Attached files

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EX-10.4 - EXHIBIT 10.4 FINANCIAL PERFORMANCE - FelCor Lodging Trust Incexh104formofperformanceequ.htm
EX-32.2 - EXHIBIT 32.2 - FelCor Lodging Trust Inca2016q210qexh322.htm
EX-32.1 - EXHIBIT 32.1 - FelCor Lodging Trust Inca2016q210qexh321.htm
EX-31.4 - EXHIBIT 31.4 - FelCor Lodging Trust Inca2016q210qexh314.htm
EX-31.3 - EXHIBIT 31.3 - FelCor Lodging Trust Inca2016q210qexh313.htm
EX-31.2 - EXHIBIT 31.2 - FelCor Lodging Trust Inca2016q210qexh312.htm
EX-31.1 - EXHIBIT 31.1 - FelCor Lodging Trust Inca2016q210qexh311.htm
EX-10.6 - EXHIBIT 10.6 GENERAL TERMS AND CONDITIONS - FelCor Lodging Trust Incexh106generaltermsandcondi.htm
EX-10.5 - EXHIBIT 10.5 RESTRICTED STOCK AWARD - FelCor Lodging Trust Incexh105formofrestrictedstoc.htm
EX-10.3 - EXHIBIT 10.3 PERFORMANCE GRANT MARKET - FelCor Lodging Trust Incexh103formofperformanceequ.htm
EX-10.2 - EXHIBIT 10.2 EQUITY GRANT TIME - FelCor Lodging Trust Incexh102formofequitygrantagr.htm
EX-10.1 - EXHIBIT 10.1 EQUITY COMP PLAN - FelCor Lodging Trust Incexh101amended2014equitycom.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q

(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
 
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2016
 

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
 
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from           to
 

 
Commission file number: 001-14236
 
(FelCor Lodging Trust Incorporated)
 
Commission file number: 333-39595-01
 
(FelCor Lodging Limited Partnership)
FelCor Lodging Trust Incorporated
FelCor Lodging Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)

 
Maryland
(FelCor Lodging Trust Incorporated)
 
75-2541756
 
Delaware
(FelCor Lodging Limited Partnership)
 
75-2544994
 
(State or Other Jurisdiction of Incorporation or Organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
545 E. John Carpenter Freeway, Suite 1300, Irving, Texas
 
75062
 
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
(972) 444-4900
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
FelCor Lodging Trust Incorporated
 
þ
Yes
¨
No
 
FelCor Lodging Limited Partnership
(see Note)
¨
Yes
þ
No
Note: As a voluntary filer not subject to the filing requirements of the Securities Exchange Act of 1934, the registrant has filed all reports pursuant to Section 13 or 15(d) for the preceding 12 months as if it were subject to such filing requirements.



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
FelCor Lodging Trust Incorporated
 
þ
Yes
¨
No
 
FelCor Lodging Limited Partnership
 
þ
Yes
¨
No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
FelCor Lodging Trust Incorporated:
 
 
 Large accelerated filer  þ
 
 Accelerated filer o
 Non-accelerated filer     o (Do not check if a smaller reporting company)
 
 Smaller reporting company o
FelCor Lodging Limited Partnership:
 
 
 Large accelerated filer  o
 
 Accelerated filer ¨
 Non-accelerated filer     þ (Do not check if a smaller reporting company)
 
 Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
 
FelCor Lodging Trust Incorporated
 
¨
Yes
þ
No
 
FelCor Lodging Limited Partnership
 
¨
Yes
þ
No

At July 27, 2016, FelCor Lodging Trust Incorporated had issued and outstanding 138,214,284 shares of common stock.




EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarter ended June 30, 2016, combines the filings for FelCor Lodging Trust Incorporated, or FelCor, and FelCor Lodging Limited Partnership, or FelCor LP. Where it is important to distinguish between the two, we either refer specifically to FelCor or FelCor LP. Otherwise we use the terms “we” or “our” to refer to FelCor and FelCor LP, collectively (including their consolidated subsidiaries), unless the context indicates otherwise.

FelCor is a Maryland corporation operating as a real estate investment trust, or REIT, and is the sole general partner of, and the owner of a greater than 99% partnership interest in, FelCor LP. Through FelCor LP, FelCor owns hotels and conducts business. As the sole general partner of FelCor LP, FelCor has exclusive and complete control of FelCor LP’s day-to-day management.

We believe combining periodic reports for FelCor and FelCor LP into single combined reports results in the following benefits:

presents our business as a whole (the same way management views and operates the business);
eliminates duplicative disclosure and provides a more streamlined presentation (a substantial portion of our disclosure applies to both FelCor and FelCor LP); and
saves time and cost by preparing combined reports instead of separate reports.

We operate the company as one enterprise. The employees of FelCor direct the management and operation of FelCor LP. With sole control of FelCor LP, FelCor consolidates FelCor LP for financial reporting purposes. FelCor has no assets other than its investment in FelCor LP and no liabilities separate from FelCor LP. Therefore, the reported assets and liabilities for FelCor and FelCor LP are substantially identical.

The substantive difference between FelCor and FelCor LP filings is that FelCor is a REIT with publicly-traded equity, while FelCor LP is a partnership with no publicly-traded equity. This difference is reflected in the financial statements in the equity (or partners’ capital) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital). Apart from the different equity treatment, the consolidated financial statements for FelCor and FelCor LP are nearly identical, except the net income (loss) attributable to redeemable noncontrolling interests in FelCor LP is deducted from FelCor’s net income (loss) in order to arrive at net income (loss) attributable to FelCor common stockholders. The noncontrolling interest is included in net income (loss) attributable to FelCor LP common unitholders. The holders of noncontrolling interests in FelCor LP are unaffiliated with FelCor, and in aggregate, hold less than 1% of the operating partnership units.

We present the sections in this report combined unless separate disclosure is required for clarity.



i


FELCOR LODGING TRUST INCORPORATED and
FELCOR LODGING LIMITED PARTNERSHIP

INDEX
 
 
 
Page
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
Financial Statements
 
FelCor Lodging Trust Incorporated:
 
 
 
Consolidated Balance Sheets - June 30, 2016 and December 31, 2015 (unaudited)
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss) – For the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Changes in Equity – For the Six Months Ended June 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2016 and 2015 (unaudited)
 
FelCor Lodging Limited Partnership:
 
 
 
Consolidated Balance Sheets - June 30, 2016 and December 31, 2015 (unaudited)
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss) – For the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Partners’ Capital – For the Six Months Ended June 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2016 and 2015 (unaudited)
 
 Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
General
 
 
Results of Operations
 
 
Non-GAAP Financial Measures
 
 
Pro Rata Share of Rooms Owned
 
 
Hotel Operating Statistics
 
 
Hotel Portfolio
 
 
Liquidity and Capital Resources
 
 
Inflation and Competition
 
 
Seasonality
 
 
Disclosure Regarding Forward-Looking Statements
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
 
 
 
 
SIGNATURES
 

ii


PART I -- FINANCIAL INFORMATION

Item 1.
Financial Statements.

FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par values)
 
June 30,
2016
 
December 31,
2015
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $936,780 and $899,575 at June 30, 2016 and December 31, 2015, respectively
$
1,692,419

 
$
1,729,531

Investment in unconsolidated entities
9,422

 
9,575

Cash and cash equivalents
58,188

 
59,786

Restricted cash
23,706

 
17,702

Accounts receivable, net of allowance for doubtful accounts of $239 and $204 at June 30, 2016 and December 31, 2015, respectively
38,650

 
28,136

Deferred expenses, net of accumulated amortization of $2,022 and $1,086 at June 30, 2016 and December 31, 2015, respectively
5,464

 
6,390

Other assets
19,547

 
14,792

Total assets
$
1,847,396

 
$
1,865,912

 
 
 
 
Liabilities and Equity
 
 
 
Debt, net of unamortized debt issuance costs of $17,106 and $18,065 at June 30, 2016 and December 31, 2015, respectively
$
1,433,703

 
$
1,409,889

Distributions payable
14,951

 
15,140

Accrued expenses and other liabilities
126,949

 
125,274

Total liabilities
1,575,603

 
1,550,303

Commitments and contingencies


 


Redeemable noncontrolling interests in FelCor LP, 611 units issued and outstanding at June 30, 2016 and December 31, 2015
3,809

 
4,464

Equity:
 
 
 
 Preferred stock, $0.01 par value, 20,000 shares authorized:
 
 
 
Series A Cumulative Convertible Preferred Stock, 12,879 shares, liquidation value of $321,987, issued and outstanding at June 30, 2016 and December 31, 2015
309,337

 
309,337

Common stock, $0.01 par value, 200,000 shares authorized; 138,225 and 141,808 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
1,382

 
1,418

Additional paid-in capital
2,572,668

 
2,567,515

Accumulated deficit
(2,667,034
)
 
(2,618,117
)
Total FelCor stockholders’ equity
216,353

 
260,153

Noncontrolling interests in other partnerships
7,848

 
7,806

Preferred equity in consolidated joint venture, liquidation value of $44,610 and $43,954 at June 30, 2016 and December 31, 2015, respectively
43,783

 
43,186

Total equity
267,984

 
311,145

Total liabilities and equity
$
1,847,396

 
$
1,865,912




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

1


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2016 and 2015
(unaudited, in thousands, except for per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
236,761

 
$
236,049

 
$
446,218

 
$
449,334

Other revenue
1,145

 
5,054

 
1,832

 
5,464

Total revenues
237,906

 
241,103

 
448,050

 
454,798

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
81,379

 
80,032

 
158,817

 
157,688

Other property-related costs
56,007

 
57,791

 
111,573

 
114,686

Management and franchise fees
8,501

 
9,202

 
17,726

 
18,287

Taxes, insurance and lease expense
14,864

 
16,410

 
28,446

 
31,217

Corporate expenses
6,047

 
6,530

 
14,447

 
15,103

Depreciation and amortization
29,177

 
28,750

 
58,360

 
56,522

Impairment
6,333

 

 
6,333

 

Other expenses
2,142

 
1,411

 
2,970

 
5,639

Total operating expenses
204,450

 
200,126

 
398,672

 
399,142

Operating income
33,456

 
40,977

 
49,378

 
55,656

Interest expense, net
(19,907
)
 
(20,278
)
 
(39,627
)
 
(39,759
)
Debt extinguishment

 
(30,823
)
 

 
(30,896
)
Other gains, net
100

 
166

 
100

 
166

Income (loss) before equity in income from unconsolidated entities
13,649

 
(9,958
)
 
9,851

 
(14,833
)
Equity in income from unconsolidated entities
726

 
7,513

 
572

 
7,662

Income (loss) from continuing operations before income tax
14,375

 
(2,445
)
 
10,423

 
(7,171
)
Income tax
25

 
(169
)
 
(390
)
 
(338
)
Income (loss) from continuing operations
14,400

 
(2,614
)
 
10,033

 
(7,509
)
Loss from discontinued operations

 
(83
)
 

 
(79
)
Income (loss) before gain (loss) on sale of hotels
14,400

 
(2,697
)
 
10,033

 
(7,588
)
Gain (loss) on sale of hotels, net
(630
)
 
(550
)
 
(1,344
)
 
16,337

Net income (loss) and comprehensive income (loss)
13,770

 
(3,247
)
 
8,689

 
8,749

Net loss (income) attributable to noncontrolling interests in other partnerships
16

 
247

 
487

 
(4,632
)
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP
(31
)
 
75

 
17

 
89

Preferred distributions - consolidated joint venture
(364
)

(359
)

(724
)

(707
)
Net income (loss) and comprehensive income (loss) attributable to FelCor
13,391

 
(3,284
)
 
8,469

 
3,499

Preferred dividends
(6,279
)
 
(7,903
)
 
(12,558
)
 
(17,581
)
Redemption of preferred stock

 
(6,096
)
 

 
(6,096
)
Net income (loss) attributable to FelCor common stockholders
$
7,112

 
$
(17,283
)
 
$
(4,089
)
 
$
(20,178
)
Basic and diluted per common share data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)
Net income (loss)
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)
Basic weighted average common shares outstanding
138,182

 
140,322

 
138,930

 
132,465

Diluted weighted average common shares outstanding
138,678

 
140,322

 
138,930

 
132,465



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

2


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Six Months Ended June 30, 2016 and 2015
(unaudited, in thousands, except for per share data)
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital 
 
Accumulated Deficit 
 
Noncontrolling Interests in Other Partnerships
 
Preferred Equity in Consolidated Joint Venture
 
Total Equity
 
Number of Shares
 
Amount
 
Number of Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2014
12,947

 
$
478,749

 
124,605

 
$
1,246

 
$
2,353,666

 
$
(2,530,671
)
 
$
18,435

 
$
41,442

 
$
362,867

Issuance of common stock

 

 
18,400

 
184

 
198,536

 

 

 
 
 
198,720

Issuance of stock awards

 

 
325

 
3

 
647

 

 

 

 
650

Stock awards - amortization

 

 

 

 
3,044

 

 

 

 
3,044

Stock compensation shares withheld

 

 
(2
)
 

 

 
(8
)
 

 

 
(8
)
Redemption of Series C preferred stock
(68
)
 
(169,412
)
 

 

 
5,522

 
(6,096
)
 

 

 
(169,986
)
Allocation to redeemable noncontrolling interests

 

 

 

 
439

 

 

 

 
439

Contribution from noncontrolling interests

 

 

 

 

 

 
1,908

 

 
1,908

Distribution to noncontrolling interests

 

 

 

 

 

 
(15,978
)
 

 
(15,978
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

$0.08 per common share

 

 

 

 

 
(11,607
)
 

 

 
(11,607
)
$0.975 per Series A preferred share

 

 

 

 

 
(12,558
)
 

 

 
(12,558
)
$1.00 per Series C depositary preferred share

 

 

 

 

 
(5,023
)
 

 

 
(5,023
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 
(707
)
 
(707
)
Issuance of preferred equity - consolidated joint venture

 

 

 

 

 

 

 
1,746

 
1,746

Net income and comprehensive income (attributable to FelCor and noncontrolling interests in other partnerships)

 

 

 

 

 
3,499

 
4,632

 
707

 
8,838

Balance at June 30, 2015
12,879

 
$
309,337

 
143,328

 
$
1,433

 
$
2,561,854

 
$
(2,562,464
)
 
$
8,997

 
$
43,188

 
$
362,345

Balance at December 31, 2015
12,879

 
$
309,337

 
141,808

 
$
1,418

 
$
2,567,515

 
$
(2,618,117
)
 
$
7,806

 
$
43,186

 
$
311,145

Repurchase of common stock

 

 
(4,133
)
 
(41
)
 

 
(27,386
)
 

 

 
(27,427
)
Issuance of stock awards

 

 
648

 
6

 
728

 

 

 

 
734

Cumulative effect of change in accounting for stock compensation forfeitures

 

 

 

 
185

 
(185
)
 

 

 

Stock awards - amortization

 

 

 

 
3,677

 

 

 

 
3,677

Stock compensation shares withheld

 

 
(98
)
 
(1
)
 

 
(591
)
 

 

 
(592
)
Allocation to redeemable noncontrolling interests

 

 

 

 
563

 

 

 

 
563

Contribution from noncontrolling interests

 

 

 

 

 

 
530

 

 
530

Distribution to noncontrolling interests

 

 

 

 

 

 
(1
)
 

 
(1
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

$0.12 per common share

 

 

 

 

 
(16,666
)
 

 

 
(16,666
)
$0.975 per Series A preferred share

 

 

 

 

 
(12,558
)
 

 

 
(12,558
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 
(724
)
 
(724
)
Issuance of preferred equity - consolidated joint venture

 

 

 

 

 

 

 
597

 
597

Net income (loss) and comprehensive income (loss) (attributable to FelCor and noncontrolling interests in other partnerships)

 

 

 

 

 
8,469

 
(487
)
 
724

 
8,706

Balance at June 30, 2016
12,879

 
$
309,337


138,225

 
$
1,382

 
$
2,572,668

 
$
(2,667,034
)
 
$
7,848

 
$
43,783

 
$
267,984



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

3


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2016 and 2015
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
8,689

 
$
8,749

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
58,360

 
56,522

Loss (gain) on sale of hotels and other assets, net
1,244

 
(16,420
)
Amortization of deferred financing fees
1,897

 
2,956

Amortization of fixed stock and directors’ compensation
3,627

 
3,563

Equity in income from unconsolidated entities
(572
)
 
(7,662
)
Distributions of income from unconsolidated entities
339

 
5,111

Debt extinguishment

 
30,896

Impairment
6,333

 

Changes in assets and liabilities:
 
 
 
Accounts receivable
(10,599
)
 
(8,947
)
Other assets
(5,255
)
 
(1,436
)
Accrued expenses and other liabilities
7,502

 
(4,384
)
Net cash flow provided by operating activities
71,565

 
68,948

Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(31,909
)
 
(25,757
)
Hotel development

 
(21,637
)
Net proceeds from asset sales
(1,461
)
 
133,878

Change in restricted cash – investing
(6,004
)
 
(3,064
)
Insurance proceeds
94

 
274

Distributions from unconsolidated entities in excess of earnings
386

 
6,303

Net cash flow provided by (used in) investing activities
(38,894
)
 
89,997

Cash flows from financing activities:
 
 
 
Proceeds from borrowings
50,000

 
979,000

Repayment of borrowings
(27,145
)
 
(1,050,056
)
Payment of deferred financing fees
(12
)
 
(13,922
)
Distributions paid to noncontrolling interests
(1
)
 
(15,978
)
Contributions from noncontrolling interests
530

 
1,908

Distributions paid to FelCor LP limited partners
(75
)
 
(47
)
Distributions paid to preferred stockholders
(12,558
)
 
(19,847
)
Redemption of preferred stock

 
(169,986
)
Repurchase of common stock
(27,427
)
 

Stock compensation withholding
(592
)
 
(8
)
Preferred distributions - consolidated joint venture
(729
)
 
(707
)
Distributions paid to common stockholders
(16,848
)
 
(10,765
)
Net proceeds from issuance of preferred equity - consolidated joint venture
597

 
1,746

Net proceeds from common stock issuance

 
198,720

Net cash flow used in financing activities
(34,260
)
 
(99,942
)
Effect of exchange rate changes on cash
(9
)
 
(43
)
Net change in cash and cash equivalents
(1,598
)
 
58,960

Cash and cash equivalents at beginning of periods
59,786

 
47,147

Cash and cash equivalents at end of periods
$
58,188

 
$
106,107

Supplemental cash flow information – interest paid, net of capitalized interest
$
37,581

 
$
36,069

Supplemental cash flow information – income taxes paid
$
105

 
$
338



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

4


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
June 30,
 
December 31,
 
2016
 
2015
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $936,780 and $899,575 at June 30, 2016 and December 31, 2015, respectively
$
1,692,419

 
$
1,729,531

Investment in unconsolidated entities
9,422

 
9,575

Cash and cash equivalents
58,188

 
59,786

Restricted cash
23,706

 
17,702

Accounts receivable, net of allowance for doubtful accounts of $239 and $204 at June 30, 2016 and December 31, 2015, respectively
38,650

 
28,136

Deferred expenses, net of accumulated amortization of $2,022 and $1,086 at June 30, 2016 and December 31, 2015, respectively
5,464

 
6,390

Other assets
19,547

 
14,792

Total assets
$
1,847,396

 
$
1,865,912

 
 
 
 
Liabilities and Partners’ Capital
 
 
 
Debt, net of unamortized debt issuance costs of $17,106 and $18,065 at June 30, 2016 and December 31, 2015, respectively
$
1,433,703

 
$
1,409,889

Distributions payable
14,951

 
15,140

Accrued expenses and other liabilities
126,949

 
125,274

Total liabilities
1,575,603

 
1,550,303

Commitments and contingencies


 


Redeemable units, 611 units issued and outstanding at June 30, 2016 and December 31, 2015
3,809

 
4,464

Capital:
 
 
 
Preferred units:
 
 
 
Series A Cumulative Convertible Preferred Units, 12,879 units issued and outstanding at June 30, 2016 and December 31, 2015
309,337

 
309,337

Common units, 138,225 and 141,808 units issued and outstanding at June 30, 2016 and December 31, 2015, respectively
(92,984
)
 
(49,184
)
Total FelCor LP partners’ capital
216,353

 
260,153

Noncontrolling interests
7,848

 
7,806

Preferred capital in consolidated joint venture
43,783

 
43,186

Total partners’ capital
267,984

 
311,145

Total liabilities and partners’ capital
$
1,847,396

 
$
1,865,912



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

5


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2016 and 2015
(unaudited, in thousands, except for per unit data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
236,761

 
$
236,049

 
$
446,218

 
$
449,334

Other revenue
1,145

 
5,054

 
1,832

 
5,464

Total revenues
237,906

 
241,103

 
448,050

 
454,798

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
81,379

 
80,032

 
158,817

 
157,688

Other property-related costs
56,007

 
57,791

 
111,573

 
114,686

Management and franchise fees
8,501

 
9,202

 
17,726

 
18,287

Taxes, insurance and lease expense
14,864

 
16,410

 
28,446

 
31,217

Corporate expenses
6,047

 
6,530

 
14,447

 
15,103

Depreciation and amortization
29,177

 
28,750

 
58,360

 
56,522

Impairment
6,333

 

 
6,333

 

Other expenses
2,142

 
1,411

 
2,970

 
5,639

Total operating expenses
204,450

 
200,126

 
398,672

 
399,142

Operating income
33,456

 
40,977

 
49,378

 
55,656

Interest expense, net
(19,907
)
 
(20,278
)
 
(39,627
)
 
(39,759
)
Debt extinguishment

 
(30,823
)
 

 
(30,896
)
Other gains, net
100

 
166

 
100

 
166

Income (loss) before equity in income from unconsolidated entities
13,649

 
(9,958
)
 
9,851

 
(14,833
)
Equity in income from unconsolidated entities
726

 
7,513

 
572

 
7,662

Income (loss) from continuing operations before income tax
14,375

 
(2,445
)
 
10,423

 
(7,171
)
Income tax
25

 
(169
)
 
(390
)
 
(338
)
Income (loss) from continuing operations
14,400

 
(2,614
)
 
10,033

 
(7,509
)
Loss from discontinued operations

 
(83
)
 

 
(79
)
Income (loss) before gain (loss) on sale of hotels
14,400

 
(2,697
)
 
10,033

 
(7,588
)
Gain (loss) on sale of hotels, net
(630
)
 
(550
)
 
(1,344
)
 
16,337

Net income (loss) and comprehensive income (loss)
13,770

 
(3,247
)
 
8,689

 
8,749

Net loss (income) attributable to noncontrolling interests
16

 
247

 
487

 
(4,632
)
Preferred distributions - consolidated joint venture
(364
)
 
(359
)
 
(724
)
 
(707
)
Net income (loss) and comprehensive income (loss) attributable to FelCor LP
13,422

 
(3,359
)
 
8,452

 
3,410

Preferred distributions
(6,279
)
 
(7,903
)
 
(12,558
)
 
(17,581
)
Redemption of preferred units

 
(6,096
)
 

 
(6,096
)
Net income (loss) attributable to FelCor LP common unitholders
$
7,143

 
$
(17,358
)
 
$
(4,106
)
 
$
(20,267
)
Basic and diluted per common unit data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)
Net income (loss)
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)
Basic weighted average common units outstanding
138,793

 
140,933

 
139,541

 
133,076

Diluted weighted average common units outstanding
139,289

 
140,933

 
139,541

 
133,076



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

6


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Six Months Ended June 30, 2016 and 2015
(unaudited, in thousands)
 
Preferred Units
 
Common Units
 
Noncontrolling Interests
 
Preferred Capital in Consolidated Joint Venture
 
Total Partners’ Capital
Balance at December 31, 2014
$
478,749

 
$
(175,759
)
 
$
18,435

 
$
41,442

 
$
362,867

Issuance of common units

 
198,720

 

 
 
 
198,720

FelCor restricted stock compensation

 
3,686

 

 

 
3,686

Redemption of Series C preferred units
(169,412
)
 
(574
)
 

 

 
(169,986
)
Contributions

 

 
1,908

 

 
1,908

Distributions

 
(29,235
)
 
(15,978
)
 
(707
)
 
(45,920
)
Allocation to redeemable units

 
575

 

 

 
575

Issuance of preferred capital - consolidated joint venture

 

 

 
1,746

 
1,746

Net income and comprehensive income

 
3,410

 
4,632

 
707

 
8,749

Balance at June 30, 2015
$
309,337

 
$
823

 
$
8,997

 
$
43,188

 
$
362,345

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
309,337

 
$
(49,184
)
 
$
7,806

 
$
43,186

 
$
311,145

Repurchase of common units

 
(27,427
)
 

 

 
(27,427
)
FelCor restricted stock compensation

 
3,819

 

 

 
3,819

Contributions

 

 
530

 

 
530

Distributions

 
(29,299
)
 
(1
)
 
(724
)
 
(30,024
)
Allocation to redeemable units

 
655

 

 

 
655

Issuance of preferred capital - consolidated joint venture

 

 

 
597

 
597

Net income (loss) and comprehensive income (loss)

 
8,452

 
(487
)
 
724

 
8,689

Balance at June 30, 2016
$
309,337

 
$
(92,984
)
 
$
7,848

 
$
43,783

 
$
267,984


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

7


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2016 and 2015
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
8,689

 
$
8,749

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
58,360

 
56,522

Loss (gain) on sale of hotels and other assets, net
1,244

 
(16,420
)
Amortization of deferred financing fees
1,897

 
2,956

Amortization of fixed stock and directors’ compensation
3,627

 
3,563

Equity in income from unconsolidated entities
(572
)
 
(7,662
)
Distributions of income from unconsolidated entities
339

 
5,111

Debt extinguishment

 
30,896

Impairment
6,333

 

Changes in assets and liabilities:
 
 
 
Accounts receivable
(10,599
)
 
(8,947
)
Other assets
(5,255
)
 
(1,436
)
Accrued expenses and other liabilities
7,502

 
(4,384
)
Net cash flow provided by operating activities
71,565

 
68,948

 Cash flows from investing activities:
 
 
 
Improvements and additions to hotels
(31,909
)
 
(25,757
)
Hotel development

 
(21,637
)
Net proceeds from asset sales
(1,461
)
 
133,878

Change in restricted cash – investing
(6,004
)
 
(3,064
)
Insurance proceeds
94

 
274

Distributions from unconsolidated entities in excess of earnings
386

 
6,303

Net cash flow provided by (used in) investing activities
(38,894
)
 
89,997

 Cash flows from financing activities:
 
 
 
Proceeds from borrowings
50,000

 
979,000

Repayment of borrowings
(27,145
)
 
(1,050,056
)
Payment of deferred financing fees
(12
)
 
(13,922
)
Distributions paid to noncontrolling interests
(1
)
 
(15,978
)
Contributions from noncontrolling interests
530

 
1,908

Distributions paid to FelCor LP limited partners
(75
)
 
(47
)
Distributions paid to preferred unitholders
(12,558
)
 
(19,847
)
Redemption of preferred units

 
(169,986
)
Repurchase of common units
(27,427
)
 

FelCor stock compensation withholding
(592
)
 
(8
)
Preferred distributions - consolidated joint venture
(729
)
 
(707
)
Distributions paid to common unitholders
(16,848
)
 
(10,765
)
Net proceeds from issuance of preferred capital - consolidated joint venture
597

 
1,746

Net proceeds from common unit issuance

 
198,720

Net cash flow used in financing activities
(34,260
)
 
(99,942
)
 Effect of exchange rate changes on cash
(9
)
 
(43
)
 Net change in cash and cash equivalents
(1,598
)
 
58,960

 Cash and cash equivalents at beginning of periods
59,786

 
47,147

 Cash and cash equivalents at end of periods
$
58,188

 
$
106,107

 Supplemental cash flow information – interest paid, net of capitalized interest
$
37,581

 
$
36,069

Supplemental cash flow information – income taxes paid
$
105

 
$
338

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

8



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.
Organization
FelCor Lodging Trust Incorporated (NYSE:FCH), or FelCor, is a Maryland corporation, operating as a real estate investment trust, or REIT. FelCor is the sole general partner of, and the owner of a greater than 99.5% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, through which we held ownership interests in 41 hotels as of June 30, 2016. At June 30, 2016, we had an aggregate of 138,836,601 shares and units outstanding, consisting of 138,225,139 shares of FelCor common stock and 611,462 FelCor LP units not owned by FelCor.
Of our 41 hotels, as of June 30, 2016, we owned 100% interests in 38 hotels, a 95% interest in one hotel (The Knickerbocker) and 50% interests in entities owning two hotels. We consolidate our real estate interests in the 39 hotels in which we hold majority interests, and we record the real estate interests of the two hotels in which we hold indirect 50% interests using the equity method. We lease 40 of the 41 hotels to our taxable REIT subsidiaries, of which we own a controlling interest. We operate one 50%‑owned hotel without a lease. Because we own controlling interests in our operating lessees, we consolidate our interests in all 40 leased hotels (which we refer to as our Consolidated Hotels) and reflect their operating revenues and expenses in our statements of operations and comprehensive income (loss). We own 50% of the real estate interest in one Consolidated Hotel (we account for our real estate interest in this hotel by the equity method) and majority real estate interests in our remaining 39 Consolidated Hotels (we consolidate our real estate interests in these hotels).
The following table illustrates the distribution of our 40 Consolidated Hotels at June 30, 2016:
Brand
 
Hotels
 
Rooms
 Embassy Suites by Hilton® 
 
18

 
 
4,982

 Wyndham® and Wyndham Grand®
 
8

 
 
2,528

 Marriott® and Renaissance® 
 
3

 
 
1,321

 Holiday Inn® 
 
2

 
 
968

 DoubleTree by Hilton® and Hilton® 
 
3

 
 
802

 Sheraton®
 
2

 
 
673

 Fairmont® 
 
1

 
 
383

 The Knickerbocker®
 
1

 
 
330

 Morgans® and Royalton®
 
2

 
 
285

  Total
 
40

 
 
12,272

At June 30, 2016, our Consolidated Hotels were located in 15 states, with concentrations in California (11 hotels), Florida (six hotels) and Massachusetts (three hotels). Approximately 62% of our revenue was generated from hotels in these three states during the first six months of 2016.
At June 30, 2016, of our Consolidated Hotels: (i) subsidiaries of Hilton Worldwide managed 20 hotels; (ii) subsidiaries of Wyndham Worldwide managed eight hotels; (iii) subsidiaries of Marriott International Inc. managed three hotels; (iv) subsidiaries of InterContinental Hotels Group managed two hotels; (v) subsidiaries of Starwood Hotels & Resorts Worldwide Inc. managed two hotels; (vi) a subsidiary of Fairmont Raffles Hotels International managed one hotel; (vii) a subsidiary of Highgate Hotels managed one hotel; (viii) a subsidiary of Morgans Hotel Group Corporation managed two hotels; and (ix) Aimbridge Hospitality managed one hotel.

9



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization — (continued)
On January 1, 2016, we adopted accounting guidance under ASU 2015-2, modifying the analysis performed to determine whether we should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities (“VIEs”) or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, FelCor LP is a variable interest entity of FelCor. As FelCor LP is already consolidated in the balance sheets of FelCor, the identification of this entity as a variable interest entity has no impact on the consolidated financial statements of FelCor. There were no other legal entities under the scope of the revised guidance that were consolidated as a result of the adoption.
The information in our consolidated financial statements for the three and six months ended June 30, 2016 and 2015 is unaudited. Preparing financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements for the three and six months ended June 30, 2016 and 2015, include adjustments based on management’s estimates (consisting of normal and recurring accruals), which we consider necessary for a fair statement of the results for the periods. Income taxes in prior periods have been reclassified from taxes, insurance and lease expense to conform to the current period presentation of a single line for income taxes on our consolidated statement of operations. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2015, included in our Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of actual operating results for the entire year.

2.
Investment in Unconsolidated Entities
At June 30, 2016 and December 31, 2015, we owned 50% interests in joint ventures that owned two hotels. We also own 50% interests in entities that own real estate in Myrtle Beach, South Carolina and provide condominium management services there. We account for our investments in these unconsolidated entities under the equity method. We consolidate all of our majority-owned subsidiaries in our financial statements. We make adjustments to our equity in income from unconsolidated entities related to the difference between our basis in investment in unconsolidated entities compared to the historical basis of the assets recorded by the joint ventures.
The following table summarizes combined balance sheet information for our unconsolidated entities (in thousands):
 
June 30,
 
December 31,
 
2016
 
2015
Investment in hotels and other properties, net of accumulated depreciation
$
22,311

 
 
$
23,047

 
Total assets
$
30,595

 
 
$
29,033

 
Debt, net of unamortized debt issuance costs
$
22,314

 
 
$
22,563

 
Total liabilities
$
26,023

 
 
$
24,541

 
Equity
$
4,572

 
 
$
4,492

 
Our unconsolidated entities’ debt at June 30, 2016 and December 31, 2015 consisted entirely of non-recourse mortgage debt.

10



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.
Investment in Unconsolidated Entities — (continued)
In May 2015, one of our joint ventures sold a hotel, resulting in a $7.1 million gain that we included in our equity in income from unconsolidated entities.
The following table sets forth summarized combined statement of operations information for our unconsolidated entities (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Total revenues
$
10,175

 
$
10,410

 
$
15,678

 
$
16,979

Net income
$
1,644

 
$
21,519

 
$
1,530

 
$
22,069

Net income attributable to FelCor
$
822

 
$
10,760

 
$
765

 
$
11,035

Cost in excess of joint venture book value of sold hotel

 
(3,140
)
 

 
(3,140
)
Depreciation of cost in excess of book value
(96
)
 
(107
)
 
(193
)
 
(233
)
Equity in income from unconsolidated entities
$
726

 
$
7,513

 
$
572

 
$
7,662

The following table summarizes the components of our investments in unconsolidated entities (in thousands):
 
June 30,
 
December 31,
 
2016
 
2015
Equity basis of hotel joint venture investments
$
(3,721
)
 
 
$
(4,216
)
 
Cost of hotel investments in excess of joint venture book value
7,136

 
 
7,329

 
Equity basis of land and condominium joint venture investments
6,007

 
 
6,462

 
Investment in unconsolidated entities
$
9,422

 
 
$
9,575

 
The following table summarizes the components of our equity in income (loss) from unconsolidated entities (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Hotel investments
$
653

 
$
7,455

 
$
1,028

 
$
8,203

Other investments
73

 
58

 
(456
)
 
(541
)
Equity in income from unconsolidated entities
$
726

 
$
7,513

 
$
572

 
$
7,662


11



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.
Debt
Consolidated debt consisted of the following (dollars in thousands):
 
Encumbered
 
Interest
 
Maturity
 
June 30,
 
December 31,
 
Hotels
 
Rate (%)
 
Date
 
2016
 
2015
Senior unsecured notes

 
 
6.00
 
 
June 2025
 
$
475,000

 
$
475,000

Senior secured notes
9

 
 
5.625
 
 
March 2023
 
525,000

 
525,000

Mortgage debt(a)
4

 
 
4.95
 
 
October 2022
 
121,355

 
122,237

Mortgage debt
1

 
 
4.94
 
 
October 2022
 
30,454

 
30,717

Line of credit(b)
7

 
 
LIBOR + 2.75
 
June 2019
 
214,000

 
190,000

The Knickerbocker loan(c)
1

 
 
LIBOR + 3.00
 
November 2017
 
85,000

 
85,000

Total
22

 
 
 
 
 
 
 
$
1,450,809

 
$
1,427,954

Unamortized debt issuance costs
 
 
 
 
 
 
 
 
(17,106
)
 
(18,065
)
Debt, net of unamortized debt issuance costs
 
 
 
 
 
 
 
 
$
1,433,703

 
$
1,409,889

(a)
This debt is comprised of separate non-cross-collateralized loans, each secured by a mortgage encumbering different hotels.
(b)
Our line of credit can be extended for one year, subject to satisfying certain conditions. We may borrow up to $400 million under our line of credit.
(c)
This loan can be extended for one year, subject to satisfying certain conditions.
Following adoption of ASU 2015-03, we classify deferred financing costs of $17.1 million and $18.1 million as of June 30, 2016 and December 31, 2015, respectively, within the debt on our consolidated balance sheets. We previously classified deferred financing costs of $18.1 million at December 31, 2015 as an asset on our consolidated balance sheets. In accordance with ASU 2015-15, we continue classifying deferred financing costs associated with our line of credit as an asset on our consolidated balance sheets.
 

We reported $19.9 million and $20.3 million of interest expense for the three months ended June 30, 2016 and 2015, respectively, which is net of: (i) interest income of $16,000 and $6,000 and (ii) capitalized interest of $205,000 and $1.6 million, respectively. We reported $39.6 million and $39.8 million of interest expense for the six months ended June 30, 2016 and 2015, respectively, which is net of: (i) interest income of $28,000 and $11,000 and (ii) capitalized interest of $347,000 and $5.0 million, respectively.


12



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.
FelCor Capital Stock/FelCor LP Partners’ Capital

FelCor repurchased 4.1 million shares of common stock for $27.4 million (including commissions) for an average price of $6.61 per share during the first six months of 2016. To date, FelCor has repurchased 6.1 million shares of common stock for $41.9 million (including commissions) for an average price of $6.81 per share.

In April 2015, FelCor issued 18.4 million shares of its common stock at $11.25 per share in a public offering. FelCor contributed the net proceeds from the offering ($199 million) to FelCor LP in exchange for 18.4 million common units of limited partnership interests.

In April 2015, FelCor called for redemption of all of its outstanding shares of 8% Series C Cumulative Redeemable Preferred Stock and all depositary shares representing the Series C Preferred Stock. FelCor redeemed those shares of Series C Preferred Stock and the depositary shares, and FelCor
LP concurrently redeemed its Series C Preferred Units, on May 14, 2015 using proceeds from the equity offering. Including dividends of $491,000, the total redemption price was $170.4 million. We reduced income available to common shareholders (unitholders) by $6.1 million for the three and six months ended June 30, 2015, primarily representing the original issuance costs ($5.5 million) and discount ($538,000) of the redeemed Series C Preferred Stock (Units).

5.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs
Hotel operating revenue was comprised of the following (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Room revenue
$
181,318

 
$
182,066

 
$
340,394

 
$
344,372

Food and beverage revenue
43,697

 
42,151

 
83,229

 
81,995

Other operating departments
11,746

 
11,832

 
22,595

 
22,967

Total hotel operating revenue
$
236,761

 
$
236,049

 
$
446,218

 
$
449,334

Nearly all of our revenue is comprised of hotel operating revenue. These revenues are recorded net of any sales or occupancy taxes collected from our guests. We record all rebates or discounts, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues are recorded on an accrual basis, as earned. We make appropriate allowances for doubtful accounts, which we record as bad debt expense. We derive the remainder of our revenue from condominium management fee income and other sources.

13



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs — (continued)

Hotel departmental expenses were comprised of the following (in thousands):
 
Three Months Ended June 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
44,748

 
18.9
%
 
 
$
44,423

 
18.8
%
 
Food and beverage
32,592

 
13.8

 
 
31,278

 
13.3

 
Other operating departments
4,039

 
1.7

 
 
4,331

 
1.8

 
Total hotel departmental expenses
$
81,379

 
34.4
%
 
 
$
80,032

 
33.9
%
 
 
Six Months Ended June 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
87,447

 
19.6
%
 
 
$
86,934

 
19.3
%
 
Food and beverage
63,548

 
14.2

 
 
61,974

 
13.8

 
Other operating departments
7,822

 
1.8

 
 
8,780

 
2.0

 
Total hotel departmental expenses
$
158,817

 
35.6
%
 
 
$
157,688

 
35.1
%
 
Other property-related costs were comprised of the following amounts (in thousands):
 
Three Months Ended June 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
21,042

 
8.9
%
 
 
$
20,532

 
8.7
%
 
Marketing
19,157

 
8.1

 
 
20,397

 
8.6

 
Repair and maintenance
9,391

 
4.0

 
 
9,742

 
4.1

 
Utilities
6,417

 
2.7

 
 
7,120

 
3.1

 
Total other property-related costs
$
56,007

 
23.7
%
 
 
$
57,791

 
24.5
%
 

14



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.
Hotel Operating Revenue, Departmental Expenses, and Other Property-Related Costs — (continued)
 
Six Months Ended June 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
41,500

 
9.3
%
 
 
$
39,895

 
8.9
%
 
Marketing
38,030

 
8.5

 
 
39,700

 
8.8

 
Repair and maintenance
19,096

 
4.3

 
 
20,092

 
4.5

 
Utilities
12,947

 
2.9

 
 
14,999

 
3.3

 
Total other property-related costs
$
111,573

 
25.0
%
 
 
$
114,686

 
25.5
%
 
Wyndham guarantees minimum levels of annual net operating income at each of the hotels it manages for us. We recorded $1.5 million and $995,000 for the pro rata portions of the projected aggregate full-year guaranties for the six months ended June 30, 2016 and 2015, respectively (of which $1.5 million and $584,000 is attributable to the three months ended June 30, 2016 and June 30, 2015, respectively). We record these amounts as a reduction of Wyndham's contractual management and other fees.
6.
Taxes, Insurance and Lease Expense

Taxes, insurance and lease expense from continuing operations were comprised of the following (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Hotel lease expense(a) 
$
1,359

 
$
2,134

 
$
2,161

 
$
4,238

Land lease expense(b) 
3,757

 
3,733

 
7,019

 
6,792

Real estate and other taxes
7,784

 
8,667

 
15,359

 
16,357

Property insurance, general liability insurance and other
1,964

 
1,876

 
3,907

 
3,830

  Total taxes, insurance and lease expense
$
14,864

 
$
16,410

 
$
28,446

 
$
31,217


(a)
We record hotel lease expense for the consolidated operating lessees of hotels owned by unconsolidated entities and partially offset this expense through noncontrolling interests in other partnerships (generally 49%). We record our 50% share of the corresponding lease income through equity in income from unconsolidated entities. We include in hotel lease expense percentage rent of $557,000 and $1.2 million for the three months ended June 30, 2016 and 2015, respectively, and $557,000 and $2.1 million for the six months ended June 30, 2016 and 2015, respectively.

(b)
We include in land lease expense percentage rent of $2.0 million and $2.2 million for the three months ended June 30, 2016 and 2015, respectively, and $3.6 million and $3.7 million for the six months ended June 30, 2016 and 2015, respectively.


15



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.
Impairment Charges
Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally, and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider our hotels to be components for purposes of determining impairment charges.
We test for impairment whenever changes in circumstances indicate a hotel’s carrying value may not be recoverable. We conduct the test using undiscounted cash flows for the shorter of the hotel’s estimated hold period or its remaining useful life. When testing for recoverability of hotels held for investment, we use projected cash flows over its expected hold period. Those hotels held for investment that fail the impairment test are written down to their then current estimated fair value, before any selling expense, and we continue to depreciate the hotels over their remaining useful lives.
In June 2016, we recorded a $6.3 million impairment charge, based on an accepted third-party offer to purchase a hotel (a Level 2 input under authoritative guidance for fair value measurements) at a price below our previously estimated fair market value for the property.
We may record additional impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and lodging industry weakens, or we shorten our contemplated holding period for additional hotels.

8.
Hotel Dispositions
During the six months ended June 30, 2015, we sold six hotels and had two hotels held for sale at June 30, 2015. We designate a hotel as held for sale when the sale is probable within the next twelve months. Generally, we consider a sale to be probable when a buyer completes its due diligence review, we have an executed contract for sale and we have received a substantial non-refundable deposit. We included operations for the sold hotels, and the hotels designated as held for sale, in income (loss) from continuing operations as shown in the statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2015, as disposition of these hotels did not represent a strategic shift in our business. Additionally, we included selling costs, which we expense as they are incurred, in the gain (loss) on the sale of hotels. There were no hotel dispositions in 2016 prior to June 30, 2016.
The following table includes condensed financial information primarily related to hotels sold in 2015 included in continuing operations (in thousands):
 
Three Months Ended
Six Months Ended
 
 
June 30, 2015
 
June 30, 2015
Hotel operating revenue
 
$
11,244

 
 
$
29,260

 
Operating expenses
 
(9,078
)
 
 
(23,620
)
 
Operating income
 
2,166

 
 
5,640

 
Interest expense, net
 
(436
)
 
 
(1,031
)
 
Debt extinguishment
 
(237
)
 
 
(309
)
 
Equity in income from unconsolidated entities
 
6,894

 
 
7,098

 
Income from continuing operations
 
8,387

 
 
11,398

 
Gain (loss) on sale of hotels, net
 
(550
)
 
 
16,337

 
Net income
 
7,837

 
 
27,735

 
Net loss (income) attributable to noncontrolling interests in other partnerships
 
26

 
 
(5,191
)
 
Net income attributable to redeemable noncontrolling interests in FelCor LP
 
(34
)
 
 
(97
)
 
Net income attributable to FelCor
 
$
7,829

 
 
$
22,447

 
 

16



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
Income (Loss) Per Share/Unit

The following tables set forth the computation of basic and diluted income (loss) per share/unit (in thousands, except per share/unit data):

FelCor Income (Loss) Per Share
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor
$
13,391

 
$
(3,284
)
 
$
8,469

 
$
3,499

Discontinued operations attributable to FelCor

 
75

 

 
71

Income (loss) from continuing operations attributable to FelCor
13,391

 
(3,209
)
 
8,469

 
3,570

Less: Preferred dividends
(6,279
)
 
(7,903
)
 
(12,558
)
 
(17,581
)
Less: Redemption of preferred stock

 
(6,096
)
 

 
(6,096
)
Less: Dividends declared on unvested restricted stock
(35
)
 
(13
)
 
(73
)
 
(26
)
Numerator for continuing operations attributable to FelCor common stockholders
7,077

 
(17,221
)
 
(4,162
)
 
(20,133
)
Discontinued operations attributable to FelCor

 
(75
)
 

 
(71
)
Numerator for basic and diluted income (loss) attributable to FelCor common stockholders
$
7,077

 
$
(17,296
)
 
$
(4,162
)
 
$
(20,204
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic income (loss) per share
138,182

 
140,322

 
138,930

 
132,465

Denominator for diluted income (loss) per share
138,678

 
140,322

 
138,930

 
132,465

Basic and diluted income (loss) per share data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)
Net income (loss)
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)


17



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
Income (Loss) Per Share/Unit — (continued)

FelCor LP Income (Loss) Per Unit
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor LP
$
13,422

 
$
(3,359
)
 
$
8,452

 
$
3,410

Discontinued operations attributable to FelCor LP

 
75

 

 
71

Income (loss) from continuing operations attributable to FelCor LP
13,422

 
(3,284
)
 
8,452

 
3,481

Less: Preferred distributions
(6,279
)
 
(7,903
)
 
(12,558
)
 
(17,581
)
Less: Redemption of preferred units

 
(6,096
)
 

 
(6,096
)
Less: Distributions declared on FelCor unvested restricted stock
(35
)
 
(13
)
 
(73
)
 
(26
)
Numerator for continuing operations attributable to FelCor LP common unitholders
7,108

 
(17,296
)
 
(4,179
)
 
(20,222
)
Discontinued operations attributable to FelCor LP

 
(75
)
 

 
(71
)
Numerator for basic and diluted income (loss) attributable to FelCor common unitholders
$
7,108

 
$
(17,371
)
 
$
(4,179
)
 
$
(20,293
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic income (loss) per unit
138,793

 
140,933

 
139,541

 
133,076

Denominator for diluted income (loss) per unit
139,289

 
140,933

 
139,541

 
133,076

Basic and diluted income (loss) per unit data:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)
Net income (loss)
$
0.05

 
$
(0.12
)
 
$
(0.03
)
 
$
(0.15
)

The income (loss) from continuing operations attributable to FelCor/FelCor LP share/unit calculations includes the net gain (loss) on sale of hotels attributable to FelCor/FelCor LP.

We do not include the following securities because they would have been antidilutive for the periods presented (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Series A convertible preferred shares/units
9,984
 
9,984
 
9,984

 
 
9,984

FelCor restricted stock units
 
1,478
 
451

 
 
1,332


18



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
Income (Loss) Per Share/Unit — (continued)

Series A preferred dividends (distributions) that would be excluded from net income (loss) attributable to FelCor common stockholders (or FelCor LP common unitholders), if these preferred shares/units were dilutive, were $6.3 million for the three months ended June 30, 2016 and 2015, and $12.6 million for the six months ended June 30, 2016 and 2015.

We grant our executive officers restricted stock units each year, which provides them with the potential to earn shares of our common stock in three increments over three to four years. A portion of the actual number of shares that vest is determined based on total stockholder return relative to a group of ten lodging REIT peers and a portion is related to service. We amortize the fixed cost of these grants over the vesting periods. We calculate the potential dilutive impact of these awards on our earnings per share using the treasury stock method.

10.
Fair Value of Financial Instruments

We base disclosures about fair value of our financial instruments on pertinent information available to management as of June 30, 2016 and December 31, 2015. We exercise considerable judgment when interpreting market data and developing estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize on disposition of the financial instruments. Different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.

We base our estimates of the fair value of (i) cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses on their carrying values due to their relatively short maturity; (ii) our debt for which trading prices are publicly available on observable market data (a Level 2 input) (that debt had an estimated fair value of $1.0 billion at June 30, 2016 and December 31, 2015); and (iii) our debt for which trading prices are not publicly available on a discounted cash flow model using effective borrowing rates for debt with similar terms, loan to estimated fair value of collateral and remaining maturities (a Level 3 input) (that debt had an estimated fair value of $458.6 million and $438.8 million at June 30, 2016 and December 31, 2015, respectively). The estimated fair value of all our debt was $1.5 billion at June 30, 2016 and December 31, 2015. The carrying value of our debt was $1.4 billion at June 30, 2016 and December 31, 2015.
11.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units
We record redeemable noncontrolling interests in FelCor LP, in the case of FelCor, and redeemable units, in the case of FelCor LP, in the mezzanine section (between liabilities and equity or partners’ capital) of our consolidated balance sheets because of the redemption feature of these units. Additionally, FelCor’s consolidated statements of operations and comprehensive income (loss) separately present earnings attributable to redeemable noncontrolling interests. We adjust redeemable noncontrolling interests in FelCor LP (or redeemable units) each period to reflect the greater of its carrying value based on the accumulation of historical cost or its redemption value. We base the historical cost on the proportionate relationship between the carrying value of equity associated with FelCor’s common stockholders relative to that of FelCor LP’s unitholders. We base redemption value on the closing price of FelCor’s common stock at period end. FelCor allocates net income (loss) to FelCor LP’s noncontrolling partners based on their weighted average ownership percentage during the period.


19



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.
Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units — (continued)

At June 30, 2016, we carried 611,462 outstanding limited partnership units at $3.8 million. We base the value of these outstanding units on the closing price of FelCor’s common stock at June 30, 2016 ($6.23 per share).

Changes in redeemable noncontrolling interests (or redeemable units) for the six months ended June 30, 2016 and 2015 are shown below (in thousands):
 
Six Months Ended
 
June 30,
 
2016
 
2015
Balance at beginning of period
$
4,464

 
 
$
6,616

 
Redemption value allocation
(563
)
 
 
(439
)
 
Distributions paid to unitholders
(75
)
 
 
(47
)
 
Net loss
(17
)
 
 
(89
)
 
Balance at end of period
$
3,809

 
 
$
6,041

 

12.    Consolidated Joint Venture Preferred Equity/Capital
Our joint venture that redeveloped The Knickerbocker raised $45 million through the sale of redeemable preferred equity under the EB-5 Immigrant Investor Program. The purchasers receive a 3.25% current annual return (which increases to 8% if we do not redeem this equity interest before the fifth anniversary of its issuance), plus a 0.25% non-compounding annual return payable at redemption. To date, the venture has received $44.4 million in gross proceeds ($43.8 million net of issuance costs), including $600,000 and $1.8 million in gross proceeds received in the first six months of 2016 and 2015, respectively. The venture will receive the remaining $600,000 as investors’ visas are approved.
13.    Commercial Dispute

One of our consolidated subsidiaries was engaged in a commercial dispute with a third party. Under generally accepted accounting principles, we recorded $5.9 million in other expenses during the third quarter of 2014 to establish a provision for our estimate of our maximum exposure for this contingency. We paid the disputed amount in January 2015 but continued asserting our contractual rights. In June 2015, we settled the commercial dispute and recovered $3.7 million (net of legal costs), which we have recorded in other revenue for the three and six months ended June 30, 2015.



20



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.    Contingency

In April 2016, an affiliate of InterContinental Hotels Group PLC, or IHG, which had formerly operated three hotels on our behalf (two of which we sold in 2006, and one of which we converted to Wyndham operation and brand in 2013), notified us that the pension fund in which the employees at those hotels had participated is seeking an $8.3 million contribution from IHG in connection with the termination of its operation of those hotels. Under our hotel management agreements with IHG, we may be obligated to indemnify and hold IHG harmless for some or all of any amount ultimately contributed to the pension fund with respect to these hotels. Nevertheless, we believe that we are not responsible for a significant portion (and perhaps any) of the contribution sought by the pension fund and that any cost we incur with respect to this matter will be immaterial. Consequently, we will vigorously defend against the underlying claims and, where appropriate, IHG’s demand for indemnification. We are in the earliest stage of investigating the matter, which involves significant legal, actuarial and factual analysis with respect to each hotel, and have not determined whether any loss to us is probable or that any such loss is estimable.

15.    Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach.
Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is permitted but not before the original effective date (for annual reporting periods beginning after December 15, 2016). We are evaluating what impact (if any) ASU 2014-09 will have on our financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02 - Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is expected to impact our consolidated financial statements as we have certain operating lease arrangements. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. We are in the process of evaluating the impact of this new guidance.

21



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.    Recently Issued Accounting Standards — (continued)

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to improve the accounting for share-based payment transactions. Under the new standard, companies can withhold shares up to the maximum individual statutory tax rate in the applicable jurisdiction as participants vest in stock and maintain equity classification of the entire award. Also under the new standard, forfeitures for stock awards may be recorded when they occur (the prior guidance required estimating forfeitures when recording stock compensation costs). Finally, the standard requires classifying cash paid when remitting cash to the tax authorities for stock compensation withholding as financing activity in the statement of cash flows. We adopted this standard effective January 1, 2016. Upon adoption, we revised our policy to account for stock compensation forfeitures as they occur, which resulted in a $185,000 increase in our accumulated deficit for the cumulative effect of change in accounting principle. In addition, in our statement of cash flows, we will reclassify $2.1 million and $3.1 million of cash paid to taxing authorities for shares withheld from operating activities to financing activities for the years ended December 31, 2015 and 2014, respectively.

16.
FelCor LP’s Consolidating Financial Information
Certain of FelCor LP’s 100% owned subsidiaries (FCH/PSH, L.P.; FelCor/CMB Buckhead Hotel, L.L.C.; FelCor/CMB Marlborough Hotel, L.L.C.; FelCor/CMB Orsouth Holdings, L.P.; FelCor/CMB SSF Holdings, L.P.; FelCor/CSS Holdings, L.P.; FelCor Dallas Love Field Owner, L.L.C.; FelCor Milpitas Owner, L.L.C.; FelCor TRS Borrower 4, L.L.C.; FelCor TRS Holdings, L.L.C.; FelCor Canada Co.; FelCor Hotel Asset Company, L.L.C.; FelCor St. Pete (SPE), L.L.C.; FelCor Esmeralda (SPE), L.L.C.; FelCor S-4 Hotels (SPE), L.L.C.; Madison 237 Hotel, L.L.C.; Myrtle Beach Owner, L.L.C.; and Royalton 44 Hotel, L.L.C., collectively, “Subsidiary Guarantors”), together with FelCor, guaranty, fully and unconditionally, except where subject to customary release provisions as described below, and jointly and severally, our senior debt.
The guaranties by the Subsidiary Guarantors may be automatically and unconditionally released upon (i) the sale or other disposition of all of the capital stock of the Subsidiary Guarantor or the sale or disposition of all or substantially all of the assets of the Subsidiary Guarantor, if, in each case, as a result of such sale or disposition, such Subsidiary Guarantor ceases to be a subsidiary of FelCor LP, (ii) the consolidation or merger of any such Subsidiary Guarantor with any person other than FelCor LP, or a subsidiary of FelCor LP, if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a subsidiary of FelCor LP, (iii) a legal defeasance or covenant defeasance of the indenture, (iv) the unconditional and complete release of such Subsidiary Guarantor in accordance with the modification and waiver provisions of the indenture, or (v) the designation of a restricted subsidiary that is a Subsidiary Guarantor as an unrestricted subsidiary under and in compliance with the indenture.

22



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.
FelCor LP’s Consolidating Financial Information — (continued)
The following tables present consolidating information for the Subsidiary Guarantors.
FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2016
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net investment in hotels
$

 
$
610,161

 
$
1,082,258

 
$

 
$
1,692,419

Equity investment in consolidated entities
1,215,589

 

 

 
(1,215,589
)
 

Investment in unconsolidated entities
3,415

 
4,765

 
1,242

 

 
9,422

Cash and cash equivalents
16,670

 
39,473

 
2,045

 

 
58,188

Restricted cash

 
18,982

 
4,724

 

 
23,706

Accounts receivable, net
2,116

 
34,582

 
1,952

 

 
38,650

Deferred expenses, net

 

 
5,464

 

 
5,464

Other assets
4,534

 
10,803

 
4,210

 

 
19,547

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,242,324

 
$
718,766

 
$
1,101,895

 
$
(1,215,589
)
 
$
1,847,396

 
 
 
 
 
 
 
 
 
 
Debt, net
$
984,985

 
$

 
$
488,154

 
$
(39,436
)
 
$
1,433,703

Distributions payable
14,831

 

 
120

 

 
14,951

Accrued expenses and other liabilities
22,346

 
92,697

 
11,906

 

 
126,949

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,022,162

 
92,697

 
500,180

 
(39,436
)
 
1,575,603

 
 
 
 
 
 
 
 
 
 
Redeemable units, at redemption value
3,809

 

 

 

 
3,809

 
 
 
 
 
 
 
 
 
 
Preferred units
309,337

 

 

 

 
309,337

Common units
(92,984
)
 
626,886

 
549,267

 
(1,176,153
)
 
(92,984
)
Total FelCor LP partners’ capital
216,353

 
626,886

 
549,267

 
(1,176,153
)
 
216,353

Noncontrolling interests

 
(817
)
 
8,665

 

 
7,848

Preferred capital in consolidated joint venture

 

 
43,783

 

 
43,783

Total partners’ capital
216,353

 
626,069

 
601,715

 
(1,176,153
)
 
267,984

Total liabilities and partners’ capital
$
1,242,324

 
$
718,766

 
$
1,101,895

 
$
(1,215,589
)
 
$
1,847,396


23



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.    FelCor LP’s Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2015
(in thousands)

 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Net investment in hotels
$

 
$
625,835

 
$
1,103,696

 
$

 
$
1,729,531

Equity investment in consolidated entities
1,260,779

 

 

 
(1,260,779
)
 

Investment in unconsolidated entities
4,440

 
3,871

 
1,264

 

 
9,575

Cash and cash equivalents
21,219

 
34,294

 
4,273

 

 
59,786

Restricted cash

 
15,442

 
2,260

 

 
17,702

Accounts receivable, net
644

 
25,575

 
1,917

 

 
28,136

Deferred expenses, net

 

 
6,390

 

 
6,390

Other assets
3,587

 
8,786

 
2,419

 

 
14,792

Total assets
$
1,290,669

 
$
713,803

 
$
1,122,219

 
$
(1,260,779
)
 
$
1,865,912

 
 
 
 
 
 
 
 
 
 
Debt, net
$
984,226

 
$

 
$
465,099

 
$
(39,436
)
 
$
1,409,889

Distributions payable
15,016

 

 
124

 

 
15,140

Accrued expenses and other liabilities
26,810

 
83,787

 
14,677

 

 
125,274

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,026,052

 
83,787

 
479,900

 
(39,436
)
 
1,550,303

 
 
 
 
 
 
 
 
 
 
Redeemable units, at redemption value
4,464

 

 

 

 
4,464

 
 
 
 
 
 
 
 
 
 
Preferred units
309,337

 

 

 

 
309,337

Common units
(49,184
)
 
630,833

 
590,510

 
(1,221,343
)
 
(49,184
)
Total FelCor LP partners’ capital
260,153

 
630,833

 
590,510

 
(1,221,343
)
 
260,153

Noncontrolling interests

 
(817
)
 
8,623

 

 
7,806

Preferred capital in consolidated joint venture

 

 
43,186

 

 
43,186

Total partners’ capital
260,153

 
630,016

 
642,319

 
(1,221,343
)
 
311,145

Total liabilities and partners’ capital
$
1,290,669

 
$
713,803

 
$
1,122,219

 
$
(1,260,779
)
 
$
1,865,912



24



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended June 30, 2016
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
236,761

 
$

 
$

 
$
236,761

Percentage lease revenue

 

 
46,953

 
(46,953
)
 

Other revenue
1

 
1,022

 
122

 

 
1,145

Total revenues
1

 
237,783

 
47,075

 
(46,953
)
 
237,906

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
145,887

 

 

 
145,887

Taxes, insurance and lease expense
26

 
56,112

 
5,679

 
(46,953
)
 
14,864

Corporate expenses

 
3,360

 
2,687

 

 
6,047

Depreciation and amortization
93

 
12,030

 
17,054

 

 
29,177

Impairment

 
6,333

 

 

 
6,333

Other expenses
187

 
1,661

 
294

 

 
2,142

Total operating expenses
306

 
225,383

 
25,714

 
(46,953
)
 
204,450

Operating income
(305
)
 
12,400

 
21,361

 

 
33,456

Interest expense, net
(14,601
)
 
9

 
(5,315
)
 

 
(19,907
)
Other gains, net

 

 
100

 

 
100

Income before equity in income from unconsolidated entities
(14,906
)
 
12,409

 
16,146

 

 
13,649

Equity in income from consolidated entities
27,974

 

 

 
(27,974
)
 

Equity in income from unconsolidated entities
652

 
85

 
(11
)
 

 
726

Income from continuing operations before income tax
13,720

 
12,494

 
16,135

 
(27,974
)
 
14,375

Income tax
(48
)
 
73

 

 

 
25

Income from continuing operations before loss on sale of hotels
13,672

 
12,567

 
16,135

 
(27,974
)
 
14,400

Loss on sale of hotels, net
(250
)
 
(300
)
 
(80
)
 

 
(630
)
Net income and comprehensive income
13,422

 
12,267

 
16,055

 
(27,974
)
 
13,770

Loss attributable to noncontrolling interests

 
(57
)
 
73

 

 
16

Preferred distributions - consolidated joint venture

 

 
(364
)
 

 
(364
)
Net income and comprehensive income attributable to FelCor LP
13,422

 
12,210

 
15,764

 
(27,974
)
 
13,422

Preferred distributions
(6,279
)
 

 

 

 
(6,279
)
Net income attributable to FelCor LP common unitholders
$
7,143

 
$
12,210

 
$
15,764

 
$
(27,974
)
 
$
7,143



25



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three Months Ended June 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
236,049

 
$

 
$

 
$
236,049

Percentage lease revenue

 

 
46,687

 
(46,687
)
 

Other revenue
107

 
4,800

 
147

 

 
5,054

Total revenues
107

 
240,849


46,834


(46,687
)
 
241,103

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
147,025

 

 

 
147,025

Taxes, insurance and lease expense
437

 
56,412

 
6,248

 
(46,687
)
 
16,410

Corporate expenses
(138
)
 
3,687

 
2,981

 

 
6,530

Depreciation and amortization
47

 
12,729

 
15,974

 

 
28,750

Other expenses
3

 
1,463

 
(55
)
 

 
1,411

Total operating expenses
349

 
221,316

 
25,148

 
(46,687
)
 
200,126

Operating income
(242
)
 
19,533

 
21,686

 

 
40,977

Interest expense, net
(14,572
)
 
3

 
(5,709
)
 

 
(20,278
)
Debt extinguishment
(28,446
)
 

 
(2,377
)
 

 
(30,823
)
Other gains, net

 

 
166

 

 
166

Loss before equity in income from unconsolidated entities
(43,260
)
 
19,536


13,766




(9,958
)
Equity in income from consolidated entities
32,380

 

 

 
(32,380
)
 

Equity in income from unconsolidated entities
7,297

 
227

 
(11
)
 

 
7,513

Loss from continuing operations before income tax
(3,583
)
 
19,763

 
13,755

 
(32,380
)
 
(2,445
)
Income tax
332

 
(501
)
 

 

 
(169
)
Loss from continuing operations
(3,251
)
 
19,262

 
13,755

 
(32,380
)
 
(2,614
)
Loss from discontinued operations

 

 
(83
)
 

 
(83
)
Loss before loss on sale of hotels
(3,251
)
 
19,262

 
13,672

 
(32,380
)
 
(2,697
)
Loss on sale of hotels, net
(108
)
 
(3
)
 
(439
)
 

 
(550
)
Net loss and comprehensive loss
(3,359
)
 
19,259

 
13,233

 
(32,380
)
 
(3,247
)
Loss attributable to noncontrolling interests

 
251

 
(4
)
 

 
247

Preferred distributions - consolidated joint venture

 

 
(359
)
 

 
(359
)
Net loss and comprehensive loss attributable to FelCor LP
(3,359
)
 
19,510

 
12,870

 
(32,380
)
 
(3,359
)
Preferred distributions
(7,903
)
 

 

 

 
(7,903
)
Redemption of preferred units
(6,096
)
 

 

 

 
(6,096
)
Net loss attributable to FelCor LP common unitholders
$
(17,358
)
 
$
19,510

 
$
12,870

 
$
(32,380
)
 
$
(17,358
)

26



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2016
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
446,218

 
$

 
$

 
$
446,218

Percentage lease revenue

 

 
90,498

 
(90,498
)
 

Other revenue
187

 
1,454

 
191

 

 
1,832

Total revenues
187

 
447,672

 
90,689

 
(90,498
)
 
448,050

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
288,116

 

 

 
288,116

Taxes, insurance and lease expense
53

 
107,595

 
11,296

 
(90,498
)
 
28,446

Corporate expenses

 
7,695

 
6,752

 

 
14,447

Depreciation and amortization
144

 
24,027

 
34,189

 

 
58,360

Impairment

 
6,333

 

 

 
6,333

Other expenses
419

 
2,213

 
338

 

 
2,970

Total operating expenses
616

 
435,979

 
52,575

 
(90,498
)
 
398,672

Operating income
(429
)
 
11,693

 
38,114

 

 
49,378

Interest expense, net
(29,262
)
 
18

 
(10,383
)
 

 
(39,627
)
Other gains, net

 

 
100

 

 
100

Income before equity in income from unconsolidated entities
(29,691
)
 
11,711

 
27,831

 

 
9,851

Equity in income from consolidated entities
37,841

 

 

 
(37,841
)
 

Equity in income from unconsolidated entities
716

 
(121
)
 
(23
)
 

 
572

Income from continuing operations before income tax
8,866

 
11,590

 
27,808

 
(37,841
)
 
10,423

Income tax
(164
)
 
(226
)
 

 

 
(390
)
Income before loss on sale of hotels
8,702

 
11,364

 
27,808

 
(37,841
)
 
10,033

Loss on sale of hotels, net
(250
)
 
(757
)
 
(337
)
 

 
(1,344
)
Net income and comprehensive income
8,452

 
10,607

 
27,471

 
(37,841
)
 
8,689

Loss attributable to noncontrolling interests

 
313

 
174

 

 
487

Preferred distributions - consolidated joint venture

 

 
(724
)
 

 
(724
)
Net income and comprehensive income attributable to FelCor LP
8,452

 
10,920

 
26,921

 
(37,841
)
 
8,452

Preferred distributions
(12,558
)
 

 

 

 
(12,558
)
Net loss attributable to FelCor LP common unitholders
$
(4,106
)
 
$
10,920

 
$
26,921

 
$
(37,841
)
 
$
(4,106
)

27



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Hotel operating revenue
$

 
$
449,334

 
$

 
$

 
$
449,334

Percentage lease revenue

 

 
85,874

 
(85,874
)
 

Other revenue
108

 
5,147

 
209

 

 
5,464

Total revenues
108

 
454,481

 
86,083

 
(85,874
)
 
454,798

 
 
 
 
 
 
 
 
 

Expenses:
 
 
 
 
 
 
 
 

Hotel operating expenses

 
290,661

 

 

 
290,661

Taxes, insurance and lease expense
(191
)
 
105,911

 
11,371

 
(85,874
)
 
31,217

Corporate expenses

 
8,292

 
6,811

 

 
15,103

Depreciation and amortization
89

 
25,894

 
30,539

 

 
56,522

Other expenses
3

 
5,509

 
127

 

 
5,639

Total operating expenses
(99
)
 
436,267

 
48,848

 
(85,874
)
 
399,142

Operating income
207

 
18,214

 
37,235

 

 
55,656

Interest expense, net
(28,312
)
 
6

 
(11,453
)
 

 
(39,759
)
Debt extinguishment
(28,446
)
 

 
(2,450
)
 

 
(30,896
)
Other gains, net

 

 
166

 

 
166

Loss before equity in income from unconsolidated entities
(56,551
)
 
18,220

 
23,498

 

 
(14,833
)
Equity in income from consolidated entities
52,738

 

 

 
(52,738
)
 

Equity in income from unconsolidated entities
7,644

 
41

 
(23
)
 

 
7,662

Loss from continuing operations before income tax
3,831

 
18,261

 
23,475

 
(52,738
)
 
(7,171
)
Income tax
(142
)
 
(196
)
 

 

 
(338
)
Loss from continuing operations
3,689

 
18,065

 
23,475

 
(52,738
)
 
(7,509
)
Loss from discontinued operations

 
4

 
(83
)
 

 
(79
)
Loss before gain on sale of hotels
3,689

 
18,069

 
23,392

 
(52,738
)
 
(7,588
)
Gain on sale of hotels, net
(279
)
 
(12
)
 
16,628

 

 
16,337

Net income and comprehensive income
3,410

 
18,057

 
40,020

 
(52,738
)
 
8,749

Income attributable to noncontrolling interests

 
510

 
(5,142
)
 

 
(4,632
)
Preferred distributions - consolidated joint venture

 

 
(707
)
 

 
(707
)
Net income and comprehensive income attributable to FelCor LP
3,410

 
18,567

 
34,171

 
(52,738
)
 
3,410

Preferred distributions
(17,581
)
 

 

 

 
(17,581
)
Redemption of preferred units
(6,096
)
 



 

 
(6,096
)
Net loss attributable to FelCor LP common unitholders
$
(20,267
)
 
$
18,567

 
$
34,171

 
$
(52,738
)
 
$
(20,267
)

28



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2016
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(34,655
)
 
$
41,661

 
$
64,559

 
$

 
$
71,565

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(7
)
 
(15,093
)
 
(16,809
)
 

 
(31,909
)
Net proceeds from asset sales
(723
)
 
(533
)
 
(205
)
 

 
(1,461
)
Insurance proceeds

 

 
94

 

 
94

Change in restricted cash - investing

 
(3,540
)
 
(2,464
)
 

 
(6,004
)
Distributions from unconsolidated entities
386

 

 

 

 
386

Intercompany financing
87,950

 

 

 
(87,950
)
 

Cash flows from investing activities
87,606

 
(19,166
)
 
(19,384
)
 
(87,950
)
 
(38,894
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings

 

 
50,000

 

 
50,000

Repayment of borrowings

 

 
(27,145
)
 

 
(27,145
)
Payment of deferred financing fees

 

 
(12
)
 

 
(12
)
Distributions paid to noncontrolling interests

 

 
(1
)
 

 
(1
)
Contributions from noncontrolling interests

 
313

 
217

 

 
530

Repurchase of common units
(27,427
)
 

 

 

 
(27,427
)
Distributions paid to preferred unitholders
(12,558
)
 

 

 

 
(12,558
)
Distributions paid to common unitholders
(16,848
)
 

 

 

 
(16,848
)
Net proceeds from issuance of preferred capital - consolidated joint venture

 

 
597

 

 
597

Intercompany financing

 
(17,620
)
 
(70,330
)
 
87,950

 

Other
(667
)
 

 
(729
)
 

 
(1,396
)
Cash flows from financing activities
(57,500
)
 
(17,307
)
 
(47,403
)
 
87,950

 
(34,260
)
Effect of exchange rate changes on cash

 
(9
)
 

 

 
(9
)
Change in cash and cash equivalents
(4,549
)
 
5,179

 
(2,228
)
 

 
(1,598
)
Cash and cash equivalents at beginning of period
21,219

 
34,294

 
4,273

 

 
59,786

Cash and cash equivalents at end of period
$
16,670

 
$
39,473

 
$
2,045

 
$

 
$
58,188


29



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(27,492
)
 
$
35,690

 
$
60,750

 
$

 
$
68,948

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(129
)
 
(15,483
)
 
(10,145
)
 

 
(25,757
)
Hotel development

 

 
(21,637
)
 

 
(21,637
)
Net proceeds from asset sales
(306
)
 
10

 
134,174

 

 
133,878

Insurance proceeds
274

 

 

 

 
274

Change in restricted cash - investing

 
(1,350
)
 
(1,714
)
 

 
(3,064
)
Distributions from unconsolidated entities
6,303

 

 

 

 
6,303

Intercompany financing
167,009

 

 

 
(167,009
)
 

Cash flows from investing activities
173,151

 
(16,823
)
 
100,678

 
(167,009
)
 
89,997

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
475,000

 

 
504,000

 

 
979,000

Repayment of borrowings
(545,440
)
 

 
(504,616
)
 

 
(1,050,056
)
Payment of deferred financing fees
(8,261
)
 

 
(5,661
)
 

 
(13,922
)
Distributions paid to preferred unitholders
(19,847
)
 

 

 

 
(19,847
)
Distributions paid to common unitholders
(10,765
)
 

 

 

 
(10,765
)
Net proceeds from common unit issuance
198,720

 

 

 

 
198,720

Distributions paid to noncontrolling interests

 
(85
)
 
(15,893
)
 

 
(15,978
)
Contributions from noncontrolling interests

 
483

 
1,425

 

 
1,908

Redemption of preferred units
(169,986
)
 

 

 

 
(169,986
)
Net proceeds from issuance of preferred capital- consolidated joint venture

 

 
1,746

 

 
1,746

Intercompany financing

 
(18,229
)
 
(148,780
)
 
167,009

 

Other
(55
)
 

 
(707
)
 

 
(762
)
Cash flows from financing activities
(80,634
)
 
(17,831
)
 
(168,486
)
 
167,009

 
(99,942
)
Effect of exchange rate changes on cash

 
(43
)
 

 

 
(43
)
Change in cash and cash equivalents
65,025

 
993

 
(7,058
)
 

 
58,960

Cash and cash equivalents at beginning of period
5,717

 
32,923

 
8,507

 

 
47,147

Cash and cash equivalents at end of period
$
70,742

 
$
33,916

 
$
1,449

 
$

 
$
106,107


30


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

General
Revenue per available room, or RevPAR, for our 39 same-store hotels (which excludes The Knickerbocker) increased 2.6% in the second quarter of 2016 compared to the same period last year, driven by a 2.0% increase in average daily rate, or ADR, and a 0.6% increase in occupancy.
In our continuing effort to increase long-term stockholder value, we look for opportunities to redeploy capital to achieve higher returns and strengthen our balance sheet. In accordance with our 2015 strategic plan, our Board approved selling five hotels. We have agreed to sell two hotels, the Renaissance Esmeralda Indian Wells Resort and the Holiday Inn Nashville Airport for $76 million and $32 million, respectively. We received non-refundable deposits of $4.8 million, with scheduled closing dates of August 1 and September 1, respectively. We will repay our line of credit with the proceeds. We continue to market our three New York hotels.
In 2015, our Board approved a common stock repurchase program, under which we may spend up to $100 million repurchasing shares of our common stock through October 2017. We may repurchase shares in transactions on the open market, in privately-negotiated transactions or by other means, including Rule 10b5-1 trading plans, in accordance with applicable securities laws and other restrictions. During the first six months of 2016, we repurchased 4.1 million shares of common stock for $27.4 million (including commissions) for an average price of $6.61 per share. To date, we have repurchased 6.1 million shares of common stock for $41.9 million (including commissions) at an average price of $6.81 per share. We intend to continue to repurchase shares of our common stock while they trade at a significant discount to net asset value.

Results of Operations
Comparison of the Three Months ended June 30, 2016 and 2015
For the three months ended June 30, 2016, we recorded net income of $13.8 million compared to a $3.2 million net loss for the same period last year. Our 2016 net income includes a $6.3 million impairment charge. Our 2015 net loss included debt extinguishment charges of $30.8 million, partially offset by $3.7 million in net revenue attributable to a favorable settlement of a commercial dispute. Additionally, during the three months ended June 30, 2015, one of our unconsolidated joint ventures sold a hotel, the gain from which increased our equity in income from unconsolidated entities by $7.1 million.
For the three months ended June 30, 2016:
Hotel operating revenue increased $712,000, which includes a $4.7 million net reduction in revenue for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, hotel operating revenue increased 2.5% from last year. The increase was driven by a 2.6% increase in same-store RevPAR, reflecting a 2.0% increase in ADR and a 0.6% increase in occupancy.
Other revenue decreased $3.9 million, which primarily reflects a favorable $3.7 million net settlement of a commercial dispute in 2015.
Hotel departmental expenses increased $1.3 million, which includes a $687,000 net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, hotel departmental expenses increased slightly to 33.7% of hotel operating revenue from 33.6% last year.

31


Other property-related costs declined $1.8 million, including a $3.2 million net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, other property-related costs increased slightly to 23.7% of hotel operating revenue from 23.6% last year.
Management and franchise fees declined $701,000, including a $500,000 net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, these costs decreased slightly to 3.7% of hotel operating revenue from 3.8% last year.
Taxes, insurance and lease expense declined $1.5 million, most of which is primarily attributable to a net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, these expenses decreased slightly to 6.5% of hotel operating revenue from 6.7% last year.
Corporate expenses declined $483,000, which primarily reflects a change in stock compensation expense associated with variable stock awards (our stock price has declined since the same period last year).
Depreciation and amortization expense increased $427,000 primarily attributable to depreciation of The Knickerbocker after the hotel was placed in service during 2015, partially offset by depreciation of hotels sold in 2015.
Impairment loss for 2016 was $6.3 million resulting from an accepted third-party offer to purchase a hotel. We recorded no impairment loss for the same period last year.
Other expenses increased $731,000 from the same period last year. This change is primarily attributable to a litigation settlement in the current period.
Net interest expense declined $371,000. We completed certain renovation and redevelopment projects, including The Knickerbocker, in 2015 resulting in lower capitalized interest in the current year as compared to the same period last year. Excluding the change in capitalized interest, interest expense declined by $1.7 million.
Debt extinguishment. For the three months ended June 30, 2015, we recorded $30.8 million in debt extinguishment charges (which included a $10.4 million write-off of deferred loan costs), primarily related to redeeming our 6.75% senior secured notes.
Equity in income from unconsolidated entities decreased $6.8 million, primarily reflecting the 2015 sale of a hotel owned by one of our unconsolidated joint ventures.
Comparison of the Six Months ended June 30, 2016 and 2015
For the six months ended June 30, 2016, we recorded net income of $8.7 million, which is consistent with net income for the same period last year. Our 2016 net income includes a $6.3 million impairment charge. Our 2015 net income included debt extinguishment charges of $30.9 million, offset by a net gain on hotel sales of $16.3 million and $3.7 million in net revenue attributable to a favorable settlement of a commercial dispute. Additionally, during the six months ended June 30, 2015, one of our unconsolidated joint ventures sold a hotel, the gain from which increased our equity in income from unconsolidated entities by $7.1 million.

32


For the six months ended June 30, 2016:
Hotel operating revenue declined $3.1 million, including a $17.4 million net reduction in revenue for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, hotel operating revenue increased 3.4% from last year. The increase was driven by a 3.5% increase in same-store RevPAR, reflecting a 2.6% increase in ADR and a 0.9% increase in occupancy.
Other revenue decreased $3.6 million, which primarily reflects a favorable $3.7 million net settlement of a commercial dispute in 2015.
Hotel departmental expenses increased $1.1 million, which includes a $3.0 million net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, hotel departmental expenses decreased slightly to 34.7% of hotel operating revenue from 34.9% last year.
Other property-related costs declined $3.1 million, including a $6.8 million net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, other property-related costs are 24.8% of hotel operating revenue, which is consistent with the same period last year.
Management and franchise fees declined $561,000, including a $1.4 million net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, these costs are 4.0% of hotel operating revenue, which is consistent with the same period last year.
Taxes, insurance and lease expense declined $2.8 million, including a $3.1 million net reduction in expense for hotels that have been disposed of, classified as held for sale or recently opened. Excluding these hotels, these expenses decreased slightly to 6.5% of hotel operating revenue from 6.6% last year.
Corporate expenses declined $656,000, which primarily reflects a change in stock compensation expense associated with variable stock awards (our stock price has declined since the same period last year).
Depreciation and amortization expense increased $1.8 million primarily attributable to depreciation of The Knickerbocker after the hotel was placed in service during 2015, partially offset by depreciation of hotels sold in 2015.
Impairment loss for 2016 was $6.3 million resulting from an accepted third-party offer to purchase a hotel. We recorded no impairment loss for the same period last year.
Other expenses declined $2.7 million from the same period last year. This change is primarily attributable to pre-opening costs incurred in 2015 for The Knickerbocker, partially offset by an increase in expense for a litigation settlement.
Net interest expense declined $132,000. We completed certain renovation and redevelopment projects, including The Knickerbocker, in 2015 resulting in lower capitalized interest in the current year as compared to the same period last year. Excluding the change in capitalized interest, interest expense declined by $4.8 million.
Debt extinguishment. For the six months ended June 30, 2015, we recorded $30.9 million in debt extinguishment charges (which included a $10.5 million write-off of deferred loan costs), primarily related to redeeming our 6.75% senior secured notes.
Equity in income from unconsolidated entities decreased $7.1 million, primarily reflecting the 2015 sale of a hotel owned by one of our unconsolidated joint ventures.


33


Non-GAAP Financial Measures
We refer in this report to certain “non-GAAP financial measures.” These measures, including FFO (Funds from Operations), Adjusted FFO, EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA, and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with GAAP. The following tables reconcile these non-GAAP measures to the most comparable GAAP financial measure. Immediately following the reconciliations, we include a discussion of why we believe these measures are useful supplemental measures of our performance and the limitations of such measures.

34


Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)
 
Three Months Ended June 30,
 
2016
2015
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income (loss)
$
13,770

 
 
 
 
 
$
(3,247
)
 
 
 
 
Noncontrolling interests
(15
)
 
 
 
 
 
322

 
 
 
 
Preferred dividends
(6,279
)
 
 
 
 
 
(7,903
)
 
 
 
 
Redemption of preferred stock

 
 
 
 
 
(6,096
)
 
 
 
 
Preferred distributions - consolidated joint venture
(364
)





(359
)




Net income (loss) attributable to FelCor common stockholders
7,112

 
 
 
 
 
(17,283
)
 
 
 
 
Less: Dividends declared on unvested restricted stock
(35
)
 
 
 
 
 
(13
)
 
 
 
 
Basic and diluted earnings per share data
7,077

 
138,182

 
0.05

 
(17,296
)
 
140,322

 
(0.12
)
Restricted stock units

 
496

 

 

 

 

Diluted earnings per share data
7,077

 
138,678

 
0.05

 
(17,296
)
 
140,322

 
(0.12
)
Depreciation and amortization
29,177

 

 
0.21

 
28,750

 

 
0.21

Depreciation, unconsolidated entities and other partnerships
469

 

 

 
546

 

 

Impairment loss
6,333

 

 
0.05

 

 

 

Gain on sale of hotel in unconsolidated entity

 

 

 
(7,113
)
 

 
(0.05
)
Loss on sale of hotels, net of noncontrolling interests in other partnerships
630

 

 

 
631

 

 

Other gains
(100
)
 

 

 
(100
)
 

 

Noncontrolling interests in FelCor LP
31

 
611

 

 
(75
)
 
611

 

Dividends declared on unvested restricted stock
35

 
66

 

 
13

 
57

 

Conversion of unvested restricted stock units

 

 

 

 
1,478

 

FFO*
43,652

 
139,355

 
0.31

 
5,356

 
142,468

 
0.04

Debt extinguishment

 

 

 
30,823

 

 
0.22

Debt extinguishment, unconsolidated entities

 

 

 
330

 

 

Severance costs
27

 

 

 

 

 

Variable stock compensation
(789
)
 

 
(0.01
)
 
(72
)
 

 

Abandoned projects
383

 

 
0.01

 

 

 

Redemption of preferred stock

 

 

 
6,096

 

 
0.04

Contract dispute recovery

 

 

 
(3,717
)
 

 
(0.03
)
Litigation settlement
650

 

 
0.01

 

 

 

Pre-opening costs, net of noncontrolling interests
191

 

 

 
523

 

 
0.01

Adjusted FFO*
$
44,114

 
139,355


$
0.32


$
39,339


142,468


$
0.28


* FFO and Adjusted FFO are attributable to FelCor common stockholders and FelCor LP common unitholders other than FelCor.

35



Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
(in thousands, except per share data)

 
Six Months Ended June 30,
 
2016
2015
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income
$
8,689

 
 
 
 
 
$
8,749

 
 
 
 
Noncontrolling interests
504

 
 
 
 
 
(4,543
)
 
 
 
 
Preferred dividends
(12,558
)
 
 
 
 
 
(17,581
)
 
 
 
 
Preferred distributions - consolidated joint venture
(724
)
 
 
 
 
 
(707
)
 
 
 
 
Redemption of preferred stock

 
 
 
 
 
(6,096
)
 
 
 
 
Net loss attributable to FelCor common stockholders
(4,089
)
 
 
 
 
 
(20,178
)
 
 
 
 
Less: Dividends declared on unvested restricted stock
(73
)
 
 
 
 
 
(26
)
 
 
 
 
Basic and diluted earnings per share data
(4,162
)
 
138,930

 
$
(0.03
)
 
(20,204
)
 
132,465

 
$
(0.15
)
Depreciation and amortization
58,360

 

 
0.42

 
56,522

 

 
0.42

Depreciation, unconsolidated entities and other partnerships
936

 

 
0.01

 
1,258

 

 
0.01

Impairment loss
6,333

 

 
0.05

 

 

 

Gain on sale of hotel in unconsolidated entity

 

 

 
(7,113
)
 

 
(0.05
)
Loss (gain) on sale of hotels, net of noncontrolling interests in other partnerships
1,344

 

 

 
(11,249
)
 

 
(0.09
)
Other gains
(100
)
 

 

 
(100
)
 

 

Noncontrolling interests in FelCor LP
(17
)
 
611

 

 
(89
)
 
611

 

Dividends declared on unvested restricted stock
73

 
22

 

 
26

 
34

 

Conversion of unvested restricted stock units

 
451

 

 

 
1,332

 

FFO*
62,767

 
140,014

 
0.45

 
19,051

 
134,442

 
0.14

Debt extinguishment

 

 

 
30,895

 

 
0.23

Debt extinguishment, unconsolidated entities

 

 

 
330

 

 

Severance costs
27

 

 

 

 

 

Variable stock compensation
(27
)
 

 

 
925

 

 
0.01

Redemption of preferred stock

 

 

 
6,096

 

 
0.05

Contract dispute recovery

 

 

 
(3,717
)
 

 
(0.03
)
Litigation settlement
650

 

 
0.01

 

 

 

Abandoned projects
615

 

 

 

 

 

Pre-opening costs, net of noncontrolling interests
245

 

 

 
4,047

 

 
0.03

Adjusted FFO*
$
64,277

 
140,014


$
0.46


$
57,627


134,442


$
0.43


* FFO and Adjusted FFO are attributable to FelCor common stockholders and FelCor LP common unitholders other than FelCor.


36


Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
13,770

 
$
(3,247
)
 
$
8,689

 
$
8,749

Depreciation and amortization
29,177

 
28,750

 
58,360

 
56,522

Depreciation, unconsolidated entities and other partnerships
469

 
546

 
936

 
1,258

Interest expense
19,923

 
20,284

 
39,655

 
39,770

Interest expense, unconsolidated entities and other partnerships
90

 
141

 
190

 
343

Income taxes
(25
)
 

 
390

 

Noncontrolling interests in preferred distributions, consolidated joint venture
(18
)
 

 
(36
)
 

Noncontrolling interests in other partnerships
16

 
247

 
487

 
(4,632
)
EBITDA*
63,402

 
46,721

 
108,671

 
102,010

Impairment loss
6,333

 

 
6,333

 

Debt extinguishment

 
30,823

 

 
30,895

Debt extinguishment, unconsolidated entities

 
330

 

 
330

Gain on sale of hotel in unconsolidated entity

 
(7,113
)
 

 
(7,113
)
Loss (gain) on sale of hotels, net of noncontrolling interests in other partnerships
630

 
631

 
1,344

 
(11,249
)
Other gains
(100
)
 
(100
)
 
(100
)
 
(100
)
Amortization of fixed stock and directors’ compensation
1,693

 
1,701

 
3,627

 
3,563

Severance costs
27

 

 
27

 

Abandoned projects
383

 

 
615

 

Variable stock compensation
(789
)
 
(72
)
 
(27
)
 
925

Contract dispute recovery

 
(3,717
)
 

 
(3,717
)
Litigation settlement
650

 

 
650

 

Pre-opening costs, net of noncontrolling interests
191

 
523

 
245

 
4,047

Adjusted EBITDA*
72,420

 
69,727

 
121,385

 
119,591

Adjusted EBITDA from hotels disposed, held for sale or recently opened
(2,751
)
 
(2,063
)
 
(1,413
)
 
(5,264
)
Same-store Adjusted EBITDA*
$
69,669

 
$
67,664

 
$
119,972

 
$
114,327


* EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA are attributable to FelCor common stockholders and FelCor LP unitholders other than FelCor.


37



Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Same-store operating revenue:
 
 
 
 
 
 
 
Room
$
172,225

 
$
167,875

 
$
326,655

 
$
313,808

Food and beverage
41,111

 
40,146

 
79,383

 
78,253

Other operating departments
11,688

 
11,571

 
22,485

 
22,220

Same-store operating revenue
225,024

 
219,592

 
428,523

 
414,281

Same-store operating expense:
 
 
 
 
 
 
 
Room
41,694

 
40,251

 
82,102

 
78,210

Food and beverage
30,022

 
29,222

 
59,000

 
58,098

Other operating departments
4,015

 
4,226

 
7,782

 
8,468

Other property related costs
53,273

 
51,865

 
106,306

 
102,574

Management and franchise fees
8,246

 
8,447

 
17,340

 
16,540

Taxes, insurance and lease expense
13,808

 
13,821

 
26,619

 
26,251

Same-store operating expense
151,058

 
147,832

 
299,149

 
290,141

Hotel EBITDA
$
73,966

 
$
71,760

 
$
129,374

 
$
124,140

Hotel EBITDA Margin
32.9
%
 
32.7
%
 
30.2
%
 
30.0
%


38


Reconciliation of Same-store Operating Revenue and Same-store Operating Expense to Total Revenue, Total Operating Expense and Operating Income
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Same-store operating revenue
$
225,024

 
$
219,592

 
$
428,523

 
$
414,281

Other revenue
1,145

 
5,054

 
1,832

 
5,464

Revenue from hotels disposed, held for sale and recently opened(a)
11,737

 
16,457

 
17,695

 
35,053

Total revenue
237,906

 
241,103

 
448,050

 
454,798

Same-store operating expense
151,058

 
147,832

 
299,149

 
290,141

Consolidated hotel lease expense(b)
1,359

 
2,134

 
2,161

 
4,238

Unconsolidated taxes, insurance and lease expense
(517
)
 
(773
)
 
(969
)
 
(1,514
)
Corporate expenses
6,047

 
6,530

 
14,447

 
15,103

Depreciation and amortization
29,177

 
28,750

 
58,360

 
56,522

Impairment loss
6,333

 

 
6,333

 

Expenses from hotels disposed, held for sale and recently opened(a)
8,851

 
14,242

 
16,221

 
29,013

Other expenses
2,142

 
1,411

 
2,970

 
5,639

Total operating expense
204,450

 
200,126

 
398,672

 
399,142

Operating income
$
33,456

 
$
40,977

 
$
49,378

 
$
55,656

(a)
Under GAAP, we include the operating performance for disposed, held for sale and recently-opened hotels in continuing operations in our statements of operations. However, for purposes of our Non-GAAP reporting metrics, we have excluded the results of these hotels to provide a meaningful same-store comparison.
(b)
Consolidated hotel lease expense represents the lease expense of our 51% owned operating lessees. The offsetting lease revenue is included in equity in income from unconsolidated entities.
Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT’s performance and should be considered along with, but not as an alternative to, net income (loss) attributable to FelCor as a measure of our operating performance.


39



FFO and EBITDA

The National Association of Real Estate Investment Trusts, or “NAREIT,” defines FFO as net income or loss attributable to parent (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation, amortization and impairment losses. FFO for unconsolidated partnerships and joint ventures are calculated on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

EBITDA is a commonly used measure of performance in many industries. We define EBITDA as net income or loss attributable to parent (computed in accordance with GAAP) plus interest expenses, income taxes, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA on the same basis.

Adjustments to FFO and EBITDA
We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional items provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income (loss) attributable to FelCor, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.
Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to extinguishment of debt and interest rate swaps from FFO and EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.
Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.
Other expenses and costs - From time to time, we periodically incur expenses or transaction costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversion costs, acquisition costs, pre-opening costs, severance costs and certain non-cash adjustments. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.

Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.
In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. We also exclude the amortization of our fixed stock and directors’ compensation, which is included in corporate expenses and is not separately stated on our statements of operations. Excluding amortization of our fixed stock and directors’ compensation maintains consistency with the EBITDA definition.

40


Hotel EBITDA and Hotel EBITDA Margin
Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level expenses. We eliminate these additional items because we believe property-level results provide investors with supplemental information regarding the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.
Use and Limitations of Non-GAAP Measures
We use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other hotel REITs, hotel owners who are not REITs and other capital intensive companies. We use Hotel EBITDA and Hotel EBITDA margin in evaluating hotel-level performance and the operating efficiency of our hotel managers.
The use of these non-GAAP financial measures has certain limitations. As we present them, these non-GAAP financial measures may not be comparable to similar non-GAAP financial measures as presented by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.


41


Pro Rata Share of Rooms Owned

The following table sets forth, at June 30, 2016, our pro rata share of hotel rooms after giving consideration to the portion of rooms attributed to our partners in our consolidated and unconsolidated joint ventures:
 
Hotels
 
Room Count at June 30, 2016
Consolidated Hotels(a)
40

 
 
12,272

 
Unconsolidated hotel operations
1

 
 
171

 
Total hotels
41

 
 
12,443

 
 
 
 
 
 
 
    50% joint ventures
2

 
 
(216
)
 
    95% joint venture
1

 
 
(17
)
 
Pro rata rooms attributed to joint venture partners
 
 
 
(233
)
 
Pro rata share of rooms owned
 
 
 
12,210

 

(a) Includes The Knickerbocker, which opened in February 2015.


42


Hotel Operating Statistics
 
 
Occupancy (%)
 
ADR ($)
 
RevPar ($)
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
Three Months Ended June 30,
Same-store Hotels
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
Embassy Suites Atlanta-Buckhead
80.7
 
81.5
 
(1.0
)
 
154.42

 
147.38

 
4.8

 
124.66

 
120.14

 
3.8

DoubleTree Suites by Hilton Austin
88.6
 
81.2
 
9.1

 
217.74

 
221.84

 
(1.9
)
 
193.01

 
180.22

 
7.1

Embassy Suites Birmingham
80.3
 
79.1
 
1.5

 
143.14

 
138.58

 
3.3

 
114.88

 
109.59

 
4.8

The Fairmont Copley Plaza, Boston
83.2
 
84.3
 
(1.3
)
 
366.02

 
361.24

 
1.3

 
304.57

 
304.48

 

Wyndham Boston Beacon Hill
86.9
 
85.4
 
1.8

 
258.35

 
262.02

 
(1.4
)
 
224.62

 
223.83

 
0.4

Embassy Suites Boston-Marlborough
77.2
 
78.8
 
(2.1
)
 
175.60

 
172.34

 
1.9

 
135.52

 
135.78

 
(0.2
)
Sheraton Burlington Hotel & Conference Center
72.0
 
73.3
 
(1.8
)
 
123.44

 
123.39

 

 
88.86

 
90.48

 
(1.8
)
The Mills House Wyndham Grand Hotel, Charleston
91.7
 
90.9
 
0.9

 
262.48

 
257.83

 
1.8

 
240.67

 
234.31

 
2.7

Embassy Suites Dallas-Love Field(1)
78.5
 
91.0
 
(13.7
)
 
141.99

 
131.01

 
8.4

 
111.52

 
119.25

 
(6.5
)
Embassy Suites Deerfield Beach-Resort & Spa
81.3
 
82.6
 
(1.6
)
 
174.71

 
182.66

 
(4.4
)
 
142.02

 
150.93

 
(5.9
)
Embassy Suites Fort Lauderdale 17th Street
79.9
 
81.6
 
(2.0
)
 
157.06

 
152.46

 
3.0

 
125.52

 
124.34

 
0.9

Wyndham Houston-Medical Center Hotel & Suites
80.3
 
79.7
 
0.8

 
152.72

 
154.07

 
(0.9
)
 
122.70

 
122.77

 
(0.1
)
Renaissance Esmeralda Indian Wells Resort & Spa
57.7
 
53.4
 
7.9

 
215.15

 
205.28

 
4.8

 
124.08

 
109.72

 
13.1

Embassy Suites Los Angeles-International Airport/South
85.5
 
82.8
 
3.3

 
173.74

 
160.79

 
8.1

 
148.63

 
133.18

 
11.6

Embassy Suites Mandalay Beach-Hotel & Resort
86.4
 
84.4
 
2.3

 
233.46

 
210.74

 
10.8

 
201.60

 
177.96

 
13.3

Embassy Suites Miami-International Airport
84.5
 
87.4
 
(3.3
)
 
130.21

 
134.11

 
(2.9
)
 
110.04

 
117.19

 
(6.1
)
Embassy Suites Milpitas-Silicon Valley
84.8
 
86.5
 
(2.0
)
 
203.16

 
196.09

 
3.6

 
172.20

 
169.64

 
1.5

Embassy Suites Minneapolis-Airport
78.6
 
77.0
 
2.2

 
157.60

 
153.00

 
3.0

 
123.91

 
117.75

 
5.2

Embassy Suites Myrtle Beach-Oceanfront Resort
79.0
 
80.0
 
(1.2
)
 
196.75

 
198.44

 
(0.8
)
 
155.45

 
158.67

 
(2.0
)
Hilton Myrtle Beach Resort
74.3
 
76.2
 
(2.5
)
 
158.89

 
153.36

 
3.6

 
118.12

 
116.87

 
1.1

Embassy Suites Napa Valley
83.6
 
84.7
 
(1.3
)
 
257.77

 
239.75

 
7.5

 
215.39

 
203.06

 
6.1

Holiday Inn Nashville Airport
82.6
 
68.7
 
20.3

 
129.53

 
118.37

 
9.4

 
107.00

 
81.29

 
31.6

Wyndham New Orleans-French Quarter
81.2
 
74.0
 
9.7

 
151.61

 
161.25

 
(6.0
)
 
123.14

 
119.34

 
3.2

Morgans New York
89.2
 
86.4
 
3.3

 
282.60

 
301.09

 
(6.1
)
 
252.11

 
260.12

 
(3.1
)
Royalton New York
87.5
 
89.0
 
(1.7
)
 
309.77

 
317.23

 
(2.4
)
 
270.90

 
282.37

 
(4.1
)
Embassy Suites Orlando-International Drive South/Convention Center(1)
73.3
 
85.8
 
(14.6
)
 
138.31

 
146.04

 
(5.3
)
 
101.34

 
125.36

 
(19.2
)
DoubleTree Suites by Hilton Orlando-Lake Buena Vista
91.7
 
93.8
 
(2.3
)
 
138.99

 
137.68

 
1.0

 
127.39

 
129.16

 
(1.4
)
Wyndham Philadelphia Historic District
85.3
 
74.5
 
14.5

 
163.19

 
179.96

 
(9.3
)
 
139.25

 
134.14

 
3.8

Sheraton Philadelphia Society Hill Hotel
81.4
 
81.0
 
0.5

 
193.05

 
188.62

 
2.3

 
157.15

 
152.74

 
2.9

Embassy Suites Phoenix-Biltmore
70.5
 
70.1
 
0.6

 
159.69

 
153.52

 
4.0

 
112.58

 
107.64

 
4.6

Wyndham Pittsburgh University Center
77.7
 
78.8
 
(1.4
)
 
153.69

 
152.91

 
0.5

 
119.43

 
120.57

 
(0.9
)
Wyndham San Diego Bayside
77.9
 
84.5
 
(7.7
)
 
161.97

 
151.98

 
6.6

 
126.25

 
128.37

 
(1.7
)
Embassy Suites San Francisco Airport-South San Francisco
89.4
 
90.3
 
(1.1
)
 
208.42

 
197.38

 
5.6

 
186.23

 
178.31

 
4.4

Embassy Suites San Francisco Airport-Waterfront
92.0
 
87.0
 
5.7

 
207.43

 
208.92

 
(0.7
)
 
190.75

 
181.82

 
4.9

Holiday Inn San Francisco-Fisherman’s Wharf
89.8
 
90.7
 
(1.0
)
 
207.18

 
204.91

 
1.1

 
186.12

 
185.85

 
0.1

San Francisco Marriott Union Square
90.8
 
86.5
 
4.9

 
291.00

 
279.42

 
4.1

 
264.08

 
241.82

 
9.2

Wyndham Santa Monica At the Pier
87.1
 
85.9
 
1.3

 
273.84

 
255.68

 
7.1

 
238.44

 
219.75

 
8.5

Embassy Suites Secaucus-Meadowlands
79.5
 
81.4
 
(2.4
)
 
188.41

 
192.12

 
(1.9
)
 
149.73

 
156.48

 
(4.3
)
The Vinoy Renaissance St. Petersburg Resort & Golf Club
83.9
 
84.3
 
(0.4
)
 
220.88

 
210.15

 
5.1

 
185.39

 
177.09

 
4.7

Same-store Hotels
81.6
 
81.1
 
0.6

 
194.28

 
190.42

 
2.0

 
158.48

 
154.48

 
2.6


(1) Hotel under renovation in 2016

43


Hotel Operating Statistics
 
 
Occupancy (%)
 
ADR ($)
 
RevPar ($)
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
Six Months Ended June 30,
Same-store Hotels
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
Embassy Suites Atlanta-Buckhead
80.8
 
80.2
 
0.8

 
156.78

 
149.34

 
5.0

 
126.72

 
119.72

 
5.9

DoubleTree Suites by Hilton Austin
85.7
 
81.7
 
5.0

 
228.52

 
235.74

 
(3.1
)
 
195.94

 
192.52

 
1.8

Embassy Suites Birmingham
80.5
 
78.1
 
3.0

 
138.46

 
137.15

 
1.0

 
111.40

 
107.08

 
4.0

The Fairmont Copley Plaza, Boston
73.6
 
73.0
 
0.8

 
316.53

 
314.81

 
0.5

 
232.97

 
229.76

 
1.4

Wyndham Boston Beacon Hill
75.4
 
76.8
 
(1.9
)
 
218.60

 
219.52

 
(0.4
)
 
164.74

 
168.69

 
(2.3
)
Embassy Suites Boston-Marlborough
71.0
 
75.7
 
(6.2
)
 
171.95

 
167.64

 
2.6

 
122.04

 
126.83

 
(3.8
)
Sheraton Burlington Hotel & Conference Center
70.3
 
69.5
 
1.1

 
108.67

 
113.12

 
(3.9
)
 
76.36

 
78.59

 
(2.8
)
The Mills House Wyndham Grand Hotel, Charleston
84.9
 
84.7
 
0.2

 
236.39

 
230.98

 
2.3

 
200.65

 
195.61

 
2.6

Embassy Suites Dallas-Love Field(1)
81.9
 
91.4
 
(10.4
)
 
142.78

 
132.34

 
7.9

 
116.94

 
120.93

 
(3.3
)
Embassy Suites Deerfield Beach-Resort & Spa
84.8
 
87.3
 
(2.9
)
 
224.15

 
223.40

 
0.3

 
189.99

 
195.01

 
(2.6
)
Embassy Suites Fort Lauderdale 17th Street
86.6
 
87.4
 
(0.9
)
 
197.07

 
185.41

 
6.3

 
170.75

 
162.13

 
5.3

Wyndham Houston-Medical Center Hotel & Suites
83.2
 
79.9
 
4.1

 
156.30

 
157.45

 
(0.7
)
 
130.01

 
125.77

 
3.4

Renaissance Esmeralda Indian Wells Resort & Spa
63.1
 
62.9
 
0.4

 
223.59

 
218.22

 
2.5

 
141.18

 
137.30

 
2.8

Embassy Suites Los Angeles-International Airport/South
87.8
 
81.8
 
7.3

 
168.08

 
154.52

 
8.8

 
147.52

 
126.38

 
16.7

Embassy Suites Mandalay Beach-Hotel & Resort
81.5
 
78.7
 
3.5

 
221.16

 
196.75

 
12.4

 
180.29

 
154.93

 
16.4

Embassy Suites Miami-International Airport
88.0
 
90.7
 
(3.0
)
 
165.04

 
167.91

 
(1.7
)
 
145.23

 
152.31

 
(4.7
)
Embassy Suites Milpitas-Silicon Valley
82.8
 
82.7
 

 
207.29

 
195.48

 
6.0

 
171.56

 
161.71

 
6.1

Embassy Suites Minneapolis-Airport
73.7
 
74.7
 
(1.3
)
 
151.13

 
147.71

 
2.3

 
111.36

 
110.28

 
1.0

Embassy Suites Myrtle Beach-Oceanfront Resort
73.8
 
71.0
 
3.9

 
165.49

 
166.47

 
(0.6
)
 
122.14

 
118.23

 
3.3

Hilton Myrtle Beach Resort
61.2
 
62.5
 
(2.0
)
 
138.46

 
133.73

 
3.5

 
84.79

 
83.57

 
1.5

Embassy Suites Napa Valley
81.8
 
81.0
 
0.9

 
220.76

 
211.48

 
4.4

 
180.47

 
171.27

 
5.4

Holiday Inn Nashville Airport
74.1
 
62.3
 
18.9

 
122.34

 
111.96

 
9.3

 
90.62

 
69.77

 
29.9

Wyndham New Orleans-French Quarter
77.5
 
70.1
 
10.5

 
153.40

 
164.26

 
(6.6
)
 
118.84

 
115.17

 
3.2

Morgans New York
81.0
 
76.2
 
6.3

 
251.21

 
264.75

 
(5.1
)
 
203.56

 
201.81

 
0.9

Royalton New York
81.8
 
84.1
 
(2.7
)
 
276.32

 
283.61

 
(2.6
)
 
226.15

 
238.61

 
(5.2
)
Embassy Suites Orlando-International Drive South/Convention Center(1)
80.7
 
86.7
 
(6.9
)
 
159.03

 
158.09

 
0.6

 
128.35

 
137.02

 
(6.3
)
DoubleTree Suites by Hilton Orlando-Lake Buena Vista
92.0
 
93.3
 
(1.5
)
 
152.24

 
144.71

 
5.2

 
140.00

 
135.05

 
3.7

Wyndham Philadelphia Historic District
70.2
 
60.0
 
16.9

 
148.58

 
159.93

 
(7.1
)
 
104.26

 
96.01

 
8.6

Sheraton Philadelphia Society Hill Hotel
68.2
 
67.1
 
1.7

 
176.18

 
173.87

 
1.3

 
120.20

 
116.61

 
3.1

Embassy Suites Phoenix-Biltmore
74.3
 
77.0
 
(3.6
)
 
203.61

 
195.56

 
4.1

 
151.23

 
150.67

 
0.4

Wyndham Pittsburgh University Center
66.6
 
69.0
 
(3.5
)
 
144.69

 
144.09

 
0.4

 
96.32

 
99.36

 
(3.1
)
Wyndham San Diego Bayside
77.7
 
81.1
 
(4.1
)
 
149.61

 
144.46

 
3.6

 
116.28

 
117.10

 
(0.7
)
Embassy Suites San Francisco Airport-South San Francisco
87.4
 
88.7
 
(1.4
)
 
202.90

 
188.07

 
7.9

 
177.31

 
166.76

 
6.3

Embassy Suites San Francisco Airport-Waterfront
88.6
 
85.3
 
3.8

 
205.97

 
204.19

 
0.9

 
182.50

 
174.23

 
4.7

Holiday Inn San Francisco-Fisherman’s Wharf
85.9
 
85.1
 
1.0

 
201.21

 
192.72

 
4.4

 
172.85

 
163.93

 
5.4

San Francisco Marriott Union Square
89.7
 
85.9
 
4.5

 
305.12

 
280.11

 
8.9

 
273.65

 
240.49

 
13.8

Wyndham Santa Monica At the Pier
87.4
 
84.9
 
3.0

 
266.11

 
241.65

 
10.1

 
232.64

 
205.20

 
13.4

Embassy Suites Secaucus-Meadowlands
67.0
 
74.0
 
(9.4
)
 
181.51

 
185.58

 
(2.2
)
 
121.68

 
137.28

 
(11.4
)
The Vinoy Renaissance St. Petersburg Resort & Golf Club
86.0
 
86.5
 
(0.5
)
 
239.00

 
231.41

 
3.3

 
205.65

 
200.18

 
2.7

Same-store Hotels
78.6
 
78.0
 
0.9

 
191.15

 
186.24

 
2.6

 
150.29

 
145.18

 
3.5


(1) Hotel under renovation in 2016

44



Hotel Portfolio
The following table sets forth certain descriptive information regarding the hotels in which we held ownership interest at June 30, 2016.
Consolidated Hotels
 
 
Rooms
Embassy Suites Atlanta-Buckhead
 
316

DoubleTree Suites by Hilton Austin
 
188

Embassy Suites Birmingham
 
242

The Fairmont Copley Plaza, Boston
 
383

Wyndham Boston Beacon Hill
 
304

Embassy Suites Boston-Marlborough
 
229

Sheraton Burlington Hotel & Conference Center
 
309

The Mills House Wyndham Grand Hotel, Charleston
 
216

Embassy Suites Dallas-Love Field
 
248

Embassy Suites Deerfield Beach-Resort & Spa
 
244

Embassy Suites Fort Lauderdale 17th Street
 
361

Wyndham Houston-Medical Center Hotel & Suites
 
287

Renaissance Esmeralda Indian Wells Resort & Spa
 
560

Embassy Suites Los Angeles-International Airport/South
 
349

Embassy Suites Mandalay Beach-Hotel & Resort
 
250

Embassy Suites Miami-International Airport
 
318

Embassy Suites Milpitas-Silicon Valley
 
266

Embassy Suites Minneapolis-Airport
 
310

Embassy Suites Myrtle Beach-Oceanfront Resort
 
255

Hilton Myrtle Beach Resort
 
385

Embassy Suites Napa Valley
 
205

Holiday Inn Nashville Airport
 
383

Wyndham New Orleans-French Quarter
 
374

The Knickerbocker New York
 
330

Morgans New York
 
117

Royalton New York
 
168

Embassy Suites Orlando-International Drive South/Convention Center
 
244

DoubleTree Suites by Hilton Orlando-Lake Buena Vista
 
229

Wyndham Philadelphia Historic District
 
364

Sheraton Philadelphia Society Hill Hotel
 
364

Embassy Suites Phoenix-Biltmore
 
232

Wyndham Pittsburgh University Center
 
251

Wyndham San Diego Bayside
 
600

Embassy Suites San Francisco Airport-South San Francisco
 
312

Embassy Suites San Francisco Airport-Waterfront
 
340

Holiday Inn San Francisco-Fisherman’s Wharf
 
585

San Francisco Marriott Union Square
 
400

Wyndham Santa Monica At the Pier
 
132

Embassy Suites Secaucus-Meadowlands(a)
 
261

The Vinoy Renaissance St. Petersburg Resort & Golf Club
 
361

 
 
12,272

Unconsolidated Hotel
 
 
Chateau LeMoyne-French Quarter, New Orleans(a)
 
171
(a)
We own a 50% interest in this property.

45


Liquidity and Capital Resources
Operating Activities
For the six months ended June 30, 2016, RevPAR at our same-store hotels increased 3.5%, driven by a 2.6% increase in ADR and a 0.9% increase in occupancy. We expect our RevPAR will increase 3.0% to 4.0% during 2016, primarily from higher ADR, and our operations will generate $150 million to $155 million of cash flow this year.
At June 30, 2016, we had $58.2 million of cash and cash equivalents, including $39.5 million held by third-party management companies. During the first six months of 2016, our operations (primarily hotel operations) provided $71.6 million in cash, $2.6 million more than the same period last year. The higher operating cash flow for the six months ended June 30, 2016 compared to the same period in 2015 is primarily related to the January 2015 payment of approximately $5.9 million in connection with a commercial dispute that was partially recovered in August 2015, partially offset by a decline in cash from operations in the current period due to the sale of hotels in 2015.
Investing Activities
During the six months ended June 30, 2016, cash used in investing activities was $38.9 million compared to cash provided by investing activities of $90.0 million last year. During the six months ended June 30, 2015, we sold hotels for $133.9 million in aggregate net proceeds. Additionally, in 2015 we sold an unconsolidated joint venture resulting in higher distributions compared to the current year.
During 2016, we plan to invest approximately $60 million in renovations as part of our long-term capital plan. In addition, we expect to invest approximately $15 million in redevelopment projects this year. Through June 30, we have spent $6.2 million more this year on renovation and redevelopment projects at our hotels than last year. In 2015, we completed developing The Knickerbocker. Accordingly, we spent $21.6 million on the development of that hotel during the first six months of 2015 as we wound down that project. After winding down The Knickerbocker and other capital projects, less interest was capitalized in the current period as compared to the same period last year.
Financing Activities
During the six months ended June 30, 2016, cash used in financing activities was $34.3 million, $65.7 million less than cash used in financing activities for the same period last year. The following financing transactions took place during the first six months of 2015:
We issued our $475 million 6% senior notes (resulting in deferred financing fees of $8.3 million) and used the proceeds, in addition to cash on hand, to repurchase and redeem our $525 million (face value) 6.75% senior notes;
We amended and restated our line of credit (resulting in deferred financing fees of $5.6 million) and used funds drawn on the line of credit to repay a $140 million secured loan;
We repaid $62.1 million of secured debt using sale proceeds;
We issued 18.4 million shares of our common stock for net proceeds of approximately $199 million;
We used proceeds from selling our common stock to redeem all of our outstanding shares of 8% Series C preferred stock for an aggregate redemption price of $170.4 million (including $491,000 of accrued dividends);

46


We received $1.7 million of additional net proceeds from selling preferred equity interests pursuant to the EB-5 Immigrant Investor Program by The Knickerbocker consolidated joint venture; and
We increased our distributions to non-controlling interest holders to $16.0 million primarily due to selling a hotel in a consolidated joint venture.
Due to the significant decline in our stock price during 2015, we implemented a repurchase program in December 2015. During the first six months of 2016, we repurchased 4.1 million shares of common stock for $27.4 million (including commissions) at an average price of $6.61 per share.
In 2016, we expect to make approximately $3 million of scheduled principal payments and pay $25 million of preferred dividends and $33 million in common dividends (assuming no change to our current quarterly dividend), all of which will be funded from operating cash flow and cash on hand. We also expect to use proceeds from selling hotels to repay debt, repurchase common stock and take advantage of future value-creation opportunities.
FelCor LP, which is our operating partnership, distributes funds to FelCor to pay common and preferred dividends. Our Board determines the amount of common and preferred dividends for each quarter, if any, based upon various factors including operating results, economic conditions, other operating trends, our financial condition and capital requirements, as well as the minimum REIT distribution requirements.
Except for our 5.625% senior secured notes due 2023 and our line of credit, our secured debt is generally recourse solely to the specific hotels securing the debt, except in case of fraud, misapplication of funds and certain other customary limited recourse carve-out provisions that could extend recourse to us. Much of our secured debt allows us to substitute collateral under certain conditions and is freely prepayable, subject in some instances to various prepayment, yield maintenance or defeasance obligations.
Most of our secured debt (other than our 5.625% senior secured notes and our line of credit) is subject to lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves, even if revenues are flowing through a lock-box triggered by a specified debt service coverage ratio not being met. All of our consolidated loans subject to lock-box provisions currently exceed the applicable minimum debt service coverage ratios.
Senior Notes. Our senior notes, which are guaranteed by FelCor, require that we satisfy total leverage, secured leverage and interest coverage tests in order to: (i) incur additional indebtedness, except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to qualify as a REIT; (iii) repurchase capital stock; or (iv) merge. We currently exceed all minimum thresholds. In addition, our 5.625% senior secured notes are secured by a combination of first lien mortgages and related security interests on nine hotels, as well as pledges of equity interests in certain subsidiaries of FelCor LP, and our 6.0% senior unsecured notes require us to maintain a minimum amount of unencumbered assets.
Interest Rate Caps. To fulfill requirements under one of our loans, we entered into an interest rate cap agreement with an aggregate notional amount of $140 million at June 30, 2016 and December 31, 2015. We have not designated the interest rate cap as a hedge, and it had an insignificant fair value at June 30, 2016 and December 31, 2015, resulting in no impact on earnings.


47


Inflation and Competition
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future. We are also subject to the risk that inflation will cause increases in hotel operating expenses disproportionately to revenues. If competition requires us to reduce room rates or limits our ability to raise room rates in the future, we may not be able to adjust our room rates to reflect the effects of inflation in full, in which case our operating results and liquidity could be adversely affected.

Seasonality

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

Disclosure Regarding Forward-Looking Statements

This report and the documents incorporated by reference in this report include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” or other variations of these terms (including their use in the negative), or by discussions of strategies, plans or intentions. A number of factors could cause actual results to differ materially from those anticipated by these forward-looking statements. Certain of these risks and uncertainties are described in greater detail under “Risk Factors” in our Annual Report on Form 10-K or in our other filings with the Securities and Exchange Commission, or the SEC.

These forward-looking statements are necessarily dependent upon assumptions and estimates that may prove to be incorrect. Accordingly, while we believe that the plans, intentions and expectations reflected in these forward-looking statements are reasonable, we cannot assure you that deviations from these plans, intentions or expectations will not be material. The forward-looking statements included in this report, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the risk factors and cautionary statements discussed in our filings to the SEC. We undertake no obligation to publicly update any forward-looking statements to reflect future circumstances or changes in our expectations.


48


Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
At June 30, 2016, approximately 79% of our consolidated debt bears fixed-rate interest.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents scheduled maturities and weighted average interest rates by maturity dates. The fair value of our debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market yields.
Expected Maturity Date
at June 30, 2016
(dollars in thousands)
 
Expected Maturity Date
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
Fair Value
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
1,515

 
$
2,637

 
$
2,954

 
$
3,106

 
$
3,245

 
$
1,138,352

 
$
1,151,809

 
$
1,162,246

Average
  interest rate
4.95
%
 
4.95
%
 
4.95
%
 
4.95
%
 
4.95
%
 
5.70
%
 
5.69
%
 
 

Floating-rate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Debt

 
85,000

 

 
214,000

 

 

 
299,000

 
298,606

Average
  interest rate (a)

 
3.72
%
 

 
3.80
%
 

 

 
3.78
%
 
 

Total debt
$
1,515

 
$
87,637

 
$
2,954

 
$
217,106

 
$
3,245

 
$
1,138,352

 
$
1,450,809

 
 

Average
   interest rate
4.95
%
 
3.76
%
 
4.95
%
 
3.82
%
 
4.95
%
 
5.70
%
 
5.30
%
 
 

Unamortized debt issuance costs
 

 
 
 
 
 
 
 
 
 
 

 
(17,106
)
 
 

Debt, net of unamortized debt issuance costs
 

 
 
 
 
 
 
 
 
 
 

 
$
1,433,703

 
 


(a)
The average floating interest rate considers the implied forward rates in the yield curve at June 30, 2016.


49


Item 4.
Controls and Procedures.
Controls and Procedures (FelCor Lodging Trust Incorporated)
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes to Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Controls and Procedures (FelCor Lodging Limited Partnership)
Under the supervision and with the participation of our management, including FelCor’s Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, FelCor’s Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes to Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


50


PART II – OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer

The following table provides the information with respect to purchases of shares of our common stock during each of the months in the second quarter of 2016:
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plan
 
Maximum Dollar
Value of Shares That
May Yet Be Purchased Under the Plan
April 1, 2016 - April 30, 2016
 
309,071

 
$
7.73

 
309,071

 
$
64,174,969

May 1, 2016 - May 31, 2016
 
496,851

 
$
6.68

 
496,851

 
$
60,857,704

June 1, 2016 - June 30, 2016
 
379,058

 
$
6.51

 
379,058

 
$
58,391,685

Total
 
1,184,980

 
$
6.90

 
1,184,980

 
 
 
 
 
 
 
 
 
 
 


51


Item 6.    Exhibits.
The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K:
Exhibit Number
 
Description of Exhibit
 
 
 
10.1*
 
Amended 2014 Equity Compensation Plan.
 
 
 
10.2*
 
Form of Equity Grant Agreement (Time Vesting).
 
 
 
10.3*
 
Form of Performance Equity Grant Agreement (Market Performance).
 
 
 
10.4*
 
Form of Performance Equity Grant Agreement (Financial Performance).
 
 
 
10.5*
 
Form of Restricted Stock Award.
 
 
 
10.6*
 
General Terms and Conditions Applicable to Restricted Stock Awards.
 
 
 
31.1*
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
31.2*
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
31.3*
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
31.4*
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
32.1*
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for FelCor.
 
 
 
32.2*
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for FelCor LP.
 
 
 
101.INS
 
XBRL Instance Document. Submitted electronically with this report.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document. Submitted electronically with this report.
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document. Submitted electronically with this report.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document. Submitted electronically with this report.
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document. Submitted electronically with this report.
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document. Submitted electronically with this report.
----------------------
*Filed herewith

52



Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) FelCor’s Consolidated Balance Sheets at June 30, 2016 and December 31, 2015; (ii) FelCor’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015; (iii) FelCor’s Consolidated Statements of Changes in Equity for the six months ended June 30, 2016 and 2015; (iv) FelCor’s Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015; (v) FelCor LP’s Consolidated Balance Sheets at June 30, 2016 and December 31, 2015; (vi) FelCor LP’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015; (vii) FelCor LP’s Consolidated Statements of Partners’ Capital for the six months ended June 30, 2016 and 2015; (viii) FelCor LP’s Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015; and (ix) the Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S‑T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

53


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
 FELCOR LODGING TRUST INCORPORATED
 
a Maryland corporation
 
 
 
 
 
 
 
 
Date: July 29, 2016
 By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Treasurer


 
FELCOR LODGING LIMITED PARTNERSHIP
 
a Delaware limited partnership
 
 
 
 
By:
FelCor Lodging Trust Incorporated
 
 
Its General Partner
 
 
 
 
 
 
Date: July 29, 2016
By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Treasurer


54