FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-24097
CNL Hospitality Properties, Inc.
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street
Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
11,800,952 shares of common stock, $.01 par value, outstanding as of May 7,
1999.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Earnings 2
Condensed Consolidated Statements of Stockholders' Equity 3
Condensed Consolidated Statements of Cash Flows 4-5
Notes to Condensed Consolidated Financial Statements 6-17
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 18-28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 28
Part II
Other Information 29-31
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
<S> <C>
ASSETS
Land, buildings and equipment on operating leases,
less accumulated depreciation of $615,000 and
$384,166, respectively $28,137,549 $28,368,383
Investment in unconsolidated subsidiary 25,841,816 --
Cash and cash equivalents 22,840,847 13,228,923
Restricted cash 139,089 82,407
Certificates of deposit 5,747,142 5,016,575
Receivables 32,211 28,257
Dividends receivable 245,063 --
Prepaid expenses 16,946 9,391
Organization costs, less accumulated amortization of
$19,752 and $5,221, respectively -- 19,752
Loan costs, less accumulated amortization of $50,800
and $12,980, respectively 27,482 78,282
Accrued rental income 60,065 44,160
Other assets 1,618,073 1,980,560
-------------- -------------
$84,706,283 $48,856,690
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible loan from related party $3,684,745 $ --
Line of credit -- 9,600,000
Accounts payable and accrued expenses 63,254 333,726
Due to related parties 423,292 318,937
Security deposits 1,417,500 1,417,500
Interest payable 29,478 66,547
Other payables 4,901 3,489
-------------- -------------
-------------- -------------
Total liabilities 5,623,170 11,740,199
-------------- -------------
Commitments and Contingencies (Note 11)
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 9,094,940 and
4,321,908 shares, respectively 90,949 43,219
Capital in excess of par value 79,776,666 37,289,402
Accumulated distributions in excess of net (784,502 ) (216,130 )
earnings
-------------- -------------
Total stockholders' equity 79,083,113 37,116,491
-------------- -------------
$84,706,283 $48,856,690
============== =============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ 737,618 $ --
FF&E Reserve income 61,027 --
Interest and other income 292,864 139,153
Dividend income 241,843 --
---------------- --------------
1,333,352 139,153
---------------- --------------
Expenses:
Interest and loan cost amortization 200,573 --
General operating and administrative 188,056 85,393
Professional services 21,206 5,452
Asset management fees to related party 49,565 --
State taxes 5,375 --
Depreciation and amortization 253,758 1,000
---------------- --------------
---------------- --------------
718,533 91,845
---------------- --------------
Earnings Before Equity in Loss of Unconsolidated
Subsidiary 614,819 47,308
---------------- --------------
Equity in Loss of Unconsolidated Subsidiary (184,539 ) --
---------------- --------------
Net Earnings $ 430,280 $ 47,308
================ ==============
Earnings Per Share of Common Stock:
Basic $ 0.07 $ 0.03
================ ==============
Diluted $ 0.06 $ 0.03
================ ==============
Weighted Average Number of Shares Outstanding:
Basic 6,419,548 1,474,288
================ ==============
Diluted 7,812,448 1,474,288
================ ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY Quarter Ended March 31, 1999 and
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Common stock distributions
-------------------------- Capital in in excess
Number Par excess of of net
of Shares value par value earnings Total
------------- ----------- -------------- --------------- --------------
<S> <C>
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
($0.46 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
Subscriptions received for
common stock through
public offering and
distribution reinvestment
plan 4,773,032 47,730 47,682,588 -- 47,730,318
Stock issuance costs -- -- (5,195,324 ) -- (5,195,324 )
Net earnings -- -- -- 430,280 430,280
Distributions declared and paid
($0.17 per share) -- -- -- (998,652 ) (998,652 )
------------ ---------- -------------- -------------- ---------------
Balance at March 31, 1999 9,094,940 $90,949 $79,776,666 $ (784,502 ) $79,083,113
============ ========== ============== ============== ===============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 663,437 $ 67,118
--------------- ---------------
Cash Flows from Investing Activities:
Investment in unconsolidated subsidiary (23,983,718 ) --
Investment in certificates of deposit (730,567 ) (1,500,000 )
Increase in restricted cash (56,682 ) --
Increase in other assets (1,690,852 ) (313,391 )
--------------- ---------------
Net cash used in investing
activities (26,461,819 ) (1,813,391 )
--------------- ---------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of the
Company (888,032 ) (90,634 )
Proceeds from convertible loan 3,684,745 --
Payment on line of credit (9,600,000 ) --
Subscriptions received from
stockholders 47,730,318 7,263,367
Distributions to stockholders (998,652 ) (101,356 )
Payment of stock issuance costs (4,508,044 ) (749,008 )
Other (10,029 ) --
--------------- ---------------
--------------- ---------------
Net cash provided by
financing activities 35,410,306 6,322,369
--------------- ---------------
Net Increase in Cash and Cash Equivalents 9,611,924 4,576,096
Cash and Cash Equivalents at Beginning
of Quarter 13,228,923 8,869,838
--------------- ---------------
Cash and Cash Equivalents at End of
Quarter $ 22,840,847 $ 13,445,934
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- ----------------
<S> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition and stock issuance
costs on behalf of the Company as follows:
Acquisition costs $ 351,291 $ 6,685
Stock issuance costs 587,948 107,367
--------------- -----------------
$ 939,239 $ 114,052
=============== =================
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
1. Organization and Nature of Business:
CNL Hospitality Properties, 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., 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 may
offer furniture, fixture and equipment financing ("Secured Equipment
Leases") to operators of Hotel Chains and Restaurant Chains.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1999, may not be indicative of the results
that may be expected for the year ending December 31, 1999. Amounts as
of December 31, 1998, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1998.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
2. Basis of Presentation - Continued:
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company, 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. The Company accounts for its 49% interest in the
common stock of CNL Hotel Investors, Inc., using the equity method and
accounts for its preferred stock investment in CNL Hotel Investors,
Inc., using the cost method.
In accordance with Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," basic earnings per share are calculated based
upon net income (income available to common stockholders) divided by
the weighted average number of common shares outstanding during the
reporting period and diluted earnings per share are calculated based
upon adjusted net income divided by the weighted average number of
common shares outstanding plus dilutive potential common shares (see
Note 12).
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 became effective for the Company as of
January 1, 1999. The adoption of this SOP did not have a material
effect on the Company.
3. 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 "Initial 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
March 31, 1999, the Company had received subscription proceeds of
$90,749,397 (9,074,940 shares), including $72,754 (7,275 shares)
through the reinvestment plan.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarter Ended March 31, 1999
3. Public Offerings - Continued:
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 "Second Offering") in an
offering expected to commence immediately following the completion of
the Company's Initial 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 (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 Initial Offering. The
Company expects to use net proceeds from the Second Offering to
purchase additional Properties and, to a lesser extent, make Mortgage
Loans.
4. Investment in Unconsolidated Subsidiary:
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 hotel Properties from various
sellers affiliated with Western International (the "Hotels"). The eight
Hotels are either newly constructed or in various stages of completion.
Upon completion, four of the 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.
The Company's advisor, CNL Hospitality Advisors, Inc. (the "Advisor"),
is also the advisor to Hotel Investors pursuant to a separate advisory
agreement. However, in no event has or 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. The Advisor 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.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Investment in Unconsolidated Subsidiary - Continued:
In order to fund these purchases, Five Arrows committed to make an
investment of up to $50.9 million in Hotel Investors. The Company
committed to make an investment of up to $40 million in Hotel
Investors, which investment has been and will be made through the
Company's wholly owned subsidiary, CNL Hospitality Partners, LP. Hotel
Investors expects to fund the remaining amount of approximately $96.6
million (including closing costs) with permanent financing from
Jefferson-Pilot Life Insurance Company consisting of eight separate
loans, collateralized by Hotel Investors' interests in the Properties
(the "Hotel Investors Loan"). On February 25, 1999, Hotel Investors
purchased four of the eight Hotels for an aggregate purchase price of
approximately $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 Marriott Suites
located in Dallas, Texas, the Residence Inn by Marriott located in Las
Vegas, Nevada and the Residence Inn by Marriott located in Plano,
Texas. 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 Hotel Investors' 8% Class A cumulative,
preferred stock ("Class A Preferred Stock"). The Company has funded
$24,778,933 of its $40 million commitment to Hotel Investors and
purchased 24,779 shares of Hotel Investors' 9.76% Class B cumulative,
preferred stock ("Class B Preferred Stock"). Hotel Investors obtained
advances of $47,863,052 relating to the Hotel Investors Loan in order
to facilitate the acquisition of the Initial Hotels. In connection with
the Hotel Investors Loan, the Company was required by Jefferson Pilot
Life Insurance Company to obtain a letter of credit on behalf of Hotel
Investors. The letter of credit was collateralized by four certificates
of deposit totalling $730,567. Each certificate of deposit will be
allocated to the purchase of the remaining four Hotels. In connection
with the letter of credit, the Company also incurred on behalf of Hotel
Investors $4,383 in closing costs. Hotel Investors has and intends to
use future 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
received a 51% common stock interest and CNL Hospitality Partners, LP
received a 49% common stock interest in Hotel Investors. As funds are
continually advanced to Hotel Investors, Five Arrows will receive up to
50,886 shares of Class A Preferred Stock and CNL Hospitality Partners,
LP will receive up to 39,982 shares of 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.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Investment in Unconsolidated Subsidiary - Continued:
Five Arrows 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 has been and will be used by the
Company to fund approximately 38% of its funding commitment to Hotel
Investors. Five Arrows has purchased and will purchase the Company's
stock as Properties are acquired by Hotel Investors, as described
above. 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 addition to the above investments, Five Arrows purchased
a 10% interest in the Advisor.
Cash flow from operations of Hotel Investors will 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", or $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
will 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.
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.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Investment in Unconsolidated Subsidiary - Continued:
The following presents condensed financial information for Hotel
Investors at March 31, 1999:
Land, buildings and equipment on operating
leases, less accumulated depreciation $90,690,822
Cash 3,083,215
Loan costs, less accumulated amortization 637,443
Accrued rental income 20,764
Other assets 10,005,843
Liabilities 49,353,513
Redeemable preferred stock - Class A 31,536,509
Stockholders' equity 23,548,065
Revenues 918,359
Net income 128,783
The Company recorded $241,843 in dividend income and an equity in loss
of $184,539 resulting in a net income of $57,304 attributable to this
investment for the quarter ended March 31, 1999.
5. Convertible Loan:
As described above in Note 4, $3,684,745 was advanced to the Company by
Five Arrows as a convertible loan, which bears interest at a rate of
eight percent per annum payable at time of conversion. As of March 31,
1999, the Company had incurred $29,478 in interest related to the
convertible loan.
6. Other Assets:
Other assets as of March 31, 1999 and December 31, 1998 were $1,618,073
and $1,980,560, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses that will be allocated to future
Properties.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
7. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by
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 quarter ended March 31, 1999 and the year ended December 31,
1998, the Company incurred $5,195,324 and $3,606,871, respectively, in
organizational and offering costs, including $3,345,810 and $2,535,494,
respectively, in commissions and marketing support and due diligence
expense reimbursement fees (see Note 9). Of these amounts $5,195,324
and $3,601,898, respectively, have been treated as stock issuance costs
and for the year ended December 31, 1998, $4,973 had been treated as
organization costs. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
8. Distributions:
For the quarters ended March 31, 1999 and 1998, approximately 41 and
100 percent, respectively, of the distributions paid to stockholders
were considered ordinary income and for the quarter ended March 31,
1999, approximately 59 percent was considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to
the stockholders for the quarters ended March 31, 1999 and 1998 are
required to be or have been treated by the Company as a return of
capital for purposes of calculating the stockholders' 8% return on
their invested capital. The characterization for tax purposes of
distributions declared for the quarter ended March 31, 1999 may not be
indicative of the results that may be expected for the year ending
December 31, 1999.
9. Related Party Transactions:
During the quarters ended March 31, 1999 and 1998, the Company incurred
$3,136,697 and $530,509, respectively, in selling commissions due to
CNL Securities Corp. for services in connection with the offering of
shares. A substantial portion of these amounts ($2,927,797 and
$495,216, respectively) were or will be paid by CNL Securities Corp. as
commissions to other brokers.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
9. 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 quarters ended March
31, 1999 and 1998, the Company incurred $209,113 and $35,367,
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
finding, negotiating the leases of and acquiring Properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the quarters ended March 31, 1999 and 1998, the Company incurred
$2,106,510 and $318,305, respectively, of such fees. Such fees are
included in land, buildings and equipment on operating leases, the
investment in private real estate investment trust and other assets at
March 31, 1999.
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 quarter ended March 31, 1999, the
Company incurred $49,565 of such fees.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
9. Related Party Transactions - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the offering of
shares), on a day-to-day basis. The expenses incurred for these
services were classified as follows for the quarters ended March 31:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C>
Stock issuance costs $883,881 $ 89,000
Land, buildings and equipment
on operating leases and
other assets 3,806 --
General operating and
administrative expenses 85,731 40,650
============== =============
$973,418 $129,650
============== =============
The amounts due to related parties consisted of the following at:
March 31 December 31,
1999 1998
--------------- --------------
Due to CNL Securities Corp.:
Commissions $110,574 $ 66,063
Marketing support and due
diligence expense
reimbursement fee 7,372 4,404
--------------- --------------
$117,946 $ 70,467
--------------- --------------
Due to CNL Hospitality
Advisor:
Expenditures incurred on behalf
of the Company and
accounting and administrative
services 239,001 110,496
Acquisition fees 66,345 137,974
--------------- --------------
305,346 248,470
=============== ==============
$423,292 $318,937
=============== ==============
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
10. Concentration of Credit Risk:
One lessee, STC Leasing Associates, LLC, which operates each of two
properties owned as Residence Inn by Marriott, contributed more than
ten percent of the Company's total rental income (including the
Company's share of total rental income from Hotel Investors) for the
quarter ended March 31, 1999. In addition, all of the Company's rental
income (including the Company's share of rental income from Hotel
Investors) was earned from properties operating as Marriott Brand
chains. 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 during 1999 and subsequent years.
11. Commitments and Contingencies:
As of March 31, 1999, the Company has entered into agreements to
acquire, directly or indirectly, seven hotel Properties. 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.
Pursuant to the purchase agreement in connection with the acquisition
of the two Properties directly owned by the Company, the Company may be
required to make an additional payment of up to $1 million, contingent
upon these Properties achieving certain gross earnings before interest,
taxes, depreciation and amortization, as compared to the original
purchase price pursuant to a formula during a 36 month period ending
July 31, 2001. Rental income will be adjusted upward in accordance with
the lease agreements for any such amount paid.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
12. Earnings Per Share:
The following represents the calculation of earnings per share and the
weighted average number of shares of dilutive potential common stock
for the quarters ended March 31:
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
<S> <C>
Basic Earnings Per Share:
Net earnings $ 430,280 $ 47,308
================ =================
Weighted average number of
shares outstanding 6,419,548 1,474,288
================ =================
Basic earnings per share $ 0.067 $ 0.032
================ =================
Diluted Earnings Per Share:
Net earnings $ 430,280 $ 47,308
Additional income attributable
to investment in unconsolidated
subsidiary assuming all Class A
Preferred Shares were converted 71,479 --
---------------- -----------------
Adjusted net earnings
assuming dilution $ 501,759 $ 47,308
================ =================
Weighted average number of
shares outstanding 6,419,548 1,474,288
Assumed conversion of Class
A Preferred Stock 1,392,900 --
---------------- -----------------
Adjusted weighted average
number of shares outstanding 7,812,448 1,474,288
================ =================
Diluted earnings per share $ 0.064 $ 0.032
================ =================
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
12. Earnings Per Share - Continued:
For the quarter ended March 31, 1999, the conversion of the convertible
loan to shares of common stock were not included in computing diluted
earnings per share because their effects were antidilutive.
13. Subsequent Events:
During the period April 1, 1999 through May 7, 1999, the Company
received subscription proceeds for an additional 2,706,012 shares
($27,060,121) of common stock.
On April, 1, 1999 and May 1, 1999, the Company declared distributions
totalling $554,793 and $688,077, respectively, or $0.0604 per share of
common stock, payable in June 1999, to stockholders of record on April
1, 1999 and May 1, 1999, respectively.
Due to the additional subscription proceeds received as noted above,
the convertible loan in the amount of $3,684,745 advanced by Five
Arrows was converted to 387,868 shares of the Company's common stock on
April 30, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information, including, without limitation, the Year 2000
Compliance disclosure, that are not historical facts may be 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.
Introduction
CNL Hospitality Properties, 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., 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 to acquire properties (the "Properties") located
across the United States to be leased on a long-term, "triple-net" basis to
operators of selected national and regional limited service, extended stay and
full service hotel chains (the "Hotel Chains") and operators of 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") in the aggregate principal
amount of approximately 5% to 10% of the gross offering proceeds. The Company
also may offer furniture, fixture and equipment financing ("Secured Equipment
Leases") to operators of Hotel Chains and Restaurant Chains. Secured Equipment
Leases will be funded from the proceeds of financing to be obtained by the
Company. The aggregate outstanding principal amount of Secured Equipment Leases
will not exceed 10% of gross proceeds from the Company's offerings of shares of
common stock.
<PAGE>
Liquidity and Capital Resources
On July 9, 1997, the Company commenced an offering to the public of up
to 16,500,000 shares of common stock ($165,000,000) (the "Initial Offering")
pursuant to a registration statement on Form S-11 under the Securities Act of
1933, as amended. As of March 31, 1999, the Company had received aggregate
subscription proceeds of $90,749,397 (9,074,940 shares) from the Initial
Offering, including $72,754 (7,275 shares) through the Company's reinvestment
plan. The Company anticipates significant additional sales of shares prior to
the termination of the Initial Offering. In accordance with the Company's
prospectus, the Company has elected to extend the offering of shares until a
date no later than July 9, 1999.
The managing dealer of the offering of shares is CNL Securities Corp.,
an affiliate of the Company.
As of March 31, 1999, net proceeds to the Company from its Initial
Offering of shares and capital contributions from CNL Hospitality Advisors, Inc.
(the "Advisor"), after deduction of selling commissions, marketing support and
due diligence expense reimbursement fees and organizational and offering
expenses totalled approximately $80,143,000. In addition, $3,684,745 was
advanced to the Company as a convertible loan in connection with the investment
in CNL Hotel Investors, Inc. The Company has used net proceeds from the Initial
Offering and loan proceeds to invest directly or indirectly, approximately
$51,230,000 in six hotel Properties, to pay $5,000,000 as a deposit on three
additional hotel Properties and to pay approximately $5,174,000 in acquisition
fees and expenses leaving approximately $22,424,000 available for investment in
Properties and Mortgage Loans.
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") expected to commence immediately
following the completion of the Initial 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 the Initial Offering. The Company expects
to use net proceeds from the Second Offering to purchase additional Properties
and, to a lesser extent, make Mortgage Loans.
<PAGE>
Liquidity and Capital Resources - Continued
As of May 7, 1999, the Company had received subscription proceeds of
$117,809,518 (11,780,952 shares) from its offering of shares. As of May 7, 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 105,349,000. The
Company has used net proceeds from the offering to invest, directly or
indirectly, approximately $51,230,000 in six hotel properties, to pay $5,000,000
as a deposit on three additional hotel properties and to pay approximately
$6,373,000 in acquisition fees and expenses, leaving approximately $42,746,000
available for investment in Properties and Mortgage Loans.
The Company expects to use net proceeds it receives in the future from
its Initial Offering, plus any net proceeds from the sale of shares from the
Second Offering to purchase additional Properties and, to a lesser extent,
Mortgage Loans. In addition, the Company intends to borrow money to acquire
additional Properties, to invest in Mortgage Loans and Secured Equipment Leases,
and to pay certain related fees. The Company intends to encumber assets in
connection with such borrowing. The Company currently has a $30,000,000 initial
line of credit and plans to obtain one or more revolving lines of credit in an
aggregate amount up to $100,000,000, and may, in addition, also obtain permanent
financing. The lines of credit may be repaid with offering proceeds, working
capital or permanent financing. Although the Board of Directors anticipates that
the lines of credit will be in an amount up to $100,000,000 and that the
aggregate amount of 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.
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
hotel Properties from various sellers affiliated with Western International (the
"Hotels"). The eight Hotels are either newly constructed or in various stages of
completion. Upon completion, 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.
The Advisor of the Company is also the advisor to Hotel Investors
pursuant to a separate advisory agreement. However, in no event has or 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. The Advisor 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.
<PAGE>
Liquidity and Capital Resources - Continued
In order to fund these purchases, Five Arrows committed to make an
investment of up to $50.9 million in Hotel Investors. The Company committed to
make an investment of up to $40 million in Hotel Investors, which investment has
been and will be made through the Company's wholly owned subsidiary, CNL
Hospitality Partners, LP. Hotel Investors expects to fund the remaining amount
of approximately $96.6 million (including closing costs) with permanent
financing from Jefferson-Pilot Life Insurance Company consisting of eight
separate loans, collateralized by Hotel Investors' interests in the Properties
(the "Hotel Investors Loan"). On February 25, 1999, Hotel Investors purchased
four of the eight Hotels for an aggregate purchase price of approximately
$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 Marriott Suites located in Dallas, Texas, the Residence Inn by
Marriott located in Las Vegas, Nevada and the Residence Inn by Marriott located
in Plano, Texas. 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 Hotel Investors' 8% Class A cumulative, preferred
stock ("Class A Preferred Stock"). The Company has funded $24,778,933 of its $40
million commitment to Hotel Investors and purchased 24,779 shares of Hotel
Investors' 9.76% Class B cumulative, preferred stock ("Class B Preferred
Stock"). Hotel Investors obtained advances of $47,863,052 relating to the Hotel
Investors Loan in order to facilitate the acquisition of the Initial Hotels. In
connection with the Hotel Investors Loan, the Company was required by Jefferson
Pilot Life Insurance Company to obtain a letter of credit on behalf of Hotel
Investors. The letter of credit was collateralized by four certificates of
deposit totalling $730,567. Each certificate of deposit will be allocated at the
time of purchase of the remaining four Hotels. In connection with the letter of
credit, the Company incurred $4,383 in closing costs. As of May 7, 1999, Hotel
Investors had reimbursed the Company for the certificates of deposit and closing
costs. Hotel Investors has and intends to use future 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
received a 51% common stock interest and Hospitality Partners, LP received a 49%
common stock interest in Hotel Investors. As funds are continually advanced to
Hotel Investors, Five Arrows will receive up to 50,886 shares of Class A
Preferred Stock, and CNL Hospitality Partners, LP will receive up to 39,982
shares of 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 funds from
operations (based on the revised definition adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts which means net
earnings determined in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructuring and sales of property, plus
depreciation and amortization of real estate assets and after adjustments for
unconsolidated partherships and joint ventures) per share of the Company's
common stock.
<PAGE>
Liquidity and Capital Resources - Continued
Five Arrows 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 has been and will be used by the Company to fund
approximately 38% of its funding commitment to Hotel Investors. Five Arrows has
purchased and will purchase the Company's stock as Properties are acquired by
Hotel Investors, as described above. 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. On April 30, 1999, the
convertible loan was converted to 387,868 shares of the Company's common stock.
In addition to the above investments, Five Arrows purchased a 10% interest in
the Advisor.
Cash flow from operations of Hotel Investors will 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",
or $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 will 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.
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.
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 0.5% 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,
<PAGE>
Liquidity and Capital Resources - Continued
incurred in connection with the line of credit and each advance. During the
quarter ended March 31, 1999, the Company repaid $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 long-term financing on satisfactory terms.
As of May 7, 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. The Company is presently negotiating to acquire
additional Properties, but as of May 7, 1999, the Company had not acquired any
such Properties or entered into any Mortgage Loans. In addition, as of May 7,
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 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 March 31, 1999, the
Company had $22,840,847 invested in such short-term investments as compared to
$13,228,923 at December 31, 1998. The increase in the amount invested in
short-term investments primarily reflects proceeds received from the sale of
shares. The remaining funds will be used primarily to purchase additional
Properties, to make Mortgage Loans, to pay offering and acquisition expenses, to
pay distributions to stockholders, to pay other Company expenses and, in
management's discretion, to create cash reserves.
<PAGE>
Liquidity and Capital Resources - Continued
During the quarters ended March 31, 1999 and 1998, affiliates of the
Company incurred on behalf of the Company $587,948 and $107,367, respectively,
for certain organizational and offering expenses, $351,291 and $6,685,
respectively, for certain acquisition expenses, and $62,145 and $24,304,
respectively for certain operating expenses. As of March 31, 1999, the Company
owed the Advisor $305,346 for such amounts, unpaid fees and administrative
expenses (including services for accounting; financial, tax and regulatory
compliance and reporting; stockholder distributions and reporting; due diligence
and marketing; and investor relations). The Advisor has agreed to pay or
reimburse to the Company all organizational and offering expenses in excess of
three percent of gross offering proceeds.
During the quarters ended March 31, 1999 and 1998, the Company
generated cash from operations (which includes cash received from tenants and
interest and other income received, less cash paid for operating expenses) of
$663,437 and $67,118, respectively. Based on current and anticipated future cash
from operations, the Company declared and paid distributions to its stockholders
of $998,652 and $101,356 during the quarters ended March 31, 1999 and 1998,
respectively. In addition, on April 1, 1999 and May 1, 1999, the Company
declared distributions to stockholders of record on April 1, 1999 and May 1,
1999, totalling $554,793 and $688,077, respectively, ($0.0604 per share),
payable in June 1999.
For the quarters ended March 31, 1999 and 1998, approximately 41
percent and 100 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and for the quarter ended
March 31, 1999 approximately 59 percent was considered a return of capital for
federal income tax purposes. No amounts distributed or to be distributed to the
stockholders as of March 31, 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 their 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.
The tenants of the Properties owned by the Company as of March 31, 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 quarter ended March 31, 1999, revenues relating
to the FF&E Reserve totalled $61,027, of which $20,037 is included in
receivables as of March 31, 1999. Due to the fact that the Properties are leased
on a long-term, triple-net basis, management does not believe that other working
capital reserves are necessary at this time. Management has the right to cause
the Company to maintain additional reserves if, in their discretion, they
determine such reserves are required to meet the Company's working capital
needs.
<PAGE>
Liquidity and Capital Resources - Continued
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. 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
As of March 31, 1999, the Company had acquired six Properties, either
directly or indirectly, consisting of land, building and equipment, and had
entered into long-term, triple-net lease agreements relating to these
Properties. The Property leases provide for minimum base annual rental payments
ranging from approximately $1,204,000 to $3,412,000, 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 contingent rent
computed as a percentage of gross sales of the Property.
The Company's leases also require the establishment of the FF&E
Reserves. The FF&E Reserves established for the tenant of the wholly owned
Properties at March 31, 1999 are owned by the Company and have been reported as
additional rent. In connection therewith, the Company earned $6,518 in
contingent rental income) from the two Properties directly owned by the Company
during the quarter ended March 31, 1999. Because the Company has not yet
acquired all of its Properties, revenues for the quarter ended March 31, 1999,
represent only a portion of revenues which the Company is expected to earn in
future periods.
For the quarter ended March 31, 1999, the Company owned and leased four
Properties indirectly through the investment in Hotel Investors, as described
above. In connection therewith, the Company recorded $241,843 in dividend income
and an equity in loss of $184,539 resulting in net income of $57,304 recognized
during the quarter ended March 31, 1999, attributable to this investment.
During the quarters ended March 31, 1999 and 1998, the Company also
earned $292,864 and $139,153, respectively, in interest income from investments
in money market accounts and other short-term highly liquid investments and
other income. 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 from the Company's offerings 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.
<PAGE>
Results of Operations - Continued
Operating expenses, including interest expense and depreciation and
amortization expense, were $718,533 and $91,845 for the quarters ended March 31,
1999 and 1998, respectively. Total operating expenses increased primarily as a
result of the fact that the Company owned Properties and had an outstanding
balance on the line of credit during the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998. Operating expenses, including
asset management fees and depreciation and amortization expense, represent only
a portion of operating expenses which the Company is expected to incur during a
full year in which the Company owns Properties. The dollar amount of operating
expenses is expected to increase as the Company acquires 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.
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 became effective for the Company as of January 1, 1999. The
adoption of this SOP did not have a material effect on the Company.
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. As of March 31, 1999, the Company had repaid the outstanding
balance on the line of credit.
Year 2000 Compliance
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The Company does not have any
information or non-information technology systems. The Advisor and affiliates of
the Advisor provide all services requiring the use of information and
non-information technology systems pursuant to a management agreement with the
Company. The information technology system of the affiliates of the Advisor
consists of a network of personal computers and servers built using hardware and
software from mainstream suppliers. The non-information technology systems of
the affiliates of the Advisor are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the Advisor have no internally
generated programmed software coding to correct, as substantially all of the
software utilized by the Advisor and affiliates is purchased or licensed from
external providers. The non-information technology systems located on the
Properties owned by the Company are generally the responsibility of the tenant
and any repairs or replacements will be paid out of the FF&E Reserve. To the
extent that such expenditures are in excess of the amounts available in the FF&E
Reserve, the Company will be required to fund such amounts. Rental income will
be adjusted upward in accordance with the lease agreements for any such amount
paid.
<PAGE>
Year 2000 Compliance - Continued
In early 1998, the Advisor and affiliates formed a Year 2000 committee
(the "Y2K Team") for the purpose of identifying, understanding and addressing
the various issues associated with the Year 2000 problems. The Y2K Team consists
of members from the Advisor and its affiliates, including representatives from
senior management, information systems, telecommunications, legal, office
management, accounting and property management. The Y2K Team's initial step in
assessing the Company's Year 2000 ("Y2K") readiness consists of identifying any
systems that are date-sensitive and, accordingly, could have potential Y2K
problems. The Y2K Team is in the process of conducting inspections, interviews
and tests to identify which of the Company's systems could have a potential Y2K
problem.
The information system of the Advisor and its affiliates is comprised
of hardware and software applications from mainstream suppliers; accordingly,
the Y2K Team is in the process of contacting the respective vendors and
manufacturers to verify the Y2K compliance of their products. In addition, the
Y2K Team has also requested and is evaluating documentation from other companies
with which the Company has a material third party relationship, including the
Company's tenants, major vendors, financial institutions and the Company's
transfer agent. The Company depends on its tenants for rents and cash flows, its
financial institutions for availability of cash and financing and its transfer
agent to maintain and track investor information. The Y2K Team has also
requested and is evaluating documentation from the non-information technology
systems providers of the Advisor and affiliates. Although the Advisor continues
to receive positive responses from its third party relationships regarding their
Y2K compliance, the Advisor cannot be assured that the tenants, financial
institutions, transfer agent, other vendors and non-information technology
system providers have adequately considered the impact of the Year 2000. The
Advisor is not able to measure the effect on the operations of the Advisor and
its affiliates of any third party's failure to adequately address the impact of
the Year 2000.
The Advisor and its affiliates have identified and have implemented
upgrades for certain hardware equipment. In addition, the Advisor and its
affiliates have identified certain software applications which will require
upgrades to become Year 2000 compliant. The Advisor expects all of these
upgrades as well as any other necessary remedial measures on the information
technology systems used in the business activities and operations of the Company
to be completed by September 30, 1999, although, the Advisor cannot be assured
that the upgrade solutions provided by the vendors have addressed all possible
Year 2000 issues. The Advisor does not expect the aggregate cost of the Year
2000 remedial measures to be material to the results of operations of the
Company.
The Advisor and affiliates have received certification from the
Company's transfer agent of its Y2K compliance. Due to the material relationship
of the Company with its transfer agent, the Y2K Team is evaluating the Year 2000
compliance of the systems of the transfer agent and expects to have the
evaluation completed by September 30, 1999. Despite the positive response from
the transfer agent and the evaluation of the transfer agent's system by the Y2K
Team, the Advisor cannot be assured that the transfer agent has addressed all
possible Year 2000 issues. In the event that the systems of the transfer agent
are not Y2K compliant, the worst case scenario of the Advisor would be that the
Advisor would have to allocate resources to internally perform the functions of
the transfer agent. The Advisor does not anticipate that the additional cost of
these resources would have a material impact on the Company.
<PAGE>
Year 2000 Compliance - Continued
Based upon the progress the Advisor and affiliates have made in
addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the Advisor does not foresee significant risks associated
with its Year 2000 compliance at this time. The Advisor plans to address its
significant Y2K issues prior to being affected by them; therefore, it has not
developed a comprehensive contingency plan. However, if the Advisor identifies
significant risks related to its Year 2000 compliance or if its progress
deviates from the anticipated timeline, the Advisor will develop contingency
plans as deemed necessary at that time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See Item 2. Management's Discussion and Analysis of Financial Position
and Results of Operations for information related to quantitative and
qualitative disclosure about market risk.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
(d) The information required by this item is set forth in
Part I. Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, and
is hereby incorporated by reference.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 CNL American Realty Fund, Inc. Amended and
Restated Articles of Incorporation (Included as
Exhibit 3.4 to the Registration Statement on Form
S-11 (Registration No. 333-9943) (the "1996 Form
S-11") and incorporated herein by reference.)
3.2 CNL American Realty Fund, Inc. Bylaws (Included as
Exhibit 3.3 to the 1996 Form S-11 and incorporated
herein by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to the
1996 Form S-11 and incorporated herein by
reference.)
10.1 Advisory Agreement, dated as of July 10, 1998,
between CNL Hospitality Properties, Inc. and CNL
Hospitality Advisors, Inc. (formerly CNL Real
Estate Advisors, Inc.) (Included as Exhibit 10.1
to the 1998 Form 10-K and incorporated herein by
reference.)
10.2 Indemnification Agreement between CNL Hospitality
Properties, Inc. and Lawrence A. Dustin dated
February 24, 1999. Each of the following director
and/or officer has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert
A. Bourne, G. Richard Hostetter, J. Joseph Kruse,
Richard C. Huseman, Charles A. Muller, John T.
Walker, Jeanne A. Wall and Lynn E. Rose dated July
9, 1997, C. Brian Strickland dated October 31,
1998, John A. Griswold dated January 7, 1999,
Charles E. Adams and Craig M. McAllaster dated
February 10, 1999 and Matthew W. Kaplan dated
February 24, 1999 (Filed herewith.)
<PAGE>
10.3 Agreement of Limited Partnership of CNL
Hospitality Partners, LP (Included as Exhibit
10.10 to the 1996 Form S-11 and incorporated
herein by reference.)
10.4 Hotel Purchase and Sale Contract between CNL Real
Estate Advisors, Inc. and Gwinnett Residence
Associates, LLC, relating to the Residence Inn(R)
- Gwinnett Place (Included as Exhibit 10.11 to the
1996 Form S-11 and incorporated herein by
reference.)
10.5 Assignment and Assumption Agreement between CNL
Real Estate Advisors, Inc. and CNL Hospitality
Partners, LP, relating to the Residence Inn(R) -
Gwinnett Place (Included as Exhibit 10.12 to the
1996 Form S-11 and incorporated herein by
reference.)
10.6 Hotel Purchase and Sale Contract between CNL Real
Estate Advisors, Inc. and Buckhead Residence
Associates, LLC, relating to the Residence Inn(R)
- Buckhead (Lenox Park) (Included as Exhibit 10.13
to the 1996 Form S-11 and incorporated herein by
reference.)
10.7 Assignment and Assumption Agreement between CNL
Real Estate Advisors, Inc. and CNL Hospitality
Partners, LP, relating to the Residence Inn(R) -
Buckhead (Lenox Park) (Included as Exhibit 10.14
to the 1996 Form S-11 and incorporated herein by
reference.)
10.8 Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLP, dated August
1, 1998, relating to the Residence Inn(R) -
Gwinnett Place (Included as Exhibit 10.15 to the
1996 Form S-11 and incorporated herein by
reference.)
10.9 Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August
1, 1998, relating to the Residence Inn(R) -
Buckhead (Lenox Park) (Included as Exhibit 10.16
to the 1996 Form S-11 and incorporated herein by
reference.)
10.10 Master Revolving Line of Credit Loan Agreement
with CNL Hospitality Properties, Inc., CNL
Hospitality Partners, LP and Colonial Bank, dated
July 31, 1998 (Included as Exhibit 10.17 to the
1996 Form S-11 and incorporated herein by
reference.)
10.11 Master Loan Agreement by and between CNL Hotel
Investors, Inc. and Jefferson-Pilot Life Insurance
Company, dated February 24, 1999 (Included as
Exhibit 10.18 to the 1996 form S-11 and
incorporated herein by reference.)
<PAGE>
10.12 Securities Purchase Agreement between CNL
Hospitality Properties, Inc. and Five Arrows
Realty Securities II L.L.C., dated February 24,
1999 (Included as Exhibit 10.19 to the 1996 Form
S-11 and incorporated herein by reference.)
10.13 Subscription and Stockholders' Agreement among CNL
Hotel Investors, Inc., Five Arrows Realty
Securities II L.L.C., CNL Hospitality Partners, LP
and CNL Hospitality Properties, Inc., dated
February 24, 1999 (Included as Exhibit 10.20 to
the 1996 Form S-11 and incorporated herein by
reference.)
10.14 Registration Rights Agreement by and between CNL
Hospitality Properties, Inc. and Five Arrows
Realty Securities II L.L.C., dated February 24,
1999 (Included as Exhibit 10.21 to the 1996 form
S-11 and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Company filed one report on Form 8-K, reporting
the investment in CNL Hotel Investors, Inc., on March
12, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 17th day of May, 1999.
CNL HOSPITALITY PROPERTIES, INC.
By: /s/ James M. Seneff, Jr.
--------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ C. Brian Strickland
--------------------------------
C. BRIAN STRICKLAND
Vice President, Finance & Administration
(Principal Financial and
Accounting Officer)
EXHIBIT 10.2
Form of Indemnification Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into
as of the 24th day of February 1999, by and among CNL Hospitality Properties,
Inc., a Maryland corporation (the "Company") and Lawrence A. Dustin, a director
and/or officer of the Company (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the interpretation of ambiguous statutes, regulations,
articles of incorporation and bylaws regarding indemnification of directors and
officers may be too uncertain to provide such directors and officers with
adequate notice of the legal, financial and other risks to which they may be
exposed by virtue of their service as such; and
WHEREAS, damages sought against directors and officers in shareholder
or similar litigation by class action plaintiffs may be substantial, and the
costs of defending such actions and of judgments in favor of plaintiffs or of
settlement therewith may be prohibitive for individual directors and officers,
without regard to the merits of a particular action and without regard to the
culpability of, or the receipt of improper personal benefit by, any named
director or officer to the detriment of the corporation; and
WHEREAS, the issues in controversy in such litigation usually relate to
the knowledge, motives and intent of the director or officer, who may be the
only person with firsthand knowledge of essential facts or exculpating
circumstances who is qualified to testify in his defense regarding matters of
such a subjective nature, and the long period of time which may elapse before
final disposition of such litigation may impose undue hardship and burden on a
director or officer or his estate in launching and maintaining a proper and
adequate defense of himself or his estate against claims for damages; and
WHEREAS, the Company is organized under the Maryland General
Corporation Law (the "MGCL") and Section 2-418 of the MGCL empowers corporations
to indemnify and advance expenses of litigation to a person serving as a
director, officer, employee or agent of a corporation and to persons serving at
the request of the corporation, while a director of a corporation, as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, and further provides that the indemnification and
advancement of expenses set forth in said section, subject to certain
limitations are not "exclusive of any other rights, by indemnification or
otherwise, to which a director may be entitled under the charter, the bylaws, a
resolution of stockholders or directors, an agreement or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office"; and
WHEREAS, the Articles of Incorporation of the Company, as they may be
amended or amended and restated from time to time (the "Articles of
Incorporation"), provide that the Company shall indemnify and hold harmless
directors, advisors, or affiliates, as such terms are defined in the Articles of
Incorporation; and
WHEREAS, the Board of Directors of the Company (the "Board") has
concluded that it is reasonable and prudent for the Company contractually to
obligate itself to indemnify in a reasonable and adequate manner the Indemnitee
and to assume for itself maximum liability for expenses and damages in
connection with claims lodged against him for his decisions and actions as a
director and/or officer of the Company; and
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which is acknowledged
by each of the parties hereto, the parties agree as follows:
I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
A. "Board" shall mean the Board of Directors of the Company.
B. "Change in Control" shall mean a change in the ownership or power to
direct the Voting Securities of the Company or the acquisition by a person not
affiliated with the Company of the ability to direct the management of the
Company.
C. "Corporate Status" shall mean the status of a person who is or was a
director or officer of the Company, or a member of any committee of the Board,
and the status of a person who, while a director or officer of the Company, is
or was serving at the request of the Company as a director, officer, partner
(including service as a general partner of any limited partnership), trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, other incorporated or unincorporated entity or enterprise
or employee benefit plan.
D. "Disinterested Director" shall mean a director of the Company who
neither is nor was a party to the Proceeding in respect of which indemnification
is being sought by the Indemnitee.
E. "Expenses" shall mean without limitation expenses of Proceedings
including all attorneys' fees, retainers, court costs, transcript costs, fees of
experts, investigation fees and expenses, accounting and witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating or being or preparing to be a witness in a
Proceeding.
F. "Good Faith Act or Omission" shall mean an act or omission of the
Indemnitee reasonably believed by the Indemnitee to be in or not opposed to the
best interests of the Company and other than (i)one involving negligence or
misconduct, or, if the Indemnitee is an independent director, one involving
gross negligence or willful misconduct; (ii) one that was material to the loss
or liability and that was committed in bad faith or that was the result of
active or deliberate
<PAGE>
dishonesty; (iii) one from which the Indemnitee actually received an improper
personal benefit in money, property or services; or (iv) in the case of a
criminal Proceeding, one as to which the Indemnitee had cause to believe his
conduct was unlawful.
G. "Liabilities" shall mean liabilities of any type whatsoever,
including, without limitation, any judgments, fines, excise taxes and penalties
under the Employee Retirement Income Security Act of 1974, as amended, penalties
and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such judgments,
fines, penalties or amounts paid in settlement) in connection with the
investigation, defense, settlement or appeal of any Proceeding or any claim,
issue or matter therein.
H. "Proceeding" shall mean any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other actual, threatened or completed proceeding
whether civil, criminal, administrative or investigative, or any appeal
therefrom.
I. "Voting Securities" shall mean any securities of the Company that
are entitled to vote generally in the election of directors.
II
TERMINATION OF AGREEMENT
This Agreement shall continue until, and terminate upon the late to
occur of (i) the death of the Indemnitee; or (ii) the final termination of all
Proceedings (including possible Proceedings) in respect of which the Indemnitee
is granted rights of indemnification or advancement of Expenses hereunder and of
any proceeding commenced by the Indemnitee regarding the interpretation or
enforcement of this Agreement.
III
SERVICE BY INDEMNITEE, NOTICE OF
PROCEEDINGS, DEFENSE OF CLAIMS
A. Notice of Proceedings. The Indemnitee agrees to notify the Company
promptly in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the Indemnitee's omission to so notify the Company shall
not relieve the Company from any liability which it may have to the Indemnitee
under this Agreement.
B. Defense of Claims. The Company will be entitled to participate, at
its own expense, in any Proceeding of which it has notice. The Company jointly
with any other indemnifying party similarly notified of any Proceeding will be
entitled to assume the defense of the Indemnitee therein, with counsel
reasonably satisfactory to the Indemnitee; provided, however, that the Company
shall not be entitled to assume the defense of the Indemnitee in any Proceeding
if there has been a Change in Control or if the Indemnitee has reasonably
concluded that there may be a conflict of interest between the Company and the
Indemnitee with respect to such Proceeding. The Company will not be liable to
the Indemnitee under this Agreement for any Expenses incurred by the Indemnitee
in connection with the defense of any Proceeding, other than reasonable costs of
investigation or as otherwise provided below, after notice from the Company to
the Indemnitee of its election to assume the defense of the Indemnitee therein.
The Indemnitee shall have the right to employ his own counsel in any such
Proceeding, but the fees and expenses of such counsel incurred after notice from
the Company of its assumption of the defense thereof shall be at the expense of
the Indemnitee unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company; (ii) the Indemnitee shall have reasonably concluded
that counsel employed by the Company may not adequately represent the Indemnitee
and shall have so informed the Company; or (iii) the Company shall not in fact
have employed counsel to assume the defense of the Indemnitee in such Proceeding
or such counsel shall not, in fact, have assumed such defense or such counsel
shall not be acting, in connection therewith, with reasonable diligence; and in
each such case the fees and expenses of the Indemnitee's counsel shall be
advanced by the Company in accordance with this Agreement.
C. Settlement of Claims. The Company shall not settle any Proceeding in
any manner which would impose any liability, penalty or limitation on the
Indemnitee without the written consent of the Indemnitee; provided, however,
that the Indemnitee will not unreasonably withhold or delay consent to any
proposed settlement. The Company shall not be liable to indemnify the Indemnitee
under this Agreement or otherwise for any amounts paid in settlement of any
Proceeding effected by the Indemnitee without the Company's written consent,
which consent shall not be unreasonably withheld or delayed.
IV
INDEMNIFICATION
A. In General. Upon the terms and subject to the conditions set forth
in this Agreement, the Company shall hold harmless and indemnify the Indemnitee
against any and all Liabilities actually incurred by or for him in connection
with any Proceeding (whether the Indemnitee is or becomes a party, a witness or
otherwise is a participant in any role) to the fullest extent required or
permitted by the Articles of Incorporation and by applicable law in effect on
the date hereof and to such greater extent as applicable law may hereafter from
time to time permit. For all matters for which the Indemnitee is entitled to
indemnification under this Article IV, the Indemnitee shall be entitled to
advancement of Expenses in accordance with Article V hereof.
B. Proceeding Other Than a Proceeding by or in the Right of the
Company. If the Indemnitee was or is a party or is threatened to be made a party
to any Proceeding (whether the Indemnitee is or becomes a party, a witness or
otherwise is a participant in any role) (other than a Proceeding by or in the
right of the Company) by reason of his Corporate Status, or by reason of alleged
action or inaction by him in any such capacity, the Company shall, subject to
the limitations set forth in Section IV.F. below, hold harmless and indemnify
him against any and all Expenses and Liabilities actually and reasonably
incurred by or for the Indemnitee in connection with the Proceeding if the
act(s) or comission(s) of the Indemnitee giving rise thereto were Good Faith
Act(s) or Omission(s).
C. Proceedings by or in the Right of the Company. If the Indemnitee was
or is a party or is threatened to be made a party to any Proceeding (whether the
Indemnitee is or becomes a party, a witness or otherwise is a participant in any
role) by or in the right of the Company to procure a judgment in its favor by
reason of his Corporate Status, or by reason of any action or inaction by him in
any such capacity, the Company shall, subject to the limitations set forth in
Section IV.F. below, hold harmless and indemnify him against any and all
Expenses actually incurred by or for him in connection with the investigation,
defense, settlement or appeal of such Proceeding if the act(s) or omission(s) of
the Indemnitee giving rise to the Proceeding were Good Faith Act(s) or
Omission(s); except that no indemnification under this Section IV.C. shall be
made in respect of any claim, issue or matter as to which the Indemnitee shall
have been finally adjudged to be liable to the Company, unless a court of
appropriate jurisdiction (including, but not limited to, the court in which such
Proceeding was brought) shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
regardless of whether the Indemnitee's act(s) or omission(s) were found to be a
Good Faith Act(s) or Omission(s), the Indemnitee is fairly and reasonably
entitled to indemnification for such Expenses which such court shall deem
proper.
D. Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee is, by reason of the Indemnitee's Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Indemnitee shall
be indemnified by the Company to the maximum extent consistent with applicable
law, against all Expenses and Liabilities actually incurred by or for him in
connection therewith. If the Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
hold harmless and indemnify the Indemnitee to the maximum extent consistent with
applicable law, against all Expenses and Liabilities actually and reasonably
incurred by or for him in connection with each successfully resolved claim,
issue or matter in such Proceeding. Resolution of a claim, issue or matter by
dismissal, with or without prejudice, except as provided in subsection F hereof,
shall be deemed a successful result as to such claim, issue or matter, so long
as there has been no finding (either adjudicated or pursuant to Article VI
hereof) that the act(s) or omission(s) of the Indemnitee giving rise thereto
were not a Good Faith Act(s) or Omission(s).
E. Indemnification for Expenses of Witness. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee, by reason of the
Indemnitee's Corporate Status, has prepared to serve or has served as a witness
in any Proceeding, or has participated in discovery proceedings or other trial
preparation, the Indemnitee shall be held harmless and indemnified against all
Expenses actually and reasonably incurred by or for him in connection therewith.
F. Specific Limitations on Indemnification. In addition to the other
limitations set forth in this Article IV, and notwithstanding anything in this
Agreement to the contrary, the Company shall not be obligated under this
Agreement to make any payment to the Indemnitee for indemnification with respect
to any Proceeding:
1. To the extent that payment is actually made to the
Indemnitee under any insurance policy or is made on behalf of the Indemnitee by
or on behalf of the Company otherwise than pursuant to this Agreement.
2. If a court in such Proceeding has entered a judgment or
other adjudication which is final and has become nonappealable and establishes
that a claim of the Indemnitee for such indemnification arose from: (i) a breach
by the Indemnitee of the Indemnitee's duty of loyalty to the Company or its
shareholders; (ii) acts or omissions of the Indemnitee that are not Good Faith
Acts or Omissions or which are the result of active and deliberate dishonesty;
(iii) acts or omissions of the Indemnitee which the Indemnitee had reasonable
cause to believe were unlawful; or (iv) a transaction in which the Indemnitee
actually received an improper personal benefit in money, property or service.
3. If there has been no Change in Control, for Liabilities in
connection with Proceedings settled without the consent of the Company which
consent, however, shall not be unreasonably withheld.
4. For any loss or liability arising from an alleged violation
of federal or state securities laws unless one or more of the following
conditions are met: (i) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the Indemnitee,
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the Indemnitee; or (iii) a court of competent
jurisdiction approves a settlement of the claims against the Indemnitee and
finds that indemnification of the settlement and the related costs should be
made, and the court considering the request for indemnification has been advised
of the position of the Securities and Exchange Commission and of the published
position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities
laws.
V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI hereof, the
Company shall advance to the Indemnitee all Expenses which, by reason of the
Indemnitee's Corporate Status, were incurred by or for him in connection with
any Proceeding for which the Indemnitee is entitled to indemnification pursuant
to Article IV hereof, in advance of the final disposition of such Proceeding,
provided that all of the following are satisfied: (i) the Indemnitee was made a
party to the proceeding by reason of his service as a director or officer of the
Company, (ii) the Indemnitee provides the Company with written affirmation of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the Company pursuant to Article IV hereof, (iii) the
Indemnitee provides the Company with a written agreement (the "Undertaking") to
repay the amount paid or reimbursed by the Company, together with the applicable
legal rate of interest thereon, if it is ultimately determined that the
Indemnitee did not comply with the requisite standard of conduct, and (iv) the
legal proceeding was initiated by a third party who is not a stockholder of the
Company or, if by a stockholder of the Company acting in his or her capacity as
such, a court of competent jurisdiction approves such advancement. The
Indemnitee shall be required to execute and submit the Undertaking to repay
Expenses advanced in the form of Exhibit A attached hereto or in such form as
may be required under applicable law as in effect at the time of execution
thereof. The Undertaking shall reasonably evidence the Expenses incurred by or
for the Indemnitee and shall contain the written affirmation by the Indemnitee,
described above, of his good faith belief that the standard of conduct necessary
for indemnification has been met. The Company shall advance such expenses within
five (5) business days after the receipt by the Company of the Undertaking. The
Indemnitee hereby agrees to repay any Expenses advanced hereunder if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and the undertaking to repay pursuant to
this Article V shall be unsecured.
VI
PROCEDURE FOR PAYMENT OF LIABILITIES;
DETERMINATION OF RIGHT TO INDEMNIFICATION
A. Procedure for Payment. To obtain indemnification for Liabilities
under this Agreement, the Indemnitee shall submit to the Company a written
request for payment, including with such request such documentation as is
reasonably available to the Indemnitee and reasonably necessary to determine
whether, and to what extent, the Indemnitee is entitled to indemnification and
payment hereunder. The Secretary of the Company, or such other person as shall
be designated by the Board of Directors, promptly upon receipt of a request for
indemnification shall advise the Board of Directors, in writing, of such
request. Any indemnification payment due hereunder shall be paid by the Company
no later than five (5) business days following the determination, pursuant to
this Article VI, that such indemnification payment is proper hereunder.
B. No Determination Necessary when the Indemnitee was Successful. To
the extent the Indemnitee has been successful, on the merits or otherwise, in
defense of any Proceeding referred to in Sections IV.B. or IV.C. above or in the
defense of any claim, issue or matter described therein, the Company shall
indemnify the Indemnitee against Expenses actually and reasonably incurred by or
for him in connection with the investigation, defense or appeal of such
Proceeding.
C. Determination of Good Faith Act or Omission. In the event that
Section VI.B. is inapplicable, the Company also shall hold harmless and
indemnify the Indemnitee unless the Company shall prove by clear and convincing
evidence to a forum listed in Section VI.D. below that the act(s) or omission(s)
of the Indemnitee giving rise to the Proceeding were not Good Faith Act(s) or
Omission(s).
D. Forum for Determination. The Indemnitee shall be entitled to select
from among the following the forums, in which the validity of the Company's
claim under Section VI.C., above, that the Indemnitee is not entitled to
indemnification will be heard:
1. A quorum of the Board consisting of Disinterested Directors;
2. The shareholders of the Company;
3. Legal counsel selected by the Indemnitee, subject to the
approval of the Board, which approval shall not be unreasonably delayed or
denied, which counsel shall make such determination in a written opinion; or
<PAGE>
4. A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected jointly by the first two arbitrators so selected. As soon as
practicable, and in no event later than thirty (30) days after written notice of
the Indemnitee's choice of forum pursuant to this Section VI.D., the Company
shall, at its own expense, submit to the selected forum in such manner as the
Indemnitee or the Indemnitee's counsel may reasonably request, its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim. The fees and expenses of the selected forum in connection
with making the determination contemplated hereunder shall be paid by the
Company. If the Company shall fail to submit the matter to the selected forum
within thirty (30) days after the Indemnitee's written notice or if the forum so
empowered to make the determination shall have failed to make the requested
determination within thirty (30) days after the matter has been submitted to it
by the Company, the requisite determination that the Indemnitee has the right to
indemnification shall be deemed to have been made.
E. Right to Appeal. Notwithstanding a determination by any forum listed
in Section VI.D. above that the Indemnitee is not entitled to indemnification
with respect to a specific Proceeding, the Indemnitee shall have the right to
apply to the court in which that Proceeding is or was pending, or to any other
court of competent jurisdiction, for the purpose of enforcing the Indemnitee's
right to indemnification pursuant to this Agreement. Such enforcement action
shall consider the Indemnitee's entitlement to indemnification de novo, and the
Indemnitee shall not be prejudiced by reason of a prior determination that the
Indemnitee is not entitled to indemnification. The Company shall be precluded
from asserting that the procedures and presumptions of this Agreement are not
valid, binding and enforceable. The Company further agrees to stipulate in any
such judicial proceeding that the Company is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.
F. Right to Seek Judicial Determination. Notwithstanding any other
provision of this Agreement to the contrary, at any time after sixty (60) days
after a request for indemnification has been made to the Company (or upon
earlier receipt of written notice that a request for indemnification has been
rejected) and before the third (3rd) anniversary of the making of such
indemnification request, the Indemnitee may petition a court of competent
jurisdiction, whether or not the court has jurisdiction over, or is the forum in
which is pending, the Proceeding, to determine whether the Indemnitee is
entitled to indemnification hereunder, and such court thereupon shall have the
exclusive authority to make such determination, unless and until such court
dismisses or otherwise terminates the Indemnitee's action without having made
such determination. The court, as petitioned, shall make an independent
determination of whether the Indemnitee is entitled to indemnification
hereunder, without regard to any prior determination in any other forum as
provided hereby.
G. Expenses under this Agreement. Notwithstanding any other provision
in this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section VI involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other action between
the Company and the Indemnitee involving the interpretation or enforcement of
the rights of the Indemnitee under this Agreement, even if it is finally
determined that the Indemnitee is not entitled to indemnification in whole or in
part hereunder.
VII
PRESUMPTIONS AND EFFECT
OF CERTAIN PROCEEDINGS
A. Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons, entity or
entities making such determination shall presume that the Indemnitee is entitled
to indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption.
B. Effect of Other Proceedings. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order or settlement shall not
create a presumption that the act(s) or omission(s) giving rise to the
Proceeding were not Good Faith Act(s) or Omission(s). The termination of any
Proceeding by conviction, or upon a plea of nolo contendere, or its equivalent,
or an entry of an order of probation prior to judgment, shall create a
rebuttable presumption that the act(s) or omission(s) of the Indemnitee giving
rise to the Proceeding were not Good Faith Act(s) or Omission(s).
C. Reliance as Safe Harbor. For purposes of any determination of
whether any act or omission of the Indemnitee was a Good Faith Act or Omission,
each act of the Indemnitee shall be deemed to be a Good Faith Act or Omission if
the Indemnitee's action is based on the records or books of accounts of the
Company, including financial statements, or on information supplied to the
Indemnitee by the officers of the Company in the course of their duties, or on
the advice of legal counsel for the Company or on information or records given
or reports made to the Company by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company.
The provisions of this Section VII.C. shall not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct set forth in this Agreement or
under applicable law.
D. Actions of Others. The knowledge and/or actions, or failure to act,
of any director, officer, agent or employee of the Company shall not be imputed
to the Indemnitee for purposes of determining the right to indemnification under
this Agreement.
VIII
INSURANCE
In the event that the Company maintains officers' and directors' or
similar liability insurance to protect itself and any director or officer of the
Company against any expense, liability or loss, such insurance shall cover the
Indemnitee to at least the same degree as each other director and/or officer of
the Company.
<PAGE>
IX
OBLIGATIONS OF THE COMPANY
UPON A CHANGE IN CONTROL
In the event of a Change in Control, upon written request of the
Indemnitee the Company shall establish a trust for the benefit of the Indemnitee
hereunder (a "Trust") and from time to time, upon written request from the
Indemnitee, shall fund the Trust in an amount sufficient to satisfy all amounts
actually paid hereunder as indemnification for Liabilities or Expenses
(including those paid in advance) or which the Indemnitee reasonably determines
and demonstrates, from time to time, may be payable by the Company hereunder.
The amount or amounts to be deposited in the Trust shall be determined by legal
counsel selected by the Indemnitee and approved by the Company, which approval
shall not be unreasonably withheld. The terms of the Trust shall provide that
(i) the Trust shall not be dissolved or the principal thereof invaded without
the written consent of the Indemnitee; (ii) the trustee of the Trust (the
"Trustee") shall be selected by the Indemnitee; (iii) the Trustee shall make
advances to the Indemnitee for Expenses within ten (10) business days following
receipt of a written request therefor (and the Indemnitee hereby agrees to
reimburse the Trust under the circumstances under which the Indemnitee would be
required to reimburse the Company under Article V hereof; (iv) the Company shall
continue to fund the Trust from time to time in accordance with its funding
obligations hereunder; (v) the Trustee promptly shall pay to the Indemnitee all
amounts as to which indemnification is due under this Agreement; (vi) unless the
Indemnitee agrees otherwise in writing, the Trust for the Indemnitee shall be
kept separate from any other trust established for any other person to whom
indemnification might be due by the Company; and (vii) all unexpended funds in
the Trust shall revert to the Company upon final, nonappealable determination by
a court of competent jurisdiction that the Indemnitee has been indemnified to
the full extent required under this Agreement.
X
NON-EXCLUSIVITY,
SUBROGATION AND MISCELLANEOUS
A. Non-Exclusivity. The rights of the Indemnitee hereunder shall not be
deemed exclusive of any other rights to which the Indemnitee may at any time be
entitled under any provision of law, the Articles of Incorporation, the Bylaws
of the Company, as the same may be in effect from time to time, any agreement, a
vote of shareholders of the Company or a resolution of directors of the Company
or otherwise, and to the extent that during the term of this Agreement the
rights of the then-existing directors and officers of the Company are more
favorable to such directors or officers than the rights currently provided to
the Indemnitee under this Agreement, the Indemnitee shall be entitled to the
full benefits of such more favorable rights. No amendment, alteration,
rescission or replacement of this Agreement or any provision hereof which would
in any way limit the benefits and protections afforded to an Indemnitee hereby
shall be effective as to such Indemnitee with respect to any action or inaction
by such Indemnitee in the Indemnitee's Corporate Status prior to such amendment,
alteration, rescission or replacement.
<PAGE>
B. Subrogation. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
C. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i) if
delivered by hand, by courier or by telegram and receipted for by the party to
whom said notice or other communication shall have been directed at the time
indicated on such receipt; (ii) if by facsimile at the time shown on the
confirmation of such facsimile transmission; or (iii) if by U.S. certified or
registered mail, with postage prepaid, on the third business day after the date
on which it is so mailed:
If to the Indemnitee, as shown with the Indemnitee's signature below.
If to the Company to:
CNL Hospitality Properties, Inc.
400 East South Street
Orlando, FL 32801
Attention: President
Facsimile No. (407) 423-2894
or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company by the Indemnitee, as the case may be.
D. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the substantive laws
of the State of Maryland, without application of the conflict of laws principles
thereof.
E. Binding Effect. Except as otherwise provided in this Agreement, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their heirs, executors, administrators, successors, legal representatives
and permitted assigns. The Company shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of its respective assets or business, by written
agreement in form and substance reasonably satisfactory to the Indemnitee,
expressly to assume and agree to be bound by and to perform this Agreement in
the same manner and to the same extent as the Company would be required to
perform absent such succession or assignment.
F. Waiver. No termination, cancellation, modification, amendment,
deletion, addition or other change in this Agreement, or any provision hereof,
or waiver of any right or remedy herein, shall be effective for any purpose
unless specifically set forth in a writing signed by the party or parties to be
bound thereby. The waiver of any right or remedy with respect to any occurrence
on one occasion shall not be deemed a waiver of such right or remedy with
respect to such occurrence on any other occasion.
<PAGE>
G. Entire Agreement. This Agreement, constitutes the entire agreement
and understanding among the parties hereto in reference to the subject matter
hereof; provided, however, that the parties acknowledge and agree that the
Amended and Restated Articles of Incorporation of the Company contain provisions
on the subject matter hereof and that this Agreement is not intended to, and
does not, limit the rights or obligations of the parties hereto pursuant to such
instruments.
H. Titles. The titles to the articles and sections of this Agreement
are inserted for convenience of reference only and should not be deemed a part
hereof or affect the construction or interpretation of any provisions hereof.
I. Invalidity of Provisions. Every provision of this Agreement is
severable, and the invalidity or unenforceability of any term or provision shall
not effect the validity or enforceability of the remainder of this Agreement.
J. Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
K. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one agreement binding on all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CNL HOSPITALITY PROPERTIES, INC.
By: /s/ Robert A. Bourne
Name: Robert A. Bourne
Title: President
/s/ Lawrence A. Dustin, as INDEMNITEE
Name: Lawrence A. Dustin
Title: Independent Director
Address: 400 East South Street
Facsimile No.: (407) 423-2894
<PAGE>
EXHIBIT A
FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED
The Board of Directors of CNL Hospitality Properties, Inc.
Re: Undertaking to Repay Expenses Advanced
Ladies and Gentlemen:
This undertaking is being provided pursuant to that certain
Indemnification Agreement dated the ____ day of ______________, by and among CNL
Hospitality Properties, Inc. and the undersigned Indemnitee (the
"Indemnification Agreement"), pursuant to which I am entitled to advancement of
expenses in connection with [Description of Proceeding] (the "Proceeding").
Terms used herein and not otherwise defined shall have the meanings specified in
the Indemnification Agreement.
I am subject to the Proceeding by reason of my Corporate Status or by
reason of alleged actions or omissions by me in such capacity. During the period
of time to which the Proceeding relates I was _____________________ [name of
office(s) held] of CNL Hospitality Properties, Inc. Pursuant to Section IV of
the Indemnification Agreement, the Company is obligated to reimburse me for
Expenses that are actually and reasonably incurred by or for me in connection
with the Proceeding, provided that I execute and submit to the Company an
Undertaking in which I (i) undertake to repay any Expenses paid by the Company
on my behalf, together with the applicable legal rate of interest thereon, if it
shall be ultimately determined that I am not entitled to be indemnified thereby
against such Expenses; (ii) affirm my good faith belief that I have met the
standard of conduct necessary for indemnification; and (iii) reasonably evidence
the Expenses incurred by or for me.
[Description of expenses incurred by or for Indemnitee]
This letter shall constitute my undertaking to repay to the Company any
Expenses paid by it on my behalf, together with the applicable legal rate of
interest thereon, in connection with the Proceeding if it is ultimately
determined that I am not entitled to be indemnified with respect to such
Expenses as set forth above. I hereby affirm my good faith belief that I have
met the standard of conduct necessary for indemnification and that I am entitled
to such indemnification.
--------------------------
Signature
--------------------------
Print Name
--------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Hospitality Properties, Inc. at March 31, 1999, and its statement
of income for the three months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Hospitality Properties, Inc. for the three
months ended March 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 28,727,078 <F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 28,752,549
<DEPRECIATION> 615,000
<TOTAL-ASSETS> 84,706,283
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 90,949
<OTHER-SE> 78,992,164
<TOTAL-LIABILITY-AND-EQUITY> 84,706,283
<SALES> 0
<TOTAL-REVENUES> 1,333,352
<CGS> 0
<TOTAL-COSTS> 718,533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,573
<INCOME-PRETAX> 430,280
<INCOME-TAX> 0
<INCOME-CONTINUING> 430,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430,280
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.06
<FN>
<F1>Cash includes certificates of deposit and restricted cash totalling
$5,747,142 and $139,089, respectively.
<F2>Due to the nature of its industry, CNL Hospitality Properties, Inc.
has an unclassified balance sheet, therefore, no values are listed above
for current assets and current liabilities.
</FN>
</TABLE>
