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EX-31.1 - 2016 Q3 EXHIBIT 31.1 - FelCor Lodging Trust Inca2016q310qexh311.htm
EX-32.2 - 2016 Q3 EXHIBIT 32.2 - FelCor Lodging Trust Inca2016q310qexh322.htm
EX-32.1 - 2016 Q3 EXHIBIT 32.1 - FelCor Lodging Trust Inca2016q310qexh321.htm
EX-31.4 - 2016 Q3 EXHIBIT 31.4 - FelCor Lodging Trust Inca2016q310qexh314.htm
EX-31.3 - 2016 Q3 EXHIBIT 31.3 - FelCor Lodging Trust Inca2016q310qexh313.htm
EX-31.2 - 2016 Q3 EXHIBIT 31.2 - FelCor Lodging Trust Inca2016q310qexh312.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 September 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 October 27, 2016, FelCor Lodging Trust Incorporated had issued and outstanding 137,788,455 shares of common stock.




EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarter ended September 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 - September 30, 2016 and December 31, 2015 (unaudited)
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Changes in Equity – For the Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
FelCor Lodging Limited Partnership:
 
 
 
Consolidated Balance Sheets - September 30, 2016 and December 31, 2015 (unaudited)
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss) – For the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Partners’ Capital – For the Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
Consolidated Statements of Cash Flows – For the Nine Months Ended September 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)
 
September 30,
2016
 
December 31,
2015
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $912,561 and $899,575 at September 30, 2016 and December 31, 2015, respectively
$
1,572,082

 
$
1,729,531

Investment in unconsolidated entities
9,405

 
9,575

Cash and cash equivalents
50,350

 
59,786

Restricted cash
22,130

 
17,702

Accounts receivable, net of allowance for doubtful accounts of $182 and $204 at September 30, 2016 and December 31, 2015, respectively
46,745

 
28,136

Deferred expenses, net of accumulated amortization of $2,490 and $1,086 at September 30, 2016 and December 31, 2015, respectively
4,996

 
6,390

Other assets
17,003

 
14,792

Total assets
$
1,722,711

 
$
1,865,912

 
 
 
 
Liabilities and Equity
 
 
 
Debt, net of unamortized debt issuance costs of $16,540 and $18,065 at September 30, 2016 and December 31, 2015, respectively
$
1,324,425

 
$
1,409,889

Distributions payable
14,969

 
15,140

Accrued expenses and other liabilities
130,013

 
125,274

Total liabilities
1,469,407

 
1,550,303

Commitments and contingencies


 


Redeemable noncontrolling interests in FelCor LP, 610 and 611 units issued and outstanding at September 30, 2016 and December 31, 2015, respectively
3,923

 
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 September 30, 2016 and December 31, 2015
309,337

 
309,337

Common stock, $0.01 par value, 200,000 shares authorized; 137,774 and 141,808 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
1,378

 
1,418

Additional paid-in capital
2,576,895

 
2,567,515

Accumulated deficit
(2,689,753
)
 
(2,618,117
)
Total FelCor stockholders’ equity
197,857

 
260,153

Noncontrolling interests in other partnerships
7,741

 
7,806

Preferred equity in consolidated joint venture, liquidation value of $44,638 and $43,954 at September 30, 2016 and December 31, 2015, respectively
43,783

 
43,186

Total equity
249,381

 
311,145

Total liabilities and equity
$
1,722,711

 
$
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 Nine Months Ended September 30, 2016 and 2015
(unaudited, in thousands, except for per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
221,172

 
$
223,474

 
$
667,390

 
$
672,808

Other revenue
1,809

 
1,678

 
3,641

 
7,142

Total revenues
222,981

 
225,152

 
671,031

 
679,950

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
76,079

 
78,514

 
234,896

 
236,202

Other property-related costs
52,875

 
55,893

 
164,448

 
170,579

Management and franchise fees
8,047

 
9,138

 
25,773

 
27,425

Taxes, insurance and lease expense
15,142

 
12,716

 
43,588

 
43,933

Corporate expenses
6,244

 
4,672

 
20,691

 
19,775

Depreciation and amortization
28,280

 
28,988

 
86,640

 
85,510

Impairment
20,126

 
20,861

 
26,459

 
20,861

Other expenses
7,581

 
5,807

 
10,551

 
11,446

Total operating expenses
214,374

 
216,589

 
613,046

 
615,731

Operating income
8,607

 
8,563

 
57,985

 
64,219

Interest expense, net
(19,428
)
 
(19,602
)
 
(59,055
)
 
(59,361
)
Debt extinguishment

 
(13
)
 

 
(30,909
)
Other gains, net

 

 
100

 
166

Loss before equity in income from unconsolidated entities
(10,821
)
 
(11,052
)
 
(970
)
 
(25,885
)
Equity in income from unconsolidated entities
814

 
321

 
1,386

 
7,983

Income (loss) from continuing operations before income tax
(10,007
)
 
(10,731
)
 
416

 
(17,902
)
Income tax
246

 
(1,054
)
 
(144
)
 
(1,392
)
Income (loss) from continuing operations
(9,761
)
 
(11,785
)
 
272

 
(19,294
)
Income (loss) from discontinued operations
(3,131
)
 
498

 
(3,131
)
 
419

Loss before gain on sale of hotels
(12,892
)
 
(11,287
)
 
(2,859
)
 
(18,875
)
Gain on sale of hotels, net
7,998

 
3,154

 
6,654

 
19,491

Net income (loss) and comprehensive income (loss)
(4,894
)
 
(8,133
)
 
3,795

 
616

Net loss (income) attributable to noncontrolling interests in other partnerships
114

 
227

 
601

 
(4,405
)
Net loss attributable to redeemable noncontrolling interests in FelCor LP
50

 
61

 
67

 
150

Preferred distributions - consolidated joint venture
(369
)

(363
)

(1,093
)

(1,070
)
Net income (loss) and comprehensive income (loss) attributable to FelCor
(5,099
)
 
(8,208
)
 
3,370

 
(4,709
)
Preferred dividends
(6,279
)
 
(6,279
)
 
(18,837
)
 
(23,860
)
Redemption of preferred stock

 

 

 
(6,096
)
Net loss attributable to FelCor common stockholders
$
(11,378
)
 
$
(14,487
)
 
$
(15,467
)
 
$
(34,665
)
Basic and diluted per common share data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.06
)
 
$
(0.10
)
 
$
(0.09
)
 
$
(0.26
)
Net loss
$
(0.08
)
 
$
(0.10
)
 
$
(0.11
)
 
$
(0.26
)
Basic and diluted weighted average common shares outstanding
137,464

 
142,982

 
138,437

 
136,009



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 Nine Months Ended September 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

 
198,467

 

 

 
 
 
198,651

Issuance of stock awards

 

 
379

 
4

 
690

 

 

 

 
694

Stock awards - amortization and severance

 

 

 

 
5,702

 

 

 

 
5,702

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

 

 

 

 
2,076

 

 

 

 
2,076

Contribution from noncontrolling interests

 

 

 

 

 

 
2,544

 

 
2,544

Distribution to noncontrolling interests

 

 

 

 

 

 
(16,294
)
 

 
(16,294
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

$0.12 per common share

 

 

 

 

 
(17,382
)
 

 

 
(17,382
)
$1.4625 per Series A preferred share

 

 

 

 

 
(18,837
)
 

 

 
(18,837
)
$1.00 per Series C depositary preferred share

 

 

 

 

 
(5,023
)
 

 

 
(5,023
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 
(1,070
)
 
(1,070
)
Issuance of preferred equity - consolidated joint venture

 

 

 

 

 

 

 
1,744

 
1,744

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

 

 

 

 

 
(4,709
)
 
4,405

 
1,070

 
766

Balance at September 30, 2015
12,879

 
$
309,337

 
143,382

 
$
1,434

 
$
2,566,123

 
$
(2,582,726
)
 
$
9,090

 
$
43,186

 
$
346,444

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

 

 
(4,610
)
 
(45
)
 

 
(30,417
)
 

 

 
(30,462
)
Issuance of stock awards

 

 
673

 
6

 
823

 

 

 

 
829

Cumulative effect of change in accounting for stock compensation forfeitures

 

 

 

 
185

 
(185
)
 

 

 

Stock awards - amortization and severance

 

 

 

 
8,008

 

 

 

 
8,008

Stock compensation shares withheld

 

 
(98
)
 
(1
)
 

 
(591
)
 

 

 
(592
)
Conversion of operating partnership units into common shares

 

 
1

 

 
9

 

 

 

 
9

Allocation to redeemable noncontrolling interests

 

 

 

 
355

 

 

 

 
355

Contribution from noncontrolling interests

 

 

 

 

 

 
552

 

 
552

Distribution to noncontrolling interests

 

 

 

 

 

 
(16
)
 

 
(16
)
Dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

$0.18 per common share

 

 

 

 

 
(24,976
)
 

 

 
(24,976
)
$1.4625 per Series A preferred share

 

 

 

 

 
(18,837
)
 

 

 
(18,837
)
Preferred distributions - consolidated joint venture

 

 

 

 

 

 

 
(1,093
)
 
(1,093
)
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)

 

 

 

 

 
3,370

 
(601
)
 
1,093

 
3,862

Balance at September 30, 2016
12,879

 
$
309,337


137,774

 
$
1,378

 
$
2,576,895

 
$
(2,689,753
)
 
$
7,741

 
$
43,783

 
$
249,381



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

3


FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016 and 2015
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
3,795

 
$
616

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
86,640

 
85,510

Gain on sale of hotels and other assets, net
(3,623
)
 
(20,065
)
Amortization of deferred financing fees
2,932

 
4,085

Amortization of fixed stock and directors’ compensation
5,338

 
5,214

Equity based severance
2,891

 
1,352

Equity in income from unconsolidated entities
(1,386
)
 
(7,983
)
Distributions of income from unconsolidated entities
769

 
5,680

Debt extinguishment

 
30,909

Impairment
26,459

 
20,861

Changes in assets and liabilities:
 
 
 
Accounts receivable
(13,538
)
 
(9,688
)
Other assets
(2,973
)
 
1,529

Accrued expenses and other liabilities
6,740

 
(3,958
)
Net cash flow provided by operating activities
114,044

 
114,062

Cash flows from investing activities:
 
 
 
Acquisition of land
(8,209
)
 

Improvements and additions to hotels
(51,328
)
 
(35,979
)
Hotel development

 
(31,599
)
Net proceeds from asset sales
101,721

 
190,035

Change in restricted cash – investing
(4,428
)
 
(4,204
)
Insurance proceeds
94

 
274

Distributions from unconsolidated entities in excess of earnings
786

 
6,460

Net cash flow provided by investing activities
38,636

 
124,987

Cash flows from financing activities:
 
 
 
Proceeds from borrowings
55,000

 
979,000

Repayment of borrowings
(141,989
)
 
(1,166,693
)
Payment of deferred financing fees
(12
)
 
(14,348
)
Distributions paid to noncontrolling interests
(16
)
 
(16,294
)
Contributions from noncontrolling interests
552

 
2,544

Distributions paid to FelCor LP limited partners
(110
)
 
(68
)
Distributions paid to preferred stockholders
(18,837
)
 
(26,125
)
Redemption of preferred stock

 
(169,986
)
Repurchase of common stock
(30,462
)
 

Stock compensation withholding
(592
)
 
(8
)
Preferred distributions - consolidated joint venture
(1,097
)
 
(1,070
)
Distributions paid to common stockholders
(25,141
)
 
(16,498
)
Net proceeds from issuance of preferred equity - consolidated joint venture
597

 
1,744

Net proceeds from common stock issuance

 
198,651

Net cash flow used in financing activities
(162,107
)
 
(229,151
)
Effect of exchange rate changes on cash
(9
)
 
(134
)
Net change in cash and cash equivalents
(9,436
)
 
9,764

Cash and cash equivalents at beginning of periods
59,786

 
47,147

Cash and cash equivalents at end of periods
$
50,350

 
$
56,911

Supplemental cash flow information – interest paid, net of capitalized interest
$
56,853

 
$
55,215

Supplemental cash flow information – income taxes paid
$
575

 
$
1,483

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

4


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
September 30,
 
December 31,
 
2016
 
2015
Assets
 
 
 
Investment in hotels, net of accumulated depreciation of $912,561 and $899,575 at September 30, 2016 and December 31, 2015, respectively
$
1,572,082

 
$
1,729,531

Investment in unconsolidated entities
9,405

 
9,575

Cash and cash equivalents
50,350

 
59,786

Restricted cash
22,130

 
17,702

Accounts receivable, net of allowance for doubtful accounts of $182 and $204 at September 30, 2016 and December 31, 2015, respectively
46,745

 
28,136

Deferred expenses, net of accumulated amortization of $2,490 and $1,086 at September 30, 2016 and December 31, 2015, respectively
4,996

 
6,390

Other assets
17,003

 
14,792

Total assets
$
1,722,711

 
$
1,865,912

 
 
 
 
Liabilities and Partners’ Capital
 
 
 
Debt, net of unamortized debt issuance costs of $16,540 and $18,065 at September 30, 2016 and December 31, 2015, respectively
$
1,324,425

 
$
1,409,889

Distributions payable
14,969

 
15,140

Accrued expenses and other liabilities
130,013

 
125,274

Total liabilities
1,469,407

 
1,550,303

Commitments and contingencies


 


Redeemable units, 610 and 611 units issued and outstanding at September 30, 2016 and December 31, 2015, respectively
3,923

 
4,464

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

 
309,337

Common units, 137,774 and 141,808 units issued and outstanding at September 30, 2016 and December 31, 2015, respectively
(111,480
)
 
(49,184
)
Total FelCor LP partners’ capital
197,857

 
260,153

Noncontrolling interests
7,741

 
7,806

Preferred capital in consolidated joint venture
43,783

 
43,186

Total partners’ capital
249,381

 
311,145

Total liabilities and partners’ capital
$
1,722,711

 
$
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 Nine Months Ended September 30, 2016 and 2015
(unaudited, in thousands, except for per unit data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Hotel operating revenue
$
221,172

 
$
223,474

 
$
667,390

 
$
672,808

Other revenue
1,809

 
1,678

 
3,641

 
7,142

Total revenues
222,981

 
225,152

 
671,031

 
679,950

Expenses:
 
 
 
 
 
 
 
Hotel departmental expenses
76,079

 
78,514

 
234,896

 
236,202

Other property-related costs
52,875

 
55,893

 
164,448

 
170,579

Management and franchise fees
8,047

 
9,138

 
25,773

 
27,425

Taxes, insurance and lease expense
15,142

 
12,716

 
43,588

 
43,933

Corporate expenses
6,244

 
4,672

 
20,691

 
19,775

Depreciation and amortization
28,280

 
28,988

 
86,640

 
85,510

Impairment
20,126

 
20,861

 
26,459

 
20,861

Other expenses
7,581

 
5,807

 
10,551

 
11,446

Total operating expenses
214,374

 
216,589

 
613,046

 
615,731

Operating income
8,607

 
8,563

 
57,985

 
64,219

Interest expense, net
(19,428
)
 
(19,602
)
 
(59,055
)
 
(59,361
)
Debt extinguishment

 
(13
)
 

 
(30,909
)
Other gains, net

 

 
100

 
166

Loss before equity in income from unconsolidated entities
(10,821
)
 
(11,052
)
 
(970
)
 
(25,885
)
Equity in income from unconsolidated entities
814

 
321

 
1,386

 
7,983

Income (loss) from continuing operations before income tax
(10,007
)
 
(10,731
)
 
416

 
(17,902
)
Income tax
246

 
(1,054
)
 
(144
)
 
(1,392
)
Income (loss) from continuing operations
(9,761
)
 
(11,785
)
 
272

 
(19,294
)
Income (loss) from discontinued operations
(3,131
)
 
498

 
(3,131
)
 
419

Loss before gain on sale of hotels
(12,892
)
 
(11,287
)
 
(2,859
)
 
(18,875
)
Gain on sale of hotels, net
7,998

 
3,154

 
6,654

 
19,491

Net income (loss) and comprehensive income (loss)
(4,894
)
 
(8,133
)
 
3,795

 
616

Net loss (income) attributable to noncontrolling interests
114

 
227

 
601

 
(4,405
)
Preferred distributions - consolidated joint venture
(369
)
 
(363
)
 
(1,093
)
 
(1,070
)
Net income (loss) and comprehensive income (loss) attributable to FelCor LP
(5,149
)
 
(8,269
)
 
3,303

 
(4,859
)
Preferred distributions
(6,279
)
 
(6,279
)
 
(18,837
)
 
(23,860
)
Redemption of preferred units

 

 

 
(6,096
)
Net loss attributable to FelCor LP common unitholders
$
(11,428
)
 
$
(14,548
)
 
$
(15,534
)
 
$
(34,815
)
Basic and diluted per common unit data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.06
)
 
$
(0.10
)
 
$
(0.09
)
 
$
(0.26
)
Net loss
$
(0.08
)
 
$
(0.10
)
 
$
(0.11
)
 
$
(0.26
)
Basic and diluted weighted average common units outstanding
138,075

 
143,594

 
139,048

 
136,621



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

6


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Nine Months Ended September 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

 
198,651

 

 
 
 
198,651

FelCor restricted stock compensation

 
6,388

 

 

 
6,388

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

 

 
(169,986
)
Contributions

 

 
2,544

 

 
2,544

Distributions

 
(41,309
)
 
(16,294
)
 
(1,070
)
 
(58,673
)
Allocation to redeemable units

 
2,293

 

 

 
2,293

Issuance of preferred capital - consolidated joint venture

 

 

 
1,744

 
1,744

Net income (loss) and comprehensive income (loss)

 
(4,859
)
 
4,405

 
1,070

 
616

Balance at September 30, 2015
$
309,337

 
$
(15,169
)
 
$
9,090

 
$
43,186

 
$
346,444

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
309,337

 
$
(49,184
)
 
$
7,806

 
$
43,186

 
$
311,145

Repurchase of common units

 
(30,462
)
 

 

 
(30,462
)
FelCor restricted stock compensation

 
8,245

 

 

 
8,245

Contributions

 

 
552

 

 
552

Distributions

 
(43,923
)
 
(16
)
 
(1,093
)
 
(45,032
)
Allocation to redeemable units

 
541

 

 

 
541

Issuance of preferred capital - consolidated joint venture

 

 

 
597

 
597

Net income (loss) and comprehensive income (loss)

 
3,303

 
(601
)
 
1,093

 
3,795

Balance at September 30, 2016
$
309,337

 
$
(111,480
)
 
$
7,741

 
$
43,783

 
$
249,381


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

7


FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016 and 2015
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
3,795

 
$
616

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
86,640

 
85,510

Gain on sale of hotels and other assets, net
(3,623
)
 
(20,065
)
Amortization of deferred financing fees
2,932

 
4,085

Amortization of fixed stock and directors’ compensation
5,338

 
5,214

Equity based severance
2,891

 
1,352

Equity in income from unconsolidated entities
(1,386
)
 
(7,983
)
Distributions of income from unconsolidated entities
769

 
5,680

Debt extinguishment

 
30,909

Impairment
26,459

 
20,861

Changes in assets and liabilities:
 
 
 
Accounts receivable
(13,538
)
 
(9,688
)
Other assets
(2,973
)
 
1,529

Accrued expenses and other liabilities
6,740

 
(3,958
)
Net cash flow provided by operating activities
114,044

 
114,062

 Cash flows from investing activities:
 
 
 
Acquisition of land
(8,209
)
 

Improvements and additions to hotels
(51,328
)
 
(35,979
)
Hotel development

 
(31,599
)
Net proceeds from asset sales
101,721

 
190,035

Change in restricted cash – investing
(4,428
)
 
(4,204
)
Insurance proceeds
94

 
274

Distributions from unconsolidated entities in excess of earnings
786

 
6,460

Net cash flow provided by investing activities
38,636

 
124,987

 Cash flows from financing activities:
 
 
 
Proceeds from borrowings
55,000

 
979,000

Repayment of borrowings
(141,989
)
 
(1,166,693
)
Payment of deferred financing fees
(12
)
 
(14,348
)
Distributions paid to noncontrolling interests
(16
)
 
(16,294
)
Contributions from noncontrolling interests
552

 
2,544

Distributions paid to FelCor LP limited partners
(110
)
 
(68
)
Distributions paid to preferred unitholders
(18,837
)
 
(26,125
)
Redemption of preferred units

 
(169,986
)
Repurchase of common units
(30,462
)
 

FelCor stock compensation withholding
(592
)
 
(8
)
Preferred distributions - consolidated joint venture
(1,097
)
 
(1,070
)
Distributions paid to common unitholders
(25,141
)
 
(16,498
)
Net proceeds from issuance of preferred capital - consolidated joint venture
597

 
1,744

Net proceeds from common unit issuance

 
198,651

Net cash flow used in financing activities
(162,107
)
 
(229,151
)
 Effect of exchange rate changes on cash
(9
)
 
(134
)
 Net change in cash and cash equivalents
(9,436
)
 
9,764

 Cash and cash equivalents at beginning of periods
59,786

 
47,147

 Cash and cash equivalents at end of periods
$
50,350

 
$
56,911

 Supplemental cash flow information – interest paid, net of capitalized interest
$
56,853

 
$
55,215

Supplemental cash flow information – income taxes paid
$
575

 
$
1,483

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 39 hotels as of September 30, 2016. At September 30, 2016, we had an aggregate of 138,384,179 shares and units outstanding, consisting of 137,773,996 shares of FelCor common stock and 610,183 FelCor LP units not owned by FelCor.
Of our 39 hotels, as of September 30, 2016, we owned 100% interests in 36 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 37 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 38 of the 39 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 38 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 37 Consolidated Hotels (we consolidate our real estate interests in these hotels).
The following table illustrates the distribution by brand of our 38 Consolidated Hotels at September 30, 2016:
Brand
 
Hotels
 
Rooms
 Embassy Suites by Hilton® 
 
18

 
 
4,982

 Wyndham® and Wyndham Grand®
 
8

 
 
2,528

 Marriott® and Renaissance® 
 
2

 
 
761

 Holiday Inn® 
 
1

 
 
585

 DoubleTree by Hilton® and Hilton® 
 
3

 
 
802

 Sheraton®
 
2

 
 
673

 Fairmont® 
 
1

 
 
383

 The Knickerbocker®
 
1

 
 
330

 Morgans® and Royalton®
 
2

 
 
285

  Total
 
38

 
 
11,329

At September 30, 2016, our Consolidated Hotels were located in 14 states, with concentrations in California (10 hotels), Florida (six hotels) and Massachusetts (three hotels). We generated approximately 56% of our revenue from hotels in these three states during the first nine months of 2016.
At September 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 managed four hotels; (iv) subsidiaries of InterContinental Hotels Group managed one hotel; (v) Fairmont, a subsidiary of AccorHotels Group, managed one hotel; (vi) a subsidiary of Highgate Hotels managed one hotel; (vii) a subsidiary of Morgans Hotel Group Corporation managed two hotels; and (viii) 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 Accounting Standards Update (“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 nine months ended September 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 nine months ended September 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. 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 nine months ended September 30, 2016 are not necessarily indicative of actual operating results for the entire year.

2.
Investment in Unconsolidated Entities
At September 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 at these locations. 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):
 
September 30,
 
December 31,
 
2016
 
2015
Investment in hotels and other properties, net of accumulated depreciation
$
21,677

 
 
$
23,047

 
Total assets
$
29,574

 
 
$
29,033

 
Debt, net of unamortized debt issuance costs
$
22,190

 
 
$
22,563

 
Total liabilities
$
24,841

 
 
$
24,541

 
Equity
$
4,733

 
 
$
4,492

 
Our unconsolidated entities’ debt at September 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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Total revenues
$
12,214

 
$
10,642

 
$
27,891

 
$
27,622

Net income
$
1,821

 
$
836

 
$
3,351

 
$
22,906

Net income attributable to FelCor
$
911

 
$
418

 
$
1,676

 
$
11,453

Cost in excess of joint venture book value of sold hotel

 

 

 
(3,140
)
Depreciation of cost in excess of book value
(97
)
 
(97
)
 
(290
)
 
(330
)
Equity in income from unconsolidated entities
$
814

 
$
321

 
$
1,386

 
$
7,983

The following table summarizes the components of our investments in unconsolidated entities (in thousands):
 
September 30,
 
December 31,
 
2016
 
2015
Equity basis of hotel joint venture investments
$
(4,076
)
 
 
$
(4,216
)
 
Cost of hotel investments in excess of joint venture book value
7,039

 
 
7,329

 
Equity basis of land and condominium joint venture investments
6,442

 
 
6,462

 
Investment in unconsolidated entities
$
9,405

 
 
$
9,575

 
The following table summarizes the components of our equity in income from unconsolidated entities (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Hotel investments
$
378

 
$
(63
)
 
$
1,405

 
$
8,141

Other investments
436

 
384

 
(19
)
 
(158
)
Equity in income from unconsolidated entities
$
814

 
$
321

 
$
1,386

 
$
7,983


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
 
September 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
 
120,643

 
122,237

Mortgage debt
1

 
 
4.94
 
 
October 2022
 
30,322

 
30,717

Line of credit(b)
7

 
 
LIBOR + 2.75
 
June 2019
 
105,000

 
190,000

Mortgage debt(c)
1

 
 
LIBOR + 3.00
 
November 2017
 
85,000

 
85,000

Total
22

 
 
 
 
 
 
 
$
1,340,965

 
$
1,427,954

Unamortized debt issuance costs
 
 
 
 
 
 
 
 
(16,540
)
 
(18,065
)
Debt, net of unamortized debt issuance costs
 
 
 
 
 
 
 
 
$
1,324,425

 
$
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.
Since adoption of ASU 2015-03, we classify deferred financing costs of $16.5 million and $18.1 million as of September 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 $19.4 million and $19.6 million of interest expense for the three months ended September 30, 2016 and 2015, respectively, which is net of: (i) interest income of $18,000 and $6,000 and (ii) capitalized interest of $293,000 and $565,000, respectively. We reported $59.1 million and $59.4 million of interest expense for the nine months ended September 30, 2016 and 2015, respectively, which is net of: (i) interest income of $46,000 and $18,000 and (ii) capitalized interest of $640,000 and $5.6 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 and retired 4.6 million shares of common stock for $30.5 million (including commissions) for an average price of $6.58 per share during the first nine months of 2016. Since FelCor’s Board of Directors authorized the current $100 million repurchase program, FelCor has repurchased 6.6 million shares of common stock for $44.8 million (including commissions) for an average price of $6.78 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, or the Series C 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 stockholders (unitholders) by $6.1 million for the nine months ended September 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Room revenue
$
174,169

 
$
177,378

 
$
514,563

 
$
521,750

Food and beverage revenue
34,260

 
34,370

 
117,489

 
116,365

Other operating departments
12,743

 
11,726

 
35,338

 
34,693

Total hotel operating revenue
$
221,172

 
$
223,474

 
$
667,390

 
$
672,808

Nearly all of our revenue is comprised of hotel operating revenue. This revenue is 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, except for percentages):
 
Three Months Ended September 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
44,032

 
19.9
%
 
 
$
44,485

 
19.9
%
 
Food and beverage
28,227

 
12.8

 
 
29,457

 
13.2

 
Other operating departments
3,820

 
1.7

 
 
4,572

 
2.0

 
Total hotel departmental expenses
$
76,079

 
34.4
%
 
 
$
78,514

 
35.1
%
 
 
Nine Months Ended September 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Room
$
131,479

 
19.7
%
 
 
$
131,419

 
19.5
%
 
Food and beverage
91,775

 
13.8

 
 
91,431

 
13.6

 
Other operating departments
11,642

 
1.7

 
 
13,352

 
2.0

 
Total hotel departmental expenses
$
234,896

 
35.2
%
 
 
$
236,202

 
35.1
%
 
Other property-related costs were comprised of the following amounts (in thousands, except for percentages):
 
Three Months Ended September 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
19,408

 
8.8
%
 
 
$
19,493

 
8.7
%
 
Marketing
17,388

 
7.9

 
 
18,595

 
8.3

 
Repair and maintenance
8,677

 
3.9

 
 
9,724

 
4.4

 
Utilities
7,402

 
3.3

 
 
8,081

 
3.6

 
Total other property-related costs
$
52,875

 
23.9
%
 
 
$
55,893

 
25.0
%
 

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)
 
Nine Months Ended September 30,
 
2016
 
2015
 
Amount
 
% of Total Hotel Operating Revenue
 
Amount
 
% of Total Hotel Operating Revenue
Hotel general and administrative expense
$
60,908

 
9.1
%
 
 
$
59,388

 
8.8
%
 
Marketing
55,418

 
8.3

 
 
58,295

 
8.7

 
Repair and maintenance
27,773

 
4.2

 
 
29,816

 
4.4

 
Utilities
20,349

 
3.0

 
 
23,080

 
3.5

 
Total other property-related costs
$
164,448

 
24.6
%
 
 
$
170,579

 
25.4
%
 
Wyndham guarantees minimum levels of annual net operating income at each of the hotels it manages for us. We recorded $3.3 million and $1.3 million with respect to the pro rata portions of the projected aggregate full-year guaranties for the nine months ended September 30, 2016 and 2015, respectively (of which $1.8 million and $258,000 is attributable to the three months ended September 30, 2016 and September 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Hotel lease expense(a) 
$
1,488

 
$
1,524

 
$
3,648

 
$
5,762

Land lease expense(b) 
3,871

 
3,892

 
10,890

 
10,684

Real estate and other taxes
7,884

 
5,691

 
23,243

 
22,048

Property insurance, general liability insurance and other
1,899

 
1,609

 
5,807

 
5,439

  Total taxes, insurance and lease expense
$
15,142

 
$
12,716

 
$
43,588

 
$
43,933

In the third quarter of 2016, we acquired land previously leased for one of our hotels for $8.0 million.
(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 $686,000 and $726,000 for the three months ended September 30, 2016 and 2015, respectively, and $1.2 million and $2.8 million for the nine months ended September 30, 2016 and 2015, respectively.
(b)
We include in land lease expense percentage rent of $2.0 million and $1.9 million for the three months ended September 30, 2016 and 2015, respectively, and $4.6 million for the nine months ended September 30, 2016 and 2015.

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 September 2016, we recorded a $20.1 million impairment charge for a hotel. The impairment charge was primarily based on both third-party offers to purchase the hotel and observable market data on a price per room basis from transactions involving hotels in similar locations (a Level 2 input under authoritative guidance for fair value measurements).
In June 2016, we recorded a $6.3 million impairment charge for a hotel subsequently sold in the third quarter of 2016. The impairment charge was based on an accepted third-party offer to purchase the 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. In the third quarter of 2015, we determined that this hotel no longer met our investment criteria, and we recorded a $20.9 million impairment charge for this hotel at that time. The 2015 impairment charge was determined using Level 3 input under authoritative guidance for fair value measurements. For this estimate, we used a discounted cash flow analysis with an estimated stabilized growth rate of 3%, a discounted cash flow term of 5 years, a terminal capitalization rate of 8%, and a discount rate of 11%.
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 nine months ended September 30, 2016, we sold two hotels (both of which were sold in the third quarter), and during the nine months ended September 30, 2015, we sold eight hotels. We included operations for the sold hotels in income (loss) from continuing operations as shown in the statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2016 and 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.
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. There were no hotels held for sale at September 30, 2016 or December 31, 2015.

16



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.
Hotel Dispositions — (continued)
The following table includes condensed financial information primarily related to hotels sold in 2016 and 2015 included in continuing operations (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Hotel operating revenue
$
4,860

 
 
$
12,520

 
 
$
39,782

 
 
$
73,637

 
Operating expenses
(5,400
)
 
 
(34,971
)
 
 
(39,922
)
 
 
(85,508
)
 
Operating loss
(540
)
 
 
(22,451
)
 
 
(140
)
 
 
(11,871
)
 
Interest expense, net

 
 

 
 
1

 
 
(1,031
)
 
Debt extinguishment

 
 

 
 

 
 
(309
)
 
Equity in income from unconsolidated entities

 
 
14

 
 

 
 
7,111

 
Loss from continuing operations
(540
)
 
 
(22,437
)
 
 
(139
)
 
 
(6,100
)
 
Gain on sale of hotels, net
7,998

 
 
3,154

 
 
6,654

 
 
19,491

 
Net income (loss)
7,458

 
 
(19,283
)
 
 
6,515

 
 
13,391

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

 
 
45

 
 

 
 
(5,147
)
 
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP
(32
)
 
 
81

 
 
(28
)
 
 
(34
)
 
Net income (loss) attributable to FelCor
$
7,426

 
 
$
(19,157
)
 
 
$
6,487

 
 
$
8,210

 
 

Discontinued operations for all periods presented in the statements of operations and comprehensive income (loss) includes adjustments to gains and losses for hotels sold prior to December 31, 2013.


17



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
Loss Per Share/Unit

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

FelCor Loss Per Share
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor
$
(5,099
)
 
$
(8,208
)
 
$
3,370

 
$
(4,709
)
Discontinued operations attributable to FelCor
3,118

 
(496
)
 
3,118

 
(425
)
Income (loss) from continuing operations attributable to FelCor
(1,981
)
 
(8,704
)
 
6,488

 
(5,134
)
Less: Preferred dividends
(6,279
)
 
(6,279
)
 
(18,837
)
 
(23,860
)
Less: Redemption of preferred stock

 

 

 
(6,096
)
Less: Dividends declared on unvested restricted stock
(36
)
 
(13
)
 
(109
)
 
(40
)
Numerator for continuing operations attributable to FelCor common stockholders
(8,296
)
 
(14,996
)
 
(12,458
)
 
(35,130
)
Discontinued operations attributable to FelCor
(3,118
)
 
496

 
(3,118
)
 
425

Numerator for basic and diluted loss attributable to FelCor common stockholders
$
(11,414
)
 
$
(14,500
)
 
$
(15,576
)
 
$
(34,705
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic and diluted loss per share
137,464

 
142,982

 
138,437

 
136,009

Basic and diluted loss per share data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.06
)
 
$
(0.10
)
 
$
(0.09
)
 
$
(0.26
)
Discontinued operations
$
(0.02
)
 
$

 
$
(0.02
)
 
$

Net loss
$
(0.08
)
 
$
(0.10
)
 
$
(0.11
)
 
$
(0.26
)


18



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
Loss Per Share/Unit — (continued)

FelCor LP Loss Per Unit
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to FelCor LP
$
(5,149
)
 
$
(8,269
)
 
$
3,303

 
$
(4,859
)
Discontinued operations attributable to FelCor LP
3,131

 
(498
)
 
3,131

 
(427
)
Income (loss) from continuing operations attributable to FelCor LP
(2,018
)
 
(8,767
)
 
6,434

 
(5,286
)
Less: Preferred distributions
(6,279
)
 
(6,279
)
 
(18,837
)
 
(23,860
)
Less: Redemption of preferred units

 

 

 
(6,096
)
Less: Distributions declared on FelCor unvested restricted stock
(36
)
 
(13
)
 
(109
)
 
(40
)
Numerator for continuing operations attributable to FelCor LP common unitholders
(8,333
)
 
(15,059
)
 
(12,512
)
 
(35,282
)
Discontinued operations attributable to FelCor LP
(3,131
)
 
498

 
(3,131
)
 
427

Numerator for basic and diluted loss attributable to FelCor common unitholders
$
(11,464
)
 
$
(14,561
)
 
$
(15,643
)
 
$
(34,855
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic and diluted loss per unit
138,075

 
143,594

 
139,048

 
136,621

Basic and diluted loss per unit data:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.06
)
 
$
(0.10
)
 
$
(0.09
)
 
$
(0.26
)
Discontinued operations
$
(0.02
)
 
$

 
$
(0.02
)
 
$

Net loss
$
(0.08
)
 
$
(0.10
)
 
$
(0.11
)
 
$
(0.26
)

The income (loss) from continuing operations attributable to FelCor/FelCor LP share/unit calculations includes the net gain 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Series A convertible preferred shares/units
9,984
 
9,984
 
9,984

 
 
9,984

FelCor restricted stock units
504
 
1,173
 
436

 
 
1,136


19



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.
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 September 30, 2016 and 2015, and $18.8 million for the nine months ended September 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 September 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 September 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 $354.3 million and $438.8 million at September 30, 2016 and December 31, 2015, respectively). The estimated fair value of all our debt was $1.4 billion and $1.5 billion at September 30, 2016 and December 31, 2015, respectively. The carrying value of our debt was $1.3 billion and $1.4 billion at September 30, 2016 and December 31, 2015, respectively.
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.

20



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 September 30, 2016, we carried 610,183 outstanding limited partnership units at $3.9 million. We base the value of these outstanding units on the closing price of FelCor’s common stock at September 30, 2016 ($6.43 per share).

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

 
 
$
6,616

 
Conversion of units
(9
)
 
 

 
Redemption value allocation
(355
)
 
 
(2,076
)
 
Distributions paid to unitholders
(110
)
 
 
(67
)
 
Net loss
(67
)
 
 
(150
)
 
Balance at end of period
$
3,923

 
 
$
4,323

 

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 nine 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 nine months ended September 30, 2015.



21



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 has assessed $8.3 million in withdrawal liability in connection with the termination of IHG’s 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.
Because of the rules and regulations governing the pension trust, we have paid $854,000 to the pension trust for the last three calendar quarters and expect to continue making such payments, on a quarterly basis, while the dispute is ongoing, subject to an overall contribution limit corresponding to the amount sought by the pension trust. While we aggressively oppose the pension trust’s position, we believe that resolution of this matter may take as long as two more years. Accordingly, we have recorded the payments made to date ($854,000, in total) and accrued for eight more quarterly payments that would be made if the dispute remains unresolved for another two years (approximately $2.3 million) as a loss on the sale of hotels included in discontinued operations because it primarily relates to hotels sold prior to 2013.
Despite these payments and accruals, we believe that (i) the pension trust was in error in assessing the withdrawal liability in this situation and (ii) even if the pension trust was not in error, we are not responsible for a significant portion (or perhaps any) of the withdrawal liability assessed by the pension trust for other reasons and that we are likely to recover a significant portion (if not all) of what we have paid, and may pay in the future, to the pension trust with respect to its claim. Consequently, we are vigorously disputing the underlying claims and, if appropriate, IHG’s demand for indemnification. The matter involves significant legal, actuarial and factual analysis with respect to each hotel, and we have not determined whether any loss to us is probable or that any such loss is estimable (other than the payments and accrual noted in the previous paragraph, for which we intend to seek recovery).

15.    Severance
During the three and nine months ended September 30, 2016 and 2015, we recorded severance charges of $6.1 million and $3.6 million, respectively. The charges are included in other expenses and primarily relate to FelCor’s former Chief Executive Officer for 2016 and certain other officers for 2015.


16.    Recently Issued Accounting Standards
In May 2014, the FASB issued 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.

22



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.    Recently Issued Accounting Standards — (continued)
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.
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.

23



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.
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.

24



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.
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
September 30, 2016
(in thousands)

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

 
$
492,022

 
$
1,080,060

 
$

 
$
1,572,082

Equity investment in consolidated entities
1,204,612

 

 

 
(1,204,612
)
 

Investment in unconsolidated entities
2,962

 
5,213

 
1,230

 

 
9,405

Cash and cash equivalents
18,989

 
30,623

 
738

 

 
50,350

Restricted cash

 
16,897

 
5,233

 

 
22,130

Accounts receivable, net
1,741

 
38,124

 
6,880

 

 
46,745

Deferred expenses, net

 

 
4,996

 

 
4,996

Other assets
5,284

 
8,346

 
3,373

 

 
17,003

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,233,588

 
$
591,225

 
$
1,102,510

 
$
(1,204,612
)
 
$
1,722,711

 
 
 
 
 
 
 
 
 
 
Debt, net
$
985,372

 
$

 
$
378,489

 
$
(39,436
)
 
$
1,324,425

Distributions payable
14,849

 

 
120

 

 
14,969

Accrued expenses and other liabilities
31,587

 
86,095

 
12,331

 

 
130,013

 
 
 
 
 
 
 
 
 
 
Total liabilities
1,031,808

 
86,095

 
390,940

 
(39,436
)
 
1,469,407

 
 
 
 
 
 
 
 
 
 
Redeemable units, at redemption value
3,923

 

 

 

 
3,923

 
 
 
 
 
 
 
 
 
 
Preferred units
309,337

 

 

 

 
309,337

Common units
(111,480
)
 
506,062

 
659,114

 
(1,165,176
)
 
(111,480
)
Total FelCor LP partners’ capital
197,857

 
506,062

 
659,114

 
(1,165,176
)
 
197,857

Noncontrolling interests

 
(932
)
 
8,673

 

 
7,741

Preferred capital in consolidated joint venture

 

 
43,783

 

 
43,783

Total partners’ capital
197,857

 
505,130

 
711,570

 
(1,165,176
)
 
249,381

Total liabilities and partners’ capital
$
1,233,588

 
$
591,225

 
$
1,102,510

 
$
(1,204,612
)
 
$
1,722,711


25



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    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



26



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 
$
221,172

 
$

 
$

 
$
221,172

Percentage lease revenue

 

 
45,242

 
(45,242
)
 

Other revenue
15

 
1,622

 
172

 

 
1,809

Total revenues
15

 
222,794

 
45,414

 
(45,242
)
 
222,981

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
137,001

 

 

 
137,001

Taxes, insurance and lease expense
26

 
54,293

 
6,065

 
(45,242
)
 
15,142

Corporate expenses

 
3,517

 
2,727

 

 
6,244

Depreciation and amortization
49

 
11,285

 
16,946

 

 
28,280

Impairment

 
20,126

 

 

 
20,126

Other expenses
6,124

 
1,309

 
148

 

 
7,581

Total operating expenses
6,199

 
227,531

 
25,886

 
(45,242
)
 
214,374

Operating income
(6,184
)
 
(4,737
)
 
19,528

 

 
8,607

Interest expense, net
(14,513
)
 
6

 
(4,921
)
 

 
(19,428
)
Loss before equity in income from unconsolidated entities
(20,697
)
 
(4,731
)
 
14,607

 

 
(10,821
)
Equity in income from consolidated entities
17,088

 

 

 
(17,088
)
 

Equity in income from unconsolidated entities
378

 
447

 
(11
)
 

 
814

Loss from continuing operations before income tax
(3,231
)
 
(4,284
)
 
14,596

 
(17,088
)
 
(10,007
)
Income tax
576

 
(484
)
 
154

 

 
246

Loss from continuing operations
(2,655
)
 
(4,768
)
 
14,750

 
(17,088
)
 
(9,761
)
Loss from discontinued operations
(3,131
)
 

 

 

 
(3,131
)
Loss before gain on sale of hotels
(5,786
)
 
(4,768
)
 
14,750

 
(17,088
)
 
(12,892
)
Gain on sale of hotels, net
637

 
7,445

 
(84
)
 

 
7,998

Net loss and comprehensive loss
(5,149
)
 
2,677

 
14,666

 
(17,088
)
 
(4,894
)
Loss attributable to noncontrolling interests

 
100

 
14

 

 
114

Preferred distributions - consolidated joint venture

 

 
(369
)
 

 
(369
)
Net loss and comprehensive loss attributable to FelCor LP
(5,149
)
 
2,777

 
14,311

 
(17,088
)
 
(5,149
)
Preferred distributions
(6,279
)
 

 

 

 
(6,279
)
Net loss attributable to FelCor LP common unitholders
$
(11,428
)
 
$
2,777

 
$
14,311

 
$
(17,088
)
 
$
(11,428
)


27



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 
$
223,474

 
$

 
$

 
$
223,474

Percentage lease revenue

 

 
44,523

 
(44,523
)
 

Other revenue
3

 
1,497

 
178

 

 
1,678

Total revenues
3

 
224,971


44,701


(44,523
)
 
225,152

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
143,545

 

 

 
143,545

Taxes, insurance and lease expense
533

 
53,272

 
3,434

 
(44,523
)
 
12,716

Corporate expenses

 
2,718

 
1,954

 

 
4,672

Depreciation and amortization
49

 
11,876

 
17,063

 

 
28,988

Impairment

 
20,861

 

 

 
20,861

Other expenses
3,626

 
1,311

 
870

 

 
5,807

Total operating expenses
4,208

 
233,583

 
23,321

 
(44,523
)
 
216,589

Operating income
(4,205
)
 
(8,612
)
 
21,380

 

 
8,563

Interest expense, net
(14,302
)
 
3

 
(5,303
)
 

 
(19,602
)
Debt extinguishment
(13
)
 

 

 

 
(13
)
Loss before equity in income from unconsolidated entities
(18,520
)
 
(8,609
)

16,077




(11,052
)
Equity in income from consolidated entities
10,069

 

 

 
(10,069
)
 

Equity in income from unconsolidated entities
417

 
(85
)
 
(11
)
 

 
321

Loss from continuing operations before income tax
(8,034
)
 
(8,694
)
 
16,066

 
(10,069
)
 
(10,731
)
Income tax
(194
)
 
(860
)
 

 

 
(1,054
)
Loss from continuing operations
(8,228
)
 
(9,554
)
 
16,066

 
(10,069
)
 
(11,785
)
Income from discontinued operations

 
(2
)
 
500

 

 
498

Loss before gain on sale of hotels
(8,228
)
 
(9,556
)
 
16,566

 
(10,069
)
 
(11,287
)
Gain on sale of hotels, net
(41
)
 
(31
)
 
3,226

 

 
3,154

Net loss and comprehensive loss
(8,269
)
 
(9,587
)
 
19,792

 
(10,069
)
 
(8,133
)
Loss attributable to noncontrolling interests

 
81

 
146

 

 
227

Preferred distributions - consolidated joint venture

 

 
(363
)
 

 
(363
)
Net loss and comprehensive loss attributable to FelCor LP
(8,269
)
 
(9,506
)
 
19,575

 
(10,069
)
 
(8,269
)
Preferred distributions
(6,279
)
 

 

 

 
(6,279
)
Net loss attributable to FelCor LP common unitholders
$
(14,548
)
 
$
(9,506
)
 
$
19,575

 
$
(10,069
)
 
$
(14,548
)

28



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 
$
667,390

 
$

 
$

 
$
667,390

Percentage lease revenue

 

 
135,740

 
(135,740
)
 

Other revenue
202

 
3,076

 
363

 

 
3,641

Total revenues
202

 
670,466

 
136,103

 
(135,740
)
 
671,031

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Hotel operating expenses

 
425,117

 

 

 
425,117

Taxes, insurance and lease expense
79

 
161,889

 
17,360

 
(135,740
)
 
43,588

Corporate expenses

 
11,212

 
9,479

 

 
20,691

Depreciation and amortization
193

 
35,312

 
51,135

 

 
86,640

Impairment

 
26,459

 

 

 
26,459

Other expenses
6,543

 
3,522

 
486

 

 
10,551

Total operating expenses
6,815

 
663,511

 
78,460

 
(135,740
)
 
613,046

Operating income
(6,613
)
 
6,955

 
57,643

 

 
57,985

Interest expense, net
(43,775
)
 
24

 
(15,304
)
 

 
(59,055
)
Other gains, net

 

 
100

 

 
100

Loss before equity in income from unconsolidated entities
(50,388
)
 
6,979

 
42,439

 

 
(970
)
Equity in income from consolidated entities
54,930

 

 

 
(54,930
)
 

Equity in income from unconsolidated entities
1,094

 
326

 
(34
)
 

 
1,386

Income from continuing operations before income tax
5,636

 
7,305

 
42,405

 
(54,930
)
 
416

Income tax
411

 
(709
)
 
154

 

 
(144
)
Income from continuing operations
6,047

 
6,596

 
42,559

 
(54,930
)
 
272

Loss from discontinued operations
(3,131
)
 

 

 

 
(3,131
)
Loss before gain on sale of hotels
2,916

 
6,596

 
42,559

 
(54,930
)
 
(2,859
)
Gain on sale of hotels, net
387

 
6,688

 
(421
)
 

 
6,654

Net income and comprehensive income
3,303

 
13,284

 
42,138

 
(54,930
)
 
3,795

Loss attributable to noncontrolling interests

 
413

 
188

 

 
601

Preferred distributions - consolidated joint venture

 

 
(1,093
)
 

 
(1,093
)
Net income and comprehensive income attributable to FelCor LP
3,303

 
13,697

 
41,233

 
(54,930
)
 
3,303

Preferred distributions
(18,837
)
 

 

 

 
(18,837
)
Net loss attributable to FelCor LP common unitholders
$
(15,534
)
 
$
13,697

 
$
41,233

 
$
(54,930
)
 
$
(15,534
)

29



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 
$
672,808

 
$

 
$

 
$
672,808

Percentage lease revenue

 

 
130,397

 
(130,397
)
 

Other revenue
111

 
6,645

 
386

 

 
7,142

Total revenues
111

 
679,453

 
130,783

 
(130,397
)
 
679,950

 
 
 
 
 
 
 
 
 

Expenses:
 
 
 
 
 
 
 
 

Hotel operating expenses

 
434,206

 

 

 
434,206

Taxes, insurance and lease expense
422

 
159,103

 
14,805

 
(130,397
)
 
43,933

Corporate expenses

 
11,010

 
8,765

 

 
19,775

Depreciation and amortization
138

 
37,770

 
47,602

 

 
85,510

Impairment

 
20,861

 

 

 
20,861

Other expenses
3,629

 
6,820

 
997

 

 
11,446

Total operating expenses
4,189

 
669,770

 
72,169

 
(130,397
)
 
615,731

Operating income
(4,078
)
 
9,683

 
58,614

 

 
64,219

Interest expense, net
(42,613
)
 
8

 
(16,756
)
 

 
(59,361
)
Debt extinguishment
(28,459
)
 

 
(2,450
)
 

 
(30,909
)
Other gains, net

 

 
166

 

 
166

Loss before equity in income from unconsolidated entities
(75,150
)
 
9,691

 
39,574

 

 
(25,885
)
Equity in income from consolidated entities
62,807

 

 

 
(62,807
)
 

Equity in income from unconsolidated entities
8,060

 
(43
)
 
(34
)
 

 
7,983

Loss from continuing operations before income tax
(4,283
)
 
9,648

 
39,540

 
(62,807
)
 
(17,902
)
Income tax
(256
)
 
(1,136
)
 

 

 
(1,392
)
Loss from continuing operations
(4,539
)
 
8,512

 
39,540

 
(62,807
)
 
(19,294
)
Income from discontinued operations

 
2

 
417

 

 
419

Loss before gain on sale of hotels
(4,539
)
 
8,514

 
39,957

 
(62,807
)
 
(18,875
)
Gain on sale of hotels, net
(320
)
 
(44
)
 
19,855

 

 
19,491

Net income and comprehensive income
(4,859
)
 
8,470

 
59,812

 
(62,807
)
 
616

Income attributable to noncontrolling interests

 
591

 
(4,996
)
 

 
(4,405
)
Preferred distributions - consolidated joint venture

 

 
(1,070
)
 

 
(1,070
)
Net loss and comprehensive loss attributable to FelCor LP
(4,859
)
 
9,061

 
53,746

 
(62,807
)
 
(4,859
)
Preferred distributions
(23,860
)
 

 

 

 
(23,860
)
Redemption of preferred units
(6,096
)
 



 

 
(6,096
)
Net loss attributable to FelCor LP common unitholders
$
(34,815
)
 
$
9,061

 
$
53,746

 
$
(62,807
)
 
$
(34,815
)

30



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2016
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(47,665
)
 
$
60,960

 
$
100,749

 
$

 
$
114,044

Investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of land

 

 
(8,209
)
 

 
(8,209
)
Improvements and additions to hotels
(2
)
 
(23,936
)
 
(27,390
)
 

 
(51,328
)
Net proceeds from asset sales
(1,104
)
 
103,077

 
(252
)
 

 
101,721

Insurance proceeds

 

 
94

 

 
94

Change in restricted cash - investing

 
(1,456
)
 
(2,972
)
 

 
(4,428
)
Distributions from unconsolidated entities
786

 

 

 

 
786

Intercompany financing
120,897

 

 

 
(120,897
)
 

Cash flows from investing activities
120,577

 
77,685

 
(38,729
)
 
(120,897
)
 
38,636

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings

 

 
55,000

 

 
55,000

Repayment of borrowings

 

 
(141,989
)
 

 
(141,989
)
Payment of deferred financing fees

 

 
(12
)
 

 
(12
)
Distributions paid to noncontrolling interests

 
(14
)
 
(2
)
 

 
(16
)
Contributions from noncontrolling interests

 
313

 
239

 

 
552

Repurchase of common units
(30,462
)
 

 

 

 
(30,462
)
Distributions paid to preferred unitholders
(18,837
)
 

 

 

 
(18,837
)
Distributions paid to common unitholders
(25,141
)
 

 

 

 
(25,141
)
Net proceeds from issuance of preferred capital - consolidated joint venture

 

 
597

 

 
597

Intercompany financing

 
(142,606
)
 
21,709

 
120,897

 

Other
(702
)
 

 
(1,097
)
 

 
(1,799
)
Cash flows from financing activities
(75,142
)
 
(142,307
)
 
(65,555
)
 
120,897

 
(162,107
)
Effect of exchange rate changes on cash

 
(9
)
 

 

 
(9
)
Change in cash and cash equivalents
(2,230
)
 
(3,671
)
 
(3,535
)
 

 
(9,436
)
Cash and cash equivalents at beginning of period
21,219

 
34,294

 
4,273

 

 
59,786

Cash and cash equivalents at end of period
$
18,989

 
$
30,623

 
$
738

 
$

 
$
50,350


31



FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    FelCor LP’s Consolidating Financial Information — (continued)
FELCOR LODGING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2015
(in thousands)
 
FelCor LP
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
(40,093
)
 
$
59,884

 
$
94,271

 
$

 
$
114,062

Investing activities:
 
 
 
 
 
 
 
 
 
Improvements and additions to hotels
(13
)
 
(21,664
)
 
(14,302
)
 

 
(35,979
)
Hotel development

 

 
(31,599
)
 

 
(31,599
)
Net proceeds from asset sales
(429
)
 
10

 
190,454

 

 
190,035

Insurance proceeds
274

 

 

 

 
274

Change in restricted cash - investing

 
(1,964
)
 
(2,240
)
 

 
(4,204
)
Distributions from unconsolidated entities
6,460

 

 

 

 
6,460

Intercompany financing
139,524

 

 

 
(139,524
)
 

Cash flows from investing activities
145,816

 
(23,618
)
 
142,313

 
(139,524
)
 
124,987

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
475,000

 

 
504,000

 

 
979,000

Repayment of borrowings
(545,453
)
 

 
(621,240
)
 

 
(1,166,693
)
Payment of deferred financing fees
(8,500
)
 

 
(5,848
)
 

 
(14,348
)
Distributions paid to preferred unitholders
(26,125
)
 

 

 

 
(26,125
)
Distributions paid to common unitholders
(16,498
)
 

 

 

 
(16,498
)
Net proceeds from common unit issuance
198,651

 

 

 

 
198,651

Distributions paid to noncontrolling interests

 
(401
)
 
(15,893
)
 

 
(16,294
)
Contributions from noncontrolling interests

 
513

 
2,031

 

 
2,544

Redemption of preferred units
(169,986
)
 

 

 

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

 

 
1,744

 

 
1,744

Intercompany financing

 
(32,703
)
 
(106,821
)
 
139,524

 

Other
(76
)
 

 
(1,070
)
 

 
(1,146
)
Cash flows from financing activities
(92,987
)
 
(32,591
)
 
(243,097
)
 
139,524

 
(229,151
)
Effect of exchange rate changes on cash

 
(134
)
 

 

 
(134
)
Change in cash and cash equivalents
12,736

 
3,541

 
(6,513
)
 

 
9,764

Cash and cash equivalents at beginning of period
5,717

 
32,923

 
8,507

 

 
47,147

Cash and cash equivalents at end of period
$
18,453

 
$
36,464

 
$
1,994

 
$

 
$
56,911


32


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

General
Revenue per available room, or RevPAR, for our 37 same-store hotels (which excludes The Knickerbocker) decreased 0.7% in the third quarter of 2016 compared to the same period last year, driven by a 1.3% decrease in occupancy, offset by a 0.6% increase in average daily rate, or ADR.
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. During the three months ended September 30, 2016, we sold two hotels, the Renaissance Esmeralda Indian Wells Resort and the Holiday Inn Nashville Airport for $76 million and $32 million, respectively. We used proceeds from the sales to repay our line of credit. We continue to market our three New York hotels for sale.
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 nine months of 2016, we repurchased 4.6 million shares of common stock for $30.5 million (including commissions) for an average price of $6.58 per share. Since FelCor’s Board of Directors authorized the current repurchase program, we have repurchased 6.6 million shares of common stock for $44.8 million (including commissions) at an average price of $6.78 per share.

Results of Operations
Comparison of the Three Months ended September 30, 2016 and 2015
For the three months ended September 30, 2016, we recorded a net loss of $4.9 million compared to an $8.1 million net loss for the same period last year. Our 2016 net loss includes a $20.1 million impairment charge for one hotel and a $6.1 million severance charge, primarily related to the retirement of our former Chief Executive Officer, partially offset by a $4.9 million net gain on the sale of hotels (including a $3.1 million loss in discontinued operations). Our 2015 net loss included a $20.9 million impairment charge for a hotel subsequently sold in 2016 and $3.6 million in severance charges for certain FelCor officers, partially offset by a $3.6 million net gain on hotel sales (including $491,000 in discontinued operations).
For the three months ended September 30, 2016:
Hotel operating revenue decreased $2.3 million, which includes a $4.0 million net reduction in revenue for hotels that have been disposed of or recently opened. Excluding these hotels, hotel operating revenue increased $1.7 million from last year. We attribute this increase primarily to improved food and beverage operations, primarily in the banquet and catering department, and an increase in revenue from other sources such as parking and resort fees. This increase is partially offset by a reduction in room revenue as a result of a 0.7% decrease in same-store RevPAR.
Hotel departmental expenses decreased $2.4 million, which includes a $2.9 million net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, hotel departmental expenses represented 33.4% of hotel operating revenue for both periods.
Other property-related costs decreased $3.0 million, including a $2.1 million net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, other

33


property-related costs decreased slightly to 23.5% of hotel operating revenue from 24.1% last year, primarily attributable to cost containment initiatives implemented in the current period.
Management and franchise fees decreased $1.1 million, including a $496,000 net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, these costs decreased slightly to 3.8% of hotel operating revenue from 4.1% last year, primarily attributable to a decline in Wyndham management fees resulting from its guaranty.
Taxes, insurance and lease expense increased $2.4 million, including a $434,000 net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, these expenses increased to 7.2% of hotel operating revenue from 5.8% last year. We attribute this increase primarily to the successful resolution of property tax appeals last year.
Corporate expenses increased $1.6 million, resulting primarily from a change in stock compensation expense associated with variable stock awards. Our stock price increased slightly within the current year period compared to a decline during the same period last year.
Depreciation and amortization expense decreased $708,000, primarily attributable to depreciation for hotels sold in 2016 and 2015.
Impairment was $20.1 million as compared to $20.9 million in 2015. The 2016 charge was based on a reduction in the fair value of one hotel resulting from third-party offers to purchase the hotel and observable market data for hotels in similar locations. Our 2015 impairment charge resulted from a reduced estimated hold period for a hotel subsequently sold in 2016.
Other expenses increased $1.8 million from the same period last year. We attribute this change primarily to a higher severance expense incurred in the current period compared to last year, offset by a decline in pre-opening charges primarily related to The Knickerbocker.
Net interest expense decreased $174,000. We completed certain renovation and redevelopment projects, including The Knickerbocker, in 2015, resulting in less capitalized interest in the current year as compared to the same period last year. Excluding the change in capitalized interest, interest expense declined by $446,000.
Equity in income from unconsolidated entities increased $493,000, resulting primarily from completing renovations at one of our unconsolidated joint ventures, which experienced a displacement-related reduction in revenue during renovations in 2015.
Income tax decreased $1.3 million. Taxes in the same period last year were higher due to changes in state apportionment factors.
Discontinued operations for both periods includes adjustments to gains and losses for hotels sold prior to December 31, 2013.
Comparison of the Nine Months ended September 30, 2016 and 2015
For the nine months ended September 30, 2016, we recorded net income of $3.8 million, compared to net income of $616,000 for the same period last year. Our 2016 net income includes$26.5 million in impairment charges for two hotels (one of which was sold in 2016) and a $6.1 million severance charge, primarily related to the retirement of our former Chief Executive Officer, partially offset by a $3.5 million net gain on hotel sales (including a $3.1 million loss in discontinued operations). Our 2015 net income included debt extinguishment charges of $30.9 million and a $20.9 million impairment charge for a hotel subsequently sold in 2016, partially offset by a net gain on hotel sales of

34


$19.9 million (including $407,000 in discontinued operations) and $3.7 million in net revenue attributable to a favorable settlement of a commercial dispute. Additionally, during the nine months ended September 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 nine months ended September 30, 2016:
Hotel operating revenue decreased $5.4 million, including an $18.3 million net reduction in revenue for hotels that have been disposed of or recently opened. Excluding these hotels, hotel operating revenue increased 2.2% from last year. We attribute the increase primarily to the 1.7% increase in same-store RevPAR, reflecting a 2.0% increase in ADR offset by a 0.2% decrease in occupancy. In the current period, certain hotels also experienced improved food and beverage operations, primarily in the banquet and catering department, and an increase in revenue for other hotel departments.
Other revenue decreased $3.5 million, resulting primarily from a favorable $3.7 million net settlement of a commercial dispute in 2015.
Hotel departmental expenses decreased $1.3 million, which includes a $5.8 million net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, hotel departmental expenses represented 34.0% of hotel operating revenue for both periods.
Other property-related costs decreased $6.1 million, including an $8.1 million net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, other property-related costs decreased slightly to 24.3% of hotel operating revenue from 24.5% for the same period last year.
Management and franchise fees decreased $1.7 million, including a $1.6 million net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, these costs are 3.9% of hotel operating revenue compared to 4.0% for the same period last year.
Taxes, insurance and lease expense decreased $345,000, including a $3.4 million net reduction in expense for hotels that have been disposed of or recently opened. Excluding these hotels, these expenses increased to 6.9% of hotel operating revenue from 6.6% last year. We attribute this increase primarily to the successful resolution of property tax appeals last year.
Corporate expenses increased $916,000, resulting primarily from professional recruiting fees for directors and a company officer in the current year and a change in stock compensation expense associated with variable stock awards. Our stock price decreased slightly within the current year period compared to a more significant decline during the same period last year.
Depreciation and amortization expense increased $1.1 million, resulting primarily from depreciation of The Knickerbocker after the hotel was placed in service during 2015, partially offset by depreciation of hotels sold in 2015 and 2016.
Impairment was $26.5 million compared to $20.9 million in the same period in the prior year. The 2016 charge is comprised of a reduction in the fair value of one hotel resulting from third-party offers to purchase the hotel and observable market data for hotels in similar locations, in addition to a charge resulting from an accepted third-party offer to purchase a hotel sold in the current year. The 2015 charge resulted from reducing the estimated hold period for a hotel subsequently sold in 2016.
Other expenses decreased $895,000 from the same period last year. We attribute this change primarily to pre-opening costs incurred in 2015 for The Knickerbocker, partially offset by an increase in expense for a litigation settlement, an increase in abandoned project charges and higher severance expense incurred in the current year compared to the prior year.

35


Net interest expense decreased $306,000. 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 $5.3 million.
Debt extinguishment charges were zero, compared to $30.9 million in 2015 (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 $6.6 million, primarily reflecting the 2015 gain on sale of a hotel owned by one of our unconsolidated joint ventures, partially offset by improved operations at one of our unconsolidated joint ventures resulting from completing renovations which experienced a displacement-related reduction in 2015.
Income tax decreased $1.2 million. Taxes in the same period last year were higher due to changes in state apportionment factors.
Discontinued operations for both periods includes adjustments to gains and losses for hotels sold prior to December 31, 2013.


36


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.
Reconciliation of Net Loss to FFO and Adjusted FFO
(in thousands, except per share data)
 
Three Months Ended September 30,
 
2016
2015
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net loss
$
(4,894
)
 
 
 
 
 
$
(8,133
)
 
 
 
 
Noncontrolling interests
164

 
 
 
 
 
288

 
 
 
 
Preferred dividends
(6,279
)
 
 
 
 
 
(6,279
)
 
 
 
 
Preferred distributions - consolidated joint venture
(369
)





(363
)




Net loss attributable to FelCor common stockholders
(11,378
)
 
 
 
 
 
(14,487
)
 
 
 
 
Less: Dividends declared on unvested restricted stock
(36
)
 
 
 
 
 
(13
)
 
 
 
 
Basic and diluted earnings per share data
(11,414
)
 
137,464

 
(0.08
)
 
(14,500
)
 
142,982

 
(0.10
)
Depreciation and amortization
28,280

 

 
0.21

 
28,988

 

 
0.21

Depreciation, unconsolidated entities and other partnerships
456

 

 

 
471

 

 

Impairment
20,126

 

 
0.15

 
20,861

 

 
0.15

Gain on sale of hotels, net of noncontrolling interests in other partnerships
(4,867
)
 

 
(0.04
)
 
(3,682
)
 

 
(0.03
)
Noncontrolling interests in FelCor LP
(50
)
 
611

 
(0.01
)
 
(61
)
 
611

 
(0.01
)
Dividends declared on unvested restricted stock
36

 
85

 

 
13

 
32

 

Conversion of unvested restricted stock units

 
504

 

 

 
1,173

 

FFO*
32,567

 
138,664

 
0.23

 
32,090

 
144,798

 
0.22

Hurricane loss
52

 

 

 

 

 

Debt extinguishment

 

 

 
14

 

 

Severance costs
6,124

 

 
0.05

 
3,624

 

 
0.03

Variable stock compensation
394

 

 

 
(1,086
)
 

 
(0.01
)
Abandoned projects
5

 

 

 

 

 

Litigation settlement
203

 

 

 

 

 

Pre-opening costs, net of noncontrolling interests
125

 

 

 
1,079

 

 
0.01

Adjusted FFO*
$
39,470

 
138,664


$
0.28


$
35,721


144,798


$
0.25

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

37



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

 
Nine Months Ended September 30,
 
2016
2015
 
Dollars
 
Shares
 
Per Share Amount
 
Dollars
 
Shares
 
Per Share Amount
Net income
$
3,795

 
 
 
 
 
$
616

 
 
 
 
Noncontrolling interests
668

 
 
 
 
 
(4,255
)
 
 
 
 
Preferred dividends
(18,837
)
 
 
 
 
 
(23,860
)
 
 
 
 
Preferred distributions - consolidated joint venture
(1,093
)
 
 
 
 
 
(1,070
)
 
 
 
 
Redemption of preferred stock

 
 
 
 
 
(6,096
)
 
 
 
 
Net loss attributable to FelCor common stockholders
(15,467
)
 
 
 
 
 
(34,665
)
 
 
 
 
Less: Dividends declared on unvested restricted stock
(109
)
 
 
 
 
 
(40
)
 
 
 
 
Basic and diluted earnings per share data
(15,576
)
 
138,437

 
$
(0.11
)
 
(34,705
)
 
136,009

 
$
(0.26
)
Depreciation and amortization
86,640

 

 
0.63

 
85,510

 

 
0.63

Depreciation, unconsolidated entities and other partnerships
1,392

 

 
0.01

 
1,730

 

 
0.01

Impairment
26,459

 

 
0.19

 
20,861

 

 
0.15

Gain on sale of hotel in unconsolidated entity

 

 

 
(7,113
)
 

 
(0.05
)
Gain on sale of hotels, net of noncontrolling interests in other partnerships
(3,523
)
 

 
(0.04
)
 
(14,931
)
 

 
(0.11
)
Other gains
(100
)
 

 

 
(100
)
 

 

Noncontrolling interests in FelCor LP
(67
)
 
611

 

 
(150
)
 
611

 

Dividends declared on unvested restricted stock
109

 
35

 

 
40

 
37

 

Conversion of unvested restricted stock units

 
436

 

 

 
1,136

 

FFO*
95,334

 
139,519

 
0.68

 
51,142

 
137,793

 
0.37

Hurricane loss
52

 

 

 

 

 

Debt extinguishment

 

 

 
30,909

 

 
0.22

Debt extinguishment, unconsolidated entities

 

 

 
330

 

 

Severance costs
6,151

 

 
0.05

 
3,624

 

 
0.03

Variable stock compensation
366

 

 

 
(161
)
 

 

Redemption of preferred stock

 

 

 
6,096

 

 
0.04

Contract dispute recovery

 

 

 
(3,717
)
 

 
(0.03
)
Litigation settlement
853

 

 
0.01

 

 

 

Abandoned projects
620

 

 

 

 

 

Pre-opening costs, net of noncontrolling interests
371

 

 

 
5,125

 

 
0.05

Adjusted FFO*
$
103,747

 
139,519


$
0.74


$
93,348


137,793


$
0.68


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


38


Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Same-store Adjusted EBITDA
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
(4,894
)
 
$
(8,133
)
 
$
3,795

 
$
616

Depreciation and amortization
28,280

 
28,988

 
86,640

 
85,510

Depreciation, unconsolidated entities and other partnerships
456

 
471

 
1,392

 
1,730

Interest expense
19,446

 
19,608

 
59,101

 
59,379

Interest expense, unconsolidated entities and other partnerships
90

 
96

 
280

 
439

Income taxes
(246
)
 
1,392

 
144

 
1,392

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

 
(55
)
 

Noncontrolling interests in other partnerships
114

 
227

 
601

 
(4,405
)
EBITDA*
43,228

 
42,649

 
151,898

 
144,661

Impairment
20,126

 
20,861

 
26,459

 
20,861

Hurricane loss
52

 

 
52

 

Debt extinguishment

 
14

 

 
30,909

Debt extinguishment, unconsolidated entities

 

 

 
330

Gain on sale of hotel in unconsolidated entity

 

 

 
(7,113
)
Gain on sale of hotels, net of noncontrolling interests in other partnerships
(4,867
)
 
(3,682
)
 
(3,523
)
 
(14,931
)
Other gains

 

 
(100
)
 
(100
)
Amortization of fixed stock and directors’ compensation
1,711

 
1,652

 
5,338

 
5,214

Severance costs
6,124

 
3,624

 
6,151

 
3,624

Abandoned projects
5

 

 
620

 

Variable stock compensation
394

 
(1,086
)
 
366

 
(161
)
Contract dispute recovery

 

 

 
(3,717
)
Litigation settlement
203

 

 
853

 

Pre-opening costs, net of noncontrolling interests
125

 
1,079

 
371

 
5,125

Adjusted EBITDA*
67,101

 
65,111

 
188,485

 
184,702

Adjusted EBITDA from hotels disposed or recently opened
(2,936
)
 
(1,153
)
 
(14,088
)
 
(14,482
)
Same-store Adjusted EBITDA*
$
64,165

 
$
63,958

 
$
174,397

 
$
170,220


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


39



Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Same-store operating revenue:
 
 
 
 
 
 
 
Room
$
161,682

 
$
162,871

 
$
467,631

 
$
457,925

Food and beverage
30,727

 
29,257

 
97,526

 
95,997

Other operating departments
12,413

 
11,014

 
33,272

 
31,643

Same-store operating revenue
204,822

 
203,142

 
598,429

 
585,565

Same-store operating expense:
 
 
 
 
 
 
 
Room
40,191

 
39,975

 
117,910

 
113,902

Food and beverage
24,441

 
23,776

 
74,882

 
73,547

Other operating departments
3,678

 
4,139

 
10,853

 
11,766

Other property related costs
48,113

 
49,035

 
145,333

 
143,409

Management and franchise fees
7,748

 
8,344

 
23,608

 
23,681

Taxes, insurance and lease expense
13,730

 
10,483

 
39,287

 
35,796

Same-store operating expense
137,901

 
135,752

 
411,873

 
402,101

Hotel EBITDA
$
66,921

 
$
67,390

 
$
186,556

 
$
183,464

Hotel EBITDA Margin
32.7
%
 
33.2
%
 
31.2
%
 
31.3
%


40


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Same-store operating revenue
$
204,822

 
$
203,142

 
$
598,429

 
$
585,565

Other revenue
1,809

 
1,678

 
3,641

 
7,142

Revenue from hotels disposed and recently opened(a)
16,350

 
20,332

 
68,961

 
87,243

Total revenue
222,981

 
225,152

 
671,031

 
679,950

Same-store operating expense
137,901

 
135,752

 
411,873

 
402,101

Consolidated hotel lease expense(b)
1,488

 
1,524

 
3,648

 
5,762

Unconsolidated taxes, insurance and lease expense
(517
)
 
(168
)
 
(1,486
)
 
(1,681
)
Corporate expenses
6,244

 
4,672

 
20,691

 
19,775

Depreciation and amortization
28,280

 
28,988

 
86,640

 
85,510

Impairment
20,126

 
20,861

 
26,459

 
20,861

Expenses from hotels disposed and recently opened(a)
13,271

 
19,153

 
54,670

 
71,957

Other expenses
7,581

 
5,807

 
10,551

 
11,446

Total operating expense
214,374

 
216,589

 
613,046

 
615,731

Operating income
$
8,607

 
$
8,563

 
$
57,985

 
$
64,219

(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.


41



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 Adjusted FFO and Adjusted 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.

42


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.


43


Pro Rata Share of Rooms Owned

The following table sets forth, at September 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 September 30, 2016
Consolidated Hotels(a)
38

 
 
11,329

 
Unconsolidated hotel operations
1

 
 
171

 
Total hotels
39

 
 
11,500

 
 
 
 
 
 
 
    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
 
 
 
11,267

 

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


44


Hotel Operating Statistics
 
 
Occupancy (%)
 
ADR ($)
 
RevPAR ($)
 
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Three Months Ended September 30,
Same-store Hotels
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
Embassy Suites Atlanta-Buckhead
77.3
 
79.9
 
(3.3
)
 
157.93

 
149.95

 
5.3

 
122.02

 
119.77

 
1.9

DoubleTree Suites by Hilton Austin
78.0
 
86.6
 
(10.0
)
 
196.91

 
191.69

 
2.7

 
153.55

 
166.04

 
(7.5
)
Embassy Suites Birmingham
76.4
 
82.1
 
(6.9
)
 
135.07

 
128.34

 
5.2

 
103.19

 
105.36

 
(2.1
)
The Fairmont Copley Plaza, Boston
86.5
 
86.7
 
(0.3
)
 
336.67

 
337.92

 
(0.4
)
 
291.26

 
293.13

 
(0.6
)
Wyndham Boston Beacon Hill
86.8
 
91.6
 
(5.2
)
 
257.67

 
265.91

 
(3.1
)
 
223.66

 
243.54

 
(8.2
)
Embassy Suites Boston-Marlborough
73.6
 
78.8
 
(6.7
)
 
175.01

 
176.47

 
(0.8
)
 
128.76

 
139.11

 
(7.4
)
Sheraton Burlington Hotel & Conference Center
83.3
 
82.6
 
0.8

 
144.65

 
129.75

 
11.5

 
120.49

 
107.18

 
12.4

The Mills House Wyndham Grand Hotel, Charleston
84.9
 
80.7
 
5.2

 
214.95

 
212.46

 
1.2

 
182.45

 
171.38

 
6.5

Embassy Suites Dallas-Love Field(1)
66.7
 
89.4
 
(25.4
)
 
140.10

 
129.57

 
8.1

 
93.41

 
115.88

 
(19.4
)
Embassy Suites Deerfield Beach-Resort & Spa
69.7
 
68.8
 
1.3

 
152.95

 
160.32

 
(4.6
)
 
106.60

 
110.29

 
(3.3
)
Embassy Suites Fort Lauderdale 17th Street
79.4
 
80.4
 
(1.3
)
 
129.31

 
125.27

 
3.2

 
102.63

 
100.69

 
1.9

Wyndham Houston-Medical Center Hotel & Suites
72.1
 
85.2
 
(15.4
)
 
129.25

 
142.32

 
(9.2
)
 
93.15

 
121.20

 
(23.1
)
Embassy Suites Los Angeles-International Airport/South
88.0
 
84.1
 
4.7

 
183.81

 
178.79

 
2.8

 
161.84

 
150.35

 
7.6

Embassy Suites Mandalay Beach-Hotel & Resort
84.6
 
83.6
 
1.2

 
270.37

 
265.30

 
1.9

 
228.75

 
221.70

 
3.2

Embassy Suites Miami-International Airport
84.4
 
86.2
 
(2.1
)
 
117.02

 
118.33

 
(1.1
)
 
98.72

 
102.00

 
(3.2
)
Embassy Suites Milpitas-Silicon Valley
84.0
 
85.2
 
(1.5
)
 
198.65

 
197.57

 
0.5

 
166.78

 
168.38

 
(1.0
)
Embassy Suites Minneapolis-Airport
83.9
 
84.5
 
(0.7
)
 
170.49

 
162.14

 
5.1

 
143.04

 
137.04

 
4.4

Embassy Suites Myrtle Beach-Oceanfront Resort
91.1
 
89.2
 
2.1

 
230.26

 
222.64

 
3.4

 
209.67

 
198.53

 
5.6

Hilton Myrtle Beach Resort
84.1
 
86.9
 
(3.2
)
 
177.60

 
170.92

 
3.9

 
149.36

 
148.47

 
0.6

Embassy Suites Napa Valley
85.3
 
88.4
 
(3.5
)
 
279.76

 
280.07

 
(0.1
)
 
238.66

 
247.66

 
(3.6
)
Wyndham New Orleans-French Quarter
62.8
 
61.2
 
2.6

 
129.55

 
123.69

 
4.7

 
81.37

 
75.75

 
7.4

Morgans New York
87.9
 
90.6
 
(3.0
)
 
265.77

 
277.94

 
(4.4
)
 
233.64

 
251.88

 
(7.2
)
Royalton New York
84.8
 
88.7
 
(4.4
)
 
286.41

 
299.78

 
(4.5
)
 
242.75

 
265.85

 
(8.7
)
Embassy Suites Orlando-International Drive South/Convention Center(1)
57.8
 
80.5
 
(28.2
)
 
119.46

 
127.38

 
(6.2
)
 
69.11

 
102.58

 
(32.6
)
DoubleTree Suites by Hilton Orlando-Lake Buena Vista
84.2
 
80.6
 
4.5

 
113.85

 
120.06

 
(5.2
)
 
95.91

 
96.74

 
(0.9
)
Wyndham Philadelphia Historic District
84.3
 
74.0
 
13.9

 
170.85

 
159.84

 
6.9

 
143.97

 
118.21

 
21.8

Sheraton Philadelphia Society Hill Hotel
79.2
 
72.5
 
9.3

 
196.49

 
173.30

 
13.4

 
155.65

 
125.61

 
23.9

Embassy Suites Phoenix-Biltmore
62.5
 
64.4
 
(2.9
)
 
134.26

 
128.93

 
4.1

 
83.86

 
82.97

 
1.1

Wyndham Pittsburgh University Center
78.8
 
83.8
 
(6.0
)
 
148.42

 
149.07

 
(0.4
)
 
116.91

 
124.86

 
(6.4
)
Wyndham San Diego Bayside
85.9
 
80.2
 
7.1

 
155.35

 
159.56

 
(2.6
)
 
133.40

 
127.97

 
4.2

Embassy Suites San Francisco Airport-South San Francisco
90.7
 
90.4
 
0.4

 
216.84

 
232.00

 
(6.5
)
 
196.75

 
209.63

 
(6.1
)
Embassy Suites San Francisco Airport-Waterfront
92.3
 
89.6
 
3.0

 
222.35

 
224.85

 
(1.1
)
 
205.24

 
201.53

 
1.8

Holiday Inn San Francisco-Fisherman’s Wharf
92.7
 
92.7
 
0.1

 
243.12

 
253.91

 
(4.2
)
 
225.47

 
235.30

 
(4.2
)
San Francisco Marriott Union Square
93.0
 
92.5
 
0.5

 
288.54

 
308.87

 
(6.6
)
 
268.32

 
285.69

 
(6.1
)
Wyndham Santa Monica At the Pier
91.5
 
90.8
 
0.8

 
314.90

 
295.60

 
6.5

 
288.03

 
268.29

 
7.4

Embassy Suites Secaucus-Meadowlands
81.5
 
81.0
 
0.6

 
180.94

 
184.79

 
(2.1
)
 
147.39

 
149.60

 
(1.5
)
The Vinoy Renaissance St. Petersburg Resort & Golf Club
76.2
 
77.3
 
(1.5
)
 
183.78

 
173.53

 
5.9

 
140.05

 
134.20

 
4.4

Same-store Hotels
81.8
 
82.9
 
(1.3
)
 
195.33

 
194.22

 
0.6

 
159.78

 
160.95

 
(0.7
)

(1) Hotel under renovation in 2016.

45


Hotel Operating Statistics
 
 
Occupancy (%)
 
ADR ($)
 
RevPAR ($)
 
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
Same-store Hotels
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
 
2016
 
2015
 
%Change
Embassy Suites Atlanta-Buckhead
79.6
 
80.1
 
(0.5
)
 
157.15

 
149.55

 
5.1

 
125.14

 
119.74

 
4.5

DoubleTree Suites by Hilton Austin
83.1
 
83.3
 
(0.2
)
 
218.56

 
220.31

 
(0.8
)
 
181.71

 
183.60

 
(1.0
)
Embassy Suites Birmingham
79.1
 
79.4
 
(0.4
)
 
137.36

 
134.08

 
2.4

 
108.64

 
106.50

 
2.0

The Fairmont Copley Plaza, Boston
77.9
 
77.6
 
0.4

 
324.04

 
323.51

 
0.2

 
252.54

 
251.11

 
0.6

Wyndham Boston Beacon Hill
79.2
 
81.8
 
(3.2
)
 
232.98

 
237.02

 
(1.7
)
 
184.52

 
193.91

 
(4.8
)
Embassy Suites Boston-Marlborough
71.8
 
76.7
 
(6.4
)
 
173.00

 
170.70

 
1.3

 
124.30

 
130.97

 
(5.1
)
Sheraton Burlington Hotel & Conference Center
74.6
 
73.9
 
1.0

 
122.15

 
119.38

 
2.3

 
91.18

 
88.23

 
3.3

The Mills House Wyndham Grand Hotel, Charleston
84.9
 
83.3
 
1.9

 
229.19

 
224.94

 
1.9

 
194.54

 
187.45

 
3.8

Embassy Suites Dallas-Love Field(1)
76.8
 
90.7
 
(15.4
)
 
142.00

 
131.42

 
8.0

 
109.04

 
119.23

 
(8.5
)
Embassy Suites Deerfield Beach-Resort & Spa
79.7
 
81.1
 
(1.7
)
 
203.24

 
205.36

 
(1.0
)
 
161.99

 
166.46

 
(2.7
)
Embassy Suites Fort Lauderdale 17th Street
84.2
 
85.1
 
(1.0
)
 
175.62

 
166.26

 
5.6

 
147.88

 
141.42

 
4.6

Wyndham Houston-Medical Center Hotel & Suites
79.4
 
81.7
 
(2.7
)
 
148.06

 
152.13

 
(2.7
)
 
117.63

 
124.23

 
(5.3
)
Embassy Suites Los Angeles-International Airport/South
87.9
 
82.6
 
6.4

 
173.37

 
162.85

 
6.5

 
152.33

 
134.45

 
13.3

Embassy Suites Mandalay Beach-Hotel & Resort
82.6
 
80.4
 
2.7

 
238.09

 
220.77

 
7.8

 
196.56

 
177.43

 
10.8

Embassy Suites Miami-International Airport
86.8
 
89.2
 
(2.7
)
 
149.36

 
151.76

 
(1.6
)
 
129.61

 
135.36

 
(4.2
)
Embassy Suites Milpitas-Silicon Valley
83.2
 
83.6
 
(0.5
)
 
204.36

 
196.20

 
4.2

 
169.96

 
163.96

 
3.7

Embassy Suites Minneapolis-Airport
77.1
 
78.0
 
(1.1
)
 
158.20

 
152.98

 
3.4

 
121.99

 
119.30

 
2.3

Embassy Suites Myrtle Beach-Oceanfront Resort
79.6
 
77.1
 
3.2

 
190.36

 
188.35

 
1.1

 
151.53

 
145.29

 
4.3

Hilton Myrtle Beach Resort
68.9
 
70.7
 
(2.5
)
 
154.49

 
149.12

 
3.6

 
106.47

 
105.44

 
1.0

Embassy Suites Napa Valley
82.9
 
83.5
 
(0.7
)
 
241.13

 
235.96

 
2.2

 
200.01

 
197.01

 
1.5

Wyndham New Orleans-French Quarter
72.5
 
67.1
 
8.1

 
146.47

 
151.79

 
(3.5
)
 
106.26

 
101.89

 
4.3

Morgans New York
83.3
 
81.1
 
2.8

 
256.36

 
269.72

 
(5.0
)
 
213.66

 
218.69

 
(2.3
)
Royalton New York
82.8
 
85.7
 
(3.3
)
 
279.79

 
289.25

 
(3.3
)
 
231.73

 
247.79

 
(6.5
)
Embassy Suites Orlando-International Drive South/Convention Center(1)
73.0
 
84.6
 
(13.7
)
 
148.50

 
148.24

 
0.2

 
108.46

 
125.41

 
(13.5
)
DoubleTree Suites by Hilton Orlando-Lake Buena Vista
89.4
 
89.0
 
0.4

 
140.09

 
137.19

 
2.1

 
125.19

 
122.14

 
2.5

Wyndham Philadelphia Historic District
74.9
 
64.7
 
15.7

 
157.00

 
159.89

 
(1.8
)
 
117.59

 
103.49

 
13.6

Sheraton Philadelphia Society Hill Hotel
71.9
 
68.9
 
4.4

 
183.69

 
173.67

 
5.8

 
132.10

 
119.64

 
10.4

Embassy Suites Phoenix-Biltmore
70.3
 
72.8
 
(3.4
)
 
182.93

 
175.70

 
4.1

 
128.61

 
127.86

 
0.6

Wyndham Pittsburgh University Center
70.7
 
73.9
 
(4.4
)
 
146.09

 
145.99

 
0.1

 
103.23

 
107.95

 
(4.4
)
Wyndham San Diego Bayside
80.5
 
80.8
 
(0.4
)
 
151.67

 
149.51

 
1.4

 
122.03

 
120.76

 
1.0

Embassy Suites San Francisco Airport-South San Francisco
88.5
 
89.2
 
(0.8
)
 
207.70

 
203.06

 
2.3

 
183.84

 
181.21

 
1.5

Embassy Suites San Francisco Airport-Waterfront
89.8
 
86.8
 
3.5

 
211.62

 
211.38

 
0.1

 
190.14

 
183.43

 
3.7

Holiday Inn San Francisco-Fisherman’s Wharf
88.2
 
87.6
 
0.7

 
216.01

 
214.53

 
0.7

 
190.52

 
187.98

 
1.3

San Francisco Marriott Union Square
90.8
 
88.1
 
3.1

 
299.42

 
290.28

 
3.1

 
271.86

 
255.72

 
6.3

Wyndham Santa Monica At the Pier
88.8
 
86.9
 
2.2

 
282.99

 
260.64

 
8.6

 
251.24

 
226.46

 
10.9

Embassy Suites Secaucus-Meadowlands
71.9
 
76.3
 
(5.8
)
 
181.29

 
185.30

 
(2.2
)
 
130.31

 
141.43

 
(7.9
)
The Vinoy Renaissance St. Petersburg Resort & Golf Club
82.7
 
83.4
 
(0.8
)
 
221.93

 
213.32

 
4.0

 
183.63

 
177.95

 
3.2

Same-store Hotels
80.3
 
80.5
 
(0.2
)
 
193.19

 
189.49

 
2.0

 
155.17

 
152.50

 
1.7


(1) Hotel under renovation in 2016.

46



Hotel Portfolio
The following table provides room counts for the hotels in which we held an ownership interest at September 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

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

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

 
 
11,329

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

47


Liquidity and Capital Resources
Operating Activities
For the nine months ended September 30, 2016, RevPAR at our same-store hotels increased 1.7%, as compared to the same period in 2015, driven by a 2.0% increase in ADR and offset by a 0.2% decline in occupancy. We expect our RevPAR will increase 1.25% to 1.5% during 2016 as compared to 2015, primarily from higher ADR, and our operations will generate $146 million to $150 million of cash flow this year.
At September 30, 2016, we had $50.4 million of cash and cash equivalents, including $30.6 million held by third-party management companies. During the first nine months of 2016, our operations (primarily hotel operations) provided $114.0 million in cash, which is consistent with the same period last year.
Investing Activities
During the nine months ended September 30, 2016, cash provided by investing activities was $38.6 million as compared to cash provided by investing activities of $125.0 million last year. In 2016, we sold hotels for $101.7 million in aggregate net proceeds compared to $190.0 million in aggregate net proceeds received during the nine months ended September 30, 2015. Additionally, in 2015 we sold a hotel owned by an unconsolidated joint venture resulting in higher distributions last 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 September 30, we have spent $15.3 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 $31.6 million on the development of that hotel during the first nine 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. In September 2016, we acquired land under one of our hotels for $8.2 million, including closing costs. We had previously leased the land from the prior owners.
Financing Activities
During the nine months ended September 30, 2016, cash used in financing activities was $162.1 million, $67.0 million less than cash used in financing activities for the same period last year. The following financing transactions took place during the first nine months of 2015:
We issued our $475 million 6% senior notes (resulting in deferred financing fees of $8.5 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 $5.8 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);

48


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 noncontrolling interest holders to $16.3 million primarily due to selling a hotel in a consolidated joint venture.
We implemented a stock repurchase program in December 2015. During the first nine months of 2016, we repurchased 4.6 million shares of common stock for $30.5 million (including commissions) at an average price of $6.58 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) 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 December 31, 2015. We did not designate the interest rate cap as a hedge, and it had an insignificant fair value at December 31, 2015, resulting in no impact on earnings. We had no outstanding interest rate caps at September 30, 2016.

49


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 that are disproportionate to increases in 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.


50


Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
At September 30, 2016, approximately 86% 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 September 30, 2016
(dollars in thousands)
 
Expected Maturity Date
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
Fair Value
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
671

 
$
2,637

 
$
2,954

 
$
3,106

 
$
3,245

 
$
1,138,352

 
$
1,150,965

 
$
1,198,364

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

Floating-rate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Debt

 
85,000

 

 
105,000

 

 

 
190,000

 
190,333

Average
  interest rate (a)

 
3.97
%
 

 
3.94
%
 

 

 
3.95
%
 
 

Total debt
$
671

 
$
87,637

 
$
2,954

 
$
108,106

 
$
3,245

 
$
1,138,352

 
$
1,340,965

 
 

Average
   interest rate
4.95
%
 
4.00
%
 
4.95
%
 
3.97
%
 
4.95
%
 
5.70
%
 
5.44
%
 
 

Unamortized debt issuance costs
 

 
 
 
 
 
 
 
 
 
 

 
(16,540
)
 
 

Debt, net of unamortized debt issuance costs
 

 
 
 
 
 
 
 
 
 
 

 
$
1,324,425

 
 


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


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Item 4.
Controls and Procedures.
FelCor Lodging Trust Incorporated
Controls and Procedures
Under the supervision and with the participation of our management, including our Interim Senior 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 Interim Senior 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.
FelCor Lodging Limited Partnership
Controls and Procedures
Under the supervision and with the participation of our management, including FelCor’s Interim Senior 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 Interim Senior 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.


52


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 FelCor’s common stock during each of the months in the third 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
July 1, 2016 - July 31, 2016
 
25,500

 
$
5.88

 
25,500

 
$
58,241,661

August 1, 2016 - August 31, 2016
 
228,206

 
$
6.37

 
228,206

 
$
56,787,363

September 1, 2016 - September 30, 2016
 
223,361

 
$
6.34

 
223,361

 
$
55,370,315

   Total
 
477,067

 
$
6.33

 
477,067

 
 
 
 
 
 
 
 
 
 
 


53


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
 
Equity Grant Agreement, dated as of September 19, 2016, by and between FelCor Lodging Trust Incorporated (“FelCor”) and Troy A. Pentecost (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated September 19, 2016, and incorporated herein by reference).
 
 
 
10.2
 
Incentive Compensation Program for Executive Officers, as amended (filed as Exhibit 10.2 to FelCor’s Form 8-K, dated September 19, 2016, and incorporated herein by reference).
 
 
 
10.3
 
Retirement, Severance and Release Agreement, dated as of September 16, 2016, by and between FelCor and Richard A. Smith (filed as Exhibit 10.3 to FelCor’s Form 8-K, dated September 19, 2016, and incorporated herein by reference).
 
 
 
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.


54



----------------------
*    Filed herewith.
This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.


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 September 30, 2016 and December 31, 2015; (ii) FelCor’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015; (iii) FelCor’s Consolidated Statements of Changes in Equity for the nine months ended September 30, 2016 and 2015; (iv) FelCor’s Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015; (v) FelCor LP’s Consolidated Balance Sheets at September 30, 2016 and December 31, 2015; (vi) FelCor LP’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015; (vii) FelCor LP’s Consolidated Statements of Partners’ Capital for the nine months ended September 30, 2016 and 2015; (viii) FelCor LP’s Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015; and (ix) the Notes to Consolidated Financial Statements.

55


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: November 1, 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: November 1, 2016
By:
/s/ Jeffrey D. Symes
 
 
Name:
Jeffrey D. Symes
 
 
Title:
Senior Vice President, Chief Accounting Officer
and Treasurer


56