About FelCor

Our long-term strategic plan is to own a diversified portfolio of high–quality, upscale hotels located in major urban and resort markets. We focus on maximizing stockholder value and return on invested capital by optimizing the use of our real estate and enhancing property cash flow. We employ a portfolio management philosophy whereby, we continually examine our portfolio to address issues of market supply and demand, the capital needs of each hotel and concentration risk, after which analysis we sell hotels that no longer meet our investment criteria and selectively acquire hotels based on strict underwriting standards.

Pursuant to this strategy, our portfolio consists primarily of upper upscale hotels and resorts, which are flagged under global brands such as Embassy Suites Hotels®, Doubletree®, Hilton®, Marriott®, Renaissance®, Sheraton®, Westin® and Holiday Inn®. Our overall portfolio grew market share by more than three percent during 2008, while the 70 hotels that completed renovations in 2007 and 2008, grew their aggregate market share by more than 5%, from 114% to 120%. In 2009, our hotel portfolio increased market share by 1.4% compared to prior year. Further, our performance has been superior relative to our peers. Over the two years, our peers' RevPAR decreased 21%, while ours decreased only 17%, and we were able to limit the negative flow-through associated with the reduced revenue to 46%, compared to 53% at our peers.

In order to achieve our objectives, we are focused on the following areas:

Asset Management Approach

We seek to improve the competitive position of our hotels through aggressive asset management. We benefit from our strong alliances with our brand-owner managers. These relationships enable us to work effectively with our managers to maximize Hotel EBITDA margins and operating cash flow from our hotels. While REIT requirements prohibit us from directly managing our hotels, we employ an intensive approach to asset management. We press our brand/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. We work closely with our brand/managers to monitor and review hotel operations. As part of our focus on controlling hotel operating margins, we continue to work with our operators to align the cost structure of our hotels with current business levels. At the same time, we are very focused on revenue management and enhancement. Our asset managers have exceptionally thorough knowledge of the markets where our hotels operate, as well as overall demand dynamics, which enables us to work closely with our brand/managers to optimize revenue generation. Our asset management approach also entails looking for value-added enhancements at our hotels, such as maximizing use of public areas, new restaurant concepts, changing management of food and beverage operations and uncovering new revenue sources.

Renovations & Redevelopment

In 2009, we completed the last phase of a multi-year, portfolio-wide renovation program designed to enhance the competitive positioning and value of our hotels. We invested more than $450 million and successfully generated expected returns through growth in market share. Our ongoing capital expenditures will generally be consistent with ordinary course improvements and maintenance of our hotels. Given the substantial renovations and the current industry conditions, we are able to limit near-term capital expenditures without harming the value or quality of our hotels.

In June 2009, we completed the final phase of the comprehensive redevelopment of the San Francisco Marriott-Union Square, which is situated in one of the premier hotel markets in the United States. The hotel was rebranded as a Marriott hotel in April 2009. RevPAR during the second half of 2009 (under the Marriott flag) increased 64% at this hotel, compared to 2008, and its market share increased by 105%. Its market share index during the second half of 2009 was 106% compared to 80% for 2007 (before renovation). During 2008, we completed a new 35,000 square-foot convention center adjacent to our Hilton Myrtle Beach Resort, added meeting space at the Doubletree Guest Suites in Dana Point, California and added a spa and food and beverage areas at the Embassy Suites Hotel Deerfield Beach Resort & Spa. These new assets enhanced the hotels' competitiveness in a difficult environment and contributed to their 5% increase in market share in 2009. We are progressing with the approval and entitlement process for additional redevelopment projects, in the interest of building long-term value. However, we are committed to a disciplined approach toward capital allocation and will commit capital to new projects only when prudent, especially in the light of lingering effects of the global recession.

Balance Sheet Strategy

We are committed to strengthening our balance sheet to provide the necessary capacity to withstand lodging cycles and also provide us with capacity to take advantage of opportunities that may arise in the future. We strive to maintain a flexible balance sheet, utilizing a mix of common and preferred equity, public notes, and utilizing floating rates on a portion of our debt as a hedge against economic cycles. Although the economic downturn has resulted in an increase in our leverage, we expect to reduce our leverage when operating performance improves and with future asset sales. We have increased our cash balance by over $200 million in the past year to ensure we have sufficient liquidity to cover any cash flow needs during the current period of declining RevPAR. We continue to look for additional opportunities to reduce financing costs, increase our flexibility and ensure adequate liquidity on an economically sound basis. With the current economic environment in mind, we are taking the necessary steps to extend our debt maturities and ensure we have adequate liquidity to withstand the downturn. We have made great progress on these initiatives. Our team refinanced or extended nearly $1 billion of debt during 2009. The Company also terminated its line of credit, which eliminated restrictive covenants. Most importantly, we refinanced our senior notes, which were scheduled to mature in 2011, with new senior notes that will take us through 2014, substantially removing our refinancing risk, and thus, our primary corporate risk. The debt that is scheduled to mature in 2010 consists of nine loans. We are in active discussion with the lenders; so far, we extended one of these loans ($28 million) for three years. Based on our success and progress to date, we anticipate successful resolutions of the remaining loans.

Portfolio Recycling

In 2006, we implemented an initial phase of asset sales, which totaled 45 hotels, and we received total gross proceeds of $720 million. We regularly review and evaluate our hotel portfolio and will identify additional hotels to sell based upon strategic considerations, such as future supply growth, changes in demand dynamics, concentration risk, strategic fit, return on future capital needs and return on invested capital. Our long-term plan involves another significant phase of asset sales that will continue to improve the overall quality of our portfolio. We will begin dispositions when the market stabilizes (after cash flows recover and capital markets open) in order to optimize proceeds. We will review our portfolio in light of changing market supply and demand and future capital needs and will sell those hotels that no longer meet our investment criteria. We also consider concentration risk and will sell assets that are located in markets where we have multiple properties.

External Growth

While preserving liquidity and reducing leverage are our focus in the current environment, we will consider acquisitions that will improve the overall quality of our portfolio, further diversify our portfolio by market, customer type and brand, and improve future Hotel EBITDA growth. We may look for properties where we can utilize our competitive strengths, such as ones that have redevelopment opportunity to further enhance our return on investment. We take a highly disciplined approach to analyzing any potential acquisition, which must meet strict criteria, including minimum targeted rates of return. We expect potential future acquisitions will be restricted to high quality hotels in major urban and resort markets with high barriers to entry and high growth potential.