SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
-------------------------------------------------------------------
Date of Report (Date of earliest event reported): February 25, 1999
CNL HOSPITALITY PROPERTIES, INC.
(Exact Name of Registrant as Specified in Charter)
Florida 333-9943 59-3396369
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
400 East South Street 32801
Orlando, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (407) 650-1000
<PAGE>
Item 2. Acquisition or Disposition of Assets.
Acquisition of Properties
Western International Portfolio. In February 1999, the Company executed
a series of agreements with Five Arrows Realty Securities II L.L.C. ("Five
Arrows"), pursuant to which the Company and Five Arrows formed a jointly-owned
real estate investment trust, CNL Hotel Investors, Inc. ("Hotel Investors"), for
the purpose of acquiring up to eight hotels from various sellers affiliated with
Western International (the "Hotels"). The eight Hotels are either newly
constructed or in various stages of completion. When fully built, four of eight
Hotels will operate as Courtyard(R) by Marriott(R) hotels, three will operate as
Residence Inn(R) by Marriott(R) hotels, and one will operate as a Marriott
Suites(R).
The Company's advisor, CNL Hospitality Advisors, Inc. (the "Advisor"),
will act as the advisor to Hotel Investors pursuant to a separate advisory
agreement. However, in no event will the Company pay the Advisor fees, including
the Company's pro rata portion of Hotel Investors' advisory fees, in excess of
amounts payable under its Advisory Agreement. In that capacity, the Advisor has
entered into separate purchase agreements for each of the eight Hotels, which
agreements include customary closing conditions, including inspection of and due
diligence on the completed properties. The aggregate purchase price of all eight
Hotels, once acquired, will be approximately $184 million, excluding closing
costs.
In order to fund these purchases, Five Arrows has committed to make an
investment of up to $50.9 million in Hotel Investors. The Company has committed
to make an investment of up to $40 million in Hotel Investors, which investment
will be made through the Company's wholly owned subsidiary, CNL Hospitality
Partners, LP ("Hospitality Partners"). Hotel Investors expects to fund the
remaining amount of approximately $96.6 million with permanent financing from
Jefferson-Pilot Life Insurance Company, secured by Hotel Investors' interests in
the properties (the "Hotel Investors Loan"). Hotel Investors intends to use
funds from Five Arrows, the Company, and the Hotel Investors Loan
proportionately to fund each property acquisition.
In return for their respective funding commitments, Five Arrows will
receive a 51% common stock interest and Hospitality Partners will receive a 49%
common stock interest in Hotel Investors. As funds are advanced to Hotel
Investors, Five Arrows will receive up to 50,886 shares of Hotel Investors' 8%
Class A cumulative, preferred stock ("Class A Preferred Stock"), and Hospitality
Partners will receive up to 39,982 shares of Hotel Investors' 9.76% Class B
cumulative, preferred stock ("Class B Preferred Stock"). The Class A Preferred
Stock is exchangeable upon demand into common stock of the Company, as
determined pursuant to a formula that is intended to make the conversion not
dilutive to the Company's common stockholders.
Five Arrows has also committed to invest up to $15 million in the
Company through the purchase of common stock pursuant to the Company's current
public offering, the proceeds of which will be used by the Company to fund
approximately 38% of its funding commitment to Hotel Investors. Five Arrows will
purchase the Company's stock as properties are acquired by Hotel Investors, as
described above. In addition to the above investments, Five Arrows purchased a
10% interest in the Advisor.
Cash flow from operations of Hotel Investors is expected to be
distributed first to Five Arrows with respect to dividends payable on the Class
A Preferred Stock. Such dividends are calculated based on Five Arrows' "special
investment amount" which, is $1,294.78 per share, which represents the sum of
its investment in Hotel Investors and its $15,000,000 investment in the Company
on a per share basis, adjusted for any dividends received from the Company.
Then, cash flow from operations is expected to
<PAGE>
be distributed to the Company with respect to its Class B Preferred Stock. Next,
cash flow will be distributed to 100 CNL associates who each own one share of
Class C preferred stock in Hotel Investors, to provide a quarterly, cumulative,
compounded 8% return. All remaining cash flow from operations will be
distributed pro rata with respect to the interest in the common shares.
On February 25, 1999, Hotel Investors purchased four of the eight
Hotels for an aggregate purchase price of $90,448,000 (the "Initial Hotels") and
paid $10,000,000 as a deposit on the four remaining Hotels. The Initial Hotels
are the Courtyard by Marriott located in Plano, Texas (the "Legacy Park
Property"), the Marriott Suites located in Dallas, Texas (the "Market Center
Property"), the Residence Inn by Marriott located in Las Vegas, Nevada (the
"Hughes Center Property") and the Residence Inn by Marriott located in Plano,
Texas (the "Dallas Plano Property"). As a result of these purchases and the
deposit, Five Arrows has funded $31,536,824 of its $50,890,000 commitment to
Hotel Investors and purchased 31,537 shares of Class A Preferred Stock. In
addition, Five Arrows has invested $9,297,056 of its $15 million commitment to
the Company. Due to the current stock ownership limitations specified in the
Company's Articles of Incorporation, $5,612,311 has been invested in the
Company's common stock through the purchase of 590,770 Shares and $3,684,745 was
advanced to the Company as a convertible loan, which bears interest at a rate of
eight percent per annum. In connection with the acquisitions and the deposit,
the Company has funded $24,778,933 of its $40 million commitment to Hotel
Investors and purchased 24,779 shares of Class B Preferred Stock. Hotel
Investors has obtained an advance of $47,863,052 relating to the Hotel Investors
Loan in order to facilitate the acquisition of the Initial Hotels.
In connection with Five Arrows' commitment to invest $15 million in the
Company, the Advisor and certain Affiliates have agreed to waive certain fees
otherwise payable to them by the Company.
Hotel Investors acquired the Legacy Park Property for $12,694,000 from
PLC Hotel Property, Ltd., the Market Center Property for $32,973,000 from Marcen
Property, Ltd., the Hughes Center Property for $33,097,000 from LVHC Hotel
Property, Ltd. and the Dallas Plano Property for $11,684,000 from PLR1 Hotel
Property, Ltd. In connection with the purchase of the four Properties, Hotel
Investors, as lessor, entered into four separate, long-term lease agreements.
The lessee of the Initial Hotels is the same unaffiliated lessee. The leases on
all four Properties are cross-defaulted. The general terms of the lease
agreements are described in the section of the Prospectus entitled "Business
Description of Property Leases." The principal features of the leases are as
follows:
0 The initial term of each lease expires in approximately 20 years, on
December 28, 2018.
0 At the end of the initial lease term, the tenant will have three consecutive
renewal options of fifteen years.
0 The leases will require minimum rent payments as follows.
Minimum Annual Rent
---------------------------------------
Year 2 and
Property Year 1 Thereafter
---------------------------- ---------------- ----------------
Legacy Park Property $1,308,673 $1,341,390
Market Center Property 3,399,319 3,484,302
Hughes Center Property 3,412,068 3,497,369
Dallas Plano Property 1,204,485 1,234,597
<PAGE>
0 In addition to minimum rent, for lease years one and two, the leases will
require percentage rent equal to 7.75% of the aggregate amount of all room
revenues combined, for the Initial Hotels, in excess of a combined threshold
of $26,672,000. For lease year three and thereafter, the leases will require
percentage rent equal to 7.75% of the aggregate amount of all room revenues
combined, for the Initial Hotels, in excess of lease year two actual
revenues.
0 The tenant of the Initial Hotels will establish a capital expenditures
reserve fund which will be used for the replacement and renewal of
furniture, fixtures and equipment relating to the hotel Properties (the
"FF&E Reserve"). Deposits to the FF&E Reserve will be made once every four
weeks as follows: (i) for the Legacy Park, Hughes Center and Dallas Plano
Properties, 1% of gross receipts for the first lease year; 3% of gross
receipts for the second lease year; and 5% of gross receipts every lease
year thereafter and (ii) for the Market Center Property, 1% of gross
receipts for the first lease year; 2% of gross receipts for the second lease
year; 3% of gross receipts for the third through fifth lease years; 4% of
gross receipts for the sixth through tenth lease years; and 5% of gross
receipts for the eleventh lease year and thereafter. Funds in the FF&E
Reserve and all property purchased with funds from the FF&E Reserve shall be
paid, granted and assigned to the Company.
0 The tenant under each lease is required to maintain, for up to three years
from the commencement of the last lease for the Hotels to be executed (but
in no event earlier than December 31, 2003), a liquid net worth equal to a
minimum amount (the "Net Worth Requirement"), which may be used solely to
make payments under the leases. The Net Worth Requirement may be reduced
after twelve months to the extent by which payment of rent exceeds cash
available for lease payments (gross revenues less property expenses) derived
from the leased Hotels during the one-year period. In addition, providing
that all of the Hotels have been opened for one year, the Net Worth
Requirement will terminate at such time that cash available for lease
payments for all of the leased Hotels equals 125% of total minimum rent due
under the leases; or that the lease is terminated pursuant to its terms
(other than for an event of default).
The estimated federal income tax basis of the depreciable portion of
the Initial Hotels is as follows.
Legacy Park Property $11,224,000
Market Center Property 30,623,000
Hughes Center Property 29,788,000
Dallas Plano Property 10,470,000
Each of the Initial Hotels is a newly constructed hotel which recently
commenced operations. The Legacy Park Property is located approximately 25 miles
north of the city of Dallas and has 153 guest rooms and five suites. The Market
Center Property is approximately two miles northwest of the Dallas central
business district and has 266 guest suites. The Hughes Center Property is in a
commercial park located east of the Las Vegas strip and has 256 guest suites.
The Dallas Plano Property is located approximately 25 miles north of the city of
Dallas and has 126 guest suites. Other lodging facilities located in proximity
to the Legacy Park Property include a Hampton Inn, a Fairfield Inn(R) by
Marriott(R), a LaQuinta Inn & Suites and another Courtyard by Marriott. Other
lodging facilities located in proximity to the Market Center Property include a
Renaissance(R) Hotel, an Embassy Suites, a Sheraton Suites, a Wyndham Garden
Hotel and a Courtyard by Marriott. Other lodging facilities located in proximity
to the Hughes Center Property include an AmeriSuites, a Hawthorn Suites and
another Residence Inn by Marriott. Other lodging facilities located in proximity
to the Dallas Plano Property include a Homewood Suites, a Bradford Suites, a
Mainstay Suites, a La Quinta Inn & Suites, a Courtyard by Marriott and another
Residence Inn by Marriott.
<PAGE>
The Initial Hotels are recently constructed properties; therefore,
limited operating history is available. Of the Initial Hotels, the Hughes Center
Property and the Dallas Plano Property were the earliest to open, in October
1998. Based on information provided to the Company by Western International for
the period ended December 31, 1998, these properties generated gross operating
profits of $690,000 and $188,000, respectively, which resulted in net operating
profits (earnings before interest, taxes and depreciation) of $394,000 and
$55,000 respectively. The average occupancy rate, the average daily room rate
and the revenue per available room for the periods the hotels have been
operational are as follows:
<TABLE>
<CAPTION>
Average Average Revenue
Occupancy Daily Room per
Property Year Rate Rate Available Room
----------------------------- ---------- ------------- --------------- -------------------
<S> <C>
Legacy Park Property *1998 8.20% $45.28 $ 3.70
**1999 42.20% 105.37 44.45
Market Center Property *1998 37.90% $100.95 $ 38.26
**1999 81.50% 138.50 112.91
Hughes Center Property *1998 47.30% $107.86 $ 51.00
**1999 51.60% 100.33 51.79
Dallas Plano Property *1998 46.70% $ 88.79 $ 41.47
**1999 47.10% 94.95 44.68
</TABLE>
* Data for the Legacy Park Property represents the period December 23,
1998 through January 1, 1999, data for the Market Center Property
represents the period November 11, 1998 through January 1, 1999, data
for the Hughes Center Property represents the period October 1, 1998
through January 1, 1999 and data for the Dallas Plano Property
represents the period October 12, 1998 through January 1, 1999.
** Data for 1999 represents the period January 2, 1999 through January 29,
1999.
The Company believes that the results achieved by the Initial Hotels
for year-end 1998, are not indicative of their long-term operating
potential, as they each had been open for three months or less during
the reporting period.
The brands, Residence Inn by Marriott, Courtyard by Marriott and
Marriott Hotels, Resorts and Suites(R) are part of Marriott International's
portfolio of brands. According to data obtained in February 1999 from Marriott's
Market Planning & Feasibility department, Marriott International is one of the
world's leading hospitality companies, managing the most hotels worldwide and is
ranked as the sixth largest hotel company overall by brand (based on number of
rooms in 1997). According to Marriott data, as of September 1998, Marriott
International had more than 1,600 units (or properties), for an aggregate of
more than 315,000 rooms worldwide. Although Marriott International has entered
into a management agreement relating to the Initial Hotels, it has not
guaranteed the payments due under the leases.
Each Residence Inn by Marriott hotel typically offers daily
complimentary breakfast and newspaper, an evening hospitality hour, a swimming
pool, heated whirlpool and Sport Court(R). Guest suites provide in-room modem
jacks, separate living and sleeping areas and a fully equipped kitchen with
appliances and cooking utensils. According to Marriott, as of September 1998,
there were over 250 Residence Inn hotels in the United States and four in Canada
and Mexico. With a usage rate of more than 83% among extended stay chains,
Residence Inn by Marriott is the top U.S. extended stay lodging brand, appealing
to travelers who need a room for five or more consecutive nights, according to
Marriott Marketing Planning and Feasibility, February 1999.
<PAGE>
Each Courtyard by Marriott features a residential atmosphere, a
restaurant, lounge, meeting space, exercise room and swimming pool. According to
data obtained in February 1999 from Marriott's Marketing Planning & Feasibility
department, Courtyard by Marriott is a leading moderate price lodging chain
featuring a residential atmosphere. According to Marriott, as of September 1998,
there were more than 340 Courtyard hotels across the United States, Canada and
abroad.
Marriott Hotels, Resorts and Suites is Marriott International's
flagship brand of upscale, full-service hotels and resorts. Each of the Marriott
Hotels, Resorts and Suites features multiple restaurants and lounges, health
club, swimming pool, gift shop, concierge level, business center and meeting
facilities. According to Marriott, as of September 1998, there were over 340
Marriott Hotels, Resorts and Suites worldwide.
In connection with the acquisition of certain of the Properties, the
Company and Hotel Investors have entered into agreements with Marriott
International or one of its affiliates. Among other things, these agreements
require under certain circumstances that the Company or Hotel Investors obtain
the consent of, or offer the Property to, Marriott International or one of its
affiliates in the event that the Company or Hotel Investors wishes to sell the
Property to a third party. The Company believes that these agreements and the
terms thereof are consistent with standard practices in the hospitality
industry.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro forma financial information.
See Index to Pro Forma Financial Statements on page 7.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
INDEX TO FINANCIAL STATEMENTS
Page
----
Pro Forma Consolidated Financial Information (Unaudited):
Unaudited Pro Forma Consolidated Balance Sheet as of December 31,
1998 9
Unaudited Pro Forma Consolidated Statement of Earnings for the Year
Ended December 31, 1998 10
Notes to Unaudited Pro Forma Consolidated Financial Statements for
the Year Ended December 31, 1998 11
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of CNL
Hospitality Properties, Inc. and subsidiaries (the "Company") gives effect to
(i) the receipt of $43,019,080 in gross offering proceeds from the sale of
4,301,908 shares of common stock pursuant to a registration statement on Form
S-11 under the Securities Act of 1933, as amended, effective July 9, 1997, for
the period from inception through December 31, 1998 and the application of such
funds to purchase two properties, and to pay offering expenses, acquisition fees
and miscellaneous acquisition expenses, (ii) the receipt of $30,586,428 in gross
offering proceeds from the sale of 3,058,643 additional shares and $3,684,745
from borrowings on a convertible loan, for the period January 1, 1999 through
February 26, 1999, and (iii) the application of such funds to purchase four
properties indirectly through an investment in a private real estate investment
trust, to pay down the three advances on the line of credit totalling
$9,600,000, and to pay offering expenses, acquisition fees and miscellaneous
acquisition expenses, all as reflected in the pro forma adjustments described in
the related notes. The Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1998, includes the transactions described in (i) above, from its
historical balance sheet, adjusted to give effect to the transactions in (ii)
and (iii) above, as if they had occurred on December 31, 1998.
The Unaudited Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1998, includes the historical operating results of the
properties described in (i) above that were acquired by the Company during the
year ended December 31, 1998 and in (iii) above that were acquired by the
Company during the period January 1, 1999 through February 26, 1999, from the
later of (1) the date the property became operational or (2) January 1, 1998 to
the end of the pro forma period presented.
This pro forma financial information is presented for informational
purposes only and does not purport to be indicative of the Company's financial
results or condition if the various events and transactions reflected therein
had occurred on the dates, or been in effect during the periods, indicated. This
pro forma financial information should not be viewed as predictive of the
Company's financial results or conditions in the future.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------------- -------------- --------------
<S> <C>
Land, building and equipment on operating leases,
less accumulated depreciation of $384,166 $28,368,383 $ -- $28,368,383
Investment in private real estate investment trust -- 26,107,084 (a) 26,107,084
Cash and cash equivalents 13,228,923 (2,926,680 ) (a) 10,302,243
Restricted cash 82,407 -- 82,407
Certificate of deposit 5,016,575 -- 5,016,575
Receivables 28,257 -- 28,257
Prepaid expenses 9,391 -- 9,391
Organization costs, less accumulated amortization
of $5,221 19,752 -- 19,752
Accrued rental income 44,160 -- 44,160
Loan costs, less accumulated amortization of $12,980 78,282 -- 78,282
Other assets 1,980,560 (1,100,923 ) (a) 879,637
------------- ------------- --------------
$48,856,690 $22,079,481 $70,936,171
============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $9,600,000 $( 9,600,000 ) (a) $ --
Convertible loan -- 3,684,745 (a) 3,684,745
Accounts payable and accrued expenses 333,726 (324,521 ) (a) 9,205
Due to related parties 318,937 (292,872 ) (a) 26,065
Security deposits 1,417,500 -- 1,417,500
Rents paid in advance 3,489 -- 3,489
Interest payable 66,547 -- 66,547
-------------- ------------- --------------
Total liabilities 11,740,199 (6,532,648 ) 5,207,551
-------------- ------------- --------------
Stockholders' equity
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- -- --
Excess shares, $.01 par value per share.
Authorized and unissued 63,000,000 shares -- -- --
Common stock, $.01 par value per share.
Authorized 60,000,000 shares; issued and
outstanding 4,321,908 shares; issued and
outstanding, as adjusted, 7,380,551 shares 43,219 30,586 (a) 73,805
Capital in excess of par value 37,289,402 28,581,543 (a) 65,870,945
Accumulated distributions in excess of net earnings (216,130 ) -- (216,130 )
-------------- ------------- --------------
Total stockholders' equity 37,116,491 28,612,129 65,728,620
------------- ------------- --------------
$48,856,690 $22,079,481 $70,936,171
============== ============= ==============
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
Pro Forma
Historical Adjustments Pro Forma
------------ -------------- --------------
Revenues:
Rental income from
operating leases $ 1,218,500 $1,706,732 (1) $2,925,232
FF&E Reserve income 98,099 140,000 (2) 238,099
Interest income 638,862 (609,975 )(3) 28,887
Dividend income -- 423,938 (4) 423,938
-------------
---------------- ----------------
1,955,461 1,660,695 3,616,156
------------- ---------------- ----------------
Expenses:
Interest expense 350,322 441,467 (5) 791,789
General operating and
administrative 167,951 92,733 (6) 260,684
Asset management fees to
related party 68,114 106,571 (7) 174,685
Professional services 21,581 -- 21,581
Depreciation and amortization 388,554 545,376 (8) 933,930
------------- ---------------- ----------------
996,522 1,186,147 2,182,669
------------- ---------------- ----------------
Earnings Before Equity in Loss
of Private Real Estate
Investment Trust 958,939 474,548 1,443,487
Equity in Loss of Private Real
Estate Investment Trust -- (56,464 )(9) (56,464 )
------------- ---------------- ----------------
Net Earnings $ 958,939 $ 418,084 $ 1,377,023
============= ================ ================
Earnings Per Share of Common
Stock (Basic and Diluted) (10) $ 0.40 $ 0.51
============= ================
Weighted Average Number of
Shares of Common Stock
Outstanding (10) 2,402,344 2,697,355
============= ================
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $30,586,428 from the sale of 3,058,643
shares during the period January 1, 1999 through February 26, 1999, the
receipt of $3,684,745 from borrowings on a convertible loan, and
$2,926,680 in cash and cash equivalents, used (i) to invest, together
with an institutional investor, in the formation of a separate, private
real estate investment trust for $24,778,933 ($1,295,216 of which had
been recorded as other assets as of December 31, 1998), (ii) to pay
down three advances on the line of credit totalling $9,600,000, (iii)
to pay acquisition fees and costs of $1,950,217 ($427,773 of which was
accrued as due to related parties at December 31, 1998), to reclassify
from other assets $1,100,923 of acquisition fees and costs previously
incurred relating to the indirectly held properties and to pay selling
commissions and offering expenses of $2,163,919 which have been netted
against stockholders' equity (a total of $189,621 of which was accrued
as of December 31, 1998).
The pro forma adjustment to investment in private real estate
investment trust as a result of the above transactions was as follows:
<TABLE>
<CAPTION>
Acquisition Fees
Estimated Allocated to
Investment Investment Total
-------------------- -------------------- ------------------
<S> <C>
Investment in private
real estate investment
trust $24,778,933 $1,328,151 $26,107,084
==================== ==================== ==================
</TABLE>
The Company indirectly acquired an interest in four hotel properties
through an investment in a separate, private real estate investment
trust, CNL Hotel Investors, Inc. (the "Private REIT"). The Company
acquired $24,778,630 of 9.76% Class B cumulative preferred stock and
$303 of common stock of the Private REIT. The common stock owned by the
Company represents a 49% interest in the Private REIT.
The investment in common stock will be accounted for using the equity
method in accordance with generally accepted accounting principles.
Common stock dividends received from the Private REIT will decrease the
investment while equity in the net earnings or loss of the Private REIT
will increase or decrease the investment.
The investment in preferred stock of the Private REIT will be accounted
for using the cost method with dividends declared by the Private REIT
recorded as income on the statement of earnings of the Company.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statement of Earnings:
(1) Represents rental income from operating leases for the properties
acquired as of December 31, 1998, which were operational prior to the
acquisition of the property by the Company (the "Pro Forma
Properties"), for the period commencing the later of (i) the date the
Pro Forma Property became operational by the previous owner or (ii)
January 1, 1998, to the end of the pro forma period presented. The
following presents the actual date the Pro Forma Properties were
acquired or placed in service by the Company as compared to the date
the Pro Forma Properties were treated as becoming operational as a
rental property for purposes of the Pro Forma Consolidated Statement of
Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
-------------- ---------------
Residence Inn Buckhead (Lenox
Park) in Atlanta, GA July 31, 1998 January 1, 1998
Residence Inn Gwinnett Place
in Duluth, GA July 31, 1998 January 1, 1998
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1998 that the Company held the properties, no pro
forma adjustment was made for percentage rental income for the years
ended December 31, 1998.
(2) Represents capital expenditure reserve funds which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the Pro Forma Properties (the "FF&E Reserve"). The funds in the FF&E
Reserve and all property purchased with funds from the FF&E Reserve
will be paid, granted and assigned to the Company as additional rent.
In connection therewith, FF&E Reserve income was earned at
approximately $10,000 per month, per Pro Forma Property.
(3) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the periods commencing the later of (i) the dates the Pro Forma
Properties became operational by the previous owners and the dates the
Private REIT properties became operational or (ii) January 1, 1998,
through the end of the pro forma period presented, as described in Note
(1) above. The estimated pro forma adjustment is based upon the fact
that (i) all of the net offering proceeds received during the year
ended December 31, 1998 and invested in interest bearing accounts for
historical purposes were considered invested in Pro Forma Properties or
the investment in the Private REIT for pro forma purposes and (ii)
interest income from interest bearing accounts was earned at a rate of
approximately four percent per annum by the Company during the year
ended December 31, 1998.
(4) Represents dividend income earned on the Company's $24,778,630
investment in the 9.76% Class B cumulative preferred stock of the
Private REIT between October 1, 1998 and December 31, 1998, from the
dates each of the Private REIT properties became operational. The cash
from the Company's investment, along with loan proceeds and funds from
an institutional investor were used to purchase four hotel properties
which were operational prior to the Company's investment in the Private
REIT. The following presents the
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statement of Earnings - Continued:
actual date the Private REIT's properties were acquired or placed in
service by the Private REIT as compared to the date the Private REIT's
properties were treated as becoming operational as a rental property
for purposes of the Pro Forma Consolidated Statement of Earnings:
Date Private REIT
Date Placed Properties Became
in Service Operational as
By the Private REIT Rental Property
------------------- ---------------
Residence Inn Las Vegas, NV February 25, 1999 October 1, 1998
Residence Inn Plano, TX February 25, 1999 October 12, 1998
Marriott Suites Dallas, TX February 25, 1999 November 11, 1998
Courtyard Plano, TX February 25, 1999 December 23, 1998
(5) Represents interest expense incurred at a rate of 8.8% per annum in
connection with the assumed borrowings from the line of credit of
$8,600,000 on October 15, 1997 and $1,000,000 on September 10, 1998. It
was assumed that the $9,600,000 was paid off on December 31, 1998 with
proceeds from the convertible loan and offering proceeds.
(6) The Company has incurred operating expenses which, in general, are
those expenses relating to administration of the Company on an ongoing
basis. Pursuant to the advisory agreement, CNL Hospitality Advisors,
Inc. (the "Advisor") is required to reimburse the Company the amount by
which the total operating expenses paid or incurred by the Company
exceed in any four consecutive fiscal quarters the greater of two
percent of average invested assets or 25 percent of net income (the
"Expense Cap"). During the year ended December 31, 1998, the Company's
operating expenses exceeded the Expense Cap by $92,733; therefore, the
Advisor reimbursed the Company such amount in accordance with the
advisory agreement. However, as a result of the increase in pro forma
earnings for the year ended December 31, 1998, the Company's operating
expenses no longer exceeded the Expense Cap. Therefore, this
reimbursement was reversed for pro forma purposes.
(7) Represents asset management fees relating to the Pro Forma Properties
for the period commencing the later of (i) the date the Pro Forma
Properties became operational by the previous owners or (ii) January 1,
1998, through the end of the pro forma period presented, as described
in Note (1) above. Asset management fees are equal to 0.60% per year of
the Company's Real Estate Asset Value including investment in the
Private REIT (excluding acquisition fees).
(8) Represents depreciation expense of the building and the furniture,
fixture and equipment ("FF&E") portions of the Pro Forma Properties
accounted for as operating leases using the straight-line method. The
buildings and FF&E are depreciated over useful lives of 40 and seven
years, respectively. Also represents amortization of the loan
origination fee of $48,000 (.5% on the $9,600,000 from borrowings on
the line of credit) and $20,762 of other miscellaneous closing costs,
amortized under the straight-line method over a period of five years.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL American Realty Fund, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
Unaudited Pro Forma Consolidated Statement of Earnings - Continued:
(9) Represents equity in loss of the investment in the Private REIT. This
represents the Company's share of net earnings or loss after deduction
of preferred stock dividends declared as described below:
<TABLE>
<CAPTION>
<S> <C>
Private REIT Earnings Before Preferred Dividends $ 752,368
8% Class A Cumulative Preferred Stock (institutional investor) (442,261)
9.76% Class B Cumulative Preferred Stock (the Company) (423,938)
8% Class C Cumulative Preferred Stock (other investors) ( 1,402)
Net Loss of Private REIT After Preferred Dividends $(115,233)
==========
The Company's 49% Interest in the Loss of the Private REIT $( 56,464)
==========
</TABLE>
(10) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the year
ended December 31, 1998.
As a result of the two Pro Forma Properties being treated in the Pro
Forma Consolidated Statement of Earnings as operational since January
1, 1998, the Company assumed approximately 2,206,573 shares of common
stock were sold, and the net offering proceeds were available for
purchase of these properties. Due to the fact that approximately
1,929,115, of these shares of common stock were actually sold
subsequently, during the period January 1, 1998 through May 21, 1998,
the weighted average number of shares outstanding for the pro forma
period was adjusted.
In addition, as a result of the investment in the Private REIT being
treated in the Pro Forma Consolidated Statement of Earnings as invested
pro rata beginning on October 1, 1998 (the date the first property
became operational), the Company assumed additional shares of common
stock were sold and net offering proceeds were available for investment
during the period October 1, 1998 through December 31, 1998. Due to the
fact that approximately 857,020 of these shares of common stock were
actually sold during the period January 1, 1999 through February 26,
1999, the weighted average number of shares outstanding for the pro
forma period was adjusted. Pro forma earnings per share were calculated
based upon the weighted average number of shares of common stock
outstanding, as adjusted, during the period January 1, 1998 through
December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be filed on its behalf by
the undersigned thereunto duly authorized.
CNL HOSPITALITY PROPERTIES, INC.
Dated: March 10, 1999 By: /s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
