FELCOR LODGING L P - 10-Q Quarterly Report

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

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

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 FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

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FELCOR LODGING LIMITED PARTNERSHIP

INDEX

2

PART I. -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

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

3

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER UNIT DATA)

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

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FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS)

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

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FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS)

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

6

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

FelCor Lodging Limited Partnership and its subsidiaries (the "Company")
had ownership interests in 182 hotels at June 30, 2002, with nearly 50,000 rooms
and suites. The 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 June 30, 2002, FelCor owned a
greater than 85% equity interest in the Company. At June 30, 2002, the Company
owned a 100% interest in 149 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. Twelve of the
Company's hotels were designated as held for sale at June 30, 2002.

On January 1, 2001, the REIT Modernization Act ("RMA") went into
effect. Among other things, the RMA permits a REIT to form taxable subsidiaries
("TRS") 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 operation
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 June 30, 2002:

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION -- (CONTINUED)

At June 30, 2002, the Company's hotels were located in the United
States (35 states) and Canada, with concentrations in Texas (41 hotels),
California (19 hotels), Florida (16 hotels) and Georgia (14 hotels).
Approximately 54% of the Company's hotel room revenues for the six months ended
June 30, 2002, were generated from hotels in these four states.

At June 30, 2002, of the Company's 182 hotels, (i) subsidiaries of Six
Continents Hotels managed 89, (ii) subsidiaries of Hilton managed 70, (iii)
subsidiaries of Starwood managed 11, (iv) subsidiaries of Interstate Hotels
Corporation ("IHC") managed eight and (v) three independent management companies
managed four. Two additional hotels were acquired subsequent to June 30, 2002
(see footnote 14).

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.

The financial information for the three and six months ended June 30,
2002 and 2001, is unaudited but includes all adjustments (consisting only of
normal recurring accruals) which the Company considers necessary for a fair
presentation of the results for the periods. The financial information should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 2001, included in the Company's Annual Report on Form 10-K
("Form 10-K"). Operating results for the three and six months ended June 30,
2002 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2002.

2. NEW ACCOUNTING PRONOUNCEMENTS

On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 establishes additional criteria to
determine when a long-lived asset is held for sale and establishes a new
recoverability test for long-lived assets to be held for investment. It also
broadens the definition of "discontinued operations" to include the sale of
individual properties. The provisions of the new standard are generally to be
applied prospectively and assets designated as held for sale prior to January 1,
2002, are not subject to this standard. During the six months ended June 30,
2002, the Company was not required to record any impairment under the new
standard. In addition, the Company does not have any discontinued operations for
the six months ended June 30, 2002, as no additional hotels were designated as
held for sale during the period.

During the six months ended June 30, 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 145, "Rescission
of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145"). SFAS 145, among other things, rescinds SFAS
4, which required that gains and losses from extinguishments of debt be
classified as an extraordinary item, net of related income tax effects. SFAS 145
is to be applied beginning in fiscal years beginning after May 15, 2002, and
encourages early application of SFAS 145 related to the rescission of SFAS 4.
The Company had $225,000 in losses from extinguishment of debt in the six months
ended June 30, 2001, which were reclassified to be included in income before
equity in income of unconsolidated entities, minority interests and gain on sale
of assets, in the accompanying financial statements to conform to SFAS 145.

During the six months ended June 30, 2002, the Company adopted the
provisions of Statement of Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). The adoption of SFAS 142 did not have a
material effect on the Company's financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. NEW ACCOUNTING PRONOUNCEMENTS - (CONTINUED)

In July 2002, the FASB issued SFAS 146, "Accounting for Exit or
Disposal Activities." SFAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
(EITF) has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes
(1) costs related to terminating a contract that is not a capital lease and (2)
termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS 146 will be
effective for exit or disposal activities initiated after December 31, 2002. The
Company is currently evaluating the impact this statement will have on its
financial position or results of operations.

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 also 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 413,585 shares of FelCor common stock
valued at approximately $10 million. Of this $10 million in consideration, $8
million was expensed in 2000, in connection with the designation of certain of
these hotels as held for sale. The remaining $2 million was expensed as lease
termination cost in 2001 as a result of the acquisition of the leases. Of the 11
hotels, two have been sold, eight have been contributed to a joint venture with
IHC, and one will be retained.

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, and the
related lease termination costs for the six months ended June 30, 2001, are as
follows (in thousands):

Cash and cash equivalents..................................... $ 25,300
Accounts receivable........................................... 30,214
Other assets.................................................. 17,394
---------
Total assets acquired......................................... 72,908
---------

Accounts payable.............................................. 18,656
Due to the Company............................................ 30,687
Accrued expenses and other liabilities........................ 40,072
---------
Total liabilities assumed..................................... 89,415
---------

Liabilities assumed in excess of assets acquired.............. 16,507
Value of FelCor common stock and units issued................. 19,719
---------
Lease termination costs.................................. $ 36,226
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4. INVESTMENT IN UNCONSOLIDATED ENTITIES

The Company owned 50% interests in joint venture entities that owned 24
hotels at June 30, 2002 and 2001. The Company also owned a 50% interest in
entities that owned an undeveloped parcel of land, provided condominium
management services, developed and sold condominiums in Myrtle Beach, South
Carolina, and leased eight hotels. The Company accounts for its investments in
these unconsolidated entities under the equity method.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. INVESTMENT IN UNCONSOLIDATED ENTITIES - (CONTINUED)

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

(a) Debt at June 30, 2002, consists of $263.5 million of
non-recourse mortgage debt and $372,000 of full-recourse debt
guaranteed by the Company.

5. 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 June 2000 the Company recorded an
expense of $63 million representing the difference between the net book value
and the then 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 then remaining 13 hotels held for sale. At June 30, 2002,
the Company was actively marketing the then remaining 12 hotels held for sale.
At June 30, 2001, the Company had 16 hotels designated as held for sale. The
Company regularly reviews the carrying value of the remaining hotels held for
sale to ensure that they are recorded at the lower of depreciated book value or
expected net sales proceeds. No depreciation expense has been recorded on these
hotels since June 30, 2000.

For the three and six months ended June 30, 2002, the revenues, less
associated expenses, for hotels held for sale were approximately $2.2 million
and $3.3 million, respectively. For the three and six months ended June 30,
2001, the revenues less associated expenses, for hotels held for sale, were
approximately $1.8 million and $6.9 million.

The Company closed on the sale of its 183-room Doubletree Guest Suites
hotel in Boca Raton, Florida, on April 26, 2002, and received net sales proceeds
of $6.5 million. A net gain of approximately $773,000 was recorded on the sale.
This property previously had been identified as a non-strategic asset at June
30, 2000, and classified as held for sale.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. DEBT

Debt at June 30, 2002, and December 31, 2001, consists of the following
(in thousands):

(a) At June 30, 2002, the Company had unencumbered investments in
hotels with a net book value totaling $2.4 billion.

(b) At June 30, 2002, and December 31, 2001, the Company's $175
million in publicly-traded notes due October 2004 were matched
with interest rate swap agreements, which effectively
converted 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.
These interest rate swaps have decreased interest expense by
$1.7 million during the six months ended June 30, 2002.

All of the Company's floating rate debt at June 30, 2002, was based
upon LIBOR. One month LIBOR at June 30, 2002, was 1.84%.

Interest expense is reported for the six months ended June 30, 2002 and
2001 net of interest income of $1.2 million and $2.2 million, respectively, and
capitalized interest of $108,000 and $229,000, respectively.

On June 17, 2002, the Company entered into an amendment of its $615
million unsecured line of credit. The amendment revised certain covenant levels
to provide greater financial and operating flexibility. The maturity date on the
credit facility remains October 31, 2004, and we may extend the facility for up
to two additional one-year terms, subject to certain conditions. The interest
rate remains on the same floating rate basis with a tiered spread based on our
debt leverage ratio. The lenders' commitments under the line of credit remain at
$615 million. The Company had no outstanding balance on its line of credit at
June 30, 2002.

In addition to financial covenants, the Company's line of credit
includes certain other affirmative and negative covenants, including limitations
on total indebtedness, total secured indebtedness, and restricted payments
(such as unit redemptions and cash distributions). At June 30, 2002, the Company
was in compliance with all of these covenants.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. DEBT - (CONTINUED)

The Company's publicly traded senior term notes require it to satisfy
an interest coverage test in order to incur additional indebtedness, except
under its line of credit; to pay distributions in excess of the minimum amount
required for FelCor to meet its REIT qualification test; or to repurchase stock.
As of the date of this filing, the Company has satisfied this minimum interest
coverage requirement.

The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than those contained
in its 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 unsecured 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.

7. DERIVATIVES

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
speculation on interest rates. We manage interest rate risk based on the varying
circumstances of anticipated borrowings, and existing floating and fixed rate
debt. We will generally seek to pursue interest rate risk mitigation strategies
that 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 June 30, 2002, the Company had 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.

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 and will have
a corresponding effect on its future cash flows.

To determine the fair values of its derivative instruments, the Company
engages a third party that uses a variety of methods and assumptions based on
market conditions and risks existing at each balance sheet date. As deemed
necessary, the Company will use other methods and assumptions to validate the
fair market values. 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 June 30, 2002, 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 gain on these interest rate swap agreements
was approximately $1.5 million at June 30, 2002, and represents the amount the
Company would receive to terminate the agreements based on current market rates.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. PREFERRED UNITS

On April 4, 2002, FelCor issued 1,025,800 depositary shares,
representing 10,258 shares of its 9% Series B Cumulative Redeemable Preferred
Stock ("Series B preferred stock") at $24.37 per depositary share to yield 9.4%.
The Series B preferred stock and the corresponding depositary shares may be
called by FelCor at $25 per depositary share 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 preference on these units is the same
as FelCor's Series B preferred stock. The proceeds from the Series B preferred
stock were contributed to the Company in exchange for Series B preferred units.
The net proceeds of $24.0 million were used for working capital, and allowed the
Company to accelerate discretionary capital expenditures.

9. DEFERRED RENT

The Company recognized rent deferred under Staff Accounting Bulletin
No. 101 ("SAB 101") of $5.3 million for the quarter ended June 30, 2001, on the
88 hotels leased by Six Continents Hotels. This deferred rent was recognized
upon the acquisition of the leases.

10. INCOME TAXES

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 Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes ("SFAS 109")." 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 June 30, 2002, the Company's TRSs had a deferred tax asset of
approximately $18.8 million, prior to any valuation allowance, relating to
accumulated losses of the TRSs. 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.

11. GAIN ON DISPOSITION OF ASSETS

During the three months ended June 30, 2002, the Company sold its
Doubletree Guest Suites hotel in Boca Raton, Florida, for net proceeds of $6.5
million and recorded a net gain of $0.8 million. Additionally, the Company sold
retail space associated with the Allerton Hotel located in Chicago, Illinois,
for net proceeds of $16.7 million and recorded a net gain of approximately $5.1
million. The Company also recognized a $0.2 million gain related to the
condemnation of land adjacent to one of its hotels.

For the six months ended June 30, 2001, the Company received $3.9
million for the condemnation of three parcels of land and recorded a gain of
$3.0 million.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. EARNINGS PER UNIT

The following table sets forth the computation of basic and diluted
earnings per unit for the three and six months ended June 30, 2002 and 2001
(unaudited, in thousands, except per unit data):

The Series A preferred units and other dilutive securities are not
included in the calculation of diluted earnings per unit for the six months
ended June 30, 2002, because they are anti-dilutive as the result of losses in
the period. The Series A preferred units and the majority of FelCor stock
options granted are anti-dilutive for the remaining periods presented and, as
such, are not included in the calculation of diluted earnings per unit.

13. 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.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONSOLIDATING BALANCE SHEET
JUNE 30, 2002
(IN THOUSANDS)

ASSETS

15

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(IN THOUSANDS)

ASSETS

16

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS)

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)

18

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS)

19

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)

20

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS)

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)

14. SUBSEQUENT EVENTS

On July 12, 2002, the Company acquired the 208-suite SouthPark Suite
Hotel in Charlotte, North Carolina for $14.5 million. This hotel will be
converted to a Doubletree Guest Suites during the fall of 2002. The Company
entered into a 15-year management agreement with Hilton for the hotel concurrent
with the acquisition closing. The Company utilized excess cash on hand to
acquire this hotel.

On July 19, 2002, the Company acquired the 385-room Wyndham(R) resort
and the Arcadia Shores Golf Club in Myrtle Beach, South Carolina. This hotel
will be converted to a Hilton hotel in 2003. This hotel, adjacent land and a
leasehold interest in the golf course were purchased for $35.3 million. The
Company entered into a 15-year management agreement with Hilton for the hotel
concurrent with the acquisition closing. The Company utilized excess cash on
hand to acquire this hotel.

The Company closed on the sale of its Holiday Inn Express hotel in
Colby, Kansas, on August 8, 2002, and received net proceeds of $1.7 million.
This property previously had been identified as a non-strategic asset and
classified as held for sale.

21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

For background information relating to the Company and the definitions
of certain capitalized terms used herein, reference is made to Notes 1 and 2 of
Notes to Consolidated Financial Statements of FelCor Lodging Limited Partnership
appearing elsewhere herein.

The Company's results for the three and six months ended June 30, 2002,
reflect Revenue Per Available Room ("RevPAR") below the same period in the prior
year, but a consistent, gradual increase in hotel occupancy during 2002. RevPAR
for the portfolio was below that of the prior year by 11.1% for the three months
ended June 30, 2002, and 14.6% for the six months ended June 30, 2002.

FINANCIAL COMPARISON

- ----------

(1) For a discussion of the computation of FFO and EBITDA, see "Results of
Operations -- Fund from Operations and EBITDA"

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2002 and 2001

On July 1, 2001, the Company acquired operating leases covering 88 of
its hotels and contributed them to its TRSs. As the leases were acquired, the
Company began receiving and recording hotel revenues and expenses, rather than
percentage lease revenue for these hotels. Consequently, a comparison of
historical results for the three months ended June 30, 2002, to the three months
ended June 30, 2001, are not directly comparable.

Total revenue increased $77.1 million for the three months ended June
30, 2002, over the same period in 2001. The increase is principally associated
with reporting hotel operating revenues for 88 of the hotels during 2002,
contrasted with percentage lease revenue reported by the Company for these
hotels during the same period in 2001. These 88 hotels contributed approximately
$163.1 million in hotel operating revenue during the three months ended June 30,
2002, compared to $63.6 million in percentage rent revenue for the same hotels,
during the same period in 2001. For the remaining 85 consolidated hotels owned
by the Company, total revenues decreased approximately $20.2 million in the
quarter. The principal component of this decrease is a decrease in room revenue
for these hotels of $17 million. The RevPAR for these 85 hotels was 9.9% below
that of the same period in 2001. The decrease in RevPAR for these hotels was
comprised of a 2.3% decrease in hotel occupancy and a 7.8% decrease in average
daily rate ("ADR"). The remaining change in revenue of $2.2 million primarily
relates to decreases in revenue from the disposition of assets held for sale.

Total operating expenses increased $94.7 million for the three months
ended June 30, 2002, over the same three month period in 2001. This increase
primarily resulted from the inclusion of hotel operating expenses, management
fees and other property related costs for the 88 hotels that were not included
in the same period of 2001, prior to the Company's acquisition of the leases.

22

Taxes, insurance and lease expense decreased $4.3 million, compared to
the second quarter of 2001, principally as the result of decreases in lease
expense of $3.9 million and in property taxes of $2.7 million, partially offset
by increased insurance costs of $ 1.6 million. The decrease in lease expense is
related to participating leases that are principally based on revenues. Property
taxes decreased primarily as a result of resolutions in the current quarter of
prior year tax disputes.

Interest expense, net of interest income, on recurring financing
increased $2.4 million for the three months ended June 30, 2002, over the same
period in 2001. The increase during the second quarter is primarily related to
excess cash carried during 2002 and the related increase in average debt
outstanding of $85.2 million compared to the same period of 2001.

Equity in the income of unconsolidated entities decreased by $2.8
million, compared to the same quarterly period in 2001. The decrease in 2002
principally resulted from a 13.6% drop in RevPAR for the unconsolidated hotels.

Minority interest increased $0.2 million for the three months ended
June 30, 2002, over the same period in 2001. Minority interest represents the
proportionate share of the income or loss of consolidated subsidiaries not
owned by the Company. This change principally reflects the increase in net loss
of the other consolidated subsidiaries. The activity of these other consolidated
subsidiaries consists primarily of activity associated with hotel properties.

Included in net income for the three months ended June 30, 2002, is a
gain of $5.1 million on the sale of retail space and $0.8 million on the sale of
a hotel. Included in net income for the three months ended June 30, 2001, is a
gain of $0.5 million related to condemnation proceeds received.

The Company's net income decreased by $11.3 million for the three
months ended June 30, 2002, compared to the same period in 2001. The major item
affecting the change in net income was the 11.1% decline in the Company's hotel
RevPAR in the second quarter of 2002, compared to the same period in the prior
year. Other items affecting the change in net income were approximately $6
million of non-recurring expenses during the second quarter of 2001 related to
merger financing and termination of interest rate swaps and $5.9 million in 2002
of gains on sale, related to the sale of retail space at the Allerton hotel in
Chicago, Illinois, and the sale of a non-strategic hotel in Boca Raton, Florida.

Comparison of the Six Months Ended June 30, 2002 and 2001

On July 1, 2001, the Company acquired operating leases covering 88 of
its hotels and contributed them to its TRSs. As the leases were acquired, the
Company began receiving and recording hotel revenues and expenses, rather than
percentage lease revenue for these hotels. Consequently, the historical results
for the six months ended June 30, 2002, and the six months ended June 30, 2001,
are not directly comparable.

Total revenue for the six months ended June 30, 2002, increased $116.2
million over the same period in 2001. The increase is principally associated
with reporting hotel operating revenues for 88 of the hotels during 2002,
contrasted with percentage lease revenue reported by the Company for these
hotels during the same period in 2001. These 88 hotels contributed approximately
$305.3 million in hotel operating revenue in the first six months of 2002,
compared to $115.1 million in percentage rent revenue for the same hotels,
during the same period in 2001. For the remaining 85 consolidated hotels owned
by the Company, total revenues decreased approximately $61 million for the six
months ended June 30, 2002. The principal component of this decrease is a
decrease in room revenue for these hotels of $49 million. The RevPAR for these
85 hotels was 13.9% below that of the same period in 2001. The decrease in
RevPAR for these hotels was comprised of a 5.9% decrease in hotel occupancy and
a 8.5% decrease in ADR. The remaining change in revenue of $13 million primarily
relates to decreases in revenue from the disposition of assets held for sale.

23

Total operating expenses increased $128.8 million for the six months
ended June 30, 2002, over the same three month period in 2001. This increase
primarily resulted from the inclusion of hotel operating expenses, management
fees and other property related costs for the 88 hotels that were not included
in the same period of 2001, prior to the Company's acquisition of the leases.
Also included in total operating expenses for the first six months of 2001 were
lease termination costs of $36.2 million.

Interest expense, net of interest income, increased $3.1 million for
the six months ended June 30, 2002, over the same period in 2001. The increase
for the period is primarily related to the Company's excess cash carried during
2002 and an increase in average debt of $83.4 million over the same period of
2001.

Equity in the income of unconsolidated entities decreased by $3.7
million, compared to the same six month period in 2001. The decrease in 2002
principally resulted from a 15.1% drop in RevPAR from the unconsolidated hotels.

Taxes, insurance and lease expense decreased $8.1 million, principally
as the result of decreases in lease expense of $9.2 million and in property
taxes of $3.3 million, partially offset by increased insurance costs of $3.3
million. The decrease in lease expense is related to participating leases that
are principally based on revenues. Property taxes decreased principally from
resolutions in the current quarter of prior year tax disputes.

Minority interest decreased $0.7 million for the six months ended June
30, 2002, over the same period in 2001. Minority interest represents the
proportionate share of the income or loss of consolidated subsidiaries not owned
by the Company. This change principally reflects the decrease in net loss of the
other consolidated subsidiaries. The activity of these other consolidated
subsidiaries consists primarily of activity associated with hotel properties.

Included in net income for the six months ended June 30, 2002, is a
gain of $5.1 million on the sale of retail space and $0.8 million on the sale of
a hotel. Included in net income for the six months ended June 30, 2001, is a
gain of $3.0 million related to condemnation proceeds received.

The Company's net income was reduced $10.5 million for the six months
ended June 30, 2002, compared to the same period in 2001. The major item
affecting this change in income was the 14.6% decline in the Company's hotel
RevPAR in the six months ended June 30, 2002 compared to the same period in the
prior year.

Comparison of the Six Months Ended June 30, 2002 with Pro Forma 2001

On July 1, 2001, we acquired the operating leases covering 88 of our
hotels and contributed them to our TRSs. As the leases were acquired, we began
receiving and recording hotel revenues and expenses, rather than percentage
lease revenue. Consequently, a comparison of historical results for the six
months ended June 30, 2002, to the six months ended June 30, 2001, 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 six months ended June 30, 2001 assumes that
our acquisition of 88 hotel leases held by Six Continents Hotels had occurred on
January 1, 2001.

24

FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)

25

FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED, IN THOUSANDS)

The unaudited Pro Forma Consolidated Statement of Operations is
presented for illustrative purposes only and is not necessarily indicative of
what the actual results of operations would have been had the transactions
described above occurred on the indicated date, nor do they purport to represent
our results of operations for future periods.

The pro forma numbers presented represent our historical revenues and
expenses, modified as described in the pro forma adjustments below.

Pro forma adjustments:

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

(b) Operating expense adjustments consist of: (i) the increase in our
historical operating expense from the addition of historical hotel
operating expenses and the elimination of percentage lease expense for
the 88 hotel leases acquired from Six Continents Hotels on July 1,
2001, (ii) the recording of management fees at their new contractual
rates, and (iii) the elimination of historical franchise fees, which
are included in the new management fees for these hotels.

Revenues decreased $125.8 million in 2002 compared to pro forma 2001,
primarily as a result of the continuing economic downturn and the 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 for the six months ended June 30, 2002, compared
to the same pro forma period in 2001. During the six months ended June 30, 2002,
our hotels' RevPAR decreased 14.6%, compared to the same period in the prior
year, which was comprised of a decrease in hotel occupancy of 5.8 percentage
points to 63.1% and a decline in ADR of 6.8% to $99.28.

26

Other operating expenses decreased $72.5 million in 2002 compared to
pro forma 2001. However, other operating expense as a percentage of total
revenue, increased from 83% to 88%. The principal reason for the increased in
other operating expenses as a percentage of total revenue, was a 140 basis point
drop in hotel operating margins. This margin compression primarily relates to
the reduction in revenue and the inability to reduce labor costs, repair and
maintenance costs and marketing costs proportionately. We are actively working
with our managers to implement cost cutting programs at the hotels to maximize
hotel operating profits. These measures include reducing labor costs,
streamlining staffing, and consolidating operations by closing unused floors in
hotels when possible.

Interest expense from recurring financing, net of interest income,
increased $3.1 million. The increase for the period is primarily related to the
Company's excess cash carried during 2002 and an increase in average debt of
$83.4 million over the same period of 2001.

Equity in income from unconsolidated entities decreased $3.7 million,
principally as the result of the decrease in RevPAR previously discussed.

Minority interest decreased $0.7 million for the six months ended June
30, 2002, over the same pro forma period in 2001. Minority interest represents
the proportionate share of the income or loss of consolidated subsidiaries not
owned by the Company. This change principally reflects the decrease in net loss
of the other consolidated subsidiaries. The activity of these other consolidated
subsidiaries consists primarily of activity associated with hotel properties.

Included in net income for the six months ended June 30, 2002, was a
gain of $5.1 million on the sale of retail space and $0.8 million on the sale of
a hotel. Included in pro forma net income for the six months ended June 30,
2001, was a gain of $3.0 million related to condemnation proceeds received.

Funds From Operations and EBITDA

We consider Funds From Operations ("FFO") and Earnings Before Interest,
Taxes, Depreciation, and Amortization ("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 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 extraordinary items and gains or losses from 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 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 dividends 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 financing costs, swap
termination costs, loss from early extinguishment of debt and deferred rent 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 financing costs, swap termination
costs, loss from early extinguishment of debt and deferred rent. 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.

27

The following table details our computation of Funds From Operations
(unaudited, in thousands):

- ----------

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

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

28

Hotel Portfolio Composition

The following tables set forth as of June 30, 2002, our hotel portfolio
distribution by brand, by our top ten Metropolitan Statistical Areas ("MSAs"),
by selected states, by type of location, and by market segment. For comparative
purposes, also set forth below is the percentage of EBITDA contributed by each
grouping for the year ended December 31, 2001.

29

Hotel Operating Statistics

The following tables set forth historical occupied rooms ("Occupancy"),
ADR and RevPAR at June 30, 2002, and 2001, and the percentage changes therein
between the periods presented for the hotels in which the Company had an
ownership interest at June 30, 2002:

OPERATING STATISTICS BY BRAND
(FOR THE THREE AND SIX MONTHS ENDED JUNE 30)

30

OPERATING STATISTICS FOR OUR TOP 10 MSAS
(FOR THE THREE AND SIX MONTHS ENDED JUNE 30)

31

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 six months ended June 30, 2002, net cash
flow provided by operating activities, consisting primarily of hotel operations,
was $69.7 million and FFO was $75.1 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
FelCor's distributions to shareholders required to maintain its REIT status.
However, due to the sharp reduction in travel following the terrorist attacks of
September 11, 2001, and the resultant drop in RevPAR and profits from our hotel
operations, we plan to continue to limit distributions to holders of our units
as may be necessary. Accordingly, distributions to holders of our units and
dividends to holders of FelCor's common stock may be significantly reduced or
possibly eliminated in future periods.

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 continued economic slowdown and the drop in occupancy
and ADR following the terrorist attacks of September 11, 2001, resulted both in
declines in RevPAR and an erosion in operating margins during the year ended
December 31, 2001, compared to 2000, that have continued through the second
quarter of 2002 compared to the same period in 2001. 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.

As a result of the current RevPAR environment, we amended our unsecured
line of credit on June 17, 2002. The amendment allows for the relaxation of
certain financial covenants through the maturity date, with a step-up in certain
financial covenants. 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 were $615 million at June 30, 2002. No amount was outstanding under
the facility at June 30, 2002.

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. At June 30 2002, we were in compliance with all of the line of
credit covenants.

Our publicly traded senior term notes require us to satisfy an
interest coverage test in order to incur additional indebtedness, except under
our line of credit; to pay distributions in excess of the minimum amount
required for FelCor to meet its REIT qualification test; or to repurchase stock.
As of the date of this filing, we have satisfied this minimum interest coverage
requirement.

32

Unless our business continues to gradually improve, we may be unable to
satisfy all of the covenant requirements. In such an event, we may need to
obtain further amendments from our lenders under the line of credit in order to
borrow under the facility. We are not certain whether, to what extent, or upon
what terms the lenders may be willing to further amend the covenants. Further
amendments to our line of credit, if any, may result in additional restrictions
on us and may adversely affect our ability to run our business and financial
affairs.

Failure to satisfy one or more 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 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 the satisfaction of certain conditions.
Most of the mortgage debt is prepayable; subject, however, to various prepayment
penalties, yield maintenance, or defeasance obligations.

For the third quarter of 2002, we currently anticipates our portfolio
RevPAR will be 1% to 5% above the comparable period of the prior year. FFO is
expected to be within the range of $33 million to $40 million, and EBITDA is
expected to be within the range of $81 million to $88 million for the same
period.

We estimate our full year 2002 hotel portfolio RevPAR will be between
3.5% and 5.5% below 2001. Our FFO for the full year 2002 is currently
anticipated to be within the range of $133 million to $150 million and EBITDA to
be within the range of $81 to $88 million. We currently anticipate 2002 capital
expenditures will be from $55 to $65 million. For the six months ended June 30,
2002, capital expenditures totaled $20 million.

In the event that RevPAR declines, compared to the prior year, are
greater than anticipated in the preparation of this guidance, or operating
margins are lower than anticipated, we may not meet our forecast for the
remainder of the year. RevPAR results for July 2002 were 7% below the same
period in 2001.

Our decision to pay a quarterly distribution will be determined each
quarter based upon the operating results of that quarter, economic conditions,
and other factors. For both the three months ended March 31, 2002, and the three
months ended June 30, 2002, we paid a distributions of $0.15 per unit, $0.4875
per share on our $1.95 Series A Cumulative Convertible Preferred Units and
$0.5625 per depositary share evidencing our 9% Series B Cumulative Redeemable
Preferred Units.

On June 30, 2002, we did not have any amount outstanding on our line of
credit. We also maintain flexibility in working with our lenders, as a result of
our $152 million of cash and cash equivalents on hand, $2.4 billion of
unencumbered assets, and a breakeven portfolio hotel occupancy, after debt
service and preferred equity distributions, of approximately 50%. The $615
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 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.

33

At June 30, 2002, we had $152 million of cash and cash equivalents.
Certain significant credit and debt statistics at June 30, 2002, are as follows:

o Interest coverage ratio of 1.9x for the six month period ended June 30,
2002

o Borrowing capacity of $615 million under our line of credit

o Consolidated debt equal to 38.3% of our investment in hotels, at cost

o Fixed interest rate debt equal to 91% of our total debt

o Weighted average maturity of debt of approximately 6.5 years and a
weighted average interest cost of 8.3%

o Mortgage debt to total assets of 17%

o Scheduled debt repayments of $6 million during the remainder of 2002

o Scheduled debt repayments of $35 million in 2003

o Scheduled debt repayments of $189 million in 2004

We spent approximately $19.8 million on upgrading and renovating our
consolidated hotels and approximately $5.6 million on upgrading and renovating
the hotels owned by our unconsolidated entities during the six months ended June
30, 2002. 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 anticipate 2002 capital expenditures of
between $55 and $65 million, depending upon the pace of the anticipated economic
recovery.

Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2002 approximately 91% 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 June 30, 2002, the
table presents scheduled maturities and weighted average interest rates, by
maturity dates. For interest rate swaps, 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 June 30, 2002. 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 June 30, 2002, at then current market interest rates.

EXPECTED MATURITY DATE
(DOLLARS IN THOUSANDS)

(a) The average floating rate of interest represents the projected forward
rate at June 30, 2002.

34

Swap agreements, 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 equity holders.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

Portions of this Quarterly Report on Form 10-Q include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's current
expectations are disclosed herein and in the Company's other filings under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, (collectively, "Cautionary Disclosures"). The forward looking
statements included herein, and all subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf, are
expressly qualified in their entirety by the Cautionary Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information and disclosures regarding market risks applicable to the
Company is incorporated herein by reference to the discussion under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" contained elsewhere in this
Quarterly Report on Form 10-Q for the six months ended June 30, 2002.

35

PART II. -- OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On April 4, 2002, the Company issued 10,258 units of its 9% Series B
Cumulative Redeemable Preferred Units to FelCor in exchange for the net proceeds
from the issuance of a like number of FelCor's 9% Series B Cumulative Redeemable
Preferred Stock. The units issued were not registered under the 1933 Act in
reliance upon certain exemptions from the registration requirements thereof,
including the exemption provided by Section 4(2) of that act.

ITEM 5. OTHER INFORMATION.

For information relating to certain other transactions by the Company
through June 30, 2002, see Note 1 of Notes to Consolidated Financial Statements
of FelCor Lodging Limited Partnership contained in Item 1 of Part I of this
Quarterly Report on Form 10-Q. Such information is incorporated herein by
reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits: None

(b) Reports on Form 8-K:

A current report on Form 8-K dated June 17, 2002, was filed by the
Company on July 1, 2002. This filing, under Item 5, disclosed the execution of
the Company's Second Amendment to the Seventh Amended and Restated Credit
Agreement on June 17, 2002. The amendment was filed as an exhibit to the 8-K.

36

SIGNATURE

Pursuant to the requirements 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.

Dated: August [ ], 2002

FELCOR LODGING LIMITED PARTNERSHIP
A Delaware Limited Partnership

By FelCor Lodging Trust Incorporated
Its General Partner

By: Richard J. O'Brien
------------------------------------
Richard J. O'Brien
Executive Vice President and
Chief Financial Officer

By: Lester C. Johnson
------------------------------------
Lester C. Johnson
Senior Vice President and
Chief Accounting Officer

37