FelCor Lodging Trust 10K 2005 Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

(Mark One)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005


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 1-14236

FelCor Lodging Trust Incorporated

(Exact name of registrant as specified in its charter)


Maryland		75-2541756
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

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

(972) 444-4900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


		Name of each exchange
Title of each class		on which registered

Common Stock		New York Stock Exchange, Inc.
$1.95 Series A Cumulative Convertible Preferred Stock		New York Stock Exchange, Inc.
Depositary Shares representing 8% Series C Cumulative
Redeemable Preferred Stock		New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.R Yes£ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.£ YesR No

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.R Yes£ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.£

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

Large accelerated filer£ Accelerated filerR Non-accelerated filer£

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

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant, computed by reference to the price at which registrants common stock was last sold at the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $695 million.

As of March 1, 2006, the registrant had issued and outstanding 60,474,499 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s definitive Proxy Statement pertaining to the 2006 Annual Meeting of Stockholders (the “Proxy Statement”), filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A, is incorporated herein by reference into Part III.

FELCOR LODGING TRUST INCORPORATED

INDEX


	Form 10-K
	Report
Item No.	Page
PART I
1. Business		2
1A. Risk Factors		10
1B. Unresolved Staff Comments		19
2. Properties		19
3. Legal Proceedings		30
4. Submission of Matters to a Vote of Security Holders		30
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities		31
6. Selected Financial Data		33
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
7A. Quantitative and Qualitative Disclosures About Market Risk		55
8. Financial Statements and Supplementary Data		56
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		56
9A. Controls and Procedures		56
9B. Other Information		57
PART III
10. Directors and Executive Officers of the Registrant		58
11. Executive Compensation		58
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		58
13. Certain Relationships and Related Transactions		58
14. Principal Accountant Fees and Services		58
PART IV
15. Exhibits and Financial Statement Schedules		59
Fifth Supplemental Indenture
Third Supplemental Indenture
First Supplemental Indenture
Omnibus Agreement
First Amendment to Term Credit Agreement
Second Amendment to Term Credit Agreement
Credit Agreement
First Amendment to Credit Agreement
Second Amendment to Credit Agreement
Subsidiary Guaranty
Purchase and Sale Agreement
List of Subsidiaries
Consent of PricewaterhouseCoopers LLP
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

This Annual Report on Form 10-K contains registered trademarks owned or licensed by companies other than us, including but not limited to Candlewood Suites®, Conrad®, Crowne Plaza®, Disneyland®, Doubletree®, Doubletree Guest Suites®, Embassy Suites Hotels®, Four Points® by Sheraton, Hampton Inn®, Harvey Suites®, Hilton®, Hilton Garden Inn®, Hilton Suites®, Holiday Inn®, Holiday Inn & Suites®, Holiday Inn Express®, Holiday Inn Express & Suites®, Holiday Inn Select®, Homewood Suites® by Hilton, InterContinental®, Priority Club®, Sheraton®, Sheraton Suites®, St. Regis®, Staybridge Suites®, The Luxury Collection®, W®, Walt Disney World®, Worlds of Fun® and Westin®.

PART I

Item 1. Business

FelCor Lodging Trust Incorporated, or FelCor, is a Maryland corporation and one of the nation’s largest public lodging real estate investment trusts, or REITs, based on total assets and number of hotels owned. We are the sole general partner of, and the owner of a greater than 95% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, through which we held ownership interests in 130 hotels with approximately 37,000 rooms and suites at December 31, 2005. When used in this Annual Report on Form 10-K, “we” and “our” refer to FelCor and its consolidated subsidiaries, unless otherwise indicated.

At December 31, 2005, we owned a 100% interest in 101 hotels, a 90% or greater interest in entities owing seven hotels, a 75% interest in an entity owning one hotel, a 60% interest in an entity owning two hotels and a 50% interest in entities owning 19 hotels. As the result of our ownership interests in the operating lessees of 125 of these hotels, we reflect their operating revenues and expenses in our consolidated statements of operations. The operating revenues and expenses of the remaining five hotels were reported on the equity method, four hotels were operated by 50% owned lessees and one hotel, in which we had a 50% ownership interest, was operated without a lease.

Our hotels included in continuing operations at December 31, 2005 were located in the United States (28 states) and Canada, with concentrations in Texas (25 hotels), California (19 hotels), Florida (15 hotels) and Georgia (12 hotels). We own the largest number of Embassy Suites Hotels and independently owned Doubletree-branded hotels. At December 31, 2005, we owned interests in 35 hotels that we had identified as non-strategic assets to be sold.

Our business is conducted in one reportable segment, which is hospitality. During 2005, we derived 98% of our revenues from hotels located within the United States and the balance from our Canadian hotels.

We seek to increase operating cash flow through aggressive asset management and the competitive positioning of our hotels, to maintain a sound and flexible capital structure, and to reposition our portfolio through the sale of non-strategic hotels, investment in capital expenditures at our existing hotels that we expect to provide a high return on investment and investment in newer, higher quality hotels in major urban and resort markets with greater growth potential. The hotels in which we may invest are expected to be affiliated with, or to benefit from affiliation with, one of the premium brands available to us.

At December 31, 2005, we had an aggregate of 62,972,039 shares and units outstanding, consisting of 60,209,499 shares of FelCor common stock and 2,762,540 units of limited partnership interest of FelCor LP not owned by FelCor.

Additional information relating to our hotels and our business, including the charters of our Corporate Governance and Nominating Committee, Compensation Committee and Audit Committee; our corporate governance guidelines; and our code of business conduct and ethics can be found on our website at www.felcor.com. Information relating to our hotels and our business can also be found in the Notes to Consolidated Financial Statements located elsewhere in this Annual Report on Form 10-K. Our annual, quarterly and current reports, and amendments to these reports, filed with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, or Exchange Act, are made available on our website, free of charge, under the “SEC Filings” tab on our “Investor Relations” page, as soon as practicable following their filing. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC atwww.sec.gov.

We submitted the certification of the Chief Executive Officer of FelCor required by Section 303A. 12(a) of the New York Stock Exchange, or NYSE, Listed Company Manual, relating to FelCor’s compliance with the NYSE’s corporate governance listing standards, to the NYSE on July 8, 2005 with no qualifications. We included the certifications of the Chief Executive Officer and Chief Financial Officer of FelCor required by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules, relating to the quality of FelCor’s public disclosure, in this Annual Report on Form 10-K as Exhibits 31.1 and 31.2.

Developments During 2005

We completed 2005 with a 10.8% increase in our hotel revenue per available room, or RevPAR, compared to 2004. This was the second year of RevPAR increases following an unprecedented consecutive three year decline in RevPAR that we had experienced prior to 2004. The fundamentals of the lodging industry appear to be strong, as evidenced by the national trend of increased RevPAR and increases in average daily room rates, or ADR, which represent a major portion of the increase in RevPAR. The increase in ADR also resulted in a 116 basis point increase in our Hotel Earnings Before Interest, Taxes, Depreciation and Amortization margin, or Hotel EBITDA margin, at our hotels in continuing operations. Hotel EBITDA margin is a commonly used non-GAAP measure described in more detail and reconciled to GAAP measures in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition in Item 7 of this Annual Report on Form 10-K.

During 2005, we reduced our debt outstanding by $92 million with the proceeds of asset sales, extinguishment of debt by the transfer of hotels to their non-recourse mortgage holder and the use of cash on hand. Through the issuance of $169 million of new 8% Series C redeemable preferred stock, we also retired all $169 million of our 9% Series B redeemable preferred stock.

Of the 26 hotels previously identified for sale at December 31, 2004, we sold 11 during 2005 for gross sale proceeds of $79 million and surrendered eight limited service hotels, owned by a consolidated joint venture, to their non-recourse mortgage holder for extinguishment of $49 million in debt.

In 2005, we re-established and paid a fourth quarter common dividend of $0.15 per share. We also paid preferred dividends of $1.95 per share on our Series A preferred stock, a pro rata $1.125 per depositary share on our Series B preferred stock for the period prior to retirement and a pro rata initial year preferred dividend of $1.6333 per depositary share on our Series C preferred stock.

In 2005, we started construction on our 184 unit Royale Palms condominium development in Myrtle Beach, South Carolina, which is expected to be completed in the summer of 2007. This project is over 90% pre-sold.

Recent Developments

Amendment to IHG Management Agreements

On January 24, 2006, we announced that we had executed an agreement modifying our management agreements covering our hotels managed by InterContinental Hotels Group, or IHG. This agreement will enable us to complete our repositioning program and create “New FelCor.”

The amendment to our IHG management agreements eliminates any potential liquidated damages and reinvestment requirement with respect to IHG-managed hotels previously sold, 30 additional IHG-managed hotels to be sold and one Crowne Plaza hotel to be converted to another brand. The management agreements on the remaining 17 IHG-managed hotels have been extended to 2025 and include a new management performance standard and restructured incentive fees.

In connection with this agreement, we have identified 11 Crowne Plaza hotels, 12 Holiday Inn-branded hotels, one Staybridge Suites hotel and an independent branded hotel as non-strategic assets for sale. These 25 hotels are in addition to five IHG-managed hotels previously identified as non-strategic. These non-strategic hotels include all of our Holiday Inn hotels that are located in secondary and tertiary markets, as well as 10 hotels in Texas. Hospitality Properties Trust, or HPT, purchased five of the non-strategic Crowne Plaza hotels, a Holiday Inn-branded hotel and the Staybridge Suites hotel in January 2006 for $160 million.

The 17 IHG-managed Holiday Inn-branded hotels that we are retaining are located in desirable markets that are primarily in urban locations in the Northeast, the East Coast and California. We have committed to special capital expenditure plans that total approximately $50 million at 11 of these hotels designed to maximize the value of these hotels.

The completion of the agreement with IHG enables us to sell our non-strategic hotels, use the proceeds to reduce debt and invest in high return-on-investment capital projects at our remaining core hotels. New FelCor will become a lower-leveraged company with a stronger and renovated portfolio. Our repositioned portfolio will provide us a solid platform for future growth in today’s strong RevPAR environment.

New FelCor

New FelCor, following the disposition of our remaining non-strategic hotels, will own 90 consolidated hotels, with 81% of its Hotel EBITDA derived from hotels in the upper upscale segment, that are located primarily in Top 25 and resort markets.

	•		The average Hotel EBITDA per room for our 90 core hotels is more than 2.5 times higher than our non-strategic hotels for the year ended December 31, 2005.

	•		Hotel EBITDA growth for the year ended December 31, 2005, for our 90 core hotels was 15%, as compared to only 1% for our non-strategic hotels.

	•		Hotel EBITDA margins for the year ended December 31, 2005, were 28% for our 90 core hotels compared to only 17% for our non-strategic hotels.

	•		High return capital projects should provide a boost to our future Hotel EBITDA growth.

Repositioning

At December 31, 2005, we had 35 non-strategic hotels for sale. These hotels are located primarily in secondary and tertiary markets, and include hotels in Texas and Atlanta, Georgia, where we had an excess concentration of hotels. Our repositioning strategy includes:

	•		The sale of seven hotels previously identified as non-strategic, including five IHG-managed hotels, one of which was sold in January 2005.

	•		The sale of 25 additional IHG-managed hotels, including the seven hotels sold to HPT in January 2006.

	•		The sale of three additional hotels not managed by IHG.

	•		Total proceeds from hotel sales are expected to be between $485 and $535 million, which is in addition to $15 million in proceeds from the sale of three hotels in December 2005, representing an EBITDA multiple of between 12 and 13 times 2005 Hotel EBITDA.

	•		The Crowne Plaza in San Francisco at Union Square will be converted to another brand by the end of 2006.

In connection with this repositioning, we recorded an impairment charge of $263 million in the fourth quarter of 2005 primarily associated with the amendment of the IHG agreements and our decision to sell additional non-strategic hotels.

Although the 35 non-strategic hotels represent 29% of our rooms at December 31, 2005, they only represent 14% of our Hotel EBITDA for 2005. The hotels to be sold have significantly lower RevPAR and Hotel EBITDA margins than our 90 core hotels. Following the sale of the 35 non-strategic hotels, New FelCor will have significantly lower exposure to markets with low barriers to entry, such as Atlanta, Dallas, Houston and Omaha, and will be more geographically diverse with no market contributing more than 6% of EBITDA. The sale hotels will be marketed through exclusive broker arrangements that are listed on our web site at www.felcor.com.

FelCor’s Consolidated Portfolio Summary at December 31, 2005


	Consolidated FelCor			Non-Strategic Hotels			New FelCor^(a)
Hotel count		125			35			90
Room count		36,132			10,595			25,537
Brands (hotel count):
Embassy Suites Hotels		54			1			53
Doubletree		9			2			7
Hilton		2			0			2
Sheraton/Westin		11			1			10
Holiday Inn		33			16			17
Crowne Plaza		12			11			0
Other		4			4			1

Total		125			35			90


(a) Assumes the conversion of the Crowne Plaza in San Francisco at Union Square to another brand

Operating Statistics (year ended December 31, 2005):
RevPAR	$	74		$	51		$	84
Hotel EBITDA (in millions)	$	305		$	42		$	263
Hotel EBITDA per room	$	8,452		$	3,992		$	10,302
Hotel EBITDA margin		25.2	%		16.6	%		27.6	%

Use of Proceeds/Capitalization

Total proceeds from the 35 non-strategic hotels identified for sale are expected to be between $485 and $535 million. The asset sales are expected to occur in 2006 and 2007 and the proceeds will be used primarily to invest in capital improvement projects at many of our core hotels and to pay down approximately $385 million of debt. This is in addition to proceeds of $15 million from the sale of three hotels in December 2005, used to pay down debt.

We plan to use approximately $100 to $150 million of the sales proceeds to fund capital improvement projects to be completed over the next 18 months. These projects are in addition to maintenance capital expenditures of approximately 5% of annual hotel revenues. These capital projects consist of adding meeting space and completing major renovations to hotels where we expect that additional rate and occupancy can be captured.

Additionally in January 2006, we re-established an unsecured $125 million line of credit, that will allow us to use our excess cash to fund additional high-return capital projects.

FelCor’s IHG-Branded Portfolio

The 17 core Holiday Inn-branded hotels being retained by us, including six Holiday Inn Select-branded hotels, are comprised of high quality hotels located on desirable real estate. We are also retaining our unconsolidated interest in the Chateau LeMoyne hotel located in New Orleans that is managed by IHG. These hotels have higher average Hotel EBITDA margins than the average of our current upper upscale, full service hotels. In addition, for the year ended December 31, 2005, these hotels earned almost twice the Hotel EBITDA per room generated by the non-strategic hotels to be sold.

FelCor’s IHG-Branded Portfolio Summary^(a)


	Core Holiday			Non-Strategic
	Inn Hotels			Hotels
Hotel count		17			30
Rooms count		6,300			9,084
Operating Statistics (year ended December 31, 2005):
RevPAR	$	73.05		$	50.39
Hotel EBITDA per room	$	8,129		$	4,083
Hotel EBITDA margin		24.2	%		17.1	%


(a)		Excludes the Crowne Plaza in San Francisco at Union Square that is to be converted to another brand.

The 17 core Holiday Inn-branded hotels are as follows:

Boston, MA — Beacon Hill, Holiday Inn Select
Charleston, SC — Mills House, Holiday Inn
Cocoa Beach, FL – Oceanfront, Holiday Inn
Houston, TX — Medical Center, Holiday Inn
Nashville, TN – Opryland, Holiday Inn Select
New Orleans, LA — French Quarter, Holiday Inn
Orlando, FL – Airport, Holiday Inn Select
Orlando, FL — International Drive, Holiday Inn
Philadelphia, PA — Historic District, Holiday Inn
Pittsburgh, PA — University Center, Holiday Inn Select
San Diego, CA — On the Bay, Holiday Inn
San Francisco, CA — Fisherman’s Wharf, Holiday Inn
Santa Barbara, CA — Holiday Inn
Santa Monica Beach, CA — At the Pier, Holiday Inn
San Antonio, TX – Airport, Holiday Inn Select
Toronto, Ontario, Canada – Airport, Holiday Inn Select
Toronto, Ontario, Canada – Yorkdale, Holiday Inn

Management Changes

In February 2006, we announced the appointment of Thomas J. Corcoran, Jr. as Chairman of the Board, Richard A. Smith as President and Chief Executive Officer and Andrew J. Welch as Executive Vice President and Chief Financial Officer. At the same time, we announced that Donald J. McNamara resigned his position as Chairman of the Board, but will remain on our Board of Directors, and that Michael D. Rose resigned from our Board of Directors. Mr. Rose’s position on the Board of Directors will be filled by Mr. Smith. In March 2006, we announced the appointment of Troy A. Pentecost as Executive Vice President and Director of Asset Management, replacing Jack Eslick. Mr. Corcoran co-founded FelCor in 1991 with Hervey Feldman and has served as President and Chief Executive Officer since our formation. Mr. Smith joined FelCor in 2004 as Executive Vice President and Chief Financial Officer. Mr. Welch was most recently Senior Vice President and Treasurer for FelCor. Mr. Pentecost was formerly with Remington Hotel Corporation.

The Industry

The industry experienced strong growth in 2005 as indicated by an 8.4% increase in RevPAR, continuing the momentum generated in 2004, according to Smith Travel Research, or STR, a leading provider of industry data. This increase stemmed from both additional room demand and a significant improvement in ADR. In 2005, the industry sold 3.3% more room nights than in 2004. Combined with only a slight increase (0.4%) of available room nights, the U.S. occupancy rate grew to 63.1%, the highest level since 2000. At $90.84, ADR surpassed the $90 hurdle for the first time in industry history.

Supply growth in lodging product, a significant lead indicator of the performance of existing lodging real estate, continues to stay benign. Since 2003, the average annual supply growth has been 0.8% compared to the long-term average of 2.1% from 1989 to 2005.

A number of industry sources predict that 2006 will see a continuation of the growth over the last two years. Macroeconomic Advisers forecasts Real Gross Domestic Product, or GDP adjusted for inflation, growth to be 3.8% in 2006 and 3.5% in 2007. This indication of the ongoing strength of the U.S. economy, both strong leisure and business travel demand and the limited new supply growth, causes us to look optimistically into the near future. STR predicts that 2006 occupancy levels – fueled by a 3.1% increase in demand and only a 1.2% increase in supply – will surpass 2000 levels and reach 64.3%. At the same time, ADR is expected to grow by 6.0% resulting in a RevPAR increase of 8.0%. PricewaterhouseCoopers, or PwC, another leading source of lodging data, predicts that the U.S. RevPAR will increase by 7.3% and 6.2% in 2006 and 2007 respectively. PwC also predicts that the lodging industry profits (measured in income before income taxes) will increase by 20.9% and surpass 2000 levels. However, these predicted growth rates are not uniform across the country and assume that no major external event such an act of terrorism or natural disaster affect the U.S. economy and the travel and lodging industries.

STR classifies hotel chains into six distinct categories: Luxury, Upper Upscale, Upscale, Midscale with Food & Beverage, Midscale without Food & Beverage, and Economy. We own properties in the Upper Upscale (including Doubletree Guest Suites, Doubletree, Embassy Suites Hotels, Sheraton and Westin hotels), Upscale (Crowne Plaza), and Midscale With Food & Beverage (Holiday Inn) categories, from which we derived approximately 99% of our EBITDA in 2005. More than 58% of our EBITDA in 2005 was derived from upper upscale all-suite hotels.

STR also categorizes hotels based upon their relative market positions, as measured by ADR, as Luxury, Upscale, Midprice, Economy and Budget. The following table contains information with respect to average occupancy (determined by dividing occupied rooms by available rooms), ADR and RevPAR for our hotels, as well as all Upscale U.S. hotels, all Midprice U.S. hotels and all U.S. hotels, as reported by STR, for the periods indicated.


	Year Ended December 31,
	2005			2004			2003			2002			2001
Number of FelCor Hotels		125			142			159			183			183
Occupancy:
FelCor hotels (1)		69.3	%		65.5	%		62.4	%		62.1	%		63.9	%
All Upscale U.S. hotels (2)		64.7			63.0			60.8			60.8			60.8
All Midprice U.S. hotels (3)		61.2			59.4			57.2			56.8			57.8
All U.S. hotels		63.1			61.3			59.2			59.0			59.7
ADR:
FelCor hotels (1)	$	107.18		$	99.07		$	94.92		$	96.84		$	102.18
All Upscale U.S. hotels (2)		99.39			94.05			90.55			90.47			91.87
All Midprice U.S. hotels (3)		73.26			69.81			67.54			67.96			69.76
All U.S. hotels		90.84			86.20			82.92			82.83			84.10
RevPAR:
FelCor hotels (1)	$	74.29		$	64.91		$	59.19		$	60.16		$	65.34
All Upscale U.S. hotels (2)		64.35			59.26			55.06			55.02			55.87
All Midprice U.S. hotels (3)		44.82			41.47			38.60			38.58			40.30
All U.S. hotels		57.34			52.88			49.07			48.87			50.24


(1)		Information is historical and includes discontinued operations.

(2)		This category includes hotels in the “upscale price level,” defined as hotels with ADRs in the 70th to 85th percentiles in their respective markets.

(3)		This category includes hotels in the “midprice level,” defined as hotels with ADRs in the 40th to 70th percentiles in their respective markets.

Business Strategy

We have identified three long-term strategic objectives: growth in our earnings; improvement in our return on invested capital; and a reduction in our overall financial leverage. In order to achieve these strategic objectives, our business strategy is to: dispose of non-strategic hotels; improve the competitive positioning of our core hotels through aggressive asset management and the judicious application of capital with the expectation of obtaining a high return on investment; and pay down debt through a combination of operational cash flow, the sale of non-strategic hotels and, if appropriate, other capital transactions. We continue to examine our portfolio to address market supply and concentration of risk issues. Additionally, we are considering external growth, through the acquisition of hotels, which does three things: increase long-term shareholder value, improve the quality of our portfolio and improve both our market distribution and future EBITDA growth.

Sale of Non-Strategic Hotels

Under the management agreements entered into with IHG in 2001 and amended in 2004, we were obligated to reinvest the net proceeds from the sale of IHG-managed hotels in other IHG-managed hotels or pay substantial liquidated damages to IHG. This potential exposure to liquidated damages made it impractical to sell IHG-managed hotels. In January 2006, we executed an agreement modifying our management agreements covering our hotels managed by IHG. This agreement eliminates any potential liquidated damages or reinvestment requirement with respect to hotels previously sold, IHG-managed hotels now identified for sale and one Crowne Plaza hotel to be converted to another brand. We can now seek to sell hotels that we have deemed non-strategic, which include our Crowne Plaza hotels, all of our Holiday Inn hotels in secondary and tertiary markets and hotels in markets where we have an excess concentration of hotels such as Texas and Atlanta, Georgia.

with IHG in January 2006. As a result of the agreement, we determined that it was more likely than not that certain hotels would be sold significantly before the end of their previously estimated useful life, triggering an impairment charge of $263 million, which was recorded as of December 31, 2005 with respect to 25 IHG-managed hotels, three hotels not managed by IHG and two IHG-managed hotels that we had previously designated as non-strategic.

At December 31, 2005, we had 35 hotels designated as non-strategic, substantially all of which we intend to sell in 2006 and 2007. Eight of these hotels were sold in January 2006.

Refined Investment Strategy

The completion of the agreement with IHG enables us to sell our non-strategic hotels and use the proceeds to reduce debt and invest in high return-on investment capital projects at our remaining core hotels. We currently plan on spending between $175 million and $200 million on hotel capital improvements in 2006. As we focus on improving our core portfolio through renovations and repositionings, our portfolio will be positioned to have above average growth. Any future acquisition efforts will be focused on higher quality hotels in markets with significant barriers to entry, such as central business districts and resort locations. Hotel brand and market segment will be secondary concerns when we are considering investment opportunities.

Improving the Competitive Positioning of Our Hotels

We seek to improve the competitive position of our hotels through aggressive asset management and the maintenance of strong relationships with our brand-owner managers. While REIT requirements prohibit us from directly managing our hotels, we work closely with our brand-owner managers to actively monitor and review hotel operations. We strongly urge our managers to implement best practices in expense management at our hotels, and we strive to influence brand strategy on marketing and revenue enhancement programs. Consistent with our commitment to position our hotels to best take advantage of the current recovery in the lodging industry, we have continued making both revenue enhancing and maintenance capital improvements at our hotels. During 2005, we spent $127 million on capital expenditures, including capital improvements made by our unconsolidated joint ventures, representing approximately 10% of total revenue. Additionally, in 2005, our repair and maintenance expense represented 6.9% of our hotel room revenue from continuing operations. We expect our 2006 capital expenditures will be between $175 and $200 million. We plan to use a portion of the proceeds from the sale of non-strategic hotels to fund capital projects such as adding meeting space or completing major renovations to hotels where we expect that additional rate and occupancy can be captured. Additionally, we have re-established an unsecured line of credit that will allow us to use excess cash to fund additional high-return capital projects.

Paydown of Debt

We are committed to pay down our debt, while maintaining short-term liquidity. In 2005, we reduced our consolidated debt by $92 million. We plan to use approximately $400 million of sale proceeds from non-strategic hotels to pay down debt. In January 2006, we used proceeds from the sale of eight hotels, cash on hand and a draw of $45 million under our line of credit to pay off our $225 million term loan.

At December 31, 2005, we had cash balances of $95 million. Our cash balances included approximately $31 million held under our hotel management agreements to meet our hotel minimum working capital requirements. We have no significant nonextendable debt maturities until 2007, when approximately $134 million in debt matures in excess of normal recurring principal payments. We will continue to seek opportunities to reduce our debt and our cost of capital on an economically sound basis.

Strategic Relationships

We benefit from our brand-owner and manager alliances with Hilton Hotels Corporation (Embassy Suites Hotels, Hilton and Doubletree), InterContinental Hotels Group PLC (Crowne Plaza and Holiday Inn) and Starwood Hotels & Resorts Worldwide, Inc. (Sheraton and Westin). These relationships enable us to work effectively with our managers to maximize Hotel EBITDA margins and operating cash flow from our hotels .

•		Hilton Hotels Corporation (www.hiltonworldwide.com) is recognized internationally as a preeminent hospitality company. Hilton develops, owns, manages or franchises approximately 2,300 hotels, resorts and vacation ownership properties. Its portfolio includes many of the world’s best known and most highly regarded hotel brands, including Hilton, Hilton Garden Inn, Doubletree, Embassy Suites Hotels, Conrad, Hampton Inn and Homewood Suites by Hilton, among others. Subsidiaries of Hilton managed 63 of our hotels at December 31, 2005. Hilton is a 50% partner in joint ventures with us in the ownership of 12 hotels and the management of residential condominiums, and is the holder of a 10% equity interest in certain of our consolidated subsidiaries owning six hotels.

•		InterContinental Hotels Group PLC (www.ichotelsgroup.com) of the United Kingdom is the world’s most global hotel company and the largest by number of rooms. IHG owns, manages, leases or franchises, through various subsidiaries, more than 3,600 hotels and 539,000 guest rooms in nearly 100 countries and territories around the world. IHG owns a portfolio of well recognized and respected hotel brands including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn, Holiday Inn Express, Holiday Inn Select, Staybridge Suites, Candlewood Suites, and also manages the world’s largest hotel loyalty program, Priority Club Rewards, with more than 27 million members worldwide. Building on more than 50 years of innovation, IHG has contributed to a wide-range of industry “firsts.” Among these innovations, IHG was the first hotel company to recognize and reward customer loyalty through a customer frequency program, Priority Club Rewards, and the first hotel company to receive reservations via the Internet. At December 31, 2005, subsidiaries of IHG managed 48 of our hotels and owned approximately 17% of our outstanding common stock.In February 2006, IHG sold substantially all of its holdings of our common stock.

•		Starwood Hotels & Resorts Worldwide, Inc. (www.starwoodhotels.com) is one of the leading hotel and leisure companies in the world with approximately 850 properties with 258,000 rooms in 95 countries. With internationally renowned brands, Starwood is a fully integrated owner, operator and franchisor of hotels and resorts including: St. Regis, The Luxury Collection, Sheraton, Westin, Four Points by Sheraton and W brands. Subsidiaries of Starwood managed 11 of our hotels at December 31, 2005. Starwood is a 40% joint venture partner with us in the ownership of two hotels and a 50% joint venture partner with us in the ownership of one hotel.

Competition

The hotel industry is highly competitive. Each of our hotels is located in a developed area that includes other hotel properties and competes for guests primarily with other full service and limited service hotels in its immediate vicinity and secondarily with other hotel properties in its geographic market. We believe that location, brand recognition, the quality of the hotel, the services provided, and price are the principal competitive factors affecting our hotels.

Environmental Matters

We customarily obtain a Phase I environmental survey from an independent environmental consultant before acquiring a hotel. The principal purpose of a Phase I survey is to identify indications of potential environmental contamination for which a property owner may have liability and, secondarily, to assess, to a limited extent, the potential for environmental regulatory compliance liabilities. The Phase I surveys of our hotels were designed to meet the requirements of the then current industry standards governing Phase I surveys, and consistent with those requirements, none of the surveys involved testing of groundwater, soil or air. Accordingly, they do not represent evaluations of conditions at the studied sites that would be revealed only through such testing. In addition, their assessment of environmental regulatory compliance issues was general in scope and was not a detailed determination of the hotel’s complete environmental compliance status. Similarly, the surveys did not involve comprehensive analysis of potential offsite liability. The Phase I survey reports did not reveal any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations, nor are we aware of any such liability. Nevertheless, it is possible that these reports do not reveal or accurately assess all environmental liabilities and that there are material environmental liabilities of which we are unaware.

We believe that our hotels are in compliance, in all material respects, with all federal, state, local and foreign laws and regulations regarding hazardous substances and other environmental matters, the violation of which could have a material adverse effect on us. We have not been notified by any governmental authority or

private party of any noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our current or former properties that we believe would have a material adverse effect on our business, assets or results of operations. However, obligations for compliance with environmental laws that arise or are discovered in the future may adversely affect our financial condition.

Tax Status

We elected to be taxed as a REIT under the federal income tax laws, commencing with our initial taxable year ended December 31, 1994. As a REIT, we generally are not subject to federal income taxation at the corporate level on taxable income that is distributed to our stockholders. We may, however, be subject to certain state and local taxes on our income and property. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income. In connection with our election to be taxed as a REIT, our charter imposes restrictions on the ownership and transfer of shares of our common stock. FelCor LP expects to make distributions on its units sufficient to enable us to meet our distribution obligations as a REIT. As a result of the passage of the REIT Modernization Act, in 2001 we acquired or terminated all of our hotel leases and contributed them to taxable REIT subsidiaries, or TRSs. These TRSs are subject to both federal and state income taxes. At December 31, 2005, our TRSs had a federal income tax loss carry forward of $419 million.

Employees

Thomas J. Corcoran, Jr., our Chairman of the Board of Directors, entered into a new employment agreement with us in February 2006 that continues in effect until February 1, 2011. Mr. Richard A. Smith, our President and Chief Executive Officer, entered into an employment agreement with us in February 2006 that continues into effect until February 1, 2008. Both Mr. Corcoran’s and Mr. Smith’s agreements automatically renew for successive one-year terms unless terminated by either party. All of our executive officers, including Messers. Corcoran and Smith, have change in control contracts that renew annually. We had 76 full-time employees at December 31, 2005.

All persons employed in the day-to-day operation of our hotels are employees of the management companies engaged by us and are not our employees.

Item 1A. Risk Factors

Certain statements and analyses contained in this Annual Report onForm 10-K, in our 2006 Annual Report to Shareholders, or that may in the future be made by, or be attributable to, us, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. All of such forward-looking statements are based upon present expectations and assumptions that may or may not actually occur. The following factors constitute cautionary statements identifying important factors, including material risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements or in our historical results. Each of the following factors, among others, could adversely affect our ability to meet the current expectations of management.

Future terrorist activities and United States military involvement in the Middle East and elsewhere may result in reducing business and leisure travel, which would reduce our revenues.

The terrorist attacks of September 11, 2001, caused a significant disruption in travel-related businesses in the United States. Consistent with the rest of the lodging industry, we experienced substantial declines in occupancy and ADR, due to a decline in both business and leisure travel in 2001 and the continued decline in business travel in 2002 and 2003. While the lodging industry experienced the beginnings of a recovery in 2004 and strong growth in 2005, another act of terrorism in the United States, protracted or expanded United States military involvement in the War on Terrorism, heightened “Threat Levels,” contractions in the airline industry, or increased security precautions making air travel more difficult could result in decreases in travel and our revenues. The factors described above, as well as other political or economic events, may adversely affect the lodging industry, including us, as a result of reduced public travel.

Our financial leverage is high.

At December 31, 2005, our consolidated debt of $1.7 billion represented 52% of our total market capitalization. The decline in our revenues and cash flow from operations during 2001, 2002 and 2003, have resulted in a reduction of our public debt ratings and may limit our access to additional debt capital. Our senior unsecured public notes currently are rated B1 by Moody’s Investors Service, and B by Standard & Poor’s, which are considered below investment grade. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs. Limitations upon our access to debt financing could adversely affect our ability to fund these activities and programs in the future.

We had increases in RevPAR in 2004 and 2005, but if RevPAR worsens, it could result in a continuation, or worsening, of our net losses and reduce our ability to pay dividends and service our debt.

Our financial leverage could have important consequences. For example, it could:

	•		limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes;

	•		require us to agree to additional restrictions and limitations on our business operations and capital structure to obtain additional financing;

	•		increase our vulnerability to adverse economic and industry conditions, as well as to fluctuations in interest rates;

	•		require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for capital expenditures, future business opportunities, the payment of dividends or other purposes;

	•		limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

	•		place us at a competitive disadvantage, compared to our competitors that have less debt.

We may be able to incur substantial debt in the future, which could increase the risk described above. The covenants under our $125 million line of credit would have allowed us to incur an additional $627 million of debt at December 31, 2005. Based upon our calculation of the limitations under our senior notes, described below, assuming additional debt was borrowed at a 7% annual interest rate and invested in assets generating annual Hotel EBITDA equal to 7% of their cost, at December 31, 2005, we could have incurred approximately $1.2 billion of additional indebtedness, all of which could have been secured indebtedness.

We have restrictive debt covenants that could adversely affect our ability to finance our operations or engage in other business activities.

The indentures governing our outstanding senior unsecured notes and agreements governing our line of credit contain various restrictive covenants and incurrence tests, including, among others, provisions that can restrict our ability to:

	•		incur any additional indebtedness if, after giving effect thereto, our consolidated indebtedness would exceed 60% of our adjusted total assets or our interest coverage ratio, as defined in the indentures, would be less than 2.0 to 1;

	•		incur any additional secured indebtedness or subsidiary debt if, after giving effect thereto, our consolidated secured indebtedness and subsidiary debt exceeds 40% of our adjusted total assets;

	•		make common and preferred distributions;

	•		make investments;

	•		engage in transactions with affiliates;

	•		incur liens;

	•		merge or consolidate with another person;

	•		dispose of all or substantially all of our assets; and

	•		permit limitations on the ability of our subsidiaries to make payments to us.

These restrictions may adversely affect our ability to finance our operations or engage in other business activities that may be in our best interest.

Under the terms of the indentures governing one of our outstanding senior notes, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indenture, exceeds 4.85 to 1. Although our current debt-to-EBITDA ratio is below that threshold, a decline in our EBITDA, or an increase in our debt could raise our ratio above the 4.85 to 1 threshold. Accordingly, we may be prohibited from purchasing any of our capital stock, except as permitted under limited exceptions, such as from the proceeds of a substantially concurrent issuance of other capital stock.

If actual operating results were to be significantly below our current expectations, as reflected in our public guidance, or if interest rates increase significantly more than we expect, 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 incurring additional indebtedness, except to repay or refinance maturing debt with debt of similar priority in the capital structure, and may be prohibited from, among other things, paying distributions on our preferred or common stock, except to the extent necessary to satisfy the REIT qualification requirement that we distribute currently at least 90% of our taxable income.

In January 2006, we established a new $125 million unsecured line of credit. This line of credit has certain restrictive covenants, such as a leverage ratio, fixed charge coverage ratio, an unencumbered leverage ratio and a maximum payout ratio.

The breach of any of these covenants and limitations under our line of credit could result in acceleration of amounts outstanding under our line of credit. Our failure to timely satisfy any judgment or recourse indebtedness, if in the amount of $10 million or more, could result in the acceleration of most of our unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.

Future or existing relationships may result in certain of our directors and officers having interests that conflict with ours.

Adverse tax consequences to affiliates upon a sale of certain hotels.Thomas J. Corcoran, Jr., our Chairman of the Board of Directors, and Robert A. Mathewson, a director, may incur additional tax liability if we sell our investments in six hotels that we acquired in July 1994 from partnerships in which they were investors. Consequently, our interests could differ from Messrs. Corcoran’s and Mathewson’s interests in the event that we consider a sale of any of these hotels. Decisions regarding a sale of any of these six hotels must be made by a majority of our independent directors.

Conflicts of interest.A director who has a conflict of interest with respect to an issue presented to our board will have no legal obligation to abstain from voting upon that issue. We do not have provisions in our bylaws or charter that require an interested director to abstain from voting upon an issue, and we do not expect to add provisions in our charter and bylaws to this effect. Although each director has a duty of loyalty to us, there is a risk that, should an interested director vote upon an issue in which he or one of his affiliates has an interest, his vote may reflect a bias that could be contrary to our best interests. In addition, even if an interested director abstains from voting, the director’s participation in the meeting and discussion of an issue in which he has, or companies with which he is associated have, an interest could influence the votes of other directors regarding the issue.

We are subject to the risks inherent in the hospitality industry.

The economic slowdown that ran from 2001 through 2003 had a significant adverse effect on our RevPAR performance and results of operations. If the current economic recovery does not continue, the effects on our financial condition could be material.We experienced declines in RevPAR, beginning in March 2001 through 2003. A sharp reduction in business travel was the primary cause of the RevPAR decline. The decreased occupancies led to declines in room rates, as hotels competed more aggressively for guests. Both of

these factors had a significant adverse effect on our RevPAR, Hotel EBITDA margins and results of operations. Primarily as a result of the concentration of our hotels in certain markets, the RevPAR performance of our hotels differ from the national average. The following table reflects the RevPAR changes experienced by our hotels, as a group on a same-store basis, compared to all U.S. hotels, as a group, for the past three calendar years.


	Change in RevPAR
	Year Ended December 31,
	2005	2004	2003
All FelCor hotels	+10.8%	+5.0%	–3.9%
All U.S. hotels	+8.4%	+7.8%	+0.4%

If the current economic recovery stalls, or if the lodging industry fails to benefit from the recovery for a protracted period of time, or if the markets in which we have significant concentrations should fail to participate in the continued recovery in the industry, our results of operations and financial condition could deteriorate.

Investing in hotel assets involves special risks.We have invested in hotel-related assets, and our hotels are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, and generally include:

	•		competition from other hotels;

	•		construction of more hotel rooms in a particular area than needed to meet demand;

	•		the current high cost of, and any further increases in, fuel costs and other travel expenses, inconveniences and other events that reduce business and leisure travel;

	•		adverse effects of declines in general and local economic activity;

	•		fluctuations in our revenue caused by the seasonal nature of the hotel industry;

	•		an outbreak of a pandemic disease affecting the travel industry;

	•		a downturn in the hotel industry; and

	•		risks generally associated with the ownership of hotels and real estate, as discussed below.

We could face increased competition.Each of our hotels competes with other hotels in its geographic area. A number of additional hotel rooms have been, or may be, built in a number of the geographic areas in which our hotels are located, which could adversely affect both occupancy and rates in the markets in which our hotels are located. A significant increase in the supply of Midprice, Upscale and Upper Upscale hotel rooms and suites, if demand fails to increase at least proportionately, could have a severe adverse effect on our business, financial condition and results of operations.

We face reduced coverages and increased costs of insurance.Our property insurance has a $100,000 all risk deductible, a deductible of 3% of insured value for named windstorm coverage and a deductible of 5% of insured value for California earthquake coverage. Should uninsured or not fully insured losses be substantial, they could have a material adverse impact on our operating results, cash flows and financial condition. Additional catastrophic losses, such as the losses caused by hurricanes Katrina, Rita and Wilma in 2005, could make the cost of insuring against these types of losses prohibitively expensive or difficult to find. In an effort to keep our cost of insurance within reasonable limits, we have only purchased terrorism insurance for those hotels that are secured by mortgage debt, as required by our lenders. Our terrorism insurance policies have both per occurrence and aggregate limits of $50 million with regard to 65 hotels. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 71 of our hotels. The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible.

We have geographic concentrations that may create risks from regional or local economic, seismic or weather conditions.At December 31, 2005, approximately 58% of our hotel rooms were located in, and 53% of our 2005 Hotel EBITDA was generated from, four states: California, Florida, Georgia and Texas. Additionally, at December 31, 2005, we had concentrations in four major metropolitan areas, Atlanta, the Los Angeles area, Dallas and Orlando, which together represented approximately 24% of our Hotel EBITDA for the year ended December 31, 2005. Therefore, adverse economic, seismic or weather conditions in these states or metropolitan areas will have a greater adverse effect on us than on the industry as a whole.

We had 35 hotels at December 31, 2005, substantially all of which we intend to sell in 2006 and 2007.We may be unable to sell these hotels at acceptable prices, or at all, within the proposed time frame. If we are unable to sell these hotels at anticipated prices, we may realize additional losses upon sale. Even if we are successful in selling these hotels as contemplated, if we fail to reinvest the net proceeds in a manner that will generate returns equal to, or better than, the hotels sold, our results of operations will be adversely affected.

We are subject to possible adverse effects of franchise and license agreement requirements. Substantially all of our hotels are operated under existing franchise or license agreements with nationally recognized hotel brands. Each agreement requires that the licensed hotel be maintained and operated in accordance with specific standards and restrictions in order to maintain uniformity within the franchisor system. Compliance with these standards, and changes in these standards, could require us to incur significant expenses or capital expenditures, which could adversely affect our results of operations and ability to pay dividends to our stockholders and service on our indebtedness.

If a franchise or license agreement terminates due to our failure to make required improvements, we may be liable to the brand manager or franchisor for a termination payment. These termination payments vary by agreement and hotel, but are generally measured by a multiple of between two and 8.2 times the annual fees received by the franchisor or brand manager. The loss of a substantial number of brand licenses could have a material adverse effect on our business because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the brand manager or franchisor. Our franchise agreements also expire or terminate, subject to certain specified renewal rights, at various times. As a condition of the renewal or extension of the franchise agreements, the brand owner may require the payment of substantial fees and may require substantial capital improvements to be made to the hotels for which we would be responsible. During the next five years, the franchise or license agreements applicable in respect of 15 of our hotels are scheduled to expire in accordance with their terms.

We are subject to the risks of brand concentration.We are subject to the potential risks associated with the concentration of our hotels under a limited number of brands. A negative public image or other adverse event that becomes associated with the brand could adversely affect hotels operated under that brand.

The following table reflects the percentage of Hotel EBITDA from our consolidated portfolio of 125 hotels included in continuing operations as of December 31, 2005, generated by hotels operated under each of the indicated brands during the year ended December 31, 2005:


			% of 2005
			Hotel
	Hotels		EBITDA
Embassy Suites Hotels		54		51	%
Holiday Inn-branded hotels		33		22
Sheraton-branded hotels		10		11
Doubletree-branded hotels		9		6
Crowne Plaza hotels		12		6
Other		7		4

Should any of these brands suffer a significant decline in popularity with the traveling public, it could adversely affect our revenues and profitability.

We are subject to the risks of hotel operations.Through our ownership of the lessees of our hotels, we are subject to the risk of fluctuating hotel operating expenses at our hotels, including, but not limited to:

	•		wage and benefit costs;

	•		repair and maintenance expenses;

	•		gas and electricity costs;

	•		insurance costs, including health, general liability and workers compensation; and

	•		other operating expenses.

In addition, we are subject to the risks of a decline in Hotel EBITDA margins, which occurs when hotel operating expenses increase disproportionately to revenues. These operating expenses and Hotel EBITDA margins are within the control of our brand-owner managers, over which we have limited control, resulting in an increased risk of volatility in our results of operations.

The lodging business is seasonal in nature.Generally, hotel revenues for our hotel portfolio 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.

We lack control over the management and operations of our hotels.We are dependent on the ability of independent third party managers to operate and manage our hotels. In order to maintain our REIT status, we cannot operate our hotels or any subsequently acquired hotels. As a result, we are unable to directly implement strategic business decisions for the operation and marketing of our hotels, such as decisions with respect to the setting of room rates, the salary and benefits provided to hotel employees, the conduct of food and beverage operations and similar matters.

Our ability to grow or sustain our business may be limited by our ability to attract debt or equity financing, and we may have difficulty accessing capital on attractive terms.

We may not be able to fund future growth and operations solely from cash provided from operating activities because of our obligation to distribute at least 90% of our taxable income each year to maintain our status as a REIT and any future decline in cash flow. Consequently, we may be forced to rely upon the proceeds of hotel sales or the availability of debt or equity capital to fund hotel acquisitions and necessary capital improvements, and we may be dependent upon our ability to attract debt financing from public or institutional lenders. The capital markets have been, and in the future may be, adversely affected by various events beyond our control, such as the United States’ military involvement in the Middle East and elsewhere, the terrorist attacks on September 11, 2001, the ongoing War on Terrorism by the United States and the bankruptcy of major companies. Similar events, such as an escalation in the War on Terrorism, new terrorist attacks, or additional bankruptcies in the future, as well as other events beyond our control, could adversely affect the availability and cost of capital for our business. We cannot assure you that we will be successful in attracting sufficient debt or equity financing to fund future growth and operations, or to pay or refinance existing debt, at an acceptable cost, or at all.

We own, and may acquire, interests in hotel joint ventures with third parties that expose us to some risk of additional liabilities or capital requirements.

We own, through our subsidiaries, interests in several real estate joint ventures with third parties. Joint ventures that are not consolidated into our financial statements owned a total of 19 hotels, in which we had an aggregate investment of $109 million, at December 31, 2005. The operations of 14 of these hotels are included in our consolidated results of operations due to our majority ownership of the lessees of these hotels. None of our directors or officers hold any interest in any of these ventures. Our joint venture partners are affiliates of Hilton with respect to 12 hotels, affiliates of Starwood with respect to one hotel, and private entities or individuals with respect to six hotels. The ventures and hotels were subject to non-recourse mortgage loans aggregating $204 million at December 31, 2005.

The personal liability of our subsidiaries under existing non-recourse loans secured by the hotels of our joint ventures is generally limited to the guaranty of the borrowing ventures’ personal obligations to pay for the lender’s losses caused by misconduct, fraud or misappropriation of funds by the ventures and other typical exceptions from the non-recourse covenants in the mortgages, such as those relating to environmental liability. We may invest in other ventures in the future that own hotels and have recourse or non-recourse debt financing. If a venture defaults under its mortgage loan, the lender may accelerate the loan and demand payment in full before taking action to foreclose on the hotel. As a partner or member in any of these ventures, our subsidiary may be exposed to liability for claims asserted against the venture, and the venture may not have sufficient assets or insurance to discharge the liability.

Our subsidiaries may not legally be able to control decisions being made regarding these ventures and their hotels. In addition, the hotels in a venture may perform at levels below expectations, resulting in the potential for insolvency of the venture unless the partners or members provide additional funds. In some ventures, the partners or members may elect to make additional capital contributions. We may be faced with the choice of losing our investment in a venture or investing additional capital in it with no guaranty of receiving a return on that investment.

As a REIT, we are subject to specific tax laws and regulations, the violation of which could subject us to significant tax liabilities.

The federal income tax laws governing REITs are complex.We have operated, and intend to continue to operate, in a manner that is intended to enable us to qualify as a REIT under the federal income tax laws. The REIT qualification requirements are extremely complicated, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we have been, or will continue to be, successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT.

Failure to make required distributions would subject us to tax.Each year, a REIT must pay out to its stockholders at least 90% of its taxable income, other than any net capital gain. To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible tax if the actual amount we pay out to our stockholders in a calendar year is less than the minimum amount specified under federal tax laws. FelCor’s only source of funds to make such distributions comes from distributions from FelCor LP. Accordingly, we may be required to borrow money or sell assets to enable us to pay out enough of our taxable income to satisfy the distribution requirements and to avoid corporate income tax and the 4% tax in a particular year.

Failure to qualify as a REIT would subject FelCor to federal income tax.If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax at regular corporate rates on our taxable income for any such taxable year for which the statute of limitations remains open. We might need to borrow money or sell hotels in order to obtain the funds necessary to pay any such tax. If we cease to be a REIT, we no longer would be required to distribute most of our taxable income to our stockholders. Unless our failure to qualify as a REIT was excused under federal income tax laws, we could not re-elect REIT status until the fifth calendar year following the year in which we failed to qualify.

A sale of assets acquired from Bristol Hotel Company, or Bristol, within ten years after the merger may result in us incurring corporate income tax.If we sell any asset acquired from Bristol within ten years after our 1998 merger with Bristol, and we recognize a taxable gain on the sale, we will be taxed at the highest corporate rate on an amount equal to the lesser of^:

	•		the amount of gain recognized at the time of the sale; or

	•		the amount of gain that we would have recognized if we had sold the asset at the time of the Bristol merger for its then fair market value.

The sales of Bristol hotels that have been made to date have not resulted in any material amount of tax liability to us. If we are successful in selling the hotels that we have designated as sale hotels, the majority of which are Bristol hotels, we could incur corporate income tax with respect to the related built-in gain.

Departure of key personnel would deprive us of the institutional knowledge, expertise and leadership they provide.

Our management includes the Chairman of the Board, currently Mr. Corcoran, the President and Chief Executive Officer, currently Mr. Smith, and four Executive Vice Presidents. The persons in these positions generally possess institutional knowledge about our organization and the hospitality or real estate industries, have significant expertise in their fields, and possess leadership skills that are important to our operations. The loss of any of our senior executive officers or Chairman of the Board could adversely affect our ability to execute our business strategy.

We are subject to the risks of real estate ownership, which could increase our costs of operations.

General Risks.Our investments in hotels are subject to the numerous risks generally associated with owning real estate, including among others:

	•		adverse changes in general or local economic or real estate market conditions;

	•		changes in zoning laws;

	•		increases in supply or competition;

	•		changes in traffic patterns and neighborhood characteristics;

	•		increases in assessed valuation and real estate tax rates;

	•		increases in the cost of property insurance;

	•		recent and future increases in the cost of wood, steel, concrete and other building materials, which increase the cost of renovations, expansions and new construction;

	•		costly governmental regulations and fiscal policies;

	•		the potential for uninsured or underinsured property losses;

	•		the potential that we are unable to meet all requirements under the Americans with Disabilities Act;

	•		the impact of environmental laws and regulations; and

	•		other circumstances beyond our control.

Moreover, real estate investments are relatively illiquid, and we may not be able to adjust our portfolio in a timely manner to respond to changes in economic and other conditions.

Compliance with environmental laws may adversely affect our financial condition.Owners of real estate are subject to numerous federal, state, local and foreign environmental laws and regulations. Under these laws and regulations, a current or former owner of real estate may be liable for the costs of remediating hazardous substances found on its property, whether or not it was responsible for their presence. In addition, if an owner of real property arranges for the disposal of hazardous substances at another site, it may also be liable for the costs of remediating the disposal site, even if it did not own or operate the disposal site. Such liability may be imposed without regard to fault or the legality of a party’s conduct and may, in certain circumstances, be joint and several. A property owner may also be liable to third parties for personal injuries or property damage sustained as a result of its release of hazardous or toxic substances, including asbestos-containing materials, into the environment. Environmental laws and regulations may require us to incur substantial expenses and limit the use of our properties. We could have substantial liability for a failure to comply with applicable environmental laws and regulations, which may be enforced by the government or, in certain instances, by private parties. The existence of hazardous substances on a property can also adversely affect the value of, and the owner’s ability to use, sell or borrow against, the property.

We cannot provide assurances that future or amended laws or regulations, or more stringent interpretations or enforcement of existing environmental requirements, will not impose any material environmental liability, or that the environmental condition or liability relating to the hotels will not be affected by new information or changed circumstances, by the condition of properties in the vicinity of such hotels, such as the presence of leaking underground storage tanks, or by the actions of unrelated third parties.

Compliance with the Americans with Disabilities Act may adversely affect our financial condition.Under the Americans with Disabilities Act of 1990, all public accommodations, including hotels, are required to meet certain federal requirements for access and use by disabled persons. Various state and local jurisdictions have also adopted requirements relating to the accessibility of buildings to disabled persons. We believe that our hotels substantially comply with the requirements of the Americans with Disabilities Act and other applicable laws. However, a determination that the hotels are not in compliance with these laws could result in liability for both governmental fines and payments to private parties. If we were required to make unanticipated major

modifications to our hotels to comply with the requirements of the Americans with Disabilities Act and other similar laws, it could adversely affect our ability to make distributions to our stockholders and to pay our obligations.

Our charter contains limitations on ownership and transfer of shares of our stock that could adversely affect attempted transfers of our capital stock.

To maintain our status as a REIT, no more than 50% in value of our outstanding stock may be owned, actually or constructively, under the applicable tax rules, by five or fewer persons during the last half of any taxable year. Our charter prohibits, subject to some exceptions, any person from owning more than 9.9%, as determined in accordance with the Internal Revenue Code and the Exchange Act, of the number of outstanding shares of any class of our stock. Our charter also prohibits any transfer of our stock that would result in a violation of the 9.9% ownership limit, reduce the number of stockholders below 100 or otherwise result in our failure to qualify as a REIT. Any attempted transfer of shares in violation of the charter prohibitions will be void, and the intended transferee will not acquire any right in those shares. We have the right to take any lawful action that we believe is necessary or advisable to ensure compliance with these ownership and transfer restrictions and to preserve our status as a REIT, including refusing to recognize any transfer of stock in violation of our charter.

Some provisions in our charter and bylaws and Maryland law make a takeover of us more difficult.

Ownership Limit.The ownership and transfer restrictions of our charter may have the effect of discouraging or preventing a third party from attempting to gain control of us without the approval of our board of directors. Accordingly, it is less likely that a change in control, even if beneficial to stockholders, could be effected without the approval of our board.

Staggered Board. Our board of directors is divided into three classes. Directors in each class are elected for terms of three years. As a result, the ability of stockholders to effect a change in control of us through the election of new directors is limited by the inability of stockholders to elect a majority of our board at any particular meeting.

Authority to Issue Additional Shares.Under our charter, our board of directors may issue up to an aggregate of 20 million shares of preferred stock without stockholder action. The preferred stock may be issued, in one or more series, with the preferences and other terms designated by our board that may delay or prevent a change in control of us, even if the change is in the best interests of stockholders. As of December 31, 2005, we had outstanding 12,880,475 shares of our Series A preferred stock and 67,980 shares, represented by 6,798,000 depositary shares, of our Series C preferred stock.

Maryland Takeover Statutes.As a Maryland corporation, we are subject to various provisions under the Maryland General Corporation Law, including the Maryland Business Combination Act, that may have the effect of delaying or preventing a transaction or a change in control that might involve a premium price for the stock or otherwise be in the best interests of stockholders. Under the Maryland business combination statute, some “business combinations,” including some issuances of equity securities, between a Maryland corporation and an “interested stockholder,” which is any person who beneficially owns 10% or more of the voting power of the corporation’s shares, or an affiliate of that stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Any of these business combinations must be approved by a stockholder vote meeting two separate super majority requirements, unless, among other conditions, the corporation’s common stockholders receive a minimum price, as defined in the statute, for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its common shares. Our charter currently provides that the Maryland Control Share Acquisition Act will not apply to any of our existing or future stock. That statute may deny voting rights to shares involved in an acquisition of one-tenth or more of the voting stock of a Maryland corporation. To the extent these or other laws are applicable to us, they may have the effect of delaying or preventing a change in control of us even though beneficial to our stockholders.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties ..

We own a diversified portfolio of nationally branded, upscale and full-service hotels managed principally by the brand owners, which are Hilton, IHG, and Starwood. We are competitively positioned, with a strong management team, brand manager alliances, diversified upscale and full-service hotels, and value creation expertise.

We consider our hotels, generally, to be high quality lodging properties with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in the markets in which they are located. Our hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups and conventions, as well as leisure travelers. The hotels generally feature comfortable, modern guest rooms, meeting and convention facilities and full-service restaurant and catering facilities. Our hotels included in continuing operations, are located in 28 states and Canada, and are situated primarily in major markets near airport, suburban or downtown areas. The following tables illustrate the distribution of our 125 consolidated hotels included in continuing operations at December 31, 2005.


								% of 2005 Hotel
Top Markets	Hotels		Rooms		% of Total Rooms			EBITDA^(a)
Atlanta		10		3,059		8	%		9	%
Los Angeles Area		6		1,435		4			6
Dallas		12		3,585		10			5
Orlando		6		2,219		6			4
Boca Raton/Ft. Lauderdale		4		1,118		3			4
San Francisco Bay Area		8		2,690		7			4
Minneapolis		4		955		3			4
New Orleans		2		746		2			3
Phoenix		3		798		2			3
Philadelphia		3		1,174		3			3
Chicago		4		1,239		3			3
Washington, D.C.		1		437		1			3
San Diego		1		600		2			3
San Antonio		4		1,188		3			3
Northern New Jersey		3		757		2			3
Houston		4		1,403		4			3
Top Four States
California		19		5,536		15			17
Texas		25		7,343		20			13
Florida		15		4,937		14			13
Georgia		12		3,413		9			10
Location
Suburban		55		13,860		38			39
Urban		30		9,799		27			26
Airport		26		8,181		23			22
Resort		13		4,044		11			13
Highway		1		248		1			0
Segment
Upscale all-suite		66		16,332		45			58
Full service		34		11,519		32			22
Upscale		23		7,843		22			19
Limited service		2		438		1			1

Core Hotels		90		25,537		71			87
Non-Strategic Hotels		35		10,595		29			13


(a)		A detailed description and computation of Hotel EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report on Form 10-K.

Our hotels have an average of approximately 290 rooms, with six hotels having 500 or more rooms. Although obsolescence arising from age and condition of facilities can adversely affect our hotels, we have spent approximately $500 million, in the aggregate, during the past six years to upgrade, renovate and/or redevelop our hotels to enhance or maintain their competitive position. We are committed to maintaining the high standards of our hotels. In 2005, we spent $112 million on consolidated hotel capital expenditures and spent 6.9% of our consolidated room revenue from continuing operations on maintenance and repair expense.

Hotel Brands

A key part of our business strategy is to have our hotels managed by one of our brand-owner manager alliances. Our hotels are operated under some of the nation’s most recognized and respected hotel brands. We maintain relationships with our brand owners, who also manage substantially all of our hotels. We are the owner of the largest number of Embassy Suites Hotels and independently owned Doubletree-branded hotels. The following table illustrates the distribution of our hotels among these premier brands at December 31, 2005.

Brand Distribution


					% of			% of 2005
Brand	Hotels		Rooms		Total Rooms			Hotel EBITDA
Embassy Suites Hotels		54		13,653		38	%		51	%
Holiday Inn-branded		33		11,356		31			22
Sheraton-branded		10		3,269		9			11
Doubletree-branded		9		2,019		6			6
Crowne Plaza^(a)		12		4,025		11			6
Other		7		1,810		5			4


(a)		Five of these hotels were sold subsequent to December 31, 2005, six have been identified for sale and one is scheduled for conversion to another brand.

Hotel Operating Statistics

The following tables set forth average historical occupied rooms, or Occupancy, ADR and RevPAR for the years ended December 31, 2005 and 2004, and the percentage changes therein between the periods presented for our consolidated hotels included in continuing operations:

Operating Statistics by Brand^(a)


	Occupancy (%)
	Year Ended December 31,
	2005		2004		% Variance
Embassy Suites Hotels		73.2		69.9		4.7
Holiday Inn-branded hotels		68.2		65.7		3.7
Sheraton-branded hotels		64.3		63.0		2.0
Doubletree-branded hotels		68.3		65.7		4.1
Crowne Plaza hotels		67.9		63.4		7.0
Other hotels		60.3		57.9		4.0

Total hotels		69.3		66.4		4.4


	ADR ($)
	Year Ended December 31,
	2005		2004		% Variance
Embassy Suites Hotels		122.84		117.48		4.6
Holiday Inn-branded hotels		89.07		83.25		7.0
Sheraton-branded hotels		109.88		98.38		11.7
Doubletree-branded hotels		111.78		105.39		6.1
Crowne Plaza hotels		100.03		93.83		6.6
Other hotels		97.94		91.79		6.7
Total hotels		107.18		100.94		6.2


			RevPAR ($)
	Year Ended December 31,
	2005		2004		% Variance
Embassy Suites Hotels		89.91		82.11		9.5
Holiday Inn-branded hotels		60.76		54.74		11.0
Sheraton-branded hotels		70.68		62.01		14.0
Doubletree-branded hotels		76.40		69.20		10.4
Crowne Plaza hotels		67.90		59.53		14.1
Other hotels		59.03		53.18		11.0
Total hotels		74.29		67.03		10.8


^(a)		Hotels have been excluded in both the current and prior year for those months directly impacted by hurricanes.

Operating Statistics for Our Top Markets^(a)


	Occupancy (%)
	Year Ended December 31,
	2005		2004		% Variance
Atlanta		72.8		68.5		6.3
Dallas		53.4		49.9		7.2
Los Angeles Area		74.0		71.5		3.5
Orlando		73.0		76.1		(4.1	)
Boca Raton/Ft. Lauderdale		77.1		78.6		(2.0	)
Minneapolis		70.7		68.0		4.1
Philadelphia		71.6		68.0		5.4
San Diego		81.6		80.9		0.8
Phoenix		72.4		69.7		4.0
San Antonio		75.5		70.0		7.9
Northern New Jersey		70.3		66.9		5.0
Chicago		73.0		69.7		4.6
San Francisco Bay Area		71.2		65.3		9.1
Houston		72.4		67.5		7.2
Washington, D.C.		74.3		73.3		1.4


	ADR ($)
	Year Ended December 31,
	2005		2004		% Variance
Atlanta		92.51		86.93		6.4
Dallas		95.31		90.98		4.8
Los Angeles Area		118.05		110.30		7.0
Orlando		85.06		77.32		10.0
Boca Raton/Ft. Lauderdale		129.89		113.85		14.1
Minneapolis		128.32		125.48		2.3
Philadelphia		118.52		105.99		11.8
San Diego		128.47		120.16		6.9
Phoenix		121.78		113.38		7.4
San Antonio		87.82		84.01		4.5
Northern New Jersey		138.67		135.32		2.5
Chicago		116.18		106.44		9.1
San Francisco Bay Area		115.72		112.44		2.9
Houston		74.31		68.87		7.9
Washington, D.C.		145.47		125.57		15.8


	RevPAR ($)
	Year Ended December 31,
	2005		2004		% Variance
Atlanta		67.33		59.50		13.2
Dallas		50.93		45.36		12.3
Los Angeles Area		87.32		78.84		10.8
Orlando		62.10		58.85		5.5
Boca Raton/Ft. Lauderdale		100.13		89.52		11.8
Minneapolis		90.77		85.30		6.4
Philadelphia		84.90		72.07		17.8
San Diego		104.86		97.26		7.8
Phoenix		88.21		78.97		11.7
San Antonio		66.29		58.79		12.8
Northern New Jersey		97.47		90.58		7.6
Chicago		84.75		74.22		14.2
San Francisco Bay Area		82.40		73.39		12.3
Houston		53.81		46.52		15.7
Washington, D.C.		108.09		91.99		17.5


^(a)		Hotels have been excluded in both the current and prior year for those months directly impacted by hurricanes.

Embassy Suites Hotels

Embassy Suites Hotels are upscale, full-service, all-suite hotels that cater to both business travelers and leisure guests. Part of the Hilton family of hotels, each Embassy Suites Hotel features convenient, value-added guest services and amenities including:

•		spacious two-room suites featuring a separate living area, private bedroom and a mini-kitchen;

•		two remote-controlled televisions, two telephones with voice mail and data ports, iron and ironing board, refrigerator, microwave oven, wet bar, and coffee maker in every suite;

•		complimentary, full cooked-to-order breakfast every morning;

•		complimentary beverages at two-hour managers’ receptions each evening, subject to local laws and regulations, in an atrium environment; and

•		business centers equipped with fax and copy machines.Doubletree and Doubletree Guest Suites Hotels

Doubletree hotels and Doubletree Guest Suites are, respectively, the full-service and all-suite hotel brands that provide all the conveniences travelers might expect, in a warm and welcoming environment. Part of the Hilton family, these brands offer comfortable accommodations, meeting facilities, exceptional dining options, health and fitness facilities, state-of-the art technology, and other amenities and services to both business and leisure travelers. These brands primarily serve major metropolitan areas and leisure destinations.

Holiday Inn Branded Hotels

The Holiday Inn brand is one of the most widely recognized lodging brands in the world, with nearly 1,500 properties worldwide. The brand offers today’s travelers dependability, friendly service and modern, attractive facilities at an excellent value. Holiday Inn hotels offer guests dependable services and amenities for both business and leisure travelers. Guests enjoy amenities such as restaurants and room service, relaxing lounges, swimming pools and fitness centers. Properties also feature guest rooms equipped with coffee makers, hair dryers and irons. Holiday Inn hotels also offer 24-hour business services and meeting facilities.

The Holiday Inn Select hotels provide business travelers with special services and amenities to make their stay as comfortable and productive as possible. All Holiday Inn Select hotels feature meeting facilities equipped with video conferencing capabilities, on-site meeting specialists, 24-business services and professional support, and outstanding guest rooms equipped for business. Holiday Inn Select hotels are located throughout North and South America near business centers and airports.

Crowne Plaza Hotels

Crowne Plaza hotels is the ideal hotel choice for small- to mid-sized business meetings and offers personalized service and one point of contact for hassle-free, successful meetings as “The Place To Meet.” Crowne Plaza hotels provide comfortably appointed guest rooms, upscale dining, quality fitness facilities, concierge services and full-service meeting rooms. With more than 230 hotels and 64,000 guest rooms in over 40 countries, Crowne Plaza hotels are located in major urban centers, gateway cities and resort destinations worldwide.

Sheraton and Sheraton Suites

With more than 400 hotels and resorts in over 70 countries, Sheraton Hotels & Resorts is the largest of the Starwood Hotels & Resorts Worldwide, Inc. brands. Located in the world’s most sought-after cities and resort destinations, Sheraton hotels serve the needs of both business and leisure travelers with unique programs and unusual amenities designed to make travel as hassle-free and enjoyable as possible.

At all Sheraton Hotels & Resorts, travelers will find full-service dining facilities and room service, on-site fitness centers with a swimming pool, on-site business services, laundry/valet services and meeting facilities for groups of all sizes. Guestrooms worldwide include generous work desks, televisions with cable/satellite channels and a complimentary newspaper delivered to the door daily.

Other Hotels

As of December 31, 2005, seven of our hotels were operated under brands other than described above, as follows:

	•		Hampton Inn (2 hotels);

	•		Harvey Suites (1 hotel);

	•		Hilton Hotel (1 hotel);

	•		Hilton Suites (1 hotel);

	•		Staybridge Suites (1 hotel); and

	•		Westin (1 hotel).

Hotel Portfolio

The following table sets forth certain descriptive information regarding the 130 hotels in which we owned an interest at December 31, 2005:

State

Rooms

% Owned^(a)

Brand

Consolidated Continuing Operations Core Hotels

Birmingham^(b)

242

Embassy Suites Hotel

Phoenix — Biltmore^(b)

232

Embassy Suites Hotel

Phoenix Crescent Hotel^(b)

342

Sheraton

Phoenix Tempe^(b)

224

Embassy Suites Hotel

Dana Point — Doheny Beach

195

Doubletree Guest Suites

Los Angeles — Anaheim (Located near Disneyland Park)^(b)

222

Embassy Suites Hotel

Los Angeles — Covina/I-10^(b)

202

Embassy Suites Hotel

Los Angeles — El Segundo — International Airport — South

349

Embassy Suites Hotel

Milpitas — Silicon Valley^(b)

266

Embassy Suites Hotel

Napa Valley^(b)

205

Embassy Suites Hotel

Oxnard — Mandalay Beach Resort & Conference Center

248

Embassy Suites Hotel

Palm Desert — Palm Desert Resort

198

Embassy Suites Hotel

San Diego — On the Bay

600

Holiday Inn

San Francisco — Burlingame Airport

340

Embassy Suites Hotel

San Francisco — South San Francisco Airport^(b)

312

Embassy Suites Hotel

San Francisco — Fisherman’s Wharf

585

Holiday Inn

San Francisco — Union Square

403

Crowne Plaza

San Rafael — Marin County/Conference Center^(b)

235

Embassy Suites Hotel

Santa Barbara — Goleta

160

Holiday Inn

Santa Monica — Beach at the Pier

132

Holiday Inn

Wilmington^(b)

244

Doubletree

Boca Raton^(b)

263

Embassy Suites Hotel

Cocoa Beach — Oceanfront

500

Holiday Inn

Deerfield Beach — Boca Raton/Deerfield Beach Resort^(b)

244

Embassy Suites Hotel

Ft. Lauderdale — 17th Street^(b)

358

Embassy Suites Hotel

Ft. Lauderdale — Cypress Creek^(b)

253

Sheraton Suites

Jacksonville — Baymeadows^(b)

277

Embassy Suites Hotel

Miami — International Airport^(b)

316

Embassy Suites Hotel

Orlando — International Airport^(b)

288

Holiday Inn Select

Orlando — International Drive — Resort

651

Holiday Inn

Orlando — International Drive South/Convention Center^(b)

244

Embassy Suites Hotel

Orlando— (North)

277

Embassy Suites Hotel

Orlando — Walt Disney World Resort

229

Doubletree Guest Suites

Tampa— On Tampa Bay^(b)

203

Doubletree Guest Suites

Atlanta — Airport^(b)

232

Embassy Suites Hotel

Atlanta — Buckhead^(b)

317

Embassy Suites Hotel

Atlanta — Galleria^(b)

278

Sheraton Suites

Atlanta — Gateway — Atlanta Airport

395

Sheraton

Atlanta — Perimeter Center^(b)

241

Embassy Suites Hotel

Brunswick

130

Embassy Suites Hotel

State

Rooms

% Owned^(a)

Brand

Chicago — Lombard/Oak Brook^(b)

262

Embassy Suites Hotel

Chicago — Northshore/Deerfield (Northbrook)^(b)

237

Embassy Suites Hotel

Chicago O’Hare Airport^(b)

297

Sheraton Suites

Indianapolis — North^(b)

221

Embassy Suites Hotel

Kansas City — Overland Park^(b)

199

Embassy Suites Hotel

Lexington^(b)

155

Sheraton Suites

Lexington — Lexington Green^(b)

174

Hilton Suites

Baton Rouge^(b)

223

Embassy Suites Hotel

New Orleans^(b)

372

Embassy Suites Hotel

New Orleans — French Quarter

374

Holiday Inn

Boston — Government Center

303

Holiday Inn Select

Boston — Marlborough^(b)

229

Embassy Suites Hotel

Baltimore — BWI Airport^(b)

251

Embassy Suites Hotel

Troy — North (Auburn Hills)^(b)

251

Embassy Suites Hotel

Bloomington^(b)

219

Embassy Suites Hotel

Minneapolis — Airport^(b)

310

Embassy Suites Hotel

St. Paul — Downtown^(b)

210

Embassy Suites Hotel

Kansas City — Plaza^(b)

266

Embassy Suites Hotel

Charlotte^(b)

274

Embassy Suites Hotel

Charlotte SouthPark

208

Doubletree Guest Suites

Raleigh^(b)

203

Doubletree Guest Suites

Raleigh — Crabtree^(b)

225

Embassy Suites Hotel

Parsippany^(b)

274

Embassy Suites Hotel

Piscataway — Somerset^(b)

222

Embassy Suites Hotel

Secaucus — Meadowlands^(b)

261

Embassy Suites Hotel

Tulsa — I-44

244

Embassy Suites Hotel

Philadelphia — Historic District

364

Holiday Inn

Philadelphia — Society Hill^(b)

365

Sheraton

Pittsburgh — At University Center (Oakland)^(b)

251

Holiday Inn Select

Charleston — Mills House (Historic Downtown)^(b)

214

Holiday Inn

Myrtle Beach — At Kingston Plantation

255

Embassy Suites Hotel

Myrtle Beach Resort

385

Hilton

Nashville — Airport/Opryland Area

296

Embassy Suites Hotel

Nashville — Opryland/Airport (Briley Parkway)

382

Holiday Inn Select

Austin^(b)

189

Doubletree Guest Suites

Austin — North^(b)

260

Embassy Suites Hotel

Corpus Christi^(b)

150

Embassy Suites Hotel

Dallas — DFW International Airport-South^(b)

305

Embassy Suites Hotel

Dallas — Love Field^(b)

248

Embassy Suites Hotel

Dallas — Market Center

244

Embassy Suites Hotel

Dallas — Park Central

536

Westin

Dallas — Park Central Area

279

Embassy Suites Hotel

Houston — Medical Center

284

Holiday Inn & Suites

San Antonio — International Airport^(b)

261

Embassy Suites Hotel

San Antonio — International Airport^(b)

397

Holiday Inn Select

San Antonio — N.W. I-10^(b)

216

Embassy Suites Hotel

Burlington Hotel & Conference Center^(b)

309

Sheraton

Vienna — At Tysons Corner^(b)

437

Sheraton

State

Rooms

% Owned^(a)

Brand

Canada

Toronto — Airport

Ontario

445

Holiday Inn Select

Toronto — Yorkdale

Ontario

370

Holiday Inn

Non-Strategic Hotels

Montgomery — East I-85

210

Holiday Inn

Irvine — Orange County Airport (Newport Beach)^(c)

335

Crowne Plaza

Milpitas — San Jose-North (Milpitas — Silicon Valley)^(c)

305

Crowne Plaza

Pleasanton (San Ramon Area)

244

Crowne Plaza

Denver — Aurora^(b)

248

Doubletree

Stamford

380

Holiday Inn Select

Miami — International Airport (LeJeune Center)

304

Crowne Plaza

Orlando— Nikki Bird (Maingate — Walt Disney World Area)

530

Holiday Inn

Atlanta — Airport^(c)

378

Crowne Plaza

Atlanta — Airport-North

493

Holiday Inn

Atlanta — Perimeter — Dunwoody

250

Holiday Inn Select

Atlanta — Powers Ferry^(c)

296

Crowne Plaza

Atlanta — South (I-75 & U.S. 41)

180

Holiday Inn

Columbus — North (I-185 at Peachtree Mall)

224

Holiday Inn

Chicago — The Allerton

443

Crowne Plaza

Minneapolis — Downtown

216

Embassy Suites Hotel

Kansas City — NE I-435 North (At Worlds of Fun)

165

Holiday Inn

Omaha — Central^(c)

129

Hampton Inn

Omaha — Central (I-80)

383

Holiday Inn

Omaha — Old Mill

223

Crowne Plaza

Philadelphia — Center City

445

Crowne Plaza

Knoxville — Central At Papermill Road

240

Holiday Inn

Amarillo — I-40

248

Holiday Inn

Austin — Town Lake (Downtown Area)

320

Holiday Inn

Dallas^(c)

295

Crowne Plaza Suites

Dallas — At Campbell Centre

300

Doubletree

Dallas — DFW International Airport-North

164

Harvey Suites

Dallas — Market Center

354

Crowne Plaza

Dallas — Park Central

438

Sheraton

Dallas — Park Central^(c)

114

Staybridge Suites

Dallas — West End/Convention Center

309

Hampton Inn

Houston — Greenway Plaza Area

355

Holiday Inn Select

Houston — I-10 West & Hwy. 6 (Park 10 Area)^(c)

349

Holiday Inn Select

Houston — Intercontinental Airport

415

Holiday Inn

San Antonio — Downtown (Market Square)

314

Holiday Inn

Unconsolidated Operations

Hays^(b)

114

Hampton Inn

Hays^(b)

191

Holiday Inn

Salina^(b)

192

Holiday Inn

Salina — I-70^(b)

Holiday Inn Express & Suites

New Orleans — Chateau LeMoyne (In French Quarter/Historic Area)^(b)

171

Holiday Inn


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

(b)		This hotel is encumbered by mortgage debt or capital lease obligation.

(c)		This hotel was sold in January 2006.

Management Agreements

The management agreements governing the operation of 68 of our hotels that are (i) managed by IHG or Starwood under brands owned by them, or (ii) managed by Hilton under the Doubletree or Hilton brands, contain the right and license to operate the hotels under the specified brands. No separate franchise agreements or payment of separate franchise fees are required for the operation of these hotels.

Management Fees and Performance Standards.Under the management agreements with IHG for 45 of our hotels operated under Holiday Inn and Crowne Plaza names, the TRS lessees generally pay IHG a basic management fee for each hotel equal to 2% of total revenue of the hotel plus 5% of the room revenue of the hotel (which is the equivalent of a franchise fee) for each fiscal month during the initial term and any renewal term. The minimum basic management fees owed under the other management agreements are generally as follows:

	•		Embassy Suites Hotels (54 hotels) — 2% of the hotel’s total revenue per month;

	•		Sheraton — Westin (11 hotels) — 2% of the hotel’s total revenue per month; and

	•		Doubletree (9 hotels) — between 2% and 3% of the hotel’s total revenue per month.

The IHG management agreements, as amended in January 2006, with regard to the 17 core IHG-managed hotels require the TRS lessees to pay an incentive management fee on a hotel by hotel basis measured as a percentage of hotel net operating income, as defined in the agreements. These incentive management fees for each hotel are subordinate to an 8.5% return on our investment basis in the hotel and limited to 2.5% of the hotel’s revenues. For the remainder of the IHG-managed hotels, the TRS lessees are required to pay an incentive management fee based on the performance of these hotels, considered in the aggregate. The incentive management fee is computed as a percentage of hotel profits in excess of specified returns to us, based on our investment basis in the managed hotels.

The management agreements with the other managers generally provide for an incentive management fee based on a percentage of the TRS lessee’s net income before overhead up to an additional 2% of revenues, on a hotel by hotel basis, or, an incentive management fee measured as a percentage of cash flow, subordinate to a 12% return on our investment basis in the hotel, subject to the same 2% of revenues maximum. The management fees we paid with respect to hotels in continuing operations during each of the past three years are as follows (in thousands):


	Management Fees Paid During
	Year Ended December 31,
Brand	2005		2004		2003
Holiday Inn	$	18,799	$	16,931	$	16,086
Crowne Plaza		7,571		6,695		6,366
Embassy Suites		10,199		9,617		9,815
Sheraton — Westin		4,877		4,721		4,243
Doubletree		1,933		1,770		1,707
Other		77		738		940

Total	$	43,456	$	40,472	$	39,157

Term and Termination.The management agreements with IHG terminate in 2007 for 31 hotels and 2025 for 17 hotels. The management agreements with the other managers generally have initial terms of between 5 and 20 years, and the agreements are generally renewable beyond the initial term for a period or periods of between 5 and 10 years only upon the mutual written agreement of the parties. The management agreements covering our hotels expire, subject to any renewal rights, as follows:


	Number of Management Agreements Expiring in
Brand	2006		2007		2008		2009		2010		Thereafter
Embassy Suites		19		9		4		11		9		2
Sheraton — Westin		0		0		1		0		0		10
Doubletree		0		3		2		0		0		4
Holiday Inn		0		16		0		0		0		17
Crowne Plaza		0		12		0		0		0		0
Other	1		3		0		0		0		2
Total	20		43		7		11		9		35

The management agreements are generally terminable upon the occurrence of standard events of default or if the hotel subject to the agreement fails to meet certain financial expectations. Upon termination by either party for any reason, the TRSs generally will pay all amounts due and owing under the management agreement through the effective date of termination. If an agreement is terminated as a result of a default by us, we may also be liable for damages suffered by the manager. Under the IHG management agreements, if we sell certain core hotels, we may be required to pay IHG a monthly replacement management fee equal to the existing fee structure for up to one year and liquidated damages or reinvest the sale proceeds into another hotel to be branded under an IHG brand. In addition, if a TRS breaches the agreement, resulting in a default and its termination, or otherwise causes or suffers a termination for any reason other than an event of default by IHG, the TRS may be liable for liquidated damages under the terms of the management agreement.

Assignment.Generally, neither party to the management agreements has the right to sell, assign or transfer the agreements to an unaffiliated third party without the prior written consent of the other party to the agreement, which consent shall not be unreasonably withheld. A change in control of either party will generally require the other’s consent, which may not be unreasonably withheld.

Franchise Agreements

Other than our 68 hotels, whose license to use a brand name are contained in the management agreement governing their operations, each of our remaining hotels operates under a separate franchise or license agreement. Of our 57 hotels that are operated under a separate franchise or license agreement, 54 are operated under the Embassy Suites Hotels brand.

The Embassy Suites Hotels franchise license agreements to which we are a party grant us the right to the use of the Embassy Suites Hotels name, system and marks with respect to specified hotels and establish various management, operational, record-keeping, accounting, reporting and marketing standards and procedures with which the licensed hotel must comply. In addition, the franchisor establishes requirements for the quality and condition of the hotel and its furnishings, furniture and equipment, and we are obligated to expend such funds as may be required to maintain the hotel in compliance with those requirements.

Typically, our Embassy Suites Hotels franchise license agreements provide for payment to the franchisor of a license fee or royalty of 4% of suite revenues. In addition, we pay approximately 3.5% of suite revenues as marketing and reservation system contributions for the systemwide benefit of Embassy Suites Hotels. The license fees we paid with respect to hotels in continuing operations, during each of the past three years are as follows (in thousands):


	License Fees Paid During
	Year Ended December 31,
Brand	2005		2004		2003
Embassy Suites Hotels	$	17,400	$	16,340	$	15,658
Other		492		493		529

Total	$	17,892	$	16,833	$	16,187

Our typical Embassy Suites Hotels franchise license agreement provides for a term of 20 years, but we have a right to terminate the license for any particular hotel on the 10th or 15th anniversary of the agreement upon payment by us of an amount equal to the fees paid to the franchisor with respect to that hotel during the two preceding years. The agreements provide us with no renewal or extension rights. The agreements are not assignable by us and a change in control of the franchisee will constitute a default on our part. In the event we breach one of these agreements, in addition to losing the right to use the Embassy Suites Hotels name for the operation of the applicable hotel, we may be liable, under certain circumstances, for liquidated damages equal to the fees paid to the franchisor with respect to that hotel during the three preceding years. Franchise license agreements covering 13 of our Embassy Suites Hotels expire within the next five years. Franchise license agreements covering our hotels expire as follows:


	Number of Franchise Agreements Expiring in
Brand	2006		2007		2008		2009		2010		Thereafter
Embassy Suites Hotels		0		7		1		4		1		41
Other⁽¹⁾	2		0		0		0		0		1
Total	2		7		1		4		1		42


⁽¹⁾		Included in “Other” are the following brands: Hampton Inn (2 hotels); and Hilton Suites (1 hotel).

Item 3. Legal Proceedings

At December 31, 2005, there was no litigation pending or known to be threatened against us or affecting any of our hotels, other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of these ordinary course of business claims are substantially covered by insurance. We do not believe that any claims known to us, individually or in the aggregate, will have a material adverse effect on us.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities

Market Information

Our common stock is traded on the New York Stock Exchange under the symbol “FCH.” The following table sets forth for the indicated periods the high and low sale prices for our common stock, as traded on that exchange.


	High		Low
2005
First quarter	$	14.99	$	12.20
Second quarter		14.75		11.78
Third quarter		16.40		14.20
Fourth quarter		17.59		13.27

2004
First quarter	$	12.60	$	9.92
Second quarter		12.30		9.50
Third quarter		12.35		10.50
Fourth quarter		14.97		10.92

Stockholder Information

At March 1, 2006, we had approximately 320 holders of record of our common stock and approximately 50 holders of record of our Series A preferred stock (which is convertible into common stock). It is estimated that there were approximately 8,500 beneficial owners, in the aggregate, of our common stock and Series A preferred stock at that date.

IN ORDER TO COMPLY WITH CERTAIN REQUIREMENTS RELATED TO OUR QUALIFICATION AS A REIT, OUR CHARTER LIMITS, SUBJECT TO CERTAIN EXCEPTIONS, THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE OWNED BY ANY SINGLE PERSON OR AFFILIATED GROUP TO 9.9% OF THE OUTSTANDING COMMON STOCK.

Distribution Information

In the fourth quarter of 2005, we resumed paying a common dividend, with a $0.15 per share dividend paid on December 1, 2005. We did not declare any dividends on FelCor’s common stock in 2004. We have continued to pay the full accrued dividends on our outstanding preferred stock.

Our current 2006 operating plan contemplates the continued payment of common and preferred stock dividends, assuming that our announced expectations of 2006 operating performance are met. This operating plan, and our policy regarding dividends, may change, depending upon our actual results of operations, our continued ability to meet the incurrence test under our outstanding senior notes, our success in selling non-strategic hotels and other factors. We currently expect our board of directors to consider the amount, if any, to be distributed on a quarterly basis in preferred and common dividends, based upon the actual operating results of that quarter, economic conditions and other operating trends. Accordingly, future distributions, if any, paid by us will be at the discretion of our board of directors and will depend on our actual cash flow, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as our board of directors deems relevant.

In order to maintain our qualification as a REIT, we must make annual distributions to our stockholders of at least 90% of our taxable income (which does not include net capital gains). For the year ended December 31, 2005, our common distribution represented approximately 81% return of capital. For the year ended December 31 2004, distributions to preferred stockholders satisfied our annual distribution requirements. Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet REIT distribution requirements. In that event, we presently would expect to borrow funds, or to sell assets for cash, to the extent necessary to obtain cash sufficient to make the distributions required to retain our qualification as a REIT for federal income tax purposes.

Issuances of Unregistered Securities

All issuances of unregistered securities have been previously reported.

Equity Compensation Plan Information

The following table sets forth as of December 31, 2005, information concerning our equity compensation plans, including the number of shares issuable and available for issuances under our plans, options, warrants and rights; weighted average exercise price of outstanding options, warrants and rights; and the number of securities remaining available for future issuance.

Equity Compensation Plan Information

Number of shares to be

issued upon

Weighted average

exercise of

exercise price of

Number of shares

outstanding options,

remaining available

Plan category

warrants and rights

for future issuance

Equity compensation plans approved by security holders:

Stock Options

1,465,257

23.41

Unvested Restricted Stock

753,468

Total

2,218,725

990,138

Item 6. Selected Financial Data

The following tables set forth selected financial data for us for the years ended December 31, 2005, 2004, 2003, 2002, and 2001 that has been derived from our audited financial statements and the notes thereto. This data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and notes thereto, appearing elsewhere in this Annual Report on Form 10-K.

SELECTED FINANCIAL DATA
(in thousands, except per share data)


	Year Ended December 31,
	2005			2004			2003			2002⁽¹⁾			2001
Statement of Operations Data:⁽²⁾
Total revenues	$	1,212,179		$	1,115,874		$	1,048,364		$	1,094,002		$	1,026,616
Net loss from continuing operations⁽³⁾		(262,906	)		(81,534	)		(148,326	)		(35,051	)		(50,800	)

Diluted earnings per share:
Net loss from continuing operations applicable to common stockholders	$	(5.20	)	$	(1.98	)	$	(2.99	)	$	(1.33	)	$	(1.43	)

Other Data:
Cash distributions declared per common share⁽⁴⁾	$	0.15		$	—		$	—		$	0.60		$	1.70
Funds From Operations⁽⁵⁾		(191,139	)		(30,608	)		(207,462	)		(60,018	)		105,492
EBITDA⁽⁵⁾		12,475			184,950			(532	)		150,024			353,435
Cash flows provided by operating activities		111,482			33,281			52,914			106,037			144,766

Balance Sheet Data (at end of period):
Total assets	$	2,919,093		$	3,317,658		$	3,590,893		$	3,780,363		$	4,079,485
Total debt, net of discount		1,675,280			1,767,122			2,037,355			1,877,134			1,938,408


(1)		Includes hotel revenue and expenses with respect to 88 hotels that were leased to IHG prior to July 1, 2001. Prior to acquisition of these leases, our revenues with respect to these 88 hotels were comprised mainly of percentage lease revenues. Accordingly, revenues, expenses and operating results for the year ended December 31, 2002, are not directly comparable to the same period in 2001.

(2)		All years prior to 2005 have been adjusted to reflect those hotels disposed of in 2005 or prior as discontinued operations.

(3)		Included in net loss from continuing operations are the following amounts (in thousands):


	Years Ended December 31,
	2005			2004			2003			2002			2001
Impairment loss	$	(263,091	)	$	(3,494	)	$	(74,160	)	$	(3,902	)	$	(3,022	)
Minority interest share of impairment loss		8,976			—			1,770			—			—
Charge-off of deferred debt costs		(2,659	)		(6,960	)		(2,834	)		(3,222	)		(1,270	)
Loss on early extinguishment of debt		(11,921	)		(44,216	)		—			—			—
Abandoned projects		265			—			—			(1,663	)		(837	)
Asset disposition costs		—			—			—			—			(36,604	)
Merger termination costs		—			—			—			—			(19,919	)
Merger related financing costs		—			—			—			—			(5,486	)
Gain (loss) on swap termination		—			1,005			—			—			(7,049	)
Gain on sale of assets		733			1,167			284			5,861			2,935


(4)		Commencing with the fourth quarter 2005, we reinstituted a common dividend. We had declared a quarterly common dividend on our common stock from our inception through 2002, but as a result of the uncertain geopolitical environment and soft business climate, together with the decline in margins resulting from continued declines in our portfolio’s average daily rate, our board of directors suspended the payment of dividends on our common stock in 2003 and 2004. We have, however, continued to pay the full accrued dividends on our outstanding preferred stock.

(5)		A more detailed description and computation of FFO and EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

Consistent with SEC guidance, FFO has not been adjusted for the following amounts included in net loss (in thousands):


	Year Ended December 31,
	2005			2004			2003			2002			2001
Impairment loss, continuing operations	$	(263,091	)	$	(3,494	)	$	(74,160	)	$	(3,902	)	$	(3,022	)
Impairment loss, discontinued operations		(3,660	)		(34,795	)		(171,349	)		(153,603	)		(3,978	)
Minority interest share of impairment loss		8,976			—			1,770			—			—
Charge-off of deferred debt costs		(2,659	)		(6,960	)		(2,834	)		(3,222	)		(1,270	)
Gain (loss) on early extinguishment of debt		(8,641	)		(44,216	)		1,611			—			—
Gain (loss) on swap termination		—			1,005			—			—			(7,049	)
Asset disposition costs		(1,300	)		(4,900	)		—			—			—
Abandoned projects		(265	)		—			—			(1,663	)		(837	)
Lease acquisition costs		—			—			—			—			(36,604	)
Merger termination costs		—			—			—			—			(19,919	)
Merger related financing costs		—			—			—			—			(5,486	)
Issuance costs of redeemed preferred stock		(6,522	)		—			—			—			—

Consistent with SEC guidance, EBITDA has not been adjusted for the following amounts included in net loss (in thousands):


	Years Ended December 31,
	2005			2004			2003			2002			2001
Impairment loss, continuing operations	$	(263,091	)	$	(3,494	)	$	(74,160	)	$	(3,902	)	$	(3,022	)
Impairment loss, discontinued operations		(3,660	)		(34,795	)		(171,349	)		(153,603	)		(3,978	)
Minority interest share of impairment loss		8,976			—			1,770			—			—
Charge-off of deferred debt costs		(2,659	)		(6,960	)		(2,834	)		(3,222	)		(1,270	)
Gain (loss) on early extinguishment of debt		(8,641	)		(44,216	)		1,611			—			—
Gain (loss) on swap termination		—			1,005			—			—			(7,049	)
Asset disposition costs		(1,300	)		(4,900	)		—			—			—
Abandoned projects		(265	)		—			—			(1,663	)		(837	)
Gain on sale of depreciable assets		12,124			19,422			2,668			5,861			—

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

During 2005, we reduced our debt outstanding by $92 million with the proceeds of asset sales, extinguishment of debt through the transfer of hotels to their non-recourse mortgage holder and the use of cash on hand. Through the issuance of $169 million of new 8% Series C redeemable preferred stock, we also retired all $169 million of our 9% Series B redeemable preferred stock.

Under the management agreements entered into with InterContinental Hotels Group, or IHG, in 2001 and amended in 2004, we were obligated to reinvest the net proceeds from the sale of IHG-managed hotels in other IHG-managed hotels or pay substantial liquidated damages to IHG. This potential exposure to liquidated damages made it impractical to sell IHG-managed hotels. In January 2006, we executed an agreement modifying our management agreements covering our hotels managed by IHG. This agreement eliminated any potential liquidated damages and reinvestment requirement with respect to hotels previously sold, IHG-managed hotels now identified for sale and one Crowne Plaza hotel to be converted to another brand. We are now able to sell hotels that we have determined to be non-strategic, which include all of our Holiday Inn hotels in secondary and tertiary markets and hotels in markets where we have an excess concentration of hotels, such as Texas and Atlanta, Georgia. As a result of our decision to seek to sell certain hotels, we determined that it was more likely than not that they would be sold significantly before the end of their previously estimated useful life, triggering an impairment charge of $263 million, which was recorded as of December 31, 2005 with respect to 25 IHG-managed hotels, three hotels not managed by IHG and two IHG-managed hotels that we had previously designated as non-strategic. At December 31, 2005, we had 35 hotels designated as non-strategic, substantially all of which we intend to sell in 2006 and 2007. Eight of these hotels were sold in January 2006.

Financial Comparison (in thousands, except RevPAR, Hotel EBITDA margin and percentage change)


	Years Ended December 31,
							% Change						% Change
	2005			2004			2005-2004			2003			2004-2003
RevPAR	$	74.29		$	67.03			10.8	%	$	63.81			5.0	%
Hotel EBITDA⁽¹⁾		305,380			268,079			13.9	%		248,725			7.8	%
Hotel EBITDA margin⁽¹⁾		25.2	%		24.1	%		4.6	%		23.7	%		1.7	%
Net loss from continuing operations⁽²⁾		(262,906	)		(81,534	)		222.4	%		(148,326	)		(45.0	)%
Funds From Operations (“FFO”)^{(1) (3)}		(191,139	)		(30,608	)		524.5	%		(207,462	)		(85.2	)%
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)^{(1) (4)}		12,475			184,950			(93.3	)%		(532	)		(348.7	)%


(1)		Included in the Financial Comparison are non-GAAP financial measures, including Hotel EBITDA, Hotel EBITDA 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 from continuing operations are the following amounts (in thousands):


	Years Ended December 31,
	2005			2004			2003
Impairment loss	$	(263,091	)	$	(3,494	)	$	(74,160	)
Minority interest share of impairment loss		8,976			—			1,770
Loss on early extinguishment of debt		(11,921	)		(44,216	)		—
Charge-off of deferred debt costs		(2,659	)		(6,960	)		(2,834	)
Abandoned projects		265			—			—
Gain on swap termination		—			1,005			—
Gain on sale of assets		733			1,167			284

(3)

Consistent with SEC guidance on non-GAAP financial measures, FFO has not been adjusted for the following amounts included in net loss (in thousands, except per share amounts).


	2005						2004						2003
				Per Share						Per Share						Per Share
	Dollars			Amount			Dollars			Amount			Dollars			Amount
Impairment loss, continuing operations	$	(263,091	)	$	(4.23	)	$	(3,494	)	$	(0.06	)	$	(74,160	)	$	(1.20	)
Impairment loss, discontinued operations		(3,660	)		(0.06	)		(34,795	)		(0.56	)		(171,349	)		(2.77	)
Minority interest share of impairment loss		8,976			0.14			—			—			1,770			0.03
Charge-off of deferred debt costs		(2,659	)		(0.04	)		(6,960	)		(0.10	)		(2,834	)		(0.05	)
Gain (loss) on early extinguishment of debt		(8,641	)		(0.14	)		(44,216	)		(0.71	)		1,611			0.03
Asset disposition costs		(1,300	)		(0.02	)		(4,900	)		(0.08	)		—			—
Abandoned projects		(265	)		—			—			—			—			—
Gain on swap termination		—			—			1,005			0.02			—			—

(4)

Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been adjusted for the following amounts included in net loss (in thousands).


	Years Ended December 31,
	2005			2004			2003
Impairment loss, continuing operations	$	(263,091	)	$	(3,494	)	$	(74,160	)
Impairment loss, discontinued operations		(3,660	)		(34,795	)		(171,349	)
Minority interest share of impairment loss		8,976			—			1,770
Charge off of deferred debt costs		(2,659	)		(6,960	)		(2,834	)
Gain (loss) on early extinguishment of debt		(8,641	)		(44,216	)		1,611
Gain on swap termination		—			1,005			—
Asset disposition costs		(1,300	)		(4,900	)		—
Abandoned projects		(265	)		—			—
Gain on sale of assets		12,124			19,422			2,668

RevPAR and Hotel Operating Margin

In 2005, we had our second consecutive year-over-year increase in RevPAR. For the year, our RevPAR increased 10.8% from $67.03 to $74.27. The increase in RevPAR consisted of a 4.4% increase in occupancy to 69.3% and a 6.2% increase in ADR. We attribute the increase in RevPAR largely to a nationwide lodging industry recovery and improvements from some major capital projects completed in 2004 and 2005. In 2005, a significant portion of the improvement in RevPAR came from an increase in ADR. We expect this trend of increasing RevPAR to continue in 2006 and further believe that improvements in ADR will continue to be a significant portion of the growth in RevPAR. This is significant to the lodging industry, because increases in room rate generally result in increases in Hotel EBITDA margins. We have seen a firming of Hotel EBITDA margin at our hotels, which improved from 24.1% in 2004 to 25.2% in 2005, and we expect to see further improvements in 2006 as ADR continues to be a significant factor in RevPAR improvement. We are focused on working with our brand managers to control the expense creep that generally occurs during the early years of a lodging industry recovery, to continue to improve our Hotel EBITDA margins.

Sale of Non-Strategic Hotels

Under the management agreements entered into with IHG in 2001 and amended in 2004, we were obligated to reinvest the net proceeds from the sale of IHG-managed hotels in other IHG-managed hotels or pay substantial liquidated damages to IHG. This potential exposure to liquidated damages made it impractical to sell IHG-managed hotels. In January 2006, we executed an agreement modifying our management agreements covering our hotels managed by IHG. This agreement eliminates any potential liquidated damages or reinvestment requirement with respect to hotels previously sold, IHG-managed hotels now identified for sale and one Crowne Plaza hotel to be converted to another brand. We can now seek to sell hotels that we have deemed non-strategic, which include all of our Holiday Inn hotels in secondary and tertiary markets and hotels in markets where we have an excess concentration of hotels, such as Texas and Atlanta, Georgia.

We began negotiating the amendment to our IHG management agreements in 2005. In October 2005, our Audit Committee conditionally approved an impairment charge on certain hotels, if and only if a definitive agreement with IHG was reached. We provided an update on the negotiations with IHG to our Executive Committee of the Board of Directors in December 2005, and at that time concluded that if a definitive agreement could be finalized, a material impairment charge would be necessary. We finalized the definitive agreement with IHG in January 2006, which enables us to sell certain IHG-managed hotels without liquidated damages or reinvestment requirements and removed the liquidated damage and reinvestment requirement for hotels already sold. As a result of the agreement, we determined that it was more likely than not that certain hotels would be sold significantly before the end of their previously estimated useful life, triggering an impairment charge of $263 million, which was recorded as of December 31, 2005 with respect to 25 IHG-managed hotels, three hotels not managed by IHG and two IHG-managed hotels that we had previously designated as non-strategic.

In connection with this agreement with IHG, seven hotels were sold to Hospitality Properties Trust, or HPT, in January 2006, for $160 million. These hotels, which will continue to be managed by IHG, consisted of five Crowne Plaza hotels, one Holiday Inn hotel and one Staybridge Suites hotel. Six of these hotels are located in markets where we had an excess concentration of hotels.

When testing for recoverability we generally use historical and projected cash flows over the expected hold period. When determining fair value for purposes of determining impairment we use a combination of historical and projected cash flows and other available market information, such as recent sales prices for similar assets in specific markets. The estimated cash flows used to test for recoverability are undiscounted while the cash flows used for determining fair values are discounted using a reasonable capitalization rate, or as earlier noted based on the local market conditions using recent sales of similar assets.

At December 31, 2005, we had 35 hotels designated as non-strategic, substantially all of which we intend to sell in 2006 and 2007. Eight of these hotels were sold in January 2006. These hotels are located primarily in secondary and tertiary markets, and include hotels in Texas and Atlanta, Georgia, where we had an excess concentration of hotels. Our repositioning strategy includes:

	•		The sale of seven hotels previously identified as non-strategic, including five IHG-managed hotels, one of which was sold in January 2006.

	•		The sale of 25 additional IHG-managed hotels, including the seven hotels sold to HPT in January 2006.

	•		The sale of three additional hotels not managed by IHG.

	•		Total proceeds from hotel sales are expected to be between $485 and $535 million representing an EBITDA multiple of between 12 and 13 times 2005 Hotel EBITDA.

	•		The Crowne Plaza in San Francisco at Union Square will be converted to another brand by the end of 2006.

Although the 35 non-strategic hotels represent 29% of our rooms at December 31, 2005, they only represent 14% of our Hotel EBITDA. The hotels to be sold have significantly lower RevPAR and Hotel EBITDA margins than our 90 core hotels. Following the sale of the 35 non-strategic hotels, we will have significantly lower exposure to markets with low barriers to entry, such as Atlanta, Dallas, Houston and Omaha, and will be more geographically diverse with no market contributing more than 6% of EBITDA.

Refined Investment Strategy

The completion of the agreement with IHG enables us to sell our non-strategic hotels and use the proceeds to reduce debt and invest in high return-on investment capital projects at our remaining core hotels. We currently plan on spending between $175 million and $200 million on hotel capital improvements in 2006. As we focus on improving our core portfolio through renovations and repositionings, we believe our portfolio will be positioned to have above average growth. Any future acquisition efforts will be focused on higher quality hotels in markets with significant barriers to entry, such as central business districts and resort locations. Hotel brand and market segment will be secondary concerns when we are considering investment opportunities.

Results of Operations

Comparison of the Years Ended December 31, 2005 and 2004

For the year ended December 31, 2005, we recorded a loss applicable to common stockholders of $298 million, compared to a loss of $135 million in 2004. We had a loss from continuing operations of $263 million compared to a prior year loss of $82 million. Contributing to 2005 loss from continuing operations were impairment charges of $263 million, $15 million related to the early retirement of debt and $6 million in losses from hurricanes.

Total revenue from continuing operations increased $96 million, or 8.7%, compared to the prior year. The increase in revenue is principally attributed to a 10.8% increase in RevPAR compared to 2004. The increase in RevPAR came from increases in both ADR and occupancy and represents increases in all of our top markets. The lodging industry nationwide continues to experience increased demand, but there have been only limited increases in room supply leading to strong improvements in RevPAR in most markets.

In 2005, 57% of our increased RevPAR was attributed to increases in ADR. Increased ADR typically improves Hotel EBITDA margin because the hotels are receiving more revenue for each guest. For 2005, our Hotel EBITDA margin improved 116 basis points over 2004.

Total operating expenses increased by $75 million but decreased as a percentage of total revenue from 91.4% to 90.3%. Hotel departmental expenses, which consist of rooms expense, food and beverage expense, and other operating departments, increased $19 million compared to 2004, but decreased as a percentage of total revenue from 35.9% to 34.6%. These costs are directly related to the number of hotel guests and should improve as a percentage of total revenue as rates increase.

Other property operating costs, which consist of general and administrative costs, marketing costs, repairs and maintenance, utilities expense, and other costs, increased $29 million compared to 2004, and increased as a percentage of total revenue from 29.0% to 29.1%. The slight increase as a percentage of total revenue was entirely related to increased utility expenses, and other costs remained constant or decreased as a percent of total revenue.

Management and franchise fees increased $4 million compared to 2004 and remained essentially the same as a percentage of total revenue.

Taxes, insurance and lease expense increased $13 million and increased as a percentage of total revenue from 9.8% to 10.1%. The increase as a percentage of total revenue was from property tax expense, percentage lease expense and general liability insurance. Property tax expenses increased in 2005 largely because of credits for prior year tax appeals that were recorded in 2004. Percentage lease expense is computed as a percentage of hotel revenues in excess of a base rent. Therefore, as revenues increase, percentage rent expense increases at a faster rate. General liability insurance reflects the nationwide trend of increases in rates.

Corporate expenses increased by $2 million compared to 2004 and remained essentially flat as a percentage of total revenue.

Depreciation expense increased by $7 million compared to 2004. The increase in depreciation expense reflects the large capital expenditures spent in 2004 and 2005.

Net interest expense decreased by $15 million in 2005 compared to 2004. The principal reason for the reduction in interest expense is attributed to reduction in average debt outstanding during 2005. Our average outstanding debt decreased by $178 million in 2005 compared to 2004. During 2004 we retired $775 million of senior notes and issued $524 million of senior notes and mortgage debt. In 2005, we further reduced our outstanding debt by $92 million.

In 2005, we recorded impairment charges, under the provisions of SFAS 144, of $266.8 million, $263.1 million of which was included in continuing operations at December 31, 2005 and the remainder was included in discontinued operations. The 2005 charges primarily related to our decision to designate as non-strategic and sell an additional 28 hotels, in connection with the negotiation of the amendment to our IHG management agreements. We also recorded impairment charges with respect to 11 hotels previously designated as non-strategic principally because of revised estimates of fair value.

In 2005, we incurred hurricane losses of $6 million compared to hurricane losses of $2 million incurred in 2004. The hurricane losses for both years represent our insurance deductibles and our best estimates of direct expenses related to these losses. In addition, associated with the 2005 hurricane losses, we anticipate approximately $5 million of business interruption proceeds to be collected and recorded to income in 2006.

During 2005, we incurred expenses of $15 million related to the early retirement of debt compared to $50 million in 2004. The early extinguishment of debt charges in 2005 related principally to secured debt that was retired on hotels that we have designated as non-strategic. The 2004 early retirement related principally to the early retirement of senior notes paying 10% interest.

Equity in income from unconsolidated entities was $10 million in 2005 compared to $17 million in 2004. Included in 2004 was an $11 million gain related to the sale of a residential condominium development in Myrtle Beach, South Carolina. Net income from unconsolidated ventures owning hotels increased in 2005 principally related to improvements in RevPAR.

Minority interest increased by $19 million in 2005 compared to 2004, principally resulting from FelCor LP’s minority interest in the impairment loss in 2005.

Discontinued operations provided net income of $11 million in 2005 compared to a loss of $19 million in 2004. Included in the 2004 loss in discontinued operations is a $35 million impairment loss. Included in discontinued operations are the results of operations of the 19 hotels disposed in 2005.

Preferred dividends increased by $4 million in 2005 compared to 2004. The principal reasons for this increase are attributed to the issuance of $160 million of Series A preferred stock in 2004 and the first full year of dividends in 2005.

In accordance with the Emerging Issues Task Force Topic D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” we have subtracted $7 million of the issuance costs of our redeemed Series B preferred stock from net income to determine net loss applicable to common stockholders for the calculation of net loss per share.

Comparison of the Years Ended December 31, 2004 and 2003

For the year ended December 31, 2004, we recorded a loss applicable to common stockholders of $135 million, compared to a loss in 2003 of $337 million. During 2004, our hotel operating revenue from continuing operations increased by $66 million, reflecting the 5% increase in RevPAR for the year. This RevPAR improvement came on the heels of an unprecedented three year decline in our RevPAR, which has resulted in hotel revenues remaining well below historical levels. Also contributing to the current year loss were: $50 million of net costs associated with the early retirement of $775 million in senior notes; $38 million of impairment charges on our hotels; a $5 million charge associated with the early termination of a hotel lease; $2 million of hurricane losses sustained in the third quarter at 13 of our hotels; and a gain of $12 million from the development and sale of the 251-unit Margate condominium tower at the Kingston Plantation in Myrtle Beach, South Carolina.

Our revenues from continuing operations for 2004 were $1.1 billion, which reflected a 6% increase, over 2003. The increase in revenues principally resulted from the 5% increase in hotel RevPAR. Our hotel portfolio occupancy increased by 3.1% over the prior year and its ADR increased by 1.7%. We attribute the increase in RevPAR to the general firming of the U.S. economy resulting in increased business travel, from which we derive a significant portion of out hotel business. Business travelers generally pay a higher room rate than other types of hotel guests and, as business travel increases, we are able to accept smaller amounts of lower room rate business.

Also contributing to the increase in revenues for 2004 was the acquisition in March 2004 of the Holiday Inn in Santa Monica, California, which contributed $5.4 million of our consolidated revenues in 2004.

The Hotel EBITDA margin of our hotels included in continuing operations at December 31, 2004, was 24.1% compared to 23.7% in 2003. The slight increase in Hotel EBITDA margin is attributed primarily to decreases in property tax and insurance expenses, which were largely offset by increased labor related costs. Property tax expense decreased in 2004, compared to 2003, largely from reductions in assessed values and resolution of prior years’ property tax appeals. The reduction in insurance expense, compared to the prior year, reflects the softening in the property insurance markets and reductions in general liability losses.

Our interest expense included in continuing operations decreased by 10%, to $148 million, as compared to 2003. The reduction in interest expense is related to a $270 million reduction in outstanding debt and a reduction in our weighted average interest rate by 23 basis points, compared to 2003. The change in debt outstanding and the reduction in average interest rate resulted principally from the following capital transactions:

•

We completed the early retirement of $775 million in senior notes:

	o		$600 million of senior notes maturing in 2008 that bore interest at 10%; and

	o		$175 million of senior notes maturing in October 2004;

	•		We issued $290 million of floating rate senior notes;

	•		We issued $234 million in mortgage debt; and

	•		We issued $160 million of convertible preferred stock.

In 2004, we recorded impairment charges, under the provisions of SFAS 144, of $38 million, $4 million of which is included in continuing operations and the remainder is included in discontinued operations. The 2004 charges related to 17 hotels. With respect to one hotel, we entered into an option in the third quarter 2004 that would permit the option holder to purchase the hotel for substantially less than its carrying value. The remaining hotels either had revised estimates of fair value or reduced estimated holding periods.

During 2004, we completed the early retirement of $775 million of senior notes. Associated with this early retirement, we recorded a charge-off of deferred financing costs of $7 million, a loss on early retirement of debt (representing the premium paid at retirement) of $44 million, and we had a gain of $1 million related to the termination of an interest rate swap on a portion of these notes.

Equity in income from unconsolidated entities increased $15 million compared to 2003. The principal component of this increase was our portion of the gain on the development and sale of the Margate condominium tower at the Kingston Plantation in Myrtle Beach, South Carolina, by an unconsolidated entity in which we owned a 50% interest.

Included in the loss from discontinued operations are the results of operations of the 19 hotels disposed in 2005 and the 18 hotels disposed in 2004.

Non-GAAP Financial Measures

We refer in this annual report on Form 10-K to certain “non-GAAP financial measures.” These measures, including FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with generally accepted accounting principles, or GAAP. The following tables reconcile each of these non-GAAP measures to the most comparable GAAP financial measure. Immediately following the reconciliations, we include a discussion of why we believe these measures are useful supplemental measures of our performance and of the limitations upon such measures.

The following tables detail our computation of FFO (in thousands, except for per share data):

Reconciliation of Net Loss to FFO
(in thousands, except per share data)


	Year Ended December 31,
	2005								2004								2003
						Per Share								Per Share								Per Share
	Dollars			Shares		Amount			Dollars			Shares		Amount			Dollars			Shares		Amount
Net loss	$	(251,615	)						$	(100,127	)						$	(310,144	)
Issuance costs of redeemed preferred stock		(6,522	)
Preferred dividends		(39,408	)							(35,130	)							(26,908	)

Net loss applicable to common stockholders		(297,545	)		59,436	$	(5.01	)		(135,257	)		59,045	$	(2.29	)		(337,052	)		58,657	$	(5.75	)
Depreciation from continuing operations		119,323					2.01			111,836					1.89			116,710					1.99
Depreciation from unconsolidated entities and discontinued operations		12,884					0.22			18,916					0.32			33,325					0.57
Gain on sale of assets		(12,124	)				(0.20	)		(19,422	)				(0.33	)		(2,668	)				(0.05	)
Minority interest in FelCor LP		(13,677	)		2,778		(0.09	)		(6,681	)		2,939	$	(0.08	)		(17,777	)		3,188		(0.11	)

FFO	$	(191,139	)		62,214	$	(3.07	)	$	(30,608	)		61,984	$	(0.49	)	$	(207,462	)		61,845	$	(3.35	)


	Year Ended December 31,
	2002								2001
						Per Share								Per Share
	Dollars			Shares		Amount			Dollars			Shares		Amount
Net loss	$	(178,581	)						$	(39,276	)
Preferred dividends		(26,292	)							(24,600	)

Net loss applicable to common stockholders		(204,873	)		54,173	$	(3.78	)		(63,876	)		52,622	$	(1.21	)
Depreciation from continuing operations		123,758					2.28			131,232					2.49
Depreciation from unconsolidated entities and discontinued operations		40,675					0.75			37,342					0.71
Gain on sale of assets		(5,861	)				(0.11	)		—					—
Preferred dividends		—					—			11,662			4,636		2.52
Stock options and unvested restricted shares		—					—			—			404		—
Minority interest in FelCor LP		(13,717	)		7,564		(0.11	)		(10,868	)		9,013		(2.93	)

FFO	$	(60,018	)		61,737	$	(0.97	)	$	105,492			66,675	$	1.58

Consistent with SEC guidance on non-GAAP financial measures, FFO has not been adjusted for the following amounts included in net income (loss) (in thousands, except for per share amounts):


	Year Ended December 31,
	2005						2004						2003						2002						2001
				Per						Per						Per						Per						Per
				Share						Share						Share						Share						Share
	Dollars			Amount			Dollars			Amount			Dollars			Amount			Dollars			Amount			Dollars			Amount
Impairment loss, continuing operations	$	(263,091	)	$	(4.23	)	$	(3,494	)	$	(0.06	)	$	(74,160	)	$	(1.20	)	$	(3,902	)	$	(0.06	)	$	(3,022	)	$	(0.05	)
Impairment loss, discontinued operations		(3,660	)		(0.06	)		(34,795	)		(0.56	)		(171,349	)		(2.77	)		(153,603	)		(2.49	)		(3,978	)		(0.06	)
Minority interest share of impairment loss		8,976			0.14			—			—			1,770			0.03			—			—			—			—
Charge-off of deferred debt costs		(2,659	)		(0.04	)		(6,960	)		(0.10	)		(2,834	)		(0.05	)		(3,222	)		(0.05	)		(1,270	)		(0.02	)
Gain (loss) on early extinguishment of debt		(8,641	)		(0.14	)		(44,216	)		(0.71	)		1,611			0.03			—			—			—			—
Gain from swap termination		—			—			1,005			0.02			—			—			—			—			(7,049	)		(0.11	)
Abandoned projects		(265	)		—			—			—			—			—			(1,663	)		(0.03	)		(837	)		(0.01	)
Asset disposition costs		(1,300	)		(0.02	)		(4,900	)		(0.08	)		—			—			—			—			(36,604	)		(0.55	)
Merger termination costs		—			—			—			—			—			—			—			—			(19,919	)		(0.30	)
Merger related financing costs		—			—			—			—			—			—			—			—			(5,486	)		(0.08	)
Issuance costs of redeemed preferred stock		(6,522	)		(0.10	)		—			—			—			—			—			—			—			—

The following table details our computation of EBITDA (in thousands):

Reconciliation of Net Loss to EBITDA
(in thousands)


	Year Ended December 31,
	2005			2004			2003			2002			2001
Net loss	$	(251,615	)	$	(100,127	)	$	(310,144	)	$	(178,581	)	$	(39,276	)
Depreciation from continuing operations		119,323			111,836			116,710			123,758			131,232
Depreciation from unconsolidated entities and discontinued operations		12,884			18,916			33,325			40,675			37,342
Merger termination costs		—			—			—			—			19,919
Merger financing costs		—			—			—			—			5,486
Lease acquisition costs		—			—			—			—			36,604
Interest expense		135,054			148,430			165,064			164,368			159,221
Interest expense from unconsolidated entities and discontinued operations		7,602			9,631			10,080			11,433			11,682
Amortization expense		2,904			2,945			2,210			2,088			2,093
Minority interest in FelCor LP		(13,677	)		(6,681	)		(17,777	)		(13,717	)		(10,868	)

EBITDA	$	12,475		$	184,950		$	(532	)	$	150,024		$	353,435

Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been adjusted for the following amounts included in net loss (in thousands):


	Year Ended December 31,
	2005			2004			2003			2002			2001
Impairment loss, continuing operations	$	(263,091	)	$	(3,494	)	$	(74,160	)	$	(3,902	)	$	(3,022	)
Impairment loss, discontinued operations		(3,660	)		(34,795	)		(171,349	)		(153,603	)		(3,978	)
Minority interest share of impairment loss		8,976			—			1,770			—			—
Charge-off of deferred debt costs		(2,659	)		(6,960	)		(2,834	)		(3,222	)		(1,270	)
Gain (loss) on early extinguishment of debt		(8,641	)		(44,216	)		1,611			—			—
Gain (loss) from swap termination		—			1,005			—			—			(7,049	)
Asset disposition costs		(1,300	)		(4,900	)		—			—			—
Abandoned projects		(265	)		—			—			(1,663	)		(837	)
Gain on sale of assets		12,124			19,422			2,668			5,861			—

Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)


	Year Ended December 31,
	2005			2004			2003
Continuing Operations
Total revenue	$	1,212,179		$	1,115,874		$	1,048,364
Retail space rental and other revenue		(2,049	)		(2,721	)		(1,022	)

Hotel revenue		1,210,130			1,113,153			1,047,342
Hotel operating expenses		(904,750	)		(845,074	)		(798,617	)

Hotel EBITDA	$	305,380		$	268,079		$	248,725

Hotel EBITDA margin⁽¹⁾		25.2	%		24.1	%		23.7	%


⁽¹⁾		Hotel EBITDA as a percentage of hotel revenue.

Hotel Operating Expense Composition
(dollars in thousands)


	Year Ended December 31,
	2005			2004			2003
Continuing Operations
Hotel departmental expenses:
Room	$	253,563		$	238,807		$	219,399
Food and beverage		135,558			132,561			123,736
Other operating departments		30,356			29,028			24,311
Other property related costs:
Administrative and general		115,394			106,780			99,876
Marketing and advertising		103,807			96,465			90,881
Repairs and maintenance		67,359			62,494			59,384
Energy		66,510			57,848			53,470
Taxes, insurance and lease expense		70,855			63,786			72,215

Total other property related costs		843,402			787,769			743,272
Management and franchise fees		61,348			57,305			55,345

Hotel operating expenses	$	904,750		$	845,074		$	798,617

Reconciliation of total operating expense to hotel operating expense:
Total operating expenses	$	1,094,694		$	1,019,469		$	970,174
Unconsolidated taxes, insurance and lease expense		5,673			5,737			6,846
Consolidated hotel lease expense		(57,004	)		(51,261	)		(47,460	)
Abandoned projects		(265	)		—			—
Corporate expenses		(19,025	)		(17,035	)		(14,233	)
Depreciation		(119,323	)		(111,836	)		(116,710	)

Hotel operating expenses	$	904,750		$	845,074		$	798,617

Reconciliation of Net Loss to Hotel EBITDA
(in thousands)


	Year Ended December 31,
	Actual			Actual			Actual
	2005			2004			2003
Net loss	$	(251,615	)	$	(100,127	)	$	(310,144	)
Discontinued operations		(11,291	)		18,593			161,818
Equity in income from unconsolidated entities		(10,169	)		(17,121	)		(2,370	)
Minority interests		(23,813	)		(5,229	)		(10,632	)
Consolidated hotel lease expense		57,004			51,261			47,460
Unconsolidated taxes, insurance and lease expense		(5,673	)		(5,737	)		(6,846	)
Interest expense, net		130,954			145,666			162,808
Impairment loss		263,091			3,494			74,160
Hurricane loss		6,481			2,125			—
Loss on early extinguishment of debt		11,921			44,216			—
Charge-off of deferred financing costs		2,659			6,960			2,834
Gain on swap termination		—			(1,005	)		—
Corporate expenses		19,025			17,035			14,233
Depreciation		119,323			111,836			116,710
Retail space rental and other revenue		(2,049	)		(2,721	)		(1,022	)
Abandoned projects		265			—			—
Gain on sale of assets		(733	)		(1,167	)		(284	)

Hotel EBITDA	$	305,380		$	268,079		$	248,725

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


	Year Ended December 31,
	Actual			Actual			Actual
	2005			2004			2003
Ratio of operating income to total revenues		9.7	%		8.6	%		7.5	%
Retail space rental and other revenue		(0.2	)		(0.2	)		(0.1	)
Unconsolidated taxes, insurance and lease expense		(0.4	)		(0.5	)		(0.7	)
Consolidated lease expense		4.7			4.6			4.5
Corporate expenses		1.6			1.5			1.4
Depreciation		9.8			10.1			11.1

Hotel EBITDA margin		25.2	%		24.1	%		23.7	%

Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures, including FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a REIT’s performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.

FFO and EBITDA

The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do.

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

Hotel EBITDA and Hotel EBITDA Margin

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and operating managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin is useful to investors by providing greater transparency with respect to two significant measures used by us in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating corporate-level expenses, depreciation and expenses related to our capital structure. We eliminate corporate-level costs and expenses because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management in running our business on a property-level basis. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, we do not believe that these non-cash expenses, which are based on historical cost accounting for real estate assets, and implicitly assume that the value of real estate assets diminishes predictably over time, accurately reflect an adjustment in the value of our

assets. To enhance the comparability of our hotel-level operating results with other hotel REITs and hotel owners, we are now disclosing Hotel EBITDA and Hotel EBITDA margin rather than the hotel operating profit and hotel operating margin previously disclosed. The purpose of the change is to remove any distortion created by unconsolidated entities and to reflect hotel-level operations as if they were fully consolidated. To reflect this, we eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by minority interest expense and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our hotels.

Use and Limitations of Non-GAAP Measures

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

The use of these non-GAAP financial measures has certain limitations. FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, as presented by us, may not be comparable to FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin as calculated by other real estate companies. These measures do not reflect certain expenses that we incurred and will incur, such as depreciation, interest and capital expenditures. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, FFO per share or EBITDA be considered as measures of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions or service our debt. FFO per share does not measure, and should not be used as a measure of, amounts that accrue directly to the benefit of stockholders. FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on a single financial measure.

Liquidity and Capital Resources

Our principal source of cash to meet our cash requirements, including distributions to stockholders and repayments of indebtedness, is from the results of operations of our hotels. For the year ended December 31, 2005, net cash flow provided by operating activities, consisting primarily of hotel operations, was $111 million. At December 31, 2005, we had cash on hand of $95 million. Included in cash on hand was $31 million held under our hotel management agreements to meet our hotel minimum working capital requirements.

We currently expect that our cash flow provided by operating activities for 2006 will be approximately $160 million to $167 million. These cash flow forecasts assume a RevPAR increase of 7% to 9%, and Hotel EBITDA margin increases of at least 100 basis points. Our current operating plan contemplates that we will make preferred dividend payments of $39 million, capital expenditures of approximately $175 to $200 million, $15 million in normal recurring principal payments, and that we will defer a debt maturity of $117 million (which we currently anticipate extending in accordance with its terms), leaving a cash flow shortfall of approximately $62 million to $94 million. We expect the cash necessary to fund this cash flow shortfall and distributions, if any, on our common stock, will come from our cash balances or the proceeds from the sale of hotels. We anticipate that our board of directors will determine the amount of preferred and common dividends, 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.

During 2005, our hotels in New Orleans and surrounding markets, such as Atlanta, Georgia; Baton Rouge, Louisiana; Houston, San Antonio, and Dallas, Texas, benefited from the increase in demand for hotel rooms, resulting from the displacement of New Orleans residents, and from the influx of relief and construction workers. We believe that the increased demand in most of these markets will continue into 2006, but we are unable to predict how long.

We expect cash flow from operations to be sufficient to cover the payment of a dividend on our common stock, our full preferred stock dividends as well as the funding of maintenance capital expenditures of five percent of annual hotel revenues for the foreseeable future.

Events, including the threat of additional terrorist attacks, U.S. military involvement in the Middle East and the bankruptcy of several major corporations, had an adverse impact on the capital markets in prior years. Similar events, such as new terrorist attacks or additional bankruptcies, could further adversely affect the availability and cost of capital for our business. In addition, any slowdown of the overall economy and of the lodging industry could adversely affect our operating cash flow and the availability and cost of capital for our business.

As a consequence of the recent economic recovery, its impact on the travel and lodging industries, and our lower secured debt levels, Standard & Poor’s raised their ratings on our senior unsecured debt in 2006, from B- to B. Should Standard & Poor’s or Moody’s increase their ratings on our senior unsecured debt to BB- or Ba3, respectively, our interest rates on $300 million of our senior unsecured debt will drop by 50 basis points, reducing our interest expense by $1.5 million annually.

We are subject to the risks of fluctuating hotel operating margins at our hotels, including but not limited to increases in wage and benefit costs, repair and maintenance expenses, utilities, insurance, and other operating expenses that can fluctuate disproportionately to revenues. These operating expenses are difficult to predict and control, resulting in an increased risk of volatility in our results of operations. The recent economic slowdown that began in 2001, led to a sharp drop in occupancy and ADR resulting in declines in RevPAR and in the erosion in our Hotel EBITDA margins through 2003. Our Hotel EBITDA margins from continuing operations increased to 25.2% in 2005. However, if our hotel RevPAR and/or operating margins worsen, they could have a material adverse effect on our operations, earnings and cash flow.

In the fourth quarter of 2005, we retired $258 million of secured debt related to 25 hotels and entered into a $225 million unsecured term loan. In connection with the early retirement of $258 million of secured debt, we recorded $15 million expense in the fourth quarter of 2005. The $225 million term loan was subsequently retired in January 2006 with proceeds from hotel sales, cash on hand and $45 million drawn on our $125 million line of credit established in January 2006. Associated with the early retirement of the $225 million term loan in January 2006, we will record $1 million write-off of loan costs in the first quarter of 2006.

Our line of credit established in January 2006, has certain restrictive covenants, including a leverage ratio, fixed charge coverage ratio, unencumbered leverage ratio and a maximum payout ratio. In addition to financial covenants, our line of credit includes certain other affirmative and negative covenants, including restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation/ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred stock, share repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, to issue stock of our subsidiaries and to sell all or substantially all of our assets; restrictions on our ability to make investments in condominium developments; limitations on our ability to change the nature of our business and limitations on our ability to modify certain instruments, to create liens, to enter into transactions with affiliates and limitations on our ability to enter into joint ventures. At the date of this filing, we were in compliance with all of these covenants.

If operating results fall significantly below our current expectations, as outlined in our current guidance, we may not be able to satisfy the financial covenant requirements in our current line of credit and we may be unable to borrow under it.

During 2005, we issued 6.8 million depositary shares representing our 8% Series C Preferred Stock, with gross proceeds of $169 million. The proceeds were used to redeem all of the shares outstanding of our 9% Series B Preferred Stock. As a result of this redemption, we recorded a reduction in net income applicable to common stockholders of $7 million for the original issuance cost of the Series B preferred stock which was redeemed.

In 2005, eight limited service hotels owned by a consolidated joint venture were surrendered to their non-recourse mortgage holders in exchange for extinguishment of approximately $49 million of debt.

In 2005, we started construction on the 184 unit Royale Palms condominium development in Myrtle Beach, South Carolina. This project is more than 90% pre-sold and is expected to be completed in the summer of 2007. In conjunction with this development, we entered into a $70 million recourse construction loan facility. At December 31, 2005, we had spent $13 million on this project and had drawn $9 million on the construction loan. The interest on this construction facility is currently based on LIBOR plus 225 basis points and may be reduced to LIBOR plus 200 basis points when the project is 55% complete upon satisfaction of certain other requirements.

At December 31, 2005, we had aggregate mortgage indebtedness of $738 million that was secured by 46 of our consolidated hotels with an aggregate book value of $1.2 billion and our Royale Palms condominium development. Substantially all of this debt is recourse solely to the specific assets securing the debt, except in the case of fraud, misapplication of funds and other customary recourse provisions. Loans secured by 10 hotels provide for lock-box arrangements.

With respect to loans secured by 10 hotels, the owner is permitted to retain 115% of budgeted hotel operating expenses before the remaining revenues would become subject to a similar lock-box arrangement if a specified debt service coverage ratio was not met. The mortgage loans secured by eight of these 10 hotels also provide that, so long as the debt service coverage ratios remain below a second, even lower minimum level, the lender may retain any excess cash (after deduction for the 115% of budgeted operating expenses, debt service, tax, insurance and other reserve requirements) and, if the debt service coverage ratio remains below this lower minimum level for 12 consecutive months, apply any accumulated excess cash to the prepayment of the principal amount of the debt. If the debt service coverage ratio exceeds the lower minimum level for three consecutive months, any then accumulated excess cash will be returned to the owner. Eight of these 10 hotels, which accounted for 6% of our total revenues in 2005, are currently below the applicable debt service coverage ratio and are subject to the lock-box provisions. None of the hotels are currently below the second, even lower minimum debt service coverage ratio that would permit the lender to retain excess cash after deduction for the 115% of budgeted operating expenses, debt service, tax, insurance and other reserve requirements.

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.

The breach of any of the covenants and limitations under our line of credit could result in the acceleration of amounts outstanding. Our failure to satisfy any accelerated indebtedness, if in the amount of $10 million or more, could result in the acceleration of most of our other unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances

Our other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than our line of credit.

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 dividends in excess of the minimum dividend required to meet the REIT qualification test; repurchase capital stock; or merge. As of the date of this filing, we have satisfied all such tests. Under the terms of certain of our indentures, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures, exceeds 4.85 to 1. Debt, as defined in the indentures, approximates our consolidated debt. EBITDA is defined in the indentures as consolidated GAAP net income, adjusted for

minority interest in FelCor LP, actual cash distributions by unconsolidated entities, gains or losses from asset sales, dividends on preferred stock and extraordinary gains and losses (as defined at the date of the indentures), plus interest expense, income taxes, depreciation expense, amortization expense and other non-cash items. Although our current debt-to-EDITDA ratio is below 4.85 to 1, a decline in our EBITDA, as a result of asset sales or adverse economic developments, or an increase in our debt, could make us subject to this limitation.

If actual operating results fall significantly below our current expectations, as reflected in our current public guidance, or if interest rates increase substantially above expected levels, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior unsecured notes. In such an event, we may be prohibited from, among other things, incurring any additional indebtedness, except under certain specific exceptions, or paying dividends on our preferred or common stock, except to the extent necessary to satisfy the REIT qualification requirement that we distribute currently at least 90% of our taxable income.

We currently anticipate that we will meet our financial covenant and incurrence tests under the RevPAR guidance provided by us at our fourth quarter earnings conference call on February 7, 2006. For the first quarter of 2006, we currently anticipate that our portfolio RevPAR will be 10% to 12% above the comparable period of the prior year. The RevPAR increase in 2006, compared to the same periods in 2005, was approximately 18% for January 2006 and 13% for February 2006. We currently anticipate that full year 2006 hotel portfolio RevPAR will increase approximately 7% to 9%. For 2006, we expect to make capital expenditures of approximately $175 to $200 million. We estimate that our income for 2006 will be in the range of $23 to $30 million. FFO for the year 2006 is anticipated to be within the range of $113 to $120 million, and EBITDA is expected to be within the range of $282 to $289 million. No asset sales, except for the eight hotels sold in January, or capital transactions are assumed in the preparation of our guidance.

Reconciliation of Estimated Net Income to Estimated FFO and EBITDA
(in millions, except per share and unit data)


	Full Year 2006 Guidance
	Low Guidance						High Guidance
				Per Share						Per Share
	Dollars			Amount^(a)			Dollars			Amount^(a)
Net income^(b)	$	23					$	30
Preferred dividends		(39	)					(39	)

Net loss applicable to common stockholders^(b)		(16	)	$	(0.27	)		(9	)	$	(0.15	)
Depreciation		130						130
Minority interest in FelCor LP		(1	)					(1	)

FFO	$	113		$	1.79		$	120		$	1.90

Net income^(b)	$	23					$	30
Depreciation		130						130
Minority interest in FelCor LP		(1	)					(1	)
Interest expense		126						126
Amortization expense		4						4

EBITDA	$	282					$	289


(a)		Weighted average shares are 59.7 million. Adding minority interest and unvested restricted stock of 3.4 million shares to weighted average shares, provides the weighted average shares and units of 63.1 million used to compute FFO per share.

(b)		Excludes gains or losses from asset sales and debt extinguishment.

The following table details our debt outstanding at December 31, 2005 and 2004 (in thousands):


								Balance Outstanding
	Encumbered		Interest Rate at			Maturity		December 31,
	Hotels		December 31, 2005			Date		2005		2004
Promissory note	none			6.31	^(a)	June 2016		$	650	$	650
Senior unsecured term notes	none			7.63		Oct. 2007			123,358		122,426
Senior unsecured term notes	none			9.00		June 2011			298,660		298,409
Term loan^(b)	none			5.81		Oct. 2006			225,000		—
Senior unsecured term notes	none			8.48	^(c)	June 2011			290,000		290,000

Total unsecured debt^(d)				7.89					937,668		711,485


Mortgage debt	9 hotels			6.52		July 2009-2014			104,282		192,363
Mortgage debt	8 hotels			6.63	^(e)	May 2006			117,913		144,669
Mortgage debt		—		—			—		—		127,316
Mortgage debt	7 hotels			7.32		April 2009			127,455		130,458
Mortgage debt	4 hotels			7.55		June 2009			41,912		67,959
Mortgage debt	8 hotels			8.70		May 2010			172,604		175,504
Mortgage debt	7 hotels			8.73		May 2010			133,374		135,690
Mortgage debt	1 hotel			6.77	^(a)	August 2008			15,500		15,500
Mortgage debt		—		—			—		—		10,521
Mortgage debt	1 hotel			7.91		Dec. 2007			10,457		—
Mortgage debt		—		—			—		—		49,476
Other	1 hotel			9.17		August 2011			5,204		6,181
Construction loan		—		6.47		Oct. 2007			8,911		—

Total secured debt^(d)	46 hotels			7.69					737,612		1,055,637


Total^(d)				7.80	%			$	1,675,280	$	1,767,122


(a)		Variable interest rate based on LIBOR. The six month LIBOR was 4.58% at December 31, 2005.

(b)		This term note was repaid in January 2006.

(c)		Variable interest rate based on LIBOR. $100 million of these notes were matched with interest rate swap agreements that effectively converted the variable interest rate to a fixed rate.

(d)		Interest rates are calculated based on the weighted average outstanding debt at December 31, 2005.

(e)		Variable interest rate based on LIBOR. This debt may be extended at our option for up to two, one-year periods.

At December 31, 2004, we had three interest rate swaps with an aggregate notional amount of $100 million, maturing in December 2007. The interest rate received on these interest rate swaps is 4.25% plus LIBOR and the interest rate paid is 7.80%.

During 2005, we spent an aggregate of $112 million on capital expenditures at our consolidated hotels and $15million at our unconsolidated hotels.

Contractual Obligations

We have obligations and commitments to make certain future payments under debt agreements and various contracts. The following schedule details these obligations at December 31, 2005 (in thousands):


			Less Than		1 – 3		4 – 5		After
	Total		1 Year		Years		Years		5 Years
Debt^(a)	$	2,182,431	$	468,202	$	390,626	$	609,507	$	714,096
Operating leases		173,636		34,996		25,538		21,000		92,102
Purchase obligations		130,299		130,299		—		—		—
IHG special capital plans^(b)		50,568		—		50,568		—		—

Total contractual obligations	$	2,536,934	$	633,497	$	466,732	$	630,507	$	806,198


(a)		Our long-term debt consists of both secured and unsecured debt and includes both principal and interest. Interest expense for variable rate debt was calculated using the interest rate at December 31, 2005.

(b)		As a part of the amendment to the IHG management agreements, we have agreed to spend, by June 30, 2007, approximately $51 million with regard to special capital plans on 11 hotels. We are to agree upon special capital plans to be completed by July 2008 with regard to four hotels and January 2011 with regard to two hotels.

Off-Balance Sheet Arrangements

At December 31, 2005, we had unconsolidated 50% investments in ventures that own an aggregate of 19 hotels (referred to as hotel joint ventures), and we had unconsolidated 50% investments in ventures that operate four of those 19 hotels (referred to as operating joint ventures). We own 100% of the lessees operating two hotels owned by the hotel joint ventures, 51% of the lessees operating 12 hotels owned by the hotel joint ventures and one hotel joint venture is operated without a lease. We also owned a 50% interest in entities that provide condominium management services and develop condominiums in Myrtle Beach, South Carolina. None of our directors, officers or employees owns any interest in any of these joint ventures or entities. The hotel joint ventures had $204 million of non-recourse mortgage debt relating to the 19 hotels. This debt is not reflected as a liability on our consolidated balance sheet.

Our liability with regard to non-recourse debt and the liability of our subsidiaries that are members or partners in joint ventures are 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 by the venture and other typical exceptions from the non-recourse provisions in the mortgages, such as for environmental liabilities.

We have recorded equity in income (loss) of unconsolidated entities of $10 million; $17 million, including a gain of $11 million related to the development and sale of condominiums; and $2 million for the years ended December 31, 2005, 2004 and 2003, respectively, and received distributions of $8 million (of which $1 million was provided from operations) $23 million (of which $12 million was provided by operations) and $9 million for the years 2005, 2004 and 2003, respectively. The principal source of income for our hotel joint ventures is percentage lease revenue from the operating lessees. We own 51% of the operating lessees for 12 of the hotel joint ventures and 100% of the operating lessee for one of the hotel joint ventures. The 100% owned operating lessee incurred aggregate net losses, which were included in our consolidated statements of operations, of $2 million during the past three years.

Capital expenditures on the hotels owned by our hotel joint ventures are generally paid from their capital reserve account, which is funded from the income from operations of these ventures. However, if a venture has insufficient cash flow to meet operating expenses or make necessary capital improvements, the venture may make a capital call upon the venture members or partners to fund such necessary improvements. It is possible that, in the event of a capital call, the other joint venture member or partner may be unwilling or unable to make the necessary capital contributions. Under such circumstances, we may elect to make the other party’s contribution as a loan to the venture or as an additional capital contribution by us. Under certain circumstances, a capital contribution by us may increase our equity investment to greater than 50% and may require that we consolidate the venture, including all of its assets and liabilities, into our consolidated financial statements.

With respect to those ventures that are partnerships, any of our subsidiaries that serve as a general partner will be liable for all of the recourse obligations of the venture, to the extent that the venture does not have sufficient assets or insurance to satisfy the obligations. In addition, the hotels owned by these ventures could perform below expectations and result in the insolvency of the ventures and the acceleration of their debts, unless the members or partners provide additional capital. In some ventures, the members or partners may be required to make additional capital contributions or have their interest in the venture be reduced or offset for the benefit of any party making the required investment on their behalf. We may be faced with the choice of losing our investment in a venture or investing additional capital under circumstances that do not assure a return on that investment.

Inflation

Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future. We are also subject to the risk that inflation will cause increases in hotel operating expenses disproportionately to revenues.

Seasonality

The lodging business is seasonal in nature. Generally, hotel revenues are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations. Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. Seasonal variations in revenue at our hotels can be expected to cause quarterly fluctuations in our revenues. Quarterly earnings also may be adversely affected by events beyond our control, such as extreme weather conditions, economic factors and other considerations affecting travel. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may utilize cash on hand or borrowings to satisfy our obligations or make distributions to our equity holders.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those related to bad debts, the carrying value of investments in hotels, litigation, and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.

•

We are required by GAAP to record an impairment charge when we believe that an investment in one or more of our hotels has been impaired, such that future undiscounted cash flows would not recover the book basis, or net book value, of the investment. We test for impairment when certain events occur, including one or more of the following: projected cash flows are significantly less than recent historical cash flows; significant changes in legal factors or actions by a regulator that could affect the value of our hotels; events that could cause changes or uncertainty in travel patterns; and a current expectation that, more likely than not, a hotel will be sold or otherwise disposed of significantly before the end of its previously estimated useful

life. In 2005 we identified 28 hotels, in 2004 we identified two hotels, in 2003 we identified 18 hotels and in 2002 we identified 33 hotels, that we expect to sell. The shorter probable holding periods related to our decision to sell these hotels was the primary factor that led to impairment charges on these hotels. As we sell these hotels, we may recognize additional losses or gains on sale. In the evaluation of impairment of our hotel assets, and in establishing the impairment charge, we made many assumptions and estimates on a hotel by hotel basis, which included the following:

	o		Annual cash flow growth rates for revenues and expenses;

	o		Holding periods;

	o		Expected remaining useful lives of assets;

	o		Estimates in fair values taking into consideration future cash flows, capitalization rates, discount rates and comparable selling prices; and

	o		Future capital expenditures.

			Changes in these estimates, future adverse changes in market conditions or poor operating results of underlying hotels could result in losses or an inability to recover the carrying value of the hotels that may not be reflected in the hotel’s current carrying value, thereby requiring additional impairment charges in the future.

	•		We make estimates with respect to contingent liabilities for losses covered by insurance in accordance with Financial Accounting Standard 5, Accounting for Contingencies. We record liabilities for self insured losses under our insurance programs when it becomes probable that an asset has been impaired or a liability has been incurred at the date of our financial statements and the amount of the loss can be reasonably estimated. In 2002, we initially became self-insured for the first $250,000, per occurrence, of our general liability claims with regard to 68 of our hotels. At December 31, 2005, we had 71 of our hotels participating in this program. We review the adequacy of our reserves for our self-insured claims on a regular basis. Our reserves are intended to cover the estimated ultimate uninsured liability for losses with respect to reported and unreported claims incurred as of the end of each accounting period. These reserves represent estimates at a given accounting date, generally utilizing projections based on claims, historical settlement of claims and estimates of future costs to settle claims. Estimates are also required since there may be reporting lags between the occurrence of the insured event and the time it is actually reported. Because establishment of insurance reserves is an inherently uncertain process involving estimates, currently established reserves may not be sufficient. If our insurance reserves of $6 million, at December 31, 2005, for general liability losses are insufficient, we will record an additional expense in future periods. Property and catastrophic losses are event-driven losses and, as such, until a loss occurs and the amount of loss can be reasonably estimated, no liability is recorded. We had recorded no contingent liabilities with regard to property or catastrophic losses at December 31, 2005.

	•		SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” establishes accounting and reporting standards for derivative instruments. In accordance with these pronouncements, all of our interest rate swap agreements outstanding at December 31, 2005, were designated as cash flow hedges because they are hedging our exposure to the changes in interest payments on our floating rate debt. These instruments are adjusted to our estimate of their fair market value through accumulated other comprehensive income within stockholders’ equity. We estimate the fair value of our interest rate swaps and fixed rate debt through the use of a third party valuation. We may use other methods and assumptions to validate the fair market value. At December 31, 2005, our estimate of the fair market value of the interest rate swaps was approximately $2 million and represents the amount that we estimate we would currently receive upon termination of these instruments, based on current market rates and reasonable assumptions about relevant future market conditions.

	•		Our Taxable REIT Subsidiaries, or TRSs, have cumulative potential future tax deductions totaling $419 million. The net deferred income tax asset associated with these potential future tax deductions was $173 million. We have recorded a valuation allowance of $133 million

deferred tax asset related to our TRSs, because of the uncertainty of realizing the benefit of the deferred tax asset. SFAS 109, “Accounting for Income Taxes,” establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. In accordance with SFAS 109, we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would be able to realize all or a portion of our deferred tax assets in the future, an adjustment to the deferred tax asset would increase operating income in the period such determination was made.

Recent Accounting Announcements

In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123(R), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes Accounting Principals Board, or APB, Opinion No. 25, “Accounting for Stock

Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows”. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective in the first annual reporting period beginning after June 15, 2005. We expect to adopt this standard under the modified prospective application. We do not expect adoption of this standard to have a material effect on us.

In March 2005, the FASB issued Interpretation No. 47, or FIN 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.” FIN 47 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred, generally upon acquisition, construction, or development and through the normal operation of the asset. This interpretation is effective no later than the end of fiscal years ending after December 31, 2005. Adoption did not have a material effect on our consolidated financial statements.

Disclosure Regarding Forward Looking Statements

This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks”, or other variations of these terms (including their use in the negative), or by discussions of strategies, plans or intentions. A number of factors could cause actual results to differ materially from those anticipated by these forward-looking statements. Among these factors are:

	•		general economic and lodging industry conditions, including the anticipated continuation 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.

Certain of these risks and uncertainties are described in greater detail under “Risk Factors” in Item 1A above, or in our other filings with the Securities and Exchange Commission.

In addition, these forward-looking statements are necessarily dependent upon assumptions and estimates that may prove to be incorrect. Accordingly, while we believe that the plans, intentions and expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. The forward-looking statements included in this report, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the risk factors and cautionary statements discussed in our filings under the Securities Act of 1933 and the Securities Exchange Act of 1934. We undertake no obligation to update any forward-looking statements to reflect future events or circumstances.

The prospective financial information, related to hotel sale proceeds and guidance, included in this Form 10-K has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has neither examined nor compiled the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in this Form 10-K relates to our historical financial information. It does not extend to the prospective financial information and should not be read to do so.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

At December 31, 2005, approximately 70% of our consolidated debt had fixed interest rates. In some cases, market rates of interest are below the rates we are obligated to pay on our fixed-rate debt.

The following tables provide information about our financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the tables present scheduled maturities and weighted average interest rates, by maturity dates. For interest rate swaps, the tables present 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 December 31, 2005
(dollars in thousands)


																						Fair
	2006			2007			2008			2009			2010			Thereafter			Total			Value
Liabilities
Fixed rate:
Debt	$	13,726		$	149,737		$	15,695		$	176,560		$	281,843		$	382,727		$	1,020,288		$	987,451
Average interest rate		7.95	%		7.68	%		7.96	%		7.37	%		8.70	%		8.47	%		8.21	%
Floating rate:
Debt		342,913			—			24,411			—			—			190,650			557,974			557,974
Average interest rate^(a)		6.09	%		—			6.66	%		—			—			8.82	%		7.05	%
Interest rate swaps (floating to fixed)^(b)
Notional amount		—			—			—			—			—			100,000			100,000			102,222
Pay rate		—			—			—			—			—			7.80	%		7.80	%
Receive rate		—			—			—			—			—			—			—
Total debt	$	356,639		$	149,737		$	40,106		$	176,560		$	281,843		$	673,377		$	1,678,262
Average interest rate		6.16	%		7.68	%		7.17	%		7.37	%		8.70	%		8.47	%		7.80	%
Net discount																				(2,982	)
Total debt																			$	1,675,280


(a)		The average floating rate of interest represents the implied forward rates in the yield curve at December 31, 2005.

(b)		The interest rate swaps in effect during 2005 increased our interest expense by a net $0.3 million during 2005. The interest rate swaps in effect at December 31, 2005, mature in 2007 but are matched with debt maturing in 2011.

Expected Maturity Date
at December 31, 2004
(dollars in thousands)


																						Fair
	2005			2006			2007			2008			2009			Thereafter			Total			Value
Liabilities
Fixed rate:
Debt	$	26,927		$	18,025		$	261,783		$	16,977		$	202,231		$	708,478		$	1,234,421		$	1,235,442
Average interest rate		7.54	%		7.78	%		7.46	%		7.93	%		7.40	%		8.50	%		8.06	%
Floating rate:
Debt		5,392			143,018			2,015			17,618			78,537			190,650			437,230			437,230
Average interest rate^(a)		4.50	%		4.62	%		4.20	%		4.77	%		4.24	%		6.86	%		5.53	%
Interest rate swaps (floating to fixed)^(b)
Notional amount		—			—			—			—			—			100,000			100,000			100,067
Pay rate		—			—			—			—			—			7.80	%
Receive rate		—			—			—			—			—			6.87	%
Total debt	$	32,319		$	161,043		$	263,798		$	34,595		$	280,768		$	999,128			1,771,651
Average interest rate		7.04	%		4.98	%		7.44	%		6.32	%		6.51	%		8.53	%		7.41	%
Net discount																				(4,529	)
Total debt																			$	1,767,122


(a)		The average floating rate of interest represents the implied forward rates in the yield curve at December 31, 2004.

(b)		The interest rate swaps in effect during 2004 decreased our interest expense by a net $4 million during 2004. The interest rate swaps in effect at December 31, 2004, mature in 2007 but are matched with debt maturing in 2011.

Swap contracts, such as described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties. The Standard & Poor’s credit ratings for each of the financial institutions that are counterparties to the interest rate swap agreements are AA-.

Item 8. Financial Statements and Supplementary Data

Furnished herewith beginning at page F-1 are consolidated financial statements of the registrant and its subsidiaries meeting the requirements of Regulation S-X.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of FelCor’s management, including its chief executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and principal financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective, such that the information relating to us required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.

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

Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we have concluded that, as of December 31, 2005, our internal control over financial reporting is effective, based on those criteria.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in their report, which appears on page F-2 of this Annual Report on Form 10-K.

Item 9B. Other Information

Not applicable.

PART III. — OTHER INFORMATION

Item 10. Directors and Executive Officers of the Registrant

The information called for by this Item is contained in our definitive Proxy Statement for our 2006 Annual Meeting of Stockholders, and is incorporated herein by reference.

Item 11. Executive Compensation

The information called for by this Item is contained in our definitive Proxy Statement for our 2006 Annual Meeting of Stockholders, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by this Item is contained in our definitive Proxy Statement for our 2006 Annual Meeting of Stockholders, or in Item 5 of this Annual Report on Form 10-K for the year ended December 31, 2005, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information called for by this Item is contained in our definitive Proxy Statement for our 2006 Annual Meeting of Stockholders, and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information called for by this Item is contained in our definitive Proxy Statement for our 2006 Annual Meeting of Stockholders, and is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following is a list of documents filed as a part of this report:

(1) Financial Statements.

Included herein at pages F-1 through F-34.

(2) Financial Statement Schedules.

The following financial statement schedule is included herein at pages F-35 through F-39.

Schedule III — Real Estate and Accumulated Depreciation for FelCor Lodging Trust Incorporated

All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions, are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted.

(b) Exhibits.

The following exhibits are provided pursuant to the provisions of Item 601 of Regulation S-K:


Exhibit
Number		Description of Exhibit
4.1		Articles of Amendment and Restatement dated June 22, 1995, amending and restating the Charter of FelCor Lodging Trust Incorporated (“FelCor”), as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996, Articles of Amendment dated August 8, 1996, Articles of Amendment dated June 16, 1997, Articles of Amendment dated October 30, 1997, Articles Supplementary filed May 6, 1998, Articles of Merger and Articles of Amendment dated July 27, 1998, Certificate of Correction dated March 11, 1999, Certificate of Correction to the Articles of Merger between FelCor and Bristol Hotel Company, dated August 30, 1999, Articles Supplementary, dated April 1, 2002, Certificate of Correction, dated March 29, 2004, to Articles Supplementary filed May 2, 1996, Articles Supplementary filed April 2, 2004, Articles Supplementary filed August 20, 2004, Articles Supplementary filed April 6, 2005, and Articles Supplementary filed August 29, 2005 (filed as Exhibit 4.1 to FelCor’s Registration Statement on Form S-3 (Registration No. 333-128862) and incorporated herein by reference).

4.2		Bylaws of FelCor, as amended (filed as Exhibit 4.2 to FelCor’s Registration Statement on Form S-3 (Registration File No. 333-128862) and incorporated herein by reference).

4.3		Form of Share Certificate for Common Stock (filed as Exhibit 4.1 to FelCor’s Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference).

4.4		Form of Share Certificate for $1.95 Series A Cumulative Convertible Preferred Stock (filed as Exhibit 4.4 to FelCor’s Form 8-K, dated May 1, 1996, and incorporated herein by reference).

4.5		Form of Share Certificate for 8% Series C Cumulative Redeemable Preferred Stock (filed as Exhibit 4.10.1 to FelCor’s Form 8-K, dated April 6, 2005, and filed on April 11, 2005, and incorporated herein by reference).


Exhibit
Number		Description of Exhibit
4.6		Deposit Agreement, dated April 7, 2005, between FelCor and SunTrust Bank, as preferred share depositary (filed as Exhibit 4.11.1 to FelCor’s Current Report on Form 8-K filed April 11, 2005, and incorporated herein by reference).

4.6.1		Supplement and Amendment to Deposit Agreement, dated August 30, 2005, between the Company and SunTrust Bank, as depositary(filed as Exhibit 4.11.2 to FelCor’s Current Report on Form 8-K filed April 11, 2005, and incorporated herein by reference).

4.7		Form of Depositary Receipt evidencing the Depositary Shares, which represent the 8% Series C Cumulative Redeemable Preferred Stock (filed as Exhibit 4.12.1 to FelCor’s Form 8-K, dated April 6, 2005, and filed on April 11, 2005, and incorporated herein by reference).

4.8		Indenture, dated as of October 1, 1997, by and among FelCor Lodging Limited Partnership, formerly FelCor Suites Limited Partnership (“FelCor LP”), FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the Registration Statement on Form S-4 (Registration File No. 333-39595) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

4.8.1		First Amendment to Indenture, dated as of February 5, 1998, by and among FelCor, FelCor LP, the Subsidiary Guarantors named therein and SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit 4.2 to the Registration Statement on Form S-4 (Registration File No. 333-39595) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

4.8.2		Second Amendment to Indenture and First Supplemental Indenture, dated as of December 30, 1998, by and among FelCor, FelCor LP, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.7.2 to the 1998 10-K and incorporated herein by reference).

4.8.3		Third Amendment to Indenture, dated as of March 30, 1999, by and among FelCor, FelCor LP, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.7.3 to FelCor’s Form 10-Q for the quarter ended March 31, 1999 (the “March 1999 10-Q”) and incorporated herein by reference).

4.8.4		Second Supplemental Indenture, dated as of August 1, 2000, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.2.4 to the Registration Statement on Form S-4 (Registration File No. 333-47506) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

4.8.5		Third Supplemental Indenture, dated as of July 26, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.2.5 to the Registration Statement on Form S-4 (Registration File No. 333-63092) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

4.8.6		Fourth Supplemental Indenture, dated October 1, 2002, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.7.6 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the “2002 Form 10-K”) and incorporated herein by reference).

4.8.7*		Fifth Supplemental Indenture, dated as of January 25, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and SunTrust Bank, as trustee.

4.9		Indenture, dated as of June 4, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.9 to FelCor’s Form 8-K dated as of June 4, 2001, and filed June 14, 2001, and incorporated herein by reference).


Exhibit
Number		Description of Exhibit
4.9.1		First Supplemental Indenture, dated as of July 26, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.4.1 to the Registration Statement on Form S-4 (Registration File No. 333-63092) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

4.9.2		Second Supplemental Indenture, dated October 1, 2002, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.9.2 to the 2002 Form 10-K and incorporated herein by reference).

4.9.3*		Third Supplemental Indenture, dated as of January 25, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and SunTrust Bank, as trustee.

4.10		Indenture, dated as of May 26, 2004, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.5 to the Registration Statement on Form S-4 (Registration File No. 333-117598) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

4.10.1*		First Supplemental Indenture, dated as of January 25, 2006, FelCor, FelCor LP, the Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and SunTrust Bank, as trustee.

10.1		Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of December 31, 2001 (filed as Exhibit 10.1 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the “2001 Form 10-K”), and incorporated herein by reference.)

10.1.1		First Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated April 1, 2002 (filed as Exhibit 10.1.1 to FelCor’s Form 8-K dated April 1, 2002, and filed on April 4, 2002, and incorporated herein by reference).

10.1.2		Second Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated August 31, 2002 (filed as Exhibit 10.1.2 to the 2002 Form 10-K and incorporated herein by reference).

10.1.3		Third Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated October 1, 2002 (filed as Exhibit 10.1.3 to the 2002 Form 10-K and incorporated herein by reference).

10.1.4		Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of July 1, 2003 (filed as Exhibit 10.1.4 to FelCor’s Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).

10.1.5		Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, 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).

10.1.6		Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of August 23, 2004 (filed as Exhibit 10.1.6 to FelCor’s Form 8-K dated as of, and filed on, August 26, 2004, and incorporated herein by reference).

10.1.7		Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of April 7, 2005, which contains Addendum No. 4 to the Second Amended and Restated Agreement of Limited Partnership of FelCor Lodging Limited Partnership (filed as Exhibit 10.1.8 to FelCor’s Form 8-K, dated April 6, 2006, and filed on April 11, 2005, and incorporated herein by reference).


Exhibit
Number		Description of Exhibit
10.1.8		Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of August 30, 2005 (filed as Exhibit 10.1.9 to FelCor’s Form 8-K, dated August 29, 2005, and filed September 2, 2005, and incorporated herein by reference).

10.2		Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of InterContinental Hotels, as manager, with respect to FelCor’s InterContinental Hotels branded hotels (included as an exhibit to the Leasehold Acquisition Agreement, which was filed as Exhibit 10.28 to FelCor’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference).

10.2.1		Master Amendment to Management Agreements, dated September 17, 2003, by and among FelCor, FelCor LP, FelCor TRS I, L.L.C., FelCor TRS Holdings, L.P., BHR Operations, L.L.C., BHR Lodging Tenant Company, BHR Salt Lake Tenant Company, L.L.C., BHR Hotels Finance, Inc., BHR Dallas Tenant Company, L.P. and BHR Plano Tenant Company, L.P. (filed as Exhibit 10.4.1 to FelCor’s Form 10-Q for the quarter ended September 30, 2003, and incorporated herein by reference).

10.2.2*		Omnibus Agreement between FelCor and all its various subsidiaries, controlled entities and affiliates, and Six Continents Hotels, Inc. and all its various subsidiaries, controlled entities and affiliates, with respect to FelCor’s InterContinental Hotels branded hotels.

10.3.1		Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Embassy Suites Hotels branded hotels, including the form of Embassy Suites Hotels License Agreement attached as an exhibit thereto, effective prior to July 28, 2004 (filed as Exhibit 10.5 to the 2001 Form 10-K and incorporated herein by reference).

10.3.2		Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Embassy Suites Hotels branded hotels, including the form of Embassy Suites Hotels License Agreement attached as an exhibit thereto, effective July 28, 2004 (filed as Exhibit 10.3.2 to FelCor’s Form 10-K for the fiscal year ended December 31, 2004 (the “2004 Form 10-K” and incorporated herein by reference).

10.4		Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Doubletree and Doubletree Guest Suites branded hotels (filed as Exhibit 10.6 to the 2001 Form 10-K and incorporated herein by reference).

10.5		Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Starwood Hotels & Resorts, Inc., as manager, with respect to FelCor’s Sheraton and Westin branded hotels (filed as Exhibit 10.7 to the 2001 Form 10-K and incorporated herein by reference).

10.6		Executive Employment Agreement, dated effective as of February 1, 2006, between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.36 to FelCor’s Form 8-K, dated February 7, 2006, and filed on February 13, 2006 and incorporated herein by reference).

10.7		Executive Employment Agreement, dated effective as of February 1, 2006, between FelCor and Richard A. Smith (filed as Exhibit 10.37 to FelCor’s Form 8-K, dated February 7, 2006, and filed on February 13, 2006 and incorporated herein by reference).

10.8		Form of Severance Agreement for executive officers and certain key employees of FelCor (filed as Exhibit 10.13 to the 1998 10-K and incorporated herein by reference).

10.9		Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9 to the 1994 10-K/A and incorporated herein by reference).


Exhibit
Number		Description of Exhibit
10.10		Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 2001 Form 10-K and incorporated herein by reference).

10.11		1995 Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9.2 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference).

10.12		Non-Qualified Deferred Compensation Plan, as amended and restated July 1999 (filed as Exhibit 10.9 to the September 1999 10-Q and incorporated herein by reference).

10.13		1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor’s Registration Statement on Form S-8 (Registration File No. 333-66041) and incorporated herein by reference).

10.14		2001 Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.14 to the 2002 Form 10-K and incorporated herein by reference).

10.15		Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor’s Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (Registration File No. 333-50509) and incorporated herein by reference).

10.16		Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor’s Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (Registration File No. 333-50509) and incorporated herein by reference).

10.17		Form of Nonstatutory Stock Option Contract under Restricted Stock and Stock Option Plans of FelCor (filed as Exhibit 10.16 to the 2004 Form 10-K and incorporated herein by reference).

10.18		Form of Employee Stock Grant Contract under Restricted Stock and Stock Option Plans of FelCor (filed as Exhibit 10.17 to the 2004 Form 10-K and incorporated herein by reference).

10.19		FelCor Lodging Trust Incorporated 2005 Restricted Stock and Stock Option Plan (filed as Exhibit 4.4 to FelCor’s Registration Statement on Form S-8 (Registration File No. 333-126228) and incorporated herein by reference).

10.20		Form of Employee Stock Grant Contract under Restricted Stock and Stock Option Plans of FelCor applicable to 2005 Grants (filed as Exhibit 10.33 to FelCor’s Form 8-K dated April 26, 2005, and filed on May 2, 2005, and incorporated herein by reference).

10.21		Summary of Annual Compensation Program for Directors of FelCor (filed as Exhibit 10.18 to the 2004 Form 10-K and incorporated herein by reference).

10.22		Summary of 2006 Performance Criteria for Annual Incentive Bonus Award Program (filed as Exhibit 10.38 to FelCor’s Form 8-K, dated February 17, 2006, and filed on February 22, 2006 and incorporated herein by reference).

10.23.1		Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P., as Mortgagor, and The Prudential Insurance Company of America, as Mortgagee (filed as Exhibit 10.23 to the March 1999 10-Q and incorporated herein by reference).

10.23.2		Promissory Note, dated April 1, 1999, in the original principal amount of $100,000,000, made by FelCor/CSS Holdings, Ltd., payable to the order of The Prudential Insurance Company of America (filed as Exhibit 10.23.1 to FelCor’s Form 10-Q for the quarter ended June 30, 1999 (the “June 1999 10-Q”) and incorporated herein by reference).


Exhibit
Number		Description of Exhibit
10.24.1		Form of Deed of Trust, Security Agreement and Fixture Filing, each dated as of May 12, 1999, from FelCor/MM Holdings, L.P., as Borrower, in favor of Fidelity National Title Insurance Company, as Trustee, and Massachusetts Mutual Life Insurance Company, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.21.2, also executed by FelCor/CSS Holdings, L.P. with respect to the Embassy Suites Hotel-Anaheim and Embassy Suites Hotel-Deerfield Beach, and by FelCor LP with respect to the Embassy Suites Hotel-Palm Desert (filed as Exhibit 10.24.2 to the June 1999 10-Q and incorporated herein by reference).

10.24.2		Form of six separate Promissory Notes, each dated May 12, 1999, made by FelCor/MM Holdings, L.P. payable to the order of Massachusetts Mutual Life Insurance Company in the respective original principal amounts of $12,500,000 (Embassy Suites Hotel-Dallas Market Center), $14,000,000 (Embassy Suites Hotel-Dallas Love Field), $12,450,000 (Embassy Suites Hotel-Tempe), $11,550,000 (Embassy Suites Hotel-Anaheim), $8,900,000 (Embassy Suites Hotel-Palm Desert), $15,600,000 (Embassy Suites Hotel-Deerfield Beach) (filed as Exhibit 10.24.1 to the June 1999 10-Q and incorporated herein by reference).

10.25.1		Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.22.3 (filed as Exhibit 10.24 to FelCor’s Form 10-Q for the quarter ended June 30, 2000 (the “June 2000 10-Q”) and incorporated herein by reference).

10.25.2		Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to the June 2000 10-Q and incorporated herein by reference).

10.25.3		Form of fourteen separate Promissory Notes, each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O’Hare Airport, Illinois), $12,500,000 (Chicago O’Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont) and $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to the June 2000 10-Q and incorporated herein by reference).

10.26.1		Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.23.2 (filed as Exhibit 10.25 to the June 2000 10-Q and incorporated herein by reference).

10.26.2		Form of eight separate Promissory Notes, each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C. and


Exhibit
Number		Description of Exhibit
		FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey) and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to the June 2000 10-Q and incorporated herein by reference).

10.27.1		Loan Agreement, dated April 24, 2003, by and between FelCor/JPM Hotels, L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $115 million loan from lender to borrower (the “Mortgage Loan”) (filed as Exhibit 10.28 to FelCor’s Form 10-Q for the quarter ended March 31, 2003 (the “March 2003 10-Q”) and incorporated herein by reference).

10.27.2		Form of Mortgage, Deed of Trust and Security Agreement, each dated April 24, 2003, from FelCor/JPM Hotels, L.L.C., as borrower, and DJONT/JPM Leasing, L.L.C., as lessee, (and, in the case of the Mortgages with respect to the properties located in the State of Florida, FelCor LP) in favor of JPMorgan Chase Bank, as lender, each covering a separate hotel and securing the Mortgage Loan (filed as Exhibit 10.28.1 to the March 2003 10-Q and incorporated herein by reference).

10.27.3		Promissory Note, dated April 24, 2003, made by FelCor/JPM Hotels, L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $115 million (filed as Exhibit 10.28.2 to the March 2003 10-Q and incorporated herein by reference).

10.28.1		Mezzanine Loan Agreement, dated April 24, 2003, by and between FelCor/JPM Holdings, L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $10 million senior mezzanine loan from lender to borrower (the “Senior Mezzanine Loan”) (filed as Exhibit 10.29 to the March 2003 10-Q and incorporated herein by reference).

10.28.2		Pledge and Security Agreement, dated April 24, 2003, from FelCor/JPM Holdings, L.L.C., as pledgor, in favor of JPMorgan Chase Bank, as lender, securing the Senior Mezzanine Loan (filed as Exhibit 10.29.1 to the March 2003 10-Q and incorporated herein by reference).

10.28.3		Promissory Note, dated April 24, 2003, made by FelCor/JPM Holdings, L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $10 million (filed as Exhibit 10.29.2 to the March 2003 10-Q and incorporated herein by reference).

10.29.1		Junior Mezzanine Loan Agreement, dated April 24, 2003, by and between DJONT/JPM Tenant Co., L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $25 million junior mezzanine loan from lender to borrower (the “Junior Mezzanine Loan”) (filed as Exhibit 10.30 to the March 2003 10-Q and incorporated herein by reference).

10.29.2		Pledge and Security Agreement, dated April 24, 2003, from DJONT/JPM Tenant Co., L.L.C., as pledgor, in favor of JPMorgan Chase Bank, as lender, securing the Junior Mezzanine Loan (filed as Exhibit 10.30.1 to the March 2003 10-Q and incorporated herein by reference).

10.29.3		Promissory Note, dated April 24, 2003, made by DJONT/JPM Tenant Co., L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $25 million (filed as Exhibit 10.30.2 to the March 2003 10-Q and incorporated herein by reference).

10.29.4		Security Agreement, dated April 24, 2003, from DJONT/JPM Tenant Co., L.L.C. in favor of JPMorgan Chase Bank, securing the Junior Mezzanine Loan (filed as Exhibit 10.30.3 to the March 2003 10-Q and incorporated herein by reference).

10.30		Termination Agreement, dated July 28, 2004, by and among FCH/DT BWI Hotel, L.L.C., FCH/DT BWI Holdings, L.P., FelCor Hotel Asset Company, L.L.C., FelCor/JPM Atlanta CP


Exhibit
Number		Description of Exhibit
		Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM BWI Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Nashville Hotel, L.L.C., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Orlando I-Drive Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., BHR Operations, L.L.C., DJONT Leasing, L.L.C., DJONT Operations, L.L.C., DJONT/JPM Atlanta CP Leasing, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., DJONT/JPM Austin HI Leasing, L.P., DJONT/JPM Austin Leasing, L.P., DJONT/JPM Boca Raton Leasing, L.L.C., DJONT/JPM BWI Leasing, L.L.C., DJONT/JPM Denver Leasing, L.L.C., DJONT/JPM LBV Leasing, L.L.C., DJONT/JPM Mandalay Leasing, L.L.C., DJONT/JPM Orlando I-Drive Leasing, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., DJONT/JPM Troy Leasing, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FCH/DT Leasing, L.L.C., FCH/DT Leasing II, L.L.C., FelCor TRS Holdings, L.P., FelCor LP and JPMorgan Chase Bank (filed as Exhibit 10.31.6 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).

10.31.1		Form of Loan Agreement, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, between JPMorgan Chase Bank, as lender, and each of FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C. and FelCor/JPM BWI Hotel, L.L.C. and FCH/DT BWI Hotel, L.L.C., as borrowers, and acknowledged and agreed by FelCor LP (filed as Exhibit 10.34 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).

10.31.2		Form of Mortgage, Renewal Mortgage, Deed of Trust, Deed to Secure Debt, Indemnity Deed of Trust and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, from FelCor/JPM Wilmington Hotel, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., FelCor/JPM Austin Holdings, L.P., DJONT/JPM Austin Leasing, L.P., FelCor/JPM Orlando Hotel, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., FelCor/JPM Denver Hotel, L.L.C., DJONT/JPM Denver Leasing, L.L.C., FelCor/JPM Troy Hotel, L.L.C., DJONT/JPM Troy Leasing, L.L.C., FCH/DT BWI Holdings, L.P., FCH/DT BWI Hotel, L.L.C. and DJONT/JPM BWI Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary (filed as Exhibit 10.34.1 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).

10.31.3		Form of nine separate Promissory Notes, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C. and FelCor/JPM BWI Hotel, L.L.C., each separately payable to the order of JPMorgan Chase Bank in the respective original principal amounts of $11,000,000 (Wilmington, Delaware), $21,368,000 (Phoenix, Arizona), $5,500,000 (Boca Raton, Florida), $13,500,000 (Atlanta, Georgia), $9,616,000 (Austin, Texas), $9,798,000 (Orlando, Florida), $5,000,000 (Aurora, Colorado), $6,900,000 (Troy, Michigan) and $24,120,000 (Linthicum, Maryland) (filed as Exhibit 10.34.2 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).

10.31.4		Form of Guaranty of Recourse Obligations of Borrower, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor LP in favor of JPMorgan Chase Bank (filed as Exhibit 10.34.3 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).


Exhibit
Number		Description of Exhibit
10.32.1		Construction Loan Agreement, dated April 27, 2005, among Grande Palms, L.L.C. and Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto, and Bank of America Securities, as Lead Arranger, for a maximum principal loan amount of $69.8 million (filed as Exhibit 10.34.1 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

10.32.2		Guaranty Agreement, dated April 27, 2005, by FelCor Lodging Limited Partnership in favor of Bank of America, N.A. on behalf of the lenders(filed as Exhibit 10.34.2 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

10.32.3		Form of Promissory Note, each dated April 27, 2005, made by Grande Palms, L.L.C., each separately payable to the order of Bank of America, N.A. ($25 million), Bank of Montreal ($20 million) and The Bank of Nova Scotia ($24.8 million)(filed as Exhibit 10.34.3 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

10.32.4		Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated April 27, 2005, made by Grande Palms, L.L.C. for the benefit of Bank of America, N.A., as Administrative Agent under the Construction Loan Agreement referenced in Exhibit 10.34.1 (filed as Exhibit 10.34.4 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

10.33		Term Credit Agreement, dated as of October 18, 2005, among FelCor TRS Borrower 1, L.P., as Initial Borrower; FelCor TRS Guarantor, L.P., FelCor LP and the other guarantors named therein as Guarantors; Citigroup North America, Inc., as Initial Lender, as Administrative Agent, and as Collateral Agent, and Citigroup Global Markets, Inc., as Sole Lead Arranger and Sole Book Running Manager, for a maximum principal loan amount of $175 million (filed as Exhibit 10.35 to FelCor’s Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference).

10.33.1*		First Amendment to Term Credit Agreement, dated as of December 9, 2005, among FelCor TRS Borrower 1, L.P. and FelCor TRS Borrower 2, L.P., as borrowers; FelCor TRS Guarantor, L.P., FelCor LP, FelCor Lodging Company, L.L.C., FelCor Philadelphia Center, L.L.C., FelCor Marshall Motels, L.L.C. and Center City Hotel Associates, as guarantors; Citicorp North America, Inc., as the initial Lender, the administrative agent for the lenders and the collateral agent for the secured parties; and Citigroup Global Markets Inc., as sole lead arranger and sole book running manager.

10.33.2*		Second Amendment to Term Credit Agreement, dated as of January 9, 2006, among FelCor TRS Borrower 1, L.P. and FelCor TRS Borrower 2, L.P., as borrowers and certain other borrowers named therein; FelCor TRS Guarantor, L.P., FelCor LP, FelCor Lodging Company, L.L.C., FelCor Philadelphia Center, L.L.C., FelCor Marshall Motels, L.L.C. and Center City Hotel Associates, as guarantors; Citicorp North America, Inc., as the initial Lender, the administrative agent for the lenders and the collateral agent for the secured parties; and Citigroup Global Markets Inc., as sole lead arranger and sole book running manager.

10.34.1*		Credit Agreement, dated as of December 12, 2005, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers for an initial aggregate amount of $125,000,000.

10.34.1.1*		First Amendment to Credit Agreement, dated as of January 12, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers.


Exhibit
Number		Description of Exhibit
10.34.1.2*		Second Amendment to Credit Agreement, dated as of January 25, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers.

10.34.2*		Subsidiary Guaranty, dated as of January 27, 2006, made by FelCor/CSS Holdings, L.P., FelCor Hotel Asset Company, L.L.C., FelCor Pennsylvania Company, L.L.C., FelCor Lodging Holding Company, L.L.C., FHAC Texas Holdings, L.P., FelCor Canada Co., FelCor Omaha Hotel Company, L.L.C., FelCor TRS Holdings, L.P., Myrtle Beach Hotels, L.L.C., FelCor TRS Borrower I, L.P., FelCor TRS Guarantor, L.P., Center City Hotel Associates, FelCor Lodging Company, L.L.C., FelCor TRS Borrower 3, L.P. and FelCor TRS Borrower 4, L.L.C.

10.35*		Purchase and Sale Agreement, dated effective as of January 20, 2006, by and between FelCor and Hospitality Properties Trust.

14.1		FelCor Code of Business Conduct and Ethics (filed as Exhibit 14.1 to the 2004 Form 10-K and incorporated herein by reference).

21.1*		List of Subsidiaries of FelCor.

23.1*		Consent of PricewaterhouseCoopers LLP.

31.1*		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).

32.1*		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2*		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).


*		Indicates that the document is filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	FELCOR LODGING TRUST INCORPORATED
	By:	/s/ Lawrence D. Robinson
		Lawrence D. Robinson
		Executive Vice President

Date: March 15, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Date		Signature
March 15, 2006		/s/ Thomas J. Corcoran, Jr.

		Thomas J. Corcoran, Jr.
		Chairman of the Board and Director

March 15, 2006		/s/ Richard A. Smith

		Richard A. Smith
		President and Director (Chief Executive Officer)

March 15, 2006		/s/ Andrew J. Welch

		Andrew J. Welch
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

March 15, 2006		/s/ Lester C. Johnson

		Lester C. Johnson
		Senior Vice President and Controller
		(Principal Accounting Officer)

March 8, 2006		/s/ Melinda J. Bush

		Melinda J. Bush, Director

March 13, 2006		/s/ Richard S. Ellwood

		Richard S. Ellwood, Director

March 8, 2006		/s/ Richard O. Jacobson

		Richard O. Jacobson, Director

March 9, 2006		/s/ David C. Kloeppel

		David C. Kloeppel, Director

March 13, 2006		/s/ Charles A. Ledsinger, Jr.

		Charles A. Ledsinger, Jr., Director

March 9, 2006		/s/ Robert H. Lutz, Jr.

		Robert H. Lutz, Jr., Director

March 13, 2006		/s/ Robert A. Mathewson

		Robert A. Mathewson, Director

March 8, 2006		/s/ Donald J. McNamara

		Donald J. McNamara, Director

FELCOR LODGING TRUST INCORPORATED

INDEX TO FINANCIAL STATEMENTS

PART I — FINANCIAL INFORMATION


Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets — December 31, 2005 and 2004		F-4
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		F-5
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2005, 2004 and 2003		F-6
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003		F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		F-8
Notes to Consolidated Financial Statements		F-9
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2005		F-35

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of FelCor Lodging Trust Incorporated:

We have completed integrated audits of FelCor Lodging Trust Incorporated’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of FelCor Lodging Trust Incorporated and its subsidiaries, or the Company, at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing in Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

F-2

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Dallas, Texas
March 14, 2006

F-3

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and 2004

(in thousands)


	2005			2004
ASSETS
Investment in hotels, net of accumulated depreciation of $1,019,123 in 2005 and $948,631 in 2004	$	2,587,379		$	2,955,766
Investment in unconsolidated entities		109,262			110,843
Hotels held for sale		—			255
Cash and cash equivalents		94,564			119,310
Restricted cash		18,298			34,736
Accounts receivable, net of allowance for doubtful accounts of $2,203 in 2005 and $905 in 2004		54,815			51,845
Deferred expenses, net of accumulated amortization of $12,150 in 2005 and $14,935 in 2004		12,423			18,804
Condominium development project		13,051			1,613
Other assets		29,301			24,486

Total assets	$	2,919,093		$	3,317,658


LIABILITIES AND STOCKHOLDERS’ EQUITY

Debt, net of discount of $2,982 in 2005 and $4,529 in 2004	$	1,675,280		$	1,767,122
Distributions payable		8,596			8,867
Accrued expenses and other liabilities		138,017			124,922

Total liabilities		1,821,893			1,900,911


Commitments and contingencies

Minority interest in FelCor LP, 2,763 and 2,788 units issued and outstanding at December 31, 2005 and 2004, respectively		25,393			39,659

Minority interest in other partnerships		40,014			46,765


Stockholders’ equity:
Preferred stock, $.01 par value, 20,000 shares authorized:
Series A Cumulative Convertible Preferred Stock, 12,880 shares, liquidation value of $322,011 issued and outstanding at December 31, 2005 and December 31, 2004		309,362			309,362
Series B Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,395 issued and outstanding at December 31, 2004		—			169,395
Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950 issued and outstanding at December 31, 2005		169,412			—
Common stock, $.01 par value, 200,000 shares authorized and 69,440 and 69,436 shares issued, including shares in treasury, at December 31, 2005 and 2004, respectively		694			694
Additional paid-in capital		2,081,869			2,085,189
Accumulated other comprehensive income		19,602			15,780
Accumulated deficit		(1,372,720	)		(1,066,143	)
Less: Common stock in treasury, at cost, of 9,231 and 9,619 shares at December 31, 2005 and 2004, respectively		(176,426	)		(183,954	)


Total stockholders’ equity		1,031,793			1,330,323


Total liabilities and stockholders’ equity	$	2,919,093		$	3,317,658

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

F-4

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 2005, 2004 and 2003

(in thousands, except per share data)


	2005			2004			2003
Revenues:
Hotel operating revenue	$	1,210,130		$	1,113,153		$	1,047,342
Retail space rental and other revenue		2,049			2,721			1,022

Total revenues		1,212,179			1,115,874			1,048,364


Expenses:
Hotel departmental expenses		419,477			400,396			367,446
Other property operating costs		353,070			323,587			303,611
Management and franchise fees		61,348			57,305			55,345
Taxes, insurance and lease expense		122,186			109,310			112,829
Abandoned projects		265			—			—
Corporate expenses		19,025			17,035			14,233
Depreciation		119,323			111,836			116,710

Total operating expenses		1,094,694			1,019,469			970,174

Operating income		117,485			96,405			78,190
Interest expense, net		(130,954	)		(145,666	)		(162,808	)
Impairment loss		(263,091	)		(3,494	)		(74,160	)
Hurricane loss		(6,481	)		(2,125	)		—
Charge-off of deferred financing costs		(2,659	)		(6,960	)		(2,834	)
Loss on early extinguishment of debt		(11,921	)		(44,216	)		—
Gain on swap termination		—			1,005			—


Loss before equity in income of unconsolidated entities, minority interests and gain on sale of assets		(297,621	)		(105,051	)		(161,612	)
Equity in income from unconsolidated entities		10,169			17,121			2,370
Gain on sale of assets		733			1,167			284
Minority interests		23,813			5,229			10,632

Loss from continuing operations		(262,906	)		(81,534	)		(148,326	)
Discontinued operations		11,291			(18,593	)		(161,818	)


Net loss		(251,615	)		(100,127	)		(310,144	)
Preferred dividends		(39,408	)		(35,130	)		(26,908	)
Issuance costs of redeemed preferred stock		(6,522	)		—			—

Net loss applicable to common stockholders	$	(297,545	)	$	(135,257	)	$	(337,052	)


Loss per common share data:
Basic and diluted:
Net loss from continuing operations	$	(5.20	)	$	(1.98	)	$	(2.99	)

Net loss	$	(5.01	)	$	(2.29	)	$	(5.75	)

Weighted average common shares outstanding		59,436			59,045			58,657


Cash dividends declared on common stock	$	0.15			—			—

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

F-5

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the years ended December 31, 2005, 2004 and 2003

(in thousands)


	2005			2004			2003
Net loss	$	(251,615	)	$	(100,127	)	$	(310,144	)
Unrealized holding gains from interest rate swaps		2,074			147			—
Foreign currency translation adjustment		1,748			6,155			9,577

Comprehensive loss	$	(247,793	)	$	(93,825	)	$	(300,567	)

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

F-6

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2005, 2004, and 2003
(in thousands)


	Preferred Stock						Common Stock
																Accumulated
	Number						Number						Additional			Other									Total
	of						of						Paid-in			Comprehensive			Accumulated			Treasury			Stockholders’
	Shares			Amount			Shares			Amount			Capital			Income (Loss)			Deficit			Stock			Equity
Balance at December 31, 2002		6,048		$	318,907			75,136		$	751		$	2,204,530		$	(99	)	$	(593,834	)	$	(313,438	)	$	1,616,817
Foreign exchange translation		—			—			—			—			—			9,577			—			—			9,577
Issuance of stock awards		—			—			6			—			(1,873	)		—			—			1,873			—
Amortization of stock awards		—			—			—			—			2,210			—			—			—			2,210
Common stock exchange for treasury stock		—			—			(5,713	)		(57	)		(109,295	)		—			—			109,352			—
Conversion of operating partnership units into common shares		—			—			—			—			(2,495	)		—			—			4,936			2,441
Allocation from minority units		—			—			—			—			2,279			—			—			—			2,279
Dividends declared:
$1.95 per Series A preferred share		—			—			—			—			—			—			(11,662	)		—			(11,662	)
$2.25 per Series B depositary preferred share		—			—			—			—			—			—			(15,246	)		—			(15,246	)
Net loss		—			—			—			—			—			—			(310,144	)		—			(310,144	)

Balance at December 31, 2003		6,048			318,907			69,429			694			2,095,356			9,478			(930,886	)		(197,277	)		1,296,272
Foreign exchange translation		—			—			—			—			—			6,155			—			—			6,155
Issuance of Series A preferred stock		6,900			159,850			—			—			(3,850	)		—			—			—			156,000
Issuance of stock awards		—			—			7			—			(9,067	)		—			—			9,092			25
Amortization of stock awards		—			—			—			—			3,179			—			—			—			3,179
Unrealized gain on hedging transaction		—			—			—			—			—			147			—			—			147
Conversion of operating partnership units into common shares		—			—			—			—			(1,999	)		—			—			4,692			2,693
Allocation from minority units		—			—			—			—			1,109			—			—			—			1,109
Forfeitures of stock awards		—			—			—			—			461			—			—			(461	)		—
Dividends declared:
$1.95 per Series A preferred share		—			—			—			—			—			—			(19,884	)		—			(19,884	)
$2.25 per Series B depositary preferred share		—			—			—			—			—			—			(15,246	)		—			(15,246	)
Net loss		—			—			—			—			—			—			(100,127	)		—			(100,127	)

Balance at December 31, 2004		12,948			478,757			69,436			694			2,085,189			15,780			(1,066,143	)		(183,954	)		1,330,323
Foreign exchange translation		—			—			—			—			—			1,748			—			—			1,748
Issuance of Series C preferred stock		68			169,412			—			—			(5,492	)		—			—			—			163,920
Retirement of Series B preferred stock		(68	)		(169,395	)		—			—			6,522			—			(6,522	)					(169,395	)
Issuance of stock awards		—			—			4			—			(7,285	)		—			—			7,022			(263	)
Amortization of stock awards		—			—			—			—			3,265			—			—			—			3,265
Unrealized gain on hedging transaction		—			—			—			—			—			2,074			—			—			2,074
Conversion of operating partnership units into common shares		—			—			—			—			(118	)		—			—			506			388
Allocation from minority units		—			—			—			—			(212	)		—			—			—			(212	)
Dividends declared:		—
$0.15 per common share					—			—			—			—			—			(9,032	)		—			(9,032	)
$1.95 per Series A preferred share		—			—			—			—			—			—			(25,117	)		—			(25,117	)
$1.125 per Series B depositary preferred share		—			—			—			—			—			—			(5,432	)		—			(5,432	)
$1.63 per Series C depositary preferred share		—			—			—			—			—			—			(8,859	)		—			(8,859	)
Net loss		—			—			—			—			—			—			(251,615	)		—			(251,615	)

Balance at December 31, 2005		12,948		$	478,774			69,440		$	694		$	2,081,869		$	19,602		$	(1,372,720	)	$	(176,426	)	$	1,031,793

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

F-7

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2005, 2004, and 2003
(in thousands)


	2005			2004			2003
Cash flows from operating activities:
Net loss	$	(251,615	)	$	(100,127	)	$	(310,144	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		122,535			122,653			140,225
Gain on sale of assets		(12,522	)		(20,589	)		(2,660	)
Amortization of deferred financing fees		3,399			4,161			4,996
Accretion (amortization) of debt		1,167			510			590
Allowance for doubtful accounts		1,298			199			309
Amortization of unearned officers’ and directors’ compensation		2,904			2,945			2,210
Equity in income from unconsolidated entities		(10,169	)		(17,121	)		(2,370	)
Distributions of income from unconsolidated entities		1,062			11,932			2,212
Charge-off of deferred financing costs		2,659			6,960			2,834
Loss (gain) on early extinguishment of debt		8,641			44,216			(1,611	)
Impairment loss on investment in hotels and hotels held for sale		266,751			38,289			245,509
Minority interests		(23,295	)		(7,375	)		(20,588	)
Changes in assets and liabilities:
Accounts receivable		(7,476	)		(2,412	)		2,597
Restricted cash operations		(6,941	)		(23,467	)		2,826
Other assets		(4,887	)		(424	)		(7,043	)
Accrued expenses and other liabilities		17,971			(27,069	)		(6,978	)

Net cash flow provided by operating activities		111,482			33,281			52,914

Cash flows provided by (used in) investing activities:
Acquisition of hotels		—			(27,759	)		—
Improvements and additions to hotels		(111,664	)		(95,599	)		(64,045	)
Additions to condominium project		(11,546	)		—			—
Acquisition of joint venture		(1,197	)		—			—
Cash from consolidation of venture		3,204			—			2,705
Proceeds from asset dispositions		73,502			152,686			104,131
Proceeds received from property damage insurance		3,131			—			—
Decrease (increase) in restricted cash-investing		10,804			8,155			(689	)
Cash distributions from unconsolidated entities		6,578			10,899			6,636
Capital contributions to unconsolidated entities		(1,350	)		—			—

Net cash flow provided by (used in) investing activities		(28,538	)		48,382			48,738

Cash flows provided by (used in) financing activities:
Proceeds from borrowings		233,911			523,802			321,119
Net proceeds from sale of preferred stock		164,147			158,990			—
Redemption of preferred stock		(169,395	)		—			—
Repayment of borrowings		(292,990	)		(838,891	)		(198,426	)
Payment of debt issue costs		(659	)		(5,517	)		(6,656	)
Decrease in restricted cash financing		4,401			—			—
Distributions paid to other partnerships’ minority interests		—			(4,000	)		—
Contribution from minority interest holders		2,200			3,247			—
Distributions paid to FelCor LP limited partners		(414	)		—			(492	)
Distributions paid to preferred stockholders		(39,905	)		(34,757	)		(26,908	)
Distributions paid to common stockholders		(9,032	)		—			(8,796	)

Net cash flow provided by (used in) financing activities		(107,736	)		(197,126	)		79,841

Effect of exchange rate changes on cash		46			2,888			229
Net change in cash and cash equivalents		(24,746	)		(112,575	)		181,722
Cash and cash equivalents at beginning of periods		119,310			231,885			50,163

Cash and cash equivalents at end of periods	$	94,564		$	119,310		$	231,885

Supplemental cash flow information — Interest paid	$	132,091		$	162,324		$	160,407

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

F-8

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

In 1994, FelCor Lodging Trust Incorporated, or FelCor, went public as a real estate investment trust, or REIT, with six hotels and a market capitalization of $120 million. We are now one of the nation’s largest lodging REITs based on total assets and number of hotels owned, holding ownership interests in 130 hotels at December 31, 2005. We are the owner of the largest number of Embassy Suites Hotels^® and independently owned Doubletree^®-branded hotels in North America. Our portfolio also includes 66 upscale all-suite hotels.

FelCor is the sole general partner of, and the owner of an approximately 95% limited partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP. All of our operations are conducted solely through FelCor LP, or its subsidiaries.

At December 31, 2005, we had ownership interests in 130 hotels. We owned a 100% real estate interest in 101 hotels, a 90% or greater interest in entities owning seven hotels, a 75% interest in an entity owning one hotel, a 60% interest in an entity owning two hotels, and 50% interests in unconsolidated entities that own 19 hotels. We consolidated the operating revenues and expenses with regard to 125 of these hotels as a result of our ownership interests in the operating lessees of these hotels. At December 31, 2005, we owned 100% of the operating lessees with regard to 113 hotels and 51% of the operating lessees with regard to 12 hotels. The operating revenues and expenses of the remaining five hotels were unconsolidated, four hotels were operated by 50% owned lessees and one hotel, in which we had a 50% ownership interest, was operated without a lease.

At December 31, 2005, we had 60,209,499 shares of FelCor common stock and 2,762,540 units of FelCor LP limited partnership interest outstanding.

The following table reflects the distribution, by brand, of the 125 hotels included in our consolidated hotel continuing operations at December 31, 2005:


Brand	Hotels		Rooms
Embassy Suites Hotels		54		13,653
Doubletree and Doubletree Guest Suites^®		9		2,019
Holiday Inn^® — branded		33		11,356
Crowne Plaza^® and Crowne Plaza Suites^®		12		4,025
Sheraton^® and Sheraton Suites^®		10		3,269
Other brands		7		1,810

Total hotels		125

The hotels shown in the above table are located in the United States (28 states) and Canada (two hotels), with concentrations in Texas (25 hotels), California (19 hotels), Florida (15 hotels) and Georgia (12 hotels). Approximately 55% of our hotel room revenues were generated from hotels in these four states during 2005.

At December 31, 2005, of the 125 consolidated hotels included in continuing operations, (i) subsidiaries of Hilton Hotels corporation, or Hilton, managed 63, (ii) subsidiaries of InterContinental Hotels Group, or IHG, managed 48, (iii) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood, managed 11, and (iv) independent management companies managed three.

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 stockholders’ equity.

F-9

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies

Principles of Consolidation— Our accompanying consolidated financial statements include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation. Investments in unconsolidated entities (consisting entirely of 50 percent owned ventures) are accounted for by the equity method.

Use of Estimates— 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.

Investment in Hotels— Our hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives of 40 years for buildings, 15 to 20 years for improvements and three to seven years for furniture, fixtures, and equipment.

We periodically review the carrying value of each of our hotels to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, we prepare a projection of the undiscounted future cash flows over the shorter of the hotel’s estimated useful life or the expected hold period, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, we make an adjustment to reduce carrying value of the hotel to its then fair value. We use recent operating results and current market information to arrive at our estimates of fair value.

Maintenance and repairs are expensed and major renewals and improvements are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from our accounts and the related gain or loss is included in operations.

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 generally 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 enter into new franchise and management agreements with the selected brand owner and manager.

Investment in Unconsolidated Entities— We own a 50% interest in various real estate ventures in which the partners or members jointly make all material decisions concerning the business affairs and operations. Additionally, we also own a preferred equity interest in one of these real estate ventures. Because we do not control these entities, we carry our investment in unconsolidated entities at cost, plus our equity in net earnings or losses, less distributions received since the date of acquisition and any adjustment for impairment. Our equity in net earnings or losses is adjusted for the straight-line depreciation, over the lower of 40 years or the remaining life of the venture, of the difference between our cost and our proportionate share of the underlying net assets at the date of acquisition. We periodically review our investment in unconsolidated entities for other than temporary declines in market value. Any decline that is not expected to be recovered in the next 12 months is considered other than temporary and an impairment is recorded as a reduction in the carrying value of the investment. Estimated fair values are based on our projections of cash flows and market capitalization rates.

F-10

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies — (continued)

Hotels Held for Sale —We consider each individual hotel to be an identifiable component of our business. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we do not consider hotels as “held for sale” until it is probable that the sale will be completed within one year. Once a hotel is “held for sale” the operations related to the hotel are included in discontinued operations. We consider a hotel as “held for sale” once we have executed a contract for sale, allowed the buyer to complete their due diligence review, and received a substantial non-refundable deposit. Until a buyer has completed its due diligence review of the asset, necessary approvals have been received and substantive conditions to the buyer’s obligation to perform have been satisfied, we do not consider a sale to be probable.

We do not depreciate hotel assets so long as they are classified as “held for sale.” Upon designation of a hotel as being “held for sale,” and quarterly thereafter, we review the carrying value of the hotel and, as appropriate, adjust its carrying value to the lesser of depreciated cost or fair value, less cost to sell, in accordance with SFAS 144. Any such adjustment in the carrying value of a hotel classified as “held for sale” is reflected in discontinued operations. We include in discontinued operations the operating results of those hotels that are classified as “held for sale” or that have been sold.

Cash and Cash Equivalents— All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.

We place cash deposits at major banks. Our bank account balances may exceed the Federal Depository Insurance Limits of $100,000; however, management believes the credit risk related to these deposits is minimal.

Restricted Cash—Restricted cash includes reserves for capital expenditures, real estate taxes, and insurance, as well as cash collateral deposits for mortgage debt agreement provisions.

Deferred Expenses— Deferred expenses, consisting primarily of loan costs, are recorded at cost. Amortization is computed using a method that approximates the interest method over the maturity of the related debt.

Other Assets —Other assets consist primarily of hotel operating inventories, prepaid expenses and deposits.

Revenue Recognition— Approximately 99.8% to 99.9% of our revenue is comprised of hotel operating revenues, such as room revenue, food and beverage revenue, and revenue from other hotel operating departments (such as telephone, parking and business centers). These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues are recorded on an accrual basis, as earned. Appropriate allowances are made for doubtful accounts and are recorded as a bad debt expense. The remaining 0.1% to 0.2% of our revenue is from retail space rental revenue and other sources.

We do not have any time-share arrangements and do not sponsor any frequent guest programs for which we would have any contingent liability. We participate in frequent guest 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 frequent guest 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 frequent guest 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.

F-11

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies — (continued)

Foreign Currency Translation— Results of operations for our Canadian hotels are maintained in Canadian dollars and translated using the average exchange rates during the period. Assets and liabilities are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Resulting translation adjustments are reflected in accumulated other comprehensive income.

Capitalized Cost— We capitalize interest and certain other costs, such as property taxes, land leases, and property insurance relating to hotels undergoing major renovations and redevelopments. Such costs capitalized in 2005, 2004, and 2003, were $5.8 million, $3.6 million and $2.0 million, respectively.

Net Income (Loss) Per Common Share— We compute basic earnings per share by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding. We compute diluted earnings per share by dividing net income (loss) available to common stockholders by the weighted average number of common shares and equivalents outstanding. Common stock equivalents represent shares issuable upon exercise of stock options and unvested officers’ restricted stock grants.

For all years presented, our Series A Cumulative Preferred Stock, or Series A preferred stock, if converted to common shares, would be antidilutive; accordingly we do not assume conversion of the Series A preferred stock in the computation of diluted earnings per share. For all years presented, stock options granted are not included in the computation of diluted earnings per share because the average market price of the common stock during each respective year was less than the exercise price of the options.

Stock Compensation¾ We apply Accounting Principles Board, or APB, Opinion 25 and related interpretations in accounting for our 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 us, would have changed the methods we apply in recognizing the cost of the plans. As permitted under the transition provisions of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” we began recognizing compensation expense in accordance with SFAS 123 under the prospective method for all new awards issued after December 31, 2002. Had the compensation cost for our 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 common share for the periods presented would approximate the pro forma amounts below (in thousands, except per share data):


	2005			2004			2003
Loss from continuing operations, as reported	$	(262,906	)	$	(81,534	)	$	(148,326	)
Add stock based compensation included in the net loss, as reported		2,904			2,945			2,210
Less 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		(2,914	)		(3,001	)		(2,355	)

Loss from continuing operations, pro forma	$	(262,916	)	$	(81,590	)	$	(148,471	)


Basic and diluted net loss from continuing operations per common share:
As reported	$	(5.20	)	$	(1.98	)	$	(2.99	)
Pro forma	$	(5.20	)	$	(1.98	)	$	(2.99	)

The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts.

F-12

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies¾ (continued)

Derivatives¾ We record derivatives in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders’ equity or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and the nature of the hedging activity.

Segment Information¾ SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” requires the disclosure of selected information about operating segments. Based on the guidance provided in the standard, we have determined that our business is conducted in one operating segment.

Distributions and Dividends— We and FelCor LP resumed paying a common dividend with the fourth quarter 2005 payment of $0.15 per share. Additionally, we have paid regular quarterly dividends on our preferred stock in accordance with our preferred stock dividend requirements. In 2003, we announced that, as the result of declines in our portfolio’s average daily rate, which was attributed to the uncertain geopolitical environment and soft business climate, along with the risk of further margin deterioration, we suspended payment of regular common dividends. Our ability to make distributions is dependent on our receipt of quarterly distributions from FelCor LP, and FelCor LP’s ability to make distributions is dependent upon the results of operations of our hotels.

Minority Interests— Minority interests in FelCor LP and other consolidated subsidiaries represent the proportionate share of the equity in FelCor LP and other consolidated subsidiaries not owned by us. We allocate income and loss to minority interest based on the weighted average percentage ownership throughout the year.

Income Taxes— We have elected to be treated as a REIT under Sections 856 to 860 of the Internal Revenue Code. We generally lease our hotels to wholly-owned taxable REIT subsidiaries, or TRSs, that are subject to federal and state income taxes. Through these lessees we record room revenue, food and beverage revenue and other revenue related to the operations of our hotels. We account for income taxes in accordance with the provisions of SFAS 109. Under SFAS 109, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

3. Investment in Hotels

Investment in hotels at December 31, 2005 and 2004 consisted of the following (in thousands):


	2005			2004
Building and improvements.	$	2,710,465		$	3,031,237
Furniture, fixtures and equipment		567,330			519,358
Land		294,074			316,364
Construction in progress		34,633			37,438

		3,606,502			3,904,397
Accumulated depreciation		(1,019,123	)		(948,631	)

	$	2,587,379		$	2,955,766

In 2004, we acquired the 132 room Santa Monica Hotel in California for $27.8 million. We entered into a 14-year management agreement with IHG for the hotel. We utilized cash on hand to acquire this hotel.

F-13

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Investment in Hotels — (continued)

Discussions of hotel dispositions are included in our Discontinued Operations footnote.

We invested $112 million and $96 million in additions and improvements to our consolidated hotels during the years ended December 31, 2005 and 2004, respectively.

4. Impairment Charge

Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider our hotels to be components as defined by SFAS 144 for purposes of determining impairment charges and reporting discontinued operations.

In 2005, we recorded impairment charges, under the provisions of SFAS 144, of $266.8 million ($263.1 million of which is included in continuing operations and the remainder is included in discontinued operations). The 2005 charges primarily related to our decision to designate as non-strategic and sell an additional 28 hotels, in connection with the negotiation of the amendment to our IHG management agreements. Under the management agreements entered into with IHG in 2001 and amended in 2004, we were obligated to reinvest the net proceeds from the sale of IHG-managed hotels in other IHG-managed hotels or pay substantial liquidated damages to IHG. This potential exposure to liquidated damages made it impractical to sell IHG-managed hotels. In January 2006, we executed an agreement modifying our management agreements covering our hotels managed by IHG. This agreement eliminates any potential liquidated damages or reinvestment requirement with respect to hotels previously sold, IHG-managed hotels now identified for sale and one Crowne Plaza hotel to be converted to another brand. We also recorded impairment charges with respect to 11 hotels previously designated as non-strategic principally because of revised estimates of fair value resulting from changes in the market and sales offers. In January 2006, we sold eight non-strategic hotels for gross proceeds of approximately $160 million.

In 2004, we recorded impairment charges, under the provisions of SFAS 144, of $38.3 million ($3.5 million of which is included in continuing operations and the remainder is included in discontinued operations). The 2004 charges are related to 17 hotels. With respect to one hotel, we entered into an option in the third quarter 2004 that would permit the option holder to purchase the hotel for substantially less than its carrying value. The remaining hotels either had revised estimates of fair value or reduced estimated holding periods.

In 2003, we recorded impairment charges, under the provisions of SFAS 144, of $245.5 million ($74.2 million of which is included in continuing operations and the remainder is included in discontinued operations). The 2003 charges were primarily related to our decision to sell 11 IHG-managed hotels, following an amendment to the management agreements on these hotels, and our decision to sell an additional seven hotels. We tested certain of our previously impaired non-strategic hotels for recoverability during the fourth quarter of 2003 as the result of one or more of the following circumstances: continued operating losses; further declines in revenue, in excess of that in our core portfolio; further reductions in the estimated hold periods; and revised estimates of fair value. As a result, we recorded additional impairment charges on certain of the non-strategic hotels identified for sale in 2002.

F-14

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Impairment Charge — (continued)

The non-strategic hotels held for investment, which are included in our continuing operations, were tested for impairment as required by SFAS 144 using the undiscounted cash flows for the shorter of the estimated remaining holding periods or the useful life of the hotels. Those hotels that failed the impairment test described in SFAS 144 were written down to their then current estimated fair value, before any selling expenses. These hotels continue to be depreciated over their remaining useful lives.

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

5. Discontinued Operations

The results of operations of the19 hotels disposed of in 2005, 18 hotels disposed of in 2004 and 16 hotels disposed of in 2003, are presented in discontinued operations for the periods presented.

Results of operations for the 53 hotels included in discontinued operations are as follows:


	Year Ended December 31,
	2005			2004			2003
Hotel operating revenue	$	45,970		$	145,007		$	209,684
Operating expenses		(44,599	)		(146,430	)		(211,091	)
Asset disposition costs		(1,300	)		(4,900	)		—

Operating income (loss)		1,371			(1,423	)		(1,407	)
Direct interest costs, net		(918	)		(3,943	)		(3,003	)
Impairment		(3,660	)		(34,795	)		(171,349	)
Gain on the early extinguishment of debt		3,280			—			1,611
Gain on disposition		11,736			19,422			2,376
Minority interest		(518	)		2,146			9,954

Income (loss) from discontinued operations	$	11,291		$	(18,593	)	$	(161,818	)

In 2005, we sold 11 hotels for gross proceeds of $79.2 million. Additionally, in 2005 we relinquished title to the non-recourse mortgage holder of eight limited service hotels, owned by a consolidated joint venture, in exchange for the extinguishment of $49.2 million of debt. Associated with these eight hotels we recorded $1.3 million of asset disposition costs and $3.3 million gain on early extinguishment of debt.

In 2004, we sold 17 hotels for gross proceeds of $157.0 million. We also transferred our interest in a hotel that we leased to the lessor in 2004. In conjunction with the termination of this lease we paid the lessor $5 million, which was recorded as asset disposition costs.

In 2003, we sold 14 hotels for gross proceeds of $123.1 million. We also relinquished title to the non-recourse mortgage holder of two low-rise hotels in exchange for the extinguishment of $9.7 million of debt. Associated with these two hotels we recorded $0.3 million gain on early extinguishment of debt.

F-15

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Unconsolidated Entities

We owned 50% interests in joint venture entities that owned 19 hotels at December 31, 2005 and 20 hotels at December 31, 2004. We also owned a 50% interest in entities that own real estate in Myrtle Beach, South Carolina, provide condominium management services, and lease four hotels. We account for our investments in these unconsolidated entities under the equity method. We do not have any majority-owned subsidiaries that are not consolidated in our financial statements. We make adjustments to our equity in income from unconsolidated entities related to the difference between our basis in investment in unconsolidated entities compared to the historical basis of the assets recorded by the joint ventures.

Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):


	December 31,
	2005		2004
Balance sheet information:
Investment in hotels, net of accumulated depreciation	$	259,645	$	282,028
Total assets	$	287,375	$	313,104
Debt	$	203,880	$	218,292
Total liabilities	$	203,484	$	237,597
Equity	$	83,891	$	75,507

Debt of our unconsolidated entities at December 31, 2005, consisted of $203.9 million of non-recourse mortgage debt.

Summarized combined statement of operations information for 100% of our unconsolidated entities is as follows (in thousands):


	2005			2004			2003
Total revenues	$	75,396		$	67,902		$	75,456
Net income	$	21,801		$	33,746	^(a)	$	9,438
Net income attributable to FelCor	$	11,348		$	18,483		$	4,459
Preferred return		516			516			514
Depreciation of cost in excess of book value		(1,695	)		(1,878	)		(2,603	)

Equity in income from unconsolidated entities	$	10,169		$	17,121		$	2,370

(a) Includes $17.5 million from the gain on the sale of residential condominium development in Myrtle Beach, South Carolina, which was realized in 2004. Our share of the gain was $8.8 million. We also recorded additional gains of $1.9 million in our equity in income from unconsolidated entities to reflect the differences between our historical basis in the assets sold and the basis recorded by the condominium joint venture.

A summary of the components of our investment in unconsolidated entities as of December 31, 2005 and 2004 are as follows (in thousands):


	2005			2004
Hotel investments	$	43,117		$	38,497
Cost in excess of book value of hotel investments		63,098			68,924
Land and condominium investments		4,270			4,124
Hotel lessee investments		(1,223	)		(702	)

	$	109,262		$	110,843

F-16

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Unconsolidated Entities — (continued)

A summary of the components of our equity in income of unconsolidated entities for the years ended December 31, 2005, 2004, and 2003, are as follows (in thousands):


	2005			2004			2003
Hotel investments	$	10,691		$	17,673		$	2,981
Hotel lessee operations		(522	)		(552	)		(611	)

	$	10,169		$	17,121		$	2,370

In 2005, we acquired, for $1.2 million, an additional 25% interest in a joint venture owning a single hotel, bringing our interest in this previously unconsolidated venture to 75%. This venture has been included in our consolidated financial statements at December 31, 2005 from the date of acquisition of the remaining interest.

7. Debt

Debt at December 31, 2005 and 2004 consisted of the following (in thousands):


								Balance Outstanding
	Encumbered		Interest Rate at			Maturity		December 31,
	Hotels		December 31, 2005			Date		2005		2004
Promissory note	none			6.31	^(a)	June 2016		$	650	$	650
Senior unsecured term notes	none			7.63		Oct. 2007			123,358		122,426
Senior unsecured term notes	none			9.00		June 2011			298,660		298,409
Term loan^(b)	none			5.81		Oct. 2006			225,000		—
Senior unsecured term notes	none			8.48	^(c)	June 2011			290,000		290,000

Total unsecured debt^(d)				7.89					937,668		711,485

Mortgage debt	9 hotels			6.52		July 2009-2014			104,282		192,363
Mortgage debt	8 hotels			6.63	^(e)	May 2006			117,913		144,669
Mortgage debt		—		—			—		—		127,316
Mortgage debt	7 hotels			7.32		April 2009			127,455		130,458
Mortgage debt	4 hotels			7.55		June 2009			41,912		67,959
Mortgage debt	8 hotels			8.70		May 2010			172,604		175,504
Mortgage debt	7 hotels			8.73		May 2010			133,374		135,690
Mortgage debt	1 hotel			6.77	^(a)	August 2008			15,500		15,500
Mortgage debt		—		—			—		—		10,521
Mortgage debt	1 hotel			7.91		Dec. 2007			10,457		—
Mortgage debt		—		—			—		—		49,476
Other	1 hotel			9.17		August 2011			5,204		6,181
Construction loan		—		6.47		Oct. 2007			8,911		—

Total secured debt^(d)	46 hotels			7.69					737,612		1,055,637

Total^(d)				7.80	%			$	1,675,280	$	1,767,122


(a)		Variable interest rate based on LIBOR. The six month LIBOR was 4.58% at December 31, 2005.

(b)		This term loan was repaid in January 2006.

(c)		Variable interest rate based on LIBOR. $100 million of these notes were matched with interest rate swap agreements that effectively converted the variable interest rate to a fixed rate.

(d)		Interest rates are calculated based on the weighted average outstanding debt at December 31, 2005.

(e)		Variable interest rate based on LIBOR. This debt may be extended at our option for up to two, one-year periods.

F-17

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7 . Debt¾ (continued)

We reported interest expense net of interest income of $4.1 million, $2.8 million and $2.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. We capitalized interest of $1.9 million, $1.5 million and $0.6 million, for the years ended December 31, 2005, 2004 and 2003, respectively.

In the fourth quarter of 2005, we retired $258 million of secured debt related to 25 hotels and entered into a $225 million unsecured term loan. In connection with the early retirement of $258 million of secured debt we recorded $15 million expense in the fourth quarter of 2005. The $225 million term loan was subsequently retired in January 2006 with proceeds from hotel sales, cash on hand and $45 million drawn on our $125 million line of credit, which was established in January 2006. This line of credit has certain restrictive financial covenants, including a leverage ratio, fixed charge coverage ratio, unencumbered leverage ratio and a maximum payout ratio. Associated with the early retirement of the $225 million term loan in January 2006, we will record $0.7 million write-off of loan costs in the first quarter of 2006.

On June 9, 2004, we redeemed all $175 million in principal amount of our outstanding 7.375% Senior Notes due 2004. The redemption price was $1,018 per $1,000 of the principal amount, plus accrued interest. With the retirement of this debt, we recorded a loss on redemption of $3.2 million and wrote off $0.3 million of debt issue costs. We also recorded a $1 million gain on the unwinding of the interest rate swaps tied to this debt.

During 2004, we purchased all $600 million of our 9.5% Senior Notes due 2008 (which bore interest at 10% as a result of the 2003 downgrade of the credit ratings on our senior notes) through tender offers, redemptions and by purchases in the open market, at an average price of $1,063.55 per $1,000 in principal amount. With the retirement of this debt, we recorded a loss on early extinguishment of debt of $41 million of which $38.2 million related to the premium paid in excess of par and $2.8 million related to the charge off of unamortized discount. We also wrote off debt issue costs of $6.5 million.

In 2004, we also elected to terminate our line of credit and wrote off debt issue costs of $0.2 million. We charged off $2.8 million and $3.2 million of unamortized deferred costs as a result of a reduction of the line of credit commitments in 2003 and 2002, respectively.

In June 2003, we entered into a new secured delayed draw facility with JPMorgan Chase Bank for up to $200 million. In 2004, we borrowed $194 million under this facility (collateralized by 15 hotels). The amount drawn under the facility was converted into: (i) $107 million of nine separate fixed rate CMBS loans secured by nine hotels with a weighted average interest rate of 6.5% and with maturity dates ranging from 2009 to 2014, and (ii) $87 million under a cross-collateralized floating rate CMBS loan secured by six hotels with an interest rate of LIBOR plus 2.11% and with a maturity date of 2009, including extension options which are subject to our satisfaction of certain conditions. On July 28, 2004, we cancelled the unused balance of this $200 million facility.

In December 2004, we closed on $40 million second mortgage financing with regard to seven of our hotels. The second mortgage loan has a fixed interest rate of 6.82% and contains the same terms and conditions as the first mortgage, including the maturity date of March 2009.

F-18

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Debt¾ (continued)

provide that, so long as the debt service coverage ratios remain below a second, even lower minimum level, the lender may retain any excess cash (after deduction for the 115% of budgeted operating expenses, debt service, tax, insurance and other reserve requirements) and, if the debt service coverage ratio remains below this lower minimum level for 12 consecutive months, apply any accumulated excess cash to the prepayment of the principal amount of the debt. If the debt service coverage ratio exceeds the lower minimum level for three consecutive months, any then accumulated excess cash will be returned to the owner. Eight of these 10 hotels, which accounted for 6% of our total revenues in 2005, are currently below the applicable debt service coverage ratio and are subject to the lock-box provisions. None of the hotels are currently below the second, even lower minimum debt service coverage ratio that would permit the lender to retain excess cash after deduction for the 115% of budgeted operating expenses, debt service, tax, insurance and other reserve requirements.

Our publicly-traded senior unsecured notes require that we satisfy total leverage, secured leverage and an interest coverage tests in order to: incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; pay dividends in excess of the minimum dividend required to meet the REIT qualification test; repurchase capital stock; or merge. As of the date of this filing, we have satisfied all such tests. Under the terms of certain of our indentures, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures, exceeds 4.85 to 1. Debt, as defined in the indentures, approximates our consolidated debt. EBITDA is defined in the indentures as consolidated GAAP net income, adjusted for minority interest in FelCor LP, actual cash distributions by unconsolidated entities, gains or losses from asset sales, dividends on preferred stock and extraordinary gains and losses (as defined at the date of the indentures), plus interest expense, income taxes, depreciation expense, amortization expense and other non-cash items. Although our current debt-to-EDITDA ratio is below 4.85 to 1, a decline in our EBITDA, as a result of asset sales or adverse economic developments, or an increase in our debt, could make us subject to this limitation.

Future scheduled principal payments on debt obligations at December 31, 2005, are as follows (in thousands):


Year
2006^(a)	$	356,639
2007		149,737
2008		40,106
2009		176,560
2010		281,843
2011 and thereafter		673,377

		1,678,262
Discount accretion over term		(2,982	)

	$	1,675,280


(a)		Includes a $225 million term note that was repaid in January 2006 and a $118 million non-recourse mortgage loan maturing in 2006, that may be extended at our option for up to two, one-year periods, subject to certain contingencies.

F-19

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Derivatives

On the date we enter into a derivative contract, we designate the derivative as a hedge to the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), or the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge). For a fair value hedge, the gain or loss is recognized in earnings in the period of change, together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. At December 31, 2005, all of our outstanding hedges were cash flow hedges.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy, relating to our various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or specific firm commitments. We also formally assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows or fair values of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When we determine that a derivative is not (or has ceased to be) highly effective as a hedge, we will discontinue hedge accounting, prospectively.

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.

In June 2004, we unwound six interest rate swap agreements, designated as fair value hedges, with an aggregate notional amount of $175 million that were matched with the $175 million in senior unsecured notes due 2004 that we redeemed. A $1 million gain was recorded, offsetting the loss on the redemption of the debt. Also during June 2004, five additional swaps with an aggregate amount of $125 million that were matched to the $125 million senior unsecured notes due 2007 were unwound at a cost of $2.3 million. The $2.3 million was applied to the principal balance of these notes and will be amortized to interest expense over the remaining life of the debt. During July 2004, four interest rate swap agreements with a notional value of $100 million, that were matched to mortgage debt maturing in November 2007, were unwound at a cost of $1.3 million. The $1.3 million was applied to the principal balance of this debt and will be amortized to interest expense over the remaining life of this debt.

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.

F-20

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Derivatives — (continued)

At December 31, 2005, we had three interest rate swaps with aggregate notional amount of $100 million, maturing in December 2007. These interest rate swaps are designated as cash flow hedges, and are marked to market through other comprehensive income. The estimated unrealized net gain on these interest rate swap agreements was approximately $2.2 million at December 31, 2005, and represents the amount we would receive if the agreements were terminated, based on current market rates. These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings. During the year ended December 31, 2006, approximately $1.2 million of gains in accumulated other comprehensive income related to the interest rate swap are expected to be reclassified as a reduction in interest expense as a yield adjustment of the hedged debt obligation. The interest rate received on these interest rate swaps is 4.25% plus LIBOR and the interest rate paid is 7.80%. These swaps have been 100% effective through December 31, 2005.

The amounts paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change, and we recognize them as an adjustment to interest expense, which will have a corresponding effect on our future cash flows. The interest rate swaps increased interest expense by $0.3 million during the year ended December 31, 2005 and decreased interest expense by $4.1 million and $7.2 million during the years ended December 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 each of the financial institutions that are counterparties to our interest rate swap agreements are AA to AA-.

To fulfill requirements under the $150 million secured loan facility executed in April 2003, we purchased 6% interest rate caps with a notional amount of $141.1 million. We concurrently sold interest rate caps with identical terms. In July 2004, we purchased 6.5% interest rate caps on LIBOR with a notional amount of $84.6 million to fulfill requirements under an $87 million cross-collateralized floating rate CMBS loan and concurrently sold interest rate caps with identical terms. These interest rate cap agreements have not been designated as hedges. The fair value of both the purchased and sold interest rate caps were equal at December 31, 2005, resulting in no net earnings impact.

9. Fair Value of Financial Instruments

SFAS 107 requires disclosures about the fair value of all financial instruments, whether or not recognized for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 2005. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Our estimates of the fair value of (i) accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) debt is based upon effective borrowing rates for issuance of debt with similar terms and remaining maturities; and (iii) our interest rate swaps and the hedged debt are recorded at estimates of fair value, which are based on the amount that we estimate we would currently receive upon termination of these instruments at current market rates and with reasonable assumptions about relevant future market conditions. The estimated fair value of our debt is $1.6 billion at December 31, 2005.

F-21

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our taxable income to our stockholders. We currently intend to adhere to these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate level federal income taxes on net income we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to federal income and excise taxes on our undistributed taxable income. In addition, taxable income from non-REIT activities managed through TRSs is subject to federal, state and local taxes.

We generally lease our hotels to wholly-owned TRSs that are subject to federal and state income taxes. In 2005 and 2004, we also contributed certain hotel assets to our wholly-owned TRSs. We account for income taxes in accordance with the provisions of SFAS 109, “Accounting for Income Taxes.” Under SFAS 109, we account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Reconciliation between TRS’s GAAP net loss and taxable loss:

The following table reconciles the TRS GAAP net loss to taxable loss for the years ended December 31, 2005, 2004, and 2003 (in thousands):


	2005			2004			2003
GAAP net loss	$	(251,615	)	$	(100,127	)	$	(310,144	)
GAAP net loss (income) from REIT operations		(37,237	)		35,168			171,463

GAAP net loss of taxable subsidiaries		(288,852	)		(64,959	)		(138,681	)
Impairment loss not deductible for tax		231,605			8,509			39,303
Tax loss in excess of book gains on sale of hotels		(39,842	)		(51,576	)		(31,423	)
Depreciation and amortization^(a)		(1,910	)		(4,948	)		(1,625	)
Employee benefits not deductible for tax		1,708			1,040			2,381
Other book/tax differences		4,779			(3,216	)		(2,997	)

Tax loss of taxable subsidiaries	$	(92,512	)	$	(115,150	)	$	(133,042	)


(a)		The changes in book/tax differences in depreciation and amortization principally resulting from book and tax basis differences, differences in depreciable lives and accelerated depreciation methods.

F-22

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Income Taxes — (continued)

Summary of TRS’s net deferred tax asset:

At December 31, 2005 and 2004, our TRS had a deferred tax asset, prior to any valuation allowance, primarily comprised of the following (in thousands):


	2005			2004
Accumulated net operating losses of our TRS	$	162,827		$	127,672
Tax property basis in excess of book		—			10,524
Accrued employee benefits not deductible for tax		9,695			9,046
Bad debt allowance not deductible for tax		837			344

Gross deferred tax assets		173,359			147,586
Valuation allowance		(133,138	)		(147,586	)

Deferred tax asset after valuation allowance		40,221			—

Gross deferred tax liability — book property basis in excess of tax		(40,221	)		—

Net deferred tax asset	$	—		$	—

We have provided a valuation allowance against our deferred tax asset as of December 31, 2005 and 2004, that results in a net deferred tax asset of zero as of December 31, 2005 and 2004 due to the uncertainty of realization (because of ongoing operating losses). Accordingly, no provision or benefit for income taxes is reflected in the accompanying Consolidated Statements of Operations. As of December 31, 2005, the TRS has net operating loss carryforwards for federal income tax purposes of $428.5 million which are available to offset future taxable income, if any, through 2025.

Reconciliation between REIT GAAP net loss and taxable income loss:

The following table reconciles REIT GAAP net income (loss) to taxable income (loss) for the years ended December 31, 2005, 2004 and 2003 (in thousands):


	2005			2004			2003
GAAP net income (loss) from REIT operations	$	37,237		$	(35,168	)	$	(171,463	)
Book/tax differences, net:
Depreciation and amortization^(a)		4,797			2,386			14,236
Minority interests		(24,204	)		(2,724	)		(19,241	)
Tax loss in excess of book gains on sale of hotels		(21,547	)		(10,893	)		(2,736	)
Impairment loss not deductible for tax		35,146			29,779			206,206
Other		4,045			1,314			(184	)

Taxable income (loss) subject to distribution requirement^(b)	$	35,474		$	(15,306	)	$	26,818


(a)		Book/tax differences in depreciation and amortization principally result from differences in depreciable lives and accelerated depreciation methods.

(b)		The dividend distribution requirement is 90%.

If we sell any asset acquired from Bristol Hotel Company, or Bristol, within 10 years after our merger with Bristol in 1998, and we recognize a taxable gain on the sale, we will be taxed at the highest corporate rate on an amount equal to the lesser of the amount of gain that we recognize at the time of the sale, or the amount of gain that we would have recognized if we had sold the asset at the time of the Bristol merger for its then fair market value. The sales of Bristol hotels that have been made to date have not resulted in any material amount of tax liability. If we are successful in selling the hotels that we have designated as non-strategic, the majority of which are Bristol hotels, we could incur corporate income tax with respect to the related built in gain, the amount of which cannot yet be determined. At the current time, we believe that we will be able to avoid any substantial built in gain tax on these sales through offsetting built in losses, like kind exchanges and other tax planning strategies.

F-23

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Income Taxes — (continued)

Characterization of distributions:

For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof. For the years ended December 31, 2005, 2004 and 2003, distributions paid per share were characterized as follows:


	2005				2004				2003
	Amount		%		Amount		%		Amount		%
Common Stock
Ordinary income	$	0.028		18.76	$	—		—	$	—		—
Return of capital		0.122		81.24		—		—		—		—

	$	0.150		100.00	$	—		—	$	—		—


Preferred Stock — Series A
Ordinary income	$	1.95		100.00	$	0.0425		2.18	$	1.95		100.00
Return of capital		—		—		1.9075		97.82		—		—

	$	1.95		100.00	$	1.9500		100.00	$	1.95		100.00


Preferred Stock — Series B
Ordinary income	$	1.125		100.00	$	0.0491		2.18	$	2.25		100.00
Return of capital		—		—		2.2009		97.82		—		—

	$	1.125		100.00	$	2.2500		100.00	$	2.25		100.00


Preferred Stock — Series C
Ordinary income	$	1.633		100.00	$	—		—	$	—		—
Return of capital		—		—		—		—		—		—

	$	1.633		100.00	$	—		—	$	—		—

11. Capital Stock

As of December 31, 2005, we had $600 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under a shelf registration statement previously declared effective.

Preferred Stock

Our board of directors is authorized to provide for the issuance of up to 20 million shares of preferred stock in one or more series, to establish the number of shares in each series, to fix the designation, powers, preferences and rights of each such series, and the qualifications, limitations or restrictions thereof.

In 1996, we issued 6.1 million shares of our Series A preferred stock at $25 per share. In April 2004, we completed the sale of 4.6 million shares of our $1.95 Series A Cumulative Convertible Preferred Stock. The shares were sold at a price of $23.79 per share, which included accrued dividends of $0.51 per share through April 5, 2004, resulting in net proceeds of $104 million. In August 2004, we completed the sale of an additional 2.3 million shares of our $1.95 Series A Cumulative Convertible Preferred Stock. The shares were sold at a price of $23.22 per share, which included accrued dividends of $0.28 per share through August 22, 2004, resulting in net proceeds of $52 million.

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FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Capital Stock — (continued)

The Series A preferred stock bears an annual cumulative dividend payable in arrears equal to the greater of $1.95 per share or the cash distributions declared or paid for the corresponding period on the number of shares of common stock into which the Series A preferred stock is then convertible. Each share of the Series A preferred stock is convertible at the stockholder’s option to 0.7752 shares of common stock, subject to certain adjustments. During 2000, holders of 69,400 shares of Series A preferred stock converted their shares to 53,798 common shares, which were issued from treasury shares.

In 1998, we issued 5.75 million depositary shares, representing 57,500 shares of our 9% Series B preferred stock at $25 per depositary share. In 2002, we issued 1,025,800 depositary shares, representing 10,258 shares of our Series B preferred stock at $24.37 per depositary share to yield 9.4%. In 2005, we redeemed all of the outstanding Series B preferred stock. The redemption of the Series B preferred shares resulted in a reduction in income available to common shareholders of $6.5 million and representing the original issuance cost of the Series B preferred shares redeemed.

On April 8, 2005, we completed the issuance of 5.4 million depositary shares, and an additional 1.4 million depositary shares on August 30, 2005, each representing 1/100 of a share of our 8% Series C Cumulative Redeemable Preferred Stock, with gross proceeds of $135 million and $34.4 million, respectively. The gross proceeds were used to redeem all of our 9% Series B preferred stock. We may call the Series C preferred stock and the corresponding depositary shares at $25 per depositary share. These shares have no stated maturity, sinking fund or mandatory redemption, and are not convertible into any of our other securities. The Series C preferred stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and is entitled to annual cumulative dividends at the rate of 8% of the liquidation preference (equivalent to $2.25 annually per depositary share).

Accrued dividends payable of $8.6 million at December 31, 2005, were paid in January 2006.

FelCor LP Units

We are the sole general partner of FelCor LP and are obligated to contribute the net proceeds from any issuance of our equity securities to FelCor LP in exchange for units of partnership interest, or Units, corresponding in number and terms to the equity securities issued by us. Units of limited partner interest may also be issued by FelCor LP to third parties in exchange for cash or property, and Units so issued to third parties are redeemable at the option of the holders thereof for a like number of shares of our common stock or, at our option, for the cash equivalent thereof. During 2005, 25,595 Units were exchanged for a like number of common shares issued from treasury stock. During 2004, 245,398 Units were exchanged for a like number of our common shares issued from treasury stock. During 2003, 256,118 Units were exchanged for a like number of common shares issued from treasury stock.

12. Hotel Operating Revenue, Departmental Expenses, and Other Property Operating Costs

Hotel operating revenue from continuing operations was comprised of the following (in thousands):


	Year Ended December 31,
	2005		2004		2003
Room revenue	$	975,128	$	886,478	$	835,278
Food and beverage revenue		174,537		168,391		156,974
Other operating departments		60,465		58,284		55,090

Total hotel operating revenues	$	1,210,130	$	1,113,153	$	1,047,342

F-25

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs — (continued)

Approximately 99.8% to 99.9% of our revenue in 2005, 2004 and 2003 was comprised of hotel operating revenues, which includes room revenue, food and beverage revenue, and revenue from other operating departments (such as telephone, parking and business centers). These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues are recorded on an accrual basis, as earned. Appropriate allowances are made for doubtful accounts and are recorded as a bad debt expense. The remaining percentage of our revenue was from retail space rental revenue and other sources in 2005, 2004 and 2003. During 2004, we recorded $1 million of other revenue that we received in development fees from the successful completion of a condominium project.

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.

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


	Year Ended December 31,
	2005		2004		2003
Room	$	253,563	$	238,807	$	219,399
Food and beverage		135,558		132,561		123,736
Other operating departments		30,356		29,028		24,311

Total hotel departmental expenses	$	419,477	$	400,396	$	367,446

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


	Year Ended December 31,
	2005		2004		2003
Hotel general and administrative expense	$	115,394	$	104,780	$	99,876
Marketing		103,807		96,465		90,881
Repair and maintenance		67,359		64,494		59,384
Utilities		66,510		57,848		53,470

Total other property operating costs	$	353,070	$	323,587	$	303,611

Included in hotel departmental expenses and other property operating costs were hotel compensation and benefit expenses of $383.6 million, $364.3 million and $341.6 million for the year ended December 31, 2005, 2004 and 2003, respectively.

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FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Taxes, Insurance and Lease Expense

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


	Year Ended December 31,
	2005		2004		2003
Operating lease expense^(a)	$	65,659	$	59,508	$	55,637
Real estate and other taxes		42,507		37,810		42,091
Property, general liability insurance and other		14,020		11,992		15,101

Total taxes, insurance and lease expense	$	122,186	$	109,310	$	112,829


(a)		Includes hotel lease expense of $57.0 million, $51.4 million and $47.2 million, respectively, associated with 14 hotels in 2005 and 15 hotels in 2004 and 2003 owned by unconsolidated entities and leased to our consolidated lessees. Included in lease expense is $31.0 million, $23.6 million and $19.5 million in percentage rent for the year ended December 31, 2005, 2004 and 2003, respectively.

14. Land Leases and Hotel Rent

We lease land occupied by certain hotels from third parties under various operating leases that expire through 2073. Certain land leases contain contingent rent features based on gross revenue at the respective hotels. In addition, we recognize rent expense for 14 hotels that are owned by unconsolidated entities and are leased to our consolidated lessees. These leases expire through 2015 and require the payment of base rents and contingent rent based on revenues at the respective hotels. Future minimum lease payments under our land lease obligations and hotel leases at December 31, 2005, were as follows (in thousands):


Year
2006	$	34,996
2007		14,612
2008		10,926
2009		10,919
2010		10,081
2011 and thereafter		92,102

	$	173,636

F-27

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2005, 2004 and 2003 (in thousands, except per share data):


	2005			2004			2003
Numerator:
Loss from continuing operations	$	(262,906	)	$	(81,534	)	$	(148,326	)
Less: Preferred dividends		(39,408	)		(35,130	)		(26,908	)
Issuance costs of redeemed preferred stock		(6,522	)		—			—

Loss from continuing operations and applicable to common stockholders		(308,836	)		(116,664	)		(175,234	)
Discontinued operations		11,291			(18,593	)		(161,818	)

Net loss applicable to common stockholders	$	(297,545	)	$	(135,257	)	$	(337,052	)

Denominator:
Denominator for basic loss per share — weighted average shares		59,436			59,045			58,657

Denominator for diluted loss per share — adjusted weighted average shares and assumed conversions		59,436			59,045			58,657

Loss per share data:
Basic:
Loss from continuing operations	$	(5.20	)	$	(1.98	)	$	(2.99	)

Discontinued operations	$	0.19		$	(0.31	)	$	(2.76	)

Net loss	$	(5.01	)	$	(2.29	)	$	(5.75	)


Diluted:
Loss from continuing operations	$	(5.20	)	$	(1.98	)	$	(2.99	)

Discontinued operations	$	0.19		$	(0.31	)	$	(2.76	)

Net loss	$	(5.01	)	$	(2.29	)	$	(5.75	)

Securities that could potentially dilute basic earnings per share in the future that were not included in computation of diluted earnings per share, because they would have been antidilutive for the periods presented, are as follows (unaudited, in thousands):


	2005		2004		2003
Restricted shares granted but not vested		648		395		303
Series A convertible preferred shares		9,985		9,985		4,636

Series A preferred dividends that would be excluded from net income (loss) applicable to common stockholders, if the Series A preferred shares were dilutive, were $25.1 million in 2005, $19.9 million in 2004 and $11.7 million for 2003.

16. Commitments, Contingencies and Related Party Transactions

We shared the executive offices and certain employees with FelCor, Inc. (controlled by Thomas J. Corcoran, Jr., Chairman of the Board of Directors), and it paid its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel, office supplies, telephones, and depreciation of office furniture, fixtures, and equipment. Any such allocation of shared expenses must be approved by a majority of our independent directors. FelCor, Inc. had a 10% ownership interest in one hotel and limited other investments. FelCor, Inc. paid $50,000 for shared office costs in both 2005 and 2004 and $46,000 in 2003.

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FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Commitments, Contingencies and Related Party Transactions — (continued)

In an effort to keep our cost of insurance within reasonable limits, we have only purchased terrorism insurance for those hotels that are secured by mortgage debt, as required by our lenders. Our terrorism insurance has per occurrence and aggregate limits of $50 million. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 71 of our hotels; the remainder of our hotels participate in general liability programs of our managers, with no deductible. Because of our general liability deductible for the 71 hotels, we maintain reserves to cover the estimated ultimate uninsured liability for losses with respect to reported and unreported claims incurred as of the end of each accounting period. At December 31, 2005 and 2004, our reserve for this self-insured portion of general liability claims was $5.6 million and $3.9 million, respectively. Our property program has a $100,000 all risk deductible, a deductible of 3% of insured value for named windstorm and a deductible of 5% of insured value for California quake. Should uninsured or not fully insured losses be substantial, they could have a material adverse impact on our operating results and cash flows.

There is no litigation pending or known to be threatened against us or affecting any of our hotels, other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of these claims are substantially covered by insurance. We do not believe that any claims known to us, individually or in the aggregate, will have a material adverse effect on us.

Our hotels are operated under various management agreements that call for base management fees, which range from 2% to 7% of hotel room revenue and generally have an incentive provision related to the hotel’s profitability. In addition, the management agreements generally require us to invest approximately 3% to 5% of revenues in capital maintenance. The management agreements have terms from 5 to 20 years and generally have renewal options.

With the exception of 69 hotels whose rights to use a brand name are contained in the management agreement governing their operations, and our one hotel that does not operate under a nationally recognized brand name, each of our hotels operates under a franchise or license agreement. Typically, our franchise or license agreements provide for a royalty fee of 4% of room revenues to be paid to the franchisor.

In the event we breach one of our Embassy Suites Hotels franchise license agreements, in addition to losing the right to use the Embassy Suites Hotels name for the operation of the applicable hotel, we may be liable, under certain circumstances, for liquidated damages equal to the fees paid to the franchisor with respect to that hotel during the three preceding years.

As a part of the amendment to the IHG management agreements, we have agreed to spend, by June 30, 2007, approximately $50.6 million with regard to special capital plans on 11 hotels. We are to agree upon special capital plans to be completed by July 2008 with regard to four hotels and January 2011 with regard to two hotels.

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FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Supplemental Cash Flow Disclosure

At December 31, 2005, $8.6 million of aggregate preferred stock dividends had been declared for payment in January 2006. At December 31, 2004, and 2003, $10.1 million and $6 million, respectively, of aggregate preferred stock dividends had been declared for payment in the following January.

We allocated $0.1 million and $2.0 million of minority interest to additional paid in capital due to the exchange of 25,595 units and 245,398 units for common stock in 2005 and 2004, respectively.

Depreciation expense is comprised of the following (in thousands):


	For the years ending December 31,
	2005		2004		2003
Depreciation from continuing operations	$	119,323	$	111,836	$	116,710
Depreciation from discontinued operations		3,212		10,817		23,515

Total depreciation expense	$	122,535	$	122,653	$	140,225

For the year ended December 31, 2005, repayment of borrowings of $293.0 million consisted of early retirement of secured debt of $262.0 million and $31.0 million of normal recurring principal payments.

For the year ended December 31, 2004, repayment of borrowings of $838.9 million consisted of $775.0 million in early retirement of senior notes, $18.9 million of normal recurring principal payments, $41.3 million of premium paid in excess of par on the retirement of the senior notes and $3.7 million to retire interest rate swaps. For the year ended December 31, 2003, the repayment of borrowings consisted entirely of debt repayment and normal recurring principal payments.

18. Stock Based Compensation Plans

We sponsor four restricted stock and stock option plans, or the FelCor Plans. In addition, upon completion of the merger with Bristol in 1998, we assumed two stock option plans previously sponsored by Bristol, or the Bristol Plans. We were initially obligated to issue up to 1,237,309 shares of our common stock pursuant to the Bristol Plans. No additional options may be awarded under the Bristol Plans. The FelCor Plans and the Bristol Plans are referred to collectively as the Plans.

We are authorized to issue 4,700,000 shares of common stock under the FelCor Plans pursuant to awards granted in the form of incentive stock options, non-qualified stock options, and restricted stock. All options have 10-year contractual terms and vest either over five equal annual installments (20% per year), beginning in the year following the date of grant or 100% at the end of a four-year vesting term. Under the FelCor Plans, there were 990,138 shares available for grant at December 31, 2005.

There were options covering 75,385 shares outstanding under the Bristol Plans at December 31, 2005. These options are fully vested.

F-30

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Stock Based Compensation Plans — (continued)

Stock Options

A summary of the status of our non-qualified stock options under the Plans as of December 31, 2005, 2004 and 2003, and the changes during these years are presented in the following tables:


	2005					2004					2003
				Weighted					Weighted					Weighted
	No. Shares of			Average		No. Shares of			Average		No. Shares of			Average
	Underlying			Exercise		Underlying			Exercise		Underlying			Exercise
	Options			Prices		Options			Prices		Options			Prices
Outstanding at beginning of the year		1,478,760		$	24.72		1,911,544		$	22.72		1,990,830		$	22.70
Forfeited		(13,503	)	$	22.30		(432,784	)	$	15.91		(79,286	)	$	22.15

Outstanding at end of year		1,465,257		$	23.41		1,478,760		$	24.72		1,911,544		$	22.72

Exercisable at end of year		1,455,257		$	23.46		1,333,760		$	24.24		1,664,594		$	23.70


	Options Outstanding						Options Exercisable
	Number		Wgtd. Avg.				Number
Range of	Outstanding		Remaining		Wgtd Avg.		Exercisable		Wgtd. Avg.
Exercise Prices	at 12/31/05		Life		Exercise Price		at 12/31/05		Exercise Price
$15.62 to $22.56		1,094,535		3.39	$	21.03		1,084,535	$	21.08
$24.18 to $36.12		305,722		0.70	$	29.10		305,722	$	29.10
$36.63		65,000		1.47	$	36.63		65,000	$	36.63

$15.62 to $36.63		1,465,257		2.74	$	23.41		1,455,257	$	23.46

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2001 and 2000 when options were granted: dividend yield of 12.44% to 11.28%; risk free interest rates are different for each grant and range from 4.33% to 6.58%; the expected lives of options were six years; and volatility of 21.04% for 2001 grants and 18.22% for 2000 grants. The weighted average fair value of options granted during 2001, was $0.85 per share. We have issued no stock options since 2001.

Restricted Stock

A summary of the status of our restricted stock grants as of December 31, 2005, 2004, and 2003, and the changes during these years are presented below:

F-31

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Stock Based Compensation Plans — (continued)


	2005				2004					2003
			Weighted					Weighted				Weighted
			Average					Average				Average
			Fair Market					Fair Market				Fair Market
			Value					Value				Value
	No. Shares		at Grant		No. Shares			at Grant		No. Shares		at Grant
Outstanding at beginning of the year		1,187,606	$	17.54		731,431		$	22.03		633,681	$	23.73
Granted^(a):
With immediate vesting^(b)		22,300	$	13.73		26,500		$	10.00		27,400	$	10.98
With 4-year pro rata vesting		319,300	$	12.52		295,040		$	10.00		—		—
Vesting within 12 months of grant		—		—		50,000		$	12.47		—		—
With 5-year pro rata vesting		20,000	$	13.85		110,000		$	12.25		70,350	$	10.98
Forfeited		—		—		(25,365	)	$	18.19		—		—

Outstanding at end of year		1,549,206	$	13.35		1,187,606		$	17.54		731,431	$	22.03

Vested at end of year		795,738	$	18.49		558,151		$	20.52		431,550	$	21.49


(a)		All shares granted are issued out of treasury except for 5,200, 6,300 and 6,900 of the restricted shares issued to directors during the years ended December 31, 2005, 2004 and 2003, respectively.

(b)		Shares awarded to directors.

19. Employee Benefits

We offer a 401(k) plan, health insurance benefits and a deferred compensation plan to our employees. Our matching contribution to our 401(k) plan was $0.7 million for 2005 and $0.6 million for 2004 and 2003. The cost of health insurance benefits were $0.7 million during 2005 and $0.6 million each of the years ended December 31, 2004 and 2003. The deferred compensation plan we offer is available only to directors and qualifying senior officers. We make no matching or other contributions to the deferred compensation plan, other than the payment of its operating and administrative expenses.

The employees at our hotels are employees of the respective management companies. Under the management agreements, we reimburse the management companies for the compensation and benefits related to the employees who work at our hotels. We are not, however, the sponsors of their employee benefit plans and have no obligation to fund these plans.

20. Segment Information

SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” requires the disclosure of selected information about operating segments. Based on the guidance provided in the standard, we have determined that our business is conducted in one operating segment because of the similar economic characteristics of our hotels.

The following table sets forth revenues for continuing operations, and investment in hotel assets represented by, the following geographical areas as of and for the years ended December 31, 2005, 2004 and 2003 (in thousands):


	Revenue						Investment in Hotel Assets
	2005		2004		2003		2005		2004		2003
California	$	216,039	$	196,071	$	189,737	$	715,815	$	727,375	$	677,381
Texas		188,288		171,669		163,349		534,299		674,590		766,134
Florida		152,062		137,917		126,424		535,009		524,856		515,640
Georgia		106,345		96,111		89,700		294,976		356,925		359,004
Other states		522,668		489,326		457,869		1,461,117		1,559,156		1,615,529
Canada		26,777		24,780		21,285		65,286		61,495		56,276

Total	$	1,212,179	$	1,115,874	$	1,048,364	$	3,606,502	$	3,904,397	$	3,989,964

F-32

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. Recently Issued Statements of Financial Accounting Standards

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows”. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for the Company in the first annual reporting period beginning after June 15, 2005. We expect to adopt this standard under the modified prospective application. Adoption is not expected to have a material effect on the Company.

In March 2005, the FASB issued Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.” FIN 47 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred, generally upon acquisition, construction, or development and through the normal operation of the asset. This interpretation is effective no later than the end of fiscal years ending after December 31, 2005. Adoption did not have a material effect on the Company’s consolidated financial statements.

22. Quarterly Operating Results (unaudited)

Our unaudited consolidated quarterly operating data for the years ended December 31, 2005 and 2004, follows (in thousands, except per share data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management’s opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in stockholders’ equity and cash flows for a period of several years.

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FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Quarterly Operating Results (unaudited) — (continued)


	First			Second			Third			Fourth
2005	Quarter			Quarter			Quarter			Quarter
Total revenues	$	284,434		$	317,999		$	309,885		$	299,861
Net income (loss) from continuing operations	$	(5,755	)	$	10,358		$	(889	)	$	(266,620	)
Discontinued operations	$	(2,259	)	$	(7	)	$	12,147		$	1,410
Net income (loss)^(a)	$	(8,014	)	$	10,351		$	11,258		$	(265,210	)
Net loss applicable to common stockholders	$	(18,105	)	$	(4,656	)	$	105		$	(274,889	)
Comprehensive loss	$	(6,631	)	$	8,722		$	15,169		$	(265,053	)
Diluted per common share data:
Net loss from continuing operations	$	(0.27	)	$	(0.08	)	$	(0.20	)	$	(4.65	)
Discontinued operations	$	(0.03	)	$	—		$	0.20		$	0.02
Net loss	$	(0.30	)	$	(0.08	)	$	—		$	(4.62	)
Weighted average common shares outstanding		59,416			59,404			59,442			59,453


	First			Second			Third			Fourth
2004	Quarter			Quarter			Quarter			Quarter
Total revenues	$	270,465		$	292,555		$	284,889		$	267,965
Net income (loss) from continuing operations	$	(17,088	)	$	(32,167	)	$	(9,182	)	$	(23,097	)
Discontinued operations	$	(3,611	)	$	494		$	(27,803	)	$	12,327
Net loss^(b)	$	(20,699	)	$	(31,673	)	$	(36,985	)	$	(10,770	)
Net loss applicable to common stockholders	$	(27,425	)	$	(40,643	)	$	(46,328	)	$	(20,861	)
Comprehensive loss	$	(21,160	)	$	(32,182	)	$	(32,496	)	$	(7,987	)
Diluted per common share data:
Net loss from continuing operations	$	(0.41	)	$	(0.70	)	$	(0.31	)	$	(0.56	)
Discontinued operations	$	(0.06	)	$	0.01		$	(0.47	)	$	0.21
Net loss	$	(0.47	)	$	(0.69	)	$	(0.78	)	$	(0.35	)
Weighted average common shares outstanding		58,937			58,950			59,075			59,192


(a)		The fourth quarter net loss in 2005 includes an impairment charge of $263 million.

(b)		The third and fourth quarter’s net loss in 2004 include impairment charges of $33.0 million and $5.3 million, respectively. The second, third and fourth quarter’s net loss in 2004 also includes loss from earlier retirement of debt of $31.2 million, $12.9 million and $5.8 million, respectively.

In accordance with SFAS 144, amounts previously reported in continuing operations have been reclassified to discontinued operations upon sale of hotels or the designation of hotels as “held for sale” in subsequent periods.

F-34

FELCOR LODGING TRUST INCORPORATED

Schedule III — Real Estate and Accumulated Depreciation

as of December 31, 2005

(in thousands)


							Cost Capitalized					Gross Amounts at Which
			Initial Cost				Subsequent to Acquisition					Carried at Close of Period						Accumulated						Life Upon
					Buildings					Buildings				Buildings				Depreciation						Which
					and					and				and				Buildings &		Year		Date		Depreciation
Location	Encumbrances		Land		Improvements		Land			Improvements		Land		Improvements		Total		Improvements		Opened		Acquired		is Computed
Birmingham, AL (1)	$	16,059	$	2,843	$	29,286	$	0		$	1,091	$	2,843	$	30,377	$	33,220	$	7,656		1987		1/3/1996	15 - 40 Yrs
Montgomery East I-85, AL (2)		0		830		7,222		9			2,801		839		10,023		10,862		1,954		1964		7/28/1998	15 - 40 Yrs
Phoenix — Biltmore, AZ (1)		20,864		0		38,998		4,695			1,572		4,695		40,570		45,265		10,215		1985		1/3/1996	15 - 40 Yrs
Phoenix Crescent Hotel, AZ (3)		24,835		3,608		29,583		0			1,403		3,608		30,986		34,594		6,463		1986		6/30/1997	15 - 40 Yrs
Phoenix Tempe, AZ (1)		9,736		3,951		34,371		0			1,048		3,951		35,419		39,370		6,757		1986		5/4/1998	15 - 40 Yrs
Dana Point — Doheny Beach, CA (4)		0		1,787		15,545		0			1,410		1,787		16,955		18,742		3,694		1992		2/21/1997	15 - 40 Yrs
Irvine — Orange County Airport (Newport Beach), CA (5)		0		4,953		43,109		0			2,118		4,953		45,227		50,180		8,533		1986		7/28/1998	15 - 40 Yrs
Los Angeles — Anaheim (Located near Disneyland Park ®), CA (1)		9,032		2,548		14,832		0			1,273		2,548		16,105		18,653		4,173		1987		1/3/1996	15 - 40 Yrs
Los Angeles International Airport — South, CA (1)		0		2,660		17,997		0			1,246		2,660		19,243		21,903		5,588		1985		3/27/1996	15 - 40 Yrs
Milpitas — Silicon Valley, CA (1)		27,658		4,021		23,677		0			1,942		4,021		25,619		29,640		6,500		1987		1/3/1996	15 - 40 Yrs
Milpitas — San Jose North (Milpitas — Silicon Valley), CA (5)		0		4,127		35,917		0			6,040		4,127		41,957		46,084		8,157		1987		7/28/1998	15 - 40 Yrs
Napa Valley, CA (1)		14,530		3,287		14,205		0			1,280		3,287		15,485		18,772		3,851		1985		5/8/1996	15 - 40 Yrs
Oxnard — Mandalay Beach Resort & Conference Center, CA (1)		0		2,930		22,125		1			2,684		2,931		24,809		27,740		5,959		1986		5/8/1996	15 - 40 Yrs
Palm Desert — Palm Desert Resort, CA (1)		0		2,368		20,598		4			2,031		2,372		22,629		25,001		4,358		1984		5/4/1998	15 - 40 Yrs
Pleasanton (San Ramon Area), CA (5)		0		3,152		27,428		0			278		3,152		27,706		30,858		5,138		1986		7/28/1998	15 - 40 Yrs
San Diego — On the Bay, CA (2)		0		0		68,229		0			4,409		0		72,638		72,638		14,518		1965		7/28/1998	15 - 40 Yrs
San Francisco — Airport — Burlingame, CA (1)		0		0		39,929		0			719		0		40,648		40,648		10,286		1986		11/6/1995	15 - 40 Yrs
San Francisco — Airport — South San Francisco, CA (1)		24,390		3,418		31,737		0			1,984		3,418		33,721		37,139		8,354		1988		1/3/1996	15 - 40 Yrs
San Francisco — Fisherman’s Wharf, CA (2)		0		0		61,883		0			1,642		0		63,525		63,525		16,358		1970		7/28/1998	15 - 40 Yrs
San Francisco — Union Square, CA (5)		0		8,466		73,684		(453	)		3,754		8,013		77,438		85,451		14,372		1970		7/28/1998	15 - 40 Yrs
Santa Barbara, CA (2)		0		1,683		14,647		0			739		1,683		15,386		17,069		2,762		1969		7/28/1998	15-40 Yrs
Santa Monica, CA (2)		0		10,200		16,580		0			214		10,200		16,794		26,994		766		1967		3/11/2004	15-40 Yrs
Toronto — Airport, Canada (7)		0		0		21,041		0			10,906		0		31,947		31,947		6,843		1970		7/28/1998	15 - 40 Yrs
Toronto — Yorkdale, Canada (2)		0		1,566		13,633		477			9,835		2,043		23,468		25,511		5,439		1970		7/28/1998	15 - 40 Yrs
Denver, CO (6)		4,882		2,432		21,158		0			922		2,432		22,080		24,512		4,175		1989		3/15/1998	15 - 40 Yrs
Stamford, CT (7)		0		0		37,154		0			4,029		0		41,183		41,183		7,438		1984		7/28/1998	15 - 40 Yrs
Wilmington, DE (6)		10,740		1,379		12,487		0			9,940		1,379		22,427		23,806		4,213		1972		3/20/1998	15 - 40 Yrs
Boca Raton, FL (1)		5,370		1,868		16,253		0			343		1,868		16,596		18,464		4,269		1989		2/28/1996	15 - 40 Yrs
Cocoa Beach — Oceanfront, FL (2)		0		2,285		19,892		0			13,020		2,285		32,912		35,197		7,159		1960		7/28/1998	15 - 40 Yrs
Deerfield Beach, FL (1)		12,196		4,523		29,443		68			1,463		4,591		30,906		35,497		7,830		1987		1/3/1996	15 - 40 Yrs

F-35

FELCOR LODGING TRUST INCORPORATED
Schedule III — Real Estate and Accumulated Depreciation — (continued)
as of December 31, 2005
(in thousands)


							Cost Capitalized					Gross Amounts at Which
			Initial Cost				Subsequent to Acquisition					Carried at Close of Period						Accumulated						Life Upon
					Buildings					Buildings				Buildings				Depreciation						Which
					and					and				and				Buildings &		Year		Date		Depreciation
Location	Encumbrances		Land		Improvements		Land			Improvements		Land		Improvements		Total		Improvements		Opened		Acquired		is Computed
Ft. Lauderdale — 17th Street, FL (1)		21,285		5,329		47,850		(163	)		2,430		5,166		50,280		55,446		12,767		1986		1/3/1996	15 - 40 Yrs
Ft. Lauderdale (Cypress Creek), FL (8)		11,958		3,009		26,177		0			1,666		3,009		27,843		30,852		5,264		1986		5/4/1998	15 - 40 Yrs
Jacksonville — Baymeadows, FL (1)		13,859		1,130		9,608		0			6,467		1,130		16,075		17,205		3,949		1986		7/28/1994	15 - 40 Yrs
Miami International Airport, FL (1)		17,206		4,135		24,950		0			1,385		4,135		26,335		30,470		6,699		1983		7/28/1998	15 - 40 Yrs
Miami International Airport (LeJeune Center), FL (5)		0		0		26,007		0			1,355		0		27,362		27,362		5,066		1987		1/3/1996	15 - 40 Yrs
Orlando — International Airport, FL (7)		9,567		2,549		22,188		0			1,903		2,549		24,091		26,640		4,688		1984		7/28/1998	15 - 40 Yrs
Orlando — International Drive — Resort, FL (2)		0		5,108		44,460		0			9,442		5,108		53,902		59,010		10,641		1972		7/28/1998	15 - 40 Yrs
Orlando International Drive/Convention Center, FL (1)		23,754		1,632		13,870		0			1,349		1,632		15,219		16,851		4,318		1985		7/28/1994	15 - 40 Yrs
Orlando — Nikki Bird (Maingate — Disney World Area®, FL (2)		0		0		31,457		0			6,656		0		38,113		38,113		6,379		1974		7/28/1998	15 - 40 Yrs
Orlando (North), FL (1)		0		1,673		14,218		6			7,012		1,679		21,230		22,909		5,599		1985		7/28/1994	15 - 40 Yrs
Orlando- Walt Disney WorldResort®, FL (4)		0		0		28,092		0			186		0		28,278		28,278		5,569		1987		7/28/1997	15 - 40 Yrs
Tampa — On Tampa Bay, FL (4)		13,522		2,142		18,639		1			2,010		2,143		20,649		22,792		4,348		1986		7/28/1997	15 - 40 Yrs
Atlanta — Airport, GA (5)		0		0		40,734		0			322		0		41,056		41,056		9,127		1975		7/28/1998	15 - 40 Yrs
Atlanta — Airport, GA (1)		13,181		0		22,342		2,568			1,546		2,568		23,888		26,456		4,446		1989		5/4/1998	15 - 40 Yrs
Atlanta — Airport — North, GA (2)		0		0		34,353		0			538		0		34,891		34,891		7,533		1967		7/28/1998	15 - 40 Yrs
Atlanta — Buckhead, GA (1)		35,516		7,303		38,996		(300	)		1,857		7,003		40,853		47,856		9,178		1988		10/17/1996	15 - 40 Yrs
Atlanta — Galleria, GA (8)		16,557		5,052		28,507		0			1,071		5,052		29,578		34,630		6,278		1990		6/30/1997	15 - 40 Yrs
Atlanta — Gateway-Atlanta Airport, GA (3)		0		5,113		22,857		1			258		5,114		23,115		28,229		4,911		1986		6/30/1997	15 - 40 Yrs
Atlanta — Perimeter — Dunwoody, GA (7)		0		0		20,449		0			468		0		20,917		20,917		3,878		1985		7/28/1998	15 - 40 Yrs
Atlanta — Powers Ferry, GA (5)		0		3,391		29,517		0			770		3,391		30,287		33,678		5,635		1981		7/28/1998	15 - 40 Yrs
Atlanta — South (I-75 & US 41), GA (2)		0		859		7,475		0			251		859		7,726		8,585		1,420		1973		7/28/1998	15 - 40 Yrs
Brunswick, GA (1)		0		705		6,067		0			324		705		6,391		7,096		1,606		1988		7/19/1995	15 - 40 Yrs
Columbus — North I-185 at Peachtree Mall, GA (2)		0		0		6,978		0			2,058		0		9,036		9,036		2,015		1969		7/28/1998	15 - 40 Yrs
Chicago — The Allerton, IL (5)		0		3,298		28,723		15,589			28,337		18,887		57,060		75,947		13,004		1923		7/28/1998	15 - 40 Yrs
Chicago — Northshore/Deerfield (Northbrook), IL (1)		15,390		2,305		20,054		0			821		2,305		20,875		23,180		4,886		1987		6/20/1996	15 - 40 Yrs
Chicago O’Hare Airport, IL (3)		22,996		8,178		37,043		0			1,993		8,178		39,036		47,214		8,116		1994		6/30/1997	15 - 40 Yrs
Indianapolis North, IN (1)		0		0		0		5,125			13,929		5,125		13,929		19,054		7,079		1986		8/1/1996	15 - 40 Yrs
Lexington, KY (8)		6,439		0		21,644		2,488			943		2,488		22,587		25,075		4,232		1989		5/4/1998	15 - 40 Yrs
Lexington — Lexington Green, KY (10)		15,586		1,955		13,604		0			257		1,955		13,861		15,816		3,402		1987		1/10/1996	15 - 40 Yrs
Baton Rouge, LA (1)		10,324		2,350		19,092		1			1,163		2,351		20,255		22,606		5,172		1985		1/3/1996	15 - 40 Yrs
New Orleans, LA (1)		30,316		3,647		31,993		0			7,394		3,647		39,387		43,034		11,116		1984		12/1/1994	15 - 40 Yrs
New Orleans — French Quarter, LA (2)		0		0		50,732		0			8,432		0		59,164		59,164		10,462		1969		7/28/1998	15 - 40 Yrs

F-36

FELCOR LODGING TRUST INCORPORATED
Schedule III — Real Estate and Accumulated Depreciation — (continued)
as of December 31, 2005
(in thousands)


							Cost Capitalized						Gross Amounts at Which
			Initial Cost				Subsequent to Acquisition						Carried at Close of Period						Accumulated						Life Upon
					Buildings					Buildings					Buildings				Depreciation						Which
					and					and					and				Buildings &		Year		Date		Depreciation
Location	Encumbrances		Land		Improvements		Land			Improvements			Land		Improvements		Total		Improvements		Opened		Acquired		is Computed
Boston — Government Center, MA (7)		0		0		45,192		0			5,974			0		51,166		51,166		10,990		1968		7/28/1998	15 - 40 Yrs
Boston — Marlborough, MA (1)		19,035		948		8,143		761			13,345			1,709		21,488		23,197		4,861		1988		6/30/1995	15 - 40 Yrs
Baltimore — BWI Airport, MD (1)		23,551		2,568		22,433		(2	)		1,488			2,566		23,921		26,487		5,298		1987		3/20/1997	15 - 40 Yrs
Troy, MI (1)		6,737		2,968		25,905		0			1,668			2,968		27,573		30,541		6,081		1987		3/20/1997	15 - 40 Yrs
Minneapolis — Airport, MN (1)		20,393		5,417		36,508		24			686			5,441		37,194		42,635		9,483		1986		11/6/1995	15 - 40 Yrs
Minneapolis — Bloomington, MN (1)		10,720		2,038		17,731		0			662			2,038		18,393		20,431		4,066		1980		2/1/1997	15 - 40 Yrs
Minneapolis -Downtown, MN (1)		0		818		16,820		0			1,134			818		17,954		18,772		4,201		1984		11/15/1995	15 - 40 Yrs
St Paul- Downtown, MN (1)		5,196		1,156		17,315		0			391			1,156		17,706		18,862		4,658		1983		11/15/1995	15 - 40 Yrs
Kansas City NE I-435 North (At Worlds of Fun), MO (2)		0		967		8,415		0			257			967		8,672		9,639		2,047		1975		7/28/1998	15 - 40 Yrs
Charlotte SouthPark, NC (4)		0		1,458		12,681		1			2,221			1,459		14,902		16,361		1,372		N/A		7/12/2002	15 - 40 Yrs
Raleigh, NC (4)		13,522		2,124		18,476		0			1,304			2,124		19,780		21,904		4,077		1987		7/28/1997	15 - 40 Yrs
Omaha — Central, NE (9)		0		514		4,477		0			948			514		5,425		5,939		1,075		1965		7/28/1998	15 - 40 Yrs
Omaha — Central (I-80), NE (2)		0		1,782		15,513		0			3,788			1,782		19,301		21,083		3,394		1991		7/28/1998	15 - 40 Yrs
Omaha — Old Mill, NE (5)		0		971		8,449		0			5,162			971		13,611		14,582		3,297		1974		7/28/1998	15 - 40 Yrs
Piscataway-Somerset, NJ (1)		19,246		1,755		17,563		0			1,280			1,755		18,843		20,598		4,568		1988		1/10/1996	15 - 40 Yrs
Tulsa — I-44, OK (1)		0		525		7,344		0			799			525		8,143		8,668		3,200		1985		7/28/1994	15 - 40 Yrs
Philadelphia -Center City, PA (5)		0		5,759		50,127		(452	)		(3,030	)		5,307		47,097		52,404		8,856		1970		7/28/1998	15 - 40 Yrs
Philadelphia —Historic District, PA (2)		0		3,164		27,535		0			6,580			3,164		34,115		37,279		7,148		1972		7/28/1998	15 - 40 Yrs
Philadelphia Society Hill, PA (3)		31,274		4,542		45,121		0			2,099			4,542		47,220		51,762		9,783		1986		10/1/1997	15 - 40 Yrs
Pittsburgh at University Center (Oakland), PA (7)		15,500		0		25,031		0			1,843			0		26,874		26,874		5,239		1988		11/1/1998	15 - 40 Yrs
Charleston -Mills House (Historic Downtown), SC (2)		20,183		3,251		28,295		0			488			3,251		28,783		32,034		5,308		1982		7/28/1998	15 - 40 Yrs
Myrtle Beach — At Kingston Plantation, SC (1)		0		2,940		24,988		0			2,374			2,940		27,362		30,302		6,492		1987		12/5/1996	15 - 40 Yrs
Myrtle Beach Resort (15)		0		12,000		17,689		6			6,155			12,006		23,844		35,850		4,567		1974		7/23/2002	15 - 40 Yrs
Knoxville — Central At Papermill Road, TN (2)		0		0		11,518		0			1,716			0		13,234		13,234		2,491		1966		7/28/1998	15 - 40 Yrs
Nashville- Airport/Opryland Area, TN (1)		0		1,118		9,506		0			686			1,118		10,192		11,310		3,479		1985		7/28/1994	15 - 40 Yrs
Nashville — Opryland/Airport (Briley Parkway), TN (7)		0		0		27,734		0			2,340			0		30,074		30,074		6,428		1981		7/28/1998	15 - 40 Yrs
Amarillo — I-40, TX (2)		0		0		5,754		0			3,031			0		8,785		8,785		1,797		1970		7/28/1998	15 - 40 Yrs
Austin, TX (4)		9,389		2,508		21,908		0			2,202			2,508		24,110		26,618		5,224		1987		3/20/1997	15 - 40 Yrs
Austin -Town Lake (Downtown Area), TX (2)		0		0		21,433		0			966			0		22,399		22,399		4,163		1967		7/28/1998	15 - 40 Yrs
Corpus Christi, TX (1)		4,956		1,113		9,618		51			2,411			1,164		12,029		13,193		2,891		1984		7/19/1995	15 - 40 Yrs

F-37

FELCOR LODGING TRUST INCORPORATED
Schedule III — Real Estate and Accumulated Depreciation — (continued)
as of December 31, 2005
(in thousands)


							Cost Capitalized					Gross Amounts at Which
			Initial Cost				Subsequent to Acquisition					Carried at Close of Period						Accumulated						Life Upon
					Buildings					Buildings		Depreciation		Buildings				Depreciation						Which
					and					and				and				Buildings &		Year		Date		Depreciation
Location	Encumbrances		Land		Improvements		Land			Improvements		Land		Improvements		Total		Improvements		Opened		Acquired		is Computed
Dallas, TX (5)		0		0		30,346		5,603			439		5,603		30,785		36,388		5,681		1981		7/28/1998	15 - 40 Yrs
Dallas — At Campbell Center, TX (6)		0		3,208		27,907		0			1,822		3,208		29,729		32,937		4,691		1982		5/29/1998	15 - 40 Yrs
Dallas — DFW International Airport North TX (14)		0		1,537		13,379		0			451		1,537		13,830		15,367		2,531		1989		7/28/1998	15 - 40 Yrs
Dallas — DFW International Airport South, TX (1)		14,936		0		35,156		4,041			756		4,041		35,912		39,953		6,808		1985		7/28/1998	15 - 40 Yrs
Dallas — Love Field, TX (1)		10,947		1,934		16,674		0			901		1,934		17,575		19,509		4,566		1986		3/29/1995	15 - 40 Yrs
Dallas — Market Center, TX (5)		0		4,056		35,302		0			1,299		4,056		36,601		40,657		6,636		1983		7/28/1998	15 - 40 Yrs
Dallas — Market Center, TX (1)		0		2,560		23,751		0			695		2,560		24,446		27,006		5,175		1980		6/30/1997	15 - 40 Yrs
Dallas — Park Central, TX (3)		0		1,720		28,550		(264	)		818		1,456		29,368		30,824		4,517		1972		11/1/1998	15 - 40 Yrs
Dallas — Park Central, TX (12)		0		0		8,053		1,619			272		1,619		8,325		9,944		3,010		1997		7/28/1998	15 - 40 Yrs
Dallas — Park Central, TX (13)		0		4,513		43,125		762			5,098		5,275		48,223		53,498		9,149		1983		6/30/1997	15 - 40 Yrs
Dallas — Park Central Area, TX (1)		0		1,497		12,722		(19	)		1,112		1,478		13,834		15,312		4,062		1985		7/28/1994	15 - 40 Yrs
Dallas — West End/Convention Center, TX (9)		0		1,953		16,989		0			1,953		1,953		18,942		20,895		3,408		1969		7/28/1998	15 - 40 Yrs
Houston — Greenway Plaza Area, TX (7)		0		3,398		29,578		0			613		3,398		30,191		33,589		5,627		1984		7/28/1998	15 - 40 Yrs
Houston — I-10 West & Hwy. 6 (Park 10 Area), TX (7)		0		3,037		26,431		(53	)		1,376		2,984		27,807		30,791		4,574		1969		7/28/1998	15 - 40 Yrs
Houston — Intercontinental Airport, TX (2)		0		3,868		33,664		0			947		3,868		34,611		38,479		6,418		1971		7/28/1998	15 - 40 Yrs
Houston — Medical Center, TX (11)		0		0		22,027		0			2,437		0		24,464		24,464		4,338		1984		7/28/1998	15 - 40 Yrs
San Antonio — Downtown (Market Square), TX (2)		0		0		22,129		1			1,045		1		23,174		23,175		4,341		1968		7/28/1998	15 - 40 Yrs
San Antonio — International Airport, TX (7)		15,585		3,351		29,168		(193	)		2,513		3,158		31,681		34,839		6,174		1981		7/28/1998	15 - 40 Yrs
Burlington Hotel & Conference Center, VT (3)		19,316		3,136		27,283		(2	)		768		3,134		28,051		31,185		5,683		1967		12/4/1997	15 - 40 Yrs


	$	718,234	$	253,920	$	2,732,775	$	42,001		$	303,012	$	295,921	$	3,035,787	$	3,331,708	$	646,484


(1)		Embassy Suites

(2)		Holiday Inn

(3)		Sheraton

(4)		Doubletree Guest Suites

(5)		Crowne Plaza

(6)		Doubletree

(7)		Holiday Inn Select

(8)		Sheraton Suites

(9)		Hampton Inn

(10)		Hilton Suites

(11)		Holiday Inn Hotel & Suites

(12)		Staybridge Suites

(13)		Westin

(14)		Harvey Suites

(15)		Hilton

F-38

FELCOR LODGING TRUST INCORPORATED
Schedule III — Real Estate and Accumulated Depreciation — (continued)
as of December 31, 2005
(in thousands)


	Year Ended December 31,
	2005			2004
Reconciliation of Land and Buildings and Improvements
Balance at beginning of period	$	3,513,950		$	3,776,887
Additions during period:
Acquisitions		18,949			26,780
Improvements		21,735			18,902
Deductions during period:
Sale of properties		(140,071	)		(300,529	)
Hotels held for sale		—			(8,090	)
Foreclosures		(82,855	)		—

Balance at end of period before impairment charges		3,331,708			3,513,950

Cumulative impairment charges on real estate assets owned at end of period		(327,169	)		(166,349	)


Balance at end of period	$	3,004,539		$	3,347,601


Reconciliation of Accumulated Depreciation
Balance at beginning of period	$	590,065		$	545,355
Additions during period:
Depreciation for the period		79,231			87,561
Deductions during period:
Sale of properties		(22,812	)		(42,851	)


Balance at end of period	$	646,484		$	590,065

F-39

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

FelCor Lodging Trust (FCH) Inactive 10-K2005 FY Annual report

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