##### Table of Contents



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, 2006
 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)
    
    75-2544994
(I.R.S. Employer
Identification No.)
 545 E. John Carpenter Frwy., Suite 1300, Irving, Texas
(Address of principal executive offices)
    
    75062
(Zip Code)
 (972) 444-4900
 R £
  £ £ R
 £ R




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 INDEX
  
 PagePART I.  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets March 31, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Operations  For the Three Months Ended March 31, 2006 and and 2005 (unaudited)
    
    
    4Consolidated Statements of Comprehensive Income (Loss)  For the Three Months Ended March 31, 2006 and 2005 (unaudited)
    
    
    5Consolidated Statements of Cash Flows  For the Three Months Ended March 31, 2006 and 2005 (unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21General
    
    
    21Financial Comparison
    
    
    21Results of Operations
    
    
    22Non-GAAP Financial Measures
    
    
    23Hotel Portfolio Composition
    
    
    28Hotel Operating Statistics
    
    
    29Liquidity and Capital Resources
    
    
    31Inflation
    
    
    33Seasonality
    
    
    33Disclosure Regarding Forward-Looking Statements
    
    
    33Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II.  OTHER INFORMATIONItem 6. Exhibits
    
    
    36SIGNATURE
    
    
    37Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
 2




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 FELCOR LODGING LIMITED PARTNERSHIP
 
 CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSInvestment in hotels, net of accumulated depreciation of $731,277 at
March 31, 2006 and $754,502 at December 31, 2005
    
    $
    2,430,191
    
    
    $
    2,587,379Investment in unconsolidated entities
    
    
    109,160
    
    
    
    109,262Cash and cash equivalents
    
    
    75,796
    
    
    
    94,564Restricted cash
    
    
    18,966
    
    
    
    18,298Accounts receivable, net of allowance for doubtful accounts of $994 at March
31, 2006
and $2,203 at December 31, 2005
    
    
    60,577
    
    
    
    54,815Deferred expenses, net of accumulated amortization of $12,807 at March 31, 2006
and $12,150 at December 31, 2005
    
    
    11,664
    
    
    
    12,423Condominium development project
    
    
    23,353
    
    
    
    13,051Other assets
    
    
    27,830
    
    
    
    29,301Total assets
    
    $
    2,757,537
    
    
    $
    2,919,093LIABILITIES AND PARTNERS CAPITALDebt, net of discount of $2,686 at March 31, 2006 and $2,982 at
December 31, 2005
    
    $
    1,500,266
    
    
    $
    1,675,280Distributions payable
    
    
    17,685
    
    
    
    8,596Accrued expenses and other liabilities
    
    
    150,009
    
    
    
    138,017Total liabilities
    
    
    1,667,960
    
    
    
    1,821,893Commitments and contingenciesMinority interest in other partnerships
    
    
    39,877
    
    
    
    40,014Redeemable units at redemption value, 2,355 and 2,763 units issued and
outstanding at March 31, 2006 and December 31, 2005, respectively
    
    
    49,691
    
    
    
    47,543Partners Capital:Preferred units, $.01 par value, 20,000 units authorized:Series A Cumulative Convertible Preferred Units, 12,880 units issued and
outstanding at March 31, 2006 and December 31, 2005
    
    
    309,362
    
    
    
    309,362Series C Cumulative Redeemable Preferred Units, 68 units issued and
outstanding at March 31, 2006 and December 31, 2005
    
    
    169,412
    
    
    
    169,412Common units, $.01 par value, 60,922 and 60,210 units issued and outstanding at
March 31, 2006 and December 31, 2005, respectively
    
    
    501,924
    
    
    
    511,267Accumulated other comprehensive income
    
    
    19,311
    
    
    
    19,602Total partners capital
    
    
    1,000,009
    
    
    
    1,009,643Total liabilities, redeemable units and partners capital
    
    $
    2,757,537
    
    
    $
    2,919,093
  3




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2006 and 2005
(unaudited, in thousands, except for per unit data)
 Three Months EndedMarch 31,2006
    
    
    2005Revenues:Hotel operating revenue
    
    $
    311,876
    
    
    $
    268,985Retail space rental and other revenue
    
    
    134
    
    
    
    156Total revenues
    
    
    312,010
    
    
    
    269,141Expenses:Hotel departmental expenses
    
    
    102,410
    
    
    
    92,146Other property operating costs
    
    
    89,085
    
    
    
    79,999Management and franchise fees
    
    
    16,569
    
    
    
    13,321Taxes, insurance and lease expense
    
    
    30,631
    
    
    
    29,224Corporate expenses
    
    
    5,804
    
    
    
    4,540Depreciation
    
    
    27,351
    
    
    
    26,922Total operating expenses
    
    
    271,850
    
    
    
    246,152Operating income
    
    
    40,160
    
    
    
    22,989Interest expense, net
    
    
    (30,834
    )
    
    
    (31,869
    )Charge-off of deferred financing costs
    
    
    (667
    )
    
    
    Income (loss) before equity in income of unconsolidated entities,
minority interests and gain on sales of assets
    
    
    8,659
    
    
    
    (8,880
    )Equity in income from unconsolidated entities
    
    
    1,948
    
    
    
    1,131Minority interests
    
    
    198
    
    
    
    129Income (loss) from continuing operations
    
    
    10,805
    
    
    
    (7,620
    )Discontinued operations
    
    
    (945
    )
    
    
    (1,237
    )Net income (loss)
    
    
    9,860
    
    
    
    (8,857
    )Preferred distributions
    
    
    (9,678
    )
    
    
    (10,091
    )Net income (loss) applicable to common unitholders
    
    $
    182
    
    
    $
    (18,948
    )Basic and diluted earnings (loss) per common unit data:Net earnings (loss) from continuing operations
    
    $
    0.02
    
    
    $
    (0.28
    )Net earnings (loss)
    
    $
    
    
    
    $
    (0.30
    )Basic weighted average units outstanding
    
    
    62,323
    
    
    
    62,204Diluted weighted average units outstanding
    
    
    62,639
    
    
    
    62,204Cash distributions declared on common units
    
    $
    0.15
    
    
    $
    
  4




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FELCOR LODGING LIMITED PARTNERSHIP
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2006 and 2005
(unaudited, in thousands)
 Three Months EndedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    9,860
    
    
    $
    (8,857
    )Unrealized holding gains from interest rate swaps
    
    
    360
    
    
    
    1,627Foreign currency translation adjustment
    
    
    (652
    )
    
    
    (244
    )Comprehensive income (loss)
    
    $
    9,568
    
    
    $
    (7,474
    )
  5




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FELCOR LODGING LIMITED PARTNERSHIP
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2006 and 2005
(unaudited, in thousands)
 Three Months Ended March 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    9,860
    
    
    $
    (8,857
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation
    
    
    27,351
    
    
    
    30,497Loss (gain) on sale of assets
    
    
    1,077
    
    
    
    (20
    )Amortization of deferred financing fees
    
    
    774
    
    
    
    839Accretion of debt, net of discount
    
    
    296
    
    
    
    288Amortization of unearned compensation
    
    
    990
    
    
    
    597Equity in income from unconsolidated entities
    
    
    (1,948
    )
    
    
    (1,131
    )Distributions of income from unconsolidated entities
    
    
    510
    
    
    
    150Asset disposition costs
    
    
    
    
    
    
    1,300Impairment loss
    
    
    
    
    
    
    559Charge-off of deferred financing costs
    
    
    667
    
    
    
    Minority interests
    
    
    (198
    )
    
    
    (129
    )Changes in assets and liabilities:Accounts receivable
    
    
    (5,950
    )
    
    
    (7,348
    )Restricted cash  operations
    
    
    (1,348
    )
    
    
    82Other assets
    
    
    1,659
    
    
    
    1,261Accrued expenses and other liabilities
    
    
    16,477
    
    
    
    20,059Net cash flow provided by operating activities
    
    
    50,217
    
    
    
    38,147Cash flows (used in) provided by investing activities:Improvements and additions to hotels
    
    
    (34,037
    )
    
    
    (26,723
    )Additions to condominium project
    
    
    (10,295
    )
    
    
    Proceeds from sale of assets
    
    
    6,773
    
    
    
    385Decrease (increase) in restricted cash  investing
    
    
    (752
    )
    
    
    8,568Cash distributions from unconsolidated entities
    
    
    1,540
    
    
    
    1,446Capital contributions to unconsolidated entities
    
    
    
    
    
    
    (700
    )Net cash flow used in investing activities
    
    
    (36,771
    )
    
    
    (17,024
    )Cash flows (used in) provided by financing activities:Proceeds from borrowings
    
    
    54,526
    
    
    
    Repayment of borrowings
    
    
    (79,844
    )
    
    
    (5,201
    )Payment of deferred financing fees
    
    
    (682
    )
    
    
    (52
    )Decrease in restricted cash financing
    
    
    2,825
    
    
    
    Preferred unit offering expenses
    
    
    
    
    
    
    (155
    )Exercise of stock options
    
    
    626
    
    
    
    Contributions from minority interest holders
    
    
    860
    
    
    
    579Distributions paid to other partnerships minority interests
    
    
    (800
    )
    
    
    Distributions paid to preferred unitholders
    
    
    (9,678
    )
    
    
    (10,091
    )Distributions paid to common unitholders
    
    
    (24
    )
    
    
    Net cash flow used in financing activities
    
    
    (32,191
    )
    
    
    (14,920
    )Effect of exchange rate changes on cash
    
    
    (23
    )
    
    
    (7
    )Net change in cash and cash equivalents
    
    
    (18,768
    )
    
    
    6,196Cash and cash equivalents at beginning of periods
    
    
    94,564
    
    
    
    119,310Cash and cash equivalents at end of periods
    
    $
    75,796
    
    
    $
    125,506Supplemental cash flow information 
Interest paid
    
    $
    17,125
    
    
    $
    16,685
  6




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FELCOR LODGING LIMITED PARTNERSHIP
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization
 ® ®
    Brand
    
    Hotels
    
    
    RoomsEmbassy Suites Hotels
    
    
    54
    
    
    
    13,653Doubletree® and Doubletree Guest Suites
    
    
    9
    
    
    
    2,019Holiday Inn®  branded
    
    
    32
    
    
    
    11,007Crowne Plaza® and Crowne Plaza Suites®
    
    
    7
    
    
    
    2,416Sheraton® and Sheraton Suites®
    
    
    10
    
    
    
    3,275Other brands
    
    
    5
    
    
    
    1,567Total hotels
    
    
    117
    
    
    
    33,937
    7




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2 Foreign Currency Translation
  3. Investment in Unconsolidated Entities
   March 31,
    
    
    December 31,2006
    
    
    2005Balance sheet information:Investment in hotels, net of accumulated depreciation
    
    $
    260,462
    
    
    $
    259,645Total assets
    
    $
    292,632
    
    
    $
    295,065Debt
    
    $
    201,807
    
    
    $
    203,880Total liabilities
    
    $
    207,776
    
    
    $
    211,174Equity
    
    $
    84,856
    
    
    $
    83,891
   Three Months EndedMarch 31,2006
    
    
    2005Total revenues
    
    $
    18,115
    
    
    $
    16,229Net income
    
    
    4,816
    
    
    
    2,888Net income attributable to FelCor
    
    $
    2,367
    
    
    $
    1,444Preferred return
    
    
    
    
    
    
    127Depreciation of cost in excess of book value
    
    
    (419
    )
    
    
    (440
    )Equity in income from unconsolidated entities
    
    $
    1,948
    
    
    $
    1,131
  March 31, 2006
    
    
    December 31, 2005Hotel investments
    
    $
    43,586
    
    
    $
    43,117Cost in excess of book value of hotel investments
    
    
    62,679
    
    
    
    63,098Land and condominium investments
    
    
    4,243
    
    
    
    4,270Hotel lessee investments
    
    
    (1,348
    )
    
    
    (1,233
    )$
    109,160
    
    
    $
    109,262
 8




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. Investment in Unconsolidated Entities 3⁄4 (continued)
  Three Months Ended March 31,2006
    
    
    2005Hotel investments
    
    $
    2,073
    
    
    $
    1,240Hotel lessee operations
    
    
    (125
    )
    
    
    (109
    )$
    1,948
    
    
    $
    1,131
 4. Debt
  Balance OutstandingEncumbered
    
    
    Interest Rate at
    
    
    Maturity
    
    
    March 31,
    
    
    December 31,Hotels
    
    
    March 31, 2006(a)
    
    
    Date
    
    
    2006
    
    
    2005Promissory note
    
    none
    
    LIBOR (L) + 2.00
    
    June 2016
    
    $
    650
    
    
    $
    650Senior unsecured term notes
    
    none
    
    
    7.63
    
    
    October 2007
    
    
    123,591
    
    
    
    123,358Senior unsecured term notes
    
    none
    
    
    9.00
    
    
    June 2011
    
    
    298,723
    
    
    
    298,660Line of credit(b)
    
    none
    
    
    L + 2.00
    
    
    January 2009
    
    
    45,000
    
    
    
    Term loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,000Senior unsecured term notes
    
    none
    
    
    L + 4.25
    
    
    June 2011
    
    
    190,000
    
    
    
    190,000Senior unsecured term notes(c)
    
    none
    
    
    7.80
    
    
    June 2011
    
    
    100,000
    
    
    
    100,000Total unsecured debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    757,964
    
    
    
    937,668Mortgage debt
    
    9 hotels
    
    
    6.52
    
    
    July 2009 - 2014
    
    
    103,629
    
    
    
    104,282Mortgage debt(d)
    
    8 hotels
    
    
    L + 2.50
    
    
    May 2007
    
    
    116,996
    
    
    
    117,913Mortgage debt
    
    7 hotels
    
    
    7.32
    
    
    March 2009
    
    
    126,678
    
    
    
    127,455Mortgage debt
    
    4 hotels
    
    
    7.55
    
    
    June 2009
    
    
    41,370
    
    
    
    41,912Mortgage debt
    
    8 hotels
    
    
    8.70
    
    
    May 2010
    
    
    171,788
    
    
    
    172,604Mortgage debt
    
    7 hotels
    
    
    8.73
    
    
    May 2010
    
    
    132,485
    
    
    
    133,374Mortgage debt
    
    1 hotel
    
    
    L + 2.85
    
    
    August 2008
    
    
    15,500
    
    
    
    15,500Mortgage debt
    
    1 hotel
    
    
    7.91
    
    
    December 2007
    
    
    10,388
    
    
    
    10,457Other
    
    1 hotel
    
    
    9.17
    
    
    August 2011
    
    
    5,031
    
    
    
    5,204Construction loan(e)
    
    
    
    
    
    
    L + 2.25
    
    
    August 2007
    
    
    18,437
    
    
    
    8,911Total secured debt
    
    46 hotels
    
    
    
    
    
    
    
    
    
    
    742,302
    
    
    
    737,612$
    1,500,266
    
    
    $
    1,675,280
 
 (a)
    
    Our weighted average interest rate as of March 31, 2006 was 8.12%.(b)
    
    We have a borrowing capacity of $125 million on our line of credit. The $45 million
outstanding as of March 31, 2006 was repaid in April 2006 from asset sale proceeds.(c)
    
    We have swapped $100 million of floating rate debt, at L + 4.25 percent, for a fixed rate
of 7.80 percent. This interest rate swap expires in December 2007.(d)
    
    This debt had two one-year extension options, subject to
certain contingencies, one of which was exercised in May 2006, to
extend the maturity to May 2007. In April
2006, we repaid $27.3 million of this debt from asset sale proceeds. The interest rate on
the remaining $89.7 million is L + 1.25 percent.(e)
    
    We have a $69.8 million recourse construction loan facility for the development of a
184-unit condominium project in Myrtle Beach, South Carolina. The interest on this facility
is currently based on L + 225 basis points and is being capitalized as part of the cost of
the project. The interest rate may be reduced to L + 200 basis points when the project is 55
percent complete and upon satisfaction of certain other requirements.  9




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FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. Debt 3⁄4 (continued)
   5. Derivatives
      10




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FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  5. Derivatives 3⁄4 (continued)
  6. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs
  Three Months EndedMarch 31,2006
    
    
    2005Room revenue
    
    $
    256,655
    
    
    $
    218,150Food and beverage revenue
    
    
    40,060
    
    
    
    37,329Other operating departments
    
    
    15,161
    
    
    
    13,506Total hotel operating revenue
    
    $
    311,876
    
    
    $
    268,985
   Three Months Ended March 31,2006
    
    
    2005% of Total
    
    
    
    
    
    
    % of TotalHotel
    
    
    
    
    
    
    HotelDollars in
    
    
    Operating
    
    
    Dollars in
    
    
    OperatingThousands
    
    
    Revenue
    
    
    Thousands
    
    
    RevenueRoom
    
    $
    63,262
    
    
    
    20.3
    %
    
    $
    56,249
    
    
    
    20.9
    %Food and beverage
    
    
    31,799
    
    
    
    10.2
    %
    
    
    29,419
    
    
    
    11.0
    %Other operating departments
    
    
    7,349
    
    
    
    2.3
    %
    
    
    6,478
    
    
    
    2.4
    %Total hotel departmental expenses
    
    $
    102,410
    
    
    
    32.8
    %
    
    $
    92,146
    
    
    
    34.3
    %
  Three Months Ended March 31,2006
    
    
    2005% of Total
    
    
    
    
    
    
    % of TotalHotel
    
    
    
    
    
    
    HotelDollars in
    
    
    Operating
    
    
    Dollars in
    
    
    OperatingThousands
    
    
    Revenue
    
    
    Thousands
    
    
    RevenueHotel general and administrative expense
    
    $
    27,888
    
    
    
    8.9
    %
    
    $
    25,030
    
    
    
    9.3
    %Marketing
    
    
    26,277
    
    
    
    8.4
    %
    
    
    23,920
    
    
    
    8.8
    %Repair and maintenance
    
    
    16,949
    
    
    
    5.5
    %
    
    
    15,561
    
    
    
    5.8
    %Energy
    
    
    17,971
    
    
    
    5.8
    %
    
    
    15,488
    
    
    
    5.8
    %Total other property operating costs
    
    $
    89,085
    
    
    
    28.6
    %
    
    $
    79,999
    
    
    
    29.7
    %
  11




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FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  7. Taxes, Insurance and Lease Expense
  Three Months EndedMarch 31,2006
    
    
    2005Operating lease expense(a)
    
    $
    16,417
    
    
    $
    14,626Real estate and other taxes
    
    
    11,293
    
    
    
    11,584Property insurance, general liability insurance and other
    
    
    2,921
    
    
    
    3,014Total taxes, insurance and lease expense
    
    $
    30,631
    
    
    $
    29,224
 
 (a)
    
    Includes hotel lease expense of $14.3 million and $12.7 million associated with 14
hotels leased by us from unconsolidated subsidiaries for the three months ended March 31, 2006 and 2005,
respectively. Included in lease expense are $7.6 million and $5.2 million in percentage
rent based on operating results for the three months ended March 31, 2006 and 2005,
respectively. 8. Discontinued Operations
  Three Months EndedMarch 31,2006
    
    
    2005Operating revenue
    
    $
    3,398
    
    
    $
    34,016Operating expenses
    
    
    3,267
    
    
    
    33,343Operating income
    
    
    131
    
    
    
    673Direct interest costs, net
    
    
    1
    
    
    
    (1,371
    )Impairment loss
    
    
    
    
    
    
    (559
    )Gain (loss) on sale of assets
    
    
    (1,077
    )
    
    
    20Loss from discontinued operations
    
    $
    (945
    )
    
    $
    (1,237
    )
   12




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9. Earnings (Loss) Per Unit
  Three Months EndedMarch 31,2006
    
    
    2005Numerator:Income (loss) from continuing operations
    
    $
    10,805
    
    
    $
    (7,620
    )Less: Preferred distributions
    
    
    (9,678
    )
    
    
    (10,091
    )Income (loss) from continuing operations applicable to common unitholders
    
    
    1,127
    
    
    
    (17,711
    )Discontinued operations
    
    
    (945
    )
    
    
    (1,237
    )Net income (loss) applicable to common unitholders
    
    $
    182
    
    
    $
    (18,948
    )Denominator:Denominator for basic earnings per unit
    
    
    62,323
    
    
    
    62,204Denominator for diluted earnings per unit
    
    
    62,639
    
    
    
    62,204Earnings (loss) per unit data:Basic:Earnings (loss) from continuing operations
    
    $
    0.02
    
    
    $
    (0.28
    )Discontinued operations
    
    $
    (0.02
    )
    
    $
    (0.02
    )Net earnings (loss)
    
    $
    
    
    
    $
    (0.30
    )Diluted:Earnings (loss) from continuing operations
    
    $
    0.02
    
    
    $
    (0.28
    )Discontinued operations
    
    $
    (0.02
    )
    
    $
    (0.02
    )Net earnings (loss)
    
    $
    
    
    
    $
    (0.30
    )
  Three Months EndedMarch 31,2006
    
    
    2005FelCors restricted units granted but not vested
    
    
    
    
    
    
    421Series A convertible preferred units
    
    
    9,985
    
    
    
    9,985
  13




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. FelCors Stock Based Compensation Plans
   Loss from continuing operations, as reported
    
    $
    (7,620
    )Add stock based compensation included in the net loss, as reported
    
    
    597Less stock based compensation expense that would have been included in
the determination of net
loss if the fair value method had been applied to all awards
    
    
    (600
    )Loss from continuing operations, pro forma
    
    $
    (7,623
    )Basic and diluted net loss from continuing operations per common unit:As reported
    
    $
    (0.28
    )Pro forma
    
    $
    (0.28
    )
 11. FelCor LP Units
  12. Subsequent Events
   14




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Consolidating Financial Information
  CONSOLIDATING BALANCE SHEET
March 31, 2006
(in thousands)
 ASSETSSubsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSNet investment in hotel properties
    
    $
    109,751
    
    
    $
    1,247,356
    
    
    $
    1,073,084
    
    
    $
    
    
    
    $
    2,430,191Equity investment in consolidated entities
    
    
    1,677,728
    
    
    
    
    
    
    
    
    
    
    
    (1,677,728
    )
    
    
    Investment in unconsolidated entities
    
    
    77,251
    
    
    
    29,506
    
    
    
    2,403
    
    
    
    
    
    
    
    109,160Cash and cash equivalents
    
    
    25,721
    
    
    
    41,479
    
    
    
    8,596
    
    
    
    
    
    
    
    75,796Restricted cash
    
    
    766
    
    
    
    1,592
    
    
    
    16,608
    
    
    
    
    
    
    
    18,966Accounts receivable
    
    
    7,711
    
    
    
    52,858
    
    
    
    8
    
    
    
    
    
    
    
    60,577Deferred assets
    
    
    6,433
    
    
    
    863
    
    
    
    4,368
    
    
    
    
    
    
    
    11,664Condominium development project
    
    
    
    
    
    
    
    
    
    
    23,353
    
    
    
    
    
    
    
    23,353Other assets
    
    
    9,898
    
    
    
    17,596
    
    
    
    336
    
    
    
    
    
    
    
    27,830Total assets
    
    $
    1,915,259
    
    
    $
    1,391,250
    
    
    $
    1,128,756
    
    
    $
    (1,677,728
    )
    
    $
    2,757,537LIABILITIES AND PARTNERS CAPITALDebt
    
    $
    791,916
    
    
    $
    146,178
    
    
    $
    562,172
    
    
    $
    
    
    
    $
    1,500,266Distributions payable
    
    
    17,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,685Accrued expenses and other liabilities
    
    
    34,671
    
    
    
    108,667
    
    
    
    6,671
    
    
    
    
    
    
    
    150,009Total liabilities
    
    
    844,272
    
    
    
    254,845
    
    
    
    568,843
    
    
    
    
    
    
    
    1,667,960Minority interest  other partnerships
    
    
    21,287
    
    
    
    (255
    )
    
    
    18,845
    
    
    
    
    
    
    
    39,877Redeemable units, at redemption value
    
    
    49,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,691Preferred units
    
    
    478,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,774Common units
    
    
    518,653
    
    
    
    1,119,931
    
    
    
    541,068
    
    
    
    (1,677,728
    )
    
    
    501,924Accumulated other comprehensive income
    
    
    2,582
    
    
    
    16,729
    
    
    
    
    
    
    
    
    
    
    
    19,311Total partners capital
    
    
    1,000,009
    
    
    
    1,136,660
    
    
    
    541,068
    
    
    
    (1,677,728
    )
    
    
    1,000,009Total liabilities, redeemable units
and partners capital
    
    $
    1,915,259
    
    
    $
    1,391,250
    
    
    $
    1,128,756
    
    
    $
    (1,677,728
    )
    
    $
    2,757,537
 15




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Consolidating Financial Information 3⁄4 (continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2005
(in thousands)
 ASSETS
 Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSNet investment in hotel properties
    
    $
    115,615
    
    
    $
    666,137
    
    
    $
    1,805,627
    
    
    $
    
    
    
    $
    2,587,379Equity investment in consolidated entities
    
    
    1,582,280
    
    
    
    
    
    
    
    
    
    
    
    (1,582,280
    )
    
    
    Investment in unconsolidated entities
    
    
    76,991
    
    
    
    32,271
    
    
    
    
    
    
    
    
    
    
    
    109,262Cash and cash equivalents
    
    
    48,393
    
    
    
    36,189
    
    
    
    9,982
    
    
    
    
    
    
    
    94,564Restricted cash
    
    
    3,637
    
    
    
    2,189
    
    
    
    12,472
    
    
    
    
    
    
    
    18,298Accounts receivable
    
    
    4,361
    
    
    
    50,149
    
    
    
    305
    
    
    
    
    
    
    
    54,815Deferred assets
    
    
    6,262
    
    
    
    1,139
    
    
    
    5,022
    
    
    
    
    
    
    
    12,423Condominium development project
    
    
    
    
    
    
    13,051
    
    
    
    
    
    
    
    
    
    
    
    13,051Other assets
    
    
    11,294
    
    
    
    17,599
    
    
    
    408
    
    
    
    
    
    
    
    29,301Total assets
    
    $
    1,848,833
    
    
    $
    818,724
    
    
    $
    1,833,816
    
    
    $
    (1,582,280
    )
    
    $
    2,919,093LIABILITIES AND PARTNERS CAPITALDebt
    
    $
    737,087
    
    
    $
    152,302
    
    
    $
    785,891
    
    
    $
    
    
    
    $
    1,675,280Distributions payable
    
    
    8,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,596Accrued expenses and other liabilities
    
    
    20,522
    
    
    
    97,747
    
    
    
    19,748
    
    
    
    
    
    
    
    138,017Total liabilities
    
    
    766,205
    
    
    
    250,049
    
    
    
    805,639
    
    
    
    
    
    
    
    1,821,893Minority interest  other partnerships
    
    
    25,442
    
    
    
    (345
    )
    
    
    14,917
    
    
    
    
    
    
    
    40,014Redeemable units, at redemption value
    
    
    47,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,543Preferred units
    
    
    478,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,774Common units
    
    
    528,647
    
    
    
    551,640
    
    
    
    1,013,260
    
    
    
    (1,582,280
    )
    
    
    511,267
 16




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##### Table of Contents



FELCOR
LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
 Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSAccumulated other comprehensive income
    
    
    2,222
    
    
    
    17,380
    
    
    
    
    
    
    
    
    
    
    
    19,602Total partners capital
    
    
    1,009,643
    
    
    
    569,020
    
    
    
    1,013,260
    
    
    
    (1,582,280
    )
    
    
    1,009,643Total liabilities and
partners capital
    
    $
    1,848,833
    
    
    $
    818,724
    
    
    $
    1,833,816
    
    
    $
    (1,582,280
    )
    
    $
    2,919,093
 17




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Consolidating Financial Information 3⁄4 (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2006
(in thousands)
 Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Hotel operating revenue
    
    $
    
    
    
    $
    311,876
    
    
    $
    
    
    
    $
    
    
    
    $
    311,876Percentage lease revenue
    
    
    5,610
    
    
    
    
    
    
    
    45,128
    
    
    
    (50,738
    )
    
    
    Other revenue
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134Total revenue
    
    
    5,744
    
    
    
    311,876
    
    
    
    45,128
    
    
    
    (50,738
    )
    
    
    312,010Expenses:Hotel operating expense
    
    
    
    
    
    
    208,064
    
    
    
    
    
    
    
    
    
    
    
    208,064Taxes, insurance and lease expense
    
    
    683
    
    
    
    75,694
    
    
    
    4,992
    
    
    
    (50,738
    )
    
    
    30,631Corporate expenses
    
    
    4,398
    
    
    
    1,402
    
    
    
    4
    
    
    
    
    
    
    
    5,804Depreciation
    
    
    1,882
    
    
    
    15,017
    
    
    
    10,452
    
    
    
    
    
    
    
    27,351Total operating expenses
    
    
    6,963
    
    
    
    300,177
    
    
    
    15,448
    
    
    
    (50,738
    )
    
    
    271,850Operating income (loss)
    
    
    (1,219
    )
    
    
    11,699
    
    
    
    29,680
    
    
    
    
    
    
    
    40,160Interest expense, net
    
    
    (16,088
    )
    
    
    (3,381
    )
    
    
    (11,365
    )
    
    
    
    
    
    
    (30,834
    )Charge-off of deferred financing cost
    
    
    
    
    
    
    (667
    )
    
    
    
    
    
    
    
    
    
    
    (667
    )Income (loss) before equity in income
from unconsolidated entities, minority
interests and gain on sale of assets
    
    
    (17,307
    )
    
    
    7,651
    
    
    
    18,315
    
    
    
    
    
    
    
    8,659Equity in income from consolidated
entities
    
    
    24,865
    
    
    
    
    
    
    
    
    
    
    
    (24,865
    )
    
    
    Equity in income from unconsolidated
entities
    
    
    2,310
    
    
    
    (349
    )
    
    
    (13
    )
    
    
    
    
    
    
    1,948Minority interests in other partnerships
    
    
    (8
    )
    
    
    771
    
    
    
    (565
    )
    
    
    
    
    
    
    198Income (loss) from continuing operations
    
    
    9,860
    
    
    
    8,073
    
    
    
    17,737
    
    
    
    (24,865
    )
    
    
    10,805Discontinued operations from
consolidated entities
    
    
    
    
    
    
    (945
    )
    
    
    
    
    
    
    
    
    
    
    (945
    )Net income (loss)
    
    
    9,860
    
    
    
    7,128
    
    
    
    17,737
    
    
    
    (24,865
    )
    
    
    9,860Preferred distributions
    
    
    (9,678
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,678
    )Net income (loss) applicable to
unitholders
    
    $
    182
    
    
    $
    7,128
    
    
    $
    17,737
    
    
    $
    (24,865
    )
    
    $
    182
 18




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Consolidating Financial Information 3⁄4 (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2005
(in thousands)
 Subsidiary
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Hotel operating revenue
    
    $
    
    
    
    $
    268,985
    
    
    $
    
    
    
    $
    
    
    
    $
    268,985Percentage lease revenue
    
    
    4,760
    
    
    
    
    
    
    
    54,689
    
    
    
    (59,449
    )
    
    
    Other revenue
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Total revenue
    
    
    4,916
    
    
    
    268,985
    
    
    
    54,689
    
    
    
    (59,449
    )
    
    
    269,141Expenses:Hotel operating expense
    
    
    
    
    
    
    185,466
    
    
    
    
    
    
    
    
    
    
    
    185,466Taxes, insurance and lease expense
    
    
    2,106
    
    
    
    79,587
    
    
    
    6,980
    
    
    
    (59,449
    )
    
    
    29,224Corporate expenses
    
    
    259
    
    
    
    2,479
    
    
    
    1,802
    
    
    
    
    
    
    
    4,540Depreciation
    
    
    1,708
    
    
    
    9,627
    
    
    
    15,587
    
    
    
    
    
    
    
    26,922Total operating expenses
    
    
    4,073
    
    
    
    277,159
    
    
    
    24,369
    
    
    
    (59,449
    )
    
    
    246,152Operating income (loss)
    
    
    843
    
    
    
    (8,174
    )
    
    
    30,320
    
    
    
    
    
    
    
    22,989Interest expense, net
    
    
    (13,525
    )
    
    
    (3,436
    )
    
    
    (14,908
    )
    
    
    
    
    
    
    (31,869
    )Income (loss) before equity in income
from unconsolidated entities, minority
interests and gain on sale of assets
    
    
    (12,682
    )
    
    
    (11,610
    )
    
    
    15,412
    
    
    
    
    
    
    
    (8,880
    )Equity in income from consolidated
entities
    
    
    2,791
    
    
    
    
    
    
    
    
    
    
    
    (2,791
    )
    
    
    Equity in income from unconsolidated
entities
    
    
    1,524
    
    
    
    (393
    )
    
    
    
    
    
    
    
    
    
    
    1,131Minority interests in other partnerships
    
    
    
    
    
    
    308
    
    
    
    (179
    )
    
    
    
    
    
    
    129Income (loss) from continuing operations
    
    
    (8,367
    )
    
    
    (11,695
    )
    
    
    15,233
    
    
    
    (2,791
    )
    
    
    (7,620
    )Discontinued operations from
consolidated entities
    
    
    (490
    )
    
    
    (1,771
    )
    
    
    1,024
    
    
    
    
    
    
    
    (1,237
    )Net income (loss)
    
    
    (8,857
    )
    
    
    (13,466
    )
    
    
    16,257
    
    
    
    (2,791
    )
    
    
    (8,857
    )Preferred distributions
    
    
    (10,091
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,091
    )Net income (loss) applicable to
unitholders
    
    $
    (18,948
    )
    
    $
    (13,466
    )
    
    $
    16,257
    
    
    $
    (2,791
    )
    
    $
    (18,948
    )
 19




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##### Table of Contents



FELCOR LODGING LIMITED PARTNERSHIP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Consolidating Financial Information 3⁄4 (continued)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2006
(in thousands)
 Subsidiary
    
    
    Non-Guarantor
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from (used in) operating activities
    
    $
    (15,631
    )
    
    $
    29,493
    
    
    $
    36,355
    
    
    $
    50,217Cash flows from (used in) investing activities
    
    
    (296
    )
    
    
    (8,589
    )
    
    
    (27,886
    )
    
    
    (36,771
    )Cash flows from (used in) financing activities
    
    
    (6,745
    )
    
    
    (15,591
    )
    
    
    (9,855
    )
    
    
    (32,191
    )Effect of exchange rates changes on cash
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Change in cash and cash equivalents
    
    
    (22,672
    )
    
    
    5,290
    
    
    
    (1,386
    )
    
    
    (18,768
    )Cash and cash equivalents at beginning of period
    
    
    48,393
    
    
    
    36,189
    
    
    
    9,982
    
    
    
    94,564Cash and equivalents at end of period
    
    $
    25,721
    
    
    $
    41,479
    
    
    $
    8,596
    
    
    $
    75,796
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2005
(in thousands)
 Subsidiary
    
    
    Non-Guarantor
    
    
    TotalFelCor L.P.
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from (used in) operating activities
    
    $
    1,778
    
    
    $
    3,264
    
    
    $
    33,105
    
    
    $
    38,147Cash flows from (used in) investing activities
    
    
    (1,538
    )
    
    
    (9,940
    )
    
    
    (5,546
    )
    
    
    (17,024
    )Cash flows from (used in) financing activities
    
    
    (11,198
    )
    
    
    23,720
    
    
    
    (27,442
    )
    
    
    (14,920
    )Effect of exchange rates changes on cash
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Change in cash and cash equivalents
    
    
    (10,958
    )
    
    
    17,037
    
    
    
    117
    
    
    
    6,196Cash and cash equivalents at beginning of period
    
    
    84,829
    
    
    
    29,387
    
    
    
    5,094
    
    
    
    119,310Cash and equivalents at end of period
    
    $
    73,871
    
    
    $
    46,424
    
    
    $
    5,211
    
    
    $
    125,506
 20




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##### Table of Contents



Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 General
      
 Financial Comparison (in thousands of dollars, except RevPAR and Hotel EBITDA margin)
 Three Months Ended March 31,% Change2006
    
    
    2005
    
    
    2005-2006RevPAR
    
    $
    82.17
    
    
    $
    71.42
    
    
    
    15.0
    %Total revenues from continuing operations
    
    
    312,010
    
    
    
    269,141
    
    
    
    15.9
    %Hotel EBITDA(1)
    
    
    85,961
    
    
    
    65,505
    
    
    
    31.2
    %Hotel EBITDA margin(1)
    
    
    27.6
    %
    
    
    24.4
    %
    
    
    13.1
    %Income (loss) from continuing operations(2)
    
    
    10,805
    
    
    
    (7,620
    )
    
    
    241.85
    %Funds From Operations (FFO)(1) (3)
    
    
    31,333
    
    
    
    13,793
    
    
    
    127.2
    %Earnings Before Interest, Taxes, Depreciation and
Amortization
(EBITDA)(1)(4)
    
    $
    74,149
    
    
    $
    60,163
    
    
    
    23.2
    %
 
 (1)
    
    Included in the Financial Comparison are non-GAAP financial measures, including FFO,
EBITDA, Hotel EBITDA and Hotel EBITDA margin. Further discussions of the use, limitations
and importance, and detailed reconciliations to the most comparable GAAP measure, of these
non-GAAP financial measures are found elsewhere in this Managements Discussion and
Analysis of Financial Condition and Results of Operations.(2)
    
    Included in the income (loss) from continuing operations are the following amounts (in
thousands): Three Months EndedMarch 31,2006
    
    
    2005Charge off of deferred debt costs
    
    $
    667
    
    
    $
    
 21




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##### Table of Contents



(3)
    
    In accordance with the guidance provided by the Securities and Exchange Commission, or
SEC, on non-GAAP financial measures, FFO has not been adjusted to add back the following
items included in net income (loss) (in thousands): Three Months EndedMarch 31,2006
    
    
    2005Charge-off of deferred debt costs
    
    $
    667
    
    
    $
    Impairment loss on discontinued operations
    
    
    
    
    
    
    559Asset disposition costs
    
    
    
    
    
    
    1,300
 (4)
    
    Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been
adjusted for the following amounts included in net income (loss) (in thousands): Three Months EndedMarch 31,2006
    
    
    2005Charge-off of deferred debt costs
    
    $
    667
    
    
    $
    Impairment loss on discontinued operations
    
    
    
    
    
    
    559Loss (gain) on sale of depreciable assets
    
    
    1,077
    
    
    
    (20
    )Asset disposition costs
    
    
    
    
    
    
    1,300
 
 Results of Operations
 Comparison of the Three Months Ended March 31, 2006 and 2005
       22




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Non-GAAP Financial Measures
  23




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##### Table of Contents



Reconciliation of Net Income (Loss) to FFO
 Three Months Ended March 31,2006
    
    
    
    
    
    
    
    
    
    
    2005Per Unit
    
    
    
    
    
    
    
    
    
    
    Per UnitDollars
    
    
    Units
    
    
    Amount
    
    
    Dollars
    
    
    Units
    
    
    AmountNet income (loss)
    
    $
    9,860
    
    
    
    
    
    
    
    
    
    
    $
    (8,857
    )Preferred distributions
    
    
    (9,678
    )
    
    
    
    
    
    
    
    
    
    
    (10,091
    )Net income (loss) applicable to common
unitholders
    
    
    182
    
    
    
    62,639
    
    
    $
    
    
    
    
    (18,948
    )
    
    
    62,204
    
    
    $
    (0.30
    )Depreciation from continuing operations
    
    
    27,351
    
    
    
    
    
    
    
    0.44
    
    
    
    26,922
    
    
    
    
    
    
    
    0.43Depreciation from unconsolidated
entities and discontinued operations
    
    
    2,723
    
    
    
    
    
    
    
    0.04
    
    
    
    5,839
    
    
    
    
    
    
    
    0.09Loss (gain) on sale of depreciable assets
    
    
    1,077
    
    
    
    
    
    
    
    0.02
    
    
    
    (20
    )
    
    
    
    
    
    
    Conversion of options and unvested
restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421
    
    
    
    FFO
    
    $
    31,333
    
    
    
    62,639
    
    
    $
    0.50
    
    
    $
    13,793
    
    
    
    62,625
    
    
    $
    0.22
  Three Months EndedMarch 31,2006
    
    
    2005Charge-off of deferred financing costs
    
    $
    667
    
    
    $
    Impairment loss on discontinued operations
    
    
    
    
    
    
    559Asset disposition costs
    
    
    
    
    
    
    1,300
 Reconciliation of Net Income (Loss) to EBITDA
 Three Months EndedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    9,860
    
    
    $
    (8,857
    )Depreciation from continuing operations
    
    
    27,351
    
    
    
    26,922Depreciation from unconsolidated entities and discontinued operations
    
    
    2,723
    
    
    
    5,839Interest expense
    
    
    31,629
    
    
    
    32,510Interest expense from unconsolidated entities and discontinued operations
    
    
    1,596
    
    
    
    3,152Amortization expense
    
    
    990
    
    
    
    597EBITDA
    
    $
    74,149
    
    
    $
    60,163
  Three Months EndedMarch 31,2006
    
    
    2005Charge-off of deferred financing costs
    
    $
    667
    
    
    $
    Impairment loss on discontinued operations
    
    
    
    
    
    
    559Loss (gain) on sale of depreciable assets
    
    
    1,077
    
    
    
    (20
    )Asset disposition costs
    
    
    
    
    
    
    1,300
 24




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##### Table of Contents



Hotel EBITDA and Hotel EBITDA Margin
 Three Months EndedMarch 31,2006
    
    
    2005Continuing operationsTotal revenue
    
    $
    312,010
    
    
    $
    269,141Retail space rental and other revenue
    
    
    (134
    )
    
    
    (156
    )Hotel revenue
    
    
    311,876
    
    
    
    268,985Hotel operating expenses
    
    
    (225,915
    )
    
    
    (203,480
    )Hotel EBITDA
    
    $
    85,961
    
    
    $
    65,505Hotel EBITDA margin(1)
    
    
    27.6
    %
    
    
    24.4
    %
 
 (1)
    
    Hotel EBITDA as a percentage of hotel revenue. Hotel Operating Expense Composition
 Three Months EndedMarch 31,2006
    
    
    2005Continuing OperationsHotel departmental expenses:Room
    
    $
    63,262
    
    
    $
    56,249Food and beverage
    
    
    31,799
    
    
    
    29,419Other operating departments
    
    
    7,349
    
    
    
    6,478Other property related costs:Administrative and general
    
    
    27,888
    
    
    
    25,030Marketing and advertising
    
    
    26,277
    
    
    
    23,920Repairs and maintenance
    
    
    16,949
    
    
    
    15,561Energy
    
    
    17,971
    
    
    
    15,488Taxes, insurance and lease expense
    
    
    17,851
    
    
    
    18,014Total other property related costs
    
    
    209,346
    
    
    
    190,159Management and franchise fees
    
    
    16,569
    
    
    
    13,321Hotel operating expenses
    
    $
    225,915
    
    
    $
    203,480Reconciliation of total operating expense to hotel operating expense:Total operating expenses
    
    $
    271,850
    
    
    $
    246,152Unconsolidated taxes, insurance and lease expense
    
    
    1,553
    
    
    
    1,455Consolidated hotel lease expense
    
    
    (14,333
    )
    
    
    (12,665
    )Corporate expenses
    
    
    (5,804
    )
    
    
    (4,540
    )Depreciation
    
    
    (27,351
    )
    
    
    (26,922
    )Hotel operating expenses
    
    $
    225,915
    
    
    $
    203,480Supplemental information:Compensation and benefits expense (included in hotel operating expenses)
    
    $
    93,036
    
    
    $
    86,955
 25




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##### Table of Contents



Reconciliation of Net Income (Loss) to Hotel EBITDA
 Three Months EndedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    9,860
    
    
    $
    (8,857
    )Discontinued operations
    
    
    945
    
    
    
    1,237Equity in income from unconsolidated entities
    
    
    (1,948
    )
    
    
    (1,131
    )Minority interest
    
    
    (198
    )
    
    
    (129
    )Consolidated hotel lease expense
    
    
    14,333
    
    
    
    12,665Unconsolidated taxes, insurance and lease expense
    
    
    (1,553
    )
    
    
    (1,455
    )Interest expense, net
    
    
    30,834
    
    
    
    31,869Charge-off of deferred financing costs
    
    
    667
    
    
    
    Corporate expenses
    
    
    5,804
    
    
    
    4,540Depreciation
    
    
    27,351
    
    
    
    26,922Retail space rental and other revenue
    
    
    (134
    )
    
    
    (156
    )Hotel EBITDA
    
    $
    85,961
    
    
    $
    65,505
 Reconciliation of Ratio of Operating Income to Total Revenue to Hotel EBITDA Margin
 Three Months EndedMarch 31,2006
    
    
    2005Ratio of operating income to total revenue
    
    
    12.9
    %
    
    
    8.5
    %Less:Retail space and rental and other revenue
    
    
    
    
    
    
    Unconsolidated taxes, insurance and lease expense
    
    
    (0.6
    )
    
    
    (0.5
    )Plus:Consolidated lease expense
    
    
    4.6
    
    
    
    4.7Corporate expenses
    
    
    1.9
    
    
    
    1.7Depreciation
    
    
    8.8
    
    
    
    10.0Hotel EBITDA margin
    
    
    27.6
    %
    
    
    24.4
    %
  FFO and EBITDA
  26




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##### Table of Contents



Hotel EBITDA and Hotel EBITDA Margin
  Use and Limitations of Non-GAAP Measures
    27




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##### Table of Contents



Hotel Portfolio Composition
  % of
    
    % of 2005Brand
    
    Hotels
    
    
    Rooms
    
    Total Rooms
    
    Hotel EBITDA(a)Embassy Suites Hotels
    
    
    54
    
    
    
    13,653
    
    
    
    40
    
    
    
    54Holiday Inn-branded
    
    
    32
    
    
    
    11,007
    
    
    
    32
    
    
    
    22Sheraton-branded
    
    
    10
    
    
    
    3,275
    
    
    
    10
    
    
    
    11Doubletree-branded
    
    
    9
    
    
    
    2,019
    
    
    
    6
    
    
    
    6Crowne Plaza
    
    
    7
    
    
    
    2,416
    
    
    
    7
    
    
    
    3Other
    
    
    5
    
    
    
    1,567
    
    
    
    5
    
    
    
    4Top MarketsAtlanta
    
    
    8
    
    
    
    2,385
    
    
    
    7
    
    
    
    7South Florida area
    
    
    6
    
    
    
    1,738
    
    
    
    5
    
    
    
    6Los Angeles area
    
    
    5
    
    
    
    1,100
    
    
    
    3
    
    
    
    5Dallas
    
    
    10
    
    
    
    3,176
    
    
    
    9
    
    
    
    5Orlando
    
    
    6
    
    
    
    2,219
    
    
    
    7
    
    
    
    5Minneapolis
    
    
    4
    
    
    
    955
    
    
    
    3
    
    
    
    4New Orleans
    
    
    2
    
    
    
    746
    
    
    
    2
    
    
    
    4Phoenix
    
    
    3
    
    
    
    798
    
    
    
    2
    
    
    
    4Philadelphia
    
    
    3
    
    
    
    1,174
    
    
    
    3
    
    
    
    4Chicago
    
    
    4
    
    
    
    1,239
    
    
    
    4
    
    
    
    3San Francisco Bay area
    
    
    7
    
    
    
    2,385
    
    
    
    7
    
    
    
    3Washington, D.C.
    
    
    1
    
    
    
    443
    
    
    
    1
    
    
    
    3San Diego
    
    
    1
    
    
    
    600
    
    
    
    2
    
    
    
    3San Antonio
    
    
    4
    
    
    
    1,188
    
    
    
    4
    
    
    
    3Northern New Jersey
    
    
    3
    
    
    
    757
    
    
    
    2
    
    
    
    3Top Four StatesCalifornia
    
    
    17
    
    
    
    4,896
    
    
    
    14
    
    
    
    17Texas
    
    
    22
    
    
    
    6,585
    
    
    
    19
    
    
    
    13Florida
    
    
    15
    
    
    
    4,937
    
    
    
    15
    
    
    
    13Georgia
    
    
    10
    
    
    
    2,739
    
    
    
    8
    
    
    
    8LocationSuburban
    
    
    48
    
    
    
    12,043
    
    
    
    35
    
    
    
    38Urban
    
    
    30
    
    
    
    9,799
    
    
    
    29
    
    
    
    27Airport
    
    
    25
    
    
    
    7,803
    
    
    
    23
    
    
    
    22Resort
    
    
    13
    
    
    
    4,044
    
    
    
    12
    
    
    
    13Highway
    
    
    1
    
    
    
    248
    
    
    
    1
    
    
    
    0SegmentUpscale all-suite
    
    
    65
    
    
    
    16,037
    
    
    
    47
    
    
    
    61Full service
    
    
    33
    
    
    
    11,170
    
    
    
    33
    
    
    
    22Upscale
    
    
    18
    
    
    
    6,421
    
    
    
    19
    
    
    
    16Limited service
    
    
    1
    
    
    
    309
    
    
    
    1
    
    
    
    1Core Hotels
    
    
    90
    
    
    
    25,543
    
    
    
    75
    
    
    
    91Non-Strategic Hotels
    
    
    27
    
    
    
    8,394
    
    
    
    25
    
    
    
    9
 28




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##### Table of Contents



Hotel Operating Statistics
  Operating Statistics by Brand
 Occupancy (%)Three Months Ended March 31,2006
    
    
    2005
    
    
    %VarianceEmbassy Suites Hotels
    
    
    75.5
    
    
    
    71.4
    
    
    
    5.8Holiday Inn-branded hotels
    
    
    67.7
    
    
    
    63.3
    
    
    
    7.0Sheraton-branded hotels
    
    
    61.6
    
    
    
    61.7
    
    
    
    (0.2
    )Doubletree-branded hotels
    
    
    71.3
    
    
    
    65.2
    
    
    
    9.3Crowne Plaza hotels
    
    
    65.3
    
    
    
    61.4
    
    
    
    6.2Other hotels
    
    
    60.0
    
    
    
    55.7
    
    
    
    7.7Total hotels
    
    
    69.9
    
    
    
    66.0
    
    
    
    5.9
 ADR ($)Three Months Ended March 31,2006
    
    
    2005
    
    
    % VarianceEmbassy Suites Hotels
    
    
    135.49
    
    
    
    126.47
    
    
    
    7.1Holiday Inn-branded hotels
    
    
    92.87
    
    
    
    85.88
    
    
    
    8.1Sheraton-branded hotels
    
    
    123.93
    
    
    
    107.78
    
    
    
    15.0Doubletree-branded hotels
    
    
    124.99
    
    
    
    116.27
    
    
    
    7.5Crowne Plaza hotels
    
    
    109.77
    
    
    
    94.12
    
    
    
    16.6Other hotels
    
    
    102.86
    
    
    
    94.84
    
    
    
    8.5Total hotels
    
    
    117.49
    
    
    
    108.19
    
    
    
    8.6
 RevPAR ($)Three Months Ended March 31,2006
    
    
    2005
    
    
    % VarianceEmbassy Suites Hotels
    
    
    102.31
    
    
    
    90.27
    
    
    
    13.3Holiday Inn-branded hotels
    
    
    62.87
    
    
    
    54.33
    
    
    
    15.7Sheraton-branded hotels
    
    
    76.33
    
    
    
    66.50
    
    
    
    14.8Doubletree-branded hotels
    
    
    89.08
    
    
    
    75.81
    
    
    
    17.5Crowne Plaza hotels
    
    
    71.63
    
    
    
    57.81
    
    
    
    23.9Other hotels
    
    
    61.76
    
    
    
    52.85
    
    
    
    16.9Total hotels
    
    
    82.17
    
    
    
    71.42
    
    
    
    15.0
 29




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##### Table of Contents



Operating Statistics for Our Top Markets
 Occupancy (%)Three Months Ended March 31,2006
    
    
    2005
    
    
    % VarianceAtlanta
    
    
    74.2
    
    
    
    69.9
    
    
    
    6.2South Florida area
    
    
    89.4
    
    
    
    88.9
    
    
    
    0.6Los Angeles area
    
    
    78.1
    
    
    
    72.0
    
    
    
    8.6Dallas
    
    
    60.4
    
    
    
    52.2
    
    
    
    15.8Orlando
    
    
    76.2
    
    
    
    80.0
    
    
    
    (4.7
    )Minneapolis
    
    
    64.3
    
    
    
    65.5
    
    
    
    (1.7
    )New Orleans
    
    
    91.3
    
    
    
    73.9
    
    
    
    23.5Phoenix
    
    
    83.3
    
    
    
    81.4
    
    
    
    2.3Philadelphia
    
    
    58.1
    
    
    
    60.7
    
    
    
    (4.3
    )Chicago
    
    
    63.1
    
    
    
    61.4
    
    
    
    2.8San Francisco Bay area
    
    
    71.0
    
    
    
    63.3
    
    
    
    12.1Washington, D.C.
    
    
    61.8
    
    
    
    67.1
    
    
    
    (7.9
    )San Diego
    
    
    82.1
    
    
    
    81.5
    
    
    
    0.7San Antonio
    
    
    76.6
    
    
    
    69.5
    
    
    
    10.3Northern New Jersey
    
    
    65.8
    
    
    
    65.1
    
    
    
    1.1
 ADR ($)Three Months Ended March 31,2006
    
    
    2005
    
    
    % VarianceAtlanta
    
    
    104.99
    
    
    
    93.43
    
    
    
    12.4South Florida area
    
    
    168.24
    
    
    
    141.65
    
    
    
    18.8Los Angeles area
    
    
    129.39
    
    
    
    120.46
    
    
    
    7.4Dallas
    
    
    106.17
    
    
    
    97.97
    
    
    
    8.4Orlando
    
    
    100.37
    
    
    
    94.97
    
    
    
    5.7Minneapolis
    
    
    129.39
    
    
    
    122.77
    
    
    
    5.4New Orleans
    
    
    151.90
    
    
    
    147.33
    
    
    
    3.1Phoenix
    
    
    160.65
    
    
    
    146.46
    
    
    
    9.7Philadelphia
    
    
    116.44
    
    
    
    102.54
    
    
    
    13.6Chicago
    
    
    114.16
    
    
    
    96.51
    
    
    
    18.3San Francisco Bay area
    
    
    119.15
    
    
    
    110.47
    
    
    
    7.9Washington, D.C.
    
    
    164.94
    
    
    
    147.94
    
    
    
    11.5San Diego
    
    
    135.86
    
    
    
    122.73
    
    
    
    10.7San Antonio
    
    
    93.58
    
    
    
    86.00
    
    
    
    8.8Northern New Jersey
    
    
    146.23
    
    
    
    133.90
    
    
    
    9.2
 RevPAR ($)Three Months Ended March 31,2006
    
    
    2005
    
    
    % VarianceAtlanta
    
    
    77.92
    
    
    
    65.29
    
    
    
    19.3South Florida area
    
    
    150.45
    
    
    
    125.94
    
    
    
    19.5Los Angeles area
    
    
    101.11
    
    
    
    86.68
    
    
    
    16.7Dallas
    
    
    64.15
    
    
    
    51.11
    
    
    
    25.5Orlando
    
    
    76.53
    
    
    
    75.95
    
    
    
    0.8Minneapolis
    
    
    83.25
    
    
    
    80.36
    
    
    
    3.6New Orleans
    
    
    138.70
    
    
    
    108.95
    
    
    
    27.3Phoenix
    
    
    133.77
    
    
    
    119.25
    
    
    
    12.2Philadelphia
    
    
    67.65
    
    
    
    62.24
    
    
    
    8.7Chicago
    
    
    72.09
    
    
    
    59.30
    
    
    
    21.6San Francisco Bay area
    
    
    84.58
    
    
    
    69.94
    
    
    
    20.9Washington, D.C.
    
    
    101.94
    
    
    
    99.32
    
    
    
    2.6San Diego
    
    
    111.56
    
    
    
    100.03
    
    
    
    11.5San Antonio
    
    
    71.69
    
    
    
    59.73
    
    
    
    20.0Northern New Jersey
    
    
    96.27
    
    
    
    87.21
    
    
    
    10.4
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Liquidity and Capital Resources
        31




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32




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Inflation
  
 Seasonality
  
 Disclosure Regarding Forward-Looking Statements
  33




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
    
    general economic and lodging industry conditions, including the anticipated
continuation of the current recovery in the economy, the realization of anticipated job
growth, the impact of the United States military involvement in the Middle East and
elsewhere, future acts of terrorism, the threat or outbreak of a pandemic disease affecting
the travel industry, the impact on the travel industry of high fuel costs and increased
security precautions, and the impact that the bankruptcy of additional major air carriers
may have on our revenues and receivables;
    
    our overall debt levels and our ability to obtain new financing and service debt;
    
    our inability to retain earnings;
    
    our liquidity and capital expenditures;
    
    our growth strategy and acquisition activities;
    
    our inability to sell the hotels being marketed for sale at anticipated prices; and
    
    competitive conditions in the lodging industry.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Quantitative and Qualitative Disclosures About Market Risk
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Expected Maturity Date
at March 31, 2006
(dollars in thousands)
 Fair2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    ValueLiabilitiesFixed rate:Debt
    
    $
    9,807
    
    
    $
    149,737
    
    
    $
    15,695
    
    
    $
    176,560
    
    
    $
    281,843
    
    
    $
    382,727
    
    
    $
    1,016,369
    
    
    $
    1,091,465Average interest
rate
    
    
    7.96
    %
    
    
    7.68
    %
    
    
    7.96
    %
    
    
    7.37
    %
    
    
    8.70
    %
    
    
    8.47
    %
    
    
    8.21
    %Floating rate:Debt
    
    
    29,459
    
    
    
    87,537
    
    
    
    33,937
    
    
    
    45,000
    
    
    
    
    
    
    
    190,650
    
    
    
    386,583
    
    
    
    386,583Average interest
rate
    
    
    10.96
    %
    
    
    6.00
    %
    
    
    7.34
    %
    
    
    6.75
    %
    
    
    
    
    
    
    8.82
    %
    
    
    7.98
    %Interest rate swaps (floating to fixed)Notional amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    102,582Pay rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.80
    %
    
    
    7.80
    %Total debt
    
    $
    32,266
    
    
    $
    237,274
    
    
    $
    49,632
    
    
    $
    221,560
    
    
    $
    281,843
    
    
    $
    673,377
    
    
    $
    1,502,952Average interest
rate
    
    
    10.21
    %
    
    
    7.06
    %
    
    
    7.54
    %
    
    
    7.25
    %
    
    
    8.70
    %
    
    
    8.47
    %
    
    
    8.12
    %Net discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,686
    )Total debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,500,266
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  35




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PART II.  OTHER INFORMATION
 
 Item 6. Exhibits.
  Exhibit Number
    
    Description of Exhibit10.35.1.3
    
    Amendment No. 3 to Credit Agreement, dated as of March 31,
2006, by and among FelCor, FelCor LP, the lenders party
thereto and JPMorgan Chase Bank, N.A., as administrative
agent (filed as Exhibit 10.34.1.3 to FelCor Lodging Trust
Incorporateds March 2006 10-Q and incorporated herein by
reference).31.1
    
    Certification of FelCors Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of FelCors Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of FelCors Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).32.2
    
    Certification of FelCors Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
 36




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##### Table of Contents



SIGNATURES
  Date: May 10, 2006FELCOR LODGING LIMITED PARTNERSHIPa Delaware Limited PartnershipBy:
    
    FelCor Lodging Trust IncorporatedIts General PartnerBy:
    
    /s/ Lester C. JohnsonLester C. JohnsonSenior Vice President andPrincipal Accounting Officer
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INDEX TO EXHIBITS
 Exhibit Number
    
    Description of Exhibit\31.1
    
    Certification of FelCors Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of FelCors Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of FelCors Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).32.2
    
    Certification of FelCors Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).