CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
Supplement No. 1, dated June 23, 1998
to Prospectus, dated April 21, 1998
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated April 21, 1998. This Supplement replaces all prior Supplements
to the Prospectus. Capitalized terms used in this Supplement have the same
meaning as in the Prospectus unless otherwise stated herein.
Information as to proposed properties for which the Company has
received initial commitments is presented as of June 16, 1998, and all
references to commitments should be read in that context. Proposed properties
for which the Company receives initial commitments, as well as property
acquisitions that occur after June 16, 1998, will be reported in a subsequent
Supplement.
THE OFFERING
As of October 15, 1997, the Company had received aggregate subscription
proceeds of $2,774,580, which exceeded the minimum offering amount of
$2,500,000, and $2,652,330 of the funds, excluding funds from Pennsylvania
investors, were released from escrow. As of December 4, 1997, the Company had
received aggregate subscription proceeds of $8,253,530, and funds from
Pennsylvania investors were released from escrow. As of June 16, 1998, the
Company had received total subscription proceeds of $23,043,223 (2,304,322
Shares), including $4,521 (452 Shares) issued pursuant to the Reinvestment Plan,
from 1,168 stockholders in connection with this offering. As of June 16, 1998,
the Company had approximately $18,700,000 available to invest in Properties
following deduction of Selling Commissions, marketing support and due diligence
expense reimbursement fees, Organizational and Offering Expenses and Acquisition
Fees.
BUSINESS
PROPERTY ACQUISITIONS
As of June 16, 1998, the Company had not acquired any Properties.
PENDING INVESTMENTS
As of June 16, 1998, the Company had initial commitments to acquire
five hotel properties. The acquisition of each of these properties is subject to
the fulfillment of certain conditions, including, but not limited to, a
satisfactory environmental survey and property appraisal. In order to acquire
these properties, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or debt financing. There can be no assurance
that any or all of the conditions will be satisfied or, if satisfied, that one
or more of these properties will be acquired by the Company. If acquired, the
leases of all five of these properties are expected to be entered into on
substantially the same terms described in the section of the Prospectus entitled
"Business - Description of Property Leases."
Set forth below are summarized terms expected to apply to the leases
for each of the properties. More detailed information relating to a property and
its related lease will be provided at such time, if any, as the property is
acquired.
<PAGE>
<TABLE>
<CAPTION>
Estimated Purchase Lease Term and Minimum Annual Percentage Option to
Property Price Renewal Options Rent Rent Purchase
- -------- ------------------ --------------- -------------- ---------- ---------
<S> <C>
Residence Inn by $15.6 million 15 years; four five- 10.50% of the (1) None
Marriott Buckhead year renewal options Company's total cost to
(Lenox Park) purchase the property;
Atlanta, GA increases to 10.75%
Existing hotel after the first lease year
(the "Buckhead and after every year
(Lenox Park) thereafter during the
Property ") lease term
Residence Inn by $11.4 million 15 years; four five- 10.50% of the (1) None
Marriott Gwinnett year renewal options Company's total cost to
Duluth, GA purchase the property;
Existing hotel increases to 10.75%
(the "Gwinnett after the first lease year
Property ") and after every year
thereafter during the
lease term
Courtyard by (2) 15 years; two ten-year 10% of the Company's (3) None
Marriott renewal options total cost to purchase the
Orlando, FL properties
(the "Courtyard
Little Lake Bryan
Property")
Hotel to be (2) 15 years; two ten-year 10% of the Company's (3) None
constructed renewal options total cost to purchase the
properties
Fairfield Inn by (2) 15 years; two ten-year 10% of the Company's (3) None
Marriott renewal options total cost to purchase the
Orlando, FL properties
(the "Fairfield Inn
Little Lake Bryan
Property")
Hotel to be
constructed
Fairfield Suites by (2) 15 years; two ten-year 10% of the Company's (3) None
Marriott renewal options total cost to purchase the
Orlando, FL properties
(the "Fairfield
Suites Little Lake
Bryan Property")
Hotel to be
constructed
</TABLE>
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FOOTNOTES:
(1) Percentage rent for the Buckhead (Lenox Park) and Gwinnett Properties
shall equal 15% of the aggregate amount of all revenues exceeding a to
be agreed upon threshold.
(2) The anticipated aggregate purchase price for the Courtyard Little Lake
Bryan, Fairfield Inn Little Lake Bryan and Fairfield Suites Little Lake
Bryan Properties is between $90 million and $100 million.
(3) Percentage rent for the Courtyard Little Lake Bryan, Fairfield Inn
Little Lake Bryan and Fairfield Suites Little Lake Bryan Properties
which commences in the third lease year, shall equal seven percent of
revenue in excess of revenues for the second lease year.
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<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Exhibit B.
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, 1998 March 31, 1997 December 31
(Unaudited) (Unaudited) 1997 (1) 1996 (2)
--------------- --------------- ------------ ---------
<S> <C>
Revenues $ 139,153 $ - $ 46,071 $ -
Net earnings 47,308 - 22,852 -
Cash distributions declared 101,356 - 29,776 -
Funds from operations (3) 47,308 - 22,852 -
Earnings per Share 0.03 - 0.03 -
Cash distributions declared per Share 0.075 - 0.05 -
Weighted average number of Shares outstanding (4) 1,474,288 - 686,063 -
March 31, 1998 March 31, 1997 December 31, December 31,
(Unaudited) (Unaudited) 1997 1996
-------------- -------------- ------------ ------------
Total assets $15,835,315 $639,647 $9,443,476 $598,190
Total stockholders' equity 15,490,465 200,000 9,233,917 200,000
</TABLE>
(1) No operations commenced until the Company received minimum offering
proceeds and funds were released from escrow on October 15, 1997.
(2) Selected financial data for 1996 represents the period June 12, 1996
(date of inception) through December 31, 1996.
(3) Funds from operations ( "FFO "), based on the revised definition
adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ( "NAREIT ") and as used herein, means net
earnings determined in accordance with generally accepted accounting
principles ( "GAAP "), excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization
of real estate assets and after adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a
relative measure of performance and liquidity of an equity REIT in
order to recognize that income- producing real estate historically has
not depreciated on the basis determined under GAAP. However, FFO (i)
does not represent cash generated from operating activities determined
in accordance with GAAP (which, unlike FFO, generally reflects all cash
effects of transactions and other events that enter into the
determination of net earnings), (ii) is not necessarily indicative of
cash flow available to fund cash needs and (iii) should not be
considered as an alternative to net earnings determined in accordance
with GAAP as an indication of the Company's operating performance, or
to cash flow from operating activities determined in accordance with
GAAP as a measure of either liquidity or the Company's ability to make
distributions. Accordingly, the Company believes that in order to
facilitate a clear understanding of the historical operating results of
the Company, FFO should be considered in conjunction with the Company's
net earnings and cash flows as reported in the accompanying financial
statements and notes thereto.
(4) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
The Company has not yet acquired any Properties and has no significant
operating history. Since leases generally will be entered into on a "triple-net"
basis, the Company does not expect, although it has the right, to maintain a
reserve for operating expenses. The Company's Properties, Mortgage Loans and
Secured Equipment Leases will not be readily marketable and their value may be
affected by general market conditions. Nevertheless, management believes that
capital and revenues of the Company will be sufficient to fund the Company's
anticipated investments, proposed operations, and cash Distributions to the
stockholders.
LIQUIDITY AND CAPITAL RESOURCES
Effective July 9, 1997, the Company commenced its offering of Shares of
common stock. As of March 31, 1998, the Company had received aggregate
subscription proceeds of $18,398,853 (1,839,885 Shares) from the offering,
including $4,521 (452 Shares) through the Company's Reinvestment Plan.
As of March 31, 1998, net proceeds to the Company from its offering of
Shares and capital contributions from the Advisor, after deduction of Selling
Commissions, marketing support and due diligence expense reimbursement fees and
Organizational and Offering Expenses totalled approximately $15,531,000. The
Company has incurred approximately $861,000 in Acquisition Fees and Acquisition
Expenses, leaving approximately $14,670,000 in Net Offering Proceeds available
for investment in Properties and Mortgage Loans.
As of June 16, 1998, the Company had received subscription proceeds
(excluding capital contributions from the Advisor) of $23,043,223 (2,304,322
Shares) from its offering of Shares. As of June 16, 1998, net proceeds to the
Company from its offering of Shares and capital contributions from the Advisor,
after deduction of Selling Commissions, marketing support and due diligence
expense reimbursement fees and Organizational and Offering Expenses totalled
approximately $19,800,000. The Company has incurred approximately $1,070,000 in
Acquisition Fees and Acquisition Expenses, leaving approximately $18,700,000 in
Net Offering Proceeds available for investment in Properties and Mortgage Loans.
The Company is presently negotiating to acquire Properties, but as of
June 16, 1998, the Company had not acquired any Properties or entered into any
Mortgage Loans. As of June 16, 1998, the Company had initial commitments to
acquire five hotel Properties.
The Company will use Net Offering Proceeds from this offering to
purchase Properties and to invest in Mortgage Loans. See the section of the
Prospectus entitled "Investment Objectives and Policies." In addition, the
Company intends to borrow money to acquire Assets and to pay certain related
fees. The Company intends to encumber Assets in connection with such borrowing.
The Company plans to obtain a revolving Line of Credit in an amount up to
$45,000,000, and may, in addition, also obtain Permanent Financing. The Line of
Credit may be repaid with offering proceeds, working capital or Permanent
Financing. Although the Board of Directors anticipates that the Line of Credit
will be in the amount up to $45,000,000 and that the aggregate amount of any
Permanent Financing will not exceed 30% of the Company's total assets, the
maximum amount the Company may borrow, absent a satisfactory showing that a
higher level of borrowing is appropriate as approved by a majority of the
Independent Directors, is 300% of the Company's Net Assets.
The Company has received a Commitment from a bank for an initial
$30,000,000 revolving line of credit to be used by the Company to acquire or
construct hotel Properties. The Commitment provides that the term of the line of
credit shall be five years with an annual review to be performed by the bank to
indicate that there has been no substantial deterioration, in the bank's
reasonable opinion, of the credit quality, and each loan made under the line
will be payable interest only, monthly, for a period not to exceed five years.
Advances under the line of credit will bear interest at competitive rates. Each
loan made under the line of credit will be secured by the assignment of rents
and leases. In addition, the Commitment provides that the Company will not be
able to further encumber the applicable hotel Property during the term of the
loan without the bank's consent. As of June 16, 1998, the $30,000,000 line of
credit closing had not occurred. The Company anticipates executing the documents
relating to
-5-
<PAGE>
the $30,000,000 line of credit in the second quarter of 1998, although there is
no assurance that the Company will obtain such line of credit. The Company has
not yet received a commitment for any Permanent Financing and there is no
assurance that the Company will obtain any Permanent Financing on satisfactory
terms.
Properties will be leased on a long-term, triple-net basis, meaning
that tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems associated with operating the Properties are
currently anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At March 31, 1998, the
Company had $14,945,934 invested in such short-term investments (including
certificates of deposit totalling $1,500,000) as compared to $8,869,838 at
December 31, 1997. The increase in the amount invested in short-term investments
reflects subscription proceeds derived from the sale of shares during the
quarter ended March 31, 1998. These funds will be used primarily to purchase and
develop or renovate Properties, to make Mortgage Loans, to pay Organizational
and Offering Expenses and Acquisition Expenses, to pay Distributions to
stockholders, to pay other Company expenses and, in management's discretion, to
create cash reserves.
During the quarters ended March 31, 1998 and 1997, Affiliates of the
Company incurred on behalf of the Company $107,367 and $41,491, respectively,
for certain Organizational and Offering Expenses. In addition, during the
quarter ended March 31, 1998, Affiliates of the Company incurred on behalf of
the Company $6,685 for certain Acquisition Expenses and $24,304 for certain
Operating Expenses. As of March 31, 1998, the Company owed the Advisor $121,882
for such amounts, unpaid fees and administrative expenses. The Advisor has
agreed to pay or reimburse to the Company all Organizational and Offering
Expenses in excess of three percent of Gross Proceeds.
During the quarter ended March 31, 1998, the Company generated cash
from operations (which includes interest received less cash paid for operating
expenses) of $67,118. Based on current and anticipated future cash from
operations the Company declared Distributions to its stockholders of $101,356
during the quarter ended March 31, 1998. No Distributions were paid or declared
for the quarter ended March 31, 1997 because operations had not commenced. On
April 1, May 1 and June 1, 1998, the Company declared Distributions to its
stockholders totalling $46,668, $52,804 and $56,365, respectively, ($0.025 per
share) payable in June 1998. For the quarter ended March 31, 1998, 100 percent
of the Distributions received by stockholders were considered to be ordinary
income for federal income tax purposes. No amounts distributed or to be
distributed to the stockholders as of June 16, 1998, were required to be or have
been treated by the Company as a return of capital for purposes of calculating
the Stockholders' Return on their Invested Capital.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's working capital
needs.
Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources, other than as referred to in the
Prospectus.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
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<PAGE>
RESULTS OF OPERATIONS
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on October 15, 1997. As of June 16, 1998, the Company had
not yet acquired any Properties nor entered into any Mortgage Loans.
During the quarter ended March 31, 1998, the Company earned $139,153 in
interest income from investments in money market accounts and certificates of
deposit. Interest income is expected to increase as the Company invests
subscription proceeds received in the future in highly liquid investments
pending investment in Properties and Mortgage Loans. However, as Net Offering
Proceeds are invested in Properties and used to make Mortgage Loans, the
percentage of the Company's total revenues from interest income from investments
in money market accounts or other short term, highly liquid investments is
expected to decrease.
Operating expenses, including amortization expense, were $91,845 for
the quarter ended March 31, 1998. Operating expenses, including amortization
expense, represent only a portion of operating expenses which the Company is
expected to incur during a full year in which the Company owns Properties. The
dollar amount of operating expenses is expected to increase as the Company
acquires Properties and invests in Mortgage Loans. However, general and
administrative expenses as a percentage of total revenues is expected to
decrease as the Company acquires Properties and invests in Mortgage Loans.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires the reporting of net earnings and all other changes to equity during
the period, except those resulting from investments by owners and distributions
to owners, in a separate statement that begins with net earnings. Currently, the
Company's only component of comprehensive income is net earnings.
MANAGEMENT COMPENSATION
FEES AND EXPENSES PAID TO THE
ADVISOR AND ITS AFFILIATES
Selling Commissions and Marketing Support and Due Diligence Expense
Reimbursement Fee. In connection with the formation of the Company and the
offering of the Shares, the Managing Dealer will receive Selling Commissions of
7.5% (a maximum of $12,375,000 if 16,500,000 Shares are sold), and a marketing
support and due diligence expense reimbursement fee of 0.5% (a maximum of
$825,000 if 16,500,000 Shares are sold), of the total amount raised from the
sale of Shares, computed at $10.00 per Share sold ("Gross Proceeds"). The
Managing Dealer in turn may reallow Selling Commissions of up to 7% on Shares
sold, and all or a portion of the 0.5% marketing support and due diligence
expense reimbursement fee to certain Soliciting Dealers, who are not Affiliates
of the Company. As of June 16, 1998, the Company had incurred $1,728,242 for
Selling Commissions due to the Managing Dealer, a substantial portion of which
has been paid as commissions to other Soliciting Dealers. In addition, as of
June 16, 1998, the Company had incurred $115,216 in marketing support and due
diligence expense reimbursement fees due to the Managing Dealer. A portion of
these fees has been reallowed to other Soliciting Dealers, and all due diligence
expenses will be paid from such fees.
Soliciting Dealer Servicing Fee. The Company will incur a Soliciting
Dealer Servicing Fee in the amount of .20% of Invested Capital (a maximum of
$330,000 if 16,500,000 Shares are sold). The Soliciting Dealer Servicing Fee
will be payable on December 31 of each year, commencing on December 31 of the
year following the year in which the related offering terminates, and generally
will be payable to the Managing Dealer, which in turn may reallow all or a
portion of such fee to Soliciting Dealers whose clients held Shares on such
date. As of June 16, 1998, no such fees had been incurred by the Company.
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<PAGE>
Acquisition Fees. The Advisor is entitled to receive acquisition fees
for services in identifying the Properties and structuring the terms of the
acquisition and leases of the Properties equal to 4.5% of Total Proceeds,
payable by the Company as Acquisition Fees. As of June 16, 1998, the Company had
incurred $1,036,945 in such acquisition fees payable to the Advisor.
Other Acquisition Fees to Affiliates of the Advisor. In connection with
the financing, development, construction or renovation of a Property by
Affiliates, the Company will incur other acquisition fees, payable to Affiliates
of the Advisor as Acquisition Fees. Such fees are in addition to 4.5% of Total
Proceeds payable to the Advisor as Acquisition Fees, and payment of such fees
will be subject to approval by the Board of Directors, including a majority of
the Independent Directors, not otherwise interested in the transaction. As of
June 16, 1998, no such fees had been incurred by the Company.
Asset Management Fee. For managing the Properties, the Advisor will be
entitled to receive a monthly Asset Management Fee of one-twelfth of .60% of the
Company's Real Estate Asset Value (generally, the total amount invested in the
Properties, exclusive of Acquisition Fees and Acquisition Expenses) and the
outstanding principal amount of the Mortgage Loans as of the end of the
preceding month. As of June 16, 1998, no such fees had been incurred by the
Company.
Secured Equipment Lease Servicing Fee. For negotiating Secured
Equipment Leases and supervising the Secured Equipment Lease program, the
Advisor will be entitled to receive from the Company a one-time Secured
Equipment Lease Servicing Fee of 2% of the purchase price of the Equipment that
is the subject of a Secured Equipment Lease. As of June 16, 1998, no such fees
had been incurred by the Company.
Real Estate Disposition Fee. Prior to Listing, the Advisor may receive
a real estate disposition fee of 3% of the gross sales price of one or more
Properties for providing substantial services in connection with the Sale, which
will be deferred and subordinated until the stockholders have received
Distributions equal to the sum of 100% of the stockholders' aggregate Invested
Capital plus an aggregate, annual, cumulative, noncompounded 8% return on their
Invested Capital (the "Stockholders' 8% Return"). Upon Listing, if the Advisor
has accrued but not been paid such real estate disposition fee, then for
purposes of determining whether the subordination conditions have been
satisfied, stockholders will be deemed to have received a Distribution in an
amount equal to the product of the total number of Shares outstanding and the
average closing prices of the Shares over a period, beginning 180 days after
Listing, of 30 days during which the Shares are traded. As of June 16, 1998, no
such fees had been incurred by the Company.
Subordinated Share of Net Sales Proceeds. A subordinated share of Net
Sales Proceeds will be paid to the Advisor upon the Sale of one or more assets
of the Company in an amount equal to 10% of Net Sales Proceeds. This amount will
be subordinated and paid only after the stockholders have received Distributions
equal to the sum of 100% of the stockholders' aggregate Invested Capital, plus
the Stockholders' 8% Return. As of June 16, 1998, no such amounts had been
incurred by the Company.
Administrative and Other Expenses. The Advisor provides accounting and
administrative services (including accounting and administrative services in
connection with the Offering of Shares) to the Company on a day-to-day basis.
During the quarter ended March 31, 1998, the Company had incurred $89,000 of
such costs that are included in stock issuance costs and $40,650 of such costs
that are included in general and administrative expenses.
Reimbursement of Out-of-Pocket Expenses. The Advisor and its Affiliates
are entitled to receive reimbursement, at cost, for expenses they incur for
Organizational and Offering Expenses, Acquisition Expenses and Operating
Expenses. During the quarter ended March 31, 1998, the Advisor and its
Affiliates incurred $107,367, $6,685 and $24,304 on behalf of the Company for
Organizational and Offering Expenses, Acquisition Expenses and Operating
Expenses, respectively.
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<PAGE>
DISTRIBUTION POLICY
DISTRIBUTIONS
The Company intends to make regular Distributions to stockholders. The
payment of Distributions commenced in December 1997. Distributions will be made
to those stockholders who are stockholders as of the record date selected by the
Directors. Distributions will be declared monthly during the offering period,
declared monthly during any subsequent offering, paid on a quarterly basis
during an offering period, and declared and paid quarterly thereafter. The
Company is required to distribute annually at least 95% of its real estate
investment trust taxable income to maintain its objective of qualifying as a
REIT. Generally, income distributed will not be taxable to the Company under
federal income tax laws if the Company complies with the provisions relating to
qualification as a REIT. If the cash available to the Company is insufficient to
pay such Distributions, the Company may obtain the necessary funds by borrowing,
issuing new securities, or selling assets. These methods of obtaining funds
could affect future Distributions by increasing operating costs. To the extent
that Distributions to stockholders exceed earnings and profits, such amounts
constitute a return capital for federal income tax purposes, although such
Distributions may not reduce stockholders' aggregate Invested Capital.
Distributions in kind shall not be permitted, except for distributions of
readily marketable securities; distributions of beneficial interests in a
liquidating trust established for the dissolution of the Company and the
liquidation of its assets in accordance with the terms of the Articles of
Incorporation; or distributions of in-kind property as long as the Directors (i)
advise each stockholder of the risks associated with direct ownership of the
property; (ii) offer each stockholder the election of receiving in-kind property
distributions; and (iii) distribute in-kind property only to those stockholders
who accept the Directors' offer.
For the period October 15, 1997 (the date operations of the Company
commenced) through December 31, 1997, the Company declared and paid
Distributions totaling $29,776. For the quarter ended March 31, 1998, the
Company declared and paid Distributions totalling $101,356. All of such amounts
were characterized as ordinary income for federal income tax purposes. Due to
the fact that the Company had not yet acquired any Properties and was still in
the offering stage as of March 31, 1998, the characterization of Distributions
for federal income tax purposes is not necessarily considered by management to
be representative of the characterization of Distributions in future years. In
addition, in April, May and June 1998, the Company declared Distributions
totalling $46,668, $52,804 and $56,365, respectively, payable in June 1998.
Distributions will be made at the discretion of the Directors,
depending primarily on net cash from operations (which includes cash received
from tenants except to the extent that such cash represents a return of
principal in regard to the lease of a Property consisting of building only,
distributions from joint ventures, and interest income from lessees of Equipment
and borrowers under Mortgage Loans, less expenses paid) and the general
financial condition of the Company, subject to the obligation of the Directors
to cause the Company to qualify and remain qualified as a REIT for federal
income tax purposes. The Company intends to increase Distributions in accordance
with increases in net cash from operations.
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
At the Company's annual meeting of stockholders held on May 4, 1998,
the stockholders approved an amendment to the Company's Amended and Restated
Articles of Incorporation proposed by the Board of Directors to change the
Company's name. Effective June 3, 1998, the Company changed its name to CNL
Hospitality Properties, Inc. The Board of Directors believes that this will
provide better name recognition of the Company in the context of its business.
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<PAGE>
ADDENDUM TO
EXHIBIT B
FINANCIAL INFORMATION
THE UPDATED UNAUDITED FINANCIAL
STATEMENTS OF CNL HOSPITALITY
PROPERTIES, INC.CONTAINED IN
THIS ADDENDUM SHOULD BE READ IN
CONJUNCTION WITH EXHIBIT B TO THE
ATTACHED PROSPECTUS, DATED APRIL
21, 1998.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
INDEX TO UPDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Updated Condensed Financial Statements (unaudited):
Condensed Balance Sheets as of March 31, 1998 and December 31, 1997
Condensed Statements of Earnings for the quarters ended March 31, 1998 and 1997
Condensed Statements of Stockholders' Equity for the quarter ended March 31, 1998
and the year ended December 31, 1997
Condensed Statements of Cash Flows for the quarters ended March 31, 1998 and 1997
Notes to Condensed Financial Statements for the quarters ended March 31, 1998 and 1997
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
----------- -----------
Cash and cash equivalents $13,445,934 $ 8,869,838
Certificates of deposit 1,500,000 -
Due from related party - 7,500
Prepaid expenses 10,432 11,179
Organization costs, less
accumulated amortization of
$1,833 and $833 18,167 19,167
Other assets 860,782 535,792
----------- -----------
$15,835,315 $ 9,443,476
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 210,816 $ 16,305
Due to related parties 134,034 193,254
----------- -----------
Total liabilities 344,850 209,559
----------- -----------
Commitment (Note 7)
Stockholders' equity:
Preferred stock, without par
value. Authorized and unissued
3,000,000 shares - -
Excess shares, $.01 par value per
share. Authorized and unissued
63,000,000 shares - -
Common stock, $.01 par value per
share. Authorized 60,000,000
shares, issued and outstanding
1,859,885 and 1,152,540,
respectively 18,599 11,525
Capital in excess of par value 15,532,838 9,229,316
Accumulated distributions in excess
of net earnings (60,972) (6,924)
----------- -----------
Total stockholders' equity 15,490,465 9,233,917
----------- -----------
$15,835,315 $ 9,443,476
=========== ===========
See accompanying notes to condensed
financial statements.
B-2
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED STATEMENTS OF EARNINGS
Quarter Ended
March 31,
1998 1997
---------- ---------
Revenues:
Interest income $ 139,153 $ -
---------- ---------
Expenses:
General operating and administrative 85,393 -
Professional fees 5,452 -
Amortization 1,000 -
---------- ---------
91,845 -
---------- ---------
Net Earnings $ 47,308 $ -
========== =========
Earnings Per Share of Common Stock
(Basic and Diluted) $ 0.03 $ -
========== =========
Weighted Average Number of Shares of
Common Stock Outstanding 1,474,288 -
========== =========
See accompanying notes to condensed
financial statements.
B-3
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 1998 and
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
--------- ----- --------- -------- -----
<S> <C>
Balance at
December 31, 1996 20,000 $ 200 $ 199,800 $ - $ 200,000
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 1,132,540 11,325 11,314,077 - 11,325,402
Stock issuance
costs - - (2,284,561) - (2,284,561)
Net earnings - - - 22,852 22,852
Distributions
declared and
paid ($.05
per share) - - - (29,776) (29,776)
---------- ------- ----------- --------- -----------
Balance at
December 31, 1997 1,152,540 11,525 9,229,316 (6,924) 9,233,917
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 707,345 7,074 7,066,377 - 7,073,451
Stock issuance
costs - - (762,855) - (762,855)
Net earnings - - - 47,308 47,308
Distributions
declared and
paid ($.075
per share) - - - (101,356) (101,356)
---------- ------- ----------- --------- -----------
Balance at
March 31, 1998 1,859,885 $18,599 $15,532,838 $ (60,972) $15,490,465
========== ======= =========== ========= ===========
</TABLE>
See accompanying notes to condensed
financial statements.
B-4
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1998 1997
----------- ----------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating
Activities:
Interest received $ 139,153 $ -
Cash paid for expenses (72,035) -
----------- ----------
Net cash provided by
operating activities 67,118 -
----------- ----------
Cash Flows From Investing
Activities:
Investment in certificates
of deposit (1,500,000) -
Increase in other assets (313,391) -
----------- ----------
Net cash used in
investing activities (1,813,391) -
----------- ----------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and stock issuance costs
paid by related parties on
behalf of the Company (90,634) -
Subscriptions received from
stockholders 7,263,367 -
Distributions to stockholders (101,356) -
Payment of stock issuance
costs (749,008) -
----------- ----------
Net cash provided by
financing activities 6,322,369 -
----------- ----------
Net Increase in Cash and Cash
Equivalents 4,576,096 -
Cash and Cash Equivalents at
Beginning of Quarter 8,869,838 -
----------- ----------
Cash and Cash Equivalents at End
of Quarter $13,445,934 $ -
=========== ==========
See accompanying notes to condensed
financial statements.
B-5
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
Quarter Ended
March 31,
1998 1997
----------- -----------
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Related parties paid certain
acquisition and stock
issuance costs on behalf
of the Company as follows:
Acquisition costs $ 6,685 $ -
Stock issuance costs 107,367 41,491
----------- -----------
$ 114,052 $ 41,491
=========== ===========
See accompanying notes to condensed
financial statements.
B-6
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1998 and 1997
1. Organization and Nature of Business:
CNL American Realty Fund, Inc. (the "Company") was organized in
Maryland on June 12, 1996, primarily to acquire properties
("Properties") located across the United States to be leased on a
long-term, triple-net basis. The Company intends to invest the proceeds
from its public offering, after deducting offering expenses, in hotel
Properties to be leased to operators of national and regional limited
service, extended stay and full service hotel chains (the "Hotel
Chains") and in restaurant Properties to be leased to operators of
selected national and regional fast-food, family-style and casual
dining restaurant chains (the "Restaurant Chains"). The Company may
also provide mortgage financing (the "Mortgage Loans"). The Company
also intends to offer furniture, fixture and equipment financing
("Secured Equipment Leases") to operators of Hotel Chains and
Restaurant Chains.
2. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim period presented. Operating results for
the quarter ended March 31, 1998, may not be indicative of the results
that may be expected for the year ending December 31, 1998. Amounts as
of December 31, 1997, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1997.
The Company was a development stage enterprise from June 12, 1996
through October 15, 1997. Since operations had not begun, activities
through October 15, 1997, were devoted to organization of the Company.
B-7
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
2. Basis of Presentation - Continued:
Effective, January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires the reporting of net earnings and all other changes
to equity during the period, except those resulting from investments by
owners and distributions to owners, in a separate statement that begins
with net earnings. Currently the Company's only component of
comprehensive income is net earnings.
3. Other Assets:
Other assets at March 31, 1998 and December 31, 1997, of $860,782 and
$535,792, respectively, consisted of acquisition fees and miscellaneous
acquisition expenses to be allocated to future Properties.
4. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Real Estate Advisors, Inc. (the
"Advisor"). The Advisor has agreed to pay all organizational and
offering expenses (excluding commissions and marketing support and due
diligence expense reimbursement fees) which exceed three percent of the
gross offering proceeds received from the sale of shares of the
Company.
During the quarter ended March 31, 1998 and the year ended December 31,
1997, the Company incurred $762,855 and $2,304,561, respectively, in
organizational and offering costs, including $565,876 and $906,032,
respectively, in commissions and marketing support and due diligence
expense reimbursement fees (see Note 6). Of these amounts $762,855 and
$2,284,561, respectively, have been treated as stock issuance costs and
$20,000 have been treated as organization costs. The stock issuance
costs have been charged to stockholders' equity subject to the three
percent cap described above.
B-8
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
5. Distributions:
For the quarter ended March 31, 1998, 100 percent of the distributions
paid to stockholders were considered ordinary income. No amounts
distributed to the stockholders for the quarter ended March 31, 1998
are required to be or have been treated by the Company as a return of
capital for purposes of calculating the stockholders' return on their
invested capital. The characterization for tax purposes of
distributions declared for the quarter ended March 31, 1998 may not be
indicative of the results that may be expected for the year ending
December 31, 1998.
6. Related Party Transactions:
During the quarter ended March 31, 1998, the Company incurred $530,509
in selling commissions due to CNL Securities Corp. for services in
connection with the offering of shares. A substantial portion of this
amount ($495,216) was or will be paid by CNL Securities Corp. as
commissions to other broker dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the quarter ended March
31, 1998, the Company incurred $35,367 of such fees, the majority of
which were reallowed to other broker-dealers and from which all bona
fide due diligence expenses were paid.
The Advisor is entitled to receive acquisition fees for services in
finding, negotiating the leases of and acquiring Properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the quarter ended March 31, 1998, the Company incurred $318,305 of such
fees. Such fees are included in other assets at March 31, 1998.
B-9
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
6. Related Party Transactions - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the offering of
shares), on a day-to-day basis. The expenses incurred for these
services were classified as follows for the quarters ended March 31:
1998 1997
-------- --------
Deferred offering costs $ - $ 8,805
Stock issuance costs 89,000 -
General operating and
administrative expenses 40,650 -
-------- --------
$129,650 $ 8,805
======== ========
The amounts due to related parties consisted of the following at:
March 31, December 31,
1998 1997
--------- ------------
Due to CNL Securities Corp.:
Commissions $ 11,156 $100,709
Marketing support and due
diligence expense reim-
bursement fee 996 7,268
-------- --------
12,152 107,977
-------- --------
Due to CNL Real Estate
Advisors, Inc.:
Expenditures incurred for
organizational and
offering expenses on
behalf of the Company 44,164 21,729
Accounting and
administrative services 26,630 17,376
Acquisition fees 51,088 46,172
-------- --------
121,882 85,277
-------- --------
$134,034 $193,254
======== ========
B-10
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
7. Commitment:
The Company has received a commitment letter from a bank for an initial
$30,000,000 revolving line of credit to be used by the Company to
acquire or construct hotels. The commitment letter provides that the
term of the line of credit shall be five years with an annual review to
be performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable opinion, of the credit quality,
and each loan made under the line will be payable interest only,
monthly, for a period not to exceed five years. Advances under the line
of credit will bear interest at competitive rates. Each loan made under
the line of credit will be secured by the assignment of rents and
leases. In addition, the commitment provides that the Company will not
be able to further encumber the applicable hotel Property during the
term of the loan without the bank's consent. As of May 1, 1998, the
documents relating to the line of credit had not been executed.
8. Subsequent Events:
During the period April 1, 1998 through May 1, 1998, the Company
received subscription proceeds for an additional 252,270 shares
($2,522,700) of common stock.
On April 1, 1998 and May 1, 1998, the Company declared distributions
totalling $46,668 and $52,804, respectively, or $.025 per share of
common stock, payable in June 1998, to stockholders of record on April
1, 1998 and May 1, 1998, respectively.
B-11
<PAGE>
