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 September 30, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
0-24097
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CNL Hospitality Properties, Inc.
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(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.)
450 South Orange Avenue
Orlando, Florida 32801
- --------------------------------- ---------------------------
(Address of principal
executives 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.
24,740,516 shares of common stock, $.01 par value, outstanding as of November 4,
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 6-16
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17-29
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 30
Part II
Other Information 31-34
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
<S> <C>
ASSETS
Land, buildings and equipment on operating leases,
less accumulated depreciation of $1,076,251 and
$384,166, respectively $27,676,298 $ 28,368,383
Investment in unconsolidated subsidiary 38,882,550 --
Cash and cash equivalents 118,019,624 13,228,923
Restricted cash 250,177 82,407
Certificate of deposit 5,015,822 5,016,575
Due from related party 24,743 --
Receivables 67,980 28,257
Dividends receivable 1,214,772 --
Organization costs, less accumulated amortization of $5,221 -- 19,752
Loan costs, less accumulated amortization of $78,455
and $12,980, respectively 60,141 78,282
Accrued rental income 80,523 44,160
Other assets 7,092,227 1,989,951
---------------- ------------------
$198,384,857 $ 48,856,690
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ -- $ 9,600,000
Interest payable -- 66,547
Accounts payable and accrued expenses 11,303 337,215
Due to related parties 495,704 318,937
Security deposits 1,417,500 1,417,500
---------------- ------------------
Total liabilities 1,924,507 11,740,199
---------------- ------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share.
Authorized and unissued 63,000,000 shares -- --
Common stock, $.01 par value per share.
Authorized 60,000,000 shares, issued 22,352,104
and 4,321,908 shares, respectively, and outstanding
22,349,104 and 4,321,908 shares, respectively 223,491 43,219
Capital in excess of par value 198,470,016 37,289,402
Accumulated distributions in excess of net earnings (2,233,157 ) (216,130 )
---------------- ------------------
Total stockholders' equity 196,460,350 37,116,491
---------------- ------------------
$198,384,857 $ 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------------- --------------- ------------- ------------
<S> <C>
Revenues:
Rental income from operating
leases $ 769,442 $ 487,400 $2,255,968 $ 487,400
FF&E reserve income 68,268 41,099 194,301 41,099
Dividend income 926,687 -- 1,826,818 --
Interest and other income 1,217,304 127,082 2,125,043 498,241
--------------- --------------- -------------- --------------
2,981,701 655,581 6,402,130 1,026,740
--------------- --------------- -------------- --------------
Expenses:
Interest 6,592 139,416 239,922 139,416
General operating and
administrative 107,216 44,979 415,245 212,165
Professional services 16,206 -- 45,478 --
Asset management fees to
related party 19,710 27,246 87,146 27,246
Reimbursement of operating
expenses -- (92,733 ) -- (92,733 )
Other -- -- 5,968 --
Depreciation and amortization 243,178 154,804 736,593 156,804
--------------- --------------- -------------- --------------
392,902 273,712 1,530,352 442,898
--------------- --------------- -------------- --------------
Earnings Before Equity in Loss of
Unconsolidated Subsidiary After
Deduction of Preferred Stock
Dividends 2,588,799 381,869 4,871,778 583,842
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (167,283 ) -- (557,733 ) --
--------------- --------------- -------------- --------------
Net Earnings $2,421,516 $ 381,869 $4,314,045 $ 583,842
=============== =============== ============== ==============
Earnings Per Share of Common Stock:
Basic $ 0.13 $ 0.15 $ 0.34 $ 0.28
=============== =============== ============== ==============
Diluted $ 0.12 $ 0.15 $ 0.33 $ 0.28
=============== =============== ============== ==============
Weighted Average Number of Shares
Outstanding:
Basic 19,073,159 2,599,251 12,652,059 2,082,845
=============== =============== ============== ==============
Diluted 26,437,719 2,599,251 17,509,791 2,082,845
=============== =============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY Nine Months Ended
September 30, 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 3,169,368 31,694 31,661,984 -- 31,693,678
distribution reinvestment plan
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 offerings and 18,030,196 180,302 180,121,661 -- 180,301,963
distribution reinvestment plan
Retirement of common stock (3,000 ) (30 ) (27,570 ) -- (27,600)
Stock issuance costs -- -- (18,913,477 ) -- (18,913,477)
Net earnings -- -- -- 4,314,045 4,314,045
Distributions declared and paid
($0.54 per share) -- -- -- (6,331,072 ) (6,331,072)
------------ ------------ -------------- --------------- --------------
Balance at September 30, 1999 22,349,104 $223,491 $198,470,016 $(2,233,157 ) $196,460,350
============ ============ ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
--------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 4,642,118 $2,047,046
---------------- -----------------
Cash Flows from Investing Activities:
Investment in unconsolidated subsidiary (37,172,644 ) --
Additions to land, buildings and equipment
on operating leases -- (27,245,538 )
Investment in certificates of deposit -- (5,000,000 )
Increase in restricted cash (167,770 ) --
Increase in other assets (7,529,504 ) (983,305 )
---------------- -----------------
Net cash used in investing activities (44,869,918 ) (33,228,843 )
---------------- -----------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and stock
issuance costs paid by related parties
on behalf of the Company (2,855,472 ) (168,369 )
Payment on line of credit (9,600,000 ) --
Increase in loan costs (47,334 ) --
Proceeds from borrowings on line of credit -- 9,600,000
Subscriptions received from stockholders 180,301,963 17,133,319
Retirement of shares of common stock (27,600 ) --
Distributions to stockholders (6,331,072 ) (619,131 )
Payment of stock issuance costs (16,413,155 ) (1,634,250 )
Other (8,829 ) 12,500
---------------- -----------------
Net cash provided by financing activities 145,018,501 24,324,069
---------------- -----------------
Net Increase (Decrease) in Cash and Cash Equivalents 104,790,701 (6,857,728 )
Cash and Cash Equivalents at Beginning of Period 13,228,923 8,869,838
---------------- -----------------
Cash and Cash Equivalents at End of Period $118,019,624 $2,012,110
================ =================
</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>
Nine Months Ended
September 30,
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 $ 530,233 $ 220,575
Stock issuance costs 2,387,955 158,184
----------------- ----------------
$ 2,918,188 $ 378,759
================= ================
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 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. were
organized in Delaware in June 1998. CNL Hospitality Partners, LP is a
Delaware limited partnership formed in June 1998. CNL Hospitality GP
Corp. and CNL Hospitality LP Corp. are the general and limited partner,
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"). The Company may also provide mortgage financing (the
"Mortgage Loans") and furniture, fixture and equipment financing
("Secured Equipment Leases") to operators of Hotel 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 condensed consolidated
financial statements reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of the management,
necessary to fairly reflect the results of operations for the interim
periods presented. Operating results for the quarter and nine months
ended September 30, 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 condensed consolidated financial
statements, have been derived from audited consolidated financial
statements as of that date.
These unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated 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 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 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.
Certain items in the prior year's consolidated financial statements
have been reclassified to conform with the 1999 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
3. Public Offerings:
On June 17, 1999, the Company completed its offering of 16,500,000
shares of common stock ($165,000,000) (the "Initial Offering"), which
included 1,500,000 shares ($15,000,000) available only to stockholders
who elected to participate in the Company's reinvestment plan.
Following the completion of the Initial Offering, the Company commenced
an offering of up to 27,500,000 additional shares of common stock
($275,000,000) (the "1999 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 1999 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) to CNL Hospitality Corp. (formerly known as CNL Hospitality
Advisors, Inc.) (the "Advisor") for acquisition fees, are substantially
the same as those for the Company's Initial Offering. The Company
expects to use the net proceeds from the 1999 Offering to purchase
additional Properties and, to a lesser extent, make Mortgage Loans.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
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"). At the
time the agreement was entered into, the eight Hotels (four as
Courtyard by Marriott hotels, three as Residence Inn by
Marriott hotels, and one as a Marriott Suites) were either newly
constructed or in various stages of completion. As of September 30,
1999, Hotel Investors owns seven of the newly constructed Hotels.
The Company's Advisor is also the advisor to Hotel Investors pursuant
to a separate advisory agreement. However, in no event will the Company
pay the Advisor fees, including the Company's pro rata portion of Hotel
Investors' advisory fees, in excess of amounts payable under its
advisory agreement. The Advisor entered into separate purchase
agreements for each of the eight Hotels. The purchase agreements
included customary closing conditions, including performing due
diligence and inspection of the completed Properties. The aggregate
purchase price of all eight Hotels, once the final Hotel is acquired,
will be approximately $184 million, excluding closing costs.
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
through its wholly owned subsidiary, CNL Hospitality Partners, LP.
Hotel Investors funded and 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 (the "Hotel Investors Loan"), collateralized by
Hotel Investors' interests in the Properties.
On February 25, 1999, Hotel Investors purchased four of the eight
Hotels for an aggregate purchase price of approximately $90 million
(the "Initial Hotels") and paid $10 million 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. On June 16, 1999,
Hotel Investors purchased three additional hotels of the eight Hotels
(the "Additional Hotels") for an aggregate purchase
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
4. Investment in Unconsolidated Subsidiary - Continued:
price of approximately $77 million. The Additional Hotels are the
Courtyard by Marriott located in Scottsdale, Arizona, the Courtyard by
Marriott located in Seattle, Washington and the Residence Inn by
Marriott located in Phoenix, Arizona. Hotel Investors applied $7
million of the $10 million deposit toward the acquisition of the
Additional Hotels. As a result of these purchases and the deposit, Five
Arrows has funded approximately $48 million of its commitment and
purchased 48,337 shares of Hotel Investors' 8% Class A cumulative,
preferred stock ("Class A Preferred Stock") and the Company has funded
approximately $38 million of its commitment and purchased 37,979 shares
of Hotel Investors' 9.76% Class B cumulative, preferred stock ("Class B
Preferred Stock"). Hotel Investors has obtained advances totalling
approximately $88 million relating to the Hotel Investors Loan in order
to facilitate the acquisition of the Initial Hotels and Additional
Hotels. Hotel Investors has and intends to use future funds from Five
Arrows, the Company and the Hotel Investors Loan proportionately to
fund the remaining 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 predetermined formula.
Five Arrows also committed to invest up to $15 million in the Company
through the purchase of common stock pursuant to the Company's Initial
Offering and the 1999 Offering, the proceeds of which have been and
will be used by the Company to fund approximately 38% of its funding
commitment to Hotel Investors. As of February 24, 1999, Five Arrows had
invested $9,297,056 in the Company. Due to the stock ownership
limitations specified in the Company's Articles of Incorporation at the
time of Five Arrows' initial investment, $5,612,311 was 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 bearing an
interest rate of eight percent. Due to additional subscription proceeds
received from February 24, 1999 to April 30, 1999, the loan was
converted to 387,868 shares of the Company's common stock on April 30,
1999. On June 17, 1999, Five Arrows invested an additional $4,952,566
through the purchase of 521,322 shares of common stock. Therefore, as
of September 30, 1999, Five Arrows had invested
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
4. Investment in Unconsolidated Subsidiary - Continued:
$14,249,622 of its $15 million commitment in the Company. In addition
to the above investments, Five Arrows has purchased a 10% interest in
the Advisor. 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.
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 million
investment in the Company on a per share basis, adjusted for any
distributions received from the Company. Cash flow from operations will
then be distributed to the Company with respect to its Class B
Preferred Stock. Next, cash flow will be distributed to 100 CNL Group,
Inc. and subsidiaries' 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.
The following presents condensed financial information for Hotel
Investors as of and for the nine months ended September 30, 1999:
Land, buildings and equipment on operating
leases, less accumulated depreciation $166,267,909
Cash 4,692,582
Loan costs, less accumulated amortization 723,579
Accrued rental income 183,218
Deposits and other assets 3,127,123
Liabilities 91,507,263
Redeemable preferred stock - Class A 48,336,090
Total stockholders' equity 83,487,148
Revenues 8,462,868
Net earnings 2,646,788
During the quarter and nine months ended September 30, 1999, the
Company recorded $926,687 and $1,826,818, respectively, in dividend
income and $167,283 and $557,733, respectively, in equity in loss after
deduction of preferred stock dividends, resulting in net earnings of
$759,404 and $1,269,085, respectively, attributable to this investment.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
5. Convertible Loan:
As described above in Note 4, $3,684,745 was advanced to the Company by
Five Arrows as a convertible loan, bearing interest at a rate of eight
percent per annum payable at the time the loan was converted to shares
of common stock. On April 30, 1999, the loan was converted to 387,868
shares of common stock of the Company. For the nine months ended
September 30, 1999, the Company incurred approximately $54,000 in
interest expense on this convertible loan.
6. Other Assets:
Other assets consists of acquisition fees, miscellaneous acquisition
expenses that will be allocated to future Properties, and prepaid
expenses.
7. Redemption of Shares:
The Company has a redemption plan under which the Company may elect to
redeem shares, subject to certain conditions and limitations. During
the nine months ended September 30, 1999, 3,000 shares of common stock
were redeemed and retired.
8. Stock Issuance Costs:
The Company has incurred certain expenses associated with its offerings
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 offerings. Preliminary costs incurred prior to raising capital were
advanced by the Advisor. The Advisor has agreed to pay all 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 current offering.
During the nine months ended September 30, 1999 and 1998, the Company
incurred $18,913,477 and $1,769,263, respectively, in organizational
and offering costs, including $13,224,189 and $1,370,665, respectively,
in commissions and marketing support and due diligence expense
reimbursement fee (see Note 10). Of these amounts, $18,913,477 and
$1,764,292, respectively, have been treated as stock issuance costs and
for the nine months ended September 30, 1998, $4,971 has been treated
as organization costs. The stock issuance costs have been charged to
stockholders' equity.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
9. Distributions:
For the nine months ended September 30, 1999 and 1998, approximately 73
and 94 percent, respectively, of distributions paid to stockholders
were considered ordinary income and approximately 27 percent and 6
percent, respectively, were considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to
the stockholders for the nine months ended September 30, 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 percent return
on their invested capital. The characterization for tax purposes of
distributions declared for the nine months ended September 30, 1999,
may not be indicative of the results that may be expected for the year
ending December 31, 1999.
10. Related Party Transactions:
During the nine months ended September 30, 1999 and 1998, the Company
incurred $12,397,677 and $1,284,999, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
the offering of shares. A substantial portion of these amounts
($11,569,902 and $1,199,289, respectively) were or will be paid by CNL
Securities Corp. as commissions to other brokers.
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, all or a portion of
which may be reallowed to other broker-dealers. During the nine months
ended September 30, 1999 and 1998, the Company incurred $826,512 and
$85,667, respectively, of such fees, the majority of which will be
reallowed to other broker-dealers and from which all bona fide due
diligence expenses will be paid.
In addition, in connection with its current offering of common stock,
the Company has agreed to issue and sell soliciting dealer warrants
("Soliciting Dealer Warrants") to CNL Securities Corp., the managing
dealer of the Company. The price for each warrant will be $0.0008 and
one warrant will be issued for every 25 shares sold by the managing
dealer. All or a portion of the Soliciting Dealer Warrants may be
reallowed to soliciting dealers with prior written approval from, and
in the sole discretion of, the managing dealer, except where prohibited
by either federal or state securities laws. The holder of a Soliciting
Dealer Warrant will be entitled to purchase one share of common stock
from the Company at a price of $12.00 during the five year period
commencing the date the current offering began. No Soliciting Dealer
Warrants, however, will be exercisable until one year from the date of
issuance.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
10. Related Party Transactions - Continued:
The Advisor is entitled to receive acquisition fees for services
rendered in connection with identifying and acquiring Properties,
negotiating leases and obtaining financing on behalf of the Company.
The fee is equal to 4.5% of gross proceeds of the offerings, loan
proceeds from permanent financing and amounts outstanding on the line
of credit, if any at the time the Company's stock is listed on a
national or regional stock exchange, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the nine months ended September 30, 1999 and 1998, the Company incurred
$8,007,241 and $770,999, respectively, of such fees. Such fees are
included in land, buildings and equipment on operating leases, the
investment in unconsolidated subsidiary and other assets at September
30, 1999 and 1998.
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 value and the
outstanding principal balance of any Mortgage Loans as of the end of
the preceding month. During the nine months ended September 30, 1999
and 1998, the Company incurred $87,146 and $27,246 of such fees,
respectively.
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 nine months ended September
30:
1999 1998
------------ ------------
Stock issuance costs $2,467,852 $236,942
General operating and
administrative expenses 208,676 95,441
============= =============
$2,676,528 $332,383
============= =============
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
10. Related Party Transactions - Continued:
The amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C>
Due to CNL Securities Corp.:
Commissions $174,354 $66,063
Marketing support and due
diligence expense
reimbursement fee 13,373 4,404
---------------- ----------------
187,727 70,467
---------------- ----------------
Due to the Advisor:
Expenditures incurred on
behalf of the Company 184,930 110,496
Acquisition fees 123,047 137,974
---------------- ----------------
307,977 248,470
---------------- ----------------
$495,704 $318,937
================ ================
</TABLE>
11. Concentration of Credit Risk:
Two lessees, STC Leasing Associates, LLC (which operates and leases the
two Properties directly owned by the Company) and WI Hotel Leasing, LLC
(which leases the seven Properties in which the Company owns an interest
through Hotel Investors) each 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 nine months ended September
30, 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 these lessees or the Marriott brand chains 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
lessees.
It is expected that the percentage of total rental income contributed by
these lessees will decrease as additional Properties are acquired and
leased during 1999 and subsequent years.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
12. Earnings Per Share:
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if other contracts to issue
common stock were exercised and shared in the earnings of the Company.
For the quarter and nine months ended September 30, 1999, approximately
7.36 million and 4.86 million shares, respectively, related to the
conversion of Hotel Investors' Class A Preferred Stock to the Company's
common stock, were considered dilutive after the application of the if
converted method and were included in the denominator of the diluted EPS
calculation. The numerator in the diluted EPS calculation includes an
adjustment for the net earnings of Hotel Investors for the applicable
period.
13. Commitments and Contingencies:
As of September 30, 1999, the Company has entered into four agreements to
acquire, directly or indirectly, four hotel Properties. In connection
with three of these agreements, the Company has a deposit in the form of
a letter of credit, which is collateralized by a certificate of deposit,
amounting to $5 million. In connection with the remaining agreement,
Hotel Investors has a deposit of $3 million held in escrow. Of this
amount, Five Arrows contributed $1.68 million and the Company contributed
$1.32 million.
In connection with the acquisition of the two Properties owned by the
Company, the Company may be required to make an additional payment (the
"Earnout Amount") of up to $1 million if certain earnout provisions are
achieved by July 31, 2001. After July 31, 2001, the Company will no
longer be obligated to make any payments under the earnout provision. The
Earnout Amount is equal to the difference between earnings before
interest, taxes, depreciation and amortization expense adjusted by the
earnout factor (7.44), and the initial purchase price. Rental income will
be adjusted upward in accordance with the lease agreements for any amount
paid.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
14. Subsequent Events:
During the period October 1, 1999, through November 4, 1999, the Company
received subscription proceeds for an additional 2,394,296 shares
($23,942,963) of common stock.
On October 1, 1999 and November 1, 1999, the Company declared
distributions totalling $1,352,274 and $1,468,292, respectively, or
$0.0604 per share of common stock, payable in December 1999, to
stockholders of record on October 1, 1999 and November 1, 1999,
respectively.
On October 26, 1999, 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 45,000,000 shares of
common stock ($450,000,000) (the "2000 Offering") in an offering expected
to commence immediately following the completion of the Company's 1999
Offering. Of the 45,000,000 shares of common stock to be offered,
5,000,000 will be available to stockholders purchasing shares through the
reinvestment plan.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information, including, without limitation, the Year 2000
Readiness 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. These statements generally are
characterized by the use of terms such as "believe", "expect" and "may."
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, availability of capital from borrowings
under the Company's line of credit and security agreement, 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. Given
these uncertainties, readers are cautioned not to place undue reliance on such
statements.
The Company
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 partner, 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"). The
Company may also provide mortgage financing (the "Mortgage Loans") and
furniture, fixture and equipment financing ("Secured Equipment Leases") to
operators of Hotel 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
Common Stock Offerings
The Company was formed in June 1996, at which time it received initial
capital contributions of $200,000 for 20,000 shares of common stock. 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. Of the 16,500,000 shares of common stock offered, 1,500,000
($15,000,000) were available only to stockholders who elected to participate in
the Company's reinvestment plan. Upon completion of the Initial Offering on June
17, 1999, the Company had received aggregate subscription proceeds of
$150,072,637 (15,007,264 shares), including $72,637 (7,264 shares) through the
Company's reinvestment plan. Following the completion of its Initial Offering,
the Company commenced a second offering (the "1999 Offering") of up to
27,500,000 shares of common stock ($275,000,000). Of the 27,500,000 shares of
common stock offered, 2,500,000 are available only to stockholders purchasing
shares through the reinvestment plan. As of September 30, 1999, the Company had
received subscription proceeds of $73,248,406 (7,324,841 shares) from its 1999
Offering, including 23,246 shares ($232,466) issued pursuant to the reinvestment
plan. The price per share and the other terms of the 1999 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) to CNL
Hospitality Corp. (formerly known as CNL Hospitality Advisors, Inc.) (the
"Advisor") for acquisition fees, are substantially the same as those for the
Initial Offering.
As of September 30, 1999, net proceeds to the Company from its Initial
Offering and 1999 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 $199,000,000. The Company has used net proceeds from the offerings
to invest, directly or indirectly, approximately $63,100,000 in nine hotel
Properties, to pay $6,320,000 as deposits on four additional hotel Properties,
to redeem 3,000 shares of common stock for $27,600 and to pay approximately
$11,300,000 in acquisition fees and expenses, leaving approximately $118,000,000
available for investment in Properties and Mortgage Loans.
On October 26, 1999, 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 45,000,000 shares of common stock
($450,000,000) (the "2000 Offering") in an offering expected to commence
immediately following the completion of the 1999 Offering. Of the 45,000,000
shares of common stock to be offered, up to 5,000,000 will be available to
stockholders purchasing shares through the reinvestment plan. The price per
share and the other terms of the 2000 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) to the Advisor for acquisition
fees, are substantially the same as those for the Initial Offering and 1999
Offering.
<PAGE>
As of November 4, 1999, the Company had received aggregate subscription
proceeds of $247,264,005 (24,726,401 shares) from its Initial Offering and 1999
Offering, including $305,103 (30,510 shares) through its reinvestment plan. As
of November 4, 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 $220,700,000. The
Company has used net proceeds from the offerings to invest, directly or
indirectly, approximately $63,100,000 in nine hotel Properties, to pay
$6,320,000 as deposits on four additional hotel Properties, to redeem 5,885
shares of common stock for $54,142 and to pay approximately $12,300,000 in
acquisition fees and expenses, leaving approximately $139,000,000 available for
investment in Properties and Mortgage Loans.
The Company expects to use net proceeds it has received from its Initial
Offering, plus any additional net proceeds from the sale of shares from the 1999
Offering and 2000 Offering to purchase additional Properties and, to a lesser
extent, invest in 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 borrowings. The Company currently has a
$30,000,000 initial line of credit. The line of credit may be repaid with
offering proceeds, working capital or permanent financing. 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.
Line of Credit and Security Agreement
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 ensure that there has been no substantial
deterioration, as determined by the bank in its 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
attorney's fees, subject to a maximum cap, incurred in connection with the line
of credit and each advance. In connection with the line of credit, the Company
incurred a commitment fee, legal fees and
<PAGE>
closing costs of approximately $94,000. The proceeds from the line of credit
were used in connection with the purchase of two hotel Properties and the
commitment to acquire three additional Properties. As of September 30, 1999, the
Company has no amounts outstanding under the line of credit. 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.
Interest Rate Risk
The Company may be subject to interest rate risk through any outstanding
balances on its variable rate line of credit. The Company may mitigate this risk
by paying down any outstanding balances on the line of credit from offering
proceeds should interest rates rise substantially.
Property Acquisitions and Investments
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"). At the time the agreement was entered into, the
eight Hotels (four as Courtyard by Marriott hotels, three as Residence Inn by
Marriott hotels, and one as a Marriott Suites) were either newly constructed or
in various stages of completion. As of September 30, 1999, Hotel Investors owns
seven of the newly constructed Hotels.
The Company's Advisor is also the advisor to Hotel Investors pursuant to
a separate advisory agreement. However, in no event will the Company pay the
Advisor fees, including the Company's pro rata portion of Hotel Investors'
advisory fees, in excess of amounts payable under its advisory agreement. The
Advisor entered into separate purchase agreements for each of the eight Hotels.
The purchase agreements included customary closing conditions, including
performing due diligence and inspection of the completed Properties. The
aggregate purchase price of all eight Hotels, once acquired, will be
approximately $184 million, excluding closing costs.
In order to fund these purchases, Five Arrows 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 its wholly owned subsidiary, CNL Hospitality
Partners, LP. Hotel Investors funded and 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
(the "Hotel Investors Loan"), collateralized by Hotel Investors' interests in
the Properties.
<PAGE>
On February 25, 1999, Hotel Investors purchased four of the eight
Hotels for an aggregate purchase price of approximately $90 million (the
"Initial Hotels") and paid $10 million 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. On June 16, 1999, Hotel Investors purchased three additional
hotels of the eight Hotels (the "Additional Hotels") for an aggregate purchase
price of approximately $77 million. The Additional Hotels are the Courtyard by
Marriott located in Scottsdale, Arizona, the Courtyard by Marriott located in
Seattle, Washington and the Residence Inn by Marriott located in Phoenix,
Arizona. Hotel Investors applied $7 million of the $10 million deposit toward
the acquisition. As a result of these purchases and the deposit, Five Arrows has
funded approximately $48 million of its commitment and purchased 48,337 shares
of Hotel Investors' 8% Class A cumulative, preferred stock ("Class A Preferred
Stock") and the Company has funded approximately $38 million of its commitment
to Hotel Investors and purchased 37,979 shares of Hotel Investors' 9.76% Class B
cumulative, preferred stock ("Class B Preferred Stock"). Hotel Investors has
obtained advances totalling approximately $88 million relating to the Hotel
Investors Loan in order to facilitate the acquisition of the Initial Hotels and
Additional Hotels. Hotel Investors has and intends to use future funds from Five
Arrows, the Company, and the Hotel Investors Loan proportionately to fund the
remaining 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 predetermined
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 partnerships and joint ventures) per share of the Company's
common stock.
Five Arrows also committed to invest up to $15 million in the Company
through the purchase of common stock pursuant to the Company's Initial Offering
and the 1999 Offering, the proceeds of which have been and will be used by the
Company to fund approximately 38% of its funding commitment to Hotel Investors.
As of February 24, 1999, Five Arrows had invested $9,297,056 in the Company. Due
to the stock ownership limitations specified in the Company's Articles of
Incorporation at the time of Five Arrows' initial investment, $5,612,311 was
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 bearing an
interest rate of eight percent. Due to additional subscription proceeds received
from February 24, 1999 to April 30, 1999, the loan was converted to 387,868
shares of the Company's common stock on April 30, 1999. On June 17, 1999, Five
Arrows invested an additional $4,952,566 through the purchase of 521,322 shares
<PAGE>
of common stock. As of September 30, 1999, Five Arrows had invested $14,249,622
of its $15 million commitment in the Company. In addition to the above
investments, Five Arrows has purchased a 10% interest in the Advisor. 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.
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 million investment in the Company on a per share basis,
adjusted for any dividends received from the Company. Cash flow from operations
will then be distributed to the Company with respect to its Class B Preferred
Stock. Next, cash flow will be distributed to 100 CNL Group, Inc. and
subsidiaries' 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.
Capital Commitments
As of November 4, 1999, the Company had initial commitments to acquire,
directly or indirectly, four 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 has a deposit, in the
form of a letter of credit, collateralized by a certificate of deposit,
amounting to $5 million. In connection with the remaining agreement, Hotel
Investors has a deposit of $3 million held in escrow. Of this amount, Five
Arrows contributed $1.68 million and the Company contributed $1.32 million.
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 November 4, 1999, the Company had not acquired any such Properties or
entered into any Mortgage Loans. In addition, as of November 4, 1999, the
Company had not entered into any other arrangements creating a reasonable
probability a particular Property, Mortgage Loan or Secured Equipment Lease
would be funded.
Cash and Cash Equivalents
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term (defined as investments maturing in
less than 30 days), highly liquid investments, such as demand deposit accounts
at commercial banks, certificates of deposits and money market accounts. 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 September 30, 1999, the
Company had
<PAGE>
$118,019,624 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 is primarily attributable to proceeds received from the sale of
common stock in the Initial Offering and 1999 Offering. These funds will be used
to purchase additional Properties and to make Mortgage Loans, to pay offering
and acquisition expenses, to pay distributions to stockholders and other Company
expenses and, in management's discretion, to create cash reserves.
Liquidity Requirements
The Company expects to meet its short-term liquidity requirements, other
than for acquisition and development of Properties and investment in Mortgage
Loans and Secured Equipment Leases, through cash flow provided by operating
activities. The Company believes that cash flow provided by operating activities
will be sufficient to fund normal recurring operating expenses, regular debt
service requirements and distributions to stockholders. To the extent that the
Company's cash flow provided by operating activities is not sufficient to meet
such short-term liquidity requirements as a result, for example, of unforeseen
expenses due to tenants defaulting under the terms of their lease agreements,
the Company will use borrowings under its line of credit.
Due to the fact that the Company leases its Properties on a triple-net
basis, meaning that tenants are generally required to pay all repairs and
maintenance, property taxes, insurance and utilities, management does not
believe that working capital reserves are necessary at this time. Management
believes that the Properties are adequately covered by insurance. In addition,
the Advisor has obtained contingent liability and property 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 Company expects to meet its other short-term liquidity requirements,
including Property acquisition and development and investment in Mortgage Loans
and Secured Equipment Leases, with additional advances under its line of credit
and proceeds from its offerings.
The Company expects to meet its long-term liquidity requirements through
short or long-term, unsecured or secured debt financing or equity financing.
Distributions
During the nine months ended September 30, 1999 and 1998, the Company
generated cash from operations (which includes cash received from tenants and
dividend, interest and other income received, less cash paid for operating
expenses) of $4,642,118 and $2,047,046, respectively. Based on current and
anticipated future cash from operations and dividends due to the Company from
Hotel Investors at September 30, 1999 (and received in October 1999), the
Company declared and paid distributions to its stockholders of $6,331,072 and
$619,131 during the nine months ended September 30, 1999 and 1998, respectively.
In addition, on October 1, 1999 and November 1, 1999, the Company declared
distributions to stockholders of record on October 1, 1999 and November 1, 1999,
totalling $1,352,274 and $1,468,292, respectively, ($0.0604 per share), payable
in December 1999.
<PAGE>
For the nine months ended September 30, 1999 and 1998, approximately 73
percent and 94 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and approximately 27 percent
and 6 percent, respectively, were considered a return of capital for federal
income tax purposes. No amounts distributed to the stockholders for the nine
months ended September 30, 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 percent return on their invested capital.
Amounts Due to Related Parties
During the nine months ended September 30, 1999 and 1998, affiliates of
the Company incurred on behalf of the Company $2,387,955 and $158,184,
respectively, for certain organizational and offering expenses, $530,233 and
$220,575, respectively, for certain acquisition expenses, and $285,847 and
$64,422, respectively, for certain operating expenses. As of September 30, 1999
and December 31, 1998, the Company owed the Advisor $307,977 and $318,937,
respectively, for expenditures incurred on behalf of the Company and for
acquisition fees. The Advisor has agreed to pay or reimburse to the Company all
offering expenses in excess of three percent of gross offering proceeds.
As of September 30, 1999, the tenants of the Properties owned by the
Company, either directly or indirectly through Hotel Investors, 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,
or in the case of the seven Properties owned indirectly, to Hotel Investors. For
the nine months ended September 30, 1999, revenues relating to the FF&E reserve
of the Properties directly owned by the Company totalled $194,301, and
indirectly owned through Hotel Investors totalled $257,259. 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.
Results of Operations
Revenues
As of September 30, 1999, the Company had acquired nine Properties,
either directly or indirectly through Hotel Investors, consisting of land,
buildings 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 $3,691,000,
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
September 30, 1999, are owned by the Company, or owned indirectly in the case of
the seven Properties owned by Hotel Investors and have been reported as
additional rent.
<PAGE>
During the nine months ended September 30, 1999 and 1998, the Company
earned rental income of $2,255,968 and $487,400, respectively, from the two
wholly owned Properties ($769,442 and $487,400 of which was earned during the
quarters ended September 30, 1999 and 1998, respectively). Contingent rental
income of $38,342 and $62,668 was earned for the quarter and nine months ended
September 30, 1999, respectively. No contingent rental income was earned for the
nine months ended September 30, 1998. The Company also earned $194,301 and
$41,099 in FF&E reserve income during the nine months ended September 30, 1999
and 1998, respectively ($68,268 and $41,099 of which was earned during the
quarters ended September 30, 1999 and 1998, respectively). The increase in
rental income, contingent rental income and FF&E reserve income is due to the
fact that the Company owned its two wholly owned Properties for the full nine
months ended September 30, 1999, as compared to approximately three months
during the nine months ended September 30, 1998. Because the Company has not yet
acquired all of its Properties, revenues for the nine months ended September 30,
1999, represent only a portion of revenues which the Company is expected to earn
in future periods.
During the nine months ended September 30, 1999, the Company acquired and
leased seven Properties indirectly through its investment in Hotel Investors, as
described above. In connection with its investment, during the quarter and nine
months ended September 30, 1999, the Company recognized $926,687 and $1,826,818,
respectively, in dividend income and $167,283 and $557,733, respectively, in
equity in loss after deduction of preferred stock dividends, resulting in net
earnings attributable to this investment of $759,404 and $1,269,085,
respectively.
During the nine months ended September 30, 1999 and 1998, the Company
also earned $2,125,043 and $498,241, respectively, in interest income from
investments in money market accounts and other short-term highly liquid
investments and other income ($1,217,304 and $127,082 of which was earned during
the quarters ended September 30, 1999 and 1998, respectively). The increase in
interest income during the nine months ended September 30, 1999 as compared to
the nine months ended September 30, 1998, was attributable to the receipt of
subscription proceeds being temporarily invested in money market accounts or
other short-term, highly liquid investments pending investment in Properties or
Mortgage Loans. 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.
Significant Tenants
During the nine months ended September 30, 1999, two lessees, STC Leasing
Associates, LLC (which operates and leases the two Properties directly owned by
the Company) and WI Hotel leasing, LLC (which leases the seven Properties in
which the Company owns an interest through Hotel Investors) each contributed
more than ten percent of the Company's total rental income (including the
Company's share of total rental income from Hotel Investors). In addition, all
of the Company's rental income (including the Company's share of total rental
income from Hotel Investors) was earned from Properties operating as Marriott(R)
brand chains. Although the Company intends to acquire additional Properties
located in various states and regions and to carefully screen its tenants in
order to reduce risks of default, failure of these lessees or the
<PAGE>
Marriott brand chains 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 lessees. It is expected that the percentage of total
rental income contributed by these lessees will decrease as additional
Properties are acquired and leased during 1999 and subsequent years.
Expenses
Operating expenses, including interest expense and depreciation and
amortization expense, were $1,530,352 and $442,898 for the nine months ended
September 30, 1999 and 1998, respectively ($392,902 and $273,712 of which were
incurred for the quarters ended September 30, 1999 and 1998, respectively).
Total operating expenses were greater due to the fact that the Company owned its
two wholly owned Properties for the full nine months ended September 30, 1999,
as compared to approximately three months during the nine months ended September
30, 1998. Asset management fees and depreciation and amortization expenses are
expected to increase as the Company acquires additional Properties and invests
in Mortgage Loans.
Year 2000 Readiness Disclosure
Overview of year 2000 Problem
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 failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.
Information and Non-Information Technology Systems
The Company generally does not directly own information technology
systems. The Advisor and its affiliates generally provide all services requiring
the use of information and some non-information technology systems pursuant to a
management agreement with the Company. The information technology system of the
Advisor and its affiliates consists of a network of personal computers and
servers built using hardware and software from mainstream suppliers. The
non-information technology systems of the Advisor, its affiliates and the
Company are primarily facility related and include hotel and building security
systems, elevators, fire suppressions, HVAC, electrical systems and other
utilities. The Advisor and its affiliates have no internally generated
programmed software coding to correct, because substantially all of the software
utilized by the affiliates is purchased or licensed from external providers. The
maintenance of non-information technology systems at the Company's hotel
Properties is the responsibility of the tenants of the Properties and any
repairs or replacements will be paid out of the FF&E reserve in accordance with
the terms of the Company's leases. 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>
The Y2K Team
In early 1998, affiliates of the Advisor formed a Year 2000 committee
(the "Y2K Team") for the purpose of identifying, understanding and addressing
the various issues associated with the year 2000 problem. 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.
Assessing Year 2000 Readiness
The Y2K Team's initial step in assessing year 2000 readiness consists
of identifying any systems that are date sensitive and, accordingly, could have
potential year 2000 problems. The Y2K Team has conducted inspections, interviews
and tests to identify which of the systems used by the Company could have a
potential year 2000 problem.
The information system of the Advisor and its affiliates is comprised
of hardware and software applications from mainstream suppliers. Accordingly,
the Y2K Team has contacted and is evaluating documentation from the respective
vendors and manufacturers to verify the year 2000 compliance of their products.
The Y2K Team has also requested and is evaluating documentation from the
non-information technology systems providers of the Advisor, its affiliates and
the Company.
In addition, the Y2K Team has requested and is evaluating documentation
from other companies with which the Advisor, its affiliates and the Company have
material third party relationships. Such third parties, in addition to the
providers of information and non-information technology systems, consist of the
Company's transfer agent and financial institutions. The Company depends on its
transfer agent to maintain and track investor information and its financial
institutions for availability of cash.
As of September 30, 1999, the Y2K Team had received responses from
approximately 62% of the third parties of the Advisor, its affiliates and the
Company. All of the responses were in writing. Of the third parties responding,
all indicated that they are currently year 2000 compliant or will be year 2000
compliant prior to the end of year 2000. Although the Y2K Team continues to
receive positive responses from the companies with which the Advisor, its
affiliates and the Company have third party relationships regarding their year
2000 compliance, the Advisor, its affiliates and the Company cannot be assured
that the third parties have adequately considered the impact of the year 2000.
In addition, the Y2K Team has requested documentation from the
Company's tenants. The Y2K Team is in the process of obtaining the responses and
expects to complete this process by November 30, 1999. The Company has also
instituted a policy of requiring any new tenants to indicate that their systems
are year 2000 compliant or are expected to be year 2000 compliant prior to the
year 2000.
<PAGE>
Achieving Year 2000 Compliance
The Y2K Team has identified and completed upgrades for the hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of the software applications that were not
year 2000 compliant, although the Advisor, its affiliates and the Company cannot
be assured that the upgrade solutions provided by the vendors have addressed all
possible year 2000 issues.
The cost for these upgrades and other remedial measures is the
responsibility of the Advisor and its affiliates. The Advisor and its affiliates
do not expect that the Company will incur any costs in connection with the year
2000 remedial measures.
Assessing the Risks to the Company of Non-Compliance and Developing Contingency
Plans
Risk of Failure of Information and Non-Information Technology Systems Used by
the Company
The Advisor believes that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Company is the failure of one or more of these systems as a result of year
2000 problems. Because the Company's major source of income is rental payments
under long-term triple-net leases, any failure of information or non-information
technology systems used by the Company is not expected to have a material impact
on the results of operations of the Company. Even if such systems failed, the
payment of rent under the Company's leases would not be affected. In addition,
the Y2K Team is expected to correct any Y2K problems within the control of the
Advisor and its affiliates before the year 2000.
The Y2K Team has determined that a contingency plan to address this
risk is not necessary at this time. However, if the Y2K Team identifies
additional risks associated with the year 2000 compliance of the information or
non-information technology systems used by the Company, the Y2K Team will
develop a contingency plan if deemed necessary at that time.
Risk of Inability of Transfer Agent to Accurately Maintain Company Records
The Advisor believes that the reasonably likely worst case scenario
with regard to the Company's transfer agent is that the transfer agent will fail
to achieve year 2000 compliance of its systems and will not be able to
accurately maintain the records of the Company. This could result in the
inability of the Company to accurately identify its stockholders for purposes of
distributions, delivery of disclosure materials and transfers of common stock.
The Y2K Team has received certification from the Company's transfer agent of its
year 2000 compliance. Despite the positive response from the transfer agent, the
Advisor, its affiliates and the Company cannot be assured that the transfer
agent has addressed all possible year 2000 issues.
The Y2K Team has developed a contingency plan pursuant to which the
Advisor and its affiliates would maintain the records of the Company manually,
in the event that the systems of the transfer agent are not year 2000 compliant.
The Advisor and its affiliates would have to allocate resources to internally
perform the functions of the transfer agent. The Advisor and its affiliates do
not anticipate that the additional cost of these resources would have a material
impact on the results of operations of the Company.
<PAGE>
Risk of Loss of Short-Term Liquidity from Failure of Financial Institutions to
Achieve Year 2000 Compliance
The Advisor believes that the reasonably likely worst case scenario
with regard to the Company's financial institutions is that some or all of its
funds on deposit with such financial institutions may be temporarily
unavailable. The Y2K Team has received responses from 100% of the Company's
financial institutions indicating that their systems are currently year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.
Despite the positive responses from the financial institutions, the Advisor
cannot be assured that the financial institutions have addressed all possible
year 2000 issues. The loss of short-term liquidity could affect the Company's
ability to pay its expenses on a current basis. The Advisor does not anticipate
that a loss of short-term liquidity would have a material impact on the results
of operations of the Company.
Based upon the responses received from the Company's financial
institutions and the inability of the Y2K team to identify a suitable
alternative for the deposit of funds that is not subject to potential year 2000
problems, the Y2K Team has determined not to develop a contingency plan to
address this risk.
Risks of Late Payment or Non-Payment of Rent by Tenants
The Advisor believes that the reasonably likely worst case scenario
with regard to the Company's tenants is that some of the tenants may make rental
payments late as the result of the failure of the tenants to achieve year 2000
compliance of their systems used in the payment of rent, the failure of the
tenants' financial institutions to achieve year 2000 compliance, or the
temporary disruption of the tenants' businesses. The Y2K Team is in the process
of requesting responses from the Company's tenants indicating the extent to
which their systems are currently year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000. The Advisor cannot be assured that the
tenants have addressed all possible year 2000 issues. The late payment of rent
by one or more tenants would affect the results of operations of the Company in
the short-term.
The Advisor is also aware of predictions that the year 2000 problem, if
uncorrected, may result in a global economic crisis. The Advisor is not able to
determine if such predictions are true. A widespread disruption of the economy
could affect the ability of the Company's tenants to pay rent and, accordingly,
could have a material impact on the results of operations of the Company.
Because payment of rent is under the control of the Company's tenants,
the Y2K Team is not able to develop a contingency plan to address these risks.
In the event of late payment or non-payment of rent, the Company will assess the
remedies available to it under its lease agreements.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Information regarding the Company's market risk at December 31, 1998, is
included in its Annual Report on Form 10-K for the year ended December 31, 1998.
There have been no material changes in the Company's market risk from December
31, 1998 through September 30, 1999. Information regarding the Company's market
risk relating to changes in interest rates are herein incorporated by reference
in Item 2. "Liquidity and Capital Resources - Interest Rate Risk".
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
(d) 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. Of the 16,500,000 shares of common
stock offered, 1,500,000 ($15,000,000) were available only
to stockholders who elected to participate in the Company's
reinvestment plan. Upon completion of the Initial Offering
on June 17, 1999, the Company had received aggregate
subscription proceeds of $150,072,637 (15,007,264 shares),
including $72,637 (7,264 shares) through the Company's
reinvestment plan.
As of June 17, 1999, net offering proceeds received by the
Company from its Initial Offering, after deduction of
selling commissions, marketing support and due diligence
expense reimbursement fees and offering expenses totalled
approximately $135,000,000. Since the commencement of the
Initial Offering through its completion on June 17, 1999,
approximately $10,500,000 has been incurred by the Company
in selling commissions, marketing support and due diligence
reimbursement fees to related parties, the majority of
which was subsequently paid to unrelated third parties. In
addition, since the commencement of the Initial Offering
through June 17, 1999, the Company has reimbursed
affiliates approximately $4,500,000 for certain
organizational and offering expenses incurred on behalf of
the Company and administrative services related to the
offering. As of November 4, 1999, the Company had used net
offering proceeds to invest, directly or indirectly,
approximately $63,100,000 in nine hotel Properties, to pay
$6,320,000 as deposits on four additional hotel Properties,
to redeem 5,885 shares of common stock for $54,142 and to
pay approximately $7,789,000 in acquisition fees and
certain acquisition expenses. As of November 4, 1999,
approximately $58,000,000 of net offering proceeds was
available to invest in Properties and Mortgage Loans.
CNL Securities Corp., an affiliate of the Advisor, served
as managing dealer of the Initial Offering.
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 3.2 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.)
3.3 CNL American Realty Fund, Inc. Articles of Amendment to
the Amended and Restated Articles of Incorporation (Included
as Exhibit 3.4 to the 1996 Form S-11 and incorporated herein
by reference.)
3.4 Articles of Amendment to the Amended and Restated
Articles of Incorporation of CNL Hospitality Properties,
Inc. dated May 26, 1999 (Included as Exhibit 3.5 to the
Registration Statement on Form S-11 (Registration No.
333-67787) (the "1998 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.)
4.2 CNL American Realty Fund, Inc. Amended and Restated
Articles of Incorporation (Included as Exhibit 3.2 to the
1996 Form S-11 and incorporated herein by reference.)
4.3 CNL American Realty Fund, Inc. Bylaws (Included as
Exhibit 3.3 to the 1996 Form S-11 and incorporated herein by
reference.)
4.4 Articles of Amendment to the Amended and Restated
Articles of Incorporation of CNL American Realty Fund, Inc.
dated June 3, 1998 (Included as Exhibit 3.4 to the 1996 Form
S-11 and incorporated herein by reference.)
4.5 Articles of Amendment to the Amended and Restated
Articles of Incorporation of CNL Hospitality Properties,
Inc. (Included as Exhibit 3.5 to the 1998 Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of June 17, 1999, between
CNL Hospitality Properties, Inc. and CNL Hospitality
Advisors, Inc. (Formerly CNL Real Estate Advisors, Inc.)
(Included as Exhibit 10.1 to the June 30, 1999 Form 10-Q 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 directors and/or officers 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 (Included as Exhibit 10.2 to the
March 31, 1999 Form 10-Q and incorporated herein by
reference.)
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 - 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 - 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 - 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 - 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, LLC, dated August 1, 1998,
relating to the Residence Inn - 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 - 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.)
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.)
10.15 First Amendment to Lease Agreement between CNL
Hospitality Partners, LP and STC Leasing Associates, LLC,
dated August 1, 1998, related to the Residence Inn -
Gwinnett Place, (amends Exhibit 10.8 above) and the First
Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.8
above) (Filed herewith.)
10.16 First Amendment to Lease Agreement between CNL
Hospitality Partners, LP and STC Leasing Associates, LLC,
dated August 1, 1998, related to the Residence Inn -
Buckhead (Lenox Park) (amends Exhibit 10.9 above) and the
First Amendment to Agreement of Guaranty, dated August 1,
1998 (amends Agreement of Guaranty attached as Exhibit I to
10.9 above) (Filed herewith.)
27. Financial Data Schedule (Filed herewith.)
(b) No reports on Form 8-K were filed during the quarter ended
September 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 10th day of November, 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 10.15
First Amendment to Lease - Gwinnett Place
and
First Amendment to Agreement of Guaranty
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (the "Amendment") is made and entered
into as of the 1st day of August, 1998 by and between CNL Hospitality Partners,
L.P., a Delaware limited partnership ("Landlord"), and STC Leasing Associates,
LLC, a Georgia limited liability company ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant made and entered into that certain Lease
dated as of the 1st day of August, 1998 (the "Lease") with respect to the
certain hotel (being a Residence Inn) located in Gwinnett County, Georgia; and
WHEREAS, Landlord and Tenant desire to amend the Lease as more
particularly hereinafter set forth.
NOW THEREFORE, in consideration of the premises hereof and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant do hereby agree as follows:
1. Recitals: Capitalized Terms: The above recitals are true and
correct and are incorporated herein by this reference. Capitalized
terms used herein and not otherwise defined herein shall have the
meaning ascribed thereto in the Lease.
2. Amendments to the Lease: The Lease is hereby amended and modified
as follows:
a. Paragraph 8.1(j) is hereby deleted and the following
new paragraph 8.1(j) is hereby inserted in lieu,
instead and in place thereof:
(j) Garage Keepers Liability Insurance. Garage
keepers legal liability insurance covering both
comprehensive and collision-type losses with a limit
of liability in an amount not less than $100,000.00
per occurrence.
b. Paragraph 11.3 of the Lease is hereby deleted and the
following new paragraph 11.3 is hereby inserted in
lieu, instead and in place thereof:
11.3 The Reserve. Tenant shall establish a separate
interest bearing reserve account (the "Reserve") in a
bank designated by Landlord and reasonably approved
by Tenant. All interest earned on the Reserve shall
be added to and remain part of the Reserve. The
purpose of the Reserve is to cover the cost of the
following, to the extent carried out in accordance
with this Agreement:
<PAGE>
(i) replacements, renewals and additions to FF&E at
the Hotel; and (ii) repairs, renovations, renewals,
additions, alterations, improvements or replacements
and maintenance to the leased Premises, all of which
are routine and which are normally capitalized under
generally accepted accounting principals, such as
exterior and interior repainting, resurfacing
building walls, floors, roofs and parking areas, and
replacing folding walls and the like.
Both Tenant and Landlord shall be signatories on the
Reserve and either party shall be authorized to
withdraw funds from such account; provided, however,
Landlord agrees that it shall not make any
withdrawals therefrom so long as Tenant is not in
default hereunder. Deposits to the Reserve shall be
made as follows: (a) for each month during the first
Lease Year during the Term hereof three percent (3%)
of the Gross Receipts (as defined in Section 4.2
hereof) for such month shall be deposited in the
Reserve; (b) for each month during the second Lease
Year during the Term hereof four percent (4%) of the
gross Receipts for such month shall be deposited in
the Reserve; and (c) for each month during the third
Lease Year and each Lease Year thereafter during the
Term hereof, five percent (5%) of Gross Receipts for
such month shall be deposited in the Reserve.
Deposits to the Reserve with respect to any such
month shall be made in arrears within twenty-one (21)
days after the end of such month. Within sixty (60)
days after the close of each Lease Year, Tenant shall
notify Landlord of the balance in the Reserve and of
the account in which the Reserve is maintained.
Tenant may only withdraw funds from the Reserve
contained in the Approved Reserve Budget and, if not,
only with the prior approval of Landlord. (Which
funds shall not be withdrawn to cover Major Repairs
as described in, and the cost of which shall be borne
by Landlord, as set forth in Section 11.2 hereof.)
Not later than sixty (60) days prior to the
commencement of each calendar year during the Term
hereof, Tenant shall submit to Landlord a detailed
budget of expenses for the forthcoming calendar year
(the "Reserve Budget"). Such Reserve Budget shall
reflect by line item the projected budget expenses
for the Premises and assumptions on the basis of
which such line items were prepared in narrative form
if necessary, including separate items for all
projected expenditures for replacements,
substitutions and additions to Tenant's Personal
Property. Tenant shall provide to Landlord reasonable
additional detail, information and assumptions used
in the preparation of the Reserve Budget as requested
by Landlord. Tenant shall review the Reserve Budget
with Landlord, and subject to Landlord's approval,
Tenant shall implement such Reserve Budget for the
successive calendar year (during which it shall, if
approved by Landlord, be referred to as the
("Approved Reserve Budget"). Landlord shall have the
right to disapprove any Reserve expenditures but
Landlord agrees that it will not unreasonably
withhold its consent and that it will consent to any
expenditures required under the Franchise Agreement.
Pending resolution of any dispute, the specific
disputed item, of the Reserve Budget shall be
suspended and replaced for the calendar year in
question by an amount equal to the lesser of (a) that
proposed by Tenant for such calendar year or (b) such
budget item for the calendar year prior thereto.
Tenant shall not make any expenditures from the
Reserve, nor shall Tenant deviate from the Approved
Reserve Budget without the prior approval of
Landlord, except in the case of emergency where
immediate action is necessary to prevent imminent
danger to person or property. All funds in the
Reserve, all interest earned thereon and all property
purchased with funds from the Reserve shall be and
remain the property of Landlord. Following expiration
or early termination of this Agreement and payment in
full on all contracts entered into prior to such
expiration or termination for work to be done or FF&E
to be supplied in accordance with this Section 11.3
out of the Reserve, control over the Reserve shall be
transferred from Tenant to Landlord.
3. Joinder of Guarantors: Amendment to Agreement of Guaranty: The
Guarantors hereby join in the execution of the Amendment to
acknowledge and consent to the amendment to the Lease contained
herein. Further, Landlord, Tenant and Guarantors acknowledge that the
Agreement of Guaranty by Stormont Trice Corporation, a Georgia
corporation, Stormont Trice Development Corporation, a Georgia
corporation and Stormont Trice Management Corporation, a Georgia
corporation, to and in favor of Landlord dated August 1, 1998 has been
amended by that certain First Amendment to Agreement of Guaranty of
even date herewith and that the Guaranty as amended is and remains in
full force and effect.
4. Effective Date: This Amendment shall be effective as of, and relate
back to August 1, 1998. All references in the Lease to the "FF&E
Reserve" shall mean and refer to the "Reserve" as defined in paragraph
2(b) hereof.
5. Lease in Full Force and Effect: Except as hereby amended and
modified, the Lease shall remain in full force and effect in strict
accordance with the terms thereof.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
be duly executed on or as of the day and year first above written.
Signed, sealed and delivered
in the presence of: CNL HOSPITALITY PARTNERS, L.P.
a Delaware limited partnership
By: /s/ Charles A. Muller
--------------------------
Name: Charles A. Muller
Its: Executive Vice President
(CORPORATE SEAL)
"LANDLORD"
STC LEASING ASSOCIATES, LLC
a Georgia Limited Liability Company
By: /s/ James M. Stormont, Jr.
--------------------------
Name: James M. Stormont, Jr.
Its: Authorized Member
(CORPORATE SEAL)
"TENANT"
STORMONT TRICE CORPORATION
By: /s/ Richard M. Stormont
--------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE DEVELOPMENT CORPORATION
By: /s/ Richard M. Stormont
---------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE MANAGEMENT CORPORATION
By: /s/ Donald R. Trice
--------------------------
Name: Donald R. Trice
Its: Chairman
(CORPORATE SEAL)
"GUARANTORS"
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF GUARANTY
This First Amendment to Agreement of Guaranty (the "Amendment) is made
and executed as of the 1st day of August, 1998 by and among Stormont Trice
Corporation, a Georgia corporation, Stormont Trice Development Corporation, a
Georgia corporation and Stormont Trice Management Corporation, a Georgia
corporation (each a "Guarantor" and collectively the "Guarantors") and CNL
Hospitality Partners, L.P., a Delaware Limited Partnership ("Landlord").
WITNESSETH
WHEREAS, the Guarantors made and executed that certain Agreement of
Guaranty dated as of the 1st day of August, 1998 in favor of Landlord with
respect to that certain Residence Inn in Gwinnett County, Georgia (the
"Agreement") as a material inducement to Landlord, to enter into that certain
Lease Agreement dated as of August 1, 1998 as amended by First Amendment to
Lease of even date herewith (the "Lease") between Landlord and STC Leasing
Associates, LLC, ("Tenant") concerning the Premises, and that certain Lease
Agreement dated as of August 1, 1998 between Landlord and Tenant concerning the
Residence Inn Buckhead (the "Other Lease"), and for other good and valuable
consideration including, but not limited to, the financial benefits that will
inure to each Guarantor from the business success of Tenant; and
WHEREAS, the Guarantors desire to further amend the Agreement in
certain respects as more particularly hereinafter set forth.
NOW THEREFORE, in consideration of the premises hereof and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Guarantors do hereby agree as follows:
1. Recitals: Capitalized Terms: The above recitals are true and
correct and are incorporated herein by this reference. Capitalized
terms not otherwise defined herein shall have the meaning ascribed
thereto in the Lease.
2. Net Operating Income: The penultimate sentence of the Agreement
which reads as follows:
"For purposes hereof, "Shortfall" shall mean the
amount that Base Rent exceeds net operating income as
defined in Exhibit "A" hereto as determined on a
cumulative basis for each 12-month period following
the Commencement Date of the Lease (and during which
this Guaranty exists)."
is hereby deleted in its entirety and the following two
sentences are hereby inserted in lieu, instead and in place
thereof:
"For purposes hereof, "Shortfall" shall mean the
amount that Base Rent exceeds Net Operating Income
(as hereinafter defined), as determined on a
cumulative basis for each 12-month period following
the Commencement Date of the Lease (and during which
this Guaranty exists). Net Operating Income shall
mean and refer to EBITDA (earnings before interest,
taxes, depreciation and amortization), as calculated
in accordance with the Uniform System of Accounts and
shall specifically contemplate as expenses, franchise
fees and other fees and costs; provided, however, for
purposes of determining Net Operating Income,
management fees paid for each 12-month measurement
period (which are subordinate to Rent) shall be added
back to EBITDA and amounts funded into the Reserve
pursuant to Section 11.3 of the Lease for each
12-month measurement period, as aforesaid, shall be
deducted from EBITDA."
3. Except as hereby amended and modified, the Agreement shall
remain in full force and effect in strict accordance with the
terms thereof.
IN WITNESS WHEREOF, Guarantors and Landlord have executed this
Amendment in manner and form sufficient to bind them as of the day and year
first above written.
STORMONT TRICE CORPORATION,
a Georgia Corporation
By: /s/ Richard M. Stormont
---------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE DEVELOPMENT CORPORATION,
a Georgia Corporation
By: /s/ Richard M. Stormont
---------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE MANAGEMENT CORPORATION,
a Georgia Corporation
By: /s/ Donald R. Trice
----------------------------
Name: Donald R. Trice
Its: Chairman
(CORPORATE SEAL)
"GUARANTORS"
CNL HOSPITALITY PARTNERS, L.P.,
a Delaware Limited Partnership
By: CNL Hospitality GP Corporation,
a Delaware Corporation
By: /s/ C. Brian Strickland
----------------------------
Name: C. Brian Strickland
Its: Vice President
"LANDLORD"
EXHIBIT 10.16
First Amendment to Lease - Buckhead (Lenox Park)
and
First Amendment to Agreement of Guaranty
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (the "Amendment") is made and entered into as
of the 1st day of August, 1998 by and between CNL Hospitality Partners, L.P., a
Delaware limited partnership ("Landlord"), and STC Leasing Associates, LLC, a
Georgia limited liability company ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant made and entered into that certain Lease dated
as of the 1st day of August, 1998 (the "Lease") with respect to the certain
hotel (being a Residence Inn) located in Buckhead, Georgia; and
WHEREAS, Landlord and Tenant desire to amend the Lease as more particularly
hereinafter set forth.
NOW THEREFORE, in consideration of the premises hereof and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant do hereby agree as follows:
1. Recitals: Capitalized Terms: The above recitals are true and correct and
are incorporated herein by this reference. Capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed thereto in the Lease.
2. Amendments to the Lease: The Lease is hereby amended and modified as
follows:
a. Paragraph 8.1(j) is hereby deleted and the following new paragraph
8.1(j) is hereby inserted in lieu, instead and in place thereof:
(j) Garage Keepers Liability Insurance. Garage keepers legal liability
insurance covering both comprehensive and collision-type losses with a limit of
liability in an amount not less than $100,000.00 per occurrence.
b. Paragraph 11.3 of the Lease is hereby deleted and the following new
paragraph 11.3 is hereby inserted in lieu, instead and in place thereof:
11.3 The Reserve. Tenant shall establish a separate interest bearing
reserve account (the "Reserve") in a bank designated by Landlord and reasonably
approved by Tenant. All interest earned on the Reserve shall be added to and
remain part of the Reserve. The purpose of the Reserve is to cover the cost of
the following, to the extent carried out in accordance with this Agreement: (i)
replacements, renewals and additions to FF&E at the Hotel; and (ii) repairs,
renovations, renewals, additions, alterations, improvements or replacements and
maintenance to the leased Premises, all of which are routine and which are
normally capitalized under generally accepted accounting principals, such as
exterior and interior repainting, resurfacing building walls, floors, roofs and
parking areas, and replacing folding walls and the like.
Both Tenant and Landlord shall be signatories on the Reserve and either
party shall be authorized to withdraw funds from such account; provided,
however, Landlord agrees that it shall not make any withdrawals therefrom so
long as Tenant is not in default hereunder. Deposits to the Reserve shall be
made as follows: (a) for each month during the first Lease Year during the Term
hereof three percent (3%) of the Gross Receipts (as defined in Section 4.2
hereof) for such month shall be deposited in the Reserve; (b) for each month
during the second Lease Year during the Term hereof four percent (4%) of the
gross Receipts for such month shall be deposited in the Reserve; and (c) for
each month during the third Lease Year and each Lease Year thereafter during the
Term hereof, five percent (5%) of Gross Receipts for such month shall be
deposited in the Reserve. Deposits to the Reserve with respect to any such month
shall be made in arrears within twenty-one (21) days after the end of such
month. Within sixty (60) days after the close of each Lease Year, Tenant shall
notify Landlord of the balance in the Reserve and of the account in which the
Reserve is maintained. Tenant may only withdraw funds from the Reserve contained
in the Approved Reserve Budget and, if not, only with the prior approval of
Landlord. (Which funds shall not be withdrawn to cover Major Repairs as
described in, and the cost of which shall be borne by Landlord, as set forth in
Section 11.2 hereof.) Not later than sixty (60) days prior to the commencement
of each calendar year during the Term hereof, Tenant shall submit to Landlord a
detailed budget of expenses for the forthcoming calendar year (the "Reserve
Budget"). Such Reserve Budget shall reflect by line item the projected budget
expenses for the Premises and assumptions on the basis of which such line items
were prepared in narrative form if necessary, including separate items for all
projected expenditures for replacements, substitutions and additions to Tenant's
Personal Property. Tenant shall provide to Landlord reasonable additional
detail, information and assumptions used in the preparation of the Reserve
Budget as requested by Landlord. Tenant shall review the Reserve Budget with
Landlord, and subject to Landlord's approval, Tenant shall implement such
Reserve Budget for the successive calendar year (during which it shall, if
approved by Landlord, be referred to as the ("Approved Reserve Budget").
Landlord shall have the right to disapprove any Reserve expenditures but
Landlord agrees that it will not unreasonably withhold its consent and that it
will consent to any expenditures required under the Franchise Agreement. Pending
resolution of any dispute, the specific disputed item, of the Reserve Budget
shall be suspended and replaced for the calendar year in question by an amount
equal to the lesser of (a) that proposed by Tenant for such calendar year or (b)
such budget item for the calendar year prior thereto. Tenant shall not make any
expenditures from the Reserve, nor shall Tenant deviate from the Approved
Reserve Budget without the prior approval of Landlord, except in the case of
emergency where immediate action is necessary to prevent imminent danger to
person or property. All funds in the Reserve, all interest earned thereon and
all property purchased with funds from the Reserve shall be and remain the
property of Landlord. Following expiration or early termination of this
Agreement and payment in full on all contracts entered into prior to such
expiration or termination for work to be done or FF&E to be supplied in
accordance with this Section 11.3 out of the Reserve, control over the Reserve
shall be transferred from Tenant to Landlord.
3. Joinder of Guarantors: Amendment to Agreement of Guaranty: The
Guarantors hereby join in the execution of the Amendment to acknowledge and
consent to the amendment to the Lease contained herein. Further, Landlord,
Tenant and Guarantors acknowledge that the Agreement of Guaranty by Stormont
Trice Corporation, a Georgia corporation, Stormont Trice Development
Corporation, a Georgia corporation and Stormont Trice Management Corporation, a
Georgia corporation, to and in favor of Landlord dated August 1, 1998 has been
amended by that certain First Amendment to Agreement of Guaranty of even date
herewith and that the Guaranty as amended is and remains in full force and
effect.
4. Effective Date: This Amendment shall be effective as of, and relate back
to August 1, 1998. All references in the Lease to the "FF&E Reserve" shall mean
and refer to the "Reserve" as defined in paragraph 2(b) hereof.
5. Lease in Full Force and Effect: Except as hereby amended and modified,
the Lease shall remain in full force and effect in strict accordance with the
terms thereof.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
duly executed on or as of the day and year first above written.
Signed, sealed and delivered
in the presence of: CNL HOSPITALITY PARTNERS, L.P.
a Delaware limited partnership
By: /s/ Charles A. Muller
--------------------------
Name: Charles A. Muller
Its: Executive Vice President
(CORPORATE SEAL)
"LANDLORD"
STC LEASING ASSOCIATES, LLC
a Georgia Limited Liability Company
By: /s/ James M. Stormont, Jr.
----------------------------
Name: James M. Stormont, Jr.
Its: Authorized Member
(CORPORATE SEAL)
"TENANT"
STORMONT TRICE CORPORATION
By: /s/ Richard M. Stormont
-----------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE DEVELOPMENT CORPORATION
By: /s/ Richard M. Stormont
-----------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE MANAGEMENT CORPORATION
By: /s/ Donald R. Trice
-----------------------------
Name: Donald R. Trice
Its: Chairman
(CORPORATE SEAL)
"GUARANTORS"
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF GUARANTY
This First Amendment to Agreement of Guaranty (the "Amendment") is made and
executed as of the 1st day of August, 1998 by and among Stormont Trice
Corporation, a Georgia corporation, Stormont Trice Development Corporation, a
Georgia corporation and Stormont Trice Management Corporation, a Georgia
corporation (each a "Guarantor" and collectively the "Guarantors") in favor of
CNL Hospitality Partners, L.P., a Delaware Limited Partnership ("Landlord").
WITNESSETH
WHEREAS, the Guarantors made and executed that certain Agreement of
Guaranty dated as of the 1st day of August, 1998 in favor of Landlord with
respect to that certain Residence Inn in Buckhead, Georgia (the "Agreement") as
a material inducement to Landlord, to enter into that certain Lease Agreement
dated as of August 1, 1998 as amended by First Amendment to Lease of even date
herewith (the "Lease") between Landlord and STC Leasing Associates, LLC,
("Tenant") concerning the Premises, and that certain Lease Agreement dated as of
August 1, 1998 between Landlord and Tenant concerning the Residence Inn -
Gwinnett Place (the "Other Lease"), and for other good and valuable
consideration including, but not limited to, the financial benefits that would
inure to each Guarantor from the business success of Tenant; and
WHEREAS, the Guarantors desire to further amend the Agreement in certain
respects as more particularly hereinafter set forth.
NOW THEREFORE, in consideration of the premises hereof and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Guarantors do hereby agree as follows:
1. Recitals: Capitalized Terms: The above recitals are true and correct and
are incorporated herein by this reference. Capitalized terms not otherwise
defined herein shall have the meaning ascribed thereto in the Lease.
2. Net Operating Income: The penultimate sentence of the Agreement which
reads as follows:
"For purposes hereof, "Shortfall" shall mean the amount that Base Rent
exceeds net operating income as defined in Exhibit "A" hereto as determined on a
cumulative basis for each 12-month period following the Commencement Date of the
Lease (and during which this Guaranty exists)."
is hereby deleted in its entirety and the following two sentences are
hereby inserted in lieu, instead and in place thereof:
"For purposes hereof, "Shortfall" shall mean the amount that Base Rent
exceeds Net Operating Income (as hereinafter defined), as determined on a
cumulative basis for each 12-month period following the Commencement Date of the
Lease (and during which this Guaranty exists). Net Operating Income shall mean
and refer to EBITDA (earnings before interest, taxes, depreciation and
amortization), as calculated in accordance with the Uniform System of Accounts
and shall specifically contemplate as expenses, franchise fees and other fees
and costs; provided, however, for purposes of determining Net Operating Income,
management fees paid for each 12-month measurement period (which are subordinate
to Rent) shall be added back to EBITDA and amounts funded into the Reserve
pursuant to Section 11.3 of the Lease for each 12-month measurement period, as
aforesaid, shall be deducted from EBITDA."
3. Except as hereby amended and modified, the Agreement shall remain in
full force and effect in strict accordance with the terms thereof.
IN WITNESS WHEREOF, Guarantors and Landlord have executed this Amendment in
manner and form sufficient to bind them as of the day and year first above
written.
STORMONT TRICE CORPORATION,
a Georgia Corporation
By: /s/ Richard M. Stormont
------------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE DEVELOPMENT CORPORATION,
a Georgia Corporation
By: /s/ Richard M. Stormont
------------------------------
Name: Richard M. Stormont
Its: Chairman
(CORPORATE SEAL)
STORMONT TRICE MANAGEMENT CORPORATION,
a Georgia Corporation
By: /s/ Donald R. Trice
------------------------------
Name: Donald R. Trice
Its: Chairman
(CORPORATE SEAL)
"GUARANTORS"
CNL HOSPITALITY PARTNERS, L.P.,
a Delaware Limited Partnership
By: CNL Hospitality GP Corporation,
a Delaware Corporation
By: /s/ C. Brian Strickland
-------------------------
Name: C. Brian Strickland
Its: Vice President
"LANDLORD"
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Hospitality Properties, Inc. at September 30, 1999, and its
statement of income for the nine months then ended and is qualified in its
entirety by reference to the Form 10-Q of CNL Hospitality Properties, Inc. for
the nine months ended September 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 123,285,623 <F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 28,752,549
<DEPRECIATION> 1,076,251
<TOTAL-ASSETS> 198,384,857
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 223,491
<OTHER-SE> 196,236,859
<TOTAL-LIABILITY-AND-EQUITY> 198,384,857
<SALES> 0
<TOTAL-REVENUES> 6,402,130
<CGS> 0
<TOTAL-COSTS> 1,530,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239,922
<INCOME-PRETAX> 4,314,045
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,314,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,314,045
<EPS-BASIC> .34
<EPS-DILUTED> .33
<FN>
<F1>Cash includes certificate of deposit and restricted cash totalling
$5,015,822 and $250,177, 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>
