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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
 Commission file number 333-3959-01 FelCor Lodging Limited Partnership  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    75-25444994
(I.R.S. Employer
Identification No.)545 E. John Carpenter Freeway, Suite 1300, Irving, Texas
(Address of principal executive offices)
    
    75062
(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. Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x




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FELCOR LODGING LIMITED PARTNERSHIP INDEX  
 PagePART I.  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets  March 31, 2004 (unaudited)
and December 31, 2003
    
    
    3Consolidated Statements of Operations  For the Three Months
Ended March 31, 2004 and 2003 (unaudited)
    
    
    4Consolidated Statements of Comprehensive Loss  For the Three Months
Ended March 31, 2004 and 2003 (unaudited)
    
    
    5Consolidated Statements of Cash Flows  For the Three Months
Ended March 31, 2004 and 2003 (unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
General
    
    
    22Financial Comparison
    
    
    22Results of Operations
    
    
    23Liquidity and Capital Resources
    
    
    30Inflation
    
    
    32Seasonality
    
    
    33Disclosure Regarding Forward Looking Statements
    
    
    33Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4.
    
    Controls and Procedures
    
    
    33PART II.  OTHER INFORMATIONItem 5.
    
    Other Information
    
    
    34Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    34SIGNATURE
    
    
    35Certification of Pursuant to Section 302Certification of Pursuant to Section 302Certification of Pursuant to Section 906Certification of Pursuant to Section 906
  2




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PART I.  FINANCIAL INFORMATION 
 Item 1. Financial Statements FELCOR LODGING LIMITED PARTNERSHIP 
 CONSOLIDATED BALANCE SHEETS (unaudited, in thousands)
 March 31,
    
    December 31,2004
    
    2003ASSETSInvestment in hotels, net of accumulated depreciation of $908,655
at March 31, 2004 and $886,168 at December 31, 2003
    
    $
    3,096,737
    
    
    $
    3,103,796Investment in unconsolidated entities
    
    
    116,009
    
    
    
    116,553Hotels held for sale
    
    
    10,107
    
    
    
    21,838Cash and cash equivalents
    
    
    231,586
    
    
    
    246,036Accounts receivable, net of allowance for doubtful accounts of $890
at March 31, 2004 and $1,104 at December 31, 2003
    
    
    57,342
    
    
    
    45,385Deferred expenses, net of accumulated amortization of $17,619
at March 31, 2004 and $16,080 at December 31, 2003
    
    
    22,888
    
    
    
    24,278Other assets
    
    
    27,188
    
    
    
    33,007Total assets
    
    $
    3,561,857
    
    
    $
    3,590,893LIABILITIES AND PARTNERS CAPITALDebt, net of discount of $4,063 at March 31, 2004 and
$4,253 at December 31, 2003
    
    $
    2,033,362
    
    
    $
    2,037,355Distributions payable
    
    
    5,504
    
    
    
    5,504Accrued expenses and other liabilities
    
    
    155,076
    
    
    
    151,423Minority interest in other partnerships
    
    
    50,267
    
    
    
    50,197Total liabilities
    
    
    2,244,209
    
    
    
    2,244,479Commitments and contingenciesRedeemable units at redemption value, 3,033 and 3,034 units issued and
outstanding at March 31, 2004 and December 31, 2003, respectively
    
    
    31,603
    
    
    
    33,612Preferred units, $.01 par value, 20,000 units authorized:Series A Cumulative Convertible Preferred Units, 5,980 units issued
and outstanding at March 31, 2004 and December 31, 2003
    
    
    149,512
    
    
    
    149,512Series B Cumulative Redeemable Preferred Units, 68 units issued and outstanding at March 31, 2004 and December 31, 2003
    
    
    169,395
    
    
    
    169,395Common units, 59,148 and 59,120 units issued and outstanding at
March 31, 2004 and December 31, 2003, respectively
    
    
    958,121
    
    
    
    984,417Accumulated other comprehensive income
    
    
    9,017
    
    
    
    9,478Total partners capital
    
    
    1,286,045
    
    
    
    1,312,802Total liabilities, redeemable units and partners capital
    
    $
    3,561,857
    
    
    $
    3,590,893
 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, 2004 and 2003
(unaudited, in thousands, except for per unit data)
 Three Months EndedMarch 31,2004
    
    2003Revenues:Hotel operating revenue
    
    $
    311,085
    
    
    $
    286,571Retail space rental and other revenue
    
    
    245
    
    
    
    382Total revenues
    
    
    311,330
    
    
    
    286,953Expenses:Hotel departmental expenses
    
    
    113,280
    
    
    
    101,229Other property operating costs
    
    
    92,907
    
    
    
    85,295Management and franchise fees
    
    
    15,857
    
    
    
    15,306Taxes, insurance and lease expense
    
    
    32,118
    
    
    
    31,107Lease termination expense
    
    
    4,900
    
    
    
    Corporate expenses
    
    
    3,386
    
    
    
    3,423Depreciation
    
    
    30,714
    
    
    
    34,064Total operating expenses
    
    
    293,162
    
    
    
    270,424Operating income
    
    
    18,168
    
    
    
    16,529Interest expense, net
    
    
    (41,120
    )
    
    
    (39,805
    )Charge-off of deferred financing costs
    
    
    (230
    )
    
    
    Loss before equity in income of unconsolidated entities and
minority interests
    
    
    (23,182
    )
    
    
    (23,276
    )Equity in income from unconsolidated entities
    
    
    982
    
    
    
    (148
    )Minority interests
    
    
    (71
    )
    
    
    (430
    )Loss from continuing operations
    
    
    (22,271
    )
    
    
    (23,854
    )Discontinued operations
    
    
    165
    
    
    
    1,206Net loss
    
    
    (22,106
    )
    
    
    (22,648
    )Preferred distributions
    
    
    (6,726
    )
    
    
    (6,726
    )Net loss applicable to common unitholders
    
    $
    (28,832
    )
    
    $
    (29,374
    )Loss per unit data:Basic:Net loss from continuing operations
    
    $
    (0.47
    )
    
    $
    (0.50
    )Net loss
    
    $
    (0.47
    )
    
    $
    (0.48
    )Weighted average common units outstanding
    
    
    61,970
    
    
    
    61,821Diluted:Net loss from continuing operations
    
    $
    (0.47
    )
    
    $
    (0.50
    )Net loss
    
    $
    (0.47
    )
    
    $
    (0.48
    )Weighted average common units outstanding
    
    
    61,970
    
    
    
    61,821
 The accompanying notes are an integral part of these consolidated financial statements. 4




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FELCOR LODGING LIMITED PARTNERSHIP 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Three Months Ended March 31, 2004 and 2003
(unaudited, in thousands)
 Three Months EndedMarch 31,2004
    
    2003Net loss
    
    $
    (22,106
    )
    
    $
    (22,648
    )Foreign currency translation adjustment
    
    
    (461
    )
    
    
    4,819Comprehensive loss
    
    $
    (22,567
    )
    
    $
    (17,829
    )
 The accompanying notes are an integral part of these consolidated financial statements. 5




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FELCOR LODGING LIMITED PARTNERSHIP 
 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2004 and 2003
(unaudited, in thousands)
 Three Months EndedMarch 31,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (22,106
    )
    
    $
    (22,648
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation
    
    
    30,894
    
    
    
    36,107Amortization of deferred financing fees
    
    
    1,309
    
    
    
    1,198Accretion of debt, net of discount
    
    
    190
    
    
    
    91Amortization of unearned compensation
    
    
    503
    
    
    
    516Equity in loss (income) from unconsolidated entities
    
    
    (982
    )
    
    
    148Gain on sale of assets
    
    
    (272
    )
    
    
    Gain on debt extinguishment
    
    
    
    
    
    
    (953
    )Charge-off of deferred financing costs
    
    
    230
    
    
    
    Minority interests
    
    
    71
    
    
    
    430Changes in assets and liabilities:Accounts receivable
    
    
    (12,055
    )
    
    
    (5,080
    )Other assets
    
    
    5,306
    
    
    
    (6,349
    )Accrued expenses and other liabilities
    
    
    3,590
    
    
    
    (14,719
    )Net cash flow provided by (used in) operating activities
    
    
    6,678
    
    
    
    (11,259
    )Cash flows used in investing activities:Acquisition of hotels
    
    
    (27,759
    )
    
    
    Proceeds from sale of assets
    
    
    28,828
    
    
    
    Improvements and additions to hotels
    
    
    (12,297
    )
    
    
    (24,373
    )Cash distributions from unconsolidated entities
    
    
    1,526
    
    
    
    625Net cash flow used in investing activities
    
    
    (9,702
    )
    
    
    (23,748
    )Cash flows provided by (used in) financing activities:Proceeds from borrowings
    
    
    
    
    
    
    149,119Repayment of borrowings
    
    
    (4,183
    )
    
    
    (8,379
    )Deferred expenses
    
    
    (149
    )
    
    
    (648
    )Distributions paid to preferred unitholders
    
    
    (6,726
    )
    
    
    (6,726
    )Distributions paid to common unitholders
    
    
    
    
    
    
    (9,308
    )Net cash flow provided by (used in) financing activities
    
    
    (11,058
    )
    
    
    124,058Effect of exchange rate changes on cash
    
    
    (368
    )
    
    
    78Net change in cash and cash equivalents
    
    
    (14,450
    )
    
    
    89,129Cash and cash equivalents at beginning of periods
    
    
    246,036
    
    
    
    66,542Cash and cash equivalents at end of periods
    
    $
    231,586
    
    
    $
    155,671Supplemental
cash flow information Interest paid
    
    $
    45,448
    
    
    $
    44,053
 The accompanying notes are an integral part of these consolidated financial statements. 6




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FELCOR LODGING LIMITED PARTNERSHIP 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization In 1994, FelCor Lodging Limited Partnership, or FelCor LP, was established
with six hotels. We are the largest owner of full service, all-suite hotels in
the nation. Our sole general partner is FelCor Lodging Trust Incorporated, or
FelCor, the second largest lodging real estate investment trust, or REIT. At
March 31, 2004, FelCor owned an approximately 95% equity interest in our
operations. At March 31, 2004, our hotel portfolio included 71 upscale,
all-suite hotels, and we are the owner of the greatest number of Embassy Suites
Hotels®, Crowne Plaza®, Holiday Inn® and independently-owned Doubletree® hotels
in North America. Our portfolio also includes 74 hotels in the upscale and
full service segments. At March 31, 2004, we had ownership interests in 163 hotels. We owned a
100% real estate interest in 126 hotels, a 90% or greater interest in entities
owning seven hotels, a 60% interest in an entity owning two hotels, a 51%
interest in an entity owning eight hotels and 50% interests in unconsolidated
entities that own 20 hotels. As a result of our ownership interests in the
operating lessees of 158 of these hotels, we reflect their operating revenues
and expenses in our consolidated statements of operations. The operations of
156 of the 158 hotels were included in continuing operations at March 31, 2004.
The remaining two hotels were held for sale as of March 31, 2004, and their
operations are included in discontinued operations. The operating revenues and
expenses of the remaining five hotels are unconsolidated. At March 31, 2004, we had an aggregate of 67,871,049 redeemable and common
units of FelCor LP limited partnership interest outstanding. The following table reflects the distribution, by brand, of the 156 hotels
included in our consolidated hotel continuing operations at March 31, 2004: Brand
    
    Hotels
    
    RoomsEmbassy Suites Hotels
    
    
    56
    
    
    
    14,279Doubletree and Doubletree Guest Suites®
    
    
    10
    
    
    
    2,206Holiday Inn  branded
    
    
    46
    
    
    
    14,637Crowne Plaza and Crowne Plaza Suites®
    
    
    15
    
    
    
    5,108Sheraton® and Sheraton Suites®
    
    
    10
    
    
    
    3,269Other brands
    
    
    19
    
    
    
    4,120Total hotels
    
    
    156
 The hotels shown in the above table are located in the United States (33
states) and Canada (two hotels), with concentrations in Texas (36 hotels),
California (20 hotels), Florida (16 hotels) and Georgia (14 hotels).
Approximately 58% of our hotel room revenues were generated from hotels in
these four states during the three months ended March 31, 2004. At March 31, 2004, of the 156 consolidated hotels included in continuing
operations, (i) subsidiaries of InterContinental Hotels Group, or IHG, managed
67, (ii) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 66,
(iii) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood,
managed 11, (iv) subsidiaries of Interstate Hotels & Resorts, or Interstate,
managed 10, and (v) two independent management companies managed one each. Certain reclassifications have been made to prior period financial
information to conform to the current periods presentation with no effect to
previously reported net loss or partners capital. 7




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization  (continued) The financial information for the three months ended March 31, 2004, and
2003, is unaudited. The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of America
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, 2004, and 2003, 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, 2003, included in our
Annual Report on Form 10-K for the year ended December 31, 2003 (Form 10-K).
Operating results for the three months ended March 31, 2004, are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2004. 2. Acquisition of Hotels Our hotel acquisitions consist almost exclusively of land, building,
furniture, fixtures and equipment, and inventory. We allocate the purchase
price among these asset classes based upon their respective values determined
in accordance with Statement of Financial Accounting Standards, or SFAS 141,
Business Combinations. When we acquire properties, we acquire them for use.
The only intangible assets typically acquired consist of miscellaneous
operating agreements, all of which are of short duration and at market rates.
We do not acquire any significant in-place leases or other intangible assets
(e.g., management agreements, franchise agreements or trademarks) when we
acquire hotels. In conjunction with the acquisition of a hotel, we typically
negotiate new franchise and management agreements with the selected brand owner
and manager. On March 12, 2004, we purchased the 132-room Santa Monica Holiday Inn for
$27 million. 3. Investment in Unconsolidated Entities We owned 50% interests in joint venture entities that owned 20 hotels at
March 31, 2004, and 29 hotels at March 31, 2003. We also owned a 50% interest
in entities that own an undeveloped parcel of land, provide condominium
management services, develop condominiums in Myrtle Beach, South Carolina, and
lease four hotels. We account for our investments in these unconsolidated
entities under the equity method. We do not have any majority-owned
subsidiaries that are not consolidated in our financial statements. Summarized unaudited combined financial information for 100% of these
unconsolidated entities is as follows (in thousands): March 31,
    
    December 31,2004
    
    2003Balance sheet information:Investment in hotels, net of accumulated depreciation
    
    $
    352,884
    
    
    $
    326,835Total assets
    
    $
    377,074
    
    
    $
    366,046Debt
    
    $
    286,239
    
    
    $
    275,209Total liabilities
    
    $
    287,463
    
    
    $
    276,773Equity
    
    $
    89,611
    
    
    $
    89,273
 Debt of our unconsolidated entities at March 31, 2004, included $212.0
million of non-recourse mortgage debt, of which our pro rata share is $105.9
million. Debt of our unconsolidated entities at March 31, 2004, also included $37.2
million of mortgage debt guaranteed by us and $37.1 million of mortgage debt
guaranteed by Hilton, one of our joint venture partners. The debt guaranteed
by us consisted primarily of 50% of a loan related to the construction of a
residential condominium project in Myrtle Beach, South Carolina. The loan
commitment is for $97.6 million of which 8




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Investment in Unconsolidated Entities  (continued) approximately $74.1 million was outstanding as of March 31, 2004. Our
guarantee reduces from 50% to 25% of the outstanding balance when the
condominium project is completed and receives a certificate of occupancy, which
we expect to occur in late 2004. Our guarantee is a payment guarantee and will become payable in the event
that the joint venture fails to pay interest or principal due under the debt
agreement. The loan matures in August 2005, and bears interest at LIBOR plus
200 basis points. As of March 31, 2004, we had not established any liability
related to our guarantees of debt, because it was not probable that we would be
required to perform under these guarantees. Summarized combined statement of operations information for 100% of our
unconsolidated entities is as follows (in thousands): Three Months EndedMarch 31,2004
    
    2003Total revenues
    
    $
    14,318
    
    
    $
    21,148Net income
    
    $
    2,706
    
    
    $
    910
 4. Debt Debt at March 31, 2004 and December 31, 2003, consists of the following
(in thousands): Balance OutstandingEncumbered
    
    Interest Rate at
    
    Maturity
    
    March 31,
    
    December 31,Hotels
    
    March 31, 2004
    
    Date
    
    2004
    
    2003Promissory note
    
    none
    
    
    3.10
    (a)%
    
    June 2016
    
    $
    650
    
    
    $
    650Senior unsecured term
notes
    
    none
    
    
    4.37
    (b)
    
    Oct. 2004
    
    
    174,920
    
    
    
    174,888Senior unsecured term
notes
    
    none
    
    
    5.20
    (b)
    
    Oct. 2007
    
    
    124,642
    
    
    
    124,617Senior unsecured term
notes
    
    none
    
    
    10.00
    
    
    Sept. 2008
    
    
    597,032
    
    
    
    596,865Senior unsecured term
notes
    
    none
    
    
    9.00
    
    
    June 2011
    
    
    298,221
    
    
    
    298,158Total unsecured debt(c)
    
    
    
    
    
    
    8.42
    
    
    
    
    
    
    
    1,195,465
    
    
    
    1,195,178Mortgage debt
    
    1 hotel
    
    
    7.23
    
    
    September 2005
    
    
    11,112
    
    
    
    11,286Mortgage debt
    
    10 hotels
    
    
    3.59
    (d)
    
    May 2006
    
    
    147,241
    
    
    
    148,080Mortgage debt
    
    15 hotels
    
    
    5.92
    (e)
    
    Nov. 2007
    
    
    130,926
    
    
    
    131,721Mortgage debt
    
    1 hotel
    
    
    4.00
    (a)
    
    August 2008
    
    
    15,500
    
    
    
    15,500Mortgage debt
    
    7 hotels
    
    
    7.54
    
    
    April 2009
    
    
    91,962
    
    
    
    92,445Mortgage debt
    
    6 hotels
    
    
    7.55
    
    
    June 2009
    
    
    69,207
    
    
    
    69,566Mortgage debt
    
    8 hotels
    
    
    8.70
    
    
    May 2010
    
    
    177,465
    
    
    
    178,118Mortgage debt
    
    7 hotels
    
    
    8.73
    
    
    May 2010
    
    
    137,641
    
    
    
    138,200Mortgage debt
    
    8 hotels
    
    
    7.48
    
    
    April 2011
    
    
    50,098
    
    
    
    50,305Other
    
    1 hotel
    
    
    9.17
    
    
    August 2011
    
    
    6,745
    
    
    
    6,956Total secured debt(c)
    
    78 hotels
    
    
    6.96
    
    
    
    
    
    
    
    837,897
    
    
    
    842,177Total(c)
    
    
    
    
    
    
    7.82
    %
    
    
    
    
    
    $
    2,033,362
    
    
    $
    2,037,355
  (a)
    
    Variable interest rate based on LIBOR, which was 1.1% as of March 31,
2004.(b)
    
    These notes were matched with interest rate swap agreements that
effectively converted the fixed interest rate on the notes to a variable
interest rate based on LIBOR.(c)
    
    Interest rates are calculated based on the weighted average outstanding
debt at March 31, 2004.(d)
    
    Variable interest rate based on LIBOR. This debt may be extended at our
option for up to two, one-year periods.(e)
    
    $100 million of this note was matched with interest rate swap agreements
that effectively converted the fixed interest rate on this note to a
variable interest rate based on LIBOR. 9




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Debt  (continued) We reported interest expense net of interest income of $0.7 million and
$0.4 million and capitalized interest of $0.1 million and $0.3 million, for the
three months ended March 31, 2004 and 2003, respectively. Ratings downgrades in 2003 on our $1.2 billion in senior unsecured debt
resulted in a 50 basis point
step-up in interest rates on $900 million of our senior unsecured debt. In March 2004, we elected to terminate our line of credit, which resulted
in the first quarter charge-off of unamortized loan costs of $0.2 million and
will produce cash savings of approximately $0.4 million during the remainder of
2004. In June 2003, we entered into a new secured delayed draw facility with
JPMorgan Chase Bank for up to $200 million. Through the date of this filing,
there have been no borrowings under this facility, and we have an estimated
$172 million of borrowing capacity based on the underwritten cash flows of the
14 hotels currently securing this facility. The amount available to us under
this facility will fluctuate, prior to conversion into commercial mortgage
backed security (CMBS) loans, depending upon the number of hotels provided as
security and the underwritten cash flows of those hotels, from time to time.
This non-recourse facility has an initial term of 18 months that can be
extended for an additional six months at our option and carries a floating
interest rate of LIBOR plus 2.25 to 2.75 percent. The outstanding balances on
this loan facility will be converted by the lender into fixed rate or floating
rate CMBS loans, and we have a one-time option to convert up to $75 million in
borrowings to a floating rate CMBS loan. Upon conversion, the fixed rate loans
will have a term of 10 years and any floating rate loans will have a maximum
term of five years. Most of our mortgage debt is non-recourse to us and contains provisions
allowing for the substitution of collateral upon satisfaction of certain
conditions. Most of our mortgage debt is prepayable, subject to various
prepayment penalties, yield maintenance or defeasance obligations. Our
liability with regard to non-recourse debt is generally limited to the
guarantee of the borrowing entitys obligations to pay for the lenders losses
caused by misconduct, fraud or misappropriation of funds and other typical
exceptions from the non-recourse provisions in the mortgages, such as for
environmental liabilities. Our publicly-traded senior unsecured notes require that we satisfy total
leverage, secured leverage and interest coverage tests in order to: incur
additional indebtedness, except to refinance maturing debt with replacement
debt, as defined under our indentures; pay distributions in excess of the
minimum distribution required to meet FelCors REIT qualification test;
repurchase units; or merge. As of the date of this filing, we have satisfied
all such tests, however, under the terms of two of our indentures, we are
prohibited from repurchasing any of our units, 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. Our current debt-to-EBITDA ratio exceeds
that ratio and is expected to do so for the foreseeable future. Accordingly,
we are prohibited from purchasing any of our units, except as permitted under
limited exceptions, such as from the proceeds of a substantially concurrent
issuance of other partnership units. If actual operating results fail to meet our current expectations, as
reflected in our public guidance, or if interest rates increase unexpectedly,
we may be unable to continue to satisfy the incurrence test under the
indentures governing our senior unsecured notes. In such an event, we may be
prohibited from utilizing the $172 million undrawn amount currently available
to us under our secured debt facility, except to repay or refinance maturing
debt with similar priority in the capital structure, and may be prohibited
from, among other things, incurring any additional indebtedness or paying
distributions on our preferred or common units, except to the extent necessary
to satisfy FelCors REIT qualification requirement that it distribute currently
at least 90% of its taxable income. In the event of our failure of this
incurrence test, based upon our current estimates of taxable income for 2004,
we would be unable to distribute the full amount of distributions accruing
under our outstanding preferred units in 2004 and, accordingly, could pay no
distributions on our common units. 10




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Derivatives In the normal course of business, we are exposed to the effect of interest
rate changes. We limit these risks by following established risk management
policies and procedures including the use of derivatives. It is our objective
to use interest rate hedges to manage our fixed and floating interest rate
position and not to engage in speculation on interest rates. We manage
interest rate risk based on the varying circumstances of anticipated
borrowings, and existing floating and fixed rate debt. We will generally seek
to pursue interest rate risk mitigation strategies that will result in the
least amount of reported earnings volatility under generally accepted
accounting principles, while still meeting strategic economic objectives and
maintaining adequate liquidity and flexibility. Instruments that meet these
hedging criteria are formally designated as hedges at the inception of the
derivative contract. To manage the relative mix of our debt between fixed and variable rate
instruments, through March 31, 2004, we had entered into 15 interest rate swap
agreements with five financial institutions with an aggregate notional value of
$400 million. These interest rate swap agreements modify a portion of the
interest characteristics of our outstanding fixed rate debt, without an
exchange of the underlying principal amount, and effectively convert fixed rate
debt to a variable rate. To determine the fair values of our derivative instruments, we use a
variety of methods and assumptions that are based on market conditions and
risks existing at each balance sheet date. All methods of assessing fair value
result in a general approximation of value, and such value may never actually
be realized. The interest rate swap agreements held at March 31, 2004, are designated
as fair value hedges, are marked to market through the income statement, but
are offset by the change in fair value of our swapped outstanding fixed rate
debt. The estimated unrealized net gain on these interest rate swap agreements
was approximately $11.0 million at March 31, 2004, and represents the amount we
would receive if the agreements were terminated, based on current market rates. The fixed rates we will receive and the variable rates we will pay, under
these swaps, as of March 31, 2004, are summarized in the following table: Weighted-averageNotional Amount
    
    
    
    
    
    Spread Paid inSwap Maturity
    
    (in millions)
    
    Number of Swaps
    
    Excess of LIBOR
    
    Fixed Rate ReceivedOctober 2004
    
    $
    175
    
    
    
    6
    
    
    
    3.20
    %
    
    
    7.38
    %October 2007
    
    
    125
    
    
    
    5
    
    
    
    4.03
    %
    
    
    7.63
    %November 2007
    
    
    100
    
    
    
    4
    
    
    
    4.35
    %
    
    
    7.46
    %$
    400
    
    
    
    
    
    
    
    3.77
    %(a)
    
    
    7.42
    %(a)
  (a)
    
    Based on the weighted average as of March 31, 2004. The amounts paid or received by us under the terms of the interest rate
swap agreements are accrued as interest rates change, and we recognize them as
an adjustment to interest expense, which will have a corresponding effect on
our future cash flows. The interest rate swaps decreased interest expense by
$2.8 million and $1.6 million during the three months ended March 31, 2004 and
2003, respectively. Our interest rate swaps have monthly to semi-annual
settlement dates. Agreements such as these contain a credit risk in that the
counterparties may be unable to fulfill the terms of the agreement. We
minimize that risk by evaluating the creditworthiness of our counterparties,
who are limited to major banks and financial institutions, and we do not
anticipate nonperformance by the counterparties. The Standard & Poors credit
ratings for the financial institutions that are counterparties to our interest
rate swap agreements range from A+ to AA-. 11




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Derivatives  (continued) To fulfill requirements under a $150 million secured loan facility
executed in April 2003, we purchased 6% interest rate caps with a notional
amount of $150 million. We concurrently sold interest rate caps with identical
terms. These interest rate cap agreements have not been designated as hedges.
The fair value of both the purchased and sold interest rate caps was $0.1
million at March 31, 2004, resulting in no net earnings impact. 6. Hotel Operating Revenue, Departmental Expenses and Other Property Operating
Costs Hotel operating revenue from continuing operations was comprised of the
following (in thousands): Three Months EndedMarch 31,2004
    
    2003Room revenue
    
    $
    247,395
    
    
    $
    227,659Food and beverage revenue
    
    
    47,220
    
    
    
    43,628Other operating departments
    
    
    16,470
    
    
    
    15,284Total hotel operating revenues
    
    $
    311,085
    
    
    $
    286,571
 Approximately 99.9% of our revenue was comprised of hotel operating
revenues, which includes room revenue, food and beverage revenue, and revenue
from other hotel operating departments (such as telephone, parking and business
centers), in 2004 and 2003. These revenues are recorded net of any sales or
occupancy taxes collected from our guests. All rebates or discounts are
recorded, when allowed, as a reduction in revenue, and there are no material
contingent obligations with respect to rebates or discounts offered by us. All
revenues are recorded on an accrual basis, as earned. Appropriate allowances
are made for doubtful accounts and are recorded as a bad debt expense. The
remaining 0.1% of our revenue was from retail space rental revenue and other
sources in 2004 and 2003. We do not have any time-share arrangements and do not sponsor any guest
frequency programs for which we would have any contingent liability. We
participate in guest frequency programs sponsored by the brand owners of our
hotels, and we expense the charges associated with those programs (typically
consisting of a percentage of the total guest charges incurred by a
participating guest), as incurred. When a guest redeems accumulated guest
frequency points at one of our hotels, the hotel bills the sponsor for the
services provided in redemption of such points and records revenue in the
amount of the charges billed to the sponsor. Associated with the guest
frequency programs, we have no loss contingencies or ongoing obligation beyond
what is paid to the brand owner at the time of the guests stay. Included in total hotel operating revenue for the three months ended March
31, 2004, was $7.1 million of hotel operating revenue from the consolidation of
our joint venture with Interstate in June 2003. This joint venture had been
previously accounted for by the equity method. Hotel departmental expenses from continuing operations were comprised of
the following (in thousands): Three Months EndedMarch 31,2004
    
    2003Room
    
    $
    66,594
    
    
    $
    59,030Food and beverage
    
    
    38,205
    
    
    
    35,144Other operating departments
    
    
    8,481
    
    
    
    7,055Total hotel departmental expenses
    
    $
    113,280
    
    
    $
    101,229
 12




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Hotel Operating Revenue, Departmental Expenses and Other Property
Operating Costs  (continued) Other property operating costs from continuing operations were comprised
of the following (in thousands): Three Months EndedMarch 31,2004
    
    2003Hotel general and administrative expense
    
    $
    30,430
    
    
    $
    29,109Marketing
    
    
    27,607
    
    
    
    25,122Repair and maintenance
    
    
    18,277
    
    
    
    16,443Utilities
    
    
    16,593
    
    
    
    14,621Total other property operating costs
    
    $
    92,907
    
    
    $
    85,295
 Included in hotel departmental expenses and other property operating costs
are hotel employee compensation and benefit expenses of $105 million and $97
million for the three months ended March 31, 2004 and 2003, respectively. Included in hotel departmental expenses and other property operating costs
for the three months ended March 31, 2004, was $4.9 million associated with the
consolidation of our joint venture with Interstate in June 2003, which were
previously unconsolidated. 7. Taxes, Insurance and Lease Expense Taxes, insurance and lease expense from continuing operations is comprised
of the following (in thousands): Three Months EndedMarch 31,2004
    
    2003Operating lease expense (a)
    
    $
    15,022
    
    
    $
    13,368Real estate and other taxes
    
    
    13,102
    
    
    
    13,008Property and general liability insurance
    
    
    3,994
    
    
    
    4,731Total taxes, insurance and lease expense
    
    $
    32,118
    
    
    $
    31,107
  (a)
    
    Includes lease expense associated with 15 hotels owned by
unconsolidated entities. Included in lease expense are $3.3 million
and $2.1 million in percentage rent for the three months ended March
31, 2004 and 2003, respectively. 8. Discontinued Operations Condensed combined financial information for the hotels included in
discontinued operations is as follows: Three Months EndedMarch 31,2004
    
    2003Hotel operating revenue
    
    $
    4,285
    
    
    $
    20,393Hotel operating expenses
    
    
    4,392
    
    
    
    19,692Operating income (loss)
    
    
    (107
    )
    
    
    701Direct interest costs
    
    
    
    
    
    
    (448
    )Gain on the early extinguishment of debt
    
    
    
    
    
    
    953Gain on disposition
    
    
    272
    
    
    
    Income from discontinued operations
    
    $
    165
    
    
    $
    1,206
 13




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Discontinued Operations  (continued) In January 2004, we sold a Holiday Inn in Plano, Texas, for net proceeds
of $2.4 million. In February 2004, we sold a Crowne Plaza in Jackson,
Mississippi, for net proceeds of $7 million. In March 2004, we sold a Hampton
Inn in Omaha, Nebraska, for net proceeds of $3.8 million and a Crowne Plaza in
Houston, Texas, for net proceeds of $15.6 million. From the sale of these
hotels, we realized a net gain of $0.3 million on disposition. The results of
operations of these hotels for the three months ending March 31, 2004, are
included in discontinued operations in the accompanying statement of
operations. The results of operations of the four hotels sold in the first quarter of
2004, the two hotels designated as held for sale at March 31, 2004, and the 16
hotels sold in 2003, are included in discontinued operations in the
accompanying statement of operations. 9. Earnings (Loss) Per Unit The following table sets forth the computation of basic and diluted
earnings (loss) per unit (in thousands, except per unit data): Three Months EndedMarch 31,2004
    
    2003Numerator:Loss from continuing operations
    
    $
    (22,271
    )
    
    $
    (23,854
    )Less: Preferred distributions
    
    
    (6,726
    )
    
    
    (6,726
    )Loss from continuing operations applicable to common unitholders
    
    
    (28,997
    )
    
    
    (30,580
    )Discontinued operations
    
    
    165
    
    
    
    1,206Net loss applicable to common unitholders
    
    $
    (28,832
    )
    
    $
    (29,374
    )Denominator:Denominator for basic loss per unit  weighted average common units
    
    
    61,970
    
    
    
    61,821Denominator for diluted loss per unit  adjusted
weighted average common units and assumed conversions
    
    
    61,970
    
    
    
    61,821Loss per unit data:Basic:Loss from continuing operations
    
    $
    (0.47
    )
    
    $
    (0.50
    )Discontinued operations
    
    
    0.00
    
    
    
    0.02Net loss
    
    $
    (0.47
    )
    
    $
    (0.48
    )Diluted:Loss from continuing operations
    
    $
    (0.47
    )
    
    $
    (0.50
    )Discontinued operations
    
    
    0.00
    
    
    
    0.02Net loss
    
    $
    (0.47
    )
    
    $
    (0.48
    )
 14




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Earnings (Loss) Per Unit  (continued) Securities that could potentially dilute basic earnings per unit in the
future that were not included in the computation of diluted earnings per unit,
because they would have been antidilutive for the periods presented, are as
follows (in thousands): Three Months EndedMarch 31,2004
    
    2003FelCor restricted shares granted but not vested
    
    
    201
    
    
    
    309Series A convertible preferred units
    
    
    4,636
    
    
    
    4,636
 Series A preferred distributions that would be excluded from net loss
applicable to common unitholders, if these Series A preferred units were
dilutive, were $2.9 million for the three months ended March 31, 2004 and 2003,
respectively. 10. FelCors Stock Based Compensation Plans FelCor applies Accounting Principles Board, or APB, Opinion 25 and related
interpretations in accounting for its stock based compensation plans for stock
based compensation issued prior to January 1, 2003. In 1995, SFAS 123,
Accounting for Stock-Based Compensation, was issued, which, if fully adopted
by FelCor, would have changed the methods it applies in recognizing the cost of
the plans. As permitted under the transition provisions of SFAS 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, FelCor
began recognizing compensation expense in accordance with SFAS 123 for all new
awards issued after December 31, 2002. Had the compensation cost for FelCors
stock-based compensation plans been determined in accordance with SFAS 123
prior to January 1, 2003, our net income or loss and net income or loss per
unit for the periods presented would approximate the pro forma amounts below
(in thousands, except per share data): Three Months EndedMarch 31,2004
    
    2003Loss from continuing operations, as reported
    
    $
    (22,271
    )
    
    $
    (23,854
    )Add stock based compensation included in the net loss, as reported
    
    
    503
    
    
    
    516Less stock based compensation expense that would have been
included in the determination of net loss if the fair value
method had been applied to all awards
    
    
    (510
    )
    
    
    (552
    )Loss from continuing operations, pro forma
    
    $
    (22,278
    )
    
    $
    (23,890
    )Basic and diluted net loss from continuing operations per unit:As reported
    
    $
    (0.47
    )
    
    $
    (0.50
    )Pro forma
    
    $
    (0.47
    )
    
    $
    (0.50
    )
 The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. 11. Lease Termination Costs We lease the San Francisco Holiday Inn Select Downtown & Spa hotel under a
lease that expires at the end of 2004. In May 2003, the lessor asserted that
we were in default of our obligations for maintenance, repair and replacement
under the lease, and asserted that the cost of correcting the alleged
deficiencies was approximately $13.9 million. The lessor subsequently asserted
that we were also in default of our capital expenditure obligations under the
lease in the approximate amount of $3 million. In October 2003, we reached a
partial settlement with the lessor, pursuant to which we paid the lessor
$296,000 in full satisfaction and discharge of certain maintenance obligations
that the lessor had valued in its original claim at $470,300. On May 3, 2004,
we executed a settlement agreement. Under the terms of the settlement, we have
paid the lessor 15




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FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Lease Termination Costs  (continued) $5 million and will transfer our interest in the hotel to the lessor as of June
30, 2004, in exchange for which we will be relieved of the obligation to make
any capital improvements to the hotel other than certain items currently in
progress and specifically agreed to, and will receive a full release of all
known and unknown claims and further obligations under the lease. During the
three months ended March 31, 2004, we expensed $4.9 million representing the
unaccrued cost of the termination of this lease. We have received a release of
termination liability to IHG under their management agreement with respect to
this hotel, upon its termination in connection with the above settlement. 12. Consolidating Financial Information Certain of the Companys wholly-owned subsidiaries (FelCor/CSS Holdings,
L.P.; FelCor/CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels,
L.L.C.; FelCor/St. Paul Holdings, L.P.; FelCor/LAX Holdings, L.P.; FHAC Nevada
Holdings, L.L.C.; FelCor TRS Holdings, L.P.; Kingston Plantation Development
Corp.; FHAC Texas Holdings, L.P.; FelCor Omaha Hotel Company, L.L.C.; FelCor
Country Villa Hotel, L.L.C.; FelCor Moline Hotel, L.L.C.; FelCor Canada Co. and
FelCor Hotel Asset Company, L.L.C., collectively, Subsidiary Guarantors),
together with FelCor and two of its wholly-owned subsidiaries (FelCor Holdings
Trust and FelCor Nevada Holdings, L.L.C.), are guarantors of senior debt. The
following tables present consolidating information for the Subsidiary
Guarantors. 16




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Consolidating Financial Information  (continued) CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2004
(in thousands) ASSETS Subsidiary
    
    Non-Guarantor
    
    
    
    
    
    TotalFelCor L.P.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet investment in hotel properties
    
    $
    224,691
    
    
    $
    1,075,645
    
    
    $
    1,796,401
    
    
    $
    
    
    
    $
    3,096,737Equity investment in consolidated entities
    
    
    2,122,919
    
    
    
    
    
    
    
    
    
    
    
    (2,122,919
    )
    
    
    Investment in unconsolidated entities
    
    
    93,430
    
    
    
    22,579
    
    
    
    
    
    
    
    
    
    
    
    116,009Assets held for sale
    
    
    
    
    
    
    780
    
    
    
    9,327
    
    
    
    
    
    
    
    10,107Cash and cash equivalents
    
    
    147,037
    
    
    
    71,246
    
    
    
    13,303
    
    
    
    
    
    
    
    231,586Accounts receivable
    
    
    3,544
    
    
    
    53,791
    
    
    
    7
    
    
    
    
    
    
    
    57,342Deferred assets
    
    
    13,995
    
    
    
    745
    
    
    
    8,148
    
    
    
    
    
    
    
    22,888Other assets
    
    
    5,547
    
    
    
    18,394
    
    
    
    3,247
    
    
    
    
    
    
    
    27,188Total assets
    
    $
    2,611,163
    
    
    $
    1,243,180
    
    
    $
    1,830,433
    
    
    $
    (2,122,919
    )
    
    $
    3,561,857LIABILITIES AND PARTNERS CAPITALDebt
    
    $
    1,261,480
    
    
    $
    122,745
    
    
    $
    649,137
    
    
    $
    
    
    
    $
    2,033,362Distributions payable
    
    
    5,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,504Accrued expenses and other liabilities
    
    
    18,128
    
    
    
    117,022
    
    
    
    19,926
    
    
    
    
    
    
    
    155,076Minority interest   other partnerships
    
    
    8,403
    
    
    
    (3,703
    )
    
    
    45,567
    
    
    
    
    
    
    
    50,267Total liabilities
    
    
    1,293,515
    
    
    
    236,064
    
    
    
    714,630
    
    
    
    
    
    
    
    2,244,209Redeemable units, at redemption value
    
    
    31,603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,603Preferred units
    
    
    318,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318,907Common units
    
    
    967,138
    
    
    
    998,099
    
    
    
    1,115,803
    
    
    
    (2,122,919
    )
    
    
    958,121Accumulated other comprehensive income
    
    
    
    
    
    
    9,017
    
    
    
    
    
    
    
    
    
    
    
    9,017Total partners capital
    
    
    1,286,045
    
    
    
    1,007,116
    
    
    
    1,115,803
    
    
    
    (2,122,919
    )
    
    
    1,286,045Total liabilities, redeemable units
and partners capital
    
    $
    2,611,163
    
    
    $
    1,243,180
    
    
    $
    1,830,433
    
    
    $
    (2,122,919
    )
    
    $
    3,561,857
 17




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Consolidating Financial Information  (continued) CONSOLIDATING BALANCE SHEET
December 31, 2003
(in thousands) ASSETS Subsidiary
    
    Non-Guarantor
    
    
    
    
    
    TotalFelCor L.P.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet investment in hotel properties
    
    $
    276,342
    
    
    $
    1,080,594
    
    
    $
    1,746,860
    
    
    $
    
    
    
    $
    3,103,796Equity investment in consolidated entities
    
    
    2,079,399
    
    
    
    
    
    
    
    
    
    
    
    (2,079,399
    )
    
    
    Investment in unconsolidated entities
    
    
    93,337
    
    
    
    23,216
    
    
    
    
    
    
    
    
    
    
    
    116,553Assets held for sale
    
    
    
    
    
    
    6,238
    
    
    
    15,600
    
    
    
    
    
    
    
    21,838Cash and cash equivalents
    
    
    170,057
    
    
    
    59,317
    
    
    
    16,662
    
    
    
    
    
    
    
    246,036Accounts receivable
    
    
    2,214
    
    
    
    40,568
    
    
    
    2,603
    
    
    
    
    
    
    
    45,385Deferred assets
    
    
    15,133
    
    
    
    783
    
    
    
    8,362
    
    
    
    
    
    
    
    24,278Other assets
    
    
    10,467
    
    
    
    16,907
    
    
    
    5,633
    
    
    
    
    
    
    
    33,007Total assets
    
    $
    2,646,949
    
    
    $
    1,227,623
    
    
    $
    1,795,720
    
    
    $
    (2,079,399
    )
    
    $
    3,590,893LIABILITIES AND PARTNERS CAPITALDebt
    
    $
    1,261,460
    
    
    $
    123,519
    
    
    $
    652,376
    
    
    $
    
    
    
    $
    2,037,355Distributions payable
    
    
    5,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,504Accrued expenses and other liabilities
    
    
    25,009
    
    
    
    (217,023
    )
    
    
    343,437
    
    
    
    
    
    
    
    151,423Minority interest   other partnerships
    
    
    8,562
    
    
    
    (3,797
    )
    
    
    45,432
    
    
    
    
    
    
    
    50,197Total liabilities
    
    
    1,300,535
    
    
    
    (97,301
    )
    
    
    1,041,245
    
    
    
    
    
    
    
    2,244,479Redeemable units, at redemption value
    
    
    33,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,612Preferred units
    
    
    318,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318,907Common units
    
    
    993,895
    
    
    
    1,315,446
    
    
    
    754,475
    
    
    
    (2,079,399
    )
    
    
    984,417Accumulated other comprehensive income
    
    
    
    
    
    
    9,478
    
    
    
    
    
    
    
    
    
    
    
    9,478Total partners capital
    
    
    1,312,802
    
    
    
    1,324,924
    
    
    
    754,475
    
    
    
    (2,079,399
    )
    
    
    1,312,802Total liabilities, redeemable units
and partners capital
    
    $
    2,646,949
    
    
    $
    1,227,623
    
    
    $
    1,795,720
    
    
    $
    (2,079,399
    )
    
    $
    3,590,893
 18




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Consolidating Financial Information  (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004
(in thousands) Subsidiary
    
    Non-Guarantor
    
    
    
    
    
    TotalFelCor L.P.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Hotel operating revenue
    
    $
    
    
    
    $
    311,085
    
    
    $
    
    
    
    $
    
    
    
    $
    311,085Percentage lease revenue
    
    
    8,688
    
    
    
    40,088
    
    
    
    55,300
    
    
    
    (104,076
    )
    
    
    Other revenue
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Total revenue
    
    
    8,933
    
    
    
    351,173
    
    
    
    55,300
    
    
    
    (104,076
    )
    
    
    311,330Expenses:Hotel operating expense
    
    
    
    
    
    
    222,044
    
    
    
    
    
    
    
    
    
    
    
    222,044Taxes, insurance and lease expense
    
    
    1,639
    
    
    
    126,854
    
    
    
    7,701
    
    
    
    (104,076
    )
    
    
    32,118Corporate expenses
    
    
    270
    
    
    
    1,877
    
    
    
    1,239
    
    
    
    
    
    
    
    3,386Depreciation
    
    
    3,264
    
    
    
    10,960
    
    
    
    16,490
    
    
    
    
    
    
    
    30,714Lease termination expense
    
    
    
    
    
    
    4,900
    
    
    
    
    
    
    
    
    
    
    
    4,900Total operating expenses
    
    
    5,173
    
    
    
    366,635
    
    
    
    25,430
    
    
    
    (104,076
    )
    
    
    293,162Operating income (loss)
    
    
    3,760
    
    
    
    (15,462
    )
    
    
    29,870
    
    
    
    
    
    
    
    18,168Interest expense, net
    
    
    (25,759
    )
    
    
    (2,725
    )
    
    
    (12,636
    )
    
    
    
    
    
    
    (41,120
    )Charge-off of deferred financing cost
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )Income (loss) before equity in income
from unconsolidated entities, minority
interests and gain on sale of assets
    
    
    (22,229
    )
    
    
    (18,187
    )
    
    
    17,234
    
    
    
    
    
    
    
    (23,182
    )Equity in loss from consolidated entities
    
    
    (1,562
    )
    
    
    
    
    
    
    
    
    
    
    1,562
    
    
    
    Equity in income from unconsolidated
entities
    
    
    1,526
    
    
    
    (544
    )
    
    
    
    
    
    
    
    
    
    
    982Minority interests in other partnerships
    
    
    159
    
    
    
    (94
    )
    
    
    (136
    )
    
    
    
    
    
    
    (71
    )Income (loss) from continuing operations
    
    
    (22,106
    )
    
    
    (18,825
    )
    
    
    17,098
    
    
    
    1,562
    
    
    
    (22,271
    )Discontinued operations from
consolidated entities
    
    
    
    
    
    
    158
    
    
    
    7
    
    
    
    
    
    
    
    165Net income (loss)
    
    
    (22,106
    )
    
    
    (18,667
    )
    
    
    17,105
    
    
    
    1,562
    
    
    
    (22,106
    )Preferred distributions
    
    
    (6,726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,726
    )Net loss applicable to unitholders
    
    $
    (28,832
    )
    
    $
    (18,667
    )
    
    $
    17,105
    
    
    $
    1,562
    
    
    $
    (28,832
    )
 19




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Consolidating Financial Information  (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2003
(in thousands) Subsidiary
    
    Non-Guarantor
    
    
    
    
    
    TotalFelCor L.P.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Hotel operating revenue
    
    $
    
    
    
    $
    285,241
    
    
    $
    1,330
    
    
    $
    
    
    
    $
    286,571Percentage lease revenue
    
    
    14,633
    
    
    
    46,858
    
    
    
    38,553
    
    
    
    (100,044
    )
    
    
    Other revenue
    
    
    (188
    )
    
    
    570
    
    
    
    
    
    
    
    
    
    
    
    382Total revenue
    
    
    14,445
    
    
    
    332,669
    
    
    
    39,883
    
    
    
    (100,044
    )
    
    
    286,953Expenses:Hotel operating expense
    
    
    121
    
    
    
    201,174
    
    
    
    535
    
    
    
    
    
    
    
    201,830Taxes, insurance and other
    
    
    3,299
    
    
    
    122,155
    
    
    
    5,697
    
    
    
    (100,044
    )
    
    
    31,107Corporate expenses
    
    
    404
    
    
    
    2,074
    
    
    
    945
    
    
    
    
    
    
    
    3,423Depreciation
    
    
    5,288
    
    
    
    15,583
    
    
    
    13,193
    
    
    
    
    
    
    
    34,064Abandoned project costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    9,112
    
    
    
    340,986
    
    
    
    20,370
    
    
    
    (100,044
    )
    
    
    270,424Operating income
    
    
    5,333
    
    
    
    (8,317
    )
    
    
    19,513
    
    
    
    
    
    
    
    16,529Interest expense, net
    
    
    (25,785
    )
    
    
    (3,141
    )
    
    
    (10,879
    )
    
    
    
    
    
    
    (39,805
    )Income (loss) before equity in income
from unconsolidated entities, minority
interests, and gain on sale of assets
    
    
    (20,452
    )
    
    
    (11,458
    )
    
    
    8,634
    
    
    
    
    
    
    
    (23,276
    )Equity in income from consolidated
entities
    
    
    (4,735
    )
    
    
    
    
    
    
    
    
    
    
    4,735
    
    
    
    Equity in income from unconsolidated
entities
    
    
    70
    
    
    
    (218
    )
    
    
    
    
    
    
    
    
    
    
    (148
    )Minority interests in other partnerships
    
    
    
    
    
    
    
    
    
    
    (430
    )
    
    
    
    
    
    
    (430
    )Income (loss) from continuing
operations
    
    
    (25,117
    )
    
    
    (11,676
    )
    
    
    8,204
    
    
    
    4,735
    
    
    
    (23,854
    )Discontinued operations from
consolidated entities
    
    
    2,469
    
    
    
    (1,709
    )
    
    
    446
    
    
    
    
    
    
    
    1,206Net income (loss)
    
    
    (22,648
    )
    
    
    (13,385
    )
    
    
    8,650
    
    
    
    4,735
    
    
    
    (22,648
    )Preferred distributions
    
    
    (6,726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,726
    )Net income (loss) applicable to
unitholders
    
    $
    (29,374
    )
    
    $
    (13,385
    )
    
    $
    8,650
    
    
    $
    4,735
    
    
    $
    (29,374
    )
 20




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Consolidating Financial Information  (continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2004
(in thousands) Subsidiary
    
    Non-Guarantor
    
    TotalFelCor L.P.
    
    Guarantors
    
    Subsidiaries
    
    ConsolidatedCash flows from (used in) operating activities
    
    $
    (20,318
    )
    
    $
    (7,313
    )
    
    $
    34,309
    
    
    $
    6,678Cash flows
from (used in) investing activities
    
    
    258
    
    
    
    (18,727
    )
    
    
    8,767
    
    
    
    (9,702
    )Cash flows from (used in) financing activities
    
    
    (2,960
    )
    
    
    38,337
    
    
    
    (46,435
    )
    
    
    (11,058
    )Effect of exchange rates changes on cash
    
    
    
    
    
    
    (368
    )
    
    
    
    
    
    
    (368
    )Change in cash and cash equivalents
    
    
    (23,020
    )
    
    
    11,929
    
    
    
    (3,359
    )
    
    
    (14,450
    )Cash and cash equivalents at beginning of period
    
    
    170,057
    
    
    
    59,317
    
    
    
    16,662
    
    
    
    246,036Cash and equivalents at end of period
    
    $
    147,037
    
    
    $
    71,246
    
    
    $
    13,303
    
    
    $
    231,586
 CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2003
(in thousands) Subsidiary
    
    Non-Guarantor
    
    TotalFelCor L.P.
    
    Guarantors
    
    Subsidiaries
    
    ConsolidatedCash flows from (used in) operating activities
    
    $
    (22,471
    )
    
    $
    (3,319
    )
    
    $
    14,531
    
    
    $
    (11,259
    )Cash flows from (used in) investing activities
    
    
    (8,643
    )
    
    
    (7,725
    )
    
    
    (7,380
    )
    
    
    (23,748
    )Cash flows from (used in) financing activities
    
    
    89,653
    
    
    
    42,928
    
    
    
    (8,523
    )
    
    
    124,058Effect of exchange rates changes on cash
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    78Change in cash and cash equivalents
    
    
    58,539
    
    
    
    31,962
    
    
    
    (1,372
    )
    
    
    89,129Cash and cash equivalents at beginning of period
    
    
    24,725
    
    
    
    24,479
    
    
    
    17,338
    
    
    
    66,542Cash and equivalents at end of period
    
    $
    83,264
    
    
    $
    56,441
    
    
    $
    15,966
    
    
    $
    155,671
 13. Subsequent Events On April 5, 2004, FelCor completed the sale of 4,600,000 shares of its
$1.95 Series A Cumulative Convertible Preferred Stock. The shares were sold at
a price of $23.79 per share, which included accrued distributions of $0.51 per
share through April 5, 2004, resulting in net proceeds to FelCor of
approximately $105 million. The proceeds from the Series A preferred stock
were contributed to us in exchange for a like number of Series A preferred
units. The preference on these units is the same as FelCors Series A
preferred stock. The proceeds are currently expected to be used for the
retirement of debt. During April 2004, we purchased in the open market an aggregate of $26.5
million in principal amount, of our 91/2% Senior Notes due 2008. These notes
are callable beginning September 15, 2004 at an initial premium 104.75% of par. 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations General In the first quarter of 2004, revenue per available room, or RevPAR, for
our consolidated hotel portfolio in continuing operations, increased 4.4%
compared to the same period last year, which surpassed our original
expectations of a RevPAR increase of 1.5% to 2.5%. Including April 2004, we
will have had five consecutive months with year-over-year RevPAR increases.
Occupied rooms at our hotels, or occupancy, increased 5.2% for the quarter,
compared to the same quarter last year, while the average daily rate, or ADR,
of our hotel portfolio decreased by 0.7%. Hotel demand has been getting
stronger and, similar to past lodging cycles, as our hotel occupancy increases,
ADR should improve. We currently have 28 hotels that we have previously designated as
non-strategic and intend to sell by the end of 2005, with expected proceeds of
approximately $200 million. We expect to complete hotel sales in 2004 of
approximately $125 million. In 2004, through April, we have sold seven hotels,
receiving aggregate proceeds of $43 million. We continue to invest in our core hotels to maintain their competitive
position and to take advantage of the current recovery phase of the lodging
cycle. During the first quarter of 2004, we spent $12 million for capital
improvements and replacements, and anticipate capital spending on our hotels to
approximate $75 million to $100 million for the full year. 
 Financial Comparison (in thousands of dollars, except RevPAR, operating margin
and percentage change) Three Months EndedMarch 31,2004
    
    2003
    
    % ChangeRevPAR
    
    $
    62.57
    
    
    $
    59.92
    
    
    
    4.4Hotel operating profit from continuing operations(1)
    
    
    89,041
    
    
    
    84,741
    
    
    
    5.1Operating margin from continuing operations(1)
    
    
    28.6
    %
    
    
    29.6
    %
    
    
    (3.4
    )Net loss(2)
    
    
    (22,106
    )
    
    
    (22,648
    )
    
    
    2.4Funds From Operations (FFO)(1)(3)
    
    
    8,464
    
    
    
    9,592
    
    
    
    (11.8
    )Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA)(1)(3)
    
    
    58,857
    
    
    
    59,801
    
    
    
    (1.6
    )
   (1)
    
    Included in the Financial Comparison are non-GAAP financial measures,
including hotel operating profit, operating margin, FFO and EBITDA.
Further discussion, and a detailed reconciliation, of these non-GAAP
financial measures to our financial statements are found elsewhere in
this Managements Discussion and Analysis of Financial Condition and
Results of Operations.(2)
    
    Included in net loss are the following amounts (in thousands). Three Months Ended March 31,2004
    
    2003Lease termination expense
    
    $
    4,900
    
    
    $
    Charge off of deferred debt costs
    
    
    230
    
    
    
    Gain on early extinguishment of debt
    
    
    
    
    
    
    (953
    )$
    5,130
    
    
    $
    (953
    )
  (3)
    
    Included in FFO and EBITDA are the following amounts (in thousands): Three Months Ended March 31,2004
    
    2003Charge off of deferred debt costs
    
    $
    230
    
    
    $
    Gain on early extinguishment of debt
    
    
    
    
    
    
    (953
    )$
    230
    
    
    $
    (953
    )
 22




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##### Table of Contents



Results of Operations At March 31, 2004, we had 158 hotels included in our consolidated
operations, including the two hotels that were classified as held for sale
and included in discontinued operations, of which 29 hotels had been identified
as non-strategic. Included in our discontinued operations at March 31, 2004,
were 4 non-strategic hotels disposed of during the first three months of 2004.
Disposition proceeds from the 4 non-strategic hotels sold during the first
quarter of 2004 totaled approximately $30 million. For the three months ended March 31, 2004, we recorded a loss applicable
to common unitholders of $28.8 million, compared to a loss in 2003 of $29.4
million. The first quarter 2004 loss included a non-recurring $4.9 million
expense, representing $0.08 per unit, associated with an anticipated settlement
that is expected to include an early termination of the lease on one hotel and
a release of claims relating to that hotel. The early termination of this
lease is expected to result in an improvement of $0.01 per unit in second half
2004 earnings. Also included in the prior year loss was a gain of $1 million,
or $0.02 per unit, from the early extinguishment of debt. Revenues from continuing operations for the first three months was $311
million, reflecting an increase of $24 million, or 8.5 %, compared to the same
quarter in 2003. The increase in revenues was primarily related to a 4.4%
increase in our hotel portfolios RevPAR, compared to the same quarter in 2003.
Occupancy increased 5.2%, to 64.4%, and ADR decreased 0.7% to $97.16, compared
to the same quarter of 2003. We attribute the increase in occupancy to
increases in corporate transient business and strong leisure demand. Included in revenue for 2004 is $7 million of revenue from consolidation
of our joint venture with Interstate Hotels & Resorts, and the operating
results of the joint ventures hotels, which had been accounted for by the
equity method until June 2003. Our first quarter 2004 hotel operating profit from continuing operations
increased by $4 million over the same period in 2003. Operating margin, which
is hotel operating profit divided by hotel revenue, decreased from 29.7% to
28.7%. We attribute the decrease in operating margin principally to the 0.7%
drop in ADR and an increase in labor related costs, including workers
compensation insurance. The 29 non strategic hotels included in continuing operations at March 31,
2004, represented 18% of the rooms in our hotel portfolio, but approximately 8%
of our consolidated hotel operating profit in 2004. The operating margin for
these 29 hotels was 18.6 %, compared to 30.3% for the remainder of our
portfolio. Included in the first quarter of 2003 loss is a $1 million gain from the
early extinguishment of debt. Discontinued operations represent the operating income, direct interest
costs and gains or losses on sale of the four hotels sold during the first
quarter of 2004, the two hotels that were designated as held for sale at March
31, 2004, and the 16 hotels sold in 2003. Non-GAAP Financial Measures Funds From Operations and EBITDA Historical cost accounting for real estate assets implicitly assumes that
the value of real estate assets diminish predictably over time. Since real
estate values instead have historically risen or fallen with market conditions,
most industry investors consider supplemental measurements of performance to be
helpful in evaluating a real estate companys operations. We consider Funds
From Operations, or FFO, and Earnings Before Interest, Taxes, Depreciation, and
Amortization, or EBITDA, 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. 23




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##### Table of Contents



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 (computed in accordance with
generally accepted accounting principles), 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 funds from operations
on the same basis. FFO and EBITDA are not measures of operating performance
under generally accepted accounting principles in the U.S., or GAAP. However,
we believe that FFO and EBITDA are helpful to management and investors as
supplemental measures of the performance of an equity REIT. 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. FFO and EBITDA should not be considered as alternatives to net income,
operating profit, cash flow from operations, or any other operating performance
measure prescribed by GAAP. Neither should FFO, FFO per unit and EBITDA be
considered as measures of our liquidity or indicative of funds available for
our cash needs, including our ability to make cash distributions. FFO per unit
does not measure, and should not be used as a measure of amounts that accrue
directly to the benefit of unitholders. The following tables detail our computation of FFO and EBITDA (in
thousands): Three Months Ended March 31,2004
    
    2003Per Unit
    
    
    
    
    
    
    
    
    
    Per UnitDollars
    
    Shares
    
    Amount
    
    Dollars
    
    Shares
    
    AmountNet loss
    
    $
    (22,106
    )
    
    
    
    
    
    
    
    
    
    $
    (22,648
    )Preferred distributions
    
    
    (6,726
    )
    
    
    
    
    
    
    
    
    
    
    (6,726
    )Net loss applicable to unitholders
    
    
    (28,832
    )
    
    
    61,970
    
    
    $
    (0.47
    )
    
    
    (29,374
    )
    
    
    61,821
    
    
    $
    (0.48
    )Depreciation from continuing operations
    
    
    30,714
    
    
    
    
    
    
    
    0.50
    
    
    
    34,064
    
    
    
    
    
    
    
    0.55Depreciation from unconsolidated
entities and discontinued operations
    
    
    1,954
    
    
    
    
    
    
    
    0.03
    
    
    
    4,902
    
    
    
    
    
    
    
    0.08Gain on sale of assets
    
    
    (272
    )
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    
    
    
    
    Lease termination costs(a)
    
    
    4,900
    
    
    
    
    
    
    
    0.08
    
    
    
    
    
    
    
    
    
    
    
    Conversion of options and unvested
restricted stock
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    309
    
    
    
    FFO
    
    $
    8,464
    
    
    
    62,171
    
    
    $
    0.14
    
    
    $
    9,592
    
    
    
    62,130
    
    
    $
    0.15
  (a)
    
    We consider this lease termination cost, associated with the
early termination of a lease to be unusual or non-recurring in
accordance with Item 10 of Regulation S-K. Consistent with SEC guidance on non-GAAP financial measures, FFO has not been
adjusted for the following amounts included in net loss (in thousands): Three Months EndedMarch 31,2004
    
    2003Charge off of deferred debt costs
    
    $
    230
    
    
    $
    Gain on early extinguishment of debt
    
    
    
    
    
    
    (953
    )$
    230
    
    
    $
    (953
    )Per unit amounts
    
    $
    
    
    
    $
    (0.02
    )
 24




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##### Table of Contents



Reconciliation of Net Loss to EBITDA
(in thousands) Three Months EndedMarch 31,2004
    
    2003Net loss
    
    $
    (22,106
    )
    
    $
    (22,648
    )Depreciation from continuing operations
    
    
    30,714
    
    
    
    34,064Depreciation from unconsolidated entities and discontinued operations
    
    
    1,954
    
    
    
    4,902Gain on sale of assets
    
    
    (272
    )
    
    
    Lease termination costs
    
    
    4,900
    
    
    
    Interest expense
    
    
    41,844
    
    
    
    40,628Interest expense from unconsolidated entities and discontinued operations
    
    
    1,320
    
    
    
    2,339Amortization expense
    
    
    503
    
    
    
    516EBITDA
    
    $
    58,857
    
    
    $
    59,801
 Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not
been adjusted for the following amounts included in net loss (in thousands): Three Months EndedMarch 31,2004
    
    2003Charge off of deferred debt costs
    
    $
    230
    
    
    $
    Gain on early extinguishment of debt
    
    
    
    
    
    
    (953
    )$
    230
    
    
    $
    (953
    )
 Hotel Operating Profit and Operating Margin Hotel operating profit and operating margin are commonly used non-GAAP
measures of performance that we utilize to measure the relative performance of
our individual hotels and groups of hotels and give investors a more complete
understanding of the operating results over which our individual hotels and
operating managers have direct control. We believe that hotel operating profit
and operating margin are useful to investors by providing greater transparency
with respect to significant measures used by management in its financial and
operational decision-making. Hotel Operating Profit
(dollars in thousands) Three MonthsEnded March 31,2004
    
    2003Total revenue
    
    $
    311,330
    
    
    $
    286,953Retail space rental and other revenue
    
    
    (245
    )
    
    
    (382
    )Hotel revenue
    
    
    311,085
    
    
    
    286,571Hotel operating expenses
    
    
    (222,044
    )
    
    
    (201,830
    )Hotel operating profit
    
    $
    89,041
    
    
    $
    84,741Operating margin
    
    
    28.6
    %
    
    
    29.6
    %
 25




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##### Table of Contents



Hotel Operating Expense Composition
(dollars in thousands) Three Months Ended March 31,2004
    
    2003% of Hotel
    
    
    
    
    
    % of HotelHotel departmental expenses:
    
    
    
    
    
    Revenue
    
    
    
    
    
    RevenueRoom
    
    $
    66,594
    
    
    
    21.4
    %
    
    $
    59,030
    
    
    
    20.6
    %Food and beverage
    
    
    38,205
    
    
    
    12.3
    
    
    
    35,144
    
    
    
    12.2Other operating departments
    
    
    8,481
    
    
    
    2.7
    
    
    
    7,055
    
    
    
    2.5Other property related costs:Administrative and general
    
    
    30,430
    
    
    
    9.8
    
    
    
    29,109
    
    
    
    10.2Marketing and advertising
    
    
    27,607
    
    
    
    8.9
    
    
    
    25,122
    
    
    
    8.8Repairs and maintenance
    
    
    18,277
    
    
    
    5.9
    
    
    
    16,443
    
    
    
    5.7Energy
    
    
    16,593
    
    
    
    5.3
    
    
    
    14,621
    
    
    
    5.1Total other property related costs
    
    
    92,907
    
    
    
    29.9
    
    
    
    85,295
    
    
    
    29.8Management and franchise fees
    
    
    15,857
    
    
    
    5.1
    
    
    
    15,306
    
    
    
    5.3Hotel operating expenses
    
    $
    222,044
    
    
    
    71.4
    %
    
    $
    201,830
    
    
    
    70.4
    %
 Three MonthsEnded March 31,2004
    
    2003Reconciliation of total operating
expenses to hotel operating expenses:Total operating expenses
    
    $
    293,162
    
    
    $
    270,424Taxes, insurance and lease expense
    
    
    (32,118
    )
    
    
    (31,107
    )Lease termination expense
    
    
    (4,900
    )
    
    
    Corporate expenses
    
    
    (3,386
    )
    
    
    (3,423
    )Depreciation
    
    
    (30,714
    )
    
    
    (34,064
    )Hotel operating expenses
    
    $
    222,044
    
    
    $
    201,830
 26




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##### Table of Contents



Hotel Portfolio Composition The following tables set forth, as of March 31, 2004, for our consolidated
hotel portfolio of 156 hotels included in continuing operations, distribution
by brand, by our top metropolitan markets, by selected states, by type of
location, and by market segment. % of
    
    % of 2003 HotelBrand
    
    Hotels
    
    Rooms
    
    Total Rooms
    
    Operating Profit(b)Embassy Suites®
    
    
    56
    
    
    
    14,279
    
    
    
    33
    %
    
    
    47
    %Holiday Inn®-branded
    
    
    46
    
    
    
    14,637
    
    
    
    34
    
    
    
    25Crowne Plaza®
    
    
    15
    
    
    
    5,108
    
    
    
    12
    
    
    
    7Sheraton®-branded
    
    
    10
    
    
    
    3,269
    
    
    
    7
    
    
    
    8Doubletree®-branded
    
    
    10
    
    
    
    2,206
    
    
    
    5
    
    
    
    6Other
    
    
    19
    
    
    
    4,120
    
    
    
    9
    
    
    
    7
 % of
    
    % of 2003 HotelTop Markets
    
    Hotels
    
    Rooms
    
    Total Rooms
    
    Operating Profit(b)Dallas
    
    
    15
    
    
    
    4,724
    
    
    
    11
    %
    
    
    6
    %Atlanta
    
    
    12
    
    
    
    3,514
    
    
    
    8
    
    
    
    7San Francisco Bay Area
    
    
    9
    
    
    
    3,255
    
    
    
    7
    
    
    
    6Houston
    
    
    8
    
    
    
    1,969
    
    
    
    5
    
    
    
    3Orlando
    
    
    6
    
    
    
    2,218
    
    
    
    5
    
    
    
    4Los Angeles Area
    
    
    6
    
    
    
    1,492
    
    
    
    3
    
    
    
    4Boca Raton/Ft. Lauderdale
    
    
    4
    
    
    
    1,118
    
    
    
    3
    
    
    
    4Chicago
    
    
    4
    
    
    
    1,239
    
    
    
    3
    
    
    
    4Minneapolis
    
    
    4
    
    
    
    955
    
    
    
    2
    
    
    
    3Phoenix
    
    
    4
    
    
    
    1,016
    
    
    
    2
    
    
    
    3Philadelphia
    
    
    3
    
    
    
    1,174
    
    
    
    3
    
    
    
    3New Orleans
    
    
    2
    
    
    
    746
    
    
    
    2
    
    
    
    3San Diego
    
    
    1
    
    
    
    600
    
    
    
    1
    
    
    
    3
 % of
    
    % of 2003 HotelTop Four States
    
    Hotels
    
    Rooms
    
    Total Rooms
    
    Operating Profit(b)Texas
    
    
    36
    
    
    
    9,904
    
    
    
    23
    %
    
    
    16
    %California
    
    
    20
    
    
    
    6,158
    
    
    
    14
    
    
    
    17Florida
    
    
    16
    
    
    
    5,342
    
    
    
    12
    
    
    
    11Georgia
    
    
    14
    
    
    
    3,868
    
    
    
    9
    
    
    
    8
 % of
    
    % of 2003 HotelLocation
    
    Hotels
    
    Rooms
    
    Total Rooms
    
    Operating Profit(b)Suburban
    
    
    69
    
    
    
    17,649
    
    
    
    41
    %
    
    
    39
    %Urban
    
    
    33
    
    
    
    10,543
    
    
    
    24
    
    
    
    27Airport
    
    
    30
    
    
    
    9,206
    
    
    
    21
    
    
    
    22Highway
    
    
    12
    
    
    
    2,565
    
    
    
    6
    
    
    
    3Resort
    
    
    12
    
    
    
    3,676
    
    
    
    8
    
    
    
    9
 % of
    
    % of 2003 HotelSegment
    
    Hotels
    
    Rooms
    
    Total Rooms
    
    Operating Profit(b)Upscale all-suite
    
    
    71
    
    
    
    17,325
    
    
    
    40
    %
    
    
    55
    %Full service
    
    
    47
    
    
    
    15,300
    
    
    
    35
    
    
    
    26Upscale
    
    
    27
    
    
    
    9,232
    
    
    
    21
    
    
    
    17Limited service
    
    
    11
    
    
    
    1,762
    
    
    
    4
    
    
    
    2
 % of
    
    % of 2003 HotelHotels
    
    Rooms
    
    Total Rooms
    
    Operating Profit(b)Non-Strategic Hotels(a)
    
    
    29
    
    
    
    7,887
    
    
    
    18
    %
    
    
    8
    %
  (a)
    
    Excludes two hotels that met the held for sale accounting
requirements, and were included in discontinued operations.(b)
    
    A detailed description of Hotel Operating Profit is contained in the
Non-GAAP Financial Measures section found elsewhere in this
Managements Discussion and Analysis of Financial Condition and Results
of Operations. 27




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##### Table of Contents



Hotel Operating Statistics The following tables set forth historical occupancy, ADR and RevPAR at
March 31, 2004 and 2003, and the percentage changes therein between the periods
presented, for our 156 consolidated hotels included in continuing operations: Operating Statistics by Brand Occupancy (%)Three Months Ended March 31,2004
    
    2003
    
    % VarianceEmbassy Suites Hotels
    
    
    69.2
    
    
    
    66.6
    
    
    
    3.9Holiday Inn-branded hotels
    
    
    61.2
    
    
    
    59.4
    
    
    
    3.0Crowne Plaza hotels
    
    
    61.0
    
    
    
    55.1
    
    
    
    10.7Doubletree-branded hotels
    
    
    68.6
    
    
    
    63.9
    
    
    
    7.3Sheraton-branded hotels
    
    
    62.2
    
    
    
    58.1
    
    
    
    7.2Other hotels
    
    
    62.7
    
    
    
    57.4
    
    
    
    9.2Total hotels
    
    
    64.4
    
    
    
    61.2
    
    
    
    5.2
 ADR ($)Three Months Ended March 31,2004
    
    2003
    
    % VarianceEmbassy Suites Hotels
    
    
    119.30
    
    
    
    119.71
    
    
    
    (0.3
    )Holiday Inn-branded hotels
    
    
    78.81
    
    
    
    78.69
    
    
    
    0.2Crowne Plaza hotels
    
    
    87.58
    
    
    
    91.75
    
    
    
    (4.5
    )Doubletree-branded hotels
    
    
    103.79
    
    
    
    104.01
    
    
    
    (0.2
    )Sheraton-branded hotels
    
    
    97.16
    
    
    
    97.72
    
    
    
    (0.6
    )Other hotels
    
    
    81.82
    
    
    
    82.25
    
    
    
    (0.5
    )Total hotels
    
    
    97.16
    
    
    
    97.86
    
    
    
    (0.7
    )
 RevPAR ($)Three Months Ended March 31,2004
    
    2003
    
    % VarianceEmbassy Suites Hotels
    
    
    82.57
    
    
    
    79.77
    
    
    
    3.5Holiday Inn-branded hotels
    
    
    48.25
    
    
    
    46.76
    
    
    
    3.2Crowne Plaza hotels
    
    
    53.44
    
    
    
    50.60
    
    
    
    5.6Doubletree-branded hotels
    
    
    71.23
    
    
    
    66.50
    
    
    
    7.1Sheraton-branded hotels
    
    
    60.46
    
    
    
    56.74
    
    
    
    6.6Other hotels
    
    
    51.27
    
    
    
    47.22
    
    
    
    8.6Total hotels
    
    
    62.57
    
    
    
    59.92
    
    
    
    4.4
 28




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##### Table of Contents



Operating Statistics for Our Top Markets Occupancy (%)Three Months Ended March 31,2004
    
    2003
    
    % VarianceDallas
    
    
    55.7
    
    
    
    50.1
    
    
    
    11.2Atlanta
    
    
    66.8
    
    
    
    66.4
    
    
    
    0.7San Francisco Bay Area
    
    
    61.4
    
    
    
    59.8
    
    
    
    2.6Houston
    
    
    72.0
    
    
    
    65.3
    
    
    
    10.3Orlando
    
    
    76.0
    
    
    
    65.7
    
    
    
    15.6Los Angeles Area
    
    
    70.2
    
    
    
    70.8
    
    
    
    (0.9
    )Boca Raton/Ft. Lauderdale
    
    
    87.0
    
    
    
    82.9
    
    
    
    4.9Chicago
    
    
    62.2
    
    
    
    58.3
    
    
    
    6.7Minneapolis
    
    
    62.6
    
    
    
    59.6
    
    
    
    5.1Phoenix
    
    
    79.6
    
    
    
    80.0
    
    
    
    (0.5
    )Philadelphia
    
    
    56.2
    
    
    
    52.6
    
    
    
    6.7New Orleans
    
    
    66.1
    
    
    
    62.2
    
    
    
    6.4San Diego
    
    
    86.4
    
    
    
    78.0
    
    
    
    10.7
 ADR ($)Three Months Ended March 31,2004
    
    2003
    
    % VarianceDallas
    
    
    83.98
    
    
    
    87.25
    
    
    
    (3.7
    )Atlanta
    
    
    88.54
    
    
    
    89.38
    
    
    
    (0.9
    )San Francisco Bay Area
    
    
    105.55
    
    
    
    108.41
    
    
    
    (2.6
    )Houston
    
    
    74.79
    
    
    
    72.43
    
    
    
    3.3Orlando
    
    
    83.80
    
    
    
    83.48
    
    
    
    0.4Los Angeles Area
    
    
    107.40
    
    
    
    101.43
    
    
    
    5.9Boca Raton/Ft. Lauderdale
    
    
    139.05
    
    
    
    142.23
    
    
    
    (2.2
    )Chicago
    
    
    94.27
    
    
    
    101.30
    
    
    
    (6.9
    )Minneapolis
    
    
    120.42
    
    
    
    119.86
    
    
    
    0.5Phoenix
    
    
    127.22
    
    
    
    119.27
    
    
    
    6.7Philadelphia
    
    
    96.14
    
    
    
    99.47
    
    
    
    (3.3
    )New Orleans
    
    
    147.76
    
    
    
    156.18
    
    
    
    (5.4
    )San Diego
    
    
    114.93
    
    
    
    122.13
    
    
    
    (5.9
    )
 RevPAR ($)Three Months Ended March 31,2004
    
    2003
    
    % VarianceDallas
    
    
    46.76
    
    
    
    43.68
    
    
    
    7.1Atlanta
    
    
    59.14
    
    
    
    59.31
    
    
    
    (0.3
    )San Francisco Bay Area
    
    
    64.80
    
    
    
    64.85
    
    
    
    (0.1
    )Houston
    
    
    53.84
    
    
    
    47.28
    
    
    
    13.9Orlando
    
    
    63.67
    
    
    
    54.87
    
    
    
    16.0Los Angeles Area
    
    
    75.36
    
    
    
    71.79
    
    
    
    5.0Boca Raton/Ft. Lauderdale
    
    
    120.90
    
    
    
    117.92
    
    
    
    2.5Chicago
    
    
    58.63
    
    
    
    59.07
    
    
    
    (0.8
    )Minneapolis
    
    
    75.43
    
    
    
    71.42
    
    
    
    5.6Phoenix
    
    
    101.22
    
    
    
    95.36
    
    
    
    6.1Philadelphia
    
    
    54.00
    
    
    
    52.34
    
    
    
    3.2New Orleans
    
    
    97.74
    
    
    
    97.12
    
    
    
    0.6San Diego
    
    
    99.28
    
    
    
    95.28
    
    
    
    4.2
 29




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##### Table of Contents



Liquidity and Capital Resources Our principal source of cash to meet our cash requirements, including
distributions to unitholders and repayments of indebtedness, is from the
results of operations of our hotels. For the three months ended March 31,
2004, net cash flow provided by operating activities, consisting primarily of
hotel operations, was $6.7 million. At March 31, 2004, we had cash on hand of
approximately $232 million. Included in cash on hand are approximately $35
million held under our hotel management agreements to meet our hotel minimum
working capital requirements and $22 million held in escrow under certain of
our debt agreements. We currently expect that our cash flow provided by operating activities
for 2004 will be approximately $86 million to $92 million. These cash flow
forecasts assume a RevPAR increase of 4% to 5% and operating margin of
approximately 29% to 30%. In 2004, our current operating plan contemplates
preferred distribution payments of $34 million, capital expenditures of
approximately $75 to $100 million, debt maturities of $175 million, $17 million
in normal recurring principal payments and sales of approximately $125 million
in non-strategic hotels. We expect cash necessary to fund cash flow shortfalls
and distributions, if any, will be funded from our cash balances, proceeds from
the sale of hotels, and the $172 million currently estimated to be available to
us under our secured debt facility. We currently anticipate that FelCors
board of directors will defer the resumption of common distributions until the
anticipated recovery in our business is more firmly established, and to
determine the amount of preferred distributions, if any, for each quarterly
period, based upon the actual operating results of that quarter, economic
conditions, other operating trends, our financial condition and capital
requirements, as well as the minimum REIT distribution requirements. On April 5, 2004, FelCor completed the sale of 4,600,000 shares of its
$1.95 Series A Cumulative Convertible Preferred Stock. The shares were sold at
a price of $23.79 per share, which included accrued distributions of $0.51 per
share through April 5, 2004, resulting in net proceeds to FelCor of
approximately $105 million. The proceeds were contributed to us in exchange
for a like number of Series A preferred units.
We currently expect to use the proceeds to retire debt. During April 2004, we purchased in the open market an aggregate of $26.5
million in principal amount, of our 91/2% Senior Notes due 2008. These notes
are callable beginning September 15, 2004 at an initial premium 104.75% of par. Most of our mortgage debt is non-recourse to us and contains provisions
allowing for the substitution of collateral upon satisfaction of certain
conditions. Most of our mortgage debt is prepayable, subject to various
prepayment penalties, yield maintenance or defeasance obligations. Our publicly-traded senior unsecured notes require that we satisfy total
leverage, secured leverage and interest coverage tests in order to: incur
additional indebtedness except to refinance maturing debt with replacement
debt, as defined under our indentures; pay distributions in excess of the
minimum distribution required for FelCor to meet the REIT qualification test;
repurchase units; or merge. As of the date of this filing, we have satisfied
all such tests; however, under the terms of two of our indentures, we are
prohibited from repurchasing any of our units, 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. Our current debt-to-EBITDA ratio exceeds
that ratio and is expected to do so for the foreseeable future. Accordingly,
we are prohibited from purchasing any of our units, except as permitted under
limited exceptions, such as from the proceeds of a substantially concurrent
issuance of other units. If actual operating results fail to meet our current expectations, as
reflected in our current public guidance, or if interest rates increase
unexpectedly, we may be unable to continue to satisfy the incurrence test under
the indentures governing our senior unsecured notes. In such an event, we may
be prohibited from utilizing the undrawn amounts currently available to us
under our secured debt facility, except to repay or refinance maturing debt
with similar priority in the capital structure, and may be prohibited from,
among other things, incurring any additional indebtedness or paying
distributions on our preferred or common units, except to the extent necessary
to satisfy FelCors REIT qualification requirement that they distribute
currently at least 90% of their taxable income. 30




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##### Table of Contents



In the event of our failure of this incurrence test, based upon our current
estimates of taxable income for 2004, we would be unable to distribute the full
amount of distributions accruing under our outstanding preferred units in 2004
and, accordingly, could pay no distributions on our common units. We currently anticipate that we will meet our financial covenant and
incurrence tests under the RevPAR guidance provided by us at our first quarter
earnings conference call on April 29, 2004. For the second quarter of 2004, we
currently anticipate that our portfolio RevPAR will be 5% to 6% above the
comparable period of the prior year. The RevPAR increase for the first 25 days
of April 2004, compared to the same period in 2003, was approximately 7.3%. We
currently anticipate that full year 2004 hotel portfolio RevPAR will increase
approximately 4% to 5%. For 2004 we expect to make capital expenditures of $75
to $100 million, and we anticipate selling approximately $125 million in
non-strategic hotels. We estimate that our net loss applicable to unitholders
for 2004 will be in the range of $79 to $73 million or $1.27 to $1.17 per unit.
FFO per unit, for the year 2004, is anticipated to be within the range of
$0.89 to $0.98, and EBITDA is expected to be within the range of $257 to $263
million. Our FFO and EBITDA estimates include an $8 million gain expected on
the sale of a
251-unit residential condominium development expected to be completed and sold
in 2004 and $5 million in lease termination costs expensed in the first quarter
of 2004. No other transaction gains or losses are included in these earnings
estimates. Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per unit data) Full Year 2004 GuidanceLow Guidance
    
    High GuidancePer Unit
    
    
    
    
    
    Per UnitDollars
    
    Amount (a)
    
    Dollars
    
    Amount (a)Net loss
    
    $
    (45
    )
    
    
    
    
    
    $
    (39
    )Preferred distributions
    
    
    (34
    )
    
    
    
    
    
    
    (34
    )Net loss applicable to unitholders
    
    
    (79
    )
    
    $
    (1.27
    )
    
    
    (73
    )
    
    $
    (1.17
    )Lease termination costs
    
    
    5
    
    
    
    
    
    
    
    5Depreciation
    
    
    129
    
    
    
    
    
    
    
    129FFO
    
    $
    55
    
    
    $
    0.89
    
    
    $
    61
    
    
    $
    0.98Net loss
    
    $
    (45
    )
    
    
    
    
    
    $
    (39
    )Lease termination costs
    
    
    5
    
    
    
    
    
    
    
    5Depreciation
    
    
    129
    
    
    
    
    
    
    
    129Interest expense
    
    
    166
    
    
    
    
    
    
    
    166Amortization expense
    
    
    2
    
    
    
    
    
    
    
    2EBITDA
    
    $
    257
    
    
    
    
    
    
    $
    263
  (a)
    
    Assumed weighted average units are 62.3 million. Quantitative and Qualitative Disclosures About Market Risk At March 31, 2004, approximately 72% of our consolidated debt had fixed
interest rates. Currently, market rates of interest are below the rates we are
obligated to pay on our fixed-rate debt. 31




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##### Table of Contents



The following table provides information about our financial instruments
that are sensitive to changes in interest rates, including interest rate swaps
and debt obligations. For debt obligations, the table presents scheduled
maturities and weighted average interest rates, by maturity dates. For
interest rate swaps, the table presents the notional amount and weighted
average interest rate, by contractual maturity date. The fair value of our
fixed rate debt indicates the estimated principal amount of debt having the
same debt service requirements that could have been borrowed at the date
presented, at then current market interest rates. The fair value of our fixed
to variable interest rate swaps indicates the estimated amount that would have
been received or paid by us had the swaps been terminated at the date
presented. Expected Maturity Date
at March 31, 2004
(dollars in thousands) Fair2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    ValueLiabilitiesFixed rate:Debt
    
    $
    185,579
    
    
    $
    24,521
    
    
    $
    15,227
    
    
    $
    258,793
    
    
    $
    613,800
    
    
    $
    776,114
    
    
    $
    1,874,034
    
    
    $
    1,993,920Average interest rate
    
    
    7.41
    %
    
    
    7.67
    %
    
    
    8.00
    %
    
    
    7.47
    %
    
    
    9.96
    %
    
    
    8.54
    %
    
    
    8.73
    %Floating rate:Debt
    
    
    2,572
    
    
    
    3,568
    
    
    
    141,101
    
    
    
    
    
    
    
    15,500
    
    
    
    650
    
    
    
    163,391
    
    
    
    163,391Average interest rate(a)
    
    
    3.62
    %
    
    
    3.59
    %
    
    
    3.59
    %
    
    
    
    
    
    
    4.00
    %
    
    
    3.12
    %
    
    
    3.65
    %Interest rate swaps
(fixed to floating)(b)Notional amount
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    10,959Pay rate(b)
    
    
    4.37
    %
    
    
    
    
    
    
    
    
    
    
    5.27
    %
    
    
    
    
    
    
    
    
    
    
    4.90
    %Receive rate
    
    
    7.38
    %
    
    
    
    
    
    
    
    
    
    
    7.45
    %
    
    
    
    
    
    
    
    
    
    
    7.42
    %Total debt
    
    $
    188,151
    
    
    $
    28,089
    
    
    $
    156,328
    
    
    $
    258,793
    
    
    $
    629,300
    
    
    $
    776,764
    
    
    
    2,037,425Average interest rate
    
    
    4.56
    %
    
    
    7.16
    %
    
    
    4.05
    %
    
    
    5.60
    %
    
    
    9.71
    %
    
    
    8.53
    %
    
    
    7.82
    %Net discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,063
    )Total debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,033,362
  (a)
    
    The average floating rate of interest represents the implied forward
rate in the yield curve at March 31, 2004.(b)
    
    The interest rate swaps decreased our interest expense by $2.8 million
during the three months ended March 31, 2004. Swap contracts, such as described above, contain a credit risk, in that
the counterparties may be unable to fulfill the terms of the agreement. We
minimize that risk by evaluating the creditworthiness of our counterparties,
who are limited to major banks and financial institutions, and we do not
anticipate nonperformance by the counterparties. The Standard & Poors credit
ratings for the financial institutions that are counterparties to the interest
rate swap agreements range from A+ to AA-. 
 Inflation Operators of hotels, in general, possess the ability to adjust room rates
daily to reflect the effects of inflation. Competitive pressures may, however,
require us to reduce room rates in the near term and may limit our ability to
raise room rates in the future. We are also subject to the risk that inflation
will cause increases in hotel operating expenses disproportionately to
revenues. 32




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##### Table of Contents



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 Portions of this Quarterly Report on Form 10-Q include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward looking statements include, without limitation, any statement
that may predict, forecast, indicate or imply future results, performance or
achievements. Forward-looking statements involve risks and uncertainties that
may cause actual results to differ materially from the results contained in the
forward-looking statements. The risks, uncertainties and assumptions that may
affect our actual results, some of which are discussed more fully in our
previous filings under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (collectively, Cautionary
Disclosures) include: general economic conditions, including the timing and
magnitude of any recovery from the current soft economy; future acts of
terrorism; the impact on the travel industry of increased security precautions;
the availability of capital; the impact of U.S. military involvement in the
Middle East and elsewhere; the ability to effect sales of non-strategic hotels
at anticipated prices and numerous other factors that may affect results,
performance and achievements. The forward looking statements included herein,
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 Cautionary Disclosures. We undertake no obligation to update any
forward-looking statements to reflect future events or circumstances. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Information and disclosures regarding market risks applicable to us is
incorporated herein by reference to the discussion under Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources  Quantitative and Qualitative Disclosures
About Market Risks contained elsewhere in this Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2004. 
 Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of FelCors management,
including its chief executive officer and principal accounting officer who, in
the absence of a chief financial officer, is acting as its principal financial
officer, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, in accordance with Rule
13a-15 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 acting principal financial officer
concluded, as of the Evaluation Date, that our disclosure controls and
procedures were effective, such that the information relating to us required to
be disclosed in our reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and is accumulated
and communicated to management, including FelCors chief executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure. (a) Changes in internal controls. Not applicable. 33




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##### Table of Contents



PART II.  OTHER INFORMATION 
 Item 5. Other Information On April 27, 2004, FelCor announced in a press release that Richard J.
OBrien, its Executive Vice President and Chief Financial Officer since 2001,
had submitted his resignation. Mr. OBrien left FelCor to pursue other
opportunities as of April 23, 2004. FelCor has engaged a professional search
firm to assist it in identifying potential candidates to fill the vacancy
created by Mr. OBriens resignation. In April 2004, the Compensation Committee of FelCors Board of Directors
recommended, and its Board of Directors approved, effective January 1, 2004,
the payment of cash compensation of $222,050 annually to its Chairman of the
Board of Directors, in addition to the compensation he would otherwise receive
as a director of FelCor. The additional compensation was granted in
recognition of the increased responsibilities and commitments in time that
Donald J. McNamara has undertaken in his role as the Chairman of the Board.
The office of Chairman of the Board remains as a non-executive position,
although in light of Mr. McNamaras increased interaction with management,
FelCors Board of Directors will no longer consider Mr. McNamara to be
independent under the rules of the New York Stock Exchange. 
 Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K: Exhibit Number
    
    Description of Exhibit3.1.4
    
    Fourth Amendment to Second Amended and Restated Agreement
of Limited Partnership of FelCor Lodging Limited
Partnership, dated as of July 1, 2003 (filed as Exhibit
10.1.4 to FelCor Lodging Trust Incorporateds (FelCor)
Form 10-Q for the quarter ended March 31, 2004 and
incorporated herein by reference).3.1.5
    
    Fifth Amendment to Second Amended and Restated Agreement of
Limited Partnership of FelCor Lodging Limited Partnership,
dated as of April 2, 2004 (filed as Exhibit 10.1.5 to
FelCors Form 10-Q for the quarter ended March 31, 2004 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 Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).32.2
    
    Certification of the Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
 (b) During the three months ended March 31, 2004, the Partnership
did not file any Current Reports on Form 8-K. 34




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Dated: May 7, 2004 FELCOR LODGING LIMITED PARTNERSHIPa Delaware Limited PartnershipBY
    
    FelCor Lodging Trust IncorporatedIts General PartnerBy:
    
    /s/ Lester C. JohnsonLester C. JohnsonSenior Vice President andPrincipal Accounting Officer
 35




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##### Table of Contents



Index to Exhibits Exhibit Number
    
    Description of Exhibit3.1.4
    
    Fourth Amendment to Second Amended and Restated Agreement
of Limited Partnership of FelCor Lodging Limited
Partnership, dated as of July 1, 2003 (filed as Exhibit
10.1.4 to FelCor Lodging Trust Incorporateds (FelCor)
Form 10-Q for the quarter ended March 31, 2004 and
incorporated herein by reference).3.1.5
    
    Fifth Amendment to Second Amended and Restated Agreement of
Limited Partnership of FelCor Lodging Limited Partnership,
dated as of April 2, 2004 (filed as Exhibit 10.1.5 to
FelCors Form 10-Q for the quarter ended March 31, 2004 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 Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).32.2
    
    Certification of the Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).