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 SEPTEMBER 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

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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.

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FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 LOSS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

FelCor Lodging Limited Partnership and its subsidiaries (the "Company")
had ownership interest in 183 hotels at September 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 September 30, 2002, FelCor
owned a greater than 85% partnership interest in the Company. At September 30,
2002, the Company owned a 100% interest in 145 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 29 hotels. Six
of the Company's hotels were designated as held for sale at September 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 September 30, 2002:

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION -- (CONTINUED)

At September 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 52.1% of the Company's hotel room revenues for the nine months
ended September 30, 2002, were generated from hotels in these four states.

At September 30, 2002, of the Company's 183 hotels, (i) subsidiaries of
Six Continents Hotels managed 83, (ii) subsidiaries of Hilton managed 72, (iii)
subsidiaries of Starwood managed 11, (iv) subsidiaries of Interstate Hotels
Corporation ("IHC") managed 10, and (v) three independent management companies
managed seven.

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 stockholders' equity.

The financial information for the three and nine months ended September
30, 2002 and 2001, is unaudited. 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. The accompanying financial statements
for the three and nine months ended September 30, 2002 and 2001 include
adjustments made to management's estimates 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
nine months ended September 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 nine months ended September
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 nine months ended September 30, 2002, as no additional hotels were
designated as held for sale during the period. At December 31, 2002, the Company
will determine if the six remaining hotels classified as held for sale under the
previous accounting standard continue to meet the held for sale criteria under
SFAS 144. If the SFAS 144 held for sale criteria is not met, the Company will
resume the depreciation of these hotels at approximately $250,000 per quarter.
If the SFAS 144 held for sale criteria is met, the operations of these hotels
will be reported as discontinued for all years presented.

During the nine months ended September 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 $1 million and $1.3 million in losses from
extinguishment of debt in the three and nine months ended September 30, 2001,
respectively, 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.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. NEW ACCOUNTING PRONOUNCEMENTS - (CONTINUED)

During the nine months ended September 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.

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 does not currently expect its adoption of SFAS 146 to have a material
impact on its financial position or results of operations.

Beginning in the first quarter of 2003, FelCor plans to implement the
expense recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." In 2001, the additional stock compensation expense that would
have been recorded under these provisions was approximately $272,000.

3. ACQUISITION OF HOTELS

On July 12, 2002, the Company acquired the 208-suite SouthPark Suite
Hotel in Charlotte, North Carolina for $14.5 million. This hotel was converted
to a Doubletree Guest Suites in October 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 Arcadian Shores Golf Club in Myrtle Beach, South Carolina. This hotel
will be converted to a Hilton hotel in the second quarter of 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.

4. 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, then 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 then
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.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. 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, and the
related lease termination costs for the nine months ended September 30, 2001,
are as follows (in thousands):

Cash and cash equivalents ............................ $ 25,300
Accounts receivable .................................. 30,214
Other assets ......................................... 17,318
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Total assets acquired ................................ 72,832
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Accounts payable ..................................... 18,656
Due to the Company ................................... 30,687
Accrued expenses and other liabilities ............... 40,072
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Total liabilities assumed ............................ 89,415
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Liabilities assumed in excess of assets acquired ..... 16,583
Value of FelCor common stock and units issued ........ 19,721
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Lease termination costs ......................... $ 36,304
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5. INVESTMENT IN UNCONSOLIDATED ENTITIES

The Company owned 50% interests in joint venture entities that owned 29
hotels at September 30, 2002, and 24 hotels at September 30, 2001. The Company
also owned a 50% interest in entities that own an undeveloped parcel of land,
provide condominium management services, develops condominiums in Myrtle Beach,
South Carolina, and leases thirteen hotels. 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):

Debt of the Company's unconsolidated entities at September 30, 2002,
consisted of $267.4 million of non-recourse mortgage debt. It also included $3.6
million of mortgage debt guaranteed by the Company and $3.3 million of mortgage
debt guaranteed by its joint venture partner. The debt guaranteed by the Company
consisted primarily of 50% of a loan related to the construction of a
residential condominium project in Myrtle Beach, South Carolina. The loan
commitment is for $97.6 million of which approximately $6.6 million was
outstanding as of September 30, 2002. The Company's guarantee reduces from 50%
to 25% of the outstanding balance when the condominium project is completed and
receives a certificate of occupancy, which the Company expects to occur in mid
to late 2004. The Company's guarantee is a payment guarantee and will trigger in
the event that the joint venture fails to pay interest or principal due under
the debt agreement. The loan matures in August 2005 and bears interest at LIBOR
plus 200 basis points.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. INVESTMENT IN UNCONSOLIDATED ENTITIES - (CONTINUED)

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 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 September 30,
2002 and 2001, the Company had six and 16 hotels designated as held for sale,
respectively. The Company continues to market the remaining six hotels 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 at June 30, 2000, or expected net sales proceeds. No depreciation expense
has been recorded on these hotels since June 30, 2000.

For the three and nine months ended September 30, 2002, the revenues,
less associated expenses, for hotels held for sale were approximately $1.7
million and $3.9 million, respectively. For the three and nine months ended
September 30, 2001, the revenues less associated expenses, for hotels held for
sale, were approximately $1.6 million and $8.6 million.

In August 2002, the Company sold five of the hotels held for sale,
located in Kansas, to a joint venture in which the Company retains a 50% equity
interest and an independent hotel company holds the other 50% equity interest.
The Company received net cash proceeds of approximately $4.4 million and
retained a $1.4 million common equity interest and a $6.3 million preferred
equity interest. Also in August 2002, the Company sold its 71-room Holiday Inn
Express hotel in Colby, Kansas, receiving net proceeds of $1.7 million. No gain
or loss was recorded in connection with these transactions as the proceeds
received approximated the book value of the properties.

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.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. DEBT

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

(a) At September 30, 2002, the Company had unencumbered
investments in hotels with a net book value totaling $2.3
billion.

(b) At September 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 that 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.
The interest rate swaps decreased interest expense by $2.8
million during the nine months ended September 30, 2002.

All of the Company's floating rate debt at September 30, 2002, was
based upon LIBOR. One month LIBOR at September 30, 2002, was 1.82%.

Interest expense for the nine months ended September 30, 2002 and 2001,
is reported net of interest income of $1.8 million and $2.3 million,
respectively, and capitalized interest of $609,000 and $657,000, 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 the Company 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 the Company's debt leverage ratio. The lenders' commitments under the
line of credit remain at $615 million. The Company had no outstanding balance
under its line of credit at September 30, 2002.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. DEBT - (CONTINUED)

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 stock repurchases and cash distributions). At September 30, 2002, the Company
was in compliance with all of these covenants.

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 dividends in excess of the minimum dividend
required for FelCor to meet the 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. Its 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 Company's mortgage debt is
non-recourse to it and contains provisions allowing for the substitution of
collateral upon satisfaction of certain conditions. Most of such mortgage debt
is prepayable, subject to various prepayment penalties, yield maintenance or
defeasance obligations.

8. 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. The Company uses interest rate hedges to manage its fixed and
floating interest rate position and not to engage in speculation on interest
rates. The Company manages interest rate risk based on the varying circumstances
of anticipated borrowings, and existing floating and fixed rate debt. It 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 September 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.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. DERIVATIVES - (CONTINUED)

The interest rate swap agreements held at September 30, 2002, are
designated as fair value hedges, and 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 $7.6 million at September 30, 2002, and
represents the amount the Company would receive upon a termination of the
agreements at that date, based on the then current market rates.

9. 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 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.
The net proceeds of $23.9 million were used for working capital, and allowed the
Company to accelerate discretionary capital expenditures.

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 September 30, 2002, the Company's TRSs had a deferred tax asset of
approximately $25 million, prior to any valuation allowance. This deferred tax
asset primarily consists of $16 million related to the accumulated losses of the
TRSs and $9 million related to accrued employee benefits. 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. ABANDONED PROJECT COSTS

Included in the three and nine months ended September 30, 2002, was
$1.7 million of abandoned project costs related to the Company's pursuit of a
large portfolio acquisition, for which the Company was unable to reach mutually
acceptable terms with the seller.

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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 nine months ended September 30, 2002 and
2001 (unaudited, in thousands, except per unit data):

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

Series A preferred distributions that would be excluded from net loss
applicable to unitholders, if the Series A preferred units, were dilutive were
$2.9 million for the three months ended September 30, 2002 and 2001 and $8.7
million for the nine months ended September 30, 2002 and 2001.

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)

CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
(IN THOUSANDS)

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(IN THOUSANDS)

17

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

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

18

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

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

19

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)

20

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)

21

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)

22

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

GENERAL

For background information relating to us and the definition 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.

Total revenues decreased $6.2 million and $131.9 million for the three
months and nine months ended September 30, 2002, when compared to the same
periods in the prior year on a pro forma basis, assuming acquisition of all
hotel leases on January 1, 2001. Our results of operations for the three and
nine months ended September are significantly affected by decreases in our hotel
portfolio's Revenue Per Available Room ("RevPAR") compared to the same periods
in the prior year. RevPAR was below that of the prior year by 2.5% for the three
months ended September 30, 2002 and 10.9% for the nine months ended September
30, 2002. However, our hotel occupancies have continued to gradually improve
during 2002, with the third quarter of 2002 being the first time since the third
quarter of 2000 that hotel occupancies increased compared to the prior year.

FINANCIAL COMPARISON (IN MILLIONS, EXCEPT REVPAR AND PERCENTAGE CHANGE)

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(1) For a discussion of the computation of FFO and EBITDA, see "Results of
Operations - Funds From Operations and EBITDA."

(2) Net loss for the three months ended September 30, 2001, includes $24
million of merger termination and merger related financing costs. Net
loss for the nine months ended September 30, 2001, includes $25 million
of merger termination and merger related financing costs and $37
million of lease termination costs.

RESULTS OF OPERATIONS

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

Total revenue decreased $6.2 million for the three months ended
September 30, 2002, over the same period in 2001. The principal component of
this decrease was a decrease in room revenue of $5.7 million. The principal
industry measurement of hotel room revenue is RevPAR. The Company's hotel
portfolio RevPAR for the three months ended September 30, 2002, was 2.5% below
that of the same period in 2001. The decrease in RevPAR was comprised of a 4.6%
decrease in average daily rate ("ADR"), partially offset by a 2.2% increase in
hotel occupancy. Our hotel occupancies for the quarter were 64.6%, but weak
economic conditions continue to depress ADR. The remaining decrease in revenue
primarily relates to our disposition of hotels.

Total operating expenses decreased $22.3 million for the three months
ended September 30, 2002, over the same three month period in 2001. This
decrease was principally due to merger termination costs of $19.9 million that
were expensed in 2001.

23

For the quarter, hotel operating expenses, as a percentage of hotel
operating revenues remained essentially constant, compared to the same period in
2001. Other property operating costs, as a percent of hotel operating revenue,
increased by 30 basis points, principally related to marketing costs and hotel
general and administrative costs.

Taxes, insurance and lease expense increased $1.6 million, compared to
the third quarter of 2001, principally as the result of increases in percentage
rent expense of $1.7 million and increased insurance costs of $0.7 million.
These increases were partially offset by a decrease in property tax of $0.5
million. The increase in percentage rent expense is due to an increase in
accrual estimates over those made in the prior year quarter after the events of
September 11, 2001. Property taxes decreased primarily as a result of the
resolution in the current quarter of prior year tax disputes.

Included in the current quarter were $1.7 million of abandoned project
costs related to our pursuit of a large portfolio acquisition. We were unable to
reach mutually acceptable pricing and terms with the seller as a result of the
uncertain operating environment and softening capital markets.

Interest expense, net of interest income, on recurring financing
increased $1.0 million for the three months ended September 30, 2002, over the
same period in 2001. The increase during the third quarter is primarily related
to the increase in average debt outstanding of $52 million in the current
quarter compared to the same period of 2001. The prior year quarter included
$4.1 million of merger related financing costs and a $1 million loss on early
extinguishment of debt related to the write-off of deferred loan costs.

Minority interest increased $1.4 million for the three months ended
September 30, 2002, compared to the same period in 2001. This change relates to
an increase in our minority partners' proportionate share of losses related to
other consolidated subsidiaries not owned by the Company.

Comparison of the Nine Months Ended September 30, 2002 and 2001

On July 1, 2001, we acquired 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 for these hotels. Consequently, the historical results for the
nine months ended September 30, 2002, and the nine months ended September 30,
2001, are not directly comparable.

Total revenue for the nine months ended September 30, 2002, increased
$110.1 million over the same period in 2001. The increase is principally
associated with reporting hotel operating revenues for 88 of the hotels during
the first six months of 2002, contrasted with percentage lease revenue reported
by the Company for these hotels during the same period in 2001. For the first
six months of 2002, these 88 hotels contributed approximately $305.3 million in
hotel operating revenue, compared to $115.1 million in percentage rent revenue
for the same hotels, during the same six month period in 2001. For the same
hotels, in the third quarter of 2002, hotel revenues decreased $8.7 million. For
our remaining consolidated hotels, total revenues decreased approximately $70.3
million for the nine months ended September 30, 2002. The principal component of
this decrease is a decrease in room revenue for these hotels of $58.1 million.
The RevPAR for these remaining hotels was 8.4% below that of the same period in
2001. The decrease in RevPAR for these hotels was comprised of a 2.1% decrease
in hotel occupancy and a 6.5% decrease in ADR. Weak economic conditions continue
to depress RevPAR. The remaining change in revenue, of $1.1 million, primarily
relates to a decrease in revenue from the disposition of hotels held for sale.

24

Total operating expenses increased $106.5 million for the nine months
ended September 30, 2002, over the same nine 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 during the first six
months of 2002 that were not included in the same period of 2001, prior to our
acquisition of the leases. Included in the prior year were $19.9 million of
merger termination costs associated with the termination of the MeriStar
Hospitality merger and $37 million of lease termination costs associated with
the acquisition of hotel leases.

Taxes, insurance and lease expense decreased $6.4 million, principally
as the result of decreases in lease expense of $7.6 million, and property taxes
of $3.8 million, partially offset by increased insurance costs of $4.0 million.
The decrease in lease expense is related to participating leases that are based
principally on revenues. Property taxes decreased principally from resolutions
of prior year property tax disputes.

Included in the nine months ended September 30, 2002, were $1.7 million
of abandoned project costs related to our pursuit of a large portfolio
acquisition. We were unable to reach mutually acceptable pricing and terms with
the seller as a result of the uncertain operating environment and softening
capital markets.

Interest expense, net of interest income, increased $5.2 million for
the nine months ended September 30, 2002, over the same period in 2001. The
increase for the period is primarily related to excess cash that we carried
during 2002 and an increase in average debt outstanding of $70.3 million over
the same period of 2001. The prior year included $5.2 million of merger related
financing costs and a $1.3 million loss on early extinguishment of debt related
to the write-off of deferred loan costs.

Equity in the income of unconsolidated entities decreased by $3.2
million, compared to the same nine month period in 2001. The decrease in 2002
principally resulted from a 10.1% drop in RevPAR from our unconsolidated hotels.

Minority interest increased $2.2 million for the nine months ended
September 30, 2002, over the same period in 2001. This change related to an
increase due to decreases in the proportionate share of income of other
consolidated entities not owned by the Company.

Included in net loss for the nine months ended September 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 net loss for the nine months ended September 30, 2001,
was a gain of $3.0 million related to condemnation proceeds received and a gain
of $0.5 million on the sale of land.

Comparison of the Nine Months Ended September 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 nine
months ended September 30, 2002, to the nine months ended September 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 nine months ended
September 30, 2001, assumes that our acquisition of the 88 hotel leases had
occurred on January 1, 2001.

25

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

26

FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 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
previously described 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 $131.9 million in 2002 compared to pro forma 2001,
primarily as a result of the weak economy and political uncertainties during the
period. As a result, both business and leisure travel declined significantly for
the nine months ended September 30, 2002, compared to the same pro forma period
in 2001. During the nine months ended September 30, 2002, our hotels' RevPAR
decreased 10.9%, compared to the same period in the prior year, which was
comprised of a decrease in hotel occupancy of 3.3 percentage points to 63.7% and
a decline in ADR of 6.3% to $97.55.

27

Other operating expenses decreased $64.6 million in 2002 compared to
pro forma 2001. However, other operating expense, as a percentage of total
revenue, increased from 65 to 67%. The principal reason for the increase in
other operating expenses, as a percentage of total revenue, was a 190 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.

Included in the prior year were $19.9 million of costs associated
with the termination of the MeriStar Hospitality merger; and $37 million of
lease termination costs associated with the acquisition of hotel leases.

Taxes, insurance and lease expense decreased $7.4 million,
principally as the result of decreases in lease expense of $7.6 million and
property taxes of $3.8 million, partially offset by increased insurance costs of
$3.0 million. The decrease in lease expense is related to participating leases
that are based principally on revenues. Property taxes decreased principally
from the resolution of prior year property tax disputes.

Included in the nine months ended September 30, 2002, were $1.7
million of abandoned project costs related to our pursuit of a large portfolio
acquisition. We were unable to reach mutually acceptable pricing and terms with
the seller as a result of the uncertain operating environment and softening
capital markets.

Interest expense from recurring financing, net of interest income,
increased $5.2 million. The increase for the period is primarily related to the
excess cash that we carried during 2002 and an increase in average debt of $70.4
million over the same period of 2001. The prior year included $5.2 million of
merger related financing costs and a $1.3 million loss on early extinguishment
of debt related to the write-off of deferred loan costs.

Equity in income from unconsolidated entities decreased $3.2 million,
principally as the result of the decrease in RevPAR previously discussed.

Minority interest increased $2.2 million for the nine months ended
September 30, 2002, over the same pro forma period in 2001. Minority interest
represents the proportionate share of the income or loss of other consolidated
subsidiaries not owned by the Company. This change principally reflects
increased losses.

Included in net income for the nine months ended September 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 nine months ended
September 30, 2001, was a gain of $3.0 million related to condemnation proceeds
received and a gain of $0.5 million on the sale of land.

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.

28

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, abandoned project costs, and loss from early extinguishment
of debt 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, abandoned project costs, and loss from early extinguishment
of debt. 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 meet 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, property acquisitions, and other commitments and
uncertainties.

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

- ----------

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

(b) Weighted average units outstanding, including dilutive options and
unvested FelCor stock grants, and assuming no conversion of Series A
preferred units.

29

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

30

Hotel Portfolio Composition

The following tables set forth as of September 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.

31

Hotel Operating Statistics

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

OPERATING STATISTICS BY BRAND
(FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30)

32

OPERATING STATISTICS FOR OUR TOP 10 MSAS
(FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30)

33

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 nine months ended September 30, 2002, net
cash flow provided by operating activities, consisting primarily of hotel
operations, was $91 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
stockholders required to maintain its REIT status. However, due to the sharp
reduction in travel following the terrorist attacks of September 11, 2001, the
continuing weak economy, 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 third
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 September 30, 2002, and no amount was outstanding
under the facility at that date.

In addition to financial covenants, our line of credit includes certain
other affirmative and negative covenants, including: restrictions on our ability
to create or acquire wholly-owned subsidiaries; restrictions on the
operation/ownership of our hotels; limitations on our ability to lease property
or guarantee leases of other persons; limitations on our ability to pay
dividends and make other 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 September 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 dividends in excess of the minimum dividend 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.

34

Based on the October 2002 operating results, and guidance that we have
provided for the remainder of 2002, we may be unable to satisfy all of the
covenant requirements under our line of credit. In such an event, we may need to
obtain further amendments from our lenders. We are currently working with our
lenders under the line of credit to amend the facility to provide for the
relaxation of certain covenants and the delay in the step-ups in certain
covenants through the maturity date. We are not certain, to what extent or upon
what terms the lenders may be willing to further amend the covenants, however we
anticipate the completion of an amendment prior to December 31, 2002. Further
amendments to our line of credit, if any, may result in additional restrictions
on our financial flexibility. As of the date of this filing we had no borrowings
outstanding under our line of credit, nor do we anticipate the need for any
borrowings under this facility in the immediate future, taking into
consideration our $93 million of cash and cash equivalents at September 30,
2002, $2.3 billion of unencumbered assets, and a breakeven portfolio hotel
occupancy, after debt service and preferred equity distributions, of
approximately 50% to 55%.

Failure to satisfy one or more of the financial or other covenants
under our line of credit could result in 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 recourse 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 fourth quarter of 2002, we currently anticipate our portfolio
RevPAR will be 4% to 6% above the comparable period of the prior year. FFO is
expected to be within the range of $14 million to $18 million, and EBITDA is
expected to be within the range of $62 million to $66 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 $118 million to $122 million and EBITDA to
be within the range of $311 million to $315 million. We currently anticipate
2002 capital expenditures will be between $55 and $60 million. For the nine
months ended September 30, 2002, capital expenditures totaled $35 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 October 2002 were 4.7% above the same
period in 2001.

For each of the three months ended March 31, 2002, June 30, 2002, and
September 30, 2002, we paid a distribution of $0.15 per unit on our units,
$0.4875 per unit on our $1.95 Series A Cumulative Convertible Preferred Units
and $0.5625 per depositary unit evidencing our 9% Series B Cumulative Redeemable
Preferred Units. A decision regarding the declaration of a fourth quarter
distribution will be made in December and will depend upon operating results for
the quarter, the political environment and expectations regarding the economy.

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

35

At September 30, 2002, we had $93 million of cash and cash equivalents.
Certain significant credit and debt statistics at September 30, 2002, are as
follows:

o Interest coverage ratio of 1.9x for the nine month period ended
September 30, 2002

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

o Consolidated debt equal to 39.1% 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 6.0 years and a
weighted average interest cost of 8.26%

o Mortgage debt to total assets of 17%

o Scheduled debt repayments of $4 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 $34.8 million on upgrading and renovating our
consolidated hotels during the nine months ended September 30, 2002. Our
unconsolidated entities spent approximately $10.4 million on upgrading and
renovating hotels and approximately $4.9 million on a condominium development
project during the nine months ended September 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 $60 million
for our consolidated hotels. We do not expect to provide any additional funding
for 2002 capital expenditures to our unconsolidated entities.

Quantitative and Qualitative Disclosures About Market Risk

At September 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 September 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 September 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 September 30, 2002, at then current market
interest rates.

EXPECTED MATURITY DATE
(DOLLARS IN THOUSANDS)

(a) At September 30, 2002, the Company's $175 million in publicly-traded
notes due October 2004 were matched with interest rate swap agreements
that 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.

36

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 our 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. Forward looking statements include, without limitation, any statement that
may predict, forecast, indicate or imply future results, performance or
achievements. Forward-looking statements involve risks and uncertainties that
may cause actual results to differ materially from the results contained in the
forward-looking statements. The risks, uncertainties and assumptions that may
affect the Company's actual results, which are discussed more fully in previous
Company filings under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (collectively, "Cautionary Disclosures")
include: general economic conditions, including the timing and magnitude of any
recovery from the current soft economy; future acts of terrorism; the
availability of capital; and numerous other factors which may affect results,
performance and achievements. 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 Disclosures. The Company undertakes no obligation to
update any forward-looking statements to reflect future events or circumstances.

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 nine months ended September 30, 2002.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the senior
management of FelCor (our general partner), including the Chief Executive
Officer and Chief Financial Officer of FelCor, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely accumulating and communicating to them
material information relating to the Company and its consolidated subsidiaries
that are required to be included in our periodic SEC filings.

(b) Changes in internal controls.

Not applicable.

37

PART II. -- OTHER INFORMATION

ITEM 5. OTHER INFORMATION.

For information relating to certain other transactions by the Company
through September 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:

10.28 Exchange Agreement dated as of October 1, 2002 by and
among FelCor Lodging Limited Partnership, FelCor
Lodging Trust Incorporated, and Six Continents Hotels
Operating Corp. (filed as Exhibit 10.28 to FelCor's
Form 10-Q for the quarter ended September 30, 2002,
filed November 14, 2002, and incorporated herein by
reference).

99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Executive Officer of FelCor
Lodging Trust Incorporated, the Company's general
partner.

99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Financial Officer of FelCor
Lodging Trust Incorporated, the Company's general
partner.

(b) Reports on Form 8-K:

A current report on Form 8-K, dated as of August 14, 2002, was
filed by the Company on August 14, 2002. This filing, under Item 9, disclosed
the execution of the certification by its principal executive officer, Thomas J.
Corcoran, Jr., and its principal financial officer, Richard J. O'Brien, for
purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. The certification was filed as an exhibit to the
Form 8-K.

38

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: November 14, 2002

FELCOR LODGING LIMITED PARTNERSHIP
A Delaware Limited Partnership

By FelCor Lodging Trust Incorporated
Its General Partner

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

By: /s/ Lester C. Johnson
-------------------------------------
Lester C. Johnson
Senior Vice President and
Principal Accounting Officer

39

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

I, Thomas J. Corcoran, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging
Limited Partnership;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Thomas J. Corcoran, Jr.
-----------------------------------
Thomas J. Corcoran, Jr.
Chief Executive Officer of
FelCor Lodging Trust Incorporated,
as general partner of FelCor
Lodging Limited Partnership

40

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

I, Richard J. O'Brien, certify that:

1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging
Limited Partnership;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

d) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

d) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Richard J. O'Brien
-----------------------------------
Richard J. O'Brien
Chief Financial Officer of
FelCor Lodging Trust Incorporated,
as general partner of
FelCor Lodging Limited Partnership

41

INDEX TO EXHIBITS