1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-24250
FELCOR SUITE HOTELS, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 72-2541756
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
(214) 444-4900
(Registrant's telephone number, including area code)
5215 N. O'CONNOR BLVD., SUITE 330, IRVING, TEXAS 75039
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, par value $.01 per share, of
FelCor Suite Hotels, Inc. outstanding on August 5, 1996 was 23,180,008.
- -------------------------------------------------------------------------------
2
FELCOR SUITE HOTELS, INC.
INDEX
PART I. -- FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FELCOR SUITE HOTELS, INC.
Condensed Consolidated Balance Sheets - June 30, 1996 (Unaudited)
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -- For the Three and Six Months
Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
DJONT OPERATIONS, L.L.C.
Consolidated Balance Sheets - June 30, 1996 (Unaudited)
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Operations -- For the Three and Six Months
Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 13
Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 14
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PART II. -- OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 24
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2
3
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FELCOR SUITE HOTELS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
Investment in hotel properties, net . . . . . . . . . . . . . . . . . . . . . . $811,100 $338,974
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,052 166,821
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,616 35,317
Due from Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,751 2,396
Deferred expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208 1,713
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,952 3,138
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $825,679 $548,359
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,807 $ 4,918
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . 1,970 3,552
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,350 8,410
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,771 11,256
Minority interest in Partnership . . . . . . . . . . . . . . . . . . . . . . . 86,229 58,837
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 189,127 86,973
-------- --------
Commitments and contingencies (Note 2)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized, 6,050 shares
issued and outstanding at June 30, 1996 . . . . . . . . . . . . . . . . . 151,250
Common stock, $.01 par value, 50,000 shares authorized, 22,921 and
21,135 shares issued and outstanding at June 30, 1996
and December 31, 1995, respectively . . . . . . . . . . . . . . . . . . . 229 211
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 487,920 463,524
Unearned officers' and directors' compensation . . . . . . . . . . . . . . . . (1,352) (473)
Distributions in excess of earnings . . . . . . . . . . . . . . . . . . . . . . (1,495) (1,876)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 636,552 461,386
-------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . $825,679 $548,359
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
4
FELCOR SUITE HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- ---------
Revenues:
Percentage lease revenue . . . . . . . . . . . . . . . . . . . . $ 23,919 $ 5,977 $ 48,270 $ 11,348
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 638 209 785 217
-------- ------- -------- --------
Total revenue . . . . . . . . . . . . . . . . . . . . . 24,557 6,186 49,055 11,565
-------- ------- -------- --------
Expenses:
General and administrative . . . . . . . . . . . . . . . . . . . 335 191 632 338
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 6,088 1,178 10,604 2,236
Amortization of loan costs and organization costs . . . . . . . . 128 52 243 94
Taxes, insurance and other . . . . . . . . . . . . . . . . . . . 3,126 580 6,710 1,139
Amortization of unearned officers' and directors' compensation . 108 41 177 71
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,984 522 4,310 839
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 1,522 814 3,142 1,668
-------- ------- -------- --------
Total expenses . . . . . . . . . . . . . . . . . . . . . 13,291 3,378 25,818 6,385
-------- ------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,266 2,808 23,237 5,180
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . 1,835 1,835
-------- ------- -------- --------
Net income applicable to common shareholders . . . . . . . . . . . $ 9,431 $ 2,808 $21,402 $ 5,180
======== ======= ======= ========
Net income per common share . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.48 $ 0.94 $ 0.98
======= ====== ====== =======
Weighted average number of common shares outstanding . . . . . . . 22,905 5,850 22,760 5,281
======== ======= ======= ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
5
FELCOR SUITE HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,237 $ 5,180
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of acquisitions:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 11,024 2,509
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 1,668
Changes in assets and liabilities:
Due from Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,355) (1,952)
Deferred expenses and other assets . . . . . . . . . . . . . . . . . . . (654) (237)
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . (1,890) (598)
--------- --------
Net cash flow provided by operating activities . . . . . . . . . 33,504 6,570
--------- --------
Cash flows from investing activities:
Acquisition of hotel properties and related accounts . . . . . . . . . . . . . (287,715) (36,766)
Improvements and additions to hotel properties . . . . . . . . . . . . . . . . (30,944) (1,096)
--------- --------
Net cash flow used in investing activities . . . . . . . . . . . (318,659) (37,862)
--------- --------
Cash flows from financing activities:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,150 27,200
Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (119,954) (35,949)
Loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (820)
Proceeds from sale of common stock . . . . . . . . . . . . . . . . . . . . . . 40,584 81,196
Proceeds from sale of preferred stock . . . . . . . . . . . . . . . . . . . . 144,251
Distributions paid to limited partners . . . . . . . . . . . . . . . . . . . . (2,858) (1,432)
Distributions paid to common shareholders . . . . . . . . . . . . . . . . . . (13,967) (3,973)
--------- --------
Net cash flow provided by (used in) financing activities . . . . 123,386 67,042
--------- --------
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . (161,769) 35,750
Cash and cash equivalents at beginning of periods . . . . . . . . . . . . . . . . . . 166,821 1,118
--------- --------
Cash and cash equivalents at end of periods . . . . . . . . . . . . . . . . . . . . . $ 5,052 $ 36,868
========= ========
Supplemental cash flow information --
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,966 $ 390
========= ========
Supplemental disclosure of noncash financing activities:
In the first six months of 1996 the Company provided for the grant of an
aggregate of 38,000 shares of restricted common stock to officers and directors
which, at date of issuance, were valued at $26.50 to $31.375 per share.
In connection with certain unit and common stock transactions, $16.7
million was allocated to minority interest in Partnership from additional
paid in capital.
5
6
FELCOR SUITE HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Supplemental disclosure of noncash financing activities: -- (continued)
In the first six months of 1996 the Company purchased certain assets and
assumed certain liabilities of hotel properties. These purchases were recorded
under the purchase method of accounting. The fair value of the acquired assets
and liabilities recorded at the date of acquisition are as follows:
Assets acquired . . . . . . . . . . . . . . . . . $ 451,617
Application of prepayments to acquisition
of hotel properties . . . . . . . . . . . . . (35,455)
Debt assumed . . . . . . . . . . . . . . . . . . (108,744)
Capital equipment leases assumed . . . . . . . . (2,823)
Partnership units issued . . . . . . . . . . . . (10,880)
Common stock issued . . . . . . . . . . . . . . . (6,000)
---------
Net cash paid . . . . . . . . . . . . . . $ 287,715
=========
On June 24, 1996, the Company declared a dividend of $0.46 per share of
common stock and $0.3033 per share of preferred stock for the second quarter of
1996 which was paid on July 30, 1996 to holders of record on July 15, 1996.
The preferred stock dividend represents the pro rata portion of a quarterly
dividend of $0.4875 per share for the initial dividend period from May 6
through June 30, 1996.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
7
FELCOR SUITE HOTELS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
FelCor Suite Hotels, Inc., formed as a self-administered real estate
investment trust ("REIT"), was incorporated on May 16, 1994 and commenced
operations on July 28, 1994. At the commencement of operations, FelCor Suite
Hotels, Inc. ("FelCor") acquired an equity interest of approximately 74% in
FelCor Suites Limited Partnership (the "Partnership"), which owned six Embassy
Suites(R) hotels (the "Initial Hotels") with an aggregate of 1,479 suites. At
June 30, 1996, FelCor owned, through its 88.1% ownership of the Partnership and
its consolidated subsidiaries (collectively the "Company"), interests in 37
hotels with an aggregate of 8,588 suites (collectively the "Hotels"). Of the
Hotels, 13 were Embassy Suites hotels at the time of acquisition, and at June
30, 1996, 14 hotels had been converted to either Embassy Suites hotels (12) or
to Doubletree Guest Suites(R) hotels (2), 9 hotels were in the process of
being upgraded or renovated in preparation for their conversion to Embassy
Suites hotels and one was a Hilton Suites(R) hotel. The following table
provides certain information regarding the Company's acquisition of the 31
additional hotels acquired through June 30, 1996:
NUMBER OF HOTELS NUMBER OF SUITES AGGREGATE
QUARTER ACQUIRED ACQUIRED PURCHASE PRICE
------- ----------------- ----------------- --------------
(DOLLARS IN MILLIONS)
4th Quarter 1994 1 251 $ 25.8
1st Quarter 1995 2 350 27.4
2nd Quarter 1995 1 100 9.4
3rd Quarter 1995 3 542 31.3
4th Quarter 1995 7 1,657 169.0
1st Quarter 1996 14 3,501 383.5
2nd Quarter 1996 3 691 68.1
--- ------ -------
31 7,092 $ 714.5
=== ====== =======
The Company owns 100% equity interests in 29 of the acquired hotels and
97% and 50% interests in separate partnerships that own the Los Angeles
International Airport and Chicago-Lombard hotels. In addition, the Company has
constructed an additional 17 suites at one of the acquired hotels and has
started construction on additions to two of the acquired properties which
include an aggregate of 160 net additional suites, meeting rooms and other
public area upgrades, at an estimated aggregate cost of $19.3 million.
The Company leased all of the Hotels to DJONT Operations, L.L.C. or a
wholly-owned subsidiary (collectively the "Lessee") under operating leases
providing for the payment of percentage rent (the "Percentage Leases"). Hervey
A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the Board and Chief
Executive Officer of the Company, respectively, beneficially own 50% of the
Lessee. The remaining 50% of the Lessee is beneficially owned by the children
of Charles N. Mathewson, a director of the Company. The Lessee has entered
into management agreements pursuant to which 32 of the Hotels are managed by
Promus, two of the Hotels are managed by a subsidiary of Doubletree Hotel
Corporation ("Doubletree"), two of the Hotels are managed by American General
Hospitality, Inc. ("AGHI") and one is managed by Coastal Hotel Group, Inc.
("Coastal").
A brief discussion of the hotel assets acquired and other significant
transactions occurring in the second quarter of 1996 follows:
On May 8, 1996, the Company acquired the remaining two of the 18 Crown
Sterling Suites(R) hotels (collectively, in whole or part, the "CSS Hotels") in
Mandalay Beach, California (249 suites) and Napa, California (205 suites) for
an aggregate purchase price of approximately $45 million. The purchase of
these hotels fulfilled the Company's commitment to purchase the 18 hotel Crown
Sterling Suites chain, as announced in September 1995. In conjunction with the
purchase of these hotels, the mortgage notes receivable that were acquired by
the Company in the first quarter of 1996 relating to these hotels were
canceled.
7
8
FELCOR SUITE HOTELS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS -- (CONTINUED)
On June 20, 1996, the Company acquired a 237-suite Embassy Suites hotel
in Deerfield, Illinois for approximately $23 million in cash.
On April 25, 1996, the SEC declared effective the Company's omnibus shelf
registration statement ("Shelf Registration"), which provides for offerings by
the Company from time to time of up to an aggregate of $500 million in
securities, which may include its debt securities, preferred stock, common
stock and/or common stock warrants. On May 6, 1996, the Company announced the
closing of an offering pursuant to the Shelf Registration of six million shares
of its $1.95 Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock") at $25 per share. An additional fifty thousand shares of
Series A Preferred Stock were issued at $25 per share pursuant to the exercise
of the underwriters' over-allotment option. The Series A Preferred Stock bears
an annual dividend equal to the greater of $1.95 per share (yielding 7.8% based
on the $25 purchase price) 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 and is cumulative from May 6,
1996. Each share of the Series A Preferred Stock is convertible at the
shareholder's option to 0.7752 shares of common stock, subject to certain
adjustments, and may not be redeemed by the Company before April 30, 2001. The
Company used approximately $87.3 million of the proceeds from the Series A
Preferred Stock to pay down debt existing at March 31, 1996. The balance of
the net proceeds was used to acquire the two remaining CSS hotels in Mandalay
Beach and Napa, California, the Deerfield, Illinois Embassy Suites, to fund a
portion of the Company's $60 million renovation and conversion program for all
acquired hotels, and to provide funds for other acquisitions and general
corporate purposes.
Pursuant to a subscription agreement, Promus Hotels, Inc. ("Promus")
purchased an aggregate of 104,028 shares of Common Stock during the second
quarter of 1996 at a subscription price of $26.50 per share. Additionally, as
a result of the purchase of the Napa, California and Mandalay Beach, California
hotels on May 8, 1996, the Company satisfied the requirements under such
subscription agreement requiring Promus to purchase an additional 165,569
shares of common stock purchasable thereunder for approximately $4.4 million.
Such purchase was completed in the third quarter of 1996 and fulfilled all
stock purchase obligations under such subscription agreement.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the financial statements and notes thereto
of the Company and the Lessee included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 (the "10-K"). The notes to
the financial statements included herein highlight significant changes to the
notes included in the 10-K and present interim disclosures required by the SEC.
The accompanying financial statements reflect, in the opinion of management,
all adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
2. COMMITMENTS AND CONTINGENCIES
Upon completion of the capital upgrade and renovation program discussed
below, and the conversion of the remaining CSS Hotels, the Hotels will operate
as Embassy Suites (34), Doubletree Guest Suites (2) and Hilton Suites (1). The
Embassy Suites hotels and Hilton Suites hotel will operate pursuant to
franchise license agreements which require the payment of fees based on a
percentage of suite revenue. These fees are paid by the Lessee. There are no
separate franchise license agreements with respect to the Doubletree Guest
Suites hotels.
The Hotels are managed by Promus (32), Doubletree (2), AGHI (2) and
Coastal (1) on behalf of the Lessee. The Lessee pays the managers a base
management fee based on a percentage of total revenue and an incentive
management fee based on the Lessee's net income before overhead expenses.
8
9
FELCOR SUITE HOTELS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Lessee has future lease commitments to the Company under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels) and 2006
(17 hotels). The lease commitment under the Percentage Lease between the
Lessee and the Promus/FelCor Lombard Venture (which owns the Chicago-Lombard
hotel), of which the Company owns 50%, is not included in the following
schedule of future lease commitments to the Company. Minimum future rental
income (i.e., base rents) under these noncancellable operating leases
(excluding the Chicago-Lombard hotel) at June 30, 1996 is as follows (in
thousands):
Year
----
Remainder of 1996 . . . . . . . . . . . . . . . . . . . . . . $ 27,738
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477
2001 and thereafter . . . . . . . . . . . . . . . . . . . . . 264,637
---------
$ 514,283
=========
The Company has a capital upgrade and renovation program for the
CSS Hotels and the other hotels acquired since September 1995 and has committed
approximately $60 million to be invested in 1995 and 1996 for this program.
The Company has invested approximately $25.8 million on such capital
improvements through the end of the second quarter of 1996 and expects to
substantially complete this program by the end of 1996. Promus has guaranteed
a loan to the Company of up to $25 million to be used to fund a portion of
the renovations of the CSS Hotels that are being converted to Embassy
Suites hotels ("Renovation Loan"). At June 30, 1996, the Company had borrowed
approximately $6.8 million under this Renovation Loan facility.
3. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations at June 30, 1996 and December 31, 1995
consist of the following (in thousands):
1996 1995
------- -------
Hotel mortgage debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,000
Renovation loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,800
Promus note related to CSS purchase . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500
Other debt payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550 910
Capital equipment lease obligations . . . . . . . . . . . . . . . . . . . . . . . . 3,934 1,213
Capital land and building lease obligations . . . . . . . . . . . . . . . . . . . . 9,837 10,043
------- -------
$87,121 $19,666
======= =======
The hotel mortgage debt is collateralized by interests in six hotel
properties, matures on September 30, 1996, and is extendable at the Company's
option to December 31, 2000. The debt bears interest, at the Company's option,
at the Base Rate plus 50 basis points or LIBOR plus 150 basis points until the
initial maturity. If the Company elects to extend the note past the initial
maturity it bears interest at LIBOR plus 175 basis points.
9
10
FELCOR SUITE HOTELS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
Minimum future principal payments on hotel mortgage debt outstanding at
June 30, 1996 are as follows (in thousands):
YEAR
- -----
Remainder of 1996 . . . . . . . . . . . . . . . . . . . . $ 137
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 862
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 934
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 62,056
--------
$ 65,000
========
The Company has a $100 million line of credit secured by twelve hotel
properties ("Line of Credit"). No amounts were outstanding under the Line of
Credit at either June 30, 1996 or December 31, 1995.
Interest on the Renovation Loan (based on LIBOR) was 6.025% at June 30,
1996. The Renovation Loan requires quarterly principal payments of $1.25
million beginning June 30, 1999 with the remaining principal balance due on
June 1, 2000.
4. PRO FORMA INFORMATION
The following unaudited Pro Forma Consolidated Statements of Operations
for the six months ended June 30, 1996 and 1995 are presented as if the
acquisition of the Company's interest in all the Hotels and the consummation of
the Company's securities offerings through June 30, 1996 had occurred on January
1, 1995, and all of the 37 hotels had been leased to Lessee pursuant to the
Percentage Leases since that date. Such pro forma information is based in part
upon the Statements of Operations of Lessee included elsewhere in this Quarterly
Report on Form 10-Q. Such information should be read in conjunction with the
financial statements listed in the Index on page 2. In management's opinion,
all adjustments necessary to reflect the effects of these transactions have been
made. The pro forma information does not include earnings on the Company's cash
and short term investments and does not purport to present what the actual
results of operations of the Company would have been if the previously mentioned
transactions had occurred on such dates or to project the results of operations
of the Company for any future period.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
--------- ----------
REVENUES:
Percentage lease revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 52,898 $ 50,183
EXPENSES:
General and administrative . . . . . . . . . . . . . . . . . . . . . . . 613 563
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 13,513 12,442
Taxes, insurance and other . . . . . . . . . . . . . . . . . . . . . . . 7,372 6,946
Amortization of unearned officers' and directors' compensation . . . . . 228 136
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,498 3,535
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,293 3,160
--------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,381 23,401
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 5,899 5,899
--------- ----------
Net income applicable to common shareholders . . . . . . . . . . . . . . $ 18,482 $ 17,502
========= ==========
Net income per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.80 $ 0.76
========= ==========
Weighted average number of common shares outstanding . . . . . . . . . . 23,064 23,037
10
11
FELCOR SUITE HOTELS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. SUBSEQUENT EVENTS
On July 16, 1996, Promus purchased 165,569 shares of the Company's common
stock for $4.4 million relating to the Company's acquisition of the Mandalay
Beach and Napa hotels on May 8, 1996 pursuant to an existing subscription
agreement.
On July 22, 1996, the Company acquired a fifty percent interest in a
235-suite Embassy Suites hotel in San Rafael, Marin County, California, located
across the bay from San Francisco. The Company paid approximately $4.0
million in cash for its fifty percent interest, subject to $10.0 million of
nonrecourse debt, as its portion of partnership debt. Promus will continue to
hold the remaining fifty percent interest in this hotel.
On August 1, 1996, the Company acquired a fifty percent interest in a
274-suite Embassy Suites hotel in Parsippany, New Jersey for approximately
$15.3 million in cash. Promus will continue to hold the remaining fifty
percent interest in this hotel.
11
12
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS)
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,684 $ 5,345
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,712 3,129
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 532
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657 288
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 305
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,680 $ 9,599
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,586 $ 1,393
Accounts payable, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,134 605
Due to FelCor Suite Hotels, Inc. . . . . . . . . . . . . . . . . . . . . . . . 3,751 2,396
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . 12,186 5,978
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,657 10,372
-------- --------
Shareholders' equity (deficit):
Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Distributions in excess of earnings . . . . . . . . . . . . . . . . . . . (978) (774)
-------- --------
Total shareholders' equity (deficit) . . . . . . . . . . . . . . . . . . (977) (773)
-------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 18,680 $ 9,599
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
12
13
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
-------- --------- --------- --------
Revenue:
Suite revenue . . . . . . . . . . . . . . . . . . . . . . $ 53,381 $ 14,371 $ 105,557 $ 27,224
Food and beverage revenue . . . . . . . . . . . . . . . . 4,281 692 8,144 1,289
Food and beverage rent . . . . . . . . . . . . . . . . . . 572 143 998 188
Other revenue . . . . . . . . . . . . . . . . . . . . . . 3,861 840 7,839 1,518
-------- --------- --------- --------
Total revenues . . . . . . . . . . . . . . . . . . . 62,095 16,046 122,538 30,219
-------- --------- --------- --------
Expenses:
Property operating costs and expenses . . . . . . . . . . 15,208 3,994 28,451 7,356
General and administrative . . . . . . . . . . . . . . . . 4,656 1,161 8,741 2,143
Advertising and promotion . . . . . . . . . . . . . . . . 3,572 1,168 7,851 2,256
Repair and maintenance . . . . . . . . . . . . . . . . . . 3,267 834 5,987 1,555
Utilities . . . . . . . . . . . . . . . . . . . . . . . . 2,649 722 5,146 1,264
Management fee . . . . . . . . . . . . . . . . . . . . . . 1,494 320 3,013 626
Franchise fee . . . . . . . . . . . . . . . . . . . . . . 1,206 575 2,221 1,089
Food and beverage expenses . . . . . . . . . . . . . . . . 4,615 689 8,412 1,211
Percentage lease payments . . . . . . . . . . . . . . . . 24,429 5,977 49,156 11,348
Lessee overhead expenses . . . . . . . . . . . . . . . . . 403 165 727 388
Liability insurance . . . . . . . . . . . . . . . . . . . 423 92 800 163
Conversion costs . . . . . . . . . . . . . . . . . . . . . 719 28 1,386 32
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 513 198 851 276
-------- --------- --------- --------
Total expenses . . . . . . . . . . . . . . . . . . . 63,154 15,923 122,742 29,707
-------- --------- --------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . ($ 1,059) $ 123 ($ 204) $ 512
======== ========= ========= ========
The accompanying notes are an integral part of these
consolidated financial statements.
13
14
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- -------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (204) $ 512
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,583) (684)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 (78)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (369) (196)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169) (68)
Due to FelCor Suite Hotels, Inc. . . . . . . . . . . . . . . . . . . . . . 1,355 1,952
Accounts payable, accrued expenses and other liabilities . . . . . . . . . 7,930 104
-------- -------
Net cash flow provided by operating activities . . . . . . . . . . . . 4,339 1,542
-------- -------
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 4,339 1,542
Cash and cash equivalents at beginning of periods . . . . . . . . . . . . . . . . . . 5,345 3,259
-------- -------
Cash and cash equivalents at end of periods . . . . . . . . . . . . . . . . . . . . . $ 9,684 $ 4,801
======== =======
The accompany notes are an integral part of these
consolidated financial statements.
14
15
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
DJONT Operations, L.L.C. is a Delaware limited liability company
(together with its wholly owned subsidiary, the "Lessee") which was formed on
June 29, 1994 and began operations on July 28, 1994. All of the voting Class A
membership interest in Lessee (representing a 50% equity interest) is owned by
Hervey A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and
officers of FelCor Suite Hotels, Inc. (the "Company") and as managers and
officers of the Lessee. All of the non-voting Class B membership interest in
Lessee (representing the remaining 50% equity interest) is owned by RGC
Leasing, Inc., a Nevada corporation owned by the children of Mr. Mathewson, a
director of the Company. The Lessee leases each of the 37 hotels in which
FelCor Suites Limited Partnership (the "Partnership") had an ownership interest
at June 30, 1996 (the "Hotels"), pursuant to percentage leases ("Percentage
Leases").
Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate
50% of the Lessee, have entered into an agreement with the Company pursuant to
which they have agreed that, for a period of ten years, any distributions
received by them from the Lessee (in excess of their tax liabilities with
respect to the income of the Lessee) will be utilized to purchase common stock
from the Company annually, at a price based upon a formula approved by the
independent directors relating to the then current market prices. The
agreement stipulates that Messrs. Feldman and Corcoran are restricted from
selling any stock so acquired for a period of two years from the date of
purchase. RGC Leasing, Inc., which owns the other 50% of the Lessee, may
elect to purchase common stock or units of Partnership interest upon similar
terms, at its option. The independent directors of the Company may suspend or
terminate such agreement at any time.
Thirty-four of the Hotels are, or are in the process of being
converted to, Embassy Suites(R) hotels, 32 of which are being managed for the
Lessee by Promus Hotels, Inc. ("Promus"). Two of the Hotels are operated as
Doubletree Guest Suites(R) hotels and managed by a subsidiary of Doubletree
Hotels Corporation ("Doubletree"). One of the Hotels is operated under a
Hilton Suites(R) hotel franchise and, together with one of the Company's
Embassy Suites hotels, is managed for the Lessee by American General
Hospitality, Inc. ("AGHI"). One of the Company's Embassy Suites hotels is
managed for the Lessee by Coastal Hotel Group, Inc. ("Coastal").
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Lessee has future lease commitments under the Percentage Leases
which expire in 2004 (7 hotels), 2005 (13 hotels) and 2006 (17 hotels).
Minimum future rental payments are computed based on the base rent as defined
under these noncancellable operating leases and are as follows (in thousands):
Year Amount
- ---- -------
Remainder of 1996 . . . . . . . . . . . . . . . . . . . . . . . $ 28,688
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377
2001 and thereafter . . . . . . . . . . . . . . . . . . . . . . 273,504
---------
$ 531,700
=========
Under the franchise agreements, the Lessee typically remits to Promus
a franchise fee of 4% of suite revenue, a marketing and reservation
contribution (for the benefit of Embassy Suites hotels system wide) of 3.5% of
suite revenue, and certain additional fees for each of the Hotels operated as
an Embassy Suites hotel. With regard to the Crown Sterling Suite(R) hotels
(the "CSS Hotels"), in the first and second year of operations, Promus has
agreed to reduced franchise fees of 1.5% and 3.5% of suite revenue,
respectively. Additionally, with regard to the CSS Hotels, Promus has agreed
to reductions in the marketing and reservations contribution for the first
three years of operations to 2%, 2.5% and 3% of suite revenue, respectively.
15
16
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
The franchise fees will revert to 4% of suite revenue beginning the
third year of operations of these hotels and the marketing and reservation
contribution will return to 3.5% of suite revenue beginning in the fourth year.
The Lessee pays Hilton Inns, Inc. a franchise fee of 5% of suite revenue for
the Lexington Hilton Suites hotel. There are no separate franchise fees for
the properties operated as Doubletree Guest Suites hotels; however, the Lessee
pays a marketing and reservation contribution of 3.5% of suite revenue under
these management agreements.
The Lessee pays a base management fee of 2% of adjusted gross revenue
for each hotel managed by Promus, AGHI, Doubletree and Coastal (collectively
the "Hotel Managers"). In addition, the Lessee pays the Hotel Managers an
incentive management fee, which ranges from 50% to 75% of a hotel's net income
(after lease payments but before Lessee overhead expenses) up to a maximum of
2% to 3% of revenues. In association with the acquisition of the CSS Hotels,
Promus has made its base management fees and incentive management fees
subordinate to the Percentage Lease payments for a period of two years.
3. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of
Operations for the six months ended June 30, 1996 and 1995 are presented as
if Lessee had leased and operated all of the Hotels beginning on
January 1, 1995. Such information should be read in conjunction with the
financial statements listed in the Index on page 2. In management's opinion,
all adjustments necessary to reflect the effects of these transactions have
been made. The Pro Forma Consolidated Statements of Operations do not purport
to present what actual results of operations would have been if such hotels had
been operated by Lessee pursuant to the Percentage Leases since such date or
to project the results of operations for any future periods.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS)
Six Months
Ended June 30,
--------------------------
----
1996 1995
---------------------------
Revenues $ 135,055 $ 130,888
Expenses:
Property operating costs and expenses . . . . . . . . . . . . . . . . . . 31,499 30,961
General and administrative . . . . . . . . . . . . . . . . . . . . . . . 9,766 9,517
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . 8,712 7,712
Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 6,726 6,329
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,664 5,557
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,178 3,512
Franchise fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,255 2,977
Food and beverage expenses . . . . . . . . . . . . . . . . . . . . . . . 9,406 9,201
Percentage lease payments . . . . . . . . . . . . . . . . . . . . . . . . 53,783 50,985
Lessee overhead expenses . . . . . . . . . . . . . . . . . . . . . . . . 730 723
Liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 944 1,037
Conversion costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,418
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907 479
--------- ----------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,570 $ 130,408
--------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . ($ 515) $ 480
========= ==========
16
17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
For background information relating to the Company and the definitions
of certain capitalized terms used herein, reference is made to Note 1 of Notes
to Condensed Consolidated Financial Statements of FelCor Suite Hotels, Inc.
appearing elsewhere herein.
Between the first six months of 1995 and the comparable period of
1996, the Company's revenues increased from approximately $11.6 million to
approximately $49.1 million, net income applicable to common shareholders
increased from approximately $5.2 million to approximately $21.4 million, net
income per common share decreased from $0.98 to $0.94, and the Initial Hotels
experienced increases of 8.2% in suite revenues.
During the first six months of 1996, the Company acquired 17
additional hotels with 4,192 suites for an aggregate purchase price of
approximately $451.6 million. Of the hotels so acquired during the first six
months of 1996, three were and will remain Embassy Suites hotels, one was and
will remain a Hilton Suites hotel and 13 hotels have been or are in the process
of being converted to the Embassy Suites brand. Twelve of the hotels acquired
by the Company during the first six months that have been or will be converted
into Embassy Suites hotels had been part of the Crown Sterling Suites chain
that the Company agreed to acquire in September 1995.
The Company has undertaken a $60 million plan for the upgrade and
renovation of the CSS Hotels and the other hotels acquired since September
1995. Though June 30, 1996, the Company had invested approximately $25.8
million under such plan and expects to substantially complete such capital
improvements by the end of 1996. In addition, the Company has added 17 suites
at its Flagstaff hotel and is in the process of adding a net of 160 additional
suites, adding meeting rooms and other public area upgrades to two of its other
hotels at an estimated aggregate cost of approximately $19.3 million.
In order for the Company to qualify as a REIT, neither the Company
nor the Partnership can operate hotels. Therefore, the Partnership leases the
Hotels to the Lessee. The Partnership's and, therefore, the Company's
principal sources of revenue are lease payments by the Lessee under the
Percentage Leases. Of the aggregate pro forma Percentage Lease revenue from the
Hotels under the Percentage Leases for the six months ended June 30, 1996,
approximately 97.3% was derived from suite revenues and 2.7% was derived from
food and beverage operations. The Lessee's ability to make payments to the
Company under the Percentage Leases is dependent on the operations of the
Hotels.
RESULTS OF OPERATIONS
The Company -- Actual
Six Months Ended June 30, 1996 and 1995
For the six months ended June 30, 1996 and 1995, the Company had
revenues of $49.1 million and $11.6 million, respectively, consisting of
Percentage Lease revenues of $48.3 million and $11.3 million and other revenue
made up primarily of interest income of $785,000 and $217,000.
The increase in Percentage Lease revenue was attributable primarily to
the Company's acquisition and subsequent leasing, pursuant to Percentage
Leases, of the 30 additional hotels acquired during the period from February
1995 through June 1996. As previously noted, Percentage Lease revenue is
dependent on the operations of the Hotels, primarily suite revenue. The
Company owned seven hotels throughout both the first six months of 1995 and
1996, but only the Initial Hotels are considered by the Company to have been
"stabilized" properties during both periods. The Initial Hotels experienced
suite revenue growth of 8.2% and increases of revenue per available suite
("REVPAR") of 7.6%. All of the Initial Hotels experienced increases in REVPAR,
with the increases ranging from .5% to 12% over the prior year.
17
18
RESULTS OF OPERATIONS -- (CONTINUED)
Management believes that the acquired hotels will generally experience
increases in suite revenues (and accordingly, provide the Company with
increases in Percentage Lease revenues) after the completion of renovation and
upgrade programs, the conversion to the Embassy Suites or Doubletree Guest
Suites franchises, where applicable, and the transition to a national
management company such as Promus. However, as individual hotels undergo such
transitions, their performance may be adversely affected temporarily by such
factors as suites out of service during renovation and renovation disruptions
on hotel operations. (A more detailed discussion of hotel suite revenue is
contained in "The Hotels - Actual" section of this Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
Total expenses increased $19.4 million in the six months ended June
30, 1996 from $6.4 million to $25.8 million compared to the same period in
1995. The primary components of this increase were: depreciation; taxes,
insurance and other; and interest expense.
Depreciation expense increased to $10.6 million in the six months
ended June 30, 1996 from $2.2 million in the same period of 1995. The increase
resulted from the acquisition of hotels in 1995 and 1996 and capital
expenditures made on existing and acquired hotels.
Taxes, insurance and other expenses increased $5.6 million from $1.1
million in the first six months of 1995 to $6.7 million in the first six months
of 1996. This increase is primarily attributed to the additional hotel
properties acquired in 1995 and 1996.
Interest expense increased from $839,000 for the six months ended June
30, 1995 to $4.3 million for the six months ended June 30, 1996. The increase
in interest expense is primarily associated with debt assumed or incurred in
connection with the hotels purchased during the fourth quarter of 1995 and the
first quarter of 1996.
Minority interest in earnings increased from $1.7 million for the six
months of 1995 to $3.1 million for the same period in 1996. The percentage of
income attributable to minority interests was 11.9% for the six months ended
June 30, 1996 and 17.2% for the same period in 1995. The decrease in the
minority interest percentage was primarily the result of the Company's
contribution to the Partnership of the proceeds from the common stock issued
during May 1995 and December 1995 in registered public offerings partially
offset by additional units of limited partnership interest in the Partnership
issued to Promus and the sellers of the Piscataway and Lexington hotels.
Three Months Ended June 30, 1996 and 1995
For the three months ended June 30, 1996 and 1995, the Company had
revenues of $24.6 million and $6.2 million, respectively, consisting of
Percentage Lease revenues of $23.9 million and $6.0 million and other revenue
made up primarily of interest income of $638,000 and $209,000.
The increase in Percentage Lease revenue was attributable primarily to
the Company's acquisition and subsequent leasing, pursuant to Percentage
Leases, of the 27 additional hotels acquired during the period from July 1995
through June 1996. As previously noted, Percentage Lease revenue is dependent
on the operations of the Hotels, primarily suite revenue. The Company owned
nine hotels throughout both the second quarter of 1995 and 1996, but only the
Initial Hotels are considered by the Company to have been "stabilized"
properties during both periods. The Initial Hotels experienced suite revenue
and revenue per available suite growth of 8.0%. All of the Initial Hotels
experienced increases in REVPAR, with the increases ranging from 3% to 14% over
the prior year. A more detailed discussion of hotel suite revenue is contained
in "The Hotels - Actual" section of this Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Total expenses increased $9.9 million in the three months ended June
30, 1996 from $3.4 million to $13.3 million compared to the same period in
1995. The primary components of this increase were: depreciation; taxes,
insurance and other; and interest expense. As previously discussed, the
primary reason for this increase is related to the
18
19
RESULTS OF OPERATIONS -- (CONTINUED)
increased number of hotel properties owned by the Company, from ten properties
at June 30, 1995 to 37 properties at June 30, 1996.
FUNDS FROM OPERATIONS
The Company considers funds from operations to be a key measure of a
REIT's performance and should be considered along with, but not as an
alternative to, net income and cash flows as a measure of the Company's
operating performance and liquidity.
The following table computes "Funds From Operations" under the newly
adopted National Association of Real Estate Investment Trusts ("NAREIT")
definition. Funds From Operations under the NAREIT definition consists of net
income, computed in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructuring and sales of property, plus
depreciation of real property (including furniture and equipment) and after
adjustments for unconsolidated partnerships and joint ventures.
Three Months Ended SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------
1996 1995 1996 1995
----------- --------- -------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,266 $ 2,808 $ 23,237 $ 5,180
Less preferred dividends . . . . . . . . . . . . . . . . . . . . 1,835 1,835
--------- -------- -------- --------
Net income applicable to common shareholders . . . . . . . . . . 9,431 2,808 21,402 5,180
Add:
Minority interest . . . . . . . . . . . . . . . . . . . . . . 1,522 814 3,142 1,668
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 6,088 1,178 10,604 2,236
--------- -------- -------- --------
Funds From Operations available for common
shares and units . . . . . . . . . . . . . . . . . . . . $ 17,041 $ 4,800 $ 35,148 $ 9,084
========= ======== ======== ========
Funds From Operations per share and unit . . . . . . . . . . . . $ 0.66 $ 0.64 $ 1.36 $ 1.30
========= ======== ======== ========
Weighted average common shares outstanding . . . . . . . . . . . 22,905 5,850 22,760 5,281
Weighted average units outstanding . . . . . . . . . . . . . . . 3,106 1,695 3,083 1,695
--------- -------- -------- --------
Weighted average shares and units outstanding . . . . . . . . . . 26,011 7,545 25,843 6,976
========= ======== ======== ========
The Company -- Pro Forma Six Months Ended June 30, 1996 and 1995
The following pro forma information is presented as if the acquisition
of all the Hotels and the consummation of the Company's securities offerings
and the Partnership's unit transactions through June 30, 1996 had occurred as
of January 1, 1995.
For the six months ended June 30, 1996, the Company's pro forma
Percentage Lease revenue increased $2.7 million. This increase is attributable
to increases in suite revenue, despite the substantial number of suites taken
out of service for renovation and conversion to the Embassy Suites brand during
the second quarter of 1996. The historical suite revenue increased by 4% for
the 37 hotels presented in the pro forma financial statements. (The historical
hotel revenue increase is more fully discussed in "The Hotels - Actual" section
of this Management's Discussion and Analysis of Financial Condition and Results
of Operations.)
Pro forma depreciation and amortization expenses increased by $1.1
million, primarily reflecting the historical asset additions from property
upgrades and renovations made by the Company during 1995 and through the first
six months of 1996. Pro forma taxes, insurance and other increased $426,000.
Pro forma interest expense declined by $37,000 reflecting the historical
decrease in LIBOR and the amortization of principal on the capital lease
obligations. Minority interest was $3.3 million and $3.2 million for pro forma
1996 and 1995 second quarters, respectively. The pro forma net income was
$24.4 million and $23.4 million for the six months ended June 30, 1996 and
1995, respectively.
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20
RESULTS OF OPERATIONS -- (CONTINUED)
The Lessee -- Actual
The Six Months Ended June 30, 1996 and 1995
Total revenues increased 306% from $30.2 million for the six months
ended June 30, 1995 to $122.5 million for the same period of 1996. The primary
reason for this increase is that in the number of hotels operated by the Lessee
increased from ten hotels at June 30, 1995 to 37 hotels at June 30, 1996. The
increases in Percentage Lease expense, property operating costs and other hotel
expenses in the first six months of 1996 compared to the same period of 1995
relate primarily to the increased number of hotels operated by the Lessee. The
Lessee had net income of $512,000 and a net loss of $204,000 for the six months
ended June 30, 1995 and 1996 respectively. The principal reason for this
decline in net income is related to costs of taking over operations of acquired
hotels and of converting and upgrading the 24 hotels acquired in the fourth
quarter of 1995 and the first six months of 1996.
The Three Months Ended June 30, 1996 and 1995
Total revenues increased 288% from $16.0 million in the second quarter
of 1995 to $62.1 million for the same period of 1996. The primary reason for
this increase is the increase in the number of hotels operated by the Lessee
from 10 hotels at June 30, 1995 to 37 hotels at June 30, 1996. The increases
in Percentage Lease expense, property operating costs and other hotel expenses
in the second quarter of 1996 compared to the same period of 1995 relate
primarily to the increased number of hotels operated by the Lessee. The Lessee
had net income of $123,000 and a net loss of $1.1 million for the three months
ended June 30, 1995 and 1996 respectively. The principal reason for this
decline in net income is related to costs of taking over operations on acquired
hotels and of converting and upgrading the 24 hotels acquired in the fourth
quarter of 1995 and the first six months of 1996.
The Hotels -- Actual
The following table sets forth historical suite revenue and percentage
changes therein between the periods presented for the 37 hotels included in the
pro forma financial information with respect to the Lessee. The following
presentation groups separately the suite revenues of the Initial Hotels, the 18
CSS Hotels and the other 13 hotels acquired by the Company ("Other Acquired
Hotels") through June 30, 1996.
SUITE REVENUE SUITE REVENUE
(IN THOUSANDS) (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- PERCENT -------------------------- PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
------------ ----------- ------ ------------- ----------- ------
Initial Hotels . . . . . . . . . . . . . $ 11,141 $ 10,320 8.0% $ 22,320 $ 20,621 8.2%
CSS Hotels . . . . . . . . . . . . . . . 27,825 27,438 1.4% 59,970 58,750 2.1%
Other Acquired Hotels . . . . . . . . . . 17,259 15,928 8.4% 34,161 32,510 5.1%
-------- -------- --------- ---------
Totals . . . . . . . . . . . . . $ 56,225 $ 53,686 4.7% $ 116,451 $ 111,881 4.1%
======== ======== ========= =========
Comparison of The Hotels' Suite Revenues for the Three and Six Months
Ended June 30, 1996 and 1995
Suite revenues from the 37 hotels included in the pro forma information
increased 4.1% for the six months ended June 30, 1996 from the comparative
period of 1995. The Initial Hotels increased 8.2% while the CSS Hotels and the
Other Acquired Hotels increased 2.1% and 5.1%, respectively.
Increases in suite revenues, particularly at the CSS Hotels, were
limited by the number of suites out of service for renovation and conversion
during the six months ended June 30, 1996. The Company had approximately
51,000 suite- nights taken out of service during the second quarter, which
represents approximately 6.8% of the Company's normal suite inventory for the
quarter.
20
21
RESULTS OF OPERATIONS -- (CONTINUED)
The increase in suite revenue is primarily the result of increases in
average daily rate ("ADR"), partially offset by decreases in occupancy. The
Initial Hotels increased in both ADR and occupancy: ADR increased 6.6% to
$104.37 and occupancy percentage increased from 78.7% to 79.4% (or 1%). The
Company has committed to a capital program for all Hotels that ensures that at
least 4% of suite revenue will be available for capital improvements in
addition to normal repair and maintenance expenditures.
The CSS Hotels experienced an increase in ADR of 4.4% to $104.16 and a
3.0% decrease in occupancy to 68.5%. The Other Acquired Hotels increased ADR
by 5.8% to $101.45, which was partially offset by a 1.9% decrease in occupancy
to 74.1%. The Company has committed to a capital renovation and conversion
program for the CSS Hotels and the Other Acquired Hotels of approximately $60
million and is also reserving 4% of suite revenue for ongoing capital
improvements in addition to making normal repair and maintenance expenditures.
The CSS Hotels either have been or are in the process of being converted to
Embassy Suites hotels (16) or Doubletree Guest Suites hotels (2). At August 1,
1996, ten of the CSS Hotels had been converted to the new franchise brands.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its share of the Partnership's cash
flow from the Percentage Leases. For the six months ended June 30, 1996, cash
flow provided by operating activities, consisting primarily of Percentage Lease
revenue, was $33.5 million and funds from operations, which is the sum of net
income, minority interest, depreciation of real property including furniture
and equipment, was $35.1 million. The Lessee's obligations under the
Percentage Leases are unsecured. The Lessee's ability to make lease payments
under the Percentage Leases and the Company's liquidity, including its ability
to make distributions to shareholders, are substantially dependent on the
ability of the Lessee to generate sufficient cash flow from the operation of
the Hotels.
The Company intends to acquire additional hotel properties and may
incur indebtedness to make such acquisitions, or to meet distribution
requirements imposed on a REIT under the Internal Revenue Code, to the extent
that working capital and cash flow from the Company's investments are
insufficient to make such distributions.
The Company's Charter limits consolidated indebtedness to 40% of the
Company's investment in hotel properties, at cost, on a consolidated basis,
after giving effect to the Company's use of proceeds from any indebtedness.
For purposes of this limitation, the Company's consolidated investment in hotel
properties, at cost, is its investment, at cost, in hotel properties, as
reflected in its consolidated financial statements plus (to the extent not
otherwise reflected) the value (as determined by the Board of Directors at the
time of issuance) of any equity securities issued, otherwise than for cash, by
the Company or any of its subsidiaries in connection with the acquisition of
hotel properties. Under this definition as of June 30, 1996, the Company's
investment in hotel properties at cost was $868 million. Accordingly, the
Company's maximum permitted indebtedness would have been approximately $349
million (of which $87 million was borrowed at June 30, 1996). Assuming all of
this additional debt capacity, together with the Company's available cash and
cash equivalents, were used for the acquisition of additional hotel properties,
the Company's investment in hotel properties would increase to approximately
$1.5 billion and the maximum permitted indebtedness would increase to $582
million.
On May 6, 1996, the Company completed an offering of six million shares
of $1.95 Series A Cumulative Convertible Preferred Stock ("Series A Preferred
Stock") at $25 per share. An additional fifty thousand shares of Series A
Preferred Stock were issued at $25 per share pursuant to the exercise of the
underwriters' over-allotment option. The Series A Preferred Stock will pay an
annual dividend equal to the greater of $1.95 per share (yielding 7.8% based on
the $25 purchase price) 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 and will be cumulative from May 6,
1996. Each share of the Series A Preferred Stock is convertible at the
shareholder's option to 0.7752 shares of common stock, subject to certain
adjustments, and may not be redeemed by the Company prior to April 30, 2001.
The Company used approximately $87.3 million of the proceeds from the Series A
Preferred Stock to pay down debt existing at March 31, 1996. The balance of
the net proceeds was used to acquire the two remaining CSS Hotels in Mandalay
Beach and Napa,
21
22
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
California and the Deerfield, Illinois Embassy Suites hotel, to fund a portion
of the Company's $60 million renovation and conversion program, to provide
funds for acquisitions and for general corporate purposes.
At June 30, 1996, the Company had $5.1 million of cash and cash
equivalents and had not utilized any of the amount available under the
Company's $100 million revolving credit facility (" Line of Credit"). The Line
of Credit, as amended, has an initial term of two years (currently ending
October 6, 1997) and any outstanding balance at the end of that period is
convertible, at the Company's option, into a three-year term loan. Borrowings
under the Line of Credit bear interest, at the Company's option, (i) at the
prime rate, (ii) the 30-day or 90-day LIBOR rate plus 200 basis points or (iii)
the 30-day or 90-day U.S. Treasury Note yield plus 250 or 275 basis points,
respectively. Up to ten percent of the maximum commitment amount of the
Line of Credit may be used for working capital purposes. At June 30,
1996, there were no borrowings for working capital purposes. If the Line of
Credit is converted into a three-year term loan in October 1997, the balance
will bear interest at (i) the prime rate plus 50 basis points, (ii) the 90-day
LIBOR rate plus 225 basis points, or (iii) the 36-month U.S. Treasury Note
yield plus 250 basis points, at Company's option. The Line of Credit is
collateralized by first mortgages on certain of the Hotels.
Promus has guaranteed the $25 million Renovation Loan facility provided
to the Company to be used to fund a portion of the renovation cost of the CSS
Hotels being converted to Embassy Suites hotels. At June 30, 1996, the loan
bears interest at LIBOR plus 52.5 basis points, requires quarterly principal
payments of $1.25 million beginning June 1999 and matures in June 2000. The
Company had drawn $6.8 million under this loan facility at June 30, 1996.
The Company assumed a $75 million debt collateralized by six hotels
acquired in the first quarter and repaid $10 million of such debt in the second
quarter. The debt bears interest at LIBOR plus 150 basis points and matures in
September 1996, unless extended by the Company, in which event the debt will
bear interest at LIBOR plus 175 basis points and mature in December 2000.
Additionally, in the first quarter the Company assumed a $14 million debt
collateralized by a hotel property and retired such debt in the second quarter.
The Company has a capital upgrade and renovation program for the CSS
Hotels and the other hotels acquired since September 1995 and has committed
approximately $60 million to be invested in 1995 and 1996 for this program.
The Company has invested approximately $25.8 million on such capital
improvements through the first six months of 1996 and expects to substantially
complete this program by the end of 1996. These capital improvements will be
funded partially through (i) the $25 million Renovation Loan facility, (ii) the
proceeds of the Series A Preferred Stock offering, and (iii) the Company's Line
of Credit. As individual hotels undergo such upgrade and renovation, their
performances may be adversely affected, although such effects are expected to
be temporary.
The Company constructed 17 additional suites at the Flagstaff hotel and
has begun construction on 32 additional suites at the New Orleans hotel, a net
addition of 128 suites at the Boston-Marlborough hotel, additional meeting
rooms and other public area upgrades for these hotels (with completion of such
projects currently scheduled for late 1996 and mid-1997, respectively) at an
aggregate cost of approximately $19.3 million.
The Company and Promus are parties to a subscription agreement under
which Promus has subscribed for the purchase of shares of common stock in an
aggregate amount of $50 million, at a price per share of $26.50, the offering
price per share of the Company's common stock offering in December 1995. Such
investment has been made in increments in conjunction with the Company's
acquisition of the CSS Hotels and other qualifying hotels. Through June 30,
1996, the Company had issued an aggregate of 1,721,223 shares of Common Stock
to Promus pursuant to this subscription agreement for an aggregate investment
of approximately $45.6 million. As a result of the purchase of the Napa,
California and Mandalay Beach, California hotels on May 8, 1996, the Company
met the requirements under the previously noted subscription agreement and
Promus purchased the final 165,569 shares of common stock for approximately
$4.4 million on July 16, 1996.
The Company's cash flow from financing activities of
approximately $123.4 million for the six months ended June 30, 1996 resulted
from the issuance of the Series A Preferred Stock of $144.3 million, the sale
of common
22
23
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
stock to Promus under a subscription agreement of $40.6 million, net repayments
of $43.8 million under the Line of Credit and other borrowing facilities,
distributions of $16.8 million and additional loan costs of $820,000.
INFLATION
Operators of hotels, in general, possess the ability to adjust room
rates periodically. Competitive pressures may, however, limit the Lessee's
ability to raise room rates.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue to the extent that it receives Percentage
Rent. To the extent the cash flow from operations are insufficient during any
quarter, due to temporary or seasonal fluctuations in lease revenue, the
Company expects to utilize other cash on hand or borrowings under the Line of
Credit to make distributions to its shareholders. The Company's use of the
Line of Credit for working capital, distributions and general corporate
purposes is limited to 10% of the maximum amount available under the Line of
Credit.
23
24
PART II. -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During May 1996, the Company completed a registered public offering of
6,050,000 shares of its Series A Preferred Stock, having a par value of $0.01
per share and a liquidation preference of $25.00 per share. By Articles
Supplementary dated April 30, 1996, the Company established the terms,
preferences and relative rights of the Series A Preferred Stock, including
without limitation, certain (i) preferences over the holders of Common Stock of
the Company with respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up of the Company, (ii) limitations on the
purchase, redemption or acquisition of Common Stock by the Company, and (iii)
rights, as a class, to elect two additional directors of the Company in the
event specified arrearages in the payment of dividends on the Series A
Preferred Stock exist, all as more fully described in said Articles
Supplementary. The foregoing does not purport to be a complete statement of the
terms, preferences or relative rights of the Series A Preferred Stock and is
qualified in its entirety by reference to the Company's Charter, including such
Articles Supplementary, a copy of which is filed herewith as Exhibit 3.1 and to
which reference is hereby made for a complete statement of such terms,
preferences and relative rights.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On May 15, 1996, the annual meeting of the stockholders of the Company
("Annual Meeting") was held in Dallas, Texas. At the Annual Meeting, the two
incumbent Class II directors of the Company, Thomas J. Corcoran, Jr. and Donald
J. McNamara, were re-elected as Class II directors for full three-year terms
expiring at the annual meeting of stockholders in 1999. Continuing as Class I
directors, with terms expiring at the annual meeting of stockholders in 1998,
were Hervey A. Feldman and Charles N. Mathewson and continuing as Class III
directors, with terms expiring at the annual meeting of stockholders in 1997,
were Richard S. Ellwood, Richard O. Jacobson and Thomas J. McChristy.
At the Annual Meeting, in addition to the election of Class II
directors, the following matters were submitted to a vote of the shareholders:
(1) the adoption of the Company's 1995 Restricted Stock and Stock Option Plan
("1995 Plan") and (2) the adoption of an amendment to the Company's Charter
("Amendment") to provide that nothing contained therein will prohibit the
settlement of any transaction entered into through the facilities of the New
York Stock Exchange. Messrs. Corcoran and McNamara were duly re-elected, with
16,869,206 shares (99.9% of the shares voting on such election) being voted for
the election of each such person and with authority to vote for each such
person being withheld with respect to 16,440 shares. The 1995 Plan was duly
adopted, with 10,750,372 shares (69.0% of the shares voting on the 1995 Plan)
being voted for the adoption thereof and 4,838,766 shares being voted against
its adoption. In addition, the holders of 18,344 shares abstained from voting
on the 1995 Plan and there were 1,278,164 broker non-votes with respect
thereto. The Amendment was duly adopted, with 16,854,755 shares (74.0% of the
shares outstanding and entitled to vote) being voted for the adoption thereof
and 4,660 shares being voted against its adoption. In addition, the holders of
10,580 shares abstained from voting on the Amendment and there were 15,651
broker non-votes with respect thereto.
ITEM 5. OTHER INFORMATION.
On May 10, 1996, a capital call of $7 million was made on the partners
of Los Angeles International Airport Hotel Associates ("LAX"), a Texas limited
partnership owning a 350-suite Crown Sterling Suite hotel ("LAX Hotel") near
the Los Angeles International Airport. A subsidiary of FelCor then owned a 50%
general partner interest and approximately 142 of the 379 units of limited
partner interest in LAX ("Units") then outstanding. In conjunction with the
capital call, the general partner of LAX offered to purchase the Units held by
the other partners, at $750 per Unit. Under the terms of the LAX partnership
agreement, if any partner failed to make the capital contribution required by
the call, the general partner would make the required contribution and the
interest of the defaulting partner would be automatically transferred to the
general partner. As a consequence of this capital call, at June 30, 1996, the
FelCor
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25
subsidiary serving as the general partner of LAX had made additional capital
contributions to LAX and payments to selling limited partners aggregating
approximately $6.9 million and, as a consequence, had become the owner of
approximately 97% of the outstanding equity interests in LAX. Of the aggregate
$7 million provided to LAX by the capital call, approximately $2.25 million was
used to repay loans made by FelCor to LAX, approximately $3.6 million was
reserved for renovations and improvements to the LAX Hotel, and the balance was
utilized for working capital purposes. In addition, as of May 10, 1996, FelCor
purchased the existing first mortgage indebtedness secured by the LAX Hotel
from Coast Federal Bank at the then unpaid balance due thereunder of
approximately $19.8 million. As a result of FelCor's ownership of the first
mortgage indebtedness and certain other obligations of LAX, FelCor will receive
100% of the economic benefits from LAX's ownership of the LAX Hotel for the
foreseeable future. The majority of these transactions are eliminated in
consolidation.
For information relating to hotel acquisitions and certain other
transactions by the Company through June 30, 1996, see Note 1 of Notes to
Consolidated Financial Statements of FelCor Suite Hotels, Inc. contained in
Item 1 of Part I of this Quarterly Report on Form 10-Q. Such information is
incorporated herein by reference.
On July 16, 1996, the Company issued 165,569 shares of Common Stock to
Promus Hotels, Inc. for cash in the amount of approximately $4.4 million
pursuant to the terms of an existing subscription agreement. This purchase
completed the remaining obligations of Promus under such subscription
agreement.
On July 22, 1996, the Company acquired a 50% equity interest in the
235-suite Embassy Suites hotel located in San Rafael, Marin County, California,
across the bay from San Francisco. The Company paid approximately $4.0 million
in cash and took its interest subject to approximately $10.2 million in
nonrecourse indebtedness, being its proportionate share of the partnership
debt. Upon acquisition, the hotel was leased to DJONT Operations, L.L.C.
("DJONT"), which leases the Company's other hotels, under a 10-year percentage
lease upon terms comparable with the Company's other hotel leases. The
remaining 50% equity interest in this hotel is held by Promus, which also
manages the hotel on behalf of DJONT.
As of July 31, 1996, the Company also acquired a 50% equity interest
in a 274-suite Embassy Suites hotel located in Parsippany, New Jersey for
approximately $15.3 million in cash. Upon acquisition, this hotel was leased
to DJONT under a 10-year percentage lease upon terms comparable with the
Company's other hotel leases. Promus continues to own the remaining 50%
interest in this hotel, which it manages on behalf of DJONT.
Effective August 1, 1996, William S. McCalmont became the Senior Vice
President, Treasurer and Chief Financial Officer of the Company. For
approximately 12 years prior to joining the Company, Mr. McCalmont had been
employed in various positions with Harrah's Entertainment, Inc., formerly The
Promus Companies Incorporated, most recently having served as the Vice
President and Treasurer thereof since November 1991.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
Number Description
------ -----------
3.1 -- Articles of Amendment and Restatement dated June 22, 1995, amending and
restating the Charter of Registrant, as amended or supplemented by Articles of
Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996 and
Articles of Amendment dated August 8, 1996.
4.1 -- Form of Share Certificate for Common Stock.
10.1.5 -- Fifth Amendment to Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of May 2, 1996, between the Registrant and all of the
persons or entities who are or shall in the future become limited partners of
the Partnership, adopting Addendum No. 2 to Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of May 2, 1996.
25
26
10.2.2 -- Schedule of executed Lease Agreements identifying material variations from the
form of Lease Agreement with respect to hotels acquired by the Registrant
through July 31, 1996.
27 -- Financial Data Schedule.
(b) Reports on Form 8-K:
None
26
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 12, 1996
FELCOR SUITE HOTELS, INC.
By: /s/ Lester C. Johnson
---------------------------------------
Lester C. Johnson
Vice President and Controller
(Principal Accounting Officer)
27
28
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------- ----
3.1 Articles of Amendment and Restatement dated June 22, 1995 amending and
restating the Charter of Registrant, as amended or supplemented by Articles of
Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996 and
Articles of Amendment dated August 8, 1996.
4.1 Form of Share Certificate for Common Stock.
10.1.5 Fifth Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of May 2, 1996 between the Registrant and all of the
persons or entities who are or shall in the future become limited partners of
the Partnership, adopting Addendum No. 2 to Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of May 2, 1996.
10.2.2 Schedule of executed Lease Agreements identifying material variations from the
form of Lease Agreement with respect to hotels acquired by the Registrant
through July 31, 1996.
27 Financial Data Schedule.