FELCOR LODGING L P - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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 333-3959-01

FelCor Lodging Limited Partnership
(Exact name of registrant as specified in its charter)

DELAWARE 75-2544994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
NONE

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

NONE
(Title of class)

Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

The aggregate market value of the voting and non-voting limited
partnership interest held by non-affiliates of the registrant, as of March 18,
2002, was approximately $51 million.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

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FELCOR LODGING LIMITED PARTNERSHIP

INDEX

This Annual Report on Form 10-K contains registered trademarks owned or
licensed by companies other than us, including but not limited to Bristol
House(R), Conrad(R), Courtyard by Marriott(R), Crown Sterling Suites(R) Crowne
Plaza(R), Disney(R), Doubletree(R), Doubletree Guest Suites(R), Embassy Suites
Hotels(R), Fairfield Inn(R), Hampton Inn(R), Harvey Hotel(R), Hilton(R), Hilton
Suites(R), Holiday Inn(R), Holiday Inn Express(R), Holiday Inn Select(R),
Homewood Suites(R) by Hilton, Inter-Continental(R), Marriott(R), Sheraton(R),
Sheraton Suites(R), Walt Disney World(R) and Westin(R).

PART I

ITEM 1. BUSINESS

At December 31, 2001, FelCor Lodging Limited Partnership and its
subsidiaries, or FelCor LP, owned interests in 183 hotels with nearly 50,000
rooms and suites. The sole general partner of FelCor LP is FelCor Lodging Trust
Incorporated ("FelCor"), a Maryland corporation, one of the nation's largest
hotel real estate investment trusts, or REITs. At December 31, 2001, FelCor
owned a greater than 85% equity interest in FelCor LP. We owned a 100% interest
in 150 hotels, a 90% or greater interest in entities owning seven hotels, a 60%
interest in an entity owning two hotels and a 50% interest in separate
unconsolidated entities that own 24 hotels. Our hotels are located in the United
States (35 states) and Canada, with concentrations in Texas (41 hotels),
California (19 hotels), Florida (17 hotels) and Georgia (14 hotels). We own the
largest number of Embassy Suites Hotels, Crowne Plaza, Holiday Inn and
independently owned Doubletree-branded hotels in the world. Thirteen of our
hotels were designated as held for sale at December 31, 2001.

We seek to increase operating cash flow through both internal growth
and selective acquisitions, while maintaining a flexible and conservative
capital structure. In addition to renovating, redeveloping and repositioning our
acquired hotels, we may seek to acquire new hotel properties that will benefit
from affiliation with one of the premium brands available to us through our
strategic brand owner and manager relationships with Hilton Hotels Corporation
("Hilton"), Six Continents Hotels and Starwood Hotels & Resorts Worldwide Inc.
("Starwood").

In support of this strategy, on July 28, 1998, we merged Bristol Hotel
Company into FelCor, acquiring its 107 primarily full-service hotels. These
hotels added more than 28,000 rooms and suites to our portfolio, more than
doubling our size. The merger also provided diversification, both geographically
and by asset class, by adding hotels in many key markets and broadening our
portfolio in the full-service, upscale and midscale hotel markets.

On May 9, 2001, we entered into a merger agreement with MeriStar
Hospitality Corporation ("MeriStar"), which owned 113 primarily upscale,
full-service hotels. Under the terms of the merger agreement, MeriStar was to
have been merged with and into FelCor. Before the merger could be completed,
MeriStar and we jointly terminated the merger on September 21, 2001. The
decision to terminate the merger resulted from the September 11, 2001 terrorist
attacks and their subsequent adverse impact on the financial markets in general
and on the lodging industry. As a result of the merger termination in 2001, we
recorded expenses of $19.9 million associated with the merger and $5.5 million
of merger financing costs.

REIT Modernization Act

On January 1, 2001, the provisions of the REIT Modernization Act became
effective. These provisions, among other things, reduced the distribution
requirement for REITs from 95% of taxable income to 90% of taxable income for
taxable years after 2000.

In addition, these provisions allow REITs, subject to certain
limitations, to own, directly or indirectly, up to 100% of the stock of a
taxable REIT subsidiary ("TRS") that can engage in businesses previously
prohibited to a REIT. In particular, these provisions permit hotel REITs to own
a TRS that leases hotels from the REIT, rather than requiring the lessee to be a
separate, unaffiliated party. However, hotels leased to a TRS still must be
managed by an unaffiliated third party. The TRS provisions are complex and
impose several conditions on the use of TRSs, generally to assure that TRSs are
subject to an appropriate level of corporate taxation. Further, no more than 20%
of a REIT's assets may consist of securities of TRSs, and no more than 25% of a
REIT's assets may consist of non-qualifying assets, including securities of TRSs
and other taxable subsidiaries. In addition, the TRS legislation provides that a
REIT may not own more than 10% of the voting power or value of a taxable
subsidiary that is not treated as a TRS. Although the TRS provisions became
effective on January 1, 2001, a taxable subsidiary in existence on July 12, 1999
is grandfathered under the new provisions unless and until (1) it engages in a
new line of business or acquires a substantial new asset or (2) the owning REIT
acquires additional stock in the taxable subsidiary. Such existing taxable
subsidiaries can be converted into TRSs on a tax-free basis at any time before
January 1, 2004. As a result of the TRS provisions,

1

we were able to form or acquire one or more TRSs to own all of our existing
hotel leases and to serve as the lessee for any additional hotels that we
acquire. Any "profit" from leases held by one of our TRSs, after payment of the
applicable corporate tax, will be available for distribution to us in the form
of dividends.

As a result of the passage of the REIT Modernization Act, effective
January 1, 2001 we acquired 100% of DJONT Operations, L.L.C. ("DJONT"), which
owned leases on 85 of our hotels, and contributed it to a TRS. In consideration,
we issued 416,667 FelCor LP units, valued at approximately $10 million, and
assumed DJONT's accumulated stockholders' deficit of $24.5 million. On January
1, 2001, we acquired from Six Continents Hotels the leases covering 11 hotels,
terminated one additional lease in connection with the sale of the related hotel
and terminated the 12 related management agreements in exchange for FelCor
issuing to Six Continents 413,585 shares of its common stock valued at
approximately $10 million and we issued a corresponding number of partnership
units to FelCor. We acquired the remaining 88 hotel leases held by Six
Continents Hotels on July 1, 2001. In consideration for the acquisition of these
leases, we entered into long term management agreements with Six Continents
Hotels with regard to these hotels, and FelCor issued to Six Continents Hotels
100 shares of its common stock.

Our business is conducted in one reportable segment, which is
hospitality. Additional information on our business can be found in the Notes to
Consolidated Financial Statements located elsewhere in this Annual Report on
Form 10-K.

THE INDUSTRY

The United States hotel industry profitability improved each year from
1992 to 2000, its longest sustained growth in history. According to
PricewaterhouseCoopers LLP's 1999 Lodging Industry Briefing and April 10, 2001
U.S. Lodging Industry Update, after a period of extended unprofitability in the
late 1980's and early 1990's, during which time the increase in the supply of
new hotel rooms significantly outpaced growth in room demand, lodging industry
profit increased every year from 1992 through 2000. The percentage growth in
room demand exceeded percentage growth in new room supply from 1992 through
1996. While 1997 and 1998 experienced the highest number of new room starts in
the prior 10 years, 1999 and 2000 showed declines in new room starts of 9.2% and
17.2%, respectively, from the prior year level. According to
PricewaterhouseCoopers L.L.P.'s Lodging Industry Briefing, from March 1, 2002,
in 2001, supply growth slowed to 2.0% as room demand declined by 350 basis
points. The nation's hotel occupancy rates declined significantly from 63.7% in
2000 to 60.3% in 2001. In 2001, the lodging industry experienced the first
profit decline since 1991. However, despite the significant decline in demand in
2001, the industry still remained profitable. According to
PricewaterhouseCoopers, the industry earned $16.7 billion, and that figure is
expected to increase in 2002.

The nation's economy slowed during the first eight months of 2001 and
the lodging industry started to see a significant reduction in corporate travel.
This economic decline that began in the spring of 2001 was exacerbated by the
events of September 11, 2001, where aircraft hijacked by terrorists destroyed
the World Trade Center Towers in New York City and damaged the Pentagon in
northern Virginia. In 2001, the lodging industry experienced an unprecedented
decline in business caused by a reduction in both business and leisure travel.
The events of 2001 produced the hotel industry's first decline in year over year
revenue per available room ("RevPAR"), since 1991. We currently expect that this
decline in year over year operating levels will continue through mid-2002. We
expect positive RevPAR, compared to 2001, in the second half of 2002.

Smith Travel Research, a leading provider of industry data, classifies
hotel chains into five distinct categories: Upper Upscale, Upscale, Midscale
With Food & Beverage, Midscale Without Food & Beverage, and Economy. We remain
focused on properties in the Upper Upscale (including Doubletree Guest Suites,
Embassy Suites Hotels, Sheraton and Westin hotels), Upscale (including Crowne
Plaza, Doubletree hotels and Homewood Suites), and Midscale With Food & Beverage
(including Harvey, Holiday Inn and Holiday Inn Select hotels) categories, from
which we derived approximately 97% of our revenues in 2001.

2

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

- ----------

(1) Information is historical, including periods prior to ownership by FelCor
LP.

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

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

BUSINESS STRATEGY

In the current operating environment, where the lodging industry is
experiencing a sharp decline in RevPAR compared to the prior year, we intend to
focus on conserving capital, maximizing operating cash flow by actively
overseeing the operation of our hotels by our managers, maintaining a strong
balance sheet and placing ourselves in the best position possible to take
advantage of opportunities that may arise in the future. We have established,
and intend to maintain, strong strategic relationships with our brand owners and
managers and have successfully demonstrated our ability to apply our asset
management expertise to the renovation, redevelopment and rebranding of our
hotels.

Maintenance of Financial Flexibility

During the challenging economic environment following September 11,
2001, we committed ourselves to conserving capital, maximizing operating cash
flow from our hotels, maintaining a strong balance sheet and maintaining the
financial flexibility to take advantage of opportunities that may arise in the
future. In 2002 we have seen improving revenue trends, however, in the near
term, we intend to limit our distributions to partners generally to not more
than available cash flow after debt service and maintenance capital
expenditures, to suspend the previously authorized repurchase of FelCor common
stock and to restrict discretionary capital expenditures. We are in a position
to repay our line of credit entirely should the need arise and have scheduled
debt maturities of $13 million in 2002 and $35 million in 2003. We intend to
continue to actively pursue the sale of the hotels previously designated as held
for sale.

Maintenance of Strong Strategic Relationships

We benefit from strategic brand owner and manager relationships with
Hilton (Embassy Suites Hotels, Hilton and Doubletree), Six Continents Hotels
(Crowne Plaza and Holiday Inn) and Starwood (Sheraton and Westin). These
relationships enable us to work effectively with our managers to maintain
operating margins and maximize operating cash flow from our hotels.

3

o Hilton, which acquired Promus Hotel Corporation in 1999, has a
hotel system of approximately 1,900 hotels with more than
315,000 guest rooms worldwide, and is now the largest operator
of full-service, all-suite hotels in the United States. In
addition to its Hilton and Conrad-branded hotels, Hilton also
owns the Embassy Suites Hotels, Doubletree and Doubletree
Guest Suites brands. Subsidiaries of Hilton managed 71 of our
hotels at December 31, 2001. As a result of its acquisition of
Promus, Hilton acquired an equity interest in us having an
aggregate value of approximately $17 million at December 31,
2001, and it became a 50% partner in joint ventures with us in
the ownership of 12 hotels and the holder of a 10% equity
interest in certain of our consolidated subsidiaries owning
six hotels. The relationship with Promus and its Embassy
Suites Hotels brand provided the foundation for our initial
growth.

o Six Continents Hotels is the world's largest hotel company.
Six Continents Hotels owns, operates or franchises more than
3,200 hotels with more than 500,000 guest rooms in nearly 100
countries around the world. Among the brands owned by Six
Continents Hotels are Crowne Plaza, Holiday Inn, Holiday Inn
Select, Holiday Inn Express and Inter-Continental.
Subsidiaries of Six Continents Hotels, which acquired Bristol
Hotels & Resorts in March 2000, managed 89 of our hotels at
December 31, 2001. Six Continents Hotels also owns FelCor
common stock and FelCor LP units aggregating approximately 16%
of our outstanding common stock and units.

o Starwood is one of the world's largest hotel operating
companies. Directly and through subsidiaries, Starwood owns,
leases, manages or franchises 750 properties in more than 80
countries. Our strategic alliance with Starwood, coupled with
the purchase of seven Sheraton hotels in 1997, provided us
with our initial entry into the upscale, full-service,
non-suite hotel market. Subsidiaries of Starwood managed 11 of
our hotels at December 31, 2001, is a 40% joint venture
partner with us in the ownership of two hotels and a 50% joint
venture partner with us in the ownership of one hotel.

Hotel Renovation, Redevelopment and Rebranding

We expect to continue to differentiate ourselves from many of our
competitors by:

o our success in upgrading, renovating and/or redeveloping our
hotels to enhance their competitive position, and, in certain
instances, rebranding them to improve their revenue generating
capacity; and

o our ongoing program for the maintenance of our upgraded hotel
assets, which generally includes:

-- contribution of approximately 4% of total annual room
and suite revenue to a capital reserve for routine
capital replacements and improvements; and

-- adherence to a rigorous maintenance and repair
program, resulting in the expenditure of
approximately 4% of annual hotel revenues on
maintenance of the hotels.

We have demonstrated our ability to successfully execute renovations.
Our renovation and rebranding of the 18 Crown Sterling Suites hotels, which were
acquired during 1996 and 1997, achieved an overall RevPAR increase of 47.7%
between 1996 and 2000. The largest single renovation project that we have
completed was the Allerton Crowne Plaza hotel in Chicago, which reopened in July
1999, after having been closed for more than a year. This project received
numerous awards, including Lodging Hospitality magazine's Year's Best Design
competition in two categories, Bass Hotels & Resorts 1999 Newcomer of the Year
award, and Chicago's Greater North Michigan Avenue Association 1999 Avenue
Enhancement award. During 1998, 1999 and 2000, an aggregate of approximately
$550 million in capital improvements and other capital expenditures were made to
our hotels, with approximately 3% of total hotel room nights being lost in 1998,
2% in 1999 and 1% in 2000, due to renovations. We believe that our historical
capital expenditures should limit the need for future major renovation
expenditures. During 2001, we made capital expenditures aggregating
approximately $65 million and we currently anticipate 2002 maintenance capital
expenditures of between $40 and $50 million, depending upon the pace of the
anticipated economic recovery.

4

HOTELS HELD FOR SALE

In the second quarter of 2000, we identified 25 hotels that were
considered non-strategic and announced our intention to hold these assets for
sale. These hotels included most of our limited service hotels, a number of our
small market Holiday Inn hotels and all of our Marriott-branded hotels. These
hotels represented 8.3% of our total rooms, but only 4.2% of our total revenues
at the time they were identified. Our management believes the sale of these
non-strategic hotels will allow us and our brand managers to focus our efforts
on our upscale and full service hotels in more strategic markets. In 2000,
FelCor's board of directors approved recognition of a $63.0 million loss on
assets held for sale, to reflect the difference between our book value and the
estimated fair market value for these hotels. We recognized an additional $7
million loss in the fourth quarter of 2001 to reflect the deterioration of the
market value for these hotels.

Through December 31, 2001, we had completed the sale of four of the
hotels held for sale. There was a gain of approximately $135,000 recognized on
the sale of one hotel and realized no gain or loss on the sale of the other
three hotels. In addition, in March 2001, we contributed eight of the hotels
held for sale to a joint venture in which we retain a 50% equity interest, and
an affiliate of Interstate Hotels Corporation, holds the other 50% equity
interest. We contributed hotels with a book value of approximately $77 million,
and received net cash proceeds of approximately $52 million. We retained a
common equity interest of approximately $8 million and a $17 million preferred
equity interest in the acquiring venture. As a result of these transactions, at
December 31, 2001, we had 13 hotels that we continued to hold for sale.

COMPETITION

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

ENVIRONMENTAL MATTERS

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

We believe that our hotels are in compliance, in all material respects,
with all federal, state, local and foreign laws and regulations regarding
hazardous substances and other environmental matters, the violation of which
would have a material adverse effect on us. We have not been notified by any
governmental authority or private party of any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental
matters in connection with any of our current or former properties. However,
obligations for compliance with environmental laws that arise or are discovered
in the future may adversely affect our financial condition.

5

TAX STATUS OF FELCOR

FelCor elected to be taxed as a REIT under the federal income tax laws,
commencing with its initial taxable year ended December 31, 1994. As a REIT,
FelCor generally is not subject to federal income taxation at the corporate
level on its taxable income that is distributed to its stockholders. FelCor may,
however, be subject to certain state and local taxes on its income and property.
A REIT is subject to a number of organizational and operational requirements,
including a requirement that it currently distribute annually at least 90% of
its taxable income. In connection with FelCor's election to be taxed as a REIT,
FelCor's charter imposes restrictions on the ownership and transfer of shares of
its common stock. FelCor LP expects to make distributions on its units
sufficient to enable FelCor to meet its distribution obligations as a REIT.
FelCor has adopted the calendar year as its taxable year.

EMPLOYEES

We have no employees. Our management functions are performed by FelCor
as the sole general partner. Mr. Thomas J. Corcoran, Jr. is President and Chief
Executive Officer of FelCor, and entered into an employment agreement with
FelCor in 1994 that continues in effect until December 31, 2002, and
automatically renews for successive one-year terms unless terminated by either
party. None of FelCor's other executive officers has an employment agreement
with FelCor. In addition to Mr. Corcoran, FelCor had 60 other full-time
employees at December 31, 2001.

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

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Certain statements and analyses contained in this Annual Report on Form
10-K, in our 2001 Annual Report to Stockholders, or that may in the future be
made by, or be attributable to, us, may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate" or "continue" or the negative thereof
or other variations thereon or comparable terminology. All of such
forward-looking statements are based upon present expectations and assumptions
that may or may not actually occur. The following factors constitute cautionary
statements identifying important factors, including material risks and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements or in our historical results. Each of the following factors, among
others, could adversely affect our ability to meet the current expectations of
management.

TERRORIST ACTIVITIES HAVE ADVERSELY AFFECTED AND CREATED UNCERTAINTY IN OUR
BUSINESS

The terrorist attacks of September 11, 2001, caused a significant
disruption in travel-related businesses in the United States. Consistent with
the rest of the lodging industry, we have experienced substantial declines in
occupancy and ADR due to the decline in travel. In 2002, we have seen improving
revenue trends, however we are unable to predict with certainty when or if
travel and lodging demand will be fully restored to normal levels. Military
actions against terrorists, new terrorist attacks, actual or threatened, and
other political events may cause a lengthy period of uncertainty that could
continue to adversely affect the lodging industry, including us, as a result of
customer reluctance to travel.

WE HAVE A SUBSTANTIAL AMOUNT OF DEBT THAT COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION

We have a substantial amount of debt. At December 31, 2001, our
consolidated debt of $1.9 billion equaled 60.7% of our total market
capitalization and 42.8% of our investment in hotel assets, at cost. Our decline
in revenues and earnings during 2001 has adversely affected our public debt
ratings and may limit our access to additional debt capital. We have incurred
debt for acquisitions and to fund our renovation, redevelopment and rebranding
program and FelCor's share repurchase program.

6

The FelCor share repurchase program authorizes repurchases of up to an
aggregate maximum of $300 million, but was suspended in March 2001. Through
December 31, 2001, FelCor repurchased approximately 10.5 million shares of
FelCor common stock under this program at an aggregate cost of approximately
$189.1 million. We have not repurchased any shares of common stock in the open
market since March 27, 2001.

At December 31, 2001:

o we had approximately $1.9 billion in consolidated debt, of
which approximately $696 million was secured by mortgages or
capital leases;

o we had a ratio of consolidated debt (net of cash) to
investment in hotels, as defined by us, of 42.8%; and

o our ratio of EBITDA to interest expense, including interest
expense from unconsolidated entities, for the year then ended
was 2.3-to-1.

The recent economic slowdown, which began in early 2001 and which was
exacerbated by the terrorist attacks of September 11, 2001, has resulted in a
decline in RevPAR, compared to the prior year period. If the economic slowdown
and the reduced RevPAR experienced in 2001 worsen or continue for a protracted
period of time, they could have a material adverse effect on our operations and
earnings, including our ability to pay dividends and service our debt.

Changes in economic conditions could result in higher interest rates,
thereby increasing our interest expense on our floating rate debt, which totaled
$225 million at December 31, 2001 and reducing funds available for debt
reduction, capital expenditures and distributions. In addition, as a consequence
of the economic slowdown and the impact of the terrorist attacks on our business
and the travel and lodging industries generally, the rating agencies lowered
their ratings on our $1.2 billion in senior unsecured debt one level to BB-
(Standard & Poor's) and Ba3 (Moody's). If the rating agencies were to lower our
senior unsecured debt ratings below the current level, the interest rate on $900
million of our outstanding senior unsecured debt would increase by 50 basis
points, resulting in an increase in our interest expense.

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

o limit our ability to obtain additional financing, if we need
it, for working capital, our renovation, redevelopment and
rebranding plans, acquisitions, debt service requirements or
other purposes;

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

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

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

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

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

7

WE MAY BE UNABLE TO REALIZE THE ANTICIPATED BENEFITS OF OUR RENOVATIONS

The majority of our hotels recently have been substantially renovated,
redeveloped and, in some cases, rebranded. The recently completed improvements
may not achieve the results anticipated when we made the decision to invest in
the improvements.

CONFLICTS OF INTEREST COULD ADVERSELY AFFECT OUR BUSINESS

Certain FelCor directors. Six Continents Hotels currently manages 89 of
our hotels. Richard C. North, who joined FelCor's board during 1998, is the
Group Finance Director of Six Continents plc, formerly Bass plc, which is the
parent of Six Continents Hotels and, together with its affiliates, owns FelCor
common stock and FelCor LP units aggregating approximately 16% of FelCor's
outstanding common stock and our units.

Issues may arise under the franchise agreements and management
contracts, and in the allocation of acquisition and management opportunities,
that present conflicts of interest due to the relationship of Mr. North to the
companies with which he is associated. As an example, in the event we enter into
new or additional hotel management contracts or other transactions with Six
Continents Hotels, the interests of Mr. North, by virtue of his relationship
with Six Continents plc, may conflict with our interests. Any increase in
management fees payable to Six Continents Hotels may decrease our profits to the
benefit of Six Continents Hotels. Also, in the selection of franchises under
which our hotels will be operated, Mr. North, by virtue of his relationship with
Six Continents plc, may have interests that conflict with our interests.

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

Acquisition of lessees. As a result of the passage of the REIT
Modernization Act, beginning January 1, 2001,we were able to form or acquire
TRSs to acquire or hold the lessee's interest in our existing hotel leases and
to serve as lessees for any hotels acquired in the future. A TRS is a fully
taxable corporation that may be owned 100% by a REIT. A TRS generally is
permitted to engage in businesses, own assets and earn income that, if engaged
in, owned or earned by the REIT, might jeopardize the REIT's tax status or
result in the imposition of penalty taxes on the REIT. A TRS is permitted to
lease hotels from the related REIT as long as it does not directly or indirectly
operate or manage hotels, except through an independent hotel management company
that satisfies applicable requirements under the federal income tax laws. A TRS
generally is not allowed to act as a licensor or a franchisor of any brand name
under which any hotel is operated.

The acquisition of DJONT, one of our primary lessees, was completed
effective January 1, 2001. In consideration for the acquisition of DJONT, we
issued 416,667 units of limited partnership interest valued at approximately $10
million. The acquisition of DJONT required negotiations between us and the
owners of DJONT, including Mr. Corcoran and the children of Charles N.
Mathewson, a director of FelCor. The interests of Mr. Corcoran and Mr. Mathewson
were in direct conflict with our interests in these negotiations and,
accordingly, they abstained from participation in FelCor's board's discussion
and vote on this matter

In December 2000, we sold one hotel and, effective January 1, 2001,
completed the acquisition of leases with respect to 12 hotels that had been
leased to and operated by Six Continents Hotels. In consideration for the
acquisition of such leases and termination of the related management agreements,
FelCor issued 413,585 shares of its common stock valued at approximately $10
million, to Six Continents Hotels. We acquired the remaining 88 leases held by
Six Continents Hotels, effective July 1, 2001. We have contributed

8

these leases to our TRSs. In consideration for these 88 leases, FelCor issued
100 shares of FelCor common stock and we caused our subsidiaries to agree to new
long-term management agreements with subsidiaries of Six Continents Hotels to
manage these hotels. The acquisition of the leases held by Six Continents Hotels
involved negotiations between us and Six Continents Hotels. Richard C. North, a
director of FelCor, is the Group Finance Director of Six Continents plc, the
parent of Six Continents Hotels and, together with its affiliates, the owner of
approximately 16% of FelCor's outstanding shares and our units. The interest of
Six Continents plc in those negotiations was in direct conflict with our
interests. Mr. North abstained from participating in any discussion or vote by
FelCor's board relating to these transactions.

For information regarding the management agreements entered into by us
with Six Continents Hotels and others, reference is made to the description of
these agreements under the caption "Management Agreements" in Item 2 to this
Annual Report on Form 10-K.

Adverse tax consequences to some affiliates on a sale of some hotels.
Messrs. Corcoran and Mathewson may incur additional tax liability if we sell our
investments in six hotels that we acquired in July 1994 from partnerships
controlled by these individuals. Consequently, our interests could differ from
Messrs. Corcoran's and Mathewson's interests in the event that we consider a
sale of any of these hotels. Decisions regarding a sale of any of these six
hotels must be made by a majority of FelCor's independent directors.

WE HAVE RESTRICTIVE DEBT COVENANTS THAT COULD ADVERSELY AFFECT OUR ABILITY TO
RUN OUR BUSINESS

The indentures governing our existing notes and the agreements governing
our line of credit contain various restrictive covenants including, among
others, provisions restricting us from:

o incurring indebtedness;

o making distributions;

o making investments;

o engaging in transactions with affiliates;

o incurring liens;

o merging or consolidating with another person;

o disposing of all or substantially all of our assets; or

o permitting limitations on the ability of our subsidiaries to
make payments to us.

These restrictions may adversely affect our ability to finance our
operations or engage in other business activities that may be in our best
interest. For example, under the most restrictive of these covenants we would be
limited to not more than $50 million of additional hotel acquisitions unless we
meet certain other requirements.

In addition, some of these agreements require us to maintain certain
specified financial ratios. Our ability to comply with such ratios may be
affected by events beyond our control.

On November 8, 2001, we amended our unsecured line of credit. Although
we were in compliance with our existing covenants prior to the amendment, it was
necessary to amend the line of credit in anticipation of a continued negative
RevPAR environment. The amendment allows for the relaxation of certain financial
covenants through September 30, 2002, including the unsecured interest coverage,
fixed charge coverage, and total leverage tests. The interest rate remains on
the same floating rate basis with a tiered spread based on our debt leverage
ratio, but with added tiers to reflect the higher permitted leverage. The
lenders' commitments under the line of credit remain at $615 million, and we had
approximately $50 million outstanding under the facility at December 31, 2001.

9

Unless our business has recovered sufficiently from the sharp declines
in RevPAR experienced following the September 11 terrorist attacks, upon
expiration of the relaxation in financial covenants provided by the November
amendment to our line of credit, we may be unable to satisfy the original
covenant requirements. In such an event, we may need to obtain further
amendments from our lenders on the line of credit. We are not certain whether,
to what extent, or upon what terms the lenders may be willing to continue a
relaxation of the covenants. Further amendments to our line of credit may result
in additional restrictions on us and may adversely affect our ability to run our
business and financial affairs.

These covenants and limitations under our line of credit restrict our
ability to make distributions to our unitholders and to engage in certain
transactions. The breach of any of these covenants and limitations could result
in the acceleration of amounts outstanding under our line of credit. Our failure
to satisfy any accelerated indebtedness, if in the amount of $10 million or
more, could result in the acceleration of most of our other indebtedness. We may
not be able to refinance or repay our debt in full under those circumstances.

WE WILL ENCOUNTER INDUSTRY RELATED RISKS THAT MAY ADVERSELY AFFECT OUR BUSINESS

The recent economic slowdown has had a significant adverse effect on
our RevPAR performance and earnings. If it worsens or continues, the effects on
our financial condition could be material. We experienced declines in RevPAR
beginning in March 2001. A sharper than anticipated decline in business travel
was the primary cause of the decline, which was principally reflected in
decreased occupancies. This decline was exacerbated by the terrorist attacks. On
a national basis, the hotel industry experienced a RevPAR decline of 7.0% for
the year ended December 31, 2001. The decline in occupancy has also resulted in
declines in room rates as hotels compete more aggressively for guests, both of
which have had a significant adverse effect on our RevPAR and operating
performance. If the economic slowdown worsens or continues for a protracted
period of time, it could have a material adverse effect on our operations,
earnings and financial condition.

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

o competition from other hotels;

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

o increases in energy costs and other travel expenses that
reduce business and leisure travel;

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

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

o adverse effects of a downturn in the hotel industry; and

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

We face reduced coverages and increased costs of insurance. Following
the events of September 11, 2001, certain types of coverage, such as for acts of
terrorism, are unavailable or are only available at a cost that is prohibitive.
In an effort to keep our cost of insurance within reasonable limits, we have not
purchased terrorism insurance at the current prohibitive prices. We have also
increased our deductible amounts under policies of flood, wind and general
liability insurance, which increases our risk of incurring losses that are
uninsured or not fully insured. Should such uninsured or not fully insured
losses be substantial, they could have a material adverse impact on our
operating results and cash flows.

It is possible that lenders under certain of our secured loans could
assert that the absence of terrorism insurance constitutes a default on our part
under the loan agreements. Although we do not believe any such assertion to be
justified, if a lender was successful in proving such a default, we may be
required to either provide the terrorism insurance or repay the loan.

10

We have geographic concentrations that may create risks from regional
economic and weather conditions. Approximately 54.4% of our hotel room revenues
for the year ended December 31, 2001 were generated from hotels located in four
states: California, Florida, Texas and Georgia. Additionally, we have
concentrations in four major metropolitan areas, San Francisco/San Jose, Dallas,
Orlando and Houston, which represent approximately 26.6% of our hotel room
revenues for the year ended December 31, 2001. Therefore, adverse economic or
weather conditions in these states will have a greater effect on us than similar
conditions in other states.

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

Acquisition growth opportunities have decreased. There has been
substantial consolidation in, and capital allocated to, the U.S. lodging
industry since the early 1990's. This generally has resulted in higher prices
for hotels. The uncertainties resulting from the September 11, 2001 attacks and
the resulting sharp decline in hotel occupancies, have significantly reduced the
prices that buyers, generally, are currently willing to pay for hotels to less
than sellers, generally, are willing to accept. In addition, the market price of
FelCor's common stock during the latter part of 2001 made cost of equity capital
relatively high. These conditions have resulted in fewer attractive acquisition
opportunities. An important part of our historical growth strategy has been the
acquisition and, in many instances, the renovation and repositioning, of hotels
at less than replacement cost. Continued industry consolidation and competition
for acquisitions could adversely affect our growth prospects. Currently, our
line of credit covenants limit the amount we can spend on hotel purchases unless
we meet certain requirements. We compete for hotel investment opportunities with
other companies, some of which have greater financial or other resources than we
have. Certain competitors may have a lower cost of capital and may be able to
pay higher prices or assume greater risks than would be prudent for us to pay or
assume.

We are subject to possible adverse effects of franchise and licensing
agreement requirements. Substantially all of our hotels are operated under
existing franchise or license agreements with nationally recognized hotel
brands. Each license agreement requires that the licensed hotel be maintained
and operated in accordance with specific standards and restrictions in order to
maintain uniformity within the franchisor system. Compliance with these
standards could require a franchisee to incur significant expenses or capital
expenditures, which could adversely affect our results of operations and ability
to make payments on indebtedness. Also, changes to these standards could
conflict with a hotel's specific business plan or limit our ability to make
improvements or modifications to a hotel without the consent of the franchisor.

If a franchise license terminates due to our failure to make required
improvements, we may be liable to the franchisor for a termination payment.
These termination payments vary by franchise agreement and hotel. The loss of a
substantial number of franchise licenses and the related termination payments
could have a material adverse effect on our business because of the loss of
associated name recognition, marketing support and centralized reservation
systems provided by the franchisor. The franchise agreements could also expire
or terminate, with specified renewal rights, at various times. As a condition to
renew, the franchise agreements could involve a renewal application process that
would require substantial capital improvements, for which we would be
responsible, to be made to the hotels.

We are subject to the risks of brand concentration. We are subject to
the potential risks associated with concentration of our hotels under a limited
number of brands. A negative public image or other adverse event that becomes
associated with the brand could adversely affect hotels operated under that
brand. The following percentages of our hotels' room revenues are expected to be
generated by hotels operated under each of the indicated brands, based on room
revenues for the year ended December 31, 2001:

o Embassy Suites Hotels 40.1%

o Holiday Inn-branded hotels 28.6%

o Crowne Plaza 11.5%

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

We are subject to the risks of hotel operations. Prior to January 1,
2001, substantially all of our hotels were leased to Six Continents Hotels or
DJONT under leases providing for the payment of rent based, in part, upon
revenues from the hotels. Accordingly, our operating risks were essentially
limited to changes in hotel revenues and to the lessees' ability to pay the rent
due under the leases. As a result of the acquisition of DJONT and the leases
from Six Continents Hotels, we became subject to the risk of fluctuating hotel
operating expenses at our hotels, including but not limited to:

o wage and benefit costs;

o repair and maintenance expenses;

o the costs of gas and electricity;

o the costs of liability insurance; and

o other operating expenses.

These operating expenses are more difficult to predict and control than
revenue, resulting in an increased risk of volatility in our results of
operations.

The lodging business is seasonal in nature. Generally, hotel revenues
are greater in the second and third calendar quarters than in the first and
fourth calendar quarters, although this may not be true for hotels in major
tourist destinations. Revenues for hotels in tourist areas generally are
substantially greater during tourist season than other times of the year.
Seasonal variations in revenue at our hotels can be expected to cause quarterly
fluctuations in our revenues. Quarterly earnings also may be adversely affected
by events beyond our control, such as extreme weather conditions, economic
factors and other considerations affecting travel.

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

OUR ABILITY TO GROW MAY BE LIMITED BY OUR ABILITY TO ATTRACT DEBT OR EQUITY
FINANCING AND WE MAY HAVE DIFFICULTY ACCESSING CAPITAL ON ATTRACTIVE TERMS

Recently, we have focused on our internal growth strategy, which
includes the renovation, redevelopment and rebranding of our hotels to achieve
improved revenue performance. We may not be able to fund growth solely from cash
provided from operating activities because we must distribute at least 90% of
our taxable income each year to FelCor who in turn, must distribute it to their
stockholders to maintain its status as a REIT. Consequently, we rely upon the
availability of debt or equity capital to fund hotel acquisitions and
discretionary capital improvements and we may be dependent upon our ability to
attract debt financing from public or institutional lenders. The capital markets
have been adversely affected by the occurrence of recent events, including the
September 11, 2001, terrorist attacks, the ongoing war against terrorism by the
United States and the bankruptcy of Enron Corp. These events, or an escalation
in the anti-terrorism war or new terrorist attacks or bankruptcies in the
future, could adversely affect the availability and cost of capital for our
business. We cannot assure you that we will be successful in attracting
sufficient debt or equity financing to fund future growth at an acceptable cost,
or at all. In addition, we currently have a policy of limiting our consolidated
debt to not more than 55% of our investment in hotel assets, as defined by us.
This policy is a FelCor board policy only and not a requirement contained in our
organizational documents. Accordingly, the policy may be modified or waived by
the FelCor board at any time. Unless further waived or modified by FelCor's
board of directors, this limitation could also limit our ability to incur
additional debt to fund our

12

continued growth. At December 31, 2001, our consolidated debt represented
approximately 42.8% of our investment in hotels, as defined by us.

WE OWN AND MAY ACQUIRE INTERESTS IN HOTEL VENTURES WITH THIRD PARTIES THAT
EXPOSE US TO SOME RISK OF ADDITIONAL LIABILITIES.

We own, through our subsidiaries, interests in several real estate
ventures with third parties. Those ventures that are not consolidated into our
financial statements own a total of 24 hotels, in which we have an aggregate
investment of approximately $151 million. None of FelCor's directors or officers
hold any interest in any of these ventures. The ventures and hotels are subject
to non-recourse mortgage loans aggregating approximately $266 million and one
venture also had a full recourse loan outstanding of $440,000 at December 31,
2001, which we have guaranteed. These loans to our unconsolidated ventures are
not reflected as liabilities on our consolidated balance sheet, but are
summarized in Note 5 of the notes to our consolidated financial statements. The
personal liability of our subsidiaries under the non-recourse loans is generally
limited to the guaranty of the borrowing ventures' personal obligations to pay
for the lender's losses caused by misconduct, fraud or misappropriation of funds
by the ventures and other typical exceptions from the non-recourse covenants in
the mortgages, such as those relating to environmental liability. We may invest
in other ventures in the future that own hotels and have recourse or
non-recourse debt financing. If a venture defaults under its mortgage loan, the
lender may accelerate the loan and demand payment in full before taking action
to foreclose on the hotel. As a partner or member in any of these ventures, our
subsidiary may be exposed to liability for claims asserted against the venture,
and the venture may not have sufficient assets or insurance to discharge the
liability. Our subsidiaries may not legally be able to control decisions being
made regarding these ventures and their hotels. In addition, the hotels in a
venture may perform at levels below expectations, resulting in the potential for
insolvency of the venture unless the partners or members provide additional
funds. In some ventures, the partners or members may be required to make
additional capital contributions. In many of the foregoing events, we may be
faced with the choice of losing our investment in the venture or investing more
capital in it with no guaranty of receiving a return on that investment.

FELCOR IS SUBJECT TO POTENTIAL TAX RISKS

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

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

Failure to qualify as a REIT would subject FelCor to federal income
tax. If FelCor fails to qualify as a REIT in any taxable year, they would be
subject to federal income tax on their taxable income. We might need to borrow
money or sell hotels in order to distribute to FelCor the funds to pay any such
tax. If FelCor ceases to be a REIT, it no longer would be required to distribute
most of its taxable income to its stockholders. Unless its failure to qualify as
a REIT were excused under federal income tax laws, FelCor could not re-elect
REIT status until the fifth calendar year following the year in which it failed
to qualify.

13

Failure to have distributed earnings and profits of Bristol Hotel
Company in 1998 could cause FelCor to fail to qualify as a REIT. At the end of
any taxable year, a REIT may not have any accumulated earnings and profits,
described generally for federal income tax purposes as cumulative undistributed
net income, from a non-REIT corporation. In connection with the merger of
Bristol Hotel Company, or Bristol, with and into FelCor in 1998, Arthur Andersen
LLP prepared and provided to FelCor its computation of Bristol's accumulated
earnings and profits through the date of the merger, and FelCor made a
corresponding special distribution to its stockholders. Corresponding
distributions were made by FelCor LP on its units. However, the determination of
accumulated earnings and profits for federal income tax purposes is extremely
complex and the computations by Arthur Andersen LLP are not binding upon the
Internal Revenue Service. Should the Internal Revenue Service successfully
assert that Bristol's accumulated earnings and profits were greater than the
amount so distributed by FelCor, FelCor may fail to qualify as a REIT.
Alternatively, the Internal Revenue Service may permit FelCor to avoid losing
its REIT status by paying a deficiency dividend to eliminate any remaining
accumulated earnings and profits of Bristol. There can be no assurance, however,
that FelCor would be able to make any such required distribution or that the
Internal Revenue Service would not assert loss of REIT status as the penalty for
failing to distribute any accumulated earnings and profits of Bristol in 1998.

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

o the amount of gain that we recognize at the time of the sale;
or

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

The sales of Bristol hotels that have been made to date have not
resulted in any material amount of tax liability. If we are successful in
selling the remaining hotels shown as hotels held for sale, we could incur
corporate income tax with respect to the related built in gain, the amount of
which cannot yet be determined.

DEPARTURE OF KEY PERSONNEL, INCLUDING MR. CORCORAN, COULD ADVERSELY AFFECT OUR
FUTURE OPERATING RESULTS

WE WILL ENCOUNTER RISKS THAT MAY ADVERSELY AFFECT REAL ESTATE OWNERSHIP

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

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

o changes in zoning laws;

o changes in traffic patterns and neighborhood characteristics;

o increases in assessed valuation and real estate tax rates;

o increases in the cost of property insurance;

o governmental regulations and fiscal policies;

o the potential for uninsured or underinsured property losses;

o the impact of environmental laws and regulations; and

o other circumstances beyond our control.

Moreover, real estate investments are relatively illiquid, and we may
not be able to vary our portfolio in response to changes in economic and other
conditions.

14

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

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

Compliance with the Americans with Disabilities Act may adversely
affect our financial condition. Under the Americans with Disabilities Act of
1990, all public accommodations, including hotels, are required to meet certain
federal requirements for access and use by disabled persons. We believe that our
hotels substantially comply with the requirements of the Americans with
Disabilities Act. However, a determination that the hotels are not in compliance
with that Act could result in liability for both governmental fines and payments
to private parties. If we were required to make unanticipated major
modifications to the hotels to comply with the requirements of the Americans
with Disabilities Act, it could adversely affect our ability to pay our
obligations.

FELCOR'S CHARTER CONTAINS LIMITATIONS ON OWNERSHIP AND TRANSFER OF SHARES OF ITS
STOCK THAT COULD ADVERSELY AFFECT ATTEMPTED TRANSFERS OF FELCOR COMMON STOCK.

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

SOME PROVISIONS IN ITS CHARTER AND BYLAWS AND MARYLAND LAW MAKE A TAKEOVER OF
FELCOR MORE DIFFICULT.

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

15

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

Authority to Issue Additional Shares. Under FelCor's charter, FelCor's
board of directors may issue FelCor preferred stock without stockholder action.
The preferred stock may be issued, in one or more series, with the preferences
and other terms designated by FelCor's board that may delay or prevent a change
in control of FelCor, even if the change is in the best interests of
stockholders. FelCor currently has outstanding 5,980,475 shares of its $1.95
Series A Cumulative Convertible Preferred Stock and 57,500 shares, representing
5,750,000 depository receipts, of its 9% Series B Cumulative Redeemable
Preferred Stock. The preferred stock reduces the amount of dividends available,
and has dividend, liquidation and other rights superior, to the holders of
FelCor's common stock.

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

ITEM 2. PROPERTIES

We consider our hotels to be premier lodging properties with respect to
desirability of location, size, facilities, physical condition, quality and
variety of services offered in the markets in which they are located. Our hotels
are designed to appeal to a broad range of hotel customers, including frequent
business travelers, groups and conventions, as well as leisure travelers. The
hotels generally feature comfortable, modern guest rooms, extensive meeting and
convention facilities and full-service restaurant and catering facilities. Our
183 hotels are located in 35 states and Canada, and are situated primarily in
major markets near airport, suburban or downtown areas. The hotels are located
in geographically diverse major markets with more than 50% of our room revenues
being derived from hotels located in Texas, California, Florida and Georgia. The
following table illustrates the distribution of hotels in these states.

SELECTED STATE DISTRIBUTION

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Our hotels have an average of approximately 265 rooms, with eight of
them having more than 500 rooms. Although obsolescence arising from age and
condition of facilities can adversely effect our hotels, we have invested in
excess of $600 million, in the aggregate, during the past four years to upgrade,
renovate and/or redevelop our hotels to enhance their competitive position. We
are committed to maintaining the high standards of our hotels and spend at least
4% of hotel revenues for maintenance and repair programs in addition to
necessary capital.

HOTEL BRANDS

A key part of our business strategy is to have our hotels managed by
one of our strategic brand-managers. Our hotels are operated under some of the
nation's most recognized and respected hotel brands. We maintain strategic
relationships with brand owners who also manage substantially all of our hotels.
We are the owner of the largest number of Embassy Suites Hotels, Crowne Plaza,
and Holiday Inn and independently owned Doubletree-branded hotels. The following
tables illustrate the distribution and operating statistics of our hotels among
these premier brands.

BRAND DISTRIBUTION

17

HOTEL OPERATING STATISTICS

The following table sets forth historical occupancy, ADR and RevPAR at
December 31, 2001 and 2000, and the percentage changes therein between the
periods presented for the hotels in which we had an ownership interest at
December 31, 2001:

Embassy Suites Hotels

Embassy Suites Hotels are upscale, full-service, all suite hotels
designed to attract frequent business travelers, leisure travelers and weekend
guests. Embassy Suites Hotels typically offer numerous services and amenities,
such as:

o two-room suites, containing two telephones, a mini-refrigerator,
coffee maker, microwave oven, wet bar, and two color televisions;

o complimentary, cooked-to-order breakfast;

o complimentary cocktails during two hours every evening, subject to
local laws and regulations, in an atrium environment; and

o business centers equipped with fax and copy machines.

18

Holiday Inn and Holiday Inn Select Hotels

The Holiday Inn brand is positioned to attract the business and leisure
traveler seeking up-to-date products and features, value and friendly service.
Holiday Inn hotels typically offer a full-service restaurant and lounge,
swimming pool, meeting and banquet facilities, optional fitness center and
electronic locks. In-room amenities generally include a hair dryer, coffee maker
and iron. The Holiday Inn name is recognized around the world, with more than
1,500 hotels currently being operated under this brand.

The Holiday Inn Select hotels are focused on the business traveler.
Each room offers a residential decor with a well-lit work area, including a
dataport and voicemail, and in-room coffee makers. Amenities offered at the
Holiday Inn Select hotels generally include full business services such as
photocopying and telecopying, meeting capabilities for small to mid-size groups,
exercise facilities and full-service restaurant and lounge.

The Holiday Inn, Holiday Inn Select and Crowne Plaza brands are part of
the family of brands owned, operated and franchised by Six Continents Hotels.
Six Continents Hotels owns, operates or franchises more than 3,200 hotels with
more than 500,000 guest rooms in nearly 100 countries around the world.

Crowne Plaza Hotels

Crowne Plaza hotels offer upscale accommodations for business and
leisure travelers looking for a full range of services. Guests receive
personalized attention through a wide variety of premium guest service offerings
which typically include: fully appointed guest rooms with ample work areas, a
full complement of business services, excellent dining choices, quality fitness
facilities and comprehensive meeting capabilities. There are currently more than
150 Crowne Plaza hotels in 40 countries around the world.

Doubletree and Doubletree Guest Suites Hotels

Doubletree hotels and Doubletree Guest Suites are part of an upscale,
full-service hotel chain which primarily serves major metropolitan areas and
leisure destinations. Each property attempts to reflect the local or regional
environment in its design. Typical properties offer a full-service restaurant
and lounge, room service, swimming pool, health club, complete meeting and
banquet facilities, oversized guest rooms and luxury amenities.

Sheraton and Sheraton Suites

Sheraton hotels, including Sheraton Suites, are part of Starwood, which
owns the Sheraton, Westin and other brand names. There are currently more than
400 Sheraton hotels and resorts in over 70 countries. Sheraton hotels typically
offer a wide variety of on-site business services, a full range of amenities and
rooms that feature generous work spaces. In more than 150 locations, Sheraton
Smart Rooms feature ergonomically designed chairs, ample task lighting, modem
hookups and personalized voice mail, as well as printing, copying and faxing
capabilities. Starwood owns, leases, manages or franchises 750 properties in
over 80 countries.

Other Hotels

As of December 31, 2001, 29 of our hotels are operated under other
brands, as follows:

o Hampton Inn (7 hotels);

o Holiday Inn Express (5 hotels);

o Fairfield Inn (5 hotels);

o Harvey Hotel (4 hotels);

o Hilton Suites (1 hotel);

o Courtyard by Marriott (2 hotels);

o Homewood Suites (1 hotel);

o Westin (1 hotel); and

o Independents (3 hotels).

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HOTEL PORTFOLIO

The following table sets forth certain descriptive information regarding our
hotels at December 31, 2001:

Held for Investment

Held for Sale

- ----------
(1) Encumbered by mortgage debt.

(2) Situated on land leased under a long-term ground lease.

(3) This hotel is one of 24 hotels owned by unconsolidated entities in which we
own a 50% equity interest.

(4) Owned subject to a capitalized industrial revenue bond lease that expires
in 2011 and permits us to purchase the fee interest at expiration for a
nominal amount.

(5) This hotel is one of 2 hotels owned by a joint venture in which we own a
60% equity interest.

(6) This hotel is one of 6 hotels in which we own a 90% equity interest.

MANAGEMENT AGREEMENTS

In July 2001, we acquired the leasehold interests in 88 hotels from Six
Continents Hotels. In connection with this acquisition, Six Continents Hotels
assigned the leases to those hotels to our TRSs, and the TRSs executed new
management agreements with Six Continents Hotels for each of the 88 hotels that
was previously leased.

Additionally, as a result of our acquisition of DJONT, our TRSs became
parties to management agreements with subsidiaries of Hilton, including Promus
Hotels, Inc. and its affiliates, DT Management, Inc. and its affiliates, and
subsidiaries of Starwood, including Sheraton Operating Corporation and its
affiliates.

The management agreements governing the operation of 100 of our hotels
that are (i) managed by Six Continents Hotels or Starwood under brands owned by
them, or (ii) managed by Hilton under the Doubletree brand, contain the right
and license to operate the hotels under the specified brands. No separate
franchise agreements are required for the operation of these hotels.

Management Fees and Performance Standards. Under the management
agreements with Six Continents Hotels, the TRS lessees generally pay Six
Continents Hotels a basic management fee for each hotel equal to 2% of adjusted
gross revenues of the hotel plus 5% of the room revenue of the hotel for each
fiscal month during the initial term and any renewal term. The basic management
fees owed under the other management agreements are generally as follows:

o Doubletree -- between 2% and 3% of the hotel's total sales per month;

o Sheraton -- 2% of the hotel's total revenue per accounting period; and

o Embassy Suites Hotels -- 2% of adjusted gross income payable monthly.

23

Under the management agreements with Six Continents Hotels, the TRS
lessees are required to pay an incentive management fee based on the performance
of all the managed hotels, considered in the aggregate. The incentive management
fee is computed as a percentage of hotel profits in excess of specified returns
to us based on our investment in the managed hotels. The management agreements
with the other managers generally provide for an incentive management fee based
on a percentage of the TRS lessee's net income before overhead on a hotel by
hotel basis.

Term and Termination. The management agreements with Six Continents
Hotels generally have initial terms of 12 to 17 years. Six Continents Hotels may
renew the management agreements for one additional 5-year term on mutually
acceptable terms and conditions, provided the hotel meets certain performance
standards. The TRSs may elect not to continue to operate the hotels under the
brand beyond the expiration of the initial term, however such election will give
Six Continents Hotels the right to force us to sell such hotel to it at an
appraised value. The management agreements with the other managers generally
have initial terms of between 10 and 20 years, and the agreements are generally
renewable beyond the initial term for a period or periods of between 5 and 10
years only upon the mutual written agreement of the parties.

The management agreements are generally terminable upon the occurrence
of standard events of default or if the hotel subject to the agreement fails to
meet certain financial expectations. Upon termination by either party for any
reason the TRSs generally will pay all amounts due and owing under the
management agreement through the effective date of such termination. Under the
Six Continents Hotels management agreements, if we sell any individual hotel,
including 11 of the 13 hotels held for sale by us, we may be required to pay Six
Continents Hotels a monthly replacement management fee equal to the existing fee
structure for up to one year. In addition, if a TRS breaches the agreement,
resulting in a default and termination thereof, or otherwise causes or suffers a
termination for any reason other than an event of default by Six Continents
Hotels, the TRS may be liable for liquidated damages under the terms of the
management agreement. However, if the termination results from the sale of a
hotel, no such liquidated damages will be owed if the net proceeds of the sold
hotel are reinvested in one or more hotels licensed by Six Continents Hotels
within one year from the sale of the hotel.

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

FRANCHISE AGREEMENTS

With the exception of our 100 hotels whose rights to use a brand name
are contained in the management agreement governing their operations and our
seven hotels that do not operate under a nationally recognized brand name, each
of our hotels operates under a franchise or license agreement. Of our 76 hotels
that are operated under a franchise or license agreements, 59 are operated under
the Embassy Suites Hotels brand.

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

Typically, our Embassy Suites Hotels franchise license agreements
provide for payment to the franchisor of a license fee or royalty of 4% of suite
revenues. In addition, we pay approximately 3.5% of suite revenues as marketing
and reservation system contributions for the systemwide benefit of Embassy
Suites Hotels.

24

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

ITEM 3. LEGAL PROCEEDINGS

There is no litigation pending or known to be threatened against us or
affecting any of our hotels, other than claims arising in the ordinary course of
business or which are not considered to be material. Furthermore, most of these
claims are substantially covered by insurance. We do not believe that any claims
known to us, individually or in the aggregate, will have a material adverse
effect on us, without regard to any potential recoveries from insurers or other
third parties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

25

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

There is not an established public trading market for our partnership
units. The units, however, are redeemable at the option of the holder for a like
number of shares of common stock of FelCor or, at the option of FelCor, for the
cash equivalent thereof. The following information is provided regarding the
common stock of FelCor. FelCor's common stock is traded on the New York Stock
Exchange under the symbol "FCH." The following table sets forth for the
indicated periods the high and low sale prices for its common stock, as traded
on that exchange.

STOCKHOLDER INFORMATION

At March 18, 2002, FelCor had approximately 530 holders of record of
its common stock and approximately 50 holders of record of its $1.95 Series A
Cumulative Convertible Preferred Stock (which is convertible into common stock).
It is estimated that there were approximately 23,500 beneficial owners, in the
aggregate, of FelCor's common stock and Series A Preferred Stock at that date.
At March 18, 2002, we had approximately 40 holders of record of our partnership
units.

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

DISTRIBUTION INFORMATION

We have adopted a policy of paying regular quarterly distributions on
our units, and cash distributions have been paid on our units with respect to
each quarter since our inception. For the fourth quarter of 2001 we reduced our
dividend to $0.05 from $0.55, paid in the previous quarter. This reduction
resulted from the weakness in the economy, the events of September 11 and the
decline in lodging demand. The following table sets forth information regarding
the declaration and payment of distributions by us on our units during 2000 and
2001.

26

The foregoing distributions represent approximately a 45% return of
capital in 2001 and no return of capital in 2000. In order to maintain their
qualification as a REIT, FelCor must make annual distributions to its
stockholders of at least 90% (95% prior to January 1, 2001) of its taxable
income (which does not include net capital gains). For the years ended December
31, 2001 and December 31, 2000, FelCor had annual distributions totaling $1.70
and $2.20 per common share, respectively, of which only $0.94 and $2.09 per
share, respectively, were required to satisfy the 90% and 95% REIT distribution
tests in the respective years. All of such funds were provided by us through
distributions on our units. Under certain circumstances we may be required to
make distributions in excess of cash available for distribution in order to meet
FelCor's REIT distribution requirements. In that event, we presently would
expect to borrow funds, or to sell assets for cash, to the extent necessary to
obtain cash sufficient to make the distributions required to enable FelCor to
retain its qualification as a REIT for federal income tax purposes.

We currently expect to determine the amount of each quarterly
distribution based upon the operating results of that quarter, economic
conditions and other operating trends. FelCor's management currently believes
that FelCor should be able to pay an aggregate of $1.00 in dividends per common
share for 2002, based upon the low end of their previously announced FFO
estimates for 2002 of $147 to $174 million. However, FelCor's decision to pay
common dividends will be determined each quarter, based upon the operating
results of that quarter, economic conditions and other operating trends. Future
distributions, if any, paid by us will be at the discretion of FelCor's board of
directors and will depend on our actual cash flow, financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code and such other factors as FelCor's board of directors
deems relevant.

ISSUANCES OF UNREGISTERED SECURITIES

Effective January 1, 2001, we issued 416,667 units of limited
partnership interest valued at approximately $10 million to the equity owners
of DJONT in consideration for the acquisition of DJONT. These limited
partnership units are redeemable, subject to certain conditions, for shares of
FelCor common stock on a one-for-one basis.

27

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected financial data for us for the
years ended December 31, 2001, 2000, 1999, 1998 and 1997 that has been derived
from our financial statements and the notes thereto, audited by
PricewaterhouseCoopers LLP, independent accountants. This data should be read in
conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Item 14(a), the Consolidated Financial
Statements and Notes thereto, appearing elsewhere in this Annual Report on Form
10-K.

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT DATA)

- ----------

(1) Includes hotel revenues and expenses with respect to 96 hotels that were
leased to either DJONT or subsidiaries of Six Continents Hotels prior to January
1, 2001 and 88 hotels that were leased to Six Continents Hotels prior to July 1,
2001. Prior to the acquisition of the leases, our revenues were comprised mainly
of percentage lease revenues. Accordingly, revenues, expenses and operating
results for the year ended December 31, 2001, are not directly comparable to the
same period in 2000. Additionally, for the year ended December 31, 2001, we
recorded approximately $78 million of expenses, including lease termination
costs of $36.6 million, merger termination costs of $19.9 million, merger
related financing costs of $5.5 million, swap termination costs of $7.0 million,
loss on hotels held for sale of $7.0 million, extraordinary loss from the
write-off of deferred loan costs of $1.3 million, and abandoned project
write-offs of $837,000.

(2) In the second quarter of 2000, we recorded a $63.0 million loss to reflect
the difference between our book value and the expected realizable value of 25
hotels in connection with our decision to sell these non-strategic hotel assets,
and an extraordinary charge of $3.9 million for the write-off of deferred loan
costs associated with debt retired in 2000, prior to its maturity.

(3) On July 28, 1998, we completed the merger of Bristol Hotel Company's real
estate holdings with and into FelCor. The merger resulted in the net acquisition
of 107 primarily full-service hotels in return for approximately 31 million
shares of newly issued FelCor common stock. FelCor subsequently contributed all
assets and liabilities acquired in the merger to us, in exchange for
approximately 31 million units.

(4) In the fourth quarter of 2001, we paid distributions of $0.05 per unit. This
reduction from the $0.55 per unit quarterly distribution that we had paid since
the third quarter of 1997 was prompted by the decrease in revenues resulting
from the events of September 11, 2001, and the general economic downturn. In
1998, we declared a special distribution of accumulated but undistributed
earnings and profits as a result of Bristol Hotel Company merging with and into
FelCor, in addition to the aggregate quarterly distribution of $2.20 per unit.
The amount of the distribution was $0.345 per unit.

(5) A more detailed description and computation of FFO and EBITDA is contained
in the "Funds From Operations and EBITDA" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 below.

28

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

For background information relating to us and the definitions of
certain capitalized terms used herein, reference is made to the Notes to
Consolidated Financial Statements of FelCor Lodging Limited Partnership
appearing elsewhere in this Annual Report on Form 10-K.

The economic downturn, which started in early 2001, and the aftermath
of the terrorist attacks on September 11, resulted in a sharp decline in lodging
demand for 2001 and had an adverse effect on our operating results for the year.
In 2001 the lodging industry experienced the worst decline in demand in the past
30 years. For the year ended December 31, 2001, our hotels' revenue per
available room ("RevPAR") decreased by 11.4% compared to 2000. This decline
resulted in lower revenues from our hotels and a reduction in our operating
income. Other items that affected our results of operations in 2001 were the
termination of the planned merger with MeriStar and the acquisition of our hotel
leases. The MeriStar merger was terminated as a result of the adverse impact on
the financial markets of the September 11 terrorist attacks. The acquisition of
our hotel leases was made possible by the REIT Modernization Act, which became
effective on January 1, 2001.

We raised a net total of $500 million in new capital during 2001,
through the issuance of unsecured senior notes, and reduced our borrowings under
our line of credit to approximately $50 million at December 31, 2001. On
November 8, 2001, we amended our unsecured line of credit. Although we were in
compliance with our existing covenants prior to the amendment, it was necessary
to amend the line of credit in anticipation of a continued negative RevPAR
environment. The amendment allows for the relaxation of certain financial
covenants through December 31, 2002, with a step-up in existing covenants on
September 30, 2002, but imposes additional limitations on our ability to invest
in hotels and make distributions to unitholders.

FINANCIAL COMPARISON

(1) The net loss for the year ended December 31, 2001, includes $78 million
of expenses consisting of merger termination costs of $20 million,
merger related financing costs of $6 million, lease termination costs
of $37 million, swap termination costs of $7 million, a loss on assets
held for sale of $7 million, abandoned project write-offs of $837,000,
and an extraordinary loss of $1 million from the write-off of deferred
loan costs.

(2) The net income for the year ended December 31, 2000, was reduced by a
$63 million loss recognized to reflect the difference between our book
value and the estimated realizable value of 25 non-strategic hotel
assets that we decided to sell, and a $4 million extraordinary loss
from the write-off of deferred loan costs.

29

REVPAR DECLINE

Room revenues at our hotels decreased during 2001 as a result of the
economic recession and the sharp decline in travel following the terrorist
attacks on September 11, 2001. For the year to date period prior to September
11, 2001, our RevPAR decreased 5.1% due to a decrease in the number of occupied
rooms as a percentage of available rooms ("occupancy") of 4.1 percentage points
to 68.0% partially offset by the slight increase of 0.6% in average daily rate
("ADR") to $104.88. During the four week period following the tragic events of
September 11, 2001, our hotels recorded average occupancy rates as low as 33.9%.
During that period, we experienced a substantial number of group cancellations,
resulting in a significant loss of revenue, primarily affecting our larger
hotels. For the 16 weeks from September 11, 2001 to December 31, 2001, our
RevPAR decreased 26.3% compared to the same period of 2000. As a result of this
decline in revenue, our results from operations for the fourth quarter were
significantly reduced. In response, we are actively working with the managers of
our hotels to reduce operating costs as well as to provide economic incentives
to individuals and business travelers in selected markets to increase demand. In
addition, based on our assessment of the current operating environment and in
order to conserve capital, future non-essential capital expenditure projects
will be approved only as adequate funds become available.

As a result of a gradual recovery in the level of travel, we have begun
to see modest improvements in occupancy and ADR, though they remain below prior
year levels. However, our fourth quarter results were significantly lower than
the prior year period. Accordingly, we reduced the fourth quarter distribution
on our units to $0.05 per unit, resulting in aggregate distribution of $1.70 per
unit for the year ended December 31, 2001.

For the first quarter of 2002, we currently anticipate our portfolio
RevPAR will be 16% to 18% below the comparable period of the prior year. FFO is
expected to be within the range of $27 to $30 million for the first quarter of
2002, and EBITDA is expected to be within the range of $74 million to $78
million for the same period. We currently anticipate that our hotel portfolio
RevPAR for 2002, compared to 2001, will be flat to negative 3%.

The terrorist attacks of September 11, 2001, were unprecedented. We are
unable to predict with certainty if or when lodging demand and rates will return
to pre-September 11 levels. We believe that the uncertainty associated with the
war on terrorism and possible future terrorist attacks will continue to hamper
the travel and lodging industries during much of 2002. Any additional terrorist
attack may have a similar or worse effect on the lodging industry than that
experienced as a result of the September 11 attacks.

MERGER TERMINATION

On May 9, 2001, we entered into a merger agreement with MeriStar. On
September 21, 2001, MeriStar and we jointly announced the termination of the
merger. The decision to terminate the merger resulted from the September 11
terrorist attacks and their subsequent adverse impact on the financial markets.
As a result of the merger termination, we expensed $19.9 million associated with
the merger and $5.5 million in merger financing costs for the year ended
December 31, 2001.

ACQUISITION OF HOTEL LEASES

Under the REIT Modernization Act that became effective January 1, 2001,
we are permitted to lease our hotels to our wholly-owned TRS lessees, provided
that the TRS lessees engage third-party management companies to manage the
hotels.

We completed the acquisition of DJONT (which leased 85 of our hotels)
effective January 1, 2001. In consideration for the acquisition, we issued
approximately 417,000 units, valued at approximately $10 million which, together
with DJONT's accumulated deficit of $24.5 million, was recorded as a lease
termination cost in the first quarter of 2001.

30

On January 1, 2001, we also acquired the leases of 12 of our hotels,
together with the associated management contracts, from Six Continents Hotels,
for which FelCor issued 413,585 shares of its common stock valued at
approximately $10 million and we issued a corresponding number of partnership
units to FelCor, of which $1.7 million was included in lease termination costs
and the remainder had been previously accrued for in the loss related to hotels
held for sale. Of these hotels, three have been sold, eight have been
contributed to a joint venture with Interstate Hotels Corporation, or IHC, and
one will be retained.

Effective July 1, 2001, we acquired the remaining 88 of our hotel
leases held by Six Continents Hotels in exchange for long-term management
agreements. In exchange for the assignment of the leases to our wholly-owned
TRS, FelCor issued 100 shares of its common stock and we entered into long-term
management agreements with Six Continents Hotels covering the 88 hotels. The
management fees payable to Six Continents Hotels under the new management
agreements on the 88 hotels were structured so that the historical cash flows
for the year ended December 31, 2000, for both us and Six Continents Hotels,
would have been approximately the same had the management agreements replaced
the leases on January 1, 2000. These management fees, which are higher than
those paid by us to other managers for comparable services, include compensation
to Six Continents Hotels for both management services and the acquisition of the
88 leases.

Unlike the leases, where the rent payable to us would vary only as a
result of changes in hotel revenues, under the management agreements our cash
flow and net income also will vary as a result of changes in the operating
margins of the hotels. We entered into the transactions to acquire the leases
and DJONT based upon FelCor's management's belief that, in the long term,
lodging demand will exceed new supply and that operational efficiencies will
increase industry-wide for a variety of reasons, including the impact of new
technologies allowing lower-cost delivery of services and providing new revenue
sources that are not labor-intensive, such as in-room entertainment and direct
and in-room marketing to guests. In addition, FelCor believes that our ownership
of the lessees on our hotels eliminates a potential divergence of interest
between the lessor, who benefits from having management maximize revenues, even
at the expense of profits, and the lessee, who benefits from having management
maximize profits, even at the expense of revenues.

We acquired DJONT from entities controlled by Mr. Corcoran and the
children of Mr. Mathewson. Because of the conflict between our interests and
those of Messrs. Corcoran and Mathewson in connection with our acquisition of
DJONT, FelCor's board of directors appointed a special committee of three
independent directors who, with the assistance of an investment advisor,
determined the price to be paid for DJONT and concluded that the transaction was
fair to us from a financial point of view. Neither Mr. Corcoran nor Mr.
Mathewson participated in any discussion or vote of the FelCor board of
directors regarding this transaction. The acquisition of leases from Six
Continents Hotels was negotiated, on an arms-length basis, by FelCor's senior
management with the officers of Six Continents Hotels. Each party was
represented by separate counsel. Because of his position with Six Continents
plc, Mr. North abstained from participating in any discussion or vote by
FelCor's board of directors relating to the acquisition of leases from Six
Continents Hotels.

The recent economic slowdown combined with the sharp reduction in
travel following the terrorist attacks of September 11, have resulted in
declines in RevPAR and in an erosion in operating margins during the year ended
December 31, 2001, as compared to the same periods of 2000. So long as the
operating margins for our hotels remain below the levels experienced during
2000, we expect the hotel operating results to be generally less favorable to us
than the leases would have been.

INSURANCE

Following the events of September 11, 2001, certain types of insurance
coverage, such as for acts of terrorism, are unavailable or are only available
at a cost that is prohibitive. In an effort to keep our cost of insurance within
reasonable limits, we have not purchased terrorism insurance at the current
prohibitive prices. We have also increased our deductible amounts under policies
of flood, wind and general liability insurance, which increases our risk of
incurring losses that are uninsured or not fully insured. Should losses that are
uninsured or not fully insured be substantial, they could have a material
adverse impact on our operating results and cash flows.

31

RESULTS OF OPERATIONS

THE COMPANY -- ACTUAL

Comparison of the Years Ended December 31, 2001 and 2000

Prior to December 31, 2000, we leased 184 hotels to either DJONT or Six
Continents Hotels and reported the lease revenue from the percentage lease
agreements. Our historical revenues for 2000 represented principally rental
income on leases. Expenses during this period represented specific ownership
costs including real estate and property taxes, property insurance and ground
leases. Effective January 1, 2001, through our TRSs, we acquired 96 of these
hotel leases and, effective July 1, 2001, acquired the leases on our remaining
88 hotels, assuming all operating risks and rewards of these 184 hotels. As a
result of acquiring these leases, we reported hotel operating revenues and
expenses. Our expenses included all hotel operating costs including management
fees, salary expenses, hotel marketing, utilities, and food and beverage costs,
in addition to ownership costs. Accordingly, operating results for the year
ended December 31, 2001, are not directly comparable to the same period in 2000.

For the year ended December 31, 2001, we recorded total revenues of
$1.2 billion compared to $540 million for the year ended December 31, 2000. The
increase in total revenues of $661 million is principally associated with
reporting hotel operating revenues in 2001 rather than percentage lease revenue
reported in the previous year. The 96 hotels acquired from DJONT contributed
approximately $788 million in hotel operating revenue in 2001, compared to $277
million in percentage lease revenue for 2000. The 88 hotels acquired July 1,
2001 from Six Continents Hotels contributed approximately $115 million in
percentage lease revenue and $295 million in hotel operating revenue, following
the acquisition of these leases, compared to $260 million in percentage lease
revenue for these same hotels in 2000.

Total operating expense increased $814 million for the year ended
December 31, 2001, over the same period in 2000, primarily as a result of the
inclusion of hotel operating expenses, management fees and other property
related costs of $711 million, which were not included in the same period of
2000 prior to our acquisition of the hotel leases. Also included in total
operating expenses for 2001 are lease termination costs; merger termination
costs; depreciation; taxes, insurance and lease expense; and corporate expenses.

Taxes, insurance and lease expense increased by $49 million for year
ended December 31, 2001, over 2000. The majority of this increase is related to
percentage lease expense paid to unconsolidated ventures owning hotels whose
operations were acquired with the acquisition of DJONT. We included in operating
expenses $37 million of costs associated with the acquisition of DJONT and the
Six Continents Hotels leases, and $20 million of expenses associated with the
termination of the MeriStar merger. We also incurred $6 million in merger
related financing costs related to the $300 million in senior debt that was
repaid in October as a result of the termination of the MeriStar merger.

In connection with the issuance of favorably priced fixed rate debt,
and the prepayment of floating rate debt, we terminated $250 million of interest
rate swaps, resulting in a $7 million swap termination cost. In June 2000, we
announced our intention to sell 25 non-strategic hotels and, in 2000, recorded
an expense of $63 million representing the difference between the net book value
of these hotels and their estimated net proceeds from sale. In 2001, an
additional $7 million loss provision was recorded related to the remaining 13
hotels held for sale. We continue to actively market the remaining hotels held
for sale.

Equity in income from unconsolidated entities decreased $8 million in
2001, compared to 2000. The principal reasons for the decrease in 2001 were a
gain of $4 million recorded in 2000 from the development and sale of
condominiums by an entity in which we own a 50% equity interest and a decline in
percentage lease revenue in 2001 from these unconsolidated entities related to a
11.2% decline in RevPAR for the hotels owned by them.

32

We recorded a net loss applicable to unitholders of $75 million in
2001, compared to a net income of $42 million in 2000. The principal components
of the loss in 2001 were the decrease in hotel RevPAR of 11.4%, contraction of
hotel operating margins principally associated with the decline in RevPAR, costs
of terminating the MeriStar merger of $20 million, merger financing costs of $6
million, lease termination costs of $37 million associated with acquiring hotel
leases, swap termination costs of $7 million associated with repayment of
variable rate debt, and a loss on assets held for sale of $7 million.

Comparison of the pro forma years ended December 31, 2001 and 2000

Between January 1 and July 1, 2001, we acquired the operating leases
covering all of our hotels and contributed them to our TRSs. As the leases were
acquired, we began receiving and recording direct hotel revenues and expenses,
rather than percentage lease revenue. Consequently, a comparison of historical
results for the year ended December 31, 2001 to the year ended December 31, 2000
may not be as meaningful as a discussion of pro forma results. Accordingly, we
have included a discussion of the comparison of the pro forma results of
operations. The pro forma results of operations for the years ended December 31,
2001 and 2000 assumes that the following occurred on January 1, 2000:

o Our acquisition of DJONT for 416,667 units valued at
approximately $10 million;

o Our acquisition of 12 hotel leases, together with their
associated management contracts, from Six Continents Hotels
for which FelCor issued 413,585 shares of its common stock
valued at approximately $10 million; and

o Our acquisition of the remaining 88 hotel leases held by Six
Continents Hotels.

FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED, IN THOUSANDS)

33

FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(UNAUDITED, IN THOUSANDS)

FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED, IN THOUSANDS)

34

Pro forma numbers presented represent our historical revenues and
expenses, except as described by pro forma changes below.

Pro forma adjustments:

(a) Total revenue adjustments consist of the changes in our historical
revenue from the elimination of historical percentage lease revenue and
the addition of historical hotel operating revenues.

(b) Total operating expense adjustments consist of the changes in our
historical operating expense from the elimination of historical lease
termination costs in 2001, the addition of historical hotel operating
expenses and the elimination of percentage lease expense. Additionally,
for the 88 hotels managed by Six Continents Hotels, the adjustments
record management fees at their new contractual rates and the
elimination of historical franchise fees, which are included in
management fees.

(c) Equity in income from unconsolidated entities represents historical
equity in income from unconsolidated entities after the elimination in
2000 of $3 million related to minority interest expense on DJONT.

Pro forma revenues decreased $224 million in 2001, primarily as a
result of the continuing economic recession and disruptions in business and
leisure travel patterns following the terrorist attacks on September 11, 2001.
As a result of these events, both business and leisure travel declined
significantly during the year ending December 31, 2001, compared to the same pro
forma period in 2000. During 2001 our hotels' RevPAR decreased 11.4%, comprised
of a decrease in occupancy of 6.6 percentage points to 63.9% and a decline in
ADR of 2.4% to $102.18. During the four-week period following the terrorist
attacks on September 11, 2001, our hotels recorded average occupancy rates as
low as 33.9%. However, our Hotel RevPAR performance improved throughout the
fourth quarter, with RevPAR decreases compared to the prior year periods, of
25.2% in October, 23.6% in November, and 18.8% in December. We continue to see
improvements in both occupancy and ADR, although they remain below prior year
levels.

Pro forma operating expenses decreased $141 million in 2001 compared
to 2000 but pro forma operating expense as a percentage of total revenue
increased from 84% to 89%. The principal reason for the increased operating
expense as a percentage of total revenue was a 260 basis point drop in hotel
operating margins (gross operating profit less franchise and management fees).
This margin compression primarily relates to increased labor costs, the cost of
frequent guest programs and utility costs as a percentage of total revenue. The
pro forma increase in costs as a percentage of pro forma revenue is principally
related to the decrease in hotel revenue previously discussed. We have been
actively working with our managers to implement cost cutting programs at the
hotels to stabilize the hotel operating profits. These measures include reducing
labor costs, streamlining staffing, and consolidating operations by closing
unused floors in hotels when possible.

Pro forma interest expense net of interest income increased $7
million. The principal reason for the increase is $6 million of merger related
financing costs.

Pro forma equity in income from unconsolidated entities decreased $4
million, principally as the result of the decreased hotel revenues previously
discussed.

Comparison of the Years Ended December 31, 2000 and 1999

For the year ended December 31, 2000, we recorded net income of $66
million compared to $136 million for the year ended December 31, 1999. Included
in expense for the year ended December 31, 2000, is an expense of $63 million
related to 25 non-strategic hotels that we identified as held for sale. The
expense represents the difference between the net book value of the hotels and
their estimated net realizable value. Net income excluding the reserve would
have been $129 million.

Our total revenues increased $47 million to $540 million for the year
ended December 31, 2000, compared to $493 million for the year ended December
31, 1999. This increase is principally from increased percentage lease revenues
of $46 million, which increased to $537 million from $491 million in the prior
year.

35

Changes in our hotels' room and suite revenues significantly affect us
because our principal source of revenue historically has been rent payments from
the lessees under the percentage leases. The percentage leases provide for rent
based on a percentage of room and suite revenue, food and beverage revenue, food
and beverage rents, and in some instances, other hotel revenues. During 2000 and
1999, percentage lease revenue derived from room and suite revenue represented
90% and 91% of total percentage lease revenue, respectively. RevPAR, which is a
measure of room and suite revenue, increased by 7.0% in 2000 for all of our
hotels. This increase in RevPAR resulted from increases in both occupancy and
ADR. For the year ended December 31, 2000, ADR increased by 3.7% over the prior
year and Occupancy increased by 2.2 percentage points. Our ability to achieve
increases in room and suite revenue and RevPAR at our hotels is affected, among
other things, by overall demand in the marketplace, room supply and the success
of our renovation, redevelopment and rebranding program. We had 59 hotels that
had undergone renovation, redevelopment or rebranding in either 1999 or 2000,
that are identified by us as non-comparable hotels. The non-comparable hotels
reflected increases in RevPAR of 10.1%, which was greater than the results for
hotels that had not recently undergone renovation.

The Company generally seeks to improve those hotels that management
believes can achieve increases in room and suite revenue and RevPAR as a result
of renovation, redevelopment and rebranding. Since the beginning of 1998 through
2000, we had spent nearly $550 million in capital improvements to our hotels.
Management attributes much of the improvement in RevPAR to these capital
improvements.

Operating expenses increased $26 million in the year ended December 31,
2000, to $266 million from $239 million in 1999. The principal components of the
increase in operating expense were taxes, insurance and lease expense and
depreciation expense.

Taxes, insurance and lease expense increased by $16 million in 2000,
compared to the prior year, and increased as a percentage of total revenue from
15.6% to 17.2%. This increase in expenses was principally from increases in real
estate and personal property taxes. Our real estate and personal property taxes
increased from higher assessed values generally resulting from the major
renovations completed over the past three years.

Depreciation expense increased by $8 million in 2000, compared to the
prior year, and decreased as a percentage of total revenue from 31.0% to 29.8%.
Depreciation expense increased principally as a result of additional
depreciation related to fixed asset additions of $95 million in 2000 and $222
million in 1999.

Interest expense, net increased by $34 million for the year ended
December 31, 2000, compared to 1999, and increased as a percentage of total
revenue from 24.9% to 29.0%. This increase is principally the result of the
following items:

o Our average debt outstanding increased in 2000 by approximately $197
million over the prior year. The increase in average debt resulted
principally from stock repurchases in 2000 of approximately $87
million and capital expenditures in 2000 totaling approximately $101
million.

o The average interest rate on our indebtedness increased from about 7%
in 1999 to nearly 8% in 2000.

o We capitalized interest related to major renovations of approximately
$5 million in 1999 but, because of reduced renovation activity in
2000, we had only $1 million of interest capitalized in 2000.

In 2000 we recorded a loss on assets held for sale of $63 million. We
identified for sale 25 non-strategic hotels and recorded a loss representing the
difference between the net book value of these hotels compared to the
anticipated net sales proceeds.

36

Equity in income from unconsolidated entities increased by $6.3 million
in 2000 compared to 1999. The principal reasons for this increase in 2000 were a
$3.7 million gain recorded in 2000 from the development and sale of the Brighton
Beach condominiums at Kingston Plantation in Myrtle Beach, South Carolina, by an
entity in which we own a 50% equity interest and the operations of a hotel in
which we acquired a 50% equity interest in the fourth quarter of 1999.

We also recorded gains on the sale of two hotels of $2.6 million and
$1.8 million for the sale of excess land during the year ended December 31, 2000
and an extraordinary charge of $3.9 million for the write-off of deferred loan
costs associated with debt that was retired in 2000, prior to its maturity.

Funds From Operations and EBITDA

We and FelCor consider FFO and EBITDA to be key measures 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 FelCor 's and our 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 FFO as net income or loss (computed in accordance with GAAP),
excluding gains or losses from extraordinary items and sales of properties, plus
real estate related depreciation and amortization, after comparable adjustments
for the applicable portion of these items related to unconsolidated entities and
joint ventures. We and FelCor believe that FFO and EBITDA are 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, they provide investors with an indication of the ability of the REIT
to incur and service debt, to make capital expenditures, to pay distributions
and to fund other cash needs. We compute FFO in accordance with standards
established by NAREIT, except that we add back lease termination costs, merger
termination costs, merger financing costs, abandoned projects, provision for
losses on hotels held for sale and interest rate swap termination expense to
derive FFO. This may not be comparable to FFO reported by other REITs that do
not define the term in accordance with the current NAREIT definition, that
interpret the current NAREIT definition differently than we do or that do not
adjust FFO for lease termination costs, merger termination costs, merger
financing costs, abandoned projects, provision for losses on hotels held for
sale and interest rate swap termination expense. FFO and EBITDA do not represent
cash generated from operating activities as determined by GAAP, and should not
be considered as an alternative to net income (determined in accordance with
GAAP) as an indication of our financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of our
liquidity, nor does it necessarily reflect the funds available to fund our cash
needs, including our ability to make cash distributions. FFO and EBITDA may
include funds that may not be available for our discretionary use due to
functional requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties.

37

The following table details the computation of FFO (in thousands):

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

(1) Weighted average units outstanding are computed including dilutive
options, unvested stock grants, and assuming conversion of Series A
preferred units to units.

38

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of cash to meet our cash requirements, including
distributions to unitholders and repayments of indebtedness, is from the results
of operations of our hotels. For the year ended December 31, 2001, net cash flow
provided by operating activities, consisting primarily of hotel operations, was
$131 million and FFO was $184 million. We currently expect that our operating
cash flow will be sufficient to fund our continuing operations, including our
required capital expenditures, debt service obligations and distributions to
unitholders required for FelCor to maintain its REIT status. However, due to the
sharp reduction in travel following the terrorist attacks of September 11 and
the resultant drop in RevPAR and profits from our hotel operations, we plan to
limit distributions to holders of our units to our available cash flow.
Accordingly, distributions to holders of our units and FelCor's common stock may
be significantly reduced or possibly eliminated in future periods.

Recent events, including the terrorist attacks of September 11, 2001,
the ongoing war against terrorism by the United States and the bankruptcy of
Enron Corp., have had an adverse impact on certain capital markets. These
events, an escalation in the anti-terrorism war, new terrorist attacks or
additional bankruptcies could further adversely affect the availability and cost
of capital for our business. In addition, should the anticipated recovery of the
overall economy, and of the lodging industry, fail to occur or be delayed
significantly, that too could adversely affect our operating cash flow and the
availability and cost of capital for our business. For example, should any such
events result in a reduction in our current debt ratings by Moody's and Standard
& Poor's, the interest rates payable under $900 million of our outstanding
unsecured senior notes would be increased by 50 basis points.

Prior to January 1, 2001, substantially all of our hotels were leased
to third parties under leases providing for the payment of rent based, in part,
upon revenues from the hotels. Accordingly, our risks were essentially limited
to changes in hotel revenues and to the lessees' ability to pay the rent due
under the leases. On January 1, 2001, we acquired the leaseholds of 96 of our
hotels and on July 1, 2001, we acquired our remaining 88 hotel leases. As a
result of these acquisitions, we also became subject to the risks of fluctuating
hotel operating margins at our hotels, including but not limited to wage and
benefit costs, repair and maintenance expenses, utilities, liability insurance,
and other operating expenses which can fluctuate disproportionately to revenues.
These operating expenses are more difficult to predict and control than
percentage lease revenue, resulting in an increased risk of volatility in our
results of operations. The recent economic slowdown and the sharp drop in
occupancy following the terrorist attacks of September 11 resulted both in
declines in RevPAR and an erosion in operating margins during the year ended
December 31, 2001, compared to 2000. If the declines in hotel RevPAR and/or
operating margins worsen or continue for a protracted time, they could have a
material adverse effect on our operations and earnings.

On May 9, 2001, we entered into a merger agreement with MeriStar. On
September 21, 2001, MeriStar and we jointly announced the termination of the
merger. The decision to terminate the merger resulted from the September 11
terrorist attacks and the subsequent disruption in the financial markets. As the
result of the merger termination, we recorded expenses aggregating $19.9 million
associated with the merger and recognized $5.5 million of merger financing
costs.

On January 11, 2001, we completed the private placement of $100 million
in 9 1/2% senior unsecured notes that mature in September 2008. These notes were
issued at a premium to yield an effective rate of 91/8%. The proceeds were used
initially to pay down our line of credit. In October 2001, we exchanged the $100
million of privately placed senior notes for notes with identical terms that
were registered under the Securities Act of 1933.

In March 2001, we contributed eight of our hotels held for sale to a
joint venture in which one of our subsidiaries holds a 50% equity interest, and
a subsidiary of IHC holds the other 50% equity interest. Another subsidiary of
IHC manages these hotels. Pursuant to the joint venture agreement, IHC
contributed $8.1 million to the new venture. The venture closed on a
non-recourse mortgage loan of approximately $52 million with cash proceeds going
to us. In addition to our 50% equity interest, we retained a preferred interest
of approximately $17 million in the venture and also made a loan of
approximately $4.2 million to IHC, secured by its interest in the venture.

39

On June 4, 2001, we completed the private placement of $600 million in
8 1/2% senior unsecured notes that mature in 2011. Approximately $315 million of
the proceeds were placed in escrow, pending the closing or termination of the
merger with MeriStar. In October 2001, as the result of the merger termination,
in accordance with the requirements of the indenture governing the notes, we
redeemed $300 million in principal amount of these notes. The redemption price
was 101% of the principal amount redeemed plus accrued interest and was paid out
of the $315 million in escrowed funds. In October 2001, we exchanged the
remaining privately placed notes for notes with identical terms that were
registered under the Securities Act of 1933.

In June 2001, in connection with the issuance of fixed rate senior
notes and the subsequent prepayment of floating rate debt, we terminated $200
million of interest rate swaps, resulting in a $4.8 million swap termination
cost recorded in the second quarter.

On December 3, 2001, we completed the private placement of $100 million
in 9 1/2% senior unsecured notes that mature in September 2008. These notes were
issued at a discount to yield 9.6%. The proceeds were used initially to pay down
our line of credit. In connection with the issuance of these notes and the
prepayment of floating rate debt, we terminated $50 million of interest rate
swaps resulting in a $2.2 million swap termination cost recorded in the fourth
quarter.

On July 26, 2001, we entered into an amended and restated credit
agreement, pursuant to which we obtained an increase in our line of credit from
$600 million to $615 million. The maturity of the line of credit was also
extended from August 1, 2003, to October 31, 2004, but we have the right to
extend the maturity date for two consecutive one-year periods, subject to
certain conditions.

On November 8, 2001, we further amended our unsecured line of credit.
Although we were in compliance with our existing covenants prior to the
amendment, it was necessary to amend the line of credit in anticipation of a
continued negative RevPAR environment. The amendment allows for the relaxation
of certain financial covenants through December 31, 2002, with a step-up in
covenants in September 30, 2002, including the unsecured interest coverage,
fixed charge coverage, and total leverage tests. The interest rate remains on
the same floating rate basis with a tiered spread based on our debt leverage
ratio, but with added tiers to reflect the higher permitted leverage. The
lenders' commitments under the line of credit remain at $615 million, and we had
approximately $50 million outstanding under the facility at December 31, 2001.

In addition to the financial covenants, our line of credit includes
certain other affirmative and negative covenants, including: restrictions on our
ability to create or acquire wholly-owned subsidiaries, restrictions on the
operation/ownership of our hotels, limitations on our ability to lease property
or guarantee leases of other persons, limitations on our ability to make
restricted payments, limitations on our ability to merge or consolidate with
other persons, issue stock of our subsidiaries and sell all or substantially all
of our assets, restrictions on our ability to construct new hotels or acquire
hotels under construction, limitations on our ability to change the nature of
our business, limitations on our ability to modify certain instruments,
limitations on our ability to create liens, limitations on our ability to enter
into transactions with affiliates and limitations on our ability to enter into
joint ventures. Under the most recent amendment to our line of credit, we agreed
to certain more stringent limitations through September 30, 2002. After January
1, 2002, we may acquire hotel properties and make joint venture investments,
subject to compliance with debt limitations, but with flexibility to make at
least $50 million of acquisitions and $20 million of joint venture investments,
subject to increases under certain circumstances. Also, we may be limited in
making discretionary capital expenditures through September 30, 2002, except for
the expansion or renovation of our existing hotels in an aggregate amount of $20
million, subject to an increase under certain circumstances. At December 31
2001, we were in compliance with all of these covenants.

Unless our business has recovered sufficiently from the sharp declines
in RevPAR experienced following the September 11 terrorist attacks, upon
expiration of the relaxation in financial covenants provided by the November
amendment to our line of credit, we may be unable to satisfy the original
covenant requirements. In such an event, we may need to obtain further
amendments from our lenders on the line of credit. We are not certain whether,
to what extent, or upon what terms the lenders may be willing to continue a
relaxation of the covenants. Further amendments to our line of credit may result
in additional restrictions on

40

us and may adversely affect our ability to run our business and financial
affairs. At December 31, 2001, we had, and currently have, sufficient cash on
hand to repay our line of credit borrowings in full.

Failure to satisfy any of the financial or other covenants under our
line of credit would constitute an event of default, notwithstanding our ability
to meet our debt service obligations. Other events of default under our line of
credit include, without limitation, a default in the payment of other
indebtedness of $10 million or more, bankruptcy and a change of control.

Our management currently anticipates that we will meet our financial
covenants under the RevPAR guidance provided by us at our fourth quarter
earnings conference call on February 1, 2002. For the first quarter of 2002, we
currently anticipate that our portfolio RevPAR will be 16% to 18% below the
comparable period of the prior year. FFO is expected to be within the range of
$27 to $30 million for the first quarter of 2002, and EBITDA is expected to be
within the range of $74 million to $78 million for the same period. The RevPAR
decline for 2002 compared to the same period in 2001, was approximately 21.5%
for January 2002, 15.5% for February 2002, and was 13.5% for the first 21 days
of March 2002.

Our other borrowings contain affirmative and negative covenants that
are generally equal to or less restrictive than those in the line of credit.
Most of our mortgage debt is nonrecourse to us and contains provisions allowing
for the substitution of collateral upon satisfaction of certain conditions. Most
of the mortgage debt is prepayable, subject, however, to various prepayment
penalties, yield maintenance, or defeasance obligations.

We currently anticipate that full year 2002 hotel portfolio RevPAR,
compared to 2001, will be flat to negative 3%. RevPAR changes by quarter for
2002, compared to 2001, are currently expected to fall within the following
ranges:

First quarter (16)% to (18)%
Second quarter (4)% to (7)%
Third quarter 6% to 9%
Fourth quarter 13% to 16%

FFO for 2002 is anticipated to be within the range of $147 to $174
million and EBITDA to be within the range of $340 to $360 million. We are
currently anticipating 2002 maintenance capital expenditures of between $40 and
$50 million depending upon the pace of the anticipated economic recovery.

Our decision to pay a quarterly distribution will be determined each
quarter based upon the operating results of that quarter, economic conditions,
and other operating trends. We currently anticipate that we should be able to
pay an aggregate of $1.00 in distributions per unit during 2002, based on the
low end of our current FFO estimates.

On December 31, 2001, our line of credit represented approximately 2.6%
of our total debt, with $50 million outstanding. We also maintain flexibility in
working with our lenders, as a result of our $129 million of cash and
equivalents on hand, $2.8 billion of unencumbered assets, and a breakeven
portfolio hotel occupancy, after debt service and preferred equity
distributions, of approximately 50%. The $565 million of capacity under our line
of credit is expected to remain available to take advantage of opportunities
that may present themselves as the industry begins to recover in late 2002 and
2003.

We may incur indebtedness to make property acquisitions, to fund FelCor
so it may purchase shares of its capital stock, or to meet distribution
requirements imposed on a REIT under the Internal Revenue Code, to the extent
that working capital and cash flow from our investments are insufficient for
such purposes.

FelCor's board of directors has authorized FelCor to repurchase up to
$300 million of its outstanding common shares. Stock repurchases may, at the
discretion of its management, be made from time to time at prevailing prices in
the open market or through privately negotiated transactions. Beginning in
January 2001, through March 27, 2001, FelCor repurchased approximately 179,000
shares of its outstanding common stock on the open market for approximately $4
million. The stock repurchase program has been suspended, and since March 27,
2001, FelCor has not repurchased any additional shares of its common stock in
the open market.

41

At December 31, 2001, we had $129 million of cash and cash equivalents.
Certain significant credit and debt statistics at December 31, 2001, are as
follows:

o Interest coverage ratio of 2.3x for the twelve month period ended
December 31, 2001

o Borrowing capacity of $565.2 million under our line of credit

o Consolidated debt equal to 42.8% of our investment in hotels, at cost

o Fixed interest rate debt equal to 88% of our total debt

o Weighted average maturity of fixed interest rate debt of approximately
6.8 years

o Mortgage debt to total assets of 16.8%

o Debt of approximately $13 million maturing in 2002

o Debt of approximately $35 million maturing in 2003

o Debt of approximately $239 million maturing in 2004

The following details our debt outstanding at December 31, 2001 and
2000 (in thousands):

All of our floating rate debt at December 31, 2001, was based upon
LIBOR. One month LIBOR at December 31, 2001 was 1.876%.

We had approximately $2.8 billion of unencumbered assets at December
31, 2001.

At December 31, 2001, we had $175 million of publicly traded term notes
due October 2004 that were matched with interest rate swap agreements which
effectively convert the fixed interest rate on the notes to a variable interest
rate. These interest rate swap agreements were entered into during the fourth
quarter of 2001 and have a maturity date of October 2004, coinciding with the
maturity date of the publicly traded term notes. We entered into six separate
interest rate swap agreements with three different financial institutions. Under
these agreements, we receive a fixed rate of 7.375% and pay the six-month LIBOR
rate plus a spread ranging from 2.57% to 3.54%. The weighted average spread over
LIBOR is 3.20%. The credit ratings for the financial institutions that are the
counter-parties on the interest rate swap agreements range from A- to AA.

We spent approximately $65 million on upgrading and renovating our
hotels during the year ended December 31, 2001. Notwithstanding the current
significant economic downturn, we believe that our hotels will continue to
benefit from our extensive capital expenditure programs in previous years. We
currently

42

anticipate 2002 maintenance capital expenditures of between $40 and $50 million,
depending upon the pace of the anticipated economic recovery.

Contractual Obligations

We have obligations and commitments to make future payments under debt
and operating land lease contracts. The following schedule details these
obligations at December 31, 2001 (in thousands).

We have guaranteed the payment of a full recourse loan for one of our
50% owned unconsolidated ventures. The following schedule details this
obligation at December 31, 2001 (in thousands):

Investments in Unconsolidated Entities

At December 31, 2001, we had unconsolidated 50% investments in ventures
that own an aggregate of 24 hotels. None of our directors, officers or employees
owns any interest in any of these joint ventures. These ventures had
approximately $266 million of non-recourse mortgage debt relating to 15 of the
hotels. This debt is not reflected as a liability on our consolidated balance
sheet. The liability of our subsidiaries that are members or partners in these
ventures is generally limited to the guarantee of the borrowing venture's
personal obligations to pay for the lender's losses caused by misconduct, fraud
or misappropriation of funds by the venture and other typical exceptions from
the nonrecourse provisions in the mortgages, such as for environmental
liabilities. One real estate joint venture had a full recourse loan outstanding
of $440,000 at December 31, 2001. We have guaranteed the payments of the full
recourse loan.

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

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

43

Quantitative and Qualitative Disclosures About Market Risk

At December 31, 2001 approximately 88% of our consolidated debt had
fixed interest rates. Currently, market rates of interest are below the rates we
are obligated to pay on our fixed-rate debt.

The following table provides information about our financial
instruments that are sensitive to changes in interest rates, including interest
rate swaps and debt obligations. For debt obligations at December 31, 2001, the
table presents scheduled maturities and weighted average interest rates, by
maturity dates. For each interest rate swap, the table presents the notional
amount and weighted average interest rate, by contractual maturity dates.
Weighted average variable rates are based on implied forward rates in the yield
curve as of December 31, 2001. The fair value of our fixed rate debt indicates
the estimated principal amount of debt having the same debt service requirements
that could have been borrowed at December 31, 2001, at then current market
interest rates. The fair value of our variable to fixed interest rate swaps
indicates the estimated amount that would have been paid by us had the swaps
been terminated at December 31, 2001.

EXPECTED MATURITY DATE
(DOLLARS IN THOUSANDS)

(a) The average floating rate of interest represents the projected forward
rate at December 31, 2001.

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

INFLATION

Operators of hotels, in general, possess the ability to adjust room
rates daily to reflect the effects of inflation. Competitive pressures may,
however, require us to reduce room rates in the near term and may limit our
ability to raise room rates in the future.

SEASONALITY

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

44

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

o At December 31, 2001, we had 13 non-strategic hotels held
for sale. We regularly review the carrying value of these
assets to determine that they are carried at the lower of
cost or market. The carrying value of these hotels held for
sale was reduced in the fourth quarter of 2001 by
establishing a provision for loss of $7 million. Future
adverse changes in market conditions or poor operating
results of the underlying investments could require an
additional impairment charge to further reduce the carrying
value of these hotels held for sale.

o We are required by generally accepted accounting principles
to record an impairment charge when we believe that an
investment in one or more of our hotels has been impaired
such that future undiscounted cash flows would not recover
the book basis, or net book value, of the investment. We
test for impairment when one or more of the following events
occur; projected cash flows are significantly less than
recent historical cash flows; significant changes in legal
factors or actions by a regulator that could affect the
value of our hotels; and events that could cause changes or
uncertainty in travel patterns. Future adverse changes in
market conditions or poor operating results of underlying
investments could result in losses or an inability to
recover the carrying value of the investments that may not
be reflected in the investment's current carrying value,
thereby requiring an impairment charge in the future. We do
not currently believe that the value of any of our hotels
held for investment is permanently impaired and,
accordingly, no impairment charge was recorded at December
31, 2001.

o We adopted SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities" effective January 1, 2001, which
establishes accounting and reporting standards for
derivative instruments. In accordance with this
pronouncement, our interest rate swap agreements outstanding
at December 31, 2001, were designated as fair value hedges.
These instruments are marked to market through the income
statement but are offset by the change in fair value of our
swapped fixed rate debt. At December 31, 2001, the estimated
unrealized net loss on these instruments was approximately
$1.5 million and represents the amount that we would pay to
terminate these instruments based on current market rates.

o We have recorded a valuation allowance equal to 100% of our
$13 million deferred tax asset related to our TRSs because
of the uncertainty of realizing the benefit of the deferred
tax asset. While we have considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event
we were to determine that we would be able to realize all or
a portion of our deferred tax assets in the future, an
adjustment to the deferred tax asset would increase income
in the period such determination was made.

45

RECENT ACCOUNTING ANNOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB")
approved SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets." SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS 142 will
be effective for fiscal years beginning after December 15, 2001 and will require
(1) intangible assets (as defined in SFAS 141) to be reclassified into goodwill,
(2) goodwill amortization to cease, and (3) the testing of goodwill for
impairment at transition and at interim periods (if an event or circumstance
would result in an impairment). As the result of implementation of SFAS 142, we
will stop the amortization of the difference between the our cost in
unconsolidated entities and our proportionate share of the book value of the
underlying net assets at the date of acquisition. At December 31, 2001, we
included in investment in unconsolidated entities an asset of $73.4 million
representing the unamortized cost in excess of our proportionate share of the
underlying assets at the date of acquisition. We amortized excess cost of $2.5,
$2.1 and $2.1 million in 2001, 2000 and 1999, respectively. We do not believe
that SFAS 142 will have a material impact on our results of operations and
financial position.

On August 15, 2001 the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 143 requires that the fair value of the liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 143 will be effective for financial statements issued for
fiscal years beginning after June 15, 2002 and interim periods within those
fiscal years. We are not currently affected by the Statement's requirement.

On October 3, 2001 the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121 by
removing goodwill from its scope, by defining a probability-weighted cash flow
estimation approach and establishing a "primary-asset" approach to determine the
cash flow estimation period for a group of assets. It also replaces the
provisions of APB Opinion 30, "Reporting the Effects of Disposal of a Segment of
a Business" for the disposal of segments of a business. SFAS 144 will be
effective for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. We are not currently affected by the Statement's
requirement.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

Portions of this Annual Report on Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although we believe that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, we can give no
assurance that our expectations will be achieved. A number of important factors
which, among others, could adversely affect our ability to meet our current
expectations are disclosed in conjunction with the forward-looking statements
and under "Cautionary Factors That May Affect Future Results" in Item 1 of our
Annual Report on Form 10-K ("Cautionary Statements"). Subsequent written and
oral forward-looking statements made by or attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the Cautionary
Statements.

46

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information and disclosures regarding market risks applicable to us are
incorporated herein by reference to the discussion under "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" contained elsewhere in our Annual
Report on Form 10-K for the year ended December 31, 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Included herein beginning at page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

47

PART III. -- OTHER INFORMATION

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

We have no directors or officers. Our management functions are
performed by FelCor as the sole general partner. Information about the directors
and executive officers of FelCor is contained in FelCor's definitive Proxy
Statement for its 2002 Annual Meeting of Stockholders, and incorporated herein
by reference.

ITEM 11. EXECUTIVE COMPENSATION

We have no directors or officers. Our management functions are
performed by FelCor as the general partner. Information about the directors and
executive officers of FelCor is contained in FelCor's definitive Proxy Statement
for its 2002 Annual Meeting of Stockholders, and incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this Item is contained in FelCor's
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders, and
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this Item is contained in FelCor's
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders, and
incorporated herein by reference.

48

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

Included herein at pages F-1 through F-32.

2. Financial Statement Schedules

The following financial statement schedule is included herein at page
F-33.

Schedule III - Real Estate and Accumulated Depreciation for FelCor
Lodging Limited Partnership

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

3. Exhibits

The following exhibits are filed as part of this Annual Report on Form
10-K:

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ------------------------

3.1 - Second Amended and Restated Agreement of Limited Partnership
of FelCor Lodging Limited Partnership, formerly known as
FelCor Suites Limited Partnership ("FelCor LP") dated as of
December 31, 2001(filed as Exhibit 10.1 to the FelCor Lodging
Trust Incorporated ("FelCor") Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 ("FelCor's 2001 10-K")
and incorporated herein by reference).

4.1 - Indenture dated as of April 22, 1996 by and between FelCor and
SunTrust Bank, Atlanta, Georgia, as Trustee (filed as Exhibit
4.2 to FelCor's Form 8-K dated May 1, 1996 and incorporated
herein by reference).

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

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

4.2.2 - Second Amendment to Indenture and First Supplemental Indenture
dated as of December 30, 1998, by and among FelCor, FelCor LP,
the Subsidiary Guarantors named therein and SunTrust Bank, as
Trustee (filed as Exhibit 4.7.2 to FelCor's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998
("FelCor's 1998 10-K") and incorporated herein by reference).

49

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ------------------------

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

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

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

4.3 - Indenture dated as of September 15, 2000, by and among FelCor
LP, FelCor, the Subsidiary Guarantors named therein, and
SunTrust Bank, as Trustee (filed as Exhibit 4.3 to the
Registration Statement on Form S-4 (file no. 333-47506) of
FelCor LP and the other co-registrants named therein and
incorporated herein by reference).

4.3.1 - First Supplemental Indenture dated as of July 26, 2001, by and
among FelCor LP, FelCor, the Subsidiary Guarantors named
therein, who are signatories thereto, and SunTrust Bank, as
Trustee (filed as Exhibit 4.3.1 to the Registration Statement
on Form S-4 (file no. 333-63092) of FelCor LP and the other
co-registrants named therein and incorporated herein by
reference).

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

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

10.1 - Contribution Agreement dated as of January 1, 2001, by and
among FelCor, FelCor LP, FelCor, Inc., RGC and DJONT
Operations, L.L.C. (filed as Exhibit 10.27 to FelCor's Form
10-Q for the quarter ended March 31, 2001 ("FelCor's March
2001 10-Q"), and incorporated herein by reference).

10.2 - Leasehold Acquisition Agreement dated as of March 30, 2001, by
and among Bass (U.S.A.) Incorporated, in its individual
capacity and on behalf of its subsidiaries and affiliates, and
FelCor, in its individual capacity and on behalf of its
subsidiaries and affiliates, including as an exhibit thereto
the form of Management Agreement for Six Continents-branded
hotels (filed as Exhibit 10.28 to FelCor's March 2001 10-Q and
incorporated herein by reference).

50

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ------------------------

10.3 - Form of Management Agreement between subsidiaries of FelCor,
as owner, and a subsidiary of Six Continents Hotels, as
manager, with respect to FelCor's Six Continents branded
hotels (included as an exhibit to the Leasehold Acquisition
Agreement filed as Exhibit 10.2 above).

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

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

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

10.7 - Employment Agreement dated as of July 28, 1994 between FelCor
and Thomas J. Corcoran, Jr. (filed as Exhibit 10.8 to FelCor's
Annual Report on Form 10-K/A, Amendment No. 1, for the fiscal
year ended December 31, 1994 ("FelCor's 1994 10-K/A") and
incorporated herein by reference).

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

10.9 - Savings and Investment Plan of FelCor (filed as Exhibit 10.10
to FelCor's 2001 10-K and incorporated herein by reference).

10.10 - 1995 Restricted Stock and Stock Option Plan of FelCor (filed
as Exhibit 10.9.2 to FelCor's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 ("FelCor's 1995 10-
K") and incorporated herein by reference).

10.11 - Non-Qualified Deferred Compensation Plan, as amended and
restated July 1999 (filed as Exhibit 10.9 to FelCor's Form
10-Q for the quarter ended September 30, 1999 ("FelCor's
September 1999 10-Q") and incorporated herein by reference).

10.12 - 1998 Restricted Stock and Stock Option Plan (filed as Exhibit
4.2 to FelCor's Registration Statement on Form S-8 (File No.
333-66041) and incorporated herein by reference).

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

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

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

51

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ------------------------

10.16 - 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 Form 8-K
dated August 10, 1998, and incorporated herein by reference).

10.17 - Seventh Amended and Restated Credit Agreement dated as of July
26, 2001, among FelCor, FelCor LP and FelCor Canada Co., as
Borrowers, the Lenders party thereto, The Chase Manhattan Bank
and The Chase Manhattan Bank of Canada, as Administrative
Agents, Bankers Trust Company, as Syndication Agent, J.P.
Morgan Securities Inc., and Deutsche Banc Alex. Brown, Inc.,
as Co-Lead Arrangers and Joint Bookrunners, and Bank of
America, N.A. and Salomon Smith Barney Inc., as Document
Agents (filed as Exhibit 10.17 to FelCor's Form 10-Q for the
quarter ended June 30, 2001 ("FelCor's June 2001 10-Q") and
incorporated herein by reference).

10.17.1- First Amendment dated as of November 6, 2001, among FelCor,
FelCor LP and FelCor Canada Co., as Borrowers, the lenders
party thereto, The Chase Manhattan Bank and The Chase
Manhattan Bank of Canada, as Administrative Agents, and
Bankers Trust Company, as Syndication Agent (filed as Exhibit
10.17.1 to FelCor's Form 10-Q for the quarter ended September
30, 2001 ("FelCor's September 2001 10-Q") and incorporated
herein by reference).

10.18 - Loan Agreement dated as of October 10, 1997 among Bristol
Lodging Company, Bristol Lodging Holding Company, Nomura Asset
Capital Corporation, as Administrative Agent and Collateral
Agent for Lenders, and Bankers Trust Company, as Co-Agent for
Lenders (filed as Exhibit 10.10 to the Bristol Hotel Company
Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference).

10.18.1- First Amendment to Loan Agreement and Ancillary Loan Documents
made as of May 28, 1999, among FelCor Lodging Company, L.L.C.,
FelCor Lodging Holding Company, L.L.C. and LaSalle National
Bank, as Trustee for Nomura Asset Securities Corporation
Commercial Pass-Through Certificates Series 1998-D6, as
administrative agent and collateral agent (filed as Exhibit
10.19.1 to FelCor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 ("FelCor's 1999 10-K") and
incorporated herein by reference).

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

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

10.20 - Form of Deed of Trust, Security Agreement and Fixture Filing,
each dated as of May 12, 1999, from FelCor/MM Holdings, L.P.,
as Borrower, in favor of Fidelity National Title Insurance
Company, as Trustee, and Massachusetts Mutual Life Insurance
Company, as Beneficiary, each covering a separate hotel and
securing one of the separate Promissory Notes described in
Exhibit 10.20.1, also executed by FelCor/CSS Holdings, L.P.
with respect to the

52

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------- ------------------------

Embassy Suites-Anaheim and Embassy Suites-Deerfield Beach, and
by FelCor LP with respect to the Embassy Suites-Palm Desert
(filed as Exhibit 10.24.2 to FelCor's June 1999 10-Q and
incorporated herein by reference).

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

10.21 - Form Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Leases and Rents, each dated as of April 20,
2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in
favor of Massachusetts Mutual Life Insurance Company and
Teachers Insurance and Annuity Association of America, as
Mortgagee, each covering a separate hotel and securing one of
the separate Promissory Notes described in Exhibit 10.21.2
(filed as Exhibit 10.24 to FelCor's Form 10-Q for the quarter
ended June 30, 2000 ("FelCor's June 2000 10-Q") and
incorporated herein by reference).

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

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

10.22 - Form Deed of Trust and Security Agreement, each dated as of
May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C.,
FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield
Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB
Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C.,
FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF
Holdings, L.P., each as Borrower, in favor of The Chase
Manhattan Bank, as Beneficiary, each covering a separate hotel
and securing one of the separate Promissory Notes described in
Exhibit 10.22.1 (filed as Exhibit 10.25 to FelCor's June 2000
10-Q and incorporated herein by reference).

53

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------- ------------------------

10.22.1- Form of eight separate Promissory Notes each dated May 2,
2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB
Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C.,
FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings,
L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB
Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P.,
each separately payable to the order of The Chase Manhattan
Bank in the respective original principal amounts of
$38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston
Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield,
Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000
(Orlando South, Florida), $32,650,000 (New Orleans,
Louisiana), $20,728,000 (Piscataway, New Jersey), and
$26,268,000 (South San Francisco, California) (filed as
Exhibit 10.25.1 to FelCor's June 2000 10-Q and incorporated
herein by reference).

10.23 - Registration Rights Agreement dated as of September 8, 2000
among FelCor, FelCor LP, Deutsche Banc Securities Inc., Chase
Securities Inc., Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC, Banc One Capital Markets, Inc., Credit
Lyonnais Securities (USA) Inc., and Scotia Capital (USA) Inc.
(filed as Exhibit 10.26 to the Registration Statement on Form
S-4 (file no. 333-47506) of FelCor LP and the other
co-registrants named therein and incorporated herein by
reference).

10.24 - Registration Rights Agreement dated as of January 11, 2001,
among FelCor, FelCor LP and Deutsche Bank Securities Inc
(filed as Exhibit 10.26 to FelCor's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000, and incorporated
herein by reference).

10.25 - Registration Rights Agreement dated as of June 4, 2001, by and
among FelCor LP, FelCor, and Deutsche Banc Alex. Brown Inc.,
in its individual capacity and on behalf of J.P. Morgan
Securities Inc., Banc of America Securities LLC, Salomon Smith
Barney Inc., Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, SG Cowen Securities
Corporation, Credit Lyonnais Securities (USA) Inc., Scotia
Capital (USA) Inc., BMO Nesbitt Burns Corp., Fleet Securities,
Inc., PNC Capital Markets, Inc. and Wells Fargo Brokerage
Services, LLC (filed as Exhibit 10.29 to FelCor's Form 8-K
dated June 4, 2001 and filed June 14, 2001, and incorporated
herein by reference).

10.26 - Registration Rights Agreement dated as of December 3, 2001, by
and among FelCor, FelCor LP, Deutsche Banc Alex. Brown, J.P.
Morgan Securities Inc., Banc of America Securities LLC, Morgan
Stanley & Co. Incorporated and Salomon Smith Barney Inc.
(filed as Exhibit 10.27 to FelCor's 2001 10-K and incorporated
herein by reference).

21* - List of Subsidiaries of the Company.

23* - Consent of PricewaterhouseCoopers LLP.

- ----------
* Indicates that the document is filed herewith.

b) Reports on Form 8-K

No current reports on Form 8-K were filed by FelCor LP during the three
months ended December 31, 2001, other than a current report on Form 8-K that was
filed on October 5, 2001, which is described in the FelCor LP's Form 10-Q for
the quarter ended September 30, 2001.

54

SIGNATURES

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

FELCOR LODGING LIMITED PARTNERSHIP
a Delaware Limited Partnership

By: FelCor Lodging Trust Incorporated
Its General Partner

By: /s/Lawrence D. Robinson
------------------------------------
Lawrence D. Robinson
Executive Vice President
Date: March 29, 2002

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

55

FELCOR LODGING LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

PART I - FINANCIAL INFORMATION

Report of Independent Accountants....................................................................................F-2
Consolidated Balance Sheets - December 31, 2001 and 2000.............................................................F-3
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999...........................F-4
Consolidated Statements of Comprehensive Income......................................................................F-5
Consolidated Statements of Partners' Capital for the years ended December 31, 2001, 2000 and 1999....................F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999...........................F-7
Notes to Consolidated Financial Statements...........................................................................F-8
Report of Independent Accounts on Financial Statement Schedule......................................................F-33
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2001.....................................F-34

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income, partners' capital
and cash flows present fairly, in all material respects, the financial position
of FelCor Lodging Limited Partnership at December 31, 2001 and 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, effective January 1, 2001,
the Company adopted the provisions of Statement of Financial Accounting Standard
133 "Accounting for Derivative Instruments and Hedging Activities".

PricewaterhouseCoopers LLP

Dallas, Texas
February [ ], 2002

F-2

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(IN THOUSANDS)

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

F-3

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER UNIT DATA)

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

F-4

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(IN THOUSANDS)

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

F-5

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)

Balance, December 31, 1998 ............. $ 2,042,375

Contributions .......................... 583
Redemption of units .................... (98,387)
Distributions .......................... (179,185)
Allocations to redeemable units ........ 16,489
Net income ............................. 135,776
------------

Balance, December 31, 1999 ............. 1,917,651

Contributions .......................... 3,410
Redemption of units .................... (190,416)
Distributions .......................... (158,104)
Allocations to redeemable units ........ (51,598)
Net income ............................. 66,391
------------

Balance, December 31, 2000 ............. 1,587,334

Contributions .......................... 17,111
Redemption of units .................... (9,218)
Distributions .......................... (134,694)
Allocations to redeemable units ........ 65,161
Net loss ............................... (50,144)
------------

Balance, December 31, 2001 ............. $ 1,475,550
============

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

F-6

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(IN THOUSANDS)

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

F-7

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

FelCor Lodging Limited Partnership and its subsidiaries (the "Company")
at December 31, 2001, had ownership interest in 183 hotels in the United States
and Canada with nearly 50,000 rooms and suites. The sole general partner of the
Company is FelCor Lodging Trust Incorporated ("FelCor"), a Maryland corporation,
one of the nation's largest hotel real estate investment trusts or REITs. At
December 31, 2001, FelCor owned a greater than 85% equity interest in the
Company. At December 31, 2001, the Company owned a 100% interest in 150 of the
hotels, a 90% or greater interest in entities owning seven hotels, a 60%
interest in an entity owning two hotels and a 50% interest in separate
unconsolidated entities that own 24 Hotels. Thirteen of the Company's hotels are
designated as held for sale at December 31, 2001.

On May 9, 2001, the Company entered into a merger agreement with
MeriStar Hospitality Corporation ("MeriStar"). On September 21, 2001, the
Company and MeriStar jointly announced the termination of the merger. The
decision to terminate the merger resulted from the September 11 terrorist
attacks and their subsequent adverse impact on the financial markets. As a
result of the merger termination, the Company expensed $19.9 million associated
with the merger and $5.5 million of merger financing costs for the year ended
December 31, 2001.

On January 1, 2001, the REIT Modernization Act ("RMA") went into
effect. Among other things, the RMA permits a REIT to form taxable subsidiaries
("TRSs") that lease hotels from the REIT, provided that the hotels continue to
be managed by unrelated third parties. Effective January 1, 2001, the Company
completed transactions that resulted in its newly formed TRSs acquiring leases
for 96 hotels that were leased to either DJONT Operations, L.L.C. and its
consolidated subsidiaries (collectively "DJONT") or subsidiaries of Six
Continents Hotels. Effective July 1, 2001, the Company acquired the remaining 88
hotel leases held by Six Continents Hotels. By acquiring these leases through
its TRSs, the Company acquired the economic benefits and risks of the operations
of these hotels and began reporting hotel revenues and expenses rather than
percentage lease revenues.

The following table provides a schedule of the Company's hotels by
brand at December 31, 2001:

The Company's hotels are located in the United States (35 states) and
Canada, with a concentration in Texas (41 hotels), California (19 hotels),
Florida (17 hotels) and Georgia (14 hotels). Approximately 54% of the Company's
hotel room revenues were generated from hotels in these four states.

F-8

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. ORGANIZATION -- (CONTINUED)

At December 31, 2001 of the Company's 183 hotels, (i) subsidiaries of
Six Continents Hotels managed 89, (ii) subsidiaries of Hilton managed 71, (iii)
subsidiaries of Starwood managed 11, (iv) subsidiaries of Interstate Hotels
Corporation ("IHC") managed eight and (v) three independent management companies
managed four.

Certain reclassifications have been made to prior period financial
information to conform to the current period's presentation with no effect to
previously reported net income or partners' capital.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The accompanying consolidated financial
statements of the Company include the assets, liabilities, revenues and expenses
of all majority-owned subsidiaries over which the Company exercises control, and
for which control is other than temporary. Intercompany transactions and
balances are eliminated in consolidation. Investments in unconsolidated entities
(50 percent owned ventures) are accounted for by the equity method.

Use of Estimates -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

Investment in Hotels -- The Company's hotels are stated at cost and are
depreciated using the straight-line method over estimated useful lives ranging
from 31 to 40 years for buildings and improvements and three to seven years for
furniture, fixtures, and equipment.

The Company periodically reviews the carrying value of each of its
hotels to determine if circumstances exist indicating an impairment in the
carrying value of the investment in the hotel or that depreciation periods
should be modified. If facts or circumstances support the possibility of
impairment, the Company will prepare a projection of the undiscounted future
cash flows, without interest charges, of the specific hotel and determine if the
investment in such hotel is recoverable based on the undiscounted future cash
flows. If impairment is indicated, an adjustment will be made to the carrying
value of the hotel based on discounted future cash flows. The Company has not
recorded any loss for impairment of any investments in its hotels except as
established for the hotels held for sale.

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

Investment in Unconsolidated Entities --The Company owns a 50% interest
in various real estate ventures in which the partners or members jointly make
all material decisions concerning the business affairs and operations,
additionally, the Company owns a preferred equity interest in one of these real
estate ventures. Accordingly, the Company does not control these entities and
carries its investment in unconsolidated entities at cost, plus its equity in
net earnings, less distributions received since the date of acquisition. Equity
in net earnings is adjusted for the straight-line amortization, over the lower
of 40 years or the remaining life of the venture, of the difference between the
Company's cost and its proportionate share of the underlying net assets at the
date of acquisition.

F-9

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Hotels Held for Sale -- The Company classifies hotels it expects to
sell within the next 12 months as held for sale. Operations for these hotels are
included in operating income, however, no depreciation expense is recorded on
these hotels. The carrying values of these hotels are reviewed periodically and
marked to the lower of cost or estimated net sales proceeds with the
corresponding adjustment taken to expense.

Cash and Cash Equivalents -- All highly liquid investments with a
maturity of three months or less when purchased are considered to be cash
equivalents. Included in cash and cash equivalents is $13.2 million and $15.6
million in 2001 and 2000, respectively which is held in escrow under certain of
our debt agreements.

The Company places cash deposits at major banks. The Company's bank
account balances may exceed the Federal Depository Insurance Limits of $100,000,
however, management believes the credit risk related to these deposits is
minimal.

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

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

Revenue Recognition -- Prior to January 2001, the Company's principal
source of revenue was from percentage lease revenue. Percentage lease revenue
was comprised of fixed base rent and percentage rent which was based on room
revenues above certain annual thresholds. All annual thresholds were based on
periods ending December 31. Base rent was recognized as income on the
straight-line basis and percentage rent was recognized as income when annual
thresholds were met. At December 31, 2001, the Company had no hotels leased to
third parties.

Beginning in January 2001, in conjunction with the effectiveness of the
RMA, the Company started acquiring its lessees and leases and began to earn room
revenue, food and beverage revenue and other revenue through the operations of
its hotels. The Company recognizes these revenues as the hotel services are
performed.

Foreign Currency Translation -- Results of operations for the Company's
Canadian hotels are maintained in Canadian dollars and translated using the
average exchange rates during the period. Assets and liabilities are translated
to U.S. dollars using the exchange rate in effect at the balance sheet date.
Resulting translation adjustments are reflected in accumulated other
comprehensive income. At December 31, 2001, partners' capital included $376,000
of other comprehensive loss associated with foreign exchange translation.

Capitalized Interest -- The Company capitalizes interest and certain
other costs relating to hotels undergoing major renovations and redevelopments.
Such costs capitalized in 2001, 2000, and 1999 were approximately $1.2 million,
$2.0 million and $7.4 million, respectively.

Net Income Per Unit -- Basic earnings per unit have been computed by
dividing net income available to unitholders by the weighted average number of
units outstanding. Diluted earnings per unit have been computed by dividing net
income available to unitholders by the weighted average number of units and
equivalents outstanding. Unit equivalents represent units issuable upon exercise
of stock options and unvested officers' restricted stock grants.

At December 31, 2001, 2000, and 1999, the Company's Series A Cumulative
Preferred Unit ("Series A preferred unit"), if converted to units, would be
antidilutive; accordingly the Series A preferred units are not assumed to be
converted in the computation of diluted earnings per unit. At December 31, 2001,
the majority of FelCor stock options granted are antidilutive and are not
included in the computation of diluted earnings per unit.

F-10

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Derivatives -- On January 1, 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, as
amended, establishes accounting and reporting standards for derivative
instruments. Specifically, SFAS 133 requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet and to measure
those instruments at fair value. Additionally, the fair value adjustments will
affect either stockholders' equity or net income depending on whether the
derivative instrument qualifies as a hedge for accounting purposes and the
nature of the hedging activity.

Upon adoption of SFAS 133, on January 1, 2001, the Company recorded the
fair value of its interest rate swap agreements, having a notional value of $250
million, as an asset of $248,000 with a corresponding credit to accumulated
other comprehensive income reported in stockholders' equity.

Segment Information -- SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," requires the disclosure of selected
information about operating segments. Based on the guidance provided in the
standard, the Company has determined its business is conducted in one operating
segment.

Distributions and Dividends -- The Company pays regular quarterly
distributions on its units. Additionally, the Company pays regular quarterly
distributions on preferred units in accordance with its preferred unit
distribution requirements.

For 2001, the Company paid distributions of $1.70 per unit, $1.95 per
unit of its Series A preferred units and $2.25 per depositary unit evidencing
its 9% Series B Redeemable Preferred Units ("Series B preferred units").

Minority Interests -- Minority interests in consolidated subsidiaries
represents the proportionate share of the equity in consolidated subsidiaries
not owned by the Company. Income and loss is allocated to minority interest
based on the weighted average percentage ownership throughout the year.

Income Taxes -- No provision for federal income taxes has been
reflected in the financial statements because all taxable income or loss, or tax
credits are passed through to the partners.

3. ACQUISITION OF HOTEL LEASES

As a result of the passage of the RMA, effective January 1, 2001 the
Company acquired 100% of DJONT, which owned leases on 85 of our hotels, and
contributed it to a TRS. In consideration, the Company issued 416,667 of its
units, valued at approximately $10 million, and assumed DJONT's accumulated
stockholders' deficit of $25 million, which was expensed as lease termination
cost in 2001. On January 1, 2001, the Company acquired from Six Continents
Hotels the leases covering 11 hotels, terminated one additional lease in
connection with the sale of the related hotel and terminated the 12 related
management agreements in exchange for FelCor issuing 413,585 shares of its
common stock valued at approximately $10 million. Of this $10 million in
consideration, approximately $2 million was expensed as lease termination costs
in 2001 and $8 million was expensed in 2000, in connection with the designation
of certain of these hotels as held for sale. Of the 11 hotels, two have been
sold, eight have been contributed to a joint venture with IHC, and one will be
retained.

F-11

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITION OF HOTEL LEASES -- (CONTINUED)

The Company purchased certain assets and assumed certain liabilities in
connection with the acquisition of the leases on these 96 hotels. The fair
values of the acquired assets and liabilities at January 1, 2001, are as follows
(in thousands):

Cash and cash equivalents ............................. $ 25,300
Accounts receivable ................................... 30,214
Other assets .......................................... 17,318
------------
Total assets acquired ................................. 72,832
------------

Accounts payable ...................................... 18,656
Due to FelCor LP. ..................................... 30,687
Accrued expenses and other liabilities ................ 40,372
------------
Total liabilities assumed ............................. 89,715
------------
Liabilities assumed in excess of assets acquired ...... 16,883
Value of common stock and units issued ................ 19,721
------------
Lease termination costs .......................... $ 36,604
============

The Company acquired the remaining 88 hotel leases held by Six
Continents Hotels on July 1, 2001. In consideration for the acquisition of these
leases, the Company entered into long term management agreements with Six
Continents Hotels with regard to these hotels, and FelCor issued to Six
Continents Hotels 100 shares of its common stock. The management fees payable to
Six Continents Hotels include compensation to Six Continents Hotels for both
management services and the acquisition of the 88 leases and, as such, are
higher than those paid by the Company to other managers for comparable services.
Management fees under these management contracts will be expensed as incurred.

The Company purchased certain assets and acquired certain liabilities
with the acquisition of the 88 hotel leases. The fair value of the assets and
liabilities assumed at July 1, 2001 are as follows (in thousands):

Cash and cash equivalents ........................ $ 4,431
Accounts receivable .............................. 30,964
Other assets ..................................... 6,941
------------
Total assets acquired .................. $ 42,336
============

Accounts payable ................................. $ 7,660
Accrued expenses and liabilities ................. 34,676
------------
Total liabilities assumed .............. $ 42,336
============

4. INVESTMENT IN HOTELS

Investment in hotels at December 31, 2001 and 2000, consists of the
following (in thousands):

F-12

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INVESTMENT IN UNCONSOLIDATED ENTITIES

The Company owned 50% interests in joint venture entities that owned 24
hotels at December 31, 2001, and 16 hotels at December 31, 2000. The Company
also owned a 50% interest in entities that owned an undeveloped parcel of land,
provided condominium management services, leased eight hotels and developed and
sold condominiums in Myrtle Beach, South Carolina. The Company accounts for its
investments in these unconsolidated entities under the equity method.

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

(a) Debt consists of $266 million of non-recourse
mortgage debt and $440 thousand of full-recourse debt
guaranteed by the Company.

6. HOTELS HELD FOR SALE

In 2000, the Company identified 25 hotels that it considered
non-strategic and announced its intention to sell such hotels. In connection
with the decision to sell these hotels, in 2000 the Company recorded an expense
of $63 million representing the difference between the net book value and
estimated fair market value of these hotels. In 2001 the Company recognized an
additional $7 million expense to reflect the deterioration of the market value
of the remaining 13 hotels held for sale. No depreciation expense has been
recorded on these hotels since June 30, 2000.

During 2000, one of these hotels was sold and the Company recognized a
gain of approximately $135,000.

In March 2001, the Company contributed eight of the hotels held for
sale to a joint venture in which the Company retains a 50% equity interest and
an affiliate of IHC holds the other 50% equity interest. The Company contributed
hotels with a book value of approximately $77 million, and received net cash
proceeds of approximately $52 million. The Company retained an $8 million common
equity interest and a $17 million preferred equity interest paying 9%. No gain
or loss was recorded in connection with this transaction. The Company also made
a loan of approximately $4 million to IHC, secured by its interest in the
venture.

F-13

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. HOTELS HELD FOR SALE -- (CONTINUED)

In June 2001, the Company sold the 140-room Hampton Inn located in
Marietta, Georgia, for a net sales price of $7 million. In September 2001, the
Company sold the 119-room Hampton Inn located in Jackson, Mississippi for a net
sales price of $4 million. In November 2001, the Company sold the 129-room
Doubletree Hotel located in Tampa, Florida for a net sales price of $3 million.
No gain or loss from these sales were recorded.

The Company is actively marketing the remaining 13 hotels held for
sale. Revenues related to the hotels held for sale, less costs associated with
those assets, were included in the Company's results of operations for the year
ended December 31, 2001 and 2000, and represented income of approximately $11
million and $16 million (net of $3 million in depreciation expense for 2000),
respectively.

7. DEBT

Debt at December 31, 2001 and 2000, consists of the following (in
thousands):

(a) At December 31, 2001, the Company's $175 million
publicly-traded notes due October 2004 were matched with
interest rate swap agreements, which effectively convert the
fixed interest rate on the notes to a variable interest rate
tied to LIBOR. The interest rate swap agreements also have a
maturity of October 2004. 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.

(b) At December 31, 2001, the Company had unencumbered investments
in hotels with a net book value totaling $2.8 billion.

All of the Company's floating rate debt at December 31, 2001, was based
upon LIBOR. One month LIBOR at December 31, 2001 was 1.876%.

If the rating agencies were to lower our senior unsecured debt ratings
below the current level, the interest rate on $900 million of our outstanding
senior unsecured debt would increase by 50 basis points, resulting in an
increase in our interest expense.

F-14

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. DEBT -- (CONTINUED)

The Company's interest rate swap agreements at December 31, 2001, were
entered into during the fourth quarter of 2001 and have a maturity date of
October 2004, coinciding with the maturity date of $175 million of our publicly
traded term notes. We entered into six separate interest rate swap agreements
with three different financial institutions with a total notional value of $175
million. Under these agreements, we receive a fixed rate of 7.375% and pay the
six-month LIBOR rate plus a spread ranging from 2.57% to 3.54%. The weighted
average spread over LIBOR is 3.20%. The credit ratings for the financial
institutions that are the counter-parties on the interest rate swap agreements
range from A- to AA.

Interest expense is reported net of interest income of $2.9 million,
$1.9 million and $2.4 million for the year ended December 31, 2001, 2000, and
1999, respectively, and capitalized interest of $811,000, $1.1 million and $5.2
million, respectively.

Interest expense associated with the terminated merger was $5.5 million
and is presented net of $2.9 million of interest income from the proceeds of the
senior notes held in escrow during the year ended December 31, 2001.

On January 11, 2001, the Company completed the private placement of
$100 million in 9 1/2% senior unsecured notes that mature in September 2008.
These notes were issued at a premium to yield an effective rate of 9 1/8%. The
proceeds were used initially to pay down the Company's line of credit. In
October 2001, the Company exchanged the $100 million in privately placed senior
notes for notes with identical terms that are registered under the Securities
Act of 1933.

On June 4, 2001, the Company completed the private placement of $600
million in 8 1/2% senior unsecured notes that mature in 2011. Approximately $315
million of the proceeds were placed in escrow, pending the closing or
termination of the merger with MeriStar. In October 2001, as the result of the
merger termination, in accordance with the requirements of the indenture
governing these notes, the Company redeemed $300 million in principal amount of
these notes. The redemption price was 101% of the principal amount redeemed plus
accrued interest and was paid out of the $315 million in escrowed funds. In
October 2001, the Company exchanged the remaining privately placed notes for
notes with identical terms that were registered under the Securities Act of
1933.

In June 2001, in connection with the issuance of fixed rate senior
notes and the subsequent prepayment of floating rate debt, the Company
terminated $200 million of interest rate swaps, resulting in a $4.8 million swap
termination cost recorded in the second quarter. An extraordinary charge of
$225,000 was recorded to write-off unamortized deferred financing costs
associated with the prepayment of the floating rate debt.

On December 3, 2001, the Company completed the private placement of
$100 million in 9 1/2% senior unsecured notes that mature in September 2008.
These notes were issued at a discount to yield 9.6%. The proceeds were used
initially to pay down the Company's line of credit. In connection with the
issuance of these notes and the prepayment of floating rate debt, the Company
terminated $50 million of interest rate swaps resulting in a $2.2 million swap
termination cost during the fourth quarter of 2001.

On July 26, 2001, the Company entered into an amended and restated
credit agreement, pursuant to which it obtained an increase in its line of
credit from $600 million to $615 million. The maturity of the line of credit was
also extended from August 1, 2003, to October 31, 2004, but the Company has the
right to extend the maturity date for two consecutive one-year periods, subject
to certain conditions. An extraordinary charge of $1 million was recorded to
write-off unamortized deferred financing costs associated with the renewal of
the Company's line of credit.

F-15

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. DEBT -- (CONTINUED)

On November 8, 2001, the Company further amended its unsecured line of
credit. Although the Company was in compliance with its existing covenants prior
to the amendment, it was necessary to amend the line of credit in anticipation
of a continued negative RevPAR environment. The amendment allows for the
relaxation of certain financial covenants through September 30, 2002, including
the unsecured interest coverage, fixed charge coverage, and total leverage
tests. The interest rate remains on the same floating rate basis with a tiered
spread based on the Company's debt leverage ratio, but with added tiers to
reflect the higher permitted leverage. The lenders' commitments under the line
of credit remain at $615 million.

In addition to the financial covenants, the Company's line of credit
includes certain other affirmative and negative covenants, including limitations
on total indebtedness, total secured indebtedness, restricted payments (such as
stock repurchases and cash distributions), as well as the obligation to maintain
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. Under the amendment to the line of credit in November 2001, we
agreed to certain more stringent limitations through September 30, 2002. After
January 1, 2002, we may acquire hotel properties and make joint venture
investments, subject to compliance with debt limitations, but with flexibility
to make at least $50 million of acquisitions and $20 million of joint venture
investments without specific lender approval, under certain circumstances. Also,
we may be limited in making discretionary capital expenditures through September
30, 2002, other than discretionary capital expenditures for the expansion or
renovation of existing hotels in an aggregate amount of $20 million, subject to
an increase under certain circumstances. At December 31, 2001 the Company was in
compliance with all of these covenants.

The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the line of
credit. Our failure to satisfy any accelerated indebtedness, if in the amount of
$10 million or more, could result in the acceleration of most of our other
indebtedness. Most of the mortgage debt is non-recourse to the Company and
contains provisions allowing for the substitution of collateral upon
satisfaction of certain conditions. Most of the mortgage debt is prepayable,
subject to various prepayment penalties, yield maintenance, or defeasance
obligations.

Future scheduled principal payments on debt obligations at December 31,
2001, are as follows (in thousands):

8. DERIVATIVES

On the date the Company enters into a derivative contract, it
designates the derivative as a hedge to the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment (referred to as a
fair value hedge), or the exposure to variable cash flows of a forecasted
transaction (referred to as a cash flow hedge). The Company has entered into
both types of derivative contracts. For a fair value hedge the gain or loss is
recognized in earnings in the period of change together with the offsetting loss
or gain on the hedged item attributable to the risk being hedged. The effect of
that accounting is to reflect in earnings the extent to

F-16

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. DERIVATIVES -- (CONTINUED)

which the hedge is not effective in achieving offsetting changes in fair value.
For a cash flow hedge the effective portion of the derivative's gain or loss is
initially reported as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the forecasted
transaction affects earnings. The ineffective portion of the gain or loss is
reported in earnings immediately.

The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives to specific assets and liabilities on the balance sheet
or specific firm commitments. The Company also formally assesses (both at the
hedge's inception and on an ongoing basis) whether the derivatives that are used
in hedging transactions have been highly effective in offsetting changes in the
cash flows or fair values of hedged items and whether those derivatives may be
expected to remain highly effective in future periods. When it is determined
that a derivative is not (or has ceased to be) highly effective as a hedge, the
Company discontinues hedge accounting prospectively, as discussed below.

The Company discontinues hedge accounting prospectively when it
determines that the derivative is no longer effective in offsetting changes in
the cash flows of a hedged item (including hedged items such as firm commitments
or forecasted transactions); the derivative expires or is sold, terminated, or
exercised; it is no longer probable that the forecasted transaction will occur;
a hedged firm commitment no longer meets the definition of a firm commitment; or
management determines that designating the derivative as a hedging instrument is
no longer appropriate.

When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, the gain or loss on the derivative remains in accumulated other
comprehensive income and is reclassified into earnings when the forecasted
transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period or
within an additional two-month period of time thereafter, the gains and losses
that were accumulated in other comprehensive income will be recognized
immediately in earnings. In all situations in which hedge accounting is
discontinued and the derivative remains outstanding, the Company will carry the
derivative at its fair value on the balance sheet, recognizing changes in the
fair value in current-period earnings.

In the normal course of business, the Company is exposed to the effect
of interest rate changes. The Company limits these risks by following
established risk management policies and procedures including the use of
derivatives. It is the objective of the Company to use interest rate hedges to
manage its fixed and floating interest rate position and not to be engaged in
the speculation of interest rates. The Company manages interest rate risk based
on the varying circumstances of anticipated borrowings, and existing floating
and fixed rate debt, including the Company's revolving line of credit. The
Company will generally seek to pursue interest rate risk mitigation strategies
that will result in the least amount of reported earnings volatility under
generally accepted accounting principles, while still meeting strategic economic
objectives and maintaining adequate liquidity and flexibility. Instruments that
meet these hedging criteria are formally designated as hedges at the inception
of the derivative contract.

To manage the relative mix of its debt between fixed and variable rate
instruments, at December 31, 2001, the Company had entered into interest rate
swap agreements with three financial institutions with a notional value of $175
million. These interest rate swap agreements modify a portion of the interest
characteristics of the Company's outstanding fixed rate debt without an exchange
of the underlying principal amount and effectively convert fixed rate debt to a
variable rate.

F-17

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. DERIVATIVES -- (CONTINUED)

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
are recognized as an adjustment to interest expense by the Company, pursuant to
the terms of its interest rate swap agreement, and will have a corresponding
effect on its future cash flows. Under interest rate swaps then in force the
Company paid $522,000 during 2001, received $1.8 million in 2000 and paid $1.7
million during 1999.

To determine the fair values of its derivative instruments, the Company
uses a variety of methods and assumptions that are based on market conditions
and risks existing at each balance sheet date. All methods of assessing fair
value result in a general approximation of value, and such value may never
actually be realized.

The interest rate swap agreements held at December 31, 2001, are
designated as fair value hedges, are marked to market through the income
statement, but are offset by the change in fair value of the Company's swapped
outstanding fixed rate debt. The estimated unrealized net loss on these interest
rate swap agreements was approximately $1.5 million at December 31, 2001 and
represents the amount the Company would either pay or receive to terminate the
agreements based on current market rates.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards 107 requires disclosures
about the fair value for all financial instruments, whether or not recognized
for financial statement purposes. Disclosures about fair value of financial
instruments are based on pertinent information available to management as of
December 31, 2001. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

Management's estimates of the fair value of (i) accounts receivable,
accounts payable and accrued expenses approximate carrying value due to the
relatively short maturity of these instruments; (ii) notes receivable
approximate carrying value based upon effective borrowing rates for issuance of
debt with similar terms and remaining maturities; (iii) the borrowings under the
Company's line of credit and interest rate swap agreements approximate carrying
value because these borrowings accrue interest at floating interest rates based
on market. The estimated fair value of the Company's fixed rate debt of $1.9
billion is $1.7 billion at December 31, 2001, based on current market interest
rates estimated by the Company for similar debt with similar maturities.

F-18

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES

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

Under the RMA, which became effective January 1, 2001, the Company
generally leases its hotels to wholly-owned TRSs that are subject to federal and
state income taxes. The Company accounts for income taxes in accordance with the
provisions of SFAS 109, "Accounting for Income Taxes." Under SFAS 109, the
Company accounts for income taxes using the asset and liability method, under
which deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. At December 31, 2001, the Company's TRSs had a deferred tax asset of
approximately $12.8 million, prior to any valuation allowance, relating to
losses of the TRSs during the year ended December 31, 2001. Management has
provided a 100% valuation allowance against this asset due to the uncertainty of
realization and, accordingly, no provision or benefit for income taxes is
reflected in the accompanying Consolidated Statements of Operations.

At December 31, 2001 the Company had six Canadian hotels and was
subject to Canadian federal and provincial taxes. For the years ended December
31, 2001, 2000, and 1999, the Company incurred liabilities of approximately $1.2
million, $490,000 and $422,000 for Canadian taxes.

11. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS

FelCor is the sole general partner of the Company and is obligated to
contribute the net proceeds from any issuance of its equity securities to the
Company in exchange for units corresponding in number and terms to the equity
securities issued by it. Units may also be issued by the Company to third
parties in exchange for like number of shares of FelCor common stock or, at the
options of FelCor, for the cash equivalent thereof. Due to these redemption
rights, these limited partnership units have been excluded from partners'
capital and are included in redeemable units and measured at redemption value as
of the end of the periods presented. At December 31, 2001 and 2000 there were
9,005,328 and 8,597,379 redeemable units outstanding. The value of the
redeemable units are based on the closing market price of FelCor's common stock
at the balance sheet date, which at December 31, 2001 and 2000 was $16.71 and
$23.9375, respectively.

In consideration for the acquisition of all the equity interests in
DJONT, the Company issued 416,667 units of limited partnership interest on
January 1, 2001. This transaction reduced FelCor's ownership of limited
partnership in the Company from approximately 86% to approximately 85%.

As of December 31, 2001, FelCor had approximately $946 million of
common stock, preferred stock, debt securities, and/or common stock warrants
available for offerings under shelf registration statements previously declared
effective.

F-19

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. REDEEMABLE OPERATING PARTNERSHIP UNITS -- (CONTINUED)

Preferred Units

FelCor's board of directors is authorized to provide for the issuance
of up to 20,000,000 shares of preferred stock in one or more series, to
establish the number of shares in each series, to fix the designation, powers
preferences and rights of each such series, and the qualifications, limitations
or restrictions thereof.

In 1996, FelCor issued 6.1 million shares of its Series A preferred
stock at $25 per share. The Series A preferred stock bears an annual dividend
equal to the greater of $1.95 per share or the cash distributions declared or
paid for the corresponding period on the number of shares of common stock into
which the Series A preferred stock is then convertible. Each share of the Series
A preferred stock is convertible at the stockholder's option to 0.7752 shares of
common stock, subject to certain adjustments, and could not be redeemed by
FelCor before April 30, 2001. The proceeds from the Series A preferred stock
were contributed to the Company in exchange for Series A preferred units. The
preference on these units is the same as FelCor's Series A preferred stock.
During 2000, holders of 69,400 shares of Series A preferred stock converted
their shares to 53,798 common shares, which were issued from treasury shares.

On May 1, 1998, FelCor issued 5.75 million depositary shares,
representing 57,500 shares of its Series B preferred stock, at $25 per
depositary share. The Series B preferred stock and the corresponding depositary
shares may be called by FelCor at par on or after May 7, 2003, have no stated
maturity, sinking fund or mandatory redemption, and are not convertible into any
other securities of FelCor. The Series B preferred stock has a liquidation
preference of $2,500 per share (equivalent to $25 per depositary share) and is
entitled to annual distributions at the rate of 9% of the liquidation preference
(equivalent to $2.25 annually per depositary share). The proceeds from the
Series B preferred stock were contributed to the Company in exchange for Series
B preferred units. The preference on these units is the same as FelCor's Series
B preferred stock.

At December 31, 2001, all distributions then payable on the Series A
and Series B preferred units had been paid.

Treasury Stock Repurchase Program

FelCor's board of directors has authorized the repurchase of up to $300
million of its outstanding common shares. Stock repurchases may, at the
discretion of management, be made from time to time at prevailing prices in the
open market or through privately negotiated transactions. Beginning in January
2001, through March 27, 2001, FelCor repurchased approximately 179,000 shares of
its outstanding common stock on the open market for approximately $4 million.
Through December 31, 2001, FelCor repurchased approximately 10.5 million shares
of common stock at an aggregate of approximately $189 million. This has been
recorded as a reduction to partners' capital as a result of the redemption of
units held by FelCor to fund the repurchase. The stock repurchase program has
been suspended, and since March 27, 2001, FelCor has not repurchased any
additional shares of its common stock in the open market.

In consideration for the acquisition of 12 leases that were held by Six
Continents Hotels, FelCor issued to Six Continents Hotels in January of 2001,
413,585 shares of its common stock. In July 2001, FelCor issued 100 shares of
its common stock to Six Continents Hotels to acquire the remaining 88 leases
still held by Six Continents Hotels.

Other activity during 2001 included FelCor's issuance of 226,000 shares
under restricted stock grants to employees and directors of FelCor, offset by
the forfeiture of 25,300 shares under restricted stock grants and the exercise
of 48,806 FelCor stock options.

F-20

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. OTHER PROPERTY OPERATING COSTS

Other property operating costs is comprised of the following for the
year ended December 31, 2001 (in thousands):

Hotel general administrative expense....................................... $ 93,652
Marketing.................................................................. 87,042
Repair and maintenance..................................................... 54,603
Utilities.................................................................. 49,561
Other...................................................................... 5,389
--------
Total other property operating costs............................ $290,247
========

13. TAXES, INSURANCE AND LEASE EXPENSE

Taxes, insurance and lease expense is comprised of the following for
the years ended December 31, 2001, 2000, and 1999 (in thousands):

(a) Represents percentage lease expense associated with the hotels owned by
unconsolidated entities.

14. LAND LEASES

The Company leases land occupied by certain hotels from third parties
under various operating leases. Certain leases contain contingent rent features
based on gross revenue at the respective hotels. Future minimum lease payments
under the Company's land lease obligations at December 31, 2001, are as follows
(in thousands):

15. GAIN ON SALE OF ASSETS

In 2001, the Company received $3.9 million from the condemnation of
three parcels of land and recorded a gain of $2.9 million. In 2001, the Company
sold an undeveloped parcel of land adjacent to one of its hotels in Atlanta and
recorded a gain of $462,000.

In 2000, the Company sold two hotels for $33.8 million, recognizing a
gain of $2.6 million, and vacant excess land and a billboard for $2.3 million
recognizing a gain of $1.8 million.

F-21

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. EARNINGS PER UNIT

The following table sets forth the computation of basic and diluted
earnings per unit for the years ended December 31, 2001, 2000 and 1999 (in
thousands, except per unit data):

The Series A preferred shares and the majority of FelCor stock options
outstanding are antidilutive and are not included in the calculation of diluted
earnings per unit.

17. COMMITMENTS AND RELATED PARTY TRANSACTIONS

The acquisition of DJONT, one of the Company's primary lessees, was
completed effective January 1, 2001. In consideration for the acquisition of
DJONT, the Company issued 416,667 units of limited partnership interest valued
at approximately $10 million. The acquisition of DJONT required negotiations
between the Company and the owners of DJONT, including Thomas J. Corcoran, Jr.,
the President, Chief Executive Officer, and director of FelCor and the children
of Charles N. Mathewson, a director of FelCor. The interests of Mr. Corcoran and
Mr. Mathewson were in direct conflict with FelCor's and the Company's interests
in these negotiations and, accordingly, they abstained from participation in the
FelCor board of directors' discussion and vote on this matter.

F-22

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)

Prior to the acquisition of DJONT, which was effective January 1, 2001,
the Company's general partner, FelCor, shared the executive offices and certain
employees with FelCor, Inc., and DJONT, (both companies were controlled by
Thomas J. Corcoran, Jr., President and CEO of FelCor) and each company paid its
share of the costs thereof, including an allocated portion of the rent,
compensation of certain personnel, office supplies, telephones, and depreciation
of office furniture, fixtures, and equipment. The Company reimburses FelCor for
its share of such allocated costs. Any such allocation of shared expenses to the
Company is required to be approved by a majority of FelCor's independent
directors. At December 31, 2001, FelCor Inc. had a 10% ownership interest in one
hotel and limited other investments. During 2000 and 1999, the Company and
FelCor paid approximately $7.5 million (approximately 89.4%) and $5.7 million
(approximately 89.5%), respectively, of the allocable expenses under this
arrangement. Following the acquisition of DJONT, FelCor, Inc. continued to share
certain overhead costs. FelCor, Inc. paid $45,000 for shared office costs in
2001.

In December 2000, the Company sold one hotel and, effective January 1,
2001, completed the acquisition of leases with respect to 12 hotels that had
been leased to and operated by Six Continents Hotels. In consideration for the
acquisition of such leases and termination of the related management agreements,
FelCor issued 413,585 shares of its common stock valued at approximately $10
million, to Six Continents Hotels. The Company acquired the remaining leases
held by Six Continents Hotels, effective July 1, 2001. The Company contributed
these leases to its TRSs. In consideration for these 88 leases, FelCor issued
100 shares of its common stock and caused their subsidiaries to agree to new
long-term management agreements with subsidiaries of Six Continents Hotels to
manage these hotels. The acquisition of the leases held by Six Continents Hotels
involved negotiations between the Company and Six Continents Hotels. Richard C.
North, a director of FelCor, is the Group Finance Director of Six Continents
plc, the parent of Six Continents Hotels and, together with its affiliates, the
owner of approximately 16% of our outstanding shares and units. The interest of
Six Continents plc in those negotiations was in direct conflict with the
Company's interests. Mr. North abstained from participating in any discussion or
vote by FelCor's board relating to these transactions.

Following the events of September 11, 2001, certain types of coverage,
such as for acts of terrorism, are unavailable or are only available at a cost
that is prohibitive. In an effort to keep our cost of insurance within
reasonable limits, we have not purchased terrorism insurance at the current
prohibitive prices. We have also increased our deductible amounts under policies
of flood, wind and general liability insurance, which increases our risk of
incurring losses that are uninsured or not fully insured. Should such uninsured
or not fully insured losses be substantial, they could have a material adverse
impact on our operating results and cash flows.

There is no litigation pending or known to be threatened against the
Company or affecting any of its hotels, other than claims arising in the
ordinary course of business or which are not considered to be material.
Furthermore, most of these claims are substantially covered by insurance. The
Company does not believe that any claims known to it, individually or in the
aggregate, will have a material adverse effect on it, without regard to any
potential recoveries from insurers or other third parties.

The Company's hotels are operated under various management agreements
that call for base management fees, which range from 2% to 7% of hotel room
revenue and generally have an incentive provision related to the hotel's
profitability. The management agreements have terms from 10 to 20 years and
generally have renewal options.

With the exception of 100 hotels whose rights to use a brand name are
contained in the management agreement governing their operations and seven of
the Company's hotels that do not operate under a nationally recognized brand
name, each of the Company's hotels operates under a franchise or license
agreement. Typically, our franchise or license agreements provide for a royalty
fee of 4% of room revenues to be paid to the franchisor.

18. SUPPLEMENTAL CASH FLOW DISCLOSURE

During 1999, the Company purchased the land related to three hotels,
which previously had been leased. These purchases were recorded under the
purchase method of accounting. The fair values of the acquired assets and
liabilities recorded at the date of acquisition are as follows (in thousands):

F-23

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUPPLEMENTAL CASH FLOW DISCLOSURE -- (CONTINUED)

Approximately $8.0 million, $34.0 million, and $39.7 million of
aggregate preferred distributions and FelCor LP unit distributions had been
declared as of December 31, 2001, 2000, and 1999, respectively. These amounts
were paid in the following January of each year.

19. STOCK BASED COMPENSATION PLANS

FelCor sponsors three restricted stock and stock option plans (the
"FelCor Plans"). In addition, upon completion of the merger with Bristol Hotel
Company (the "Merger") in 1998, FelCor assumed two stock option plans previously
sponsored by Bristol Hotel Company (the "Bristol Plans"). FelCor was initially
obligated to issue up to 1,271,103 shares of its common stock pursuant to the
Bristol Plans. No additional options may be awarded under the Bristol Plans. The
FelCor Plans and the Bristol Plans are referred to collectively as the "Plans."
Upon the issuance of any stock, FelCor is obligated to contribute the proceeds
to the Company in exchange for a like number of units.

Stock Options

FelCor is authorized to issue 2,950,000 shares of common stock under
the FelCor Plans pursuant to awards granted in the form of incentive stock
options, non-qualified stock options, and restricted stock. All options have
10-year contractual terms and vest either over five equal annual installments
(20% per year), beginning in the year following the date of grant or 100% at the
end of a four year vesting term. Under the FelCor plans there were 460,260
shares available for grant at December 31, 2001.

The options outstanding under the Bristol Plans generally vest either
in four equal annual installments (25% per year) beginning in the second year
following the original date of award, in five equal annual installments (20% per
year) beginning in the year following the original date of award, or on a single
date that is three to five years following the original date of the award.
Options covering 111,247 shares were outstanding under the Bristol Plans at
December 31, 2001.

A summary of the status of FelCor's non-qualified stock options under
the Plans as of December 31, 2001, 2000, and 1999, and the changes during the
years are presented below:

(a) In the second quarter of 2000, FelCor purchased options covering an
aggregate of 349,443 shares of FelCor's common stock for approximately
$1.9 million. These options were held by employees of Bristol and were
issued in substitution for stock options previously granted by Bristol
Hotel Company that were outstanding at the time of its merger with
FelCor in 1998. These options so purchased and retired had exercise
prices ranging from $10.33 to $16.95 per share and the majority of
these options were scheduled to vest in the third quarter of 2000. The
purchase price was recorded as a reduction in partners' capital.

F-24

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. STOCK BASED COMPENSATION PLANS -- (CONTINUED)

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: dividend yield of 12.44%; risk free interest rates are
different for each grant and range from 4.33% to 6.58%; the expected lives of
options are six years; and volatility of 21.04% for 2001 grants, 18.22% for 2000
grants and 18.44% for grants issued in 1999. The weighted average fair value of
options granted during 2001, 2000, and 1999 was $0.85, $0.90, and $1.07 per
share, respectively.

Restricted Stock

A summary of the status of FelCor's restricted stock grants as of
December 31, 2001, 2000, and 1999 and the changes during the years are presented
below:

20. SEGMENT INFORMATION

SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," requires the disclosure of selected information about operating
segments. Based on the guidance provided in the standard, the Company has
determined that its business is conducted in one operating segment.

The following table sets forth revenues for and investment in hotel
assets represented by the following geographical areas as of and for the years
ended December 31, 2001, 2000 and 1999 (in thousands):

a) Prior to January 1, 2001, all of the revenues that the Company derived
from hotel assets consisted of percentage lease revenue. Effective
January 1, 2001, the Company acquired 96 hotel leases and effective
July 1, 2001 acquired the remaining 88 hotel leases. Upon acquisition
of these leases, the Company's revenue derived from hotel assets became
hotel operating revenues, including room revenues, food and beverage
revenue and other hotel operating revenue.

F-25

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB")
approved SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets." SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS 142 will
be effective for fiscal years beginning after December 15, 2001 and will require
(1) intangible assets (as defined in SFAS 141) to be reclassified into goodwill,
(2) goodwill amortization to cease, and (3) the testing of goodwill for
impairment at transition and at interim periods (if an event or circumstance
would result in an impairment). As the result of implementation of SFAS 142, the
Company will stop the amortization of the difference between the Company's cost
in unconsolidated entities and its proportionate share of the underlying net
assets at the date of acquisition. At December 31, 2001, the Company included in
investment in unconsolidated entities an asset of $73.4 million representing the
unamortized cost in excess of its proportionate share of the underlying assets
at the date of acquisition. The Company amortized excess cost of $2.5, $2.1 and
$2.1 million in 2001, 2000 and 1999, respectively. The Company does not believe
that SFAS 142 will have a material impact on the Company's results of operations
and financial position.

On August 15, 2001 the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 143 requires that the fair value of the liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 143 will be effective for financial statements issued for
fiscal years beginning after June 15, 2002 and interim periods within those
fiscal years. The Company is not currently affected by the Statement's
requirement.

On October 3, 2001 the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121 by
removing goodwill from its scope, by defining a probability-weighted cash flow
estimation approach and establishing a "primary-asset" approach to determine the
cash flow estimation period for a group of assets. It also replaces the
provisions of APB Opinion 30, "Reporting the Effects of Disposal of a Segment of
a Business" for the disposal of segments of a business. SFAS 144 will be
effective for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company is not currently affected by the
Statement's requirement.

22. QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company's unaudited consolidated quarterly operating data for the
years ended December 31, 2001 and 2000, follows (in thousands, except per share
data). In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of quarterly results have
been reflected in the data. It is also management's opinion, however, that
quarterly operating data for hotel enterprises are not indicative of results to
be achieved in succeeding quarters or years. In order to obtain a more accurate
indication of performance, there should be a review of operating results,
changes in partners' capital and cash flows for a period of several years.

F-26

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22. QUARTERLY OPERATING RESULTS (UNAUDITED) -- (CONTINUED)

23. CONSOLIDATING FINANCIAL INFORMATION

Certain of the Company's wholly-owned subsidiaries (FelCor/CSS
Holdings, L.P.; FelCor/CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor
Eight Hotels, L.L.C.; FelCor/St. Paul Holdings, L.P.; FelCor/LAX Holdings, L.P.;
FHAC Nevada Holdings, L.L.C.; FelCor TRS Holdings, L.P.; Kingston Plantation
Development Corp.; FHAC Texas Holdings, L.P.; FelCor Omaha Hotel Company,
L.L.C.; FelCor Country Villa Hotel, L.L.C.; FelCor Moline Hotel, L.L.C.; FelCor
Canada Co. and FelCor Hotel Asset Company, L.L.C., collectively, "Subsidiary
Guarantors"), together with FelCor and one of its wholly-owned subsidiaries
(FelCor Nevada Holdings, L.L.C.), are guarantors of senior debt. The following
tables present consolidating information for the Subsidiary Guarantors.

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(IN THOUSANDS)

F-27

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
(IN THOUSANDS)

F-28

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)

F-29

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)

F-30

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)

F-31

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)

F-32

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of FelCor Lodging Trust Incorporated:

Our audits of the consolidated financial statements referred to in our report
dated February 6, 2002, appearing on page F-2 of the Annual Report on Form 10-K
of FelCor Lodging Limited Partnership (which report and consolidated financial
statements are included in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Dallas, Texas
February 6, 2002

F-33

FELCOR LODGING LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2001
(IN THOUSANDS)

F-34

FELCOR LODGING LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

F-35

FELCOR LODGING LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

F-36

FELCOR LODGING LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

Balance at December 31, 1998 $4,099,946
Additions during the period 247,116
----------
Balance at December 31, 1999 $4,347,062
Sold hotels in 2000 (31,921)
Hotels Held for Sale (206,000)
Additions during the period 98,870
----------
Balance at December 31, 2000 $4,208,011
Additions during the period 73,870
----------
Balance at December 31, 2001 $4,281,881
==========

Balance at December 31, 1998 $ 178,072
Depreciation expense during
the period 152,483
----------
Balance at December 31, 1999 330,555
Sold hotels in 2000 (4,200)
Hotels Held for Sale (13,706)
Depreciation expense during
the period 160,452
----------
Balance at December 31, 2000 473,101
Foreign Exchange (394)
Purchase of DJONT Leases 1,011
Depreciation expense during
the period 157,244
----------
Balance at December 31, 2001 $ 630,962
==========

1. Embassy Suites 9. Holiday Inn Select 17. Bristol House
2. Holiday Inn 10. Courtyard by Marriott 18. Crowne Plaza Suites
3. Sheraton 11. Sheraton Suites 19. Harvey Hotel
4. Fairfield Inn 12. Hampton Inn 20. Westin
5. Doubletree Guest Suites 13. Holiday Inn Express 21. Harvey Suites
6. Crowne Plaza 14. Hilton Suites
7. Doubletree 15. Holiday Inn Hotel & Suites
8. Independents 16. Homewood Suites

F-37

INDEX TO EXHIBIT

- ----------

* Indicates that the document is filed herewith.

b) Reports on Form 8-K