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, 2003

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 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
--- ---

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---

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FELCOR LODGING LIMITED PARTNERSHIP

INDEX

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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 SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(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 (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(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 SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(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

In 1994, FelCor Lodging Limited Partnership, or FelCor LP, was
established with six hotels. We are now the nation's second largest owner of
full service, all-suite hotels. Our sole general partner is FelCor Lodging Trust
Incorporated, or FelCor, is the second largest lodging real estate investment
trust, or REIT. At June 30, 2003, FelCor owned a greater that 95% equity
interest in our operations. Our hotel portfolio at June 30, 2003, included 77
upscale, all-suite hotels, 85 hotels in the upscale or full service segments and
the largest number of Embassy Suites Hotels(R) and independently-owned
Doubletree Guest Suites(R) hotels in North America.

At June 30, 2003, we had ownership interests in 181 hotels. We owned a
100% real estate interest in 143 hotels, a 90% or greater interest in entities
owning seven hotels, a 60% interest in an entity owning two hotels, a 51%
interest in an entity owning eight hotels and 50% interests in unconsolidated
entities that own 21 hotels. As a result of our ownership interests in the
operating lessees of 175 of these hotels, we reflect their operating revenues
and expenses in our consolidated statements of operations. The operating
revenues and expenses of the remaining six hotels are unconsolidated.

At June 30, 2003, we had an aggregate of 62,154,164 shares of FelCor
common stock and units of FelCor LP limited partnership interest outstanding.

The following table reflects the distribution, by brand, of the 175
hotels included in our consolidated hotel operations at June 30, 2003:

BRAND
Hilton Hotels Corporation, or Hilton, brands:
Embassy Suites Hotels........................................... 59
Doubletree(R) and Doubletree Guest Suites....................... 13
Hampton Inn(R).................................................. 4
Hilton and Hilton Suites(R)..................................... 2
Homewood Suites(R).............................................. 1
InterContinental Hotels Group brands:
Holiday Inn(R).................................................. 40
Crowne Plaza(R) and Crowne Plaza Suites(R)...................... 18
Holiday Inn Select(R)........................................... 10
Holiday Inn Express(R).......................................... 3
Staybridge Suites(R)............................................ 1
Starwood Hotels & Resorts Worldwide Inc., or Starwood, brands:
Sheraton(R) and Sheraton Suites(R).............................. 10
Westin(R)....................................................... 1
Marriott International, Inc., or Marriott brands:
Fairfield Inn(R) by Marriott(R)................................. 5
Courtyard(R) by Marriott........................................ 2
Other brands......................................................... 6
---
Total hotels......................................................... 175
===

The hotels shown in the above table are located in the United States
(35 states) and Canada (six hotels), with concentrations in Texas (41 hotels),
California (19 hotels), Florida (16 hotels) and Georgia (14 hotels).
Approximately 51% of our hotel room revenues were generated from hotels in these
four states during the quarter.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION -- (CONTINUED)

At June 30, 2003, of the 175 hotels, (i) subsidiaries of
InterContinental Hotels Group, or IHG, managed 80, (ii) subsidiaries of Hilton
managed 72, (iii) subsidiaries of Starwood managed 11, (iv) subsidiaries of
Interstate Hotels Corporation, or IHC, managed 10, and (v) two independent
management companies managed one each.

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 (loss) or partners' capital.

The financial information for the three and six months ended June 30,
2003, and 2002, 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 six months ended June 30, 2003, and 2002, include adjustments
made to management's estimates (consisting of an impairment charge and normal
recurring accruals) which we consider 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, 2002,
included in our Annual Report on Form 10-K for the year ended December 31, 2002
("Form 10-K"). Operating results for the three and six months ended June 30,
2003, are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2003.

2. INVESTMENT IN UNCONSOLIDATED ENTITIES

We owned 50% interests in joint venture entities that owned 21 hotels
at June 30, 2003, and 24 hotels at June 30, 2002. We also owned a 50% interest
in entities that: own an undeveloped parcel of land; provide condominium
management services; develop condominiums in Myrtle Beach, South Carolina; and
lease five hotels. We account for our investments in these unconsolidated
entities under the equity method.

Effective June 1, 2003, we made a $0.2 million capital contribution to
our joint venture with IHC, which increased our ownership in that venture to
more than 50 percent. As a result, we began consolidating the eight hotels owned
by this venture. The consolidation of these eight hotels increased our net
investment in hotels by $73 million, increased our debt by $51 million and
reduced our investment in unconsolidated entities by $19 million.

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

Debt of our unconsolidated entities at June 30, 2003, consisted of
$215.1 million of non-recourse mortgage debt. It also included $15.5 million of
mortgage debt guaranteed by us and $15.3 million of mortgage debt guaranteed by
Hilton, one of our joint venture partners. The debt guaranteed by us 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 $30.6 million was outstanding as of June
30, 2003. Our guarantee reduces from 50% to 25% of the outstanding balance when
the condominium project is completed and

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. INVESTMENT IN UNCONSOLIDATED ENTITIES - (CONTINUED)

receives a certificate of occupancy, which we expect to occur in late 2004. Our
guarantee is a payment guarantee and will require us to pay 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. As of June 30, 2003, we had not established any liability related
to our guarantees of debt because it was not believed to be probable that we
would be required to perform under the guarantees.

Summarized combined statement of operations information for 100% of our
unconsolidated entities is as follows (in thousands):

3. DEBT

Debt consisted of the following (in thousands):

(a) At June 30, 2003, our $175 million publicly-traded notes due
October 2004 and $75 million of our publicly traded notes due
October 2007, were matched with interest rate swap agreements
that effectively converted the fixed interest rate on the
notes to a floating interest rate tied to LIBOR. The
differences to be paid or received by us 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
$1.7 million and $3.3 million for the three months and six
months ended June 30, 2003, respectively.

(b) Calculated based on the weighted average outstanding debt at
June 30, 2003.

All of our floating rate debt at June 30, 2003, was based upon LIBOR
(1.1% as of June 30, 2003).

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. DEBT -- (CONTINUED)

We reported interest expense, net of interest income, of $0.6 million,
and capitalized interest of $0.1 million, for both the three months ended June
30, 2003 and 2002. We reported interest expense, net of interest income, of $0.9
million and $1.2 million, and capitalized interest of $0.5 million and $0.3
million, for the six months ended June 30, 2003 and 2002, respectively.

In June 2003, we entered into a non-recourse secured loan facility for
up to $200 million, with a delayed draw feature. This facility has an initial
term of 18 months, that can be extended for an additional six months at our
option, and carries a floating interest rate of LIBOR plus 225 to 275 basis
points, depending on the loan-to-value ratio of the facility. The outstanding
balances on the loan facility are expected to be converted into 10-year fixed
rate commercial mortgage backed securities loans. At the date of this filing, no
draws had been made and capacity available under this facility was $120 million,
secured by seven hotels. The amount available under this facility may be
increased to a maximum of $200 million as additional properties are mortgaged to
secure borrowings thereunder. With the inclusion of additional hotels, which are
subject to final underwriting and customary closing conditions, we expect to
have the capacity available of approximately $170 million to $180 million under
this facility by the end of the third quarter.

During this quarter, we also reduced the commitments under our
unsecured line of credit from $300 million to $50 million. The line of credit
has an accordion feature that allows us to increase the commitments to $200
million, subject to lender consent and the satisfaction of certain conditions.
As the result of this reduction in our line commitments, we charged-off
unamortized costs of $2.8 million during the second quarter. We had no
borrowings outstanding under our line of credit at June 30, 2003.

On April 24, 2003, we completed a $150 million non-recourse mortgage
loan, at a floating interest rate of LIBOR plus 250 basis points, secured by 10
full service hotels. The loan matures in May 2006, with two, one-year extension
options. The proceeds were used to pay off all outstanding borrowings under our
unsecured line of credit.

In May 2003, we made a prepayment of $7.1 million of secured debt and
recorded a gain from debt extinguishment of $0.3 million. In February 2003, we
made a prepayment of $5.2 million of secured debt and recorded a gain from debt
extinguishment of $1.0 million.

Effective March 31, 2003, we completed the refinancing of $15.5 million
of secured debt that was to mature in late 2003. Under the refinancing terms,
this fixed rate debt was converted to a floating interest rate of LIBOR plus 285
basis points effective August 2003. The new maturity is August 2008.

In the first quarter of 2003, we entered into two interest rate swaps.
These fair value swaps are the same type as those that existed at December 31,
2002, in that they modify a portion of the interest characteristics of our
outstanding fixed rate debt, without an exchange of the underlying principal
amount, and effectively convert fixed rate debt to a variable rate. As
designated fair value hedges, these swaps are marked to market through the
income statement, but offset by the change in fair value of our swapped
outstanding fixed rate debt. The notional amount of these new swaps is $50
million, on which we will receive a fixed rate of 7.625% and pay a rate of LIBOR
plus an average spread of 4.325%.

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
and 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 (such as distributions on common and preferred stock, share repurchases
and certain investments); 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;

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. DEBT -- (CONTINUED)

limitations on our ability to enter into transactions with affiliates; and
limitations on our ability to enter into joint ventures. At June 30, 2003, we
were in compliance with all covenants under our line of credit.

At the date of this filing, we have no restrictions on our ability to
use our line of credit. However, at certain leverage levels, usage under the
line of line credit is restricted to fund operational cash flow shortfalls. At
these higher leverage levels, excess cash flow from operations and net cash
proceeds from sales, must first be used to reduce any outstanding balances under
our line of credit.

Failure to satisfy one or more of the financial or other covenants
under our line of credit would result in our inability to borrow under the line
of credit and a continuation of such default could result in an event of
default, notwithstanding our ability to meet our debt service obligations. If
revenue per available room declines continue or become more severe, we may be
unable to satisfy all of the covenant requirements under our line of credit.
Other events that would be events of default under our line of credit include a
default in the payment of other recourse indebtedness in the amount of $10
million or more, bankruptcy or a change of control.

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

Our publicly-traded senior unsecured notes require that we satisfy a
total leverage, a secured leverage and an interest coverage test in order to:
incur additional indebtedness, except under our line of credit or to refinance
maturing debt with replacement debt, as defined in our senior unsecured note
indentures; pay distributions in excess of the minimum distribution required to
meet FelCor's REIT qualification test; repurchase FelCor stock; or merge. As of
June 30, 2003, and the date of this filing, we have satisfied all such
incurrence tests. If revenue per available room declines continue or become more
severe, we may be unable to satisfy all of the incurrence tests under our senior
unsecured notes.

As a consequence of the prolonged economic slowdown, its impact on the
travel and lodging industries and our higher secured debt levels, Moody's
lowered its ratings on our $1.2 billion in senior unsecured debt to B1, in June
2003. This downgrade, coupled with a similar downgrade by Standard & Poor's
earlier in the year, triggered a 50 basis point step-up in interest rates on
$900 million of our senior unsecured debt, which will continue in effect unless
and until either Moody's raises its ratings on our senior unsecured debt to Ba3
or Standard & Poor's raises its rating to BB-.

4. DERIVATIVES

On the date we enter into a derivative contract, we designate the
derivative as a hedge to the exposure to changes in the fair value of a
recognized asset or liability or a firm commitment (referred to as a fair value
hedge), or the exposure to variable cash flows of a forecasted transaction
(referred to as a cash flow hedge). For a fair value hedge, the gain or loss is
recognized in earnings in the period of change, together with the offsetting
loss or gain on the hedged item attributable to the risk being hedged. The
effect of that accounting is to reflect in earnings the extent to which the
hedge is not effective in achieving offsetting changes in fair value. For a cash
flow hedge, the effective portion of the derivative's gain or loss is initially
reported as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. The ineffective portion of the gain or loss is reported in earnings
immediately. At June 30, 2003, all of our outstanding hedges were fair value
hedges.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. DERIVATIVES -- (CONTINUED)

We formally document all relationships between hedging instruments and
hedged items, as well as our risk-management objective and strategy, relating to
our various hedge transactions. This process includes linking all derivatives to
specific assets and liabilities on the balance sheet or specific firm
commitments. We also formally assess (both at the hedge's inception and on an
ongoing basis) whether the derivatives that are used in hedging transactions
have been highly effective in offsetting changes in the cash flows or fair
values of hedged items and whether those derivatives may be expected to remain
highly effective in future periods. When we determine that a derivative is not
(or has ceased to be) highly effective as a hedge, we will discontinue hedge
accounting, prospectively.

In the normal course of business, we are exposed to the effect of
interest rate changes. We limit these risks by following established risk
management policies and procedures including the use of derivatives. It is our
objective to use interest rate hedges to manage our fixed and floating interest
rate position and not to engage 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 will result in the least amount of
reported earnings volatility under generally accepted accounting principles,
while still meeting strategic economic objectives and maintaining adequate
liquidity and flexibility. Instruments that meet these hedging criteria are
formally designated as hedges at the inception of the derivative contract.

To manage the relative mix of our debt between fixed and variable rate
instruments, at June 30, 2003, we had entered into nine interest rate swap
agreements with five financial institutions with an aggregate notional value of
$250 million. These interest rate swap agreements modify a portion of the
interest characteristics of our outstanding fixed rate debt, without an exchange
of the underlying principal amount, and effectively convert fixed rate debt to a
variable rate.

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

The interest rate swap agreements held at June 30, 2003, are designated
as fair value hedges, are marked to market through the income statement, but are
offset by the change in fair value of our swapped outstanding fixed rate debt.
The estimated unrealized net gain on these interest rate swap agreements was
approximately $10.2 million at June 30, 2003, and represents the amount we would
receive if the agreements were terminated based on current market rates.

The fixed rates we will receive and the variable rates we will pay
under these swaps as of June 30, 2003, are summarized in the following table:

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. DERIVATIVES -- (CONTINUED)

The differences between the amounts paid or received by us under the
terms of the interest rate swap agreements are accrued as interest rates change
and we recognize them as an adjustment to interest expense, which will have a
corresponding effect on our future cash flows. Our interest rate swaps have
semi-annual settlement dates in April and October. Agreements such as these
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
Standard & Poor's credit ratings for the financial institutions that are
counterparties to our interest rate swap agreements range from A to AA-.

In conjunction with the $150 million non-recourse mortgage loan,
executed in April 2003, we purchased 6% interest rate caps with a notional
amount of $150 million. We concurrently sold interest rate caps with identical
terms. These interest rate cap agreements have not been designated as hedges.
The changes in the fair value of both the purchased and sold interest rate caps
is $0.2 million at June 30, 2003, resulting in no net earnings impact.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. HOTEL OPERATING REVENUE, DEPARTMENTAL EXPENSES AND OTHER PROPERTY OPERATING
COSTS

Hotel operating revenue from continuing operations was comprised of the
following (in thousands):

Hotel departmental expenses from continuing operations were comprised
of the following (in thousands):

Other property operating costs from continuing operations were
comprised of the following (in thousands):

Included in hotel departmental expenses and other property operating
costs were hotel compensation and benefit expenses of $104.3 million and $105.3
million for the three months ended June 30, 2003 and 2002, respectively and
$207.1 million and $205.6 million for the six months ended June 30, 2003 and
2002, respectively.

6. TAXES, INSURANCE AND LEASE EXPENSE

Taxes, insurance and lease expense is comprised of the following (in
thousands):

(a) Includes lease expense associated with 15 hotels owned by
unconsolidated entities. Included in lease expense is $4.0 and $4.8
million in percentage rent for the three months ended June 30, 2003
and 2002, respectively, and $6.0 and $8.1 million in percentage rent
for the six months ended June 30, 2003 and 2002, respectively.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. DISCONTINUED OPERATIONS

On July 29, 2003, we sold our Doubletree Guest Suites in Nashville,
Tennessee, for net proceeds of approximately $3.0 million. This hotel was held
for sale as of June 30, 2003, with a net book value of approximately $3.0
million. The results of operations of this hotel for the three and six months
ended June 30, 2003 and 2002 is included in discontinued operations in the
accompanying statement of operations.

In May 2003, we sold two non-strategic hotels, the 138-room Hampton Inn
in Moline, Illinois, and the 132-room Hampton Inn in Davenport, Iowa, for
aggregate net sales proceeds of $6.5 million. We realized a loss of $0.5 million
on these sales. The realized loss on sale and the results of operations of these
hotels for the three and six months ended June 30, 2003 and 2002, are included
in discontinued operations in the accompanying statement of operations.

8. OTHER DISPOSITIONS

During the second quarter, we recorded a $7.8 million impairment charge
related to two low rise Harvey hotels in Dallas. We relinquished title to these
hotels through a foreclosure auction on August 5, 2003. At June 30, 2003, these
hotels were reflected on our balance sheet at $10 million, with related
non-recourse debt of $13 million, offset by $3 million in escrows and reserves
retained by the lender. During the past 12 months, these hotels incurred cash
flow losses of approximately $1.7 million, in the aggregate. We may be subject
to additional impairment charges in the event that operating results of
individual hotels are materially different from our forecasts, the economy and
lodging industry remains weak, or if we shorten our contemplated holding period
for certain of our hotels.

We lease a hotel under a lease that expires in 2004, subject to our
right, exercisable during the fourth quarter of this year, to extend the term of
the lease under certain conditions. The lessor under this lease asserted that we
were in default thereunder on July 31, 2003. We are currently evaluating our
ability to, and the desirability of, seeking to extend the term of this lease.
Should we not extend the lease, we could incur an impairment charge with respect
to this hotel which, at June 30, 2003, was carried at $11.1 million on our
balance sheet.

In May 2003, we sold a parking garage adjacent to our Crown Plaza -
Union Square hotel in San Francisco, California, for net sales proceeds of $5.6
million and realized a gain of $0.2 million.

During the three months ended June 30, 2002, we sold our 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, we 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.
We also recognized a $0.2 million gain related to the condemnation of land
adjacent to one of our hotels.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. EARNINGS (LOSS) PER UNIT

The following table sets forth the computation of basic and diluted earnings
(loss) per unit (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 (in thousands):

Series A convertible preferred distributions that would be excluded
from net loss applicable to unitholders, if these preferred units were dilutive,
were $2.9 million for the three months and $5.8 million for the six months ended
June 30, 2003 and 2002, respectively.

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. STOCK BASED COMPENSATION PLANS

FelCor applies APB Opinion 25 and related interpretations in accounting
for its stock based compensation plans for stock based compensation issued prior
to January 1, 2003. In 1995, SFAS 123, "Accounting for Stock-Based
Compensation," was issued, which, if fully adopted by FelCor, would have changed
the methods they apply in recognizing the cost of the plans. As permitted under
the transition provisions of SFAS 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure," they began recognizing compensation expense in
accordance with SFAS 123 for all new awards issued after December 31, 2002. Had
the compensation cost for all of their stock-based compensation plans been
determined in accordance with SFAS 123, our net income or loss related per unit
amount for the three and six months ended June 30, 2003 and 2002 would
approximate the pro forma amounts below (in thousands, except per unit data):

The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of future results.

11 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

11. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2003
(IN THOUSANDS)

ASSETS

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(IN THOUSANDS)

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(IN THOUSANDS)

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FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

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

21

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(IN THOUSANDS)

22

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

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

23

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(IN THOUSANDS)

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

12. CONTINGENCIES

On July 31, 2003, we were notified that the lessor of one of our hotels
was asserting a default by us of our obligations of maintenance, repair and
replacement under the lease, and asserting that the cost of correcting alleged
deficiencies was approximately $13.9 million. We have not yet had the
opportunity to evaluate whether or not this claim has any merit.

24

FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

We have identified three strategic objectives for 2003: improve the
competitive positioning of our hotel portfolio; maintain our financial
flexibility; and reposition our portfolio. We have made the following progress
in meeting these objectives through the date of this filing:

o Improve the competitive positioning of our hotel portfolio

o The Hilton Myrtle Beach Resort was converted from the
Wyndham(R) brand following the completion of a $15
million renovation.

o We converted an extended-stay hotel in Dallas, which
was operating without a brand affiliation, to a
Staybridge Suites(R) in the first quarter of 2003.

o We continue to provide the necessary capital spending
to add long-term value to our hotels. We spent
approximately 7% of our revenues, or $42.0 million,
on capital expenditures in the first six months of
2003, and we expect to spend a total of $65 to $70
million, or 5% of revenues, for the full year.

o Maintenance of our financial flexibility and liquidity

o We closed on a $150 million non-recourse mortgage
loan in April and used the proceeds to payoff all
outstanding balances under our line of credit.

o We entered into a secured debt facility of up to $200
million that, when fully collateralized, will provide
us with additional capacity to repay the $175 million
in senior notes maturing in October 2004.

o We had cash and cash equivalents at June 30, 2003, of
$182.7 million, of which $162.1 million was
unrestricted.

o Repositioning our portfolio

o We have closed on the sale of three non-strategic
hotels and a parking garage in 2003, with net sales
proceeds of approximately $15.3 million.

o We currently have received offers that are under
negotiation, or signed contracts, on 15 properties
with estimated proceeds of approximately $110
million.

FINANCIAL COMPARISON (IN MILLIONS, EXCEPT REVENUE PER AVAILABLE ROOM ("REVPAR"),
OPERATING MARGIN AND PERCENTAGE CHANGE)

- ----------

(1) Operating margin is calculated as the percentage of hotel operating
revenue in excess of hotel departmental expenses, other property
operating costs, and management and franchise fees to hotel operating
revenue.

(2) For a discussion of the computation of FFO and EBITDA, and a
reconciliation thereof to net income (loss), see "Results of Operations
- Funds From Operations and EBITDA" below.

25

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2003 and 2002

We recognized a net loss of $21.7 million for the three months ended
June 30, 2003, compared to net income of $14.1 million for the same period in
2002. The principal reasons for the net loss in 2003, compared to the net income
in 2002, were a decrease in total revenue of $22.5 million and an impairment
charge of $7.8 million.

The primary component of the decrease in total revenue was a decrease
in room revenue of $18.3 million. One of the hotel industry's principal
measurements of room revenue is RevPAR. Our consolidated hotel portfolio RevPAR
for the three months ended June 30, 2003, was $60.33, or 7.6% below that of the
same period in 2002. The decrease in RevPAR resulted from a 4.8% decrease in
average daily rate , or ADR, and a 3.0% decrease in occupied rooms as a
percentage of available rooms, or Occupancy. The decrease in RevPAR reflected
the decline in both business and leisure travel for the three months ended June
30, 2003, compared to the same period in the prior year. Travel was negatively
affected during the three months ended June 30, 2003, by the conflict in Iraq,
heightened terror alerts, and the lingering effects of SARS. In addition, food
and beverage revenue decreased $3.5 million, principally resulting from the
decreased Occupancy at our hotels during this period.

Total operating expenses decreased by $3.5 million, to $297.9 million,
for the three months ended June 30, 2003, compared to the same period in 2002.
This decrease primarily consisted of decreases in hotel operating expenses
(defined as hotel departmental expenses, other property operating costs and
management and franchise fees) and depreciation.

Hotel operating expenses decreased by $1.5 million, for the three
months ended June 30, 2003, compared to the same period in 2002. However, hotel
operating margins, as a percentage of hotel operating revenues, decreased by 390
basis points, compared to the same period last year. The deterioration in
margins is principally related to a 4.8% decline in ADR, and increases, as a
percentage of hotel revenue, in energy costs (80 basis points), repairs and
maintenance (50 basis points) and marketing (80 basis points). Included in the
departmental costs were increases in employee wages and benefit costs, on lower
headcount compared to prior year, which resulted in an increase in these costs
as a percentage of total revenue of 180 basis points.

Depreciation expense decreased by $1.5 million in the current quarter,
compared to the same quarter of 2002, primarily from an increase in fully
depreciated furniture, fixtures and equipment.

Taxes, insurance and lease expense decreased $0.1 million, compared to
the same period of 2002, principally from a decrease in operating lease expense
of $1.5 million. This decrease was largely offset by increases in real estate
and other taxes of $1.0 million and property and general liability insurance
expense of $0.4 million. The decrease in operating lease expense resulted from
the decrease in hotel revenue for those hotels with participating leases. Real
estate and other taxes increased primarily because of decreased expense in 2002
from resolution of prior years disputed property taxes.

Interest expense, net of interest income, decreased $0.3 million for
the three months ended June 30, 2003, from the same period in 2002. This net
decrease primarily relates to a $2.9 million decrease from a lower average
interest cost of 58 basis points, partially offset by a $2.5 million increase
from a higher average debt balance of $114.1 million. The higher average debt
balance relates to our decision in the first quarter of 2003, to carry excess
cash.

The three months ended June 30, 2003, included $2.8 million of
charge-offs of deferred financing costs from the reduction in our outstanding
line of credit commitments from $300 million to $50 million, and a $0.3 million
gain on early extinguishment of debt.

26

During the second quarter, we recorded a $7.8 million impairment charge
related to two low rise Harvey hotels in Dallas. We relinquished title to these
hotels through a foreclosure auction on August 5, 2003. At June 30, 2003, these
hotels were reflected on our balance sheet at $10 million, with related
non-recourse debt of $13 million, offset by $3 million in escrows and reserves
retained by the lender. During the past 12 months, these hotels incurred cash
flow losses of approximately $1.7 million, in the aggregate. We may be subject
to additional impairment charges in the event that operating results of
individual hotels are materially different from our forecasts, the economy and
lodging industry remains weak, or if we shorten our contemplated holding period
for certain of our hotels.

We lease a hotel under a lease that expires in 2004, subject to our
right, exercisable during the fourth quarter of this year, to extend the term of
the lease under certain conditions. The lessor under this lease asserted that we
were in default thereunder on July 31, 2003. We are currently evaluating our
ability to, and the desirability of, seeking to extend the term of this lease.
Should we not extend the lease, we could incur an impairment charge with respect
to this hotel which, at June 30, 2003, was carried at $11.1 million on our
balance sheet.

Equity in the income of unconsolidated entities decreased $0.6 million
for the three months ended June 30, 2003, compared to the same period in 2002.
The change principally relates to the 4.2% decrease in RevPAR for our
unconsolidated hotels.

During the three months ended June 30, 2003, we realized a $0.2 million
gain from the sale of a parking garage adjacent to one of our hotels. During the
three months ended June 30, 2002, we also realized a gain of $5.1 million on the
sale of retail space and of $0.8 million on the sale of a hotel.

Minority interest decreased our net loss by $0.3 million for the three
months ended June 30, 2003 and decreased our net income by $0.8 million for the
three months ended June 30, 2002. Minority interest represents the proportionate
share of the income or loss of other consolidated subsidiaries allocated to
minority interest holders.

Discontinued operations reflected an $0.8 million loss in 2003,
compared to income of $0.4 million in 2002. Included in discontinued operations
for 2003, was a realized loss of $0.5 million on the sale of two hotels in the
second quarter and $0.3 million of operating losses from the sold hotels and one
additional hotel that was held for sale. Discontinued operations in 2002
represented the operating income of these three hotels.

Comparison of the Six Months Ended June 30, 2003 and 2002

We recorded a net loss of $44.3 million for the six months ended June
30, 2003, compared to net income of $5.8 million for the same period in 2002.
The principal components of the difference between the net loss in 2003,
compared to the net income in 2002, were a decrease in total revenue of $39.9
million and an impairment charge of $7.8 million related to two hotels.

The primary component of the decrease in total revenue was a decrease
in room revenue of $32.3 million. One of the hotel industry's principal
measurements of room revenue is RevPAR. Our hotel portfolio RevPAR for the six
months ended June 30, 2003, was $59.19, or 6.4% below that of the same period in
2002. The decrease in RevPAR was comprised of a 4.4% decrease in ADR, and a 2.0%
decrease in Occupancy. The decrease in RevPAR reflected the decline in both
business and leisure travel for the six months ended June 30, 2003, compared to
the same period in the prior year. Travel was negatively affected during the six
months ended June 30, 2003, by the conflict in Iraq, heightened terror alerts
issued, and the SARS outbreak. In addition, food and beverage revenue decreased
$6.3 million, primarily due to the decreased Occupancy.

Total operating expenses decreased by $5.8 million, to $586.5 million,
for the six months ended June 30, 2003, compared to the same period in 2002.
This decrease primarily consisted of decreases in taxes, insurance and lease
expense and depreciation, partially offset by increases in hotel operating
expenses (defined as hotel departmental expenses, other property operating
costs, and management and franchise fees).

27

Hotel operating expenses increased by $1.1 million, for the six months
ended June 30, 2003, compared to the same period in 2002. Hotel operating
margins as a percentage of hotel operating revenue decreased by 420 basis points
compared to the same period last year. The deterioration in margins is
principally related to a 4.4% decline in ADR and increases, as a percentage of
hotel revenue, in energy costs (80 basis points), repairs and maintenance (60
basis points) and marketing (90 basis points). Included in the departmental
costs were increases in employee wages and benefit costs, on lower headcount
compared to prior year, which resulted in an increase in these costs as a
percentage of total revenue of 220 basis points.

Depreciation expense decreased by $4.2 million, primarily due to an
increase in fully depreciated furniture, fixtures and equipment.

Taxes, insurance and lease expense decreased $2.2 million, compared to
the same period of 2002, principally as the result of decreases in operating
lease expense of $2.9 million. This decrease was partially offset by increases
in property and general liability insurance expense of $1.0 million. The
decrease in operating lease expense is from the decrease in hotel revenue for
those hotels with participating leases.

Interest expense, net of interest income, decreased $1.2 million for
the six months ended June 30, 2003, from the same period in 2002. This net
decrease primarily relates to a $9.8 million decrease from a lower average
interest cost of 86 basis points, partially offset by a $8.3 million increase
resulting from higher average debt balances of $175.7 million. The higher
average debt balance relates to our decision, in the first quarter of 2003, to
carry excess cash.

The six months ended June 30, 2003, included $2.8 million of
charge-offs of line of credit costs related to the reduction in our outstanding
line of credit commitments from $300 million to $50 million, and $1.3 million of
gain on early extinguishment of debt.

During the second quarter, we recorded a $7.8 million impairment charge
related to two low rise Harvey hotels in Dallas. We relinquished title to these
hotels through a foreclosure auction on August 5, 2003. At June 30, 2003, these
hotels were reflected on our balance sheet at $10 million, with related
non-recourse debt of $13 million, offset by $3 million in escrows and reserves
retained by the lender. During the past 12 months, these hotels incurred cash
flow losses of approximately $1.7 million, in the aggregate. We may be subject
to additional impairment charges in the event that operating results of
individual hotels are materially different from our forecasts, the economy and
lodging industry remains weak, or if we shorten our contemplated holding period
for certain of our hotels.

We lease a hotel under a lease that expires in 2004, subject to our
right, exercisable during the fourth quarter of this year, to extend the term of
the lease under certain conditions. The lessor under this lease asserted that we
were in default thereunder on July 31, 2003. We are currently evaluating our
ability to, and the desirability of, seeking to extend the term of this lease.
Should we not extend the lease, we could incur an impairment charge with respect
to this hotel which, at June 30, 2003, was carried at $11.1 million on our
balance sheet.

Equity in income of unconsolidated entities decreased $2.0 million for
the six months ended June 30, 2003, compared to the same period in 2002. The
change relates principally to a 4.9% decrease in RevPAR at our unconsolidated
hotels.

During the six months ended June 30, 2003, we realized a $0.2 million
gain from the sale of a parking garage adjacent to one of our hotels. During the
six months ended June 30, 2002, we realized a gain of $5.1 million on the sale
of retail space and $0.8 million on the sale of a hotel.

Minority interest decreased $1.4 million for the six months ended June
30, 2003, compared to the same period in 2002. Minority interest represents the
proportionate share of the income or loss of other consolidated subsidiaries
allocated to minority interests.

28

Discontinued operations reflected a $0.9 million loss in 2003 compared
to income of $0.5 million in 2002. Included in discontinued operations for 2003,
was a realized loss of $0.5 million on the sale of two hotels in the six months
ended June 30, 2003, and $0.4 million of operating losses from the sold hotels
and one additional hotel that was held for sale. Discontinued operations in 2002
represented the operating income of these three hotels.

Funds From Operations and EBITDA

Historical cost accounting for real estate assets implicitly assumes
that the value of real estate assets diminish predictably over time. Since real
estate values instead have historically risen or fallen with market conditions,
most industry investors consider supplemental measurements of performance to be
helpful in evaluating a real estate company's operations. We consider Funds From
Operations, or FFO, and Earnings Before Interest, Taxes, Depreciation, and
Amortization, or 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
generally accepted accounting principles), excluding gains or losses from sales
of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect funds from operations
on the same basis. We believe that FFO and EBITDA are helpful to investors as a
measure of the performance of an equity REIT. We compute FFO in accordance with
standards established by NAREIT. This may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current NAREIT
definition, or that interpret the current NAREIT definition differently than we
do.

29

The following tables detail our computation of FFO and EBITDA (in
thousands):

RECONCILIATION OF NET INCOME (LOSS) TO FFO
(in thousands, except per unit data)

(a) Included in FFO is the charge-off of debt related costs of $2.5 million for
the three months ended June 30, 2003, and $1.6 million for the six months ended
June 30, 2003, net of gains on extinguishment of debt.

RECONCILIATION OF FFO TO EBITDA
(in thousands)

30

Hotel Portfolio Composition

The following tables set forth, as of June 30, 2003, our consolidated
hotel portfolio distribution by brand, by our top metropolitan markets, 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, 2002.

31

Hotel Operating Statistics

The following tables set forth historical occupancy, ADR and RevPAR at
June 30, 2003 and 2002, and the percentage changes therein between the periods
presented, for our 175 consolidated hotels:

OPERATING STATISTICS BY BRAND

32

OPERATING STATISTICS FOR OUR TOP 10 MARKETS

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 six months ended June 30, 2003, net cash
flow provided by operating activities, consisting primarily of hotel operations,
was $32.3 million. We currently expect that our cash flow provided by operating
activities for 2003 (after preferred distributions) will be approximately $55
million to $61 million using current RevPAR forecasts. We expect our 2003
capital expenditures to be approximately $65 to $70 million, of which $42
million has been spent during the six months ended June 30, 2003. We expect to
close on non-strategic asset sales of $50 million to $75 million by the end of
the year. We currently have received offers that are under negotiation, or
signed contracts, on 15 properties with estimated proceeds of approximately $110
million. We have no remaining debt maturities during the remainder of 2003,
other than $9 million in normal recurring principal payments. Cash necessary to
fund cash flow shortfalls and distributions, if any, will be funded from our
cash balances, which were $182.7 million at June 30, 2003, proceeds from the
sale of hotels or additional borrowings. We expect FelCor's Board of Directors
to defer future common distributions until our hotels experience a 2% to 4%
increase in RevPAR over 2002, and to determine the amount of preferred
distributions, if any, for each quarterly period, based upon the operating
results of that quarter, economic conditions, other operating trends and minimum
REIT distribution requirements. We do not currently anticipate paying any
distributions on our common units during 2003.

Recent events, including the threat of additional terrorist attacks,
U.S. military involvement in the Middle East and the bankruptcy of several major
corporations, have had an adverse impact on the capital markets. These events,
new terrorist attacks or additional bankruptcies could further adversely affect
the availability and cost of capital for our business. In addition, should the
anticipated recovery of the overall economy, and of the lodging industry,
continue to be delayed significantly, that too could adversely affect our
operating cash flow and the availability and cost of capital for our business.
As a consequence of the prolonged economic slowdown, its impact on the travel
and lodging industries and our higher secured debt levels, Moody's lowered its
ratings on our $1.2 billion in senior unsecured debt one level, to B1 in June
2003. This downgrade, along with a similar downgrade by Standard & Poor's
earlier this year, triggered a 50 basis point step-up in interest rates on $900
million of our $1.2 billion in senior unsecured debt, which will continue in
effect unless and until either Moody's raises its rating on our senior unsecured
debt to Ba3 or Standard & Poor's increases its rating to BB-. The step-up in
interest rates will increase our interest expense by $4.5 million on an annual
basis.

We are also subject to the risks of fluctuating hotel operating margins
at our hotels, including but not limited to increases in wage and benefit costs,
repair and maintenance expenses, utilities, insurance, and other operating
expenses that can fluctuate disproportionately to revenues. These operating
expenses are difficult to predict and control, resulting in an increased risk of
volatility in our results of operations. The economic slowdown and the sharp
drop in Occupancy and ADR that began in 2001, have resulted both in declines in
RevPAR and an erosion in operating margins. 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, earnings and cash flow.

Effective June 1, 2003, we made a $0.2 million capital contribution to
our joint venture with Interstate Hotels, which increased our ownership in that
venture to more than 50 percent. As a result, we began consolidating the eight
hotels, owned by this venture. The consolidation of these eight hotels increased
our investment in hotels by $73 million, our debt by $51 million and reduced our
investment in unconsolidated entities by $19 million.

In June 2003, we entered into a non-recourse secured debt facility with
JPMorgan Chase Bank for up to $200 million. This secured facility has an initial
term of 18 months, that can be extended for an additional six months at FelCor's
option, and carries a floating interest rate of LIBOR plus 225 to 275 basis
points. The outstanding balances on the loan facility are expected to be
converted into 10-year fixed rate commercial mortgage backed securities loans
through JPMorgan Chase Bank. At the date of this filing, no draws had been
made and capacity available under this facility was $120 million, secured by
seven hotels. The amount available under this facility may be increased to a
maximum of $200 million as

34

additional properties are mortgaged to secure borrowings thereunder. With the
inclusion of additional hotels, which are subject to final underwriting and
customary closing conditions, we expect to have capacity available of
approximately $170 million to $180 million under this facility by the end of the
third quarter.

On April 24, 2003, we entered into a $150 million non-recourse mortgage
loan, at a floating interest rate of LIBOR plus 250 basis points secured by 10
full service hotels. The loan matures in May 2006, with two, one-year extension
options. The proceeds were used to pay off all outstanding borrowings under our
unsecured line of credit. We have no remaining debt maturing during 2003, other
than $9 million in normal recurring principal payments. Our next significant
debt maturity is our $175 million of senior notes maturing in October 2004. We
expect to satisfy this obligation primarily from our excess cash and additional
secured debt capacity. However, we also anticipate that we will have positive
cash flow from operations and net sales proceeds from the sale of non-strategic
hotels that may be available as secondary sources of funds for repayment of this
debt in the next 12 to 16 months.

In the first six months of 2003, we prepaid $12.3 million of secured
debt and recorded gains from debt extinguishment of $1.3 million.

In June 2003, we reduced our unsecured line of credit commitments from
$300 million to $50 million, and obtained more relaxed covenant levels. In
addition to financial covenants, our unsecured 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
and 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 (such as distributions on units and preferred units, FelCor share
repurchases and certain investments); limitations on our ability to merge or
consolidate with other persons, to issue stock of our subsidiaries and to 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, 2003, and at the date of this
filing, we were in compliance with all of these covenants. At the date of this
filing, we have no restrictions on our ability to use our line of credit.
However, at certain leverage levels, usage under the line of line credit is
restricted to fund operational cash flow shortfalls. At these higher leverage
levels, excess cash flow from operations and net cash proceeds from sales, must
first be used to reduce any outstanding balances under our line of credit.

Unless our business and cash flow stabilizes, we may not be able to
satisfy the current financial covenant requirements. In such an event, we may
need to obtain further amendments from our lenders under the line of credit to
continue to be able to borrow under it. We are not certain whether, to what
extent, or upon what terms the lenders may be willing to further relax the
covenants. Further amendments to our line of credit may result in additional
restrictions on us that, together with any limitation on our ability to borrow
under the line, may adversely affect our ability to run our business and manage
our financial affairs.

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

Our publicly-traded senior unsecured notes require that we satisfy a
total leverage, a secured leverage and an interest coverage test in order to:
incur additional indebtedness, except under our line of credit or to refinance
maturing debt with replacement debt, as defined under our indentures; pay
distributions in excess of the minimum distributions required to meet FelCor's
REIT qualification test; repurchase units; or merge. As of the date of this
filing, we have satisfied all such incurrence tests. We currently expect that we
will have the flexibility to meet these tests unless RevPAR declines continue or
become more severe. We anticipate meeting our debt service obligations through a
combination of cash on hand, cash flow from operations, additional secured debt
and the sale of non-strategic hotel assets.

35

Our failure to timely satisfy any judgment or recourse indebtedness, if
in the amount of $10 million or more, could result in the acceleration of most
of our other unsecured recourse indebtedness. We may not be able to refinance or
repay our debt in full under those circumstances.

Selected Ratios

(a) Investment in hotels at cost is defined as our pro rata share of
consolidated investment in hotels, before accumulated depreciation,
plus our pro rata share of unconsolidated investment in hotels, before
accumulated depreciation.

(b) EBITDA to consolidated interest paid represents trailing twelve month
consolidated EBITDA divided by trailing twelve month interest expense
before capitalized interest and amortization of debt costs.

(c) EBITDA to total interest expense represents trailing twelve month
consolidated EBITDA divided by trailing twelve month interest expense,
including the Company's pro rata share of unconsolidated interest
expense.

(d) Fixed charges include preferred distributions, consolidated interest
expense and interest expense from unconsolidated entities.

Current Forecast

For the third quarter of 2003, we currently anticipate our portfolio
RevPAR to be 1% to 3% below the comparable period of the prior year and
operating margins to decrease 200 to 250 basis points from 2002 levels. Our net
loss for the third quarter of 2003, before asset sales, is expected to be within
the range of $29 million to $26 million. FFO for the third quarter is expected
to be within the range of $11 million to $14 million, or $0.18 to $0.23 per
share and unit, and EBITDA is expected to be within the range of $63 million to
$66 million for the same period.

We estimate our full year 2003 hotel portfolio RevPAR to be 3% to 4%
below 2002, and that operating margins for 2003 will decrease by 250 to 275
basis points from 2002 levels. Our net loss for the full year 2003, before asset
sales, is expected to be within the range of $120 million to $114 million. Our
FFO for the full year 2003 is currently anticipated to be within the range of
$45 million to $51 million, or $0.72 to $0.82 per share and unit, and EBITDA is
expected to be within the range of $252 million to $258 million for the same
period.

In the event that RevPAR declines, compared to the prior year, are
greater than anticipated in the preparation of this forecast, or operating
margins are lower than anticipated, we may not meet our forecast for the
remainder of the year. We expect to be able to meet our preferred distribution
obligations even if RevPAR declines for the year are 6% to 8% below prior year.
Our RevPAR results for July 2003 were approximately 0.7% below the same period
in 2002 and our RevPAR for the first seven days of August was approximately 1.5%
below the same period in 2002.

36

Our estimates of FFO and EBITDA for the third quarter and full year of
2003 were derived from our estimate of net loss applicable to unitholders for
these periods. The following table provides a reconciliation of our estimates of
FFO and EBITDA to our estimates of net loss applicable to unitholders for both
the third quarter and full year 2003.

RECONCILIATION OF ESTIMATED NET INCOME (LOSS) TO FFO AND EBITDA
(in millions, except per unit data)

(a) Weighted average units are 61.8 million, adding unvested restricted
units of 0.3 million, provides the weighted average units of 62.2
million used to compute FFO per unit.

(b) Represents the impairment loss of $7.8 million and realized losses on
the sale of assets of $0.3 million, which was recorded in the second
quarter.

(c) Included in full year FFO are $0.03 per unit in charge-offs of
deferred financing loan costs, net of a $1.3 million gain on early
extinguishment of debt, which was recorded in the six month period
ended June 30, 2003.

37

Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2003, approximately 80% 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, 2003, the
following 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, 2003. 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, 2003, at then current market interest
rates.

EXPECTED DEBT MATURITY DATES
(DOLLARS IN THOUSANDS)

(a) At June 30, 2003, the Company's $175 million and $75 million in
publicly-traded notes due October 2004 and October 2007, respectively,
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 have the same
maturity as the notes.

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 Standard & Poor's 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 meet our cash requirements.

38

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 our actual results, some of which are discussed more fully in our
previous 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 impact on the travel industry of increased security precautions;
the availability of capital; the impact of U.S. military involvement in the
Middle East and elsewhere; the ability to effect sales of non-strategic hotels
at anticipated prices and numerous other factors that may affect results,
performance and achievements. The forward looking statements included herein,
and all subsequent written and oral forward looking statements attributable to
us or persons acting on our behalf, are expressly qualified in their entirety by
the Cautionary Disclosures. We undertake 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 us 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 - Quantitative and Qualitative
Disclosures About Market Risks" contained elsewhere in this Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2003.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of FelCor's
principal executive officer and principal financial officer, of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
FelCor's principal executive officer and principal financial officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. There was no change in our internal control over financial reporting
during our most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

(b) Changes in internal controls.

Not applicable.

39

PART II. -- OTHER INFORMATION

ITEM 5. OTHER INFORMATION.

For information relating to certain other transactions by the Company
through June 30, 2003, 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: The following exhibits are filed as part of this
Quarterly Report on Form 10-Q:

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT

10.30- Loan Facility Agreement, dated June 18, 2003, by and among
FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel,
L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM BWI Hotel,
L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Orlando
Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C. and FelCor/JPM
Wilmington Hotel, L.L.C., as borrowers, FCH/DT BWI Hotel, L.L.C.,
as a guarantor, and JPMorgan Chase Bank, as lender, and
acknowledged by FelCor Lodging Limited Partnership, relating to
the non-recourse secured debt facility with lender for up to $200
million aggregate principal amount (the "Loan Facility") (filed
as Exhibit 10.31 to FelCor Lodging Trust Incorporated's
("FelCor") June 2003 Form 10-Q and incorporated herein by
reference).

10.30.1 - Form of Mortgage, Deed of Trust, Deed to Secure Debt and Security
Agreement and Fixture Filing, each dated June 18, 2003, from each
of FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES
Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM
Nashville Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P.,
FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Orlando Hotel,
L.L.C. and FelCor Hotel Asset Company, L.L.C. (as owner of the
Orlando-Airport hotel), and FelCor/JPM Wilmington Hotel, L.L.C.,
as mortgagor, grantor and/or trustor, as applicable, and FCH/DT
BWI Holdings, L.P. and FCH/DT BWI Hotel, L.L.C., as owner and
ground lessee, respectively, of the Maryland hotel, in favor of
JPMorgan Chase Bank, as mortgagee, grantee or beneficiary, as
applicable, each covering a separate hotel and securing the Loan
Facility (filed as Exhibit 10.31.1 to FelCor's June 2003 Form
10-Q and incorporated herein by reference).

10.30.2 - Promissory Note, dated June 18, 2003, made by FelCor/JPM
Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C.,
FelCor/JPM Austin Holdings, L.P., FelCor/JPM BWI Hotel, L.L.C.,
FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Nashville Hotel,
L.L.C., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Phoenix
Hotel, L.L.C. and FelCor/JPM Wilmington Hotel, L.L.C., payable to
the order of JPMorgan Chase Bank in the original principal amount
of up to $200 million (filed as Exhibit 10.31.2 to FelCor's June
2003 Form 10-Q and incorporated herein by reference).

10.30.3 - First Amendment to Note, Loan Agreement, Environmental Indemnity
Agreement and Other Loan Documents, dated July 31, 2003, by and
among FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES
Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM
Mandalay Hotel, L.L.C., FelCor/JPM Nashville Hotel, L.L.C.,
FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Phoenix Hotel,
L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., FelCor Hotel Asset
Company, L.L.C., BHR Operations, L.L.C., DJONT Leasing, L.L.C.,
DJONT Operations, L.L.C., FCH/DT Leasing, L.L.C., FCH/DT Leasing
II, L.L.C., FelCor/TRS Holdings, L.P., FelCor/JPM LBV Hotel,
L.L.C., DJONT/JPM Austin Leasing, L.P., DJONT/JPM Mandalay
Leasing, L.L.C., DJONT/JPM Phoenix

40

Leasing, L.L.C., DJONT/JPM BWI Leasing, L.L.C., DJONT/JPM Orlando
Leasing, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., DJONT/JPM
Atlanta ES Leasing, L.L.C., DJONT/JPM LBV Leasing, L.L.C., and
FelCor Lodging Limited Partnership, as loan parties, and JPMorgan
Chase Bank, as lender (filed as Exhibit 10.31.3 to FelCor's June
2003 Form 10-Q and incorporated herein by reference).

31.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the
Chief Executive Officer.

31.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the
Chief Financial Officer.

32.1 - 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.

32.2 - 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.

(b) Reports on Form 8-K:

None were issued during the three months ended June 30, 2003.

41

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 14, 2003

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

42

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT

10.30- Loan Facility Agreement, dated June 18, 2003, by and among
FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel,
L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM BWI Hotel,
L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Orlando Hotel,
L.L.C., FelCor/JPM Phoenix Hotel, L.L.C. and FelCor/JPM Wilmington
Hotel, L.L.C., as borrowers, FCH/DT BWI Hotel, L.L.C., as a
guarantor, and JPMorgan Chase Bank, as lender, and acknowledged by
FelCor Lodging Limited Partnership, relating to the non-recourse
secured debt facility with lender for up to $200 million aggregate
principal amount (the "Loan Facility") (filed as Exhibit 10.31 to
FelCor Lodging Trust Incorporated's ("FelCor") June 2003 Form 10-Q
and incorporated herein by reference).

10.30.1- Form of Mortgage, Deed of Trust, Deed to Secure Debt and Security
Agreement and Fixture Filing, each dated June 18, 2003, from each of
FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel,
L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Nashville
Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Phoenix
Hotel, L.L.C., FelCor/JPM Orlando Hotel, L.L.C. and FelCor Hotel
Asset Company, L.L.C. (as owner of the Orlando-Airport hotel), and
FelCor/JPM Wilmington Hotel, L.L.C., as mortgagor, grantor and/or
trustor, as applicable, and FCH/DT BWI Holdings, L.P. and FCH/DT BWI
Hotel, L.L.C., as owner and ground lessee, respectively, of the
Maryland hotel, in favor of JPMorgan Chase Bank, as mortgagee,
grantee or beneficiary, as applicable, each covering a separate
hotel and securing the Loan Facility (filed as Exhibit 10.31.1 to
FelCor's June 2003 Form 10-Q and incorporated herein by reference).

10.30.2- Promissory Note, dated June 18, 2003, made by FelCor/JPM Atlanta CP
Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM
Austin Holdings, L.P., FelCor/JPM BWI Hotel, L.L.C., FelCor/JPM
Mandalay Hotel, L.L.C., FelCor/JPM Nashville Hotel, L.L.C.,
FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C.
and FelCor/JPM Wilmington Hotel, L.L.C., payable to the order of
JPMorgan Chase Bank in the original principal amount of up to $200
million (filed as Exhibit 10.31.2 to FelCor's June 2003 Form 10-Q
and incorporated herein by reference).

10.30.3- First Amendment to Note, Loan Agreement, Environmental Indemnity
Agreement and Other Loan Documents, dated July 31, 2003, by and
among FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES
Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Mandalay
Hotel, L.L.C., FelCor/JPM Nashville Hotel, L.L.C., FelCor/JPM
Orlando Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM
Wilmington Hotel, L.L.C., FelCor Hotel Asset Company, L.L.C., BHR
Operations, L.L.C., DJONT Leasing, L.L.C., DJONT Operations, L.L.C.,
FCH/DT Leasing, L.L.C., FCH/DT Leasing II, L.L.C., FelCor/TRS
Holdings, L.P., FelCor/JPM LBV Hotel, L.L.C., DJONT/JPM Austin
Leasing, L.P., DJONT/JPM Mandalay Leasing, L.L.C., DJONT/JPM Phoenix
Leasing, L.L.C., DJONT/JPM BWI Leasing, L.L.C., DJONT/JPM Orlando
Leasing, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., DJONT/JPM
Atlanta ES Leasing, L.L.C., DJONT/JPM LBV Leasing, L.L.C., and
FelCor Lodging Limited Partnership, as loan parties, and JPMorgan
Chase Bank, as lender (filed as Exhibit 10.31.3 to FelCor's June
2003 Form 10-Q and incorporated herein by reference).

31.1- Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the
Chief Executive Officer.

31.2- Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the
Chief Financial Officer.

32.1- 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.

32.2- 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.