FORM 10-Q/A
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>
The Form 10-Q of CNL Hospitality Properties, Inc. for the quarter ended March
31, 1999, is being amended in order to correct the calculation of the Company's
diluted earnings per share. This correction affects the condensed consolidated
statement of earnings and accompanying notes in Item 1. of Part I and Item 1 is
therefore amended to read as follows.
<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
<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 earnings (784,502 ) (216,130 )
-------------- -------------
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 8,244,160 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(R)
by Marriott(R) hotels, three will operate as Residence Inn(R) by
Marriott(R) hotels, and one will operate as a Marriott Suites(R).
The Company's advisor, CNL Hospitality Advisors, Inc. (the "Advisor"),
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(R) 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 1,824,612 --
---------------- -----------------
Adjusted weighted average
number of shares outstanding 8,244,160 1,474,288
================ =================
Diluted earnings per share $ 0.061 $ 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>
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 28th 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)
<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-BASIC> 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>
