2014 Q4 10K

10-K 1 a2014q410k.htm 2014 Q4 10-K 2014 Q4 10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2014



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



	Commission file number: 001-14236		(FelCor Lodging Trust Incorporated)
	Commission file number: 333-39595-01		(FelCor Lodging Limited Partnership)

FelCor Lodging Trust Incorporated

FelCor Lodging Limited Partnership

(Exact Name of Registrant as Specified in Its Charter)



Maryland	(FelCor Lodging Trust Incorporated)	75-2541756
Delaware	(FelCor Lodging Limited Partnership)	75-2544994
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
		(I.R.S. Employer Identification No.)



	545 E. John Carpenter Freeway, Suite 1300, Irving, Texas		75062
	(Address of Principal Executive Offices)		(Zip Code)

(972) 444-4900

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Name of each exchange

on which registered

FelCor Lodging Trust Incorporated:

Common Stock

New York Stock Exchange

$1.95 Series A Cumulative Convertible Preferred Stock

New York Stock Exchange

Depositary Shares representing 8% Series C Cumulative Redeemable Preferred Stock

New York Stock Exchange

FelCor Lodging Limited Partnership:

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.



FelCor Lodging Trust Incorporated	þ	Yes	¨	No
FelCor Lodging Limited Partnership	¨	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.



FelCor Lodging Trust Incorporated	¨	Yes	þ	No
FelCor Lodging Limited Partnership	þ	Yes	¨	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.



FelCor Lodging Trust Incorporated	þ	Yes	¨	No
FelCor Lodging Limited Partnership	¨	Yes	þ	No

Note: As a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, the registrant has filed all reports pursuant to Section 13 or 15(d) as if the registrant was subject to such filing requirements.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



FelCor Lodging Trust Incorporated	þ	Yes	¨	No
FelCor Lodging Limited Partnership	þ	Yes	¨	No



Indicate by check mark 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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



FelCor Lodging Trust Incorporated:
Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o



FelCor Lodging Limited Partnership:
Large accelerated filer o		Accelerated filer ¨
Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



FelCor Lodging Trust Incorporated	o	Yes	þ	No
FelCor Lodging Limited Partnership	o	Yes	þ	No

The aggregate market value of shares of common stock held by non-affiliates of FelCor Lodging Trust Incorporated as of June 30, 2014, computed by reference to the price at which its common stock was last sold at June 30, 2014, was approximately $1.3 billion.

As of February 20, 2015, FelCor Lodging Trust Incorporated had issued and outstanding 124,872,546 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of FelCor Lodging Trust Incorporated’s definitive Proxy Statement pertaining to its 2015 Annual Meeting of Stockholders (the “Proxy Statement”), filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A, is incorporated herein by reference into Part III.

EXPLANATORY NOTE

This annual report on Form 10-K for the fiscal year ended December 31, 2014, combines the filings for FelCor Lodging Trust Incorporated, or FelCor, and FelCor Lodging Limited Partnership, or FelCor LP. Where it is important to distinguish between the two, we either refer specifically to FelCor or FelCor LP. Otherwise we use the terms “we” or “our” to refer to FelCor and FelCor LP, collectively (including their consolidated subsidiaries), unless the context indicates otherwise.

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

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


•	presents our business as a whole (the same way management views and operates the business);


•	eliminates duplicative disclosure and provides a more streamlined presentation (a substantial portion of our disclosure applies to both FelCor and FelCor LP); and


•	saves time and cost by preparing combined reports instead of separate reports.

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

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

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

FELCOR LODGING TRUST INCORPORATED and

FELCOR LODGING LIMITED PARTNERSHIP

INDEX





Item No.		Page

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	21
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	28

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 8.	Financial Statements and Supplementary Data	52
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	113
Item 9A.	Controls and Procedures	113

PART III
Item 10.	Directors, Executive Officers of the Registrant and Corporate Governance	115
Item 11.	Executive Compensation	115
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	115
Item 13.	Certain Relationships, Related Transactions and Director Independence	115
Item 14.	Principal Accountant Fees and Services	115

PART IV
Item 15.	Exhibits and Financial Statement Schedules	116

This Annual Report contains registered trademarks and service marks owned or licensed by companies other than us, including (but not limited to) DoubleTree by Hilton, DoubleTree Suites by Hilton, Embassy Suites Hotels, Fairmont, Hilton, Holiday Inn, Marriott, Morgans, Renaissance, Royalton, Sheraton, Sheraton Suites, Walt Disney World, Westin, Wyndham and Wyndham Grand.

Disclosure Regarding Forward Looking Statements

Our disclosure and analysis in this Annual Report and in FelCor’s 2014 Annual Report to Stockholders may contain forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we may also provide forward-looking statements in other materials we release to the public. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify each such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “target,” “forecast,” “continue” or similar expressions. In particular, these forward-looking statements may include those relating to future actions (including future acquisitions or dispositions and future capital expenditure plans) and future performance or expenses.

We cannot guarantee that any future results discussed in any forward-looking statements will be realized, although we believe that we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions, including those discussed in Item 1A “Risk Factors.” Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those results anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make or related subjects in our quarterly reports on Form 10-Q and Current Reports on Form 8-K that we file with the Securities and Exchange Commission, or the SEC. Also note that, in our risk factors, we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, we believe could cause our actual results to differ materially from past results and those results anticipated, estimated or projected. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such risk factors. Consequently, you should not consider the risk factor discussion to be a complete discussion of all of the potential risks or uncertainties that could affect our business.

The prospective financial information related to anticipated operating performance included in this report has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP, or PwC, has neither examined nor compiled the accompanying prospective financial information and, accordingly, PwC does not express an opinion or any other form of assurance with respect thereto. The PwC reports included in this report relate to our historical financial information. They do not extend to the prospective financial information and should not be read to do so.

PART I

Item 1. Business

About FelCor and FelCor LP

FelCor Lodging Trust Incorporated (NYSE:FCH), or FelCor, is a Maryland corporation operating as a real estate investment trust, or REIT. FelCor is the sole general partner of, and the owner of a greater than 99% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, through which we held ownership interests in 48 hotels with 14,435 rooms at December 31, 2014. At December 31, 2014, we had an aggregate of 125,216,536 shares and units outstanding, consisting of 124,605,074 shares of FelCor common stock and 611,462 units of FelCor LP limited partnership interest not owned by FelCor.

Business Strategy

Strategy and Objectives. Our goal is to provide superior appreciation in stockholder value through earnings growth, asset appreciation and sustainable dividend growth. We strive to achieve this by building an ever-improving, well-maintained portfolio of high quality hotels in great locations, while leveraging our core competencies, and continuing to enhance our balance sheet flexibility and strength while reducing cost of capital.

Our core portfolio consists primarily of upper-upscale and luxury hotels and resorts located in major markets and resort locations that have dynamic demand generators and high barriers-to-entry. We sell, acquire, rebrand and redevelop hotels to increase our return on invested capital, improve overall portfolio quality, enhance diversification and improve growth rates. Our long-term strategy has six critical components:

•

Utilize Our Unique Hands-On Asset Management Approach to Maximize Returns at Our Hotels. We seek to maximize revenue, market share, hotel operating margins and cash flow at every hotel. FelCor’s asset management is aggressive and hands-on. All of our asset managers have extensive hotel operating experience and thorough knowledge of the markets and overall demand dynamics where our hotels operate. Consequently, their interaction with our hotel managers is very effective. With our long-standing and extensive brand relationships, we have significant influence over how their policies and procedures (most notably, brand strategy for marketing and revenue enhancement programs) affect us as hotel owners.

•

Pursue Redevelopment Opportunities that Leverage Our Development and Operations Expertise. We consider expansion and redevelopment opportunities at our legacy and newly-acquired properties that offer attractive risk-adjusted returns by utilizing excess land, purchasing air rights and maximizing the use of existing space. Redevelopment opportunities may include adding guest rooms, meeting space and amenities, such as spas, and developing condominiums. We have successfully redeveloped and repositioned several hotels, including, most recently, the Fairmont Copley Plaza in Boston. From 2009 (prior to redevelopment) to 2014, revenue per available rooms, or RevPAR, and Hotel EBITDA¹ at that hotel increased 42% to $229 and 130% to $10.1 million, respectively. We are currently seeking the necessary approvals and entitlements to redevelop several of our hotels, located in core markets, that offer attractive risk-adjusted returns that are significantly above our cost of capital.

__________________________________

¹We include a more detailed description and computation of EBITDA, Hotel EBITDA and Adjusted EBITDA in “Non-GAAP Financial Measures,” which is found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

•

Acquire Hotels That Further Improve Our Portfolio Quality and Earnings Growth Rates. We seek to acquire high-quality hotels in major urban and resort markets with high barriers-to-entry and high growth potential, typified by our most recent acquisitions of the iconic Fairmont Copley Plaza and the Knickerbocker. We target properties that are accretive to long-term stockholder value, will provide investment returns that exceed our weighted average cost of capital and provide attractive long-term yields. Additionally, we seek properties that will improve the overall quality and diversity of our portfolio and consider hotels that offer redevelopment and/or revenue repositioning opportunities that can further enhance returns on our investment.

•

Enhance Our Assets’ Long-Term Performance by Investing in High-ROI Capital Projects. We spend capital prudently. Our capital strategy involves efficiently maintaining our properties over the long-term and limiting future expenditure fluctuations, while maximizing return on investment. We generally renovate six to eight core hotels each year to maintain their competitive position and value. We routinely evaluate value-adding opportunities at our hotels, such as better use of public areas, new restaurant concepts and improved food and beverage operations. For example, after completing a $13 million renovation at the Embassy Suites Myrtle Beach Oceanfront Resort (which included renovating the public areas, adding food and beverage outlets, and upgrading the lobby, front desk and entrance), total revenues increased 69% to $20.2 million from 2011 to 2014, while Hotel EBITDA¹ increased 72% to $5.3 million during the same time period.

•

Balance Sheet Management. We are committed to strengthening our balance sheet further by reducing leverage, extending debt maturities and taking advantage of opportunities to lower our cost of debt. Our much improved balance sheet provides the necessary flexibility and capacity to thrive throughout lodging industry cycles. We will continue to reduce our leverage (as measured by Debt to Adjusted EBITDA¹) by, among other things, selling additional non-strategic hotels, increasing operating cash flow by improving RevPAR at our hotels and capturing the earning potential of our recently-opened Knickerbocker Hotel. We also expect to refinance or repay higher cost debt, resulting in lower borrowing costs and extended debt maturities.

•

Sell Hotels That No Longer Meet Our Investment Criteria. We believe selling non-strategic hotels, and reallocating capital to more attractive investments enhances our long-term growth, increases our return on capital and enables management to focus on long-term investments within our target markets. On an ongoing basis, we review our hotels in terms of projected performance, future capital expenditure requirements, market dynamics and concentration risk and sell those properties in markets that no longer offer an attractive return on our investment or are inconsistent with our long-term portfolio strategy.

Recent Achievements. We have made significant progress toward achieving our strategic objectives.


•	Since December 2010, we have sold 34 hotels (including eight hotels sold in 2014 and two sold in February 2015), for total gross proceeds of $764.5 million (our pro rata share was $698.4 million).

•

We successfully repositioned eight Wyndham hotels from Holiday Inns, which were rebranded on March 1, 2013. We completed renovations at two of these Wyndham hotels during 2014 (the remaining six were renovated in 2012 and 2013). Rebranding and repositioning these hotels demonstrates how we execute our long-term value creation strategy by maximizing the value and earnings potential of our hotels. RevPAR at these eight hotels increased 20% during 2014, compared to the prior year.

__________________________________

•

Our Board of Directors reinstated the quarterly common dividend. We paid $0.02 per share for each of the first three quarters of 2014 in recognition of our ongoing and successful portfolio repositioning and balance sheet restructuring, as well as our positive funds available for distribution (“FAD”). Our Board of Directors increased the dividend by 100% to $0.04 per share beginning with the fourth quarter of 2014, which was paid in January 2015.


•	In 2014, we spent $83.7 million on capital expenditures, primarily for renovations and redevelopment at nine of our hotels, including the two Wyndham hotels.


•	We spent $138.0 million (excluding the initial acquisition costs and capitalized interest) through December 31, 2014 to redevelop the Knickerbocker Hotel, located in the heart of Times Square in Manhattan. Acquiring and developing this hotel exemplifies our efforts to reposition our portfolio. The luxury boutique hotel opened in February 2015.

•

We repaid $306 million of debt, including all of the debt scheduled to mature during 2014. We repaid $63 million of mortgage loans that were secured by five hotels using proceeds from asset sales. We also repaid the remaining $234 million of our 10% senior notes due in 2014 using proceeds from asset sales, cash on hand, funds drawn under our line of credit and a new $140 million term loan. As a result of these transactions, we extended our weighted-average debt maturity to 2021, while reducing our weighted-average cost of debt by roughly 100 basis points, to 5.35%.

Our Industry

The United States lodging industry is diverse and fragmented, operating a variety of hotels across multiple quality and service segments. The industry caters to a wide range of guests, including transient customers (both leisure and corporate), groups (both leisure and corporate) and long-term, or contract, customers. Average rates charged by hotels are dependent on multiple factors, including the potential customer mix, level of customer demand and rooms supply in the market. Many hotels are marketed under a brand or “flag”, such as Hilton and Marriott, among others. Franchisors, which own these brands, typically receive fees in exchange for brand recognition, marketing support and their reservations systems. Other hotels operate independently, often because they do not desire to fit within the standards of a particular brand or, in some cases, because operating as an independent “boutique” hotel actually enhances a hotel’s appeal to targeted guests. Hotels, and the underlying real estate, are owned by both public and private companies and partnerships. Franchisors or independent management companies often operate hotels on behalf of their owners. All of our hotels are operated on our behalf, mostly by managers affiliated with international franchisors.

Hotel Classification. Smith Travel Research (“STR”), a leading research provider for the lodging industry, classifies hotel chains into seven distinct segments: luxury, upper-upscale, upscale, upper-midscale, midscale, economy and independent. Nearly 90% of our portfolio is comprised of luxury (Fairmont) and upper-upscale (Embassy Suites, Hilton, Marriott, Renaissance, Sheraton, and Wyndham) hotels. We also own upscale (Doubletree), upper-midscale (Holiday Inn) and independent (Knickerbocker, Royalton and Morgans) hotels.

Industry Performance. Lodging industry fundamentals remain robust. The industry is cyclical, driven by supply and demand. Overall economic conditions and local market factors influence demand, as do GDP growth, employment growth and corporate profits. During the recent recession, demand fell faster than GDP, creating conditions for a more robust industry recovery compared to the overall U.S. economy. Since the recession ended, the corporate transient customer has led demand growth, as corporate profits continue to set records. Group demand also accelerated in 2014, augmenting the already strong transient demand.

Lodging demand continued growing throughout 2014, while supply growth remained below historic norms. During 2014, average occupancy for the industry surpassed 2007 (pre-recession) levels, reflecting the continuing supply and demand imbalance. STR reported that supply increased only 0.9% during 2014, well below the roughly 2% historical average. New hotel construction remained constrained by limited construction financing. At December 2014, only 120,000 hotel rooms were under construction, 43% less than December 2007. The continued favorable supply and demand imbalance, and corresponding operator confidence, allowed our hotels, generally, to increase average rates. For 2014, STR reported:


•	RevPAR increased 8.3%, to $74.28, the highest RevPAR growth reported by STR for any year;


•	Average daily rate (ADR) increased 4.6% to $115.32, the highest ADR ever recorded by STR;


•	Occupancy increased 3.6% to 64.4%, as improving demand growth outpaced supply growth; and


•	Industry performance improved on a widespread basis, with all 25 of STR’s largest markets experiencing higher RevPAR in 2014 compared to 2013.

For 2015, PKF Hospitality Research, or PKF, another leading provider of hospitality industry research, projects that lodging fundamentals will continue to improve, with higher demand, improved pricing and historically low supply growth. Occupancy is expected to increase 2.1% in 2015, compared to 2014. As occupancy increases, hotels should have the opportunity to improve ADR further by remixing their business in favor of premium corporate guests, and ADR growth should be a more significant factor in RevPAR growth. PKF projects 2015 industry ADR will increase by 5.4%, contributing to a projected 7.6% RevPAR increase.

Competition

The lodging industry is highly competitive. Customers can choose from a variety of brands and products. The relationship between the supply of and demand for hotel rooms is cyclical and affects our industry significantly. Certain markets have low barriers-to-entry (e.g., inexpensive land, favorable zoning, etc.), making it easier to build new hotels and increase the supply of modern, high-quality hotel rooms. Lodging demand growth typically moves in tandem with the overall economy, in addition to local market factors that stimulate travel to specific destinations. Economic indicators, such as GDP, business investment and employment levels, are common indicators of lodging demand. Each of our hotels competes for guests, primarily with other full service and limited service hotels in the immediate vicinity

and secondarily, with other hotels in its geographic market. Location, brand recognition, hotel quality, service levels and prices are the principal competitive factors affecting our hotels.

Environmental Matters

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in a property. These laws may impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, certain environmental laws and common law principles could be used to impose liability for release of asbestos-containing materials, and third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to related asbestos-containing materials. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require corrective modifications or other expenditures. In connection with our current or prior ownership or operation of hotels or other real estate, we may be potentially liable for various environmental costs or liabilities.

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 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 those 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, Phase I assessments of environmental regulatory compliance issues are general in scope and not a detailed determination of a hotel’s environmental compliance. Similarly, Phase I reports do not involve comprehensive analysis of potential offsite liability. Our Phase I reports have not revealed 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 material environmental conditions and that there are material environmental conditions 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, to the extent violation of such laws and regulations 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 a partnership for federal income tax purposes, and is not subject to federal income tax. However, under its partnership agreement, it is required to reimburse FelCor for any tax payments it is required to make. Accordingly, the tax information herein represents disclosures regarding FelCor and its taxable subsidiaries.

income taxes. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income to its stockholders. If FelCor fails to qualify as a REIT in any taxable year for which the statute of limitations remains open, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) for such taxable year and may not qualify as a REIT for four subsequent years. In connection with FelCor’s election to be treated as a REIT, its charter imposes restrictions on the ownership and transfer of shares of its common stock. FelCor LP expects to make distributions on its units sufficient to enable FelCor to meet its distribution obligations as a REIT. At December 31, 2014, FelCor had a federal income tax net operating loss carryforward of $534.8 million, and its TRSs had federal income tax loss carryforwards of $278.0 million.

Employees

At December 31, 2014, we had 61 full-time employees. None are involved in the day-to-day operation of our hotels.

Ownership of our Hotels

Of the 46 hotels in which we had an ownership interest at December 31, 2014 (which excludes two hotels held for sale), we owned a 100% interest in 43 hotels and 50% interests in entities owning three hotels. We consolidate our real estate interests in the 43 hotels in which we held majority interests, and we record the real estate interests of the three hotels in which we held 50% interests using the equity method. We lease 45 of our 46 hotels to our TRSs, of which we own a controlling interest. One 50% owned hotel is operated without a lease. Because we own controlling interests in these lessees, we consolidate our interests in these 45 hotels (which we refer to as our Consolidated Hotels) and reflect those hotels’ operating revenues and expenses in our statements of operations. Our Consolidated Hotels are located in 17 states, with concentrations in major markets and resort areas.

Segment Reporting

Our business is conducted in one operating segment because of the similar economic characteristics of our hotels. Additional segment information may be found in the footnotes to our consolidated financial statements elsewhere in this report.

Additional Information

Additional information relating to our hotels and our business, including the charters of our Executive Committee, Corporate Governance and Nominating Committee, Compensation Committee and Audit Committee; our corporate governance guidelines; and our code of business conduct and ethics can be found on our website at 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 report. 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 on our Web site, free of charge, under the “SEC Filings” tab on our “Investor Relations” page, as soon as practicable following their filing. The public may also 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 obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Item 1A. Risk Factors

The risk factors described in this section describe the major risks to our business and should be considered carefully. In addition, these statements constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.

Our revenues, expenses and the value of our hotels are subject to conditions affecting both the real estate and lodging industries.

Real estate investments are subject to numerous risks. Our investment in hotels is subject to numerous risks generally associated with owning real estate, including among others:


•	general economic conditions, including unemployment rates, major bank failures, unsettled capital markets and sovereign debt uncertainty;


•	changes in international, national, regional and local economic climate and real estate market conditions;


•	changes in zoning laws;


•	changes in traffic patterns and neighborhood characteristics;


•	increases in assessed property taxes from changes in valuation and real estate tax rates;


•	increases in the cost of property insurance;


•	potential for uninsured or underinsured property losses;


•	costly governmental regulations and fiscal policies;


•	changes in tax laws; and


•	other circumstances beyond our control.

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

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


•	changes in business and leisure travel patterns;


•	decreases in demand for hotel rooms;


•	increases in lodging supply or competition, which may adversely affect demand at our hotels;


•	the effect of geopolitical disturbances, including terrorist attacks and terror alerts, that reduce business and leisure travel;


•	the attractiveness of our hotels to consumers relative to competing hotels;


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


•	unionization of the labor force at our hotels;


•	the threat or outbreak of a pandemic disease affecting the travel industry;


•	increasing fuel costs and other travel expenses resulting in reductions of travel; and


•	increased transportation security precautions affecting the travel industry.

We are subject to risks inherent to hotel operations. We have ownership interest in the operating lessees of our hotels; consequently, we are subject to the risk of fluctuating hotel operating expenses at our hotels, including but not limited to:


•	increases in operating expenses due to inflation;


•	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.

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 upscale and upper-upscale hotel rooms, or if demand fails to increase at least proportionately, could have a material adverse effect on our business, financial condition and results of operations.

The lodging business is seasonal in nature. Generally, hotel revenues for our hotel portfolio are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations. Revenues for hotels in tourist areas are generally 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.

Compliance with environmental laws may adversely affect our financial condition. Owners of real estate are subject to numerous federal, state and local 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 they were responsible for its 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 our hotels will not be affected by new information or changed circumstances, by the condition of properties in the vicinity of such hotels, such as the presence of leaking underground storage tanks, or by the actions of unrelated third parties.

Compliance with the Americans with Disabilities Act may adversely affect our financial condition. Under the Americans with Disabilities Act of 1990, as amended, (the “ADA”), 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 make every reasonable effort to ensure that our hotels substantially comply with the requirements of the ADA and other applicable laws. However, we could be liable for both governmental fines and payments to private parties if it were determined that our hotels are not in compliance with these laws. We also may be subject to future changes in these laws. If we were required to make unanticipated major modifications to our hotels to comply with the requirements of the ADA and similar laws, it could materially adversely affect our ability to make distributions to our stockholders and to satisfy our other obligations.

System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or service provided to guests at our hotels, and any such disruption could reduce our expected revenue, increase our expenses, damage the reputation of our hotels and adversely affect our stock price. Experienced computer programmers and hackers may be able to penetrate our network security or the network security of our third-party managers and franchisors, and misappropriate or compromise our confidential information or that of our hotel guests, create system disruptions or cause the shutdown of our hotels. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our computer systems or the computer systems operated by our third-party managers and franchisors, or otherwise exploit any security vulnerabilities of our respective networks. In addition, sophisticated hardware and operating system software and applications that we and our third-party managers or franchisors may procure from outside companies may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with our internal operations or the operations at our hotels. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential business at our hotels.

Portions of our information technology infrastructure or the information technology infrastructure of our third-party managers and franchisors also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We or our third-party managers and franchisors may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact the ability of our third-party managers and franchisors to fulfill reservations for guestrooms and other services offered at our hotels. Delayed sales or bookings, lower margins or lost guest reservations resulting from these disruptions could adversely affect our financial results, stock price and the reputation of our hotels.

We seek to minimize the impact of these attacks through various technologies, processes and practices designed to protect our networks, systems, computers and data from attack, damage or unauthorized access. However, there are no guarantees that our cyber-security practices will be sufficient to thwart all attacks. While we carry property, business interruption, and cyber risk insurance, we may not be sufficiently compensated for all losses we may incur. These losses include not only a loss of revenues but also potential litigation, fines or regulatory action against us. Furthermore, we may also incur substantial remediation costs to repair system damage as well as satisfy liabilities for stolen assets or information that may further reduce our profits.

If we (or our managers) fail to comply with applicable privacy laws and regulations, we could be subject to payment of fines, damages or face restrictions on our use of guest data. Our managers collect information relating to our guests for various business purposes, including marketing and promotional purposes. Collecting and using personal data is governed by U.S. and other privacy laws and regulations. Privacy regulations continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our managers’ ability to market our products, properties and services to our guests. In addition, non-compliance (or in some circumstances non-compliance by third parties engaged by us (including our managers)), or a breach of security in systems storing privacy data, may result in fines, payment of damages or restrictions on our (or our managers’) use or transfer of data.

Future terrorist activities and political instability may adversely affect, and create uncertainty in, our business. Terrorism in the United States or elsewhere could have an adverse effect on our business, although the degree of impact will depend on a number of factors, including the U.S. and global economies and global financial markets. Previous terrorist attacks in the United States and subsequent

terrorism alerts have adversely affected the travel and hospitality industries in the past. Such attacks, or the threat of such attacks, could have a material adverse effect on our business, our ability to finance our business, our ability to insure our properties, and/or our results of operations and financial condition, as a whole.

We face reduced insurance coverages and increasing premiums. Our property insurance has a $100,000 “all‑risk” deductible, as well as a 5% deductible (insured value) for named windstorm and California earthquake coverage. Substantial uninsured or not fully-insured losses would have a material adverse impact on our operating results, cash flows and financial condition. 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 limit the cost of insurance, we purchase catastrophic insurance coverage based on probable maximum losses based on 250-year events and have only purchased terrorism insurance to the extent required by our lenders or franchisors. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 37 of our hotels. The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible.

We could have uninsured or under-insured property losses. Our property policies provide that all of the claims from each of our properties resulting from a particular insurable event must be combined together for purposes of evaluating whether the aggregate limits and sub-limits contained in our policies have been exceeded. Therefore, if an insurable event occurs that affects more than one of our hotels, the claims from each affected hotel will be added together to determine whether the aggregate limit or sub-limits, depending on the type of claim, have been reached, and each affected hotel may only receive a proportional share of the amount of insurance proceeds provided for under the policy if the total value of the loss exceeds the aggregate limits available. We may incur losses in excess of insured limits, and as a result, we may be even less likely to receive sufficient coverage for risks that affect multiple properties such as earthquakes or catastrophic terrorist acts. Risks such as war, catastrophic terrorist acts, nuclear, biological, chemical, or radiological attacks, and some environmental hazards may be deemed to fall completely outside the general coverage limits of our policies or may be uninsurable or may be too expensive to justify insuring against.

We may also encounter disputes concerning whether an insurance provider will pay a particular claim that we believe is covered under our policy. Should a loss in excess of insured limits or an uninsured loss occur or should we be unsuccessful in obtaining coverage from an insurance carrier, we could lose all, or a portion of, the capital we have invested in a property, as well as the anticipated future revenue from the hotel. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

We obtain terrorism insurance to the extent required by lenders or franchisors as a part of our all-risk property insurance program, as well as our general liability and directors’ and officers’ policies. However, our all-risk policies have limitations, such as per occurrence limits and sub-limits, that might have to be shared proportionally across participating hotels under certain loss scenarios. Also, all-risk insurers only have to provide terrorism coverage to the extent mandated by the Terrorism Risk Insurance Act, or TRIA, for “certified” acts of terrorism - namely those that are committed on behalf of non-United States persons or interests. Furthermore, we do not have full replacement coverage at all of our hotels for acts of terrorism committed on behalf of United States persons or interests (“non-certified” events) as our coverage for such incidents is subject to sub-limits and/or annual aggregate limits. In addition, property damage related to war and to nuclear, biological and chemical incidents is excluded under our policies. While TRIA will reimburse insurers for losses resulting from nuclear, biological and chemical perils, TRIA does not require insurers to offer coverage for these perils and, to date, insurers are not willing to provide this coverage, even with government reinsurance. Additionally, Congress may not renew TRIA in the future, which would eliminate the federal subsidy for terrorism losses. As a result of the above, the

extent and adequacy of terrorism coverage that will be available in the future to protect our interests in the event of future terrorist attacks that impact our properties is uncertain.

We have geographic concentrations that may create risks from regional or local economic, seismic or weather conditions. At December 31, 2014, approximately 60% of our hotel rooms were located in, and 61% of our 2014 Hotel EBITDA was generated from, three states: California (34% of our hotel rooms and 35% of our Hotel EBITDA); Florida (15% of our hotel rooms and 15% of our Hotel EBITDA); and Texas (11% of our hotel rooms and 11% of our Hotel EBITDA). Additionally, at December 31, 2014, we had concentrations in five major metropolitan areas which together represented approximately 43% of our Hotel EBITDA for the year ended December 31, 2014 (the San Francisco Bay area (17%), Boston (9%), South Florida (7%), Los Angeles area (5%), and Myrtle Beach (5%)). Therefore, adverse economic, seismic or weather conditions in these states or metropolitan areas may have a greater adverse effect on us than on the industry as a whole.

Transfers and/or termination of franchise licenses and management agreements may be prohibited or restricted. Hotel managers and franchise licensors may have the right to terminate their agreements or suspend their services in the event of default under such agreements or other third-party agreements such as ground leases and mortgages, upon the loss of liquor licenses, or in the event of the sale or transfer of the hotel. Franchise licenses may expire by their terms, and we may not be able to obtain replacement franchise license agreements.

If a management agreement or franchise license were terminated, under certain circumstances (such as the sale of a hotel), we could be liable for liquidated damages (which may be guaranteed by us or certain of our subsidiaries). In addition, we may need to obtain a different franchise and/or engage a different manager, and the costs and disruption associated with those changes could be significant (and materially adverse to the value of the affected hotel) because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchise licensor or operations management provided by the manager. Additionally, most of our management agreements restrict our ability to encumber our interests in the applicable hotels under certain circumstances without the managers’ consent, which can make it more difficult to obtain secured financing on acceptable terms.

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 brand standards and restrictions. 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 dividends to our stockholders and service our debt.

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. If any brands under which we operate hotels suffer a significant decline in appeal to the traveling public, the revenues and profitability of our branded hotels could be adversely affected. At December 31, 2014, approximately 23 hotels comprising 46% of our aggregate rooms were flagged as Embassy Suites, and we derived approximately 48% of our 2014 Hotel EBITDA from those hotels.

If revenue declines faster than operating expenses, our margins may shrink materially. We are subject to the risks of a decline in Hotel EBITDA margins, which occur when hotel operating expenses increase disproportionately to revenues or fail to shrink at least as fast as revenues decline. These operating expenses and Hotel EBITDA margins are controlled by our third-party managers over whom we have limited influence.

The increasing use of Internet travel intermediaries by consumers may adversely affect our profitability. Some of our hotel rooms may be booked through Internet travel intermediaries. As these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us and our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to the brands under which our hotels are franchised. If the amount of sales made through Internet travel intermediaries increases significantly, room revenues may flatten or decrease and our profitability may be adversely affected.

We have substantial financial leverage.

At December 31, 2014, our consolidated debt ($1.6 billion) represented approximately 51% of our total enterprise value. Declining revenues and cash flow may adversely affect our public debt ratings and may limit our access to additional debt. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs. If our access to additional debt financing is limited, our ability to fund these programs or acquire hotels in the future could be adversely affected. Also, we cannot assure you that we will be able to refinance any of our debt on a timely basis or on satisfactory terms, if at all.

Financial leverage, while efficient and useful, could have negative 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;


•	limit our ability to refinance existing debt;


•	limit our ability to pay dividends, invest in unconsolidated joint ventures, etc.;


•	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 dividends or other purposes;


•	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 leverage.

Compliance with, or failure to comply with, our financial covenants may adversely affect our financial position and results of operations.

The agreements governing our senior secured notes require that we satisfy total leverage, secured leverage and interest coverage tests in order, among other things, to: (i) incur certain additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends other than to maintain FelCor’s REIT status; (iii) repurchase FelCor’s capital stock; or (iv) merge. These restrictions may adversely affect our ability to finance our operations or engage in other business activities that may be in our best interest.

Various political, economic, social or business risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and financial thresholds. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default could permit

lenders to accelerate the maturity of obligations under these agreements and to foreclose upon any collateral securing those obligations. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions could significantly impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.

Certain of our subsidiaries have been formed as special purpose entities, or SPEs. These SPEs have incurred mortgage debt secured by the assets of those SPEs, which debt is non-recourse to us, except in connection with certain customary recourse “carve-outs,” including fraud, misapplication of funds, etc., in which case this debt could become fully recourse to us.

Our ability to pay dividends may be limited or prohibited by the terms of our debt or preferred stock.

We are currently party to agreements and instruments that can restrict or prevent the payment of dividends on our common and preferred stock (except as necessary to retain REIT status). Under the agreements governing our senior secured notes, dividend payments are permitted only to the extent that, at the time of the distribution, we can satisfy certain financial thresholds (concerning leverage and fixed charges) and meet other requirements. Under the terms of our outstanding preferred stock, we are not permitted to pay dividends on our common stock unless all accrued preferred dividends then payable have been paid. While our preferred dividends are current, if we fail to pay future dividends on our preferred stock for any reason, including to comply with the terms of our senior secured notes, our preferred dividends will accrue, and we will be prohibited from paying any common dividends until all such accrued but unpaid preferred dividends have been paid.

Our debt agreements will allow us to incur additional debt that, if incurred, could exacerbate the other risks described herein.

We may incur substantial debt in the future. Although the instruments governing our debt 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 we add incremental debt, the leverage-related risks described above would intensify.

We may be unable to execute our deleveraging strategy successfully if we are unable to sell non-strategic hotels when anticipated, or at all, or sell them for satisfactory pricing or if we are unable to grow our cash flow.

Our ability to sell hotels is at least partially dependent on potential buyers obtaining financing. If adequate financing is not available or is only available at undesirable terms, we may be unable to sell hotels or sell them for desired pricing. If we are unable to sell non-strategic hotels or sell them for desired pricing, it could affect our ability to repay and refinance debt and slow the execution of our strategic plan. If we sell a mortgaged hotel for less than its outstanding debt balance, we would be required to use cash to make up the shortfall or substitute an unencumbered hotel as collateral, which would restrict future flexibility when refinancing debt or restrict us from using cash for other purposes. Similarly, if we are unsuccessful in growing the cash flow at our core hotels, our deleveraging strategy could be frustrated.

We depend on external sources of capital for future growth, and we may be unable to access capital when necessary.

As a REIT, our ability to finance our growth must largely be funded by external sources of capital because we are required to distribute to our stockholders at least 90% of our taxable income (other than net capital gains) including, in some cases, taxable income we recognize for federal income tax purposes but with regard to which we do not receive corresponding cash. Our ability to obtain the external capital

we require could be limited by a number of factors, many of which are outside our control, including general market conditions, unfavorable market perception of our future prospects, lower current and/or estimated future earnings, excessive cash distributions or a lower market price for our common stock.

Our ability to access additional capital also may be limited by the terms of our existing debt, which, under certain circumstances, restrict our incurrence of debt and the payment of distributions. Any of these factors, individually or in combination, could prevent us from being able to obtain the external capital we require on terms that are acceptable to us, or at all. If our future cash flow from operations and external sources of capital are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional equity capital or restructure or refinance all or a portion of our debt on or before maturity. Failing to obtain necessary external capital could have a material adverse effect on our ability to finance our future growth. We may have only a limited number of unencumbered hotels and limited resources to raise additional capital or we may have difficulties obtaining consent of an applicable lessor on any of our hotels subject to a ground lease.

Departure of key personnel would deprive us of the institutional knowledge, expertise and leadership they provide.

Our executive management team includes our President and Chief Executive Officer, and four Executive Vice Presidents. In addition, we have several other long-tenured senior officers. These executives and officers 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 our executives or other long-tenured officers could adversely affect our ability to execute our business strategy.

As a REIT, we are 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. We have operated, and intend to continue to operate, in a manner that enables us 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, we cannot be certain that we have been, or will continue to be, successful in operating so as to qualify as a REIT.

The federal income tax laws governing REITs are subject to change. At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. These new laws, interpretations, or court decisions may change the federal income tax laws relating to, or the federal income tax consequences of, qualification as a REIT. Any of these new laws or interpretations may take effect retroactively and could adversely affect us, or you as a stockholder.

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 we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% non-deductible tax if the actual amount we pay out to our stockholders in a calendar year is less than the minimum amount specified under federal tax laws. Our 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 us to pay out enough of our 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 us to federal income tax. If we fail to qualify as a REIT in any taxable year for which the statute of limitations remains open we would be subject to federal income tax at regular corporate rates (including any applicable alternative minimum tax) for such taxable year and may not qualify as a REIT for four subsequent years. We might need to borrow money or sell hotels in order to obtain the funds necessary to pay any such tax. If we cease to be a REIT, we no longer would be required to distribute most of our taxable income to our stockholders. Unless our failure to qualify as a REIT was excused under federal income tax laws, we could not re-elect REIT status until the fifth calendar year following the year in which we failed to qualify.

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 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.

Complying with REIT requirements may cause us to forgo attractive opportunities that could otherwise generate strong risk-adjusted returns and instead pursue less attractive opportunities, or none at all.

To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature of our assets, the amounts we distribute to our stockholders and the ownership of our stock. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of generating strong risk-adjusted returns on invested capital for our stockholders.

Complying with REIT requirements may force us to liquidate otherwise attractive investments, which could result in an overall loss on our investments.

To continue to qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total securities can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, the REIT statutes provide a means to cure the exception. If we are unable to cure the exception we may be subject to an additional tax. As a result, we may be required to liquidate otherwise attractive investments.

We may become subject to a 100% excise tax if our TRSs pay us excessive rent.

The Internal Revenue Service, or IRS, could challenge the rents paid to us by our TRSs, as excessive, and a court could reach a similar conclusion. In either event, we could be taxed at 100% of the amount of rents determined to be excessive. There can be no assurance that we will not be subjected

to that excise tax. If we are, and if the amount is material, our liquidity and ability to service our debt and pay dividends could be materially and adversely affected.

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.

Through our subsidiaries, we own interests in several real estate joint ventures. Our unconsolidated joint ventures owned three hotels, in which we had a $15.1 million aggregate investment at December 31, 2014. We include the lessee operations of two of these three hotels in our consolidated results of operations because we own majority interests in the lessees. All of our joint venture partners are unaffiliated with us. The joint ventures owned hotels that secured $34.2 million of non-recourse loans at December 31, 2014.

Our subsidiaries’ personal liability for existing non-recourse loans secured by our joint venture hotels is generally limited to guarantying the lender’s losses caused by misconduct, fraud or misappropriation of funds by the borrowers and other customary “bad boy” exceptions from the non-recourse covenants in the loans, (e.g., environmental liabilities). We may invest in other joint ventures in the future that own hotels and have recourse or non-recourse debt financing. If a joint venture defaults under a loan, the lender may accelerate the loan and demand payment in full before taking action to foreclose on the hotel. As a joint venturer, our subsidiary may be liable for claims asserted against the joint venture (including lenders’ claims for repayment), and the joint venture may have insufficient assets or insurance to cover the liability.

Our subsidiaries may be unable to control decisions unilaterally regarding these joint venture hotels. In addition, joint venture hotels may perform at levels below expectations, raising concerns about joint venture liquidity and solvency unless the joint venturers provide additional funds. In some cases, the joint venturers may elect to forgo additional capital contributions. We may be confronted with the choice of losing our investment or investing additional capital with no guaranty of any return on that investment.

Our charter limits ownership and transferring shares of our stock, which could adversely affect attempted transfers of our capital stock.

To maintain our status as a REIT, no more than 50% in value of our 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. Our charter prohibits, subject to some exceptions, any person from owning more than 9.9% of the number of outstanding shares of any class of our stock. Our charter also prohibits any transfer of our stock that would result in a violation of the 9.9% ownership limit, reduce the number of stockholders below 100 or otherwise result in our failure to qualify as a REIT. Any attempted transfer of shares in violation of the charter prohibitions is void, and the intended transferee acquires no right to those shares. We have the right to take any lawful action that we believe is necessary or advisable to ensure compliance with these ownership and transfer restrictions and to preserve our status as a REIT, including refusing to recognize any transfer of stock in violation of our charter.

Some provisions in our charter and bylaws and Maryland law make a takeover more difficult.

Ownership Limit. The ownership and transfer restrictions of our charter may have the effect of discouraging or preventing a third party from attempting to gain control of us without the approval of our Board of Directors. Accordingly, it is less likely that a change in control, even if beneficial to stockholders, could be effected without the approval of our Board.

Staggered Board. Our charter provides that our Board 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 us through the election of new directors is limited by the inability of stockholders to elect a majority of our Board at any particular meeting.

Authority to Issue Additional Shares. Under our charter, our board 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 our board that may delay or prevent a change in control of us, even if the change is in the best interests of stockholders. At December 31, 2014, we had outstanding 12,879,475 shares of our Series A preferred stock and 67,980 shares, represented by 6,798,000 depositary shares, of our Series C preferred stock.

Maryland Law. As a Maryland corporation, we are 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 stockholders. Under the Maryland business combination statute, some “business combinations,” including some issuances of equity securities, between a Maryland corporation and an “interested stockholder,” which is any person who beneficially owns 10% or more of the voting power of the corporation’s shares, or an affiliate of that stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Any of these business combinations must be approved by a stockholder vote meeting two separate super majority requirements, unless, among other conditions, the corporation’s common stockholders receive a minimum price, as defined in the statute, for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its common shares. Our charter currently provides that the Maryland Control Share Acquisition Act will not apply to any of our 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 us, they may have the effect of delaying or preventing a change in control of us even though beneficial to our stockholders.

In addition, under the Maryland General Corporation Law, unless prohibited by charter or resolution (which we are not), our Board can elect by resolution without stockholder approval to be subject to certain corporate governance provisions that may be inconsistent with our charter and bylaws. Under Sections 8-301 through 8-305 of that statute, our Board may adopt corporate governance provisions (including, conditions to action by written consent, classification of directors, prerequisites for calling special meetings of stockholders, etc.) that may, individually or in the aggregate, affect board structure or stockholders’ ability to alter corporate policies directly, or may delay or prevent a strategic transaction or a change in control.

Our directors may have interests that may conflict with our interests.

A director who has a conflict of interest with respect to an issue presented to our Board will have no inherent legal obligation to abstain from voting upon that issue. We do not have provisions in our bylaws or charter that require an interested director to abstain from voting upon an issue, and we do not expect to add provisions in our charter and bylaws to this effect. Although each director has a duty of loyalty to us, there is a risk that, should an interested director vote upon an issue in which a director or one of his or her affiliates has an interest, his or her vote may reflect a bias that could be contrary to our best interests. In addition, even if an interested director abstains from voting, that director’s participation in the meeting and discussion of an issue in which they have, or companies with which he or she is associated have, an interest could influence the votes of other directors regarding the issue.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own a diversified portfolio of hotels managed by Hilton, Starwood, Marriott, Fairmont, Morgans, Wyndham, Intercontinental Hotels Group and one independent management company. Our hotels are 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. They generally feature comfortable, modern guest rooms, meeting facilities and full-service restaurant and catering facilities. At December 31, 2014, our Consolidated Hotels were located in the United States (45 hotels in 17 states), with concentrations in major gateway cities and resort areas. Our hotels average 300 rooms. The following table sets forth the distribution of our 45 Consolidated Hotels at December 31, 2014.



Brand	Hotels	Rooms	2014 Hotel Operating Revenue (in thousands)		2014 Hotel EBITDA^(a) (in thousands)
Embassy Suites Hotels	18	4,982	$	282,866	$	95,000
Wyndham and Wyndham Grand^(b)	8	2,528	125,354		43,126
Renaissance and Marriott	3	1,321	128,770		26,089
DoubleTree by Hilton and Hilton	3	802	45,383		15,484
Sheraton	2	673	39,639		10,623
Fairmont	1	383	53,451		10,011
Holiday Inn	2	968	51,511		8,967
Morgans and Royalton	2	285	33,895		3,314
Core hotels	39	11,942	760,869		212,614
Non-strategic hotels^(c)	6	1,561	58,028		17,837
Same-store hotels	45	13,503	$	818,897	$	230,451
Market
San Francisco area	5	1,903	$	139,692	$	39,470
Boston	3	916	85,670		21,834
South Florida	3	923	55,561		17,009
Los Angeles area	2	481	28,696		12,406
Myrtle Beach	2	640	41,149		12,219
Philadelphia	2	728	38,680		9,631
Tampa	1	361	49,358		9,302
New York area	3	546	48,456		7,259
Austin	1	188	13,935		6,177
Atlanta	1	316	13,899		5,701
Other markets	16	4,940	245,773		71,606
Core hotels	39	11,942	760,869		212,614
Non-strategic hotels^(c)	6	1,561	58,028		17,837
Same-store hotels	45	13,503	$	818,897	$	230,451
Location
Urban	17	5,310	$	360,177	$	97,594
Resort	9	2,733	203,370		51,684
Airport	8	2,621	136,144		43,208
Suburban	5	1,278	61,178		20,128
Core hotels	39	11,942	760,869		212,614
Non-strategic hotels^(c)	6	1,561	58,028		17,837
Same-store hotels	45	13,503	$	818,897	$	230,451


(a)	Hotel EBITDA is a non-GAAP financial measure. A detailed reconciliation and further discussion 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.


(b)	These hotels were converted from Holiday Inn (brand and management) on March 1, 2013.


(c)	Excludes two hotels held for sale as of December 31, 2014, both of which were sold in February.

Hotel Operating Statistics

The following tables set forth 2014 and 2013 occupancy, ADR and RevPAR and the year-over-year percentage changes to those statistics for our 45 Consolidated Hotels.

Hotel Operating Statistics by Brand



	Occupancy (%)
	Year Ended December 31,
	2014	2013	%Variance
Embassy Suites Hotels	79.0	76.7	3.0
Renaissance and Marriott	72.0	70.2	2.6
DoubleTree by Hilton and Hilton	73.6	68.3	7.7
Sheraton	69.4	68.0	2.0
Fairmont	74.4	74.2	0.4
Holiday Inn	77.6	78.0	(0.5	)
Morgans and Royalton	87.9	87.6	0.4
Comparable core hotels (31)	76.8	74.8	2.7
Non-strategic hotels (6)^(a)	77.0	76.2	1.1
Comparable hotels (37)	76.9	75.0	2.5
Wyndham and Wyndham Grand^(b)	71.8	65.7	9.3
Same-store hotels (45)	75.9	73.3	3.6
	ADR ($)
	Year Ended December 31,
	2014	2013	%Variance
Embassy Suites Hotels	164.11	153.17	7.1
Renaissance and Marriott	223.51	209.58	6.6
DoubleTree by Hilton and Hilton	155.15	148.99	4.1
Sheraton	146.75	145.71	0.7
Fairmont	307.77	285.06	8.0
Holiday Inn	164.21	144.29	13.8
Morgans and Royalton	308.05	315.50	(2.4	)
Comparable core hotels (31)	180.73	169.91	6.4
Non-strategic hotels (6)^(a)	120.68	115.29	4.7
Comparable hotels (37)	172.17	162.03	6.3
Wyndham and Wyndham Grand^(b)	158.35	144.37	9.7
Same-store hotels (45)	169.72	159.07	6.7
	RevPAR ($)
	Year Ended December 31,
	2014	2013	%Variance
Embassy Suites Hotels	129.71	117.55	10.4
Renaissance and Marriott	160.92	147.11	9.4
DoubleTree by Hilton and Hilton	114.12	101.71	12.2
Sheraton	101.78	99.09	2.7
Fairmont	229.14	211.41	8.4
Holiday Inn	127.41	112.52	13.2
Morgans and Royalton	270.69	276.27	(2.0	)
Comparable core hotels (31)	138.84	127.13	9.2
Non-strategic hotels (6)^(a)	92.95	87.83	5.8
Comparable hotels (37)	132.32	121.54	8.9
Wyndham and Wyndham Grand^(b)	113.63	94.79	19.9
Same-store hotels (45)	128.82	116.54	10.5

(a)Excludes two hotels held for sale as of December 31, 2014, both of which were sold in February.

(b)These hotels were converted from Holiday Inn (brand and management) on March 1, 2013.

Hotel Operating Statistics by Market for Comparable Core Hotels



	Occupancy (%)
	Year Ended December 31,
	2014	2013	%Variance
San Francisco area	82.2	81.4	1.0
Boston	73.6	73.5	0.1
South Florida	83.4	81.4	2.5
Los Angeles area	80.1	82.2	(2.6	)
Myrtle Beach	66.5	62.3	6.8
Philadelphia	69.7	66.3	5.2
Tampa	81.2	80.5	0.9
New York area	83.3	83.2	0.2
Austin	79.9	78.9	1.2
Atlanta	77.2	75.4	2.3
Other markets	73.1	69.6	5.0
Comparable core hotels (31)	76.8	74.8	2.7
	ADR ($)
	Year Ended December 31,
	2014	2013	%Variance
San Francisco area	210.51	187.91	12.0
Boston	253.57	234.97	7.9
South Florida	160.25	147.49	8.7
Los Angeles area	145.73	136.89	6.5
Myrtle Beach	152.64	147.36	3.6
Philadelphia	164.54	166.52	(1.2	)
Tampa	195.98	183.55	6.8
New York area	252.90	250.72	0.9
Austin	214.22	200.90	6.6
Atlanta	141.85	140.41	1.0
Other markets	150.64	143.47	5.0
Comparable core hotels (31)	180.73	169.91	6.4
	RevPAR ($)
	Year Ended December 31,
	2014	2013	%Variance
San Francisco area	173.02	152.91	13.2
Boston	186.57	172.68	8.0
South Florida	133.64	120.00	11.4
Los Angeles area	116.68	112.54	3.7
Myrtle Beach	101.51	91.75	10.6
Philadelphia	114.69	110.32	4.0
Tampa	159.21	147.71	7.8
New York area	210.72	208.57	1.0
Austin	171.17	158.59	7.9
Atlanta	109.44	105.87	3.4
Other markets	110.08	99.88	10.2
Comparable core hotels (31)	138.84	127.13	9.2

Hotel Portfolio

The following table sets forth certain descriptive information regarding our hotels at December 31, 2014.



Core Hotels	Brand	State	Rooms
Birmingham	Embassy Suites Hotel	AL	242
Phoenix – Biltmore	Embassy Suites Hotel	AZ	232
Indian Wells – Esmeralda Resort & Spa	Renaissance	CA	560
Los Angeles – International Airport/South	Embassy Suites Hotel	CA	349
Mandalay Beach – Hotel & Resort	Embassy Suites Hotel	CA	250
Milpitas – Silicon Valley	Embassy Suites Hotel	CA	266
Napa Valley	Embassy Suites Hotel	CA	205
San Diego – Bayside	Wyndham	CA	600
San Francisco – Airport/Waterfront	Embassy Suites Hotel	CA	340
San Francisco – Airport/South San Francisco	Embassy Suites Hotel	CA	312
San Francisco – Fisherman’s Wharf	Holiday Inn	CA	585
San Francisco – Union Square	Marriott	CA	400
Santa Monica – At the Pier	Wyndham	CA	132
Deerfield Beach – Resort & Spa	Embassy Suites Hotel	FL	244
Ft. Lauderdale – 17th Street	Embassy Suites Hotel	FL	361
Miami – International Airport	Embassy Suites Hotel	FL	318
Orlando – International Drive South/Convention	Embassy Suites Hotel	FL	244
Orlando – Walt Disney World Resort	DoubleTree Suites by Hilton	FL	229
St. Petersburg – Vinoy Resort & Golf Club	Renaissance	FL	361
Atlanta – Buckhead	Embassy Suites Hotel	GA	316
New Orleans – French Quarter	Wyndham	LA	374
Boston – Beacon Hill	Wyndham	MA	304
Boston – Copley Plaza	Fairmont	MA	383
Boston/Marlborough	Embassy Suites Hotel	MA	229
Minneapolis – Airport	Embassy Suites Hotel	MN	310
Secaucus – Meadowlands^(a)	Embassy Suites Hotel	NJ	261
New York – Morgans	Independent	NY	117
New York – Royalton	Independent	NY	168
Philadelphia – Historic District	Wyndham	PA	364
Philadelphia – Society Hill	Sheraton	PA	364
Pittsburgh – University Center	Wyndham	PA	251
Charleston – The Mills House	Wyndham Grand	SC	216
Myrtle Beach – Oceanfront Resort	Embassy Suites Hotel	SC	255
Myrtle Beach Resort	Hilton	SC	385
Nashville – Opryland – Airport (Briley Parkway)	Holiday Inn	TN	383

Hotel Portfolio (continued)



Core Hotels	Brand	State	Rooms
Austin	DoubleTree Suites by Hilton	TX	188
Dallas – Love Field	Embassy Suites Hotel	TX	248
Houston – Medical Center	Wyndham Hotel & Suites	TX	287
Burlington Hotel & Conference Center	Sheraton	VT	309

Non-strategic Hotels
Orlando – International Airport	Holiday Inn	FL	288
Chicago – Lombard/Oak Brook	Embassy Suites Hotel	IL	262
Charlotte^(a)	Embassy Suites Hotel	NC	274
Austin – Central	Embassy Suites Hotel	TX	260
San Antonio – International Airport	Embassy Suites Hotel	TX	261
San Antonio – NW I-10	Embassy Suites Hotel	TX	216

Hotels Held for Sale
Dallas – Park Central^(b)(c)	Westin	TX	536
Raleigh – Crabtree^(c)	Embassy Suites Hotel	NC	225

Unconsolidated Hotel
New Orleans – French Quarter Chateau Lemoyne^(a)	Holiday Inn	LA	171

Hotel under Development
New York – Knickerbocker Hotel^(d)	Independent	NY	330


(a)	We own a 50% interest in this property.


(b)	We owned a 60% interest in this property.


(c)	This property was sold in February 2015.


(d)	The Knickerbocker Hotel, of which we own 95%, began operations in February 2015.

Management Agreements

At December 31, 2014, of our 45 Consolidated Hotels, (i) Hilton subsidiaries managed 25 hotels, (ii) Wyndham managed eight hotels, (iii) Marriott subsidiaries managed three hotels, (iv) IHG subsidiaries managed three hotels, (v) a subsidiary of Morgans managed two hotels, (vi) Starwood subsidiaries managed two hotels, (vii) a Fairmont subsidiary managed one hotel, and (viii) an independent management company managed one hotel.

The management agreements relating to 22 Consolidated Hotels contain the right and license to operate the hotels under specified brands. No separate franchise agreements exist, and no separate franchise fee is required, for these hotels. These hotels are managed by (i) Wyndham, under the Wyndham brand, (ii) Hilton, under the DoubleTree and Hilton brands, (iii) Marriott, under the Renaissance and Marriott brands, (iv) IHG, under the Holiday Inn brand, (v) Morgans, (vi) Starwood, under the Sheraton brand, and (vii) Fairmont, under the Fairmont brand.

Management Fees. Minimum base management fees generally range from 1 to 3% of total revenue, with the exception of our IHG-managed hotels, where base management fees are 2% of total revenue plus 5% of room revenue. The performance of our Wyndham-managed hotels is subject to a $100 million guaranty from Wyndham Worldwide Corporation over the initial 10-year term (which can be extended for an additional five years), with an annual performance guaranty of up to $21.5 million, which ensures minimum annual NOI for those hotels.

Most of our management agreements also provide for incentive management fees that are subordinated to our return on investment. Incentive management fees are generally capped at 2 to 3% of total revenue, except that incentive management fees payable to Wyndham and Marriott are not limited.

We incurred the following management fees (in thousands) included in continuing operations during each of the past three years:



	Year Ended December 31,
	2014		2013		2012
Base fees	$	19,583	$	19,527	$	24,699
Incentive fees	3,316		2,667		2,265
Total management fees	$	22,899	$	22,194	$	26,964

The Wyndham management agreements were effective on March 1, 2013. Wyndham’s guaranty of a minimum level of net operating income has reduced Wyndham’s contractual management fees during 2014 and 2013 by $1.3 million and $1.5 million, respectively. This guaranty (in addition to the more favorable Wyndham base management fees compared to their predecessor, IHG) more than offset increases compared to 2012 resulting from higher revenues.

Term and Termination. The Wyndham management agreements terminate in 2022 but may be extended by Wyndham subject to certain conditions. The IHG management agreements terminate in 2018 for one hotel and 2025 for two hotels. The Marriott management agreements terminate in 2026 for our Renaissance hotels and 2029 for our Marriott hotel, and these agreements may be extended to 2056 and 2039, respectively, at Marriott’s option. The Fairmont management agreement terminates in 2030 and may be extended to 2040 and 2050 at Fairmont’s option. The Morgans management agreements terminate in 2026 and may be extended to 2036 at Morgans’s option. The management agreements with our other managers generally have initial terms of between five and 20 years, and these agreements are generally renewable beyond the initial term only upon the mutual written agreement of the parties. The management agreements covering our 45 Consolidated Hotels that expire after 2014, subject to any renewal rights, are as follows:



	Number of Management Agreements Expiring
Manager	2015	2016	Thereafter
Hilton	3	13	9
Wyndham	—	—	8
Marriott	—	—	3
IHG	—	—	3
Starwood	—	—	2
Morgans	—	—	2
Fairmont	—	—	1
Other	1	—	—
Total	4	13	28

Management agreements are generally terminable upon the occurrence of customary events of default or if the subject hotel fails to meet certain performance hurdles. Upon termination for any reason, we are generally required to 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 our default, or by us other than for cause, we may also be liable for damages suffered by the manager.

Assignment. Generally, neither party to a management agreement may sell, assign or transfer the agreement to an unaffiliated third party without the prior written consent of the other party, which consent shall not be unreasonably withheld. A change in control of FelCor will require manager or franchisor consent under most of our management and franchise agreements.

Franchise Agreements

Twenty-three of our Consolidated Hotels operate under franchise or license agreements with Embassy Suites that are separate from our management agreements.

Our Embassy Suites franchise agreements 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 furniture, fixtures 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 franchise agreements provide for a license fee, or royalty, of 4 to 5% of room revenues. In addition, we pay approximately 3.5 to 4% of room revenues as marketing and reservation system contributions for the systemwide benefit of Embassy Suites Hotels. We incurred marketing and reservation systems fees of $12.3 million, $12.7 million and $12.3 million in 2014, 2013 and 2012, respectively. We incurred license fees included in continuing operations with respect to our hotels operated as Embassy Suites of $13.2 million, $13.4 million and $12.8 million in 2014, 2013 and 2012, respectively.

Our typical Embassy Suites franchises extend 10 to 20 years. The agreements provide no renewal or extension rights and are not assignable. If we breach a franchise agreement, we may lose the right to use the Embassy Suites name for the applicable hotel and be liable, under certain circumstances, for liquidated damages (generally equal to the fees paid to the franchisor with respect to that hotel during the three immediately preceding years). Of our Embassy Suites franchise agreements, three expire in 2015, 13 expire in 2016, and the remainder expire later.

Item 3. Legal Proceedings

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.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

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

Our common stock is traded on the New York Stock Exchange under the symbol “FCH.” The following table sets forth the high and low sale prices for our common stock for the indicated periods, as traded on that exchange, and dividends declared per share.



	High		Low		Dividends Declared Per Share
2014
First quarter	$	9.35	$	7.49	$	0.02
Second quarter	10.61		8.59		0.02
Third quarter	10.92		9.16		0.02
Fourth quarter	11.18		8.99		0.04

2013
First quarter	$	6.03	$	4.71	$	—
Second quarter	6.47		5.38		—
Third quarter	6.33		5.49		—
Fourth quarter	8.23		5.83		0.02

Stockholder Information

At February 20, 2015, we had approximately 154 record holders of our common stock and 20 record holders of our Series A preferred stock (which is convertible into common stock). However, because many of the shares of our common stock and Series A preferred stock are held by brokers and other institutions on behalf of stockholders, we believe there are substantially more beneficial holders of our common stock and Series A preferred stock than record holders. At February 20, 2015, there were 19 holders (other than FelCor) of FelCor LP units. FelCor LP units are redeemable for cash, or, at our election, for shares of FelCor common stock.

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

Distribution Information

In order to maintain our qualification as a REIT, we must distribute at least 90% of our annual taxable income (other than net capital gains) to our stockholders each year. We had no taxable income for either 2014 or 2013. We had common distributions that qualified as distributions for tax purposes for 2014 but had no such qualifying tax distributions for 2013. Under certain circumstances, we may be required to make distributions that exceed cash available for distribution in order to meet REIT distribution requirements. In that event, we expect to borrow funds or sell assets to obtain cash sufficient to make the required distribution.

Our senior notes indentures limit our ability to pay dividends and make other payments based on our ability to satisfy certain financial requirements (except as necessary to retain REIT status). The terms of our outstanding preferred stock prohibit us from paying dividends on our common stock unless all accrued preferred dividends then payable have been paid. None of these restrictions prevent us from paying dividends under current circumstances. We discuss these limitations further in “Liquidity and Capital Resources” in Item 7 and “Risk Factors” in Item 1A.

Item 6. Selected Financial Data

The following tables set forth selected financial data derived from our audited consolidated financial statements and the related notes. This data should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and our audited consolidated financial statements and the related notes.

SELECTED FINANCIAL DATA

(in millions, except per share/unit data)



	Year Ended December 31,
	2014		2013			2012			2011			2010
Statement of Operations Data:^(a)
Total revenues	$	922	$	893		$	862		$	808		$	730
Income (loss) from continuing operations^(b)	28		(84		)	(187		)	(134		)	(100		)

Diluted earnings per share/unit:
FelCor - income (loss) from continuing operations	$	0.43	$	(0.95	)	$	(1.81	)	$	(1.46	)	$	(1.70	)
FelCor LP - income (loss) from continuing operations	0.43		(0.95		)	(1.81		)	(1.46		)	(1.70		)

Other Data:
Cash distributions declared per common share/unit^(c)	$	0.10	$	0.02		$	—		$	—		$	—
Adjusted FFO per share/unit^(d)	$	0.65	$	0.39		$	0.23		$	0.14		$	(0.09	)
Adjusted EBITDA^(d)	221		200			203			203			188
Cash flows provided by operating activities	105		68			47			46			59

Balance Sheet Data (at end of period):
Total assets	$	2,105	$	2,144		$	2,202		$	2,403		$	2,359
Total debt, net of discount	1,586		1,663			1,631			1,596			1,548
FelCor’s redeemable noncontrolling interests in FelCor LP, at redemption value	7		5			3			3			2


(a)	Hotels that were designated as held for sale at December 31, 2013 or disposed of prior to that date are included in discontinued operations.


(b)	We include the following amounts in income (loss) from continuing operations (in millions):



	Year Ended December 31,
	2014			2013			2012			2011			2010
Gain on sale of investment in unconsolidated entities, net	$	30		$	—		$	—		$	—		$	—
Gain from remeasurement of unconsolidated entities	21			—			—			—			—
Impairment loss	—			(24		)	—			(4		)	(41		)
Hurricane and earthquake loss	—			—			(1		)	—			—
Debt extinguishment	(5		)	—			(72		)	(28		)	45
Conversion expenses	—			(1		)	(31		)	—			—
Pre-opening expenses	(8		)	(2		)	—			—			—
Contract dispute contingency	(6		)	—			—			—			—
Severance expenses	(1		)	(3		)	(1		)	—			—


(c)	Our Board of Directors reinstated a quarterly common dividend in October 2013. In 2014 and 2013, FelCor declared aggregate common dividends of $0.10 and $0.02 per share, respectively. Future quarterly dividends will be based on estimates of FAD, reinvestment opportunities within our portfolio and taxable income, among other things.


(d)	We include a more detailed description and computation of Adjusted FFO per share and Adjusted EBITDA in “Non-GAAP Financial Measures,” which is found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Strong demand and tepid supply growth provide a favorable dynamic for average daily rate, or ADR. ADR grew 6.7%, while occupancy increased 3.6%, driving 10.5% RevPAR (revenue per available room) growth, as we continued remixing our customer base in favor of higher-rated segments. RevPAR for our 37 comparable hotels (our Consolidated Hotels excluding the Wyndham portfolio) increased 8.9% in 2014 compared to 2013. Sustained ADR growth has also allowed our hotels to improve Hotel EBITDA margins (up 204 basis points over 2013).

We have made continued progress toward completing the first phase of our strategic objectives.

•

Since December 2010, we have sold 34 hotels (including 8 hotels sold in 2014 and two sold in February 2015), for total gross proceeds of $764.5 million (our pro rata share was $698.4 million, after taking into account hotels sold or otherwise disposed of by less than wholly owned entities). Of the six non-strategic hotels remaining to sell under our current disposition programs, we have agreed to sell four, two of which are under contract.

•

In July 2014, we unwound joint ventures that owned 10 non-strategic hotels. We retained five of those hotels (comprising 1,224 rooms) outright, and our joint venture partner owns the other five (comprising 1,215 rooms). We sold one of the retained hotels in February 2015. Of the remaining four, two are under contract to be sold. In connection with unwinding those joint ventures, we now wholly-own our DoubleTree Suites hotel located in downtown Austin.

•

In July 2014, we obtained a $140 million term loan secured by three hotels. The loan bears interest at LIBOR (no floor) plus 2.5%. The loan, which matures in 2017 and may be extended for up to two years, subject to satisfaction of certain conditions, is freely pre-payable. In August 2014, we used proceeds from the loan, cash on hand and borrowings under our line of credit to redeem the remaining $234 million 10% senior secured notes due late 2014.


•	Our Board of Directors doubled our quarterly common dividend per share from $0.02 to $0.04 in the fourth quarter of 2014.


•	We completed renovating and repositioning our Wyndham portfolio. RevPAR at these eight hotels increased 19.9% in 2014.

•

Our 4+ star Knickerbocker Hotel (www.TheKnickerbocker.com), located in the heart of Times Square on the corner of 42nd Street and Broadway in New York City, opened on February 12, 2015. The newly redeveloped hotel boasts 330 spacious guest rooms, including 31 suites, a state-of-the-art fitness center, a 2,200 square-foot event space, upscale food and dining options, and a 7,500 square-foot rooftop bar and terrace with unrivaled views of New York City’s skyline. The 4+ star luxury property is a member of The Leading Hotels of the World. As of December 31, 2014, we invested $138.0 million (excluding initial acquisition costs and capitalized interest) to redevelop the property.

Financial Comparison (Hotel EBITDA and Income (Loss) from Continuing Operations, $ in millions)



	Year Ended December 31,
	2014			2013			% Change 2014-13		2012			% Change 2013-12
RevPAR^(a)	$	128.82		$	116.54		10.5	%	$	112.37		3.7	%
Hotel EBITDA^(a)(b)	230			194			18.8	%	180			7.6	%
Hotel EBITDA margin^(a)(b)	28.1		%	26.1		%	7.8	%	25.2		%	3.8	%
Income (loss) from continuing operations^(c)	28			(84		)	133.1	%	(187		)	55.3	%


(a)	Data shown is for our 45 same-store Consolidated Hotels for all years presented.


(b)	Hotel EBITDA and Hotel EBITDA margin are non-GAAP financial measures. A discussion of the use, limitations and importance of these non-GAAP financial measures and detailed reconciliations to the most comparable GAAP measure are found below in “Non-GAAP Financial Measures.”


(c)	We included the following amounts in income (loss) from continuing operations:



	Year Ended December 31,
	2014			2013			2012
Gain on sale of investment in unconsolidated entities, net	$	30		$	—		$	—
Gain from remeasurement of unconsolidated entities	21			—			—
Impairment loss	—			(24		)	—
Hurricane and earthquake loss	—			—			(1		)
Debt extinguishment	(5		)	—			(72		)
Conversion expenses	—			(1		)	(31		)
Pre-opening expenses	(8		)	(2		)	—
Contract dispute contingency	(6		)	—			—
Severance expenses	(1		)	(3		)	(1		)

Results of Operations

Comparison of the Years Ended December 31, 2014 and 2013

For the year ended December 31, 2014, we recorded net income of $94.2 million compared to a $65.8 million net loss in 2013. Our 2014 net income includes a $66.7 million net gain on hotel sales (of which $24.4 million resulted from foreign currency translation previously recorded in accumulated other comprehensive income and a loss on sale of $102,000 is included in discontinued operations), a $30.2 million gain on the disposition of our interest in unconsolidated hotels, and a $20.7 million gain on the fair value remeasurement of previously unconsolidated hotels. These gains were offset by a $5.9 million charge for a contract dispute contingency and $5.0 million of debt extinguishment charges (including $245,000 in discontinued operations). Our 2013 net loss includes a $28.8 million impairment charge ($24.4 million related to two hotels included in continuing operations and $4.4 million related to two hotels included in discontinued operations), offset by a $19.4 million net gain on hotel sales included in discontinued operations.

In 2014:

•

Total revenue increased $28.2 million, net of a $47.4 million decrease in revenue for hotels that have been disposed of or are classified as held for sale. Excluding these hotels, revenue increased 10.1% from last year. The increase was driven by a 10.5% increase in same-store RevPAR, reflecting a 6.7% increase in ADR and a 3.6% increase in occupancy. RevPAR for our Wyndham portfolio increased 19.9% , driven by a 9.7% increase in ADR and a 9.3% increase in occupancy. The Wyndham portfolio’s increased revenue primarily reflects less transitional disruption compared to the same period in 2013 and market share gains from renovations.

•

Hotel departmental expenses increased $4.8 million, net of a $15.9 million decrease related to hotels that have been disposed of or are classified as held for sale. Excluding these hotels, hotel departmental expenses decreased as a percentage of total revenue to 35.9% in the current year from 36.7% last year. In 2014, we experienced a favorable shift in banquet and catering operations, which typically have higher margins than other food and beverage operations. Hotel departmental operations also recognized improved profitability margins for the rooms department, driven by increased ADR.


•	Other property-related costs increased $55,000, net of a $13.9 million decrease related to hotels that have been disposed of or are classified as held for sale. Excluding these hotels, other property-related costs as a percentage of total revenue decreased to 25.2% in the current year from 25.9% last year, primarily driven by ADR growth.


•	Management and franchise fees increased $332,000, net of a $2.3 million reduction in expense for hotels that have been disposed of or are classified as held for sale. Excluding these hotels, these costs as a percentage of total revenue were 3.9% for 2014 and 2013.

•

Taxes, insurance and lease expense decreased $11.3 million and decreased as a percentage of total revenue to 9.2% from 10.8% in 2013. The decrease primarily reflects a $13.3 million reduction in hotel lease expense resulting from unwinding our unconsolidated 10‑hotel joint ventures and was partially offset by an increase in hotel percentage rent (computed as a percentage of hotel revenues in excess of base rent) for our remaining joint ventures. Historically, hotel lease expense was recorded by the 12 consolidated operating lessees of our hotels that were owned by unconsolidated entities. We recorded the corresponding lease income through equity in income from unconsolidated entities, and the hotel lease expense was not eliminated in consolidation. We unwound the joint ventures in July 2014, as a consequence of which we recorded lower hotel lease expense for 2014. We also experienced a decrease in expense in the current year due to more favorable property insurance rates and improved general

liability claims experience. These expense reductions were partially offset by increased land lease percentage rent expense, resulting from higher revenue for the period, as well as higher property taxes. In 2014, we had fewer significant property renovations compared to 2013, as a consequence of which the amount of property taxes capitalized in the current year was lower than 2013.


•	Corporate expenses increased $2.6 million and increased slightly as a percentage of total revenue to 3.2% from 3.0% in 2013. This increase primarily reflects the additional stock compensation expense associated with our market-based equity incentive awards and adjustments made to our corporate bonus expense.


•	Depreciation and amortization expense decreased $3.8 million primarily attributable to selling hotels in 2014. This reduction is offset by depreciation resulting from $83.7 million and $101.4 million of hotel capital expenditures in 2014 and 2013, respectively.


•	We recorded no impairment loss in 2014. Impairment loss for 2013 was $24.4 million reflecting reduced estimated hold periods for two hotels included in continuing operations.


•	Conversion expenses. We converted eight hotels to Wyndham brands and management in March 2013. We classified related expenses of $1.1 million as conversion expense in our 2013 statements of operations. We had no such expenses in 2014.


•	Other expenses increased $9.2 million compared to 2013, primarily related to a $5.9 million contract dispute contingency and increased pre-opening costs of $5.5 million incurred in 2014 for the Knickerbocker Hotel, partially offset by lower severance costs.


•	Net interest expense decreased $13.1 million, primarily reflecting increased capitalized interest (attributable to renovation and redevelopment projects), lower average outstanding debt and a lower blended interest rate for the period.


•	Debt extinguishment. In 2014, we recorded $4.8 million in debt extinguishment charges primarily related to repaying the remaining $234.0 million of our 10% senior secured notes otherwise due in 2014 and repaying a $9.6 million loan in connection with selling a hotel. We recorded no debt extinguishment charges in continuing operations in 2013.


•	Equity in income from unconsolidated entities increased $424,000. The increase in income reflects increased revenues at our unconsolidated hotels offset by lower income after we unwound our 10-hotel unconsolidated joint ventures in July 2014.

•

Discontinued operations include the results of operations for one hotel sold in January 2014 and five hotels sold in 2013. Discontinued operations in 2014 included a $102,000 net loss on sale and debt extinguishment charges of $245,000 (related to repaying $10.9 million of debt for a hotel sold in 2014). Discontinued operations in 2013 included a $19.4 million net gain on sale primarily related to five sold hotels, offset by a $4.4 million impairment charge related to two hotels. Effective January 1, 2014, we no longer record hotel operations for disposed hotels in discontinued operations if the hotel was not disposed of or held for sale prior to the effective date.

Comparison of the Years Ended December 31, 2013 and 2012

For the year ended December 31, 2013, we recorded a net loss of $65.8 million compared to a $129.4 million net loss in 2012. Our 2013 net loss includes a $28.8 million impairment charge (including $4.4 million in discontinued operations related to two hotels), offset by a $19.4 million net gain on hotel sales included in discontinued operations (primarily from the sale of five hotels). Our 2012 net loss includes $31.2 million of conversion costs related to rebranding and repositioning eight hotels, a $75.1 million loss from the extinguishment of debt (including $2.8 million in discontinued operations), $1.3 million in hurricane-related charges (including $478,000 in discontinued operations), and a $1.3 million impairment charge included in discontinued operations. These 2012 charges were partially offset by a $54.5 million net gain on hotel sales included in discontinued operations.

In 2013:


•	Total revenue increased $31.3 million, or 3.6%, from 2012. The increase was driven by a 3.8% increase in same-store RevPAR, reflecting a 3.4% increase in ADR and a slight increase in occupancy.


•	Hotel departmental expenses increased $11.0 million. Hotel departmental expenses decreased slightly as a percentage of total revenue to 36.6% in 2013 from 36.7% in 2012.


•	Other property-related costs increased $6.2 million. Other property-related costs decreased as a percentage of total revenue to 26.7% in 2013 from 26.9% in 2012, primarily driven by ADR growth, rather than occupancy.

•

Management and franchise fees decreased $4.1 million. These costs decreased as a percentage of total revenue to 4.0% in 2013 from 4.6% in 2012. We converted eight hotels to Wyndham brands and management on March 1, 2013. Wyndham earns lower management fees than the prior management company. Wyndham Worldwide Corporation guaranteed a minimum annual NOI for our eight Wyndham hotels. We account for amounts recorded under the guaranty, to the extent available, as a reduction in contractual management fees. In 2013, Wyndham’s guaranty reduced Wyndham’s management fees. These arrangements with Wyndham more than offset increases in fees resulting from higher revenue.

•

Taxes, insurance and lease expense increased $4.0 million and increased slightly as a percentage of total revenue to 10.8% in 2013 from 10.7% in 2012. The increase primarily reflects an increase in hotel lease expense (computed as a percentage of hotel revenues in excess of base rent; as revenue increases, percentage rent increases at a faster rate than other expenses), higher property taxes (in 2012 we achieved significant reductions after appeals), and higher general liability insurance due to a less favorable claims experience compared to 2012.


•	Corporate expenses increased $868,000 and remained relatively flat as a percentage of total revenue compared to 2012. This increase primarily reflects additional fixed and variable stock compensation expense associated with our market-based incentive compensation awards.


•	Depreciation and amortization expense increased $3.2 million primarily reflecting additional depreciation after investing $101.4 million in our hotels in 2013 and $121.5 million in 2012.


•	Impairment loss for 2013 was $24.4 million resulting from reduced estimated hold periods for two hotels included in continuing operations. No impairment charges were included in continuing operations for 2012.


•	Conversion expenses. We classified expenses related to converting eight Holiday Inn hotels to Wyndham brands and management as conversion expense in 2013 and 2012. The expenses incurred in 2012 include $30.7 million of termination fees related to terminating the management agreements with IHG.


•	Other expenses increased $4.1 million compared to 2012, primarily related to severance costs for certain employees and pre-opening costs for the Knickerbocker Hotel, which were partially offset by non-recurring hurricane-related charges incurred in 2012.


•	Net interest expense decreased $17.8 million, primarily reflecting our lower average interest rate. Lower interest rates in 2013 were partially offset by an increase in average debt for the year, as well as less capitalized interest attributable to renovation and redevelopment projects.

•

Debt extinguishment. In 2013, we had no debt extinguishment charges included in continuing operations. In 2012, we recorded $72.4 million in debt extinguishment charges, which includes $17.4 million of prepayment penalties and the write-off of deferred loan costs recorded when we repaid $315.1 million of loans secured by properties in continuing operations. In addition, when we redeemed $258.0 million of our 10% senior notes, we recognized a $55.0 million debt extinguishment charge for prepayment penalties, as well as a pro rata portion of the original issue discount and deferred loan costs.

•

Discontinued operations include the results of operations for one hotel designated as held for sale at December 31, 2013, five hotels sold in 2013, and ten hotels sold in 2012. Discontinued operations in 2013 included a $19.4 million net gain on sale primarily related to five hotels, offset by an impairment charge of $4.4 million related to one hotel sold in 2013 and one hotel designated as held for sale at December 31, 2013. Discontinued operations in 2012 included a $54.5 million net gain on hotel sales, offset by $2.8 million in debt extinguishment charges and a $1.3 million impairment charge.

Non-GAAP Financial Measures

We refer in this Annual Report to certain “non-GAAP financial measures.” These measures, including FFO, Adjusted FFO, EBITDA, Adjusted 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 these non-GAAP measures to FelCor’s 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.

Reconciliation of Net Income (Loss) to FFO and Adjusted FFO

(in thousands, except per share data)



	Year Ended December 31,
	2014							2013
	Dollars			Shares	Per Share Amount			Dollars			Shares	Per Share Amount
Net income (loss)	$	94,152						$	(65,783	)
Noncontrolling interests	(834		)					4,279
Preferred dividends	(38,712		)					(38,713		)
Preferred distributions, consolidated joint venture	(1,219		)					—
Net income (loss) attributable to FelCor common stockholders	53,387							(100,217		)
Less: Dividends declared on unvested restricted stock compensation	(8		)					—
Less: Undistributed earnings allocated to unvested restricted stock	(20		)					—
Basic earnings per share data	53,359			124,158	$	0.43		(100,217		)	123,818	$	(0.81	)
Restricted stock units	—			734	—			—			—	—
Diluted earnings per share data	53,359			124,892	0.43			(100,217		)	123,818	(0.81		)
Depreciation and amortization	115,819			—	0.93			119,624			—	0.97
Depreciation, discontinued operations and unconsolidated entities	6,891			—	0.06			15,996			—	0.13
Other gains, net of noncontrolling interests in other partnerships	(100		)	—	—			(37		)	—	—
Other gains, discontinued operations, net of noncontrolling interests in other partnerships	—			—	—			(59		)	—	—
Impairment loss, net of noncontrolling interests in other partnerships	—			—	—			20,382			—	0.16
Impairment loss, discontinued operations	—			—	—			4,354			—	0.04
Gain on sale of hotels, net of noncontrolling interests in other partnerships	(65,453		)	—	(0.52		)	(18,590		)	—	(0.15		)
Gain from remeasurement of unconsolidated entities	(20,737		)	—	(0.17		)	—			—	—
Gain on sale of investment in unconsolidated entities, net	(30,176		)	—	(0.24		)	—			—	—
Noncontrolling interests in FelCor LP	137			614	(0.01		)	(497		)	619	(0.01		)
Dividends declared on unvested restricted stock	8			—	—			—			—	—
Conversion of unvested restricted stock and units	20			5	—			—			547	—
FFO	59,768			125,511	0.48			40,956			124,984	0.33
Acquisition costs	—			—	—			23			—	—
Hurricane and earthquake loss	348			—	—			—			—	—
Debt extinguishment, including discontinued operations, net of noncontrolling interests	4,850			—	0.03			—			—	—
Debt extinguishment, unconsolidated entities	168			—	—			—			—	—
Conversion expenses	—			—	—			1,134			—	0.01
Variable stock compensation	2,723			—	0.02			963			—	0.01
Severance costs	928			—	0.01			3,268			—	0.02
Contract dispute contingency	5,850			—	0.05			—			—	—
Pre-opening costs, net of noncontrolling interests	7,530			—	0.06			2,314			—	0.02
Adjusted FFO	$	82,165		125,511	$	0.65		$	48,658		124,984	$	0.39

Reconciliation of Net Loss to FFO and Adjusted FFO

(in thousands, except per share data)



	Year Ended December 31,
	2012							2011							2010
	Dollars			Shares	Per Share Amount			Dollars			Shares	Per Share Amount			Dollars			Shares		Per Share Amount
Net loss	$	(129,414	)	—	—			$	(130,895	)	—	—			$	(225,837	)	—		—
Noncontrolling interests	1,407			—	—			1,041			—	—			2,796			—		—
Preferred dividends	(38,713		)	—	—			(38,713		)	—	—			(38,713		)	—		—
Basic and diluted earnings per share data	(166,720		)	123,634	(1.35		)	(168,567		)	117,068	$	(1.44	)	(261,754		)	80,611		$	(3.25	)
Depreciation and amortization	116,384			—	0.94			110,498			—	0.94			108,226			—		1.34
Depreciation, discontinued operations and unconsolidated entities	24,216			—	0.20			40,870			—	0.35			54,000			—		0.67
Other gains, net	—			—	—			(295		)	—	—			—			—		—
Other gains, discontinued operations	—			—	—			15			—	—			—			—		—
Impairment loss	—			—	—			4,315			—	0.04			41,214			—		0.51
Impairment loss, discontinued operations and unconsolidated entities	1,335			—	0.01			8,935			—	0.08			131,762			—		1.63
Gain on sale of hotels	(54,459		)	—	(0.44		)	(4,714		)	—	(0.04		)	—			—		—
Gain on sale of unconsolidated entities	—			—	—			—			—				(21,103		)	—		(0.26		)
Noncontrolling interests in FelCor LP	(842		)	628	—			(689		)	499	(0.01		)	(881		)	294		(0.01		)
Conversion of unvested restricted stock	—			—	—			—			—	—			—			505		—
FFO	(80,086		)	124,262	(0.64		)	(9,632		)	117,567	(0.08		)	51,464			81,410		0.63
Acquisition costs	132			—	—			1,479			—	0.01			449			—		0.01
Hurricane and earthquake loss	792			—	0.01			—			—	—			—			—		—
Hurricane and earthquake loss, discontinued operations and unconsolidated entities	482			—	—			—			—	—			—			—		—
Debt extinguishment, including discontinued operations	75,117			—	0.60			24,381			—	0.21			(59,465		)	—		(0.73		)
Conversion expenses	31,197			—	0.25			—			—	—			—			—		—
Severance costs	553			—	—			—			—	—			—			—		—
Abandoned projects	219			—	—			—			—	—			—			—		—
Pre-opening costs, net of noncontrolling interests	398			—	—			—			—	—			—			—		—
Conversion of unvested restricted stock	—			11	0.01			—			175	—			—			(505	)	—
Adjusted FFO	$	28,804		124,273	$	0.23		$	16,228		117,742	$	0.14		$	(7,552	)	80,905		$	(0.09	)

The following table details our computation of EBITDA and Adjusted EBITDA:

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA

(in thousands)



	Year Ended December 31,
	2014			2013			2012			2011			2010
Net income (loss)	$	94,152		$	(65,783	)	$	(129,414	)	$	(130,895	)	$	(225,837	)
Depreciation and amortization	115,819			119,624			116,384			110,498			108,226
Depreciation, discontinued operations and unconsolidated entities	6,891			15,996			24,216			40,870			54,000
Interest expense	90,743			103,865			121,690			126,278			127,145
Interest expense, discontinued operations and unconsolidated entities	1,896			3,496			8,586			14,272			22,364
Noncontrolling interests in other partnerships	(697		)	3,782			565			352			1,915
EBITDA	308,804			180,980			142,027			161,375			87,813
Impairment loss, net of noncontrolling interests in other partnerships	—			20,382			—			4,315			41,214
Impairment loss, discontinued operations and unconsolidated entities	—			4,354			1,335			8,935			131,762
Hurricane and earthquake loss	348			—			792			—			—
Hurricane and earthquake loss, discontinued operations and unconsolidated entities	—			—			482			—			—
Debt extinguishment, including discontinued operations, net of noncontrolling interests	4,850			—			75,117			24,381			(59,465		)
Debt extinguishment, unconsolidated entities	168			—			—			—			—
Acquisition costs	—			23			132			1,479			449
Contract dispute contingency	5,850			—			—			—			—
Amortization of fixed stock and directors’ compensation	6,122			5,570			5,003			7,170			7,445
Severance costs	928			3,268			553			—			—
Abandoned projects	—			—			219			—			—
Conversion expenses	—			1,134			31,197			—			—
Variable stock compensation	2,723			963			—			—			—
Pre-opening costs, net of noncontrolling interests	7,530			2,314			398			—			—
Gain on sale of hotels, net of noncontrolling interests in other partnerships	(65,453		)	(18,590		)	(54,459		)	(4,714		)	—
Gain on sale of investment in unconsolidated entities, net	(30,176		)	—			—			—			—
Gain from remeasurement of unconsolidated entities	(20,737		)	—			—			—			—
Other gains, net of noncontrolling interests in other partnerships	(100		)	(37		)	—			(295		)	—
Other losses (gains), discontinued operations, net of noncontrolling interests in other partnerships	—			(59		)	—			15			—
Gain on sale of unconsolidated entities	—			—			—			—			(21,103		)
Adjusted EBITDA	$	220,857		$	200,302		$	202,796		$	202,661		$	188,115

Hotel EBITDA and Hotel EBITDA Margin

(dollars in thousands)



	Year Ended December 31,
	2014			2013			2012
Same-store operating revenue:
Room	$	634,892		$	574,647		$	554,796
Food and beverage	140,156			127,234			119,123
Other operating departments	43,849			41,606			42,914
Same-store operating revenue^(a)	818,897			743,487			716,833
Same-store operating expense:
Room	166,534			152,724			148,704
Food and beverage	108,206			102,398			96,749
Other operating departments	20,401			19,320			18,918
Other property related costs	207,481			193,569			188,637
Management and franchise fees	32,043			29,396			33,651
Taxes, insurance and lease expense	53,781			52,032			49,862
Same-store operating expense^(a)	588,446			549,439			536,521
Hotel EBITDA	$	230,451		$	194,048		$	180,312
Hotel EBITDA Margin	28.1		%	26.1		%	25.2		%



	Year Ended December 31,
	2014			2013			2012
Hotel EBITDA - Comparable core (31)	$	169,488		$	142,983		$	126,729
Hotel EBITDA - Non-strategic (6)^(a)	17,837			16,015			15,634
Hotel EBITDA - Comparable (37)	187,325			158,998			142,363
Hotel EBITDA - Wyndham (8)	43,126			35,050			37,949
Hotel EBITDA - Same-store (45)	$	230,451		$	194,048		$	180,312

Hotel EBITDA Margin - Comparable core (31)	26.7		%	24.5		%	23.3		%
Hotel EBITDA Margin - Non-strategic (6)^(a)	30.7		%	29.1		%	29.4		%
Hotel EBITDA Margin - Comparable (37)	27.0		%	24.9		%	23.9		%
Hotel EBITDA Margin - Wyndham (8)	34.4		%	33.7		%	31.5		%
Hotel EBITDA Margin Same-store (45)	28.1		%	26.1		%	25.2		%


(a)	Excludes two hotels designated as held for sale as of December 31, 2014.

Reconciliation of Same-store Operating Revenue and Same-store Operating Expenses to Total Revenue,

Total Operating Expenses and Operating Income

(dollars in thousands)



	Year Ended December 31,
	2014			2013			2012
Same-store operating revenue^(a)	$	818,897		$	743,487		$	716,833
Other revenue	3,606			3,430			3,185
Revenue from hotels, disposed and held for sale ^(a)	99,084			146,519			142,108
Total revenue	921,587			893,436			862,126
Same-store operating expenses^(a)	588,446			549,439			536,521
Consolidated hotel lease expense^(b)	31,635			44,087			41,342
Unconsolidated taxes, insurance and lease expense	(5,503		)	(7,456		)	(7,256		)
Corporate expenses	29,585			26,996			26,128
Depreciation and amortization	115,819			119,624			116,384
Impairment loss	—			24,441			—
Expenses from hotels, disposed and held for sale^(a)	76,461			111,055			109,372
Conversion expenses	—			1,134			31,197
Other expenses	17,952			8,749			4,626
Total operating expenses	854,395			878,069			858,314
Operating income	$	67,192		$	15,367		$	3,812

(a)

During the year ended December 31, 2014, we disposed of 12 hotels that were not held for sale at December 31, 2013. We sold two held for sale hotels for $63.6 million subsequent to December 31, 2014. These hotels are shown as held for sale on our December 31, 2014 balance sheet, as the purchasers each paid a non-refundable deposit toward the purchase price. Under recently issued GAAP accounting guidance adopted in 2014, we included the operating performance for these hotels in continuing operations in our Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012. However, for purposes of our Non-GAAP reporting metrics, we have excluded the results of these hotels to provide a meaningful same-store comparison.


(b)	Consolidated hotel lease expense represents the percentage lease expense of our 51% owned operating lessees. The offsetting percentage lease revenue is included in equity in income from unconsolidated entities.

Substantially all of our non-current assets consist of real estate. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to be helpful in evaluating a real estate company’s operations. These supplemental measures are not measures of operating performance under GAAP. However, we consider these non-GAAP measures to be supplemental measures of a hotel REIT’s performance and should be considered along with, but not as an alternative to, net income (loss) attributable to FelCor as a measure of our operating performance.

FFO and EBITDA

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

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

Adjustments to FFO and EBITDA

We adjust FFO and EBITDA when evaluating our performance because management believes that the exclusion of certain additional items provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO, and Adjusted EBITDA when combined with GAAP net income attributable to FelCor, EBITDA and FFO, is beneficial to an investor’s better understanding of our operating performance.

•

Gains and losses related to extinguishment of debt and interest rate swaps - We exclude gains and losses related to extinguishment of debt and interest rate swaps from FFO and EBITDA because we believe that it is not indicative of ongoing operating performance of our hotel assets. This also represents an acceleration of interest expense or a reduction of interest expense, and interest expense is excluded from EBITDA.

•

Cumulative effect of a change in accounting principle - Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments in computing Adjusted FFO and Adjusted EBITDA because they do not reflect our actual performance for that period.


•	Other transaction costs - From time to time, we periodically incur costs that are not indicative of ongoing operating performance. Such costs include, but are not limited to, conversion costs, acquisition costs, pre-opening costs and severance costs. We exclude these costs from the calculation of Adjusted FFO and Adjusted EBITDA.


•	Variable stock compensation - We exclude the cost associated with our variable stock compensation. This cost is subject to volatility related to the price and dividends of our common stock that does not necessarily correspond to our operating performance.

In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA. We also exclude the amortization of our fixed stock and directors’ compensation, which is included in corporate expenses and is not separately stated on our statements of operations. Excluding amortization of our fixed stock and directors’ compensation maintains consistency with the EBITDA definition.

Hotel EBITDA and Hotel EBITDA Margin

Hotel EBITDA and Hotel EBITDA margin are commonly used measures of performance in the hotel industry and give investors a more complete understanding of the operating results over which our individual hotels and brand/managers have direct control. We believe that Hotel EBITDA and Hotel EBITDA margin are useful to investors by providing greater transparency with respect to two significant measures that we use in our financial and operational decision-making. Additionally, using these measures facilitates comparisons with other hotel REITs and hotel owners. We present Hotel EBITDA and Hotel EBITDA margin in a manner consistent with Adjusted EBITDA, however, we also eliminate all revenues and expenses from continuing operations not directly associated with hotel operations, including other income and corporate-level expenses. We eliminate these additional items because we believe property-level results provide investors with supplemental information into the ongoing operational performance of our hotels and the effectiveness of management on a property-level basis. We also eliminate consolidated percentage rent paid to unconsolidated entities, which is effectively eliminated by noncontrolling interests and equity in income from unconsolidated subsidiaries, and include the cost of unconsolidated taxes, insurance and lease expense, to reflect the entire operating costs applicable to our Consolidated Hotels. Hotel EBITDA and Hotel EBITDA margins are presented on a same-store basis.

Use and Limitations of Non-GAAP Measures

We use FFO, Adjusted FFO, EBITDA, Adjusted EBITDA, Same-store Adjusted EBITDA, Hotel EBITDA and Hotel EBITDA margin to evaluate the performance of our hotels and to facilitate comparisons between us and other 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. As we present them, these non-GAAP financial measures may not be comparable to similar non-GAAP financial measures as presented by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

Liquidity and Capital Resources

Operating Activities

At December 31, 2014, we had $47.1 million of cash, including approximately $32.3 million held by our third-party management companies. During 2014, our operations (primarily hotel operations) provided $104.8 million in cash, $36.4 million more than 2013. The increase is primarily attributable to improved operations compared to last year; in addition, Wyndham paid $8 million in 2014 under its annual net operating income guaranty.

Our consolidated statements of cash flows combine cash flow from continuing and discontinued operations. Hotels in discontinued operations did not generate significant operating cash flow for 2014, and generated $7.8 million and $20.6 million of operating cash flow for the years ended December 31, 2013 and 2012, respectively. The hotels reported in discontinued operations would not have provided acceptable future operating cash flow on our investment, and the absence of their operating cash flow has not had a material impact on our business.

RevPAR for the lodging industry remains strong. At our comparable hotels, for the year ended 2014, RevPAR increased 8.9%, driven by a 6.3% increase in ADR and a 2.5% increase in occupancy. We expect our RevPAR will increase 8.0 to 9.0% during 2015, primarily from higher ADR, and our operations will generate $144 million to $154 million of cash flow in 2015.

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. Some operating expenses are difficult to predict and control, which lends volatility to our operating results. Our hotels have extensive cost containment initiatives, including managing headcount and improving productivity and energy efficiency. If RevPAR decreases, or fails to grow in line with or better than occupancy, and/or Hotel EBITDA margins shrink, our operations, earnings and/or cash flow could be materially adversely affected.

Investing Activities

During 2014, we had $67.5 million of cash provided by investing activities compared to $53.9 million of cash used in investing activities during 2013. In 2014, we sold hotels for $163.6 million in net proceeds, which is $64.8 million more than those proceeds received from 2013 hotel sales. Our restricted cash decreased $56.7 million from 2013 and was used primarily to fund our hotel development project. In 2014, we spent $26.0 million more on our hotel development project and $17.7 million less on improvements and additions to hotels compared to 2013.

For renovations and redevelopment in 2015, we expect to spend approximately $45 million, funded from operating cash flow, cash on hand and borrowings under our line of credit. We spent $138.0 million (excluding the initial acquisition costs and capitalized interest) through December 31, 2014 to redevelop the 4+ star Knickerbocker Hotel, located in the heart of Times Square. We expect to invest approximately $20 million in the Knickerbocker Hotel in 2015, funded primarily by draws on a related construction loan.

Since December 2010, we have sold 34 non-strategic hotels, for total gross proceeds of $764.5 million, and disposed of our 50% interests in five non-strategic hotels by unwinding certain joint ventures. We now have six non-strategic hotels. We currently have two hotels under contract, for total gross proceeds of $48.7 million, and are negotiating contracts to sell two additional hotels for total gross proceeds of approximately $42.5 million. We began marketing the remaining hotels in early 2015.

Financing Activities

During 2014, cash used in financing activities increased by $156.1 million compared to 2013. We had $486.2 million more debt related payments in 2014 (including the remaining $234 million of our maturing 10% senior notes) than in 2013. These 2014 payments were partially offset by a $309.1 million increase in proceeds from borrowings, as well as $41.4 million in net proceeds from preferred equity issued by our consolidated

Knickerbocker Hotel joint venture through the EB-5 immigrant investment program. In 2015, we expect to pay approximately $2 million of normally occurring principal payments, $39 million of preferred dividends and $20 million in common dividends (assuming no change to the current quarterly dividend rate per share), all of which will be funded from operating cash flow and cash on hand. We will use proceeds from hotel sales to make additional non-recurring principal payments.

During July 2014, we obtained a $140 million term loan secured by three hotels. That loan, which is freely prepayable, bears interest at LIBOR (no floor) plus 2.5% and matures in 2017 (but may be extended for up to two years, subject to satisfaction of certain conditions). In August 2014, we used funds drawn under that loan, together with cash on hand and borrowings under our line of credit, to repay the remaining $234 million of our maturing 10% senior secured notes. We will use proceeds from pending and future asset sales to repay the term loan and our line of credit. We have no significant debt maturing until 2019 (assuming all possible extension options are exercised) other than our line of credit.

In July 2014, we unwound unconsolidated joint ventures that owned 10 hotels. As a consequence, we now own five of those hotels outright and have no interest in the other five. The $128 million non-recourse loan secured by eight of the 10 hotels was bifurcated, and we are now only liable for $64 million, which is secured by four of the five former joint venture hotels we now own outright.

FelCor’s Board of Directors declared, and we paid, common stock dividends of $0.02 per share for the first, second, and third quarters and $0.04 per share for the fourth quarter. FelCor's Board of Directors determines the amount of common and preferred dividends for each quarter, if any, based upon various factors including operating results, economic conditions, other operating trends, our financial condition and capital requirements, as well as the minimum REIT distribution requirements. FelCor LP, which is our operating partnership, distributes funds to FelCor to pay common and preferred dividends.

Except for our senior notes, line of credit and term loan, our mortgage debt is generally recourse solely to the specific hotels securing the debt, except in case of fraud, misapplication of funds and certain other customary limited recourse carve-out provisions that could extend recourse to us. Much of our secured debt allows us to substitute collateral under certain conditions and is prepayable, subject (in some instances) to various prepayment, yield maintenance or defeasance obligations.

Most of our secured debt (other than our senior notes and line of credit) includes lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves, even if revenues are flowing through a lock-box triggered by a specified debt service coverage ratio not being met. All of our consolidated loans subject to lock-box provisions currently exceed the applicable minimum debt service coverage ratios.

Senior Notes. Our senior notes, which are guaranteed by FelCor, require that we satisfy total leverage, secured leverage and interest coverage tests in order to: (i) incur additional indebtedness, except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to qualify as a REIT; (iii) repurchase capital stock; or (iv) merge. We currently exceed all minimum thresholds. In addition, our senior notes are secured by a combination of first lien mortgages and related security interests on 15 hotels (six hotels for our 6.75% senior notes and nine hotels for our 5.625% senior notes), as well as pledges of equity interests in certain subsidiaries of FelCor LP.

Interest Rate Caps. To fulfill requirements under one of our loans, we entered into an interest rate cap agreement with an aggregate notional amount of $140 million at December 31, 2014. This interest rate cap was not designated as a hedge and had an insignificant fair value at December 31, 2014, resulting in no significant impact on earnings. We did not have any interest rate caps outstanding as of December 31, 2013.

Consolidated debt consisted of the following (in thousands):



	Encumbered	Interest	Maturity	December 31,
	Hotels	Rate (%)	Date	2014		2013
Line of credit	8	LIBOR + 3.375	June 2016^(a)	$	111,500	$	88,000
Term loan	3	LIBOR + 2.50	July 2017^(b)	140,000		—
Mortgage debt	4	LIBOR + 3.00	March 2017	64,000		—
Mortgage debt^(c)	4	4.95	October 2022	124,278		126,220
Mortgage debt	1	4.94	October 2022	31,228		31,714
Senior secured notes	6	6.75	June 2019	525,000		525,000
Senior secured notes	9	5.625	March 2023	525,000		525,000
Knickerbocker loan^(d)
Construction tranche	—	LIBOR + 4.00	May 2016	58,562		—
Cash collateralized tranche	—	LIBOR + 1.25	May 2016	6,299		64,861
Retired debt	—	—	—	—		302,431
Total	35			$	1,585,867	$	1,663,226


(a)	Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.


(b)	This debt can be extended up to two years, subject to satisfying certain conditions.


(c)	This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.

(d)

In November 2012, we obtained an $85.0 million construction loan to finance the redevelopment of the Knickerbocker Hotel. This loan can be extended for one year subject to satisfying certain conditions. In 2014, we drew $58.6 million of the cash collateral to fund construction costs, leaving $6.3 million of cash collateral to be drawn before drawing on the remaining $20.1 million available under the construction loan.

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, 2014 (in thousands):



	Total		Less Than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
Debt^(a)	$	2,068,132	$	88,073	$	546,012	$	654,720	$	779,327
Operating leases	320,970		10,953		16,762		12,065		281,190
Purchase obligations	21,903		21,903		—		—		—
Total contractual obligations	$	2,411,005	$	120,929	$	562,774	$	666,785	$	1,060,517


(a)	This includes both principal and interest. Interest expense for variable rate debt was calculated using interest rates at December 31, 2014.

Off-Balance Sheet Arrangements

At December 31, 2014, we had unconsolidated 50% interests in entities that owned three hotels (which we refer to as hotel joint ventures). We own more than 50% of the operating lessees operating two of these hotels and one hotel is operated without a lease. We also own 50% interests in entities that own real estate in Myrtle Beach, South Carolina and provide condominium management services there. None of our directors, officers or employees owns any interest in any of these joint ventures or entities. The hotel joint ventures had $34.2 million of non-recourse mortgage debt relating to two of these hotels, of which our pro rata portion was $17.1 million, none of which is 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 guarantees 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 from unconsolidated entities of $5.0 million, $4.6 million, and $2.8 million for 2014, 2013 and 2012, respectively. We received $17.0 million of distributions (of which $4.1 million came from operations), $14.2 million (of which $4.4 million came from operations), and $17.7 million (of which $4.2 million came from operations) in 2014, 2013 and 2012, respectively. The principal source of income for our hotel joint ventures is percentage lease revenue from the operating lessees.

Capital expenditures at the hotels owned by hotel joint ventures are generally funded from operating income at its hotels. However, if a joint venture has insufficient cash flow to meet operating expenses or make necessary capital improvements, it may call capital from the investors. In the event of a capital call, the other joint investors may be unwilling or unable to make the necessary capital contributions. Under such circumstances, we may elect to make up the difference as a loan to the joint 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 joint venture, including all of its assets and liabilities, into our consolidated financial statements. We may be confronted with the choice of losing our investment in a venture or investing additional capital with no guaranty of any 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.

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 always apply 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.

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 we believe 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 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 charge 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. In the evaluation of impairment of our hotels, and in establishing impairment charges, we make many assumptions and estimates on a hotel by hotel basis, which include the following:


◦	Annual cash flow growth rates for revenues and expenses;


◦	Holding periods;


◦	Expected remaining useful lives of assets;


◦	Estimates in fair values taking into consideration future cash flows, capitalization rates, discount rates and comparable selling prices; and


◦	Future capital expenditures.

•

We record an impairment charge when one or more of our investments in unconsolidated subsidiaries experiences an other-than-temporary decline in fair value. Any decline in fair value that is not expected to be recovered in the next 12 months is considered other-than-temporary. We record an impairment in our equity-based investments as a reduction in the carrying value of the investment. Our estimates of fair values are based on future cash flow estimates, capitalization rates, discount rates and comparable selling prices.

Changes in these estimates, future adverse changes in market conditions or poor operating results of underlying hotels could result in an inability to recover the carrying value of our hotels or investments in unconsolidated entities, thereby requiring future impairment charges.

•

We capitalize interest and certain other costs, such as property taxes, land leases, property insurance and employee costs related to hotels undergoing major renovations and redevelopments. In 2014, 2013 and 2012, we capitalized $25.9 million, $23.6 million and $22.2 million, respectively, of such costs. We make estimates with regard to when components of the renovated asset or redevelopment project are taken out of service or placed in service when determining the appropriate amount and time to capitalize these costs. If these estimates are inaccurate, we could capitalize too much or too little with regard to a particular project.

•

Depreciation expense is based on the estimated useful life of our assets, and amortization expense for leasehold improvements is the shorter of the lease term or the estimated useful life of the related assets. The lives of the assets are based on a number of assumptions including cost and timing of capital expenditures to maintain and refurbish the assets, as well as specific market and economic conditions. While we believe our estimates are reasonable, a change in the estimated lives could affect depreciation and amortization expense and net income (loss) or the gain or loss on the sale of any of our hotels.

•

Investments in hotel properties are based on purchase price and allocated to land, property and equipment, identifiable intangible assets and assumed debt and other liabilities at fair value. Any remaining unallocated purchase price, if any, is treated as goodwill. Property and equipment are recorded at fair value, based on current replacement cost for similar capacity, and allocated to buildings, improvements, furniture, fixtures and equipment using appraisals and valuations prepared by management and/or independent third parties. Identifiable intangible assets (typically contracts including ground and retail leases and management and franchise agreements) are recorded at fair value, although no value is generally allocated to contracts which are at market terms. Above-market and below-market contract values are based on the present value of the difference between contractual amounts to be paid pursuant to the contracts acquired and our estimate of the fair value of contract rates for corresponding contracts measured over the period equal to the remaining non-cancelable term of the contract. Intangible assets are amortized using the straight-line method over the remaining non-cancelable term of the related agreements. In making estimates of fair values for purposes of allocating purchase price, we may utilize a number of sources such as those obtained in connection with the acquisition or financing of a property and other market data, including third-party appraisals and valuations.

•

We make estimates with respect to contingent liabilities for losses covered by insurance. 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 37 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 $3.8 million, at December 31, 2014, 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 recorded no contingent liabilities with regard to property or catastrophic losses at December 31, 2014.

•

Our taxable REIT subsidiaries, or TRSs, have combined cumulative future tax deductions totaling $311.1 million. The deferred income tax asset associated with these potential future tax deductions was $119.6 million at December 31, 2014. We recorded a 100% valuation allowance related to our TRSs net deferred tax asset because we believe it is more likely than not that the deferred tax asset will not be fully realized. The realization of the deferred tax assets associated with our net operating losses is dependent on projections of future taxable income, for which there is uncertainty when considering our historic results and cyclical nature of the lodging industry. 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. 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

At December 31, 2014, approximately 76% 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.

The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents scheduled maturities (before extension options) and weighted average interest rates, by maturity dates. 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.



December 31, 2014
	Expected Maturity Date
	2015			2016			2017			2018			2019			Thereafter			Total			Fair Value
Liabilities	(dollars in thousands)
Fixed rate:
Debt	$	2,466		$	2,652		$	2,810		$	2,954		$	528,106		$	666,518		$	1,205,506		$	1,239,642
Average interest rate	4.95		%	4.95		%	4.95		%	4.95		%	6.74		%	5.48		%	6.03		%
Floating rate:
Debt	—			176,361			204,000			—			—			—			380,361			382,663
Average interest rate^(a)	—			4.74		%	4.66		%	—			—			—			4.69		%
Total debt	$	2,466		$	179,013		$	206,810		$	2,954		$	528,106		$	666,518		$	1,585,867
Average interest rate	4.95		%	4.74		%	4.66		%	4.95		%	6.74		%	5.48		%	5.71		%
Net discount																			—
																			$	1,585,867


(a)	The average floating rate represents the implied forward rates in the yield curve at December 31, 2014.



December 31, 2013
	Expected Maturity Date
	2014			2015			2016			2017			2018			Thereafter			Total			Fair Value
Liabilities	(dollars in thousands)
Fixed rate:
Debt	$	300,045		$	3,107		$	11,461		$	2,810		$	2,954		$	1,194,702		$	1,515,079		$	1,565,211
Average interest rate	9.25		%	5.11		%	5.61		%	4.95		%	4.95		%	6.04		%	6.66		%
Floating rate:
Debt	—			—			152,861			—			—			—			152,861			153,032
Average interest rate^(a)	—			—			5.28		%	—			—			—			5.28		%
Total debt	$	300,045		$	3,107		$	164,322		$	2,810		$	2,954		$	1,194,702		$	1,667,940
Average interest rate	9.25		%	5.11		%	5.31		%	4.95		%	4.95		%	6.04		%	6.54		%
Net discount																			(4,714		)
																			$	1,663,226

(a) The average floating rate represents the implied forward rates in the yield curve at December 31, 2013

We had no interest rate swap agreements at December 31, 2014 or 2013. To fulfill requirements under one of our loans, we entered into an interest rate cap agreement with an aggregate notional amount of $140 million at December 31, 2014. This interest rate cap was not designated as a hedge and had an insignificant fair value at December 31, 2014, resulting in no significant impact on earnings. We did not have any interest rate caps outstanding as of December 31, 2013.

Item 8. Financial Statements and Supplementary Data

FELCOR LODGING TRUST INCORPORATED and

FELCOR LODGING LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm (FelCor Lodging Trust Incorporated)	53
Report of Independent Registered Public Accounting Firm (FelCor Lodging Limited Partnership)	55
FelCor Lodging Trust Incorporated Financial Statements:
Consolidated Balance Sheets — December 2014 and 2013	57
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012	58
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012	59
Consolidated Statements of Equity for the years ended December 31, 2014, 2013 and 2012	60
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	63
FelCor Lodging Limited Partnership Financial Statements:
Consolidated Balance Sheets — December 2014 and 2013	64
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012	65
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012	66
Consolidated Statements of Partners’ Capital for the years ended December 31, 2014, 2013 and 2012	67
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	68
Notes to Consolidated Financial Statements	69
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2014	110

All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

FelCor Lodging Trust Incorporated

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income (loss), of equity, and of cash flows present fairly, in all material respects, the financial position of FelCor Lodging Trust Incorporated and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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 indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 7 to the consolidated financial statements, the Company changed the manner in which it accounts for discontinued operations in 2014.

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.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas

February 27, 2015

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

FelCor Lodging Trust Incorporated

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income (loss), of partners’ capital, and of cash flows present fairly, in all material respects, the financial position of FelCor Lodging Limited Partnership and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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 indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 7 to the consolidated financial statements, the Company changed the manner in which it accounts for discontinued operations in 2014.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas

February 27, 2015

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED BALANCE SHEETS

December 31, 2014 and 2013

(in thousands)



	2014			2013
Assets
Investment in hotels, net of accumulated depreciation of $850,687 and $929,801 at December 31, 2014 and 2013, respectively	$	1,599,791		$	1,653,267
Hotel development	297,466			216,747
Investment in unconsolidated entities	15,095			46,943
Hotels held for sale	47,145			16,319
Cash and cash equivalents	47,147			45,645
Restricted cash	20,496			77,227
Accounts receivable, net of allowance for doubtful accounts of $241 and $262 at December 31, 2014 and 2013, respectively	27,805			35,747
Deferred expenses, net of accumulated amortization of $17,111 and $20,362 at December 31, 2014 and 2013, respectively	25,827			29,325
Other assets	23,886			23,060
Total assets	$	2,104,658		$	2,144,280
Liabilities and Equity
Debt, net of discount of $4,714 at December 31, 2013	$	1,585,867		$	1,663,226
Distributions payable	13,827			11,047
Accrued expenses and other liabilities	135,481			150,738
Total liabilities	1,735,175			1,825,011
Commitments and contingencies
Redeemable noncontrolling interests in FelCor LP, 611 and 618 units issued and outstanding at December 31, 2014 and 2013, respectively	6,616			5,039
Equity:
Preferred stock, $0.01 par value, 20,000 shares authorized:
Series A Cumulative Convertible Preferred Stock, 12,879 and 12,880 shares, liquidation value of $321,987 and $322,011, issued and outstanding at December 31, 2014 and 2013, respectively	309,337			309,362
Series C Cumulative Redeemable Preferred Stock, 68 shares, liquidation value of $169,950, issued and outstanding at December 31, 2014 and 2013	169,412			169,412
Common stock, $0.01 par value, 200,000 shares authorized; 124,605 and 124,051 shares issued and outstanding at December 31, 2014 and 2013, respectively	1,246			1,240
Additional paid-in capital	2,353,666			2,354,328
Accumulated other comprehensive income	—			24,937
Accumulated deficit	(2,530,671		)	(2,568,350		)
Total FelCor stockholders’ equity	302,990			290,929
Noncontrolling interests in other partnerships	18,435			23,301
Preferred equity in consolidated joint venture, liquidation value of $42,094	41,442			—
Total equity	362,867			314,230
Total liabilities and equity	$	2,104,658		$	2,144,280

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

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands, except per share data)



	2014			2013			2012
Revenues:
Hotel operating revenue	$	917,981		$	890,006		$	858,941
Other revenue	3,606			3,430			3,185
Total revenues	921,587			893,436			862,126
Expenses:
Hotel departmental expenses	331,876			327,081			316,099
Other property-related costs	238,170			238,115			231,929
Management and franchise fees	36,067			35,735			39,785
Taxes, insurance and lease expense	84,926			96,194			92,166
Corporate expenses	29,585			26,996			26,128
Depreciation and amortization	115,819			119,624			116,384
Impairment loss	—			24,441			—
Conversion expenses	—			1,134			31,197
Other expenses	17,952			8,749			4,626
Total operating expenses	854,395			878,069			858,314
Operating income	67,192			15,367			3,812
Interest expense, net	(90,695		)	(103,787		)	(121,552		)
Debt extinguishment	(4,770		)	—			(72,350		)
Gain on sale of investment in unconsolidated entities, net	30,176			—			—
Gain from remeasurement of unconsolidated entities, net	20,737			—			—
Other gains, net	100			41			—
Income (loss) before equity in income from unconsolidated entities	22,740			(88,379		)	(190,090		)
Equity in income from unconsolidated entities	5,010			4,586			2,779
Income (loss) from continuing operations	27,750			(83,793		)	(187,311		)
Income (loss) from discontinued operations	(360		)	18,010			57,897
Income (loss) before gain on sale of hotels	27,390			(65,783		)	(129,414		)
Gain on sale of hotels, net	66,762			—			—
Net income (loss)	94,152			(65,783		)	(129,414		)
Net loss (income) attributable to noncontrolling interests in other partnerships	(697		)	3,782			565
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP	(137		)	497			842
Preferred distributions - consolidated joint venture	(1,219		)	—			—
Net income (loss) attributable to FelCor	92,099			(61,504		)	(128,007		)
Preferred dividends	(38,712		)	(38,713		)	(38,713		)
Net income (loss) attributable to FelCor common stockholders	$	53,387		$	(100,217	)	$	(166,720	)
Basic and diluted per common share data:
Income (loss) from continuing operations	$	0.43		$	(0.95	)	$	(1.81	)
Net income (loss)	$	0.43		$	(0.81	)	$	(1.35	)
Basic weighted average common shares outstanding	124,158			123,818			123,634
Diluted weighted average common shares outstanding	124,892			123,818			123,634

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

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	2014			2013			2012
Net income (loss)	$	94,152		$	(65,783	)	$	(129,414	)
Foreign currency translation adjustment	(490		)	(1,108		)	303
Reclassification of foreign currency translation to gain	(24,448		)	—			—
Comprehensive income (loss)	69,214			(66,891		)	(129,111		)
Comprehensive loss (income) attributable to noncontrolling interests in other partnerships	(697		)	3,782			565
Comprehensive loss (income) attributable to redeemable noncontrolling interests in FelCor LP	(136		)	503			840
Preferred distributions - consolidated joint venture	(1,219		)	—			—
Comprehensive income (loss) attributable to FelCor	$	67,162		$	(62,606	)	$	(127,706	)

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

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	Preferred Stock			Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)					Noncontrolling Interests in Other Partnerships			Comprehensive Income (Loss)
	Number of Shares	Amount		Number of Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Noncontrolling Interests in Other Partnerships			Comprehensive Income (Loss)			Total Equity
Balance at December 31, 2011	12,948	$	478,774	124,281		$	1,243		$	2,353,251		$	25,738	$	(2,297,468	)	$	25,357					$	586,895
Issuance of stock awards	—	—		10		—			—			—		—			—						—
Stock awards - amortization	—	—		—		—			827			—		—			—						827
Forfeiture of stock awards	—	—		(185	)	(2		)	234			—		(776		)	—						(544		)
Conversion of operating partnership units into common shares	—	—		11		—			45			—		—			—						45
Allocation to redeemable noncontrolling interests	—	—		—		—			(776		)	—		—			—						(776		)
Contributions from noncontrolling interests	—	—		—		—			—			—		—			3,616						3,616
Distribution to noncontrolling interests	—	—		—		—			—			—		—			(1,056		)				(1,056		)
Other	—	—		—		—			—			—		(4		)	—						(4		)
Preferred dividends:
$1.95 per Series A preferred share	—	—		—		—			—			—		(25,117		)	—						(25,117		)
$2.00 per Series C depositary preferred share	—	—		—		—			—			—		(13,596		)	—						(13,596		)
Comprehensive loss (attributable to FelCor and noncontrolling interests in other partnerships):
Foreign exchange translation	—	—		—		—			—			301		—			—			$	301
Net loss	—	—		—		—			—			—		(128,007		)	(565		)	(128,572		)
Comprehensive loss																				$	(128,271	)	(128,271		)
Balance at December 31, 2012	12,948	$	478,774	124,117		$	1,241		$	2,353,581		$	26,039	$	(2,464,968	)	$	27,352					$	422,019

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

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY – (continued)

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	Preferred Stock			Common Stock								Accumulated Other Comprehensive Income (Loss)						Noncontrolling Interests in Other Partnerships
	Number of Shares	Amount		Number of Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interests in Other Partnerships			Comprehensive Loss			Total Equity
Balance at December 31, 2012	12,948	$	478,774	124,117		$	1,241		$	2,353,581		$	26,039		$	(2,464,968	)	$	27,352					$	422,019
Issuance of stock awards	—	—		15		—			—			—			—			—						—
Stock awards - amortization and severance	—	—		—		—			3,387			—			—			—						3,387
Forfeiture of stock awards	—	—		(85	)	(1		)	—			—			(663		)	—						(664		)
Conversion of operating partnership units into common shares	—	—		4		—			23			—			—			—						23
Allocation to redeemable noncontrolling interests	—	—		—		—			(2,663		)	—			—			—						(2,663		)
Contributions from noncontrolling interests	—	—		—		—			—			—			—			3,990						3,990
Distribution to noncontrolling interests	—	—		—		—			—			—			—			(4,259		)				(4,259		)
Dividends declared:
$0.02 per common share															(2,502		)	—						(2,502		)
$1.95 per Series A preferred share	—	—		—		—			—			—			(25,117		)	—						(25,117		)
$2.00 per Series C depositary preferred share	—	—		—		—			—			—			(13,596		)	—						(13,596		)
Comprehensive loss (attributable to FelCor and noncontrolling interests in other partnerships):
Foreign exchange translation	—	—		—		—			—			(1,102		)	—			—			$	(1,102	)
Net loss	—	—		—		—			—			—			(61,504		)	(3,782		)	(65,286		)
Comprehensive loss																					$	(66,388	)	(66,388		)
Balance at December 31, 2013	12,948	$	478,774	124,051		$	1,240		$	2,354,328		$	24,937		$	(2,568,350	)	$	23,301					$	314,230

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

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY – (continued)

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	Preferred Stock					Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)						Noncontrolling Interests in Other Partnerships			Preferred Equity in Consolidated Joint Venture			Comprehensive Income (Loss)
	Number of Shares		Amount			Number of Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interests in Other Partnerships			Preferred Equity in Consolidated Joint Venture			Comprehensive Income (Loss)			Total Equity
Balance at December 31, 2013	12,948		$	478,774		124,051		$	1,240		$	2,354,328		$	24,937		$	(2,568,350	)	$	23,301		$	—					$	314,230
Conversion of preferred stock into common stock	(1	)	(25		)	—		—			25			—			—			—			—						—
Issuance of stock awards	—		—			864		9			(9		)	—			—			—			—						—
Stock awards - amortization	—		—			—		—			4,319			—			—			—			—						4,319
Forfeiture of stock awards	—		—			(316	)	(3		)	—			—			(3,114		)	—			—						(3,117		)
Conversion of operating partnership units into common shares	—		—			6		—			56			—			—			—			—						56
Allocation to redeemable noncontrolling interests	—		—			—		—			(1,545		)	—			—			—			—						(1,545		)
Contributions from noncontrolling interests	—		—			—		—			—			—			—			6,375			—						6,375
Distribution to noncontrolling interests	—		—			—		—			—			—			—			(9,596		)	—						(9,596		)
Acquisition of noncontrolling interest	—		—			—		—			(3,508		)	—			—			(2,342		)	—						(5,850		)
Dividends declared:																							—
$0.10 per common share	—		—			—		—			—			—			(12,594		)	—			—						(12,594		)
$1.95 per Series A preferred share	—		—			—		—			—			—			(25,116		)	—			—						(25,116		)
$2.00 per Series C depositary preferred share	—		—			—		—			—			—			(13,596		)	—			—						(13,596		)
Preferred distributions - consolidated joint venture	—		—			—		—			—			—			—			—			(1,219		)				(1,219		)
Issuance of preferred equity - consolidated joint venture	—		—			—		—			—			—			—			—			41,442						41,442
Comprehensive income (attributable to FelCor and noncontrolling interests in other partnerships):
Foreign exchange translation	—		—			—		—			—			(489		)	—			—			$	—		$	(489	)
Reclassification of foreign currency translation to gain	—		—			—		—			—			(24,448		)	—			—			$	—		$	(24,448	)
Net income	—		—			—		—			—			—			92,099			697			1,219			94,015
Comprehensive income																										$	69,078		69,078
Balance at December 31, 2014	12,947		$	478,749		124,605		$	1,246		$	2,353,666		$	—		$	(2,530,671	)	$	18,435		$	41,442					$	362,867

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

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	2014			2013			2012
Cash flows from operating activities:
Net income (loss)	$	94,152		$	(65,783	)	$	(129,414	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	115,819			124,547			129,486
Gain on sale of hotels, net	(66,660		)	(19,441		)	(54,459		)
Gain on sale of investment in unconsolidated entities, net	(30,176		)	—			—
Gain from remeasurement of unconsolidated entities, net	(20,737		)	—			—
Other gains, net	(100		)	(107		)	—
Amortization of deferred financing fees and debt discount	9,558			11,082			18,053
Amortization of fixed stock and directors’ compensation	6,122			5,869			5,002
Equity based severance	—			1,051			—
Equity in income from unconsolidated entities	(5,010		)	(4,586		)	(2,779		)
Distributions of income from unconsolidated entities	4,128			4,440			4,160
Debt extinguishment	5,015			—			75,117
Impairment loss	—			28,795			1,335
Changes in assets and liabilities:
Accounts receivable	4,875			(10,858		)	1,253
Other assets	(6,975		)	(6,061		)	(5,029		)
Accrued expenses and other liabilities	(5,193		)	(487		)	4,584
Net cash flow provided by operating activities	104,818			68,461			47,309
Cash flows from investing activities:
Improvements and additions to hotels	(83,664		)	(101,357		)	(121,475		)
Hotel development	(86,565		)	(60,553		)	(24,849		)
Net proceeds from asset dispositions	163,618			98,820			197,613
Proceeds from unconsolidated joint venture transaction	4,032			—			—
Change in restricted cash	56,731			700			6,313
Insurance proceeds	521			238			—
Distributions from unconsolidated entities	12,828			9,784			13,539
Contributions to unconsolidated entities	(7		)	(1,500		)	—
Net cash flow provided by (used in) investing activities	67,494			(53,868		)	71,141
Cash flows from financing activities:
Proceeds from borrowings	473,062			164,000			998,611
Repayment of borrowings	(623,106		)	(136,902		)	(1,043,365		)
Payment of deferred financing costs	(3,215		)	(2,744		)	(17,870		)
Acquisition of noncontrolling interest	(5,850		)	—			—
Distributions paid to noncontrolling interests	(9,596		)	(4,259		)	(1,056		)
Contributions from noncontrolling interests	6,375			3,990			3,616
Distributions paid to FelCor LP limited partners	(42		)	—			—
Distributions paid to preferred stockholders	(38,712		)	(38,713		)	(106,461		)
Preferred distributions - consolidated joint venture	(1,102		)	—			—
Distributions paid to common stockholders	(9,981		)	—			—
Net proceeds from issuance of preferred equity - consolidated joint venture	41,442			—			—
Net cash flow used in financing activities	(170,725		)	(14,628		)	(166,525		)
Effect of exchange rate changes on cash	(85		)	(65		)	62
Net change in cash and cash equivalents	1,502			(100		)	(48,013		)
Cash and cash equivalents at beginning of periods	45,645			45,745			93,758
Cash and cash equivalents at end of periods	$	47,147		$	45,645		$	45,745

Supplemental cash flow information — interest paid, net of capitalized interest	$	86,734		$	84,839		$	116,789

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

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

December 31, 2014 and 2013

(in thousands)



	2014			2013
Assets
Investment in hotels, net of accumulated depreciation of $850,687 and $929,801 at December 31, 2014 and 2013, respectively	$	1,599,791		$	1,653,267
Hotel development	297,466			216,747
Investment in unconsolidated entities	15,095			46,943
Hotels held for sale	47,145			16,319
Cash and cash equivalents	47,147			45,645
Restricted cash	20,496			77,227
Accounts receivable, net of allowance for doubtful accounts of $241 and $262 at December 31, 2014 and 2013, respectively	27,805			35,747
Deferred expenses, net of accumulated amortization of $17,111 and $20,362 at December 31, 2014 and 2013, respectively	25,827			29,325
Other assets	23,886			23,060
Total assets	$	2,104,658		$	2,144,280
Liabilities and Partners’ Capital
Debt, net of discount of $4,714 at December 31, 2013	$	1,585,867		$	1,663,226
Distributions payable	13,827			11,047
Accrued expenses and other liabilities	135,481			150,738
Total liabilities	1,735,175			1,825,011
Commitments and contingencies
Redeemable units, 611 and 618 units issued and outstanding at December 31, 2014 and 2013, respectively	6,616			5,039
Capital:
Preferred units:
Series A Cumulative Convertible Preferred Units, 12,879 and 12,880 units issued and outstanding at December 31, 2014 and 2013, respectively	309,337			309,362
Series C Cumulative Redeemable Preferred Units, 68 units issued and outstanding at December 31, 2014 and 2013	169,412			169,412
Common units, 124,605 and 124,051 units issued and outstanding at December 31, 2014 and 2013, respectively	(175,759		)	(212,888		)
Accumulated other comprehensive income	—			25,043
Total FelCor LP partners’ capital	302,990			290,929
Noncontrolling interests	18,435			23,301
Preferred capital in consolidated joint venture	41,442			—
Total partners’ capital	362,867			314,230
Total liabilities and partners’ capital	$	2,104,658		$	2,144,280

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

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands, except for per unit data)



	2014			2013			2012
Revenues:
Hotel operating revenue	$	917,981		$	890,006		$	858,941
Other revenue	3,606			3,430			3,185
Total revenues	921,587			893,436			862,126
Expenses:
Hotel departmental expenses	331,876			327,081			316,099
Other property-related costs	238,170			238,115			231,929
Management and franchise fees	36,067			35,735			39,785
Taxes, insurance and lease expense	84,926			96,194			92,166
Corporate expenses	29,585			26,996			26,128
Depreciation and amortization	115,819			119,624			116,384
Impairment loss	—			24,441			—
Conversion expenses	—			1,134			31,197
Other expenses	17,952			8,749			4,626
Total operating expenses	854,395			878,069			858,314
Operating income	67,192			15,367			3,812
Interest expense, net	(90,695		)	(103,787		)	(121,552		)
Debt extinguishment	(4,770		)	—			(72,350		)
Gain on sale of investment in unconsolidated entities, net	30,176			—			—
Gain from remeasurement of unconsolidated entities, net	20,737			—			—
Other gains, net	100			41			—
Income (loss) before equity in income from unconsolidated entities	22,740			(88,379		)	(190,090		)
Equity in income from unconsolidated entities	5,010			4,586			2,779
Income (loss) from continuing operations	27,750			(83,793		)	(187,311		)
Income (loss) from discontinued operations	(360		)	18,010			57,897
Income (loss) before gain on sale of hotels	27,390			(65,783		)	(129,414		)
Gain on sale of hotels, net	66,762			—			—
Net income (loss)	94,152			(65,783		)	(129,414		)
Net loss (income) attributable to noncontrolling interests	(697		)	3,782			565
Preferred distributions - consolidated joint venture	(1,219		)	—			—
Net income (loss) attributable to FelCor LP	92,236			(62,001		)	(128,849		)
Preferred distributions	(38,712		)	(38,713		)	(38,713		)
Net income (loss) attributable to FelCor LP common unitholders	$	53,524		$	(100,714	)	$	(167,562	)
Basic and diluted per common unit data:
Income (loss) from continuing operations	$	0.43		$	(0.95	)	$	(1.81	)
Net income (loss)	$	0.43		$	(0.81	)	$	(1.35	)
Basic weighted average common units outstanding	124,772			124,437			124,262
Diluted weighted average common units outstanding	125,511			124,437			124,262

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

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	2014			2013			2012
Net income (loss)	$	94,152		$	(65,783	)	$	(129,414	)
Foreign currency translation adjustment	(490		)	(1,108		)	303
Reclassification of foreign currency translation to gain	(24,553		)	—			—
Comprehensive income (loss)	69,109			(66,891		)	(129,111		)
Comprehensive loss (income) attributable to noncontrolling interests	(697		)	3,782			565
Preferred distributions - consolidated joint venture	(1,219		)	—			—
Comprehensive income (loss) attributable to FelCor LP	$	67,193		$	(63,109	)	$	(128,546	)

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

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	Preferred Units			Common Units			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Preferred Capital in Consolidated Joint Venture			Comprehensive Income (Loss)			Total Partners’ Capital
Balance at December 31, 2011	$	478,774		$	56,916		$	25,848		$	25,357		$	—					$	586,895
FelCor restricted stock compensation	—			283			—			—			—						283
Contributions	—			—			—			3,616			—						3,616
Distributions	—			(38,713		)	—			(1,056		)	—						(39,769		)
Allocation to redeemable units	—			109			—			—			—						109
Other	—			(4		)	—			—			—						(4		)
Comprehensive loss:
Foreign exchange translation							303						$	—		$	303
Net loss				(128,849		)				(565		)	—			(129,414		)
Comprehensive loss																$	(129,111	)	(129,111		)
Balance at December 31, 2012	$	478,774		$	(110,258	)	$	26,151		$	27,352		—						$	422,019
FelCor restricted stock compensation	—			2,723			—			—			—						2,723
Contributions	—			—			—			3,990			—						3,990
Distributions	—			(41,215		)	—			(4,259		)	—						(45,474		)
Allocation to redeemable units	—			(2,137		)	—			—			—						(2,137		)
Comprehensive loss:
Foreign exchange translation							(1,108		)				$	—		$	(1,108	)
Net loss				(62,001		)				(3,782		)	—			(65,783		)
Comprehensive loss																$	(66,891	)	(66,891		)
Balance at December 31, 2013	$	478,774		$	(212,888	)	$	25,043		$	23,301		$	—					$	314,230
Conversion of preferred units into common units	(25		)	25			—			—			—						—
FelCor restricted stock compensation	—			1,202			—			—			—						1,202
Contributions	—			—			—			6,375			—						6,375
Distributions	—			(51,306		)	—			(9,596		)	(1,219		)				(62,121		)
Allocation to redeemable units	—			(1,520		)	—			—			—						(1,520		)
Acquisition of noncontrolling interest	—			(3,508		)	—			(2,342		)							(5,850		)
Issuance of preferred capital - consolidated joint venture	—			—			—			—			41,442						41,442
Comprehensive income:																			—
Foreign exchange translation							(490		)				$	—		$	(490	)
Reclassification of foreign currency translation to gain	—			—			(24,553		)	—			—			(24,553		)
Net income				92,236						697			1,219			94,152
Comprehensive income																$	69,109		69,109
Balance at December 31, 2014	$	478,749		$	(175,759	)	$	—		$	18,435		$	41,442					$	362,867

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

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2014, 2013 and 2012

(in thousands)



	2014			2013			2012
Cash flows from operating activities:
Net income (loss)	$	94,152		$	(65,783	)	$	(129,414	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	115,819			124,547			129,486
Gain on sale of hotels, net	(66,660		)	(19,441		)	(54,459		)
Gain on sale of investment in unconsolidated entities, net	(30,176		)	—			—
Gain from remeasurement of unconsolidated entities, net	(20,737		)	—			—
Other gains, net	(100		)	(107		)	—
Amortization of deferred financing fees and debt discount	9,558			11,082			18,053
Amortization of fixed stock and directors’ compensation	6,122			5,869			5,002
Equity based severance	—			1,051			—
Equity in income from unconsolidated entities	(5,010		)	(4,586		)	(2,779		)
Distributions of income from unconsolidated entities	4,128			4,440			4,160
Debt extinguishment	5,015			—			75,117
Impairment loss	—			28,795			1,335
Changes in assets and liabilities:
Accounts receivable	4,875			(10,858		)	1,253
Other assets	(6,975		)	(6,061		)	(5,029		)
Accrued expenses and other liabilities	(5,193		)	(487		)	4,584
Net cash flow provided by operating activities	104,818			68,461			47,309
Cash flows from investing activities:
Improvements and additions to hotels	(83,664		)	(101,357		)	(121,475		)
Hotel development	(86,565		)	(60,553		)	(24,849		)
Net proceeds from asset dispositions	163,618			98,820			197,613
Proceeds from unconsolidated joint venture transaction	4,032			—			—
Change in restricted cash	56,731			700			6,313
Insurance proceeds	521			238			—
Distributions from unconsolidated entities	12,828			9,784			13,539
Contributions to unconsolidated entities	(7		)	(1,500		)	—
Net cash flow provided by (used in) investing activities	67,494			(53,868		)	71,141
Cash flows from financing activities:
Proceeds from borrowings	473,062			164,000			998,611
Repayment of borrowings	(623,106		)	(136,902		)	(1,043,365		)
Payment of deferred financing costs	(3,215		)	(2,744		)	(17,870		)
Acquisition of noncontrolling interest	(5,850		)	—			—
Distributions paid to noncontrolling interests	(9,596		)	(4,259		)	(1,056		)
Contributions from noncontrolling interests	6,375			3,990			3,616
Distributions paid to FelCor LP limited partners	(42		)	—			—
Distributions paid to preferred unitholders	(38,712		)	(38,713		)	(106,461		)
Preferred distributions - consolidated joint venture	(1,102		)	—			—
Distributions paid to common unitholders	(9,981		)	—			—
Net proceeds from issuance of preferred capital - consolidated joint venture	41,442			—			—
Net cash flow used in financing activities	(170,725		)	(14,628		)	(166,525		)
Effect of exchange rate changes on cash	(85		)	(65		)	62
Net change in cash and cash equivalents	1,502			(100		)	(48,013		)
Cash and cash equivalents at beginning of periods	45,645			45,745			93,758
Cash and cash equivalents at end of periods	$	47,147		$	45,645		$	45,745

Supplemental cash flow information – interest paid, net of capitalized interest	$	86,734		$	84,839		$	116,789

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

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Organization

FelCor Lodging Trust Incorporated (NYSE:FCH), or FelCor, is a Maryland corporation operating as a real estate investment trust, or REIT. We are the sole general partner of, and the owner of a greater than 99.5% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, through which we held ownership interests in 48 hotels as of December 31, 2014, two of which were held for sale. At December 31, 2014, we had an aggregate of 125,216,536 shares and units outstanding, consisting of 124,605,074 shares of FelCor common stock and 611,462 units of FelCor LP units not owned by FelCor.

Of the 46 hotels not held for sale as of December 31, 2014, we owned a 100% interest in 43 hotels and 50% interests in entities owning three hotels. We consolidate our real estate interests in the 43 hotels in which we held majority interests, and we record the real estate interests of the three hotels in which we held 50% interests using the equity method. We lease 45 of our 46 hotels to our taxable REIT subsidiaries, of which we own a controlling interest. We operate one 50% owned hotel without a lease. Because we own controlling interests in these lessees, we consolidate our interests in these 45 hotels (which we refer to as our Consolidated Hotels) and reflect those hotels’ operating revenues and expenses in our statements of operations. Of our Consolidated Hotels, we own 50% of the real estate interests in each of two hotels (we account for the ownership in our real estate interests of these hotels by the equity method) and majority real estate interests in the remaining 43 hotels (we consolidate our real estate interest in these hotels).

The following table illustrates the distribution of our 45 Consolidated Hotels at December 31, 2014:



Brand	Hotels	Rooms
Embassy Suites Hotels	23	6,255
Wyndham and Wyndham Grand	8	2,528
Marriott and Renaissance	3	1,321
DoubleTree by Hilton and Hilton	3	802
Holiday Inn	3	1,256
Morgans and Royalton	2	285
Sheraton	2	673
Fairmont	1	383
Total	45	13,503

At December 31, 2014, our Consolidated Hotels were located in 17 states, with concentrations in California (11 hotels), Florida (seven hotels) and Texas (six hotels). In 2014, approximately 54% of our revenue was generated from hotels in these three states.

At December 31, 2014, of our 45 Consolidated Hotels (i) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 25 hotels, (ii) subsidiaries of Wyndham Hotel Group, or Wyndham, managed eight hotels, (iii) subsidiaries of Marriott International Inc., or Marriott, managed three hotels, (iv) subsidiaries of InterContinental Hotels Group, or IHG, managed three hotels, (v) subsidiaries of Starwood Hotels & Resorts Worldwide Inc., or Starwood, managed two hotels, (vi) a subsidiary of Fairmont Hotels & Resorts, or Fairmont, managed one hotel, (vii) a subsidiary of Morgans Hotel Group Corporation managed two hotels, and (viii) an independent management company managed one hotel.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Organization – (continued)

In addition to the above hotels, we own a 95% interest in a consolidated joint venture that owns the Knickerbocker Hotel, a former hotel and office building that is being redeveloped as a 4+ star hotel in midtown Manhattan. The Knickerbocker opened in February 2015.

Effective January 1, 2013, we accounted for our hotels managed by Marriott on a 12-month calendar year basis as compared to a fiscal year comprised of 52 or 53 weeks ending on the Friday closest to December 31, as reported in 2012 and prior years. Our 12-month periods ending December 31, 2014 and 2013 are reported on a calendar year basis for our Marriott-managed hotels, which is consistent with the reporting periods for our other managed hotels. However, our 12-month period ended December 31, 2012 includes the results of operations for the Marriott-managed hotels for the 52-week period ending on December 28, 2012. Results for the year ended December 31, 2012 have not been restated to reflect the reporting period transition as we do not believe the change in periods would result in a material difference for comparison of results year over year.


2.	Summary of Significant Accounting Policies

Principles of Consolidation — Our 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% owned ventures) are accounted for by the equity method. None of our less than wholly-owned subsidiaries are considered variable interest entities. We follow the voting interest model and consolidate entities in which we have greater than 50% ownership interest and report entities in which we have 50% or less ownership interest under 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 30 years for improvements and 3 to 10 years for furniture, fixtures, and equipment.

We capitalize certain inventory (such as china, glass, silver, linen) at the time of a hotel opening or acquisition, or when significant inventory is purchased (in conjunction with a major rooms renovation or when the number of rooms or meeting space at a hotel is expanded). These amounts are then amortized over the estimated useful life of three years. Subsequent replacement purchases are expensed when placed in service.

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 the 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.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.	Summary of Significant Accounting Policies — (continued)

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 — Investments in hotels are based on purchase price and allocated to land, property and equipment, identifiable intangible assets and assumed debt and other liabilities at fair value. Any remaining unallocated purchase price, if any, is treated as goodwill. Property and equipment are recorded at fair value based on current replacement cost for similar capacity and allocated to buildings, improvements, furniture, fixtures and equipment using appraisals and valuations prepared by management and/or independent third parties. Identifiable intangible assets (typically contracts including ground and retail leases and management and franchise agreements) are recorded at fair value, although no value is generally allocated to contracts which are at market terms. Above-market and below-market contract values are based on the present value of the difference between contractual amounts to be paid pursuant to the contracts acquired and our estimate of the fair value of contract rates for corresponding contracts measured over the period equal to the remaining non-cancelable term of the contract. Intangible assets are amortized using the straight-line method over the remaining non-cancelable term of the related agreements. In making estimates of fair values for purposes of allocating purchase price, we may utilize a number of sources such as those obtained in connection with the acquisition or financing of a property and other market data, including third-party appraisals and valuations.

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. 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, market capitalization rates and sales prices of comparable assets.

We track inception-to-date contributions, distributions and earnings for each of our unconsolidated investments. We determine the character of cash distributions from our unconsolidated investments for purposes of our consolidated statements of cash flows as follows:


•	Cash distributions up to the aggregate historical earnings of the unconsolidated entity are recorded as an operating activity (i.e., a distribution of earnings); and


•	Cash distributions in excess of aggregate historical earnings are recorded as an investing activity (i.e., a distribution of contributed capital).

Hotels Held for Sale — We consider each individual hotel to be an identifiable component of our business. We do not consider hotels held for sale until it is probable that the sale will be completed within 12 months.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.	Summary of Significant Accounting Policies — (continued)

We consider a sale to be probable within the next 12 months (for purposes of determining whether a hotel is held for sale) in the period the buyer completes its due diligence review of the asset, we have an executed contract for sale, and we have received a substantial non-refundable deposit. We test hotels held for sale for impairment each reporting period and record them at the lower of their carrying amounts or fair value less costs to sell. Once we designate a hotel as held for sale it is not depreciated. We had two hotels held for sale at December 31, 2014.

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 deposit cash at major banks. Our bank account balances may exceed the Federal Depository Insurance Limits; 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.

Deferred Expenses — Deferred expenses, consisting primarily of loan costs, are recorded at cost. Amortization is computed using a method that approximates the effective 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 — Nearly 100% 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 as earned. 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 is from condominium management fee income and other sources.

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. We have no loss contingencies or ongoing obligation associated with frequent guest programs beyond what is paid to the brand owner following a guest’s stay.

Foreign Currency Translation — Results of operations for our Canadian hotel were maintained in Canadian dollars and translated using the weighted average exchange rates during the period. Assets and liabilities were 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 $24.9 million as of December 31, 2013. In 2014, we sold our remaining Canadian hotel and recorded a $24.4 million gain from foreign currency translation (which we had previously recorded in accumulated other comprehensive income).

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.	Summary of Significant Accounting Policies — (continued)

Capitalized Costs — We capitalize interest and certain other costs, such as property taxes, land leases, property insurance and employee costs relating to hotels undergoing major renovations and redevelopments. In addition, these costs are being capitalized on our Knickerbocker hotel development. We begin capitalizing these costs when activities necessary to get the asset ready for its intended use are underway and cease capitalizing these costs to projects when construction is substantially complete. Such costs capitalized in 2014, 2013 and 2012, were $25.9 million, $23.6 million and $22.2 million, respectively.

Net Income (Loss) per Common Share/Unit — We treat unvested share (unit)-based payment awards containing non-forfeitable rights to dividends (distributions) or dividend equivalents (whether paid or unpaid) as participating securities for computation of earnings per share (unit) (pursuant to the two-class method, in accordance with the Accounting Standards Codification, or ASC, 260-10-45-59A through 45-70).

We compute basic earnings per share (unit) by dividing net income (loss) attributable to common stockholders (or unitholders) less dividends (distributions) declared on FelCor’s unvested restricted stock (adjusted for forfeiture assumptions) by the weighted average number of common shares (units) outstanding. We compute diluted earnings per share (unit) by dividing net income (loss) attributable to common stockholders less dividends (distributions) declared on FelCor’s unvested restricted stock (adjusted for forfeiture assumptions) by the weighted average number of common shares (units) and equivalents outstanding.

For all years presented, our Series A cumulative preferred stock (units), or Series A preferred stock (units), if converted to common shares (units), would be antidilutive; accordingly, we do not assume conversion of the Series A preferred stock (units) in the computation of diluted earnings per share (unit).

FelCor’s Stock Compensation — We account for stock-based employee compensation using the fair value based method of accounting. We classify share-based payment awards granted in exchange for employee services as either equity awards or liability awards. Equity classified awards are measured based on the fair value on the date of grant. Liability classified awards are remeasured to fair value each reporting period. Awards that are to be settled in cash (i.e. phantom stock) are classified as liability awards. The value of all our share-based awards, less estimated forfeitures, is recognized over the period during which an employee is required to provide services in exchange for the award – the requisite service period (usually the vesting period). No compensation cost is recognized for awards for which employees do not render the requisite services.

Derivatives — We recognize derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Additionally, the fair value adjustments will affect either equity 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 — We have determined that our business is conducted in one operating segment.

Distributions and Dividends — FelCor declared aggregate common dividends of $0.10 and $0.02 per share in 2014 and 2013, respectively. In July 2012, we paid $30.0 million of accrued unpaid preferred dividends in arrears, and the remaining $37.7 million in arrears was paid in October 2012. FelCor’s ability to make distributions depends on FelCor’s receipt of quarterly distributions from FelCor LP, and FelCor LP’s ability to make distributions is dependent upon the results of operations of our hotels.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies — (continued)

FelCor LP distributes funds to FelCor to pay common or preferred dividends. FelCor’s Board of Directors will determine the amount of any future common and preferred dividends based upon various factors including operating results, economic conditions, other operating trends, our financial condition and capital requirements, as well as minimum REIT distribution requirements.

Reacquired Stock — We account for FelCor’s purchase of capital stock under a method that is consistent with Maryland law (Maryland is FelCor’s domicile), which does not contemplate treasury stock. Any capital stock reacquired for any purpose is recorded as a reduction of common stock (at $0.01 par value per share) and an increase in accumulated deficit.

Noncontrolling Interests — Noncontrolling interests in other partnerships represent the proportionate share of the equity in other partnerships not owned by us. Noncontrolling interests in FelCor LP represents FelCor LP units not owned by FelCor. We allocate income and loss to noncontrolling interests in FelCor LP and other partnerships based on the weighted average percentage ownership throughout the year. FelCor characterizes minority interest in FelCor LP as noncontrolling interests, but because of the redemption feature of these units, FelCor includes them in the mezzanine section (between liabilities and equity) on its consolidated balance sheets. These units are redeemable at the option of the holders for a like number of shares of FelCor’s common stock or, at our option, the cash equivalent thereof. We adjust redeemable noncontrolling interests in FelCor LP (or redeemable units) each period to reflect the greater of its carrying value based on the accumulation of historical cost or its redemption value.

Income Taxes — FelCor has elected to be treated as a REIT under Sections 856 to 860 of the Internal Revenue Code and, as such, is not subject to federal income tax, provided that it distributes all of its taxable income annually to its stockholders and complies with certain other requirements. FelCor LP is treated as a partnership for federal income tax purposes and, as such, is not subject to federal income taxes. However, both FelCor and FelCor LP may be subject to state, local and foreign income and franchise taxes in certain jurisdictions. We generally lease our hotels to wholly-owned taxable REIT subsidiaries, or TRSs, that are subject to federal, state and foreign 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 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. A valuation allowance is recorded for net deferred tax assets that are not expected to be realized.

We 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. We apply this policy to all tax positions related to income taxes.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.	Investment in Hotels

Investment in hotels consisted of the following (in thousands):



	December 31,
	2014			2013
Building and improvements	$	1,764,871		$	1,833,165
Furniture, fixtures and equipment	431,851			482,628
Land	232,141			234,447
Construction in progress	21,615			32,828
	2,450,478			2,583,068
Accumulated depreciation - Building and improvements	(661,758		)	(698,146		)
Accumulated depreciation - Furniture, fixtures and equipment	(188,929		)	(231,655		)
	$	1,599,791		$	1,653,267

In 2014, we retired fully depreciated furniture, fixtures and equipment aggregating approximately $68.9 million.

We invested $83.7 million and $101.4 million in additions and improvements to our consolidated hotels during the years ended December 31, 2014 and 2013, respectively.

4. Consolidated Joint Venture Preferred Equity/Capital

We are redeveloping the Knickerbocker Hotel through a joint venture in which we own a 95% equity interest. The joint venture raised $45 million through the sale of 3.5% preferred equity/capital under the EB-5 immigrant investor program. The purchasers receive a 3.25% current annual return, plus a 0.25% non-compounding annual return paid at redemption. Our joint venture may, at its option, redeem this preferred equity interest. If it is not redeemed within five years, the current annual return increases to 8%. The venture received $42.0 million in gross proceeds ($41.4 million net of issuance costs) during 2014 and $1.1 million was received subsequent to December 31, 2014. The remaining $1.9 million will be received as investors’ visas are approved. We used our 95% share of the proceeds to repay funds borrowed under our line of credit.


5.	Impairment Charges

Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider our hotels to be components for purposes of determining impairment charges and reporting discontinued operations.

We test for impairment whenever changes in circumstances indicate a hotel’s carrying value may not be recoverable. We conduct the test using undiscounted cash flows for the shorter of the hotel’s estimated hold period or its remaining useful life. When testing for recoverability of hotels held for investment, we use projected cash flows over its expected hold period. Those hotels held for investment that fail the impairment test are written down to their then current estimated fair value, before any selling expense, and we continue to depreciate the hotels over their remaining useful lives.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.	Impairment Charges— (continued)

As part of our long-term strategic plan to enhance stockholder value and achieve or exceed targeted returns on invested capital, we sell and acquire hotels to improve our overall portfolio quality, enhance diversification and improve growth rates. In that regard, we regularly review each hotel in our portfolio in terms of projected performances, future capital expenditure requirements and market dynamics and concentration risk. Based on this analysis, we developed a plan to sell our interests in certain hotels (some of which are owned by unconsolidated joint ventures) that no longer meet our investment criteria. As a consequence, we shortened our estimated hold periods for these hotels, and we tested the consolidated hotels for impairment when they were approved as non-strategic hotels. When the hotels owned by unconsolidated joint ventures are designated by those ventures as non-strategic, the joint ventures will test for impairment based on the reduced estimated hold periods.

In 2013, we recorded a $28.8 million impairment charge ($24.4 million related to two hotels included in continuing operations and $4.4 million related to two hotels included in discontinued operations).

The $4.4 million impairment charge was primarily based on third-party offers to purchase (a Level 2 input under authoritative guidance for fair value measurements) at prices below our previously estimated fair market values for those properties. These are hotels we had identified as sale candidates in prior years, reducing their estimated hold period at that time.

The $24.4 million impairment charge related to two hotels identified as no longer meeting our investment criteria, thereby significantly reducing their respective estimated hold periods, resulting in impairments on both hotels. Impairment charges related to these two hotels were determined using Level 3 inputs, as follows:


•	with respect to one hotel, we used a discounted cash flow analysis with an estimated stabilized growth rate of 3.0%, a discounted cash flow term of five years, a terminal capitalization rate of 8.0%, and a discount rate of 10.0%; and


•	with respect to the other hotel, we used information based on EBITDA multiples ranging from 10 to 12 times.

In 2012, we recorded a $1.3 million impairment charge related to one hotel included in discontinued operations. The impairment charge related to this hotel was based on a third-party offer to purchase (a Level 2 input under authoritative guidance for fair value measurements) at a price below our previously estimated fair market value.

We may record additional impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and lodging industry weakens, or we shorten our contemplated holding period for additional hotels.

6. Conversion Expenses

In March 2013, we converted eight hotels to Wyndham brands and management. The expenses incurred related to converting these hotels were classified as conversion expenses in the accompanying statements of operations. Expenses for the year ended December 31, 2012 included $30.7 million of accrued IHG termination fees, which were paid in the first quarter of 2013, while $1.1 million was incurred in 2013 for additional costs related to the conversion to the Wyndham brand.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.	Hotel Dispositions

Effective January 1, 2014, we adopted the provisions of Accounting Standards Update No. 2014-08 (the Update), under which the disposal of components of an entity are reported as discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. These new provisions are applied prospectively only, and, as such, hotels that were considered discontinued operations for the year ended December 31, 2013 and prior continue to be reported as discontinued operations in all periods presented.

During the year ended December 31, 2014, we sold eight hotels, one of which was previously held for sale at December 31, 2013, and disposed of five unconsolidated hotels when we unwound our joint ventures as discussed in Note 8. At December 31, 2014, we had two hotels held for sale, both of which have subsequently sold. We designate a hotel as held for sale when the sale is probable within the next 12 months. We consider a sale to be probable when a buyer completes its due diligence review, we have an executed contract for sale, and we have received a substantial non-refundable deposit. We included operations for 14 of the hotels (seven hotels sold not previously held for sale, five hotels disposed when we unwound certain joint ventures, and two hotels held for sale at December 31, 2014) in income (loss) from continuing operations as shown in the statements of operations for the years ended December 31, 2014, 2013 and 2012, as disposition of these hotels does not represent a strategic shift in our business.

The following table includes condensed financial information primarily from these 14 hotels (in thousands):



	Year Ended December 31,
	2014			2013			2012
Hotel operating revenue	$	99,084		$	146,519		$	142,108
Operating expenses ^(a)	(95,233		)	(169,160		)	(142,036		)
Operating income (loss)	3,851			(22,641		)	72
Interest expense, net	(1,488		)	(2,788		)	(3,074		)
Debt extinguishment	(920		)	—			(181		)
Gain on sale of investment in unconsolidated entities, net	30,176			—			—
Other gains, net	—			41			—
Equity in income from unconsolidated entities	1,513			1,491			524
Income (loss) from continuing operations	33,132			(23,897		)	(2,659		)
Gain on sale of hotels, net^(b)	66,762			—			—
Net income (loss)	99,894			(23,897		)	(2,659		)
Net loss (income) attributable to noncontrolling interests in other partnerships	(1,464		)	3,830			(83		)
Net loss (income) attributable to redeemable noncontrolling interests in FelCor LP	(355		)	98			14
Net income (loss) attributable to FelCor	$	98,075		$	(19,969	)	$	(2,728	)


(a)	Operating expenses include impairment charges of $24.4 million for the year ended December 31, 2013.


(b)	Includes a $24.4 million gain from foreign currency translation (which we had previously recorded in accumulated other comprehensive income) when we sold our remaining Canadian hotel in the third quarter of 2014, which substantially liquidated all of our foreign investments.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.	Hotel Dispositions — (continued)

Discontinued operations include the results of operations for one hotel sold in 2014 (which was held for sale at December 31, 2013, five hotels sold in 2013, and ten hotels sold in 2012. The following table summarizes the condensed financial information for those hotels (in thousands):



	Year Ended December 31,
	2014			2013			2012
Hotel operating revenue	$	730		$	33,849		$	107,637
Operating expenses^(a)	(677		)	(34,553		)	(95,600		)
Operating income (loss) from discontinued operations	53			(704		)	12,037
Interest expense, net	(66		)	(793		)	(5,832		)
Debt extinguishment	(245		)	—			(2,767		)
Gain on involuntary conversion	—			66			—
Gain (loss) on sale, net	(102		)	19,441			54,459
Income (loss) from discontinued operations	$	(360	)	$	18,010		$	57,897


(a)	Operating expenses in discontinued operations include impairment charges of $4.4 million and $1.3 million for the years ended December 31, 2013 and 2012, respectively.

8. Joint Venture Transaction

In July 2014, we unwound unconsolidated joint ventures in which we held 50% interests that collectively owned 10 hotels. As a consequence, we now own 100% of five of those hotels and none of the other five hotels. We also now own 100% of an additional hotel of which we owned 90% prior to the unwinding of the joint ventures. We paid $2.2 million to our joint venture partner to equalize the aggregate value of assets each party received as the joint ventures were unwound. This payment was the net of $5.9 million paid for our partner’s 10% interest in the one hotel and $3.7 million received for the difference in values of the five hotels now wholly-owned by us compared to the five hotels in which we no longer have any ownership.

Our joint ventures had an outstanding loan that was secured by eight of these hotels and was bifurcated when the joint ventures were unwound. That loan bears interest at one-month LIBOR plus 3%, matures in March 2017 and is freely pre-payable in whole or in part. We are now only liable for our $64 million share of the bifurcated non-recourse loan, which is secured by mortgages on four of the five former joint venture hotels that we now wholly-own.

As a result of these transactions, we have recorded the following in 2014:


•	A $20.7 million gain on the remeasurement of the fair value of the five previously unconsolidated hotels, which we now wholly-own;


•	A $30.2 million gain on the disposition of our unconsolidated interests in the five other hotels (net of $457,000 in transaction costs); and


•	A $3.5 million reduction in Additional Paid-In Capital related to acquiring the 10% noncontrolling interest of another hotel, which we now wholly-own.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Joint Venture Transaction — (continued)

In addition to the foregoing, we increased our ownership interest in the operating entities of all six hotels in conjunction with unwinding the joint ventures. Prior to the transaction, we had 51% controlling interests in 10 of the hotel lessees that operated the joint ventures’ 10 hotels and a 90% controlling interest in the hotel lessee that operated the eleventh hotel. After unwinding the joint ventures, we no longer have any interest in five lessees and own 100% in the lessees of the six hotels we now own outright. When we unwound the joint ventures, we liquidated the lessees’ assets and liabilities to cash, which was then distributed to the partners based on their ownership interests just prior to unwinding the joint ventures. Consequently, we recorded no gains or losses when changing ownership of the lessees.

The following table summarizes the fair values of assets acquired and liabilities assumed where we obtained control of a previously unconsolidated entity (i.e., a business combination) through this, primarily non-cash, transaction (in thousands):



Assets
Investment in hotels	$	130,100
Other assets	1,300
Deferred expenses	259
Total assets acquired	$	131,659

Liabilities
Debt	$	64,000
Net assets acquired	$	67,659

The value of the assets acquired was primarily based on a sales comparison approach (for land) and a depreciated replacement cost approach (for buildings and furniture, fixtures, and equipment). The sales comparison approach used inputs of recent land sales in the respective hotel markets. The depreciated replacement cost approach used inputs of both direct and indirect replacement costs using a nationally recognized authority on replacement cost information as well as the age and the square footage of the respective buildings. The fair value of the debt was based on the estimated principal amount of debt having the same debt service requirements that could have been borrowed on the transaction date, at then current market interest rates.

The non-cash transaction also resulted in a $19.9 million reduction in our investment in unconsolidated entities.

The following unaudited consolidated pro forma results of operations for the years ended December 31, 2014 and 2013 assumes the joint venture transactions (the business combination, the disposition of unconsolidated interests, the acquisition of a 10% interest in one hotel, and the change in lessee ownership percentages) occurred on January 1, 2013 (in thousands, except per share data). The unaudited consolidated pro forma results of operations are not necessarily indicative of the results of operations if the transactions had been completed on the assumed date.



	Year Ended December 31,
	2014		2013
Net income (loss)	$	94,869	$	(65,670	)
Income (loss) per share/unit - basic	$	0.43	$	(0.82	)
Income (loss) per share/unit - diluted	$	0.43	$	(0.82	)

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.	Investment in Unconsolidated Entities

At December 31, 2014 and 2013, we owned 50% interests in joint ventures that owned three hotels and 13 hotels, respectively. This decrease in hotels owned by our unconsolidated joint ventures reflects unwinding certain of our joint ventures in July 2014 as described in Note 8. We also own 50% interests in entities that own real estate in Myrtle Beach, South Carolina and provide condominium management services there. We account for our investments in these unconsolidated entities under the equity method. We 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.

The following table summarizes combined balance sheet information for our unconsolidated entities (in thousands):



	December 31,
	2014		2013
Investment in hotels, net of accumulated depreciation	$	30,288	$	140,145
Total assets	$	45,374	$	155,848
Debt	$	34,192	$	146,358
Total liabilities	$	36,974	$	152,068
Equity	$	8,400	$	3,780

Our unconsolidated entities’ debt at December 31, 2014 and 2013 consisted entirely of non-recourse mortgage debt. In September, one of our other unconsolidated joint ventures refinanced its debt with a new $23.5 million loan maturing in October 2024.

The following table sets forth summarized combined statement of operations information for our unconsolidated entities (in thousands):



	Year Ended December 31,
	2014			2013			2012
Total revenues	$	59,453		$	70,697		$	67,725
Net income	$	12,561		$	12,892		$	9,278
Net income attributable to FelCor	$	6,281		$	6,446		$	4,639
Depreciation of cost in excess of book value	(1,271		)	(1,860		)	(1,860		)
Equity in income from unconsolidated entities	$	5,010		$	4,586		$	2,779

The following table summarizes the components of our investment in unconsolidated entities (in thousands):



	December 31,
	2014			2013
Hotel-related investments	$	(3,265	)	$	(6,349	)
Cost in excess of book value of hotel investments	10,895			45,053
Land and condominium investments	7,465			8,239
	$	15,095		$	46,943

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.	Investment in Unconsolidated Entities (continued)

The following table summarizes the components of our equity in income from unconsolidated entities (in thousands):



	Year Ended December 31,
	2014			2013			2012
Hotel investments	$	5,784		$	5,270		$	3,434
Other investments	(774		)	(684		)	(655		)
Equity in income from unconsolidated entities	$	5,010		$	4,586		$	2,779


10.	Debt

Consolidated debt consisted of the following (in thousands):



	Encumbered	Interest	Maturity	December 31,
	Hotels	Rate (%)	Date	2014		2013
Line of credit	8	LIBOR + 3.375	June 2016^(a)	$	111,500	$	88,000
Term loan	3	LIBOR + 2.50	July 2017^(b)	140,000		—
Mortgage debt	4	LIBOR + 3.00	March 2017	64,000		—
Mortgage debt^(c)	4	4.95	October 2022	124,278		126,220
Mortgage debt	1	4.94	October 2022	31,228		31,714
Senior secured notes	6	6.75	June 2019	525,000		525,000
Senior secured notes	9	5.625	March 2023	525,000		525,000
Knickerbocker loan^(d)
Construction tranche	—	LIBOR + 4.00	May 2016	58,562		—
Cash collateralized tranche	—	LIBOR + 1.25	May 2016	6,299		64,861
Retired debt	—	—	—	—		302,431
Total	35			$	1,585,867	$	1,663,226


(a)	Our $225 million line of credit can be extended for one year (to 2017), subject to satisfying certain conditions.


(b)	This debt can be extended up to two years, subject to satisfying certain conditions.


(c)	This debt is comprised of separate non-cross-collateralized loans each secured by a mortgage of a different hotel.

(d)

In November 2012, we obtained an $85.0 million construction loan to finance the redevelopment of the Knickerbocker Hotel. This loan can be extended for one year year subject to satisfying certain conditions. In 2014, we drew $58.6 million of the cash collateral to fund construction costs, leaving $6.3 million of cash collateral to be drawn before drawing on the remaining $20.1 million available under the construction loan.

In January 2014, we repaid a $10.9 million secured loan, otherwise maturing in July 2014, when we sold a hotel. In March 2014, we repaid a $17.1 million loan, secured by a hotel, otherwise maturing in June 2014. We incurred $251,000 of debt extinguishment costs in connection with repaying these loans.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Debt — (continued)

In April 2014, we repaid two loans totaling $15.6 million, each secured by a hotel, otherwise maturing in July 2014. In May 2014, we repaid an additional $19.2 million loan, secured by a hotel, otherwise maturing in August 2014.

In July 2014, we obtained a $140 million term loan secured by three hotels. The loan bears interest at LIBOR (no floor) plus 2.5%. The loan matures in 2017 (it may be extended for up to two years, subject to satisfying certain conditions) and is freely pre-payable. We will use proceeds from pending and future asset sales to repay this loan and borrowings under our line of credit.

In August 2014, we used proceeds from the July 2014 term loan, cash on hand and borrowings under our line of credit to repay the remaining $234 million of our 10% senior secured notes. These notes, which would have matured October 2014, were secured by 11 properties. We incurred $3.8 million of debt extinguishment costs in connection with repaying these notes. All cash paid to satisfy the extinguishment of the senior secured notes is classified as a financing activity in the statements of cash flows.

In September 2014, we repaid a $9.6 million secured loan, otherwise maturing in July 2016, when we sold a hotel. We incurred $914,000 of debt extinguishment costs in connection with repaying this loan.

In September 2012, we closed five non-recourse mortgage loans that provided $160.8 million in aggregate gross proceeds. The 10‑year loans mature in 2022, bear an average fixed interest rate of 4.95% and are neither cross-collateralized nor cross-defaulting. A portion of the proceeds from the new loans was used to repay a 9.02% mortgage loan, of which $107 million was outstanding, that would have otherwise matured in 2014. The repaid loan was secured by a pool of seven hotels, including four of the five hotels mortgaged to support the new loans. Also in September 2012, we repaid the remaining $60 million balance of a mortgage loan using excess proceeds from the new loans, as well as asset sale proceeds. This repaid loan, which would have otherwise matured in 2013, was secured by five properties, of which three became unencumbered (two of which were non-strategic). The repayments resulted in $11.6 million in debt extinguishment costs, primarily prepayment penalties.

In December 2012, we issued $525.0 million aggregate principal amount of 5.625% senior secured notes due 2023, significantly reducing our cost of borrowing. We used the proceeds to redeem $258.0 million in aggregate face amount of 10% senior notes due 2014 and repay a $186.5 million mortgage loan that bore interest at 8.1% with the remaining proceeds used to repay a portion of the balance on our outstanding line of credit and to pay prepayment costs and other expenses. We incurred $62.1 million of debt extinguishment charges related to these transactions for prepayment premiums, and the write-off of a pro rata portion of the related debt discount on the senior notes and deferred loan costs.

In December 2012, we amended and restated our $225.0 million secured line of credit facility. The facility now matures in June 2017 (extended from August 2015), inclusive of a one-year extension option, subject to satisfaction of certain conditions. Borrowings under the facility bear interest at LIBOR (no floor) plus 3.375% (reduced from LIBOR plus 4.5%). The unused commitment fee decreased 10 basis points to 40 basis points. As of December 31, 2014, the facility is secured by mortgages and related security interests on eight hotels.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.	Debt – (continued)

Our senior notes, which are guaranteed by FelCor, require that we satisfy total leverage, secured leverage and interest coverage tests in order to: (i) incur additional indebtedness, except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to qualify as a REIT; (iii) repurchase capital stock; or (iv) merge. We currently exceed all minimum thresholds. In addition, our senior notes are secured by a combination of first lien mortgages and related security interests on 15 hotels (six hotels for our 6.75% senior notes and nine hotels for our 5.625% senior notes), as well as pledges of equity interests in certain subsidiaries of FelCor LP.

At December 31, 2014, we had consolidated secured debt totaling $1.6 billion, encumbering 35 of our consolidated hotels with a $1.4 billion aggregate net book value. Except in the case of our senior notes, our mortgage debt is generally recourse solely to the specific assets securing the debt. However, a violation of any of the recourse carve-out provisions, including fraud, misapplication of funds and other customary recourse carve-out provisions, could cause this debt to become fully recourse to us. Much of our hotel mortgage debt allows us to substitute collateral under certain conditions and is prepayable subject (in some instances) to various prepayment, yield maintenance or defeasance obligations.

Most of our secured debt (other than our senior notes and line of credit) includes lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our budgeted hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves, even if revenues are flowing through a lock-box triggered by a specified debt service coverage ratio not being met. All of our consolidated hotels subject to lock-box provisions currently exceed the applicable minimum debt service coverage ratios.

We reported $90.7 million, $103.8 million, and $121.6 million of interest expense for the years ended December 31, 2014, 2013, and 2012, respectively, which is net of: (i) interest income of $48,000, $78,000, and $138,000, and (ii) capitalized interest of $16.3 million, $12.8 million, and $12.9 million, respectively.

To fulfill requirements under one of our loans, we entered into an interest rate cap agreement with an aggregate notional amount of $140 million at December 31, 2014. This interest rate cap was not designated as a hedge and had an insignificant fair value at December 31, 2014, resulting in no significant impact on earnings. We did not have any interest rate caps outstanding as of December 31, 2013.

Future scheduled principal payments on debt obligations at December 31, 2014 are as follows (in thousands):



Year
2015	$	2,466
2016	179,013
2017	206,810
2018	2,954
2019	528,106
Thereafter	666,518
	$	1,585,867

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Fair Value of Financial Instruments

Our estimates of the fair value of (i) cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) our publicly-traded debt is based on observable market data (a Level 2 input) and has an estimated fair value of $1.1 billion and $1.3 billion at December 31, 2014 and 2013, respectively; and (iii) our debt that is not publicly-traded is based on a discounted cash flow model using effective borrowing rates for debt with similar terms, loan to estimated fair value of collateral and remaining maturities (a Level 3 input) and has an estimated fair value of $548.2 million and $390.1 million at December 31, 2014 and 2013, respectively. The estimated fair value of all our debt was $1.6 billion and $1.7 billion at December 31, 2014 and 2013, respectively.

Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 2014. 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. Different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.


12.	Income Taxes

FelCor LP is a partnership for federal income tax purposes, and is not subject to federal income tax. However, under its partnership agreement, it is required to reimburse FelCor for any tax payments they are required to make. Accordingly, the tax information herein represents disclosures regarding FelCor and its taxable subsidiaries.

FelCor elected to be treated as a REIT under the federal income tax laws. 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 and to federal income and excise taxes on its undistributed taxable income. FelCor’s taxable REIT subsidiaries, or TRSs, formed to lease its hotels are subject to federal, state and local income taxes. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income to its stockholders. If FelCor fails to qualify as a REIT in any taxable year for which the statute of limitations remains open, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) for such taxable year and may not qualify as a REIT for four subsequent years. In connection with FelCor’s election to be treated as a REIT, its charter imposes restrictions on the ownership and transfer of shares of its common stock. FelCor LP expects to make distributions on its units sufficient to enable FelCor to meet its distribution obligations as a REIT.

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.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Income Taxes — (continued)

The following table reconciles our TRSs’ GAAP net income (loss) to taxable income (in thousands):



	Year Ended December 31,
	2014			2013			2012
GAAP consolidated net income (loss) attributable to FelCor LP	$	92,236		$	(62,001	)	$	(128,849	)
Loss (income) allocated to FelCor LP unitholders	(137		)	497			842
GAAP consolidated net income (loss) attributable to FelCor	92,099			(61,504		)	(128,007		)
GAAP net loss (income) from REIT operations	(68,796		)	62,513			125,088
GAAP net income (loss) of taxable subsidiaries	23,303			1,009			(2,919		)
Taxes related to joint venture transaction	5,761			—			—
Gain/loss differences from dispositions	—			—			(407		)
Depreciation and amortization^(a)	(461		)	1,646			404
Employee benefits not deductible for tax	(101		)	3,914			363
Management fee recognition	(1,151		)	(1,245		)	(1,715		)
Cancellation of debt	(3,188		)	—			—
Foreign exchange	—			—			12,907
Capitalized TRS start-up costs	11,859			4,981			—
Other book/tax differences	181			2,754			4,884
Tax income of taxable subsidiaries before utilization of net operating losses	36,203			13,059			13,517
Utilization of net operating loss	(36,203		)	(13,059		)	(13,517		)
Net tax income of taxable subsidiaries	$	—		$	—		$	—


(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.

Our TRSs had a deferred tax asset, on which we had a 100% valuation allowance, primarily comprised of the following (in thousands):



	December 31,
	2014			2013
Accumulated net operating losses of TRSs	$	107,027		$	119,355
Tax property basis in excess of book	952			1,017
Accrued employee benefits not deductible for tax	3,883			3,477
Management fee recognition	81			464
Foreign exchange	—			4,905
Capitalized TRS start-up costs	6,399			1,893
Other	1,261			701
Gross deferred tax asset	119,603			131,812
Valuation allowance	(119,603		)	(131,812		)
Deferred tax asset after valuation allowance	$	—		$	—

We have provided a valuation allowance against our deferred tax asset, that results in no net deferred tax asset at December 31, 2014 and 2013. We recorded a 100% valuation allowance related to our TRSs net deferred tax asset because we believe it is more likely than not that the deferred tax asset will not be fully realized. The realization of the deferred tax assets associated with our net operating losses is dependent on projections of future taxable income, for which there is uncertainty when considering our historic results and cyclical nature of the lodging industry. Accordingly, no provision or benefit for income taxes is reflected in the accompanying consolidated statements of operations. At December 31, 2014, our TRSs had net operating loss carryforwards for federal income tax purposes of $278.0 million, which are available to offset future taxable income, if any, and do not begin to expire until 2023.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Income Taxes — (continued)

The following table reconciles REIT GAAP net income (loss) to taxable loss (in thousands):



	Year Ended December 31,
	2014			2013			2012
GAAP net income (loss) from REIT operations	$	68,796		$	(62,513	)	$	(125,088	)
Book/tax differences, net:
Depreciation and amortization^(a)	1,831			2,173			2,084
Noncontrolling interests	329			(4,017		)	4,112
Gain/loss differences from dispositions	(99,946		)	(2,032		)	(30,747		)
Impairment loss not deductible for tax	—			28,795			1,335
Conversion costs	(3,233		)	(2,099		)	31,197
Other	(1,674		)	8,453			(9,226		)
Tax loss^(b)	$	(33,897	)	$	(31,240	)	$	(126,333	)


(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% of any taxable income (net of capital gains).

At December 31, 2014, FelCor had net operating loss carryforwards for federal income tax purposes of $534.8 million, which it expects to use to offset future distribution requirements.

For income tax purposes, dividends paid consist of ordinary income, capital gains, return of capital or a combination thereof. Dividends paid per share were characterized as follows:



	2014				2013				2012
	Amount			%	Amount			%	Amount			%
Preferred Stock – Series A
Dividend income	$	—		—	$	—		—	$	—		—
Return of capital	1.95		^(c)	100.00	1.95		^(b)	100.00	5.3625		^(a)	100.00
	$	1.95		100.00	$	1.95		100.00	$	5.3625		100.00
Preferred Stock – Series C
Dividend income	$	—		—	$	—		—	$	—		—
Return of capital	2.00		^(c)	100.00	2.00		^(b)	100.00	5.50		^(a)	100.00
	$	2.00		100.00	$	2.00		100.00	$	5.50		100.00
Common Stock
Dividend income	$	—		—	$	—		—	$	—		—
Return of capital	0.08		^(c)	100.00	—			—	—			—
	$	0.08		100.00	$	—		—	$	—		—


(a)	Fourth quarter 2011 preferred dividends were paid January 31, 2012, and were treated as 2012 distributions for tax purposes.


(b)	Fourth quarter 2012 preferred dividends were paid January 31, 2013, and were treated as 2013 distributions for tax purposes.


(c)	Fourth quarter 2013 preferred and common dividends were paid January 30, 2014, and were treated as 2014 distributions for tax purposes.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. FelCor Capital Stock/FelCor LP Partners' Capital

FelCor, as FelCor LP’s general partner, is obligated to contribute the net proceeds from any issuance of its equity securities to FelCor LP in exchange for units, corresponding in number and terms to the equity securities issued.

Preferred Stock/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.

Our Series A preferred stock (units) bears an annual cumulative dividend (distribution) payable in arrears equal to the greater of $1.95 per share (unit) or the cash distributions declared or paid for the corresponding period on the number of shares of common stock (units) into which the Series A preferred stock (units) is then convertible. Each share (unit) of the Series A preferred stock (units) is convertible at the holder’s option to 0.7752 shares of common stock (units), subject to certain adjustments.

Our 8% Series C Cumulative Redeemable preferred stock (units), or Series C preferred stock (units), bears an annual cumulative dividend (distribution) of 8% of the liquidation preference (equivalent to $2.00 per depositary share (unit)). We may call the Series C preferred stock (units) and the corresponding depositary shares (units) at $25 per depositary share (unit). These shares (units) have no stated maturity, sinking fund or mandatory redemption, and are not convertible into any of our other securities. The Series C preferred stock (units) has a liquidation preference of $2,500 per share (unit) (equivalent to $25 per depositary share, or unit).

14. Redeemable Noncontrolling Interests in FelCor LP/Redeemable Units

FelCor LP may issue limited partnership units to third parties in exchange for cash or property. We record these redeemable noncontrolling interests in FelCor LP, in the case of FelCor, and redeemable units, in the case of FelCor LP, in the mezzanine section (between liabilities and equity or partners’ capital) of our consolidated balance sheets because of the redemption feature of these units. Additionally, FelCor’s consolidated statements of operations separately present earnings attributable to redeemable noncontrolling interests. We adjust redeemable noncontrolling interests in FelCor LP (or redeemable units) each period to reflect the greater of its carrying value based on the accumulation of historical cost or its redemption value. The historical cost is based on the proportionate relationship between the carrying value of equity associated with FelCor’s common stockholders relative to that of FelCor LP’s unitholders. Redemption value is based on the closing price of FelCor’s common stock at period end. FelCor allocates net income (loss) to FelCor LP’s noncontrolling partners based on their weighted average ownership percentage during the period.

At December 31, 2014, we had 611,462 limited partnership units outstanding carried at $6.6 million. The value of these outstanding units is based on the closing price of FelCor’s common stock at December 31, 2014 ($10.82/share).

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Redeemable Noncontrolling Interests in FelCor LP/Redeemable Units - (continued)

Changes in redeemable noncontrolling interests (or redeemable units) are shown below (in thousands):



	Year Ended December 31,
	2014			2013
Balance at beginning of period	$	5,039		$	2,902
Conversion of units	(56		)	(23		)
Redemption value allocation	1,545			2,663
Distributions paid to unitholders	(48		)	—
Comprehensive income (loss):
Foreign exchange translation	(1		)	(6		)
Net income (loss)	137			(497		)
Balance at end of period	$	6,616		$	5,039

15. Hotel Operating Revenue, Departmental Expenses and Other Property Related Operating Costs

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



	Year Ended December 31,
	2014		2013		2012
Room revenue	$	713,213	$	692,016	$	667,708
Food and beverage revenue	157,607		151,233		142,962
Other operating departments	47,161		46,757		48,271
Total hotel operating revenue	$	917,981	$	890,006	$	858,941

Nearly 100% of our revenue in all periods presented 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 condominium management fee income and other sources.

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



	Year Ended December 31,
	2014		2013		2012
Room	$	188,465	$	184,840	$	179,602
Food and beverage	121,201		120,287		114,815
Other operating departments	22,210		21,954		21,682
Total hotel departmental expenses	$	331,876	$	327,081	$	316,099

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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



	Year Ended December 31,
	2014		2013		2012
Hotel general and administrative expense	$	79,420	$	80,715	$	78,280
Marketing	77,939		74,770		72,342
Repair and maintenance	43,886		45,057		44,319
Utilities	36,925		37,573		36,988
Total other property operating costs	$	238,170	$	238,115	$	231,929

In March 2013, we rebranded and transitioned management at eight hotels located in strategic markets to Wyndham brands. Wyndham's parent guaranteed a minimum level of net operating income for each year of the initial 10-year term, subject to an aggregate $100 million limit over the term (of which we have received or accrued $9.3 million to date) and an annual $21.5 million limit. Amounts recorded under the guaranty are accounted for, to the extent available, as a reduction in contractual management and other fees paid and payable to Wyndham. Any amounts in excess of those fees will be recorded as revenue when earned. For the year ended December 31, 2014, and for March through December 2013 (the first ten months during which Wyndham managed the hotels for FelCor), we have recorded $1.3 million and $8 million, respectively, for the guaranty as a reduction of Wyndham's contractual management and other fees.


16.	Taxes, Insurance and Lease Expenses

Taxes, insurance and lease expenses from continuing operations were comprised of the following

(in thousands):



	Year Ended December 31,
	2014		2013		2012
Hotel lease expense^(a)	$	31,635	$	44,087	$	41,342
Land lease expense^(b)	12,338		11,062		11,158
Real estate and other taxes	31,773		30,977		29,974
Property insurance, general liability insurance and other	9,180		10,068		9,692
Total taxes, insurance and lease expense	$	84,926	$	96,194	$	92,166

(a)

Hotel lease expense is recorded by the consolidated operating lessees of hotels owned by unconsolidated entities, and is partially (generally 49%) offset through noncontrolling interests in other partnerships. Our 50% share of the corresponding lease income is recorded through equity in income from unconsolidated entities. Hotel lease expense includes percentage rent of $17.3 million, $22.2 million and $19.6 million for the year ended December 31, 2014, 2013, and 2012, respectively.


(b)	Land lease expense includes percentage rent of $6.4 million, $5.4 million and $5.5 million for the year ended December 31, 2014, 2013, and 2012, respectively.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Land Leases and Hotel Rent

We lease land occupied by certain hotels from third parties under various operating leases that expire through 2090. Certain land leases contain contingent rent features based on gross revenue at the respective hotels. In addition, we recognize rent expense for two hotels that are owned by unconsolidated entities and are leased to our consolidated lessees. These leases 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, 2014, were as follows (in thousands):



Year
2015	$	10,953
2016	10,208
2017	6,554
2018	6,220
2019	5,846
2020 and thereafter	281,190
	$	320,971

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Income (Loss) Per Share/Unit

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

FelCor Income (Loss) Per Share



	Year Ended December 31,
	2014			2013			2012
Numerator:
Net income (loss) attributable to FelCor	$	92,099		$	(61,504	)	$	(128,007	)
Discontinued operations attributable to FelCor	359			(16,963		)	(57,515		)
Income (loss) from continuing operations attributable to FelCor	92,458			(78,467		)	(185,522		)
Less: Preferred dividends	(38,712		)	(38,713		)	(38,713		)
Less: Dividends declared on unvested restricted stock	(8		)	—			—
Less: Undistributed earnings allocated to unvested restricted stock	(20		)	—			—
Numerator for continuing operations attributable to FelCor common stockholders	53,718			(117,180		)	(224,235		)
Discontinued operations attributable to FelCor	(359		)	16,963			57,515
Numerator for basic and diluted income (loss) attributable to FelCor common stockholders	$	53,359		$	(100,217	)	$	(166,720	)
Denominator:
Denominator for basic income (loss) per share	124,158			123,818			123,634
Denominator for diluted income (loss) per share	124,892			123,818			123,634
Basic and diluted income (loss) per share data:
Income (loss) from continuing operations	$	0.43		$	(0.95	)	$	(1.81	)
Discontinued operations	$	—		$	0.14		$	0.47
Net income (loss)	$	0.43		$	(0.81	)	$	(1.35	)

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

FelCor LP Income (Loss) Per Unit



	Year Ended December 31,
	2014			2013			2012
Numerator:
Net income (loss) attributable to FelCor LP	$	92,236		$	(62,001	)	$	(128,849	)
Discontinued operations attributable to FelCor LP	360			(17,047		)	(57,804		)
Income (loss) from continuing operations attributable to FelCor LP	92,596			(79,048		)	(186,653		)
Less: Preferred distributions	(38,712		)	(38,713		)	(38,713		)
Less: Distributions declared on FelCor unvested restricted stock	(8		)	—			—
Less: Undistributed earnings allocated to FelCor unvested restricted stock	(20		)	—			—
Numerator for continuing operations attributable to FelCor LP common unitholders	53,856			(117,761		)	(225,366		)
Discontinued operations attributable to FelCor LP	(360		)	17,047			57,804
Numerator for basic and diluted income (loss) attributable to FelCor LP common unitholders	$	53,496		$	(100,714	)	$	(167,562	)
Denominator:
Denominator for basic income (loss) per unit	124,772			124,437			124,262
Denominator for diluted income (loss) per unit	125,511			124,437			124,262
Basic and diluted income (loss) per unit data:
Income (loss) from continuing operations	$	0.43		$	(0.95	)	$	(1.81	)
Discontinued operations	$	—		$	0.14		$	0.47
Net income (loss)	$	0.43		$	(0.81	)	$	(1.35	)

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

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Securities that could potentially dilute earnings per share/unit in the future that were not included in the computation of diluted income (loss) per share/unit, because they would have been antidilutive for the periods presented, are as follows (unaudited, in thousands):



	Year Ended December 31,
	2014	2013	2012
Series A convertible preferred shares/units	9,984	9,985	9,985
FelCor restricted stock units	—	547	—

Series A preferred dividends (distributions) that would be excluded from net income (loss) attributable to FelCor common stockholders (or FelCor LP common unitholders), if these preferred shares/units were dilutive, were $25.1 million for all periods presented.

We grant our executive officers restricted stock units each year, which provides them with the potential to earn shares of our common stock in three increments over four years. The actual number of shares that vest is determined based on total stockholder return relative to a group of 10 lodging REIT peers. We amortize the fixed cost of these grants over the vesting period. We calculate the potential dilutive impact of these awards on our earnings per share using the treasury stock method.

19. Commitments, Contingencies and Related Party Transactions

Our property insurance has a $100,000 “all-risk” deductible and, a 5% deductible (insured value) for named windstorm coverage and for California earthquake coverage. Substantial uninsured or not fully-insured losses would have a material adverse impact on our operating results, cash flows and financial condition. 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 limit the cost of insurance, we purchase catastrophic insurance coverage based on probable maximum losses based on 250-year events and have only purchased terrorism insurance to the extent required by our lenders. We have established a self-insured retention of $250,000 per occurrence for general liability insurance with regard to 37 of our hotels. The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible.

Our hotels are operated under various management agreements that call for minimum base management fees, which generally range from 1 to 3% of total revenue, with the exception of our IHG-managed hotels, whose base management fees are 2% of total revenue plus 5% of room revenue. Most of our management agreements also allow for incentive management fees that are subordinated to our return on investment and are generally capped at 2 to 3% of total revenue. In addition, the management agreements generally require us to invest approximately 3 to 5% of revenues for capital expenditures. The management agreements have terms from 5 to 20 years and generally have renewal options.

The management agreements governing the operations of 22 of our Consolidated Hotels contain the right and license to operate the hotel under the specified brands. The remaining 23 Consolidated Hotels operate under franchise or license agreements that are separate from our management agreements. Typically, our franchise or license agreements provide for a license fee or royalty of 4 to 5% of room revenues. In the event

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. Commitments, Contingencies and Related Party Transactions - (continued)

we breach one of these agreements, in addition to losing the right to use the brand 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.

One of our consolidated subsidiaries is currently engaged in a commercial dispute with a third party that relates to circumstances that arose prior to December 31, 2014. We acquired additional information regarding this matter, and, under generally accepted accounting principles, we recorded $5.9 million in other expenses in the third quarter of 2014 to provide for our current estimate of our maximum exposure for this contingency. However, we are asserting our rights under the contract and believe these negotiations, when complete, will result in a substantial reduction of the liability. Because negotiations are ongoing, the outcome of those negotiations and the net amount for which our subsidiary will ultimately be liable are uncertain.

With the exception of the foregoing commercial dispute, 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.

20. Supplemental Cash Flow Disclosure

In 2014, 2013 and 2012, we allocated $55,700, $23,000 and $44,500 respectively, of noncontrolling interests to additional paid-in capital with regard to the exchange of 6,080, 3,839 and 11,473 units, respectively, for common stock. In addition, in 2012, we received 3,571 units as payment for amounts owed to us by a unit holder.

Depreciation and amortization expense is comprised of the following (in thousands):



	Year Ended December 31,
	2014		2013		2012
Depreciation and amortization from continuing operations	$	115,819	$	119,624	$	116,384
Depreciation and amortization from discontinued operations	—		4,923		13,102
Total depreciation and amortization expense	$	115,819	$	124,547	$	129,486

For the year ended December 31, 2014, our repayment of borrowings consisted of debt retirement of $310.2 million, payments on our line of credit of $251.0 million, payments on the cash collateralized tranche of our Knickerbocker loan of $58.6 million and normal recurring principal payments of $3.3 million.

For the year ended December 31, 2013, our repayment of borrowings consisted of payments on our line of credit of $132.0 million and normal recurring principal payments of $4.9 million.

For the year ended December 31, 2012, our repayment of borrowings consisted of debt retirement of $828.0 million, payments on our line of credit of $192.0 million and normal recurring principal payments of $23.3 million.

For the years ended December 31, 2014, 2013, and 2012, the changes in accrued expenses and other liabilities related to investment in hotels and hotel development were a decrease of $11.3 million, an increase of $11.0 million, and a decrease of $3.1 million, respectively.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. FelCor Stock Based Compensation Plans

FelCor sponsors one restricted stock and stock option plan, or the Plan. FelCor is authorized to issue up to 6,100,000 shares of common stock under the Plan pursuant to awards granted in the form of incentive stock options, non-qualified stock options, and restricted stock. Stock grants vest either over three to five years in equal annual installments or over a four year schedule, subject to time-based and performance-based vesting. There were 6,003,250 shares available for grant under the Plan at December 31, 2014.

FelCor Restricted Stock and Restricted Stock Units

A summary of the status of FelCor’s restricted stock and restricted stock unit grants as of December 31, 2014, 2013 and 2012, and the changes during these years is presented below:



	2014				2013				2012
	Shares		Weighted Average Fair Market Value at Grant		Shares		Weighted Average Fair Market Value at Grant		Shares		Weighted Average Fair Market Value at Grant
Outstanding at beginning of the year	5,504,825		$	9.00	4,239,825		$	10.45	4,290,318		$	10.58
Granted:
With 5-year pro rata vesting	—		$	—	15,000		$	6.13	10,000		$	4.40
With up to 4-year pro rata vesting	1,036,252		$	6.70	1,250,000		$	4.09	—		$	—
Forfeited	(2,250	)	$	9.62	—		$	—	(60,493	)	$	18.60
Outstanding at end of year	6,538,827		$	8.64	5,504,825		$	9.00	4,239,825		$	10.45
Vested at end of year	(5,029,308	)	$	9.52	(4,234,825	)	$	10.46	(3,936,492	)	$	10.97
Unvested at end of year	1,509,519		$	5.70	1,270,000		$	4.12	303,333		$	3.71

Our executive officers were granted restricted stock units providing them with the potential to earn common shares, collectively, vesting in three increments over four years, based on total stockholder return relative to a group of 10 lodging REIT peers. The fixed cost of these grants is amortized over the vesting period. The unearned compensation cost of FelCor’s granted but unvested restricted stock and units was $5.1 million and $2.6 million, as of December 31, 2014 and 2013, respectively. The weighted average period over which the December 31, 2014 cost is to be amortized is approximately two years. Amortization expense for fixed stock compensation related to our restricted stock and units was $3.7 million, $2.2 million, and $786,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

The restricted stock unit grant also provides that to the extent any of these executive officers earn more than 250,000 shares upon vesting of this grant, the excess is settled in cash. To the extent there is excess likely to settle in cash, these awards are accounted for as liability awards, the fair value of which is remeasured at the end of each reporting period. The liability accrued for these awards expected to be settled in cash was $3.6 million and $1.0 million as of December 31, 2014 and 2013, respectively. Amortization expense for our variable stock compensation was $2.7 million and $963,000 for the years ended December 31, 2014 and 2013, respectively. Fair value estimates are based on a Monte Carlo simulation.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Employee Benefits

FelCor offers a 401(k) retirement savings plan and health insurance benefits to its employees. FelCor’s matching contribution to our 401(k) plan totaled $948,000 during 2014, $943,000 during 2013 and $956,000 for 2012. Health insurance benefits cost $1.2 million for the year ended December 31, 2014, and $1.1 million for each of the years ended December 31, 2013 and 2012.

FelCor LP has no employees, and FelCor, as FelCor LP’s sole general partner, performs FelCor LP’s management functions.

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.

23. Segment Information

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 from continuing operations and investment in hotel assets represented by the following geographical areas (in thousands):



	Revenue For the Year Ended December 31,						Investment in Hotel Assets as of December 31,
	2014		2013		2012		2014		2013		2012
California	$	277,458	$	257,418	$	241,892	$	450,068	$	468,033	$	480,982
Florida	135,972		124,142		119,841		234,421		244,104		264,248
Texas	85,724		78,287		75,906		148,253		95,910		104,641
Massachusetts	85,665		76,505		68,117		172,062		183,446		189,571
Other states	328,382		342,398		341,459		594,987		647,366		738,336
Canada	8,386		14,686		14,911		—		14,408		16,786
Total	$	921,587	$	893,436	$	862,126	$	1,599,791	$	1,653,267	$	1,794,564

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. Quarterly Operating Results (unaudited)

Our unaudited consolidated quarterly operating data for the years ended December 31, 2014 and 2013 follows (in thousands, except per share/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 stockholders’ equity (or partners’ capital) and cash flows for a period of several years.

FelCor



2014	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Total revenues	$	221,349		$	259,515	$	234,056		$	206,667
Income (loss) from continuing operations	$	(20,428	)	$	9,324	$	44,022		$	(5,168	)
Discontinued operations	$	135		$	5	$	(8	)	$	(492	)
Net income (loss) attributable to FelCor	$	(14,818	)	$	24,281	$	72,391		$	10,245
Net income (loss) attributable to FelCor common stockholders	$	(24,496	)	$	14,603	$	62,713		$	567
Comprehensive income (loss) attributable to FelCor	$	(15,254	)	$	24,853	$	47,499		$	10,064
Basic and diluted per common share data:
Net income (loss) from continuing operations	$	(0.20	)	$	0.12	$	0.50		$	0.01
Discontinued operations	$	—		$	—	$	—		$	—
Net income (loss)	$	(0.20	)	$	0.12	$	0.50		$	—
Basic weighted average common shares outstanding	124,146			124,169		124,168			124,188
Diluted weighted average common shares outstanding	124,146			125,386		125,526			125,146



2013	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenues	$	208,937		$	239,856		$	230,429		$	214,214
Loss from continuing operations	$	(27,458	)	$	(28,915	)	$	(8,158	)	$	(19,262	)
Discontinued operations	$	853		$	6,120		$	11,947		$	(910	)
Net income (loss) attributable to FelCor	$	(26,185	)	$	(18,683	)	$	3,230		$	(19,866	)
Net loss attributable to FelCor common stockholders	$	(35,863	)	$	(28,361	)	$	(6,448	)	$	(29,545	)
Comprehensive income (loss) attributable to FelCor	$	(26,540	)	$	(19,247	)	$	3,557		$	(20,376	)
Basic and diluted per common share data:
Net loss from continuing operations	$	(0.30	)	$	(0.28	)	$	(0.14	)	$	(0.23	)
Discontinued operations	$	0.01		$	0.05		$	0.09		$	(0.01	)
Net loss	$	(0.29	)	$	(0.23	)	$	(0.05	)	$	(0.24	)
Basic weighted average common shares outstanding	123,814			123,814			123,817			123,827
Diluted weighted average common shares outstanding	123,814			123,814			123,817			123,827

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. Quarterly Operating Results (unaudited) – (continued)

FelCor LP



2014	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Total revenues	$	221,349		$	259,515	$	234,056		$	206,667
Income (loss) from continuing operations	$	(20,428	)	$	9,324	$	44,022		$	(5,168	)
Discontinued operations	$	135		$	5	$	(8	)	$	(492	)
Net income (loss) attributable to FelCor LP	$	(14,939	)	$	24,352	$	72,576		$	10,247
Net income (loss) attributable to FelCor LP common unitholders	$	(24,617	)	$	14,674	$	62,898		$	569
Comprehensive income (loss) attributable to FelCor LP	$	(15,378	)	$	24,927	$	47,578		$	10,066
Basic and diluted per common unit data:
Net income (loss) from continuing operations	$	(0.20	)	$	0.12	$	0.50		$	0.01
Discontinued operations	$	—		$	—	$	—		$	—
Net income (loss)	$	(0.20	)	$	0.12	$	0.50		$	—
Basic weighted average common units outstanding	124,764			124,783		124,781			124,799
Diluted weighted average common units outstanding	124,764			126,000		126,164			125,764



2013	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenues	$	208,937		$	239,856		$	230,429		$	214,214
Loss from continuing operations	$	(27,458	)	$	(28,915	)	$	(8,158	)	$	(19,262	)
Discontinued operations	$	853		$	6,120		$	11,947		$	(910	)
Net income (loss) attributable to FelCor LP	$	(26,365	)	$	(18,823	)	$	3,198		$	(20,011	)
Net loss attributable to FelCor LP common unitholders	$	(36,043	)	$	(28,501	)	$	(6,480	)	$	(29,690	)
Comprehensive income (loss) attributable to FelCor LP	$	(26,722	)	$	(19,390	)	$	3,527		$	(20,524	)
Basic and diluted per common unit data:
Net loss from continuing operations	$	(0.30	)	$	(0.28	)	$	(0.14	)	$	(0.23	)
Discontinued operations	$	0.01		$	0.05		$	0.09		$	(0.01	)
Net loss	$	(0.29	)	$	(0.23	)	$	(0.05	)	$	(0.24	)
Basic weighted average common units outstanding	124,435			124,435			124,435			124,444
Diluted weighted average common units outstanding	124,435			124,435			124,435			124,444

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25. Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.


26.	FelCor LP's Consolidating Financial Information

Certain of FelCor LP’s 100% owned subsidiaries (FCH/PSH, L.P.; FelCor Baton Rouge Owner, L.L.C.; FelCor/CMB Buckhead Hotel, L.L.C.; FelCor/CMB Marlborough Hotel, L.L.C.; FelCor/CMB Orsouth Holdings, L.P.; FelCor/CMB SSF Holdings, L.P.; FelCor/CSS Holdings, L.P.; FelCor Dallas Love Field Owner, L.L.C.; FelCor Lodging Holding Company, L.L.C.; FelCor Milpitas Owner, L.L.C.; FelCor TRS Borrower 4, L.L.C.; FelCor TRS Holdings, L.L.C.; FelCor Canada Co.; FelCor Hotel Asset Company, L.L.C.; FelCor Copley Plaza, L.L.C.; FelCor St. Pete (SPE), L.L.C.; FelCor Esmeralda (SPE), L.L.C.; FelCor S-4 Hotels (SPE), L.L.C.; Los Angeles International Airport Hotel Associates, a Texas L.P.; Madison 237 Hotel, L.L.C.; Myrtle Beach Owner, L.L.C.; and Royalton 44 Hotel, L.L.C., collectively, “Subsidiary Guarantors”), together with FelCor, guaranty, fully and unconditionally, except where subject to customary release provisions as described below, and jointly and severally, our senior debt.

The guarantees by the Subsidiary Guarantors may be automatically and unconditionally released upon (1) the sale or other disposition of all of the capital stock of the Subsidiary Guarantor or the sale or disposition of all or substantially all of the assets of the Subsidiary Guarantor, (2) the consolidation or merger of any such Subsidiary Guarantor with any person other than FelCor LP, or a subsidiary of FelCor LP, if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a subsidiary of FelCor LP, (3) a legal defeasance or covenant defeasance of the indenture, (4) the unconditional and complete release of such Subsidiary Guarantor in accordance with the modification and waiver provisions of the indenture, or (5) the designation of a restricted subsidiary that is a Subsidiary Guarantor as an unrestricted subsidiary under and in compliance with the indenture.

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information - (continued)

The following tables present consolidating information for the Subsidiary Guarantors.

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATING BALANCE SHEET

December 31, 2014

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries		Eliminations			Total Consolidated
Net investment in hotels	$	—		$	908,796		$	690,995	$	—		$	1,599,791
Hotel development	—			—			297,466		—			297,466
Equity investment in consolidated entities	1,364,470			—			—		(1,364,470		)	—
Investment in unconsolidated entities	7,270			6,514			1,311		—			15,095
Hotels held for sale	—			—			47,145		—			47,145
Cash and cash equivalents	5,717			32,923			8,507		—			47,147
Restricted cash	—			12,199			8,297		—			20,496
Accounts receivable, net	963			26,343			499		—			27,805
Deferred expenses, net	17,203			—			8,624		—			25,827
Other assets	4,866			11,558			7,462		—			23,886
Total assets	$	1,400,489		$	998,333		$	1,070,306	$	(1,364,470	)	$	2,104,658

Debt, net	$	1,050,000		$	—		$	576,654	$	(40,787	)	$	1,585,867
Distributions payable	13,709			—			118		—			13,827
Accrued expenses and other liabilities	27,174			94,190			14,117		—			135,481

Total liabilities	1,090,883			94,190			590,889		(40,787		)	1,735,175

Redeemable units, at redemption value	6,616			—			—		—			6,616

Preferred units	478,749			—			—		—			478,749
Common units	(175,759		)	904,296			419,387		(1,323,683		)	(175,759		)
Total FelCor LP partners’ capital	302,990			904,296			419,387		(1,323,683		)	302,990
Noncontrolling interests	—			(153		)	18,588		—			18,435
Preferred capital in consolidated joint venture	—			—			41,442		—			41,442
Total partners’ capital	302,990			904,143			479,417		(1,323,683		)	362,867
Total liabilities and partners’ capital	$	1,400,489		$	998,333		$	1,070,306	$	(1,364,470	)	$	2,104,658

100

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONSOLIDATING BALANCE SHEET

December 31, 2013

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries		Eliminations			Total Consolidated
Net investment in hotels	$	48,971		$	1,053,724		$	550,572	$	—		$	1,653,267
Hotel development	—			—			216,747		—			216,747
Equity investment in consolidated entities	1,508,593			—			—		(1,508,593		)	—
Investment in unconsolidated entities	34,090			11,497			1,356		—			46,943
Hotel held for sale	—			—			16,319		—			16,319
Cash and cash equivalents	5,227			33,283			7,135		—			45,645
Restricted cash	—			9,051			68,176		—			77,227
Accounts receivable, net	516			34,366			865		—			35,747
Deferred expenses, net	20,540			—			8,785		—			29,325
Other assets	6,248			10,767			17,998		(11,953		)	23,060
Total assets	$	1,624,185		$	1,152,688		$	887,953	$	(1,520,546	)	$	2,144,280

Debt, net	$	1,279,190		$	11,953		$	464,036	$	(91,953	)	$	1,663,226
Distributions payable	11,047			—			—		—			11,047
Accrued expenses and other liabilities	37,980			96,494			16,264		—			150,738

Total liabilities	1,328,217			108,447			480,300		(91,953		)	1,825,011

Redeemable units, at redemption value	5,039			—			—		—			5,039

Preferred units	478,774			—			—		—			478,774
Common units	(212,888		)	1,039,903			363,647		(1,403,550		)	(212,888		)
Accumulated other comprehensive income	25,043			4,569			20,474		(25,043		)	25,043
Total FelCor LP partners’ capital	290,929			1,044,472			384,121		(1,428,593		)	290,929
Noncontrolling interests	—			(231		)	23,532		—			23,301
Total partners’ capital	290,929			1,044,241			407,653		(1,428,593		)	314,230
Total liabilities and partners’ capital	$	1,624,185		$	1,152,688		$	887,953	$	(1,520,546	)	$	2,144,280

101

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Year Ended December 31, 2014

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Revenues:
Hotel operating revenue	$	—		$	917,981		$	—		$	—		$	917,981
Percentage lease revenue	4,181			—			62,627			(66,808		)	—
Other revenue	6			3,143			457			—			3,606
Total revenue	4,187			921,124			63,084			(66,808		)	921,587

Expenses:
Hotel operating expenses	—			606,113			—			—			606,113
Taxes, insurance and lease expense	1,401			135,603			14,730			(66,808		)	84,926
Corporate expenses	427			19,035			10,123			—			29,585
Depreciation and amortization	2,717			69,094			44,008			—			115,819
Other expenses	178			12,330			5,444			—			17,952
Total operating expenses	4,723			842,175			74,305			(66,808		)	854,395
Operating income	(536		)	78,949			(11,221		)	—			67,192
Interest expense, net	(71,024		)	(758		)	(18,913		)	—			(90,695		)
Debt extinguishment	(3,823		)	—			(947		)	—			(4,770		)
Gain on sale of investment in unconsolidated entities, net	30,176			—			—			—			30,176
Gain from remeasurement of unconsolidated entities, net	20,737			—			—			—			20,737
Other gains, net	—			100			—			—			100
Income before equity in income from unconsolidated entities	(24,470		)	78,291			(31,081		)	—			22,740
Equity in income from consolidated entities	113,267			—			—			(113,267		)	—
Equity in income from unconsolidated entities	4,682			374			(46		)	—			5,010
Income from continuing operations	93,479			78,665			(31,127		)	(113,267		)	27,750
Loss from discontinued operations	—			27			(387		)	—			(360		)
Income before gain on sale of hotels	93,479			78,692			(31,514		)	(113,267		)	27,390
Gain on sale of hotels, net	(1,243		)	21,887			46,118			—			66,762
Net income	92,236			100,579			14,604			(113,267		)	94,152
Income attributable to noncontrolling interests	—			339			(1,036		)	—			(697		)
Preferred distributions - consolidated joint venture	—			—			(1,219		)	—			(1,219		)
Net income attributable to FelCor LP	92,236			100,918			12,349			(113,267		)	92,236
Preferred distributions	(38,712		)	—			—			—			(38,712		)
Net income attributable to FelCor LP common unitholders	$	53,524		$	100,918		$	12,349		$	(113,267	)	$	53,524

102

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Year Ended December 31, 2013

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Revenues:
Hotel operating revenue	$	—		$	890,006		$	—		$	—		$	890,006
Percentage lease revenue	5,041			—			62,903			(67,944		)	—
Other revenue	9			2,976			445			—			3,430
Total revenue	5,050			892,982			63,348			(67,944		)	893,436

Expenses:
Hotel operating expenses	—			600,931			—			—			600,931
Taxes, insurance and lease expense	2,078			148,932			13,128			(67,944		)	96,194
Corporate expenses	553			17,966			8,477			—			26,996
Depreciation and amortization	4,438			71,898			43,288			—			119,624
Impairment loss	14,294			—			10,147			—			24,441
Conversion expenses	23			666			445			—			1,134
Other expenses	3,179			3,166			2,404			—			8,749
Total operating expenses	24,565			843,559			77,889			(67,944		)	878,069
Operating income	(19,515		)	49,423			(14,541		)	—			15,367
Interest expense, net	(84,206		)	(1,270		)	(18,311		)	—			(103,787		)
Other gains, net	—			—			41			—			41
Loss before equity in income from unconsolidated entities	(103,721		)	48,153			(32,811		)	—			(88,379		)
Equity in income from consolidated entities	40,276			—			—			(40,276		)	—
Equity in income from unconsolidated entities	4,183			449			(46		)	—			4,586
Loss from continuing operations	(59,262		)	48,602			(32,857		)	(40,276		)	(83,793		)
Income from discontinued operations	(2,739		)	1,842			18,907			—			18,010
Net loss	(62,001		)	50,444			(13,950		)	(40,276		)	(65,783		)
Loss attributable to noncontrolling interests	—			788			2,994			—			3,782
Net loss attributable to FelCor LP	(62,001		)	51,232			(10,956		)	(40,276		)	(62,001		)
Preferred distributions	(38,713		)	—			—			—			(38,713		)
Net loss attributable to FelCor LP common unitholders	$	(100,714	)	$	51,232		$	(10,956	)	$	(40,276	)	$	(100,714	)

103

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Year Ended December 31, 2012

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Revenues:
Hotel operating revenue	$	—		$	858,941		$	—		$	—		$	858,941
Percentage lease revenue	5,160			—			71,858			(77,018		)	—
Other revenue	21			2,752			412			—			3,185
Total revenue	5,181			861,693			72,270			(77,018		)	862,126
Expenses:
Hotel operating expenses	—			587,813			—			—			587,813
Taxes, insurance and lease expense	1,424			153,444			14,316			(77,018		)	92,166
Corporate expenses	533			17,015			8,580			—			26,128
Depreciation and amortization	4,778			63,533			48,073			—			116,384
Conversion expenses	487			14,210			16,500			—			31,197
Other expenses	685			3,375			566			—			4,626
Total operating expenses	7,907			839,390			88,035			(77,018		)	858,314
Operating income	(2,726		)	22,303			(15,765		)	—			3,812
Interest expense, net	(86,617		)	(16,052		)	(18,883		)	—			(121,552		)
Debt extinguishment	(55,056		)	(6,395		)	(10,899		)	—			(72,350		)
Loss before equity in income from unconsolidated entities	(144,399		)	(144		)	(45,547		)	—			(190,090		)
Equity in income from consolidated entities	13,038			—			—			(13,038		)	—
Equity in income from unconsolidated entities	2,589			236			(46		)	—			2,779
Loss from continuing operations	(128,772		)	92			(45,593		)	(13,038		)	(187,311		)
Income from discontinued operations	(77		)	(9,745		)	67,719			—			57,897
Net loss	(128,849		)	(9,653		)	22,126			(13,038		)	(129,414		)
Loss attributable to noncontrolling interests	—			779			(214		)	—			565
Net loss attributable to FelCor LP	(128,849		)	(8,874		)	21,912			(13,038		)	(128,849		)
Preferred distributions	(38,713		)	—			—			—			(38,713		)
Net loss attributable to FelCor LP common unitholders	$	(167,562	)	$	(8,874	)	$	21,912		$	(13,038	)	$	(167,562	)

104

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26. FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the year ended December 31, 2014

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Net income	$	92,236		$	100,579		$	14,604		$	(113,267	)	$	94,152
Foreign currency translation adjustment	(490		)	(121		)	(369		)	490			(490		)
Reclassification of foreign currency translation to gain	(24,553		)	(4,448		)	(20,105		)	24,553			(24,553		)
Comprehensive income	67,193			96,010			(5,870		)	(88,224		)	69,109
Comprehensive income attributable to noncontrolling interests	—			339			(1,036		)	—			(697		)
Preferred distributions - consolidated joint venture	—			—			(1,219		)	—			(1,219		)
Comprehensive income attributable to FelCor LP	$	67,193		$	96,349		$	(8,125	)	$	(88,224	)	$	67,193

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

For the Year Ended December 31, 2013

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Net loss	$	(62,001	)	$	50,444		$	(13,950	)	$	(40,276	)	$	(65,783	)
Foreign currency translation adjustment	(1,108		)	(213		)	(895		)	1,108			(1,108		)
Comprehensive loss	(63,109		)	50,231			(14,845		)	(39,168		)	(66,891		)
Comprehensive loss attributable to noncontrolling interests	—			788			2,994			—			3,782
Comprehensive loss attributable to FelCor LP	$	(63,109	)	$	51,019		$	(11,851	)	$	(39,168	)	$	(63,109	)

105

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

For the Year Ended December 31, 2012

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Net loss	$	(128,849	)	$	(9,653	)	$	22,126		$	(13,038	)	$	(129,414	)
Foreign currency translation adjustment	303			16			287			(303		)	303
Comprehensive loss	(128,546		)	(9,637		)	22,413			(13,341		)	(129,111		)
Comprehensive loss attributable to noncontrolling interests	—			779			(214		)	—			565
Comprehensive loss attributable to FelCor LP	$	(128,546	)	$	(8,858	)	$	22,199		$	(13,341	)	$	(128,546	)

106

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26. FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2014

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Operating activities:
Cash flows from operating activities	$	(65,903	)	$	150,663		$	20,058		$	—		$	104,818
Investing activities:
Improvements and additions to hotels	(135		)	(58,017		)	(25,512		)	—			(83,664		)
Hotel development	—			—			(86,565		)	—			(86,565		)
Net proceeds from asset dispositions	6,488			13,967			143,163			—			163,618
Proceeds from unconsolidated joint venture transaction	3,154			—			878			—			4,032
Insurance proceeds	—			521			—			—			521
Change in restricted cash	—			(3,571		)	60,302			—			56,731
Distributions from unconsolidated entities	7,472			5,356			—			—			12,828
Contributions to unconsolidated entities	(7		)	—			—			—			(7		)
Intercompany financing	334,905			—			—			(334,905		)	—
Cash flows from investing activities	351,877			(41,744		)	92,266			(334,905		)	67,494
Financing activities:
Proceeds from borrowings	—			—			473,062			—			473,062
Repayment of borrowings	(236,745		)	—			(386,361		)	—			(623,106		)
Payment of deferred financing costs	(4		)	—			(3,211		)	—			(3,215		)
Acquisition of noncontrolling interest	—			—			(5,850		)	—			(5,850		)
Distributions paid to noncontrolling interests	—			(850		)	(8,746		)	—			(9,596		)
Contributions from noncontrolling interests	—			1,265			5,110			—			6,375
Net proceeds from issuance of preferred equity-consolidated joint venture	—			—			41,442			—			41,442
Distributions paid to preferred unitholders	(38,712		)	—			—			—			(38,712		)
Distributions paid to common unitholders	(9,981		)	—			—			—			(9,981		)
Intercompany financing	—			(109,609		)	(225,296		)	334,905			—
Other	(42		)	—			(1,102		)	—			(1,144		)
Cash flows used in financing activities	(285,484		)	(109,194		)	(110,952		)	334,905			(170,725		)
Effect of exchange rate changes on cash	—			(85		)	—			—			(85		)
Change in cash and cash equivalents	490			(360		)	1,372			—			1,502
Cash and cash equivalents at beginning of period	5,227			33,283			7,135			—			45,645
Cash and cash equivalents at end of period	$	5,717		$	32,923		$	8,507		$	—		$	47,147

107

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26. FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2013

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Operating activities:
Cash flows from operating activities	$	(55,959	)	$	114,777		$	9,643		$	—		$	68,461
Investing activities:
Improvements and additions to hotels	2,383			(61,239		)	(42,501		)	—			(101,357		)
Hotel development	—			—			(60,553		)	—			(60,553		)
Net proceeds from asset dispositions	9,650			17,750			71,420			—			98,820
Distributions from unconsolidated entities	8,159			1,625			—			—			9,784
Contributions to unconsolidated entities	—			(1,500		)	—			—			(1,500		)
Intercompany financing	73,730			—			—			(73,730		)	—
Other	—			239			699			—			938
Cash flows used in investing activities	93,922			(43,125		)	(30,935		)	(73,730		)	(53,868		)
Financing activities:
Proceeds from borrowings	—			—			164,000			—			164,000
Repayment of borrowings	—			—			(136,902		)	—			(136,902		)
Distributions paid to preferred unitholders	(38,713		)	—			—			—			(38,713		)
Intercompany financing	—			(69,561		)	(4,169		)	73,730			—
Other	(2,335		)	832			(1,510		)	—			(3,013		)
Cash flows used in financing activities	(41,048		)	(68,729		)	21,419			73,730			(14,628		)
Effect of exchange rate changes on cash	—			(65		)	—			—			(65		)
Change in cash and cash equivalents	(3,085		)	2,858			127			—			(100		)
Cash and cash equivalents at beginning of period	8,312			30,425			7,008			—			45,745
Cash and cash equivalents at end of period	$	5,227		$	33,283		$	7,135		$	—		$	45,645

108

FELCOR LODGING TRUST INCORPORATED AND FELCOR LODGING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26.	FelCor LP's Consolidating Financial Information — (continued)

FELCOR LODGING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2012

(in thousands)



	FelCor LP			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Operating activities:
Cash flows from operating activities	$	(82,558	)	$	69,045		$	60,822		$	—		$	47,309
Investing activities:
Improvements and additions to hotels	(7,760		)	(79,696		)	(34,019		)	—			(121,475		)
Hotel development	—			—			(24,849		)	—			(24,849		)
Net proceeds from asset dispositions	(14		)	4,236			193,391			—			197,613
Distributions from unconsolidated entities	12,914			625			—			—			13,539
Intercompany financing	(49,051		)	—			—			49,051			—
Other	—			5,285			1,028			—			6,313
Cash flows from investing activities	(43,911		)	(69,550		)	135,551			49,051			71,141
Financing activities:
Proceeds from borrowings	525,000			—			473,611			—			998,611
Repayment of borrowings	(299,542		)	(208,027		)	(535,796		)	—			(1,043,365		)
Payment of deferred financing costs	(7,719		)	(26		)	(10,125		)	—			(17,870		)
Distributions paid to preferred unitholders	(106,461		)	—			—			—			(106,461		)
Intercompany financing	—			169,919			(120,868		)	(49,051		)	—
Other	—			2,001			559			—			2,560
Cash flows used in financing activities	111,278			(36,133		)	(192,619		)	(49,051		)	(166,525		)
Effect of exchange rate changes on cash	—			62			—			—			62
Change in cash and cash equivalents	(15,191		)	(36,576		)	3,754			—			(48,013		)
Cash and cash equivalents at beginning of period	23,503			67,001			3,254			—			93,758
Cash and cash equivalents at end of period	$	8,312		$	30,425		$	7,008		$	—		$	45,745

109

FELCOR LODGING TRUST INCORPORATED and FELCOR LODGING LIMITED PARTNERSHIP

Schedule III – Real Estate and Accumulated Depreciation

as of December 31, 2014

(in thousands)



			Initial Cost				Cost Capitalized Subsequent to Acquisition					Gross Amounts at Which Carried at Close of Period						Accumulated Depreciation Buildings & Improvements				Life Upon Which Depreciation is Computed
Location	Encumbrances		Land		Building and Improvements		Land			Building and Improvements		Land		Building and Improvements		Total		Accumulated Depreciation Buildings & Improvements		Year Opened	Date Acquired	Life Upon Which Depreciation is Computed
Birmingham, AL^(a)	$	23,550	$	2,843	$	29,286	$	—		$	4,581	$	2,843	$	33,867	$	36,710	$	15,501	1987	1/3/1996	15 - 40 Yrs
Phoenix - Biltmore, AZ ^(a)	19,866		4,694		38,998		—			4,468		4,694		43,466		48,160		19,993		1985	1/3/1996	15 - 40 Yrs
Indian Wells – Esmeralda Resort & Spa, CA ^(d)	(l)		30,948		73,507		—			6,573		30,948		80,080		111,028		13,883		1989	12/16/2007	15 - 40 Yrs
Los Angeles – International Airport – South, CA ^(a)	(l)		2,660		17,997		—			5,878		2,660		23,875		26,535		10,233		1985	3/27/1996	15 - 40 Yrs
Milpitas – Silicon Valley, CA^(a)	(m)		4,021		23,677		—			4,237		4,021		27,914		31,935		12,895		1987	1/3/1996	15 - 40 Yrs
Napa Valley, CA ^(a)	27,563		2,218		14,205		—			7,036		2,218		21,241		23,459		8,437		1985	5/8/1996	15 - 40 Yrs
Oxnard - Mandalay Beach – Hotel & Resort, CA^(a)	16,480		2,930		22,125		—			11,340		2,930		33,465		36,395		14,222		1986	5/8/1996	15 - 40 Yrs
San Diego Bayside, CA^(j)	—		(k)		68,229		—			13,383		—		81,612		81,612		42,241		1965	7/28/1998	15 - 40 Yrs
San Francisco – Airport/Waterfront, CA ^(a)	—		(k)		39,929		—			7,205		—		47,134		47,134		20,366		1986	11/6/1995	15 - 40 Yrs
San Francisco – Airport/South San Francisco, CA^(a)	(m)		3,418		31,737		—			5,322		3,418		37,059		40,477		16,821		1988	1/3/1996	15 - 40 Yrs
San Francisco - Fisherman’s Wharf, CA ^(e)	—		(k)		61,883		—			18,086		—		79,969		79,969		39,279		1970	7/28/1998	15 - 40 Yrs
San Francisco –Union Square, CA ^(f)	82,810		8,466		73,684		(434		)	53,800		8,032		127,484		135,516		45,954		1970	7/28/1998	15 - 40 Yrs
Santa Monica Beach – at the Pier, CA ^(j)	16,134		10,200		16,580		—			1,655		10,200		18,235		28,435		4,686		1967	3/11/2004	15 - 40 Yrs
Deerfield Beach – Resort & Spa, FL ^(a)	31,228		4,523		29,443		68			6,957		4,591		36,400		40,991		16,537		1987	1/3/1996	15 - 40 Yrs
Ft. Lauderdale – 17th Street, FL ^(a)	35,301		5,329		47,850		(163		)	7,322		5,166		55,172		60,338		25,347		1986	1/3/1996	15 - 40 Yrs
Miami – International Airport, FL ^(a)	13,714		4,135		24,950		—			7,044		4,135		31,994		36,129		14,425		1983	1/3/1996	15 - 40 Yrs
Orlando – International Airport, FL ^(e)	—		2,549		22,188		6			3,819		2,555		26,007		28,562		9,768		1984	7/28/1998	15 - 40 Yrs
Orlando – International Drive South/Convention, FL ^(a)	(m)		1,632		13,870		—			4,190		1,632		18,060		19,692		8,871		1985	7/28/1994	15 - 40 Yrs
Orlando – Walt Disney World Resort, FL ^(c)	—		(k)		28,092		—			3,559		—		31,651		31,651		18,778		1987	7/28/1997	15 - 40 Yrs
St. Petersburg – Vinoy Resort & Golf Club, FL ^(d)	(l)		(k)		100,823		—			8,023		—		108,846		108,846		20,826		1925	12/16/2007	15 - 40 Yrs

110

FELCOR LODGING TRUST INCORPORATED and FELCOR LODGING LIMITED PARTNERSHIP

Schedule III – Real Estate and Accumulated Depreciation – (continued)

as of December 31, 2014

(in thousands)



			Initial Cost				Cost Capitalized Subsequent to Acquisition					Gross Amounts at Which Carried at Close of Period						Accumulated Depreciation Buildings & Improvements				Life Upon Which Depreciation is Computed
Location	Encumbrances		Land		Building and Improvements		Land			Building and Improvements		Land		Building and Improvements		Total		Accumulated Depreciation Buildings & Improvements		Year Opened	Date Acquired	Life Upon Which Depreciation is Computed
Atlanta – Buckhead, GA ^(a)	(m)		7,303		38,996		(300		)	3,720		7,003		42,716		49,719		19,002		1988	10/17/1996	15 - 40 Yrs
Chicago Lombard/ Oak Brook, IL ^(a)	18,176		4,400		22,018		—			159		4,400		22,177		26,577		230		1989	7/25/2014	15 - 40 Yrs
New Orleans – French Quarter, LA ^(j)	37,324		(k)		50,732		—			10,842		—		61,574		61,574		23,692		1969	7/28/1998	15 - 40 Yrs
Boston – at Beacon Hill, MA ^(j)	—		(k)		45,192		—			9,563		—		54,755		54,755		31,961		1968	7/28/1998	15 - 40 Yrs
Boston – Copley Plaza, MA ^(h)	(l)		27,600		62,500		—			14,666		27,600		77,166		104,766		8,413		1912	8/18/2010	15 - 40 Yrs
Boston – Marlborough, MA ^(a)	(m)		948		8,143		761			15,649		1,709		23,792		25,501		10,346		1988	6/30/1995	15 - 40 Yrs
Minneapolis – Airport, MN ^(a)	37,864		5,417		36,508		24			3,060		5,441		39,568		45,009		18,415		1986	11/6/1995	15 - 40 Yrs
New York - Morgans (i)	(l)		16,200		29,872		—			1,450		16,200		31,322		47,522		2,790		1984	5/23/2011	15 - 40 Yrs
New York - Royalton (i)	(l)		32,500		48,423		—			2,570		32,500		50,993		83,493		4,584		1988	5/23/2011	15 - 40 Yrs
Philadelphia – Historic District, PA ^(j)	12,700		3,164		27,535		7			10,987		3,171		38,522		41,693		17,295		1972	7/28/1998	15 - 40 Yrs
Philadelphia – Society Hill, PA ^(b)	(m)		4,542		45,121		—			9,677		4,542		54,798		59,340		23,076		1986	10/1/1997	15 - 40 Yrs
Pittsburgh – at University Center (Oakland), PA ^(j)	11,105		(k)		25,031		—			3,865		—		28,896		28,896		12,284		1988	11/1/1998	15 - 40 Yrs
Charleston – Mills House, SC^(j)	14,919		3,251		28,295		7			8,155		3,258		36,450		39,708		13,620		1982	7/28/1998	15 - 40 Yrs
Myrtle Beach – Oceanfront Resort, SC ^(a)	17,149		2,940		24,988		—			12,268		2,940		37,256		40,196		14,382		1987	12/5/1996	15 - 40 Yrs
Myrtle Beach Resort ^(g)	(m)		9,000		19,844		6			31,893		9,006		51,737		60,743		16,565		1974	7/23/2002	15 - 40 Yrs
Nashville – Opryland – Airport (Briley Parkway), TN ^(e)	—		(k)		27,734		—			4,648		—		32,382		32,382		18,557		1981	7/28/1998	15 - 40 Yrs
Austin, TX ^(c)	—		2,508		21,908		—			4,890		2,508		26,798		29,306		11,519		1987	3/20/1997	15 - 40 Yrs
Austin Central, TX ^(a)	22,848		7,400		33,285		—			7		7,400		33,292		40,692		347		1984	7/25/2014	15 - 40 Yrs
Dallas – Love Field, TX ^(a)	(m)		1,934		16,674		—			5,128		1,934		21,802		23,736		9,959		1986	3/29/1995	15 - 40 Yrs
Houston - Medical Center, TX ^(j)	9,299		(k)		22,027		—			7,247		—		29,274		29,274		11,348		1984	7/28/1998	15 - 40 Yrs
San Antonio- International Airport, TX ^(a)	—		4,900		20,568		—			37		4,900		20,605		25,505		214		1985	7/25/2014	15 - 40 Yrs
San Antonio- NW I-10, TX ^(a)	9,984		3,900		12,430		—			—		3,900		12,430		16,330		129		1981	7/25/2014	15 - 40 Yrs
Burlington Hotel & Conference Center, VT ^(b)	(m)		3,136		27,283		(2		)	7,078		3,134		34,361		37,495		13,226		1967	12/4/1997	15 - 40 Yrs
Total hotels	$	458,014	$	231,609	$	1,474,160	$	(20	)	$	352,037	$	231,589	$	1,826,197	$	2,057,786	$	661,017
Other properties (less than 5% of total)	$	—	$	550	$	3,686	$	—		$	267	$	550	$	3,953	$	4,503	$	741
Total	$	458,014	$	232,159	$	1,477,846	$	(20	)	$	352,304	$	232,139	$	1,830,150	$	2,062,289	$	661,758

111

FELCOR LODGING TRUST INCORPORATED AND

FELCOR LODGING LIMITED PARTNERSHIP

Schedule III – Real Estate and Accumulated Depreciation – (continued)

as of December 31, 2014

(in thousands)

(a) Embassy Suites Hotel

(b) Sheraton

(d) Renaissance

(e) Holiday Inn

(f) Marriott

(g) Hilton

(h) Fairmont

(i) Morgans Hotel Group

(j) Wyndham


(k)	This hotel is subject to a ground lease.

(l) This hotel is mortgaged to secure repayment of our 6.75% senior notes due in 2019.

(m) This hotel is mortgaged to secure repayment of our 5.625% senior notes due in 2023.



	Year Ended December 31,
	2014			2013			2012
Reconciliation of Land and Buildings and Improvements:
Balance at beginning of period	$	2,175,100		$	2,305,896		$	2,528,930
Additions during period:
Acquisitions from joint venture transaction	108,901			—			—
Improvements	21,167			21,236			44,887
Deductions during period:
Disposition of properties	(242,879		)	(152,032		)	(267,921		)
Balance at end of period before impairment charges	2,062,289			2,175,100			2,305,896
Cumulative impairment charges on real estate assets owned at end of period	(65,277		)	(107,492		)	(95,121		)
Balance at end of period	$	1,997,012		$	2,067,608		$	2,210,775
Reconciliation of Accumulated Depreciation
Balance at beginning of period	$	698,146		$	693,114		$	723,982
Additions during period:
Depreciation for the period	56,564			58,643			64,953
Deductions during period:
Disposition of properties	(92,952		)	(53,611		)	(95,821		)
Balance at end of period	$	661,758		$	698,146		$	693,114

The aggregate cost of real estate for federal income tax purposes is approximately $2.1 billion at December 31, 2014.

112

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Controls and Procedures (FelCor)

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 FelCor’s 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, our chief executive officer and principal financial officer concluded, as of the Evaluation Date, that FelCor’s disclosure controls and procedures were effective, such that the information relating to FelCor required to be disclosed in its reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to its 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 FelCor’s 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, its internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting.

FelCor’s 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.

FelCor’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework (2013). Based on our assessment, FelCor has concluded that, as of December 31, 2014, its internal control over financial reporting is effective, based on those criteria.

The effectiveness of FelCor’s internal control over financial reporting as of December 31, 2014, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in their report, which appears in Item 8 of this report.

Controls and Procedures (FelCor LP)

Evaluation of Disclosure Controls and Procedures.

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principal financial officer concluded, as of the Evaluation Date, that FelCor LP’s disclosure controls and procedures were effective, such that the information relating to FelCor LP required to be disclosed in its 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 FelCor’s 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 FelCor LP’s 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, its internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting.

FelCor’s management assessed the effectiveness of FelCor LP’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework (2013). Based on our assessment, FelCor has concluded that, as of December 31, 2014, FelCor LP’s internal control over financial reporting is effective, based on those criteria.

The effectiveness of FelCor LP’s internal control over financial reporting as of December 31, 2014, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in their report, which appears in Item 8 of this report.

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PART III

Item 10. Directors, Executive Officers of the Registrant and Corporate Governance

The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2015 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 2015 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 2015 Annual Meeting of Stockholders, or in Item 5 of this report, and is incorporated herein by reference.

Item 13. Certain Relationships, Related Transactions and Director Independence

The information called for by this Item is contained in FelCor’s definitive Proxy Statement for its 2015 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 2015 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.

All financial statements of the registrants are included herein under Item 8 of this report.

(2) Financial Statement Schedules.

The following financial statement schedule is included herein under Item 8 of this report.

Schedule III - Real Estate and Accumulated Depreciation for FelCor Lodging Trust Incorporated

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		Articles of Amendment and Restatement dated June 22, 1995, amending and restating the Charter of FelCor Lodging Trust Incorporated (“FelCor”), as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996, Articles of Amendment dated August 8, 1996, Articles of Amendment dated June 16, 1997, Articles of Amendment dated October 30, 1997, Articles Supplementary filed May 6, 1998, Articles of Merger and Articles of Amendment dated July 27, 1998, Certificate of Correction dated March 11, 1999, Certificate of Correction to the Articles of Merger between FelCor and Bristol Hotel Company, dated August 30, 1999, Articles Supplementary, dated April 1, 2002, Certificate of Correction, dated March 29, 2004, to Articles Supplementary filed May 2, 1996, Articles Supplementary filed April 2, 2004, Articles Supplementary filed August 20, 2004, Articles Supplementary filed April 6, 2005, and Articles Supplementary filed August 29, 2005 (filed as Exhibit 4.1 to FelCor’s Registration Statement on Form S-3 (Registration No. 333-128862) and incorporated herein by reference).

3.1.1		Articles Supplementary filed October 31, 2013 (filed as Exhibits 3.1 and 3.2 to FelCor’s Form 8‑K, dated October 29, 2013, and incorporated herein by reference).

3.2		Amended and Restated Bylaws of FelCor (filed as Exhibit 3.3 to FelCor’s Form 8-K, dated October 29, 2013, and incorporated herein by reference).

4.1		Form of Share Certificate for Common Stock (filed as Exhibit 4.1 to FelCor’s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference).

4.2		Form of Share Certificate for $1.95 Series A Cumulative Convertible Preferred Stock (filed as Exhibit 4.4 to FelCor’s Form 8-K, dated May 1, 1996, and incorporated herein by reference).

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4.3	Form of Share Certificate for 8% Series C Cumulative Redeemable Preferred Stock (filed as Exhibit 4.10.1 to FelCor’s Form 8-K, dated April 6, 2005, and incorporated herein by reference).

4.4	Deposit Agreement, dated April 7, 2005, between FelCor and SunTrust Bank, as preferred share depositary (filed as Exhibit 4.11.1 to FelCor’s Form 8-K, dated April 6, 2005, and incorporated herein by reference).

4.4.1	Supplement and Amendment to Deposit Agreement, dated August 30, 2005, between FelCor and SunTrust Bank, as depositary (filed as Exhibit 4.11.2 to FelCor’s Form 8-K, dated April 6, 2005, and incorporated herein by reference).

4.5	Form of Depositary Receipt evidencing the Depositary Shares, which represent the 8% Series C Cumulative Redeemable Preferred Stock (filed as Exhibit 4.12.1 to FelCor’s Form 8-K, dated April 6, 2005, and incorporated herein by reference).

4.6	Indenture, dated as of May 10, 2011, by and between FelCor Escrow Holdings, L.L.C. and Wilmington Trust Company, as trustee, and Deutsche Bank Trust Company Americas, as collateral agent, registrar and paying agent (filed as Exhibit 4.1 to FelCor’s Form 8-K, dated May 23, 2011, and incorporated herein by reference).

4.6.1	First Supplemental Indenture, dated as of May 23, 2011, by and among FelCor Escrow Holdings, L.L.C., FelCor LP, FelCor, certain of their subsidiaries, as guarantors, and Wilmington Trust Company, as trustee, and Deutsche Bank Trust Company Americas, as collateral agent, registrar and paying agent (filed as Exhibit 4.2 to FelCor’s Form 8-K, dated May 23, 2011, and incorporated herein by reference).

4.6.2	Second Supplemental Indenture, dated as of January 7, 2013, by and among FelCor LP, FelCor, certain of their subsidiaries, as guarantors, and Wilmington Trust Company, as trustee, and Deutsche Bank Trust Company Americas, as collateral agent, registrar and paying agent (filed as Exhibit 4.2 to FelCor’s Form 8-K, dated January 7, 2013, and incorporated herein by reference).

4.7	Registration Rights Agreement, dated May 10, 2011, among FelCor LP, FelCor, the subsidiary guarantors named therein, and J.P. Morgan Securities LLC (filed as Exhibit 4.3 to FelCor’s Form 8-K, dated May 23, 2011, and incorporated herein by reference).

4.8	Indenture, dated as of December 17, 2012, between FelCor LP, FelCor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee, collateral agent, registrar and paying agent (filed as Exhibit 4.1 to FelCor’s Form 8-K, dated December 17, 2012, and incorporated herein by reference).

4.8.1	First Supplemental Indenture, dated as of January 7, 2013, by and among FelCor, FelCor LP, certain of their subsidiaries, as guarantors, and U.S. Bank National Association, as trustee. (filed as Exhibit 4.1 to FelCor’s Form 8-K, dated January 7, 2013, and incorporated herein by reference).

4.9	Registration Rights Agreement, dated December 17, 2012, among FelCor LP, FelCor, the subsidiary guarantors named therein, and J.P. Morgan Securities LLC (filed as Exhibit 4.2 to FelCor’s Form 8-K, dated December 17, 2012, and incorporated herein by reference).

117



10.1	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 Form 10-K for the fiscal year ended December 31, 2001 (the “2001 Form 10-K”) and incorporated herein by reference).

10.1.1	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 incorporated herein by reference).

10.1.2	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 Form 10-K for the fiscal year ended December 31, 2002 (the “2002 Form 10-K”) and incorporated herein by reference).

10.1.3	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).

10.1.4	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).

10.1.5	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).

10.1.6	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 August 26, 2004, and incorporated herein by reference).

10.1.7	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 L P (filed as Exhibit 10.1.8 to FelCor’s Form 8-K, dated April 6, 2005, and incorporated herein by reference).

10.1.8	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 incorporated herein by reference).

10.2	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 prior to July 28, 2004 (filed as Exhibit 10.5 to the 2001 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 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).

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10.3	Executive Employment Agreement dated October 19, 2007, between FelCor and Richard A. Smith (filed as Exhibit 10.1 to FelCor’s Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).



10.3.1	Letter dated October 16, 2012 amending the 2007 Employment Agreement between FelCor and Richard A. Smith (filed as Exhibit 10.3 to FelCor’s Form 10-Q for the quarter ended September 30, 2012 and incorporated herein by reference).

10.4	Form of 2007 Change in Control and Severance Agreement between FelCor and each of Rick Smith, Michael Hughes, Mike DeNicola, Troy Pentecost, Jon Yellen and Tom Corcoran (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated October 23, 2007, and incorporated herein by reference).

10.5	Savings and Investment Plan of FelCor (filed as Exhibit 10.10 to the 2001 Form 10-K and incorporated herein by reference).

10.6	FelCor’s 2005 Restricted Stock and Stock Option Plan (as amended through October 29, 2012)(filed as Exhibit 10.1 to FelCor’s Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference).

10.7	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 incorporated herein by reference).

10.8	Form of Employee Stock Grant and Supplemental Long-Term Cash Payment Agreement dated as of February 19, 2009 (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated February 20, 2009, and incorporated herein by reference).

10.8.1	Amendment to Employee Stock Grant and Supplemental Long-Term Cash Payment Agreement dated as of February 19, 2009 (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated December 28, 2009, and incorporated herein by reference).

10.9	Form of Restricted Payment Contract (filed as Exhibit 10.2 to FelCor’s Form 8-K, dated December 28, 2009, and incorporated herein by reference).

10.10	Form of Employee Stock Grant Contract (filed as Exhibit 10.3 to FelCor’s Form 8-K, dated December 28, 2009, and incorporated herein by reference).

10.11	Form of Performance Equity Grant Agreement (filed as Exhibit 10.2 to FelCor’s Form 10-Q for the quarter ended September 30, 2012 and incorporated herein by reference).

10.12	FelCor Lodging Trust Incorporated 2014 Equity Compensation Plan (filed as Exhibit 4.5 to FelCor’s Form S-8, dated May 19, 2014, and incorporated herein by reference).




10.13	Form of Indemnification Agreement by and among FelCor, FelCor LP and individual officers and directors of FelCor (filed as Exhibit 10.1 to FelCor’s 10-Q for the quarter ended March 31, 2009 and incorporated herein by reference; superseding the form of Indemnification Agreement that was filed as Exhibit 10.1 to FelCor’s Form 8-K, dated November 9, 2006, and incorporated herein by reference.)

119



10.14	Form of Guaranty Agreement by and among FelCor, FelCor LP and individual employees of FelCor (filed as Exhibit 10.2 to FelCor’s Form 10-Q for the quarter ended March 31, 2009 and incorporated herein by reference).

10.15	Summary of FelCor’s Revised Performance-Based Annual Incentive Compensation Programs for Executive Officers (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated August 24, 2012, and incorporated herein by reference).

10.16*	Summary of Annual Compensation Program for Directors of FelCor.

10.17	Amended and Restated Revolving Credit Agreement dated as of December 18, 2012, among FelCor/JPM Hospitality (SPE), L.L.C., DJONT/JPM Hospitality Leasing (SPE), L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C. and Miami AP Hotel, L.L.C. as borrowers, and JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are parties thereto (filed as Exhibit 10.2 to FelCor’s Form 8-K, dated December 17, 2012, and incorporated herein by reference).

10.17.1	Amended and Restated Guaranty Agreement to the Revolving Credit Agreement dated as of December 18, 2012, by FelCor and FelCor LP in favor of JPMorgan Chase Bank, N.A., as administrative agent, on behalf of the lenders (filed as Exhibit 10.3 to FelCor’s Form 8-K, dated December 17, 2012, and incorporated herein by reference).

10.17.2	Form of Fee and Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing under the Revolving Credit Agreement for the benefit of JPMorgan Chase Bank, N.A., as administrative agent for the lenders (filed as Exhibit 10.4 to FelCor’s Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).

10.17.3	Amendment No. 1 to Amended and Restated Revolving Credit Agreement dated as of March 1, 2013, among FelCor/JPM Hospitality (SPE), L.L.C., DJONT/JPM Hospitality Leasing (SPE), L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., Miami AP Hotel, L.L.C. and Charleston Mills House Hotel, L.L.C. as borrowers, and JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are parties thereto (filed as Exhibit 10.2 to FelCor’s Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference).

10.17.4	Amendment No. 2 to Amended and Restated Revolving Credit Agreement dated as of May 23, 2014, among FelCor/JPM Hospitality (SPE), L.L.C., DJONT/JPM Hospitality Leasing (SPE), L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., Miami AP Hotel, L.L.C. and Charleston Mills House Hotel, L.L.C as borrowers, and JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are parties thereto (filed as Exhibit 10.1 to FelCor's Form 10-Q for the quarter ended June 30, 2014, and incorporated herein by reference).

10.17.5	Amendment No. 3 to Amended and Restated Revolving Credit Agreement, dated as of August 15, 2014, among FelCor/JPM Hospitality (SPE), L.L.C., DJONT/JPM Hospitality Leasing (SPE), L.L.C., Miami AP Hotel, L.L.C., Charleston Mills House Hotel, L.L.C., FelCor Myrtle Kingston Hotel, L.L.C., and FelCor Myrtle Kingston Lessee, L.L.C., as borrowers, and JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are parties thereto (filed as Exhibit 10.1 to FelCor's Form 8-K, dated August 15, 2014, and incorporated herein by reference).

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10.18	Form of [Fee and] Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing for the benefit of Deutsch Bank Trust Company, as collateral agent, relating to FelCor LP’s 6.75% senior secured notes due 2019 (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated May 23, 2011, and incorporated herein by reference).

10.18.1	Pledge Agreement, dated as of May 23, 2011, among FelCor LP, FelCor, the subsidiaries named therein, and Deutsche Bank Trust Company Americas, as collateral agent (filed as Exhibit 10.2 to FelCor’s Form 8-K, dated May 23, 2011, and incorporated herein by reference).

10.19	Form of [Fee and] Leasehold Mortgage, Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing for the benefit of U.S. Bank National Association, as collateral agent, relating to FelCor LP’s 5.625% Senior Secured Notes due 2023 (filed as Exhibit 10.3 to FelCor’s Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference).

10.19.1	Pledge Agreement, dated as of December 17, 2012, by FelCor LP, in favor of U.S. Bank National Association, as collateral agent (filed as Exhibit 10.1 to FelCor’s Form 8-K, dated December 17, 2012, and incorporated herein by reference).

10.20	Credit Agreement, dated as of July 21, 2014, among FelCor/JPM Phoenix Hotel, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., FelCor Union Square Hotel, L.L.C., FelCor Union Square Lessee, L.L.C., FelCor FQ Hotel, L.L.C., FelCor FQ Lessee, L.L.C., as borrowers, and Deutsche Bank AG New York Branch, as administrative agent, and the lenders that are parties thereto (filed as Exhibit 10.1 to FelCor's Form 8-K, dated July 21, 2014, and incorporated herein by reference).

10.20.1	Form of Guaranty, to be made by FelCor and FelCor LP, as guarantors, in favor of Deutsche Bank AG New York Branch, as administrative agent, for the benefit of the lenders (filed as Exhibit 10.2 to FelCor's Form 8-K, dated July 21, 2014, and incorporated herein by reference).

10.20.2	Form of Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing under the Credit Agreement for the benefit of Deutsche Bank AG New York Branch, as administrative agent for the lenders (filed as Exhibit 10.3 to FelCor's Form 8-K, dated July 21, 2014, and incorporated herein by reference).

21.1*	List of Subsidiaries of FelCor.

21.2*	List of Subsidiaries of FelCor LP.

23*	Consent of PricewaterhouseCoopers LLP.

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31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.

31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor.

31.3*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.

31.4*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for FelCor LP.

32.1*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) for FelCor.

32.2*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) for FelCor LP.

101.INS	XBRL Instance Document. Submitted electronically with this report.

101.SCH	XBRL Taxonomy Extension Schema Document. Submitted electronically with this report.

101.CAL	XBRL Taxonomy Calculation Linkbase Document. Submitted electronically with this report.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document. Submitted electronically with this report.

101.LAB	XBRL Taxonomy Label Linkbase Document. Submitted electronically with this report.

101.PRE	XBRL Taxonomy Presentation Linkbase Document. Submitted electronically with this report.

---------------------

*Filed herewith

Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) FelCor’s Consolidated Balance Sheets at December 31, 2014 and 2013; (ii) FelCor’s Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012; (iii) FelCor’s Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012; (iv) FelCor’s Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012; (v) FelCor’s Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; (vi) FelCor LP’s Consolidated Balance Sheets at December 31, 2014 and 2013; (vii) FelCor LP’s Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012; (viii) FelCor LP’s Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012; (ix) FelCor LP’s Consolidated Statements of Partners’ Capital for the years ended December 31, 2014, 2013 and 2012; (x) FelCor LP’s Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and (xi) the Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S‑T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURES

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



	FELCOR LODGING TRUST INCORPORATED



February 27, 2015	By:	/s/ Jonathan H. Yellen
		Name:	Jonathan H. Yellen
		Title:	Executive Vice President, General Counsel and Secretary

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 27, 2015		/s/ Richard A. Smith
		Richard A. Smith President and Director (Chief Executive Officer)
February 27, 2015		/s/ Michael C. Hughes
		Michael C. Hughes Senior Vice President and Chief Financial Officer (Principal Financial Officer)
February 27, 2015		/s/ Jeffrey D. Symes
		Jeffrey D. Symes Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
February 27, 2015		/s/ Thomas J. Corcoran, Jr.
		Thomas J. Corcoran, Jr. Chairman of the Board and Director
February 27, 2015		/s/ Glenn A. Carlin
		Glenn A. Carlin, Director
February 27, 2015		/s/Robert F. Cotter
		Robert F. Cotter, Director
February 27, 2015		/s/Christopher J. Hartung
		Christopher J. Hartung, Director
February 27, 2015		/s/ Thomas C. Hendrick
		Thomas C. Hendrick, Director

123



	Date		Signature
February 27, 2015		/s/ Charles A. Ledsinger, Jr.
		Charles A. Ledsinger, Jr., Director
February 27, 2015		/s/ Robert H. Lutz, Jr.
		Robert H. Lutz, Jr., Director
February 27, 2015		/s/ Robert A. Mathewson
		Robert A. Mathewson, Director
February 27, 2015		/s/ Mark D. Rozells
		Mark D. Rozells, Director

124



	FELCOR LODGING LIMITED PARTNERSHIP
	a Delaware limited partnership

	By:	FelCor Lodging Trust Incorporated
		Its General Partner


February 27, 2015	By:	/s/ Jonathan H. Yellen
		Name:	Jonathan H. Yellen
		Title:	Executive Vice President, General Counsel and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following officers and directors of FelCor Lodging Trust Incorporated, the general partner of the registrant, and in the capacities and on the dates indicated.



	Date		Signature
		/s/ Richard A. Smith
February 27, 2015		Richard A. Smith President and Director (Chief Executive Officer)
February 27, 2015		/s/ Michael C. Hughes
		Michael C. Hughes Senior Vice President and Chief Financial Officer (Principal Financial Officer)
February 27, 2015		/s/ Jeffrey D. Symes
		Jeffrey D. Symes Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)



	February 27, 2015			/s/ Thomas J. Corcoran, Jr.
				Thomas J. Corcoran, Jr. Chairman of the Board and Director
	February 27, 2015			/s/ Glenn A. Carlin
				Glenn A. Carlin, Director
	February 27, 2015			/s/Robert F. Cotter
				Robert F. Cotter, Director
	February 27, 2015			/s/Christopher J. Hartung
				Christopher J. Hartung, Director

125



	Date		Signature

February 27, 2015		/s/ Thomas C. Hendrick
		Thomas C. Hendrick, Director
February 27, 2015		/s/ Charles A. Ledsinger, Jr.
		Charles A. Ledsinger, Jr., Director
February 27, 2015		/s/ Robert H. Lutz, Jr.
		Robert H. Lutz, Jr., Director
February 27, 2015		/s/ Robert A. Mathewson
		Robert A. Mathewson, Director
February 27, 2015		/s/ Mark D. Rozells
		Mark D. Rozells, Director

126