Rule 424(b)(3)
No. 333-67787
CNL HOSPITALITY PROPERTIES, INC.
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated June 4, 1999 and the Prospectus Supplement dated November 17,
1999. 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 December 10, 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 December 10, 1999, will be reported in a
subsequent Supplement.
RECENT DEVELOPMENTS
The Company recently acquired an 89% interest in Courtyard Annex,
L.L.C., a limited liability company whose sole purpose is to own and lease a
Courtyard(R) by Marriott(R) Property located in the Center City area in downtown
Philadelphia, Pennsylvania. The Property is located three blocks from the 1.3
million-square-foot Pennsylvania Convention Center, walking distance to a
majority of the city's historical and cultural sites, and eight miles from the
Philadelphia International Airport. The newly renovated, historic hotel
Property, which commenced operations in late November 1999, has 498 guest rooms.
In addition, the Company recently acquired a Residence Inn(R) by
Marriott(R) Property located in the Sorrento Valley area of northern San Diego,
California, in the suburb of Sorrento Mesa. According to Hospitality Valuation
Services (HVS) data, the San Diego area has the third-highest concentration of
telecommunication companies in the world, the fourth-highest concentration of
biotechnology companies in the world, and more than 350 computer software
development companies. The newly constructed hotel Property, which commenced
operations in late September 1999, has 150 guest suites. The Company's interest
in the Properties is focused on real estate only, not hotel operations. The
Company targets Properties which are or will be leased on a long-term,
triple-net basis in an attempt to produce consistent income for the REIT. The
Company's portfolio now includes 11 Marriott-branded Properties in seven states.
THE OFFERINGS
Upon completion of its Initial Offering on June 17, 1999, the Company
had received aggregate subscriptions for 15,007,264 Shares totalling
$150,072,637 in Gross Proceeds, from 5,567 stockholders, including 7,264 Shares
($72,637) issued pursuant to the Reinvestment Plan. Following the completion of
the Initial Offering, the Company commenced this offering of up to 27,500,000
Shares. As of December 10, 1999, the Company had received aggregate
subscriptions for 27,404,819 Shares totalling $274,048,194 in Gross Proceeds,
including 30,510 Shares ($305,103) issued pursuant to the Reinvestment Plan from
its Initial Offering and this offering. As of December 10, 1999, net proceeds to
the Company from its offerings 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 $245,400,000. The Company has used Net Offering Proceeds
from the offerings to invest, directly or indirectly, approximately $136,500,000
in 11 hotel Properties, to pay $7,940,800 as deposits on seven additional hotel
Properties, to redeem 5,885 Shares of Common Stock for $54,142 and to pay
approximately $13,500,000 in Acquisition Fees and certain Acquisition Expenses,
leaving approximately $87,300,000 available to invest in Properties and Mortgage
Loans.
December 17, 1999 Prospectus Dated June 4, 1999
<PAGE>
BUSINESS
PROPERTY ACQUISITIONS
Courtyard(R) by Marriott(R) located in Philadelphia, Pennsylvania. On
November 16, 1999, the Company acquired an 89% interest in Courtyard Annex,
L.L.C. (the "LLC"), a limited liability company, a portion of which is
indirectly owned by Marriott International, Inc., for $57,876,349. The sole
purpose of the LLC is to own and lease the Courtyard by Marriott hotel Property
located in Philadelphia, Pennsylvania (the "Philadelphia Downtown Property").
The LLC acquired and renovated the Philadelphia Downtown Property,
which is its sole asset. The LLC, as lessor, has entered into a long-term lease
agreement relating to this Property. The general terms of the lease agreement
are described in "Business -- Description of Property Leases." The principal
features of the lease are as follows:
o The initial term of the lease expires in approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of seven years, five months and 14 days
each.
o The lease will require minimum rent payments of $6,500,000 per year.
o In addition to minimum rent, for each lease year after the second lease
year, the lease will require percentage rent equal to seven percent of
total hotel revenues, in excess of total hotel revenues for the second
lease year.
o A security deposit equal to $3,150,000 will be retained by the Company
as security for the tenant's obligations under the lease until lease
year five, at which time such security deposit will be reduced to
$2,000,000.
o The tenant has established a reserve fund which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the hotel Property (the "FF&E Reserve"). Deposits to the FF&E
Reserve are made every four weeks 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 LLC as additional rent.
o Marriott International, Inc. will guarantee the tenant's obligation to
pay minimum rent under the lease. 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 Property exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $6,500,000.
o Five years after the hotel opening, the Company will have the right to
obligate CBM Annex, Inc. (the minority interest owner in the LLC) to
sell its 11% interest in the LLC and CBM Annex, Inc. will have the
right to obligate the Company to purchase its 11% interest in the LLC
for a price equal to 11% of the lesser of (a) an amount equal to the
product of 8.5 multiplied by the "net house profit" (defined as total
hotel revenues less property expenses) for the 13 period accounting
year preceding the notice of the option exercise, and (b) the appraised
fair market value.
The estimated federal income tax basis of the depreciable portion of
the Philadelphia Downtown Property is approximately $58 million.
<PAGE>
The Philadelphia Downtown Property is a newly renovated hotel which
commenced operations in late November 1999. The Philadelphia Downtown Property
is located in the Center City area in downtown Philadelphia and has 498 guest
rooms. Other lodging facilities located in proximity to the Philadelphia
Downtown Property include a Marriott(R) Hotel, a Doubletree Hotel, a Wyndham
Hotel, an Embassy Suites, a Crowne Plaza, a Hawthorne Suites, a Sheraton Hotel,
an Omni Hotel and a Holiday Inn.
Residence Inn(R) by Marriott(R) located in Mira Mesa, California. On
December 10, 1999, the Company acquired the Residence Inn located in Mira Mesa,
California (the "Mira Mesa Property") for $15,423,000 from Residence Inn by
Marriott, Inc. The Company, as lessor, has entered into a long-term lease
agreement relating to this Property. The general terms of the lease agreement
are described in "Business -- Description of Property Leases." The principal
features of the lease are as follows:
o The initial term of the lease expires in 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of ten years each.
o The lease will require minimum rent payments of $1,542,300 per year.
o In addition to minimum rent, for each lease year after the second lease
year, the lease will require percentage rent equal to seven percent of
room revenues, in excess of room revenues for the second lease year.
o A security deposit equal to $474,554 will be retained by the Company as
security for the tenant's obligations under the lease.
o The tenant has established an FF&E Reserve. Deposits to the FF&E
Reserve are made every four weeks as follows: 2% 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.
o Marriott International, Inc. will guarantee the tenant's obligation to
pay minimum rent under the lease. 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 Property exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $,1542,300.
The estimated federal income tax basis of the depreciable portion of
the Mira Mesa Property is approximately $13.6 million.
The Mira Mesa Property is a newly constructed hotel which commenced
operations in late September 1999. The Mira Mesa Property is located in the
Sorrento Valley area of northern San Diego, California, in the suburb of
Sorrento Mesa and has 150 guest suites. Other lodging facilities located in
proximity to the Mira Mesa Property include a Doubletree Hotel, a Wyndham Garden
Hotel, an Embassy Suites, a Courtyard by Marriott and another Residence Inn.
PENDING INVESTMENTS
As of December 10, 1999, the Company had initial commitments to
acquire, directly or indirectly, seven hotel properties. These properties are
two Courtyards by Marriott (one in each of Orlando, Florida, and Addison,
Texas), one Fairfield Inn(R) by Marriott(R) (in Orlando, Florida), two
SpringHill Suites(R) (one in each of Orlando, Florida, and Gaithersburg,
Maryland), one Residence Inn by Marriott (in Merrifield, Virginia) and one
TownePlace Suites(R) (in Newark, California). The acquisition of each of these
properties is subject to the fulfillment of certain conditions. There can be no
assurance that any or all of the conditions will be satisfied or, if satisfied,
that one or more of these properties will be acquired by the Company. If
acquired, the leases of these properties are expected to be entered into on
substantially the same terms described in the section of the Prospectus entitled
"Business - Description of Property Leases." In order to acquire all of these
properties, the Company must obtain additional funds through the receipt of
additional offering proceeds and/or debt financing.
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>
<S> <C>
Estimated Purchase Lease Term and Minimum Annual
Property Price Renewal Options Rent Percentage Rent
- -------- ----- --------------- ---- ---------------
Courtyard by Marriott (2) 15 years; two ten-year 10% of the Company's total for each lease year after the
Orlando, FL (1) renewal options cost to purchase the second lease year, 7% of revenues
(the "Courtyard Little property in excess of revenues for the
Lake Bryan Property") second lease year
Hotel under construction
Fairfield Inn by Marriott (2) 15 years; two ten-year 10% of the Company's total for each lease year after the
Orlando, FL (1) renewal options cost to purchase the second lease year, 7% of revenues
(the "Fairfield Inn Little property in excess of revenues for the
Lake Bryan Property") second lease year
Hotel under construction
SpringHill Suites by Marriott (2) 15 years; two ten-year 10% of the Company's total for each lease year after the
Orlando, FL (1) renewal options cost to purchase the second lease year, 7% of revenues
(the "SpringHill Suites property in excess of revenues for the
Little Lake Bryan Property") second lease year
Hotel under construction
Courtyard by Marriott $17,085,000 approximately 20 years; 10.309% of the total cost for the first and second lease
Addison, TX (3)(4)(5) three 15-year renewal to purchase the property; years, 7.75% of room revenues in
(the "Courtyard Addison options increases to 10.567% after excess of the second year pro
Property") the first lease year forma revenues; and for the third
Hotel under construction lease year and thereafter, 7.75%
of room revenues in excess of the
second year actual revenues
Residence Inn by Marriott $18,816,000 15 years; two ten-year 10% of the Company's total for each lease year after the
Merrifield, VA (6) renewal options cost to purchase the second lease year, 7% of revenues
(the "Residence Inn Merrifield property in excess of revenues for the
Property") second lease year
Hotel under construction
<PAGE>
Estimated Purchase Lease Term and Minimum Annual
Property Price Renewal Options Rent Percentage Rent
- -------- ----- --------------- ---- ---------------
SpringHill Suites $15,215,000 15 years; two ten-year 10% of the Company's total for each lease year after the
Gaithersburg, MD (6) renewal options cost to purchase the second lease year, 7% of revenues
(the "SpringHill Suites property in excess of revenues for the
Gaithersburg Property") second lease year
Hotel under construction
TownePlace Suites $13,600,000 15 years; two ten-year 10% of the Company's total for each lease year after the
Newark, CA (6)(7) renewal options cost to purchase the second lease year, 7% of revenues
(the "TownePlace Suites property in excess of revenues for the
Newark Property") second lease year
Hotel under construction
</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 Company, together with an institutional investor, will indirectly
acquire this hotel property (in addition to the Seven Hotels) through
Hotel Investors. (See the section of the Prospectus and the Prospectus
Supplement entitled "Property Acquisitions.")
(4) In connection with the acquisition of this property, Hotel Investors is
expected to obtain approximately $8,776,000 in long-term, permanent
financing to be used to fund a portion of the purchase price. Such
financing will be secured by the property, bear interest at a market
rate and be nonrecourse to Hotel Investors. (See the section of the
Prospectus and the Prospectus Supplement entitled "Property
Acquisitions.")
(5) In connection with the acquisition of this hotel property (in addition
to the Seven 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 have
waived or reduced certain fees otherwise payable by the Company. (See
the section of the Prospectus and the Prospectus Supplement entitled
"Property Acquisitions.")
(6) The leases for the Residence Inn Merrifield, the SpringHill Suites
Gaithersburg and the TownePlace Suites Newark Properties are expected
to be with the same unaffiliated lessee.
(7) The Company may be obligated to fund up to an additional $1 million in
construction costs relating to this Property.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Pro Forma Consolidated Financial Information (Unaudited):
Unaudited Pro Forma Consolidated Balance Sheet as of September
30, 1999 9
Unaudited Pro Forma Consolidated Statement of Earnings for the nine
months ended September 30, 1999 10
Unaudited Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1998 11
Notes to Unaudited Pro Forma Consolidated Financial Statements for
the nine months ended September 30, 1999 and the year ended
December 31, 1998 12
<PAGE>
PRO FORMA CONSOLIDATED 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 $223,321,043 in gross offering proceeds from the sale of
22,332,104 shares of common stock for the period from inception through
September 30, 1999, and the application of such funds to purchase two
properties, to invest in an unconsolidated subsidiary which owned seven
properties as of September 30, 1999, to redeem 3,000 shares of common stock
pursuant to the Company's redemption plan, and to pay offering expenses,
acquisition fees and miscellaneous acquisition expenses, (ii) the receipt of
$50,727,152 in gross offering proceeds from the sale of 5,072,715 additional
shares for the period October 1, 1999 through December 10, 1999, (iii) the
application of such funds to acquire an 89 percent interest in a majority owned
limited liability company, to purchase one property, to place a deposit on two
additional properties, to redeem 2,885 shares of common stock pursuant to the
Company's redemption plan, 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 September 30, 1999, 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 September 30,
1999.
The Unaudited Pro Forma Consolidated Statements of Earnings for the
nine months ended September 30, 1999 and the year ended December 31, 1998,
includes the historical operating results of the properties described in (i) and
(iii) above from the date of their acquisitions plus operating results from (A)
the later of (1) the date the property became operational or (2) January 1,
1998, to (B) the earlier of (1) the date the property was acquired by the
Company or its unconsolidated subsidiary or (2) to the end of the pro forma
period presented.
This pro forma consolidated 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 consolidated financial information should not
be viewed as indicative of the Company's financial results or conditions in the
future.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Pro Forma
ASSETS Historical Adjustments Pro Forma
-------------- --------------- --------------
Land, buildings and equipment on operating leases $ 27,676,298 $ 84,857,743 (a) (b) $112,534,041
Investment in unconsolidated subsidiary 38,882,550 -- 38,882,550
Cash and cash equivalents 118,019,624 (31,170,046 ) (b) 86,849,578
Restricted cash 250,177 -- 250,177
Certificate of deposit 5,015,822 -- 5,015,822
Due from related party 24,743 -- 24,743
Receivables 67,980 -- 67,980
Dividends receivable 1,214,772 -- 1,214,772
Loan costs 60,141 -- 60,141
Accrued rental income 80,523 -- 80,523
Other assets 7,092,227 (389,147 ) (b) 6,703,080
---------------- -------------- ---------------
$ 198,384,857 $ 53,298,550 $251,683,407
================ ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 11,303 $ (1,200 ) (b) $ 10,103
Due to related parties 495,704 (492,688 ) (b) 3,016
Security deposits 1,417,500 -- 1,417,500
---------------- -------------- ---------------
Total liabilities 1,924,507 (493,888 ) 1,430,619
---------------- -------------- ---------------
Minority interest -- 7,150,000 (a) 7,150,000
---------------- -------------- ---------------
Commitments and contingencies
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
22,352,104 and outstanding 22,349,104
shares; issued 27,424,819 and outstanding
27,418,934 shares, as adjusted 223,491 50,698 (b) 274,189
Capital in excess of par value 198,470,016 46,591,740 (b) 245,061,756
Accumulated distributions in excess of
net earnings (2,233,157 ) -- (2,233,157 )
---------------- -------------- ---------------
Total stockholders' equity 196,460,350 46,642,438 243,102,788
---------------- -------------- ---------------
$198,384,857 $ 53,298,550 $251,683,407
================ ============== ===============
See accompanying notes to unaudited pro
forma consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1999
Pro Forma
Historical Adjustments Pro Forma
------------- -------------- --------------
Revenues:
Rental income from operating
leases $2,255,968 $ 47,126 (1) $2,303,094
FF&E reserve income 194,301 3,953 (2) 198,254
Dividend income 1,826,818 461,106 (3) 2,287,924
Interest and other income 2,125,043 (219,052 ) (4) 1,905,991
-------------- ---------------- ----------------
6,402,130 293,133 6,695,263
-------------- ---------------- ----------------
Expenses:
Interest 239,922 -- 239,922
General operating and
administrative 415,245 -- 415,245
Professional services 45,478 -- 45,478
Asset management fees to
related party 87,146 24,392 (7) 111,538
Other 5,968 -- 5,968
Depreciation and amortization 736,593 15,826 (8) 752,419
-------------- ---------------- ----------------
1,530,352 40,218 1,570,570
-------------- ---------------- ----------------
Earnings Before Equity in Loss of
Unconsolidated Subsidiary After
Deduction of Preferred Stock
Dividends 4,871,778 252,915 5,124,693
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (557,733 ) (144,635 ) (9) (702,368 )
-------------- ---------------- ----------------
Net Earnings $4,314,045 $108,280 $4,422,325
============== ================ ================
Earnings Per Share of Common Stock:
Basic $ 0.34 $ 0.35
============== ================
Diluted $ 0.33 $ 0.35
============== ================
Weighted Average Number of Shares
Outstanding:
Basic 12,652,059 12,679,594
============== ================
Diluted 17,509,791 12,679,594
============== ================
See accompanying notes to unaudited pro
forma consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
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
Dividend income -- 423,938 (3) 423,938
Interest income 638,862 (609,975 )(4) 28,887
------------- ---------------- ----------------
1,955,461 1,660,695 3,616,156
------------- ---------------- ----------------
Expenses:
Interest and loan cost amortization 350,322 448,718 (5) 799,040
General operating and
administrative 167,951 92,733 (6) 260,684
Professional services 21,581 -- 21,581
Asset management fees to
related party 68,114 106,571 (7) 174,685
Depreciation and amortization 388,554 538,125 (8) 926,679
------------- ---------------- ----------------
996,522 1,186,147 2,182,669
------------- ---------------- ----------------
Earnings Before Equity in Loss
of Unconsolidated Subsidiary
After Deductions of Preferred
Stock Dividends 958,939 474,548 1,433,487
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends -- (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
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Balance Sheet:
(a) The unaudited pro forma consolidated financial statements reflect the
accounts of the Courtyard Annex, L.L.C. (the "LLC"), an 89 percent
majority owned limited liability company. Minority interest represents
the minority owner's proportionate share of the equity in the LLC. All
intercompany balances and transactions have been eliminated.
The balance sheet of the LLC as of the acquisition date, November 16,
1999, consisted of the following:
Assets
Land, buildings and equipment $65,000,000
===========
Equity $65,000,000
===========
(b) Represents gross proceeds of $50,727,152 from the sale of 5,072,715
shares during the period October 1, 1999 through December 10, 1999 and
$31,170,046 in cash and cash equivalents, used (i) to acquire an 89
percent interest in the LLC and to purchase one property for
$61,044,865 and $16,662,878, respectively, (which includes closing
costs of $26,349 and $115,725, respectively, and acquisition fees and
costs of $3,168,516 and $1,124,153, respectively, which had been
recorded as other assets as of September 30, 1999), (ii) to pay
acquisition fees and costs of $2,409,621 ($126,899 of which was accrued
at September 30, 1999) which had been capitalized as other assets and
to reclassify from other assets $2,009,947 of acquisition fees
previously incurred relating to the acquired property, (iii) to make a
$1,620,800 deposit on three additional properties, (iv) to pay selling
commissions and offering expenses of $4,425,161 which have been netted
against stockholders' equity (a total of $366,989 of which was accrued
as of September 30, 1999), and (v) to redeem 2,885 shares of common
stock for $26,542.
The pro forma adjustment to land, buildings and equipment on operating
leases as a result of (i) above was as follows:
<TABLE>
<CAPTION>
<S><C>
Acquisition
Fees and Costs
And Closing
Asset Value or Costs Allocated
Purchase Price to Investment Total
------------------- ------------------- -----------------
Courtyard Philadelphia in
Philadelphia, PA
(See (a) above) $65,000,000 $3,194,865 $68,194,865
Residence Inn Mira Mesa in Mira
Mesa, CA 15,423,000 1,239,878 16,662,878
------------------- ------------------- -----------------
$80,423,000 $4,434,743 $84,857,743
=================== =================== =================
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statements of Earnings:
(1) Represents adjustment to rental income from operating leases for the
properties acquired by the Company as of December 10, 1999, (the "Pro
Forma Properties"), for the period commencing (A) the later of (i) the
date the Pro Forma Property became operational by the previous owner or
(ii) January 1, 1998, to (B) the earlier of (i) the date the Pro Forma
Property was acquired by the Company or (ii) 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 Statements 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
Residence Inn Mira Mesa
in Mira Mesa, CA December 10, 1999 September 20, 1999
Courtyard Philadelphia Downtown
in Philadelphia, PA November 16, 1999 November 16, 1999
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 year
ended December 31, 1998.
(2) Represents 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 dividend income earned on the Company's
$37,978,272 investment at September 30, 1999, in the 9.76% Class B
cumulative preferred stock of the unconsolidated subsidiary, for the
period commencing (A) the later of (i) the date the properties owned by
the unconsolidated subsidiary became operational by the previous owner
or (ii) January 1, 1998, to (B) the earlier of (i) the date the
properties owned by the unconsolidated subsidiary were acquired or (ii)
the end of the pro forma period presented. The cash from the Company's
investment, along with loan proceeds and funds from an institutional
investor were used to purchase seven hotel properties which were
operational prior to the Company's investment in the unconsolidated
subsidiary. The following presents the actual date the unconsolidated
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statements of Earnings - Continued:
subsidiary properties were acquired or placed in service by the
unconsolidated subsidiary as compared to the date the unconsolidated
subsidiary's properties were treated as becoming operational for
purposes of the Pro Forma Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
<S> <C>
Pro forma
Date Unconsolidated
Date Placed Subsidiary
in Service Properties Became
By the Operational as
Unconsolidated Subsidiary Rental Property
------------------------- ---------------
Residence Inn Las Vegas, NV February 25, 1999 October 1, 1998
Residence Inn Plano, TX February 25, 1999 October 12, 1998
Marriott Suites Dallas, TX February 25, 1999 November 11, 1998
Courtyard Plano, TX February 25, 1999 December 23, 1998
Residence Inn Phoenix, AZ June 16, 1999 May 14, 1999
Courtyard Scottsdale, AZ June 16, 1999 May 21, 1999
Courtyard Seattle, WA June 16, 1999 May 22, 1999
</TABLE>
(4) 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 (A) the later of (i) the dates the Pro
Forma Properties and the unconsolidated subsidiary's properties became
operational by the previous owners or (ii) January 1, 1998, through (B)
the earlier of (i) the actual date the Pro Forma Properties and the
unconsolidated subsidiary's properties were acquired or (ii) the end of
the pro forma period presented, as described in Note (1) and Note (3)
above. The estimated pro forma adjustment is based upon the fact that
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 and the nine months ended September 30, 1999.
(5) Represents adjustment to interest expense incurred at a rate ranging
from 8.05% to 8.8% per annum in connection with the assumed borrowings
from the line of credit of $8,600,000 on January 1, 1998 for the period
January 1, 1998 through July 31, 1998. Also represents amortization of
the loan origination fee of $43,000 (.5% on the $8,600,000 from
borrowings on the line of credit) and $19,149 of other miscellaneous
closing costs, amortized under the straight-line method over a period
of five years.
(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 Corp. (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.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statements of Earnings - Continued:
(7) Represents increase in asset management fees relating to the Pro Forma
Properties and the investment in unconsolidated subsidiary for the
period commencing (A) the later of (i) the date the Pro Forma
Properties and the unconsolidated subsidiary's properties became
operational by the previous owners or (ii) January 1, 1998, through (B)
the earlier of (i) the date the Pro Forma Properties and the
unconsolidated subsidiary's properties were acquired or (ii) the end of
the pro forma period presented, as described in Notes (1) and (3)
above. Asset management fees are equal to 0.60% per year of the
Company's Real Estate Asset Value, including the investment in the
unconsolidated subsidiary, as defined in the Company's prospectus.
(8) Represents incremental increase in 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.
(9) Represents adjustment to equity in loss of unconsolidated subsidiary
after deduction of preferred stock dividends for the period commencing
(A) the date the unconsolidated subsidiary's properties became
operational by the previous owner, through (B) the earlier of (i) the
date the properties were acquired by the unconsolidated subsidiary or
(ii) the end of the pro forma period presented, as described in Note
(3) above. The following represents the Company's share of pro forma
net earnings or loss after deduction of preferred stock dividends
declared for the pro forma period ending:
<TABLE>
<CAPTION>
<S> <C>
September 30, December 30,
1999 1998
---- ----
Unconsolidated Subsidiary Pro Forma
Earnings Before Preferred Stock Dividends $ 3,311,596 $ 752,368
8% Class A Cumulative Preferred Stock
Dividends (institutional investor) (2,451,076) (442,261)
9.76% Class B Cumulative Preferred Stock
Dividends (the Company) (2,287,925) (423,938)
8% Class C Cumulative Preferred Stock
Dividends (other investors) (6,000) (1,402)
---------------- ------------
Pro Forma Net Loss of Unconsolidated Subsidiary
After Preferred Stock Dividends $(1,433,405) $(115,233)
============ =========
The Company's 49% Interest in the Pro Forma
Loss of the Unconsolidated Subsidiary $ (702,368) $ (56,464)
============= ==========
</TABLE>
(10) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the nine
months ended September 30, 1999 and the year ended December 31, 1998.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statements of Earnings - Continued:
As a result of two of the Pro Forma Properties being treated in the Pro
Forma Consolidated Statements 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 unconsolidated
subsidiary being treated in the Pro Forma Consolidated Statements 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 and the period January 1, 1999 through January 26,
1999. Due to the fact that approximately 857,020 of these shares of
common stock were actually sold during the nine months ended September
30, 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 nine months ended September 30,
1999 and the year ended December 31, 1998.
