FCH Felcor Lodging Trust Incorporated (delisted)

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•	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.

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•	Create a high-quality portfolio to improve future growth rates and return on investment;

•	Create a sound and flexible balance sheet with lower leverage to withstand lodging cycles;

•	Enhance organic growth through asset management and high return on investment redevelopment projects; and

•	Selectively acquire hotels in our core markets that meet our strict underwriting criteria.

•	We sold nine hotels since December 2010 (out of 15 hotels initially brought to market in late 2010) for total gross proceeds of $222 million (our pro rata share was $180 million). We used $80 million of those proceeds to repay indebtedness secured by four of those hotels and the remainder to repay other indebtedness and fund capital spending.

•	We also completed several other balance sheet initiatives during 2011:

•	Established a $225 million secured line of credit (we had no borrowings under the line at December 31, 2011, and the full $225 million is available for general corporate purposes).

•	Issued $525 million of 6.75% senior secured notes due 2019 and used the net proceeds to repay existing higher-cost debt (including the remaining $46 million of outstanding 9.0% senior notes due 2011), repay the $145 million balance on our line of credit and fund our $140 million purchase of Royalton and Morgans.

•	Sold 27.6 million shares of common stock in an underwritten public offering and used the net proceeds to redeem $144 million (of face value) of our 10% senior secured notes due 2014.

•	Extended a maturing mortgage loan for up to two years. The loan now bears an average interest rate of LIBOR plus 2.2% and is prepayable at any time, in whole or in part, with no penalty. At the same time, we repaid $20 million of the principal balance, reducing the outstanding balance to $158 million.

•	In May 2011, we acquired two midtown Manhattan hotels, Royalton and Morgans.

•	In December 2011, we acquired and commenced redevelopment of the four-plus star Knickerbocker Hotel in Times Square.

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Throughout 2011, we continued to reinvest in our portfolio, spending $91.2 million (our pro rata portion), primarily to renovate eight hotels and redevelop the Fairmont Copley Plaza and one other hotel. We expect to complete work at the Fairmont Copley Plaza in 2012 that will reposition the hotel closer to its luxury competitors, including a complete renovation of rooms and corridors, upgrading 12 rooms to Fairmont Gold, adding a new rooftop fitness center and spa, and redeveloping the food and beverage and other public areas.

•	In early 2012, we began marketing an additional 10 hotels for sale. As those hotels are sold, we expect to use a substantial amount of the net proceeds to repay outstanding debt and to pay accrued preferred dividends

•	As our cash flow increases from continued RevPAR growth and we sell non-strategic hotels, we expect to reduce our leverage materially. Our targeted leverage is 4.5 times (measured as total net debt to Adjusted EBITDA).

•	We expect to reduce debt and restructure our balance sheet as we repay existing debt with proceeds from asset sales, or refinance debt on more favorable terms.

•	We also expect to bring our accrued preferred dividends current using net proceeds from asset sales, which is necessary before we are able to resume paying a common stock dividend.

•	During the last three years we successfully refinanced or repaid all of our near-term debt maturities, and we refinanced or resolved $1.6 billion of consolidated debt and extended our weighted average debt maturity to mid‑2016.

•	We do not expect to acquire any further hotels in the near-term as we focus on reducing leverage.

•	We have no near-term debt maturities.

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Hotel Sales. Selling non-strategic hotels increases our long-term growth, reduces future capital expenditures and enables management to focus on “core” long-term investments. We regularly review each hotel in our portfolio in terms of projected performance, future capital expenditure requirements and market dynamics and concentration risk.  We developed a plan to sell as many as 40 hotels (including the 15 hotels and 10 hotels we began marketing in late 2010 and early 2012, respectively). We intend to sell hotels through 2013, and expect to use the net proceeds to repay debt, pay our accrued preferred dividends and invest in high return on investment redevelopment opportunities at our core hotels. We will bring the remaining hotels to market at the appropriate time to maximize profit.

•	Hotel Acquisitions. We only consider purchasing hotels that meet or exceed our strict investment criteria:

•	We only consider acquisition candidates that are accretive to long-term stockholder value, improve the overall quality of our portfolio, further diversify our portfolio by market, customer type and brand and improve future Hotel EBITDA growth.

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•	We limit our acquisitions to high-quality hotels in major urban and resort markets with high barriers to entry and high growth potential, as typified by the iconic Fairmont Copley Plaza, Royalton, Morgans, and (at stabilization) the Knickerbocker.

•	We seek hotels that are priced at a significant discount to replacement cost with investment returns that exceed our weighted average cost of capital and can provide attractive long-term yields.

•	We also consider hotels that offer redevelopment and/or revenue enhancement opportunities that can further enhance our return on investment.

•	In December 2011, we acquired and commenced redevelopment of the four-plus star Knickerbocker Hotel in Times Square. We expect the Knickerbocker to be our last acquisition in this cycle, as we focus on strengthening our balance sheet through the sale of non-strategic hotels and reducing leverage.

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•	RevPAR increased 8.2%, which was substantially above the long-term historical average;

•	Occupancy increased 4.4% to 60.1%, as improving demand growth and moderating supply growth trends continued;

•	Industry performance improved on a widespread basis, with all of the largest 25 markets (as defined by STR) enjoying increased RevPAR in 2011; and

•	Average daily rate (ADR) increased 3.7%, as operators raised rates in the face of strong demand growth, led by increases in corporate travel, and re-mixed their business in favor of premium corporate guests.

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(a)	This information is based on historical presentations.

(b)	This category includes "upscale" hotels (hotels with ADRs in the 70th to 85th percentiles in their respective markets).

(c)	This category includes “midprice” hotels (hotels with ADRs in the 40th to 70th percentiles in their respective markets).

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•	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 debt.

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•	General economic conditions, including, among others, unemployment, major bank failures, unsettled capital markets and sovereign debt uncertainty;

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

•	changes in zoning laws;

•	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;

•	potential for uninsured or underinsured property losses;

•	costly governmental regulations and fiscal policies;

•	changes in tax laws; and

•	other circumstances beyond our control.

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•	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;

•	a downturn in the hotel industry;

•	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.

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•	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.

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(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. We consider Hotel EBITDA as a same-store metric and current year acquisitions (Morgans/Royalton) are excluded from this metric.

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(a)	All years presented have been adjusted to reflect hotels no longer owned as discontinued operations.

(b)	Included in income (loss) from continuing operations are the following amounts (in millions):

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(c)

FelCor suspended payment of its common dividend in December 2008 and its preferred dividends in March 2009 in light of the deepening recession and dysfunctional capital markets, and the attendant impact on our industry and us.  In January 2011, FelCor reinstated our current quarterly preferred dividends and paid current quarterly preferred dividends for each quarter in 2011. Funds used by FelCor to pay common or preferred dividends are provided through distributions from FelCor LP. FelCor's Board of Directors will determine the amount of future 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.  Unpaid preferred dividends must be paid in full prior to payment of any common dividends.

(d)	A more detailed description and computation of Adjusted FFO per share and Adjusted EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

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•	We sold nine hotels since December 2010 (out of 15 hotels initially brought to market in late 2010) for total gross proceeds of $222 million (our pro rata share was $180 million). We used $80 million of those proceeds to repay indebtedness secured by four of those hotels and the remainder to repay other indebtedness.

•	We also completed several other balance sheet initiatives during 2011:

•	Established a $225 million secured line of credit (we had no borrowings under the line at December 31, 2011, and the full $225 million is available for general corporate purposes).

•	Issued $525 million of 6.75% senior secured notes due 2019 and used the net proceeds to repay existing higher-cost debt (including the remaining $46 million of outstanding 9.0% senior notes due 2011), repay the $145 million balance on our line of credit and fund our $140 million purchase of Royalton and Morgans.

•	Sold 27.6 million shares of common stock in an underwritten public offering and used the net proceeds to redeem $144 million (of face value) of our 10% senior secured notes due 2014.

•	Extended a maturing mortgage loan for up to two years. The loan now bears an average interest rate of LIBOR plus 2.2% and is prepayable at any time, in whole or in part, with no penalty. At the same time, we repaid $20 million of the principal balance, reducing the outstanding balance to $158 million.

•	In May 2011, we acquired two midtown Manhattan hotels, Royalton and Morgans.

•	In December 2011, we acquired and commenced redevelopment of the four-plus star Knickerbocker Hotel in Times Square.

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(a)	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 elsewhere in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section “Non-GAAP Financial Measures.”

(b)	The following amounts are included in loss from continuing operations (in millions):

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Total revenue was $946.0 million , a 9.6% increase compared to 2010. The increase principally reflects a 5.2% increase in same-store RevPAR ( 5.4% at our core hotels and 4.6% at our non-strategic hotels), which was driven by a 3.6% increase in ADR and a 1.5% increase in occupancy, as well as $45.9 million in incremental revenue from our recently-acquired hotels (the Fairmont Copley Plaza, acquired in August 2010, and Royalton and Morgans, acquired in May 2011).

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Hotel departmental expenses increased $33.9 million , compared to 2010, reflecting improved occupancy and $23.4 million of incremental hotel departmental expense from our recently acquired hotels. As a percentage of total revenue, hotel departmental expenses increased from 36.1% to 36.5% compared to 2010. This change is primarily due to the mix and nature of the business at the Fairmont Copley Plaza, which has significant food and beverage revenue. Food and beverage expenses are generally much higher as a percent of revenue than room expenses.

•	Other property related costs increased $21.7 million , due to a combination of improved occupancy and $12.5 million of incremental other property-related costs from our recently-acquired hotels.  As a percentage of total revenue, other property related costs remained essentially unchanged, compared to 2010.

•	Management and franchise fees increased $3.0 million , compared to 2010, due to higher revenues (which serve as the basis for determining such fees) and $766,000 in fees with respect of our recently-acquired hotels. As a percent of total revenue, management and franchise fees remained essentially unchanged, compared to 2010.

•	Taxes, insurance and lease expenses increased $2.7 million compared to 2010. As a percentage of total revenue, taxes, insurance and lease expense improved from 10.2% in 2010 to 9.6% in 2011. This trend reflects favorable property tax settlements and improved liability claims experience, and was partially offset by $3.4 million of incremental expenses at our recently-acquired hotels.

•	Corporate expenses decreased $1.7 million and decreased as a percentage of total revenue from 3.6% to 3.1% . This decrease is primarily attributed to the decrease in corporate bonus expense.

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Depreciation and amortization expense decreased $274,000 compared to the same period in 2010. Our asset values, the basis from which we calculate depreciation, declined between 2010 and 2011 as result of hotel sales and impairment charges. Our same-store depreciation expense declined from 2010 to 2011, but this decline was offset by $3.6 million of depreciation expense related to our recently-acquired hotels. As a percent of total revenue, depreciation and amortization expense decreased to 14.1% in 2011 compared to 15.5% for the same period in 2010.

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Impairment charges. From 2010-11, we identified 30 hotels (included in our consolidated investment in hotels) as non-strategic. We recorded $7.0 million of incremental impairment charges in 2011 relating to two of these non-strategic hotels that we are currently marketing for sale. The charges were based on revised estimated fair values obtained through the marketing process that were lower than the net book values for these hotels. We recorded $106.4 million of impairment charges from continuing operations in 2010, relating to 11 of the non-strategic hotels (22 of the 30 hotels identified as non-strategic remain in continuing operations).

•	Net interest expense decreased $4.6 million compared to the same period in 2010, primarily reflecting our lower average debt.

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Extinguishment of debt . During 2011, we redeemed $144 million of our 10% senior notes due in October 2014 and recognized a $27.4 million debt extinguishment charge related to prepayment premium and the write-off of a pro rata portion of the debt discount and deferred loan costs, all of which was partially offset by a $3.7 million extinguishment gain when we refinanced a separate mortgage loan. In June 2010, we repaid $177 million of debt, secured by two hotels, for $130 million, and recorded a related $46.1 million gain on extinguishment of debt.

•	Equity in income of unconsolidated entities was a loss of $2.1 million compared to $16.9 million of income in 2010. In 2010, we had a $20.5 million gain from the sale of our interest in an unconsolidated entity (which owned the Sheraton Premiere hotel in Tysons Corner, Virginia).

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Discontinued operations consists of eight hotels sold in 2011, one hotel sold in 2010, and two hotels transferred to a lender in satisfaction of debt in 2010. In 2011, we recorded $4.7 million of gains from the sale of hotels and $6.2 million of impairment charges. In 2010, we recorded impairment charges on discontinued hotels of: (i) $46.2 million related to our 2010 decision to sell 29 hotels included in our consolidated investment in hotels (8 of these hotels are in discontinued operations, 5 of which were impaired in 2010) and (ii) $21.1 million related to our 2010 decision to return two hotels to their respective lenders in full satisfaction of the related debt. These charges were partially offset by a $15.2 million gain from debt extinguishment related to the two hotels transferred to lenders in satisfaction of debt.

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•	Total revenue was $863.0 million , a 6.3% increase compared to 2009 . The increase principally reflects a 4.3% increase in same-store RevPAR, which was driven by a 5.9% increase in occupancy partially offset by a 1.5% decrease in ADR. The Fairmont Copley Plaza, which we acquired in August 2010, contributed $16.8 million.

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Hotel departmental expenses increased $21.2 million ( 7.3% ) compared to 2009 , reflecting improved occupancy and $7.8 million of expenses at the Fairmont Copley Plaza. As a percentage of total revenue, hotel departmental expenses increased from 35.8% to 36.1% compared to 2009 . This change is primarily due to the mix and nature of the business at the Fairmont Copley Plaza, which has significant food and beverage revenue. Food and beverage expenses are generally much higher as a percent of revenue than room expenses.

•	Other property related costs increased $14.8 million , reflecting improved occupancy and $3.9 million of costs from the Fairmont Copley Plaza.  As a percentage of total revenue, other property related costs remained essentially unchanged, compared to 2009 .

•	Management and franchise fees increased $1.5 million , compared to 2009 , due to higher revenues (which serve as the basis for determining such fees) and $505,000 in fees with respect of the Fairmont Copley Plaza. As a percent of total revenue, management and franchise fees remained essentially unchanged, compared to 2009 .

•	Taxes, insurance and lease expenses increased $3.7 million compared to 2009 . The Fairmont Copley Plaza added $1.2 million of taxes, insurance and lease expense in 2010. As a percentage of total revenue, taxes, insurance and lease expense decreased from 10.4% in 2009 to 10.2% in 2010, reflecting improved property insurance costs and changes in franchise tax filing status.

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Corporate expenses increased $6.5 million and increased as a percentage of total revenue from 3.0% to 3.6% .  This increase primarily reflects a temporary change in our long-term compensation program and increased corporate bonus accruals.  Because of the impact of the recession on the trading price of our common stock, our Board of Directors determined that issuing restricted stock at exceptionally low trading prices would be unduly dilutive to our stockholders.  In lieu of issuing restricted stock, restricted cash with which grantees could (and did) purchase stock, was granted.  Because those grants were subject to payroll tax withholding, amounts withheld were recognized as an expense in the first quarter of 2010 , rather than expensed over the normal three-year vesting period.  The increase in bonus expense is attributed to a higher bonus earned, based on the actual performance and the structure of our incentive compensation plan, compared to 2009.

•	Depreciation and amortization expense increased $1.8 million , compared to 2009 , primarily attributable to depreciation on $38.9 million and $75.9 million of consolidated hotel capital assets placed in service in 2010 and 2009 , respectively.

•	Impairment charge . During 2010, we identified 29 hotels (included in our consolidated investment in hotels) as non-strategic. Related to this decision, we recorded $106.4 million of impairment charges from continuing operations in 2010, relating to 11 of these hotels (21 of the 29 hotels identified as non-strategic in 2010 remain in continuing operations).

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•	Net interest expense increased $39.9 million compared to 2009 , largely attributable to our Senior Notes, which were issued in October 2009. These notes bear interest at a higher rate than the notes they refinanced.

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Debt extinguishment . We repaid $177 million of secured debt for $130 million and recorded a corresponding $46.1 million gain on extinguishment of debt. This gain was partially offset by losses from retirement of $40.3 million of our senior notes due June 2011. In 2009, we retired $428 million of senior notes maturing in 2011 and terminated our line of credit. We incurred a $1.7 million charge associated with these transactions.

•	Equity in income of unconsolidated entities was $16.9 million compared to a $4.8 million loss in 2009 . In 2010, we had a $20.5 million gain from the sale of our interest in an unconsolidated entity (which owned the Sheraton Premiere hotel in Tysons Corner, Virginia).

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Discontinued operations primarily reflects a $67.3 million impairment charge and $15.2 million gain from debt extinguishment related to five sold hotels and two hotels transferred to lenders in full satisfaction of the related debt in 2010 .   Discontinued operations in 2009 primarily consisted of: (i) a $1.8 million adjustment to gains on sale (resulting from a change in the federal tax law that allowed recovery of previously paid alternative minimum taxes on gains from hotel sales in 2006 and 2007); (ii) the following items related to two hotels sold in December 2009 : a $3.4 million impairment loss and a $911,000 loss on sale (primarily related to selling costs); and (iii) $10.2 million of 2009 operating losses and interest expense related to hotels placed in discontinued operations in 2011, 2010 and 2009 .

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(a)	For same-store metrics, we have included the hotel acquired in August 2010 and excluded the two hotels acquired in May 2011 for all periods presented.

(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.

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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.

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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.

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(a)	We currently have full availability under our $225   million line of credit.

(b)	The line of credit can be extended for one year (to 2015), subject to satisfying certain conditions.

(c)	LIBOR (for this loan) is subject to a 3% floor.  We purchased an interest rate cap ($212   million notional amount) that caps LIBOR at 5.0% and expires May 2012.

(d)	This loan can be extended for six months, subject to satisfying certain conditions.

(e)	The hotels securing this debt are subject to separate loan agreements and are not cross-collateralized.

(f)	These notes have $492 million in aggregate principal outstanding ($144   million in aggregate principal amount was redeemed in June 2011) and were initially sold at a discount that provided an effective yield of 12.875% before transaction costs.

(g)

This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. When that loan is transferred to a new lender and made part of our construction loan, we expect to only pay such tax to the extent of the incremental principal amount of the construction loan.

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(a)	Our long-term debt consists of both secured and unsecured debt and includes both principal and interest.  Interest expense for variable rate debt was calculated using the interest rate at December 31, 2011.

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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 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;

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◦	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.

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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.

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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 2011 , 2010 and 2009 , we capitalized $7.4 million, $5.8 million and $5.9 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.

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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.

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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.

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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 50 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 $2.7 million, at December 31, 2011 , 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, 2011 .

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Our Taxable REIT Subsidiaries, or TRSs, have cumulative potential future tax deductions totaling $351.4 million .  The deferred income tax asset associated with these potential future tax deductions was $133.5 million .  We recorded a 100% valuation allowance related to our TRSs net deferred tax asset, because of the uncertainty of realizing the asset’s benefit.  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.

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(a)	The average floating rate represents the implied forward rates in the yield curve at December 31, 2011 .

(a)	The average floating rate represents the implied forward rates in the yield curve at December 31, 2010 .

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1.	Organization

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1.	Organization – (continued)

2.	Summary of Significant Accounting Policies

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2.	Summary of Significant Accounting Policies — (continued)

•	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).

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2.	Summary of Significant Accounting Policies — (continued)

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2.	Summary of Significant Accounting Policies — (continued)

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3.	Investment in Hotels

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4.	Hotel Acquisitions

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4.	Hotel Acquisitions — (continued)

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6.	Impairment Charges

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6.	Impairment Charges— (continued)

(a)	Includes impairment charges of $6.2 million, $67.3 million and $3.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.

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8.	Investment in Unconsolidated Entities

(a)	Net loss included impairment charges of $3.2 million for 2009.  These impairments were based on sales contracts (a Level 2 input) for a hotel owned by one of our joint ventures.

(b)	As a result of an impairment charge recorded by one of our joint ventures, the net book value of the joint venture’s assets no longer supported the recovery of our investment.  Therefore, we recorded an additional impairment charge to reduce our investment in this joint venture to zero.

(c)	Includes a $20.5 million gain from the sale of our interest in an unconsolidated joint venture and $559,000 in net proceeds in the final liquidation of a joint venture.

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8.	Investment in Unconsolidated Entities — (continued)

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9.	Debt

(a)	We currently have full availability under our $225   million line of credit.

(b)	The line of credit can be extended for one year (to 2015), subject to satisfying certain conditions.

(c)	LIBOR (for this loan) is subject to a 3% floor.  We purchased an interest rate cap ($212   million notional amount) that caps LIBOR at 5.0% and expires May 2012.

(d)	This loan can be extended for six months, subject to satisfying certain conditions.

(e)	The hotels securing this debt are subject to separate loan agreements and are not cross-collateralized.

(f)	These notes have $492 million in aggregate principal outstanding ($144   million in aggregate principal amount was redeemed in June 2011) and were initially sold at a discount that provided an effective yield of 12.875% before transaction costs.

(g)

This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. When that loan is transferred to a new lender and made part of our construction loan, we expect to only pay such tax to the extent of the incremental principal amount of the construction loan.

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9.	Debt — (continued)

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9.	Debt — (continued)

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9.	Debt — (continued)

10.	Fair Value of Financial Instruments

11.	Income Taxes

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(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.

(b)	In 2009 and 2010, we recorded a reduction in intercompany rent between our REIT entities and TRS entities for tax purposes.

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11.	Income Taxes — (continued)

(a)	Book/tax differences in depreciation and amortization principally result from differences in depreciable lives and accelerated depreciation methods .

(b)	For tax purposes, we recorded a reduction in intercompany rent between our REIT entities and TRS entities.

(c)	The dividend distribution requirement is 90% of taxable income.

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(a)	Fourth quarter 2008 preferred distributions were paid January 31, 2009, and were treated as 2009 distributions for tax purposes.

(b)	Fourth quarter 2010 preferred distributions were paid January 31, 2011, and were treated as 2011 distributions for tax purposes.

12.	FelCor Capital Stock/FelCor LP Partners' Capital

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12.	FelCor Capital Stock/FelCor LP Partners' Capital — (continued)

13.	Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units

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13.	Redeemable Noncontrolling Interests in FelCor LP / Redeemable Units – (continued)

14.	Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs

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

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15.	Taxes, Insurance and Lease Expenses

(a)

Hotel lease expense is recorded by the consolidated operating lessees of 12 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, $15.0 million and $13.0 million for the year ended December 31, 2011 , 2010 , and 2009 , respectively.

(b)	Land lease expense includes percentage rent of $4.7 million, $4.2 million and $3.6 million for the year ended December 31, 2011 , 2010 , and 2009 , respectively.

16.	Land Leases and Hotel Rent

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17.	Loss Per Share/Unit

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17.	Loss Per Share/Unit — (continued)

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18.	Commitments, Contingencies and Related Party Transactions

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19.	Supplemental Cash Flow Disclosure

20.	FelCor Stock Based Compensation Plans

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20.	FelCor Stock Based Compensation Plans — (continued)

(a)	Shares awarded to directors.

21.	Employee Benefits

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22.	Segment Information

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23.	Quarterly Operating Results (unaudited)

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

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24.	FelCor LP's Consolidating Financial Information

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

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

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24.	Consolidating Financial Information — (continued)

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24.	Consolidating Financial Information — (continued)

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24.	Consolidating Financial Information — (continued)

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