-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DTJueNZTCB8Tq4c5TGgwUlCGSCG3LCPXSldNp+t/dypGkHZ/x1u2FoJ/XR1DkEPK iYSrPQVdQdKCzdNR3/W1cQ== 0000950134-07-004613.txt : 20070302 0000950134-07-004613.hdr.sgml : 20070302 20070301190527 ACCESSION NUMBER: 0000950134-07-004613 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070302 DATE AS OF CHANGE: 20070301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FelCor Lodging LP CENTRAL INDEX KEY: 0001048789 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752544994 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-39595-01 FILM NUMBER: 07665192 BUSINESS ADDRESS: STREET 1: 545 E. JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 9724444900 MAIL ADDRESS: STREET 1: 545 E. JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 FORMER COMPANY: FORMER CONFORMED NAME: FELCOR LODGING L P DATE OF NAME CHANGE: 19980814 FORMER COMPANY: FORMER CONFORMED NAME: FELCOR SUITES LP DATE OF NAME CHANGE: 19971030 10-K 1 d44085e10vk.htm FORM 10-K e10vk
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
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 333-39595-01
FelCor Lodging Limited Partnership
(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction of
incorporation or organization) 		  75-2544994
(I.R.S. Employer
Identification No.)
     
545 E. John Carpenter Frwy., Suite 1300, Irving, Texas
(Address of principal executive offices) 		  75062
(Zip Code)
(972) 444-4900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
     
    Name of each exchange
Title of each class   on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No
     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. þ Yes o No
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) o Yes þ No
     The aggregate market value of the voting and non-voting limited partnership interests held by non-affiliates of the registrant, computed by reference to the price at February 22, 2007, was approximately $7.5 million.
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Check one:
Large accelerated filer o                     Accelerated filer o                     Non-accelerated filer þ
DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the definitive Proxy Statement pertaining to the 2007 Annual Meeting of Stockholders of FelCor Lodging Trust Incorporated filed pursuant to Regulation 14A, are incorporated herein by reference into Part III.
 
 

 

 

FELCOR LODGING LIMITED PARTNERSHIP
INDEX
           
        Form 10-K
        Report
Item No.       Page
         
   
 
      
1.       2
1A.       8
1B.       17
2.       17
3.       26
4.       26
   
 
      
         
   
 
      
5.       27
6.       29
7.       31
7A.       50
8.       52
9.       95
9A.       95
9B.       95
   
 
      
         
   
 
      
10.       96
11.       96
12.       96
13.       96
14.       96
   
 
      
         
   
 
      
15.       97
 Subsidiaries
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906
This Annual Report on Form 10-K contains registered trademarks owned or licensed by companies other than us, including but not limited to Candlewood Suites®, Conrad®, Crowne Plaza®, Disneyland®, Doubletree®, Doubletree Guest Suites®, Embassy Suites Hotels®, Four Points® by Sheraton, Hampton Inn®, Hilton®, Hilton Garden Inn®, Hilton Suites®, Holiday Inn®, Holiday Inn & Suites®, Holiday Inn Express®, Holiday Inn Express & Suites®, Holiday Inn Select®, Homewood Suites® by Hilton, Hotel Indigo®, InterContinental®, Priority Club®, Le Méridien®, Sheraton®, Sheraton Suites®, St. Regis®, Staybridge Suites®, The Luxury Collection®, W Hotels®, Walt Disney World® and Westin®.

 

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PART I
Item 1. Business
     At December 31, 2006, FelCor Lodging Limited Partnership and our subsidiaries, or FelCor LP, held ownership interest in 99 hotels with approximately 28,000 rooms and suites. The sole general partner of FelCor LP is FelCor Lodging Trust Incorporated, or FelCor, a Maryland corporation operating as a real estate investment trust, or REIT. All of FelCor’s operations are conducted solely through FelCor LP and at December 31, 2006, FelCor owned a greater than 97% partnership interest in FelCor LP. When used in this Annual Report on Form 10-K, “we” and “our” refer to FelCor LP and its consolidated subsidiaries, unless otherwise indicated.
     At December 31, 2006, we owned a 100% interest in 72 hotels, a 90% or greater interest in entities owing five hotels, a 75% interest in an entity owning one hotel, a 60% interest in an entity owning two hotels and a 50% interest in entities owning 19 hotels. As the result of our ownership interests in the operating lessees of 94 of these hotels, we reflect their operating revenues and expenses in our consolidated statements of operations. The operations of 83 of these consolidated hotels were included in continuing operations at December 31, 2006, and 11 hotels were designated as held for sale and included in discontinued operations. The operating revenues and expenses of the remaining five hotels were reported on the equity method, four hotels were operated by 50% owned lessees and one hotel, in which we had a 50% ownership interest, was operated without a lease.
     Our hotels included in continuing operations at December 31, 2006 were located in the United States (23 states) and Canada, with concentrations in major metropolitan and resort areas We own the largest number of Embassy Suites Hotels and Doubletree Guest Suites hotels.
     Our business is conducted in one reportable segment, which is hospitality. During 2006, we derived 97% of our revenues from hotels located within the United States and the balance from our Canadian hotels.
     We seek to increase operating cash flow through aggressive asset management and the competitive positioning of our hotels. We also seek to maintain a sound and flexible capital structure, and to reposition our portfolio through the sale of non-strategic hotels, investment in capital expenditures at our existing hotels that we expect to provide a high return on investment, redevelopment of existing assets to enhance their return on investment and investment in high quality hotels in major urban and resort markets with high growth potential.
     At December 31, 2006, we had an aggregate of 63,407,199 redeemable and common units of FelCor LP limited partnership interest outstanding.
     Additional information relating to our hotels and our business, including the charters of FelCor’s Executive Committee, Corporate Governance and Nominating Committee, Compensation Committee and Audit Committee; its corporate governance guidelines; and its code of business conduct and ethics can be found on FelCor’s website at http://www.felcor.com. Information relating to our hotels and our business can also be found in the Notes to Consolidated Financial Statements located elsewhere in this Annual Report on Form 10-K. We do not have our own website, but copies of our annual, quarterly and current reports, and amendments to these reports, filed with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, or Exchange Act, are made available, free of charge, by contacting our investor relations department at 972-444-4900. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

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Developments During 2006
     We completed 2006 with a 7.8% increase in our hotel revenue per available room, or RevPAR, compared to 2005. This was the third year of RevPAR increases following a three-year decline in RevPAR. The fundamentals of the lodging industry appear to be strong, as evidenced by the national trend of increased RevPAR and increases in average daily room rates, or ADR, which is responsible for the increase in RevPAR in the current year. The increase in ADR was also a major factor in a 182 basis point increase in our Hotel Earnings Before Interest, Taxes, Depreciation and Amortization margin, or Hotel EBITDA margin, for our hotels in continuing operations. Hotel EBITDA margin is a commonly used non-GAAP measure described in more detail and reconciled to GAAP measures in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition in Item 7 of this Annual Report on Form 10-K.
     We completed amendments to our management agreements with InterContinental Hotels Group PLC, or IHG, in January 2006. This enabled us to start the process of selling 42 non-strategic hotels, of which 30 were operated under management agreements with IHG. These non-strategic hotels were generally located in slower growth markets with low barriers to entry and required capital investments not meeting our return criteria. During 2006, we sold 31 of these non-strategic hotels, leaving 11 non-strategic hotels, which we expect to sell in early 2007. The 31 hotels sold in 2006 provided gross proceeds of $514 million, which were used to pay down debt of approximately $356 million and invested in capital improvements at many of our core hotels.
     In 2006, we embarked on a three-year capital improvement program, affecting our entire core portfolio, designed to enhance our competitive position. During 2006, we spent $179 million on capital expenditures, of this, approximately $48 million related to capital items committed in 2005 and $131 million related to our three-year capital improvement program. We expect to spend approximately $225 million in 2007, and at the completion of this renovation program in 2008, we will have made major capital investments aggregating approximately $430 million.
     As a result of the strong economy and the related impact on the travel and lodging industries, and our lower secured debt levels, Standard & Poor’s raised its ratings on our senior unsecured debt twice in 2006 from B- to B and from B to B+, and in 2006 Moody’s Investor Services raised our debt ratings from B1 to Ba3. As a result of the Moody’s upgrade in April 2006, the interest rate applicable to $300 million of our senior unsecured debt maturing in 2011 decreased from 9.0% to 8.5%, reducing our annualized interest expense by $1.5 million.
     During 2006, we paid down debt of approximately $356 million, refinanced another $465 million of debt and reduced interest rates by 0.5% on $300 million of senior debt. The combined effect of these actions will result in reducing our annual interest expense by $38 million and lowering our weighted average cost of debt by 55 basis points.
     In December 2005, we resumed paying a common distribution with a $0.15 per unit distribution, which was also paid in the first quarter of 2006. For the second and third quarters of 2006, FelCor’s Board of Directors increased the distribution to $0.20 per unit, and in the fourth quarter it was increased once again to $0.25 per unit.
Management Changes
     In February 2006, FelCor announced the appointment of Thomas J. Corcoran, Jr. as Chairman of the Board, Richard A. Smith as President and Chief Executive Officer and Andrew J. Welch as Executive Vice President and Chief Financial Officer. Mr. Corcoran co-founded FelCor in 1991 with Hervey Feldman and has served as President and Chief Executive Officer since our formation. Mr. Smith joined FelCor in 2004 as Executive Vice President and Chief Financial Officer. Mr. Welch was most recently Senior Vice President and Treasurer for FelCor. In March 2006, FelCor announced the appointment of Troy A. Pentecost as Executive Vice President and Director of Asset Management, replacing Jack Eslick. Mr. Pentecost was formerly with Remington Hotel Corporation. In June 2006, FelCor announced the appointment of Jonathan H. Yellen as Executive Vice President, General Counsel and Secretary, replacing Lawrence D. Robinson, who retired. Mr. Yellen was formerly a partner with Damon & Morey LLP in Buffalo, New York.

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Board of Director Changes
     In February 2006, concurrent with Mr. Corcoran’s appointment as Chairman of the Board, FelCor announced that Donald J. McNamara resigned his position as Chairman of the Board, but remained on its Board of Directors, and that Michael D. Rose retired from FelCor’s Board of Directors. Mr. Rose’s position on the Board of Directors was filled by Mr. Smith. In May 2006, FelCor announced that Richard O. Jacobson retired from its Board of Directors. In July 2006, FelCor announced the appointment of Robert F. Cotter to its Board of Directors, filling the position created by Mr. Jacobson’s retirement. Mr. Cotter was most recently President and Chief Operating Officer for Starwood Hotels and Resorts Worldwide, Inc., prior to his retirement in December 2005.
Recent Developments
     In 2007, through February 25, 2007, we sold two non-strategic hotels for gross proceeds of $42.7 million leaving nine non-strategic hotels, which we expect to sell in the first part of 2007. We have hard contracts of sale on three of these hotels and the remainder are in various stages of negotiation.
     In February 2007, FelCor announced the retirement of Mr. McNamara from its Board of Directors and the appointment of Thomas C. Hendrick to succeed Mr. McNamara. Mr. Hendrick currently serves as the Executive Vice President of Acquisitions and Development for the Kor Group.
The Industry
     The lodging industry experienced strong growth in 2006, maintaining the momentum generated in the prior two years. According to Smith Travel Research (“STR”), a leading provider of industry data, RevPAR increased 7.5% in 2006. The increase in RevPAR was driven by a significant improvement in average daily rate (“ADR”), which went from $90.95 in 2005 to $97.31 in 2006, a U.S. record high.
     Supply growth continued to be held in check increasing 0.6% in 2006. This is well below the long-term historical average of 2.1% (from 1989 to 2005). Supply growth is a key leading indicator of the performance for existing lodging real estate. Demand growth in 2006 increased 1.1% slightly exceeding the growth in supply. As a result, the U.S. occupancy rate increased to 63.4% in 2006.
     Economists are predicting that the economy will continue to grow in 2007. Macroeconomic Advisers, a well regarded private research group, forecasts Real Gross Domestic Product (“GDP”), adjusted for inflation, to grow 2.6% in 2007 and 3.2% in 2008. The continued strength of the U.S. economy should continue to drive both leisure and business travel demand. With moderate supply growth, the lodging industry should perform well over the next two years. STR projects the 2007 occupancy rate to be 62.9%, a slight drop compared to 2006. At the same time, ADR is expected to grow by 6.5%, resulting in a forecasted RevPAR increase of 5.8%. PricewaterhouseCoopers (“PwC”), another leading source of lodging data, predicts that the U.S. RevPAR will increase by 5.8% in both 2007 and 2008. PwC also predicts that lodging industry profits (measured in income before income taxes) will increase by 8.5% and reach $27.4 billion by 2008. However, these predicted growth rates are not uniform across the country and assume that no major external event such an act of terrorism or natural disaster affect the U.S. economy and the travel and lodging industries.
     STR classifies hotel chains into six distinct categories: Luxury, Upper Upscale, Upscale, Midscale with Food & Beverage, Midscale without Food & Beverage, and Economy. We own properties in the Upper Upscale (including Doubletree Guest Suites, Doubletree, Embassy Suites Hotels, Sheraton and Westin hotels), Upscale (Crowne Plaza), and Midscale with Food & Beverage (Holiday Inn) categories, from which we derived all of our Hotel EBITDA in 2006. More than 80% of our Hotel EBITDA in 2006 was derived from upper upscale all-suite hotels.

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     STR also categorizes hotels based upon their relative market positions, as measured by ADR, as Luxury, Upscale, Midprice, Economy and Budget. The following table contains information with respect to average occupancy (determined by dividing occupied rooms by available rooms), ADR and RevPAR for our hotels, as well as all Upscale U.S. hotels, all Midprice U.S. hotels and all U.S. hotels, as reported by STR, for the periods indicated:
                                         
    Year Ended December 31,
    2006   2005   2004   2003   2002
Number of FelCor LP Hotels
     83       125       142       159       183  
Occupancy:
                                        
FelCor LP hotels (1)
     72.6 %     69.3 %     65.5 %     62.4 %     62.1 %
All Upscale U.S. hotels (2)
     65.5       65.2       63.0       60.8       60.8  
All Midprice U.S. hotels (3)
     61.0       61.0       59.4       57.2       56.8  
All U.S. hotels
     63.4       63.1       61.3       59.2       59.0  
ADR:
                                        
FelCor LP hotels (1)
   $ 125.93     $ 107.18     $ 99.07     $ 94.92     $ 96.84  
All Upscale U.S. hotels (2)
     107.37       101.60       94.05       90.55       90.47  
All Midprice U.S. hotels (3)
     78.12       73.96       69.81       67.54       67.96  
All U.S. hotels
     97.31       90.95       86.20       82.92       82.83  
RevPAR:
                                        
FelCor LP hotels (1)
   $ 91.49     $ 74.29     $ 64.91     $ 59.19     $ 60.16  
All Upscale U.S. hotels (2)
     70.31       66.21       59.26       55.06       55.02  
All Midprice U.S. hotels (3)
     47.66       45.12       41.47       38.60       38.58  
All U.S. hotels
     61.69       57.39       52.88       49.07       48.87  
 
(1)   Information is based on historical presentations.
 
(2)   This category includes hotels in the “upscale price level,” defined as hotels with ADRs in the 70th to 85th%iles in their respective markets.
 
(3)   This category includes hotels in the “midprice level,” defined as hotels with ADRs in the 40th to 70th%iles in their respective markets.
Business Strategy
     Our long-term strategic plan is to own a diversified portfolio of upscale, full service hotels flagged under leading brands, increase FelCor shareholder value and increase return on invested capital by maximizing the use of our real estate and enhancing cash flow. We continually examine our portfolio to address issues of market supply and concentration of risk. In order to achieve our strategic objectives, we have identified four goals:
     Portfolio Repositioning. The completion of the amendments to the management agreements with IHG in January 2006, enabled us to start the process of selling 42 non-strategic hotels, of which 30 were operated under management contracts with IHG, and use the proceeds, along with excess cash, to reduce debt and embark on an internal growth program to complete a comprehensive renovation of our core hotel portfolio and invest in redevelopment opportunities.
     At December 31, 2006, we had 11 remaining non-strategic hotels identified as held for sale in slower growth markets with lower barriers to entry and that required capital investments not meeting our return criteria. These 11 non-strategic hotels have been designated as held for sale and included in discontinued operations. We expect to sell substantially all of our 11 non-strategic hotels in the first part of 2007 for aggregate gross proceeds of approximately $185 million to $190 million.
     In 2006, we sold 31 non-strategic hotels for aggregate gross proceeds of approximately $514 million. In 2007, through February 25, 2007, we sold two non-strategic hotels for gross proceeds of $42.7 million and had three hotels with hard contracts for sale.

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     Debt Reduction. As part of the repositioning strategy, from September 30, 2005, when we began our disposition program, we reduced our debt by $400 million in the aggregate using proceeds from non-strategic hotel sales and excess cash on hand. For the year ended December 31, 2006, our consolidated debt to EBITDA ratio was approximately 4.7x, compared to more than 8x for the year ended December 31, 2003, and we believe this ratio will continue to decrease as we continue to improve our operating performance. In addition, we will continue to look for additional opportunities to reduce our cost of debt and increase our flexibility on an economically sound basis.
     Internal Growth. Our internal growth is driven by the following factors:
  •   Comprehensive Renovation of our Portfolio of Core Hotels. We have implemented a long-term capital plan for each core hotel to enhance our portfolio’s competitive position. We plan to spend approximately $430 million in capital from 2006 to 2008, of which $131 million was spent during 2006, approximately $225 million will be spent in 2007 and the remainder will be spent during 2008.
 
  •   Redevelopment Opportunities. We have currently identified opportunities at 14 core hotels to add significant value through the maximization of our real estate (e.g., adding meeting space, guest rooms and/or spas, utilizing excess land at beach-front properties for condominium developments and re-branding opportunities) and added earnings growth. We plan to use approximately $150 million of the proceeds from selling non-strategic hotels to fund redevelopment projects.
 
  •   Modified Asset Management Approach. We seek to improve the competitive position of our core hotels through aggressive asset management and strong relationships with our brand-owner managers. During 2006, we completed changes to our asset management approach. While REIT requirements prohibit us from directly managing our hotels, we are taking a more intensive approach to asset management. Through the selling of non-strategic hotels and the hiring of additional asset managers, our asset managers have more time to dedicate to each hotel. In addition, we are taking a more active role in working closely with our brand-owner managers to actively monitor and review hotel operations. We strongly urge our brand-owner managers to implement best practices in expense and revenue management at our hotels, and we strive to influence brand strategy on marketing and revenue enhancement programs. See “Business — Strategic Relationships.”
     External Growth. We regularly consider hotel acquisitions that will improve the overall quality of our portfolio, further diversify our portfolio by market and customer type, and/or improve future EBITDA growth. However, we take a highly disciplined approach to any acquisitions, which must meet strict criteria, including minimum rates of return. Moreover, we believe our reduced debt levels will ensure that we will have sufficient borrowing capacity to fund acquisitions when opportunities arise. We expect acquisitions of hotels will be restricted to high quality hotels in major urban and resort markets with high barriers to entry and high growth potential.
Strategic Relationships
     We benefit from our brand-owner and manager alliances with Hilton Hotels Corporation (Embassy Suites Hotels, Hilton and Doubletree), InterContinental Hotels Group PLC (Holiday Inn) and Starwood Hotels & Resorts Worldwide, Inc. (Sheraton and Westin). These relationships enable us to work effectively with our managers to maximize Hotel EBITDA margins and operating cash flow from our hotels.
•   Hilton Hotels Corporation (www.hiltonworldwide.com) is recognized internationally as a preeminent hospitality company. Hilton develops, owns, manages or franchises more than 2,300 hotels, resorts and vacation ownership properties. Its portfolio includes many of the world’s best known and most highly regarded hotel brands, including Hilton, Hilton Garden Inn, Doubletree, Embassy Suites Hotels, Conrad, Hampton Inn and Homewood Suites by Hilton, among others. Subsidiaries of Hilton managed 54 of our hotels at December 31, 2006. Hilton is a 50% partner in joint ventures with us in the ownership of 12 hotels and the management of residential condominiums, and is the holder of a 10% equity interest in certain of our consolidated subsidiaries owning four hotels.

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•   InterContinental Hotels Group PLC (www.ichotelsgroup.com) of the United Kingdom is the world’s largest hotel company by number of rooms. IHG owns, manages, leases or franchises, through various subsidiaries, more than 3,600 hotels and 540,000 guest rooms in nearly 100 countries and territories around the world. IHG owns a portfolio of well recognized and respected hotel brands including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn, Holiday Inn Express, Hotel Indigo, Staybridge Suites, Candlewood Suites, and also manages the world’s largest hotel loyalty program, Priority Club Rewards, with more than 30 million members worldwide. At December 31, 2006, subsidiaries of IHG managed 18 of our hotels.
•   Starwood Hotels & Resorts Worldwide, Inc. (www.starwoodhotels.com) is one of the leading hotel and leisure companies in the world with more than 860 properties with 264,000 rooms in 95 countries. With internationally renowned brands, Starwood is a fully integrated owner, operator and franchisor of hotels and resorts including: St. Regis, The Luxury Collection, Le Méridien, Sheraton, Westin, Four Points by Sheraton and W brands. Subsidiaries of Starwood managed seven of our hotels at December 31, 2006. Starwood is a 40% joint venture partner with us in the ownership of two hotels and a 50% joint venture partner with us in the ownership of one hotel.
Competition
     The hotel industry is highly competitive. Each of our hotels is located in a developed area that includes other hotel properties and competes for guests primarily with other full service and limited service hotels in its immediate vicinity and secondarily with other hotel properties in its geographic market. We believe that location, brand recognition, the quality of the hotel, the services provided, and price are the principal competitive factors affecting our hotels.
Environmental Matters
     We customarily obtain a Phase I environmental survey from an independent environmental consultant before acquiring a hotel. The principal purpose of a Phase I survey is to identify indications of potential environmental contamination for which a property owner may have liability and, secondarily, to assess, to a limited extent, the potential for environmental regulatory compliance liabilities. The Phase I surveys of our hotels were designed to meet the requirements of the then current industry standards governing Phase I surveys, and consistent with those requirements, none of the surveys involved testing of groundwater, soil or air. Accordingly, they do not represent evaluations of conditions at the studied sites that would be revealed only through such testing. In addition, their assessment of environmental regulatory compliance issues was general in scope and was not a detailed determination of the hotel’s complete environmental compliance status. Similarly, the surveys did not involve comprehensive analysis of potential offsite liability. The Phase I survey reports did not reveal any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations, nor are we aware of any such liability. Nevertheless, it is possible that these reports do not reveal or accurately assess all environmental liabilities and that there are material environmental liabilities of which we are unaware.
     We believe that our hotels are in compliance, in all material respects, with all federal, state, local and foreign laws and regulations regarding hazardous substances and other environmental matters, the violation of which could have a material adverse effect on us. We have not been notified by any governmental authority or private party of any noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our current or former properties that we believe would have a material adverse effect on our business, assets or results of operations. However, obligations for compliance with environmental laws that arise or are discovered in the future may adversely affect our financial condition.
Tax Status
     FelCor LP is not a taxpaying entity. However, under our partnership agreement we are required to reimburse FelCor for any tax payments FelCor is required to make. Accordingly, the tax information included herein represents disclosures regarding FelCor and taxable subsidiaries.
     FelCor elected to be taxed as a REIT under the federal income tax laws, commencing with its initial taxable year ended December 31, 1994. As a REIT, FelCor generally is not subject to federal income taxation at the corporate level on taxable income that is distributed to its stockholders. FelCor may, however, be subject to certain state and local taxes on its income and property. A REIT is subject to a number of organizational and

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operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income. In connection with its election to be taxed as a REIT, its charter imposes restrictions on the ownership and transfer of shares of its common stock. We expect to make distributions on our units sufficient to enable FelCor to meet its distribution obligations as a REIT. As a result of the passage of the REIT Modernization Act, in 2001 we acquired or terminated all of our hotel leases and contributed them to taxable REIT subsidiaries, or TRSs. These TRSs are subject to both federal and state income taxes. At December 31, 2006, our TRSs had a federal income tax loss carry forward of $315 million.
Employees
     We have no employees. FelCor as our sole general partner performs our management functions. Thomas J. Corcoran, Jr., FelCor’s Chairman of the Board of Directors, entered into a new employment agreement with FelCor in February 2006 that continues in effect until February 1, 2011. Richard A. Smith, FelCor’s President and Chief Executive Officer, entered into an employment agreement with FelCor in February 2006 that continues into effect until February 1, 2008. Both Mr. Corcoran’s and Mr. Smith’s agreements automatically renew for successive one-year terms unless terminated by either party. All of FelCor’s executive officers, including Messrs. Corcoran and Smith, have change in control contracts that renew annually. FelCor had 74 full-time employees at December 31, 2006.
     All persons employed in the day-to-day operation of our hotels are employees of the management companies engaged by us and are not our employees.
Item 1A. Risk Factors
     Certain statements and analyses contained in this Annual Report on Form 10-K, or that may in the future be made by, or be attributable to, us, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. All of such forward-looking statements are based upon present expectations and assumptions that may or may not actually occur. The following factors constitute cautionary statements identifying important factors, including material risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements or in our historical results. Each of the following factors, among others, could adversely affect our ability to meet the current expectations of management.
Future terrorist activities and United States military involvement in the Middle East and elsewhere may adversely affect, and create uncertainty in, our business
     The terrorist attacks of September 11, 2001, caused a significant disruption in travel-related businesses in the United States. Consistent with the rest of the lodging industry, we experienced substantial declines in occupancy and ADR, due to a decline in both business and leisure travel in 2001 and the continued decline in business travel in 2002 and 2003. While the lodging industry experienced the beginnings of a recovery in 2004 and strong growth in 2005 and 2006, another act of terrorism in the United States, protracted or expanded United States military involvement in the War on Terrorism, heightened “Threat Levels,” contractions in the airline industry, or increased security precautions making air travel more difficult could result in decreases in travel and our revenues. The factors described above, as well as other political or economic events, may adversely affect the lodging industry, including us, as a result of reduced public travel.
There are significant risks associated with our planned renovation and redevelopment projects, which could adversely affect our financial condition, results of operations or cash flows from these projects
     Our ongoing and future renovation projects entail significant risks. Renovation and redevelopment activity requires us to obtain qualified contractors and subcontractors, the availability of which may be uncertain. Renovation and redevelopment projects are subject to cost overruns and delays caused by events outside of our control or, in certain cases, our contractors’ control, such as shortages of materials or skilled labor, unforeseen engineering or environmental problems, work stoppages, unanticipated cost increases and unavailability of

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construction materials. Renovation and redevelopment staffing problems or difficulties in obtaining any of the requisite materials, licenses, permits and authorizations from governmental or regulatory authorities, construction defects or non-compliance with construction or brand specifications, could increase the total cost, delay completion and adversely affect the operations of our hotels beyond our expectations. We may rely on few key vendors or contractors at renovation and redevelopment projects; the failure of any of these key vendors or contractors could materially increase the total cost, and/or delay completion and adversely affect the operations of our hotels beyond our expectations.
We are subject to the risks of real estate ownership, which could increase our costs of operations
     General Risks. Our investments in hotels are subject to the numerous risks generally associated with owning real estate, including among others:
  •   adverse changes in general or local economic or real estate market conditions;
 
  •   changes in zoning laws;
 
  •   increases in supply or competition;
 
  •   changes in traffic patterns and neighborhood characteristics;
 
  •   increases in assessed valuation and real estate tax rates;
 
  •   increases in the cost of property insurance;
 
  •   increases in the cost of wood, steel, concrete and other building materials, which increase the cost of renovations, expansions and new construction;
 
  •   costly governmental regulations and fiscal policies;
 
  •   the potential for uninsured or underinsured property losses;
 
  •   the potential that we are unable to meet all requirements under the Americans with Disabilities Act;
 
  •   the impact of environmental laws and regulations; and
 
  •   other circumstances beyond our control.
Moreover, real estate investments are relatively illiquid, and we may not be able to adjust our portfolio in a timely manner to respond to changes in economic and other conditions.
     Compliance with environmental laws may adversely affect our financial condition. Owners of real estate are subject to numerous federal, state, local and foreign environmental laws and regulations. Under these laws and regulations, a current or former owner of real estate may be liable for the costs of remediating hazardous substances found on its property, whether or not it was responsible for their presence. In addition, if an owner of real property arranges for the disposal of hazardous substances at another site, it may also be liable for the costs of remediating the disposal site, even if it did not own or operate the disposal site. Such liability may be imposed without regard to fault or the legality of a party’s conduct and may, in certain circumstances, be joint and several. A property owner may also be liable to third parties for personal injuries or property damage sustained as a result of its release of hazardous or toxic substances, including asbestos-containing materials, into the environment. Environmental laws and regulations may require us to incur substantial expenses and limit the use of our properties. We could have substantial liability for a failure to comply with applicable environmental laws and regulations, which may be enforced by the government or, in certain instances, by private parties. The existence of hazardous substances on a property can also adversely affect the value of, and the owner’s ability to use, sell or borrow against, the property.
     We cannot provide assurances that future or amended laws or regulations, or more stringent interpretations or enforcement of existing environmental requirements, will not impose any material environmental liability, or that the environmental condition or liability relating to the hotels will not be affected by new information or changed circumstances, by the condition of properties in the vicinity of such hotels, such as the presence of leaking underground storage tanks, or by the actions of unrelated third parties.

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     Compliance with the Americans with Disabilities Act may adversely affect our financial condition. Under the Americans with Disabilities Act of 1990, all public accommodations, including hotels, are required to meet certain federal requirements for access and use by disabled persons. Various state and local jurisdictions have also adopted requirements relating to the accessibility of buildings to disabled persons. We believe that our hotels substantially comply with the requirements of the Americans with Disabilities Act and other applicable laws. However, a determination that the hotels are not in compliance with these laws could result in liability for both governmental fines and payments to private parties. If we were required to make unanticipated major modifications to our hotels to comply with the requirements of the Americans with Disabilities Act and other similar laws, it could adversely affect our ability to make distributions to our unitholders and to pay our obligations.
We will encounter industry-related risks that may adversely affect our business
     We are subject to the risks of hotel operations. We own the lessees of our hotels; consequently we are subject to the risk of fluctuating hotel operating expenses at our hotels, including, but not limited to:
  •   wage and benefit costs, including hotels that employ unionized labor;
 
  •   repair and maintenance expenses;
 
  •   gas and electricity costs;
 
  •   insurance costs, including health, general liability and workers compensation; and
 
  •   other operating expenses.
     In addition, we are subject to the risks of a decline in Hotel EBITDA margins, which occurs when hotel operating expenses increase disproportionately to revenues. These operating expenses and Hotel EBITDA margins are within the control of our third party managers, over which we have limited control, resulting in an increased risk of volatility in our results of operations.
     An economic slowdown can have a significant adverse effect on our RevPAR performance and results of operations. Unless current economic growth continues, the effects of a slowdown on our financial condition could be material. A sharp reduction in business travel can cause RevPAR to decline. Decreased occupancy can lead to declining room rates, as hotels compete more aggressively for guests. Both factors have a significant adverse effect on RevPAR, Hotel EBITDA margins and results of operations. If the current economic growth stalls, or if the lodging industry fails to benefit from economic growth for a protracted period of time, or if the markets in which we have significant concentrations should fail to participate in the economic growth, it could have a material adverse effect on our operations, earnings and financial condition.
     Investing in hotel assets involves special risks. We have invested in hotel-related assets, and our hotels are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, and generally include:
  •   competition from other hotels;
 
  •   construction of more hotel rooms in a particular area than needed to meet demand;
 
  •   current high, and any further increases in, energy costs and other travel expenses;
 
  •   other events, such as terrorist acts or war that reduce business and leisure travel;
 
  •   adverse effects of declines in general and local economic activity;
 
  •   fluctuations in our revenue caused by the seasonal nature of the hotel industry;
 
  •   an outbreak of a pandemic disease affecting the travel industry;
 
  •   a downturn in the hotel industry; and
 
  •   risks generally associated with the ownership of hotels and real estate, as discussed below.

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     We have embarked on a strategy to improve our customer mix. Part of our current strategy is to increase the average daily rate, or ADR, at our hotels by changing the customer mix. We plan to accomplish this through renovation and redevelopment of our hotels and not renewing some of the lower ADR contracts, which many of our hotels have relied on to generate income. If we are unable to replace at least a portion of these lower ADR contracts with other higher ADR business it could have a materially adverse affect on our earnings and cash flow.
     We could face increased competition. Each of our hotels competes with other hotels in its geographic area. A number of additional hotel rooms have been, or may be, built in a number of the geographic areas in which our hotels are located, which could adversely affect both occupancy and rates in those markets. A significant increase in the supply of midprice, upscale and upper upscale hotel rooms and suites, if demand fails to increase at least proportionately, could have a material adverse effect on our business, financial condition and results of operations.
     We face reduced coverages and increased costs of insurance. Our property insurance has a $100,000 all risk deductible, and a deductible of 5% of insured value for named windstorm coverage and California earthquake coverage. Costs for our property insurance has increased significantly. Substantial uninsured or not fully-insured losses would have a material adverse impact on our operating results, cash flows and financial condition. Additional catastrophic losses, such as the losses caused by hurricanes in 2005, could make the cost of insuring against these types of losses prohibitively expensive or difficult to find. In an effort to keep our cost of insurance within reasonable limits, we have purchased reduced limits for property, wind and earthquake insurance and only purchased terrorism insurance for those hotels that are secured by mortgage debt, as required by our lenders. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 67 of our hotels. The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible.
     We have geographic concentrations that may create risks from regional or local economic, seismic or weather conditions. At December 31, 2006, approximately 48% of our hotel rooms were located in, and 45% of our 2006 Hotel EBITDA was generated from, three states: California, Florida and Texas. Additionally, at December 31, 2006, we had concentrations in six major metropolitan areas, South Florida, the San Francisco Bay area, Atlanta, the Los Angeles area, Dallas and Orlando, which together represented approximately 35% of our Hotel EBITDA for the year ended December 31, 2006. Therefore, adverse economic, seismic or weather conditions in these states or metropolitan areas will have a greater adverse effect on us than on the industry as a whole.
     We had nine hotels at February 25, 2007, that we intend to sell in 2007. We may be unable to sell these hotels at acceptable prices, or at all, within the proposed time frame. If we are unable to sell these hotels at anticipated prices, we may realize additional losses upon sale. Even if we are successful in selling these hotels as contemplated, if we fail to reinvest the net proceeds in a manner that will generate returns equal to, or better than, the hotels sold, our results of operations will be adversely affected.
     We are subject to possible adverse effects of management franchise and license agreement requirements. All of our hotels are operated under existing management franchise or license agreements with nationally recognized hotel companies. Each agreement requires that the licensed hotel be maintained and operated in accordance with specific standards and restrictions in order to maintain uniformity within the brand. Compliance with these standards, and changes in these standards, could require us to incur significant expenses or capital expenditures, which could adversely affect our results of operations and ability to pay distributions to our unitholders and service on our indebtedness.
     We are subject to the risks of brand concentration. We are subject to the potential risks associated with the concentration of our hotels under a limited number of brands. A negative public image or other adverse event that becomes associated with the brand could adversely affect hotels operated under that brand.

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     The following table reflects the percentage of Hotel EBITDA from our consolidated portfolio of 83 hotels included in continuing operations as of December 31, 2006, generated by hotels operated under each of the indicated brands during the year ended December 31, 2006:
                 
            % of 2006
            Hotel
    Hotels   EBITDA
Embassy Suites Hotels
     47       57 %
Holiday Inn-branded hotels
     17       18  
Starwood-branded hotels
     9       15  
Doubletree-branded hotels
     7       7  
Hilton-branded hotels
     2       2  
Other
     1       1  
     Should any of these brands suffer a significant decline in popularity with the traveling public, it could adversely affect our revenues and profitability.
     The lodging business is seasonal in nature. Generally, hotel revenues for our hotel portfolio are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations. Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. We expect that seasonal variations in revenue at our hotels will cause quarterly fluctuations in our revenues.
As a REIT, FelCor is subject to specific tax laws and regulations, the violation of which could subject us to significant tax liabilities
     The federal income tax laws governing REITs are complex. FelCor has operated, and intends to continue to operate, in a manner that is intended to enable it to qualify as a REIT under the federal income tax laws. The REIT qualification requirements are extremely complicated, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, FelCor cannot be certain that it has been, or will continue to be, successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT.
     Failure to make required distributions would subject us to tax. Each year, a REIT must pay out to its stockholders at least 90% of its taxable income, other than any net capital gain. To the extent that FelCor satisfies the 90% distribution requirement, but distribute less than 100% of its taxable income, it will be subject to federal corporate income tax on our undistributed taxable income. In addition, it will be subject to a 4% nondeductible tax if the actual amount it pays out to its stockholders in a calendar year is less than the minimum amount specified under federal tax laws. FelCor’s only source of funds to make such distributions comes from distributions from FelCor LP. Accordingly, we may be required to borrow money or sell assets to enable FelCor to pay out enough of its taxable income to satisfy the distribution requirements and to avoid corporate income tax and the 4% tax in a particular year.
     Failure to qualify as a REIT would subject FelCor to federal income tax. If FelCor fails to qualify as a REIT in any taxable year, it would be subject to federal income tax at regular corporate rates on its taxable income for any such taxable year for which the statute of limitations remains open. We might need to borrow money or sell hotels in order to obtain the funds necessary to pay any such tax. If FelCor ceases to be a REIT, it no longer would be required to distribute most of its taxable income to its stockholders. Unless its failure to qualify as a REIT was excused under federal income tax laws, FelCor could not re-elect REIT status until the fifth calendar year following the year in which it failed to qualify.
     A sale of assets acquired from Bristol Hotel Company, or Bristol, within ten years after the merger may result in FelCor incurring corporate income tax. If we sell any asset acquired from Bristol within ten years after our 1998 merger with Bristol, and FelCor recognizes a taxable gain on the sale, it will be taxed at the highest corporate rate on an amount equal to the lesser of:
  •   the amount of gain recognized at the time of the sale; or
 
  •   the amount of gain that FelCor would have recognized if it had sold the asset at the time of the Bristol merger for its then fair market value.

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     We lack control over the management and operations of our hotels. Because federal income tax laws restrict REITs and their subsidiaries from operating hotels, we do not manage our hotels. Instead, we are dependent on the ability of independent third-party managers to operate our hotels pursuant to management agreements. As a result, we are unable to directly implement strategic business decisions for the operation and marketing of our hotels, such as decisions with respect to the setting of room rates, the salary and benefits provided to hotel employees, the conduct of food and beverage operations and similar matters. While our taxable REIT subsidiaries monitor the third-party manager’s performance, we have limited specific recourse under our management agreements if we believe the third-party managers are not performing adequately. Failure by our third-party managers to fully perform the duties agreed to in our management agreements could adversely affect our results of operations. In addition, our third-party managers or their affiliates manage hotels that compete with our hotels, which may result in conflicts of interest. As a result, our third-party managers may have in the past made and may in the future make decisions regarding competing lodging facilities that are not or would not be in our best interests.
We depend on external sources of capital for future growth, and we may be unable to access capital when necessary
     Unlike subchapter C corporations, our ability to reduce our debt and finance our growth largely must be funded by external sources of capital because of our obligation to fund FelCor’s requirement to distribute at least 90% of its taxable income (other than net capital gains) in order to qualify as a REIT, including taxable income it recognizes for federal income tax purposes but with regard to which it does not receive corresponding cash. Our ability to access the external capital we require could be hampered by a number of factors, many of which are outside our control, including declining general market conditions, unfavorable market perception of our growth potential, decreases in our current and estimated future earnings, excessive cash distributions or decreases in the market price of FelCor’s common stock. In addition, our ability to access additional capital may also be limited by the terms of our existing indebtedness, which among other things, restrict our incurrence of debt and the payment of distributions. The effect of any of these factors, individually or in combination, could prevent us obtaining the external capital we require on terms that are acceptable to us, or at all, and the failure to obtain necessary capital could have a material adverse effect on our ability to finance our future growth.
We have substantial financial leverage
     At December 31, 2006, our consolidated debt of $1.4 billion represented 42% of our total market capitalization. The decline in our revenues and cash flow from operations during 2001, 2002 and 2003, adversely affected our public debt ratings and future declines in revenues and cash flow may have a similar impact, and may limit our access to additional debt. Our senior notes currently are rated Ba3 by Moody’s Investors Service, and B+ by Standard & Poor’s, which are considered below investment grade. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs. While we are currently using proceeds from the sale of non-strategic hotels, limitations upon our access to additional debt could adversely affect our ability to fund these programs in the future.
     We had increases in RevPAR for the past three years, but if RevPAR worsens, it could reduce our ability to pay distributions and service our debt.
     Our financial leverage could have important consequences. For example, it could:
  •   limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes;
 
  •   require us to agree to additional restrictions and limitations on our business operations and capital structure to obtain financing;
 
  •   increase our vulnerability to adverse economic and industry conditions, and to interest rate fluctuations;
 
  •   require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for capital expenditures, future business opportunities, paying distributions or other purposes;

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  •   limit our flexibility to make, or react to, changes in our business and our industry; and
 
  •   place us at a competitive disadvantage, compared to our competitors that have less debt.
Our debt agreements will allow us to incur additional debt, which, if incurred, could exacerbate the other risks described herein
     We may be able to incur substantial debt in the future. Although the instruments governing our indebtedness contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the risks described above would intensify.
     In January 2006, we established a $125 million unsecured line of credit. This line of credit has certain restrictive covenants, such as a leverage ratio, fixed charge coverage ratio, an unencumbered leverage ratio and a maximum payout ratio. The covenants under our line of credit would have allowed us to incur, at December 31, 2006, an additional $501 million of debt of which a maximum of $252 million could be unsecured debt. Together with the restrictions and limitations contained in the indentures governing our existing senior notes, at December 31, 2006, we could have incurred approximately $1.2 billion of additional secured indebtedness assuming the additional debt was borrowed at 7.3% annual interest rate and invested in hotels with an 85% loan to value generating annual Hotel EBITDA equal to 7.5% of their cost.
We have restrictive debt covenants that could adversely affect our ability to finance our operations or engage in other business activities
     The agreements governing our line of credit and the indentures governing our outstanding senior notes contain various restrictive covenants and incurrence tests, including, among others, provisions that can restrict our ability to:
  •   incur any additional indebtedness;
 
  •   make common or preferred distributions;
 
  •   make investments;
 
  •   engage in transactions with affiliates;
 
  •   incur liens;
 
  •   merge or consolidate with another person;
 
  •   dispose of all or substantially all of our assets; and
 
  •   permit limitations on the ability of our subsidiaries to make payments to us.
     These restrictions may adversely affect our ability to finance our operations or engage in other business activities that may be in our best interest.
     Under the terms of the indenture governing one series of our outstanding senior notes, we are prohibited from repurchasing any of our partnership units, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indenture, exceeds 4.85 to 1. Although at December 31, 2006, our debt-to-EBITDA ratio is below that threshold, a decline in our EBITDA, or an increase in our debt, could raise that ratio above the 4.85 to 1 threshold. Accordingly, we may be prohibited from purchasing any of our partnership units, except as permitted under limited exceptions, such as from the proceeds of a substantially concurrent issuance of other partnership units.
     If actual operating results are significantly below our current expectations, as reflected in our public guidance, or if interest rates increase significantly more than we expect, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior notes. In such an event, we may be prohibited from incurring additional indebtedness, except to repay or refinance maturing debt with debt of similar priority in the capital structure, and may be prohibited from, among other things, paying distributions on our preferred or

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common units, except to the extent necessary to satisfy FelCor’s REIT qualification requirement that it distribute currently at least 90% of its taxable income.
     Our $125 million unsecured line of credit has certain restrictive covenants, such as a leverage ratio, fixed charge coverage ratio, an unencumbered leverage ratio and a maximum payout ratio. A breach of any of these covenants and limitations under our line of credit could require that we repay some or all amounts outstanding under our line of credit.
     Our failure to timely satisfy any judgment or recourse indebtedness, if in the amount of $10 million or more, could result in the acceleration of our unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.
We own, and may acquire, interests in hotel joint ventures with third parties that expose us to some risk of additional liabilities or capital requirements
     We own, through our subsidiaries, interests in several real estate joint ventures with third parties. Joint ventures that are not consolidated into our financial statements owned a total of 19 hotels, in which we had an aggregate investment of $112 million, at December 31, 2006. The operations of 14 of these hotels are included in our consolidated results of operations due to our majority ownership of the lessees of these hotels. None of FelCor’s directors or officers hold any interest in any of these ventures. Our joint venture partners are affiliates of Hilton with respect to 12 hotels, affiliates of Starwood with respect to one hotel, and private entities or individuals with respect to six hotels. The ventures and hotels were subject to non-recourse mortgage loans aggregating $197 million at December 31, 2006.
     The personal liability of our subsidiaries under existing non-recourse loans secured by the hotels of our joint ventures is generally limited to the guaranty of the borrowing ventures’ personal obligations to pay for the lender’s losses caused by misconduct, fraud or misappropriation of funds by the ventures and other typical exceptions from the non-recourse covenants in the mortgages, such as those relating to environmental liability. We may invest in other ventures in the future that own hotels and have recourse or non-recourse debt financing. If a venture defaults under its mortgage loan, the lender may accelerate the loan and demand payment in full before taking action to foreclose on the hotel. As a partner or member in any of these ventures, our subsidiary may be exposed to liability for claims asserted against the venture, and the venture may not have sufficient assets or insurance to discharge the liability.
     Our subsidiaries may not legally be able to control decisions being made regarding these ventures and their hotels. In addition, the hotels in a venture may perform at levels below expectations, resulting in the potential for insolvency of the venture unless the partners or members provide additional funds. In some ventures, the partners or members may elect to make additional capital contributions. We may be faced with the choice of losing our investment in a venture or investing additional capital in it with no guaranty of receiving a return on that investment.
Existing circumstances may result in two of FelCor’s directors having interests that may conflict with our interests
     Adverse tax consequences to affiliates upon a sale of certain hotels. Thomas J. Corcoran, Jr., FelCor’s Chairman of the Board of Directors, and Robert A. Mathewson, a director of FelCor, may incur additional tax liability if we sell our investments in six hotels that we acquired in July 1994 from partnerships in which they were investors. Consequently, our interests could differ from Messrs. Corcoran’s and Mathewson’s interests in the event that we consider a sale of any of these hotels. Decisions regarding a sale of any of these six hotels must be approved by a majority of FelCor’s independent directors.
     Conflicts of interest. A director of FelCor who has a conflict of interest with respect to an issue presented to FelCor’s board will have no legal obligation to abstain from voting upon that issue. FelCor does not have provisions in its bylaws or charter that requires an interested director to abstain from voting upon an issue, and FelCor does not expect to add provisions in its charter and bylaws to this effect. Although each director of FelCor has a fiduciary duty of loyalty to us, there is a risk that, should an interested director vote upon an issue in which he or one of his affiliates has an interest, his vote may reflect a bias that could be contrary to our best interests. In addition, even if an interested director abstains from voting, the director’s participation in the

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meeting and discussion of an issue in which he has, or companies with which he is associated have, an interest could influence the votes of other directors regarding the issue.
Departure of key personnel would deprive us of the institutional knowledge, expertise and leadership they provide
     FelCor’s executive management includes the President and Chief Executive Officer, Richard A. Smith, and four Executive Vice Presidents. The persons in these positions generally possess institutional knowledge about our organization and the hospitality or real estate industries, have significant expertise in their fields, and possess leadership skills that are important to our operations. The loss of any of FelCor’s senior executive officers could adversely affect our ability to execute our business strategy.
FelCor’s charter contains limitations on ownership and transfer of shares of its stock that could adversely affect attempted transfers of FelCor’s capital stock
     To maintain FelCor’s status as a REIT, no more than 50% in value of its outstanding stock may be owned, actually or constructively, under the applicable tax rules, by five or fewer persons during the last half of any taxable year. FelCor’s charter prohibits, subject to some exceptions, any person from owning more than 9.9%, as determined in accordance with the Internal Revenue Code and the Exchange Act, of the number of outstanding shares of any class of its stock. FelCor’s charter also prohibits any transfer of its stock that would result in a violation of the 9.9% ownership limit, reduce the number of stockholders below 100 or otherwise result in FelCor’s failure to qualify as a REIT. Any attempted transfer of shares in violation of the charter prohibitions will be void, and the intended transferee will not acquire any right in those shares. FelCor has the right to take any lawful action that it believes is necessary or advisable to ensure compliance with these ownership and transfer restrictions and to preserve its status as a REIT, including refusing to recognize any transfer of stock in violation of its charter.
Some provisions in FelCor’s charter and bylaws and Maryland law make a takeover of FelCor more difficult
     Ownership Limit. The ownership and transfer restrictions of FelCor’s charter may have the effect of discouraging or preventing a third party from attempting to gain control of it without the approval of FelCor’s board of directors. Accordingly, it is less likely that a change in control, even if beneficial to Felcor’s stockholders, could be effected without the approval of FelCor’s board.
     Staggered Board. FelCor’s board of directors is divided into three classes. Directors in each class are elected for terms of three years. As a result, the ability of stockholders to effect a change in control of FelCor through the election of new directors is limited by the inability of stockholders to elect a majority of its board at any particular meeting.
     Authority to Issue Additional Shares. Under FelCor’s charter, its board of directors may issue up to an aggregate of 20 million shares of preferred stock without stockholder action. The preferred stock may be issued, in one or more series, with the preferences and other terms designated by its board that may delay or prevent a change in control of FelCor, even if the change is in the best interests of our partners. As of December 31, 2006, FelCor had outstanding 12,880,475 shares of its Series A preferred stock and 67,980 shares, represented by 6,798,000 depositary shares, of its Series C preferred stock. FelCor has contributed the proceeds of all of its preferred stock to us in exchange for preferred units. The preference on these units is the same as FelCor’s preferred stock.
     Maryland Takeover Statutes. As a Maryland corporation, FelCor is subject to various provisions under the Maryland General Corporation Law, including the Maryland Business Combination Act, that may have the effect of delaying or preventing a transaction or a change in control that might involve a premium price for the stock or otherwise be in the best interests of its stockholders. Under the Maryland business combination statute, some “business combinations,” including some issuances of equity securities, between a Maryland corporation and an “interested stockholder,” which is any person who beneficially owns 10% or more of the voting power of the corporation’s shares, or an affiliate of that stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Any of these business combinations must be approved by a stockholder vote meeting two separate super majority requirements, unless, among other

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conditions, the corporation’s common stockholders receive a minimum price, as defined in the statute, for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder of FelCor for its common shares. FelCor’s charter currently provides that the Maryland Control Share Acquisition Act will not apply to any of its existing or future stock. That statute may deny voting rights to shares involved in an acquisition of one-tenth or more of the voting stock of a Maryland corporation. To the extent these or other laws are applicable to FelCor or us, they may have the effect of delaying or preventing a change in control of FelCor even though beneficial to its stockholders.
Item 1B. Unresolved Staff Comments
     None.
Item 2. Properties
     We own a diversified portfolio of nationally branded, upscale hotels managed and branded by Hilton, IHG and Starwood. We consider our hotels, generally, to be high quality lodging properties with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in the markets in which they are located. Our hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups and conventions, as well as leisure travelers. The hotels generally feature comfortable, modern guest rooms, meeting and convention facilities and full-service restaurant and catering facilities. Our hotels included in continuing operations, are located in 23 states and Canada, and are situated primarily in major markets near airport, suburban or downtown areas. The following tables illustrate the distribution of our 83 consolidated hotels included in continuing operations at December 31, 2006.
                                 
                    % of   % of 2006
Top Markets   Hotels   Rooms   Total Rooms   Hotel EBITDA(a)
South Florida area
     5       1,434       6       7  
Atlanta
     5       1,462       6       7  
San Francisco Bay area
     6       2,141       9       6  
Los Angeles area
     4       898       4       5  
Orlando
     5       1,690       7       5  
Dallas
     4       1,333       6       5  
Phoenix
     3       798       3       4  
San Diego
     1       600       2       4  
Minneapolis
     3       739       3       4  
Northern New Jersey
     3       756       3       3  
Washington, D.C.
     1       443       2       3  
Philadelphia
     2       729       3       3  
Chicago
     3       795       3       3  
San Antonio
     3       874       4       4  
Boston
     2       532       2       3  
Location
                                
Suburban
     32       8,200       34       37  
Urban
     20       6,361       26       25  
Airport
     20       6,203       26       24  
Resort
     11       3,317       14       14  
Segment
                                
Upper-upscale
     65       17,377       72       81  
Upscale
     1       403       2       1  
Full service
     17       6,301       26       18  
 
(a)   A detailed description and computation of Hotel EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report on Form 10-K.

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     We are committed to maintaining the high standards of our hotels. Our hotels have an average of approximately 290 rooms, with five hotels having 500 or more rooms. Although obsolescence arising from age and condition of facilities can adversely affect our hotels, we have committed to spend approximately $430 million on capital expenditures for our core hotels from 2006 through 2008 to upgrade, completely renovate and/or redevelop all of our hotels to enhance or maintain their competitive position. In 2006, we spent $179 million on hotel capital expenditures and spent 6.5% of our consolidated room revenue from continuing operations on maintenance and repair expense.
Hotel Brands
     A key part of our business strategy is to have our hotels managed by some of the nation’s most recognized and respected hotel brand owners. We maintain relationships with our brand owners, who also manage substantially all of our hotels. The following table illustrates the distribution of our hotels among our premier brands at December 31, 2006.
Brand Distribution
                                 
                % of   % of 2006
Brand   Hotels   Rooms   Total Rooms   Hotel EBITDA(a)
Embassy Suites Hotels
     47       12,130       51       57  
Holiday Inn-branded
     17       6,301       26       18  
Starwood-branded
     9       3,217       13       15  
Doubletree-branded
     7       1,471       6       7  
Hilton-branded
     2       559       2       2  
Other
     1       403       2       1  

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Hotel Operating Statistics
     The following tables set forth average historical occupied rooms, or Occupancy, ADR and RevPAR for the years ended December 31, 2006 and 2005, and the percentage changes therein between the periods presented for our consolidated hotels included in continuing operations:
Operating Statistics by Brand
                         
    Occupancy (%)(a)
    Year Ended December 31,
    2006   2005   %Variance
Embassy Suites Hotels
     75.1       74.3       1.1  
Holiday Inn-branded hotels
     69.3       72.1       (3.9 )
Sheraton-branded hotels
     72.0       74.1       (2.8 )
Doubletree-branded hotels
     74.2       72.3       2.7  
Other hotels(b)
     66.9       67.3       (0.6 )
 
                        
Total hotels
     72.6       73.1       (0.7 )
                         
    ADR ($)
    Year Ended December 31,
    2006   2005   %Variance
Embassy Suites Hotels
     134.01       124.36       7.8  
Holiday Inn-branded hotels
     109.59       101.77       7.7  
Sheraton-branded hotels
     123.85       111.20       11.4  
Doubletree-branded hotels
     130.27       117.35       11.0  
Other hotels(b)
     123.23       114.34       7.8  
 
                        
Total hotels
     125.93       116.04       8.5  
                         
    RevPAR ($)  
    Year Ended December 31,  
    2006     2005     %Variance  
Embassy Suites Hotels
     100.60       92.36       8.9  
Holiday Inn-branded hotels
     75.93       73.41       3.4  
Sheraton-branded hotels
     89.15       82.35       8.3  
Doubletree-branded hotels
     96.68       84.81       14.0  
Other hotels(b)
     82.50       77.01       7.1  
 
                        
Total hotels
     91.49       84.86       7.8  
 
(a)   Hotels have been excluded in both the current and prior year for those months directly impacted by hurricanes
 
(b)   Other hotels include two Hilton-branded hotels, one Westin and one Crowne Plaza.

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Operating Statistics for Our Top Markets
                         
    Occupancy (%)
    Year Ended December 31,
    2006   2005   %Variance
South Florida area
     79.8       78.2       2.1  
Atlanta
     75.2       78.1       (3.8 )
San Francisco Bay area
     76.0       74.8       1.7  
Los Angeles area
     75.2       76.2       (1.3 )
Orlando
     76.6       77.6       (1.3 )
Dallas
     69.9       66.2       5.6  
Phoenix
     72.9       72.4       0.6  
San Diego
     81.5       81.6       (0.2 )
Minneapolis
     70.2       71.7       (2.1 )
Northern New Jersey
     69.3       70.3       (1.3 )
Washington, D.C.
     66.4       74.3       (10.6 )
Philadelphia
     73.4       74.5       (1.5 )
Chicago
     74.9       74.9       0.0  
San Antonio
     76.1       76.4       (0.3 )
Boston
     73.0       71.0       2.7  
                         
    ADR ($)
    Year Ended December 31,
    2006   2005   %Variance
South Florida area
     139.51       126.38       10.4  
Atlanta
     118.35       106.28       11.4  
San Francisco Bay area
     130.97       119.14       9.9  
Los Angeles area
     142.74       128.02       11.5  
Orlando
     100.24       93.41       7.3  
Dallas
     112.87       105.34       7.2  
Phoenix
     133.17       121.78       9.3  
San Diego
     140.40       128.47       9.3  
Minneapolis
     137.72       129.39       6.4  
Northern New Jersey
     148.76       138.67       7.3  
Washington, D.C.
     161.75       145.47       11.2  
Philadelphia
     130.00       118.35       9.8  
Chicago
     123.78       107.56       15.1  
San Antonio
     103.94       92.27       12.6  
Boston
     151.65       137.68       10.1  
                         
    RevPAR ($)
    Year Ended December 31,
    2006   2005   %Variance
South Florida area
     111.31       98.78       12.7  
Atlanta
     88.95       83.04       7.1  
San Francisco Bay area
     99.53       89.06       11.8  
Los Angeles area
     107.36       97.56       10.1  
Orlando
     76.78       72.51       5.9  
Dallas
     78.94       69.77       13.1  
Phoenix
     97.05       88.21       10.0  
San Diego
     114.36       104.86       9.1  
Minneapolis
     96.69       92.82       4.2  
Northern New Jersey
     103.16       97.47       5.8  
Washington, D.C.
     107.42       108.09       (0.6 )
Philadelphia
     95.36       88.18       8.1  
Chicago
     92.75       80.60       15.1  
San Antonio
     79.14       70.49       12.3  
Boston
     110.67       97.80       13.2  

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Embassy Suites Hotels
     Embassy Suites Hotels is the nation’s largest brand of upscale, all-suite hotels with more total suites than any of its competitors. Created in 1983, Embassy Suites Hotels was a pioneer in the all-suite concept and today is a market share leader with more than 180 locations in the United States, Canada and Latin America. Embassy Suites Hotels, part of the Hilton family of hotels, maintains a commanding presence in this segment in terms of system size, geographic distribution, brand-name recognition and operating performance. Each Embassy Suites Hotel features spacious two-room suites featuring a separate living area, private bedroom, a mini-kitchen and other convenient, value-added guest services and amenities.
Doubletree and Doubletree Guest Suites Hotels
     Doubletree hotels and Doubletree Guest Suites are a growing collection of upscale accommodations in more than 150 gateway cities, metropolitan areas and vacation destinations throughout the United States, Canada and Latin America. As part of the Hilton family, in addition to the advantages of the award winning Hilton HHonors guest program, these brands offer comfortable accommodations, meeting facilities, exceptional dining options, health and fitness facilities, state-of-the art technology, and other amenities and services to both business and leisure travelers.
Holiday Inn Hotels
     The Holiday Inn brand is one of the most widely recognized lodging brands in the world, with nearly 1,500 properties worldwide. The brand offers today’s business and leisure travelers dependability, friendly service and modern, attractive facilities at an excellent value. Holiday Inn hotels guests enjoy amenities such as restaurants and room service, relaxing lounges, swimming pools and fitness centers, as well as 24-hour business services and meeting facilities.
Sheraton and Sheraton Suites Hotels
     With more than 400 hotels and resorts in over 70 countries, Sheraton Hotels & Resorts is the largest brand in the Starwood Hotels & Resorts Worldwide, Inc. system. Located in the world’s most sought-after cities and resort destinations, Sheraton hotels serve the needs of both business and leisure travelers. At all Sheraton hotels guests find full-service dining facilities and room service, on-site fitness centers with a swimming pool, on-site business services, laundry/valet services and meeting facilities for groups of all sizes. Guestrooms include generous work desks and televisions with cable/satellite channels.
Other Hotels
     As of December 31, 2006, four of our hotels were operated under other brands, Crowne Plaza, Hilton, Hilton Suites and Westin.

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Hotel Portfolio
     The following table sets forth certain descriptive information regarding the 99 hotels in which we owned an interest at December 31, 2006:
                         
    State   Rooms   % Owned (a)   Brand
Consolidated Operations                        
Core Hotels                        
Birmingham(b)
  AL     242             Embassy Suites Hotel
Phoenix — Biltmore(b)
  AZ     232             Embassy Suites Hotel
Phoenix Crescent Hotel(b)
  AZ     342             Sheraton
Phoenix Tempe(b)
  AZ     224             Embassy Suites Hotel
Dana Point — Doheny Beach
  CA     195             Doubletree Guest Suites
Los Angeles — Anaheim (Located near Disneyland Park)(b)
  CA     222             Embassy Suites Hotel
Los Angeles — El Segundo — International Airport —South
  CA     349       97 %   Embassy Suites Hotel
Milpitas — Silicon Valley(b)
  CA     266             Embassy Suites Hotel
Napa Valley(b)
  CA     205             Embassy Suites Hotel
Oxnard — Mandalay Beach Resort & Conference Center
  CA     248             Embassy Suites Hotel
San Diego — On the Bay
  CA     600             Holiday Inn
San Francisco — Burlingame Airport
  CA     340             Embassy Suites Hotel
San Francisco — South San Francisco Airport(b)
  CA     312             Embassy Suites Hotel
San Francisco — Fisherman’s Wharf
  CA     585             Holiday Inn
San Francisco — Union Square
  CA     403             Crowne Plaza
San Rafael — Marin County/Conference Center(b)
  CA     235       50 %   Embassy Suites Hotel
Santa Barbara — Goleta
  CA     160             Holiday Inn
Santa Monica — Beach at the Pier
  CA     132             Holiday Inn
Wilmington(b)
  DE     244       90 %   Doubletree
Boca Raton(b)
  FL     263             Embassy Suites Hotel
Cocoa Beach — Oceanfront
  FL     500             Holiday Inn
Deerfield Beach — Boca Raton/Deerfield Beach Resort(b)
  FL     244             Embassy Suites Hotel
Ft. Lauderdale — 17th Street(b)
  FL     358             Embassy Suites Hotel
Ft. Lauderdale — Cypress Creek(b)
  FL     253             Sheraton Suites
Jacksonville — Baymeadows(b)
  FL     277             Embassy Suites Hotel
Miami — International Airport(b)
  FL     316             Embassy Suites Hotel
Orlando — International Airport(b)
  FL     288             Holiday Inn Select
Orlando — International Drive — Resort
  FL     652             Holiday Inn
Orlando — International Drive South/Convention Center(b)
  FL     244             Embassy Suites Hotel
Orlando— (North)
  FL     277             Embassy Suites Hotel
Orlando — Walt Disney World Resort
  FL     229             Doubletree Guest Suites
Tampa— On Tampa Bay(b)
  FL     203             Doubletree Guest Suites
Atlanta — Airport(b)
  GA     232             Embassy Suites Hotel
Atlanta — Buckhead(b)
  GA     316             Embassy Suites Hotel
Atlanta — Galleria(b)
  GA     278             Sheraton Suites
Atlanta — Gateway — Atlanta Airport
  GA     395             Sheraton
Atlanta — Perimeter Center(b)
  GA     241       50 %   Embassy Suites Hotel
Chicago — Lombard/Oak Brook(b)
  IL     262       50 %   Embassy Suites Hotel
Chicago — Northshore/Deerfield (Northbrook) (b)
  IL     237             Embassy Suites Hotel
Chicago O’Hare Airport(b)
  IL     296             Sheraton Suites
Indianapolis — North(b)
  IN     221       75 %   Embassy Suites Hotel
Kansas City — Overland Park(b)
  KS     199       50 %   Embassy Suites Hotel
Lexington — Lexington Green(b)
  KY     174             Hilton Suites
Baton Rouge(b)
  LA     223             Embassy Suites Hotel
New Orleans(b)
  LA     370             Embassy Suites Hotel
New Orleans — French Quarter
  LA     374             Holiday Inn

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    State   Rooms   % Owned (a)   Brand
Boston — Government Center
  MA     303             Holiday Inn Select
Boston — Marlborough(b)
  MA     229             Embassy Suites Hotel
Baltimore — BWI Airport(b)
  MD     251       90 %   Embassy Suites Hotel
Bloomington(b)
  MN     219             Embassy Suites Hotel
Minneapolis — Airport(b)
  MN     310             Embassy Suites Hotel
St. Paul — Downtown(b)
  MN     210             Embassy Suites Hotel
Kansas City — Plaza(b)
  MO     266       50 %   Embassy Suites Hotel
Charlotte(b)
  NC     274       50 %   Embassy Suites Hotel
Charlotte SouthPark
  NC     208             Doubletree Guest Suites
Raleigh(b)
  NC     203             Doubletree Guest Suites
Raleigh — Crabtree(b)
  NC     225       50 %   Embassy Suites Hotel
Parsippany(b)
  NJ     274       50 %   Embassy Suites Hotel
Piscataway — Somerset(b)
  NJ     221             Embassy Suites Hotel
Secaucus — Meadowlands(b)
  NJ     261       50 %   Embassy Suites Hotel
Philadelphia — Historic District
  PA     364             Holiday Inn
Philadelphia — Society Hill(b)
  PA     365             Sheraton
Pittsburgh — At University Center (Oakland)(b)
  PA     251             Holiday Inn Select
Charleston — Mills House (Historic Downtown)(b)
  SC     214             Holiday Inn
Myrtle Beach — At Kingston Plantation
  SC     255             Embassy Suites Hotel
Myrtle Beach Resort
  SC     385             Hilton
Nashville — Airport/Opryland Area
  TN     296             Embassy Suites Hotel
Nashville — Opryland/Airport (Briley Parkway)
  TN     382             Holiday Inn Select
Austin(b)
  TX     189       90 %   Doubletree Guest Suites
Austin — North(b)
  TX     260       50 %   Embassy Suites Hotel
Corpus Christi(b)
  TX     150             Embassy Suites Hotel
Dallas — DFW International Airport-South(b)
  TX     305             Embassy Suites Hotel
Dallas — Love Field(b)
  TX     248             Embassy Suites Hotel
Dallas — Market Center
  TX     244             Embassy Suites Hotel
Dallas — Park Central
  TX     536       60 %   Westin
Houston — Medical Center
  TX     284             Holiday Inn & Suites
San Antonio — International Airport(b)
  TX     261       50 %   Embassy Suites Hotel
San Antonio — International Airport(b)
  TX     397             Holiday Inn Select
San Antonio — N.W. I-10(b)
  TX     216       50 %   Embassy Suites Hotel
Burlington Hotel & Conference Center(b)
  VT     309             Sheraton
Vienna — At Tysons Corner(b)
  VA     443       50 %   Sheraton
 
                        
Canada
                        
Toronto — Airport
  Ontario     445             Holiday Inn Select
Toronto — Yorkdale
  Ontario     370             Holiday Inn
 
                        
Non-Strategic Hotels designated as Held for Sale
                        
Los Angeles — Covina/I-10(c)
  CA     202       50 %   Embassy Suites Hotel
Palm Desert — Palm Desert Resort(c)
  CA     198             Embassy Suites Hotel
Stamford
  CT     380             Holiday Inn Select
Brunswick
  GA     130             Embassy Suites Hotel
Lexington
  KY     155             Sheraton Suites
Troy — North (Auburn Hills) (b)
  MI     251       90 %   Embassy Suites Hotel
Tulsa — I-44
  OK     244             Embassy Suites Hotel
Dallas — Park Central
  TX     438       60 %   Sheraton
Dallas — Park Central Area
  TX     279             Embassy Suites Hotel
Dallas — West End/Convention Center
  TX     309             Hampton Inn
Houston — Intercontinental Airport
  TX     415             Holiday Inn

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    State   Rooms   % Owned(a)   Brand
Unconsolidated Operations
                        
Hays(b)
  KS     114       50 %   Hampton Inn
Hays(b)
  KS     191       50 %   Holiday Inn
Salina(b)
  KS     192       50 %   Holiday Inn
Salina — I-70(b)
  KS     93       50 %   Holiday Inn Express & Suites
New Orleans — Chateau LeMoyne (In French Quarter/Historic Area)(b)
  LA     171       50 %   Holiday Inn
 
(a)   We own 100% of the real estate interests unless otherwise noted.
 
(b)   This hotel was encumbered by mortgage debt or capital lease obligation at December 31, 2006.
 
(c)   This hotel was sold subsequent to December 31, 2006.
Management Agreements
     The management agreements governing the operation of 35 of our hotels that are (i) managed by IHG or Starwood under brands owned by them, or (ii) managed by Hilton under the Doubletree or Hilton brands, contain the right and license to operate the hotels under the specified brands. No separate franchise agreements or payment of separate franchise fees are required for the operation of these hotels.
     Management Fees and Performance Standards.
     The minimum basic management fees owed under our management agreements are generally as follows:
  •   Embassy Suites Hotels (47 hotels) — 2% of the hotel’s total revenue per month;
 
  •   Holiday Inn — Crowne Plaza (18 hotels) — 2% of the hotel’s total revenue plus 5% of the hotel’s room revenue per month;
 
  •   Sheraton — Westin (9 hotels) — 2% of the hotel’s total revenue per month; and
 
  •   Doubletree (7 hotels) — between 2% and 3% of the hotel’s total revenue per month.
     The IHG management agreements generally require payment of an incentive management fee on a hotel by hotel basis measured as a percentage of hotel net operating income, as defined in the agreements. These incentive management fees for each hotel are subordinate to an 8.5% return on our investment basis in the hotel and limited to 2.5% of the hotel’s revenues.
      The management agreements with the other managers generally provide for an incentive management fee based on a percentage of the hotel’s net income before overhead up to an additional 2% of revenues, on a hotel by hotel basis, or, an incentive management fee measured as a percentage of cash flow, subordinate to a 12% return on our investment basis in the hotel, subject to the same 2% of revenues maximum. The management fees we paid with respect to hotels in continuing operations during each of the past three years are as follows (in thousands):
                         
    Management Fees Paid During  
    Year Ended December 31,  
    2006     2005     2004  
Brand
                        
Holiday Inn
   $ 14,682     $ 12,600     $ 11,236  
Embassy Suites
     9,868       9,524       9,002  
Sheraton — Westin
     6,956       4,587       4,358  
Doubletree
     1,453       1,548       1,409  
Other
     791       881       1,441  
 
                  
Total
   $ 33,750     $ 29,140     $ 27,446  
 
                  

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     Term and Termination. The management agreements with IHG terminate in 2025 for 17 hotels and in 2007 for one hotel. The management agreements with the other managers generally have initial terms of between 5 and 20 years, and the agreements are generally renewable beyond the initial term for a period or periods of between 5 and 10 years only upon the mutual written agreement of the parties. The management agreements covering our hotels expire, subject to any renewal rights, as follows:
                                                 
    Number of Management Agreements Expiring in
Brand   2007   2008   2009   2010   2011   Thereafter
Embassy Suites
     5       0       6       7       18       11  
Sheraton – Westin
     0       0       0       0       0       9  
Doubletree
     0       0       0       0       3       4  
Holiday Inn
     0       0       0       0       0       17  
Other
     1       0       0       0       0       2  
 
                                                
Total
     6       0       6       7       21       43  
 
                                                
     The management agreements are generally terminable upon the occurrence of standard events of default or if the hotel subject to the agreement fails to meet certain financial expectations. Upon termination by either party for any reason, we generally will pay all amounts due and owing under the management agreement through the effective date of termination. If an agreement is terminated as a result of a default by us, we may also be liable for damages suffered by the manager. Under the IHG management agreements, if we sell certain core hotels, we may be required to pay IHG a monthly replacement management fee equal to the existing fee structure for up to one year and liquidated damages or reinvest the sale proceeds into another hotel to be branded under an IHG brand. In addition, if we breach the agreement, resulting in a default and its termination, or otherwise cause or suffer a termination for any reason other than an event of default by IHG, we may be liable for liquidated damages under the terms of the management agreement.
     Assignment. Generally, neither party to the management agreements has the right to sell, assign or transfer the agreements to an unaffiliated third party without the prior written consent of the other party to the agreement, which consent shall not be unreasonably withheld. A change in control of either party will generally require the other’s consent, which may not be unreasonably withheld.
Franchise Agreements
     Other than our 35 hotels, whose license to use a brand name are contained in the management agreement governing their operations, each of our remaining hotels operates under a separate franchise or license agreement. Of our 48 hotels that are operated under a separate franchise or license agreement, 47 are operated under the Embassy Suites Hotels brand.
     The Embassy Suites Hotels franchise license agreements to which we are a party grant us the right to the use of the Embassy Suites Hotels name, system and marks with respect to specified hotels and establish various management, operational, record-keeping, accounting, reporting and marketing standards and procedures with which the licensed hotel must comply. In addition, the franchisor establishes requirements for the quality and condition of the hotel and its furnishings, furniture and equipment, and we are obligated to expend such funds as may be required to maintain the hotel in compliance with those requirements. Typically, our Embassy Suites Hotels franchise license agreements provide for payment to the franchisor of a license fee or royalty of 4% of suite revenues. In addition, we pay approximately 3.5% of suite revenues as marketing and reservation system contributions for the systemwide benefit of Embassy Suites Hotels. The license fees we paid with respect to hotels in continuing operations, during each of the past three years are as follows (in thousands):
                         
    License Fees Paid During  
    Year Ended December 31,  
Brand   2006     2005     2004  
Embassy Suites Hotels
   $ 17,183     $ 15,834     $ 14,906  
Other
     304       241       312  
 
                  
Total
   $ 17,487     $ 16,075     $ 15,218  
 
                  

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     Our typical Embassy Suites Hotels franchise license agreement provides for a term of 10 to 20 years, but for the 20 year agreements, we have a right to terminate the license for any particular hotel on the 10th or 15th anniversary of the agreement upon payment by us of an amount equal to the fees paid to the franchisor with respect to that hotel during the two preceding years. The agreements provide us with no renewal or extension rights. The agreements are not assignable by us, and a change in control of the franchisee will constitute a default on our part. In the event we breach one of these agreements, in addition to losing the right to use the Embassy Suites Hotels name for the operation of the applicable hotel, we may be liable, under certain circumstances, for liquidated damages equal to the fees paid to the franchisor with respect to that hotel during the three preceding years. Franchise license agreements covering four of our Embassy Suites Hotels expire within the next five years. Franchise license agreements covering our hotels expire as follows:
                                                 
    Number of Franchise Agreements Expiring in
Brand   2007   2008   2009   2010   2011   Thereafter
Embassy Suites Hotels
     0       0       3       1       0       43  
Hilton Suites
     0       0       0       0       0       1  
 
                                                
Total
     0       0       3       1       0       44  
 
                                                
Item 3. Legal Proceedings
     At December 31, 2006, there was no litigation pending or known to be threatened against us or affecting any of our hotels, other than claims arising in the ordinary course of business or that are not considered to be material. Furthermore, most of these ordinary course of business claims are substantially covered by insurance. We do not believe that any claims known to us, individually or in the aggregate, will have a material adverse effect on us.
Item 4. Submission of Matters to a Vote of Security Holders
     Not applicable.

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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities
Market Information
     There is not an established public trading market for FelCor LP common units. The units, however, are redeemable at the option of the holder for a like number of shares of common stock of FelCor or, at the option of FelCor, for the cash equivalent thereof. The following information is provided regarding the common stock of FelCor.
     FelCor’s common stock is traded on the New York Stock Exchange under the symbol “FCH.” The following table sets forth for the indicated periods the high and low sale prices for its common stock, as traded on that exchange and dividends declared per share.
                         
                    Dividends
                    Declared
2006   High   Low   Per Share
First quarter
   $ 22.10     $ 16.78     $ 0.15  
Second quarter
     22.89       19.70       0.20  
Third quarter
     22.95       18.73       0.20  
Fourth quarter
     22.80       19.12       0.25  
                         
2005                        
First quarter
   $ 14.99     $ 12.20     $ —  
Second quarter
     14.75       11.78       —  
Third quarter
     16.40       14.20       —  
Fourth quarter
     17.59       13.27       0.15  
Stockholder Information
     At February 15, 2007, FelCor had approximately 260 holders of record of its common stock and approximately 41 holders of record of its Series A preferred stock (which is convertible into common stock). However, because many of the shares of its common stock and Series A preferred stock are held by brokers and other institutions on behalf of stockholders, FelCor believes there are substantially more beneficial holders of its common stock and Series A preferred stock than record holders. At February 15, 2007, we had approximately 30 holders of record of our common units.
     IN ORDER TO COMPLY WITH CERTAIN REQUIREMENTS RELATED TO FELCOR’S QUALIFICATION AS A REIT, FELCOR’S CHARTER LIMITS, SUBJECT TO CERTAIN EXCEPTIONS, THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE OWNED BY ANY SINGLE PERSON OR AFFILIATED GROUP TO 9.9% OF ITS COMMON STOCK.
Distribution Information
     Our current 2007 operating plan contemplates the continued payment of common and preferred unit distributions. This operating plan, and our policy regarding distributions, may change, depending upon our actual results of operations, our continued ability to meet the incurrence test under our outstanding senior notes and other factors. We currently expect FelCor’s board of directors to consider the amount to be distributed on a quarterly basis in common and preferred distributions, based upon the actual operating results of that quarter, economic conditions and other operating trends. Accordingly, future distributions paid by us will be at the discretion of FelCor’s board of directors and will depend on our actual cash flow, financial condition, capital requirements, the annual distribution requirements for FelCor under the REIT provisions of the Internal Revenue Code and such other factors as FelCor’s board of directors deems relevant.

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     In order to maintain FelCor’s qualification as a REIT, it must make annual distributions to its stockholders of at least 90% of its taxable income (which does not include net capital gains). For the year ended December 31, 2006, approximately 77% of FelCor’s common distribution constituted a return of capital. For the year ended December 31 2005, approximately 81% of FelCor’s common distribution constituted a return of capital. Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet FelCor’s REIT distribution requirements. In that event, we expect to borrow funds or sell assets for cash to the extent necessary to obtain cash sufficient to make the distributions required to retain FelCor’s qualification as a REIT for federal income tax purposes.
Issuances of Unregistered Securities
     All issuances of unregistered securities have been previously reported.
Equity Compensation Plan Information
     The following table sets forth as of December 31, 2006, information concerning FelCor’s equity compensation plans, including the number of shares issuable and available for issuances under its plans, options, warrants and rights; weighted average exercise price of outstanding options, warrants and rights; and the number of securities remaining available for future issuance.
FelCor’s Equity Compensation Plan Information
                         
    Number of shares to be     Weighted average        
    issued upon exercise of     exercise price of     Number of shares  
    outstanding options,     outstanding options,     remaining available  
Plan category   warrants and rights     warrants and rights     for future issuance  
Equity compensation plans approved by security holders:
                        
Stock Options
     598,366     $ 22.62          
Unvested Restricted Stock
     771,263                  
 
                      
Total
     1,369,629               797,114  

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Item 6. Selected Financial Data
     The following tables set forth selected financial data for us for the years ended December 31, 2006, 2005, 2004, 2003, and 2002 that has been derived from our audited financial statements and the notes thereto. This data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and notes thereto, appearing elsewhere in this Annual Report on Form 10-K.
SELECTED FINANCIAL DATA
(in thousands, except per unit data)
                                         
    Year Ended December 31,
    2006   2005   2004   2003   2002
Statement of Operations Data:(1)
                                        
Total revenues
   $ 991,038     $ 914,655     $ 842,612     $ 786,883     $ 815,366  
Income (loss) from continuing operations(2)
     7,941       (19,817 )     (84,044 )     (79,152 )     (62,150 )
 
                                        
Diluted earnings per unit:
                                        
Net loss from continuing operations applicable to common unitholders
   $ (0.49 )   $ (1.06 )   $ (1.92 )   $ (1.71 )   $ (1.43 )
 
                                        
Other Data:
                                        
Cash distributions declared per common unit(3)
   $ 0.80     $ 0.15     $ —     $ —     $ 0.60  
Funds From Operations (4)
     93,451       (191,139 )     (30,608 )     (207,462 )     (60,018 )
EBITDA(4)
     300,460       12,475       184,950       (532 )     150,024  
Cash flows provided by operating activities
     147,700       111,482       33,281       52,914       106,037  
 
                                        
Balance Sheet Data (at end of period):
                                        
Total assets
   $ 2,583,249     $ 2,920,263     $ 3,318,191     $ 3,590,893     $ 3,780,363  
Total debt, net of discount
     1,369,153       1,675,280       1,767,122       2,037,355       1,877,134  
 
(1)   All years prior to 2006 have been adjusted to reflect those hotels disposed in 2006 or prior periods as discontinued operations.
 
(2)   Included in income (loss) from continuing operations are the following amounts (in thousands):
                                         
    Year Ended December 31,
    2006   2005   2004   2003   2002
Charge-off of deferred debt costs
   $ (3,562 )   $ (1,448 )   $ (6,960 )   $ (2,834 )   $ (3,222 )
Loss on early extinguishment of debt
     (12,471 )     (4,037 )     (44,216 )     —       —  
Abandoned projects
     (33 )     (265 )     —       —       (1,663 )
Gain on swap termination
     1,715       —       1,005       —       —  
Gain (loss) on sale of assets
     (92 )     469       —       106       773  
 
(3)   Commencing with the fourth quarter 2005, we reinstituted a common distribution. We had declared a quarterly common distribution on our common units from our inception through 2002, but as a result of the uncertain geopolitical environment and soft business climate, together with the decline in Hotel EBITDA margins resulting from continued declines in our portfolio’s average daily rate, FelCor’s board of directors suspended the payment of distributions on our common units in 2003 and 2004. We have, however, continued to pay the full accrued distributions on our outstanding preferred units.
 
(4)   A more detailed description and computation of FFO and EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

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     Consistent with SEC guidance, FFO has not been adjusted for the following amounts included in net income (loss) (in thousands):
                                         
    Year Ended December 31,
    2006   2005   2004   2003   2002
Impairment loss
   $ (16,474 )   $ (266,751 )   $ (38,289 )   $ (245,509 )   $ (157,505 )
Minority interest share of impairment loss
     927       8,976       —       1,770       —  
Charge-off of deferred debt costs
     (3,624 )     (2,659 )     (6,960 )     (2,834 )     (3,222 )
Gain (loss) on early extinguishment of debt
     (13,848 )     (8,641 )     (44,216 )     1,611       —  
Gain (loss) on swap termination
     1,715       —       1,005       —       —  
Asset disposition costs
     —       (1,300 )     (4,900 )     —       —  
Abandoned projects
     (112 )     (265 )     —       —       (1,663 )
Issuance costs of redeemed preferred units
     —       (6,522 )     —       —       —  
     Consistent with SEC guidance, EBITDA has not been adjusted for the following amounts included in net income (loss) (in thousands):
                                         
    Year Ended December 31,
    2006   2005   2004   2003   2002
Impairment loss, discontinued operations
   $ (16,474 )   $ (266,751 )   $ (38,289 )   $ (245,509 )   $ (157,505 )
Minority interest share of impairment loss
     927       8,976       —       1,770       —  
Charge-off of deferred debt costs
     (3,624 )     (2,659 )     (6,960 )     (2,834 )     (3,222 )
Gain (loss) on early extinguishment of debt
     (13,848 )     (8,641 )     (44,216 )     1,611       —  
Gain on swap termination
     1,715       —       1,005       —       —  
Asset disposition costs
     —       (1,300 )     (4,900 )     —       —  
Abandoned projects
     (112 )     (265 )     —       —       (1,663 )
Gain on sale of hotels, net of tax
     40,650       12,124       19,422       2,668       5,861  

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
     We completed 2006 with a 7.8% increase in our hotel revenue per available room, or RevPAR, compared to 2005. This was the third year of RevPAR increases following a three-year decline in RevPAR. The fundamentals of the lodging industry appear to be strong, as evidenced by the national trend of increased RevPAR and increases in average daily room rates, or ADR, which is responsible for the increase in RevPAR in the current year. The increase in ADR was also a major factor in a 182 basis point increase in our Hotel Earnings Before Interest, Taxes, Depreciation and Amortization margin, or Hotel EBITDA margin, for our hotels in continuing operations. Hotel EBITDA margin is a commonly used non-GAAP measure described in more detail and reconciled to GAAP measures in the “Non-GAAP Financial Measures” section of this Management’s Discussion and Analysis of Financial Condition.
     We completed amendments to our management agreements with InterContinental Hotels Group PLC, or IHG, in January 2006. This enabled us to start the process of selling 42 non-strategic hotels, of which 30 were operated under management agreements with IHG. These non-strategic hotels were generally located in slower growth markets with low barriers to entry and required capital investments not meeting our return criteria. During 2006, we sold 31 of these non-strategic hotels, leaving 11 non-strategic hotels, which we expect to sell in early 2007. The 31 hotels sold in 2006 provided gross proceeds of $514 million, which were used to pay down debt of approximately $356 million and invested in capital improvements at many of our core hotels.
     In 2006, we embarked on a three-year capital improvement program, affecting our entire core portfolio, designed to enhance our competitive position. During 2006, we spent $179 million on capital expenditures, of this, approximately $48 million related to capital items committed in 2005 and $131 million related to our three-year capital improvement program. We expect to spend approximately $225 million in 2007 and, at the completion of this renovation program in 2008, we will have made major capital investments aggregating approximately $430 million.
     As a result of the strong economy and the related impact on the travel and lodging industries, and our lower secured debt levels, Standard & Poor’s raised its ratings on our senior unsecured debt twice in 2006 from B- to B and from B to B+, and in 2006 Moody’s Investor Services raised our debt ratings from B1 to Ba3. As a result of the Moody’s upgrade in April 2006, the interest rate applicable to $300 million of our senior unsecured debt maturing in 2011 decreased from 9.0% to 8.5%, reducing our annualized interest expense by $1.5 million.
     During 2006, we paid down debt of approximately $356 million, refinanced another $465 million of debt and reduced interest rates by 0.5% on $300 million of senior debt. The combined effect of these actions will result in reducing our annual interest expense by $38 million and lowering our weighted average cost of debt by 55 basis points.
     In December 2005, we resumed paying a common distribution with a $0.15 per unit distribution, which was also paid in the first quarter of 2006. For the second and third quarters of 2006, FelCor’s Board of Directors increased the distribution to $0.20 per unit, and in the fourth quarter it was increased once again to $0.25 per unit.

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Financial Comparison (in thousands, except RevPAR, Hotel EBITDA margin and percentage change)
                                         
    Year Ended December 31,
                    % Change           % Change
    2006   2005   2006-2005   2004   2005-2004
RevPAR
   $ 91.49     $ 84.86       7.8 %   $ 76.44       11.0 %
Hotel EBITDA(1)
     292,419       252,810       15.7 %     223,187       13.3 %
Hotel EBITDA margin(1)
     29.5 %     27.7 %     6.5 %     26.6 %     4.1 %
Loss from continuing operations applicable to common unitholders(2)
     (30,772 )     (65,747 )     53.2 %     (119,174 )     44.8 %
Funds From Operations (“FFO”)(1) (3)
     93,451       (191,139 )     148.9 %     (30,608 )     (524.5 )%
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)(1) (4)
     300,460       12,475       2,308.5 %     184,950       (93.3 )%
 
(1)   Included in the Financial Comparison are non-GAAP financial measures, including Hotel EBITDA, Hotel EBITDA margin, FFO and EBITDA. Further discussion and a detailed reconciliation of these non-GAAP financial measures to our financial statements are found elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
(2)   Included in loss from continuing operations applicable to common unitholders are the following amounts (in thousands):
                         
    Year Ended December 31,
    2006   2005   2004
Loss on early extinguishment of debt
   $ (12,471 )   $ (4,037 )   $ (44,216 )
Charge-off of deferred debt costs
     (3,562 )     (1,448 )     (6,960 )
Abandoned projects
     (33 )     (265 )     —  
Gain on swap termination
     1,715       —       1,005  
Gain (loss) on sale of assets
     (92 )     469       —  
 
(3)   Consistent with SEC guidance on non-GAAP financial measures, FFO has not been adjusted for the following amounts included in net income (loss) (in thousands, except per unit amounts).
                                                 
    2006   2005   2004
            Per Unit           Per Unit           Per Unit
    Dollars   Amount   Dollars   Amount   Dollars   Amount
Impairment loss, discontinued operations
   $ (16,474 )   $ (0.26 )   $ (266,751 )   $ (4.29 )   $ (38,289 )   $ (0.62 )
Minority interest share of impairment loss
     927       0.01       8,976       0.14       —       —  
Charge-off of deferred debt costs
     (3,624 )     (0.06 )     (2,659 )     (0.04 )     (6,960 )     (0.10 )
Loss on early extinguishment of debt
     (13,848 )     (0.22 )     (8,641 )     (0.14 )     (44,216 )     (0.71 )
Asset disposition costs
     —       —       (1,300 )     (0.02 )     (4,900 )     (0.08 )
Abandoned projects
     (112 )     —       (265 )     —       —       —  
Gain on swap termination
     1,715       0.03       —       —       1,005       0.02  
Issuance costs of redeemed preferred units
     —       —       (6,522 )     (0.10 )     —       —  

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(4)   Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been adjusted for the following amounts included in net income (loss) (in thousands).
                         
    Year Ended December 31,
    2006   2005   2004
Impairment loss, discontinued operations
   $ (16,474 )   $ (266,751 )   $ (38,289 )
Minority interest share of impairment loss
     927       8,976       —  
Charge-off of deferred debt costs
     (3,624 )     (2,659 )     (6,960 )
Gain on early extinguishment of debt
     (13,848 )     (8,641 )     (44,216 )
Gain on swap termination
     1,715       —       1,005  
Asset disposition costs
     —       (1,300 )     (4,900 )
Abandoned projects
     (112 )     (265 )     —  
Gain on sale of hotels, net of tax
     40,650       12,124       19,422  
RevPAR and Hotel Operating Margin
     In 2006, we had our third consecutive year-over-year increase in RevPAR. For the year, RevPAR increased 7.8% from $84.86 to $91.48. The increase in RevPAR was made up of an 8.5% increase in ADR while occupancy dropped 0.7% to 72.6%. We attribute the increase in RevPAR to a nationwide lodging industry recovery, improved hotel performance following major capital projects completed in 2005 and 2006 and a concerted effort to change our customer mix to higher ADR business. We expect RevPAR to continue increasing in 2007 and that improvements in ADR will continue to drive RevPAR growth. Increases in ADR generally result in increases in Hotel EBITDA margins. We have seen a firming of Hotel EBITDA margin at our hotels, which improved from 27.7% in 2005 to 29.5% in 2006, and we expect to see further improvement in 2007 as ADR continues to be a significant factor in RevPAR improvement. We are focused on working with our brand managers to control the expense growth that typically occurs during a lodging industry recovery, improve our Hotel EBITDA margins and manage renovation displacement to minimize their impact on Hotel EBITDA margins.
Refined Investment Strategy
     By amending of our agreement with IHG we were able to sell certain non-strategic hotels and use the proceeds to reduce debt and invest in high return-on-investment capital projects at our remaining core hotels. We plan on spending approximately $430 million on hotel capital improvements from 2006 through 2008. As we focus on improving our core portfolio through renovation and repositioning, we believe our portfolio will be positioned to have above average growth. Any future acquisition efforts will focus on higher quality hotels in markets with significant barriers to entry, such as central business districts and resort locations. Hotel brand and market segment will be secondary concerns when we are considering investment opportunities.
Results of Operations
Comparison of the Years Ended December 31, 2006 and 2005
     For the year ended December 31, 2006, we recorded net income applicable to common unitholders of $12.6 million, compared to a net loss of $311.2 million in 2005. We had income from continuing operations of $7.9 million compared to a prior year loss from continuing operations of $19.8 million. A significant item impacting the current year income from continuing operations was an aggregate of $14.3 million of charges related to the early retirement of debt. Contributing to the 2005 loss from continuing operations were $6.5 million in losses from hurricanes, $5.5 million of charges related to the early retirement of debt and $266.8 million of impairment charges, recorded under the provisions of SFAS 144.
     Total revenue from continuing operations increased $76.4 million, or 8.4%, compared to the prior year. The increase in revenue is principally attributed to a 7.8% increase in RevPAR compared to 2005. The increase in RevPAR resulted from increases in ADR net of a slight drop in occupancy and represents industry RevPAR increases in most of our major markets. The lodging industry nationwide continues to experience increased demand, but there have been only limited increases in room supply leading to strong improvements in RevPAR in many markets. Our increase in ADR was higher than the overall industry average partly because of our

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concentrated efforts to change the mix of our business to higher ADR business. Increased ADR typically improves Hotel EBITDA margin because the hotels are receiving more revenue for each guest. In 2006, our Hotel EBITDA margin improved 182 basis points over 2005 largely because of the increased ADR.
     Total operating expenses increased by $58.4 million but decreased as a percentage of total revenue from 88.9% to 87.9%. Hotel departmental expenses, which consist of rooms expense, food and beverage expense, and other operating departments, increased $16.3 million compared to 2005, but decreased as a percentage of total revenue from 33.2% to 32.3%, largely from improvements in labor costs as a percentage of total revenue. Hotel departmental expenses are directly related to the number of hotel guests and should continue to improve as a percentage of total revenue as rates increase.
     Other property operating costs, which consist of general and administrative costs, marketing costs, repairs and maintenance, utilities expense, and other costs, increased $14.7 million compared to 2005, but decreased as a percentage of total revenue from 27.9% to 27.3%. All of the other property operating costs remained constant or decreased as a percent of total revenue compared to 2005.
     Management and franchise fees increased $6.0 million compared to 2005 and increased slightly as a percentage of total revenue, from 4.9% to 5.2%. The increase as a percentage of total revenue is related to additional incentive fees earned by our management companies.
     Taxes, insurance and lease expense increased $7.2 million compared to 2005 but decreased slightly as a percentage of total revenue from 11.5% to 11.3%. We had increases as a percentage of total revenue in percentage lease expense and property insurance, but this was more than offset by decreases as a percentage of total revenue in general liability insurance and property tax expense. Percentage lease expense is computed as a percentage of hotel revenues in excess of a base rent. Therefore, as revenues increase, percentage rent expense increases at a faster rate. Property insurance reflects the nationwide trend of increases in rates related to catastrophic coverage.
     Corporate expenses increased by $4.3 million compared to 2005 and increased slightly as a percentage of total revenue. The increase in corporate expenses is attributed to severance costs related to several executives that left the company in 2005 and additional asset management positions related to our modified asset management approach.
     Depreciation expense increased by $10.1 million compared to 2005. The increase in depreciation expense reflects the large capital expenditures spent in 2005 and 2006.
     Net interest expense decreased by $10.8 million in 2006 compared to 2005. The principal reason for the reduction in interest expense is attributed to reduction in average debt outstanding during 2006 of $256.7 million, a 26 basis point decrease in our weighted average interest rate and a $3.0 million increase in capitalized interest. During 2006, we refinanced $415 million of senior notes and $138.9 million of mortgage debt at lower interest rates. As the result of strong economy, its impact on the travel and lodging industry and our lower secured debt levels, Standard & Poor’s and Moody’s Investor Services upgraded their ratings on our senior debt, resulting in a 50 basis point decrease in the interest rate on $300 million of our senior debt. The increase in capitalized interest is related to the expanded capital renovation program at our hotels and the construction loan on our Royale Palms Condominium development in Myrtle Beach, South Carolina, which we expect to repay in the second quarter of 2007.
     The early retirement of debt in 2006 resulted in net debt extinguishment costs of $15.6 million, of which $1.3 was recorded in discontinued operations. In 2005, we recorded $11.3 million in debt extinguishment costs, of which $5.8 million was recorded in discontinued operations.
     Equity in income from unconsolidated entities was $11.5 million in 2006 compared to $10.2 million in 2005. Net income from unconsolidated entities owning hotels increased in 2006 principally related to improvements in RevPAR.

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     Discontinued operations provided net income of $43.4 million in 2006 compared to a loss of $245.5 million in 2005. Included in discontinued operations at December 31, 2006, are the operating income or loss, direct interest costs and gains on sale related to the 31 hotels sold in 2006, 19 hotels disposed in 2005 and the 11 hotels considered held for sale at December 31, 2006. Gains from sale of hotels aggregating $43.2 million were included in the 2006 income from discontinued operations. Impairment charges recorded under the provisions of SFAS 144 aggregating $266.8 million are included in the loss from discontinued operations in 2005.
Comparison of the Years Ended December 31, 2005 and 2004
     For the year ended December 31, 2005, we recorded a loss applicable to common unitholders of $311.2 million, compared to a loss of $141.9 million in 2004. We had a loss from continuing operations of $19.8 million in 2005 compared to a 2004 loss of $84.0 million. Contributing to 2005 loss from continuing operations were $5.5 million of charges related to the early retirement of debt and $6.5 million in losses from hurricanes.
     Total revenue from continuing operations increased $72.1 million, or 8.5%, compared to the prior year. The increase in revenue is principally attributed to a 11.0% increase in RevPAR compared to 2004. The increase in RevPAR came from increases in both ADR and occupancy and represents increases in all of our top markets. The lodging industry nationwide continued to experience increased demand in 2005, but there were only limited increases in room supply leading to strong improvements in RevPAR in most markets.
     In 2005, 57% of our increased RevPAR was attributed to increases in ADR. Increased ADR typically improves Hotel EBITDA margin because the hotels are receiving more revenue for each guest. For 2005, our Hotel EBITDA margin improved 113 basis points over 2004.
     Total operating expenses increased by $57.0 million but decreased as a percentage of total revenue from 89.7% to 88.9%. Hotel departmental expenses, which consist of rooms expense, food and beverage expense, and other operating departments, increased $12.8 million compared to 2004, but decreased as a percentage of total revenue from 34.6% to 33.2%. These costs are directly related to the number of hotel guests and should improve as a percentage of total revenue as rates increase.
     Other property operating costs, which consist of general and administrative costs, marketing costs, repairs and maintenance, utilities expense, and other costs, increased $20.4 million compared to 2004, and remained constant as a percentage of total revenue at 27.9%. The only component of these costs that increased as a percentage of total revenue was utility expenses, while the other costs remained constant or decreased as a percent of total revenue.
     Management and franchise fees increased $2.6 million compared to 2004 and remained essentially the same as a percentage of total revenue.
     Taxes, insurance and lease expense increased $12.6 million and increased as a percentage of total revenue from 10.9% to 11.5%. The increase as a percentage of total revenue was from property tax expense, percentage lease expense and general liability insurance. Property tax expenses increased in 2005 largely because of credits for prior year tax appeals that were recorded in 2004. Percentage lease expense is computed as a percentage of hotel revenues in excess of a base rent. Therefore, as revenues increase, percentage rent expense increases at a faster rate. General liability insurance reflects the nationwide trend of increases in rates.
     Corporate expenses increased by $2.0 million compared to 2004 and remained essentially flat as a percentage of total revenue.
     Depreciation expense increased by $6.3 million compared to 2004. The increase in depreciation expense reflects the large capital expenditures spent in 2004 and 2005.

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     Net interest expense decreased by $14.5 million in 2005 compared to 2004. The principal reason for the reduction in interest expense is attributed to reduction in average debt outstanding during 2005. Our average outstanding debt decreased by $178 million in 2005 compared to 2004. During 2004 we retired $775 million of senior notes and issued $524 million of senior notes and mortgage debt. In 2005, we further reduced our outstanding debt by $92 million.
     In 2005, we incurred hurricane losses of $6.4 million compared to hurricane losses of $2.1 million incurred in 2004. The hurricane losses for both years represent our insurance deductibles and our best estimates of direct expenses related to these losses
     During 2005, we incurred net charges of $11.3 million related to the early retirement of debt (of which $5.8 million was recorded in discontinued operations) compared to $50.2 million in 2004. The early extinguishment of debt charges in 2005 related principally to secured debt that was retired on hotels that we have designated as non-strategic. The 2004 early retirement related principally to the early retirement of senior notes paying 10% interest.
     Equity in income from unconsolidated entities was $10.2 million in 2005 compared to $17.1 million in 2004. Included in 2004 was an $11 million gain related to the sale of a residential condominium development in Myrtle Beach, South Carolina. Net income from unconsolidated ventures owning hotels increased in 2005 principally related to improvements in RevPAR.
      Discontinued operations provided net loss of $245.5 million in 2005 compared to a loss of $22.8 million in 2004. Included in discontinued operations are the results of operations of the 19 hotels disposed in 2005.
     In 2005, we recorded impairment charges, under the provisions of SFAS 144, of $266.8 million, all of which has been included in discontinued operations. The 2005 charges primarily related to our decision to designate as non-strategic and sell an additional 28 hotels, in connection with the negotiation of the amendment to our IHG management agreements. We also recorded impairment charges with respect to 11 hotels previously designated as non-strategic principally because of revised estimates of fair value.
     Preferred distributions increased by $4.3 million in 2005 compared to 2004. The principal reasons for this increase are attributed to the issuance of $160 million of Series A preferred units in 2004 and the first full year of distributions in 2005.
     In accordance with the Emerging Issues Task Force Topic D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” we have subtracted $6.5 million of the issuance costs of our redeemed Series B preferred units from net income to determine net loss applicable to common unitholders for the calculation of net loss per unit.
Non-GAAP Financial Measures
     We refer in this annual report on Form 10-K to certain “non-GAAP financial measures.” These measures, including FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, are measures of our financial performance that are not calculated and presented in accordance with generally accepted accounting principles, or GAAP. The following tables reconcile each of 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 of the limitations upon such measures.

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     The following tables detail our computation of FFO (in thousands, except for per unit data):
Reconciliation of Net Income (Loss) to FFO
(in thousands, except per unit data)
                                                                         
    Year Ended December 31,  
    2006     2005     2004  
 
                   Per Unit                   Per Unit                   Per Unit
 
   Dollars   Units   Amount   Dollars   Units   Amount   Dollars   Units   Amount
 
                                                      
Net income (loss)
   $ 51,324                     $ (265,292 )                   $ (106,808 )                
Issuance costs of redeemed preferred units
     —                       (6,522 )                                        
Preferred distributions
     (38,713 )                     (39,408 )                     (35,130 )                
 
                                                                  
Net income (loss) applicable to common unitholders
     12,611       62,598     $ 0.20       (311,222 )     62,214     $ (5.00 )     (141,938 )     61,984     $ (2.29 )
Depreciation from continuing operations
     94,579       —       1.51       84,448       —       1.36       78,116       —       1.26  
Depreciation from unconsolidated entities and discontinued operations
     26,911       —       0.43       47,759       —       0.77       52,636       —       0.85  
Gain on sale of hotels, net of income tax
     (40,650 )     —       (0.65 )     (12,124 )     —       (0.20 )     (19,422 )     —       (0.31 )
Conversion of FelCor options and unvested restricted shares
     —       327       —       —       —       —       —       —       —  
 
                                                      
FFO
   $ 93,451       62,925     $ 1.49     $ (191,139 )     62,214     $ (3.07 )   $ (30,608 )     61,984     $ (0.49 )
 
                                                      
                                                 
    Year Ended December 31,  
    2003     2002  
                    Per Unit                     Per Unit  
    Dollars     Units     Amount     Dollars     Units     Amount  
Net loss
   $ (327,921 )                   $ (192,298 )                
Issuance costs of redeemed preferred units Preferred distributions
     (26,908 )                     (26,292 )                
 
                                            
Net loss applicable to common unitholders
     (354,829 )     61,845     $ (5.74 )     (218,590 )     61,737     $ (3.54 )
Depreciation from continuing operations
     76,288       —       1.23       81,381       —       1.32  
Depreciation from unconsolidated entities and discontinued operations
     73,747       —       1.20       83,052       —       1.34  
Gain on sale of hotels
     (2,668 )     —       (0.04 )     (5,861 )     —       (0.09 )
 
                                    
FFO
   $ (207,462 )     61,845     $ (3.35 )   $ (60,018 )     61,737     $ (0.97 )
 
                                    

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     Consistent with SEC guidance on non-GAAP financial measures, FFO has not been adjusted for the following amounts included in net income (loss) (in thousands, except for per unit amounts):
                                                                                 
    Year Ended December 31,
    2006   2005   2004   2003   2002
            Per           Per           Per           Per           Per
            Unit           Unit           Unit           Unit           Unit
    Dollars   Amount   Dollars   Amount   Dollars   Amount   Dollars   Amount   Dollars   Amount
Impairment loss
   $ (16,474 )   $ (0.26 )   $ (266,751 )   $ (4.29 )   $ (38,289 )   $ (0.62 )   $ (245,509 )   $ (3.97 )   $ (157,505 )   $ (2.55 )
Minority interest share of impairment loss
     927       0.01       8,976       0.14       —       —       1,770       0.03       —       —  
Charge-off of deferred debt costs
     (3,624 )     (0.06 )     (2,659 )     (0.04 )     (6,960 )     (0.10 )     (2,834 )     (0.05 )     (3,222 )     (0.05 )
Gain (loss) on early extinguishment of debt
     (13,848 )     (0.22 )     (8,641 )     (0.14 )     (44,216 )     (0.71 )     1,611       0.03       —       —  
Gain from swap termination
     1,715       0.03       —       —       1,005       0.02       —       —       —       —  
Abandoned projects
     (112 )     —       (265 )     —       —       —       —       —       (1,663 )     (0.03 )
Asset disposition costs
     —       —       (1,300 )     (0.02 )     (4,900 )     (0.08 )     —       —       —       —  
Issuance costs of redeemed preferred units
     —       —       (6,522 )     (0.10 )     —       —       —       —       —       —  
     The following table details our computation of EBITDA (in thousands):
Reconciliation of Net Income (Loss) to EBITDA
(in thousands)
                                         
    Year Ended December 31,  
    2006     2005     2004     2003     2002  
Net income (loss)
   $ 51,324     $ (265,292 )   $ (106,808 )   $ (327,921 )   $ (192,298 )
Depreciation from continuing operations
     94,579       84,448       78,116       76,288       81,381  
Depreciation from unconsolidated entities and discontinued operations
     26,911       47,759       52,636       73,747       83,052  
Interest expense
     114,909       125,707       138,872       156,327       155,942  
Interest expense from unconsolidated entities and discontinued operations
     7,657       16,949       19,189       18,817       19,859  
Amortization expense
     5,080       2,904       2,945       2,210       2,088  
 
                              
EBITDA
   $ 300,460     $ 12,475     $ 184,950     $ (532 )   $ 150,024  
 
                              

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     Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been adjusted for the following amounts included in net income (loss) (in thousands):
                                         
    Year Ended December 31,
    2006   2005   2004   2003   2002
Impairment loss
   $ (16,474 )   $ (266,751 )   $ (38,289 )   $ (245,509 )   $ (157,505 )
Minority interest share of impairment loss
     927       8,976       —       1,770       —  
Charge-off of deferred debt costs
     (3,624 )     (2,659 )     (6,960 )     (2,834 )     (3,222 )
Gain (loss) on early extinguishment of debt
     (13,848 )     (8,641 )     (44,216 )     1,611       —  
Gain (loss) from swap termination
     1,715       —       1,005       —       —  
Asset disposition costs
     —       (1,300 )     (4,900 )     —       —  
Abandoned projects
     (112 )     (265 )     —       —       (1,663 )
Gain on sale of hotels, net of income tax
     40,650       12,124       19,422       2,668       5,861  
Hotel EBITDA and Hotel EBITDA Margin
(dollars in thousands)
                         
    Year Ended December 31,  
    2006     2005     2004  
Continuing Operations
                        
Total revenue
   $ 991,038     $ 914,655     $ 842,612  
Retail space rental and other revenue
     (79 )     (1,506 )     (2,196 )
 
                  
Hotel revenue
     990,959       913,149       840,416  
Hotel operating expenses
     (698,540 )     (660,339 )     (617,229 )
 
                  
Hotel EBITDA
   $ 292,419     $ 252,810     $ 223,187  
 
                  
Hotel EBITDA margin(1)
     29.5 %     27.7 %     26.6 %
 
(1) Hotel EBITDA as a percentage of hotel revenue.

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Hotel Operating Expense Composition
(dollars in thousands)
                         
    Year Ended December 31,  
    2006     2005     2004  
Continuing Operations
                        
Hotel departmental expenses:
                        
Room
   $ 199,283     $ 187,872     $ 178,146  
Food and beverage
     97,012       93,136       90,715  
Other operating departments
     23,436       22,446       21,758  
 
                        
Other property related costs:
                        
Administrative and general
     87,451       82,607       76,898  
Marketing and advertising
     81,113       76,151       71,099  
Repairs and maintenance
     52,710       50,011       46,063  
Energy
     49,027       46,857       41,144  
Taxes, insurance and lease expense
     57,271       56,044       48,742  
 
                  
Total other property related costs
     647,303       615,124       574,565  
Management and franchise fees
     51,237       45,215       42,664  
 
                  
Hotel operating expenses
   $ 698,540     $ 660,339     $ 617,229  
 
                  
 
                        
Reconciliation of total operating expense to hotel operating expense:
                        
Total operating expenses
   $ 871,241     $ 812,885     $ 755,892  
Unconsolidated taxes, insurance and lease expense
     6,273       5,881       5,900  
Consolidated hotel lease expense
     (61,054 )     (54,689 )     (49,414 )
Abandoned projects
     (33 )     (265 )     —  
Corporate expenses
     (23,308 )     (19,025 )     (17,033 )
Depreciation
     (94,579 )     (84,448 )     (78,116 )
 
                  
Hotel operating expenses
   $ 698,540     $ 660,339     $ 617,229  
 
                  
Reconciliation of Net Income (Loss) to Hotel EBITDA
(in thousands)
                         
    Year Ended December 31,  
    2006     2005     2004  
Net income (loss)
   $ 51,324     $ (265,292 )   $ (106,808 )
Discontinued operations
     (43,383 )     245,475       22,764  
Equity in income from unconsolidated entities
     (11,537 )     (10,169 )     (17,121 )
Minority interests
     (1,884 )     (1,409 )     (555 )
Consolidated hotel lease expense
     61,054       54,689       49,414  
Unconsolidated taxes, insurance and lease expense
     (6,273 )     (5,881 )     (5,900 )
Interest expense, net
     110,867       121,668       136,144  
Hurricane loss
     —       6,481       2,125  
Loss on early extinguishment of debt
     12,471       4,037       44,216  
Charge-off of deferred financing costs
     3,562       1,448       6,960  
Gain on swap termination
     (1,715 )     —       (1,005 )
Corporate expenses
     23,308       19,025       17,033  
Depreciation
     94,579       84,448       78,116  
Retail space rental and other revenue
     (79 )     (1,506 )     (2,196 )
Abandoned projects
     33       265       —  
Gain on sale of assets
     92       (469 )     —  
 
                  
Hotel EBITDA
   $ 292,419     $ 252,810     $ 223,187  
 
                  

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Reconciliation of Ratio of Operating Income to Total Revenues to Hotel EBITDA Margin
                         
    Year Ended December 31,  
    2006     2005     2004  
Ratio of operating income to total revenues
     12.1       11.1 %     10.3 %
Retail space rental and other revenue
     —       (0.2 )     (0.3 )
Unconsolidated taxes, insurance and lease expense
     (0.7 )     (0.5 )     (0.6 )
Consolidated lease expense
     6.2       6.0       5.9  
Corporate expenses
     2.4       2.1       2.0  
Depreciation
     9.5       9.2       9.3  
 
                  
Hotel EBITDA margin
     29.5 %     27.7 %     26.6 %
 
                  
          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 diminish 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, including FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, are not measures of operating performance under GAAP. However, we and FelCor consider these non-GAAP measures to be supplemental measures of a REIT’s performance and should be considered along with, but not as an alternative to, net income as a measure of FelCor’s and our operating performance.
FFO and EBITDA
          The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by others 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 (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.
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 operating managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin is useful to investors by providing greater transparency with respect to two significant measures used by us in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin by eliminating corporate-level expenses, depreciation and expenses related to our capital structure. We eliminate corporate-level costs and expenses because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management in running our business on a property-level basis. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, we do not believe that these non-cash expenses, which are based on historical cost accounting for real estate assets, and implicitly assume that the value of real estate assets diminishes predictably over time, accurately reflect an adjustment in the value of our

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assets. To enhance the comparability of our hotel-level operating results with other hotel REITs and hotel owners, we are now disclosing Hotel EBITDA and Hotel EBITDA margin rather than the hotel operating profit and hotel operating margin previously disclosed. The purpose of the change is to remove any distortion created by unconsolidated entities and to reflect hotel-level operations as if they were fully consolidated. To reflect this, we eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by minority interest expense 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 hotels.
Use and Limitations of Non-GAAP Measures
          FelCor’s management and Board of Directors use FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and lodging 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. FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin, as presented by us, may not be comparable to FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin as calculated by other real estate companies. These measures do not reflect certain expenses that we incurred and will incur, such as depreciation, interest and capital expenditures. FelCor’s management compensates 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. Neither should FFO, FFO per unit or EBITDA be considered as measures of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions or service our debt. FFO per unit does not measure, and should not be used as a measure of, amounts that accrue directly to the benefit of unitholders. FFO, EBITDA, Hotel EBITDA and Hotel EBITDA margin 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. Management strongly encourages investors to review our financial information in its entirety and not to rely on a single financial measure.
Liquidity and Capital Resources
          Our principal source of cash to meet our cash requirements, including distributions to unitholders and repayments of indebtedness, has historically been hotel operations. In 2006, net cash flow provided by operating activities, consisting primarily of hotel operations, was $147.7 million. However, in 2006 we sold 31 non-strategic hotels generating net proceeds of $496.8 million. The proceeds from the hotel sales were used to repay debt and pay for capital renovations at our remaining core hotels. At December 31, 2006, we had cash on hand of $124.2 million, including approximately $39.7 million held under management agreements to meet minimum working capital requirements.
          For 2006, we declared and paid common distributions aggregating $0.80 per unit. FelCor’s board of directors will determine the amount of future common and preferred distributions for each quarter, based upon the actual operating results for that quarter, economic conditions, other operating trends, our financial condition and capital requirements, as well as FelCor’s minimum REIT distribution requirements.

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          We have committed to spend approximately $430 million over a three year period, commencing in 2006, to renovate our core hotels. We have used, to date, and expect to use proceeds from non-strategic hotel sales to fund these renovations and pay down debt. The sale of 31 hotels in 2006, generated net proceeds of $496.8 million, and our remaining 11 non-strategic hotels are expected to provide gross proceeds of approximately $185 to $190 million in 2007. Through February 25, 2007, we sold two of the non-strategic hotels for gross proceeds of $42.7 million, and had three additional hotels under hard contract for sale. In 2006, we experienced significant displacement from hotel renovation that reduced revenues and Hotel EBITDA margins. We expect that the effect of ongoing renovation displacement for 2007 will be even more significant.
          In 2005, we started construction on the 184 unit Royale Palms condominium development in Myrtle Beach, South Carolina. This project is more than 98% pre-sold and is expected to be completed in the second quarter of 2007. We currently expect to earn net income of approximately $18 million at the completion of the project. We expect the sale of these condominiums will create an effective bridge for our earnings in a year when renovation displacement will negatively impact our results.
          We currently expect that our cash flow provided by operating activities for 2007 will be approximately $175 to $182 million. This cash flow forecast assumes that RevPAR increases by between 6.5% and 7.5% and Hotel EBITDA margin increases of approximately 30 basis points. Our current operating plan contemplates that we will make aggregate common distribution payments of approximately $47 million, preferred distribution payments of $39 million and $71 million in normal recurring principal payments, leaving surplus cash flow (before capital expenditures, additional debt reduction, sale of hotels or sale of Royale Palms condominiums) of approximately $76 to $83 million. In 2007, we plan to spend approximately $225 million for capital expenditures, which will be funded with proceeds from the sale of non-strategic hotels and from cash.
          During the first quarter of 2006, our hotels in New Orleans and surrounding markets, such as Atlanta, Baton Rouge, Houston, San Antonio, and Dallas, benefited from the increase in demand for hotel rooms, resulting from the displacement of New Orleans residents and the influx of relief and construction workers following Hurricane Katrina. In the second quarter of 2006, the initial relief work was completed in New Orleans, and there was an exodus of first responders from the area. The shift away from relief workers and temporary housing to ongoing construction workers has dramatically reduced the demand in New Orleans; however, the surrounding markets continued to benefit from a strong demand for convention and group business that was moved from New Orleans, through the second quarter. In the third quarter of 2006, we began to see the temporary hurricane demand from surrounding markets subside, and in the fourth quarter of 2006, substantially no temporary hurricane demand remained. We expect to continue to have relatively weak performance from New Orleans in 2007 and until convention and tourism return to pre-hurricane levels.
          Events, including terrorist attacks, natural disasters, U.S. military involvement in the Middle East and the bankruptcy of several major corporations, had an adverse impact on the capital markets in prior years. Events, or circumstances of similar magnitude or impact, could adversely affect the availability and cost of our capital. In addition, any slowdown of the overall economy and of the lodging industry could adversely affect our operating cash flow and the availability and cost of capital for our business.
          We are subject to increases in hotel operating expenses, including wage and benefit costs, repair and maintenance expenses, utilities and insurance expenses, that can fluctuate disproportionately to revenues. Operating expenses are difficult to predict and control, which can produce volatility in our operating results. Our Hotel EBITDA margins from continuing operations increased in 2005 and 2006. However, if our hotel RevPAR decreases and/or Hotel EBITDA margins shrink, our operations, earnings and/or cash flow could suffer a material adverse effect.
Debt
          During 2006, we paid down debt of approximately $356 million, refinanced another $465 million of debt and reduced interest rates by 0.5% on $300 million of senior debt. The combined effect of these actions will result in reducing our annual interest expense by $38 million and lowering our weighted average cost of debt by 55 basis points.

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          Line of Credit Our $125 million line of credit contains certain restrictive covenants, including a leverage ratio, fixed charge coverage ratio, unencumbered leverage ratio and a maximum payout ratio. The interest on our line can range from 175 to 225 basis points over LIBOR, based on our leverage ratio as defined in our line of credit agreement. In addition to financial covenants, our line of credit includes certain other affirmative and negative covenants, including restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation/ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred units, unit repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, to issue stock of our subsidiaries and to sell all or substantially all of our assets; restrictions on our ability to make investments in condominium developments; limitations on our ability to change the nature of our business; limitations on our ability to modify certain instruments, to create liens, to enter into transactions with affiliates; and limitations on our ability to enter into joint ventures. At the date of this filing, we were in compliance with all of these covenants. If operating results fall significantly below our current expectations, we may not be able to meet some or all of these covenants in which case we may be unable to borrow under our line of credit.
          The breach of any of the covenants and limitations under our line of credit could result in the acceleration of amounts outstanding. Our failure to satisfy any accelerated recourse indebtedness, if in the amount of $10 million or more, could result in the acceleration of our other unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.
          Our other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than our line of credit. Payment of amounts due under our line of credit is guaranteed by us and certain of our subsidiaries who also guarantee payment of our senior debt and payment is secured by a pledge of FelCor’s limited partnership interest in us.
          At December 31, 2006 we had no borrowings under our line of credit. Our interest rate on our line of credit has decreased from LIBOR plus 2.25% to LIBOR plus 1.75% during 2006 based on our leverage ratio as defined in our line of credit agreement.
          Construction Loan In 2005, we started construction on the 184 unit Royale Palms condominium development in Myrtle Beach, South Carolina. This project is more than 98% pre-sold and is expected to be completed with the condominiums substantially all closed in the second quarter of 2007. In conjunction with this development, we entered into a $69.8 million recourse construction loan facility. Through December 31, 2006, we had spent $70.7 million on this project and had drawn $58.6 million on the construction loan. On July 1, 2006, the interest on this construction loan was reduced from LIBOR plus 2.25% to LIBOR plus 2.0% under the terms of the original loan agreement.
          Mortgage Debt At December 31, 2006, we had aggregate mortgage indebtedness, excluding our construction loan, of approximately $855.2 million that was secured by 44 of our consolidated hotels with an aggregate book value of approximately $1.0 billion. Our hotel mortgage debt is recourse solely to the specific assets securing the debt, except in the case of fraud, misapplication of funds and other customary recourse carve-out provisions. Loans secured by two hotels provide for lock-box arrangements under certain circumstances. With respect to these loans, we are permitted to retain 115% of budgeted hotel operating expenses, but the remaining revenues would become subject to a lock-box arrangement if a specified debt service coverage ratio is not met. These hotels currently exceed the minimum debt service coverage ratio, however, under the terms of the loan agreement, the lock-box provisions remain in place until the loan is repaid. None of these hotels have ever fallen below the debt service coverage ratio.
          Our hotel mortgage debt is non-recourse to us and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of our mortgage debt is prepayable, subject to various prepayment, yield maintenance or defeasance obligations.

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          Senior Notes As a result of the strong economy, its impact on the travel and lodging industries, and our lower secured debt levels, Standard & Poor’s raised its ratings on our senior debt twice in 2006, from B- to B in January 2006 and then to B+ in October 2006 and Moody’s Investor Service raised its ratings from B1 to Ba3. As a result of the Moody’s upgrade, effective April 3, 2006, the interest rate applicable to $300 million of our senior debt maturing in 2011 decreased from 9.0% to 8.5%, reducing annualized interest expense by $1.5 million. If the credit rating on our senior debt is downgraded by Moody’s to B1 and Standard & Poor’s rating remains below BB-, the interest rate on this debt will again increase to 9%. Our publicly-traded senior notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; pay distributions in excess of the minimum distribution required to meet FelCor’s REIT qualification test; repurchase partnership units; or merge. As of the date of this filing, we have satisfied all such tests. Under the terms of certain of our indentures, we are prohibited from repurchasing any of our partnership units, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures, exceeds 4.85 to 1. Debt, as defined in the indentures, approximates our consolidated debt. EBITDA is defined in the indentures as consolidated GAAP net income, actual cash distributions by unconsolidated entities, gains or losses from asset sales, distributions on preferred units and extraordinary gains and losses (as defined at the date of the indentures), plus interest expense, income taxes, depreciation expense, amortization expense and other non-cash items. Although our current debt-to-EDITDA ratio is below 4.85 to 1, a decline in our EBITDA, as a result of asset sales, adverse economic developments or an increase in our debt, could make us subject to this limitation. In addition, if we were unable to continue to satisfy the incurrence test under the indentures governing our senior unsecured notes, we may be prohibited from, among other things, incurring any additional indebtedness, except under certain specific exceptions, or paying distributions on our preferred or common units, except to the extent necessary to satisfy FelCor’s REIT qualification requirement that it distribute currently at least 90% of its taxable income.
          We currently anticipate that we will meet our financial covenant and incurrence tests based on current RevPAR expectations. For 2007, we currently anticipate that our full year 2007 portfolio RevPAR will be approximately 6.5% to 7.5% above the prior year.
          During 2006, our pro rata share of capital expenditures for our consolidated and unconsolidated hotels was $178.9 million.

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     The following table details our debt outstanding at December 31, 2006 and 2005 (in thousands):
                                 
                    Balance Outstanding  
    Encumbered   Interest Rate at     Maturity   December 31,  
    Hotels   December 31, 2006     Date   2006     2005  
Promissory note
   —     —     —   $ —     $ 650  
Line of credit(a)
   none     L + 1.75     January 2009     —       —  
Senior term notes
   —     —     —     —       123,358  
Senior term notes
   none     8.50     June 2011     298,911       298,660  
Term loan
   —     —     —     —       225,000  
Senior term notes
   —     —     —     —       290,000  
Senior term notes
   none     L + 1.875     December 2011     215,000       —  
 
                          
Total line of credit and senior debt(d)
         7.98           513,911       937,668  
 
                          
Mortgage debt(b)
   12 hotels     L + 0.93     November 2008     250,000       —  
Mortgage debt
   8 hotels     6.56     July 2009-2014     97,553       104,282  
Mortgage debt
   —     —     —     —       117,913  
Mortgage debt
   7 hotels     7.32     March 2009     124,263       127,455  
Mortgage debt
   —     —     —     —       41,912  
Mortgage debt
   8 hotels     8.70     May 2010     169,438       172,604  
Mortgage debt
   6 hotels     8.73     May 2010     122,578       133,374  
Mortgage debt
   1 hotel     L + 2.85     August 2008     15,500       15,500  
Mortgage debt
   1 hotel     5.81     July 2016     12,861       10,457  
Other
   1 hotel     9.17     August 2011     4,452       5,204  
Construction loan(c)
   —     L + 2.00     October 2007     58,597       8,911  
 
                        
Total mortgage debt(d)
   44 hotels     7.41           855,242       737,612  
 
                        
 
                                
Total(d)
         7.62 %       $ 1,369,153     $ 1,675,280  
 
                          
 
(a)   We have a borrowing capacity of $125 million on our line of credit. The interest on this line can range from 175 to 225 basis points over LIBOR based on our leverage ratio as defined in our line of credit agreement.
 
(b)   This debt has three, one-year extension options.
 
(c)   We have a recourse construction loan facility for the development of a 184-unit condominium project in Myrtle Beach, South Carolina. The interest on this facility is being capitalized as part of the cost of the project. We have pre sold approximately 98% of these condominiums and expect to start repaying the construction loan as the units sales are finalized, beginning in the second quarter of 2007.
 
(d)   Interest rates are calculated based on the weighted average outstanding debt at December 31, 2006.
Contractual Obligations
          We have obligations and commitments to make certain future payments under debt agreements and various contracts. The following schedule details these obligations at December 31, 2006 (in thousands):
                                         
            Less Than     1 — 3     4 — 5     After  
    Total     1 Year     Years     Years     5 Years  
Debt (a)
   $ 1,744,715     $ 173,360     $ 592,046     $ 879,377     $ 99,932  
Operating leases
     170,407       22,449       28,747       25,096       94,115  
Purchase obligations
     152,160       152,160       —       —       —  
 
                              
Total contractual obligations
   $ 2,067,282     $ 347,969     $ 620,793     $ 904,473     $ 194,047  
 
                              
 
(a)   Our long-term debt consists of both secured and unsecured debt and includes both principal and interest. Interest expense for variable rate debt was calculated using the interest rate at December 31, 2006.

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Off-Balance Sheet Arrangements
          At December 31, 2006, we had unconsolidated 50% investments in ventures that own an aggregate of 19 hotels (referred to as hotel joint ventures), and we had unconsolidated 50% investments in ventures that operate four of those 19 hotels (referred to as operating joint ventures). We own 100% of the lessees operating two hotels owned by the hotel joint ventures, approximately 51% of the lessees operating 13 hotels owned by the hotel joint ventures and one hotel joint venture is operated without a lease. We also owned a 50% interest in entities that provide condominium management services and develop condominiums in Myrtle Beach, South Carolina. None of FelCor’s directors, officers or employees owns any interest in any of these joint ventures or entities. The hotel joint ventures had $197.5 million of non-recourse mortgage debt relating to the 19 hotel, of which our prorata portion was $98.7 million. This debt is not reflected as a liability on our consolidated balance sheet.
          Our liabilities with regard to non-recourse debt and the liabilities of our subsidiaries that are members or partners in joint ventures are generally limited to the guarantee of the borrowing entity’s obligations to pay for the lender’s losses caused by misconduct, fraud or misappropriation of funds by the venture and other typical exceptions from the non-recourse provisions in the mortgages, such as for environmental liabilities.
          We have recorded equity in income (loss) of unconsolidated entities of $11.5 million; $10.2 million; and $17.1 million (including a gain of $11 million related to the development and sale of condominiums) for the years ended December 31, 2006, 2005 and 2004, respectively, and received distributions of $9.3 million (of which $3.6 million was provided from operations), of $7.6 million (of which $1.1 million was provided from operations), and $22.8 million (of which $11.9 million was provided by operations) for the years 2006, 2005 and 2004, respectively. The principal source of income for our hotel joint ventures is percentage lease revenue from the operating lessees. We own 51% of the operating lessees for 13 of the hotel joint ventures.
          Capital expenditures on the hotels owned by our hotel joint ventures are generally paid from their capital reserve account, which is funded from the income from operations of these ventures. However, if a venture has insufficient cash flow to meet operating expenses or make necessary capital improvements, the venture may make a capital call upon the venture members or partners to fund such necessary improvements. It is possible that, in the event of a capital call, the other joint venture member or partner may be unwilling or unable to make the necessary capital contributions. Under such circumstances, we may elect to make the other party’s contribution as a loan to the venture or as an additional capital contribution by us. Under certain circumstances, a capital contribution by us may increase our equity investment to greater than 50% and may require that we consolidate the venture, including all of its assets and liabilities, into our consolidated financial statements.
          With respect to those ventures that are partnerships, the hotels owned by these ventures could perform below expectations and result in the insolvency of the ventures and the acceleration of their debts, unless the members or partners provide additional capital. In some ventures, the members or partners may be required to make additional capital contributions or have their interest in the venture be reduced or offset for the benefit of any party making the required investment on their behalf. We may be faced with the choice of losing our investment in a venture or investing additional capital under circumstances that do not assure a return on that investment.
Inflation
          Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future. We are also subject to the risk that inflation will cause increases in hotel operating expenses disproportionately to revenues.

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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 or make distributions to our equity holders.
Critical Accounting Policies and Estimates
          Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
          On an on-going basis, we evaluate our estimates, including those related to bad debts, the carrying value of investments in hotels, litigation, and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
          We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.
  •   We are required by GAAP to record an impairment charge when we believe that an investment in one or more of our hotels held for investment has been impaired, such that future undiscounted cash flows would not recover the book basis, or net book value, of the investment. We test for impairment when certain events occur, including one or more of the following: projected cash flows are significantly less than recent historical cash flows; significant changes in legal factors or actions by a regulator that could affect the value of our hotels; events that could cause changes or uncertainty in travel patterns; and a current expectation that, more likely than not, a hotel will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Over the past three years we identified 36 non-strategic hotels that we expected to sell significantly before the end of their previously estimated useful life. The shorter probable holding periods related to our decision to sell these hotels was the primary factor that led to impairment charges on these hotels. As these hotels are sold, we may recognize additional losses or gains on sale. In the evaluation of impairment of our hotels, and in establishing impairment charges, we made many assumptions and estimates on a hotel by hotel basis, which included the following:
  o   Annual cash flow growth rates for revenues and expenses;
 
  o   Holding periods;
 
  o   Expected remaining useful lives of assets;
 
  o   Estimates in fair values taking into consideration future cash flows, capitalization rates, discount rates and comparable selling prices; and
 
  o   Future capital expenditures.
Changes in these estimates, future adverse changes in market conditions or poor operating results of underlying hotels could result in losses or an inability to recover the carrying value of the hotels that may not be reflected in the hotel’s carrying value, thereby requiring impairment charges in the future. At December 31, 2006, all hotels on which we have recorded impairment charges have been sold or are classified as held for sale at that date.

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At December 31, 2006, we had 11 hotels that were classified as held for sale and were carried at the lower of historical net book value or fair value less costs to sell. We made estimates of fair values of these hotels based on pending contracts, offers received, cash flows, capitalization rates and comparable selling prices. We also made estimates of selling costs based on commission rates and other selling costs expected to be incurred.
  •   We make estimates with respect to contingent liabilities for losses covered by insurance in accordance with Financial Accounting Standard 5, Accounting for Contingencies. We record liabilities for self insured losses under our insurance programs when it becomes probable that an asset has been impaired or a liability has been incurred at the date of our financial statements and the amount of the loss can be reasonably estimated. We are self-insured for the first $250,000, per occurrence, of our general liability claims with regard to 67 of our hotels. We review the adequacy of our reserves for our self-insured claims on a regular basis. Our reserves are intended to cover the estimated ultimate uninsured liability for losses with respect to reported and unreported claims incurred at the end of each accounting period. These reserves represent estimates at a given date, generally utilizing projections based on claims, historical settlement of claims and estimates of future costs to settle claims. Estimates are also required since there may be delays in reporting. Because establishment of insurance reserves is an inherently uncertain process involving estimates, currently established reserves may not be sufficient. If our insurance reserves of $4.3 million, at December 31, 2006, for general liability losses are insufficient, we will record an additional expense in future periods. Property and catastrophic losses are event-driven losses and, as such, until a loss occurs and the amount of loss can be reasonably estimated, no liability is recorded. We had recorded no contingent liabilities with regard to property or catastrophic losses at December 31, 2006.
 
  •   Our Taxable REIT Subsidiaries, or TRSs, have cumulative potential future tax deductions totaling $343.3 million. The net deferred income tax asset associated with these potential future tax deductions was $130.5 million. We have recorded a valuation allowance equal to 100% of our $130.5 million deferred tax asset related to our TRSs, because of the uncertainty of realizing the benefit of the deferred tax asset. SFAS 109, “Accounting for Income Taxes,” establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. In accordance with SFAS 109, we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would be able to realize all or a portion of our deferred tax assets in the future, an adjustment to the deferred tax asset would increase operating income in the period such determination was made.
Recent Accounting Announcements
          In July 2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes. The interpretation clearly scopes out income tax positions related to FASB Statement No. 5, Accounting for Contingencies. We will adopt the provisions of this statement beginning in the first quarter of 2007. We do not expect the cumulative effect of applying the provisions of FIN 48, if any, to be material.

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          In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. We believe that the adoption of this standard on January 1, 2008 will not have a material effect on our consolidated financial statements.
Disclosure Regarding Forward Looking Statements
          This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K 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. Among these factors are:
  •   general economic and lodging industry conditions, including the anticipated continuation of economic growth, the realization of anticipated job growth, the impact of the United States’ military involvement in the Middle East and elsewhere, future acts of terrorism, the threat or outbreak of a pandemic disease affecting the travel industry, the impact on the travel industry of high fuel costs and increased security precautions, and the impact that the bankruptcy of additional major air carriers may have on our revenues and receivables;
 
  •   our overall debt levels and our ability to obtain new financing and service debt;
 
  •   our inability to retain earnings;
 
  •   our liquidity and capital expenditures;
 
  •   our growth strategy and acquisition activities;
 
  •   our inability to sell the hotels being marketed for sale at anticipated prices; and
 
  •   competitive conditions in the lodging industry.
          Certain of these risks and uncertainties are described in greater detail under “Risk Factors” in Item 1A above, or in our other filings with the Securities and Exchange Commission.
          In addition, 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 these plans, intentions or expectations will be achieved. 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 under the Securities Act of 1933 and the Securities Exchange Act of 1934. We undertake no obligation to update any forward-looking statements to reflect future events or circumstances.
          The prospective financial information, related to hotel sale proceeds and guidance, included in this Form 10-K has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has neither examined nor compiled the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in this Form 10-K relates to our historical financial information. It does not extend to the prospective financial information and should not be read to do so.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
          At December 31, 2006, approximately 61% of our consolidated debt had fixed interest rates. In some cases, market rates of interest are below the rates we are obligated to pay on our fixed-rate debt.

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          The following tables provide information about our financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the tables present scheduled maturities and weighted average interest rates, by maturity dates. For interest rate swaps, the tables present the notional amount and weighted average interest rate, by contractual maturity date. The fair value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market interest rates. The fair value of our fixed to variable interest rate swaps indicates the estimated amount that would have been received or paid by us had the swaps been terminated at the date presented.
Expected Maturity Date
at December 31, 2006
(dollars in thousands)
                                                                 
                                                            Fair  
    2007     2008     2009     2010     2011     Thereafter     Total     Value  
Liabilities
                                                                
Fixed rate:
                                                                
Debt
   $ 12,739     $ 13,733     $ 142,240     $ 274,535     $ 303,030     $ 84,868     $ 831,145     $ 887,575  
Average interest rate
     7.98 %     7.98 %     7.26 %     8.70 %     8.49 %     6.53 %     8.13 %        
Floating rate:
                                                                
Debt
     58,597       265,500       —       —       215,000       —       539,097       539,097  
Average interest rate(a)
     7.32 %     6.14 %     —       —       7.10 %     —       6.65 %        
 
                                                  
Total debt
   $ 71,336     $ 279,233     $ 142,240     $ 274,535     $ 518,030     $ 84,868     $ 1,370,242          
Average interest rate
     7.44 %     6.23 %     7.26 %     8.70 %     7.91 %     6.53 %     7.55 %        
Net discount
                                                     (1,089 )        
 
                                                              
Total debt
                                                   $ 1,369,153          
 
                                                              
 
(a)   The average floating rate of interest represents the implied forward rates in the yield curve at December 31, 2006.
Expected Maturity Date
at December 31, 2005
(dollars in thousands)
                                                                 
                                                            Fair  
    2006     2007     2008     2009     2010     Thereafter     Total     Value  
Liabilities
                                                                
Fixed rate:
                                                                
Debt
   $ 13,726     $ 149,737     $ 15,695     $ 176,560     $ 281,843     $ 382,727     $ 1,020,288     $ 987,451  
Average interest rate
     7.95 %     7.68 %     7.96 %     7.37 %     8.70 %     8.47 %     8.21 %        
Floating rate:
                                                                
Debt
     342,913       —       24,411       —       —       290,650       657,974       557,974  
Average interest rate(a)
     6.09 %     —       6.66 %     —       —       8.47 %     7.16 %        
 
                                                  
Total debt
   $ 356,639     $ 149,737     $ 40,106     $ 176,560     $ 281,843     $ 673,377     $ 1,678,262          
Average interest rate
     6.16 %     7.68 %     7.17 %     7.37 %     8.70 %     8.47 %     7.80 %        
Net discount
                                                     (2,982 )        
 
                                                              
Total debt
                                                   $ 1,675,280          
 
                                                              
Interest rate swaps (floating to fixed)(b)
                                                                
Notional amount
     —       —       —       —       —       100,000       100,000       102,222  
Pay rate
     —       —       —       —       —       7.80 %     7.80 %        
Receive rate
     —       —       —       —       —       —       —          
 
(a)   The average floating rate of interest represents the implied forward rates in the yield curve at December 31, 2005.
 
(b)   The interest rate swaps in effect during 2005 increased our interest expense by a net $0.3 million during 2005. The interest rate swaps in effect at December 31, 2005, mature in 2007 but are matched with debt maturing in 2011.
          Swap contracts, such as described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties.

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Item 8. Financial Statements and Supplementary Data
FELCOR LODGING LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
PART I — FINANCIAL INFORMATION

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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of FelCor Lodging Trust Incorporated:
We have completed integrated audits of FelCor Lodging Limited Partnership’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of FelCor Lodging Limited Partnership and its subsidiaries, or the Company, at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing in Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Dallas, Texas
March 1, 2007

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FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
(in thousands)
ASSETS
                 
    2006     2005  
Investment in hotels, net of accumulated depreciation of $612,286 in 2006 and $1,019,123 in 2005
   $ 2,044,285     $ 2,584,379  
Investment in unconsolidated entities
     111,716       109,262  
Hotels held for sale
     133,801       —  
Cash and cash equivalents
     124,179       94,564  
Restricted cash
     22,753       18,298  
Accounts receivable, net of allowance for doubtful accounts of $962 in 2006 and $2,203 in 2005
     33,395       54,815  
Deferred expenses, net of accumulated amortization of $8,841 in 2006 and $12,150 in 2005
     9,480       12,423  
Condominium development project
     70,661       16,051  
Other assets
     32,979       30,471  
 
            
Total assets
   $ 2,583,249     $ 2,920,263  
 
            
 
                
LIABILITIES AND PARTNERS’ CAPITAL
 
                
Debt, net of discount of $1,089 in 2006 and $2,982 in 2005
   $ 1,369,153     $ 1,675,280  
Distributions payable
     24,078       8,596  
Accrued expenses and other liabilities
     139,277       139,187  
 
            
Total liabilities
     1,532,508       1,823,063  
 
            
 
                
Commitments and contingencies
                
 
                
Redeemable units at redemption value, 1,355 and 2,763 units issued and outstanding at December 31, 2006 and 2005, respectively
     29,593       47,543  
 
            
Minority interest in other partnerships
     28,172       40,014  
 
            
Partners’ capital:
                
Preferred units, $.01 par value, 20,000 units authorized:
                
Series A Cumulative Convertible Preferred Units, 12,880 units issued and outstanding at December 31, 2006 and December 31, 2005
     309,362       309,362  
Series C Cumulative Redeemable Preferred Units, 68 units issued and outstanding at December 31, 2006
     169,412       169,412  
Common units, 69,438 and 69,440 units issued and outstanding at December 31, 2006 and 2005, respectively
     498,363       511,267  
Accumulated other comprehensive income
     15,839       19,602  
 
            
Total partners’ capital
     992,976       1,009,643  
 
            
 
                
Total liabilities and partners’ capital
   $ 2,583,249     $ 2,920,263  
 
            
The accompanying notes are an integral part of these consolidated financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands, except per unit data)
                         
    2006     2005     2004  
Revenues:
                        
Hotel operating revenue
   $ 990,959     $ 913,149     $ 840,416  
Retail space rental and other revenue
     79       1,506       2,196  
 
                  
Total revenues
     991,038       914,655       842,612  
 
                  
 
                        
Expenses:
                        
Hotel departmental expenses
     319,731       303,454       290,619  
Other property operating costs
     270,301       255,626       235,204  
Management and franchise fees
     51,237       45,215       42,664  
Taxes, insurance and lease expense
     112,052       104,852       92,256  
Abandoned projects
     33       265       —  
Corporate expenses
     23,308       19,025       17,033  
Depreciation
     94,579       84,448       78,116  
 
                  
 
                        
Total operating expenses
     871,241       812,885       755,892  
 
                  
 
                        
Operating income
     119,797       101,770       86,720  
Interest expense, net
     110,867       121,668       136,144  
Hurricane loss
     —       6,481       2,125  
Charge-off of deferred financing costs
     3,562       1,448       6,960  
Loss on early extinguishment of debt
     12,471       4,037       44,216  
Gain on swap termination
     (1,715 )     —       (1,005 )
 
                  
Loss before equity in income of unconsolidated entities, minority interests and gain on sale of assets
     (5,388 )     (31,864 )     (101,720 )
Equity in income from unconsolidated entities
     11,537       10,169       17,121  
Gain (loss) on sale of assets
     (92 )     469       —  
Minority interests
     1,884       1,409       555  
 
                  
 
                        
Income (loss) from continuing operations
     7,941       (19,817 )     (84,044 )
Discontinued operations
     43,383       (245,475 )     (22,764 )
 
                  
 
                        
Net income (loss)
     51,324       (265,292 )     (106,808 )
Preferred distributions
     (38,713 )     (39,408 )     (35,130 )
Issuance costs of redeemed preferred units
     —       (6,522 )     —  
 
                  
 
                        
Net income (loss) applicable to common unitholders
   $ 12,611     $ (311,222 )   $ (141,938 )
 
                  
Income (loss) per common unit data:
                        
Basic and diluted:
                        
Net loss from continuing operations
   $ (0.49 )   $ (1.06 )   $ (1.92 )
 
                  
Net income (loss)
   $ 0.20     $ (5.00 )   $ (2.29 )
 
                  
Weighted average units outstanding
     62,598       62,214       61,984  
 
                  
 
                        
Cash distributions declared on partnership units
   $ 0.80     $ 0.15     $ —  
The accompanying notes are an integral part of these consolidated financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 2006, 2005 and 2004
(in thousands)
                         
    2006     2005     2004  
Net income (loss)
   $ 51,324     $ (265,292 )   $ (106,808 )
Unrealized holding gains (loss) from interest rate swaps
     (507 )     2,074       147  
Realized gain from interest rate swaps
     (1,715 )     —       —  
Foreign currency translation adjustment
     (1,541 )     1,748       6,155  
 
                  
Comprehensive income (loss)
   $ 47,561     $ (261,470 )   $ (100,506 )
 
                  
The accompanying notes are an integral part of these consolidated financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the years ended December 31, 2006, 2005, and 2004
(in thousands)
                                 
                    Accumulated        
                    Other     Total  
    Preferred     Partnership     Comprehensive     Partners’  
    Units     Units     Income (Loss)     Capital  
Balance at December 31, 2003
   $ 318,907     $ 984,417     $ 9,478     $ 1,312,802  
Foreign exchange translation
     —       —       6,155       6,155  
Unrealized gain on hedging transaction
     —       —       147       147  
Issuance of Series A preferred units
     159,850       (3,850 )     —       156,000  
FelCor restricted stock compensation
     —       3,204       —       3,204  
Distributions
     —       (35,130 )     —       (35,130 )
Allocation to redeemable units
     —       (7,234 )     —       (7,234 )
Net loss
     —       (106,808 )     —       (106,808 )
 
                        
 
                                
Balance at December 31, 2004
     478,757       834,599       15,780       1,329,136  
Foreign exchange translation
     —       —       1,748       1,748  
Unrealized gain on hedging transaction
     —       —       2,074       2,074  
Issuance of Series C preferred units
     169,412       (5,492 )     —       163,920  
Retirement of Series B preferred units
     (169,395 )     —       —       (169,395 )
FelCor restricted stock compensation
     —       3,002       —       3,002  
Distributions
     —       (48,854 )     —       (48,854 )
Allocation to redeemable units
     —       (6,696 )     —       (6,696 )
Net loss
     —       (265,292 )     —       (265,292 )
 
                        
 
                                
Balance at December 31, 2005
     478,774       511,267       19,602       1,009,643  
Foreign exchange translation
     —       —       (1,541 )     (1,541 )
Unrealized loss on hedging transaction
     —       —       (507 )     (507 )
Realized gain on hedging transaction
     —       —       (1,715 )     (1,715 )
FelCor restricted stock compensation
     —       5,444       —       5,444  
Exercise of FelCor stock options
     —       2,188       —       2,188  
Repurchase of common units
     —       (818 )     —       (818 )
Distributions
     —       (88,992 )     —       (88,992 )
Allocation to redeemable units
     —       17,950       —       17,950  
Net income
     —       51,324       —       51,324  
 
                        
 
                                
Balance at December 31, 2006
   $ 478,774     $ 498,363     $ 15,839     $ 992,976  
 
                        
The accompanying notes are an integral part of these consolidated financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands)
                         
    2006     2005     2004  
Cash flows from operating activities:
                        
Net income (loss)
   $ 51,324     $ (265,292 )   $ (106,808 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                        
Depreciation
     110,274       122,535       122,653  
Gain on sale of assets
     (48,802 )     (12,522 )     (20,589 )
Amortization of deferred financing fees
     3,351       3,399       4,161  
Accretion amortization of debt
     1,105       1,167       510  
Amortization of unearned officers’ and directors’ compensation
     5,080       2,904       2,945  
Equity in income from unconsolidated entities
     (11,537 )     (10,169 )     (17,121 )
Distributions of income from unconsolidated entities
     3,632       1,062       11,932  
Charge-off of deferred financing costs
     3,643       2,659       6,960  
Loss on early extinguishment of debt
     13,701       8,641       44,216  
Impairment loss on investment in hotels and hotels held for sale
     16,474       266,751       38,289  
Minority interests
     (1,068 )     (9,618 )     (694 )
Changes in assets and liabilities:
                        
Accounts receivable
     12,571       (6,178 )     (2,213 )
Restricted cash operations
     (2,687 )     (6,941 )     (23,467 )
Other assets
     (9,076 )     (6,057 )     (957 )
Accrued expenses and other liabilities
     (285 )     19,141       (26,536 )
 
                  
Net cash flow provided by operating activities
     147,700       111,482       33,281  
 
                  
Cash flows provided by (used in) investing activities:
                        
Acquisition of hotels
     —       —       (27,759 )
Improvements and additions to hotels
     (168,525 )     (111,664 )     (95,599 )
Additions to condominium project
     (51,200 )     (11,546 )     —  
Acquisition of joint venture
     —       (1,197 )     —  
Cash from consolidation of venture
     —       3,204       —  
Proceeds from asset dispositions
     346,332       73,502       152,686  
Proceeds received from property damage insurance
     7,535       3,131       —  
Decrease (increase) in restricted cash-investing
     1,008       10,804       8,155  
Cash distributions from unconsolidated entities
     5,700       6,578       10,899  
Capital contributions to unconsolidated entities
     (250 )     (1,350 )     —  
 
                  
Net cash flow provided by (used in) investing activities
     140,600       (28,538 )     48,382  
 
                  
Cash flows provided by (used in) financing activities:
                        
Proceeds from borrowings
     540,494       233,911       523,802  
Repayment of borrowings
     (716,006 )     (292,990 )     (838,891 )
Payment of debt issue costs
     (3,985 )     (659 )     (5,517 )
Decrease in restricted cash financing
     2,825       4,401       —  
Net proceeds from sale of preferred units
     —       164,147       158,990  
Redemption of preferred units
     —       (169,395 )     —  
Exercise of stock options
     2,188       —       —  
Distributions paid to other partnerships’ minority interests
     (13,167 )     —       (4,000 )
Contribution from minority interest holders
     2,519       2,200       3,247  
Distributions paid to preferred unitholders
     (38,713 )     (39,905 )     (34,757 )
Distributions paid to common unitholders
     (34,829 )     (9,446 )     —  
 
                  
Net cash flow used in financing activities
     (258,674 )     (107,736 )     (197,126 )
 
                  
Effect of exchange rate changes on cash
     (11 )     46       2,888  
Net change in cash and cash equivalents
     29,615       (24,746 )     (112,575 )
Cash and cash equivalents at beginning of periods
     94,564       119,310       231,885  
 
                  
Cash and cash equivalents at end of periods
   $ 124,179     $ 94,564     $ 119,310  
 
                  
Supplemental cash flow information — Interest paid
   $ 118,502     $ 132,091     $ 162,324  
 
                  
The accompanying notes are an integral part of these consolidated financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.   Organization
          In 1994, FelCor Lodging Limited Partnership, or FelCor LP, was established with six hotels. Our sole general partner is FelCor Lodging Trust Incorporated, or FelCor, a Real Estate Investment Trust, or REIT. At December 31, 2006, we held ownership interests in 99 hotels and were the owner of the largest number of Embassy Suites Hotels and independently owned Doubletree-branded hotels in North America.
          At December 31, 2006, FelCor owned approximately 98% interest in our operations.
          At December 31, 2006, we owned a 100% real estate interest in 72 hotels, a 90% or greater interest in entities owning five hotels, a 75% interest in an entity owning one hotel, a 60% interest in an entity owning two hotels, and 50% interests in unconsolidated entities owning 19 hotels. As a result of our ownership interests in the operating lessees of 94 of these hotels, we reflect their operating revenues and expenses in our consolidated statements of operations. The operations of 83 of these consolidated hotels were included in continuing operations at December 31, 2006, and 11 hotels were held for sale and included in discontinued operations. The operating revenues and expenses of the remaining five hotels were reported on the equity method, four hotels were operated by 50% owned lessees and one hotel, in which we had a 50% ownership interest, was operated without a lease.
          At December 31, 2006, we had an aggregate of 63,407,199 redeemable and common units outstanding.
          The following table reflects the distribution, by brand, of the 83 hotels included in our consolidated hotel continuing operations at December 31, 2006:
                 
Brand   Hotels     Rooms  
Embassy Suites Hotels
     47       12,130  
Holiday Inn-branded
     17       6,301  
Starwood-branded
     9       3,217  
Doubletree-branded
     7       1,471  
Hilton-branded
     2       559  
Other brands
     1       403  
 
              
Total hotels
     83          
 
              
          The hotels shown in the above table are located in the United States (23 states) and Canada (two hotels), with concentrations in California (14 hotels), Florida (13 hotels) and Texas (11 hotels). Approximately 48% of our hotel room revenues were generated from hotels in these three states during 2006.
          At December 31, 2006, of the 83 consolidated hotels included in continuing operations, (i) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 54, (ii) subsidiaries of InterContinental Hotels Group, or IHG, managed 18, (iii) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood, managed 9, and (iv) independent management companies managed two.
          Certain reclassifications have been made to prior period financial information to conform to the current period’s presentation with no effect to previously reported net loss or partners’ capital.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.   Summary of Significant Accounting Policies
          Principles of Consolidation — Our accompanying consolidated financial statements include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation. Investments in unconsolidated entities (consisting entirely of 50 percent owned ventures) are accounted for by the equity method.
          Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America, requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
          Investment in Hotels — Our hotels are stated at cost and are depreciated using the straight-line method over estimated useful lives of 40 years for buildings, 15 to 20 years for improvements and three to seven years for furniture, fixtures, and equipment.
          We periodically review the carrying value of each of our hotels to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or modification of depreciation periods. If facts or circumstances support the possibility of impairment of a hotel, we prepare a projection of the undiscounted future cash flows, without interest charges, over the shorter of the hotel’s estimated useful life or the expected hold period, and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, we make an adjustment to reduce carrying value of the hotel to its then fair value. We use recent operating results and current market information to arrive at our estimates of fair value.
          Maintenance and repairs are expensed and major renewals and improvements are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from our accounts and the related gain or loss is included in operations.
          Acquisition of Hotels — Our hotel acquisitions consist almost exclusively of land, building, furniture, fixtures and equipment, and inventory. We allocate the purchase price among these asset classes based upon their respective values determined in accordance with Statement of Financial Accounting Standards, or SFAS, 141, “Business Combinations.” When we acquire properties, we acquire them for use. The only intangible assets typically acquired consist of miscellaneous operating agreements all of which are of short duration and at market rates. We do not generally acquire any significant in-place leases or other intangible assets (e.g., management agreements, franchise agreements or trademarks) when we acquire hotels. In conjunction with the acquisition of a hotel, we typically enter into new franchise and management agreements with the selected brand owner and manager.
          Investment in Unconsolidated Entities — We own a 50% interest in various real estate ventures in which the partners or members jointly make all material decisions concerning the business affairs and operations. Additionally, we also own a preferred equity interest in one of these real estate ventures. Because we do not control these entities, we carry our investment in unconsolidated entities at cost, plus our equity in net earnings or losses, less distributions received since the date of acquisition and any adjustment for impairment. Our equity in net earnings or losses is adjusted for the straight-line depreciation, over the lower of 40 years or the remaining life of the venture, of the difference between our cost and our proportionate share of the underlying net assets at the date of acquisition. We periodically review our investment in unconsolidated entities for other than temporary declines in fair value. Any decline that is not expected to be recovered in the next 12 months is considered other than temporary and an impairment is recorded as a reduction in the carrying value of the investment. Estimated fair values are based on our projections of cash flows and market capitalization rates.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.   Summary of Significant Accounting Policies — (continued)
          Hotels Held for Sale — We consider each individual hotel to be an identifiable component of our business. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we do not consider hotels as “held for sale” until it is probable that the sale will be completed within one year. Once a hotel is “held for sale” the operations related to the hotel are included in discontinued operations. In the last three years we have disposed of 68 non-strategic hotels. We had 11 remaining non-strategic hotels at December 31, 2006, that we intend to sell within the next twelve months. Based on our recent experience in the hospitality real estate market and the current contract and offer activity on these 11 non-strategic hotels, we consider it probable that they will be sold prior to December 31, 2007. As such, these hotels have been classified as “held for sale” as of December 31, 2006.
          We do not depreciate hotel assets that are classified as “held for sale.” Upon designating a hotel as “held for sale,” and quarterly thereafter, we review the carrying value of the hotel and, as appropriate, adjust its carrying value to the lesser of depreciated cost or fair value, less cost to sell, in accordance with SFAS 144. Any adjustment in the carrying value of a hotel classified as “held for sale” is reflected in discontinued operations. We include in discontinued operations the operating results of hotels classified as “held for sale” or that have been sold.
          Cash and Cash Equivalents — All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.
          We place cash deposits at major banks. Our bank account balances may exceed the Federal Depository Insurance Limits of $100,000; however, management believes the credit risk related to these deposits is minimal.
          Restricted Cash —Restricted cash includes reserves for capital expenditures, real estate taxes, and insurance, as well as cash collateral deposits for mortgage debt agreement provisions and capital expenditure obligations on sold hotels.
          Deferred Expenses — Deferred expenses, consisting primarily of loan costs, are recorded at cost. Amortization is computed using a method that approximates the interest method over the maturity of the related debt.
          Other Assets — Other assets consist primarily of hotel operating inventories, prepaid expenses and deposits.
          Revenue Recognition — Approximately 99.7% to 100.0% of our revenue is comprised of hotel operating revenues, such as room revenue, food and beverage revenue, and revenue from other hotel operating departments (such as telephone, parking and business centers). These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, 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. Appropriate allowances are made for doubtful accounts and are recorded as a bad debt expense. The remaining 0.1% to 0.3% of our revenue is from retail space rental revenue and other sources.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.   Summary of Significant Accounting Policies — (continued)
          We do not have any time-share arrangements and do not sponsor any frequent guest programs for which we would have any contingent liability. We participate in frequent guest programs sponsored by the brand owners of our hotels and we expense the charges associated with those programs (typically consisting of a percentage of the total guest charges incurred by a participating guest), as incurred. When a guest redeems accumulated frequent guest points at one of our hotels, the hotel bills the sponsor for the services provided in redemption of such points and records revenue in the amount of the charges billed to the sponsor. Associated with the frequent guest programs, we have no loss contingencies or ongoing obligation beyond what is paid to the brand owner at the time of the guest’s stay.
          We recognize revenue from the sale of condominium units using the completed contract method.
          Foreign Currency Translation — Results of operations for our Canadian hotels are maintained in Canadian dollars and translated using the average exchange rates during the period. Assets and liabilities are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Resulting translation adjustments are reflected in accumulated other comprehensive income and were $15.8 million and $17.4 million as of December 31, 2006 and 2005, respectively.
          Capitalized Cost — We capitalize interest and certain other costs, such as property taxes, land leases, and property insurance and employee costs relating to hotels undergoing major renovations and redevelopments. Such costs capitalized in 2006, 2005, and 2004, were $10.6 million, $8.4 million and $5.6 million, respectively.
          Net Income (Loss) Per Common Unit — We compute basic earnings per unit by dividing net income (loss) available to common unitholders by the weighted average number of common units outstanding. We compute diluted earnings per unit by dividing net income (loss) available to common unitholders by the weighted average number of common units and equivalents outstanding. Common unit equivalents represent shares issuable upon exercise of FelCor’s stock options and FelCor’s unvested officers’ restricted stock grants.
          For all years presented, our Series A Cumulative Preferred Unit, or Series A preferred units, if converted to common units, would be antidilutive; accordingly we do not assume conversion of the Series A preferred unit in the computation of diluted earnings per unit.
          Stock Compensation — We have no employees. FelCor as our sole general partner performs our management functions. In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123(R), Share-Based Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires companies to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and to record compensation cost for (i) all stock awards granted after the required date of adoption and to (ii) awards modified, repurchased, or cancelled after that date. In addition, FelCor is required to record compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption as such previous awards continue to vest. FelCor adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective application. FelCor’s adoption of this standard did not have a material impact on our consolidated financial statements.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.   Summary of Significant Accounting Policies — (continued)
          Prior to January 1, 2006, we applied Accounting Principles Board Opinion 25, or APB 25, and related interpretations in accounting for FelCor’s stock based compensation plans for stock based compensation issued prior to January 1, 2003. Had the compensation cost for these stock-based compensation plans been determined in accordance with SFAS No. 123 our net loss from continuing operations and net loss from continuing operations per common share for the years ended December 31, 2005 and 2004, would approximate the pro forma amounts below (in thousands, except per unit data):
                 
    2005     2004  
Loss from continuing operations, as reported
   $ (19,817 )   $ (84,044 )
Add stock based compensation included in the net loss, as reported
     2,904       2,945  
Less stock based compensation expense that would have been included in the determination of net loss if the fair value method had been applied to all awards
     (2,914 )     (3,001 )
 
            
Loss from continuing operations, pro forma
   $ (19,827 )   $ (84,100 )
 
            
 
                
Basic and diluted net loss from continuing operations per common unit:
                
As reported
   $ (1.06 )   $ (1.92 )
Pro forma
   $ (1.06 )   $ (1.92 )
          The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts.
          Derivatives — We record derivatives in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either partners’ capital or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and the nature of the hedging activity.
          Segment Information — SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” requires the disclosure of selected information about operating segments. Based on the guidance provided in the standard, we have determined that our business is conducted in one operating segment.
          Distributions— We resumed paying a common distribution with the fourth quarter 2005 payment of $0.15 per unit. In 2006, we declared common distributions of $0.80 per unit. Additionally, we have paid regular quarterly distributions on our preferred units in accordance with our preferred unit distribution requirements.
          Minority Interests — Minority interests in consolidated subsidiaries represent the proportionate share of the equity in subsidiaries not owned by us. We allocate income and loss to minority interest based on the weighted average percentage ownership throughout the year.
          Income Taxes — We are a partnership under the Internal Revenue Code. As a partnership, generally our taxable income or loss, or tax credits, are passed through to our partners. However, we generally lease our hotels to wholly-owned taxable REIT subsidiaries, or TRSs, that are subject to federal and state income taxes. Through these lessees we record room revenue, food and beverage revenue and other revenue related to the operations of our hotels. We account for income taxes in accordance with the provisions of SFAS 109. Under SFAS 109, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.   Investment in Hotels
          Investment in hotels at December 31, 2006 and 2005 consisted of the following (in thousands):
                 
    2006     2005  
Building and improvements
   $ 2,058,563     $ 2,710,465  
Furniture, fixtures and equipment
     308,838       567,330  
Land
     203,791       291,074  
Construction in progress
     85,379       34,633  
 
            
 
     2,656,571       3,603,502  
Accumulated depreciation
     (612,286 )     (1,019,123 )
 
            
 
   $ 2,044,285     $ 2,584,379  
 
            
          In 2006, we wrote off fully depreciated furniture, fixtures and equipment aggregating $264.6 million.
          Discussions of hotel dispositions are included in our Discontinued Operations footnote.
          We invested $169 million and $112 million in additions and improvements to our consolidated hotels during the years ended December 31, 2006 and 2005, respectively.
4.   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 as defined by SFAS 144 for purposes of determining impairment charges and reporting discontinued operations.
          A hotel held for investment is tested for impairment whenever changes in circumstances indicate its carrying value may not be recoverable. The test is conducted using the undiscounted cash flows for the shorter of the estimated remaining holding periods or the useful life of the hotel. When testing for recoverability of hotels held for investment, we use projected cash flows over the expected hold period. Those hotels held for investment that fail the impairment test described in SFAS 144 were written down to their then current estimated fair value, before any selling expenses. These hotels continue to be depreciated over their remaining useful lives.
          Hotels held for sale are tested for impairment each reporting period and are recorded at the lower of their carrying amounts or fair value less costs to sell. These hotels are not depreciated after they have been designated as held for sale.
          When determining fair value for purposes of determining impairment we use a combination of historical and projected cash flows and other available market information, such as recent sales prices for similar assets in specific markets. The cash flows used for determining fair values are discounted using a reasonable capitalization rate, or as earlier noted based on the local market conditions using recent sales of similar assets. In some cases we are able to establish fair value based on credible offers received from prospective buyers.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.   Impairment Charges — (continued)
          In 2006, we recorded impairment charges of $16.5 million under the provisions of SFAS 144. Of the 2006 charges, $9.3 million were related to our decision to designate seven additional hotels held for investment as non-strategic, $5.9 million related to a change in fair value estimates of held for investment hotels previously designated as non-strategic, and $1.3 million related to charges necessary to record two non- strategic hotels as of December 31, 2006 as held for sale at the lower of their carrying amount or fair value less costs to sell. In February 2007, we sold two non-strategic hotels for gross proceeds of $42.7 million.
          In 2005, we recorded impairment charges, under the provisions of SFAS 144, of $266.8 million, all of which was included in discontinued operations at December 31, 2006. The 2005 charges primarily related to our decision to designate as non-strategic and sell 28 additional hotels, in connection with the negotiation of the amendment to our IHG management agreements. Under the management agreements entered into with IHG in 2001 and amended in 2004, we were obligated to reinvest the net proceeds from the sale of IHG-managed hotels in other IHG-managed hotels or pay substantial liquidated damages to IHG. This potential exposure to liquidated damages made it impractical to sell IHG-managed hotels. In January 2006, we executed an agreement modifying our management agreements covering our hotels managed by IHG. This agreement eliminated any potential liquidated damages or reinvestment requirement with respect to hotels previously sold, certain IHG-managed hotels identified for sale and one Crowne Plaza hotel to be converted to another brand. We also recorded impairment charges with respect to 11 hotels previously designated as non-strategic principally because of revised estimates of fair value resulting from changes in the market and sales offers. In January 2006, we sold eight non-strategic hotels for gross proceeds of approximately $160 million.
          In 2004, we recorded impairment charges, under the provisions of SFAS 144, of $38.3 million, all of which was included in discontinued operations at December 31, 2006. The 2004 charges were related to 17 hotels. With respect to one hotel, we entered into an agreement that would permit the option holder to purchase the hotel for substantially less than its carrying value. The remaining hotels had revised estimates of fair value or reduced estimated holding periods.
          We may be subject to additional impairment charges in the event that operating results of individual hotels are materially different from our forecasts, the economy and lodging industry weaken, or if we shorten our contemplated holding period for certain of our hotels. Of the 51 hotels on which we recorded impairment in 2006, 2005 and 2004, 45 have been sold.
5.   Discontinued Operations
          The results of operations of the 31 hotels disposed of in 2006, 19 hotels disposed of in 2005 and 18 hotels disposed of in 2004, and 11 hotels held for sale at December 31, 2006 are presented in discontinued operations for the periods presented.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.   Discontinued Operations — (continued)
          Results of operations for the 79 hotels included in discontinued operations are as follows:
                         
    Year Ended December 31,  
    2006     2005     2004  
Hotel operating revenue
   $ 204,494     $ 343,492     $ 418,271  
Operating expenses
     (200,958 )     (593,211 )     (448,297 )
 
                  
Operating income (loss)
     3,536       (249,719 )     (30,026 )
Direct interest costs, net
     (1,206 )     (10,203 )     (13,466 )
Loss on the early extinguishment of debt
     (1,311 )     (5,815 )     —  
Gain on sale, net of tax
     43,180       12,053       20,589  
Minority interest
     (816 )     8,209       139
 
                  
Income (loss) from discontinued operations
   $ 43,383     $ (245,475 )   $ (22,764 )
 
                  
          Impairment losses of $16.5 million, $266.8 million and $38.3 million are included in the operating expenses from discontinued operations for the years ending December 31, 2006, 2005 and 2004, respectively.
          In 2006, we sold 31 hotels for gross proceeds of $514.4 million for a net gain of $43.2 million, which is net of approximately $5.7 million in taxes related to the sale of these hotels.
          In 2005, we sold 11 hotels for gross proceeds of $79.2 million. Additionally, in 2005 we relinquished title to the non-recourse mortgage holder of eight limited service hotels, owned by a consolidated joint venture, in exchange for the extinguishment of $49.2 million of debt. Associated with these eight hotels we recorded $1.3 million of asset disposition costs and $3.3 million gain on early extinguishment of debt.
          In 2004, we sold 17 hotels for gross proceeds of $157.0 million. We also transferred our interest in a hotel that we leased to the lessor in 2004. In conjunction with the termination of this lease we paid the lessor $5 million, which was recorded as asset disposition costs.
6.   Investment in Unconsolidated Entities
          We owned 50% interests in joint venture entities that owned 19 hotels at December 31, 2006 and December 31, 2005. We also owned a 50% interest in entities that own real estate in Myrtle Beach, South Carolina, provide condominium management services, and lease four hotels. We account for our investments in these unconsolidated entities under the equity method. We do not have any majority-owned subsidiaries that are not consolidated 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.
          Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
                 
    December 31,  
    2006     2005  
Balance sheet information:
                
Investment in hotels, net of accumulated depreciation
   $ 260,628     $ 259,645  
Total assets
   $ 297,712     $ 295,065  
Debt
   $ 197,462     $ 203,880  
Total liabilities
   $ 203,659     $ 211,174  
Equity
   $ 94,053     $ 83,891  
          Debt of our unconsolidated entities at December 31, 2006, consisted entirely of non-recourse mortgage debt.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6.   Investment in Unconsolidated Entities — (continued)
          Summarized combined statement of operations information for 100% of our unconsolidated entities is as follows (in thousands):
                         
    2006     2005     2004  
Total revenues
   $ 83,766     $ 75,396     $ 67,902  
Net income
   $ 26,764     $ 21,801     $ 33,746 (a)
 
                        
Net income attributable to FelCor LP
   $ 13,382     $ 11,348     $ 18,483  
Preferred return
     —       516       516  
Depreciation of cost in excess of book value
     (1,845 )     (1,695 )     (1,878 )
 
                  
Equity in income from unconsolidated entities
   $ 11,537     $ 10,169     $ 17,121  
 
                  
 
          (a) Includes $17.5 million from the gain on the sale of residential condominium development in Myrtle Beach, South Carolina, which was realized in 2004. Our share of the gain was $8.8 million. We also recorded additional gains of $1.9 million in our equity in income from unconsolidated entities to reflect the differences between our historical basis in the assets sold and the basis recorded by the condominium joint venture.
          A summary of the components of our investment in unconsolidated entities as of December 31, 2006 and 2005 are as follows (in thousands):
                 
    2006     2005  
Hotel investments
   $ 48,641     $ 43,117  
Cost in excess of book value of hotel investments
     61,253       63,098  
Land and condominium investments
     3,513       4,270  
Hotel lessee investments
     (1,691 )     (1,223 )
 
            
 
   $ 111,716     $ 109,262  
 
            
          A summary of the components of our equity in income of unconsolidated entities for the years ended December 31, 2006, 2005, and 2004, are as follows (in thousands):
                         
    2006     2005     2004  
Hotel investments
   $ 12,090     $ 10,691     $ 17,673  
Hotel lessee operations
     (553 )     (522 )     (552 )
 
                  
Equity in income from unconsolidated entities
   $ 11,537     $ 10,169     $ 17,121  
 
                  
          In 2005, we acquired, for $1.2 million, an additional 25% interest in a joint venture owning a single hotel, bringing our interest in this previously unconsolidated venture to 75%. This venture has been included in our consolidated financial statements from the date of acquisition of the remaining interest.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.   Debt
          Debt at December 31, 2006 and 2005 consisted of the following (in thousands):
                                 
                    Balance Outstanding  
    Encumbered   Interest Rate at     Maturity   December 31,  
    Hotels   December 31, 2006     Date   2006     2005  
Promissory note
   —     —     —   $ —     $ 650  
Line of credit(a)
   none     L + 1.75     January 2009     —       —  
Senior term notes
   —     —     —     —       123,358  
Senior term notes
   none     8.50     June 2011     298,911       298,660  
Term loan
   —     —     —     —       225,000  
Senior term notes
   —     —     —     —       290,000  
Senior term notes
   none     L + 1.875     December 2011     215,000       —  
 
                          
Total line of credit and senior debt(d)
         7.98           513,911       937,668  
 
                          
 
                                
Mortgage debt(b)
   12 hotels     L + 0.93     November 2008     250,000       —  
Mortgage debt
   8 hotels     6.56     July 2009-2014     97,553       104,282  
Mortgage debt
   —     —     —     —       117,913  
Mortgage debt
   7 hotels     7.32     March 2009     124,263       127,455  
Mortgage debt
   —     —     —     —       41,912  
Mortgage debt
   8 hotels     8.70     May 2010     169,438       172,604  
Mortgage debt
   6 hotels     8.73     May 2010     122,578       133,374  
Mortgage debt
   1 hotel     L + 2.85     August 2008     15,500       15,500  
Mortgage debt
   1 hotel     5.81     July 2016     12,861       10,457  
Other
   1 hotel     9.17     August 2011     4,452       5,204  
Construction loan(c)
   —     L + 2.00     October 2007     58,597       8,911  
 
                        
Total mortgage debt(d)
   44 hotels     7.41           855,242       737,612  
 
                        
 
                                
Total(d)
         7.62 %       $ 1,369,153     $ 1,675,280  
 
                          
 
(a)   We have a borrowing capacity of $125 million on our line of credit. The interest on this line can range from 175 to 225 basis points over LIBOR based on our leverage ratio as defined in our line of credit agreement.
 
(b)   This debt has three, one-year extension options.
 
(c)   We have a recourse construction loan facility for the development of a 184-unit condominium project in Myrtle Beach, South Carolina. The interest on this facility is being capitalized as part of the cost of the project. We have pre sold approximately 98% of these condominiums and expect to start repaying the construction loan as the unit sales are finalized, beginning in the second quarter of 2007.
 
(d)   Interest rates are calculated based on the weighted average outstanding debt at December 31, 2006.
          We reported interest income of $4.1 million, $4.1 million and $2.8 million for the years ended December 31, 2006, 2005 and 2004, respectively. We capitalized interest of $4.9 million, $1.9 million and $1.5 million, for the years ended December 31, 2006, 2005 and 2004, respectively.
          In October 2006, FelCor LP sold $215 million of senior floating rate notes in a private offering to qualified institutional buyers. These notes bear interest at LIBOR plus 1.875% and mature in 2011. In addition, payment of amounts due under these notes is guaranteed by us and certain of our subsidiaries who also guarantee payment of our line of credit and other senior debt (other than mortgage debt) and payment of these notes is secured by a pledge of limited partnership interest in FelCor Lodging LP. In November 2006, we also completed a $250 million non-recourse mortgage facility secured by 12 hotels at LIBOR plus 0.93% maturing in two years with three one year extensions at our option.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.   Debt — (continued)
          During the fourth quarter of 2006, we redeemed all of our outstanding $290 million senior floating rate notes due 2011 and all of our outstanding $125 million 75/8 senior notes due 2007. In addition, we repaid $137 million of outstanding debt secured by mortgages on certain of our hotels. Proceeds from our October 2006 senior note offering and November 2006 mortgage debt facility, together with cash proceeds from hotel sales were used to fund the redemption of senior notes and the repayment of the mortgage debt.
          In connection with the repayment of our $290 million senior floating rate notes, we unwound the floating to fixed interest rate swaps associated with these notes. Termination of these interest rate swaps resulted in gain of approximately $1.7 million, which was recorded in the fourth quarter 2006.
          The early retirement of certain indebtedness in 2006, resulted in net charges related to debt extinguishment of approximately $15.6 million. As a result of the foregoing refinancing transactions, our annual interest expense will be reduced by approximately $5 million, our weighted average cost of debt will be reduced by approximately 50 basis points and our next significant debt maturity will not be until 2009.
          During 2006, we retired approximately $355.8 million of aggregate debt with proceeds of hotel sales, new debt and cash and we borrowed $49.7 million on our Royale Palms condominium development construction loan. In connection with the early debt retirement, we recorded $17.3 million of expense during 2006.
          In the fourth quarter of 2005, we retired $258 million of mortgage debt related to 25 hotels and entered into a $225 million unsecured term loan. In connection with the early retirement of $258 million of mortgage debt we recorded $15 million expense in the fourth quarter of 2005.
          On June 9, 2004, we redeemed all $175 million in principal amount of our outstanding 7.375% senior notes due 2004. The redemption price was $1,018 per $1,000 of the principal amount, plus accrued interest. With the retirement of this debt, we recorded a loss on redemption of $3.2 million and wrote off $0.3 million of debt issue costs. We also recorded a $1 million gain on the unwinding of the interest rate swaps tied to this debt.
          During 2004, we purchased all $600 million of our 9.5% senior notes due 2008 (which bore interest at 10% as a result of the 2003 downgrade of the credit ratings on our senior notes) through tender offers, redemptions and by purchases in the open market, at an average price of $1,063.55 per $1,000 in principal amount. With the retirement of this debt, we recorded a loss on early extinguishment of debt of $41 million of which $38.2 million related to the premium paid in excess of par and $2.8 million related to the charge off of unamortized discount. We also wrote off debt issue costs of $6.5 million.
          In 2004, we also elected to terminate our then existing line of credit and wrote off debt issue costs of $0.2 million.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.   Debt — (continued)
          At December 31, 2006, we had aggregate mortgage indebtedness, of approximately $855.2 million that was secured by 44 of our consolidated hotels with an aggregate book value of approximately $1.0 billion and a $58.6 million construction loan related to our Royale Palms condominium development. Our hotel mortgage debt is recourse solely to the specific assets securing the debt, except in the case of fraud, misapplication of funds and other customary recourse carve-out provisions. Loans secured by two hotels provide for lock-box arrangements under certain circumstances. With respect to these loans, we are permitted to retain 115% of budgeted hotel operating expenses, but the remaining revenues would become subject to a lock-box arrangement if a specified debt service coverage ratio is not met. These hotels currently exceed the minimum debt service coverage ratio, however, under the terms of the loan agreement, the lock-box provisions remain in place until the loan is repaid. Neither of these hotels has ever fallen below the debt service coverage ratio.
          Our hotel mortgage debt is non-recourse to us and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of our mortgage debt is prepayable, subject to various prepayment, yield maintenance or defeasance obligations.
          Our $125 million line of credit contains certain restrictive covenants, including a leverage ratio, fixed charge coverage ratio, unencumbered leverage ratio and a maximum payout ratio. The interest on our line can range from 175 to 225 basis points over LIBOR, based on our leverage ratio as defined in our line of credit agreement. In addition to financial covenants, our line of credit includes certain other affirmative and negative covenants, including restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation/ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred units, unit repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, to issue stock of our subsidiaries and to sell all or substantially all of our assets; restrictions on our ability to make investments in condominium developments; limitations on our ability to change the nature of our business; limitations on our ability to modify certain instruments, to create liens, to enter into transactions with affiliates; and limitations on our ability to enter into joint ventures. At the date of this filing, we were in compliance with all of these covenants. If operating results fall significantly below our current expectations, we may not be able to meet some or all of these covenants in which case we may be unable to borrow under our line of credit.
          The breach of any of the covenants and limitations under our line of credit could result in the acceleration of amounts outstanding. Our failure to satisfy any accelerated recourse indebtedness, if in the amount of $10 million or more, could result in the acceleration of our other unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.
          Our other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than our line of credit. Payment of amounts due under our line of credit is guaranteed by us and certain of our subsidiaries who also guarantee payment of our senior debt and payment is secured by a pledge of FelCor’s limited partnership interest in us.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.   Debt — (continued)
    At December 31, 2006, we had no borrowings under our line of credit. Our interest rate on our line of credit has decreased from LIBOR plus 2.25% to LIBOR plus 1.75% during 2006 based on our leverage ratio as defined in our line of credit agreement.
 
    Future scheduled principal payments on debt obligations at December 31, 2006, are as follows (in thousands):
         
Year        
2007
   $ 71,336  
2008
     279,233 (a)
2009
     142,240  
2010
     274,535  
2011
     518,030  
2012 and thereafter
     84,868  
 
      
 
     1,370,242  
Discount accretion over term
     (1,089 )
 
      
 
   $ 1,369,153  
 
      
 
(a)   Includes $250 million of mortgage debt that has three, one-year extension options.
8.   Derivatives
          On the date we enter into a derivative contract, we designate the derivative as a hedge to the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), or the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge). For a fair value hedge, the gain or loss is recognized in earnings in the period of change, together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. At December 31, 2006, we did not have any outstanding hedges.
          We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy, relating to our various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or specific firm commitments. We also formally assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows or fair values of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When we determine that a derivative is not (or has ceased to be) highly effective as a hedge, we will discontinue hedge accounting, prospectively.
          In the normal course of business, we are exposed to the effect of interest rate changes. We limit these risks by following established risk management policies and procedures including the use of derivatives. It is our objective to use interest rate hedges to manage our fixed and floating interest rate position and not to engage in speculation on interest rates. We manage interest rate risk based on the varying circumstances of anticipated borrowings, and existing floating and fixed rate debt. We will generally seek to pursue interest rate risk mitigation strategies that will result in the least amount of reported earnings volatility under generally accepted accounting principles, while still meeting strategic economic objectives and maintaining adequate liquidity and flexibility. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8.   Derivatives — (continued)
          During 2006, we terminated three interest rate swaps with aggregate notional amount of $100 million, maturing in December 2007. These interest rate swaps were designated as cash flow hedges, and were marked to market through other comprehensive income. The unrealized net gain on these interest rate swap agreements was approximately $1.7 million when terminated. Upon termination this gain was realized and reclassified from accumulated other comprehensive income to earnings. The interest rate received on these interest rate swaps was 4.25% plus LIBOR and the interest rate paid was 7.80%. These swaps were 100% effective through this termination date.
          In June 2004, we unwound six interest rate swap agreements, designated as fair value hedges, with an aggregate notional amount of $175 million that were matched with the $175 million in senior unsecured notes due 2004 that we redeemed. A $1 million gain was recorded, offsetting the loss on the redemption of the debt. Also during June 2004, five additional swaps with an aggregate amount of $125 million that were matched to the $125 million senior unsecured notes due 2007 were unwound at a cost of $2.3 million. The $2.3 million was applied to the principal balance of these notes and will be amortized to interest expense over the remaining life of the debt. During July 2004, four interest rate swap agreements with a notional value of $100 million, that were matched to mortgage debt maturing in November 2007, were unwound at a cost of $1.3 million.
          To determine the fair values of our derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
          The amounts paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change, and we recognize them as an adjustment to interest expense, which will have a corresponding effect on our future cash flows. Our interest rate swaps reduced interest expense by $1.2 million and $4.1 million during the years ended December 31, 2006 and 2004, respectively, and increased interest expense by $0.3 million during the year ended December 31, 2005.
          To fulfill requirements under certain loans, we purchased interest rate caps with aggregate notional amounts of $337.3 million and $225.7 million as of December 31, 2006 and December 31, 2005, respectively. We also sold interest rate caps on a portion of these notional amounts with identical terms that had aggregate notional amounts of $225.7 million at December 31, 2005. The purchased interest rate cap agreements as of December 31, 2006 and the purchased and sold interest rate cap agreements at December 31, 2005 were not designated as hedges. The fair value of both the purchased and sold interest rate caps were insignificant at both December 31, 2006 and 2005 and resulted in no significant net earnings impact.
9.   Fair Value of Financial Instruments
          SFAS 107 requires disclosures about the fair value of all financial instruments, whether or not recognized for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 2006. Considerable judgment is necessary to interpret market data and develop 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. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9.   Fair Value of Financial Instruments — (continued)
          Our estimates of the fair value of (i) accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) debt is based upon effective borrowing rates for issuance of debt with similar terms and remaining maturities; and (iii) our interest rate swaps and the hedged debt are recorded at estimates of fair value, which are based on the amount that we estimate we would currently receive upon termination of these instruments at current market rates and with reasonable assumptions about relevant future market conditions. The estimated fair value of our debt was $1.4 billion at December 31, 2006.
10.   Income Taxes
          FelCor LP is not a taxpaying entity. However, under our partnership agreement we are required to reimburse FelCor for any tax payments FelCor is required to make. Accordingly, the tax information included herein represents disclosures regarding FelCor and taxable subsidiaries.
          FelCor has elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, FelCor must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its taxable income to its stockholders. It is FelCor’s management’s current intent to adhere to these requirements and maintain its REIT status. As a REIT, it generally will not be subject to corporate level federal income taxes on net income it distributes to its stockholders. If it fails to qualify as a REIT in any taxable year, FelCor will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. We are FelCor’s only source of income. Accordingly, we are required to make distributions sufficient to enable FelCor to payout enough of its taxable income to satisfy the applicable distribution requirement. If FelCor fails to qualify as a REIT, we would be required to distribute to FelCor the funds needed to pay income taxes. Even if FelCor qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries, or TRSs, is subject to federal, state and local taxes.
          We generally lease our hotels to wholly-owned TRSs that are subject to federal and state income taxes. In 2005 and 2004, we also contributed certain hotels to our wholly-owned TRSs. We account for income taxes in accordance with the provisions of SFAS 109, “Accounting for Income Taxes.” Under SFAS 109, we account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Reconciliation between TRS’s GAAP net loss and taxable loss:
          The following table reconciles the TRS GAAP net loss to taxable loss for the years ended December 31, 2006, 2005, and 2004 (in thousands):
                         
    2006     2005     2004  
GAAP net income (loss)
   $ 51,324     $ (265,292 )   $ (106,808 )
GAAP net loss (income) not related to taxable subsidiaries
     (55,173 )     (23,560 )     41,849  
 
                  
GAAP net loss of taxable subsidiaries
     (3,849 )     (288,852 )     (64,959 )
Impairment loss not deductible for tax
     7,206       231,605       8,509  
Tax gain (loss) in excess of book gains on sale of hotels
     116,308       (39,842 )     (51,576 )
Depreciation and amortization(a)
     (3,379 )     (1,910 )     (4,948 )
Employee benefits not deductible for tax
     (1,537 )     1,708       1,040  
Other book/tax differences
     (1,653 )     4,779       (3,216 )
 
                  
Tax gain (loss) of taxable subsidiaries
   $ 113,096     $ (92,512 )   $ (115,150 )
 
                  
 
(a)   The changes in book/tax differences in depreciation and amortization principally result from book and tax basis differences, differences in depreciable lives and accelerated depreciation methods.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes — (continued)
Summary of TRS’s net deferred tax asset:
          At December 31, 2006 and 2005, our TRS had a deferred tax asset, prior to any valuation allowance, primarily comprised of the following (in thousands):
                 
    2006     2005  
Accumulated net operating losses of our TRS
   $ 119,850     $ 162,827  
Tax property basis in excess of book
     1,128       —  
Accrued employee benefits not deductible for tax
     9,111       9,695  
Bad debt allowance not deductible for tax
     367       837  
 
            
Gross deferred tax assets
     130,456       173,359  
Valuation allowance
     (130,456 )     (133,138 )
 
            
Deferred tax asset after valuation allowance
     —       40,221  
 
            
Gross deferred tax liability – book property basis in excess of tax
     —       (40,221 )
 
            
Net deferred tax asset
   $ —     $ —  
 
            
          We have provided a valuation allowance against our deferred tax asset at December 31, 2006 and 2005, that results in no net deferred tax asset at December 31, 2006 and 2005 due to the uncertainty of realization (because of historical operating losses). Accordingly, no provision or benefit for income taxes is reflected in the accompanying Consolidated Statements of Operations. At December 31, 2006, the TRS had net operating loss carryforwards for federal income tax purposes of $315.4 million, which are available to offset future taxable income, if any, through 2025.
Reconciliation between FelCor’s REIT GAAP net loss and taxable income loss:
     The following table reconciles FelCor’s REIT GAAP net income (loss) to taxable income (loss) for the years ended December 31, 2006, 2005 and 2004 (in thousands):
                         
    2006     2005     2004  
GAAP net income (loss) not related to taxable subsidiary
   $ 55,173     $ 23,560     $ (41,849 )
Losses allocated to unitholders other than FelCor
     (279 )     13,677       6,681  
 
                  
GAAP net income (loss) from REIT operations
     54,894       37,237       (35,168 )
Book/tax differences, net:
                        
Depreciation and amortization(a)
     (2,995 )     4,797       2,386  
Minority interests
     (19,869 )     (24,204 )     (2,724 )
Tax loss in excess of book gains on sale of hotels
     9,268       (21,547 )     (10,893 )
Impairment loss not deductible for tax
     (445 )     35,146       29,779  
Other
     (1,444 )     4,045       1,314  
 
                  
Taxable income (loss) subject to distribution requirement(b)
   $ 39,409     $ 35,474     $ (15,306 )
 
                  
 
(a)   Book/tax differences in depreciation and amortization principally result from differences in depreciable lives and accelerated depreciation methods.
 
(b)   The dividend distribution requirement is 90%.
          If we sell any asset acquired from Bristol Hotel Company, or Bristol, within 10 years after our merger with Bristol in 1998, and FelCor recognizes a taxable gain on the sale, FelCor will be taxed at the highest corporate rate on an amount equal to the lesser of the amount of gain that it recognized at the time of the sale, or the amount of gain that FelCor would have recognized if FelCor had sold the asset at the time of the Bristol merger for its then fair market value. Many of the hotels sold in our disposition program were originally acquired at the time of the Bristol merger. In 2006, FelCor recorded $0.9 million of built in gain tax with respect to the sale of one hotel, but have been able to avoid any other substantial built in gain tax on these sales by offsetting built in losses or other tax planning strategies. FelCor believes that it will be able to avoid any additional substantial built in gain tax on future sales through offsetting built in losses, like kind exchanges and other tax planning strategies.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Redeemable Operating Partnership Units and Partners’ Capital
          FelCor is our sole general partner and is obligated to contribute the net proceeds from any issuance of its equity securities to us in exchange for units corresponding in number and terms to the equity securities issued by it. We may also issue to third parties in exchange for a like number of shares of FelCor common stock or, at the option of FelCor, for the cash equivalent thereof. Due to these redemption rights, these limited partnership units have been excluded from partners’ capital and are included in redeemable units and measured at redemption value as the end of the periods presented. At December 31, 2006 and 2005 there were 1,355,016 and 2,762,540 redeemable units outstanding. During 2006, 2005 and 2004, 1,407,524 units, 25,595 units and 245,398 units, respectively, were exchanged for a like number of FelCor common stock issued from treasury stock.
          At December 31, 2006, FelCor had $600 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under a shelf registration statement previously declared effective.
Preferred Units
          FelCor’s board of directors is authorized to provide for the issuance of up to 20 million shares of preferred stock in one or more series, to establish the number of shares in each series, to fix the designation, powers, preferences and rights of each such series, and the qualifications, limitations or restrictions thereof.
          In 1996, FelCor issued 6.1 million shares of its Series A preferred stock at $25 per share. In April 2004, FelCor completed the sale of 4.6 million additional shares of its Series A preferred stock. The shares were sold at a price of $23.79 per share, which included accrued dividends of $0.51 per share through April 5, 2004, resulting in net proceeds of $104 million. In August 2004, FelCor completed the sale of an additional 2.3 million shares of its Series A preferred stock. The shares were sold at a price of $23.22 per share, which included accrued dividends of $0.28 per share through August 22, 2004, resulting in net proceeds of $52 million. The proceeds were contributed to us in exchange for a like number of Series A preferred units. The preference on these units is the same as FelCor’s Series A preferred stock.
          The Series A preferred units bear an annual cumulative dividend payable in arrears equal to the greater of $1.95 per share or the cash distributions declared or paid for the corresponding period on the number of shares of common stock into which the Series A preferred units is then convertible. Each unit of the Series A preferred units is convertible at the unitholder’s option to 0.7752 shares of common partnership units, subject to certain adjustments. During 2000, holders of 69,400 shares of Series A preferred units converted their shares to 53,798 common partnership units.
          In 1998, FelCor issued 5.75 million depositary shares, representing 57,500 shares of its 9% Series B preferred stock at $25 per depositary share. In 2002, FelCor issued 1,025,800 additional depositary shares, representing 10,258 shares of its Series B preferred stock at $24.37 per depositary share to yield 9.4%. In 2005, FelCor redeemed all of the outstanding Series B preferred stock from the proceeds of the issuance of its Series C preferred stock.
          On April 8, 2005, FelCor completed the issuance of 5.4 million depositary shares and issued an additional 1.4 million depositary shares on August 30, 2005, each representing 1/100 of a share of its 8% Series C Cumulative Redeemable Preferred Stock, or Series C preferred stock, with gross proceeds of $169.4 million. FelCor contributed the proceeds to us in exchange for a like number of Series C preferred units. We used the proceeds to redeem all of our Series B preferred units from FelCor. FelCor then redeemed all the outstanding shares of its Series B preferred stock. The redemption of the Series B preferred units resulted in a reduction in income available to common unitholders of $6.5 million, representing the original issuance cost of the Series B preferred units redeemed. FelCor may call the Series C preferred stock and the

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Redeemable Operating Partnership Units and Partners’ Capital – (continued)
corresponding depositary shares at $25 per depositary share. These shares have no stated maturity, sinking fund or mandatory redemption, and are not convertible into any of our other securities. The Series C preferred stock has a liquidation preference of $2,500 per share (equivalent to $25 per depositary share) and is entitled to annual cumulative dividends at the rate of 8% of the liquidation preference (equivalent to $2.00 annually per depositary share). The preference on our Series C preferred units is the same as FelCor’s Series C preferred stock.
          Accrued distributions payable on our common units, Series A and Series C preferred units aggregating $24.1 million at December 31, 2006, were paid in January 2007.
12. Hotel Operating Revenue, Departmental Expenses, and Other Property Operating Costs
          Hotel operating revenue from continuing operations was comprised of the following (in thousands):
                         
    Year Ended December 31,  
    2006     2005     2004  
Room revenue
   $ 809,466     $ 742,882     $ 677,169  
Food and beverage revenue
     129,200       121,836       116,829  
Other operating departments
     52,293       48,431       46,418  
 
                  
Total hotel operating revenues
   $ 990,959     $ 913,149     $ 840,416  
 
                  
          Approximately 99.7% to 100.0% of our revenue in 2006, 2005 and 2004 was comprised of hotel operating revenues, which includes room revenue, food and beverage revenue, and revenue from other operating departments (such as telephone, parking and business centers). These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, 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. Appropriate allowances are made for doubtful accounts and are recorded as a bad debt expense. The remainder of our revenue was from retail space rental revenue and other sources. During 2004, we recorded $1 million of other revenue that we received in development fees from the successful completion of a condominium project.
          We do not have any time-share arrangements and do not sponsor any guest frequency programs for which we would have any contingent liability. We participate in guest frequency programs sponsored by the brand owners of our hotels, and we expense the charges associated with those programs (typically consisting of a percentage of the total guest charges incurred by a participating guest), as incurred. When a guest redeems accumulated guest frequency points at one of our hotels, the hotel bills the sponsor for the services provided in redemption of such points and records revenue in the amount of the charges billed to the sponsor. Associated with the guest frequency programs, we have no loss contingencies or ongoing obligation beyond what is paid to the brand owner at the time of the guest’s stay.
     Hotel departmental expenses from continuing operations were comprised of the following (in thousands):
                         
    Year Ended December 31,  
    2006     2005     2004  
Room
   $ 199,283     $ 187,872     $ 178,146  
Food and beverage
     97,012       93,136       90,715  
Other operating departments
     23,436       22,446       21,758  
 
                  
Total hotel departmental expenses
   $ 319,731     $ 303,454     $ 290,619  
 
                  

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.   Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs — (continued)
     Other property operating costs from continuing operations were comprised of the following (in thousands):
                         
    Year Ended December 31,  
    2006     2005     2004  
Hotel general and administrative expense
   $ 87,451     $ 82,607     $ 76,898  
Marketing
     81,113       76,151       71,099  
Repair and maintenance
     52,710       50,011       46,063  
Utilities
     49,027       46,857       41,144  
 
                  
Total other property operating costs
   $ 270,301     $ 255,626     $ 235,204  
 
                  
          Included in hotel departmental expenses and other property operating costs were hotel compensation and benefit expenses of $281.7 million, $273.5 million and $259.6 million for the year ended December 31, 2006, 2005 and 2004, respectively.
13. Taxes, Insurance and Lease Expense
          Taxes, insurance and lease expense from continuing operations were comprised of the following (in thousands):
                         
    Year Ended December 31,  
    2006     2005     2004  
Operating lease expense (a)
   $ 69,221     $ 62,176     $ 56,716  
Real estate and other taxes
     32,790       32,175       26,998  
Property, general liability insurance and other
     10,041       10,501       8,542  
 
                  
Total taxes, insurance and lease expense
   $ 112,052     $ 104,852     $ 92,256  
 
                  
 
(a)   Includes hotel lease expense of $61.1 million, $54.7 million and $49.4 million, respectively, associated with 13 hotels in 2006 and 2005 and 14 hotels in 2004 owned by unconsolidated entities and leased to our consolidated lessees. Included in lease expense is $36.1 million, $28.4 million and $21.9 million in percentage rent for the year ended December 31, 2006, 2005 and 2004, respectively.
14. Land Leases and Hotel Rent
          We lease land occupied by certain hotels from third parties under various operating leases that expire through 2073. Certain land leases contain contingent rent features based on gross revenue at the respective hotels. In addition, we recognize rent expense for 14 hotels that are owned by unconsolidated entities and are leased to our consolidated lessees. These leases expire through 2015 and require the payment of base rents and contingent rent based on revenues at the respective hotels. Future minimum lease payments under our land lease obligations and hotel leases at December 31, 2006, were as follows (in thousands):
         
Year        
2007
   $ 22,449  
2008
     14,386  
2009
     14,361  
2010
     13,522  
2011
     11,574  
2012 and thereafter
     94,115  
 
      
 
   $ 170,407  
 
      

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Earnings Per Unit
               The following table sets forth the computation of basic and diluted earnings (loss) per unit for the years ended December 31, 2006, 2005 and 2004 (in thousands, except per unit data):
                         
    2006     2005     2004  
Numerator:
                        
Income (loss) from continuing operations
   $ 7,941     $ (19,817 )   $ (84,044 )
Less: Preferred distributions
     (38,713 )     (39,408 )     (35,130 )
Issuance costs of redeemed preferred units
     —       (6,522 )     —  
 
                  
Loss from continuing operations and applicable to common unitholders
     (30,772 )     (65,747 )     (119,174 )
Discontinued operations
     43,383       (245,475 )     (22,764 )
 
                  
Net income (loss) applicable to common unitholders
   $ 12,611     $ (311,222 )   $ (141,938 )
 
                  
Denominator:
                        
Denominator for basic and diluted earnings (loss) per unit
     62,598       62,214       61,984  
 
                  
Earnings (loss) per unit data:
                        
Basic:
                        
Income (loss) from continuing operations
   $ (0.49 )   $ (1.06 )   $ (1.92 )
 
                  
Discontinued operations
   $ 0.69     $ (3.94 )   $ (0.37 )
 
                  
Net income (loss)
   $ 0.20     $ (5.00 )   $ (2.29 )
 
                  
 
                        
Diluted:
                        
Income (loss) from continuing operations
   $ (0.49 )   $ (1.06 )   $ (1.92 )
 
                  
Discontinued operations
   $ 0.69     $ (3.94 )   $ (0.37 )
 
                  
Net income (loss)
   $ 0.20     $ (5.00 )   $ (2.29 )
 
                  
          Securities that could potentially dilute basic earnings per unit in the future that were not included in computation of diluted earnings per unit, because they would have been antidilutive for the periods presented, are as follows (unaudited, in thousands):
                         
    2006   2005   2004
FelCor restricted shares granted but not vested
     327       648       395  
Series A convertible preferred units
     9,985       9,985       9,985  
           Series A preferred distributions that would be excluded from net income (loss) applicable to common unitholders, if the Series A preferred units were dilutive, were $25.1 million for both 2006 and 2005, and $19.9 million in 2004.
16. Commitments, Contingencies and Related Party Transactions
          Our general partner FelCor shares the executive offices and certain employees with FelCor, Inc. (controlled by Thomas J. Corcoran, Jr., Chairman of FelCor’s Board of Directors), and it paid its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel, office supplies, telephones, and depreciation of office furniture, fixtures, and equipment. Any such allocation of shared expenses must be approved by a majority of FelCor’s independent directors. FelCor, Inc. had a 10% ownership interest in one hotel and limited other investments. FelCor, Inc. paid approximately $50,000 for shared office costs in 2006, 2005 and 2004.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments, Contingencies and Related Party Transactions — (continued)
          In an effort to keep our cost of insurance within reasonable limits, we have only purchased terrorism insurance for those hotels that are secured by mortgage debt, as required by our lenders. Our terrorism insurance has per occurrence and aggregate limits of $50 million. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 67 of our hotels; the remainder of our hotels participate in general liability programs of our managers, with no deductible. Because of our general liability deductible for the 67 hotels, we maintain reserves to cover the estimated ultimate uninsured liability for losses with respect to reported and unreported claims incurred as of the end of each accounting period. At December 31, 2006 and 2005, our reserve for this self-insured portion of general liability claims was $4.3 million and $5.6 million, respectively. Our property program has a $100,000 all risk deductible, a deductible of 5% of insured value for named windstorm and California quake. Should uninsured or not fully insured losses be substantial, they could have a material adverse impact on our operating results and cash flows.
          There is no litigation pending or known to be threatened against us or affecting any of our hotels, other than claims arising in the ordinary course of business or which are not considered to be material. Furthermore, most of these claims are substantially covered by insurance. We do not believe that any claims known to us, individually or in the aggregate, will have a material adverse effect on us.
          Our hotels are operated under various management agreements that call for base management fees, which range from 2% to 7% of hotel room revenue and generally have an incentive provision related to the hotel’s profitability. In addition, the management agreements generally require us to invest approximately 3% to 5% of revenues in capital maintenance. The management agreements have terms from 5 to 20 years and generally have renewal options.
          With the exception of 35 hotels whose rights to use a brand name are contained in the management agreement governing their operations, each of our hotels operates under a franchise or license agreement. Typically, our franchise or license agreements provide for a royalty fee of 4% of room revenues to be paid to the franchisor.
          In the event we breach one of our Embassy Suites Hotels franchise license agreements, in addition to losing the right to use the Embassy Suites Hotels name for the operation of the applicable hotel, we may be liable, under certain circumstances, for liquidated damages equal to the fees paid to the franchisor with respect to that hotel during the three preceding years.
          As a part of the amendment to the IHG management agreements, we have agreed to spend, by June 30, 2007, approximately $50.6 million with regard to special capital plans on 11 hotels. We have agreed to spend an additional $17.2 million on capital plans by June 30, 2008, on four hotels, and $5.5 million on capital plans for two hotels that are then to be substantially redeveloped by December 31, 2010.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Cash Flow Disclosure
          Accrued distributions payable on our common units, Series A and Series C preferred units aggregating $24.1 million and $8.6 million at December 31, 2006 and 2005 were paid in January of the following year.
          As a result of the exchange of 1,407,524 partnership units and 25,595 partnership units for FelCor’s common stock in 2006 and 2005, respectively, we recorded a reduction in redeemable units of $29.5 million in 2006 and $0.4 million in 2005 and a corresponding increase in partners’ capital.
          Depreciation expense is comprised of the following (in thousands):
                         
    For the Year Ended December 31,  
    2006     2005     2004  
Depreciation from continuing operations
   $ 94,579     $ 84,448     $ 78,116  
Depreciation from discontinued operations
     15,695       38,087       44,537  
 
                  
Total depreciation expense
   $ 110,274     $ 122,535     $ 122,653  
 
                  
          In 2006, we sold 31 hotels for gross proceeds of $514 million. These proceeds were used to pay down debt of approximately $356 million ($150 million of which related to sales proceeds paid directly from purchaser to our lender at closing) and invested in capital improvements at many of our core hotels.
          In 2006, we borrowed $215 million of debt, that was paid directly to a lender, repaying $215 million of debt.
          For the year ended December 31, 2006, repayment of borrowings consisted of early retirement of debt of $687.2 million and normal recurring principal payments of $15.9 million.
          For the year ended December 31, 2005, repayment of borrowings of $293.0 million consisted of early retirement of secured debt of $262.0 million and $31.0 million of normal recurring principal payments.
          For the year ended December 31, 2004, repayment of borrowings of $838.9 million consisted of $775.0 million in early retirement of senior notes, $18.9 million of normal recurring principal payments, $41.3 million of premium paid in excess of par on the retirement of the senior notes and $3.7 million to retire interest rate swaps.
18. FelCor’s Stock Based Compensation Plans
          We have no employees. FelCor as our sole general partner performs our management functions. Upon the issuance of any stock, FelCor is obligated to contribute the proceeds to us, if any, in exchange for a like number of units.
          FelCor sponsors four restricted stock and stock option plans, or the FelCor Plans. In addition, upon completion of the merger with Bristol in 1998, it assumed two stock option plans previously sponsored by Bristol, or the Bristol Plans. FelCor was initially obligated to issue up to 1,237,309 shares of its common stock pursuant to the Bristol Plans. No additional options may be awarded under the Bristol Plans. The FelCor Plans and the Bristol Plans are referred to collectively as the Plans.
          FelCor is authorized to issue 4,700,000 shares of common stock under the FelCor Plans pursuant to awards granted in the form of incentive stock options, non-qualified stock options, and restricted stock. All options have 10-year contractual terms and vest either over five equal annual installments (20% per year), beginning in the year following the date of grant or 100% at the end of a four-year vesting term. Stock grants vest either over five equal annual installments or over a four year schedule including time based vesting and performance based vesting. Under the FelCor Plans, there were 797,114 shares remaining available for grant at December 31, 2006.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FelCor’s Stock Based Compensation Plans – (continued)
          There were options covering 53,704 FelCor shares outstanding under the Bristol Plans at December 31, 2006. These options are fully vested.
Stock Options
          A summary of the status of FelCor’s non-qualified stock options under the Plans as of December 31, 2006, 2005 and 2004, and the changes during these years are presented in the following tables:
                                                 
    2006   2005   2004
            Weighted           Weighted           Weighted
    No. Shares of   Average   No. Shares of   Average   No. Shares of   Average
    Underlying   Exercise   Underlying   Exercise   Underlying   Exercise
    Options   Prices   Options   Prices   Options   Prices
Outstanding at beginning of the year
     1,465,257     $ 23.41       1,478,760     $ 24.72       1,911,544     $ 22.72  
Forfeited
     (726,891 )   $ 25.56       (13,503 )   $ 22.30       (432,784 )   $ 15.91  
Exercised
     (140,000 )   $ 15.63       —               —          
 
                                                
Outstanding at end of year
     598,366     $ 22.62       1,465,257     $ 23.41       1,478,760     $ 24.72  
 
                                                
Exercisable at end of year
     598,366     $ 22.62       1,455,257     $ 23.46       1,333,760     $ 24.24  
                         
    Options Exercisable and Outstanding_
    Number   Wgtd. Avg.    
Range of   Outstanding   Remaining   Wgtd Avg.
Exercise Prices   at 12/31/06   Life   Exercise Price
$15.62 to $22.56
     534,912       1.01     $ 21.58  
$24.18 to $36.12
     63,454       0.88     $ 31.41  
 
                        
$15.62 to $36.12
     598,366       0.99     $ 22.62  
 
                        
          The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2001 and 2000 when options were granted: dividend yield of 12.44% to 11.28%; risk free interest rates are different for each grant and range from 4.33% to 6.58%; the expected lives of options were six years; and volatility of 21.04% for 2001 grants and 18.22% for 2000 grants. The weighted average fair value of options granted during 2001, was $0.85 per share. FelCor has issued no stock options since 2001.
Restricted Stock
          A summary of the status of FelCor’s restricted stock grants as of December 31, 2006, 2005, and 2004, and the changes during these years are presented below:
                                                 
    2006   2005   2004
            Weighted           Weighted           Weighted
            Average           Average           Average
            Fair Market           Fair Market           Fair Market
            Value           Value           Value
    No. Shares   at Grant   No. Shares   at Grant   No. Shares   at Grant
Outstanding at beginning of the year
     1,549,206     $ 13.35       1,187,606     $ 17.54       731,431     $ 22.03  
Granted(a):
                                                
With immediate vesting(b)
     28,500     $ 19.78       22,300     $ 13.73       26,500     $ 10.00  
With 4-year pro rata vesting
     293,800     $ 18.71       319,300     $ 12.52       295,040     $ 10.00  
Vesting within 12 months of grant
     —       —       —       —       50,000     $ 12.47  
With 5-year pro rata vesting
     60,000     $ 21.64       20,000     $ 13.85       110,000     $ 12.25  
Forfeited
     (51,377 )   $ 13.23       —       —       (25,365 )   $ 18.19  
 
                                                
Outstanding at end of year
     1,880,129     $ 14.56       1,549,206     $ 13.35       1,187,606     $ 17.54  
 
                                                
Vested at end of year
     1,108,866     $ 17.30       795,738     $ 18.49       558,151     $ 20.52  
 
(a)   All shares granted are issued out of treasury except for 19,200, 5,200 and 6,300 of the restricted shares issued to FelCor’s directors during the years ended December 31, 2006, 2005 and 2004, respectively.
 
(b)   Shares awarded to FelCor’s directors.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FelCor’s Stock Based Compensation Plans – (continued)
           The unearned compensation cost of granted but unvested FelCor restricted stock as of December 31, 2006 was $8.4 million. The weighted average period over which this cost is to be amortized is approximately three years.
19. Employee Benefits
          We have no employees. FelCor as our sole general partner performs our management functions. FelCor offers a 401(k) plan and health insurance benefits to its employees. FelCor’s matching contribution to its 401(k) plan aggregated $0.9 million for 2006, $0.7 million for 2005, and $0.6 million for 2004. The cost of health insurance benefits to FelCor’s employees were $1.2 million during 2006, $0.7 million during 2005 and $0.6 million during 2004.
          The employees at our hotels are employees of the respective management companies. Under the management agreements, we reimburse the management companies for the compensation and benefits related to the employees who work at our hotels. We are not, however, the sponsors of their employee benefit plans and have no obligation to fund these plans.
20. Segment Information
          SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” requires the disclosure of selected information about operating segments. Based on the guidance provided in the standard, we have determined that our business is conducted in one operating segment because of the similar economic characteristics of our hotels.
          The following table sets forth revenues for continuing operations, and investment in hotel assets represented by, the following geographical areas as of and for the years ended December 31, 2006, 2005 and 2004 (in thousands):
                                                 
    Revenue     Investment in Hotel Assets  
    2006     2005     2004     2006     2005     2004  
California
   $ 195,056     $ 178,688     $ 161,594     $ 413,899     $ 517,250     $ 546,762  
Texas
     110,384       98,870       91,046       207,921       363,221       517,933  
Florida
     150,339       136,882       123,816       344,812       370,863       373,468  
Georgia
     58,745       54,993       50,138       122,227       208,665       272,010  
Other states
     447,081       418,445       391,238       905,352       1,072,222       1,197,952  
Canada
     29,433       26,777       24,780       50,074       52,158       47,641  
 
                                    
Total
   $ 991,038     $ 914,655     $ 842,612     $ 2,044,285     $ 2,584,379     $ 2,955,766  
 
                                    
21. Recently Issued Statements of Financial Accounting Standards
          In July 2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes. The interpretation clearly scopes out income tax positions related to FASB Statement No. 5, Accounting for Contingencies. We will adopt the provisions of this statement beginning in the first quarter of 2007. We do not expect the cumulative effect of applying the provisions of FIN 48, if any, to be material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Recently Issued Statements of Financial Accounting Standards – (continued)
          In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. We believe that the adoption of this standard on January 1, 2008 will not have a material effect on our consolidated financial statements.
22. Quarterly Operating Results (unaudited)
          Our unaudited consolidated quarterly operating data for the years ended December 31, 2006 and 2005, follows (in thousands, except per unit data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management’s opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in partners’ capital and cash flows for a period of several years.
                                 
    First     Second     Third     Fourth  
2006   Quarter     Quarter     Quarter     Quarter  
Total revenues
   $ 251,407     $ 259,265     $ 247,464     $ 232,902  
Net income (loss) from continuing operations
   $ 6,799     $ 12,573     $ 4,154     $ (15,585 )
Discontinued operations
   $ 3,061     $ (2,412 )   $ 16,135     $ 26,599  
Net income
   $ 9,860     $ 10,161     $ 20,289     $ 11,014  
Net income applicable to common unitholders
   $ 182     $ 483     $ 10,624     $ 1,322  
Comprehensive income
   $ 9,568     $ 12,321     $ 19,493     $ 6,179  
Basic and diluted per common unit data:
                                
Net income (loss) from continuing operations
   $ (0.05 )   $ 0.05 )   $ (0.09 )   $ (0.40 )
Discontinued operations
   $ 0.05     $ (0.04 )   $ 0.26     $ 0.42  
 
                        
Net income
   $ —     $ 0.01     $ 0.17     $ 0.02  
 
                        
Basic weighted average common units outstanding
     62,323       62,457       62,503       62,623  
 
                        
Diluted weighted average common units outstanding
     62,323       62,728       62,503       62,623  
 
                        

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Quarterly Operating Results (unaudited) – (continued)
                                 
    First     Second     Third     Fourth  
2005   Quarter     Quarter     Quarter     Quarter  
Total revenues
   $ 216,900     $ 240,777     $ 234,323     $ 222,655  
Net income (loss) from continuing operations
   $ (4,955 )   $ 5,800     $ (1,346 )   $ (19,316 )
Discontinued operations
   $ (3,902 )   $ 4,335     $ 12,609     $ (258,517 )
Net income (loss)(a)
   $ (8,857 )   $ 10,135     $ 11,263     $ (277,833 )
Net income (loss) applicable to common unitholders
   $ (18,948 )   $ (4,872 )   $ 110     $ (287,512 )
Comprehensive income (loss)
   $ (7,474 )   $ 8,506     $ 15,174     $ (277,676 )
Basic and diluted per common unit data:
                                
Net loss from continuing operations
   $ (0.24 )   $ (0.15 )   $ (0.20 )   $ (0.47 )
Discontinued operations
   $ (0.06 )   $ 0.07     $ 0.20     $ (4.15 )
 
                        
Net loss
   $ (0.30 )   $ (0.08 )   $ —     $ (4.62 )
 
                        
Basic weighted average common units outstanding
     62,204       62,192       62,216       62,216  
 
                        
Diluted weighted average common units outstanding
     62,204       62,192       62,216       62,216  
 
                        
 
(a)   The fourth quarter net loss in 2005 includes an impairment charge of $263 million.
          In accordance with SFAS 144, amounts previously reported in continuing operations have been reclassified to discontinued operations upon sale of hotels or the designation of hotels as “held for sale” in subsequent periods.

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Consolidating Financial Information
          Certain of our wholly-owned subsidiaries (FelCor/CSS Holdings, L.P.; FelCor Pennsylvania Company, L.L.C.; FelCor Lodging Holding Company, L.L.C.; Myrtle Beach Hotels, L.L.C.; FelCor TRS Borrower 1, L.P.; FelCor TRS Borrower 3, L.P.; FelCor TRS Borrower 4, L.L.C.; FelCor TRS Guarantor, L.P.; Center City Hotel Associates; FelCor Lodging Company, L.L.C.; FelCor TRS Holdings, L.P.; FHAC Texas Holdings, L.P.; FelCor Omaha Hotel Company, L.L.C.; FelCor Canada Co.; FelCor/St. Paul Holdings, L.P. and FelCor Hotel Asset Company, L.L.C., collectively, “Subsidiary Guarantors”), together with FelCor, are guarantors of our senior debt. The following tables present consolidating information for the Subsidiary Guarantors.
CONSOLIDATING BALANCE SHEET
December 31, 2006
(in thousands)
ASSETS
                                         
            Subsidiary     Non-Guarantor             Total  
    FelCor L.P.     Guarantors     Subsidiaries     Eliminations     Consolidated  
Net investment in hotel properties
   $ 114,833     $ 923,778     $ 1,005,674     $ —     $ 2,044,285  
Equity investment in consolidated entities
     1,320,816       —       —       (1,320,816 )     —  
Investment in unconsolidated entities
     81,160       28,841       1,715       —       111,716  
Hotels held for sale
     —       88,926       44,875       —       133,801  
Cash and cash equivalents
     69,728       46,966       7,485       —       124,179  
Restricted cash
     453       3,248       19,052       —       22,753  
Accounts receivable
     239       33,154       2       —       33,395  
Deferred assets
     4,236       639       4,605       —       9,480  
Condominium development project
     —       —       70,661       —       70,661  
Other assets
     15,421       16,398       1,160       —       32,979  
 
                              
 
                                        
Total assets
   $ 1,606,886     $ 1,141,950     $ 1,155,229     $ (1,320,816 )   $ 2,583,249  
 
                              
 
                                        
LIABILITIES AND PARTNERS’ CAPITAL
 
                                        
Debt
   $ 529,411     $ 128,715     $ 711,027     $ —     $ 1,369,153  
Distributions payable
     24,078       —       —       —       24,078  
Accrued expenses and other liabilities
     30,828       98,345       10,104       —       139,277  
 
                              
 
                                        
Total liabilities
     584,317       227,060       721,131       —       1,532,508  
 
                              
 
                                        
Minority interest – other partnerships
     —       (115 )     28,287       —       28,172  
 
                              
Redeemable units, at redemption value
     29,593       —       —       —       29,593  
 
                              
 
                                        
Preferred units
     478,774       —       —       —       478,774  
Common units
     514,202       899,166       405,811       (1,320,816 )     498,363  
Accumulated other comprehensive income
     —       15,839       —       —       15,839  
 
                              
Total partners’ capital
     992,976       915,005       405,811       (1,320,816 )     992,976  
 
                              
 
                                        
Total liabilities, redeemable units and partners’ capital
   $ 1,606,886     $ 1,141,950     $ 1,155,229     $ (1,320,816 )   $ 2,583,249  
 
                              

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Consolidating Financial Information ¾ (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2005
(in thousands)
ASSETS
                                         
            Subsidiary     Non-Guarantor              
    FelCor L.P.     Guarantors     Subsidiaries     Eliminations     Total Consolidated  
Net investment in hotel properties
   $ 115,615     $ 666,137     $ 1,802,627     $ —     $ 2,584,379  
Equity investment in consolidated entities
     1,556,838       —       —       (1,556,838 )     —  
Investment in unconsolidated entities
     76,991       32,271       —       —       109,262  
Cash and cash equivalents
     48,393       36,189       9,982       —       94,564  
Restricted cash
     3,637       2,189       12,472       —       18,298  
Accounts receivable
     4,361       50,149       305       —       54,815  
Deferred assets
     6,262       1,139       5,022       —       12,423  
Condominium development project
     —       16,051       —       —       16,051  
Other assets
     12,464       17,599       408       —       30,471  
 
                              
 
Total assets
   $ 1,824,561     $ 821,724     $ 1,830,816     $ (1,556,838 )   $ 2,920,263  
 
                              
 
                                        
LIABILITIES AND PARTNERS’ CAPITAL
 
                                        
Debt
   $ 737,087     $ 152,302     $ 785,891     $ —     $ 1,675,280  
Distributions payable
     8,596       —       —       —       8,596  
Accrued expenses and other liabilities
     21,692       97,747       19,748       —       139,187  
 
                              
 
                                        
Total liabilities
     767,375       250,049       805,639       —       1,823,063  
 
                              
 
                                        
Minority interest — other partnerships
     —       (345 )     40,359       —       40,014  
 
                              
Redeemable units, at redemption value
     47,543       —       —       —       47,543  
 
                              
 
                                        
Preferred units
     478,774       —       —       —       478,774  
Common units
     528,647       554,640       984,818       (1,556,838 )     511,267  
Accumulated other comprehensive income
     2,222       17,380       —       —       19,602  
 
                              
Total partners’ capital
     1,009,643       572,020       984,818       (1,556,838 )     1,009,643  
 
                              
 
                                        
Total liabilities and partners’ capital
   $ 1,824,561     $ 821,724     $ 1,830,816     $ (1,556,838 )   $ 2,920,263  
 
                              

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Consolidating Financial Information ¾ (continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 30, 2006
(in thousands)
                                         
            Subsidiary     Non-Guarantor             Total  
    FelCor L.P.     Guarantors     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                        
Hotel operating revenue
   $ —     $ 990,959     $ —     $ —     $ 990,959  
Percentage lease revenue
     23,576       —       149,161       (172,737 )     —  
Other revenue
     7       —       72       —       79  
 
                              
Total revenue
     23,583       990,959       149,233       (172,737 )     991,038  
 
                              
 
                                        
Expenses:
                                        
Hotel operating expense
     —       641,269       —       —       641,269  
Taxes, insurance and lease expense
     5,084       261,138       18,567       (172,737 )     112,052  
Corporate expenses
     1,234       14,290       7,784       —       23,308  
Abandoned projects
     13       —       20       —       33  
Depreciation
     8,100       46,317       40,162       —       94,579  
 
                              
Total operating expenses
     14,431       963,014       66,533       (172,737 )     871,241  
 
                              
Operating income
     9,152       27,945       82,700       —       119,797  
Interest expense, net
     (46,246 )     (8,746 )     (55,875 )     —       (110,867 )
Charge-off of deferred financing cost
     (2,171 )     (879 )     (512 )     —       (3,562 )
Early extinguishment of debt
     (9,525 )     —       (2,946 )     —       (12,471 )
Gain on swap termination
     1,715       —       —       —       1,715  
 
                              
 
                                        
Income (loss) before equity in income from unconsolidated entities, minority interests and loss on sale of assets
     (47,075 )     18,320       23,367       —       (5,388 )
Loss on sale of assets
     —       (92 )     —       —       (92 )
Equity in income from consolidated entities
     86,372       —       —       (86,372 )     —  
Equity in income from unconsolidated entities
     11,764       (154 )     (73 )     —       11,537  
Minority interests in other partnerships
     —       2,339       (455 )     —       1,884  
 
                              
Income (loss) from continuing operations
     51,061       20,413       22,839       (86,372 )     7,941  
Discontinued operations
     263       40,819       2,301       —       43,383  
 
                              
Net income (loss)
     51,324       61,232       25,140       (86,372 )     51,324  
Preferred distributions
     (38,713 )     —       —       —       (38,713 )
 
                              
Net income (loss) applicable to unitholders
   $ 12,611     $ 61,232     $ 25,140     $ (86,372 )   $ 12,611  
 
                              

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Consolidating Financial Information ¾ (continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
(in thousands)
                                         
            Subsidiary     Non-Guarantor             Total  
    FelCor L.P.     Guarantors     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                        
Hotel operating revenue
   $ —     $ 913,149     $ —     $ —     $ 913,149  
Percentage lease revenue
     20,735       —       166,499       (187,234 )     —  
Other revenue
     1,843       (337 )     —       —       1,506  
 
                              
Total revenue
     22,578       912,812       166,499       (187,234 )     914,655  
 
                              
 
                                        
Expenses:
                                        
Hotel operating expense
     —       604,295       —       —       604,295  
Taxes, insurance and lease expense
     4,124       266,881       21,081       (187,234 )     104,852  
Corporate expenses
     3,832       8,784       6,409       —       19,025  
Abandoned projects
     265       —       —       —       265  
Depreciation
     6,324       30,256       47,868       —       84,448  
 
                              
Total operating expenses.
     14,545       910,216       75,358       (187,234 )     812,885  
 
                              
Operating income
     8,033       2,596       91,141       —       101,770  
Interest expense, net
     (48,109 )     (9,999 )     (63,560 )     —       (121,668 )
Hurricane loss
     (1,890 )     (2,425 )     (2,166 )     —       (6,481 )
Charge-off of deferred financing cost
     —       —       (1,448 )     —       (1,448 )
Early extinguishment of debt
     —       —       (4,037 )     —       (4,037 )
 
                              
 
                                        
Income (loss) before equity in income from unconsolidated entities, minority interests and gain on sale of assets
     (41,966 )     (9,828 )     19,930       —       (31,864 )
Gain on sale of assets
     389       21       59       —       469  
Equity in income from consolidated entities
     (260,316 )     —       —       260,316       —  
Equity in income from unconsolidated entities
     9,460       709       —       —       10,169  
Minority interests in other partnerships
     13,677       2,338       (14,606 )     —       1,409  
 
                              
Income (loss) from continuing operations
     (278,756 )     (6,760 )     5,383       260,316       (19,817 )
Discontinued operations
     13,464       (31,142 )     (227,797 )     —       (245,475 )
 
                              
Net income (loss)
     (265,292 )     (37,902 )     (222,414 )     260,316       (265,292 )
Preferred distributions
     (39,408 )     —       —       —       (39,408 )
Issuance costs of redeemed preferred units
     (6,522 )     —       —       —       (6,522 )
 
                              
Net income (loss) applicable to unitholders
   $ (311,222 )   $ (37,902 )   $ (222,414 )   $ 260,316     $ (311,222 )
 
                              

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Consolidating Financial Information ¾ (continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
(in thousands)
                                         
            Subsidiary     Non-Guarantor             Total  
    FelCor L.P.     Guarantors     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                        
Hotel operating revenue
   $ —     $ 840,416     $ —     $ —     $ 840,416  
Percentage lease revenue
     18,982       —       149,297       (168,279 )     —  
Other revenue
     1,196       1,000       —       —       2,196  
 
                              
Total revenue
     20,178       841,416       149,297       (168,279 )     842,612  
 
                              
 
                                        
Expenses:
                                        
Hotel operating expense
     —       568,487       —       —       568,487  
Taxes, insurance and lease expense
     (4,608 )     242,953       22,190       (168,279 )     92,256  
Corporate expenses
     3,695       8,528       4,810       —       17,033  
Depreciation
     6,135       27,972       44,009       —       78,116  
 
                              
Total operating expenses
     5,222       847,940       71,009       (168,279 )     755,892  
 
                              
Operating income (loss)
     14,956       (6,524 )     78,288       —       86,720  
Interest expense, net
     (70,520 )     (9,280 )     (56,344 )     —       (136,144 )
Hurricane loss
     —       (2,125 )     —       —       (2,125 )
Charge-off of deferred financing cost
     (6,960 )     —       —       —       (6,960 )
Early extinguishment of debt
     (44,216 )     —       —       —       (44,216 )
Gain on swap termination
     1,005       —       —       —       1,005  
 
                              
 
                                        
Income (loss) before equity in income from unconsolidated entities, minority interests and gain on sale of assets
     (105,735 )     (17,929 )     21,944       —       (101,720 )
Equity in income from consolidated entities
     11,891       —       —       (11,891 )     —  
Equity in income from unconsolidated entities
     7,007       10,114       —       —       17,121  
Minority interests in other partnerships
     —       968       (413 )     —       555  
 
                              
Income (loss) from continuing operations
     (86,837 )     (6,847 )     21,531       (11,891 )     (84,044 )
Discontinued operations
    (19,971 )     (20,807 )     18,014       —       (22,764 )
 
                              
Net income (loss)
     (106,808 )     (27,654 )     39,545       (11,891 )     (106,808 )
Preferred distributions
     (35,130 )     —       —       —       (35,130 )
 
                              
Net income (loss) applicable to unitholders
   $ (141,938 )   $ (27,654 )   $ 39,545     $ (11,891 )   $ (141,938 )
 
                              

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FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Consolidating Financial Information ¾ (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2006
(in thousands)
                                 
            Subsidiary     Non-Guarantor     Total  
    FelCor L.P.     Guarantors     Subsidiaries     Consolidated  
Cash flows from (used in) operating activities
   $ (15,168 )   $ 84,663     $ 78,205     $ 147,700  
Cash flows from (used in) investing activities
     (2,899 )     238,511       (95,012 )     140,600  
Cash flows from (used in) financing activities
     39,402       (312,386 )     14,310       (258,674 )
Effect of exchange rates changes on cash
     —       (11 )     —       (11 )
 
                        
Change in cash and cash equivalents
     21,335       10,777       (2,497 )     29,615  
Cash and cash equivalents at beginning of period
     48,393       36,189       9,982       94,564  
 
                        
Cash and equivalents at end of period
   $ 69,728     $ 46,966     $ 7,485     $ 124,179  
 
                        
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
(in thousands)
                                 
            Subsidiary     Non-Guarantor     Total  
    FelCor L.P.     Guarantors     Subsidiaries     Consolidated  
Cash flows from (used in) operating activities
   $ (26,286 )   $ 3,091     $ 134,677     $ 111,482  
Cash flows from (used in) investing activities
     30,341       (14,802 )     (44,077 )     (28,538 )
Cash flows from (used in) financing activities
     (40,491 )     18,467       (85,712 )     (107,736 )
Effect of exchange rates changes on cash
     —       46       —       46  
 
                        
Change in cash and cash equivalents
     (36,436 )     6,802       4,888       (24,746 )
Cash and cash equivalents at beginning of period
     84,829       29,387       5,094       119,310  
 
                        
Cash and equivalents at end of period
   $ 48,393     $ 36,189     $ 9,982     $ 94,564  
 
                        
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2004
(in thousands)
                                 
            Subsidiary     Non-Guarantor     Total  
    FelCor L.P.     Guarantors     Subsidiaries     Consolidated  
Cash flows from (used in) operating activities
   $ (68,347 )   $ 10,610     $ 91,018     $ 33,281  
Cash flows from (used in) investing activities
     2,069       68,665       (22,352 )     48,382  
Cash flows from (used in) financing activities
     (17,117 )     (112,017 )     (67,992 )     (197,126 )
Effect of exchange rates changes on cash
     —       2,888       —       2,888  
 
                        
Change in cash and cash equivalents
     (83,395 )     (29,854 )     674       (112,575 )
Cash and cash equivalents at beginning of period
     168,224       59,241       4,420       231,885  
 
                        
Cash and equivalents at end of period
   $ 84,829     $ 29,387     $ 5,094     $ 119,310  
 
                        

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FELCOR LODGING LIMITED PARTNERSHIP
Schedule III — Real Estate and Accumulated Depreciation
as of December 31, 2006
(in thousands)
                                                                                                 
                            Cost Capitalized   Gross Amounts at Which                                
            Initial Cost   Subsequent to Acquisition   Carried at Close of Period           Accumulated                   Life Upon
                    Buildings           Buildings           Buildings           Depreciation                   Which
                    and           and           and           Buildings &   Year   Date   Depreciation
Location   Encumbrances   Land   Improvements   Land   Improvements   Land   Improvements   Total   Improvements   Opened   Acquired   is Computed
Birmingham, AL (1)
   $ 15,657     $ 2,843     $ 29,286     $ 0     $ 1,210     $ 2,843     $ 30,496     $ 33,339     $ 8,176       1987       1/3/1996     15 - 40 Yrs
Phoenix — Biltmore, AZ (1)
     19,517       0       38,998       4,694       1,973       4,694       40,971       45,665       10,964       1985       1/3/1996     15 - 40 Yrs
Phoenix Crescent Hotel, AZ (3)
     22,825       3,608       29,583       0       1,490       3,608       31,073       34,681       7,274       1986       6/30/1997     15 - 40 Yrs
Phoenix Tempe, AZ (1)
     22,944       3,951       34,371       0       1,048       3,951       35,419       39,370       7,657       1986       5/4/1998     15 - 40 Yrs
Dana Point – Doheny Beach, CA (4)
     0       1,787       15,545       0       2,019       1,787       17,564       19,351       4,150       1992       2/21/1997     15 - 40 Yrs
Los Angeles — Anaheim (Located near Disneyland Park), CA (1)
     23,595       2,548       14,832       0       1,308       2,548       16,140       18,688       4,297       1987       1/3/1996     15 - 40 Yrs
Los Angeles International Airport — South, CA (1)
     0       2,660       17,997       0       1,307       2,660       19,304       21,964       5,702       1985       3/27/1996     15 - 40 Yrs
Milpitas – Silicon Valley, CA (1)
     26,965       4,021       23,677       0       2,063       4,021       25,740       29,761       6,847       1987       1/3/1996     15 - 40 Yrs
Napa Valley, CA (1)
     14,166       3,287       14,205       0       1,726       3,287       15,931       19,218       4,103       1985       5/8/1996     15 - 40 Yrs
Oxnard — Mandalay Beach Resort & Conference Center, CA (1)
     0       2,930       22,125       1       3,921       2,931       26,046       28,977       6,500       1986       5/8/1996     15 - 40 Yrs
San Diego — On the Bay, CA (2)
     0       0       68,229       0       4,688       0       72,917       72,917       17,060       1965       7/28/1998     15 - 40 Yrs
San Francisco – Airport – Burlingame, CA (1)
     0       0       39,929       0       967       0       40,896       40,896       11,111       1986       11/6/1995     15 - 40 Yrs
San Francisco – Airport — South San Francisco, CA (1)
     23,943       3,418       31,737       0       2,156       3,418       33,893       37,311       8,995       1988       1/3/1996     15 - 40 Yrs
San Francisco — Fisherman’s Wharf, CA (2)
     0       0       61,883       0       1,847       0       63,730       63,730       20,292       1970       7/28/1998     15 - 40 Yrs
San Francisco — Union Square, CA (5)
     0       8,466       73,684       (434 )     4,282       8,032       77,966       85,998       16,344       1970       7/28/1998     15 - 40 Yrs
Santa Barbara, CA (2)
     0       1,683       14,647       4       791       1,687       15,438       17,125       3,157       1969       7/28/1998     15 - 40 Yrs
Santa Monica, CA (2)
     0       10,200       16,580       0       376       10,200       16,956       27,156       1,199       1967       3/11/2004     15 - 40 Yrs
Toronto — Airport, Canada (7)
     0       0       21,041       0       11,140       0       32,181       32,181       7,496       1970       7/28/1998     15 - 40 Yrs
Toronto — Yorkdale, Canada (2)
     0       1,566       13,633       477       9,933       2,043       23,566       25,609       6,004       1970       7/28/1998     15 - 40 Yrs
Wilmington, DE (6)
     10,047       1,379       12,487       0       10,061       1,379       22,548       23,927       4,825       1972       3/20/1998     15 - 40 Yrs
Boca Raton, FL (1)
     5,024       1,868       16,253       0       896       1,868       17,149       19,017       4,538       1989       2/28/1996     15 - 40 Yrs
Cocoa Beach — Oceanfront, FL (2)
     0       2,285       19,892       7       13,216       2,292       33,108       35,400       8,259       1960       7/28/1998     15 - 40 Yrs
Deerfield Beach, FL (1)
     28,420       4,523       29,443       68       1,479       4,591       30,922       35,513       8,359       1987       1/3/1996     15 - 40 Yrs
Ft. Lauderdale – 17th Street, FL (1)
     20,752       5,329       47,850       (163 )     1,919       5,166       49,769       54,935       13,645       1986       1/3/1996     15 - 40 Yrs
Ft. Lauderdale (Cypress Creek), FL (8)
     10,990       3,009       26,177       0       968       3,009       27,145       30,154       5,985       1986       5/4/1998     15 - 40 Yrs
Jacksonville — Baymeadows, FL (1)
     23,590       1,130       9,608       0       6,528       1,130       16,136       17,266       4,390       1986       7/28/1994     15 - 40 Yrs
Miami International Airport, FL (1)
     16,775       4,135       24,950       0       1,620       4,135       26,570       30,705       7,099       1983       7/28/1998     15 - 40 Yrs
Orlando — International Airport, FL (7)
     8,949       2,549       22,188       6       2,081       2,555       24,269       26,824       5,337       1984       7/28/1998     15 - 40 Yrs
Orlando — International Drive — Resort, FL (2)
     0       5,108       44,460       13       9,629       5,121       54,089       59,210       12,147       1972       7/28/1998     15 - 40 Yrs
Orlando International Drive/Convention Center, FL (1)
     23,319       1,632       13,870       0       1,864       1,632       15,734       17,366       4,743       1985       7/28/1994     15 - 40 Yrs
Orlando (North), FL (1)
     0       1,673       14,218       6       7,202       1,679       21,420       23,099       6,185       1985       7/28/1994     15 - 40 Yrs
Orlando- Walt Disney World Resort, FL (4)
     0       0       28,092       0       665       0       28,757       28,757       6,313       1987       7/28/1997     15 - 40 Yrs
Tampa – On Tampa Bay, FL (4)
     12,950       2,142       18,639       1       2,132       2,143       20,771       22,914       4,917       1986       7/28/1997     15 - 40 Yrs
Atlanta — Airport, GA (1)
     12,331       0       22,342       2,568       1,854       2,568       24,196       26,764       5,047       1989       5/4/1998     15 - 40 Yrs

92

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FELCOR LODGING LIMITED PARTNERSHIP
Schedule III — Real Estate and Accumulated Depreciation
as of December 31, 2006
(in thousands)
                                                                                                 
                            Cost Capitalized   Gross Amounts at Which                                
            Initial Cost   Subsequent to Acquisition   Carried at Close of Period           Accumulated                   Life Upon
                    Buildings           Buildings           Buildings           Depreciation                   Which
                    and           and           and           Buildings &   Year   Date   Depreciation
Location   Encumbrances   Land   Improvements   Land   Improvements   Land   Improvements   Total   Improvements   Opened   Acquired   is Computed
Atlanta — Buckhead, GA (1)
     34,864       7,303       38,996       (300 )     1,907       7,003       40,903       47,906       10,236       1988       10/17/1996     15 - 40 Yrs
Atlanta — Galleria, GA (8)
     15,217       5,052       28,507       0       1,505       5,052       30,012       35,064       7,045       1990       6/30/1997     15 - 40 Yrs
Atlanta — Gateway-Atlanta Airport, GA (3)
     0       5,113       22,857       1       266       5,114       23,123       28,237       5,491       1986       6/30/1997     15 - 40 Yrs
Chicago — Northshore/Deerfield (Northbrook), IL (1)
     15,108       2,305       20,054       0       967       2,305       21,021       23,326       5,418       1987       6/20/1996     15 - 40 Yrs
Chicago O’Hare Airport, IL (3)
     21,134       8,178       37,043       0       2,297       8,178       39,340       47,518       9,137       1994       6/30/1997     15 - 40 Yrs
Indianapolis North, IN (1)
     12,861       0       0       5,125       14,124       5,125       14,124       19,249       6,990       1986       8/1/1996     15 - 40 Yrs
Lexington — Lexington Green, KY (9)
     17,721       1,955       13,604       0       431       1,955       14,035       15,990       3,756       1987       1/10/1996     15 - 40 Yrs
Baton Rouge, LA (1)
     10,065       2,350       19,092       0       1,202       2,350       20,294       22,644       5,449       1985       1/3/1996     15 - 40 Yrs
New Orleans, LA (1)
     29,760       3,647       31,993       0       7,283       3,647       39,276       42,923       12,295       1984       12/1/1994     15 - 40 Yrs
New Orleans — French Quarter, LA (2)
     0       0       50,732       14       8,526       14       59,258       59,272       12,173       1969       7/28/1998     15 - 40 Yrs
Boston — Government Center, MA (7)
     0       0       45,192       0       6,166       0       51,358       51,358       12,929       1968       7/28/1998     15 - 40 Yrs
Boston — Marlborough, MA (1)
     18,685       948       8,143       761       13,440       1,709       21,583       23,292       5,414       1988       6/30/1995     15 - 40 Yrs
Baltimore — BWI Airport, MD (1)
     22,031       2,568       22,433       0       1,842       2,568       24,275       26,843       5,933       1987       3/20/1997     15 - 40 Yrs
Minneapolis — Airport, MN (1)
     19,882       5,417       36,508       24       1,652       5,441       38,160       43,601       10,122       1986       11/6/1995     15 - 40 Yrs
Minneapolis — Bloomington, MN (1)
     18,350       2,038       17,731       0       982       2,038       18,713       20,751       4,545       1980       2/1/1997     15 - 40 Yrs
St Paul— Downtown, MN (1)
     4,452       1,156       17,315       0       934       1,156       18,249       19,405       4,802       1983       11/15/1995     15 - 40 Yrs
Charlotte SouthPark, NC (4)
     0       1,458       12,681       0       2,264       1,458       14,945       16,403       1,806       N/A       7/12/2002     15 - 40 Yrs
Raleigh, NC (4)
     17,290       2,124       18,476       0       1,410       2,124       19,886       22,010       4,612       1987       7/28/1997     15 - 40 Yrs
Piscataway—Somerset, NJ (1)
     18,893       1,755       17,563       0       1,590       1,755       19,153       20,908       5,061       1988       1/10/1996     15 - 40 Yrs
Philadelphia —Historic District, PA (2)
     0       3,164       27,535       7       6,978       3,171       34,513       37,684       8,120       1972       7/28/1998     15 - 40 Yrs
Philadelphia Society Hill, PA (3)
     28,742       4,542       45,121       0       2,568       4,542       47,689       52,231       11,008       1986       10/1/1997     15 - 40 Yrs
Pittsburgh at University Center (Oakland), PA (7)
     15,500       0       25,031       0       2,504       0       27,535       27,535       5,934       1988       11/1/1998     15 - 40 Yrs
Charleston —Mills House (Historic Downtown), SC (2)
     25,538       3,251       28,295       7       2,145       3,258       30,440       33,698       5,992       1982       7/28/1998     15 - 40 Yrs
Myrtle Beach — At Kingston Plantation, SC (1)
     0       2,940       24,988       0       2,479       2,940       27,467       30,407       6,719       1987       12/5/1996     15 - 40 Yrs
Myrtle Beach Resort (12)
     0       9,000       17,689       5       6,223       9,005       23,912       32,917       5,846       1974       7/23/2002     15 - 40 Yrs
Nashville— Airport/Opryland Area, TN (1)
     0       1,118       9,506       0       774       1,118       10,280       11,398       3,747       1985       7/28/1994     15 - 40 Yrs
Nashville — Opryland/Airport (Briley Parkway), TN (7)
     0       0       27,734       0       2,945       0       30,679       30,679       7,591       1981       7/28/1998     15 - 40 Yrs
Austin, TX (4)
     8,783       2,508       21,908       0       2,486       2,508       24,394       26,902       5,877       1987       3/20/1997     15 - 40 Yrs
Corpus Christi, TX (1)
     4,866       1,113       9,618       51       3,336       1,164       12,954       14,118       3,266       1984       7/19/1995     15 - 40 Yrs
Dallas — DFW International Airport South, TX (1)
     19,302       0       35,156       4,041       843       4,041       35,999       40,040       7,721       1985       7/28/1998     15 - 40 Yrs
Dallas — Love Field, TX (1)
     16,500       1,934       16,674       0       1,647       1,934       18,321       20,255       5,029       1986       3/29/1995     15 - 40 Yrs
Dallas — Market Center, TX (1)
     0       2,560       23,751       0       744       2,560       24,495       27,055       5,801       1980       6/30/1997     15 - 40 Yrs
Dallas — Park Central, TX (11)
     0       4,513       43,125       762       5,282       5,275       48,407       53,682       9,821       1983       6/30/1997     15 - 40 Yrs

93

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FELCOR LODGING LIMITED PARTNERSHIP
Schedule III — Real Estate and Accumulated Depreciation — (continued)
as of December 31, 2006
(in thousands)
                                                                                                 
                            Cost Capitalized     Gross Amounts at Which                                      
            Initial Cost     Subsequent to Acquisition     Carried at Close of Period             Accumulated                     Life Upon  
                    Buildings             Buildings             Buildings             Depreciation                     Which  
                    and             and     Depreciation     and             Buildings &     Year     Date     Depreciation  
Location   Encumbrances     Land     Improvements     Land     Improvements     Land     Improvements     Total     Improvements     Opened     Acquired     is Computed  
Houston — Medical Center, TX (10)
     0       0       22,027       5       2,491       5       24,518       24,523       4,980       1984       7/28/1998     15 - 40 Yrs
San Antonio — International Airport, TX (7)
     23,800       3,351       29,168       (185 )     2,740       3,166       31,908       35,074       6,950       1981       7/28/1998     15 - 40 Yrs
Burlington Hotel & Conference Center, VT (3)
     17,753       3,136       27,283       (2 )     1,251       3,134       28,534       31,668       6,412       1967       12/4/1997     15 - 40 Yrs
 
                                                                              
 
   $ 779,856     $ 186,227     $ 1,825,980     $ 17,564     $ 232,583     $ 203,791     $ 2,058,563     $ 2,262,354     $ 503,145                          
 
                                                                              
 
(1)   Embassy Suites
 
(2)   Holiday Inn
 
(3)   Sheraton
 
(4)   Doubletree Guest Suites
 
(5)   Crowne Plaza
 
(6)   Doubletree
 
(7)   Holiday Inn Select
 
(8)   Sheraton Suites
 
(9)   Hilton Suites
 
(10)   Holiday Inn Hotel & Suites
 
(11)   Westin
 
(12)   Hilton
                 
    Year Ended December 31,  
    2006     2005  
Reconciliation of Land and Buildings and Improvements
                
Balance at beginning of period
   $ 3,331,708     $ 3,513,950  
Additions during period:
                
Acquisitions
     —       18,949  
Improvements
     18,434       21,735  
Deductions during period:
                
Sale of properties
     (812,222 )     (140,071 )
Hotels held for sale
     (275,566 )     —  
Foreclosures
     —       (82,855 )
 
            
Balance at end of period before impairment charges
     2,262,354       3,331,708  
 
                
Cumulative impairment charges on real estate assets owned at end of period
     —       (327,169 )
 
            
 
                
Balance at end of period
   $ 2,262,354     $ 3,004,539  
 
            
 
                
Reconciliation of Accumulated Depreciation
                
Balance at beginning of period
   $ 646,484     $ 590,065  
Additions during period:
                
Depreciation for the period
     51,318       79,231  
Deductions during period:
                
Sale of properties
     (144,686 )     (22,812 )
Hotels held for sale
     (49,971 )     —  
 
            
 
                
Balance at end of period
   $ 503,145     $ 646,484  
 
            

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
          None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
          Under the supervision and with the participation of FelCor’s management, including its chief executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, FelCor’s chief executive officer and principal financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective, such that the information relating to us required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to FelCor’s management, including its chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
          There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934) during the fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting.
          Our management is responsible for establishing and maintaining adequate internal control over financial reporting. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
          Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we have concluded that, as of December 31, 2006, our internal control over financial reporting is effective, based on those criteria.
          Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in their report, which appears on page 53 of this Annual Report on Form 10-K.
Item 9B. Other Information
          Not applicable.

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PART III. — OTHER INFORMATION
Item 10. Directors and Executive Officers of the Registrant
          The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, and is incorporated herein by reference.
Item 11. Executive Compensation
          The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
          The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, or in Item 5 of this Annual Report on Form 10-K for the year ended December 31, 2006, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
          The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
          The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, and is incorporated herein by reference.

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PART IV
Item 15. Exhibits and Financial Statement Schedules
  (a)   The following is a list of documents filed as a part of this report:
  (1)   Financial Statements.
          Included herein at pages 52 through 91.
  (2)   Financial Statement Schedules.
          The following financial statement schedule is included herein at pages 92 through 94.
           Schedule III — Real Estate and Accumulated Depreciation for FelCor Lodging Limited Partnership
          All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions, are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted.
          (b) Exhibits.
          The following exhibits are provided pursuant to the provisions of Item 601 of Regulation S-K:
     
Exhibit    
Number   Description of Exhibit
 
3.1
  Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of December 31, 2001 (filed as Exhibit 10.1 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the “2001 Form 10-K”), and incorporated herein by reference.)
 
    
3.1.1
  First Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated April 1, 2002 (filed as Exhibit 10.1.1 to FelCor’s Form 8-K dated April 1, 2002, and filed on April 4, 2002, and incorporated herein by reference).
 
    
3.1.2
  Second Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated August 31, 2002 (filed as Exhibit 10.1.2 to FelCor’s Annual Report of Form 10-K for the fiscal year ended December 31, 2002 (the “2002 Form 10-K”) and incorporated herein by reference).
 
    
3.1.3
  Third Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated October 1, 2002 (filed as Exhibit 10.1.3 to the 2002 Form 10-K and incorporated herein by reference).
 
    
3.1.4
  Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of July 1, 2003 (filed as Exhibit 10.1.4 to FelCor’s Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).
 
    
3.1.5
  Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of April 2, 2004 (filed as Exhibit 10.1.5 to FelCor’s Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).
 
    
3.1.6
  Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of August 23, 2004 (filed as Exhibit 10.1.6 to FelCor’s Form 8-K dated as of, and filed on, August 26, 2004, and incorporated herein by reference).

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Exhibit    
Number   Description of Exhibit
3.1.7
  Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of April 7, 2005, which contains Addendum No. 4 to the Second Amended and Restated Agreement of Limited Partnership of FelCor Lodging Limited Partnership (filed as Exhibit 10.1.8 to FelCor’s Form 8-K, dated April 6, 2006, and filed on April 11, 2005, and incorporated herein by reference).
 
    
3.1.8
  Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of August 30, 2005 (filed as Exhibit 10.1.9 to FelCor’s Form 8-K, dated August 29, 2005, and filed September 2, 2005, and incorporated herein by reference).
 
    
4.1
  Indenture, dated as of June 4, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.9 to FelCor’s Form 8-K dated as of June 4, 2001, and filed June 14, 2001, and incorporated herein by reference).
 
    
4.1.1
  First Supplemental Indenture, dated as of July 26, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.4.1 to the Registration Statement on Form S-4 (Registration File No. 333-63092) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).
 
    
4.1.2
  Second Supplemental Indenture, dated October 1, 2002, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.9.2 to the 2002 Form 10-K and incorporated herein by reference).
 
    
4.1.3
  Third Supplemental Indenture, dated as of January 25, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and SunTrust Bank, as trustee (filed as Exhibit 4.9.3 to the 2005 Form 10-K and incorporated herein by reference).
 
    
4.1.4
  Fourth Supplemental Indenture, dated as of December 31, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and U.S. Bank National Association, as successor to SunTrust Bank, as trustee (filed as Exhibit 4.8.4 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “2006 10-K”) and incorporated herein by reference).
 
    
4.2
  Indenture dated October 31, 2006 by and among FelCor LP, FelCor, certain subsidiary guarantors named therein, FelCor Holdings Trust, as pledgor, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
4.2.1
  First Supplemental Indenture, dated as of December 31, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.9.1 to the 2006 10-K and incorporated herein by reference).
 
    
10.1.1
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of InterContinental Hotels, as manager, with respect to FelCor’s InterContinental Hotels branded hotels (included as an exhibit to the Leasehold Acquisition Agreement, which was filed as Exhibit 10.28 to FelCor’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference).

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Exhibit    
Number   Description of Exhibit
10.1.2
  Omnibus Agreement between FelCor and all its various subsidiaries, controlled entities and affiliates, and Six Continents Hotels, Inc. and all its various subsidiaries, controlled entities and affiliates, with respect to FelCor’s InterContinental Hotels branded hotels (filed as Exhibit 10.2.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.2.1
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Embassy Suites Hotels branded hotels, including the form of Embassy Suites Hotels License Agreement attached as an exhibit thereto, effective prior to July 28, 2004 (filed as Exhibit 10.5 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.2.2
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Embassy Suites Hotels branded hotels, including the form of Embassy Suites Hotels License Agreement attached as an exhibit thereto, effective July 28, 2004 (filed as Exhibit 10.3.2 to FelCor’s Form 10-K for the fiscal year ended December 31, 2004 (the “2004 Form 10-K”) and incorporated herein by reference).
 
    
10.3
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Doubletree and Doubletree Guest Suites branded hotels (filed as Exhibit 10.6 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.4
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Starwood Hotels & Resorts, Inc., as manager, with respect to FelCor’s Sheraton and Westin branded hotels (filed as Exhibit 10.7 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.5
  Executive Employment Agreement, dated effective as of February 1, 2006, between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.36 to FelCor’s Form 8-K, dated February 7, 2006, and filed on February 13, 2006 and incorporated herein by reference).
 
    
10.6
  Executive Employment Agreement, dated effective as of February 1, 2006, between FelCor and Richard A. Smith (filed as Exhibit 10.37 to FelCor’s Form 8-K, dated February 7, 2006, and filed on February 13, 2006 and incorporated herein by reference).
 
    
10.7
  Form of Amended and Restated Change in Control and Severance Agreement for executive officers of FelCor (filed as Exhibit 10.8 to the 2006 10-K and incorporated herein by reference).
 
    
10.8
  Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.9
  1995 Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9.2 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference).
 
    
10.10
  Non-Qualified Deferred Compensation Plan, as amended and restated effective January 1, 2005 (filed as Exhibit 10.11 to the 2006 10-K and incorporated herein by reference).
 
    
10.11
  1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor’s Registration Statement on Form S-8 (Registration File No. 333-66041) and incorporated herein by reference).
 
    
10.12
  2001 Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.14 to the 2002 Form 10-K and incorporated herein by reference).

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Exhibit    
Number   Description of Exhibit
10.13
  Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor’s Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (Registration File No. 333-50509) and incorporated herein by reference).
 
    
10.14
  Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor’s Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (Registration File No. 333-50509) and incorporated herein by reference).
 
    
10.15
  Form of Nonstatutory Stock Option Contract under Restricted Stock and Stock Option Plans of FelCor (filed as Exhibit 10.16 to the 2004 Form 10-K and incorporated herein by reference).
 
    
10.16
  Form of Employee Stock Grant Contract under Restricted Stock and Stock Option Plans of FelCor (filed as Exhibit 10.17 to the 2004 Form 10-K and incorporated herein by reference).
 
    
10.17
  FelCor Lodging Trust Incorporated 2005 Restricted Stock and Stock Option Plan (filed as Exhibit 4.4 to FelCor’s Registration Statement on Form S-8 (Registration File No. 333-126228) and incorporated herein by reference).
 
    
10.18
  Form of Employee Stock Grant Contract under Restricted Stock and Stock Option Plans of FelCor applicable to grants in 2005 and thereafter (filed as Exhibit 10.33 to FelCor’s Form 8-K dated April 26, 2005, and filed on May 2, 2005, and incorporated herein by reference).
 
    
10.19
  Summary of Annual Compensation Program for Directors of FelCor (filed as Exhibit 10.18 to the 2004 Form 10-K and incorporated herein by reference).
 
    
10.20
  Summary of 2006 Performance Criteria for Annual Incentive Bonus Award Program (filed as Exhibit 10.38 to FelCor’s Form 8-K, dated February 17, 2006, and filed on February 22, 2006 and incorporated herein by reference).
 
    
10.21
  Employment Separation, Consulting and Release Agreement between FelCor and June C. McCutchen dated as of September 7, 2006 (filed as Exhibit 99.1 to FelCor’s Form 8-K, dated November 13, 2006, and filed on November 17, 2006 and incorporated herein by reference).
 
    
10.22
  Summary of verbal arrangement for retirement benefits for Lawrence D. Robinson (filed as Exhibit 99.1 to FelCor’s Form 8-K, dated January 1, 2007, and filed on January 5, 2007 and incorporated herein by reference).
 
    
10.23.1
  Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P., as Mortgagor, and The Prudential Insurance Company of America, as Mortgagee (filed as Exhibit 10.23 to the March 1999 10-Q and incorporated herein by reference).
 
    
10.23.2
  Promissory Note, dated April 1, 1999, in the original principal amount of $100,000,000, made by FelCor/CSS Holdings, Ltd., payable to the order of The Prudential Insurance Company of America (filed as Exhibit 10.23.1 to FelCor’s Form 10-Q for the quarter ended June 30, 1999 (the “June 1999 10-Q”) and incorporated herein by reference).
 
    
10.24.1
  Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.22.3 (filed as Exhibit 10.24 to FelCor’s Form 10-Q for the quarter ended June 30, 2000 (the “June 2000 10-Q”) and incorporated herein by reference).

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Exhibit    
Number   Description of Exhibit
10.24.2
  Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.24.3
  Form of fourteen separate Promissory Notes, each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O’Hare Airport, Illinois), $12,500,000 (Chicago O’Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont) and $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.25.1
  Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.23.2 (filed as Exhibit 10.25 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.25.2
  Form of eight separate Promissory Notes, each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C. and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey) and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.26.1
  Form of Loan Agreement, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, between JPMorgan Chase Bank, as lender, and each of FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., and FelCor/JPM BWI Hotel, L.L.C. and FCH/DT BWI Hotel, L.L.C., as borrowers, and acknowledged and agreed by FelCor LP (filed as Exhibit 10.34 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.26.2
  Form of Mortgage, Renewal Mortgage, Deed of Trust, Deed to Secure Debt, Indemnity Deed of Trust and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, from FelCor/JPM Wilmington Hotel, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., FelCor/JPM Austin Holdings, L.P., DJONT/JPM Austin Leasing, L.P.,

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Exhibit    
Number   Description of Exhibit
 
  FelCor/JPM Orlando Hotel, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., FCH/DT BWI Holdings, L.P., FCH/DT BWI Hotel, L.L.C. and DJONT/JPM BWI Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary (filed as Exhibit 10.34.1 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.26.3
  Form of seven separate Promissory Notes, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., and FelCor/JPM BWI Hotel, L.L.C., each separately payable to the order of JPMorgan Chase Bank in the respective original principal amounts of $11,000,000 (Wilmington, Delaware), $21,368,000 (Phoenix, Arizona), $5,500,000 (Boca Raton, Florida), $13,500,000 (Atlanta, Georgia), $9,616,000 (Austin, Texas), $9,798,000 (Orlando, Florida), and $24,120,000 (Linthicum, Maryland) (filed as Exhibit 10.34.2 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.26.4
  Form of Guaranty of Recourse Obligations of Borrower, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor LP in favor of JPMorgan Chase Bank (filed as Exhibit 10.34.3 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.27.1
  Construction Loan Agreement, dated April 27, 2005, among Grande Palms, L.L.C. and Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto, and Bank of America Securities, as Lead Arranger, for a maximum principal loan amount of $69.8 million (filed as Exhibit 10.34.1 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.27.2
  Guaranty Agreement, dated April 27, 2005, by FelCor Lodging Limited Partnership in favor of Bank of America, N.A. on behalf of the lenders(filed as Exhibit 10.34.2 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.27.3
  Form of Promissory Note, each dated April 27, 2005, made by Grande Palms, L.L.C., each separately payable to the order of Bank of America, N.A. ($25 million), Bank of Montreal ($20 million) and The Bank of Nova Scotia ($24.8 million)(filed as Exhibit 10.34.3 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.27.4
  Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated April 27, 2005, made by Grande Palms, L.L.C. for the benefit of Bank of America, N.A., as Administrative Agent under the Construction Loan Agreement referenced in Exhibit 10.34.1 (filed as Exhibit 10.34.4 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.28.1
  Term Credit Agreement, dated as of October 18, 2005, among FelCor TRS Borrower 1, L.P., as Initial Borrower; FelCor TRS Guarantor, L.P., FelCor LP and the other guarantors named therein as Guarantors; Citigroup North America, Inc., as Initial Lender, as Administrative Agent, and as Collateral Agent, and Citigroup Global Markets, Inc., as Sole Lead Arranger and Sole Book Running Manager, for a maximum principal loan amount of $175 million (filed as Exhibit 10.35 to FelCor’s Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference).
 
    
10.28.2
  First Amendment to Term Credit Agreement, dated as of December 9, 2005, among FelCor TRS Borrower 1, L.P. and FelCor TRS Borrower 2, L.P., as borrowers; FelCor TRS Guarantor, L.P., FelCor LP, FelCor Lodging Company, L.L.C., FelCor Philadelphia Center, L.L.C., FelCor Marshall Motels, L.L.C. and Center City Hotel Associates, as guarantors; Citicorp North America, Inc., as the initial Lender, the administrative agent for the lenders and the collateral agent for the secured parties; and Citigroup Global Markets Inc., as sole lead arranger and sole book running manager (filed as Exhibit 10.33.1 to the 2005 Form 10-K and incorporated herein by reference).

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Exhibit    
Number   Description of Exhibit
10.28.3
  Second Amendment to Term Credit Agreement, dated as of January 9, 2006, among FelCor TRS Borrower 1, L.P. and FelCor TRS Borrower 2, L.P., as borrowers and certain other borrowers named therein; FelCor TRS Guarantor, L.P., FelCor LP, FelCor Lodging Company, L.L.C., FelCor Philadelphia Center, L.L.C., FelCor Marshall Motels, L.L.C. and Center City Hotel Associates, as guarantors; Citicorp North America, Inc., as the initial Lender, the administrative agent for the lenders and the collateral agent for the secured parties; and Citigroup Global Markets Inc., as sole lead arranger and sole book running manager (filed as Exhibit 10.33.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1
  Credit Agreement, dated as of December 12, 2005, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers for an initial aggregate amount of $125,000,000 (filed as Exhibit 10.34.1 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1.1
  First Amendment to Credit Agreement, dated as of January 12, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers (filed as Exhibit 10.34.1.1 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1.2
  Second Amendment to Credit Agreement, dated as of January 27, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers (filed as Exhibit 10.34.1.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1.3
  Amendment No. 3 to Credit Agreement, dated as of March 31, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.34.1.3 to FelCor’s Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).
 
    
10.29.1.4
  Amendment No. 4 to Credit Agreement, dated October 26, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.3 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.29.2
  Subsidiary Guaranty, dated as of January 27, 2006, made by FelCor/CSS Holdings, L.P., FelCor Hotel Asset Company, L.L.C., FelCor Pennsylvania Company, L.L.C., FelCor Lodging Holding Company, L.L.C., FHAC Texas Holdings, L.P., FelCor Canada Co., FelCor Omaha Hotel Company, L.L.C., FelCor TRS Holdings, L.P., Myrtle Beach Hotels, L.L.C., FelCor TRS Borrower I, L.P., FelCor TRS Guarantor, L.P., Center City Hotel Associates, FelCor Lodging Company, L.L.C., FelCor TRS Borrower 3, L.P. and FelCor TRS Borrower 4, L.L.C. (filed as Exhibit 10.34.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.3
  Joinder Agreement to Subsidiary Guaranty, dated as of December 31, 2006, made by FelCor/St. Paul Holdings, L.P. (filed as Exhibit 10.30.3 to the 2006 10-K and incorporated herein by reference).
 
    
10.30
  Purchase and Sale Agreement, dated effective as of January 20, 2006, by and between FelCor and Hospitality Properties Trust (filed as Exhibit 10.35 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.31.1
  Pledge Agreement dated October 31, 2006 by FelCor Holdings Trust in favor of JPMorgan Chase Bank, N.A., as Collateral Agent (filed as Exhibit 10.1 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.31.2
  Collateral Agency Agreement dated October 31, 2006 by and among FelCor, FelCor LP, JPMorgan Chase Bank, N.A., as Collateral Agent and/or Administrative Agent, FelCor Holdings Trust and U.S. Bank National Association, as trustee under several indentures (filed

103

Table of Contents

     
Exhibit    
Number   Description of Exhibit
 
  as Exhibit 10.2 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.32
  Registration Rights Agreement dated October 31, 2006 by and among FelCor, FelCor LP, Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as Exhibit 4.4 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.33
  Form of Indemnification Agreement (filed as Exhibit 10.1 to FelCor’s Form 8-K dated November 9, 2006, and filed on November 13, 2006, and incorporated herein by reference).
 
    
10.34.1
  Loan Agreement, dated as of November 10, 2006, by and among FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C., as borrowers, and Bank of America, N.A., as lender, relating to a $250 million loan from lender to borrower (filed as Exhibit 10.35.1 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.1.1
  First Amendment to Loan Agreement and Other Loan Documents, dated as of January 31, 2007, by and among FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C., as borrowers, and Bank of America, N.A., as lender (filed as Exhibit 10.35.1.1 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.2
  Form of Mortgage, Deed of Trust and Security Agreement, each dated as of November 10, 2006, from FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C., as borrowers, in favor of Bank of America, N.A., as lender, each covering a separate hotel and securing the Mortgage Loan (filed as Exhibit 10.35.2 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.3
  Form of Amended and Restated Promissory Note, each dated as of January 31, 2007, made by FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C. payable to the order of either Bank of America, N.A. or JPMorgan Chase Bank, N.A., as lender, in the original aggregate principal amount of $250 million (filed as Exhibit 10.35.3 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.4
  Guaranty of Recourse Obligations of Borrower, dated as of November 10, 2006, made by FelCor LP in favor of Bank of America, N.A. (filed as Exhibit 10.35.4 to the 2006 10-K and incorporated herein by reference).
 
    
21*
  List of Subsidiaries of FelCor LP.
 
    
31.1*
  Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
31.2*
  Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).
 
    
32.1*
  Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
    
32.2*
  Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
*   Filed herewith

104

Table of Contents

SIGNATURES
          Pursuant to the requirements of Section 13 or 15 (d) 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 LIMITED PARTNERSHIP
a Delaware Limited Partnership
 		  
  By:   FelCor Lodging Trust Incorporated    
    Its General Partner   
       
 
     
  By:   /s/ Jonathan H. Yellen    
    Jonathan H. Yellen   
    Executive Vice President   
 
Date: February 28, 2007
          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
Date   Signature    
February 28, 2007
  /s/ Richard A. Smith    
 
 
 
Richard A. Smith 		   
 
  President and Director (Chief Executive Officer)    
 
        
February 28, 2007
  /s/ Andrew J. Welch    
 
       
 
  Andrew J. Welch    
 
  Executive Vice President and Chief Financial Officer    
 
  (Principal Financial Officer)    
 
        
February 28, 2007
  /s/ Lester C. Johnson    
 
       
 
  Lester C. Johnson    
 
  Senior Vice President and Controller    
 
  (Principal Accounting Officer)    
 
        
February 27, 2007
  /s/ Thomas J. Corcoran, Jr.    
 
       
 
  Thomas J. Corcoran, Jr.    
 
  Chairman of the Board and Director    
 
        
February 27, 2007
  /s/ Melinda J. Bush    
 
       
 
  Melinda J. Bush, Director    
 
        
February 27, 2007
  /s/ Robert F. Cotter    
 
       
 
  Robert F. Cotter, Director    
 
        
February 27, 2007
  /s/ Richard S. Ellwood    
 
       
 
  Richard S. Ellwood, Director    
 
        
February 27, 2007
  /s/ Thomas C. Hendrick    
 
       
 
  Thomas C. Hendrick, Director    
 
        
February 27, 2007
  /s/ David C. Kloeppel    
 
       
 
  David C. Kloeppel, Director    
 
        
February 27, 2007
  /s/ Charles A. Ledsinger, Jr.    
 
       
 
  Charles A. Ledsinger, Jr., Director    
 
        
February 27, 2007
  /s/ Robert H. Lutz, Jr.    
 
       
 
  Robert H. Lutz, Jr., Director    
 
        
February 27, 2007
  /s/ Robert A. Mathewson    
 
       
 
  Robert A. Mathewson, Director    

105

Table of Contents

INDEX TO EXHIBITS
     
Exhibit    
Number   Description of Exhibit
3.1
  Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of December 31, 2001 (filed as Exhibit 10.1 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the “2001 Form 10-K”), and incorporated herein by reference.)
 
    
3.1.1
  First Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated April 1, 2002 (filed as Exhibit 10.1.1 to FelCor’s Form 8-K dated April 1, 2002, and filed on April 4, 2002, and incorporated herein by reference).
 
    
3.1.2
  Second Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated August 31, 2002 (filed as Exhibit 10.1.2 to FelCor’s Annual Report of Form 10-K for the fiscal year ended December 31, 2002 (the “2002 Form 10-K”) and incorporated herein by reference).
 
    
3.1.3
  Third Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated October 1, 2002 (filed as Exhibit 10.1.3 to the 2002 Form 10-K and incorporated herein by reference).
 
    
3.1.4
  Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of July 1, 2003 (filed as Exhibit 10.1.4 to FelCor’s Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).
 
    
3.1.5
  Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of April 2, 2004 (filed as Exhibit 10.1.5 to FelCor’s Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).
 
    
3.1.6
  Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of August 23, 2004 (filed as Exhibit 10.1.6 to FelCor’s Form 8-K dated as of, and filed on, August 26, 2004, and incorporated herein by reference).
 
    
3.1.7
  Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of April 7, 2005, which contains Addendum No. 4 to the Second Amended and Restated Agreement of Limited Partnership of FelCor Lodging Limited Partnership (filed as Exhibit 10.1.8 to FelCor’s Form 8-K, dated April 6, 2006, and filed on April 11, 2005, and incorporated herein by reference).
 
    
3.1.8
  Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership of FelCor LP, dated as of August 30, 2005 (filed as Exhibit 10.1.9 to FelCor’s Form 8-K, dated August 29, 2005, and filed September 2, 2005, and incorporated herein by reference).
 
    
4.1
  Indenture, dated as of June 4, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.9 to FelCor’s Form 8-K dated as of June 4, 2001, and filed June 14, 2001, and incorporated herein by reference).
 
    
4.1.1
  First Supplemental Indenture, dated as of July 26, 2001, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.4.1 to the Registration Statement on Form S-4 (Registration File No. 333-63092) of FelCor LP and the other co-registrants named therein and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
4.1.2
  Second Supplemental Indenture, dated October 1, 2002, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein and SunTrust Bank, as Trustee (filed as Exhibit 4.9.2 to the 2002 Form 10-K and incorporated herein by reference).
 
    
4.1.3
  Third Supplemental Indenture, dated as of January 25, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and SunTrust Bank, as trustee (filed as Exhibit 4.9.3 to the 2005 Form 10-K and incorporated herein by reference).
 
    
4.1.4
  Fourth Supplemental Indenture, dated as of December 31, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and U.S. Bank National Association, as successor to SunTrust Bank, as trustee (filed as Exhibit 4.8.4 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “2006 10-K”) and incorporated herein by reference).
 
    
4.2
  Indenture dated October 31, 2006 by and among FelCor LP, FelCor, certain subsidiary guarantors named therein, FelCor Holdings Trust, as pledgor, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
4.2.1
  First Supplemental Indenture, dated as of December 31, 2006, by and among FelCor LP, FelCor, the Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.9.1 to the 2006 10-K and incorporated herein by reference).
 
    
10.1.1
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of InterContinental Hotels, as manager, with respect to FelCor’s InterContinental Hotels branded hotels (included as an exhibit to the Leasehold Acquisition Agreement, which was filed as Exhibit 10.28 to FelCor’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference).
 
    
10.1.2
  Omnibus Agreement between FelCor and all its various subsidiaries, controlled entities and affiliates, and Six Continents Hotels, Inc. and all its various subsidiaries, controlled entities and affiliates, with respect to FelCor’s InterContinental Hotels branded hotels (filed as Exhibit 10.2.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.2.1
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Embassy Suites Hotels branded hotels, including the form of Embassy Suites Hotels License Agreement attached as an exhibit thereto, effective prior to July 28, 2004 (filed as Exhibit 10.5 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.2.2
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Embassy Suites Hotels branded hotels, including the form of Embassy Suites Hotels License Agreement attached as an exhibit thereto, effective July 28, 2004 (filed as Exhibit 10.3.2 to FelCor’s Form 10-K for the fiscal year ended December 31, 2004 (the “2004 Form 10-K”) and incorporated herein by reference).
 
    
10.3
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Hilton Hotels Corporation, as manager, with respect to FelCor’s Doubletree and Doubletree Guest Suites branded hotels (filed as Exhibit 10.6 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.4
  Form of Management Agreement between subsidiaries of FelCor, as owner, and a subsidiary of Starwood Hotels & Resorts, Inc., as manager, with respect to FelCor’s Sheraton and Westin branded hotels (filed as Exhibit 10.7 to the 2001 Form 10-K and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
10.5
  Executive Employment Agreement, dated effective as of February 1, 2006, between FelCor and Thomas J. Corcoran, Jr. (filed as Exhibit 10.36 to FelCor’s Form 8-K, dated February 7, 2006, and filed on February 13, 2006 and incorporated herein by reference).
 
    
10.6
  Executive Employment Agreement, dated effective as of February 1, 2006, between FelCor and Richard A. Smith (filed as Exhibit 10.37 to FelCor’s Form 8-K, dated February 7, 2006, and filed on February 13, 2006 and incorporated herein by reference).
 
    
10.7
  Form of Amended and Restated Change in Control and Severance Agreement for executive officers of FelCor (filed as Exhibit 10.8 to the 2006 10-K and incorporated herein by reference).
 
    
10.8
  Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 2001 Form 10-K and incorporated herein by reference).
 
    
10.9
  1995 Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.9.2 to FelCor’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference).
 
    
10.10
  Non-Qualified Deferred Compensation Plan, as amended and restated effective January 1, 2005 (filed as Exhibit 10.11 to the 2006 10-K and incorporated herein by reference).
 
    
10.11
  1998 Restricted Stock and Stock Option Plan (filed as Exhibit 4.2 to FelCor’s Registration Statement on Form S-8 (Registration File No. 333-66041) and incorporated herein by reference).
 
    
10.12
  2001 Restricted Stock and Stock Option Plan of FelCor (filed as Exhibit 10.14 to the 2002 Form 10-K and incorporated herein by reference).
 
    
10.13
  Second Amended and Restated 1995 Equity Incentive Plan (filed as Exhibit 99.1 to FelCor’s Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (Registration File No. 333-50509) and incorporated herein by reference).
 
    
10.14
  Amended and Restated Stock Option Plan for Non-Employee Directors (filed as Exhibit 99.2 to FelCor’s Post-Effective Amendment on Form S-3 to Form S-4 Registration Statement (Registration File No. 333-50509) and incorporated herein by reference).
 
    
10.15
  Form of Nonstatutory Stock Option Contract under Restricted Stock and Stock Option Plans of FelCor (filed as Exhibit 10.16 to the 2004 Form 10-K and incorporated herein by reference).
 
    
10.16
  Form of Employee Stock Grant Contract under Restricted Stock and Stock Option Plans of FelCor (filed as Exhibit 10.17 to the 2004 Form 10-K and incorporated herein by reference).
 
    
10.17
  FelCor Lodging Trust Incorporated 2005 Restricted Stock and Stock Option Plan (filed as Exhibit 4.4 to FelCor’s Registration Statement on Form S-8 (Registration File No. 333-126228) and incorporated herein by reference).
 
    
10.18
  Form of Employee Stock Grant Contract under Restricted Stock and Stock Option Plans of FelCor applicable to grants in 2005 and thereafter (filed as Exhibit 10.33 to FelCor’s Form 8-K dated April 26, 2005, and filed on May 2, 2005, and incorporated herein by reference).
 
    
10.19
  Summary of Annual Compensation Program for Directors of FelCor (filed as Exhibit 10.18 to the 2004 Form 10-K and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
10.20
  Summary of 2006 Performance Criteria for Annual Incentive Bonus Award Program (filed as Exhibit 10.38 to FelCor’s Form 8-K, dated February 17, 2006, and filed on February 22, 2006 and incorporated herein by reference).
 
    
10.21
  Employment Separation, Consulting and Release Agreement between FelCor and June C. McCutchen dated as of September 7, 2006 (filed as Exhibit 99.1 to FelCor’s Form 8-K, dated November 13, 2006, and filed on November 17, 2006 and incorporated herein by reference).
 
    
10.22
  Summary of verbal arrangement for retirement benefits for Lawrence D. Robinson (filed as Exhibit 99.1 to FelCor’s Form 8-K, dated January 1, 2007, and filed on January 5, 2007 and incorporated herein by reference).
 
    
10.23.1
  Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P., as Mortgagor, and The Prudential Insurance Company of America, as Mortgagee (filed as Exhibit 10.23 to the March 1999 10-Q and incorporated herein by reference).
 
    
10.23.2
  Promissory Note, dated April 1, 1999, in the original principal amount of $100,000,000, made by FelCor/CSS Holdings, Ltd., payable to the order of The Prudential Insurance Company of America (filed as Exhibit 10.23.1 to FelCor’s Form 10-Q for the quarter ended June 30, 1999 (the “June 1999 10-Q”) and incorporated herein by reference).
 
    
10.24.1
  Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.22.3 (filed as Exhibit 10.24 to FelCor’s Form 10-Q for the quarter ended June 30, 2000 (the “June 2000 10-Q”) and incorporated herein by reference).
 
    
10.24.2
  Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America (filed as Exhibit 10.24.1 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.24.3
  Form of fourteen separate Promissory Notes, each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O’Hare Airport, Illinois), $12,500,000 (Chicago O’Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont) and $10,500,000 (South Burlington, Vermont) (filed as Exhibit 10.24.2 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.25.1
  Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.23.2 (filed as Exhibit 10.25 to the June 2000 10-Q and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
10.25.2
  Form of eight separate Promissory Notes, each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C. and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey) and $26,268,000 (South San Francisco, California) (filed as Exhibit 10.25.1 to the June 2000 10-Q and incorporated herein by reference).
 
    
10.26.1
  Form of Loan Agreement, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, between JPMorgan Chase Bank, as lender, and each of FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., and FelCor/JPM BWI Hotel, L.L.C. and FCH/DT BWI Hotel, L.L.C., as borrowers, and acknowledged and agreed by FelCor LP (filed as Exhibit 10.34 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.26.2
  Form of Mortgage, Renewal Mortgage, Deed of Trust, Deed to Secure Debt, Indemnity Deed of Trust and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, from FelCor/JPM Wilmington Hotel, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., FelCor/JPM Austin Holdings, L.P., DJONT/JPM Austin Leasing, L.P., FelCor/JPM Orlando Hotel, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., FCH/DT BWI Holdings, L.P., FCH/DT BWI Hotel, L.L.C. and DJONT/JPM BWI Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary (filed as Exhibit 10.34.1 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.26.3
  Form of seven separate Promissory Notes, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., and FelCor/JPM BWI Hotel, L.L.C., each separately payable to the order of JPMorgan Chase Bank in the respective original principal amounts of $11,000,000 (Wilmington, Delaware), $21,368,000 (Phoenix, Arizona), $5,500,000 (Boca Raton, Florida), $13,500,000 (Atlanta, Georgia), $9,616,000 (Austin, Texas), $9,798,000 (Orlando, Florida), and $24,120,000 (Linthicum, Maryland) (filed as Exhibit 10.34.2 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.26.4
  Form of Guaranty of Recourse Obligations of Borrower, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor LP in favor of JPMorgan Chase Bank (filed as Exhibit 10.34.3 to FelCor’s Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).
 
    
10.27.1
  Construction Loan Agreement, dated April 27, 2005, among Grande Palms, L.L.C. and Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto, and Bank of America Securities, as Lead Arranger, for a maximum principal loan amount of $69.8 million (filed as Exhibit 10.34.1 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
10.27.2
  Guaranty Agreement, dated April 27, 2005, by FelCor Lodging Limited Partnership in favor of Bank of America, N.A. on behalf of the lenders(filed as Exhibit 10.34.2 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.27.3
  Form of Promissory Note, each dated April 27, 2005, made by Grande Palms, L.L.C., each separately payable to the order of Bank of America, N.A. ($25 million), Bank of Montreal ($20 million) and The Bank of Nova Scotia ($24.8 million)(filed as Exhibit 10.34.3 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.27.4
  Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated April 27, 2005, made by Grande Palms, L.L.C. for the benefit of Bank of America, N.A., as Administrative Agent under the Construction Loan Agreement referenced in Exhibit 10.34.1 (filed as Exhibit 10.34.4 of FelCor’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
 
    
10.28.1
  Term Credit Agreement, dated as of October 18, 2005, among FelCor TRS Borrower 1, L.P., as Initial Borrower; FelCor TRS Guarantor, L.P., FelCor LP and the other guarantors named therein as Guarantors; Citigroup North America, Inc., as Initial Lender, as Administrative Agent, and as Collateral Agent, and Citigroup Global Markets, Inc., as Sole Lead Arranger and Sole Book Running Manager, for a maximum principal loan amount of $175 million (filed as Exhibit 10.35 to FelCor’s Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference).
 
    
10.28.2
  First Amendment to Term Credit Agreement, dated as of December 9, 2005, among FelCor TRS Borrower 1, L.P. and FelCor TRS Borrower 2, L.P., as borrowers; FelCor TRS Guarantor, L.P., FelCor LP, FelCor Lodging Company, L.L.C., FelCor Philadelphia Center, L.L.C., FelCor Marshall Motels, L.L.C. and Center City Hotel Associates, as guarantors; Citicorp North America, Inc., as the initial Lender, the administrative agent for the lenders and the collateral agent for the secured parties; and Citigroup Global Markets Inc., as sole lead arranger and sole book running manager (filed as Exhibit 10.33.1 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.28.3
  Second Amendment to Term Credit Agreement, dated as of January 9, 2006, among FelCor TRS Borrower 1, L.P. and FelCor TRS Borrower 2, L.P., as borrowers and certain other borrowers named therein; FelCor TRS Guarantor, L.P., FelCor LP, FelCor Lodging Company, L.L.C., FelCor Philadelphia Center, L.L.C., FelCor Marshall Motels, L.L.C. and Center City Hotel Associates, as guarantors; Citicorp North America, Inc., as the initial Lender, the administrative agent for the lenders and the collateral agent for the secured parties; and Citigroup Global Markets Inc., as sole lead arranger and sole book running manager (filed as Exhibit 10.33.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1
  Credit Agreement, dated as of December 12, 2005, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers for an initial aggregate amount of $125,000,000 (filed as Exhibit 10.34.1 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1.1
  First Amendment to Credit Agreement, dated as of January 12, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers (filed as Exhibit 10.34.1.1 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.1.2
  Second Amendment to Credit Agreement, dated as of January 27, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc. as joint runners and joint lead arrangers (filed as Exhibit 10.34.1.2 to the 2005 Form 10-K and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
10.29.1.3
  Amendment No. 3 to Credit Agreement, dated as of March 31, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.34.1.3 to FelCor’s Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).
 
    
10.29.1.4
  Amendment No. 4 to Credit Agreement, dated October 26, 2006, by and among FelCor, FelCor LP, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.3 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.29.2
  Subsidiary Guaranty, dated as of January 27, 2006, made by FelCor/CSS Holdings, L.P., FelCor Hotel Asset Company, L.L.C., FelCor Pennsylvania Company, L.L.C., FelCor Lodging Holding Company, L.L.C., FHAC Texas Holdings, L.P., FelCor Canada Co., FelCor Omaha Hotel Company, L.L.C., FelCor TRS Holdings, L.P., Myrtle Beach Hotels, L.L.C., FelCor TRS Borrower I, L.P., FelCor TRS Guarantor, L.P., Center City Hotel Associates, FelCor Lodging Company, L.L.C., FelCor TRS Borrower 3, L.P. and FelCor TRS Borrower 4, L.L.C. (filed as Exhibit 10.34.2 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.29.3
  Joinder Agreement to Subsidiary Guaranty, dated as of December 31, 2006, made by FelCor/St. Paul Holdings, L.P. (filed as Exhibit 10.30.3 to the 2006 10-K and incorporated herein by reference).
 
    
10.30
  Purchase and Sale Agreement, dated effective as of January 20, 2006, by and between FelCor and Hospitality Properties Trust (filed as Exhibit 10.35 to the 2005 Form 10-K and incorporated herein by reference).
 
    
10.31.1
  Pledge Agreement dated October 31, 2006 by FelCor Holdings Trust in favor of JPMorgan Chase Bank, N.A., as Collateral Agent (filed as Exhibit 10.1 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.31.2
  Collateral Agency Agreement dated October 31, 2006 by and among FelCor, FelCor LP, JPMorgan Chase Bank, N.A., as Collateral Agent and/or Administrative Agent, FelCor Holdings Trust and U.S. Bank National Association, as trustee under several indentures (filed as Exhibit 10.2 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.32
  Registration Rights Agreement dated October 31, 2006 by and among FelCor, FelCor LP, Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as Exhibit 4.4 to FelCor’s Form 8-K dated October 26, 2006, and filed on November 1, 2006, and incorporated herein by reference).
 
    
10.33
  Form of Indemnification Agreement (filed as Exhibit 10.1 to FelCor’s Form 8-K dated November 9, 2006, and filed on November 13, 2006, and incorporated herein by reference).
 
    
10.34.1
  Loan Agreement, dated as of November 10, 2006, by and among FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C., as borrowers, and Bank of America, N.A., as lender, relating to a $250 million loan from lender to borrower (filed as Exhibit 10.35.1 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.1.1
  First Amendment to Loan Agreement and Other Loan Documents, dated as of January 31, 2007, by and among FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C., as borrowers, and Bank of America, N.A., as lender (filed as Exhibit 10.35.1.1 to the 2006 10-K and incorporated herein by reference).

 

Table of Contents

     
Exhibit    
Number   Description of Exhibit
10.34.2
  Form of Mortgage, Deed of Trust and Security Agreement, each dated as of November 10, 2006, from FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C., as borrowers, in favor of Bank of America, N.A., as lender, each covering a separate hotel and securing the Mortgage Loan (filed as Exhibit 10.35.2 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.3
  Form of Amended and Restated Promissory Note, each dated as of January 31, 2007, made by FelCor/JPM Hotels, L.L.C. and DJONT/JPM Leasing, L.L.C. payable to the order of either Bank of America, N.A. or JPMorgan Chase Bank, N.A., as lender, in the original aggregate principal amount of $250 million (filed as Exhibit 10.35.3 to the 2006 10-K and incorporated herein by reference).
 
    
10.34.4
  Guaranty of Recourse Obligations of Borrower, dated as of November 10, 2006, made by FelCor LP in favor of Bank of America, N.A. (filed as Exhibit 10.35.4 to the 2006 10-K and incorporated herein by reference).
 
    
21*
  List of Subsidiaries of FelCor LP.
 
    
31.1*
  Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
31.2*
  Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).
 
    
32.1*
  Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
    
32.2*
  Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
*   Filed herewith

 

EX-21 2 d44085exv21.htm SUBSIDIARIES exv21
 

EXHIBIT 21
LIST OF THE SUBSIDIARIES OF FELCOR LODGING LIMITED PARTNERSHIP
(as of December 31, 2006)
         
    Name   State and Form of Organization
 
        
1.
  BHR Canada Tenant Company   Nova Scotia, Canada – Unlimited Liability Company
 
        
2.
  BHR Lodging Tenant Company   Delaware – Corporation
 
        
3.
  BHR Operations, L.L.C.   Delaware – Limited Liability Company
 
        
4.
  Brighton at Kingston Plantation, L.L.C.   Delaware – Limited Liability Company
 
        
5.
  Center City Hotel Associates   Pennsylvania – Limited Partnership
 
        
6.
  DJONT Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
7.
  DJONT Operations, L.L.C.   Delaware – Limited Liability Company
 
        
8.
  DJONT/Charlotte Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
9.
  DJONT/CMB Buckhead Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
10.
  DJONT/CMB Corpus Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
11.
  DJONT/CMB Deerfield Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
12.
  DJONT/CMB FCOAM, L.L.C.   Delaware – Limited Liability Company
 
        
13.
  DJONT/CMB New Orleans Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
14.
  DJONT/CMB Orsouth Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
15.
  DJONT/CMB Piscataway Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
16.
  DJONT/CMB SSF Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
17.
  DJONT/EPT Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
18.
  DJONT/EPT Manager, Inc.
(f/k/a DJONT/Promus Manager, Inc.) 		  Delaware – Corporation
 
        
19.
  DJONT/Indianapolis Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
20.
  DJONT/JPM Atlanta ES Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
21.
  DJONT/JPM Austin Leasing, L.P.   Delaware – Limited Partnership
 
        
22.
  DJONT/JPM Austin Tenant Co., L.L.C.   Delaware – Limited Liability Company
 
        
23.
  DJONT/JPM Boca Raton Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
24.
  DJONT/JPM BWI Leasing, L.L.C.   Delaware – Limited Liability Company

-1-

 

         
    Name   State and Form of Organization
25.
  DJONT/JPM Denver Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
26.
  DJONT/JPM Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
27.
  DJONT/JPM Orlando Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
28.
  DJONT/JPM Phoenix Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
29.
  DJONT/JPM Troy Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
30.
  DJONT/JPM Wilmington Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
31.
  E.S. Charlotte Limited Partnership   Delaware – Limited Partnership
 
        
32.
  E.S. North, an Indiana Limited Partnership   Indiana – Limited Partnership
 
        
33.
  EPT Atlanta-Perimeter Center Limited Partnership   Delaware – Limited Partnership
 
        
34.
  EPT Austin Limited Partnership   Delaware – Limited Partnership
 
        
35.
  EPT Covina Limited Partnership   Delaware – Limited Partnership
 
        
36.
  EPT Kansas City Limited Partnership   Delaware – Limited Partnership
 
        
37.
  EPT Meadowlands Limited Partnership   Delaware – Limited Partnership
 
        
38.
  EPT Overland Park Limited Partnership   Delaware – Limited Partnership
 
        
39.
  EPT Raleigh Limited Partnership   Delaware – Limited Partnership
 
        
40.
  EPT San Antonio Limited Partnership   Delaware – Limited Partnership
 
        
41.
  FCH/DT BWI Holdings, L.P.
(f/k/a B.D. Eastrich BWI No. 1 Limited Partnership) 		  Delaware – Limited Partnership
 
        
42.
  FCH/DT BWI Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
43.
  FCH/DT Holdings, L.P.   Delaware – Limited Partnership
 
        
44.
  FCH/DT Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
45.
  FCH/DT Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
46.
  FCH/HHC Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
47.
  FCH/HHC Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
48.
  FCH/IHC Hotels, L.P.   Delaware – Limited Partnership
 
        
49.
  FCH/IHC Leasing, L.P.   Delaware – Limited Partnership

-2-

 

         
    Name   State and Form of Organization
50.
  FCH/JVEIGHT Leasing, L.L.C.
(f/k/a FCH/Interstate Leasing, L.L.C. and
FCH/Deerfield Development Co., L.L.C.) 		  Delaware – Limited Liability Company
 
        
51.
  FCH/PSH, L.P.
(f/k/a Rouse & Associates-SHS) 		  Pennsylvania – Limited Partnership
 
        
52.
  FCH/SH Leasing, L.L.C.   Delaware – Limited Liability Company
 
        
53.
  FCH/SH Leasing II, L.L.C.   Delaware – Limited Liability Company
 
        
54.
  FelCor Airport Utilities, L.L.C.   Delaware – Limited Liability Company
 
        
55.
  FelCor Canada Co.   Nova Scotia, Canada – Unlimited Liability Company
 
        
56.
  FelCor Canada Holding GP, L.L.C.   Delaware – Limited Liability Company
 
        
57.
  FelCor Canada Holding, L.P.   Delaware – Limited Partnership
 
        
58.
  FelCor Chat-Lem, L.L.C.   Delaware – Limited Liability Company
 
        
59.
  FelCor Eight Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
60.
  FelCor Hotel Asset Company, L.L.C.   Delaware – Limited Liability Company
 
        
61.
  FelCor Hotel Operating Company, L.L.C.   Delaware – Limited Liability Company
 
        
62.
  FelCor Lodging Company, L.L.C.   Delaware – Limited Liability Company
 
        
63.
  FelCor Lodging Holding Company, L.L.C.   Delaware – Limited Liability Company
 
        
64.
  FelCor Marshall Motels, L.L.C.   Delaware – Limited Liability Company
 
        
65.
  FelCor Omaha Hotel Company, L.L.C.   Delaware – Limited Liability Company
 
        
66.
  FelCor Pennsylvania Company, L.L.C.   Delaware – Limited Liability Company
 
        
67.
  FelCor Philadelphia Center, L.L.C.   Delaware – Limited Liability Company
 
        
68.
  FelCor TRS Borrower 1, L.P.   Delaware – Limited Partnership
 
        
69.
  FelCor TRS Borrower 2, L.P.   Delaware – Limited Partnership
 
        
70.
  FelCor TRS Borrower GP 1, L.L.C.   Delaware – Limited Liability Company
 
        
71.
  FelCor TRS Borrower GP 2, L.L.C.   Delaware – Limited Liability Company
 
        
72.
  FelCor TRS Borrower 4, L.L.C.   Delaware – Limited Liability Company
 
        
73.
  FelCor TRS Guarantor, L.P.   Delaware – Limited Partnership
 
        
74.
  FelCor TRS Guarantor GP, L.L.C.   Delaware – Limited Liability Company
 
        
75.
  FelCor TRS Holdings, L.P.   Delaware – Limited Partnership

-3-

 

         
    Name   State and Form of Organization
76.
  FelCor TRS I, L.L.C.   Delaware – Limited Liability Company
 
        
77.
  FelCor/Charlotte Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
78.
  FelCor/CMB Buckhead Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
79.
  FelCor/CMB Corpus Holdings, L.P.   Delaware – Limited Partnership
 
        
80.
  FelCor/CMB Corpus Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
81.
  FelCor/CMB Deerfield Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
82.
  FelCor/CMB Marlborough Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
83.
  FelCor/CMB New Orleans Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
84.
  FelCor/CMB Orsouth Holdings, L.P.   Delaware – Limited Partnership
 
        
85.
  FelCor/CMB Orsouth Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
86.
  FelCor/CMB Piscataway Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
87.
  FelCor/CMB SSF Holdings, L.P.   Delaware – Limited Partnership
 
        
88.
  FelCor/CMB SSF Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
89.
  FelCor/CSS Holdings, L.P.   Delaware – Limited Partnership
 
        
90.
  FelCor/CSS Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
91.
  FelCor/Indianapolis Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
92.
  FelCor/Iowa-New Orleans Chat-Lem Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
93.
  FelCor/JPM Atlanta ES Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
94.
  FelCor/JPM Austin Holdings, L.P.   Delaware – Limited Partnership
 
        
95.
  FelCor/JPM Austin Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
96.
  FelCor/JPM Boca Raton Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
97.
  FelCor/JPM BWI Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
98.
  FelCor/JPM Denver Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
99.
  FelCor/JPM Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
100.
  FelCor/JPM Orlando Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
101.
  FelCor/JPM Phoenix Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
102.
  FelCor/JPM Troy Hotel, L.L.C.   Delaware – Limited Liability Company

-4-

 

         
    Name   State and Form of Organization
103.
  FelCor/JPM Wilmington Hotel, L.L.C.   Delaware – Limited Liability Company
 
        
104.
  FelCor/LAX Holdings, L.P.   Delaware – Limited Partnership
 
        
105.
  FelCor/LAX Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
106.
  FelCor/MM S-7 Holdings, L.P.   Delaware – Limited Partnership
 
        
107.
  FelCor/MM S-7 Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
108.
  FelCor/New Orleans Annex, L.L.C.   Delaware – Limited Liability Company
 
        
109.
  FelCor/St. Paul Holdings, L.P.   Delaware – Limited Partnership
 
        
110.
  FelCor/Tysons Corner Hotel Company, L.L.C.   Delaware – Limited Liability Company
 
        
111.
  FHAC Nevada Holdings, L.L.C.   Nevada – Limited Liability Company
 
        
112.
  FHAC Texas Holdings, L.P.   Texas – Limited Partnership
 
        
113.
  Grande Palms, L.L.C.   Delaware – Limited Liability Company
 
        
114.
  HI Chat-Lem/Iowa-New Orleans Joint Venture   Louisiana – General Partnership
 
        
115.
  Kingston Plantation Development Corp.   Delaware – Corporation
 
        
116.
  Los Angeles International Airport Hotel Associates,
a Texas Limited Partnership 		  Texas – Limited Partnership
 
        
117.
  Margate Towers at Kingston Plantation, L.L.C.   Delaware – Limited Liability Company
 
        
118.
  MHV Joint Venture   Texas – General Partnership
 
        
119.
  Myrtle Beach Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
120.
  Park Central Joint Venture   Texas – General Partnership
 
        
121.
  Promus/FCH Condominium Company, L.L.C.   Delaware – Limited Liability Company
 
        
122.
  Promus/FCH Development Company, L.L.C.   Delaware – Limited Liability Company
 
        
123.
  Promus/FelCor Hotels, L.L.C.   Delaware – Limited Liability Company
 
        
124.
  Promus/FelCor Lombard Venture   Illinois – General Partnership
 
        
125.
  Promus/FelCor Manager, Inc.   Delaware – Corporation
 
        
126.
  Promus/FelCor Parsippany Venture   New Jersey – General Partnership
 
        
127.
  Promus/FelCor San Antonio Venture   Texas – General Partnership
 
        
128.
  Royale Palms Rental, L.L.C.   Delaware – Limited Liability Company

-5-

 

         
    Name   State and Form of Organization
129.
  Tysons Corner Hotel Company, L.L.C.   Delaware – Limited Liability Company

-6-

EX-31.1 3 d44085exv31w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 302 exv31w1
 

Exhibit 31.1
Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
I, Richard A. Smith, certify that:
1.   I have reviewed this Annual Report on Form 10-K of FelCor Lodging Limited Partnership;
 
2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
 
  b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 28, 2007
         
 
  /s/Richard A. Smith
 
Richard A. Smith
Chief Executive Officer of
FelCor Lodging Trust
Incorporated, as general
partner of FelCor Lodging
Limited Partnership 		   

 

EX-31.2 4 d44085exv31w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 302 exv31w2
 

Exhibit 31.2
Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
I, Andrew J. Welch, certify that:
1.   I have reviewed this Annual Report on Form 10-K of FelCor Lodging Limited Partnership;
 
2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
 
  b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 28, 2007
         
 
  /s/ Andrew J. Welch
 
Andrew J. Welch
Chief Financial Officer of
FelCor Lodging Trust
Incorporated, as general
partner of FelCor Lodging
Limited Partnership 		   

 

EX-32.1 5 d44085exv32w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 906 exv32w1
 

Exhibit 32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of FelCor Lodging Limited Partnership (the “Registrant”) on Form 10-K for the three months and year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report), the undersigned hereby certifies, in the capacity as indicated below and pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
  1.   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
 
  2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
         
February 28, 2007
  /s/Richard A. Smith
 
Richard A. Smith
Chief Executive Officer of FelCor Lodging
Trust Incorporated, as general partner of
FelCor Lodging Limited Partnership 		   

 

EX-32.2 6 d44085exv32w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 906 exv32w2
 

Exhibit 32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of FelCor Lodging Limited Partnership (the “Registrant”) on Form 10-K for the three months and year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report), the undersigned hereby certifies, in the capacity as indicated below and pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
  1.   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
 
  2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
         
February 28, 2007
  /s/Andrew J. Welch
 
Andrew J. Welch 		   
 
  Chief Financial Officer of FelCor Lodging    
 
  Trust Incorporated, as general partner of    
 
  FelCor Lodging Limited Partnership    

 

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