksonville – Baymeadows(b)                       | FL        | 277    |   | Embassy Suites Hotel    |   |
| Miami – International Airport(b)                   | FL        | 318    |   | Embassy Suites Hotel    |   |
| Orlando – International Airport(b)                 | FL        | 288    |   | Holiday Inn             |   |
| Orlando – International Drive Resort               | FL        | 652    |   | Holiday Inn             |   |
| Orlando – International Drive South/Convention(b)  | FL        | 244    |   | Embassy Suites Hotel    |   |
| Orlando– North                                     | FL        | 277    |   | Embassy Suites Hotel    |   |
| Orlando – Walt Disney World Resort                 | FL        | 229    |   | Doubletree Guest Suites |   |
| St. Petersburg – Vinoy Resort & Golf Club(b)   | FL        | 361    |   | Renaissance Resort      |   |
| Tampa – Tampa Bay(b)                               | FL        | 203    |   | Doubletree Guest Suites |   |
| Atlanta – Airport(b)                               | GA        | 232    |   | Embassy Suites Hotel    |   |
| Atlanta – Buckhead(b)                              | GA        | 316    |   | Embassy Suites Hotel    |   |
| Atlanta – Galleria(b)                              | GA        | 278    |   | Sheraton Suites         |   |
| Atlanta – Gateway – Atlanta Airport          | GA        | 395    |   | Sheraton                |   |
| Atlanta – Perimeter Center(b)                      | GA        | 241    | 50%    | Embassy Suites Hotel    |   |
| Chicago – Lombard/Oak Brook(b)                     | IL        | 262    | 50%    | Embassy Suites Hotel    |   |
| Chicago – North Shore/Deerfield (Northbrook) (b)   | IL        | 237    |   | Embassy Suites Hotel    |   |
| Chicago – Gateway – O’Hare(b)          | IL        | 296    |   | Sheraton Suites         |   |
| Indianapolis – North(b)                            | IN        | 221    | 75%    | Embassy Suites Hotel    |   |
| Kansas City – Overland Park(b)                     | KS        | 199    | 50%    | Embassy Suites Hotel    |   |
| Lexington – Lexington Green(b)                     | KY        | 174    |   | Hilton Suites           |   |
| Baton Rouge(b)                                           | LA        | 223    |   | Embassy Suites Hotel    |   |
|                                                          |           |        |        |                         |        |        |             |         |        |           |        |  |  |

 

 

33

 

----

**Hotel Portfolio Listing (continued)**

 

 

|                                                          |    | **State** |   |                    | **Rooms** |   | **% Owned(a)** |   |   | **Brand** |   |
|---------------------------------------------------------------|---------|-----------|--------|-------------------------|-----------|--------|----------------|--------|--------|-----------|--------|
| New Orleans – Convention Center(b)                      | LA      | 370       |   | Embassy Suites Hotel    |
| New Orleans – French Quarter                            | LA      | 374       |   | Holiday Inn             |
| Boston – at Beacon Hill                                 | MA      | 303       |   | Holiday Inn             |
| Boston – Marlborough(b)                                 | MA      | 229       |   | Embassy Suites Hotel    |
| Baltimore – at BWI Airport(b)                           | MD      | 251       | 90%    | Embassy Suites Hotel    |
| Bloomington(b)                                                | MN      | 218       |   | Embassy Suites Hotel    |
| Minneapolis – Airport(b)                                | MN      | 310       |   | Embassy Suites Hotel    |
| St. Paul – Downtown(b)                                  | MN      | 208       |   | Embassy Suites Hotel    |
| Kansas City – Plaza                                     | MO      | 266       | 50%    | Embassy Suites Hotel    |
| Charlotte(b)                                                  | NC      | 274       | 50%    | Embassy Suites Hotel    |
| Charlotte – SouthPark                                   | NC      | 208       |   | Doubletree Guest Suites |
| Raleigh/Durham(b)                                             | NC      | 203       |   | Doubletree Guest Suites |
| Raleigh – Crabtree(b)                                   | NC      | 225       | 50%    | Embassy Suites Hotel    |
| Parsippany(b)                                                 | NJ      | 274       | 50%    | Embassy Suites Hotel    |
| Piscataway – Somerset(b)                                | NJ      | 221       |   | Embassy Suites Hotel    |
| Secaucus – Meadowlands(b)                               | NJ      | 261       | 50%    | Embassy Suites Hotel    |
| Philadelphia – Historic District                        | PA      | 364       |   | Holiday Inn             |
| Philadelphia – Society Hill(b)                          | PA      | 365       |   | Sheraton                |
| Pittsburgh – at University Center (Oakland)             | PA      | 251       |   | Holiday Inn             |
| Charleston – Mills House(b)                             | SC      | 214       |   | Holiday Inn             |
| Myrtle Beach – Oceanfront Resort                        | SC      | 255       |   | Embassy Suites Hotel    |
| Myrtle Beach Resort                                           | SC      | 385       |   | Hilton                  |
| Nashville – Airport – Opryland Area               | TN      | 296       |   | Embassy Suites Hotel    |
| Nashville – Opryland – Airport (Briley Parkway)   | TN      | 383       |   | Holiday Inn             |
| Austin(b)                                                     | TX      | 188       | 90%    | Doubletree Guest Suites |
| Austin – Central(b)                                     | TX      | 260       | 50%    | Embassy Suites Hotel    |
| Corpus Christi(b)                                             | TX      | 150       |   | Embassy Suites Hotel    |
| Dallas – DFW International Airport South(b)             | TX      | 305       |   | Embassy Suites Hotel    |
| Dallas – Love Field(b)                                  | TX      | 248       |   | Embassy Suites Hotel    |
| Dallas – Market Center                                  | TX      | 244       |   | Embassy Suites Hotel    |
| Dallas – Park Central                                   | TX      | 536       | 60%    | Westin                  |
| Houston – Medical Center                                | TX      | 287       |   | Holiday Inn             |
| San Antonio – International Airport(b)                  | TX      | 261       | 50%    | Embassy Suites Hotel    |
| San Antonio – International Airport(b)                  | TX      | 397       |   | Holiday Inn             |
| San Antonio – NW I-10(b)                                | TX      | 216       | 50%    | Embassy Suites Hotel    |
| Burlington Hotel & Conference Center(b)                   | VT      | 309       |   | Sheraton                |
| Vienna – Premiere at Tysons Corner(b)                   | VA      | 443       | 50%    | Sheraton                |
|                                                          |    |      |   |                    |
| *Canada*                                                      |    |      |   |                    |
| Toronto – Airport                                       | Ontario | 446       |   | Holiday Inn             |
| Toronto – Yorkdale                                      | Ontario | 370       |   | Holiday Inn             |
|                                                          |    |      |   |                    |
| **Unconsolidated Operations**                                 |    |      |   |                    |      |
| Salina(b)(d)                                                  | KS      | 192       | 50%    | Holiday Inn             |
| Salina – I-70(b)                                        | KS      | 93        | 50%    | Holiday Inn Express     |
| New Orleans – French Quarter – Chateau LeMoyne(b) | LA      | 171       | 50%    | Holiday Inn             |
|                                                               |         |           |        |                         |           |        |                |        |        |           |        |  |

 

|   | (a) | We own 100% of the real estate interests unless otherwise noted. |
|--------|-----|------------------------------------------------------------------|

|   | (b) | This hotel was encumbered by mortgage debt or a capital lease obligation at March 31, 2009. |
|--------|-----|--------------------------------------------------------------------------------------------------|

|   | (c) | On April 1, 2009, San Francisco Union Square was rebranded as a Marriott. |
|--------|-----|---------------------------------------------------------------------------|

|   | (d) | This hotel was sold April 23, 2009. |
|--------|-----|-------------------------------------|

 

34

 

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**Liquidity and Capital Resources**

 

Hotel operations provide most of the cash needed to meet our cash requirements, including distributions to unitholders and repayments of indebtedness. For the three months ended March 31, 2009, net cash flow provided by operating activities, consisting primarily of hotel operations, was $24 million. At March 31, 2009, we had $53 million of cash on hand, including            approximately $38 million held under management agreements to meet minimum working capital requirements.

 

We suspended our common distributions in December 2008 and our preferred distributions in March 2009. Although distributions are not paid unless declared by FelCor’s Board of Directors, unpaid preferred distributions continue to accrue, and accrued and current preferred distributions must be paid in full prior to payment of any common distributions. FelCor’s Board of            Directors will determine whether to declare future distributions based upon various factors, including operating results, economic conditions, other operating trends, its financial condition and capital requirements, as well as FelCor’s minimum REIT distribution requirements. 

 

We have agreed in principle on the material terms with the lead lender of a new $200 million term loan, which would be secured by first mortgages on nine currently unencumbered hotels and, assuming all extension options are exercised, will not mature until 2013. This loan would not be subject to any corporate financial covenants and would only be recourse to the borrower, a            to-be-formed wholly-owned subsidiary. While we believe that we will successfully close our new secured term loan, as discussed above, we have several other alternatives available to ensure continued compliance with our financial covenants or repay our line of credit, including identifying other sources of debt or equity financing, selling unencumbered hotels and/or implementing additional cost cutting measures. Of course, we can provide no assurance that we will be able to close our            new secured term loan, identify additional sources of debt or equity financing or sell hotels on terms that are favorable or otherwise acceptable to us.

 

We have $15 million of non-recourse mortgage debt maturing in 2009 (two loans, each secured by different hotels) that we are seeking to extend.

 

We have two non-recourse mortgage loans aggregating $277 million secured by 14 hotels that will mature in May 2010. We are in preliminary discussions with potential lenders to refinance all of our debt that will mature in 2010 and 2011. 

 

          We currently expect approximately $97 to $112 million of cash flow provided by operating activities for 2009. This forecast assumes our hotel RevPAR decreases by 12% to 14%. Our current operating plan contemplates that we will make no additional common or preferred dividend payments leaving approximately            $87 million to $102 million in surplus cash flow (before capital expenditures and debt reduction). In 2009, we plan to spend approximately $84 million on capital expenditures and will pay $11 million in normal recurring principal payments, which will be funded from operating cash flow and borrowings. 

 

          The overall weakness in the U.S. economy, particularly the turmoil in the credit markets, has resulted in considerable negative pressure on both consumer and business spending. As a result, lodging demand continued to weaken in the first quarter and contributed to further weakening of our Consolidated Hotel RevPAR. We expect            negative year over year RevPAR in 2009. We anticipate that lodging demand will not improve, and may weaken further, until the current economic trends reverse course, particularly the expected weakness in the overall economy and the lack of liquidity in the credit markets. 

 

The capital markets, and our access to financing on reasonably acceptable terms or not at all, have historically been affected by external events and circumstances, such as recessions, major bank failures, the subprime mortgage crisis, rising unemployment, shrinking GDP, acts of terrorism, etc. Events, or circumstances of similar magnitude or impact, could adversely affect the            availability and cost of our capital going forward. In addition, if the recession in the overall economy and the lodging industry continues, our operating cash flow and the availability and cost of capital for our business will be adversely affected.

 

35

 

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            We are subject to increases in hotel operating expenses, including wage and benefit costs, repair and maintenance expenses, utilities and insurance expenses that can fluctuate disproportionately to revenues. Operating expenses are difficult to predict and control, which lends volatility in our operating results. If hotel RevPAR            decreases and/or Hotel EBITDA margins shrink, our operations, earnings and/or cash flow could suffer a material adverse effect. 

 

*Debt*

 

          *Line of Credit.*At March 31, 2009, we had $128 million borrowed under our $250 million line of credit. The interest rate on our line of credit was LIBOR plus 1.0% at March 31, 2009.

 

Our line of credit contains certain restrictive financial covenants, including a leverage ratio, fixed charge coverage ratio, unencumbered leverage ratio and maximum payout ratio. At the date of this filing, we were in compliance with all of these covenants. Our compliance with these covenants in future periods will depend substantially on the financial results of our hotels. If            current financial market conditions persist and our business continues to deteriorate, we may fail to comply with one or more of these covenants in 2009.

 

Our other borrowings contain affirmative and negative covenants that are generally no more restrictive than our line of credit. Payment of amounts due under our line of credit is guaranteed by us and certain of our subsidiaries who also guarantee payment of our senior notes, and payment of those obligations is secured by a pledge of FelCor’s limited partnership interest in            us.

 

*Mortgage Debt.*At March 31, 2009, we had aggregate mortgage indebtedness of $923 million, secured by 44 of our consolidated hotels with an aggregate book value of $1.4 billion. Our hotel mortgage 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 certain of our hotels provide for lock-box arrangements under certain circumstances. We generally are permitted to retain an amount required to cover our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves but the remaining revenues would become subject to a lock-box arrangement if a specified debt service coverage ratio is not met. These hotels currently exceed the minimum debt service coverage ratio; however,            under the terms of these loan agreements, the lock-box provisions will remain in place until the loans are repaid. 

 

In March 2009, we entered into a loan agreement with The Prudential Insurance Company of America secured by mortgages on seven hotels.  The proceeds of the loan were used to repay the balance of an existing loan secured by the same properties that would have matured on April 1, 2009.  The loan matures in 2014 and bears interest at an annual rate of 9.02%.  FelCor            LP has the right to prepay the loan and/or obtain partial release of one or more of the mortgages, subject to certain conditions.

 

Our hotel mortgage debt contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of our mortgage debt is prepayable, subject to various prepayment, yield maintenance or defeasance obligations.

 

          *Senior Notes.*Our publicly-traded senior notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: (i) incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; (ii)            pay distributions in excess of the minimum distributions required to meet FelCor’s REIT qualification test; (iii) repurchase FelCor’s capital stock; or (iv) merge. As of the date of this filing, we have satisfied all such tests. Under the terms of one of our indentures, we are prohibited from repurchasing any of FelCor’s capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures,            exceeds 4.85 to 1, which it does at the date of this filing. In addition, if we were unable to continue to satisfy the incurrence test under the indentures governing our senior notes, we may be prohibited from, among other things, incurring any additional indebtedness, except under certain specific exceptions,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.

 

36

 

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*Interest Rate Caps.*To fulfill requirements under certain loans, we entered into interest rate cap agreements with aggregate notional amounts of $427.2 million at both March 31, 2009 and December 31, 2008. These interest rate caps were not designated as hedges and had insignificant fair values at both March 31, 2009 and            December 31, 2008, resulting in no significant net earnings impact.

 

**Inflation**

 

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

 

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

 

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

 

37

 

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**Item 3. Quantitative and Qualitative Disclosures about Market Risk**

 

*Quantitative and Qualitative Disclosures About Market Risk*

 

|   | At March 31, 2009, approximately 51% of our consolidated debt had fixed interest rates. |
|--------|----------------------------------------------------------------------------------------------|

 

          The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents scheduled maturities and weighted average interest rates, by maturity dates. The fair value debt indicates the estimated principal amount of debt having the same            debt service requirements that could have been borrowed at the date presented, at then current market interest rates.

 

**Expected Maturity Date**

**at March** **31, 2009**

**(dollars in thousands)**

 

| **March 31, 2009**       |
|--------------------------|
|                     | **Expected Maturity Date** |
|                     | **2009** |   | **2010** |   | **2011** |   | **2012** |   | **2013** |   | **Thereafter** |   |  

**Total** |   | **Fair Value** |
| **Liabilities**          | (dollars in thousands) |
| Fixed rate:              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt                     | $ | 25,420 |   | $ | 278,189 |   | $ | 306,893 |   | $ | 4,766 |   | $ | 5,162 |   | $ | 175,603 |   | $ | 796,033 |   |   | 663,171 |
| Average interest rate    |   | 7.20% |   |   | 8.71% |   |   | 8.98% |   |   | 7.74% |   |   | 7.75% |   |   | 7.99% |   |   | 8.59% |   |   |   |
| Floating rate:           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt                     |   | -    |   |   | 310 |   |   | 593,000 |   |   | 177,225 |   |   | -    |   |   | -    |   |   | 770,535 |   |   | 552,296 |
| Average interest rate(a) |   | -    |   |   | 4.25% |   |   | 3.45% |   |   | 4.50%  |   |   | -    |   |   | -    |   |   | 3.69% |   |   |   |
| Total debt               | $ | 25,420 |   | $ | 278,499 |   | $ | 899,893 |   | $ | 181,991 |   | $ | 5,162 |   | $ | 175,603 |   | $ | 1,566,568 |   |   |   |
| Average interest rate    |   | 7.20% |   |   | 8.70% |   |   | 5.33% |   |   | 4.59% |   |   | 7.75% |   |   | 7.99% |   |   | 6.18% |   |   |   |
| Net discount             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,409 | ) |   |   |
| Total debt               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 1,565,159 |   |   |   |

 

|   | (a) | The average floating interest rate represents the implied forward rates in the yield curve at March 31, 2009. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------|

 

**Item 4. Controls and Procedures**

 

|   | (a) | *Evaluation of disclosure controls and procedures.* |
|--------|-----|-----------------------------------------------------|

          We have no employees as 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 chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our            disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, FelCor’s chief executive officer and chief financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective, such that the information relating to us required to be disclosed in our reports is            recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to FelCor’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

 

|   | (b) | *Changes in internal control over financial reporting.* |
|--------|-----|---------------------------------------------------------|

 

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934) during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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**PART II. -- OTHER INFORMATION**

 

| **Item 5.** | **Other Information** |
|-------------|-----------------------|

 

In May 2009, FelCor’s Compensation Committee and its Board of Directors, as our general partner, authorized us to guaranty unconditionally FelCor’s indemnification obligations to its directors and officers and to guaranty unconditionally FelCor’s cash compensation and other non-equity obligations to various employees pursuant to existing employment agreements,            contingent future cash payment agreements and as generally provided in our standard Change in Control and Severance Agreement. The purpose of the foregoing guaranties is to ensure that the objective of those rights – primarily, retaining skilled and valuable directors and employees – is accomplished. We generally bear the economic responsibility for such costs because substantially all of the services provided by the directors, officers and other employees to FelCor are            so provided in FelCor’s capacity as our general partner and substantially all of the business of FelCor is conducted through us; however, the guaranties provide the individuals the right to look to us directly for those rights.

 

The rights of an indemnified director or officer under the Amended and Restated Indemnification Agreement are substantially identical to the rights provided under the existing agreements, and complement any rights the indemnitee may already have under FelCor’s charter or bylaws, under Maryland law or otherwise, and under our partnership agreement under Delaware law or otherwise.            The Amended and Restated Indemnification Agreement requires FelCor to indemnify and advance expenses and costs incurred by the indemnitee in connection with any claims, suits or proceedings arising as a result of the indemnitee’s service as an officer or director of FelCor.

 

The foregoing summaries of the forms of the Indemnification Agreement (as amended) and the Guaranty Agreement are qualified in their entirety by reference to the full text of those agreements, copies of the forms of which are included as Exhibits 10.1 and 10.2 to FelCor’s Form 10-Q for the quarter ended March 31, 2009 and are incorporated by reference herein.

 

| **Item 6.** | **Exhibits** |
|-------------|--------------|

 

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

 

| Exhibit Number | Description of Exhibit                                                                                                                                                                                                                                                                                                                     |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1           | Form of Indemnification Agreement by and among FelCor, FelCor LP and individual officers and directors of FelCor (filed as Exhibit 10.1 to FelCor’s Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference).                                                                                      |
|           |                                                                                                                                                                                                                                                                                                                                       |
| 10.2           | Form of Guaranty Agreement by and among FelCor, FelCor LP and individual employees of FelCor (filed as Exhibit 10.2 to FelCor’s Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference).                                                                                                          |
|           |                                                                                                                                                                                                                                                                                                                                       |
| 10.3           | Loan Agreement, dated March 31, 2009, by and between FelCor/CSS (SPE), L.L.C., as borrower, The Prudential Insurance Company of America, as lender, and joined by DJONT Operations, L.L.C. (filed as Exhibit 10.3 to FelCor’s Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference).       |
|           |                                                                                                                                                                                                                                                                                                                                       |
| 10.4           | Form of Mortgage and Security Agreement, dated March 31, 2009, executed by FelCor/CSS (SPE), L.L.C. and DJONT Operations, L.L.C. for the benefit of The Prudential Insurance Company of America (filed as Exhibit 10. 4 to FelCor’s Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference). |

 

 

39

 

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|   |                                                                                                                                                                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5   | Promissory Note, dated March 31, 2009, made by FelCor/CSS (SPE), L.L.C., as borrower, in favor of The Prudential Insurance Company of America (filed as Exhibit 10. 5 to FelCor’s Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference). |
|   |                                                                                                                                                                                                                                                                                     |
| 10.6   | Recourse Liabilities Guarantee, dated March 31, 2009, made by FelCor and FelCor LP in favor of The Prudential Insurance Company of America (filed as Exhibit 10. 6 to FelCor’s Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference). .  |
|   |                                                                                                                                                                                                                                                                                     |
| 31.1   | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                     |
| 31.2   | Certification of the Chief 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.                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                     |
| 32.2   | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                             |

 

 

40

 

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**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.

 

 

|              | **FELCOR LODGING LIMITED PARTNERSHIP** |
|-------------------|----------------------------------------|
|              | a Delaware limited partnership         |
|              |                                   |   |
|              | By:                                    | FelCor Lodging Trust Incorporated |
|              |                                   | Its general partner |
|              |                                   |   |
|              |                                   |   |
| Date: May 8, 2009 | By:                                    | /s/ Lester C. Johnson |
|              |                                   | Name: Lester C. Johnson

Title:    Senior Vice President and Chief Accounting Officer |

 

 

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