UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from            to

Commission file number 333-3959-01

FelCor Lodging Limited Partnership

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

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

None

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

None
(Title of class)

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

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

     The aggregate market value of the voting and non voting limited partnership interests held by non-affiliates of the registrant at the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $13 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement pertaining to the 2004 Annual Meeting of Stockholders of FelCor Lodging Trust Incorporated filed pursuant to Regulation 14A, is incorporated herein by reference into Part III.

FELCOR LODGING LIMITED PARTNERSHIP

INDEX

     This Annual Report on Form 10-K contains registered trademarks owned or licensed by companies other than us, including but not limited to Candlewood Suites®, Courtyard by Marriott®, Crowne Plaza®, Disneyland®, Doubletree®, Doubletree Guest Suites®, Embassy Suites Hotels®, Fairfield Inn®, Four Points® by Sheraton, Hampton Inn®, Harvey Hotel®, Harvey Suites®, Hilton®, Hilton Grand Vacations Company®, Hilton Suites®, Holiday Inn®, Holiday Inn & Suites®, Holiday Inn Express®, Holiday Inn Express & Suites®, Holiday Inn Select®, Homewood Suites® by Hilton, InterContinental®, Priority Club®, Sheraton®, Sheraton Suites®, St. Regis®, Staybridge Suites®, The Luxury Collection®, W®, Walt Disney World®, Worlds of Fun® and Westin®.

Part I

Item 1. Business

     At December 31, 2003, FelCor Lodging Limited Partnership and our subsidiaries, or FelCor LP, had a consolidated hotel portfolio of 161 hotels with nearly 45,000 rooms and suites at December 31, 2003. Two of these hotels were subject to firm sale contracts and included in our discontinued operations at year end. The sole general partner of FelCor LP is FelCor Lodging Trust Incorporated, or FelCor, a Maryland corporation, the nation’s second largest hotel real estate investment trust, or REIT. At December 31, 2003, FelCor owned a greater than 95% interest in FelCor LP. Our hotels are located in the United States (33 states) and Canada, with concentrations in Texas (38 hotels), California (19 hotels), Florida (16 hotels) and Georgia (14 hotels). We own the largest number of Embassy Suites Hotels, Crowne Plaza, Holiday Inn and independently owned Doubletree-branded hotels. We also owned a 50% interest in five hotels that were not included in our consolidated operations at year end. When used in this Annual Report on Form 10-K, “we” refers to FelCor LP and its consolidated subsidiaries, unless otherwise indicated.

     We seek to increase operating cash flow through aggressive asset management and the competitive positioning of our hotels, to maintain a sound and flexible capital structure, and to reposition our portfolio through the sale of non-strategic hotels and reinvestment in newer, higher quality hotels in major urban and resort markets with greater growth potential. The hotels in which we will reinvest sale proceeds are expected to be ones that are affiliated with, or will benefit from affiliation with, one of the premium brands available to us through our strategic brand owner and manager relationships with Hilton Hotels Corporation, or Hilton, InterContinental Hotels Group, or IHG, and Starwood Hotels & Resorts Worldwide Inc., or Starwood.

     At December 31, 2003, we had an aggregate of 62,154,264 redeemable and common units of FelCor LP limited partnership interest outstanding.

Background

     As a result of the passage of the REIT Modernization Act, effective January 1, 2001, we were allowed to own the lessees of our hotels through taxable REIT subsidiaries, or TRSs. In 2001, we acquired our hotel leases from DJONT Operations L.L.C., or DJONT, and IHG.

     Upon acquisition of our hotel leases, we began recording hotel revenues and expenses, rather than just rental revenue, and became exposed to all of the risks and rewards of hotel operations. Under the leases, the rent payable to us would vary only as a result of changes in hotel revenues. By acquiring the leases, our cash flow and net income also vary as a result of changes in the operating margins of our hotels. Through the ownership of our operating lessees, we now consolidate the operating revenues and expenses of 161 of our hotels. The operating revenues and expenses of the five unconsolidated hotels in which we own a 50% interest are accounted for using the equity method.

     Our business is conducted in one reportable segment, which is hospitality. During 2003, we derived 97% of our revenues from hotels located within the United States and the balance from our Canadian hotels.

     Additional information on our business can be found on FelCor’s website at www.felcor.com and in the Notes to Consolidated Financial Statements located elsewhere in this Annual Report on Form 10-K.

Developments During 2003

     Calendar years 2001 and 2002 produced the first two consecutive years of declining industry revenue per available room, or RevPAR, since such statistics began to be compiled and, in 2003, industry RevPAR improved by only 0.2%, compared to 2002. Primarily as a result of the concentration of our hotels in certain markets, the RevPAR performance of our hotels was below the national average during the period. For the year ended December 31, 2003, the 159 hotels included in our continuing operations experienced a decline in RevPAR of 4.4%, compared to 2002. The decrease in year over year RevPAR resulted in lower revenues at

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our hotels, decreased operating margin, as a percentage of total revenue, and a reduction in our operating income. During 2003, we also recorded impairment charges totaling $246 million, principally relating to the 18 non-strategic hotels identified in 2003 that we expect to sell over the next two years and the further reduction in estimated fair market value of 17 hotels designated as non-strategic prior to 2003.

     During 2003, we completed a comprehensive review of our investment strategy and hotel portfolio and identified smaller, underperforming hotels, generally in secondary and tertiary markets, that we wished to sell. We started the review process in 2000, prior to the economic downturn, and at that time identified 26 non-strategic hotels for sale. We continued the review of our portfolio in 2002 and identified 27 additional hotels that we intended to sell. Finally, we completed the review of our portfolio in 2003, during which we identified an additional 18 hotels as non-strategic.

     Of the 71 hotels identified as non-strategic from 2000 through 2003, we disposed of 20 hotels prior to 2003, disposed of 16 hotels during 2003 and classified two hotels that were subject to firm sale contracts as “held for sale” at December 31, 2003. We identify hotels as “held for sale,” and include them in our discontinued operations, when we determine that it is probable that the hotel will be sold within the following twelve months. Through March 12, 2004, we had sold the two hotels “held for sale” at December 31, 2003, and two additional non-strategic hotels, receiving gross proceeds of approximately $30 million, and expect to dispose of the remaining 31 non-strategic hotels over the next two years.

     In support of this strategy to dispose of non-strategic hotels, in 2003 we executed an amendment to our management agreement with IHG, which is described in greater detail under “Business Strategy – Non-Strategic Hotels” below. This amendment provides us with the flexibility to sell a number of IHG managed hotels and use the proceeds to pay down debt. In the absence of this amendment, we would have been required to either reinvest the sale proceeds in other IHG managed hotels or pay substantial liquidated damages to IHG.

     During 2003, we completed two financing transactions and sold 16 non-strategic hotels which provided us with sufficient cash and borrowing capacity to meet our foreseeable cash requirements and allowing us to terminate our $50 million line of credit in March 2004. These financing transactions are described in greater detail below.

     In June 2003, we entered into a new secured delayed draw facility with JPMorgan Chase Bank for up to $200 million. Through the date of this filing, there have been no borrowings under this facility, and we have an estimated $174 million of borrowing capacity based on the underwritten cash flows of the 14 hotels currently securing this facility. The amount available to us under this facility will fluctuate, prior to conversion into commercial mortgage backed security (CMBS) loans, depending upon the number of hotels provided as security and the underwritten cash flows of those hotels, from time to time. This non-recourse 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 2.25 to 2.75 percent. The outstanding balances on this loan facility will be converted by the lender into fixed rate or floating rate CMBS loans, and we have a one-time option to convert up to $75 million in borrowings to a floating rate CMBS loan. Upon conversion, the fixed rate loans will have a term of 10 years and any floating rate loans will have a maximum term of five years.

     In April 2003, we entered into a $150 million non-recourse facility consisting of a $115 million first mortgage loan and $35 million of mezzanine financing, at a combined floating interest rate of LIBOR plus 2.50 percent. The mortgage loan is secured by 10 full service hotels. The equity interests in the related special purpose ownership entities secure the mezzanine debt. The first mortgage loan and mezzanine debt mature in May 2006, but may be extended at our option for up to two, one-year periods. The proceeds were used to pay off all then outstanding borrowings under our unsecured line of credit.

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     In 2003, by amendment, we reduced our unsecured line of credit commitments from $300 million to $50 million and obtained more relaxed covenant levels. In March 2004, we elected to terminate our line of credit, which is expected to result in the first quarter charge-off of unamortized loan costs of approximately $0.3 million and produce cash savings of approximately $0.4 million during the remainder of 2004. At December 31, 2003, and at the date of termination of the line of credit, there were no borrowings under the line of credit and we were in compliance with all applicable covenants.

     For 2003, we paid preferred distributions of $1.95 per unit on our Series A preferred units and preferred distributions of $2.25 per depository unit on our Series B preferred units. No common distributions were paid during 2003.

The Industry

     Calendar years 2001 and 2002 produced the first two consecutive years of declining industry RevPAR since such statistics began to be compiled. It was in this environment that we began 2003. The following historical data was provided by Smith Travel Research, or STR, a leading provider of industry data, and was obtained from its presentation to the Americas Lodging Investment Summit on January 19, 2004, STR Lodging Review, January 22, 2004, and STR Lodging Review, February, 2004.

     Industry demand during the first quarter of 2003 was adversely affected by a number of factors, including the pending war with Iraq, “Orange Level” travel alerts and the outbreak of Severe Acute Respiratory Syndrome, or SARS. These factors continued to affect the lodging industry during the second quarter, as the crisis in the Middle East culminated in Operation Iraqi Freedom and as medical professionals were working around the globe to curb the spread of SARS. Despite the rapid collapse of the Iraqi regime and the announcement of the end of major combat operations on March 1, “Orange Level” alerts continued to impact travel throughout the year. In July, the industry performance finally started to improve, and RevPAR, a key indicator of hotel market performance, increased above 2002 levels. Driven by slightly higher occupancy, but essentially unchanged average daily rate, or ADR, the full year 2003 finished with RevPAR 0.2% higher than in 2002.

     Overall, the demand for U.S. hotel rooms for the full year 2003 increased 1.6%, while the growth in new supply continued to decline, increasing only 1.3% for the year. Leisure travelers accounted for a significant portion of the increased demand, while business travel remained weak due to the economy’s “jobless recovery” and the limited willingness of businesses to increase travel budgets. Average daily lodging demand in 2003 for weekend nights (Friday and Saturday) was 2.9 million rooms, which is slightly above the prior year. In contrast, average daily weekday demand in 2003 was 2.6 million rooms, which is still below the peak of 2.7 million rooms attained in 2000. Following the decline of demand in 2001 (minus 3.5%) and an almost stagnant year in 2002 (plus 0.6%), the 1.6% increase in demand during 2003 hopefully signals the beginning of a recovery in the industry. Nevertheless, the modest recovery in demand during 2003 was not uniform across the industry, with significant differences in performance between geographic locations and hotel types. Houston, Atlanta and Denver suffered from declines in demand in 2003, compared to the prior year, while Anaheim, Phoenix and San Diego experienced strong increases in demand. Both the Midscale With Food & Beverage and the Economy chain categories, as defined by STR, saw demand decline, while all other categories showed an improvement in demand.

     Growth in the supply of available rooms is a critical factor in determining the health of the lodging industry and in the ability of hotels to raise or sustain rates in a market. The growth rate of available rooms has steadily declined over the last six years, from 3.9% in 1998 to only 1.3% in 2003, and is projected to increase only 1.4% during 2004. This level of growth is the lowest since 1993, and well below the historical 15-year average.

     Many sources predict that 2004 will be a year of substantial recovery for the lodging industry. The U.S. economy’s strong growth in the third and fourth quarters of 2003, together with rebounding corporate profits and a rising stock market, have given us a reason to be hopeful. STR forecasts that RevPAR for the U.S. lodging industry will increase by 4.5% during 2004, assuming that supply growth remains fairly stable and demand achieves expected levels. PricewaterhouseCoopers LLP has been even more optimistic. Their

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firm, at its presentation to the Americas Lodging Investment Summit on January 19, 2004, forecasted industry RevPAR to increase 5.2% during 2004. However, the road to recovery is unlikely to be uniform across the country, with each market facing its own dynamics between demand and supply.

     During January and February 2004, our 159 hotels included in continuing operations achieved increases in RevPAR, compared to the same months of 2002, of 2.2%, and 1.0%, respectively.

     At December 31, 2003, STR classified hotel chains into six distinct categories: Upper Upscale, Upscale, Midscale With Food & Beverage, Midscale Without Food & Beverage, Economy, and Independents. We own properties in the Upper Upscale (including Doubletree Guest Suites, Doubletree, Embassy Suites Hotels, Sheraton and Westin hotels), Upscale (including Crowne Plaza and Homewood Suites), and Midscale With Food & Beverage (including Holiday Inn and Holiday Inn Select hotels) categories, from which we derived approximately 98% of our hotel operating profit in 2003, with Upper Upscale all-suite hotels providing approximately 55% of our hotel operating profit.

     STR also categorizes hotels based upon their relative market positions, as measured by their ADR, as Luxury, Upscale, Midprice, Economy and Budget. The following table contains information with respect to average occupancy (determined by dividing occupied rooms by available rooms), ADR and RevPAR for the hotels in which we held an ownership interest, as well as all Upscale U.S. hotels, all Midprice U.S. hotels and all U.S. hotels, as reported by STR, for the periods indicated.

Business Strategy

     We have identified three long term strategic objectives: growth in our earnings; improvement in our return on invested capital; and a reduction in our overall financial leverage. In order to achieve these strategic objectives, our business strategy is to: dispose of non-strategic hotels; acquire hotels that meet our refined investment strategy; improve the competitive positioning of our core hotels through aggressive asset management and the judicious application of capital; and pay down debt through a combination of operational cash flow (which should become available as the lodging industry recovers), the sale of non-strategic hotels and, if appropriate, other capital transactions.

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Non-Strategic Hotels

     In 2003, we completed a comprehensive review (that began in 2000) of our investment strategy and of our existing hotel portfolio, as a result of which we decided to sell certain under-performing smaller hotels in secondary and tertiary markets, markets with high supply growth, and markets in which we had an undesirable concentration, such as Dallas. We had identified 53 hotels as being non-strategic by the end of 2002, and we identified an additional 18 non-strategic hotels during 2003. At December 31, 2003, we had disposed of 36 of the hotels so identified, had two hotels under firm contracts of sale with non-refundable deposits (which were classified as “held for sale” and included in our discontinued operations) and had 33 remaining hotels identified for sale over the following two years. As a result of our decision to undertake the sale of these non-strategic hotels, we recorded impairment charges totaling $158 million during 2002 and $246 million during 2003 to reflect the difference between the book value and the then estimated fair market value of these hotels.

     Following preliminary discussions with FelCor’s board of directors on a proposed investment strategy, as part of our ongoing development of a long term strategic plan, in December 2002, FelCor made an initial recommendation to its board of directors that 33 hotels be designated as non-strategic and that efforts be initiated to sell these hotels. Six of these 33 hotels had been identified for sale in prior periods and were included in the hotels for which an impairment loss of $7 million was recorded in 2001. As a result of its board of directors’ approval of this recommendation, it was determined that it was more likely than not that these 33 hotels would be sold or otherwise disposed of significantly before the end of their previously estimated useful life, triggering an impairment test on these hotels, in accordance with Statement of Financial Accounting Standards, or SFAS, 144. As a result of the impairment test, it was determined that an impairment existed with respect to 20 of the 33 hotels tested. Accordingly, an impairment charge was taken in 2002 on these 20 hotels in an amount equal to $158 million, being the difference between their book value and our then current estimate of their fair market value.

     Under the management agreement entered into with IHG in July 2001, we were obligated to reinvest the net proceeds from the sale of any IHG managed hotel in other IHG managed hotels or pay substantial liquidated damages to IHG, which made it impractical to sell certain hotels that might otherwise be considered non-strategic. In September 2003, we completed an amendment to the IHG management agreement covering 78 of our hotels, pursuant to which we extended the term of the management contracts on 27 hotels from 2013 to 2018 and, in exchange, we received from IHG a credit of approximately $25 million, subject to increase under certain circumstances, to apply to the satisfaction of the liquidated damages otherwise payable to IHG upon the sale of 35 IHG managed hotels. We agreed that the proceeds of hotel sales for which the credit was utilized would be applied to the reduction of our debt. In the third quarter of 2003, as a result of this amendment, we identified an additional 11 IHG managed hotels as non-strategic and took an impairment charge in the amount of $121 million in the third quarter of 2003 with respect to those hotels, and certain other previously identified non-strategic hotels, to reduce their book values to our then current estimates of their fair market value. Through 2003, we utilized approximately $9 million of the $25 million credit available to us and currently expect to use the balance of this credit during 2004 as a result of IHG hotel sale proceeds in the range of $58 to $126 million. Following the full utilization of this credit, we will again be required to reinvest the proceeds from the sale of IHG managed hotels in other hotels to be managed by IHG or pay substantial termination fees.

     In the fourth quarter of 2003, FelCor completed its analysis of other potential sale candidate hotels and recommended to its board of directors a list of seven additional hotels to be considered non-strategic. As a result of FelCor’s board of directors designation of these hotels to be non-strategic, we concluded that it was more likely than not these seven hotels would be sold significantly before the end of their previously estimated useful life, triggering an impairment test in accordance with SFAS 144. As a result of the impairment test, an impairment charge in the amount of $125 million was taken on all seven hotels, and certain other previously identified non-strategic hotels, to reduce their book values to our then current estimates of their fair value.

     At December 31, 2003, we had 161 hotels included in our consolidated operations, including the two that were classified as “held for sale” and included in discontinued operations, and we had 33 remaining hotels that had been identified as non-strategic. Also included in our discontinued operations at December 31, 2003, were 16 hotels disposed of during 2003. Disposition proceeds from the 16 non-strategic hotels and two parking garages sold during 2003 totaled approximately $125 million.

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     Through March 12, 2004, we had sold the two hotels “held for sale” at December 31, 2003, and two additional non-strategic hotels, receiving gross proceeds of approximately $30 million, and we expect to dispose of the remaining 31 non-strategic hotels over the next two years. We expect the aggregate gross sale proceeds from the 35 non-strategic hotels owned by us at December 31, 2003, to be approximately $250 million.

     The 33 non-strategic hotels included in our continuing operations at December 31, 2003, represented 20 percent of the rooms in our hotel portfolio, but less than nine percent of our consolidated hotel operating profit in 2003. The 2003 operating margin for these 33 non-strategic hotels was 17.9%, compared to 30.6% for the remainder of our portfolio.

Refined Investment Strategy

     We have begun to consider the acquisition of hotels that meet our refined investment strategy. We plan to focus our acquisition efforts on higher quality hotels in markets with significant barriers to entry, such as central business districts and resort locations. We anticipate that this focus will lead to an increase in the number of our upper upscale properties, group and resort destination properties, and greater diversification of our portfolio by geographic location, brand, and customer base. In keeping with this strategy, in March 2004, we purchased the 132-room Santa Monica Holiday Inn. This hotel has a premier location across from the Santa Monica Pier and the Santa Monica beaches and will continue to be operated as a full service upscale hotel because of the high room rates charged in this market.

Improving the Competitive Positioning of Our Hotels

     We seek to improve the competitive position of our hotels through aggressive asset management and maintenance of strong relationships with our brand-owner managers. While REIT requirements prohibit us from directly managing our hotels, we work closely with our brand-owner managers to actively monitor and review hotel operations. We strongly urge our managers to implement best practices in expense management at our hotels, and we strive to influence brand strategy on marketing and revenue enhancement programs. Consistent with our commitment to position our hotels for a recovery in the lodging industry, we have continued making both revenue enhancing and maintenance capital improvements at our hotels. During 2003, we spent an aggregate of $68 million on capital expenditures, including our pro rata share of capital improvements made by our unconsolidated joint ventures. Additionally, in 2003 we spent 7.3% of our hotel room revenue on repair and maintenance expenditures.

Paydown of Debt

     We are committed to pay down our debt, while maintaining short-term liquidity. At December 31, 2003, we had cash balances of $246 million and undrawn commitments under a secured debt facility of $174 million. Our cash balances included $25 million held under our hotel management agreements to meet our hotel minimum working capital requirements and $14 million held in escrow under certain of our debt agreements. Our secured debt facility and excess cash more than cover the $175 million of senior notes that mature in October 2004, which leaves us with no other significant nonextendable debt maturities until 2007 when $125 million in senior notes matures. We will continue to seek opportunities to acquire or pay down our debt on an economically sound basis.

Strategic Relationships

     We benefit from our brand-owner and manager alliances with Hilton Hotels Corporation (Embassy Suites Hotels, Hilton and Doubletree), InterContinental Hotels Group PLC (Crowne Plaza and Holiday Inn) and Starwood Hotels & Resorts Worldwide, Inc. (Sheraton and Westin). These relationships enable us to work effectively with our managers to maximize operating margins and operating cash flow from our hotels.

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Hilton Hotels Corporation (www.hiltonworldwide.com) is recognized internationally as a preeminent hospitality company. Hilton develops, owns, manages or franchises more than 2,000 hotels and resorts, including more than 334,000 rooms, in 50 states and the District of Columbia. Its portfolio includes many of the world’s best known and most highly regarded hotel brands, including Hilton, Doubletree, Embassy Suites Hotels, Hampton Inn, Homewood Suites by Hilton and Hilton Grand Vacations Company among others. Subsidiaries of Hilton managed 66 of our hotels at December 31, 2003. Hilton is a 50% partner in

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joint ventures with us in the ownership of 12 hotels and the development of a residential luxury condominium, and is the holder of a 10% equity interest in certain of our consolidated subsidiaries owning six hotels.

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InterContinental Hotels Group PLC (www.ichotelsgroup.com) of the United Kingdom, owns, manages, leases or franchises, through various subsidiaries, more than 3,400 hotels and 530,000 guest rooms in nearly 100 countries and territories around the world. IHG owns a portfolio of well recognized and respected hotel brands including InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express, Staybridge Suites, and Candlewood Suites. Building on more than 50 years of innovation, IHG has contributed to a wide-range of industry “firsts.” Among these innovations, IHG was the first hotel company to recognize and reward customer loyalty through a customer frequency program, Priority Club Rewards, and the first hotel company to receive reservations via the Internet. Subsidiaries of IHG managed 70 of our hotels at December 31, 2003, and also own approximately 17% of FelCor’s outstanding common stock.

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Starwood Hotels & Resorts Worldwide, Inc. (www.starwood.com) is one of the leading hotel and leisure companies in the world with more than 740 properties in more than 80 countries and 105,000 employees at its owned and managed properties. With internationally renowned brands, Starwood is a fully integrated owner, operator and franchisor of hotels and resorts including: St. Regis, The Luxury Collection, Sheraton, Westin, Four Points by Sheraton and W brands. Subsidiaries of Starwood managed 11 of our hotels at December 31, 2003. Starwood is a 40% joint venture partner with us in the ownership of two hotels and a 50% joint venture partner with us in the ownership of one hotel.

Competition

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

Environmental Matters

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

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

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Tax Status

     FelCor elected to be taxed as a REIT under the federal income tax laws, commencing with its initial taxable year ended December 31, 1994. As a REIT, FelCor generally is not subject to federal income taxation at the corporate level on taxable income that is distributed to its stockholders. FelCor may, however, be subject to certain state and local taxes on its income and property. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income. In connection with FelCor’s election to be taxed as a REIT, FelCor’s charter imposes restrictions on the ownership and transfer of shares of its common stock. We expect to make distributions on our units sufficient to enable FelCor to meet its distribution obligations as a REIT. As a result of the passage of the REIT Modernization Act, in 2001 we acquired or terminated all of our hotel leases and contributed them to TRSs. These TRSs are subject to both federal and state income taxes.

Employees

     We have no employees. FelCor as our sole general partner performs our management function. Mr. Thomas J. Corcoran, Jr., FelCor’s President and Chief Executive Officer, entered into an employment agreement with FelCor in 1994 that continues in effect until December 31, 2004, and automatically renews for successive one-year terms unless terminated by either party. All of FelCor’s executive officers, including Mr. Corcoran, have change in control contracts that renew annually. FelCor had 66 full-time employees at December 31, 2003.

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

Cautionary Factors That May Affect Future Results

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

Future terrorist activities and United States military involvement in the Middle East and elsewhere may adversely affect, and create uncertainty in, our business

     The terrorist attacks of September 11, 2001, caused a significant disruption in travel-related businesses in the United States. Consistent with the rest of the lodging industry, we experienced substantial declines in occupancy and ADR due to a decline in both business and leisure travel in 2001 and throughout 2002. In 2003, the continuing sluggish economy, the crisis in the Middle East culminating in Operation Iraqi Freedom, continued U.S. military involvement in the Middle East and ongoing threats of terrorism acted to restrict travel and lodging demand. Another act of terrorism in the United States, protracted or expanded U.S. military involvement in the War on Terrorism, heightened “Threat Levels,” contractions in the airline industry, or increased security precautions making air travel more difficult could limit or delay any recovery, or result in further decreases, in travel and adversely affect our business. We are unable to predict with certainty when or if travel and lodging demand will be fully restored to historically normal levels. The factors described above, as well as other political or economic events, may limit or delay any recovery in the lodging industry, thereby extending the already lengthy period of uncertainty that has adversely affected the lodging industry, including us, as a result of reduced public travel.

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Our financial leverage is high and is exacerbated by depressed operating cash flows

     At December 31, 2003, our consolidated debt of $2.0 billion equaled 67% of our total market capitalization. The decline in our revenues and cash flow from operations during 2001, 2002 and 2003, have adversely affected our public debt ratings and may limit our access to additional debt capital. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs. Limitations upon our access to debt financing could adversely affect our ability to fund such activities and programs in the future.

     At December 31, 2003, we had approximately $2.0 billion in consolidated debt, of which approximately $842 million was secured by mortgages or capital leases. Due to the depressed operating cash flow from our remaining unencumbered hotels, we are limited in the amount of additional secured indebtedness we can obtain.

     The economic slowdown, which began in early 2001 and which was exacerbated by the terrorist attacks of September 11, 2001, has resulted in consecutive declines in our RevPAR during 2001, 2002 and 2003, compared to the prior years. If RevPAR worsens, or continues at current levels for a protracted period of time, it could have a material adverse effect on our operations and earnings, including our ability to pay dividends and service our debt.

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

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limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes;

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

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

•

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

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

•

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

We have restrictive debt covenants that could adversely affect our ability to run our business

     The indentures governing our existing senior unsecured notes contain various restrictive covenants and incurrence tests including, among others, provisions that can restrict our ability to:

•

incur indebtedness;

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incur secured indebtedness;

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make common and preferred distributions;

•

make investments;

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engage in transactions with affiliates;

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incur liens;

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merge or consolidate with another person;

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•

dispose of all or substantially all of our assets; and

•

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

     These restrictions may adversely affect our ability to finance our operations or engage in other business activities that may be in our best interest.

     Our publicly-traded senior unsecured notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; pay distributions in excess of the minimum distribution required to meet FelCor’s REIT qualification test; repurchase units; or merge. As of the date of this filing, we have satisfied all such tests, however, under the terms of two of our indentures, we are prohibited from repurchasing any of our units, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures, exceeds 4.85 to 1. Our current debt-to-EBITDA ratio exceeds that ratio and is expected to do so for the foreseeable future. Accordingly, we are prohibited from purchasing any of our units, except as permitted under limited exceptions, such as from the proceeds of a substantially concurrent issuance of other partnership units.

     If actual operating results fail to meet our current expectations, as reflected in our public guidance, or if interest rates increase unexpectedly, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior unsecured notes. In such an event, we may be prohibited from utilizing the undrawn amounts currently available to us under our $174 million secured debt facility, except to repay or refinance maturing debt with similar priority in the capital structure, and may be prohibited from, among other things, incurring any additional indebtedness or paying distributions on our preferred or common units, except to the extent necessary to satisfy FelCor’s REIT qualification requirement that it distribute currently at least 90% of its taxable income. In the event of our failure of this incurrence test, based upon our current estimates of taxable income for 2004, we would be unable to distribute the full amount of distributions accruing under our outstanding preferred units in 2004 and, accordingly, could pay no distributions on our common units.

     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 unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.

Conflicts of interest could adversely affect our business

     Certain FelCor directors. At December 31, 2003, IHG managed 70 of our hotels. Richard C. North, who joined FelCor’s board during 1998, is the Chief Executive Officer of IHG, which, through its affiliates, owns approximately 17% of FelCor’s outstanding common stock.

     Issues may arise under the management contracts, and in the allocation of acquisition and management opportunities, that present conflicts of interest due to the relationship of Mr. North to the companies with which he is associated. For example, in the event we decide to sell additional hotels currently managed by IHG, or enter into new or additional hotel management contracts or other transactions with IHG, the interests of Mr. North, by virtue of his relationship with IHG, may conflict with our interests. Any increase in management fees payable to IHG may decrease our profits to the benefit of IHG. Also, in the selection of brands under which our hotels will be operated, Mr. North, by virtue of his relationship with IHG, may have interests that conflict with our interests.

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

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meeting and discussion of an issue in which he or companies with which he is associated have an interest could influence the votes of other directors regarding the issue.

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

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

We will encounter industry related risks that may adversely affect our business

     The economic slowdown has had a significant adverse effect on our RevPAR performance and earnings. If it worsens or continues, the effects on our financial condition could be material. We have experienced declines in RevPAR, beginning in March 2001 and continuing through 2003. A sharp reduction in business travel was the primary cause of the RevPAR decline. The decreased occupancies led to declines in room rates as hotels competed more aggressively for guests. Both of these factors have had a significant adverse effect on our RevPAR, operating margins and earnings. On a national basis, the hotel industry experienced a RevPAR decline of 6.6% for the year ended December 31, 2001 and of 2.5% for the year ended December 31, 2002, and achieved a minimal increase of 0.2% for the year ended December 31, 2003. Primarily as a result of the concentration of our hotels in certain markets, the RevPAR performance of our hotels was below the national average. If the economic slowdown worsens, or continues for a protracted period of time, or if the markets in which we have significant concentrations should fail to participate in any recovery in the industry, it could have a material adverse effect on our operations, earnings and financial condition.

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

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competition from other hotels;

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

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

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adverse effects of declines in general and local economic activity;

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

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adverse effects of a downturn in the hotel industry; and

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

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

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     We face reduced coverages and increased costs of insurance. In an effort to keep our cost of insurance within reasonable limits, we have only purchased terrorism insurance for those hotels that are secured by mortgage debt, as required by our lenders. Our terrorism insurance policy has both per occurrence and aggregate limits of $50 million. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 75 of our hotels. The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible. Our property insurance has a $100,000 all risk deductible, a deductible of 2% of insured value for named windstorm coverage and a deductible of 5% of insured value for California earthquake coverage. Should such uninsured or not fully insured losses be substantial, they could have a material adverse impact on our operating results, cash flows and financial condition.

     We have geographic concentrations that may create risks from regional or local economic, seismic or weather conditions. At December 31, 2003, approximately 58% of our hotel rooms were located in, and 52% of our 2003 hotel operating profits were generated from, four states: California, Florida, Georgia and Texas. Additionally, we have concentrations in three major metropolitan areas, Atlanta, the San Francisco Bay Area and Dallas, which together represented approximately 21% of our hotel operating profits for the year ended December 31, 2003. Therefore, adverse economic, seismic or weather conditions in these states or metropolitan areas will have a greater adverse effect on us than on the industry as a whole.

     We currently have 31 hotels that have been designated as non-strategic and that we intend to dispose of within the next two years. We may be unable to sell these hotels at acceptable prices, or at all, within the proposed time frame. If we are unable to sell these hotels at anticipated prices, we may realize additional losses upon sale. Furthermore, if we are unable to sell these hotels at all or within the anticipated time frame, our ability to reduce debt and reposition our portfolio would be adversely affected. Even if we are successful in selling these hotels as contemplated, if we fail to reinvest the net proceeds in a manner that will generate returns equal to, or better than, the hotels sold, our results of operations will be adversely affected.

     Sale of IHG managed hotels could result in liquidated damages or reinvestment requirements. Although we amended our IHG management agreement to extend contracts for 27 hotels in exchange for a $25 million credit to apply to the satisfaction of the termination fees due from the sale of 35 of our IHG managed hotels, the sale of other IHG managed hotels will still trigger termination fees or reinvestment requirements. Additionally, following the full utilization of this credit, which we currently expect to occur during 2004, we will again be required to reinvest the proceeds from the sale of IHG managed hotels in other hotels to be managed by IHG or pay substantial termination fees.

     We are subject to possible adverse effects of franchise and licensing agreement requirements. Substantially all of our hotels are operated under existing franchise or license agreements with nationally recognized hotel brands. Each agreement requires that the licensed hotel be maintained and operated in accordance with specific standards and restrictions in order to maintain uniformity within the franchisor system. Compliance with these standards, and changes in these standards, could require us to incur significant expenses or capital expenditures, which could adversely affect our results of operations and ability to make distributions to our unitholders and payments on our indebtedness. At March 8, 2004, there were unsatisfied demands from brand owners with respect to three of our hotels that we make certain capital improvements to such hotels or that the applicable franchise or license could be terminated. We have agreed with the brand owner on an improvement plan for one of these hotels, are in the process of developing an improvement plan for one of these hotels and are in discussions with the brand owner regarding the asserted default at the third hotel. It is likely that a few additional such claims of default will be received during the remainder of the first quarter of 2004. No assurance can be provided that we will be able to timely satisfy all of these capital requirements or that, if satisfied, that additional requirements will not be imposed.

     If such a franchise or license agreement terminates due to our failure to make required improvements, we may be liable to the brand manager or franchisor for a termination payment. These termination payments vary by agreement and hotel. The loss of a substantial number of brand licenses, and the related termination payments, could have a material adverse effect on our business because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the brand manager or franchisor. Our franchise agreements also expire or terminate, subject to certain specified renewal rights, at

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various times. As a condition of the renewal or extension of the franchise agreements, the brand owner may require the payment of substantial fees and may require substantial capital improvements to be made to the hotels for which we would be responsible. During the next five years, the franchise or license agreements applicable in respect of 17 of our hotels are scheduled to expire in accordance with their terms.

     We are subject to the risks of brand concentration. We are subject to the potential risks associated with the concentration of our hotels under a limited number of brands. A negative public image or other adverse event that becomes associated with the brand could adversely affect hotels operated under that brand. The following percentages of our hotels’ operating profit were generated by hotels operated under each of the indicated brands during the year ended December 31, 2003:

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

     We are subject to the risks of hotel operations. Through our ownership of the lessees of our hotels, we are subject to the risk of fluctuating hotel operating expenses at our hotels, including but not limited to:

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wage and benefit costs;

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repair and maintenance expenses;

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the costs of gas and electricity;

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the costs of insurance, including health, general liability and workers compensation; and

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other operating expenses.

In addition, we are subject to the risks of a decline in operating margins, which occur when hotel operating expenses increase disproportionately to revenues. These operating expenses and margins are more difficult to predict and control than revenue, resulting in an increased risk of volatility in our results of operations.

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

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

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Our ability to grow or sustain our business may be limited by our ability to attract debt or equity financing and we may have difficulty accessing capital on attractive terms

     We may not be able to fund future growth and operations solely from cash provided from operating activities because of recent declines in cash flows and our obligation to fund FelCor’s requirement to distribute at least 90% of its taxable income each year to maintain its status as a REIT. Consequently, we may be forced to rely upon the proceeds of hotel sales or the availability of debt or equity capital to fund hotel acquisitions and necessary capital improvements, and we may be dependent upon our ability to attract debt financing from public or institutional lenders. The capital markets have been, and in the future may be, adversely affected by various events beyond our control, such as the U.S. military involvement in the Middle East and elsewhere, the terrorist attacks on September 11, 2001, the ongoing War on Terrorism by the United States and the bankruptcy of major companies, such as Enron Corp. Similar events, such as an escalation in the War on Terrorism, new terrorist attacks, or additional bankruptcies in the future, as well as other events beyond our control, could adversely affect the availability and cost of capital for our business. We cannot assure you that we will be successful in attracting sufficient debt or equity financing to fund future growth and operations, or to pay or refinance existing debt, at an acceptable cost, or at all.

We own and may acquire interests in hotel joint ventures with third parties that expose us to some risk of additional liabilities or capital requirements

     We own, through our subsidiaries, interests in several real estate joint ventures with third parties. Joint ventures that are not consolidated into our financial statements, own a total of 20 hotels, in which we have an aggregate investment of approximately $117 million. The operations of 15 of these hotels are included in our consolidated results of operations due to our ownership of the lessee of these hotels. None of FelCor’s directors or officers holds any interest in any of these ventures. The ventures and hotels were subject to non-recourse mortgage loans aggregating approximately $214 million at December 31, 2003. Additionally, one joint venture had entered into a $98 million construction loan to finance the construction of a residential condominium development. That construction loan has been guaranteed equally, on a several basis, by us and Hilton, our joint venture partner. At December 31, 2003, there was $61 million outstanding on this loan, of which we had guaranteed our pro rata share of $31 million at December 31, 2003.

     The personal liability of our subsidiaries under existing non-recourse loans secured by the hotels of our joint ventures is generally limited to the guaranty of the borrowing ventures’ personal obligations to pay for the lender’s losses caused by misconduct, fraud or misappropriation of funds by the ventures and other typical exceptions from the non-recourse covenants in the mortgages, such as those relating to environmental liability. We may invest in other ventures in the future that own hotels and have recourse or non-recourse debt financing. If a venture defaults under its mortgage loan, the lender may accelerate the loan and demand payment in full before taking action to foreclose on the hotel. As a partner or member in any of these ventures, our subsidiary may be exposed to liability for claims asserted against the venture, and the venture may not have sufficient assets or insurance to discharge the liability.

     Our subsidiaries may not legally be able to control decisions being made regarding these ventures and their hotels. In addition, the hotels in a venture may perform at levels below expectations, resulting in the potential for insolvency of the venture unless the partners or members provide additional funds. In some ventures, the partners or members may elect to make additional capital contributions. In many of the foregoing events, we may be faced with the choice of losing our investment in the venture or investing more capital in it with no guaranty of receiving a return on that investment.

We are subject to potential tax risks

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

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

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

     A sale of assets acquired from Bristol Hotel Company, or Bristol, within ten years after the merger may result in FelCor incurring corporate income tax. If we sell any asset acquired from Bristol within ten years after our 1998 merger with Bristol, and FelCor recognizes a taxable gain on the sale, FelCor will be taxed at the highest corporate rate on an amount equal to the lesser of:

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the amount of gain recognized at the time of the sale; or

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

     The sales of Bristol hotels that have been made to date have not resulted in any material amount of tax liability to FelCor. If we are successful in selling the hotels that we have designated as non-strategic, the majority of which are Bristol hotels, FelCor could incur corporate income tax with respect to the related built in gain. At the current time, FelCor believes that it will be able to avoid any substantial built in gain tax on these sales through offsetting built in losses, like kind exchanges and other tax planning strategies.

Departure of key personnel, including Mr. Corcoran, could adversely affect our future operating results

We will encounter risks that may adversely affect real estate ownership

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

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

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changes in zoning laws;

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changes in traffic patterns and neighborhood characteristics;

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increases in assessed valuation and real estate tax rates;

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increases in the cost of property insurance;

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governmental regulations and fiscal policies;

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the potential for uninsured or underinsured property losses;

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the potential that we are unable to meet all requirements under the Americans with Disabilities Act;

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the impact of environmental laws and regulations; and

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other circumstances beyond our control.

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     Moreover, real estate investments are relatively illiquid, and we may not be able to adjust our portfolio in a timely manner to respond to changes in economic and other conditions.

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

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

     Compliance with the Americans with Disabilities Act may adversely affect our financial condition. Under the Americans with Disabilities Act of 1990, all public accommodations, including hotels, are required to meet certain federal requirements for access and use by disabled persons. Various state and local jurisdictions have also adopted requirements relating to the accessibility of buildings to disabled persons. We believe that our hotels substantially comply with the requirements of the Americans with Disabilities Act and other applicable laws. However, a determination that the hotels are not in compliance with such laws could result in liability for both governmental fines and payments to private parties. If we were required to make unanticipated major modifications to the hotels to comply with the requirements of the Americans with Disabilities Act and other similar laws, it could adversely affect our ability to make distributions to our stockholders and to pay our obligations.

FelCor’s charter contains limitations on ownership and transfer of shares of its stock that could adversely affect attempted transfers of FelCor’s common stock

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

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Some provisions in its charter and bylaws and Maryland law make a takeover of FelCor more difficult

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

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

     Authority to Issue Additional Shares. Under FelCor’s charter, its board of directors may issue preferred stock without stockholder action. The preferred stock may be issued, in one or more series, with the preferences and other terms designated by FelCor’s board that may delay or prevent a change in control of FelCor, even if the change is in the best interests of its stockholders or our partners. FelCor currently has outstanding 5,980,475 shares of its Series A preferred stock and 67,758 shares, represented by 6,775,800 depositary shares, of its Series B preferred stock. FelCor has contributed the proceeds of all of its preferred stock to us in exchange for preferred units. The preference on these units is the same as FelCor’s preferred stock. The preferred stock and units reduce the amount of distributions available, and has distribution, liquidation and other rights superior, to the holders of FelCor’s common stock and our common units.

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

Item 2. Properties

     We own a diversified portfolio of nationally branded, upscale and full-service hotels managed by the brand owners, which are Hilton, IHG, and Starwood. We are competitively positioned, with a strong management team, brand manager alliances, diversified upscale and full-service hotels, and value creation expertise.

     We consider our hotels, generally, to be high quality lodging properties with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in the markets in which they are located. Our hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups and conventions, as well as leisure travelers. The hotels generally feature comfortable, modern guest rooms, extensive meeting and convention facilities and full-service restaurant and catering facilities. Our hotels are located in 33 states and Canada, and are situated primarily in major markets near airport, suburban or downtown areas. The following tables illustrate the distribution of our 159 consolidated hotels included in continuing operations at December 31, 2003.

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(a)		Excludes two hotels, that met held for sale accounting requirements, and were included in discontinued operations at December 31, 2003.
(b)		A detailed description and computation of Hotel Operating Profit is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

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     Our hotels have an average of approximately 280 rooms, with eight of them having 500 or more rooms. Although obsolescence arising from age and condition of facilities can adversely affect our hotels, we have invested in excess of $500 million, in the aggregate, during the past five years to upgrade, renovate and/or redevelop our hotels to enhance or maintain their competitive position. We are committed to maintaining the high standards of our hotels. In 2003, we spent $68 million on capital expenditures, including our pro rata share of unconsolidated joint venture capital, and spent 7.3% of our consolidated room revenue on maintenance and repair expense.

Hotel Brands

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

Brand Distribution

Hotel Operating Statistics

     The following tables set forth historical occupied rooms, or Occupancy, ADR and RevPAR at December 31, 2003 and 2002, and the percentage changes therein between the periods presented for our 159 consolidated hotels included in continuing operations:

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Operating Statistics by Brand

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Operating Statistics for Our Top Markets

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Embassy Suites Hotels

     Embassy Suites Hotels are upscale, full-service, all-suite hotels that cater to both business travelers and leisure guests. Part of the Hilton family of hotels, each Embassy Suites Hotel features convenient, value-added guest services and amenities including:

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spacious two-room suites featuring a separate living area, private bedroom and a mini-kitchen,

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two remote-controlled televisions, two telephones with voice mail and data ports, iron and ironing board, refrigerator, microwave oven, wet bar, and coffee maker in every suite;

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complimentary, full cooked-to-order breakfast every morning;

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complimentary beverages at two-hour Managers’ Receptions each evening, subject to local laws and regulations, in an atrium environment; and

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business centers equipped with fax and copy machines.

Doubletree and Doubletree Guest Suites Hotels

     Doubletree hotels and Doubletree Guest Suites are, respectively, the full-service and all-suite hotel brands that provide all the conveniences travelers might expect, in a warm and welcoming environment. Part of the Hilton family, these brands offer comfortable accommodations, meeting facilities, exceptional dining options, health and fitness facilities, state-of-the art technology, and other amenities and services to both business and leisure travelers. These brands primarily serve major metropolitan areas and leisure destinations.

Holiday Inn Branded Hotels

     The Holiday Inn brand is the most widely recognized lodging brand in the world, with more than 1,500 properties worldwide. The brand offers today’s travelers dependability, friendly service and modern, attractive facilities at an excellent value. Holiday Inn hotels have become “America’s Hotel” by offering guests dependable services and amenities for both business and leisure travelers. Guests enjoy amenities such as restaurants and room service, relaxing lounges, swimming pools and fitness centers. Properties also feature guest rooms equipped with coffee makers, hair dryers and irons. Holiday Inn hotels also offer 24-hour business services and meeting facilities.

     The Holiday Inn Select hotels provide business travelers with special services and amenities to make their stay as comfortable and productive as possible. All Holiday Inn Select hotels feature meeting facilities equipped with video conferencing capabilities, on-site meeting specialists, 24-business services and professional support, and outstanding guest rooms equipped for business. Holiday Inn Select hotels are located throughout North and South America near business centers and airports.

     With more than 1,300 properties worldwide, Holiday Inn Express, is the mid-priced hotel for value-oriented travelers. Guests receive a complimentary breakfast bar and free local phone calls.

Crowne Plaza Hotels

     Crowne Plaza hotels is the ideal hotel choice for small- to mid-sized business meetings and offers personalized service and one point of contact for hassle-free, successful meetings as “The Place To Meet.” Crowne Plaza hotels provide comfortably appointed guest rooms, upscale dining, quality fitness facilities, concierge services and full-service meeting rooms. With more than 190 hotels and 55,000 guest rooms in 49 countries, Crowne Plaza hotels are located in major urban centers, gateway cities and resort destinations worldwide.

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     The Holiday Inn, Holiday Inn Select, Holiday Inn Express and Crowne Plaza brands are part of the family of brands owned, operated and franchised by InterContinental Hotels Group. InterContinental Hotels Group PLC (www.ichotelsgroup.com) of the United Kingdom, owns, manages, leases or franchises, through various subsidiaries, more than 3,400 hotels and 530,000 guest rooms in nearly 100 countries and territories around the world.

Sheraton and Sheraton Suite

     With more than 396 hotels and resorts in 66 countries, Sheraton Hotels & Resorts is the largest of the Starwood Hotels & Resorts Worldwide, Inc. brands. Located in the world’s most sought-after cities and resort destinations, Sheraton hotels serve the needs of both business and leisure travelers with unique programs and unusual amenities designed to make travel as hassle-free and enjoyable as possible.

     At all Sheraton Hotels & Resorts, travelers will find full-service dining facilities and room service, on-site fitness centers with a swimming pool, on-site business services, laundry/valet services and meeting facilities for groups of all sizes. Guestrooms worldwide include generous work desks, televisions with cable/satellite channels and a complimentary newspaper delivered to the door daily. Most Sheraton hotels also offer the convenience of computer hook-ups and personalized voice mail.

Other Hotels

     As of December 31, 2003, 20 of our hotels were operated under brands other than those described above, as follows:

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Fairfield by Marriott (5 hotels);

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Hampton Inn (4 hotels);

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Courtyard by Marriott (2 hotels);

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Harvey Hotel (2 hotels);

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Hilton Hotel (1 hotel);

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Hilton Suites (1 hotel);

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Homewood Suites (1 hotel);

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Staybridge Suites (1 hotel);

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Westin (1 hotel); and

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Independent (2 hotels).

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Hotel Portfolio

     The following table sets forth certain descriptive information regarding the hotels in which we owned on interest at December 31, 2003:

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Management Agreements

     The management agreements governing the operation of 87 of our hotels that are (i) managed by IHG or Starwood under brands owned by them, or (ii) managed by Hilton under the Doubletree brand, contain the right and license to operate the hotels under the specified brands. No separate franchise agreements are required for the operation of these hotels.

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

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Doubletree — between 2% and 3% of the hotel’s total revenue per month;

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Sheraton — 2% of the hotel’s total revenue per month; and

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Embassy Suites Hotels — 2% of the hotel’s total revenue per month.

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

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     Term and Termination. The management agreements with IHG terminate in 2018 for 33 hotels and 2013 for the remainder. IHG may renew the management agreements under certain circumstances, for one additional five-year term on mutually acceptable terms and conditions. The TRSs may elect not to continue to operate the hotels under the brand beyond the expiration of the initial term; however, that election will give IHG the right to force us to sell that hotel to it at an appraised value. The management agreements with the other managers generally have initial terms of between 10 and 20 years, and the agreements are generally renewable beyond the initial term for a period or periods of between five and 10 years only upon the mutual written agreement of the parties. Management agreements covering 63 of our hotels expire, subject to any renewal rights, within the next five years.

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

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

Franchise Agreements

     Other than our 87 hotels, whose license to use a brand name are contained in the management agreement governing their operations, and our 2 hotels that do not operate under a nationally recognized brand name, each of our remaining hotels operates under a separate franchise or license agreement. Of our 70 hotels that are operated under a separate franchise or license agreement, 56 are operated under the Embassy Suites Hotels brand.

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

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

     Our typical Embassy Suites Hotels franchise license agreement provides for a term of 20 years, but we have a right to terminate the license for any particular hotel on the 10th or 15th anniversary of the agreement upon payment by us of an amount equal to the fees paid to the franchisor with respect to that hotel during the two preceding years. The agreements provide us with no renewal or extension rights. The agreements are not assignable by us and a change in control of the franchisee will constitute a default on our part. In the event we breach one of these agreements, in addition to losing the right to use the Embassy Suites Hotels name for the operation of the applicable hotel, we may be liable, under certain circumstances, for liquidated damages equal to the fees paid to the franchisor with respect to that hotel during the three preceding years. Franchise license agreements covering 12 of our Embassy Suites Hotels expire within the next five years.

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Item 3. Legal Proceedings

     We lease the San Francisco Holiday Inn Select Downtown & Spa hotel under a lease that expires at the end of 2004. In May 2003, the lessor asserted that we were in default of our obligations for maintenance, repair and replacement under the lease, and asserted that the cost of correcting the alleged deficiencies was approximately $13.9 million. The lessor subsequently asserted that we were also in default of our capital expenditure obligations under the lease in the approximate amount of $3 million. In October 2003, we reached a partial settlement with the lessor, pursuant to which we paid the lessor $296,000 in full satisfaction and discharge of certain maintenance obligations that the lessor had valued in its original claim at $470,300. We continued to make routine repairs and expend previously approved capital on the hotel and, in December 2003, entered into a tolling agreement and letter of intent, pursuant to which the parties expressed their intent to seek to resolve the disputes between them, terminate the lease and transfer the hotel to the lessor, and established a process for negotiation and, if necessary, mediation and arbitration of the disputes. Following the completion of our evaluation of the remainder of the lessor’s claims, we engaged in negotiations with the lessor and, in February 2004, reached a settlement, currently subject to the execution of definitive documentation and the approval of the parties’ respective boards of directors or governing bodies. Under the terms of the settlement, we agreed to pay the lessor $5 million (representing an estimated $1.2 million in rent for the last half of 2004 and approximately $3.8 million for repair, maintenance and capital issues, of which approximately $0.8 million was accrued at December 31, 2003, for specifically identified capital items) and transfer our interest in the hotel to the lessor as of June 30, 2004, in exchange for which we will be relieved of the obligation to make any capital improvements to the hotel which are not specifically agreed to and, will receive a full release of all known and unknown claims and further obligations to the lessor. In addition, we are seeking a release of any termination liability to IHG under its management agreement with respect to this hotel upon its termination.

     Other than the previously described claim, at December 31, 2003, there was no litigation pending or known to be threatened against us or affecting any of our hotels, other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of these ordinary course of business claims are substantially covered by insurance. We do not believe that any claims known to us, individually or in the aggregate, will have a material adverse effect on us.

Item 4. Submission of Matters to a Vote of Security Holders

     Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities

Market Information

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

Stockholder Information

     At March 11, 2004, FelCor had approximately 405 holders of record of its common stock and approximately 55 holders of record of its Series A preferred stock (which is convertible into common stock). It is estimated that there were approximately 16,200 beneficial owners, in the aggregate, of FelCor’s common stock and Series A preferred stock at that date. At March 11, 2004, we had approximately 33 holders of record of our common units.

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

Distribution Information

     Although we had declared a quarterly common distribution on our common units from our inception through 2002, as a result of the uncertain geopolitical environment and soft business climate, together with the decline in margins resulting from continued declines in our portfolio’s average daily rate, FelCor’s board of directors suspended the payment of distributions on our common units in 2003. We have, however, continued to pay the full accrued distributions on our outstanding preferred units throughout 2003.

     Our current 2004 operating plan contemplates the continued payment of full preferred unit distributions, assuming that our announced expectations of 2004 operating performance are met, but not the resumption of distributions on our common units. This operating plan, and our policy regarding distributions, may change, depending upon our actual results of operations, our continued ability to meet the incurrence test under our outstanding senior notes, our success in selling non-strategic hotels or other factors. We currently expect FelCor’s board of directors to consider the amount, if any, to be distributed on a quarterly basis in preferred and common distributions, based upon the actual operating results of that quarter, economic conditions and other operating trends. Accordingly, future distributions, if any, paid by us will be at the discretion of FelCor’s board of directors and will depend on our actual cash flow, financial condition, capital

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requirements, the annual distribution requirements for FelCor under the REIT provisions of the Internal Revenue Code and such other factors as FelCor’s board of directors deems relevant.

     The following table sets forth information regarding the declaration and payment of distributions by us on our common units during 2002 and 2003.

     In order to maintain FelCor’s qualification as a REIT, it must make annual distributions to its stockholders of at least 90% of its taxable income (which does not include net capital gains). For the year ended December 31, 2003, distributions to its preferred stockholders satisfied FelCor’s annual distribution requirements. For the year ended December 31, 2002, FelCor made annual distributions totaling $0.60 per common share, of which only $0.23 per share, was required to satisfy the 90% REIT distribution tests in that year. Under certain circumstances we may be required to make distributions in excess of cash available for distribution in order to meet FelCor’s REIT distribution requirements. In that event, we presently would expect to borrow funds, or to sell assets for cash, to the extent necessary to obtain cash sufficient to make the distributions required to retain FelCor’s qualification as a REIT for federal income tax purposes.

Issuances Of Unregistered Securities

     None.

Equity Compensation Plan Information

     The following table sets forth as of December 31, 2003, information concerning FelCor’s equity compensation plans, including the number of shares issuable and available for issuances under its plans, options, warrants and rights; weighted average exercise price of outstanding options, warrants and rights; and the number of securities remaining available for future issuance.

Equity Compensation Plan Information

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Item 6. Selected Financial Data

     The following tables set forth selected financial data for us for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 that has been derived from our audited financial statements and the notes thereto. This data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and notes thereto, appearing elsewhere in this Annual Report on Form 10-K.

SELECTED FINANCIAL DATA
(in thousands, except per share data)