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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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 LODGING TRUST INCORPORATED
(formerly 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 Identification No.)
organization)
545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
(972) 444-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
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 Lodging Trust Incorporated outstanding on August 10, 1998 was
67,599,206.
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2
FELCOR LODGING TRUST INCORPORATED
INDEX
PAGE
PART I. -- FINANCIAL INFORMATION ----
Item 1. Financial Statements.............................................................................. 3
FELCOR LODGING TRUST INCORPORATED
Consolidated Balance Sheets - June 30, 1998 (Unaudited)
and December 31, 1997..................................................................... 3
Consolidated Statements of Operations -- For the Three and Six Months
Ended June 30, 1998 and 1997 (Unaudited).................................................. 4
Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1998 and 1997 (Unaudited).................................................. 5
Notes to Consolidated Financial Statements..................................................... 6
DJONT OPERATIONS, L.L.C.
Consolidated Balance Sheets - June 30, 1998 (Unaudited)
and December 31, 1997..................................................................... 13
Consolidated Statements of Operations -- For the Three and Six Months
Ended June 30, 1998 and 1997 (Unaudited).................................................. 14
Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1998 and 1997 (Unaudited).................................................. 15
Notes to Consolidated Financial Statements..................................................... 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 17
General/Second Quarter Highlights.............................................................. 17
Results of Operations.......................................................................... 18
Liquidity and Capital Resources................................................................ 24
PART II. -- OTHER INFORMATION
Item 2. Changes in Securities............................................................................. 27
Item 4. Submission of Matters to a vote of Security Holders............................................... 27
Item 5. Other Information................................................................................. 27
Item 6. Exhibits and Reports on Form 8-K.................................................................. 27
SIGNATURE....................................................................................................... 29
2
3
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
ASSETS
Investment in hotels, net of accumulated depreciation of $120,554
and $87,400 at June 30, 1998 and December 31, 1997, respectively .............. $ 1,847,039 $ 1,489,764
Investment in unconsolidated entities ............................................ 119,866 132,991
Cash and cash equivalents ........................................................ 11,060 17,543
Due from Lessee .................................................................. 32,701 18,908
Deferred expenses, net of accumulated amortization of $2,888
and $1,987 at June 30, 1998 and December 31, 1997, respectively ................ 13,007 10,593
Bristol Interim Credit Facility .................................................. 120,000
Other assets ..................................................................... 11,913 3,565
------------ ------------
Total assets .......................................................... $ 2,155,586 $ 1,673,364
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt, net of discount of $1,741 and $1,855 at June 30, 1998
and December 31, 1997, respectively ........................................... $ 784,172 $ 465,726
Distributions payable ............................................................ 26,664 24,671
Accrued expenses and other liabilities ........................................... 24,016 11,331
Capital lease obligations ........................................................ 10,048 11,093
Minority interest in Operating Partnership, 3,030 and 2,900 units issued
and outstanding at June 30, 1998 and December 31, 1997, respectively .......... 76,435 73,451
Minority interest in other partnerships .......................................... 16,064 8,594
------------ ------------
Total liabilities ..................................................... 937,399 594,866
------------ ------------
Commitments and contingencies (Note 3 and 4)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized:
Series A Cumulative Preferred Stock, 6,050 shares issued and outstanding .... 151,250 151,250
Series B Redeemable Preferred Stock, 58 shares issued and outstanding ....... 143,750
Common stock, $.01 par value, 100,000 shares authorized, 37,798 and 37,802
shares issued, including shares in treasury, at June 30, 1998
and December 31, 1997, respectively ........................................... 378 378
Additional paid in capital ....................................................... 1,001,076 1,003,501
Unearned officers' and directors' compensation ................................... (1,150) (1,754)
Distributions in excess of earnings .............................................. (36,011) (33,771)
------------ ------------
1,259,293 1,119,604
Less common stock in treasury at cost, 1,213 shares .............................. (41,106) (41,106)
------------ ------------
Total shareholders' equity ............................................ 1,218,187 1,078,498
------------ ------------
Total liabilities and shareholders' equity ............................ $ 2,155,586 $ 1,673,364
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
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4
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues:
Percentage lease revenue ............................. $ 62,793 $ 38,677 $ 118,853 $ 74,048
Equity in income from unconsolidated entities ........ 2,689 2,300 3,982 3,427
Other revenue ........................................ 1,920 76 2,095 170
---------- ---------- ---------- ----------
Total revenue ............................... 67,402 41,053 124,930 77,645
---------- ---------- ---------- ----------
Expenses:
General and administrative ........................... 1,375 874 2,574 1,846
Depreciation ......................................... 17,429 11,314 33,316 21,730
Taxes, insurance and other ........................... 7,568 5,549 14,838 10,756
Interest expense ..................................... 13,795 7,313 23,526 12,914
Minority interest in Operating Partnership ........... 2,063 1,524 3,813 2,942
Minority interest in other partnerships .............. 291 121 482 142
---------- ---------- ---------- ----------
Total expenses .............................. 42,521 26,695 78,549 50,330
---------- ---------- ---------- ----------
Net income before extraordinary charge ................. 24,881 14,358 46,381 27,315
Extraordinary charge from write off of deferred
financing fees .................................... 556
---------- ---------- ---------- ----------
Net income ............................................. 24,881 14,358 45,825 27,315
Preferred dividends .................................... 4,854 2,949 7,803 5,899
---------- ---------- ---------- ----------
Net income applicable to common shareholders ........... $ 20,027 $ 11,409 $ 38,022 $ 21,416
========== ========== ========== ==========
Per common share data:
Basic:
Net income applicable to common shareholders before
extraordinary charge ............................... $ 0.55 $ 0.43 $ 1.06 $ 0.82
Extraordinary charge ................................. (0.02)
---------- ---------- ---------- ----------
Net income applicable to common shareholders ......... $ 0.55 $ 0.43 $ 1.04 $ 0.82
========== ========== ========== ==========
Weighted average common shares outstanding ........... 36,537 26,605 36,541 25,993
========== ========== ========== ==========
Diluted:
Net income applicable to common shareholders before
extraordinary charge ............................... $ 0.54 $ 0.42 $ 1.05 $ 0.81
Extraordinary charge ................................. (0.02)
---------- ---------- ---------- ----------
Net income applicable to common shareholders ......... $ 0.54 $ 0.42 $ 1.03 $ 0.81
========== ========== ========== ==========
Weighted average common shares and equivalents
outstanding ........................................ 36,851 27,024 36,878 26,397
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
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5
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net income ................................................................... $ 45,825 $ 27,315
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of acquisitions:
Depreciation ....................................................... 33,316 21,730
Amortization of deferred financing fees and organization costs ..... 1,256 672
Amortization of unearned officers' and directors' compensation ..... 396 510
Equity in income from unconsolidated entities ...................... (3,982) (3,427)
Extraordinary charge for write off of deferred financing fees ...... 556
Minority interest in Operating Partnership ......................... 3,813 2,942
Minority interest in other partnerships ............................ 482 142
Changes in assets and liabilities:
Due from Lessee .................................................... (13,793) (3,533)
Deferred financing fees ............................................ (3,558)
Deferred costs and other assets .................................... (8,436) (4,225)
Accrued expenses and other liabilities ............................. 11,599 168
----------- -----------
Net cash flow provided by operating activities ........... 67,474 42,294
----------- -----------
Cash flows from investing activities:
Acquisition of hotels ........................................................ (353,615) (409,587)
Acquisition of unconsolidated entities ....................................... (418) (59,571)
Improvements and additions to hotels ......................................... (22,244) (25,374)
Bristol Interim Credit Facility .............................................. (120,000)
Cash distributions from unconsolidated entities .............................. 15,809 1,402
----------- -----------
Net cash flow used in investing activities ............... (480,468) (493,130)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ..................................................... 461,000 149,000
Repayment of borrowings ...................................................... (144,145) (72,900)
Proceeds from sale of preferred stock ........................................ 143,750
Proceeds from sale of common stock ........................................... 480,075
Costs associated with public offerings ....................................... (4,686) (25,480)
Proceeds from exercise of stock options ...................................... 563
Purchase of treasury stock ................................................... (41,106)
Distributions paid to limited partners ....................................... (3,336) (2,835)
Distributions paid to preferred shareholders ................................. (7,803) (5,899)
Distributions paid to common shareholders .................................... (38,269) (24,981)
----------- -----------
Net cash flow provided by financing activities ........... 406,511 456,437
----------- -----------
Net change in cash and cash equivalents ................................................ (6,483) 5,601
Cash and cash equivalents at beginning of periods ...................................... 17,543 7,793
----------- -----------
Cash and cash equivalents at end of periods ............................................ $ 11,060 $ 13,394
=========== ===========
Supplemental cash flow information --
Interest paid ................................................................ $ 22,226 $ 9,760
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
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FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS
FelCor Lodging Trust Incorporated, formerly FelCor Suite Hotels, Inc.
("FelCor"), is a real estate investment trust ("REIT") which, at June 30, 1998,
owned interests in 86 hotels with an aggregate of 21,164 suites/rooms
(collectively the "Hotels") through its 92.4% general partner interest in
FelCor Lodging Limited Partnership, formerly FelCor Suites Limited Partnership
(the "Operating Partnership"). FelCor, the Operating Partnership and its
subsidiaries, are herein referred to, collectively, as the "Company". The
Company owns 100% equity interests in 65 of the Hotels (15,957 suites/rooms), a
90% or greater interest in entities owning seven hotels (1,745 suites/rooms),
and 50% interests in separate entities that own 14 hotels (3,462 suites/rooms).
At June 30, 1998, 58 of the Hotels were operated as Embassy Suites(R)hotels, 14
as Doubletree Guest Suites(R) hotels, two as full-service Doubletree(R) hotels,
five as Sheraton(R) hotels, four as Sheraton Suites(R) hotels, one as a
Hilton(R) hotel, ONE as a Hilton Suites(R) hotel and one was in the process of
being converted to a full-service Doubletree hotel. The Hotels are located in
28 states, with 35 hotels in California, Florida and Texas. The following table
provides certain information regarding the acquisition of Hotels through June
30, 1998:
NUMBER OF HOTELS NUMBER OF
ACQUIRED SUITES/ROOMS
-------- ------------
1994 7 2,041
1995 13 2,649
1996 23 5,769
1997 30 7,608
1ST QUARTER 1998 2 348
2ND QUARTER 1998 11 2,749
-- ------
86 21,164
== ======
At June 30, 1998, the Company leased all of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company, ("DJONT"), or a
consolidated subsidiary thereof (collectively, the "Lessee"), under operating
leases providing for the payment of percentage rent (the "Percentage Leases").
Hervey A. Feldman and Thomas J. Corcoran, Jr., who at June 30, 1998 were
Chairman of the Board of Directors and Chief Executive Officer of FelCor,
respectively, beneficially own a 50% voting equity interest in the Lessee. The
remaining 50% non-voting equity interest is beneficially owned by the children
of Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. The Lessee has entered into management agreements pursuant to which 73
of the Hotels are managed by Promus Hotel Corporation ("Promus"), or by a
subsidiary thereof, nine are managed directly by, or by a subsidiary of, ITT
Sheraton Corporation ("Sheraton") and four are managed by three independent
management companies. Promus is the largest operator of all-suite, full service
hotels in the United States.
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FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SECOND QUARTER HIGHLIGHTS -- (CONTINUED)
o A brief discussion of the second quarter 1998 highlights follows:
The Company acquired 11 hotels during the second quarter of 1998.
Eight upscale, full-service all-suite hotels were acquired from
Starwood Hotels & Resorts (NYSE:HOT) for an aggregate cash price of
$245 million. The eight hotels acquired from Starwood have a total of
1,898 suites and are located in geographically diverse U.S. markets.
The Company acquired 100% ownership interests in one hotel located in
Secaucus, New Jersey for approximately $23.4 million. In addition, the
Company acquired, through a 90% owned partnership, interests in two
other hotels located in Denver, Colorado and Dallas, Texas for
approximately $50.9 million in cash.
o In May 1998, FelCor raised approximately $140 million from the sale of
depositary shares representing its 9% Series B Cumulative Redeemable
Preferred Stock net of $3.8 million of offering expenses.
o FelCor declared second quarter dividends of $0.55 per share on its Common
Stock, $0.4875 per share on its $1.95 Series A Cumulative Convertible
Preferred Stock and $0.525 per depositary share on its 9% Series B
Cumulative Redeemable Preferred Stock.
o Following the end of the second quarter 1998 the Company increased its
unsecured credit facilities to $1.1 billion from $550 million. The new
unsecured credit facility consists of an $850 million revolving line of
credit which matures in three years and a $250 million term loan that
matures in 18 months. (See Note 4)
o On July 28, 1998, FelCor completed the merger with Bristol Hotel Company
(NYSE:BH) ("Bristol") following approval by FelCor's Shareholders on July
27, 1998. In conjunction with this closing FelCor issued 31.0 million
shares of Common Stock and assumed approximately $700 million in debt.
(See Note 9)
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 FelCor's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (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
financial statements for the three and six months ended June 30, 1998 and 1997
are unaudited; however, in the opinion of management, all adjustments (which
include only normal recurring accruals) have been made which are considered
necessary to present fairly the operating results and financial position of the
Company for the unaudited periods.
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FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUPPLEMENTAL CASH FLOW INFORMATION
During the first six months of 1998, the Company purchased certain assets
and assumed certain liabilities of hotels. 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 (in thousands):
Assets acquired................................................. $367,058
Debt assumed.................................................... (1,479)
Operating Partnership units issued.............................. (4,976)
Minority interest contribution in other partnerships............ (6,988)
--------
Net cash paid by the Company............................... $353,615
========
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS
At June 30, 1998, the Company owned interests in 58 Embassy Suites hotels,
14 Doubletree Guest Suites hotels, two full-service Doubletree hotels, five
Sheraton hotels, four Sheraton Suites hotels, one Hilton Suites hotel, one
Hilton hotel and one hotel in the process of conversion to a full-service
Doubletree hotel. The Embassy Suites hotels, Hilton Suites hotel and Hilton
hotel operate pursuant to franchise license agreements which require the
payment of fees based on a percentage of suite/room revenue. These fees are
paid by the Lessee. There are no separate franchise license agreements with
respect to the Doubletree Guest Suites hotels, Doubletree hotels, Sheraton
hotels or Sheraton Suites hotels, which rights are included in management
agreements with the Lessee.
The Lessee generally pays the Hotel managers a base management fee based
on a percentage of suite/room revenue and an incentive management fee based on
the Lessee's income before overhead expenses for each hotel. In certain
instances, the hotel managers have subordinated fees and committed to make
subordinated loans to the Lessee, if needed, to meet its rental and other
obligations under the Percentage Leases.
The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19
hotels), 2007 (14 hotels), 2008 (13 hotels) and 2012 (7 hotels). The Percentage
Leases for the 14 unconsolidated entities expire in 2005 (1 hotel), 2006 (4
hotels) and 2007 (9 hotels). The rental income under the Percentage Leases
between the 14 unconsolidated entities, of which the Company owns 50%, and the
Lessee are payable to the respective entities and as such is not included in
the following schedule of future lease commitments to the Company. Minimum
future rental income (i.e., base rents) to the Company under these
noncancellable operating leases at June 30, 1998 is as follows (in thousands):
Remainder of 1998............................................... $ 66,989
1999............................................................ 134,364
2000............................................................ 134,451
2001............................................................ 137,596
2002............................................................ 137,596
2003 and thereafter............................................. 641,199
----------
$1,252,195
==========
8
9
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
Messrs. Feldman and Corcoran, certain entities owning preferred
interests in the Lessee and the managers of certain of the Hotels have agreed
to make loans to the Lessee of up to an aggregate of approximately $17.3
million, to the extent necessary to enable the Lessee to pay rent and other
obligations due under the respective Percentage Leases relating to a total of
38 of the Hotels. No loans were outstanding under such agreements at June 30,
1998.
4. DEBT
Debt obligations at June 30, 1998 and December 31, 1997 consist of the
following (in thousands):
JUNE 30, DECEMBER 31,
1998 1997
-------- --------
Senior unsecured notes, net of discount......................................... $298,259 $298,145
Line of Credit.................................................................. 453,000 136,000
Renovation loan ................................................................ 25,000 25,000
Collateralized mortgage note.................................................... 7,263 5,931
Other debt payable.............................................................. 650 650
-------- --------
$784,172 $465,726
======== ========
Under its loan agreements, the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at June 30, 1998.
On July 1, 1998, the Company increased its unsecured credit facilities
to $1.1 billion, consisting of an $850 million revolving line of credit ("Line
of Credit") which matures in three years and a $250 million non- amortizing
term loan ("term loan") which matures in 18 months. Interest payable on
borrowings under the credit facilities is variable, determined from a ratings
and leverage-based pricing matrix, ranging from 87.5 basis points to 175 basis
points above LIBOR. The initial interest spread will be 150 basis points.
Additionally, the Company is required to pay an unused commitment fee which is
variable, determined from a ratings based pricing matrix, ranging from 20 to 30
basis points. In the third quarter of 1998, the Company intends to write off
approximately $2.5 million of deferred expenses relating to the $550 million
Line of Credit. Through June 30, 1998, the Company has incurred additional
expenses of approximately $3.6 million in deferred loan costs associated with
the $1.1 billion unsecured credit facility.
On July 1, 1998, the Company entered into six separate interest rate
swap agreements with four financial institutions to manage the relative mix of
its debt between fixed and variable rate instruments. These interest rate swap
agreements modify a portion of the interest characteristics of the Company's
outstanding debt without an exchange of the underlying principal amount and
effectively convert variable rate debt to a fixed rate. The $250 million of
interest rate swaps are comprised of $125 million of 5-year contracts maturing
on July 1, 2003, with fixed rates ranging from 5.80% to 5.83% and $125 million
of 5-year contracts maturing on July 1, 2003, providing for optional
termination by the counterparties on July 1, 2001, with fixed rates ranging
from 5.55% to 5.56%.
9
10
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
At June 30, 1998, the Company owned 50% interests in separate entities
owning 14 hotels, a parcel of undeveloped land and a condominium management
company. The Company also owned a 97% non-voting interest in an entity
developing condominiums for sale. The Company is accounting for its investments
in these unconsolidated entities under the equity method.
Summarized combined financial information for 100% of these unconsolidated
entities is as follows (in thousands):
JUNE 30, DECEMBER 31,
1998 1997
-------- --------
Balance sheet information:
Investment in hotels, net of accumulated depreciation......................... $250,215 $256,032
Non-recourse mortgage debt.................................................... $167,317 $138,956
Equity........................................................................ $ 94,154 $126,324
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
Statements of operations information:
Percentage lease revenue ......................... $ 14,222 $ 14,224 $ 26,569 $ 23,729
Other income ..................................... 954 1,114
-------- -------- -------- --------
Total revenue .............................. 15,176 14,224 27,683 23,729
-------- -------- -------- --------
Expenses:
Depreciation ................................ 4,278 4,108 8,543 7,214
Taxes, insurance and other .................. 1,594 1,748 3,160 3,178
Interest expense ............................ 3,095 2,907 6,354 5,001
-------- -------- -------- --------
Total expenses ............................. 8,967 8,763 18,057 15,393
-------- -------- -------- --------
Net income ....................................... $ 6,209 $ 5,461 $ 9,626 $ 8,336
======== ======== ======== ========
50% of net income attributable to the Company .... $ 3,105 $ 2,731 $ 4,813 $ 4,168
Amortization of cost in excess of book value ..... (416) (431) (831) (741)
-------- -------- -------- --------
Equity in income from unconsolidated entities .... $ 2,689 $ 2,300 $ 3,982 $ 3,427
======== ======== ======== ========
6. SERIES B PREFERRED STOCK
On May 7, 1998, FelCor issued 5,750,000 Depositary Shares (including
750,000 shares pursuant to the exercise of an over-allotment option), each
representing an 1/100 interest in a share of 9% Series B Cumulative Redeemable
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), of
FelCor. Each share of Series B Preferred Stock is entitled to a liquidation
preference of $2,500 per share (equivalent to $25 per Depositary Share plus
accrued dividends). The Series B Preferred Stock is not redeemable prior to May
7, 2003. The Series B Preferred Stock may be redeemed at the option of FelCor
in whole or in part, at a redemption price of $2,500 per share plus accrued
dividends.
10
11
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the three and
six months ended June 30, 1998 and 1997 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
1998 1997 1998 1997
------ ------ ------- -------
Real estate and personal property taxes....................... $6,456 $4,423 $13,023 $ 8,833
Property insurance............................................ 293 455 545 863
Land lease expense............................................ 579 411 805 660
State franchise taxes......................................... 240 160 465 300
Other......................................................... 100 100
------ ------ ------- -------
Total taxes, insurance and other......................... $7,568 $5,549 $14,838 $10,756
====== ====== ======= =======
8. BRISTOL INTERIM CREDIT FACILITY
Under the Bristol Merger Agreement, FelCor provided Bristol a $120 million
interim credit facility (the "Interim Credit Facility"). Under the Interim
Credit Facility, FelCor loaned to Bristol (i) $45 million to fund a portion of
the cash purchase price and to prepay certain indebtedness assumed by Bristol
in connection with the acquisition of a 20 hotel portfolio, (ii) $32.8 million
to fund the prepayment of $30 million in outstanding principal amount of
Bristol's Senior Secured Notes and a related prepayment premium, (iii) $9
million for general corporate purposes and (iv) $33.2 million for necessary
capital improvements. The Interim Credit Facility was secured by real estate.
At June 30, 1998, FelCor had advanced the entire $120 million to Bristol under
the Interim Credit Facility. At July 28, 1998, the Interim Credit Facility was
assumed and canceled by FelCor upon completion of the merger with Bristol.
9. SUBSEQUENT EVENTS
On July 27, 1998, the Company announced the approval by its Shareholders
of the merger with Bristol at its 1998 Annual Shareholders Meeting.
Approximately 75% of the Company's outstanding Common Stock voted in favor of,
and less than 1% voted against, the proposed merger.
On July 28, 1998, the Company completed the merger of Bristol's real
estate holdings with and into the Company. The merger resulted in the
acquisition of 109 primarily full-service Bristol hotels in return for
approximately 31.0 million shares of newly issued Common Stock. Based on the
July 27, 1998 closing prices of FelCor Common Stock, the transaction was valued
at approximately $1.7 billion, including the assumption of approximately $700
million in debt. The Bristol hotels add more than 28,000 rooms to the FelCor
portfolio at approximately $59,000 per room. The merger established significant
brand/owner manager relationships for the Company with Bass plc and its
subsidiary Bass Hotels & Resorts, which acquired approximately 14% of the
Company's currently outstanding Common Stock in the merger. Bristol Hotels &
Resorts, the new hotel operating company spun off from Bristol prior to
Bristol's merger into FelCor, will continue to lease and operate the hotels
acquired by FelCor in the merger. With the completion of the Bristol merger and
related transactions, the Company's consolidated debt-to-total investment in
hotel assets, at cost, is approximately 37%, fixed interest rate debt comprised
61% of total indebtedness, and only 7% of total assets were encumbered with
secured debt. In addition to its current standing as the owner of the largest
number of Embassy Suites hotels, as a result of the merger the Company is the
owner of the largest number of Crowne Plaza(R) and Holiday Inn(R) hotels.
11
12
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations
for the six months ended June 30, 1998 and 1997 are presented as if the
acquisitions of all hotels owned by the Company at June 30, 1998, the equity
offerings consummated during 1997 and 1998 and the merger with Bristol had
occurred as of the beginning of the periods presented and the Hotels had been
leased pursuant to Percentage Leases.
The following unaudited Pro Forma Consolidated Statements of Operations
for the periods presented are not necessarily indicative of what actual results
of operations of the Company would have been assuming such transactions had
been completed at the beginning of the periods presented nor does it purport to
represent the results of operations for future periods.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
---------- ----------
Revenues:
Percentage lease revenue ................................. $ 244,227 $ 226,564
Equity in income from unconsolidated entities ............ 5,367 4,462
Other income ............................................. 103
---------- ----------
Total revenue ......................................... 249,697 231,026
---------- ----------
Expenses:
General and administrative ............................... 3,073 2,346
Depreciation ............................................. 65,513 62,313
Taxes, insurance and other ............................... 38,814 37,278
Interest expense ......................................... 52,625 51,202
Minority interest in Operating Partnership ............... 3,836 3,324
Minority interest in other partnerships .................. 677 628
---------- ----------
Total expenses ........................................ 164,538 157,091
---------- ----------
Net income ................................................. 85,159 75,935
Preferred dividends ........................................ 12,368 12,368
---------- ----------
Net income applicable to common shareholders ............... $ 72,791 $ 61,567
========== ==========
Per common share data:
Basic:
Net income applicable to common shareholders ............. $ 1.08 $ .93
========== ==========
Weighted average number of common shares outstanding ..... 67,527 66,460
========== ==========
Diluted:
Net income applicable to common shareholders ............. $ 1.06 $ .91
========== ==========
Weighted average common shares outstanding ............... 68,453 67,466
========== ==========
12
13
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
(UNAUDITED)
ASSETS
Cash and cash equivalents ................................................... $ 41,624 $ 25,684
Accounts receivable, net .................................................... 29,807 20,274
Inventories ................................................................. 3,920 3,466
Prepaid expenses ............................................................ 746 1,307
Other assets ................................................................ 2,758 3,971
---------- ----------
Total assets ...................................................... $ 78,855 $ 54,702
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade ..................................................... $ 5,958 $ 9,426
Accounts payable, other ..................................................... 11,221 4,625
Due to FelCor Lodging Trust Incorporated .................................... 32,701 18,908
Accrued expenses and other liabilities ...................................... 35,123 30,818
---------- ----------
Total liabilities ................................................. 85,003 63,777
---------- ----------
Commitments and contingencies (Note 2)
Shareholders' equity:
Capital ..................................................................... 1 1
Distributions in excess of earnings ......................................... (6,149) (9,076)
---------- ----------
Total shareholders' deficit ....................................... (6,148) (9,075)
---------- ----------
Total liabilities and shareholders' equity ........................ $ 78,855 $ 54,702
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
13
14
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenue:
Suite/room revenue .................... $ 160,993 $ 108,932 $ 304,278 $ 202,085
Food and beverage revenue ............. 19,847 6,160 35,111 10,189
Food and beverage rent ................ 1,297 1,058 2,470 2,023
Other revenue ......................... 13,023 9,652 24,391 16,720
---------- ---------- ---------- ----------
Total revenues ................... 195,160 125,802 366,250 231,017
---------- ---------- ---------- ----------
Expenses:
Property operating costs and expenses . 43,148 31,183 81,753 56,366
General and administrative ............ 14,223 9,151 26,481 16,317
Advertising and promotion ............. 12,676 8,677 24,462 15,523
Repair and maintenance ................ 8,943 6,167 16,930 11,071
Utilities ............................. 7,058 4,562 13,155 8,691
Management fee ........................ 6,184 3,217 11,779 5,663
Franchise fee ......................... 4,780 3,344 8,921 6,184
Food and beverage expenses ............ 16,823 4,824 30,335 8,689
Percentage lease expenses ............. 77,021 52,459 145,459 97,074
Lessee overhead expenses .............. 482 526 842 1,044
Liability insurance ................... 300 781 569 1,500
Other ................................. 1,370 1,012 2,637 1,882
---------- ---------- ---------- ----------
Total expenses ................... 193,008 125,903 363,323 230,004
---------- ---------- ---------- ----------
Net income (loss) .......................... $ 2,152 $ (101) $ 2,927 $ 1,013
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
14
15
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income .................................................... $ 2,927 $ 1,013
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in assets and liabilities:
Accounts receivable ...................................... (9,533) (9,411)
Inventories .............................................. (454) (622)
Prepaid expenses ......................................... 561 4
Other assets ............................................. 1,213 (1,626)
Due to FelCor Lodging Trust Incorporated ................. 13,793 3,533
Accounts payable, accrued expenses and other liabilities . 7,433 21,606
--------- ---------
Net cash flow provided by operating activities ...... 15,940 14,497
--------- ---------
Net change in cash and cash equivalents ............................ 15,940 14,497
Cash and cash equivalents at beginning of periods .................. 25,684 5,208
--------- ---------
Cash and cash equivalents at end of periods ........................ $ 41,624 $ 19,705
========= =========
The accompany notes are an integral part of these consolidated
financial statements.
15
16
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Hervey A. Feldman and Thomas J. Corcoran, Jr, who at June 30, 1998
were the Chairman of the Board of Directors and Chief Executive Officer of
FelCor Lodging Trust Incorporated (formerly FelCor Suite Hotels, Inc.), own all
of the voting Class A membership interest in DJONT Operations, L.L.C., a
Delaware limited liability company ("DJONT") (representing a 50% equity
interest). All of the non-voting Class B membership interest in DJONT
(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 and
major initial investor in FelCor. Each of the 86 hotels in which FelCor Lodging
Limited Partnership (formerly FelCor Suites Limited Partnership) (the
"Operating Partnership") had an ownership interest at June 30, 1998 (the
"Hotels"), was leased to DJONT or a consolidated subsidiary thereof
(collectively, the "Lessee") pursuant to percentage leases (the "Percentage
Leases"). Messrs. Feldman and Corcoran, certain entities owning preferred
interests in the Lessee and the managers of certain of the Hotels have agreed,
directly or through their affiliates, to make loans to the Lessee of up to an
aggregate of approximately $17.3 million, to the extent necessary to enable the
Lessee to pay rent and other obligations due under the respective Percentage
Leases relating to a total of 38 of the Hotels. Amounts so borrowed by the
Lessee, if any, will be subordinate in right of repayment to the prior payment
in full of rent and other obligations due under the Percentage Leases relating
to such Hotels. No loans were outstanding under such agreements at June 30,
1998.
At June 30, 1998, 58 of the Hotels were operated as Embassy Suites
hotels, 14 as Doubletree Guest Suites hotels, two as full-service Doubletree
hotels, five as Sheraton hotels, four as Sheraton Suites hotels, one as a
Hilton hotel, one as a Hilton Suites hotel and one was in the process of being
converted to a full-service Doubletree hotel. Seventy-three of the Hotels are
managed by Promus Hotel Corporation ("Promus"), or by a subsidiary thereof. Of
the remaining Hotels, nine are managed directly by, or by a subsidiary of, ITT
Sheraton Corporation ("Sheraton") and four are managed by three independent
management companies. Promus is the largest operator of all-suite, full-service
hotels in the United States.
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Lessee has future lease commitments under the Percentage Leases
which expire in 2004 (seven hotels), 2005 (13 hotels) 2006 (23 hotels), 2007
(23 hotels), 2008 (13 hotels) and 2012 (seven hotels). Minimum future rental
payments (i.e., base rents) under these noncancellable operating leases at June
30, 1998 is as follows (in thousands):
YEAR AMOUNT
---- ------
Remainder of 1998................................................... $ 80,515
1999................................................................ 161,415
2000................................................................ 161,503
2001................................................................ 164,647
2002................................................................ 164,647
2003 and thereafter................................................. 747,605
----------
$1,480,332
==========
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 Consolidated Financial Statements of FelCor Lodging Trust Incorporated
appearing elsewhere herein.
SECOND QUARTER HIGHLIGHTS:
o Total revenue increased by 64% for the second quarter and 61% for the
first six months of 1998 over the comparable periods last year.
o Funds From Operations ("FFO") of $45.0 million for the quarter ended June
30, 1998 sets a new quarterly record.
o Net income per diluted share for the quarter increased 29% from $0.42 to
$0.54.
o The Company's 43 comparable hotels, those owned at both December 31, 1997
and 1996, produced a 6.3% Revenue Per Available Suite/Room ("RevPAR")
increase over the second quarter 1997 and a 7.5% RevPAR increase over the
six months ended June 30, 1997. This increase in RevPAR, coupled with 263
new suites added at three of the 13 Original hotels (as hereafter defined)
resulted in increased suite revenue for the 43 comparable hotels of 8.6%
for the second quarter and 9.6% for the six months ended June 30, 1997.
o In May 1998, FelCor raised approximately $140 million from the sale of
depositary shares representing its 9% Series B Cumulative Redeemable
Preferred Stock net of $3.8 million of offering expenses.
o FelCor declared second quarter dividends of $0.55 per share on its Common
Stock, $0.4875 per share on its $1.95 Series A Cumulative Convertible
Preferred Stock and $0.525 per depositary share on its 9% Series B
Cumulative Redeemable Preferred Stock.
o On July 28, 1998, FelCor completed the merger with Bristol following
approval by FelCor's Shareholders on July 27, 1998. In conjunction with
this closing FelCor issued 31.0 million shares of Common Stock and assumed
approximately $700 million in debt. (See Note 9 of Notes to Consolidated
Financial Statements of FelCor)
o Hotel Acquisitions in Second Quarter 1998:
o On April 15, 1998, the Company acquired a 90% ownership interest in a
248-room Doubletree hotel in Denver (Aurora), Colorado for
approximately $21.7 million in cash. The hotel has 11,000 square feet
of meeting space and is located 13 miles from the Denver International
Airport.
o On May 4, 1998, the Company acquired eight upscale, full-service
all-suite hotels from Starwood Hotels & Resorts. The $245 million
all-cash purchase includes five Embassy Suites hotels and three
Doubletree Guest Suites hotels comprising 1,898 suites. After planned
conversions, six hotels will be Embassy Suites
17
18
hotels managed by Promus and two hotels will be Sheraton Suites hotels
managed by Sheraton. Located in geographically diverse U.S. markets,
the hotels are currently identified as:
HOTEL NUMBER OF SUITES
---------------- ----------------
Embassy Suites - Phoenix (Airport-44th St.), AZ 229
Embassy Suites - Phoenix (Tempe/ASU), AZ 224
Embassy Suites Resort - Palm Desert, CA 198
Embassy Suites - Atlanta (Airport), GA 233
Embassy Suites - St. Louis (Downtown), MO 297
Doubletree Guest Suites - Dallas-Ft. Worth (Airport), TX 308
Sheraton Suites - Ft. Lauderdale (Cypress Creek), FL 254
Sheraton Suites - Lexington, KY 155
o On May 5, 1998, the Company acquired the 301-room Meadowlands Hilton
hotel in Secaucus, New Jersey for $23.4 million in cash. The 12-story
hotel features 19,000 square feet of meeting and convention space, a
10,000 square foot exhibition center and is located within four miles
from downtown Manhattan.
o On June 1, 1998, the Company acquired a 90% ownership interest in a
302-room Doubletree Hotel at Dallas-Campbell Centre for $29.2 million
in cash, with the remaining 10% ownership interest being purchased by
Promus. The Company acquired the hotel in conjunction with GE
Investments' purchase of the 920,000 square-foot integrated complex
known as "Campbell Centre." The 21-story high-rise hotel features
14,000 square feet of meeting space and is inter-connected to two
adjoining office towers by interior walkways. The complex is centrally
located in the heart of the Central Expressway corridor in Dallas,
four miles from Dallas-Love Field Airport and five miles from downtown
Dallas.
o Subsequent to the end of the second quarter, the Company increased its
unsecured credit facilities to $1.1 billion from $550 million. (See
Note 4 of notes to Consolidated Financial Statements of FelCor)
RESULTS OF OPERATIONS
The Company
Six Months Ended June 30, 1998 and 1997
For the six months ended June 30, 1998 and 1997, the Company had
revenues of $124.9 million and $77.6 million, respectively, consisting
primarily of Percentage Lease revenues of $118.9 million and $74.0 million,
respectively. The increase in total revenue is primarily attributed to the
Company's acquisition and subsequent leasing pursuant to Percentage Leases, of
interests in 19 additional hotels since June 30, 1997.
Suite/room revenues for the 43 Hotels owned at both December 31, 1997
and 1996 increased 9.6% for the six months ended June 30, 1998 over the
corresponding period in 1997 (an increase of $15.4 million). Furthermore,
RevPAR for these hotels increased 7.5% and average daily rate ("ADR") increased
8.2% to $124.67 in the six months ended June 30, 1998 from $115.26 in the same
period in 1997.
Management believes that the hotels it acquires will generally
experience increases in suite/room revenue and RevPAR (and accordingly, provide
the Company with increases in Percentage Lease revenue) after completion of
renovation, upgrade and possible rebranding; however, as individual hotels
undergo such renovation and/or rebranding, their performance has been, and may
continue to be adversely affected by such temporary factors as suites/rooms out
of service and disruptions of hotel operations. (A more detailed discussion of
hotel suite/room revenue is contained in "The Hotels" section of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
18
19
Total expenses increased $28.2 million in the six months ended June
30, 1998, from $50.3 million to $78.5 million, compared to the same period in
1997. This increase resulted primarily from the additional hotels acquired in
1998 and 1997. Total expenses decreased as percentage of total revenue from
64.8% in the six months ended June 30, 1997 to 62.9% in the same period of
1998. The major components of total expenses are depreciation; taxes, insurance
and other; and interest expense.
Depreciation increased primarily as a result of the additional
properties acquired in 1997 and 1998.
Taxes, insurance and other increased $4.1 million primarily as a
result of the increased number of hotels owned.
Interest expense increased as a percentage of total revenue from 16.6%
in the six months ended June 30, 1997 to 18.8% in 1998. This increase in
interest expense is attributed to the increased use of debt to finance
acquisitions, renovations and the $120 million loan to Bristol.
Three Months Ended June 30, 1998 and 1997
For the three months ended June 30, 1998 and 1997, the Company had
revenues of $67.4 million and $41.1 million, respectively, consisting primarily
of Percentage Lease revenues of $62.8 million and $38.7 million, respectively.
The increase in total revenue is primarily attributed to the Company's
acquisition and subsequent leasing pursuant to Percentage Leases, of interests
in 19 additional hotels since June 30, 1997.
Suite/room revenues for the 43 Hotels owned at both December 31, 1997
and 1996 increased 8.6% for the quarter ended June 30, 1998 over the
corresponding period in 1997 (an increase of $7.0 million). Furthermore, RevPAR
for these hotels increased 6.3% and ADR increased 8.3% to $122.06 in the second
quarter of 1998 from $112.71 in the same period in 1997.
Total expenses increased $15.8 million in the three months ended June
30, 1998, from $26.7 million to $42.5 million, compared to the same period in
1997. This increase resulted primarily from the additional hotels acquired in
1998 and 1997. Total expenses decreased as percentage of total revenue from
65.0% in the second quarter of 1997 to 63.1% in the same period of 1998. The
major components of total expenses are depreciation; taxes, insurance and
other; and interest expense.
Depreciation increased primarily as a result of the additional
properties acquired in 1997 and 1998.
Taxes, insurance and other increased $2.0 million primarily as a
result of the increased number of hotels owned.
Interest expense increased as a percentage of total revenue from 17.8%
in the second quarter of 1997 to 20.5% in 1998. This increase in interest
expense is attributed to the increased use of debt to finance acquisitions,
renovations, and the $120 million loan to Bristol.
19
20
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 flow as a measure of the Company's
operating performance and liquidity.
The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales of properties, plus; real estate related depreciation and amortization
and after comparable adjustments for the Company's portion of these items
related to unconsolidated entities and joint ventures. The Company believes
that Funds From Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs. The Company
computes Funds From Operations in accordance with standards established by
NAREIT which may not be comparable to Funds From Operations 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 the
Company. Funds From Operations does not represent cash generated from operating
activities determined by GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make cash distributions. Funds From Operations may
include funds that may not be available for management's discretionary use due
to functional requirements to conserve funds for capital expenditures and
property acquisitions, and other commitments and uncertainties.
The following table details the computation of Funds From Operations (in
thousands, except per share and unit data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Funds From Operations (FFO):
Net income ............................................ $ 24,881 $ 14,358 $ 45,825 $ 27,315
Less: Series B redeemable preferred dividends ......... (1,905) (1,905)
Add back:
Extraordinary charge from write off of deferred
financing fees from unconsolidated entities ...... 556
Minority interest in Operating Partnership ......... 2,063 1,524 3,813 2,942
Depreciation ....................................... 17,429 11,314 33,316 21,730
Depreciation for unconsolidated entities ........... 2,555 2,485 5,103 4,348
--------- --------- --------- ---------
FFO ................................................... $ 45,023 $ 29,681 $ 86,708 $ 56,335
========= ========= ========= =========
Weighted average common shares and
units outstanding (a) ............................ 44,572 34,548 44,573 33,896
========= ========= ========= =========
(a) Weighted average common shares and units are computed including
dilutive options, unvested restricted stock grants and assuming
conversion of preferred stock to common stock.
20
21
Included in the Funds From Operations described above is the Company's
share of FFO from its interest in 14 unconsolidated entities. The FFO
contribution from these unconsolidated entities was derived as follows (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Statement of operations information:
Percentage Lease revenue ........................................ $ 14,222 $ 14,224 $ 26,569 $ 23,729
Other income .................................................... 954 1,114
--------- --------- ---------
Total revenue .................................... $ 15,176 14,224 27,683 23,729
--------- --------- --------- ---------
Expenses:
Depreciation ............................................ 4,278 4,108 8,543 7,214
Taxes, insurance and other .............................. 1,594 1,748 3,160 3,178
Interest expense ........................................ 3,095 2,907 6,354 5,001
--------- --------- --------- ---------
Total expenses ................................... 8,967 8,763 18,057 15,393
--------- --------- --------- ---------
Net income ...................................................... $ 6,209 $ 5,461 $ 9,626 $ 8,336
========= ========= ========= =========
50% of net income attributable to the Company ................... $ 3,105 $ 2,731 $ 4,813 $ 4,168
Amortization of cost in excess of book value .................... (416) (431) (831) (741)
--------- --------- --------- ---------
Income from unconsolidated entities ............................. 2,689 2,300 3,982 3,427
Add back: 50% of depreciation ................................... 2,139 2,054 4,271 3,607
Amortization of cost in excess of book value ............ 416 431 831 741
--------- --------- --------- ---------
FFO contribution of unconsolidated entities ..................... $ 5,244 $ 4,785 $ 9,084 $ 7,775
========= ========= ========= =========
The Lessee
Six Months Ended June 30, 1998 and 1997
Total revenues increased to $366.3 million for the six months ended
June 30, 1998 from $231.0 million in the same period of 1997, an increase of
58.6%. Total revenues consisted primarily of suite/room revenue of $304.3
million and $202.1 million in the first six months of 1998 and 1997,
respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased to 86 hotels at June 30, 1998 from 67 hotels at
June 30, 1997. Suite/room revenues from the 43 Hotels owned both at December
31, 1997 and 1996 increased 9.6% or $15.4 million. The increase in revenues at
these hotels is due primarily to improvements in ADR of $124.67 for the six
months ended June 30, 1998, as compared to $115.26 for the six months ended
June 30, 1997, an increase of 8.2%.
The Lessee's income before Percentage Lease rent decreased as a
percentage of total revenues from 42.5% in the six months ended June 30, 1997
to 40.5% in the six months ended June 30, 1998.
Three Months Ended June 30, 1998 and 1997
Total revenues increased to $195.2 million in the second quarter of
1998 from $125.8 million in the second quarter of 1997, an increase of 55.2%.
Total revenues consisted primarily of suite/room revenue of $161.0 million and
$108.9 million in the second quarter of 1998 and 1997, respectively.
The increase in total revenues is primarily a result of the increase
in the number of hotels leased to 86 hotels at June 30, 1998 from 67 hotels at
June 30, 1997. Suite/room revenues from the 43 Hotels owned at both December
31, 1997 and 1996 increased 8.6% or $7.0 million. The increase in revenues at
these hotels is due primarily to improvements in ADR of $122.06 for the three
months ended June 30, 1998, as compared to $112.71 for the same period in 1997.
21
22
The Lessee's income before Percentage Lease rent decreased as a
percentage of total revenues from 41.6% in the second quarter of 1997 to 40.6%
in the second quarter of 1998.
The Hotels
The following table sets forth historical suite/room revenue and
percentage changes therein between the periods presented for the 86 hotels
which the Lessee operated at June 30, 1998. The following table also presents
comparative information with respect to Occupancy, ADR and RevPAR for the 13
Original Hotels, the 18 CSS Hotels, the 12 1996 Acquisitions, the 30 1997
Acquisitions and the 13 1998 Acquisitions, regardless of ownership, through
June 30, 1998. Except as otherwise noted below, each of such hotels is operated
as an Embassy Suites hotel.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------- ---------------------------------------
1998 1997 VARIANCE 1998 1997 VARIANCE
-------- -------- -------- -------- -------- --------
Suite/room Revenue (in thousands):
Original Hotels (13)................... $ 24,055 $ 22,045 9.1 % $ 47,245 $ 42,918 10.1%
CSS Hotels (18)........................ 39,184 35,559 10.2 % 80,429 72,563 10.8%
1996 Acquisitions (12)................. 25,226 23,868 5.7 % 48,701 45,486 7.1%
-------- -------- -------- --------
Total for Hotels owned at both
December 31, 1997 and 1996 (43).... 88,465 81,472 8.6 % 176,375 160,967 9.6%
1997 Acquisitions (30)................. 58,743 57,295 2.5 % 113,272 110,897 2.1%
1998 Acquisitions (13)................. 20,719 21,021 (1.4)% 43,291 42,387 2.1%
-------- -------- -------- --------
$167,927 $159,788 5.1 % $332,938 $314,251 5.9%
======== ======== ======== ========
Occupancy:
Original Hotels........................ 77.2% 80.1% (2.9) pts. 75.8% 77.7% (1.9) pts.
CSS Hotels............................. 75.6% 75.8% (0.2) pts. 75.2% 74.5% 0.7 pts.
1996 Acquisitions...................... 77.4% 79.3% (1.9) pts. 74.7% 75.8% (1.1) pts.
Total for Hotels owned at both
December 31, 1997 and 1996......... 76.5% 77.9% (1.4) pts. 75.2% 75.7% (0.5) pts.
1997 Acquisitions...................... 74.7% 74.9% (0.2) pts. 72.4% 73.4% (1.0) pts.
1998 Acquisitions...................... 75.2% 79.0% (3.8) pts. 74.8% 75.9% (1.1) pts.
ADR:
Original Hotels........................ $ 114.60 $109.24 4.9 % $ 116.10 $ 110.22 5.3%
CSS Hotels............................. $ 123.71 $111.86 10.6 % $ 128.27 $ 116.83 9.8%
1996 Acquisitions...................... $ 127.31 $117.50 8.3 % $ 127.91 $ 117.83 8.6%
Total for Hotels owned at both
December 31, 1997 and 1996......... $ 122.06 $112.71 8.3 % $ 124.67 $ 115.26 8.2%
1997 Acquisitions...................... $ 113.82 $110.52 3.0 % $ 113.81 $ 109.85 3.6%
1998 Acquisitions...................... $ 97.90 $ 94.57 3.5 % $ 103.48 $ 99.78 3.7%
RevPAR:
Original Hotels........................ $ 88.49 $ 87.50 1.1 % $ 88.00 $ 85.62 2.8%
CSS Hotels............................. $ 93.46 $ 84.81 10.2 % $ 96.45 $ 87.01 10.8%
1996 Acquisitions...................... $ 98.48 $ 93.18 5.7 % $ 95.58 $ 89.29 7.0%
Total for Hotels owned at both
December 31, 1997 and 1996......... $ 93.39 $ 87.85 6.3 % $ 93.81 $ 87.26 7.5%
1997 Acquisitions...................... $ 84.99 $ 82.83 2.6 % $ 82.39 $ 80.61 2.2%
1998 Acquisitions...................... $ 73.65 $ 74.73 (1.4)% $ 77.38 $ 75.76 2.1%
ORIGINAL HOTELS: Flagstaff, AZ; Jacksonville, FL; Orlando (North),
- --------------- FL; Orlando (South), FL; Brunswick, GA; Chicago -
Lombard, IL; New Orleans, LA; Boston - Marlborough,
MA; Tulsa, OK; Nashville, TN; Corpus Christi, TX;
Dallas (Love Field), TX; Dallas (Park Central), TX.
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CSS HOTELS: Birmingham, AL; Phoenix (Camelback), AZ; Anaheim,
- ---------- CA; El Segundo (LAX South), CA; Milpitas, CA; Napa,
CA; Oxnard (Mandalay Beach), CA; San Francisco
(Airport North), CA; San Francisco (Airport South),
CA; Boca Raton, FL(1); Deerfield Beach, FL; Ft.
Lauderdale, FL; Miami, FL; Tampa (Busch Gardens),
FL(1); Baton Rouge, LA; Minneapolis (Airport), MN;
Minneapolis (Downtown), MN; St. Paul, MN.
1996 ACQUISITIONS: San Rafael (Marin County), CA; Avon (Beaver Creek),
- ----------------- CO; Boca Raton, FL; Atlanta (Buckhead), GA;
Deerfield, IL; Indianapolis (North), IN; Lexington,
KY(2); Charlotte, NC; Parsippany, NJ; Piscataway,
NJ; Cleveland, OH; Myrtle Beach (Kingston
Plantation), SC.
1997 ACQUISITIONS: Phoenix (Crescent), AZ(3); Covina, CA; Dana Point,
- ----------------- CA(1); Los Angeles (LAX North), CA; Lake Buena Vista
(Disney World), FL(1); Tampa (Rocky Point), FL(1);
Atlanta (Airport), GA(4); Atlanta (Galleria)(3), GA;
Atlanta (Perimeter Center), GA; Chicago (O'Hare),
IL(4); Overland Park, KS; Baltimore, MD(1); Troy,
MI(1); Bloomington, MN(1); Kansas City (Plaza), MO;
Raleigh, NC; Raleigh/Durham, NC(1); Omaha, NE(1);
Secaucus, NJ; Syracuse, NY; Dayton, OH(1);
Philadelphia (Society Hill), PA(3); Nashville
(Airport), TN(1); Austin (Airport North), TX; Austin
(Downtown), TX(1); Dallas (Market Center), TX;
Dallas (Park Central), TX (3); San Antonio
(Airport), TX; San Antonio (Northwest), TX;
Burlington, VT (3).
1998 ACQUISITIONS: Phoenix (Airport - 44th St.), AZ; Phoenix
- ----------------- (Tempe/ASU), AZ; Palm Desert, CA; Denver (Aurora),
CO(6); Wilmington, DE(5); Ft. Lauderdale (Cypress
Creek), FL(4); Atlanta (Airport), GA; Lexington,
KY(4); St. Louis (Downtown), MO; Secaucus
(Meadowlands, NJ(7); Columbus, OH(1); Dallas
(Campbell Centre), TX(6); Dallas - Ft. Worth
(Airport), TX.
(1) Operating as a Doubletree Guest Suites hotel.
(2) Operating as a Hilton Suites hotel.
(3) Operating as a Sheraton hotel.
(4) Operating as a Sheraton Suites hotel.
(5) In the process of conversion to a Doubletree hotel.
(6) Operating as a Doubletree hotel.
(7) Operating as a Hilton hotel.
Comparison of The Hotels' Suite/Room Revenues for the Six Months Ended
June 30, 1998 and 1997
The Company owned 43 hotels at both December 31, 1997 and 1996. These
hotels experienced increased RevPAR of 7.5% for 1998 compared to 1997. Within
this group of 43 hotels are the Original Hotels, the CSS Hotels and the 1996
Acquisition Hotels.
The Original Hotels increased suite/room revenue by 10.1% for the six
months ended June 30, 1998 compared to 1997. ADR increased 5.3% to $116.10 and
Occupancy declined 1.9 pts. from 75.8% to 77.7%. This resulted in an increase
in RevPAR of 2.8% in the six months ended June 30, 1998 over the same period of
1997. Included in this group are three hotels that added suites/rooms since the
first quarter of 1997, Boston-Marlborough Embassy Suites (added 129
suites/rooms in the second quarter of 1997), Orlando North Embassy Suites
(added 67 suites/rooms in the first quarter of 1998) and Jacksonville Embassy
Suites (added 67 suites/rooms in the second quarter of 1998). These three
hotels experienced 33.0% increase in suite/room revenue over the same period in
1997. The continued growth in revenues at these hotels is attributed to the
strength of the markets in which these hotels are located and aggressive rate
management.
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The CSS Hotels are made up of 18 former Crown Sterling Suites(R) Hotels
which the Company acquired in late 1995 and early 1996. The CSS Hotels
increased suite/room revenue by 10.8% for the six months ended June 30, 1998
compared to 1997. Occupancy increased by 0.7 pts. to 75.2% and ADR increased
9.8% to $128.27. RevPAR increased 10.8% from $87.01 to $96.45 in the six months
ended June 30, 1998. The strength of the improvements in the CSS Hotels is
partially a result of the $54 million suite/room renovation program that was
completed in the first quarter of 1997.
The 1996 Acquisition Hotels had a 7.1% increase in suite/room revenue
for the six months ended June 30, 1998 compared to the corresponding period in
1997. ADR increased 8.6% to $127.91 and Occupancy declined 1.1 pts. from 75.8%
to 74.7%. RevPAR for the six months ended 1998 increased 7.0% as compared to
the corresponding period in 1997.
The 1997 Acquisition Hotels experienced suite/room revenue increases of
2.1% during the six months ended June 30, 1998. Occupancy declined 1.0% from
73.4% to 72.4% while ADR increased 3.6% to $113.81. Included in the 1997
Acquisition hotels are nine hotels which were undergoing renovation or had
recently been converted to a different brand. Excluding these nine hotels, the
1997 Acquisitions would have recorded an increase in revenue of 4.9%.
For the 43 Hotels owned at both December 31, 1997 and 1996 the
operating results in the Pacific region (8 hotels) were especially strong with
RevPAR increasing 15.6% for the six months ended June 30, 1998 when compared to
the same period of 1997. Other strong geographical regions included the East
North Central (7 hotels) and the Mid Atlantic states (2 hotels) with RevPAR
increases of 9.5% and 11.1%, respectively. The South Atlantic (13 hotels) and
West South Central regions (6 hotels) experienced weaker growth in RevPAR
resulting in increases of 3.5% and 4.4%, respectively for the six months ended
June 30, 1998 as compared to the same period of 1997. The remaining regions
include Mountain (3 hotels), New England (1 hotel) and East South Central (3
hotels) which experienced RevPAR increases of 2.3%, 3.3% and 5.3%,
respectively. The moderate increase in the South Atlantic region was partially
due to the widespread fires in the state of Florida which affected leisure
travel in that region.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to stockholders, is its share of the Operating
Partnership's cash flow from the Percentage Leases. For the six months ended
June 30, 1998, cash flow provided by operating activities, consisting primarily
of Percentage Lease revenue, was $67.5 million and Funds From Operations (as
previously defined) was $86.7 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 stockholders, are substantially dependent on the
ability of the Lessee to generate sufficient cash flow from the operation of
the Hotels.
At June 30, 1998, the Lessee had paid all amounts then due the Company
under the Percentage Leases. During the six months ended June 30, 1998, the
Lessee had net income of $2.9 million. The Lessee had a shareholders' deficit
of $6.1 million at June 30, 1998 resulting primarily from losses during 1997
and 1996, as a consequence of the one-time costs of converting the CSS Hotels
to the Embassy Suites and Doubletree Guest Suites brands and the substantial
number of suite/room nights lost during those years due to renovation. It is
anticipated that a substantial portion of any future profits of the Lessee will
be retained until a positive shareholders' equity is restored. It is
anticipated that the Lessee's future earnings will be sufficient to enable it
to continue to make its lease payments under the Percentage Leases when due.
Messrs. Feldman and Corcoran, certain entities owning preferred
interests in the Lessee and the managers of certain of the Hotels have agreed,
directly or through their affiliates, to make loans to the Lessee of up to an
aggregate of approximately $17.3 million, to the extent necessary to enable the
Lessee to pay rent and other obligations due under the respective Percentage
Leases relating to a total of 38 of the Hotels. Amounts so
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borrowed by the Lessee, if any, will be subordinate in right of repayment to
the prior payment in full of rent and other obligations due under the
Percentage Leases relating to such Hotels. No loans were outstanding under such
agreements at June 30, 1998.
The Company intends to acquire additional hotels 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.
At June 30, 1998, the Company had $11.1 million of cash and cash
equivalents and had utilized $453 million of the amount available under the
Line of Credit.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into two separate interest rate swap
agreements. These interest rate swap agreements modify a portion of the
interest characteristics of the Company's outstanding debt without an exchange
of the underlying principal amount and effectively convert variable rate debt
to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the
initial variable rate to be received by the Company at June 30, 1998 are
summarized in the following table:
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 6/30/98 MATURITY
--------------- ------------ ---------- --------- ---------
$50 million 6.11% 7.61% 5.69% October 1999
$25 million 5.95% 7.45% 5.69% November 1999
On July 1, 1998, the Company entered into six separate interest rate
swap agreements. The fixed rates to be paid, the effective interest rate, and
the initial variable rate to be received by the Company as of July 1, 1998 are
summarized in the following table:
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 7/01/98 MATURITY
--------------- ------------ ---------- --------- ---------
$75 million 5.55% 7.05% 5.67% July 2001
$25 million 5.56% 7.06% 5.67% July 2001
$25 million 5.55% 7.05% 5.67% July 2001
$50 million 5.80% 7.29% 5.67% July 2003
$50 million 5.80% 7.29% 5.67% July 2003
$25 million 5.83% 7.33% 5.67% July 2003
The differences to be paid or received by the Company under the terms
of the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
Under the Bristol Merger Agreement, FelCor provided Bristol a $120
million interim credit facility (the "Interim Credit Facility"). Under the
Interim Credit Facility, FelCor loaned to Bristol (i) $45 million to fund a
portion of the cash purchase price and to prepay certain indebtedness assumed
by Bristol in connection with the acquisition of a 20 hotel portfolio, (ii)
$32.8 million to fund the prepayment of $30 million in outstanding principal
amount of Bristol's Senior Secured Notes and a related prepayment premium,
(iii) $9 million for general corporate purposes and (iv) $33.2 million for
necessary capital improvements. The Interim Credit Facility was secured by
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real estate. At June 30, 1998 FelCor had advanced the entire $120 million to
Bristol under the Interim Credit Facility. At July 28, 1998 the Interim Credit
Facility was assumed and canceled by FelCor with the completion of the merger
with Bristol.
The Company spent approximately $15.9 million on upgrading, renovating
and/or rebranding 32 hotels during the six months ended June 30, 1998. In
addition, the Company plans to continue Bristol's $400 million repositioning
and redevelopment program of Crowne Plaza and Holiday Inn hotels which were
recently acquired by FelCor upon completion of the Bristol merger. At July 28,
1998, the redevelopment of 39 hotels was completed with a remaining 43 hotels
currently in the process of redevelopment. FelCor plans to spend approximately
$175 million to complete this repositioning and redevelopment program,
commenced by Bristol in 1997, with an expected completion by the end of 1999.
INFLATION
Operators of hotels, in general, possess the ability to adjust
suite/room rates periodically to reflect the effects of inflation. Competitive
pressures may, however, limit the Lessee's ability to raise suite/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, particularly during the fourth quarter, 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.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Quarterly Report on Form 10-Q include forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended ("1933 Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended ("1934 Act"). Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be achieved.
Important factors that could cause actual results to differ materially from the
Company's current expectations are disclosed herein and in the Company's other
filings under the 1933 Act and 1934 Act (collectively, "Cautionary
Disclosures"). The forward looking statements included herein, and all
subsequent written and oral forward looking statements attributable to the
Company or persons acting on its behalf, are expressly qualified in their
entirety by the Cautionary Statements.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
During the second quarter 1998, the Emerging Issues Task Force reached
a consensus on the issue "Accounting for Contingent Rent in Interim Financial
Periods"("EITF 98-9"). Under EITF 98-9, for leases that contain contingent rent
provisions based on specified annual sales thresholds, no contingent rent
revenue shall be recorded by the lessor in the interim financial statements
until the annual thresholds have been reached, which generally occurs later in
the fiscal year. The contingent rent provisions of the Company's leases contain
quarterly thresholds, and as such, EITF 98-9 will have no impact on the
financial statements of the Company.
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PART II. -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the second quarter of 1998, the Company issued 1,245 shares of
its common stock in redemption of a like number of outstanding units of limited
partner interest in the Operating Partnership. Neither the units, nor the
common stock issued in redemption thereof, were registered under the 1933 Act
in reliance upon certain exemptions from the registration requirements thereof,
including the exemption provided by Section 4(2) of that act.
On July 8, 1998, the Company issued an aggregate of 18,500 shares of
its common stock to a former chief financial officer of the Company pursuant to
a nonqualified stock option granted to him by the Company in August 1996 under
its 1995 Restricted Stock and Stock Option Plan. Such shares were not
registered under the 1933 Act in reliance upon certain exemptions from the
registration requirements thereof, including the exemption provided by Section
4(2) of that act.
On July 9, 1998, the Company issued 2,491 shares of its common stock
in redemption of a like number of outstanding units of limited partner interest
in the Operating Partnership. Neither the units, nor the common stock issued in
redemption thereof, were registered under the 1933 Act in reliance upon certain
exemptions from the registration requirements thereof, including the exemption
provided by Section 4(2) of that act..
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this item has been previously reported by
FelCor and is included or incorporated by reference in the current report on
Form 8-K as filed with the Securities and Exchange Commission on August 10,
1998.
ITEM 5. OTHER INFORMATION.
For information relating to hotel acquisitions and certain other
transactions by the Company through June 30, 1998, see Note 1 of Notes to
Consolidated Financial Statements of FelCor Lodging Trust Incorporated
contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such
information is incorporated herein by reference.
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 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 dated May 6,
1998, Articles of Merger and
attached Articles of Amendment
dated July 27, 1998 (filed as
Exhibit 3.1 to FelCor's Current
Report on Form 8-K dated July 27,
1998 and filed August 10, 1998
("August Form 8-K") and
incorporated herein by reference).
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10.2.1 - Schedule of executed Lease
Agreements identifying material
variations from the form of Lease
Agreement with respect to hotels
acquired by the Company through
June 30, 1998.
10.14 - Fourth Amended and Restated
Revolving Credit Agreement dated as
of July 1, 1997 among FelCor and
the Operating Partnership, as
borrower, the Lenders party thereto,
The Chase Manhattan Bank, as
Administrative Agent, Chase
Securities, Inc. as Arranger, and
Bankers Trust Company, NationsBank,
N.A. and Wells Fargo Bank, National
Association as Co-Arrangers and
Documentation Agents (filed as
Exhibit 10.14 to FelCor's August
Form 8-K and incorporated herein by
reference)
10.17 - Amended and Restated Master Hotel
Agreement dated as of July 27, 1998
among FelCor, the Operating
Partnership, BHR and the lessors and
lessees named therein (filed as
Exhibit 10.17 to FelCor's August
Form 8-K and incorporated herein by
reference)
10.18 - Stockholders' and Registration
Rights Agreement dated as of July
27, 1998, by and among FelCor, Bass
America, Inc., Holiday Corporation,
Bass plc, United/Harvey Investors
I, L.P., United/Harvey Investors
II, L.P., United/Harvey Investors
III, L.P., United/Harvey Investors
IV, L.P. and United/Harvey
Investors V, L.P. (filed as Exhibit
10.18 to FelCor's August Form 8-K
and incorporated herein by
reference)
10.19 - Omnibus Lease Amendment Agreement
dated as of June 30, 1998 among
FelCor, the Operating Partnership
and the Lessee to clarify the
meaning of Article III of the Lease
as represented by the actual course
of dealing between Lessors and
Lessees under such leases prior to
the date hereof.
27 - Financial Data Schedule
(b) Reports on Form 8-K:
- A current report on Form 8-K was filed by the
Company on May 28, 1998. This filing reported under
Item 5. the issuance by the Company of 5,750,000
Depositary Shares each representing an 1/100
interest in a share of 9% Cumulative Redeemable
Preferred Stock, par value $0.01 per share.
- A current report on Form 8-K was filed by the
Company on August 10, 1998. This filing reported
under Item 2. that on July 28, 1998 pursuant to an
Agreement and Plan or Merger Bristol Hotel Company
was merged with and into FelCor. Additionally under
Item 5. the Company reported the results of its
Stockholders Meeting on July 27, 1998 in which the
stockholders (i) approved and adopted the Merger
Agreement, (ii) approved an amendment to FelCor's
Charter to change the name of FelCor from FelCor
Suite Hotels, Inc. to FelCor Lodging Trust
Incorporated, (iii) approved an amendment to
FelCor's Charter to increase the authorized number
of shares of capital stock of FelCor to 220,000,000
shares, consisting of 200,000,000 shares of Common
Stock and 20,000,000 of preferred stock, par value
$.01 per share, (iv) elected Michael D. Rose and
Charles N. Mathewson as Class I directors of FelCor,
to serve until the Annual Meeting of Stockholders to
be held in 2001, and (v) approved FelCor's 1998
Restricted Stock and Stock Option Plan ("1998
Plan"). The amendments to FelCor's Charter became
effective July 28, 1998.
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SIGNATURE
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 14, 1998
FELCOR LODGING TRUST INCORPORATED
By: /s/ Lester C. Johnson
-------------------------------
Lester C. Johnson
Vice President and Controller
(Chief Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
10.2.1 Schedule of executed Lease Agreements identifying
material variations from the form of Lease Agreement
with respect to hotels acquired by the Company through
June 30, 1998.
10.19 Omnibus Lease Amendment Agreement dated as of June 30,
1998 among FelCor, the Operating Partnership and the
Lessee to clarify the meaning of Article III of the
Lease as represented by the actual course of dealing
between Lessors and Lessees under such leases prior to
the date hereof.
27 Financial Data Schedule