FCH Felcor Lodging Trust Incorporated (delisted)

 

 

“THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007, FILED ON MARCH 3, 2008, PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.”

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-14236

FelCor Lodging Trust Incorporated

(Exact name of registrant as specified in its charter)

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

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.   þ   Yes    o   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   o   Yes    þ   No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   þ   Yes    o   No

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

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (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 Act.). o Yes þ No

     The aggregate market value of shares of common stock held by non-affiliates of the registrant as of June 30, 2007, computed by reference to the price at which registrant’s common stock was last sold at June 29, 2007, was approximately $1.6 billion.

     As of February 15, 2008, the registrant had issued and outstanding 62,696,107 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s definitive Proxy Statement pertaining to the 2008 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.

 

 

FELCOR LODGING TRUST INCORPORATED

INDEX

		Form 10-K
		Report
Item No.		Page
PART I
1. Business			2
1A. Risk Factors			8
1B. Unresolved Staff Comments			18
2. Properties			18
3. Legal Proceedings			27
4. Submission of Matters to a Vote of Security Holders			27
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			28
6. Selected Financial Data			30
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
7A. Quantitative and Qualitative Disclosures About Market Risk			52
8. Financial Statements and Supplementary Data			54
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			93
9A. Controls and Procedures			93
9B. Other Information			93
PART III
10. Directors and Executive Officers of the Registrant			94
11. Executive Compensation			94
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			94
13. Certain Relationships and Related Transactions			94
14. Principal Accountant Fees and Services			94
PART IV
15. Exhibits and Financial Statement Schedules			95

     This Annual Report on Form 10-K contains registered trademarks owned or licensed by companies other than us, including but not limited to aloft ^® , Candlewood Suites ^® , Conrad ^® , Crowne Plaza ^® , Disneyland ^® , Doubletree ^® , Doubletree Guest Suites ^® , Embassy Suites Hotels ^® , Four Points ^® by Sheraton, Hampton Inn ^® , Hilton ^® , Hilton HHonors ^® , Hilton Garden Inn ^® , Hilton Suites ^® , Holiday Inn ^® , Holiday Inn & Suites ^® , Holiday Inn Express ^® , Holiday Inn Express & Suites ^® , Holiday Inn Select ^® , Homewood Suites ^® by Hilton, Hotel Indigo ^® , InterContinental ^® , Priority Club ^® , Le Méridien ^® , Marriott ^® , Renaissance ^® , Sheraton ^® , Sheraton Suites ^® , St. Regis ^® , Staybridge Suites ^® , The Luxury Collection ^® , W Hotels ^® , Walt Disney World ^® and Westin ^® .

PART I

Developments During 2007

     In 2006, we embarked on a $440 million renovation program at our 83 hotels (excluding the two hotels acquired in December 2007), designed to improve the quality, returns on investment and competitive position of these hotels. Through December 31, 2007, we completed renovations at 61 of these hotels (53 of which were completed in 2007). We currently expect to complete renovations at 13 additional hotels by March 31, 2008, and we expect to complete the remaining renovations by year-end 2008. In 2007, 68 of these hotels were undergoing some form of renovation taking rooms out of service and creating disruption at these hotels. Despite renovation related disruptions in 2007, we experienced 3.3% growth in revenue per available room, or RevPAR, compared to 2006. We had completed renovations in 49 hotels by the end of the third quarter 2007. RevPAR in the fourth quarter 2007 at those hotels increased 13.9% compared to the same period in prior year, indicating positive impact on RevPAR from these renovations. We believe that our renovated hotels will continue to perform better than the industry average and expect our hotel RevPAR growth to accelerate significantly in 2008.

     In 2007, we sold 11 consolidated hotels thereby completing the disposition of non-strategic hotels that we originally identified in 2005. Through the course of this disposition program, we sold 45 consolidated hotels for aggregate gross proceeds of $720 million and used the proceeds to pay-down debt and fund our renovation program.

     In December 2007, we acquired two upper-upscale resort hotels, the Renaissance Esmeralda Resort & Spa in Indian Wells, California and the Renaissance Vinoy Resort & Golf Club in St. Petersburg, Florida for a total purchase price of $225 million. These acquisitions are consistent with our stated strategy to continue to improve the overall quality and diversity of our hotel portfolio. The hotels meet our criteria of acquiring upper-upscale hotels and resorts in markets with high barriers to entry and also allow us to enhance our return on investment through various redevelopment opportunities.

     In 2007, we completed construction of our 184-unit Royale Palms condominium project in Myrtle Beach, South Carolina. Through December 31, 2007, we have sold 179 units and recognized an aggregate gain of $18.6 million. The majority of these condominiums have entered our rental pool, thereby providing additional ongoing income. At December 31, 2007, we had five remaining condominium units to sell.

     In 2007, we began the process of rebranding our San Francisco Union Square property as a Marriott hotel. The related renovation will include guest rooms, public areas and building exterior and should be completed by early 2009. Marriott took over management of the hotel in December 2007 and is operating this hotel as Hotel 480 Union Square during the renovation period.

     For 2007, we declared common dividends totaling $1.20 per share. We increased our quarterly dividend twice during 2007, from $0.25 per share to $0.30 per share in the second quarter and then to $0.35 per share for the fourth quarter.

Board of Director Changes

     In February 2007, we announced the retirement of Donald J. McNamara from our Board of Directors and the appointment of Thomas C. Hendrick to succeed Mr. McNamara. Mr. Hendrick is President and a founding partner of Sagewood Partners, LLC, a developer of multi-use real estate projects.

The Industry

     The lodging industry experienced strong growth in 2007, maintaining the momentum generated in the prior three years. According to Smith Travel Research, or STR, a leading provider of industry data, RevPAR increased 5.7% in 2007. STR attributes the increase in RevPAR for all U.S. hotels to a significant improvement in average daily rate, or ADR, which increased from $97.31 in 2006 to $103.64 in 2007, breaching the $100.00 mark for the first time in U.S. history.

     According to STR, supply growth in the lodging industry was limited to a 1.4% increase in 2007, which is below the long-term historical average of 1.9% (from 1989 to 2007). Supply growth is a key leading indicator of the performance for existing lodging real estate. Lodging industry demand growth in 2007 increased 1.2%, which is slightly lower than supply growth. Because the supply growth was higher than demand growth, the U.S. occupancy rate decreased in 2007, to 63.2%.

     STR predicts that in 2008 supply growth of 2.2 percent will slightly exceed the long-term historical average of 1.9%, while demand growth of 1.4% will be lower than the long-term historical average of 1.8%. If the supply growth exceeds demand growth as predicted, the 2008 occupancy rate is expected to drop 0.8%, to 62.4%. At the same time, STR predicts ADR to continue to grow by 5.2%, which is significantly above the long-term average of 3.5%. The projected increase in ADR and drop in occupancy will result in expected RevPAR growth of 4.4% in 2008. These predicted growth rates are not uniform across the country and assume that no major external event such an act of terrorism or natural disaster affect the U.S. economy and the travel and lodging industries.

     STR classifies hotel chains into six distinct categories: Luxury, Upper-Upscale, Upscale, Midscale with Food & Beverage, Midscale without Food & Beverage, and Economy. We own properties in the Upper-Upscale (including Doubletree, Doubletree Guest Suites, Embassy Suites Hotels, Hilton, Hilton Suites, Renaissance, Sheraton, Sheraton Suites and Westin hotels), and Midscale with Food & Beverage (Holiday Inn) categories, from which we derived all of our 2007 Hotel EBITDA (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 on Form 10-K.). We derived 81% of our Hotel EBITDA from upper upscale all-suite hotels in 2007.

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

Business Strategy

     Our long-term strategic plan is to own a diversified portfolio of upscale, full service hotels flagged under leading brands, and to maximize shareholder value and return on invested capital by optimized use of our real estate and enhanced cash flow. We continually examine our portfolio to address issues of market supply, capital needs of each hotel and concentration of risk. In order to achieve our strategic objectives, we have identified four goals:

      Internal Growth . Our internal growth is driven by the following factors:

	•		Comprehensive Renovation of our Hotel Portfolio. We have implemented a long-term capital plan for each of our hotels to enhance our portfolio’s competitive position. A typical renovation touches every area of a hotel, including guest rooms, guest baths, corridors, meeting space, public areas, restaurant, lobby and exterior. We plan to make renovations totaling approximately $440 million starting in late 2006 through 2008. At December 31, 2007, we had completed renovations at 61 of our hotels, or 73%, and expect to have completed renovations at 74 of our hotels, or 90%, by the end of March 2008. We expect to complete renovations at the remaining hotels by the end of 2008.
	•		Redevelopment Opportunities . We have identified redevelopment opportunities at a number of our hotels. In January 2008, we completed the construction of a new 35,000 square foot convention center adjacent to our Hilton Myrtle Beach Resort and expect to complete by the end of April 2008 the addition of meeting space at our Doubletree Guest Suites in Dana Point, California and the addition of a spa and food and beverage areas at our Embassy Suites Hotel Deerfield Beach Resort & Spa. We continue to progress with the rebranding and redevelopment of our San Francisco Union Square property to a Marriott. Marriott assumed management of the hotel in December 2007 and is currently operating it as Hotel 480 Union Square through the renovation period. We expect to complete the renovation and rebranding by early 2009. We continue to progress on our other major redevelopment projects, which are in various stages of planning and permitting.
	•		Disciplined Asset Management . We seek to improve the competitive position of our hotels through aggressive asset management and strong relationships with our brand-owner managers. While REIT requirements prohibit us from directly managing our hotels, we employ an intensive approach to asset management. We work closely with our brand-owner managers to monitor and review hotel operations. We press our brand-owner managers to implement best practices in expense and revenue management at our hotels, and we strive to influence brand strategy on marketing and revenue enhancement programs. Our asset management approach also entails looking at additional value-added enhancements to our hotels, such as new restaurant concepts and maximizing the use of public area space. See “Business – Strategic Relationships.”

      External Growth. We continue to consider hotel acquisitions that will improve the overall quality of our portfolio, further diversify our portfolio by market, customer type and brand and improve future EBITDA growth. We take a highly disciplined approach to any acquisitions, which must meet strict criteria, including minimum targeted rates of return. We expect any potential future acquisitions of hotels will continue to be restricted to high quality hotels in major urban and resort markets with high barriers to entry and high growth potential. Our acquisitions of the Renaissance Esmeralda Resort & Spa and the Renaissance Vinoy Resort & Golf Club in 2007 illustrate the external growth opportunities that we consider.

      Portfolio Repositioning . We regularly review and evaluate our hotel portfolio and may from time to time identify additional hotels to sell based upon strategic considerations such as future supply growth, concentration risk, strategic fit, return on future capital needs and return on invested capital. In 2007, we completed the disposition of the final 11 of the 45 hotels identified as non-strategic in 2006. These hotels were located primarily in secondary and tertiary markets and included hotels in Texas and Georgia where we had excess concentration. The sold hotels had significantly lower RevPAR and margins than our remaining hotels.

      Debt Reduction . From September 30, 2005, when we began our disposition program, we reduced our debt by more than $400 million in the aggregate using proceeds from non-strategic hotel sales and excess cash on hand. For the year ended December 31, 2007, our consolidated debt to EBITDA ratio was approximately 4.9 times, compared to more than 8 times for the year ended December 31, 2003, and we believe this ratio will continue to decrease as we continue to improve our operating performance. We will continue to look for additional opportunities to reduce our cost of debt and increase our flexibility on an economically sound basis.

Strategic Relationships

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

•

Hilton Hotels Corporation ( www.hiltonworldwide.com ) is recognized internationally as a preeminent hospitality company.  Hilton develops, owns, manages or franchises more than 2,800 hotels, resorts and vacation ownership properties.  Its portfolio includes many of the world’s best known and most highly regarded hotel brands, including Hilton, Hilton Garden Inn, Doubletree, Embassy Suites Hotels, Conrad, Hampton Inn and Homewood Suites by Hilton, among others. Subsidiaries of Hilton managed 54 of our hotels at December 31, 2007.  Hilton is a 50% partner in joint ventures with us that own 12 hotels and manage residential condominiums and hold 10% equity interests in certain of our consolidated subsidiaries that own three hotels.

•

InterContinental Hotels Group PLC ( www.ichotelsgroup.com ) of the United Kingdom is one of the world’s largest hotel companies by number of rooms. IHG owns, manages, leases or franchises, through various subsidiaries, more than 3,800 hotels and almost 572,000 guest rooms in nearly 100 countries and territories around the world. IHG owns a portfolio of well recognized and respected hotel brands including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn, Holiday Inn Express, Hotel Indigo, Staybridge Suites, Candlewood Suites, and also manages the world’s largest hotel loyalty program, Priority Club Rewards, with more than 30 million members worldwide. At December 31, 2007, subsidiaries of IHG managed 17 of our consolidated hotels.

•

Starwood Hotels & Resorts Worldwide, Inc. ( www.starwoodhotels.com ) is one of the leading hotel and leisure companies in the world with more than 870 properties with approximately 266,000 rooms in approximately 100 countries. With internationally renowned brands, Starwood is a fully integrated owner, operator and franchisor of hotels and resorts including: St. Regis, The Luxury Collection, Le Méridien, Sheraton, Westin, Four Points by Sheraton, aloft and W brands. Subsidiaries of Starwood managed nine of our hotels at December 31, 2007. Starwood is a 40% joint venture partner with us in the ownership of one hotel and a 50% joint venture partner with us in the ownership of one hotel.

•

Marriott International, Inc. ( www.marriott.com ) is a leading lodging company with nearly 2,900 lodging properties located in the United States and 68 other countries and territories. Its portfolio includes 18 lodging and vacation resort ownership brands including Marriott Hotels & Resorts and Renaissance Hotels & Resorts. Subsidiaries of Marriott managed three of our hotels at December 31, 2007.

Competition

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

Environmental Matters

     Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real property may be liable for the 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 or other expenditures. In connection with our current or prior ownership 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 Phase I surveys, and consistent with those requirements, none of the surveys involved testing of groundwater, soil or air. Accordingly, they do not represent evaluations of conditions at the studied sites that would be revealed only through such testing. In addition, Phase I assessments of environmental regulatory compliance issues is 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, the violation of which could have a material adverse effect on us. We have not been notified by any governmental authority or private party of any noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our current or former properties that we believe would have a material adverse effect on our business, assets or results of operations. However, obligations for compliance with environmental laws that arise or are discovered in the future may adversely affect our financial condition.

Tax Status

     We elected to be taxed as a REIT under the federal income tax laws. As a REIT, we generally are not subject to federal income taxation at the corporate level on taxable income that is distributed to our stockholders. We may, however, be subject to certain state and local taxes on our income and property and to federal income and excise taxes on our undistributed taxable income. Our taxable REIT subsidiaries, or TRSs, formed to lease our 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 we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent years. In connection with our election to be taxed as a REIT, our charter imposes restrictions on the ownership and transfer of shares of our common stock. FelCor LP expects to make distributions on its units sufficient to enable us to meet our distribution obligations as a REIT. At December 31, 2007, our TRSs had a federal income tax loss carry forward of $304.1 million.

Employees

     At December 31, 2007, we had 72 full-time employees. All persons employed in the day-to-day operation of our hotels are employees of the management companies engaged by us and are not our employees.

Item 1A. Risk Factors

      Certain statements and analyses contained in this Annual Report on Form 10-K , in our 2008 Annual Report to Shareholders, or that may in the future be made by, or be attributable to, us, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. All of such forward-looking statements are based upon present expectations and assumptions that may or may not actually occur. The following factors constitute cautionary statements identifying important factors, including material risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements or in our historical results. Each of the following factors, among others, could adversely affect our ability to meet the current expectations of management.

We are subject to the risks of real estate ownership, which could increase our costs of operations

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

	•		adverse changes in general or local economic or real estate market conditions;
	•		the ability to refinance debt on favorable terms at maturity;
	•		changes in zoning laws;
	•		increases in lodging supply or competition;
	•		changes in traffic patterns and neighborhood characteristics;
	•		increases in assessed property taxes from changes in valuation or real estate tax rates;
	•		increases in the cost of property insurance;
	•		the potential for uninsured or underinsured property losses;
	•		costly governmental regulations and fiscal policies;
	•		the potential that we are unable to meet all requirements under the Americans with Disabilities Act;
	•		changes in tax legislation;
	•		the ability to acquire hotel properties at prices consistent with our investment criteria;
	•		the impact of environmental laws and regulations; and
	•		other circumstances beyond our control.

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

      Compliance with environmental laws may adversely affect our financial condition. Owners of real estate are subject to numerous federal, state, local and foreign environmental laws and regulations. Under these laws and regulations, a current or former owner of real estate may be liable for the costs of remediating hazardous substances found on its property, whether or not they was 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, all public accommodations, including hotels, are required to meet certain federal requirements for access and use by disabled persons. Various state and local jurisdictions have also adopted requirements relating to the accessibility of buildings to disabled persons. We believe that our hotels substantially comply with the requirements of the Americans with Disabilities Act and other applicable laws. However, a determination that the hotels are not in compliance with these laws could result in liability for both governmental fines and payments to private parties. If we were required to make unanticipated major modifications to our hotels to comply with the requirements of the Americans with Disabilities Act and other similar laws, it could adversely affect our ability to make distributions to our stockholders and to satisfy our other obligations.

There are significant risks associated with our renovation and planned redevelopment projects that could adversely affect our financial condition, results of operations or cash flows from these projects

     Our ongoing and future renovation projects entail significant risks. Renovation and redevelopment activity requires us to obtain qualified contractors and subcontractors, the availability of which may be uncertain. Renovation and redevelopment projects are subject to cost overruns and delays caused by events outside of our control or, in certain cases, our contractors’ control, such as shortages of materials or skilled labor, unforeseen engineering or environmental problems, work stoppages, unanticipated cost increases and unavailability of construction materials. Renovation and redevelopment staffing problems or difficulties in obtaining any of the requisite materials, licenses, permits and authorizations from governmental or regulatory authorities, construction defects or non-compliance with construction or brand specifications, could increase the total cost, delay completion and adversely affect the operations of our hotels beyond our expectations. We may rely on few key vendors or contractors at renovation and redevelopment projects; the failure of any of these key vendors or contractors could materially increase the total cost, and/or delay completion and adversely affect the operations of our hotels beyond our expectations.

      Our renovation and redevelopment projects may not achieve return on investment thresholds. Each of our renovation and redevelopment projects has internal return on investment thresholds that we require to justify the increased investment in the hotel. Our renovation and redevelopment projects may not achieve these returns and may not justify the capital spent because of various reasons such as: unanticipated cost overruns or delays; changes in the local or national lodging market; increases in local competition from new hotels; or other unforeseen reasons.

Hospitality industry-related risks may adversely affect our business

      We are subject to the risks of hotel operations. We have ownership interests 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:

	•		wage and benefit costs, including hotels that employ unionized labor;
	•		repair and maintenance expenses;
	•		gas and electricity costs;
	•		insurance costs, including health, general liability and workers compensation; and
	•		other operating expenses.

     In addition, we are subject to the risks of a decline in Hotel EBITDA margins, which occur when hotel operating expenses increase disproportionately to revenues. These operating expenses and Hotel EBITDA margins are within the control of our third party managers, over which we have limited control, resulting in an increased risk of volatility in our results of operations.

      An economic slowdown or recession can have a significant adverse effect on our RevPAR performance and results of operations. The effects of an economic slowdown or recession on our financial condition could be material. A sharp reduction in business travel can cause RevPAR to decline. Decreased occupancy can lead to declining room rates, as hotels compete more aggressively for guests. Both factors have a significant adverse effect on RevPAR, Hotel EBITDA margins and results of operations.

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

	•		competition from other hotels;
	•		construction of more hotel rooms in a particular area than needed to meet demand;
	•		current high, and any further increases in, energy costs and other travel expenses;
	•		other events, such as terrorist acts or war that reduce business and leisure travel;
	•		adverse effects of declines in general and local economic activity;
	•		fluctuations in our revenue caused by the seasonal nature of the hotel industry;
	•		an outbreak of a pandemic disease affecting the travel industry;
	•		a downturn in the hotel industry; and
	•		risks generally associated with the ownership of hotels and real estate, as discussed below.

      We have embarked on a strategy to improve our customer mix. Part of our current strategy is to increase the average daily rate, or ADR, at our hotels by changing the customer mix. We plan to accomplish this through renovation and redevelopment of our hotels and not renewing some of the lower ADR contracts, which many of our hotels have relied on to generate income. If we are unable to replace at least a portion of these lower ADR contracts with other higher ADR business, it could have a materially adverse affect on our earnings and cash flow.

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

      We face reduced coverages and increased costs of insurance. Our property insurance has a $100,000 all risk deductible, a deductible of 5% of insured value for named windstorm coverage and a deductible of 2% of insured value 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 59 of our hotels. The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible.

      We could have property losses not covered by insurance. 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 certain types of terrorism. There are risks such as war, certain forms of terrorism such as nuclear, biological, chemical, or radiological terrorism and some environmental hazards that 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 challenges with an insurance provider regarding whether it will pay a particular claim that we believe to be 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 as a part of our all-risk property insurance program, as well as our general liability and directors’ and officers’ coverages. However, our all-risk policies have limitations such as per occurrence limits and sub-limits which 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 which are committed on behalf of non-United States persons or interests. Furthermore, we do not have full replacement coverage at all of our properties 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. As a result of the above, there remains uncertainty regarding the extent and adequacy of terrorism coverage that will be available to protect our interests in the event of future terrorist attacks that impact our properties.

      We have geographic concentrations that may create risks from regional or local economic, seismic or weather conditions. At December 31, 2007, approximately 49% of our hotel rooms were located in, and 46% of our 2007 Hotel EBITDA was generated from, three states: California, Florida and Texas. Additionally, at December 31, 2007, we had concentrations in six major metropolitan areas, South Florida, Atlanta, the Los Angeles area, the San Francisco Bay area, Orlando and Dallas, which together represented approximately 35% of our Hotel EBITDA for the year ended December 31, 2007. Therefore, adverse economic, seismic or weather conditions in these states or metropolitan areas will have a greater adverse effect on us than on the industry as a whole.

      We are subject to possible adverse effects of management franchise and license agreement requirements. All of our hotels are operated under existing management franchise or license agreements with nationally recognized hotel companies. Each agreement requires that the licensed hotel be maintained and operated in accordance with specific standards and restrictions in order to maintain uniformity within the brand. Compliance with these standards, and changes in these standards, could require us to incur significant expenses or capital expenditures, which could adversely affect our results of operations and ability to pay dividends to our stockholders and service on our indebtedness.

      We are subject to the risks of brand concentration. We are subject to the potential risks associated with the concentration of our hotels under a limited number of brands. A negative public image or other adverse event that becomes associated with the brand could adversely affect hotels operated under that brand.

     The following table reflects the percentage of Hotel EBITDA from our consolidated portfolio of 85 hotels included in continuing operations as of December 31, 2007 generated by hotels operated under each of the indicated brands during the year ended December 31, 2007:

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

      The lodging business is seasonal in nature. Generally, hotel revenues for our hotel portfolio are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations. Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. We expect that seasonal variations in revenue at our hotels will cause quarterly fluctuations in our revenues.

Future terrorist activities 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 terrorist alerts have adversely affected the travel and hospitality industries over the past several years. 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.

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 is intended to enable 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. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT.

      Failure to make required distributions would subject us to tax. Each year, a REIT must pay out to its stockholders at least 90% of its taxable income, other than any net capital gain. To the extent that 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% nondeductible 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, we would be subject to federal income tax at regular corporate rates on our taxable income for any such taxable year for which the statute of limitations remains open. We might need to borrow money or sell hotels in order to obtain the funds necessary to pay any such tax. If 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 independent third-party managers to operate our hotels pursuant to management agreements. As a result, we are unable to directly implement strategic business decisions for the operation and marketing of our hotels, such as decisions with respect to the setting of room rates, the salary and benefits provided to hotel employees, the conduct of food and beverage operations and similar matters. While our taxable REIT subsidiaries monitor the third-party manager’s performance, we have limited specific recourse under our management agreements if we believe the third-party managers are not performing adequately. Failure by our third-party managers to fully perform the duties agreed to in our management agreements could adversely affect our results of operations. In addition, our third-party managers or their affiliates manage hotels that compete with our hotels, which may result in conflicts of interest. As a result, our third-party managers may have in the past made and may in the future make decisions regarding competing lodging facilities that are not or would not be in our best interests.

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

     Unlike conventionally taxed corporations, our ability to reduce our debt and finance our growth largely must 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) in order to qualify as a REIT, including taxable income we recognize for federal income tax purposes but with regard to which we do not receive corresponding cash. Our ability to access the external capital we require could be hampered by a number of factors, many of which are outside our control, including declining general market conditions, unfavorable market perception of our growth potential, decreases in our current and estimated future earnings, excessive cash distributions or decreases in the market price of our common stock. In addition, our ability to access additional capital may also be limited by the terms of our existing indebtedness, which among other things, restrict our incurrence of debt and the payment of distributions. The effect of any of these factors, individually or in combination, could prevent us obtaining the external capital we require on terms that are acceptable to us, or at all, and the failure to obtain necessary capital could have a material adverse effect on our ability to finance our future growth.

Debt market conditions could have a material adverse impact on our earnings and financial condition

     We have significant financing needs that we meet through the debt and capital markets. These markets are currently experiencing unprecedented disruptions, which may have an adverse impact on our earnings and financial condition.

     Current conditions in the debt markets include reduced liquidity and increased credit risk premiums for certain market participants. These conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the future. We have debt that matures in 2008 and subsequent years. We have no assurance that we will be able to refinance this debt as it becomes due at acceptable terms, if at all.

We have substantial financial leverage

     At December 31, 2007, our consolidated debt of $1.5 billion represented 50% of our total enterprise value. Declines in revenues and cash flow may adversely affect our public debt ratings, and may limit our access to additional debt. Our senior notes currently are rated Ba3 by Moody’s Investors Service, and B+ by Standard & Poor’s, which are considered below investment grade. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs. We are currently using proceeds from the sale of non-strategic hotels and cash on hand to fund these activities, but limitations upon our access to additional debt could adversely affect our ability to fund these programs in the future.

     Significant decreases in RevPAR or Hotel EBITDA margins could reduce our ability to pay dividends and service our debt.

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

	•		limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes;
	•		require us to agree to additional restrictions and limitations on our business operations and capital structure to obtain financing;
	•		increase our vulnerability to adverse economic and industry conditions, and to interest rate fluctuations;
	•		require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for capital expenditures, future business opportunities, paying 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 debt.

     Although most of our hotel mortgage debt is recourse solely to the specific assets securing the debt, in certain cases, including fraud, misapplication of funds and other customary recourse carve-out provisions, the debt may become fully recourse to us.

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

     We may be able to incur substantial debt in the future. Although the instruments governing our indebtedness contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the risks described above would intensify.

     We have a $250 million line of credit. This line of credit has certain restrictive covenants, such as a leverage ratio, fixed charge coverage ratio, an unencumbered leverage ratio and a maximum payout ratio. The covenants under our line of credit would have allowed us to incur, at December 31, 2007, an additional $427 million of debt of which a maximum of $115 million could be unsecured debt. Together with the restrictions and limitations contained in the indentures governing our existing senior notes, at December 31, 2007, we could have incurred approximately $653 million of additional secured indebtedness assuming the additional debt was borrowed at 7.3% annual interest rate and invested in hotels with an 85% loan to value generating annual Hotel EBITDA equal to 7.5% of their cost.

We have substantial variable rate debt

     At December 31, 2007, approximately 45% of our consolidated outstanding debt had variable interest rates. If variable interest rates were to increase significantly it could have a material adverse impact on our earnings and financial condition.

We have restrictive debt covenants that could adversely affect our ability to finance our operations or engage in other business activities

     The agreements governing our line of credit and the indentures governing our outstanding senior notes contain various restrictive covenants and incurrence tests, including, among others, provisions that can restrict our ability to:

	•		incur any additional indebtedness;
	•		make common or preferred distributions;
	•		make investments;
	•		engage in transactions with affiliates;
	•		incur liens;
	•		merge or consolidate with another person;
	•		dispose of all or substantially all of our assets; and
	•		permit limitations on the ability of our subsidiaries to make payments to us.

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

     Under the terms of the indenture governing one series of our outstanding senior notes, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, if our debt-to-EBITDA ratio, as defined in the indenture, exceeds 4.85 to 1, which it does at the date of this filing.

     If actual operating results are significantly below our current expectations, as reflected in our public guidance, or if interest rates increase significantly more than we expect, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior notes. In such an event, we may be prohibited from incurring additional indebtedness, except to repay or refinance maturing debt with debt of similar priority in the capital structure, and may be prohibited from, among other things, paying distributions on our preferred or common stock, except to the extent necessary to satisfy the REIT qualification requirement that we distribute currently at least 90% of our taxable income.

     Our $250 million line of credit has certain restrictive covenants, such as a leverage ratio, fixed charge coverage ratio, an unencumbered leverage ratio and a maximum payout ratio. A breach of any of these covenants and limitations under our line of credit could require that we repay some or all amounts outstanding under our line of credit.

     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 is non-recourse to us. However, a violation of any of the SPE-related covenants could cause this debt to become fully recourse to us.

     Our failure to timely satisfy any judgment on recourse indebtedness, if in the amount of $10 million or more, could result in the acceleration of all our unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances.

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

     We own, through our subsidiaries, interests in several real estate joint ventures with third parties. Joint ventures that are not consolidated into our financial statements owned a total of 17 hotels, in which we had an aggregate investment of $127 million, at December 31, 2007. The operations of 13 of these hotels are included in our consolidated results of operations due to our majority ownership of the lessees of these hotels. None of our directors or officers hold any interest in any of these ventures. Our joint venture partners are affiliates of Hilton with respect to 11 hotels, affiliates of Starwood with respect to one hotel, and private entities or individuals with respect to five hotels. The ventures and hotels were subject to non-recourse mortgage loans aggregating $188 million at December 31, 2007.

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

     Our subsidiaries may be contractually or legally unable to unilaterally control decisions regarding these ventures and their hotels. In addition, the hotels in a venture may perform at levels below expectations, resulting in potential insolvency unless the joint ventures provide additional funds. In some ventures, the joint ventures may elect not to make additional capital contributions. We may be faced with the choice of losing our investment in a venture or investing additional capital in it with no guaranty of receiving a return on that investment.

Our charter contains limitations on ownership and transfer of shares of our stock that 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%, as determined in accordance with the Internal Revenue Code and the Securities Exchange Act of 1934, 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 will be void, and the intended transferee will not acquire any right in 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 of us 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 board of directors is divided into three classes. Directors in each class are elected for terms of three years. As a result, the ability of stockholders to effect a change in control of 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 of directors may issue up to an aggregate of 20 million shares of preferred stock without stockholder action. The preferred stock may be issued, in one or more series, with the preferences and other terms designated by our board that may delay or prevent a change in control of us, even if the change is in the best interests of stockholders. As of December 31, 2007, we had outstanding 12,880,475 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 Takeover Statutes. 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.

Existing circumstances may result in two of our directors having interests that may conflict with our interests

      Adverse tax consequences to affiliates upon a sale of certain hotels. Thomas J. Corcoran, Jr., our Chairman of the Board of Directors, and Robert A. Mathewson, a director, may incur additional tax liability if we sell our investments in the remaining four hotels that we acquired in July 1994 from partnerships in which they were investors. Consequently, our interests could differ from Messrs. Corcoran’s and Mathewson’s interests if we consider a sale of any of these hotels. Decisions regarding a sale of any of these remaining four hotels must be approved by a majority of our independent directors.

      Conflicts of interest. 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 they or one of their affiliates has an interest, their vote may reflect a bias that could be contrary to our best interests. In addition, even if an interested director abstains from voting, the director’s participation in the meeting and discussion of an issue in which they have, or companies with which they are associated have, an interest could influence the votes of other directors regarding the issue.

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

     Our executive management team includes our President and Chief Executive Officer and four Executive Vice Presidents. The persons in these positions generally possess institutional knowledge about our organization and the hospitality or real estate industries, have significant expertise in their fields, and possess leadership skills that are important to our operations. The loss of any of our senior executive officers could adversely affect our ability to execute our business strategy.

     We are committed to maintaining the high standards of our hotels. Our hotels have an average of 294 rooms, with six hotels having 500 or more rooms. Although obsolescence arising from age and condition of facilities can adversely affect our hotels, we committed to spend approximately $440 million on capital expenditures over a 30 month period commencing in 2006 to upgrade and renovate all of our hotels to enhance or maintain their competitive position. At December 31, 2007, we had completed major renovations at approximately 73% of our hotels and expect to have completed renovations at 90% of our hotels by March 31, 2008. During 2007, our pro rata share of capital expenditures spent on consolidated and unconsolidated hotels was $265.9 million. This includes renovations and redevelopment projects. We also spent 6.6% of our consolidated room revenue on maintenance and repair expense.

Hotel Brands

     A key part of our business strategy is to have our hotels managed by some of the nation’s most recognized and respected hotel brand owners. We maintain relationships with our brand owners, who also manage substantially all of our hotels. The following table illustrates the distribution of our Consolidated Hotels among our premier brands at December 31, 2007.

		ADR ($)
		Year Ended December 31,
		2007				2006				%Variance
Embassy Suites			143.10				134.12				6.7
Holiday Inn			117.59				109.52				7.4
Sheraton and Westin			126.77				121.10				4.7
Doubletree and Doubletree Guest Suites			143.11				130.27				9.9
Other (a)			137.29				132.33				3.7
Total			134.21				125.98				6.5

		RevPAR ($)
		Year Ended December 31,
		2007				2006				%Variance
Embassy Suites			102.54				100.63				1.9
Holiday Inn			81.22				75.74				7.2
Sheraton and Westin			86.33				85.73				0.7
Doubletree and Doubletree Guest Suites			102.55				96.68				6.1
Other (a)			94.62				89.73				5.4
Total			94.48				91.45				3.3

		ADR ($)
		Year Ended December 31,
		2007				2006				%Variance
South Florida area			151.23				140.16				7.9
Atlanta			122.66				118.35				3.6
Los Angeles area			158.71				142.74				11.2
San Francisco Bay area			141.59				130.97				8.1
Orlando			105.62				100.24				5.4
Dallas			123.83				112.87				9.7
Minneapolis			144.24				137.72				4.7
Phoenix			146.03				133.17				9.7
Northern New Jersey			157.02				148.76				5.5
San Diego			154.92				140.40				10.3
Washington, D.C.			164.66				161.75				1.8
Chicago			131.68				123.78				6.4
San Antonio			109.66				103.94				5.5
Philadelphia			138.88				130.00				6.8
Boston			158.52				151.65				4.5

		RevPAR ($)
		Year Ended December 31,
		2007				2006				%Variance
South Florida area			110.67				111.38				(0.6	)
Atlanta			89.85				88.95				1.0
Los Angeles area			118.26				107.36				10.2
San Francisco Bay area			108.42				99.53				8.9
Orlando			81.11				76.78				5.6
Dallas			80.47				78.94				1.9
Minneapolis			107.91				96.69				11.6
Phoenix			98.32				97.05				1.3
Northern New Jersey			113.07				103.16				9.6
San Diego			115.36				114.36				0.9
Washington, D.C.			108.10				107.42				0.6
Chicago			94.18				92.75				1.5
San Antonio			80.84				79.14				2.1
Philadelphia			95.68				95.36				0.3
Boston			108.72				110.67				(1.8	)

Embassy Suites Hotels

     Embassy Suites Hotels is the nation’s largest brand of upscale, all-suite hotels with more total suites than any of its competitors. Created in 1983, Embassy Suites Hotels was a pioneer in the all-suite concept and today is a market share leader with more than 180 hotels in the United States, Canada and Latin America. Embassy Suites Hotels, part of the Hilton family of hotels, maintains a commanding presence in this segment in terms of system size, geographic distribution, brand-name recognition and operating performance. Each Embassy Suites Hotel features spacious two-room suites featuring a separate living area, private bedroom, a mini-kitchen and other convenient, value-added guest services and amenities.

Doubletree and Doubletree Guest Suites Hotels

     Doubletree hotels and Doubletree Guest Suites are a growing collection of upscale accommodations in more than 150 gateway cities, metropolitan areas and vacation destinations throughout the United States, Canada and Latin America. As part of the Hilton family, in addition to the advantages of the award winning Hilton HHonors guest program, these brands offer comfortable accommodations, meeting facilities, exceptional dining options, health and fitness facilities, state-of-the art technology, and other amenities and services to both business and leisure travelers.

Holiday Inn Hotels

     The Holiday Inn brand is one of the most widely recognized lodging brands in the world, with nearly 1,500 properties worldwide. The brand offers today’s business and leisure travelers dependability, friendly service and modern, attractive facilities at an excellent value. Holiday Inn hotels guests enjoy amenities such as restaurants and room service, relaxing lounges, swimming pools and fitness centers, as well as 24-hour business services and meeting facilities.

Sheraton and Sheraton Suites Hotels

     With more than 400 hotels and resorts in approximately 70 countries, Sheraton Hotels & Resorts is the largest brand in the Starwood Hotels & Resorts Worldwide, Inc. system. Located in the world’s most sought-after cities and resort destinations, Sheraton hotels serve the needs of both business and leisure travelers. At all Sheraton hotels guests find full-service dining facilities and room service, on-site fitness centers with a swimming pool, on-site business services, laundry/valet services and meeting facilities for groups of all sizes. Guestrooms include generous work desks and televisions with cable/satellite channels.

Renaissance

     Renaissance Hotels & Resorts is a distinctive and global quality-tier full-service brand that targets individual business and leisure travelers and group meetings seeking stylish and personalized environments. There are 142 Renaissance Hotels & Resorts with 68 United States locations and 74 international locations.

Other Hotels

     As of December 31, 2007, four of our hotels were operated under other brands: Hilton, Hilton Suites, Hotel 480 Union Square and Westin. Upon the completion of its renovation by early 2009, Hotel 480 Union Square will be rebranded as a Marriott.

Management Agreements

     At December 31, 2007, of our 85 Consolidated Hotels, (i) subsidiaries of Hilton managed 54 hotels, (ii) subsidiaries of IHG managed 17 hotels, (iii) subsidiaries of Starwood managed nine hotels, (iv) subsidiaries of Marriott managed three hotels and (v) independent management companies managed two hotels.

     The management agreements governing the operation of 37 of our Consolidated Hotels contain the right and license to operate the hotels under the specified brands. No separate franchise agreements or payment of separate franchise fees are required for the operation of these 37 hotels. These are managed by (i) IHG under the Holiday Inn brand, (ii) Starwood under the Sheraton and Westin brands, (iii) Hilton under the Doubletree and Hilton brands and (iv) Marriott under the Renaissance brand and the Marriott brand, upon the completion of renovation of Hotel 480 Union Square.

      Management Fees.

     The minimum base management fees owed under our management agreements for our Consolidated Hotels are generally as follows:

Hilton-managed hotels

	•		Embassy Suites Hotels (45 hotels) — 2% of the hotel’s total revenue per month;
	•		Doubletree (7 hotels) — between 2% and 3% of the hotel’s total revenue per month;
	•		Hilton and Hilton Suites (2 hotels) — between 1.5% (escalating to 2% in 2009) and 2.75% of the hotel’s total revenue per month;

IHG-managed Holiday Inns (17 hotels) — 2% of the hotel’s total revenue plus 5% of the hotel’s room revenue per month;

Starwood-managed hotels; Sheraton (8 hotels) and Westin (1 hotel) — 2% of the hotel’s total revenue per month;

Marriott-managed hotels

	•		Renaissance (2 hotels) — 3% of the hotel’s total revenue per month;
	•		Hotel 480 Union Square (1 hotel) — the greater of 2% of the hotel’s total revenue or $200,000 for 2008, thereafter 3% of the hotel’s total revenue per month;

     Other managers (2 hotels) —2% of the hotel’s total revenue per month.

     The IHG management agreements generally require payment of an incentive management fee on a hotel by hotel basis measured as a percentage of hotel net operating income, as defined in the agreements. These incentive management fees for each hotel are subordinated to an 8.5% return on our investment basis in the hotel and limited to 2.5% of the hotel’s revenues.

     The Marriott and Renaissance management agreements generally require payment of an incentive management fee on a hotel by hotel basis measured as a percentage of hotel net cash flow, as defined in the agreements. These incentive management fees for each hotel are subordinated to an “Owner’s Priority” payment representing a certain return on our investment basis in the hotel and are not subject to any cap.

     The management agreements with the other managers generally provide for an incentive management fee based on a percentage of the hotel’s net income before overhead up to an additional 2% of revenues, on a hotel by hotel basis, or, an incentive management fee measured as a percentage of cash flow, subordinated to a 12% return on our investment basis in the hotel, subject to the same 2% of revenues maximum. The management fees we paid with respect to hotels in continuing operations during each of the past three years are as follows (in thousands):

      Term and Termination. The management agreements with IHG terminate in 2025 for 16 hotels and 2018 for one hotel. The management agreements with Marriott terminate in 2025 for our Renaissance hotels and 2029 for our San Francisco Union Square hotel and may be extended to 2055 and 2039, respectively, at Marriott’s option. The management agreements with the other managers generally have initial terms of between 5 and 20 years, and the agreements are generally renewable beyond the initial term only upon the mutual written agreement of the parties. The management agreements covering our hotels expire, subject to any renewal rights, as follows:

     The management agreements are generally terminable upon the occurrence of standard events of default or if the hotel subject to the agreement fails to meet certain financial expectations. Upon termination by either party for any reason, we generally will pay all amounts due and owing under the management agreement through the effective date of termination. If an agreement is terminated as a result of a default by us, we may also be liable for damages suffered by the manager. Under the IHG management agreements, we may be required to pay IHG a monthly replacement management fee equal to the existing fee structure for up to one year and liquidated damages or reinvest the sale proceeds into another hotel to be branded under an IHG brand. In addition, if we breach the agreement, resulting in a default and its termination, or otherwise cause or suffer a termination for any reason other than an event of default by IHG, we may be liable for liquidated damages under the terms of the management agreement.

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

Franchise Agreements

     Other than 37 of our hotels, with respect to which the licenses to use a brand name are contained in the management agreements governing their operations, each of our other 48 hotels operates under a separate franchise or license agreement. Of these hotels that are operated under a separate franchise or license agreement, 47 are operated under the Embassy Suites Hotels brand and one is operated under the Hilton Suites brand.

     The Embassy Suites Hotels franchise license agreements to which we are a party grant us the right to the use of the Embassy Suites Hotels name, system and marks with respect to specified hotels and establish various management, operational, record-keeping, accounting, reporting and marketing standards and procedures with which the licensed hotel must comply. In addition, the franchisor establishes requirements for the quality and condition of the hotel and its furnishings, furniture and equipment, and we are obligated to expend such funds as may be required to maintain the hotel in compliance with those requirements. Typically, our Embassy Suites Hotels franchise license agreements provide for payment to the franchisor of a license fee or royalty of 4% to 5% of suite revenues. In addition, we pay approximately 3.5% to 4% of suite revenues as marketing and reservation system contributions for the systemwide benefit of Embassy Suites Hotels. The license fees we paid with respect to hotels in continuing operations, during each of the past three years are as follows (in thousands):

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

PART II

Item 6. Selected Financial Data

     The following tables set forth selected financial data for us for the years ended December 31, 2007, 2006, 2005, 2004 and 2003, that has been derived from our audited financial statements and the notes thereto. This data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and notes thereto, appearing elsewhere in this Annual Report on Form 10-K.

     Consistent with SEC guidance, FFO has not been adjusted for the following amounts included in net income (loss) (in thousands):

     Consistent with SEC guidance, EBITDA has not been adjusted for the following amounts included in net income (loss) (in thousands):