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CNL HOSPITALITY PROPERTIES, INC.
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Supplement No. 3, dated April 13, 1999
to Prospectus, dated October 6, 1998
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This Supplement is part of, and should be read in conjunction with, the
Prospectus dated October 6, 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 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 or Property acquisitions 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.
As of February 26, 1999, the Company had received aggregate
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. Net
proceeds to the Company after deduction of Selling Commissions, marketing
support and due diligence expense reimbursement fees and Offering Expenses
totalled approximately $65,701,000. In addition, $3,684,745 was advanced to the
Company as a convertible loan in connection with the Western International
acquisitions. As of February 26, 1999, the Company had invested, either directly
or indirectly, approximately $52,025,000 of such proceeds in six hotel
Properties, had paid $9,400,000 as deposits on seven additional hotel Properties
and had incurred approximately $3,541,000 in Acquisition Fees and miscellaneous
acquisition expenses, leaving approximately $4,620,000 in Net Offering Proceeds
available for investment in additional Properties and Mortgage Loans.
RISK FACTORS
REAL ESTATE INVESTMENT RISKS
Possible Lack of Diversification Increases Risk of Investment. There is
no limit on the number of properties of a particular hotel chain or restaurant
chain which we may acquire. However, under investment guidelines established by
the Board of Directors, no single hotel chain may represent more than 50% of the
total hotel portfolio unless approved by the Board of Directors, including a
majority of the independent Directors. We are not obligated to invest in both
types of properties. The Company could invest entirely in hotel properties.
Because of the higher average purchase price of a hotel property compared to a
restaurant property, investment in hotel properties will reduce the number of
properties in which the Company could otherwise invest. While we may invest in
both hotel and restaurant properties, management believes that over time the
Company may focus its property investments exclusively on hotel properties. The
Board of Directors, however, including a majority of the independent Directors,
will review the Company's properties and potential investments in terms of
geographic and chain diversification. At this time, all of the Company's
properties are Marriott-branded hotels. If we continue to concentrate our
acquisitions with Marriott chains or in the future concentrate our acquisitions
on another chain, it will increase the risk that our financial condition will be
adversely affected by a downturn in a particular market sub-segment or by the
poor judgment of a particular management group.
<PAGE>
TAX RISKS
Risks Relating to Leases of Properties. Our tax counsel, Shaw Pittman
Potts & Trowbridge, is of the opinion, based upon certain assumptions, that the
leases of hotels and restaurants where we own the underlying land constitute
leases for federal income tax purposes. However, with respect to the hotels and
restaurants where we do not own the underlying land, Shaw Pittman is unable to
render this opinion. If the lease of a hotel or restaurant does not constitute a
lease for federal income tax purposes, it will be treated as a financing
arrangement. In the opinion of Shaw Pittman, the income derived from such a
financing arrangement would satisfy the 75% and the 95% gross income tests for
REIT qualification because it would be considered to be interest on a loan
secured by real property. Nevertheless, the recharacterization of a lease in
this fashion may have adverse tax consequences for us, in particular that we
would not be entitled to claim depreciation deductions with respect to the hotel
or restaurant (although we would be entitled to treat part of the payments we
would receive under the arrangement as the repayment of principal). In such
event, in certain taxable years our taxable income, and the corresponding
obligation to distribute 95% of such income, would be increased. Any increase in
our distribution requirements may limit our ability to invest in additional
hotels and restaurants and to make additional mortgage loans.
MANAGEMENT COMPENSATION
For information concerning compensation and fees paid to the Advisor
and its Affiliates since the date of inception of the Company, see "Certain
Transactions."
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
out of its relationship to the Advisor and its Affiliates, as described below.
The following chart indicates the relationship between the Advisor and
those Affiliates that will provide services to the Company.
CNL Group, Inc. (1)
Subsidiaries, Affiliates and Strategic Business Units
Capital Markets: Retail:
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CNL Securities Corp. (2) Commercial Net Lease Realty, Inc. (4)
CNL Investment Company
Corporate Services: Restaurant:
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CNL Corporate Services, Inc. (3) CNL Fund Advisors, Inc.
CNL Restaurant Services, Inc.
Hospitality:
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CNL Hospitality Advisors, Inc.
(formerly CNL Real Estate Advisors,
Inc.) (5)
CNL Hotel Development Company
Health Care:
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CNL Health Care Advisors, Inc.
CNL Health Care Development, Inc.
Financial Services:
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CNL Financial Services, Inc.
CNL Advisory Services, Inc.
Corporate Properties:
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CNL Corporate Properties, Inc.
<PAGE>
- --------------------------
(1) James M. Seneff, Jr., Chairman of the Board and Chief Executive Officer
of the Company, shares ownership and voting control of CNL Group, Inc.
with Dayle L. Seneff, his wife.
(2) CNL Securities Corp. (a subsidiary of CNL Group, Inc.) has served as
managing dealer in the offerings for various CNL public and private
real estate programs, including the Company.
(3) CNL Corporate Services, Inc. (a wholly owned subsidiary of CNL Group,
Inc.) and other Affiliates provide administrative and accounting
services for various CNL entities, including the Company.
(4) Commercial Net Lease Realty, Inc. is a REIT listed on the New York
Stock Exchange. Effective January 1, 1998, CNL Realty Advisors, Inc.
and Commercial Net Lease Realty, Inc. merged, at which time Commercial
Net Lease Realty, Inc. became self advised. James M. Seneff, Jr.
continues to hold the positions of Chief Executive Officer and Chairman
of the Board, and Robert A. Bourne continues to hold the position of
Vice Chairman of the Board of Commercial Net Lease Realty, Inc.
(5) CNL Hospitality Advisors, Inc. (a subsidiary of CNL Group, Inc.)
provides management and advisory services to the Company pursuant to
the Advisory Agreement.
The Advisor and certain other Affiliates of the Company are affiliated
with CNL American Properties Fund, Inc., a public program which invests in
restaurant properties. As of February 26, 1999, CNL American Properties Fund,
Inc. had approximately $56,800,000 available for investment.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Company may invest in Joint Ventures with another program sponsored
by the Advisor or its Affiliates if a majority of the Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction, determine that the investment in the Joint Venture is fair and
reasonable to the Company and on substantially the same terms and conditions as
those to be received by the co-venturer or co-venturers. Potential situations
may arise in which the interests of the co-venturer or co-venturers may conflict
with those of the Company. In addition, the Company and the co-venturer or
co-venturers may reach an impasse with regard to business decisions, such as the
purchase or sale of Property, in which the approval of the Company and each
co-venturer is required. In this event, none of the parties may have the funds
necessary to purchase the interests of the other co-venturers. The Company may
experience difficulty in locating a third party purchaser for its Joint Venture
interest and in obtaining a favorable sales price for such Joint Venture
interest. See "Risk Factors -- Company May Not Control Joint Ventures."
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, the Articles of Incorporation contain a number of restrictions
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of properties,
mortgage loans and secured equipment leases among certain affiliated entities.
These restrictions include the following:
5. The Board of Directors and the Advisor have agreed that, in the
event that an investment opportunity becomes available which is suitable for
both the Company and a public or private entity with which the Advisor or its
Affiliates are affiliated, for which both entities have sufficient uninvested
funds, then the entity which has had the longest period of time elapse since it
was offered an investment opportunity will first be offered the investment
opportunity. An investment opportunity will not be considered suitable for a
program if the requirements of Item 4 above could not be satisfied if the
program were to make the investment. In determining whether or not an investment
opportunity is suitable for more than one program, the Advisor and its
Affiliates will examine such factors, among others, as the cash requirements of
each program, the effect of the acquisition both on diversification of each
program's investments by types of restaurants and other businesses and
geographic area, and on diversification of the tenants of its properties (which
also may affect the need for one of the programs to prepare or produce audited
financial statements for a property or a tenant), the anticipated cash flow of
each program, the size of the investment, the amount of funds
<PAGE>
available to each program, and the length of time such funds have been available
for investment. If a subsequent development, such as a delay in the closing of a
property or a delay in the construction of a property, causes any such
investment, in the opinion of the Advisor and its Affiliates, to be more
appropriate for an entity other than the entity which committed to make the
investment, however, the Advisor has the right to agree that the other entity
affiliated with the Advisor or its Affiliates may make the investment. The
Advisor and certain other Affiliates of the Company are affiliated with CNL
American Properties Fund, Inc., a public program whose offering of securities
became fully subscribed in December 1998. As of February 26, 1999, CNL American
Properties Fund, Inc. had approximately $56,800,000 available for investment.
SUMMARY OF REINVESTMENT PLAN
GENERAL
An independent agent (the "Reinvestment Agent"), which currently is MMS
Securities, Inc., will act on behalf of the participants in the Reinvestment
Plan (the "Participants"). The Reinvestment Agent at all times will be
registered as a broker-dealer with the Securities and Exchange Commission (the
"Commission") and each state securities commission. At any time that the Company
is engaged in an offering, including the offering described herein, the
Reinvestment Agent will invest all Distributions attributable to Shares owned by
Participants in Shares of the Company at the public offering price per Share,
which is currently $10.00 per Share. At any time that the Company is not engaged
in an offering and until Listing, the price per Share will be determined by (i)
quarterly appraisal updates performed by the Company based on a review of the
existing appraisal and lease of each Property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from that
Property; and (ii) a review of the outstanding Mortgage Loans and Secured
Equipment Leases focusing on a determination of present value by a
re-examination of the capitalization rate applied to the stream of payments due
under the terms of each Mortgage Loan and Secured Equipment Lease. The
capitalization rate used by the Company and, as a result, the price per Share
paid by the Participants in the Reinvestment Plan prior to Listing will be
determined by the Advisor in its sole discretion. The factors that the Advisor
will use to determine the capitalization rate include (i) its experience in
selecting, acquiring and managing properties similar to the Properties; (ii) an
examination of the conditions in the market; and (iii) capitalization rates in
use by private appraisers, to the extent that the Advisor deems such factors
appropriate, as well as any other factors that the Advisor deems relevant or
appropriate in making its determination. The Company's internal accountants will
then convert the most recent quarterly balance sheet of the Company from a
"GAAP" balance sheet to a "fair market value" balance sheet. Based on the "fair
market value" balance sheet, the internal accountants will then assume a Sale of
the Company's Assets and the liquidation of the Company in accordance with its
constitutive documents and applicable law and compute the appropriate method of
distributing the cash available after payment of reasonable liquidation
expenses, including closing costs typically associated with the sale of assets
and shared by the buyer and seller, and the creation of reasonable reserves to
provide for the payment of any contingent liabilities. All Shares available for
purchase under the Reinvestment Plan either are registered pursuant to this
Prospectus or will be registered under the Securities Act of 1933 through a
separate prospectus relating solely to the Reinvestment Plan. Until this
offering has terminated, Shares will be available for purchase out of the
additional 1,500,000 Shares registered with the Commission in connection with
this offering. See "The Offering -- Plan of Distribution." After the offering
has terminated, Shares will be available from any additional Shares (not
expected to exceed 1,500,000 Shares at any one time) which the Company elects to
register with the Commission for the Reinvestment Plan. The Reinvestment Plan
may be amended or supplemented by an agreement between the Reinvestment Agent
and the Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his or her last address of record; provided, that any such
amendment must be approved by a majority of the Independent Directors of the
Company. Such amendment or supplement shall be deemed conclusively accepted by
each Participant except those Participants from whom the Company receives
written notice of termination prior to the effective date thereof.
Stockholders who have received a copy of this Prospectus and
participate in this offering can elect to participate in and purchase Shares
through the Reinvestment Plan at any time and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. A person who
becomes a stockholder otherwise than by participating in this offering, may
purchase Shares through the Reinvestment Plan only after receipt of a separate
prospectus relating solely to the Reinvestment Plan.
At any time that the Company is not engaged in an offering, the price
per Share purchased pursuant to the Reinvestment Plan shall be the fair market
value of the Shares based on quarterly appraisal updates of the Company's assets
until such time, if any, as Listing occurs. Upon Listing, the Shares to be
acquired for the Reinvestment Plan may be acquired either through such market or
directly from the Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per-Share price equal to the
then-prevailing market price on the national securities exchange or
over-the-counter market on which the Shares are listed at the date of purchase.
In the event that, after Listing occurs, the Reinvestment Agent purchases Shares
on a national securities exchange or over-the-counter market through a
registered broker-dealer, the amount to be reinvested shall be reduced by any
brokerage commissions charged by such registered broker-dealer. In the event
that such registered broker-dealer charges reduced brokerage commissions,
additional funds in the amount of any such reduction shall be left available for
the purchase of Shares. The Company is unable to predict the effect which such a
proposed Listing would have on the price of the Shares acquired through the
Reinvestment Plan.
REDEMPTION OF SHARES
Prior to such time, if any, as Listing occurs, any stockholder who has
held Shares for not less than one year (other than the Advisor) may present all
or any portion equal to at least 25% of such Shares to the Company for
redemption at any time, in accordance with the procedures outlined herein. At
such time, the Company may, at its sole option, redeem such Shares presented for
redemption for cash to the extent it has sufficient funds available. There is no
assurance that there will be sufficient funds available for redemption and,
accordingly, a stockholder's Shares may not be redeemed. If the Company elects
to redeem Shares, the following conditions and limitations would apply. The full
amount of proceeds from the sale of Shares under the Reinvestment Plan (the
"Reinvestment Proceeds") attributable to any calendar quarter will be used to
redeem Shares presented for redemption during such quarter. In addition, the
Company may, at its discretion, use up to $100,000 per calendar quarter of the
proceeds of any public offering of its common stock for redemptions. Any amount
of offering proceeds which is available for redemptions, but which is unused,
may be carried over to the next succeeding calendar quarter for use in addition
to the amount of offering proceeds and Reinvestment Proceeds that would
otherwise be available for redemptions. At no time during a 12-month period,
however, may the number of shares redeemed by the Company exceed 5% of the
number of shares of the Company's outstanding common stock at the beginning of
such 12-month period.
In the event there are insufficient funds to redeem all of the Shares
for which redemption requests have been submitted, the Company plans to redeem
the Shares in the order in which such redemption requests have been received. A
stockholder whose Shares are not redeemed due to insufficient funds can ask that
the request to redeem the Shares be honored at such time, if any, as there are
sufficient funds available for redemption. In such case, the redemption request
will be retained and such Shares will be redeemed before any subsequently
received redemption requests are honored. Alternatively, a stockholder whose
Shares are not redeemed may withdraw his or her redemption request. Stockholders
will not relinquish their Shares until such time as the Company commits to
redeeming such Shares.
If the full amount of funds available for any given quarter exceeds the
amount necessary for such redemptions, the remaining amount shall be held for
subsequent redemptions unless such amount is sufficient to acquire an additional
Property (directly or through a Joint Venture) or to invest in additional
Mortgage Loans, or is used to repay outstanding indebtedness. In that event, the
Company may use all or a portion of such amount to acquire one or more
additional Properties, to invest in one or more additional Mortgage Loans or to
repay such outstanding indebtedness, provided that the Company (or, if
applicable, the Joint Venture) enters into a binding contract to purchase such
Property or Properties or invests in such Mortgage Loan or Mortgage Loans, or
uses such amount to repay outstanding indebtedness, prior to payment of the next
Distribution and the Company's receipt of requests for redemption of Shares.
A stockholder who wishes to have his or her Shares redeemed must mail
or deliver a written request on a form provided by the Company and executed by
the stockholder, its trustee or authorized agent, to the redemption agent (the
"Redemption Agent"), which is currently MMS Securities, Inc. The Redemption
Agent at all times will be registered as a broker-dealer with the Commission and
each state securities commission. Within 30 days following the Redemption
Agent's receipt of the stockholder's request, the Redemption Agent will forward
to such stockholder the documents necessary to effect the redemption, including
any signature guarantee the Company or
<PAGE>
the Redemption Agent may require. The Redemption Agent will effect such
redemption for the calendar quarter provided that it receives the properly
completed redemption documents relating to the Shares to be redeemed from the
stockholder at least one calendar month prior to the last day of the current
calendar quarter and has sufficient funds available to redeem such Shares. The
effective date of any redemption will be the last date during a quarter during
which the Redemption Agent receives the properly completed redemption documents.
As a result, the Company anticipates that, assuming sufficient funds for
redemption, the effective date of redemptions will be no later than thirty days
after the quarterly determination of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of Shares,
the redemption price will be on such terms as the Company shall determine. The
redemption price for Shares redeemed during an offering would equal the then
current offering price, which the Company anticipates will continue to be $10.00
per Share, until such time, if any, as Listing occurs, less a discount of 8%,
for a net redemption price of $9.20 per Share. The aforementioned redemption
price approximates the per Share net proceeds received by the Company in the
offering, after deducting Selling Commissions of 7.5% and a 0.5% marketing
support and due diligence fee payable to the Managing Dealer and certain
Soliciting Dealers in such offering.
It is not anticipated that there will be a market for the Shares before
Listing occurs (although liquidity is not assured thereby). Accordingly, during
periods when the Company is not engaged in an offering, it is expected that the
purchase price for Shares purchased from stockholders will be determined by
reference to the following factors, as well as any others deemed relevant or
appropriate by the Company: (i) the price at which Shares have been purchased by
stockholders, either pursuant to the Reinvestment Plan or outside of the
Reinvestment Plan (to the extent the Company has information regarding the
prices paid for Shares purchased outside the Reinvestment Plan), (ii) the annual
statement of Share valuation provided to certain stockholders (see "Reports to
Stockholders"), and (iii) the price at which stockholders are willing to sell
their Shares. Shares purchased during any particular period of time therefore
may be purchased at varying prices. The Board of Directors will announce any
price adjustment and the time period of its effectiveness as part of its regular
communications with stockholders. Any Shares acquired pursuant to a redemption
will be retired and no longer available for issuance by the Company.
A stockholder may present fewer than all of his or her Shares to the
Company for redemption, provided, however, that (i) the minimum number of Shares
which must be presented for redemption shall be at least 25% of his or her
Shares, and (ii) if such stockholder retains any Shares, he or she must retain
at least 250 Shares (100 Shares for an IRA, Keogh Plan or pension plan).
The Directors, in their sole discretion, may amend or suspend the
redemption plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption of
Shares if (i) they determine, in their sole discretion, that such redemption
impairs the capital or the operations of the Company; (ii) they determine, in
their sole discretion, that an emergency makes such redemption not reasonably
practical; (iii) any governmental or regulatory agency with jurisdiction over
the Company so demands for the protection of the stockholders; (iv) they
determine, in their sole discretion, that such redemption would be unlawful; (v)
they determine, in their sole discretion, that such redemption, when considered
with all other redemptions, sales, assignments, transfers and exchanges of
Shares in the Company, could cause direct or indirect ownership of Shares of the
Company to become concentrated to an extent which would prevent the Company from
qualifying as a REIT under the Code; or (vi) the Directors, in their sole
discretion, deem such suspension to be in the best interest of the Company. For
a discussion of the tax treatment of such redemptions, see "Federal Income Tax
Considerations -- Taxation of Stockholders." The redemption plan will terminate,
and the Company no longer shall accept Shares for redemption, if and when
Listing occurs. See "Risk Factors -- Investment Risks -- Lack of Liquidity of
Shares."
BUSINESS
GENERAL
The Company is a Maryland corporation that was organized on June 12,
1996. On June 15, 1998, the Company formed CNL Hospitality Partners, LP, a
wholly owned Delaware limited partnership (the "Partnership"). Properties
acquired are expected to be held by the Partnership and, as a result, owned by
the Company through the Partnership. The term "Company" includes CNL Hospitality
Properties, Inc. and its subsidiaries, CNL Hospitality GP Corp., CNL Hospitality
LP Corp. and CNL Hospitality Partners, LP.
The Company has been formed primarily to acquire Properties to be
leased on a long-term (generally, 10 to 20 years, plus renewal options for an
additional 10 to 20 years), "triple-net" basis. With proceeds of this offering,
the Company intends to purchase primarily fast-food, family-style, and
casual-dining restaurant Properties and limited service, extended stay and full
service hotel Properties. "Triple-net" means that the tenant generally will be
responsible for repairs, maintenance, property taxes, utilities, and insurance.
Some hotel Property leases may, however, obligate the tenant to fund, in
addition to its lease payment, a reserve fund up to a pre-determined amount.
Generally, money in that fund may be used by the tenant to pay for replacement
of furniture and fixtures. The Company may be responsible for other capital
expenditures or repairs. The tenant generally is responsible for replenishing
the reserve fund and for paying a specified return on the amount of capital
expenditures paid for by the Company in excess of amounts in the reserve fund.
Management believes that the combination of restaurant and hotel Properties will
benefit the Company and its investors by enabling the Company to take advantage
of attractive investment opportunities in the growing restaurant and hotel
industries and by providing the Company with increased diversification of its
investments. The Properties may consist of land and building, the land
underlying the building with the building owned by the tenant or a third party,
and the building only with the land owned by a third party. The Company may
provide Mortgage Loans to operators of Restaurant Chains and Hotel Chains
secured by real estate owned by the operators. To a lesser extent, the Company
may also offer Secured Equipment Leases to operators of Restaurant Chains and
Hotel Chains pursuant to which the Company will finance, through loans or direct
financing leases, the Equipment.
The Properties, which typically will be freestanding and will be
located across the United States, will be leased to operators of Restaurant
Chains and Hotel Chains to be selected by the Advisor and approved by the Board
of Directors. Each Property acquisition and Mortgage Loan will be submitted to
the Board of Directors for approval. Properties purchased by the Company are
expected to be leased under arrangements generally requiring base annual rent
equal to a specified percentage of the Company's cost of purchasing a particular
Property, with automatic rent increases and/or percentage rent based on gross
sales above specified levels. See "Description of Leases -- Computation of Lease
Payments," below.
The Company has not specified any percentage of Net Offering Proceeds
to be invested in either restaurant or hotel Properties. To the extent the
Company invests in restaurant Properties, it is expected that those will be
Properties of selected Restaurant Chains that are national and regional
restaurant chains, primarily fast-food, family-style, and casual-dining chains.
Fast-food restaurants feature quality food and quick service, which often
includes drive-through service, and offer a variety of menu items such as
hamburgers, steaks, seafood, chili, pizza, pasta dishes, chicken, hot and cold
sandwiches, and salads. Family-style restaurants feature services that generally
are associated with full-service restaurants, such as full table service and
cooked-to-order food, but at more moderate prices. The casual-dining (or dinner
house) concept features a variety of popular contemporary foods, full table
service, moderate prices, and surroundings that are appealing to families. The
casual-dining segment of the restaurant industry, like the family-style segment,
features services that generally are associated with the full-service restaurant
category. According to forecasts appearing in the January 1, 1997 issue of
Restaurants and Institutions, it is projected that the casual-dining segment of
full-service restaurant sales will experience 3.8% real growth in sales in 1997,
with sales predicted to reach $49 billion. The top 15 casual-dining chains by
sales have a total of 3,583 restaurants throughout the United States.
The restaurant industry is one of the largest industries in the United
States in volume of sales and number of employees (more than 10 million persons)
and includes fast-food outlets, cafeterias, lunchrooms, convenience stores,
family-style restaurants, casual-dining facilities, full-service restaurants,
and contract and industrial feeders. Industry publications project that
restaurant industry sales will increase from $173.7 billion in 1985 to $354
billion in 1999. Restaurant industry sales for 1998 are projected to be $338.4
billion. Nominal growth, which is comprised of real growth and inflationary
growth, is estimated to be 4.6% in 1999. Real growth of the restaurant industry
in 1998 was 2.6%, and industry analysts currently estimate that the restaurant
industry will achieve 1.8% real growth in 1999; however, according to the
National Restaurant Association, fast-food restaurants should also experience a
1.8% real growth increase over 1998. Sales in this segment of the restaurant
industry are projected to be $110.4 billion for 1999.
The Company may invest in the fast-food, family-style, and
casual-dining segments of the restaurant industry, the most rapidly growing
segments in recent years. According to the National Restaurant Association, 51%
of adults eat at a quick-service restaurant and 42% of adults patronize a
moderately-priced family restaurant at least once each week. In addition, the
National Restaurant Association indicates that Americans spend approximately 44
cents of every food dollar on dining away from home. Surveys published in
Restaurant Business indicate that families with children choose quick-service
restaurants four out of every five times they dine out. Further, according to
Nation's
<PAGE>
Restaurant News, the 100 largest restaurant chains are posting an average of
8.65% growth in their systemwide sales figures for 1997. Casual-theme dining
concepts are among the chains showing the strongest growth. In 1997, the
sandwich segment experienced sales growth of 4.48% over 1996 figures, and the
casual-dining segment experienced systemwide sales growth in 1997 of 10.63%,
compared to 9.98% in 1995. Management believes that the Company will have the
opportunity to participate in this growth through the ownership of Properties
leased to operators of the Restaurant Chains.
The fast-food, family-style and casual-dining segments of the
restaurant industry have demonstrated their ability to adapt to changes in
consumer preferences, such as health and dietary issues, decreases in the
disposable income of consumers and environmental awareness, through various
innovative techniques, including special value pricing and promotions, increased
advertising, menu changes featuring low-calorie, low-cholesterol menu items, and
new packaging and energy conservation techniques.
The table set forth below provides information with respect to certain
Restaurant Chains in which Affiliates of the Company (consisting of an unlisted
public REIT, 18 public partnerships and 8 private partnerships) had invested as
of December 31, 1998, and a listed public REIT (which was managed by an
Affiliate through December 31, 1997, at which time such Affiliate merged with
the REIT) had invested as of December 31, 1997:
<TABLE>
<CAPTION>
Approximate Aggregate
Dollars Invested Percentage of Number of
Restaurant Chain by Affiliates Dollars Invested Prior Programs
- ---------------- ------------- ---------------- --------------
<S> <C>
Golden Corral $145,920,000 13.1% 23
Jack in the Box 108,625,000 9.7% 15
Burger King 97,611,000 8.9% 24
Denny's 61,601,000 5.5% 19
Boston Market 57,501,000 5.2% 11
IHOP 56,719,000 5.1% 10
Hardee's 54,108,000 4.9% 12
Bennigan's 43,143,000 3.9% 5
TGI Friday's 33,734,000 3.0% 7
Shoney's 33,513,000 3.0% 10
Wendy's 33,251,000 3.0% 14
Steak & Ale 30,182,000 2.7% 1
Long John Silver's 29,045,000 2.6% 6
Arby's 25,047,000 2.3% 10
Darryl's 22,296,000 2.0% 4
Checkers 21,125,000 1.9% 8
Chevy's Fresh Mex 20,776,000 1.9% 6
Black-eyed Pea 18,301,000 1.7% 4
Pizza Hut 17,964,000 1.6% 9
Applebee's 17,188,000 1.6% 1
Pollo Tropical 17,086,000 1.5% 1
Ground Round 15,751,000 1.4% 3
Perkins 15,157,000 1.4% 9
KFC 14,463,000 1.3% 12
Taco Bell 10,049,000 0.9% 9
Popeyes 9,906,000 0.9% 9
Tumbleweed Southwest
Mesquite Grill & Bar 9,323,000 0.8% 1
Ruby Tuesday 9,030,000 0.8% 3
Sonny's Real Pit Bar-B-Q 9,000,000 0.8% 1
Roadhouse Grill 8,361,000 0.8% 2
Ponderosa 6,400,000 0.6% 4
Quincy's 5,968,000 0.5% 5
</TABLE>
<PAGE>
The Company also invests Net Offering Proceeds in Properties of
selected national and regional limited service, extended stay and full service
Hotel Chains. The Company believes that attractive opportunities exist to
acquire limited service, extended stay and full service hotels in urban and
resort locations. According to Smith Travel Research, a leading provider of
lodging industry statistical research, the hotel industry has been steadily
improving its financial performance over the past seven consecutive years. Also
according to Smith Travel Research, in 1997, the industry reached its highest
absolute level of pre-tax profit in its history at approximately $17 billion, an
increase of approximately 36% over 1996.
Pre-Tax Profits
of Hospitality Industry
(in billions)
Year Profitability
---- -------------
1993 $ 2.4
1994 5.5
1995 8.5
1996 12.5
1997 17.0
Source: Smith Travel Research
As indicated in the table below, the average daily room rate increased
4.4% in 1998, from $75.31 in 1997 to $78.62 in 1998, resulting in 11 consecutive
years of room rate growth.
Hospitality Industry Average
Daily Room Rate By Year
Year Rate
---- ----
1987 $52.58
1988 54.47
1989 56.35
1990 57.96
1991 58.08
1992 58.91
1993 60.53
1994 62.86
1995 65.81
1996 70.81
1997 75.31
1998 78.62
Source: Smith Travel Research
Revenue per available room also increased by 3.6% from $48.57 in 1997
to $50.32 in 1998. In 1998, growth in room supply exceeded growth in room demand
and resulted in a slight dip in occupancy. In 1998, total occupancy fell 0.8%
from 64.5% in 1997 to 64.0%. Growth in room demand exceeded the growth in new
room supply for each year from 1992 through 1996 and industry-wide occupancy
increased from a 20 year low of 61.8% in 1991 to 65% in 1996.
According to American Hotel & Motel Association data, in 1997,
Americans traveling in the United States spent more than $1.38 billion per day,
$57.4 million per hour and $955,800 per minute on travel and tourism. Total
travel expenditures in the United States generated $481.5 billion in sales. In
addition, there were 49,000 hotel properties which included over 3.8 million
hotel rooms recording $85.6 billion in revenue. Hotels are a vital part of
travel and tourism. In the United States, the tourism industry, which globally
is the world's largest industry, is currently
<PAGE>
ranked third behind auto sales and retail food sales. In terms of employment,
the hotel industry supports over 7 million direct jobs, generating $18.93
billion in wages. Nationally, 13.8% of total hotel rooms available are located
in urban areas, 35.3% in suburban areas, 33.2% in highway locations, 6.4% in
airport areas, and the remaining 11.3% in resort locations.
The Company will acquire limited service, extended stay or full service
hotel Properties. Limited service hotels generally minimize non-guest room space
and offer limited food service such as complimentary continental breakfasts and
do not have restaurant or lounge facilities on-site. Extended stay hotels
generally contain guest suites with a kitchen area and living area separate from
the bedroom. Extended stay hotels vary with respect to providing on-site
restaurant facilities. Full service hotels generally have conference or meeting
facilities and on-site food and beverage facilities.
Management intends to structure the Company's investments to allow it
to participate, to the maximum extent possible, in any sales growth in the
restaurant and hotel industries, as reflected in the Properties that it owns.
The Company therefore intends to generally structure its leases with percentage
rent requirements which are based on gross sales over specified levels of the
particular business located on the Property. Gross sales may increase even
absent real growth because increases in the costs typically are passed on to the
consumers through increased prices, and increased prices are reflected in gross
sales. In an effort to provide regular cash flow to the Company, the Company
intends to structure its leases to provide a minimum level of rent which is
payable regardless of the amount of gross sales at a particular Property. The
Company also will endeavor to maximize growth and minimize risks associated with
ownership and leasing of real estate that operates in these industry segments
through careful selection and screening of its tenants (as described in
"Standards for Investment" below) in order to reduce risks of default;
monitoring statistics relating to restaurant and hotel chains and continuing to
develop relationships in the industry in order to reduce certain risks
associated with investment in real estate. See "Standards for Investment" below
for a description of the standards which the Board of Directors will employ in
selecting Restaurant Chains, Hotel Chains and particular Properties for
investment.
Management expects to acquire Properties in part with a view to
diversification among the geographic location of the Properties. There are no
restrictions on the geographic area or areas within the United States in which
Properties acquired by the Company may be located. It is anticipated that the
Properties acquired by the Company will be located in various states and regions
within the United States.
The Company believes that freestanding, "triple-net" leased properties
of the type in which the Company will generally invest are attractive to tenants
because freestanding properties typically offer high visibility to passing
traffic, ease of access from a busy thoroughfare, tenant control over the site
to set hours of operation and maintenance standards and distinctive building
designs conducive to customer name recognition.
The Company may provide Mortgage Loans, generally for the purchase of
buildings by tenants that lease the underlying land from the Company. However,
because it prefers to focus on investing in Properties, which have the potential
to appreciate, the Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of Gross Proceeds.
Mortgage Loans will be secured by the building and improvements on the land. The
Company expects that the interest rate and terms (generally, 10 to 20 years) of
the Mortgage Loans will be similar to those of its leases.
The Company also intends to offer Secured Equipment Leases to operators
of Restaurant Chains and Hotel Chains. The Secured Equipment Leases will consist
primarily of leases of, and loans for the purchase of, Equipment. As of the date
of this Prospectus, the Company has neither identified any prospective operators
of Restaurant Chains or Hotel Chains that will participate in such financing
arrangements nor negotiated any specific terms of a Secured Equipment Lease. The
Company cannot predict terms and conditions of the Secured Equipment Leases,
although the Company expects that the Secured Equipment Leases will (i) have
terms that equal or exceed the useful life of the subject Equipment (although
such terms will not exceed 7 years), (ii) in the case of the leases, include an
option for the lessee to acquire the subject Equipment at the end of the lease
term for a nominal fee, (iii) include a stated interest rate, and (iv) in the
case of the leases, provide that the Company and the lessees will each treat the
Secured Equipment Leases as loans secured by personal property for federal
income tax purposes. See "Federal Income Tax Considerations -- Characterization
of Secured Equipment Leases." In addition, the Company expects that each of the
Secured Equipment Leases will be secured by the Equipment to which it relates.
Payments received from lessees under Secured Equipment Leases will be treated as
payments of principal and interest. All Secured Equipment Leases will be
negotiated by the Advisor and approved by the Board of Directors including a
majority of the Independent Directors.
The Company will borrow money to acquire Assets and to pay certain
fees. The Company intends to encumber Assets in connection with the borrowing.
The Company plans to obtain one or more revolving Lines of Credit in an
aggregate amount up to $45,000,000, and may, in addition, also obtain Permanent
Financing. On July 31, 1998, the Company entered into an initial $30,000,000
revolving Line of Credit to be used to acquire hotel Properties. See "Business
- -- Borrowings" for a description of the $30,000,000 Line of Credit. The Board of
Directors anticipates that the aggregate amount of any Permanent Financing, if
obtained, will not exceed 30% of the Company's total assets. The Permanent
Financing would be used to acquire Assets and pay a fee of 4.5% of any Permanent
Financing, excluding amounts to fund Secured Equipment Leases, as Acquisition
Fees, to the Advisor. The Line of Credit may be repaid with offering proceeds,
working capital or Permanent Financing. The Line of Credit and Permanent
Financing are the only source of funds for making Secured Equipment Leases and
for paying the Secured Equipment Lease Servicing Fee. 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.
As of February 26, 1999, the Company had acquired, directly or
indirectly, six hotel Properties consisting of land, building and equipment and
had initial commitments to acquire, directly or indirectly, seven additional
Properties. However, as of February 26, 1999, the Company had not entered into
any arrangements that create a reasonable probability that the Company will
enter into any Mortgage Loan or Secured Equipment Lease.
INVESTMENT OF OFFERING PROCEEDS
The Company has undertaken to supplement this Prospectus during the
offering period to disclose the acquisition of Properties at such time as the
Company believes that a reasonable probability exists that any such Property
will be acquired by the Company. Based upon the experience and acquisition
methods of the Affiliates of the Company and the Advisor, this normally will
occur, with regard to acquisition of Properties, as of the date on which (i) a
commitment letter is executed by a proposed lessee, (ii) a satisfactory credit
underwriting for the proposed lessee has been completed, and (iii) a
satisfactory site inspection has been completed. The initial disclosure of any
proposed acquisition, however, cannot be relied upon as an assurance that the
Company ultimately will consummate such proposed acquisition or that the
information provided concerning the proposed acquisition will not change between
the date of such supplement and the actual purchase or extension of financing.
The terms of any borrowing by the Company will also be disclosed by supplement
following receipt by the Company of an acceptable commitment letter from a
potential lender.
Based on their past experience in acquiring similar properties and in
light of current market conditions, management of the Company and the Advisor
have estimated an average purchase price of $800,000 to $900,000 per restaurant
Property. Based on the purchase prices of the six Properties acquired directly
or indirectly by the Company as of February 26, 1999, and current market
conditions, the Company and the Advisor have estimated an average purchase price
of $10,000,000 to $35,000,000 per hotel Property. See "Business -- General." If
15,000,000 Shares ($150,000,000) are sold, the Company could (i) invest in only
hotel Properties, in which case it could acquire between 8 to 13 hotel
Properties or (ii) invest in both restaurant and hotel Properties, although in
this instance the number of restaurant Properties and hotel Properties would
vary significantly depending upon the cost of the hotel Properties acquired.
Based on the Properties owned as of February 26, 1999, and assuming that the
remaining uninvested proceeds as of February 26, 1999 and any additional Net
Offering Proceeds are divided evenly between restaurant and hotel Properties, as
to which there is no assurance, the Company could invest in approximately 40 to
50 restaurant Properties and 7 to 10 hotel Properties. In certain cases, the
Company may become a co-venturer in a Joint Venture that will own the Property.
In each such case, the Company's cost to purchase an interest in such Property
will be less than the total purchase price and the Company therefore will be
able to acquire interests in a greater number of Properties. The Company may
also borrow to acquire Assets. See "Business -- Borrowing." Management estimates
that approximately 30% to 50% of the Company's investment in a restaurant
Property generally will be for the cost of land, and 50% to 70% generally will
be for the cost of the building. For a hotel Property, management estimates that
10% to 20% of the Company's investment will be for cost of land and 80% to 90%
for the cost of the building. See "Joint Venture Arrangements" below and "Risk
Factors -- Real Estate Investment Risks -- Possible Lack of Diversification
Increases Risk of Investment." Management cannot estimate the number of Mortgage
Loans that may be entered into. The Company may also borrow money to make
Mortgage Loans.
Although management cannot estimate the number of Secured Equipment
Leases that may be entered into, it expects to fund the Secured Equipment Lease
program from the proceeds of the Line of Credit or Permanent Financing in an
amount not to exceed 10% of Gross Proceeds and management has undertaken,
consistent with its objective of qualifying as a REIT for federal income tax
purposes, to ensure that the total value of all Secured Equipment Leases will
not exceed 25% of the Company's total assets, and that Secured Equipment Leases
to a single lessee, in the aggregate, will not exceed 5% of total assets.
PROPERTY ACQUISITIONS
Atlanta Portfolio. On July 31, 1998, the Company acquired two hotel
Properties. The Properties are the Residence Inn(R) by Marriott(R) located in
the Buckhead (Lenox Park) area of Atlanta, Georgia (the"Buckhead (Lenox Park)
Property"), and the Residence Inn by Marriott located at Gwinnett Place in
Duluth, Georgia (the "Gwinnett Place Property").
The Company acquired the Buckhead (Lenox Park) Property for $15,731,414
from Buckhead Residence Associates, L.L.C. and the Gwinnett Place Property for
$11,514,125 from Gwinnett Residence Associates, L.L.C. In connection with the
purchase of the two Properties, the Company, as lessor, entered into two
separate, long-term lease agreements. The lessee of the Buckhead (Lenox Park)
and the Gwinnett Place Properties is the same unaffiliated lessee. The leases on
both Properties are cross-defaulted. The general terms of the lease agreements
are described in "Business -- Description of Property Leases." The principal
features of the leases are as follows:
0 The initial term of each lease expires in approximately 19 years, on
August 31, 2017.
0 At the end of the initial lease term, the tenant will have three
consecutive renewal options of five years.
0 The leases will require minimum rent payments to the Company
aggregating $1,651,798 per year for the Buckhead (Lenox Park) Property
and $1,208,983 per year for the Gwinnett Place Property.
0 Minimum rent payments will increase to $1,691,127 per year for the
Buckhead (Lenox Park) Property and $1,237,768 per year for the Gwinnett
Place Property after the first lease year.
0 In addition to minimum rent, for each calendar year, the leases will
require percentage rent equal to 15% of the aggregate amount of all
revenues combined, for the Buckhead (Lenox Park) and the Gwinnett Place
Properties, in excess of $8,080,000.
0 A security deposit equal to $819,000 for the Buckhead (Lenox Park)
Property and $598,500 for the Gwinnett Place Property will be retained
by the Company as security for the tenant's obligations under the
leases.
0 Management fees payable to Stormont Trice Management Corporation for
operation of the Buckhead (Lenox Park) and Gwinnett Place Properties
are subordinated to minimum rents due to the Company.
0 The tenant of the Buckhead (Lenox Park) and Gwinnett Place Properties
will establish a 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 monthly as follows: 3% of gross receipts for the first lease year;
4% of gross receipts for the second lease year; and 5% of gross
receipts every lease year 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 as additional rent.
0 Stormont Trice Corporation, Stormont Trice Development Corporation and
Stormont Trice Management Corporation jointly and severally will
guarantee the obligations of the tenant under the leases for the
Buckhead (Lenox Park) and the Gwinnett Place Properties combined. The
guarantee terminates on the earlier of the end of the third lease year
or at such time as the net operating income from the Buckhead (Lenox
Park) and the Gwinnett Place Properties exceeds minimum rent due under
the leases by 25% for any trailing 12 month period. The guarantee is
equal to $2,835,000 for the first two years, and $1,197,000 for the
third year.
The estimated federal income tax basis of the depreciable portion of
the Buckhead (Lenox Park) Property and the Gwinnett Place Property is
$14,700,000 and $11,100,000, respectively.
The Buckhead (Lenox Park) Property and the Gwinnett Place Property are
newly constructed hotels which commenced operations on August 7, 1997 and July
29, 1997, respectively. The Buckhead (Lenox Park) Property is situated in a 22
acre mixed-use development and has 150 guest suites. The Gwinnett Place Property
is located 30 minutes from downtown Atlanta and has 132 guest suites. Other
lodging facilities located in proximity to the Buckhead (Lenox Park) Property
include an Embassy Suites, a Summerfield Suites, a Homewood Suites, an
Amerisuites, a Courtyard(R) by Marriott(R) and another Residence Inn by
Marriott. Other lodging facilities located in proximity to the Gwinnett Place
Property include a Courtyard by Marriott, an Amerisuites, a Sumner Suites and a
Hampton Inn. The average occupancy rate, the average daily room rate and the
revenue per available room for the periods the hotels have been operational are
as follows:
<TABLE>
<CAPTION>
Buckhead (Lenox Park) Property Gwinnett Place Property
-------------------------------------------------------- -------------------------------------------------
<S> <C>
Average Average Revenue Average Average Revenue
Occupancy Daily Room per Available Occupancy Daily Room per Available
Year Rate Rate Room Rate Rate Room
- ------------ ------------- --------------- ------------------ ------------- -------------- ---------------
*1997 42.93% $91.15 $39.13 39.08% $85.97 $33.60
**1998 75.20% 99.70 75.01 74.10% 87.36 64.73
</TABLE>
* Data for the Buckhead (Lenox Park) Property represents the period
August 7, 1997 through December 31, 1997 and data for the Gwinnett
Place Property represents the period August 1, 1997 through December
31, 1997.
** Data for 1998 represents the period January 1, 1998 through December
31, 1998.
The Company believes that the results achieved by the Properties for
year-end 1997, are not indicative of their long-term operating potential, as
both Properties had been open for less than six months during the reporting
period. On a proforma basis, had the Company owned the Properties as of January
1, 1998, combined net operating income before subordinated management fees would
be 1.23 times base rent on a year-to-date basis.
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 by Marriott hotels, three will operate as
Residence Inn by Marriott 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.
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.
<PAGE>
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") and
paid $10,000,000 as a deposit on the four remaining 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 and the
deposit, 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 and the deposit,
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.
<PAGE>
<TABLE>
<CAPTION>
Minimum Annual Rent
---------------------------------------
Year 2 and
Property Year 1 Thereafter
----------------------------- ---------------- ----------------
<S> <C>
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
</TABLE>
<PAGE>
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 quarterly 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 room revenues.
0 The tenant of the Initial Hotels will establish a 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, providing that all of the Hotels have
been opened for one year, the Net Worth Requirement will terminate 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 Initial Hotels 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 Initial Hotels 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 by Marriott,
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.
Since the Initial Hotels are newly constructed properties, limited
operating history is available. Of the Initial Hotels, the Hughes Center
Property and the Dallas Plano Property were the earliest to commence operations,
in October 1998. Based on information provided to the Company by Western
International for the period ended December 31, 1998, these properties generated
gross operating profits of $690,000 and $188,000, respectively, which resulted
in
<PAGE>
net operating profits (earnings before interest, taxes and depreciation) of
$394,000 and $55,000 respectively. The average occupancy rate, the average daily
room rate and the revenue per available room for the periods the hotels have
been operational are as follows:
<TABLE>
<CAPTION>
Average Average Revenue
Occupancy Daily Room per
Property Year Rate Rate Available Room
----------------------------- ---------- ------------- --------------- -------------------
<S> <C>
Legacy Park Property *1998 8.20% $45.28 $ 3.70
**1999 42.20% 105.37 44.45
Market Center Property *1998 37.90% $100.95 $ 38.26
**1999 81.50% 138.50 112.91
Hughes Center Property *1998 47.30% $107.86 $ 51.00
**1999 51.60% 100.33 51.79
Dallas Plano Property *1998 46.70% $ 88.79 $ 41.47
**1999 47.10% 94.95 44.68
</TABLE>
* Data for the Legacy Park Property represents the period December 23,
1998 through January 1, 1999, data for the Market Center Property
represents the period November 11, 1998 through January 1, 1999, data
for the Hughes Center Property represents the period October 1, 1998
through January 1, 1999 and data for the Dallas Plano Property
represents the period October 12, 1998 through January 1, 1999.
** Data for 1999 represents the period January 2, 1999 through January 29,
1999.
The Company believes that the results achieved by the Initial Hotels
for year-end 1998, are not indicative of their long-term operating potential, as
they each had been open for three months or less during the reporting period.
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 by Marriott 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 data obtained in February 1999 from Marriott's Marketing
Planning & Feasibility department.
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 by Marriott 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.
In connection with the acquisition of certain of the Properties, the
Company and Hotel Investors have entered into agreements with Marriott
International or one of its affiliates. Among other things, these agreements
require under certain circumstances that the Company or Hotel Investors obtain
the consent of, or offer the Property to, Marriott International or one of its
affiliates in the event that the Company or Hotel Investors wishes to sell the
Property to a third party. The Company believes that these agreements and the
terms thereof are consistent with standard practices in the hospitality
industry.
PENDING INVESTMENTS
As of February 26, 1999, the Company had initial commitments to
acquire, directly or indirectly, seven hotel properties. Three of the Properties
are located in Little Lake Bryan, a 300-acre community planned by The Little
Lake Bryan Company. Included in the proposed acquisition are a 314-room
Courtyard by Marriott, a 389-room Fairfield Inn(R) by Marriott(R) and a 398-room
SpringHill Suites(R) by Marriott(R) (formerly Fairfield Suites(R) by
Marriott(R)). The hotels will be developed by Marriott International, Inc. with
completion scheduled for the year 2000. The community is less than five miles
from the WALT DISNEY WORLD(R) Resort and less than ten miles from SeaWorld(R)
Orlando, Universal Studios Escape(R) and the Orange County Convention Center.
As shown below, the lodging market in the Lake Buena Vista area
averaged 77% occupancy and an average daily room rate of $121 for year-end 1998.
The Lake Buena Vista lodging market also achieved a 9.6% growth in room demand
on a compounded annual basis over the last ten years. The following table
reflects the hotel occupancy rates and daily room rates for hotels in the
Orlando area:
<TABLE>
<CAPTION>
ORLANDO AREA HOTEL OCCUPANCY RATES
AND AVERAGE DAILY ROOM RATES
ORLANDO LAKE BUENA VISTA*
AVERAGE DAILY AVERAGE DAILY
YEAR OCCUPANCY RATE ROOM RATE OCCUPANCY RATE ROOM RATE
---------- ------------------- ------------------- ----------------- -------------------
<S> <C>
1993 72.2% $64.61 74.7% $103.09
1994 71.3% 65.85 76.3% 100.26
1995 74.6% 68.55 80.3% 96.99
1996 80.1% 73.04 82.5% 104.65
1997 78.7% 80.99 80.2% 116.18
1998 74.7% 84.64 76.9% 121.48
</TABLE>
* Little Lake Bryan is part of the Lake Buena Vista market area.
Source: Smith Travel Research
Orlando. According to the Orlando/Orange County Convention & Visitors
Bureau 1998 Research report, Central Florida is one of the top five travel
destinations in the United States and leisure travel to Orlando continues to
grow. The number of domestic non-Florida leisure travelers visiting Orlando in
1997 increased 16.1% over 1996. In 1997, Universal Studios Escape(R) drew an
estimated 8.9 million visitors and SeaWorld(R) Orlando had an estimated 4.9
million visitors. Area attractions continue to grow with new developments.
In addition, according to the Orlando/Orange County Convention &
Visitors Bureau 1998 Research report, visitor arrivals at Orlando International
Airport increased from approximately 21,500,000 passengers in 1993, to
27,300,000 passengers in 1997. The number of domestic non-Florida business
travelers during 1997 increased 22.1% over 1996. In addition, more than six
million international visitors arrived in Florida in 1997, for a national market
share of 25.1%. The Orlando area claimed 11.5% of the national market share. On
average, international visitors spent $800 per person/per trip, excluding
airfare, while visiting Orlando in 1997.
<PAGE>
The Orange County Convention Center recently completed a new phase of
development. With 1.1 million square feet of exhibition space, an independent
study ranked the center as number two in the nation for continuous exhibition
space. The following table reflects the number of events which took place at the
Orange County Convention Center between 1994 and 1997 and attendance levels for
those events:
ORANGE COUNTY CONVENTION
CENTER ATTENDANCE
Year # of Events Attendance
---- ----------- ----------
1994 188 705,824
1995 168 700,429
1996 240 1,017,679
1997 260 930,219
Source: Orlando/Orange County CVB
Fairfield Inn by Marriott and SpringHill Suites by Marriott are economy
lodging brands appealing to both business and leisure travelers. According to
Marriott, as of September 1998, there are more than 340 Fairfield Inn by
Marriott hotels and SpringHill Suites by Marriott hotels in 47 states.
The four remaining hotel properties which the Company has initial
commitments to acquire indirectly, are the following. The 176-room Courtyard by
Marriott is located in Addison, Texas, a northern suburb of Dallas, in close
proximity to high-rise office buildings, retail centers and restaurants. The
180-room Courtyard by Marriott is located in Scottsdale, Arizona, in central
Scottsdale, within close proximity to office and retail developments in addition
to galleries and upscale shops. The 250-room Courtyard by Marriott is located in
Seattle, Washington, in the Lake Union district which is considered the northern
boundary of the downtown area. The 200-room Residence Inn by Marriott is located
in Phoenix, Arizona, approximately four miles from Sky Harbor International
Airport.
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 "Business -- Description of Property Leases."
The following chart provides additional information on systemwide
occupancy levels for Marriott lodging brands:
Total Occupancy Rate for 1997
Marriott Brand as Compared to
U.S. Lodging Industry
Occupancy Rate
--------------
U.S. Lodging Industry 64.5%
Courtyard by Marriott 78.2%
Fairfield Inns by Marriott &
SpringHill Suites by Marriott 73.0%
Marriott Hotels, Resorts and Suites 76.6%
Residence Inn by Marriott 80.6%
Source: Smith Travel Research (U.S. Lodging Industry only) and Marriott
International, Inc. 1997 Annual Report
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>
BORROWING
The Company will borrow money to acquire Assets and to pay certain
related fees. The Company intends to encumber Assets in connection with any
borrowing. The Company plans to obtain one or more revolving Lines of Credit in
an aggregate 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. The Line of Credit and Permanent
Financing are the only source of funds for making Secured Equipment Leases and
for paying the Secured Equipment Lease Servicing Fee.
On July 31, 1998, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire hotel
Properties. The Line of Credit provides that the Company will be able to receive
advances of up to $30,000,000 until July 30, 2003, with an annual review to be
performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable discretion, of the credit quality.
Interest expense on each advance shall be payable monthly, with all unpaid
interest and principal due no later than five years from the date of the
advance. Advances under the Line of Credit will bear interest at either (i) a
rate per annum equal to 318 basis points above the LIBOR or (ii) a rate per
annum equal to 30 basis points above the bank's base rate, whichever the Company
selects at the time advances are made. In addition a fee of 0.5% per loan will
be due and payable to the bank on funds as advanced. Each loan made under the
Line of Credit will be secured by the assignment of rents and leases. In
addition, the Line of Credit 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. The Company will be required, at each closing, to
pay all costs, fees and expenses arising in connection with the Line of Credit.
The Company must also pay the bank's attorneys fees, subject to a maximum cap,
incurred in connection with the Line of Credit and each advance. As of February
26, 1999, the Company had obtained and repaid three advances totalling
$9,600,000 relating to the Line of Credit. In connection with the Line of
Credit, the Company incurred a commitment fee, legal fees and closing costs of
$68,762. The proceeds were used in connection with the purchase of two hotel
Properties described in "Business -- Property Acquisitions" and in connection
with the agreement to acquire three additional hotel Properties described in
"Business -- Pending Investments."
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 of the Company" and the Financial Statements
included in Exhibit B.
<TABLE>
<CAPTION>
1998 1997 (1) 1996 (2)
---------------- ------------ ------------
<S> <C>
Year Ended December 31:
Revenues $1,955,461 $ 46,071 $ -
Net earnings 958,939 22,852 -
Cash distributions declared (3) 1,168,145 29,776 -
Funds from operations (4) 1,343,105 22,852 -
Earnings per share 0.40 0.03 -
Cash distributions declared per Share 0.46 0.05 -
Weighted average number of Shares
outstanding (5) 2,402,344 686,063 -
At December 31:
Total assets $48,856,690 $9,443,476 $598,190
Total stockholders' equity 37,116,491 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.
<PAGE>
(3) Approximately 18% and 23% of cash distributions for the years ended
December 31, 1998 and 1997, respectively, represent a return of capital
in accordance with generally accepted accounting principles ("GAAP").
Cash distributions treated as a return of capital on a GAAP basis
represent the amount of cash distributions in excess of accumulated net
earnings on a GAAP basis. The Company has not treated such amount as a
return of capital for purposes of calculating Invested Capital and the
Stockholders' 8% Return.
(4) 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 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. See Exhibit B -- Financial Information.
(5) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: changes in general economic conditions, changes in local
and national real estate conditions, continued availability of proceeds from the
Company's offering, the ability of the Company to obtain permanent financing on
satisfactory terms, the ability of the Company to identify suitable investments,
the ability of the Company to locate suitable tenants for its Properties and
borrowers for its Mortgage Loans and Secured Equipment Leases, and the ability
of such tenants and borrowers to make payments under their respective leases,
Mortgage Loans or Secured Equipment Leases.
The Company is a Maryland corporation that was organized on June 12,
1996. On June 15, 1998, the Company formed CNL Hospitality Partners, LP, a
wholly owned Delaware limited partnership (the "Partnership"). Properties
acquired are expected to be held by the Partnership and, as a result, owned by
the Company through the Partnership. The term "Company" includes CNL Hospitality
Properties, Inc. and its subsidiaries, CNL Hospitality GP Corp., CNL Hospitality
LP Corp. and CNL Hospitality Partners, LP.
LIQUIDITY AND CAPITAL RESOURCES
On July 9, 1997, the Company commenced its offering of Shares of Common
Stock. As of December 31, 1998, the Company had received aggregate subscription
proceeds of $43,019,080 (4,301,908 Shares) from the offering, including $37,299
(3,730 Shares) through the Company's Reinvestment Plan. The Company anticipates
significant additional sales of Shares prior to the termination of the offering.
The Company has elected to extend the offering of Shares until a date no later
than July 9, 1999.
As of December 31, 1998, net proceeds to the Company from its offering
of Shares, 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 $37,313,000. In
addition, the Company had received three advances under the Line of Credit
totalling $9,600,000. As of December 31, 1998, the proceeds had been used to
invest approximately $27,246,000 in two hotel Properties, to pay $5,000,000 as a
deposit on three additional Properties and to pay approximately $3,487,000 in
acquisition fees and expenses, leaving approximately $11,180,000 of net offering
proceeds available for investment in Properties and Mortgage Loans.
<PAGE>
On November 23, 1998, the Company filed a registration statement on
Form S-11 with the Securities and Exchange Commission in connection with the
proposed sale by the Company of up to an additional 27,500,000 Shares of common
stock ($275,000,000) (the "Second Offering ") which is expected to commence
immediately following the completion of this Offering. Of the 27,500,000 Shares
of common stock to be offered, 2,500,000 will be available only to stockholders
purchasing Shares through the Reinvestment Plan. The price per Share and the
other terms of the Second Offering, including the percentage of Gross Proceeds
payable to the Managing Dealer for Selling Commissions and expenses in
connection with the offering, payable to the Advisor for Acquisition Fees and
Acquisition Expenses and reimbursable to the Advisor for Offering Expenses, will
be substantially the same as those for this Offering. The Company expects to use
net proceeds from the Second Offering to purchase additional Properties and, to
a lesser extent, make Mortgage Loans.
The Company expects to use net proceeds it receives from this Offering,
plus any net proceeds from the sale of Shares in the Second Offering, to
purchase additional Properties and, to a lesser extent, make Mortgage Loans. See
"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 currently plans
to obtain one or more revolving Lines of Credit in an aggregate amount initially
of 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 initially be in an 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.
On July 31, 1998, the Company entered into an initial Line of Credit
and security agreement with a bank to be used by the Company to acquire hotel
Properties. The initial Line of Credit provides that the Company will be able to
receive advances of up to $30,000,000 until July 30, 2003, with an annual review
to be performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable discretion, of the credit quality.
Interest expense on each advance shall be payable monthly, with all unpaid
interest and principal due no later than five years from the date of the
advance. Advances under the Line of Credit will bear interest at either (i) a
rate per annum equal to 318 basis points above the London Interbank Offered Rate
(LIBOR) or (ii) a rate per annum equal to 30 basis points above the bank's base
rate, whichever the Company selects at the time advances are made. In addition,
a fee of .5% per advance will be due and payable to the bank on funds as
advanced. Each advance made under the Line of Credit will be collateralized by
an assignment of rents and leases. In addition, the Line of Credit provides that
the Company will not be able to further encumber the applicable hotel Property
during the term of the advance without the bank's consent. The Company will be
required, at each closing, to pay all costs, fees and expenses arising in
connection with the Line of Credit. The Company must also pay the bank's
attorneys fees, subject to a maximum cap, incurred in connection with the Line
of Credit and each advance. As of February 26, 1999, the Company obtained and
repaid three advances totalling $9,600,000 relating to the Line of Credit. In
connection with the Line of Credit, the Company incurred a commitment fee, legal
fees, and closing costs of $68,762. The proceeds were used in connection with
the purchase of two hotel Properties and the commitment to acquire three
additional Properties. 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.
As of February 26, 1999, the Company had received subscription proceeds
of $73,605,508 (7,360,551 Shares) from its offering of Shares. As of February
26, 1999, 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 $65,901,000. In
addition, $3,684,745 was advanced to the Company as a convertible loan in
connection with the Western International acquisitions. The Company has used net
proceeds and loan proceeds to invest, directly or indirectly, approximately
$52,025,000 in six hotel Properties, to pay $9,400,000 as deposits on seven
additional hotel Properties and to pay approximately $3,541,000 in Acquisition
Fees and miscellaneous acquisition expenses, leaving approximately $4,620,000 in
Net Offering Proceeds available for investment in additional Properties and
Mortgage Loans.
As of February 26, 1999, the Company had initial commitments to
acquire, directly or 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 advances on the Line
of Credit. In connection with three of these agreements, the Company was
required by the seller to obtain a letter of credit. The letter of credit was
collateralized by a $5,000,000 certificate of deposit. In connection with the
letter of credit, the Company incurred $22,500 in closing costs. In connection
with the four remaining agreements, Hotel Investors was required by the seller
to pay a deposit of $10,000,000 which is being held in escrow by the title
company. Of this amount, Five Arrows contributed $5,600,000 and the Company
contributed $4,400,000. 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. As of February 26, 1999, the Company
had not entered into any arrangements creating a reasonable probability a
particular Mortgage Loan or Secured Equipment Lease would be funded. The Company
is presently negotiating to acquire additional Properties, but as of February
26, 1999, the Company had not acquired any such Properties or entered into any
Mortgage Loans.
The Properties are, and are expected to 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 December 31, 1998, the
Company had $13,228,923 invested in such short-term investments as compared to
$8,869,838 at December 31, 1997. The increase in the amount invested in
short-term investments reflects proceeds received from the sale of Shares and
advances on the Line of Credit during the year ended December 31, 1998, net of
the investment in Properties. The remaining funds will be used primarily to
purchase additional Properties, to make Mortgage Loans, to pay 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 years ended December 31, 1998 and 1997 and the period June
12, 1996 (date of inception) through December 31, 1996, Affiliates of the
Company incurred on behalf of the Company $459,250, $638,274 and $555,812,
respectively, for certain Organizational and Offering Expenses. In addition,
during the years ended December 31, 1998 and 1997, Affiliates of the Company
incurred on behalf of the Company $392,863 and $26,149, respectively, for
certain Acquisition Expenses and $98,212 and $11,003, respectively, for certain
Operating Expenses. As of December 31, 1998, the Company owed the Advisor
$318,937 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. In addition, the Advisor
is required to reimburse the Company the amount by which 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, as defined in the Advisory Agreement (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.
During the year ended December 31, 1998 and 1997, the Company generated
cash from operations (which includes cash received from tenants and interest and
other income received less cash paid for operating expenses and interest
expense) of $2,776,965 and $22,469, respectively. Based on cash from operations,
the Company declared Distributions to its stockholders of $1,168,145 and $29,776
during the year ended December 31, 1998 and the period October 15, 1997 (the
date operations commenced) through December 31, 1997, respectively. In addition,
in January, February and March 1999, the Company declared Distributions
totalling $251,967, $314,928 and $431,754, respectively ($0.0583 per Share),
payable in March 1999. In April 1999, the Company declared Distributions
totalling $554,793 (representing $0.0604 per share), payable in June 1999. For
the years ended December 31, 1998 and 1997, 76 percent and 100 percent,
respectively, of the Distributions received by stockholders were considered to
be ordinary income and for the year ended December 31, 1998, approximately 24
percent was considered a return of capital for federal income tax purposes. No
amounts distributed or to be distributed to the stockholders as of February 26
1999, were required to be or have been treated by the Company as a return of
capital for purposes of calculating the Stockholders' 8% Return on Invested
Capital.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability coverage
for the Company. This insurance policy is intended to reduce the Company's
exposure in the unlikely event a tenant's insurance policy lapses or is
insufficient to cover a claim relating to a Property.
<PAGE>
The tenants of the six Properties owned by the Company, either directly
or indirectly, as of February 26, 1999, have established reserve funds which
will be used for the replacement and renewal of furniture, fixtures and
equipment relating to the hotel Properties (the "FF&E Reserve"). Funds in the
FF&E Reserve have been paid, granted and assigned to the Company. For the year
ended December 31, 1998, revenues relating to the FF&E Reserve totalled $98,099.
Due to the fact that the Properties are leased on a long term, triple-net basis,
management does not believe that working capital reserves are 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.
RESULTS OF OPERATIONS
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on October 15, 1997. As of December 31, 1998, the Company
had acquired two Properties consisting of land, building and equipment, and had
entered into a long-term, triple-net lease agreements relating to these
Properties.
The Property leases provide for minimum base annual rental payments
ranging from approximately $1,209,000 to $1,651,800, which are payable in
monthly installments. The leases also provide that, commencing in the second
lease year, the annual base rent required under the terms of the leases will
increase. In addition to annual base rent, the tenant pays a percentage rent
computed as a percentage of the gross sales of the Property. No such rent was
owed during 1998. The Company's leases also require the establishment of the
FF&E Reserves. The FF&E Reserves established for the tenant at December 31, 1998
are owned by the Company and have been reported as additional rent. In
connection therewith, the Company earned $1,316,599 (including $98,099 in FF&E
Reserve income) from the two Properties during the year ended December 31, 1998.
Because the Company has not yet acquired all of its Properties and the
Properties owned were only operational for a portion of the period, revenues for
the year ended December 31, 1998, represent only a portion of revenues which the
Company is expected to earn in future periods.
During the years ended December 31, 1998 and 1997, the Company earned
$638,862 and $46,071, respectively, in interest income from investments in money
market accounts and other short-term, highly liquid investments. 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 interest expense and depreciation and
amortization expense, were $996,522 and $23,219 for the years ended December 31,
1998 and 1997, respectively. Operating expenses increased during the year ended
December 31, 1998, as compared to the year ended December 31, 1997, primarily as
a result of the fact that the Company did not commence operations until October
15, 1997 and due to the fact that the Company acquired Properties and received
advances under the Line of Credit during 1998. Operating Expenses 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 additional 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
additional Properties and invests in Mortgage Loans.
During the year ended December 31, 1998, the Company reduced Operating
Expenses by $92,733 as a result of Operating Expenses reimbursed by the Advisor
due to such expenses exceeding the Expense Cap as defined in the Advisory
Agreement as described above in "Liquidity and Capital Resources."
The Company has made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1997. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net earnings. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 1998 and 1997. In addition,
the Company intends to continue to operate the Company so as to remain qualified
as a REIT for federal income tax purposes.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the effect of
inflation. Such provisions will include clauses requiring the payment of
percentage rent based on certain gross sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for the Company as of January 1, 1999. This SOP
requires start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a cumulative
effect adjustment in the statement of income. Management of the Company does not
believe that adoption of this SOP will have a material effect on the Company's
financial position or results of operations.
Market Risk
The Company is subject to interest rate risk through outstanding
balances on its variable rate Line of Credit. The Company may mitigate this risk
by paying down the Line of Credit from offering proceeds should interest rates
rise substantially.
Year 2000
The year 2000 ("Year 2000") problem is the result of information
technology systems and embedded systems (products which are made with
microprocessor (computer) chips such as HVAC systems, physical security systems
and elevators) using a two-digit format, as opposed to four digits, to indicate
the year. Such information technology and embedded systems may be unable to
properly recognize and process date-sensitive information beginning January 1,
2000.
The Company does not have any information technology systems.
Affiliates of the Advisor provide all services requiring the use of information
technology systems pursuant to the Advisory Agreement with the Company. The
maintenance of embedded systems, if any, at the Company's Properties is the
responsibility of the tenants of the Properties in accordance with the terms of
the Company's leases. The Advisor and its Affiliates have established a team
dedicated to reviewing the internal information technology systems used in the
operation of the Company, and the information technology and embedded systems
and the Year 2000 compliance plans of the Company's tenants, significant
suppliers, financial institutions and transfer agent.
The information technology infrastructure of the Affiliates of the
Advisor consists of a network of personal computers and servers that were
obtained from major suppliers. The Affiliates utilize various administrative and
financial software applications on that infrastructure to perform the business
functions of the Company. The inability of the Advisor and its Affiliates to
identify and timely correct material Year 2000 deficiencies in the software
and/or infrastructure could result in an interruption in, or failure of, certain
of the Company's business activities or operations. Accordingly, the Advisor and
its Affiliates have requested and are evaluating documentation from the
suppliers of the software and infrastructure of the Affiliates regarding the
Year 2000 compliance of their products that are used in the business activities
or operations of the Company. The Advisor has not yet received sufficient
certifications to be assured that the suppliers have fully considered and
mitigated any potential material impact of the Year 2000 deficiencies. The costs
expected to be incurred by the Advisor and its Affiliates to become Year 2000
compliant will be incurred by the Advisor and its Affiliates; therefore, these
costs will have no impact on the Company's financial position or results of
operations.
The Company has material third party relationships with its tenants,
financial institutions and transfer agent. The Company depends on its tenants
for rents and cash flows, its financial institutions for availability of cash
and its transfer agent to maintain and track investor information. If any of
these third parties are unable to meet their obligations to the Company because
of the Year 2000 deficiencies, such a failure may have a material impact on the
Company. Accordingly, the Advisor has requested and is evaluating documentation
from the Company's tenants, financial institutions, and transfer agent relating
to their Year 2000 compliance plans. The Advisor has not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the Advisor does not, at this time,
know of the potential costs to the Company of any adverse impact or effect of
any Year 2000 deficiencies by these third parties.
The Advisor currently expects that all Year 2000 compliance testing and
any necessary remedial measures on the information technology systems used in
the business activities and operations of the Company will be completed prior to
June 30, 1999. Based on the progress the Advisor and its Affiliates have made in
identifying and addressing the Company's Year 2000 issues and the plan and
timeline to complete the compliance program, the Advisor does not foresee
significant risks associated with the Company's Year 2000 compliance at this
time. Because the Advisor and its Affiliates are still evaluating the status of
the systems used in business activities and operations of the Company and the
systems of the third parties with which the Company conducts its business, the
Advisor has not yet developed a comprehensive contingency plan and is unable to
identify "the most reasonably likely worst case scenario" at this time. As the
Advisor identifies significant risks related to the Company's Year 2000
compliance or if the Company's Year 2000 compliance program's progress deviates
substantially from the anticipated timeline, the Advisor will develop
appropriate contingency plans.
MANAGEMENT
This Management section replaces the Management section in the
Prospectus dated October 6, 1998.
RECENT DEVELOPMENTS
The prior 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. See "Directors and
Executive Officers" for a description of Charles E. Adams, John A. Griswold and
Craig M. McAllaster, the newly appointed directors.
In addition, 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. See "Directors and Executive Officers" for a description of Mathew W.
Kaplan and Lawrence A. Dustin, the newly appointed directors.
GENERAL
The Company will operate under the direction of the Board of Directors,
the members of which are accountable to the Company as fiduciaries. As required
by applicable regulations, a majority of the Independent Directors and a
majority of the Directors have reviewed and ratified the Articles of
Incorporation and have adopted the Bylaws.
<PAGE>
The Company currently has seven Directors; it may have no fewer than
three Directors and no more than 15. Directors will be elected annually, and
each Director will hold office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. There is no limit on
the number of times that a Director may be elected to office. Although the
number of Directors may be increased or decreased as discussed above, a decrease
shall not have the effect of shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the Shares outstanding and entitled to vote at a meeting called for this
purpose. The notice of such meeting shall indicate that the purpose, or one of
the purposes, of such meeting is to determine if a Director shall be removed.
FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the management and
control of the affairs of the Company; however, the Board of Directors will
retain the Advisor to manage the Company's day-to-day affairs and the
acquisition and disposition of investments, subject to the supervision of the
Board of Directors.
The Directors are not required to devote all of their time to the
Company and are only required to devote such of their time to the affairs of the
Company as their duties require. The Board of Directors will meet quarterly in
person or by telephone, or more frequently if necessary. It is not expected that
the Directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the Directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the Directors, will have a fiduciary
duty to the Company.
The Directors will establish written policies on investments and
borrowings and will monitor the administrative procedures, investment
operations, and performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders and are fulfilled. Until
modified by the Directors, the Company will follow the policies on investments
set forth in this Prospectus. See "Investment Objectives and Policies."
The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the total fees and expenses of the Company are reasonable in
light of the Company's investment performance, Net Assets, Net Income, and the
fees and expenses of other comparable unaffiliated real estate investment
trusts. This determination shall be reflected in the minutes of the meetings of
the Board of Directors. For purposes of this determination, Net Assets are the
Company's total assets (other than intangibles), calculated at cost before
deducting depreciation or other non-cash reserves, less total liabilities, and
computed at least quarterly on a basis consistently applied. Such determination
will be reflected in the minutes of the meetings of the Board of Directors. In
addition, a majority of the Independent Directors and a majority of Directors
not otherwise interested in the transaction must approve each transaction with
the Advisor or its Affiliates. The Board of Directors also will be responsible
for reviewing and evaluating the performance of the Advisor before entering into
or renewing an advisory agreement. The Independent Directors shall determine
from time to time and at least annually that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services to be
performed and shall supervise the performance of the Advisor and the
compensation paid to it by the Company to determine that the provisions of the
Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as the amount of the fee paid to the
Advisor in relation to the size, composition and performance of the Company's
investments, the success of the Advisor in generating appropriate investment
opportunities, rates charged to other comparable REITs and other investors by
advisors performing similar services, additional revenues realized by the
Advisor and its Affiliates through their relationship with the Company, whether
paid by the Company or by others with whom the Company does business, the
quality and extent of service and advice furnished by the Advisor, the
performance of the investment portfolio of the Company and the quality of the
portfolio of the Company relative to the investments generated by the Advisor,
if any, for its own account. Such review and evaluation will be reflected in the
minutes of the meetings of the Board of Directors. The Board of Directors shall
determine that any successor Advisor possesses sufficient qualifications to (i)
perform the advisory function for the Company and (ii) justify the compensation
provided for in its contract with the Company.
The liability of the officers and Directors while serving in such
capacity is limited in accordance with the Articles of Incorporation and
applicable law. See "Summary of the Articles of Incorporation and Bylaws --
Limitation of Director and Officer Liability."
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
Name Age Position with the Company
---- --- -------------------------
James M. Seneff, Jr. 52 Director, Chairman of the Board, and
Chief Executive Officer
Robert A. Bourne 52 Director and President
Matthew W. Kaplan 36 Director
Charles E. Adams 36 Independent Director
Lawrence A. Dustin 53 Independent Director
John A. Griswold 50 Independent Director
Craig M. McAllaster 47 Independent Director
Charles A. Muller 40 Chief Operating Officer and Executive
Vice President
C. Brian Strickland 36 Vice President of Finance and
Administration
Jeanne A. Wall 40 Executive Vice President
Lynn E. Rose 50 Secretary and Treasurer
James M. Seneff, Jr. Director, Chairman of the Board, and Chief
Executive Officer. Mr. Seneff currently holds the position of Chairman of the
Board, Chief Executive Officer and director of CNL Hospitality Advisors, Inc.,
the Advisor. Mr. Seneff also serves as Chairman of the Board, Chief Executive
Officer and a director of CNL American Properties Fund, Inc. and CNL Health Care
Properties, Inc., public, unlisted real estate investment trusts, and CNL Fund
Advisors, Inc. and CNL Health Care Advisors, Inc., their advisors, respectively.
Mr. Seneff is a principal stockholder of CNL Group, Inc., a diversified real
estate company, and has served as its Chairman of the Board of Directors,
director, and Chief Executive Officer since its formation in 1980. CNL Group,
Inc. is the parent company of CNL Securities Corp., which is acting as the
Managing Dealer in this offering, CNL Investment Company, CNL Fund Advisors,
Inc. and CNL Hospitality Advisors, Inc. Mr. Seneff has been Chairman of the
Board, Chief Executive Officer and a director of CNL Securities Corp. since its
formation in 1979. Mr. Seneff also has held the position of Chairman of the
Board, Chief Executive Officer, President and a director of CNL Management
Company, a registered investment advisor, since its formation in 1976, has
served as Chief Executive Officer, Chairman of the Board and a director of CNL
Investment Company, and Chief Executive Officer and Chairman of the Board of
Commercial Net Lease Realty, Inc. since 1992, served as Chief Executive Officer
and Chairman of the Board of CNL Realty Advisors, Inc. from its inception in
1991 through 1997 at which time such company merged with Commercial Net Lease
Realty, Inc., a public real estate investment trust that is listed on the New
York Stock Exchange, and has held the position of Chief Executive Officer,
Chairman of the Board and a director of CNL Institutional Advisors, Inc., a
registered investment advisor, since its inception in 1990. Mr. Seneff also
serves as a director of First Union National Bank of Florida, N.A. Mr. Seneff
previously served on the Florida State Commission on Ethics and is a former
member and past Chairman of the State of Florida Investment Advisory Council,
which recommends to the Florida Board of Administration investments for various
Florida employee retirement funds. The Florida Board of Administration,
Florida's principal investment advisory and money management agency, oversees
the investment of more than $60 billion of retirement funds. Since 1971, Mr.
Seneff has been active in the acquisition, development, and management of real
estate projects and, directly or through an affiliated entity, has served as a
general partner or joint venturer in over 100 real estate ventures involved in
the financing, acquisition, construction, and rental of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Included in these
real estate ventures are approximately 65 privately offered real estate limited
partnerships with investment objectives similar to one or more of the Company's
investment objectives, in which Mr. Seneff, directly or through an affiliated
entity, serves or has served as a general partner. Mr. Seneff received his
degree in Business Administration from Florida State University in 1968.
Robert A. Bourne. Director and President. Mr. Bourne currently holds
the position of President and director of CNL Hospitality Advisors, Inc., the
Advisor. Mr. Bourne has also served as Vice Chairman and Treasurer of CNL
American Properties Fund, Inc. since February 1999 and as President and a
director of CNL Health Care Properties, Inc., public, unlisted real estate
investment trusts, and Vice Chairman of the Board of Directors, a director and
Treasurer of CNL Fund Advisors, Inc. and President and a director of CNL Health
Care Advisors, Inc., their advisors, respectively. Mr. Bourne has served as a
director of CNL American Properties Fund, Inc. since May 1994, and previously
served as President from May 1994 through February 1999. He also served as
President of CNL Fund Advisors, Inc. from the date of its inception in 1994
through October 1997. Mr. Bourne is President and Treasurer of CNL Group, Inc.,
President, Treasurer, a director, and a registered principal of CNL Securities
Corp. (the Managing Dealer of this offering), President, Treasurer, a director,
and a registered principal of CNL Investment Company, and Chief Investment
Officer, a director and Treasurer of CNL Institutional Advisors, Inc., a
registered investment advisor. Mr. Bourne served as President of CNL
Institutional Advisors, Inc. from the date of its inception through June 30,
1997. Mr. Bourne served as President and a director from July 1992 to February
1996, served as Secretary and Treasurer from February 1996 through December
1997, and has served as Vice Chairman of the Board of Directors since February
1996, of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange. In addition, Mr. Bourne
served as President of CNL Realty Advisors, Inc. from 1991 to February 1996, and
served as a director of CNL Realty Advisors, Inc. from 1991 through December
1997, and as Treasurer and Vice Chairman from February 1996 through December
1997, at which time such company merged with Commercial Net Lease Realty, Inc.
Upon graduation from Florida State University in 1970, where he received a B.A.
in Accounting, with honors, Mr. Bourne worked as a certified public accountant
and, from September 1971 through December 1978 was employed by Coopers &
Lybrand, Certified Public Accountants, where he held the position of tax manager
beginning in 1975. From January 1979 until June 1982, Mr. Bourne was a partner
in the accounting firm of Cross & Bourne and from July 1982 through January 1987
he was a partner in the accounting firm of Bourne & Rose, P.A., Certified Public
Accountants. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships with investment objectives similar to
one or more of the Company's investment objectives, in which Mr. Bourne,
directly or through an affiliated entity, serves or has served as a general
partner.
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.
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 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, France. 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 the 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.
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.
<PAGE>
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 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 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.
Charles A. Muller. Chief Operating Officer and Executive Vice
President. Mr. Muller joined CNL Hospitality Advisors, Inc. in October 1996 and
is responsible for the planning and implementation of CNL's interest in hotel
industry investments, including acquisitions, development, project analysis and
due diligence. He currently serves as the Chief Operating Officer of CNL
Hospitality Advisors, Inc., the Advisor, and Executive Vice President of CNL
Hotel Development Company. Mr. Muller joined CNL following more than 15 years of
broadbased hotel industry experience with firms such as Tishman Hotel
Corporation, Wyndham Hotels & Resorts, Pannell Kerr Forster, and AIRCOA
Hospitality Services. Mr. Muller's background includes responsibility for market
review and valuation efforts, property acquisitions and development, capital
improvement planning, hotel operations and project management for renovations
and new construction. Mr. Muller served on the former Market, Finance and
Investment Analysis Committee of the American Hotel & Motel Association and is a
founding member of the Lodging Industry Investment Council. He holds a
bachelor's degree in Hotel Administration from Cornell University.
C. Brian Strickland. Vice President of Finance and Administration. Mr.
Strickland currently serves as Vice President of Finance and Administration of
CNL Hospitality Advisors, Inc., the Advisor. Mr. Strickland supervises the
companies' financial reporting, financial control and accounting functions as
well as forecasting, budgeting and cash management activities. He is also
responsible for SEC compliance, equity and debt financing activities and
insurance for the companies. Mr. Strickland joined CNL Hospitality Advisors,
Inc. in April 1998 with an extensive accounting background. Prior to joining
CNL, he served as vice president of taxation with Patriot American Hospitality,
Inc., where he was responsible for implementation of tax planning strategies on
corporate mergers and acquisitions and where he performed or assisted in
strategic processes in the REIT industry. From 1989 to 1997, Mr. Strickland
served as director of tax and asset management for Wyndham Hotels & Resorts
where he was integrally involved in structuring acquisitive transactions,
including the roll-up and initial public offering of Wyndham Hotel Corporation
and its subsequent merger with Patriot American Hospitality, Inc. In his
capacity of director of asset management, he was instrumental in the development
and opening of a hotel and casino in San Juan, Puerto Rico. Prior to 1989, Mr.
Strickland was senior tax accountant for Trammell Crow Company where he provided
tax consulting services to regional development offices. From 1986 to 1988, Mr.
Strickland was tax accountant for Ernst & Whinney where he was a member of the
real estate practice group. Mr. Strickland is a certified public accountant and
holds a bachelor's degree in accounting.
Jeanne A. Wall. Executive Vice President. Ms. Wall serves as Executive
Vice President and director of CNL Hospitality Advisors, Inc., the Advisor. Ms.
Wall is also Executive Vice President of CNL American Properties Fund, Inc. and
CNL Health Care Properties, Inc., public, unlisted real estate investment
trusts, and their advisors, CNL Fund Advisors, Inc. and CNL Health Care
Advisors, Inc., respectively. Ms. Wall currently serves as Executive Vice
President of CNL Group, Inc., a diversified real estate company. Ms. Wall has
served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. In 1984, Ms. Wall joined CNL
Securities Corp. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became a Senior Vice President and in July 1997, she became
Executive Vice President of CNL Securities Corp. In this capacity, Ms. Wall
serves as national marketing and sales director and oversees the national
marketing plan for the CNL investment programs. In addition, Ms. Wall oversees
product development, partnership administration and investor services for
programs offered through participating brokers. Ms. Wall also has served as
Senior Vice President of CNL Institutional Advisors, Inc., a registered
investment advisor, from 1990 to 1993, as Vice President of CNL Realty Advisors,
Inc. since its inception in 1991 through 1997, and as Vice President of
Commercial Net Lease Realty, Inc., a public real estate investment trust that is
listed on the New York Stock Exchange, since 1992 through 1997. Ms. Wall holds a
B.A. in Business Administration from Linfield College and is a registered
principal of CNL Securities Corp. Ms. Wall currently serves as a trustee on the
Board of the Investment Program Association and is a member of the Corporate
Advisory Council for the International Association for Financial Planning and
previously served on the Direct Participation Program Committee for the National
Association of Securities Dealers.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose serves as Secretary,
Treasurer and a director of CNL Hospitality Advisors, Inc., the Advisor. Ms.
Rose is also Secretary of CNL American Properties Fund, Inc. and Secretary and
Treasurer of CNL Health Care Properties, Inc., public, unlisted real estate
investment trusts, and Secretary and a director of CNL Fund Advisors, Inc. and
Secretary, Treasurer and a director of CNL Health Care Advisors, Inc., their
advisors, respectively. Ms. Rose, a certified public accountant, has served as
Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of CNL
Group, Inc., since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990 as Secretary and a director of CNL Realty Advisors, Inc. from its inception
in 1991 through 1997, and as Treasurer of CNL Realty Advisors, Inc. from 1991 to
February 1996. In addition, Ms. Rose served as Secretary and Treasurer of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange, from 1992 to February 1996. Ms. Rose also
currently serves as Secretary for approximately 50 additional corporations. Ms.
Rose oversees the legal compliance, accounting, tenant compliance, and reporting
for over 250 corporations, partnerships and joint ventures. Prior to joining
CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting firm of
Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a B.A. in
Sociology from the University of Central Florida. She was licensed as a
certified public accountant in 1979.
INDEPENDENT DIRECTORS
Under the Articles of Incorporation, a majority of the Board of
Directors must consist of Independent Directors, except for a period of 90 days
after the death, removal or resignation of an Independent Director. The
Independent Directors shall nominate replacements for vacancies in the
Independent Director positions. An Independent Director may not, directly or
indirectly (including through a member of his immediately family), own any
interest in, be employed by, have any present business or professional
relationship with, serve as an officer or director of the Advisor or its
Affiliates, or serve as a director of more than three REITs organized by the
Advisor or its Affiliates. Except to carry out the responsibilities of a
Director, an Independent Director may not perform material services for the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee, the members of which are
selected by the full Board of Directors each year. The Audit Committee makes
recommendations to the Board of Directors in accordance with those of the
independent accountants of the Company. The Board of Directors shall review with
such accounting firm the scope of the audit and the results of the audit upon
its completion.
In addition, the Company has formed a Compensation Committee, the
members of which are selected by the full Board of Directors each year.
At least a majority of the members of each committee of the Company's
Board of Directors must be Independent Directors.
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Director is entitled to receive $6,000 annually for serving on the
Board of Directors, as well as fees of $750 per meeting attended ($375 for each
telephonic meeting in which the Director participates), including committee
meetings. No executive officer or Director of the Company has received a bonus
from the Company. The Company will not pay any compensation to the officers and
Directors of the Company who also serve as officers and directors of the
Advisor.
MANAGEMENT COMPENSATION
For a description of the types, recipients, methods of computation, and
estimated amounts of all compensation, fees, and distributions to be paid
directly or indirectly by the Company to the Advisor, Managing Dealer, and their
Affiliates, see "Management Compensation."
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
CNL Hospitality Advisors, Inc. (formerly CNL Real Estate Advisors,
Inc.) is a Florida corporation organized in January 1997 to provide management,
advisory and administrative services. The Company originally entered into the
Advisory Agreement with the Advisor effective July 9, 1997. CNL Hospitality
Advisors, Inc., as Advisor, has a fiduciary responsibility to the Company and
the stockholders.
The directors and officers of the Advisor are as follows:
James M. Seneff, Jr............Chairman of the Board, Chief Executive
Officer, and Director
Robert A. Bourne...............President and Director
Matthew W. Kaplan..............Director
Charles A. Muller..............Chief Operating Officer and Executive Vice
President
C. Brian Strickland............Vice President of Finance and Administration
Jeanne A. Wall.................Executive Vice President and Director
Lynn E. Rose...................Secretary, Treasurer and Director
CERTAIN TRANSACTIONS
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares of common
stock for services in connection with the offering of Shares, a substantial
portion of which has been or will be paid as commissions to other
broker-dealers. For the years ended December 31, 1998 and 1997, the Company had
incurred $2,377,026 and $849,405, respectively, of such fees, of which
approximately $2,201,000 and $792,832, respectively, was paid by the Managing
Dealer as commissions to other broker-dealers.
In addition, the Managing Dealer 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. For the years ended December 31, 1998 and 1997, the
Company had incurred $158,468 and $56,627, respectively, 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
identifying the Properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans 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. For the years ended December 31, 1998 and 1997, the Company had incurred
$1,426,216 and $509,643, respectively, of such fees.
The Company and the Advisor have entered into an Advisory Agreement
pursuant to which the Advisor will receive a monthly Asset Management Fee of
one-twelfth of 0.60% of the Company's Real Estate Asset Value and the
outstanding principal balance of any Mortgage Loans as of the end of the
preceding month. The Asset Management Fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or may not be
taken, in whole or in part as to any year, in the sole discretion of the
Advisor. All or any portion of the Asset Management Fee not taken as to any
fiscal year shall be deferred without interest and may be taken in such other
fiscal year as the Advisor shall determine. During the year ended December 31,
1998, the Company incurred $68,114 of such fees.
The Company incurs Operating Expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis. Pursuant
to the Advisory Agreement described above, 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 "Expense Year"),
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.
The Advisor and its Affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the years
ended December 31, 1998 and 1997, the Company incurred a total of $644,189 and
$192,224, respectively, for these services, $494,729 and $185,335, respectively,
of such costs representing stock issuance costs, $9,084 and $0, respectively,
representing acquisition related costs and $140,376 and $6,889, respectively,
representing general operating and administrative expenses, including costs
related to preparing and distributing reports required by the Securities and
Exchange Commission.
All amounts paid by the Company to affiliates of the Company are believed
by the Company to be fair and comparable to amounts that would be paid for
similar services provided by unaffiliated third parties.
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. Prior public programs have invested only in restaurant
Properties and have not invested in hotel Properties. Investors in the Company
should not assume that they will experience returns, if any, comparable to those
experienced by investors in such prior public real estate programs. Investors
who purchase Shares in the Company will not thereby acquire any ownership
interest in any partnerships or corporations to which the following information
relates.
Two Directors of the Company, Robert A. Bourne and James M. Seneff,
Jr., individually or with others have served as general partners of 88 and 89
real estate limited partnerships, respectively, including 18 publicly offered
CNL Income Fund partnerships, and as directors and officers of two unlisted
public REITs. None of these limited partnerships or the unlisted REITs have been
audited by the IRS. Of course, there is no guarantee that the Company will not
be audited. Based on an analysis of the operating results of the prior programs,
Messrs. Bourne and Seneff believe that each of such programs has met or is
meeting its principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food, family-style and in the case of
two of the partnerships, casual-dining restaurant properties similar to those
that the Company intends to acquire and have investment objectives similar to
those of the Company. In addition, Messrs. Bourne and Seneff currently serve as
directors and officers of CNL American Properties Fund, Inc., an unlisted public
REIT organized to invest in fast-food, family-style and casual-dining restaurant
properties, mortgage loans and secured equipment leases similar to those in
which the Company may invest in, and CNL Health Care Properties, Inc., an
unlisted public REIT organized to invest in health care and seniors' housing
facilities. Both of the unlisted public REITs have investment objectives similar
to those of the Company. As of December 31, 1998, the 18 partnerships and the
unlisted REITs had raised a total of $1,405,003,115 from a total of 82,987
investors, and had invested in 1,139 fast-food, family-style and casual-dining
restaurant properties. Certain additional information relating to the offerings
and investment history of the 18 public partnerships and the unlisted public
REITs is set forth below.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Number of Date 90% of Net
Limited Proceeds Fully
Maximum Partnership Invested or
Name of Offering Units or Shares Committed to
Entity Amount (1) Date Closed Sold Investment (2)
- ------ ---------- ----------- --------------- --------------
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 units)
CNL Income $40,000,000 April 22, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 units)
CNL Income $40,000,000 October 8, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 units)
CNL Income $45,000,000 April 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 13, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 units)
CNL Income $45,000,000 March 23, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 22, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 units)
CNL Income $45,000,000 July 18, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 units)
CNL Income $30,000,000 October 10, 1996 3,000,000 December 1996
Fund XVII, Ltd. (3,000,000 units)
CNL Income Fund $35,000,000 February 6, 1998 3,500,000 December 1997
XVIII, Ltd. (3,500,000 units)
<PAGE>
Number of Date 90% of Net
Limited Proceeds Fully
Maximum Partnership Invested or
Name of Offering Units or Shares Committed to
Entity Amount (1) Date Closed Sold Investment (2)
- ------ ---------- ----------- --------------- --------------
CNL American $747,464,413 (3) (3) (3)
Properties Fund, (74,746,441 shares)
Inc.
CNL Health Care $155,000,000 (4) (4) (4)
Properties, Inc. (15,500,000 shares)
</TABLE>
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd.,
CNL Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XVI, Ltd.
and CNL Income Fund XVIII, Ltd.
(2) For a description of the property acquisitions by these programs, see the
table set forth on the following page.
(3) In April 1995, CNL American Properties Fund, Inc. commenced an offering of
a maximum of 15,000,000 shares of common stock ($150,000,000), excluding
1,500,000 shares ($15,000,000), available to investors participating in
the distribution reinvestment plan. On February 6, 1997, the initial
offering closed upon receipt of subscriptions totalling $150,591,765
(15,059,177 shares), including $591,765 (59,177 shares) through the
reinvestment plan. Following completion of the initial offering on
February 6, 1997, CNL American Properties Fund, Inc. commenced a
subsequent offering (the "1997 Offering") of up to 27,500,000 shares
($275,000,000) of common stock. On March 2, 1998, the 1997 Offering closed
upon receipt of subscriptions totalling $251,872,648 (25,187,265 shares),
including $1,872,648 (187,265 shares) through the reinvestment plan.
Following completion of the 1997 Offering on March 2, 1998, CNL American
Properties Fund, Inc. commenced a subsequent offering (the "1998
Offering") of up to 34,500,000 shares ($345,000,000) of common stock. As
of December 31, 1998, CNL American Properties Fund, Inc. had received
subscriptions totalling $345,000,000 (34,500,000 shares), including
$3,107,848 (310,785 shares) through the reinvestment plan, from the 1998
Offering and had purchased 409 properties. The 1998 Offering closed in
January 1999, upon receipt of the proceeds from the last subscriptions.
(4) Effective September 18, 1998, CNL Health Care Properties, Inc. commenced
an offering of up to 15,500,000 shares ($155,000,000) of common stock. As
of December 31, 1998, CNL Health Care Properties, Inc. had not yet
acquired any properties.
As of December 31, 1998, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 69 nonpublic
real estate limited partnerships. The offerings of all of these 69 nonpublic
limited partnerships had terminated as of December 31, 1998. These 69
partnerships raised a total of $185,927,353 from approximately 4,519 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 216 projects as of December 31, 1998. These
216 projects consist of 19 apartment projects (comprising 10% of the total
amount raised by all 69 partnerships), 13 office buildings (comprising 5% of the
total amount raised by all 69 partnerships), 169 fast-food, family-style, or
casual-dining restaurant property and business investments (comprising 69% of
the total amount raised by all 69 partnerships), one condominium development
(comprising 0.5% of the total amount raised by all 69 partnerships), four
hotels/motels (comprising 5% of the total amount raised by all 69 partnerships),
eight commercial/retail properties (comprising 10% of the total amount raised by
all 69 partnerships), and two tracts of undeveloped land (comprising 0.5% of the
total amount raised by all 69 partnerships).
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 89 real estate limited partnerships whose offerings had closed
as of December 31, 1998 (including 18 CNL Income Fund limited partnerships) in
which Mr. Seneff and/or Mr. Bourne serve or have served as general partners in
the past, 39 invested in restaurant properties leased on a "triple-net" basis,
including eight which also invested in franchised restaurant businesses
(accounting for approximately 93% of the total amount raised by all 90 real
estate limited partnerships).
<PAGE>
The following table sets forth summary information, as of December 31,
1998, regarding property acquisitions by the 18 limited partnerships and the two
unlisted REITs that have investment objectives similar to those of the Company.
<TABLE>
<CAPTION>
<S> <C>
Name of Type of Method of Type of
Entity Property Location Financing Program
- ------ -------- -------- --------- -------
CNL Income 22 fast-food or AL, AZ, CA, FL, GA, All cash Public
Fund, Ltd. family-style LA, MD, OK, PA, TX,
restaurants VA, WA
CNL Income 49 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund II, Ltd. family-style IL, IN, KS, LA, MI,
restaurants MN, MO, NC, NM, OH,
TN, TX, WA, WY
CNL Income 37 fast-food or AZ, CA, CO, FL, GA, All cash Public
Fund III, Ltd. family-style IA, IL, IN, KS, KY,
restaurants MD, MI, MN, MO, NC,
NE, OK, TX
CNL Income 46 fast-food or AL, DC, FL, GA, IL, All cash Public
Fund IV, Ltd. family-style IN, KS, MA, MD, MI,
restaurants MS, NC, OH, PA, TN,
TX, VA
CNL Income 35 fast-food or AZ, FL, GA, IL, IN, All cash Public
Fund V, Ltd. family-style MI, NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 56 fast-food or AR, AZ, FL, GA, IL, All cash Public
Fund VI, Ltd. family-style IN, KS, MA, MI, MN,
restaurants NC, NE, NM, NY, OH,
OK, PA, TN, TX, VA,
WA, WY
CNL Income 49 fast-food or AZ, CO, FL, GA, IN, All cash Public
Fund VII, Ltd. family-style LA, MI, MN, NC, OH,
restaurants SC, TN, TX, UT, WA
CNL Income 42 fast-food or AZ, FL, IN, LA, MI, All cash Public
Fund VIII, Ltd. family-style MN, NC, NY, OH, TN,
restaurants TX, VA
CNL Income 43 fast-food or AL, CO, FL, GA, IL, All cash Public
Fund IX, Ltd. family-style IN, LA, MI, MN, MS,
restaurants NC, NH, NY, OH, SC,
TN, TX
CNL Income 52 fast-food or AL, CA, CO, FL, ID, All cash Public
Fund X, Ltd. family-style IL, LA, MI, MO, MT,
restaurants NC, NH, NM, NY, OH,
PA, SC, TN, TX
<PAGE>
Name of Type of Method of Type of
Entity Property Location Financing Program
- ------ -------- -------- --------- -------
CNL Income 41 fast-food or AL, AZ, CA, CO, CT, All cash Public
Fund XI, Ltd. family-style FL, KS, LA, MA, MI,
restaurants MS, NC, NH, NM, OH,
OK, PA, SC, TX, VA,
WA
CNL Income 50 fast-food or AL, AZ, CA, FL, GA, All cash Public
Fund XII, Ltd. family-style LA, MO, MS, NC, NM,
restaurants OH, SC, TN, TX, WA
CNL Income 50 fast-food or AL, AR, AZ, CA, CO, All cash Public
Fund XIII, Ltd. family-style FL, GA, IN, KS, LA,
restaurants MD, NC, OH, PA, SC,
TN, TX, VA
CNL Income 65 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund XIV, Ltd. family-style KS, LA, MN, MO, MS,
restaurants NC, NJ, NV, OH, SC,
TN, TX, VA
CNL Income 55 fast-food or AL, CA, FL, GA, KS, All cash Public
Fund XV, Ltd. family-style KY, MN, MO, MS, NC,
restaurants NJ, NM, OH, OK, PA,
SC, TN, TX, VA
CNL Income 48 fast-food or AZ, CA, CO, DC, FL, All cash Public
Fund XVI, Ltd. family-style GA, ID, IN, KS, MN,
restaurants MO, NC, NM, NV, OH,
TN, TX, UT, WI
CNL Income 29 fast-food, CA, FL, GA, IL, IN, All cash Public
Fund XVII, Ltd. family-style or MI, NC, NV, OH, SC,
casual-dining TN, TX
restaurant properties
<PAGE>
CNL Income 24 fast-food, AZ, CA, FL, GA, IL, All cash Public
Fund XVIII, Ltd. family-style or KY, MD, MN, NC, NV,
casual-dining NY, OH, TN, TX
restaurant properties
CNL American 409 fast-food, AL, AZ, CA, CO, CT, All cash Public REIT
Properties Fund, Inc. family-style or DE, FL, GA, IA, ID,
casual-dining IL, IN, KS, KY, MD,
restaurant properties MI, MN, MO, MS, NC,
NE, NJ, NM, NV, NY,
OH, OK, OR, PA, RI,
SC, TN, TX, UT, VA,
WA, WI, WV
<PAGE>
Name of Type of Method of Type of
Entity Property Location Financing Program
- ------ -------- -------- --------- -------
CNL Health Care (1) (1) (1) Public REIT
Properties, Inc.
</TABLE>
(1) As of December 31, 1998, CNL Health Care Properties, Inc. had not acquired
any properties.
A more detailed description of the acquisitions by real estate limited
partnerships and the two unlisted REITs sponsored by Messrs. Bourne and Seneff
is set forth in prior performance Table VI, included in Part II of the
registration statement filed with the Securities and Exchange Commission for
this offering. A copy of Table VI is available to stockholders from the Company
upon request, free of charge. In addition, upon request to the Company, the
Company will provide, without charge, a copy of the most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI,
Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd., CNL American
Properties Fund, Inc. and CNL Health Care Properties, Inc. as well as a copy,
for a reasonable fee, of the exhibits filed with such reports.
In order to provide potential purchasers of Shares in the Company with
information to enable them to evaluate the prior experience of the Messrs.
Seneff and Bourne as general partners of real estate programs and as directors
and officers of the two unlisted REITs, including those set forth in the
foregoing table, certain financial and other information concerning those
programs and the two unlisted REITs with investment objectives similar to one or
more of the Company's investment objectives, is provided in the Prior
Performance Tables included as Exhibit C. Information about the previous public
partnerships, the offerings of which became fully subscribed between July 1993
and June 1998, is included therein. Potential stockholders are encouraged to
examine the Prior Performance Tables attached as Exhibit C (in Table III), which
include information as to the operating results of these prior partnerships, for
more detailed information concerning the experience of Messrs.
Seneff and Bourne.
DISTRIBUTION POLICY
DISTRIBUTIONS
The following table reflects total Distributions and Distributions per
Share declared and paid by the Company for each month since the Company
commenced operations.
Total Distributions
Month Distributions Per Share
- ----- ------------- ---------
November 1997 $ 10,757 $0.002500
December 1997 19,019 0.002500
January 1998 28,814 0.002500
February 1998 32,915 0.002500
March 1998 39,627 0.002500
April 1998 46,677 0.002500
May 1998 52,688 0.002500
June 1998 56,365 0.002500
July 1998 99,589 0.041700
<PAGE>
Total Distributions
Month Distributions Per Share
- ----- ------------- ---------
August 1998 $105,708 $0.041700
September 1998 156,747 0.058300
October 1998 167,848 0.058300
November 1998 183,302 0.058300
December 1998 197,865 0.058300
In addition, in January, February and March 1999, the Company declared
Distributions totalling $251,967, $314,928 and $431,754, respectively (each
representing $0.0583 per share). In April 1999, the Company declared
Distributions totalling $554,793 (representing $0.0604 per share). The Company
intends to continue 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 of capital for federal income tax purposes, although such
Distributions will 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 year ended December 31, 1998, and the period October 15, 1997
(the date operations of the Company commenced) through December 31, 1997,
approximately 76% and 100%, respectively, of the Distributions declared and paid
were considered to be ordinary income and for the year ended December 31, 1998,
approximately 24% was considered a return of capital 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 December 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.
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
DESCRIPTION OF CAPITAL STOCK
The Company has authorized a total of 126,000,000 shares of capital
stock, consisting of 60,000,000 shares of Common Stock, $.01 par value per
share, 3,000,000 shares of Preferred Stock ("Preferred Stock"), and 63,000,000
additional shares of excess stock ("Excess Shares"), $.01 par value per share.
Of the 63,000,000 Excess Shares, 60,000,000 are issuable in exchange for Common
Stock and 3,000,000 are issuable in exchange for Preferred Stock as described
below at " -- Restriction of Ownership." As of February 26, 1999, the Company
had 7,380,551 shares of Common Stock outstanding (including 20,000 shares issued
to the Advisor prior to the
<PAGE>
commencement of this offering and 3,730 Shares issued pursuant to the
Reinvestment Plan) and no Preferred Stock or Excess Shares outstanding. The
Board of Directors may determine to engage in future offerings of Common Stock
of up to the number of unissued authorized shares of Common Stock available.
EXPERTS
The audited balance sheets of the Company as of December 31, 1998 and
1997, and the related statements of earnings, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997, and for the period June
12, 1996 (date of inception) through December 31, 1996, included in this
Prospectus, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
DEFINITIONS
"Advisor" means CNL Hospitality Advisors, Inc. (formerly CNL Real
Estate Advisors, Inc.), a Florida corporation, any successor advisor to the
Company, or any person or entity to which CNL Hospitality Advisors, Inc. or any
successor advisors subcontracts substantially all of its functions.
"Independent Director" means a Director who is not and within the last
two years has not been directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) the performance of services,
other than as a Director, for the Company, (v) service as a director or trustee
of more than three real estate investment trusts advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the Advisor
or any of its Affiliates. An indirect relationship shall include circumstances
in which a Director's spouse, parents, children, siblings, mothers- or
fathers-in-law or sons- or daughters-in-law, or brothers- or sisters-in-law is
or has been associated with the Advisor, any of its affiliates, or the Company.
A business or professional relationship is considered material if the gross
revenue derived by the Director from the Advisor and Affiliates exceeds 5% of
either the Director's annual gross revenue during either of the last two years
or the Director's net worth on a fair market value basis.
"Reinvestment Agent" or "Agent" means the independent agent, which
currently is MMS Securities, Inc., for Participants in the Reinvestment Plan.
<PAGE>
EXHIBIT B
FINANCIAL INFORMATION
-----------------------------------------------
| |
| THE FINANCIAL STATEMENT INCLUDED IN THIS |
| EXHIBIT B UPDATE AND REPLACE EXHIBIT B TO |
| THE ATTACHED PROSPECTUS, DATED OCTOBER 6, |
| 1998. |
-----------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
Page
----
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of December 31, 1998 B-2
Pro Forma Consolidated Statement of Earnings for the year ended
December 31, 1998 B-3
Notes to Pro Forma Consolidated Financial Statements for the year
ended December 31, 1998 B-4
Audited Financial Statements:
Report of Independent Accountants B-8
Consolidated Balance Sheets as of December 31, 1998 and 1997 B-9
Consolidated Statements of Earnings for the years ended December
31, 1998 and 1997, and the period June 12, 1996 (Date of
inception) through December 31, 1996 B-10
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997, and the period June 12, 1996
(Date of inception) through December 31, 1996 B-11
Consolidated Statements of Cash Flows for the years ended December
31, 1998 and 1997, and the period June 12, 1996 (Date of inception)
through December 31, 1996 B-12
Notes to Consolidated Financial Statements for the years ended
December 31, 1998 and 1997, and the period June 12, 1996 (Date of
inception) through December 31, 1996 B-14
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1998 B-23
Notes to Schedule III - Real Estate and Accumulated Depreciation as
of December 31, 1998 B-25
<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:
<TABLE>
<CAPTION>
Date Private REIT
Date Placed Properties Became
in Service Operational as
By the Private REIT Rental Property
------------------- ---------------
<S> <C>
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
</TABLE>
(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.
<PAGE>
Report of Independent Accountants
To the Board of Directors
CNL Hospitality Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings and of stockholders' equity and of cash
flows present fairly in all material respects, the financial position of CNL
Hospitality Properties, Inc. (a Maryland corporation) and its subsidiaries at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the two years ended December 31, 1998 and 1997 and the period
June 12, 1996 (date of inception) through December 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinions expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 19, 1999
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
December 31,
1998 1997
------------ ------------
ASSETS
Land, building and equipment on operating leases,
less accumulated depreciation $28,368,383 $ --
Cash and cash equivalents 13,228,923 8,869,838
Restricted cash 82,407 --
Certificate of deposit 5,016,575 --
Receivables 28,257 --
Due from related party -- 7,500
Prepaid expenses 9,391 11,179
Organization costs, less accumulated amortization of
$5,221 and $833, respectively 19,752 19,167
Loan costs, less accumulated amortization of $12,980 78,282 --
Accrued rental income 44,160 --
Other assets 1,980,560 535,792
------------- -------------
$48,856,690 $9,443,476
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $9,600,000 $ --
Accounts payable and accrued expenses 333,726 16,305
Due to related parties 318,937 193,254
Security deposits 1,417,500 --
Rents paid in advance 3,489 --
Interest payable 66,547 --
------------- -------------
Total liabilities 11,740,199 209,559
------------- -------------
Commitments (Note 10)
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 and 1,152,540 shares, respectively 43,219 11,525
Capital in excess of par value 37,289,402 9,229,316
Accumulated distributions in excess of net earnings (216,130 ) (6,924 )
------------- -------------
Total stockholders' equity 37,116,491 9,233,917
------------- -------------
$48,856,690 $ 9,443,476
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED STATEMENTS OF EARNINGS
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1998 1997 1996
------------ ------------- ------------
Revenues:
Rental income from
operating leases $1,218,500 $ -- $ --
FF&E Reserve income 98,099 -- --
Interest and other income 638,862 46,071 --
------------ ------------ ------------
1,955,461 46,071 --
------------ ------------ ------------
Expenses:
Interest and loan cost
amortization 350,322 -- --
General operating and
administrative 167,951 22,386 --
Professional services 21,581 -- --
Asset management fees to
related party 68,114 -- --
Depreciation and amortization 388,554 833 --
------------ ------------ ------------
996,522 23,219 --
------------ ------------ ------------
Net Earnings $ 958,939 $ 22,852 $ --
============ ============ ============
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.40 $ 0.03 $ --
============ ============ ============
Weighted Average Number of
Shares of Common Stock
Outstanding 2,402,344 686,063 --
============ ============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
Accumulated
Common stock distributions
------------------------ Capital in in excess
Number Par excess of of net
of Shares value par value earnings Total
----------- --------- ------------- -------------- -------------
Balance at June 12, 1996 -- $ -- $ -- $ -- $ --
Sale of common stock to
related party 20,000 200 199,800 -- 200,000
----------- --------- ------------- ------------- ------------
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
($.05 per share) -- -- -- (29,776 ) (29,776 )
----------- --------- ------------- ------------- ------------
Balance at
December 31, 1997 1,152,540 11,525 9,229,316 (6,924 ) 9,233,917
Subscriptions received for common
stock through public offering
and distribution reinvestment
plan 3,169,368 31,694 31,661,984 -- 31,693,678
Stock issuance costs -- -- (3,601,898 ) -- (3,601,898 )
Net earnings -- -- -- 958,939 958,939
Distributions declared and paid
($.46 per share) -- -- -- (1,168,145 ) (1,168,145 )
----------- --------- ------------- ------------- ------------
Balance at
December 31, 1998 4,321,908 $43,219 $37,289,402 $ (216,130 ) $37,116,491
=========== ========= ============= ============= ============
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1998 1997 1996
----------- ------------- -------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $2,665,171 $ -- $ --
Interest received 622,237 46,071 --
Cash paid for expenses (239,648 ) (23,602 ) --
Cash paid for interest (270,795 ) -- --
------------ ------------ -----------
Net cash provided by operating
activities 2,776,965 22,469 --
------------ ------------ -----------
Cash Flows from Investing Activities:
Additions to land, buildings and equipment
on (28,216,757 ) -- --
operating leases
Investment in certificate of deposit (5,000,000 ) -- --
Increase in restricted cash (82,407 ) -- --
Increase in other assets (1,211,818 ) (463,470 ) --
------------ ------------ -----------
Net cash used in investing
activities (34,510,982 ) (463,470 ) --
------------ ------------ -----------
Cash Flows from Financing Activities:
Reimbursement of acquisition, organization,
deferred offering and stock issuance
costs paid by related parties on behalf of
the Company (862,068 ) (1,003,031 ) (197,916 )
Sale of common stock to related party -- -- 200,000
Proceeds from borrowing on line of credit 9,600,000 -- --
Payment of loan costs (91,262 ) -- --
Subscriptions received from stockholders 31,693,678 11,325,402 --
Distributions to stockholders (1,168,145 ) (29,776 ) --
Payment of stock issuance costs (3,086,630 ) (986,338 ) --
Other 7,529 2,498 --
------------ ------------ -----------
Net cash provided by financing
activities 36,093,102 9,308,755 2,084
------------ ------------ -----------
Net Increase in Cash and Cash Equivalents 4,359,085 8,867,754 2,084
Cash and Cash Equivalents at Beginning
of Period 8,869,838 2,084 --
------------ ------------ -----------
Cash and Cash Equivalents at End of
Period $13,228,923 $8,869,838 $ 2,084
============ ============ ===========
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
STATEMENTS OF CASH FLOWS - CONTINUED
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1998 1997 1996
------------- ----------- -----------
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 958,939 $ 22,852 $ --
------------ ----------- -----------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 384,166 -- --
Amortization 17,368 833 --
Increase in receivables (44,832 ) -- --
Decrease (increase) in prepaid
expenses 1,788 (11,179 ) --
Increase in accrued rental income (44,160 ) -- --
Increase in accounts payable
and other accrued expenses 71,869 6,141 --
Increase in due to related
parties, excluding reimbursement
of acquisition,organization,
deferred offering and stock
issuance costs paid on behalf
of the Company 10,838 3,822 --
Increase in security deposits 1,417,500 -- --
Increase in rents paid in advance 3,489 -- --
------------ ----------- -----------
Total adjustments 1,818,026 (383 ) --
------------ ----------- -----------
Net Cash Provided by Operating Activities $2,776,965 $ 22,469 $ --
============ =========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition, organization,deferred
offering and stock issuance costs
on behalf of the Company as
follows:
Acquisition costs $ 392,863 $ 26,149 $ --
Organization costs 4,973 -- 20,000
Deferred offering costs -- -- 535,812
Stock issuance costs 454,277 638,274 --
============ =========== ===========
$ 852,113 $ 664,423 $ 555,812
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Hospitality Properties, Inc.,
formerly known as CNL American Realty Fund, Inc., was organized in
Maryland on June 12, 1996. CNL Hospitality GP Corp. and CNL Hospitality
LP Corp. are wholly owned subsidiaries of CNL Hospitality Properties,
Inc., each of which were organized in Delaware in June 1998. CNL
Hospitality Partners, LP is a Delaware limited partnership formed in
June 1998. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are
the general and limited partners, respectively, of CNL Hospitality
Partners, LP. The term "Company" includes, unless the context otherwise
requires, CNL Hospitality Properties, Inc., CNL Hospitality Partners,
LP, CNL Hospitality GP Corp. and CNL Hospitality LP Corp.
The Company was formed primarily to acquire properties (the
"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"). While the Company
may currently invest in both restaurant and hotel Properties,
management believes that over time the Company will focus its Property
investments exclusively on hotel Properties. 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.
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.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CNL Hospitality Properties, Inc.,
and its wholly owned subsidiaries, CNL Hospitality GP Corp. and CNL
Hospitality LP Corp., as well as the accounts of CNL Hospitality
Partners, LP. All significant intercompany balances and transactions
have been eliminated.
Real Estate and Lease Accounting - The Company records the acquisition
of land, buildings and equipment at cost, including acquisition and
closing costs. Land, buildings and equipment are leased to unrelated
third parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the Property,
including property taxes, insurance, maintenance and repairs.
The Property leases are accounted for using the operating method. Under
the operating method, land, building and equipment leases are recorded
at cost, revenue is recognized as rentals are earned and depreciation
is charged to operations as incurred. Buildings and equipment are
depreciated on the straight-line method over their estimated useful
lives of 40 and seven years, respectively. When scheduled rentals vary
during the lease term, income is recognized on a straight-line basis so
as to produce a constant periodic rent over the lease term commencing
on the date the Property is placed in service. Accrued rental income
represents the aggregate amount of income recognized on a straight-line
basis in excess of scheduled rental payments to date.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies - Continued:
When the Properties or equipment are sold, the related cost and
accumulated depreciation, plus any accrued rental income, will be
removed from the accounts and any gain or loss from sale will be
reflected in income. Management reviews its Properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations.
Management determines whether an impairment in value has occurred by
comparing the estimated future undiscounted cash flows, including the
residual value of the Property, with the carrying cost of the
individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds. Cash equivalents
are stated at cost plus accrued interest, which approximates market
value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments
to financial institutions with high credit standing; therefore,
management believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Organization Costs - Organization costs are amortized over five years
using the straight-line method.
Loan Costs - Loan costs incurred in connection with the Company's
$9,600,000 line of credit and a $5,000,000 letter of credit have been
capitalized and are being amortized over the term of the loan and
letter of credit commitment, respectively, using the straight-line
method which approximates the effective interest method.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to federal corporate income taxes
on amounts distributed to stockholders, providing it distributes at
least 95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements. Notwithstanding the Company's qualification for
taxation as a REIT, the Company is subject to certain state taxes on
its income and property.
Earnings Per Share - Basic earnings per share are calculated based upon
net earnings (income available to common stockholders) divided by the
weighted average number of shares of common stock outstanding during
the reporting period. The Company does not have any dilutive potential
common shares.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform with the 1998
presentation. These reclassifications had no effect on stockholders'
equity or net earnings.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies - Continued:
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
New Accounting Standards - In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which will be
effective for the Company as of January 1, 1999. This SOP requires
start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a
cumulative effect adjustment in the statement of earnings. Management
of the Company does not believe that adoption of this SOP will have a
material effect on the Company's financial position or results of
operations.
2. Public Offerings:
The Company has a currently effective registration statement on Form
S-11 with the Securities and Exchange Commission for the sale of
16,500,000 shares of common stock (the "Offering"). Of the 16,500,000
shares of common stock, the Company has registered 1,500,000 shares
($15,000,000) which are available only to stockholders who elect to
participate in the Company's reinvestment plan. The Company has adopted
a reinvestment plan pursuant to which stockholders may elect to have
the full amount of their cash distributions from the Company reinvested
in additional shares of common stock of the Company. As of December 31,
1998, the Company had received subscription proceeds of $43,019,080
(4,301,908 shares), including $37,299 (3,730 shares) through the
reinvestment plan.
On November 23, 1998, the Company filed a registration statement on
Form S-11 with the Securities and Exchange Commission in connection
with the proposed sale by the Company of up to 27,500,000 additional
shares of common stock ($275,000,000) (the "Secondary Offering") in an
offering expected to commence immediately following the completion of
the Company's current Offering. Of the 27,500,000 shares of common
stock to be offered, 2,500,000 will be available only to stockholders
purchasing shares through the reinvestment plan. The price per share
and the other terms of the Secondary Offering, including the percentage
of gross proceeds payable (i) to the managing dealer for selling
commissions and expenses in connection with the offering and (ii) the
advisor for acquisition fees and acquisition expenses, will be
substantially the same as those for the Company's current Offering. The
Company expects to use net proceeds from the Secondary Offering to
purchase additional Properties and, to a lesser extent, make Mortgage
Loans.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
3. Land, Buildings and Equipment on Operating Leases:
The Company leases its land, buildings and equipment to a hotel
operator. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," and have been classified as operating leases. The leases are
for 19 years, provide for minimum and contingent rentals and require
the tenant to pay executory costs. In addition, the tenant pays all
property taxes and assessments and carries insurance coverage for
public liability, property damage, fire and extended coverage. The
lease options allow the tenant to renew each of the leases for three
successive five-year periods subject to the same terms and conditions
of the initial leases. The leases also require the establishment of
capital expenditure reserve funds which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the hotel Properties (the "FF&E Reserve"). Funds in the FF&E Reserve
have been earned, granted and assigned to the Company as additional
rent. For the year ended December 31, 1998, revenues from the FF&E
Reserve totalled $98,099, of which $15,692 is included in receivables
and $82,407 is restricted cash.
Land, buildings and equipment on operating leases consisted of the
following at:
December 31, December 31,
1998 1997
------------- -------------
Land $2,926,976 $ --
Buildings 23,476,442 --
Equipment 2,349,131 --
-------------- -------------
28,752,549 --
Less accumulated depreciation (384,166 ) --
============== =============
$28,368,383 $ --
============== =============
The leases provide an increase in the minimum annual rent at a
predetermined interval during the terms of the leases. Such amount is
recognized on a straight-line basis over the terms of the leases
commencing on the date the Property is placed in service. For the year
ended December 31, 1998, the Company recognized $44,160 of such rental
income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1998:
1999 $2,889,162
2000 2,928,895
2001 2,928,895
2002 2,928,895
2003 2,928,895
Thereafter 40,028,238
===============
$54,632,980
===============
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
3. Land, Buildings and Equipment on Operating Leases - Continued:
Since leases are renewable at the option of the tenant, the above table
only presents future minimum lease payments due during the initial
lease terms. In addition, this table does not include any amounts for
future contingent rents which may be received on the leases based on a
percentage of the tenant's gross sales.
4. Other Assets:
Other assets as of December 31, 1998 and 1997 were $1,980,560 and
$535,792, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses that will be allocated to future
Properties.
5. Line of Credit:
On July 31, 1998, the Company entered into an initial revolving line of
credit and security agreement with a bank to be used by the Company to
acquire hotel Properties. The line of credit provides that the Company
may receive advances of up to $30,000,000 until July 30, 2003, with an
annual review to be performed by the bank to indicate that there has
been no substantial deterioration, in the bank's reasonable discretion,
of the credit quality. Interest expense on each advance shall be
payable monthly, with all unpaid interest and principal due no later
than five years from the date of the advance. Advances under the line
of credit will bear interest at either (i) a rate per annum equal to
318 basis points above the London Interbank Offered Rate (LIBOR) or
(ii) a rate per annum equal to 30
basis points above the bank's base rate, whichever the Company selects
at the time advances are made. In addition, a fee of .5% per advance
will be due and payable to the bank on funds as advanced. Each advance
made under the line of credit will be collateralized by the assignment
of rents and leases. In addition, the line of credit provides that the
Company will not be able to further encumber the applicable hotel
Property during the term of the advance without the bank's consent. The
Company will be required, at each closing, to pay all costs, fees and
expenses arising in connection with the line of credit. The Company
must also pay the bank's attorneys fees, subject to a maximum cap,
incurred in connection with the line of credit and each advance.
As of December 31, 1998, the Company had obtained three advances
totalling $9,600,000 relating to the line of credit. In connection with
the line of credit, the Company incurred a commitment fee, legal fees
and closing costs of $68,762. The proceeds were used in connection with
the purchase of two hotel Properties and the commitment to acquire
three additional Properties (see Note 10). The interest rate of the
line of credit at December 31, 1998 was 8.05% (bank's base rate plus 30
basis points).
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
6. Stock Issuance Costs:
The Company has incurred certain expenses of its Offering, 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 Hospitality Advisors, Inc., (formerly known as 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 in connection with the Offering.
During the years ended December 31, 1998 and 1997, the Company incurred
$3,606,871 and $2,304,561, respectively, in organizational and offering
costs, including $2,535,494 and $906,032, respectively, in commissions
and marketing support and due diligence expense reimbursement fees (see
Note 8). Of these amounts $3,601,898 and $2,284,561, respectively, have
been treated as stock issuance costs and $4,973 and $20,000,
respectively, have been treated as organization costs. The stock
issuance costs have been charged to stockholders' equity subject to the
three percent cap described above.
7. Distributions:
For the years ended December 31, 1998 and 1997, approximately 76
percent and 100 percent, respectively, of the distributions paid to
stockholders were considered ordinary income, and for the year ended
December 31, 1998, approximately 24 percent was considered a return of
capital to stockholders for federal income tax purposes. No amounts
distributed to the stockholders for the years ended December 31, 1998
and 1997 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.
8. Related Party Transactions:
Certain affiliates of the Company received fees and compensation in
connection with the Offering, and the acquisition, management and sale
of the assets of the Company.
On June 12, 1996 (date of inception), CNL Fund Advisors, Inc.
contributed $200,000 in cash to the Company and became its sole
stockholder. In February 1997, the Advisor purchased the Company's
outstanding common stock from CNL Fund Advisors, Inc. and became the
sole stockholder of the Company.
During the years ended December 31, 1998 and 1997, the Company incurred
$2,377,026 and $849,405, respectively, in selling commissions due to
CNL Securities Corp. for services in connection with the Offering. A
substantial portion of these amounts ($2,200,516 and $792,832,
respectively) were or will be paid by CNL Securities Corp. as
commissions to other broker-dealers.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
8. Related Party Transactions - Continued:
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 years ended December
31, 1998 and 1997, the Company incurred $158,468 and $56,627,
respectively, of such fees, the majority of which were reallowed to
other broker-dealers and from which all bona fide due diligence
expenses were paid.
CNL Securities Corp. will also receive, in connection with the
Offering, a soliciting dealer servicing fee payable annually by the
Company beginning on December 31 of the year following the year in
which the Offering is completed in the amount of 0.20% of the invested
capital of the stockholders that invest in the Company through this
Offering. CNL Securities Corp. in turn may reallow all or a portion of
such fee to soliciting dealers whose clients held shares on such date.
As of December 31, 1998, no such fees had been incurred.
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 and Mortgage Loans equal to 4.5% of the
gross proceeds of the Offering, 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 years ended December 31,
1998 and 1997, the Company incurred $1,426,216 and $509,643,
respectively, of such fees. Such fees are included in land, buildings
and equipment on operating leases and other assets.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management
fee of one-twelfth of 0.60% of the Company's real estate asset value
and the outstanding principal balance of any Mortgage Loans as of the
end of the preceding month. The management fee, which will not exceed
fees which are competitive for similar services in the same geographic
area, may or may not be taken, in whole or in part as to any year, in
the sole discretion of the Advisor. All or any portion of the
management fee not taken as to any fiscal year shall be deferred
without interest and may be taken in such other fiscal year as the
Advisor shall determine. During the year ended December 31, 1998, the
Company incurred $68,114 of such fees. No such fees were incurred by
the Company for 1997.
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the advisory agreement described above, 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.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
8. 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), on
a day-to-day basis. The expenses incurred for these services were
classified as follows:
<TABLE>
<CAPTION>
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1998 1997 1996
--------------- ------------- --------------
<S> <C>
Deferred offering costs $ -- $ -- $28,665
Stock issuance costs 494,729 185,335 --
Land, buildings and equipment
on operating leases and
other assets 9,084 -- --
General operating and
administrative expenses 140,376 6,889 --
============= ============ ============
$644,189 $192,224 $28,665
============= ============ ============
The amounts due to related parties consisted of the following at
December 31:
1998 1997
------------ ------------
Due to CNL Securities Corp.:
Commissions $66,063 $100,709
Marketing support and due diligence
expense reimbursement fee 4,404 7,268
------------ ------------
70,467 107,977
------------ ------------
Due to the Advisor:
Expenditures incurred on behalf
of the Company and for
accounting, administrative and
acquisition services 110,496 39,105
Acquisition fees 137,974 46,172
------------ ------------
248,470 85,277
============ ============
$318,937 $193,254
============ ============
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
9. Concentration of Credit Risk:
All of the Company's rental income for the year ended December 31,
1998 was earned from one lessee, STC Leasing Associates, LLC, which
operates each of the two Properties as a Residence Inn by Marriott.
Although the Company intends to acquire Properties located in various
states and regions and to carefully screen its tenants in order to
reduce risks of default, failure of this Hotel Chain or lessee could
significantly impact the results of operations of the Company. However,
management believes that the risk of such a default is reduced due to
the essential or important nature of these Properties for the ongoing
operations of the lessee.
It is expected that the percentage of total rental income contributed
by this lessee will decrease as additional Properties are acquired and
leased in subsequent years.
10. Commitments:
In July 1998, the Company entered into agreements to acquire three
additional hotel Properties for an anticipated aggregate purchase price
of approximately $100 million. In connection with these agreements, the
Company was required by the seller to obtain a letter of credit. The
letter of credit is collateralized by a $5,000,000 certificate of
deposit.
11. Subsequent Events:
During the period January 1, 1999 through January 19, 1999, the Company
received subscription proceeds for an additional 561,565 shares
($5,615,647) of common stock.
On January 1, 1999, the Company declared distributions totalling
$251,967 or $0.0583 per share of common stock, payable in March 1999,
to stockholders of record on January 1, 1999.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------------- -------------------
Encum- Improve- Carrying
brances Land Buildings Equipment ments Costs
------- ---- --------- --------- ----- --------
Properties the Company
has Invested in Under
Operating Leases:
Residence Inns by Marriott(R):
Atlanta, Georgia (b) $1,907,479 $13,459,040 $1,234,689 $ - $ -
Duluth, Georgia (c) 1,019,497 10,017,402 1,114,442 - -
---------- ----------- ---------- ------- -------
$ 2,926,976 $23,476,442 $2,349,131 $ - $ -
=========== =========== ========== ======== =======
<PAGE>
Life
on Which
Depreciation
in Latest
Gross Amount at Which Carried Date Income
at Close of Period (d) Accumulated of Con- Date Statement is
Land Buildings Equipment Total Depreciation struction Acquired Computed
---- --------- --------- ----- ------------ --------- -------- -------------
$1,907,479 $13,459,040 $1,234,689 $16,601,208 $213,483 1997 07/98 (e)
1,019,497 10,017,402 1,114,442 12,151,341 170,683 1997 07/98 (e)
- ---------- ----------- ---------- ----------- --------
$2,926,976 $23,476,442 $2,349,131 $28,752,549 $384,166
========== =========== ========== =========== ========
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998
and 1997 are summarized as follows:
Accumulated
Cost (d) Depreciation
---------- ------------
Properties the Company
has Invested in Under
Operating Leases:
Balance, December 31, 1997 $ - $ -
Acquisitions 28,752,549 384,166
----------- --------
Balance, December 31, 1998 $28,752,549 $384,166
=========== ========
(b) In connection with the purchase of this Property, the Company has
obtained a loan in the amount of $6,000,000 collateralized by the
assignment of the rents and leases related to the Property.
(c) In connection with the purchase of this Property, the Company has
obtained a loan in the amount of $3,600,000 collateralized by the
assignment of the rents and leases related to the Property.
(d) As of December 31, 1998, the aggregate cost of the Properties owned by
the Company and its subsidiaries for federal income tax purposes is
$28,752,549. All of the leases are treated as operating leases for
federal income tax purposes.
(e) Depreciation expense is computed for buildings and equipment based upon
estimated lives of 40 and seven years, respectively.
(f) During the years ended December 31, 1998 and 1997, the Company incurred
acquisition fees totalling $1,426,216 and $509,643, respectively, paid
to the Advisor. Acquisition fees are included in land and buildings on
operating leases and other assets at December 31, 1998 and 1997.
INDEX TO OTHER FINANCIAL STATEMENTS
The following financial information is provided in connection with the Company's
acquisition of the Buckhead (Lenox Park) and the Gwinnett Place Properties. Due
to the fact that the tenant of the Company is a newly formed entity, the
information presented represents the historical financial performance of the
hotel businesses. The Buckhead (Lenox Park) Property and the Gwinnett Place
Property became operational on August 7, 1997 and July 29, 1997, respectively.
This information was obtained from the seller of the Properties. The Company has
acquired the hotel Properties and does not own any interest in the hotel
businesses. For information on the Properties and the long-term, triple-net
leases in which the Company has entered, see "Business -- Property
Acquisitions."
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
Updated Financial Statements (unaudited):
Balance Sheet as of June 30, 1998 B-27
Statement of Loss for the six months ended June 30, 1998 B-28
Audited Financial Statements:
Report of Independent Public Accountants B-29
Balance Sheet as of December 31, 1997 B-30
Statement of Loss for the year ended December 31, 1997 B-31
Statement of Member's Equity for the year ended December
31, 1997 B-32
Statement of Cash Flows for the year ended December 31,
1997 B-33
Notes to Financial Statement for the year ended December
31, 1997 B-34
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
Updated Financial Statements (unaudited):
Balance Sheet as of June 30, 1998 B-39
Statement of Loss for the six months ended June 30, 1998 B-40
Audited Financial Statements:
Report of Independent Public Accountants B-41
Balance Sheet as of December 31, 1997 B-42
Statement of Loss for the year ended December 31, 1997 B-43
Statement of Member's Deficit for the year ended December
31, 1997 B-44
Statement of Cash Flows for the year ended December 31,
1997 B-45
Notes to Financial Statement for the year ended December 31,
1997 B-46
B-26
<PAGE>
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND MEMBERS' EQUITY
------ -------------------------------
<S> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $ 1,229,955 Accounts payable $ 711,974
Accounts receivable, net 173,287 Accrued liabilities 427,306
-----------
Prepaid expenses 18,080
------------ Total current liabilities 1,139,280
Total current assets 1,421,322
------------
PROPERTY, at cost: FIRST MORTGAGE LOAN 10,634,958
Land 1,505,591
Buildings 8,842,642
Furniture, fixtures, and equipment 1,470,899 MEZZANINE LOAN 1,601,152
------------ -----------
11,819,132 Total liabilities 13,375,390
Less accumulated depreciation (467,063)
------------
Net property 11,352,069
------------
LOAN COSTS, net of accumulated MEMBERS' EQUITY 62,078
amortization of $109,395 377,910 -----------
------------
ORGANIZATION COSTS, net of Total liabilities and members'
accumulated amortization of equity $13,437,468
$38,269 43,272 ===========
------------
FRANCHISE COSTS, net of
accumulated amortization of
$2,750 57,250
------------
DEVELOPMENT IN PROGRESS 185,645
------------
Total assets $ 13,437,468
============
</TABLE>
B-27
<PAGE>
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
REVENUES:
Rooms $ 2,007,424
Telephone 79,188
Other 50,203
-------------
Total revenues 2,136,815
-------------
EXPENSES:
Rooms 453,769
Telephone 18,730
Other operating departments 9,368
Administrative and general 158,036
Credit card commissions 44,111
Franchise fees 80,337
Advertising, marketing, and promotion 141,041
Repairs and maintenance 66,750
Utilities 52,275
Property insurance and taxes 117,165
Management fees 64,098
Other 5,134
Interest 604,186
Depreciation and amortization 337,891
-------------
Total expenses 2,152,891
-------------
NET LOSS $ (16,076)
=============
B-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Buckhead Residence Associates, L.L.C.:
We have audited the accompanying balance sheet of BUCKHEAD RESIDENCE ASSOCIATES,
L.L.C. as of December 31, 1997 and the related statement of loss, members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Buckhead Residence Associates,
L.L.C. as of December 31, 1997 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
February 27, 1998
B-29
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND MEMBERS' EQUITY
------ -------------------------------
<S> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and short-term investments, including Accounts payable $ 285,134
restricted cash of $18,387 $ 225,703 Accrued liabilities 140,911
Accounts receivable, net of allowance for doubtful Current portion of mortgage loan 38,522
accounts of $1,973 114,685 -----------
Prepaid expenses 12,398 Total current liabilities 464,567
------------
Total current assets 352,786
------------
PROPERTY, at cost: DEFERRED DEVELOPMENT FEE 619,000
Land 1,505,591
Buildings 8,969,838
Furniture, fixtures, and equipment 1,470,899 FIRST MORTGAGE LOAN, less current portion 9,949,319
------------ (Note 2)
11,946,328
Less accumulated depreciation (211,216)
Net property 11,735,112 MEZZANINE LOAN (Note 2) 1,533,202
------------ -----------
LOAN COSTS, net of accumulated amortization of $49,725 437,580 Total liabilities 12,566,088
------------
ORGANIZATION COSTS, net of accumulated amortization of
$17,395 64,146 COMMITMENTS AND CONTINGENCIES (Note 2)
------------
FRANCHISE COSTS, net of accumulated amortization of
$1,250 58,750 MEMBERS' EQUITY 82,286
------------ -----------
Total assets $ 12,648,374 Total liabilities and members'
============ equity $12,648,374
===========
</TABLE>
The accompanying notes are an integral part of
this balance sheet.
B-30
<PAGE>
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1997
REVENUES:
Rooms $ 862,815
Telephone 40,832
Other 15,684
----------
Total revenues 919,331
----------
EXPENSES:
Rooms 280,204
Telephone 8,603
Other operating departments 2,725
Administrative and general 103,471
Credit card commissions 19,124
Franchise fees 34,513
Advertising, marketing, and promotion 88,954
Repairs and maintenance 46,188
Utilities 37,097
Property insurance and taxes 18,758
Management fees 27,580
Other 34,541
Interest 447,026
Depreciation and amortization 279,586
----------
Total expenses 1,428,370
----------
NET LOSS $ (509,039)
==========
The accompanying notes are an integral part of this statement.
B-31
<PAGE>
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
Stormont
Trice
Development RI HWE
Corporation Partners IV Total
----------- -------- --- -----
BALANCE, December 31, 1996 $ 193,800 $ 193,800 $ 203,725 $ 591,325
Net loss (193,800) (193,800) (121,439) (509,039)
---------- ---------- --------- ---------
BALANCE, December 31, 1997 $ 0 $ 0 $ 82,286 $ 82,286
========== ========== ========= =========
The accompanying notes are an integral part of this statement.
B-32
<PAGE>
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (509,039)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 279,586
Changes in assets and liabilities:
Accounts receivable, net (114,685)
Prepaid expenses (12,398)
Accounts payable 285,134
Accrued liabilities 130,196
-----------
Total adjustments 567,833
-----------
Net cash provided by operating activities 58,794
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,627,218)
Organization costs (7,361)
-----------
Net cash used in investing activities (8,634,579)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal received from loans payable 8,715,244
Loan costs (7,362)
-----------
Net cash provided by financing activities 8,707,882
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 132,097
-----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 93,606
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 225,703
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 0
===========
The accompanying notes are an integral part of this statement.
B-33
<PAGE>
BUCKHEAD RESIDENCE ASSOCIATES, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Buckhead Residence Associates, L.L.C. (the "Company") is a Georgia limited
liability company that was organized for the purpose of constructing,
operating, and owning the Residence Inn Lenox Park (the "Hotel") in
Atlanta, Georgia. The Hotel is comprised of 150 suites and became
operational on August 7, 1997.
The members of the Company (the"Members"), their ownership percentages, and
their initial capital contributions are as follows:
Initial
Ownership Capital
Percentage Contribution
---------- ------------
Members:
Stormont Trice Development
Corporation ("STDC" or the
"Manager ") 40.74% $212,000
RI Partners ( "RI ") 40.74 212,000
HWE IV 18.52 212,000
The operating agreement provides for allocation of profits, losses, and
cash distributions, as follows:
Profits
o To the Members in proportion to their respective ownership
percentage interests, as defined in the agreement
Losses
o First, to the Members in proportion to their respective ownership
percentage interests until any Member's capital account is reduced
to zero
o Second, to the Member, if any, to the extent of its remaining
positive capital account balance (as adjusted to reflect any prior
allocation of loss)
B-34
<PAGE>
o Third, to the partners in proportion to their respective ownership
percentage interests
Notwithstanding the above loss allocations, to the extent losses
allocated to a Member would cause a Member to have an adjusted capital
account deficit, such losses shall not be allocated to such Member but
instead shall be allocated to other Members in proportion to, and to
the extent that, the amounts in which losses may be allocated to the
other Members without causing the other Members to have an adjusted
capital account deficit and then to the Members in proportion to their
respective contribution percentage interests.
Cash Distributions
o First, to the repayment or prepayment of such debts or
liabilities, other than any debts of the Company to any of the
Members, as the Manager shall determine to be in the best interest
of the Company
o Second, to the establishment of such reserves as the Manager deems
appropriate
o Third, to the repayment or prepayment of any back-up loans, as
defined in the agreement
o Fourth, to the repayment or prepayment of any Member loans
o Fifth, to the Members in equal shares until such time as $63,600
has been distributed to the Members
o Sixth, in equal amounts to the Manager and RI until such time as
$50,871 has been distributed to the Members
o Seventh, the balance available to the Members in proportion to
their respective ownership percentage interests
Allocation of profits, losses, and cash distributions from the sale or
refinancing of the property are allocated in a different manner and will be
affected by the terms of notes payable agreements discussed in Note 2.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash on hand,
deposits in banks, and short-term investments with original maturities of
90 days or less to be cash and cash equivalents.
The first mortgage, mezzanine loan, and management agreements require the
Hotel to establish a furniture, fixtures, and equipment reserve, as
follows: 0% in year one, 2% in year two, 3% in year three, 4% in year four,
and 5% in year five of gross revenues, as defined in the loan agreement. As
of December 31, 1997, $18,387 of cash and cash equivalents was designated
as the furniture, fixtures, and equipment reserve.
B-35
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Franchise and Organization Expenses
A franchise application fee has been capitalized and is being amortized
over the 20-year life of the franchise agreement. Organization costs have
been capitalized and are being amortized over 5 years.
Property
Property is recorded at cost, including capitalized interest, and is
depreciated using the straight-line method over the estimated useful lives
of the assets, which are 30 years for buildings and 3 to 7 years for
furniture, fixtures, and equipment. Expenditures for replacements and
betterments are capitalized, while expenditures for maintenance and repairs
are expensed as incurred.
Income Taxes
No provisions for income taxes have been made in the accounts of the
Company, since the Members report their respective shares of taxable income
and loss in their individual tax returns.
2. NOTES PAYABLE
First Mortgage Loan
On August 29, 1996, the Company entered into a loan agreement with Ocwen
Federal Bank FSB ("Ocwen"), formerly Berkeley Federal Bank & Trust FSB, for
a total available amount of $11,262,500 to fund costs of developing and
operating the Hotel. The note bears 10.25% interest until its maturity date
of August 31, 2001. The loan is collateralized by the Company's interest in
the Hotel. Interest accrues monthly and is added to the outstanding balance
until the budgeted interest reserve is depleted or September 1, 1998,
whichever is earlier. Beginning October 1, 1998, interest and principal are
due monthly, with all remaining repaid principal and interest being due on
August 31, 2001. The principal outstanding at December 31, 1997 is
repayable as follows:
1998 $ 38,522
1999 164,304
2000 181,960
2001 9,603,055
-----------
$ 9,987,841
===========
B-36
<PAGE>
In addition, Ocwen receives noncumulative participating interest based on a
percentage of the Company's excess cash flow, as defined in the loan
agreement. These percentages are as follows: 22.5% in year one, 25% in
years two and three, and 30% in years four and five. No amounts were
payable in 1997.
In the event the Company sells the Hotel or refinances the loan, an amount
shall be due to Ocwen as follows: in year one, the greater of $525,000 or
22.5% of the greater of the net proceeds or net economic value, as defined
in the loan; in years two or three, the greater of $525,000 or 25% of the
greater of the net proceeds or net economic value; in year four, the
greater of $800,000 or 30% of the greater of the net proceeds or net
economic value; in year five, the greater of $1,300,000 or 30% of the
greater of the net proceeds or net economic value.
Mezzanine Loan
On August 29, 1996, the Company entered into a loan agreement with Heller
Financial, Inc. ("Heller") for a total available amount of $1,621,800. At
December 31, 1997, $1,533,202 is outstanding, including $181,702 of accrued
interest. The note bears an interest rate of 10% and is interest only until
its maturity date of August 31, 2001. Interest is due monthly, commencing
when the accrued interest exceeds $270,300 or 20% of the outstanding
principal amount of the loan or when distributable cash flow, as defined,
is available. In addition, Heller receives quarterly, as additional
consideration, the excess of the percentage of the Company's excess cash
flow, as defined in the loan agreement, over the amount of interest accrued
during the previous quarter. These percentages are as follows: 42.625% in
year one, 41.25% in years two and three, and 38.5% in years four and five
(effectively, this equals 55% of the cash flow after paying Ocwen's
participating interest).
Through August 31, 2006, upon the occurrence of any participation event, as
defined in the loan agreement, Heller will receive an amount calculated as
follows: in year one, the greater of $800,000 or 55% of the net adjusted
proceeds, as defined in the loan agreement, less $250,000 and the Company's
equity (the "Participation Amount"); in year two, the greater of $1,100,000
or 55% of the Participation Amount; in year three, the greater of
$1,200,000 or 55% of the Participation Amount; in year four, the greater of
$1,400,000 or 55% of the Participation Amount; in year five and thereafter,
the greater of $1,500,000 or 55% of the Participation Amount. In no event
may Heller's participation exceed 49.9% of the total profit of the
participation event.
3. FRANCHISE AND MANAGEMENT AGREEMENTS
The Hotel is operated under a franchise agreement with Marriott
International, Inc. ("Marriott"). The term of the agreement is 20 years
unless otherwise extended or terminated. The Company paid Marriott an
application fee of $60,000. This has been capitalized as franchise costs in
the accompanying balance sheet. Amortization began when the Hotel became
operational, and the cost is being amortized over the life of the franchise
agreement. The agreement provides for the Hotel to reimburse Marriott for
certain common expenses, including, but not limited to, the use of
Marriott's national reservation system. The Hotel also pays Marriott
certain fees, as follows:
B-37
<PAGE>
o Royalty Fee. Percent of the gross sales, as defined in the
agreement. Royalty fees for the year ended December 31, 1997 were
$34,513.
o Marketing Fund Fee. Percent of gross sales. Marketing fund fees
for the year ended December 31, 1997 were $21,571 and are included
in advertising, marketing, and promotion expenses in the
accompanying statement of loss.
The Hotel is operated under a management agreement with Stormont Trice
Management Corporation ("STMC"), an affiliate of STDC. The term of the
management agreement is ten years. Under the terms of the agreement, the
Company pays STMC 3% of gross revenues, as defined in the agreement. At
December 31, 1997, $6,907 in management fees were payable to STMC.
Management fee expense for 1997 was $27,580.
4. RELATED-PARTY TRANSACTIONS
In addition to the management agreement (Note 3), Stormont Trice
Corporation, an affiliate of STDC, provides workers' compensation, group
insurance, and certain employee benefits to all of the Stormont Trice
Corporation group of hotels, and a pro rata portion of the total insurance
and certain employee benefits expense is allocated to each hotel. The
amount allocated to the Company for the year ended December 31, 1997 was
$11,493.
Stormont Trice Corporation also provides property, umbrella, and casualty
insurance to all of the Stormont Trice Corporation group of hotels, and a
pro rata portion of the total insurance expense is allocated to each hotel.
The amount allocated to the Company for the year ended December 31, 1997
was $15,925.
STDC provided development management services to the Company in
construction of the Hotel. The costs for these services in 1997 were
$619,000 and are included in buildings in the accompanying balance sheet.
Amounts due to STDC for these services are $619,000 at December 31, 1997.
In accordance with the terms of the agreement, the fee will not be payable
until the Company repays all of the Ocwen loan obligation and a portion of
the Heller loan obligation, as defined.
STDC also provided the director of design and development for the Hotel.
The cost for these services in 1997 was $34,082 and is included in
buildings in the accompanying balance sheet. Amounts due to STDC for these
services were approximately $14,000 at December 31, 1997 and are included
in accounts payable in the accompanying balance sheet.
B-38
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND MEMBERS' DEFICIT
------ --------------------------------
<S> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $ 768,261 Accounts payable $ 459,653
Accounts receivable, net 106,194 Accrued liabilities 292,461
-----------
Prepaid expenses 18,985
----------- Total current liabilities 752,114
Total current assets 893,440
-----------
PROPERTY, at cost: FIRST MORTGAGE LOAN 7,691,138
Land 800,000
Buildings 6,509,423
Furniture, fixtures, and equipment 1,311,137 MEZZANINE LOAN 1,204,270
----------- -----------
8,620,560 Total liabilities 9,647,522
Less accumulated depreciation (369,063)
-----------
Net property 8,251,497
-----------
LOAN COSTS, net of accumulated MEMBERS' DEFICIT (75,739)
amortization of $86,686 299,461 -----------
-----------
ORGANIZATION COSTS, net of Total liabilities and members'
accumulated amortization of deficit $ 9,571,783
$39,585 44,664 ===========
-----------
FRANCHISE COSTS, net of
accumulated amortization of
$2,420 50,380
-----------
DEVELOPMENT IN PROGRESS 32,341
-----------
Total assets $ 9,571,783
===========
</TABLE>
B-39
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
REVENUES:
Rooms $ 1,454,846
Telephone 66,129
Other 44,609
------------
Total revenues 1,565,584
------------
EXPENSES:
Rooms 290,519
Telephone 10,900
Other operating departments 14,259
Administrative and general 134,926
Credit card commissions 33,083
Franchise fees 58,194
Advertising, marketing, and promotion 120,237
Repairs and maintenance 64,418
Utilities 62,361
Property insurance and taxes 66,783
Management fees 62,623
Other 4,010
Interest 439,034
Depreciation and amortization 272,287
------------
Total expenses 1,633,634
------------
NET LOSS $ (68,050)
============
B-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Gwinnett Residence Associates, L.L.C.:
We have audited the accompanying balance sheet of GWINNETT RESIDENCE ASSOCIATES,
L.L.C. as of December 31, 1997 and the related statement of loss, members'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gwinnett Residence Associates,
L.L.C. as of December 31, 1997 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
February 27, 1998
B-41
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND MEMBERS' DEFICIT
------ --------------------------------
<S> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and short-term investments, including Accounts payable $ 311,598
restricted cash of $15,483 $ 212,745 Accrued liabilities 105,740
Accounts receivable, net of allowance for Current portion of mortgage loan 27,736
doubtful accounts of $744 51,372 ----------
Prepaid expenses 24,414 Total current liabilities 445,074
------------
Total current assets 288,531
------------
PROPERTY, at cost: DEFERRED DEVELOPMENT FEE 451,000
Land 800,000
Buildings 6,509,423
Furniture, fixtures, and equipment 1,311,137 FIRST MORTGAGE LOAN, less current portion 7,163,684
------------ (Note 2)
8,620,560
Less accumulated depreciation (166,971)
------------
Net property 8,453,589 MEZZANINE LOAN (Note 2) 1,153,163
------------- ----------
LOAN COSTS, net of accumulated amortization Total liabilities 9,212,921
of $39,403 346,744
------------
ORGANIZATION COSTS, net of accumulated
amortization of $17,993 66,256 COMMITMENTS AND CONTINGENCIES (Note 2)
------------
FRANCHISE COSTS, net of accumulated amortization of
$1,100 51,700 MEMBERS' DEFICIT (6,101)
------------ ----------
Total assets $ 9,206,820 Total liabilities and members' deficit $9,206,820
============ ==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
B-42
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1997
REVENUES:
Rooms $ 691,864
Telephone 32,821
Other 19,473
----------
Total revenues 744,158
----------
EXPENSES:
Rooms 226,612
Telephone 4,079
Other operating departments 3,257
Administrative and general 100,206
Credit card commissions 15,073
Franchise fees 27,675
Advertising, marketing, and promotion 62,531
Repairs and maintenance 46,072
Utilities 46,892
Property insurance and taxes 17,298
Management fees 29,759
Other 9,030
Interest 328,707
Depreciation and amortization 225,467
---------
Total expenses 1,142,658
---------
NET LOSS $(398,500)
=========
The accompanying notes are an integral part of this statement.
B-43
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF MEMBERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997
Stormont
Trice
Development RI HWE
Corporation Partners IV Total
----------- -------- --- -----
BALANCE, December 31, 1996 $ 128,197 $ 128,197 $ 136,005 $ 392,399
Net loss (130,703) (130,703) (137,094) (398,500)
--------- --------- --------- ---------
BALANCE, December 31, 1997 $ (2,506) $ (2,506) $ (1,089) $ (6,101)
========= ========= ========= =========
The accompanying notes are an integral part of this statement.
B-44
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (398,500)
-----------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 225,467
Changes in assets and liabilities:
Accounts receivable, net (51,372)
Prepaid expenses (24,414)
Accounts payable 311,598
Accrued liabilities 97,282
-----------
Total adjustments 558,561
-----------
Net cash provided by operating activities 160,061
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,086,029)
Start-up costs (7,129)
-----------
Net cash used in investing activities (6,093,158)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal received from loans payable 6,142,121
Loan costs (7,129)
-----------
Net cash provided by financing activities 6,134,992
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 201,895
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,850
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 212,745
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 0
===========
The accompanying notes are an integral part of this statement.
B-45
<PAGE>
GWINNETT RESIDENCE ASSOCIATES, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Gwinnett Residence Associates, L.L.C. (the "Company") is a Georgia limited
liability company that was organized for the purpose of constructing,
operating, and owning the Gwinnett Residence Inn (the "Hotel") in Atlanta,
Georgia. The Hotel is comprised of 132 suites and became operational on
July 29, 1997.
The members of the Company (the"Members"), their ownership percentages, and
their initial capital contributions are as follows:
Initial
Ownership Capital
Percentage Contribution
---------- ------------
Members:
Stormont Trice Development
Corporation ("STDC" or the
"Manager ") 41.08% $142,000
RI Partners ( "RI ") 41.08 142,000
HWE IV 17.84 142,000
The operating agreement provides for allocation of profits, losses, and
cash distributions, as follows:
Profits
o To the Members in proportion to their respective ownership
percentage interests, as defined in the agreement
Losses
o First, to the Members in proportion to their respective ownership
percentage interests until any Member's capital account is reduced
to zero
o Second, to the Member, if any, to the extent of its remaining
positive capital account balance (as adjusted to reflect any prior
allocation of loss)
B-46
<PAGE>
o Third, to the partners in proportion to their respective ownership
percentage interests
Notwithstanding the above loss allocations, to the extent losses
allocated to a Member would cause a Member to have an adjusted capital
account deficit, such losses shall not be allocated to such Member but
instead shall be allocated to other Members in proportion to, and to
the extent that, the amounts in which losses may be allocated to the
other Members without causing the other Members to have an adjusted
capital account deficit and then to the Members in proportion to their
respective ownership percentage interests.
Cash Distributions
o First, to the repayment or prepayment of such debts or
liabilities, other than any debts of the Company to any of the
Members, as the Manager shall determine to be in the best interest
of the Company
o Second, to the establishment of such reserves as the Manager deems
appropriate
o Third, to the repayment or prepayment of any back-up loans, as
defined in the agreement
o Fourth, to the repayment or prepayment of any Member loans
o Fifth, to the Members in equal shares until such time as $42,600
has been distributed to the Members
o Sixth, in equal amounts to the Manager and RI until such time as
$36,996 has been distributed to the Members
o Seventh, the balance available to the Members in proportion to
their respective ownership percentage interests
Allocation of profits, losses, and cash distributions from the sale or
refinancing of the property are allocated in a different manner and will be
affected by the terms of notes payable agreements discussed in Note 2.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash on hand,
deposits in banks, and short-term investments with original maturities of
90 days or less to be cash and cash equivalents.
The first mortgage, mezzanine loan, and management agreements require the
Hotel to establish a furniture, fixtures, and equipment reserve, as
follows: 0% in year one, 2% in year two, 3% in year three, 4% in year four,
and 5% in year five of gross revenues, as defined in the loan agreement. As
of December 31, 1997, $15,483 of cash and cash equivalents was designated
as the furniture, fixtures, and equipment reserve.
B-47
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Franchise and Organization Expenses
A franchise application fee has been capitalized and is being amortized
over the 20-year life of the franchise agreement. Organization costs have
been capitalized and are being amortized over 5 years.
Property
Property is recorded at cost, including capitalized interest, and is
depreciated using the straight-line method over the estimated useful lives
of the assets, which are 30 years for buildings and 3 to 7 years for
furniture, fixtures, and equipment. Expenditures for replacements and
betterments are capitalized, while expenditures for maintenance and repairs
are expensed as incurred.
Income Taxes
No provisions for income taxes have been made in the accounts of the
Company since the Members report their respective shares of taxable income
and loss in their individual tax returns.
2. NOTES PAYABLE
First Mortgage Loan
On August 29, 1996, the Company entered into a loan agreement with Ocwen
Federal Bank FSB ("Ocwen"), formerly Berkeley Federal Bank & Trust FSB, for
a total available amount of $8,174,500 to fund costs of developing and
operating the Hotel. The note bears 10.25% interest until its maturity date
of August 31, 2001. The loan is collateralized by the Company's interest in
the Hotel. Interest accrues monthly and is added to the outstanding balance
until the budgeted interest reserve is depleted or September 1, 1998,
whichever is earlier. Beginning October 1, 1998, interest and principal are
due monthly, with all remaining repaid principal and interest being due on
August 31, 2001. The principal outstanding at December 31, 1997 is
repayable as follows:
1998 $ 27,736
1999 118,301
2000 131,014
2001 6,914,369
----------
$7,191,420
==========
B-48
<PAGE>
In addition, Ocwen receives noncumulative participating interest based on a
percentage of the Company's excess cash flow, as defined in the loan
agreement. These percentages are as follows: 22.5% in year one, 25% in
years two and three, and 30% in years four and five. No amounts were
payable in 1997.
In the event the Company sells the Hotel or refinances the loan, an amount
shall be due to Ocwen as follows: in year one, the greater of $400,000 or
22.5% of the greater of the net proceeds or net economic value, as defined
in the loan; in years two or three, the greater of $400,000 or 25% of the
greater of the net proceeds or net economic value; in year four, the
greater of $700,000 or 30% of the greater of the net proceeds or net
economic value; in year five, the greater of $1,000,000 or 30% of the
greater of the net proceeds or net economic value.
Mezzanine Loan
On August 29, 1996, the Company entered into a loan agreement with Heller
Financial, Inc. ("Heller") for a total available amount of $1,219,800. At
December 31, 1997, $1,153,163 is outstanding, including $136,663 of accrued
interest. The note bears an interest rate of 10% and is interest only until
its maturity date of August 31, 2001. Interest is due monthly, commencing
when the accrued interest exceeds $203,300 or 20% of the outstanding
principal amount of the loan or when distributable cash flow, as defined,
is available. In addition, Heller receives quarterly, as additional
consideration, the excess of the percentage of the Company's excess cash
flow, as defined in the loan agreement, over the amount of interest accrued
during the previous quarter. These percentages are as follows: 44.175% in
year one, 42.75% in years two and three, and 39.9% in years four and five
(effectively, this equals 57% of the cash flow after paying Ocwen's
participating interest).
Through August 31, 2006, upon the occurrence of any participation event, as
defined in the loan agreement, Heller will receive an amount calculated as
follows: in year one, the greater of $700,000 or 57% of the net adjusted
proceeds, as defined in the loan agreement, less $451,000 and the Company's
equity (the "Participation Amount"); in year two, the greater of $1,000,000
or 57% of the Participation Amount; in year three, the greater of
$1,100,000 or 57% of the Participation Amount; in year four, the greater of
$1,200,000 or 57% of the Participation Amount; in year five and thereafter,
the greater of $1,300,000 or 57% of the Participation Amount. In no event
may Heller's participation exceed 49.9% of the total profit of the
participation event.
3. FRANCHISE AND MANAGEMENT AGREEMENTS
The Hotel is operated under a franchise agreement with Marriott
International, Inc. ("Marriott"). The term of the agreement is 20 years
unless otherwise extended or terminated. The Company paid Marriott an
application fee of $52,800. This has been capitalized as franchise costs in
the accompanying balance sheet. Amortization began when the Hotel became
operational, and the cost is being amortized over the life of the franchise
agreement. The agreement provides for the Hotel to reimburse Marriott for
certain common expenses, including, but not limited to, the use of
Marriott's national reservation system. The Hotel also pays Marriott
certain fees, as follows:
B-49
<PAGE>
o Royalty Fee. Percent of the gross sales, as defined in the
agreement. Royalty fees for the year ended December 31, 1997 were
$27,675.
o Marketing Fund Fee. Percent of gross sales. Marketing fund fees
for the year ended December 31, 1997 were $17,296 and are included
in advertising, marketing, and promotion expenses in the
accompanying statement of loss.
The Hotel is operated under a management agreement with Stormont Trice
Management Corporation ("STMC"), an affiliate of STDC. The term of the
management agreement is ten years. Under the terms of the agreement, the
Company pays STMC 4% of gross revenues, as defined in the agreement. At
December 31, 1997, $6,622 in management fees were payable to STMC.
Management fee expense for 1997 was $29,759.
4. RELATED-PARTY TRANSACTIONS
Julian LeCraw & Co, Inc. ("LeCraw"), which is related to one of the Members
through common ownership, provided general contracting services to the
Company in construction of the Hotel. The costs for these services in 1997
were approximately $3,682,183 and are included in buildings in the
accompanying balance sheet. Amounts due to LeCraw for these services are
approximately $20,000 at December 31, 1997 and are included in accounts
payable in the accompanying balance sheet.
In addition to the management agreement (Note 3), Stormont Trice
Corporation, an affiliate of STDC, provides workers' compensation, group
insurance, and certain employee benefits to all of the Stormont Trice
Corporation group of hotels, and a pro rata portion of the total insurance
and certain employee benefits expense is allocated to each hotel. The
amount allocated to the Company for the year ended December 31, 1997 was
$9,388.
Stormont Trice Corporation also provides property, umbrella, and casualty
insurance to all of the Stormont Trice Corporation group of hotels, and a
pro rata portion of the total insurance expense is allocated to each hotel.
The amount allocated to the Company for the year ended December 31, 1997
was $14,379.
STDC provided development management services to the Company in
construction of the Hotel. The costs for these services in 1997 were
$451,000 and are included in buildings in the accompanying balance sheet.
Amounts due to STDC for these services are approximately $451,000 at
December 31, 1997. In accordance with the terms of the agreement, the fee
will not be payable until the Company repays all of the Ocwen loan
obligation and a portion of the Heller loan obligation, as defined.
STDC also provided the director of design and development for the Hotel.
The cost for these services in 1997 was $40,982 and is included in
buildings in the accompanying balance sheet. Amounts due to STDC for these
services were $20,900 at December 31, 1997 and are included in accounts
payable in the accompanying balance sheet.
B-50
<PAGE>
ADDENDUM TO
EXHIBIT C
PRIOR PERFORMANCE TABLES
----------------------------------------------
| THE FOLLOWING INFORMATION UPDATES AND |
| REPLACES THE CORRESPONDING INFORMATION IN |
| EXHIBIT C TO THE ATTACHED PROSPECTUS, |
| DATED OCTOBER 6, 1998. |
----------------------------------------------
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
The information in this Exhibit C contains certain relevant summary
information concerning certain prior public programs sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and President
of the Company) and their Affiliates (the "Prior Public Programs") which were
formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains,
or in the case of CNL Health Care Properties, Inc., to invest in health care
properties. No Prior Public Programs sponsored by the Company's Affiliates have
invested in hotel properties leased on a triple-net basis to operators of
national and regional limited-service, extended-stay and full-service hotel
chains.
A more detailed description of the acquisitions by the Prior Public
Programs is set forth in Part II of the registration statement filed with the
Securities and Exchange Commission for this Offering and is available from the
Company upon request, without charge. In addition, upon request to the Company,
the Company will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
CNL American Properties Fund, Inc., and CNL Health Care Properties, Inc. as well
as a copy, for a reasonable fee, of the exhibits filed with such reports.
The investment objectives of the Prior Public Programs generally
include preservation and protection of capital, the potential for increased
income and protection against inflation, and potential for capital appreciation,
all through investment in properties. In addition, the investment objectives of
the Prior Public Programs included making partially tax-sheltered distributions.
STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PROGRAMS.
Description of Tables
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in
the Tables is as of December 31, 1998. The following is a brief description of
the Tables:
C-1
<PAGE>
Table I - Experience in Raising and Investing Funds
Table I presents information on a percentage basis showing the
experience of two of the principals of the Company and their Affiliates in
raising and investing funds for the Prior Public Programs, the offerings of
which became fully subscribed between January 1994 and December 1998.
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
Table II - Compensation to Sponsor
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to the two of the Company's principals
and their Affiliates which sponsored the Prior Public Programs.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Programs, the offerings of
which became fully subscribed between January 1994 and December 1998. The Table
also shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending December 31, 1998.
Table III - Operating Results of Prior Programs
Table III presents a summary of operating results for the period from
inception through December 31, 1998, of the Prior Public Programs, the offerings
of which became fully subscribed between January 1994 and December 1998.
The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of an investing or financing nature.
These items include proceeds from capital contributions of investors and
disbursements made from these sources of funds, such as syndication (or stock
issuance) and organizational costs, acquisition of the properties and other
costs which are related more to the organization of the entity and the
acquisition of properties than to the actual operations of the entities.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
Table IV - Results of Completed Programs
Table IV is omitted from this Exhibit C because none of the Prior
Public Programs have completed operations (meaning they no longer hold
properties).
Table V - Sales or Disposal of Properties
Table V provides information regarding the sale or disposal of
properties owned by the Prior Public Programs between January 1994 and December
1998.
The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.
C-2
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL American
Fund XIV, Fund XV, Fund XVI, Properties Fund,
Ltd. Ltd. Ltd. Inc.
----------- ----------- ----------- -----------------
(Note 1)
<S> <C> <C> <C> <C>
Dollar amount offered $45,000,000 $40,000,000 $45,000,000 $745,000,000
=========== =========== =========== ============
Dollar amount raised 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- ------------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (7.5)
Organizational expenses (3.0) (3.0) (3.0) (2.2)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5) (0.5)
----------- ----------- ----------- -----------
(12.0) (12.0) (12.0) (10.2)
----------- ----------- ----------- -----------
Reserve for operations -- -- -- --
----------- ----------- ----------- -----------
Percent available for
investment 88.0% 88.0% 88.0% 89.8%
=========== =========== =========== ===========
Acquisition costs:
Cash down payment 82.5% 82.5% 82.5% 85.3%
Acquisition fees paid
to affiliates 5.5 5.5 5.5 4.5
Loan costs -- -- -- --
----------- ----------- ----------- -----------
Total acquisition costs 88.0% 88.0% 88.0% 89.8%
=========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- --
Date offering began 8/27/93 2/23/94 9/02/94 4/19/95, 2/06/97
and 3/02/98
Length of offering (in
months) 6 6 9 22, 13 and 9,
respectively
Months to invest 90% of
amount available for
investment measured
from date of offering 11 10 11 23, 16 and 11,
respectively
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Health Care
Fund XVII, Fund XVIII, Properties,
Ltd. Ltd. Inc.
----------- ----------- ----------------
<S> <C> <C>
(Note 2)
Dollar amount offered $30,000,000 $35,000,000
Dollar amount raised 100.0% 100.0%
----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5)
Organizational expenses (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5)
----------- -----------
(12.0) (12.0)
----------- -----------
Reserve for operations -- --
----------- -----------
Percent available for
investment 88.0% 88.0%
=========== ===========
Acquisition costs:
Cash down payment 83.5% 83.5%
Acquisition fees paid
to affiliates 4.5 4.5
Loan costs -- --
----------- -----------
Total acquisition costs 88.0% 88.0%
=========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- --
Date offering began 9/02/95 9/20/96
Length of offering (in
months) 12 17
Months to invest 90% of
amount available for
investment measured
from date of offering 15 17
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, CNL
American Properties Fund, Inc. ("APF") registered for sale $165,000,000
of shares of common stock (the "Initial Offering"), including
$15,000,000 available only to stockholders participating in the
company's reinvestment plan. The Initial Offering of APF commenced
April 19, 1995, and upon completion of the Initial Offering on February
6, 1997, had received subscription proceeds of $150,591,765 (15,059,177
shares), including $591,765 (59,177 shares) issued pursuant to the
reinvestment plan. Pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933, as amended, effective January 31,
1997, APF registered for sale $275,000,000 of shares of common stock
(the "1997 Offering"), including $25,000,000 available only to
stockholders participating in the company's reinvestment plan. The 1997
Offering of APF commenced following the completion of the Initial
Offering on February 6, 1997, and upon completion of the 1997 Offering
on March 2, 1998, had received subscription proceeds of $251,872,648
(25,187,265 shares), including $1,872,648 (187,265 shares) issued
pursuant to the reinvestment plan. Pursuant to a Registration Statement
on Form S-11 under the Securities Act of 1933, as amended, effective
May 12, 1998, APF registered for sale $345,000,000 of shares of common
stock (the "1998 Offering". The 1998 Offering of APF commenced
following the completion of the 1997 Offering on March 2, 1998. As of
December 31, 1998, APF had received subscriptions totalling
approximately $345,000,000 from the 1998 Offering, including $3,107,848
issued pursuant to the company's reinvestment plan. The 1998 Offering
became fully subscribed in December 1998 and proceeds from the last
subscriptions were received in January 1999.
Note 2: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective September 18, 1998, CNL Health Care
Properties, Inc. registered for sale $155,000,000 of shares of common
stock, including $5,000,000 available only to stockholders
participating in the company's reinvestment plan. The offering of
shares of CNL Health Care Properties, Inc. commenced September 18,
1998.
C-4
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL American
Fund XIV, Fund XV, Fund XVI, Properties Fund,
Ltd. Ltd. Ltd. Inc.
----------- ----------- ----------- -------------------
(Note 1)
<S> <C> <C> <C> <C>
Date offering commenced 8/27/93 2/23/94 9/02/94 4/19/95, 2/06/97
and 3/02/98
Dollar amount raised $45,000,000 $40,000,000 $45,000,000 $747,253,675
=========== =========== =========== ============
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,825,000 3,400,000 3,825,000 56,044,026
Real estate commissions - - - -
Acquisition fees 2,475,000 2,200,000 2,475,000 33,595,134
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 225,000 200,000 225,000 3,736,268
----------- ----------- ----------- ------------
Total amount paid to sponsor 6,525,000 5,800,000 6,525,000 93,375,428
=========== =========== =========== ============
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1998 3,662,593 3,343,292 3,765,104 42,216,874
1997 3,734,726 3,419,967 3,909,781 18,514,122
1996 3,841,163 3,557,073 3,911,609 6,096,045
1995 3,823,939 3,361,477 2,619,840 594,425
1994 2,897,432 1,154,454 212,171 -
1993 329,957 - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1998 148,049 126,564 141,410 3,100,599
1997 128,536 113,372 129,357 1,437,908
1996 134,867 122,391 157,883 613,505
1995 114,095 122,107 138,445 95,966
1994 84,801 37,620 7,023 -
1993 8,220 - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash (Note 3) 5,168,000 3,312,297 1,385,384 9,046,652
Notes - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - -
Incentive fees - - - -
Other (Note 2) - - - -
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Health Care
Fund XVII, Fund XVIII, Properties,
Ltd. Ltd. Inc.
----------- ----------- ----------------
<S> <C> <C> <C>
(Note 4)
Date offering commenced 9/02/95 9/20/96
Dollar amount raised $30,000,000 $35,000,000
=========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 2,550,000 2,975,000
Real estate commissions - -
Acquisition fees 1,350,000 1,575,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 150,000 175,000
----------- -----------
Total amount paid to sponsor 4,050,000 4,725,000
=========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1998 2,638,733 2,964,628
1997 2,611,191 1,459,963
1996 1,340,159 30,126
1995 11,671 -
1994 - -
1993 - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1998 117,814 132,890
1997 116,077 98,207
1996 107,211 2,980
1995 2,659 -
1994 - -
1993 - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash (Note 3) - -
Notes - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - -
Incentive fees - -
Other (Note 2) - -
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective March 29, 1995, CNL American
Properties Fund, Inc. ("APF") registered for sale $165,000,000 of
shares of common stock (the "Initial Offering"), including $15,000,000
available only to stockholders participating in the company's
reinvestment plan. The Initial Offering of APF commenced April 19,
1995, and upon completion of the Initial Offering on February 6, 1997,
had received subscription proceeds of $150,591,765 (15,059,177 shares),
including $591,765 (59,177 shares) issued pursuant to the reinvestment
plan. Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective January 31, 1997, APF
registered for sale $275,000,000 of shares of common stock (the "1997
Offering"), including $25,000,000 available only to stockholders
participating in the company's reinvestment plan. The 1997 Offering of
APF commenced following the completion of the Initial Offering on
February 6, 1997, and upon completion of the 1997 Offering on March 2,
1998, had received subscription proceeds of $251,872,648 (25,187,265
shares), including $1,872,648 (187,265 shares) issued pursuant to the
reinvestment plan. Pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933, as amended, effective May 12, 1998,
APF registered for sale $345,000,000 of shares of common stock (the
"1998 Offering"). The 1998 Offering of APF commenced following the
completion of the 1997 Offering on March 2, 1998. As of December 31,
1998, APF had received subscriptions totalling approximately
$345,000,000 from the 1998 Offering, including $3,107,848 issued
pursuant to the company's reinvestment plan. The 1998 Offering became
fully subscribed in December 1998 and proceeds from the last
subscriptions were received in January 1999. The amounts shown
represent the combined results of the Initial Offering, the 1997
Offering and the 1998 Offering as of December 31, 1998, including
shares issued pursuant to the company's reinvestment plans.
Note 2: For negotiating secured equipment leases and supervising the secured
equipment lease program, APF is entitled to receive a one-time secured
equipment lease servicing fee of two percent of the purchase price of
the equipment that is the subject of a secured equipment lease. During
the years ended December 31, 1998, 1997 and 1996, APF incurred $54,998,
$87,665 and $70,070, respectively, in secured equipment lease servicing
fees.
Note 3: Excludes properties sold and substituted with replacement properties,
as permitted under the terms of the lease agreements.
Note 4: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective September 18, 1998, CNL Health Care
Properties, Inc. registered for sale $155,000,000 of shares of common
stock, including $5,000,000 available only to stockholders
participating in the company's reinvestment plan. The offering of
shares of CNL Health Care Properties, Inc. commenced September 18,
1998. As of December 31, 1998, CNL Health Care Properties, Inc. had
received subscription proceeds of $25,500 (2,550 shares) from the
offering. Until subscription proceeds totalling $2,500,000 are
received, the proceeds will be held in escrow.
C-6
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIV, LTD.
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 256,234 $ 3,135,716 $ 4,017,266
Equity in earnings of joint ventures 0 1,305 35,480 338,717
Profit (Loss) from sale of properties
(Notes 4, 6, 7, 8 and 9) 0 0 0 (66,518)
Provision for loss on building (Note 10) 0 0 0 0
Interest income 0 27,874 200,499 50,724
Less: Operating expenses 0 (14,049) (181,980) (248,840)
Interest expense 0 0 0 0
Depreciation and amortization 0 (28,918) (257,640) (340,112)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 242,446 2,932,075 3,751,237
============ ============ ============ ============
Taxable income
- from operations 0 278,845 2,482,240 3,162,165
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 321,737 2,812,631 3,709,844
Cash generated from sales (Notes 4, 6,
7, 8 and 9) 0 0 0 696,012
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 321,737 2,812,631 4,405,856
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (9,050) (2,229,952) (3,543,751)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 312,687 582,679 862,105
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 28,785,100 16,214,900 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (2,771,892) (1,618,477) 0
Acquisition of land and buildings 0 (13,758,004) (11,859,237) (964,073)
Investment in direct financing leases 0 (4,187,268) (5,561,748) (75,352)
Investment in joint ventures 0 (315,209) (1,561,988) (1,087,218)
Return of capital from joint venture 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 (706,215) (376,738) (577)
Increase in other assets 0 (444,267) 0 0
Increase (decrease) in restricted cash 0 0 0 0
Other 0 0 0 5,530
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 6,914,932 (4,180,609) (1,259,585)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 16 56 70
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Notes 4, 6, 7,
8 and 9) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Gross revenue $ 3,999,813 $ 3,918,582 $ 3,440,910
Equity in earnings of joint ventures 459,137 309,879 317,654
Profit (Loss) from sale of properties
(Notes 4, 6, 7, 8 and 9) 0 0 112,206
Provision for loss on building (Note 10) 0 0 (37,155)
Interest income 44,089 40,232 73,246
Less: Operating expenses (246,621) (262,592) (326,960)
Interest expense 0 0 0
Depreciation and amortization (340,089) (340,161) (380,814)
------------ ------------ ------------
Net income - GAAP basis 3,916,329 3,665,940 3,199,087
============ ============ ============
Taxable income
- from operations 3,236,329 3,048,675 3,230,884
============ ============ ============
- from gain (loss) on sale 0 47,256 53,034
============ ============ ============
Cash generated from operations
(Notes 2 and 3) 3,706,296 3,606,190 3,514,544
Cash generated from sales (Notes 4, 6,
7, 8 and 9) 0 318,592 1,648,110
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,706,296 3,924,782 5,162,654
Less: Cash distributions to investors
(Note 5)
- from operating cash flow (3,706,296) (3,606,190) (3,514,544)
- from sale of properties 0 0 0
- from cash flow from prior period (6,226) (106,330) (197,976)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions (6,226) 212,262 1,450,134
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 (605,712)
Investment in direct financing leases 0 0 (931,237)
Investment in joint ventures (7,500) (121,855) (568,498)
Return of capital from joint venture 0 51,950 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 0 0
Increase in other assets 0 0 0
Increase (decrease) in restricted cash 0 (318,592) 318,592
Other 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items (13,726) (176,235) (336,721)
============ ============ =============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 71 67 71
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) (Notes 4, 6, 7,
8 and 9) 0 1 1
============ ============ ============
</TABLE>
C-8
<PAGE>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 51 79
- from capital gain 0 0 0 0
- from return of capital 0 0 0 0
- from investment income from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 1 51 79
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from operations 0 1 51 79
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 1 51 79
============ ============ ============ ============
Total cash distributions as a percentage of
original $1,000 investment (Note 11) 0.00% 4.50% 6.50% 8.06%
Total cumulative cash distributions
per $1,000 investment from inception 0 1 52 131
Amount (in percentage terms) remaining invested
in program properties at the end of each year
(period) presented (original total
acquisition cost of properties retained,
divided by original total acquisition cost of
all properties in program) (Notes 4, 6, 7, 8
and 9) N/A 100% 100% 100%
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income
- from capital gain 83 81 68
- from return of capital 0 0 2
- from investment income from prior 0 0 0
period
0 2 12
Total distributions on GAAP basis (Note 5) ------------ ------------ ------------
83 83 82
============ ============ ============
Source (on cash basis)
- from sales
- from operations 0 0 4
- from cash flow from prior period 83 81 78
0 2 0
Total distributions on cash basis (Note 5) ------------ ------------ ------------
83 83 82
Total cash distributions as a percentage of ============ ============ ============
original $1,000 investment (Note 11)
Total cumulative cash distributions 8.25% 8.25% 8.25%
per $1,000 investment from inception
214 297 379
Amount (in percentage terms) remaining invested
in program properties at the end of each year
(period) presented (original total
acquisition cost of properties retained,
divided by original total acquisition cost of
all properties in program) (Notes 4, 6, 7, 8
and 9) 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XIV, Ltd. ("CNL XIV") and CNL
Income Fund XIII, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XIII, Ltd. commenced March 17, 1993. Pursuant to the
registration statement, CNL XIV could not commence until the offering
of Units of CNL Income Fund XIII, Ltd. was terminated. CNL Income Fund
XIII, Ltd. terminated its offering of Units on August 26, 1993, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XIII, Ltd., CNL XIV commenced its offering of Units. Activities
through September 13, 1993, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL Income Fund XIV, Ltd.
Note 4: During 1995, the partnership sold two of its properties to a tenant for
its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used to
acquire two additional properties. As a result of these transactions,
the partnership recognized a loss for financial reporting purposes of
$66,518 primarily due to acquisition fees and miscellaneous acquisition
expenses the partnership had allocated to the property and due to the
accrued rental income relating to future scheduled rent increases that
the partnership had recorded and reversed at the time of sale. In
addition, during 1996, Wood-Ridge Real Estate Joint Venture, in which
the partnership owns a 50% interest, sold its two properties to the
tenant and recognized a gain of approximately $261,100 for financial
reporting purposes. As a result, the partnership's pro rata share of
such gain of approximately $130,550 is included in equity in earnings
of unconsolidated joint ventures for 1996.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995, 1996 and 1997, are reflected in the 1994, 1995, 1996,
1997 and 1998 columns, respectively, for distributions on a cash basis
due to the payment of such distributions in January 1994, 1995, 1996,
1997 and 1998, respectively. As a result of 1994, 1995, 1996, 1997 and
1998 distributions being presented on a cash basis, distributions
declared and unpaid as of December 31, 1994, 1995, 1996, 1997 and 1998
are not included in the 1994, 1995, 1996, 1997 and 1998 totals,
respectively.
Note 6: In January 1998, the partnership sold its property in Madison, Alabama,
to a third party for $740,000 and received net sales proceeds of
$696,486. Due to the fact that during 1997 the partnership wrote off
$13,314 in accrued rental income (non-cash accounting adjustments
relating to the straight-lining of future scheduled rent increases over
the lease term in accordance with generally accepted accounting
principles), no gain or loss was incurred for financial reporting
purposes in January 1998 relating to this sale. In April 1998, the
partnership reinvested a portion of the net sales proceeds from the
sale of the property in Madison, Alabama in Melbourne Joint Venture,
with an affiliate of the partnership which has the same general
partners. The partnership intends to use the remaining proceeds to
invest in an additional property or for other partnership purposes.
Note 7: In January 1998, the partnership sold one of its properties in
Richmond, Virginia for $512,462 and received net sales proceeds of
$512,246, resulting in a gain of $70,798 for financial reporting
purposes. The partnership reinvested the net sales proceeds in a
property in Fayetteville, North Carolina.
Note 8: In April 1998, the partnership reached an agreement to accept
$360,000 for the property in Riviera Beach, Florida, which was taken
through a right of way taking in December 1997. The partnership had
received preliminary sales proceeds of $318,592 as of December 31,
1997. Upon agreement and receipt of the final sales price of $360,000,
the partnership recognized a gain of $41,408 for financial reporting
purposes. The partnership reinvested the net sales proceeds in a
property in Fayetteville, North Carolina.
Note 9: In July 1998, the Partnership sold one of its properties in Richmond,
Virginia for $415,000 and received net sales proceeds of $397,970. Due
to the fact that during 1998 the partnership wrote off $12,060 in
accrued rental income (non-cash accounting adjustments relating to the
straight-lining of future scheduled rent increases over the lease term
in accordance with generally accepted accounting principles), no gain
or loss was incurred for financial reporting purposes in July 1998
relating to this sale. In October 1998, the partnership reinvested the
net sales proceeds from the sale of the property in Richmond, Virginia
in a property in Fayetteville, North Carolina.
Note 10: At December 31, 1998, the Partnership recorded a provision for loss
on building in the amount of $37,155 for financial reporting purposes
relating to a Long John Silver's Property whose lease was rejected by
the tenant. The tenant of this Property filed for bankruptcy and ceased
payment of rents under the terms of its lease agreement. The allowance
represents the difference between the carrying value of the Property at
December 31, 1998 and the estimated net realizable value for the
Property.
C-10
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XV, LTD.
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,143,586 $ 3,546,320 $ 3,632,699
Equity in earnings of joint ventures 0 8,372 280,606 392,862
Profit (Loss) from sale of properties
(Note 4) 0 0 (71,023) 0
Provision for loss on land and buildings
(Note 7) 0 0 0 0
Interest income 0 167,734 88,059 43,049
Less: Operating expenses 0 (62,926) (228,319) (235,319)
Interest expense 0 0 0 0
Depreciation and amortization 0 (70,848) (243,175) (248,232)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,918 3,372,468 3,585,059
============ ============ ============ ============
Taxable income
- from operations 0 1,026,715 2,861,912 2,954,318
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,116,834 3,239,370 3,434,682
Cash generated from sales (Note 4) 0 0 811,706 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,116,834 4,051,076 3,434,682
Less: Cash distributions to investors
(Notes 5, 6 and 9)
- from operating cash flow 0 (635,944) (2,650,003) (3,200,000)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 480,890 1,401,073 234,682
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 40,000,000 0 0
General partners' capital contri-
butions 1,000 0 0 0
Syndication costs 0 (3,892,003) 0 0
Acquisition of land and buildings 0 (22,152,379) (1,625,601) 0
Investment in direct financing
leases 0 (6,792,806) (2,412,973) 0
Investment in joint ventures 0 (1,564,762) (720,552) (129,939)
Return of capital from joint venture 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XV, Ltd. by related parties 0 (1,098,197) (23,507) 0
Increase in other assets 0 (187,757) 0 0
Other (38) (6,118) 25,150 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 962 4,786,868 (3,356,410) 104,743
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 71 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-11
<PAGE>
1997 1998
------------ ------------
Gross revenue $ 3,622,123 $ 3,179,911
Equity in earnings of joint ventures 239,249 236,553
Profit (Loss) from sale of properties
(Note 4) 0 0
Provision for loss on land and buildings
(Note 7) 0 (280,907)
Interest income 46,642 54,576
Less: Operating expenses (224,761) (265,748)
Interest expense 0 0
Depreciation and amortization (248,348) (281,888)
------------ ------------
Net income - GAAP basis 3,434,905 2,642,497
============ ============
Taxable income
- from operations 2,856,893 2,847,638
============ ============
- from gain on sale 47,256 0
============ ============
Cash generated from operations
(Notes 2 and 3) 3,306,595 3,216,728
Cash generated from sales (Note 4) 0 0
Cash generated from refinancing 0 0
Cash generated from operations, sales
and refinancing 3,306,595 3,216,728
Less: Cash distributions to investors
(Notes 5, 6 and 9)
- from operating cash flow (3,280,000) (3,216,728)
- from sale of properties 0 0
- from cash flow from prior period 0 (183,272)
Cash generated (deficiency) after cash
distributions 26,595 (183,272)
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 0
General partners' capital contri-
butions 0 0
Syndication costs 0 0
Acquisition of land and buildings 0 0
Investment in direct financing
leases 0 0
Investment in joint ventures 0 (216,992)
Return of capital from joint venture 51,950 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XV, Ltd. by related parties 0 0
Increase in other assets 0 0
Other 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 78,545 (400,264)
============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 71 70
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) (Note 4) 1 0
============ ============
C-12
<PAGE>
TABLE III - CNL INCOME FUND XV, LTD. (continued)
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 21 66 80
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 21 66 80
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 21 66 80
- from investment income from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 21 66 80
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Notes 6,
8 and 9).0.00% 5.00% 7.25% 8.20%
Total cumulative cash distributions per
$1,000 investment from inception 0 21 87 167
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) N/A 100% 100% 100%
</TABLE>
Note 1: The registration statement relating to this offering of Units of CNL
Income Fund XV, Ltd. became effective February 23, 1994. Activities
through March 23, 1994, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint venture, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL Income Fund XV, Ltd.
Note 4: During 1995, the partnership sold three of its properties to a tenant
for its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The majority of the net sales
proceeds were used to acquire additional properties. As a result of
these transactions, the partnership recognized a loss for financial
reporting purposes of $71,023 primarily due to acquisition fees and
miscellaneous acquisition expenses the partnership had allocated to the
three properties and due to the accrued rental income relating to
future scheduled rent increases that the partnership had recorded and
reversed at the time of sale. In addition, during 1996, Wood-Ridge Real
Estate Joint Venture, in which the partnership owns a 50% interest,
sold its two properties to the tenant and recognized a gain of
approximately $261,100 for financial reporting purposes. As a result,
the partnership's pro rata share of such gain of approximately $130,550
is included in equity in earnings of unconsolidated joint ventures for
1996.
Note 5: Distributions declared for the quarters ended December 31, 1994,
1995, 1996 and 1997 are reflected in the 1995, 1996, 1997 and 1998
columns, respectively, due to the payment of such distributions in
January 1995, 1996, 1997 and 1998, respectively. As a result of
distributions being presented on a cash basis, distributions declared
and unpaid as of December 31, 1994, 1995, 1996, 1997 and 1998 are not
included in the 1994, 1995, 1996, 1997 and 1998 totals, respectively.
Note 6: On December 31, 1996, CNL Income Fund XV, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .20% of
the total invested capital. Accordingly, the total yield for 1996 was
8.20%
Note 7. During the year ended December 31, 1998, the Partnership established
an allowance for loss on land and buildings of $280,907 for financial
reporting purposes relating to two of the four Long John Silver's
properties whose leases were rejected by the tenant. The tenant of
these properties filed for bankruptcy and ceased payment of rents under
the terms of the lease agreements. The loss represents the difference
between the carrying value of the Properties at December 31, 1998 and
the current estimated net realizable value for these Properties.
Note 8: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 9: Cash distributions for 1998 include an additional amount equal to
0.50% of invested capital which was earned in 1997 or prior years, but
declared payable in the first quarter of 1998.
C-13
<PAGE>
1997 1998
------------ ------------
Cash distributions to investors
Source (on GAAP basis)
- from investment income 82 65
- from capital gain 0 0
- from investment income from prior
period 0 20
------------ ------------
Total distributions on GAAP basis (Note 5) 82 85
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 82 80
- from investment income from prior period 0 5
------------ ------------
Total distributions on cash basis (Note 5) 82 85
============ ============
Total cash distributions as a percentage
of original $1,000 investment (Notes 6,
8 and 9).0.00% 8.00% 8.50%
Total cumulative cash distributions per
$1,000 investment from inception 249 334
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) 100% 100%
C-14
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVI, LTD.
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 4,343,390
Equity in earnings from joint venture 0 0 0 19,668
Profit from sale of properties (Notes 4
and 5) 0 0 0 124,305
Provision for loss on building (Note 8) 0 0 0 0
Interest income 0 21,478 321,137 75,160
Less: Operating expenses 0 (10,700) (274,595) (261,878)
Interest expense 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (552,447)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 187,577 2,430,841 3,748,198
============ ============ ============ ============
Taxable income
- from operations 0 189,864 2,139,382 3,239,830
============ ============ ============ ============
- from gain on sale (Notes 4 and 5) 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 205,148 2,481,395 3,753,726
Cash generated from sales (Notes 4 and 5) 0 0 0 775,000
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 205,148 2,481,395 4,528,726
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (2,845) (1,798,921) (3,431,251)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,097,475
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 20,174,172 24,825,828 0
General partners' capital contri-
butions 1,000 0 0 0
Syndication costs 0 (1,929,465) (2,452,743) 0
Acquisition of land and buildings 0 (13,170,132) (16,012,458) (2,355,627)
Investment in direct financing
leases 0 (975,853) (5,595,236) (405,937)
Investment in joint ventures 0 0 0 (775,000)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVI, Ltd. by related parties 0 (854,154) (405,569) (2,494)
Increase in other assets 0 (443,625) (58,720) 0
Increase (decrease) in restricted cash 0 0 0 0
Reimbursement from developer of
construction costs 0 0 0 0
Other (36) (20,714) 20,714 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 964 2,982,532 1,004,290 (2,441,583)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 71
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-15
<PAGE>
1997 1998
------------ ------------
Gross revenue $ 4,308,853 $ 3,901,555
Equity in earnings from joint venture 73,507 132,002
Profit from sale of properties (Notes 4
and 5) 41,148 0
Provision for loss on building (Note 8) 0 (266,257)
Interest income 73,634 60,199
Less: Operating expenses (272,932) (295,141)
Interest expense 0 0
Depreciation and amortization (563,883) (555,360)
------------ ------------
Net income - GAAP basis 3,660,327 2,976,998
============ ============
Taxable income
- from operations 3,178,911 3,153,618
============ ============
- from gain on sale (Notes 4 and 5) 64,912 0
============ ============
Cash generated from operations
(Notes 2 and 3) 3,780,424 3,623,694
Cash generated from sales (Notes 4 and 5) 610,384 0
Cash generated from refinancing 0 0
------------ ------------
Cash generated from operations, sales
and refinancing 4,390,808 3,623,694
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,600,000) (3,623,694)
- from sale of properties 0 (66,306)
------------ ------------
Cash generated (deficiency) after cash
distributions 790,808 (66,306)
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 0
General partners' capital contri-
butions 0 0
Syndication costs 0 0
Acquisition of land and buildings (23,501) (3,545)
Investment in direct financing
leases (29,257) (28,403)
Investment in joint ventures 0 (744,058)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVI, Ltd. by related parties 0 0
Increase in other assets 0 0
Increase (decrease) in restricted cash (610,384) 610,384
Reimbursement from developer of
construction costs 0 161,648
Other 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 127,666 (70,280)
============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 70 69
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) (Notes 4 and 5) 1 0
============ ============
C-16
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 76
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 6) 0 1 45 76
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 45 76
- from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 6) 0 1 45 76
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Notes 7
and 9) 0.00% 4.50% 6.00% 7.88%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 122
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XVI, Ltd. ("CNL XVI") and CNL
Income Fund XV, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XV, Ltd. commenced February 23, 1994. Pursuant to the
registration statement, CNL XVI could not commence until the offering
of Units of CNL Income Fund XV, Ltd. was terminated. CNL Income Fund
XV, Ltd. terminated its offering of Units on September 1, 1994, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XV, Ltd., CNL XVI commenced its offering of Units. Activities
through September 22, 1994, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL Income Fund XVI, Ltd.
Note 4: In April 1996, CNL Income Fund XVI, Ltd. sold one of its properties
and received net sales proceeds of $775,000, resulting in a gain of
$124,305 for financial reporting purposes. In October 1996, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
Note 5: In March 1997, CNL Income Fund XVI, Ltd. sold one of its properties
and received net sales proceeds of $610,384, resulting in a gain of
$41,148 for financial reporting purposes. In January 1998, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with affiliates of the general partners.
Note 6: Distributions declared for the quarters ended December 31, 1994,
1995, 1996 and 1997 are reflected in the 1995, 1996, 1997 and 1998
columns, respectively, due to the payment of such distributions in
January 1995, 1996, 1997 and 1998, respectively. As a result of
distributions being presented on a cash basis, distributions declared
and unpaid as of December 31, 1994, 1995, 1996, 1997 and 1998 are not
included in the 1994, 1995, 1996, 1997 and 1998 totals, respectively.
Note 7: Cash distributions for 1998 include an additional amount equal to
0.20% of invested capital which was earned in 1997 but declared payable
in the first quarter of 1998.
Note 8: During the year ended December 31, 1998, the Partnership recorded a
provision for loss on building of $266,257 for financial reporting
purposes relating to a Long John Silver's property in Celina, Ohio. The
tenant of this property filed for bankruptcy and ceased payment of
rents under the terms of its lease agreement. The allowance represents
the difference between the Property's carrying value at December 31,
1998 and the estimated net realizable value for this Property.
Note 9: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
C-17
<PAGE>
1997 1998
------------ ------------
Cash distributions to investors
Source (on GAAP basis) 80 65
- from investment income 0 0
- from capital gain
- from investment income from
prior period 0 17
------------ ------------
Total distributions on GAAP basis (Note 6) 80 82
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 80 81
- from prior period 0 1
----------- ------------
Total distributions on cash basis (Note 6) 80 82
============ ============
Total cash distributions as a percentage
of original $1,000 investment (Notes 7
and 9) 8.00% 8.20%
Total cumulative cash distributions per
$1,000 investment from inception 202 284
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) 100% 100%
C-18
<PAGE>
TABLE III Operating Results
of Prior Programs CNL AMERICAN
PROPERTIES FUND, INC.
<TABLE>
<CAPTION>
1994 1997
(Note 1) 1995 1996 (Note 2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 539,776 $ 4,363,456 $ 15,516,102
Equity in earnings of joint venture 0 0 0 0
Provision for loss on land and buildings
(Note 12) 0 0 0 0
Interest income 0 119,355 1,843,228 3,941,831
Less: Operating expenses 0 (186,145) (908,924) (2,066,962)
Interest expense 0 0 0 0
Depreciation and amortization 0 (104,131) (521,871) (1,795,062)
Minority interest in income of
consolidated joint venture 0 (76) (29,927) (31,453)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 368,779 4,745,962 15,564,456
============ ============ ============ ============
Taxable income
- from operations (Note 8) 0 379,935 4,894,262 15,727,311
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 (41,115)
============ ============ ============ ============
Cash generated from operations
(Notes 4 and 5) 0 498,459 5,482,540 17,076,214
Cash generated from sales (Note 7) 0 0 0 6,289,236
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 498,459 5,482,540 23,365,450
Less: Cash distributions to investors
(Note 9)
- from operating cash flow 0 (498,459) (5,439,404) (16,854,297)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 10) 0 (136,827) 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 (136,827) 43,136 6,511,153
Special items (not including sales of
real estate and refinancing):
Subscriptions received from
stockholders 0 38,454,158 100,792,991 222,482,560
Sale of common stock to CNL Fund
Advisors, Inc. 200,000 0 0 0
Retirement of shares of common stock
(Note 13) 0 0 0 0
Contributions from minority interest 0 200,000 97,419 0
Distributions to holder of minority
interest 0 0 (39,121) (34,020)
Stock issuance costs (19) (3,680,704) (8,486,188) (19,542,862)
Acquisition of land and buildings 0 (18,835,969) (36,104,148) (143,542,667)
Investment in direct financing
leases 0 (1,364,960) (13,372,621) (39,155,974)
Proceeds from sale of equipment direct
financing leases 0 0 0 962,274
Investment in joint venture 0 0 0 0
Purchase of other investments 0 0 0 0
Investment in mortgage notes
receivable 0 0 (13,547,264) (4,401,982)
Collections on mortgage notes
receivable 0 0 133,850 250,732
Investment in equipment notes receivable 0 0 0 (12,521,401)
Collections on equipment notes receivable 0 0 0 0
Investment in certificate of deposit 0 0 0 (2,000,000)
Proceeds of borrowing on line of
credit 0 0 3,666,896 19,721,804
Payment on line of credit 0 0 (145,080) (20,784,577)
Reimbursement of organization,
acquisition, and deferred offering
and stock issuance costs paid on
behalf of CNL American Properties
Fund, Inc. by related parties (199,036) (2,500,056) (939,798) (2,857,352)
Increase in intangibles and other assets 0 (628,142) (1,103,896) 0
Other 0 0 (54,533) 49,001
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 945 11,507,500 30,941,643 5,136,689
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Note 11)
- from operations (Note 8) 0 20 61 67
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-19
<PAGE>
1998
(Note 3)
--------------
Gross revenue $ 33,202,491
Equity in earnings of joint venture 16,018
Provision for loss on land and buildings
(Note 12) (611,534)
Interest income 8,984,546
Less: Operating expenses (5,354,859)
Interest expense 0
Depreciation and amortization (4,054,098)
Minority interest in income of
consolidated joint venture (30,156)
--------------
Net income - GAAP basis 32,152,408
==============
Taxable income
- from operations (Note 8) 33,553,390
==============
- from gain (loss) on sale (149,948)
==============
Cash generated from operations
(Notes 4 and 5) 39,116,275
Cash generated from sales (Note 7) 2,385,941
Cash generated from refinancing 0
-------------
Cash generated from operations, sales
and refinancing 41,502,216
Less: Cash distributions to investors
(Note 9)
- from operating cash flow (39,116,275)
- from sale of properties 0
- from cash flow from prior period (265,053)
- from return of capital (Note 10) (67,821)
------------
Cash generated (deficiency) after cash
distributions 2,053,067
Special items (not including sales of
real estate and refinancing):
Subscriptions received from
stockholders 385,523,966
Sale of common stock to CNL Fund
Advisors, Inc. 0
Retirement of shares of common stock
(Note 13) (639,528)
Contributions from minority interest 0
Distributions to holder of minority
interest (34,073)
Stock issuance costs (34,579,650)
Acquisition of land and buildings (200,101,667)
Investment in direct financing
leases (47,115,435)
Proceeds from sale of equipment direct
financing leases 0
Investment in joint venture (974,696)
Purchase of other investments (16,083,055)
Investment in mortgage notes
receivable (2,886,648)
Collections on mortgage notes
receivable 291,990
Investment in equipment notes receivable (7,837,750)
Collections on equipment notes receivable 1,263,633
Investment in certificate of deposit 0
Proceeds of borrowing on line of
credit 7,692,040
Payment on line of credit (8,039)
Reimbursement of organization,
acquisition, and deferred offering
and stock issuance costs paid on
behalf of CNL American Properties
Fund, Inc. by related parties (4,574,925)
Increase in intangibles and other assets (6,281,069)
Other (95,101)
--------------
Cash generated (deficiency) after cash
distributions and special items 75,613,060
==============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Note 11)
- from operations (Note 8) 63
==============
- from recapture 0
==============
Capital gain (loss) 0
==============
C-20
<PAGE>
TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
<TABLE>
<CAPTION>
1994 1997
(Note 1) 1995 1996 (Note 2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 19 59 66
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 10) 0 14 8 6
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 11) 0 33 67 72
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 26 67 72
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 10) 0 7 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 11) 0 33 67 72
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 6 and 9) 0.00% 5.34% 7.06% 7.45%
Total cumulative cash distributions per
$1,000 investment from inception 0 33 100 172
Amount (in percentage terms) remaining invested in
program properties at the end of each year
(period) presented (original total acquisition
cost of properties retained, divided by original
total acquisition cost of all properties in
program) (Note 7) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective March 29, 1995, CNL American
Properties Fund, Inc. ("APF") registered for sale $165,000,000 of
shares of common stock (the "Initial Offering"), including $15,000,000
available only to stockholders participating in the company's
reinvestment plan. The Initial Offering of APF commenced April 19,
1995, and upon completion of the Initial Offering on February 6, 1997,
had received subscription proceeds of $150,591,765 (15,059,177 shares),
including $591,765 (59,177 shares) issued pursuant to the reinvestment
plan. Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective January 31, 1997, APF
registered for sale $275,000,000 of shares of common stock (the "1997
Offering"), including $25,000,000 available only to stockholders
participating in the company's reinvestment plan. The 1997 Offering of
APF commenced following the completion of the Initial Offering on
February 6, 1997, and upon completion of the 1997 Offering on March 2,
1998, had received subscription proceeds of $251,872,648 (25,187,265
shares), including $1,872,648 (187,265 shares) issued pursuant to the
reinvestment plan. Pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933, as amended, effective May 12, 1998,
APF registered for sale $345,000,000 of shares of common stock (the
"1998 Offering"). The 1998 Offering of APF commenced following the
completion of the 1997 Offering on March 2, 1998. As of December 31,
1998, APF had received subscriptions totalling approximately
$345,000,000 from the 1998 Offering, including $3,107,848 issued
pursuant to the company's reinvestment plan. The 1998 Offering became
fully subscribed in December 1998 and proceeds from the last
subscriptions were received in January 1999. Activities through June 1,
1995, were devoted to organization of APF and operations had not begun.
Note 2: The amounts shown represent the combined results of the Initial
Offering and the 1997 Offering.
Note 3: The amounts shown represent the combined results of the Initial
Offering, 1997 Offering and 1998 Offering.
Note 4: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 5: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of APF.
Note 6: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions declared for
the period.
Note 7: In May 1997 and July 1997, APF sold four properties and one property,
respectively, to a tenant for $5,254,083 and $1,035,153, respectively,
which was equal to the carrying value of the properties at the time of
sale. In May and July 1998, APF sold two and one properties,
respectively, to third parties for $1,605,154 and $1,152,262,
respectively, (and received net sales proceeds of approximately
$1,233,700 and $629,435, respectively, after deduction of construction
costs incurred but not paid by APF as of the date of the sale) which
approximated the carrying value of the properties at the time of sale.
As a result, no gain or loss was recognized for financial reporting
purposes. The company reinvested the proceeds from the sale of
properties in additional properties.
Note 8: Taxable income presented is before the dividends paid deduction.
Note 9: For the years ended December 31, 1998, 1997, 1996 and 1995, 84.87%,
93.33%, 90.25% and 59.82%, respectively, of the distributions received
by stockholders were considered to be ordinary income and 15.13%,
6.67%, 9.75% and 40.18%, respectively, were considered a return of
capital for federal income tax purposes. No amounts distributed to
stockholders for the years ended December 31, 1998, 1997, 1996 and 1995
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.
C-21
<PAGE>
1998
(Note 3)
--------------
Cash distributions to investors
Source (on GAAP basis)
- from investment income 60
- from capital gain 0
- from investment income from
prior period 0
- from return of capital (Note 10) 14
--------------
Total distributions on GAAP basis (Note 11) 74
==============
Source (on cash basis)
- from sales 0
- from refinancing 0
- from operations 73
- from cash flow from prior period 1
- from return of capital (Note 10) 0
--------------
Total distributions on cash basis (Note 11) 74
==============
Total cash distributions as a percentage
of original $1,000 investment (Note 6 and 9) 7.62%
Total cumulative cash distributions per
$1,000 investment from inception 246
Amount (in percentage terms) remaining invested in
program properties at the end of each year
(period) presented (original total acquisition
cost of properties retained, divided by original
total acquisition cost of all properties in
program) (Note 7) 100%
Note 10: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to
be presented as a return of capital except for purposes of this
table, and APF has not treated this amount as a return of capital
for any other purpose.
Note 11: Tax and distribution data and total distributions on GAAP basis
were computed based on the weighted average shares outstanding
during each period presented.
Note 12: During the year ended December 31, 1998, APF recorded provisions
for losses on land and buildings in the amount of $611,534 for
financial reporting purposes relating to two Shoney's properties
and two Boston Market Properties. The tenants of these properties
experienced financial difficulties and ceased payment of rents
under the terms of their lease agreements. The allowances represent
the difference between the carrying value of the Properties at
December 31, 1998 and the estimated net realizable value for these
Properties.
Note 13: In October 1998, the Board of Directors of APF elected to implement
APF's redemption plan. Under the redemption plan, APF elected to
redeem shares, subject to certain conditions and limitations.
During the year ended December 31, 1998, 69,514 shares were
redeemed at $9.20 per share ($639,528) and retired from shares
outstanding of common stock.
C-22
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVII, LTD.
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,195,263 $ 2,643,871 $ 2,816,845
Equity in earnings of unconsolidated
joint ventures 0 4,834 100,918 140,595
Interest income 12,153 244,406 69,779 51,240
Less: Operating expenses (3,493) (169,536) (181,865) (182,681)
Interest expense 0 0 0 0
Depreciation and amortization (309) (179,208) (387,292) (369,209)
Minority interest in income of
consolidated joint venture 0 (41,854) (62,632)
------------ ------------ ------------ ------------
Net income - GAAP basis 8,351 1,095,759 2,203,557 2,394,158
============ ============ ============ ============
Taxable income
- from operations 12,153 1,114,964 2,058,601 2,114,039
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 9,012 1,232,948 2,495,114 2,520,919
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 9,012 1,232,948 2,495,114 2,520,919
Less: Cash distributions to investors
(Note 4)
- from operating cash flow (1,199) (703,681) (2,177,584) (2,400,000)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 7,813 529,267 317,530 120,919
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 5,696,921 24,303,079 0 0
General partners' capital contri-
butions 1,000 0 0 0
Contributions from minority interest 0 140,676 278,170 0
Distribution to holder of minority
interest 0 0 (41,507) (49,023)
Syndication costs (604,348) (2,407,317) 0 0
Acquisition of land and buildings (332,928) (19,735,346) (1,740,491) 0
Investment in direct financing
leases 0 (1,784,925) (1,130,497) 0
Investment in joint ventures 0 (201,501) (1,135,681) (124,452)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVII, Ltd. by related parties (347,907) (326,483) (25,444) 0
Increase in other assets (221,282) 0 0 0
Reimbursement from developer of
construction costs 0 0 0 306,100
Other (410) 410 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 517,860 (3,477,920) 253,544
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 37 69 70
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-23
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 23 73 79
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 1
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 4) 0 23 73 80
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 4 23 73 80
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 4) 4 23 73 80
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 5) 5.00% 5.50% 7.625% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 4 27 100 180
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 6) N/A 98% 100% 98%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII, Ltd. each registered
for sale $30,000,000 units of limited partnership interests ("Units").
The offering of Units of CNL Income Fund XVII, Ltd. commenced September
2, 1995. Pursuant to the registration statement, CNL XVIII could not
commence until the offering of Units of CNL Income Fund XVII, Ltd. was
terminated. CNL Income Fund XVII, Ltd. terminated its offering of Units
on September 19, 1996, at which time subscriptions for the maximum
offering proceeds of $30,000,000 had been received. Upon the
termination of the offering of Units of CNL Income Fund XVII, Ltd., CNL
XVIII commenced its offering of Units. Activities through November 3,
1995, were devoted to organization of the partnership and operations
had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL XVII.
Note 4: Distributions declared for the quarters ended December 31, 1995,
1996 and 1997 are reflected in the 1996, 1997 and 1998 columns,
respectively, due to the payment of such distributions in January 1996,
1997 and 1998, respectively. As a result of distributions being
presented on a cash basis, distributions declared and unpaid as of
December 31, 1996, 1997 and 1998 are not included in the 1996, 1997 and
1998 totals, respectively.
Note 5: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 4 above)
Note 6: During 1998, CNL Income Fund XVII, Ltd. received approximately $306,100
in reimbursements from the developer upon final reconciliation of total
construction costs relating to the properties in Aiken, South Carolina
and Weatherford, Texas, in accordance with the related development
agreements. The partnership intends to reinvest the funds in additional
properties.
C-24
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVIII, LTD.
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,373 $ 1,291,416 $ 2,956,349
Equity in earnings of joint venture 0 0 0 0
Provision for loss on land (Note 5) 0 0 0 (197,466)
Interest income 0 30,241 161,826 141,408
Less: Operating expenses 0 (3,992) (156,403) (223,496)
Interest expense 0 0 0 0
Depreciation and amortization 0 (712) (142,079) (374,473)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 26,910 1,154,760 2,302,322
============ ============ ============ ============
Taxable income
- from operations 0 30,223 1,318,750 2,324,746
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 27,146 1,361,756 2,831,738
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 27,146 1,361,756 2,831,738
Less: Cash distributions to investors
(Note 4)
- from operating cash flow 0 (2,138) (855,957) (2,468,400)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 25,008 505,799 363,338
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 8,498,815 25,723,944 854,241
General partners' capital contri-
butions 1,000 0 0 0
Contributions from minority interest 0 0 0 0
Syndication costs 0 (845,657) (2,450,214) (161,142)
Acquisition of land and buildings 0 (1,533,446) (18,581,999) (3,134,046)
Investment in direct financing leases 0 0 (5,962,087) (12,945)
Investment in joint venture 0 0 0 (166,025)
Increase in restricted cash 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVIII, Ltd. by related parties 0 (497,420) (396,548) (37,135)
Increase in other assets 0 (276,848) 0 0
Other (20) (107) (66,893) (10,000)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 980 5,370,345 (1,227,998) (2,303,714)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 6 57 66
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-25
<PAGE>
TABLE III - CNL INCOME FUND XVIII, LTD. (continued)
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 0 38 65
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 6
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 4) 0 0 38 71
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 0 38 71
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 4) 0 0 38 71
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment from
inception 0.00% 5.00% 5.75% 7.63%
Total cumulative cash distributions per
$1,000 investment (Note 6) 0 0 38 109
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 83% 95% 96%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective August 11, 1995, CNL
Income Fund XVIII, Ltd ("CNL XVIII") and CNL Income Fund XVII, Ltd.
each registered for sale $30,000,000 units of limited partnership
interest ("Units"). The offering of Units of CNL Income Fund XVII, Ltd.
commenced September 2, 1995. Pursuant to the registration statement,
CNL XVIII could not commence until the offering of Units of CNL Income
Fund XVII, Ltd. was terminated. CNL Income Fund XVII, Ltd. terminated
its offering of Units on September 19, 1996, at which time the maximum
offering proceeds of $30,000,000 had been received. Upon the
termination of the offering of Units of CNL Income Fund XVII, Ltd., CNL
XVIII commenced its offering of Units. Activities through October 11,
1996, were devoted to organization of the partnership and operations
had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL XVIII.
Note 4: Distributions declared for the quarters ended December 1996 and 1997
are reflected in the 1997 and 1998 columns, respectively, due to the
payment of such distributions in January 1997 and 1998, respectively.
As a result of distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1997 and 1998 are
not included in the 1997 and 1998 totals, respectively.
Note 5: During the year ended December 31, 1998, the partnership established
an allowance for loss on land of $197,466 for financial reporting
purposes relating to the property in Minnetonka, Minnesota. The tenant
of this Boston Market property declared bankruptcy and rejected the
lease relating to this property. The loss represents the difference
between the Property's carrying value at December 31, 1998 and the
current estimate of net realizable value.
Note 6: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 4 above)
Note 7: Certain data for columns representing less than 12 months have been
annualized.
C-26
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
================================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA (14) 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021
Wendy's -
Fairfield, CA (14) 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490
Wendy's -
Casa Grande, AZ 12/10/86 08/19/97 795,700 0 0 0 795,700
Wendy's -
North Miami, FL (9) 02/18/86 08/21/97 473,713 0 0 0 473,713
Popeye's -
Kissimmee, FL (14) 12/31/86 04/30/98 661,300 0 0 0 661,300
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628
Golden Corral -
Medina, OH (11) 11/18/87 11/30/94 825,000 0 0 0 825,000
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 620,800 0 0 0 620,800
KFC -
Eagan, MN 06/01/87 06/02/97 623,882 0 42,000 0 665,882
KFC -
Jacksonville, FL 09/01/87 09/09/97 639,363 0 0 0 639,363
Wendy's -
Farmington Hills, MI (12) 05/18/87 10/09/97 833,031 0 0 0 833,031
Wendy's -
Farmington Hills, MI (13) 05/18/87 10/09/97 1,085,259 0 0 0 1,085,259
Denny's -
Plant City, FL 11/23/87 10/24/97 910,061 0 0 0 910,061
Pizza Hut -
Mathis, TX 12/17/87 12/04/97 297,938 0 0 0 297,938
KFC -
Avon Park, FL 09/02/87 12/10/97 501,975 0 0 0 501,975
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL (14) 06/02/88 01/10/97 496,418 0 0 0 496,418
Perkins -
Bradenton, FL 06/30/88 03/14/97 1,310,001 0 0 0 1,310,001
Pizza Hut -
Kissimmee, FL 02/23/88 04/08/97 673,159 0 0 0 673,159
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==========================================================================================
<S> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA (14) 0 $955,000 $955,000 $214,021
Wendy's -
Fairfield, CA (14) 0 861,500 861,500 156,990
Wendy's -
Casa Grande, AZ 0 667,255 667,255 128,445
Wendy's -
North Miami, FL (9) 0 385,000 385,000 88,713
Popeye's -
Kissimmee, FL (14) 0 475,360 475,360 185,940
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 0 642,800 642,800 104,000
Pizza Hut -
Graham, TX 0 205,500 205,500 56,128
Golden Corral -
Medina, OH (11) 0 743,000 743,000 82,000
Denny's -
Show Low, AZ (8) 0 484,185 484,185 136,615
KFC -
Eagan, MN 0 601,100 601,100 64,782
KFC -
Jacksonville, FL 0 405,000 405,000 234,363
Wendy's -
Farmington Hills, MI (12) 0 679,000 679,000 154,031
Wendy's -
Farmington Hills, MI (13) 0 887,000 887,000 198,259
Denny's -
Plant City, FL 0 820,717 820,717 89,344
Pizza Hut -
Mathis, TX 0 202,100 202,100 95,838
KFC -
Avon Park, FL 0 345,000 345,000 156,975
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL (14) 0 591,362 591,362 (94,944)
Perkins -
Bradenton, FL 0 1,080,500 1,080,500 229,501
Pizza Hut -
Kissimmee, FL 0 474,755 474,755 198,404
</TABLE>
C-27
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
================================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Burger King -
Roswell, GA 06/08/88 06/20/97 257,981 0 685,000 0 942,981
Wendy's -
Mason City, IA 02/29/88 10/24/97 217,040 0 0 0 217,040
Taco Bell -
Fernandina Beach, FL (14) 04/09/88 01/15/98 721,655 0 0 0 721,655
Denny's -
Daytona Beach, FL (14) 07/12/88 01/23/98 1,008,976 0 0 0 1,008,976
Wendy's -
Punta Gorda, FL 02/03/88 02/20/98 665,973 0 0 0 665,973
Po Folks -
Hagerstown, MD 06/21/88 06/10/98 788,884 0 0 0 788,884
Denny's -
Hazard, KY 02/01/88 12/23/98 432,625 0 0 0 432,625
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650
Wendy's -
Tampa, FL 12/30/88 09/20/96 1,049,550 0 0 0 1,049,550
Checkers -
Douglasville, GA 12/08/94 11/07/97 380,695 0 0 0 380,695
Taco Bell -
Fort Myers, FL (14) 12/22/88 03/02/98 794,690 0 0 0 794,690
Denny's -
Union Township, OH (14) 11/01/88 03/31/98 674,135 0 0 0 674,135
Perkins -
Leesburg, FL 01/11/89 07/09/98 529,288 0 0 0 529,288
Taco Bell -
Naples, FL 12/22/88 09/03/98 533,127 0 0 0 533,127
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 0 0 1,040,000 0 1,040,000
Ponderosa -
St. Cloud, FL (6) (14) 06/01/89 10/24/96 73,713 0 1,057,299 0 1,131,012
Franklin National Bank -
Franklin, TN 06/26/89 01/07/97 960,741 0 0 0 960,741
Shoney's -
Smyrna, TN 03/22/89 05/13/97 636,788 0 0 0 636,788
KFC -
Salem, NH 05/31/89 09/22/97 1,272,137 0 0 0 1,272,137
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==========================================================================================
<S> <C> <C> <C> <C>
Burger King -
Roswell, GA 0 775,226 775,226 167,755
Wendy's -
Mason City, IA 0 190,252 190,252 26,788
Taco Bell -
Fernandina Beach, FL (14) 0 559,570 559,570 162,085
Denny's -
Daytona Beach, FL (14) 0 918,777 918,777 90,799
Wendy's -
Punta Gorda, FL 0 684,342 684,342 (18,369)
Po Folks -
Hagerstown, MD 0 1,188,315 1,188,315 (399,431)
Denny's -
Hazard, KY 0 647,622 647,622 (214,997)
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 0 616,501 616,501 95,499
Burger King -
Hastings, MI 0 419,936 419,936 98,714
Wendy's -
Tampa, FL 0 828,350 828,350 221,200
Checkers -
Douglasville, GA 0 363,768 363,768 16,927
Taco Bell -
Fort Myers, FL (14) 0 597,998 597,998 196,692
Denny's -
Union Township, OH (14) 0 872,850 872,850 (198,715)
Perkins -
Leesburg, FL 0 737,260 737,260 (207,972)
Taco Bell -
Naples, FL 0 410,546 410,546 122,581
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
Ponderosa -
St. Cloud, FL (6) (14) 0 996,769 996,769 134,243
Franklin National Bank -
Franklin, TN 0 1,138,164 1,138,164 (177,423)
Shoney's -
Smyrna, TN 0 554,200 554,200 82,588
KFC -
Salem, NH 0 1,079,310 1,079,310 192,827
</TABLE>
C-28
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
================================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Perkins -
Port St. Lucie, FL 11/14/89 09/23/97 1,216,750 0 0 0 1,216,750
Hardee's -
Richmond, VA 02/17/89 11/07/97 397,785 0 0 0 397,785
Wendy's -
Tampa, FL 02/16/89 12/29/97 805,175 0 0 0 805,175
Denny's -
Port Orange, FL (14) 07/10/89 01/23/98 1,283,096 0 0 0 1,283,096
Shoney's -
Tyler, TX 03/20/89 02/17/98 844,229 0 0 0 894,229
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0 791,211
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0 638,270
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0 899,503
Jack in the Box -
Dallas, TX 06/28/94 12/09/96 982,980 0 0 0 982,980
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 349,200 0 0 0 349,200
KFC -
Whitehall Township, MI 02/26/90 07/09/97 629,888 0 0 0 629,888
Perkins -
Naples, FL 12/26/89 07/09/97 1,487,725 0 0 0 1,487,725
Burger King -
Plattsmouth, NE 01/19/90 07/18/97 699,400 0 0 0 699,400
Shoney's -
Venice, FL 08/03/89 09/17/97 1,206,696 0 0 0 1,206,696
Jack in the Box -
Yuma, AZ (10) 07/14/94 10/31/97 510,653 0 0 0 510,653
Denny's -
Deland, FL 03/22/90 01/23/98 1,236,971 0 0 0 1,236,971
Wendy's -
Liverpool, NY 12/08/89 02/09/98 145,221 0 0 0 145,221
Perkin's -
Melbourne, FL 02/03/90 02/12/98 552,910 0 0 0 552,910
Hardee's
Bellevue, NE 05/03/90 06/05/98 900,000 0 0 0 900,000
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==========================================================================================
<S> <C> <C> <C> <C>
Perkins -
Port St. Lucie, FL 0 1,203,207 1,203,207 13,543
Hardee's -
Richmond, VA 0 695,464 695,464 (297,679)
Wendy's -
Tampa, FL 0 657,800 657,800 147,375
Denny's -
Port Orange, FL (14) 0 1,021,000 1,021,000 262,096
Shoney's -
Tyler, TX 0 770,300 770,300 73,929
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 0 821,692 821,692 77,811
Jack in the Box -
Dallas, TX 0 964,437 964,437 18,543
Denny's -
Show Low, AZ (8) 0 272,354 272,354 76,846
KFC -
Whitehall Township, MI 0 725,604 725,604 (95,716)
Perkins -
Naples, FL 0 1,083,869 1,083,869 403,856
Burger King -
Plattsmouth, NE 0 561,000 561,000 138,400
Shoney's -
Venice, FL 0 1,032,435 1,032,435 174,261
Jack in the Box -
Yuma, AZ (10) 0 448,082 448,082 62,571
Denny's -
Deland, FL 0 1,000,000 1,000,000 236,971
Wendy's -
Liverpool, NY 0 341,440 341,440 (196,219)
Perkin's -
Melbourne, FL 0 692,850 692,850 (139,940)
Hardee's
Bellevue, NE 0 899,512 899,512 488
</TABLE>
C-29
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
================================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0 700,000
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0 869,036
Perkins -
Florence, SC (3) 08/28/90 08/25/95 0 0 1,160,000 0 1,160,000
Church's Fried Chicken -
Jacksonville, FL (4) (14) 04/30/90 12/01/95 0 0 240,000 0 240,000
Shoney's -
Colorado Springs, CO 07/03/90 07/24/96 1,044,909 0 0 0 1,044,909
Hardee's -
Hartland, MI 07/10/90 10/23/96 617,035 0 0 0 617,035
Hardee's -
Columbus, IN 09/04/90 05/30/97 223,590 0 0 0 223,590
KFC -
Dunnellon, FL 08/02/90 10/07/97 757,800 0 0 0 757,800
Jack in the Box -
Yuma, AZ (10) 07/14/94 10/31/97 471,372 0 0 0 471,372
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0 1,184,865
Church's Fried Chicken -
Jacksonville, FL (4) (14) 09/28/90 12/01/95 0 0 240,000 0 240,000
Church's Fried Chicken -
Jacksonville, FL (5) (14) 09/28/90 12/01/95 0 0 220,000 0 220,000
Ponderosa -
Orlando, FL (6) (14) 12/17/90 10/24/96 0 0 1,353,775 0 1,353,775
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH (15) 05/31/91 12/12/96 918,445 0 0 0 918,445
Burger King -
Alpharetta, GA 09/20/91 06/30/97 1,053,571 0 0 0 1,053,571
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0 1,050,186
Jack in the Box -
Freemont, CA 03/26/92 09/23/97 1,366,550 0 0 0 1,366,550
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==========================================================================================
<S> <C> <C> <C> <C>
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 0 742,333 742,333 126,703
Perkins -
Florence, SC (3) 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (4) (14) 0 233,728 233,728 6,272
Shoney's -
Colorado Springs, CO 0 893,739 893,739 151,170
Hardee's -
Hartland, MI 0 841,642 841,642 (224,607)
Hardee's -
Columbus, IN 0 219,676 219,676 3,914
KFC -
Dunnellon, FL 0 546,333 546,333 211,467
Jack in the Box -
Yuma, AZ (10) 0 413,614 413,614 57,758
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (4) (14) 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (5) (14) 0 215,845 215,845 4,155
Ponderosa -
Orlando, FL (6) (14) 0 1,179,210 1,179,210 174,565
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH (15) 0 918,445 918,445 0
Burger King -
Alpharetta, GA 0 713,866 713,866 339,705
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
Jack in the Box -
Freemont, CA 0 1,102,766 1,102,766 263,784
</TABLE>
C-30
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Jack in the Box -
Sacramento, CA 12/19/91 01/20/98 1,234,175 0 0 0 1,234,175
Pizza Hut -
Billings, MT 04/16/92 10/07/98 359,990 0 0 0 359,990
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 09/29/92 11/07/96 1,044,750 0 0 0 1,044,750
Burger King -
Columbus, OH (19) 06/29/92 09/30/98 795,264 0 0 0 795,264
Burger King -
Nashua, NH 06/29/92 10/07/98 1,630,296 0 0 0 1,630,296
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 12/28/92 04/10/96 1,640,000 0 0 0 1,640,000
Long John Silver's -
Monroe, NC 06/30/93 12/31/98 483,550 0 0 0 483,550
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0 286,411
Checkers -
Richmond, VA 03/31/94 11/21/96 550,000 0 0 0 550,000
Denny's -
Orlando, FL 09/01/93 10/24/97 932,849 0 0 0 932,849
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0 339,031
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0 356,981
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
Hardee's -
Madison, AL 12/14/93 01/08/98 700,950 0 0 0 700,950
Checkers -
Richmond, VA (#548) 03/31/94 01/29/98 512,462 0 0 0 512,462
Checkers -
Riviera Beach, FL 03/31/94 04/14/98 360,000 0 0 0 360,000
Checkers -
Richmond, VA (#486) 03/31/94 07/27/98 397,985 0 0 0 397,985
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
===========================================================================================
<S> <C> <C> <C> <C>
Jack in the Box -
Sacramento, CA 0 969,423 969,423 264,752
Pizza Hut -
Billings, MT 0 302,000 302,000 57,990
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 0 818,850 818,850 225,900
Burger King -
Columbus, OH (19) 0 795,264 795,264 0
Burger King -
Nashua, NH 0 1,217,015 1,217,015 413,281
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 0 1,636,643 1,636,643 3,357
Long John Silver's -
Monroe, NC 0 239,788 239,788 243,762
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 0 286,411 286,411 0
Checkers -
Richmond, VA 0 413,288 413,288 136,712
Denny's -
Orlando, FL 0 934,120 934,120 (1,271)
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 0 339,031 339,031 0
Checkers -
Dallas, TX 0 356,981 356,981 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
Hardee's -
Madison, AL 0 658,977 658,977 41,973
Checkers -
Richmond, VA (#548) 0 382,435 382,435 130,027
Checkers -
Riviera Beach, FL 0 276,409 276,409 83,591
Checkers -
Richmond, VA (#486) 0 352,034 352,034 45,951
</TABLE>
C-31
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0 263,221
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0 259,600
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0 288,885
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 06/24/95 04/24/96 775,000 0 0 0 775,000
Checker's -
Oviedo, FL 11/14/94 02/28/97 610,384 0 0 0 610,384
Boston Market -
Madison, TN (16) 05/05/95 05/08/98 774,851 0 0 0 774,851
Boston Market -
Chattanooga, TN (17) 05/05/95 06/16/98 713,386 0 0 0 713,386
CNL Income Fund XVII, Ltd.:
Boston Market -
Troy, OH (18) 07/24/96 06/16/98 857,487 0 0 0 857,487
CNL American Properties Fund, Inc.:
TGI Friday's -
Orange, CT 10/30/95 05/08/97 1,312,799 0 0 0 1,312,799
TGI Friday's -
Hazlet, NJ 07/15/96 05/08/97 1,324,109 0 0 0 1,324,109
TGI Friday's -
Marlboro, NJ 08/01/96 05/08/97 1,372,075 0 0 0 1,372,075
TGI Friday's -
Hamden, CT 08/26/96 05/08/97 1,245,100 0 0 0 1,245,100
Boston Market -
Southlake, TX 07/02/97 07/21/97 1,035,153 0 0 0 1,035,135
Boston Market -
Franklin, TN (20) 08/18/95 04/14/98 950,361 0 0 0 950,361
Boston Market -
Grand Island, NE (21) 09/19/95 04/14/98 837,656 0 0 0 837,656
Burger King -
Indian Head Park, IL 04/03/96 05/05/98 674,320 0 0 0 674,320
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==========================================================================================
<S> <C> <C> <C> <C>
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 0 263,221 263,221 0
Checkers -
Leavenworth, KS 0 259,600 259,600 0
Checkers -
Knoxville, TN 0 288,885 288,885 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 0 613,838 613,838 161,162
Checker's -
Oviedo, FL 0 506,311 506,311 104,073
Boston Market -
Madison, TN (16) 0 774,851 774,851 0
Boston Market -
Chattanooga, TN (17) 0 713,386 713,386 0
CNL Income Fund XVII, Ltd.:
Boston Market -
Troy, OH (18) 0 857,487 857,487 0
CNL American Properties Fund, Inc
TGI Friday's -
Orange, CT 0 1,310,980 1,310,980 1,819
TGI Friday's -
Hazlet, NJ 0 1,294,237 1,294,237 29,872
TGI Friday's -
Marlboro, NJ 0 1,324,288 1,324,288 47,787
TGI Friday's -
Hamden, CT 0 1,203,136 1,203,136 41,964
Boston Market -
Southlake, TX 0 1,035,135 1,035,135 0
Boston Market -
Franklin, TN (20) 0 950,361 950,361 0
Boston Market -
Grand Island, NE (21) 0 837,656 837,656 0
Burger King -
Indian Head Park, IL 0 670,867 670,867 3,453
</TABLE>
C-32
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Boston Market -
Dubuque, IA (22) 10/04/95 05/08/98 969,159 0 0 0 969,159
Boston Market -
Merced, CA (23) 10/06/96 05/08/98 930,834 0 0 0 930,834
Boston Market -
Arvada, CO (24) 07/21/97 07/28/98 1,152,262 0 0 0 1,152,262
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------------- Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==========================================================================================
<S> <C> <C> <C> <C>
Boston Market -
Dubuque, IA (22) 0 969,159 969,159 0
Boston Market -
Merced, CA (23) 0 930,834 930,834 0
Boston Market -
Arvada, CO (24) 0 1,152,262 1,152,262 0
</TABLE>
(1) Amounts shown do not include pro rata share of original offering costs or
acquisition fees.
(2) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,006,004 in July 2000.
(3) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,106,657 in July 2000.
(4) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.00% per annum and
provides for a balloon payment of $218,252 in December 2005.
(5) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.00% per annum and provides
for a balloon payment of $200,324 in December 2005.
(6) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.75% per annum and
provides for 12 monthly payments of interest only and thereafter, 168 equal
monthly payments of principal and interest.
(7) CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
properties. The amounts presented for CNL Income Fund XIV, Ltd. and CNL
Income Fund XV, Ltd. represent each partnership's 50 percent interest in
the properties owned by Wood-Ridge Real Estate Joint Venture.
(8) CNL Income Fund II, Ltd. owns a 64 percent interest and CNL Income Fund VI,
Ltd. owns a 36 percent interest in this joint venture. The amounts
presented for CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.
represent each partnership's percent interest in the property owned by Show
Low Joint Venture.
(9) CNL Income Fund, Ltd. owns a 50 percent interest in this joint venture. The
amounts presented represent the partnerships percent interest in the
property owned by Seventh Avenue Joint Venture. A third party owns the
remaining 50 percent interest in this joint venture.
(10) CNL Income Fund VI, Ltd. and CNL Income Fund VII, Ltd. own a 52 percent and
48 percent interest, respectively, in the property in Yuma, Arizona. The
amounts presented for CNL Income Fund VI, Ltd. and CNL Income Fund VII,
Ltd. represent each partnership's respective interest in the property.
(11) Cash received net of closing costs includes $198,000 received as a lease
termination fee.
(12) Cash received net of closing costs includes $93,885 received as a lease
termination fee.
(13) Cash received net of closing costs includes $120,115 received as a lease
termination fee.
(14) Closing costs deducted from net sales proceeds do not include deferred,
subordinated real estate disposition fees payable to CNL Fund Advisors or
its affiliates.
(15) The Burger King property in Woodmere, Ohio was exchanged on December 12,
1996 for a Burger King property in Carrboro, NC at the option of the tenant
as permitted under the terms of the lease agreement. Due to the exchange,
the Burger King property in Carrboro, NC is being leased under the same
lease as the Burger King property in Woodmere, OH.
(16) The Boston Market property in Madison, TN was exchanged on May 8, 1998 for
a Boston Market property in Lawrence, KS at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Lawrence, KS is being leased under the same lease
as the Boston Market property in Madison, TN.
(17) The Boston Market property in Chattanooga, TN was exchanged on June 16,
1998 for a Boston Market property in Indianapolis, IN at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Boston Market property in Indianapolis, IN is being leased
under the same lease as the Boston Market property in Chattanooga, TN.
(18) The Boston Market property in Troy, OH was exchanged on June 16, 1998 for a
Boston Market property in Inglewood, CA at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Inglewood, CA is being leased under the same
lease as the Boston Market property in Troy, OH.
(19) The Burger King property in Columbus, OH was exchanged on September 30,
1998 for a Burger King property in Danbury, CT at the option of the tenant
as permitted under the terms of the lease agreement. Due to the exchange,
the Burger King property in Danbury, CT is being leased under the same
lease as the Burger King property in Columbus, OH.
C-33
<PAGE>
(20) The Boston Market property in Franklin, TN was exchanged on April 14, 1998
for a Boston Market property in Glendale, AZ at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Glendale, AZ is being leased under the same lease
as the Boston Market property in Franklin, TN.
(21) The Boston Market property in Grand Island, NE was exchanged on April 14,
1998 for a Boston Market property in Warwick, RI at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Boston Market property in Warwick, RI is being leased under
the same lease as the Boston Market property in Grand Island, NE.
(22) The Boston Market property in Dubuque, IA was exchanged on May 8, 1998 for
a Boston Market property in Columbus, OH at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Columbus, OH is being leased under the same lease
as the Boston Market property in Dubuque, IA.
(23) Cash received net of closing costs includes $362,949 in construction costs
incurred but not paid by CNL American Properties Fund, Inc. as of the
closing date, which were deducted from the actual net sales proceeds
received by CNL American Properties Fund, Inc.
(24) Cash received net of closing costs includes $522,827 in construction costs
incurred but not paid by CNL American Properties Fund, Inc. as of the
closing date, which were deducted from the actual net sales proceeds
received by CNL American Properties Fund, Inc.
C-34
<PAGE>
EXHIBIT E
STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
----------------------------------------------------
| THE FOLLOWING INFORMATION UPDATES AND REPLACES |
| THE CORRESPONDING INFORMATION IN EXHIBIT E TO |
| THE ATTACHED PROSPECTUS, DATED OCTOBER 6, 1998. |
----------------------------------------------------
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH FEBRUARY 26, 1999
For the Year Ended December 31, 1998 (Unaudited)
The following schedule presents unaudited estimated taxable operating
results before dividends paid deduction of each Property acquired directly by
the Company from inception through February 26, 1999. The statement presents
unaudited estimated taxable operating results for each Property that was
operational as if the Property had been acquired and operational on January 1,
1998 through December 31, 1998. The schedule should be read in light of the
accompanying footnotes.
These estimates do not purport to present actual or expected operations
of the Company for any period in the future. These estimates were prepared on
the basis described in the accompanying notes which should be read in
conjunction herewith.
<TABLE>
<CAPTION>
Residence Inn by Marriott Residence Inn by Marriott
Buckhead (Lenox Park) (6) Gwinnett Place (6) Total
------------------------- ------------------------- -----------
<S> <C>
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (1) $1,651,798 $1,208,983 $2,860,781
Asset Management Fees (2) (94,388) (69,085) (163,473)
Interest Expense (3) (440,000) (316,800) (756,800)
General and Administrative
Expenses (4) (132,144) (96,719) (228,863)
---------- ---------- ----------
Estimated Cash Available from
Operations 985,266 726,379 1,711,645
Depreciation Expense (5) (738,159) (612,656) (1,350,815)
---------- ---------- ----------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 247,107 $ 113,723 $ 360,830
========== ========== ==========
</TABLE>
E-1
<PAGE>
- ----------------------
FOOTNOTES:
(1) Rental income does not include percentage rents which will become due
if specified levels of gross receipts are achieved.
(2) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Hospitality Advisors, Inc. (the "Advisor"),
pursuant to which the Advisor will receive monthly asset management
fees in an amount equal to one-twelfth of .60% of the Company's Real
Estate Asset Value as of the end of the preceding month as defined in
such agreement. See "Management Compensation."
(3) Estimated at 8.8% per annum based on the bank's base rate as of July
31, 1998, plus 30 basis points assuming $5 million was borrowed on the
Company's line of credit to acquire the Buckhead (Lenox Park) Property
and $3.6 million for the Gwinnett Place Property. The Company repaid,
in February 1999, amounts it had borrowed to acquire these Properties.
(4) Estimated at 8% of gross rental income, based on the previous
experience of an Affiliate of the Advisor with another public REIT.
Amount does not include soliciting dealer servicing fee due to the fact
that such fee will not be incurred until December 31 of the year
following the year in which the offering terminates.
(5) The estimated federal tax basis of the depreciable portion of each
Property and the number of years the assets have been depreciated on
the straight-line method is as follows:
Furniture and
Buildings Fixtures
(39 years) (5-15 years)
---------- ------------
Buckhead (Lenox Park) Property $13,459,000 $1,235,000
Gwinnett Place Property 10,017,000 1,114,000
(6) The lessee of the Buckhead (Lenox Park) and the Gwinnett Place
Properties is the same unaffiliated lessee.
E-2
