Rule 424(b)(3)
No. 333-9943
CNL HOSPITALITY PROPERTIES, INC.
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated October 6, 1998 and the Prospectus Supplement dated December
18, 1998. 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 and as to the number and types of Properties
acquired by the Company is presented as of February 26, 1999, 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 February 26, 1999, will be reported in a subsequent Supplement.
THE OFFERING
As of February 26, 1999, the Company had received total subscription
proceeds of $73,605,508 (7,360,551 Shares), including 3,730 Shares ($37,299)
issued pursuant to the Reinvestment Plan, from 2,937 stockholders in connection
with this offering. As of February 26, 1999, net offering proceeds received by
the Company from this offering, after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and offering
expenses totalled approximately $65,901,000. As of February 26, 1999, the
Company had used net offering proceeds and borrowings to invest, directly or
indirectly, approximately $51,230,000 in six hotel Properties, to pay $5,000,000
as a deposit on three additional hotel Properties and to pay approximately
$4,836,000 in acquisition fees and certain acquisition expenses. As of February
26, 1999, approximately $4,835,000 of net offering proceeds was available to
invest in Properties.
BUSINESS
PROPERTY ACQUISITIONS
Western International Portfolio. In February 1999, the Company executed
a series of agreements with Five Arrows Realty Securities II L.L.C. ("Five
Arrows"), pursuant to which the Company and Five Arrows formed a jointly-owned
real estate investment trust, CNL Hotel Investors, Inc. ("Hotel Investors"), for
the purpose of acquiring up to eight hotels from various sellers affiliated with
Western International (the "Hotels"). The eight Hotels are either newly
constructed or in various stages of completion. When fully built, four of eight
Hotels will operate as Courtyard(R) by Marriott(R) hotels, three will operate as
Residence Inn(R) by Marriott(R) hotels, and one will operate as a Marriott
Suites(R).
The Company's advisor, CNL Hospitality Advisors, Inc. (the "Advisor"),
will act as the advisor to Hotel Investors pursuant to a separate advisory
agreement. However, in no event will the Company pay the Advisor fees, including
the Company's pro rata portion of Hotel Investors' advisory fees, in excess of
amounts payable under its Advisory Agreement. In that capacity, the Advisor has
entered into separate purchase agreements for each of the eight Hotels, which
agreements include customary closing conditions, including inspection of and due
diligence on the completed properties. The aggregate purchase price of all eight
Hotels, once acquired, will be approximately $184 million, excluding closing
costs.
In order to fund these purchases, Five Arrows has committed to make an
investment of up to $50.9 million in Hotel Investors. The Company has committed
to make an investment of up to $40 million in Hotel Investors, which investment
will be made through the Company's wholly owned subsidiary, CNL Hospitality
Partners, LP ("Hospitality Partners"). Hotel Investors expects to fund the
remaining amount of approximately $96.6 million with permanent financing from
Jefferson-Pilot Life Insurance Company, secured by Hotel Investors' interests in
the properties (the "Hotel Investors Loan"). Hotel Investors intends to use
funds from Five Arrows, the Company, and the Hotel Investors Loan
proportionately to fund each property acquisition.
March 4, 1999 Prospectus Dated October 6, 1998
<PAGE>
In return for their respective funding commitments, Five Arrows will
receive a 51% common stock interest and Hospitality Partners will receive a 49%
common stock interest in Hotel Investors. As funds are advanced to Hotel
Investors, Five Arrows will receive up to 50,886 shares of Hotel Investors' 8%
Class A cumulative, preferred stock ("Class A Preferred Stock"), and Hospitality
Partners will receive up to 39,982 shares of Hotel Investors' 9.76% Class B
cumulative, preferred stock ("Class B Preferred Stock"). The Class A Preferred
Stock is exchangeable upon demand into common stock of the Company, as
determined pursuant to a formula that is intended to make the conversion not
dilutive to the Company's common stockholders.
Five Arrows has also committed to invest up to $15 million in the
Company through the purchase of common stock pursuant to the Company's current
public offering, the proceeds of which will be used by the Company to fund
approximately 38% of its funding commitment to Hotel Investors. Five Arrows will
purchase the Company's stock as properties are acquired by Hotel Investors, as
described above. In addition to the above investments, Five Arrows purchased a
10% interest in the Advisor.
Cash flow from operations of Hotel Investors is expected to be
distributed first to Five Arrows with respect to dividends payable on the Class
A Preferred Stock. Such dividends are calculated based on Five Arrows' "special
investment amount" which, is $1,294.78 per share, which represents the sum of
its investment in Hotel Investors and its $15,000,000 investment in the Company
on a per share basis, adjusted for any dividends received from the Company.
Then, cash flow from operations is expected to be distributed to the Company
with respect to its Class B Preferred Stock. Next, cash flow will be distributed
to 100 CNL associates who each own one share of Class C preferred stock in Hotel
Investors, to provide a quarterly, cumulative, compounded 8% return. All
remaining cash flow from operations will be distributed pro rata with respect to
the interest in the common shares.
On February 25, 1999, Hotel Investors purchased four of the eight
Hotels for an aggregate purchase price of $90,448,000 (the "Initial Hotels").
The Initial Hotels are the Courtyard by Marriott located in Plano, Texas (the
"Legacy Park Property"), the Marriott Suites located in Dallas, Texas (the
"Market Center Property"), the Residence Inn by Marriott located in Las Vegas,
Nevada (the "Hughes Center Property") and the Residence Inn by Marriott located
in Plano, Texas (the "Dallas Plano Property"). As a result of these purchases,
Five Arrows has funded $31,536,824 of its $50,890,000 commitment to Hotel
Investors and purchased 31,537 shares of Class A Preferred Stock. In addition,
Five Arrows has invested $9,297,056 of its $15 million commitment to the
Company. Due to the current stock ownership limitations specified in the
Company's Articles of Incorporation, $5,612,311 has been invested in the
Company's common stock through the purchase of 590,770 Shares and $3,684,745 was
advanced to the Company as a convertible loan, which bears interest at a rate of
eight percent per annum. In connection with the acquisitions, the Company has
funded $24,778,933 of its $40 million commitment to Hotel Investors and
purchased 24,779 shares of Class B Preferred Stock. Hotel Investors has obtained
an advance of $47,863,052 relating to the Hotel Investors Loan in order to
facilitate the acquisition of the Initial Hotels.
In connection with Five Arrows' commitment to invest $15 million in the
Company, the Advisor and certain Affiliates have agreed to waive certain
fees otherwise payable to them by the Company.
Hotel Investors acquired the Legacy Park Property for $12,694,000 from
PLC Hotel Property, Ltd., the Market Center Property for $32,973,000 from Marcen
Property, Ltd., the Hughes Center Property for $33,097,000 from LVHC Hotel
Property, Ltd. and the Dallas Plano Property for $11,684,000 from PLR1 Hotel
Property, Ltd. In connection with the purchase of the four Properties, Hotel
Investors, as lessor, entered into four separate, long-term lease agreements.
The lessee of the Initial Hotels is the same unaffiliated lessee. The leases on
all four Properties are cross-defaulted. The general terms of the lease
agreements are described in the section of the Prospectus entitled "Business
Description of Property Leases." The principal features of the leases are as
follows:
0 The initial term of each lease expires in approximately 20 years, on
December 28, 2018.
0 At the end of the initial lease term, the tenant will have three consecutive
renewal options of fifteen years.
0 The leases will require minimum rent payments as follows.
Minimum Annual Rent
---------------------------------------
Year 2 and
Property Year 1 Thereafter
----------------------- ---------------- ----------------
Legacy Park Property $1,308,673 $1,341,390
Market Center Property 3,399,319 3,484,302
Hughes Center Property 3,412,068 3,497,369
Dallas Plano Property 1,204,485 1,234,597
0 In addition to minimum rent, for lease years one and two, the leases
will require percentage rent equal to 7.75% of the aggregate amount of
all room revenues combined, for the Initial Hotels, in excess of a
combined threshold of $26,672,000. For lease year three and thereafter,
the leases will require percentage rent equal to 7.75% of the aggregate
amount of all room revenues combined, for the Initial Hotels, in excess
of lease year two actual revenues.
0 The tenant of the Initial Hotels will establish a capital expenditures
reserve fund which will be used for the replacement and renewal of
furniture, fixtures and equipment relating to the hotel Properties (the
"FF&E Reserve"). Deposits to the FF&E Reserve will be made once every
four weeks as follows: (i) for the Legacy Park, Hughes Center and
Dallas Plano Properties, 1% of gross receipts for the first lease year;
3% of gross receipts for the second lease year; and 5% of gross
receipts every lease year thereafter and (ii) for the Market Center
Property, 1% of gross receipts for the first lease year; 2% of gross
receipts for the second lease year; 3% of gross receipts for the third
through fifth lease years; 4% of gross receipts for the sixth through
tenth lease years; and 5% of gross receipts for the eleventh lease year
and thereafter. Funds in the FF&E Reserve and all property purchased
with funds from the FF&E Reserve shall be paid, granted and assigned to
the Company.
0 The tenant under each lease is required to maintain, for up to three
years from the commencement of the last lease for the Hotels to be
executed (but in no event earlier than December 31, 2003), a liquid net
worth equal to a minimum amount (the "Net Worth Requirement"), which
may be used solely to make payments under the leases. The Net Worth
Requirement may be reduced after twelve months to the extent by which
payment of rent exceeds cash available for lease payments (gross
revenues less property expenses) derived from the leased Hotels during
the one-year period. In addition, the Net Worth Requirement terminates
at such time that cash available for lease payments for all of the
leased Hotels equals 125% of total minimum rent due under the leases;
or that the lease is terminated pursuant to its terms (other than for
an event of default).
The estimated federal income tax basis of the depreciable portion of
the Properties is as follows.
Legacy Park Property $11,224,000
Market Center Property 30,623,000
Hughes Center Property 29,788,000
Dallas Plano Property 10,470,000
Each of the Properties are newly constructed hotels which recently
commenced operations. The Legacy Park Property is located approximately 25 miles
north of the city of Dallas and has 153 guest rooms and five suites. The Market
Center Property is approximately two miles northwest of the Dallas central
business district and has 266 guest suites. The Hughes Center Property is in a
commercial park located east of the Las Vegas strip and has 256 guest suites.
The Dallas Plano Property is located approximately 25 miles north of the city of
Dallas and has 126 guest suites. Other lodging facilities located in proximity
to the Legacy Park Property include a Hampton Inn, a Fairfield Inn(R) by
Marriott(R), a LaQuinta Inn & Suites and another Courtyard by Marriott. Other
lodging facilities located in proximity to the Market Center Property include a
Renaissance(R) Hotel, an Embassy Suites, a Sheraton Suites, a Wyndham Garden
Hotel and a Courtyard by Marriott. Other lodging facilities located in proximity
to the Hughes Center Property include an AmeriSuites, a Hawthorn Suites and
another Residence Inn by Marriott. Other lodging facilities located in proximity
to the Dallas Plano Property include a Homewood Suites, a Bradford Suites, a
Mainstay Suites, a La Quinta Inn & Suites, a Courtyard by Marriott and another
Residence Inn by Marriott.
The brands, Residence Inn by Marriott, Courtyard by Marriott and
Marriott Hotels, Resorts and Suites(R) are part of Marriott International's
portfolio of brands. According to data obtained in February 1999 from Marriott's
Market Planning & Feasibility department, Marriott International is one of the
world's leading hospitality companies, managing the most hotels worldwide and is
ranked as the sixth largest hotel company overall by brand (based on number of
rooms in 1997). According to Marriott data, as of September 1998, Marriott
International had more than 1,600 units (or properties), for an aggregate of
more than 315,000 rooms worldwide. Although Marriott International has entered
into a management agreement relating to the Initial Hotels, it has not
guaranteed the payments due under the leases.
Each Residence Inn by Marriott hotel typically offers daily
complimentary breakfast and newspaper, an evening hospitality hour, a swimming
pool, heated whirlpool and Sport Court(R). Guest suites provide in-room modem
jacks, separate living and sleeping areas and a fully equipped kitchen with
appliances and cooking utensils. According to Marriott, as of September 1998,
there were over 250 Residence Inn hotels in the United States and four in Canada
and Mexico. With a usage rate of more than 83% among extended stay chains,
Residence Inn by Marriott is the top U.S. extended stay lodging brand, appealing
to travelers who need a room for five or more consecutive nights, according to
Marriott Marketing Planning and Feasibility, February 1999.
Each Courtyard by Marriott features a residential atmosphere, a
restaurant, lounge, meeting space, exercise room and swimming pool. According to
data obtained in February 1999 from Marriott's Marketing Planning & Feasibility
department, Courtyard by Marriott is a leading moderate price lodging chain
featuring a residential atmosphere. According to Marriott, as of September 1998,
there were more than 340 Courtyard hotels across the United States, Canada and
abroad.
Marriott Hotels, Resorts and Suites is Marriott International's
flagship brand of upscale, full-service hotels and resorts. Each of the Marriott
Hotels, Resorts and Suites features multiple restaurants and lounges, health
club, swimming pool, gift shop, concierge level, business center and meeting
facilities. According to Marriott, as of September 1998, there were over 340
Marriott Hotels, Resorts and Suites worldwide.
PENDING INVESTMENTS
As of February 26, 1999, the Company had initial commitments to acquire
indirectly, seven hotel properties. The acquisition of each of these properties
is subject to the fulfillment of certain conditions. 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 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
Property Price Renewal Options Rent Percentage Rent
- -------- --------- --------------- -------------- ---------------
<S><C>
Courtyard by Marriott (2) 15 years; two ten-year 10% of the Company's for each lease year after
Orlando, FL (1) renewal options total cost to purchase the second lease year, 7%
(the "Courtyard Little Lake Bryan the property of revenues in excess of
Property") revenues for the second
Hotel to be constructed lease year
Fairfield Inn by Marriott (2) 15 years; two ten-year 10% of the Company's for each lease year after
Orlando, FL (1) renewal options total cost to purchase the second lease year, 7%
(the "Fairfield Inn Little Lake the property of revenues in excess of
Bryan Property") revenues for the second
Hotel to be constructed lease year
SpringHill Suites by Marriott (2) 15 years; two ten-year 10% of the Company's for each lease year after
Orlando, FL (1) renewal options total cost to purchase the second lease year, 7%
(the "SpringHill Suites Little the property of revenues in excess of
Lake Bryan Property") revenues for the second
Hotel to be constructed lease year
Courtyard by Marriott $17,085,000 approximately 20 years; 10.309% of the total cost for the first and second
Addison, TX (3)(4)(5)(6) three 15-year renewal to purchase the Property; lease years, 7.75% of room
(the "Courtyard Addison options increases to 10.567% revenues in excess of the
Property") after the first lease year second year pro forma
Hotel to be constructed revenues; and for the third
lease year and thereafter,
7.75% of room revenues in
excess of the second year
actual revenues
Courtyard by Marriott $19,614,000 approximately 20 years; 10.309% of the total cost for the first and second
Scottsdale, AZ (3)(4)(5)(6) three 15-year renewal to purchase the Property; lease years, 7.75% of room
(the "Courtyard Scottsdale options increases to 10.567% revenues in excess of the
Property") after the first lease year second year pro forma
Hotel to be constructed revenues; and for the third
lease year and thereafter,
7.75% of room revenues in
excess of the second year
actual revenues
<PAGE>
Estimated
Purchase Lease Term and Minimum Annual
Property Price Renewal Options Rent Percentage Rent
- -------- --------- --------------- -------------- ---------------
Courtyard by Marriott $35,801,000 approximately 20 years; 10.309% of the total cost for the first and second lease
Seattle, WA (3)(4)(5)(6) three 15-year renewal to purchase the Property; years, 7.75% of room revenues in
(the "Courtyard Seattle options increases to 10.567% after excess of the second year pro
Property") the first lease year forma revenues; and for the third
Hotel to be constructed lease year and thereafter, 7.75%
of room revenues in excess of the
second year actual revenues
Residence Inn by Marriott $21,352,000 approximately 20 years; 10.309% of the total cost for the first and second lease
Phoenix, AZ (3)(4)(5)(6) three 15-year renewal to purchase the Property; years, 7.75% of room revenues in
(the "Residence Inn Phoenix options increases to 10.567% after excess of the second year pro
Property") the first lease year forma revenues; and for the third
Hotel to be constructed lease year and thereafter, 7.75%
of room revenues in excess of the
second year actual revenues
</TABLE>
- ------------------------------------
FOOTNOTES:
(1) The leases for the Courtyard Little Lake Bryan, the Fairfield Inn
Little Lake Bryan and the SpringHill Suites Little Lake Bryan
Properties are expected to be with the same unaffiliated lessee.
(2) The anticipated aggregate purchase price for the Courtyard Little Lake
Bryan, Fairfield Inn Little Lake Bryan and SpringHill Suites Little
Lake Bryan Properties is approximately $100 million.
(3) The leases for the Courtyard Addison, the Courtyard Scottsdale, the
Courtyard Seattle, and the Residence Inn Phoenix Properties (in
addition to the Initial Hotels) are expected to be with the same
unaffiliated lessee.
(4) The Company, together with an institutional investor, will indirectly
acquire these four hotel properties (in addition to the Initial Hotels)
through Hotel Investors. (See "Property Acquisitions.")
(5) In connection with the acquisition of the four properties (in addition
to the Initial Hotels), Hotel Investors is expected to obtain
approximately $96,567,500 in long-term, permanent financing to be used
to fund a portion of the purchase prices. Such financing will be
secured by the properties, bear interest at a market rate and be
nonrecourse to Hotel Investors. (See "Property Acquisitions.")
<PAGE>
(6) In connection with the acquisition of the four hotel properties (in
addition to the Initial Hotels), an investment of $15,000,000 in the
Company and the acquisition of a ten percent interest in the Advisor by
the institutional investor, the Advisor and certain of its Affiliates
intend to waive or reduce certain fees otherwise payable by the
Company. In connection with these transactions, Hotel Investors will
pay the advisor of the institutional investor a commitment fee. (See
"Property Acquisitions.")
<PAGE>
SUMMARY
RECENT DEVELOPMENTS
The three independent directors of the Company, G. Richard Hostetter,
J. Joseph Kruse and Richard C. Huseman, have determined, in order to focus on
CNL American Properties Fund, Inc., a public, unlisted real estate investment
trust for which they also serve as independent directors, that it is in the best
interests of the Company that they resign as directors of the Company.
Therefore, the Board of Directors has appointed three new independent directors
to serve on the Board of Directors until the 1999 stockholder meeting. On
February 11, 1999, G. Richard Hostetter, J. Joseph Kruse and Richard C. Huseman
resigned from their positions on the Board of Directors. The following describes
Charles E. Adams, John A. Griswold and Craig M. McAllaster, the newly appointed
directors.
Charles E. Adams. Independent Director. Mr. Adams is the president and
a founding principal with Celebration Associates, Inc., a real estate advisory
and development firm with offices in Celebration, Florida and Charlotte, North
Carolina. Celebration Associates specializes in large-scale master planned
communities, seniors housing and specialty commercial developments. Mr. Adams
joined the Walt Disney World Company in 1990 and from 1996 until May 1997 served
as vice president of community business development for The Celebration Company
and Walt Disney Imagineering. He was responsible for Celebration Education,
Celebration Network, Celebration Health and Celebration Foundation, as well as
New Business Development, Strategic Alliances, Retail Sales and Leasing,
Commercial Sales and Leasing, the development of Little Lake Bryan and
Celebration. Previously, Mr. Adams was responsible for the initial residential,
amenity, sales and marketing, consumer research and master planning efforts for
Celebration. Additionally, Mr. Adams participated in the planning for
residential development at EuroDisney in Paris. He was a founding member of the
Celebration School Board of Trustees and served as president and founding member
of the Celebration Foundation Board of Directors. Mr. Adams is a founding member
of the Health Magic Steering Committee and council member on the Recreation
Development Council for Urban Land Institute. Before joining The Walt Disney
Company in 1990, Mr. Adams worked with Trammell Crow Residential developing
luxury apartment communities in the Orlando and Jacksonville, Florida areas. Mr.
Adams received a B.A. from Northeast Louisiana University in 1984 and a M.B.A.
from Harvard Graduate School of Business in 1989.
John A. Griswold. Independent Director. Mr. Griswold serves as
president of Tishman Hotel Corporation, an operating unit of Tishman Realty &
Construction Co., Inc., founded in 1898. Tishman Hotel Corporation is a hotel
developer, owner and operator, and has provided such services for more than 85
hotels, totalling more than 30,000 rooms. Mr. Griswold joined Tishman Hotel
Corporation in 1985. From 1981 to 1985, Mr. Griswold served as general manager
of the Buena Vista Palace Hotel in the Walt Disney World Village. From 1978 to
1981, he served as vice president and general manager of the Homestead Resort, a
luxury condominium resort in Glen Arbor, Michigan. Mr. Griswold served as an
operations manager for the Walt Disney Company from 1971 to 1978. He was
responsible for operational, financial and future planning for multi-unit dining
facilities in Walt Disney World Village and Lake Buena Vista Country Club. He is
a member of the board of directors of the Florida Hotel & Motel Association and
the First Orlando Foundation. Mr. Griswold received a B.S. from the School of
Hotel Administration at Cornell University in Ithaca, New York.
Craig M. McAllaster. Independent Director. Dr. McAllaster has served as
director of the executive MBA program at the Roy E. Crummer Graduate School of
Business at Rollins College since 1994. Besides his duties as director, he is on
the management faculty and serves as executive director of the international
consulting practicum programs at the Crummer School. Prior to Rollins College,
Dr. McAllaster was on the faculty at the School of Industrial and Labor
Relations and the Johnson Graduate School of Management, both at Cornell
University, and the University of Central Florida. Dr. McAllaster spent over ten
years in the consumer services and electronics industry in management,
organizational and executive development positions. He is a consultant
<PAGE>
to many domestic and international companies in the areas of strategy and
leadership. Dr. McAllaster received a B.S. from the University of Arizona in
1973, a M.S. from Alfred University in 1981 and a M.A. and Doctorate from
Columbia University in 1987.
In accordance with the agreements relating to Five Arrows' investment,
Five Arrows can nominate one member to the Company's Board of Directors.
Accordingly, in connection with the closing on the Initial Hotels, Matthew W.
Kaplan was nominated by Five Arrows and appointed to the Company's Board of
Directors. So that a majority of the Board of Directors would continue to be
comprised of independent directors, Lawrence A. Dustin was appointed to the
Board of Directors at the same time to serve as an additional independent
director. Both Mr. Kaplan and Mr. Dustin were appointed on an interim basis to
serve until the upcoming annual meeting of stockholders, and were subsequently
nominated by the Board of Directors for election at the 1999 stockholder
meeting. The following describes Mathew W. Kaplan and Lawrence A. Dustin, the
newly appointed directors.
Matthew W. Kaplan. Director. Mr. Kaplan serves as a director of the
Advisor, Hotel Investors, CNL Financial Services, Inc. and CNL Financial
Corporation. Mr. Kaplan is a managing director of Rothschild Realty Inc. where
he has served since 1992, and where he is responsible for securities investment
activities including acting as portfolio manager of Five Arrows Realty
Securities LLC, a $900 million private investment fund. From 1990 to 1992, Mr.
Kaplan served in the corporate finance department of Rothschild Inc., an
affiliate of Rothschild Realty Inc. Mr. Kaplan served as a director of
Ambassador Apartments Inc. from August 1996 through May 1998 and is a member of
the Urban Land Institute. Mr. Kaplan received a B.A. with honors from Washington
University in 1984 and a M.B.A. from the Wharton School of Finance and Commerce
at the University of Pennsylvania in 1988.
Lawrence A. Dustin. Independent Director. Mr. Dustin is a principal of
BBT, an advisory company specializing in hotel operations, marketing and
development. Mr. Dustin has 29 years of experience in the hospitality industry.
From 1994 to September 1998, Mr. Dustin served as senior vice president of
lodging of Universal Studios Recreation Group, where he was responsible for
matters related to hotel development, marketing, operations and management. Mr.
Dustin supervised the overall process of developing the five highly themed
hotels and related recreational amenities within Universal Studios Escape and
provided guidance for hotel projects in Universal City, California, Japan and
Singapore. From 1989 to 1994, Mr. Dustin served as a shareholder, chief
executive officer and director of AspenCrest Hospitality, Inc., a professional
services firm which helped hotel owners enhance both the operating performance
and asset value of their properties. From 1969 to 1989, Mr. Dustin held various
positions in the hotel industry, including 14 years in management with Westin
Hotels & Resorts. Mr. Dustin received a B.A. from Michigan State University in
1968.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
INDEX TO FINANCIAL STATEMENTS
Page
----
Pro Forma Consolidated Financial Information (Unaudited):
Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1998 12
Unaudited Pro Forma Consolidated Statement of Earnings
for the Year Ended December 31, 1998 13
Notes to Unaudited Pro Forma Consolidated Financial Statements
for the Year Ended December 31, 1998 14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of CNL
Hospitality Properties, Inc. and subsidiaries (the "Company") gives effect to
(i) the receipt of $43,019,080 in gross offering proceeds from the sale of
4,301,908 shares of common stock pursuant to a registration statement on Form
S-11 under the Securities Act of 1933, as amended, effective July 9, 1997, for
the period from inception through December 31, 1998 and the application of such
funds to purchase two properties, and to pay offering expenses, acquisition fees
and miscellaneous acquisition expenses, (ii) the receipt of $30,586,428 in gross
offering proceeds from the sale of 3,058,643 additional shares and $3,684,745
from borrowings on a convertible loan, for the period January 1, 1999 through
February 26, 1999, and (iii) the application of such funds to purchase four
properties indirectly through an investment in a private real estate investment
trust, to pay down the three advances on the line of credit totalling
$9,600,000, and to pay offering expenses, acquisition fees and miscellaneous
acquisition expenses, all as reflected in the pro forma adjustments described in
the related notes. The Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1998, includes the transactions described in (i) above, from its
historical balance sheet, adjusted to give effect to the transactions in (ii)
and (iii) above, as if they had occurred on December 31, 1998.
The Unaudited Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1998, includes the historical operating results of the
properties described in (i) above that were acquired by the Company during the
year ended December 31, 1998 and in (iii) above that were acquired by the
Company during the period January 1, 1999 through February 26, 1999, from the
later of (1) the date the property became operational or (2) January 1, 1998 to
the end of the pro forma period presented.
This pro forma financial information is presented for informational
purposes only and does not purport to be indicative of the Company's financial
results or condition if the various events and transactions reflected therein
had occurred on the dates, or been in effect during the periods, indicated. This
pro forma financial information should not be viewed as predictive of the
Company's financial results or conditions in the future.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------------- -------------- --------------
<S> <C>
Land, building and equipment on operating leases,
less accumulated depreciation of $384,166 $28,368,383 $ -- $28,368,383
Investment in private real estate investment trust -- 26,107,084 (a) 26,107,084
Cash and cash equivalents 13,228,923 (2,926,680 ) (a) 10,302,243
Restricted cash 82,407 -- 82,407
Certificate of deposit 5,016,575 -- 5,016,575
Receivables 28,257 -- 28,257
Prepaid expenses 9,391 -- 9,391
Organization costs, less accumulated amortization
of $5,221 19,752 -- 19,752
Accrued rental income 44,160 -- 44,160
Loan costs, less accumulated amortization of $12,980 78,282 -- 78,282
Other assets 1,980,560 (1,100,923 ) (a) 879,637
------------- ------------- --------------
$48,856,690 $22,079,481 $70,936,171
============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $9,600,000 $( 9,600,000 ) (a) $ --
Convertible loan -- 3,684,745 (a) 3,684,745
Accounts payable and accrued expenses 333,726 (324,521 ) (a) 9,205
Due to related parties 318,937 (292,872 ) (a) 26,065
Security deposits 1,417,500 -- 1,417,500
Rents paid in advance 3,489 -- 3,489
Interest payable 66,547 -- 66,547
-------------- ------------- --------------
Total liabilities 11,740,199 (6,532,648 ) 5,207,551
-------------- ------------- --------------
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 4,321,908 shares; issued and
outstanding, as adjusted, 7,380,551 shares 43,219 30,586 (a) 73,805
Capital in excess of par value 37,289,402 28,581,543 (a) 65,870,945
Accumulated distributions in excess of net earnings (216,130 ) -- (216,130 )
-------------- ------------- --------------
Total stockholders' equity 37,116,491 28,612,129 65,728,620
------------- ------------- --------------
$48,856,690 $22,079,481 $70,936,171
============== ============= ==============
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
Pro Forma
Historical Adjustments Pro Forma
------------ -------------- --------------
Revenues:
Rental income from
operating leases $ 1,218,500 $1,706,732 (1) $2,925,232
FF&E Reserve income 98,099 140,000 (2) 238,099
Interest income 638,862 (609,975 )(3) 28,887
Dividend income -- 423,938 (4) 423,938
-------------
---------------- ----------------
1,955,461 1,660,695 3,616,156
------------- ---------------- ----------------
Expenses:
Interest expense 350,322 441,467 (5) 791,789
General operating and
administrative 167,951 92,733 (6) 260,684
Asset management fees to
related party 68,114 106,571 (7) 174,685
Professional services 21,581 -- 21,581
Depreciation and amortization 388,554 545,376 (8) 933,930
------------- ---------------- ----------------
996,522 1,186,147 2,182,669
------------- ---------------- ----------------
Earnings Before Equity in Loss
of Private Real Estate
Investment Trust 958,939 474,548 1,443,487
Equity in Loss of Private Real
Estate Investment Trust -- (56,464 )(9) (56,464 )
------------- ---------------- ----------------
Net Earnings $ 958,939 $ 418,084 $ 1,377,023
============= ================ ================
Earnings Per Share of Common
Stock (Basic and Diluted) (10) $ 0.40 $ 0.51
============= ================
Weighted Average Number of
Shares of Common Stock
Outstanding (10) 2,402,344 2,697,355
============= ================
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $30,586,428 from the sale of 3,058,643
shares during the period January 1, 1999 through February 26, 1999, the
receipt of $3,684,745 from borrowings on a convertible loan, and
$2,926,680 in cash and cash equivalents, used (i) to invest, together
with an institutional investor, in the formation of a separate, private
real estate investment trust for $24,778,933 ($1,295,216 of which had
been recorded as other assets as of December 31, 1998), (ii) to pay
down three advances on the line of credit totalling $9,600,000, (iii)
to pay acquisition fees and costs of $1,950,217 ($427,773 of which was
accrued as due to related parties at December 31, 1998), to reclassify
from other assets $1,100,923 of acquisition fees and costs previously
incurred relating to the indirectly held properties and to pay selling
commissions and offering expenses of $2,163,919 which have been netted
against stockholders' equity (a total of $189,621 of which was accrued
as of December 31, 1998).
The pro forma adjustment to investment in private real estate
investment trust as a result of the above transactions was as follows:
<TABLE>
<CAPTION>
Acquisition Fees
Estimated Allocated to
Investment Investment Total
-------------------- -------------------- ------------------
<S> <C>
Investment in private
real estate investment
trust $24,778,933 $1,328,151 $26,107,084
==================== ==================== ==================
</TABLE>
The Company indirectly acquired an interest in four hotel properties
through an investment in a separate, private real estate investment
trust, CNL Hotel Investors, Inc. (the "Private REIT"). The Company
acquired $24,778,630 of 9.76% Class B cumulative preferred stock and
$303 of common stock of the Private REIT. The common stock owned by the
Company represents a 49% interest in the Private REIT.
The investment in common stock will be accounted for using the equity
method in accordance with generally accepted accounting principles.
Common stock dividends received from the Private REIT will decrease the
investment while equity in the net earnings or loss of the Private REIT
will increase or decrease the investment.
The investment in preferred stock of the Private REIT will be accounted
for using the cost method with dividends declared by the Private REIT
recorded as income on the statement of earnings of the Company.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statement of Earnings:
(1) Represents rental income from operating leases for the properties
acquired as of December 31, 1998, which were operational prior to the
acquisition of the property by the Company (the "Pro Forma
Properties"), for the period commencing the later of (i) the date the
Pro Forma Property became operational by the previous owner or (ii)
January 1, 1998, to the end of the pro forma period presented. The
following presents the actual date the Pro Forma Properties were
acquired or placed in service by the Company as compared to the date
the Pro Forma Properties were treated as becoming operational as a
rental property for purposes of the Pro Forma Consolidated Statement of
Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
-------------- ---------------
Residence Inn Buckhead (Lenox
Park) in Atlanta, GA July 31, 1998 January 1, 1998
Residence Inn Gwinnett Place
in Duluth, GA July 31, 1998 January 1, 1998
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1998 that the Company held the properties, no pro
forma adjustment was made for percentage rental income for the years
ended December 31, 1998.
(2) Represents capital expenditure reserve funds which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the Pro Forma Properties (the "FF&E Reserve"). The funds in the FF&E
Reserve and all property purchased with funds from the FF&E Reserve
will be paid, granted and assigned to the Company as additional rent.
In connection therewith, FF&E Reserve income was earned at
approximately $10,000 per month, per Pro Forma Property.
(3) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the periods commencing the later of (i) the dates the Pro Forma
Properties became operational by the previous owners and the dates the
Private REIT properties became operational or (ii) January 1, 1998,
through the end of the pro forma period presented, as described in Note
(1) above. The estimated pro forma adjustment is based upon the fact
that (i) all of the net offering proceeds received during the year
ended December 31, 1998 and invested in interest bearing accounts for
historical purposes were considered invested in Pro Forma Properties or
the investment in the Private REIT for pro forma purposes and (ii)
interest income from interest bearing accounts was earned at a rate of
approximately four percent per annum by the Company during the year
ended December 31, 1998.
(4) Represents dividend income earned on the Company's $24,778,630
investment in the 9.76% Class B cumulative preferred stock of the
Private REIT between October 1, 1998 and December 31, 1998, from the
dates each of the Private REIT properties became operational. The cash
from the Company's investment, along with loan proceeds and funds from
an institutional investor were used to purchase four hotel properties
which were operational prior to the Company's investment in the Private
REIT. The following presents the
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statement of Earnings - Continued:
actual date the Private REIT's properties were acquired or placed in
service by the Private REIT as compared to the date the Private REIT's
properties were treated as becoming operational as a rental property
for purposes of the Pro Forma Consolidated Statement of Earnings:
Date Private REIT
Date Placed Properties Became
in Service Operational as
By the Private REIT Rental Property
------------------- ---------------
Residence Inn Las Vegas, NV February 25, 1999 October 1, 1998
Residence Inn Plano, TX February 25, 1999 October 12, 1998
Marriott Suites Dallas, TX February 25, 1999 November 11, 1998
Courtyard Plano, TX February 25, 1999 December 23, 1998
(5) Represents interest expense incurred at a rate of 8.8% per annum in
connection with the assumed borrowings from the line of credit of
$8,600,000 on October 15, 1997 and $1,000,000 on September 10, 1998. It
was assumed that the $9,600,000 was paid off on December 31, 1998 with
proceeds from the convertible loan and offering proceeds.
(6) The Company has incurred operating expenses which, in general, are
those expenses relating to administration of the Company on an ongoing
basis. Pursuant to the advisory agreement, CNL Hospitality Advisors,
Inc. (the "Advisor") is required to reimburse the Company the amount by
which the total operating expenses paid or incurred by the Company
exceed in any four consecutive fiscal quarters the greater of two
percent of average invested assets or 25 percent of net income (the
"Expense Cap"). During the year ended December 31, 1998, the Company's
operating expenses exceeded the Expense Cap by $92,733; therefore, the
Advisor reimbursed the Company such amount in accordance with the
advisory agreement. However, as a result of the increase in pro forma
earnings for the year ended December 31, 1998, the Company's operating
expenses no longer exceeded the Expense Cap. Therefore, this
reimbursement was reversed for pro forma purposes.
(7) Represents asset management fees relating to the Pro Forma Properties
for the period commencing the later of (i) the date the Pro Forma
Properties became operational by the previous owners or (ii) January 1,
1998, through the end of the pro forma period presented, as described
in Note (1) above. Asset management fees are equal to 0.60% per year of
the Company's Real Estate Asset Value including investment in the
Private REIT (excluding acquisition fees).
(8) Represents depreciation expense of the building and the furniture,
fixture and equipment ("FF&E") portions of the Pro Forma Properties
accounted for as operating leases using the straight-line method. The
buildings and FF&E are depreciated over useful lives of 40 and seven
years, respectively. Also represents amortization of the loan
origination fee of $48,000 (.5% on the $9,600,000 from borrowings on
the line of credit) and $20,762 of other miscellaneous closing costs,
amortized under the straight-line method over a period of five years.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statement of Earnings - Continued:
(9) Represents equity in loss of the investment in the Private REIT. This
represents the Company's share of net earnings or loss after deduction
of preferred stock dividends declared as described below:
<TABLE>
<CAPTION>
<S> <C>
Private REIT Earnings Before Preferred Dividends $ 752,368
8% Class A Cumulative Preferred Stock (institutional investor) (442,261)
9.76% Class B Cumulative Preferred Stock (the Company) (423,938)
8% Class C Cumulative Preferred Stock (other investors) ( 1,402)
Net Loss of Private REIT After Preferred Dividends $(115,233)
==========
The Company's 49% Interest in the Loss of the Private REIT $( 56,464)
==========
</TABLE>
(10) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the year
ended December 31, 1998.
As a result of the two Pro Forma Properties being treated in the Pro
Forma Consolidated Statement of Earnings as operational since January
1, 1998, the Company assumed approximately 2,206,573 shares of common
stock were sold, and the net offering proceeds were available for
purchase of these properties. Due to the fact that approximately
1,929,115, of these shares of common stock were actually sold
subsequently, during the period January 1, 1998 through May 21, 1998,
the weighted average number of shares outstanding for the pro forma
period was adjusted.
In addition, as a result of the investment in the Private REIT being
treated in the Pro Forma Consolidated Statement of Earnings as invested
pro rata beginning on October 1, 1998 (the date the first property
became operational), the Company assumed additional shares of common
stock were sold and net offering proceeds were available for investment
during the period October 1, 1998 through December 31, 1998. Due to the
fact that approximately 857,020 of these shares of common stock were
actually sold during the period January 1, 1999 through February 26,
1999, the weighted average number of shares outstanding for the pro
forma period was adjusted. Pro forma earnings per share were calculated
based upon the weighted average number of shares of common stock
outstanding, as adjusted, during the period January 1, 1998 through
December 31, 1998.
